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Capital Lease Funding [LSE] was cut to Sector Perform by RBC on 8-17. On 8-16 Ryan, Beck & Co Upgraded HR from Market Perform to Outperform. Ventas Expected to Reap Windfall From Higher Rent Janet Morrissey, WSJ 8-16 A looming rent increase and ambitious acquisition plans have given investors new reasons to snap up shares in Ventas Inc., one of the nation's largest health-care industry landlords. In the past two months, shares of Ventas have risen more than 15% and closed yesterday at $37.64. That's about 17 times next year's forecast earnings, which is the richest valuation ever for the 22-year-old company, according to FactSet Research. Ventas has been a Wall Street darling for much of the past five years thanks to a respected management team and an ability to deliver double-digit annual growth in FFO. Between 2000 and 2005, the company delivered compounded annual total returns of 51%, topping the Morgan Stanley REIT index. Although rising interest rates and increased competition could slow its growth, for now analysts think the REIT's stock doesn't fully reflect its prospects. "I still think there's legs in the stock price -- there's room to run," says Ken Weinberg, portfolio manager at ING Clarion, which holds shares in Ventas. The current catalyst for the stock is a major rent increase involving its largest tenant Kindred Healthcare, which accounts for about 50% of Ventas's total rent revenue. Ventas and Kindred were once part of the same nursing-home company, called Vencor, until it was split in May 1998 into the Kindred Healthcare operating company and the Ventas REIT. Under a restructuring program related to Kindred's emergence from Chapter 11 bankruptcy protection in 2001, Ventas agreed to lower Kindred's rent for a few years while the company got back on its feet. But the agreement allows Ventas to bring the rent back up to the market rate this year. This one-time "rent reset" will produce a windfall for Ventas, although there's considerable debate on exactly how much Ventas will get. "The value of the reset will help us continue to grow the company [through acquisitions] and really move Ventas to the next level," says Debra Cafaro, the company's chief executive. Ventas initially proposed increasing Kindred's annual rent by $111 million a year to $317 million. Kindred balked, and the process is now being handled by three appraisers who will determine a market-rate rent level by early October. The new rents will then be applied retroactively to July 19. "I think there's an expectation that they'll get some - but not all - of what Ventas put on the table," says analyst Greg Andrews of Green Street Advisors. Speculation on the size of the reset ranges from $30 million to $80 million. Scott Crowe, an analyst at UBS Securities, believes an award of between $60 million and $80 million could cause the company's stock to rise 14% in the next year, with returns including dividends pegged at 19%. Mr. Crowe doesn't own shares in Ventas, but UBS has had an investment-banking relationship with Ventas in the past 12 months. Fueling the company's potential growth further is the prospect of additional acquisitions. Ventas has made more than $2 billion in acquisitions since 2003, more than doubling the company's rent revenue, says Ms. Cafaro. The company has been acquisitive in the public and private sectors, having purchased two public companies -- ElderTrust in 2004 and Provident Senior Living Trust in 2005. More recently, talk has been widespread on Wall Street that the company is negotiating to buy a major Canadian company, Retirement Residences REIT, and that it could snap up some assets of HCA. Ms. Cafaro doesn't confirm or deny those rumors but says "we look at just about every portfolio that is out there in our health-care space." Retirement Residences REIT, based in Mississauga, Ontario, has been looking at strategic alternatives, including the possible sale of the company, since January. A spokesman confirmed yesterday that the company is in talks with a number of qualified parties, although he declined to disclose specific names. Ms. Cafaro estimates there are health-care properties valued at $750 billion in the U.S., and only about 2% of them are held by public companies. "REITs have a lot of running room to continue acquiring, because they only own a small sliver of it," she says. But Ventas isn't without risk. Higher interest rates will increase the company's cost of capital, making it tougher to make acquisitions. The company also has been criticized for its large reliance on a single tenant, Kindred, and for its exposure to health-care providers that depend on Medicare for revenue at a time when the government is cutting reimbursements. Ms. Cafaro says Ventas has taken major steps to cut those risks. The REIT has lowered its exposure to Kindred to 50% of its revenue, down from virtually 100% in 2003. Ventas also has been expanding its holdings beyond the nursing-care business and into medical office buildings and other types of properties in the health field. About 36% of Ventas's revenue now comes from nursing homes, down from two-thirds in 2003, Ms. Cafaro says. The company also faces increased competition for properties from companies such as GE Healthcare Financial Services, which recently signed a $1.4 billion deal to buy six senior housing portfolios. But Ms. Cafaro puts a positive spin on that development as well, saying the high-profile deal helped put the investor spotlight onto health-care REITs, adding that the deal's pricing helped to boost her company's portfolio valuation. Analyst Keen on Healthcare REITs, Cites More Favorable Economic Factors AP 8-30 A Ryan Beck & Co. analyst raised his price targets for several healthcare real estate investment trusts on Wednesday, expecting the sector to perform well on reimbursement from the government, stable interest rates and a cooling economy. Analyst Robert M. Mains said he is encouraged by Medicaid and Medicare rate increases, and said adequate government reimbursement removes a key investment risk. State Medicaid rates paid to nursing homes are up 2% to 3%, with most rate increases beginning July 1, and Medicare payments will rise on Oct. 1 by 2.7% to 3.2% for nursing homes, the analyst said. Mains also said that health care REITs will get a boost from stable interest rates. Also, as the economy cools, he said the relative attractiveness of operating REITs -- such as office, apartment and retail -- compared to healthcare REITs, declines. He maintains an "Outperform" rating on Health Care REIT Inc., Health care Realty Trust and Ventas Inc., expecting the companies to offer investors 12-month total return potential in the mid-teens or higher. Meanwhile, the analyst's take on Health Care Property Investors Inc. and Nationwide Health Properties Inc. is more cautious, due to a large pending acquisition by Health Care Property Investors and recent acquisitions by Nationwide Health Properties. Mains rates both companies "Market Perform," and still expects both to yield positive returns. National Retail Properties [NNN] Raises Dividend PRNewswire 7-14 NNN declared a quarterly dividend of 33.5 cents payable August 15, 2006. Senior Housing Properties Trust Raises Dividend Businesswire 7-06 Senior Housing Properties Trust raised its quarterly dividend by $0.01 to $0.33 payable 8-18. Home Page Previous REIT Update Top Sites |