After $3.8 Billion in Deals, Ventas Targets Senior Housing Redevelopment

Following $3.8 billion of acquisitions under agreement in the last few months, Ventas, Inc. (NYSE: VTR) is ramping up its redevelopment activity with hundreds of millions in projects currently under construction.

The Chicago-based real estate investment trust (REIT) has been increasing the pace of its redevelopment efforts over the past few quarters. In the second quarter of 2014, the REIT had nine properties under redevelopment versus just two properties in 2013.

Currently, the company has $116 million of projects under construction at 8% to 12% unlevered yields, said Ventas President Ray Lewis during a second quarter earnings call Tuesday.


“These investments represent an excellent risk-adjusted return, and we expect them to enhance our growth rate as they come online,” he said.

Redevelopment costs can range anywhere from $1 million to over $20 million depending on the scale of the project, Lewis said.

“Sometimes, it’d just as simple as upgrading the common areas and sometimes we’re going through and re-doing entire wings of the building, or taking units offline to add [memory care],” he said. “It is really going to depend upon what the opportunity in that building and market is.”


Ventas is also ramping up redevelopment in its triple-net leased portfolio, with about $50 million of projects under construction at an average yield of over 8%, as well as another $40 million that it has approved. The company’s triple-net lease portfolio is diversified across 906 senior housing, skilled nursing and hospital assets and accounts for 54% of its net operating income.

For the second quarter ended June 30, 2014, Ventas reported normalized funds from operations (FFO) increased 11% to $331.6 million, or $1.12 per diluted common share, from $298.4 million, or $1.01 per share, for the comparable 2013 period.

Second quarter results were driven by “strong” performance in the 198 properties in Ventas’ same-store stable U.S. portfolio, which rose 6.6% year-over-year and achieved a total portfolio occupancy that averaged 90.3%—higher than the national occupancy of 89.9%, as reported by the National Investment Center for the Seniors Housing & Care Industry (NIC).

“Our productive and powerful portfolio continued to drive FFO and cash flow growth in the second quarter, as we delivered record results for our shareholders,” said Ventas Chairman and CEO Debra Cafaro. “We continue to focus on completing our $3.8 billion of strategic accretive transactions. We are delighted to increase our full-year guidance and look forward to continuing our long track record of success.”

The most notable deals on the REIT’s second quarter highlight reel occurred in June, when it announced the acquisitions of 29 Canadian independent living communities from Holiday Retirement for approximately $900 million and its $2.6 billion stock and cash acquisition of American Realty Capital Healthcare Trust, Inc. (NASDAQ: HCT), another health care REIT.

Ventas’ senior housing operating portfolio consists of 239 total private-pay properties operated by Atria Senior Living and Sunrise Senior Living. During the second quarter, the portfolio produced $125 million of NOI, a 13.5% gain compared to the same quarter in 2013.

With the expected acquisition of the 29 properties from Holiday, Ventas provided updated NOI guidance for its senior housing operating portfolio of $512 million to $520 million.

On the company’s medical office buildings (MOBs) segment, which accounts for 15% of annualized NOI and is comprised of a consolidated portfolio of 275 MOBs spanning over 15 million square feet, NOI was $73.3 million with average occupancy at 91.7% during the second quarter.

The largest healthcare REIT in the U.S., commanding an enterprise value of $33 billion as of June, Ventas has been an active investor at home and continues to build an international business with 5% of its NOI derived from assets outside of the U.S.

As of June 30, 2014, Ventas owns nearly 1,500 properties, including senior housing communities, MOBs, skilled nursing, hospitals and other facilities throughout the U.S., Canada and the United Kingdom.

During the first six months of the year, the REIT invested approximately $341 million in healthcare assets, including the acquisition of three private hospitals located in the U.K.

“Over time, I would expect—assuming that we are successful as we make these incremental investments—that we would grow in the U.K, and Canada in specific asset types,” Cafaro said. “I do think it is an important extension of our growth and diversification strategy that we’ve executed very successfully over the last 10 to 15 years.”

Looking ahead, Ventas boosted its 2014 guidance to expect normalized FFO per diluted share to range between $4.39 and $4.43, an increase from the company’s previously announced 2014 guidance of $4.31 and $4.37 per diluted share. If achieved, this guidance would deliver 7% to 8% per share normalized FFO growth over 2013, excluding non-cash item, said Cafaro.

The guidance, however, includes the impact of the Holiday investment, but not acquisition of American Realty Capital Healthcare Trust, as the REIT expects this transaction to close at the end of the fourth quarter.

“We are confident we can extend our long track record of excellent, consistent performance to produce reliable growing cash flows, dividends, earnings and total return for our shareholders,” Cafaro said.

Written by Jason Oliva

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