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Northwest cuts distributions, faces activist investor

REIT reveals interest in its U.S., Brazilian portfolios; TMR goes public with attempt to acquire U.K. assets

Northwest Healthcare Properties REIT (NWH-UN-T) has cut its distributions by more than half, is considering acquisition offers for its U.S. and Brazilian assets, and is under public pressure from a minority investor interested in acquiring its U.K. holdings.

The Toronto-based REIT, which announced a strategic review in early August as it grappled with options to lower its debt, provided an update on Friday in a release issued after markets closed.

Northwest says it has over $10.3 billion in assets under management in Canada, the United States, Brazil, three European countries, Australia and New Zealand. The portfolio spans 231 properties comprising 18.5 million square feet of space and was 96 per cent occupied as of June 30.

According to its Q2 2023 financial report, Northwest is carrying about $3.65 billion in debt.

TMR seeks to acquire Northwest's U.K. assets

On Monday morning, minority investor TMR Capital PTC Limited expressed an interest “with partners” in acquiring Northwest’s U.K. properties.

TMR is based in the British Virgin Islands and its strategic advisor is Derek J. Vago, a longtime international finance and investment industry executive whose career started in Canada. He is a McGill University graduate.

“TMR is a BVI incorporated company specializing in investing in undervalued companies which it believes need to be repositioned, as well as in investing in joint ventures in real estate-backed properties,” the firm’s statement reads.

“It and its partners have specific knowledge of the U.K. health-care sector, including certain assets owned by the REIT.”

TMR notes it is “a value-added investor focusing on companies which need restructuring and repositioning as well as providing specialist management and directors as required.”

No financial information was released regarding the offer for the U.K. portfolio.

Earlier this summer, Northwest had announced the collapse of a proposed joint venture for its U.K. hospitals portfolio, a transaction which was valued at $276 million.

Northwest had planned to retain a 30 per cent interest in the 14 hospitals, with the majority share being acquired by an institutional investor. The REIT would also have continued to manage the assets.

Northwest cuts its distributions

In its own release Friday, Northwest stated it is reducing its distribution to unitholders from $0.06667 per unit to $0.03 per unit – or from $0.80 per unit annually to $0.36 per unit annually.

The reduction begins with the September distribution, slated to take place on Oct. 16.

It is one of a series of moves “expected to provide the REIT with greater financial strength and flexibility,” the release states.

"Since the release of the REIT's Q2 2023 financial results, management has been actively working to review the REIT's distribution policy with the objective of positioning the REIT for future success,” Craig Mitchell, Northwest's interim CEO, said in the announcement.

“The decision to reduce the REIT's monthly distribution based on management's analysis, as well as advice from the strategic review committee's financial advisors, coupled with today's announcements pertaining to the extension of certain near-term debt maturities and proceeds generated from non-core asset and unit sales, are each anticipated to significantly improve the REIT's near term financial flexibility.”

Mitchell has been CEO since former CEO and board chair Paul Dalla Lana stepped down when the review was announced.

"The board supports the management team as they focus on fortifying the REIT's balance sheet," Dale Klein, chair of Northwest’s board, added.

The REIT’s strategic review committee acknowledged receipt of “a broad range of enquiries from third parties” for asset dispositions. The release states it is currently considering non-binding inquires for the potential sale of all or parts of its U.S. and Brazilian properties.

The release does not specifically mention any offer for Northwest’s U.K. holdings.

$74M in asset sales in 2023

In other developments, Northwest said it has sold about $74 million of non-core assets so far in 2023 and expects to move an additional $100 million woth of assets which are under conditional agreement or being marketed.

Proceeds are to be used to reduce debt and for other trust purposes.

It is also continuing to divest its contentious stake in Australian Unity Healthcare Property Trust, with unit sales thus far at approximately $82 million.

Northwest anticipates completing the sales or redemptions by early 2024 and reaping a total of $110-$120 million in net proceeds.

In 2021, Northwest was involved in an aborted takeover attempt for the Australian trust.

Northwest units opened at $5.44 on the TSX this morning, down from the $7 range where it traded when the strategic review was announced. That is less than half of where it sat in March 2022 when it hit a peak of $14.31 on the TSX.

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