Q3 2020 NorthWest Healthcare Properties REIT Earnings Call
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Good morning, ladies and gentlemen, and welcome to the northwest healthcare properties Real estate investment Trust third quarter 2020 results and conference call. At this time on lines are in listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero for the operator.
This call is being recorded on November 13, 2020.
I'd now like to turn the conference over to Paul Dell Atlanta. Please go ahead.
Thank you operator, and good morning, everyone.
Joining us today.
I'm also joined by shell and trying to reach Chief Financial Officer, and Peter Reagan the repurchase Chief operating officer together, we are pleased to share with you our results for the third quarter of 2020.
First I'd like to point out that during today's call. We went in and make forward looking statements as defined energy and security is on.
Such forward looking statements reflect management's expectations regarding our business plans and future results.
Surely based on assumptions that are subject to uncertainties and risks, which could cause actual results to get your materially we direct you to the risk factors out of and our public filings.
It sounds from nature of the reach healthcare real estate portfolio and is 97.2% occupied more than 80% of your revenue provided directly or indirectly by public health care funding has just safety and package cobot resulted in strong operating results on a year over year basis, including 5%.
FFO per unit growth of 4.7% constant currency S P and all I growth and 3.6%.
And it'd be a per unit growth cash collections continue and groups improves with 97.6% of the reach revenue.
Proportionate ownership basis, either collected or subject to formal the flow or insurance and Q3, which improved further in October to 98.1%.
As a result, and the strong cash collections and underlying defensiveness and the reach tenancy based on the <unk> did not recognize any material traditional strength class Congrats and it continues to expect that all does her growth, albeit slowly repair.
The impact to go and 19 continues to affect countries on even less.
Some countries progressing through phase three openings and well just struggled to control the timing on it.
During Q3 several of our care markets in Europe, UK, and Australia and began to reopen.
And the <unk>.
On an increase in activity and electric surgeries resuming it does it.
And those locations even if some of these markets continue efforts ticket day that direct demographic trends, coupled with backlogs and don't talk during the initial global walked out are expected to drive elevated demand for healthcare services supporting healthcare real estate over the medium and long term.
This trend is also playing out and the investment market that's capital formation in the healthcare else and healthcare real estate hitting all time highs repaying debt and investment volume accelerated which is translating into her exercise and strategically readers now executed on all of its 2020 priorities and put in place and the beginning of the year These and.
She admits included completion of the previously announced $3.1 billion European JV with GE, I see and related Salivate German rehabilitation hospitals, three Dutch clinics, and two Dutch and Mobiuss, so $473 million.
Completion of the strategic asset sales totaling $788 million into fee bearing capital platforms, which generated more than $280 million of liquidity to pursue strategic opportunities and de leveraging activities significantly. These dispositions are expected to generate incremental stabilized fee income and our accounts.
You have to the reach and <unk>, So could you give it.
The European expansion with $719 million from year to date acquisitions, including entry into the UK market through the acquisition of two hospital portfolios for $620 million and UK asset management initiatives, which has the potential to create upwards of $85 million of value that's cap rates compress.
And as a result to try and diversification on these optimization initiatives during the quarter the reach largest tenant ask and healthcare outperformed expectations. As a result of NHS sport related to cover a night and day.
And she's stability with approximately 500 basis points reduction and leverage to 55.5% and 0.7 turns and reduction in net debt to EBITDA and I bought five times and I'm fortunate basis.
Post completion of its planned UK, JV and asset management initiatives and $200 million of committed to balance and 2021, where he expects to achieve proportionate leverage below 50% and approximately eight times that that team.
For the quarter.
Our results were in line with our expectations, noting the amount of de leveraging including annualized quarterly adjusted funds from operations and 92 cents per unit on a normalized basis, and playing up that ratio and 87%.
Things accretion from recent investment and financing activity was expected it was as expected.
Overall foreign exchange movement was minimal it continues to impact earnings over the past 12 months, reducing annualized to ask yourself by approximately three cents per unit and not by approximately 70 cents and the context and the lower for longer Canadian interest rate environment. We expect these trends may begin to ease and on wind and 2020, providing.
Hello, and to the reach or EPS.
In terms of liquidity the read as well position was approximately $200 million and incurred liquidity, which is expected to increase to more than $460 million, Missouri and seeds. It's currently planned you care portfolio and to a JV and early 2021.
