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Edited Transcript of NWH.UN.TO earnings conference call or presentation 5-Mar-20 3:00pm GMT

Q4 2019 NorthWest Healthcare Properties REIT Earnings Call

Toronto Mar 26, 2020 (Thomson StreetEvents) -- Edited Transcript of NorthWest Healthcare Properties REIT earnings conference call or presentation Thursday, March 5, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Paul Dalla Lana

NorthWest Healthcare Properties Real Estate Investment Trust - Chairman & CEO

* Shailen Chande

NorthWest Healthcare Properties Real Estate Investment Trust - CFO

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Conference Call Participants

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* Chris Couprie

CIBC Capital Markets, Research Division - Research Analyst

* Tal Woolley

National Bank Financial, Inc., Research Division - Research Analyst

* Troy Raymond MacLean

BMO Capital Markets Equity Research - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the NorthWest Healthcare Properties Real Estate Investment Trust Fourth Quarter 2019 Results and Conference Call. (Operator Instructions) This call is being recorded on Thursday, March 5, 2020.

I'd now like to turn the conference over to Paul Dalla Lana. Please go ahead.

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Paul Dalla Lana, NorthWest Healthcare Properties Real Estate Investment Trust - Chairman & CEO [2]

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Thank you, operator, and good morning, everyone. Appreciate you joining us today. I'm joined by Bernard Crotty, the REIT's President; Peter Riggin, the REIT's Chief Operating Officer; and Shailen Chande, the REIT's Chief Financial Officer. Together, we are pleased to share with you our results for the fourth quarter of 2019.

But first, I'd like to point out that during today's call, we may make forward-looking statements as defined under Canadian securities law. While such forward-looking statements reflect management's expectations regarding our business plans and future results, they are necessarily based on assumptions that are subject to uncertainties and risks, which could cause actual results to differ materially. We direct all of you to the risk factors outlined in our public filings.

Before getting into the details of the quarter, though, I thought I would provide some perspective on our business in this moment. Today, NorthWest is in the best position in its history, building expressly upon the strategy we put in place in 2015, in large part resulting from executing on key 2019 strategic initiatives, including: expanding our global asset management platform, the REIT has increased committed fee-bearing assets and capital from $3.5 billion to more than $8 billion today, including a $1.6 billion upsize of the initial Australian institutional JV announced in 2018 and an agreement in principle for an additional $3 billion JV focused on Europe. These increased commitments leave the REIT with $4.5 billion of available capacity to pursue continued growth across Australasia and Europe and generate accretive promoted returns.

Deleveraging. Driven by more than $644 million of equity capital raised in 2019 and a further $725 million of contracted portfolio asset sales expected to occur late in the first quarter and early in the second quarter of 2020, the REIT's capital platforms are expected to close with a consolidated leverage decreasing by almost 1,300 basis points to 42.5%, supporting pro forma net EBITDA ratio of 8x, consistent with investment-grade credit metrics.

We further evolved our platform in Australia and New Zealand, notably highlighting the acquisition of the Healthscope portfolio for $1.2 billion, including 11 significant core private hospitals on long-term net lease basis with fixed annual rent increases and establishing a business in that region with more than $4 billion of assets.

And finally, we've broadened our geographic profile, adding to the Netherlands and Germany and Europe, with the recent expansion into the U.K. and the acquisition of 6 high-quality private hospitals for approximately $167 million, representing a good opportunity to expand the REIT's European platform into a new market with attractive demographics and a small but dynamic private health sector that should lead to near-term growth opportunities and potential for further institutional capital partnerships.

For the quarter, our results were in line with our expectations, noting the above deleveraging, including annualized quarterly adjusted funds from operations of $0.92 per unit on a normalized basis, implying a payout ratio of 87%.

