NorthWest Healthcare Properties Real Estate Investment Trust (OTC:NWHUF) Q2 2022 Earnings Conference Call August 12, 2022 10:00 AM ET
Company Participants
Paul Dalla Lana – Chairman & Chief Executive Officer
Shailen Chande – Chief Financial Officer
Conference Call Participants
Sairam Srinivas – Cormark Securities
Frank Liu – BMO Capital Markets
Scott Fromson – CIBC
Mario Saric – Scotia Bank
Operator
Good morning, ladies and gentlemen and welcome to the Northwest Healthcare Properties Real Estate Investment Trust Second Quarter 2022 Results and Conference Call. At this time, all lines are in the listen only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] Also note, that the call is being recorded on Friday, August 12, 2022.
And I would like to turn the conference over to Mr. Paul Dalla Lana. Please go ahead, sir.
Paul Dalla Lana
Thank you operator and good morning, everyone. Appreciate you joining us today. I’m joined by Shailen Chande, the chief financial officer. Together, we are pleased to share our results for the second quarter of 2022.
First, I’d like to point out that during today’s call, we may look forward — 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 all of you to the risk factors outlined in our public filings.
And now to the quarter. The REIT’s high quality and defensive $10 billion plus portfolio delivered strong financial results highlighted by an 8% increase in net asset value per unit growth year over year, driven by fair value and gains exceeding $450 million and for the quarter AFFO of $0.20 per unit. Underpinning these results are the REIT’s foundational pillars which include a high quality defensive portfolio delivering strong built in growth in this quarter, 3.6% constant currency and SPNOI and supported by 97% occupancy and long term inflation index leases. The REIT continues to execute on attractive growth opportunities with almost $1 billion completed year to date, including $775 million US acquisition that closed in April in the quarter which further improved geographic and tenant diversification as well as tenant credit quality.
While the rising interest rate environment is tempering the REIT short term outlook for on balance sheet acquisitions. The REIT gains constructive on the long term demand factors that drive value creation in healthcare real estate. The REIT has a large and growing pipeline but in the moment is increasingly selective with the opportunities that allocates capital to and the preference to fund from fee bearing capital vehicles rather than directly on balance sheet has increased.
In terms of strategic capital formation, the REIT led a Vital Capital raise of $170 million in the quarter providing $50 million contribution at share. The raise supported Vitals’ next leg of growth which is underpinned by more than $240 million of committed development projects and a future pipeline of approximately $1.5 billion. In addition, on May 10th, the REIT entered into a second Australian core hospital joint venture with GIC, its existing partner. That includes a total commitment of $2.1 billion to continue building on the success of its first Australian JV that is now fully deployed or committed. These initiatives are key growth drivers of the REIT’s management fee income. Despite macroeconomic uncertainty, the REIT continues to see demand for healthcare real estate and capital flows into the sector and it continues to progress at pace its US and UK joint venture initiatives. It is working closely with a short list of institutional investors to agree final terms and complete documentation and that it will be in a position to announce the UK JV in Q3 with the US tracking towards a Q4 closing in 2022.
Building on its experience in investing in healthcare precincts the REIT is also working on a new $5 billion global healthcare development fund focused on the development of new generation assets at the intersection of healthcare, research and education. The REIT is in early stage discussions with institutional investors and has identified a SEED portfolio with which to launch a fund. With respect to balance sheet optimization, year to date, the REIT has refinanced or extended more than 93% of its 2022 debt maturities increasing its weighted average term to maturity to 3.3 years. At Q2, the REITs proportion at LTV was temporarily above target following its strategic entry into the US. That said, leverage is expected to decline by approximately 900 basis points to approximately 45% post completion of the US and UK JV initiatives previously mentioned. Importantly as well, with fixed term debt increasing to more than 70% of the REIT’s total debt and weighted average interest rates expected to decline by approximately 40 basis points to 3.3%.
