LOUISVILLE, Ky. (Aug. 10, 2001) - Ventas, Inc. (NYSE:VTR) (“Ventas” or the "Company") announced today that second quarter 2001 Funds From Operations ("FFO") totaled $18.6 million, or $0.27 per diluted share. FFO for the comparable period in 2000 totaled $18.0 million, or $0.26 per diluted share. Net income for the three months ended June 30, 2001 was $8.1 million, or $0.12 per diluted share. Net income for the three months ended June 30, 2000 was $7.5 million, or $0.11 per diluted share.
FFO for the six months ended June 30, 2001 totaled $39.6 million, or $0.57 per diluted share. FFO for the comparable period in 2000 totaled $35.6 million, or $0.52 per diluted share. Net income for the six months ended June 30, 2001 was $18.7 million, or $0.27 per diluted share. Net income for the six months ended June 30, 2000 was $10.2 million, or $0.15 per diluted share (after an extraordinary loss of $4.2 million, or $0.06 per diluted share).
“During the second quarter, our primary tenant Kindred Healthcare, Inc. (OTCBB:KIND.OB) (“Kindred”) was successfully restructured and emerged from bankruptcy,” Ventas President and CEO Debra A. Cafaro said. “Now that we have a creditworthy tenant and the second Medicare rate increase for nursing facility operators has become effective, we are confident about our future. Our focus is squarely on implementing our goals of refinancing our debt at lower rates, increasing our FFO, exploring diversification opportunities and creating additional value for our stockholders.”
SECOND QUARTER HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS
Recent highlights include:
- Ventas’s primary tenant Kindred emerged from bankruptcy on April 20 (the “Kindred Effective Date”).
- On the Kindred Effective Date, Ventas and Kindred’s previously agreed upon settlement with the Department of Justice (the “DOJ”) regarding Medicare billing issues was effected, and Ventas paid $34 million to the DOJ as part of that settlement. It also paid an additional $2.4 million in principal on June 30, 2001.
- On the Kindred Effective Date, Ventas received 1,498,500 shares of Kindred common stock (representing approximately 9.99 percent of Kindred’s then outstanding common stock).
- Ventas reinstated its regular quarterly cash dividend of $0.22 a share, and anticipates paying a 2001 annual dividend of $0.88 a share.
- Ventas paid down an additional $1 million on its debt, reducing the outstanding balance on its credit facilities to $850 million.
- Ventas announced a dividend reinvestment program and stock purchase plan for its stockholders and interested new investors. The plan is expected to become effective in the fourth quarter, subject to the effectiveness of a registration statement filed with the Securities and Exchange Commission.
VALUING THE KINDRED STOCK
Based on applicable laws, regulations, advice from experts, an appraisal, the trading performance of the Kindred equity and other appropriate facts and circumstances, including its illiquidity and lack of registration and the Company’s lack of control of Kindred, the Company has determined that the value of its equity position in Kindred was $18.2 million on the date received.
“As and when the Company sells the Kindred equity or the Company distributes it to its stockholders, the difference between (1) the sale price (or fair market value of the stock distributed as a dividend) minus (2) the dividend obligation associated with our $18.2 million basis will generate cash to pay down our debt and strengthen our balance sheet,” Cafaro said. “No decision has been made regarding the ultimate disposition of the Kindred equity.”
The value of the Kindred common stock on the date received ($18.2 million) will be included in the Company’s 2001 taxable income. In estimating its 2001 income for financial reporting purposes, the value of Ventas’s equity stake in Kindred has begun to be amortized as future rent over the weighted average remaining term of the Company’s four amended master leases with Kindred.
The $18.2 million valuation of Kindred’s equity as of April 20, 2001 does not necessarily reflect the current or future value of such equity interest, which may be higher or lower, or the price at which Ventas could sell the equity interest.
SECOND QUARTER RESULTS
Rental income for the three months ended June 30, 2001 was $46.3 million, of which $45.7 million resulted from leases with Kindred. The rental income from Kindred includes $0.4 million related to the amortization of the deferred revenue recorded as a result of the receipt of (a) Kindred equity and (b) a $4.5 million cash payment received from Kindred on the Kindred Effective Date as additional future rent under the Amended Master Leases. Interest income totaled approximately $1.1 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 and declining interest rates.
Expenses for the quarter totaled $38.0 million, and included $10.5 million of depreciation and $22.0 million of interest expense on the Company’s Amended Credit Agreement. General and administrative expenses for the three months ended June 30, 2001 totaled $2.6 million. Professional fees for the quarter totaled $1.1 million.
The second quarter results include interest charges for financial reporting purposes of $1.4 million related to the DOJ settlement, which payment began in the second quarter. The actual cash interest for the period was $0.8 million.
