FAD of $66.0 Million
2006 Normalized FFO Per Share Rises 17 Percent to $2.44 and FAD Per Share Rises 16 Percent to $2.25
2007 First Quarter Dividend Increases 20 Percent to $0.475 Per Share
LOUISVILLE, KY (February 20, 2007) - Ventas, Inc. (NYSE:VTR) ("Ventas" or the "Company") said today that fourth quarter 2006 normalized Funds from Operations ("FFO") rose 25 percent to $71.2 million, compared with $57.2 million in the fourth quarter of 2005. Normalized FFO per diluted share in the fourth quarter of 2006 increased 22 percent to $0.67, from $0.55 per diluted share for the comparable 2005 period. In the quarter ended December 31, 2006, the Company had 105.7 million weighted average diluted shares outstanding, compared to 104.2 million weighted average diluted shares outstanding a year earlier.
The Company's fourth quarter 2006 Funds Available for Distribution ("FAD") rose 29 percent to $66.0 million, compared with $51.3 million in the fourth quarter of 2005. FAD per diluted share in the fourth quarter of 2006 increased 27 percent to $0.62, from $0.49 per diluted share for the comparable 2005 period.
Normalized FFO for the year ended December 31, 2006 was $255.2 million, a 28 percent increase from $200.1 million for the comparable 2005 period. Normalized FFO per diluted share grew 17 percent in 2006 to $2.44, from $2.09 in 2005. FAD for the year ended December 31, 2006 was $235.2 million, a 27 percent increase from $185.8 million for the comparable 2005 period. FAD per diluted share grew 16 percent in 2006 to $2.25, from $1.94 in 2005.
"Ventas had another excellent year in 2006, delivering a 38 percent compound annual return to its shareholders and growing normalized FFO per share by 17 percent," Ventas Chairman, President and Chief Executive Officer Debra A. Cafaro said. "As evidenced by our 52 percent compound annual total shareholder return for the seven years ended December 31, 2006, our continued, consistent expansion and diversification, balance sheet management and investment in people and processes have positioned us for long-term sustainability and success."
BOARD INCREASES QUARTERLY DIVIDEND BY 20 PERCENT
Ventas said that its Board of Directors voted to increase the Company's first quarter 2007 dividend to $0.475 per share, an increase of 20 percent from the quarterly 2006 dividend of $0.395 per share. The first quarter dividend is payable March 30, 2007 to stockholders of record on March 20, 2007.
"With our superior cash flow growth in 2006 and confidence in our growing, diversified pool of high-quality healthcare and seniors housing assets, we are pleased to increase our dividend by 20 percent to an annualized rate of $1.90 per share," Cafaro added.
Results for the fourth quarter and the year ended December 31, 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"), a full year of rent from the Company's 2005 acquisition of Provident Senior Living Trust ("Provident"), the Company's acquisition program and leading internal growth rate from its existing leases.
Normalized FFO for the year ended December 31, 2006 excludes (a) a fourth quarter gain from the sale of securities totaling $1.4 million, (b) one-time expenses recorded in the third quarter totaling $7.4 million in connection with the Rent Reset process, (c) 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 in the third quarter due to the favorable outcome of this matter, and (d) a $1.3 million expense relating to the write-off of unamortized deferred financing fees in connection with the Company's successful refinancing in April 2006 of its previous $300 million secured revolving credit facility with a $500 million unsecured revolving credit facility (the "Credit Facility").
Normalized FFO for the year ended December 31, 2005 excludes (a) 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 acquisition, which was not used by the Company, (b) net proceeds received by Ventas from a litigation settlement with Sullivan & Cromwell of $15.9 million, (c) a contribution to the Ventas Charitable Foundation of $2.0 million, (d) a net gain on swap breakage of $1.0 million and (e) the write-off of unamortized deferred financing fees of $1.4 million in connection with the payoff of the Company's commercial mortgage backed securities loan.
GAAP NET INCOME
Net income for the quarter ended December 31, 2006 was $40.8 million, or $0.39 per diluted share, compared with net income for the quarter ended December 31, 2005 of $47.2 million, or $0.45 per diluted share (including income from discontinued operations of $5.4 million).
Net income for the year ended December 31, 2006 was $131.4 million, or $1.25 per diluted share, compared with net income for the year ended December 31, 2005 of $130.6 million, or $1.36 per diluted share (including income from discontinued operations of $5.3 million).
