Good morning, ladies and gentlemen, welcome to the NorthWest Healthcare Properties REIT third quarter results 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, please press star zero for the operator. This call is being recorded on Monday, November 12th, 2018. Now I will turn the conference over to Paul Dalla Lana, CEO of NorthWest Healthcare Properties REIT. Please go ahead, sir.
Thank you, operator, and good morning, everyone. Thank you again for joining us. I'm joined today by Bernard Crotty, the REIT's President, Shailen Chande, the REIT's Chief Financial Officer, and Peter Riggin, the REIT's Chief Operating Officer. Together, we are pleased to share with you our results for the third quarter of 2018. 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 you to all of the risk factors outlined in our public filings. Before getting into the details of the quarter, 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 on its strategy put in place in 2015. In a nutshell, we are focused exclusively on healthcare real estate, bringing our real estate acumen, knowledge, and relationships to the world's largest and fastest-growing industry, healthcare. Differentiated with a high quality of structured lease portfolio with-
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Currency appreciation post quarter end, September 30th, 2018, our per unit would increase to CAD 11.45, approximately 49% LTV, excluding convertible debentures. The source currency adjusted SPNOI growth of 4% as compared to the third quarter of 2017, driven largely by inflation indexation on leases of the REIT's international assets. All of this underpinned by a 96%-plus portfolio occupancy and weighted average lease term of approximately 13 years across an expanded 153 property, 10.8 million sq ft portfolio. Third quarter of 2018 marked another active period for the REIT, highlighted by the completion of key strategic initiatives, including in Australia, the REIT finalizing the sale of the Seed portfolio as part of its new AUD 2 billion Australian debt and equity JV with a large sovereign wealth fund. Focus of the fund is to acquire and develop core Australian healthcare real estate.
The JV will have an indefinite buy and will be 78% owned by the institutional investor and 30% owned and managed by the REIT. The Seed portfolio has a complete value of AUD 412 million. During the quarter, Craig Mitchell joined the REIT in his capacity as CEO of Australia and New Zealand. Prior to joining the REIT, Craig was the CEO of Grocon, a large Australian development company, and prior to that, Chief Financial Officer of Dexus, one of Australia's largest funds groups. Craig brings a wealth of knowledge to the organization and a welcome addition to the REIT's global leadership team. In Brazil, the REIT completed the acquisition of Hospital Morumbi from Rede D'Or for BRL 272 million, CAD 88 million at an initial 7.5% capitalization rate.
The acquisition is its seventh with Brazil's leading hospital operator, Rede D'Or, and was funded from net proceeds from the sale of the initial assets into the institutional joint venture. Lastly, in Canada, the REIT is happy to report that Glenmore Professional Centre has been stabilized following natural gas contraction in late 2017. The property has been reworked as a multi-tenant building and is now over 90% occupied. With significant growth opportunities in both Australia and Europe, the REIT will continue to leverage its differentiated healthcare real estate platform and anticipates attracting additional fee-bearing institutional capital to support a target growth pipeline in excess of CAD 2 billion. Taken together, these initiatives provide the REIT with significant runway and resources to continue to scale its business in both the near and long term.
In addition, our increasing scale has significantly improved our capital markets profile and will enable us to leverage new opportunities to also further improve the business over time. Segmentally, I note the following. In terms of finance and liquidity, the REIT enters the fourth quarter with a significant opportunity to continue to optimize its balance sheet, carrying approximately CAD 200 million of historic corporate and property-level financing with a weighted average interest rate of over 7.5%, which presents a natural opportunity to generate meaningful interest savings through refinancing at lower rates.
With consolidated leverage at 49.4% and 65.7%, excluding and including convertible debentures respectively, the REIT will continue to focus on accretive deleveraging opportunities through capital recycling and leveraging its global platforms with new institutional JV partners to reach its target of an LTV below 50%. In terms of net asset value, the relative strength of the Canadian dollar was again a headwind for the REIT's NAV. With the CAD up about 3% relative to the REIT's weighted basket of foreign currency exposure, which shaved approximately CAD 0.40 per unit from the REIT's NAV, more than offsetting strong fair value gains in local currency terms. Overall, the REIT's NAV has decreased by 3.6% to CAD 11.09 per unit. Adjusting for currency appreciation post-quarter, the per unit increase would be at CAD 11.45 per unit.
