NorthWest Healthcare Properties REIT

TSX:NWH.UN

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen, and welcome to the NorthWest Healthcare Properties Real Estate Investment Trust First Quarter 2021 Results Conference Call. [Operator Instructions] This call is being recorded on Friday, May 14, 2021. I would now like to turn the conference over to Paul Dalla Lana. Please go ahead.

[Paul Dalla Lana, Chairman & CEO]

Thank you, operator, and good morning, everyone. I appreciate you joining us today. I'm joined by Shailen Chande, the REIT's Chief Financial Officer; and Peter Riggin, the REIT's Chief Administrative Officer. Together, we are pleased to share with you our results for the first quarter of 2021. First, I'd like to point out that during today's call, we may make forward-looking statements, as defined under Canadian securities law. While such forward-looking statements reflect management's expectations regarding our business plans and future results, they are necessarily based on assumptions that are subject to uncertainties and risks, which could cause actual results to differ materially. We direct all of you to the risk factors outlined in our public filings. Before getting into the details of the quarter, though, I thought I would offer a few comments on the continued impact of COVID-19 on our business. The REIT's portfolio of healthcare infrastructure assets continues to perform well, with all properties open and operational. For the 3 months ended March 31, 2021, the REIT collected 99% of rent, an improvement from the 98% collected in Q4 2020. The strong rent collection throughout the pandemic is illustrative of the defensive attributes of the REIT's portfolio, the essential nature of its tenant base, and commitment from governments to ensure access to critical healthcare services around the world. Beyond this, we see a significant buildup of demand for health services in the post-COVID era. The growing backlog of nonessential treatments and surgeries in each of the REIT's global markets is expected to increase demand levels for [ acute ] healthcare services and support private hospital system volumes going forward. With national vaccination programs in most of our core markets in full swing and continued containment of cases in Australasia, we believe that a strong recovery for the healthcare industry, and by extension, healthcare real estate, is on the horizon. Specifically, as it relates to our hospital operators, we believe they are well positioned to participate in increasing volumes to alleviate these backlogs. Similarly, many of the tenancies in our medical office building portfolio are expected to see increased volumes in the months ahead, given the nature of the essential services with a relatively inelastic demand that many of them experienced. Operationally, the REIT is performing defensively and well, as expected, with a well-positioned portfolio that is 97% occupied by a diversified tenant roster of hospital, healthcare service, and life sciences research tenants, the majority of which are directly or indirectly funded publicly by their respective governments. This defensiveness continued post quarter, with our April gross rent collections, again, above 99% across our diversified tenant base. In terms of liquidity, the REIT is well positioned, with $239 million of cash and available borrowing capacity to be deployed toward key strategic and financial priorities. With approximately 35% of the REIT's 2021 debt maturities already complete and the remaining maturities comprising normal course renewals and debt repayment, the REIT remains on track to continue to strengthen its balance sheet. Looking ahead to the balance of 2021, the REIT has several key priorities that build upon the REIT's success in 2020. Key strategic priorities in 2021 include scaling the REIT's global asset management platform with a two-pronged approach predicated on deploying available capacity in its existing JV platforms and launching new fee-bearing capital tools, such as the previously mentioned U.K. joint venture, which remains a top priority. Despite a relatively benign quarter for new acquisitions and developments, the REIT is well advanced on all of its existing and a number of new strategic initiatives that will likely lead to deployment of this more than $6 billion of debt and equity commitments sooner than previously forecast. As well, the REIT continues to consider expanding its geographic footprint, with both the United States and select Western European markets currently in focus. Through this multifaceted approach, the REIT will position itself as a leading global healthcare real estate asset manager. Another key priority for the REIT is the continued optimization of its balance sheet, with the goal of achieving investment-grade credit metrics. To this end, the REIT has completed an equity issuance of $220 million, including its private placement that closed in April, the proceeds from which were deployed to repay higher cost debt. In May, $61 million of the $75 million Series E convertible debentures were converted into equity, with the balance redeemed with existing liquidity. Through the execution of the REIT's U.K. joint venture initiative as well as the simplification of its capital structure, the REIT intends to continue to optimize its balance sheet toward its state goals. ESG initiatives also remain a key strategic priority, with the REIT being committed