Vital Infrastructure Property Trust (VITLUN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the NorthWest Healthcare Properties Real Estate Investment Trust Fourth Quarter 2022 Results and Conference Call. [Operator Instructions] This call is being recorded on Friday, March 31, 2023. I would now turn the conference over to Paul Dalla Lana, Chairman and CEO. Please go ahead.

Thank you, operator, and good morning, everyone. Appreciate you joining us today. I'm joined by Shailen Chande, the REIT's Chief Financial Officer. Together, we are pleased to share our results for the fourth quarter of 2022. But first, I'd like to point out that during today's call, we may make forward-looking statements as defined under Canadian securities law. While such forward-looking statements reflect management's expectations regarding our business plans and future results, they are necessarily based on assumptions that are subject to uncertainties and risks which could cause actual results to differ materially. We direct you to all of the risk factors outlined in our public filings. And now to the year and the quarter. Operationally, the REIT's high quality and defensive portfolio delivered strong results, including 2.9% same property net operating income on a year-over-year basis in Q4 2022. The REIT's portfolio occupancy of 97% is underpinned by a weighted average lease rate of 14 years with 83% of the leases subject to rental indexation. With our portfolio comprising more than 2,100 tenants, the REIT is highly diversified and its tenants are performing well, including its top 10 hospital operators having an average EBITDA coverage of 2.3x. In 2022, revenue and net operating income both increased by approximately 20%. We However, as a result of higher interest rates, temporarily elevated leverage and lower transaction volumes within the REIT's capital platforms, AFFO per unit declined to $0.73, a 16.1% reduction compared with 2021. Subsequent to year-end, the REIT entered into hedging arrangements to fix approximately $892 million of floating rate foreign currency debt facilities, which will immediately stabilize results and increase annualized AFFO by $0.05 per unit. Additionally, the REIT has actioned several accretive initiatives to improve per unit results including $220 million of noncore asset sales and focused completion of its U.S. joint venture initiative, which when combined with the U.K. JV and are expected to generate between $425 million and $500 million of net proceeds in 2023 and add a further $0.03 to $0.05 per unit to AFFO. Considering the in-place hedges and incremental initiatives underway, the REIT anticipates AFFO per unit increasing by approximately 10% on an annualized basis over the course of 2023. Finally, as transaction volumes normalize and the REIT deploys its approximately $4.5 billion of undeployed capital commitments at a pace comparable with historic levels, it expects a further $0.03 to $0.05 per unit in incremental earnings with overall annualized results returning to the mid-$0.80 per unit level. From a balance sheet perspective, at December 31, 2022, the REIT reported debt to gross book value, including convertible debentures of 56.1% on a proportionate basis. Considering the approximately $220 million of noncore asset sales and in addition to its commitment to closing the U.K. JV in Q2 '23 and the U.S. JV later in '23 and associated debt repayment, the REIT anticipates leverage decreasing by almost 1,200 basis points to 44.5%, which is its long-term target. REIT has aggressively addressed its upcoming debt maturities and has refinanced $1.7 billion of expiring debt since the beginning of Q4 with the goal of extending term and increasing exposure to fixed rates. As a result, the REIT has now refinanced 67% of its 2023 debt maturities extending its weighted average term to maturity to 3.1 years and it's increased the portion of fixed debt including hedges to 63%. Importantly, the REIT has done all of this and at the same time, reduced its weighted average cost of borrowing to 4.7%. The REIT would like to provide an update on its U.K. JV initiatives. Since last quarter, the REIT has secured a commitment with an institutional investor for a larger investment in the REIT's U.K. portfolio that will now amount to between 70% and 80% of net equity in the U.K. platform and accelerate the REIT's deleveraging strategy while providing capital for future growth. The commitment is subject to diligence, final documentation and typical closing conditions and is expected to complete in Q2 '23. The U.S. joint venture initiative continues to progress with the REIT working towards commercial terms with qualified partners, and despite a difficult macroeconomic background, closing in the second half of 2023 remains the focus. Additionally, the REIT has identified $220 million of directly held noncore assets in the Americas, Europe and Australasia. Sales processes are underway for select assets and marketing for the balance will begin in Q2 '23. Collectively, these transactions are anticipated to generate net proceeds of between $425 million and $500 million, which will be redeployed to repay higher cost and variable rate debt. From an investment perspective, the second half of 2022 was impacted by the rapid rise in interest rates and widening bid-ask spreads on assets between buyers and sellers. As a result, transaction activity was muted. As we look towards the second half of 2023, we see pricing expectations beginning to converge and expect transaction volumes to begin normalizing. Nonetheless, NorthWest had a successful '22 from an acquisitions perspective with $1.1 billion of completed acquisitions, highlighted by its entry into the United States market. The REIT remains constructive on long-term demand factors that drive value creation in health care real estate globally. And with more than $4.5 billion of available committed capital, it is well positioned to execute our new investment opportunities while remaining disciplined in its capital allocation strategies just across 8 global markets. Segmentally, I note the following. In Canada, we were on plan with portfolio occupancy remaining stable at approximately 90% and seeing parking revenues return to pre-COVID levels quarter-over-quarter. Additionally, we continue to make progress on 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 U.S., 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 onboarded and integrated the assets and respective management platform and continues to progress on renewal leasing activities. In Brazil, we were on plan with steady 100% occupancy and continued strong constant currency SPNOI of 9.2%. 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 occupancy in WALE stable at 97% and 16 years, respectively. We continue to find good investment opportunities in Europe, allowing us to not only increase scale and critical mass in our existing markets, but also to consider opportunities in adjacent markets. And finally, in Australasia, our largest market, occupancy remained steady at nearly 100%, delivering constant currency SPNOI growth of 6.7% with a weighted average lease term of almost 16 years. Corporately, I'd like to highlight that REIT published its second annual sustainability report, also outlining key accomplishments and specific organizational goals for the future. I am 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 capital across the platform, the REIT continues to transition to a more asset-light business, a best-in-class global health care real estate investment manager. With that, I'll now ask the operator to open up for questions.

