Ventas Reports Six Percent Increase in First Quarter 2014 Normalized FFO to $1.09 Per Diluted Share

Ventas Improves Its Outlook for 60 Skilled Nursing Facilities

CHICAGO--()--Ventas, Inc. (NYSE: VTR) (“Ventas” or the “Company”) said today that normalized Funds From Operations (“FFO”) for the quarter ended March 31, 2014 increased seven percent to $323.4 million, from $301.6 million for the comparable 2013 period. Normalized FFO per diluted common share was $1.09 for the quarter ended March 31, 2014, a six percent increase from $1.03 for the comparable 2013 period. Normalized FFO per share grew seven percent in the first quarter of 2014, excluding non-cash items, computed consistent with prior periods. Weighted average diluted shares outstanding for the quarter increased one percent to 296.2 million, compared to 293.9 million in 2013.

“Ventas had another terrific quarter of superior growth in cash flow and normalized FFO per share,” Ventas Chairman and Chief Executive Officer Debra A. Cafaro said. “Consistent with our strategy, we have recently expanded our international presence with the acquisition of three high-quality, private hospitals in the United Kingdom. We also closed a highly successful $700 million bond offering that improves our already outstanding balance sheet, liquidity and maturity schedule. We continue to see highly favorable trends in global healthcare real estate that should drive continued internal and external growth for Ventas.”

Ventas’s continued growth in normalized FFO per diluted common share is due primarily to the Company’s 2013 investments, same-store growth in its seniors housing operating and triple-net leased portfolios and receipt of fees and other payments. These benefits were partially offset by higher debt balances, increases in general and administrative expenses and asset sales and loan repayments since the end of the first quarter of 2013.

Normalized FFO for the quarters ended March 31, 2014 and 2013 excludes the net expense (totaling $13.6 million, or $0.05 per diluted share, in 2014 and $6.3 million, or $0.02 per diluted share, in 2013) from merger-related expenses and deal costs (including integration and severance-related costs), non-cash income tax expense and amortization of other intangibles, partially offset by net gains on extinguishment of debt.

Net income attributable to common stockholders for the quarter ended March 31, 2014 was $121.0 million, or $0.41 per diluted common share, including discontinued operations of $3.0 million. Net income attributable to common stockholders for the quarter ended March 31, 2013 was $112.2 million, or $0.38 per diluted common share, including expense associated with discontinued operations of $8.4 million. This $8.9 million increase in net income attributable to common stockholders in 2014 over the prior year is primarily the result of the Company’s continued growth and receipt of fees and other payments, as described above.

FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), for the quarter ended March 31, 2014 increased five percent to $309.8 million, from $295.3 million in the comparable 2013 period. This increase in NAREIT FFO is due primarily to the factors described above for net income attributable to common stockholders. NAREIT FFO per diluted common share for the quarter ended March 31, 2014 also increased five percent to $1.05, from $1.00 in 2013.

PRIVATE PAY SENIORS HOUSING OPERATING PORTFOLIO

First Quarter 2014 Same-Store NOI Grows 5.5 Percent Sequentially and 4.6 Percent Versus the First Quarter of 2013

At March 31, 2014, the Company’s seniors housing operating portfolio included 237 communities: Atria Senior Living, Inc. (“Atria”) manages 142 seniors housing communities and Sunrise Senior Living, LLC (“Sunrise”) manages 95 seniors housing communities. First quarter 2014 Net Operating Income (“NOI”) after management fees for this portfolio totaled $122.7 million and average unit occupancy was 90.6 percent.

For the 235 private pay seniors housing communities owned by the Company for the full first quarter of 2014 and fourth quarter of 2013, NOI after management fees grew 5.5 percent and REVPOR (revenue per occupied room) grew 1.8 percent.

For the 220 private pay seniors housing communities owned by the Company for the full first quarters of 2014 and 2013, NOI after management fees grew 4.6 percent and REVPOR grew 2.5 percent.

FIRST QUARTER HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS

Investments and Dispositions

  • Ventas invested $208 million in the first quarter, excluding development and redevelopment projects. Highlights of the investments are:
    • The expected first-year NOI yield after-tax is 8.7 percent. Of the $208 million invested, $183 million was invested in three private hospitals located in the United Kingdom. These assets are subject to long-term triple-net leases. The tenant is the second largest private hospital operator in the United Kingdom. Current cash flow coverage of rent exceeds 2x and annual rent escalators are at least three percent.
  • Ventas sold six properties for approximately $26 million in aggregate proceeds, at a yield of nine percent.
  • The Company has over $100 million of additional investments under contract that it expects to close in the second quarter. However, there can be no assurances as to whether or, if so, when these transactions will close.

Liquidity, Capital Raising and Balance Sheet

  • In April, Ventas issued and sold $700 million aggregate principal amount of senior notes with a weighted average interest rate of 2.75 percent and a weighted average maturity of seven years.
  • The Company repaid approximately $56 million of mortgages that had a weighted average interest rate of 6.2 percent (cash) and 3.8 percent (GAAP). The Company also anticipates repaying over $200 million in mortgage debt in the second and third quarters, with an approximate GAAP interest rate of four percent and an approximate cash interest rate of six percent.
  • Ventas’s debt to total capitalization is currently 34 percent.
  • The Company’s net debt to Adjusted Pro Forma EBITDA (as defined herein) at March 31, 2014 was 5.5x.
  • Currently, the Company has available substantially all $2 billion of liquidity under its revolving credit facility and approximately $260 million of cash on hand.