With regional perspectives, Brazil was on plan with 100% occupancy and continued strong predictable income, with constant currency adjusted SPNOI year-over-year of 7.7%. Operationally, the REIT's major tenant, Rede D'Or, continues to deliver strong results and continues to grow, thereby opening up the possibility for future partnerships with the REIT. In Canada, we were on plan and performing satisfactorily with positive constant currency adjusted SPNOI of 0.7% year-over-year and portfolio occupancy at 91.7%. Factoring in leasing at Glenmore that occurred in the fourth quarter, occupancy increases to 92.7%. In Germany, we were on plan and performing as expected with constant currency adjusted SPNOI of 4.2% year-over-year and occupancy at 95.6%. During the quarter, the focus was on integrating the recently acquired Netherlands properties. With a strong acquisition pipeline in the region, we see many near high-quality term opportunities.
In terms of Northwest Australia, there was also strong operational performance, portfolio occupancy stable above 98%, and weighted average lease term above 13 years. With the recent closing of the seed portfolio sale to the REIT, with the REIT focused on deploying significant low-cost committed capital into strategic growth opportunities. During the quarter, the REIT also completed development at its AUD 80 million Epworth Medical Centre, and subsequent quarter-end, in accordance with its terms, converted its participating loan interest into a direct 50% ownership interest. Also of note, recent developments at Healthscope over the weekend include a renewed and increased conditional offer from Brookfield Capital Partners and affiliates at AUD 2.55 per unit. Healthscope has been granted exclusive access to due diligence materials, and NorthWest will continue to look to engage Brookfield with respect to any potential property transaction.
At Vital Trust, for its Q1 2019 results release on Friday, November 9th, it also reported strong and on-plan results with constant currency adjusted SPNOI up 4.6% year-over-year, occupancy over 99%, and a weighted average lease term of seven years, an NTA of NZD 2.22 per unit, while making progress on its NZD 120 million portfolio of accretive developments. Post quarter-end, Vital declared an increased distribution of NZD 2.18 per unit, excuse me, that's as well as announced the addition of Graham Stuart, previously CEO of Sealord Group and CFO of Fonterra Co-operative, to its board. For the balance of 2018, building on these strong results and ongoing portfolio progress, and continued supportive trends in the healthcare industry, the REIT will continue to focus on internal growth through the completion of its nine committed value-add development projects, primarily in Australia and New Zealand.
I'm pleased that the NorthWest Global team has been able to advance a number of key long-term strategic initiatives during and post-quarter. Our bigger and better portfolio is supported by long-term indexed leases and assets. As a result, the REIT is even better positioned to deliver stable and growing returns to unitholders. Further, we continue to be the real estate partner of choice to the healthcare industry in our markets, which provides exceptional opportunities to grow accretively and enhance unitholder value. I'll now ask the operator to open up the call for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch tone phone. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Fred Blondeau from Echelon Wealth Partners. Fred, please go ahead.
Thank you. Good morning.
You bet, Fred.
In terms of the goodwill impairment loss of CAD 50 million, I was wondering if you could give us a bit more color on what happened there.
Sure. Thanks, Fred. Shailen, perhaps I'll let you speak to that.
Thanks, Fred. Good morning. The goodwill impairment loss that we took over the quarter related primarily to the sale of part of the Northwest Australia portfolio as part of our long-term joint venture. You might recall that last quarter, the REIT excluded goodwill from its net asset value calculation in anticipation of this. Ultimately, no impact on net asset value, and as a result of selling part of the portfolio, we've eliminated part of the goodwill that was generated upon the portfolio acquisition almost a year ago. I might also add that the goodwill number has been more than offset by fair market value-
Yep
revaluation gains over the last year.
Yep. Yeah, I saw that. Okay, perfect. Thank you. Looks like currency had a significant impact on your same property numbers. I was wondering, how do you feel about in terms of currency risk for 2019?
Hi, Fred. Paul here. I think for our investor deck and previous comments we have made on the issue. We have been continuing comfortable with a diversified currency approach that has a bunch of natural hedges built into it. I think the relative strengths of the CAD this year, because it is not exclusively a quarterly event, has led us to start looking to the potential to add some currency hedging tools to that and possibly bringing that to mix. I think that is a focus for us in the fourth quarter. I think, again, coming back to the basics, we continue to have four global currencies that behave differently with the CAD and use a combination of local debt where available, as well as having strong indexation on our leases to balance off against currency movement.
