Mainstreet Health Investments Announces US$152 Million of Acquisitions, Internalization of Management and US$65 Million Bought Deal Offering of Subscription Receipts

TORONTO, ONTARIO and INDIANAPOLIS, INDIANA--(Marketwired - Sept. 15, 2016) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Mainstreet Health Investments (TSX:HLP.U) ("Mainstreet" or the "Company") today announced that it has entered into a series of agreements to acquire interests in seven seniors housing and care properties comprising 739 beds and suites and invest in five mezzanine loans (collectively, the "Acquisitions") for a total purchase price of approximately US$152 million.

Concurrent with the Acquisitions, the Company also announced that it has reached an agreement for the termination of the Company's existing asset management agreement (the "Asset Management Agreement") and the internalization of management (the "Management Internalization" and, together with the Acquisitions, the "Transactions"). There is no cost to the Company to terminate the Asset Management Agreement. The Management Internalization is expected to be implemented simultaneously with, and is conditional upon, the closing of a substantial part of the Acquisitions as further described below.

Overview of the Acquisitions

Mainstreet will be:

• Acquiring four Next Generation® post-acute transitional care properties located in Texas and Kansas from Mainstreet Property Group ("MPG") for US$92.8 million (the "Ensign Portfolio") that will be leased by The Ensign Group, Inc. ("Ensign");
• Acquiring one post-acute transitional care and memory care facility located in Evanston, Illinois, a suburb of Chicago, from the Company's existing operating partner Symphony Post-Acute Network ("Symphony") for US$22.9 million (the "Symphony Property");
• Acquiring a 50% interest in two assisted living properties located in Ontario from Autumnwood Lifestyles Inc. and certain minority vendors for US$19.8 million (the "Autumnwood Portfolio") that will be operated by Autumnwood Mature Lifestyle Communities Inc. (together with Autumnwood Lifestyles Inc., "Autumnwood"); and
• Investing in five mezzanine loans with purchase options for development projects located in Arizona, Colorado and Nebraska for US$16.6 million (the "Mezzanine Investments").

The Acquisitions, which will be subject to customary closing conditions and, in the case of the Ensign Portfolio and the Mezzanine Investments, shareholder approval and approval of the Toronto Stock Exchange, are expected to close in November 2016.

Transaction Highlights

• Acquisition of High-Quality Health Care Properties: The Acquisitions complement the Company's existing portfolio by adding high-quality properties in attractive markets within the United States and Canada. The Acquisitions have an attractive quality mix with approximately 95% of revenue expected to be derived from private pay and Medicare funding sources. In addition, the Mezzanine Investments will provide the Company with purchase options to acquire the development projects upon completion, adding to Mainstreet's growth pipeline. Following the Acquisitions, the Company's asset value is expected to increase from approximately US$450 million to approximately US$600 million. The combined purchase price for the Ensign Portfolio, the Symphony Property and the Autumnwood Portfolio represents a weighted average year one capitalization rate of 7.7%.
  
  
• Enhanced Diversification: The Acquisitions will strengthen the Company's tenant, geographic and property-type diversification. In addition to strengthening existing relationships with Ensign and Symphony, the Company is adding Autumnwood to its roster of high-quality operating partners. Furthermore, the purchase of a 50% interest in the Autumnwood Portfolio represents the Company's first acquisition of seniors housing and care properties in Canada.
  
  
• Internalization of Management at No Cost to the Company: The Management Internalization will further strengthen the alignment between management and the Company and is being implemented without a payment to terminate the Asset Management Agreement. The entire senior management team will become employees of the Company pursuant to agreements that have already been negotiated with independent members of the Company's Board of Directors and which are expected to be entered into concurrently with the termination of the Company's existing Asset Management Agreement following the closing of a substantial part of the Acquisitions as further described below.
  
  
• Immediately Accretive Transaction: The Transactions are expected to be immediately accretive to the Company's Adjusted Funds from Operations ("AFFO") per share.
  

Adlai Chester, CEO of the Company stated, "We are significantly expanding our asset base through the acquisition of high-quality properties in addition to adding new geographies and adding an outstanding operating partner to our portfolio. These acquisitions provide further evidence of the Company's ability to acquire high-quality, modern assets with experienced operators on an accretive basis for shareholders."

Also commenting on the Acquisitions, Scott White, President of the Company said, "We are very excited to execute on our strategic growth plans to deliver value for our shareholders so quickly after the IPO. This is exactly the strategy we set out to execute on when we launched the Company a few months ago and our pipeline for growth continues to be very robust."

