Health Care REIT to Acquire HealthLease, Partner with Mainstreet Property

In a multi-pronged deal that could eventually reach $2.3 billion, Health Care REIT Inc. announced that it has agreed to acquire Toronto-based HealthLease Properties REIT and begin a partnership with Mainstreet Property Group.

In a multi-pronged deal that could eventually reach $2.3 billion, Health Care REIT Inc. announced today that it has agreed to acquire Toronto-based HealthLease Properties REIT in an all-cash transaction for $950 million and begin a partnership with Mainstreet Property Group for $369 million to expand its seniors housing offerings.

The deal comes just one week after NorthStar Realty Finance Corp. said it would acquire Griffin-American Healthcare REIT II in a stock-and-cash transaction valued at $4 billion. Two months ago, Ventas Inc., the biggest healthcare REIT in the United States, announced it was buying American Realty Capital Healthcare Trust Inc. for $2.6 billion.

The HealthLease portfolio includes 53 high-quality seniors housing, post-acute care and long-term care facilities managed under long-term triple-net-lease agreements.

The partnership with Mainstreet, the external management company of HealthLease and the largest developer of seniors housing and post-acute facilities in the U.S., includes an agreement to buy 17 Next Generation communities. The communities each feature 70 post-acute beds and 30 assisted living beds, along with high-end common areas and amenities, private rooms and large rehabilitation therapy spaces.

A second agreement with Mainstreet, a Carmel, Ind.-based company, gives Health Care REIT, also known as HCN, the rights to buy 45 additional Next Generation projects in the development pipeline for about $1 billion. HCN, which has its headquarters in Toledo, Ohio, will also provide mezzanine financing for the developments in the pipeline.

“This transaction again demonstrates HCN’s integral role in the healthcare delivery continuum,” Tom DeRosa, HCN’s CEO, said in a news release. “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 healthcare delivery platforms that will improve the quality of care, create operating efficiencies and reduce costs.”

HCN — which has a portfolio of 1,224 properties in 46 states, the United Kingdom and Canada — will assume management of the HealthLease properties but is not absorbing employees of HealthLease or Mainstreet.

The deal for HCN to acquire HealthLease’s outstanding shares at $14.20 per unit is expected to close in the fourth quarter and is projected to be immediately accretive to earnings. The $950 million includes assumption of debt. HCN expects to fund the transaction through its $2.5 billion unsecured credit facility and $207 million in cash.

The HealthLease portfolio has 5,331 beds comprising 46 percent seniors housing, 30 percent post-acute care and 24 percent long-term care. More than half of the 53 communities — located in North Carolina, Indiana and Alberta, Canada — were built since 2010. Operators in the U.S. include Trilogy Health Services, Life Care Services and Saber Healthcare. Canadian operators are Continuum Healthcare and AgeCare.

“We sponsored HealthLease with the goal of delivering great value to unit holders by building a portfolio of best-in-class properties,”  Zeke Turner, chair & CEO of HealthLease and founder & CEO of Mainstreet¸ said in a separate release.

“The transaction offers HealthLease unit holders a significant premium. This can be largely attributed to the high-quality portfolio of seniors housing and post-acute healthcare properties leased to a diversified mix of quality operating tenants that HealthLease has assembled since completing its initial public offering in June 2012,” added Neil Labatte, chair of HealthLease’s investment committee of independent trustees.

The 17 Next Generation communities are expected to be acquired in tranches as construction is completed beginning this year in the fourth quarter through first quarter of 2016. They are located primarily in the Denver, Kansas City and Indianapolis metropolitan areas. Operators are expected to include existing HCN partners Genesis HealthCare and Trilogy Health Services, and a new HCN partner, The Ensign Group.

The future 45 Mainstreet developments in the pipeline are expected to be completed from 2016 through first quarter 2017. HCN will provide mezzanine funding during construction and receive a purchase option to acquire each of the completed projects for a 7.7 percent cap rate on year one rent, according to the agreement.

“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,” Turner said in the HCN release.

Goldman¸Sachs & Co. and RBC Capital Markets acted as financial advisors to HCN on the transaction. BMO Capital Markets served as financial advisor to HealthLease.

Goodmans L.L.P. acted as HealthLease’s legal advisor. Law firms advising HCN were Borden Ladner and Gervais L.L.P.; Shumaker, Loop & Kendrick L.L.P.; and Sidley Austin L.L.P. Sidley Austin partners Matthew McQueen and David Zampa led their team, which included partners Paul Monson and Anthony Aiello and associates Brendan Bowes, Matthew Stoker and Molly Novy.