HealthLease Properties Real Estate Investment Trust Announces 2013 First Quarter Results

TORONTO, May 8, 2013 /CNW/ - HealthLease Properties Real Estate Investment Trust (HLP.UN) ("HealthLease" or "the REIT") today announced its financial results for the three months ended March 31, 2013.  HealthLease completed its initial public offering (the "IPO") on June 20, 2012, and the three-month period represents the REIT's third full quarter of operation.

Q1 2013 Highlights

  • With the completion of Wabash, IN and Springfield, IL properties in the quarter, all three of the initial properties under development at IPO, are now generating rental income.
  • The REIT has been advised that Mainstreet, the manager of the REIT, now has six development projects that the REIT will have the right to purchase, upon completion of construction (five in 2013 and one in 2014).
  • FFO and AFFO were $2,870,000 ($0.20/unit) and $2,860,000 ($0.20/unit) versus the Forecast(1) of $3,325,000 ($0.25) and $3,047,000 ($0.23), respectfully.  The variance was primarily as a result of the exercise of the IPO over-allotment option not being invested during the quarter and increased trust expenses related to acquisition activity.
  • Closed the quarter with a strong balance sheet with 51.6% debt to gross book value and over $3.1 million in cash.
  • Announced (and completed subsequent to quarter):
    • The acquisition of 13 senior housing and care properties in North Carolina, Pennsylvania, and Virginia
    • A CDN$69-million equity financing of REIT units, including an overallotment option that was fully exercised
    • Replacement of US$25-million operating line of credit with a new US$110-million operating line of credit
  • Subsequent to quarter-end, advanced first mortgage loans on two senior care properties in Michigan.

"We achieved a milestone during the first quarter as the REIT announced its first two acquisitions as a public company," said Zeke Turner, Chairman and CEO.  "The transactions completed in April double our property portfolio to 30 and add 1,249 beds. This brings our total annualized revenue to approximately $36.2 million, an increase of almost 64% from the projected annual revenue of our initial portfolio.  In addition, it expands our geographic presence with the addition of four new states.  All this is consistent with our stated growth strategies that include attractive, accretive and high-quality acquisitions."

"As we announced in March, we also completed our two remaining initial properties under development - Wabash and Springfield - such that all three of the initial development properties are now operating and contributing to revenue.  In addition, our manager, Mainstreet Asset Management, Inc., has six development projects underway that will be offered to the REIT over the next 12 months.  We remain excited about the growth prospects for the REIT as we continue to see acquisition and development opportunities that can contribute to growing our AFFO per unit," added Mr. Turner.

Summary of Results

         
000's, except per unit data   For the three months
ended March 31, 2013
  Forecast (1)
for the three months
ended March 31, 2013
Revenue   $5,364   $5,654
Funds from Operations (FFO) (2)   $2,870   $3,325
Adjusted Funds from Operations (AFFO) (3)   $2,860   $3,047
Units Outstanding (diluted)   14,537   13,400
         
FFO per unit (diluted)   $0.20   $0.25
AFFO per unit (diluted)   $0.20   $0.23
Payout Ratio   108%   93%

Footnotes:
(1)  Forecast refers to financial forecast for the three-month period ended March 31, 2013, as provided in the REIT's Final Long Form Prospectus dated June 8, 2012 and filed on SEDAR at www.sedar.com.
(2)  Funds from operations, or FFO, is an earnings measure used by publicly traded real estate entities. FFO is not defined under International Financial Reporting Standards ("IFRS").  HealthLease calculates FFO in accordance with the Real Property Association of Canada ("REALpac") White Paper on Funds from Operations issued in 2004 and revised in 2010 for the impact of IFRS.  FFO is defined as net earnings in accordance with IFRS, (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 fair value adjustments; (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; and (vi) plus deferred income tax expense, after adjustments for equity accounted entities and joint ventures calculated to reflect FFO on the same basis as consolidated properties.
(3)  Adjusted funds from operations, or AFFO, is defined by the REIT as a measure of operating cash from 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.

Review of Q1 2013 Operating and Financial Results (rounded to nearest '000)

Revenue. Revenue represents rental income from single tenant operators who are under long-term triple-net leases.  Revenue during the quarter was $5,364,000.  The variance versus forecast was largely due to a one-month delay in the commencement of rent at the Springfield, Illinois property.  The one-month delay did not impact AFFO as a result of the Mainstreet Development Lease.

Net Operating Income. Net operating income, which is revenue less property expenses, was $5,122,000.  Net operating income was 95.5% of revenue for the quarter ended March 31, 2012.  The high margin is attributable to minimal operating expenses as a result of the triple-net structure of HealthLease's leases.

Net Earnings. Net earnings, which is revenue less all expenses (including non-cash fair market value changes in investment properties and Exchangeable Units), was $2,575,000 for the three months ended March 31, 2013.

