TSX:NWH.DB.G - Post Discussion
Post by
incomedreamer11 on Aug 12, 2024 10:43am
Scotia comments on transaction
Off-Restriction: UK Portfolio Sale Materially Improves Risk Profile
OUR TAKE: Positive. We are off-restriction following yesterday’s announcement of sale of UK portfolio and conclusion of formal strategic review. NWH unit price was up 3.1% on the news (vs REIT sector up 0.3%). We think the sale has materially improved NWH’s risk profile: (1) As per NWH, the transaction will be accretive to AFFO by 6 cents on annualized basis. Based on our revised model, our 2024 AFFOPU has increased by 6.3% and 2025 AFFO by 17%. (2) 2025 AFFO payout ratio reduces to 71% from 79%. In this context, NWH’s distribution yield looks good at 7.2%. (3) 2025 debt maturities reduces to 28% (as % of total debt) from 42% previously. This was the main market concern regarding debt refinancing. (4) Leverage improves (Proportionate D/GBV) to 53% from 59% previously. (5) Validation of portfolio value and portfolio quality.
We maintain our SP rating, but will revisit our estimates and recommendation post Q2 results next week. Our target of $6.50 is unchanged as our NAVPU is also unchanged at $6.75. Valuation - NWH trades at 10.0x 2025 AFFO multiple and ~26% discount to our NAV.
KEY POINTS
Transaction details: See Exhibit 1. NWH will sell its UK portfolio for $885M at 5.9% cap rate. We will find out comparison with IFRS valuation on the conf call next week. The sale price will be used to pay down $690M of debt with weighted average interest rate of 7.9%. This should lead to AFFOPU accretion (Exhibit 2) as mentioned above.
U.K. portfolio background: Refer to Exhibits 3 and 4 to see how NWH assembled U.K. portfolio. The portfolio is sold to Assura PLC (not covered), a publicly-listed REIT on the LSE. 80% of the sale consideration will be paid in cash and remaining 20% in Assura shares. Pro forma NWH will own 8% of Assura’s public float.
NWH built a high-quality portfolio of 14 hospitals within a span of two years. The UK portfolio was fully occupied with a WALT of 19.6 years, geographically diversified with a Greater London concentration (~70% NOI), and fully indexed to inflation. The properties were occupied by three of the top five UK hospital operators including BMI/Circle Health, Nuffield Health, and Spire Health.
NWH’s UK Portfolio
NWH entered into UK market in January 2020 by acquiring six-hospital portfolio leased to BMI Healthcare Limited ("BMI") on a long-term, triple net, inflation-indexed basis for $167M (£97.8M).
Later in August 2020, NWH completed a $454M (£260M) acquisition of a portfolio of four hospitals located in Greater London, England. The properties were 100% leased on a long-term (20-year WALE) inflation indexed basis to Aspen Healthcare, a leading English hospital operator. The London Portfolio was acquired at a 6.2% going-in capitalization rate.
In August 2021, NWH added two more hospital properties that were leased to Aspen Healthcare for $38M. These two properties were located in Sheffield and Edinburgh. Nuffield Health hospital in Woking was acquired for an undisclosed amount. Lastly, NWH acquired Spire Cheshire hospital property for ~$150M (£89M) at a 4% yield.
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