Q4 2021 NorthWest Healthcare Properties REIT Earnings Call
[music].
Ladies and gentlemen, thank you for your patience. Please do not disconnect. The conference call will begin momentarily. Once again. Please continue to standby do not disconnect. The conference call will begin momentarily. Thank you for your patience.
[music].
Okay.
Good morning, ladies and gentlemen, and welcome to the Northwest Health care properties Real estate investment Trust fourth quarter 2021 results conference call at this time and note that all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session and if at any time during this call.
You're required needed assistance. Please press star zero for the all paid it also note that the call is being recorded on March 15, 2022, and I would like to turn the conference over to Paul <unk> CEO . Please go ahead Sir.
Thank you operator, and good morning, everyone. We appreciate you joining us today.
Joined by shale in China any of the reeds Chief Financial Officer together, we are pleased to share our results for the fourth quarter of 2021.
First I'd like to point out that during today's call. We may make forward looking statements as defined in the Canadian Securities laws, such forward looking statements reflect management's expectations regarding our business plans and future results. They aren't 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 public filings.
The recent high quality in defense of $9 $2 billion portfolio delivered record financial results highlighted by two 2% and 9% <unk> and net asset value per unit year over year growth, respectively. While also reducing proportionate leverage by 840 basis points.
Underpinning. These results was a 16, 3% increase in fee bearing capital, resulting in a 60% increase in proportion of asset management fees.
And three 6% constant currency same property NOI growth.
Well, the social and economic disruption mentors disruption caused by COVID-19 fades from memory demographic trends and our backlog built during global Lockdowns are expected to drive elevated demand for healthcare services and health care real estate over the medium and long term.
Demand for health care real estate has continued to intensify as demonstrated by the $594 million of investment property revaluation gains in our portfolio. In 2021 has the rights weighted average capitalization rate compressed by 43 basis points to five 2%. The increase is being driven by capital flows into the sector.
As a result of the relative outperformance vis vis typical commercial asset classes and I think knowledge of the stability and infrastructure like characteristics offered by long weighted average lease term cure focused healthcare real estate.
<unk> fair value gain recorded in the year healthcare real estate continues to trade at a discount to core commercial asset classes, which we believe will support continued cap rate compression as health care real estate continues its migration into the mainstream.
The REIT also notes the increased geopolitical risk driven by the Russia, Ukraine conflict and despite the organization's exposure to European markets. The impact at this point has been limited with credit and equity markets open and accessible and no evidence of disruption in acquisition markets.
The last of the REIT is moving to Derisk its operations by accelerating 2022 debt maturities and as already either refinanced or is in advanced discussions to refinance approximately 70% of its 2022 maturities.
Moreover, the changing macroeconomic environment, including rising inflation and interest rates has highlighted the importance of the annual rent indexation.
Factoring in fixed contractual increases and inflation linked caps and collars. The REIT would expect rent growth above inflation at global CPI of 2% in the context of the current inflationary environment with CPI hovering around 5%. There is contractual rents would be expected to increase by almost 70% of this increase in question.
In the event of a wider complex rehab mitigate some place to ensure execution of key 2022 strategic priorities that will minimize the impact on its global operations.
The ability caused by this conflict across multiple facets of the global economy further highlights the stability of cure based health care real estate as a haven for investors due to strong returns driven by high occupancy and long credit supported.
Yes.
Before discussing the results of the year I thought I would provide some perspective on our business.
Moment today northwest is in the best position in its history with <unk> trading near all time highs and asset management platform, just reaching its stride and the strongest balance sheet that it's ever had post quarter end. The REIT made substantial progress on key initiatives, including.
Full completion of our U K value creation initiatives generating approximately $200 million incremental value and entering into agreements to refinance the portfolio with a new 265 million ton facility, all of which positions the REIT to execute on its plan.
In the second quarter of this year.
Our new $2 2 billion dollar Australian JV expansion that builds upon our successful Australian core hospital JV with GIC and increases the total commitment in that fund to more than $5 6 billion.
And after a year of extensive diligence. The REIT has agreed to acquire a $765 million portfolio of care focused healthcare assets located in the United States.
This high quality portfolio of its 27 assets located in 10 states with a mix of hospitals ambulatory and outpatient clinics in medical office buildings akin to our current portfolio.
Portfolio also has low management intensity with a long wale and is an ideal starting point for our future growth in the U S.
And building on our previously announced precinct development focus.
The REIT has launched a health care piece.
<unk> development fund.
To focus on our growing pipeline that includes opportunities at the intersection of healthcare Research and Education and example of this type of development is the recent acquisition in Q4 of the Epworth long in the limb project and.
In particular these types of dawn and offer significant long term growth in multi phases with leading partners in this case of course.
And a potential project of almost $1 2 million square feet, which will create a world class innovation education, and healthcare precinct and suburban Melbourne.
Additionally, we see opportunities across Australia, and Canada and the <unk>.
Total precinct pipeline development pipeline approaching $2 billion.