Funds from Operations.  FFO for the quarter was $2,870,000.  Trust expenses were $192,000 higher than forecast as a result of increased business development efforts, some of which were non-recurring. On a per unit basis (diluted), FFO was $0.20 versus forecast of $0.25.  The exercise of the overallotment option by the underwriters, which was not included in the forecast, resulted in higher units outstanding and, therefore, contributed to the shortfall in FFO per unit.  With the acquisitions in April, HealthLease has deployed excess cash from the proceeds of the overallotment option and expects to eliminate the dilutive impact of the additional units issued.

Adjusted Funds from Operations.  AFFO for the quarter was $2,860,000, with the variance attributable to higher trust expenses. On a per unit basis (diluted), AFFO was $0.20 versus forecast of $0.25, with the exercise of the overallotment option also contributing to the variance.

Distributions.  Distributions declared, including distributions on exchangeable units, totaled $3,088,000, or $0.21 per unit. This translates into a payout ratio of 108% for the quarter.  If the over-allotment option had not been exercised, the payout ratio for the quarter would have been 99%.

Financial Position

Cash.  At March 31, 2013, the REIT had cash-on-hand amounting to $3,145,000 and restricted cash of $2,695,000.

Operating Line of Credit.   At March 31, 2013, the REIT had an operating line of credit of US$25.0 million, secured by four properties in the U.S.; $5,080,000 was drawn on the 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 March 31, 2013, the debt to gross book value was 51.6%.

Interest Coverage Ratio.  Interest coverage ratio, a measure of credit risk, is calculated by dividing net operating income by net interest expense. For the three months ended March 31, 2013, interest coverage ratio was 3.36 times, while the weighted average cost of debt was 5.09%.

Equity and Exchangeable Units.  At March 31, 2013, the REIT had 14,537,416 units outstanding, including exchangeable units.  At the closing price of $10.77 per unit on March 28, 2013, the REIT had a market capitalization of $156.6 million.

Acquisition of Senior Care Properties

Subsequent to the end of the quarter, the REIT completed the acquisition of 13 senior housing and care properties in North Carolina, Pennsylvania, and Virginia at an aggregate purchase price of US$141.7 million.  The acquisition nearly doubled the REIT's total facilities to 28, for a total of 2,909 beds.  The acquisition was funded with a combination of debt financing and proceeds from an offering of trust units.

On April 30, 2013, the REIT indirectly issued interest-only mortgage loans on two properties located in Michigan.  The loans were in aggregate US$8,385,741 and carry a 10% interest rate with annual escalators over a 15 year term.  The REIT has the option to purchase the properties at the end of the loan term for an amount equal to the outstanding loan principal balance plus US$1.

These two transactions bring the REIT's property portfolio to 30 and the total number of beds to 3,180, with 61% of beds for senior nursing (SNF) and long-term care (LTC) and the remaining 39% for assisted living (AL), Alzheimer's (ALZ), and independent living (ILF) facilities.

Combined with the REIT's existing properties, these investments will generate annual rental revenue of approximately $36.2 million.  None of HealthLease's current leases come up for renewal until 2020, with most maturing in or after 2026. The weighted average lease maturity for the portfolio is 12.0 years.

                         
Location     Number of
Facilities
    SNF/LTC Beds     AL/ALZ/ILF Beds     Total Beds
Alberta     5     515     271     786
British Columbia     1     57     159     216
Illinois     1     75     -     75
Indiana     8     679     175     854
Michigan     2     271           271
North Carolina     10     80     623     703
Pennsylvania     2     185     -     185
Virginia     1     90     -     90
Total     30     1,952     1,228     3,180

On a pro forma basis that assumes that the acquisition and financings were completed at the beginning of the first quarter, subsequent to the equity financing and additional debt incurred to finance the acquisition, the REIT's debt to gross book value is 54.0%.  The interest coverage ratio for the quarter would have been 3.29 times.

Additionally, on a pro forma basis, AFFO per unit would have been $0.229 and payout ratio would have been 92.8% for the quarter.

Conference Call

HealthLease will host a conference call tomorrow, May 9, 2013, at 9:00 am ET to discuss its first 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 Thursday, May 16, 2013 at midnight.  To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 54253857.

With the goal of communicating fairly by providing equal access to all stakeholders, management will answer questions in written form instead of entertaining live questions during the call.  All interested parties—including securities analysts, current and potential unitholders, and others—are encouraged to submit questions in writing to info@hlpreit.com by 11:30 am ET on May 9.  The REIT will then issue and file on SEDAR a press release before the end of the same day that lists the questions received and the REIT's answers.  Related questions will be combined and provided a single answer.

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 First Quarter Financial Statements 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 a portfolio of seniors housing and care facilities located in the United States and Canada.  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 properties meets the needs 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 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.

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), and Adjusted funds from operations (AFFO).  See the sections entitled "Funds from Operations" and "Adjusted Funds from Operations" in Management's Discussion & Analysis of Results of Operations and Financial Condition for the quarter ended March 31, 2013 for the calculation of FFO and AFFO, respectively.

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 ext. 106
 
Salvador Diaz
Investor Relations
TMX Equicom
(416) 815-0700 ext. 242

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