Rick Turner, the Company's Lead Independent Director added, "The internalized management team will create better alignment with the Company and provide a scalable growth platform that will ultimately drive superior long term value for our shareholders. The Management Internalization is being implemented without a payment to terminate the Asset Management Agreement and solidifies the Company's relationship with its best-in-class management team."

Ensign Portfolio Overview

The Ensign Portfolio, consisting of properties located in Fort Worth and Houston, Texas as well as Leawood and Wichita, Kansas, will be acquired for an aggregate purchase price of US$92.8 million, representing a year one capitalization rate of 7.7%. The four properties comprising the Ensign Portfolio are currently under construction by MPG, with expected completion dates ranging from November 2016 to March 2017. The Company will finance the acquisition of the Ensign Portfolio with net proceeds from the Offering as well as the assumption of US$56.2 million of property-level debt financing, and the acquisition of US$9.5 million of mezzanine loans that are currently outstanding on the properties.

The Ensign Portfolio will comprise 280 transitional care beds and 96 assisted living suites. Each of the four properties have been pre-leased to affiliates of Ensign, an existing operating tenant in the Company's portfolio, on a long term triple-net lease basis. Ensign has entered into leases in respect of each of the four properties pursuant to which it has agreed to pay first year contractual rental payments of US$7.2 million, escalating at the lesser of CPI and 3.0% per annum thereafter. Rental payments from Ensign for each property will not commence until the certificate of occupancy is received from local regulatory authorities and, as such, MPG has agreed to enter into an income support agreement (the "Income Support Agreement") with the Company during the interim period for the four properties comprising the Ensign Portfolio. Pursuant to the Income Support Agreement, MPG will make monthly cash payments equivalent to the net cash flow that the Company expects to receive from each of the respective properties from the date of purchase until Ensign commences payment of rent. The total aggregate amount of payments under the Income Support Agreement expected to be made by MPG to the Company is approximately US$0.9 million. An amount equal to US$1.2 million will be escrowed at closing as security for MPG's obligations under the Income Support Agreement.

Symphony Property Overview

The Symphony Property is a post-acute skilled nursing and memory care property that consists of 158 licensed beds. The Symphony Property is located near Northwestern University in the Chicago suburb of Evanston and offers 68 beds for dementia and memory care patients as well as specific rehabilitation programs focused on cardiac, pulmonary, complex wound care, respiratory and speech therapy.

The Symphony Property will be acquired for a purchase price of US$22.9 million, representing a year one capitalization rate of 8.0%, and will be financed with a draw of US$12.6 million under the Company's existing credit facility and a portion of the net proceeds from the Offering (as defined below). Base rent for the Symphony Property will be approximately US$1.8 million in the first year of operation. This acquisition expands the Company's current partnership with Symphony, an existing operating tenant in the Company's portfolio.

Autumnwood Portfolio Overview

The Autumnwood Portfolio consists of one property located in Sudbury, Ontario and one property located in North Bay, Ontario comprising in total 165 assisted living and 40 independent living suites. The Company will acquire a 50% interest in the properties and operations of the Autumnwood Portfolio on a joint venture basis with Autumnwood, the existing owner and operator of the assets. Pursuant to the joint venture arrangements with Autumnwood, the Company will receive distributions from the joint venture equivalent to the greater of (i) an annual preferential distribution equal to 7.0% of the Company's invested capital in the joint venture, escalating at 3.5% per annum thereafter, or (ii) the Company's pro rata share (i.e., 50%) of the distributable cash produced by the joint venture. This annual preferential distribution is designed to replicate the economic impact of entering into a triple-net lease, as the 7.0% return will be payable to the Company prior to any additional distributions being realized by the joint venture partner. Autumnwood will continue to manage the two properties under an operations management agreement with the joint venture.

The 50% interest in the Autumnwood Portfolio is being acquired for an aggregate purchase price of US$19.8 million, including approximately US$2.2 million of development land. The acquisition of the Autumnwood Portfolio will be financed with the assumption of US$9.5 million of property-level debt financing (at the Company's share) bearing a weighted average interest rate of approximately 4.2%, a portion of the net proceeds from the Offering and US$3.0 million of the Company's shares issued to Autumnwood, which will be based on the 30 day volume weighted average price of Mainstreet's shares for the period ending September 13, 2016. The shares issued as partial consideration to Autumnwood will be conditional on the approval of the Toronto Stock Exchange and subject to a phased lock-up that provides for the release of the lock-up shares in one-third increments over four, eight and 12 month periods.

