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Healthcare real estate investment trust (REIT) HCP Inc. (HCP - Analyst Report) has inked a deal with Tenet Healthcare Corp. (THC - Analyst Report) to adjust and extend leases for three acute care hospitals. The transaction is part of HCP’s efforts to strengthen its long standing ties with Tenet Healthcare, and consequently enhance its rental income.

Tenet Healthcare owns and operates general hospitals and related healthcare facilities for urban and rural communities in numerous states and has offices in California and Florida. The three acute care hospitals are North Fulton Hospital in Roswell, Georgia, Palm Beach Gardens Medical Center in Florida and Frye Regional Medical Center in Hickory, North Carolina.

Notably, the lease for the properties, which encompass 656 licensed beds, is extended at current rent levels. They contain Consumer Price Index (CPI)-based escalators, on an annual basis, from 3 to 8 years with purchase options that can be exercised for a fixed price at the end of each term.

We view this deal with Tenet Healthcare – one of the largest investor-owned health care delivery systems in the nation – as a strategic fit for HCP. The company mainly aims at establishing business relationships with a number of experienced healthcare management firms, which lease these properties on a long-term basis. This insulates HCP from short-term market swings and drives steady top-line growth.

Last month, HCP reported third-quarter 2013 adjusted FFO per share of 79 cents, 2 cents ahead of the Zacks Consensus Estimate and 10 cents above the prior-year quarter figure. This was aided by substantial growth in revenues.

HCP currently carries a Zacks Rank #3 (Hold). However, some better-ranked healthcare REITs include Sabra Health Care REIT, Inc. (SBRA - Snapshot Report) and Ventas, Inc. (VTR - Analyst Report). Sabra Health Care carries a Zacks Rank #1 (Strong Buy), while Ventas holds a Zacks Rank #2 (Buy).

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