Q2 2024 NorthWest Healthcare Properties Real Estate Investment Trust Earnings Call

Unknown Speaker: Advertising Thank you for watching, and I'll see you in the next video, and I'll see you in the next video. Hello, everyone, and welcome to Northwest Healthcare Properties REITS Q2 2024 Earnings Conference Call. At this time, all lines are in listen-only mode.

Speaker Change: David Ellis, Dean Wilkinson, Alyssa Barry, Himanshu Gupta, Stephanie Karamarkovic

Speaker Change: Hello everyone and welcome to Northwest Healthcare Properties REITS Q2 2024 Earnings Conference Call.

Operator: 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, then zero for an operator. This call is being recorded today, Wednesday, August 14, 2024. I would now like to turn the conference over to Alyssa Barry, Investor Relations for Northwest. Please go ahead.

Speaker Change: At this time, all lines are in 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, then zero for an operator.

Speaker Change: This call is being recorded today, Wednesday, August 14th, 2024. I would now like to turn the conference over to Alyssa Barry, Investor Relations for Northwest. Please go ahead.

Alyssa Barry: Thank you, operator. Good morning, everyone, and welcome to Northwest's Q2 2024 conference call. Thank you for joining us today. This call is being recorded, and a replay will be made available on our website at www.mwhreit.com.

Alyssa Barry: Thank you, Operator. Good morning, everyone, and welcome to Northwest's Q2 2024 conference call. Thank you for joining us today. This call is being recorded and a replay will be made available on our website at www.mwhreit.com.

Alyssa Barry: Today's discussion includes forward-looking statements. As always, we want to caution you that such statements are based on management 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 on CDAR Plus, including our MD&A and annual information form, for a discussion of these risk factors. Please note that all currencies referenced today are in Canadian dollars unless otherwise stated.

Speaker Change: 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.

Speaker Change: Please see our public filings on CDAR Plus, including our MD&A and annual information form for discussion of these risk factors. Please note all currencies referenced today are in Canadian dollars unless otherwise stated.

Alyssa Barry: Presenting on today's call are Craig Mitchell, CEO; Mike Brady, our President; and Stephanie Karamarkovic, CFO. Tracy Widall, our COO, is also present and available for the question and answer session. I will now turn it over to Craig for his opening remarks. Thank you, Alyssa. I hope everyone is having a wonderful summer and sorry for the interruption.

Unidentified Speaker: Presenting on today's call are Craig Mitchell, CEO, Mike Brady, our President, and Stephanie Karamarkovic, CFO. Tracy Whittle, our COO, is also present and available for the question and answer session. I will now turn it over to Craig for his opening remarks.

Craig Mitchell: Thank you, Alyssa.

Speaker Change: I hope everyone's having a wonderful summer and sorry for the interruption.

Craig Mitchell: As noted in our Q2 2024 results news release yesterday, the first half of the year was strong with solid demand for healthcare real estate as evidenced by our portfolio performance. We reported industry-leading key performance indicators. Same store, Properly Net Operating Income on a Consolidate basis was up 4.2% compared to the same period last year. Our portfolio occupancy of 97% is underpinned by the weighted average lease expiry of a long 13.4 years, and over 85% of our leases are subject to rent indexation. With a portfolio composition of more than 1,800 tenants, the REIT's cash flows continue to be highly diversified. Our global rent collection rate at 30 June was nearly 99%.

Speaker Change: As noted in our Q2 2024 results news release of yesterday, the first half of the year was strong with solid demand for healthcare real estate as evidenced in our portfolio performance.

Speaker Change: We reported industry-leading key performance indicators.

Speaker Change: The same store property net operating income on a consolidated basis was up 4.2% compared to the same period of last year.

Speaker Change: Our portfolio occupancy of 97% is underpinned by the weighted average lease expiry of a long 13.4 years and over 85% of our leases are subject to rent indexation.

Speaker Change: With a portfolio composition of more than 1,800 tenants, the REIT's cash flows continues to be highly diversified.

Speaker Change: Our global rent collection rate at 30 June was nearly 99%.

Craig Mitchell: And during the first half of the year, we executed 810,000 square feet of leasing deals, with a retention rate of greater than 80%. In the first half of 2024, we divested 23 non-core properties and unlisted securities, generating $430 million. Then, subsequently, to the quarter end, we sold a UK portfolio to Assurra for $885 million, including $708 million in cash and $177 million in shares in Assurra, or approximately 8% of their public flow.

Speaker Change: And during the first half of the year, we executed 810,000 square feet of leasing deals with a retention rate of greater than 80%.

Speaker Change: In the first half of 2024, we divested 23 non-core properties and unlisted securities generating $430 million.

Speaker Change: Then subsequently, to the quarter end, we sold our UK portfolio to Asura for $885 million, including $708 million in cash and $177 million in shares in Asura, or approximately 8% of their public float.

Craig Mitchell: The combination of all this and last year's work means that we have now successfully concluded a year-long strategic review, which has resulted in total sales of $1.6 billion. As a result, we have reduced our consolidated debt to gross book value, including convertible debentures, down to 47.1%.

Speaker Change: The combination of all this and last year's work means that we've now successfully concluded a year-long strategic review.

Speaker Change: which has resulted in total sales of $1.6 billion.

Speaker Change: As a result, we reduced our consolidated debt to gross book value, including convertible debentures, down to 47.1%.

Craig Mitchell: We've made substantial inroads into our 2025 debt maturity, and our advance in discussions to further turn out I- I want to recognize the exceptional effort of our team in closing the UK transaction. We are fortunate to have a management team deeply committed to maximizing value for our unit. Mike, who led the sales process, will provide further insights into this process shortly. Moving forward, as we have previously stated, we remain committed to achieving even more favourable leverage levels. Greater Deturation and continuing to strengthen off an actual position.

Speaker Change: We have made substantial inroads into our 2025 debt maturities and are advancing discussions to further term out our debt.

Speaker Change: I want to recognize the exceptional effort of our team in closing the UK transaction.

Speaker Change: We are fortunate to have a management team deeply committed to maximizing value for our unit holders.

Speaker Change: Mike, who led the sales process, will provide further insights into this process shortly.

Speaker Change: Moving forward, as we have previously stated, we remain committed to achieving even more favourable leverage levels.

Mike Brady: Greater debt duration and continuing to strengthen our financial position.

Craig Mitchell: Healthcare stands out among all real estate classes as a particularly strong and stable sector, offering superior risk-adjusted returns, especially in the context of an aging population which continues to drive stable and growing demand for healthcare facilities and services. Additionally, the essential nature of healthcare assets combined with long-term leases and government funding further enhances the sector's stability. A high-quality healthcare real estate portfolio continues to be resilient and has a demonstrated track record of producing strong cash flows, collections, long-term inflation index leases, and long-term high office levels, which sit around 97%, through the economic cycle.

Mike Brady: Healthcare stands out among all real estate classes as a particularly strong and stable sector, offering superior risk-adjusted returns, especially in the context of an aging population, which continues to drive stable and growing demand for healthcare facilities and services.

Mike Brady: Additionally, the essential nature of healthcare assets combined with long-term leases and government funding further enhances the sector's stability.

Mike Brady: A high quality healthcare real estate portfolio.

Mike Brady: continues to be resilient and has a demonstrated track record of producing strong cash flows, collections, long-term inflation index leases and long-term high office levels, which sit around 97% through economic cycles.

Craig Mitchell: We believe our REIT is strategically positioned in the right asset class to meet the growing demand for quality healthcare facilities. Based on our high-quality healthcare real estate portfolio, we expect our properties to continue to be in high demand from our healthcare tenants and operating partners. We also continue to be committed to further streamlining operations and reducing costs to ensure efficient and effective operations. We believe these efforts will yield greater cost savings in the coming course. In addition, the Bank of Canada's recent rate cut to 4.5% signals the start of an easing cycle that could lower borrowing costs and boost real estate investment.

Mike Brady: We believe our REIT is strategically positioned in the right asset class to meet the growing demand for quality healthcare facilities.

Mike Brady: Based on our high quality health care real estate portfolio, we expect our properties to continue to be in high demand from our health care tenants and operating partners.

Mike Brady: We also continue to be committed to further streamlining operations and reducing costs to ensure efficient and effective operations. We believe these efforts will yield greater cost savings into the coming quarters.

Mike Brady: In addition, the Bank of Canada's recent rate cut to 4.5% signals the start of an easing cycle, which could lower borrowing costs and boost real estate investments, though the timing of future cuts remains critical.

Craig Mitchell: Though the timing of future cuts remains critical, at a net asset value of $9.53, post the sale of the UK asset, the REIT is significantly undervalued considering a high quality portfolio and proven management track record over the past year. With a strong governance framework now firmly in place and a strategic review concluded, we believe we are well positioned for sustained growth and success in the coming quarter. Our focus now is on increasing NorthWest visibility and awareness, ensuring that the market fully recognizes the value and potential of our reach.

Mike Brady: at a net asset value of $9.53.

Speaker Change: Post the sale of the UK asset, the REIT is significantly undervalued considering a high quality portfolio and proven management track record over the past year.

Speaker Change: With a strong governance framework now firmly in place and the strategic review concluded, we believe we are well positioned for sustained growth and success in the coming quarters.

Speaker Change: Our focus now is on increasing the visibility and awareness for Northwest, ensuring that the market fully recognises the value and potential of our REIT.

Craig Mitchell: Lastly, during the quarter, we also published our 2023 Sustainability Report, a significant milestone made possible by an incredibly dedicated sustainability team led by Tracy Whittle, our Chief Operating Officer. Top highlights included NorthWest Manage Vital being named sector leader, earning first place by Gresby for healthcare real estate globally, with NorthWest REIT coming in second. We also completed our first six-star, green-star building in Queensland, Australia, which is the highest certification possible, and we also highlighted the launch of our Reflection Reconciliation Action Plan.

Tracy Woodle: Lastly, during the quarter, we also published our 2023 Sustainability Report, a significant milestone made possible by an incredibly dedicated sustainability team, led by Tracy Whittle, our Chief Operating Officer.

Tracy Woodle: Top highlights including Northwest Manage Vital being named sector leader earning first place by Grasby for healthcare real estate globally with the Northwest REIT coming in second.

Tracy Woodle: We also completed our first six star green star building in Queensland Australia which is the highest certification possible and highlighted the launch of a and we also highlight the launch of our reflection reconciliation action plan.

Craig Mitchell: These achievements mark critical steps towards our 2050 net zero goals, reinforcing our commitment to setting the standard for sustainability in our environment. Now, I'd like to turn it over to Mike Brady for an update on our strategic initiatives during the quarter.

Tracy Woodle: These achievements mark critical steps towards our 2050 net zero goals, reinforcing our commitment to setting the standard for sustainability in our industry.

