Q2 2021 NorthWest Healthcare Properties REIT Earnings Call

August 13, 2021

Yeah.

[music].

Okay.

Good morning, ladies and gentlemen, and welcome to the northwest healthcare properties Real estate investment Trust second quarter 2021 results conference call.

At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero for any operator.

This call is being recorded today Friday August 13th 2021.

And I would like to now turn the conference over to Paul Zeller Lana.

CEO of northwest Health care properties REIT. Please go ahead Sir.

Yeah.

Thank you operator, and good morning, everyone. I appreciate you joining us today.

We're joined today with my show in Shanghai, The REIT, Chief Financial Officer, and Peter regarding the REIT as Chief administrative officer together, we are pleased to share with you our results for the second quarter.

'twenty one.

First I'd like to point out that during today's call. We may make forward looking statements.

And under Canadian Securities Law.

Such forward looking statements reflect management's expectations regarding our business plans and future results. They are necessarily based on assumptions that are subject to uncertainties and risks, which could cause actual results to differ materially we direct all of you to the risk factors outlined in our <unk>.

<unk> filings.

Operationally the REIT is purporting defensively and performing well as expected with a portfolio that is 97% occupied by diversified tenant roster of hospital health care service and life Science research talent, the majority of which are directly or indirectly funded publicly by their respective governments.

Q2, the REIT advanced a number of its strategic priorities, including its value creation initiatives in the UK to position the portfolio for our planned joint venture.

Dancing, it's ambulatory care and hospital precinct development strategies.

Credit metrics consistent with an investment grade issuer.

The acquisition of Aspen healthcare for approximately $38 million was a major step for the REIT in the quarter.

<unk> is a hospital operator of four of the REIT UK investment properties as a result of the transaction. We read acquired two new high quality assets in Clermont Private hospital in Edinburgh clinic, as well as control over the operations of eight hospitals located throughout the U K.

The REIT is concurrently entered into agreements to sell these hospital operations to leading U K hospital operators, which are expected to close later this year.

As a result of the Aspen acquisition and the sale process of the REIT has expanded its UK platform and further diversified its tenant base with a much stronger credit profile and.

In combination with our opportunistic market entry into the U K in early 2020, the REIT expects to generate substantial value for unit holders, which are currently estimated at more than $200 million above its cost base.

As the REIT executes on the final stages of its UK value creation initiatives. Its focus is now shifting to executing on its previously announced $1.7 billion of UK JV initiatives.

You should expect to be completed later this year early 2022.

In Q2, and subsequent to quarter end, the REIT completed $321 million of accretive normal course acquisitions and $7 million of dispositions significantly expanding its assets under management to eight 3 billion.

An improvement of over 21% year over year.

The REIT continues to progress earnings and NAV accretive development projects with a pipeline of $320 million currently under construction and an additional $27 million of approved projects.

Good completion dates between Q4 'twenty one in Q4 'twenty three Moreover, in this moment of an intense focus on the health care industry. The REIT has been leveraging its relationships with its healthcare operators and capital partners to participate in what northwest views as a key secular trend that the camping services, having hospitals to that Ed.

This focus on the ambulatory care and hospital precinct development strategies and has successfully built out a longer term development pipeline of over $1 billion.

With regards to Australia in unity.

Based on frustrating transactions completed by Australia annuity indexes in June and ongoing litigation around these matters to have them unwound. The REIT withdrew its previously announced proposal to acquire all of the units.

Australian Unity Health care property Trust.

At a price of $200 at 70 cents, Australia per wholesale unit.

Separately, the REIT acquired an additional interest through its premium cash offer of $2.70 per unit, which now takes the REIT holdings up to 17, 3%, making it the largest unitholder and Australian unity.

<unk> is actively considering next steps with regards to its investments in this.

Entity.

Another key priority advanced during the quarter was the continued debt optimization with the goal of achieving investment grade credit metrics in the quarter. The REIT completed $201 million of equity raise and post quarter close to a further $25 million private placement to northwest valued partners on the same terms that preceded the issuance or deployed towards the previously announced acquisition of <unk>.

Medical office buildings, and the repayment of higher cost debt.

In may $61 million of the 75 million series E convertible debentures were converted into equity with the balance redeemed with existing liquidity as a result of all of these initiatives. The REIT proportional leverage declined 110 basis points quarter over quarter to 49, 6%.

<unk> balance sheet continues to shrink or present organic deleveraging opportunities through the expected conversion of $85 million of in the money series F. Debentures maturing in December 31, 2021, which have a conversion price of $12.80 per unit pro forma completion.

Of the private placement full conversion of series F debentures to equity completion of the UK portfolio repositioning and seeding of the planned U K JV the reach pro forma consolidated and proportionate leverage with further declined by approximately 860 basis points and 920 basis points respectively.

Yes G initiatives also remain a key strategic priority with the REIT being committed to issuing its first ESG report in 2021 REIT believes that ESG issues have played an important role in defining its past and will continue to do so in the future our global cross functional team led by the Reits Chief administrative officer is advancing with important asps.

Two of its business, including completing its inaugural submission to grasp a leading real estate benchmarking provider.

For the quarter all results are in line with expectations with annualized quarterly adjusted funds from operations of 92 cents per unit on a normalized basis.

Having a payout ratio of 87% earnings accretion from recent investment activity and financing activity was as expected, although the accretion of the Canadian dollar over the past year relative to the REIT average foreign currency exposure was a slight drag on earnings.

On a constant currency basis <unk> per unit was up approximately 9% year over year, which is particularly notable in the context of the reach deleveraging activity.

Context of a lower Canadian interest rate environment, we expect FX headwinds may begin to ease in line over the balance of 2021, providing us further tailwind to the REIT to future earnings.

Additionally, net asset value was.

<unk> was up six 3% to $13.14 per unit. This year, driven primarily by strong revaluation gains in Australia, and a rebounding Brazilian reais.

With significant demand for long leased inflation indexed assets.

<unk> interest in health care real estate in particular, we see near term potential for our continued cap rate compression across our markets leading to meaningful valuation increases in the near term.

Combined with our U K value creation initiatives expansion of the global asset management platform and our growing development pipeline, we see the potential for a further $2 per unit and have increased in the short to medium term.

Before turning to operational results from the quarter I wanted to briefly speak of some of the trends we're seeing across each of our global markets investment activity is at all time highs with institutional investors jockeying to rectify a limited or underweight positions in healthcare real estate.

More than that we continue to see significant capital formation around health care real estate and premium valuations being ascribed to these platforms across Australia, Europe and the U S. Collectively these macro themes are driving pricing in our sector, which we are beginning to see high quality assets in core markets trading until the low 4% range all that to say.

But while we have already booked substantial fair value gains in Australia, and New Zealand, we continue to see significant scope for further cap rate compression across our portfolio.

Combined with several value added initiatives focused on portfolio repositioning and development strategies.

We expect to continue to deliver meaningful NAV growth in the near term.

Operationally our results, which are derived from a 190 property eight $3 billion health care infrastructure like portfolio tenanted by leading operators on long term inflation index leases was on plan.

The inherent strengths of this portfolio is reflected in the REIT operating results with year over year constant currency cash recurring S. P. NOI growth of two 9% again, largely driven by contractual rent indexation and underpinned by 97% occupancy at a weighted average lease term of more than 14 years.

For the three months ended June 32021, the REIT collected just under 99% of its rent, which is 20 basis points up from the last quarter in all regards are highly defensive portfolio.

Save mentally I note. The following in Brazil, we are on plan with steady 100% occupancy.

<unk> strong year over year source currency, SPRI NOI growth of 4%.

Operationally the reached major tenant region continues to deliver exceptionally strong results and expand its business, thereby creating potential opportunities for.

Future partnerships with the REIT.

REIT is also focused on getting traction with additional high quality operators in Brazil and season very constructive market currently.

Canada performed satisfactorily during the quarter with stable portfolio occupancy at 92% and adjusted year over year source currency SPP NOI decline of approximately 1%, mainly driven by higher payroll and payroll related costs leasing activity during the quarter was all <unk>.

Involved 50000 square feet of new leasing at 68000 square feet of renewal leasing completed spread on renewal rates during the quarter was up six 5% with rent collection remaining strong above 98%.

On the investment front, the REIT acquired its first life science asset in Canada.

For $15 million at a weighted average capitalization rate of six 1% during the quarter. The property is located in close proximity to Montreal as Technip Park, and it's 100% of occupied on an 11 year weighted average lease term the REIT.

Completed the sale of one noncore and it'll be for an aggregate sales price of $7 million during the quarter.

In Europe, we were on plan and performing as expected with year over year source currency ask NOI growth of one 8% and occupancy at 96%.

In addition to the U K value accretion initiatives previously mentioned the REIT completed the acquisition of its previous.

<unk> portfolio of four on campus Dutch medical office buildings for $176 million.

On average our.

Capitalization rate of five 1%.

In Australia, the occupancy remained stable above 99% with.

With constant year over year sort of spring TSB NII growth of three 2%.

Our weighted average lease term of more than 16 years at vital the business reported similar results with year over year, SPP NOI growth of 6% and occupancy again at 99% and a weighted with a weighted average lease term of more than 19 years.

A manager of vital trust REIT completed the acquisition.

A large rehabilitation mental hospital hospital located in Camberwell, Australia.

For $68 million at approximately a 5% capitalization rate.

And began new Greenfield development and Princess Alexandria Hospital interest income Brisbane, Australia.

I am pleased with the progress made during the quarter, which advanced a number of the REIT key long term strategic initiatives as well as producing solid operating results. Despite the COVID-19 environment with deep relationships best in class regional operating platforms, and a strong access to public and increasingly attractively priced private capital.

The REIT is better positioned than ever continue to execute on that strategy.

I'll now ask the operator to open up the call for questions.

Yeah.

Thank you.

Ladies and gentlemen, we will now conduct a question and answer session. If you would like to ask a question. Please press star one on your Touchtone phone.

We'd like to withdraw your question. Please press star two.

If you are using a speaker phone please lift the handset before pushing any key.

One moment for your first question.

Your first question comes from Frank Xu.

M O capital markets. Please go ahead.

Thanks, operator and higher one.

So my first question on Comm side I saw you guys saw it can be the acquisition of the life Science in Canada.

We can call after.

After call that as a kind of a weekend a weakening call tool the lifetime Doctor and the garden, our economy, that's $2.2 billion in founding the lifestyle. So call that I Wonder on this plan do you guys expect to.

To you know to be part of the game you ought to maybe just improve your practice and the lifestyle in Canada, either to buy or build.

But we absolutely do.

And we're active in and the life Sciences space in all of our markets and in varying degrees, but it builds very much on one of our core investment teams, which is a precinct investment team and.

And so.

We have active projects queuing in and under are under review and in all of those markets.

