NorthWest Healthcare Properties REIT

TSX:NWH.UN

Q2-2025 Earnings Call

[Operator]

Welcome to the NorthWest Healthcare Properties REIT Second Quarter Earnings Conference Call. [Operator Instructions] This call is being recorded today, Wednesday, August 13, 2025.

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 2025 conference call. Thank you for joining us today. This call is being recorded, and a replay will be 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. Our Q2 investor presentation, which is available on the Investor Relations section of our website provides more details on Q2 portfolio performance, financial metrics and our accomplishments.

Presenting on today's call are Zach Vaughan, our CEO; and Stephanie Karamarkovic, CFO. Mike Brady, our President; and Tracey Whittall, our Chief Operating Officer, are also present and available for the question-and-answer session.

With that, I will now turn it over to Zach for his opening remarks.

[Zachary Vaughan, executive]

Well, thanks, Alyssa, and thank you all for joining the call and for your interest in and support of NorthWest. I look forward to meeting all of you over the coming few months. I'm thrilled to be on board and working with such a strong senior leadership team and also to have the support of the Board of Directors who've been a great and tremendous sounding board and resource for me so far.

I've been lucky in my career. I've worked across several property sectors and had opportunities to scale up property businesses. So although health care real estate is somewhat new to me, given that it has such strong structural tailwinds and it's going to continue to draw in new capital, it's very exciting for me to be at NorthWest.

Since joining about 5 weeks ago, I've been visiting our assets and meeting with our team members around the world. And so far, I've been able to see the assets in Europe, Australia, New Zealand and the Greater Toronto area, and I plan to see the balance of the portfolio in the next few months.

And I've been very impressed by the caliber, not only of our portfolio, but also our team who have in-depth knowledge of the needs of the health care systems and operators across our various markets and our teams have the skill sets to operate and deliver those assets effectively.

I do want to thank Craig Mitchell, our former CEO. Craig was extraordinarily helpful to me during the transition, even taking time out of his schedule to show me around Australia during my first week here. But most importantly, I want to thank Craig for all his efforts that put this business back on a stable foundation. And I also want to thank the entire NorthWest team for being so welcoming and helpful in my first few weeks.

When I was first approached about this opportunity, to be honest, I was not familiar with NorthWest, but the more I dug in, the more excited I got. This is a business that owns essential health care infrastructure assets. And there's several unique characteristics our assets have, but 3 really stand out to me.

The first is the quality of our cash flows. The cash flows we generate are supported by extraordinarily highly rated credit, often AAA that would be very tough to replicate in other property sectors. Second, our assets have very low obsolescence risk. So while advances in technology do and have made certain types of properties less valuable. In our case, technology advances actually improved the profitability for our operators, our doctors and specialists who take space in our portfolio. And third, our assets are very hard to replicate, whether they are our hospitals or outpatient facilities. These are highly specialized and are often located in very dense urban environments and global cities where there is significant long-term residual value.

In addition to the quality of our assets, the sector itself is undergoing a transition. What do I mean by that? Well, health care real estate has been considered somewhat of a niche or alternative property sector that always attracted a subset of institutional real estate investors. But now it's attracting capital not only from real estate, but also from infrastructure investors.

We've been the beneficiaries of this recently. Stephanie is going to speak in more detail about the results. But last quarter, we did fully exit our investment in Assura, realizing about a 30% total return on our investment. In Assura's case, for those of you that followed it, there were 2 large global infrastructure investors looking to acquire the company for core and very long-dated infrastructure funds that they managed.

Having infrastructure and real estate capital overlap as it relates to health care is a trend that will continue as the growth in allocated capital towards infrastructure forces those investors to widen their nets as they search for stable recession-resistant, high credit index cash flow.

At the same time, as new -- at the same time that new capital is entering the health care space, we're also in a transition period where existing institutional real estate investors are diversifying their portfolios and broadening into new sectors.

So while institutional real estate allocations may not be rising as quickly as they were historically, sectors like data centers or student housing, hospitality, ledger and yes, health care will continue to have unmet demand in their portfolios.

