Q4 2022 NorthWest Healthcare Properties REIT Earnings Call
Speaker 1: 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 the operator. This call is being recorded on Friday, March 31, 2023. I will now turn the conference over to Paul Dalar-Lana, Chairman and CEO , please go ahead.
Speaker 2: Thank you, operator, and good morning, everyone. Appreciate you joining us today. I'm joined by Shailen Chande, the REITs Chief Financial Officer. Together, we are pleased to share results for the fourth quarter of 2022.
Speaker 2: But first I'd like to point out that during today's call we may make forward-looking statements as defined under Canadian Securities Law. While such forward-looking statements reflect management's expectations regarding our business plans and future results, they are not necessarily based on assumptions that are subject to uncertainties and risks.
Speaker 2: which could cause actual results to differ materially. We direct you to all of the risk factors outlined in our public filings.
Speaker 2: And now to the year and the quarter. Operationally, the REIT's high quality and defensive portfolio delivered strong results, including 2.9% same property net operating income on a year over year basis in Q4 2022. The REIT's portfolio occupancy of 97%.
Speaker 2: is underpinned by a weighted average lease rate of 14 years, with 83% of leases subject to a rental indexation. With a portfolio comprising more than 2,100 tenants, the REIT is highly diversified and its tenants are performing well.
Speaker 2: including its top 10 hospital operators having an average EBITDA coverage of 2.3 times.
Speaker 2: In 2022, revenue and net operating income both increased by approximately 20%. However, as a result of higher interest rates, temporarily elevated leverage and lower transaction volumes within REIT's capital platforms, AFFO per unit declined 73 cents.
Speaker 2: a 16.1% reduction compared with 2021.
Speaker 2: Subsequent to year end, the REIT entered into hedging arrangements to fix approximately $892 million of floating rate foreign currency debt facilities, which will immediately stabilize results and increase annualized AFFO by $0.05 per unit. Additionally, the REIT has actioned several accretive initiatives to improve per unit results.
Speaker 2: including 220 million dollars of non-core asset sales and focused completion of its US joint venture initiative. Which when combined with the UKJV,
Speaker 2: are expected to generate between $425 and $500 million of net proceeds in 2023 and add a further 0.3 to 0.5 cents per unit to AFFO.
Speaker 2: Considering the in-place hedges and incremental initiatives underway, there anticipates
Speaker 2: AFFO per unit increasing by approximately 10% on an annualized basis over the course of 2023.
Speaker 2: Finally, as transactions volumes normalize and the REIT deploys its approximately $4.5 billion of undeployed capital commitments at a pace comparable with historic levels, it expects a further 0.3 to 0.5 cents per unit in incremental earnings.
Speaker 2: with overall annualized results returning to the mid-80 cent per unit level.
Speaker 2: From a balance sheet perspective, at December 31st, 2022, the REIT reported debt to Grossbook value of including convertible ventures at 56.1% on a proportionate basis.
Speaker 2: Considering the approximately $220 million of non-core asset sales, and in addition to its commitment to closing the UK JV in Q2-23 and the US JV later in 23, and associated debt repayment, the REIT anticipates leverage decreasing by almost 1,200 basis points.
Speaker 2: to 44.5%, which is its long-term target.
Speaker 2: REIT has aggressively addressed its upcoming debt maturities and has refinanced $1.7 billion of expiring debt since the beginning of Q4, with the goal of extending term and increasing exposure to fixed rates.
Speaker 2: As a result, the REIT has now refinanced 67% of its 2023 debt maturities, extending its weighted average term to maturity to 3.1 years, and its increased proportion of fixed debt, including hedges, to 63%. Importantly, the REIT has done all of this and at the same time reduced its weighted average.
Speaker 2: 70 and 80% of net equity in the UK platform and accelerate the REITs deleveraging strategy while providing capital for future growth. The commitment is subject to diligence, final documentation and typical closing conditions and is expected to complete in Q2 23.
Speaker 2: The US Joint Venture Initiative continues to progress with the REIT working towards commercial terms with qualified partners and despite a difficult macroeconomic background, closing in the second half of 2023 remains to focus.
Speaker 2: Additionally, the REIT has identified $220 million of directly held non-core assets in the Americas, Europe and Australasia. Sales processes are underway for select assets and marketing for the balance will begin in Q2-23.
Speaker 2: Collectively, these transactions are anticipated to generate net proceeds of between $425 and $500 million, which will be redeployed to repay higher cost and variable rate debt.
