NorthWest Healthcare Properties REIT

TSX:NWH.UN

Earnings Call Transcript

[Operator]

Hello, everyone, and welcome to NorthWest Healthcare Properties REIT Q2 2024 Earnings Conference Call. [Operator Instructions] This call is being recorded today, Wednesday, August 14, 2024.

I would now like to turn the conference over to Alyssa Barry, Investor Relations for Northwest. Please go ahead.

[Alyssa Barry, executive]

Thank you, operator. Good morning, everyone, and welcome to Northwest Q2 2024 Conference Call. Thank you for joining us today. This call is being recorded, and a replay will be made available on our website at www.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 on SEDAR+, including our MD&A and annual information form for a discussion of these risk factors.

Please note all currencies referenced today are in Canadian dollars unless otherwise stated.

Presenting on today's call are Craig Mitchell, CEO; Mike Brady, our President; and Stephanie Karamarkovic, CFO; Tracey Whittall, our COO, is also present and available for the question-and-answer session.

I will now turn it over to Craig for his opening remarks.

[Craig Mitchell, executive]

Thank you, Alyssa. I hope everyone is having a wonderful summer, and sorry for the interruption. As noted in our Q2 2024 results news release of yesterday, the first half of the year was strong with solid demand for healthcare real estate as evidenced in our portfolio performance. We reported industry-leading key performance indicators.

Same-store property net operating income on a consolidated basis was up 4.2% compared to the same period of last year. Our portfolio occupancy of 97% is underpinned by the weighted average lease expiry of a long 13.4 years and over 85% of our leases are subject to rent indexation. With a portfolio composition of more than 1,800 tenants, the REIT's cash flows continues to be highly diversified.

Our global rent collection rate at 30 June was nearly 99%. And during the first half of the year, we executed 810,000 square feet of leasing deals with a retention rate of greater than 80%. In the first half of 2024, we divested 23 noncore properties and unlisted securities, generating $430 million. Then subsequently to quarter end, we sold our U.K. portfolio to Assura for $885 million, including $708 million in cash and $177 million in shares in Assura or approximately 8% of their public float. The combination of all this and last year's work, means that we've now successfully concluded our year-long strategic review, which has resulted in total sales of $1.6 billion.

As a result, we reduced our consolidated debt to gross book value, including convertible debentures, down to 47.1%. We have made substantial inroads into our 2025 debt maturities and are advancing discussions to further term out our debt. I want to recognize the exceptional effort of our team in closing the U.K. transaction. We are fortunate to have a management team deeply committed to maximizing value for our unitholders. Mike, who led the sales process will provide further insights into this process shortly.

Moving forward, as we have previously stated, we remain committed to achieving even more favorable leverage levels, greater debt duration and continuing to strengthen our financial position. Healthcare stands out amongst all real estate classes as a particularly strong and stable sector, offering superior risk-adjusted returns, especially in the context of an aging population, which continues to drive stable and growing demand for healthcare facilities and services.

Additionally, the essential nature of healthcare assets, combined with long-term leases and government funding further enhances the sector's stability. Our high-quality healthcare real estate portfolio continues to be resilient and has a demonstrated track record of producing strong cash flows, collections, long-term inflation index leases and long-term high occupancy levels, which sit around 97% through economic cycles.

We believe our REIT is strategically positioned in the right asset class to meet the growing demand for quality healthcare facilities. Based on our high-quality healthcare real estate portfolio, we expect our properties to continue to be in high demand from our healthcare tenants and operating partners. We also continue to be committed to further streamline operations and reducing costs to ensure efficient and effective operations. We believe these efforts will yield greater cost savings into the coming quarters.

In addition, the Bank of Canada's recent rate cut to 4.5% signals the start of an easing cycle, which could lower borrowing costs and boost real estate investments, though the timing of future cuts remains critical. At a net asset value of $9.53 post the sale of the U.K. asset, the REIT is significantly undervalued, considering a high-quality portfolio and proven management track record over the past year.

