HealthLease Properties Real Estate Investment Trust Continues to Deliver Strong Accretive Growth

CNW Group

TORONTO , May 5, 2014 /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, 2014.   All amounts expressed are in Canadian dollars unless otherwise noted.

Q1 2014 Highlights

  • FFO of $0.28 /unit ( $0.27 fully diluted), up 40%, from $0.20 /unit in Q1 2013.  This included additional finance cost for the three months ended March 31, 2014 of $1,160,587 which reduced FFO per Unit by $0.04 .  Without this additional expense, FFO per Unit would have been $0.32 per Unit for the quarter.
  • AFFO of $0.26 /unit ( $0.25 fully diluted), up 30%, from $0.20 /unit in Q1 2013.
  • The REIT increased its credit facility to US$250 million from US$120 million .
  • Debt to gross book value, including convertible debentures, of 58.8% (52% without convertible debentures), payout ratio of 81.3% of AFFO.
  • Clearvista Lake Campus and Arlington Place Health Campus, both located in Indianapolis, Indiana were purchased for an aggregate purchase price of US$37.4 million . The two properties are the most recent Next Generation® Medical Resorts developed by Mainstreet. Both facilities have 100-beds and were purchased for an aggregate purchase price of US$37.4 million .
  • Mainstreet Property Group, LLC entered into new leasing agreements with The Ensign Group, one of the largest national senior operators in the U.S. It is expected that this will generate further new properties for the REIT to acquire
  • Subsequent to quarter-end:
    • On May 5 th, the REIT received gross proceeds of $75 million pursuant to a bought-deal offering announced in April 2014 . The proceeds from this offering were used to finance the acquisition of seven senior housing and care facilities and to reduce the REIT's indebtedness.

"We maintained our growth momentum from 2013 in the first quarter, and we intend to continue to execute on our growth strategy and build on our financial strength," said Zeke Turner , Chairman and CEO.  "It is our commitment to continue building unitholder value through the acquisition of assets that are both immediately accretive and consistent with our long term objectives."

Summary of Results                  
000's, except per unit data For the three
months ended
Mar. 31, 2014
    For the three
months ended
Mar. 31, 2013
        Change
(%)
Revenue $16,113     $5,583         188.6%
Net Profit $536     $2,575         (79.2)%
Funds from Operations (FFO) (1) $8,340     $2,870         190.6%
Adjusted Funds from Operations (AFFO) (2) $7,732     $2,860         170.3%
Weighted Units Outstanding (diluted) 33,163     14,529         --
                   
FFO per unit (basic) $0.28     $0.20         40.0%
FFO per unit (diluted) $0.27     $0.20         35.0%
AFFO per unit (basic) $0.26     $0.20         30.0%
AFFO per unit (diluted) $0.25     $0.20         25.0%
Payout Ratio(3) 81.3%     108.0%          

Footnotes:
(1)  "FFO" is defined as net profit in accordance with IFRS adjusted as follows: (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 changes in
fair value of financial instruments which are economically effective hedges; (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; (vi) plus deferred income tax expense; and (vii) plus adjustments for property
taxes accounted for under IFRIC 21, after adjustments for equity accounted entities
and joint ventures calculated to reflect FFO on the same basis as consolidated
properties.
(2)  Adjusted funds from operations, or AFFO, is defined by the REIT as a measure of
operating cash 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.
(3)  Payout ratio is a measure of the distributions (inclusive of distributions paid on
Exchangeable Units) compared to the AFFO.

Q1 2014 Financial Results

Revenue.  Revenue is rental income from single tenant operators who are under long-term triple-net leases and interest income from loans.  Revenue generated for Q1 2014 was $16.1 million , an increase from $5.6 million a year ago.  The increase was mainly attributed to the addition of 30 properties that generated additional revenue of $10.5 million and interest income on loans.

Net Operating Income.  Net operating income, which is revenue less property expenses, for Q1 2014 was $12.6 million compared to $4.5 million in Q1 2013.

Net Profit.  Net profit, which is revenue less all expenses (including non-cash fair market value changes in investment properties and Exchangeable Units), for Q1 2014 was $0.5 million , down from a net profit of $2.6 million for the same period one year ago. The decrease was attributed to additional financing cost related to the modification of the secured operating line of credit, fair market value adjustments and the recognition of property taxes related to the implementation of IFRIC 21.