Speaker 2: From an investment perspective, the second half of 2022 was impacted by the rapid rise in interest rates and widening bid-ask spreads on assets between buyers and sellers. As a result, transaction activity was muted. As we look towards the second half of 2023, we see pricing expectations beginning to converge.
Speaker 2: and expect transaction volumes to begin normalizing.
Speaker 2: Nonetheless, Northwest had a successful 22 from an acquisitions perspective with $1.1 billion in completed acquisitions highlighted by its entry into the United States market.
Speaker 2: The rate remains constructive on long-term demand factors that drive value creation in healthcare real estate globally. And with more than $4.5 billion of available committed capital, it is well positioned to execute on new investment opportunities while remaining disciplined in its capital allocation strategies across eight global markets.
Speaker 2: continue to make progress on a number of life sciences and ambulatory care initiatives which are gaining momentum and expected to become part of the business in the near future.
Speaker 2: In the US, our newest region, our portfolio is performing as expected with occupancy at 97% and an almost 10-year weighted average lease term. Northwest has successfully onboarded and integrated the assets and respective management platforms and continues to progress on renewal leasing activities. In Brazil, we were on time with steady 100% occupancy.
Speaker 2: continues to deliver exceptionally strong results and is among Brazil's top 10 companies by market capitalization.
Speaker 2: Europe continues to perform well with occupancy and whales stable at 97% and 16 years respectively. We continue to find good investment opportunities in Europe allowing us to not only increase scale and critical mass in our existing markets but also to consider opportunities in adjacent markets.
Speaker 2: And finally, in Australia, our largest market, occupancy remains steady at nearly 100%, delivering constant currency SP&I growth of 6.7%, with a weighted average lease term of almost 16 years.
Speaker 2: Corporately, I'd like to highlight that REIT published its second annual sustainability report also outlining key accomplishments and specific organizational goals for the future.
Speaker 2: I am pleased with the progress we've made during the quarter and post quarter, which advanced the REIT's strategic objectives and produced solid operating results.
Speaker 2: With deep strategic relationships, best-in-class regional operating platforms and a strong access to capital across the platform, the REIT continues to transition to a more asset light business, a best-in-class global health care real estate investment manager. With that, I'll ask the operator to open up for questions.
Speaker 1: Thank you. Ladies and gentlemen, we will now take questions from our analysts. Should you have a question, please press the star followed by the one on your touchtone phone. If you'd like to withdraw your question, please press the star followed by the two. If you're using a speakerphone, please leave the handset before pressing any keys. One moment, please, for your first question.
Speaker 1: Your first question comes from Mike
Speaker 3: Hi, good morning. Thank you for taking my question.
Speaker 3: Just on the UK portfolio, congrats on securing the additional equity commitment.
Speaker 3: Maybe comment on sort of what the give and takes were in that transaction and specifically I'm just curious as to where the valuation would come out relative to where it was marked as a Q4.
Speaker 2: I'll address sort of in two parts or maybe even three, but to the first, I think,
Speaker 2: Part of the decision that we made over the course of the last 90 days was to increase the size of the JV. There were a number of structural considerations to make it work efficiently.
Speaker 2: both for our partner and ourselves. We spent the extra time figuring those things out and it allowed us to increase the size of the investment to a more conventional level there. I think we're not in a position to talk yet about valuation, but we'll be once.
Speaker 2: once all the I's and T's are dotted, which are expected certainly in the next 30 days or so. So that's a quick update.
Speaker 3: I appreciate that, thank you. Just on the plan to move ahead with the USGB, it totally seems that you're confident in that transaction both in the press release commentary and on the call commentary. Just trying to reconcile that with the declassification of the US portfolio from held for sale.
Speaker 4: You are correct in that we've historically included both our US portfolio and UK portfolio in assets held for sale. It is indeed an accounting technicality. We would have reclassified the assets and immediately classified the US assets into assets held for sale in Q2.
Speaker 4: 2022 and there is a technicality within IFRS that requires the assets to be sold or anticipated be sold within one year of the initial classification. So given that we expect the U.S. in the latter half of 2022 accounting statements forces to put it into...
Speaker 3: back into IPP if you will. Got it. So even though you anticipate to sell it within a year of today or Q4, the accountants don't care it didn't happen or is not planned to happen within the year of initial classification.
