Ventas Inc. continued its acquisition spree with the announcement that it has reached a definitive agreement to purchase Cogdell Spencer Inc., the owner of 72 medical office buildings, in an all-cash transaction. The boards of directors of both firms have approved the agreement, which includes $217 million in cash and the assumption of Cogdell’s debt for a total value of between $760 million and $770 million.
Under the terms of the agreement, holders of shares of Cogdell common stock and units of limited partnership interests in Cogdell’s operating partnership, Cogdell Spencer L.P., will receive consideration of $4.25 per share, representing a premium of 8 percent to Cogdell’s closing price on December 23, 2011 and 13 percent to the average closing price of Cogdell common stock over the past 30 days.
The consideration plus anticipated transaction expenses values Cogdell’s properties at a low- to mid- 7 percent net operating income yield, or slightly over $200 per square foot. Holders of Cogdell’s preferred stock will receive consideration of $25 per share, plus accrued and unpaid dividends through the closing. Cogdell will pay its currently declared common stock dividend on January 19, 2012, at which time Cogdell L.P. will pay a similar distribution on its outstanding limited partnership units. Cogdell and Cogdell L.P. will not pay further dividends or distributions on their common stock or units pending consummation of the transaction.
“We are delighted to announce this strategic and accretive acquisition that further broadens our footprint in the attractive (medical office building) sector, continues to diversify our business and tenant relationships and keeps our balance sheet strong,” Ventas Chairman and CEO Debra A. Cafaro said in a statement. “Cogdell’s high-quality properties enhance our medical office building market presence, especially in the Southeast, and provide an opportunity to scale our Lillibridge Healthcare Services subsidiary platform. We look forward to successfully integrating the Cogdell properties into the Ventas portfolio.”
The portfolio includes 68 stabilized medical office buildings boasting an occupancy rate of 92 percent as well as two towers currently in lease-up and two more in. The total portfolio amounts to 4.2 million sq. ft. In addition, Cogdell’s management platform oversees 44 buildings containing 2 million sq. ft.
As a result of the transaction, Ventas’ medical office portfolio will increase from 11 percent to 15 percent of the firm’s total NOI. Overall, 88 percent of the firm’s owned portfolio will be located on hospital campuses or be hospital anchored.
“We are pleased to have reached this agreement with Ventas, which provides immediate, full and fair value to our shareholders,” Cogdell Spencer CEO and President Raymond Braun said in a statement. “The board is unequivocal in its view that the sale to Ventas will deliver the most value to shareholders. I look forward to working with the Ventas team to facilitate a seamless and successful integration.”
In addition, Cogdell has reached an agreement under which Cogdell’s-build and development business, Erdman, will be sold to an affiliate of Lubar & Co., a private equity firm affiliated with David Lubar, prior to completion of the Ventas transaction. David Lubar previously held an equity stake in Erdman before it was sold to Cogdell in 2008. The transaction will include all assets and liabilities of the Erdman business, including approximately $11 million in projected net working capital on the Erdman balance sheet. In addition, Cogdell will contribute approximately $12 million to its equity capitalization, with a roughly equal amount to be contributed by an affiliate of Lubar & Co, in order to capitalize Erdman.
The transaction is expected to be immediately accretive to Ventas’s normalized funds from operations, approximately $0.03 to $0.05 per share on a full year basis excluding merger-related, transition and integration costs and expenses. In addition, Ventas anticipates that Cogdell’s debt balances are expected to increase, and its cash balance expected to decrease, between now and the closing principally due to Cogdell’s ongoing development projects and its contribution to Erdman. Ventas expects its net debt to EBITDA to approximate five times including the acquisition.
Centerview Partners LLC and Morgan Stanley & Co. LLC are acting as financial advisors to Ventas, and Willkie Farr & Gallagher LLP is acting as legal counsel.
Citi is acting as exclusive financial advisor to Cogdell and provided a fairness opinion, and Alston & Bird LLP is acting as legal counsel.
This is the third major acquisition by Ventas in just over a year. In October 2010, Ventas bought Atria Senior Living Group’s real estate assets for $1.5 billion in cash and stock. In February of this year, the firm agreed to acquire Nationwide Health Properties in a $7.4 billion transaction.