Screenshot from HealthLease Properties REIT's website.
The Americans who tried their luck taking a U.S. real estate company public in Canada are back to do it again.
After building HealthLease Properties REIT – which had mostly U.S. assets – as a Canadian real estate investment trust and selling it in 2014 for $1-billion, the backers behind it are now trying to take a new company public on the Toronto Stock Exchange: Mainstreet Health Investments Inc.
The company – run by Zeke Turner, Scott White, Scott Higgs, and Adlai Chester – already owns 11 seniors residences in the Chicago area. The goal is to raise $95-million (U.S.) to buy new properties in New York, Pennsylvania and Kansas. Mainstreet Health is looking to pay an annual dividend yield between 7 and 7.4 per cent.
The timing can't be a coincidence. Canadians' appetite for REITs were muted for nearly two years, which is why the deal is the first real estate IPO in almost a year. Automotive Properties REIT raised $75-million (Canadian) last summer, but the offering had to price the high end of its yield range, with the company agreeing to pay investors 8 per cent annually.
Since January, Canadian real estate companies have largely been thriving, with the S&P/TSX total return REIT index up 17 per cent including distributions. Canadians seem to be warming to the sector again, even though the economy is showing anemic growth.
The resurgent demand has prompted a round of new financings, with the likes of Canadian REIT, Killam Properties, NorthWest International Healthcare Properties REIT and Milestone Apartments REIT all raising fresh funds this year.
Senior-care real estate specialists have been particularly hot. Last fall, the Ontario Teachers' Pension Plan acquired Amica Mature Lifestyles Inc. for $578-million and Sienna Senior Living Inc. has soared in the past three years.
The move to take Mainstreet Health public started six months ago, when the American backers announced plans to acquire Kingsway Arms Retirement Services, which was publicly traded in Canada, through a reverse takeover.
If the IPO is successful, it appears Mainstreet Health will continue to acquire in the same way that HealthLease did before it was bought by Health Care REIT in 2014. HealthLease's gross book value quadrupled to roughly $1-billion by the time it was purchased.
"Mainstreet will look to continue to grow the corporation's portfolio and continue to diversify the portfolio by geography, by operator and across the continuum of care," the company states in its prospectus.
However, there is a small wrinkle – not all of the acquisitions will be at arm's-length. Part of the plan is to buy properties from a separate Mainstreet company that the founders run. "Management believes a portion of the corporation's future growth will come from the acquisition of NextGen, pre-leased transitional care development properties built by Mainstreet," the prospectus states.
Mainstreet Health will also be used to provide mezzanine financing to the independent development company, and will receive a purchase right for the developed properties.
BMO Nesbitt Burns, CIBC World Markets and National Bank Financial are co-leading the IPO.