On Monday, health-care REIT Ventas (NYSE:VTR) continued its imperialistic expansion strategy, announcing a deal that will take it to Canada. The company agreed to acquire 74 private-pay assisted living communities from Senior Living REIT for about $1.8 billion. The deal, which will consist of cash and debt, is expected to close during the second quarter of 2007. The move will add 11 high-end properties in Canada and another 63 in the U.S. to the company's growing portfolio.
The long-term impact on Ventas appears to be very favorable. I also believe that it's a good sign for shareholders because it shows that management is committed to growing operations and that there is rising demand for the company's services.
The properties that were acquired are in metropolitan areas where it's hard to break into the market. The acquired communities maintain average total vacancy rates of 94% and are expected to add $387 million in revenue and $132 million in net operating income, or NOI, for Ventas this year. The acquisition will bring Ventas an initial NOI yield of about 6.2%. The new communities alone are expected to bring 16% more revenue for 2007 than the company's total revenue for all of 2005. The real estate investment trust will announce its 2006 results next month.
Initially, this transaction is expected to dilute the company's normalized funds from operations, or FFO, per share for 2007 by $0.05 to $0.07. However, the deal is expected to be breakeven to the company's normalized FFO per share in 2008 and will bring added diversity to a portfolio that includes operations in 43 states and two Canadian provinces.
The health-care REIT sector has been prospering as of late. Not only is Ventas trading near its all-time high, but competitors Health Care Property Investors (NYSE:HCP) and Healthcare Realty Trust (NYSE:HR) are also trading at or around their all-time highs. There has been a steady appreciation in Ventas' stock price since October, helped by a strong Q3 in which the company reported year-over-year growth in normalized FFO of 19%. In addition to the sound financial results Ventas has been producing, the stock offers shareholders a solid 3.7% dividend yield.
Players in our Motley Fool CAPS community also like the prospects for Ventas. The stock holds an impressive five-star rating, with 91% of the players who have rated the stock saying they're bullish. ShuntSD writes: "REITs in this sector should fare well as baby boomers enter their senior years."
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Fool contributor Billy Fisher does not own shares of any of the companies mentioned. The Fool has a disclosure policy.
