NorthWest Healthcare Properties REIT

TSX:NWH.UN

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen, and welcome to the NorthWest Healthcare Properties REIT Third Quarter Results Conference Call. [Operator Instructions] This call is being recorded on Monday, November 12, 2018.And now I'd now like to turn the conference over to Paul Dalla Lana, CEO of NorthWest Healthcare Properties REIT. Please go ahead, sir.

[Paul Dalla Lana, Chairman & CEO]

Thank you, operator, and good morning, everyone. Thank you, again, for joining us. I'm joined today by Bernard Crotty, the REIT's President; Shailen Chande, the REIT's Chief Financial Officer; and Peter Riggin, the REIT's Chief Operating Officer. Together, we are pleased to share with you our results for the third quarter of 2018. But first, I'd like to point out that during today's call, we may make forward-looking statements as defined under Canadian Securities law. While such forward-looking statements reflect management's expectations regarding our business plans and future results, they are necessarily based on assumptions that are subject to uncertainties and risks, which could cause actual results to differ materially. We direct you to all of the risk factors outlined in our public filings.Before getting into the details of the quarter, I thought I would provide some perspective on our business in this moment.Today, NorthWest is in the best position in its history, building expressly on its strategy put in place in 2015. In a nutshell, we are focused exclusively in health care real estate, bringing our real estate acumen, knowledge and relationship to the world's largest and fastest growing industry, health care. Differentiated with a high-quality infrastructure [indiscernible] portfolio with 73% of our income based on long-term leases that are fully indexed to inflation. And last, we are scaled as a world leader with approximately $5 billion in assets and leading platforms in each of our markets.Down to our results. Quarterly financial and operational highlights include: the annualized quarterly AFFO of $0.88 per unit on a normalized basis and a payout ratio of approximately 90%. A decrease in net asset value of 3.6% quarter-over-quarter to $11.09 per unit, primarily driven by FX headwinds in the quarter. Adjusting for currency appreciation post quarter-end, September 30, 2018, NAV per unit would increase to $11.45. Approximately 49% LTV, excluding convertible debentures and source currency adjusted SPNOI growth of 4% as compared to the third quarter of 2017, driven largely by inflation indexation on leases at the REIT's international assets, and all of this underpinned by a 96% plus portfolio occupancy and a weighted average lease term of approximately 13 years across an expanded 153-property, 10.8-million-square-foot portfolio.Third quarter of 2018 marked another active period for the REIT, highlighted by the completion of key strategic initiatives. Including in Australia, the REIT finalizing the sale of the Seed Portfolio as part of its new AUD 2 billion debt and equity JV with a large sovereign wealth fund. Focus of the fund is to acquire and develop core Australian health care real estate. The JV will have an indefinite life and will be 70% owned by the institutional investor and 30% owned and managed by the REIT. The Seed Portfolio has complete value of AUD 412 million.During the quarter, Craig Mitchell joined the REIT in his capacity as CEO of Australia and New Zealand. Prior to joining the REIT, Craig was the CEO of Grocon, the large Australian development company, and prior to that, Chief Financial Officer of Dexus, one of Australia's largest funds groups. Craig brings a wealth of knowledge to the organization and is a welcome addition to the REIT's global leadership team.In Brazil, the REIT completed the acquisition of Hospital Morumbi from Rede D'Or for BRL 272 million, CAD 88 million, at an initial 7.5% capitalization rate. The acquisition is its seventh with Brazil's leading hospital operator, Rede D'Or, and was funded from net proceeds from the sale of the initial assets into the institutional joint venture.Lastly, in Canada, the REIT is happy to report that Glenmore Professional Center has been stabilized following that trial's contraction in May 2017. The property has been reworked as a multi-tenant building and is now over 90% occupied. With significant growth opportunities in both Australia and Europe, the REIT will continue to leverage its differentiated health care real estate platform and anticipates attracting additional fee-bearing institutional capital to support a target growth pipeline in excess of $2 billion. Taken together, these initiatives provide the REIT a significant runway and resources to continue to scale its business in both the near and long term.In addition to