FOURTH QUARTER HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS
-- On January 15, 2007, Ventas announced a definitive agreement with
Sunrise Senior Living REIT (TSX: SZR.UN) ("Sunrise REIT") to acquire
its interest in 74 high-quality private pay assisted living communities
in the U.S. and Canada for a total value including debt of
approximately $1.8 billion based on then current exchange rates.
Completion of the transaction is subject to satisfaction of customary
closing conditions, including approval by the unitholders of Sunrise
REIT.
-- Rating agency Standard & Poor's maintained its current BB+ rating and
positive outlook on Ventas debt securities following the Company's
announcement of the Sunrise REIT acquisition.
-- As previously reported, on November 7, 2006, Ventas completed its
acquisition of a diverse portfolio of healthcare and seniors housing
properties in a transaction with entities affiliated with Canada's
Reichmann family (collectively, the "Seller"). The purchase price for
64 assets acquired by Ventas was $602.4 million. Ventas and the Seller
have delayed the purchase of two additional assets that are valued at
$18.5 million, pending lender approval of the loan assumptions by
Ventas relating to mortgage debt on those assets. The properties are
being, or will be, leased to affiliates of Senior Care, Inc. ("Senior
Care") on a triple-net basis, for an initial cash yield of 7.75 percent
and annual escalations of between 3 and 5 percent per annum, depending
on changes in the Consumer Price Index (CPI), contingent upon certain
Senior Care revenue parameters being met.
-- Annualized rent from Kindred represents approximately 50 percent of the
Company's annualized total revenues at year end 2006, assuming that the
Kindred Rent Reset, the Senior Care acquisition and the Company's other
2006 acquisitions were effective at the beginning of the fourth quarter
of 2006. Computed on the same pro forma basis, annualized revenues
from market rate, non-government-reimbursed assets in the Company's
portfolio represent approximately 44 percent of the Company's
annualized 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 consolidated balance
sheet.
-- In January 2007, Ventas purchased one medical office building ("MOB")
located in Ohio for $9.3 million, or $149 per square foot. The MOB is
connected to Mercy Hospital and is 100 percent leased to tenants
directly associated with that hospital. The lease provides Ventas with
an initial cash yield in excess of 8.5 percent.
-- In February 2007, the Company entered into a binding commitment to
acquire upon completion, subject to certain conditions, a majority
interest in a 23-bed specialty hospital and 29,000 square foot MOB, yet
to be constructed, in Casper, Wyoming for approximately $29.0 million.
The hospital and MOB are 100 percent pre-leased on a long-term basis to
a partnership between a major national specialty hospital operator and
a prominent local doctors group. The properties are expected to
generate approximately $3.3 million of annual rent over the terms of
the leases.
-- On December 1, 2006, Ventas issued $230.0 million of unsecured senior
convertible notes (the "convertible notes") that mature on November 15,
2011, bear interest at an annual rate of 3.875 percent and are
convertible into shares of the Company's common stock at an initial
conversion price of $45.07 per common share. Proceeds were used to
repay outstanding amounts under the Credit Facility.
-- At December 31, 2006, the Company had $57.0 million of indebtedness
outstanding under the Credit Facility (excluding outstanding letters of
credit of $0.2 million) and availability of $442.8 million.
-- The Company's debt to total capitalization at December 31, 2006 was
approximately 34 percent.
-- As of December 31, 2006, Ventas's enterprise value was approximately
$6.8 billion.
-- The 225 skilled nursing facilities and hospitals leased by the Company
to Kindred produced EBITDARM to actual cash rent coverage of 2.3 times
for the trailing twelve-month period ended September 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.
FOURTH QUARTER 2006 RESULTSRental income for the quarter ended December 31, 2006 was $116.0 million, of which $60.3 million resulted from leases with Kindred. Fourth quarter 2006 expenses totaled $79.8 million. Depreciation and amortization totaled $32.4 million and interest expense totaled $39.5 million. General, administrative and professional fees totaled $6.7 million and include $0.8 million for non-cash stock-based compensation. Property-level operating expenses relating to the Company's MOB portfolio and other assets for the period were $1.2 million.
