2002 FFO Rose 20 Percent to $1.36 Per Share
LOUISVILLE, KY (February 26, 2003) - Ventas, Inc. (NYSE:VTR) ("Ventas" or the "Company") said today that normalized Funds From Operations ("FFO") for the fourth quarter 2002, was $24.2 million or $0.34 per diluted share compared with $19.1 million or $0.27 per diluted share for the comparable 2001 period.
Net income for the fourth quarter ended December 31, 2002 was $9.4 million or $0.13 per diluted share, after an extraordinary loss of $4.2 million or $0.06 per diluted share, related to the partial write-off of unamortized deferred financing fees and premiums paid on the purchase of $34 million of Ventas's Senior Notes. For the fourth quarter ended December 31, 2001, net income was $22.7 million or $0.33 per diluted share after an extraordinary loss from the extinguishment of debt of $1.3 million or $0.02 per diluted share. In addition, the fourth quarter of 2001 included a $15.4 million gain relating to the sale of common stock in its primary tenant, Kindred Healthcare, Inc. (Nasdaq:KIND) ("Kindred").
Normalized Funds From Operations for the year ended December 31, 2002 was $95.6 million or $1.36 per diluted share compared with $78.1 million or $1.13 per diluted share for the comparable 2001 period. Net income for 2002 totaled $65.7 million or $0.93 per diluted share after an extraordinary loss from the extinguishment of debt of $11.1 million or $0.16 per diluted share. For the year ended December 31, 2001, net income was $50.6 million or $0.73 per diluted share after an extraordinary loss of $1.3 million or $0.02 per diluted share.
Normalized FFO for each period excludes gains on the sale of Kindred common stock and a one-time net loss of $5.4 million on a swap breakage incurred in conjunction with the Company's refinancing, which was completed in April 2002.
"2002 was another excellent year for Ventas," Chairman, President and CEO Debra A. Cafaro said. "We met our goals: a 20 percent increase in FFO, a recapitalization of our balance sheet, improvement in our key credit ratios, reduction in our cost of debt, implementation of our diversification strategy, material debt reduction and an expansion of our senior management team. And, as a result, we recently increased our quarterly dividend by 13 percent for the benefit of our shareholders."
FOURTH QUARTER HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS
- Ventas raised its dividend by 13 percent to an expected annual dividend rate of $1.07 per share.
- In December, Ventas raised nearly $100 million in an equity offering of nine million new shares issued by Ventas. Proceeds were used to pay down debt.
- Richard A. Schweinhart was named Senior Vice President and Chief Financial Officer. Schweinhart has more than 30 years experience in the healthcare industry.
- Debra A. Cafaro was named to the additional position of Chairman, following the resignation from the Board of Ventas founder W. Bruce Lunsford, who is pursuing a public service career. Board member Douglas Crocker II was named presiding director.
- The 253 skilled nursing facilities and hospitals leased to Kindred produced EBITDAR to rent coverage of 1.8x for the trailing twelve month period ended September 30, 2002.
- Ventas closed on its $120 million investment in Trans Healthcare, Inc. ("THI"), which includes a sale-leaseback, a mezzanine loan and a senior loan. In December, Ventas sold the $50 million THI senior loan to another healthcare investor.
- In December, Ventas settled a dispute with Atria, Inc. regarding the parties' respective rights and obligations relative to the issuance of mortgage resident bonds to residents of "New Pond Village." All pending lawsuits between the two companies were dismissed and neither party was required to pay any amounts in connection with the settlement.
- Ventas repaid more than $140 million in long-term debt.
FOURTH QUARTER 2002 RESULTS
Rental income for the quarter ended December 31, 2002, was $48.6 million, of which $47.1 million resulted from leases with Kindred. The Company also reported $1.0 million of income from two months of interest on its mezzanine loan and senior loan. Expenses for the quarter ended December 31, 2002 totaled $36.3 million and included $10.8 million of depreciation expenses, $20.7 million of interest expense on debt financing, and $1.3 million of interest expense on the Company's settlement with the Department of Justice. General, administrative and professional expenses for the fourth quarter totaled $3.2 million.
2002 RESULTS
Rental income for the year ended December 31, 2002 was $189.5 million, of which $186.5 million resulted from leases with Kindred. Expenses for the year ended December 31, 2002 totaled $146.0 million and included $42.0 million of depreciation on assets, $78.4 million of interest expense and $5.5 million of interest on the Department of Justice settlement. General, administrative and professional expenses for the year were $12.9 million.
