Ventas, Inc. (NYSE:VTR) and Cogdell Spencer Inc. (NYSE:CSA) announced on Dec. 27 that the Boards of Directors of both companies have approved a definitive agreement under which Ventas will acquire Cogdell and its 72 high-quality medical office buildings in an all-cash transaction.
At closing, Ventas’ investment, including its share of debt, is expected to approximate $760 million to $770 million, before anticipated transaction expenses.
“We are delighted to announce this strategic and accretive acquisition that further broadens our footprint in the attractive MOB sector, continues to diversify our business and tenant relationships and keeps our balance sheet strong,” Ventas Chairman and Chief Executive Officer Debra A. Cafaro said in a statement. “Cogdell’s high-quality properties enhance our medical office building market presence, especially in the southeast, and provide an opportunity to scale our Lillibridge Healthcare Services subsidiary platform. We look forward to successfully integrating the Cogdell properties into the Ventas portfolio.”
Shareholders of Cogdell common stocks and units of limited partnership interests in Cogdell’s operating partnership, Cogdell Spencer LP, will receive consideration of $4.25 per share (or unit), a premium of 8% to Cogdell’s closing price on Dec. 23, 2011, and 13% to the average closing price of Cogdell common stock over the past 30 days, under terms of the agreement.
This consideration, plus anticipated transaction expenses, values Cogdell’s properties at a low- to mid- 7% net operating income yield, or slightly over $200 per square foot. Holders of Cogdell’s preferred stock will receive consideration of $25 per share, plus accrued and unpaid dividends through the closing; Cogdell will pay its currently declared common stock dividend as scheduled on Jan. 19, 2012, at which time Cogdell LP will pay a similar distribution on its outstanding limited partnership units. Cogdell and Cogdell LP will not pay further dividends or distributions on their common stock or units pending consummation of the transaction.
Out of the acquired medical office buildings, 68 are stabilized, and are 92% occupied, with two leaseup and two in development, for 4.2 million square feet. For the management business acquired, 44 are medical office buildings, with 2 million square feet.
Ventas’ MOB portfolio will increase from 11% to 15% of total net operating income.
“When this acquisition is completed, Ventas will have the leading MOB business in the U.S., with over 20 million square feet owned or managed, and a coast-to-coast presence that is second to none in the healthcare real estate industry,” Ventas Executive Vice President of Medical Property Operations Todd W. Lillibridge said. “We continue to build on our 25 years of experience exclusively in the medical office building and outpatient arena for the benefit of our clients and stakeholders.”
The transaction is expected to be immediately accretive to Ventas’ normalized funds from operations, approximately $0.03 to $0.05 per share on a full year basis excluding merger related, transition and integration costs and expenses. The company anticipates that Cogdell’s debt balances are expected to increase, and its cash balance expected to decrease, between now and the closing, principally due to Cogdell’s ongoing development projects and its contribution to Erdman, its design-build and development business.
Prior to completion of the Ventas transaction, Cogdell reached an agreement to sell Erdman to an affiliate of Lubar & Co., a private equity firm affiliated with David Lubar. Mr. Lubar had previously held an equity stake in Erdman before it was sold to Cogdell in 2008; the transaction will include all assets and liabilities of the Erdman business, including approximately $11 million in projected net working capital on the Erdman balance sheet.
Cogdell will contribute approximately $12 million to its equity capitalization, with a roughly equal amount to be contributed by an affiliate of Lubar & Co, in order to capitalize Erdman, according to the company. While the agreement currently contemplates the sale of Erdman for nominal consideration, it also allows Cogdell to solicit better proposals for the Erdman business over a 45-day period, with Cogdell shareholders receiving any additional proceeds resulting from a sale of the Erdman business to an alternative party, less incremental costs associated with such sale.
Completion of Ventas’ acquisition of Cogdell is expected to occur in the second quarter of 2012, subject to the approval of Cogdell shareholders, satisfaction of customary closing conditions, and the successful completion of the sale of Erdman.
Written by Alyssa Gerace