FULL YEAR 2006 RESULTS
Rental income for the year ended December 31, 2006 was $418.4 million, of which $220.9 million resulted from leases with Kindred. Expenses for the year ended December 31, 2006 totaled $296.9 million. Depreciation and amortization totaled $119.7 million and interest expense totaled $141.1 million. General, administrative and professional fees totaled $26.1 million and include $3.0 million for non-cash stock-based compensation. Property-level operating expenses relating to the Company's MOB portfolio and other assets for the period were $3.2 million. During 2006, the Company incurred one-time expenses totaling $7.4 million in connection with the Rent Reset process, which included appraisal expenses, investment banking fees, litigation costs and legal fees.
NORMALIZED FFO GUIDANCE FOR 2007
Prior to the announcement of the Sunrise REIT acquisition, Ventas announced that it expects its 2007 normalized FFO to be between $2.70 and $2.75 per diluted share. As part of the Sunrise REIT acquisition announcement, Ventas stated that, assuming the transaction closes early in the second quarter of 2007, it expects the Sunrise REIT acquisition to dilute normalized FFO in 2007 by about $0.05 to $0.07 per share and to break even in 2008, excluding development assets.
The Company's normalized FFO 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 U.S. generally accepted accounting principals ("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 merger expenses that are not capitalized under GAAP, such as costs for foreign exchange hedge agreements, (d) 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 and (e) any dilution resulting from the Company's convertible notes.
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.
FOURTH QUARTER CONFERENCE CALL
Ventas will hold a conference call to discuss this earnings release on February 21, 2007, 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 one week.
Ventas, Inc. is a leading healthcare real estate investment trust. At the date of this press release, Ventas owns 453 healthcare and seniors housing assets in 43 states. Its diverse portfolio includes 172 seniors housing communities, 43 hospitals, 218 skilled nursing facilities and 20 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, acquisitions, investment opportunities, merger integration, growth opportunities, expected lease income, continued qualification as a real estate investment trust ("REIT"), plans and objectives of management for future operations and statements that include words such as "anticipate," "if," "believe," "plan," "estimate," "expect," "intend," "may," "could," "should," "will" and other similar expressions are forward-looking statements. These forward-looking statements are inherently uncertain, and security holders must recognize that actual results may differ from the Company's expectations. The Company does not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made.
The Company's actual future results and trends may differ materially 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, managers and other third parties, as applicable, 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, borrowers and managers, as applicable, 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 and managers, as applicable, to deliver high quality services and to attract residents and 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 ended December 31, 2006 and for the year ending December 31, 2007; (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) risks associated with the proposed acquisition of Sunrise Senior Living REIT, including the Company's ability to successfully complete the transaction on the contemplated terms and to timely and fully realize the expected revenues and cost savings there from; (q) the movement of U.S. and Canadian exchange rates; (r) year-over-year changes in the Consumer Price Index and the effect of those changes on the rent escalators, including the rent escalator for Master Lease 2 with Kindred, and the Company's earnings; and (s) the impact on the liquidity, financial condition and results of operations of the Company's operators, tenants, borrowers and managers, as applicable, resulting from increased operating costs and uninsured liabilities for professional liability claims, and the ability of the Company's operators, tenants, borrowers and managers to accurately estimate the magnitude of such liabilities. Many of these factors are beyond the control of the Company and its management.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 31, 2006, September 30, 2006, June 30, 2006, March 31, 2006 and December 31, 2005
