Ventas Inc. and Nationwide Health Properties Inc. (NHP) announced today that the boards of directors of both companies have unanimously approved a definitive agreement under which Ventas will acquire all of the outstanding shares of NHP in a stock-for-stock transaction valued at $7.4 billion.

The acquisition — which will create one of the largest publicly traded REITs and the leading healthcare REIT by equity value projected at $17 billion — is expected to close in the third quarter of 2011.

Under the terms of the agreement, NHP shareholders will receive a fixed-exchange ratio of 0.7866 Ventas shares for each share of NHP common stock they own. Based on the closing stock price for Ventas on Friday, Feb. 25, this consideration would be equivalent to $44.99 of Ventas stock for each NHP share, representing a premium to NHP shareholders of approximately 15% over NHP’s closing stock price on that day.

Upon closing of the transaction, Ventas shareholders are expected to own approximately 65% and NHP shareholders are expected to own approximately 35% of the combined company. The all-stock transaction is intended to be tax free to shareholders.

The mega deal is the latest sign that REITs have been on a tear, snapping up seniors housing portfolios because they have the cash to spend. Ventas has been in acquisition mode over the last several years. Its last big transaction was the $1.5 billion acquisition of Atria Senior Living, a deal expected to close in April.

The seniors housing sector is perceived by many investors as the best commercial real estate play at this point in time because of an aging population and little new supply.

With its enhanced scale and low leverage, the combined company believes that it is well positioned to compete for a broad spectrum of transactions, grow and invest in existing relationships, mine high-return redevelopment opportunities in existing portfolios and have a favorable cost of capital.

The combined company will have over 1,300 total assets in 47 states, the District of Columbia and two Canadian provinces. Private pay sources will account for 70% of the combined company’s $1.3 billion in net operating income (NOI).

Seniors housing will account for approximately 55% of the combined company’s NOI, with skilled nursing facilities and medical office buildings accounting for approximately 22% and 11%, respectively.

High-growth seniors housing operating assets will account for 26% of the combined company’s NOI, while no single tenant or operator will account for more than 19% and the top three tenant/operators together will represent approximately 46%.

This transaction solidifies the standing of Ventas as the largest owner of seniors housing in the United States with 643 assets.
“The combination of Ventas and NHP increases the scale and diversification of the combined company, the strength and flexibility of the company’s balance sheet and the quality and geography of the assets,” stated Ventas Chairman and CEO Debra Cafaro in a press release.

“With Ventas’ successful track record of value-creating transactions and NHP’s longstanding history of regional, asset-level acquisitions, taken together with one of the strongest balance sheets in the REIT industry, the combined company will have a unique opportunity for continued external growth,” added Cafaro.

Douglas Pasquale, chairman, president and CEO of Newport Beach, Calif.-based NHP, described the deal as a win-win situation. “For NHP shareholders, Ventas is the right partner, bringing the right value at the right time. After 25 wonderful years of growth and success, we look forward to joining forces with Ventas, which shares our legacy of financial strength and top-tier returns for shareholders,” said Pasquale.

“Our shareholders, property operators and tenants will all benefit from our expanded strength, diversification and capabilities,” added Pasquale. “We’re pleased that this all-stock transaction offers NHP shareholders a premium and also the opportunity to participate in the combined company’s future prospects for dividends and growth.”

The headquarters of Ventas will remain in Chicago.