our increasing scale, our initiatives and increasing scale has significantly improved our capital markets profile and will enable us to leverage new opportunities to also further improve the business over time.Segmentally, I note the following: in terms of finance and liquidity, the REIT enters the fourth quarter with a significant opportunity to continue to optimize its balance sheet, carrying approximately $200 million of historic corporate and property level financing with an weighted average interest rate of over 7.5%, which presents a natural opportunity to generate meaningful interest savings through refinancing at lower rates, with consolidated leverage at 49.4% and 65.7%, excluding and including convertible debentures respectively. The REIT will continue to focus on accretive deleveraging opportunities through capital recycling and leveraging its global platforms with new institutional JV partners to reach its target of an LTV below 50%.In terms of net asset value, the relative strength of the Canadian dollar was again a headwind for the REIT's NAV, with the C dollar up about 3% relative to the REIT's weighted basket of foreign currency exposure, which shaved approximately $0.40 per unit from the REIT's NAV, more than offsetting strong fair value gains in local currency terms. Overall, the REIT's NAV is decreased by 3.6% to $11.09 per unit. Adjusting for currency appreciation post quarter, the per unit increase would be at $11.45 per unit.Now with regional perspectives. Brazil was on plan with 100% occupancy and continued strong predictable income with constant currency adjusted SPNOI year-over-year of 7.7%.Operationally, the REIT's major tenant, Rede D'Or, continues to deliver strong results and continues to grow, thereby, opening up the possibility for future partnerships with the REIT. In Canada, we were on plan and performing satisfactorily with positive constant currency adjusted SPNOI at 0.7% year-over-year, portfolio occupancy at 91.7%. Factoring in leasing at Glenmore that occurred in the fourth quarter, occupancy increases to 92.7%.In Germany, we were on plan and performing as expected with constant currency adjusted SPNOI of 4.2% year-over-year and occupancy at 95.6%.During the quarter, the focus was on integrating the recently acquired Netherlands properties. With a strong acquisition pipeline in the region, we see many near high-quality term opportunities.In terms of NorthWest Australia, there was also strong operational performance. Portfolio occupancy stable, above 98%, and weighted average lease term above 13 years. With the recent closing of the Seed Portfolio sale to the REIT -- with the REIT focused on deploying significant low-cost committed capital into strategic growth opportunities.During the quarter, the REIT also completed development at its $80 million Epping Medical Centre, and subsequent to quarter-end, in accordance with its terms, converted its participating loan interest into a direct 50% ownership interest.Also of note, recent developments at Healthscope over the weekend include a renewed and increased conditional offer from Brookfield Capital Partners and affiliates at AUD 2.65 per unit. Healthscope has been granted exclusive access to [ due diligence materials ] and NorthWest will continue to look to engage Brookfield with respect to any potential property transaction.At Vital Trust, per its Q1 '19 results release on Friday, November 9, it also reported strong and [ off-line ] results with constant currency adjusted SPNOI at 4.6% year-over-year, occupancy over 99% and a weighted average lease term of [ 17.7 ] years and NTA of NZD 2.22 per unit, while making progress on its $120 million portfolio of accretive developments. Post quarter-end, Vital declared an increased distribution of $2.18 per unit as well as announced addition of Graham Stuart, previously CEO of Sealord Group and CFO of Fonterra Co-operative to its board.The balance of 2018, building on these strong results and ongoing portfolio improvements, the continued supportive trends in the health care industry, the REIT will continue to focus on internal growth through the completion of its 9 committed value-add development projects, primarily in Australia and New Zealand. I'm pleased that the NorthWest global team has been able to advance a number of key long-term strategic initiatives during and post quarter. Our bigger and better portfolio is supported by long-term indexed leases and assets. And as a result, the REIT is even better positioned to deliver stable and growing returns to its unitholders.Further, we continue to be the real estate partner of choice to the health care industry in our markets, which provides exceptional opportunity to grow accretively and enhance unitholder value.I will now ask the operator to open up the call for questions.