(In thousands, except per share amounts)
December September June March December
31, 2006 30, 2006 30, 2006 31, 2006 31,2005
(Audited) (Unaudited) (Unaudited) (Unaudited) (Audited)
Assets
Real estate
investments:
Land $357,804 $300,384 $300,384 $298,185 $295,363
Building and
improvements 3,350,033 2,801,301 2,801,550 2,778,262 2,732,533
3,707,837 3,101,685 3,101,934 3,076,447 3,027,896
Accumulated
depre-
ciation (659,584) (627,800) (598,644) (569,675) (541,346)
Net real
estate
property 3,048,253 2,473,885 2,503,290 2,506,772 2,486,550
Loans
receivable,
net 35,647 192,578 35,800 35,870 39,924
Net real
estate
invest-
ments 3,083,900 2,666,463 2,539,090 2,542,642 2,526,474
Cash and cash
equivalents 1,246 1,935 1,932 1,466 1,641
Escrow deposits
and restricted
cash 80,039 52,818 51,227 61,753 59,667
Deferred
financing
costs, net 18,415 18,100 17,667 16,844 17,581
Notes
receivable-
related
parties 2,466 2,518 2,501 2,859 2,841
Other 67,734 66,581 48,555 36,040 30,914
Total
assets $3,253,800 $2,808,415 $2,660,972 $2,661,604 $2,639,118
Liabilities and
stockholders'
equity
Liabilities:
Senior notes
payable and
other debt $2,329,053 $2,007,128 $1,882,909 $1,854,551 $1,802,564
Deferred
revenue 8,194 8,780 9,374 9,953 10,540
Interest rate
swap
agreement 429 632 -- 577 1,580
Accrued
dividend 41,949 -- -- -- 37,343
Accrued
interest 19,929 35,460 14,461 34,636 14,418
Accounts
payable and
other accrued
liabilities 113,976 82,346 73,838 72,726 74,960
Deferred
income taxes 30,394 30,394 30,394 30,394 30,394
Total
liabilities 2,543,924 2,164,740 2,010,976 2,002,837 1,971,799
Commitments and
contingencies
Stockholders'
equity:
Preferred
stock, 10,000
shares
authorized,
unissued -- -- -- -- --
Common stock,
$0.25 par
value,
180,000
shares
authorized;
106,137,
104,101,
103,975,
103,854, and
103,523
shares issued
at December
31, 2006,
September 30,
2006, June
30, 2006,
March 31,
2006 and
December 31,
2005,
respectively 26,545 26,036 26,004 25,974 25,927
Capital in
excess of par
value 766,470 699,094 696,667 694,531 692,650
Unearned
compensation
on restricted
stock -- -- -- -- (713)
Accumulated
other
comprehensive
income (loss) 1,037 1,569 1,449 685 (143)
Retained
earnings
(deficit) (84,176) (83,024) (74,124) (62,308) (50,402)
709,876 643,675 649,996 658,882 667,319
Treasury
stock, 0, 0,
0, 4, and 0
shares at
December 31,
2006,
September 30,
2006, June
30, 2006,
March 31,
2006 and
December 31,
2005,
respectively -- -- -- (115) --
Total
stock-
holders'
equity 709,876 643,675 649,996 658,767 667,319
Total
liabilities
and stock-
holders'
equity $3,253,800 $2,808,415 $2,660,972 $2,661,604 $2,639,118
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months and Years Ended December 31, 2006 and 2005
(In thousands, except per share amounts)
For the Three
Months For the Year
Ended December 31, Ended December 31,
2006 2005 2006 2005
(Unaudited) (Audited)
Revenues:
Rental income $116,033 $96,274 $418,449 $324,719
Interest income from loans
receivable 2,641 1,284 7,014 5,001
Interest and other income 1,888 745 2,886 3,268
Total revenues 120,562 98,303 428,349 332,988
Expenses:
Interest 39,497 33,612 141,094 105,581
Depreciation and amortization 32,421 28,695 119,653 87,848
Property-level operating expenses 1,168 706 3,171 2,576
General, administrative and
professional fees (including non-
cash stock-based compensation
expense of $810 and $573 for the
three months ended 2006 and 2005,
respectively, and $3,046 and
$1,971 for the years ended 2006
and 2005, respectively) 6,679 6,996 26,136 25,075