The REIT continues to increase commitments and deploy capital in each of its joint venture platforms with total commitments exceeding $10.8 billion today, including $4.4 billion in undeployed fee bearing capital. Post completion of the previously noted joint venture initiatives deployed capital and total commitments are forecasted to increase to more than $19 billion and $7.4 billion respectively. With target ownership ranging between 20% and 30% across its global capital platforms, the REIT expects to generate significant uplift in both AFFO and NAV on a per unit basis by leveraging this more capital light model to fund future growth. For the quarter, our results were in line with expectations with $0.20 per unit of AFFO, implying a payout ratio of approximately 100%. Same property earnings and accretion from investment activity was in line with expectations. Although AFFO on a per unit basis was reduced by higher cost in financing in place temporarily to support its US acquisition.
Additionally, transaction volume within capital platforms was relatively low due to our focus on the strategic US entry and completion of the US — or the UK joint venture initiative. Finally, the appreciation of the Canadian dollar by approximately 4.4% relative to the REIT’s average foreign currency exposure year over year, similarly muted earnings by approximately one penny in the AFFO on a per unit basis. The impact of these items is viewed by management as a one time in nature and when reversed in the second half of 2022, per unit AFFO is expected to recover to trend. Critically, just isolating on the UK JV as an example, this will add approximately $0.05 per unit in 2022 to AFFO and $0.03 on a recurring basis thereafter as well as reducing leverage by 460 basis points alone. Reported net asset value during the quarter or during the year increased 8% to $0.14, $0.19 [ph] per unit driven again by fair value gains across the portfolio and the expansion of the global asset management business.
With respect to the liquidity, the REIT is well positioned with over $125 million of available on committed resources today. This is expected to increase to more than $300 million as the REIT seeds its current UK portfolio and future US portfolio into JVs. Operationally, our results were in line with expectations with accelerating SPNOI growth of 3.6%, largely driven by contractual or anti indexation. And again, underpinned by high 97% occupancy and a long weighted average lease term of 14 years. In all regards, highly defensive. While the macroeconomic environment is creating uncertainty around inflation and interest rates, the REIT remains well positioned with more than 82% of its revenue indexed to local inflation measures which include over 90% indexation in its international markets. Segmentally, I note the following. In Canada, we were on plan with portfolio occupancy remaining stable at 91% and SPNOI at 2.4% for the quarter. We continue to see a return to pre-COVID activity at our properties, including increased leasing activity quarter over quarter.
Additionally, we are making progress in a number of life sciences and ambulatory care initiatives which are gaining momentum and expected to become part of the business in the near future. In the US, our newest region, our portfolio is performing as expected with occupancy at 97% and an almost 10-year weighted average lease term. Northwest has successfully on boarded and integrated assets and respective management platforms and continues to progress on new renewal leasing activities, including a 26,000 square foot 30-bed expansion of an existing hospital tenant. In Brazil, we were on plan, steady 100% occupancy and continued strong cash currency SPNOI of 10.7%. Operationally, we note that the REIT’s major tenant in Brazil, Rede D’Or continues to deliver exceptionally strong results and is among Brazil’s top 10 companies by market capitalization.
Europe continues to perform well with constant currency SPNOI growth of 3.7% and occupancy stable at 97.5%. We continue to find good investment opportunities in Europe, allowing us to not only increase scale and critical mass in our existing regions but also to consider opportunities in adjacent markets. And finally, in Australia, our largest market, occupancy remains steady at nearly 100% and delivering constant currency SPNOI growth of 8.3% with a weightage average lease term of almost 16 years.
I’m pleased with the progress we’ve made during the quarter and post quarter which advanced the REIT’s strategic objectives and produced solid operating results with deep strategic relationships, best in class regional operating platforms and strong access to both public and private capital, the REIT continues to transition to a more asset light business, a best in class global healthcare real estate investment manager.
With that, I’ll now ask the operator to open up for questions.
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] And your first question will be from Sairam Srinivas at Cormark Securities. Please go ahead.
Sairam Srinivas
Thank you, operator. And thanks for your color, Paul and your opening comments. My first question is broadly on the macro picture. Considering the macroeconomic scenario you’re seeing right now and probably even looking at the Chinese real estate market, are you seeing any that play into the thought processes that your institution audiences are undertaking right now? And has that to an extent changed their view on the location to real estate?
Paul Dalla Lana
Maybe just — I think I understood your question but if I could just bring some precision to it. So are we seeing global investors thinking differently about where they might consider capital allocation and of course where that might drive some of our initiatives? Is it as simple as that?
