Ventas Purchases Cogdell, CEO Sees "Increased Demand" for Medical-Office Buildings

December 28, 2011
By Nicholas Ziegler, News Editor

Ventas CEO Debra Cafaro

In a deal that was pegged at $4.25 per share in a cash transaction, Ventas Inc. has acquired Cogdell Spencer Inc. and its 72 medical-office buildings around the country. The agreement, signed by both firms’ boards of directors on Dec. 23, is expected to approximate $760 million to $770 million. The per-share price represents an 8 percent premium over the closing price on the deal’s signing date.

Debra Cafaro, CEO of Ventas, spoke with Commercial Property Executive in the cover story for the magazine’s November 2011 issue. Even before the news of the Cogdell purchase went public, she was fully aware of the importance of the sector. Reform legislation passed in Congress last year brought some uncertainty to the healthcare system, but Cafaro was confident the elements of the package are a net plus for healthcare real estate. “Healthcare reform will bring 32 million people in a more regular way,” she said. “We think that increased demand will also benefit the medical-office building business.”

Under the agreement’s terms, consideration on Cogdell’s properties will be placed in the low- to mid-7 percent NOI yield, or slightly more than $200 per square foot. In contrast, an October report by Marcus & Millichap Real Estate Services Inc. placed the median price of all deals at $188 per square foot – while noting that the lack of trading on large, Class A deals did much to drop the price.

That same report noted that 2011 was predicted to be a big year for medical-office transactions, but many deals never materialized. Vacancy in the sector stands at 11.5 percent, dropping 0.7 percent from its 2009 peak, but still 140 basis points above pre-recession levels.

Among the properties acquired were 68 stabilized medical-office buildings with an average 92 percent occupancy; two buildings in the lease-up phase; and two buildings under development – the 72 of which total 4.2 million square feet. Forty-four medical-office buildings, totaling 2 million square feet, will be added to Ventas’ management business. A full 88 percent of the portfolio’s square footage is either located on hospital campuses or is hospital-anchored, and the properties are located in 15 states.

Ventas had a busy 2011, notching some major deals earlier this year. In late February, the company orchestrated a stock-for-stock transaction, worth $7.4 billion, to acquire Nationwide Health Properties Inc. – creating the nation’s largest healthcare REIT in the process. And in May, Ventas spent $3.1 billion for 118 seniors communities and all outstanding stock from Atria Senior Living Group Inc., making Ventas the largest owner of seniors housing nationwide.