Carmel-based Mainstreet has engineered a $302.5 million reverse takeover of a Canadian long-term care company that will once again give Mainstreet a publicly traded investment firm to help finance its development projects.
The developer of senior care campuses has agreed to sell a portfolio of properties to Toronto-based Kingsway Arms Retirement Residences Inc. in exchange for nearly all the stock of Kingsway.
The deal would put Mainstreet CEO Zeke Turner and his management team in charge of Kingsway, which would change its name to Mainstreet Health Investments. The deal still requires approval of Kingsway shareholders.
“As Mainstreet continues to transform the seniors care and health care industries, our pace and scale continue to require significant capital,” Turner said in a written statement announcing the deal. “Mainstreet has a proven track record of creating value for shareholders, and we see an opportunity here to recreate that success.”
Under the proposed deal, Kingsway would give Mainstreet nearly 389 million shares of its common stock, which currently trades at about 4 cents per share on the Toronto Stock Exchange. That stock, valued at nearly $15.6 million, would give Mainstreet and investors it has partnered with a 95 percent stake in Kingsway.
Mainstreet’s contribution to the deal is a portfolio of nine skilled nursing facilities and one assisted living facility in the Chicago area, which Mainstreet acquired on Oct. 30 for $268.4 million. The deal also contemplates acquiring an 11th Chicago-area nursing home in early 2016 for another $34.1 million.
After the merger, Kingsway would pay Mainstreet an annual management fee equal to 0.3 percent of the gross book value of the properties the company owns.
Also, Kingsway would have an opportunity to provide so-called mezzanine financing for $100 million of projects Mainstreet develops each year. Mezzanine financing usually accounts for about 15 percent or 20 percent of the funds in each Mainstreet deal, said Mainstreet executive Adlai Chester, who will be chief investment officer of Kingsway after the deal.
In 2014, Kingsway had revenue of $1.9 million in Canadian dollars. Its operations produced a loss of $204,000 Canadian. In August of this year, Kingsway sold off its last retirement community, and no longer has any substantial assets.
Mainstreet's relationship with Kingsway would be nearly identical to its former relationship with HealthLease Properties REIT, a publicly traded, Canada-based investment company Zeke Turner started in 2012. HealthLease sold stock to public investors and then used much of that money to acquire senior care properties developed by Mainstreet, helping it move on to even more projects.
In August 2014, Turner agreed to sell HealthLease for $950 million to Ohio-based Health Care REIT Inc. That company, which is now named Welltower, also agreed to acquire 17 projects Mainstreet had under construction that were valued at $369 million and to fund development of 45 more senior care campuses that were valued at $1.4 billion.
Funds from Kingsway would likely be used on separate projects from those financed by Welltower, Chester said.
He estimated that Kingsway deal would prompt Mainstreet to add five to 10 additional employees to its current workforce of 106. Mainstreet is on pace this year to have $250 million in revenue.