HealthLease Properties Real Estate Investment Trust Provides Q&A Update for November 2013
TORONTO, Dec. 2, 2013 /CNW/ - HealthLease Properties Real Estate Investment Trust (HLP.UN) ("HealthLease" or "the REIT") provides answers to questions received since our last Q&A Update on November 8, 2013.
Question 1: Why are you deducting mark to market adjustments from your FFO this quarter?
Answer: The debt we assumed on the Westfield property was determined to be above market debt. As a result we had to book a liability that amortizes down over the life of the loan. This amortization is a debit to the liability and a credit to interest expense.
Question 2: Can you provide more clarity on the expected completion dates of the following Mainstreet properties - Crawfordsville, Castleton, 16th & Arlington and Kokomo?
Answer: The Crawfordsville facility is complete and has been offered up to the REIT for acquisition. We anticipate that the REIT will acquire it before year-end. Castleton, Arlington and Kokomo will all be complete in Q1 2014.
Question 3: How does the average coverage ratio and average occupancy rate of your portfolio compare with the US industry averages?
Answer: On our stabilized properties the coverage and occupancy exceed the industry average. Our newer properties that are in lease-up are obviously not covering their leases but are trending nicely and are ahead of our expectations. Once again, with our triple-net lease structure the strength of our tenants' balance sheets are important during the lease up period.
Question 4: Can you provide some color on the debt financing environment?
Answer: Five-year money is readily available at sub 5% on all types of senior care properties. If you want to go to seven-year money the property must be stabilized and you will achieve low 5% rates. There is long-term debt available through the U.S. government Department of Housing and Urban Development (HUD), and we are taking $40 million now and expect it to close mid-2014.
Question 5: Can you provide some color on the cap rate environment and the transaction activity you seen in the private real estate market?
Answer: Assisted Living properties are trading 6.5%-7.75%. Skilled nursing for new assets are trading 7.5%-9%. Older industry average skilled nursing is trading 9-11%. This is based on the leased fee value. The operating cap rates would obviously be higher.
Question 6: With respects to the facility, Willows of Hamburg, who initiated the transaction and what is the cap rate?
Answer: Trilogy negotiated this for us through HealthCare REIT. It was done as a replacement for the Avalon Springs property they were purchasing. The cap rate was 8.75%.
Question 7: Is HLP REIT undertaking a plan to deal with 2016 principal debt due?
Answer: The 2016 debt is being addressed in several ways:
|1)||We are working on expanding our current line to $250 million and expanding the term by two years. We believe we can close on this before year-end.|
|2)||We just completed a $50 million convertible debenture transaction that will be used to reduce the 2016 debt.|
|3)||We are taking $40 million of debt to HUD as they provide long-term fixed-rate debt.|
We will continue to have short-term, mid-term and long-term debt as part of our capital stack. It will continue to be important that we manage each of these debt types appropriately.
Question 8: There was an $883,353 write-down on deferred financing costs for the nine months ended Sept 30, 2013 and $334,112 was in Q3; is the remaining $549,241 all in Q2/13? Is all of this a one-time charge or is there a portion that would have been expensed during the quarter but was written off when the debt was repaid?
Answer: Yes, that was all in Q2 and was related mostly to the credit line expansion.
Question 9: What is a good run-rate for amortization of deferred financing costs (as at Q3, this will obviously change with additions and repayments of debt going forward - excluding the amortization of deferred financing fees on the new converts)?
Answer: A good run rate is $302,000 per quarter.
Question 10: With respects to the Michigan properties, if I divide the $1.074 million annual rent, by the mortgage amount of $8.39 million, I get 13%. The current coupon rate is 10%. I am assuming the escalations account for the difference. Is that fair?
Answer: That is correct. The effective interest method acts like Straight Line Rent and you have to record it evenly over the course of the loan.
Question 11: Regarding the Avon property, can you provide me with the annual cash rent and straight line rents in US$?
Answer: Avon is identical to both Wabash and Westfield with $1.38 million in cash and $1.53 million of Straight Line Rent.
Question 12: Can you provide me with lease details of the Westfield and Avon properties - lease term, escalations, purchase options, etc?
Answer: 10 years, with three 5-year options, 2.5% escalation, no purchase option.
Question 13: The Willows at Hamburg Property - Year built? Lease maturity date? Lease escalators? Would you be able to send me its annual cash and straight line rent in US$?
Answer: Our Hamburg facility was built in 2013, cash is $1.21 million and straight line rent is $1.35 million ($137,842 of adjustment).
Question 14: Year-to-date, Mainstreet was paid development fees of $329,000 - page 27 of the MD&A. What was it related to?
Answer: These were related to the properties acquired at IPO and were paid by the senior loans. To be clear, the development fees are part of total project costs not a separate fee.
Question 15: The deferred tax expenses in the quarter - is it related to the US LP?
Answer: Yes it is. This is for the depreciation expense being taken.
Question 16: In regards to distribution, actually paid vs. accrued, is the difference mainly because of the DRIP?
Answer: No, it is due to the timing of payments as raises occur during the quarter.
Question 17: Treatment of convertible debentures, will they be mark to market every quarter?
Question 18: What is the exact effective rate on the mortgages provided for the two Michigan properties?
Answer: 10%, but it increases by 2.5% of that each year. So, year two would be 10.25%, etc.
Supplemental Financial Information
This news release is not in any way a substitute for reading HealthLease's financial statements, including notes to the financial statements, and Management's Discussion and Analysis, dated November 7, 2013. The REIT's 2013 Fiscal Third Quarter Financial Statements, and MD&A, have been filed on SEDAR. The Third Quarter Financial Statements and MD&A can also be viewed in the Investor Information section of the HealthLease's website at www.hlpreit.com.
About HealthLease Properties Real Estate Investment Trust
HealthLease Properties Real Estate Investment Trust (TSX: HLP.UN) owns one of the youngest and highest quality portfolios of seniors housing and care facilities with 12 properties located in two provinces of Canada and 32 properties located in seven states of the United States for a total of 4,335 beds. The facilities are leased to experienced tenant operators who have significant operational experience in the U.S. and Canada. The leases are structured as long-term and triple-net: features that provide stability and dependability to the REIT's cash flow and distributions. The REIT's best-in-class portfolio of premier properties meets the growing demands of modern seniors by emphasizing features such as hotel-like design, private rooms and baths and hospitality-inspired amenities. For more information, visit www.hlpreit.com.
This news release contains forward-looking statements which reflect the REIT's current expectations regarding future events. The forward-looking statements involve risks and uncertainties, including those set forth in the REIT's Annual Information Form dated March 6, 2013 under the section "Risk Factors," a copy of which can be obtained at www.sedar.com. Actual results could differ materially from those projected herein. The REIT disclaims any obligation to update these forward-looking statements.
SOURCE HealthLease Properties Real Estate Investment TrustFor further information:
Executive Vice President - Finance
HealthLease Properties REIT
(416) 815-0700 ext. 258