Ventas Taps New Operator Led by Hsiao for 70-Property Elmcroft Deal

Ventas Inc. (NYSE: VTR) is working out a deal to transition its portfolio of about 70 Elmcroft Senior Living properties into the hands of a new management company started by Kai Hsiao, former CEO of independent living giant Holiday Retirement.

Ventas, one of the “big three” real estate investment trusts (REITs) in the senior housing sector, announced the expected transaction Friday, in conjunction with its third-quarter 2017 earnings. Ventas executives did not disclose many details, but CEO Debra Cafaro (pictured above) said they wanted to provide “early insight” into the deal.

Currently, the Elmcroft properties are triple-net leased to Ventas. The Chicago-based real estate investment trust (REIT) would assume a stake in both the real estate and operations of the private pay senior living portfolio through an anticipated joint venture with an as-yet-unnamed institutional investor. Under the JV ownership structure, the portfolio would be managed by the operating company recently founded by Hsiao.


The name of the operating company was not revealed. Senior Housing News contacted Hsiao by phone Friday afternoon, and he declined to share further details.

Ventas is working “collaboratively” with Elmcroft to transition the portfolio, Cafaro said on the earnings call.

Based in Louisville, Elmcroft operates a portfolio of about 80 senior living communities in 18 states. CEO Pat Mulloy declined to comment Friday on the deal that is in process, or what it could mean for the future of Elmcroft as a brand.


Elmcroft traces its roots back to Vencor, the senior care provider that filed for bankruptcy protection in 1999 and ultimately spawned some of the most prominent enterprises in the industry today, including Ventas and post-acute giant Kindred Healthcare (NYSE: KND).

There are not expected to be significant changes in Elmcroft personnel at the property level under the new management company, Cafaro said.

The transaction is expected to be completed in early 2018.

Potential upside

Though she declined to address the potential valuation for the Elmcroft portfolio, the properties are mostly stable assets showing reliable growth, located in markets that are not exposed to significant new supply, Cafaro said Friday.

However, for some Elmcroft properties, Ventas sees an opportunity to benefit from “powerful upside” by transitioning to the new ownership and management structure, she said.

“This is not a decision that Ventas would take lightly, so they must see favorable risk-reward dynamics to taking on more operating risk,” Green Street analyst Michael Knott told Senior Housing News. “They obviously place a lot of confidence in Mr. Hsiao’s operating acumen.”

Ventas has not been shy about taking on operating risk in return for potential financial upside. Currently, its Senior Housing Operating Portfolio (SHOP) is 37% of its overall portfolio. The new JV could increase the SHOP exposure to over 40%, Mizuho Managing Director Rich Anderson observed in a note issued Friday.

Considering that demographics will drive senior housing demand in the coming years, increasing the SHOP portfolio through this joint venture could be “well-timed,” according to Anderson.

Knott also is positive on the planned transaction.

“This move feels like a good decision for Ventas, especially considering the joint venture relationship it is forming with a new capital source,” Knott said. “Ventas has not been too keen to invest in senior housing at present, preferring life science instead, so this is a good move on the operating front and takes a few chips off the senior housing table at the same time.”

Written by Tim Mullaney

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