(HCP) HCP Appeal Rejected by United States Court of Appeals for the Sixth Circuit

The United States Court of Appeals for the Sixth Circuit has rejected a rehearing petition of HCP Inc. (HCP), a leading healthcare real estate investment trust (REIT), against its favorable decision awarded to Ventas Inc. (VTR). The court had earlier unanimously ruled in favor of Ventas and affirmed a 2009 jury verdict that awarded it a $101.6 million in damages. The verdict relates to the lawsuit filed by Ventas regarding the ‘Tortious Interference’ by HCP with business expectation arising out of the former’s acquisition of Sunrise Senior Living Inc. (SRZ) in April 2007.

‘Tortious Interference’ under Kentucky Law relates to intentional interference with prospective contractual relation for causing pecuniary harm by preventing another from acquiring or continuing the prospective relation. The conflict originated when Sunrise decided to conduct a confidential auction of its assets, wherein both Ventas and HCP were selected for final bids for the purchase. However, negotiations with HCP fell flat in the final rounds and Ventas ultimately managed to acquire the auctioned assets.

In its initial lawsuit, Ventas had sought approximately $300 million in compensatory damages as well as punitive damages for seemingly improper interference with the acquisition process. However, the court dismissed Ventas’ claims for punitive damages and reduced the amount of compensatory damages sought to about one-third. HCP, on the other hand, decided to appeal against the adverse jury verdict and the matter was sub-judice.

The recent court ruling overruled HCP’s appeal to reconsider the verdict. The court also affirmed the earlier decision not to award Ventas additional compensatory damages (such as prejudgment interest or damages stemming from certain delays). In addition, the jury reiterated that Ventas was entitled to seek punitive damages against HCP for its conduct, which was however contrary to the 2009 verdict.

Ventas is one of the top performing healthcare REITs in the U.S., having one of the largest and most diversified portfolios in the healthcare sector exposed to nearly all types of facilities. The product diversity of the company allows it to capitalize on opportunities in different markets based on individual market dynamics, and provides a hard-to-replicate competitive advantage over its peers.

Ventas is primarily engaged in the business of financing, owning and leasing healthcare related and senior housing facilities. The company leases some of its owned healthcare related and senior housing facilities to third-party operators under “triple net” leases, under which the tenant pays all taxes, insurance, and maintenance for the properties, in addition to rent. Ventas also owns healthcare related and senior housing facilities that are managed by third-party operators.

We presently have a ‘Neutral’ rating on Ventas, which currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ recommendation indicating that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months.

HCP INC (HCP): Free Stock Analysis Report

SUNRISE SENIOR (SRZ): Free Stock Analysis Report

VENTAS INC (VTR): Free Stock Analysis Report

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