NorthWest Healthcare Properties REIT

TSX:NWH.UN

Q3-2025 Earnings Call

[Operator]

Welcome to the Northwest Healthcare Properties REIT Third Quarter Earnings Conference Call. [Operator Instructions] This call is being recorded today, Wednesday, November 12, 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's Q3 conference call. This call is being recorded, and the 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. Our Q3 investor presentation, which is available on the Investor Relations section of our website, provides more detail on Q3 portfolio performance, financial metrics and our accomplishments.

Presenting on today's call are Zach Vaughan, our CEO; Stephanie Karamarkovic, our CFO; and we have Mike Brady, our President; and Tracey Whittall, our COO, here to present as well and available for the question-and-answer session.

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

[Zachary Vaughan, executive]

Well, thank you, Alyssa. Good morning, everyone. Thanks to you all for joining us on the call today. Our results in the third quarter were strong. Operationally, our portfolio performed well. Same-property NOI grew, it's up about 4.4% year-over-year. And we completed about 200,000 square feet of leasing during the quarter, where importantly, we realized a 90% retention ratio on the expiring leases. It really shows how sticky our tenants are and that our properties are critical to the operations of the clinics, the surgery centers, the hospitals and other doctors and specialists that take space in our portfolio.

Our financial metrics continue to trend in a positive direction with leverage and payout ratios both coming down. And the recent activities we've announced are going to further strengthen our balance sheet. So overall, we're very pleased. Stephanie is going to share some more specifics on our financial results in a second.

But just switching to strategic alternatives. We've been clear that we want to simplify our business, repatriate capital and focus on accretive growth, which encouragingly in the future can now include unit buybacks through our recently approved NCIB. And I'm pleased to report that on the strategic front, since our last call, we've made a lot of progress.

First, in Europe, we're actively evaluating strategic alternatives to unlock capital and have engaged third-party advisers to run a process involving a substantial portion of our portfolio there. The current transaction perimeter includes the majority of our wholly-owned properties in Germany and in the Netherlands.

From a timing perspective, it makes sense to explore this now. There's a lot of capital flowing into Europe. And having personally had a lot of experience there, although Europe is a massive economy, from a financial perspective and a real estate perspective, it's highly fragmented and the health care infrastructure space is no different.

And our portfolio is a very compelling opportunity for investor that wants to participate in an aggregation opportunity in what is still a more nascent institutional property sector in Europe. Our portfolio there or in Europe is performing very well. So our decision to explore these options isn't because we have any negative views or any negative sentiment towards our assets currently or their prospect. It's simply a capital allocation consideration. Now there's no guarantee that a transaction is going to happen. But so far, we've been very encouraged by the levels of interest we're seeing from some highly credible investors. So we'll have more to come on Europe on upcoming calls.

Moving from Europe to ANZ. Following the close of the quarter, we entered into an agreement to internalize the management of Vital Healthcare Property Trust. When this closes, Northwest will receive a payment of NZD 214 million. And at the same time, about 3/4 of our team members in the region will become full-time employees of Vital. Just in terms of the numbers, we generate about NZD 10 million of EBIT from our asset management activities related to Vital. So this payment reflects slightly more than the 21x multiple, which in our view is a pretty attractive number.

So while we are going to forgo these earnings, the proceeds we're going to receive can be used to pay down -- are going to be used to pay down debt and for other activities. But the end result is that we're going to be able to execute this internalization and deleveraging on an earnings-neutral basis today with the incremental benefits in the future -- still to come in the future as our G&A in the region drops significantly as we increase our margins for our ongoing activities in Australia and most importantly, as we benefit from improved performance in Vital's units. Once this closes, we're still going to be Vital's largest shareholders. We're going to own about 1/4 of the company. Mike and I are still going to be both on the Board of Directors of Vital.

But as part of Vital's equity raise, there were 13 institutions that participated, several of who, even though they always like Vital, they like the story. They like that they were a leader in health care infrastructure, hadn't participated as shareholders because of the external management structure. And now that Vital is going to be fully internalized, the liquidity and demand for the units is only going to increase, which will benefit us directly as the largest shareholder.

