Third Quarter Normalized FFO Per Share Rises 18.5 Percent to $0.64 Per Share;
Company Increases 2006 Normalized FFO Guidance to $2.41 to $2.43 Per Share;
Issues 2007 Normalized FFO Guidance of $2.70 to $2.75 Per Share
LOUISVILLE, KY (October 26, 2006) - Ventas, Inc. (NYSE:VTR) ("Ventas" or the "Company") said today that third quarter 2006 normalized Funds from Operations ("FFO") rose 19.0 percent to $67.0 million, compared with $56.3 million in the third quarter of 2005. Normalized FFO per diluted share in the third quarter of 2006 increased 18.5 percent to $0.64 from $0.54 per diluted share for the comparable 2005 period. In the quarter ended September 30, 2006, the Company had 104.6 million weighted average diluted shares outstanding, compared to 103.9 million weighted average diluted shares outstanding a year earlier.
Normalized FFO for the nine months ended September 30, 2006 was $184.0 million, or $1.76 per diluted share, a 28.8 percent increase from $142.9 million, or $1.54 per diluted share, for the comparable 2005 period.
Normalized FFO for the three and nine months ended September 30, 2006 excludes (a) one-time expenses totaling $7.4 million in connection with the Rent Reset process, (b) the benefit of a $1.8 million reversal of a previously recorded contingent liability relating to an IRS audit of the Company's 2001 tax year ("2001 Tax Audit"), which was recorded to income due to the favorable outcome of this matter in the third quarter of 2006 and (c) a $1.3 million expense relating to the write-off of unamortized deferred financing fees in connection with the Company's successful refinancing of its previous secured revolving credit facility with a $500 million unsecured revolving credit facility during the second quarter of 2006. Results for the third quarter and first nine months of 2006 benefited from increased rent resulting from the Rent Reset on the 225 healthcare facilities the Company leases to Kindred Healthcare, Inc. (NYSE: KND) ("Kindred"), the Company's successful implementation of its acquisition program and leading internal growth rate from its existing leases. Normalized FFO for the nine months ended September 30, 2005 excludes a $0.4 million expense related to fees in connection with a bridge loan commitment obtained by the Company prior to the closing of the Provident Senior Living Trust acquisition, which was not used by the Company.
"With the successful completion of the Rent Reset, we are focused on delivering reliable, growing cash flows and superior risk adjusted returns to our shareholders as we execute on our strategic growth and diversification program. We expect to use our free cash flow to reinvest in acquisitions and increase our dividend in the first quarter of 2007," Ventas Chairman, President and CEO Debra A. Cafaro said.
"We are also pleased to increase our 2006 FFO guidance and to introduce 2007 FFO guidance of $2.70 to $2.75 per diluted share. If achieved, we will have five years of consecutive double-digit FFO per share growth, which is consistent with our overriding objective of increasing earnings per share while systematically creating greater enterprise reliability and shareholder value."
GAAP NET INCOME
Net income for the quarter ended September 30, 2006 was $32.2 million, or $0.31 per diluted share, compared with net income for the quarter ended September 30, 2005 of $28.7 million, or $0.28 per diluted share. Net income includes a benefit of $1.8 million ($0.02 per diluted share) resulting from the reversal of a previously recorded contingent liability relating to the 2001 Tax Audit that was favorably resolved in late September 2006.
Net income for the nine months ended September 30, 2006 was $90.6 million, or $0.87 per diluted share, compared with net income for the nine months ended September 30, 2005 of $83.4 million, or $0.90 per diluted share. Net income includes a benefit of $1.8 million ($0.02 per diluted share) resulting from the reversal of a previously recorded contingent liability relating to the 2001 Tax Audit that was favorably resolved in late September 2006.
THIRD QUARTER HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS
-- On September 8, 2006, Ventas announced a definitive agreement to
purchase a diverse portfolio of 67 healthcare and seniors housing
properties in a transaction with entities affiliated with Canada's
Reichmann family for approximately $649 million. The facilities are
located in 16 states, and the portfolio consists of four separate
asset groups and contains 5,855 beds/units. At closing, Ventas will
lease the properties to subsidiaries of Senior Care, Inc. ("Senior
Care"). The transaction is expected to add initially about
$50 million to Ventas's annual rental revenue, representing a lease
rate of 7.75 percent on the portfolio. Annual rent escalations on the
portfolio are expected to range between 3 and 5 percent. The Company
expects to close the Senior Care acquisition in the fourth quarter of
2006, although there can be no assurance that the transaction will
close, or if it does close, when the closing will occur.
