TORONTO, Dec. 28, 2012 /CNW/ - HealthLease Properties Real Estate
Investment Trust (TSX: HLP.UN) ("HealthLease" or "the REIT") provides
below answers to questions received since our last Q&A Update published
on November 9, 2012.
Question: What portion of Zeke Turner's personal wealth is tied up in HLP.UN?
Answer: While we do not publicly disclose our principals' financials, we can
tell you the majority of Zeke Turner's personal wealth is related to
his ownership of HLP.UN.
Question: What is your correct NOI - before or after management fees?
Answer: NOI is after management fees.
Question: Why do you divide corporate expenses into management fees and trust
Answer: Management fees are the fees paid to Mainstreet for overseeing the
properties. We deem this an operating expense.
Question: How is your U.S. debt held? According to your IPO prospectus, you had
$51 million of US$ mortgages. I am trying to understand how the two
notes (US$12 million and US14.5 million) are placed.
Answer: We have the following debt at the U.S. level:
Construction Loans for the Mishawaka, IN and Springfield, IL properties
of $15.2 million (once fully drawn these two loans will total $20.8
million); MS Wabash and ML Marion- Bonds of $27.4 million.
Question: How does the REIT make sure that it does not run afoul of the thin
Answer: We work with our attorneys (Goodmans) and tax professionals (KPMG) on a
regular basis to ensure we are in compliance.
Question: Can you provide more color on development bonds?
Answer: Development bonds are debt that has the respective project city's
credit backing it. These bonds allow the REIT to achieve lower
interest rates. This debt is just like a mortgage on a property.
Question: The three properties under development are currently contributing $595K
per quarter (not in revenue, but added directly to AFFO). In 2013, the
contribution increases to $4 million, why? Will the $4 million amount
be included in revenue?
Answer: The three properties will generate approximately $4 million in
revenue. The AFFO on these three properties should be materially close
to what they are achieving now via the development lease.
Question: What are the management fees related to the acquisition?
Answer: For the third quarter, management fees related to the Western Canadian
Properties were $93,870 (3% of cash rent for the quarter). Management
fees are always 3% of revenues.
Question: How are the operating margins of the 52-bed facility in the U.S.
different than the 200-bed facility? Also, what are the monthly revenue
per bed and breakeven occupancy? Please talk about U.S. and Canadian
properties in terms of occupancy rates, monthly revenue per suite,
operating margins and staff per patient.
Answer: First, the REIT's operating margins do not materially change based on
property size. The REITs margins are based on the spread between the
rent collected and the total weighted average cost of capital for that
particular property or the REIT overall. This being said, smaller
properties operationally do not have the same operating efficiencies
experienced in larger properties, but the law of diminishing returns
also applies. Management believes the ideal size of a new development
property is approximately 100 to 200 units, depending on local market
demand. We do not disclose individual property information at this
Question: What are some main differences between the support provided by the
Canadian and U.S. government to LTC/SNF facilities?
Answer: Generally, the U.S. properties tend to run higher operating margins,
whereas the Canadian properties tend to be more stable and exhibit
higher overall occupancy rates. The U.S. properties are also able to
provide a significant amount of short-term rehabilitation and therapy
services, which is a high-margin business for operators. This service
is not common in the Canadian marketplace, at least not in the
sub-acute market. Both markets face supply constraints and stagnant
reimbursement environments. This is offset by exponentially increasing
demand drivers and the emergence of new, efficient niche services, such
as rehab and therapy, memory care, etc.
Question: Highland Manor lease - the REIT is looking for a new operator to
replace Mainstreet Senior I - what is the progress on that front?
Answer: We are still in discussions with several operators.
Question: Are the U.S. leases materially different than the Canadian leases?
Question: Can you send us an example of a typical lease between a Seniors Living
operator and a landlord?
Answer: Our typical leases are 9-10% of cost and will be for an initial term of
10 or 15 years. The tenant will then have a couple five-year
extensions. The typical lease will include 2-3% annual escalators. In
addition, the tenant will have a mandatory capital expenditure per bed
and financial reporting requirements.
Question: Avalon Springs - I am not clear on the rent escalators of this lease. -
"3 times CPI Increase, annually on May 1."
Answer: If CPI is .9%, then the annual increase would be 3 x .9%, or 2.7%. The
increase cannot exceed 3%, so if the CPI was 1.2% then it would cap out
Question: What was the cap rate on their IPO appraisals?
Answer: The implied cap rate on the portfolio was 8.5%. The blended appraisal
cap rate on all of the assets was approximately 8%.
Question: Note 9 to financial statements - Future minimum rentals - are those
rents including straight line rents? Also are there tax recovery
amounts in those figures?
