In a blockbuster deal, Health Care REIT (NYSE:HCN) has reached an agreement to form an $817 million partnership with Merrill Gardens LLC to own and operate a portfolio of 38 senior housing and care communities located primarily in West Coast markets.

Health Care REIT will own an 80% partnership interest and Merrill Gardens will own the remaining 20% interest and continue to manage the communities.

Based in Toledo, Ohio, Health Care REIT is an S&P 500 company that invests across the full spectrum of senior housing and health care real estate. As of June 30, the company’s diversified portfolio consisted of 625 properties in 39 states.

Seattle-based Merrill Gardens, a privately held company, is the largest owner and operator of independent and assisted living retirement communities in the state of Washington. The company consists of 56 communities in 10 states with the capacity to serve over 7,700 residents.

“This transaction enhances Health Care REIT’s growth potential and expands our longstanding relationship with a best-in-class operator,” said George Chapman, CEO of Health Care REIT, in a press release.

The structure of the deal takes advantage of the REIT Investment Diversification and Empowerment Act of 2007 (RIDEA). What makes the agreement highly favorable for both parties, said Chapman, is that it involves “a first-class operator, high-quality real estate in attractive markets, earnings growth potential above traditional rents and strong alignment of interests between partners,” added Chapman.

Among the highlights of the deal expected to close in September:
--the communities are located primarily in high-barrier-to-entry, --the portfolio is 99% private pay, consisting of independent living, assisted living and dementia care;
--the projected annual net operating income (NOI) growth is approximately 5%;
--the average occupancy portfolio-wide is 92% with improvement expected over the next several years
--the exclusive right to future acquisitions and development projects.

Bill Pettit, president of Merrill Gardens, said the deal enables the company to broaden its strategic relationship with its long-time capital partner Health Care REIT and grow the portfolio through new acquisition and development opportunities.

“We want to emphasize that the Merrill family will continue to own and operate Merrill Gardens, so there will be no change in our day-to-day operations for our residents and team members as a result of this partnership,” said Pettit.

The partnership will own and operate 13 communities currently owned by Health Care REIT valued at $307 million, and 25 additional communities currently owned by Merrill Gardens and its affiliates valued at $510 million.

Health Care REIT’s consideration for its 80% partnership interest in the additional communities will be a combination of cash and the pro rata assumption of $249 million of secured debt.

Including the existing Health Care REIT portfolio, there will be $381 million of debt secured by the total portfolio, with a current weighted average interest rate of 5.4%.

The entire portfolio consists of 4,388 units and is currently projected to generate NOI after management fees of approximately $60 to $63 million in 2011.

The share price of Health Care REIT stock closed at $45.32 on Wednesday, well above the company’s 52-week low of $38.42 recorded on May 6. The stock price reached a 52-week high of $46.79 on March 25.