Good morning, ladies and gentlemen, welcome to the NorthWest Healthcare Properties Real Estate Investment Trust first quarter 2023 results and conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, May 12, 2023. I would now like to turn the conference over to Paul Dalla Lana, Chairman and CEO. Please go ahead.
Thank you, operator. Good morning, everyone. Appreciate you joining us today. I'm joined by Shailen Chanda, the REIT's Chief Financial Officer. Together, we are pleased to share with you our results for the first quarter of 2023. 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 all to the risk factors outlined in our public filings. Now to the quarter.
Our global portfolio of healthcare real estate continues to differentiate itself from the broader commercial real estate landscape, with 83% of our leases subject to indexation and delivering strong SPNOI growth of 4.4% from an exceptionally stable cash flow profile that is highly diversified and supported by 97% occupancy and a weighted average lease term of 14 years. In the first quarter of 2023, revenue and NOI both increased by 30% and 25%, respectively, over prior year. As a result of higher interest rates, temporarily elevated leverage, and lower transaction volumes within the REIT's capital platforms, AFFO per unit declined to $0.17. During the quarter, the REIT implemented a hedging program to fix the interest rate on $900 million of floating rate foreign currency debt.
For the part of the quarter the hedges were in place, the REIT achieved interest savings of approximately CAD 4 million. Beginning in Q2 2023, the full quarter impact of hedging will result in an incremental interest savings of approximately CAD 0.02 per unit. Over the course of 2023, the collective impact of hedging activities, the U.K. and U.S. joint ventures, and non-core asset sales previously announced are expected to increase per unit AFFO by approximately 20% relative to the current quarter run rate. Our previously announced U.K. JV is progressing well with the REIT securing an investment from an institutional investor to acquire between 70%-80% of the net equity in the REIT's portfolio. The commitment is subject to final documentation and is expected to close on or before June 30th, 2023.
Similarly, the REIT's U.S. joint venture initiatives continues to progress, and the REIT remains actively engaged with qualified partners and is working towards commercial terms. Completion continues to be expected in the second half of 2023. The REIT is also pleased to provide an update on its non-core sales program announced last quarter, which has been expanded to include approximately CAD 340 million of properties and is progressing well. The first sale is expected to close on May 31st, with the balance of sales expected to follow over the course of Q2 and Q3. Net sales proceeds will be used to repay higher cost debt and are expected to be accretive to AFFO per unit.
Inclusive of the non-core sales program, its U.S. JV and U.K. JV initiatives, the REIT expects to generate between CAD 550 million and CAD 600 million of net proceeds in 2023. These proceeds from the above-noted initiatives will be deployed towards reducing variable rate debt repayment on an accretive basis. The REIT remains highly disciplined with respect to capital deployment, and as a result, in Q1, acquisition volumes were muted. That said, the healthcare real estate market continues to adjust to the rapid change in global interest rates over the last 12 months, with bid-ask spreads beginning to converge and transaction volumes starting to return to prior levels. The REIT remains particularly focused on its healthcare precincts initiatives, and in particular, it's developed a core fund which it expects to advance significantly in Q2 and Q3.
These are attractive long-term investment opportunities in all of the REIT's markets, which will allow it to pursue and grow its business in the highest quality segments. From a balance sheet perspective, at March 31, 2023, the REIT reported debt to gross book value, including convertible debentures, of 57.6% on a proportionate basis. Subsequent to quarter end, the REIT issued a CAD 86.3 million convertible debenture, net proceeds of which were used to repay short-term variable rate debt on an accretive basis. With the successful issuance of the convertible debenture, the REIT has increased its exposure to fixed rate debt, including its in-place hedges to 64%. It's refinanced 76% of its 2023 debt maturities and reduced its weighted average interest rate to 4.7%.
Considering the approximate $340 million in non-core asset sales and the U.K. and U.S. JVs and associated debt repayment, the REIT anticipates proportionate leverage decreasing by almost 1,000 basis points to 47%, which is in line with its long-term target. Segmentally, I note the following. In Canada, we were on plan with portfolio occupancy remaining stable at approximately 90% and seeing our variable revenues, particularly through parking, continue to rise to pre-COVID levels. Our Jerry Coughlan Health & Wellness Centre development, anchored by Lakeridge Health Hospital, achieved substantial completion in early Q2. We also continue to make progress on a number of life sciences, ambulatory care, and healthcare precinct initiatives, which are gaining momentum and expected to become part of the business in the near future.