to issuing its first ESG report in 2021. The REIT believes that ESG issues have played an important role in defining its past and will continue to do so in its future. A global cross-functional team, led by the REIT's newly appointed Chief Administrative Officer, will advance this important aspect of its business. For the quarter, our results were in line with our expectations, with annualized quarterly adjusted funds from operations of $0.92 per unit on a normalized basis, implying a payout ratio of 87%. Earnings accretion from recent investment activity and financing activity was as expected, although the approximately 1% appreciation of the Canadian dollar in the quarter relative to the REIT's average foreign currency exposure was a slight drag on earnings. On a constant currency basis, AFFO per unit was up approximately 1% year-over-year, which is particularly notable in the context of the REIT's deleveraging activity. In the context of a lower Canadian interest rate environment, we expect that FX headwinds may begin to ease and unwind over the balance of '21, providing a tailwind to the REIT's future earnings. Additionally, net asset value had decreased slightly by 3.8% to $12.77 per unit, driven primarily, again, by the higher Canadian dollar relative to the REIT's foreign assets, with property values largely stable. However, with significant demand for long-leased inflation index assets and increasing interest in healthcare real estate in particular, we see the near-term potential for significant cap rate compression across our markets, leading to meaningful valuation increases in the near term. Combined with advanced asset management activities across the portfolio, particularly in the U.K., we see the potential for up to $1 to $2 of NAV increase over the coming months. Operationally, our results, which are derived from a 186-property, $7.7 billion healthcare infrastructure portfolio, tenanted by leading operators on long-term inflation index leases, was on plan. The year-end strength of this portfolio is reflected in the REIT's results, with year-over-year constant currency cash recurring SPNOI growth of 4.3%, again, largely driven by contractual rent [indiscernible], and again, underpinned by 97% occupancy and a weighted average lease term of more than 14 years -- in all regards, a highly defensive portfolio. Segmentally, I note the following. In Brazil, we're on plan with a steady 100% occupancy and continued strong, year-over-year cash SPNOI growth of 4.2%. Operationally, the REIT's major tenant of Rede D'Or, continues to deliver exceptionally strong results and expand its business, thereby creating potential opportunities for future partnerships with the REIT. The REIT is also focused on gaining traction with additional high-quality operators in Brazil, since these are very constructive in that market in that post-COVID. Canada performed satisfactorily during the quarter with adjusted year-over-year cash SPNOI growth of 2%. Portfolio occupancy was on plan at 92%. Leasing activity during the quarter was also on plan, with 21,000 square feet of new leasing and 95,000 square feet of renewal leasing completed. The spread on renewal rents was down 2.2%. Rent collection remained strong in Q1 at approximately 98%. On the investment front, the REIT completed its inaugural life sciences transaction with a $15 million acquisition of a 40,000-square-foot property at a approximately 6.1% capitalization rate, in close proximity to Montreal's Technoparc, one of the leading life science clusters in Canada. The REIT also completed the sale of 2 noncore MOBs for $19.4 million. In Europe, we are on plan and performing as expected, with year-over-year source currency SPNOI growth of 1.5% and occupancy at 97.1%. In Europe, the REIT continues to execute its growth agenda by developing strategic relationships in both the medical office and hospital segments, which continues to translate into accelerated deal flow. In Q1, the REIT closed a $25 million life science property in the Netherlands, the REIT's first venture into life sciences in Europe. The REIT also sold 4 clinics to its European joint venture for $23.5 million. And last, in Australia, the occupancy remained stable above 99% and delivered consistent year-over-year constant currency SPNOI growth of 2%, with a weighted average lease term of over 17 years. At Vital, the business reported similar results, with year-over-year constant currency cash SPNOI growth of 7.2% and occupancy at 99% on a weighted average lease term of more than 19 years. The REIT, together with a capital partner, continued to hold an option to acquire a strategic interest of approximately 16% in the units of Australian Unity Healthcare Property Trust. Australian Unity owns a high-quality portfolio of hospitals, medical centers, and other healthcare assets leased to leading Australian operators, and the REIT continues to evaluate its options with respect to the strategic statement. I'm pleased with the progress made during the quarter, which advanced a number of the REIT's key long-term strategic initiatives, as well as produce solid operating results despite the COVID environment. With deep relationships, best-in-class regional operating platforms, and strong access to public and increasingly attractively priced private capital, the REIT is well positioned to continue executing on its strategy. I'll now ask the operator to open up the call for questions.