Reed has also completed repayments are renewals in respect of all 2020, and Sri debt obligations on favorable terms and its taking proactive steps to refinance normal course, 2021 maturing facilities approximately 43% Tony on 21 maturities and batteries and that's where you paid are under active negotiation.
Across three its global markets all of our properties and remained open and operations.
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And because the effects of the time directly are uncertain and there can be no assurance there will not be any further disruptions to our tenants and the future. However, based on the resiliency today, we're confident that the portfolio is well positioned to continue to perform even in these challenging times on.
I'm pleased with the progress made during the quarter, which against a number of credits key launch and strategic objectives, including European expansion and the growth of our bubble basket platform and also as we produced solid operating results. Despite the disruption and consequent priorities caused by the cold about your time on it.
Deep relationships best in class regional operating platforms, and strong access to public and attractively price private capital. The read is well positioned to teach and you're executing on that strategy, we have almost $4 billion on Capitol Hill and.
Jvs to pursue new opportunities as they arise and expect to find bugs generational and opportunistic possibilities and over the balance of 2020, and then to 2021.
I'll now ask the operator to open up the call for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone you will hear three tone prompt acknowledging or requests and your questions will be pulled on the order. They are received should you wish to decline from the polling process. Please press star followed by two if you are using a speaker phone. Please lift the handset before price.
I think any keys.
Your first question comes from Fred Blondo <unk> Securities Fred. Please go ahead.
Thanks, and good morning.
Maybe first question for shale and not all on just on your 60% target debt ratio, what what would be your timeline here.
As shown on would you like to respond.
Yeah. Good morning, Fred I had good morning, yes, so as we think through our <unk> and she went up 50% target proportionate leverage I really didn't I had a critical driver and achieving that is around completion of our planned UK JV, Oh and mentioned <unk> interest.
Remarks.
I mean, we're actively focused on that you pay TV and.
And then I wouldn't view eye to eye to be able to sell down our interest and our directly on 100% on.
Portfolio, the UK into that JV over the course of 2021 and the right Oh.
I supposed to read on the critical driver and we see that.
<unk>.
[laughter].
Okay, that's great and but should we should we expect you guys to get their mid next year or.
Correct correct pending completion of our you hate JV that's right.
And I'm sure each 120 <unk> yeah.
Yeah perfect. Thanks, and then Paul could you comment on the situation and Canada.
In regards to the parking income what are you seeing so far in Q4, and and what would be your base scenario here for and next year.
Well, thanks, actually I'm going to take advantage and Peters attendance on the call, who who knows that a little bit better, but what I will say just to lead into that is is that we're seeing.
A relatively quick return to activity levels seen on across all our regions, including Canada again, a bit underpinned by those comments and real being real.
Marc said, you know that deferring some of the house and requirements and whatever popular.
Since it started and constitutes an extended period of time, so we have seen but relative to the sharp and returns and I'll, let Peter on continuous outside and she kept <unk>.
Yeah. Thanks, Paula good morning, Fred.
Good morning, and all summarized it and that from the low in the spring and the the shutdowns and the slowdown in ER and the economy and we've seen a.
Steady increase and parking and year to date, we'd be not about 70% and a plan and that's very close to last year's result, and every month, we see that increasing and we've seen that a we expect that to continue and the year.
And and going into 2021, we expect to get back to certainly stay above those levels now and get back to a fault as soon as we.
We see.
And there's no way and some of the endemic flatten in certain markets.
Mm Hmm and all that that's fair and ER, maybe share on a Paula.
Could you remind us how we should look at your exposure to Brazil that it continues to be a significant drop and you always have that can and daughter and this price inflationary and just oh.
What are your views here.
Or a couple of comments a again I think just with the growth of the business and many other parts of.
The world and particularly around Europe, and Australia over the last little bit.
On the proportion of Brazil, and our overall business is has declined and probably called that out and and certainly as we look down the line and we do see and meaningful and continued growth using our guar jvs and other things.
To help that along.
So I think that that trend is likely to continue so I'd be 0.1.
On the point too because those are pretty specific situation and source currency and and the base and portfolio continues to perform very well.
I eat acute care hospitals and the major markets you know most of them with one you know the best operators, you know anywhere and reach a door. So we're quite comfortable with the underlying performance and and it's very conservatively structured and so the thing works for us and and really the drag and only been around FX.