[Operator Instructions] Your first question comes from Mike Markidis from BMO.

Just on the U.K. portfolio, congrats on securing the additional equity commitment. Could you maybe comment on sort of what the give and takes were in that transaction? And specifically, I'm just curious as to where the valuation would come out relative to where it was marked as of Q4?

I'll address sort of in 2 parts or maybe even 3. But to the first, I think part of the decision that we made over the course of the last 90 days was to increase the size of the JV. There were a number of structural considerations to make it work efficiently, both for our partner and ourselves. And so we spent the extra time figuring those things out, and it allowed us to increase the size of the investment to a more conventional level there. I think we're not in a position to talk yet about valuation, but we'll be once all the Is and Ts are dotted, which are expected certainly in the next 30 days or so. So that's a quick update.

Okay. Appreciate that. Just on the plan to move ahead with the U.S. JV, it totally seems that you're confident in that transaction, both in the press commentary and on the call commentary. Just trying to reconcile that with the declassification of the U.S. portfolio from held-for-sale back just into normal income-producing properties. Is that just an accounting technicality or is that just trying to circle -- reconcile that change.

I'll pass that to Shailen. Thanks, Mike.

Yes. Mike, yes, thanks for that question. You are correct in that we've historically included both our U.S. portfolio and U.K. portfolio in assets held for sale. It is indeed an accounting technicality. We would have reclassified the assets and immediately classified the U.S. assets into assets held for sale in Q2 2022, and there is a technicality within IFRS that requires the assets to be sold or anticipated to be sold within 1 year of the initial classification. So given that we expect the U.S. in the latter half of 2022, accounting for -- accounting statement for us to put it into -- back into IPP, if...

Got it. So even though you anticipate to sell it within a year or today or at Q4, the accountants don't care didn't happen or is not planned to happen within a year of initial classification.

Correct. It's not a rolling test. There's some technicality there. It's from the initial time of classification.

I do love accounting. Okay. Moving on, and last one from me before I turn it back. Just on -- can I appreciate the color on the impact of the -- all the transactions that you have planned and the potential impact of 10% on AFFO per unit. Just to clarify, does that -- should we read that to mean that you'll get there for your full year 2023 number? Or is that a run rate will get to a plus 10% versus where we were in 2022 at some point in the year?

