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Health Care REIT Inc. (HCN - Analyst Report) closed the triple net lease deal with Emeritus Senior Living (ESC - Snapshot Report) for a portfolio of 38 senior housing communities. The move comes as part of the company’s efforts to strengthen its long standing ties with Emeritus and consequently strengthen its portfolio. Properties leased under “triple-net” leases require the tenants to pay all property-related expenses in addition to rent.

Notably, the properties were previously owned by Health Care REIT in an 80%/20% joint venture (JV) with Merrill Gardens. Upon completion of the lease deal, Health Care REIT acquired Merrill Gardens’ 20% interest in the JV for $173 million, which includes pro rata mortgage debt of $74 million.

Health Care REIT made a public disclosure of the deal in June this year. The leased portfolio, consisting about 4,400 units, provides both assisted and independent living as well as memory care services to customers. The assets are positioned across 8 states, and primarily in Washington and California.

As per the agreement terms disclosed earlier, the triple net lease deal carries an initial term of 15 years, with an additional 15-year extension option. With management projecting the deal to be moderately accretive to earnings in the first year, we remain encouraged and view it as a strategic one.

In fact, the deal with Emeritus – one of the largest assisted living and memory care services providers in the U.S. – reflects Health Care REIT’s concerted efforts towards increasing its top line through strengthening its ties and providing flexibility to its business model.

Last month, Health Care REIT reported second-quarter 2013 normalized FFO (funds from operations) of 93 cents per share, a cent ahead of the Zacks Consensus Estimate and up 4 cents year over year. The improved results were primarily attributable to better-than-expected revenue growth. Alongside, the company registered decent same-store net operating income.

Health Care REIT currently carries a Zacks Rank #3 (Hold). REITs that are performing better include CubeSmart (CUBE - Snapshot Report) and Highwoods Properties Inc. (HIW - Analyst Report), both of which carry a Zacks Rank #2 (Buy).

Note: FFO, a widely accepted and reported measure of the performance of REITs, is derived by adding depreciation, amortization and other non-cash expenses to net income.

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