TORONTO, Nov. 9, 2012 /CNW/ - HealthLease Properties Real Estate
Investment Trust (HLP.UN) ("HealthLease" or "the REIT") provides below
answers to questions received subsequent to the REIT's 2012 Third
Quarter conference call that took place at 10 a.m. EST on November 9,
Question: On the next generation assets, your prospectus indicated that Medicare
and private pay mix tend to be much higher than older assets. Does it
not make sense that if the Medicare patient needs LT care and their
resources are eventually depleted that they will effectively become
Medicaid, i.e., I can see why a brand new building will attract a
higher mix of Medicare and private pay, but over time as the newer
assets 'season', we should see an increasing proportion of Medicaid,
consistent with the industry average mix.
Answer: Our Next GenerationTM designs are founded on two different principles. One principle is what
you reference, that a consumer will be more attracted to our new,
better designs than the other product offerings in the market. Yes,
these will eventually "season" and will have to adapt over time,
especially if new entrants enter the market. However, this is offset
by a number of factors. First, in the local markets, even in
non-certificate of need states, there are still significant barriers to
entry for new competitors. New properties can be expensive to build
and a local market can only manage a certain number of active
properties. As new entrants enter the market, it will be the older
buildings (even more obsolete by that time) that will be forced to
close. Second, our entire approach at this time is based on current
market demand. Senior demographics continue to grow exponentially,
creating even more demand into the future. We view this as upside and
it is what will be serviced by any new entrants to the local markets.
It will not be them stealing census from our buildings. Finally, our
buildings, via private rooms and other design features, are able to
flex over time to adapt to different uses. For instance, a property
may start out as a mix of 70 skilled nursing rooms and 30 assisted
living rooms, but may flex over time to more of a 50/50 model or even
something entirely different. This adaptability has never before been
seen in the senior care industry.
However, it is the second principle of our designs that is even a more
compelling answer to your questions. This represents a programmatic
shift in the facility's operations, targeting short-term rehabilitation
and therapy instead of long-term care. I cannot overstate how
important this shift is to the long-range viability of our model. The
old model of care was long-term, custodial care paid for by the state
government's welfare system (Medicaid). The new model is that of
consumer-focused, short-term stays paid for by insurance programs
(Medicare and private insurance). This means that our properties are
not even competing with the current "legacy" properties in a market.
Instead, they are filling a vastly underserved niche of patients coming
directly out of a hospital stay. In fact, the majority of our
properties have little to no active Medicaid certifications, meaning
they cannot even admit a resident on a Medicaid stay. (If a resident
were to run out of money, they would have to transition to another
property.) As demand in the markets continues to grow, our properties
will continue to hold a key position in servicing the rehabilitation
and therapy needs of the local population.
Question: Despite the reduction (from 5% to 3%) of management fees, I am quite
leery of the external management of REITs, as fees are quite high and
the reward is for volume/acquisitions rather than profits. Most REITs
are moving to internal management fee structures, and management is
more aligned with shareholders than is the case here. Can you explain
to me why you have an external management fee structure, why 5% is
allowed for development of properties, and why fees are based upon
volume of rent rather than on profits?
Answer: The 3% management fee currently equates to only approximately $630,000
per year. We believe this is very reasonable, especially when compared
to the cost of having similar management functions performed
internally. Under the agreement, management is required to be
internalized once market capitalization reaches $500 million - at no
additional cost to the REIT. The goal is to move to internal
management once the REIT can absorb the overhead without influencing
yield to investors. Remember, the manager is also a significant
unitholder of the REIT, owning 2.4 million shares, or approximately 17%
of shares outstanding. This, more than anything, drives alignment of
The development fee is based on market terms and represents a fair
compensation when compared to the actual cost to execute development
The base management fee is based on revenue because it is
straightforward and easy to understand. However, the prospectus does
contemplate an incentive compensation plan that will likely be based on
other measures such as profitability, growth, etc. This is what will
ultimately be implemented to further align management and unitholder
Question: Please give me information as to your existing payout ratio as well as
the payout ratio you expect for 2013.
Answer: Our payout ratio for Q3 2012 was 102%. Our target is 93%. The ratio
was higher in Q3 due to the over-allotment that was exercised by the
underwriters not being fully deployed.
Question: Could you please advise if HealthLease Properties Real Estate
Investment Trust (the "REIT") (TSX: HLP.UN) is a mutual fund?
Answer: HealthLease is an "open-ended" real estate investment trust.
Question: I have a U.S. client who owns shares of HREIU. Do they receive the same
monthly distribution as people who own HLP.UN?
Answer: HREIU is the ticker symbol for HealthLease Properties REIT on the United
States OTC market. The ticker symbol is assigned by the OTC. However,
to answer your question, the unitholders of HREIU receive the same
benefits as the unitholders of HLP.UN.
Question: Can you please confirm how distributions are categorized for income
Answer: The distributions are estimated to be approximately:
U.S. source interest - 11%
Canadian property income - 25%
Return of capital - 64%
These amounts will be "trued-up" at year-end.
Question: Are the Development Lease properties still expected to be completed
within the forecasted timeline and budget?
Answer: The Development Lease properties are still materially on time and on
Question: How is the acquisition pipeline progressing? Do you still expect to
deploy the proceeds of the over-allotment option by the end of the
Answer: We are seeing robust demand for our products, both in developments and
acquisitions. We previously announced via press release several
developments that are coming online next year. We also believe we will
have ample third-party acquisition opportunities.
Question: What was the portfolio EBITDAR / Rent Coverage? Are there any facilities
in particular that are operating above or below expectations?
Answer: We do not disclose individual property performance. However, our
portfolio EBITDAR to rent coverage is currently 2.11 to 1.00. To be
clear, we have varying reporting periods among our operators, so this
number reflects a snapshot of all of our operators but may contain
annualized calculations of different time periods.
Question: How is the internal development pipeline shaping up? Are tenant
operators expressing interest in developing new facilities?
Answer: We have already started putting a list together for potential internal
developments. Based on market demand and industry fundamentals,
management believes these opportunities will be significant in terms of
volume going forward.
Question: What are the impacts of the recent election on funding sources for
skilled nursing facilities in the U.S.?
Answer: It is impossible to predict what future changes might be made to the
funding sources. With that said, we do not see anything coming down
the line that causes us to be concerned about our business or its
future growth potential.
Question: Can you elaborate on the roof repair at the AgeCare asset? Is there any
recourse against Northern Property REIT for the repair?
Answer: The REIT is currently investigating all of its options.
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 Interim Financial Statements have been filed on
SEDAR and 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 final prospectus dated June 8, 2012 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