Health Care REIT, Inc. (NYSE:HCN) announced today that the company has agreed to enter into a triple net lease with Emeritus Senior Living (NYSE:ESC) on a portfolio of 38 high-quality seniors housing communities currently owned in an 80%/20% joint venture between Health Care REIT and Merrill Gardens. Health Care REIT will acquire Merrill Gardens’ 20% equity interest in the joint venture for $173 million, which includes pro rata mortgage debt of $82 million. The transaction is expected to close in the third quarter upon receipt of regulatory and lender consents.
“This transaction reflects the flexibility of our business model and the power of our relationship investing platform,” said George L. Chapman, Chairman and CEO of Health Care REIT. “We are excited to grow our long-time relationship with Emeritus. Their strong existing footprint in the markets where this portfolio is located will allow for a seamless transition and value creation over the long-term. Merrill Gardens has made the decision to concentrate its efforts on new development projects. Merrill Gardens will continue to be a strategic partner for Health Care REIT.”
Predictable, Attractive Rent Growth with Upside Potential
- Portfolio overlaps with Emeritus’ existing footprint leading to value creation opportunities.
- Health Care REIT expects the transaction will be slightly accretive to earnings in year one.
- The initial term and the renewal term are each 15 years.
- Health Care REIT will receive $54 million of rent in year one on the 38-property portfolio.
- Predictable, attractive growth through annual rent escalators equal to the greater of CPI or 4.00% in year two, and the greater of CPI or 3.25% thereafter.
- Beginning in year three, Health Care REIT will be eligible to receive additional rent in the event that the gross revenue from the portfolio exceeds certain thresholds.
- Rent will reset to fair market value upon renewal, with a floor of the prior year’s rent plus the escalator, and a ceiling equal to 110% of the prior year’s rent.
- Health Care REIT and Merrill Gardens will remain joint venture partners in ten high-quality communities with 1,428 units concentrated in affluent, infill markets including Seattle, San Jose and San Diego. Merrill Gardens will continue to manage these communities, serving as a platform for their development projects, which they will self-manage.
- Health Care REIT will maintain an attractive, modern pipeline of high-end properties through its right of first opportunity on all future Merrill Gardens acquisitions and development projects.