Good morning, ladies and gentlemen, and welcome to the NorthWest Healthcare Properties Real Estate Investment Trust Third 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 need assistance, please press star zero for the operator. This call is being recorded on Wednesday, November 8, 2023. I would now like to turn the conference over to Craig Mitchell. Please go ahead.
Thank you. Good morning, everyone, and welcome to NorthWest's Third Quarter 2023 conference call and webcast. Thank you for joining us today. This call is being recorded, and a replay will be available on our website at nwhreit.com. Today's discussion includes forward-looking statements. As always, we want to caution you that such statements are based on management's assumptions and beliefs. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see our public filings, including our MD&A and Annual Information Form, for a discussion of these risk factors. On the call with me today is Mike Brady, our President and General Counsel, and Karen Martin, our recently appointed interim CFO. I joined NorthWest in 2018 as CEO for Australia and New Zealand.
I have more than 20 years of experience in the real estate sector, leading organizations as a CFO and CEO. I've been the REIT's interim CEO since August 8th, and I was appointed CEO on a permanent basis on October 23rd. In the past 90 days, the management team has been extremely busy. Looking back at the quarter, our Q3 game plan focused on four key management initiatives. Firstly, refinancing near-term debt maturities, second, sale of the Australian Unity units, third, selling non-core assets, and fourth, improving governance and management. Looking at near-term debt maturities. Since August 2023, we have pursued a strategy to strengthen the balance sheet. We made a difficult but necessary decision to reduce the monthly distribution by 55% in September, and this has improved the REIT's liquidity and will bring down AFFO payout ratio.
To date, we've been successful in refinancing and extending corporate debt obligations. Management extended the maturity dates on multiple debt facilities and anticipates by the end of November to have extended and repaid all 2023 debt maturities. We secured a new term loan of CAD 140 million, with an April 2025 maturity. We refinanced our largest debt maturity in 2024, which comprises of 235 million joint venture debt facilities, extending the maturity dates to December 2025 and December 2026. And finally, as outlined in our press release from October 16, we launched the process of amending and extending the CAD 125 million Series G convertible to March 2025. Now turning to the sale of units in Australian Unity.
NorthWest continues to sell and redeem the balance of its holdings in the Australian Unity Healthcare Property Trust, with net proceeds being allocated towards debt repayment, including the REIT's CAD 94.5 million secured loan, which is now fully repaid in October. To date, the REIT has completed CAD 110 million in sales and redemptions of its units. As previously announced, NorthWest anticipates completion of the sale or redemption of the balance of its holdings by the first half of 2024. Net proceeds will be used to repay other debt and for general trust purposes. The third initiative is non-core asset sales. At the outset of 2023, the REIT announced that it proactively identified approximately CAD 300 million of non-core assets for sale. To date, we've completed sales or have under contract for sale, CAD 180 million of our non-core properties.
Proceeds from these sales, net of transaction costs, will be used to repay debt and for general trust purposes. The 4th initiative, governance and management. On October 23rd, 2023, we announced the appointment of Karen Martin as our Interim Chief Financial Officer. We're extremely pleased to have Karen join the REIT team, and I look forward to working with Karen moving forward. One of the initiatives we're working on is to improve our communication with our unitholders, which includes both getting out to meet our unitholders and the way we message our financial reporting. Karen will be a large part of these initiatives. In summary, our plan to strengthen the balance sheet has provided more time and financial flexibility for the REIT while it works on additional strategic initiatives to improve unitholders' value.
While the strategic review is underway, management has recognized key actions that can be taken in the near term and remains committed to building a more robust, sustainable and profitable business. This will be achieved through efforts to streamline operations, reduce debt, and increase profitability. NorthWest aims to build on its position as a healthcare real estate leader, focused on delivering value and sustainable growth to its unitholders. I'd now like to introduce our President, Mike Brady. As many of you know, Mike has been with the REIT since 2006, and before being named President in 2023, Mike leads our major strategic global transactions, oversees legal, compliance, and governance. Over to you, Mike.
