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Ventas to Acquire New Senior Investment Group In $2.3 Billion Deal

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Ventas will acquire New Senior Investment Group in an all-stock transaction, valued at approximately $2.3 billion, including $1.5 billion of new senior debt.

With the acquisition of New Senior’s 12,404 units, Ventas is getting a geographically diversified portfolio of 103 private-pay senior living communities, including 102 independent living communities. It spans 36 states in the United States.

New Senior shareholders will receive 0.1561 shares of newly issued Ventas stock per share of New Senior common stock. That comes out to approximately $9.10 per New Senior share, a 31% equity premium based on its 30-day trading average and a 10% premium on its total enterprise value.

Ventas anticipates that the transaction will be approximately $0.09 to $0.11 accretive to its normalized funds from operations per share on a full-year basis. It is also expected to represent roughly a 6% capitalization rate on expected New Senior 2022 Net Operating Income.

“The transaction provides Ventas shareholders with an attractive valuation and accretion, and further positions us to win the recovery,” said Debra A. Cafaro, Ventas Chairman and CEO, in a prepared statement. “It continues Ventas’s longstanding track record of capital allocation excellence, builds on our deep experience with the independent living product and leading operators Atria and Holiday, and is a testament to the continued dedication and expertise of our outstanding team.”

The Ventas-New Senior deal is the second significant seniors transaction in the past week. Last week, Welltower announced that it was acquiring a portfolio of 86 seniors housing properties owned by Holiday Retirement for $1.58 billion, or $152,000 per unit.

The portfolio includes 80 nearly identical independent living and six combinations of independent living and assisted living properties. Upon the closing date of this transaction, expected to be in the third quarter of 2021, Atria Senior Living will assume operations of the properties and retain Holiday’s in-place senior management and staff.

The price tag of $1.58 billion represents a 30% discount to the estimated replacement cost, according to Welltower. The REIT says the transaction is expected to be approximately $0.10 per diluted share accretive to its normalized funds from operations during the first twelve months post-closing.

These transactions are occurring as seniors housing is primed for recovery. The JLL Valuation Advisory says demand in the sector will soon be at its highest point ever. Helping magnify that demand will be supply shortages as construction delays from the pandemic hindered starts. As a percentage of existing supply, units under construction dropped from peak levels of 7.0% in Q4 2019 to 4.7% in Q1 2021. JLL says the need to serve the middle-income population will increase, resulting from the global impact of COVID-19.

“Investors remain bullish on seniors housing and care investments,” said JLL Managing Director Zach Bowyer, MAI, head of Alternatives Asset Sectors, Valuation Advisory. “We anticipate market fundamentals to steadily improve and the market to re-stabilize between two and four years, depending on the location.”

 

Source: GlobeSt

Healthcare REITs Signal An Increased Focus On Medical Office

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It is earnings season, which means real estate companies are diligently releasing their earnings and analysts are intently scrutinizing said reports. Mizuho REITs analyst Richard Anderson covers healthcare REITs and he noticed a trend among the big 3 companies HCP, Welltower and Ventas in their recent releases: they all are emphasizing strategies involving medical office buildings.

To be sure, MOB is a staple among their holdings but as Anderson tells GlobeSt.com, “it just seemed interesting that each of the three highlighted a very specific strategy aimed at approaching the medical office business to some degree, versus past earnings reports.”

He says that:

  • HCP made mention of its joint venture with Morgan Stanley that’s aimed at investing in medical office as well as a new partnership with HCA to focus on the asset class.
  • Welltower is expected to close about $500 million of MOB transactions in the short term. “Also, they have always talked about using their senior housing portfolio as a quasi hanging carrot for medical office, as a medical office feeder.” The REIT has also brought on board a former Duke Realty executive Keith Knokoli, who has strong credentials in the MOB segment. “You don’t make an investment at that level of executive if you’re not serious about the business.”
  • Ventas is re-igniting its exclusivity arrangement with PMB Real Estate Services. It is a medical office developer that Ventas inherited when it merged with Nationwide Health Properties many years ago, Anderson explains. Ventas just re-upped its exclusivity arrangement with the company for the next ten years, he says.

A Lower Risk Profile

What is strange, he says is that “cap rates on medical office assets that are trading hands are still quite low, but nonetheless REITs are maintaining a fair amount of attention toward the space.” Anderson also points out that medical office assets are known for their stability and relatively lackluster growth while skilled nursing is a higher returning asset class that comes with higher risk.

His tentative takeaway: there is possibly a return to risk-off mentality around the corner for healthcare REITs. “Maybe REITs are becoming buyers of medical offices simply because of their low risk orientation, even though the asset class remains quite expensive.”

 

Source:  GlobeSt.