Mike, I'll respond to that. So it's a full year number. So the run rate will be a little bit higher. And there's really -- that doesn't include exactly future transactions, which would be additive to that number and clearly dependent on things happening. So it's really meant to be a specific number where we're talking about the immediate impact of the completed hedging initiatives, which are in place today. And the JV and noncore sale initiatives, which are -- the U.K. is signed up and the U.S. and the $220 million to come. So just to bring some precision to that 10% is over.

Okay. So just to elaborate on that, I think you guys had 72 in 2022, so approximately 10%, and we just used 10% implies 79 with -- for this year with some room for additional based on redeployment of capital and normalization transaction volume.

Yes, I think it's a little bit above that, but I might suggest maybe that we can take that offline and get into the precision of it or you can with Shailen.

Your next question comes from Sairam Srinivas with Cormark Securities.

Just probably to wrap my head around this U.K. JV announced update as such. Are you able to comment on the increase in size on the comment of this -- commitment at this point?

I'm not sure I totally follow but just to be clear, the transaction that we announced in December, I guess, late November, it was our last earnings call, contemplated a 15% investment in our portfolio. And so the incremental news, I guess, to say it directly, is that, that 15% has now become between 70% to 80%, which is more traditional to our current JVs and our preferred long-term asset-light structure of 20% to 30% look through ownership. So it's super consistent with that. And the reason, as I mentioned, again, we had always been desirous of this level of JV to sell down, if you will, and what prohibited us at the time in the fourth quarter -- or sorry, last year, I guess, was some technical issues around structure that limited what we could do and announce at the time. So we've been able to work through those in the interment and come to a more preferred long-term level of ownership and structure. And so that's sort of the journey we've been on.

All right. And if may I have please, the last question is on capital recycling. At this point, are you guys comfortable in saying which markets or on this present moment are [ dominating ] the impact.

Yes. Yes, we are. So that $220 million is comprised of assets in most of our markets. It's reasonably evenly weighted. So -- and again, these are all assets that we believe are performing assets that can sell and be within striking distance of our current book value. So it's -- again, we're looking closely at our portfolio and looking for where we want to deploy capital and focus our energies. And so that's been a healthy exercise and probably went to 5% to 7% of our portfolio. I would think that, that's over time, going to be a pretty steady-state exercise for us as we look to just refine and improve the things we're working on. So there's nothing in there that's particularly difficult or nonperforming, and we see it's quite a broad-based mix of assets across multiple markets, which are all open and capable of receiving them. It's a bit of a segue maybe into the demand for health care real estate. And I guess we are seeing some exceptional demand across both Europe, Australasia and of course, the U.S., where we have very fluent markets. And we just echo that health care real estate as a maybe one of the larger of the alternatives continues to be strongly in demand and highly defensive. And so we expect, again, given that this is a broad-based process with many assets selling success, and there aren't any sharp edges to any one of the transactions or anything involved in it. So we're experiencing high demand, a number of these are under contract as we speak and with the balance sort of in process, and so I expect that there'll be a continuum of announcements as we sort of chip away at it through the next couple of quarters.

Your next question comes from Pammi Bir from RBC Capital Markets.

Just with respect to the $425 million to $500 million, I guess, of the net expected proceeds on the initiatives. How does that break down between the noncore assets in the U.K. and U.S. JVs?

Pammi, I guess the specific breakdown will be disclosed as we execute on the transaction. As Paul noted previously, the largest component of that -- I mean, of those bucket of transactions would be the U.K., and we'll be in a position to better comment on that over the coming quarter as that transaction is finalized.

Okay. I think if I recall, the U.K. JV, the -- I think the total sort of aggregate expected sort of equity repatriation if you were to get to that sort of 70% to 80%, which it seems like you have now. I think -- am I right in recalling $350 million as sort of the rough figure?

Yes, I think we'll probably need to go off-line on that. I think obviously, the disclosure's been over a period of time. FX rates have changed. The percentage sell-down has changed. So I think we'll need to get into a bit of that detail. But I'd call out that over the next quarter, specific numbers will come out of net proceeds from that transaction.