Some of it by some of the adult.

And we expect to have further announcements on this it's a meaningful opportunity.

But it's not limited expressly to life Sciences, we do see this precinct opportunity offering a whole range of opportunities for us to to grow and build on it and I might call out and Australia. Some recent examples which have come out you may have seen that we reported a vital vitals results.

28, 24 hours ago.

And we would have called out there are three or four specific projects.

That have upwards of $1 billion of potential development in precinct, including life Sciences hospital and outpatient opportunities.

And we see a real continuing opportunity to build on our key strategies and in Australia, and New Zealand as an example, but certainly are increasingly in Europe and in Canada.

Pursuing these these initiatives until we're quite active in the business overall I'd call out maybe that the business in advancing these initiatives is looking to position the overall investment to between 10 and 15% of the business into value add or development activities.

And I think we see.

Increasing visibility on that pipeline, we've been working hard.

In all our markets on these initiatives and so we're starting to make some real progress there.

Most of this is in conjunction with our existing capital platform. So it gives us a very attractive way to both.

And earn fees and.

Unrelated revenue, bringing these projects to completion, so quite excited about it and you should have been and really it's been a long standing objective for us to grow and build on.

Alright, Thanks, Paul for the Great color and I also yeah. This quarter, we're kind of turning to the current Idaho site off your I P. P. You know I saw a record out at various ice ball fair vital game this quarter.

So I wonder you know.

I think the vital costs I mean, so I wonder what has been changing in that market now that glad this.

Okay.

A recording in Q2, maybe it's a question just say that.

Hey, Frank Yeah, I'm happy to speak to some of our.

Our cap rate trends more generally and then Paul can speak to some of the transactional investment moment.

More generally our IRS cap rate came down about 20 basis points quarter over quarter over quarter, five 6% to five 4%.

And you're correct quarter over quarter, the primary change I came out of vital.

Which was about $200 million or so.

Quarter.

On a consolidated basis and year over year vital.

It presented a 50 basis point compression.

It's overall weighted average cap rate.

So and it's a trend that we are seeing in the market more broadly I'd call out that as we know under my breath cap rates it tends to be a bit of a trailing indicators. So perhaps not as up to date with what we're seeing in the current investment market and personal calls introductory comments, we do see continued scope.

Mark's triumph rest cap rate, primarily coming out of Europe as well as continued continued compression in Australia, Paul I'm not sure if you'd want to add any color around the investment market to perhaps up substantially.

Sure.

Yeah. So I think I mean, again, maybe putting that in context and we have.

Guided previously to seeing 50 basis points in our total portfolio over the balance of the year I think we are.

We're through 'twenty and this and this quarter, we see the balance coming certainly over the next couple of quarters, a good chunk of that is true.

Having said coming through continued cap rate compression and in Australia, and New Zealand and and in Europe, and as well as the UK JV initiatives, which I mentioned, so a lot of that is quite visible and coming quickly and so you know what.

We're quite confident in and that overall outcome.

In the near term I would say, though that you know that.

The trends that we're seeing in our space for the highest quality.

Assets the infrastructure like assets that we substantially one already.

Are really starting to converge on the teams we're seeing in the industrial space. As an example, so you know while we've been guiding into the low fours for some of our or.

Our best quality assets I really think that that's going to start to have a three in front of it quite quickly and so the trend is very pronounced and obviously.

Something that benefits, our existing portfolio and significant so we've been relatively conservative today on these numbers despite their size and noting that.

There are big movements on a on a big portfolio, but we see a lot more to come.

Obviously, we're equally focused on.

Making sure how we position the business.

Both to acquire and increasingly to develop assets.

The assets that we can do things.

Creatively and and so you know we have all of our funds and JV set up you know that.

Give us leverage and in a very low cost of capital to pursue opportunities in this type of environment. So we think we're well positioned there reminding everyone that we have approximately $5 billion of debt and equity capacity.

Our existing JV.

To pursue these strategies plus vital which is our evergreen.

Constant capital vehicle.

And we really are starting to see some of the value add and development initiatives that we're pursuing.

Coming in in that mid fives to mid sixes types of returns so quite positively accretive to you know what's available in the.

I'm in the sale leaseback market.

She's incredibly competitive of course, our overall strategy has been to be a broad real estate partner of choice.

Over a bunch of services more than straight capital. So we see the business positioning itself to really be able to lay out that strategy on the ground in all of our regions and so really capable of delivering value added services.

So our tenants and that puts us in a really positive situation.

Recently for example, any of that again, we've had a very strong.

Partnering relationship with one of our bigger tenants in the portfolio of airports.

We've completed the acquisition of Camberwell, which one it was one of their outpatient clinics and.

In Melbourne, but we've also just come to heads of terms on a strategic.

The partnering relationship with them that will see us acquire interests in two of their biggest hospitals as well as commit over the next 10 years to upwards of $1 billion of development with them expanding these big hospital campuses and so we're able to position the business with the best partners as you know as.

As a strategic partner.

That has the opportunity to joint venture with them on these assets on a 50.50 basis and grow the portfolio together over time now we've had a 25 year relationship with that person three data northwest's involvement in the business in Australia.

It speaks well to sort of the strategies that we have that allow us to build on these partnering aspects and really grow the business both through acquisition and organic development over time, and so we're really starting to see that pipeline and those opportunities build nicely similar initiatives underway in the hospital portfolio in the U K and in our outpatient rehab.

Have clinics in and.

In Germany, and I'd call out Damn Ob acquisition that we did this past quarter and in in in the Netherlands is a great example of buying.

A set of purpose built buildings from the hospital operator, we're now in the middle of the campus of Albert Schweitzer.

In the Netherlands, what are the top operators and.

It gives us a real opportunity to help them grow and evolve their campus over time and it's the first transaction of this type in the Netherlands. So it also gives US you know.

Some technology to allow us to talk to the other hospital operators in the Netherlands and offer them similar on campus real estate solution. So we really see this part of the business evolving nicely and I'm quite excited about the potential for an overtime.

Yes.

That's a lot of great detail, thanks, a plant shutdown and anti sense, what I. So I want to circle back to U H P. P. I bet. So all your DNA I felt like you guys have that you guys announced that the premium cash offer and also you mentioned the put and call arrangement to acquire 10 million units.

I took $100 per wholesale unit.

And are you guys that I anticipate to close the purchase of units by the start of quarter. All physical 2021. So my take is so is this you know.

The premium cash offer a document that closed in Q3 and also do you also expect to exercise your quote unquote or instruments in Q3 as well.

It could be Q3 or Q4, we have flexibility there, but yes, we do expect to exercise them and we have an effective interest of 17, 3% again, making us the largest investor in the business that that consortium includes Oh JV partners. So we have a strong capital relationship there too.

To achieve that in and again, we're very much looking down the road from there.

Okay. All right. That's all my questions today. Thank you very much partially I'll turn it back.

Your next question comes from Fred Blondell I E capital. Please go ahead.

Thank you and good morning, I was just looking at your same property NOI and I was wondering if you could give us a bit more granularity on it looks like youre doing extremely well with vital I think you gave us some good color just money budget could you expand a little bit more on what's going on in Australia will be the drivers there.

And it looks like Youre seeing a bit more pressure at least.

Last corner in Europe. So.

More color on the drivers in these areas would be much appreciate it. Thank you.

She doesn't maybe I can take a stab at that and in Australia.

Again, our portfolio in Australia, and New Zealand is 100% indexed and 99% occupancy so the math on S. P&I is pretty direct drive.

No. We do have a number of our leases that have fixed floors, a three year three 5%. So sometimes you know the growth rates there are above inflation.

Inflation, plus I would say through the portfolio, but by and large that's the bulk of the portfolio is index to local local CPI.

So that's a bit Australia, and New Zealand and again at 99% occupied it's it translates pretty directly in both directions. So we like that part of the business.

Europe has that combination of both <unk> and long term leases. So all of the long term leases in our rehab hospitals of course are indexed in.

It's a bit different in each market, where Germany is CPI indexed.

U K hospitals have typically a caller a floor between you know two and a half or two and four and a half.

So we get a minimum of two or two and a half and up to four and a half depending on the lease arrangement there.

And then the MLB portfolio, it's probably on average about three quarters of a C.

CPI that we would get through our leases in the portfolio. So I think taken in combination you get a bit of a driver there that's pretty close to being inflation based of course inflation in Europe is lower than.

And in our other markets, including Australia. So you know we've been seeing that growth in them and the one to one and a half per cent range. Translating. We also have you know again in the MLB business a business that more closely approximates, Canada, So theres certainly as leasing and some elements of of <unk>.

Operational performance coming through that business. So it's a bit of a stew, but ultimately you know increasingly getting closer to CPI based but not quite as far as Australia, New Zealand or Brazil for that matter.

Yeah, that's great. Thank you and if so what would be your views for second half of this year and next year.

Looking at New Zealand, and Australia, and Europe as well.

Yes, I'm a bit reluctant to make a call it inflation to be direct the question I guess I'm you know I think the great news about our business, though is that we have pretty direct drive.

You know pass through and into our leases as we've just talked about so some more than 75% of the business has direct inflation adjustments or better. So I think we're well protected in a rising environment for some inflation.

We've been guiding maybe Sheila and I'll, let you talk to what we're forecasting for the balance of the year, but I think we've been pretty consistent in that 2.5% to 3% espionage.

Wide range across the business.

And.

Again at that.

Different then that would come out of a higher inflation environment, which we which we are hearing a lot about but it hasn't yet translated and maybe some of the immediate shock of all this reopening is abating and things are restoring themselves to a little bit normal level, but I'd, let children carry it from there.

Yes, Thanks Paul.

Brent.

Irrespective SPP NOI on a global consolidated basis on a constant currency over the quarter year over year, we posted a two 9% or roughly 3%.

Constant currency NOI.

That's been a fairly consistent run rate for the business.

So looking into that 3%.

NOI.

6% or just under on a levered basis.

We see that tracking through the numbers.

That's been our historic track record there.

Mark or going forward.

Fair enough. Thanks, Thanks very much.

Your next question comes from Tal Woolley.

<unk> Bank. Please go ahead.

Hey, good morning, Paul Good morning, Alan how are you.

Well, thanks, Tony yourself.

I'm doing okay, I apologize if there's any noise my next door neighbor in my condo is doing rentals itself.

If it sounds like a wall for camping and it's only because they are.

The I wanted to start just with.

Australian Unity.

Are you a happy Passover shareholder now an Australian entity.

Absolutely not.

And I think you know again, we we haven't changed our stripes overnight tell so we do things for a reason and when you take a long view to it.

You know what I will say, though is that.

Clearly as the largest investor in the trust there we have a very strategic and very valuable stake in Italy accept to use it to maximum advantage as we look forward I can't talk more than that but I think you know is to have.

