TORONTO, June 28, 2013 /CNW/ - HealthLease Properties Real Estate Investment Trust (HLP.UN) ("HealthLease" or "the REIT") provides below answers to questions received since our last Q&A Update on May 31, 2013.
Question 1: Was the recent acquisition of Wellbooke of Westfield in U.S. or Canadian dollars?
Answer: The acquisition was denominated in U.S. dollars.
Question 2: In the Condensed Consolidated Interim Financial Statements for the three months ended March 31, 2013 and 2012 on page 24 the Company reported the following:
|"In addition, at closing, there were 3 properties that were still under development. These properties are expected to be completed with operator rent commencing by June 1, 2013. As part of the purchase agreement, the sellers agreed to take back debt equal to the purchase price of these three properties (U.S. $26,713,254). This debt will remain in place until the properties are complete and rent has commenced, at which time the seller financed debt will be paid off with debt from the REIT's operating line."|
Is this transaction reflected in the REIT's operating line as reported in the financial statements?
Answer: As the transaction took place after the closing of the quarter it is not included in the line of credit amount on March 31, 2013. Assuming the buildings are complete and rent has commenced on June 1, the transfer of debt from the operating line will be reflected in the quarter ended June 30, 2013.
Question 3: I was wondering what fee structure HealthLease typically pays in terms of development management fees (% of total project costs) and construction management fees (% of hard costs) for new properties under development?
Answer: HealthLease currently is not developing any assets. All development is being done externally through a Development Agreement with Mainstreet and HealthLease is acquiring assets at appraised value. To the extent that HealthLease chooses to develop internally, they will pay Mainstreet a 5% development fee which is capitalized as part of the cost of construction.
Question 4: Some of the IPO U.S. properties are in small markets - markets like Brookville and Alexandria have populations in the 5,000 range. What is the risk profile of these markets in terms of (1) depth of resident base, (2) terminal value of the asset at end of lease term, (3) population sustainability?
Answer: Brookville was one of our earlier facilities and probably not indicative of where we target for future facilities, both acquisitions and development. On the development side in particular, we do a very detailed and thorough analysis of the population demographics, Medicare discharges from acute care facilities and an assessment of the current competitive universe. The bottom line is that we make site selection decisions very carefully after thorough analysis. These decisions are so important not only because of the market environment today, but so that we can carefully plan for the next 5, 10, 15 years and beyond.
Question 5: You mentioned the mix of Skilled Nursing Facilities being in the 70% range and EBITDAR coverage at about 1.7x. Will you be disclosing that - I noticed the U.S. REITs provide regular disclosure of EBITDAR coverage?
Answer: Thank you for this suggestion. We continue to look for ways to be more responsive and transparent to our investors and the analyst community. We will disclose the EBITDARM coverage for our portfolio as a whole, inclusive of both Canada and the U.S. on a go forward basis.
Question 6: Can you provide an update on the tenant purchase options that were described in your IPO prospectus?
Answer: The only option within the portfolio is on the Valparaiso, Indiana property. Trilogy has the right to purchase this property on the anniversary of the lease each year. However, in the event it is purchased we feel confident we would be able to replace it with another existing Trilogy property. Further, the tenant has a purchase option in Marion and Mishawaka at the end of the lease (15 years) but we project it to be priced very fairly at that point and it may not be of interest to those tenants given the pricing.
Question 7: Given that the REIT does not pay for any structural-related capex, how does the REIT protect itself from getting back a building with significant deferred capex? Hypothetically, if a 5% of revenue reserve is required to maintain the competitive advantage of the plant, then that translates to roughly 25% of EBITDAR. That eats a lot of the profit for the operator who would likely be incentivized to spend less.
Answer: Very astute observation about the importance of capex as we are long term owners. However, please remember that our facilities are generally quite young, in many cases brand new. They require significantly less capex than 5%. We estimate capex requirements of approximately $500 to $800 per bed starting in roughly year 5. That translates into $50,000 to $80,000. Further, we track the capital spend by each of our operators on an annual basis and have very strong rights and remedies. But we doubt this will ever be an issue. The operators we have been working with see the value of maintaining a very high quality building and thus experience for the residents. We have recent examples of our operators spending $1 million on their own to enhance and refurbish because they were able to identify an immediate return on this investment.
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 May 8, 2013. The REIT's 2013 Fiscal First Quarter Financial Statements, and MD&A, have been filed on SEDAR. The First 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 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 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