Earnings accretion from recent investment in financing activity was as expected, although foreign exchange movements saw the Canadian dollar appreciate by approximately 1% over the last quarter relative to the REIT's average foreign currency exposure, which continues to slow earnings. In fact, over the past 12 months, we estimate the relative strength of the Canadian dollar has reduced annualized AFFO by approximately $0.04 per unit. In the context of a lower-for-longer Canadian interest rate environment, we expect that these trends may begin to ease and unwind in 2020, providing a tailwind to the REIT's future earnings.

Net asset value also increased by 7% to $13.17 per unit driven by an increase in the value of the REIT's asset management platform, strong property revaluation gains and in particular, taking into account some of our new European institutional joint venture of $3 billion to acquire new opportunities in that region. They were partially offset by a higher Canadian dollar relative to the REIT's foreign currency exposure. In 2020, the REIT expects increasing momentum in our asset management platform, centered around strong regional operating platforms, growing institutional demand for alternative assets, such as health care real estate, and ultimately, a very constructive acquisition environment. Over the next 12 months, the REIT sees the ability to add significant additional third-party capital, potentially approaching $10 billion in aggregate from the $8 billion we are today.

Operationally, our results derived from an expanded 175 property, $6.5 billion defensive health care infrastructure portfolio, most having long-term inflation index leases with leading health care operators. This strategy is reflected in the REIT's 2019 year-over-year source currency cash recurring SPNOI growth of 3.8%, largely driven by contractual rent indexation and underpinned by a 97% occupancy rate and a weighted average lease term of almost 14 years. In all regards, a highly defensive portfolio.

In Europe, we continue to execute on our growth programs by developing new strategic relationships in both the medical office and hospital segments, which have seen accelerated deal flow that our team is converting into accretive acquisitions. This includes over 300 -- or $290 million of transactions closed in Q4 and subsequent to quarter end, including the expansion into the U.K. previously announced.

The portfolio fits the REIT's core investment strategy, and we see the U.K. as a natural extension for NorthWest growing European platform. Importantly, the REIT's European platform continues to successfully scale with its investment portfolio growing by over 65% since the end of 2018.

The REIT continues to also scale in the Canadian capital markets and broaden its institutional investor base and in Q4 executed its largest equity offering with a successful issuance of $275 million of equity and increased the cumulative rate in 2019 to $644 million. Proceeds from the financing were deployed to repay higher-cost corporate debt, including redeeming 2 series of convertible debentures.

Segmentally, I note the following: in Brazil, we are on plan with steady 100% occupancy and continued strong year-over-year source currency cash SPNOI of 3.9%. Operationally, the REIT's major tenant, Rede D'Or, continues to deliver exceptionally strong results and expand its business, thereby, creating potential opportunities for further partnerships with the REIT. Of note, 2 existing developments totaling approximately $10 million at our largest Brazilian asset were completed in 2019 at a 7.5% yield.

Market interest rates in Brazil, driven by a stabilizing economy and progress on domestic fiscal reforms, have stabilized at substantially lower levels and historically low levels and as noted in the REIT's recent accretive refinancing in the second quarter of 2019. The REIT is also focused on gaining traction with additional high-quality operators in Brazil and sees a very constructive market in that region.

In Canada, we were also on plan, continuing solid performance with positive year-over-year cash recurring SPNOI growth of 2.1% and portfolio occupancy remaining healthy at 93%. During the year, the REIT completed 267,000 square feet of renewal leasing at an average renewal rate of 2.7% above expiring rents. We continue to focus on our ambulatory care initiatives, building on commitments to Lakeridge Health that were announced in the second quarter of 2019 with additional projects under consideration in Ontario and Alberta.

And in Europe, we were on plan, performing as expected with year-over-year source currency SPNOI growth of 3.1% and occupancy increasing to 97.3%. As mentioned earlier, we continue to find good investment opportunities in Europe, allowing us not only to build scale and critical mass in both Germany, the Netherlands and now the U.K. but to also pursue opportunities in adjacent markets.

