Modern U.S. presidents are often measured by how much they can accomplish in their first 100 days in office. By that yardstick, the performance of Mainstreet Health Investments (HLP.U-T) since its initial public offering in June looks pretty good.
The U.S.-based, Canadian-listed real estate company recently announced a series of deals to acquire holdings in seven seniors housing and care properties in the U.S. and Canada totaling 739 beds and suites as well as to invest in five mezzanine loans for a total of US$152 million. As well, it has reached an agreement for the termination of the company’s existing asset management agreement and the internalization of management.
“We announced this transaction 110 days after the IPO,” said the Indiana-based Scott. As well, the company raised US$78 in capital to support the acquisition.
Mainstreet has been busy over the past year, during which it assembled a portfolio of 24 properties which it took to market in June with its successful IPO, raising US$95-million in its IPO.
Second go round
The Mainstreet venture represents the second iteration of a previously successful strategy for the executives behind the company, explained its president.
In 2012 the same management group took a portfolio of assets public in Canada under the name HealthLease Properties.
“We built that portfolio from 2012 to 2014, from originally 12 assets to 53 assets then we sold it to Healthcare REIT. Had you been an investor with us in that original HealthLease Properties and held onto to your shares for a little over two years, you made a 67% return.”
The management’s goal was “to reintroduce the strategy” that proved to be a winner with Canadian shareholders “given that we already had a track record there (and) we had brand recognition there.”
Unlike major competitors such as Chartwell Retirement Residences and Revera Inc., Mainstreet does not employ the owner-operator model, instead opting to own the real estate with a select group of operators.
“We may partner and make investments in operators, but we are not operators. This is a real estate play.”
“We are looking at smaller transactions, we are not going to bid on large portfolios because we can’t prevail because our cost of capital is not going to compete with Welltower. But Welltower is not going to acquire a 50-50 joint venture with an owner operator in North Ontario, i.e. our Autumnwood deal (for two properties in Sudbury and North Bay, Ont.)
“We are a small company, they are a small team. We got to know the owner there, we are keeping him on as an operator and we are going to help him fund the growth of the company through future development.
“We are going to be more nimble, the ability to be able to create deal flow that way.”
New development pipeline too
Mainstreet is also affiliated with Indiana-based private property company Mainstreet Property Group “a very large developer of senior housing assets in the U.S.”
The public Mainstreet has a development agreement that allows it to see every development deal and it has the right to fund in part development in any project it likes.
“So it is a unique way to create a dedicated pipeline to the public company without making it a mandatory takeout vehicle.”
Asked how quickly Mainstreet can grow its asset base, the president used the prior company’s experience as a measuring stick.
“We grew that at about (US)$300 million to (US)$400 million a year. In the last year we assembled a portfolio a little north of over $600 million. That is probably a little bit aggressive. But if history is any indicator, I think for us to grow by $300 million to $400 million in gross book value, that is doable.”
Scott sees plenty more deals like the seven his company reached over the summer. “It is not going to be a lack of opportunity, we see substantial opportunity and we have a robust pipeline, I think it is more going to be access to the capital markets.”
Unlike those aforementioned U.S. presidents, Mainstreet has done a pretty good job keeping its promises to shareholders since its IPO, Scott said.
“We committed to investors at the IPO that we will internalize as soon as it made sense financially in terms of the size of the offering.
“The overarching theme is that 110 days ago when we did the IPO we told the investors that we are committed to building a portfolio, we are committed to diversifying by operator, we are committed to diversifying by geography, we are committed to diversifying by type of asset, we are committed to adding new quality of operators, we are committed to internalizing. Then 110 days later we went back to the market and said we did everything we told you we would do, and really fast.”