In terms of ongoing operations in Australia, we have retained the asset management, leasing and property operating capabilities that we need to drive value in our portfolio. As it relates to development, substantially all of our activities in the region occur at Vital, which is also where our strategic land bank is held. We have a few properties in Australia, however, that may be candidates for future redevelopment. So as part of the transaction, we retained Vital to perform certain development services as we evaluate our options for those properties. So although our footprint in terms of direct people and team members is going to shrink in Australia, we still remain very well positioned there for the future.

Before handing it over to Stephanie, just a quick word on Healthscope. Since May, the receiver has been running a process to find a new owner and new operators for the hospitals. Initially, the bid dates are scheduled for late October. It then got pushed to late November. We've been in active discussions with numerous operators in the last several months. These discussions are ongoing. Our goal is to end up with a financially strong and proven operator to make sure that our properties are not only well run, but are also profitable, which is going to preserve and grow long-term value for our shareholders.

Assuming one of these parties is selected and we can come to an agreement, we would hope to have a new counterparty solidified by the end of the year and fully in place by mid-'26. Stephanie is going to give an update on where Healthscope is as it relates to their rent obligations. But I would say on the plus side, in Australia, we are still seeing profitability improve across the 10 large operators that we have exposure to in the region.

One thing I would say, however, and I would just caution everyone is that there are frequently stories that come out in the Australian press that are not accurate. And I would only expect this to continue and likely to accelerate as the Healthscope resolution gets closer. So just please keep that in mind when thinking about Healthscope.

But just to sort of summarize with 2 things before handing it over to Stephanie. I'd say, first, our results for the quarter were strong. AFFO is up, leverage is down, our payout ratio is down, and we're seeing very strong tenant retention. And second, our strategy is clear: simplify our business, strengthen the balance sheet and focus on growth in North America, where we see great fundamentals, a huge investable universe, and it's a very efficient place for our capital.

With that, I'll turn it over to Stephanie.

[Stephanie Karamarkovic, executive]

Thanks, Zach, and good morning, everyone. Q3 delivered continued resilience and strong operational results for Northwest. The REIT's global portfolio continues to perform. Our high-quality health care assets deliver stable inflation-protected cash flows supported by strong tenants and long-term leases.

First, I'll start by reviewing the REIT's key operating and financial results. Our solid Q3 performance reaffirms the resilience of our platform and the enduring quality of our assets. Revenue from investment properties was $104.3 million in the third quarter, reflecting the impact of asset dispositions in 2024 and 2025 to date, partially offset by same-property growth.

Consolidated same-property net operating income increased 4.4% year-over-year to $76.9 million, supported by contractual indexation, rentalized capital spend and improved recoveries across all geographies. Notably, same-property NOI increased 5.1% in Australasia, 4.8% in Europe, 4.6% in Brazil and 2.9% in North America.

Third quarter leasing activity highlights our strong tenant retention and consistent cash flows, key advantages that distinguish us amongst our REIT peers. We renewed or secured 200,000 square feet of leases at a 90% renewal rate, underscoring the essential nature of our assets.

We ended Q3 with strong portfolio occupancy at 96.9% and a weighted average lease expiry of over 13 years, which is among the longest of the global listed sector and our 27th consecutive quarter above 13 years. This highlights the durability of our cash flows and the strength of our operator relationships.

We remain focused on managing our G&A costs and demonstrated progress in Q3. G&A, excluding unit-based compensation and severance, was $12 million, down $0.6 million or 5% year-over-year as we continue to realize savings from organizational streamlining and cost discipline. Upon completion of the internalization of Vital, we anticipate incremental cost reductions and we'll provide better estimates of this in Q4 once the transaction impacts are finalized.

AFFO per unit increased to $0.11, 3% ahead of Q2 and 16% over prior year. And the AFFO payout ratio improved to 85%, underscoring our distribution sustainability. The improvement in AFFO per unit was mainly driven by lower interest costs, partially offset by lower NOI due to asset sales.

