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 announced a monthly dividend of CAD 0.06667 per shareholder, payable on September 15, 2020.

Q2FY20 Financial highlights: Northwest Healthcare Properties declared its quarterly results, wherein the Company posted net property operating income of CAD 69.902 million as compared to CAD 70.457 million in the previous corresponding period (pcp). Income before other finance costs and fair value adjustments stood at CAD 28.689 million as compared to CAD 10.038 million in the previous corresponding quarter, due to a positive contribution from equity-accounted investments and a decline in mortgage and loan interest expenses. The group recorded a share of profit of equity-accounted investments amounting to CAD 4.1 million compared to a loss of CAD 21.635 million in pcp. The decrease in mortgage interest expense over the comparable prior year period primarily reflects a lower average mortgage balance and a lower weighted average interest rate from Canada and Brazil, while an improved income from Europe supported the top-line. The quarter was marked by lower interest and other income, a significant decline in management fees, a decline in general and administrative expenses, while an increase in the transaction costs and foreign exchange loss, remained a drag. Income before taxes plunged to CAD 1.024 million as compared to CAD 116.93 million in pcp, due to a decline in fair value adjustment of investment properties, as compared to an increase in the above item in the previous corresponding quarter. The Company posted its net income at CAD 38.549 million significantly lower than CAD 83.696 million in pcp.

Q2FY20 Income Statement Highlights (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.

Valuation Methodology: P/E Based (Illustrative)

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

Stock Recommendation: The stock corrected 3.6% so far this year. The Company posted a decent top-line amidst a challenging environment. While the COVID-19 pandemic posed sudden and severe operational challenges for the group, it was well-positioned with a strong balance sheet and defensive portfolio that is 97.3% occupied by a diverse 2,047 tenant roster substantially underpinned by public healthcare care funding. While short-term disruption was experienced across the portfolio, more than 80% of the REIT's revenues are provided directly or indirectly by public healthcare funding, and as such, the defensiveness of the REIT's income profile remained intact. During the quarter the group did not recognize any significant provisions for uncollected rent as it expects outstanding rent to be fully collectible. On August 21, 2020, the REIT completed the acquisition of four private hospitals located in Greater London, UK for a total consideration of approximately CAD 454.1 million. The stock soared ~11% in the last three months and closed above the 200-days simple moving average (SMA) of CAD 11.06, indicating a bullish trend. Further, at the last traded price, the stock is offering a dividend yield of ~7%, which is lucrative considering the current interest rate environment. We have valued the stock using Price to Earnings -based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered industry (Residential & Commercial REITs) median on NTM basis. Hence, we recommend a 'Buy' rating on the stock at the closing market price of CAD 11.50 on August 26, 2020.

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

*Please be aware dividend is variable and not guaranteed.

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