PORTFOLIO UPDATE AND ADDITIONAL INFORMATION

  • Same-store cash NOI growth for the Company’s total portfolio (1,359 assets) was 3.7 percent for the quarter ended March 31, 2014 compared to the 2013 first quarter.
  • As announced on October 1, 2013, Ventas entered into favorable agreements with Kindred Healthcare, Inc. (NYSE: KND) (“Kindred”) to extend the leases at a higher rental rate for 48 of the 108 licensed healthcare assets whose current lease term expires September 30, 2014 (the “Renewal Assets”). The Renewal Assets consist of 86 skilled nursing facilities (“SNFs”) and 22 long-term acute care hospitals.
    • The Company currently has signed leases for 55 of the 60 SNFs that were not re-leased by Kindred, six of which have already been transitioned to the replacement tenant. The Company intends to sell the remaining five SNFs, four of which are under contract for sale.
    • Ventas now expects that the net impact of its agreements with Kindred and prospective new leases will be substantially breakeven to its 2015 NOI and normalized FFO per share. Although the Company expects to successfully complete all of these transactions by October 1, 2014, they remain subject to regulatory approval and other conditions, and there can be no assurance that the Company will be able to do so on a timely basis, if at all, or that expected normalized FFO and NOI results will be achieved.
  • Supplemental information regarding the Company can be found on the Company’s website under the “Investor Relations” section or at www.ventasreit.com/investor-relations/financial-information/supplemental-information.

VENTAS REAFFIRMS 2014 NORMALIZED FFO GUIDANCE OF $4.31 TO $4.37 PER DILUTED SHARE

Ventas continues to expect its 2014 normalized FFO per diluted share, excluding the impact of unannounced additional acquisitions, divestitures and capital transactions, to range between $4.31 and $4.37. The Company’s guidance range represents approximately 5.5 to seven percent per share growth in normalized FFO, excluding non-cash items (projected to be $0.10 per diluted share), computed consistent with prior periods. A reconciliation of the Company’s guidance, and the non-cash items, to the Company’s projected GAAP earnings is attached to this press release at page 11.

The Company also continues to expect 2014 NOI for its total Atria- and Sunrise-managed seniors housing operating portfolio to be between $488 million and $500 million, representing approximately four to six percent same-store NOI growth. Its normalized FFO guidance further assumes completion of the Kindred and SNF transactions described above on their current terms; no material changes to current applicable foreign currency exchange rates; completion of approximately $100 million in pending additional investments, repayment of over $200 million in mortgage debt, and the $700 million bond issuance as described above; and the previously disclosed disposal of an asset pursuant to a pre-existing purchase option for $34.4 million (an 11.2 percent NOI yield) and reinvestment of proceeds at market yields.

The Company’s normalized FFO guidance (and related GAAP earnings projections) for all periods assumes, with certain immaterial exceptions, that all of the Company’s tenants and borrowers continue to meet all of their obligations to the Company. In addition, the Company’s normalized FFO guidance excludes, other than as specifically stated, (a) net gains on the sales of real property assets, including gain on re-measurement of equity method investments, (b) merger-related costs and expenses, including amortization of intangibles, transition and integration expenses, and deal costs and expenses, (c) the impact of any expenses related to asset impairment and valuation allowances, the write-off of unamortized deferred financing fees, or additional costs, expenses, discounts, make-whole payments, penalties or premiums incurred as a result of early retirement or payment of debt, (d) the non-cash effect of income tax benefits or expenses and derivative transactions that have non-cash mark-to-market impacts on the Company’s income statement, (e) the impact of future unannounced acquisitions or divestitures (including pursuant to tenant options to purchase) and capital transactions, and (f) the financial impact of contingent consideration, severance-related costs, charitable donations made to the Ventas Charitable Foundation, gains and losses for non-operational foreign currency hedge agreements and changes in the fair value of financial instruments.

The Company’s guidance is based on a number of other assumptions that are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company’s expectations may change. There can be no assurance that the Company will achieve these results. The Company may from time to time update its publicly announced guidance, but it is not obligated to do so.

FIRST QUARTER CONFERENCE CALL

Ventas will hold a conference call to discuss this earnings release today at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). The dial-in number for the conference call is (866) 515-2914. The participant passcode is “Ventas.” The conference call is being webcast live by NASDAQ OMX and can be accessed at the Company’s website at www.ventasreit.com. A replay of the webcast will be available today online, or by calling (888) 286-8010, passcode 45113011, beginning at approximately 2:00 p.m. Eastern Time and will be archived for 28 days.

Ventas, Inc., an S&P 500 company, is a leading real estate investment trust. Its diverse portfolio of nearly 1,500 assets in the United States, Canada and the United Kingdom consists of seniors housing communities, medical office buildings, skilled nursing and other facilities, and hospitals. Through its Lillibridge subsidiary, Ventas provides management, leasing, marketing, facility development and advisory services to highly rated hospitals and health systems throughout the United States. More information about Ventas and Lillibridge can be found at www.ventasreit.com and www.lillibridge.com.

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding the Company’s or its tenants’, operators’, borrowers’ or managers’ expected future financial condition, results of operations, cash flows, funds from operations, dividends and dividend plans, financing opportunities and plans, capital markets transactions, business strategy, budgets, projected costs, operating metrics, capital expenditures, competitive positions, acquisitions, investment opportunities, dispositions, merger integration, growth opportunities, expected lease income, continued qualification as a real estate investment trust (“REIT”), plans and objectives of management for future operations and statements that include words such as “anticipate,” “if,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “could,” “should,” “will” and other similar expressions are forward-looking statements. These forward-looking statements are inherently uncertain, and actual results may differ from the Company’s expectations. The Company does not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made.

