Emeritus Corporation (NYSE: ESC) (“Emeritus”), the nation’s largest provider of assisted living and memory care services, today announced that the Company has entered into definitive agreements with Health Care REIT, Inc. (NYSE: HCN) (“HCN”) and Merrill Gardens under which Emeritus will lease a total of 38 senior housing communities (the “Communities”), representing approximately 4,400 units, currently owned by a joint venture comprised of HCN and Merrill Gardens. The Communities are located in eight states, concentrated primarily in Washington and California, and offer independent living, assisted living and memory care services. Over 40% of the units are currently designated as independent living.
“Expanding in the independent living arena complements our well-established assisted living, memory care and home healthcare services,” noted Granger Cobb, the Company’s President and CEO. “It enables us to better meet the evolving needs of the growing senior population. This accretive transaction also represents an opportunity to consolidate community operations in what continues to be a fragmented market, while expanding our relationship with Health Care REIT.”
Upon consummation of the transaction, HCN will acquire Merrill Gardens’ 20% equity interest in the Communities and Emeritus will operate the Communities under a long-term triple-net master lease. Rent in the first year of the lease will amount to $54.0 million and will increase each year in the manner specified in the lease. The initial term of the lease is 15 years, and the Company has the option to extend the lease for one additional 15-year term.
In connection with the transaction, the Company and Merrill Gardens entered into a Master Operations Transfer Agreement. Pursuant to this agreement, upon commencement of the lease, Emeritus will pay to Merrill Gardens a $10.0 million management contract termination fee. Final closing of the transaction is subject to customary closing conditions for acquisitions of this nature, including regulatory approvals, and is expected to be completed in the third quarter of 2013. Additional information on the transaction will be provided at the Emeritus second quarter 2013 earnings release conference call to be held in early August 2013.