Q4 2020 NorthWest Healthcare Properties REIT Earnings Call
Good morning, ladies and gentlemen, and welcome to the northwest Healthcare properties Trust fourth quarter, 2020 results Conference call.
At this time all lines are in a listen only mode.
And the presentation, we will conduct a question and answer session.
And if at any time during this call you need assistance. Please press star zero for the operator. This call is being recorded on Friday March 12, 2021, I would now like to turn the conference over to Paul to other line. Please go ahead.
Thank you operator, and good morning, everyone.
I appreciate you joining us today.
I'm joined today by shale and China day.
Financial Officer, and Peter Ragan, Chief operating Officer together, we are pleased to share with you our results for the fourth quarter 2012.
Firstly I'd like to point out that during today's call. We may make forward looking statements as defined under Canadian Securities Law.
All such forward looking statements reflect management's expectations regarding our business plans and future results. They are necessarily based on assumptions that are <unk>.
Subject to uncertainties and risks, which could cause actual results to differ materially.
Correct all of you to the risk factors outlined and our public funds.
For 2020, and defensive nature of the REIT healthcare real estate portfolio that is 97, 1% occupied.
More than 80% of its revenues provided directly or indirectly by public healthcare funding.
Despite the impact of Covid has also been strong operating results from full year.
Including five per cent per.
Our unit growth.
<unk> four per cent SP and same property NOI growth and 3%.
Net asset value per unit growth on a constant Craig C basis net collections remained strong throughout the year with 98, 2% up and reached revenues on a proportionate ownership basis, either collected or subject to formal deferral arrangements.
And Q4, which is an improvement of 67 basis points over the quarter over quarter.
As a result of the stronger and collection and the underlying defensiveness parents'.
Tenant space.
Not recognize any material permissions for uncollected rent and I expect all deferred debt will get repaid.
And so.
The approval enrolling multiple COVID-19 vaccines is improving sentiment across the reach global markets regionally. The U K is among the global leaders in terms of that.
And you should rollout campaign.
Canada, Germany, and the Netherlands, and the process of accelerating their own national vaccine Maxwell from credit.
Of course, Australia, and New Zealand and are lagging in terms of vaccination.
And highly successful in terms of debt containment strategies around Covid, 19, which those economies and our tenants and the operations substantially returned to pre pandemic levels.
And then I got from trends, coupled with backlogs built up during the global Lockdowns are expected to drive elevated demand for healthcare services supporting health care real estate over the medium and longer term.
As we alluded to last quarter demand for healthcare real estate has intensified.
Perhaps the most clearly demonstrated by the $160 million fair value gain recorded by the REIT.
And in the quarter and our view this increase is being driven by the relative outperformance and needs to be a typical commercial asset classes and a growing acknowledgment from the investment community stability and infrastructure like characteristics available and long.
At least healthcare real estate despite material fair value gain recorded this quarter, our assets still trade at a significant spread to other core real estate products and as a result, we believe that this trend is only beginning its healthcare real estate migrates from and niche asset class and to the mainstream.
And so we're continuing to discuss the results of the card and I thought it would be useful to provide some history.
And perspective on our business at the moment.
Northwest is in the best position and at fifth Street building expressly upon that strategy, we've put in place and 2015 and.
And large part, resulting from executing on key 2020, and strategic initiatives, including expanding and global asset management.
They're each day has increased committed and fee bearing capital assets and capital from $5 billion to more than eight $8 billion today, including the recently completed $3 1 billion pain and joint venture.
And a significant share value games, and importantly deployed and so you're bearing capital increased by 46 per cent to $4 $8 billion and 2020, providing the REIT with an additional $4 billion of available capacity to pursue continued growth across Australia and Asia.
And yeah and generate accretive promoted returns.
Despite the impact of COVID-19 to execute on all of its 2020 strategic priorities, including finalizing that previously announced European JV with GIC and the.
Sales and the related to portfolio from $473 million.
Completion of strategic asset sales totaling $830 million and too skewed bearing capital platforms.
And generating more than $280 million and liquidity.
And further acquisition and deleveraging opportunities.
Scaling there each European platform and the $732 million of acquisition.
And entering the UK troops.
Through to portfolio transactions totaling $620 million.
<unk> revaluation gains and assets under management and others.
<unk> increased by 115% to one 7 billion.
Driven primarily by dispositions of wholly owned assets and to manage capital platforms. The rights consolidated leverage decreased by 160 basis points to 48% at the end of 2020 close.