She's really yeah continued Curt could you know 18 months, it's pretty girls that both <unk> and <unk>.
Significant recession, and and certainly yeah. What recently go access from difficult to code and moments, but I think we're comfortable with Brazil that all said I think we are comfortable with Brazil, and the mix and certainly wed like the assets and and you know again, we expect that that some of those you know currency trends will reverse and time.
And then and we've set up the business to be able to to manage through moments like this without overtly attracting and but underlying that were seeing and the source market you know and certainly continued growth and and the income streams. There continued valuation increases on the tenant <unk> continues to perform and that's one of the top businesses you know independent.
Tree and and so you know and in balance, we're okay with that and and.
Certainly you know, we're going to get to some some parts of the machine contributing and and and so I'm not and and I think you know weve size, Brazil to be networked and an appropriate level and color and not.
And well that's great and I was just surprised you know our and effective like I guess, not and affected but although the impact was from inflationary adjustment compared to the real.
Results in cash, but it it's all good thank you.
Okay. Thank you. Your next question comes from Chris Cooper, and see IVC, Chris. Please go ahead.
Foreign guidance.
I'm just wondering if you can give us an update it off with respect to aspect and healthcare and the and administration process and is that does that essentially need to kind of conclude on to and you know further advance the UK JV.
Yeah I think that's just that's that's a good question and and again I, probably one that has a you know some subtlety and answering and and all that but its an active process and and certainly and and see and then their administrators are in the midst of and taking decisions around asks and we think that.
They're likely to come on over the balance of the year. So you know and keep over here and and certainly we're playing and appropriate laws and so the largest standard task and.
Today.
So we think that we are able to drive some meaningful you know value.
Net improvement and and relationship improvements in our business and we are playing a role and that process and appropriate role and I think you know we are looking to leverage the results of that you know and and and are also UK, TV, which was sort of position and.
Yeah.
Oh, yeah getting ready to go so I think you know there's a lot in that went on to say that yeah, the processes and dancing and day.
And progress in it and and I think we do see a relatively clear path and the.
The near term through this day complicate.
Complicated overall administration to break certainty to the ASP and so.
Okay that makes it so.
And then just with respect I mean, obviously the U.K. JV is it is next and and focus for you guys, but with respect to the available capacity and.
And the remaining active jvs and any color at all in terms of what the active pipeline might look like for those flow from deploying capital in those jvs.
Yeah, Yeah. So as I mentioned, we have approximately $4 billion and that's.
Capacity and are you too.
To Australia, and and European Jvs and and of course, we also have a capacity.
Capacity was and vital.
So I think collectively you know we have a very meaningful capacity I would say to some of the general comments, we made that we see it as a very constructive momentum both for generational and opportunistic Ah things again in our business. So I would expect us to be quite active and and areas that certainly where we have capacity and capital and.
Yeah, Hi resources back on and so you know when we see a robust pipeline to some very good opportunities and.
And certainly we have a you know partners that are looking to do things. So that's a that's probably yet so no specific guidance there, but I think you know, we've historically had a pretty active and.
Investment cycles, you know circling and around one and half to $2 billion a year of overall activity.
And I would expect that well at least meet that if not exceed that this year.
On a into the future for all that.
And then any out and he I kinda nascent conversations on a on Jvs and other regions.
Absolutely and I was supposed to pick and sort of getting the UK won and done in the near term, but a certain debt we are looking to the brain.
You know ER.
And that type of.
The resource and took it to your to the Americas market for sure and and.
Our next focus I think and try to highlight.
Thanks, a lot of turn it back.
Thank you. Your next question comes from Mario Saric Scotiabank Mario Please go ahead.
Hi, good morning.
Just moving here.
And then just looking to.
On the previous question, we saw your partner your institutional partner J.C.
And then talk one and you are.
On the JV and elsewhere.
With respect to Brazil in terms of potential JV activity and.
And possibly this year and capital in that region.
How much of a.
Cash and those RIDEA doors.
<unk> PEO.
And the macro side.
[noise], Yeah, I'd say, it's a great question I mean, I think it has both a benefit and and maybe a challenge for us and and I'd say.
Yes, it is that it shines a light on on one of the highest quality businesses certainly in Latin America, maybe and though and the world and healthcare operators and so we see that as driving you know portfolio value and.
And certainly making it more attractive for potential partners and broadening that potential I think what it does do though is paying a lot of capital to the business and that certainly.