Tracy Woodle: Now I'd like to turn it over to Mike Brady for an update on our strategic initiatives during the quarter. Over to you, Mike.

Mike Brady: Thanks, Craig. Last summer, our board appointed a Strategic Review Committee to conduct a formal strategic review to seek to maximize value for our unit holders. This was a significant undertaking, and the committee considered opportunities across our global portfolio. During the formal strategic review period, which recently concluded, we achieved several key outcomes.

Mike Brady: Thanks Craig. Last summer our board appointed a strategic review committee to conduct a formal strategic review to seek to maximize value for our unit holders.

Speaker Change: This was a significant undertaking and the committee considered opportunities across our global portfolio.

Mike Brady: We sold 46 properties plus investments in unlisted securities for aggregate gross proceeds of $1.6 billion. We reduced outstanding debt by $1.2 billion to $3 billion, decreasing consolidated debt to gross book value, including convertible debentures, to 47.1%. We strengthen corporate governance and enhance the management team. We improve liquidity through a revised distribution policy, and we enhance transparency and investor engagement. Subsequent to quarter end, as Craig mentioned, we announced the sale of our UK portfolio for a total consideration of $885 million, of which 80% was paid in cash and 20% in shares of Asura PLC, a healthcare REIT publicly traded on the London Stock Exchange.

Speaker Change: During the formal strategic review period, which recently concluded, we achieved several key outcomes.

Speaker Change: We sold 46 properties plus investments in unlisted securities for aggregate gross proceeds of $1.6 billion.

Speaker Change: We reduced outstanding debt by $1.2 billion to $3 billion.

Speaker Change: Decreasing consolidated debt to gross book value, including convertible debentures, to 47.1%.

Speaker Change: We strengthened corporate governance and enhanced the management team. We improved liquidity through a revised distribution policy and we enhanced transparency and investor engagement.

Speaker Change: Subsequent to quarter end, as Craig mentioned, we announced the sale of our UK portfolio for total consideration of $885 million.

Craig Mitchell: of which 80% was paid in cash and 20% in shares of Asura PLC, a healthcare REIT publicly traded on the London Stock Exchange.

Mike Brady: NorthWest now owns approximately 8% of the public float of Assura, and this stake is subject to certain disposal restrictions until Q1 2025. The 708 million of cash proceeds were used to repay portfolio and corporate debts at a weighted average interest rate of 7.9%.

Craig Mitchell: NorthWest now owns approximately 8% of the public float of Assura, and this stake is subject to certain disposal restrictions until Q1, 2025.

Craig Mitchell: That $708 million of cash proceeds were used to repay portfolio and corporate debts with a weighted average interest rate of 7.9%.

Stephanie Karamarkovic: We will continue to evaluate market opportunities strategically and selectively to continue to strengthen our balance sheet and to simplify and streamline the business to position us for profitable and sustainable growth. I'll now hand it over to our CFO, Stephanie Karamarkovic, who will share our financial highlights for the quarter. Thanks, Mike. Our asset portfolio performance remains strong through Q2 2024, considering the dispositions of non-core properties in the last 12 months. As a result, our Q2 revenue from investment properties decreased by 6% over the prior year period.

Craig Mitchell: We will continue to evaluate market opportunities strategically and selectively to continue to strengthen our balance sheet and to simplify and streamline the business to position us for profitable and sustainable growth.

Stephanie Karamarkovic: I'll now hand it over to our CFO , Stephanie Karamarkovic, who will share our financial highlights for the quarter. Thank you, Mike.

Stephanie Karamarkovic: Lower revenue was offset by a one-time lease surrender fee of $1.7 million earned in the UK, rent indexation across all of our regions, and higher tenant recovery. The REIT delivered consolidated same property net operating income of $86 million, which is 4.2% higher than Q2 2023, mainly due to inflationary adjustments on rent, rentalized capital spend, and improved recoveries reflecting steady growth in our underlying leases. In Q2 2024, AFFO was $0.09 per unit compared to $0.13 per unit in Q2 2023.

Stephanie Karamarkovic: Our asset portfolio performance remained strong through Q2 2024, considering the dispositions of non-core properties in the last 12 months. As a result, our Q2 revenue from investment properties decreased by 6% over the prior year period.

Stephanie Karamarkovic: Lower revenue was offset by a one-time lease surrender fee of $1.7 million earned in the UK, rent indexation across all of our regions, and higher tenant recoveries.

Speaker Change: The REITs delivered consolidated same-property net operating income of $86 million, which is 4.2% higher than Q2 2023, mainly due to inflationary adjustments on rent, rentalized capital spend, and improved recoveries reflecting steady growth in our underlying leases.

Stephanie Karamarkovic: However, excluding the impact of interest rate caps that expired earlier this year, AFFO in Q2 2023 was $0.08 per unit. The increase of one cent per unit is mainly attributable to higher management fees in the current quarter as compared to Q2 2022.

Speaker Change: Q2 2024 AFFO was $0.09 per unit, compared to $0.13 per unit in Q2 2023. However, excluding the impact of interest rate caps that expired earlier this year, AFFO in Q2 2023 was $0.08 per unit.

Speaker Change: Increase of one cent per unit is mainly attributable to higher management fees in the current quarter as compared to Q2 2023 due to reversals of management fees accrued in respective transactions that did not complete in the prior year.

Stephanie Karamarkovic: Due to reversals of management fees accrued in respective transactions that did not complete in the prior year of management fees accrued in the prior year of management fees accrued in the prior year, Q2 2024 AFFO per unit remains in mind with the past, 3.25 at $0.09, excluding the impact of the previously mentioned interest rate cap. General and administrative expenses, as reported, were $2 million lower compared to the prior year and prior quarter, including non-tash compensation. PNA and Q2 2024 were 13.2 million as compared to 12.4 million and Q2 23 and 13 million and Q1 24.

Speaker Change: Q2 2024 AFFO per unit remained in line with the past three-quarters at $0.09, excluding the impact of the previously mentioned interest rate cap.

Speaker Change: General and administrative expenses, as reported, were $2 million lower compared to prior year and prior quarter.

Speaker Change: Excluding non-cash compensation, G&A in Q2 2024 was $13.2 million as compared to $12.4 million in Q2 2023 and $13 million in Q1 2024.

Stephanie Karamarkovic: The increases over Q2 23 and Q1 24 are primarily a result of the professional fees for statutory and tax compliance filing related to historical periods in Europe. The company continues to improve operational efficiency by streamlining and simplifying operations and reducing costs. We believe these efforts will result in greater G&A cost savings in the coming quarter. Interest expense in Q2 2024 was $53.8 million as compared to $57.2 million in Q2 2023 and $55.4 million in Q1 2024.

Speaker Change: The increases over Q2-23 and Q1-24 are primarily a result of the professional fees for statutory and tax compliance filing related to historical periods in Europe .

Speaker Change: The REIT continues to improve operational efficiency by streamlining and simplifying operations and reducing costs. We believe these efforts will result in greater G&A cost savings in the coming quarters.

Speaker Change: Interest expense in Q2 2024 was $53.8 million as compared to $57.2 million in Q2 2023 and $55.4 million in Q1 2024.

Stephanie Karamarkovic: The decrease in interest expense as compared to 2023 and the prior quarter is attributable to the reduction in debt as a result of asset sales, partially offset by higher interest rates as compared to the prior year. Moving to the balance sheet, the REITs' Proportionate Investment Properties at June 30. 2024 with $5.2 billion, down from $5.5 billion as at Q1 2020. The decrease of $300 million is attributable to disposition activity in the U.S. and Australasia of $161 million and fair value losses of $176 million, of which $105 million was related to the U.K. portfolio to reflect the write-down to the price transacted subsequent to quarter-end.

Speaker Change: The decrease in interest expense as compared to 2023 and prior quarter is attributable to the reduction in debt as a result of asset sales, partially offset by higher interest rates as compared to prior year.

Speaker Change: Moving to the balance sheet, the REITs Proportionate Investment Properties at June 30

Speaker Change: 2024 with $5.2 billion, down from $5.5 billion as at Q1 2024.

Speaker Change: The decrease of 300 million is attributable to disposition activity in the U.S. and Australasia of 161 million.

Speaker Change: and fair value losses of $176 million, of which $105 million was related to the UK portfolio to reflect the write-down to the price transacted subsequent to quarter end.

Stephanie Karamarkovic: The REIT's disposition activity during and subsequent to the quarter has resulted in the REIT making significant progress on its capital management initiative. Since Q1 2024, including events after the quarter, the REIT has reduced proportionate debt from $3.5 billion to $2.6 billion and has reduced proportionate leverage by 400 basis points to 55.1%. The REIT has a stated objective of reducing proportionate leverage below 50% in its pursuit of becoming an institutional quality REIT.

Speaker Change: The REIT's disposition activity during and subsequent to the quarter has resulted in the REIT making significant progress on our capital management initiative.

Speaker Change: Since Q1 2024, including events after the quarter, the REIT has reduced proportionate debt from $3.5 billion to $2.6 billion, and has reduced proportionate leverage by 400 basis points to 55.1 percent.

Speaker Change: The REIT has a stated objective of reducing proportionate leverage below 50% in its pursuit of becoming an institutional quality REIT.

Stephanie Karamarkovic: With respect to the REIT's near-term debt maturities, since Q1, including the UK portfolio sale in August, the REIT has repaid over $780 million of its 2024 and 2025 debt maturities, leaving $628 million remaining as of today. To this end, management is actively engaging with lenders to refinance or extend the maturity of the REIT's remaining 2024 and 2025 maturities and anticipates significant progress to be made on this during In addition to repaying high-cost debt and extending terms, we are also committed to reducing our exposure to floating rate debt. As of today, 29.8% of the debt that on a proportionate basis is at variable rates, down from 35.3% as at December 31st.

Speaker Change: With respect to the REITs near-term debt maturities, since Q1, including the UK portfolio sale in August, the REIT has repaid over $780 million of its 2024 and 2025 debt maturities, leaving $628 million remaining as of today.

Speaker Change: To this end, management is actively engaging with lenders to refinance or extend the maturity of the REITs remaining 24 and 25 maturities and anticipates significant progress to be made on this during the third quarter.

Speaker Change: In addition to repaying high-cost debt and extending terms, we are also committed to reducing our exposure to floating rate debt. As of today, 29.8% of the REITs

Speaker Change: debt on a proportionate basis is at variable rates, down from 35.3% as of December 31st.

Operator: Looking ahead to the remainder of 2024 and into 2025, we expect to see the impact of our dispositions and capital management initiatives reflected in our future earnings, with a continued focus on maximizing our operational efficiencies and further improving our balance sheet. Our Q2 Investor presentation, which is available on the Investor Relations section of our website, provides more details on our portfolio post the UK transactions, including operating and balance sheet metrics reflecting the impact of the UK disposition on June 30th. And with that, I'll now ask the operator to open up the line for questions.

