NorthWest Healthcare Properties REIT

TSX:NWH.UN

Earnings Call Transcript

[Operator]

Welcome to the NorthWest Healthcare Properties REIT Fourth Quarter and Year-End 2024 Earnings Conference Call. [Operator Instructions] This call is being recorded today, Monday, March 10, 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. Hello, everyone, and welcome to Northwest Q4 2024 and Year-end Conference Call. Thank you for joining us today. This call is being recorded, and a replay will be made available on our website at www.nwhreit.com.

Today's discussion includes forward-looking statements. As always, we want to caution you that such statements are based on management's assumptions and beliefs. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see our public filings on SEDAR+, including our MD&A and annual information form for a discussion of these risk factors. Please note all currencies referenced today are in Canadian dollars unless otherwise stated.

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

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

[Craig Mitchell, executive]

Thank you, Alyssa. First, I'd like to apologize for the delay in holding this call. Our auditors were resource constrained and couldn't meet their deadline as they needed additional time to close out their file and hand over to our new auditor, Deloitte. It was very frustrating to say the very least, particularly as we've had such a good message to convey, and I'll go through that now.

You will see that all the hard work over the last few years has started to translate into increased earnings and reflects a much stronger balance sheet. Q4 2024 AFFO per unit increased 9% over Q3 2024 to $0.10 per unit, supporting our payout ratio, which now stands at 92%. We also strengthened our balance sheet through strategic asset sales and refinancing, earning an investment-grade credit rating this January. This investment-grade rating cannot be underestimated as a pivotal point for us.

While Stephanie will elaborate, our Series G debentures due on March 31, will be redeemed with existing liquidity. In an increasingly volatile world, we're seeing consistent and growing demand for health care across all markets we operate in. As populations migrate to metro cities where we are located, we're seeing outsized need for medical facilities. We're also seeing a demand for medical clusters, clusters that combine educational and clinical facilities with other facilities.

With the rise in construction costs over the last few years, we're seeing a reduction in health care developments. This has just created more tenants and operated demand for our own assets and increase the economic value of our real estate.

A great case study of this is our leasing. Our robust leasing activity drove exceptional real estate performance with over 2.4 million square feet leased in the last 12 months and an 83% tenant retention rate. Occupancy remains strong at 96%, our eighth consecutive year above that level, while our market-leading WALE stands at 15.6 years currently.

These factors contributed to a consolidated 4.9% same-store property NOI growth compared to Q4 last year, driven in part by contractual rent increases are nearly 97% of our leases. It was a very successful year for asset sales, we sold 52 properties at an average cap rate of 6.5%, generating $1.4 billion in gross proceeds. These funds were used to repay high-cost debt strengthening our balance sheet, as Stephanie will elaborate further on this shortly.

Our gross book value at 31 December was $6 billion, using a blended cap rate of 6.5%. Over the course of 2024, we have softened our cap rates by approximately 50 basis points. It is our view that we are at the bottom of the cap rate softening cycle globally and underlying growth will come through in future periods. All this has resulted in our Q4 NAV being $8.55. As you and I are aware, we currently traded at a substantial discount to our NAV and our focus is on closing that gap.

As part of our broader simplification strategy, we've now exited 7 markets, but we're not done yet. We still have over $200 million in planned noncore dispositions including our investment in Assura. And on that front, in the last 24 hours, Assura received an updated offer from a consortium led by KKR at 49.4p per unit, which is expected to be endorsed by the Assura Board. The all-cash offer, if successful, will result in a material gain of approximately $14 million on today's FX rates.

Additionally, through asset sales and a disciplined approach to G&A, our global head count is down 20% to approximately 240 people leading to a meaningful reduction in expenses. We are continuing to make a meaningful stride in ESG. I'm very pleased to announce for the second consecutive year, we were being recognized as a global sector leader for ESG across developments for listed health care globally by GRESB. Over 2024, the new C-suite team has settled in extremely well and has and will continue to take us from strength to strength.

