Health lease investor presentation july 2012


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Health lease investor presentation july 2012

  1. 1. Forward-Looking StatementsThis presentation contains forward-looking statements which reflect management’s expectations regarding objectives, plans, goals,strategies, future growth, results of operations, performance and business prospects and opportunities of the REIT. The words “plans”,“expects”, “does not expect”, “scheduled”, “estimates”, “intends”, “anticipates”, “does not anticipate”, “projects”, “believes” or variationsof such words and phrases or statements to the effect that certain actions, events or results “may”, “will”, “could”, “would”, “might”,“occur”, “be achieved” or “continue” and similar expressions identify forward-looking statements. Some of the specific forward-lookingstatements in this presentation include, but are not limited to, statements with respect to the following: the intention of the REIT to paystable and growing distributions; the ability of the REIT to execute its growth strategies; the forecasted financial results of the REIT for theperiods set out in the financial forecast section of this presentation and the REIT’s prospectus; the expected tax treatment of the REIT andof the REIT’s distributions to Unitholders; and the expected seniors housing and care industry and demographic trends. Forward-lookingstatements are necessarily based on a number of estimates and assumptions that, while considered reasonable by management of theREIT as of the date of this presentation, are inherently subject to significant business, economic and competitive uncertainties andcontingencies. The REIT’s estimates, beliefs and assumptions, which may prove to be incorrect, include the various assumptions set forthherein, including, but not limited to, the REIT’s future growth potential, results of operations, future prospects and opportunities, thedemographic and industry trends remaining unchanged, no change in legislative or regulatory matters, future levels of indebtedness, thetax laws as currently in effect remaining unchanged, the continual availability of capital and the current economic conditions remainingunchanged. When relying on forward-looking statements to make decisions, the REIT cautions readers not to place undue reliance onthese statements, as forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of futureperformance or results, and will not necessarily be accurate indications of whether or not the times at or by which such performance orresults will be achieved. A number of factors could cause actual results to differ materially from the results discussed in theforward-looking statements, including, but not limited to, the factors discussed under the “Risk Factors” section of the REIT’s prospectus.These forward-looking statements are made as of the date of this presentation and, except as expressly required by applicable law, theREIT assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, futureevents or otherwise.HealthLease Properties REIT 2
  2. 2. HealthLease Properties REITHigh-quality seniors housing 15 U.S. and Canadian propertiesand care facilities 1,931 beds/suitesUNDER FOCUSED ONtriple-net leases need-driven careTO skilled nursing, long-term care and assisted livingexperienced tenant operators Beverly Centre ‐ Lake Midnapore Calgary, AlbertaUnique, cross-border, seniors housing and care investment opportunityHealthLease Properties REIT 3
  3. 3. Investment Highlights Portfolio of high-quality facilities Favourable demographics in the U.S. and Canada and industry dynamics focused on need-driven care Proven and de-risked Triple-net lease structure pre-leased development model providing stable cash flows offering measured growth Leading regional tenant operators Attractive investment with high-quality payor sources and and leverage metrics robust occupancies Experienced and aligned management team and boardHealthLease Properties REIT 4
  4. 4. Growing Healthcare Industry National Healthcare Spending U.S. Canada $2.8 Trillion $193 Billion 17.4% 4.2% 11.7% 6.5% of GDP Growth in 2011 of GDP CAGR (2005 - 2010) HIGHEST HEALTHCARE SPEND 3RD HIGHEST HEALTHCARE SPEND PER-CAPITA GLOBALLY PER-CAPITA GLOBALLY Growth in healthcare spending expected to outpace broader economyHealthLease Properties REIT 5