Fourth quarter and it should.
$17 million, that's $12 65.
So that's pretty good net raising gross equity of $250 million.
It was used to repay corporate debt and further reducing leverage to $44 three per cent.
It is expected to decline to a sub 40% that's moving executes on deleveraging activities, including the completion of an additional five and went to $25 million private placement and north.
First of all your partners that's contemplated in the last offering and the conversion of the series B and series F convertible debentures maturing in July and December respectively, which would reduce leverage by almost an additional 300 basis points.
O series of converts strike prices in line with where the current unit price.
And that's what nation of the UK joint venture and sale.
Existing assets into the JV.
Generate approximately $260 million and net proceeds and reduce leverage by approximately an additional 300 basis points.
For the quarter our results were in line with our expectations, noting the above deleveraging, including the annualized quarterly adjusted funds from operations of 92 cents per unit on a normalized basis and applying a payout ratio of <unk> 87 per cent.
And from recent investment and financing activity was as expected, although foreign exchange movement and saw the Canadian dollar appreciated by approximately.
8% over the last year relative to the lease average foreign currency exposure, which continues to slow earnings growth.
And that's that value also increased by 1% year over year to $13.27 per unit driven by an increase in the value of the asset management platform and strong property revaluation gains was partially offset again by higher Canadian dollar relative to the rates foreign currency exposure.
Over the past 12 months, we estimate the relative strength of the Canadian dollar has reduced annualized and peso by approximately <unk> <unk> per unit and net asset value by 72 cents per unit and the context of a lower for longer Canadian and interest rate environment. We expect these trends will begin to unwind. It took like 'twenty, one providing a further tailwind to the REIT.
And.
In terms of liquidity and the reason is well positioned with $285 million and current commodity absent those previous CNS and yes, that's real focused on.
This is expected to increase now to more than $365 million has been received its current J U K JV.
JV and 2021.
Operationally our results reflected those expected from and expanded 100, and maybe each property seven 8 billion defence and healthcare infrastructure portfolio.
Having mostly long term inflation index week says with leading healthcare operators.
<unk> is reflected in <unk>, 2020 constant currency cash recurring SPP NOI growth of three.
Three 4% largely driven by contractual ramps indexation and underpinned by a 97% occupancy rate and a weighted average lease term of almost 15 years and all regards highly defensive portfolio.
Take mentally I know following and Brazil, we were on plan for study, 100% occupancy and continued strong constant currency cash SPP NOI growth from four 6% operationally to Reits major tenant reads. The Dor continues to deliver exceptionally strong results and in December 2020, and completed an initial public.
Offering raising more than 11 billion.
Great.
Eight 4 billion, which will be used to build and grow its business.
The IPO value at the hospital chain at approximately $25 billion, placing it among Brazil's top 10 companies by market capitalization.
And Canada. We were also on plan continuing solid performance, it's constant Cassius recurring NOI growth of two per cent.
Total occupancy remaining stable and 92% share.
And year to REIT completed 250000 square feet of renewal leasing at rates relatively in line with expiring rents.
Continue to focus on our ambulatory care and it's just building on commitments to build a new center from acreage held that were announced and the second quarter of 2019 and with additional projects under consideration and I'll try to and I know better.
And Europe, we were also on plan and performing as expected with constant currency <unk> growth.
Growth of one two per cent and occupancy increase from 297, 6% as mentioned earlier, we continue to find good investment opportunities in Europe.
And that's not only to build scale and critical mass and Germany, the Netherlands, and now the U K, but also to pursue opportunities and adjacent markets.
And finally in Australia, our largest market occupancy remained steady over the year at 99% and delivered constant currency and a lot of.
Growth of 2.3 per cent per weighted average lease term of 17 years.
Put it in and that is with our.
<unk> business reported similar results with SPP NOI growth of 12, 3% and again occupancy at 99% total weighted average lease term of more than 19 years, and Q4, but all completed and $139 million equity raise screen and 56 million units of which there'd be acquired approximately 16 and a half minutes.
And increased its ownership position to just over 26 per cent.
Also in Australia, and that's pretty well set to close three together with a capital partner is entered into option agreements to acquire strategic interest of approximately 16% and it's in Australia, and the United Healthcare property Trust $2 4 billion.
And most of healthcare property trust, comprising 62 high quality hospitals medical centers and other healthcare assets Easter moving Australia and healthcare operators.