In 2002, Ventas sold 159,500 shares of common stock in Kindred, recognizing a total gain of $5.0 million. The Company currently holds 920,814 shares of Kindred common stock.
In addition, the Company reported a one-time $5.4 million net loss on the $350 million swap breakage incurred in connection with the Company's debt refinancing during the second quarter. During 2002, the Company reclassified to discontinued operations the results of operations specifically related to assets sold or held for sale on or after January 1, 2002 including the sale of its hospital in Arlington, Virginia in the second quarter. This reclassification, which is required under the newly effective SFAS 144, affects the presentation of results for the current and prior periods but does not affect the Company's net income or FFO.
FFO GUIDANCE
Ventas said it reaffirmed its 2003 normalized FFO guidance of $1.43 to $1.45 per diluted share. The guidance excludes gains and losses, the non-cash effect of swap ineffectiveness under SFAS 133 and the impact of acquisitions, divestitures and other capital transactions. The Company may from time to time update its publicly announced FFO guidance, but it is not obligated to so.
The Company's FFO guidance is based on a number of assumptions, which are subject to change and many of which are outside the control of the Company. If any of these assumptions vary, the Company's results may change. There can be no assurance that the Company will achieve these results.
FOURTH QUARTER CONFERENCE CALL
Ventas, Inc. will hold a conference call to discuss this earnings release today, February 26, 2003, at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). The conference call is being web cast by CCBN and can be accessed at the Ventas website at www.ventasreit.com or www.companyboardroom.com. An online replay of the web cast will be available at approximately 12:00 p.m. Eastern time and will be archived for thirty (30) days.
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, Inc.'s ("Ventas" or the "Company") 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 security holders 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. ("Kindred") and certain of its affiliates to continue to meet and/or perform their obligations under their contractual arrangements with the Company and the Company's subsidiaries, including without limitation the lease agreements and various agreements (the "Spin Agreements") entered into by the Company and Kindred at the time of the Company's spin-off of Kindred on May 1, 1998 (the "1998 Spin Off"), as such agreements may have been amended and restated in connection with Kindred's emergence from bankruptcy on April 20, 2001, (b) the ability and willingness of Kindred to continue to meet and/or perform its obligation to indemnify and defend the Company for all litigation and other claims relating to the healthcare 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 healthcare 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) a downgrade in the rating of Ventas Realty, Limited Partnership's outstanding debt securities by one or more rating agencies which could have the effect of, among other things, an increase in the cost of borrowing for the Company, (i) the ability of the Company's operators to deliver high quality care and to attract patients, (j) the results of litigation affecting the Company, (k) changes in general economic conditions and/or economic conditions in the markets in which the Company may, from time to time, compete, (l) the ability of the Company to pay down, refinance, restructure, and/or extend its indebtedness as it becomes due, (m) the movement of interest rates and the resulting impact on the value of the Company's interest rate swap agreements and the Company's net worth, (n) the ability and willingness of the Company to maintain its qualification as a REIT due to economic, market, legal, tax or other considerations, including without limitation, the risk that the Company may fail to qualify as a REIT due to its ownership of common stock in Kindred, (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 taxable net income for the years ending December 31, 2002 and December 31, 2003, (q) the ability and willingness of the Company's tenants 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, (r) the impact on the liquidity, financial condition and results of operations of Kindred and the Company's other operators resulting from increased operating costs and uninsured liabilities for professional liability claims, particularly in the state of Florida, and the ability of Kindred and the Company's other operators to accurately estimate the magnitude of such liabilities, and (s) the value of the Company's common stock in Kindred and the limitations on the ability of the Company to sell, transfer or otherwise dispose of its common stock in Kindred arising out of the securities laws and the registration rights agreement the Company entered into with Kindred and certain of the holders of common stock in Kindred. Many of such factors are beyond the control of the Company and its management.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
(In thousands, except per share amounts)
2002 2001
---------- ----------
Assets
Real estate investments:
Land $119,559 $119,771
Building and improvements 1,101,847 1,056,067
--------------------
1,221,406 1,175,838
Accumulated depreciation (409,132) (369,502)
--------------------
Total net real estate property 812,274 806,336
Loan receivable, net 16,528 --
---------- ----------
Total net real estate investments 828,802 806,336
Cash and cash equivalents 2,455 18,596
Restricted cash 19,953 20,773
Investment in Kindred Healthcare, Inc.