Also in 2021, and we saw significant deleveraging driven by $580 million of equity issuance, which includes both series E and F convertible debenture conversions and $447 million of equity new equity consolidated leverage decreasing by 610 basis points to 41, 9%.
In line with investment grade metrics.
Upon completion of the U S acquisition, we will temporarily increase this leverage.
Noting that all formation of both the U K Jv's and U S co investment funds with existing portfolio seeding those platforms.
Leverage will decrease again by a further 600 basis points to approximately 36% pro forma proportionate leverage is expected to decrease by almost 400 basis points from Q4 2021.
<unk> four to 48, 5%.
For the year, our results were in line with our expectations, noting the above deleveraging, including annualized quarterly adjusted funds from operations of 95%.
<unk> per unit on a constant currency at a leverage neutral basis, implying a payout ratio of 84%, earning.
Earnings accretion from recent investment in financing activities was as expected, although foreign exchange movements or the Canadian dollar appreciated by approximately four 6% over the last year relative to the REIT average foreign currency exposure, which continues to slow earnings growth.
Net asset value also increased by 17% year over year to $15 47 per unit again on a constant currency basis, driven by an increased value in the REIT asset management platform and strong property valuation gains on a constant currency basis over.
Over the past 12 months, we estimate the increased strength of the Canadian dollar has reduced annualized so approximately four cents per unit and net asset value by $1.
In terms of liquidity, the REIT is well positioned with $100 million of existing liquidity. This is expected to exceed $300 million as a REIT seats. Its current UK portfolio and future U S portfolio into new funds.
This year operationally our results reflected the expected from an expanded 197 property nine 2 billion defense of health care infrastructure portfolio.
Having a long term inflation index leases with leading health care operators.
<unk> is reflected in the reached 2020 constant currency cash occur starting 2021 constant currency cash recurring ESPN or why growth is three 6% again largely delivered by a 97% occupied.
Substantially rent index portfolio with weighted average lease term of almost 15 years in all regards are highly defensive portfolio portfolio.
Mentally I don't the following in Brazil, where on final steady at 100% occupancy and continued strong constant currency cash Spi NOI growth of four 8%.
Operationally, we note that there is a major tenant into door continues to live with exceptionally strong results and is among Brazil's top 10 companies by market capitalization.
We were also on plan continuing solid performance with constant cash recurring NOI growth of one 2% and portfolio occupancy remains stable at 91%.
During the year, the REIT completed 257000 square feet of renewal leasing at rates relatively in line with expiring rates. We continue to focus on regional sustainability initiatives and our ambulatory care and life Sciences precinct development initiatives are gaining momentum and expect it to be highly accretive.
In Europe , we are on plan and performing as expected with constant currency <unk> growth of one 1% and a stable 97, 4% occupancy.
To find good investment opportunities in Europe , allowing us not only to build scale and critical mass in our existing regions, but also to pursue new opportunities in adjacent markets.
And in Australia, our largest market.
Occupancy remained steady over the year at 99% and delivered constant currency SPP NOI growth of two 8% with a weighted average lease term of almost 17 years.
The business reported similar results with SP NOI growth of five 5% driven by record inflation again in the year and occupancy stable at 98% with a weighted average lease term of more than 18 years.
Weighted average cap rate also compressed by 66 basis points driving significant fair value gains and resulting in an incentive fee exceeding $17 million for the REIT asset manager a 222% increase from the prior period.
I am pleased with the progress made during the year, which advance the REIT as long term strategic objectives and produced solid operating results with deep relationships best in class regional operating platforms and strong assets access to both public and private capital. The read is just beginning to hit its stride in terms of unlocking the full potential of its asset manner.
<unk> business, and becoming a global leader in health care real estate.
I'll now ask the operator to open up the call for questions. Thank you, Sir ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear a sweetheart.
Prompt acknowledging your request.
I would like to withdraw from the question queue simply press star followed by Tim and if he using a speaker phone. We do ask that you. Please lift the handset before pressing any Keith. Please go ahead and press Star. One now if you have any questions and your first question will be from John Chen of BMO capital markets. Please go ahead.
Hey, good morning.
Congrats.
Almost all of them for the year.
Also.
Also on your entry in the U S. I guess just on that first.
What's the pipeline looking like for further.
Opportunities.
In the U S I.
I guess kind of all over the near term.
Yes.
It's a fantastic question I think in the near term, we're very focused on on bringing a capital partner into the existing investment so that's probably our.
Highest priority but.
Clearly the U S is the largest health care and health care real estate market in the world. So there's a very significant opportunity set happening.
And we've been working hard over the last year or to identify that so certainly we have a diesel.
Pipeline of opportunities, but nothing immediately planned in terms of.
A major transactions.
Would it be in the market.
Or are they looking at additional ones as well.
Yeah, I think I would always refer back to sort of our core strategy. So this is the.
The thing we like about this portfolio, obviously, it's highly diversified both by market and operator.
And in fact, our asset type.
