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NorthWest Healthcare Properties Real Estate Investment Trust Reports Third Quarter 2021 Results With 11% Year Over Year NAV Per Unit Growth
November 11, 2021 at 10:04 PM EST

TORONTO, Nov. 11, 2021 /CNW/ - NorthWest Healthcare Properties Real Estate Investment Trust (the "REIT") (TSX: NWH.UN), Canada's leading global diversified healthcare real estate investment trust, today announced its results for the three months and nine months ended September 30, 2021.

Commenting on the quarter, Paul Dalla Lana, CEO of the REIT, said:

"Q3 was another strong quarter for NorthWest as the REIT delivered solid operating results and progressed key strategic priorities including substantial completion of its UK value creation initiatives, establishing, and expanding its relationships with leading healthcare operators and adding to its healthcare precincts development strategy.

A highlight was the $160 million gain related to our UK portfolio which supported NAV per unit growth of 3.5% during the quarter and almost 11% year over year. With significant demand for long-leased inflation indexed assets and increasing interest in healthcare real estate, we continue to see several catalysts for further NAV growth across the portfolio through continued cap rate compression, expansion of our global asset management platform and a growing focus on value-add development.

Looking ahead to the new year, the REIT remains well positioned to execute on its strategic priorities with a focus on growth and continued balance sheet optimization."

2021 Third Quarter Financial and Operational Highlights:

For the three and nine months ended September 30, 2021, the REIT delivered strong financial and operational performance with an increasingly conservative balance sheet across an expanded 192 property, 16.2 million square foot defensive acute healthcare real estate portfolio underpinned by long-term inflation indexed leases. Key highlights are as follows:

  • Q3 2021 revenue stable year over year at $95.6M;
  • Q3 2021 AFFO of $0.22 per unit is in-line with the previous quarter;
  • AFFO payout ratio of 93% (87% normalized) based on the REIT's $0.80 per unit annual distribution;
  • Constant currency adjusted same property NOI growth of 2.4% in Q3 2021 as compared to Q3 2020, driven primarily by annual rent indexation;
  • Strong portfolio occupancy of 96.9% is up 20 bp quarter over quarter with the international portfolio holding stable at 98.5%;
  • Weighted average lease expiry of 14.1 years is underpinned by the international portfolio's Hospital and Health Care Facility Assets' weighted average lease expiry of 17.2 years;
  • Total assets under management "AUM" increased 15.1% year over year to $8.5 billion;
  • Total capital deployed in fee bearing vehicles is $5.0 billion up 16.3% year over year. Undeployed capital in existing fee bearing vehicles totals $3.7 billion;
  • Net asset value ("NAV") per unit increased by 10.8% year over year to $13.60 driven primarily by fair value gains resulting from the execution of the REIT's UK asset management initiatives;
  • Consolidated leverage of 43.8% has decreased 880 bp, year over year, and is expected to decrease by a further 810 bp through the seeding of the new UK JV as well as the conversion of in the money convertible debentures.

Selected Financial Information:

(unaudited)
($000's, except unit and per unit amounts)

Three months ended
September 30, 2021

Three months ended
September 30, 2020

Number of properties

192

190

Gross leasable area (sf)

16,153,200

15,447,626

Occupancy

96.9%

97.2%

Weighted Average Lease Expiry (Years)

14.1

14.5

Net Operating Income

$74,694

$72,239

Net Income (Loss) attributable to unitholders

$173,293

$26,556

Funds from Operations ("FFO")

$47,645

$39,779

Adjusted Funds from Operations ("AFFO")

$47,264

$39,953

Debt to Gross Book Value - Declaration of Trust

40.6%

47.6%

Debt to Gross Book Value - Including Convertible Debentures

43.8%

52.6%

On-Going Strategic Initiatives:

UK Value Creation Initiatives and JV Formation

As previously disclosed, on August 6, 2021, the REIT completed the acquisition of Aspen Healthcare UK Limited ("Aspen Group") for the purchase price of approximately $38.8 million. The Aspen Group is an independent healthcare provider situated in the UK and was the REIT's tenant at four of its UK properties immediately prior to the acquisition.

As result of the transaction, the REIT assumed Aspen's interest in two hospital properties located in Sheffield and Edinburgh with a value at the time of acquisition of $41.3 million (£23.6 million) and obtained control over the operations of eight hospitals located throughout the UK with the intention to sell these operations.