Sairam Srinivas
Yes.
Paul Dalla Lana
Okay. I mean, listen, the last 90 to 120 days, of course in terms of macroeconomic moments have been impactful and that’s coming off of a couple years of COVID and high uncertainty and volatility around those sorts of initiatives. I think what we’re seeing when we’re out talking to partners right now is there has been a short term focus, obviously, very much towards inflation indexed or related investments. Of course, the overwhelming trend in the last 90 days has been increased inflation across the globe. I think we fall into that bucket, of course and that we are highly linked to inflation. Of course, our business does have some caps and collars. So it’s not as pure and open as some segments but still highly related and tracking to inflation growth. We’re seeing that in our own portfolio, of course today, as we see SPNOI roughly getting up to that 4% range across the business. So that is a big theme that we’re seeing. Certainly, with this amount of volatility in the market, so although at later in the quarter and in the moment today, I think we’ve seen a little more stability come through with perhaps some better visibility on what long term rates might be. We’ve certainly seen a little bit of pause in activities across all sectors.
I think that’s a theme that is probably pretty relevant, although that hasn’t impacted our thinking and our discussions around capital formation in that I think broadly speaking, there’s still a significant underweight in global capital pools into the “alternatives space” and the big re-weighting that was going on continues. So we’re still pretty constructive on capital formation. And I think it’s really a much longer term trend than the moment. So those would be some themes that we’ve seen at the capital level. At the operating level, I might just call out one theme which is really become pronounced which is building on the post pandemic kind of moment. And that’s really an incredible demand for health services, probably only muted by capacity and that capacity is probably being very much driven by human resources, more than anything else. So we’ve never seen a moment where there’s so much demand for health services. And as a result, a lot of discussion with operators about how we can help provide capacity and new capacity. So very big things. So fundamentally, healthcare is very strong, again, muted really by human resources and the ability to provide services which there’s lots of strategies on to grow and evolve. So those would be a couple big trends that we’re seeing coming through the quarter and generally which remains supportive to our business and really only a small amount of tempering around the edges in each case.
Sairam Srinivas
Well, just following up on your comment on the shortage of resources, especially [indiscernible] that into the Canadian market, has that moved your conversations with authorities here in terms of opportunities we’ve seen in this market?
Paul Dalla Lana
Yes. No, I don’t think it has and again, recall that we have quite a mature existing medical office building portfolio, so growth for us through that portfolio has always been a little more incremental and tuck in, in that we’ve had again, almost 18 years, if I count our pre-public time to build the MOB business across the country. Where we’ve been very focused is in two newer segments. So in the ambulatory outpatient space and really as we talk about Canada and the pressure points in the health system in Canada, we’ve never seen it as high. It’s at the breaking point level and so ambulatory and outpatient is a real trend. And clearly it’s a mature trend in other markets, like the portfolio we’ve acquired in the US as an example which is a much more evolved market but we are just seeing a lot of thinking around new formats and really getting as much healthcare as we can out of major acute hospitals so that they can do the major acute work and that the more simple and less acuity and better cost environment. And that’s a big trend. How to do that and where to do that again, in a public system becomes a bit stylized but we’re in very active discussions in all of our regions with healthcare providers around how we can help them do that. We see that as a very fundamental trend in Canada growing.
The other new segment that we’ve been looking at quite closely and I think we will have announcements here in the third quarter is into the life sciences space. It’s a new segment for us. So we’ve been spending a lot of time thinking about it. Now we have a number of initiatives that are close to fruition that will have both I think really attractive investment opportunities for us for long term partnering with educational and research and healthcare partners. You’ve heard our healthcare precinct strategy is very evolved in other markets. And so we’re hoping to bring that back to Canada here and certainly in the second half of the year. So those are two Canadian thoughts and that market like any markets is very active and quite a secular story around life sciences of course.
Sairam Srinivas
Thanks for that. That’s really great. My final question is on G&A. Obviously, in this quarter, we saw a bit of an uptick on G&A. From a modeling perspective, would you say that’s something which we should be keeping in mind going forward, or is this not represented or studied yet?
