NORTHWEST HEALTHCARE PROPERTIES REAL ESTATE INVESTMENT TRUST ANNOUNCES THE FORMATION OF A NEW UK JV AND REPORTS THIRD QUARTER RESULTS

Cision

TORONTO, Nov. 15, 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:

  • Refinancing two floating rate facilities with a combined outstanding balance of approximately $475 million which extended the term to maturity by approximately 2 years and are expected to result in annual interest rate savings of approximately $0.02/un.

  • Proceeds from the UK portfolio recapitalization will be used to repay higher cost floating rate debt. The transaction is expected to close in December and upon completion are expected to generate annualized interest savings of approximately $0.01/un.

  • Commitments to extend the maturity of its US secured loan facility to 2025, which is expected to generate annual interest rate savings of approximately $0.01/un.

________________________________

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.”

Capital Formation:

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.

Funds Management:

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.

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:

  • On August 25, 2022 the REIT completed a public offering of $155 million of unsecured convertible debentures with a $16.00 per unit conversion price, bearing fixed rate interest at 6.25% and maturing August 31, 2027.

  • On October 28, 2022 the REIT completed an 18 month extension of its $110.9 million (A$125 million).

  • On October 28, 2022 the REIT closed a new three year, $406.8 million (£266 million) term loan facility secured by its UK portfolio. Proceeds of the transaction were used to repay existing UK debt with a November, 2022 maturity date.

  • On November 1, 2022 the REIT closed a new one-year, $125 million unsecured revolving credit facility. A portion of the of the proceeds will be used to repay the REIT’s existing $79 million unsecured facility with a January 1, 2023 maturity date.

  • On November 2, 2022, the REIT extended the term to maturity of its Australian term debt facilities maturing in November and December 2022 to April and June 2024, respectively.

  • The REIT has also received commitments to extend the maturity of its US secured loan facility to 2025.

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:

  • Q3 2022 revenue of $115.8M up 21.2% YOY;

  • Q3 2022 AFFO of $0.15 per unit (see Exhibit 2);

  • Same Property NOI growth of 2.5% in Q3 2022 as compared to Q3 2021, driven primarily by annual rent indexation (see Exhibit 3);

  • Strong portfolio occupancy of 97% consistent with last quarter with the international portfolio holding stable at 98.4%;

  • Weighted average lease expiry of 14.0 years is underpinned by the international portfolio’s Hospital and Health Care Facility Assets’ weighted average lease expiry of 18.6 years;

  • Total assets under management (“AUM”) increased 24.9% year over year to $10.6 billion;

  • Total capital deployed in fee bearing vehicles is $5.9 billion up 16.0% year over year. Undeployed capital in existing fee bearing vehicles totals $4.3 billion;

  • Net asset value (“NAV”) per unit increased by 2.7% year over year to $13.97 driven primarily by fair value gains resulting from the execution of the REIT’s UK asset management initiatives (see Exhibit 4);

  • Debt to Gross Book Value – Including Convertible Debentures of 47.7% has decreased 390 bps, year over year, and is expected to decrease by a further 416 bp through the seeding of the new US JV.

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.

Q3 2022 Conference Call:

The REIT invites you to participate in its conference call with senior management to discuss our third quarter 2022 results on Tuesday, November 15, 2022 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 73323698#.

Audio replay will be available from November 15, 2022 through November 22, 2022 by dialing 416-764-8677 or 1 (888) 390-0541. The reservation number is 323698#.

In conjunction with the release of the REIT’s third quarter 2022 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, 2022 Vital Trust also announced its financial results for the first quarter ended September 30, 2022. 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, 2022, 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 233 income-producing properties and 18.6 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 Financial Measures

Some financial measures used in this press release, such as SPNOI, Constant Currency SPNOI, FFO, FFO per Unit, AFFO, AFFO per Unit, AFFO Payout Ratio, NAV, NAV per Unit, portfolio occupancy and weighted average lease expiry, 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. These non-IFRS financial measures and non–IFRS ratios should not be construed as alternatives to financial measures calculated in accordance with IFRS. The REIT’s method of calculating these measures and ratios may differ from the methods of other real estate investment trusts or other issuers, and accordingly may not be comparable. Further, the REIT’s definitions of FFO and AFFO differ from the definitions recommended by REALpac. These non- IFRS measures are more fully defined and discussed in the exhibits to this news release and in the REIT’s Management’s Discussion and Analysis (“MD&A”) for the three and nine months ended September 30, 2022, in the “Performance Measurement” and “Results from Operations” sections. The MD&A 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, and potential acquisitions, dispositions and other transactions, including the proposed UK joint venture, a potential US joint venture and the program intended to reduce the REIT’s exposure to floating rate debt. 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.