During the quarter, the REIT successfully completed the sale of six of eight Aspen operating hospitals ("OpCos") for gross proceeds of $37.2 million and agreed to sell the Claremont OpCo for approximately $33 million in a transaction expected to close in Q4 2021 and subject only to normal closing conditions. The sale of the final OpCo is progressing and is expected to be completed in 2021. As a result of the Aspen purchase and realized sales, the REIT has realized a gain on the purchase and sale of $32.5 million. As a direct result of the Aspen Transaction the credit quality, lease coverage, and lease term of the REIT's UK portfolio has substantially improved and resulted in a regional fair value uplift of $126.0 million and overall gain to date of $158.5 million excluding the two remaining OpCos which are expected to generate further $27.5M gain during Q4 2021.

Since entering the UK in January 2020 the REIT has built a high quality portfolio of 13 hospitals currently valued at $800 million. The portfolio is 100% occupied, geographically diversified with a Greater London concentration (~70% of NOI) and is fully indexed to inflation with a WALE of 22 years. The properties are occupied by three of the top five UK hospital operators including BMI/Circle Health, Nuffield Health, and Spire Health. With direct operator relationships and a growing local platform, the REIT has originated an attractive pipeline of follow-on investment opportunities, represented by its recent acquisition of Woking Hospital operated by Nuffield Health.

As the REIT executes on the final stages of its UK portfolio repositioning, it is now shifting focus to delivering on its UK JV initiative through seeding its expanded $800 million UK portfolio into $1.7 billion of capital commitments in the region during the first half of 2022.

New Australian Precinct Developments

Building on its 20-plus year relationship with Epworth, one of Australia's largest not-for-profit private hospital groups, and consistent with its recently announced precinct and ambulatory care development strategies, NorthWest through its long-term Australian JV announced a major new strategic initiative that is set to deliver a state-of-the-art $552 million (A$600 million) innovation, education and healthcare precinct in Geelong and expanded facilities at the site where Epworth Richmond is located in inner-Melbourne. 

The REIT and its Australian institutional partner have entered into an agreement with Epworth to acquire 50% of Epworth Geelong Hospital ("Geelong") and 50% of the 4.2 hectares of adjacent development land and Epworth Elim ("Elim") for a combined purchase price of $117.4 million (A$127.6 million). The properties are both located within the Greater Melbourne Area in Victoria, Australia. Geelong and Elim are both 100% occupied by Epworth on new 20 year, triple net leases, that are fully indexed to inflation.

Geelong is one of Melbourne's largest growth corridors, with a steadily growing population and increasing need for critical healthcare infrastructure. With a development envelope of more than 1 million square feet   across multiple stages over a 10+ year period, the estimated total development cost is approximately $600 million. When fully developed the REIT expects this to be an irreplaceable health precinct akin to the REIT's Epworth Eastern health precinct in East Melbourne.

Elim is located in Richmond, within the Melbourne metropolitan area. The Elim site has potential development of over 50,000 square feet with a total project cost of approximately $21 million (A$23 million).

The REIT expects both assets to be developed into irreplaceable health precincts akin to the REIT's Epworth Eastern health precinct. Moreover, this acquisition adds to the REIT's high quality development pipeline and is expected to be a source of high quality AFFO and NAV accretive projects for the next decade.

Balance Sheet Initiatives:

On July 22, 2021 the REIT closed a $25 million private placement with NorthWest Value Partners on the same terms as the June Offering (the "Private Placement"). As a result of this and other intra-quarter transactions, the REIT's proportionate leverage increased by 20 bp QoQ to 49.8%.

The REIT's balance sheet continues to present organic deleveraging opportunities. Subsequent to quarter end, the REIT announced its intention to redeem all of the outstanding Series F debentures maturing December 31, 2021 (trading under "NWH.DB.F" on the TSX) which have a conversion price of $12.80 per Unit and are currently in the money. The redemptions are expected to occur on November 25, 2021. Assuming full conversion of the Series F Debentures to equity, completion of the remaining UK initiatives and seeding of the planned UK JV, the REIT's pro-forma consolidated and proportionate leverage would further decline by approximately 810 bp and 780 bp, respectively.

Looking forward, the REIT expects its reduced leverage levels and more flexible balance sheet will allow it to position for future growth opportunities and pursue its previously announced investment grade debt rating strategy which it intends to commence later in Q4 2021.