Next, I will touch on transactional activity, both during and post quarter end, which demonstrates our commitment to further strengthening the balance sheet and improving capital allocation. In addition to operating the portfolio, we have been focused on the execution of opportunistic and strategic dispositions. With respect to the Vital internalization, we currently estimate to be able to repatriate net proceeds of approximately CAD 150 million, inclusive of transaction costs and a conservative estimate of withholding taxes. We continue to work through final allocations and tax positions, and we'll provide an update once figures are finalized upon closing.

Proceeds are expected to be used to repay for the REIT's credit facilities, which carry a blended interest rate of approximately 6%. Vital currently generates fees of about CAD 20 million per year on a 100% basis, translating to a net AFFO contribution of roughly $8 million annually. As a result, the internalization is expected to be neutral to the REIT's AFFO.

As Zach mentioned, we're evaluating options for a portion of our European portfolio with the goal of reallocating capital back to North America. While this process is ongoing, we're not yet in a position to provide further details on expected proceeds or timing, but we'll share updates as they become available.

We had dispositions during the quarter totaling $35 million and have a further $80 million of properties held for sale, which are expected to close in the fourth quarter of 2025 or early 2026, facilitating further leverage reduction and improved liquidity.

We've just launched a normal course issuer bid permitting the repurchase of convertible debentures and trust units. As we repatriate capital from our active initiatives in Australasia and Europe, the NCIB provides the REIT with flexibility for capital allocation, balancing against our goal of reduction in our leverage ratios.

Lastly, I want to highlight the continued work we're doing to improve the balance sheet by continuing to delever and prudently without negatively impacting earnings. Management believes it's important to balance 2 critical goals: to reallocate capital to generate return, but also continue our progress in deleveraging. While leverage remained unchanged this quarter, the announced internalization transaction once complete, will reduce our proportionate leverage by about 300 basis points.

We took steps this quarter to advance our strategy to transition to unsecured financing and improve our cost of debt. Our refinancing program includes the amendment of our revolving credit facility this July, which further reduced our economic weighted average interest rate to 4.8%. Post quarter end, available liquidity is $250 million, positioning the REIT well for future obligations and opportunities.

Now let me turn to onetime updates. Subsequent to the quarter, Healthscope voluntarily ended its rent deferral arrangement as of October 31, 2025, with both us and its other landlord, repaying all deferred rents owing with accrued interest. All rent is fully current and Healthscope continues to meet their lease obligations.

So overall, our third quarter results show the strength and stability of our platform, the discipline in how we manage capital and the continued progress we're making to strengthen our balance sheet. With resilient health care assets driving growth and a proactive approach to capital management, Northwest is well positioned to unlock further opportunities and deliver sustained results in the quarters ahead.

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

[Operator]

[Operator Instructions] Our first question today is from Himanshu Gupta with Scotiabank.

[Himanshu Gupta, analyst]

So first on Healthscope. I mean, Healthscope no longer requiring rent deferral now. Just wondering what has changed? I mean, how has the -- I mean, has the profitability or cash flow improved?

[Zachary Vaughan, executive]

I think, look, generally, we've seen improvements across all the operators we have exposure to in the region. So that's a factor. I think Healthscope did have some liquidity available to them heading into this. So look, I mean, this is a good thing in our view, obviously, them paying off. But obviously, the real significant impact for us is going to be the future and who we end up with as an eventual operator and what the structure of that looks like.

[Himanshu Gupta, analyst]

Okay. Fair enough. So -- and that you will get to know in the next few months, as I think you mentioned, the sale process is on.

[Zachary Vaughan, executive]

Yes, we hope so. Again, we thought we'd have a more fulsome update by now as of the last call, but things did get pushed. We still believe, despite some noise out there that it may get pushed again that they are holding to end of November. So hopefully, by then, we'll have a more fulsome summary of kind of where we are. But again, I would caution that this is a bit fluid, so the dates could flip.

[Himanshu Gupta, analyst]

Okay. Okay. Fair enough. And then just switching gears to your European portfolio. And Zach, I think you mentioned a lot of capital flowing into Europe. So in that context, what kind of pricing expectations do you have for this? And I mean, should we expect something closer to IFRS value if anything gets done there?