As this rotation takes place, certain property sectors are going to have lower liquidity, but fortunately for us, we're among a small group specializing in health care assets that large-scale capital is going to be looking for.

So we have a lot of wind at our backs. The market, however, does not recognize this. Our assets facilitate the delivery of health care are critical to people's everyday lives and are supported by some of the highest rated credit in the world. In an environment where government bonds yield around or less than 3.5%, the spread one is getting by owning NorthWest compared to alternatives looks very wide.

Given the characteristics of our portfolio, NorthWest is a very attractive investment, not just in terms of the wide discount, it's intrinsic value but also on a risk-adjusted basis, given the underlying credit that supports our income.

And I'm confident that as more investors learn about and understand the nature of our portfolio and our cash flows that we're going to be rewarded with more appropriately priced capital. This is going to unlock opportunities for us to drive unitholder value through accretive growth initiatives.

In terms of external growth, the investable universe for us is enormous. We can be a partner of choice for health care systems, health authorities and governments as they move clinical and surgical procedures out of acute hospitals as we saw with Lakeridge leading to the development of our Jerry Kaufman asset in Pickering. At the same time, rising investor demand for health care assets means we can attract more institutional capital to work with us as we scale up our business.

Although we sit on a strong foundation today, as you're going to hear from Stephanie in a minute, we will continue to unlock liquidity through selective dispositions and recycle that capital to reduce debt and pursue accretive growth initiatives. So far this year, we've generated over CAD 280 million -- over CAD [ 208 ] million through capital recycling. And encouragingly, the inbounds we're getting from investors that want to acquire assets from us keep growing, and we're in early-stage discussions on a few assets.

Before I turn it over to Stephanie to run through our results, I just say a few words on Healthscope. Healthscope operates 12 of our hospitals in Australian accounts for about 6% of our gross revenue. Craig would have previously walked through the challenges Healthscope was facing, which ultimately led the company into receivership in May.

Just in terms of some basic facts in Healthscope. They are the second largest hospital operator in Australia with 37 hospitals in every state and every territory in the country. They employ about 20,000 people and another 4,000 people -- 4,000 health care professionals work in their hospital. In Australia, over 70% of elective surgeries happen in private hospitals, of which 15% are performed in Healthscope facilities.

So Healthscope is a critical part of the Australian health care system, and it would not be desirable from the governments, the insurers or the patient's perspective to not have these facilities operating. So although Healthscope has created some noise in Australia, given the critical nature of their business and the importance of NorthWest assets to Healthscope, we believe material risks to NorthWest long-term are limited. And depending on how the process evolves, we might even be able to improve our position as they emerge from [ receivership ].

Today, all the hospitals are operating as usual. The company has access to over CAD 200 million in liquidity, including over CAD 100 million of cash. Renting to NorthWest other than a nominal amount of deferred, not forgiven, but deferred rent have been paid and Healthscope is meeting all of their lease obligations.

The Healthscope sale process is underway with the goal of having a new owner identified by the end of the year, and operating in place by the end of the first quarter of 2026. We'll continue to provide updates on Healthscope as the process unfolds over the next few quarters.

Just to wrap up, I'd leave you with 3 thoughts. One, our portfolio is a very high-quality collection of health care infrastructure properties that continue to demonstrate their stability; two, we are determined to unlock more appropriately priced capital, in part by educating the market on the attributes of what we own and the strength of our cash flows and credit; and three, we will be laser-focused on capital allocation to generate accretive growth for our unitholders as we continue to simplify our business.

With that, I will turn it over to Stephanie to walk you through results.

[Stephanie Karamarkovic, executive]

Thanks, Zach, and good morning, everyone. Q2 marks another strong quarter of operational and financial performance. We ended Q2 with occupancy of over 96% and a weighted average lease expiry of 13.5 years. We delivered consolidated same-property net operating income of CAD 73.2 million, up 2.8% year-over-year with every region contributing positively. North America, up 2%; Australasia, 2.6%; Brazil, 4.6% and Europe 2.3%.