Shailen Chande
Hey, good morning, Sai. you have Shailen here. Thanks for that question on G&A. And I would call out the Q2 traditionally for us aligns with Vitals’ yearend and I think what you’re referring to is our consolidated G&A numbers. So as part of Vitals’ yearend, you see things like their AGM, their annual reports and Q2 G&A tends to be inflated by the tune of about $1,5 million to $2 million or so as a lot of those expenses are yearend loaded, I mean, that vital. So I would call out that on a run rate basis, we see that Q2 number come down about $2 million and that’s representative of what you’d see in Q1 and Q3 and Q4.
Sairam Srinivas
That’s brilliant. Thanks, Shailen, I’ll be going back.
Operator
Thank you. Next question will be from Frank Liu at BMO Capital Markets. Please go ahead.
Frank Liu
Good morning, Paul and Shailen.
Paul Dalla Lana
Hi.
Frank Liu
Morning. So just wanted to touch on the US JV side. So that still expected to be closing Q3 or it could be like a Q4 event?
Paul Dalla Lana
Yes, I think we’ve messaged that Q4 for the US and Q3 for the UK.
Frank Liu
Thank you. So and then I think in your MD&A, so basically like the US portfolio is currently classified as a health for sale. And then you’re gradually going to sell like properties to your daily partner in the US?
Paul Dalla Lana
No. We think as with other initiatives that we’ve done in the past that the US initiative will be portfolio based as opposed to asset based and that we’ll do it on block with a partner, I guess. And so, that would be some precision to that comment.
Frank Liu
Got it. Also just switching gears to the new %5 billion global house care fund. I’m just curious, like which geography would that fund focus on? And I mean, the assets are looking to sitting like your existing assets or looking to buy new assets and sitting to JV.
Paul Dalla Lana
Yes, sorry. Some precision here required. That initiative is our development core fund. It will be principally Australia based, although possibly include New Zealand. And yes, we will see that with a number of our existing balance sheet initiatives which are long term healthcare precinct developments which we’ve been assembling as a portfolio. We have three today that are in that category. And as I said, we’re in advanced discussions with a small number of very significant partners to pursue that. So compared to our Australian core JV, as an example, it will be also equally long term, have more development, of course, principally development oriented. And we expect to have some precision on that by the end of the year here later in the fourth quarter with a number of projects starting to enter into commencement of construction and master planning. So good progress happening on that initiative.
Frank Liu
Okay, perfect. That’s all my questions. I’ll turn back. Thank you.
Operator
Thank you. [Operator Instructions] And your next question will be from Scott Fromson at CIBC.
Scott Fromson
Thanks and good morning gentlemen. So just turning back to UK, the hospital market there is clearly very highly perspective but the JV timeline is taking longer than expected. Does this reflect things like the ongoing pandemic waves, economic slowdown and, or deal complexity, or does it reflect changes in the potential partner group, things like partners dropping out or changing the terms due to pressures in other parts of their portfolios?
Paul Dalla Lana
Yes. Thanks, Scott. That’s a super fair and good question. So let me go back in history a little bit. I think it’s been a little bit of all of that over the last three quarters as we’ve announced this initiative and then been looking to bring it to conclusion. Maybe as a reminder, we started with a portfolio that had a heavy amount of asset management initiatives required to it. And so while we knew where we were going to do the JV, we deferred sort of completion and execution of it through the completion of those asset management strategies which have worked out very naturally for us and have really resulted in some significant value creation for the business.
And that’s really the 2021 story. Through the balance of this year, I think what I’d say is that our JV process moved forward successfully and as expected and that we made a decision late in this quarter to extend that process to allow potential strategic partner to become involved with a slight potential to, let’s just say evolve the JV that we originally had in mind. It was done very consciously and we’re actively working at that which we think will improve sort of the breadth of the JV initiative going forward. It’s not complete but we made a conscious decision again, noting that we had a successful process through the JV and that as I mentioned in terms of its quarterly and go forward impacts really is important to the business on those three metrics of 2022 earnings and NAV as well as of course LTV.
