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Ventas Pens Lease Renewal Deals

Zacks Equity Research

Ventas Inc. (VTR), a health care real estate investment trust (:REIT), crafted a favorable lease renewal deal with its tenant Kindred Healthcare Inc. (KND). The move will ensure that Ventas receives majority (two-thirds) of its existing rent for the 2015 renewals and offers a way for re-leasing the rest of the assets.

Specifically, Ventas’ deal helped extend leases on 48 of the 108 licensed healthcare assets - 86 skilled nursing facilities (SNFs) and 22 long-term acute care hospitals. The lease term for these assets was scheduled to expire on Apr 30, 2015. Ventas managed to increase the annual rent on these 48 assets by $15 million from Oct 1, 2014, while it would receive $20 million from Kindred for the execution of these agreements.

Moreover, for the rest of the 60 SNFs, Ventas disclosed the launch of its re-leasing program. Both the companies consented to speeding up of the expiration of the lease term for the re-leasing assets to Sep 30, 2014. Also, Ventas has been permitted to switch the re-leasing assets to new operators earlier than Sep 30, 2014, without any financial damage to Ventas.

With the new lease arrangements effective fourth-quarter 2014 onwards, Ventas does not anticipate the moves to bear any material impact on its normalized funds from operations (:FFO) for 2013 or 2014. It expects 2015 normalized FFO to bear an impact of negative 3 cent – 1 cent per share.

We believe that going forward, Ventas’ diversified portfolio, strategic acquisitions, favorable lease renewal deals and decent balance sheet would provide the tempo for riding on the growth trajectory.

Ventas currently carries a Zacks Rank #3 (Hold). However, two other REITs that look promising are CubeSmart (CUBE) and Sovran Self Storage Inc. (SSS), both carrying a Zacks Rank #1 (Strong Buy).

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