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,
Question 1: Why are you deducting mark to market adjustments from your FFO this
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:
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
We just completed a $50 million convertible debenture transaction that
will be used to reduce the 2016 debt.
We are taking $40 million of debt to HUD as they provide long-term
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
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 $1.53 million of Straight Line Rent.
Question 12: Can you provide me with lease details of the Westfield and Avon
properties - lease term, escalations, purchase options, etc?
Answer: 10 years, with three 5-year options, 2.5% escalation, no purchase
Question 13: The Willows at Hamburg Property - Year built? Lease maturity date? Lease
escalators? Would you be able to send me its annual cash and straight
line rent in US$?
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
Question 17: Treatment of convertible debentures, will they be mark to market every
Question 18: What is the exact effective rate on the mortgages provided for the two
Answer: 10%, but it increases by 2.5% of that each year. So, year two would be
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
SOURCE: HealthLease Properties Real Estate Investment Trust
For further information:
Executive Vice President - Finance
HealthLease Properties REIT
(416) 815-0700 ext. 258