Ventas Set to Buy 16 Seniors Communities for $362M

Ventas has entered into a definitive agreement to acquire 16 private-pay communities from affiliates of Sunrise Senior Living and its institutional joint venture partner for $362 million.

The largest owner of private-pay seniors housing in the U.S. is about to get even larger. Ventas Inc. has entered into a definitive agreement to acquire 16 private-pay communities from affiliates of Sunrise Senior Living Inc. and its institutional joint venture partner. It’s no small deal; Ventas will shell out $362 million for the properties.

It’s also a good deal, James Milam, analyst with investment banking firm Sandler O’Neill + Partners L.P., told Commercial Property Executive. “It expands a relationship that Ventas already has with Sunrise, who is a good operator and manager of these types of assets,” he said. “They manage assets that contribute a little over 10 percent of Ventas’s NOI now, so they have a significant relationship with each other and know how to work together well at this point.”

Sunrise, in addition to walking away with $28 million in exchange for its 20 percent ownership interest in the 1,274-unit portfolio, will continue in its capacity as manager of the properties.

The group of 16 seniors living communities spans 12 states and has a median age of just four years. In a recent note on Ventas, Sandler O’Neill estimates that the portfolio closed 2011 with an occupancy level in the 82 to 83 percent range. Additionally, the firm calculates an initial yield of 6.7 percent on the acquisition price, which, as documented in the note, “indicates an expectation of above average growth from these assets, as well as the competitive bidding that this marketed portfolio attracted.”

Ventas will buy the properties, which will come free and clear of debt, with borrowings under its revolving credit facility. Ventas completed a new $2 billion unsecured credit facility in October 2011, replacing its previous $1 billion unsecured revolving credit facilities. The healthcare REIT expects the Sunrise transaction to be immediately accretive to normalized funds from operations, approximately 1 to 2 percent accretive, according to Milam. And there’s more for Ventas to be excited about when all is said and done. “The properties are new so they should be in pretty good condition, but there’s also some additional upside as, because they are new, they haven’t really gotten to a fully stabilized occupancy yet so there’s some opportunity for Ventas to see some earnings growth out of the assets.”

Ventas’s purchase of the private pay seniors living communities is on track to close during the second quarter. And as Raymond J. Lewis, president of Ventas, intimated during the REIT’s fourth quarter earnings call in February, there is much more to come. “With our extensive tenant relationships and investment grade balance sheet, the lowest leverage in our sector, $2 billion of revolver capacity, a competitive cost of capital and a world-class acquisitions platform, we are well-positioned to source and win attractive investment opportunities,” he said.

Earlier this month, Ventas wrapped up the approximately $770 million acquisition of Cogdell Spencer Inc. and its portfolio of 72 medical office buildings, a transaction that gave the REIT the title of the largest owner of medical office buildings in the U.S.