Please ensure Javascript is enabled for purposes of website accessibility

Why New Senior Investment Stock Rocketed 28% at the Open Today

By Reuben Gregg Brewer - Jun 28, 2021 at 10:36AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the senior housing REIT took off after it agreed to a deal with industry giant Ventas.

What happened

Shares of New Senior Investment Group (SNR) rose dramatically as trading got under way on June 28. Within the first few minutes of trading the real estate investment trust's (REIT) shares were higher by just under 28%. The big news was a deal with industry giant Ventas (VTR -3.77%).

So what

To sum it up quickly, Ventas is buying New Senior as it looks to double down on what it expects to be a rebound in demand for senior housing following the pandemic-driven industry downturn in 2020. It is an all-stock deal in which New Senior shareholders will receive 0.1561 shares of Ventas stock for each share of New Senior they own. The value is roughly $9.10 per share, a 30% premium to New Senior's average share price over the previous 30 days. Ventas believes the deal will be $0.09 to $0.11 accretive to normalized funds from operations (FFO) per share.

A person in medical scrubs helping another person using a walker.

Image source: Getty Images.

The big story here, however, is that the percentage of Ventas' portfolio dedicated to senior housing will increase from 44% of net operating income (NOI) to 48%. Meanwhile, assets that Ventas both owns and operates, known as SHOP assets in the industry, will increase from 26% of NOI to 31%. The performance of SHOP assets flows directly through to Ventas' earnings statement, unlike net lease properties where rental income is the main source of return. Essentially, this is a leveraged bet that the worst is over and that long-term demand from an aging baby boomer population will turn this acquisition into a winner. 

Now what

Investors who own New Senior but don't want to own Ventas should probably consider selling New Senior's shares to lock in gains, given the all-stock nature of the deal. Others need to step back and think carefully about the purpose of this acquisition at a time when some once diversified REITs, most notably Healthpeak, are getting out of the senior housing space. That's not meant to suggest that Ventas is making a mistake, only that it is increasing its reliance on a sector that was highly troubled in 2020 and is, in fact, still working on the rebound effort. This could be an opportunistic buy that enhances returns or a lead weight if the coronavirus pandemic continues to linger and hinder the senior housing industry's recovery.

Reuben Gregg Brewer owns shares of Ventas. The Motley Fool recommends Healthpeak Properties, Inc. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

New Senior Investment Group Inc. Stock Quote
New Senior Investment Group Inc.
Ventas, Inc. Stock Quote
Ventas, Inc.
$48.95 (-3.77%) $-1.92

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.