Speaker 4: Correct, it's not a rolling test. There's some technicality there. It's from the initial time of classification.
Speaker 4: Correct. It's not a rolling test. There's some technicality there. It's from the initial time of classification. I love accounting.
Speaker 3: Moving on and last one from me before I turn it back. Just on, you know, I appreciate the color on the impact of the, all the transactions that you have planned and the potential impact of 10% on AFFO per unit. Just to clarify, should we read that to mean that you'll get there for your full year 2023 number or is that a
Speaker 3: our run rate will get to plus 10% versus where we were in 2022 at some point in the year.
Speaker 2: Hi Mike, I'll respond to that. So it's a full year number, so the run rate will be a little bit higher. That doesn't include future transactions which would be additive to that number.
Speaker 2: clearly dependent on things happening. So it's really meant to be a specific number where we're talking about the immediate impact of the completed hedging initiatives which are in place today and the JV and non-core sale initiatives which are you know UK is signed up in the US and
Speaker 3: use 10% implies 79% for this year with some room for additional based on redeployment of capital normalization transaction volume.
Speaker 2: Yeah, I think it's a little bit above that, but I might suggest maybe that we can take that offline and get into the precision of it where you can with Shell.
Speaker 5: That'd be great. Thanks so much and I'll turn it back. Your next question comes from Saram Srinivas from Carmack Securities. Please go ahead. Thank you, Avrita. Good morning, Paul. Good morning, Charlan. Just for me to wrap my head around this UK JV amount of data search.
Speaker 5: Are you able to comment on the increase in size of the commitment at this point?
Speaker 2: I'm not sure I totally follow but just to be clear, the transaction that we announced in December ...
Speaker 2: I guess late November with our last earnings call, contemplated a 15% investment in our portfolio. So the incremental news, I guess, to say it directly is that that 15% has now become between 70% to 80%, which is more traditional to our current JVs and our preferred...
Speaker 2: at the time in the fourth quarter, sorry, last year, I guess, was some technical issues around structure that, you know, that limited what we could do and announce at the time. So we've been able to work through those in the interim and come to a more...
Speaker 2: preferred long-term level of ownership and structure. So that's sort of the journey we've been on.
Speaker 5: All right, thanks for the call, Paul. And probably the last question is on capital recycling. At this point, are you guys comfortable in saying which markets or all these specific markets you're targeting right now?
Speaker 2: Yes, yes we are. So that 220 million is comprised of assets in most of our markets. It's reasonably evenly weighted. And again, these are all assets that we believe are performing assets that can sell and be within.
Speaker 2: within striking distance of our current book values. So, it's again, we're looking closely at our portfolio and looking for where we want to deploy capital and focus our energies. And so, that's been a healthy exercise and probably when it's that 5% to 7%.
Speaker 2: of our portfolio, I would think that that's over time going to be a pretty steady state exercise for us as we look to just refine and improve the things we're working on. So there's nothing in there that's particularly difficult or non-performing and we see it's quite a broad-based mix of assets across multiple markets which are all, you know.
Speaker 2: open and capable of receiving them. It's a bit of a segue maybe into the demand for healthcare real estate and I guess we are seeing some exceptional demand across both Europe , Australasia and of course the US where we have very fluent markets.
Speaker 2: and just echo that healthcare real estate as maybe one of the larger of the alternatives continues to be strongly in demand and highly defensive. And so we expect, again, given that this is a broad-based process with many assets selling, sort of...
Speaker 2: success and there aren't any sharp edges to any one of the transactions or anything involved in it. So we're experiencing high demand, a number of these are under contract as we speak and with the balance sort of in process. And so, you know, I expect that there'll be a continuum of announcements as we sort of chip away at it through the next couple courses.
Speaker 5: That was great, thank you.
Speaker 1: Your next question comes from Pammy Beer from RBC Capital Market. Please go ahead.
Speaker 3: Thanks, good morning. Just with respect to the 425 million to 500 million, I guess, of the net expected proceeds on the initiatives, how does that break down between the non-core assets and the UK and US JVs? Keep.
Speaker 4: Hi, Pami. Good morning. I guess the specific breakdown will be disclosed as we execute on the transactions. As Paul had noted previously, the largest component of those bucket of transactions would be the UK and we'll be in a position to better comment on that over the coming quarter as that turns out.
Speaker 6: which it seems like you have now. I think, am I right in recalling 350 million and certainly the...
