Earnings Call: Q1 2020

May 15, 2020

Good morning, ladies and gentlemen, and welcome to the Northwest Healthcare Property Real Estate Investment Trust Quarter 2020 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. I'd now like to turn the conference over to Paul Della Lana. Please go ahead. Thank you, operator, and good morning, everyone. I appreciate you joining us today. I'm joined by Bernard Crotty, The REIT's President Peter Righan, The REIT's Chief Operating Officer and Shailen Shanday, The REIT's Chief Financial Officer. Together, we are pleased to share with you our results for the Q1 of 2020. 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 offer a few comments on COVID-nineteen and the impact on our business. The emergence of COVID-nineteen as a global pandemic last quarter has caused unprecedented hardship throughout the world and poses perhaps the greatest challenge that our society will ever see. How we respond to this daunting challenge will define the global environment for the foreseeable future and establish a new normal for all of us. Beyond its direct and continuing effects, which are likely to continue through 2020 and into 'twenty one at a minimum. The COVID pandemic has also served as a reminder of the continued importance of public health. Chronic underinvestment and politicization of this important field is affecting our ability to respond to the pandemic. It is important that we have good information, policy and procedures to tackle the COVID pandemic. To be successful, we must have a coordinated approach to our efforts. I'm happy to report that Northwest and its affiliates are significant supporters of public health, including through the commitments to the Delano School of Public Health at the University of Toronto, a Canadian and global thought leader providing vital information in the fight against this pandemic. I encourage all of you to consider supporting public health too. Additionally, I wanted to call out the many frontline responders to the pandemic who on a daily basis risk their lives to save ours. Much of this work has been done by the REIT's tenants and their employees who provide essential health care services to their communities. I'm in awe of the sacrifices they are making and inspired by the selfless nature in which they are given. As a key partner to the industry, our primary objective at Northwest is to support them as they confront this demanding moment as well as for the long term. On behalf of all of us at Northwest, I want to thank all of the frontline responders for their hard work and dedication. In the interim and in this context, our hospital operators and healthcare tenants remain financially strong. While government regulations have resulted in many elective procedures and or non essential health care services being canceled during the pandemic, we have seen a significant increase in global healthcare spending and a rise in support arrangements put in place to contract for excess COVID capacity. In the UK, for example, the NHS is contracted directly for 100% of the private health system's capacity, including for our 6 hospitals operated by BMI. And in Australia, state governments have contracted with each of our operators directly. As well as in Germany, we have seen a variety of public incentives introduced to increase COVID capacity in our post acute care hospital sector and with our partner Median. This strong public support of healthcare operators reinforces the defensiveness of the sector and our tenants. Beyond this, we see a significant demand for health services building. One estimate that I've read recently forecasts the current global backlog of demand at more than 28,000,000 surgeries. In the UK alone, its waiting lists have grown by more than 4,000,000 people to more than 8,000,000 during the pandemic. In Australia, they estimate that almost 500,000 procedures have been added to the waiting list. As a result, we believe that there is significant pent up demand that will spur a strong recovery for the healthcare industry and by extension healthcare real estate. Specifically, as it relates to our hospital operators, we believe they are well positioned to participate in increasing volumes to alleviate these backlogs. Similarly, many of the tenancies in our medical office buildings portfolios are expected to see increased volumes in the months ahead, given the nature of the essential services with relatively inelastic demand that many of them provide. In this context, I'll speak to the near term priorities of the REIT. Operationally, the REIT is performing defensively as expected with a well positioned portfolio that is 97 point 3% occupied by a diversified tenant roster of hospital, healthcare service and life sciences research the majority of which directly or indirectly are funded publicly by their respective governments. This defensiveness was evident in our May of gross rent collections of 97% across our 10 largest tenants, predominantly hospitals, which account for approximately 30% of proportional revenue and approximately 85% across the portfolio at large. The majority of rent deferrals to date have been formally documented and are with smaller tenancies in the REIT's MOB segment, where we have had the opportunity to extend lease term and expect to secure the vast majority of the