[Zachary Vaughan, executive]

So I guess, look, it's a good question. We're still in the early phases of this. I mean we have advisers engaged. They've gone out, spoken to several investors. So I don't think we're quite at the point where we can give any guidance because we haven't received a lot. There's a few moving parts in that we're selling assets in Germany and in the Netherlands. It's possible someone could look at one or the other. But again, I think we'll have an update there, hopefully, in the next -- hopefully, at least by the end of the year.

[Himanshu Gupta, analyst]

Fair enough. And just one follow-up there. I mean, in terms of your desired goal, is the ultimate goal to exit Europe at the right price and reallocate capital back to North America?

[Zachary Vaughan, executive]

I think our goal is where we see the most probably compelling opportunities for us once we get through some incremental deleveraging and some other initiatives. It just feels like the best place for us to focus on growth is in North America going forward. And so I would anticipate that over time, we will have a lot less capital exposed to Europe. It's unlikely that this sort of happens in one transaction, but I would assume that that's the case.

[Operator]

The next question is from Sairam Srinivas with Cormark Securities.

[Sairam Srinivas, analyst]

Just looking at the announcements from the weekend and from last night, the common theme here seems to be a boost to liquidity and going through to the asset-light model outside of North America, which is again in line with what you guys have said. What does this mean for the other JV structures and also for the European JV right now?

[Zachary Vaughan, executive]

Sorry, what does this mean for the joint ventures sort of...

[Sairam Srinivas, analyst]

Yes. Both in Europe and the one in Australasia, I guess, now, considering the trend seems to be more that you're kind of looking at an asset-light model. Can we expect probably an exit from the other structures as well?

[Zachary Vaughan, executive]

I think right now, we're not -- that's not actively being considered. I think, obviously, we felt like the transaction with Vital made a lot of sense financially, obviously, for us, but it makes a lot of sense for Vital, which we're going to benefit from over time as its largest shareholder. The assets in Europe, we're looking at that are in the perimeter today are predominantly wholly owned. So they are not in any sort of joint venture. So again, those are assets that we own 100% of and controlled directly. So the goal is to try and get -- to try and repatriate capital from those.

[Sairam Srinivas, analyst]

Okay. That's actually a good clarification. And maybe just looking at the European sale, are you looking at maybe more onesie-twosies or essentially bigger transactions involving most of the portfolio?

[Zachary Vaughan, executive]

Yes. I think at the moment, we're contemplating and what we think makes most sense and likely what will draw a lot of investors is the opportunity to participate in a larger transaction because, again, it's a highly fragmented market. And so for someone who's looking to get exposure specifically to health care, health care infrastructure type of assets, this is a pretty unique opportunity compared with some other markets where it's more accessible. This is a very tough sector to access. So we think that keeping things together is actually more appealing than breaking them apart in this market.

[Sairam Srinivas, analyst]

That's good to know that. And Stephanie, this one is probably for you. When we look at the guidance for the fee income on a quarterly basis, how does that change post the Vital transaction?

[Stephanie Karamarkovic, executive]

Yes. So as I mentioned, Sai, the Vital management fees are running at approximately $5 million a quarter on a 100% basis. And so those will, of course, come out -- come January 1 once we close. But other than that, the management fees will continue from our other existing arrangements with both the Australasia JV and the European JV.

[Operator]

The next question is from Tom Callaghan with BMO Capital Markets.

[Tom Callaghan, analyst]

Maybe just sticking on the capital allocation theme. Obviously, lots of progress there between the 2 initiatives. And just wondering, more broadly, are there any other types of opportunities you're looking at here near term in terms of repatriating capital? And I guess, specifically with respect to Vital, I couldn't help but notice in the release there, you've committed to keeping the unit to February, which is not that far after close. Zach, I think in your prepared remarks there, though, you did mention -- you mentioned participating in the upside with those units in Vital. So how should we think about those kind of near, medium and long term?

[Zachary Vaughan, executive]

Sure. Thanks, Tom. I would say at the moment, those are probably the main focus for our capital allocation activities and what's going to be probably most impactful in the near term. In terms of Vital and the internalization, there are certain agreements that we have as a condition of that. Maybe, Mike, you can just walk Tom through a bit of that.

