Q3 2023 NorthWest Healthcare Properties Real Estate Investment Trust Earnings Call

Good morning, ladies and gentlemen, and welcome to the Northwest Health care property Real estate investment Trust third quarter, 2020, Threep itself and 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 need assistance. Please press star zero for the operator.

This call is being recorded on Wednesday November eight 2023.

Now, let's turn the conference over to Greg Mitchell. Please go ahead.

Thank you good morning, everyone and welcome to northwest third quarter, 2023 conference call and webcast.

Thank you for joining us today.

This call is being recorded and a replay will be available on our website at <unk> Dot com.

Today's discussion includes forward looking statements as always we want to caution you that such statements are based on management's assumptions and beliefs.

These forward looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see our public filings, including our MD&A and annual information form for a discussion of these risk factors.

On the call with me today.

As Mike Brady, our President and General Counsel, and Karen <unk>, our recently appointed interim CFO.

I joined northwest in 2019, as CEO for Australia, and New Zealand have more than 20 years of experience in the real estate sector literally organizations as the CFO and CEO.

I've been the rates interim CEO since August eight.

Appointed CEO on a permanent basis on October 23.

In the past 90 days the management team has been extremely busy.

Looking back at the quarter.

Our Q3 game plan focused on four key management initiatives, especially <unk>.

The refinancing near term debt maturities.

Some of the shredding unit to units.

Third selling noncore assets and fourth improving governance and management.

Yeah.

Okay near term debt maturities.

Since August 2023, we have pursued a strategy to strengthen the balance sheet.

We made the difficult, but necessary decision to reduce the monthly distribution by 55% in September and this has improved our rates liquidity and will bring down 8% <unk> payout ratio.

Yeah.

To date, we've been successful in refinancing and extending corporate debt obligations.

Management extended the maturity dates or multiple debt facilities and anticipate by the end of November to the extended and repaid or 2023 debt maturities.

We secured a new term loan of $140 million with an April 25 maturity.

We refinanced our largest debt maturity in 2024.

Which comprises of $235 million joint venture debt.

<unk> extending the maturity date to December 25, and December 2006.

And finally as outlined in our press release from October 16th we launched the process of amending and extending the $125 million series G convertible to March 2025.

Now turning to the sale of units in Australian Unity.

The northwest continues to sell and redeem the balance of its holdings in the Australian Unity healthcare property Trust.

With net proceeds being allocated towards debt repayment, including the rates $94 5 million secured line, which is now fully repaid in October.

To date the rate has completed $110 million in sales and redemptions of its units.

As previously announced northwest anticipates completion of the sale or redemption of the balance of his holdings by the first half of 2024.

Net proceeds will be used to repay other debt and for general cross purposes.

The third initiative is noncore asset sales.

At the outset of 2023, the rate announced that it proactively identified approximately $300 million of non core assets for sale.

To date, we've completed south will have under contract to sell $190 million of our noncore properties pricing.

Proceeds from these sales net of transaction costs, we used to repay debt and Virgin will trust purposes.

In the fourth initiative governance and management.

On October 23rd 2023, we announced the appointment of Karen Martin as our interim Chief Financial Officer. We're extremely pleased to have joined the <unk> team and I look forward to working cap with Karen moving forward.

One of the initiatives, we're working on is to improve our communication with our unit holders, which includes both getting out to meet our unit holders and the way we message our financial reporting.

So we a large part of these initiatives.

So in summary.

To strengthen the balance sheet has provided more time and financial flexibility further rate while it works on additional strategic initiatives to improve unit holder value.

While the strategic review is underway management has recognized key actions that can be taken in the near term remains committed to building a more robust sustainable and profitable business.

This will be achieved through efforts to streamline operations reduced debt and increased profitability.

Northwest aims to build on its position as a health care real estate later focused on delivering value and sustainable growth to its unit holders.

I would now like to introduce our President Mike Brady.

As many of you know Mike has been with the rate since 2006 and before being named President in 2023.