deferred amounts in due course. In terms of liquidity, the REIT is well positioned with $219,000,000 of cash and available borrowing capacity, which is expected to increase to $363,000,000 upon the funding and completion of its announced Australian asset sales and European sea portfolio sales, both of which are planned to close in Q2. Of note, on May 14, the REIT also finalized an $82,000,000 increase to its revolving credit line secured by the recently acquired portfolio of 6 U. K. Hospitals. The facility is provided by the REIT's Canadian Corporate Banking Syndicate. And with 88% of the REIT's 2020 debt maturities complete and the remaining maturities comprising $40,000,000 of normal course Canadian mortgage renewals, the REIT has also substantially completed its balance sheet activities for the year. Additionally, during the quarter, Northwest enacted its business continuity plan to deal with the pandemic, which allowed the REIT to transition to having all corporate staff working remotely while executing on the REIT's business as well as implementing enhanced property and facility management protocols at its buildings, all of which have remained open for business. Finally, during in post quarter end, the REIT also made notable progress on its long term strategic priorities, including the Australian disposition to our existing institutional JV partner, the REIT finalized and received regulatory approvals in respect of the previously announced sale of a 70% interest in its wholly owned Australia REIT portfolio, generating net proceeds of approximately $64,000,000 The REIT will retain a 30% interest in the portfolio and will provide asset management and property management services. The transaction is expected to close shortly. In its European JV, C portfolio sale, in conjunction with its 3,000,000,000 €2,000,000,000 European JV, which continues to progress, the REIT advanced the sale of its initial $276,000,000 seat portfolio. While the onset of COVID-nineteen has impacted timing a little bit, execution of the definitive JV documentation and the closing of the C portfolio is expected late in Q2 or early in Q3 2020. De leveraging, Driven by the REIT strategic asset sales, consolidated leverage is expected to decrease by a further 500 basis points to approximately 45%, supporting a pro form a net debt to EBITDA ratio of 8x and underpinning investment grade credit metrics. For the quarter, our results were in line with our expectations, noting the above deleveraging, including percent. Earnings accretion from recent investment activity and financing activity was as expected, although foreign exchange movement saw the Canadian dollar appreciate by approximately 3.6% over the last quarter relative to the REIT's average foreign currency exposure, which impacted earnings. In fact, over the past 12 months, we estimate the relative strength of the Canadian dollar has reduced annualized AFFO by approximately $0.05 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. Additionally, net asset value decreased by 4.9% to $12.53 per unit, driven primarily again by a higher Canadian dollar relative to the REIT's foreign assets, with property values largely stable in region. 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 both seen accelerated deal flow that our team has converted into acquisitions. This includes over $230,000,000 in transactions closed in Q1, including the previously announced UK expansion. During the quarter, the REIT also redeemed 2 series of convertible debentures with a combined value of $93,000,000 including $47,700,000 was converted into 4,200,000 units at the holders option. Operationally, our results, which are derived from an expanded 183 property, dollars 6,600,000,000 healthcare infrastructure portfolio, tenanted by leading operators on primarily long term inflation index leases were on plan. The inherent strengths in the portfolio were reflected in the REIT's Q1 2020 year over year source currency cash recurring SPNOI growth of 2.9%, largely driven by contractual rent indexation and underpinned by a 97% occupancy rate and a weighted average lease term of more than 14 years, in all regards, a highly defensive portfolio. Segmentally, I note the following. In Brazil, we were on plan with steady 100 percent occupancy and continued strong year over year source currency cash SPNOI of 4.6%. Operationally, the REIT's major tenant, Rigidore, continues to deliver exceptionally strong results and expand its business, thereby creating potential opportunities for further partnerships with the REIT. Of note, one existing development totaling approximately $6,000,000 at our largest Brazilian asset was completed at a 7.5% yield during the quarter. The REIT is also focused on gaining traction with additional high quality operators in Brazil and sees a very constructive market in that region post COVID. Canada performed satisfactorily during the quarter with adjusted year over year same property NOI positive of approximately 1%. Portfolio occupancy was on plan at 92%. Leasing activity during the quarter was also on plan with 18,000 square feet of new leasing and 58,000 square feet of renewal leasing completed. The rent spread on renewal leasing was negative 1.8%, but excluding one deal in Western Canada, the results were positive for the balance of the activity