[Michael Brady, executive]

Yes, Tom. I mean, we are looking forward to continuing our relationship with Vital. We think it's important for us together, we're stronger. As far as what that means, Zach and I will continue on the Board. We have arrangements for them to support us on predevelopment work and potentially development if it comes to that. And as far as the transaction, we have made some commitments as we've disclosed about maintaining our ownership stake. So at this time, that is our intent.

[Zachary Vaughan, executive]

Yes. So Tom, arrangements, we won't be -- there's a period of time until February, where we won't dispose of any of our interest. And we've also committed until August '26 that we will retain at least a 10% interest. So we're not looking to exit Vital. I don't think you'll see anything by next quarter.

[Tom Callaghan, analyst]

Got it. Got it. That's helpful. And then maybe as we think about capital coming back to North America, obviously, leverage reduction has been a focus. You've mentioned kind of select growth opportunities and then did announce the NCIB. Just how should we think about allocation across those 3 buckets here? Is it kind of leverage and select growth and then maybe medium term as the balance sheet improves towards the NCIB? Or could we see some of that right off the bat here?

[Stephanie Karamarkovic, executive]

Tom, yes, I think you've nailed it. We are still very much focused on leverage reduction. The proceeds from the Vital internalization are going to be allocated to reducing debt and potentially any further proceeds. We'll make a big dent in with the internalization transaction being -- we're seeing our leverage reduced to 53% proportionately, which we still believe should be a bit lower. And so we're focused on that. And so the NCIB is really a tool for a little bit further down the road, but we want to have it in place so that it's ready to go if and when we see opportunity.

[Operator]

The next question is from Giuliano Thornhill with National Bank Capital Markets.

[Giuliano Thornhill, analyst]

Just wanted to start off on, I guess, VHP and the internalization there. What does the internalization do for the salability of the Australian portfolio? I know in the past, you've kind of indicated you want to repatriate all that capital and get more North American focused. So I'm just kind of wondering what strategic options does it open up? Does it make it more difficult, less difficult to kind of sell that portfolio going forward?

[Zachary Vaughan, executive]

And sorry, Giuliano, you're talking about the portfolio we own in Australia outside of Vital?

[Giuliano Thornhill, analyst]

Yes, like the whole Australasia kind of region.

[Zachary Vaughan, executive]

Yes. I mean, I think in some ways, like we have no intention at the moment of creating liquidity in our Australian-owned assets that we own outside of Vital. I think what this does is look to -- it does give us some degree down the road of flexibility depending on how Vital performs that we could create more liquidity in that with effectively our equity interest in Vital. So I sort of look at this as a way to enhance our liquidity options down the road, although we're not -- we have no plans, obviously, we're restricted in our Vital units, and we have no plan to do anything on our joint venture properties.

[Giuliano Thornhill, analyst]

Right. And then so with kind of a more, I guess, third party now, is there a possibility to drop other assets from your GIC into them? Or does that increase the liquidity of your existing portfolio there just because they are a pretty large buyer in the region?

[Zachary Vaughan, executive]

I don't think so. I don't think it changes any dynamics. I mean, at the moment, we have no intention. The assets we have been selling in Australia have come out of the Vital portfolio, which wouldn't change. We have no intention of selling any out of our other portfolio. So I don't -- in fact, we may look at new opportunities. So I don't think it changes anything, the fact that we're not the manager anymore. If we did ever want to do something between either of those vehicles, we'd have to effectively step back and get third parties to opine on the values.

[Giuliano Thornhill, analyst]

And then I guess just sticking with Australia on the HSO situation, is there kind of a final date that we think that, that can be resolved that you're willing to kind of communicate because I know it's been down the road for a couple of months.

[Zachary Vaughan, executive]

Yes, Giuliano, I wish I could is the answer. And I think if you were to ask our team, they wish they could and everyone. I think it's -- I think what's happened is it's a very complex situation given these are hospitals, a lot of regulation. It's a complex business. And so I think it's probably taken a bit more time than the receivers initially thought is probably what is driving this. So again, so far, as of yesterday, we believe that they are sticking to the end of November. And that's what we're working hard to get in a position that we will have a transaction that should it be acceptable, then we can start planning to move forward so that it's in place by, say, early to mid-'26. But I wouldn't say -- I could not say with certainty that we're not sitting here at some point in a few weeks saying this got pushed again because it...