NORTHWEST HEALTHCARE PROPERTIES REAL ESTATE INVESTMENT TRUST

Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss)

(in thousands of Canadian dollars)

Unaudited

For the three months ended September
30,

For the nine months ended
September 30,

2022

2021

2022

2021

Net Property Operating Income

Revenue from investment properties

$ 115,780

$ 95,554

$ 330,283

$ 278,245

Property operating costs

26,233

20,860

74,786

63,161

89,547

74,694

255,497

215,084

Other Income

Interest and other

2,691

1,773

6,729

3,529

Development revenue

2,577

3,746

5,742

Management fees

(4,199)

4,097

12,252

13,149

Share of profit (loss) of equity accounted investments

5,154

8,066

28,884

55,553

3,646

16,513

51,611

77,973

Expenses and other

Mortgage and loan interest expense

40,864

22,404

98,775

68,162

General and administrative expenses

12,421

8,381

35,560

29,777

Transaction costs

3,740

16,899

15,858

30,332

Development costs

2,775

3,430

5,004

Foreign exchange (gain) loss

3,822

4,628

(777)

(9,019)

60,847

55,087

152,846

124,256

Income before finance costs, fair value
adjustments, and net gain (loss) on financial
instruments

32,346

36,120

154,262

168,801

Finance costs

Amortization of financing costs

(2,857)

(1,314)

(7,824)

(10,054)

Amortization of mark-to-market adjustment

300

105

719

314

Class B exchangeable unit distributions

(342)

(342)

(1,026)

(1,026)

Fair value adjustment of Class B exchangeable units

2,497

(308)

5,455

(530)

Accretion of financial liabilities

(2,003)

(2,445)

(12,049)

(7,431)

Fair value adjustment of convertible debentures

5,167

(516)

14,892

949

Net gain (loss) on financial instruments

10,468

(1,577)

59,901

12,973

Fair value adjustment of investment properties

(14,743)

152,672

118,424

323,321

Fair value adjustment of deferred unit plan liability

3,239

(62)

6,855

(612)

Income before taxes from continuing operations

27,024

182,333

332,561

486,705

Current tax expense

2,813

4,378

17,240

10,570

Deferred tax expense (recovery)

3,129

30,320

54,175

71,658

Income tax expense (recovery)

5,942

34,698

71,415

82,228

Net income from continuing operations

$ 21,082

$ 147,635

$ 261,146

$ 404,477

Net income (loss) from discontinued operations

25,658

25,658

Total net income

$ 21,082

$ 173,293

$ 261,146

$ 430,135

Net income attributable to:

Unitholders

$ 6,611

$ 161,380

$ 164,490

$ 295,427

Non-controlling interests

14,471

11,913

96,656

134,708

$ 21,082

$ 173,293

$ 261,146

$ 430,135

Financial Exhibits

Exhibit 1 – Funds From Operations Reconciliation

The REIT calculates FFO based on certain adjustments to net income (computed in accordance with IFRS) as detailed below. The REIT makes adjustments for cost incur with respect to exploring new growth opportunities, establishing joint arrangements, building relationships with healthcare operators and institutional investors, which in management view are not reflective of earnings from core operations or impact the REIT’s ability in the long-run to make distributions to Unitholders given their discretionary and strategic nature. In addition, beginning in the quarter ended September 30, 2022, FFO is being adjusted for net losses incurred with respect to an investment in unlisted securities and certain G&A expenses that, in each case, management views as not reflective of recurring earnings from core operations (collectively, the “Other FFO Adjustments“). REALpac has established a standardized definition of FFO in a White Paper dated January 2022 (“REALpac Guidance“). The REIT’s FFO definition differs from the REALpac Guidance in that, when calculating FFO, the REIT (a) excludes the revaluation of financial liabilities, convertible debenture issuance costs and all transaction costs, and (b) makes the Other FFO Adjustments. The REIT’s method of calculating FFO also differs from other issuers’ methods and may not be comparable to similar measures used by other issuers.