Mike leads our major strategic global transactions, obviously legal compliance and governance over to you Mike.

Thanks, Craig and good morning, everyone.

I will be commenting on some of the strategic initiatives that were undertaken during the quarter on August eight the REIT announced a comprehensive strategic review aimed at unlocking significant value for all unitholders. The REIT formed a strategic review committee comprised.

The members of the board to assess the optimal path forward for the rights.

There is no certainty regarding the results of the committee strategic review for that any particular transaction will be agreed upon are consummated.

<unk> does not intend to comment further on the strategic review until it determines that additional disclosure is appropriate or required.

We're expecting our 2023 ESG global rankings as outlined in our press release.

In 2023 northwest and vital trust, which is managed by northwest participated in the grids be real estate assessments for the third year running.

As you May know <unk> is the global ESG benchmark for assessing real estate and infrastructure investments.

Northwest is the manager and 28% owner of the vital health care property Trust, a New Zealand listed fund that invests in healthcare properties in New Zealand and Australia.

I am happy to report the northwest and vital achieved sector leader status in three categories.

The global listed sector leader for both healthcare standing investments and healthcare developments with vital coming in first in northwest coming in second place.

And in the global sector leader healthcare developments vital in northwest came in first and third place respectively.

And northwest maintained its four star ESG rating for the development benchmark for the second consecutive year solidifying our position within the top 20% of global real estate entities in this category.

This is a tremendous result for the REIT and for vital demonstrating northwest commitment to ESG best practices.

Not only.

Is this the right and responsible thing to do it represents a key component of northwest value and its associated cost of capital.

I would now like to turn things over to Karen. We are very pleased to have Karen joined the northwest executive team and Kieran has over 30 years of senior executive experience with both public and private organizations in financial services and specialty finance.

Thanks, Mike I'm very excited to be joining northwest.

Hi, everyone I'm, Karen Martin interim CFO, and I will be providing commentary about the financial results for Q3 2023.

For the three and nine months ended September 30th revenue increased by five 1% and 15, 3% respectively.

Net income for three and nine months ended September 30 decreased by $116 4 million and $553 million, respectively, primarily as a primary as a result of fair value losses on investment properties from changes in valuation parameters.

Operationally the rates high quality in defense of healthcare real estate portfolio delivered strong results, including $3 seven same property net operating income growth.

Over on a year over year basis.

The REIT portfolio occupancy of 96% is consistent with last quarter and is supported by a weighted average expiry lease expiry of 13, two years and 82, 9% of leases are subject to inflation indexation.

With portfolio comprising more of more than 2000 tenants. The reached cash flow is highly diversified across its 229 properties.

Other highlights for the quarter.

Q3, 2023 net loss attributable to unit holders was 81 point.

<unk> 3 million as a result of fair value loss on investment properties.

The Q3 <unk>.

13 per unit is down from 15 per unit on a year over year basis.

Total assets under management decreased by five 3% on a year over year basis to $10 billion due to a combination of noncore asset sales and changes in the fair market property valuation net.

Net asset value per unit decreased by $4 seven to $11 96 in Q3 compared with the June 30th.

Value the decrease was predominantly due to the cap rate expansion.

575%.

The capital deployed in fee bearing vehicles of $5 7 billion a decrease of one seven year over year as a result of fluctuation in foreign exchange rates.

Consolidated debt to gross book value, including convertible dentures debentures as 51, 6% an increase of 80 basis points on a quarter over quarter basis today.

Today management has been successful in refinancing and extending corporate debt obligations and on completion of the extension of the convertible debentures. There we will have extended or repaid all of its corporate debt facilities maturing before November 2024.

As previously communicated to the market to read has also continued to undertake noncore asset sales. These sales will enable the REIT to strengthen its balance sheet improve its operations, while the board undertakes a strategic review.

Pass the call back to Craig Craig.

Thank you Karen.

While the strategic review is underway management has recognized key actions that can be taken in the near term and remains committed to building a more robust sustainable and profitable business.