common stock 16,713 55,118
Kindred Healthcare, Inc. common stock reserved
for distribution -- 17,086
Deferred financing costs, net 17,704 14,153
Notes receivable from employees 4,139 3,635
Other 6,014 6,162
---------- ----------
Total assets $895,780 $941,859
========== ==========
Liabilities and stockholders' equity (deficit)
Liabilities:
Senior Notes payable and other debt $707,709 $848,368
United States Settlement 43,992 54,747
Securities settlement due 37,366 --
Deferred revenue 18,883 21,027
Interest rate swap agreements 47,672 27,430
Accrued dividend 16,596 17,910
Accounts payable and other accrued
liabilities 32,639 18,154
Other liabilities--disputed tax refunds and
accumulated interest 14,156 14,903
Deferred income taxes 30,394 30,394
---------- ----------
Total liabilities 949,407 1,032,933
---------- ----------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, 10,000 shares authorized,
unissued -- --
Common stock, $0.25 par value;
authorized 180,000 shares;
issued 82,608 shares in 2002
and 73,608 in 2001 20,652 18,402
Capital in excess of par value 191,779 122,468
Unearned compensation on restricted stock (793) (1,000)
Accumulated other comprehensive income (loss) (26,116) 36,174
Retained earnings (deficit) (134,279) (134,088)
---------- ----------
51,243 41,956
Treasury stock--3,730 shares
in 2002 and 4,723
shares in 2001 (104,870) (133,030)
---------- ----------
Total stockholders' equity (deficit) (53,627) (91,074)
---------- ----------
Total liabilities and stockholders'
equity (deficit) $895,780 $941,859
========== ==========
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2002 and 2001
(In thousands, except per share amounts)
2002 2001
--------- ---------
Revenues:
Rental income $189,517 $183,329
Interest income from loan receivable 995 --
Gain on sale of Kindred common stock 5,014 15,425
Interest and other income 1,178 4,004
--------- ---------
Total revenues 196,704 202,758
--------- ---------
Expenses:
General and administrative 9,763 10,244
Professional fees 3,150 4,658
Amortization of restricted stock grants 1,853 1,734
Depreciation 42,008 41,787
Net loss on swap breakage 5,407 --
Swap ineffectiveness 1,850 --
Interest 76,524 86,175
Interest on United States Settlement 5,461 4,592
--------- ---------
Total expenses 146,016 149,190
--------- ---------
Income (loss) before provision (benefit) for income
taxes, gain on disposal of real estate assets,
discontinued operations and extraordinary loss 50,688 53,568
Provision (benefit) for income taxes (2,200) 2,651
--------- ---------
Income (loss) before gain on disposal of real
estate assets, discontinued operations and
extraordinary loss 52,888 50,917
Net gain on real estate disposals 64 290
--------- ---------
Income (loss) before discontinued operations and
extraordinary loss 52,952 51,207
Discontinued operations 23,831 681
--------- ---------
Income (loss) before extraordinary loss 76,783 51,888
Extraordinary loss on extinguishment of debt (11,077) (1,322)
--------- ---------
Net income (loss) $65,706 $50,566
========= =========
Earnings (loss) per common share:
Basic:
Income (loss) before discontinued operations
and extraordinary loss $0.76 $0.75
Net income (loss) $0.95 $0.74
Diluted:
Income (loss) before discontinued operations
and extraordinary loss $0.75 $0.74
Net income (loss) $0.93 $0.73
Weighted average number of shares outstanding,
basic 69,336 68,409
Weighted average number of shares outstanding,
diluted 70,290 69,363
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2002 and 2001
($'S In Thousands)
2002 2001
--------- ----------
Cash flows from operating activities:
Net income (loss) $65,706 $50,566
Adjustments to reconcile net
income (loss) to
net cash provided by
operating activities:
Depreciation 42,107 42,038
Amortization of deferred financing costs 3,706 2,332
Amortization of restricted stock grants 1,853 1,734
Normalized rents (188) 2
Gain on sale of assets (28,528) (15,715)
Extraordinary loss on extinguishment of
debt 11,077 1,322
Amortization of deferred revenue (2,711) (1,673)
Net loss on swap breakage 5,407 --
Swap ineffectiveness 1,850 --
Other 174 49
Changes in operating assets and liabilities:
Decrease in restricted cash 820 6,120
Increase in accounts receivable and other
assets (1,338) (1,400)
Increase (decrease) in accounts payable and