Answer: These do not include straight line rent amounts. This note includes
only future cash rent amounts.
Question: Fin P26 - Rental revenue forecast for Q4/12 - Why is the revenue
number going down to $4.2 million in Q4/12, even though you had
revenues of $4.5 million (i.e., tax recoveries) in Q3/12?
Answer: This financial statement note is only the future cash rent payments
(i.e., does not include straight line amounts). In addition, it does
not include the property tax recovery that we book each quarter.
Question: Will there be any seasonality in your revenues? I know that there
should not be any but want to make sure.
Answer: All rents are contractual and do not fluctuate.
Question: Interest expenses were $1.38 million in Q3. Was there anything one-time
in that figure? The number seems a bit low. If I assume that your
average debt outstanding during the quarter was $130 million and apply
your weighted average interest rate of 5.1%, I get $1.66 million.
Answer: The interest expense associated with the assets under construction is
capitalized into the asset and not expensed. Interest is expensed once
a facility is up and operational. When we capitalize a new project we
include an interest reserve fund that pays the interest during
Question: Q3/12 average revenue per bed for Canada - I tried to calculate this
number using $3404K of revenue (provided in segmented operations). I
got $1133/month, which is much higher than the average of $1012 I got
from the forecast revenue for 2013. What am I missing? Tax recoveries?
Answer: Tax recoveries are included in this number.
Question: Q3/12 management fees are not equal to 3% of gross revenue. Why? Also
does gross revenue include tax recoveries?
Answer: The fee is 3% of cash rent. The gross revenue does include tax
recoveries. The total annual tax recoveries are approximately
Question: Construction payables on the balance sheet - how is this figure
Answer: These represent amounts owed to general contractors for the
construction of the Wabash, Mishawaka and Springfield properties that
are currently under construction.
Question: Tax recoveries - are these accounting entries or actual cash flows? I
think they are actual cash flows but just want to confirm.
Answer: No these are not actual cash flows. It is a journal entry that grosses
up revenue and operating expenses.
Question: How should we forecast recovered realty taxes? Are they included in
both revenues and operating costs?
Question: What is the average rent per suite of your portfolio?
Answer: We do not view our business in this manner. With that said, we have
1,931 beds in our current portfolio.
Question: What is a good run rate for G&A expenses?
Answer: Based on our forecast, a 4-5% run rate would be reasonable at this time.
Question: For 2013, how should we model Rent from development projects shown in
Answer: The development lease was done only for the purpose of the three
initial projects under construction. In 2013, there should not be any
development lease payments. The assets that are currently under
construction will be complete and will begin generating rent income and
Question: For straight line expenses, is $277K a good run rate?
Answer: After the three assets currently under development are live, the run
rate for straight line rent will be approximately $439,000 per quarter.
Question: How much do you spend in maintenance Capex on a per suite basis? For
example, Chartwell spends about $700 per suite per year.
Answer: We believe that this is the major difference between our business model
and that of an operator, such as the company you mentioned. The triple
net lease structure places all responsibility for capital expenditures
on the tenant. We require reporting of these expenditures and monitor
such accordingly. In addition, our portfolio is very young compared to
the market. As such, even for our tenant operators, the capital
expenditures required to maintain the properties are lower than older
portfolios. Our tenants are required to cover all capital expenditures
except for the roofs on the Canadian properties. As a result, we are
not required to spend any capital expenditures per suite. We further
mandate under our leases that our tenants spend a certain minimum
amount in capital expenditures.
Question: In the attached Excel file I have highlighted some cells in yellow. I
couldn't find this info in your prospectus or financial statements. Can
you please fill up the empty cells?
Answer: The purchase price of the U.S. assets was based on the final pricing
(8.5% cap rate/yield). You should be able to derive the purchase price
by taking the annual rent at IPO and dividing by the IPO yield.
The U.S. assets without occupancy numbers were left blank due to the
properties being under construction or just recently opened. The
Valparaiso and Marion properties' lease have commenced and are now open
and working toward stabilization. Both are making great progress in
occupancy and are on schedule for stabilization. Remember, that for
the REIT, stabilization occurs at lease commencement and we begin
collecting 100% of rent. The operator assumes the operational risk of
We assumed existing leases on the Western Canada Properties. These
leases do not allow us to disclose property performance and occupancy.
With that said, we feel very comfortable with the performance of the
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 Third Quarter Interim Financial Statements are available on
SEDAR and 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 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.
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 final prospectus dated June 8, 2012 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
SOURCE: HealthLease Properties Real Estate Investment Trust
For further information:
Chief Financial Officer
HealthLease Properties REIT
(317) 420-0205 ext. 106
(416) 815-0700 ext. 242