-- Ventas previously announced that it has exercised its election to
increase aggregate base rental under the four Master Leases ("Master
Leases") between it and Kindred by $33.1 million per year pursuant to
the Rent Reset contained in the Master Leases. The new aggregate
annual base rent on the 225 properties Ventas leases to Kindred is
$239 million. In early October, Kindred paid $9.5 million to Ventas
representing the new, increased base rental for the period July 19,
2006 through October 31, 2006, and Ventas paid to Kindred a
$4.6 million reset fee. Annual base rent escalations under the Master
Leases, on average, should range between 2.6 and 3 percent, depending
on year-over-year increases in the Consumer Price Index (CPI). The
next rent escalation date under all Master Leases is May 1, 2007.
-- Annualized rent from Kindred represents approximately 50 percent of
the Company's annualized total revenue, assuming that the Rent Reset
and the Senior Care acquisition (excluding the Senior Care Bridge Loan
discussed below) were effective at the beginning of the third quarter
of 2006. Computed on the same pro forma basis, revenues from market
rate, non-government-reimbursed assets in the Company's portfolio
represent approximately 44 percent of the Company's total revenues,
and assets leased to Kindred represent approximately 27 percent of the
Company's total real estate assets (measured on a gross book value
basis) on its balance sheet.
-- As previously reported, on August 24, 2006, Ventas made a
$156.8 million bridge loan (the "Senior Care Bridge Loan") to various
affiliates of Senior Care. Ventas recognized $1.7 million of interest
income for the quarter ended September 30, 2006 for this loan, which
the Company expects to be repaid in connection with the closing of the
Senior Care acquisition.
-- The Company's Funds Available for Distribution ("FAD") totaled
$0.59 per diluted share in the third quarter, a 20 percent increase
compared to the same period of the prior year.
-- The Company's 2001 Tax Audit was favorably resolved in the third
quarter, resulting in the reversal of a $1.8 million contingent
liability.
-- On September 19, 2006, Ventas issued $225 million of unsecured senior
notes that mature on April 1, 2017 and have an interest rate of
6.75 percent. Proceeds were used to repay outstanding amounts on the
Company's $500 million unsecured revolving credit facility (the
"Credit Facility").
-- At September 30, 2006, the Company had $72.3 million of indebtedness
outstanding, excluding $30.2 million of outstanding letters of credit,
under the Credit Facility.
-- The Company's debt to total capitalization at September 30, 2006 was
approximately 33 percent.
-- As of September 30, 2006, Ventas's enterprise value exceeded
$6.0 billion.
-- The 225 skilled nursing facilities and hospitals leased by the Company
to Kindred produced EBITDARM to actual cash rent coverage of 2.5 times
for the trailing twelve-month period ended June 30, 2006 (the latest
date available). Further information detailing these rent coverages,
and rent coverages as if $239 million of annual base rent determined
pursuant to the Rent Reset had been due and payable over such trailing
twelve-month period, by Master Lease and by asset class is contained
on a schedule attached to this press release.
-- Ventas expects to file its Form 10-Q for the quarter ended
September 30, 2006 on or about October 27, 2006.
THIRD QUARTER 2006 RESULTSRental income for the quarter ended September 30, 2006 was $106.8 million, of which $58.8 million resulted from leases with Kindred. Third quarter 2006 expenses totaled $77.4 million and were reduced by the $1.8 million reversal of a contingent liability. Depreciation and amortization totaled $29.7 million and interest expense totaled $34.9 million. General, administrative and professional fees totaled $6.5 million and include $0.8 million for non-cash stock-based compensation. Property-level operating expenses relating to the Company's medical office building portfolio for the period were $0.7 million. Additionally, in the third quarter Ventas incurred one-time expenses totaling $7.4 million in connection with the Rent Reset process, which includes appraisal expenses (for Ventas's expert appraisers and the Final Appraisers), investment banking fees, litigation costs and legal fees.
NINE MONTH 2006 RESULTS
Rental income for the nine months ended September 30, 2006 was $302.4 million, of which $160.6 million resulted from leases with Kindred. Expenses for the nine months ended September 30, 2006 totaled $217.2 million and were reduced by the $1.8 million reversal of a contingent liability. Depreciation and amortization totaled $87.2 million and interest expense totaled $101.6 million. General, administrative and professional fees totaled $19.5 million and include $2.2 million for non-cash stock-based compensation. Property-level operating expenses relating to the Company's medical office building portfolio for the period were $2.0 million. Additionally, in the third quarter Ventas incurred one-time expenses totaling $7.4 million in connection with the Rent Reset process, which includes appraisal expenses (for Ventas's expert appraisers and the Final Appraisers), investment banking fees, litigation costs and legal fees.