Thanks, Craig, and good morning, everyone. Today, I will be commenting on some of the strategic initiatives that were undertaken during the quarter. On August 8, the REIT announced a comprehensive strategic review aimed at unlocking significant value for all unitholders. The REIT formed a strategic review committee, comprised of members of the board, to assess the optimal path forward for the REIT. There is no certainty regarding the results of the committee's strategic review or that any particular transaction will be agreed upon or consummated. The REIT does not intend to comment further on the strategic review until it determines that additional disclosure is appropriate or required. Respecting our 2023 ESG global rankings, as outlined in our press release, in 2023, NorthWest and Vital Trust, which is managed by NorthWest, participated in the GRESB Real Estate Assessment for the third year running.
As you may know, GRESB is the global ESG benchmark for assessing real estate and infrastructure investments. NorthWest is the manager and 28% owner of Vital Healthcare Property Trust, a New Zealand-listed fund that invests in healthcare properties in New Zealand and Australia. I am happy to report that NorthWest and Vital achieved sector leader status in three categories: the global listed sector leader for both healthcare standing investments and healthcare development, with Vital coming in first and NorthWest coming in second place. In the global sector leader healthcare development, Vital and NorthWest came in first and third place, respectively. NorthWest maintained its four-star ESG rating for the development benchmark for the second consecutive year, solidifying our position within the top 20% of global real estate entities in this category.
This is a tremendous result for the REIT and for Vital, demonstrating NorthWest's commitment to ESG best practices. Not only is this the right and responsible thing to do, it represents a key component of NorthWest value and its associated cost of capital. I'd now like to turn things over to Karen. We are very pleased to have Karen join the NorthWest executive team, and Karen has over 30 years of senior executive experience with both public and private organizations in financial services and specialty finance.
Thanks, Mike. I'm very excited to be joining NorthWest. Hi, everyone. I'm Karen Martin, interim CFO, and I'll be providing commentary about the financial results for Q3 2023. For the three and nine months ended September 30th, revenue increased by 5.1% and 15.3%, respectively. Net income for three and nine months, ended September 30th, decreased by CAD 116.4 million and CAD 553 million, respectively, primarily as a result of fair value losses on investment properties from changes in valuation parameters. Operationally, the REIT's high quality and defensive healthcare real estate portfolio delivered strong results, including 3.7 same property net operating income growth over, you know, on a year-over-year basis.
The REIT's portfolio occupancy of 96% is consistent with last quarter, and is supported by a weighted average lease expiry of 13.2 years, and 82.9% of leases are subject to inflation indexation. With portfolio comprising more than 2,000 tenants, the REIT's cash flow is highly diversified across its 229 properties. Other highlights for the quarter, Q3 2023 net loss attributable to unitholders was CAD 81.3 million, as a result of fair value loss on investment properties. The Q3 AFFO of CAD 0.13 per unit is down from CAD 0.15 per unit on a year-over-year basis. Total assets under management decreased by 5.3% on a year-over-year basis to CAD 10 billion, due to combination of non-core asset sales and changes in the fair market property valuation.
Net asset value per unit decreased by 4.7 to CAD 11.96 in Q3, compared with the June 30 value. The decrease is predominantly due to the cap rate expansion to 5.75%. The capital deployed in fee-bearing vehicles of CAD 5.7 billion is a decrease of 1.7 year-over-year as a result of fluctuation in foreign exchange rates. Consolidated debt to gross book value, including convertible debentures, is 51.6%, an increase of 80 basis points on a quarter-over-quarter basis. To date, management has been successful in refinancing and extending corporate debt obligations, and on completion of the extension of the convertible debentures, the REIT will have extended or repaid all of its corporate debt facilities maturing before November 2024. As previously communicated to the market, the REIT is also continuing to undertake non-core asset sales.
These sales will enable the REIT to strengthen its balance sheet, improve its operations, while the board undertakes its strategic review. I will pass the call back to Craig. Craig?