Turning to Healthscope now, or HSO, Australia's second largest private hospital operator, NorthWest owns 12 of these hospitals in one of our joint ventures. All the assets are located in strategically strong medical precincts. And as at February 2025, all rent was fully paid. For the 3 months beginning in March, we have provided a limited rent deferral, not abatement, deferral of under $2 million with an 8% coupon. This decision reflects our collaborative approach with HSO.

Importantly, all hospitals remain on long-term leases that are structurally ahead of any bank debt. HSO recently reached new revenue contract increases with all its private health insurers. Given the critical role that these hospitals in -- given the critical role of these hospitals in Australia's health care system, we continue to work closely with all stakeholders.

Finally, on our CEO transition process, we're working with a global recruitment firm. And as expected, we've seen strong interest in the role. I remain on track to step down in the first half of 2025, ensuring a seamless transition and appropriate handover. We will keep the market fully informed.

With that, I'll hand it over to Stephanie to provide more details on our financials.

[Stephanie Karamarkovic, executive]

Thanks, Craig, and good afternoon, everyone. The REIT delivered consolidated same-property net operating income of $73.5 million, which was 4.9% higher than Q4 2023, driven by inflationary adjustments on rents rentalized capital spend and improved recoveries, reflecting steady and predictable growth in our underlying leases.

Q4 2024 FFO per unit was $0.10. This compares to $0.15 per unit in Q4 2023. However, excluding the impact of interest rate caps that expired earlier this year, FFO in Q4 '23 was $0.10 per unit in line with Q4 2024 results.

Q4 2024 AFFO per unit was $0.10 as well, which is $0.01 per unit higher than both Q3 and Q4 of last year, excluding the impact of the previously mentioned expired interest rate caps. The REIT's AFFO payout ratio for the quarter was 92% as compared to 100% in Q3 and 102% in the fourth quarter of last year. The increase in AFFO per unit is driven by improvements in interest expense and G&A, partially offset by lower third-party management fees.

General and administrative expenses, including -- excluding noncash compensation, decreased by $2 million compared to Q4 2023. The decrease over the prior year period is primarily a result of the REIT's continued efforts to improve operational efficiency by streamlining and simplifying operations and reducing costs including its reduction in workforce throughout 2024, which saw a head count decrease from 307 at the end of 2023 to 243 today.

The REIT's G&A cost ratio for Q4 was 5.8%, which is an improvement of approximately 70 basis points over Q3 2024 and almost 150 basis points over Q4 2023. We expect the G&A -- the REIT's G&A cost ratio to improve further to approximately 5.5% by the end of 2025, driven by our ongoing efforts to streamline operations and enhance efficiency.

Interest expense in Q4 2024 was $36.9 million as compared to $44.3 million in Q3 and $57.1 million in Q4 2023. The decrease relative to prior year and prior quarter in interest expense is attributable to the reduction in total debt outstanding and a lower weighted average cost of debt.

The $500 million bond offering completed on February 18, 2025, at a blended rate of 5.3%, enabled the repayment of higher cost debt with a weighted average rate of approximately 7.5% after factoring in the repayment of Series G on March 31. This refinancing is expected to generate substantial interest savings beginning in Q2 2025.

Gross management fees for Q4 2024 were $8.6 million as compared to $11 million in Q3 '24 and $12.3 million in Q4 '23. The decrease in management fees as compared to prior periods is driven by lower activity-based fees and incentive fees. Gross quarterly management fees during 2025 are expected to be in line with Q4 levels due to lower levels of activity-based fees being earned in the current environment.

As of December 31, 2024, the proportionate value of the REIT's investment properties was $4.1 billion, down from $4.3 billion at September 30. The $105 million decrease was primarily driven by unrealized FX losses due to the appreciation of the Canadian dollar at December 31.