VENTAS RAISES GUIDANCE FOR 2006 AND ISSUES 2007 GUIDANCE
With the completion of the Kindred Rent Reset, and assuming the Company closes the Senior Care transaction in the fourth quarter, Ventas expects its 2006 normalized FFO to be between $2.41 and $2.43 per diluted share, increased from its previous guidance of $2.25 to $2.27 per diluted share. If achieved, this projection represents 15 to 16 percent growth in normalized FFO per share over 2005.
The Company also said that, if the Senior Care transaction closes as expected, it should achieve 2007 normalized FFO of between $2.70 and $2.75 per diluted share and FAD of between $2.55 and $2.60 per diluted share.
The Company's normalized FFO and FAD guidance for all periods assumes that all of the Company's tenants and borrowers continue to meet all of their obligations to the Company and that the May 1, 2007 rent escalation in Master Lease 2 with Kindred (which is based on CPI) is 2.7 percent. In addition, the Company's normalized FFO guidance (and related GAAP earnings projections) excludes (a) gains and losses on the sales of assets, (b) the impact of future, unannounced acquisitions, divestitures (including pursuant to tenant options to purchase) and capital transactions, (c) one-time expenses of $7.4 million relating to the Rent Reset, (d) the benefit of a $1.8 million reversal of a contingent liability in connection with the favorable outcome of the 2001 Tax Audit, and (e) the impact of any expenses related to asset impairment, the write-off of unamortized deferred financing fees, or additional costs, expenses or premiums incurred as a result of early debt retirement. FAD for all periods excludes straight-line rental adjustments.
The Company's guidance is based on a number of other assumptions, which 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.
A reconciliation of the Company's guidance to the Company's projected GAAP earnings is provided on a schedule attached to this press release. The Company may from time to time update its publicly announced guidance, but it is not obligated to do so.
THIRD QUARTER CONFERENCE CALL
Ventas will hold a conference call to discuss this earnings release on October 27, 2006, at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). The conference call is being webcast live by CCBN and can be accessed at the Company's website at http://www.ventasreit.com or http://www.earnings.com . An online replay of the webcast will be available at approximately 12:00 p.m. Eastern Time and will be archived for 30 days.
Ventas, Inc. is a leading healthcare real estate investment trust. At the date of this press release, Ventas owns 388 healthcare and seniors housing assets in 42 states. Its diverse portfolio includes 41 hospitals, 200 skilled nursing facilities and 147 seniors housing and other assets. More information about Ventas can be found on its website at http://www.ventasreit.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 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, which speak only as of the date on which they are made.
The Company's actual future results and trends may differ materially depending on a variety of factors discussed in the Company's filings with the Securities and Exchange Commission. Factors that may affect the Company's plans or results include without limitation: (a) the ability and willingness of the Company's operators, tenants, borrowers and other third parties to meet and/or perform the obligations under their various contractual arrangements with the Company; (b) the ability and willingness of Kindred Healthcare, Inc. (together with its subsidiaries, "Kindred"), Brookdale Living Communities, Inc. (together with its subsidiaries, "Brookdale") and Alterra Healthcare Corporation (together with its subsidiaries, "Alterra") to meet and/or perform their obligations to indemnify, defend and hold the Company harmless from and against various claims, litigation and liabilities under the Company's respective contractual arrangements with Kindred, Brookdale and Alterra; (c) the ability of the Company's operators, tenants and borrowers 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; (d) the Company's success in implementing its business strategy and the Company's ability to identify, underwrite, finance, consummate and integrate diversifying acquisitions or investments, including those in different asset types and outside the United States; (e) the nature and extent of future competition; (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 cost of borrowing; (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 Company's ability 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 and the accounting for the Company's interest rate swap agreement; (m) the Company's ability and willingness to maintain its qualification as a REIT due to economic, market, legal, tax or other considerations; (n) final determination of the Company's taxable net income for the year ending December 31, 2006; (o) the ability and willingness of the Company's tenants to renew their leases with the Company upon expiration of the leases, including without limitation Kindred's willingness to renew any or all of its bundles of leased properties expiring in 2008, 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; (p) year-over-year changes in the Consumer Price Index and the effect of such changes on the rent escalator for Master Lease 2 with Kindred and the Company's earnings; and (q) the impact on the liquidity, financial condition and results of operations of the Company's operators, tenants and borrowers resulting from increased operating costs and uninsured liabilities for professional liability claims, and the ability of the Company's operators, tenants and borrowers to accurately estimate the magnitude of such liabilities. Many of such factors are beyond the control of the Company and its management.