With a strong governance framework now firmly in place and the strategic review concluded, we believe we are well positioned for sustained growth and success in the coming quarters. Our focus now is on increasing the visibility and awareness for NorthWest, ensuring that the market fully recognizes the value and potential of our REIT.

Lastly, during the quarter, we also published our 2023 sustainability report, a significant milestone made possible by incredibly dedicated sustainability team led by Tracey Whittall, our Chief Operating Officer. Top highlights, including NorthWest managed Vital being named sector leader, earning first place by GRESB for healthcare real estate globally with the NorthWest REIT coming in second. We also completed our first 6-star Green Star building in Queensland, Australia, which is the highest certification possible and highlighted the launch of -- and we also highlight the launch of our reflection -- reconciliation action plan. These achievements mark critical steps towards our 2050 net-zero goals, reinforcing our commitment to setting the standard for sustainability in our industry.

Now I'd like to turn it over to Mike Brady for an update on our strategic initiatives during the quarter. Over to you, Mike.

[Michael Brady, executive]

Thanks, Craig. Last summer, our Board appointed a strategic review committee to conduct a formal strategic review to seek to maximize value for our unitholders. This was a significant undertaking and the committee considered opportunities across our global portfolio. During the formal strategic review period, which recently concluded, we achieved several key outcomes. We sold 46 properties plus investments in unlisted securities for aggregate gross proceeds of $1.6 billion.

We reduced outstanding debt by $1.2 billion to $3 billion; decrease in consolidated debt to gross book value, including convertible debentures to 47.1%. We strengthened corporate governance and enhance the management team. We improved liquidity through a revised distribution policy, and we enhanced transparency and investor engagement. Subsequent to quarter end, as Craig mentioned, we announced the sale of our U.K. portfolio for total consideration of $885 million of which 80% was paid in cash and 20% in shares of Assura PLC, a healthcare REIT publicly traded on the London Stock Exchange.

NorthWest now owns approximately 8% of the public float of Assura, and this stake is subject to certain disposal restrictions until Q1 2025. The $708 million of cash proceeds were used to repay portfolio and corporate debt with a weighted average interest rate of 7.9%. We will continue to evaluate market opportunities strategically and selectively to continue to strengthen our balance sheet and to simplify and streamline the business to position us for profitable and sustainable growth.

I'll now hand it over to our CFO, Stephanie Karamarkovic, who will share our financial highlights for the quarter.

[Stephanie Karamarkovic, executive]

Thanks, Mike. Our asset portfolio performance remained strong through Q2 2024 considering the dispositions of noncore properties in the last 12 months. As a result, our Q2 revenue from investment properties decreased by 6% over the prior year period. Lower revenue was offset by a onetime lease surrender fee of $1.7 million earned in the U.K. rent indexation across all of our regions and higher tenant recovery.

The REIT delivered consolidated same-property net operating income of $86 million, which is 2 -- 4.2% higher than Q2 2023, mainly due to inflationary adjustments on rent, rentalized capital spend and improved recoveries, reflecting steady growth in our underlying leases. Q2 2024 AFFO was $0.09 per unit compared to $0.13 per unit in Q2 2023. However, excluding the impact of interest rate caps that expired earlier this year, AFFO in Q2 2023 was $0.08 per unit. Increase of $0.01 per unit is mainly attributable to higher management fees in the current quarter as compared to Q2 2023 due to reversals of management fees accrued in respective transactions that did not complete in the prior year.

Q2 2024 AFFO per unit remained in line with the past 3 quarters at $0.09, excluding the impact of the previously mentioned interest rate cap. General and administrative expenses, as reported, were $2 million lower compared to the prior year and prior quarter. Excluding noncash compensation, G&A in Q2 2024 was $13.2 million as compared to $12.4 million in Q2 '23 and $13 million in Q1 '24.

The increases over Q2 '23 and Q1 '24, are primarily a result of the professional fees for statutory and tax compliance filings related to historical periods in Europe. The REIT continues to improve operational efficiency by streamlining and simplifying operations and reducing costs. We believe these efforts will result in greater G&A cost savings in the coming quarters.

