NorthWest Health Prop Real Est Inv Trust (TSE:NWH.UN), referred to as Vital Infrastructure Property Trust on its earnings call, reported lower third-quarter adjusted funds from operations as the timing of asset sales and North American acquisitions weighed on earnings.
AFFO was C$0.10 per unit, down from C$0.11 in both the second quarter and the year-earlier period. CFO Stephanie Karamarkovic said European sale proceeds had been fully redeployed into North American acquisitions by quarter end, but those purchases did not contribute for the full quarter. Related administrative savings are still being realized, she said.
The trust reported funds from operations of C$0.10 per unit, or C$0.11 excluding accelerated amortization of deferred financing costs. On that adjusted basis, FFO was consistent with the prior period. The AFFO payout ratio rose to 89% from 85% a year earlier.
Portfolio growth and cost reductions
Same-property net operating income on a proportionate basis rose 2.6% year over year to C$51.8 million. Excluding costs associated with the transition to outsourced facilities operations in Canada, growth was 3.5%. Karamarkovic attributed the increase to contractual rent increases, rentalized capital expenditures, improved cost recovery and higher parking income. Portfolio occupancy ended the quarter at 97%.
Proportionate general and administrative expenses, excluding unit-based compensation and employee termination costs, fell to C$8.9 million from C$11.6 million a year earlier. Karamarkovic said the trust remained on track for an annualized run rate of approximately C$35 million by the end of 2026. She expects any further reduction in the fourth quarter to be more modest than the third-quarter decline.
Net asset value per unit fell to C$7.43 from C$7.66 at the end of the second quarter. Karamarkovic said the decline included approximately C$27 million in combined valuation reductions associated with revised Australian lease terms, as well as mark-to-market adjustments to the trust’s Vital Trust investment and the reclassification of certain tax liabilities.
Australia agreement and capital recycling
CEO Zach Vaughan said the resolution of the Healthscope situation removed significant uncertainty from the portfolio. Healthscope’s creditors approved the sale of its remaining hospital operations, and Calvary Health Care is expected to become the new tenant at all 12 of the trust’s affected Australian properties.
The agreement includes rent incentives during the first 48 months, an extended lease term, enhanced annual rent indexation and a future rent review linked to property-level profitability. Vaughan said the extended terms bring the portfolio’s weighted average lease expiry to approximately 18 years.
During the question-and-answer session, Vaughan said the new tenant would need time to establish an operating record before an Australian exit. He agreed with an analyst’s suggestion that the trust could look at an exit around the end of 2027 or in 2028.
The trust completed approximately C$170 million of acquisitions across three properties in Brooklyn, New York; Burlington, Ontario; and Edmonton, Alberta, during the quarter. Vaughan said it remained on track for approximately C$250 million of acquisitions by year-end.
Vaughan said higher borrowing costs were making some leveraged buyers less competitive in the United States. He said the trust had initially considered U.S. acquisition yields in the low-to-mid 6% range but was now targeting yields about 100 basis points higher.
In Europe, Vaughan said the trust’s remaining German clinic portfolio could be liquidated around the second quarter of 2027, with an asset outside Rotterdam potentially following six to nine months later. Karamarkovic said Vital Trust units could also provide a relatively accessible source of capital when acquisition opportunities arise.
Brazil exposure and financing
Vaughan addressed market volatility following Brazil’s election, saying the trust’s Brazilian properties remain fully leased under long-term, triple-net contracts with uncapped inflation-linked rent increases. He said the portfolio’s property-level EBITDA was approximately seven times its rent, a measure management uses to assess tenants’ ability to meet lease obligations.
Karamarkovic said hedging the Brazilian real through derivatives was not economical. She also said local borrowing was unlikely to be an option at current interest rates of roughly 13% to 14%. A 5% depreciation in the real would have an impact of about C$0.01 on an annualized basis, she said, while noting that the fourth-quarter effect would depend on average exchange rates.
Vaughan said the election had not changed the trust’s capital-recycling plans for Brazil because an exit had not been anticipated in the near term. Management will revisit Brazilian valuations as part of its fourth-quarter review.
The trust ended the third quarter with approximately C$357 million in proportionate liquidity. Debt was 49.9% of gross book value and 8.5 times annualized adjusted EBITDA, within management’s target range. In August, it established a C$500 million unsecured credit facility; after quarter end, it issued C$300 million of unsecured debentures and used part of the proceeds to redeem its 6.25% Series H convertible debentures.
The trust also received Toronto Stock Exchange approval to renew its normal course issuer bid, allowing repurchases of approximately 22 million trust units and C$8.5 million in principal amount of Series I convertible debentures over 12 months. Vaughan said buybacks would compete with acquisitions for capital, with management weighing both opportunities against leverage.
About NorthWest Health Prop Real Est Inv Trust (TSE:NWH.UN)
Northwest Healthcare Properties Real Estate Investment Trust provides investors with access to a portfolio of high-quality healthcare real estate. The company provides investors exposure to a well-diversified portfolio of healthcare real estate located in the greater areas of cities such as Australasia, Brazil, Germany, and Canada of which Australasia derives a majority of revenue to the company.