Q3 2021 Conference Call: 

The REIT invites you to participate in its conference call with senior management to discuss our third quarter 2021 results on Friday, November 12, 2021 at 10:00 AM (Eastern).

The conference call can be accessed by dialing 416-764-8609 or 1 (888) 390-0605. The conference ID is 37093308#.

Audio replay will be available from November 12, 2021 through November 19, 2021 by dialing 416-764-8677 or 1 (888) 390-0541. The reservation number is 093308#.

In conjunction with the release of the REIT's third quarter 2021 financial results, the REIT will post a current investor update presentation to its website where additional information on the REIT's investments and operating performance may be found. Please visit the REIT's website at www.nwhreit.com/Investors/Presentations.

Vital Healthcare Property Trust
On November 10, 2021 Vital Trust also announced its financial results for the quarter ended September 30, 2021. Details on Vital Trust's financial results are available on Vital Trust's website at www.vitalhealthcareproperty.co.nz.

About NorthWest Healthcare Properties Real Estate Investment Trust

NorthWest Healthcare Properties Real Estate Investment Trust (TSX: NWH.UN) (NorthWest) is an unincorporated, open-ended real estate investment trust established under the laws of the Province of Ontario. As at September 30, 2021, the REIT provides investors with access to a portfolio of high quality international healthcare real estate infrastructure comprised of interests in a diversified portfolio of 192 income-producing properties and 16.2 million square feet of gross leasable area located throughout major markets in Canada, Brazil, Europe, Australia and New Zealand. The REIT's portfolio of medical office buildings, clinics, and hospitals is characterized by long term indexed leases and stable occupancies. With a fully integrated and aligned senior management team, the REIT leverages over 250 professionals in nine offices in five countries to serve as a long term real estate partner to leading healthcare operators.

Non-IFRS Measures

Some financial measures used in this press release, such as, Adjusted SPNOI, FFO, AFFO, NAV, AUM, , are used by the real estate industry to measure and compare the operating performance of real estate companies, but they do not have any standardized meaning prescribed by IFRS. As such, they are unlikely to be comparable to similar measures presented by other real estate companies. These non- IFRS measures are more fully defined and discussed in the REIT's Management's Discussion and Analysis ("MD&A") for the three- and nine-months ending September 30, 2021, which is available on the SEDAR website at www.sedar.com.

Forward-Looking Statements

This press release may contain forward-looking statements with respect to the REIT, its operations, strategy, financial performance and condition. These statements generally can be identified by use of forward-looking words such as "may", "will", "expect", "estimate", "anticipate", "intends", "believe", "normalized", "contracted", or "continue" or the negative thereof or similar variations. Examples of such statements in this press release may include statements concerning the REIT's position as a leading healthcare real estate asset manager globally, geographic expansion, ESG initiatives, expanding AUM, balance sheet optimization arrangements, the proposed U.K. joint venture and potential acquisitions, dispositions and other transactions, including a potential UK joint venture and a potential transaction involving Australian Unity. The REIT's actual results and performance discussed herein could differ materially from those expressed or implied by such statements. The forward-looking statements contained in this press release are based on numerous assumptions which may prove incorrect and which could cause actual results or events to differ materially from the forward-looking statements. Such assumptions include, but are not limited to (i) assumptions relating to completion of anticipated acquisitions, dispositions, development, joint venture, deleveraging and other transactions (some of which remain subject to completing documentation) on terms disclosed; (ii) the REIT's properties continuing to perform as they have recently, (iii) the REIT successfully integrating past and future acquisitions, including the realization of synergies in connection therewith; (iv) various general economic and market factors, including exchange rates remaining constant, local real estate conditions remaining strong, interest rates remaining at current levels, the impacts of COVID-19 on the REIT's business ameliorating or remaining stable; and (vii) the availability of equity and debt financing to the REIT. Such forward-looking statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations, including that the transactions contemplated herein are completed. Important factors that could cause actual results to differ materially from expectations include, among other things, general economic and market factors, competition, changes in government regulations and the factors described under "Risks and Uncertainties" in the REIT's Annual Information Form and the risks and uncertainties set out in the MD&A which are available on www.sedar.com. These cautionary statements qualify all forward-looking statements attributable to the REIT and persons acting on its behalf. Unless otherwise stated, all forward-looking statements speak only as of the date of this press release, and, except as expressly required by applicable law, the REIT assumes no obligation to update such statements.

SOURCE NorthWest Healthcare Properties Real Estate Investment Trust

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