Again, the principle factors or elements of our currency strategy are still in place, and we are looking to possibly add to that to reduce a little bit of near-term volatility, more than likely on the income statement side as opposed to the balance sheet side.
Okay. When you did your presentation in October, I remember you mentioned currently having a significant acquisition pipeline in Europe. I was wondering if you could give us a bit more details on that. I guess, what changed since the last two, three years, or how does it compare since the last two, three years?
Right. Well, I think we've mentioned that there's potentially a NZD 2 billion pipeline in front of us. Without being too prescriptive, we see, obviously Australia and Europe as offering some relatively attractive growth opportunities. I think that's number one. We're substantially funded for a lot of that acquisition through our JV as well as other internal resources. I think we feel good about that. I'd say, what's changing is probably maybe threefold, but certainly two big trends. One, in terms of all the parameters that supported our Australian institutional JV, we are starting to see increased interest and focus in the asset class, and certainly at the larger scale of global institutional investors looking for high-quality partners to help them deploy capital into the space.
Perhaps an asset class that was once really alternative, becoming less alternative, if not more core, more core plus, to use terms in the industry. Secondly, I think we're starting to see the fruits of our labors pay off, which is building relationship and platforms in our regions, and the ability to execute and deploy on not just capital investment, but also value add investment for our partners or our tenants. We're bringing real estate solutions to them. Epping is a great example, as we just announced this quarter, coming off of buying through a structured position, a loan on a development that was once done by a group of doctors that couldn't get it over the line in terms of bringing a core hospital tenancy. We brought that tenancy to the building and Healthia Limited.
We've expanded it fully now to 100% occupancy and been able to deliver a fully operational day surgery center, again, across from a large regional hospital. Now we're on to focusing on the full private hospital parallel investment. That sort of value add through the chain of being able to find an opportunity, structure it, deploy the capital, bring in the right hospital partners, and both complete the initial phase of growth, but also plan it for future phases of growth, I think is what differentiates us. I think a lot of relationship and hard work paying off. That's seeds that have been planted many years ago and again, coming to bear, and we're seeing that not just in Australia and New Zealand, but certainly in Europe as we've been working very hard with relationship players.
Having done now a number of deals with MEDIAN Kliniken and certainly working on others, we see that the relationship and sort of value add part of our platform is really starting to pay off. In addition to capital, you've got that, and those are the big trends happening in our industry. That's what sort of brings things to the opportunity space. I guess stepping back even one step further, I'd add that, again, in our markets, most of our operators, most of our partners continue to be relatively asset heavy and need the capital sources that we provide, whether it's part of natural growth or in the extreme situations like Healthscope, where we're seeing corporate activity and the high need for capital into that type of a structure.
I think all those trends are playing in our direction, and that's a good feeling after lots of years of hard work.
Perfect. Thank you. I'll leave it there.
Thank you. Next question is from Troy MacLean from BMO Capital Markets. Please go ahead.
Good morning.
Morning.
The REIT recorded a large fair value gain at a property in Toronto on density rates. Is that a property you would look at selling? It looked like the fair value gain was about CAD 30 million.
Yeah, Craig, certainly at Dory, I think we're very focused on our core business. I think that's a constant state of being for us in terms of looking at things that perhaps become non-core and always looking to optimize the portfolio. I guess in this one specifically, I think the challenge is it has proximity to regional hospitals and certainly is in a fantastic node itself. I think if we were to look to do something, it would probably include an opportunity for us to bring future medical tenancy into any development in an ideal world. I think it's early days. We haven't made a specific decision there.
Again, I think this is a theme that we know has been playing out through Toronto and certainly core Toronto in our portfolio, and I expect in the industry as intensification opportunities do evolve and change things. Certainly, we've been actively looking through our portfolio over the last little while to find ones that might be there. We've certainly looked at that in the development partnership on our Davisville property, 1849 Yonge, and more recently, I guess, at Dundas-Edward Centre, where we ended up selling the property where we thought that was the highest and best use. I think there's never one exact answer, and it's early days on this specific opportunity, but we do have a number of opportunities within our portfolio for significant intensification, and we're certainly continually looking through that. This just happens to be another case of it.
In MD&A you mentioned increasingly looking at Brazil for acquisitions given the exchange rate. What volume of acquisitions are you looking at, and do you have a target position of how big you want Brazil to be in the portfolio?