by 1%. Post quarter rent collection was 90% in April and May collection is approximately 85%, with another 6% accounted for because of executed rent deferral agreements. Deferral discussions continue with the remaining tenants, with some waiting as we are for further details of the Canada Emergency Commercial Rent Assistance Program. In total, the Canadian operation has executed rent deferral agreements with tenants representing 1.5 percent of the region's annual gross rent and the vast majority of those on 6 month terms. These temporary rent deferral discussions are, on a case by case basis, appropriate for those tenants whose current circumstances are impacting their ability to meet rental obligations. Most of our Canadian tenants will be extraordinarily busy when the healthcare system resumes full service and as they deal with an accumulated backlog of unmet need. We strongly believe that except for a few smaller convenience and food oriented operators in our Canadian medical office buildings, most deferred grants will be recovered over time in the vast majority of instances. In Europe, we are on plan performing as expected with year over year source currency SPNOI growth of 2.6% and occupancy increasing to 97.8%. As mentioned earlier, we continue to find good investment opportunities in Europe, allowing us to not only build scale and critical mass in both Germany and the Netherlands, and now the U. K, but also pursue opportunities in adjacent markets. Rent deferrals in the European portfolio that are being worked out on a case by case basis total less than 1% of the region's annual gross rent. And lastly, in Australia, our largest market, occupancy remained steady above 99% and delivered consistent year over year source currency SPNOI growth of 7.7% with a weighted average lease term of more than 18 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. As arrangements between respective state governments in Australia and private hospital operators are finalized, we are working with some of our partners to provide short term rent deferrals until funds are received for the government. Executed deferral agreements total approximately 2.5 percent of annual total rent for the region with most deferrals for 2 months periods and all repayments being made in the balance of 2020. Continuing on in Australia, the REIT acquired Burnet Institute, a Melbourne based life sciences research facility in the Alfred Health Precinct for approximately $93,000,000 in the quarter. It also completed the disposal of 3 aged care assets to Vital and 2 non core assets to an unrelated third party for a combined sale price of $155,000,000 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 despite the disruption and conflicting priorities caused by the COVID-nineteen pandemic. With deep relationships, best in class regional operating platforms and strong access to public and attractively priced private capital, the REIT is well positioned to continue executing on its strategy. As we have almost $5,000,000,000 in JV firepower available today, we expect that when new opportunities arise, both generational and opportunistic, we will be in an excellent position to execute with our partners, and we look forward to that opportunity. I'll now ask the operator to open up the call Your first question comes from Troy MacLean with BMO Capital Markets. Please go ahead. Good morning. Good morning, Troy. As we kind of emerge from this, looking through the other side, there could be some maybe distressed investing situations. Is Is that something that the REIT would look at? And if so, would that be more of a JV investment or more for the REIT? Yes, that's a good question. I think that's ultimately a regional answer to that. But obviously, with our current JV commitments, we have the flexibility to pursue opportunistic situations and we have very flexible capital partners who have encouraged us to look for, we'll call them special situations. So I think probably any very significant activity is likely to occur in the markets where we have those JVs in place and that firepower available today. And I think what I can say though is that outside of Canada, we are starting to see some shoots of spring, I'll say, and certainly some changing of the moment as countries and economies and health systems by extension start to reopen. In particular, we've seen New Zealand move from full lockdown to very shortly almost full open with Australia quite closely behind it. And on its own trajectory, we'd certainly see Germany and other parts of Europe start to reopen again. So we do expect to see opportunities in the balance of 2020. And I can't give a weighting as to what will be opportunistic or generational, but we expect to see both. And then would you potentially sell more wholly owned assets into one of the JVs as a way to increase liquidity or is that probably no transactions in the near term? Yes, I think the answer is yes. I think we have contemplated a UK fund, although that's likely to be a little bit later in the year, Q3 being targeted, perhaps Q4. And certainly, we would like to see our UK assets become part of that. So that's an area that we have targeted. I think beyond that, Troy, we probably haven't gotten to a point of considering additional asset sales. And so really that would leave us with sort of 