Public Company
Incorporated: 1983 as Vencare
Employees: 263
Sales: $233.20 million (2009)
Stock Exchanges: New York
Ticker Symbol: VTR
NAICS: 531110 Equity Real Estate Investment Trusts (REITs), Primarily Leasing Residential Buildings and Dwellings
Ventas Inc. is a real estate investment trust (REIT) in the senior housing and health care sectors. The Chicago-based company’s portfolio consists of more than 1,300 properties in the United States and Canada. Many of its properties are senior living communities or skilled nursing facilities, although the company also owns a handful of hospital and medical office buildings. Besides managing properties, Ventas leases them to major regional and national care providers, including Atria Senior Living Inc., Kindred Healthcare Inc., Sunrise Senior Living Inc., and Brookdale Senior Living Inc.
VENCARE FOUNDED
Ventas began as Vencare, a health care investment firm incorporated in Kentucky in 1983 by W. Bruce Lunsford and Michael Barr. Lunsford, an accountant and attorney, had dabbled in politics, helping to elect John Y. Brown Jr. governor of Kentucky in 1979. Although Lunsford joined Brown’s administration as commerce secretary in 1980, Brown’s tenure proved unsuccessful and the state economy soured. Lunsford left the post with a number of important contacts with potential investors that would benefit him in the years to come.
He cast about for a business opportunity until Barr approached him with an idea to establish a hospital for long-term patients. The partners coined the Vencare name, a reference to the ventilators used to support many critically ill patients. With financial backing from Gene Smith, a wealthy member of the Brown administration, Lunsford and Barr searched for a hospital to purchase and convert. They settled on the 62-bed La Grange Community Hospital in Indiana.
Vencare launched operations in 1985. Over the next several years, the Louisville-based company acquired other hospitals that catered to chronically ill patients. The company changed its name to Vencor in 1989 and went public. A key to the company’s success was its ability to contain costs.
Because most of the company’s patients were over 65, Vencor began to focus on the nursing-home sector. The business grew rapidly in the 1990s through numerous acquisitions. In 1995 Vencor acquired the much-larger Hillhaven Corporation, a major nursing home operator with 310 facilities under its control. With the
COMPANY PERSPECTIVES
At Ventas, innovation is key to supporting our strategic acquisition platform and more than a decade of delivering steady, reliable value to our shareholders.
close of the $1.9 billion deal, Vencor became one of the largest long-term U.S. health care providers. In 1996 the company joined the ranks of the Fortune 500.
VENTAS FORMED
In May 1998 Vencor split into two companies. Ventas was formed as an REIT to own Vencor’s nursing homes and hospitals, and Vencor continued to operate them. The maneuver allowed Vencor to split its $2 billion in debt and increase shareholder value. However, Ventas was still very much dependent on Vencor, which provided almost all of its income.
Because of the close relationship, the new REIT became mired in the problems that enveloped Vencor in the late 1990s. Vencor came under investigation at both the state and federal levels for some of its practices, such as moving Medicare patients to facilities that were more expensive and taking steps to move out poorer Medicaid patients. Worse, the 1997 Balanced Budget Act significantly reduced Medicare payments to hospitals and nursing homes, adversely affecting the entire industry. The price of Vencor stock plummeted.
In November 1998 Barr resigned as chief operating officer. Two months later Lunsford resigned as chairman and CEO. Soon Vencor began to default on rent payments to Ventas and on loan interest payments. Ventas was in a vulnerable position, because its only source of income appeared to be on the way to bankruptcy. Vencor’s new CEO, Edward L. Kurtz, lobbied for the two companies to be reunited but met with stiff opposition from Ventas’s new chief executive, Debra Cafaro.
CAFARO BECOMES CEO
Cafaro, a seasoned Chicago real estate attorney, was well versed in the operation of REITs. She had worked with Chicago real estate mogul Sam Zell, who took three REITs public in the early 1990s. In 1997 she left her law firm to become president of Ambassador Apartments Inc. However, the company was in such financial disarray that the best course of action was to sell it. In 1999 Ventas’s directors approached her about taking over their struggling business.
The situation was dire: Ventas was dependent on Vencor, butVentas was also Vencor’s lifeline. Meanwhile, Ventas’s creditors were eyeing the company’s vast real estate portfolio. “Everybody wanted it,” Cafaro told Denise Kalette in the National Real Estate Investor on September 1, 2008. “Our banks wanted it. Vencor’s banks wanted it, and so it was a very intense period.” In the end, she held on to Ventas’s real estate holdings, and Vencor filed for Chapter 11 bankruptcy protection in September 1999.
Ventas and Vencor’s banks worked with Vencor on debt restructuring. In April 2001 Ventas finally emerged from bankruptcy as Kindred Healthcare Inc. As part of the agreement, Ventasreceived nearly 10 percent of Kindred’s stock. More importantly, Ventas’s largest tenant was now on firm financial footing. The changes allowed Ventas to refinance its debt and stagger debt maturities while gaining greater access to capital markets.