Interest expense in Q2 2024 was $53.8 million as compared to $57.2 million in Q2 '23 and $55.4 million in Q1 2024. The decrease in interest expense as compared to 2023 and prior quarter is attributable to the reduction in debt as a result of asset sales, partially offset by higher interest rates as compared to prior year.

Moving to the balance sheet. The REIT's proportionate investment properties at June 30, 2024, was $5.2 billion, down from $5.5 billion as at Q1 '24. The decrease of $300 million is attributable to disposition activity in the U.S. and Australasia of $161 million and fair value losses of $176 million, of which $105 million was related to the U.K. portfolio to reflect the write-down to the price transacted subsequent to quarter end.

The REIT's disposition activity during and subsequent to the quarter has resulted in the REIT making significant progress on our capital management initiatives. Since Q1 2024, excluding event -- including event after the quarter, the REIT has reduced proportionate debt from $3.5 billion to $2.6 billion and has reduced proportionate leverage by 400 basis points to 55.1%. The REIT has a stated objective of reducing proportionate leverage below 50% in its pursuit of becoming an institutional quality REIT.

With respect to the REIT's near-term debt maturities, since Q1, including the portfolio -- U.K. portfolio sale in August, the REIT has repaid over $780 million of its 2024 and 2025 debt maturities leaving $628 million remaining as of today.

To this end, management is actively engaging with lenders to refinance or extend the maturity of the REIT's remaining '24 and '25 maturities and anticipate significant progress to be made on this during the third quarter.

In addition to repaying high-cost debt and extending terms, we are also committed to reducing our exposure to floating rate debt. As of today, 29.8% of the REIT's debt on a proportionate basis is at variable rates, down from 35.3% as of December 31.

Looking ahead to the remainder of 2024 into 2025, we expect to see the impact of our dispositions and capital management initiatives reflected in our future earnings with a continued focus on maximizing our operational efficiencies and further improving our balance sheet.

Our Q2 investor presentation, which is available on the Investor Relations section of our website, provides more details on our portfolio post the U.K. transaction, including operating and balance sheet metrics, reflecting the impact of the U.K. disposition on June 30 results.

And with that, I'll now ask the operator to open up the line for questions.

[Operator]

[Operator Instructions] First question comes from Frank Liu with BMO.

[Frank Liu, analyst]

First of all, congrats on the sale of your U.K. portfolio and the conclusion of the strategic review. Just thinking ahead on your overall strategy moving forward, I guess you've got 1 portfolio sell down. Is there anything else on the table at the moment? And are you still considering potential sales down of your assets in Brazil and U.S?

[Craig Mitchell, executive]

So Frank, thanks for that. Everything is on the table. So we're still looking at our portfolio and where there might be opportunities and windows. We're seeing a little bit more demand in the sell market. So we'll take those opportunities. We're in a very strong position from our perspective. Our earnings are now a very solid base. We've delivered $0.09 for 5 quarters. I think we are under hedged on our balance sheet. So we've got some opportunities there for interest rate swaps as the market picks up.

We also -- we'd like to see leverage a little bit lower to that question, right? And if we can do that, and we're also in a position where we can make transactions and sell in an accretive way. So the U.K. transaction not only does it massively delever and derisk 2025, it was $0.06 accretive on an annualized basis. So we will look at that because we still have some high-cost debt on our balance sheet that we want to get rid of. And if we can do that in an accretive manner, we will.

[Frank Liu, analyst]

And I'm just wondering, is this more like opportunities in the latter half of this year? Or it's more 2025?

[Craig Mitchell, executive]

What's that -- the opportunities for what, sorry?

[Frank Liu, analyst]

Opportunities for potential sale of additional assets?

[Craig Mitchell, executive]

Look, we're constantly looking at it. I mean you can see we sold $1.6 billion in the last 18 months. So I think we're constantly looking. So there will be news in Q3, Q4, Q1 next year. So I don't think we're on a pause. We're constantly looking.