accrued and other liabilities 16,450 (5,482)
--------- ----------
Net cash provided by operating
activities 116,385 79,893
Cash flows from investing activities:
Purchase of furniture and equipment (308) (1,117)
Investment in real estate property (53,000) --
Investment in loan receivable (64,931) --
Proceeds from sale of loan receivable, net 49,033 --
Sale of real estate properties 28,620 670
Proceeds from sale of Kindred Healthcare,
Inc. common stock 6,950 3,420
Issuance of notes receivable to employees (504) (213)
--------- ----------
Net cash provided by (used in)
investing activities (34,140) 2,760
Cash flows from financing activities:
Net change in borrowings
under revolving line
of credit (101,301) --
Proceeds from long-term debt 620,300 225,000
Repayment of long-term debt (18,590) (263,017)
Repayment of long-term debt through
refinancing (607,106) --
Payment of swap breakage fee (12,837) --
Payment of deferred financing costs (15,127) (6,932)
Payment on the United States Settlement (10,755) (41,746)
Issuance of common stock 97,155 503
Cash distribution to stockholders (50,125) (65,266)
--------- ----------
Net cash used in financing activities (98,386) (151,458)
--------- ----------
Net decrease in cash and cash equivalents (16,141) (68,805)
Cash and cash equivalents at beginning of year 18,596 87,401
--------- ----------
Cash and cash equivalents at end of year $2,455 $18,596
========= ==========
Supplemental disclosure of cash flow information:
Interest paid including swap payments and
receipts $60,790 $84,700
========= ==========
Supplemental schedule of noncash activities:
Receipt of Kindred Healthcare, Inc.
common stock $ -- $ 18,200
Ventas, Inc.
2002 QUARTERLY STATEMENT OF OPERATIONS
($000, except per share amounts)
First Second Third Fourth Year
-------------------------------- ---------
Revenues:
Rental Income $46,102 $47,151 $47,650 $48,614 $189,517
Interest income from loan
receivable - - - 995 995
Gain on sale of Kindred
common stock - 3,822 1,192 - 5,014
Interest and other
income 342 373 237 226 1,178
-------------------------------- ---------
Total revenues 46,444 51,346 49,079 49,835 196,704
Expenses:
General and
administrative 2,311 2,601 2,410 2,441 9,763
Professional fees 565 936 900 749 3,150
Amortization of
restricted stock grants 422 715 354 362 1,853
Depreciation 10,405 10,414 10,414 10,775 42,008
Net loss on swap breakage - 5,407 - - 5,407
Swap ineffectiveness - 180 118 1,552 1,850
Interest 19,740 18,964 18,659 19,161 76,524
Interest on
United States
Settlement 1,471 1,402 1,331 1,257 5,461
-------------------------------- ---------
Total expenses 34,914 40,619 34,186 36,297 146,016
-------------------------------- ---------
Income before benefit for
income taxes, gain on disposal
of real estate assets,
discontinued operations
and extraordinary loss 11,530 10,727 14,893 13,538 50,688
Benefit for income taxes - - (2,200) - (2,200)
-------------------------------- ---------
Income before gain on
disposal of real estate
assets, discontinued
operations and
extraordinary loss 11,530 10,727 17,093 13,538 52,888
Net gain on real estate
disposals - - - 64 64
-------------------------------- ---------
Income before discontinued
operations and
extraordinary loss 11,530 10,727 17,093 13,602 52,952
Discontinued operations 1,171 22,660 - - 23,831
-------------------------------- ---------
Income before extraordinary
loss 12,701 33,387 17,093 13,602 76,783
Extraordinary loss on
extinguishment of debt - (6,919) - (4,158) (11,077)
-------------------------------- ---------
Net income $12,701 $26,468 $17,093 $9,444 $65,706
================================ =========
Weighted average number of
shares outstanding, basic 68,698 68,850 69,098 70,637 69,336
Weighted average number of
shares outstanding,
diluted 69,844 70,002 70,047 71,204 70,290
Earnings per common share:
Basic:
Income before
discontinued operations
and extraordinary loss $0.16 $0.15 $0.25 $0.19 $0.76
Discontinued operations 0.02 0.33 - - 0.35
Extraordinary loss on
extinguishment - (0.10) - (0.06) (0.16)
-------------------------------- ---------
Net income $0.18 $0.38 $0.25 $0.13 $0.95
================================ =========
Diluted:
Income before
discontinued operations
and extraordinary loss $0.16 $0.15 $0.24 $0.19 $0.75
