CHICAGO AND NEW YORK — Ventas Inc. (NYSE: VTR) has entered into a definitive merger agreement to acquire all of the outstanding shares of American Realty Capital Healthcare Trust Inc. (NASDAQ: HCT) in a stock and cash transaction valued at $2.6 billion. The board of directors for both companies unanimously approved the agreement, which would transfer 143 properties and a pipeline of more than $250 million in potential investments to Ventas.
The transaction is expected to close in the fourth quarter of this year.
“[This transaction provides our shareholders] the opportunity to participate in the future growth of what will become the largest, and in my view, best managed healthcare REIT and sixth largest overall REIT in the country,” says Nicholas Schorsch, executive chairman of ARC Healthcare, a New York-based REIT focused on acquiring and owning a portfolio of medical office buildings, seniors housing and select hospital and post-acute care properties.
ARC Healthcare’s portfolio consists mostly of medical office buildings (MOBs) and seniors housing assets, comprising more than 80 percent of net operating income (NOI) for the fiscal year ended Dec. 31, 2013. The properties are located in attractive markets with home values and senior growth rates higher than the U.S. average.
Triple-net leased healthcare and MOB assets account for 55 percent of the ARC Healthcare portfolio NOI. The triple-net leased portfolio has an average remaining lease term of 12 years, and only 2 percent of the NOI in the triple-net leased portfolio have lease maturities before 2018.
Ventas also announced that it will acquire 29 independent living seniors housing communities located in Canada from Holiday Retirement in a separate transaction for roughly $900 million in cash. The transaction is expected to close in the third quarter of 2014.
Upon closing, the operations for the acquired seniors housing communities will be transitioned to Atria, which will manage a total of 173 communities for Ventas, including two unrelated communities that Ventas acquired after the first quarter.
“These acquisitions are consistent with our stated strategy to be the leading owner of healthcare and senior living properties globally, and position Ventas to continue to deliver growth and consistent superior returns to our shareholders,” says Debra Cafaro, chairman and CEO of Ventas, a Chicago-based REIT that owns a portfolio of 1,500 seniors housing and healthcare assets in 46 states, Washington, D.C., and Canada. “We are continuing our focus on private pay assets, expanding our industry-leading MOB footprint and international presence, and increasing our diversification while maintaining a strong credit profile and balance sheet.”
Private pay revenue sources account for 82 percent of ARC Healthcare’s assets and 100 percent of the Canadian assets. Taken together, 40 percent of the NOI is from triple-net leased healthcare and MOB assets, 46 percent is from seniors housing operating communities and 14 percent is from multi-tenant MOBs.
ARC Healthcare’s MOB portfolio, which represents 51 percent of the total NOI, enjoys an average occupancy rate of 97 percent, with more than 50 percent of the portfolio built in the last 10 years.
ARC Healthcare’s seniors housing operating portfolio, which comprises 27 percent of the NOI, includes 29 communities managed by eight operators, is 94 percent occupied, and has strong revenue per occupied room (REVPOR) of $4,300. The expected NOI growth rate for the seniors housing operating communities is 4 to 5 percent.
Centerview Partners LLC and UBS Investment Bank are acting as financial advisors to Ventas, and Wachtell, Lipton, Rosen & Katz is acting as its legal counsel. Citigroup Global Markets Inc., JP Morgan Securities LLC and RCS Capital, the investment banking and capital markets division of Realty Capital Securities LLC, are acting as financial advisors to ARC Healthcare, and Proskauer Rose LLP and Venable LLP are providing legal counsel.
The 29 Canadian seniors housing communities are located in markets with above average growth and household incomes and have an average occupancy of 90 percent. The Canadian assets, which contain 3,354 independent living units, are located in seven of 10 Canadian provinces, with the majority in Toronto and Alberta. The NOI growth rate is expected to be 4 to 5 percent.
In the merger transaction, ARC Healthcare shares will be converted into a fixed number of Ventas shares, based upon a negotiated Ventas stock price of $67.13. In the transaction, ARC Healthcare shareholders will have the option to elect to receive either 0.1688 Ventas common shares or $11.33 in cash for each share of ARC Healthcare common stock they own.
Based upon the agreed upon Ventas stock price of $67.13, the per share value of the transaction represents a premium to ARC Healthcare shareholders of approximately 14 percent over ARC Healthcare’s closing stock price on Friday. The cash portion of the consideration is subject to a cap of 10 percent of ARC Healthcare’s outstanding common stock.
ARC Healthcare’s stock price opened today at $9.95 per share and bounced up to $10.81 per share around 11:30am EST.
The stock price for Ventas opened at $66.80 per share and dipped to $64.58 per share around 11:30am EST.
— John Nelson