CONDENSED CONSOLIDATED BALANCE SHEETS As of September 30, 2006, June 30, 2006, March 31, 2006, December 31, 2005 and
September 30, 2005
(In thousands, except per share amounts)
September June March December September
30, 30, 31, 31, 30,
2006 2006 2006 2005 2005
(Unaudited)(Unaudited)(Unaudited)(Audited)(Unaudited)
Assets
Real estate
investments:
Land $300,384 $300,384 $298,185 $295,363 $295,017
Building and
improvements 2,801,301 2,801,550 2,778,262 2,732,533 2,718,128
3,101,685 3,101,934 3,076,447 3,027,896 3,013,145
Accumulated
depreciation (627,800) (598,644) (569,675) (541,346) (513,098)
Net real estate
property 2,473,885 2,503,290 2,506,772 2,486,550 2,500,047
Loans receivable,
net 192,578 35,800 35,870 39,924 52,588
Net real estate
investments 2,666,463 2,539,090 2,542,642 2,526,474 2,552,635
Cash and cash
equivalents 1,935 1,932 1,466 1,641 5,764
Escrow deposits
and restricted cash 52,818 51,227 61,753 59,667 56,397
Deferred financing
costs, net 18,100 17,667 16,844 17,581 17,257
Notes receivable-
related parties 2,518 2,501 2,859 2,841 2,893
Other 66,581 48,555 36,040 30,914 23,184
Total assets $2,808,415 $2,660,972 $2,661,604 $2,639,118 $2,658,130
Liabilities and
stockholders' equity
Liabilities:
Senior notes
payable and
other debt $2,007,128 $1,882,909 $1,854,551 $1,802,564 $1,811,319
Deferred
revenue 8,780 9,374 9,953 10,540 11,126
Interest rate
swap agreement 632 - 577 1,580 6,177
Accrued dividend - - - 37,343 37,255
Accrued interest 35,460 14,461 34,636 14,418 30,432
Accounts payable
and accrued and
other liabilities 82,346 73,838 72,726 74,960 77,316
Deferred income
taxes 30,394 30,394 30,394 30,394 30,394
Total
liabilities 2,164,740 2,010,976 2,002,837 1,971,799 2,004,019
Commitments and
contingencies
Stockholders'
equity:
Preferred stock,
10,000 shares
authorized,
unissued - - - - -
Common stock,
$0.25 par value,
180,000 shares
authorized; 104,101,
103,975, 103,854,
103,523 and 103,226
shares issued at
September 30, 2006,
June 30, 2006,
March 31, 2006,
December 31, 2005
and September 30,
2005, respectively 26,036 26,004 25,974 25,927 25,890
Capital in excess
of par value 699,094 696,667 694,531 692,650 692,676
Unearned
compensation on
restricted stock - - - (713) (1,017)
Accumulated other
comprehensive
income (loss) 1,569 1,449 685 (143) (942)
Retained earnings
(deficit) (83,024) (74,124) (62,308) (50,402) (60,280)
643,675 649,996 658,882 667,319 656,327
Treasury stock, 0,
0, 4, 0 and 79
shares at
September 30, 2006,
June 30, 2006,
March 31, 2006,
December 31, 2005
and September 30,
2005, respectively - - (115) - (2,216)
Total
stockholders'
equity 643,675 649,996 658,767 667,319 654,111
Total
liabilities and
stockholders'
equity $2,808,415 $2,660,972 $2,661,604 $2,639,118 $2,658,130
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 2006 and 2005
(In thousands, except per share amounts)
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2006 2005 2006 2005
Revenues:
Rental income $106,816 $93,569 $302,416 $228,445
Interest income
from loans
receivable 2,566 1,573 4,373 3,717
Interest and
other income 285 791 998 2,523
Total revenues 109,667 95,933 307,787 234,685
Expenses:
Interest 34,917 32,263 101,597 71,969
Depreciation and
amortization 29,651 27,694 87,232 59,153
Property-level
operating expenses 727 677 2,003 1,870
General,
administrative and
professional fees
(including non-cash
stock-based
compensation expense
of $751 and $471 for
the three months
ended 2006 and 2005,
respectively, and
$2,236 and $1,397
for the nine months
ended 2006 and 2005,
respectively) 6,539 6,580 19,457 18,079
Rent reset costs 7,361 - 7,361 -
Reversal of contingent
liability (1,769) - (1,769) -
Loss on extinguishment
of debt - - 1,273 -
Total expenses 77,426 67,214 217,154 151,071
Income before net loss
on real estate
disposals and
discontinued
operations 32,241 28,719 90,633 83,614
Net loss on real
estate disposals - - - (175)
Income before
discontinued
operations 32,241 28,719 90,633 83,439
Discontinued
operations - 2 - (77)
Net income $32,241 $28,721 $90,633 $83,362
Earnings per
common share:
Basic:
Income before
discontinued
operations $0.31 $0.28 $0.87 $0.91
Net income $0.31 $0.28 $0.87 $0.90
Diluted:
Income before
discontinued
