High quality senior care properties
Mo YangSummum Capital
June 20 2012
Attractive IPO offer• HealthLease property REIT is a triple-net-lease REIT
– Own 15 properties in western Canada and MidWestern US.
– Predominantly skilled nursing and long term care facilities.
• Capitalization pre-IPO– Enterprise value : $231M– Equity value : $85M– Total debt / Enterprise value ~ 52%
• Valuation multiple– Cap rate : 8%– Expected yield : 8.5%– P/AFFO of 12.3x– Debt/GBV : 55%– EBITDA interest coverage: 2.9x
Ticker: TSX:HLP.UNPrice: $10Trading start: June 21 2012
High quality portfolio?
• Below are properties listed on the IPO
Avalon Spring, Indiana79530 sq ft / 132 units / Built 2012
Alexandra Health care, Indiana23363 sq ft / 70 units / Built 1982
Marion Rehabilitation , Indiana65653 sq ft / 100 units / Built 2012
Miller’s Merry Manor, Indiana71539 sq ft / 176 units / Built NA
Beverly Centre Glenmore, Alberta114774 sq ft / 215 units / Built 1971
Valley view Care Centre, Alberta60800 sq ft / 86 units / Built 1999
Harmony court , British-Columbia102,817 sq ft / 216 units / Built 1970
Orchard Manor, Alberta39,308 sq ft / 53 units / Built 2000
Most picture in the prospectus shows the new Avalon built which is clearly the better quality home in the portfolio. It fails to show the poor quality of homes such as Miller’s Manor. We believe this is why the US property is value 25% less than the Canadian ones and also why the valuation of $265M
for the aggregate properties is not split by property.
Pictures posted on the IPO prospectus
Two very different portfolioCanadian property:• Located in urban communities• Mainly for active and independent living• Infrastructure in much better condition • Consistent service as tenant/operator is the same
US property:• Located in remote and rural area• Mainly for skilled nursing and care• Homes are mostly of poorer quality except for new built• Inconsistent service by tenant/operator as operators varies• US homes clearly need urgent CAPEX to ensure eligibility for Medicaid and Medicare• 3 developments geared towards high quality ready within 1 year
The Canadian portfolio is much more attractive due to higher tenant quality and real estate value.
NAV: $66.5M
NAV: $18.3M
Facilities sq foot Unit Occup. rate Tenant Date Adresse
Alexandria Care Center 23363 70 93% Magnolia Health Systems 1982 1912 S. Park Avenue, Alexandria, Indiana
Avalon Springs Health Campus 79530 132 NA Trilogy Health Services, LLC 2012 2420 Lilac Lane and 2402 Silhavy Road, Valparaiso, Indiana
Brookville Healthcare Center 33691 100 84% Magnolia Health Services 1987 11049 State Road 101, Brookville, Indiana
Highland Manor Health and Living 16300 52 80% Mainstreet Senior I, LLC 1968 2926 N. Capitol Avenue, Indianapolis, Indiana
Marion Rehabilitation and Assisted Living 65653 100 NA Covenant Care, LLC pursuant 2012 614 West 14th Street, Marion, Indiana
Miller’s Merry Manor of Marion 71539 176 75% Miller’s Health System 1976 505 North Bradner Avenue, Marion, Indiana
The Bridge Care Suites* 45400 75 NA Platinum Health Care 2013 3089 Old Jacksonville Road, Springfield, Illinois
Mishawaka, Indiana* 66,953 100 NA Sprenger Health Care 2012 Mishawaka, Indiana
Wabash, Indiana* 67,210 100 NA Life Care service / Mainstreet 2012 Wabash, Indiana
Total US 469,639 905
Beverly Centre-Glenmore 114774 215 NA AgeCare 1971 1729-90th Avenue South-West, Calgary, Alberta
Beverly Centre-Lake Midnapore 204187 320 NA AgeCare 2001 500 Midpark Way South-East, Calgary, Alberta
Columbia Assisted Living 90653 112 NA AgeCare 2001 785 Columbia Boulevard West, Lightbridge, Alberta
Harmony Court Care Centre 102817 216 NA AgeCare 1970 7111, 7195 and 7197 Canada Way, Burnaby, British Columbia
Orchard Manor 39308 53 NA AgeCare 2000 951 Cassils Road West, Brooks, Alberta
Valleyview Care Centre 60800 86 NA AgeCare 1999 65 Valleyview Drive South-West, Medicine Hat, Alberta
Total CAD 612,539 1,002
Total 1,082,178 1,907 90%
Property Listing
*3 pre-leased property in development are valued with assumption that they are generating rent based on pre-leasing agreement.
Imply a valuation of 139k per unit
Source: Bloomberg
Capitalization and Trading multiple• Share price $10• Market value of equity $110• Net debt $120• Enterprise value $230• Rentable sq feet 1,082,000 sq feet
Market Capitalization
Attractive Trading multiple
Similar leverageMore yield
Underpriced based on AFFO multiple. At industry average stock should be trading at 12.3x ~ $13.5 Factor in size discount,
valuation ~ $12.5
• Most Canadian Senior Care REIT are operator owned.
• Best comparable would be CSH-U REIT• Conclusion: comps are not perfect but AFFO
multiple size premium for Healthlease vs. market leader Chartwell of 4.1x not justified -> opportunity.
Not the best comparable but pretty close
Canadian Price Shrs AFFO payout EBITDA AFFO Multiple
Senior Care REIT 19-Jun-12 Yield Dividend O/S Mkt Cap 2012E D/GBV Int cov 2011 2012
CSH-U CN $9.29 5.80% $0.54 170.2 1,581 83.10% 59.60% 2.3x 15.0x
EXE-U CN $7.37 11.40% $0.84 84.6 624 89.40% 63.20% 2.6x 8.7x
LW CN $11.94 7.10% $0.85 29.3 350 79.00% 53.30% 2.2x 11.2x
ACC CN $9.04 4.60% $0.42 30.4 275 66.90% 56.50% 2.4x 14.3x
Average US mid cap 6.90% 34.50% 12.5x
Average 7.16% 53.42% 2.4x 12.34HealthLease Reported $10.63 8.50% $0.85 11 117 93.00% 55.00% 2.9x 10.9x
USA industry players
Canadian industry players
Healthlease is 14x smaller than Chartwell with 1931 units. A size discount should be factored in when using AFFO multiple.
Operator credentials
Source: Healthcare REIT preliminary prospectus
REIT structure
Source: Healthcare REIT preliminary prospectus
Canadian portfolio valued by third party at $162M
Canadian portfolio valued by third party at $103M including
3 pre-leased development
Mainstreet charges a 3% management fees and
development fees for new facilities. The REIT board need to align interest of Mainstreet
with REIT unitholders.
The REIT is dependant upon Mainstreet for management
and construction cost.
Conclusion• We believe HealthLease REIT TSX:HLP.UN represent a good opportunity for
– Investor looking at attractive yield– Potential upside up to $12.5 based comparable AFFO multiple and taken in account the
smaller size of Healthlease– Horizon: one year – Stock starts trading on June 21th 2012
• Industry represent significant opportunity due to increasing life expectancy and demographic swift– The REIT has over $150M of projects in the pipeline to fulfil future growth– Potential improvement of occupancy which will increase tenant quality