HealthLease Properties Real Estate Investment Trust Continues Double-Digit Growth in Q3 2013

CNW Group

TORONTO , Nov. 7, 2013 /CNW/ - HealthLease Properties Real Estate Investment Trust (HLP.UN) ("HealthLease" or "the REIT") today announced its financial results for the three months ended September 30, 2013 .

Q3 2013 Highlights

  • Acquired 12 senior housing and care facilities in the U.S. and Canada for a total purchase price of $147.3 million , and provided mezzanine financing in the amount of $5.3 million for two others in addition to entering into an agreement to purchase the properties upon completion for an aggregate purchase price of $53.3 million . The acquisitions were partially funded with a $68.8 million equity offering which closed on July 23, 2013
  • Acquired two newly developed properties from Mainstreet Property Group - Wellbrooke of Westfield , a 100-bed seniors housing facility acquired for of U.S. $20.3 million , and Wellbrooke of Avon , a 100-bed facility acquired for U.S. $17.1 million
  • FFO increased by 171% to $7.1 million ( $0.26 /unit) compared to $2.6 million ( $0.18 /unit) in the third quarter of 2012
  • AFFO increased by 116% to $6.5 million ( $0.24 /unit) compared to $3.0 million ( $0.21 /unit) in the third quarter of 2012
  • At quarter end the REIT had a debt to gross book value of 55.7%, payout ratio of 89.1%, cash balance of $10.5 million and undrawn availability of $16.5 million on its secured revolving line of credit
  • Subsequent to quarter-end:
    • On October 22, 2013 the REIT announced a bought-deal offering of $50 million in convertible debentures with a conversion price of $14.00 per unit and interest rate of 5.75%
    • On October 25, 2013 , a tenant of the REIT exercised an option in its lease agreement and purchased the REIT's property at Valparaiso Indiana for U.S. $11.5 million
    • On October 25, 2013 , the REIT acquired a 123-bed seniors housing facility located in Lexington, Kentucky for a total purchase cost of U.S. $14.1 million

"Q3 2013 was our best quarter to date and once again demonstrates the effectiveness of the business model we put in motion at our IPO in June 2012 ," said Zeke Turner , Chairman and CEO.  "This business model is built around maintaining a triple-net lease structure, a tenant base of leading seniors care operators and our partnership with Mainstreet Property Group, our largest unitholder, which provides us with exclusive access to a pipeline of high quality properties."

 Summary of Results              
000's, except per unit data     For the three months
ended Sept. 30, 2013
  For the three months
ended Sept. 30, 2012
  Change
%
Revenue     $12,283   $4,586   167.8
Net Profit     $5,345   $2,934   82.2
Funds from Operations
(FFO) (1)
    $7,090   $2,613   171.3
Adjusted Funds from
Operations (AFFO) (2)
    $6,532   $3,019   116.4
Weighted Units
Outstanding (diluted)
    27,381   14,369   -
               
FFO per unit (diluted)     $0.26   $0.18   44.4
AFFO per unit (diluted)     $0.24   $0.21   14.3
Payout Ratio(3)     89.1%   101.1%   -

Footnotes:
(1) Funds from operations, or FFO, is an earnings measure used by most publicly traded real estate entities. FFO is not defined under International Financial Reporting Standards ("IFRS").  HealthLease calculates FFO in accordance with the Real Property Association of Canada ("REALpac") White Paper on Funds from Operations issued in 2004 and revised in 2010 for the impact of IFRS.  FFO is defined as net earnings in accordance with IFRS, (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 fair value adjustments; (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; and (vi) plus deferred income tax expense, 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.

Review of Q3 2013 Operating and Financial Results (rounded to nearest '000 except per unit data)

Revenue. Revenue is rental income from single tenant operators who are under long-term triple-net leases and interest income from loans.  Revenue during the quarter was $12,283 .  The increase over the previous year is due to the addition of 27 properties that generated additional revenue of $7,697 .

Net Operating Income. Net operating income, which is revenue less property expenses, was $11,770 .  Net operating income was 96.0% of revenue for the quarter ended September 30, 2013.   The high margin is attributable to minimal operating expenses as a result of the triple-net structure of HealthLease's leases.

Net Profit. Net profit, which is revenue less all expenses (including non-cash fair market value changes in investment properties and Exchangeable Units), was $5,345 for the three months ended September 30, 2013 .