operations $0.31 $0.28 $0.87 $0.90
Net income $0.31 $0.28 $0.87 $0.90
Shares used in
computing earnings
per common share:
Basic 104,021 103,081 103,886 92,172
Diluted 104,568 103,880 104,415 92,944
Dividends declared
per common share $0.395 $0.360 $1.185 $1.080
QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
2006 Quarters 2005 Quarters
Third Second First Fourth Third
Revenues:
Rental income $106,816 $99,095 $96,505 $96,274 $93,569
Interest income from
loans receivable 2,566 839 968 1,284 1,573
Interest and other
income 285 372 341 745 791
Total revenues 109,667 100,306 97,814 98,303 95,933
Expenses:
Interest 34,917 33,723 32,957 33,612 32,263
Depreciation and
amortization 29,651 29,111 28,470 28,695 27,694
Property-level
operating expenses 727 654 622 706 677
General, administrative
and professional fees
(including non-cash
stock-based
compensation expense
of $751, $727, $758,
$574 and $471,
respectively) 6,539 6,287 6,631 6,996 6,580
Rent reset costs 7,361 - - - -
Reversal of contingent
liability (1,769) - - - -
Loss on extinguishment
of debt - 1,273 - 1,376 -
Net gain on swap
breakage - - - (981) -
Net proceeds from
litigation settlement - - - (15,909) -
Contribution to
charitable foundation - - - 2,000 -
Total expenses 77,426 71,048 68,680 56,495 67,214
Income before
discontinued operations 32,241 29,258 29,134 41,808 28,719
Discontinued operations - - - 5,413 2
Net income $32,241 $29,258 $29,134 $47,221 $28,721
Earnings per common share:
Basic:
Income before
discontinued
operations $0.31 $0.28 $0.28 $0.40 $0.28
Net income $0.31 $0.28 $0.28 $0.46 $0.28
Diluted:
Income before
discontinued
operations $0.31 $0.28 $0.28 $0.40 $0.28
Net income $0.31 $0.28 $0.28 $0.45 $0.28
Shares used in
computing earnings
per common share:
Basic 104,021 103,884 103,751 103,542 103,081
Diluted 104,568 104,374 104,300 104,176 103,880
Dividends declared
per common share $0.395 $0.395 $0.395 $0.360 $0.360
Discontinued operations:
Rental income $- $- $- $230 $202
Interest and other income - - - 165 -
Interest expense - - - (81) (154)
Depreciation - - - (15) (46)
Income before gain on
sale of real estate - - - 299 2
Gain on sale of
real estate - - - 5,114 -
Discontinued operations $- $- $- $5,413 $2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2006 and 2005
(In thousands)
(Unaudited)
For the Nine Months Ended
September 30,
2006 2005
Cash flows from operating activities:
Net income $90,633 $83,362
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation (including amounts in
discontinued operations) and amortization 87,232 59,291
Amortization of deferred financing costs 2,320 2,893
Stock-based compensation 2,236 1,397
Straight-lining of rental income (14,735) (8,392)
Amortization of deferred revenue (1,809) (2,463)
Reversal of contingent liability (1,769) -
Loss on extinguishment of debt 1,273 -
Other 764 (2,025)
Changes in operating assets and liabilities:
(Increase) decrease in escrow deposits
and restricted cash (2,568) 3,126
Increase in other assets (16,390) (4,066)
Increase in accrued interest 21,042 21,689
Increase in accounts payable and
accrued and other liabilities 10,017 16,750
Net cash provided by operating activities 178,246 171,562
Cash flows from investing activities:
Net investment in real estate property (64,312) (579,961)
Investment in loans receivable (156,849) (47,333)
Proceeds from loans receivable 4,244 7,190
Escrow funds returned from an Internal
Revenue Code Section 1031 exchange 9,902 -
Other (5,455) 1,839
Net cash used in investing activities (212,470) (618,265)
Cash flows from financing activities:
Net change in borrowings under unsecured
revolving credit facility 72,300 -
Net change in borrowings under secured
revolving credit facility (89,200) 56,900
Proceeds from debt 223,605 400,000
Repayment of debt (12,997) (19,165)
Payment of deferred financing costs (3,754) (6,600)
Issuance of common stock 696 101,838
Proceeds from stock option exercises 4,466 4,717
Cash distribution to stockholders (160,598) (88,588)
Net cash provided by financing activities 34,518 449,102
Net increase in cash and cash equivalents 294 2,399
Cash and cash equivalents at beginning of period 1,641 3,365
Cash and cash equivalents at end of period $1,935 $5,764