It kind of makes it a pretty wide in print across possibilities, but I think we see that as a good starting point and certainly broadly in that cure health care space, which we remain focused but I would call out sort of our sort of global priorities of health care precincts are or campuses are asking <unk> medical centers in U S terminology.
As well as ambulatory and outpatient.
Being key themes for us in recalling that the MLP space in the U S has a heavy degree of ambulatory and outpatient sort of characteristics to it so.
I think as we think about applebee's and up into ambulatory, we look a little bit more to geographic concentration opportunities overtime.
Okay.
Some key markets and when we get into out get precincts in academic medical centers.
A pretty well known map of the top 20 of those places in the U S and those would all be on our list to be looking at over time.
Got it.
Okay, and I guess, just on the organic growth front.
Turning to Seaworld.
It goes back in Australia, but could you maybe provide some color on the European portfolio.
What are some of the <unk>.
Factors that perhaps grow that a little bit lower relative to other markets.
Yes.
I think maybe.
Maybe.
Well I might defer to shut in because I think there's some nuances in the numbers.
Through our UK business and that's the final stabilization of things there.
And then he can speak to that more regionally about CPI in the structure of our leases in different places.
Great. Thanks, Paul.
So over the course of 2021, you would have seen about 1% or one 1% of year over year S PLO growth.
That's probably muted by the tune of about 120 basis points or so by some of the value creation activities. We undertook in the UK, where we ended up re gearing some of the leases and specifically in respect of the asset portfolio that we acquired as we restructured and replaced some of those tenancies with higher quality tenancies and ultimately <unk>.
On our $200 million of value creation.
We ended up re gearing, so the leases, which impacted SPP NOI growth, so excluding that kind of call. It nonrecurring asset level value creation initiatives, you would've seen about 2% to 3% year over year SPP NOI growth in Europe , including the UK, which is in line with our longer term expectations.
And maybe I'll defer to Paul on some of the.
More broader macro in Europe , where we see significant growth in the pipe.
Great.
Yes, So I think the you know the majority of our so we really have two two.
Types of of <unk>.
Asset classes in Europe , that's long term.
Acute and outpatient type facilities with that.
With long term leases and full indexation that ranges from sort of 70% of CPI to RPI in the UK, which is probably somewhere between 75, and 100 basis points above U K CPI, so a bit of a mix in that in that part of long term.
Index leases and then we have our <unk> portfolio, which is broadly centered and concentrated around Orlando, which is a market that's enjoying pretty strong rental growth just given some of its own characteristics. So I think that that two three to two.
To three range given that combination of activities.
The continuing European targeted and really that.
The results this quarter had that one time adjustment that Chad spoke of.
Got it.
That's really helpful.
Maybe switching gears more so back to Canada, you have seen a lot of headlines there.
There was a very strong demand for life science.
With life Sciences.
In Canada, and the short supply would you have any interest to further invest in this area.
Kind of in 2022.
Yes, with Encana and would there be any.
Particular room nights.
We focus on.
Yes.
As you know one of our most core strategies as their pricing strategy, so that intersection of healthcare and research and education. So for sure. We're focused on on the good places that those things happen right now and we have assets.
In those precincts like our 149 college asset here in Toronto, and the Mars Discovery District.
So we're very focused on looking to appropriately to grow and offset youre right Theyre, probably the dollar demand for life Sciences.
Very strong I'm not sure that the tenant demand is strong so we're quite focused on making sure. Our projects are sustainable and have the long term characteristics that we like and need but we did enter the life sciences market here with an acquisition in Quebec.
In 2021.
Spending a good amount of time thinking about it and I expect it will have.
Number of things to do in 2022.
In our current pipe here in Canada.
We like the space of course, and Australia, where we're very active.
A significant pipeline there.
Part of the reason for our leaning in to focus on.
Our new precinct oriented development funding.
Our JV as it were.
And we think there is.
Huge opportunity set there in front of US we already are heavily invested in healthcare precincts in Australia with our existing vital Ed.
GIC JV.
Re double that sort of investment over the next little while we think we have a fantastic opportunity set there. So I think that will continue to be a theme for us as we sort of fully leg out this pricing strategy in these markets and with the possibility of looking in Europe , although noting that the concentrations of health care.
Precincts are slightly different in Europe , and have a slightly different constructed and the ones that work.
Because at the moment in the Americas and Australia.
Got it Okay. That's helpful. Just one last one for me.
Would there be any update you can provide.
On Australia of any health care property Trust.
Or none at this time.
No I think.
We are now on just under 18% of Australian Unity.
So in our in our partnership with GIC.
And clearly we're considering actively all of our next steps there.
Okay got it.
That's helpful. Okay. Thank you so much I will turn it back.
Thank you next question will be from Sam <unk>.
Please go ahead.
Okay.
Thanks, Doug Ahrens, Paul and congratulations on the quarter as well.
Nisha dose once a quarter.
Just heading into Australia.
Just had a question on the Australian JV expansion.
Have you already identified the assets that investment and that you can.
Just comment on the timeline there.
Yes.
So the answer is we do have a significant impact in Australia.