Although that has meaningful growth aspirations and and most of that I'd try and IPO capital as I understand it is intended for growth as opposed to liquidity from the owners.
No I think it makes it more challenging you know with and already high quality operator so.
So I think it's on some tandem things, but definitely you know we we see it.
We have a good relationship with rich door, we are certainly working on incremental expansions within our existing portfolio and a number of tuck in things and day as a business again and they see themselves still and.
They're relatively early innings on the consolidation of the Brazilian healthcare space. So we do sense and there's more to do there I would also called <unk> and it also helps you know with the number of their competitors and establishing.
Their existing Counterparties for us and.
Sort of.
Institutionalizing the.
The provider environments, and Brazil, which is another positive so and all in all we eat and you see it as a positive but it probably I probably will take you know again, noting the size of the IPO and and the amount of capital there they're going to arrange it probably takes any pressure that they might have southwest. That's the right word off of near term things and gets and very focused and.
It's about a turn much I think with debt I get partner for them. So we see incremental opportunities there, but nothing transformational and I think as a result of books those comments.
Great. Thanks Bank loans, and then maybe just a broader question.
Terms and capital deployment and.
When I hear words like a generational.
And generation opportunity.
And very high quality and stuff.
There are potentially highly sought after which would imply a valuation could be.
Nothing is for sale work force started off with typically speaking.
In the past you know acquisitions.
Acquisitions, and then maybe a bit of pressure on a per share growth should give and adult could between acquisition cap rate and quite got no now that the price serves and crude or like how how should we think about a year.
Yeah <unk> per unit accretion from transaction activity in terms of northwest on bonds, including you know the fee streams that are attached are associated with those two and that's going forward should we look on that as being a meaningful driver.
It will be a growth going hold on.
Yes, I think set and maybe I'll, let you and out into this and I'll just need to be introduced to the subjects and.
So from our standpoint, I think again, the real dancing Jabar, our jvs and our particular structure is that you know and it was in the context of the current market. We certainly see the ability on a on a on both sides I pencil on real estate basis and in conjunction with the asset management fees driven by the business of generating.
Sort of plus 15% I or ours on our capital, which we see as very attractive you know Cros and know that you know generational type pricing. If you want to say it that way. So I think with the structure that we have and the partner that we have we're able to sort of compete on a pretty sharp and the others.
Stick and and competitively and and generate acceptable returns and we see that as an acceptable certainly we are looking to round that out with you know and number of non tuck in and and you know a balance other acquisitions. So I think all in all I would say that you know we do see a a very constructive way to play.
Capital and and having having the capacity and we had and our JV as does give us the tools yeah.
To get there and so that'd be about sasser about and its share and he'd like to pick some precision or decouple and about a little bit.
And I think you encompass the Madison there and.
Are you and others on me to use a page 18 of our Investor presentation, which I think that's a really good job and just summarizing and northwest business model Ive, where as we look through the defensive nature of the portfolio and and underlying EPS kenwyne growth on it.
Levered basis, we see that generating and bad debt.
<unk> percent return just my guess from Ftn on.
[noise] layering and.
Our asset management initiatives and leveraging on our third party capital commitments and we see that adding about 350 ish basis points I'd to that returns are coming in and just around 10% on on Levered basis, and then you layer in development and accretion and just the ongoing cash flow coming out of the assets.
And on a levered basis, you're coming into that mid teen target IR are or <unk> per unit growth. So I think as we look through the catalyst for change around and Oh per unit growth and very much see that hurdle that higher orally coming out of that asset management business and and we do see that as a major driver.
Got it understood. Okay. So the the incremental accretion from perpetual transactions would be included 3.6% bucket.
And that's what on this term.
And Mr. number there precisely, but and I think on close yes.
[noise], okay and on that.
Very helpful or two on really quick on the my and no.
With the and a rise of cool good infection rate the UK or can you can you comment on the any changes and each policy with respect to funding capacity.
Yeah, Yeah, and Ken So couple of things. They you know as we understand it the contract that was initially red and to expire in December is being required to to go and out to the end of March and so that's a that's probably been agreed as part of that to this day.
And that's it.
Yes, as we speak the second thing that I would say is that the government you know and I think.
Subject to there on Finalization of their process has committed a further 10 billion pounds to healthcare.
Anyone and be on which you know and we look at the overall claim that probably.