Speaker Change: Looking ahead to the remainder of 2024 into 2025, we expect to see the impact of our dispositions and capital management initiatives reflected in our future earnings, with a continued focus on maximizing our operational efficiencies and further improving our balance sheet.

Speaker Change: Our Q2 investor presentation, which is available on the investor relations section of our website, provides more details on our portfolio post the UK transaction, including operating and balance sheet metrics reflecting the impact of the UK disposition on June 30th results.

Speaker Change: And with that, I'll now ask the operator to open up the line for questions.

Operator: Thank you. We will now be getting the question and answer session to join the question queue. You may press star and then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys.

Speaker Change: Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two.

Frank Liu: To withdraw your question, please press star then 2. This question comes from Frank Liu with VMO. Please go ahead. Good morning, everyone.

Speaker Change: Press the question, come from Frank Leo with BMO. Please go ahead.

Craig Mitchell: First of all, congratulations on the sale of your UK portfolio and the conclusion of the strategic review. Just thinking ahead on your overall strategy moving forward, I guess you've got one portfolio sale down. Is there anything else on the table at the moment? And are you still considering potential sales down of your assets in Brazil and the US? So, Frank, thanks for that.

Speaker Change: Good morning, everyone. First of all, congrats on the sale of your UK portfolio and the conclusion of the strategic review.

Frank Leo: Just thinking ahead on your overall strategy moving forward, I guess you got one portfolio sell-down. Is there anything else on the table at the moment, and are you still considering potential sells-down of your assets in Brazil and the U.S.?

Craig Mitchell: Everything's on the table, so we're still looking at our portfolio and where there might be opportunities and windows. We're seeing a little bit more demand in the sell market, so we'll take those opportunities. You know, we're in a very strong position from our perspective, our earnings are now a very solid base, we've delivered nine cents for five quarters, you know, I think we are under hedged on our balance sheets, so we've got some opportunities there for interest rate swaps as the market picks up. We'd like to see leverage a little bit lower on that question, right?

Frank Leo: So, Frank, thanks for that.

Speaker Change: Everything's on the table. So we're still looking at our portfolio and where there might be opportunities and windows. We're seeing a little bit more demand in the cell market. So we'll take those opportunities.

Speaker Change: We're in a very strong position from our perspective. Our earnings are now a very solid base. We've delivered nine cents for five quarters. I think we are under hedged on our balance sheets, so we've got some opportunities there for interest rate swaps as the market picks up.

Craig Mitchell: And if we can do that, and we're also in the position where we can make transactions and sell in an accretive way. So, you know, the UK transaction not only does it massively de-lever and de-risk 2025, it was 6 cents accretive on an annualized basis. So we will look at that because we still have some high cost debt on our balance sheet that we want to get rid of and if we can do that in a creative manner we will. And I'm just wondering, is this the more like a priority in the later half of the year, or is it's more 225? What's that? The opportunities for what? Sorry.

Speaker Change: We also, you know, we'd like to see leverage a little bit lower to that question, right? And if we can do that.

Speaker Change: And we're also in the position where we can make transactions and sell in an accretive way. So, you know, the UK transaction not only does it massively de-lever and de-risk 2025, it was six cents accretive on an annualised basis.

Speaker Change: So we will look at that because we still have some high cost debt on our balance sheet that we want to get rid of and if we can do that in a creative manner, we will.

Speaker Change: And I'm just wondering, is this more like a permitting in the later half of this year or it's more 2025?

Craig Mitchell: Opportunities for potential sales of additional assets. Oh, look, we're constantly looking at it. I mean, you can see we've sold $1.6 billion in the last 18 months. So, you know, I think we're constantly looking. So there'll be news in Q3, Q4, Q1 next year. So I don't think we're on a pause. Yeah, we're constantly looking. Thanks for the color.

Speaker Change: What's that? The opportunities for what? Sorry. Opportunities for potential sales of additional assets.

Speaker Change: Oh look, we're constantly looking at it and you can see we've sold $1.6 billion in the last 18 months.

Speaker Change: I think we're constantly looking, so there'll be news in Q3, Q4, Q1 next year, so I don't think we're on a pause, we're constantly looking.

Craig Mitchell: I appreciate that. And then, just going back to the prior strategic review, I believe growing the JV business and pursuing an asset light model was one of the focus for the week. That said, is the asset light strategy still in your mind? And would you continue to explore opportunities to grow your JV business?

Speaker Change: Thanks for the cover. I appreciate that. And then just going back to the prior of the strategic review, I believe growing JV business and pursue an asset-light model was one of the focus for the week.

Unknown Executive: Hello everyone and welcome to Northwest Healthcare Property Treats, Q2 2024 earnings conference call. At this time, all lines are in 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 when you spread star than zero for an operator.

Speaker Change: That said, is this asset-based strategy still in your mind and would you continue to explore opportunities to grow your JV business?

Craig Mitchell: Yes, we like the asset management business. We like the asset life business, too. We've got some very strong partners, as you know, as the Sovereign Wealth Fund in Europe and Australasia; we have Vital. Their transactional activity is quite subdued, I think just globally, but we like that market. And we have very strong partners, so we will continue to grow through that avenue when the market recovers. Thank you. I guess with your comment on a more incremental demand for, you know, the healthcare assets, I guess that's also support for your growing JV business initiative. No, exactly right.

Speaker Change: Yes, we like the asset management business, we like the asset life business, we've got some very strong partners, as you know, the Sovereign Wealth Fund in Europe and in Australasia, we have Vital.

Unknown Executive: This call is being recorded today, Wednesday, August 14, 2024.

Alyssa Barry: I would now like to turn the conference over to Alyssa Barry, Investid Relations for Northwest. Please go ahead. Thank you operator, good morning everyone and welcome to Northwest Q2 2024 conference call. Thank you for joining us today. This call is being recorded and a replay will be made available on our website at triplew.nwhreet.com. Today's discussion includes forward-looking statements. As always, we want to caution you that such statements are based on management assumptions and beliefs.

Speaker Change: Their transactional activity is quite subdued, I think just globally, but we like that market and we have very strong partners, so we will continue to grow through that avenue when the market recovers.

Alyssa Barry: 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 on Cedar Plus, including our MDNA and annual information form for discussion of these risk factors. Please note all currencies reference today are in Canadian dollars unless otherwise stated. Presenting on today's call are Craig Mitchell, CEO, Mike Brady, our president and Stephanie Cara Markovich, CFO. Tracy Widall, our COO, is also present and available for the question and answer session.

Speaker Change: Thank you. I guess with your comment on a more incremental demand for the healthcare assets, I guess that's also support of your growing JV business initiative. No, you're exactly right.

Craig Mitchell: You know, every investment committee globally is, it's easy to say no, not yes, but I think, you know, as everyone's getting more and more comfortable that we're at the bottom of the interest rate cycle and there might be cuts coming, and that varies, and it's different in each market globally, but that's getting buyers, and particularly core buyers, to start to think about acquisitions. Thank you. That's all my questions for today, and congratulations again. Thank you very much. I hope you guys have a good day. Turn it back.

Speaker Change: You know, every investment committee globally, it's easy to say no, not yes.

Speaker Change: But I think, you know, as everyone's getting more and more comfortable that we're at the bottom of the interest rate cycle and there might be cuts coming. And that varies, and it's different in each market globally, but that's giving buyers, and particularly core buyers, an opportunity.

Speaker Change: Start starting to think about acquisitions

Craig Mitchell: I will now turn it over to Craig for his opening remarks. Thanks, you're Lissa. I hope everyone's having a wonderful summer and sorry for the interruption. As noted in our Q2 2024 results, news release of yesterday, the first half of the year was strong, with solid demand for healthcare, real estate as evidenced in our portfolio performance. We reported industry leading key performance indicators. Same store, property net operating income on a consolidated basis was up 4.2% compared to the same period of last year.

Speaker Change: Thank you. That's all my questions for today, and congrats again. Thank you very much. I hope you guys have a good day. I'll turn it back. Thank you so much.

Dean Wilkinson: Thank you. Thank you so much. The next question comes from Dean Wilkinson with CIBC; please go ahead. Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host, trying to square the $105 million write-down you've taken on that 5.9 cap rate. Would that suggest you were perhaps carrying that something closer to five and a quarter?

Speaker Change: The next question comes from Dean Wilkinson with CIBC. Please go ahead.

Dean Wilkinson: Thanks. Good morning everyone. I just want to spend a little time on the asset sale.

Dean Wilkinson: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host

Dean Wilkinson: on that 5.9 cap rate. I mean, would that suggest you were perhaps carrying that something…

Craig Mitchell: And what would that mean for the remainder of the European assets in Germany and the Netherlands? Are they closer to a high single-digit, low double-digit cap rate, just trying to get a little granularity on the portfolio? Absolutely.

Speaker Change: Closer to five and a quarter. And what would that mean for the remainder of the European assets in Germany and the Netherlands? Are they like closer to a high single digit, low double digit cap rate? Just

Craig Mitchell: Our portfolio obviously of 97% is underpin by the way to average lease expiry of a long 13.4 years and over 85% of our leases are subject to rent indexation. With a portfolio composition of more than 1,810, the reach cash flows continues to be highly diversified. Our global rent collection rate at 30 June was nearly 99%, and during the first half of the year, we executed 810,000 square feet of leasing deals with the retention rate of greater than 80%.

Craig Mitchell: I'll answer the question about the European assets, and I'll pass over to Mike on the UK portfolio. So the European assets sit about just north of a six cap; I think a 6.1 cap is around that number, anyway. And I think that's kind of where steady state is.

Speaker Change: sort of trying to get a little granularity on the portfolio. Yeah, absolutely. I'll answer the question about the European assets, and I'll pass over a mic on the UK portfolio.

Speaker Change: So the European assets sit about just on a

Speaker Change: It's just north of the six cap, I think a 6.1 cap.

Craig Mitchell: You're seeing some reductions again in the interest rates in the ECB. So I think that feels like we're on a steady state, deeming where it will sort of lie reasonably and being consistent Q over Q. And that cap rate's pretty consistent if I look at the Galaxy Fund we have in Europe and on our balance sheet. So I think that's fair. I'm going to pass you over to Mike now and just give you a bit of color on the UK cap rates and the valuation movement. Yeah, how are you doing? It's Mike.

Speaker Change: It's around that number anyway, and I think that's kind of where steady state is you're seeing some reductions Again in the interest rates in the ECB, so I think I think that feels that we're on a steady state Dean where it will

Craig Mitchell: In the first half of 2024, we divested 23 non-core properties and unlisted securities generating 430 million. Then subsequently, to the quarter end, we sold a UK portfolio to a Sura for 885 million, including 708 million in cash and 177 million in shares in the Sura, or approximately 8% of their public flow. The combination of all this and last year's work means that we've now successfully concluded a year-long strategic review, which has resulted in total sales of 1.6 billion.

