HealthLease Properties Real Estate Investment Trust Continues Solid FFO and AFFO Growth

TORONTO, Aug. 12, 2014 /CNW/ - HealthLease Properties Real Estate Investment Trust (HLP.UN) ("HealthLease" or "the REIT") today announced its financial results for the three and six months ended June 30, 2014.  All amounts expressed are in Canadian dollars unless otherwise noted.

Q2 2014 Highlights

  • FFO of $0.26/unit ($0.26 fully diluted), up 18%, from $0.22/unit in Q2 2013.
  • AFFO of $0.27/unit ($0.26 fully diluted), up 17%, from $0.23/unit in Q2 2013.
  • Debt to gross book value, including convertible debentures, of 55.3% (49.0% without convertible debentures).
  • Payout ratio of 80.0% of AFFO.
  • In the second quarter, the REIT received gross proceeds of $75.0 million pursuant to a bought-deal offering of units of the REIT that closed on May 5, 2014. The proceeds from this offering were used to finance the acquisition of seven senior housing and care facilities and to reduce the REIT's indebtedness.
  • The REIT provided an update on the board-approved amendment to the management agreement with its external manager, Mainstreet.  The amendment provides Mainstreet with an annual incentive fee which is based on 15% of AFFO per unit above the incentive hurdle rate of $1.01 per unit of AFFO for 2014.
  • Subsequent to quarter-end:
    • Closed one of two previously announced Continuum Health Care properties in Alberta. Sunrise Village High River consists of 176 units that provide both assisted living and independent living services. The second property with 107 units, Sunrise Village Encore, is expected to close by September 2014.

"I am very pleased to report that we have delivered our ninth consecutive quarter of growth and profitability," said Zeke Turner, Chairman and CEO.  "As we continue to grow our business, we maintain our position of having one of the youngest portfolios in the senior housing and care industry, a strong financial position and a conservative payout ratio."

Summary of Results      
000's, except per unit data For the three
months ended
June 30, 2014
For the three
months ended
June 30, 2013
Change
(%)
Revenue $17,564 $8,620 103.8%
Net Profit $5,030 $2,344 114.6%
Funds from Operations (FFO) (1) $9,017 $4,431 103.5%
Adjusted Funds from Operations (AFFO) (2) $9,127 $4,666 95.6%
Weighted Units Outstanding (diluted) 37,221 20,555 --
       
FFO per unit (basic) $0.26 $0.22 18.2%
FFO per unit (diluted) $0.26 $0.22 18.2%
AFFO per unit (basic) $0.27 $0.23 17.4%
AFFO per unit (diluted) $0.26 $0.23 13.0%
Payout Ratio(3) 80.0% 93.6%  

Footnotes:
(1)  "FFO" is defined as net profit in accordance with IFRS adjusted as follows: (i) plus or
minus fair value adjustments on investment properties; (ii) plus or minus gains or losses
from sales of investment properties; (iii) plus or minus other changes in fair value of
financial instruments which are economically effective hedges; (iv) plus acquisition
costs expensed as a result of the purchase of a property being accounted for as a
business combination; (v) plus distributions on exchangeable units; (vi) plus deferred
income tax expense; and (vii) plus adjustments for property taxes accounted for under
IFRIC 21, after adjustments for equity accounted entities and joint ventures calculated
to reflect FFO on the same basis as consolidated properties.
(2)  Adjusted funds from operations, or AFFO, is defined by the REIT as a measure of
operating cash generated from the business.  AFFO is calculated as FFO subject
to certain adjustments, including: (i) amortization of fair value mark-to-market
adjustments on mortgages, amortization of deferred financing costs, and
compensation expense related to deferred unit incentive plans, (ii) adjusting for
any differences resulting from recognizing property rental revenues on a straight-line
basis, (iii) adding an amount in respect of Mainstreet development lease payments
owed or paid, and (iv) deducting a reserve for normalized maintenance capital
expenditures and leasing costs, as determined by the REIT.  Other adjustments
may be made to AFFO as determined by our Trustees in their sole discretion.
(3)  Payout ratio is a measure of the distributions (inclusive of distributions paid on
Exchangeable Units) compared to the AFFO.

Q2 2014 Financial Results

Revenue.  Revenue is rental income from single tenant operators who are under long-term triple-net leases and interest income from loans.  Revenue generated for Q2 2014 was $17.6 million, an increase from $8.6 million one year ago.  The increase was mainly attributed to the addition of 22 properties that generated additional revenue of $9.0 million and interest income on mezzanine loans invested in senior housing development properties.

Net Operating Income.  Net operating income, which is revenue less property expenses, for Q2 2014 was $16.8 million compared to $8.2 million in Q2 2013.

Net Profit.  Net profit, which is revenue less all expenses (including non-cash fair market value changes in investment properties and Exchangeable Units), for Q2 2014 was $5.0 million, up from a net profit of $2.3 million for the same period one year ago. The increase was attributable to additional income generating properties.

