The growing population of aging baby boomers has prompted another major real estate purchase, as Chicago-based Ventas Inc. agreed to buy Nationwide Health Properties Inc. for $5.8 billion in a deal that will create a giant in senior housing and assisted living centers.
With the purchase of its California-based rival, Ventas will see its portfolio double across the U.S. and Canada to more than 1,300 senior living facilities, medical office buildings, skilled nursing sites, specialty hospitals and continuing care retirement facilities. In the Chicago area, Ventas has 16 senior housing sites, one skilled nursing facility and four long-term care hospitals.
The acquisition will close in the third quarter and the company’s headquarters will remain in Chicago, Ventas said.
Ventas and Nationwide are real estate investment trusts, or REITs, that own properties and lease them out to health care service providers. They will create a company worth $23 billion, becoming the leading health care REIT in the country and one of the largest public REITs overall.
A fragmented market for health care property is rapidly consolidating as baby boomers reach retirement age and real estate values begin to recover, experts say. Proposed health care reforms also could lead to higher demand for services and better access.
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“Health care real estate is one of the most attractive and dynamic sectors within the real estate industry,” Ventas Chief Executive Debra Cafaro said in a conference call with investors. “As a result, we see continued opportunities for expansion and growth.”
Ventas isn’t the only company trying to capitalize on the growing elderly population, which will include 54.8 million people older than 65 by 2020, a 36 percent increase from last year. The number of people 85 and older will soar 15 percent in the same period to 6.6 million, according to the Census Bureau.
Spending also rises as people get older. Per-capita health spending doubles to more than $25,000 annually once an individual reaches age 85, Ventas said in information provided to the Tribune. And health care spending is expected to grow to 20 percent of the U.S. gross domestic product by 2019, according to Ventas.
Health Care REIT Inc. also announced Monday that it bought nearly 150 properties from rehabilitation facility and nursing home operator Genesis HealthCare Corp. for $2.4 billion. In October, Ventas snapped up the real estate assets of Atria Senior Living Group for $1.5 billion in stock. And in December, HCP Inc. said it would pay $6.1 billion for the 338 properties owned by nursing home behemoth HCR ManorCare.
At least 46 nursing home companies have been bought out in the last five years, to the tune of $20 billion, according to research firm Dealogic.
“There’s an awful lot of health care real estate that could potentially be sold,” said Jerry Doctrow, a research analyst with Stifel Nicolaus. “These properties tend to be slow and steady performers that held up better and are more attractive in a recession than commercial real estate.”
As part of Monday’s deal, Ventas shareholders will retain 65 percent ownership of the new company, while Nationwide shareholders will get 35 percent. Those shareholders will receive 0.7866 of a Ventas share for each Nationwide share; based on Friday’s closing prices, that would be worth $44.99 a share, a premium of 15.5 percent over Nationwide’s price of $38.96 a share. Both companies’ stocks have climbed steadily throughout the past year.
Ventas’ shares ended Monday down 3 percent, at $55.42, after slipping as much as 5 percent during morning trading. Nationwide jumped as high as 13 percent before closing up 10 percent, at $42.74.
While health facilities across the country are bracing for cuts in spending by state Medicaid programs for the poor, the combined company may be able to weather the cutbacks better. That’s because private pay sources will account for 70 percent of the combined company’s net operating income, Ventas said.
Also working in Ventas’ favor: The company’s long-term leases of its hospitals and nursing facilities are not as exposed to government reimbursement changes as its tenant operators are.
“As the population ages, there’s going to be more demand for these types of facilities,” said Jeff Theiler, a research analyst with Green Street Advisors. “These health care REIT stocks were able to maintain their earnings much better during the downturn. There’s investor demand for that relative safety.”
Health care REIT deals
Ventas’ merger of Nationwide Health Properties and Health Care REIT’s purchase of 147 properties from Genesis HealthCare add to a growing list of deals in health care-related real estate investment trusts. Here are some of the bigger asset deals since March:
March 2010 — A joint venture led by Emeritus, Blackstone Real Estate Advisors and Columbia Pacific Advisors successfully bids for 149 senior-living facilities from bankrupt retirement home operator Sunwest Management. They paid a total of $1.3 billion for the facilities.
June — Ventas buys Lillibridge Healthcare Services to expand its medical office buildings in a deal valued at $300 million to $400 million.
August — Health Care REIT announces a joint venture with Merrill Gardens for a portfolio of 38 senior housing and care communities.
October — Ventas buys 58 senior-living communities from Sunrise Senior Living affiliates for $186 million, including $145 million in mortgage debt. Later that month, Ventas purchases the real-estate assets of Atria Senior Living Group for $1.5 billion.
December — HCP buys most of the real estate assets of privately held nursing and assisted living firm HCR ManorCare from Carlyle Group in a $6.1 billion sale and leaseback deal.
— Reuters
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