Ventas (VTR) is a Real estate investment trust that owns and leases nursing homes and other health care properties. In the last five years, Ventas has acquired $5B in assets as it repositions its portfolio towards properties that require private payment. Since VTR's tenants earn a higher margin from patients that pay out of pocket and with private health insurance, it wants to minimize the number of facilities in its network that rely on government reimbursement programs (i.e. Medicare/Medicaid) for their revenues.
To that end, in 2007 the company made a $2.0B acquisition of Sunrise REIT, a collection of 79 private pay senior housing communities. VTR also acquired $150M in medical office buildings that year; the company manages these offices directly, unlike its other properties which have third party managers, and revenues from these buildings are not tied to the government's health care reimbursement levels. These acquisitions brought VTR's total assets to 519 properties in 43 states. Geographic diversity reduces the company's exposure to changes in the individual states' Medicaid reimbursement and medical licensing laws.
As of December 31, 2007, VTR owned 253 senior housing communities, 197 skilled nursing facilities, 42 hospitals and 27 medical office buildings for a total of 519 assets in 43 states. VTR earns its revenue by leasing these properties to operating tenants. VTR receives the vast majority of its revenues from three operators, Kindred Healthcare (KND), Brookdale Senior Living (BKD) and Sunrise Senior Living (SRZ). In 2007 Kindred , Brookdale and Sunrise accounted for 30.8%, 15.7% and 36.2% of revenues, respectively.
VTR breaks its operating properties into two segments, triple net leased operations and senior living operations. Prior to 2007, almost all of VTR's properties were leased on a triple net basis to Kindred and Brookdale. Triple net means the tenants pay VTR fixed rents and are responsible for all operating costs associated with a property. In 2007, however, VTR acquired 79 senior housing communities in the acquisition of Sunrise REIT. As part of the acquisition, VTR signed a 30 year management deal with Sunrise Senior Living (SRZ). Under this agreement SRZ manages the Sunrise properties in exchange for a percentage of tenants’ rents, called a management fee. This agreement differs from VTR’s triple net leases because all rents are paid directly to VTR and VTR is responsible for paying all costs associated with operating the properties.
The majority of VTR's properties cater towards the elderly. These include:
VTR's property mix, based on 4th quarter 2007 revenues, is listed below. VTR has been trying to weight its portfolio toward private pay sources, which it considers less volatile than health care centers that rely on government reimbursement. Senior housing centers and medical office buildings are primarily private pay facilities, while skilled nursing facilities and hospitals receive the majority of their revenue from Medicare and Medicaid.
VTR's revenues continued to increase in 2007. The Sunrise acquisition accounted for approximately 80% of that increase. Other properties acquired in 2006 and 2007 accounted for the remainder of the increase. Though revenues increased in 2007, operating income fell due to the operating expenses at Sunrise REIT. Major expense increases included: interest expense, up 50% due to the debt used in the Sunrise acquisition; depreciation expense, doubling due to the depreciation of the Sunrise assets; and operating expenses, a category VTR was forced to recognize for the first time as a result of the acquisition. As VTR pays down the debt used in the Sunrises acquisition and depreciation on those assets begins to slow, VTR will see an increase in operating income.
VTR is distinguished by its large percentage of revenues from senior housing communities, 66% in 2007 compared to 32% for Health Care REIT (HCN) and 36% for Health Care Property Investors (HCP). This is due to the company's 2007 acquisition of Sunrise Senior living. Senior living communities receive a smaller portion of their revenues from government reimbursement programs, decreasing VTR's reliance on government reimbursements.
VTR and its competitors all operate on a national scale, and earn annual revenues between $300M and $1B. VTR and Nationwide Health Properties (NHP) operate in the most states, which reduces their risk to changes in state Medicaid reimbursement laws and state licensing laws. VTR is larger than Nationwide Health Properties (NHP) and Health Care REIT (HCN) in revenues and market cap but operates the fewest properties of any of its competitors. Its large revenue and market cap is due to its 2007 acquistion of Sunrise Senior Living. This acquisition only added 79 properties to VTR's portfolio, but because they are operating properties they increased VTR's revenues by almost $300M.
The table below provides competitive data comparing VTR with some of its close competitors.
|Company||Revenues (12/31/2007, Millions)||Market Cap(Billions, 04/23/08)||Operating Properties||Number of States With Operating Properties|
|Ventas (VTR)||771.79 ||6.71 ||519 ||43 |
|Health Care Property Investors (HCP)||982.51 ||8.16 ||753 ||34 |
|Health Care REIT (HCN)||486.02 ||4.21 ||638 ||38 |
|Nationwide Health Properties (NHP)||329.24 ||3.47 ||560 ||43 |
VTR is the second largest health care REIT in the U.S. by gross property value. It accounts for 22% of the gross value of health care properties owned by health care REITs, but less than 1% of the value of total U.S. health care real estate. As of February 1, 2008 there were ten REITs in the United States dedicated to owning health care related properties. The largest five represent approximately 90% the gross value of health care properties owned by health care REITs. The health care industry is highly fragmented; as a sector, health care REITs account for less than 4% of the gross value of U.S. health care real estate. In the chart below, properties measured include skilled nursing facilities, medical office buildings, senior housing and specialty/acute care hospitals.
The following presents the value of U.S. Health Care assets by property type. As of December 31, 2007 no health care REIT accounted for more than 2% of the value any particular property type or 1% of all U.S. health care real estate.