SPNOI growth was driven by contractual and inflationary adjustments on rent, rentalized capital spend and improved operating cost recoveries. Leasing performance remains strong. We completed 298,000 square feet of leasing in the quarter, with 89% renewal rate, which continues to reflect the stickiness of our tenants and the operational stability of our portfolio.

Q2 FFO per unit was CAD 0.11, excluding the impact of accelerated amortization of financing costs. This compares to CAD 0.09 per unit in Q2 of 2024. Q2 AFFO was up -- was CAD 0.10 per unit, up 19% from last year and consistent with Q1. Our payout ratio continues to trend lower, landing at 88% this quarter, down from 105% a year ago and 92% last quarter.

The increase in AFFO per unit was largely driven by improvements in interest expense partially offset by lower NOI from disposition activity and a decrease in management fees.

General and administrative expenses, excluding amounts associated with employee termination benefits and unit-based comp, decreased by CAD 0.5 million compared to Q2 '24. As a result of simplification of operations and cost control initiatives, partially offset by a stronger euro relative to the Canadian dollar. Our Q2 G&A cost ratio came in at 7.8%, reflecting the seasonality of certain corporate costs, including the annual meeting costs and ESG reporting initiatives during the second quarter.

Looking ahead, we still expect this ratio to normalize to approximately 5.5% by year-end as our efficiency initiatives continue to take hold. Gross management fees for Q2 '25 were CAD 8.8 million, slightly higher than Q1 '25, but lower than Q2 2024, where management fees were CAD 11 million. The decrease in management fees as compared to prior year reflects lower levels of activity-based fees being earned in the current environment.

Interest expense decreased to CAD 30.8 million this quarter, down from CAD 53.8 million in Q2 '24. The CAD 23 million decrease year-over-year is due to the concerted debt reduction and repayments following asset sales, and an overall decrease in our weighted average interest rate as a result of refinancing activities.

Turning now to the balance sheet. Our gross book value at June 30 was CAD 5.4 billion, using a blended cap rate of 6.3%. During the quarter, we recorded net fair value gains of approximately CAD 14 million driven by improvements in NOI and valuation metrics in both Europe and Australasia.

During the quarter, the REIT refinanced over CAD 1.1 billion of debt, primarily in Australasia, where term debts were extended, and interest rates were reduced by approximately 12 basis points. The REIT also refinanced approximately CAD 25 million of mortgages in North America.

Subsequent to the quarter end, we amended the terms of our revolving credit facility. The amendment extends the maturity date of the facility to July 2027 and moves us to grid pricing based on our credit rating, reducing our cost of borrowing by 65 basis points. The amendment also provides an additional CAD 100 million accordion commitment, subject to incremental security and lender approval that provides flexibility with mortgage maturities as we transition away from amortizing debt.

As previously announced, during Q2, the REIT fully divested of its shares in Assura, a U.K.-based REIT for total proceeds of CAD 209 million. Our gain on sale was approximately CAD 32 million, with the proceeds used to repay debt and related debt and corporate facilities.

Following the refinancing activities and asset dispositions, the REIT has reduced proportionate leverage to 56% and consolidated leverage to 48.5%, and our weighted average cost of debt currently sets up 4.8%, and weighted average term to maturity of just over 3 years.

Importantly, the REIT only has CAD 87 million of 2025 for maturities remaining comprised of mortgages in Canada and Europe, and of the REIT's 2026 proportionate debt maturities, approximately CAD 424 million or over 50% are maturing in the fourth quarter of 2026. As of today, the REIT's available liquidity is approximately CAD 230 million.

As a result of our improved capital position and liquidity, yesterday, we announced we are suspending our distribution reinvestment plan, or DRIP, commencing with the September 2025 distribution, which will be paid on -- in cash on October 15. The REIT's unit price continues to trade at a meaningful discount to NAV per unit and the issuance of units under the DRIP runs counter to the REIT's focus of optimizing capital structure and driving superior growth in NAV per unit and returns over time.

