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Ventas (VTR) and GIC Form JV for R&I Development Projects

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Ventas, Inc. (VTR - Free Report) recently formed a joint venture (JV) with GIC to own four in-progress university-based research & innovation (“R&I”) development projects spanning 1.4 million square feet of space. The JV can be scaled up to more than $2 billion to include other identified future R&I development projects. The projects are 65% pre-leased and are anticipated to be unveiled between 2021-2023.

With this JV, the company has expanded its third-party capital management platform to more than $3 billion in assets under management.

Ventas has contributed its ownership stake of the projects into the JV and will have 50% stake in the venture. It will also act as manager of the JV and will receive customary fees and incentives. GIC will own 45% interest. Ventas’s exclusive development partner, Wexford Science & Technology, is not only the developer of projects but will also be a minority partner in the JV.

Total costs of the four projects are estimated to be $930 million at completion. Ventas and GIC will contribute their pro rata share of the future costs to complete the projects. In fact, amounts approximating $180 million have been incurred to-date on the projects. At closing of the JV, GIC reimbursed its share of costs incurred to-date to Ventas.

The JV is a strategic fit for Ventas as it diversifies the company’s capital sources while allowing it to retain majority stake in its ongoing R&I developments. Moreover, it provides scope to accelerate any other opportunistic projects, and enhance liquidity and financial flexibility.

Notably, growth of capital inflows in the life science sector is driving innovation and discovery, thereby supporting demand for first-class lab space. Leveraging on this, Ventas is enhancing its R&I footprint in strategic life-science clusters.

In fact, in October, the company announced that its perpetual life vehicle — Ventas Life Science and Healthcare Real Estate Fund, L.P. — has acquired a trophy life-science portfolio for $1 billion in the premier life-science cluster in South San Francisco.

The portfolio encloses three buildings aggregating around 800,000 square feet of space. The campus is 96% leased with a weighted average lease term of more than six years.

Given the growth potential of such healthcare real estate driven by favorable demographic trend, such efforts will boost its long-term growth.

However, amid the pandemic, the company continued to witness declinein occupancy in senior housing operating portfolio (“SHOP”) assets in the third quarter. In fact, average reported SHOP occupancy fell from 82.4% as of second quarter end to 80% as of third-quarter end. Moreover, SHOP segment is likely to remain challenged until proven treatment and vaccine are established.

Shares of this Zacks Rank #3 (Hold) have depreciated 32.9% over the past year compared with the industry’s decline of 6.2%.

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Extra Space Storage Inc’s (EXR - Free Report) Zacks Consensus Estimate for 2020 FFO per share has moved marginally up to $4.98 over the past week. The company currently carries a Zacks Rank of 2.

Life Storage, Inc.’s (LSI - Free Report) Zacks Consensus Estimate for 2020 FFO per share has improved marginally to $5.81 in a week’s time. The company has a Zacks Rank of 2, at present.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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