Ventas Completes Sunrise Acquisition - Analyst Blog

Ventas Inc. (VTR), a leading healthcare real estate investment trust (‘REIT'), has recently completed the acquisition of the full ownership of 58 high-quality senior living communities from Sunrise Senior Living Inc. (SRZ), the largest provider of senior living services in the U.S., for $186 million (including $144 million in mortgage debt). Both the companies also modified the management agreements on the entire Sunrise portfolio.
 
Ventas previously had a 100% ownership stake in about 21 of the 79 senior housing communities that were managed by Sunrise. In the remaining 58 communities, Ventas had a partnership share of 75% to 85% with the balance owned by Sunrise. With the deal, Ventas would fully own the Sunrise portfolio, thereby strengthening its position in the senior living segment.
 
Ventas expects the transaction to be accretive to earnings. For full year 2010, the company has increased its recurring FFO guidance in the range of $2.84 – $2.86 per share from $2.75 – $2.80. Ventas has also increased its NOI guidance from Sunrise-owned properties to $150 million – $154 million from $139 million – $145 million. The management fee for the Sunrise portfolio for April 1 through December 31, 2010 was mutually agreed upon at 3.5% of revenues, while that of 2011 at 3.75%.
 
On the other hand, Sunrise has received a significant capital infusion from the asset sale that has increased its liquidity. The deal also eliminated the previously exercisable termination rights Ventas had under the existing management contracts, thereby augmenting Sunrise's corporate stability, yet maintaining its pre-eminent global brand in senior living.
 
Ventas is one of the top performing healthcare REITs in the U.S., having one of the largest and most diversified portfolios in the healthcare sector exposed to nearly all types of facilities. The product diversity of the company allows it to capitalize on opportunities in different markets based on individual market dynamics, and provides a hard-to-replicate competitive advantage over its peers.
 
Ventas is primarily engaged in the business of financing, owning and leasing healthcare related and senior housing facilities. The company leases some of its owned healthcare related and senior housing facilities to third-party operators under "triple net" leases, under which the tenant pays all taxes, insurance, and maintenance for the properties, in addition to rent. Ventas also owns healthcare related and senior housing facilities that are managed by third-party operators.
 
We presently have an Outperform rating on Ventas, which currently has a Zacks #2 Rank that translates into a short-term Buy recommendation indicating that the stock is expected to outperform the overall U.S. equity market for the next 1–3 months.

 
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