Finally, I'd like to congratulate Zach on his appointment of as our CEO and being named as a Director. Management and the Board values his strong real estate experience and looks forward to his contributions.

With that, I'll turn it back to the operator to open up the call for Q&A.

[Operator]

[Operator Instructions] And your first question comes from Frank Liu with BMO Capital Markets.

[Frank Liu, analyst]

First of all, Zach congrats on your appointment to CEO and to the Board.

[Zachary Vaughan, executive]

Thanks, Frank.

[Frank Liu, analyst]

I know you are only about like 1.5 months in, but just wanted to get your thoughts on the long-term vision for the REIT, which geography will be the primary focus over others? And more near-term speaking, what's the top priority in your mind to be addressed?

[Zachary Vaughan, executive]

Yes. That's a good question. Again, I only been here 5 weeks. I think in the near term, the priority is really to see all the assets, meet in-person, all the team. I would say, I guess, how I see it is we have no intention of doing some sort of U-turn into other sectors or other areas. We're sticking where we have real advantage, which is health care infrastructure, real estate and the markets we're in.

I think there's a lot of growth opportunity in North America, in particular, we're starting to see some interesting things in Canada. So we'll obviously be focused there. But one of my near-term priorities, Frank, is really to work with the Board on that strategy going forward. So I think it's probably still early days, but we do have -- we'll certainly have more to report in the next quarter or 2.

[Frank Liu, analyst]

Got it. And I totally understand you're only at 5 weeks and there's still a lot of stuff to ramp up. Just more touching on the Healthscope. Just could you remind us -- maybe this is a question for Stephanie as well. So could you remind us the annualized rent at NorthWest share? And for the repayment that received covering the 50% of the 4-month deferrals, was that reflected in the current quarter NOI?

[Stephanie Karamarkovic, executive]

So yes, I can answer first, Frank. So our annualized revenue at our share is about CAD 22.2 million. And the rent deferrals, any impact of them because they're just deferrals are not impacting NOI.

[Frank Liu, analyst]

Got it. But like the repayment, you received, is that bake into your NOI figures or it's the other -- how does that...

[Stephanie Karamarkovic, executive]

We're just recording -- we're recording the full rent, and any deferral just gets booked to the balance sheet as a receivable and then is reduced as it's paid. So it has no -- the deferral arrangements have no impact on NOI.

[Frank Liu, analyst]

Got it. Makes sense. And lastly, on the same property NOI figure. I think this quarter relative weaker compared to the prior quarters. Is there any lumpy items driving this? And I mean, I just want to touch on the 3% to 4% growth for the year. Is that still intact?

[Stephanie Karamarkovic, executive]

Yes. There's nothing lumpy that I would call out. I think what you're seeing in North America and Australasia and Brazil and Europe are kind of all reflective of their run rate growth that we're targeting. Brazil being higher, just given where inflation sits there. But otherwise, the other regions are kind of in that 2% to 3% range, which is what we anticipate in target.

[Frank Liu, analyst]

Got it. Okay. Appreciate the color.

[Operator]

And your next question comes from Sairam Srinivas with Cormark Securities.

[Sairam Srinivas, analyst]

Zach, congratulations on the new role. Just probably going back to your comments on capital allocation. I know it's early days, but maybe putting a hat across all the experience you've had in the private markets, can you comment on private market activity and the transaction dynamics you're seeing out there in different markets?

[Zachary Vaughan, executive]

Yes. I think I'd say broadly, liquidity is certainly coming back to, I'd say, the commercial real estate markets, let me put it that way. It certainly stalled out for a period of time. I think investors are more comfortable with what's going on. Supply has ground to a virtual halt in most sectors.

So I think what we're seeing is people more confident now to put capital to work in the sector generally. I think what -- you're seeing in particular, and I highlighted it as certain sectors are just more active than others. And historically, investors had fairly simple portfolios spread across a few sectors. They're starting to really expand that for their core holdings and looking for things not only that are different that fall out, but that are more operational in some cases.