Second quarter results include a $1.2 million provision for income taxes based on the Company’s estimates of 2001 taxable net income for the second quarter. The tax provision included $0.7 million related to the receipt of the Kindred equity, of which 100% was taxable income to the Company in the second quarter. The tax provision is likely to be less during subsequent quarters depending on the timing of the Company’s taxable net income received.
SIX-MONTH RESULTS
Rental income for the six months ended June 30, 2001 was $92.4 million, of which $91.1 million resulted from leases with Kindred. The rental income from Kindred includes $0.4 million related to the amortization of the deferred revenue recorded as a result of the receipt of (a) Kindred equity and (b) a $4.5 million cash payment received from Kindred on the Kindred Effective Date as additional future rent under the Amended Master Leases. Interest income totaled approximately $2.6 million and was primarily the result of earnings from investment of cash reserves during the six months ended June 30, 2001.
Expenses for the six months ended June 30, 2001 totaled $74.4 million, and included $21.0 million of depreciation on real estate assets and $43.1 million of interest expense. General and administrative expenses for the six months ended June 30, 2001 totaled $5.1 million. Professional fees totaled $2.9 million.
Results for the six months ended include interest charges for financial reporting purposes of $1.4 million related to the DOJ settlement, which was completed in the second quarter as part of the Kindred Plan of Reorganization. The actual cash interest was $0.8 million.
Results for the six months ended June 30, 2001 include a $1.8 million provision for income taxes based on the Company’s estimates of 2001 taxable net income. The tax provision included $0.7 million related to the receipt of the Kindred equity, of which 100% was taxable income to the Company in the second quarter. The tax provision is likely to fluctuate during subsequent quarters depending on the timing of the Company’s taxable net income received.
2001 FFO AND DIVIDEND GUIDANCE
The Company continues to expect that it will report 2001 FFO of $1.08 to $1.12 per share. It also reiterates its dividend guidance of $0.88 a share. Should taxable net income be higher or lower than the Company’s projections, it will likely make a one-time adjustment to the portion of its 2001 dividend expected to be announced in December 2001.
ASSUMPTIONS
The Company’s estimation of its 2001 taxable income and the related quarterly dividends is based on a number of assumptions, including, but not limited to, the following: Kindred performs its obligations under the Amended Master Leases and the “Spin Agreements;” no capital transactions occur; the Company’s tax positions do not change; the Company does not incur any impact from new accounting rule FASB 133 relating to derivatives; interest rates remain constant; the Company pays 90% of its taxable net income as a dividend for 2001 and pays federal income tax on the remaining 10% of its taxable net income; and the Company’s issued and outstanding shares are unchanged.
CONFERENCE CALL NOTICE
Ventas will provide an online, real-time Webcast of a conference call to discuss this press release. The live broadcast will be available online today, August 10, at 10:00 a.m. EDT hosted by President and CEO Debra A. Cafaro and Vice President John C. Thompson through the Ventas website at www.ventasreit.com
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 "anticipate," "if," "believe," "plan," "estimate," "expect," "intend," "may," "could," "should," "will," 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 Healthcare, Inc. and certain of its affiliates (collectively "Kindred") 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 years ended December 31, 2000 and December 31, 2001, (q) the valuation for income tax purposes of the common stock of Kindred received by the Company on the Effective Date of the Kindred Plan of Reorganization, (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, and (s) the ability and willingness of the Company's tenants, including Kindred, to renew their leases with the Company upon expiration of the leases and the Company's ability to relet its properties on the same or better terms in the event such leases expire and are not renewed by the existing tenants. Many of such factors are beyond the control of the Company and its management.
VENTAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, 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 (348,547) (327,598)
----------- ------------
Total real estate investments 827,596 848,545
Cash and cash equivalents 23,384 87,401
Restricted cash--held in tax escrow 14,363 26,893
Recoverable federal income taxes 2,036 3,211
Deferred financing costs, net 9,653 10,875
Investment in Kindred Healthcare, Inc. 18,200 --
Notes receivable from employees 3,543 3,422
Other 2,358 798
----------- ------------
Total assets $ 901,133 $ 981,145
=========== ============
Liabilities and stockholders' equity
Liabilities:
Notes payable and other debt $ 850,420 $ 886,385
United States Settlement 59,711 96,493
Deferred gain on partial
termination of interest
rate swap agreement -- 21,605
Deferred revenue 22,282 --
Interest rate hedge 20,145 --
Accrued dividend -- 19,846
Accounts payable and other
accrued liabilities 13,052 13,720
Other liabilities--disputed
federal, state and local
tax refunds and
accumulated interest 15,386 30,104
Deferred income taxes 30,506 30,506
----------- ------------
Total liabilities 1,011,502 1,098,659
----------- ------------
Commitments and contingencies Stockholders' equity:
Preferred stock, unissued -- --
Common stock 18,402 18,402
Capital in excess of par value 123,347 132,228
Unearned compensation on
restricted stock (1,891) (1,338)
Accumulated other comprehensive income 1,460 --
Retained earnings (deficit) (117,763) (121,323)
----------- ------------
23,555 27,969
Treasury stock (133,924) (145,483)
----------- ------------
Total stockholders' equity
(deficit) (110,369) (117,514)
----------- ------------
Total liabilities and
stockholders' equity $ 901,133 $ 981,145
=========== ============
VENTAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
----------------- -----------------
Revenues:
Rental income $46,294 $58,238 $92,412 $115,721
Interest and
other income 1,062 1,736 2,568 3,353
------------------ ----------------
47,356 59,974 94,980 119,074
General and
administrative 2,593 2,478 5,142 4,747
Professional fees 1,097 3,271 2,896 6,593
Non-recurring employee
severance costs -- -- -- 355
Loss on uncollectible
amounts due from
tenant -- 12,061 -- 23,368
Amortization of
restricted stock
grants 439 330 842 735
Depreciation 10,507 10,545 21,005 21,198
Interest 21,957 23,777 43,078 47,626
Interest on United
States Settlement 1,448 -- 1,448 --
------------------ ----------------
38,041 52,462 74,411 104,622
------------------ ----------------
Income before extra-
ordinary loss and
taxes 9,315 7,512 20,569 14,452
Provision for income
taxes 1,210 -- 1,885 --
------------------ ----------------
Income before extra-
ordinary loss 8,105 7,512 18,684 14,452
Extraordinary loss on
extinguishment of
debt -- -- -- (4,207)
------------------ ----------------
Net income $ 8,105 $ 7,512 $18,684 $ 10,245
================== ================
Earnings per common share:
Basic:
Income before
extraordinary
loss $ 0.12 $ 0.11 $ 0.27 $ 0.21
Extraordinary loss
on extinguishment
of debt -- -- -- (.06)
------------------ ----------------
Net income $ 0.12 $ 0.11 $ 0.27 $ 0.15
================== ================
Diluted:
Income before
extraordinary
loss $ 0.12 $ 0.11 $ 0.27 $ 0.21
Extraordinary loss
on extinguishment
of debt -- -- -- (.06)
------------------ ----------------
Net income $ 0.12 $ 0.11 $ 0.27 $ 0.15
================== ================
Shares used in computing earnings per common share:
Basic 68,409 68,027 68,316 67,963
Diluted 69,307 68,101 69,090 68,007
VENTAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
June 30, June 30,
2001 2000
---------------------------
Cash flows from operating activities:
Net income $ 18,684 $ 10,245
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 21,005 21,197
Amortization of deferred
financing costs 1,222 2,014
Amortization of restricted
stock grants 842 735
Normalized rents 7 (98)
Extraordinary loss on
extinguishment of debt -- 4,207
Amortization of deferred
revenue (418) --
Changes in operating assets
and liabilities:
Decrease (increase) in
restricted cash 12,530 (27,763)
Decrease (increase) in
accounts receivable and
other assets (1,452) 26,046
Increase in accounts pay-
able and accrued and
other liabilities (8,967) 2,952
---------------------------
Net cash provided by
operating activities 43,453 39,535
Cash flows from investing
activities:
Purchase of furniture and
equipment (169) --
Increase in notes receivable
from employees (121) --
---------------------------
Net cash used in
investing activities (290) --
Cash flows from financing
activities:
Repayment of long-term
debt (35,965) (50,879)
Payment on United States
Settlement (36,782) --
Payment of deferred financing
costs -- (12,616)
Issuance of stock 537 14
Cash dividend to
stockholders (34,970) --
---------------------------
Net cash used in
financing activities (107,180) (63,481)
---------------------------
Decrease in cash and cash
equivalents (64,017) (23,946)
Cash and cash equivalents --
beginning of period 87,401 139,594
---------------------------
Cash and cash equivalents --
end of period $ 23,384 $115,648
===========================
FFO for the three months and six months ended June 30, 2001
and 2000 is summarized in the following table.
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
------------------ -----------------
Net income $ 8,105 $ 7,512 $ 18,684 $ 10,245
Extraordinary loss on
extinguishment of debt -- -- -- 4,207
Income before
extra-ordinary
loss 8,105 7,512 18,684 14,452
Add: depreciation on
real estate investments 10,476 10,526 20,951 21,160
-------- -------- -------- --------
Funds from
operations $ 18,581 $ 18,038 $ 39,635 $ 35,612
======== ======== ======== ========
FFO per diluted
share $ 0.27 $ 0.26 $ 0.57 $ 0.52
======== ======== ======== ========
Diluted Shares 69,307 68,101 69,090 68,007
======== ======== ======== ========
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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