Speaker 4: the rough figure? Yeah, I think we'll probably need to go offline on that. I think obviously this disclosure has been over a period of time. FX rates have changed, the percentage sell down has changed, so I think we'll need to get into a bit of that detail but I'd call out that over the next quarter specific numbers will come out of net proceeds.
Speaker 6: for that transaction. Okay all right maybe just on the US portfolio can you talk about maybe where where does that process sit at this point? You know I think you mentioned that you're still engaged with qualified partners. Is it pricing? Is it you know lining up financing or kind of all of the above that's maybe you know stalled or
Speaker 2: That's something that we believe is achievable, certainly within striking distance of that. I think maybe I've previously spoken just about sort of capital formation moments and so I think what I would say is the US was sort of the quickest and sharpest to sort of turn off and really happen broadly speaking in the middle of last year.
Speaker 2: It has started to return and that's really around stabilized long-term asset values and some financing. Obviously, we've been able successfully to put financing in place on the portfolio and term it out and bring certainty to that. So that's helped our discussions. So I think that combination of pricing visibility, just a little bit more confidence in.
Speaker 2: in future asset values and obviously us having put in place term financing which has now happened just in this last 90 days, have sort of unlocked the log jam if you will to get that process moving. It's followed a little bit internally.
Speaker 2: in the US and we're experiencing good discussions in that regard. So we expect things to start to move now reasonably efficiently.
Speaker 6: Thanks, Paul. That's helpful. Maybe just switching gears with respect to NPW's, the sale of the house gold portfolio. I'm just curious your thoughts on that transaction and where pricing came in.
Speaker 2: Well, we were surprised to see how strong the pricing was, to say it mildly. I think when we look through it and have a very close analysis of all the pluses and minuses, it's probably a sub-5 cap rate. We also view our own assets to be relatively stronger in the moment. So, it certainly supports the valuations we have today in place.
Speaker 2: I guess just calling out even in the moment where we have more difficult investment climate, that demand for the types of assets that we have is exceptionally strong. This would be another good example of that.
Speaker 2: So we were part of that process, just to be fair, and we were very disciplined about what we wanted to do. But kudos to MPW for getting that off and obviously we own the other half of that portfolio so we understand it very well.
Speaker 6: We like the assets that we have. Got it. Just last one for me. Just given where the balance sheet is and with respect to the US portfolio initiative that's sort of still in progress, how are you feeling about putting more capital to work at this point?
Speaker 6: Or is it really just predicated on getting the US JV button down first?
Speaker 2: Yes, so number 1, 2, 3, 4 to 10 priorities are around completing our balance sheet initiatives. And that's clearly focused. We know why we've had a couple of soft quarters around carrying assets on our balance sheet.
Speaker 2: and having maximum flexibility to do that. So, we're quite focused to transition from that moment to what we see as a more stable long-term moment, which is around the corner here. So I think a lot of this work will be done in the context of by the end of our second quarter. And when we report on that, which would have...
Speaker 2: significant progress on almost everything on that list by that time. So we're feeling good about that. There are a small number of very strategic things that we need to consider in the interim, but our focus is very much around getting back to that steady state and then positioning the business for all of the things that we've been talking about over time.
Speaker 5: Thanks very much. I'll turn it back. Your next question comes from Tom Ruhle from NBS. Please go ahead. Hi, good morning. Good morning.
Speaker 2: Again, on the dispositions, can you give us an estimate of just how much NOI and how much secure debt is attached to those assets?
Speaker 2: I don't have that handy tell so if I could you know we'll get it to Shailene. I think it may even be an RIR deck that comes out a little later on but again you know roughly hits in line with the portfolio I would say around debt levels and nothing you know it's an average mix of assets.
Speaker 2: And I'll come back on NOI when we speak. But again, it's a representative sample of assets across multiple markets in the REIT. And Tal just building on that, if you use our weighted average cap rate at that 5.4% level, I think that's fair.
Speaker 7: And then our weighted average leverage level is fair as well. Okay, thank you. So just in terms of borrowing right now, I guess you guys have lots and lots of different markets that you're in about. Can you just maybe talk a little bit about where you're seeing rates?
Speaker 4: in each of the markets and what's your most effective way to borrow right now? Yeah, Tal, there's a lot in that. I guess it's a very regional specific question as we get into it. So happy to take the more specifics offline. I would call out as we think through the REITs global capital stack.