[Frank Liu, analyst]

Appreciate that. And then just going back to the prior of the strategic review, I believe growing JV business and pursuing an asset-light model was one of the focus for the REIT. With that said, is the asset-light strategy still in your mind? And would you continue to explore opportunities to grow your JV business?

[Craig Mitchell, executive]

Yes. We like the asset management business. We like the asset-light business. We've got some very strong partners, as you know, a sovereign wealth fund in Europe and in Australasia. We have Vital. The transactional activity is quite subdued. I think it's globally -- so we like that market, and we have very strong partners so we will continue to grow through that avenue when the market recovers.

[Frank Liu, analyst]

I guess with your comment on a more incremental demand for the healthcare assets, I guess that's also support of your growing JV business initiatives?

[Craig Mitchell, executive]

No, it's not exactly right. Every investment committee globally is easy to say no, not yes. But I think as everyone is getting more and more comfortable that we're at the bottom of the interest rate cycle and there might be cuts coming. And that varies and it's different in each market globally, but that's giving buyers and particularly core buyers starting to think about acquisitions.

[Operator]

The next question comes from Dean Wilkinson with CIBC.

[Dean Wilkinson, analyst]

Just want to spend a little time on the asset sale. Trying to square the $105 million write-down you've taken on that 5.9% cap rate. I mean would that suggest you were perhaps carrying that something closer to 5.25%, and what would that mean for the remainder of the European assets in Germany and the Netherlands? Are they like closer to a high single digit, low double-digit cap rate just sort of trying to get a little granularity on the portfolio?

[Craig Mitchell, executive]

Yes, absolutely. I'll answer the question about the European assets, and I'll pass over to Mike on the U.K. portfolio. So the European assets sit about just on a -- just north of a 6% cap. I think a 6.1% cap is around that number anyway. And I think that's kind of where steady-state is. You're seeing some reductions again in the interest rates in the ECB. So I think that feels that we are in a steady-state deem where it will to sort of lie if REITs being consistent Q-over-Q.

And that cap rate pretty consistent if I look at the Galaxy fund we have in Europe and on our balance sheet. So I think that's fair. I'm going to pass you over to Mike now and just give you a bit of color on the U.K. cap rates and the valuation movements.

[Michael Brady, executive]

Dean, it's Mike. So I mean, for all of our assets and all of our portfolios, we have a pretty regimented quarterly IPP valuation process. I think a year ago, we had the U.K. portfolio at a level similar to what we sold. We ran external valuations that came in at a higher number. So we increased our book value to reflect that. We ran a very formal sales process and lots of interested parties. And ultimately, this was determined the best opportunity counterparty and this is what we pursued.

[Dean Wilkinson, analyst]

Great. Not sure this might be Stephanie. Are there any tax implications that come from the sale and being able to repatriate that capital back and pay down the debt? And would that give you some pools going forward for any future asset sales?

[Stephanie Karamarkovic, executive]

Yes, I can answer that. We were able to repatriate the cash due to our U.K. REIT structure on -- without any tax withholdings. And so yes, the proceeds came back free and clear without any tax.

[Dean Wilkinson, analyst]

Great. I like no taxes. On Assura, so how is that investment now going to sit on the balance sheet, Stephanie, will you have a line item for it? Will it go into the equity accounted, the other? And then also the [ GBP 8 million ] or so distribution, how is that going to flow through into FFO going forward?

[Stephanie Karamarkovic, executive]

So because the investment is under 10%, we will show it as kind of other investment and record the distribution income as earned.

[Dean Wilkinson, analyst]

Okay. And would there be an adjustment in there for the fluctuation of the share value over time? I guess we would -- when we back that out, out of the operating FFO?

[Stephanie Karamarkovic, executive]

Correct. Yes, we will market to market every quarter.

[Dean Wilkinson, analyst]

Perfect. And I'm assuming that, that dividend can come back tax sheltered? Or is there any leakage that comes in bringing that back?

[Stephanie Karamarkovic, executive]

There will be withholding tax at a preferred rate given we are at the Canadian and U.K. partnership. And so it's at a 15% withhold. But that's included in the $0.06 of accretion already that we've talked about.