To echo back to earlier comments around Brazil. Within the context of our portfolio, we certainly see it at a maximum in the current range that it is right now. I think with everything going on in the business, that's likely to come down naturally over time, just given what we're likely to outweigh our growth in Australia and Europe. As we've mentioned, we have a very interesting moment in Brazil, both with our main tenant, but also with a number of emerging counterparties there that look like they're high-quality tenants, and it's a big market. I think we balance all those things. My prediction is that the Brazil additions will be selective to the portfolio at the highest quality end of things, like the recent Hospital Morumbi, are likely to stay under the current level of the portfolio today.
I think that level is likely to come down naturally as we see weighting in other areas coming a little bit faster and, again, already structurally built into our plan. I hope that answers your question. Again, we do see high-quality tuck-in acquisition opportunities in Brazil. Whenever we're able to do a major market, major regional hospital like Hospital Morumbi with a high-quality tenant like Rede D'Or, we would certainly look to find a way to get that done within our portfolio.
I guess, just finally on, kind of curious how you look at development in a rising rate world. Does that change your hurdle rate or your development spread you want on development? I'm just curious about your overall thoughts on that.
Certainly it would in the general sense, but again, remind everyone that our development is quite specific in that it's a cost-plus, 100% let sort of structure. In that cost-plus, we typically have the return benchmarked or with a floor spread over the then current bond rates, if you will, for each respective market. We're pretty low risk in terms of that type of development. To be specific, where we have our current development pipeline, again, around 100 basis point spread to what we see as underlying value. Almost all of that has deal protection around interest rates. That 100 basis point spread is likely to substantially remain intact. Obviously, if we're able to continue that with relatively low interest rate risk and some structure around it, we're comfortable to proceed within the context of the overall business.
I think I've mentioned historically that just given the brownfield expansion regime that goes with private hospitals in our main markets, in particular Australia, New Zealand, and now also Brazil, and perhaps in the future, Germany. We see it as sort of a constant state of being. We do see the opportunity to deploy again between 5% and 10% of the overall balance sheet into some form of expansion in this very low risk basis. We're comfortable to do that within the context of our business and within the structures of these cost-plus yield return investments. I think that's where we get comfortable.
It's not a general comment on at-risk development, which I think would be a very different answer, and which we have a very limited amount of in the portfolio, might be more akin to our St. Albert medical office building development, which is a NZD 18 million project. Again, substantially pre-let with a fairly short construction timeline. There would be an example where we would be much more focused on underlying costs and look to bring in long-term financing earlier and structure around that. Yeah, I think pretty product typical answer for at-risk development. In the case of our brownfield, fully committed, low risk development, if you will. We have a little more tolerance for these things, just given the built-in protection that we have.
Thanks. That's great, color. I'll turn it back.
Thank you. Your next question is from Neil Downey from RBC. Neil, please go ahead.
Thank you. Good morning. Just a couple of quick ones. You mentioned there was some leasing in Calgary and Glenmore post-quarter end. How much net operating income does that add on an annualized basis?
Peter or Shailen, could you respond to that?
Neil, the tenancy is about 32,000 sq ft. Once we work through some pre-rent, in 2019, I would think that the addition is meaningful for the Calgary portfolio, but not overall for the REIT portfolio. I don't have that number specifically.
Okay. Thank you. In Brazil, it would appear the debt balance, mortgage balance is effectively unchanged at the end of the third quarter versus the second quarter, setting aside the change in the currency. Does that imply, just remind me, that you bought Morumbi with cash?
Correct.
Will there be some term financing placed on this asset at some point in the future or near future?
Yeah, it's a good question, Neil. I think maybe I'd come back to just Brazil financing in general and highlight that of our existing financing there, we have two series of our bond-like finances that we put in place for each of the existing assets that we chose to finance, that are open for prepayment right now. Those are at relatively high rates, one in the early nines and one in the early eights. We see markets today, probably in the sixes in terms of that financing. Might just make that observation first. Then secondly, to Hospital Morumbi, given that it has a very significant expansion, and we're working with the Rede D'Or to commit that expansion, I think we wouldn't be in a natural moment to put long-term finance on the asset.
We think that would come more naturally as that expansion and program gets delineated. I think, where we think about Brazil, we're likely to look to refi our existing assets again, given relative cost in the sixes plus indexation. We have a lower leverage approach to Brazil in general, but we haven't set that in stone. I think we have constructive opportunities in the existing portfolio, both to top up and to lower costs, and Hospital Morumbi is likely to come a little bit later as that development visibility comes. Remembering that that development, again, could be potentially double the size of the existing assets or doubling the size of the existing asset. It's a meaningful one and one that would need to be considered in light of long-term finance.