And so we're seeing that trend play itself out. You've certainly seen it in the data center space before that. You saw it in the warehouse space. And certainly, health care, as we speak to large institutions is something they're trying to understand and importantly, trying to find the right partners to work with as they grow in this space.

Every market has a bit of a different dynamic to it. Obviously, I think Australia, in particular, just given some of the noise around Healthscope has slowed transaction volume. But I'd say encouragingly, we're starting to see inbound interest on our assets there at values that are in line with our values. Not to say we'll sell them necessarily, but it's encouraging because we haven't seen that until recently.

In Europe, I would say transaction activity there is certainly picking up. I think there's a -- I was speaking to someone at a major investor who said capital is looking to come back to Europe in force as they kind of rebalance their holdings. And then in North America, we're starting to see some more activity in -- particularly in the U.S. Obviously, Canada is a smaller market, but I'd say overall, it feels pretty encouraging as I think about growth, but as I think about some potential recycling.

[Sairam Srinivas, analyst]

That's good color, Zach. Maybe just in terms of markets, how are you guys thinking about Brazil? Has the market dynamic improved over there?

[Zachary Vaughan, executive]

Brazil, so that's a market I haven't been down to yet. And I've been, I guess, involved in Brazil sort of from a more of a committee perspective in the past. I think it's still pretty quiet from a capital point of view, given where rates are. And there's obviously more noise around trade and things.

But I think inevitably, what we own there, again, if you want to talk about critical infrastructure, these are some incredible hospitals in really the center of major cities in Brazil. And if we look at the financial performance of our tenants, so Rede D'Or, their revenue is up meaningfully. I mean they're doing extraordinarily well. Their rent cover is, I don't know, 5 plus, 5.5x. So we're not even remotely concerned about the underlying fundamentals there. And as liquidity comes back, we'll think about whether it makes sense to do something more strategic there.

[Sairam Srinivas, analyst]

That makes total sense. And those are mission-critical assets. And I really appreciate your comments, Zach, especially considering it's just been 5 weeks for you.

Stephanie, it's probably more of a run rate question for you. In the context of transaction activity and how you see the asset management business kind of running, do you see the asset management fee benefit kind of resume more of towards the end of this year? Or is it more of a '26 time line there?

[Stephanie Karamarkovic, executive]

It's a good question, Sai. From what we're seeing today, given we're already in August, I think it's probably a 2026 -- something that's going to kind of start to increase in 2026. At this point, we're just not seeing quite yet the development or acquisition activity pick up in our markets that we do asset manage in.

[Sairam Srinivas, analyst]

Fair enough. And maybe just looking at the debt strategy over there, congratulations on the revolver financing on that side. How are you guys thinking about matching debt maturities ahead with your lease terms? Because I appreciate that you guys have about 3 years on a weighted average and on an average about 13 years of leases. So are you guys thinking of essentially maybe going longer on the debt side? Or how are you guys thinking about it?

[Stephanie Karamarkovic, executive]

I think we're still fairly comfortable in that 3- to 5-year window, Sai. I mean it is something we're evaluating as we look at our portfolio. I think the tricky part is that in Australia and New Zealand, where our leases are the longest, it's really challenging to get any longer-term debt there than kind of 3-ish years. And so that's really the driver of a lot of our weighted average -- weighted average lease -- I mean, debt term. So yes, I mean, it's something we'll think about. But at this point, I think we're fairly comfortable in the zone we're at.

[Sairam Srinivas, analyst]

Perfect.

[Zachary Vaughan, executive]

Thanks, Sai.

[Operator]

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

[Giuliano Thornhill, analyst]

Congrats, Zach. So I guess I just want to start on Healthscope. What sort of rent concessions or lease structuring's are kind of under consideration for HSL. I know you did mention there might be a chance to actually improve NorthWest position there. So I'm just wondering if you could expand on that?

[Zachary Vaughan, executive]

Yes. Look, I think it's a bit early in the process, Giuliano to sort of figure out what we might do. I think in terms of opportunities that we could see, we know there's specific assets where specific capital programs were earmarked identified, and then sort of pulled as the business went into receivership.