The REIT's disposition activity during the year has resulted in the REIT making significant progress on its capital management strategy. Since December 31, 2023, the REIT has reduced proportionate leverage from $3.3 billion to $2.3 billion, lowered proportionate leverage, including convertible debentures down by 112 basis points to 58.1% and decreased consolidated leverage by 190 basis points to 50%.

With respect to the REIT's near-term debt maturities, the REIT only has approximately $269 million of 2025 maturities remaining including $125 million of Series G convertible debentures and $144 million of mortgages in Canada and Europe. As of today, the REIT's available liquidity is approximately $240 million that is expected to be used to repay Series G convertible debentures upon maturity on March 31.

Looking ahead to 2025, the momentum we built in 2024 provides a strong foundation for the year and beyond. We anticipate our earnings will reflect the impact of our asset dispositions, capital management initiatives and reductions in G&A expenses. However, our work continues. In 2025, the REIT will focus on further reducing interest expense by transitioning its capital stock to unsecured debt and reducing leverage through additional asset sales.

The management team is already addressing 2026 debt maturities and working to extend its weighted average term to maturity. Our Q4 investor presentation, which is available on the Investor Relations section of our website, provides more details on our portfolio performance, financial metrics and 2024 accomplishments.

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

[Operator]

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

[Frank Liu, analyst]

First of all, congrats on achieving the investment-grade rating and the successful issuance. Kudos to you guys and my old colleague at DBRS Morningstar. Just with respect to the debt repay with the $500 million unsecured debentures, I wonder how much of those debt are related to 2026 maturities? I mean, you've got a good handle on 2025 maturities. I'm just wondering what's your plan with respect to the $800 million maturing in 2026?

[Craig Mitchell, executive]

Frank, this is Craig here. Thanks for that, and I appreciate your comments. Thanks very much. We really appreciate it. I might just hand over to Stephanie, just to provide a little bit of color and detail to your question.

[Stephanie Karamarkovic, executive]

Yes. So of the repayments made about $165 million is 2026. And when you look at our debt maturities in 2026, there is a big portion of that, that relates to our Australasia segment, and those -- and that is debt within our JV -- in one of our JVs, which expires in November or December of '26. So that is a late '26 maturity and that we are already working on. So yes, I think we have a really good handle on '26, but we'll have more news on that over the coming quarter.

[Frank Liu, analyst]

Thank you, Stephanie. I appreciate the color. I mean a lot of heavy lifting has been done and just focusing more on the operational side of things. I mean, there's a new disclosure introduced last quarter, I believe, on the renewals, you guys down on a year-to-date basis. Just looking at the 1 million square foot renewals during 2024. How does the renewal spread and renewal rate achieved compared to the historical norm?

[Craig Mitchell, executive]

Yes, Frank, I'll take that question. We're pretty much -- the market is passing so it's reasonably consistent on the spread. So at this stage, we're not seeing material gains in positive leasing spreads. We're starting to see a little bit of traction from that from Europe. At this stage, let's call market [indiscernible].

And then -- and just -- sorry, just maybe a bit more color to that because most of our leases are fixed increases of between 2.5% and 4%, so then when a lease comes up in 5 years' time, we're picking up that inflation linked already.

[Frank Liu, analyst]

Got it. For sure. Yes, you guys have a lot of indexation, which is good to see. Yes. Just touching on your outlook, if you're -- if you can provide some color, SPNOI growth next year will be a similar range as 2024?

[Craig Mitchell, executive]

Yes. I think -- I mean we are seeing that retention rate in the 80s. So we see that's consistent. I think the leasing spreads will be consistent. Stephanie, maybe hand over to you for a bit of color on guidance on where we think like-for-like growth might look like in 2020 -- this calendar year?

[Stephanie Karamarkovic, executive]

Sure. Thanks, Craig. Yes, I think what I would say is that, as you alluded to, there's a lot of our leases that are indexed to inflation. And we're seeing inflation, of course, come down in most of our markets. And so therefore, I think the 3% to 4% is probably more reasonable, a little bit lower than 2025.