And lastly, in Australia, our largest market, occupancy remained steady over the year at 99% and delivered consistent year-over-year source currency SPNOI growth of 4.6% with a weighted average lease term of 16 years.

At Vital, the business reported similar results with SPNOI growth of 2.5% and again, occupancy at 99% and a weighted average lease term of more than 18 years.

Continuing in Australia, the REIT closed 2 investments totaling approximately $160 million, including the Burnet Institute, a Melbourne-based life sciences research facility in the Alfred Health precinct and/or our private hospital. REIT choose the life sciences side of health care real estate as another growth-oriented segment that we will be pursuing in select markets.

I am pleased with the progress made during the quarter, which advanced a number of the REIT's key long-term strategic objectives and also produced solid operating results. With deep relationships, best-in-class regional operating platforms and strong access to public and increasingly attractively priced private capital, the REIT is well positioned to continue executing on its strategy.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Chris Couprie from CIBC.

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Chris Couprie, CIBC Capital Markets, Research Division - Research Analyst [2]

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Just wanted to maybe just touch on Europe first. Just in terms of the JV -- just with respect to Europe, the joint venture, you're seeding it $300-odd million. When you just look at your total European portfolio that you have today, how much of that do you think could ultimately end up in the JV? And then just from an operating perspective, sequentially, the region saw an NOI decline. I'm just wondering if there's anything onetime in there that happened, given that you did have impact of acquisitions that I thought would have helped boost the run rate.

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Paul Dalla Lana, NorthWest Healthcare Properties Real Estate Investment Trust - Chairman & CEO [3]

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Okay. Thanks, Chris. I'll take the first part of that question and maybe, Shailen, you could focus or address the second part. On the first part, Chris, I think in terms of the European JV, significant progress in the quarter. We certainly see the closing of that JV coming either late in this quarter or early into the next quarter, roughly, as you said, with just under $300 million of assets moving over. For the moment, I think that's probably all the assets we're going to move over in Europe per se, and I'll speak to the U.K. separately. We've targeted a new initiative in the U.K., and that is progressing but likely to be later in the half year, if you will, and would involve potentially the initial investments we've made in the U.K. But that will be a separate initiative to Europe.

So I think more broadly, though, in terms of sort of looking at Europe and thinking about prospects there, we -- I mean, in the same way of taking the decision to establish the Australian joint venture, we clearly see a number of very meaningful and interesting opportunities. And I would just say that of the EUR 2 billion JV capacity or CAD 3 billion or so, we have 90% of that ready to go and we would definitely see that coming well within the 4-year investment horizon that, that JV will have and possibly much quicker than that.

So I think that gets to your question on the first part. Shailen, on to the second.

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Shailen Chande, NorthWest Healthcare Properties Real Estate Investment Trust - CFO [4]

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Yes, Chris. In respect to your comment in respect of Europe, and presumably, you're referring to the quarter-over-quarter sequential decline in NOI in Europe, which is specific to Q4, we would note that if you look at European NOI over the course of the year, we did, in fact, complete several acquisitions, which you noted. And SPNOI on a normalized cap recurring basis is just over 3%, 3.1%. You would note that in Q3, on a quarterly basis, we saw a very substantial SPNOI of almost 10% on a reported basis. And that fell off a little bit in Q4, which is what's driving that quarter-over-quarter sequential decrease that you see. The specific cause there was just the portfolio catch-up in terms of some of the tenant reconciliation items at an operational level. So it's really a quarter-over-quarter swing. But on an annual basis, the SPNOI number of 3.1% is very reflective of the underlying operation.

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Chris Couprie, CIBC Capital Markets, Research Division - Research Analyst [5]

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Got it. And then just in terms of the JVs broadly, what type of LTVs are typically being undertaken in the JVs? And then with respect to the life sciences opportunity in Australia, just wondering if you can elaborate on that a little bit in terms of how big you see that opportunity in that region specifically and if you would be looking to buy these types of assets in your other target markets.

