Ventas Inc. (VTR), a leading healthcare real estate investment trust (“REIT”), has recently acquired Lillibridge Healthcare Services, a premier Chicago-based fully-integrated healthcare real estate company, to extend its footprint in medical office buildings (“MOBs”) and ambulatory facilities segment.
 
With the acquisition, Ventas obtained a 100% stake in 37 MOBs spanning 1.9 million square feet of space. In addition, the company gained a 20% joint venture interest in 24 MOBs spanning 1.5 million square feet and a 5% joint venture interest in 34 MOBs comprising 2.3 million square feet of space. Ventas will function as the property manager of these joint venture properties.
 
Besides improving the economies of scale, the acquisition enabled Ventas to gain access to higher yielding development opportunities, property management and advisory capabilities for hospital systems. In addition, the transaction helped Ventas to leverage on extensive market knowledge and experience of Lillibridge’s senior management team to strengthen its leadership position in the market.
 
The market for MOBs and ambulatory facilities segment is currently valued at $173 billion and is expected to grow over 30% in the future. Consequently, the transaction offers significant upside potential for the company. The strategic acquisition is expected to be accretive to Ventas’ 2010 recurring FFO (fund from operations), a widely used metric to gauge the performance of REITs and obtained after adding depreciation and other non-cash expenses to net income.
 
Ventas is one of the top performing healthcare REITs in the U.S., having one of the largest and most diversified portfolios in the healthcare sector with exposure to nearly all types of facilities. The product diversity of the company allows it to capitalize on opportunities in different markets based on individual market dynamics, and provides a hard-to-replicate competitive advantage over its peers.
 
Ventas is primarily engaged in the business of financing, owning and leasing healthcare related and senior housing facilities. The company leases some of its owned healthcare related and senior housing facilities to third-party operators under “triple net” leases, under which the tenant pays all taxes, insurance, and maintenance for the properties, in addition to rent. Ventas also owns healthcare related and senior housing facilities that are managed by third-party operators.
 
We maintain our Neutral rating on Ventas with a Zacks #3 Rank, which translates to a short-term ‘Hold’ recommendation.
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