For the core JV.
That was the rationale behind it.
I would just point to that.
Current JV, which was $3 $7 billion, Australia, then invested between you had just under four years. So certainly we expect to meet or exceed that that pacing in the correct.
Moment, there so yes quite an active pipeline.
Yes, really good visibility into it.
Two.
Into deployment there.
But again we have.
Already lived through $3 $7 billion over the last four years with Jesse yet successfully and so that's a pretty good track record I think.
Yes.
And then definitely thanks for that color Paul.
Probably.
Back to the U S well congratulations on that acquisition.
In terms of when you guys set up in Australia, you've ended up establishment of that platform can you talk about the importance of having the local platform adds unless your plans for the western market in that context.
Yes.
Great question, So I think.
Two answers I think we have a long history as a firm.
And going into new markets.
We are building strong local platforms and so I would expect that over time, we will.
See that.
In our U.
U S expansion initiatives and so we would expect some announcements coming up around people and platform related things. There that said, we have a very strong operational business here based in Toronto.
All of our regional offices that offer a lot of corporate and relative to support. So I think we're quite comfortable to get started.
Again, calling out that this portfolio and particularly is not.
Overly management intensive again, it's got relatively long term leases and a relatively small number of tenants. So from the operational ownership perspective.
Manageable, even within the context of our current business and I think where we're focusing on the team is at the asset management and more growth oriented level. So that we can lag out that that part of our exercise.
Comfortable starting point today, and long history here in and owning and operating these types of buildings in similar markets, so capable to leverage that.
And then from there obviously, we'll look to have.
To be more dedicated U S.
Teams to grow the business at a time.
No that makes a lot of sense, Paul I'll give him a final question is regarding the global.
<unk>.
Can you give some color on your thought process is that in the kind of investments you are looking back fun electrical kind of geography specific investment plans you already have.
Yes.
The soft process is really the it's more development and longer term than what we have today, we already have a perpetual black Swan so to make it longer term and then forever. It seems interesting, but it's really that in excess of development and then converting into long term ownership that we're focused on and so and we see large multi stage.
<unk> developments happening over time is sort of that the key type of initiatives. So its nuance from the standpoint that it's more development than ITV and.
And even longer sort of investments timeline to it.
That's amazing thanks, Paul Thanks, Alan and congrats again, guys I'll turn it back.
Thank you.
Next question will be from Jason <unk> CIBC. Please go ahead.
Hi, gentlemen, congrats on the quarter.
I have a few quick questions.
In regards to the Australian JV, what is the expected timing of full capital deployment and is there any possible fund expansion with new partners.
Yeah.
So the Australian JV is exclusively with GIC I think we're sort of building up to that the actual parameters are the same as our existing JV, which is roughly four years and then a couple of extensions after that.
Paper I think we expect to outperform that as we did in the original JV. So hard to talk about pacing beyond that but certainly more than likely all of it within four years.
She has been the history.
The big focus of our businesses, adding and growing to R. R.
Set of Investor Relations and so I would expect that when we get into the increasing funding for example that we're likely to have additional investors or one or two initial investors in there given that the characteristics of that signed off by particular, and then it's big and it's long term.
It has no. It has development so that particular audience there, but we've spent a lot of time landscaping that market. So I think for 2022 more broadly even outside of Australia. Our focus continues to be on broadening out our capital partner relationships with a number of these initiatives and we expect that we will have good success with in the near term through the.
Okay in the U S.
The other new initiatives that we're working on it so it is a priority for the business.
Ed what I would call out is that we're very proud to be a big and long term partner of Gse's one of the biggest real estate investors in the world.
Certainly we've been able to to work with them, both in Australia, and Europe in very meaningful ways. So we'd never discount the opportunity to grow with an excellent.
Long term partner like Jesse.
Thanks, and on the topic of the precinct preceding fund.
Are there any specific regions you want to build on it or perhaps I know you want to expand into.
Yes.
As I said I think we're quite focused on our existing markets and so when we think about Australia I mean again, it's a market not dissimilar from Canada in terms of the way the country is built up and the number of large cities and so theres quite a established list of.
<unk> healthcare precincts in that market and so we'll be focused certainly in the top the top half of those.
Very extensively and so and we have quite a creditor of all view of what that looks like today.
And so that's quite quite.
Clear in our minds I guess.
Maybe when we think about Canada I'm not sure if you know.
In the markets that we're looking at it would.
Would be probably a little bit more tailored and we would look to bring partners in on specific opportunities as opposed to a broader continuum of opportunities right now given our size and given some of their unique characteristics. So and of course were focused here in the major markets in Canada.
You know in that constellation of.
Care research and education, so there's a very defined opportunity set that we're focused on it any of that.
In the Canadian market. So I'd start there I guess overtime as we grow and evolve in the U S.
<unk> there'll be many opportunities there, but that's I think further out 2022 at this point.
Great and speaking about the U S. How do you intend to finance the equity portion of the acquisition.
Yes, I can speak to that Jay Thank you.