2 specific European focuses and clearly the Australia focus that we have in place today. And then just on the $50,000,000 of remaining mortgages to be renewed in 2020, those are all in Canada. I was kind of curious, is there any out financing potential there? And then what's the lending rate, the market rate right now, interest rate for commercial mortgages? Yes. Those are good questions. So I think there's modest up financing potential on some of these assets. It might be in the $0,000,000 to $10,000,000 range. I'll put the middle on that around $5,000,000 What we are seeing is net rates or all in rates similar to what we had been seeing over pre COVID, if you will. Obviously, the construct of that is very different given that spreads have widened out a little bit. So, we're certainly seeing things in the mid-3s on maybe into the high-3s in our portfolio for individual Canadian mortgages, again, noting that those are 3 or 4 mortgages that mature in the Q4 or late Q3 and that we see renewing those in the normal course and expect no issues. You mentioned the U. K. Healthcare Fund. I was kind of curious, since you've done a couple of big JVs in the last year, are you getting more inbound calls from like institutional capital looking for further JVs? Or is there anything you're going to kind of talk about there? We have been getting a lot of calls. I think I'd just remind everyone on the call that we ran a pretty meaningful process in 2018 and into early 2019 to establish the 1st JV that we did in Australia, and that involved very extensive discussions with a number of significant global investors. So obviously, we've been maintaining communications with those parties and looking to move them out. I think what we have seen though over the balance is there has been an increasing focus on healthcare real estate and an interest in the asset class. And certainly, we expect coming through this moment that some of those tendencies are likely to move even faster and be stronger. So I think in general, we do see capital formation happening in the asset class as it's better understood and certainly as it balances relative to perhaps others in the other asset classes perhaps. And so coming out of this moment, our view is that there is going to be a significant opportunity to partner with additional long term capital to grow the business. I think our near term focus though is clearly on executing on what we have underway today. And so I think I'd just guide that once that's done, I think we'll look to move on other new initiatives. But our primary focus today is completing the Europe transaction and being in a position to act there where we see meaningful opportunity on the ground and in both generational and opportunistic situations. Your next question comes from Sebastian Scharland with Endurance Capital. Please go ahead. Good morning. Thank you for taking my questions. In previous calls, you mentioned that traveling a lot in the past years had been key in building the relationships you needed to source deals with local tenants and operators. I was wondering, did you or actually how could the travel bans that we are expected to see for a long time impact your competitive advantage against those new players, if I got this correctly that you mentioned, perhaps interested in the healthcare asset class? And perhaps if you could comment on any impact on deal velocity going forward with those bands? Yes. That's a great question. Well, I think like all of us, we are adapting to the environment and to some of the new challenges and maybe ways of doing business with less travel and working remotely. So I think the organization has done a great job of implementing its continuity protocols and really putting ourselves in a position to be effective. So, I would say at an organizational level, the business is functioning well and our ability to work remotely has been reinforced. I think in terms of the other element that I would call out, we've made a very significant investment in our regional platforms. So when we think about the business, obviously, Toronto and the corporate team contributes to support our regions. But each of our regions has a fully functional investment and clearly asset management and operational management capacity. So, we haven't seen any relative diminishment of our ability to communicate. And I think our partners, at least the ones that we have in place today, are equally globally fluent, maybe even ahead of us in some cases. And so we find ourselves able to communicate well with them and to talk about and to resolve issues, very much evidenced around the recent transaction that we just completed in Australia and the ongoing transactions that we expect to complete in Europe. So I think our ability to transact in this moment has been reasonable. And I think we see the infrastructure in place to complete new things. I think in terms of sourcing things, that's a different answer. And again, I think I would just refer back to, we have a good network and certainly we are working with all of the logical portfolio. A hallmark of the healthcare real estate business is that it's a relationship business and a partnering business. So our first line of discussion has been, of course, with our existing partners and known players in all of our markets that we have pretty direct