[Operator]

[Operator Instructions] Your first question comes from Fred Blondeau from Echelon Wealth Partners.

[Frederic Blondeau, MD & Head of Real Estate Research]

In terms of the goodwill impairment loss of $50 million, I was wondering if you could give us a bit more color on what happened there?

[Paul Dalla Lana, Chairman & CEO]

Sure. Thanks, Fred. Shailen, perhaps, I'll let you speak to that.

[Shailen Chande, Chief Financial Officer]

Yes. Yes, thanks, Fred, good morning. The goodwill impairment loss that we took over the quarter are related primarily to the sale of the NorthWest or part of the NorthWest Australia portfolio as part of our long-term joint venture. You might recall that last quarter, the REIT excluded goodwill from its net asset value calculation in anticipation of this. So ultimately no impact on net asset value. And as a result of selling part of the portfolio, we've eliminated part of goodwill that was generated upon the portfolio acquisition almost a year ago. I might also add that the goodwill number has been more than offset by fair market value revaluation gains over the last year.

[Frederic Blondeau, MD & Head of Real Estate Research]

Yes, I saw that. Okay. Perfect. And looks like currency had significant impact on your same-property numbers. I was wondering how do you feel about in terms of currency risk for 2019?

[Paul Dalla Lana, Chairman & CEO]

Fred, Paul here. So I think we've -- and per our investor deck and previous comments we've made on the issue, we have been continually comfortable with a diversified currency approach. It sort of has a bunch of natural hedges built into it. I think the relative strength of the Canadian dollar this year, because it's not exclusively a quarterly event, has sort of led us to start looking to the potential to add some currency hedging tools to that and possibly bringing that to mix. So I think that's a focus for us in the fourth quarter. But I think, again, coming back to the basics, we continue to have 4 global currencies that sort of behaves differently with the C dollar and use combination of local debt where available as well as having strong indexation on all these just to balance off against currency movement. So again, the principal factors or elements of our currency strategy are still in place, and we're looking to possibly add to that to reduce a little bit of near-term volatility, more unlikely on the income statement side as opposed to the balance sheet side.

[Frederic Blondeau, MD & Head of Real Estate Research]

Okay. Okay. And when you did your presentation in October, I remember you mentioned currently having a significant acquisition pipeline in Europe. I was wondering if you could give us a bit more details on that? And I guess, what changed since the last 2, 3 years? Or how does it compare since the last 2, 3 years?

[Paul Dalla Lana, Chairman & CEO]

Right. Well, I think we've mentioned that there is potentially a $2 billion pipeline in front of us. And without being too prescriptive, we see obviously Australia and Europe is offering some relatively attractive growth opportunities. So I think that's number one. We're substantially funded for a lot of [ bad ] acquisition through our JV as well as other internal resources. So I think we feel good about that. I'd say what's changing is probably maybe threefold, but certainly 2 big trends. One, in terms of all the parameters that supported our Australian institutional JV, we are starting to see increased interest and focus in the asset class and certainly at the largest scale of global institutional investors looking for high-quality partners to help them deploy capital into the space. So perhaps an asset class that was once seen a real alternative becoming less alternative, if not, more core, more core plus, to use terms in the industry. Secondly, I think we're starting to see the fruits of our labors pay off, which is building relationship and platforms in our regions and the ability to execute and deploy on not just capital invest but also value-add investment for our partners, our tenants; and so we're bringing real estate solutions to them. And Epping is a great example as we just announced this quarter, coming off of a -- still buying through a structured position in that loan on a development that was once done by a group of doctors, that couldn't get it over the line in terms of bringing a core hospital tenancy, we brought that tenancy to the building and Healthe Care. We have expanded it fully now to 100% occupancy and been able to deliver a fully operational day surgery center, again, across from the large regional hospital. And now we're on to focusing on the full private hospital parallel investment. And so that's sort of value-add through the chain of being able to find an opportunity, structure it, deploy the capital, bring in the right hospital partners and both complete the initial phase of growth but also plummet for future phases of growth, I think, is what differentiates us. So I think a lot of relationship and hard work paying of and that's seeds that have been planted many years ago and again coming to bear. And we're seeing that, not just in Australia and New Zealand but certainly in Europe, as we've been working very hard with relationship players, having done now a number of deals with MEDIAN Kliniken and certainly working on others. We see that the relationship and sort of value-add part of our platform is really starting to pay off. So in addition to capital, you've got that, and those are the big trends happening in our industry. So that's what sort of brings things to the opportunity at pace. I guess, stepping back, even one step further, I'd add that gain in our markets, most of our operators, most of our partners continue to be relatively asset-heavy and need the capital sources that we provide, whether it's part of natural growth or in the extreme situations like Healthscope, where we're seeing corporate activity and the high need for capital into that type of a structure. So I think all those trends are playing in our direction, and that's a good feeling after lots of years of hard work.