Okay. All right. Maybe just on the U.S. portfolio, can you talk about maybe where does that process sit at this point? I think you mentioned that you're still engaged with qualified partners. Is it pricing? Is it lining up financing or kind of all of the above that's maybe stalled or tempered [ EBITDA ] further progress on that?

Yes. So I think a few questions in there. So again, we are still looking at pricing within the context of our IFRS book value. So that's something that we believe is achievable, certainly within striking distance of that. I think maybe I've previously spoken just about sort of capital formation moments. And so I think what I would say is the U.S. was sort of the quickest and sharpest to sort of turn off and really happen, broadly speaking, in the middle of last year. It has started to return, and that's really around stabilized long-term asset values and some financing. Obviously, we've been able successfully to put financing in place on the portfolio and term it out and bring certainty to that. So that's helped our discussions. So I think that combination of pricing visibility, just a little bit more confidence in future asset values and obviously, us having put in place term financing, which has now happened just in the last 90 days, have sort of unlocked the logjam, if you will, to get that process moving. It's followed a little bit internally behind our U.K. JV, just in terms of resources and pushing to get things done. So we're confident that there's a strong market for -- as we -- as you recall, a widely diversified ambulatory sort of portfolio in the U.S., and we're experiencing good discussions in that regard. So we expect things to start to move now reasonably efficiently.

Paul, that's helpful. Maybe just switching gears with respect to MPWs, the sale of the Healthscope portfolio. I'm just curious your thoughts on that transaction and where pricing came in?

Well, we were surprised to see how strong the pricing was to say it mildly. I think when we look through it and have a very close analysis of all the pluses and minuses, it's probably a sub-5% cap rate. We also view our own assets to be relatively stronger in the moment. So it certainly supports the valuations we have today in place. And I guess, just calling out even in the moment where we have more difficult investment climate that demand for the types of assets that we have is exceptionally strong. And this would be another good example of that. So we were part of that process, just to be fair, and we are very disciplined about what we wanted to do. But kudos to MPW for getting that off. And obviously, we are the -- we own the other half of that portfolio. So we understand it very well, and we like the assets that we have.

Got it. Just last one for me. Just given where the balance sheet is and with respect to the U.S. portfolio initiative that's sort of still in progress, just how are you feeling about putting more capital to work at this point, or is that -- is it really just predicated on getting the U.S. JV buttoned down first?

Yes. So number 1, 2, 3, 4 to 10 priorities are around completing our sort of balance sheet initiatives. And that's clearly focused. We know why we've had a couple of soft quarters, again around carrying assets on our balance sheet and having maximum flexibility to do that. So we're quite focused to transition from that moment to what we see as a more stable long-term moment, which is around the corner here. So I think a lot of this work will be done in the context of volume by the end of our second quarter. And when we report on that, which would have significant progress on almost everything on that list by that time. So we're feeling good about that. There are a small number of very strategic things that we need to consider in the internal, but our focus is very much around getting back to that steady state and then positioning the business for all of the things that we've been talking about over time.

Your next question comes from Tal Woolley from NBF.

Just again on the dispositions, can you give us an asset of just how much NOI and how much secured debt is attached to those assets?

I don't have that handy, Tal. So if I could, we'll get it to Shailen. I think it may even be in our IR deck that comes out a little later on. But again, roughly, it's in line with the portfolio, I would say, around debt levels and nothing, I would say -- it's an average mix of assets. And I'll come back on NOI when we speak. But again, it's a representative sample of assets across multiple markets in the REIT.

And Tal, just building on that. If you use our weighted average cap rate, about that 5.4% level, I think that's fair. And then our weighted average leverage level is fair as well.

Okay. Just in terms of borrowing right now, I guess, like you guys have lots and lots given the markets that you're in and about. Can you just maybe talk a little bit about where you're seeing rates in each of the markets? And what's your most effective way to borrow right now?

Yes. Tal, there's a lot in that. I guess it's a very regional specific question as we get into it. So happy to take the more specifics offline. I would call out as we think through the REIT's global capital stack and really what's come through over the last couple of quarters, it's really been the corporate part of the capital stack that we've been exceptionally focused on. And I called out that a lot of that was short-term high-cost floating rate debt, which is coming off the balance sheet, either has or is about to as we conclude on our JV initiatives. At a regional level, we're still seeing liquidity to be able to finance our assets. Credit spreads, although we've seen them widen in the broader markets, we haven't seen that come through at the asset level yet. But happy to go through more specifics on that offline.

