Ventas Reports First Quarter Results
Reviews First Quarter Events and Other Recent Developments
LOUISVILLE, Ky. (May 14, 2001) - Ventas, Inc. (NYSE:VTR) announced today that Funds From Operations (``FFO'') for the three months ended March 31, 2001 totaled $21.1 million, or $0.31 per diluted share. FFO for the comparable period in 2000 totaled $17.6 million, or $0.26 per diluted share. Net income for the three months ended March 31, 2001 was $10.6 million, or $0.15 per diluted share. Net income for the three months ended March 31, 2000 was $2.7 million, or $0.04 per diluted share after an extraordinary loss of $4.2 million, or $0.06 per diluted share.
``Our focus during the first quarter was on completing the restructuring of our primary tenant so that it could emerge from bankruptcy,'' Ventas President and CEO Debra A. Cafaro said. ``The Plan of Reorganization for Kindred Healthcare (formerly Vencor, Inc.) (''Kindred``) became effective April 20, 2001. With a creditworthy tenant and reliable revenue stream in place, we have created an excellent platform to further maximize shareholder value.''
DETAILS OF FIRST QUARTER RESULTS
Rental income for the three months ended March 31, 2001 was $46.1 million, of which $45.4 million resulted from leases with Kindred. Interest income totaled approximately $1.5 million and was primarily the result of earnings from investment of cash reserves during the quarter. Interest income is expected to decline during the remainder of 2001 due to lower cash balances. The Company's current cash balance, allowing for the payment of May interest expense, is approximately $19 million.
Expenses for the quarter totaled $36.4 million, and included $10.5 million of depreciation and $21.1 million of interest expense. General and administrative expenses for the three months ended March 31, 2001 totaled $2.5 million. Professional fees for the quarter totaled $1.8 million. Legal and financial advisory fees are anticipated to decline in the third and fourth quarters of 2001 but may continue to be material. First quarter results include a provision for income taxes based on the Company's current estimate of 2001 taxable net income. This provision is likely to fluctuate during subsequent quarters depending on the Company's taxable net income for such quarter and any changes in the Company's estimate of its equity stake in Kindred.
First quarter results do not include any interest expense related to the Company's settlement with the Department of Justice, which will begin to accrue in the second quarter. For financial reporting purposes, the Company will record interest expense in 2001 of approximately $4.5 million related to the government settlement.
The Company remains on track to achieve the FFO target established in the Company's April 23, 2001 press release of $1.08 to $1.12 per share. For the reasons mentioned above, FFO in subsequent quarters is likely to be less than FFO during the first quarter.
ASSUMPTIONS
In estimating its 2001 net income, Ventas has assumed a value of $20 million for its equity stake in Kindred. The value of Kindred's equity will be included in the Company's 2001 taxable income, although the amount is currently uncertain. The value will ultimately be determined based on applicable laws, regulations, advice from experts, appraisals, the trading performance of the equity and other appropriate facts and circumstances. In estimating its 2001 income for financial reporting purposes, the value of Ventas's equity stake in Kindred will be amortized as future rent over the weighted average remaining term of the four Amended Master Leases with Kindred.
The valuation of Kindred's equity has been made solely for purposes of estimating Ventas's 2001 income, and does not necessarily reflect the actual value of such equity interest, which may be higher or lower, or the price at which Ventas could sell the equity interest. Based on the pricing of Kindred's senior debt and subordinated debt immediately prior to the Effective Date, the value of Ventas's equity stake in Kindred may be higher than the $20 million assumed value.
The Company's FFO guidance is based on a number of additional assumptions, including, but not limited to, the following: Kindred performs its obligations under the four Amended Master Leases covering 210 nursing homes and 44 hospitals and various other agreements between the companies; no capital transactions occur; Ventas's tax positions do not change; the Company's equity stake in Kindred is ultimately determined to be valued at $20 million; Ventas does not incur any impact from new accounting rule FASB 133 relating to derivatives; interest rates remain constant; Ventas pays 90 percent of its taxable net income as a dividend for 2001 and pays federal income tax on the remaining 10 percent of its taxable net income; and the total number of the Company's diluted shares is unchanged.
Ventas, Inc. is a real estate investment trust whose properties include 44 hospitals, 216 nursing facilities, and eight personal care facilities in 36 states.
This Press Release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the ``Securities Act'') and Section 21E of the Securities Exchange Act of 1934, as amended (the ``Exchange Act''). All statements regarding Ventas and its subsidiaries' expected future financial position, results of operations, cash flows, funds from operations, dividends and dividend plans, financing plans, business strategy, budgets, projected costs, capital expenditures, competitive positions, 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 ``if,'' ``anticipate,'' ``believe,'' ``plan,'' ``estimate,'' ``expect,'' ``intend,'' ``may,'' ``could,'' and other similar expressions are forward-looking statements. Such forward-looking statements are inherently uncertain, and stockholders must recognize that actual results may differ from the Company's expectations. The Company does not undertake a duty to update such forward-looking statements.