The Mezzanine Investments

The Company is acquiring four existing mezzanine loans made to MPG (as borrower) from Welltower Inc. (as lender) for an aggregate purchase price of US$13.1 million. The Company also entered into a commitment letter with MPG pursuant to which it will be extending a new mezzanine loan in the amount US$3.5 million. The Mezzanine Investments are investments in development projects, which are currently being constructed by MPG and located in attractive markets in the United States, including Arizona, Colorado and Nebraska (the "Development Projects"). The Development Projects have expected completion dates ranging from March 2017 to December 2017 and have been pre-leased to high-quality tenant operators on a long term triple-net lease basis, and, in each case, with rent to commence upon receiving a certificate of occupancy.

The Mezzanine Investments have a weighted average interest rate of 14.9% per annum, comprised of 11.2% cash pay interest and 3.7% payment-in-kind interest. The Company will have purchase options to acquire each of the Development Projects upon substantial completion, at fair market value as determined by an independent appraiser, on the approval of the independent members of the Company's Board of Directors. The Development Projects are expected to comprise 430 transitional care beds and 24 AL suites.

Acquisition Portfolio Information

The Acquisitions represent a significant expansion of the Company's portfolio, increasing the number properties from 24 to 31 and the number of beds and suites from 3,332 to 4,071 (in each case assuming closing of the Company's previously announced acquisitions of the Hearth on James Property and the Keepsake Village Property).

The table below includes property details from the Company's Acquisitions.

Property Name		Location	Year Built / Renovated	Property Type	SNF / TCC Beds	AL / IL Suites	Total Beds / Suites
Income Producing Properties
The Healthcare Resort of Leawood		Leawood, KS	2016	TCC / AL	70	24	94
The Healthcare Resort of Houston		Houston, TX	2017	TCC / AL	70	24	94
The Healthcare Resort of Wichita		Wichita, KS	2016	TCC / AL	70	24	94
The Healthcare Resort of Fort Worth		Fort Worth, TX	2017	TCC / AL	70	24	94
Symphony of Evanston		Evanston, IL	1978/2016	SNF / TCC	158	--	158
Red Oak Retirement Villa		Sudbury, ON	2006/2010	AL	--	84	84
Marina Point		North Bay, ON	2007	IL / AL	--	121	121
Income Producing Properties Total / Average			2006/2014		438	301	739
Mezzanine Investments
Aurora		Aurora, CO	2017	TCC	100	--	100
Phoenix		Phoenix, AZ	2017	TCC / AL	70	24	94
Surprise		Surprise, AZ	2017	TCC	100	--	100
Parker		Parker, CO	2017	TCC	90	--	90
Lincoln		Lincoln, NE	2017	TCC	70	--	70
Mezzanine Investments Total / Average			2017		430	24	454

(1)	Certificate of occupancy expected Q4 2016
(2)	Certificate of occupancy expected Q1 2017

Management Internalization Overview

The Company also announced that its Board of Directors approved the internalization of management, termination of the Asset Management Agreement and an agreement that the Company's existing Canadian and U.S. development agreements (the "Development Agreements") will not be terminated upon the Management Internalization, thereby resulting in a five-year extension of the Development Agreements. There is no cost to the Company to terminate the Asset Management Agreement. The Management Internalization is conditional on completion of the Offering (described below) and the release of the Offering proceeds from escrow. A total of eight individuals are expected to become employees of the Company including each of the existing senior executives: Adlai Chester (CEO), Scott White (President and COO) and Scott Higgs (CFO) as well as five other employees with expertise in acquisitions, accounting and asset management. With the internalization of management, the Company will not rely on any external management team or pay management fees to a third party asset manager. In connection with the Management Internalization, the Company will also enter into an administration services agreement (the "Administrative Services Agreement") with MPG. Pursuant to the Administrative Services Agreement, MPG will provide the Company with IT support and equipment as well as dedicated office space for a period of up to two years for a monthly payment of US$22,500 and a one-time payment of US$65,000.