The Company’s actual future results and trends may differ materially from expectations depending on a variety of factors discussed in the Company’s filings with the Securities and Exchange Commission. These factors include without limitation: (a) the ability and willingness of the Company’s tenants, operators, borrowers, managers and other third parties to satisfy their obligations under their respective contractual arrangements with the Company, including, in some cases, their obligations to indemnify, defend and hold harmless the Company from and against various claims, litigation and liabilities; (b) the ability of the Company’s tenants, operators, borrowers and managers to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including without limitation obligations under their existing credit facilities and other indebtedness; (c) the Company’s success in implementing its business strategy and the Company’s ability to identify, underwrite, finance, consummate and integrate diversifying acquisitions and investments, including investments in different asset types and outside the United States; (d) macroeconomic conditions such as a disruption of or lack of access to the capital markets, changes in the debt rating on U.S. government securities, default or delay in payment by the United States of its obligations, and changes in the federal or state budgets resulting in the reduction or nonpayment of Medicare or Medicaid reimbursement rates; (e) the nature and extent of future competition, including new construction in the markets in which the Company’s seniors housing communities and MOBs are located; (f) the extent of future or pending healthcare reform and regulation, including cost containment measures and changes in reimbursement policies, procedures and rates; (g) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors; (h) the ability of the Company’s operators and managers, as applicable, to comply with laws, rules and regulations in the operation of the Company’s properties, to deliver high-quality services, to attract and retain qualified personnel and to attract residents and patients; (i) changes in general economic conditions or economic conditions in the markets in which the Company may, from time to time, compete, and the effect of those changes on the Company’s revenues, earnings and funding sources; (j) the Company’s ability to pay down, refinance, restructure or extend its indebtedness as it becomes due; (k) the Company’s ability and willingness to maintain its qualification as a REIT in light of economic, market, legal, tax and other considerations; (l) final determination of the Company’s taxable net income for the year ended December 31, 2013 and for the year ending December 31, 2014; (m) the ability and willingness of the Company’s tenants to renew their leases with the Company upon expiration of the leases, the Company’s ability to reposition its properties on the same or better terms in the event of nonrenewal or in the event the Company exercises its right to replace an existing tenant or manager, and obligations, including indemnification obligations, the Company may incur in connection with the replacement of an existing tenant or manager; (n) risks associated with the Company’s senior living operating portfolio, such as factors that can cause volatility in the Company’s operating income and earnings generated by those properties, including without limitation national and regional economic conditions, costs of food, materials, energy, labor and services, employee benefit costs, insurance costs and professional and general liability claims, and the timely delivery of accurate property-level financial results for those properties; (o) changes in exchange rates for any foreign currency in which the Company may, from time to time, conduct business; (p) year-over-year changes in the Consumer Price Index or the UK Retail Price Index and the effect of those changes on the rent escalators contained in the Company’s leases and the Company’s earnings; (q) the Company’s ability and the ability of its tenants, operators, borrowers and managers to obtain and maintain adequate property, liability and other insurance from reputable, financially stable providers; (r) the impact of increased operating costs and uninsured professional liability claims on the Company’s liquidity, financial condition and results of operations or that of the Company’s tenants, operators, borrowers and managers, and the ability of the Company and the Company’s tenants, operators, borrowers and managers to accurately estimate the magnitude of those claims; (s) risks associated with the Company’s MOB portfolio and operations, including the Company’s ability to successfully design, develop and manage MOBs, to accurately estimate its costs in fixed fee-for-service projects and to retain key personnel; (t) the ability of the hospitals on or near whose campuses the Company’s MOBs are located and their affiliated health systems to remain competitive and financially viable and to attract physicians and physician groups; (u) the Company’s ability to build, maintain and expand its relationships with existing and prospective hospital and health system clients; (v) risks associated with the Company’s investments in joint ventures and unconsolidated entities, including its lack of sole decision-making authority and its reliance on its joint venture partners’ financial condition; (w) the impact of market or issuer events on the liquidity or value of the Company’s investments in marketable securities; (x) merger and acquisition activity in the seniors housing and healthcare industries resulting in a change of control of, or a competitor’s investment in, one or more of the Company’s tenants, operators, borrowers or managers or significant changes in the senior management of the Company’s tenants, operators, borrowers or managers; and (y) the impact of litigation or any financial, accounting, legal or regulatory issues that may affect the Company or its tenants, operators, borrowers or managers. Many of these factors are beyond the control of the Company and its management.

 
CONSOLIDATED BALANCE SHEETS
As of March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013 and March 31, 2013
(In thousands, except per share amounts)
         
March 31, December 31, September 30, June 30, March 31,
2014   2013   2013   2013   2013  
 
Assets
Real estate investments:
Land and improvements $ 1,867,146 $ 1,855,968 $ 1,856,739 $ 1,783,664 $ 1,764,208
Buildings and improvements 18,658,616 18,457,028 18,383,075 17,238,843 16,977,860
Construction in progress 71,862 80,415 79,172 99,947 72,714
Acquired lease intangibles 1,014,711   1,010,181   1,012,163   990,548   984,023  
21,612,335 21,403,592 21,331,149 20,113,002 19,798,805
Accumulated depreciation and amortization (3,515,868 ) (3,328,006 ) (3,156,206 ) (2,977,154 ) (2,803,068 )
Net real estate property 18,096,467 18,075,586 18,174,943 17,135,848 16,995,737
Secured loans receivable and investments, net 376,074 376,229 400,889 470,441 490,107
Investments in unconsolidated entities 90,929   91,656   91,531   93,155   94,257  
Net real estate investments 18,563,470 18,543,471 18,667,363 17,699,444 17,580,101
Cash and cash equivalents 59,791 94,816 54,672 62,421 57,690
Escrow deposits and restricted cash 76,110 84,657 98,200 94,492 99,225
Deferred financing costs, net 59,726 62,215 55,242 50,821 54,079
Other assets 943,671   946,335   1,003,881   889,404   915,826  
Total assets $ 19,702,768   $ 19,731,494   $ 19,879,358   $ 18,796,582   $ 18,706,921  
 
Liabilities and equity
Liabilities:
Senior notes payable and other debt $ 9,481,051 $ 9,364,992 $ 9,413,318 $ 8,420,073 $ 8,295,908
Accrued interest 61,083 54,349 62,176 50,860 58,086
Accounts payable and other liabilities 938,098 1,001,515 1,019,166 887,314 910,692
Deferred income taxes 252,499   250,167   248,369   247,591   261,122  
Total liabilities 10,732,731 10,671,023 10,743,029 9,605,838 9,525,808
 