I was 16 years, and 98% occupancy agreements are subject to customary and foreign investment and pebbles.
Looking ahead Davita has identified a number of strategic priorities for 2020. One included and then you can do averaging and achievement of its investment grade metrics and.
Please go and that it's crazy and say not syndicated.
J D.
Advancement of key strategic transactions, including Australia and Canada.
Building out its Canadian ambulatory and outpatient strategy and to other regions, including Europe and.
And as Julian and.
And new fund initiatives, including yesterday and health.
Development strategy, which is being led by Alex Castro Livingston pad.
Development and surrounding house.
And moved west.
And finally, we are considering new markets, including the U S.
The real close to finalizing it.
S market strategy and further and that's that's coming in 2020 one.
I am pleased with the progress made during the quarter.
And that's the number of its key long term strategic objectives and also produced solid operating results. Despite the COVID-19 environment.
Relationships best in class III and are operating platforms and strong access to public and increasingly attractively priced private capital and read is well positioned to continue executing on its strategy.
And now I'll ask the operator to open up the call for questions.
Thank you.
Ladies and gentlemen, and we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone and you will hear my three Tom.
And your request.
If you are honest speaker phone please lift the handset before pressing any keys.
First question comes from and Flatlined at IAA capital. Please go ahead.
Thanks, and good morning, just a quick question from me.
And regards to rigid or it looks like the day.
And they might grow quite a bit over the next 12 to 24 months Youre focus. This year is on the UK JV, but could you be tended to focus a bit more on.
<unk>, Brazil earlier or are there would still be a 2022 focus.
Yeah. It's a good it's a good question and I think it's it is a focus of ours. I think you know lets just say late 'twenty, one and early 'twenty two we could see those initiatives coming together and I think the environment is very constructive for that right now.
In terms of.
Following the major door, but also in terms of seeing other healthcare, operator consolidation and and.
Counterparty and development for northwest, So, we remain constructive and Brazil and I think.
That would be.
And it's just slightly behind these other initiatives.
Yeah.
Hum and.
How should we be viewing your growth in Brazil, and parallel to what Richard door is trying to do here.
And at least for the next 12 to 24 months.
Yeah, well I think to me and again, that's the comments I would say is that with your doors and exceptional business and I really wanted to.
Healthcare operators that we've seen globally frankly and.
So and they have quite a unique business opportunity and that the market and Brazil continues to be highly fragmented and obviously.
And as attractive fundamentals, so I think that strategy and where we're a supporter of that strategy and continued consolidation and growth and.
And that happy not only with particular, but also this other other.
Potential counterparties and I think the challenge for us with regional real of course is that the strength of lot of capital and.
And and there.
Sure.
As many of the sale leaseback.
Type transactions that we did come up and historically, it's probably a little bit and diminished, but their appetite is very strong to continue growing but we are seeing similar organizations opportunity. So I feel like we'll be able to find a fair number of high quality situations and Brazil.
That's great. Thank you very much.
Thank you, ladies and gentlemen, as a reminder, if you have any questions. Please press star one.
Next question comes from David Raso with shareholder. Please go ahead.
And thanks for taking my question.
I'm looking at your earnings announcement here.
And the third or the December quarter, what was the F. F O per share versus last year I don't see it in here I see the growth not the per share from here.
Hey, Sheila mood and responsible.
Yeah can you give me two minutes I'll, just pull out the specific per quarter figure.
And given it was and annual results, we disclosed per share or per share numbers are focused on our annual results and year over year that was at 85 cents per unit and.
2020 versus 84 cents per unit.
And 2019, representing over 1% per unit.
And as a total per unit and Canadian dollars.
We'd also called out that we are excluding the impact of foreign exchange that equated to roughly a 5% increase year over year and April Coker unit I will feel free to shoot me an E mail and I'm happy to get into a specific quarterly number.
Yes, I guess I always like to compare quarter over quarter I saw the yearly figure, but I didn't see it how are you thinking last quarter versus a year ago.
Yeah, I'll take and covenants and plug that number so perhaps you can go off line.
Thank you.
Thank you and there are no further questions at this time you May proceed.
I do apologize I just have a question from.
And at National Bank. Please go ahead.
Hey, good morning, everybody.
Alright.
Just on the Australia, and unity investment and I apologize if you addressed this earlier and your comments, but.
Is the is that private REIT like under officially under a strategic review right now or.