Our long term objective in mind in Italy, categorically do here with a partner who has an equally long term view. So yeah nothing about the Windy road of Australia in M&A.

Is that expected here and.

This would be a multi phase initiative for us.

Okay.

One of the you know like what are the things that I've sort of wondering about what I've watched the moves overtime that you guys have made to increase your exposure there, but it does feel to be a bit of a leverage arbitrage between you know what sort of tolerable here in Canada, and maybe what is sort of natural practice in Australia.

You know like.

Will they.

Is that like that feels like it's part of the you know part of the potential upside for a new buyer like you know like why Havent you know like do you expect to see them start picking up their leverage.

As a result like us even more of these may be bigger funds that are kind of relatively more unlevered, taking up their leverage as a result.

You know that.

There's there's lots in that so again I think other than maybe it.

You know other than.

Tactical things related to the specific situation, which I won't speak to what I can say about Australia, New Zealand in General and then you see it in our vital business as well as it is a lower leverage environment than Canada traditionally has been although.

Let children talk a lot about the direction, we're driving it.

A lot of that comes out of the recent experience in the G. F. C. There in 2008, where where you know that was very impactful and in the in the listed environment and in our most environment for trust. So we see lower leverage in that part of the world in General obviously, we have different approaches to it.

The context of our public subs vital we have a sub 30 kind of leverage.

Our focus right now.

And that's consistent with the market.

And probably consistent.

With the with the tight end of the market, maybe in Canada, and the U S. As an example, but that certainly.

<unk> and the Australia, New Zealand contacted text in a listed environment of course, our JV.

With our with our.

A large institutional partner is very different and has a very different leverage fluency one of our great advantages as being able to to use that and it gives us an effective cost of capital and things that we may do so I think there's different answers to that question in a bit of horses for courses, but if you had to generalize.

<unk>, Australia, New Zealand I would expect it just given the typical listed in larger unlisted vehicles would be.

In the twenties in terms of leverage would be pretty steady state there, which would be I think very much at the low end of the North American market by example.

Okay.

Also wanted to talk about the Canadian portfolio.

Sort of a different question do you know within your tenant base for the medical office portfolio like roughly how much of your exposure is to G. P.

Versus special and other and other types of tenants.

Hum.

Might benefit by having Peters comment not to put you on the spot Pete but.

Would you have that at hand, if not we can we do we just have to pull it out so.

Yeah. Thanks, Paul Good morning, Tao, Yes, we don't have that at hand.

Let me pull that up for you.

Maybe if I can just what's behind the question, maybe we can yes, yeah. No I can certainly go onto the follow up I think one of the things I've sort of increasingly hearing from you know retail landlord in the country as a <unk>.

Higher to get more medical uses into mall, they see themselves as having you know a lot of things that feature for consumers a.

A lot of other.

You know shopping alternatives it drives a lot of traffic it's free parking.

You just have like just this morning like Loblaw has announced another six GP clinics, but theyre going to be opening up and shoppers I mean, it's early days, but I'm just saying like this appears to be a focus for.

Another asset class as to maybe kind of.

Drive your tenants.

Into a different in a different direction and so I was trying to get an idea of like what.

What you were thinking about that and how much you know COVID-19.

I would say probably the G fees are the easiest to kind of shifted for that environment, if you're a specialist with.

Different things that might be a little bit more a little bit more challenging to make that move.

Yeah Youre right. There are all different types of medical buildings, both here in Canada and in Europe. Some are GP focused some of our specialist focused.

Specifically, specifically related to nearby hospital infrastructure, So theres no one brush that touch it in terms of the competition be it from retail centers or from the likes of shoppers and what have you we have been dealing with that for the better part of that.

Let's start with the portfolio, so that's nothing new to us.

Continue to believe that it's more than just space that it's synergy within the building it services offered.

Just how they are treated as a tenant.

So that.

We were always continue to watch.

Competition in.

In micro markets.

It's nothing that's throwing us off course, so as I say, we've dealt with them for well over a decade.

Okay and then.

For Paul you know like.

You've obviously spent a lot of the last step.

Several years building out the international portfolio could you just if we talk about but you know maybe not the life Sciences piece, which are just kind of starting here in Canada, but just that core medical office business.

Are there are there any sort of interesting opportunities.

That you know are coming about because like you haven't kind of extending the portfolio around the edges or should we just continue to sort of see it as like the stable kind of cash flow based on what you're building kind of the rest of the business.

I'm not I again, maybe I'm not sure I fully understand but maybe I'll try and pick up on a couple of thoughts.

On my mind around.

Portfolio management, So I think the business tell US you mentioned has matured and gotten much more sophisticated over the over the last two.

Since 2010, when we listed in Tokyo for since we started it.

So I think we have an increasingly.

Sophisticated.

Capital allocation thinking about what's good and what's what.

What we like and what we're what we're good at doing so I think we're in a continuous moment is optimizing and evolving our portfolio I think the big trends I mean, again, if I try and come back to Canada, which we all know best we know that we still continue to have a very stylized health care market in Canada compared to the rest of the <unk>.

World.

That obviously has informed our thinking about where to go and why we didn't just get on the planes because we wanted to fly we went there because we thought we could get better.

Quality and better returns and I think that's been proven out over time.

But I am quite constructive on Canada, again, it's being dragged perhaps a little bit unwillingly to the alternative of health care innovation and change in <unk>.

And so we are starting to to.

See you know the bigger trends come through the business, it's still going to be slow compared to more dynamic markets like Australia, where we have a private sector, that's very reactive and responsive.

But nonetheless, the big trends are still happening so the big trend I mean, I'd like to talk about ambulatory and outpatient in Canada, that's a funny big trend because it's been in existence for 25 years and yet we have almost none of it.

So we're seeing very significant changing thinking in posture in and are in the provincial health leaders around you know moving aggressive during this COVID-19 has been an absolute accelerant to this trend.

Active as you know in Lake Ridge, and other outpatient ambulatory development opportunities none of those start to have the features that we like.

And in terms of again larger.

Creditworthy tenants and the government itself or the hospital operators as well as the long term leases to a much more.

Higher acuity procedures happening in these facilities compared to applebee's.

So that trend is starting to become pronounced.

All of the provincial governments are in big dialogues around how they how they evolve.

Their facilities use and just given that they're not necessarily directly on campus.

And physically attached to the existing hospital. It really offers northwest a bunch bigger opportunity set so that's a quite a pronounced trend that we see happening. So that trend also how what could happen in the medical office buildings of course, so we have a lot of space there.

Can be repositioned to deliver clinical outpatient services, whether it's dialysis or whether it's even.

Day surgery or other types of uses in the hospital, which.

Becoming less less.

Core is a hospital will shift from all this COVID-19 capacity to really much higher acuity things that are happening in hospitals. So we see that happening we also see in our.

In R&M obese.

As Peter mentioned, we go through the 15 years, we've been doing this there has been quite an evolution to how practices think so clearly we've been at the forefront of thinking about group practice and ways to accommodate both GPS and specialists and more flexible.

Nicer settings, and so that trend is happening.

That's continuing trend, but gives us some opportunities to deliver.

Quality things to people. So those are some of the things we see a lot of and then obviously when we get into the broader precincts and you get into that combination of research and health care and education.

We see the constellation of those three things as being really the drivers of these big precincts in these big opportunities and we're super focused on that obviously when it comes to development, where we're quite cautious and looking for all the good things that you would have.

Our industry offers us the great opportunity to do a lot of pre leasing if not 100% in many cases, but we you know we will find ourselves into.

<unk> Suisse.

On campus or increasing that you know well.

We'll have some neat opportunities. So those are all sort of highest conviction themes.

That precinct theme the outpatient ambulatory Siem and then of course, you know mlps around that play a really important role.

But there you know facilitating role too.

Delivery of health care.

So if I were to paraphrase it would be like there are you know there's good stuff ahead here in Canada. So that's going to go with the speed of government not at the SEC.

I'm not gonna electric that's not going to go up to speed now.

Yeah that that's that's fair you down, whereas you'd have to contrast that I mean, you know some of the most has asset heavy health care operators in our other markets private let's say to start.

Becoming very much crossing over that noncore Bitch bridge as it comes to their real estate and really opening up big portfolio opportunities as well as you know okay. All the how do we expand and evolve it because at the same time, what's going on in health care is that the operators are making huge investments in other areas like by T. Like.

And people there, there's just a real transformation happening in health care. So there's only so many dollars.

Real estate.

As you know something that they can control and and have great arrangements long term arrangements through leases they don't need to have all their capital real estate. It may.

They need a lot of capital to grow and evolve their businesses, which are experiencing huge demand. So that's kind of a theme and.

Yes, as we know governments.

Approach those those big themes, you know a little bit differently than that I think candidates changing.

An optimist and I believer in what we do here, but you know there's been a lot of good articles recently just in the paper around these issues.

Really needing to evolve the system.

And it's not gonna be exclusively let's say it won't be done exactly.

It's been done historically, which I'm confident to say today.

It's taken a long time to get there, but in the end.

Big push in terms of Covid, but you know we're very much in that mode.

And do you have a lot of like.

Like I don't know what the coverage is like for your Canadian portfolio do you have like you know opportunity to sort of increase but that would be on some of your medical office space maybe for some other uses beyond.

Medical.

We've been looking in our portfolio for a while now for for expansion opportunities that probably two big themes, you know that that would follow REIT land in general I think ones are more urban densification. So we've been focused on a series of value at locking initiatives around excess density and in our most core proper.

<unk>.

We actually have stuff all of them.

The city of Toronto, as an example that debt.

You know the next 50 story thing on it and so we're working through that it's not health care and then obviously you know the things that are close to.

Yeah.

The things that we like the portfolio has been very positioned to see properties near our proximity into hospitals or significant research nodes.

We focused on looking at opportunities to expand and grow our businesses there and I just wanted to call out for example, we own 49 college, which is across from you of tea in the REIT and the largest discovery district and so we're looking at a very significant opportunity there to grow and expand that building and.

That itself could be out.

$500 million project very easily.

You know in conjunction with some of them you know the biggest partners in the industry. So there's a bit of a range, but the answer is categorically across the portfolio and in all jurisdictions, we're looking for logical ways to expand it.

My my comments when in the introduction, we are really meant to say that the business, which has historically had sort of $300 million of active developments going on it is probably going to travel that over the near term in terms of going forward or do we see a very attractive opportunity set.

That REIT managing execution on those things is going to be an increasing part of our business, but we have consciously set up to do that because we have good land because also our partners are looking for new and expanded opportunities.

So a lot in that but I'd say, yes, yes, and yes.

Okay. That's great. Thanks, so much profit thanks Sheila.

Hello.

Your next question comes from Mario Sarak Scotiabank. Please go ahead.

Thank you and good morning.

