Ventas Aggressively Grows Its Real Estate Portfolio
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Heathcare real estate investment trust Ventas (NYSE: VTR) finished a very aggressive 2011, tripling the size of the company's real estate portfolio over the course of the year. Revenue for 2011 was almost double the receipts of 2010 and the major acquisitions did not close until the middle of the year. Early on into 2012, it appears the purchases will be good for Ventas shareholders and another mid-sized acquisition will balance out the property portfolio when it closes in the second quarter.
As a healthcare REIT, Ventas owns senior living facilities, skilled nursing home facilities, medical office buildings and hospitals. In May of 2011, the company completed a $3.1 billion acquisition of Atria Senior Living Group and in July 2011 completed the $7.6 billion purchase of Nationwide Health Group. As a result of these purchases, Ventas became the largest healthcare REIT, owning over 1,300 facilities in the U.S. and Canada. Ventas management reports the growth through acquisition was 20% accretive to the per share funds from operations – FFO. It is a positive for investors to note the higher FFO per share, since the share count increased by 50% during the year.
In the last few days of 2011, Ventas announced another purchase, the $760 million purchase of Cogdell Spencer (NYSE: CSA). The purchase will be all cash funded – not requiring any further dilution of the shares outstanding. Cogdell Spencer owns a portfolio of 72 medical office buildings – primarily located on hospital campuses – and is property manager for another 44 buildings owned by hospitals. The purchase brings the portion of medical office buildings in the Ventas portfolio from the current 11% up to 15%. This corporate buyout is in addition to the $170 million of medical office buildings purchased during the fourth quarter of 2011.
Once the Cogdell Spencer deal closes, the Ventas portfolio will be 27% triple net lease senior housing facilities, 24% senior housing operating lease facilities, 24% senior nursing facilities, 15% medical office buildings and 7% hospitals. The portfolio is focused on senior living facilities but still balanced in the different types of healthcare real estate.
The healthcare sector of the REIT real estate universe has been a very good place for investors. Over the last two years, the Ventas share price has increased by 34%. The large, major competitors in healthcare real estate, Healthcare Properties (NYSE: HCP) and Healthcare REIT (NYSE: HCN) have had share price appreciation of 43% and 33%, respectively.
As an real estate investment trust, investors considering Ventas will be taking a close look at the dividends. The company has maintained a policy of growing dividends right through the recent/current economic recession. Dividend growth since 2004 has been at an 8% compound rate. The annual payout in 2004 was $1.30 per share. The distribution had grown to $2.30 per share in 2011. The $2.30 represented 69% of the $3.37 per share FFO earned during the year. Along with the fourth quarter earnings report, the company declared a new quarterly dividend for 2012 of 62 cents per share, an 8% increase over the 57.5 cents paid in 2011. The company guidance for 2012 FFO was $3.63 to $3.69 per share, providing plenty of coverage for the new $2.48 annual dividend. The current dividend yield for Ventas is 4.42%.
At the current point in time, Ventas seems to have it all together as an investment. The dividend yield is attractive and the distribution rate is growing at a healthy pace. The company is actively acquiring properties in a real estate sector with long term growth potential. The population of senior citizens is forecast to grow at three times the rate of the overall population, providing plenty of customers for senior housing properties. As the company management is happy to point out, currently only 11% of the national supply of healthcare real estate is owned by REIT companies, leaving lots of potential growth through purchase possibilities. The share value is at an all time high, but it appears there will not be a serious drop in the price without another stock bear market.
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