Distributions.  Distributions on weighted average outstanding units, including distributions on Exchangeable Units, totaled $5,818 , or $0.21 per unit. This translates into a payout ratio of 89.1% for the quarter.  If the payout ratio was calculated on actual distributions the result would be a payout ratio of 84%.

Financial Position (rounded to nearest '000)

Cash.  At September 30, 2013 , the REIT had cash-on-hand amounting to $10,526 and restricted cash of $3,874 .

Operating Line of Credit.   At September 30, 2013 , the REIT had a secured revolving line of credit of $120,000 , secured by 17 properties in the U.S.; $16,470 was available on the 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 June 30, 2013 , the debt to gross book value was 55.7%.

Interest Coverage Ratio.  Interest coverage ratio, a measure of credit risk, is calculated by dividing net operating income by net interest expense. For the three months ended September 30, 2013 , interest coverage ratio was 3.22 times, while the weighted average cost of debt was 4.27%.

Equity and Exchangeable Units.  At September 30, 2013 , the REIT had 29,337 units outstanding, including Exchangeable Units.  At the closing price of $10.17 per unit on September 30, 2013 , the REIT had a market capitalization of $298,364 .

Acquisition of Senior Care Properties

On July 1, 2013 , the REIT indirectly acquired a senior housing and care property located in Westfield, Indiana for a total purchase price of U.S. $20.3 million .  The facility was externally developed by Mainstreet Asset Management, Inc. As part of the acquisition, Exchangeable Units were issued to Mainstreet Property Group, a related party, at a price of $10.69 per unit.  The remainder of the purchase price was funded through a combination of assumption of debt, drawing on the line of credit, and current cash.

On July 26, 2013 , the REIT acquired a portfolio of six senior housing and care facilities located in Ohio , North Carolina and Virginia (SP II Portfolio) for a total purchase price of U.S. $77.6 million . The acquisition was funded through a $68.8 million equity offering of 6,587,500 units at $10.45 per unit, in addition to drawing on the REIT's line of credit and cash on hand.

On July 31, 2013 the REIT acquired a portfolio of six senior housing and care facilities located in Alberta (Continuum Portfolio) for U.S. $69.7 million . In acquiring the Continuum Portfolio, the REIT issued Canadian Partnership Units in a newly formed Canadian partnership, HealthLease Canada, LP (the "Canadian Partnership").  The Canadian Partnership was formed for the purpose of holding the newly acquired Canadian senior housing and care properties.  In addition, the REIT made a mezzanine loan, to the seller, on two properties currently under development.  The REIT has committed to buying the two properties for $53.2 million upon completion.  The acquisition was funded through a combination of assumption of debt, Exchangeable Units and cash on hand.

On September 3, 2013 , the REIT indirectly acquired a senior housing and care property located in Avon, Indiana for a total purchase price of U.S. $17.1 million .  The facility was externally developed by Mainstreet Asset Management, Inc. As part of the acquisition, Exchangeable Units were issued to Mainstreet Property Group, a related party, at a price of $9.82 per unit.  The remainder of the purchase price was funded through a combination of assumption of debt, drawing on the line of credit, and current cash.

On October 23, 2013 , the REIT indirectly acquired, through the Partnership, a senior housing and care facility in Lexington, Kentucky for a purchase price of U.S. $14.1 million .  The REIT purchased the asset, which was unencumbered by previous debt with net cash of $11.3 million and gross debt of $2.9 million .  The debt was sourced by the Partnership's operating line.

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   9   748   174   922
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   44   2,480   1,855   4,335

*The REIT has non-amortizing mortgages on its two properties in Michigan and can buy them at maturity of the loans for the balance outstanding plus US$1.00 .

Conference Call

HealthLease will host a conference call tomorrow, November 8, 2013 , at 9:00 am ET to discuss its third 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.  The conference call will be archived for replay by telephone until Friday, November 15, 2013 at midnight.  To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 91124533.

With the goal of communicating fairly by providing equal access to all stakeholders, management will answer questions in written form instead of entertaining live questions during the call.  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 November 8.   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 Third Quarter Financial Statements 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 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.

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 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.

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 and Nine Months ended September 30, 2013 " in Management's Discussion & Analysis of Results of Operations and Financial Condition for the quarter ended September 30, 2013 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:

Scott White
Executive Vice President - Finance
HealthLease Properties REIT
(317) 420-0205

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

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