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Paul Dalla Lana, NorthWest Healthcare Properties Real Estate Investment Trust - Chairman & CEO [6]

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Yes, that's a good question. So as you recall, in our Australian JV, we have targeted LTV in the 60% range with our partner there. And certainly, that's likely to be consistent in Europe given sort of market availability of financing in terms. So I think that's probably a pretty good benchmark number for us. And certainly, we find a sweet spot in terms of pricing and in terms of in and around that range for the types of things we're doing, particularly with our partners as they are. So a short answer there, but that's roughly where we expect to be.

I think, in terms of life sciences, it's early days for us. But I would say that, again, the opportunity in Australia in any event is probably more akin to Canada than it might be to America where the industry is a little more evolved and more private sector-funded. I mean these are still largely public sector funder -- public sector-funded research facilities as opposed to more broadly what we might see in the U.S. So we see a meaningful opportunity very much in the health care campus nodes that we're focused on in the major markets of Australia. So we like that. It's super consistent with our core strategy of owning a continuum of assets within those campuses, if you will.

And certainly, in the case of the Burnet Institute, we have both major hospitals, federal and state governments and related institutions, I guess, that are broadly publicly funded as the core tenants in that initial portfolio. So certainly, we see -- we have a major health precinct strategy on in Australia. So we certainly see a number of other precincts having assets like this that involve that combination of education, of research and of health care. And so we like that combination of things. So we certainly see things in Australia.

It hasn't quite broadened as a strategy beyond that. It's a little bit more ad hoc, I think, in our other markets, and we're certainly looking to think about it. But again, in Australia where the business is a little bit more evolved, our precinct or campus strategy is quite evolved. And we see a nice constellation of opportunities, so we can see some growth in it.

Just to remind that, that asset has been acquired into our institutional JV, so it's likely to have -- we have a lot of capacity there to pursue additional opportunities. And certainly, within that JV, there's a commonality of agreement around the investment opportunity. So more broadly speaking, we're funded to get after it as we speak.

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Operator [7]

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Your next question comes from Troy MacLean, BMO Capital Markets.

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Troy Raymond MacLean, BMO Capital Markets Equity Research - Analyst [8]

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Interested in your comments on -- one big market you're not in right now is the U.S. And I was wondering, is that a market, especially with the increased AUM, you'd look at it either the post-acute rehab or a hospital?

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Paul Dalla Lana, NorthWest Healthcare Properties Real Estate Investment Trust - Chairman & CEO [9]

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Yes. So I think we've been consistently messaging that we have a very selective approach to new markets. I think having targeted and focused, particularly in Europe over the last 12 months to scale and broaden our horizon there, our near-term focus is probably still in that direction to grow and scale those markets. We see lots of capacity there. Of course, in Australia, we know, and New Zealand, we have a large established platform with lots of capacity, so we'll always be active there.

But I think in the midterm, the business is now getting to a stage where, let's say, in the 3- to 5-year window, we have the capacity to consider another major market. And clearly, the U.S. has a lot of attractive merits to it. But I think, for us, it's still a couple of years away. And I think, in reality, our focus is going to be really on using our existing resources and scaling out quite quickly over the next couple of years, a bit of a guidance around where we see the pacing of our opportunities. I think a market that we've sort of not talked enough about in our business is Canada. And again, through some -- we've been active in Canada this year. It's not been as predominant as other markets, but we've added some very nice opportunities in Toronto and in Alberta, really sort of core campus-oriented medical and related facilities, and we're quite focused as well on the ambulatory care strategy, which we see certainly in the near and midterm in Canada as one having a lot of legs.

So I think those continue to be our 1- to 2-year focuses. I think as the business grows and evolves and as we make progress against those initiatives, we'd like to be able to think that we could consider an additional market, and I'm sure the U.S. would be great to not have to fightworry as far as we do all the time, but that's in competition with lots of other good markets as well. So we'll see how that goes.