Thank you, Karen. While the strategic review is underway, management has recognized key actions that can be taken in the near term and remains committed to building a more robust, sustainable, and profitable business. We're taking necessary steps to strengthen our balance sheet, improve our management team, align our business, and prepare for the future as NorthWest aims to build on its position as a healthcare real estate leader, focused on delivering value and sustainable growth to all unit holders. Looking ahead to late 2024 and into 2025, we're developing and executing on debt strategies today to manage our debt maturity profile. Moving forward, we are optimistic about the opportunities, opportunities to increase and improve our business in many of our healthcare markets. NorthWest remains committed to delivering value for our unit holders.
The decision announced this quarter and our solid foundation, we are building are essential steps to unlock the significant value of the REIT. With our deep strategic relationships and excellent regional operating platforms, the REIT continues to be a leader in global healthcare real estate. And with that, I'll now ask the operator to open 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 touchtone phone. You will hear a three-tone prompt acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any keys. First question comes from Fred Blondeau from Laurentian Bank. Please go ahead.
Thank you, and good morning. Just three quick questions for me. First, yeah, I saw you have CAD 218 million in assets held for sale at Q3. I was wondering if you could give us a bit more color on the nature of those assets. And I guess where I'm going with the discussion is that I didn't see any update on the US and the Brazil portfolio initiative. So I was wondering if there was any of this in the assets held for sale at Q3. Thank you.
So, Fred, I'll answer the second question first. There's no updates on the Brazil or the U.S., in the assets held for sale. And regarding your first question, we've also got assets held for sale in the Vital Trust, because it's on a consolidated basis, in addition to the Canadian portfolio being the Atlantic portfolio.
Okay. No, that's helpful. Thank you. And then maybe while I got your attention on the subject, what was the thought process on those initiatives for Brazil and the US? Because, like, I guess, where are you heading with this?
Well, really, it's just we're just exploring what the opportunities are to look at our maturity profiles in late 2024 and 2025. Looking at our leverage, as you know, ticked up 80 basis points to 51.9%, and really looking at the simplification of the business. That's kind of where, how we're thinking about it.
Okay, but no update specifically on-
No.
- these two portfolios?
No.
Okay. But what. Okay. Okay, that's a bit unclear, but it's okay. We can take it offline. And then, I was wondering if you could explain the the CAD 4.2 million year-on-year increase in the G&A. That's quite substantial. Was there any one-time items in there? What's a good, I guess, what's a good run rate?
Yeah, maybe we'll take it offline, and we'll show you where we have additional disclosure in the MD&A and the financial statements.
Yeah. But on the increase itself, like, where, where does it come from?
It mainly comes from a donation that we provide in Australia to Epworth.
A donation?
Yeah.
You said a donation of CAD 4.4 million? Is that what you said?
No, no.
Okay. Okay.
We'll take that offline, but it's not CAD 4 million.
Yeah. I get, I get we will take it offline, but what's the like, what's the, the main items of that increase?
Yeah. Let me come back to you on that, because I haven't got that on hand.
Okay. Okay. And, last one for me. I saw you put a great emphasis on GRESB. I guess it relates mostly to Australia. I was wondering if you could give us a bit more color on the, on the rest of the portfolio on that front.
No, that's, that's Australia, that's Europe and Canada. That's a global-
That's a global ranking.
Global ranking, Fred.
Oh, okay, okay. In the press release I saw was mostly focusing on Australia, but-
Yeah.
What you're saying is it applies on the portfolio as a whole. Is that what you're saying?
Exactly. Yes, Fred. Yes.
Okay. Thank you so much. That's it from me. Thank you.
Thank you. The next question comes from Himanshu Gupta from Scotiabank. Please go ahead.
Thank you and good morning.
Good morning.
So first off, the investments in Australian Unity Fund, I think you sold almost CAD 100 million in Q3. So how much is now left to be sold?
We've just sold just over half, so about half left.
Half left. And I think, Craig, you mentioned in your prepared remarks in the second half, oh, sorry, in the first half of the next year, or-
Yeah.
Also, you expect something in Q4 as well?
That, that's exactly right. There's a normal course of redemption process that Australian Unity Property Trust does in November.
Mm-hmm.
So there will be a redemption process in November. So there will be some proceeds in Q4.
Okay. And just to clarify, there is no debt associated with those investments as of now?