Yes, so the rehab and as noted.
We have a 55% LTV asset level finance facility against the portfolio and the equity portion of the <unk> contribution to finance portfolio in the initial term will be funded on balance sheet with existing liquidity.
And new corporate facilities, and as Paul alluded to longer term and you know by the end of 2022, we expect to have a U S. Co investment partner on the portfolio to be able to recycle that that equity and I meet our target leverage objectives.
Great. Thanks, and then.
Target leverage what's the stabilized target range.
Yes, so we've been guiding to 45% to 50% proportionate loan to value I would call out that we're in that range right now will take slightly above that range with the U S acquisition, and then post completion of the UK JV.
JV and bringing on the U S co investment partner will be at the low end of that range.
Okay, great. Thanks, Congrats again on the quarter and I'll turn it back.
Next question will be from Tal Woolley of National Bank. Please go ahead.
Hi, Paul Hi, Shannon how are you doing.
Great. Thanks.
Ken Paul can you just talk a bit about where it would be.
U S portfolio transaction came from how you sourced that.
Yeah.
I can so it was an institutional vendor in a marketed process in the U S.
So that that I think.
It was the front door I think over the course of the year a good bit of of 2021, we've been working through the asset level things with our team and some core relationships there and in the U S.
That may speak to in the near term. So we've had quite a full team in U S coverage for the.
Better part of 2021.
I guess, you know as with all things our journey there has been really getting our mind around that.
For profit segment of health care, which is again.
Little bit more entrepreneurial than we've seen in other markets that we're in today. So.
So that's been quite a journey and we've gotten quite comfortable with how that works and you know what the nuances are in comparison to.
To the businesses that we own and run today, So I think.
That's been the extension have lots of feet between advisors and related support people lots of good advice and getting through this and.
I think we've found a high degree of comfort in being able to underwrite the business and get our arms around the opportunity. So that's been our focus through it and it was <unk>.
It will probably become aware its a very liquid and competitive market. So clearly.
To work through that efficiently and deliver certainty.
The institutional vendors here was it was a differentiating factor as we speak.
We've got this deal over the line so it's.
Been a big initiative, but.
Comfortably in place today.
And in terms of like the partnership model for the U S are you looking to utilize like some of your existing relationships given that you guys have had a good working history and some success.
Or are you looking to bring in someone new just because this market is kind of different.
I wouldn't rule anything out at this point in time, I think where we're still formulating that but I think this portfolio offers perhaps.
Discrete investment opportunities versus maybe a broader bigger strategy as a starting point and so we're open to that whereas some of the other things we've done in our business is really cut across the market and we were looking for.
Broader sort of commitments and more.
More programmatic type investments. So that's one of the nice things about this investment as it stands on its own it's a good investment and that's a little bit why we're straddling the line, perhaps between co invest in and JV to use our own our model. So I think the good news is there's lots of potentially interested partners and so the portfolios I think highly attractive.
To a broad range of institutional investors.
We expect to move through this quite quickly given now that were cleared cover on this and have the ability to talk directly. So I think this one could open up the possibility for for some different participants, but again as I said I wouldn't rule out in our business model is still heavily on existing partners and growing.
And growing existing relationships. So this point its a little open sorry, I can't be more specific but I think there are number of a number of possibilities here just given the construct.
The liquidity in the market and the demand for these types of assets and investments.
We see a very attractive risk return profile and that sort of core plus type range, which is.
Which is again slightly different than some of our other strategies, which are very core.
Very long term.
Okay.
And you mentioned in your remarks and in that presentation.
The acquisition cap rates are about 100 basis points higher than the U S than they are in some of the other jurisdictions, where you operate.
In your work here can you can you sort of talk to us just a bit about.
Why do you think those acquisition cap rates are a little bit higher and if there is like how close do you think is that gap in.
In the U S versus the other jurisdictions over time or should we should we be looking for that at all.
Yes.
Yeah, I would say there are some nuances in the U S. So certainly.
At the at.
The MLP part of the portfolio.
Very very liquid defined market, we have plus 10 billion dollar transactions in the market. Today is an example of the type of volume that happens here I think quite a well understood market and probably pretty proximate to the other things that we see around the world with cap rates now for the best quality stuff.
Certainly in the in the mid to low fours as an example, but it's not in this portfolio exactly but.
That's probably comparable across a lot of markets that we see in the MLP space, where maybe some of the nuances in the ambulatory and outpatient space, where we're seeing slightly wider cap rates to that probably 100 basis points above that in general maybe because of that.
150, if you get into some of the acute care and depending on the covenants and related things associated with it and Thats, probably where the U S market is more evolved both in terms of the size and scale of those asset classes as well as sort of the precision that.
The markets are bringing to them to their thinking there and so we would see that probably is the biggest difference to two other markets that we're in where large acute care space as you know very well that it might be at the most point end of things I think in the U S. There is a continuum.
Cap rates across the.
The nature of the hospital and the nature of the covenants and so that market is quite evolves and that's where we've spent our time, making sure that we understood that.