Hmm.

I just wanted to go into a bit more detail on your two dollar.

And have you pump side in the near term.

How would you break that down between cap rate compression.

Value added with the UK adventure, and then essentially development upside and I ask that because I don't know how much of a 200 million of UK adventure value creation above cost is currently in Europe for us.

Yeah, I, probably let children brings some precision, but I'd like to get checked online here Meredith So, let's see if I get this right, but I'd say, 50% U K value creation and twenty-five each to the other two components might close on that Joe.

Yes, I think Thats fair and maybe to clarify a comment I guess Mario is that.

Specifically in respect of the U K and how much of that is already in our Iowa for us given.

Given that the majority of our UK portfolio has been acquired over the last 12 months.

I mean, it's essentially being held at cost so we haven't taken any material marks.

Portfolio.

Value creation is.

Come in respect to Brian.

<unk>.

Perfect Okay.

Operationally.

Australia has had some more recent calendars with adult variant can you highlight any.

You know any changes in rent collection or requests for rent deferral and I think along those lines are within your portfolio in the past couple of months.

Yeah, I'll I'll take that one we we had even even though I mean, unless you're remembering that Australia may have 500 cases in total so you know that.

Regime is in a very different approach to COVID-19 than we are but what hasn't happened I think other than in the very early days of the first wave is theres been any capacity constraints or restrictions.

On elective procedures as the industry would call it.

And so we're seeing all of our partners operating it.

That's substantially full capacity and no limitations on what they are capable to doing of course, the demand side of that came back instantaneously as we know health care is pretty inelastic when it comes to demand. So you got right now across the world, but including Australia, and New Zealand zero impact from from this.

At this moment.

Unexpected frankly, I think unless things get dramatically different.

Perfect, Okay and then.

It seems like there's never a dull moment with you in so far as there's a lot of opportunities globally.

With the expansion of your asset management franchise overtime.

You mentioned.

Australian unity and that perhaps being kind of a multi process.

Stuff that could take a bit of time when.

When we sit back how do we think about.

The the sequencing or.

Australia, and kind of deploying that excess capital that you have with your institutional partner.

The U K.

Venture.

You have a potential entry into the U S and any potential structural changes in Brazil and <unk>.

Candidate down the road.

Is there enough organizational depth to be able to do all that simultaneously where should we think about it one step out of retirement and if so how should we be thinking about the sequencing of a battle back two years.

You must have been around the board table yesterday, because that is the question I think you're absolutely right. We are.

Our art issue for sure is not opportunity. It's it's you know getting the sequencing right in and phasing it.

But I think we do have some very.

Core.

Strongly held beliefs and I've mentioned them again very much around these long term cash flows.

Mentioned them around precinct and the ability now to to add value added development and so as an example, the reason we like Australia immunity as a business is that it.

So many of those core things that we do and we like and then it has complementary.

Geographies and in relationships that debt.

That fit within our strongly held belief so it's highly aligned and we think about it in a very long term.

Calculated way.

But more importantly, I mean, I think of all of those initiatives and I think the business is probably capable of of doing two or three of those things at any given time. The business is much broader and it is increasingly got you know very strong regional capabilities. So we've spent a lot of time and energy building our platforms.

So of course, we need to get the staging REIT and the timing right through the capital markets and clearly some of the capital we use we like to redeploy so we're not doing everything you know on top of each other and in that regard.

But again I think we are more capable than ever of doing multiple things and I think I would just say that we're very mindful.

Of making sure that we we get things right in the REIT order I'd call out is we know we've been talking a lot about the UK JV over the last 12 months.

Do you see you know we came to a very strong conclusion, they're getting.

The value enhancement pieces of that portfolio right.

What is the right thing for the business and we paused the JV to facilitate that we've now where on the five yard line or maybe the one yard line of that initiative and so.

The next step will move quite quickly as an example, and I realize that.

We've been talking about it for a bit but we've made a ton of progress.

And executing on what we've wanted to do it.

I will say this one in any event, it's ended up better than than where we thought probably double what we thought we were going to be able to achieve them.

In terms of value enhancement, and so and with that comes you know new relationships and new opportunities as well, which are which will be on the horizon. So I think for our business. As an example that entered the U K as you know.

Opportunistically that that's going to make you know somewhere between 40 and 50% IRR in its initial investments internally offer the REIT sheet.

Seed, a new JV and establish.

Multi set of relationships with the top operators in the U K and in a number of different opportunities, where we're super happy with that outcome and it would have been great to be done 90 days ago, but you know we've taken the long view to get.

Fundamentals right and to deliver on things So you know as.

As an example, we've been able to do that.

Same time as you know.

All of our U S exploratory work and again, where we're not quite to the point of taking an investment decision there, but we're working hard at it we do expect news later this year.

All the while moving the business in Australia, and New Zealand into a very active set of both growth and.

Call them strategic initiatives.

You know I think we're capable of doing things and.

No.

Business.

We'll always have to weigh what and what order it does things in.

I think over time, we've gotten better at doing that.

Understood and then when we think about your equity needs to accomplish these initiatives.

We don't believe.

Acquiring with your consortium partner, 100% of car T.

This case I'm not sure if that's.

The base case going forward after the multi stage process or not but when we when we look at Australia, the seeding of the capital or the seeding of the Aspen from the U K and then potential initiatives.

In North America.

Given where your balance sheet is today or are you comfortable that you have all the necessary or you will have all the necessary required equity to kind of.

Execute on those initiatives.

Going forward.

Yeah, and even going forward.

I mean of course I think over time. This is a growth business and we probably see it.

And then medium term doubling the size of the business quite comfortably so of course in that context, we will need equity, both both JV and otherwise, but in the near term.

With the UK JV.

Coming quite quickly I do think we see you know a very adequate amount of equity for the for the things that we have underway again, noting that most of the bigger things are coming through.

Capital arrangements either in Europe or.

In Australia, where we're putting up.

Part dollars in behind.

Some cases very very attractive leverage so from that perspective, I think in the near term we feel pretty good about where we are you know the other side of that equation of course is leverage and so we are quite committed to be in.

D keeps decreasing leverage environment, we've done good steps this year around that Sheila noted, where we're certainly looking at somewhere between.

750, and 1000 basis points of additional deleveraging coming in a few different ways. So.

I think all of that is the tension of the business, but I do feel that its adequately capitalized in the near term certainly.

We went early to sit here a couple of times to make sure that was the case with <unk>.

Visibility on a number of big things.

But beyond that of course.

And there'll be more to do and then well have to get the sequencing of that right.

Understood, Okay, and your comment on development of our value add initiatives representing 50%.

Of the balance sheet overtime is that on a consolidated basis or would that.

Represent your proportionate interests are in northwest proportionate interest.

And those are the kinds of depression.

A portion of the balance sheet.

Yeah, I'll, let children I'll, let children get them correct me, but I think both actually but I think vital is already heading in that direction, you'll see from the recent releases there you know that.

We've got a very attractive you know advanced pipeline there Gallagher.

Galaxy and our JV in Australia is not far behind them with some very big initiatives and obviously funded for the long term to get that sort of thing done.

So I think across the rest of the organization.

Have some catching up to do.

But there are a number of meaningful initiatives underway. So it's.

I'm going to start at 15, but I think what we said.

And probably 18 months ago, just leaning into 2020, when we looked at the business and said you know.

We we have a lot of strategic land, we have a lot of partners that want more than just straight sale leaseback capital, they're looking for new and different and in real estate help.

Need to position the business in this direction and so.

That's something we've been working at now for 18 months and I think now, it's just getting meaningful enough to.

To.

To talk about specifically, so I feel like we're partway along the path and it's going to take another 12 or 24 months for it to start to be.

More pronounced than in some of these other geographies, but to maintain a $1 billion of value add or development constantly and the business is as a near term objective.

Is it meaningful.

You don't seem to talk about it and I think we've seen b C ourselves able to do that.

And.

As a business.

Well capitalized through its its capital commitments to accommodate that type of activity and then we're super focused on making sure that we can do it.

You know for you know not just an initial suite of projects, but but over time and I think that's one of the nice things about our industry, where you know when you, particularly.

Particularly in the precinct strategy or or ambulatory strategy, they tend to come in multiples or phases, and so you know once you get started.

So we have reasonably high visibility on that.

The phase 1234, or five situations at many of our sites and that gives us a nice staged opportunity overtime.

Pursue projects and these are.

Big campuses with lots of different types of uses so some of them are bite size some of them are bigger and have.

Usual pre leasing are.

Varied set of arrangements that you need to make it work so it's gonna be a little bit of everything.

In all directions.

But coming back to these core strategies and beliefs, which are you know we've always been a major market player we've always been a law.

Larger asset player in income.

Junction with precincts in conjunction with other infrastructure. So those are our big themes and of course, there are always a partnering players so where we have a partner like airports as an example, where they had a very varied set of needs. You know, we're looking to provide all of those needs.

Time, and again, you know we're able to do that so those are some teams that are in the business and I. Just think maybe what's changing is just the pace of those things coming because the health care industry I think is changing very quickly.

We're seeing in the U S. As an example, multiple major hospital operators you know looking to exit their on campus MLB real estate again coming to the conclusion that owning.

You know real estate assets as you know, it's not core for them.

Really nice opportunities that marry up with things that we know that we like in other parts of the world. As an example of things that we're seeing and we're seeing that around the world.

Just maybe one more quick one for me and recognition of a time.

The good with development as a longer term that per unit growth longer term.

Better quality portfolio the bad.

In the near term as there is no income that's a near term dilutive.

How do you.

Develop it becomes a bigger part of the story, how do you balance.

Those two and you have kind of a medium to long term painful per unit growth target that you want to achieve.

Very carefully I think is the right answer, but I mean.

You know given that a good percentage of the development will come through our JV or a permanent capital arrangements, we're able to a you know we're putting up in.

In those situations, you know 30 or 25% of the equity against against leverage that maybe you know again and you will average out, but certainly 50% to 60% and the types of projects that we do that are substantially lap and and substantially fixed contract or very limited cost and risk.

Those projects.

So the actual equity dollars to northwest start relatively small and we have very attractive development fee arrangements with all of our arrangements. So I think we're able to offset.

A small capital drag if you can think of it that way.

On earnings with very attractive fees and earnings around development management and leasing.

No no no it's mainly asset management. So we think it's a pretty you know.

Acceptable mix, so I would say that we probably still see it on the accretive side of the ledger, but I might let sharon speak to that just to.

To get his lens on that but.

But you know it's it's.

You know, we're talking about five to 10 cent dollars on these projects under $10 and we're talking about meaningful fees against that particularly well with projects under development.

Got it Okay and then just maybe the second part of that question on the.

No Sheila talked about structurally a 3% same store NOI growth.

You have a very prolific gold box amendments waivers.