In the U.S., our portfolio is performing as expected, with occupancy at 96% and an almost 9-year weighted average lease term. Our team has successfully integrated the assets acquired approximately one year ago and respective management platforms, continues to work closely with our healthcare tenants and progress on new and renewal leasing activities. In Brazil, we were on time with steady 100% occupancy and continued strong constant currency SPNOI of 6.5%. Operationally, we note that the REIT's major tenant in Brazil, Rede D'Or São Luiz, continues to deliver exceptionally strong results and is among Brazil's top 10 companies by market capitalization. Europe continues to perform well, with occupancy and weighted average lease term stable at 97% and 16 years, respectively.
We continue to find good opportunities, investment opportunities in Europe, allowing us to not only increase scale and critical mass in our existing markets, but also to consider opportunities in adjacent markets. Finally, in Australia, our largest market, occupancy remains steady at nearly 100% and delivered constant currency SPNOI growth of almost 8%, with a weighted average lease term of more than 15 years. I'm pleased with the progress we've made during the quarter and post-quarter, which advanced the REIT's strategic objectives and produced solid operating results. With deep strategic relationships, best-in-class regional operating platforms, and strong access to capital through existing commitments, the REIT continues to transition to a more asset-light business, a best-in-class global healthcare real estate investment manager. With that, I'll now ask the operator to open up for questions. Thanks.
Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. If you'd like to withdraw your question, 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 Michael Markidis with BMO Capital Markets. Please go ahead.
Hi there. Thank you, operator. Good morning, Paul and Shailen.
Hi.
If I could just start off. Thank you. If I could just start off on the fair value loss that you booked. Perhaps you could give us a little bit more color by region. The reason I ask is just that I think if we look at the disclosure, it looks like at least in your equity count of JVs, the values were flat in Australia, or were relatively flat in Australia and Europe. I think you noted that the values were up in Brazil. Should we infer that the bulk of the negative adjustment would then be U.S., Canada and the U.K.?
Yeah. Hi, Michael. I can take that. Yes, that's indeed correct. I'd note that on an aggregate basis, our weighted average cap rate expanded by about 10 basis points to 5.5% or so. The majority of that widening in weighted average cap rate was across the Americas and European platforms.
Okay, great. Thank you. You guys got the, you did the convert first quarter. Congrats on that. You paid down some more high-cost corporate debt. If we just look at the variable rate corporate debt, how much is the REIT left with after that transaction? How does the cost on what's left, because I think you have different tranches and costs compared to the nine three. The last question from me is just with all the capital repatriation with the U.K., the asset sales and the U.S. JV, expected sort of throughout the course of this year, do you think that you can get your corporate debt down, I mean, excluding the converter, variable rate corporate debt down to 0 by the end of this year?
Yep. Yeah, Michael, I'll take that one as well. I think your first question, I think the crux of that was with the use of proceeds on the convertible debenture issuance. The full 86 million, where we successfully had the over allotment exercise, was used to repay two different facilities at the corporate level. We did achieve that weighted average interest rate of 9.3% in terms of the repayment. That was as planned. You know, as we talk through our broader initiatives in 2023, between the non-core asset sales, the U.S. JV initiative, and most imminently, the U.K. JV initiative, Paul referenced that $550 million-$600 million of net proceeds, all of that will be used to repay corporate-level financing.
Some of it may fall within the corporate segment, some may fall in other regional segments, but we do expect, I mean, using the majority of those proceeds, to significantly de-lever, and it will take down our floating rate debt exposure to less than 30%.
Got it. Thank you. Okay, just last question from me before I turn it back. I guess the U.K. JV is progressing as anticipated. It's only been six weeks, I think, since we last talked, so no changes there. Maybe just with respect to the U.S., I think the verbiage that you guys talked to, put forth in the press release in the MD&A hadn't changed much as well. Maybe, Paul, if you could just explain a little bit how that process is going, and if there's been any change or puts and takes with respect to the conversation with the parties at the table as it relates to the U.S. JV. Thank you.
Yeah, I think so. Maybe two things I'd just call out that we are planning for the U.S. JV in second half of 2023. That hasn't changed. I think, in terms of the climate for taking the decision, which is really providing both stability in I guess initially in interest rates, more directly in asset prices. We're seeing enough transactional activity in the U.S. and, you know, with our partners and the people that we're talking to that we believe there will be, you know, sort of a, you know, a comfortable level to transact at and a willingness for people to start to reinvest and look at long-term opportunities.
