TORONTO, Jan. 2, 2014 /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 December 2, 2013.
Question 1: What percentage of the Mainstreet Development Fund II will Mainstreet own and how will the profits be allocated?
Answer: Mainstreet is investing $5 million and will be the general partner. The fund will function like a typical fund with the GP receiving a promote once the 25% return is achieved. We made the hurdle return higher to ensure that the HLP gets a very solid return before Mainstreet would get its promote.
Question 2: Are there any fees paid to Mainstreet?
Answer: Mainstreet will receive a 1% asset management fee. There also will be a 1% financing fee paid to either a third party or Mainstreet. In the past, Mainstreet has used third parties to source senior debt so this fee could end up being paid to various groups.
Question 3: Why is Mainstreet managing the Crawfordsville asset?
Answer: Mainstreet is not managing the Crawfordsville asset. Like the Wabash and Westfield projects, Mainstreet, through a subsidiary, is passively investing in the operations with Life Care Services. Life Care Services, one of the largest operators in the U.S., is the manager of the facility. Mainstreet will passively invest in the operations with certain groups (i.e. Trilogy and Life Care). This does not hurt the REIT's position but rather strengthens it. Life Care Services and Mainstreet are both guarantors on the lease.
Question 4: What was the genesis of this arrangement?
Answer: The original investment was done at the request of Life Care Services. Historically, Life Care has structured a lot of their relationships as joint ventures. However, other operators have liked the idea of the developer partnering with them on the working capital. Mainstreet will continue to do this on a limited basis.
Question 5: How is the 25% return on equity for the Mainstreet Development Fund II arrived at?
Answer: 25% return on equity will be an IRR look back.
Question 6: Who are the other investors and how much are they investing?
Answer: The fund is targeting a total raise of $60 million. We feel confident that we will get there in terms of the total dollars. The other investors are high net worth individuals and some institutions.
Question 7: I assume the intention is for HLP to eventually buy the completed properties developed as part of the Development Fund? Are there any rights or obligations that HLP has in this regard?
Answer: HLP has exactly the same rights as before. HLP has the option to acquire all properties consistent with the Development Agreement between HLP and Mainstreet, but in no case is HLP required to do so.
Question 8: How much of a promote is paid to Mainstreet?
Answer: The fund is structured to carefully align interests between Mainstreet and the investors. First, Mainstreet is committing $5 milion to the equity on the exact same terms as HLP. Second, Mainstreet will take no promote until all investors receive a full return of their capital as well as their target return. In an effort to make sure investors are adequately compensated for their investment, we set the hurdle rate very high so Mainstreet as the GP is only rewarded after equity investors are fully paid. All equity investors, including Mainstreet and HLP, will receive 25% before any promote. Once the 25% return has been paid to investors, Mainstreet is entitled to 90% of the profits above that. HLP receives 10% of the profits above 25%. A very carefully thought out structure to make sure interests are perfectly aligned.
Question 9: Is there any intention to move development in-house at some point to HLP?
Answer: We believe keeping this external is important. The REIT cannot do a lot of true development on balance sheet without dragging earnings. The size of investment was made to ensure that earnings were not impacted in the short-term. The Development Fund is a unique structure allowing HLP to participate in development for the benefit of value creation, but without having to do it directly on balance sheet with the associated drag on earnings.
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 33 properties located in seven states of the United States for a total of 4,435 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 Trust
For further information:
Executive Vice President - Finance
HealthLease Properties REIT
(416) 815-0700 ext. 258