CHICAGO-Locally based Ventas Inc. has agreed to acquire Charlotte-based Cogdell Spencer Inc., a medical office building owner and manager, for about $765 million. Ventas will take over 72 properties and 44 additional management contracts in 15 states, though Cogdell’s development business will be sold to an affiliate of Milwaukee-based Lubar & Co.
Ventas Inc., a health care REIT with 1,300 properties, will pay $4.25 per Cogdell share, about 8% higher than the company’s closing price on Dec. 23. Cogdell’s stock price at noon today was at about $4.26 per share. Cogdell preferred stockholders will receive $25 per share. The purchase price is expected to be between $760 million and $770 million, including debt.
In the deal, Ventas will acquire 68 medical office buildings that are 92% occupied on average, as well as two properties that need to be leased and two that are in development, a total of 4.2 million square feet. Ventas will also take over Cogdell’s management contracts on 44 properties, a total of about two million square feet. The MOBs are mostly located in the Southeast, with the bulk of the assets in North Carolina and South Carolina, though the portfolio includes properties in California, New York, Indianapolis, Minnesota, Washington, Virginia and Pennsylvania.
According to a Ventas statement, the deal values Cogdell’s properties at a low- to mid-7% NOI yield, or slightly more than $200 per square foot. The deal boosts Ventas’ MOB portfolio from 11% to 15% NOI. About 88% of the owned properties are on hospital properties.
Ventas officials said the company is happy to increase its MOB portfolio. “When this acquisition is completed, Ventas will have the leading MOB business in the United States, with over 20 million square feet owned or managed, and a coast-to-coast presence that is second to none in the healthcare real estate industry,” said Todd Lillibridge, EVP of Medical Property Operations for Ventas, in the statement.
Medical office building is expected to ramp up in 2012, as hospitals are trying to shed costs, according to a recent Jones Lang LaSalle report. Health systems can save money by moving outpatient efforts to other buildings, especially facilities that can be outsourced.
Raymond Braun, CEO of Cogdell, said in the statement that the Ventas deal provides immediate, full and fair value to shareholders. “In reaching this decision to sell, the (Board of Directors) carefully considered our prospects to raise capital in support of our growth strategy,” he said. The company’s stock price hit its peak of $22.68 in October 2006, but started a steep fall in September 2008, hitting its lowest point of $3.75 in May 2009. The Ventas deal still has to be approved by Cogdell shareholders.
Braun has also agreed to sell Cogdell’s Erdman design-build and development business to Lubar, a private equity firm affiliated with David Lubar, a move that will take place before the Ventas sale. David Lubar previously held an equity stake in Erdman before it was sold to Cogdell in 2008. The transaction will include all assets and liabilities of the Erdman business, including about $11 million in projected net working capital. The agreement allows a solicitation for proposals from other firms over a 45-day period.
Ventas said its cash acquisition of Cogdell is expected to be financed through “the assumption of existing Cogdell mortgage debt and other borrowing,” according to the statement. The deal should close by the second quarter of 2012.
Centerview Partners LLC and Morgan Stanley & Co. LLC are acting as financial advisors to Ventas, and Willkie Farr & Gallagher LLP is acting as legal counsel. Citi is acting as exclusive financial advisor to Cogdell and provided a fairness opinion, and Alston & Bird LLP is acting as legal counsel.
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