[Operator]

Next question is from Troy MacLean from BMO Capital Markets.

[Troy Raymond MacLean, Analyst]

The REIT recorded a large fair value gain at a property in Toronto on density rights. Is that a property you'd look at selling? It looked like the fair value gain was about $30 million?

[Paul Dalla Lana, Chairman & CEO]

Yes, I mean -- sorry, Troy, I think we're very focused on our core business, and so I think that's a constant state of being for us, in terms of looking at things that perhaps become noncore and always looking to optimize the portfolio. So I guess -- and this one, specifically, I think the challenges it has proximity to regional hospitals and certainly is in a fantastic node for itself. So I think we -- if we were to look to do something, it would probably include an opportunity for us to bring future medical tenancy into any development in an ideal world, but I think it's early days. We haven't made a specific decision there. But again I think this is a theme that we know has been playing out through Toronto and certainly core Toronto in our portfolio, and I expect in the industry as intensification opportunities do of all and change things. And certainly, we've been actively looking through our portfolio over the last sort of while to find ones that might be there, and we certainly looked at that and in development partnership on our Davisville property, 1849 Yonge, and more recently, I guess at Dundas-Edward Centre where we ended up selling the property where we thought that was the highest and best used. And so I think there is never one exact answer, and it's early days on this specific opportunity, but we do have a number of opportunities within our portfolio for significant intensification, and we're certainly continually looking through that, and this just happens to be another case of it.

[Troy Raymond MacLean, Analyst]

And then in the MD&A, you mentioned increasingly looking at Brazil for acquisitions given the exchange rate. What volume of acquisitions are you looking at? And do you have a target position of how big you want Brazil to be in the portfolio?

[Paul Dalla Lana, Chairman & CEO]

Yes. I think that's -- I'd echo back to earlier comments around Brazil, within the context of our portfolio, we can certainly see it at a maximum in the current range that it is right now. I think with everything going on in the business, that's likely to come down naturally over time, just given where we're likely now, in our growth in Australia and Europe. But as we mentioned, we have a very interesting moment in Brazil, both with our main tenant but also with a number of emerging counterparties there that look like they're high-quality tenants and to big markets. So I think we balance all those things. And so my predication is that Brazil additions will be selective to the portfolio at the highest quality end of things, like the recent Morumbi hospital, are likely to stay under the current level of the portfolio today, but I think that level was likely to come down naturally as we see waiting in other areas coming a little bit faster, and again, already structurally built into our plan. So I hope that answers your question, but again, we do see high-quality tuck-in acquisition opportunities in Brazil. And whenever we're able to do a major market -- major regional hospital, like Morumbi with high-quality tenant, like Rede D'Or, we would certainly look to find a way to get that done within our portfolio.

[Troy Raymond MacLean, Analyst]

And then I guess just finally on -- kind of curious how you look at development in a rising rate world? Does that change your hurdle rate or your development spread you want on development? Just curious about your overall thoughts on that?

[Paul Dalla Lana, Chairman & CEO]

Yes. Well, certainly, it would in a general sense, but again, remind everyone that our development is quite specific and that it's cost plus 100% let sort of structure. And in that cost plus, we typically have the return benchmark or with floor spread over the current bond rates, if you will, for each respective markets. So we're pretty low risk in terms of that type of development. And I'd say that, so to be specific where we have our current development pipeline, a gain around 100 basis point spread to what we see as underlying value, almost all of that has deal protection around interest rates. And so that 100 basis point spread is likely to substantially remain intact. So obviously, if we're able to continue that with relatively low interest rate risk and some structure around it, we're comfortable to proceed within the context of the overall business. I mentioned historically that just given the brownfield expansion regime that goes with private hospitals in our main markets, in particular Australia, New Zealand and now also Brazil, perhaps in the future, Germany, we see there's sort of a constant state of being. And so we do see the opportunity to deploy, again, between 5% and 10% of the overall balance sheet into some form of expansion in this very low-risk basis. And so we're comfortable to do that within the context of our business and within the structures of these, cost plus yield return investments. So I think that's where we get comfortable. It's not a general comment on new at-risk development, which I think would be a very different [ in turn ] which we have a very limited amount of -- in the portfolio. It might be more akin to our St. Albert Medical office building development, which is an $18 million project, again, substantially pre-let with a fairly short construction time line, but there would be an example where we would be much more focused on underlying costs and look to bring in long-term financing earlier and structure around that. So yes, I think pretty [ permanent, typical ] answer for at-risk development in the case of our brownfield fully committed, low-risk development, if you will. We have a little more tolerance for these things just given the built-in protection that we have.