Speaker Change: So the lie is reasonably, and being consistent, Q over Q.

Speaker Change: And that cap rate is pretty consistent if I look at the Galaxy Fund we have in Europe .

Speaker Change: and on our balance sheet, so I think that's fair.

Speaker Change: I'm going to pass you over to Mike now and just give you a bit of color on the UK cap rates and the valuation movements.

Mike Brady: So, I mean, [inaudible] For all of our assets and all of our portfolios, we have a Regimented Quarterly IPP Valuation Process. I think a year ago we had the UK portfolio at a level similar to what we sold. We ran external valuations that came in at a higher number, so we increased our book value to reflect that.

Speaker Change: Yeah, hi, Dean, it's Mike. So, I mean,

Mike Brady: For all of our assets and all of our portfolios, we have a pretty regimented quarterly IPP valuation process. I think a year ago, we had the UK portfolio at a level.

Speaker Change: Similar to what we sold, we ran, you know, external valuations.

Craig Mitchell: As a result, we reduced our consolidated debt to gross book value, including convertible ventures down to 47.1%. We have made substantial inroads into our 2025 debt maturities and our advance in discussions to further term out our debt. I want to recognise the exceptional effort of our team in closing the UK transaction. We are fortunate to have a management team deeply committed to maximising value for our unit holders.

Mike Brady: We ran a very formal sales process and, you know, with lots of interested parties, and ultimately, this was the best opportunity counterparty, and this is what we pursued. Great. I'm not sure this might be Stephanie, but are there any tax implications that come from the sale and being able to repatriate that capital back and pay down the debt, and would that give you some pools going forward for any future asset sales? I can answer that. We were able to repatriate the cash due to our UK REIT structure without any tax withholdings.

Speaker Change: You know, that came in at a higher number, so we increased our book value to reflect that. We ran a very formal sales process.

Speaker Change: You know, with lots of interested parties and ultimately this was the, this was determined the best opportunity counter party and this is what we pursued.

Speaker Change: Great.

Craig Mitchell: Mike, who led the sales process, will provide further insights into this process shortly. Moving forward, as we have previously stated, we remain committed to achieving even more favourable level levels, greater debturations and continuing to strengthen our financial positions. Healthcare stands out amongst all restate classes as a particularly strong and stable sector, offering superior risk-adjusted returns, especially in the context of an aging population which continues to drive stable and growing demand for healthcare facilities and services.

Stephanie Karamarkovic: I'm not sure, this might be Stephanie. Are there any tax implications that come from the sale and being able to repatriate that capital back and pay down the debt and would that give you some pools going forward for any future asset sales?

Stephanie Karamarkovic: [inaudible]

Speaker Change: Yes, I can answer that. We were able to repatriate the cash due to our UK REIT structure without any tax withholdings. And so, yeah, the proceeds came back free and clear without any tax.

Stephanie Karamarkovic: The proceeds came back free and clear without any tax. Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. So because the investment is under 10%, we will show it as kind of another investment and record the distribution income as earned. Okay. Would there be an adjustment in there for the fluctuation of the share value over time? Yeah. I guess we'd back that out of the operating FFI.

Speaker Change: Great, I like no taxes

Speaker Change: And then, yeah, that and the other one that's inevitable, we won't talk about that one.

Craig Mitchell: Additionally, the essential nature of healthcare assets combined with long-term leases and government funding further enhances the sector's stability. A high-quality healthcare restate portfolio continues to be resilient and has a demonstrated track record of producing strong cash flows, collections, long-term inflation index leases and long-term high-office levels which set around 97% through economic cycles. We believe our rate is strategically positioned in the right asset class to meet the growing demand for quality healthcare facilities.

Speaker Change: On Assura, how is that investment now going to sit on the balance sheet, Stephanie? Will you have a line item for it? Will it go into the equity accounted, the other, and then also the 8 million pounds or so distribution? How is that going to flow through into FFO going forward?

Stephanie Karamarkovic: So because the investment is under 10%, we will show it as kind of an other investment and record the distribution income as earned.

Speaker Change: Okay, would there be an adjustment in there for the fluctuation of the share value over time? I guess we would back that out of the operating FFO.

Stephanie Karamarkovic: Correct, yeah, we will mark it to market every quarter. Perfect, and I'm assuming that that dividend can come back tax-sheltered, or is there any leakage that comes in bringing that back? There will be withholding tax at a preferred rate given we are in the Canadian and UK Partnerships, and so is that a 15% [inaudible] Okay, great. But that's included in the sixth sense of accretion that we've already...

Craig Mitchell: Based on our high-quality healthcare restate portfolio, we expect our properties to continue to be in high demand from our healthcare tenants and operating partners. We also continue to be committed to further streamlining operations and reducing costs to ensure efficient and effective operations. We believe these efforts will yield greater cost savings into the coming quarters. In addition, the Bank of Canada's recent rate cut to 4.5%, signals the start of an easing cycle which could lower borrowing costs and boost real estate investments, though the timing of future cuts remains critical.

Speaker Change: Correct, yeah, we will market to market every quarter.

Speaker Change: Perfect. And I'm assuming that that dividend can come back tax-sheltered or is there any leakage that comes in bringing that back?

Speaker Change: There will be withholding tax at a preferred rate given we are of the Canadian and UK population.

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to our channel.

Speaker Change: Partnership, and so it's at a 15% withhold.

Speaker Change: Okay, great. But that's included in the six cents of accretion already that we've...

Craig Mitchell: Unknown Speaker That's already, oh okay, so that answers the follow-on question. Then the last one for me just comes down to the distribution, obviously, in the quarter, a lot of moving parts, you're kind of at that 105, I guess post the sale and the normalization of what's called the balance sheet normalization, do you see that getting back down into the low 90s as we go through Q3 or should that be more of a full year 2025 kind of situation?

Speaker Change: we've talked

Speaker Change: that that's already okay so that that that answers the follow-on question then the last one for me just comes down to to the distribution obviously in the quarter a lot of moving parts

Craig Mitchell: At a net asset value of $9.53% of the UK asset, the rate is significantly undervalued considering a high-quality portfolio and proven management track record over the past year. With a strong governance framework now firmly in place and the strategic review concluded, we believe we are well positioned for sustained growth and success in the coming quarter.

Speaker Change: You're kind of at that 105, I guess, post the sale and the normalization of what's called the balance sheet normalization. Do you see that getting back down into the low 90s as sort of we go through Q3, or should that be more of a full year 2025 kind of setup?

Craig Mitchell: I think it's a it will improve, and it's more of a that six cents is really a 20-25 run rate Dean rather than, but you'll still see improvements from Q4. I think Q3 will be a little bit messy because it's half way through the quarter.

Speaker Change: I think it's a it will improve and it's more of a that six cents is really a 20-25 run rate Dean rather than but you'll still see improvements from Q4

Craig Mitchell: We did the transaction, but you see some benefit coming through. We're going to do it now, in Q4 and 25, in Q4. And then that's the key, one of the key messages, right?

Craig Mitchell: Our focus now is on the increasing the visibility and awareness for North West, ensuring that the market fully recognizes the value and potential of our rate.

Speaker Change: I think Q3 will be a little bit messy because it's halfway through the queue. We did the transaction, but you see some benefit come through and

Craig Mitchell: So, you know, when we cut that distribution to this extension, that's where we felt that nine cents was our base run rate, and now we're looking to grow from that base. Perfect. That helps a lot. That's it for me.

Speaker Change: in Q4 and 25. And that's one of the key messages, right? So, you know, when we cut that distribution to 36 cents, and that's where we felt that that nine cents was our base run rate, and now we're looking to grow from that base.

Craig Mitchell: Lastly, during the quarter, we also published our 2023 Sustainability Report, a significant milestone made possible by incredibly dedicated sustainability team.

Craig Mitchell: Led by Tracy Woodall, our Chief Operating Officer. Top highlights, including North West Managed Vital, being named sector leader, earning first place by Greshby for Healthcare Restate globally, with the North West REIT coming in second.

Speaker Change: Perfect. That helps a lot. That's it for me. I'll hand it back. Thanks, everyone. Thank you, Dean.

Dean Wilkinson: I'll hand it back. Thanks, everyone. The next question comes from Sairam Srinivas with Kormark Security. Please go ahead. Thank you, operator. Good morning, everybody.

Speaker Change: The next question comes from Sairam Srinivas with Karmark Security. Please go ahead.

Craig Mitchell: We also completed our first six star green star building in Queensland, Australia, which is the highest certification possible, and highlighted the launch of our reflection reconciliation action plan. These achievements mark critical steps towards our 2050 net zero goals reinforcing our commitment to setting the standard for sustainability in our industry.

Sairam Srinivas: Morning, just looking into you people for your same. You know, Mike, and you talked about this in terms of going through an entire process in terms of sales, but was probably a JV structure one of the things that he kind of thought about it, like was it an option even? I mean, no, this was some marketed as a new rate sale. And I'll just add to that, although, by marketing as an outright sale, in a tougher market where we are today, we didn't want to limit the buyer pool. We wanted to get the maximum price out of the portfolio, and we, and talking to our advisors and from the sales side, we agreed that this was the way to get the maximum value.

Speaker Change: Thank you, operator. Good morning, everybody. Good morning. Just looking at the UK portfolio sales,

Speaker Change: You know, Mike, when you talked about this in terms of going through an entire process in terms of the sales, but was probably a JV structure one of the things that you kind of thought about it? Like, was there an option even?

Speaker Change: I mean no, this was marketed as an outrage sale.

Michael Brady: Now I'd like to turn off the mic, Brady, for an update on our strategic initiatives during the quarter. Over you, Mike. Thanks, Craig.

Speaker Change: And I'll just add to that, although...

Michael Brady: Last summer, our board appointed a strategic review committee to conduct a formal strategic review to seek to maximize value for our unit holders. This was a significant undertaking, and the committee considered opportunities across our global portfolio. During the formal strategic review periods, which recently concluded, we achieved several key outcomes. We sold 46 properties plus investments in unlisted securities for aggregate gross proceeds of $1.6 billion. We reduced outstanding debt by $1.2 billion to $3 billion, decreasing consolidated debt to gross book value, including convertible debentures to 47.1%. We strengthened corporate governance and enhanced the management team. We improved liquidity through a revised distribution policy, and we enhanced transparency and investor engagement.

Speaker Change: My marking is an outright sell.

Speaker Change: In a tougher market where we are today, we didn't want to limit the buyer pool, we wanted to get the maximum price out of the portfolio and talking to our advisors from the sales side, we agreed that this was the way to get the maximum value for our unit odds.

