The nation’s largest owner of seniors housing just got a little bigger. Ventas Inc. announced in mid-April that it would purchase 16 assisted living properties for $362 million from a joint venture run by Sunrise Senior Living Inc.
That in December. In addition, in October 2010, Ventas bought Atria Senior Living Group’s real estate assets for $1.5 billion in cash and stock. In February of 2011, the firm agreed to acquire Nationwide Health Properties in a $7.4 billion transaction.followed on the heels of the firm’s $770 million acquisition of medical office specialist Cogdell Spencer
NREI recently talked to Ray Lewis, president at Ventas, a-based REIT that focuses on seniors housing and health care properties.
An edited transcript of that interview follows.
NREI: Where are the 16 buildings located?
Ray Lewis: Twelve of the 16 buildings are in markets where we already have existing assets operated by Sunrise. The properties are in 12 different states in major metro areas. We aren’t disclosing the specific locations yet, but this addition should overlay nicely with our current portfolio.
NREI: Are they all assisted living buildings?
Ray Lewis: Yes. They are all purpose-built assisted-living projects. With this acquisition, we will have 95 Sunrise properties.
NREI: What was the unit price?
Ray Lewis: We are paying $284,000 a unit—a good price for great assets with a leading brand. That compares favorably to the last Sunrise transaction in October with another company for $288,000 a unit.
NREI: When will the deal close?
Ray Lewis: In the second quarter.
NREI: How many seniors housing properties does Ventas own?
Ray Lewis: We have 650 seniors housing properties before this acquisition. Those properties include assisted-living and independent-living units. We also own about 380 nursing homes.
NREI: Is the portfolio more weighted toward assisted living with this acquisition?
Ray Lewis: We like a spectrum of care. But the overall portfolio leans toward assisted living. It is a need driven product that has performed well during the downturn. We feel assisted living has outperformed other sectors. Rents at our Sunrise buildings have gone up 3 to 4 percent over the last several years.
NREI: Who will manage the buildings?
Ray Lewis: Sunrise will continue to operate these buildings on our behalf under management agreements for 18 to 27 years.
NREI: Why a management agreements instead of a triple net?
Ray Lewis: The management agreement allows us to capture the upside and cash flow of the assets. Under a management agreement, if the net operating income of the property grows, then we get 100 percent of the NOI after the management fee—not just the contractual rent. We like this structure for the best assets, in the best markets, with the best operators.
NREI: What about triple net leases?
Ray Lewis: We want a portfolio with a mix of structures. Triple net leases provide steady cash flow. Operating agreements offer upside.
NREI: Ventas has been on a buying spree. Are you still shopping for properties?
Ray Lewis: The health care real estate market totals over $1 trillion in the United States and only 8 percent is owned by REITs. The market is still highly fragmented and there is a tremendous opportunity out there.
NREI: A lot of big portfolios have been sold. What’s left to buy?
Ray Lewis: We buy portfolios, single buildings and companies. We sometimes buy individual properties to start relationships with an operator we want to do business with. We are not just in the big portfolio acquisitions game. We buy individual assets too.
NREI: Are you doing any?
Ray Lewis: We have a couple of new ground-up developments and a number of redevelopment projects under way in our portfolio. Some buildings are adding units or converting a portion of the building to memory-care units.
NREI: What’s the outlook for seniors housing?
Ray Lewis: The outlook for seniors housing is very good. The supply/demand fundamentals are very solid. The inventory of seniors housing is growing at less than 1 percent of the existing inventory. At the same time, the aging population is growing rapidly. Any kind of sustained economic recovery could drive outperformance in the market.