So we're thinking about how can we potentially help with effectively tenant improvements in exchange for some betterment on our leases, it could be term. It could be better indexation in some ways because -- if you look at what's happening now, we've even seen it in the past few months, even in the Healthscope assets, which are a bit lagging the market, obviously, because the business is still in a receivership process. But as these insurers increase the amount that that the operators can -- effectively their reimbursement rates, it doesn't take much to really move the needle.

And so our view is we don't -- at this point, there's really nothing on the table. There's nothing there. The deferral that's there is a bit of a combination of legacy and us continuing that with the receiver in order to try and effectively get better access to what's going on, which I think was very smart strategically. Giuliano, when I first started and saw this, I said, why do they need this? Like why it's so small relative to the business. And it really was a more strategic decision to kind of have a seat at the table.

So I guess the answer is we don't know yet. I don't think we'll know much until the end of the year because the process involves kind of end of this month. They're going to sort of start to round down the bidders and see where they are. And I think through that process, likely they'll want to talk to us, we'll want to talk to them. And so we'll have more to disclose. But at this point, there's nothing on the table apart from the current ratio.

[Giuliano Thornhill, analyst]

All right. Yes. And so the announcement or finalization of the sales come October and then maybe announcement by yourselves after that in November or December is kind of the time line that I'm gathering?

[Zachary Vaughan, executive]

I think so. The way things are headed now. And look, there's -- it's hard to know where this evolves. There's been a lot of new -- look, there's been news reports that landlords should all cut their rent. There's also been news reports that they're thinking about turning the company into a nonprofit, which is like a material benefit to the profitability of the hospital. So we'll have to see how this unfolds. It's complicated. There's a government aspect to it. They don't want the hospitals closed. So they're going to kind of be around the edges to make sure we're going to try and do its best for our capital, but we just haven't had that opportunity yet.

[Giuliano Thornhill, analyst]

And I guess going to your prior comment, just regarding the Feds and potentially insurers paying out more industry profits to operators. Have you noticed an increase in that willingness by the insurers or potential for the Feds to actually force that to happen? Or is it the same as always?

[Zachary Vaughan, executive]

Yes. Again, I'm a bit new to Australia. So Mike is here and can comment. I think what we're seeing in our Healthscope portfolio, including the other operators through our Vital business is an improvement in performance. That's not necessarily driven by an increase in procedures and activities. Therefore, it is being driven by a slow creep up of reimbursement rates. So Mike, maybe you want to comment on.

[Michael Brady, executive]

Yes, I can confirm that we're seeing individual operators cutting revised deals with the private insurers and the funding is increasing, which is improving the life of the operators and improving our rent coverage.

[Zachary Vaughan, executive]

I think the way I understand it is the government said figure this out or we're going to have to get involved. And so they're figuring it. But it will probably take time. But once it does, things will be -- we're already seeing people be very interested in the asset class and kind of looking through this, which is very encouraging.

[Giuliano Thornhill, analyst]

All right. And then just sticking with Australia. I've also noticed more calls for the government to increase the number of kind of smaller ambulatory care centers. Are those like a risk to your hospitals that you own there? Are those operations that they administer not really comparable to your --to the assets that you own there?

[Michael Brady, executive]

We don't see it as a risk. I think every government around the world is trying to motivate additional health care supply. And that's an example that we're seeing not only in Australia, but in Canada and the U.S., it's -- the demographics are such that health care demand is increasing and will continue to do so. So we're not worried about any new supply. And actually, we see opportunities there for us to participate.

[Zachary Vaughan, executive]

Yes. Look, I'd say the same. I mean, I think Australia is further ahead in terms of moving the lower acuity surgeries out of the high acuity hospitals. We are benefiting from that. We're negotiating -- or again, early stages on some opportunities to actually build some of those small facilities on land we have there. I think the big opportunity in that regard could actually be here in Canada. I mean we've seen it in our portfolio. And I have to imagine it could be a major thing for us going forward.

[Giuliano Thornhill, analyst]

And the retirement and nursing supply demand, is that as imbalanced as it is here in Canada within Australia?

