Ventas to Buy ARC Healthcare for $2.6B - Analyst Blog

Ventas Inc. VTR – the healthcare real estate investment trust – is to acquire its competitor, American Realty Capital Healthcare Trust Inc. HCT in a stock and cash deal worth $2.6 billion. The move will bring on board 143 properties – primarily medical office buildings (MOBs) and seniors housing assets – and a pipeline of over $250 million in potential investments to Ventas' platform.

Valued at $11.33 per ARC Healthcare share, the deal entails a 14% premium to its closing stock price on May 30. As per the deal terms, shareholders of ARC Healthcare can either opt to receive 0.1688 Ventas shares, based upon a negotiated Ventas stock price of $67.13 or $11.33 in cash for each ARC Healthcare common share they have.

However, this cash part of the consideration is capped at 10% of ARC Healthcare's outstanding common stock. Following the deal closure, the shareholders of ARC Healthcare are expected to hold 8% of Ventas's 321 million outstanding shares.

Expected to close in the fourth quarter of this year, the deal already got the nod from the boards of both companies and is now subject to the consent of ARC Healthcare shareholders as well as customary closing conditions.

In addition to this deal, Ventas disclosed that it would purchase 29 independent living seniors housing communities from Holiday Retirement in Canada for $980 million Canadian dollars (approximately $900 million) in cash.

Expected to close in the third quarter, this Holiday portfolio is currently 90% occupied with margins of around 50% in high-growth markets (in terms of average income and senior population growth rates).

According to Ventas' projections, the deals would be immediately accretive to the company's 2015 normalized funds from operations (FFO) by no less than 10 cents per share.

For Ventas, both the deals would add feathers to its already strong presence in the healthcare REIT sector. Particularly, these are in sync with the company's strategy of focusing on its private pay properties, and strengthening its MOB footprint as well as international existence.

For ARC Healthcare, which was incorporated in 2010 and got listed recently, the move essentially completes the circle within the public, non-traded REIT scope. This company, which acquired premium healthcare real estate assets between 2011 and 2013, now offers its shareholders the opportunity to benefit from Ventas' scale and drive value.

Shares of ARC Healthcare were up 9.65% during the regular trading session on the NASDAQ. On the other hand, though Ventas shares moved down 2.80% during the regular session on the NYSE yesterday, in the after-hours trading the stock regained 1.25%.

Ventas currently sports a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Parkway Properties Inc. PKY and Terreno Realty Corp. TRNO. Both these stocks carry a Zacks Rank #1 (Strong Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.