Healthcare Midwest

Debra Cafaro leads Ventas through a decade of success

| markt

Debra Cafaro, chairman & CEO of Ventas, Inc., may be standing on top of the REIT world right now, but the climb was a long, difficult, and circuitous path, she told a crowd at a ULI forum.

Debra Cafaro, chairman & CEO of Ventas, Inc., may be standing on top of the REIT world right now, but the climb was a long, difficult, and circuitous path, she told a crowd at a ULI forum.

“We are exhausted,” said Cafaro at the Union Club in Chicago. “We’ve pushed the organization beyond what it was built for, but we believe that with our plan, we will continue to be a terrific company.”

The recent flurry of activity from Ventas has been immense. The firm has acquired $11 billion in assets within the last year, taking its total to more than $20 billion. Because of this success, Cafaro has earned numerous awards and honors. She was named one of the Top 10 Performing CEOs by Forbes Magazine and Ventas had the distinction of being the best performing publically traded company of the past decade by earning a 2000 percent shareholder return in that period.

It seems almost odd then that a career in business was not what Cafaro set out to do. Before she was running REITs she was a hard working Chicago lawyer, dedicated to learning about industries that many others found too arduous.

She made herself an expert in doing tax exempt bond deals, a distinction that gave her credibility with REITs that used this method to finance deals. Soon, offers to join the business side of the table came.

She did her first stint on the business side as president of Ambassador Apartments, Inc., a multifamily REIT she helped guide to a successful sale in less than two years.

In 1997, after taking some time off, she was lured by her colleague David Neithercut, president and CEO of Equity Residential, to take the helm of a troubled healthcare REIT in Louisville Kentucky, where he was on the board of advisors. The REIT was Ventas and initially Cafaro had reservations about the position.

“I told them that I didn’t know anything about healthcare, but David said they wanted someone who knew about REITs,” she said. “I took the position and it turned out that I did need to know about healthcare.”

She arrived in 1998 to find a firm that was in dire straits on multiple fronts. Ventas had less than 10 employees, $1 billion in debt coming due, a sole tenant in post-acute-care-provider Vencore, Inc., and a dozen Medicare fraud suits filed by government whistleblowers.

On top of that, Vencore officials notified her that the firm was filing for bankruptcy.

“We had some dark days,” said Cafaro. “In my first month the CEO of our one tenant said that they were not going to pay rent.”

Cafaro had plenty of experience with workouts from her legal days in Chicago and it served her well during the next two years as Vencore was able to restructure and reemerge with a sustainable capital structure.

Cafaro’s plan was to then sell Ventas to a larger firm, but, unlike the rest of the REIT industry, she found that investors did not look at healthcare REITs as viable investments.

“When I realized that we weren’t going to be able to sell I decided that we had to grow the company,” she said. “I kept telling people that this is a great business.”

Ventas set out with $200 million in equity and Cafaro hired a management team that helped build the firm’s growth strategy.

Yet as good as the healthcare business may have been investors still had to know about it. Cafaro was frustrated that healthcare REITs were not listed on the Morgan Stanley and other major indexes.

“We had to get on the indexes so that investors would pay attention,” she said. “I had to go on the offensive and make it happen.”

Through tireless campaigning she won her bid and healthcare REITs became accepted on most major indexes. In 2009, Ventas joined the S&P 500.

“We were able to increase our ownership, our value, and, ultimately, access to capital,” she said.

After the recession, the firm began targeting large-scale acquisitions. The first was the $381 million acquisition of Lillibridge Healthcare Services Inc. and its 96 medical office buildings. Next, it acquired 118 Atria senior housing assets for $3.1 billion, followed immediately by the $7.6 billion acquisition of Nationwide Health Properties, Inc. and its more than 600 healthcare properties.

The three purchases allowed Ventas to increase its presence from coast-to-coast, enter the medical office building market, and dramatically increase its private-pay senior housing stock.

Cafaro says that the firm’s strategy going forward will be to attempt to decrease its amount of revenue coming from government sources such as Medicare and increase its revenue coming from private payers.

That means targeting high-net worth Baby Boomers as they move into upscale senior housing facilities and expanding its medical office portfolio.

“Medical office buildings are less costly than hospitals,” said Cafaro. “Because of that, many hospitals will start to direct and drive traffic to medical office buildings.”