[Operator]

[Operator Instructions] Your first question comes from Mario Saric from Scotiabank.

[Mario Saric, Analyst]

Sorry, I joined the call a little bit late, so I apologize if I'm repeating anything, but I wanted to focus a bit more on the potential U.S. entry that you talked about last quarter. As you get closer to that entry into the market, presumably, you are refining your strategy. Can you just maybe quickly remind us of the asset profile being targeted, where those assets are trading today in terms of cap rates, and then whether you have more conviction that the entry will be through a JV format as opposed to 100% in subsequent syndication, like you've done in your other regions?

[Paul Dalla Lana, Chairman & CEO]

Yes. Lots in that. I think I'm going to take the high ground on this one, which is we continue to be focused in the [ care ] side of the business, obviously, so really between hospitals and medical office, including sort of outpatient and ambulatory type clinics. So that's our sweet spot, and those would be the areas that we're focused on in the U.S.I think we're in the middle innings of defining and articulating strategy. Again, nothing transactionally imminent, but certainly looking to move to a sort of specific decision over the next little bit and to make our first investment seen later in 2021. I do expect that anything substantial would involve a partner, although at this point, getting started maybe direct as we have in the past. So -- but we're not committed on anything particularly large at the moment. So I think that's a building part of the portfolio for now.

[Mario Saric, Analyst]

And any color in terms of how potential acquisition cap rates may compare to some recent transactions you've done in the geographies?

[Paul Dalla Lana, Chairman & CEO]

Yes. Yes, no. I mean, as we know, the U.S. is an incredibly vibrant market. But I think what we can say is that we see maybe a spectrum of returns between sort of low to mid-5s for high-quality existing MOBs in good markets -- with the characteristics that we like, in any event -- up into the high 6s, low 7s for hospital opportunities, particularly the for-profit space, which is a little bit where we're focused. So it's that sort of range of cap rates that we see. Obviously, it's an incredibly vibrant market, so as I said, there's a lot around that in each [indiscernible], but that would -- that's the market that we're looking at.

[Mario Saric, Analyst]

Got it. That's good color. And then maybe just shifting focus, I think, Paul, to your comment on potential $1 to $2 of NAV per unit upside on cap rate compression and then value creation, presumably within the U.K. healthcare fund, yields are coming up, or treasury yields are coming up, but overall demand for the [indiscernible] class is quite strong. So how do you -- where is the $1 to $2 coming from? What type of cap rate compression potential do you see in the portfolio?

[Paul Dalla Lana, Chairman & CEO]

Yes, that's a super-good question. So breaking it down, Mario, if we just looked at the current portfolio, if you will, and said, where do we see demand for long-term index assets sort of moving, we could see, again, up to 25 basis points in our portfolio over the -- certainly over 2021, and maybe a good chunk of that sooner, in the near part of that. And so, if you do that math, I mean, by our estimates, about 10 basis points translates into approximately $120 million of NAV or so.Big chunks of that, obviously, might be in Australasia. As you know, we have a pretty particular approach to approaching our valuations there. And it's their year-end in June, so clearly, pretty high visibility in that part of the world. I might reference some recent comments in the Vital release that came out around similar issues. So just given valuation policies, we take those marks sort of semiannually, and the big ones come at the end of the year, which is in June, so pretty good visibility there. But I'd just say an incredibly positive, at least from a valuation standpoint, environment, and certainly starting to see pretty meaningful marks. So there would be some ideas, but it's coming through the rest of the portfolio as well, in bits and pieces. So that might make up sort of the more cap rate-driven stuff. In terms of value creation, I think what I can say is that we're substantially advanced in our U.K. initiatives. And you'll recall that we've acquired, again, GBP 350-odd million of assets there, north of a 6% cap on average. And the market is well inside of that, and we've brought certainty through our asset -- or we're bringing certainty through our asset management initiatives into those portfolios. And so, we see pretty meaningful steps coming broadly along with the same time line, certainly over the next 90 days and before we report again. So good progress, and that also acts as a key unlocking element to some of our JV initiatives. So I have to report the progress there is pretty substantial, although it's partly market-driven and partly our asset management activity driven. And we continue to carry those at our acquisition costs in the book today.

[Mario Saric, Analyst]

Got it. And what would be some of the major remaining milestones with respect to launching that that one?