Redeemable OP unitholder and noncontrolling interests 160,115 156,660 171,921 184,217 194,302
 
Commitments and contingencies
 
Equity:
Ventas stockholders' equity:

Preferred stock, $1.00 par value; 10,000 shares authorized, unissued

Common stock, $0.25 par value; 294,346; 297,901; 297,328; 296,940 and 295,823 shares issued at March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013 and March 31, 2013, respectively

73,599 74,488 74,345 74,248 73,969
Capital in excess of par value 9,858,733 10,078,592 10,032,285 9,996,095 9,904,694
Accumulated other comprehensive income 18,464 19,659 21,293 19,752 21,828
Retained earnings (deficit) (1,218,967 ) (1,126,541 ) (1,021,628 ) (943,384 ) (861,434 )

Treasury stock, 3; 3,712; 3,699; 3,698 and 3,736 shares at March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013 and March 31, 2013, respectively

(162 ) (221,917 ) (221,203 ) (221,129 ) (223,709 )
Total Ventas stockholders' equity 8,731,667 8,824,281 8,885,092 8,925,582 8,915,348
Noncontrolling interest 78,255   79,530   79,316   80,945   71,463  
Total equity 8,809,922   8,903,811   8,964,408   9,006,527   8,986,811  
Total liabilities and equity $ 19,702,768   $ 19,731,494   $ 19,879,358   $ 18,796,582   $ 18,706,921  

 
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 2014 and 2013
(In thousands, except per share amounts)
   
For the Three Months
Ended March 31,
 
2014   2013  
Revenues:
Rental income:
Triple-net leased $ 237,846 $ 212,534
Medical office buildings 115,223   110,416  
353,069 322,950
Resident fees and services 371,061 339,170
Medical office building and other services revenue 6,300 3,648
Income from loans and investments 10,767 16,103
Interest and other income 273   1,038  
Total revenues 741,470 682,909
 
Expenses:
Interest 87,841 78,634
Depreciation and amortization 193,594 175,468
Property-level operating expenses:
Senior living 248,295 230,908
Medical office buildings 39,345   36,293  
287,640 267,201
Medical office building services costs 3,371 1,639
General, administrative and professional fees 32,866 28,774
Gain on extinguishment of debt, net (259 )
Merger-related expenses and deal costs 10,760 4,262
Other 5,229   4,587  
Total expenses 621,042   560,565  
 

Income before income from unconsolidated entities, income taxes, discontinued operations, real estate dispositions and noncontrolling interest

120,428 122,344
Income from unconsolidated entities 248 929
Income tax expense (3,433 ) (1,744 )
Income from continuing operations 117,243 121,529
Discontinued operations 3,031 (8,431 )
Gain on real estate dispositions, net 1,000    
Net income 121,274 113,098
Net income attributable to noncontrolling interest 227   905  
Net income attributable to common stockholders $ 121,047   $ 112,193  
 
Earnings per common share:
Basic:

Income from continuing operations attributable to common stockholders, including real estate dispositions

$ 0.40 $ 0.41
Discontinued operations 0.01   (0.03 )
Net income attributable to common stockholders $ 0.41   $ 0.38  
Diluted:

Income from continuing operations attributable to common stockholders, including real estate dispositions

$ 0.40 $ 0.41
Discontinued operations 0.01   (0.03 )
Net income attributable to common stockholders $ 0.41   $ 0.38  
 
Weighted average shares used in computing earnings per common share:
Basic 293,875 291,455
Diluted 296,245 293,924
 
Dividends declared per common share $ 0.725 $ 0.67

 
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
         

2014 First

2013 Quarters
Quarter Fourth Third Second First
 
Revenues:
Rental income:
Triple-net leased $ 237,846 $ 232,873 $ 218,698 $ 213,171 $ 212,534
Medical office buildings 115,223   114,635   114,779   110,277   110,416  
353,069 347,508 333,477 323,448 322,950
Resident fees and services 371,061 366,129 359,112 341,594 339,170
Medical office building and other services revenue 6,300 6,478 4,146 3,537 3,648
Income from loans and investments 10,767 12,924 14,448 14,733 16,103
Interest and other income 273   146   66   797   1,038  
Total revenues 741,470 733,185 711,249 684,109 682,909
 
Expenses:
Interest 87,841 90,274 83,764 82,237 78,634
Depreciation and amortization 193,594 198,042 177,038 171,527 175,468
Property-level operating expenses:
Senior living 248,295 250,123 244,316 231,337 230,908
Medical office buildings 39,345   37,938   40,566   38,151   36,293  
287,640 288,061 284,882 269,488 267,201
Medical office building services costs 3,371 3,358 1,651 1,667 1,639
General, administrative and professional fees 32,866 30,349 28,659 27,324 28,774
(Gain) loss on extinguishment of debt, net (259 ) 2,110 (189 ) (720 )
Merger-related expenses and deal costs 10,760 4,497 6,208 6,667 4,262
Other 5,229   5,407   4,353   4,385   4,587  
Total expenses 621,042   622,098   586,366   562,575   560,565  
 

Income before income (loss) from unconsolidated entities, income taxes, discontinued operations, real estate dispositions and noncontrolling interest

120,428 111,087 124,883 121,534 122,344
Income (loss) from unconsolidated entities 248 (1,041 ) 110 (506 ) 929
Income tax (expense) benefit (3,433 ) (1,272 ) 2,780   12,064   (1,744 )
Income from continuing operations 117,243 108,774 127,773 133,092 121,529
Discontinued operations 3,031 (115 ) (9,174 ) (18,559 ) (8,431 )
Gain on real estate dispositions, net 1,000          
Net income 121,274 108,659 118,599 114,533 113,098
Net income (loss) attributable to noncontrolling interest 227   219   303   (47 ) 905  
Net income attributable to common stockholders $ 121,047   $ 108,440   $ 118,296   $ 114,580   $ 112,193  
 
Earnings per common share:
Basic:

Income from continuing operations attributable to common stockholders, including real estate dispositions

$ 0.40 $ 0.37 $ 0.43 $ 0.45 $ 0.41
Discontinued operations 0.01   (0.00 ) (0.03 ) (0.06 ) (0.03 )
Net income attributable to common stockholders $ 0.41   $ 0.37   $ 0.40   $ 0.39   $ 0.38  
Diluted:

Income from continuing operations attributable to common stockholders, including real estate dispositions

$ 0.40 $ 0.37 $ 0.43 $ 0.45 $ 0.41
Discontinued operations 0.01   (0.00 ) (0.03 ) (0.06 ) (0.03 )
Net income attributable to common stockholders $ 0.41   $ 0.37   $ 0.40   $ 0.39   $ 0.38  
 

Weighted average shares used in computing earnings per common share:

Basic 293,875 293,674 292,818 292,635 291,455
Diluted 296,245 296,047 295,190 295,123 293,924

 
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2014 and 2013
(In thousands)
  2014   2013
Cash flows from operating activities:
Net income $ 121,274 $ 113,098
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amounts in discontinued operations) 193,876 186,943
Amortization of deferred revenue and lease intangibles, net (5,383 ) (3,310 )
Other non-cash amortization (1,965 ) (5,329 )
Stock-based compensation 6,044 5,662
Straight-lining of rental income, net (7,914 ) (7,865 )
Gain on extinguishment of debt, net (259 )
Gain on real estate dispositions, net (including amounts in discontinued operations) (2,437 ) (477 )
Gain on real estate loan investments (340 )
Income tax expense 3,433 1,744
(Income) loss from unconsolidated entities (248 ) 312
Gain on re-measurement of equity interest upon acquisition, net (1,241 )
Other 3,076 2,905
Changes in operating assets and liabilities:
Decrease (increase) in other assets 6,241 (10,459 )
Increase in accrued interest 6,753 10,530
Decrease in accounts payable and other liabilities (38,070 ) (61,868 )
Net cash provided by operating activities 284,421 230,305
Cash flows from investing activities:
Net investment in real estate property (181,866 ) (56,175 )
Purchase of noncontrolling interest (3,186 )
Investment in loans receivable and other (1,192 ) (2,789 )
Proceeds from real estate disposals 26,150 11,250
Proceeds from loans receivable 1,163 146,394
Purchase of marketable debt securities (25,000 )
Funds held in escrow for future development expenditures 2,602 5,440
Development project expenditures (23,948 ) (21,588 )
Capital expenditures (16,134 ) (19,795 )
Other (125 ) (78 )
Net cash (used in) provided by investing activities (218,350 ) 59,473
Cash flows from financing activities:
Net change in borrowings under revolving credit facilities 181,754 (375,916 )
Proceeds from debt 916,871
Repayment of debt (67,773 ) (635,793 )
Payment of deferred financing costs (167 ) (13,808 )
Issuance of common stock, net 5,050
Cash distribution to common stockholders (213,473 ) (195,700 )
Cash distribution to redeemable OP unitholders (1,402 ) (1,151 )
Purchases of redeemable OP units (108 )
Distributions to noncontrolling interest (2,237 ) (1,450 )
Other 1,641   2,058  
Net cash used in financing activities (101,657 ) (299,947 )
Net decrease in cash and cash equivalents (35,586 ) (10,169 )
Effect of foreign currency translation on cash and cash equivalents 561 (49 )
Cash and cash equivalents at beginning of period 94,816   67,908  
Cash and cash equivalents at end of period $ 59,791   $ 57,690  
 
Supplemental schedule of non-cash activities:
Assets and liabilities assumed from acquisitions:
Real estate investments $ 2,952 $ 8,839
Other assets acquired 668
Other liabilities 2,952 6,422
Deferred income tax liability 1,532
Noncontrolling interests 1,553

