Ventas to Acquire ARC Healthcare REIT for $2.6B in Stock and Cash

Summerhill Villa, a seniors community in Santa Clarita, Calif.

Ventas, Inc. the biggest healthcare REIT in the U.S., plans to grow even larger with two acquisition deals totaling $3.5 billion, including the $2.6 billion purchase of a competitor: American Realty Capital Healthcare Trust, Inc.

The Chicago-based REIT is also expanding its international footprint with the planned $900 million acquisition of 29 independent seniors living housing communities in Canada from Holiday Retirement. The Canadian deal is expected to close in the third quarter, when Atria will take over management of the new facilities. Ventas owns the controlling interest in Atria.

The ARC Healthcare transaction, which is subject to shareholders’ approval, is expected to close in the fourth quarter. The deal comes nearly two months after the REIT, sponsored by investment advisory firm American Realty Capital, began listing on the NASDAQ under the symbol HCT.

ARC Healthcare Executive Chairman Nicholas Schorsch touted the sale as a way to deliver “shareholders a compelling premium.” Schorsch said in a release that it also allows them to “participate in the growth of what will become the largest, and in my view, best managed healthcare REIT and sixth largest overall REIT in the country.”

“With the addition of ARC Healthcare and the Canadian seniors housing communities, 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,” Ventas chairman & CEO Debra Cafaro said in the joint news release with ARC Healthcare.

ARC Healthcare shareholders will have the option of receiving 0.1688 Ventas common shares or $11.3 in cash for each common share of ARC Healthcare they own. Based on a Ventas stock price of $67.1, the per share value of the transaction would represent a 14 percent premium over ARC Healthcare’s closing stock price on May 30. The cash portion would be capped at 10 percent of ARC Healthcare’s outstanding common stock. Once the deal closes, ARC Healthcare stockholders are expected to own approximately 8 percent of Ventas’ 321 million outstanding shares.

The deal calls for Ventas to acquire 143 properties – 78 medical office buildings, 29 seniors housing operating communities, 13 seniors housing triple-net properties, 14 skilled nursing facilities, seven hospitals and two land parcels.

Ventas noted that the ARC Healthcare portfolio adds 4 million square feet of medical office buildings to its own MOB footprint. The medical office buildings have an average occupancy of 97 percent and more than half were built within the last 10 years.

The seniors housing properties have 3,080 units and are in geographically diverse locations. The skilled nursing facilities have 1,320 beds and the hospitals have 444 beds.

Ventas points out that 82 percent of the revenue sources in the ARC Healthcare portfolio are private pay, while the Canadian portfolio has 100 percent private pay sources. The Canadian portfolio has 3,354 independent living units and is located in seven of the 10 Canadian provinces. The portfolio has a 90 percent average occupancy rate.

Ventas currently has nearly 1,500 assets in 47 states and Washington, D.C., two Canadian provinces and the United Kingdom.

In an investors note about Ventas, Zack’s, an equity research firm, said both deals “would add feathers to its already strong presence in the healthcare REIT sector.” The note adds that the transactions are “in sync with the company’s strategy of focusing on its private-pay properties, and strengthening its MOB footprint as well as its international existence.”

A Health Care Sector Update report from Michael Knott and Tom McDonough of Green Street Advisors states that the fundamentals in the healthcare REIT sector “range from decent to very strong across most subsectors.” In particular, Knott and McDonough note that “senior housing has been on fire and is still doing very well.”

Centerview Partners L.L.C. and UBS Investment Bank are financial advisors to Ventas and its legal counsel is Wachtell, Lipton, Rosen & Katz. Citigroup Global Markets Inc., JP Morgan Securities L.L.C. and RCS Capital, the investment banking and capital markets division of Realty Capital Securities, L.L.C, are financial advisors to ARC Healthcare. Proskauer Rose L.L.P. and Venable L.L.P. are providing legal counsel. The Proskauer team is led by Partner Daniel Ganitsky and Proskauer Real Estate Capital Markets Group co-heads and Partners Steven Lichtenfeld and Peter Fass with assistance from Partners Michael Choate, Lorenzo Borgogni, Les Loffman, Ira Bogner and Special Tax Counsel Timothy Donovan. Proskauer associates on the team include Marjan Ziadlou Elbaum, Rachel Hughes and Steven Brecher.