Mainstreet Enters $2.3B Partnership

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An Ohio real estate investment trust has agreed to acquire 17 under-construction properties from Carmel-based Mainstreet. Health Care REIT will also partner with the Indiana company on 45 future projects. The $2.3 billion deal also includes the acquisition of Canada-based affiliated trust HealthLease Properties REIT.

August 13, 2014

News Release

Carmel, Ind. -- The nation's largest post-acute health care developer and one of the world's largest health care real estate companies have agreed to join forces to lead the evolution of post-acute care, an emerging solution in the changing health care landscape.

Health Care REIT, Inc. (NYSE: HCN) has agreed to acquire HealthLease Properties REIT (TSX: HLP.UN), in a transaction valued at $950 million. HCN has also agreed to acquire 17 of Mainstreet’s Next Generation properties currently under construction and enter into a development partnership with Mainstreet with respect to 45 future properties, for a combined value of approximately $1.4 billion. The geographic footprint of this transaction reaches as far north as Canada, as far west as Arizona and Utah and as far east as New Jersey and Pennsylvania. The transaction between Mainstreet and HCN creates the leading short-stay rehabilitation and therapy development partnership in the United States.

"At Mainstreet, we're grateful and humbled to team up with such a great partner as HCN to lead the nation in the development of post-acute health care properties," said Zeke Turner, founder and CEO of Mainstreet and chairman and CEO of HLP. "Americans deserve better choices for their health care and this partnership is built to offer just that."

"Throughout HCN's history, our strategy has been to fuel its growth by forming mutually beneficial partnerships with leading seniors housing and post-acute operators," said Tom DeRosa, CEO of HCN. "We're excited to expand our relationship-based platform with an innovative developer, who shares our mission to improve health care delivery. Mainstreet's award-winning NextGen prototype gets patients out of acute-care hospitals and into a lower-cost, more consumer-friendly environment."

Seniors housing has typically been defined by long-term care. But a need for post-acute care after hospital interventions and surgeries like cardiac events, strokes and hip and knee replacements has emerged from the rapidly growing aging population. Mainstreet sees its NextGen properties – where guests stay up to 30 days for rehab and therapy in hotel-like settings – as an innovative solution.

Mainstreet formed HLP in 2012 as a platform for accessing capital to build its portfolio. The REIT exceeded expectations, growing from Mainstreet’s initial portfolio of approximately $100 million to $950 million today.

"Seeing that our projects are not only needed but are also successful and highly prized is incredibly validating,” Turner said. "We're in the fortunate position to transform the way health care is delivered in communities nationwide and we’re just getting started."

Partnering with HCN will allow Mainstreet to return to its core business of real estate development and grow the company. Mainstreet will redeploy capital, expand operator relationships and continue its record of high-paying job creation. Mainstreet anticipates thousands of jobs at its projects nationwide and plans to add 20 new jobs in the coming year alone at its Carmel, Indiana headquarters.

Mainstreet has consistently been recognized for its growth both nationally and in Indiana, making the Inc. 500/5000 list of the fastest growing companies in the nation from 2010-2012 and being named Indianapolis Business Journal’s fastest-growing company in the Indianapolis area in 2014.

The closing of HCN’s purchase of HLP remains subject to the approval of the REIT’s unitholders as well as other customary closing conditions. That transaction, as well as the closing of HCN’s partnership with Mainstreet, is anticipated to occur in the fourth quarter of 2014.

Source: Mainstreet

August 13, 2014

News Release

TOLEDO, Ohio - Health Care REIT, Inc. ("HCN") announced today that it has entered into a definitive agreement to acquire the outstanding units of HealthLease Properties Real Estate Investment Trust ("HealthLease") for CAD$14.20 per unit on a fully diluted basis in an all-cash transaction valued at approximately USD$950 million, including debt assumption. The HealthLease portfolio (the "Portfolio") includes 53 high-quality seniors housing, post-acute care and long-term care communities that are managed by well-respected operators under long-term triple-net lease agreements. The purchase price of the Portfolio represents a 7.0 percent initial cash yield. HCN projects the acquisition of the Portfolio to be accretive to HCN's FFOPS and FADPS by approximately $0.04 in year one.

Additionally, HCN has entered into a partnership with Mainstreet Property Group (“Mainstreet”), the external management company of HealthLease. All existing agreements between HealthLease and Mainstreet will be terminated at closing and HCN will not absorb any employees from either company. Mainstreet is the largest developer of seniors housing and post-acute facilities in the U.S. The partnership includes an agreement to acquire 17 state-of-the-art Next Generation® communities (the “Pipeline”) that are managed by well-respected operators under long-term triple-net lease agreements. The Next Generation communities each feature a mix of 70 post-acute beds and 30 assisted living beds, high-end common areas and amenities, private rooms and baths, and large rehabilitation therapy space. HCN will acquire the Pipeline for approximately USD$369 million representing a 7.5% initial cash yield, which is anticipated to be meaningfully accretive and close in tranches upon completion of construction beginning in 4Q14 through 1Q16.

HCN has also entered into an agreement with Mainstreet to provide mezzanine financing at attractive mid-teen interest rates and receive purchase rights at HCN’s option for an additional 45 Next Generation development projects (“Future Pipeline”) managed by well-respected operators under long-term triple-net lease agreements. The Future Pipeline represents a $1.0 billion acquisition pipeline at a 7.7% initial cash yield, which is anticipated to be meaningfully accretive. The Future Pipeline is anticipated to close in tranches upon completion of construction beginning in 2016 through 1Q17.

In total, the transaction represents a potential USD$2.3 billion investment at a 7.4% blended initial cash yield. The transaction is projected to be immediately accretive to earnings, delivers a highly attractive and accretive growth pipeline, and further aligns HCN with leading operators and an innovative developer that are meeting the growing demand for high-quality seniors housing and post-acute care.

“This transaction again demonstrates HCN's integral role in the health care delivery continuum,” said Tom DeRosa, HCN’s Chief Executive Officer. “With Mainstreet, HCN is developing the next generation of post-acute care. Further, we are connecting leading health systems, post-acute providers and seniors housing operators to deliver integrated health care delivery platforms that will improve the quality of care, create operating efficiencies and reduce costs.”

“Our vision is to change the way that rehabilitative care is provided. We’re designing environments that meet the needs of today’s health care consumers, who are more empowered than ever,” said Zeke Turner, Mainstreet’s Chief Executive Officer. “We’re delighted to be partnering with a company like HCN, whose strategy is so well-aligned with our goals. This transaction positions Mainstreet with a capital partner that can help us execute on our vision of transforming the seniors housing and post-acute industries.”

HealthLease Portfolio Description

The Portfolio has 5,331 bed