FUNDS FROM OPERATIONS

Expressed in thousands of Canadian dollars,
except per unit amounts

Three months ended September 30,

Six months ended September 30,

2022

2021

Variance

2022

2021

Variance

Net income (loss) attributable to
unitholders

$ 6,611

$ 161,380

$ (154,769)

$ 164,490

$ 295,427

$ (130,937)

Add / (Deduct):

(i) Fair market value losses (gains)

(6,628)

(150,209)

143,581

(205,527)

(336,101)

130,574

Less: Non-controlling interests’ share
of fair market value losses (gains)

8,814

8,060

754

95,515

138,192

(42,677)

(ii) Finance cost – Exchangeable Unit
distributions

342

342

1,026

1,026

(iii) Revaluation of financial liabilities

2,003

2,445

(442)

12,049

7,431

4,618

(iv) Unrealized foreign exchange loss
(gain)

3,653

4,430

(777)

1,268

(12,013)

13,281

Less: Non-controlling interests’ share
of unrealized foreign exchange loss
(gain)

(8)

(4)

(4)

(180)

1,398

(1,578)

(v) Deferred taxes

3,129

30,320

(27,191)

54,175

71,658

(17,483)

Less: Non-controlling interests’ share
of deferred taxes

(2,009)

(1,226)

(783)

(18,881)

(19,733)

852

(vi) Transaction costs

3,740

17,678

(13,938)

16,061

36,926

(20,865)

Less: Non-controlling interests’ share
of transaction costs

719

719

981

(167)

1,148

(vii) Net adjustments for equity
accounted investments

1,054

(1,193)

2,247

(7,447)

(34,039)

26,592

(viii) Internal leasing costs

538

646

(108)

1,988

2,149

(161)

(ix) Net adjustment for discontinued
operations

(24,912)

24,912

(24,912)

24,912

* Net adjustment for lease amortization

97

(112)

209

(45)

(198)

153

(xi) Other FFO adjustments(1)

8,073

8,073

8,073

1,224

6,849

Funds From Operations (“FFO”) (2)

$ 37,176

$ 47,645

$ (10,469)

$ 130,594

$ 128,268

$ 2,326

FFO per Unit – Basic

$ 0.15

$ 0.22

$ (0.07)

$ 0.55

$ 0.67

$ (0.12)

FFO per Unit – fully diluted (3)

$ 0.15

$ 0.21

$ (0.06)

$ 0.55

$ 0.65

$ (0.10)

Adjusted weighted average units
outstanding
(4)

Basic

241,119,245

218,843,204

22,276,041

235,769,760

192,347,998

43,421,762

Diluted (3)

244,488,605

237,163,092

7,325,513

238,645,590

210,346,094

28,299,496

Notes

1.

Other FFO adjustments include items that, in management’s view, are not reflective of recurring earnings from core operations. For the three and nine months ended September 30, 2022, other FFO adjustments included (a) net losses of $5.6 million ($5.2 million in distribution income less $10.8 million in financing costs) incurred with respect to an investment in unlisted securities, (b) $1.6 million of technology related G&A expenses incurred by the REIT’s European joint venture, and (c) $0.9 million of corporate G&A expenses related to the establishment of a philanthropic platform.

2.

FFO is not a measure recognized under IFRS and does not have standardized meanings prescribed by IFRS. The REIT’s definition of FFO differs from that used by other similar real estate investment trusts, as well from the definitions recommended by REALpac. See Performance Measurements section in the REIT’s MD&A.

3.

Diluted units includes vested but unissued deferred trust units and the conversion of the REIT’s Convertible Debentures that would have a dilutive effect upon conversion at the holders’ contractual conversion price. Convertible Debentures are dilutive if the interest (net of tax and other changes in income or expense) per unit obtainable on conversion is less than the basic per unit measure.

4.

Under IFRS the REIT’s Class B LP Units are treated as a financial liability rather than equity. The REIT has chosen to present an adjusted basic and diluted per unit measure that includes the Class B LP Units in basic and diluted units outstanding/weighted average units outstanding. There were 1,710,000 Class B LP Units outstanding as at September 30, 2022 and 1,710,000 outstanding as at September 30, 2021.

Exhibit 2 – Adjusted Funds From Operations Reconciliation

AFFO is a supplemental non-IFRS financial measure of a REIT’s operating performance and is intended to reflect a stabilized business environment. The REIT makes certain adjustments as detailed below in calculating its FFO and AFFO, which in management view are not reflective of earnings from core operations or impact the REIT’s ability in the long-run to make distributions to Unitholders given their discretionary and strategic nature. The REIT’s AFFO definition differs from the REALpac Guidance in that, when calculating AFFO, the REIT does not make an adjustment to AFFO for amortization financing charges. The REIT’s method of calculating AFFO also differs from other issuers’ methods and may not be comparable to similar measures used by other issuers.

ADJUSTED FUNDS FROM OPERATIONS

Expressed in thousands of Canadian dollars,
except per unit amounts

Three months ended September 30,

Nine months ended September 30,

2022

2021

Variance

2022

2021

Variance

FFO (1)

$ 37,176

$ 47,645

$ (10,469)

$ 130,594

$ 128,268

$ 2,326

Add / (Deduct):

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