Speaker 4: and really what's come through over the last couple of quarters. It's really been the corporate part of the capital stack that we've been exceptionally focused on and I'd call out that a lot of that was short-term high-cost floating rate debt, which is coming off the balance sheet, either has or is about to as we conclude on our JV initiatives.
Speaker 4: At a regional level, we're still seeing liquidity to be able to finance our assets. Credit spreads, although we've seen them widen in the broader markets, we haven't seen that come through at the asset level yet, but happy to go through more specifics on that offline. And maybe what I'd just call out is that in the context of both Q3 and Q4 and the year to date, this year we've obviously had.
Speaker 2: very successful long-term refis of both the UK, the US portfolio, the balance of our beyond corporate, the balance of our 2023 initiatives are really asset level financing in regions and will be done in the normal course. And so, I would think that...
Speaker 2: that we're not seeing a shortage of availability of finance. Obviously the terms of it have changed over the last 12 months, but that's one good thing about healthcare that we've seen is that there seems to be relatively strong support and we at an underlying portfolio level have a...
Speaker 2: a strong portfolio that can support appropriate financing. So I don't think we're seeing any edges in terms of completing 2023 and beyond. We're already working into 2024 stuff and we're starting to see some stability in terms of...
Speaker 2: what has been maybe the market moment around the points of inflection on what would be short and longer term financing in the two to three year window where everyone's been trying to understand where is inflation going, where are longer term rates going and we're just starting to see a little bit more.
Speaker 7: stability there where it helps us to take decisions for even longer term things. Okay. And then I guess just more broadly, this is a fairly sizable acquisition for EREU, over a billion dollars and a big chunk of that obviously being the US.
Speaker 7: you're going to be doing some selling here of properties heading into the early part of 2023.
Speaker 7: What do you think the investment plan looks like in terms of acquisitions and development spending for 2023?
Speaker 2: Yeah, no, that's an excellent question. So I think the first answer is, as we've said, an extreme focus on sort of completing the initiatives that we've just talked about ahead of doing anything new or significantly new. But I think maybe just to guiding to sort of general levels of activity, you know, we have.
Speaker 2: 4.5 billion at 100% numbers including debt of committed capital. That's going to grow with those JVs. I think that would be our capacity and traditionally we've sort of looked at that and said, let's roll that out over the terms of those commitments. So, 3 to 4.
Speaker 2: years are typically those windows. So, you know, ultimately when we see markets kind of return and when the business is you know positioned to be able to move forward, I would think that that's a pretty steady state, you know, level of activity somewhere between one and a half billion dollars a year. So, you know, if markets open up again or firm up, I guess, and we're able to complete.
Speaker 7: the activity that we just talked about, our imbalance sheet activity, the second half of the year could be presumably half of that as an average, and that would be maybe subject to reasonable estimate. Is there any particular geographies that you're still, like, you know, that I think will present particularly interesting opportunities in the short term, or is that more just of a general comment?
Speaker 7: that we've just talked about around balance sheet activity. You know, the second half of the year could be presumably half of that as an average, and that would be maybe subject to reasonable estimate. Is there any particular geographies that you're still, like, you know, that I think will present particularly interesting opportunities in the short term, or is that more just of a general comment?
Speaker 2: Yeah, I think it's a little bit general, but of course at any given time certain things shine brighter or less brighter. But I think the emphasis for us in doing things over the next little while will be.
Speaker 2: maybe it would probably have a strategic overtone to it, and that would be coming back to our key strategies that either be very relationship-driven with one of our operators looking for specific things to do. It could be very driven by healthcare precincts. So you've heard me talk a little bit about some of the things we're seeing here in Canada and Australia. We've talked about that before on these calls. Those would be things that would probably get to the top of the list for us.
Speaker 2: have a strategic and long-lasting overtone. To development, I think we have been positioning pretty meaningfully for development in the business. We have circa $500 million of projects underway. They're all tracking according to plan and most of those projects, as you recall, are 100% lap with the vast majority of execution risk.
Speaker 2: on the tenant, so sort of cost plus if you will. And we expect all of those projects to wind out over time and complete and move into IPP in a normal fashion. A lot of those of course are at vitals, so we see the proportional impact of that. But we also have a number on balance sheet ourselves. The new development world I think is a little bit muted right now as we look at both core.
Speaker 2: a very disciplined approach to cost of capital and risk adjusted cost of capital as we look at expansion. So I would say within the development world, as I said, almost everything that we'll look at for the balance of the year will be expansions with our existing operators in that strategic relationship sort of bucket. And then I guess just a couple more hubkeeping questions.