relationships with. And of course, we're able to do that easily and directly, and we expect opportunities to come from those initiatives relatively shortly and some very attractive ones as the moment is demanding, I think, all of our partners to look at their posture and their structure and again, leading them more likely than not to take a decision that we have been alluding to for a while, which is really what's core and what's non core in their business. And as we know, real estate in most businesses and certainly in healthcare is not core. And so we have a very good value proposition and a very good advanced dialogue with all of our partners in that direction. So I think we've been really good there. I think in terms of finding opportunistic situations and reaching out, we're picking our spots, but working through global investment relationships and global brokerage arrangements is still functioning. I think the bigger challenge there is probably around decision making and just whether that's owners or boards or other situations willing to take decisions in the moment. That's a little more cloudy. So we continue to try and pick our spots there and find things that we think are transactable that in the long term and that provide good opportunity set. So hopefully that answers your question, but I think at the core of it, we're a global organization with strong regional platforms and we're able to be fluent in all of our markets 20 fourseven. So that's been our objective over the last number of years. Thank you. Yes, it does help a lot. And as a follow-up question, I know there was less focus on Canada in the past years. And I was wondering and perhaps part of that travel ban impact, but with the current situation and I know in Quebec this week they announced a new infrastructure plan, the first phase targeting especially healthcare facilities and perhaps MOBs. And I was wondering if you were rethinking your focus on different regions, perhaps more concentration on Canada going forward? Yes, that's a good observation. I would go back to a couple of calls and just echo some comments that we had made previously about our Canadian initiatives and what we have seen, including a transaction that we've been involved with Lakeridge Health is a growing and changing focus on the public health system in Canada and looking for slightly different facilities and certainly a broader ownership profile. So we have been constructive on Canada again for a while and in situations like this and regional health infrastructure. It's not acute care space predominantly, which still tends to be all publicly owned or under a PPP type structure. But it's everything below that where we are starting to see some of the more global healthcare trends play out. And as a result, we have been focused on looking for opportunities and executing on opportunities in that space, and we see them actively in our Quebec, Ontario and Alberta portfolios. So, yes, very much we're focused on that. It's hard to quantify the scale of that, but certainly we think it would be very additive to the existing portfolio over time and we are quite focused on it. In the moment though, I think we haven't and maybe the narrow response to the pandemic will provide some very select opportunities. We really see this as a much bigger longer term trend that's going to play out as, let's say, public healthcare starts to more closely follow the global trends of again broadly moving things out of acute care settings and into less acute care settings and providing more cost effective services and more services. So these trends we've been on and construct along for a while now and we're hopeful that maybe there'll be a shot in the arm from the COVID moment, but I think it's a much bigger trend that's at stake. Okay, good. Yes, I had got this incorrectly in the last calls. So thank you for clarifying this. I'll return back to the queue, but just want to say good job on the quarter results despite the very tough conditions the market is going through right now. It's good to see. Thank you. Your next question comes from Woolley with National Bank Financial. Please go ahead. Hi, good morning. Hi, Tal. Hi. Just maybe a broader question for sort of after we recover from this. Like if I think of the market like here in Canada where how do you think the governments are might make changes to the healthcare system going forward? I think like here in Ontario, they're already calling for a big review of long term care. And obviously, hospital crowding still probably going to be a sensitive issue for the next at least year or so. Do you think that that has becomes a potential demand driver going forward? Yes. I mean, maybe I'll try and sort of set the table just building on comments from the last question. I think the big trends in healthcare are quite well established, right, and that's growing demand and increasing costs. And so all health systems before COVID have been grappling with this. Unfortunately, Canada, a little bit limited by its policy, right, which is really in some ways around a policy of rationing house services, right? And so we start with that kind of moment and then we overlay what's happening in COVID, which has essentially been a full stop on anything that is elective or non essential, which again just builds a huge wall