 
QUARTERLY CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
         
2014 First 2013 Quarters
Quarter Fourth Third Second First
Cash flows from operating activities:
Net income $ 121,274 $ 108,659 $ 118,599 $ 114,533 $ 113,098
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amounts in discontinued operations) 193,876 200,556 188,393 193,989 186,943
Amortization of deferred revenue and lease intangibles, net (5,383 ) (4,634 ) (4,156 ) (3,693 ) (3,310 )
Other non-cash amortization (1,965 ) (3,369 ) (3,975 ) (4,072 ) (5,329 )
Stock-based compensation 6,044 5,643 4,210 5,138 5,662
Straight-lining of rental income, net (7,914 ) (9,375 ) (6,835 ) (6,465 ) (7,865 )
(Gain) loss on extinguishment of debt, net (259 ) 2,110 (189 ) (873 )
Gain on real estate dispositions, net (including amounts in discontinued operations) (2,437 ) (1,376 ) (46 ) (1,718 ) (477 )
Gain on real estate loan investments (1,458 ) (2,499 ) (759 ) (340 )
Gain on sale of marketable debt securities (856 )
Income tax expense (benefit) 3,433 1,272 (2,780 ) (12,064 ) 1,744
(Income) loss from unconsolidated entities (248 ) 1,041 (111 ) 506 312
Gain on re-measurement of equity interest upon acquisition, net (1,241 )
Other 3,076 2,274 2,261 967 2,905
Changes in operating assets and liabilities:
Decrease (increase) in other assets 6,241 27,442 (11,717 ) (5,956 ) (10,459 )
Increase (decrease) in accrued interest 6,753 (7,818 ) 11,309 (7,215 ) 10,530
(Decrease) increase in accounts payable and other liabilities (38,070 ) 38,359   35,277   5,921   (61,868 )
Net cash provided by operating activities 284,421 359,326 327,741 277,383 230,305
Cash flows from investing activities:
Net investment in real estate property (181,866 ) (78,236 ) (1,075,144 ) (227,447 ) (56,175 )
Purchase of noncontrolling interest (6,436 ) (1,771 ) (2,938 ) (3,186 )
Investment in loans receivable and other (1,192 ) (3,246 ) (2,385 ) (29,543 ) (2,789 )
Proceeds from real estate disposals 26,150 6,400 4,901 13,040 11,250
Proceeds from loans receivable 1,163 26,362 81,113 71,649 146,394
Purchase of marketable debt securities (25,000 )
Proceeds from sale or maturity of marketable securities 5,493
Funds held in escrow for future development expenditures 2,602 4,269 3,373 6,376 5,440
Development project expenditures (23,948 ) (21,034 ) (26,423 ) (26,696 ) (21,588 )
Capital expenditures (16,134 ) (30,980 ) (18,175 ) (12,664 ) (19,795 )
Other (125 ) (1,758 )   (333 ) (78 )
Net cash (used in) provided by investing activities (218,350 ) (104,659 ) (1,034,511 ) (203,063 ) 59,473
Cash flows from financing activities:
Net change in borrowings under revolving credit facilities 181,754 (71,443 ) 188,340 94,990 (375,916 )
Proceeds from debt 1,000,702 848,389 1,584 916,871
Repayment of debt (67,773 ) (951,960 ) (155,014 ) (49,725 ) (635,793 )
Payment of deferred financing costs (167 ) (11,300 ) (6,980 ) 811 (13,808 )
Issuance of common stock, net 35,341 23,618 77,334 5,050
Cash distribution to common stockholders (213,473 ) (213,353 ) (196,540 ) (196,530 ) (195,700 )
Cash distribution to redeemable OP unitholders (1,402 ) (1,561 ) (1,166 ) (1,162 ) (1,151 )
Purchases of redeemable OP units (342 ) (109 ) (100 ) (108 )
Contributions from noncontrolling interest 301 2,094
Distributions to noncontrolling interest (2,237 ) (1,672 ) (2,569 ) (3,595 ) (1,450 )
Other 1,641   788   1,022   4,750   2,058  
Net cash (used in) provided by financing activities (101,657 ) (214,499 ) 698,991   (69,549 ) (299,947 )
Net (decrease) increase in cash and cash equivalents (35,586 ) 40,168 (7,779 ) 4,771 (10,169 )
Effect of foreign currency translation on cash and cash equivalents 561 (24 ) 30 (40 ) (49 )
Cash and cash equivalents at beginning of period 94,816   54,672   62,421   57,690   67,908  
Cash and cash equivalents at end of period $ 59,791   $ 94,816   $ 54,672   $ 62,421   $ 57,690  
 
Supplemental schedule of non-cash activities:
Assets and liabilities assumed from acquisitions:
Real estate investments $ 2,952 $ 2,508 $ 131,427 $ 81,181 $ 8,839
Other assets acquired 109 3,964 1,894 668
Debt assumed 115,246 68,602
Other liabilities 2,952 2,285 17,090 4,071 6,422
Deferred income tax liability 332 3,055 262 1,532
Noncontrolling interests 10,140 1,553

             
NON-GAAP FINANCIAL MEASURES RECONCILIATION

Funds From Operations (FFO) Including and Excluding Non-Cash Items 1

(Dollars in thousands, except per share amounts)
 
Tentative Estimates
Preliminary and

Midpoint

Subject to Change

YOY

2013 2014 FY2014 - Guidance

Growth

Q1   Q2   Q3   Q4   FY   Q1   Low   High   '13-'14E
Net income attributable to common stockholders $ 112,193 $ 114,580 $ 118,296 $ 108,440 $ 453,509 $ 121,047 $

489,919

$

525,209

Net income attributable to common stockholders per share $ 0.38 $ 0.39 $ 0.40 $ 0.37 $ 1.54 $ 0.41 $

1.65

$

1.77

 
Adjustments:
Depreciation and amortization on real estate assets 174,190 170,111 175,591 196,520 716,412 192,043 764,158 754,158

Depreciation on real estate assets related to noncontrolling interest

(2,502 ) (2,617 ) (2,719 ) (2,674 ) (10,512 ) (2,644 ) (9,673 ) (11,673 )

Depreciation on real estate assets related to unconsolidated entities

1,646 1,622 1,634 1,641 6,543 1,494 6,495 5,495

Gain on re-measurement of equity interest upon acquisition, net

(1,241 ) (1,241 )

 

 

 

 

 

Gain on real estate dispositions, net (1,000 )

(13,000

)

(16,000

)

Discontinued operations:
Gain on real estate dispositions, net (477 ) (1,718 ) (488 ) (1,376 ) (4,059 ) (1,438 ) (438 ) (2,438 )
Depreciation and amortization on real estate assets 11,475     22,463     11,354     2,514     47,806     281   1,000   3,000  
Subtotal: FFO add-backs 183,091 189,861 185,372 196,625 754,949 188,736

748,542

732,542

Subtotal: FFO add-backs per share   $ 0.62     $ 0.64     $ 0.63     $ 0.66     $

2.56

    $ 0.64   $

2.52

  $

2.47

       
FFO $ 295,284 $ 304,441 $ 303,668 $ 305,065 $ 1,208,458 $ 309,783 $ 1,238,461 $

1,257,751

3 %
FFO per share   $ 1.00     $ 1.03     $ 1.03     $ 1.03     $ 4.09     $ 1.05   $ 4.18   $

4.24

    3 %
 
Adjustments:
Merger-related expenses and deal costs 4,262 6,592 6,209 4,497 21,560 10,761 15,000

20,000

Income tax expense (benefit) 1,744 (12,064 ) (2,780 ) 1,272 (11,828 ) 3,433 16,000 13,500
(Gain) loss on extinguishment of debt, net (873 ) (189 ) 2,110 1,048 (810 ) 7,000 4,000
Change in fair value of financial instruments 25 424 449 (68 ) (68 ) (68 )
Amortization of other intangibles 256     255     256     255     1,022     256   1,522   522  
Subtotal: normalized FFO add-backs 6,287 (6,090 ) 3,496 8,558 12,251 13,572 39,454