Speaker 4: transfer pricing structure. You know, cash taxes 15% of management fee income is generally where it's been coming through, noting that the management fee income is really the only real part of our business that does attract cash taxes. So, on an annualized, stabilized basis, 15% is a fair number.
Speaker 7: Okay and then just lastly on the fees, you know obviously it was a bit of a down year on a proportionate basis for the fees. I'm expecting then you know you'd maybe expect to see some of that recover this year and I'm wondering if there's a good way to sort of think about...
Speaker 7: within that fee bucket, how much of it is kind of sort of like a recurring fee in nature and how much of it is episodic?
Speaker 2: Yeah, sorry, there's a lot in that, Tal, so it's a really good question. So I'll just encourage Shailen to sort of bring some precision offline here. But I think, you know, from our standpoint, if we're looking, you know, looking ahead.
Speaker 2: and stabilize. The business, broadly speaking, is probably growing in to a stabilized fee level that's pretty consistent with what we reported this year as fees in total. And I think the activity-based things will go on above that. And so, we have, as we mentioned,
Speaker 2: a significant amount of undeployed capital. So if we overlay that and grow the business, that would be a good starting point. But I'll let Shailen maybe offline bring some precision to that. And again, it was a year where...
Speaker 2: where we were lower on activities, a little bit lower on incentive fees, and so we see those things restoring over time, practically in a slightly larger base because we'll be growing assets under administration. Obviously, both the US and UK bring significant transaction fees as well, so these are big initiatives that will.
Speaker 2: will generate meaningful fees in 2023.
Speaker 1: Okay, that's great. Thanks, gentlemen. Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one.
Speaker 1: Your next question comes from Marielle Sorek from Scholesher Bank. Please go ahead.
Speaker 8: Good morning guys. I did want to come back to the UK portfolio for a second. The disclosed fair value of it was up about 50 million quarter to 957 million.
Speaker 8: It looks like you don't break down the UK versus Europe in terms of the IFRS cap rate, but that European IFRS cap rate was up 40 basis points, over a quarter of 5%.
Speaker 8: You don't break down the UK versus Europe in terms of the IFRS cap rate, but that European IFRS cap rate was up 40 basis points, over a quarter of 5%.
Speaker 8: the $50 million increase in the UK portfolio, is that simply a function of FX or were there other adjustments made this quarter versus Q3? Yeah, thanks Mario. The sterling has appreciated relative to the CAD so that $50 million is attributable to FX. Okay, and can you share what the UK cap
Speaker 8: Okay and then kind of tying that into the commentary on the expected net proceeds for 2023. I just want to kind of flesh that out a little bit more. So like on page 23 of your MD&A you highlight the fair value of the UK portfolio, the fair value of the US portfolio and the associated
Speaker 8: for both of those portfolios. If I look at the equity, just simply fair value minus debt, that would translate into a 530 million in the UK and 330 million in the US. Can you remind me of whether there's any other...
Speaker 8: leverage that we should factor into those two portfolios when we're thinking about the net equity from the two of them? Yeah, no there most definitely is. I'd call out, I mean there's a lot of put and takes there and then I'd also call out that as we think through our net proceeds from the transactions we include adjustments for working capital and other related items.
Speaker 4: We can perhaps get into that offline but when we think about our aggregate proceeds from the three pools of disposition activities on that non-core asset sales, the UK and the US, I think we've given you the broad guidance at that $425 to $500 million of net proceeds.
Speaker 8: Okay, and then Shailen, just in terms of the full degree of that exposure, going from 60 to I think 37% or so, where do you see that ending up by year-end after having completed all of the expected capital recycling? Yeah, I'll turn that, I'll invert your numbers a little bit so that we talk about the percentage of fixed rate exposure.
Speaker 4: So, post the hedging that we have completed, our fixed rate exposure has gone up to about 67%, so floating 30+. We expect that to continue to increase. I'd call out that the primary area for increase and where we have more floating rate death than we'd desire in the long term is in Australia.
Speaker 4: within our JV platforms. So we will continue to work through with our partners around bringing in more fixed rate debt there. We do have a target that's 70% plus on fixed rate debt, so I think we are getting close to that, but obviously in the context of the current market we continue to evaluate that target and look towards increasing it.