Actual future results and trends for the Company may differ materially depending on a variety of factors discussed in the Company's filings with the Securities and Exchange Commission (the ``Commission''). Factors that may affect the plans or results of the Company include, without limitation, (a) the ability and willingness of Kindred and certain of its affiliates to continue to meet and/or honor its obligations under its contractual arrangements with the Company and the Company's wholly owned operating partnership, Ventas Realty, Limited Partnership (``Ventas Realty''), including without limitation the various agreements (the ``Spin Agreements'') entered into by the Company and Kindred at the time of the corporate reorganization on May 1, 1998 (the ``1998 Spin Off'') pursuant to which the Company was separated into two publicly held corporations, (b) the ability and willingness of Kindred to continue to meet and/or honor its obligation to indemnify and defend the Company for all litigation and other claims relating to the health care operations and other assets and liabilities transferred to Kindred in the 1998 Spin Off, (c) the ability of Kindred and the Company's other operators to maintain the financial strength and liquidity necessary to satisfy their respective obligations and duties under the leases and other agreements with the Company, and their existing credit agreements, (d) the Company's success in implementing its business strategy, (e) the nature and extent of future competition, (f) the extent of future health care reform and regulation, including cost containment measures and changes in reimbursement policies and procedures, (g) increases in the cost of borrowing for the Company, (h) the ability of the Company's operators to deliver high quality care and to attract patients, (i) the results of litigation affecting the Company, (j) changes in general economic conditions and/or economic conditions in the markets in which the Company may, from time to time, compete, (k) the ability of the Company to pay down, refinance, restructure, and/or extend its indebtedness as it becomes due, (l) the movement of interest rates and the resulting impact on the value of the Company's interest rate swap agreement and the ability of the Company to satisfy its obligation to post cash collateral if required to do so under such interest rate swap agreement, (m) the ability and willingness of Atria, Inc. (``Atria'') to continue to meet and honor its contractual arrangements with the Company and Ventas Realty entered into connection with the Company's spin off of its assisted living operations and related assets and liabilities to Atria in August 1996, (n) the ability and willingness of the Company to maintain its qualification as a REIT due to economic, market, legal, tax or other considerations, (o) the outcome of the audit being conducted by the Internal Revenue Service for the Company's tax years ended December 31, 1997 and 1998, (p) final determination of the Company's net taxable income for the tax year ended December 31, 2000, (q) the valuation for income tax purposes of the Kindred equity received by the Company on the Effective Date of Kindred's Plan of Reorganization and (r) the treatment of the Company's claims in the chapter 11 cases of certain of the Company's tenants, including Integrated Health Services, Inc. and certain of its affiliates. Many of such factors are beyond the control of the Company and its management.
VENTAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2001 2000
(Unaudited) (Audited)
----------- ------------
Assets
Real estate investments:
Land $ 120,151 $ 120,151
Building and improvements 1,055,992 1,055,992
------------ ------------
1,176,143 1,176,143
Accumulated depreciation (338,072) (327,598)
------------ ------------
Total real estate investments 838,071 848,545
Cash and cash equivalents 55,098 87,401
Restricted cash--disputed federal,
state and local tax refunds and
accumulated interest 27,053 26,893
Recoverable federal income taxes 3,211 3,211
Deferred financing costs, net 10,264 10,875
Notes receivable from employees 3,882 3,422
Other 1,110 798
------------ ------------
Total assets $ 938,689 $ 981,145
============ ============
Liabilities and stockholders' equity
Liabilities:
Notes payable and other debt $ 851,385 $ 886,385
United States Settlement 96,493 96,493
Deferred gain on partial termination
of interest rate swap agreement -- 21,605
Interest rate hedge 21,633 --
Accrued dividend -- 19,846
Accounts payable and other accrued
liabilities 14,315 13,720
Other liabilities--disputed federal,
state and local tax refunds and
accumulated interest 30,264 30,104
Deferred income taxes 30,506 30,506
------------ -----------
Total liabilities 1,044,596 1,098,659
============ ===========
Commitments and contingencies
Stockholders' equity:
Preferred stock, unissued -- --
Common stock 18,402 18,402
Capital in excess of par value 126,243 132,228
Unearned compensation on restricted
stock (2,242) (1,338)
Accumulated other comprehensive
income (28) --
Retained earnings (deficit) (110,745) (121,323)
----------- -----------
31,630 27,969
Treasury stock (137,537) (145,483)
----------- -----------
Total stockholders'
equity (deficit) (105,907) (117,514)
----------- -----------
Total liabilities and
stockholders' equity $ 938,689 $ 981,145
=========== ==========
Note - The Condensed Consolidated Balance Sheet at
December 31, 2000 has been derived from the Company's
audited consolidated financial statements for the year
ended December 31, 2000.
VENTAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months Ended
--------------------------------
March 31, March 31,
2001 2000
----------------- ----------
Revenues:
Rental income $ 46,118 $ 57,483
Interest and other income 1,506 1,617
----------------- ----------
47,624 59,100
General and administrative 2,549 2,269
Professional fees 1,799 3,322
Non-recurring employee
severance costs -- 355
Loss on uncollectible amounts
due from tenant -- 11,307
Amortization of restricted
stock grants 403 405
Depreciation 10,498 10,653
Interest 21,121 23,849
----------------- ----------
36,370 52,160
----------------- ----------
Income before extraordinary
loss and taxes 11,254 6,940
Provision for income taxes 675 --
----------------- ----------
Income before extraordinary
loss 10,579 6,940
Extraordinary loss on
extinguishment of debt -- (4,207)
----------------- ----------
Net income $ 10,579 $ 2,733
================= ==========
Earnings per common share:
Basic:
Income before
extraordinary loss $ 0.16 $ 0.10
Extraordinary loss on
extinguishment of debt -- (0.06)
----------------- ----------
Net income $ 0.16 $ 0.04
================= ==========
Diluted:
Income before
extraordinary loss $ 0.15 $ 0.10
Extraordinary loss on
extinguishment of debt -- (0.06)
----------------- ----------
Net income $ 0.15 $ 0.04
================= ==========
Shares used in computing earnings per common share:
Basic 68,222 67,898
Diluted 68,872 67,912
VENTAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
-------------------------------
March 31, March 31,
2001 2000
---------------- ------------
Cash flows from operating activities:
Net income $ 10,579 $ 2,733
Adjustments to reconcile net
income to net cash
provided by operating
activities
Depreciation 10,498 10,653
Amortization of deferred
financing costs 611 1,403
Amortization of
restricted stock
grants 403 405
Normalized rents 7 (40)
Extraordinary loss on
extinguishment of debt -- 4,207
Changes in operating assets and
liabilities:
Increase in restricted cash (160) --
Decrease (increase) in accounts
receivable and other assets (247) 25,358
Increase in accounts payable
and accrued and other
liabilities 1,407 817
---------------- -----------
Net cash provided by
operating activities 23,098 45,536
Cash flows from investing
activities:
Purchase of furniture and
equipment (95) --
Increase in notes receivable
from employees (460) --
---------------- -----------
Net cash used in
investing activities (555) --
Cash flows from financing
activities:
Repayment of long-term debt (35,000) (50,879)
Payment of deferred financing
costs -- (12,616)
Issuance of restricted
stock -- 13
Cash distribution to
stockholders (19,846) --
---------------- -----------
Net cash used in
financing activities (54,846) (63,482)
---------------- -----------
Decrease in cash and cash
equivalents (32,303) (17,946)
Cash and cash equivalents--
beginning of period 87,401 139,594
---------------- -----------
Cash and cash equivalents--
end of period $ 55,098 $ 121,648
================ ===========
FFO for the three months ended March 31, 2001 and 2000
is summarized in the following table.
Three Months Ended
March 31, March 31,
2001 2000
---------------- -----------
Net income $10,579 $ 2,733
Extraordinary loss on
extinguishment of debt - 4,207
---------------- -----------
Income before extraordinary
loss 10,579 6,940
Add: depreciation on real estate
investments 10,475 10,634
---------------- -----------
Funds from operations $21,054 $17,574
================ ===========
FFO per diluted share $ 0.31 $ 0.26
================ ===========
Diluted shares 68,872 67,912
================ ===========
The Company considers FFO an appropriate measure of performance of an equity REIT, and the Company uses the National Association of Real Estate Investment Trusts' (``NAREIT'') definition of FFO. NAREIT defines FFO as net income (computed in accordance with accounting principals generally accepted in the United States (``GAAP'')), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation on real estate assets and after adjustment for unconsolidated partnerships and joint ventures. FFO presented herein is not necessarily comparable to FFO presented by other real estate companies due to the fact that not all real estate companies use the same definition. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's financial performance or as an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is 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 should be examined in conjunction with net income as presented in the condensed consolidated financial statements and data included elsewhere in this Press Release.
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