June 2 (Bloomberg) -- Ventas Inc., the biggest U.S. health-care real estate investment trust by market value, agreed to a pair of deals totaling $3.5 billion as it expands its ownership of medical offices and housing for the elderly.
Ventas, based in Chicago, agreed to buy American Realty Capital Healthcare Trust Inc. for $2.6 billion in cash and shares, according to a statement today. Ventas also said it will buy 29 independent senior-housing communities in Canada from Lake Oswego, Oregon-based Holiday Retirement for C$980 million ($900 million) in cash.
“These acquisitions are consistent with our stated strategy to be the leading owner of health-care and senior-living properties globally,” Ventas Chairman and Chief Executive Officer Debra Cafaro said in the statement. “We are continuing our focus on private-pay assets, expanding our industry-leading medical-office building footprint and international presence.”
Health-care REITs are capitalizing on rising demand for medical services from an aging population in the U.S. Ventas is adding properties in the growing senior-housing and medical-office segments of the real estate market to boost income and payouts to shareholders.
“The health-care REITs have been characterized by their aggressive external growth platforms over the past several years,” Michael Knott and Tom McDonough, analysts at Newport Beach, California-based research firm Green Street Advisors Inc., wrote in a May 30 report.
Ventas shares fell 2.8 percent, the most since March 19, to close at $64.93. The stock is down 9.1 percent in the past 12 months. American Realty Capital Healthcare rose 9.7 percent to $10.91.
While Ventas shares fell today because “people might be worried about the price they paid” for the two acquisitions, the deals will add to earnings, said Michael Carroll, an analyst at RBC Capital Markets in Solon, Ohio. Competition is strongest for medical offices and senior housing among real estate buyers, he said.
The deal with ARC Healthcare amounts to $11.33 per ARC share, Ventas said. That’s about 14 percent more than ARC Healthcare’s closing share price on May 30. The acquisition probably will be completed in the fourth quarter, Ventas said.
For Nicholas Schorsch’s ARC Healthcare, the transaction “delivers our shareholders a compelling premium,” Schorsch said in the statement. The deal gives ARC investors “the opportunity to participate in the future growth of what will become the largest, and in my view, best-managed health-care REIT and sixth-largest overall REIT in the country.”
Under the agreement, Ventas will acquire 143 properties, plus the opportunity for another $250 million of potential investments, which could be completed by the end of the year, the company said. The ARC senior-housing properties are 94 percent occupied and generate $4,300 per occupied room, according to the statement. Their expected net operating income growth rate is 4 percent to 5 percent.
The 29 Holiday Retirement properties are in seven Canadian provinces, with the majority in Toronto and Alberta, Ventas said. They generate C$3,200 per occupied room.
Health-care REITs, which soared to records early last year, have been the worst-performing part of the property-trust market in the past 12 months. The U.S. had 526,144 senior-housing units in the 31 largest markets in the first quarter, up 1.4 percent from a year earlier, and an additional 16,181 units are under construction, according to the National Investment Center for the Seniors Housing & Care Industry, a trade group based in Annapolis, Maryland.
Ventas owns almost 1,500 assets in 47 states, according to today’s statement. Among the other large senior-housing companies are Toledo, Ohio-based Health Care REIT Inc. and Long Beach, California-based HCP Inc.
Schorsch’s American Realty Capital Hospitality Trust Inc. also agreed today to pay $1.93 billion for a group of hotels that’s indirectly owned by funds managed by Goldman Sachs Group Inc., creating one of the biggest hospitality-focused real estate investment trusts in the U.S.
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