So we made quite a conscious decision in the last 60 days to say, let’s give this opportunity to see if we can broaden and perhaps even improve the quality and capability of the JV. We’re also advancing that nicely and that’s with a successful process behind it now and being in a position to move forward definitively once we’re able to determine that. So still little work to be done here over the next 30 to 60 days on that strategic angle to the JV. It was a difficult decision for the business. Again, noting the importance of the underlying JV to our results and our strategy but we felt in the long term and in the possibility of doing something that would make it even more compelling and market leading in a number of ways that it was the right decision.
So little bit of flavor there. Of course, through our regular JV process which we had an act of advisor involved and a number of parties, we probably had 125 different investors through that process and all sorts of variations to your earlier question of what was it like. But in general, I think the themes that you’ve heard me talk about around high interest and long term index cash flow, the stability of the UK, particularly with its overarching NHS underwrite and the high quality portfolio that we had with three of the four top operators and long term contractual best in class leases and arrangements was very compelling.
And so, I think we’ve found it very productive to go out and meet with a number of investor groups. And we narrowed that field down to a very short list of what we could consider the highest and best kind of long-term partners that we might find and I think we were able to get to that point successfully. And so, we’ve initiated this small extension to allow it to just evolve a little bit and it’s carried over through the quarter end but we’re quite constructive on bringing it to conclusion now.
And again, we understand it’s importance in the overall business of course.
Scott Fromson
Thanks, Paul. That’s a very comprehensive answer. Not to put you on the spot but could this evolution of the process involve effect of deployment of the capital at an earlier point than you would initially anticipated?
Paul Dalla Lana
It could but I’d be reluctant to sort of commit to that at this point but that’s the type of thing that makes it strategic enough to warrant the extension that I mentioned.
Scott Fromson
And has the extension brought in other potential partners?
Paul Dalla Lana
I think it could but I think we still see clarity with the parties that have ended up at the success end of our original process. So we’re not imagining that it’s going to be overly complicated and larger in that sense. We’re still keeping it to a relatively small group.
Scott Fromson
Okay, thanks. And then just a quick question on acquisition, valuations, or asset valuations. Have you seen any change, any expansion of cap rates across the portfolio in terms of what vendors are looking for? Are they holding firm on the basis of long term prospectivity?
Paul Dalla Lana
Yes, that’s a great question. So listen, I think in the moment and certainly you know what we have seen is a bit of a liquidity premium, or from a vendor perspective, perhaps a liquidity discount. It hasn’t come through our discussions but again, we do see that out there in terms of broad transaction land. And I know the thought of interest rates being higher than they were and that’s for sure a noticeable trend does drive the potential for some widened cap rates. I think the market talk that we hear and see could be in that 25 basis point range. That said, from our portfolio, one of the offsets against that and we’ve been doing a lot of thinking about that, of course, is sort built in indexation.
And so we sort of see our portfolio quite insulated from that type of change because we’re seeing much higher indexation and rental growth coming through the portfolio. So there’s a natural asset, so a few answers there but for sure in the moment, people are asking themselves what are long term rates and as a result, what am I doing about it? And that’s probably, as we know, at least in private markets ended up in a bit of a bid-ask spread which is prototypical. We do see some of those transmuting post quarter, certainly with a little more rate stability and the long end of the world coming in to I think sort of more normalized levels. Things have already started to come back and tighten down.
So those are some things that we’re seeing. And obviously in our perspective, other than trying to be very opportunistic and we haven’t seen any particularly opportunistic situations arise given the core nature of what we do, we see maybe a slowing of volume. We’ve done the same thing just to make sure we’re comfortable about that long set of arrangements and to end up in a balanced place. So those are some trends that we’ve seen out there and how we’re responding to them anyways.
Scott Fromson
That’s great. Thanks, Paul. I’ll turtle [ph] back.
Operator
Thank you. Next question will be from Mario Saric at Scotia Bank. Please go ahead.
Mario Saric
Hey, good morning. I hopped onto the call a little bit late, so I apologize if some of this has already been discussed but Paul, I did want to start with your most recent comment and the question on the extension of the UK healthcare fund and noting it serves to kind of improve the overall breadth and kind of the outlook of the JV but at the same time, it sounds like the ultimate kind of LPs in the fund will be consistent with what you envisioned at the onset. So if that is the case, I’m just curious if you can add a bit more color in terms of how the LP-based duct is improved or how the outlook for the JV improves with your proposed solution.