Meanwhile, Cafaro built an executive team and developed a diversification strategy that would make the company less dependent on Kindred, which in 2002 still accounted for 98.4 percent of the company’s $176 million in rental income. In 2003Ventas increased its revenue to $191.2 million, but Kindred was still responsible for 95.8 percent of Ventas’s income. However, Ventas’s net earnings had increased from $65.7 million to $162.8 million, largely owing to the sale of the company’s remaining shares of Kindred stock and of 16 skilled nursing facilities to Kindred for $59.7 million.
ACQUISITIONS AND MERGERS
Ventas began to expand and diversify its portfolio in earnest in 2004 with its $184 million merger with ElderTrust, another health care and senior-housing investor. The move gave Ventas an additional nine assisted living facilities, one independent living facility, five skilled nursing facilities, a pair of medical office buildings, and one financial office building. The facilities were leased to Brookdale Senior Living Inc. Another important merger followed in 2005, again with Brookdale serving as the tenant.
In 2005 the $1.2 billion merger with another REIT, Provident Senior Living Trust, brought Ventas 68 independent and assisted living properties in 19 states. With operations in 41 states, Ventas had become the nation’s third-largest nursing home owner. The company’s annual rental income rose to $324.7 million. Less than 60 percent of its revenues came from Kindred.
In 2006 Ventas and Kindred became involved in a dispute whenVentas sought to increase its rents. Kindred sued Ventas. After a settlement, Kindred’s rent was increased by $33.1 million. Although the amount was far from the $111 million Ventas had sought, it was more than Kindred had wanted to pay.
Ventas continued to acquire properties to further its diversification strategy, paying $649 million for 67 health care and senior living facilities from entities related to the Reichman family of real estate investors in Canada. Ventas reached an agreement on its fourth acquisition in February 2007. The $1.8 billion purchase of Canada’s Sunrise Senior Living, a REIT, would give Ventas ownership interests in 74 private-pay assisted living communities in 17 U.S. states and two Canadian provinces. Ventas stood to gain full ownership of 18 of the properties and an 85 percent interest in the remaining 56 facilities. Sunrise would own the remaining interests and operate the communities under a long-term contract.
However, the deal met with resistance. An earlier bidder, Health Care Property Investors (HCP) of Long Beach, California, had sweetened its offer. Although Ventas eventually completed the deal, the price tag grew to about $2 billion, prompting Ventas to sue HCP for making improper and misleading offers. Ventas prevailed in court, and in October 2011 HCP agreed to pay the $101.6 million judgment levied against it. Another trial was scheduled in 2012 to determine whether Ventas would be able to collect punitive damages.
INCREASING REVENUES
The Sunrise acquisition further reduced Ventas’s dependence on Kindred. Rental income grew to $484 million in 2007, and only 30.8 percent came from Kindred. Moreover, Ventas sold some of its poor-performing assets to Kindred in 2007, receiving $171.5 million for 22 properties. As part of the deal, the two companies reached an agreement on a five-year lease extension on 64 Ventasproperties. Ventas was left with a portfolio valued at $10 billion.
In early 2008, Ventas raised $191.1 million through a common stock offering, the funds earmarked to pay down the company’s debt. In May 2008 Ventas moved its headquarters from Louisville to Chicago. The move meant Ventas would have greater access to investors. Later in the year, the company adjusted its portfolio, selling five facilities for $62.5 million to Emeritus Senior Living, and a Lexington hospital to the University of Kentucky for $35 million.
Ventas cleaned up its balance sheet in 2009, raising a $1 billion war chest for further acquisitions. The eighth-largest REIT in the United States, the company was added to Standard & Poor’s 500 Index. Property prices that had peaked a few years earlier had fallen to discount levels, providing Ventas with ample acquisition opportunities. In 2010 the company acquired 118 housing properties from Atria Senior Living Inc. in a $3.1 billion deal. The same year, Ventas paid $86 million for minority interests in 58 properties managed by Sunrise and $381 million for 96 medical office buildings owned by Lillibridge Healthcare Services Inc.
Ventas continued its acquisition spree into 2011. It purchased the 600 health care properties of Nationwide Health Properties in a $7.6 billion deal. It also acquired 117 Atria seniors housing properties for $3.1 billion. The graying of the U.S. population will be an important factor in Ventas’s continued success as a senior housing and health care investor.
Ed Dinger
PRINCIPAL SUBSIDIARIES
ElderTrust Operating LP; Ventas Realty LP; Ventas SSL Inc.
PRINCIPAL OPERATING UNITS
Medical Property Operations.
PRINCIPAL COMPETITORS
HCR ManorCare; LTC Properties Inc.; National Health Investors Inc.
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