[Operator]

The next question comes from Himanshu Gupta with Scotiabank.

[Himanshu Gupta, analyst]

So on asset dispositions, I think you mentioned around $200 million of pipeline. So is it mostly Assura? Or are you including any other noncore properties as well?

[Craig Mitchell, executive]

It's mainly Assura, Himanshu. There are some noncore properties in -- across our markets in Europe, Canada, the U.S. and Australia. So that sort of $200 million sort of let's call that a minimum number, not a target number. Maybe the question that will come out at this stage, it does not include anything from Brazil. So it includes all markets ex Brazil. And the reason is interest rates are sort of rising in Brazil, and we don't see this as the right time to trade real estate in Brazil. So we did test the market and the pricing was not where we wanted to be when we reflected the real estate. $200 million is the minimum number.

[Himanshu Gupta, analyst]

That was my follow-up question, by the way, on Brazil. So thanks for answering that. Okay. So that's good. And then on the debt maturities, I think 2025 pretty much in the bag, except that mortgages left. On 2026, I think you did mention that some debt can be converted into unsecured debentures. So what debt maturities can you kind of tackle, which could be resolved through unsecured?

[Craig Mitchell, executive]

Maybe, Stephanie, I might hand over to you on that thinking?

[Stephanie Karamarkovic, executive]

Sure. So 2026 is a mix, as I said on the first question. A large chunk of that '26 is JV related debt, which wouldn't be -- we wouldn't be able to convert that to unsecured. But we do have quite a bit of mortgage debt in both Canada and Europe. I think between the '25 and '26 maturities, we're almost at $400-or-so million of mortgage maturities in '25 and '26 for the next 12 months. So yes, I think there's quite a bit there still. We also have our 20 -- the debentures, the 2027 debentures, which are available for prepayment August '26 as well.

[Himanshu Gupta, analyst]

Got it. Okay. And then on Healthscope, thanks for providing the color on the call and the filings as well. So some deferred payment for, I think, 8 weeks or 10 weeks rather, I think you mentioned. There are also news articles around that the portfolio could be sold. Brookfield could put this in the market. The question is like what happens in that case? Are there provisions to restructure the leases to roll down rents on this asset?

[Craig Mitchell, executive]

So yes, short question, I'll give you a sort of longer answer. I think the reality is in Australia, 68% of all surgeries, elective surgeries are done in private hospitals. And Healthscope is the second largest private hospital operator with nearly 5,000 beds. Our leases are locked and loaded regardless, Himanshu, who owns it, right? So our leases are structurally superior to any bank debt and even the real estate or the operations Go traded.

I do think what will potentially happen, HSO has about 2,000 hospital beds on its own balance sheet. So it's not -- doesn't involve any sort of sale lease back. So they might look at a partial sale of some of their operating businesses to reduce their debt load, and we'll be watching that very, very carefully. As you can appreciate, being the second largest operator in Australia in great locations, we are getting lots of questions from different operators. But I think it's prudent from our perspective is just keeping open engagement with all stakeholders as we go through this process.

[Himanshu Gupta, analyst]

Got it. That's helpful. Okay. And maybe my last question is on the AFFO payout ratio. And I think you've done a remarkable job in the last few quarters, tackling the balance sheet. Now on the AFFO side, do you have any, I mean, thoughts on the AFFO payout ratio for this year as you realize some of the interest rate savings as well? .

[Craig Mitchell, executive]

Maybe, Stephanie might, -- you -- might hand over to you on the policy in our thinking there?

[Stephanie Karamarkovic, executive]

Sure. Yes, I think we're targeting between the 80% and 90% range, Himanshu, as we get through the year and into '26. And we do feel that's achievable through some of the interest rate savings you alluded to, SPNOI growth partially offset maybe by a little bit lower management fees, but we are still feeling confident that we will be able to hit our policy of the 80% to 90%.