[Paul Dalla Lana, Chairman & CEO]

Yes. I mean, still a bit of work to go. It's going to follow the asset management work by a little bit, but we're certainly making progress. And I believe we're in good shape for the second half of '21 to put that in place.

[Mario Saric, Analyst]

Got it. And then maybe just last question on the evolution of the asset management franchise. Any incremental progress or thoughts on diversifying the LP investor base over time? And are you spending more time talking to LP investors relative to history? And just maybe some thoughts on the evolution of the LP investor base over the next 3, 4, 5 years.

[Paul Dalla Lana, Chairman & CEO]

Yes, so every hour, every day, it's a strategic priority for us, Mario, as we previously said. And yes, I do think, again, in the balance of 2021, we expect to introduce new partners to the business in one of our existing strategic priorities, or perhaps a new one. We're very focused on it. I do think the market for institutional partners in healthcare real estate is as positive and constructive as we've ever seen. So again, akin to the historical efforts we've made finding the right partner and the right structure is a high priority for us, so it is all of those key things that sort of drives the decision, and I think we're making good progress there. So yes, I expect to have some positive news over the course of the year, and I expect it will have the similar qualitative elements that we have in existing relationships.

[Mario Saric, Analyst]

Got it. And just as a follow-on, when you look at that wall of LP capital, let's say, that's targeting healthcare, is it typically more of a one-on relationship, where you have an LP investor with a specific sponsor, or are comingled funds something that you're seeing in the industry today?

[Paul Dalla Lana, Chairman & CEO]

We're coming at it from both directions, to be fair, and each has its advantages and lines up with particular strategies. But I can say, I mean, we certainly would like to add some comingled, more diversified funds to certain strategies that we have on. We'll call out that some of the strategies and things that we're seeing are, for example, our precinct development opportunity or program in Australia, our ambulatory care and outpatient strategy also in Australia. And again, we've initiated some life sciences investments, both in Europe and Canada, which may be naturally suited.So we do have a number of new strategies under consideration, and scaling, and certainly a number of opportunities that might be a little bit differentiated than some of the long-term core ones that we have in place today, involving a little bit more development and a little bit more -- and leading to a slightly different structure, if you will. So those are some thoughts around how we're approaching it. But I think these are meaningful core programs to us. They just have slightly different characteristics to the individual strategies.

[Operator]

Your next question comes from [ Frank Lu ] from BMO Capital Markets.

[Unknown Analyst]

So my first question, in terms of seeing property NOI on a constant currency basis, I saw Vital achieved 10.2% growth in Q1 from 4.3% back in Q4. I wonder, what's the main driver behind the growth? And what level should we expect the growth rate to be for the rest of 2021.

[Paul Dalla Lana, Chairman & CEO]

Yes. That's -- Shailen, I might take that, just because I -- having been on the Vital call overnight, it's fresh on my mind. So thank you for that question. Otherwise, normally, I'd let Shailen handle this one. But we've had a couple sort of meaningful mark-to-market leases come through the Vital portfolio over the recent past. I think, in general, that's a little bit higher than what we would expect to see from our typical SPNOI. [indiscernible] Vital 99% occupied, 99% indexed. So, by and large, that portfolio should track a little more closely to inflation than what it has, but we did have some mark-to-market activities, and that led to those higher numbers. So, hopefully, that answers your question.

[Unknown Analyst]

Okay. Okay. That's great. And my next question, moving pretty much to the leasing side. So I saw that, excluding Canada, present of revenue that's subject to the lease indexation increased to 98.3% this quarter, and I saw like Vital and Australia moving towards 100%. I wonder if Germany would also pick up this year. Their percentages kind of like maintain like stable around like 94% quarter-over-quarter. And what Germany also getting closer to 100% this year.

[Paul Dalla Lana, Chairman & CEO]

Shailen, can I perhaps turn that to you?

[Shailen Chande, Chief Financial Officer]

I actually have a bit of difficulty hearing you, but I think you were referring to occupancy, primarily in Germany vis-à-vis our Australian portfolio and Brazil. So, just calling out the asset class in Australia as well as Brazil is exclusively focused on hospitals and long-term WALE assets that are 100% occupied. In Europe, and specifically in Germany, which you referenced occupancy, we do have a medical office building platform, which tends to structurally operate at lower occupancy levels than hospitals at 100%, but still very high in that context of 90% to 95%. So I think we view our German occupancy as broadly stabilized and continue to see same-property NOI growth opportunities there through the institutionalization of our leases and really bringing all of our leases and medical office buildings up to the NorthWest standard, and then continued indexation in that portfolio. So I think, hopefully, that answered your questions. I had a bit of difficulty to hearing you, but feel free to reach out offline, and we can get into it.