[Zachary Vaughan, executive]

I think it is. It's not an area that we are investing in or necessarily have -- but it is...

[Giuliano Thornhill, analyst]

Yes. I'm just trying to gather a sense of the strain on the operations for the hospitals. I guess...

[Zachary Vaughan, executive]

I would say, they're probably less strain than here in a sense, but the dynamics in terms of the demographics, et cetera, are quite similar.

[Giuliano Thornhill, analyst]

Okay. And then just lastly for Stephanie, on the balance sheet, I noticed the European kind of economic rate decline. I'm pretty sure that's just from the expiration of the floor. Is there any other derivatives over the next 12 months, which are going to be beneficial on the expiry or that you can call out on?

[Stephanie Karamarkovic, executive]

No. I think in Australia and New Zealand, there are some derivatives that will roll off that are kind of at the market today. So as those rates continue, I think they're still coming down in that part of the world. So we'll see probably some benefit there. But largely speaking, we try to roll them and there's not anything material coming off.

[Operator]

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

[Pammi Bir, analyst]

Zach, maybe just expanding on your comments on the inbound interest. Can you just comment on what's in the disposition pipeline at this stage and maybe potential volume or how you see that unfolding over the next year or so?

[Michael Brady, executive]

Pammi, it's Mike. I mean we're seeing inbound inquiries in every region -- well, not every region, I don't want to overstate that, but in Europe, in Australia, in North America. We are in a position where we're -- we don't need to sell anything. So we will be strategic and opportunistic. And it will be about where we see opportunities to recycle capital to grow the business.

[Zachary Vaughan, executive]

Yes. I'd sort of echo that, Pammi, that it's -- these are early days inbounds. But sometimes what you see is inbounds depending on the sector, people kind of bottom fishing and trying to buy at distressed prices. These are not that necessarily, but it is very asset selective. So it's someone in some region has capital, they want to own a hospital, they want to own one of our outpatient facilities.

Would I anticipate more divestment activity by the end of the year? Possibly. I don't think it will be as material as what we've seen year-to-date, but I wouldn't be surprised if there's a couple of nonstrategic -- I guess I shouldn't even call them nonstrategic. It's a combination of things that we would say at a decent price, we'll sell. And then there's some stuff where we would probably not sell. So we're sort of looking at it all. But I'd anticipate some amount, but I don't think it's going to be in the same order as what's been kind of accomplished for the first half.

[Pammi Bir, analyst]

Okay. That's helpful. And just if some of the inbound interest that you've spoken about, is that some of the infrastructure type players that you referred to earlier?

[Zachary Vaughan, executive]

We've -- certainly in Australia, there's been some of that type of capital hunting around and looking. It's probably, again, a bit early for that for us to do it. Our structures there are a little more complex than the -- than Assura was. Most of what we're seeing is really, I'd call it, smaller institutional capital sources, but still institutional, still very credible. But again, it's a bit early days. I think what's been encouraging is that the values we're seeing, it's just not people throwing offensive offer seeing if we're desperate at all. These are serious people at decent prices that are willing to spend their own money to do a lot of work and -- so still early days, but it's -- again, I wouldn't anticipate anything major being done in the next few months, but we're certainly looking. But it's very encouraging just in terms of general activity.

[Pammi Bir, analyst]

Okay. And -- but to clarify, I mean, deleveraging is still in the cards from where you sit. I mean, you clearly made some progress over the past year, but just wanted to confirm that, that's still on the agenda.

[Stephanie Karamarkovic, executive]

Yes, absolutely, Pammi. We're trying to get kind of sub 50% over time. So that's still in the card to bring that down.

[Zachary Vaughan, executive]

Yes.

[Pammi Bir, analyst]

Okay. Last one for me. Just with respect to the sequential drop in the management fees from Q1. Can you maybe just provide some more color there and how we should think about sort of a run rate at this point? I realize it can be lumpy, but just wanted to get your thoughts on that.