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Troy Raymond MacLean, BMO Capital Markets Equity Research - Analyst [10]

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On the new investments in Canada this year, does that signal there's really been a change in that market? Or that -- is making it an investment opportunity is more ample, either -- or is it just the opportunities that happen to come up is more timing related that there's been -- there hasn't been a change, just those specific opportunities are unique?

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Paul Dalla Lana, NorthWest Healthcare Properties Real Estate Investment Trust - Chairman & CEO [11]

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Yes. No, I think there are -- I mean, 2 answers, as you know, just recall, our Canadian portfolio over time has been heavily optimized, and it's really come from all of our learnings over the last 15 years in the space. And really, our -- the way to sum it up would be major market, more major assets within those markets and more fundamental assets within those places. So that's resulted in a fair bit of portfolio work over the last 5 years, for sure, which has led us to trim things down a bit.

Obviously, looking down the line, we continue to see tuck-in acquisitions and growth. It's still places to go in Canada and good fundamental additions to our business. So we'll always have that.

I think -- so I'd just start with that comment that probably Canada has reached sort of its moment of, here's the portfolio we like. And broadly speaking, we can see adding to that in select places in the normal course in any event, and some of the things we've done in 2019 reflect that.

Probably where the change is coming in Canada, and I think this is coming around the world, so it's not a profoundly different answer to what's happening in most of our markets is really what's happening in hospitals is changing. And clearly, we see a very significant movement to outpatient. And I think that's around cost. It's just around the type of demand that people want to have access to different facilities and more convenient and different environments. And so Canada is a bit slow to respond to that trend relative to other markets, but certainly, it's coming. And what that allows for us is that these assets tend not to be directly on campus. And as a result, it opens up, the "Do I need to own it?" discussion, which really is the discussion we have with private operators every day. So we're starting to have those with health regions and larger hospital players in Canada, both in Ontario and Alberta, as we've alluded to. I think this is a very big trend. So it's coming across the board, and it will be in fits and starts. But certainly, we do see a very nice case, and we could see adding.

Again, if we had to estimate, I think I've said this before, we'd like to see ourselves over the next number of years at 5 or 10 more Lakeridges to our mix of things. And so it's not going to be a double of the size of the portfolio, but it could be a meaningful addition. And the nice thing about that is they come with those long-term arrangements with really core health regions or hospitals with government backing. And so it has a lot of the attributes of our more international portfolio, which is the long-term index cash flow and low capital and all of the things that we like about that business that doesn't grow. So that's kind of my forecast to the ambulatory care movement in Canada.

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Troy Raymond MacLean, BMO Capital Markets Equity Research - Analyst [12]

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That's great color. And then just in Europe, especially with the decline in interest rates, are you seeing more people, more -- an increased number of players looking at the assets that you're looking at? I know you've added a couple of different markets, but like the Netherlands and Germany, like, are you seeing more competition, just people attracted by the incredibly low rates?

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Paul Dalla Lana, NorthWest Healthcare Properties Real Estate Investment Trust - Chairman & CEO [13]

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Yes. I mean I think this is a global trend in all real estate asset classes. And so for sure, the movement to alternatives is well established across the board. And so as sort of one of the leading alternatives, if you will, or maybe not even an alternative anymore, people are certainly looking to health care for its defensive long-term cash flow elements.

I think the thing that gives us a leg up right now -- and so yes, I think like all investors, we're competing, and I think we don't mind to do that at all. But where we've positioned ourselves, I think, is in 2 specific directions. Number one, we've got the relationships. We've invested very, very heavily in our local end-market presence and in building relationships with key operators and tenants, and those are long-term relationships where we have a lot of credibility and the ability to execute for them in more than just capital. So number one, we've really positioned ourselves to be our partner's choice.