We're taking necessary steps to strengthen our balance sheet improve our management team our lineup business and prepare for the future as northwest aims to build on its position as the health care <unk> date later.

<unk> focused on delivering value and sustainable growth to all unit holders.

Looking ahead to late 'twenty 'twenty four and into 2025, we are developing and executing on that strategy today to manage our debt maturity profile.

Moving forward, we are optimistic about the opportunities opportunities to increase and improve our business in many of our health care markets.

Northwest remains committed to delivering value for you.

Note holders the decision announced this quarter and solid foundation, we are building alright.

Alright, as our essential steps to unlock the significant value of the rate.

With deep strategic relationships and excellent regional operating platforms. The rate continues to be a leader in global health care real estate and with that I'll now ask the operator to open for questions.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session. So do you have a question. Please press the star followed by the one on your Touchtone phone you will USB, Tom from technology ever Quest.

If you are using a speaker phone please lift the handset before pressing any clues.

Our next question comes from <unk> from Laurentian Bank. Please go ahead.

Thank you and good morning.

Three quick questions for me first.

Yes, I would say you have $219 million in assets held for sale at Q3 I was wondering if you could give us a bit more color on the nature of those assets.

And.

I guess, what I am going on to discussion as I didn't see any update on the.

On the U S. On the original portfolio initiatives. So I was wondering if there was any of this in the <unk>.

The assets held for sale.

Thank you.

Yes.

So Fred.

Second question first.

There is no updates on the Brazil the U S.

In the.

Assets held for sale.

Then.

And regarding your first question.

Yes.

We have also gone.

Assets held for sale in the vital trust.

Because it is on a consolidated basis.

In addition.

To the Canadian portfolio being the Atlantic portfolio.

Okay. That's helpful. Thank you and then maybe while I've got your attention on the subject what was the thought process on those.

Initiatives for bridge.

Brazil and the U S.

And I guess, where are you heading with this.

We're really just we're just exploring what the opportunities are.

To look at our maturity profiles in late 'twenty four 'twenty five.

Looking at our leverage as you know it ticked up 80 basis points to 51, 9% and really looking at through the simplification of the business that's kind of how we're thinking about it.

Okay, but no update specifically answer no no pause.

Okay. Okay.

Unclear, but it's okay. We can take it offline and then I was wondering if.

And you could explain the $4 2 million year on year increase in the G&A.

That's that's quite substantial was there any onetime items in there what's a good I guess, what's a good run rate.

Yes, maybe we'll take it offline and we'll show you, where we have additional disclosure in the MD&A and the.

The financial statements.

Yes.

But on the increase itself like where where does it come from.

Hey, Joel good mainly comes from.

A donation that we provide.

In Australia to <unk> West.

Donation.

Yes.

Donation of $4 million is that what you said no no okay. Okay.

We will take that offline, but is not format.

Alright, I guess again, we will take it offline but.

What's the like what's the main items of that increase.

Yeah, Let me come back to you on that because I havent got that data on hand.

Okay and the last one for me I saw that.

You put a greater emphasis on growth B I guess it relates mostly to Australia. I was wondering if you could give us a bit more color on the.

On the rest of the portfolio on that front.

No.

<unk>, Australia, that's Europe kind of address a global a global ranking global ranking threat.

Okay, Okay, and the press release I saw was mostly focusing on Australia, but.

Would you think that applies on the.

And then on the portfolio as a whole that which time exactly yes, Fred yes.

Thank you so much that's it from me thank you.

Thank you. The next question comes from Himanshu Gupta from Scotiabank. Please go ahead.

Thank you and good morning.

Good morning, So first of all the investments in Australia, you really fun I think you sold almost $100 million in Q3.

So how much is left to.

To be sold.

Just so just over half so about half lift.

And I think Craig you mentioned in your prepared remarks in the second half Oh, sorry in the first half of next year.

Something in Q4 as well.

That's exactly right.

Normal course, the redemption process that Australia and Unity property Trust does in November so there'll be a redemption process.