[Operator]

Your next question is from Neil Downey from RBC.

[Neil William Edward Downey]

Just a couple of quick ones. You mentioned there is some leasing in Calgary and Glenmore post quarter-end. How much net operating income does that add on an annualized basis?

[Paul Dalla Lana, Chairman & CEO]

Peter or Shailen, could you respond to that?

[Peter Riggin, Chief Operating Officer]

So Neil, the tenancy is about 32,000 square feet. Once we work through some pre-rent in 2019, I would think that the addition is meaningful for the Calgary portfolio but not overall for the REIT portfolio. I don't have that number specifically.

[Neil William Edward Downey]

Okay. In Brazil, it would appear that the debt balance, mortgage balance is expectedly unchanged at the end of the third quarter versus the second quarter, setting aside the change in the currency. So does that imply, just remind me, that you bought Morumbi with cash?

[Paul Dalla Lana, Chairman & CEO]

Correct.

[Neil William Edward Downey]

Will there be some term financing placed on this asset at some point in the future or near future?

[Paul Dalla Lana, Chairman & CEO]

Yes. It's a good question, Neil. I think maybe I'd come back to just Brazil financing, in general, and highlight that of our existing financing there, we have in the 2 series of our bond-like finances that we put in place for each of the existing assets that we chose to finance that are open for prepayment right now and those are at relatively higher rates, one in the early 9s and one in the early 8s, and that we see markets today probably in the 6s in terms of that financing, so might just make that observation first. And then secondly to Morumbi, given that it has a very significant expansion and we're working with Rede D'Or to commit that expansion, I think we wouldn't be in a natural moment to put long-term finance on the asset. We think that would come more naturally as that expansion and program gets delineated. So I think where we think about Brazil, we're likely to look to refi our existing assets again given relative costs in the 6s plus indexation. We have a lower leverage approach to Brazil, in general, but we haven't set that in stone. But I think we have constructive opportunities in the existing portfolio both to top up and to lower costs, and Morumbi is likely to come a little bit later as that development visibility comes, remembering that development again could be potentially double the size as the existing assets or doubling the size of the existing assets. So it's a meaningful one and one that would need to be considered in light of long-term finance.

[Neil William Edward Downey]

Okay. And just on the particulars of that acquisition, I believe it was CAD 88.4 million, and this is a bit of detail in [indiscernible], I recognize. I think your property roll forward shows the acquisition of $92.3 million. So there is a bit of $4 million difference or 4.5%. Is that in effect of all just transaction costs?

[Paul Dalla Lana, Chairman & CEO]

I might take that off-line, Neil. And I'll try to come to that, if that's okay. probably we'll [indiscernible] do on me in this moment?

[Neil William Edward Downey]

Understood. And lastly, there was some discussion about the $30-odd million fair value mark in Canada. What property does that relate to? And what was the trigger point under IFRS that allow you to recognize that embedded density value? I mean, has there been a rezoning application? Or has it been an award of additional density or has been an offer for the property? Or what was the trigger point? And what property was it?

[Paul Dalla Lana, Chairman & CEO]

Yes. That's a great question. The property specifically, Neil, is our Fairview Drive property, which is just in North Toronto. It was the latter of your 3 things that led us to look at it in more detail and certainly it has kicked off all of our thinking around the former 2 initiatives. So those are underway right now, but early days. So it's a big suburban-style property with lots of land and lots of density. And so in a fantastic note, with transit and large regional malls. So it's sort of that perfect combination of everything happening at once. I think we've been a little bit...

[Operator]

Your next question comes from Mario Saric from Scotiabank.

[Mario Saric, Analyst]

Just coming back to the fair value gain and specifically on that asset. Can you give us a sense in terms of what the price per billable square-foot would have been on that fair value gain?