Rent reset costs - - 7,361 -
Reversal of continent liability - - (1,769) -
Loss on extinguishment of debt - 1,376 1,273 1,376
Net gain on swap breakage - (981) - (981)
Net proceeds from litigation
settlement - (15,909) - (15,909)
Contribution to charitable
foundation - 2,000 - 2,000
Total expenses 79,765 56,495 296,919 207,566
Income before net loss on real
estate disposals and discontinued
operations 40,797 41,808 131,430 125,422
Net loss on real estate disposals - - - (175)
Income before discontinued
operations 40,797 41,808 131,430 125,247
Discontinued operations - 5,413 - 5,336
Net income $40,797 $47,221 $131,430 $130,583
Earnings per common share:
Basic:
Income before discontinued
operations $0.39 $0.40 $1.26 $1.32
Net income $0.39 $0.46 $1.26 $1.37
Diluted:
Income before discontinued
operations $0.39 $0.40 $1.25 $1.31
Net income $0.39 $0.45 $1.25 $1.36
Shares used in computing earnings
per common share:
Basic 105,155 103,542 104,206 95,037
Diluted 105,667 104,176 104,731 95,775
Dividends declared per common share $0.395 $0.360 $1.580 $1.440
QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Fourth
2006 Quarters Quarter
Fourth Third Second First 2005
Revenues:
Rental income $116,033 $106,816 $99,095 $96,505 $96,274
Interest income from loans
receivable 2,641 2,566 839 968 1,284
Interest and other income 1,888 285 372 341 745
Total revenues 120,562 109,667 100,306 97,814 98,303
Expenses:
Interest 39,497 34,917 33,723 32,957 33,612
Depreciation and
amortization 32,421 29,651 29,111 28,470 28,695
Property-level operating
expenses 1,168 727 654 622 706
General, administrative and
professional fees
(including non-cash stock-
based compensation
expense of $810, $751,
$727, $758 and $574,
respectively) 6,679 6,539 6,287 6,631 6,996
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 79,765 77,426 71,048 68,680 56,495
Income before discontinued
operations 40,797 32,241 29,258 29,134 41,808
Discontinued operations - - - - 5,413
Net income $40,797 $32,241 $29,258 $29,134 $47,221
Earnings per common share:
Basic:
Income before discontinued
operations $0.39 $0.31 $0.28 $0.28 $0.40
Net income $0.39 $0.31 $0.28 $0.28 $0.46
Diluted:
Income before discontinued
operations $0.39 $0.31 $0.28 $0.28 $0.40
Net income $0.39 $0.31 $0.28 $0.28 $0.45
Shares used in computing
earnings per common share:
Basic 105,155 104,021 103,884 103,751 103,542
Diluted 105,667 104,568 104,374 104,300 104,176
Dividends declared per
common share $0.395 $0.395 $0.395 $0.395 $0.360
Discontinued operations:
Rental income $- $- $- $- $230
Interest and other income - - - - 165
Interest expense - - - - (81)
Depreciation - - - - (15)
Income before gain on sale
of real estate - - - - 299
Gain on sale of real estate - - - - 5,114
Discontinued operations $- $- $- $- $5,413
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2006 and 2005
(Audited)
2006 2005
Cash flows from operating activities:
Net income $131,430 $130,583
Adjustments to reconcile net income
to net cash provided by activities:
Depreciation (including amounts in
discontinued operations) and
amortization 119,653 88,002
Amortization of deferred financing
costs 3,253 3,891
Stock-based compensation 3,004 1,971
Straight-lining of rental income (19,963) (14,287)
Amortization of deferred revenue (2,412) (3,497)
Reversal of contingent liability (1,769) -
Loss on extinguishment of debt 1,273 1,376
Gain on sale of assets (including
amounts in discontinued operations) - (4,939)
Net gain on sale of securities (1,379) -
Net gain on swap breakage - (981)
Other 488 (2,716)
Changes in operating assets and
liabilities:
(Increase) decrease in escrow
deposits and restricted cash (29,789) 10,120
Increase in other assets (11,895) (5,396)
Increase in accrued interest 5,511 5,675
Increase in accounts payable and
accrued and other liabilities 41,462 13,962
Net cash provided by operating
activities 238,867 223,764
Cash flows from investing activities:
Net investment in real estate
property (490,679) (589,552)
Proceeds from real estate disposals - 1,416
Investment in loans receivable (191,068) (47,333)
Proceeds from loans receivable 195,411 20,274