I think, number two, and this is part of the story of 2019, of course, is that we've said let's make sure we have maximum capacity because we want to be able to do a number of things at the same time that are getting to be increasingly bigger. And so to the original JV that we did in Australia and very much to the similar approach we've taken to Europe, the fact is that we wanted to have what we thought could be both in size and cost of capital a leading ability to pursue things. And so I think we've been successful again in bringing that to Europe. And again, yes, so there's going to be lots of competition, but with our combination of relationships, with our cost of capital and our scale of capital, we think we're pretty well suited to look at all of the good things that we want to look at.

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Operator [14]

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Your next question comes from Tal Woolley, National Bank Financial.

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Tal Woolley, National Bank Financial, Inc., Research Division - Research Analyst [15]

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Just on the life sciences avenue in Australia, what are the sort of the difference in cap rates kind of be between what you've seen with the hospital transactions and with the life sciences transactions?

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Paul Dalla Lana, NorthWest Healthcare Properties Real Estate Investment Trust - Chairman & CEO [16]

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Yes, good question. I think, one answer, I'd just call out that it's a pretty specific investment where it's a structured land lease in the middle of a major precinct campus. So it has some different attributes. But we saw that about 200 basis points above. So this deal we were able to do north of a 7% cap, if you will. We've been seeing -- our Healthscope transaction, as you know, was done at 5%, as an example, and the market is probably tighter than that today. And so that's a sense here, again, partly around structure and partly around it's a slightly different asset class. So a little bit wider but with some maybe specific characteristics that go with being in the middle of a big campus and having these relationships with governments and universities and the like.

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Tal Woolley, National Bank Financial, Inc., Research Division - Research Analyst [17]

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Okay. And then maybe can you just talk to broadly what your sort of expected fee budget and cash taxes would be this year?

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Paul Dalla Lana, NorthWest Healthcare Properties Real Estate Investment Trust - Chairman & CEO [18]

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So I'd would like to turn that to Shailen, if you're okay with that.

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Shailen Chande, NorthWest Healthcare Properties Real Estate Investment Trust - CFO [19]

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Yes. Thanks, Paul. In terms of specific guidance around fees, Tal, we've had a couple of discussions, and I'd really guide you to -- I mean, our view on the stabilized level of fees out of this platform. So today, we have $8 billion of commitments as part of our global asset management platform. And we see the stabilized level of fees coming out of that at about $80 million. As we ramp up to that level, there will be a level of activity-based fees to get there. And obviously, as it's fully deployed, that gets replaced with the base asset management fees. So I'd say, as you're building out your model and looking forward, the deployment period on these commitments is 4 to 5 years. Our historic track record has been to probably outpace that, but I'd say over the 4 to 5 years to reach that stabilized level, and you'd probably see the ramp-up on an activity-based fees as we get there.

In terms of cash taxes, it is a fairly nuanced question. There's lots going on in the business, and then there's lots that we do to balance our tax exposures. I might suggest we go off-line on that and just get a little bit more specific into that question.

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Tal Woolley, National Bank Financial, Inc., Research Division - Research Analyst [20]

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Okay. And then, I think, Paul, you had mentioned earlier in your comments just that the FX impact, obviously, had been a drag through a good chunk of the last couple of years and that it could be a tailwind going forward. I do wonder, though, like in the short run, if you marked your NAV and like this quarter 2 where rates are today, and I appreciate it's a very volatile out there, is it more likely we would see a little bit of pressure in the short run -- a little more pressure in the short run than a relief?

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Paul Dalla Lana, NorthWest Healthcare Properties Real Estate Investment Trust - Chairman & CEO [21]

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Sorry. So I think we do report sort of post quarter what's come into NAV. I think it's moved a few percent since December 31 against us. But probably offsetting any of that would be we see very, very strong continued movement in cap rates in the business. If I was to look down to 2020 again, and this has been a multiyear trend for us, clearly, our assets are becoming more valuable. We have a very significant development pipeline completing with 2020. Already, we've seen our Grey Street Centre project in Melbourne reach substantial completion. That's $100-plus million in development. We've got 2 more of those coming online later in the year. And so lots of sort of offsetting and maybe even more than offsetting value creation against some of the near-term currency movements. That's my general feeling.

