Northwest Healthcare Properties Real Estate Investment Trust

Northwest Healthcare Properties Real Estate Investment (TSX: NWH.UN) Trust 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 gross leasable area located throughout major markets in Canada, Brazil, Europe, Australia and New Zealand.

On July 15, 2020, the company announced a monthly dividend of CAD 0.06667 per shareholder, payable on August 14, 2020.

Q1FY20 Financial Highlights: The group declared its quarterly results, wherein it reported Net Property Operating Income of CAD 72.646 million as compared to CAD 69.092 million in the previous corresponding period (pcp). Expenses soared to CAD 55.749 million as compared to CAD 43.152 million in Q1FY19, due to a higher foreign exchange loss and higher transaction costs, partially offset by a lower mortgage and loan interest expense. Income before other finance costs and fair value adjustments stood at CAD 26.458 million, lower than CAD 29.898 million in pcp due to a significant rise in the operating expenses. Income before taxes, during the quarter, stood at CAD 119.725 million, as compared to a loss of CAD 38.711 million in pcp. The improvement was driven by higher income from fair value adjustment of Class B exchangeable units and fair value adjustment of convertible debentures as compared to losses in the previous corresponding quarter. Net income stood at CAD 116.060 million, against a loss of CAD 54.028 million in Q1FY19.

Q1FY20 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 Relative Valuation (illustrative)

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

Stock Recommendation: The stock fell ~9% so far this year amidst volatility in the global equity markets. The group is well positioned with a defensive portfolio as ~97% of the portfolio is occupied by a diverse 2,034 tenant roster substantially underpinned by public healthcare care funding. The group’s hospital portfolio is benefited by the governments’ decision to expand capacity in response to the COVID-19 pandemic by entering into direct arrangements with private hospital operators. The tenants of medical office portfolio are comprised primarily of doctors and related medical professionals that are integral to the delivery of healthcare which is ultimately funded by governments. The group might face some near-term disruption m from the COVID-19 pandemic, but the long-term prospect remains intact with more than 85% of the revenues coming directly or indirectly by public healthcare funding. Moreover, as providers of an essential and inelastic service backed by government funding, healthcare is expected to be amongst the first sectors to return to full capacity following the return to more normal operating conditions. Further, at the last traded price, the stock was offering a dividend yield of 7.4%, which is encouraging from an income investor’s point of view. We have valued the stock using P/E based relative valuation method and considered industry (Financials) average on NTM basis and arrived at the potential upside of double-digit (in percentage terms). Hence, considering the aforementioned facts, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 11.04 on July 15, 2020.

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

Killam Apartment Real Estate Investment Trust

Killam Apartment Real Estate Investment Trust (TSX: KMP.UN) is one of Canada's largest residential landlords, owning, operating and developing a CAD 3.4 billion portfolios of apartments and manufactured home communities. 

The Company informed that it would disclose its result on August 06, 2020. The Company paid a monthly dividend of CAD 0.05667 per unit.

Q1FY20 Financial Highlights: The group declared is quarterly results, wherein it reported Net operating income pf CAD 38.048 million, as compared to CAD 33.545 million in the previous corresponding period (pcp). The income was driven by increased rental revenue as compared to the previous corresponding quarter, partially offset by higher operating expenses and higher property taxes. Income before taxes stood at CAD 35.383 million, as compared to CAD 29.664 million in Q1FY19, driven by higher income and profit from fair value adjustment on exchangeable units along with lower administration cost. However, a higher financing cost remained a drag. Net income soared to CAD 38.502 million against CAD 27.092 million in pcp. The Company ended the quarter with a cash balance of CAD 7.355 million and total Assets of CAD 3,468.813 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to the shock from COVID19 pandemic, the Company might see challenges in rent collection, primarily from the commercial businesses that are categorized under ‘non-essentials’. Also, pressure on residential rent collection can be seen as the unemployment rate might increase owing to COVID-19 pandemic.

Valuation Methodology: EV to EBITDA based Relative Valuation (illustrative)

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

Stock Recommendation: The stock corrected ~8% so far this year due to a weak investors’ sentiment owing to COID-19 pandemic. Amidst the current economic turmoil, the company reported strong rent collection and collected 96.9% of total rents for the month of April, which is encouraging. During the first quarter, the company has four development projects underway and purchased 348 units at a price consideration of ~CAD 6.9 million. The company is focusing on expanding the portfolio and diversifying geographically through accretive acquisitions, targeting newer properties. The group is also focusing on developing high-quality properties in its core markets. To deal with the current challenging environment, the company is likely to lower its capital spending by CAD 70.0 million to CAD 75.0 million, which would help in managing liquidity. Due to the existing lower interest environment, the group is likely to be benefited from lower interest rates on mortgages refinanced in Q1FY20. Further, at the last traded price, the stock was offering a dividend yield of 4%, which is lucrative considering the current interest rate environment. We have valued the stock using EV to EBITDA based relative valuation method and considered peers like Canadian Apartment Properties Real Estate Investment Trust, InterRent Real Estate Investment Trust, Boardwalk Real Estate Investment Trust etc., and arrived at the potential upside of low double-digit (in percentage terms). Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 17.52 on July 15, 2020.

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

*Please be aware that dividends are variable and not guaranteed.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.