In November so there'll be some there will be some proceeds in Q4.

Okay, and just to clarify there is no debt associated with those investments as well.

As of now correct, we had $94 5 million worth of debt against that asset and we have now received $110 million. So you are right.

It all guys do General Trust.

Okay got it.

And then on the tap service positions.

Earlier, you mentioned you have some classified as assets held for sale.

Have a sense of timing on that.

We again expect something like go to the next year or is it something more eminent.

No we shouldn't.

Yeah.

We should we should we expect by the end of the year.

Okay.

An update by the end of the year.

Particularly the ones that are firm.

Okay.

So how far along are you in that process and then are they like.

Waiting to be closed or youre still in negotiations for his closing remarks.

$180 million, we announced.

Okay.

I on the Alpha and the closed also.

So a binding agreement to purchase and sale with all conditions waived.

Okay. Okay.

Other asset we have other assets under negotiation, we just havent mentioned that amount because they are still under negotiation.

Got it okay.

And then you know obviously you have done I would say a good job in the last few months in terms of addressing the near term debt refinancing.

As we stand today.

Do you have a handful of New York.

Except for slightly to ship next year.

Or more in terms of what is your target payout ratio next year and the like.

Get off.

The new distribution.

So at this stage, we're not we're not providing guidance, but what I can say.

Looking at earnings.

<unk> per unit, you're stripping out.

The interest taxes, we discussed and we did last quarter youre getting to sort of them attention, which is very consistent to last quarter. So it gives you that will give you a sense of a run rate.

Good morning, and thanks, Karen calling all the debt refi or do you have that data, including the convertible debenture that as well.

To date, yes.

Okay.

And the convertible debenture of cost size that interest expense will come in Q1 next year.

That's correct, yes, Okay fantastic and maybe one last question is on the fair value loss on the fair value adjustments.

In Q3.

Which geography most of them are pertaining to.

Yes.

Cap rates softening of 12 basis points.

Uh-huh.

And recently we took.

If I if I say most of it is in the Americas be Canada and the U S.

Okay. So when you say most of them in America.

Would that mean that most of them is in the U S. R. R.

Sure.

It's spread over between bus.

Okay.

Okay. So I think that's about it.

I will just turn it back thank you.

Thank you.

Yeah.

Thank you, ladies and gentlemen, as a reminder, should you have a question. Please press star one.

Next question comes from Amit <unk> from RBC. Please go ahead.

Thanks, Good morning, just given the sort of the cadence of the non core asset sales and the sales of the Australian unity units.

Do you see.

Leverage and floating rate debt exposure by the end of this year or.

Our early 2024.

It's a tough Super tough question right I think.

About leverage first I don't think there is a material change in leverage right because really you are creating liquidity.

Materially.

Changing leverage, but I think from.

And I'll come back to you because we haven't we haven't done it but it will definitely.

<unk>.

The fixed rate.

Portion of our debt.

Because you can see and we've told you we've sold a 110 million roughly half is now a 110 million to go in Australia in unity.

Yeah.

And you still got another $107 million.

From what we disclosed to the up to $300 million. So it gives you a sense of liquidity right up to 200 million in exit of six to nine months.

Okay.

Just on the on the dispositions that you have done to date.

Where is pricing coming in relative to the book value.

Yeah on that on that $190 million, which is what we have closing firm.

Just over 10% discount.

11% discount to the Q3.

Q3, sorry, Q2 valuation.

Got it.

And then just.

Last one for me on the on the series G converts.

Has the support level increase sell from from the 24% I think that you disclosed last month.

Yes, let me just pass you to Mike can answer that question. So we have received.

Verbal indications of additional support along with the.

Contracted.

Support so we're feeling very optimistic about that process.

Okay.

Thanks, very much I'll turn it back.

Thanks Tommy.

Thank you as we have no further questions I will turn the call back over for closing comments.

Thank you everyone really appreciate it and.

I'm sure we'll be speaking to a few of your next few days.

Great day.

Goodbye.

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