That combination of things in order to get comfortable with pricing and that's how we think about it broadly speaking sort of.
Broadly <unk> around five in this portfolio in outpatient and ambulatory stuff in the low sixes and it kind of gets into the play that we've talked about and that's why we've ended up.
Okay.
And then just on the UK joint venture you're sort of trying to signal of getting this one across the line for for the past year is there any any particular like hits or something in the in a deal that's making it difficult right now or.
This is just the process just trying to get a feel for.
What I'd like to close one of these things.
Yes, so there's a real time driver for us has been around.
The value creation initiatives through Onboarding asked and splitting the property at Opco.
Which we did in the fourth quarter of last year. So I guess as we were leaning into the few key JV and some of the early messages.
Hadn't anticipated that and that that exercise, obviously, we've decided to do for our balance sheet at 100% in and take the benefit of that so that's been the real timing delay I think bringing it from there till now.
Pretty traditional process Youre right.
It takes a little bit longer to find a long term programmatic partner. So we are in the short strokes of ironing out all of those things now and we take it.
We take the appropriate amount of time to get the ICT started I would just say.
And that said recalling that the goal here is a $1 5 billion pounds.
Long term evergreen JV, so theres a lot to do to get that in the same way that too.
Took us a good amount of time to get our first Australian Court JV set up and established I wouldn't say there's anything.
Anything, particularly complicated about that other than.
We chose to sort of pause and come back with it.
With the value creation down and start with a clean starting point. So that's really what's happened for us and Thats by design and so were quite comfortable with where we are in the process and now bringing to conclusion in the next short while obviously in between now and then we put permanent financing in place. So that's another big step along the way and that financing again supports broadly speaking.
The GE here, that's a JV as it as it goes forward and gives us.
You know a good a good tool. So that's another significant milestone that's come post year end and just as we lean into to finalize this picture.
Okay, and then just a couple of questions for shale in here.
Unsecured market still a goal for this year or.
We'll see what happens.
Yes, I think we've talked about.
Getting our leverage metrics into those into that range for unsecured.
And I'd say, even including this current U S transaction.
Going to temporarily increase leverage our debt metrics are very much tracking when we look through to the U K.
I mean, the UK JV and our U S co investment.
Partners. So our metrics are tracking I think it's really as I mentioned before around the question now is really where does unsecured fit within our portfolio recognizing that the broader REIT strategies evolving to become a little bit more capital light.
And really I'd say the real potential.
For unsecured is that our JV levels or out of our portfolio levels. So we look at our portfolio like vital added scale quite substantially that has opportunities in that market. We look at the U K as.
In the context of its JV strategy, which could also have a debt capital market solutions. So.
I think it's really I mean, it's a little bit nuanced right now in terms of where unsecured fits within the market, but our leverage objectives remain unchanged to ensure that we have that option should we choose to we also noted that market in general.
It has priced out a little bit wider over recent weeks given some of the geopolitical instability and the relative price. If you may or may not be as attractive at a global level.
Got it and then just lastly, Sharon.
Getting to the tail end of my forecast on the income statement.
Cash taxes in discontinued ops.
Just wondering I know, it's difficult at the start of the year and the changes in the portfolio but.
They're a decent placeholder number we could use for cash taxes and I just don't know what the what we can expect the rundown on the discontinued ops, we used to be.
Yeah, So I'll start with discontinued ops first and really over the last 12 months, our discontinued operations have really comprised of the <unk>.
Unrelated to the Aspen Healthcare group and we made that acquisition and then sold it kind of completely down within two quarters.
So I don't I mean, there's no real rundown on that that transaction is fully complete.
So you won't see anything for the <unk> in 2022.
In terms of cash taxes, it is a little bit nuanced.
I would say if you looked at 2021, Holistically and straight lined that 2021 number across 2022 for your forecast.
That's probably fair.
I know there is a bit of a quarter to quarterly volatility, but it's really driven by the timing of accruals and the timing of.
Some of the more nuanced.
Once tax tax treatment in regions, but I would say if you straight line that over the course of the year you are fine but.
We can go offline and talk about that a little bit more detail if you'd like.
That's perfect. Thanks, guys.
Yes.
Next question will be from Mario <unk> of Scotia Bank. Please go ahead.
Hi, good morning.
Maybe just sticking to the U S portfolio expansion.
What kind of I think it was noted that about 90% of the income is indexed.
The kind of rent growth.
And the portfolio of the past couple of years in terms of my gherardi pick around quicker you're looking for going forward.
Yeah.
Thanks.
Paul I'll take that.
Landlords. The this portfolio has fixed rent steps at around 2.5% built in.
So the vast majority of those are contractual.
So it's not precisely indexed to CPI, but more contractual and I think that's a characteristic that we see more commonly in the U S and perhaps some of our existing markets, but certain.
Prevalent in this portfolio so its quite sort of built in I guess, it's a shortage.
Got it perfect, Okay and then.
Within the portfolio is there any value attributable to kind of a development or redevelopment upside or the devaluation essentially kind of a stabilized valuation.