Sairam Srinivas: That's fair. And maybe just looking at the maturities ahead, and congrats on you guys doing a great job and actually resolving a bunch of those maturities, but for the remainder of them, is it going to be a pure negotiation process of resolving the maturities, or, you know, asset sales, further asset sales down the line as well to kind of repay the debt? Like, what are the options? I'll go first, and I'll hand it over to Stephanie. So no further asset sales. It's in three buckets.

Speaker Change: That's right. And maybe just looking at the maturities ahead, and congrats on you guys doing a great job in actually resolving a bunch of those maturities.

Speaker Change: But for the remainder of them, is it going to be a pure negotiation process of resolving the maturities or, you know, is asset sales further asset sales down the line as well to kind of repay the debt? Like, what are the options there?

Speaker Change: I'll go first and I'll hand over to Stephanie. So, no further asset sales. It's in three buckets.

Craig Mitchell: You've got, um, Mortgages that will do it. We just believe they'll just roll, and that's just a continued conversation in bucket A. Bucket B, you've got some term debt in the U.S. in corporate. We're actively in negotiations right now, and Buckets 3, basically the convertible debenture. So really, we've really broken the back of it, and we're working on it. But there's no, we needed asset sales to conclude that. Stephanie?

Stephanie Karamarkovic: You've got

Morggyz: mortgages that will just

Stephanie Karamarkovic: We just believe they'll just roll and that's just a continual conversation in bucket A. Bucket B, you've got some term debt in the in the US and corporate we're active in negotiations right now. And then bucket three, basically the committable debenture.

Michael Brady: Subsequent to quarter end, as Craig mentioned, we announced the sale of our UK portfolio for total consideration of $885 million, of which 80% was paid in cash, and 20% in shares of Assura PLC, a healthcare rep publicly traded on the London Stock Exchange. Northwest now owns approximately 8% of the public float of Assura, and this stake is subject to certain disposal restrictions until Q1 2025. The 708 million of cash proceeds were used to repay portfolio and corporate debts with a weighted average interest rate of 7.9%. We will continue to evaluate market opportunities strategically and selectively to continue to strengthen our balance sheets and to simplify and streamline the business to position us for profitable and sustainable growth.

Stephanie Karamarkovic: So really, we've really broken the back of it and we're working on it.

Stephanie Karamarkovic: But there's no, we need to, asset sales to conclude that. Stephanie? Yeah, I would agree. All of that can be done with the existing portfolio and no further, and additional liquidity on the balance sheet.

Stephanie Karamarkovic: Yeah, I would agree. All of that can be done. The Existing Portfolio The Existing Portfolio, and Additional Liquidity on the Balance Sheet. All right, that's actually great, guys. I'll turn it back.

Stephanie Karamarkovic: to

Speaker Change: All right, that's actually great that we're going back. Thank you Thank you very much.

Sairam Srinivas: Thank you. Thank you. The next question comes from Giuliano Thornhill with National Bank Financial. Please go ahead. Hey guys, just one on why the UK was chosen.

Speaker Change: Thank you.

Speaker Change: The next question comes from Juliano Thornhill with National Bank Financial. Please go ahead.

Giuliano Thornhill: Could you guys come in on why the other geographies weren't exposed, or maybe what was the kind of analysis there? It's my job, I mean, we were under strategic review. The board considered different options.

Juliano Thornhill: Hey guys, just one on the why the UK was chosen. Could you guys comment on why the other geographies weren't disposed of or maybe what was the kind of analysis there?

Craig Mitchell: Yeah, I'll be honest, the UK portfolio was a very strong portfolio, and we didn't, you know, in an ideal world, we wouldn't have sold it, but it was a good portfolio. It brought a good price, and we had a lot of inbound interest in it, which led us to run a formal approach. And so the other geographies like the US, Brazil, those would be structured in a similar way to the UK portfolio where you kind of limit your tax on the repatriation of funds. I mean, each country is different, but there's no tax leakage on our US disposition.

Juliano Thornhill: It's Mike. I mean, we were under strategic review, the board considered different options. Yeah, I'll be honest, the UK portfolio was a very strong portfolio and we didn't, you know, in the ideal world we wouldn't have sold it, but it was a good portfolio, it brought a good price, and we had a lot of inbound interest in it.

Stephanie Karamarkovic: I'll now hand it over to our CFO, Stephanie Karamarkovic, who will share our financial highlights for the quarter. Thanks, Mike. Our asset portfolio performance remains strong through Q2 2024, considering the disposition of non-core properties in the last 12 months. As a result, our Q2 revenue from investment properties decreased by 6% over the prior year period. Lower revenue was offset by a one-time lease surrender fee of 1.7 million earned in the UK rent indexation across all of our region and higher tenant recoveries.

Juliano Thornhill: Which led us to run a formal process

Juliano Thornhill: And so the other geographies like the US, Brazil, those would be structured in a similar way of the UK portfolio where you kind of limit your tax on the repatriation of funds?

Speaker Change: I mean each country is different but there's no tax leakage on our US dispositions.

Craig Mitchell: We've reported a number of them, and we are also exploring other disposition opportunities in the US. YouTube, And so some of your better properties are located in Australia, kind of under the JV structurings. Is that what makes a carve out of Australia more difficult compared to some of these other ones that you have set up? or even just sales and the geography.

Stephanie Karamarkovic: The REAP delivered consolidated same property net operating income of 86 million, which is 2.4.2% higher than Q2 2023. Mainly due to inflationary adjustments on rent, rentalized capital spend, and improved recoveries reflecting steady growth in our underlying leases. Q2 2024, AFFO was 9 cents per unit compared to 13 cents per unit in Q2 2023. However, excluding the impacts of interest rate caps that expired earlier this year, AFFO and Q2 2023 was 8 cents per unit.

Speaker Change: We've reported a number of them and we're also exploring other disposition opportunities in the U.S.

Speaker Change: You know, but there's no tax leakage there.

Speaker Change: And so some of your better properties are located in Australia, kind of under the JV structurings, is that what makes a carve out of Australia more difficult compared to some of these other ones that you have set up?

Craig Mitchell: Oh, just to rephrase the question, why they weren't sold, is that the question? Yeah, just well, yeah, why there hasn't been more disposition. Yeah. So, in Vital, I think we sold nearly 400 million in the last year. So, there were a lot of different positions at Vital.

Speaker Change: or even just sales and the geography.

Speaker Change: Oh, so just to rephrase the question, why they weren't sold, is that the question?

Stephanie Karamarkovic: The increase of 1 cent per unit is mainly attributable to higher management fees in the current quarter as compared to Q2 2023 due to reversal of management fees accrued in respective transactions that did not complete in the prior year. Q2 2024, AFFO per unit, remained in line with the past three quarters at 9 cents, excluding the impact of the previously mentioned interest rate caps. General and administrative expenses as reported were 2 million lower compared to prior year and prior quarter.

Speaker Change: Yeah, just, well, yeah, why there hasn't been more disposition, yeah.

Speaker Change: So in vital I think we've sold nearly 400 million in the last year so there's been a lot of dispositions in vital.

Craig Mitchell: Of course, when it gets $0.30 in the dollar, that says, and a lot of the conversations we're talking about are on a proportionate basis, but Vital has been pretty active. We had one asset in Australia on our NorthWest balance sheet called Epping, and we sold that about six months ago, and if I think about the rest of the galaxy, I think there's one on the market at the moment for around the 150 million mark. So we're not discounting that because of the region or because of the structure; it just says the dollar impact for us is lower.

Speaker Change: Of course, we only get $0.30 in a dollar, that's a, and a lot of the conversations we're talking about is on a proportionate basis. But Vita's been pretty active. We had one asset,

Speaker Change: in Australia on our NorthWest, on our balance sheet called Epping and we sold that about six months ago and And if I think about the in the galaxy, I think there's one on the market at the moment around the 150 million mark

Stephanie Karamarkovic: Excluding non-tash compensation, PNA and Q2 2024 was 13.2 million as compared to 12.4 million in Q2 2023 and 13 million in Q1 2024. The increases over Q2 23 and Q1 24 are primarily a result of the professional fees for statutory and tax compliance filing related to historical periods in Europe. The read continues to improve operational efficiency by streamlining and simplifying operations and reducing costs. We believe these efforts will result in greater GNA cost saving in the coming quarter.

Speaker Change: So, we're not discounting that because of the region or because of the structure, it just says the dollar impact for us is lower.

Craig Mitchell: And then just, I guess once you've reigned in leverage enough, what kind of geography or asset class do you guys think you'd like to grow the most in, or ultimately to play capital? Sure, so we are still very, very pro-cure real estate, so, you know, private hospitals, medical office buildings, life sciences, and all the asset classes we know are very strong in, so that... We also will have a preference to reinvest back in Canada and North America. So the marginal dollar, let's call it on a 100% basis, would be in our home markets.

Speaker Change: And then just, I guess once you've reined in leverage enough, what kind of geography or asset class do you guys think you'd like to grow the most in or ultimately deploy capital?

Speaker Change: Sure. So we are still very, very pro-cure real estate. So, you know, private hospitals, medical office buildings, life sciences, all the asset classes we know and are very strong in. So that's...

Stephanie Karamarkovic: Interest expense in Q2 2024 was 53.8 million as compared to 57.2 million in Q2 23 and 55.4 million in Q1 2024. The decrease in interest expense as compared to 2023 and prior quarter is attributable to the reduction in debt as a result of asset sales, partially offset by higher interest rates as compared to prior year. Moving to the balance sheet, the read's proportionate investment properties at June 30. 2020-24 with $5.2 billion, down from $5.5 billion, as at Q1-24.

Speaker Change: We also will have a preference.

Speaker Change: to reinvest back.

Speaker Change: in Canada and North America.

Speaker Change: So the marginal dollar, let's put it on a 100% basis, would be in our home markets.

Craig Mitchell: And then, building up our asset base here, growth internationally would be more asset light in sort of joint venture structures as we have with the Galaxy Funds or with Vital. So that's how we would look to grow internationally, but most of the marginal dollar would come to Mexico. Okay, and then just the last one on extending your 2025 maturities. Obviously, there's a lot on the table between dispositions. What kind of terms are you getting on discussions related to extensions of that term debt? Now?

Speaker Change: Um, um, [inaudible]

Speaker Change: and then building up our asset base here.

Speaker Change: Growth internationally would be more asset light in sort of joint venture structures.

Stephanie Karamarkovic: The decrease of $300 million is attributable to disposition activity in the U.S, and Australia of $161 million and fair value losses of $176 million of which $105 million was related to the UK portfolio to reflect the right-down to the price-transacted subsequent to quarter-end. The reach disposition activity during and subsequent to the quarter has resulted in the REAP making significant progress on our capital management initiatives. Since Q1-24, excluding events after the quarter, the REAP has reduced proportionate debt from $3.5 billion to $2.6 billion and has reduced proportionate leverage by 400 basis points to 55.1%.

Speaker Change: as we have with the Galaxy Funds or with Vital. So that's how we would look to grow internationally, but most of the marginal dollar would come domestically.