Because we sort of mentioned in your presentation that you know potentially generational opportunity for you and I'm, just wondering how and what the timeline and kind of is on that investment and how we do.
Think about it evolving.
Yes.
And lots and that Tulsa.
And so a little bit difficult to talk about.
And these sorts of situations, but as.
And that's been in the press release, we can confirm that we've made a non binding offer.
To the to the trust and.
And there and the process I think considering what to do next and whether that constitutes a strategic review or not and I'm not sure but.
Okay.
Yes makes sense.
And that's the nature of our of our current engagements and and.
Maybe you can sleep commentary beyond that to see the price at this point, but I think.
Certainly.
Yeah.
And that's fine.
Our next step.
And that day to day.
Okay and.
And just.
Sheldon and the.
The same property NOI a.
Dialog and the MD&A.
I'm just looking at the.
You sort of like.
The currency adjusted or non currency, adjusted and you sort of.
You have a statement, saying that basically the same property NOI for the quarter decreased by 19, 3% in euros, but increased by 26, 8% in Canadian dollars and that's that debt.
That does not Jive to me with like the like up a huge swing with respect to the currently not having moved anywhere close to that amount like a bear.
I was just wondering if there's something else something else and there that I'm missing.
Yeah, when we disclose our constant currency same property NOI.
And there's a nuance there that are references are recurring.
Constant currency.
Same property NOI numbers. So that also adjusted for any non recurring items over the course of the quarter, So and so that swing and Youre right doesn't it doesn't represent all nature I only foreign exchange movement and it also includes the elimination of non recurring items and I would call out debt in Q4 annually within our.
European portfolio and specific to our German medical office building portfolio, we tend to go through a variety of high accrual adjustments and respect of.
Our tenant recoveries. So so cute traditionally has been a little bit volatile I'm happy to go a little bit more details with you on that specific catch up and we do show, we do have a breakout of them.
On a global basis, what those nonrecurring adjustments are when we bridge from reported SPP NOI.
And cash recurring ask Deanna line okay.
And then just going to your supplementary schedule two so if I'm doing my math right.
Proportionate debt to EBITDA based on the ownership all the various entities that's running around 10 five times trailing.
EBITDA at that.
Number of Jive with sort of your calculations.
Prior to our equity operating correct.
And I would also take you two are out and making a specific number.
And is just 10.06.
Net debt to EBITDA proportionately and that Q4.
Okay and.
And then I know you know.
And because theres been a bunch of transact transactions that you guys have been working on over the last two years, but there was some sort of chatter I think sort of late 19 early 2020 about.
Possibly looking to use the Canadian unsecured market and trying to open up that channel of funding.
And where where does the company sort of sit on that right now.
Yes, I would say on the heels of our recent.
Equity financing, coupled with our planned U K JV and.
And the natural conversion of our convertible debentures, our pro forma net leverage profile will very much put us into.
I'd say investment grade metrics, where we see and our.
And our pro forma net debt come into sub eight times, and then and we do have more and more formal bridge.
Reconciliation to that target.
So can we see our investment grade metrics.
Being a catalyst to both support what we believe is a reasonable equity valuation for our four units as we achieve those metrics.
And then as it pertains to accessing unsecured capital I think it really brings an additional tool into the toolkit to pursue some of the reach growth initiatives we.
We do call out.
A lot of our capital structure is focused on.
Gary efficient asset level finance, and our JV structures, where we have the benefit of the covenant of our capital partners.
So its really there is some tension and the discussion as to whether we'd consider using Canadian.
And unsecured financing versus extremely efficient cap.
Capital partner covenants.
Finance book, but I think the real target right now is to get our metrics and our cash.
Metrics and some of those investment grade per.
<unk> and and then really starting to bring the two ones and toolkit and to explore and where we can best take advantage of it and.
That feels like something you could get to probably in 2021, and if everything kind of hit rate.
I think that's very much our target and.
And as we look through and UK, JV profiled and Paul and.
Paul mentioned in terms of completion in 2021.
And the real catalysts deposits.
And so those metrics, Okay, and then Paul maybe you can just give a little bit more back story on why now considering the unlike to consider the U S and sort of how you've been thinking about that market over the last several years and why you are now at the time and maybe.
And we are pushing and pushing and there.
Yeah, I think our share count.
Good question.
I think starting with the obvious but we know the business has matured and and scale and capabilities to be able to to look seriously at the U S. Two of the largest healthcare market.
