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Healthcare real estate investment trust (REIT) National Health Investors, Inc. (NHI - Snapshot Report) disclosed the penning of a deal to acquire 25 independent living facilities from an affiliate of Holiday Retirement. The company will shell out $491 million for this purchase, which is expected to close by this year end.

With a total of 2,841 units, the 25 facilities offer geographic, asset class and operator diversification. They are located across Arkansas, California, Georgia, Idaho, Indiana, Louisiana, New Jersey, Ohio, Oklahoma, Oregon, South Carolina and Washington. The facilities have a median age of 16 years and an average occupancy rate of 89% for the nine months ended Sep 30, 2013.

Affiliates of Holiday Retirement will, however, continue to operate the facilities pursuant to a 17-year master lease deal. National Health Investors also announced a public offering of 4.5 million shares of common stock to fund this buyout.

The acquisition is a strategic fit given the attractive yields and rent escalators with the lease equating to an initial cash yield of 6.5% on the purchase price. Moreover, the annual escalators in years 2 through 4 are at 4.5% and thereafter at 3.5% (or a maximum of 3.75% when CPI is higher in the previous year).

National Health Investors invests in assisted living, senior living campuses, independent living, skilled nursing facilities, medical office buildings, and hospitals. Notably, independent living facilities provide specially designed residential units for the active and ambulatory elderly. They offer several ancillary services for their residents including restaurants, activity rooms and social areas.

In recent years, the company is currently focused on diversifying its investments so as to lessen its dependence on revenue from governmental payors, primarily Medicare and Medicaid. These revenues are subject to annual statutory and regulatory changes, and in recent years, have been reduced due to federal and state budgetary pressures.

Instead, the company is tapping properties that do not rely mainly on Medicare and Medicaid reimbursement, but rather on private pay sources. As such, it is aiming at acquiring assisted living and memory care facilities, independent living facilities and senior housing campuses, which contain two or more facility types.

Generally, services offered by independent living facilities operators receive payment from private sources without assistance from government programs. Hence, the current acquisition is a strategic fit for the company.

National Health Investors currently holds a Zacks Rank #2 (Buy). Other REITs that are performing well and deserve a look include Sabra Health Care REIT, Inc. (SBRA - Snapshot Report), Highwoods Properties Inc. (HIW - Analyst Report) and Ventas, Inc. (VTR - Analyst Report). While Sabra Health Care REIT has a Zacks Rank #1 (Strong Buy), Highwoods and Ventas carry a Zacks Rank #2 (Buy).

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