Escrow funds returned from an
Internal Revenue Code Section 1031
exchange 9,902 -
Purchase of securities (5,530) -
Other (10) 154
Net cash used in investing activities (481,974) (615,041)
Cash flows from financing activities:
Net change in borrowings under
unsecured revolving credit facility 57,000 -
Net change in borrowings under
secured revolving credit facility (89,200) 50,200
Proceeds from debt 449,005 600,000
Repayment of debt (16,084) (231,988)
Payment of deferred financing costs (4,876) (9,279)
Issuance of common stock 831 101,964
Proceeds from stock option exercises 6,634 6,819
Payment of swap breakage fee - (2,320)
Cash distribution to stockholders (160,598) (125,843)
Net cash provided by financing
activities 242,712 389,553
Net decrease in cash and cash
equivalents (395) (1,724)
Cash and cash equivalents at
beginning of period 1,641 3,365
Cash and cash equivalents at end of
period $1,246 $1,641
Supplemental schedule of non-cash
activities:
Assets and liabilities assumed from
acquisitions:
Real estate property investments $189,262 $931,571
Escrow deposits and restricted cash 485 34,144
Other assets acquired 350 1,560
Debt assumed 125,633 541,174
Other liabilities (536) 33,275
Issuance of common stock 65,000 392,826
QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Fourth
2006 Quarters Quarter
Fourth Third Second First 2005
Cash flows from operating
activities:
Net income $40,797 $32,241 $29,258 $29,134 $47,221
Adjustments to reconcile
net income to net cash
provided by
operating activities:
Depreciation
(including amounts
in discontinued
operations) and
amortization 32,421 29,651 29,111 28,470 28,710
Amortization of
deferred financing
costs 933 778 772 770 998
Stock-based
compensation 768 751 727 758 574
Straight-lining of
rental income (5,228) (4,871) (4,914) (4,950) (5,895)
Amortization of
deferred revenue (603) (611) (595) (603) (1,034)
Reversal of contingent
liability - (1,769) - - -
Loss on extinguishment
of debt - - 1,273 - 1,376
Gain on sale of assets
(including amounts in
discontinued
operations) - - - - (5,114)
Net gain on sale of
securities (1,379) - - - -
Net gain on swap
breakage - - - - (981)
Other (276) 904 37 (177) (515)
Changes in operating
assets and liabilities:
(Increase) decrease in
escrow deposits and
restricted cash (27,221) (1,591) 1,109 (2,086) 6,994
Decrease (increase) in
other assets 4,495 (13,964) (2,021) (405) (1,330)
(Decrease) increase in
accrued interest (15,531) 20,999 (20,175) 20,218 (16,014)
Increase (decrease) in
accounts payable and
accrued and
other liabilities 31,445 10,485 1,505 (1,973) (2,788)
Net cash provided by
operating
activities 60,621 73,003 36,087 69,156 52,202
Cash flows from investing
activities:
Net investment in real
estate property (426,367) (101) (15,660) (48,354) (9,592)
Proceeds from real
estate disposals - - - - 295
Investment in loans
receivable (34,219) (156,849) - - -
Proceeds from loans
receivable 191,167 88 86 4,070 13,084
Escrow funds returned
from an Internal
Revenue Code Section
1031 exchange - - 9,902 - -
Purchase of securities - - (5,530) - -
Other (85) (209) 318 (231) (563)
Net cash (used in)
provided by investing
activities (269,504) (157,071) (10,884) (44,515) 3,224
Cash flows from financing
activities:
Net change in
borrowings under
unsecured revolving
credit facility (15,300) (94,700) 167,000 - -
Net change in
borrowings under
secured revolving
credit facility - - (141,800) 52,600 (6,700)
Proceeds from debt 225,400 221,531 - 2,074 200,000
Repayment of debt (3,087) (2,620) (7,690) (2,687) (212,823)
Payment of deferred
financing costs (1,122) (853) (2,868) (33) (2,679)
Issuance of common stock 135 268 175 253 126
Proceeds from stock
option exercises 2,168 1,586 1,520 1,360 2,102
Payment of swap breakage
fee - - - - (2,320)
Cash distribution to
stockholders - (41,141) (41,074) (78,383) (37,255)
Net cash provided by
(used in) financing
activities 208,194 84,071 (24,737) (24,816) (59,549)
Net (decrease) increase
in cash and cash
equivalents (689) 3 466 (175) (4,123)
Cash and cash equivalents
at beginning of period 1,935 1,932 1,466 1,641 5,764