[Paul Dalla Lana, Chairman & CEO]

A lot of detail here, but since we're focusing, it's a gain around $100 per square foot, although we're not fairly conservative estimate of what's billable.

[Mario Saric, Analyst]

All right. And Paul, you just mentioned in response to the previous question that you're in the early stages of kind of identifying additional opportunities to grow the portfolio. Do you have any sense in terms of when you may be able to provide a bit more color in terms of what the overall kind of intensification upside could be in the portfolio in terms of converting some of the space to residential use over the long term?

[Paul Dalla Lana, Chairman & CEO]

I don't think we're quite as focused in doing it on our portfolio per se, but I think we do see 2 or 3 other high-quality, high-density opportunities within the portfolio. So I think that's our near-term focus. Again, no specific timing, but would expect fourth quarter -- first quarter '19 as being a pretty logical time line for, sort of, delineating that gain. Most of our focus is continuing to look for both that combination of health care and expansion opportunities since the sites we have in mind are quite core to our health care needs. So I think that's a rough direction but nothing more specific in that.

[Mario Saric, Analyst]

Okay. And then my other question just comes back to Brazil, which is about 1/4 of your NOI today. Obviously, there has been a recent election there that the market has cheered, with the currency moving higher, some may think that it may enable additional foreign capital coming into the country. So how, if at all, does the election result impact your ability to potentially export your asset management model that you've kind of created in Australia to Brazil going forward?

[Paul Dalla Lana, Chairman & CEO]

Yes. Again, lots of dots to connect there, but I'd just say that the main thing that the election result has done I think is bring some stability to what could have otherwise been a relatively unstable moment and certainly a more positive direction in terms of, let's say, an emerging-market currency moment, which is sort of playing out around the world. I think fundamentals in Brazil though, independent of the election, are actually pretty strong. And I'd just highlight that Brazil is coming out of a couple year deep recession, it has been coming out of it for the past 12 or 15 months or so. You've got, for them, historically low interest rates, reasonably stable growth trajectory, and certainly, I think now a fairly clear political environment and one where hopefully some of the structural reforms that they need in their system can happen. And so I think it's a very constructive moment there, and certainly, we are seeing a number of other international and global investors starting to have comfort to look to this space. So combined with a moment in private hospital space, which -- certainly through Rede D'Or, we see us performing very, very well. I mean, we're seeing meaningful improvements in operating performance coming through our portfolio. Certainly Rede D'Or has hit record levels of corporate performance. And as I mentioned, we're starting to see the emergence of some new counterparties. So I think all of that leads to an opportunity for us to both partner and find the call of the opportunity. So I think it's a constructive moment there. As you rightly pointed out, it's a good part of our business, and so we're looking forward to take advantage of that.

[Mario Saric, Analyst]

Okay. And so my last question. Maybe on the pipeline in Europe, in terms of the acquisitions, the roughly EUR 100 million that you're looking around 3 to 6 months. Would you classify those as primarily kind of tuck-in acquisitions to similar markets, to multiple assets to what you have today? Or are you exploring additional opportunities in new geographies?

[Paul Dalla Lana, Chairman & CEO]

No. Very much tuck-in. Again to remind, we've got 2 main strategies underway. In the space, we've got an MOB strategy, again, reasonably emulating our Canadian one with a core focus of Berlin and other major markets in Germany. So again, we continually see small tuck-in opportunities within that business and portfolio. We expect to add to those things periodically over time. New to that, that was our addition of the Netherlands last quarter. And so we'll be adding to that, in the same way, around core locations within Holland and certainly see that -- those as coming naturally. On the other side of the portfolio also new to last quarter or a quarter earlier was the addition of the rehab hospital space through initial partnership with MEDIAN Kliniken, the largest owner of rehab hospitals in Germany but still in a very much in a consolidation mode. So we think naturally it is going to come more opportunities in that space and the rehab hospital space to remind everyone has those attributes of 25- and 30-year leases with built-in indexation and relatively low management intensity. So we're quite focused on growing that that's a German opportunity, and we do see more coming as MEDIAN and perhaps others in this space, continue to consolidate what is a highly fragmented industry as well. So I think those are 2 areas of focus, and we're at least in the near term and let's say, it's changed that given they are both scaling and we have lots on.

[Operator]

Your next question is from Chris Couprie from CIBC.