of demand, which was already big in Canada, whether we define it by waiting lists or other things. And we know that Canada is doubly challenged by the nature of its facilities and system and that we predominantly deliver healthcare through acute care settings, which are very expensive. So I just start with that and say, okay, if you build the backlog and the underlying demand outside of the COVID backlog is growing, it should lead us to more rational and quicker implementation of whether it's policies or opportunities to provide those services. So that is what should happen. I think, unfortunately, in Canada, we have a limitation on we don't have a private operating space. So, there aren't a slew of private operators. There are a small number of individual physician groups that provide operating services to that backlog fundamentally. So there is a constraint both in terms of willingness to use added capacity and the existence of added capacity. So our expectation is that the trends were leading to some of those things start happening in any event and that clearly with more pressure, they should accelerate those trends and lead to opportunities. And whether for us that can be an opportunity to own with the government in a different type of facility, many of which we have in Quebec as an example already today, or for new types of facilities like ambulatory care facilities that we're building with Lake Ridge Health as an example. About yet is that there is going to be an opportunity for private operations like we see in other parts of the world, which would be the full relief valve and the real ability to do almost all the work except for the most acute care work, which is really what we see around the world in the private health system that exists today. So I just call that out that I haven't got a sense of the willpower for that to change, but the big trends are supporting, broadly speaking, getting as much as we can out of acute care settings into lower cost and less acute care settings and to really ultimately I think provide some level of operating flexibility as to how that happens. And so that's think, the trajectory we're on. I just don't see the political dialogue happening yet to get into the operating space today. And that's going to take a while. So I think from a Northwest perspective, we're still quite optimistic that there'll be a number of facilities, opportunities like the Lakeridge opportunity, like the ones we have in Quebec with Sao Jose's and other types of provincial infrastructure like that. And that's a meaningful opportunity for us. And so we're very happy to have provincial government covenants in our transactions. Of course, if and when it ever opened up to broader operating possibilities, and we've had some dialogue of that in Alberta and certainly in BC where the Brian Day case has been winding its way through the system, and is really due to be heard. I think it would be being heard right now if it weren't for this moment. There is some possibility that we could see some operations, but we still see that as being quite incremental to the Canadian business. So I guess as a consumer of health, I would just say that the future in Canada looks like lots of backlogs for a long period of time right now. And so that is going to lead to some more need for different types of facilities and perhaps some rationalization of the approaches that our provincial governments are bringing to that. But I'm not optimistic today that there's going to be a wholesale change in the systems or the way that we deliver healthcare in Canada. So I think that's the environment that we see. Okay. And then in Australia and New Zealand, the shareholder vote at Vital didn't sort of go the way you wanted you were hoping it would go. How are you going to proceed from here to optimize the portfolio then? Yes. So maybe 2 issues in that. I would just call out that the vote on the Vital Dual listing didn't proceed, although a vast majority of Vital unitholders were in favor of that, again, more than 2 thirds of the voters excluding us. So almost 90% including us voted in favor. So it was a little bit frustrating to not be able to have that dual listing, which would have brought the larger Australian capital more efficiently into the business. But for the time being, Vital continues as a strong listed entity. It continues to trade well. I think it's above NTA today in a very difficult environment, of course, and that continues to have access to both New Zealand retail and institutional capital and a select amount of international capital, which we think is enough to be supportive of its strategy to continue to incrementally grow the business over time. And so that's our intention going forward. Obviously, the whole viability of the business didn't hinge on the dual listing. It just was a step that would have made it more efficient and capable of growing even faster. But I think we still see a strong platform there with a long term set of arrangements that are advantageous to the REIT and to Northwest and we intend to build and grow those over time. Okay. And then just lastly, obviously, like since the last down cycle we had in the economy, the portfolio of assets you have has changed quite dramatically. But I'm assuming in like your due diligence work going through building