Speaker Change: Okay, and then just the last one just on extending your 2025 maturities. Obviously, there's a lot on the table between dispositions. What kind of terms are you getting on discussions related to extensions on that term debt now or where do you think ultimately the rate could be coming at for that?

Craig Mitchell: Or where do you think the rate could be coming at for that? Yeah, we're looking to extend the term as much as possible. So probably between two to three years.

Speaker Change: Yeah, we're looking to extend term as much as possible. So probably between two to three years at this point.

Craig Mitchell: Okay. All right. Thanks, guys. Thank you very much. The next question comes from Himanshu Gupta with Scotiabank. Please go ahead. Thank you, and good morning.

Speaker Change: Okay. All right. Thanks, guys.

Speaker Change: Thank you very much.

Stephanie Karamarkovic: The REAP has a stated objective of reducing proportionate leverage below 50%, and it's pursuit of becoming an institutional quality REAP. With respect to the REAP's near-term debt maturity since Q1, including the portfolio, UK portfolio sales in August, the REAP has repaid over $780 million of its 2024 and 2025 debt maturities, leaving $628 million remaining as of today. To this end, management is actively engaging with lenders to refinance or extend the maturity of the REAP's remaining 24 and 25 maturities and anticipate significant progress to be made on this during the third quarter.

Speaker Change: The next question comes from Himanshu Gupta with Scotiabank. Please go ahead.

Himanshu Gupta: Just in the leaves, inspired me in Brazil, adding several is coming up for annual in September, any update there? Yeah, sure, I'm happy to take that. So yeah, at least it expires in September. It's 16,000 square meters.

Speaker Change: Thank you and good morning.

Hamancia Gupta: Just on the lease expiring in Brazil, I think several are coming up for renewal in September. Any update there?

Speaker Change: Yeah, sure. I'm happy to take that. So yeah, their lease expires.

Craig Mitchell: We've got terms agreed with them for a 10-year extension, and we're just kind of working through that documentation. So there will be a month-by-month rent until they've been found. So it's a done deal, basically. It will get extended. It's a great deal. It's a done deal on a sign, but it's a great deal.

Speaker Change: in September is 16,000 square meters.

Speaker Change: We've got terms agreed with them for a 10-year extension and we're just kind of working through that documentation so they will be on month-by-month rent until that's been finalized.

Stephanie Karamarkovic: In addition to repaying high-cost debt and extending terms, we are also committed to reducing our exposure to floating rate debt. As of today, 29.8% of the REAP's debt on a proportionate basis is at variable rates, down from 35.3% as at December 31. Looking ahead to the remainder of 2024 and into 2025, we expect to see the impact of our dispositions and capital management initiatives reflected in our future earnings. With a continued focus on maximizing our operational efficiencies and further improving our balance sheet.

Speaker Change: So it's a done deal, basically. It will get extended.

Speaker Change: It's in a great deal. It's a done deal with a sign, but it's in a great deal. It's in a great deal, yes.

Craig Mitchell: It's a great deal yet. Okay, fantastic. And then, you know, same property and why growth, pretty good so far, you know, four to five years in the range. I've been barring any bad debts. Do you think that current rate can continue for the rest of the year? Look, I think it's probably better than a 3% to 4% range rather than 4% to 5% as inflation comes down, but, um, but the portfolio is still very strong, you're right, bad debts are super low, collections are very high, but I'd be thinking a 3% to 4% range rather than 4% to 5%.

Speaker Change: Okay, okay, fantastic. And then, you know, same property, NOI growth, you know, pretty good so far, you know, four to five percent range.

Speaker Change: I mean, barring any bad debts, do you think that 100 can continue for the rest, for the second half of the year?

Speaker Change: Look, I think, you know, it's probably better than three to four range rather than four to five as inflation comes down.

Stephanie Karamarkovic: Our Q2 investor presentation, which is available on the investor relations section of our website, provides more details on our portfolio, post the UK transaction, including operating and balance sheet metrics, reflecting the impact of the UK disposition on June 30 results.

Speaker Change: But the portfolio is still very strong, you're right, bad debts are super low, collections are very high, but I'd be thinking 3 to 4 range rather than 4 to 5 range.

Craig Mitchell: And any tenant on the watch list in your U.S. portfolio? Not in our US portfolio; there is one in our Australian portfolio, so maybe I might just talk about that briefly. In our Galaxy Fund, one of our largest tenants in our Galaxy Fund Australia is with Hellscope, the second largest, at www.NorthWestHealthcare.com. Thanks for taking time today to send us your questions.

Speaker Change: Okay, and any tenant on the watch list in your U.S. portfolio?

Unknown Executive: And with that, I'll now ask the operator to open up the line for questions. Thank you. We will now begin the question and answer session to join the question Q. You may press star, then one on your telephone keypad. You will hear it on acknowledging your request. If you're using a speaker phone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two.

Speaker Change: Not in our US portfolio, there is one in our Australian portfolio, so maybe I might just talk about that briefly. In our Galaxy Fund, one of our largest tenants in our Galaxy Fund Australia is with Hellscope, the second largest.

Speaker Change: Private Hospital Operator, which is controlled by Brookfield. They are having a few...

Speaker Change: financial issues, so they're talking to their bankers at the moment. We've got no news but they're fully paid up in their rent. Each of their hospitals are profitable, it's just not profitable enough for them.

Frank Cleo: First question comes from Frank Cleo with VMO. Please go ahead.

Craig Mitchell: Good morning, everyone. First of all, congratulations on the sell of your UK portfolio and the conclusion of the strategic review. Just thinking ahead on your overall strategy, moving forward, I guess you got one portfolio sell down. Is there anything else on the table at the moment and are you still considered potential sales down after your asset in Brazil and the US? So, Frank, thanks for that. Everything's on the table, so we're still looking at our portfolio and where there might be opportunities and windows.

Craig Mitchell: So, are you in plan? I'm just saying that's all in our portfolio globally. Okay, and what kind of rent structuring can happen on HealthScope?

Speaker Change: Okay. Thank you.

Speaker Change: I'm just saying that's all in our portfolio globally.

Craig Mitchell: Any feelers from them or anything you're hearing? Well, So at the moment, we get a 2.5% to 60% increase, and I think the average whale is closer to 20 plus years. They want to rent abatements for a period of time, and we're not, we're not, agreeable to Holy. I can't leave it at that. Okay, that's it. Thank you. And then on this, sorry, I still have a couple there.

Speaker Change: Okay and what kind of like event structuring can happen on HealthScope? Any feelers from them or anything you're hearing?

Speaker Change: Well, so at the moment we get a 2.5% fixed increase and I think the average while is closer to 20 plus years. They want to rent abatements for a period of time and we're not.

Craig Mitchell: We're seeing a little bit more demand in the sell market, so we'll take those opportunities. We're in a very strong position from our perspective and our earnings are now a very solid base. We've delivered nine-sensified quarters. I think we are under hedge on our balance sheets, so we've got some opportunities there for interest rate swaps as a market picks up. We'd like to see leverage a little bit lower to that question, right?

Craig Mitchell: And if we can do that, and we're also in the position where we can make transactions and sell in an creative way. So, you know, the UK transaction or only does it massively deliver and the risk 2025, it was six cents a creative on an annualized basis. So we will look at that because we still have some high cost debt on our balance sheet that we want to get rid of, and if we can do that in an creative manner, we will.

Speaker Change: We're not agreeable to that.

Speaker Change: I'll kind of leave it at that.

Speaker Change: [inaudible]

Himanshu Gupta: On the UK portfolio sale, and thanks for the color so far. Is there a lock-in on the shares of Asura? And what's your near-to-medium-term plan for holding those shares? So there's a lock-in, it's six months. You know, we will assess the market and the environment after that time. You know, we're getting a good 8% distribution yield out of that portfolio. In doing our due diligence, you know, it's a very strong company with, you know, over 9% of the income is backed by the NHS with a very long, also very long debt whale. But we'll make that assessment in six months. Okay, fantastic. And I'll turn it back.

Speaker Change: UK portfolio sale and thanks for the color so far. Is there a lock-in on the shares of Asura and you know what's your near-to-medium plan in holding those shares?

Speaker Change: So there's a lock-in, it's six months, we will assess the market and the environment after that time, we're getting a good 8% distribution yield out of that portfolio.

Speaker Change: In doing our due diligence, it's a very strong company with over 90% of the income is backed by the NHS with a very long, also a very long debt whale. But we'll make that assessment in six months' time.

Frank Cleo: Thanks, Rick. And I just wondering, is this the more like an opportunity in the later half of this year, or it's more 2020-5? What's that? The opportunities for what? Sorry. Upgrade is for potential sales of additional assets. We're constantly looking at it. I mean, you can see we saw 1.6 billion in the last 18, 18 months. So, I think we're constantly looking. So there will be news in Q3, Q4, Q1 next year. So I don't think we're on a pause. We're constantly looking. Thanks for the color. I appreciate that.

Speaker Change: Okay, fantastic. And I'll turn it back. Thank you, guys. Thank you.

Speaker Change: Unknown Speaker

Craig Mitchell: Thank you, guys. Thank you. Once again, if you have a question, please press star, then 1. The next question comes from Pammi Birk with RBC Capital Markets. Please go ahead.

Speaker Change: Once again, if you have a question, please press star, then 1. The next question comes from Pammi Bir with RBC Capital Markets. Please go ahead.

Pammi Bir: Thanks, good morning. I just wanted to come back to the Brazil portfolio. You know, at one point, I think, you know, that was cited as seeing some inbound interest in it as part of the strategic review. You know, has that interest essentially sort of just, you know, is that gone at this point? Or are there still some possible discussions on that portfolio? Look, we got some, yes, we got some interest early on.

Pamiberg: Thanks, good morning. Just wanted to come back to the Brazil portfolio. At one point, I think, you know, that was cited as seeing some inbound interest on it as part of the strategic review.

Speaker Change: You know, has that interest essentially sort of just, you know, is that gone at this point? Or are there still some possible discussions on that portfolio?

Craig Mitchell: And I'm just going back to the part of the civilian review. I believe growing in JV business and pursue an asset-like model was one of the focus for the week. That is the asset by strategy steering your mind, and would you continue to explore opportunity to grow your JV business? Yes. We like the asset management business. We like the asset-like business. We've got some very strong partners, as you know, a sort of more fund in Europe and in Australia.

Speaker Change: Look, we got some, yes, we got some interest early on.

Pammi Bir: We didn't like the pricing of the interest, to be honest, so the bid-ask spread was quite wide. We will continue to have dialogues with various parties, and if there's a meeting of the minds, we'll look at something. But at the moment, there's nothing on the calendar.

Speaker Change: We didn't like the pricing of the interest, to be honest, so the bid-ask spread was quite wide. We will continue to have dialogues with various parties, and if there's a meeting of the mind, we'll look at something. But at the moment there's nothing on the cards.