Cash and cash equivalents
at end of period $1,246 $1,935 $1,932 $1,466 $1,641
Supplemental schedule of
non-cash activities:
Assets and liabilities
assumed from
acquisitions:
Real estate property
investments $179,785 $(350) $9,827 $- $10,598
Escrow deposits and
restricted cash - - 485 - 331
Other assets acquired - 350 - - -
Debt assumed 114,785 - 10,848 - 10,768
Other liabilities 65,000 - (536) - 161
FUNDS FROM OPERATIONS, NORMALIZED FFO AND FUNDS AVAILABLE
FOR DISTRIBUTION
(In thousands, except per share amounts)
2006 Quarters
Fourth Third Second First Year
Net income $40,797 $32,241 $29,258 $29,134 $131,430
Adjustments:
Depreciation on real
estate assets 31,784 29,156 28,969 28,329 118,238
Other items:
Discontinued operations:
Gain on sale of real
estate - - - - -
Depreciation on real
estate assets - - - - -
FFO 72,581 61,397 58,227 57,463 249,668
Rent reset costs - 7,361 - - 7,361
Reversal of contingent
liability - (1,769) - - (1,769)
Loss on extinguishment of
debt - - 1,273 - 1,273
Gain on sale of securities (1,379) - - - (1,379)
Normalized FFO 71,202 66,989 59,500 57,463 255,154
Straight-lining of rental
income (5,228) (4,871) (4,914) (4,950) (19,963)
FAD $65,974 $62,118 $54,586 $52,513 $235,191
Per diluted share:
Net income $0.39 $0.31 $0.28 $0.28 $1.25
Adjustments:
Depreciation on real
estate assets 0.30 0.28 0.28 0.27 1.13
Other items:
Discontinued operations:
Gain on sale of real
estate - - - - -
Depreciation on real
estate assets - - - - -
FFO 0.69 0.59 0.56 0.55 2.38
Rent reset costs - 0.07 - - 0.07
Reversal of contingent
liability - (0.02) - - (0.02)
Loss on extinguishment of
debt - - 0.01 - 0.01
Gain on sale of securities (0.01) - - - (0.01)
Normalized FFO 0.67 0.64 0.57 0.55 2.44
Straight-lining of rental
income (0.05) (0.05) (0.05) (0.05) (0.19)
FAD $0.62 $0.59 $0.52 $0.50 $2.25
FUNDS FROM OPERATIONS, NORMALIZED FFO AND FUNDS AVAILABLE
FOR DISTRIBUTION
(In thousands, except per share amounts)
2005 Quarters
Fourth Third Second First Year
Net income $47,221 $28,721 $27,068 $27,573 $130,583
Adjustments:
Depreciation on real
estate assets 28,557 27,576 18,144 13,129 87,406
Loss on real estate
disposals - - 175 - 175
Other items:
Discontinued operations:
Gain on sale of real
estate (5,114) - - - (5,114)
Depreciation on real
estate assets 15 46 46 46 153
FFO 70,679 56,343 45,433 40,748 213,203
Loss on extinguishment of
debt 1,376 - - - 1,376
Contribution to charitable
foundation 2,000 - - - 2,000
Net proceeds from
litigation settlement (15,909) - - - (15,909)
Net gain on swap breakage (981) - - - (981)
Bridge loan commitment fee - - 402 - 402
Normalized FFO 57,165 56,343 45,835 40,748 200,091
Straight-lining of rental
income (5,895) (5,558) (1,954) (880) (14,287)
FAD $51,270 $50,785 $43,881 $39,868 $185,804
Per diluted share:
Net income $0.45 $0.28 $0.30 $0.32 $1.36
Adjustments:
Depreciation on real
estate assets 0.27 0.26 0.21 0.16 0.92
Loss on real estate
disposals - - - - -
Other items:
Discontinued operations:
Gain on sale of real
estate (0.05) - - - (0.05)
Depreciation on real
estate assets - - - - -
FFO 0.68 0.54 0.51 0.48 2.23
Loss on extinguishment of
debt 0.01 - - - 0.01
Contribution to charitable
foundation 0.02 - - - 0.02
Net proceeds from
litigation settlement (0.15) - - - (0.15)
Net gain on swap breakage (0.01) - - - (0.01)
Bridge loan commitment fee - - - - -
Normalized FFO 0.55 0.54 0.51 0.48 2.09
Straight-lining of rental
income (0.06) (0.05) (0.02) (0.01) (0.15)
FAD $0.49 $0.49 $0.49 $0.47 $1.94
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 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. Neither FFO nor FAD should 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 Year Ending December 31, 2007
The following table illustrates the Company's guidance per diluted share for the year ending December 31, 2007. As part of the Sunrise REIT acquisition announcement, Ventas stated that, assuming the transaction closes early in the second quarter of 2007, it expects the Sunrise REIT acquisition to dilute normalized FFO in 2007 by about $0.05 to $0.07 per share and to break even in 2008, excluding development assets.