Speaker 8: I think Paul, you remarked that after everything's said and done in terms of the recycling and the debt repayment and whatnot, you do expect to return to a kind of a stabilized pay-for-per-unit in the mid-80s versus the 79 cents or so,
Speaker 8: year over year that you talked about. At that mid 80 AFEL per unit the pay-out ratio is about 95%. So you know the dividend yield today or the distribution yield today is north of 9. It's one of the higher ones in the universe.
Speaker 8: what's a reasonable kind of payout ratio target for you longer term and are you comfortable with kind of distribution policy and kind of the puts and takes into it as your business model evolves into a 20 to 30 percent co-investment
Speaker 2: Yes, it's a big journey that I know we've talked about but I'd just say probably first off Mary, I think that the 10% number should be taking us up into the low 80s to begin with so the goal here quite quickly with the execution of all the things that we've said our imbalance sheet should be to have obviously the distribution covered.
Speaker 2: be down the road. In terms of what would be a normal year and adding to that, I think that gets us into the mid, a little bit above mid 80s and that's a starting point for that journey as we go to substantially more asset light. Again, I think we've had some discussions around this. I recall my own discussion.
Speaker 2: of AFFO and leverage as we've said always in that 40 to 45 percent range which we think we can get quite close to here just with the you know the balance sheet initiatives that we've talked about in in 2023. So you know going from that middle 80s number up to a dollar is the journey from you know look through ownership.
Speaker 2: where we are, the two JVs that we've talked about, down through the rest of the platform. That's the initiative that we're on, again, that more capital-light initiative, which I think is good. We have significant assets continuing on balance sheet beyond the UK and the US. Over time, we'll be looking at.
Speaker 2: the ways to bring those into a more capital-light format. Again, I don't want to underestimate the intensity of getting through the US and UK initiatives, which have clearly been year-long projects for us now.
Speaker 2: We're confident of doing that now that markets have restored. Obviously, we have an agreement in the UK, so that's in full execution, the US a little bit behind. But we do expect post that, that there's more to come and we'll be approaching it in a logical and disciplined way. But again, back to continuing to see strong demand for the underlying assets and their characteristics and finding the right types of capital.
Speaker 2: for them is important for us. And I'll just remind that all of our capital commitments have traditionally been exceptionally long term. They've had growth capacity built in. They've had healthy fees and incentives and those characteristics of things that we have been sticking to as we've gone through this process as opposed to shorter term.
Speaker 2: maybe more expedient solutions that didn't meet those kind of long-term things. So again, these are very core long-term assets for us. We're looking for core long-term partners and a real ability to grow in key markets. Obviously, the US has...
Speaker 2: a lot of possibilities. The UK is a very particular market that we like and has some really good tuck in opportunities. So just some context to where it's going but I think that would be consistent with where we've been and gain other than the delay here over the...
Speaker 2: the last six and three to six months more to get execution done, we're still on that same plan.
Speaker 8: Got it. Part of the genesis of the
Speaker 8: and getting to that 20 to 30 percent co-investment or look through as you put it, that would entail reducing your ownership interest in some of your higher yielding markets like Brazil and in Canada. So I appreciate the color in terms of the longer term.
Speaker 8: target AFO per unit? I don't expect you to answer the question. Maybe I'll ask it anyways. Given how much is going on in the business today, like that dollar of AFO per unit you're referring to, is that four to five years out, two to three years out, how should we think about the timing of that metric?
Speaker 2: Yeah, I think certainly much closer to the ladder than the former. And I think, listen, the business has a sense of urgency to move forward now. And clearly, this has been a cathartic moment for us in terms of taking decisions and then moving maybe more in parallel than in sequence. And so...
Speaker 2: I'd leave you with those takeaways. It's the destination is known and now we want to move efficiently to get there. And clearly using internal capital, attractive, acceptable valuations is the key. I guess what we won't be doing is using
Speaker 2: public capital in this pricing level. So it's very safe to say that we see quite a disconnect here and we're immediately focused on closing that as quickly as we can.
Speaker 8: Just one last clarification, again the dollar they're referring to, that assumes a 20 to 30 percent essentially co-investment or look through in each of your regions. Is that fair? Correct.
Speaker 4: Great, thanks for the call Paul. Appreciate it. Paul, there are no further questions at this time. Please proceed with your closing remarks. We'll be brief and thank everyone and we'll look forward to speaking again. Appreciate that. Have a good day.
Speaker 1: Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.