In order to solidify its position in the U.S. hospital real estate market, Ventas, Inc. VTR, the Chicago, IL-based healthcare real estate investment trust (“REIT”), has decided to undertake two major steps. Firstly, the company has announced a $1.75 billion cash deal to acquire Ardent Medical Services, Inc., a prime health care provider in the country. Secondly, Ventas has resolved to spin off the majority of its post-acute/skilled nursing facility (“SNF”) portfolio into an independent, publicly traded REIT (“SpinCo”).
The acquisition, underscoring Ventas’ track record of innovatively utilizing opportunities, is likely to bolster the company’s already sturdy presence in the healthcare real estate sector. Ardent Health Services, along with its subsidiaries, own and operate leading health systems in major markets in the country and currently generates around $2 billion in annual revenues. The deal is expected to be immediately accretive to Ventas, contributing 8–10 cents to its normalized funds from operations (“FFO”) per share in the first full year on a leverage neutral basis.
On the other hand, the spin-off agreement marks the company’s persistent efforts to enhance shareholders’ value by setting up two separate and focused firms with distinct strategies. SpinCo will operate as an independent, pure-play SNF REIT with a strong heritage from Ventas. The spin-off will raise the contribution share of top-tier operators toward Ventas’ net operating income (“NOI”). In addition, the REIT will be able to maintain its scale, diversification, robust balance sheet, and solid dividend as well as cash flow growth.
These two major moves on part of Ventas are expected to bring about significant changes in the health care REIT industry. The company’s efforts to shift its focus from SNF business would offer it additional leeway to concentrate on seniors housing communities, medical office buildings (MOBs) and hospitals businesses. On the other hand, the SNF industry will witness the entry of a pure play SNF company.
Ventas currently carries a Zacks Rank #2 (Buy).
Investors interested in the REIT industry may also consider stocks like Ashford Hospitality Trust, Inc. AHT, CareTrust REIT, Inc. CTRE and CoreSite Realty Corporation COR. All these stocks sport a Zacks Rank #1 (Strong Buy).
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