Diversification is the Key for Health Care REIT Ventas, Inc.

Mergers and acquisitions activity has picked up in the REIT space in the past year, and perhaps no company is a better example of that than Ventas, Inc. (NYSE: VTR). Debra Cafaro, chairman and chief executive officer of Ventas and former NAREIT chair, sat down with REIT.com during REITWeek 2011: NAREIT’s Investor Forum to discuss the company’s strategic acquisitions and the overall state of the health care REIT sector.

Ventas has completed three deals since July 1, 2010, which has effectively doubled the size of the company to approaching $23 billion in enterprise value, Cafaro said. In the medical office space, Ventas acquired Lillibridge Healthcare Services. In the private-pay, senior-living space, the company acquired Atria. And in a public-to-public deal, the company acquired Nationwide Health Properties (NHP) for $7.5 billion.

Cafaro said the moves were made in order to build on the company’s previous decade of excellent performance. Ventas was the top-performing REIT for the decade ended Dec. 31, 2009.

“We are working very hard with these acquisitions to strategically build a diversified company that can perform well for shareholders in the coming decade,” she said.

It is Ventas’ diversified portfolio which is the true calling card of the company’s investment proposition to shareholders, Cafaro said.

“We are all about portfolio composition,” Cafaro said. “We are trying to create a portfolio that if the economy goes up we should see benefit from our Atria senior housing acquisitions because those are higher-growth, private-pay assets. If the economy is slower, we believe that the contractual growth in the NHP triple-net leases should really provide good growth with downside protection.”

Cafaro said with 70 percent of its net operating income from private-pay sources, the company is strategically focusing less on government-reimbursed areas at this point in the cycle based on where it sees the market heading.

The aging population and health care reform are just two of the positive trends working in health care owners and operators’ favor. However, there are potential risks that lie ahead. For example, Cafaro said senior housing assets are more economically sensitive than other areas of the health care market.

On the government-reimbursed side, Cafaro said there are headwinds related to changes in reimbursement related to budgetary issues.

“The impact of that is to compress the tenant/operator cash flows. But Ventas rent should still be reliable because in those government-reimbursed assets we are the landlord with a lot of cash flow coverage and other protections,” she said. “So the whole focus in the government-reimbursed asset class is to make sure your rents are reliable. And we have a well covered portfolio that should continue to perform even with the expected changes in government reimbursements.”

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Diversification is the Key for Health Care REIT Ventas, Inc.

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