Whereas an incremental fee.

Yes.

If you are three to five year business plan goes according to plan.

You know what what type of targeted April per unit growth.

The company and it can achieve.

Yeah.

A great question doing a start without children or would you like me to try yes.

Yes.

I mean you.

Put a thought.

Mary I think.

We do have a great slide on our Investor presentation actually slide 13, I would refer people to but it's what I like to call our business model side.

At that.

That 3% Unlevered SPP NOI growth lever do you look at about 6% there we believe our asset management business.

The nature of our fee structures brings about a 350 basis point premium growth that I and then through some of the development, which is becoming increasingly important in our business.

Forecasting around that 100 basis points.

Spread between stabilized.

Neil.

Think that brings an extra 30 to 50 basis points. So all of that would bring us to a core 10% to 12% stay.

Stabilized data forward term.

And that growth rate.

Okay.

Leveraging.

Yeah.

Okay.

Thank you.

Yeah.

Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one.

There are no further questions I will turn the conference back over to Paul Dell Atlanta. Please go ahead Sir.

Thank you operator, and thank you everyone that brings to conclusion northwest South kept properties Q2, 'twenty one call. Thank you for your involvement in attendance today.

Hey.

Yeah.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

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Good morning, ladies and gentlemen, and welcome to the northwest healthcare properties Real estate investment Trust second quarter 2021 results conference call.

This call is being recorded today Friday August 13th 2021.

And I would like to now turn the conference over to Paul Hello Lana.

E L F Northwest Health care properties REIT. Please go ahead Sir.

Yeah.

Thank you operator, and good morning, everyone. I appreciate you joining us today.

We're joined today with my show in Shanghai, The REIT, Chief Financial Officer, and Peter rigging, the REIT as Chief administrative officer together, we are pleased to share with you our results for the second quarter of 'twenty.

'twenty one.

First of all I'd like to point out that during today's call. We may make forward looking statements.

Find under Canadian Securities Law, well shut in forward looking statements reflect management's expectations regarding our business plans and future results. They are necessarily based on assumptions that are subject to uncertainties and risks, which could cause actual results to differ materially.

Direct all of you to the risk factors outlined in our public filings.

Operationally the REIT is performing defensively and performing well as expected with a portfolio that is 97% occupied by diversified tenant roster of hospital health care service and life Science research talent, the majority of which are directly or indirectly funded publicly by their respective governments in.

Q2 to REIT advanced a number of its strategic priorities, including its value creation initiatives in the U K.

The portfolio of our planned joint venture.

Dancing, it's ambulatory care and hospital precinct development strategies, and achieving our credit metrics consistent with an investment grade issuer.

The acquisition of Aspen healthcare for approximately $38 million was a major step for the REIT in the quarter.

<unk> is a hospital operator of four of the REIT to U K investment properties as a result of the transaction. We read acquired two new high quality assets in Clermont private hospital in Edinburgh clinics as well as control over the operations of eight hospitals located throughout the U K.

The REIT is concurrently entered into agreements to sell these hospital operations to leading U K hospital operators, which are expected to close later this year.

As a result of the Aspen acquisition and the sale process. The REIT has expanded its UK platform and further diversified its tenant base with a much stronger credit profile and.

As the REIT executes on the final stages of its UK value creation initiatives. Its focus is now shifting to executing on its previously announced $1.7 billion dollar U K JV initiative, which would should expect to be completed later this year early 2022.

In Q2, and subsequent to quarter end, the REIT completed $321 million of accretive normal course acquisitions and $7 million of disposition significantly expanding its assets under management to $8.3 billion, an improvement of over 21% year over year.

The REIT continues to progress earnings and NAV accretive development projects with a pipeline of $320 million currently under construction and an additional $27 million of approved projects.

Good completion dates between Q4 'twenty one in Q4 'twenty three Moreover, in this moment of an intense focus on the health care industry. The REIT has been leveraging its relationships with its health care operators and capital partners to participate in with northwest views as a key secular trend of the camping services, having hospitals to that Ed.

Just focus on the ambulatory care and hospital precinct development strategies and it has successfully built out our longer term development pipeline of over $1 billion.

With regards to Australia in unity.

At a price of $200 at 70 cents Australian per wholesale unit SEC.

The REIT acquired an additional interest through its premium cash offer of $2.70 per unit, which now takes the REIT holdings up to 17, 3%, making it the largest unitholder and Australian unity.

Read it actively considering next steps with regards to ensure investments in us.

Entity.

Another key priority advanced during the quarter was the continued debt optimization with a goal of achieving investment grade credit metrics in the quarter. The REIT completed $201 million of equity raise and post quarter closed a further $25 million private placement to north Westphalia apartments on the same terms that precede the issuance or deploy it towards the previously announced acquisition of <unk>.

Medical office buildings, and the repayment of higher cost debt.

In may $61 million of the 75 million series E convertible debentures were converted into equity with a balanced redeemed with existing liquidity as a result of all of these initiatives. The REIT proportional leverage declined 110 basis points quarter over quarter to 49, 6%.

<unk> balance sheet continues to shrink or organic or present organic deleveraging opportunities through the expected conversion of $85 million and getting the money series F. Debentures maturing in December 31st 2021, which have a conversion price of $12.80 per unit pro forma completion.

Yes G initiatives also remain a key strategic priority with the REIT being committed to issuing its first ESG report in 2021 REIT believes that ESG issues have played an important role in defining its past and will continue to do so in the future our global cross functional team led by the REIT as Chief administrative officer is advancing with important asps.

Part of its business, including completing its inaugural submission to grasp a leading real estate benchmarking provider.

For the quarter all results are in line with expectations with annualized quarterly adjusted funds from operations of 92 cents per unit on a normalized basis.

Joining a payout ratio of 87% earnings accretion from recent investment activity and financing activity was as expected, although the accretion of the Canadian dollar over the past year relative to the REIT average foreign currency exposure was a slight drag on earnings.

On a constant currency basis <unk> per unit was up approximately 9% year over year, which is particularly notable in the context of the reach deleveraging activity.

In the context of a lower Canadian interest rate environment, we expect FX headwinds may begin to ease in line over the balance of 2021, providing us further tailwind to the REIT to future earnings.

Additionally, net asset value was.

It was up six 3% to $13.14 per unit. This year, driven primarily by strong revaluation gains in Australia, and a rebound in Brazilian reais.

With significant demand for long leased inflation indexed assets.

Leasing interest in health care real estate in particular, we see near term potential for our continued cap rate compression across our markets leading to meaningful valuation increases in the near term.

And with our U K value creation initiatives expansion of the global asset management platform and our <unk>.

Growing development pipeline, we see the potential for a further $2 per unit and have increased in the short to medium term.

Before turning to operational results from the quarter I wanted to briefly speak of some of the trends we are seeing across each of our global markets investment activity is at all time highs with institutional investors shocking to rectify limited or underweight positions in healthcare real estate.

More than that we continue to see significant capital formation around health care real estate and premium valuations being ascribed to these platforms across Australia, Europe and the U S.

Collectively these macro themes are driving pricing in our sector, which we are beginning to see high quality assets in core markets trading until the low 4% range.

All that to say that while we have already booked substantial fair value gains in Australia, and New Zealand, we continue to see significant scope for further cap rate compression across our portfolio.

With several value added initiatives focused on portfolio repositioning and development strategies, we expect to continue to deliver meaningful NAV growth in the near term.

Operationally our results, which are derived from a 190 property $8.3 billion of health care infrastructure led portfolio.

By leading operators on long term inflation index leases was on plan.

<unk> strengths of this portfolio is reflected in our REIT operating results with year over year at constant currency cash recurring S. P. NOI growth of two 9% again, largely driven by contractual rent indexation and underpinned by 97% occupancy and our weighted average lease term of more than 14 years.

For the three months ended June 32021, the REIT collected just under 99% of its rent, which is 20 basis points up from the last quarter in all regards are highly defensive portfolio.

I think mentally I note. The following in Brazil, we are on plan with steady, 100% occupancy and continued strong year over year source currency S. P&I NOI growth of 4% operationally.

Operationally the reached major tenant digital continues to deliver exceptionally strong results and expand its business, thereby creating potential opportunities for fewer and.

Future partnerships with the REIT.

REIT is also focused on getting traction with additional high quality operators in Brazil, and Susan very constructive market currently.

Canada perform satisfactorily during the quarter with stable portfolio occupancy of 92% and adjusted year over year source currency S band or a decline of approximately 1%, mainly driven by higher payroll and payroll related costs leasing activity during the quarter was <unk>.

Involved 15000 square feet of newly single 68000 square feet of renewal leasing completed spread on renewal rates during the quarter was up six 5% with rent collection remaining strong above 98%.

On the investment front, the REIT acquired its first life science asset in Canada.

For $15 million at a weighted average capitalization rate of six 1% during the quarter. The property is located in close proximity to Montreal is checking the parks and its 100% occupied on an 11 year weighted average lease term REIT.

Completed the sale of one noncore and it'll be for an aggregate sales price of $7 million during the quarter.

In Europe, we were on plan and performing as expected with year over year source currency ask NOI growth of one 8% and occupancy at 96%.

Yeah.

In Europe, the REIT continues to execute on its growth agenda by developing strategic relationships in both the medical office and hospital segments, which continues to translate into accelerated deal flow. In addition to the UK value accretion initiatives previously mentioned the REIT completed the acquisition of it.

Previously announced portfolio are for on campus Dutch medical office buildings for $176 million I Dunno, how rich.

Capitalization rate of five 1%.

In Australia, the occupancy remained stable above 99%.

With constant year over year source for MTS P&I growth of three 2%.

Our weighted average lease term of more than 16 years at vital business reported similar results with year over year, SPP NOI growth of 6% and occupancy again at 99% and a weighted with a weighted average lease term of more than 19 years.

Manager of vital Trust REIT completed the acquisition.

Of our large.

Rehabilitation mental hospital hospital, located in Canada, while Australia.

For $68 million at approximately a 5% capitalization rate.

And again, new Greenfield development, and Princess Alexandria Hospital dressings in Brisbane, Australia.

The REIT is better positioned than ever continue to execute on that strategy.

I'll now ask the operator to open up the call for questions.

Yeah.

Thank you, ladies and gentlemen, we will now conduct a question and answer session.

If you would like to ask a question. Please press star one on your Touchtone phone.

If you would like to withdraw your question. Please press star two.

If you are using a speaker phone please lift the handset before pushing any keys.

One moment for your first question.

Your first question comes from Frank Xu.

Ammo capital markets. Please go ahead.

Thanks, operator and higher one.

So my first question on income side I saw you guys saw complete the acquisition of the life Science I sat in Canada and.

We can call.

After call that as a kind of a weekend a weakening call tool the lifetime Doctor and the the garden our economy, that's $2.2 billion in founding the lifestyle. So call that I wonder on this plan.

