The Woodlands-headquartered Hearthstone plans to deploy thecapital into operations and property expansions. The Newport Beach,CA-based REIT invested $419 million for acquisition and another $12million to cover defeasance and closing costs. Included in thetransaction is a future capital infusion of $15 million, which willbe used to help fund property expansions. The senior housing REITalso will have the exclusive right to provide Hearthstone with thenext $300 million to develop and acquire more properties.

As part of the transaction, Nationwide Health Properties willreceive rent on its total investment at an initial rate of 8.06%,with increases bringing the yield to 8.66% during the 15-yearmaster lease term. The new owner also will get CPI-based annualrent increases of up to 2% and revenue-based rent equal to aspecified percentage of Hearthstone's annual gross revenue,starting at 0.54% in the first year and increasing to 2.63% duringthe initial term of the lease. At the beginning of the eighth year,the minimum rent will be set for the remainder of the lease atwhichever is greater--the fair market rent or 110% of the prioryear's total rent.

The sale-leaseback coincides with a management buyout of thecompany by Hearthstone CEO Tim Hekker, CFO James Wang and COOLaurence Daspit from the local partners who had launched the seniorassisted living company in 1993. Going forward, the parentcompany's new name is Hearthstone Senior Services.