[Unknown Analyst]

Okay. Yes, sure. So my next question is kind of moving to the development front. I just want to double check if you guys can hear me okay now?

[Paul Dalla Lana, Chairman & CEO]

Yes.

[Unknown Analyst]

Okay. Great. So, with respect to the current environment, which we see on the call side, that inflation across the board, are you starting seeing that in your development as well? And I wonder if that will move around your development yield for your current development project.

[Paul Dalla Lana, Chairman & CEO]

Yes. Thanks. So again, noting that the REIT collectively, and not at share but in terms of whole dollars, has just over $400 million of development underway -- I think that's the number -- and almost all of that development is on sort of fixed-price lump sum contracts with very little cost exposure. Again, they're, broadly speaking, 100% leased, with the small exception of the Canadian development, which is pretty close. And really, our contracts are sort of cost-plus, if you want to say, in terms of our returns, so very structured and very specific. So I think we're feeling quite confident about the ability to deliver, broadly speaking, on budget and on schedule, the vast majority of those projects, which are substantially advanced as well.So the answer is probably not a huge impact coming through our portfolio around construction price increases. Certainly, beyond that, though, we do have a very active development pipe and a very active focus on adding new and expansion assets to the portfolio. I think we've called out that, over time, we'd like to see that in the 10% to 15% part of our overall business. So certainly, costs play a big part of kicking off those projects, and although we're likely to pursue them very closely to the historical types of contracts where we take the vast majority of the risks out on the way in and have the buildings broadly let and most of the most of the contracts, as we said, sort of cost count, getting things off in this environment will be increasingly difficult for the time being. But I think things will normalize and abate over time, and we'll be able to manage through over time. So kind of a bit of a dual answer where, in the existing projects, we're not too concerned at all, given that they're all very structured and broadly speaking, hitting their milestones. On the stuff that we're working on, it's a high degree of focus and making sure that we can make the numbers work. There is certainly some inflation in those numbers, but we're still finding attractive opportunities to deliver strong, in-place yields. And I'd say our objective, as we've historically mentioned, on relatively low-risk development is to look for 50 to 100 basis points, maybe 125 if we get lucky, on gains [indiscernible] place and market cap rates. So we're looking for a relatively structured type of return on our projects. So I hope that answers your question.

[Unknown Analyst]

Yes. That's great. My last question, kind of moving to the financing side, so honestly, you guys made a great achievement, like lowered your leverage and also getting a stronger credit profile. And also, I know like you guys touched on unsecured financing back in like 2019 or 2020. I wonder, would you consider getting into the unsecured market this year in 2021? If you can provide any color?

[Shailen Chande, Chief Financial Officer]

Paul, I'd like to take that. Thanks, [ Frank ], for that question, and thanks for the acknowledgment around our leverage. Year-over-year, we've brought leverage down around 500 basis points on a proportionate loan-to-value basis, and around [ 1.5% ] in terms of a net debt-to-EBITDA on a proportionate basis. We see a very clear path in the moment to leverage that would be in line with our long-term objectives, hovering just north of 7x net debt-to-EBITDA, and just over 40% on a proportionate loan-to-value basis. That's probably a bit lower than where we see it long term, but very much squarely within what we consider to be investment-grade metrics. So we think we're closer than we've ever been in terms of being able to access unsecured debt markets.In terms of timing and when we see that as a potential, I think there's a bit of nuance there around principally where the unsecured debt would sit, whether it be at our capital or managed capital platforms or versus at the REIT level, and we're working through that. I think we very much do see 2021 as achievable in terms of achieving investment-grade metrics, and then, thereafter considering where unsecured debt fits best in our structure.

[Operator]

[Operator Instructions] Your next question comes from Tal Woolley from National Bank Financial.

[Tal Woolley, Research Analyst]

Just wanted to talk first about the Unity option deal. I understand that you've got like a 13-month contract in there. Like, is there expectation that this is -- that something strategic will happen there within the next year? Or is that just a starter, and you guys are ready to sort of roll this position until something happens on their side?

