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  5. NWH.UN: It seems NWH. [NorthWest Healthcare Properties Real Estate Investment Trust]
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Q: It seems NWH.UN has got itself into a bit of a tangle, and I am not sure how or why. Reading your notes the business looks as though it is rock solid, but the shares continue to unravel and your recent post seems to indicate they do need the current restructuring (correct word?) to take place. The share price is now at an all time new low, save for the pandemic induced low in 2020, and still potentially sliding. What is their difficulty? Over commitment, ex pandemic issues, recent rate rises, blissful overconfidence during the interest rate lull, management, sector issues, etc.,etc,.?? Your original note to me did reference debt, as well as a lack of growth and general concerns about commercial real estate, yet in the latter case I would have excluded NWH from the more usual commercial considerations. The answer is relevant because a worthwhile outlook should include recovery, even if it is priced on the basis of low or even no growth, and that assessment would be appreciated. Look forward to your response.
Asked by Mike on June 05, 2023
5i Research Answer:

All of the reasons noted likely contributed, but we would consider debt and higher rates as likely the biggest influences. The sector hasn't exactly been a big winner, but NWH has certainly underperformed. There really has been no growth. Forecasted per-share cash flow (2024) is lower than the level of 2010 and many years since. With the payout ratio very high, investors need to see growth to get more comfortable with the distribution. The restructuring should help valuation, by reducing risk. But it may not boost growth significantly (other than interest savings helping overall cash flow). Expenses could come down, but much of the increase has been beyond the company's control. While not the same as commercial office, sentiment towards any business related real estate is pretty low. But with occupancy at 97% it should not be grouped with 'office real estate' certainly where vacancy rates are 20%+. Lower debt and a better payout ratio, combined with lower rates, would likely see valuation go from 10X cash flow to maybe 12X. But this is not going to happen instantly, may not happen at all, or some other problem could still occur.