Okay, thank you. Just on the particulars about acquisition, I believe it was CAD 88.4 million. This is a bit of detail and minutia I recognize. I think your property roll forward shows the acquisition of CAD 92.3 million. There's about a CAD 4 million difference or 4.5%. Is that in effect all just transaction costs?
I might take that offline, Neil.
Okay
Try to come to that, if that's okay.
Understood.
Probably a level of detail beyond me in this moment.
Understood. Lastly, there was some discussion about the CAD 30-odd million fair value mark in Canada. What property does that relate to, and what was the trigger point under IFRS that allow you to recognize that embedded density value? Has there been a rezoning application, or has there been an award of additional density, or has there been an offer for the property, or what was the trigger point? What property was it?
Yeah. That's a great question. The property specifically, Neil, is our Fairview Drive property.
Okay
Which is just in North Toronto. It was the latter of your three things that led us to look at it in more detail. Certainly it has kicked off all of our sort of thinking around the former two initiatives. Those are underway right now. Early days. Certainly it's a big suburban-style property with lots of land and lots of density. In a fantastic node with transit and a large regional mall. It's sort of that perfect combination of everything's happening at once.
Okay.
I think we've been a little bit. That's fine.
Okay. That's super. Thank you.
Your next question comes from Mario Saric from Scotiabank. Mario, please go ahead.
Hi. Good morning. Just coming back to the fair value gain, and specifically on that asset. Can you give us a sense in terms of what the price per billable square foot would've been on that fair value gain?
A lot of detail here, since we're focusing, it's again around NZD 100 per square foot buildable.
Right. Okay.
A fairly conservative estimate of what buildable.
Paul, I know you mentioned in response to the previous question that you are in the early stages of identifying additional opportunities throughout the portfolio. Do you have any sense in terms of when you may be able to provide a bit more color in terms of what the overall kind of intensification upside could be in the portfolio in terms of converting some of the space to residential use over the long term?
I don't think we are quite as focused in doing it on a portfolio per se, but I think we do see two or three other high quality, high density opportunities within the portfolio. I think that's our near term focus. Again, no specific timing, but would expect fourth quarter, first quarter 2019 as being a pretty logical timeline for sort of delineating that. Again, most of our focus though is continuing to look for both that combination of healthcare and expansion opportunities since the sites we have in mind are quite core to our healthcare needs. I think that's a rough direction, but nothing more specific than that, Kristan.
Okay. My other question just comes back to Brazil, which is about a quarter of your NOI today. Obviously, there has been a recent election there that the market has cheered with the currency moving higher. Some may think that it may enable additional foreign capital coming into the country. How, if at all, does the election result impact your ability to potentially export your asset management model that you have kind of created in Australia to Brazil going forward?
Yeah. Lots of dots to connect there, I'd just say that the main thing that the election result has done, I think is bring some stability to what could've otherwise been a relatively unstable moment. Certainly a more positive direction in terms of, let's say an emerging market currency moment, which is sort of playing out around the world. I think fundamentals in Brazil though, independent of the election, are actually pretty strong, I'd just highlight that Brazil is coming out of a couple year deep recession. It has been coming out of it for the past 12 or 15 months or so. You've got, for them, historically low interest rates, reasonably stable growth trajectory, certainly, I think now a fairly clear political environment and one where hopefully some of the structural reforms that they need in their system can happen.
I think it's a very constructive moment there, certainly, we are seeing a number of bellwether international and global investors starting to have comfort to look to the space. Combined with a moment in private hospital space, which certainly through Rede D'Or we see as performing very well. We're seeing meaningful improvements in operating performance coming through our portfolio. Certainly Rede D'Or has hit record levels of corporate performance. As I mentioned, we're starting to see the emergence of some new counterparties. I think all of that leads to an opportunity for us to both partner and find good quality opportunities. I think it's a constructive moment there, as you rightly pointed out, it's a good part of our business, we're looking forward to taking advantage of that.
Okay. Sorry, my last question maybe on the pipeline in Europe in terms of the acquisitions of the roughly EUR 100 million that you're looking at in the next 3 to 6 months. Would you classify those as primarily kind of tuck-in acquisitions, similar markets, similar type of assets to what you have today or are you exploring additional opportunities in new geographies?