As of now, correct. We had CAD 94.5 million worth of debt against that asset, and we've now received CAD 110 million, so you're right. It all goes to general trust.
Okay, got it. And then on the asset dispositions, I think earlier you mentioned you have something classified as assets held for sale. Do you have a sense of timing? I mean, should we again expect something like early next year, or is it something more imminent?
No, we should expect by the end of the year an update by the end of the year, particularly the ones that are firm.
Okay. And so how far along are you in the process? I mean, are they like waiting to be closed, or you're still in negotiations for closing the advanced dollar plus?
No, the CAD 180 million we announced-
Mm-hmm.
They are, you know, they are firm. They are either closed or firm.
Binding agreements of purchase and sale with all conditions waived.
Okay. Okay,
We have other asset, we have other assets under negotiation. We just haven't mentioned that amount because they're still under negotiation.
Got it. Okay. And then, you know, obviously, you have done, I would say, a good job in the last, you know, few months in terms of addressing the near-term debt refinancing. I mean, as we stand today, do you have a handle of where FFO, AFFO, is likely to shift up next year? Or, you know, or more in terms of what is your target payout ratio next year in the light of, you know, the new distribution?
Yeah. So at this stage, we're not providing guidance. But what I can say, if you look at our earnings of CAD 0.14 FFO per unit, you're stripping out the interest caps, as we've discussed, and we did last quarter. You're getting to sort of a CAD 0.10, which is very consistent to last quarter. So it gives you a, t hat will give you a sense of a run rate.
Got it. That takes care into account all the debt refi, what you have addressed here, including the convertible debenture as well?
To date, yes.
Okay. That's-
Now, and the convertible debenture, of course, so that interest expense will come in Q1 next year.
Correct. That's correct. Okay.
Yeah.
Okay, fantastic. And maybe, you know, one last question is on the fair value loss or the fair value adjustments you've done in Q3. Which geography most of them are pertaining to?
Yes. So we did a Cap Rate softening of 12 basis points.
Mm-hmm.
Reasonably, you know, we took. If I, if I say most of it is in Americas, it'd be Canada and U.S.
Okay. So when you say most of them Americas, would that mean that most of them is in the U.S. or, Canada, or spread over?
It's spread over between both.
Okay, interesting. Okay, so I think that's about it, and I will turn it back. Thank you.
Thank you.
Thank you, ladies and gentlemen. As a reminder, should you have a question, please press star one. Next question comes from Pammi Bir from RBC. Please go ahead.
Thanks, good morning. Just, given the sort of the cadence of the non-core asset sales and the sales of the Australian Unity units, where do you see leverage and floating rate debt exposure by the end of this year or early 2024?
It's a tough, super tough question, right? I think if I think about leverage first, I don't think there's a material change in leverage, right? Because really you are creating liquidity, and not materially changing leverage. But I think, and I'll come back to you, because we haven't, we haven't done it, but it will definitely improve the fixed rate portion of our debt 'cause you can see, if we've told you we've sold CAD 110 million, roughly half, there's another CAD 110 million to go on Australian Unity. And you've still got another 100 or so million, you know, from what we've disclosed, up to CAD 300 million. So it gives you a sense of liquidity rate, you know, up to CAD 200 million in the next sort of 6-9 months.
Okay. Just on the dispositions that you have done to date, where is pricing coming in relative to the book value?
Yeah, on that, on that CAD 180 million, which is, you know, what we have closed and firm, we are just over 10% discount. So it's 11% discount to, the Q3, sorry, Q2 valuation.
Got it. And then just, on, last one for me, on the Series G converts, has the support level increased at all from the 24%, I think, that you disclosed last month?
Yeah. Let me just pass you to Mike, and answer that question.
So we have received verbal indications of additional support, along with the contracted support. So, yeah, we're feeling very optimistic about that process.
Thanks very much. I'll turn it back.
Thanks, Pammi.
Thank you. As we have no further questions, I will turn the call back over for closing comments.
Thank you, everyone. Really appreciate it, and, I'm sure I'll be speaking to a few of you on the next few days. Have a great day. Goodbye.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.