Ventas adds senior housing muscle with $5.8 billion buy
Ventas Inc
The senior housing market, hit by the downturn as Americans spent more selectively on healthcare, has rallied as wealthy baby boomers prepare for retirement, prompting a spate of deals as companies look to buy into a rapidly aging U.S. population.
Chicago-based Ventas itself paid $1.5 billion last October for the real estate assets of privately held Atria Senior Living Group.
The U.S. healthcare real estate market is worth more than $700 billion, with less than a tenth of that currently owned by the dozen listed healthcare real estate investment trusts (REITs).
Ventas CEO Debra Cafaro, who joined the company in 1999 and will head the enlarged group, said the fast-growing healthcare sector would account for about a fifth of U.S. gross domestic product later this decade.
If we can increase our penetration in this rapidly growing market, I think that creates a lot of opportunity, she said on a conference call when asked about possible further deals.
Despite a $175 million break-up fee, BMO Capital Markets analyst Richard Anderson said the Ventas deal may draw in rival healthcare REITs such as Health Care REIT Inc
Culturally, the two companies appear to be a good fit. However, we suspect these two REITs, as well as other private entities, will take a hard look, he wrote in a client note.
Cowen & Co analyst James Sullivan said the deal would boost Ventas' exposure to the medical office building sector on the West Coast.
Shares of smaller peer Healthcare Realty Trust Inc
Ventas, which owns and leases 643 facilities to healthcare service providers, will now partner more than 100 hospital and hospice operators such as Atria, Kindred Healthcare Inc
As a diversified healthcare REIT, Ventas is also present in the hospital and medical office space, but the biggest part of its business is in assisted, independent and senior living facilities.
Healthcare REITs themselves do not provide healthcare services, but lease their properties to care facility operators.
We believe the combination of two high quality, diversified portfolios makes strategic sense, said Keybanc Capital Markets analyst Karin Ford.
The combination brings down VTR's operating exposure from 40 percent to 26 percent of its investments, thereby reducing risk.
PORTFOLIO
NHP brings a portfolio of 667 properties, including close to 300 senior housing facilities, medical office buildings, specialty hospitals and other assets.
When we sat down with the combined profile of the company, it was an absolutely killer profile, Cafaro said.
The deal will allow Ventas to benefit from a 2007 law, under which healthcare REITs can earn rent on leased properties and capture operating income from them, allowing them to grow more aggressively than under the conventional REIT model.
NHP shareholders will receive 0.7866 Ventas shares for each NHP share held -- representing a premium of 15.5 percent to NHP's Friday close of $38.96.
Centerview Partners LLC is financial adviser to Ventas and J.P. Morgan Securities LLC is advising NHP.
NHP reported October-December adjusted funds from operation of 60 cents a share, just ahead of analyst estimates, helped by strong revenue.
Ventas shares last traded down 2.7 percent at $55.62 on the New York Stock Exchange after opening at a life high of $57.40. NHP shares jumped 13 percent to a 12-month high of $44.05.
(Reporting by Krishnakali Sengupta and Sweta Singh in Bangalore; Editing by Ian Geoghegan)
© Copyright Thomson Reuters 2024. All rights reserved.