[Giuliano Thornhill, analyst]

Is it mostly the complexity of the transaction? Or is it like the -- is it the complexity of the transaction or just the multiple parties kind of being involved that's causing all that?

[Zachary Vaughan, executive]

I would put that all under the complexity umbrella. You have a pool of creditors, you have a receiver, you have an existing business, you have -- this is obviously of interest to the regulators and the government. You have 20,000 workers. So I think it's not quite as simple as, well, a lender took over and now they're just going to sell the asset. I think that's playing into this in a big way. The good thing for everybody is that the conditions continue to improve. And we see that not only in the Healthscope hospitals, but also in the others that we have exposure to and where we get the regular performance data. But again, I can't -- I don't want to give any assurance that by the -- at the end of the year, we'll have anything done because so far, we -- it just -- it has been pushed.

[Giuliano Thornhill, analyst]

Okay. And just lastly, on Europe, what kind of percentage of fair value does the on-balance sheet European assets make up within your portfolio, like within [ not ] Europe, I mean?

[Zachary Vaughan, executive]

So the percentage of our gross assets or...

[Giuliano Thornhill, analyst]

Yes, within Europe, how much of the on-balance sheet kind of properties in Europe does that represent? Is it like half of the kind of European exposure? Or is it...

[Stephanie Karamarkovic, executive]

A bit more than that perimeter.

[Zachary Vaughan, executive]

Yes, it's more than half because, again, the assets that were -- that are in the current transaction perimeter are the ones that we wholly own. So it makes up...

[Stephanie Karamarkovic, executive]

Yes. So our on-balance sheet assets are CAD 620 million approximately.

[Giuliano Thornhill, analyst]

Okay. And then just my last question before I jump back is just what are the tax risk to selling Europe and repatriating that capital back to Canada?

[Stephanie Karamarkovic, executive]

So consistent with how we sold our U.K. portfolio, we hold those assets in a fairly effective efficient structure in Europe. And therefore, we don't have material tax leakage as we bring proceeds back. Depending on how these transactions are structured, there's, of course, things like capital gains tax that are in the portfolios that we'll have to manage. But again, it really depends on how the transactions occur. So we, at this point, can't provide any thoughts...

[Operator]

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

[Pammi Bir, analyst]

Zach, was there perhaps any unsolicited interest in the European assets that perhaps drove the move to explore options now? I guess, I'm just curious because the company just obviously went through a fairly significant strategic review and you managed to sell the U.K. assets. So I'm just trying to get a sense of what sort of led to this, I guess, initiative at this point.

[Michael Brady, executive]

Pammi, it's Mike here. I think the market in Europe has really improved over the last while. And so we just think that it's opportunistic to explore this path. And as we've emphasized, unlike during the strategic review, we don't need to do anything. So this is really about whether the market is there for us to take advantage of and to repatriate capital.

[Zachary Vaughan, executive]

Yes. I'd sort of echo that. I mean, I again wasn't here during the strategic review. But I would say even in my past role, we noticed a dramatic 180-degree shift in terms of the desire for institutional capital, which is what we were working with to get exposure to Europe, whereas if I were to rewind another 6 months, they would have said, I'm quite happy. I'm focusing my efforts on -- at the time in the U.S. And I don't think that's limited to real estate. I think it's everything. I mean, if you look at some of the alternative asset managers are talking about big private credit opportunities in Europe, just increased activity everywhere.

So I do think that's obviously a factor. We do have regularly people approaching us about assets all over our portfolio. I think that the combination of kind of -- sometimes the flows of capital can make a -- can accelerate a decision, and I think that's what we're seeing. I think in addition, our assets there lend themselves well. What works really well are aggregation type of scale-up strategy -- roll-up strategies in Europe just because it's so fragmented. And so the opportunity with us is to come into something that's large, but not too large for a lot of investors and then scale that up over time and really benefit from that in the long run.