It's back to you know two to be part of the game you want to maybe just improve your practice and the lifestyle in Canada, either buy or build.

But we absolutely do.

And we're active in the life Sciences space and in all of our <unk>.

<unk> and in varying degrees, but it builds very much on one of our core investment themes, which is our precinct investment team and.

So.

We have active projects skewing in and under are under review and in all of those markets.

Some of it by some of adult.

And we expect to have further announcements on this it's a meaningful opportunity.

But it's not limited expressly to life Sciences, we do see this precinct opportunity offering a whole range of opportunities for us to to grow and build on and I might call out.

And Australia. Some recent examples which have come out you may have seen that we reported a vital vitals results.

Yes, 28.24 hours ago.

And we would have called out there are three or four specific projects.

Have upwards of $1 billion of potential development in precinct, including life Sciences hospital and outpatient opportunities.

And we see a real continuing opportunity to build on our key strategies and in Australia, and New Zealand as an example, but certainly are increasingly in Europe and in Canada.

Assuming these these initiatives until we're quite active in the business overall I'd call out maybe that the business.

In advancing these initiatives is looking to position the overall investment to between 10 and 15% of the business.

Into value add or development activities.

And I think we see.

Increasing visibility on that pipeline, we've been working hard.

In all our markets on these initiatives and so we're starting to make some real progress there.

Or this is in conjunction with our existing capital platform. So it gives us a very attractive way to both.

Basket and earn fees and unrelated revenue, bringing these projects to completion, so quite excited about it and you should open and really it's been a long standing objective for us to grow and build on.

Alright, Thanks, Paul for the Great color and I also this quarter, we're kind of turning to the fair amount of upside off your ICP I saw a record at a very nice ball fair value gain in this quarter.

I Wonder you know.

Especially in the vital trials I mean, so I wonder what has been changing in that market now that glad this.

Okay.

A recording in Q2, maybe its little question just say that.

Hey, Frank Yeah, I'm happy to speak to some of our cap rate trends more generally and then Paul can speak to some of the transactional investment moment I more generally our IRS cap rate came down about 20 basis points quarter over quarter, five 6% to five 4%.

Youre correct quarter over quarter, the primary change I came out of vital.

Which was about $200 million or so.

Over the quarter.

On a consolidated basis.

And year over year vital as presented about a 50 basis point compression.

And its overall weighted average cap rate.

It's a trend that we are seeing in the market more broadly I'd call out that as we know under IRS cap rates it tends to be a bit of a trailing indicators. So perhaps not as up to date with what we're seeing in the current investment market and personal calls introductory comments, we do see continued scope.

Four barks triumph rest cap rate, primarily coming out of Europe as well as continued continued compression in Australia, Paul I'm not sure if you'd want to add any color around the investment market to perhaps up substantially.

Sure.

Yeah. So I think I mean again, maybe putting that in context, we have guided previously to seeing 50 basis points and our total portfolio over the balance of the year I think we are where.

We're through 'twenty and this and this quarter, we see the balance coming certainly over the next couple of quarters, a good chunk of that as Jim said coming through continued cap rate compression and in Australia.

Australia, and New Zealand, and and in Europe, and as well as the UK JV initiatives, which I mentioned, so a lot of that is quite visible and coming quickly and so you know what.

We're quite confident in and that overall outcome.

In the near term I would say, though that.

The trends that we're seeing in our space for the highest quality.

Assets the infrastructure like assets that we substantially one already.

Are really starting to converge on the teams we're seeing in the industrial space. As an example, so you know while we've been guiding into the low fours for some of our.

Our best quality assets I really think that that's going to start to have a three in front of it quite quickly and so the trend is very pronounced and obviously.

Something that benefits our existing portfolio are significant.

So.

We've been relatively conservative to date on these numbers despite their size and noting that these are big movements on a on a big portfolio, but we see a lot more to come.

Obviously, we're equally focused on making sure how we position the business.

Both to acquire and increasingly to develop.

There are assets that we can do things accretively.

Accretively and and so we have all of our funds and JV set up you know they'd give us leverage and in a very low cost of capital to pursue opportunities in this type of environment. So we think we're well positioned there reminding everyone that we have approximately $5 billion of debt and equity capacity in our existing JV.

To pursue these strategies plus vital which is our evergreen.

Constant capital vehicle.

And we really are starting to see some of the value add and development initiatives that we're pursuing.

Coming in and.

In that mid fives to mid sixes types of returns so quite positively accretive to what's available in the.

And the sale leaseback market, which is incredibly competitive of course, our overall strategy has been to be a broad real estate partner of choice.

A bunch of services more than straight capital. So we see the business positioning itself to really be able to leg out that strategy on the ground in all of our regions and so really capable of delivering value added services to our tenants and that puts us in a really positive situation.

Recently for example, any of that again, we've had a very strong.

Partnering relationship with one of our bigger tenants in the portfolio upward.

We've completed the acquisition of Camberwell, which one it was one of their outpatient clinics.

In Melbourne, but we've also just come to heads of terms on our strategic.

Partnering relationship with them that will see us acquire interests in two of their biggest hospitals as well as committed over the next 10 years to upwards of a $1 billion of development with them expanding these big hospital campuses and so we're able to position the business with the best partners as you know as a strategic.

Chick partner.

It speaks well to sort of the strategy that we have that allow us to build on these partnering aspects and really grow the business both through acquisition and organic development over time, and so we're really starting to see that pipeline and those opportunities build nicely similar initiatives underway in our hospital portfolio in the U K and in our outpatient rehab.

Have clinics in and.

In Germany, and I'd call out Damn Ob acquisition that we did this past quarter and in in the Netherlands is a great example of buying.

A set of purpose built buildings from the hospital operator, we're now in the middle of a campus of Albert Schweitzer.

In the Netherlands, what are the top operators and.

It gives us a real opportunity to help them grow and evolve their campus over time and it's the first transaction that just typed in the Netherlands. So it also gives US you know.

Yes.

That's a lot of great detail, thanks, punish EDA and anti sense, that's all I want to circle back to U H P. P. I bet. So I'm DNA I felt like you guys have that you guys announced that the premium cash offer and also you mentioned the put and call arrangement to acquire 10 million units.

$1000 per wholesale unit.

I am following you guys that I anticipate to close the purchase of units by the start of quarter. All physical 2021. So my take is so it is you know the premium cash offer a document that closed in Q3 and also do you also expect to exercise your quote unquote arrangements in Q3 as well.

It could be Q3 or Q4, we have flexibility there, but yes, we do expect to exercise and we have an effective interest of 17, 3% again, making us the largest investor in the business that that consortium includes Oh JV partners. So we have a strong capital relationship there too.

To achieve that and again, we're very much looking down the road from there.

Okay. All right. That's all my questions today. Thank you very much partially I'll turn it back.

Your next question comes from Fred Blondell I E capital. Please go ahead.

Thank you and good morning, I was just looking at your same property NOI and I was wondering if you could give us a bit more granularity.

It looks like Youre doing extremely well with vital I think you gave us some good color just money budget could you expand a little bit more on what's going on in Australia will be the drivers there.

And it looks youre seeing are a bit more pressure at least.

Last quarter in Europe. So.

More color on the drivers in these areas would be much appreciated. Thank you.

Shannon, maybe I can take a stab at that and in Australia.

Again, our portfolio in Australia, and New Zealand is 100% indexed and 99% occupancy so the math on SPN, it's pretty direct drive.

Now we do have a number of our leases that have fixed floors of three years, 3.5%. So sometimes you know the growth rates there are above inflation.

Inflation, plus I would say through the portfolio, but by and large that the bulk of the portfolio is index to local local CPI.

So that's a bit Australia, and New Zealand and again at 99% occupied it's it translates pretty directly in both directions. So we like that part of the business.

Europe has that combination of both MLB and long term leases. So all of the long term leases in our rehab hospitals of course are indexed in.

It's a bit different in each market, where Germany is CPI indexed.

U K hospitals have.

Typically a call or a floor between two and a half for two and four and a half so.

So we get a minimum of two or two and a half and up to four and a half depending on the lease arrangement there.

And then the MLB portfolio, it's probably on average about three quarters of a.

CPI that we would get through our leases the MLB portfolio. So I think taken in combination you get a bit of a driver there that's pretty close to being inflation based of course inflation in Europe is lower than.

And in our other markets, including Australia, So we've been seeing that growth in them and the one two and a half per cent range. Translating. We also have you know again, India mobile business a business more closely approximates, Canada, So theres certainly as leasing and some elements of of.

Operational performance coming through that business. So it's a bit of a stew, but ultimately you know increasingly getting closer to a CPI based but not quite as far as Australia, New Zealand or Brazil for that matter.

Yeah, that's great. Thank you and if so what would be your views for second half of this year and next year.

You know looking at New Zealand, and Australia, and Europe as well.

Yes, I'm a bit reluctant to make a call it inflation to be direct the question I guess I'm you know I think the great news about our business, though is that we have pretty direct drive.

You know pass through into into our leases as we've just talked about.

So it's a more than 75% of the business. It has direct inflation adjustments or better. So I think we're well protected in a rising environment for some inflation, we've been guiding maybe Sheila and I'll, let you talk to what we're forecasting for the balance of the year, but I think we've been pretty consistent in that two and a half to three per cent espionage NOI range across the.

Business.

And.

Again at that anything different than that would come out of a higher inflation environment, which we which we are hearing a lot about but.

It hasn't yet translated and maybe some of the immediate shock of all this reopening is abating and things are restoring themselves to a little bit normal level, but I'm not sure and carry it from there.

Yes, Thanks Paul.

Right.

Irrespective SPP NOI on a global consolidated basis on a constant currency.

Year over year, we posted $2, 9% or roughly 3%.

Instant currency NOI.

That's been a fairly consistent run rate for the business.

So looking into that 3%.

NOI.

Second X percent or just under on a levered basis.

How do we see that tracking through the numbers.

That's been our historic track record, let's say their market going forward.

Fair enough. Thanks, Thanks very much.

Your next question comes from Tal Woolley.

<unk> Bank. Please go ahead.

Hey, good morning, Paul Good morning, Shannon how are you.

Well, Thanks Italia yourself.

I'm doing okay, I apologize if there's any noise my next door neighbor in my condo is doing rentals and so [laughter].

If it sounds like the walls of Kt and its only because they are the.

The I wanted to start just with Australia.

Australian Unity.

Are you a happy Passover shareholder now in Australia immunity.

Absolutely not.

And I think you know again, we haven't changed our stripes overnight tell so we do things for a reason.

They take a long view to it.

You know what I will say, though is that you know.

Clearly as the largest investor in the trust there.

We have a very strategic and very valuable stake and we accept to use it to maximum advantage as we look forward I can't talk more than that but I think you know is to have.