Supplemental schedule of non-cash activities:
Assets and liabilities assumed from acquisitions:
Real estate property investments $9,477 $920,973
Escrow deposits and restricted cash 485 33,813
Other assets acquired 350 1,560
Debt assumed 10,848 530,406
Other liabilities (536) 33,114
Issuance of common stock - 392,826
QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
2006 Quarters 2005 Quarters
Third Second First Fourth Third
Cash flows from
operating activities:
Net income $32,241 $29,258 $29,134 $47,221 $28,721
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation
(including amounts
in discontinued
operations) and
amortization 29,651 29,111 28,470 28,710 27,740
Amortization of
deferred financing
costs 778 772 770 998 1,058
Stock-based
compensation 751 727 758 574 471
Straight-lining of
rental income (4,871) (4,914) (4,950) (5,895) (5,558)
Amortization of
deferred revenue (611) (595) (603) (1,034) (1,143)
Reversal of
contingent liability (1,769) - - - -
Loss on extinguishment
of debt - 1,273 - 1,358 -
Gain on sale of assets
(including amounts in
discontinued
operations) - - - (5,114) -
Net gain on
swap breakage - - - (981) -
Other 904 37 (177) (497) (577)
Changes in operating
assets and liabilities:
(Increase) decrease in
escrow deposits and
restricted cash (1,591) 1,109 (2,086) 6,994 (3,085)
(Increase) decrease in
other assets (13,964) (2,021) (405) (1,330) 5,197
Increase (decrease) in
accrued interest 20,999 (20,175) 20,218 (16,014) 17,232
Increase (decrease) in
accounts payable and
accrued and other
liabilities 10,485 1,505 (1,973) (2,788) 1,324
Net cash provided
by operating
activities 73,003 36,087 69,156 52,202 71,380
Cash flows from investing
activities:
Net investment in real
estate property (101) (15,660) (48,354) (9,592) (98,181)
Proceeds from real
estate disposals - - - 295 -
Investment in loans
receivable (156,849) - - - -
Proceeds from loans
receivable 88 86 4,070 13,084 5,431
Escrow funds returned
from an Internal
Revenue Code
Section 1031 exchange - 9,902 - - -
Other (209) (5,212) (231) (563) (671)
Net cash (used in)
provided by
investing
activities (157,071) (10,884) (44,515) 3,224 (93,421)
Cash flows from
financing activities:
Net change in borrowings
under unsecured
revolving credit
facility (94,700) 167,000 - - -
Net change in borrowings
under secured revolving
credit facility - (141,800) 52,600 (6,700) (60,500)
Proceeds from debt 221,531 - 2,074 200,000 -
Repayment of debt (2,620) (7,690) (2,687) (212,823) (12,321)
Issuance of common stock 268 175 253 126 97,144
Proceeds from stock
option exercises 1,586 1,520 1,360 2,102 2,681
Cash distribution to
stockholders (41,141) (41,074) (78,383) (37,255) -
Payment of swap
breakage fee - - - (2,320) -
Payment of deferred
financing costs (853) (2,868) (33) (2,679) (1)
Net cash provided by
(used in) financing
activities 84,071 (24,737) (24,816) (59,549) 27,003
Net increase (decrease)
in cash and cash
equivalents 3 466 (175) (4,123) 4,962
Cash and cash equivalents
at beginning of period 1,932 1,466 1,641 5,764 802
Cash and cash equivalents
at end of period $1,935 $1,932 $1,466 $1,641 $5,764
Supplemental schedule of
non-cash activities:
Assets and liabilities
assumed from
acquisitions:
Real estate property
investments $(350) $9,827 $- $10,598 $54,729
Escrow deposits and
restricted cash - 485 - 331 1,361
Other assets acquired 350 - - - 54
Debt assumed - 10,848 - 10,768 51,456
Other liabilities - (536) - 161 4,688
FUNDS FROM OPERATIONS, NORMALIZED FFO AND FUNDS AVAILABLE
FOR DISTRIBUTION
(In thousands, except per share amounts)
2006 Quarters 2005 Quarters
Third Second First Fourth Third
Net income $32,241 $29,258 $29,134 $47,221 $28,721
Adjustments:
Depreciation
on real
estate
assets 29,156 28,969 28,329 28,557 27,576
Other items:
Discontinued
operations:
Gain on
sale of
real
estate - - - (5,114) -
Depreciation
on real
estate
assets - - - 15 46
FFO 61,397 58,227 57,463 70,679 56,343
Rent reset
costs 7,361 - - - -
Reversal of
contingent
liability (1,769) - - - -
Loss on
extinguishment
of debt - 1,273 - 1,376 -
Contribution
to charitable
foundation - - - 2,000 -
Net proceeds
from
litigation
settlement - - - (15,909) -
Net gain on
swap breakage - - - (981) -