Funds from Operations ("FFO"). Funds from operations for Q2 2014 was $9.0 million or $0.26 per unit ($0.26 per unit fully diluted). The increase in FFO was driven by the addition of new properties contributing to rental revenue.

Adjusted Funds from Operations ("AFFO"). Adjusted Funds from Operations, which is FFO subject to certain adjustments, for Q2 2014 was $9.1 million or $0.27 per unit ($0.26 per unit fully diluted). The increase in AFFO was driven by the addition of new properties contributing to rental revenue.

Distributions.  For Q2 2014, distributions paid on weighted average outstanding units, including distributions on Exchangeable Units, totaled $7.3 million, or $0.21 per unit which translates into a payout ratio of 80.0% for Q2 2014.

Financial Position

Cash.  At June 30, 2014, the REIT had cash-on-hand amounting to $4.0 million and restricted cash of $3.9 million.

Operating Line of Credit.   At June 30, 2014, the REIT had a secured operating line of credit of US$250 million secured by 24 properties in the U.S.; US$30 million was available on the secured operating line at the end of the quarter.

Debt to Gross Book Value.  Debt to gross book value is calculated by dividing total indebtedness, net of loan costs, by the total assets of the REIT.  At June 30, 2014, the debt to gross book value was 55.3%, inclusive of convertible debentures issued in November 2013, compared to 53.7% for the same period one year ago.  The debt to gross book value without convertible debentures is 49.0 % as of June 30, 2014.

Interest Coverage Ratio.  Interest coverage ratio, a measure of credit risk, is calculated by dividing net operating income by net interest expense.  For the quarter ended June 30, 2014, interest coverage ratio was 3.29 times, while the weighted average cost of debt was 4.3%.

Equity and Exchangeable Units.  At June 30, 2014, the REIT had 37.2 million units outstanding, including Exchangeable Units.  The REIT's closing unit price on August 8, 2014 was $10.82 per unit which resulted in a market capitalization of $402.5 million.

Acquisition of Senior Care Properties

On May 16, 2014, the REIT acquired the SP III Senior Care Portfolio consisting of four U.S. senior housing and care properties located in North Carolina, Pennsylvania and Virginia. Additionally, through the development partnership with Mainstreet, the REIT acquired a senior housing and care facility located in Indiana. The five facilities were purchased for the aggregate purchase price of US$67.3 million.

Subsequent to the quarter, the REIT acquired one of two Alberta senior care and housing facilities as part of the previously announced acquisition of the Continuum II Portfolio for the aggregate purchase price of C$53.3 million. The second facility is expected to close by September 2014.

HealthLease Owned Properties
Location Number of
Facilities
SNF/LTC Beds AL/ALZ/ILF Beds Total Beds
Alberta 11 515 740 1,255
British Columbia 1 57 159 216
Illinois 1 75 - 75
Indiana 12 976 294 1,270
Kentucky 1 54 69 123
Michigan* 2 271 - 271
North Carolina 13 185 809 994
Ohio 1 80 - 80
Pennsylvania 3 185 74 259
Virginia 6 505 - 505
Total 51 2,903 2,145 5,048
*The REIT has non-amortizing mortgages on these two properties in Michigan.
The REIT has the option to purchase the properties on maturity of the loans
for the principal loan balance outstanding plus US$1.00.

Conference Call

HealthLease will host a conference call, August 13, 2014, at 9:00 am ET to discuss its second quarter financial results.  To access the conference call, please dial 647-427-7450 or 1-888-231-8191.  Please connect approximately 10 minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay by telephone until Wednesday, August 20, 2014 at midnight.  To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 74194957.

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.  The REIT's Fiscal Second Quarter and Management Discussion and Analysis have been filed on SEDAR and can also be viewed in the Investor Information section of 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 52 properties - 13 in two Canadian provinces and 35 in eight U.S. states, for a total of 5,224 beds.  The facilities are leased to experienced tenant operators who have significant operational experience. 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 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.

Forward-Looking Information
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 AIF dated March 11, 2014 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.

Non-IFRS Measures
The REIT reports its financial results in accordance with IFRS.  Included in this news release are certain non-IFRS financial measures as supplemental indicators used by management to track the REIT's performance. These non-IFRS measures are Net operating income (NOI), Funds from operations (FFO), Adjusted funds from operations (AFFO), payout ratio, weighted average cost of capital and debt to gross book value (Debt to GBV).  See the sections entitled "Summary of the Key Performance Indicators for the Three and Six Months Ended June 30, 2014" in Management's Discussion & Analysis of Results of Operations and Financial Condition for the three and six months ended June 30, 2014 for the definitions of these non-IFRS measures.

The REIT believes that these non-IFRS financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the REIT. These measures do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other real estate investment trusts or enterprises, nor should they be construed as an alternative to other financial measures determined in accordance with IFRS. 

SOURCE HealthLease Properties Real Estate Investment Trust

For further information:

Adlai Chester
Chief Financial Officer
HealthLease Properties REIT
(317) 420-0205

Renée Lam
Investor Relations
TMX Equicom
(416) 815-0700 ext. 258