Our long term objective in mind and it'll be categorically do here with a partner who has an equally long term view. So yeah, nothing about the Windy road of Australia and in M&A.

As unexpected here and.

This would be a multi phase initiative for us.

Okay.

One is you know like what are the things that I've sort of wondering about what ive watched.

Moves over time that you guys have made to increase our exposure there, but it does feel to be a bit of a leverage arbitrage between what sort of tolerable here in Canada, and maybe what is sort of natural practice in Australia.

You know like.

Will they.

Is that that feels like it's part of the you know part of the potential upside for a new buyer is the if you.

You know like why Havent, you know like do you expect to see them start picking up their leverage.

As a result like I see more of these maybe bigger funds that are kind of relatively more unlevered, taking up their leverage as a result.

There's there's lots in that so again I think other than maybe.

You know other than.

Tactical things related to the specific situation, which I won't speak to what I can say about Australia, New Zealand in general and you see it in our vital business as well as it is a lower leverage environment than Canada traditionally has been although.

<unk> talked a lot about the direction, we're driving it.

You know a lot of that comes out of the recent experience in the GSE there in 2008 were.

That was very impactful and in the in the listed environment.

Most environment for trust, so we see lower leverage in that part of the world in General obviously, we have different approaches to it so in the context of our public sub vital.

We have a sub 30 kind of leverage.

Our focus right now.

And that's consistent with the market.

And probably consistent.

With the tightening of the market, maybe in Canada, and the U S. As an example, but that's certainly.

<unk> and the Australia, New Zealand contacted context in a listed environment of course, our JV.

With our with our.

A large institutional partner is very different and has a very different leverage fluency one of our great advantages as being able to to use that and it gives us an effective cost of capital and things that we may do so I think theres different answers to that question in a bit horses for courses, but if you had to generalize.

Cross, Australia, New Zealand I would expect it just given the typical listed in larger unlisted vehicles would be.

In the twenties in terms of leverage would be pretty steady state, there, which would be I think very much about that.

The low end of the North American market by example.

Okay.

Also wanted to talk about the Canadian portfolio.

Sort of a different question do you know within your tenant base for the medical office portfolio like roughly how much of your exposure is to G. P.

Versus special and other and other types of tenants.

It might benefit by having Peters comment that not to put you on the spot Pete but.

Do you have that at hand, if not we can we do we just would have to pull it out so.

Yeah. Thanks, Paul Good morning, Paul Yes, we don't have that at hand.

Let me pull that up for you.

Maybe if I can just what's behind the question, maybe we can yes yeah.

I can certainly go out to the follow up I think one of the things I've sort of increasingly hearing from retail landlord in the country as it is.

They are to get more medical uses into mall, they see themselves as having you know a lot of things that feature for consumers a.

A lot of other.

You know shopping alternatives it drives a lot of traffic it's pretty parking.

You just have like just this morning like Loblaw has announced another I think six G. P clinic, but theyre going to be opening up and shoppers I mean, it's early days, but I'm just saying like this appears to be a focus.

For another asset class as to maybe kind of.

Drive your tests.

Into a different in a different direction on what I was trying to get an idea of like what.

What you were thinking about that and how much.

I would say probably the G fees are the easiest to kind of shift into that environment, if you're a specialist with.

Different things that might be a little bit more a little bit more challenging to make that move.

Yeah Youre right. There are all different types of medical buildings, both here in Canada and in Europe. Some are GP focused some of our specialist focused.

Specific specifically related to nearby hospital infrastructure, So theres no one brush that touch it in terms of the competition be it from retail centers or from the likes of shoppers and what have you we have been dealing with that for the better part of that.

Part of the portfolio, so that's nothing new to us.

Continue to believe that it's more than just a space that is synergy within the building it services offered.

Just how they are treated as a tenant.

So that's.

Obviously, we're always continue to watch.

Competition in micro markets.

It's nothing that's throwing us off course, so let's say, we've dealt with them for well over a decade.

Okay and then.

For Paul you know like.

You've obviously spent a lot of the last step.

Several years building out the international portfolio can you just if we talk about but you know maybe not the life Sciences piece, which are just kind of starting here in Canada, but just that core medical office business.

Are there are there any sort of interesting opportunities that.

That are coming about because like you haven't kind of sending the portfolio around the edges or should we just continue to sort of see it as like the stable cash flow based on what you're building kind of the rest of the business.

I'm not I again, maybe I'm not sure I fully understand but maybe I'll try and pick up on a couple of thoughts.

On on my mind around portfolio.

Portfolio management, So I think the business tell US you mentioned has matured and got much more sophisticated over the over the last you know.

Since 2010, when we listed in 'twenty enforced since we started it.

So I think we have an increasingly you know.

Sophisticated.

Capital allocation thinking about what's good and what's what.

What we like and what we're what we're good at doing so I think we're in a continuous moment is optimizing and in it.

All of them in our portfolio.

The big trends I mean, again, if I try and come back to Canada, which we all know best we know that we still continue to have a very stylized health care market in Canada compared to the rest of the world.

That obviously has informed our thinking about where to go and why we didn't just get on the planes because we wanted to fly we went in there because we thought we could get better.

Quality and better returns and I think that's been proven out over time, but.

But I am quite constructive on Canada, again, it's being dragged perhaps a little bit unwillingly to the alternative of health care innovation and change in.

And so we are starting to to.

But nonetheless, the big trends are still happening so the big trend I mean, I'd like to talk about ambulatory and outpatient in Canada, It's a funny big trend because it's been in existence for 25 years and yet we have almost none of it.

So we're seeing very significant changing thinking in posture in.

And then a provincial health leaders around you know moving aggressive during this COVID-19 has been an absolute accelerant to this trend.

Active as you know in late <unk> and other outpatient ambulatory development opportunities none of those start to have the features that we like.

And in terms of that game a lot larger.

Creditworthy tenants and the government itself or the hospital operators as well as the long term leases are much more.

Higher acuity procedures happening in these facilities compared to applebee's.

So that trend is starting to become pronounced.

All of the provincial governments are in big dialogues around how they how they evolve.

Their facilities use and just given that they're not necessarily directly on campus.

And physically attached to the existing hospital it really offers northwest.

Much bigger opportunity set so that's a quite a pronounced trend that we see happening so that trend also.

It could happen in medical office buildings of course, so we have a lot of space that can be repositioned to deliver clinical outpatient services, whether it's dialysis or whether it's even.

Day surgery or other types of uses in the hospital, which.

Becoming less less.

Core is a hospital will shift from all this COVID-19 capacity to really much higher acuity things that are happening in hospitals, so we see that happening.

We also see them in our.

In R&M obese.

Nicer settings, and so that trend is happening.

That's continuing trend, but gives us some opportunities to deliver high quality things to people. So those are some of the things we see a lot of and then obviously when we get into the broader precincts and you get into that combination of research and health care and education.

We see the constellation of those three things as being really the drivers of these big precincts in these big opportunities and we're super focused on that obviously.

When it comes to development, where we're quite cautious and looking for all the good things that you would have.

Our our industry offers us the great opportunity to do a lot of pre leasing it's not a 100% in many cases, but we you know we will find ourselves into.

Arrangements with.

On campus or in precinct that well.

We'll have some neat opportunities. So those are our sort of highest conviction themes.

That precinct theme the outpatient ambulatory Siem and then of course, you know mlps around that play a really important role.

But theyre facilitating a role too.

Delivery of health care.

So if I were to paraphrase it would be like there are you know there's good stuff ahead here in Canada. So that's going to go at the speed of government not at the SEC electric.

Electric that's not going to go up to speed.

Yeah that that's that's fair you down, whereas you have to contrast that I mean, some of the most has asset heavy health care operators in our other markets private let's say to start.

Becoming very much crossing over that noncore Bitch bridge as it comes to their real estate and really opening up big portfolio opportunities as well as you know all of the how do we expand and evolve it because at the same time, what's going on in health care is that the operators are making huge investments in other areas like by T. Like.

And people.

Just a real transformation happening in health care. So there's only so many dollars in real estate.

As you know something that they can control and and have greater arrangements long term arrangements through leases they don't need to have all their capital in real estate it.

They need a lot of capital to grow and evolve their businesses, which are experiencing huge demand. So that's kind of the theme in.

Yes, as we know governments approach those those big themes, you know a little bit differently than I think candidates changing right.

Optimist and I believer in what we do here, but you know theres been a lot of good articles recently just in the paper around these issues.

You know really needing to evolve the system.

It's not gonna be exclusively let's say it won't be done exactly.

<unk> been down historically, which I'm confident to say today, it's taken a long time to get there but.

And a big push in terms of Covid.

We're very much in that mode.

And do you have a lot of like.

Like I don't know what the coverage is like for your Canadian portfolio do you have like you know opportunity to sort of increase with the SEC.

All of your medical office space, maybe for some other uses beyond.

Okay.

We've been looking in our portfolio for a while now for for expansion opportunities.

Two big themes, you know that that would follow REIT land in general I think ones are more urban densification. So we've been focused on a series of value at locking initiatives around excess density and in our most core properties.

And we actually have stuff all around the city of Toronto as an example that that has.

The next 50 story thing on it and so we're working through that it's not health care and then obviously you know the things that are close to.

Yeah.

Things that we like the portfolio has been very positioned to see properties near or proximity into hospitals or significant research nodes. We're very focused on looking at opportunities to expand and grow our businesses there and I just wanted to call out for example, we owned 149 college, which is across.

So for me of tea and REIT in the.

Once discovery district, and so we're looking at a very significant opportunity there to grow and expand that building.

You know that that itself could be a $500 million project very easily.

In conjunction with some of it you know the big.

<unk> partners in the industry. So there's a bit of a range, but the answer is categorically across the portfolio in all jurisdictions, we're looking for logical ways to expand it.

And my my comments.

The introduction was really meant to say that the business, which has historically had sort of $300 million of active developments going on it is probably going to travel that over the near term in terms of going forward do we see a very attractive opportunity set.

Getting that right managing execution on those things is going to be an increasing part of our business, but we have consciously set up to do that because we have good land because also our partners are looking for new and expanded opportunities.

So a lot in that but I'd say, yes, yes, and yes.

Okay. That's great. Thanks, so much profit thanks Sheila.

Sure.

Your next question comes from Mario Sarak Scotiabank. Please go ahead.

Alright, Thank you and good morning.

I just wanted to go into a bit more detail on your two dollar.

And have you pump side in the near term.

How would you break that down between cap rate compression.

Value added with the U K adventure, and then potentially development upside and I ask this because I don't know how much of a 200 million of U K adventure value creation of our cost is currently in New York.

Yeah, I, probably let chairman bring some precision, but I would like to get checked online here Meredith. So let's see if I get this right, but I'd say, 50% U K value creation and twenty-five each to the other two components.

