Northwest Healthcare Properties Real Estate Investment Trust

Northwest Healthcare Properties Real Estate Investment Trust (TSX: NWH.UN) provides investors with access to a portfolio of high-quality international healthcare real estate infrastructure comprised of interests in a diversified portfolio of 183 income-producing properties and 15.2 million square feet of a gross leasable area located throughout major markets in Canada, Brazil, Europe, Australia and New Zealand.

The company declared a monthly distribution of CAD 0.06667 per unit, payable on October 15, 2020.

Q2FY20 Financial Highlights: NWH.UN announced its second-quarter results, wherein the company posted net property operating income of CAD 69.902 million, down 0.8% on y-o-y basis. Income before other finance costs and fair value adjustments stood at CAD 28.689 million, significantly higher from CAD 10.038 million, a year ago driven by a positive contribution from equity-accounted investments coupled with a lower mortgage and loan interest expenses. The decrease in mortgage interest expense was due to a lower average mortgage balance and a lower weighted average interest rate from Canada and Brazil. The company reported a lower interest and other income, considerably lower management fees, a decline in general and administrative expenses, while an increase in the transaction costs and foreign exchange loss remained a drag. The company posted its net income at CAD 38.549 million, significantly lower than CAD 83.696 million in the previous corresponding period (pcp), due to an extended loss from fair value adjustment of convertible debentures. The company ended the quarter with cash and cash equivalent of CAD 130.663 million, while total assets stood at CAD 5,328.095 million.

Q2FY20 Income Statement Snapshot (Source: Company Reports)

Risks: The group might face a delay in rent collection owing to COVID-19 pandemic., which could dampen the financial performance in the near term. The company might witness a fall in the valuation of the invested properties which would dampen the company’s profitability.

Valuation Methodology: Price to Earnings Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Despite a current slowdown in the overall economy, the company reported ~97.2% of rent collection or formally deferred, for the month of July 2020, which is impressive. Further, the company did not recognize any significant provisions for uncollected rent, and it expects the outstanding rent would be fully collectible. The company reported that its development and construction activities are on track, which is a key positive. To enhance its liquidity, the company has expanded the revolving credit facility by CAD 82 million and is focusing on reducing the non-essential costs to improve the margins. While short-term disruption was experienced across the portfolio, more than 80% of the REIT's revenues are derived directly or indirectly by public healthcare funding, and as such, the defensiveness of the REIT's income profile remained intact. Further, at the last traded price, the stock was offering a dividend yield of ~7.25%, which is lucrative considering the current interest rate environment. We have valued the stock using the Price to Earnings based relative valuation approach and arrived at a target price, which suggests a double upside potential (in % terms). For the said purpose, we have considered industry (Commercial and Industrial REITs) median on NTM (next twelve months) basis. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 11.04 on September 23, 2020.

NWH.UN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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