What You Need to Know About Ventas Buying ARC Healthcare

Here's what you need to know about Ventas (VTR) buying health-care REIT American Realty Capital Healthcare (HCP).

Jun 2, 2014 at 6:30PM

When it comes to health-care real estate investment trusts, none are bigger than Ventas (NYSE:VTR). The company operates more than 1,500 health-care properties, including medical office space and assisted living facilities in 47 states.

That size gives Ventas an opportunity to compete aggressively for acquisitions, and today the company announced it is spending $2.6 billion to acquire American Realty Capital Healthcare Trust (NASDAQ:HCT), a medical office and assisted living company that will add nearly 150 properties to Ventas' ever-expanding footprint. 

VTR Chart

VTR data by YCharts.

What does Ventas get?
Buying ARC Healthcare will make Ventas one of the largest real estate investment trusts (or REITs) in the country.

Ventas is most heavily concentrated in senior housing, which represents more than 50% of its property portfolio, but Ventas also has a significant presence in skilled nursing and medical office buildings. 

Thanks to an aging population and a limited supply of health care properties, Ventas has delivered compounded annual funds from operations, or FFO, growth of 10% since 2000. FFO has really taken off since 2010, climbing from less than $3 per share to an estimated $4.31 to $4.37 this year. That trend should continue given that baby boomers are turning 65 at a rate of roughly 10,000 per day. 

To capitalize on that demographic trend, Ventas has spent more than $18 billion on acquisitions since 2011, including its current offer to buy ARC, and boasts a significant presence in key retirement markets including California, Texas, and Florida, which combined account for more than a quarter of its total properties.

Since ARC's portfolio consists of more than 4 million square feet of medical office space across 78 properties, which is 97% rented and accounts for just over half of ARC's net operating income, Ventas position in that market becomes immediately stronger. Importantly, nearly half of ARC's office portfolio consists of low maintenance, high rent space built in the last ten years.

In addition to those office buildings, ARC also brings to Ventas a portfolio of 42 senior housing properties, including 29 non-triple net senior communities that are 94% occupied.  That's slightly better than the 91% occupancy rate at Ventas current senior housing properties. 

Once the deal is finalized, which is expected by year end, 54% of the newly combined company's business will be from senior housing, 18% will come from skilled nursing, and another 18% will come from medical office buildings, up from 16% previously.


Source: Ventas Investor Presentation

Continuing a winning streak
ARC's founder and Executive Chairman is Nicholas Schorsch, a serial real estate entrepreneur with a penchant for successfully launching companies and orchestrating deals.

Schorsch held the top spot at American Financial Realty Trust, a REIT that bought bank branches and leased them back, from 2002 through 2006. Schorsch was responsible for taking AFR public in 2003, and he and then-Chairman Lewis Ranieri (known by some as the father of mortgage-backed securities) inked a deal for Gramercy Capital Group to acquire AFR for more than $1 billion in 2007.

Following that deal, Schorsch was the founder and chairman of American Realty Capital Trust, a net lease REIT listed on the New York Stock Exchange in 2012. Schorsch that year sold that company for nearly $3 billion to Realty Income.

Schorsch is also the head honcho at American Realty Capital Properties, a $9 billion market cap REIT focusing on single-tenant, freestanding commercial properties that recently spent $11 billion to acquire Cole Real Estate Investments in a deal that created the largest net lease REIT.

Fool-worthy final thoughts
Schorsch isn't shy about making deals, and Ventas appears to be walking away with a very attractive portfolio of health care properties that it can use to leverage growing demand from aging baby boomers.

ARC's portfolio has minimal overlap with Ventas' existing locations, which suggests that the deal has little risk of cannibalization, and Ventas estimates that the deal will be immediately accretive to funds from operations, which suggests that Ventas won't have any trouble continuing its streak of dividend increases -- a streak that has allowed dividend payouts to climb 10% per year over the past decade. 

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B.Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information