Paul Dalla Lana
Yes, that’s a good question, Mario and it might be a longer answer that we may need to take a little bit offline, just given some other comments that I’ve said but what I can say is that as with existing arrangements that we have in our existing JVs, we’ve been looking for long term partners that have the capability to do again, bigger than smaller things. And as a reminder, the UK portfolio, if you will is core and in the market that we want to be in for the long term. So those sort of thematics underpin sort of our approach to what we might do. We’ve more typically been, as we said a small number of institutional partners, as opposed to perhaps a fund to say it a different way.
And that continues through the UK process that we ran, although we saw lots of alternatives in that direction and we’ve sort of elected to continue in the structural format that we’ve been using so far. And again, with the strategic partner or the strategic element that I’ve just mentioned, I think it has the potential to increase both the size and perhaps let’s say the development or growth of the JV, the internal growth of the JV and that’s kind of the thing that we’ve liked the most about it. So it’s complimentary to our existing business and to our existing arrangements but this is not done. And I just say that the existing JV, irrespective of if we’re able to move this over the line is well placed to complete and we felt that it was worthwhile at the risk of having to have this expanded conversation with all of you in the right way, of course, to take that for the long term opportunity set.
It still, if I had to balance it a 50-50 proposition today and I think the expectation for the business is that in all events will complete the underlying JV in Q3 and move on with what we said we were going to do. And there’s a possibility that we can grow it and make it even more qualitatively better and you know that’s the decision that we took and it was a tough decision. I mean, we know that it’s an important step in the business for us and we’ve been talking about it for a while, so we didn’t take that lightly. So that was the moment that we came to and excited about bringing conclusion to all of it, of course. You’re right to say sort of what are we doing and lots of good questions but I think we’re on the cusp of having that answer and I expect that we’ll have some good news very shortly.
Mario Saric
No, I can appreciate the complexity and the short term is the long term tug of war, for sure. Sorry, the 50-50 proposition that you just made the comment, Paul, sorry, is that in reference to the JV deal getting done or is that in reference to something else?
Paul Dalla Lana
Yes to the expanded JV, if we can say it like that. Yes, the 100% reference to the JV getting done. So just to be clear, that hasn’t changed.
Mario Saric
Okay. Switching gears to the global precinct fund and more specifically, just to the development yield that you disclosed came down a little bit, quarter a quarter, 10 to 20 basis points. I’m not sure if that was just FX driven or whether it does reflect the escalating cost structure that we’re seeing across asset costs globally. How do acquired returns within this fund compare to kind of your predecessor funds in Australia? So like for like asset, development versus a stabilized asset, how should we think about required returns in that fund? And whether there’ll be any notable changes in the fee structures within this fund relative to what you have today?
Paul Dalla Lana
Yes, that’s an excellent question. So I’ll let Shailen pick up on the narrow one of rate. Before that, I’ll answer broadly. So yes, this would be in the core plus type return range versus core which is our existing JV, so wider for sure. It is initially substantially development oriented. So markedly higher fees in the near term, obviously, same fee structure in the long term as approximately the same fee structure which is a combination of base asset management fees and property management and leasing and related fees. So probably what’s noticeably different is in development. And so that fund, I think, will be substantially development oriented initially and then migrate into a fee structure that looks like the core JV product that we have today. So, I hope that answers the question.
In terms of the bigger theme of where our returns today and what are people looking for? I think with long term core investors, there’s been some movement there and it may be what we’re seeing, could be in that 50 to 100 basis points but certainly that’s also driving the look very much at the development process to generate opportunities, given how hard it is to find core stabilized healthcare assets in general. So I think we see the build to core fund, more answering that opportunity which is being able to provide new product, new generation product, state-of-the-art facilities and attractive risk adjusted returns through the development process and so there’s high appetite for that given the nature of the sector, as you recall, some of our most core assets in Australia were trading into the high three cap range as recently as this quarter, we see that; so action evidence there.
So there’s very strong demand to be able to find that product new built and with all the features that we like at a premium yield to that sort of baseline. So that’s the rationale behind the fund. And of course the thing that we brought to that is the precinct angle which is that the investments and the development can be multi-phased over a long period of time as we build out large campuses with a variety of different users. The other element is that we’ll join venture or partner with experts in related types of assets that might be on a precinct. And so it has quite a broad remit and we think really provides us with some tools to create that core product for a long term investor base.