Yeah. So again this is.
This portfolio has a small number of Ah is.
Development projects.
So from memory here, but I will say three and about somewhere around $25 million to $30 million U S dollars.
Built in expansion there, they're sort of do you expect it to happen in the relatively near term.
We are also quite contracted and come in I think it might.
Go offline there around those those final numbers are shown if you if you have those.
I don't have those offhand, but we will follow up I think Mary the one point I'd add is the five 5% cap rate that we quote is on in place.
Right, Okay, and then what would what.
What would the average debt cost would be on the property level debt.
Yeah, let's say to $2, 75% to 290% somewhere in there.
Yes.
Thank you.
The term for that.
Yes, we've taken I mean, similar to what we did in the UK, where we entered into a market.
We're seeking a co investment partner long term JV partner in the case of the U K, we kept the debt structure relatively flexible for the time being so.
So we put on a one year facility.
Pricing inside of 3% so at about two 9% floating.
Swapping that out would bring us into about three 5% if we put on a full one year swap there.
But the intention would be to bring in our co investment partner and then seek ultimately their long term leverage targets.
Put in more long term finance at that point I would call out.
The liquidity around the MLP market as.
As well as some other posed to I mean, we just bought some in the ambulatory care assets is highly liquid.
And then when we look at the acute care hospitals that were financing in the portfolio as well, we see lots of liquidity.
Yeah, and so the target Mario sort of on a five year facility would be in the low three Australia, correct three to three and a quarter.
Which is what we would expect to do when we when we finalize that.
Equity part of the transaction.
Right, Okay, that's what I remember looking forward so call it.
250 ish kind of spread to acquisition cap rate.
Roughly.
And very very.
Very low below the line right. So it's virtually all in place and very limited.
Very limited costs below the line.
Okay.
Paul your comment on kind of bringing a JV partner in it.
It sounded like.
The partner, but.
Thinking of bringing you would be specific to this transaction as opposed to kind of bear.
Springboard partner for <unk>.
Much bigger.
U S J D.
I can call about it is that a fair assessment.
I might just bring some nuance to that so I don't want to over read into this area, where we're having wide ranging discussions but.
Clearly some specific ones what I would say is that I think the ideal partner for us as always somebody that we can do more with overtime I think what might be different about this is this might be a discrete opportunity set as opposed to a large programmatic win. So that's maybe the nuance that I would bring to that whether or not that.
And we would always hope that the partner has the willingness and capacity to do other things.
Are things over time, so that's really the precision that rig to that client.
Got it thank you.
We're also going forward.
What would make this transaction.
That's correct.
The short terms.
Yeah, Yeah, I think that's it.
Its scale its diversification and.
Again, and it's big enough to stand out so I think that would be the.
The way, we would think about it and I think we've had a lot of feedback in that direction.
Of course, the ability to grow over time.
More sort of.
The overarching strategies applies.
So we clearly would like to see something that could linked to that but it may not be as direct as a large programmatic JV to get started it also isn't getting started transaction for us. So we're aware of.
And I think we approach it with that and with that flexibility we have historically seen.
Okay.
I guess in terms of deciding upon this portfolio.
And then the market liquidity.
You've highlighted presumably there was other opportunities.
Kind of like.
Portfolio like what was it in particular, if you had to point to one thing.
They are not really attractive.
This portfolio will brothers.
But this was the first time.
Yeah. So we like the diversification of the portfolio and really that being across that continuum of care.
Sort of sub segments. So we like that a lot where investors and all of these categories.
We like the fact that it was relatively management unintentional. So even the mlps tend to have large single tenants are not particularly multi tenant driven them a visa or a couple but that's it.
Starting point again, acknowledging some of the earlier comments around platform and.
Intensity, which we know very well, we like those those attributes and so and we felt that that that mix of of returns. Obviously combined was attractive and so I think it was those three things that led us in this direction. We looked at many billions of dollars of transactions in the U S over the course of the year.
<unk> had a lot of chance to think about things and of course.
It also gives us the scale to get started.
Focus.
Which is helpful versus single asset sort of things.
Perfect perfect.
And then I guess my last.
Question or area of focus part, it's not clarify your comments on inflation.
Which as you pointed out it's been very topical.
Recently globally.
You mentioned in terms of microbe expectations.
I just want to clarify that you kind of highlighted CPR of eight 5% historically.
What do you think.
Brent could increase that 70% of the extra for it.
Or are you are you, saying that you expected rent growth in 'twenty, two it should be something closer to 4%.
And my understanding and I think that's about what you're seeing exactly sorry that was that was it.
I got to cut to it as elegantly as I would've Mario but I think listen we have more than 70% probably close to 75% of the portfolio with either direct relationships indexation or fixed increases. So we have a high correlation to increasing inflation is broadly speaking in our plan we're certainly.
<unk> potentially up to another 100 basis points above where we've been in the global environment and once we get above that level than some of the caps and collars that we have in place come in so that doesn't track as cleanly. It probably goes to 70% of that so we'll get between three and a half in Florida, it pretty much 100% and above that.