[Operator]

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

[Giuliano Thornhill, analyst]

I just want to turn to kind of acquisition markets. With where rates are in cap rates, which one are you preferring the U.S. geography or Canada? Because eventually, you are going to be in a position to allocate some of this capital that you release?

[Craig Mitchell, executive]

Yes. Crystal ball question, Giuliano. What I might just say, what's quite interesting is if you look at the KKR and Stonepeak bid for Assura, that gives you a sense of the amount of capital now look at health care real estate. They'd be at net tangible assets, which is 49.4p, which is a 5.2% blended cap rate. So we're now starting to see good demand from real estate.

To your specific question, I think cap rates are slightly wider in the U.S. than they are in Canada. But that's where we sort of sit today. So you might get a better spread in the U.S. to Canada, but I think that's still very early days. But if you ask me that question right now today, that's what I would say. But I think also I think the KKR on Assura is very interesting for just our sector globally and also where the real estate trends are happening.

[Giuliano Thornhill, analyst]

And so you envision or anticipate that closing in H2, the Assura deal?

[Craig Mitchell, executive]

Yes. assuming, as you know, the Assura Board has now given a limited [indiscernible] under Sections 2.7 of the U.K. Takeovers Code. They need to make a bid by the 7th of April. They then have 28 business days to issue scheme docks that happened before that. And then once the scheme docks are issued, you've got 60 days to do a vote. All that -- bring all that together with a lot of ifs and buts, call that 30 June. So end of June, early July would be on current time lines when the vote and cash would flow.

[Giuliano Thornhill, analyst]

And then the last question I had just on Brazil. I understand there's probably limited interest now, but do you still kind of view that as noncore and eventually that will be supposed of within your portfolio?

[Craig Mitchell, executive]

Yes. There is limited interest right now today or at the price that suits us. Yes, we've made it very clear from a strategy perspective, we want to be asset-light globally. So that would mean assets off balance sheet. So I think Brazil will come off balance sheet at some point, yes.

[Operator]

The next question comes from Pammi Bir with RBC Capital Markets.

[Pammi Bir, analyst]

I just wanted to come back to Healthscope for a minute. I just want to clarify, is that $2 million -- on the $2 million of rent that was deferred, is that the only amount that will be deferred or can that figure grow?

[Craig Mitchell, executive]

That is the only amount that's been deferred, Pammi.

[Pammi Bir, analyst]

Okay. And then can the -- I think the 10-week deferral period, can that be extended at all or?

[Craig Mitchell, executive]

No. We have a hard repayment date of 31 October. So no, it can't be extended and with a hard date.

[Pammi Bir, analyst]

Okay. And then you mentioned some protections in the leases like in the event of an HSO recapitalization of restructuring. So can you maybe just elaborate on what that implies or what you were referring to?

[Craig Mitchell, executive]

Sure. So we've got 12 hospitals. They're all on long-term leases with cross termination rights. So what effectively that means if you don't pay rent on the smallest hospitals, we can terminate all hospitals. So that's a very important structure piece. In the very slim possibility if the administrators come in or goes in receivership, rent still has to be paid under all scenarios because effectively, we own the operating business. So there is no safe harbor where rent cannot be paid. So under all scenarios, rent needs to be paid by anyone. So it's very -- so that's kind of why I say that we have a lot of confidence in our leases and the way we've structured our lease that seems superior to all bank debt. It has cross termination rights with everyone. In addition to that, no matter who is running healthcare, they've got to pay the rent.

[Pammi Bir, analyst]

I see. So in the event that any other operator steps in to fill their shoes, there's no -- I mean, you can continue to collect the rent as it said?

[Craig Mitchell, executive]

That's exactly right, right. They're stepping into a contractual liability with us and it is legally binding. Exactly. That's exactly right. Great.

