Health Care REIT, Inc
) penned a triple net lease deal with
Emeritus Senior Living
) for a portfolio of 38 senior housing communities. The
transaction is part of the company's efforts to strengthen its
long standing ties with Emeritus, and consequently enhance its
The leased portfolio, comprising around 4,400 units, offers
both assisted and independent living as well as memory care
services to customers. The assets are positioned across 8 states,
and mostly in Washington and California.
Notably, the properties are currently owned by Health Care
REIT in an 80%/20% joint venture (JV) with Merrill Gardens. Upon
the completion of the lease deal, Health Care REIT plans to
acquire Merrill Gardens' 20% interest in the leased portfolio for
$173 million, which includes pro rata mortgage debt of $82
million. The transaction is likely to conclude in the third
quarter of 2013, upon gaining regulatory and lender
As a matter of fact, in the future, Health Care REIT and
Merrill Gardens will continue their JV partnership in 10 premium
communities, situated across several prosperous, infill markets -
such as Seattle, San Jose and San Diego.
Lease Deal Terms
The triple net lease deal carries an initial term of 15 years,
with an additional 15-year extension option. Moreover, in the
first year, Health Care REIT will receive $54 million of rent on
the leased assets to Emeritus.
As per the term, the annual rent increment would equal to the
greater of Consumer Price Index (CPI) or 4.00% in the second year
of the deal and greater of CPI or 3.25% thereafter. Additionally,
in the third year, Health Care REIT will be entitled to get
additional rent, if gross revenue from the portfolio exceeds a
Moreover, the company announced that the rent would get reset
to fair market value during lease renewals, with floor and
ceiling ranges specified. The floor would be prior year's rent
plus the escalator while the ceiling would be 110% of the
previous year's rent.
This particular deal with Emeritus - one of the largest
assisted living and memory care services providers in the U.S. -
depicts Health Care REIT's concerted efforts towards increasing
its top line through strengthening its ties and flexibility to
its business model. Moreover, with the management projecting the
deal to be moderately accretive to earnings in the first year, we
remain encouraged and view it as a strategic one.
Health Care REIT currently carries a Zacks Rank #3 (Hold).
REITs that are performing better include
DCT Industrial Trust Inc.
), both of which carry a Zacks Rank #2 (Buy).
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