No, very much tuck-in. To remind, we've got two main strategies underway in the space. We've got an MOB strategy, reasonably emulating our Canadian one with a core focus of Berlin and other major markets in Germany. We continually see small tuck-in opportunities within that business and portfolio. Expect to add to those things periodically over time. New to that was our addition of the Netherlands last quarter, we'll be adding to that in the same way around core locations within Holland certainly see those as coming naturally. The other side of the portfolio, also new to last quarter or a quarter earlier, was the addition of the rehab hospital space through an initial partnership with MEDIAN Kliniken, the largest owner of rehab hospitals in Germany, still in a very much in a consolidation mode.
We think naturally there's going to come more opportunities in that space, and the rehab hospital space, to remind everyone, has those attributes of 25- and 30-year leases with built-in indexation and relatively low management intensity. We're quite focused on growing that. That's a German opportunity, and we do see more kind of as Median and perhaps others in the space continue to consolidate what is a highly fragmented industry as well. I think those are our two areas of focus, and or at least in the near term, I'm not likely to change that given they're both scaling and we have lots on.
Okay, thank you.
Thank you. Your next question is from Chris Couprie from CIBC. Chris, please go ahead.
Hi, good morning, guys. Question for you about the Healthscope transaction. Do you guys have a preference as to which party wins the bid or if it goes the private route?
Our only preference is that it's somebody that deals with us to sell the real estate, Chris, to be super direct.
Okay.
I think all of the known counterparties, whether it's the company or either of the potential bidders in Brookfield or BGH would be good counterparties for us. Certainly, we're focused on the real estate and being a good long-term real estate partner to the business. No particular focus at this point. Obviously the situation is relatively fresh and live, so we're still assessing obviously the overnight news and in particular, what's going to happen going forward. Although I think directionally it brings more certainty to the situation. I think we see value both in our public company investment and certainly natural counterparties for the real estate transaction in all directions. I think that's the initial reaction from us.
Okay. Just in terms of the Australian JV, any sense of timeline for deployment there? Then in this quarter, were there any fees recognized by the REIT from the JV?
Yeah, I'll take the first half of that question and perhaps Shailen, you can take to the second half. In terms of the first half, I think we've guided that the JV has four years to deploy the initial capital commitments. The fact that those capital commitments are scalable, in particular around the Healthscope opportunity. Clearly, two very different trends happening there, but I think we see in the natural course, independent of Healthscope, two to three years being a likely deployment window for the capital. We're quite comfortable with that planning and timing. As we've just noted, separate to that, the Healthscope situation, it looks like it's got a six-month fuse to it now, and obviously noting Australian M&A can change and evolve in a moment's notice.
It does seem to bring some certainty to that part of the transaction, and certainly, we're very focused there as a real estate partner. Directionally, those would be my comments. Shailen?
Yeah, great. Thanks, Chris. Excuse me. In respect to the fees from the joint venture during the last quarter, we did earn an acquisition and development fee related to the initial seed portfolio that was vended into the JV portfolio. That was market-based. Then in respect to base fees, given that the transaction closed only 10 days prior to quarter, base fees were relatively immaterial over the quarter. As we look into next quarter, we'd really expect those base fees to replace the activity-based fees that came in during the trailing quarter.
If we think about your CAD 30 million to CAD 35 million run rate in fees, is it fair to say it's roughly half base versus other, or any kind of guidance there?
Yeah. I'd highlight the 30 to 35 has a couple components. Both fees generated off of Vital Trust as well as fees generated off of our JV. In respect of the JV, obviously the timing of those fees will be subject to how quickly that capital is deployed. In the near term, we'd expect it to, I think broadly, be a bit more activity based driven and then ultimately replaced with base fees.
Okay, great. I've got two questions on some of the developments. What happened to the Lingard private development? It looks like the cost to complete jumped up and the time to delivery has moved out a few years. It was slated to be delivered this quarter, I believe.
Yeah. Chris, we can come back to it in a bit more detail, but I think at a high level, phase 1 of that development completed, and hence the cost to complete. The costs incurred increased, and the extension ultimately on the delivery date is really the addition of a new phase.
I see. Okay, got it. With respect to the recent Brazil acquisition, you mentioned that there is also an administrative building that will be acquired. Can you give us some color on that?