[Pammi Bir, analyst]

So what is the coverage ratio? Or what can you sort of -- if you can provide a range, what is the coverage ratio on the leases with Healthscope as it stands at the moment?

[Craig Mitchell, executive]

As it stands set in Q4 was around just over 60%. And in the perfect world, it should be around 50%. So it's slightly above, but nothing material.

[Pammi Bir, analyst]

Sorry, you said it's 60%. It's current coverage is at 60%.

[Craig Mitchell, executive]

Yes, 60% rent to EBITDA. And that was before we did all -- or before they did the contract renewals for all the insurance. That's before and as you know, 50% is kind of the sweet spot for where we'd like to sit over time.

[Pammi Bir, analyst]

And is that where you are with some of the other operators across the portfolio?

[Craig Mitchell, executive]

That's exactly right. So it's all starting to trend down and some of our best assets are now trading in the mid-30s. And so I'm now talking specifically Australia and New Zealand, just to be so consistent. But yes, will start to trend down.

[Pammi Bir, analyst]

Yes. And sorry, you said some of them are in the mid-30s, not the Healthscope ones but some of your other operators, yes. Okay.

[Craig Mitchell, executive]

Yes.

[Pammi Bir, analyst]

Yes. Okay. Last one for me, just in terms of -- as you think about 2025, you mentioned a couple of hundred million of dispositions, including Assura, maybe that's a minimum number. Where would you ideally like to see leverage get to by the end of this year?

And Craig, I know you may not be here to see it through, but in terms of your budgeting process, what are you thinking about?

[Craig Mitchell, executive]

No, I think I'll have crack at the answer, and then I'll hand over to Stephanie. We're BBB low, and we're pretty proud of that. I think that's the bottom of the rung. And I think in a perfect world, we want to be that strong BBB lower one notch higher, right? So what that means we need to move and improve all our metrics whether that the absolute debt interest rate coverage, our percentage of unsecured debt to secure debt, you'll see us on a very clear plan to reduce mortgage debt with unsecured debt and really just simplify the capital structure of our business, which ultimately will bring our cost of capital down. So that 50% should be to now give you a hard number, that 50% would really be closer to 45% than it is today.

Maybe Stephanie, anything to add to that?

[Stephanie Karamarkovic, executive]

No, I think you got it.

[Operator]

[Operator Instructions] The next question comes from Dean Wilkinson with CIBC.

[Dean Wilkinson, analyst]

Two quick ones for me, Craig. Just on the Assura, I just wanted to confirm that your shares there are free for many lockups and in the event that KKR successful, that's a transaction you can support?

[Craig Mitchell, executive]

100%, Dean. So we have no lockup, we can support anyone. So yes.

[Dean Wilkinson, analyst]

Perfect. Nice and easy. And on the Healthscope, in the event that something changes in the ownership structure there, is there anything in the JV that would have some sort of either a drag along or shotgun or any other clauses that might get triggered that would give you either rights or hopefully not back you into a position?

[Craig Mitchell, executive]

Yes, a great question. No, there's no drag and tag rights in any way. From that, there's no termination right for the joint venture as a result of this. So it's all very clean and very open.

[Operator]

The next question comes from Charles Lazure with Mackenzie Investments.

[Charles Lazure, analyst]

Thanks for the update that was super helpful and congrats on the strong quarter. I just wanted to talk a little bit more about the -- or get some more color on the insurers in Australia for other operators, and I kind of think we got it briefly, but just wanted to get more color the second operator is having these tough negotiations with the insurers, clearly, it's fair to assume that some of the other operators would also be in tough negotiation position. So I just want to see about -- get your view on kind of how the other operators are facing potential negotiations with those insurers?