Again, healthcare continues to screen reasonably well in terms of our capital partners, you know, sort of, at the margin decision. You know, we're confident that, you know, that both price and, you know, willingness to deploy capital. Our focus, you know, is certainly to identify opportunities where we can bring some growth capital to the initiative. That's where we're concentrated on right now versus, let's say a co-invest possibility. That would be consistent with prior initiatives that we've done in other markets, so.
Okay. Sorry, I just one last one before I turn it back. I think you guys, one of the assets that you're selling is in the U.S. Maybe just give us some comments in terms of how that property didn't fit with the overall strategy in the U.S.
Yeah. The specific property is the Bakersfield Heart Hospital. I wouldn't say that it didn't fit. Fundamentally, what happened is that we had a tenant that wanted to acquire it. They were a not-for-profit and didn't and weren't able to contemplate a co-ownership situation. We were able to find agreeable terms to sell it to this tenant, which is an outcome that happens sometimes. I think what we've also been able to secure is an opportunity set with them on broader real estate opportunities. We continue to explore sort of the opportunity to grow with this organization, which is a great tenant, but ultimately one that, you know, wants to and needed to own their real estate directly.
A little bit of backdrop to that. You know, as we've mentioned, we were happy with pricing and, again, it wouldn't have been our first decision to exit, you know, a good relationship with a good long-term partner. In this case, it was one that made sense.
That's helpful. Thanks. I'll turn it back.
Your next question comes from Tal Woolley with National Bank Financial. Please go ahead.
Hey, good morning, everyone.
Yes. Hi, Tal.
Good morning.
Just wondering, on the portfolio of the assets held for sale, can you give us some estimate of the NOI attributable and what secured debt is held against it?
Yeah. Tal, I can get more specific on the NOI. It does fit in a couple of different segments. I mean, it's broadly in line with our IFRS cap rate. It's, you know, the assets are broadly spread across the portfolio. I'd use that 5.5 as a blend. In terms of the secured debt associated with those portfolios, I'd look to the liabilities held for sale number on the balance sheet, and I think that represents the direct secured level financing.
Okay, perfect. I guess, like your goal here through all these steps, you know, with the joint venture creation and the non-core sales, you know, the idea is to, you know, obviously move the, you know, your debt ratios down into the 40s. You know, I'd also say, though, like historically, you guys have been very, you know, healthy acquirers going forward. I'm just wondering, it's like, should we be thinking of like this 40 level, or the, you know, your target in the low 40s as kind of like the trough because we should expect at some point, particularly if you're starting up a new JV, to begin acquiring more properties again?
Yeah. That's a great question, Tal, and the answer is, no. I think, you know, we are looking to be sort of, you know, permanently in the mid-forties, in terms of leverage. I think the answer to how we grow comes from becoming increasingly more capital light. We continue to have, you know, a lot of assets on balance sheet, you know, beyond the U.S. and U.K. assets that are slated to go in. We see that being able to fund, you know, certainly the majority of any, you know, incremental capital that goes into to growth in the future. That's sort of our plan.
Again, you know, sitting here at sort of just over 50% mark, look-through ownership, you know, I think the target is in the mid-20s on that, you know, guide, you know. Again, that's through all regions and all sub successes.
I guess maybe just more generally on the, on the pace, would you say that like the, you know, the dollars of asset growth you're sort of targeting going forward is maybe a little less than where it's been in the past?
Yeah, I think that's certainly for 2023, that's absolutely fair. I think we continue to be, as we've said, cautious about the market. Maybe what I would say in all that, what we haven't seen is things go opportunistic, which might get to a different answer. What we have seen broadly in healthcare real estate is, you know, strong support for existing asset prices and things that are, you know, again, making those prices work within the construct of today's interest rates and return expectations, you know, hasn't screened enough to be opportunistic where we would go beyond that.
That said, we have, you know, almost CAD 5 billion of, I don't know, 100% debt and equity committed capital in the business as capacity, plus what we bring in the U.K. and the U.S. Certainly we'll be well primed to, you know, to add over time. You know, it's unlikely that everything matches up perfectly, but, you know, we're hopeful that, you know, that the first direction here will be moving in the more asset-light direction. We see pacing of acquisitions picking up, you know, in 2024 fundamentally, you know, as the markets come to that equilibrium home. Our prediction is sort of the first half of 2024, we start to get visibility, you know, comfort maybe around some of the inflation trends.