[Paul Dalla Lana, Chairman & CEO]

Yes. I prefer not to really comment on sort of what we might do here. But I'd just maybe refer to our kind of historical approach to these things and say that we tend to have a pretty consistent approach when it comes to what we're looking to do. So I'd leave it there. But we do look at the business as a high-quality business. It's certainly something that, if it became an investment, we'd be happy with that. But clearly, that's probably not all in all we're thinking.

[Tal Woolley, Research Analyst]

Okay. And Shailen, maybe you can answer this. Just, I remember with the Brookfield -- or the Australian hospital deal, when you had taken a derivative position, there was a bit of a -- like there's a bit of a wild ride there towards the close of that acquisition, and the value of that derivative sort of went all over the place. I'm assuming here on the private side, given that this is a private REIT, we're not -- we don't really have to worry about that kind of volatility in this going forward.

[Shailen Chande, Chief Financial Officer]

Yes, Tal, I think that's fair. On our financial statements, we record the fair market value of the derivative of the option we have in respect of Australian Unity. And given that there's no public mark-to-market, we wouldn't expect to see the same type of volatility. We'd highlight that the assets, as Paul alluded to, are exceptionally high-quality and are long-term in nature, so we don't see that type of valuation fluctuation.

[Tal Woolley, Research Analyst]

Okay. And then, looking at the U.S. entry, I understand sort of like you're continuing to look on the care side of the business. What is your comfort with exposure to serve like public insurance, like in terms of the proportion that the asset generates its revenues from as opposed to private insurance?

[Paul Dalla Lana, Chairman & CEO]

Yes. I'll try and answer that, Tal, and it's, I think, quite a nuanced question, so if we have to take it off-line, we have lots of thinking here. But I would call out that, I mean, the U.S. market is certainly predominantly a for-profit market. So, I mean, where would I expect us to be is in that part of the space, which would have that more -- would have the traditional insurance elements to it, where we've got both payers, providers, and integrated players like the HMOS, as an example. So we're very focused on understanding that and being able to consider and risk adjust in the for-profit market.Obviously, there's a smaller number of, we'll call it, public or Medicaid and Medicare-driven institutions as well. But again -- and that's part of the focus, to look at that and understand it well. But I think what makes the U.S. different and big is, for sure, it's for-profit space, and so there's a big focus, and that's been part of our ongoing education. Obviously, we've invested in one of the ground resources as well, to be sure that we have all of that understanding. And it's -- we are in existing for-profit spaces. I mean, both Brazil and Australia, although they have full public systems and each function a little bit differently, the private industry is around them. They both are substantial parts of our business. And of course, we've recently entered the U.K. in a mixed environment, although that market is more nuanced, with the large NHS kind of driver to healthcare. But still, we're invested in the private space, where some of our operators provide exclusively private and some are a mix of NHS and private. And so I think we're comfortable, in looking at the U.S., to see it separately for what it is and what the opportunity is, and we're really looking to have our own clear view on where risk is, and relative risk and return is. So I think that's part of the exercise. We're well down the path there. We're spending a lot of time thinking about it. And as you've heard me previously say, at least in the for-profit space, I mean, we do see it as a slightly higher-risk, slightly-higher return business to other markets that we're in, and hence some of the earlier cap rates that I called out or transaction prices that we believe represent the market today. So that's kind of our current take on it, and we're being very thoughtful and looking to do things that are probably at the higher-quality end of the spectrum in all directions to get...

[Tal Woolley, Research Analyst]

Okay. And I think you had made reference to not just maybe hospitals, but things like ambulatory care facilities. And I mean that -- when you sort of say something like that, you mean these are like day surgeries and things like that as opposed to, say, like skilled nursing or things along those spectrums?

[Paul Dalla Lana, Chairman & CEO]

Yes. That's right. I mean, they gain very much on the cure side, right? So yes, I mean, ambulatory or again, urgent care maybe -- there's a continuum of services, right? So outpatient facilities can be quite infrastructure-like, and they can be more simple like an urgent care center, and there's a real continuum. So, in general, our big themes in life are a bit more campus-oriented and a bit more infrastructure-oriented, and those are the things we really like. Of course, the challenge and opportunity of the U.S. is it's a big menu, and there's lots of possibilities, right? And so, we're really looking at it all and trying to find a good entry point that lines up with our sort of highest conviction things.But again, they're very much on the cure side, not in the care side, where you see skilled nursing and you see some of the other stuff, not that those are bad places to be fundamentally. It's just not our focus.