37,954

Subtotal: normalized FFO add-backs per share   $ 0.02     $ (0.02 )   $ 0.01     $ 0.03     $ 0.04     $ 0.05   $ 0.13   $

0.13

       
Normalized FFO $ 301,571 $ 298,351 $ 307,164 $ 313,623 $ 1,220,709 $ 323,355 $ 1,277,915 $ 1,295,705 5 %
Normalized FFO per share   $ 1.03     $ 1.01     $ 1.04     $ 1.06     $ 4.14     $ 1.09   $ 4.31   $ 4.37     5 %
 
Non-cash items included in normalized FFO:

Amortization of deferred revenue and lease intangibles, net

(3,310 ) (3,693 ) (4,156 ) (4,634 ) (15,793 ) (5,383 ) (16,526 )

(17,000

)

Other non-cash amortization, including fair market value of debt

(5,329 ) (4,072 ) (3,975 ) (3,369 ) (16,745 ) (1,965 ) (3,383 ) (3,883 )
Stock-based compensation 5,662 5,138 4,210 5,643 20,653 6,044 22,500 24,200
Straight-lining of rental income, net (7,865 )   (6,465 )   (6,835 )   (9,375 )   (30,540 )   (7,914 ) (33,539 )

(34,300

)
Subtotal: non-cash items included in normalized FFO (10,842 ) (9,092 ) (10,756 ) (11,735 ) (42,425 ) (9,218 ) (30,948 )

(30,983

)
Subtotal: normalized FFO add-backs per share   $ (0.04 )   $ (0.03 )   $ (0.04 )   $ (0.04 )   $

(0.14

)   $ (0.03 ) $ (0.10 ) $

(0.10

)      
Normalized FFO, excluding non-cash items $ 290,729 $ 289,259 $ 296,408 $ 301,888 $ 1,178,284 $ 314,137 $ 1,246,967 $

1,264,722

7 %
Normalized FFO per share, excluding non-cash items   $ 0.99     $ 0.98     $ 1.00     $ 1.02     $ 3.99     $ 1.06   $ 4.21   $

4.27

    6 %
Weighted average diluted shares 293,924 295,123 295,190 296,047 295,110 296,245 296,500   296,500  
 

1 Totals and per share amounts may not add due to rounding. Per share quarterly amounts may not add to annual per share amounts due to material changes in the Company’s weighted average diluted share count, if any.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. To overcome this problem, the Company considers FFO and normalized FFO appropriate measures of operating performance of an equity REIT. In particular, the Company believes that normalized FFO is useful because it allows investors, analysts and Company management to compare the Company’s operating performance to the operating performance of other real estate companies and between periods on a consistent basis without having to account for differences caused by unanticipated items such as transactions and litigation. In some cases, the Company provides information about identified non-cash components of FFO and normalized FFO because it allows investors, analysts and Company management to assess the impact of those items on the Company’s financial results.

The Company uses the NAREIT definition of FFO. NAREIT defines FFO as net income, computed in accordance with GAAP, excluding gains (or losses) from sales of real estate property, including gain on re-measurement of equity method investments, and impairment write-downs of depreciable real estate, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis. The Company defines normalized FFO as FFO excluding the following income and expense items (which may be recurring in nature): (a) merger-related costs and expenses, including amortization of intangibles, transition and integration expenses, and deal costs and expenses, including expenses and recoveries relating to acquisition lawsuits; (b) the impact of any expenses related to asset impairment and valuation allowances, the write-off of unamortized deferred financing fees, or additional costs, expenses, discounts, make-whole payments, penalties or premiums incurred as a result of early retirement or payment of the Company’s debt; (c) the non-cash effect of income tax benefits or expenses and derivative transactions that have non-cash mark-to-market impacts on the Company’s income statement; (d) except as specifically stated in the case of guidance, the impact of future acquisitions or divestitures (including pursuant to tenant options to purchase) and capital transactions; and (e) the financial impact of contingent consideration, severance-related costs, charitable donations made to the Ventas Charitable Foundation, gains and losses for non-operational foreign currency hedge agreements and changes in the fair value of financial instruments.

FFO and normalized FFO presented herein may not be identical to FFO and normalized FFO presented by other real estate companies due to the fact that not all real estate companies use the same definitions. FFO and normalized FFO should not be considered as alternatives to net income (determined in accordance with GAAP) as indicators of the Company’s financial performance or as alternatives to cash flow from operating activities (determined in accordance with GAAP) as measures of the Company’s liquidity, nor are FFO and normalized FFO necessarily indicative of sufficient cash flow to fund all of the Company’s needs. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO and normalized FFO should be examined in conjunction with net income as presented elsewhere herein.

NON-GAAP FINANCIAL MEASURES RECONCILIATION

Net Debt to Adjusted Pro Forma EBITDA

The following information considers the pro forma effect on net income, interest and depreciation of the Company’s investments and other capital transactions that were completed during the three months ended March 31, 2014, as if the transactions had been consummated as of the beginning of the period. The following table illustrates net debt to pro forma earnings before interest, taxes, depreciation and amortization (including non-cash stock-based compensation expense), excluding gains or losses on extinguishment of debt, income or loss from noncontrolling interest and unconsolidated entities, loss from merger-related expenses and deal costs, net gains on real estate activity and changes in the fair value of financial instruments (including amounts in discontinued operations) (“Adjusted Pro Forma EBITDA”) (dollars in thousands):

            Net income attributable to common stockholders   $ 121,047
Pro forma adjustments for current period investments, capital
transactions and dispositions 3,407  
Pro forma net income for the three months ended March 31, 2014 124,454
Add back:
Pro forma interest 89,280
Pro forma depreciation and amortization 193,816
Stock-based compensation 6,044
Gain on real estate dispositions, net (2,437 )
Gain on extinguishment of debt, net (259 )
Income from unconsolidated entities (248 )
Noncontrolling interest 227
Income tax expense 3,433
Change in fair value of financial instruments (68 )
Other taxes 1,227
Pro forma merger-related expenses and deal costs 10,760  
Adjusted Pro Forma EBITDA $ 426,229  
Adjusted Pro Forma EBITDA annualized $ 1,704,916  
 