Stephanie Karamarkovic: Okay. Stephanie, I think you mentioned a few times streamlining operations and G&A. Can you just maybe expand on that and maybe what that means for the G&A costs on a go-forward basis? So true asset sales, as you can imagine, were... Continuing to assess GNA specifically, we had a UK REAP structure set up, and as you heard me say, that helped us avoid any tax on that repatriation. So that cost approximately 2 million per year to run that UK REAP structure.

Craig Mitchell: We have a vital... The transactional activity is quite subdued, I think, just globally. But we like that market, and we have very strong partners, so we will continue to grow through that avenue, when the market recovers.

Stephanie Karamarkovic: Okay. Stephanie, I think you mentioned a few times streamlining operations and G&A. Can you just maybe expand on that and maybe what that means for the G&A costs on a go-forward basis?

Stephanie Karamarkovic: for

Speaker Change: through asset sales, as you can imagine, you know, we're

Stephanie Karamarkovic: So as we unwind that, we'll definitely see some savings there. And then, yeah, I think it's kind of a normal course to look to be efficient and you know use technology to keep out our and find ways which we can reduce GNA kind of globally.

Speaker Change: We're continuing to assess GNA. Specifically, we had a UK REIT structure set up and

Frank Cleo: Thank you. I guess with your comment on a more incremental demand for the healthcare assets, I guess, that's also support of your growing JV business initiative. No, exactly right. Every investment committee globally is easy to say, no, not yes. But I think, you know, as everyone is getting more and more comfortable that we're at the bottom of the interest rate cycle, and there might be cuts coming. And that varies in this, it's different in each market globally. But that's giving buyers, and particularly core buyers, starting to think about that acquisition. Thank you.

Speaker Change: As you heard me say, that helped us avoid any tax on that repatriation, so that cost approximately $2 million per year to run that UK REIT structure, so as we unwind that, we'll definitely see some savings there.

Speaker Change: And then, yeah, I think it's kind of normal course looking to, you know, be efficient and, you know, use technology better and find ways which we can reduce GNA kind of globally.

Craig Mitchell: Okay, and then just, Craig, I think you made some comments with respect to JVs and partners. Have you re-engaged with any of your existing partners or possibly had any conversations with new partners on some new JV opportunities? Just given, I think, so much focus has been placed on the strategic review, so I'm not sure if that has really changed yet. Yeah, it knows.

Speaker Change: Okay, and then just...

Speaker Change: Lastly, Craig, I think you made some comments with respect to JVs and partners. Have you re-engaged with any of your existing partners or possibly had any conversations with new partners on some new JV opportunities?

Frank Cleo: That's all my questions for today. I'm congrats again. Thank you very much. I hope you guys have a good day. Turn it back.

Craig Mitchell: Just given, I think, you know, so much focus has been placed on the on the strategic review. So I'm not sure if that has really changed yet.

Unknown Executive: Thank you so much.

Dean Wilkinson: The next question comes from Dean Wilkinson with CIBC. Please go ahead. Thanks.

Craig Mitchell: So yes, I'm constantly talking to our existing partners just to keep them informed strategically where we are in the process. Also, the portfolio that we manage for them has performed exceptionally well. So that's been important because they haven't been financially impacted in any way.

Dean Wilkinson: Good morning, everyone. I just want to spend a little time on the asset sale. I'm trying to square the $105 million right down you've taken on that $59 cap rate. I mean, would that suggest you were perhaps carrying that something closer to $5.25? And what would that mean for the remainder of the European assets in Germany and the Netherlands? Are they closer to a high single-digit, low-double-digit cap rate? Just trying to get a little granularity on the portfolio.

Speaker Change: Yeah, no, it's...

Speaker Change: So yes, I'm constantly talking to our existing partners, just to keep them informed strategically where we were in the process. Also the portfolio.

Speaker Change: that we managed for them has performed exceptionally well.

Speaker Change: So that's been important because they haven't been financially impacted in any way. So there is a very strong relationship.

Craig Mitchell: So there is a very strong relationship. To your question about new funds, we have announced at Vital that we've started having a conversation about maybe finding a capital partner to sort of help unlock the development pipeline for Vital. So we are out in the marketplace talking to new capital, so those conversations have started as well. And how would you describe the appetite for new capital coming into the space at this point? So they are very interested in the space, so that's a big net positive. Everyone wants to rotate out of office and retail, so that's why industrials is pretty hot. So they like the alternative space.

Dean Wilkinson: Yeah, absolutely. I'll answer the question about the European assets and I'll pass after a mic on the UK portfolio. So the European assets sit about just north of a 6 cap. I think a 6.1 cap is around that number anyway. And I think that's kind of where steady state is. You're seeing some reductions again in the interest rates in the ECB. So I think I think that feels that we're on a steady state.

Speaker Change: Do you have a question about new funds?

Speaker Change: We have announced in vital that we've started to having a conversation about maybe finding a capital partner.

Speaker Change: to sort of help unlock the development pipeline in Vital. So we are out in the marketplace talking to New Capital. So those conversations have started as well.

Dean Wilkinson: Dean, where it will so light is reasonable and is being consistent to overcube. And that cap rate pretty consistent if I look at the galaxy fund we have in Europe and on our balance sheet. So I think that's that's fair.

Speaker Change: And how would you describe the appetite for new capital coming into this space at this point?

Speaker Change: So they are very interested in the space, so that's a big net positive. Everyone wants to rotate out of office.

Michael Brady: I'm going to pass you a mic now.

Michael Brady: Just give you a bit of color on the UK cap rates and evaluation movements. Yeah, how you doing? It's Mike. So I mean, for all of our assets and all of our portfolios, we have a pretty regimented quarterly IPP valuation process. I think a year ago we had the UK portfolio at a level similar to what we sold. We ran external valuations that came in at a higher number. So we increased our book value to reflect that. We ran a very formal sales process and you know, lots of interested parties. And ultimately this was the, this was determined the best opportunity counter party. And this is what we pursued.

Speaker Change #100: office and retail.

Speaker Change #101: So that's, and industrials is pretty hot, so they like the alternative space, so that's probably the first big point.

Craig Mitchell: That's probably the first big point. Some of the questions with them are that they need to sell before they buy. I need to sell my office exposure before I go and buy my healthcare exposure.

Speaker Change #102: Some of the questions with them is they need to sell before they buy. I need to sell my office exposure before I go and buy my health care exposure.

Craig Mitchell: The interesting question we're having at the moment is that they're now just starting to get comfortable about buying core real estate because they feel like they're at the bottom of the cycle. If we're looking for opportunistic money, sort of that five-year money, and we're not, what they're effectively saying is, well, we don't know whether the bottom's gonna be another three, six, or a year So that money's a bit harder.

Speaker Change #101: The interesting question we're having at the moment...

Speaker Change #102: Is it now just only a comfortable about buying?

Speaker Change #101: Call Real Estate because they feel like they're at the bottom of the cycle.

Speaker Change #104: If we're looking for opportunistic money, sort of that five-year money, and we're not, what they're effectively saying is, well, we don't know whether the bottom's going to be another three, six, or a year away, so that money's a bit harder.

Craig Mitchell: So we're at the early engagement stage, and you're starting to see investment committees having good conversations and getting started. But the conversations, to be frank, are reasonably slow. Okay. Thanks very much. I'll turn it back. Okay.

Speaker Change #102: So we're at the early engagement and you're starting to see investment committees having good conversation and get started, but the conversations to be frank are reasonably slow.

Stephanie Karamarkovic: Great. I'm not sure this might be Stephanie. Are there any tax implications that come from the sale and being able to repatriate that capital back and pay down the debt and would that give you some pools going forward for any future asset sales? Yes, I can answer that. We were able to repatriate the cash due to our UK read structure without any tax withholdings. And so yeah, the proceeds came back free and clear without any tax.

Speaker Change #103: Okay, thanks very much. I'll turn it back. Okay, thank you.

Operator: Once again, if you have a question, please press star then 1. Since there are no more questions, this concludes the question-and-answer session. I would like to turn the conference back over to Craig Mitchell for any closing remarks. Please do so.

Speaker Change #105: Once again, if you have a question, please press star then 1.

Speaker Change #105: David Ellis, Dean Wilkinson

Speaker Change #107: Since there are no more questions, this concludes the question and answer session. I would like to turn the conference back over to Craig Mitchell for any closing remarks. Please go ahead.

Craig Mitchell: Thanks, Operator. Thanks for your questions today. Because we continue to move forward with our identified strategic initiatives, we remain focused on becoming an institutional quality healthcare REIT with a sustainable financial profile. We look forward to keeping you updated on our progress. Have a great rest of your summer, and thanks for your support. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day. We'll see you in the next video, and we'll see you in the next video.

Craig Mitchell: Thanks operator. Thanks for your questions today. Because we continue to move forward with our identified strategic initiatives, we remain focused on becoming an institutional quality health care REIT with a sustainable financial profile.

Stephanie Karamarkovic: Great. I like no taxes. And then that and the other one that's inevitable. We want to talk about that one. On a sure so how is that investment now going to sit on the balance sheet Stephanie will you have a line item for it will it go into the equity accounted the other and then also the eight million pounds or so distribution. How is that going to flow through into FFO going for Award.

Craig Mitchell: We look forward to keeping you updated on our progress. Have a great rest of your summer and thanks for your support. So thank you, operator.

Speaker Change #108: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

Stephanie Karamarkovic: So because the investment is under 10%, we will show it as kind of another investment and record the distribution income as earned. Okay, sure. There would be an adjustment in there for the fluctuation of the share value over time, I guess we would, and we'd back that out out out of the operating FFO. Correct, yeah, we will mark it to market every quarter. Perfect, and I'm assuming that that dividend can come back tax sheltered or is there any leakage that comes in bringing that back?

Stephanie Karamarkovic: There will be withholding tax at a preferred rate given we are of the Canadian and UK partnership and so it's at a 15% level. Okay, great. That's included in the sixth sense of accretion already that we've talked about. That's already, oh, okay, so that answers the follow on question. Then the last one for me just comes down to the distribution. Obviously in the quarter lot of moving parts, you're kind of at that 105, I guess post the sale and the normalization of, let's call the balance sheet normalization.

Stephanie Karamarkovic: Do you see that getting back down into the low 90s as sort of we go through Q3 or should that be more of a full year 2025 kind of set up? I think it will improve and more of that sixth sense is really a 2025 run rate, right? But you'll see improvements from Q4. I think Q3 will be a little bit messy because it's halfway through the Q. We did the transaction but you see some benefit come through in Q4 and 25.

Stephanie Karamarkovic: And that's the key, one of the key messages, right? So when we cut that distribution to the sixth sense and that's where we felt that that nine cents was our base run rate and now looking to grow from that base.