Mario Saric
And you mentioned within the UK healthcare fund, there was 125 LPs that you kind of looked at over time. What’s that process been like with this fund? And if you have to take a guess today, what ends up being kind of the size of the LP base within this fund?
Paul Dalla Lana
Yes, that’s a fair question. We’re targeting a very small number of big investors that again are capable of making 20 plus year commitments and providing significant capital over that time. So it’s quite a select group where they’re well known to us and we think it’ll be a very small club as opposed to a broad based fund.
Mario Saric
Okay. My last question just comes to FX. You had some pretty decent fair value gain recorded this quarter but it was completely wiped up by a pretty significant FX loss. As these funds launch over time in the different jurisdictions, how do you think about maybe altering the FX strategy over time, if at all, as you kind of bring in new partners with different costs of capital and things like that? Does it change at all as you [indiscernible] your asset management business?
Paul Dalla Lana
Yes. I think from the earning side, I think more as the business reaches this next level of maybe structural simplicity from our standpoint, or just achieves its destination, then I think we look favorably to sort of bringing in tools on the earning side that might reduce any interim volatility. And I think that would be prototypical to others in the industry that might be doing things in the one to two years, sort of to smooth out anything on the balance sheet, as it’s really hard to hedge the balance sheet other than using in-region financing. And so the good news is that perhaps we’ll be more diversified and spread across an even larger number of markets and we’ll let that continue to work. I mean, we’ve certainly been out actively researching alternatives but it’s not easy to hedge the balance sheet, as we know.
And so, we don’t have at the moment, a plan to make a dramatic change there, other than that, we’ll be reducing our look-through ownership into that from where it is today down to approximately 30% as we’ve been guiding to. And that’s the journey that we’re on. And I guess that will give us the ability to have more diversification and related things, broader market exposure. We’ve added the us which we think will provide some more stability but yes, that’s kind of the direction to travel, I think in the moment.
Shailen might [indiscernible] add to that.
Shailen Chande
Yes. Hi Mario. Paul, I think that covers off a lot of the — I mean, a lot of the conceptual theories around FX. I think if I was to think about Q2 specifically, the real FX pressure came from the pound versus the Canadian dollar and that’s obviously a portfolio that we have on balance sheet known 100% of. So I think as we evolve to more of the capital platform — capital light platform strategy, what you’ll see is just more equalization in relative FX. Right now, there’s disproportionate weighting on balance sheet assets relative to capital platforms, given our proportionate interest. So we see that as being a stabilizing factors, as we execute on both the UK and the US and bring a more balanced FX profile to the business.
Mario Saric
Okay, that makes sense. And then from a disclosure standpoint, Shailen, is the intention to group the US, Canada, Brazil, as the Americas going forward or are you to provide separate geographic disclosure?
Shailen Chande
Yes, most definitely into the Americas. I think we’d had that Canada, Brazil breakout prior to entering into the US. And I think the US really solidifies our America’s or Pan-American strategy, so as we look at it going forward, it’s into those three segments of America’s, Europe and Australasia.
Mario Saric
Okay, thanks.
Operator
Thank you. And at this time, Mr. Dalla Lana, we have no further questions. Please proceed.
Paul Dalla Lana
Thank you. Yes. No appreciate everyone’s involvement today. Maybe as a final point and just coming back to some of the UK JV comments that we’ve said, we made a conscious decision this quarter to extend our JV for — our JV formation for a number of key reasons. Again, we do note that had we proceeded as we were in a position to do that our earnings this quarter and for the balance of the year would’ve been plus $0.05 per unit higher and on a $0.03 on a run rate basis for 2023. And obviously, LTV would’ve been 460 basis points lower than it is today. So that is still a highly visible transaction that is coming through the business shortly. And we made that decision consciously to permit further exploration of an even more qualitatively superior JV opportunity. But in all events, we expect to bring conclusion to that process in Q3. So, just to bring a highlight to one particular item in the moment. But thank you everyone for your time and appreciate your involvement. Have a great day.
Operator
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
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