— 11/14/2022 —
TORONTO, November 14, 2022 /CNW/ – Northwest Healthcare Properties Real Estate Investment Trust (the “REIT”) (TSX: NWH.UN), today announced its results for the three and nine months ended September 30, 2022 and the formation of a new joint venture targeting UK healthcare real estate.
Northwest has entered into agreements with a UK institutional investor (the “UK Investor”) in respect of a new joint venture targeting healthcare real estate in the UK (the “UK JV”) with an aggregate equity commitment of $765 million (£500 million) to be funded 85% by the UK Investor and 15% by the REIT as well as a $75 million (£50 million) investment in the REIT’s existing seed portfolio. The agreements are expected to be finalized by year-end.
Operationally, Northwest’s inflation indexed $10.6 billion, 233 property portfolio performed well in the third quarter with a stable net asset value increasing by 2.7% to $13.97 per unit, occupancy at 97% and a market leading 14.0 year WALE delivering 2.5% year over year (“YOY”) same property NOI growth on a constant currency basis.
During the quarter, revenue and NOI grew 21.2% and 19.9%, respectively on a YOY basis. However, as a result of several non-recurring items and lower transactional volumes, management fees decreased during the quarter while increasing interest expense coupled with the REIT’s temporarily elevated leverage level resulted in AFFO per unit decreasing to $0.151. With high visibility into near-term transactional activity which is expected to result in quarterly management fee income reverting to historic levels and adding ~$0.02/unit on a run-rate basis, the REIT expects earnings to be in-line with previous quarters when combined with the $0.04/unit annualized impact of balance sheet initiatives completed post quarter, including:
1 These are not measures recognized under IFRS and do not have standardized meanings prescribed by IFRS. Further, the REIT’s definitions of FFO and AFFO differ from those used by other similar real estate investment trusts, as well from the definitions recommended by REALpac. See “Non-IFRS Financial Measures”, Exhibit 1 and Exhibit 2.
Proforma the completion of the UK refinancing and recapitalization, associated debt repayment, and the US refinancing, exposure to long-term fixed rate debt is expected to increase to 65% of outstanding debt while also generating the aforementioned interest savings and extending the REIT’s weighted average term to maturity.
Commenting on Northwest’s results and progress on key strategic initiatives Paul Dalla Lana, Chairman and CEO said:
“With the recent market volatility, we are pleased to announce the formation of a new UK JV with a £500 million equity commitment and the recapitalization of our existing UK platform in line with our
current IFRS valuation. This was the REIT’s top priority in 2022 and it is highly strategic for the business as it expands the asset management franchise, introduces a new institutional partner, and positions the REIT to execute on attractive opportunities that we expect to emerge in the UK in the near-term.”
Mr. Dalla Lana went on to say:
“While Q3 financial results were impacted by an interim flexible capital structure, the REIT has taken concrete actions to reduce its interest expense by refinancing more than $1.0 billion of higher cost debt at lower rates post quarter-end.”
The REIT entered into agreements with the UK Investor to recapitalize the REIT’s existing UK portfolio (the “Seed Portfolio”) with a $75 million (£50 million) investment and the formation of a joint venture to pursue investment opportunities in the UK with a $765 million (£500 million) equity commitment (the “UK JV”). The capital commitment will be split 85% to the UK Investor and 15% to Northwest. The UK JV has a target to grow, independent of the Seed Portfolio, to approximately $1.5 billion (£1.0 billion). Northwest will manage the UK JV and will charge market-based fees.
Separately, the REIT’s US joint venture initiative continues to progress despite macroeconomic uncertainty and the REIT remains actively engaged with a short list of qualified partners and is working to agree commercial terms in Q1 2023.
In-place capital commitments increased by $1.5 billion to $12.5 billion as a result of the new UK JV, agreed post quarter end and deployed fee bearing capital increased to $5.9 billion (+1.7% QOQ). The REIT’s funds management business continues to scale and proforma the completion of the US joint venture, deployed and committed capital would increase to $6.7 billion and $13.3 billion, respectively.
At a target ownership level of between 20% – 30% across its capital platforms the REIT anticipates generating an increased level of growth in both AFFO and NAV on a per unit basis as a result of leveraging its capital light model and internally generated capital to fund growth.
In Q3, the REIT completed acquisitions totaling approximately $125 million all within either Vital or its Australian JV and continues to advance its global precinct strategy and post quarter end added an additional ~$150 million development project to its pipeline in one of its Australian capital platforms.
While macro-economic uncertainty resulted in lower near-term volume in the quarter, the REIT remains constructive on the long-term demand factors that drive value creation in healthcare real estate. With a growing investment pipeline, the REIT continues to evaluate new investment opportunities within its fee bearing capital vehicles on an opportunistic basis while remaining disciplined in its capital allocation strategies.
Defensive Real Estate Portfolio:
The REIT’s high-quality and defensive portfolio delivered strong operational results including 2.5% same property NOI growth which is up 10 bp YOY. The REIT continues to have market leading cash flow stability with portfolio occupancy at 97%, a weighted average lease expiry of 14.0 years and 81.7% of the consolidated portfolio subject to rent indexation.
Balance Sheet Initiatives:
A significant focus in Q3 and post-quarter end was the refinancing of $1.0B of the REITs 2022 and 2023 debt maturities to extend term and fix rates:
Proforma completion of the post quarter end financing activities, the UK recapitalization and associated debt repayment, and the US JV the REIT’s consolidated leverage is expected to decrease to 43.5%.
2022 Third Quarter Financial and Operational Highlights:
For the three and nine months ended September 30, 2022, the REIT delivered strong operational performance with an increasingly conservative balance sheet across an expanded 233 property, 18.6 million square foot defensive acute healthcare real estate portfolio underpinned by long-term inflation indexed leases. Key highlights are as follows:
|Selected Financial Information: (unaudited)
($000’s, except unit and per unit amounts)
|Three months ended September 30, 2022||Three months ended September 30, 2021|
|Number of properties||233||192|
|Gross leasable area (sf)||18,582,638||16,153,200|
|Occupancy||97 %||97 %|
|Weighted Average Lease Expiry (Years)||14.0||14.1|
|Net Operating Income||$89,547||$74,694|
|Net Income (Loss) attributable to unitholders||$6,611||$161,380|
|Funds from Operations (“FFO”) (1)||$37,176||$47,645|
|Adjusted Funds from Operations (“AFFO”) (1)||$36,960||$47,264|
|Debt to Gross Book Value – Declaration of Trust (1)||44.4 %||40.6 %|
|Debt to Gross Book Value – Including Convertible Debentures (1)||47.7 %||43.8 %|
|(1) FFO and AFFO are not measures recognized under IFRS and do not have standardized meanings prescribed by IFRS. The REIT’s definitions of FFO and AFFO differ from those used by other similar real estate investment trusts, as well from the definitions recommended by REALpac. See “Non-IFRS Financial Measures”, Exhibit 1 and Exhibit 2 and “Performance Measurement” in the REIT’s MD&A.|