up the portfolio, you probably had a better sense of how some of these assets and the cap rates involved have sort of fared over the course of a downturn and then a recovery. Can you offer like any sort of color just on how you expect the cap rates may move for your various geographies and asset classes? Yes. Maybe I'd just start with the quarter where I think like a lot of real issuers, we've reported relatively flat or unchanged cap rates for the quarter, so relatively minimal impact to date. In fact, in the quarter and in the weeks up till now, we've seen a number of transactions completed, including a couple of our own where, let's say, historically agreed pricing has held and things have gotten done and just noting in our case that's 3 meaningful Australia REIT transactions and the current European joint venture transaction. So, some meaningful data points that I think at least our assets are holding up reasonably well so far. I think looking down the line, I think like most investors, we are prepared for a little bit of movement in that, certainly more relative than not. And so we could see a little bit of weakness in cap rates over the balance of the year, more just trying to mark to relative market, if you will. But I think really for our asset class, just given the wave of interest in demand and given our own view of where we think it positions relative to other asset classes and maybe even given some of the long term impacts of almost 0% interest rates for, in my opinion, for a reasonably long time now, just given the stimulus and some of the things that have come through the economy and likely continued weakness for well into 2021. It's hard for me to see big marks coming. And I guess most importantly, sorry, the underlying fundamentals, which we believe as business and economies are liberalized will lead to a very big pent up demand in the healthcare system and one that's not really inelastic in a way, right? I mean, we talk about elective procedures, but ultimately, these are people getting again very important healthcare services and not things that they can easily put off, whether that's having knees and hips replaced, whether that's having other types of health services. So, our own view is that the underlying demand for healthcare is going to grow very quickly. And so, I think that will have to be reflected. So, all that in a bucket, I think we're going to see modest impacts in our asset class and in particular our assets. We've been quite active as you know about working the portfolio over the last year and really have narrowed it down to focus on the highest quality set of assets that we can have. We have a small number of things that naturally in this moment come under portfolio review. So we may find that a small number of additional non core things that we might do as a result of some thinking. But by and large, we like our portfolio and we think it is pretty good to withstand the moment and possibly even end up in a higher demand phase. So again, we're not super fussed about any quarterly marks that might come out of result to that. Your next question comes from Chris Couprie with CIBC. Good morning. An interesting slide in your presentation, just kind of drawing a line between the types of assets you're focused on, the care versus the care type of health care real estate. So I guess, notwithstanding that the aged care that aged care transaction with the Vital, Is there, maybe can you just explain the rationale, as to what it is you like about the cure versus the care type of real estate? Assuming you're not assuming you aren't I mean, assuming you're not the operator and just the owner. Right, right. Yes, I think maybe it starts with that comment, Chris. I think that's a great question. So, yes, our business is really 99% focused in the care space, which is distinct from care. I think we start by seeing care fundamentally, at least as a real estate lens, as close to an operating business. It's a much lower margin business. It's subject to significant regulatory complexity and significant funding challenges. And so that's just led to, again, the care moment. It's a huge industry and it's one that's going to grow and has lots of latent demand and many of the big trends lead to participation in growing need for care space. But as we've seen, it's not particularly well funded and it's very difficult for operators to make money, which when touches into the real estate space, tends to lead to the blurring of the lines. So, we start by sort of liking the cure space because we have a clear distinction between operators and real estate and the ability in our portfolio as an example with 2 to 3 times average rental coverage across the portfolio, highs at more than 6 times in Brazil and certainly above 2 times in any of the transactions we've done, for example, in the post acute care space in Germany or in the UK and our recent hospitals. So much higher coverage, much more profitable businesses underlying and as a result, much more able to withstand moments like this and general operating variabilities that exist in all businesses. So we kind of start there. That's number 1. Number 2, I think we have a belief in major markets and in sort of constellations of healthcare infrastructure like campuses. And so when we look at a campus and we've had some