Subscription Receipt Offering

In connection with the Acquisitions, the Company announced that it has entered into an agreement with a syndicate of underwriters led by BMO Capital Markets, CIBC Capital Markets and National Bank Financial to sell, on a bought deal basis, 6,440,000 subscription receipts (the "Subscription Receipts") at a price of US$10.10 per Subscription Receipt, for gross proceeds of US$65 million (the "Offering"). The Company has also granted the Underwriters an option to purchase up to an additional 966,000 Subscription Receipts on the same terms and conditions, exercisable at any time, in whole or in part, up to 30 days after the closing of the Offering (the "Over-Allotment Option").

The proceeds from the sale of the Subscription Receipts, less 50% of the underwriting fee, will be held by a trustee, as escrow agent, and invested in short-term obligations of, or guaranteed by, the Government of Canada (and other approved investments) until the earlier of the satisfaction of the Escrow Release Condition (as defined below) and the Termination Date (as defined below). If the Escrow Release Condition is satisfied prior to the Termination Date, the net proceeds of the Offering will be released from escrow to the Company for the purposes of completing the Acquisitions.

Each Subscription Receipt represents the right to receive, for no additional consideration and without further action, one common share of the Company ("Common Share"), together with the Dividend Equivalent Payment (as defined below), upon the satisfaction or waiver of the conditions to closing of the Acquisitions (the "Escrow Release Condition"). The Escrow Release Condition will be deemed to have been satisfied upon the satisfaction or waiver of the conditions to closing of a substantial part of the Acquisitions in respect of which the purchase price attributable to such acquisitions represents at least 80% of the total purchase price for the Acquisitions.

If the Escrow Release Condition is satisfied prior to the Termination Date, holders of Subscription Receipts will be entitled to receive, if applicable, an amount per Subscription Receipt equal to the aggregate amount per Common Share of cash dividends declared by the Company for which record dates have occurred during the period from the closing of the Offering to the date immediately preceding the date upon which the Common Shares are issued or deemed to be issued to the holders of the Subscription Receipts, less any applicable withholding tax (the "Dividend Equivalent Payment").

If the Escrow Release Condition is not satisfied, or deemed to be satisfied, on or before 5:00 p.m. (Toronto time) on January 31, 2017, if such number of Acquisitions are terminated at an earlier time so that the Escrow Release Condition cannot be satisfied or if the Company has advised the Underwriters or announced to the public that the Escrow Release Condition cannot be satisfied (in any case, the "Termination Date"), holders of Subscription Receipts will receive the full purchase price of the Subscription Receipts, together with their pro rata portion of interest or other income earned or deemed to be earned thereon between the closing of the Offering and the Termination Date.

The Subscription Receipts will be offered by way of a short form prospectus to be filed with the securities commissions and other similar regulatory authorities in each of the provinces and territories of Canada. The Offering is expected to close on or about October 6, 2016 and is subject to certain conditions including, but not limited to, the receipt of all regulatory approvals including the approval of the Toronto Stock Exchange (the "TSX") and securities regulatory authorities.

The Subscription Receipts and underlying Common Shares have not been, nor will they be, registered under the United States Securities Act of 1933, as amended, (the "1933 Act") and may not be offered, sold or delivered, directly or indirectly, in the United States, or to, or for the account or benefit of, "U.S. persons" (as defined in Regulation S under the 1933 Act), except pursuant to an exemption from the registration requirements of the 1933 Act. This press release does not constitute an offer to sell or a solicitation of an offer to buy any Subscription Receipts or underlying Common Shares in the United States or to, or for the account or benefit of, U.S. persons.

Financing Details of the Acquisitions

The Acquisitions (including transaction expenses) are expected to be funded with the net proceeds from the Offering, shares of the Company issued to Autumnwood, cash on the Company's balance sheet, a draw on the Company's credit facility and the assumption of property level debt financing as follows:

Funding Sources (in US$mm) (1)			Transaction Uses (in US$mm)(1)
(i) Net Proceeds from the Offering	$62.4		(i) Ensign Portfolio Purchase Price (2)	$92.8
(ii) Shares to be Issued to Autumnwood	$3.0		(ii) Mezzanine Investments Purchase Price	$16.6
(iii) Property Level Debt Assumed	$65.7		(iii) Autumnwood Portfolio Purchase Price	$19.8
(iv) Credit Facility Draw	$12.6		(iv) Symphony Property Purchase Price	$22.9
(v) Cash on Balance Sheet	$10.1		(v) Transaction Expenses	$1.6
Total	$153.8		Total	$153.8

(1)	Assumes C$1.00 = US$0.76.
(2)	Aggregate purchase price inclusive of Mezzanine Investments.