Normalized
FFO 66,989 59,500 57,463 57,165 56,343
Straight-
lining of
rental
income (4,871) (4,914) (4,950) (5,895) (5,558)
FAD $62,118 $54,586 $52,513 $51,270 $50,785
Per diluted
share:
Net income $0.31 $ 0.28 $0.28 $0.45 $0.28
Adjustments:
Depreciation
on real
estate
assets 0.28 0.28 0.27 0.28 0.26
Other items:
Discontinued
operations:
Gain on
sale of
real estate - - - (0.05) -
Depreciation
on real
estate
assets - - - - -
FFO 0.59 0.56 0.55 0.68 0.54
Rent reset
costs 0.07 - - - -
Reversal of
contingent
liability (0.02) - - - -
Loss on
extinguishment
of debt - 0.01 - 0.01 -
Contribution
to charitable
foundation - - - 0.02 -
Net proceeds
from litigation
settlement - - - (0.15) -
Net gain on
swap breakage - - - (0.01) -
Normalized FFO 0.64 0.57 0.55 0.55 0.54
Straight-lining
of rental
income (0.05) (0.05) (0.05) (0.06) (0.05)
FAD $0.59 $0.52 $0.50 $0.49 $0.49
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 FAD appropriate measures of performance of an equity REIT. 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 U.S. generally accepted accounting principles ("GAAP"), excluding gains (or losses) from sales of property, 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. FAD represents normalized FFO excluding straight-line rental adjustments. Currently, the Company's capital expenditures for its real estate portfolio are immaterial.
FFO and FAD presented herein are not necessarily comparable to FFO and FAD presented by other real estate companies due to the fact that not all real estate companies use the same definitions. FFO and FAD 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 or FAD 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 FAD should be examined in conjunction with net income as presented elsewhere in this press release.
Guidance for the Years Ending December 31, 2007 and 2006
The following table illustrates the Company's guidance per diluted share for the years ending December 31, 2007 and 2006:
NEW NEW PRIOR
GUIDANCE GUIDANCE GUIDANCE
For the Year For the Year For the Year
Ending Ending Ending
December 31, 2007 December 31, 2006 December 31, 2006
Net income $1.42 - $1.47 $1.22 - $1.24 $1.16 - $1.18
Adjustments:
Depreciation
on real
estate assets 1.28 - 1.28 1.13 - 1.13 1.08 - 1.08
FFO 2.70 - 2.75 2.35 - 2.37 2.24 - 2.26
Rent reset
costs - - - 0.07 - 0.07 - - -
Reversal of
contingent
liability - - - (0.02)- (0.02) - - -
Loss on
extinguishment
of debt - - - 0.01 - 0.01 0.01 - 0.01
Normalized FFO 2.70 - 2.75 2.41 - 2.43 $2.25 - $2.27
Straight-lining
of rental
income (0.15)- (0.15) (0.19)- (0.19)
FAD $2.55 - $2.60 $2.22 - $2.24
Net Debt to Pro Forma EBITDAThe following pro forma information considers the effect on net income, interest and depreciation of the Company's investments and other capital transactions, including the Senior Care Bridge Loan, that were completed during the trailing twelve months ended September 30, 2006, and the Kindred Rent Reset, 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, income taxes, depreciation and amortization ("EBITDA") (dollars in thousands):
Pro forma net income for the trailing
twelve months ended September 30, 2006 $167,456
Add back:
Pro forma interest 147,027
Pro forma depreciation and amortization 119,007
Net gain on real estate disposals (5,114)
Loss on extinguishment of debt 2,649
Net gain on swap breakage (981)
Stock-based compensation 2,809
Pro forma EBITDA $432,853
As of September 30, 2006:
Debt $2,007,128
Cash (1,935)
Restricted cash pertaining to debt (7,914)
Net debt $1,997,279
Net debt to pro forma EBITDA 4.6x
The Company considers EBITDA a profitability measure which indicates the Company's ability to service debt. The Company considers the net debt to proforma EBITDA ratio a useful measure to evaluate the Company's ability to pay its indebtedness. EBITDA presented herein is not necessarily comparable to EBITDA presented by other companies due to the fact that not all companies use the same definition. EBITDA 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 EBITDA 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, EBITDA should be examined in conjunction with net income as presented elsewhere in this press release.