I think that translates into long-term rates and then ultimately into values and starts to, you know, get to a comfortable equilibrium point in asset markets, which is not the case today. Again, underneath all of that, we continue to see, you know, demand for healthcare real estate assets, you know, at exceptionally strong levels. I'd call out, you know, the recent, you know, MPT transaction on the Healthscope assets in Australia. I think we mentioned that in our last call. Again, that's a very strong look-through cap rate on, you know, assets that we have, you know, the other half of in our portfolio, you know, in our view, the better half, just to be clear. Nonetheless, you know, super strong pricing there.
We've seen major transactions happening in Europe at, you know, essentially book value or IFRS book value on significant portfolios. Of course, you know, the U.S. is probably the most active of all markets where we started to see that equilibrium come in. We are getting a sense that, you know, that maybe, you know, starting to turn the corner in things. Again, for us, we're not budgeting a super active 2023 in terms of growth outside of some of the developed core initiatives that I've mentioned. It would be, you know, a 50%-ish number to what we've done, you know, in prior years as an idea.
Okay. Just lastly, maybe you can give an update, on Australian Unity and where you stand with that. If you can just remind us, like, what's your current position? How are you holding your position in that? I believe there's a put call derivative in there. Has there sort of been any movement, in terms of resolving that? You know, is this a position you plan to hang on to, for the long term?
Yeah, it's a great question. You're probably about a quarter ahead of us, you know, wanting to get fully ahead of it. You know, we do have a pretty active legal process running there, just to be direct to the point, which has, you know, sort of a Q2, early Q3 timelines to it. I think we'll be in a slightly better position to talk there. You know, we do like the assets there, and we are, you know, sort of committed to growing in Australia with our partner, GIC. I would just say that we'll leave it there for now, but I think, you know, there'll be more visibility on things coming, you know, over the next couple quarters.
That's a situation where, like, if I recall correctly, when you first got involved, like you tried to make a tender offer to shareholders. Is it that kind of mechanism that you would have to use to try and increase your position there? Is there sort of a negotiated solution that you can kind of come up with?
I can't speak to that, but I'll just say that we're the largest shareholder of Australian Unity with our partner at about 18% of the vehicle. I think all levers are on the table for bringing it to a, you know, to a positive outcome.
Okay. All right. That's great. Thanks very much, gentlemen.
Thank you.
As a reminder, should you have any questions, please press the star followed by the one. Your next question comes from Pammi Bir with RBC Capital Markets. Please go ahead.
Thanks. Morning. You mentioned, you know, potentially using some of your excess liquidity towards unit repurchases. I'm just curious, how do you balance that? Maybe how active do you expect to be? How do you balance that sort of with respect to your debt reduction initiatives?
Yeah, it's a great question, Pammi. I think first off, we're prioritizing debt reduction as our, you know, our primary initiative, so it would be secondary to that. I think again, it's a practical consideration in the moment of, you know, the market disconnect that we're having. We haven't set specific targets or objectives ahead, and I think it's again, a secondary initiative. If things continue to be dislocated for a period of time, and if we are successful in managing all of our initiatives, which we expect to be.
Right
... you know, it will be a real consideration for us. I mean, it's not what we want to do, but if the market continues to be substantially disconnected from NAV, we have the tools to consider that.
Right. Okay. Then just on the U.S. JV, you know, what's sort of your expectation as to where... You know, I realize obviously this is still a negotiation process, but where do you see potential transaction, relative to your IFRS, you know, book value at this stage?
Yeah. We're seeing the market in the, within 5%-10% of, I suppose, RS book value, Paul, I mean, I think as I mentioned before, there's a lot of data points in the U.S. for what we would do. Again, that's against the backdrop of, you know, a JV with some of the attractive features that, you know, that we like to have, which is, you know, long-term capital commitments and appropriate fees and structure to it. Again, that's, you know, some of the things that we're seeing out there, and we think that market's reasonably deep.
Right. The property that is currently out for sale, just wanted to confirm, Shailen, was that in line with the. Well, there's no write down taken on that, or was there just any comment?
Yeah. It's within that 5%-10% of IFRS, which is now reflected in our Q1 accounts.
Okay. Then just lastly, with the, you know, the 20% increase that you expect to be able to achieve on a quarterly basis, I guess, in AFFO, how much of that will be driven by a recovery in the fee income?