Sure. I can speak to that, Chris. Sorry, separate from Morumbi, we signed an agreement to acquire, again, a small administration building at HMB or Hospital do Brasil, the first asset we acquired with Rede D'Or. In addition to that, a second building, which is a clinic building, again, an outpatient clinic building, which is under construction. Expect that the initial acquisition, just a BRL 4 million acquisition for the HMB admin building, which is built and to come on in the fourth quarter. Again, the completion of the ongoing outpatient clinic at a second development there, likely to come on either late fourth quarter or early first quarter of next year. Going from memory, that is again approximately a BRL 10 million or BRL 12 million development.
About CAD 16 million or so in total Canadian committed, CAD 4 million of it coming relatively quickly in the fourth quarter and the balance late fourth quarter, early first quarter. Again, the nice thing about that is that with those two additions, we true up our existing lease as well to a new 25-year lease. Again, all of the good things that we like, in this case with 3 de Ouro, which is a great situation and one of our main assets in suburban São Paulo.
Thanks a lot, guys.
Thank you. Next question is a follow-up from Frederic Blondeau. Please go ahead.
Thanks, guys. Maybe one last question for Shailen. You have a sizable amount of corporate debt coming to maturity next year. I was wondering, what's the strategy there and what are your views on the environment at this point?
Yeah. Thanks, Fred. In respect of some of our corporate facilities coming up for maturity, I think we very much see an opportunity that Paul perhaps referenced earlier around very high-cost facilities and an opportunity to bring a more stable capital structure with more term and lower rates into the balance sheet. We're in active processes right now around those refinancings, and most of, in fairness, are fully committed at this stage. I think, again, just given the nature of the debt that we do have coming up for maturity, we really see it as an opportunity to accretively refinance.
That's great. Thank you, guys.
Thank you. The next question is from Tal Woolley from National Bank. Please go ahead, Tal.
Hi, good morning.
Good morning.
I just wanted to talk quickly about the third-party capital business. Obviously, set up this new JV this quarter and potentially an option to add a lot more capital with the Healthscope business. Now you're sort of reiterating today you're kind of interested in looking for more. Pretty soon it's going to become very sizable. I'm just wondering when you're making these statements, do you have a target in mind for yourself? Is it a CAD 5 billion committed capital business in 24 months, or how are you sort of thinking about how to scale that business over time?
Yeah. I think that's a great question, Tal. I'm not sure that we've quite set the destination in mind. I think maybe just the first quarter that we're off the treadmill on talking about this and an existing partner that's looking for a lot of his, what we're going to do with CAD 2 billion. Practically speaking, I think we do see, in our main regions, the opportunity to bring in parallel capital. Again, I think that as we look to that in 24 to 36 months kind of timeline, we do see an opportunity, again, to more than double. If that gets it to CAD 5 billion from CAD 2 billion, then that's a nice round number. Maybe that's a good illustrative mark, but certainly, more than double the current commitments. With some of the things we have on, obviously that could come a lot sooner than later.
Again, I think directionally that's as far as I go at this point other than to say the platform is in a position to have these relationships now, which is nice after many years of hard work and scaling and the ability. I think we have strategies in each of our international regions and perhaps even Canada for that matter, that offer the opportunity to partner with institutions, I think, that are increasingly looking at markets that are very mature in terms of traditional asset classes and in terms of our asset class, a market that's becoming a little better understood and has some differentiating characteristics, in particular long-term index cash flow that is quite appealing. Those are the trends, we're trying to balance that out as an organization that's still got a lot on.
I think we see the ability to add and to add in a manageable and constructive way in the near term.
Okay. This is probably more suitable for Shailen, but I would've thought this quarter, given everything that was going on, G&A spend would've been fairly high, and yet it was actually down over last year when you exclude the compensation or your DUIP charges, and I think it was down significantly over the last quarter. I was wondering if you can give us some color on how that line is trending or where you sort of see it going ahead.
Thanks, Tal. Good observation on G&A and the specific year-over-year and quarter-over-quarter decrease. This quarter was specifically impacted by call it a catch-up recovery on some G&A recoveries that we could make against some of our third-party capital providers. It was probably lower than the quarterly run rate. Our run rate is appropriately reflected in the normalized FFO, and we do have an adjustment there to account for the G&A year-to-date catch-up recovery, and happy to dive into it in a little bit more detail offline.
Okay, perfect. Thanks very much, Shailen.
Thank you. At this time, we have no further questions. You may proceed.
Well, thank you, operator. That's all from NorthWest. Appreciate everyone's involvement. Have a good day.
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