[Craig Mitchell, executive]

Yes. Thanks, Charles. I appreciate the question. I might just cut back in time. If you look at before COVID, so let me take another step. So roughly 45% of all Australians have private health insurance. The reason that percentage is so high is because once we earn over a certain tax bracket, if we don't have health insurance, we get stung with additional tax of 1.8%. So therefore, it really forces everyone down private health insurance. And before COVID, roughly, the industry says that the health insurers paid out 90% of their premiums to the private hospital operators. So that was kind of the pass-through.

Along came COVID and that there is a dislocation with that payout ratio and that power ratio now stands at 85%. So there's been a drop in about from 90 to 85. So there's been a huge amount of conversation, both at a government level and a relationship between individual operators and insurers to close the gap. And the market, the operators are looking for that 85 to go to 88%. So we're now starting to see some really good traction from that perspective, Charles.

Now -- and you've seen good negotiations by Healthscope with Bupa, Medibank and the alliances. Everyone takes a different approach. I think Brookfield took a reasonably sledge hammer to a [ peanut ] approach that didn't particularly go down well. I think their tone and approach has changed dramatically from last year to this year, which has really helped them get some good negotiations.

In addition to that, the Assura is right now is saying, we'll give you a sugar hit, a onetime kicker. And the market is saying, well, no, I don't want the sugar hit, I want a sustained increases. So everyone is pushing for more about 85% to go to 88% payout ratio. So we're seeing that right across the board and different groups are getting different wins, but you're getting wins up to 10%. I suspect to one operator yesterday, they got a 10% increase from Assura. So these are meaningful numbers. Does that help, Charles, bit of color?

[Charles Lazure, analyst]

Yes. That's super helpful. Appreciate it. And then just one more on my side. Just on -- going back to Brazil, again, obviously, you mentioned that you didn't get kind of values where you thought they should be priced at. But I just want to compare to book value for Brazil. Are these incredible bids were they all cash, cash and shares mix? Just want to get a sense of kind of where book values? How do you think they're fair?

[Craig Mitchell, executive]

Yes. So for Brazil, we expect Brazil or if you went to 1 January 2024 at the end of the calendar year of '24, we're expecting base rates to be 9.75%. It's a different world that we live and everywhere else. Those rates are now close to 13.25%. So it's been a big material shift. To be honest, with the inflation money sort of in the mid-4s. The bids we were getting weren't paying cash bid, say, well, I'll give you x now, best endeavors, paid over 4 quarters or 6 quarters. I'll pay you on the nominal mountain of the real amount. So it just -- it's from our perspective is too structured. We know the real estate is in great demand because some of our largest tenants have tried to buy it at reasonable prices, but still there are spread gap there. It's just a matter of timing.

[Charles Lazure, analyst]

Okay. And just for my benefit, have they sold -- have you sold assets in Brazil successfully thus far, in general?

[Craig Mitchell, executive]

No, we own -- basically, we've only got 8 assets in Brazil. We only put our smallest asset on the market roughly worth about CAD 30 million. But so that's -- so the answer that did not sell, so we've sold nothing. So we -- at some point, the Brazilian assets will come off balance sheet. I think it was Giuliano's question.

[Charles Lazure, analyst]

Congratulations again on the strong quarter.

[Craig Mitchell, executive]

Thank you, Charles.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to Craig Mitchell for any closing remarks. Please go ahead.

[Craig Mitchell, executive]

Thanks for all your questions today. I really appreciate it, and great questions and a lot of thoughts being put into it. And apologies again for pushing out this presentation for our Capital Day. You can imagine how frustrated we were. And look, I'd like to extend my appreciation to all our employees, our partners, our investors for your continued support and their continued support.

As we move through 2025, we're executing on a clear strategy. We're looking to strengthen our balance sheet. We're looking to drive operational excellence and create long-term value for our investors. With a strong foundation in place, our leadership focus on execution and a portfolio position for growth, we are confident in the path ahead. If there are any further questions, please don't hesitate to reach out to me and have a great day. Thank you, everyone.

[Operator]

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