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Ventas Closes Ardent Deal, Expects Immediate FFO Accretion - Analyst Blog

Zacks Equity Research
Updated

Ventas Inc. VTR has finally closed the Ardent Health Services (AHS) transaction.

Specifically, Ventas separated AHS-owned real estate from its hospital operations at the closure and spun off the hospital operations into a separate entity named “Ardent”. The company incorporated the real estate part into its portfolio. On the other hand, an affiliate of EGI invested for a majority stake in the hospital operating company, while Ventas kept a 9.9% interest and AHS management holds a substantial ownership stake.

Amid the consolidation phase in the U.S. healthcare sector, this move has offered Ventas the scope to not only enhance its portfolio with high-quality real estates but also to leverage healthy potentials of growth in the U.S. hospital industry.

Ardent, which presently reaps around $2 billion in annual net revenues, will carry on offering its healthcare services in three service areas, Amarillo, TX; Tulsa, OK; and Albuquerque, NM. Its portfolio comprises 14 hospitals and 3 multi-specialty physician groups.

The move also seems a strategic fit as the acquisition of AHS is expected to be immediately accretive to Ventas’s normalized funds from operations (“FFO”) per share on a leverage neutral basis.

Notably, backed by strong top-line growth, Ventas reported second-quarter 2015 normalized FFO of $1.18 per share, which came ahead of the Zacks Consensus Estimate. Moreover, the company raised its 2015 normalized FFO per share outlook, marking 5–6% growth from 2014-level.

Going forward, with its scale, we expect Ventas to gain from rising healthcare spending and aging population, though the anticipated hike in interest rate and exposure to long-term leased assets keeps us concerned.

Ventas currently has a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Duke Realty Corporation DRE, Healthcare Realty Trust Incorporated HR and PS Business Parks Inc. PSB. All these stocks carry a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
VENTAS INC (VTR): Free Stock Analysis Report
 
DUKE REALTY CP (DRE): Free Stock Analysis Report
 
PS BUSINESS PKS (PSB): Free Stock Analysis Report
 
HEALTHCARE RLTY (HR): Free Stock Analysis Report
 
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