Yes. And maybe what I'd just call out is that in the context of both Q3 and Q4 and the year-to-date, yes sure we've obviously had very successful long-term refis of both the U.K., the U.S. portfolio, the balance of our -- beyond corporate, the balance of our 2023 initiatives are really asset level financing in regions, and we're -- we'll be done in the normal course. And so I would think that we're not seeing a shortage of availability of finance. Obviously, the terms of it have changed over the last 12 months. But that's one good thing about health care that we've seen is that there seems to be relatively strong support. And we, at an underlying portfolio level, have a strong portfolio that can support appropriate financing. So I don't think we're seeing any hedges in terms of completing year 2023 and beyond, we'll all be working into 2024 stuff, and we're starting to see some stability in terms of what has been maybe the market moment around the points of inflection on what would be short and longer-term financing in the 2- to 3-year kind of window where everyone's been trying to understand where is inflation going, where our longer-term rate is going, and we're just starting to see a little bit more stability there where it helps us to take decisions for even longer-term things.

Okay. And then I guess, just more broadly, this is a fairly sizable acquisition for you over $1 billion, and a big chunk of that obviously being the U.S. You're going to be doing some selling here properties heading into the early part of 2023. What do you think the investment plan looks like in terms of acquisitions and development spending for 2023?

Yes. No, that's an excellent question. So I think the first answer is, as we've said, an extreme focus on sort of completing the initiatives that we've just talked about ahead of doing anything new or significantly new. But I think maybe just to guiding to sort of general levels of activity, we have $4.5 billion at 100% numbers, including debt of committed capital. That's going to grow with those JVs. So I think that would be our capacity. And traditionally, we've sort of looked at that and said, let's roll that out over the terms of those commitments. So 3 to 4 years are typically those windows. So ultimately, when we see markets kind of return and when the business is positioned to be able to move forward, I would think that that's a pretty steady state level of activity somewhere between $1 billion and $1.5 billion a year. So if we -- if markets open up again or firm up, I guess, and we're able to complete the activity that we just talked about, around balance sheet activity, the second half of the year could be presumably half of that as an average, and that would be maybe subject to a reasonable estimate.

And is there any particular geographies that you're still like that I think will present particularly interesting opportunities in the short term? Or is that more just of a general comment?

Yes. I think it's a little bit general. But of course, at any given time, certain things shine brighter or less brighter. But I think the emphasis for us in doing things over the next little while will be maybe would probably have a strategic overtone to it, and that would be coming back to our sort of key strategies that would either be very relationship driven with one of our operators looking for specific things to do. It could be very driven by sort of health care precinct. So you've heard me talk a little bit about some of the things we're seeing here in Canada and Australia. We've talked about that before on these calls. Those would be things that would probably get to the top of the list for us that have a strategic and sort of long-lasting overtone. To development, I think we have been positioning pretty meaningfully for development in the business. We have circa $500 million of projects underway. They're all tracking according to plan. And most of those projects, as you recall, are 100% let with the vast majority of execution risk on the tenant, so sort of cost plus, if you will. And we expect all of those projects to wind out over time and complete and move into IPP in a normal fashion. A lot of those, of course, are at vital. So we see the proportional impact of that, but we also have a number on balance sheet ourselves. The new development world, I think, is a little bit muted right now as we look at both corporate priorities of the business, but also just the construction moment continues to be challenging where we're seeing still some inflation pressures in pricing coming through construction. We're obviously seeing a moment with our operators where efficiency is becoming particularly important. And we're seeing clearly, a very disciplined approach to cost of capital and risk-adjusted cost of capital as we look at expansion. So I would say within the development world, as I said, almost everything that we'll look at for the balance of the year will be expansions with our existing operators in that strategic relationship sort of bucket.

Okay. And then I guess, just a couple of more housekeeping questions. Just broadly speaking, Shailen what's a decent number for us to think about for cash taxes?