[Dean Wilkinson, analyst]

That's already -- okay. So that answers the follow-on question. Then the last one for me just comes down to the distribution. Obviously, in the quarter, a lot of moving parts you're kind of at that 105%. I guess, post the sale and the normalization of, let's call it, the balance sheet normalization, do you see that getting back down into the low 90s as sort of we go through Q3? Or should that be more of a full year 2025 kind of setup?

[Craig Mitchell, executive]

I think it's -- it will improve, and it's more of a -- that $0.06 is really a 2025 run rate, Dean, rather than -- but you'll see improvements in Q4. I think Q3 will be a little bit messy because it's halfway through the Q we did the transaction, but you see some benefit come through in Q4 and 2025. And that's the key -- one of the key messages, right? So when we cut that distribution to $0.36, and that's where we felt that $0.09 was our base run rate, and now we're looking to grow from that base.

[Operator]

The next question comes from Sairam Srinivas with Cormark Securities.

[Sairam Srinivas, analyst]

Just looking at the U.K. portfolio sales, Mike, can you talk about this in terms of going through an entire process, in terms of the sales but was probably a JV structure, one of the things that you kind of thought about it, like was that an option even?

[Michael Brady, executive]

I mean, no, this was marketed as an outright sale.

[Craig Mitchell, executive]

I'll just add to that. By marketing is an outright sale in a tougher market where we are today. We didn't want to limit the buyer pool. We want to get the maximum price out of the portfolio. And we -- and talking to our advisers from the sell side, we agreed that this is why we get the maximum value for unitholders.

[Sairam Srinivas, analyst]

That's fair. And maybe just looking at the majorities ahead and congrats on you guys doing great job and actually resolving a bunch of those maturities. But for the remainder of them, is it going to be a pure negotiation process of resolving the maturities? Or is asset sales -- further asset sales down the line as well to kind of repay the debt? Like what are the options there?

[Craig Mitchell, executive]

I'll go first and then I'll hand over to Stephanie. So no further asset sales. So it's in 3 buckets. You've got mortgages that will just -- we just believe they're just roll, and that's just a continued conversation. In bucket A, bucket B, you've got some term debt in the U.S. incorporate. We're active in negotiations right now. And then bucket 3, basically the convertible debenture. So really, we've really broken the back of it and we're working on it. But there's no -- we needed asset sales to conclude that. Stephanie?

[Stephanie Karamarkovic, executive]

Yes, I would agree. All of that can be done with the existing portfolio and no further -- an additional liquidity on the balance sheet.

[Operator]

The next question comes from Giuliano Thornhill with National Bank Financial.

[Giuliano Thornhill, analyst]

Just one on the -- why the U.K. was chosen. Could you guys comment on why the other geographies weren't disposed of? Or maybe what was the kind of analysis there?

[Michael Brady, executive]

It's Mike. I mean we were under strategic review. The Board considered different options. I'll be honest, the U.K. portfolio was a very strong portfolio, and we didn't in an ideal world, we wouldn't have sold it. But it was a good portfolio. It brought a good price, and we had a lot of inbound interest in it, which led us to run a formal process.

[Giuliano Thornhill, analyst]

And so the other geographies like the U.S., Brazil, those would be structured in a similar way of the U.K. portfolio, where you kind of limit your tax on the repatriation of funds?

[Michael Brady, executive]

I think in each country is different, but there's no tax leakage on our U.S. dispositions. We've reported a number of them, and we're also exploring other disposition opportunities in the U.S. and -- but there's no tax leakage there.

[Giuliano Thornhill, analyst]

And so some of your better properties are located in Australia, kind of under the JV structuring. Is that what makes a carve out of Australia more difficult compared to some of these other ones that you have set up or even just sales in the geography?

[Craig Mitchell, executive]

So just to rephrase your question, why they weren't sold. Is that the question?

[Giuliano Thornhill, analyst]

Yes. Just yes, why there hasn't been more dispositions? Yes.