I'd say, 70% on the index part of our business. So that helps the precision it's a pretty.
Pretty direct relationship, obviously, and it's pretty close to full CPI, but but we do have caps and collars in place in various.
Various places.
Perfect then.
You mentioned this in prior calls.
However in terms of timing.
Let's see what the CPR, it's 4% in Q4 of 'twenty, one generally bear.
Time lag between when you're talking about.
Across your geographies or is it purely.
Good.
Yes, I think.
We see that that inflation indexation typically kicking in annually.
So yeah, I mean intra quarter right, but over the course of 2021.
Or 2021 need to reset in 2022 and so forth.
Yeah.
Okay.
That is it for me thank you.
Thank you.
As a reminder, ladies and gentlemen, if you would like to ask a question. Please press star followed by one of your Touchtone phone and your next question is a follow up from Jake stabilize. Please go ahead.
Hi, guys, sorry, just one quick follow up it's on behalf of Scott prompts and he's listening to the webcast, but isn't able to dial in.
Would you be able to provide a breakdown of the private versus public funding within the U S acquisition.
We can follow up with you on that number specific I just don't have it in front of me.
Okay. Thank you I'll turn it back now.
Thank you.
And at this time.
I'm sorry, we do have a next.
<unk> coming from <unk>. Please go ahead.
Thanks, just really one question from me it sounds like.
You're keeping your options open.
<unk> co investment partners.
I'm just curious are you down the path.
Possibly having one in place and then just given the I guess.
What.
If you think you can venture.
Obviously took more time, but.
I guess really the question and the second part of that question.
We have confidence that you will have a partner.
For 2022.
So, yes, 100% to both so.
Okay. It's ahead of the U S. Just in terms of execution.
So yeah, we are.
They're very confident.
I think maybe just stepping back and maybe just highlighting again that the business has taken a very significant.
Direction over the last five years in terms of asset management and funds management, depending on where.
In America, or Australia in having that discussion and so.
I think we have.
<unk> established ourselves as a.
A fantastic partner and certainly yet.
Our very capable.
<unk> on behalf of large scale institutions around the world.
We're looking to build on that and we have some great discussions in progress on these two initiatives and some of the other things that we've been talking about so.
Underpinning all of that again, it's important to know.
That we're starting to see this business really really tracking growth. So this isn't new territory for us and we do know that France invest.
Investors in both Europe and Asia.
In Americas, you know that there is.
Strong appetite for health care real estate, that's probably a secular shift as all of US have been following the alternative seems so I think we're in northwestern is still finding its ways that we've been looking for a very significant larger long term partners and I think as the business evolves, we're seeing opportunities for more discrete investments like the U S.
One that I've, just mentioned and that's probably where things start to move a little bit quicker in and where we can be more nimble in our thinking but nonetheless.
We continue to see the opportunity to bring in.
We had a very high quality partners to help us in our you know broadly speaking core strategies and that's that's our focus the combination of all of that though I think is getting pretty interesting.
We start to see runaway gain over the near term to more than double our committed capital and in these strategies. Those are big words to say I think we have the credibility to connect the dots there and so.
Yes.
That's a big step change for the business and it always it has significant earnings.
And value components to it and I think that's probably as we see an area of the business accelerating more than anything something that we'd call out and again, it's not insignificant today, we saw a 60% increase in our asset management.
Revenue this past year.
Again, we could see similar types of growth.
In the near term as we continue to lay out the strategy Sesame announced so I think it's a big important part of our business.
It does it does.
Drive.
The business increasingly into 2020.
Okay.
That's good color just maybe.
Add onto that.
The partners.
Are you speaking.
It sounds like it's a pretty broad group would that include possible U S partners.
Absolutely.
Yes.
Absolutely.
We've consciously started to cast the net a little bit wider in a little bit.
More geographically focused in the game. This this U S portfolio as an example.
Offers lots of opportunity for that of course, some of the other things that we're thinking about.
In other markets also appeal to large shifts investors and we would just broadly say that most of the institutions that we've been able to survey.
Again as they are underweight alternatives. They are very much underway health care, and we think that that that combination of long term index cash flow with a little bit of growth.
As a very attractive proposition, so where we're seeing a lot of positive reception.
From investors around the globe in terms of the asset class.
Health care industry. So.
Very constructive moment for what we're doing and where we're going certainly there's some some heightened interest in areas of healthcare.
Such as life Sciences, but we think that you know really when we get back and Peel that onion back the interest and the stuff that we're doing at the core of healthcare precincts.
And the core of <unk>.
Also our inventory and outpatient strategies and their movies are really broad based strategies and so they are appealing to them quite a range of investors.
Thanks, very much Paul I will now turn it back thanks.
Thank you and at this time, we have no further questions. Mr. <unk>. Please proceed.
Okay well. Thank you very much appreciate all of you joining us for our Q4 'twenty One conference call.
Good day, thank you.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
[music].