  5. 5. Seniors Housing and Care - Spectrum of Care REAL ESTATE COMPONENT SERVICES COMPONENT Shelter Activities, Transport, Meals Care Services Short-Term Long-Term Recreation Laundry Post Acute Chronic CareLOW ACUITY Care Independent Living Facilities (ILFs) Assisted Living Facilities (ALFs) Skilled Nursing Facilities (SNFs) / Long-Term Care Facilities (LTCs)HIGH ACUITY Continuing Care Retirement Communities (CCRCs) PRIVATE PAY GOVERNMENT PAY >90% of the REIT’s portfolio is focused on need-driven care HealthLease Properties REIT 6
  6. 6. Seniors Housing and Care Favourable Industry DynamicsBy 2031, seniors population expected to reach Revenue Stability • Need-driven servicesU.S. Canada • Stable occupancy73.3M 9.6M (historical occupancy ~90%) • Favourable funding sources 70% of U.S. seniors Barriers to Entry will require some type of long-term care Cost-Effective Care Alternative >40% of U.S. seniors Ownership Fragmentation will need care in a nursing home Supply/Demand ImbalanceHealthLease Properties REIT 7
  7. 7. Demographics Driving Demand Seniors population growing 3X FASTER than overall population TOTAL U.S. POPULATION >65(M) TOTAL CANADIAN POPULATION >65(M) % OF TOTAL POPULATION % OF TOTAL POPULATION 23% 20% 21% 18% 16% 18% 14% 16% 9.6 13% 73.3 14% 65.7 8.4 56.6 7.1 46.8 5.8 40.2 4.8 Aging population and Changing family Changes in consumer increasing life expectancy dynamics preferenceHealthLease Properties REIT 8
  8. 8. Significant Supply/Demand Imbalance Number of facilities not keeping pace with seniors population growth U.S. Canada Current supply: 15,622 SNFs Current supply: 7,951 facilities totaling 1.7 million beds totaling 390,600 suites Number of facilities declined by 5% Current LTC waiting list: (2001 to 2011) • Ontario: >20,000 beds, representing Annual new construction starts ~26% of current bed stock represent 0.3% of existing supply • Alberta: 1,700 beds, representing (since 2008) ~11% of current bed stock >US$400B >315,000 new construction needed new LTC & ALF beds/suites needed (next 35 years) (next 20 years)HealthLease Properties REIT 9
  9. 9. HealthLease Properties REIT Well-positioned to capitalize on expected growth in seniors housing and care Miller’s Merry Manor of Marion Marion, IndianaHealthLease Properties REIT 10
  10. 10. Business ModelValleyview Care Centre Harmony Court Care Centre Avalon Springs Health CampusMedicine Hat, Alberta Burnaby, British Columbia Valparaiso, Indiana High-Quality Long-Term Leading Regional Facilities LEASED Triple-Net Leases TO Tenant Operators Focused on Need-Driven Care UNDER with High-Quality Pay Sources and Robust OccupanciesHealthLease Properties REIT 11
  11. 11. High-Quality Portfolio 15 properties 1,931 beds/suites Hotel-Like Design and Average Age: Private Rooms:Hospitality-Inspired Amenities 8 years ~70% (including major renovations) Current and Next Generation™ Facilities 2.0x 88.4% 72% High-Quality Construction Portfolio EBITDAR Portfolio High-Quality to Rent Coverage Occupancy Occupancy (weighted average) (weighted average) Payor Mix (non-Medicaid) Quality assets drive strong margins for tenant operatorsHealthLease Properties REIT 12
  12. 12. Initial Portfolio~$265M appraised value(inclusive of U.S. portfolio premium of 5.3%)9 properties in the U.S.totaling 929 beds/suitesacquired from Mainstreet• 6 properties (654 beds/suites)• 3 pre-leased Next Generation™ development properties (275 beds/suites)6 properties in Canadatotaling 1,002 beds/suitesacquired from Northern Properties REIT BEDS/SUITES SNF/LTC ALF/ILF Total• Owned by NPR since 2006 U.S. 754 175 929• Stable NOI: CAGR of 1.8% (since 2007) Canada 572 430 1,002HealthLease Properties REIT 13
  13. 13. Key Portfolio Statistics BEDS/SUITES BY TYPE OF SERVICE PROVIDED RENTS BY GEOGRAPHY1 7% ILF 9% 134 British Columbia 24% ALF 471 51% 34% 69% Alberta Indiana SNF/LTC 1,326 6% Illinois 1. Based on contractual rent for 2013. Quality assets drive strong margins for tenant operators Need-driven care in diverse geographiesHealthLease Properties REIT 14
  14. 14. Hotel-Like Design,Hospitality-Inspired AmenitiesSuperior Finishes Avalon Springs Health Campus Valparaiso, Indiana Harmony Court Care Centre Beverly Centre ‐ Glenmore Burnaby, British Columbia Calgary, AlbertaHealthLease Properties REIT 15
  15. 15. Hotel-Like Design,Hospitality-Inspired AmenitiesSpacious Private Rooms and Baths Marion Rehabilitation and Assisted Living Marion, Indiana Harmony Court Care Centre Columbia Assisted Living Burnaby, British Columbia Lethbridge, AlbertaHealthLease Properties REIT 16