Yes. I think we've had a couple of discussions on this historically if I recall. And obviously, it's been -- I mean, you do have some quarterly volatility around cash taxes when we -- noting that we are global and we have a complex global transfer pricing structure. Cash taxes, 15% of management fee income is generally where it's been coming through, noting that the management fee is really the only real part of our business that does attract cash taxes. So on an annualized stabilized basis, 15% is a fair number.

Okay. And then just lastly on the fees. Obviously, it was a bit of a down year on a proportionate basis for the fees. I'm expecting then you maybe expect to see some of that will cover this year. And I'm -- I was wondering if there's a good way to sort of think about within that fee bucket, how much of it is sort of like a recurring fee in nature and how much is episodic?

Yes. Sorry, there's a lot in that, Tal, so -- and it's a really good question. So I'll just encourage Shailen to sort of bring some precision off-line here. But I think from our standpoint, if we're looking ahead and stabilize, the business, broadly speaking, is probably growing into a stabilized fee level that's pretty consistent with what we reported this year as fees in total. And I think the activity-based things will go on above that, right? And so we have, as we mentioned, a significant amount of undeployed capital. So if we overlay that and grow the business, that would be a good starting point. But I'll let Shailen maybe offline bring some precision to that. And again, it was a year where we were lower on activities, a little bit lower on incentive fees. And so we see those things restoring over time practically in a slightly larger base because we'll be growing assets under administration. Obviously, both the U.S. and U.K. bring significant transaction fees as well. So these are big initiatives that will generate meaningful fees in 2023.

[Operator Instructions] Your next question comes from Mario Saric from Scotiabank.

I did want to come back to the U.K. portfolio for a second. So the disclosed fair value of it was up about $50 million quarter-over-quarter to $957 million. It looks like you don't break down the U.K. versus Europe in terms of the IFRS cap rate with that European IFRS cap rate was up 40 basis points quarter-over-quarter to 5%. The $50 million increase in the U.K. portfolio, is that simply a function of FX? Or were there other adjustments made this quarter versus Q3?

Yes. Thanks, Mario. Yes, the sterling has appreciated relative to the CAD. So that $50 million is attributable to FX.

Got it. Okay. And can you share what the U.K. cap rate is as part of the broader Europe IFRS cap rate of 5%?

Yes. Mario, I think over the course of the quarter, as we conclude on the transaction, we can speak to the U.K. cap rate more specifically. I note that we had our acquisition cap rates disclosed over recent quarters, and I'd use that as a base.

Okay. And then kind of tying that into the commentary on the expected net proceeds for 2023. I just want to kind of flesh that out a little bit more. So like on Page 23 of your MD&A, you highlight the fair value of the U.K. portfolio, the fair value of the U.S. portfolio and the associated debt for both of those portfolios. If I look at the equity, just simply fair value minus debt, that would translate into a $530 million in the U.K. and $330 million in the U.S. Can you remind me of whether there's any other leverage that we should factor into those 2 portfolios when we're thinking about the net equity from the 2 of them?

Yes. No, there most definitely is. I'd call out, there's -- certainly there's a lot of puts and takes there. And then I'd also call out that as we think through our net proceeds from the transactions, we include adjustments for working capital and other related items. So we can perhaps get into that -- I mean offline. But when we think about our aggregate proceeds from the 3 pools of disposition activities on that noncore asset sales, the U.K. and the U.S., I think we've given you the broad guidance at that $425 million to $500 million of net proceeds.

Okay. And just in terms of the full degree debt exposure went from 60% to 37% or so. Where do you see that ending up by year-end after having completed all of the expected capital recycling?

Yes. I'll turn that -- I'll invert your numbers a little bit. We talk about the percentage of fixed rate exposure. So we -- I mean, post the hedging that we have completed, our fixed rate exposure has gone up to about 67%, so floating 30-plus. We expect that to continue to increase. I'd call out that the primary area for increase and where we have more floating rate debt than we desired in the long term is in Australia within our JV platforms. So we will continue to work through with our partners around bringing in more fixed rate debt there. We do have a target at 70% plus on fixed rate debt. So I think we are getting close to that. But obviously, in the context of the current market, we continue to evaluate that target and look towards increasing them.

