REIT's Health-Care Retreat Reaps $441 Mil

The remaining 120 long-term skilled nursing facilities, five of which involve bankruptcies, could go as well, Temple Weiss, Meditrust's manager of investor relations, tells GlobeSt.com. "We have not determined if we are selling down to zero or a portion thereof," he says. The remaining holdings carry a $468-million book value, of which $60 million is tied to the five by operators in bankruptcy.

A private investment group has bought the portfolio while operators are Harborside Healthcare Corp., HealthSouth Corp., Integrated Health Services Inc., Mariner Health Group Inc., Sun Healthcare Group Inc. Genesis Health Ventures Inc. operates the portfolio's lone medical office building. The properties, with a $436-million book value, primarily are situated in the northeastern US.

The sale puts $405 million in cash and $35 million in subordinated indebtedness, payable by April 2006, into Meditrust's coffer. The REIT's debt will stand at $223 million and an $86-million bank note, says Weiss. Overall indebtedness stands at $1.2 billion, with $500 million linked to the health-care portfolio. He says Meditrust is now "in a good position" to refinance its outstanding debt and restructure its credit facility to focus solely on La Quinta Inns Inc., which represents 84% of the REIT's real estate portfolio. A refinancing is being planned by July, he tells GlobeSt.com.

Weiss says La Quinta's fourth-quarter showing had marked the first time in quite awhile that REVPAR had increased. That, he says, had been the telling factor that the strategy is working and much quicker than anticipated. "We have done better than others had anticipated with health-care asset sales," Weiss confides. "We see the hotels are a little more stable than health-care and give more potential for growth."

The La Quinta franchising initiative is off to a strong start, with 21 signed contracts in hand. The first franchise hotel will open by midyear and will be in the Mississippi market. Weiss says15 franchise hotels will open this year, 35 in 2002 and 50 every year thereafter "for the foreseeable future." Right now, the deals are located in the REIT's existing 28-state portfolio, but there are plans to expand outside the current marketplace.

The franchise operation represents La Quinta's first significant expansion under Meditrust's ownership. In July 1998, the REIT had paid $2.98 billion for the chain's 229 inns and 70 inns and suites. There are four prototype plans, ranging from 85 to 120 rooms, which will be built as franchise hotels. The average building cost, excluding land, is $50,000 per room, according to Weiss.

Under the franchise pacts, Meditrust will realize half of a 9% ongoing fee based on gross room revenues, with the balance going primarily for sales and marketing expenses. The franchise program had launched in fourth quarter 2000.