[Stephanie Karamarkovic, executive]

Yes. And Pammi, we might need to take it off-line because I think what you're maybe referring to is we did make a slight presentation adjustment in management fees, which I can walk you through essentially just from a proportionate basis, if you look at our gross management fees from -- in the table in the MD&A, you'll see that they're actually pretty flat quarter-over-quarter. And so the level that's flowing through to our AFFO is consistent with the last 2 quarters. So we can -- I can take you through that offline if needed.

[Pammi Bir, analyst]

Okay. We will circle back.

[Operator]

And your next question comes from Himanshu Gupta with Scotiabank.

[Himanshu Gupta, analyst]

First of all, congrats Zach.

[Zachary Vaughan, executive]

Thank you.

[Himanshu Gupta, analyst]

Then just on asset dispositions. Is Brazil portfolio still on the table? I mean, would you consider selling this here? And what do you think is the investor appetite for that Brazil portfolio?

[Zachary Vaughan, executive]

I think at the moment; it's not something we're actively pursuing. I think it's one of those where the underlying performance of the assets just keeps getting better and better in terms of the -- I mean, these are -- I mean the rent coverage is through the roof, the financial performance of our major tenant is -- it just is exceptional.

That being said, we just -- from a capital market, we are in a position where we don't -- we're not forced to do anything. And so I would say, look, we're going to be opportunistic about it. So there's no intent of doing anything. We have had inbounds on that portfolio, as we always do, given the caliber of the assets. But we sort of said, look, let's wait until we think there's a lot more liquidity in that market. And then it's obviously a currency question and then see where it goes. So there's no active plan. Mike, I don't know if you'd...

[Michael Brady, executive]

No, that's a good summary.

[Zachary Vaughan, executive]

On the history.

[Himanshu Gupta, analyst]

Okay. That's very helpful. And maybe, Zach, as you look at the NorthWest portfolio and geographies around the world kind of, are there areas you think NorthWest should be overweight or underweight going forward? And I know it's early days, but...

[Zachary Vaughan, executive]

It's -- look -- I'd love to be a much larger weight everywhere, I guess. I think we have the opportunity here to really scale this business up, which we're going to do. But I would say, certainly, I think in North America, in particular, we are -- I would say on a relative basis, it's -- we are the largest, most dominant owner of health care infrastructure in Australia by a factor of probably 3.

So for us to really scale that business, it's going to be very selective. We're looking at a few things, but we are kind of already dominant. When I look across North America, whether it's Canada and some of the more strategic things we're looking at or south of the border, given that there are a lot of assets held by in some cases, nonnatural owners of those assets, I think there's a huge opportunity for us.

And at the same time, there's a lot of capital out there that is -- that wants to get into this space that wants to diversify their portfolios. And they know that this is not something where you're buying necessarily assets that are just simple, and you can kind of close your eyes and put to bed. You need people that know what they're doing. You need people that understand how hospitals work, how outpatient facilities work, how ambulatory surgical facilities work.

So I guess I would say that the simple analysis would be, I do think, as I look at it, North America is probably the glaring opportunity. Australia is just what we have there is unmatched. And Europe is a bit more complicated because every country has a very -- people think of Europe as one region, but you've got 20 languages in all these countries and tax systems and health systems and how health gets delivered. So it is a bit more complex there.

Certainly, Germany is an opportunity for scale. But look, we're looking at them all. But I guess to summarize, I do think North America is a sort of big land of opportunity for us.

[Himanshu Gupta, analyst]

Awesome. This is great color, by the way.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to Zach Vaughan for any closing remarks.

[Zachary Vaughan, executive]

Yes. So look, thank you all for joining on my first call here. Again, I'm thrilled to be on board. I -- as I mentioned, I didn't know much about this, which I think is actually one of the big opportunities here. I think it's just something that's here that's not well understood and not well known, and we're going to change that. But certainly, in terms of the sector, in terms of the assets we own and the capabilities, this is something that's a real growth opportunity for us.

So thank you again. And look, please reach out to myself, Mike, Tracey, Steph with any questions, and I look forward to meeting all.

[Operator]

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