Okay. And just my last question. I think, Paul, you remarked that like after everything is said and done in terms of the recycling and the debt repayment and whatnot, you do expect to return to kind of a stabilized pay for per unit in the mid-80s versus the $0.79 or so, which would represent a 10% increase year-over-year that you talked about, at that mid-80 AFFO per unit, the payout ratio is about 95%. So the dividend yield today or the just region yield today is north of 9, it's one of the higher ones in the universe. What's a reasonable kind of payout ratio target for you longer term? And are you comfortable with kind of the distribution policy and kind of the puts and takes into it as your business model evolves into a 20% to 30% co-investment model?

Yes. So that's a big journey that I know we've talked about. But I'd just say sort of probably, first off, Mario, I think the 10% number should be taking us up into the low 80s to begin with. So the goal here quite quickly with the execution of all the things that we've said around balance sheet should be to have, obviously, the distribution covered and be down the road. In terms of what would be a normal year and adding to that. Yes, I think that gets us into the mid -- a little bit above mid-80s. And that's a starting point for that journey as we go to substantially more asset light. And again, I think we've had some discussions around this, if I recall my own discussions that journey in coming from again, just over 50%, maybe 50% to 55%, look through ownership into the 20% to 30%, those numbers are driving us into $1 or more or less of AFFO. And leverage, as we've said, always in that 40% to 45% range, which we think we can get quite close to here just with the balance sheet initiatives that we've talked about in 2023. So going from that middle 80s number up to $1 is the journey from look through ownership, where we are unless the 2 JVs that we've talked about down through the rest of the platform. And that's the initiative that we're on, again, that more capital-light initiative, which I think is good. We have significant assets continuing on balance sheet beyond the U.K. and the U.S. And so over time, we'll be looking at the ways to bring those into a more capital-light format. And again, don't want to underestimate the intensity of getting through the U.S. and U.K. initiatives, which have clearly sort of been a year-long projects for us now. But we're confident of doing that now that markets have restored, obviously, we have an agreement in the U.K. So that's in full execution in the U.S. a little bit behind. But we do expect post that, that there's more to come, and we'll be approaching it in a logical and disciplined way. But again, back to continuing to see strong demand for the underlying assets and their characteristics and finding the right types of capital for them is a important for us. And I'll just remind that all of our capital commitments have traditionally been exceptionally long term. They've had growth capacity built in. They've had healthy fees and incentives. And those characteristics of things that we have been sticking to as we've gone through this process as opposed to shorter term, maybe more expedient solutions that didn't meet those kind of long-term things. So again, these are very core long-term assets for us. We're looking for core long-term partners and a real ability to grow in key markets. Obviously, the U.S. has a lot of possibilities. The U.K. is a very particular market that we like and has some really good tuck-in opportunities. So just some context to where it's going, but I think that would be consistent with where we've been and again, other than the delay here over the last 6 and -- 3 to 6 months more to get execution done, we're still on that same plan.

Got it. Part of the genesis of the question is when you think about getting to that 20% to 30% co-investment or look through as you put it, that would entail on reducing your ownership interest in some of your higher-yielding markets like Brazil and Canada. So I appreciate the color in terms of kind of the longer-term target AFFO per unit. And I don't expect you to answer the question, but I'll ask it anyway. Given how much is going on in the business today, like that $1 of AFFO per unit you're referring to, is that 4 to 5 years out, 2 to 3 years out like how should we think about the timing of that metric?

Yes, I think certainly much closer to the latter than the former. And I think, listen, the business has a sense of urgency to move forward down. And clearly, this has been a cathartic moment for us in terms of taking decisions and moving maybe more in parallel than in sequence. And so I'd leave you with those takeaways. So you know the destination is known, and now we want to move efficiently to get there. And clearly, using internal capital at attractive acceptable valuations is the key. I guess what we won't be doing is using public capital in this pricing level. So it's very safe to say that we see quite a disconnect here, and we're immediately focused on closing that as quickly as we can.

Okay. And just one last clarification. Again, the $1 that you're referring to, that assumes that 20% to 30% essentially co-investment or look through in each of your regions. Is that fair?

Correct. Yes.

Paul, there are no further questions at this time. Please proceed with your closing remarks.

Well, I'll be brief and thank everyone, and we'll look forward to speaking again. I appreciate that. Have a good day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.