[Chris Couprie, Research Analyst]

Question for you about the Healthscope transaction. Do you guys have a preference as to which party wins the bid or if it goes the private route?

[Paul Dalla Lana, Chairman & CEO]

Our only preference is that somebody that deals with us to sell the real estate, Chris, to be super direct. I think all of the known counterparties, whether it's the company or either of the potential bidders in Brookfield or BGH would be good counterparties for us. And certainly, we're focused on the real estate and being a good long-term real estate partner to the business. So no particular focus at this point, and obviously, the situation is relatively fresh and live. So we're still assessing, obviously, the -- over any news and in particular what's going to happen going forward. Although I think directionally, it brings more certainty to the situation, and I think we see value both in our public company investment and certainly natural counterparties for the real estate transaction in all directions. So I think that's the initial reaction from us.

[Chris Couprie, Research Analyst]

So just in terms of the Australian JV. Any sense of time line for deployment there? And then in this quarter, were there any fees recognized by the REIT from the JV?

[Paul Dalla Lana, Chairman & CEO]

Yes. I'll take the first half of that question and perhaps, Shailen, you can think to the second half. In terms of the first half, I think we've got a -- that the JV has 4 years to deploy in the initial capital commitments, and in fact that those capital commitments are scalable, in particular around the Healthscope opportunity, and so clearly 2 very different trends happening there, but I think we see in the natural course, independent of Healthscope, 2 to 3 years being a likely deployment of window for the capital, and we're quite comfortable with that planning and timing. And as we've just noted, separate to that the Healthscope situation, it looks like it's got a 6-month fees to it now. And obviously noting Australian M&A can change and evolve in a moment's notice. So it does seem to bring some certainty to that part of the transaction. And certainly, we are very focused there as a real estate partner. So directionally, those would be my comments. Shailen?

[Shailen Chande, Chief Financial Officer]

Yes. Great. Thanks, Chris. In respect to fees from the joint venture during the last quarter, we did earn an acquisition and development fee related to the initial Seed Portfolio that was blended into the JV portfolio and that was market based. And then in respect to base fees, given that the transaction closed only 10 days prior to quarter, the base fees were relatively immaterial over the quarter. So as we look into next quarter, we really expect those base fees to replace called the activity-based fees that came in during the trailing quarter.

[Chris Couprie, Research Analyst]

Got it. So then if we think about your $30 million to $35 million run rate in fees, is it fair to say, it's roughly half-half base versus other or any kind of guidance there?

[Shailen Chande, Chief Financial Officer]

Yes. I like the $30 million to $35 million as a couple of components. Both fee generated off of Vital Trust as well as fees generated off of our JV. Obviously subject to -- in respect of the JV, obviously, the timing of those fees would be subject to how quickly that capital is deployed. But in the near term, we'd expect it to I think broadly be a bit more activity-based driven and then ultimately replaced with base fees.

[Chris Couprie, Research Analyst]

Okay, great. And then I got a couple of questions on the developments. What happened to the Lingard Private development. It looks like the cost to complete jumped up and the time to delivery has moved out to a few years? It was slated to be delivered this quarter, I believe.

[Shailen Chande, Chief Financial Officer]

Yes. So Chris, we can come back to you in a bit more detail, but I think at high level, Phase I of that development completed against the cost to complete and then -- in the previous guidance -- cost to complete increase -- sorry, the cost incurred increase. And the extension ultimately on the delivery date is really the addition of a new phase.

[Chris Couprie, Research Analyst]

I see. Okay. Got it. And then with respect to the recent Brazil acquisition, you mentioned that there is also administrative building that will be acquired. Can you give us some color on that?

[Paul Dalla Lana, Chairman & CEO]

Sure. I can speak to that, Chris. Separate from Morumbi, we signed an agreement to acquire again a small administration building at HMB hospital to Brazil, the first asset we acquired with Rede D'Or. In addition to that a second building, which is a clinic building, again, an outpatient clinic building, which is under construction. So expect the initial acquisition, just a CAD 4 million acquisition for the HMB building, which is built and to come on in the fourth quarter and then, again, the completion of the ongoing outpatient clinic at second development there likely to come on either late fourth quarter or early first quarter of next year and can go in for memory, that's again approximately CAD 10 million or CAD 12 million development. So about CAD 16 million in total Canadian committed, CAD 4 million of it coming relatively quickly in the fourth quarter and the balance late fourth quarter or early first quarter. I mean, again, the nice thing about that is with those 2 additions, we true-up our existing lease as well to a new 25-year lease. So again, all of the good things that we like, in this case, with Rede D'Or, which is a great situation and one of our main assets in suburban Sao Paulo.