Mainstreet Board Recommendation and Shareholder Approval

The Company has announced a special meeting (the "Special Meeting") of shareholders to be held on October 26, 2016 to approve, among other things, the acquisition of the Ensign Portfolio and the Mezzanine Investments (collectively, the "Related Party Transactions"). Because an affiliate of MPG controls the owner of the Ensign Portfolio and the borrower under the Mezzanine Investments, these transactions constitute "related party transactions" pursuant to Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"), and accordingly such transactions were reviewed and considered by the independent directors of the Company. In addition, as required under MI 61-101, the Company has obtained independent third party appraisals in respect of each of the properties comprising the Ensign Portfolio, which, based on such appraisals, have an aggregate appraisal value of US$92.8 million. At the Special Meeting, the resolution approving the Related Party Transactions must be approved by a majority of the votes cast by the shareholders of the Corporation, other than affiliates of MPG (which currently own approximately 11.64 million common shares of the Company) and any related parties or joint actors of MPG, present in person or by proxy at the Special Meeting. In addition, certain funds managed by Magnetar Financial LLC (the "Funds") are "interested parties" under MI 61-101 as they own an indirect interest in the Ensign Portfolio. Accordingly, the Funds will not be entitled to vote their 11.64 million Common Shares in respect of the resolution approving the Related Party Transactions at the Special Meeting.

The independent members of the Company's Board of Directors have unanimously approved the acquisition of the Ensign Portfolio and the Mezzanine Investments and recommends that shareholders of the Company vote in favour of these transactions.

Details of the items of business to be conducted at the Special Meeting, including all information required by MI 61-101, will be contained in a management information circular, which will be mailed to shareholders and available on Mainstreet's profile on SEDAR (www.sedar.com).

Investor Presentation

An investor presentation describing the transaction will be made available on the Company's website, to obtain a copy please visit http://www.mainstreethealthinvestments.com/#presentations

Exchange Rate Information

For the purposes of this press release, C$1.00 is equal to US$0.76.

About Mainstreet Health Investments

Mainstreet Health Investments Inc. is a North American health care real estate company with a growing portfolio of high quality properties located in the United States. Our properties are operated by best-in-class health care providers under long-term, triple net leases. Our mission is to create long-term shareholder value while providing an investment opportunity that matters. For more information, visit www.mainstreethealthinvestments.com.

About Mainstreet Property Group

Mainstreet Property Group is a national company specializing in real estate development, value investments and health care. As the nation's largest developer of transitional care properties, Mainstreet has been recognized by Senior Housing News, winning the Architecture & Design Award in 2013, 2014 and 2015, and has been named to the Inc. 500l5000 five times since 2010.

Non-IFRS Financial Measures

FFO, AFFO and capitalization rate (which is a function of net operating income) are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS. Such measures are presented in this news release because management of the Company believes that such measures are relevant in interpreting the purchase price metrics and performance of acquisitions. Such measures, as computed by the Company, may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable to the measures reported by such other organizations. Please see the Company's most recent management's discussion and analysis for how the Company reconciles FFO, AFFO and net operating income to the nearest IFRS measure.

Forward-looking Information

This news release may contain forward-looking statements (within the meaning of applicable securities laws) relating to the business of the Company and the environment in which it operates. Forward-looking statements are identified by words such as "believe", "anticipate", "project", "expect", "intend", "plan", "will", "may" "estimate", "pro forma" and other similar expressions. These statements are based on the Company's expectations, estimates, forecasts and projections and include, without limitation, statements regarding the completion of the Acquisitions and the financing and timing thereof, the Offering, the proposed management internalization, the benefits of the Acquisitions (including the extent it will be accretive to the Company's FFO and AFFO per share) and in-place cap rates. The forward-looking statements in this news release are based on certain assumptions, including that all conditions to completion of the Acquisitions and the Offering will be satisfied or waived, and that the Acquisitions, the previously announced acquisitions of the Hearth on James Property and the Keepsake Village Property, the Offering and the Management Internalization will be completed. They are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under the heading "Risk Factors" in the Company's annual information form available at www.sedar.com. There can be no assurance that forward-looking statements will prove to be accurate as actual outcomes and results may differ materially from those expressed in these forward-looking statements. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, these forward-looking statements are made as of the date of this news release and, except as expressly required by applicable law, the Company assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.