Post by
incomedreamer11 on Nov 16, 2024 10:28am
CIBC comments after conference
NWH posted a relatively in-line Q3/24 after excluding accelerated amortization of deferred financing charges. SP-NOI grew ~5% largely driven by inflation-adjusted rent (and the one-time impact of lapping a free rent period for a major Canadian tenant). The REIT continues to make significant headway in its non-core asset disposition program, transacting on ~$1.3B of dispositions to date (inclusive of the U.K. portfolio). The REIT continues to move in the right direction, looking to continue reducing higher rate leverage, and to put it plainly, simplify its story (a welcome objective). However, given the above-average gearing profile combined with uncertainty regarding the amount and pace of future dispositions, there are perhaps a shade too many (albeit diminishing) unpredictable outcomes on which we cannot, with a high degree of accuracy, estimate the final outcome of.
We choose to remain on the sidelines for now, until there is evidence of a more direct and transparent path to a reduction in leverage and a sustainable payout ratio (something we believe will occur concurrently with a simplification of the REIT’s operations).
We are maintaining our $7.75 NAV estimate and price target of $5.50.
Concurrent with Q3/24 reporting we are releasing our inaugural 2026 estimates. NWH remains Neutral rated.
Key Points Q3/24 Results: FFOPU of $0.11 slightly exceeded consensus of $0.10 after adjusting for accelerated amortization of deferred financing charges, and represented an increase of just over 20% Y/Y. AFFOPU of $0.09 was in line with our estimate and fell short of the consensus estimate of $0.10; the headline payout ratio was ~100%. Operating revenues and NOI were in line with our expectations as SP-NOI increased ~5%. Occupancy fell 50 bps since year end and sits at 96.1%.
Asset Management: NWH ended the quarter with $6.0B of fee-bearing capital on $11.5B of total commitments in co-investment vehicles. A continued lack of transactional volume continues to hinder any material capital deployment, a dynamic we expect to continue through 2024.
Balance Sheet: D/GBV for the quarter (including convertible debentures) decreased 270 bps Y/Y to 49.2%; interest coverage was 1.85x.
Distribution Sustainability: After just one year after the 50% distribution cut, the current headline numbers suggest an AFFO payout ratio of ~100%. While the REIT continues to allocate non-core assets for disposition, we do note the higher leverage may have some questioning if the initial distribution cut in 2023 may prove to be on the conservative side. To be clear, we are not suggesting a further cut is near-term likely, as additional asset sales should serve to lower the payout ratio to a more sustainable level