[Tal Woolley, Research Analyst]

Okay. And a little bit closer to home, here in Canada, we had the Long-Term Care Commission here in Ontario talk about potentially looking for a new development model going forward, where they split sort of responsibility for the provision of capital for the real estate and physical plan of the operation versus the delivery of care. If the province moved in that kind of direction, would you guys be interested in participating on the capital provision side of an opportunity like that?

[Paul Dalla Lana, Chairman & CEO]

Yes, so I think the answer, I think, in terms of the care space here would be possibly -- again, very covenant-driven and thinking about that, but certainly, having provincial backing and that type of program exists in Québec, as you're probably aware, already, and most of the other provinces are considering it. We are looking at that very selectively. And again, it's that backing and the longer-term nature of those contracts that make the real estate commitments work.I think what I would call out, though, and where we are absolutely laser-beam focused, is in a similar initiative that we see coming through ambulatory and outpatient. So I'd call out, for example, our Lakeridge development, which is again, a joint venture with Lakeridge House -- it's outside Toronto -- that really speaks to the fact that we're starting to see the health ministry in Ontario, and I expect in other provinces, look for ways to expand out of their traditional hospital footprints, and that type of commitment in providing -- either being driven by hospitals, like it was in the case of Lakeridge, or providing a smaller number of service providers that exist in the marketplace today, or whoever is going to be that service provider, with commitments that facilitate the ability to get this infrastructure in place is, I think very important for us. So we're super constructive on that. I would say that coming -- in addition to long-term care, that's, across the country, an area of focus for us. And we believe that we're going to see a whole lot of opportunities coming with more direct government involvement, like Lakeridge, or even with some private-sector players providing and building on existing types of things. So yes, it's a super relevant trend, and we're all over it in our cure business. Of course, to the extent we can find a small number of care things that might fit, we're looking at it very closely, too.

[Tal Woolley, Research Analyst]

Okay. And I guess my last question is this, is that you guys have been in serious asset aggregation mode over the last several years. Has there been any thought of sort of looking back at the portfolio and maybe trying to optimize a little bit more? I have to think, given the growth you guys have experienced, you might look back and sit there and say like, okay, like we own these, but do we need to own them forever.

[Paul Dalla Lana, Chairman & CEO]

Yes. I mean, it's a great question, and I sort of come back and answer it, maybe classically around sort of capital allocation and really thinking about where do we want to have our dollars. And so, I think that's a continuous exercise now, but we've gotten a lot better at that over time. And we're looking very closely at that through the portfolio now continuously, but certainly, it leads us to broader mathematics. And so, I will say sort of yes to that, and I think we'll have some answers as the year comes on, with things that we do with JVs or otherwise.And I think I'd just remind that we've kind of been through a continuous sifting program in Canada over the years, as an example. And again, we have historically been sellers of things that -- as you recall, we were quite broad and wide as we built the platform up and looked to get scale, and then we started to refine that back to larger assets in more major markets. And I think there's another sift that's coming, probably, over time for us, as we look at our portfolios across the world around thinking about things like ambulatory and outpatient. So we're very focused on buildings, for example, that have the capacity to take on these higher-acuity initiatives or that fit within catchments or places that are likely to benefit by that. So that's a pretty logical one, to the point of building new ones where we don't have something or where we don't like what we have. So I think that's a theme that's already resonating through the portfolio and we're quite focused on it. But we do believe that the integration of -- or, let's say, continuum of investment in the cure space, with that focus on major markets and assets that are precinct or higher-acuity-based, is sort of consistent with our core strategies right now. So we really are probably to continue that, and if it's not in those directions, it's probably very much up for consideration, and that's how we're thinking about it today.

[Operator]

There are no further questions at this time. I'll turn it back to Paul for closing remarks.

[Paul Dalla Lana, Chairman & CEO]

Yes. Thank you. So I think I appreciate everyone's attendance today and wish you well, and thank you for listening into our Q1 '21 NorthWest Healthcare Property REITs call. Thanks.

[Operator]

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