 
As of March 31, 2014:
Debt $ 9,481,051
Cash, including cash escrows pertaining to debt (84,933 )
Net debt $ 9,396,118  
 
Net debt to Adjusted Pro Forma EBITDA 5.5   x
 

 

NON-GAAP FINANCIAL MEASURES RECONCILIATION 1, 2

NOI by Segment
(In thousands)
         
2014 First 2013 Quarters
Quarter Fourth Third Second First
Revenues
 
Triple-Net
Triple-Net Rental Income $ 237,846 $ 232,873 $ 218,698 $ 213,171 $ 212,534
 
Medical Office Buildings
Medical Office - Stabilized 107,427 106,661 107,139 101,148 101,437
Medical Office - Lease up 7,587 7,668 7,361 8,863 8,696
Medical Office - Other 209   306   279   266   283
Total Medical Office Buildings - Rental Income 115,223   114,635   114,779   110,277   110,416
Total Rental Income 353,069 347,508 333,477 323,448 322,950
 
Medical Office Building Services Revenue 4,652   4,851   2,530   2,159   2,537
Total Medical Office Buildings - Revenue 119,875 119,486 117,309 112,436 112,953
 
Triple-Net Services Revenue 1,148 1,127 1,116 1,115 1,111
Non-Segment Services Revenue 500   500   500   263  
Total Medical Office Building and Other Services Revenue 6,300 6,478 4,146 3,537 3,648
 
Seniors Housing Operating
Seniors Housing - Stabilized 361,404 360,064 355,294

336,754

326,880

Seniors Housing - Lease up 9,018 5,422 3,152

4,114

11,548

Seniors Housing - Other 639   643   666  

726

 

742

Total Resident Fees and Services 371,061 366,129 359,112 341,594 339,170
 
Non-Segment Income from Loans and Investments 10,767   12,924   14,448   14,733   16,103
Total Revenues, excluding Interest and Other Income 741,197 733,039 711,183 683,312 681,871
 
Property-Level Operating Expenses
 
Medical Office Buildings
Medical Office - Stabilized 36,461 35,126 37,563 34,897 33,389
Medical Office - Lease up 2,847 2,677 2,897 3,166 2,818
Medical Office - Other 37   135   106   88   86
Total Medical Office Buildings 39,345 37,938 40,566 38,151 36,293
 
Seniors Housing Operating
Seniors Housing - Stabilized 241,298 245,404 241,319

227,907

222,362

Seniors Housing - Lease up 6,420 4,145 2,392

2,814

7,933

Seniors Housing - Other 577   574   605  

616

 

613

Total Seniors Housing 248,295   250,123   244,316   231,337   230,908
Total Property-Level Operating Expenses 287,640 288,061 284,882 269,488 267,201
 
Medical Office Building Services Costs 3,371 3,358 1,651 1,667 1,639
 
Net Operating Income
 
Triple-Net
Triple-Net Properties 237,846 232,873 218,698 213,171 212,534
Triple-Net Services Revenue 1,148   1,127   1,116   1,115   1,111
Total Triple-Net 238,994 234,000 219,814 214,286 213,645
 
Medical Office Buildings
Medical Office - Stabilized 70,966 71,535 69,576 66,251 68,048
Medical Office - Lease up 4,740 4,991 4,464 5,697 5,878
Medical Office - Other 172 171 173 178 197
Medical Office Buildings Services 1,281   1,493   879   492   898
Total Medical Office Buildings 77,159 78,190 75,092 72,618 75,021
 
Seniors Housing Operating
Seniors Housing - Stabilized 120,106 114,660 113,975

108,847

104,518

Seniors Housing - Lease up 2,598 1,277 760

1,300

3,615

Seniors Housing - Other 62   69   61  

110

 

129

Total Seniors Housing 122,766 116,006 114,796 110,257 108,262
Non-Segment 11,267   13,424   14,948   14,996   16,103
Net Operating Income $ 450,186   $ 441,620   $ 424,650   $ 412,157   $ 413,031
 
1 Amounts above are adjusted to exclude discontinued operations for all periods presented.
2 Amounts above are not restated for changes between categories from quarter to quarter.

 
NON-GAAP FINANCIAL MEASURES RECONCILIATION
(Dollars in thousands)
 
Total Portfolio Same-Store NOI
  For the Three Months Ended
March 31,
2014   2013
 
Net Operating Income $ 450,186 $ 413,031
 
Less:
NOI Not Included in Same-Store

29,697

3,810

Straight-Lining of Rental Income, Excluding Discontinued Operations 7,898 7,886
Non-Cash Rental Income 4,725 2,930
Non-Segment NOI 11,267   16,103  

53,587

 

30,729

 
 
Same-Store Cash NOI as Reported $

396,599

  $

382,302

 
 
Percentage Increase

3.7

%
 
 
Seniors Housing Operating Portfolio Same-Store NOI
For the Three Months Ended
March 31,
2014 2013
 
Net Operating Income $ 122,766 $ 108,262
 
Less:
NOI Not Included in Same-Store 9,711   128  
 
Same-Store NOI as Reported $ 113,055   $ 108,134  
 
Percentage Increase 4.6 %
 
 
For the Three Months Ended

   March 31,   

December 31,
2014   2013
 
Net Operating Income $ 122,766 $ 116,006
 
Less:
NOI Not Included in Same-Store 1,284   903  
 
Same-Store NOI as Reported $ 121,482   $ 115,103  
 
Percentage Increase 5.5 %

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Contacts

Ventas, Inc.
Lori B. Wittman
(877) 4-VENTAS

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Contacts

Ventas, Inc.
Lori B. Wittman
(877) 4-VENTAS