Yeah, I'd say there's really three components that drive, you know, that 20%, you know, increase in stabilized results. I think, two of them, to a large degree, have a high degree of visibility, which is around the hedging program which has now been implemented, where we only got the partial quarter during Q1, and that'll come on fully in Q2. The second is with a high degree of visibility around the substantial deleveraging coming out of the U.K. JV, which will happen in Q2. Then really the third component is around a recovery of, you know, of a transactional level volume that we've seen historically. I think Paul had alluded to it, but we have CAD 4.6 billion of available capacity across our existing platforms.
Then we're clearly looking to deploy that over the coming years. Over the coming years. We, I mean, we do expect some stabilization in our activity-based fees. I'd say it's the smallest component of that 20%. Really a high degree of visibility on those first two. Then, you know, as bid-ask spreads continue to converge, we'll see that recovery in activity-based fees.
Thanks very much. That's helpful. Thanks, Shailen.
All right, we'll turn it back.
Your next question comes from Mario Saric with Scotiabank. Please go ahead.
Thank you and good morning. Just a clarification on the previous question with respect to the U.S. JV fair values. The 5%-10% within our IFRS, is that as of the Q1 0.3 IFRS value or relative to the purchase price? I'm not sure if there's a meaningful difference between the two.
Yeah. Yeah, Mario, I'll chime in on that. Morning. Yeah, no material difference between purchase price and Q1 IFRS. It's within that 5%-10%.
Got it. Okay. Secondly, more of a broader-based conceptual question. Paul, the asset management business has been growing for several years now. Outside of your conversations with LPs on the U.S JV, which my sense is it's a bit more directed or targeted in terms of the discussions, like, how would you characterize the magnitude of your discussions with global LPs today in terms of future product offerings relative to three to five years ago?
Yeah, let me, let me try and roll that together. Thanks. Good morning, Mario Saric. I think, over the last, you know, even through the difficult moments of the last year, which have, you know, had a lot of LPs thinking about, you know, existing commitments and, where they wanna focus. The trends that we've seen that are very pronounced are certainly a rise in focus on alternatives, within alternatives, a better understanding of healthcare. We are seeing a lot of capital formation in healthcare. I mean, calling out the recent Australia example that we spoke about around the Healthscope portfolio as a good example, which was a combination of retail and wholesale capital, coming into a CAD 1.2 billion transaction.
We see vibrant interest in the space, and I think the flow of that capital has only been muted around, I mean, again, many LPs looking at, you know, what's happening with their existing commitments, maybe a bit of a denominator effect question, but more, you know, just getting to that level of what price and value are. The discussions we're having is that there's starting to be more visibility on that and more comfort around committing. You know, the breadth of our discussions are as wide as they've ever been. I think we continue to look for a fairly specific partner in our big core strategy.
You know, we've talked a little bit about the U.S. as maybe one example, but in developed core it's another really good example and, you know, very long term, you know, certainly, you know, with, You know, a, you know, almost permanent characteristic on the back end and, really seeing, you know, good interest in that across, you know, both Australia and, the Americas in terms of capital. I think, you know, the answer is it's, these are more positive dialogues. You know, it was fairly muted in the second half of 2022. The year started a little bit quieter, but we've started to sense that there's a, an uptick in interest, across, you know, a number of discussions that we're having.
I think our focus obviously around strategies other than developed core, which has a bit of balance sheet stuff, but is more prospective assets, you know, it continues to be the existing portfolios that we have. It opens up a number of geographies. You know, Brazil is an example. Certainly Canada is an example. It opens up a number of, you know, new segments. You know, AMLV is an example for us, and all of which we see as being, you know, suitable and, of interest to, you know, the LPs that we're talking to.
Got it. Okay. Is healthcare generally a product that doesn't align well with opportunistic funds or opportunistic returns, or do you see yourself in the future kind of expanding the product offering, to, you know, opportunistic type returns when it puts core and core plus?
Yeah, it's a great question. I think our core long-term investing activities and we've been quite consistent about that. I think as the business grows and evolves, we will be able to tuck in some added strategies and, you know, certainly value add or, you know, developments are the ones that we are focused on. I wouldn't say that things couldn't be opportunistic. I'd say that it just hasn't happened. We have not seen, you know, that level of distress in pricing or ownership. You know, the hallmarks of healthcare real estate by and large are still long-term index cash flow.