Funds from Operations ("FFO"). Funds from operations for Q1 2014 was $8.3 million or $0.28 per unit ( $0.27 per unit fully diluted). The increase in FFO was driven by the addition of new properties contributing to rental revenue. Without the additional finance cost related to the modification of the secured operating line of credit, the FFO per unit would have been $0.32 per unit.

Adjusted Funds from Operations ("AFFO"). Adjusted Funds from Operations, which is FFO subject to certain adjustments, for Q1 2014 was $7.7 million or $0.26 per unit ( $0.25 per unit fully diluted). The increase in AFFO was driven by the addition of new properties contributing to rental revenue.

Distributions.  For Q1 2014, distributions paid on weighted average outstanding units, including distributions on Exchangeable Units, totaled $6.3 million , or $0.21 per unit which translates into a payout ratio of 81.3% in Q1 2014.

Financial Position

Cash.  At March 31, 2014 , the REIT had cash-on-hand amounting to $8.3 million and restricted cash of $2.4 million .

Operating Line of Credit.   At March 31, 2014 , the REIT had a secured operating line of credit of US$120 million which was amended and further increased to US$250 million secured by 19 properties in the U.S.; US$30.1 million was available on the secured 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, 2014 , the debt to gross book value was 58.8%, inclusive of convertible debentures issued in November 2013 , compared to 51.4% for the same period one year ago.  The debt to gross book value without convertible debentures is 52.0 % as of March 31, 2014 .

Interest Coverage Ratio.  Interest coverage ratio, a measure of credit risk, is calculated by dividing net operating income by net interest expense.  For the quarter ended March 31, 2014 , interest coverage ratio was 2.80 times, while the weighted average cost of debt was 4.3%.

Equity and Exchangeable Units.  At March 31, 2014 , the REIT had 29.6 million units outstanding, including Exchangeable Units.  The REIT's closing unit price on May 2, 2014 was $10.09 per unit which resulted in a market capitalization of $298.7 million .

Acquisition of Senior Care Properties

On March 15, 2014 , the REIT acquired, through the Partnership, two senior housing and care facilities located in Indianapolis, Indiana for the aggregate purchase price of US$37.4 million .

HealthLease Owned Properties
Location     Number of
Facilities
      SNF/LTC Beds       AL/ALZ/ILF Beds       Total Beds
Alberta     11       515       740       1,255
British Columbia     1       57       159       216
Illinois     1       75       -       75
Indiana     12       958       264       1,222
Kentucky     1       54       69       123
Michigan*     2       271       -       271
North Carolina     11       80       713       793
Ohio     1       80       -       80
Pennsylvania     2       185       -       185
Virginia     5       415       -       415
Total     47       2,690       1,945       4,635
*The REIT has non-amortizing mortgages on these two properties in
Michigan. The REIT has the option to purchase the properties on
maturity of the loans for the principal loan balance outstanding
plus US$1.00.

Conference Call

HealthLease will host a conference call, May 6, 2014 , 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. Following management's remarks, HealthLease will conduct a question and answer session during the conference call. The conference call will be archived for replay by telephone until Tuesday, May 13, 2014 at midnight.  To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 30701071.

With the goal of communicating fairly by providing equal access to all stakeholders, management will answer additional questions in written form. 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 6.   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 and Year-End Financial Statements and Management Discussion and Analysis 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 (HLP-UN.TO) owns one of the youngest and highest quality portfolios of seniors housing and care facilities with 47 properties - 12 in two Canadian provinces and 35 in eight U.S. states, for a total of 4,635 beds.  The facilities are leased to experienced tenant operators who have significant operational experience. 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 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.

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 11, 2014 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), Adjusted funds from operations (AFFO), payout ratio, weighted average cost of capital and debt to gross book value (Debt to GBV).  See the sections entitled "Summary of the Key Performance Indicators for the Three Months Ended March 31, 2014 " in Management's Discussion & Analysis of Results of Operations and Financial Condition for the quarter ended March 31, 2014 for the definitions of these non-IFRS measures.

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

Contact:

Adlai Chester
Chief Financial Officer
HealthLease Properties REIT
(317) 420-0205

Renée Lam
Investor Relations
TMX Equicom
(416) 815-0700 ext. 258

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