Scheduled Maturities of Borrowing Arrangements
The Company's indebtedness has the following maturities (in thousands):
As of
September 30,
2006
2006 $2,728
2007 15,778
2008 33,117
2009 388,026
2010 265,915
Thereafter 1,305,025
Total maturities 2,010,589
Less unamortized discounts (3,461)
Senior notes payable and other debt $2,007,128
Ventas - Kindred PortfolioThe following is based on data provided by Kindred to the Company or obtained from Kindred's public filings. This information reflects Kindred's EBITDARM and EBITDAR coverage by Master Lease and by asset class, using Kindred's actual cash rent for the period:
TTM TTM
Ventas - Kindred Facility EBITDARM EBITDAR
Master Lease Count Coverage(1,3,5) Coverage(1,4,5)
1 91 2.4x 1.8x
2 46 2.8x 2.1x
3 43 2.4x 1.7x
4 45 2.3x 1.7x
Portfolio 225 2.5x 1.9x
TTM TTM
Ventas - Kindred Facility EBITDARM EBITDAR
Asset Class Count Coverage(1,3,5) Coverage(1,4,5)
Hospitals 39 3.7x 3.0x
Skilled Nursing
Facilities 186 1.8x 1.2x
Portfolio 225 2.5x 1.9x
The following is based on data provided by Kindred to the Company or obtained from Kindred's public filings. This information reflects Kindred's EBITDARM and EBITDAR coverage by Master Lease and by asset class, as if Kindred actual cash rent for the period was $239 million. Actual future results may vary based upon changes in EBITDAR/M at the facilities and annual rent increases, and there can be no assurance that future EBITDAR/M to rent coverages will equal these levels:
Annualized
Post-Reset
TTM TTM Base Rent Annualized
Ventas - EBITDARM EBITDAR Through Pre-Reset
Kindred Facility Coverage Coverage April 30, Base
Master Lease Count (2,3,5) (2,4,5) 2007(6) Rent(6)
1 91 2.1x 1.6x $98.5 $87.2
2 46 2.2x 1.7x 55.8 45.0
3 43 2.0x 1.4x 41.9 35.6
4 45 2.0x 1.5x 42.7 38.0
Portfolio 225 2.1x 1.6x $239.0 $205.9
Annualized
Post-Reset
TTM TTM Base Rent Annualized
Ventas - EBITDARM EBITDAR Through Pre-Reset
Kindred Facility Coverage Coverage April 30, Base
Asset Class Count (2,3,5) (2,4,5) 2007(6) Rent(6)
Hospitals 39 3.2x 2.6x $84.7 $75.0
Skilled Nursing
Facilities 186 1.5x 1.0x 154.2 130.8
Portfolio 225 2.1x 1.6x $239.0 $205.9
(1) Trailing twelve months EBITDARM and EBITDAR for the period ended
June 30, 2006 (the latest available data provided by Kindred) to the
Company's trailing twelve months cash rental revenue.
(2) Trailing twelve months EBITDARM and EBITDAR for the period ended
June 30, 2006 (the latest available data provided by Kindred) to
$239 million in aggregate, annual base rent.
(3) Coverage reflects the ratio of Kindred's EBITDARM to rent. EBITDARM
is defined as earnings before interest, income taxes, depreciation,
amortization, rent and management fees. In the calculation of
trailing twelve months EBITDARM, intercompany profit pertaining to
services provided by Kindred's Peoplefirst Rehabilitation and
Pharmacy Divisions for the twelve months ended June 30, 2006 has been
eliminated from purchased ancillary expenses within the Ventas
portfolio.
(4) Coverage reflects the ratio of Kindred's EBITDAR to rent. EBITDAR is
defined as earnings before interest, income taxes, depreciation,
amortization and rent, but after deducting a 5 percent management
fee. In the calculation of trailing twelve months EBITDAR,
intercompany profit pertaining to Kindred's Peoplefirst
Rehabilitation and Pharmacy Divisions for the twelve months ended
June 30, 2006 has been eliminated from purchased ancillary expenses
within the Ventas portfolio.
(5) Nursing center salary, wage and benefit expenses for fourth quarter
2005 and first quarter 2006 have been normalized in order to
eliminate certain unusual costs related to the implementation of RUGs
refinement which went into effect on January 1, 2006.
(6) Numbers in millions and may not add due to rounding.
- END -
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