Close on that Joe.

Yes, I think that's fair and maybe to clarify a comment I guess Mario is that.

Specifically in respect of the U K and how much of that is already in our <unk>.

Given that the majority of our UK portfolio has been acquired over the last 12 months.

It's I mean, it's essentially.

Essentially being held at cost so we haven't taken any material marks.

Okay.

Our new creation is.

It's come in respect to Brian.

Mark.

Perfect Okay.

Operationally, our Australia has had some more recent calendars with adult variant, but can you highlight any.

Any changes in rent collection or requests for rent deferral on something along those line within your portfolio over the past couple of months.

Yeah, I'll I'll take that one.

We have even even though I mean, unless you're remembering that Australia may have 500 cases in total so that.

On elective procedures as the industry would call it.

And so we're seeing all of our partners operating yet.

At this moment and unexpected frankly, I think unless things get dramatically different.

Perfect, Okay and then.

It seems like there's never a dull moment I'm.

With you in so far as there's a lot of opportunities globally.

With the expansion of your asset management franchise overtime.

Mentioned.

Australian unity and that perhaps being kind of a multi year process.

That could take a bit of time.

When we sit back how do we think about.

The the sequencing or.

Australia, and kind of deploying that excess capital that you have with your institutional partner.

The U K.

<unk> venture.

You have a potential entry into the U S and any potential structural changes in Brazil.

Candidate down the road.

They are in my for organizational depth to be able to do all that simultaneously or should we think about it one step out of retirement and if so how should we think about the sequencing of a battle back two years.

You must have been around the board table yesterday, because that is the question.

I think you know you're absolutely right we are.

Our art issue for sure is not opportunity.

It's getting the sequencing right in and phasing it.

But I think we do have some very.

Core.

Strongly held beliefs and I've mentioned them again very much around these long term cash flows.

You mentioned them around precinct and the ability now to to add value add and development and so as an example, the reason we like Australia immunity as a business is that it emulates many of those core things that we do and we like it and it has complementary.

Geographies and relationships that debt.

That fit within our strongly held belief so it's highly aligned and then we think about it in a very long term.

Calculated way.

But more importantly, I mean, I think of all of those initiatives and I think the business is probably capable of of doing two or three of those things at any given time. The business is much broader than it is increasingly got very strong regional capabilities. So we've spent a lot of time and energy building our platforms.

So of course, we need to get the staging REIT and the timing right through the capital markets and clearly some of the capital we use we like to redeploy so we're not doing everything.

On top of each other and in that regard.

But again I think we are more capable than ever of doing multiple things and I think I would just say that we're very mindful of making sure that we get things right in the REIT order I'd call out is we know we've been talking a lot about the JV over the last 12 months, obviously, we came to a very strong conclusion, they're getting.

The value enhancement pieces of that portfolio right. What is the right thing for the business and we paused the JV to facilitate that we've now who are on the five yard line or maybe the one yard line of that initiative and so.

The next step will move quite quickly as an example, and I realize that.

We've been talking about it for a bit but we've made a ton of progress.

In executing on what we've wanted to do it.

I will say this one in any event, it's ended up better than than where we thought probably double what we thought we were going to be able to achieve in terms of value enhancement.

So.

And with that comes you know new relationships and new opportunities as well, which are which will be on the horizon. So I think for our business. As an example that entered the U K opt.

Opportunistically that that's going to make you know somewhere between 40, and 50% IRR and some initial investments internally offer the REIT.

She'd a new JV.

Establish.

We've taken the long view to get the <unk>.

Underlying fundamentals right and to deliver on things so.

As an example, we've been able to do that at the same time as you know our all of our U S. Exploratory work and again, where we're not quite to the point of taking investment decisions there, but we're working hard at it but we do expect news later this year.

All the while moving the business in Australia.

New Zealand into a very active set of both growth and.

Call them strategic initiatives.

You know I think we're capable of doing things and.

No.

Business.

We'll always have to weigh what and what order it does things and again I think over time, we've gotten better at doing that.

Understood and then when we think about your equity needs to accomplish these initiatives presumably.

Acquiring with your consortium partner, 100% of truth.

HPT.

Because I'm not sure if that's.

The base case going forward after the multi stage process or not but when we you know when we look at Australia, the seeding of the capital or the seeding of the absolutely. Okay. And then you know potential initiatives.

North America.

Given where your balance sheet is today or are you comfortable that you have all the necessary or you will have all the necessary required equity to kind of.

Execute on those initiatives.

Going forward.

Yeah, and even going forward.

I mean of course I think over time. This is a growth business and we probably see.

And then medium term doubling the size of the business quite comfortably so of course in that context, we will need equity, both both JV and otherwise, but in the near term.

With the UK JV.

Come in quite quickly I do think we see you know a very adequate amount of equity for the for the things that we have underway again, noting that most of the bigger things are coming through.

Capital arrangements either in Europe or.

In Australia, where we're putting up the part dollars in behind.

Dickies decreasing leverage environment, we've done good steps this year around that Sheila noted, where we're certainly looking at somewhere between.

750, and 1000 basis points of additional deleveraging coming in a few different ways. So.

I think all of that has the attention of the business, but I do feel that its adequately capitalized in the near term and certainly we went early to sit here a couple of times to make sure that was the case with <unk>.

Visibility on a number of big things.

But beyond that of course.

There'll be more to do and then we'll have to get the sequencing of that right.

Understood Okay.

To your comment on development of our value add initiatives representing 50%.

Of the balance sheet overtime is that on a consolidated basis or would that.

Represent your proportionate interests are in northwest proportionate interest.

And those initiatives.

A portion of the balance sheet.

Yeah, I'll, let Sheila and I'll, let children get correct me, but I think both actually but I think vital is already heading in that direction, you'll see from the recent releases there you know that.

We've got a very attractive.

Advanced pipeline there.

Galaxy and our JV in Australia is not far behind.

With some very big initiatives, and obviously funded for the long term to get that sort of thing done and so I think across the rest of the organization.

Have some catching up to do.

But there are a number of meaningful initiatives underway. So it's not going to start at 15, but I think what we said.

Probably 18 months ago, you know just leaning into 2020, when we looked at the business and said.

We we have a lot of strategic land, we have a lot of partners that want more than just straight sale leaseback capital, where they're looking for new and different and in real estate help.

Need to position the business in this direction and so you know that.

That's something we've been working at now for 18 months and I think now, it's just getting meaningful enough to.

Two.

To talk about specifically, so I feel like we're partway along the path and it's going to take another 12 or 24 months for it to start to be.

More pronounced than in some of these other geographies, but to maintain a $1 billion of value add or development constantly in the business as a near term objective.

Is a meaningful thing.

The thing to talk about it and I think we've seen B C ourselves able to do that.

And.

As a business.

Again, well capitalized through its its capital commitments to accommodate that type of activity and then we're super focused on making sure that we can do it.

You know for you know not just an initial suite of projects, but but overtime and I think that's one of the nice things about our our industry, where you know when you.

Particularly in the precinct strategy or ambulatory strategy, they tend to come in multiples or phases, and so you know once you get started.

So we have reasonably high visibility on that.

Phase 1234, or five situations at many of our sites and that gives us a nice staged opportunity overtime.

Two projects these are.

Big campuses with.

Lots of different types of uses so some of them are bite size some of them are bigger in half.

Actual you know pre leasing or or or.

Varied set of arrangements that you need to make it work so it's gonna be a little bit of everything.

In all directions.

But coming back to these core strategies and beliefs, which are you know we've always been a major market player we've always been.

Larger asset player.

Injunction with precincts in conjunction with other infrastructure. So those are our big themes and of course, we're always a partnering players so where we have a partner like airports as an example, where they had a very varied set of needs. You know, we're looking to provide all of those needs.

Time, and again, you know we're able to do that so those are some themes that are in the business and I just think maybe.

What's changing is just the pace of those things coming because the health care industry I think is changing very quickly.

Real estate assets as you know, it's not core for them really nice opportunities that marry up with things that we know that we like in other parts of the world as an example, even with the things that we're seeing and we're seeing that around the world.

Just maybe one more quick one for me and recognition over time.

The good with development as a longer term not for unit growth longer term equal peanut.

Better quality portfolio about.

In the near term is there's no income guidance near term dilutive.

Do you.

Does all of that becomes a bigger part of the story, how do you balance those.

<unk>, two and you have kind of a medium to long term painful per unit growth target that you want to achieve.

Yeah, very carefully I think is the right answer but.

Given that a good percentage of the development will come through our JV or a permanent capital arrangements, we're able to a we're putting up in.

In those situations, you know 30 or 25% of the equity against against leverage that maybe you know again and it will average out, but certainly 50% to 60% and the types of projects that we do that are substantially lap and and.

And substantially fixed contract or or very limited cost risk on those projects.

So the actual equity dollars to northwest start relatively small and we have very attractive development fee arrangements with all of our arrangements. So I think we're able to offset.

Small capital drag if you can think of it that way.

On earnings with very attractive fees.

Fees and earnings around development management and leasing.

I know, it's fairly asset management. So we think it's a pretty you know.

Acceptable mix, so I would say that we probably still see it on the accretive side of the ledger, but I might let sharon speak to that just to.

To get his lens on that but.

But you know it's it's we're talking about five to $10 on these projects under $10, we're talking about meaningful fees against that particularly well the projects that are under development.

Got it Okay and then just maybe the second part of that question on the.

Michelle talked about structurally 3% same store NOI growth.

We have a very.

Very prolific gleboff amendments or waivers on incremental fee.

Yes.

If you are three to five year business plan goes according to plan.

You know what what type of targeted April per unit growth do you think the company units.

Keith.

Yeah.

Great question do you want to start with that show them or would you like me to try yes.

Well I'd be happy to put up the thought.

Mary I think.

You have great slide on our Investor presentation, 90, 513, I would refer people to put it.

What I like to call our business model side.

At that.

You know at that 3% Unlevered SPP NOI growth lever do you look at about 6% there we believe our asset management business.

And the nature of our fee structures brings about a 350 basis point premium growth that I have and then through some of the development, which is becoming increasingly important in our business.

Forecasting around that 100 basis points.

Read between stabilized development yield.

We think that brings an extra 30 to 50 basis points. So all of that would bring us to a core 10% to 12%.

Stabilized return.

That growth rate.

Okay.

Leverage neutral.

Neutral.

Okay.

Thank you.

Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one.

There are no further questions I will turn the conference back over to Paul Dell Atlanta. Please go ahead Sir.

Thank you operator, and thank you everyone that brings to conclusion northwest South kept properties Q2, 'twenty one call. Thank you for your involvement in attendance today have a good day.

Yeah.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

Q2 2021 NorthWest Healthcare Properties REIT Earnings Call

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