  16. 16. Hotel-Like Design,Hospitality-Inspired AmenitiesLarge Common Areas and Social Destinations Marion Rehabilitation and Assisted Living Marion, Indiana Harmony Court Care Centre Beverly Centre ‐ Glenmore Burnaby, British Columbia Calgary, AlbertaHealthLease Properties REIT 17
  17. 17. Long-Term Triple-Net Leases Operators pay all operating expenses and most capital expendituresTenant operators • • Fixed rent escalators1assume • Corporate or personal guarantees (with respect to most leases)operational risk • Significant landlord rights and remedies • Regular tenant reporting requirements 1. Other than the lease in respect of Highland Manor Health and Living. PERCENTAGE OF PORTFOLIO RENTAL REVENUE 81.1% MATURING IN A PARTICULAR YEAR 17.4% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 1.5% + Weighted average lease maturity of 13.5 yearsHealthLease Properties REIT 18
  18. 18. Leading Regional Tenant Operators Financially strong $285M Operate in multiple states Consolidated annual EBITDAR and provinces Local market knowledge 2.0x Portfolio EBITDAR to rent coverage (weighted average) Proven track records Emphasis on high-quality 88.4% Portfolio occupancy patient care (weighted average) EBITDAR coverage compares favourably to industry averageHealthLease Properties REIT 19
  19. 19. Leading Regional Tenant Operators OPERATOR NUMBER OF NUMBER OF BEDS/ GEOGRAPHIC FOOTPRINT % OF 2013 FACILITIES MANAGED SUITES MANAGED CONTRACTUAL RENT AgeCare 13 >1,000 Western Canada 60.0% Life Care Services LLC1 >100 >29,000 Continental U.S. 6.6% Sprenger Health Systems 11 >1,600 Midwest U.S. 6.3% Platinum Health Care 29 3,335 Midwest U.S. 6.0% Covenant Care >50 5,787 Midwest & Western U.S. 5.5% Miller’s Health Systems 32 3,369 Indiana 5.3% Trilogy Health Services 67 >7,200 Midwest U.S. 4.9% Magnolia Health Systems 31 >2,800 Indiana 4.2% MS Senior I LLC2 1 52 Indiana 1.2% Total >334 >54,143 100.0%1. An entity that is owned, 50% by an affiliate of Life Care Services, LLC, which is the managing member, and 50% by an affiliate of Mainstreet.2. An affiliate of Mainstreet. The Partnership is in negotiations to lease Highland Manor Health and Living, which is currently operated by Mainstreet Senior I, LLC, to an unrelated third-party operator. >200 years combined operating history HealthLease Properties REIT 20
  20. 20. Funding Environment U.S. Medicaid Private Insurance State funding assistance for basic care services Reimbursement rates are negotiated with insurers Long-term stay based on patient level of care and local market rates Indiana rates average $145 per day Medicare Private Funds Federal health insurance program Residents privately pay full rate as determined Estimated average 2013 Medicare Rates: by level of care and market need approximately $455 per day Canada Alberta and British Columbia Governed by regional health authorities Cost shared between province and residentTriple-net lease structure and experienced operators mitigates funding variability Initially, 60% of 2013 contractual rent generated in CanadaHealthLease Properties REIT 21
  21. 21. Growth StrategyAvalon Springs Health Campus Beverly Centre ‐ Lake MidnaporeValparaiso, Indiana Mainstreet Next GenerationTM Campus Calgary, Alberta Organic Growth Construction of Strategic and • Rent step-ups • Financing opportunities • Tenant retention and growth + Pre-Leased Development Facilities + Accretive Acquisitions • Focus on high-quality facilities and operators HealthLease Properties REIT 22
  22. 22. De-Risked, Pre-Leased Development Model Next Generation™ propertiesMitigates normal risks • Pre-leased prior to construction (limited lease-up risk)associated with development • Bonded contractors • Guaranteed maximum price construction contracts • Binding timelines for project completion (~9 to 12 months) • Rent commences upon certificate of occupancy • Internal development activity limited Marion Rehabilitation and Assisted Living to 20% of GBV Marion, Indiana Pipeline of external properties with a value of >US$150M 10 properties, representing 1,000 bed/suites over the next 24 monthsHealthLease Properties REIT 23