Dean Wilkinson: Perfect, that helps a lot.

Dean Wilkinson: That's it for me.

Unknown Executive: I'll hand it back.

Unknown Executive: Thanks everyone.

Unknown Executive: Thank you, Dave.

Sairam Shrinivas: Next question comes from Sairam Shrinivas. With core mark security, please go ahead. Thank you, operator.

Sairam Shrinivas: Good morning, everybody. Good morning. Just looking at the UK portfolio of sales. You know, Mike, can you talk about this in terms of going through an entire process in terms of the sales? But was probably a JV structure of another thing that he's kind of thought about it. It was an option even. I mean, no, this was marketed as a new rate sale. I'll just add to that. Although by marking is an outright sale in a tougher market where we are today.

Sairam Shrinivas: We didn't want to limit the buy-up, we wanted to get the maximum price out of the portfolio and we and talk to our advisors from the sell side. We agreed that this was the way to get the maximum value, for our unions. That's fair.

Craig Mitchell: And maybe just looking at the majorities ahead and you guys doing great job in asking, resolving a bunch of those majorities, but for the remainder of them, is it going to be a pure negotiation process of resolving the majorities or, you know, the asset sales, further asset sales down the line is well to kind of repay the debt, like what are the options there? I'll go first and I'll hand over to Stephanie.

Craig Mitchell: So no further asset sales. So I'll drink these in, it's in three buckets. You've got mortgages that will just, we just believe they'll just roll and they're just to continue conversation in bucket A, bucket B, you've got some term debt in the, in the US and corporate. We're active in negotiations right now. And then buckets three, basically the convertible debenture. So really, we've really broken the back of it and we're working on it.

Craig Mitchell: But there's no, we need to asset sales to, to conclude that, Stephanie. Yeah, I would agree. All of that can be done with the existing portfolio and, and no further, in addition, liquidity on the balance sheet.

Stephanie Karamarkovic: All right, that's actually very good. I've added the tone back. Thank you.

Julian O'Donnell: The next question comes from Julian O'Donnell with National Bank Financial. Please go ahead. Hey guys, just one on the, why the UK was chosen. Could you guys come in on why the other geographies weren't disposed of or maybe what was the kind of analysis there? It's my, I mean, we were under strategic review. The board considered different options. Yeah, I'll be honest, the UK portfolio was a very strong portfolio and we didn't, you know, an ideal world we wouldn't have sold it.

Julian O'Donnell: But it was a good portfolio. It brought a good price and we had a lot of inbound interest in it, which led us to run a formal process. And so the other geographies like the US, the Brazil, those would be structured in a similar way of the UK portfolio where you kind of limit your tax on the repatriation of funds. I mean, each country is different, but so there's no tax leakage on our US disposition.

Julian O'Donnell: And, you know, we've reported a number of them and, you know, we're all flooring other disposition opportunities in the US and, you know, but there's no tax leakage there. And so some of your better properties are located in Australia, kind of on the JV structuring is that what makes a car vote of Australia more difficult compared to some of these other ones that you have set up, or even just sales in the geography.

Julian O'Donnell: Oh, so just to rephrase the question, why they weren't sold, is that the question? Yeah, just, well, yeah, why there hasn't been more disposition. So, in vital, I think we've sold nearly 400 million in the last year. So, there's been a lot of different positions in vital. Of course, when it gets 30 cents in the dollar that say, and a lot of the conversations we're talking about is on a proportionate basis.

Julian O'Donnell: But vital has been pretty active. We had one asset in Australia on our North West on our balance sheet called Epping, and we sold that about six months ago. And if I think about the in the galaxy, there's one on the market at the moment around the 150 million mark. So, we're not discounting that because of the regional, because of the structure. It just says the dollar impact for us is lower.

Craig Mitchell: And then just I guess once you've reigned in leverage enough, what kind of geography or asset class do you guys think you'd like to grow the most in, or ultimately to play capital? Sure. So, we are still very, very pro-cure, real estate. So, you know, private hospitals, medical office buildings, life sciences, all the asset classes we know are very strong in. So, that's, we also, we will have a preference to reinvest back in Canada and North America.

Craig Mitchell: So, the marginal dollar, let's call it on 100% basis, would be in our home markets, and then building up our asset base here. Growth internationally would be more asset-like in sort of joint venture structures as we have with the galaxy funds or with vital. So, that's how we would look to grow internationally, but that most of the marginal dollar would come domestically. Okay. And just the last one, just on extending your 2025 maturity, that obviously there's a lot on the table between dispositions.

Craig Mitchell: What kind of terms are you getting on discussions related to extensions on that term debt now, or where do you think ultimately a rate could be coming at for that? Yeah, we're looking to extend term as much as possible. So, probably between two to three years at this point. Okay. All right. Thanks, guys. Thank you very much.

Himanshu Gupta: The next question comes from Hemantje, Gupta.

Himanshu Gupta: Let's go to the bank. Please go ahead. Thank you and good morning. Good morning. Just to leave the expirely in Brazil, I think Sabra is coming up for a new world in September. Any update there? Yeah, sure. I'm happy to take that. So, yeah, very least expires in September. It's 16,000 square meters. We've got terms agreed with them for a 10-year extension, and we're just kind of working through that documentation. So, they will be on month by month rent until that's been fine.

Himanshu Gupta: So it's a done deal, basically, it will get extended. It's an a great deal. It's a done deal with a sign, but it's an a great deal. It's an a great deal. Yes. Okay. Fantastic. And then, you know, state, same property and why growth, you know, pretty good so far, you know, four to five percent range. I mean, barring any bad debts, do you think that 200 can continue for the rest for the second half of the year?

Himanshu Gupta: Look, I think, you know, it's probably better than three to four range rather than four to five as inflation comes down. But, but the portfolio is still very strong. You're right. Bad debts are super low collections are very high, but I've been thinking three to four range rather than four to five range. Okay. And any tenant on the watch list in your US portfolio? Not in our US portfolio. There is one in the Australian portfolio.

Himanshu Gupta: So maybe I might just talk about that briefly. In our galaxy fund, one of our largest tenants in our galaxy fund Australia is with hell scope. The second largest private hospital operator, which is controlled by a Brookfield, they are having a few few financial issues. Right. So they're talking to their bankers at the moment. There's no, we've got no news, and they're fully paid up in their rent. Each of each of their hospitals are profitable.

Himanshu Gupta: It's just not profitable enough for them. Okay. So I'm sorry, go ahead. No, I'm just saying that that's all in our portfolio globally. Okay. And what kind of like rent structuring can happen on head school? Any feelers from them or anything you're hearing? Well, so the moment we get a 2.5% 16 increase through the average well is closer to 20 plus years. Yeah, they want a rent abatement for a period of time, and we're not agreeable to that. I can't leave it at that. Okay. No, that's the circles. Thank you. And then on this. Sorry, I still have a couple of years.

Himanshu Gupta: And the UK portfolio seal and thanks for the colors so far. Is there a locking on the shares of a sure and what's your near to medium plan in holding those shares? So there's a lock-in. It's six months. You know, we will assess the market and the environment after that time. You know, we're getting a good 8% distribution yield out of that portfolio. In doing our due diligence, you know, it's a very strong company with, you know, over 9% of the income is backed by the NHS with a very long, also very long debt well. But we'll make that assessment in six months, on. Okay, fantastic. And I'll then back. Thank you, Luis. Thank you. Once again, if you have a question, please press star, then one.

Pammi Bir: The next question comes from Pammi Bir with RBC capital markets. Please go ahead. Thanks, good morning. Just wanted to come back to the to the Brazil portfolio, one point I think that was cited as seeing some some inbound interest on it as part of the strategic review. You know, has that interest essentially sort of just, you know, is that gone at this point? Or are there still some possible discussions on that portfolio?

Pammi Bir: Look, we got some, yes, we got some interest early on. We didn't like the pricing of the interest, to be honest, the bid aspect was quite wide. We will continue to have dialogues with various parties. And if there's a million of the mind, we'll look at something.

Pammi Bir: But at the moment, there's nothing on the cards.

Stephanie Karamarkovic: Okay, Stephanie, I think you mentioned a few times, streamlining operations and GNA. Can you just maybe expand on that and maybe what that means for the GNA costs on a go forward basis? Sure. So through asset sales, as you can imagine, you know, we're continuing to assess GNA specifically with, we had a UK REAP structure set up. And as you heard me say, that helped us avoid any tax on that repatriation.

Stephanie Karamarkovic: So that cost approximately 2 million per year to run that UK REAP structure. So as we unwind that, we'll definitely see some savings there. And then, yeah, I think it's kind of normal course looking to be efficient and use technology better and find ways which we can reduce GNA kind of globally.

Pammi Bir: Okay.

Craig Mitchell: And then just lastly, Craig, I think you mentioned, you know, comments, you made some comments with respect to JVs and partners. Have you re-engaged with any of your existing partners or possibly haven't had any conversations with new partners on some new JV opportunities? Just given, I think, you know, so much focus has been placed on the strategic review. So I'm not constantly talking to our existing partners just to keep them informed, strategically where we were in the process.

Craig Mitchell: Also, the portfolio that we manage from them has formed exceptionally well. So that's been important because they haven't been financially impacted in any way. So there was a question about new funds. We have announced in vital that we've started to have any conversation about maybe finding a capital partner to sort of help unlock the development pipeline in vital. So we are out in the marketplace talking to new capital. So those conversations have started, and now we do describe the appetite for new capital coming into the space at this point.

Craig Mitchell: So they are very interested in the space, so that's a big net positive. Everyone wants to rotate out of office and retail. So that's an industrial, it's pretty hot, so they like the alternative space, so that's probably the first big point. Some of the questions with them is they need to sell before they buy. I need to sell my office exposure before I go and buy my healthcare exposure. The interesting question we're having at the moment is in now just a comfortable about buying core real estate because they feel are there at the bottom of the cycle.

Craig Mitchell: If we're looking for opportunistic money, sort of that five-year money and we're not, what they're effectively saying is, well, we don't know whether the bottom is going to be another three, six or a year away, so that money's a bit harder. So we're at the early engagement and you're starting to see investment committees having good conversation and get started, but the conversations to be frank are reasonably slow.

Pammi Bir: Okay, thanks very much. I'll turn it back. Okay, thank you. Once again, if you have a question, please press star, then one.

Unknown Executive: Since there are no more questions, this concludes the question and answer session.

Craig Mitchell: I would like to turn the conference back over to Great Mitchell for any closing remarks. Please go. Thanks operator. Thanks for your questions today because we continue to move forward with our identified strategic initiatives. We remain focused on becoming an institutional quality healthcare read with a sustainable financial profile. We look forward to keeping you updated on our progress.

Unknown Executive: Have a great rest of the summer and taxi of support. So thank you operator.

Unknown Executive: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day. Thank you very much.