good examples in the deck around a precinct in Melbourne with Epworth Eastern Hospital, these can be $5,000,000,000 campuses with all sorts of infrastructure, and we really like the opportunity to participate in that broad range of facilities from the private and even the public hospital. Of course, we would love to own public hospitals, and we think that, that in the medium to longer term is a real possibility for our business. But we also like to own ambulatory care centers, outpatient facilities and life sciences and MOBs and even admin buildings that support all of this. So it really creates a constellation of opportunity that's connected and ties together. So, those two big things really drive our direction to the cure space fundamentally. And so, we see them as more infrastructure like in its core harder to replace and as a result, better long term net leased assets that we seek to do. So that's probably the sum of it. Okay. Thanks for that color. And just maybe, how are you thinking about Brazil right now? Obviously, currency is being a bit of a drag, but at the same time, does it set up an opportunity to buy? I think you've said in the past that you're kind of comfortable with your relative weight there, but just any current thoughts? Yes. I might start by saying, in general, in the COVID moment, probably Brazil is a little bit behind some of the trends that we're seeing in Canada. And so it's just maybe coming into its moment right now. So that's probably our number one focus is just to make sure that we have a handle on our operators, both of which are strong, well capitalized and respective leaders in their businesses. We do expect, again, given the funding availability and structures in Brazil to find opportunities. And so I think we've always said in proportion to the business, we can see opportunities in Brazil. Certainly, we have high visibility into our major partner, Regidor, who is a fantastic business, and we are in dialogue with them on some specific situations, which could come into the portfolio. I think the other part of the business that is interesting is we've seen other operators emerge that offer potentially good counterparties for us and have grown and scaled and become, let's say, mature enough to interface with a long term lease like the one that we would be looking for. So I think we're constructive once we get a broader handle around the moment there and just things are going to go for the time being. So I think that's probably the answer. But relative to other parts of the business where we see where we have significant capacity and we're in earlier days maybe of our investment programs, I think we still relative growth happening significantly outside of Brazil and Brazil being a little more selective for the time being. Thanks very much. Your next question is a follow-up from Sebastien Charlene with Endurance Capital. Please go ahead. Yes. Thank you. Concerning the NCIB, I noticed the transactions that occurred at the beginning of this quarter. I was wondering how should we think about the benchmark you're using? Is it a discount to NAV to entice you to go forward with that plan? Or is it a discount to NAV against perhaps other opportunities that you have to invest in the JVs right now? Yes. Hi. Good question. I think both. So again, I think we look at our investment opportunity set holistically. I think in the moment, obviously, we've prioritized liquidity in our business, I think like many as our number one priority. So that's probably the governor on any of the investment and capital allocation discussions that we might make. Clearly though at $9 a unit or whatever, it's been averaging over the period and certainly in times when it's been well below that, we do see a fundamental disconnect around value of the business and certainly a relatively attractive opportunity as a result. So I think that's the triangle that we're working in. Obviously, our intention was to be fundamentally buying back our equity coming into 2020. But ultimately, with a very disciplined lens to capital allocation and liquidity and again hoping that the market doesn't present us too many opportunities. We don't see it a defined picture of what we're doing. But if it does, of course, then we're prepared to act. And so we take a very disciplined approach to it, it would be my answer, and relative to other things that might exist for the mid and long term in the business, which is really our ultimate focus. Okay. So should we expect more buybacks if the price stays at these levels, say $9 to be specific? I don't think I can be quite that specific, out of fairness to lawyers, but I would say that our overwhelming intention is not to be in that situation. And we're hopeful that between a combination of us doing our job and you helping us to get the results out in the right frame, we won't be in that moment. I'll just leave it like that. But again, obviously, if we see a big disconnect between value and what we can do within the context of our liquidity, we are prepared to act. Fair enough. Thank you again. There are no further questions at this time. Please proceed. Okay. Well, thank you all for participating in our Q1 earnings call on behalf of the Northwest team. We wish you health and safety in the moment. Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.