Ventas Bulks Up, Slims Down in Two Mega Deals

In a pair of moves that are entirely in line with its substantial history of bold mergers, Ventas will be buying big and spinning off.

Debra Cafaro, Ventas

By Scott Baltic, Contributing Editor

In a pair of moves that are entirely in line with its substantial history of bold mergers, Ventas will buy Ardent Health Services for $1.75 billion and spin off most of its post-acute/skilled nursing facility portfolio into an independent publicly traded REIT, Ventas announced Monday.

The spinoff, called SpinCo, will own 355 triple-net-leased SNFs and other healthcare assets operated by 44 private regional and local care providers.

Ardent is one of the 10 largest for-profit hospital companies in the United States and is owned by private equity funds managed by Welsh, Carson, Anderson & Stowe, of Nashville. It reportedly generates about $2 billion in annual revenues with more than 50 percent of its revenue derived from commercial (private) payers. After the closing, it will remain headquartered in Nashville.

“We are excited to add Ardent Health Services to the Ventas portfolio, giving us a strong foothold in the large U.S. hospital market, aided by the presence of a highly regarded hospital management team,” Ventas chairman & CEO Debra Cafaro told Commercial Property Executive. “At the closing, we intend to separate the hospital operations from the real estate ownership because healthcare REITs are not permitted under the REIT rules to operate their properties. There will be long-term triple-net leases between the landlord, Ventas and the operator, Ardent. The hospital operations (Ardent) will be owned after closing by a newly formed entity comprised of current management of Ardent, other equity sources and up to 9.9 percent owned by Ventas.”

Ventas will own 10 hospitals (and related real estate) operated by Ardent under the names BSA Health System in Amarillo, Texas; Hillcrest HealthCare System in Tulsa, Okla.; and Lovelace Health System in Albuquerque, N.M. These assets include acute care, heart, rehab and women’s hospitals totaling about 3.2 million square feet and 2,045 beds.

“The addition of Ardent’s platform, which includes high-quality assets with significant market share in three key markets, and a highly regarded hospital management team, creates a strong avenue for growth in the attractive hospital real estate market,” Cafaro said in a release. “The transaction also increases our diversification by property type and operator.”

“[W]e look forward to expanding Ardent and capitalizing on the significant growth opportunities we see in the immense, highly fragmented U.S. hospital market,” said Ardent president & CEO David Vandewater.

Ventas expects to fund the transaction (which is expected to close mid-year) on a leverage-neutral basis with proceeds from previously announced dispositions and loan repayments, bank debt and long-term debt and equity capital sources.

The spinoff is expected to be completed in the second half of this year and is intended to qualify as a tax-free distribution to Ventas shareholders.

The SpinCo portfolio will span 37 states and be diversified by operator, with only one tenant, Senior Care Centers, expected to constitute more than 10 percent of the REIT’s NOI. In its first full year of operation, SpinCo is expected to generate estimated NOI of $315 million to $320 million. Current Ventas president Raymond Lewis will serve as CEO and a director of SpinCo, and Ventas presiding director Douglas Crocker II will serve as SpinCo’s independent non-executive chairman of the board.

“This transaction demonstrates our continued commitment to enhancing shareholder value by creating two focused companies with distinct strategies,” Cafaro said in a release. “SpinCo will thrive as an independent, pure-play SNF REIT with a seasoned management team … For Ventas, the spin-off enhances our growth profile, increases our NOI contribution from top-tier operators, and improves our industry-leading private pay NOI composition.”

“With a focus on the highly fragmented post-acute/SNF market, SpinCo will have the necessary size, balance sheet strength and access to capital to pursue significant consolidation opportunities,” added Lewis.

Ultimately, SpinCo plans to apply to have its common stock authorized for listing on the New York Stock Exchange.