Again, I think we've -- if we get to the ultimate question around very difficult to hedge the balance sheet, so our approach to that has really been just to be diversified and have a basket of currencies around the balance sheet and obviously, the income statement, but I think we feel pretty comfortable that the business is more diverse than ever and that those underlying growth elements, both in terms of earnings and NAV, are well in place. And so that would be my guidance.

And where we probably have been conservative, although as Shailen mentioned, around the asset management model, I mean, really, we have a business now that's growing from, at one point, just the Vital business that we own, now to what we expect to be closer to $8 billion to $10 billion in AUM and $80 million in stabilized fees as another offsetter. So I'd just call out those data points. So I think we feel the business is in a really good place. And certainly, any near-term currency movements, I think, we see well beyond that in terms of its opportunity set.

One thing I would just pick up and just reminding that, in that asset management model, obviously, in 2019, those fees were just under $40 million. So that's already a substantial business that has a very long-term history, again, over our management. And so I think that's kind of a collective answer, but no, we're not worried about near-term things. We're very much thinking about the mid- to long-term. What I would say, from maybe an earnings standpoint, just to riff on that, obviously, we have $750 million transactions closing in the next -- from us now, 60 to 75 days here. That's going to drive very meaningful fees through the business in the first half year. We'll be significantly above as a result of some of those numbers. Those transactions to perhaps our last call or discussions we had thought might -- some of them might come into Q4. They'll all going to come now into Q1 and early Q2. So I think as we look at that, in addition to the rest of the business, new things that we might do, these are all contracted things that we know are happening, is going to be a pretty clear supporter of where we are. So when we start to think about the business, feel pretty confident of seeing our normalized AFFO number is around $0.92 into that $0.95 range. That would be our guidance for the year around AFFO, and I think we'll be very comfortable in that range. The vast majority of that is normalized and in place.

And then in terms of the portfolio and thinking about NAV, I mean, again, we see some strong drivers to NAV growth that will more than offset any short changes in the currency markets.

I'd call out and maybe not to be specific, Tal, but really to challenge the audience here to remind everyone that all of this is on a business that's going to be 1,300 basis points lower in leverage. So a very meaningful earnings accretion on a business that's become much more conservative and has much more capacity than it's ever had. And I think that's really the tale of 2019 and our moment in 2020, which is full normalization and really playing to the full set of opportunities in front of us. And I think that's the message that we feel really (inaudible)

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Tal Woolley, National Bank Financial, Inc., Research Division - Research Analyst [22]

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Okay. And then just finally, the last question. In the quarter, you took in the P&L about $4.2 million in transaction expenses. But in the FFO walk for reconciliation, there was a $19 million reversal. Was there some sort of -- can you just explain how we ended up reversing out so much more than what was actually accrued this quarter?

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Shailen Chande, NorthWest Healthcare Properties Real Estate Investment Trust - CFO [23]

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Yes, Tal, will be, again, quite a nuanced question that we can get off-line, but big picture related to a -- some capital gains taxes related to some of the Australian assets that we sold into the JV earlier in the year. So that was front end of the year, and that comes out in FFO through the back of the year. But we can get into a bit more detail on that off-line.

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Operator [24]

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(Operator Instructions) There are no further questions at this time. Please proceed.

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Paul Dalla Lana, NorthWest Healthcare Properties Real Estate Investment Trust - Chairman & CEO [25]

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Well, thank you, operator. And I appreciate everyone's time today. Have a good rest of the week. Thank you.

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Operator [26]

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Ladies and gentlemen, this concludes your call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.