You know this is a 40% increase or so across and know what standard.
Already committed.
To help break down some of the waiting list issues and and get the industry back to you know and even keel at least Tonight and British content. So I think two very very strong government commitments. There. We are seeing the results come through our our portfolio and the operators in our portfolio.
And.
And and asked and are ahead of plan for the year pretty cold and plants and.
And are looking at.
You know, how they're able to get back to you know you've and.
The increased capacity because there no their businesses are although a little bit different still very significant private component to their business. In addition to the and it just on it. So you know why on where the other trust has taken a lot of capacity and starting to release some of that capacity and the private system and started to come back and to sell and and deal with this backlog which is growing.
Moving to 10 million patients is the number that you hear you.
Okay, which is astonishing number so I think in general that it's a relatively constructive environment and despite the pandemic and I think the feeling is that the operators are positioning ourselves for a pretty increased volume is now there are challenges of course in terms of accessing resources and it certainly some coke and related costs, but we are.
Moving sort of.
The demand side of the equation, you know starting to ramp up pretty substantially and the businesses.
So we have visibility.
Visibility into and and Oh, feeling pretty good debt, but that's going to be a a multiyear phenomenon because those weighted second to take long time to clear and and ultimately you know even beyond that once and it's just sort of looks at and what a table to tough on that and not on that and given some of the public finance issues that come out of this so I think and.
General and that would be on some.
Somebody that'll answer to a two day.
Got it okay. Thank you for that and my last question on this relates to deferrals. Your your bad debt expense provisions have been relatively low given your confidence and ultimately collecting.
The deferred revenue that's been several months now but.
Some of the rents have been deferred how have actual recollection on those referrals come and relative to expectations on and I just want to clarify that the cash recollection figures and you disclosed on goes on what those are reflected for the revenue for that month as opposed to a clutch and.
Previously deferred rent.
Yeah and area I can chime in there and I can I'm about to tell you that they have and it has been very much in line with our expectations and and I suppose and that yes. The cash rent collections are referred to that specific.
Okay. Thank you.
Thank you, ladies and gentlemen, as a reminder, should you have a question. Please press star one on your Touchtone phone. Your next question comes from CRM BMO capital markets. So I ran please go ahead.
Good morning, everyone.
Hi, guys. Congratulations on a good quarter Oh part of the question for you here is on on.
Especially on the European JV site I am looking specifically for let's.
Lets say hospital and whether they won't be that specific asset from actually looking that on there's more like and he has got assets that are out there.
Yeah, So again I wouldn't I would come back into our presentation again, just as a reminder to say that you know we're in.
Virtually exclusively focused in the eye care side of the healthcare business and and I think leads dominated that and in our IR presentation pretty well, but you know a really from hospital you know a post acute care or outpatient and Ob and and then life Sciences and and so my senses is real.
And in addition, we have been focused on that and in Europe across all of our markets there.
And we see that as a as a as a.
On other vertical that we'll be bringing into the business.
Aggressively and noting that.
And you have assets that are our our.
All right and that direction and.
All of our markets are actually but you know that that strategy doesn't and Cohen and where we're not focused again just to be clear is and the care side of it and.
And you know and so.
Skilled nursing or or age care assisted living or or retirement, and so that's a yeah, when and where people in Europe talk about healthcare and often starts from the care direction as opposed to the tier exits on quite specifically focused on we do have a broad based strategies on the that include you know hospital and outpatient NLRB.
These existence and and all of our markets and everything.
Section of the UK, which is just for the moment hospital and my sense is base. So I would say that we tend to have a pretty broad based view to it and be like you know all of these segments within within the European market and and each of our geographic or geography is probably has one two or even three of these element.
And that place so and again within those obviously, we're focused on operator relationships and we're focused on you know again, certainly and so the more major markets within the markets that were and like like that and like for like.
And I guess, you have and Rotterdam has the bulk of our existing assets besides funds.
<unk> trust, so that would be.
Well as focused and and our capital partner is set up to follow us and.
All those geographies and sub segments I think Korea, we have you know bad works and and each direction.
Does that answer your question.
Definitely and thanks, Paul indefinitely.
And on back.
Thank you there are no further questions at this time. Please proceed.
Okay, well. Thank you operator, and thank you all for and listing and to the northwest healthcare properties third quarter on 2020 earnings call and we appreciate your interest and and we said no and good day.
[music].
Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Yeah.