  23. 23. Track Record of Pre-Leased Development Successfully financed, developed and leased 9 facilities (including 5 of the initial properties) representing a total value ofMarion Rehabilitation and Assisted Living Marion, Indiana ~US$130M (since 2008) Development / Construction On-time: Average construction time of 10 months The Legacy at Creasy Springs On-budget: Within 1% of total cost Lafayette, Indiana Property Performance1 80% Occupancy 2.0x EBITDAR to rent coverage Avalon Springs Health Campus 1. Represents results of Lafeyette and Noblesville, two stabilized properties developed by Mainstreet. These properties do not form part of Valparaiso, Indiana the Initial Properties as they are expected to be purchased by the tenant operator.HealthLease Properties REIT 24
  24. 24. Asset Manager and Developer Principals with over 35 years experience focused on seniors housing and care properties Asset Management Agreement Development Agreement • 3% of REIT gross revenue • REIT has preferential right to develop internally • 5-year term (with renewal, subject to on all Mainstreet development activity no material default) • REIT reserves right to purchase non-internally • Internalize at no cost to REIT at $500 million developed projects market cap • Mainstreet to take back equity Non-Competition Agreement (pro rata to a max of 40%) • Restricted from, developing, acquiring or • REIT may undertake third-party development investing in senior housing properties, except as opportunities per Development Agreement, or create another • 5-year term (with renewals, subject to no REIT/seniors housing pubco in U.S./Canada material default)HealthLease Properties REIT 25
  25. 25. Senior Management Paul Ezekiel “Zeke” Turner Chairman and Chief Executive Officer Retaining ~18% ownership position in REIT Adlai Chester, CPA Increased ownership Chief Financial Officer through equity consideration from external development V. Edward Grogg President, MainstreetHealthLease Properties REIT 26
  26. 26. Board of TrusteesDavid Beirnes Aida TammerPrincipal, CBG Seniors Realty Advisors Director, Tricon Capital GroupFormer CFO, Retirement Residences REITJames Bremner Richard TurnerPresident, Healthcare of Duke Realty Corporation President & CEO, TitanStar Investment Group Trustee, Pure Industrial Real Estate Trust Former Trustee, Sunrise Senior Living REITNeil Labatte Michael SalterPresident, Global Dimension Capital CFO, Medical Facilities CorporationFormer CEO, Legacy Hotels REIT Paul Ezekiel “Zeke” Turner Chairman and CEO, HealthLease Properties REIT Founder and CEO, MainstreetMajority Experience in Real estate capital markets Healthcare & seniors housing and careIndependent U.S. & CanadaHealthLease Properties REIT 27
  27. 27. Mainstreet Development LeaseFACILITY LEASE WITH OPERATOR EXPECTED COMPLETION OF CONSTRUCTION DURATION OF MAINSTREET CONSTRUCTION AND CONTRACT DEVELOPMENT/ DEVELOPMENT MAINSTREET LEASE PAYMENTS1 LEASE DEVELOPMENT LEASE (months) MATURITYThe Bridge Platinum HealthCare Suites, February 2013 Fixed price 8 $572,193 Care, LLCIllinoisMishawaka, Sprenger Health December 2012 Fixed price 6 $341,768Indiana SystemsWabash, Life Care Services December 2012 Fixed price 6 $333,039Indiana LLC2Total $1,247,000 Mainstreet has pledged certain class B units and their related distributions until tenant occupancy 1. Assumes Mainstreet Development Lease payments commence in June 2012 and end the month leading up to the issuance of a Certificate of Occupancy. 2. An entity that is owned, 50% by an affiliate of Life Care Services, LLC, which is the managing member, and 50% by an affiliate of Mainstreet. HealthLease Properties REIT 28
  28. 28. Debt StrategySUMMARY DEBT MATURITYDebt/GBVat Closing of IPO 52% 0.0% (MILLIONS) 0.0% 0.0% 0.0% 34.0% 66.0% % OF TOTAL MATURITIESDebt/GBV(upon completion ofpre-leased properties) 55%Allowed Amountper Indenture Up to 65% (incl. converts)HIGHLIGHTSWeighted Average Rate 5.04%Average Maturity(no maturities until 2016) 8.6 years Chart represents maturities on debt outstanding as at December 31, 2011 pro forma the IPO. Additional principal payments (not included in above chart) on maturity for anticipated debt incurred in connection US$25M with the three preleased development properties is $18.8 million for 2016.Term Loan Facility NO DEBT MATURITIES UNTIL 2016 HealthLease Properties REIT 29
  29. 29. Investment Highlights High-Quality Long-Term Leading Regional Facilities LEASED Triple-Net Leases TO Tenant Operators Focused on Need-Driven Care UNDER with High-Quality Pay Sources and Robust Occupancies Proven and de-risked pre-leased development model offering measured growth Favourable demographics and industry dynamics Experienced and aligned Attractive investment management team and board and leverage metricsHealthLease Properties REIT 30