Ventas, Inc. (VTR)

[eastunder]

Ventas official's 'inappropriate' relationship doesn't shake its stock

http://www.chicagobusiness.com/article/20140711/NEWS03/140719950/ventas-officials-inappropriate-relationship-doesnt-shake-its-stock

The market's reaction to Ventas Inc.'s news this week that it severed ties with its auditing firm seems to be a resounding “meh.”


The Chicago-based real estate investment trust on July 9, via statement and regulatory filing, said it would no longer be a client of Ernst & Young LLP after the New York-based accounting giant notified it of an “inappropriate personal relationship” between an Ernst & Young senior audit partner and Ventas' now-former chief accounting officer and controller Robert Brehl.


In light of the relationship, Ernst & Young said it could no longer be considered an independent auditor. Now Ventas' new auditing firm, KPMG LLP, must re-audit its results from 2012 and 2013, though the company says financial statements from the period accurately reflect the state of the enterprise. Ventas also says that Mr. Brehl's separation was “not due to any disagreement . . . regarding its financial reporting or accounting operations, policies or practices.”


The reported results, the company said in a statement, “may continue to be relied upon.”


The market apparently agrees. On Thursday, the day after news of the dismissal of Ernst & Young — and its unusual cause — went public, Ventas' stock inched up less than a half-percent, and as of this afternoon, it was trading at $64.10, about 0.3 percent higher than it was at the beginning of the week.


THE LONG VIEW


Fitch Ratings Inc. today reaffirmed its BBB+ rating on Ventas' debt and said it “does not expect the announcement to result in a change in the company's long-term credit profile.”


In the short term, the ratings agency noted, the news may present some complications because Ventas cannot issue stock while KMPG is re-auditing the company's books. Ventas in June announced the acquisition of American Realty Capital Healthcare REIT for $2.6 billion in cash and 26.9 million shares of stock. The deal is set to close in the fourth quarter.


Fitch, however, said it expects the new audits to be done “well in advance” of the acquisition.


A REIT, Ventas owns and operates a portfolio of about 1,500 health care properties in 47 states, Canada and the United Kingdom. It booked $2.81 billion in revenue in 2013.


A spokeswoman for Ventas declined to comment on the matter beyond the company's press release and its 8-K filing with the Securities and Exchange Commission.


'PROMPTLY TERMINATED'


A spokesman for Ernst & Young in New York said the audit partner involved in the relationship with Mr. Brehl was no longer with the company.


"This partner's actions were a flagrant violation of our firm's code of conduct and professional standards,” John La Place, assistant director of brand, marketing and communications, wrote in an email. “Upon our learning of this matter, the partner was promptly terminated.”


The partner could not be reached for comment. In its SEC filing, the firm said the official was the lead audit partner on the 2014 audit and quarterly review and worked on the 2012 and 2013 audits.


Mr. Brehl also could not be reached for comment. As of March, he owned about 21,000 shares of the company, according to Bloomberg LP.