[Operator]

Next question is a follow-up from Fred Blondeau.

[Frederic Blondeau, MD & Head of Real Estate Research]

Maybe one last question for Shailen. And you have a sizable amount of corporate debt coming to maturity next year. I was wondering what's the strategy there? And what are your views on the impairment at this point?

[Shailen Chande, Chief Financial Officer]

Yes. Thanks, Fred. In respect of some of our corporate facilities coming up for maturity, I think we very much see an opportunity that Paul perhaps referenced earlier around very high-cost facilities and an opportunity to bring a more stable capital structure with more term and lower rates into the balance sheet. So we're in active processes right now around that -- I mean, around those refinancings. And most of, in fairness, are fully committed at this stake. So I think, again, just given the nature of the debt that we do have coming up for maturity, we really see there's an opportunity to accretively refinance.

[Operator]

Your next question is from Tal Woolley from National Bank.

[Tal Woolley, Research Analyst]

I just wanted to talk quickly about the third-party capital business. Obviously, kind of this new JV this quarter and potentially addition -- an option to add a lot more capital with the Healthscope business. And now you are, sort of, reiterating today you're kind of interested in looking for more. Pretty soon it's going to become very sizable. And so I'm just wondering when you're making these deals, do you have like a target in mind for yourself, like, is it a $5 billion committed capital business in 24 months? Or how do you -- how are you sort of thinking about how to scale that business over time?

[Paul Dalla Lana, Chairman & CEO]

Yes. I think that's a great question, Tal. I'm not sure that we quite set the destination in mind. I mean maybe it's just the first quarter that we're of the treadmill and I'm talking completely this and an existing partner that's looking for a lot of visits. What we're going to do with $2 billion? But practically speaking, I think we do see, in our main regions, the opportunity to bring in parallel capital. And so again, I think that, as we look to that in 24 to 36 months kind of time line, we do see an opportunity, again, to more than double if that gets it to $5 billion from $2 billion then that's an extra number. Maybe that's a good illustrated mark -- but certainly, more than double the current commitments. And with some of the things we have on, obviously, that could come a lot sooner than later. So again, I think directionally that's as far as I go at this point rather than to say the platform is in a position to have these relationships now, which is nice after many years of hard work and scaling and the ability -- and I think we have strategies in each of our international regions and perhaps even Canada for that matter that offer the opportunity to partner with the institutions, I think, that are increasingly looking at markets that are very mature in terms of traditional asset classes and in terms of our asset class in a market that's becoming a little better understood and has some differentiating characteristics, in particular long-term index cash flow that is quite appealing. So those are the trends, and we're trying to balance that out. As an organization, that's still got a lot on, but I think we see the ability to add and to add in a manageable and constructive way in the near term.

[Tal Woolley, Research Analyst]

And this is probably more suitable for Shailen, but I would have thought this quarter, given everything that was going on, G&A spend would have been fairly high and yet it was actually down over last year when you exclude the competition or your DUP charges? And I think it was down significantly over the last quarter. So is there anything to give us some color on how that line has trended than we had, sort of, see it going ahead?

[Shailen Chande, Chief Financial Officer]

Yes. So thanks, Tal. Good observation on G&A and the specific year-over-year and quarter-over-quarter decrease. This quarter was specifically impacted by, called catch-up recovery, on some G&A recoveries that we could make against some of our third capital -- or third-party capital providers. So it's probably lower than the quarterly run rate. Our run rate is appropriately reflected in the normalized AFFO, and we do have an adjustment there to account for the G&A year-to-date catch-up recovery. And I'll be happy to dive in to a little bit more detail off-line.

[Operator]

Thank you. At this time, we have no further questions. You may proceed.

[Paul Dalla Lana, Chairman & CEO]

Well, thank you, operator. That's all from NorthWest. I appreciate everyone's involvement. Have a good day.

[Operator]

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