Discontinued operations 0.02 0.33 - - 0.34
Extraordinary loss on
extinguishment - (0.10) - (0.06) (0.16)
-------------------------------- ---------
Net income $0.18 $0.38 $0.24 $0.13 $0.93
================================ =========
Discontinued Operations
Revenues $295 $420 - - $715
Interest 120 115 - - 235
Depreciation 61 38 99
-------------------------------- ---------
Income before gain on
sale of real estate 114 267 - - 381
Gain on sale of real
estate 1,057 22,393 - - 23,450
-------------------------------- ---------
Discontinued
operations $1,171 $22,660 - - $23,831
================================ =========
SUPPLEMENTAL DATA
Funds from Operations
FFO and Normalized FFO for the four quarters ended December 31,
2002 is summarized in the following table (in thousands):
First Second Third Fourth Year
-------- -------- -------- -------- --------
Net Income $12,701 $26,468 $17,093 $9,444 $65,706
Depreciation on real
estate investments 10,424 10,401 10,359 10,707 41,891
Extraordinary loss on
extinguishment of debt - 6,919 - 4,158 11,077
Realized gain on sale of
asset (1,057) (22,393) - (64) (23,514)
-------- -------- -------- -------- --------
FFO 22,068 21,395 27,452 24,245 95,160
Realized gain on Sale of
Kindred equity - (3,822) (1,192) - (5,014)
Swap Breakage - 5,407 - - 5,407
-------- -------- -------- -------- --------
Normalized FFO $22,068 $22,980 $26,260 $24,245 $95,553
======== ======== ======== ======== ========
The Company considers FFO an appropriate measure of performance of an equity REIT, and the Company uses the National Association of Real Estate Investment Trust's, or NAREIT's, definition of FFO. NAREIT defines FFO as net income (computed in accordance with accounting principles generally accepted in the United States ("GAAP")), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments 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.
Portfolio of Properties
The following information provides an overview of the Company's portfolio of healthcare properties as of and for the year ended December 31, 2002:
As of and for the Year Ended
December 31, 2002
----------------------------------------------
# of # of Rental Percent Number
Portfolio by Type Properties Beds Revenue of of
Revenue States
----------------------------------- ------- --------- -------- -------
Skilled Nursing
Facilities 220 27,840 $127,892 67% 32
Hospitals 44 3,923 60,779 32% 20
Other Facilities 9 181 846 1% 2
----------- ------- --------- -------
Total 273 31,944 $189,517 100% 37
=========== ======= ========= =======
Kindred Coverage Ratios
The following reflects the Kindred's EBITDAR coverage by
Master Lease after management fees:
TTM(a)
Master EBITDAR
Lease Coverage(b)
---------------------------
1 2.0
2 1.8
3 1.7
4 1.7
5 1.9
---------------------------
Portfolio 1.8
---------------------------
a) Trailing Twelve Months ended September 30, 2002 (the latest available data)
b) Coverage reflects ratio of EBITDAR to rent EBITDAR is defined as earnings before interest, income taxes, depreciation, amortization and rent but after deducting management fees. EBITDAR is adjusted to normalize professional liability expense. Kindred charged third quarter 2002 results with approximately $55 million in additional professional liability expense. It disclosed that the additional charge was comprised of $25 million related to 2001 and $30 million related to the 9-months ended September 30, 2002. These adjustments are spread equally among the affected quarters within each year and are recalculated for the TTM through September 30, 2002. This recalculation had the effect of increasing Kindred's reported TTM EBITDAR by approximately $18 million or in effect charging the 4th quarter of 2001 with $6 million and the first three quarters of 2002 with $10 million each. This computation includes the proportionate effects of these overall adjustments on the Ventas owned facilities, as actually reported by Kindred.
Scheduled Maturities of Borrowing Arrangements
The Company's indebtedness has the following maturities
(in thousands):
2003.............$3,159
2004..............3,412
2005.............62,990
2006............214,810
2007.............57,300
Thereafter......366,038
------------
Total.......$707,709
============
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