[Craig Mitchell, executive]

So in Vital, I think we've sold nearly $400 million in the last year. So there's been a lot of dispositions in Vital. Of course, we only get $0.30 on the dollar that -- and a lot of the conversations we're talking about is on a proportionate basis. But Vital's been pretty active.

We had one asset in Australia on our NorthWest on our balance sheet called Epping. And we sold that about 6 months ago. And if I think about the -- in the Galaxy, there's one on the market at the moment around $150 million mark. So we're not discounting that because of the regional because of the structure it just says the dollar impact for us is lower.

[Giuliano Thornhill, analyst]

Okay. And then just I guess, once you've reined and leverage enough, what kind of geography or asset class do you guys think you'd like to grow the most in or ultimately deploy capital?

[Craig Mitchell, executive]

Sure. So we still very, very pro to a real estate. So private hospitals, medical office buildings, life sciences, all the asset classes we know are very strong in. So that's -- we're also -- we will have a preference to reinvest back in Canada and North America. So the marginal dollar, let's call it, on a 100% basis, would be in our home markets and then building up our asset base here.

Growth internationally would be more asset-light in sort of joint venture structures as we have with the Galaxy funds or with Vital. So that's how we would look to grow internationally, but that most of the marginal dollar would come domestically.

[Giuliano Thornhill, analyst]

Okay. And just the last one, just on extending your 2025 maturities. Obviously, there's a lot on the table between dispositions, what kind of terms are you getting on discussions related to extensions on that term debt now? Or where do you think ultimately the rate could be coming at for that?

[Stephanie Karamarkovic, executive]

Yes. We're looking to extend term as much as possible, so probably between 2 to 3 years at this point.

[Operator]

The next question comes from Himanshu Gupta with Scotiabank.

[Himanshu Gupta, analyst]

Just on the lease expiry in Brazil. I think Sabra is coming up for renewal in September. Any update there?

[Craig Mitchell, executive]

Yes, sure, I'm happy to take that. So yes, their lease expires in September. It's 16,000 square meters. We've got terms agreed with them, for a 10-year extension, and we're just kind of working through that documentation. So that will be a month-by-month rent until that's been finalized.

[Himanshu Gupta, analyst]

So it's done deal basically. It will get extended?

[Craig Mitchell, executive]

It's an agreed deal. It's a done deal [indiscernible] but it's an agreed deal, yes.

[Himanshu Gupta, analyst]

Okay. Understood. And then same property NOI growth, pretty good so far, 4% to 5% range. I mean barring any bad debts do you think that run rate can continue for the rest -- for the second half of the year?

[Michael Brady, executive]

Look, I think it's probably better than 3% to 4% range rather than 4% to 5% as inflation comes down. But the portfolio is still very strong. You're right. Bad debts are super low, collections are very high, but I'd be thinking 3% to 4% range rather than 4% to 5% range.

[Himanshu Gupta, analyst]

Okay. And any tenant on the watch list in your U.S. portfolio?

[Michael Brady, executive]

Not in our U.S. portfolio, there is one in the Australian portfolio. So maybe I might talk about that briefly. In our Galaxy fund, one of our largest tenants in Galaxy fund Australia is with Healthscope, the second largest private hospital operator, which is controlled by Brookfield. They are having a few financial issues, right? So they're talking to their bankers at the moment. There's no -- we've got no news, but they're fully paid up in their rent, each of their hospitals are profitable. It's just not profitable enough for them.

[Himanshu Gupta, analyst]

Sorry, go ahead.

[Craig Mitchell, executive]

No, I'm just saying that's all in our portfolio globally.

[Himanshu Gupta, analyst]

Okay. And what kind of like rent structuring can happen on Healthscope? Any feelers from them? Or anything you're hearing?

[Craig Mitchell, executive]

Well, so the moment we get a 2.5% fixed increase. I think the average well is closer to 20-plus years. they want to rent abatement for a period of time, and we're not agreeable to that. I can leave it at that.