You know, we, you know, albeit with some operator pressures out there around the world, and we've called out, you know, really the cost side of operators. There's a huge pent-up demand and operators are starting to come back to COVID, pre-COVID level, you know, levels of activity. You know, through our portfolio, which is, you know, global and very diverse, you know, we see, you know, reasonably well-performing tenants and certainly, you know, not distressed at an operational level that would translate into asset value. That's what we're seeing and I think there's enough capital looking for opportunities that we just haven't seen, you know, haven't seen. If anything, we've seen the opposite of distress. We've seen very firm pricing across, you know, the bigger, more fundamental strategic opportunity sets.
Always there are some exceptions to that. I'd say of all our markets, the U.S. would be the most diverse and, you know, certainly, you know, anything on any day could be happening in that market. Our focus there is sort of in a very all stable, you know, call it a mid-market strategy around ambulatory care, which is, you know, again, performed reasonably well. Other than adjusting for the underlying costs of, well, financing, has really not had, you know, big, big dislocations. I know it's a bit of around the world. Happy to take that offline. Again, it, you know, if it were to get to distress, I think we would consider looking at it. We just haven't seen it in any of our markets at any scale anyways.
Okay. Maybe two more quick ones online, if I may. You mentioned or you highlighted, I guess Canada and Brazil being two markets where you still own 100% of the assets and a desire to get down to a 25% interest owner through basis portfolio wide. Are there any specific nuances that would make that becoming a reality in those two countries any more or less challenging relative to what you experienced in the other markets to date?
No, I don't, I don't think so. You know, and again, as we've mentioned, I think there's maybe there's a between the lines question there, Mario, about, you know, how, you know, how the business works as a REIT. I think the good news is that we see it comfortably working within the context of this asset light, you know, more asset light initiatives that we're on. You know, that's the only thing that we've been mindful of. I think otherwise, you know, the business is set up to be able to be much more asset light than it is, and it can come at it, you know, across, you know, any number of regions or strategies. Our priorities are the bigger and more core ones for now.
Beyond that, I mean, I think there's lots of interesting healthcare opportunities out there. Did I get to the heart of it?
Yes. Yeah. No, that's that works. Just for Shailen Chanda , I may have missed it, but on the CAD 515 million of debt that's associated with the assets held for sale, what's the average debt cost on that?
You know, Mario, I'll need to go back and check that number. I'll come back to you on that.
Okay. Sounds good.
Thank you.
Your next question comes from Robert Novakovic with Veritas Investment Research. Please go ahead.
Good morning, guys. Thanks for taking the call. I'm just wondering, there was a comment made on the last quarterly call about the AFFO per unit for 2023 was expected to come in in the low $0.80 range. I'm just wondering, I mean, obviously there's a lot of, you know, uncertainty there, but is that still an expectation?
Yeah. Hi, Robert. I can take that. Good morning. Yeah, I'd say our comments today were very much consistent with that. I, you know, I mean, it is very much an expectation. We guided to that 20% increase in annualized earnings or quarterly earnings. I've really I mean, underpinned through a couple of initiatives that I previously mentioned on the call. Around our hedging activities and implementation of our program, which happened over the quarter, the completion of our U.K. JV in Q2, as well as our U.S. JV and non-core asset sales, as well as a general return to transaction volumes, which would drive activity-based fees. That guidance is very much reaffirmed.
That's great. Thank you very much.
Thank you.
Your next question comes from Jake Civalier with CIBC. Please go ahead.
Hi, guys. Good morning. I might have missed it, but looking at your FFO rack, it looks like there's a CAD 400K adjustment excluded. Is that a one-off or non-operational? I'm just looking for a bit of color on that.
I'd need to dive into that CAD 400K, Jake, so maybe we can go offline on that. I can't recall which specific line item that was, but we can go offline.
Okay, thanks. Then, last question, just touching back on the unit buybacks. If that's a route that you do pursue, would you give any consideration into abandoning the DRIP?
I think, you know, we look at, you know, the package of, I guess, the DRIP and potential buyback holistically. You know, I think as Paul has mentioned, our initial focus is principally on deleveraging, and we view that as the principal focus in the near term. As we look through the DRIP, I, you know, I'd say it's relatively immaterial to the overall business, and we know it's a component that many of our investors appreciate. We would look at that carefully, but it's relatively immaterial.
Okay, thanks. That's it for me.
There are no further questions at this time. Paul Dalla Lana, please proceed.
Well, thank you, operator. I think that brings the Q1 call to a conclusion. Appreciate all the questions and interest. Thank you, everyone. Have a good day.
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.