GUIDANCE
For the Year
Ending
December 31, Pro Forma 2007
2007(1) Acquisition(2) Change
Net income $1.42 - $1.47 $1.10 - $1.17 $(0.32)- $(0.30)
Adjustments:
Depreciation on real
estate assets 1.28 - 1.28 1.53 - 1.53 0.25 - 0.25
FFO & Normalized FFO 2.70 - 2.75 2.63 - 2.70 (0.07)- (0.05)
Capital expenditures - - - (0.04)- (0.04) (0.04)- (0.04)
Straight-lining of rental
income (0.15)- (0.15) (0.15)- (0.15) - - -
FAD $2.55 - $2.60 $2.44 - $2.51 $(0.11)- $(0.09)
(1) Per guidance issued on October 26, 2006.
(2) Assumes April 1, 2007 closing date and excludes five development
properties and any non-recurring transaction related expenses.
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 that were completed during the three months ended December 31, 2006, as if the transactions had been consummated as of the beginning of the period. The following table illustrates net debt to pro forma annualized(1) earnings before interest, income taxes, depreciation and amortization ("EBITDA") (dollars in thousands):
Pro forma net income for three months
ended December 31, 2006 $41,006
Add back:
Pro forma interest 40,861
Pro forma depreciation and amortization 33,727
Stock-based compensation 810
Pro forma EBITDA $116,404
Pro forma annualized EBITDA(1) $461,479
As of December 31, 2006:
Debt $2,329,053
Cash (1,246)
Restricted cash pertaining to debt (8,113)
Net debt $2,319,694
Net debt to pro forma EBITDA 5.0 x
(1) Gain on sale of securities in the fourth quarter of 2006 has
not been annualized.
The Company considers EBITDA a profitability measure which indicates the Company's ability to service debt. The Company considers the net debt to pro forma 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
December
31, 2006
2007 $130,206
2008 33,117
2009 372,725
2010 265,915
2011 273,761
Thereafter 1,261,265
Total maturities 2,336,989
Less unamortized commission fees and discounts (7,936)
Senior notes payable and other debt $2,329,053
Ventas - Kindred PortfolioThe following is based on data provided by Kindred to the Company or obtained from Kindred's public filings. The information in the tables below reflects Kindred's EBITDARM coverage by Master Lease and by asset class, using Kindred's actual cash rent for the period:
TTM
Ventas -Kindred Facility EBITDARM
Master Lease Count Coverage(1,3,4)
1 91 2.3x
2 46 2.5x
3 43 2.2x
4 45 2.3x
Portfolio 225 2.3x
TTM
Ventas -Kindred Facility EBITDARM
Asset Class Count Coverage(1,3,4)
Hospitals 39 3.3x
Skilled Nursing
Facilities 186 1.8x
Portfolio 225 2.3x
The information in the tables below reflects Kindred's EBITDARM coverage by Master Lease and by asset class, as if Kindred's actual cash rent for the period was $239 million. Actual future results may vary based upon changes in EBITDARM at the facilities and annual rent increases, and there can be no assurance that future EBITDARM to rent coverages will equal these levels:
Annualized
Post-Reset
TTM Base Rent Annualized
Ventas - Kindred Facility EBITDARM Through Pre-Reset
Master Lease Count Coverage(2,3,4) April 30, 2007(5) Base Rent(5)
1 91 2.0x $98.5 $87.2
2 46 2.1x 55.8 45.0
3 43 1.9x 41.9 35.6
4 45 2.1x 42.7 38.0
Portfolio 225 2.0x $239.0 $205.9
Annualized
Post-Reset
TTM Base Rent Annualized
Ventas - Kindred Facility EBITDARM Through Pre-Reset
Asset Class Count Coverage(2,3,4) April 30, 2007(5) Base Rent(5)
Hospitals 39 3.0x $84.7 $75.0
Skilled Nursing
Facilities 186 1.5x 154.2 130.8
Portfolio 225 2.0x $239.0 $205.9
(1) Trailing twelve months EBITDARM for the period ended September 30,
2006 (the latest available data provided by Kindred) to the Company's
trailing twelve months cash rental revenue.
(2) Trailing twelve months EBITDARM for the period ended September 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 September 30, 2006 has been
eliminated from purchased ancillary expenses within the Ventas
portfolio.
(4) 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.
(5) Numbers in millions and may not add due to rounding.
- END -
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