[Himanshu Gupta, analyst]

Okay. Now that's solve. And then on this, so I still have a couple here. on the U.K. portfolio sale, and thanks for the color so far. Is there a lock-in on the shares of Assura and what's your near to medium-term plan in holding those shares?

[Craig Mitchell, executive]

So there is a lock in. It's 6 months. We will assess the market and the environment after that time. We're getting a good 8% distribution yield out of that portfolio. In doing our due diligence. It's a very strong company with overnights of the income is backed by the NHS with a very long -- also very long debt [ well ]. But we'll make that assessment in 6 months' time.

[Operator]

[Operator Instructions] The next question comes from Pammi Bir with RBC Capital Markets.

[Pammi Bir, analyst]

Just wanted to come back to the Brazil portfolio. At one point, I think that was cited as seeing some inbound interest on it as part of the strategic review has that interest essentially sort of just -- is that gone at this point? Or are there still some possible discussions on that portfolio?

[Craig Mitchell, executive]

Look, we got some -- yes, we got some interest early on. We didn't like the pricing of the interest. To be honest, the bid-ask spread was quite wide. We will continue to have dialogues with various parties. And if there's a meeting of the mind, we'll look at something. But at the moment, there's nothing on the cards.

[Pammi Bir, analyst]

Okay. Stephanie, I think you mentioned a few times streamlining operations and G&A. Can you just maybe expand on that and maybe what that means for the G&A costs on a go-forward basis?

[Stephanie Karamarkovic, executive]

Sure. So through asset sales, as you can imagine, we're continuing to assess G&A, specifically with -- we had a U.K. lead structure set up and as you heard me say, that helped us avoid any tax on that repatriation. So that cost approximately $2 million per year to run that U.K. REIT structure. So as we unwind that, we'll definitely see some savings there. And then yes, I think it's kind of normal course looking to be efficient and use technology but our and find ways which we can reduce G&A kind of globally.

[Pammi Bir, analyst]

And then just lastly, Craig, I think you mentioned comments -- you made some comments with respect to JVs and partners. Have you reengaged with any of your existing partners or possibly had any conversations with new partners on some new JV opportunities just given I think so much focus has been placed on the strategic review. So I'm not sure if that has really changed yet.

[Craig Mitchell, executive]

Yes. So yes, I'm constantly talking to our existing partners just to keep them informed strategically where we were in the process Also, the portfolio that we manage from them has performed exceptionally well. So that's been important because they haven't been financially impacted in any way. So there is a very strong relationship. To your question about new funds, we have announced in Vital, that we've started to have a conversation about maybe finding a capital partner to sort of help unlock the development pipeline in Vital. So we are out in the marketplace talking to new capital. So it's those conversations have started as well.

[Pammi Bir, analyst]

And how would you describe the appetite for new capital coming into this space at this point?

[Craig Mitchell, executive]

So they are very interested in the space. So that's a big net positive. Everyone wants to rotate out of office, and office and retail. So that's -- and industrial is pretty hot. So they like the alternative space, that's probably the first big point. Some of the questions with them is that they need to sell before they buy. I need to sell my office exposure before I go and buy my healthcare exposure.

The interesting question we're having at the moment is it now just comfortable about buying core real estate because they feel that they're at the bottom of the cycle. If we're looking for opportunistic money, sort of that 5-year money, we're not, what they're effectively saying is, well, we don't know whether the bottom is going to be another 3, 6 or a year away. So that money is a bit harder. So we're at the early engagement, and you're starting to see investment committees, having good conversation and get started, but the conversations, to be frank, are reasonably slow.

[Operator]

[Operator Instructions] Since there are no more questions, this concludes the question-and-answer session. I would like to turn the conference back over to Craig Mitchell for any closing remarks. Please go ahead.

[Craig Mitchell, executive]

Thanks, operator. Thanks for your questions today. because we continue to move forward with our identified strategic initiatives, we remain focused on becoming an institutional quality health care REIT with a sustainable financial profile. We look forward to keeping you updated on our progress. Have a great rest of your summer, and thanks for your support. So thank you, operator.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.