So I think it was us trying to be opportunistic and think about what makes most sense. And sometimes that's driven by executing just a business plan at least. But in this case, I'd say the capital flows are playing a big part.

[Pammi Bir, analyst]

Got it. Okay. So that's great color. Okay. And then just maybe on the $300 million of -- or potentially over $300 million of net proceeds that you cited, just to clarify, the Vital buyout would be, let's say, half of that. I think, Stephanie, you mentioned $150 million after some of the withholding taxes and deal costs, et cetera, which would then effectively imply that. We're basically talking roughly $150 million from monetizing the European portfolio?

[Stephanie Karamarkovic, executive]

Yes. That's the right math, Pammi. I mean I think, again, that's fairly conservative and also kind of reflects the existing transaction perimeter. But again, it's all dependent on kind of final outcome. So at this time, we think at least that $300 million number. So...

[Zachary Vaughan, executive]

Yes, I think we're pretty comfortable that, that's a reasonable number. We would hope it would be higher. Will it be double for these? No. But I think that reflects reasonable assumptions around what's out there today and also reflects reasonable assumptions around either withholding taxes or transaction costs. So...

[Pammi Bir, analyst]

Yes. It just seems a little low relative to the $600 million of assets you cited on balance sheet in Europe. If we apply let's roughly 50% leverage on a gross basis, $150 million would translate to $300 million versus -- $300 million gross of European assets you could sell versus the $620 million that you said is on the balance sheet at 100%. So would that imply that there's just a lot more debt on these European assets or...

[Stephanie Karamarkovic, executive]

No, it's a little bit higher than [ 50 ], but not much. I think as Zach mentioned, it's not everything. So -- and this again is -- again conservative.

[Zachary Vaughan, executive]

Sorry, I may have misspoke in my -- not Stephanie, probably could do much better. These are assets that we just own 100% of versus stuff we have in partnerships. That's not really part of the perimeter.

[Stephanie Karamarkovic, executive]

Yes. And it's not everything that we hold on balance...

[Zachary Vaughan, executive]

And there are a couple of things that we've excluded that could get included, but that we've excluded. So that's why we've said, Pammi, just like the $300 million amongst these 2 initiatives is not crazy, but it's not -- just to be clear, it's not everything. We tried to create the portfolio we thought made the most sense. It could grow, it could shrink a bit, but I think that number is reasonably conservative.

[Pammi Bir, analyst]

Okay. So if I think about what could come out of Europe based on what you're looking at today, not the full $600 million that's on balance sheet, but somewhere north of $300 million-ish.

[Stephanie Karamarkovic, executive]

Yes.

[Zachary Vaughan, executive]

Yes.

[Pammi Bir, analyst]

Okay. Right. Okay. And then just lastly, on Healthscope, you mentioned that the cash flows have improved more recently. So can you just comment on maybe what that rent coverage looks like now versus, I think earlier in the year, it was sub-2x. So I'm just curious where that is today. And is it at a level that you see as sustainable?

[Stephanie Karamarkovic, executive]

Yes. I don't think there's been significant increases beyond that what we saw, but we are seeing improved pass-through revenues to the operators. There's been deals negotiated and with the insurers across all of Australia, and they're getting a higher percentage of the insurance proceeds. So we are seeing improvements. They're coming through across the board, but it's not significantly moving those numbers. So at this time, I don't have any update on the coverage ratios.

[Pammi Bir, analyst]

Okay. All right. And then just last one. I guess, on the European portfolio side again, is there -- these things are always difficult to sort of have a sense of it from a timing perspective. But is there something in your mind that you'd like to have something in place by? Is it midyear next year? Or is it something that could take longer?

[Zachary Vaughan, executive]

Yes. Look, I think by -- in Q1, we certainly anticipate having a transaction concluded.

[Operator]

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

[Alyssa Barry, executive]

Thank you. On behalf of the team at Northwest, we thank you all for your participation and interest in the REIT. Should you have any questions, please feel free to reach out to us at any time. Have a great rest of your day, everyone.

[Operator]

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