Pension and healthcare real estate market and the world.
So it's certainly an obvious one.
And I think those are debt.
The two big things, but I think we also see just in the moment.
In particular, and then sort of Covid emerging moment.
And just add some kind of line.
Screening and little bit more opportunistically pressed to participate and so.
And those three things taken together I think kind of get us to a place where.
And where we are.
We can look at it obviously, we had we've consistently looked at the U S market.
Since we started the business for reference points and and just understanding the functioning.
Healthcare, the healthcare industry and that stuff.
That is a very dynamic market. So I think we've been trying to understand it for a long time and and now base.
On that we started to develop our strategy and focus on a number of segments and the markets that we think are attractive and given our cost of capital and given our management expertise. So I think there's a lot of things coming together, but we see it very clearly is it super logical market to be in and one where.
As you know you followed once last week and we'd like to have a position that's yes.
And at least in that segment subsegment.
Our scalable and and meaningful position and we can have impact and the market and I think we've been quite focused on finding areas, where we believe that to be the case, despite the size of the market and.
The breadth of established.
Competitors, if you will.
And well to identify narrow leaks from two minutes and attractive places to focus on so that's where we've gotten to.
And the big step so it will be evaluating it very carefully over the next and a while but the market dynamics have screened more positive than ever for us over the last little debt. So that's.
So the message today and.
Is there a law.
And you sort of talk about the care versus carrier assets like.
And what are the types of assets that you'd probably be considering looking at it.
Yeah, sorry, just to clarify.
And it's very different and so I am just trying to get a flavor for if the type of asset you're looking for strength and changes all of it because of the fever.
No no. We you know we have some very core beliefs, and our business and he's starting much focusing and the carrier side of the space. So you know what.
And where we liked it exclusively and cure and then I think as you've heard it from a balance of our strategies, both and in Europe and in Australia, where the markets are a little more vibrant and we have a strong pricing tool or or campus.
Academic medical centers sort of focus if you want to think of it that way. So there are some pretty logical directional opportunities. There of course, we have our historical <unk> business, where we have the management expertise and.
And and technology.
Technology to deliver and sort of a multi tenant solutions and.
And so all of those things start to come together as we look at the U S.
Or any market for that matter.
So I think just to be clear and got very much focused and.
Focus and mature side of the space.
And our existing strategies and every market sort of inform the things that we like and where we're likely to focus and the U S.
And is it fair for us to think that sort of like the you know as you've broken into.
And any markets previously like it will probably look similar in terms of the way where you make some principal investments on your own and then find.
A capital partner to help accelerate that growth later on.
And.
You know like are you guys getting to the point, where you have enough of a rep, maybe where you don't maybe have to go through that principle phase like you might be able to set up a JV at the outset of entering a new market.
Yes.
Yeah. It's a great question I think we are at that stage.
And I think that's a trick and all of these things is as you know that when you have a dynamic market where they're at.
And with transactions does it perfectly line up to start so I'm not sure I can.
And I guess I would give you that answer today, but I would say that it's.
And our mindset.
To start <unk>.
Hospital, and certainly what we see and the U S.
And so.
And.
And definable and that's I guess.
Yeah.
It could achieve that.
And that you mentioned, but I think we always.
And we have a long.
A long view of course.
And just practice.
Practicing what we preach I guess and.
And doing things and I say that.
And between those two.
And I will end up correctly.
Let's see.
I think where we are and the business in terms of positioning ourselves with capital partners and discussions.
And those capital partners that I mean, I'm sure that's coming up quite clearly.
And all.
And our country results, and clearly focused and where it hasnt been as we've ever been as broad a range people as we've ever seen and I think to.
To the asset class and certainly healthcare real estate.
Guidance in a moment, where it's getting lots of focus and and we think that share.
And the partner of choice for many institutional investors and so.
All of that taken together gives us a lot of confidence not just as we think about.
And that's market entry button and all the things we might do it. So it's a very good moment for our business and we're quite focused on leveraging our corporate resources.
IP and relationships.
It's an excellent job.
And that's kind of at the moment, so I think a lot of things lining up and they perfectly line up and the transaction and such.
And so yes, and I hope so.
Okay. That's great. Thanks, very much gentlemen.
Yes.
And.
At this time, we have no further questions you may proceed.
Okay. Thank you operator and everyone on the call. We appreciate your time and well sign off now from the management team.
Properties.
Yeah.
Okay.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.