Ventas Completes Over $150 Million of MOB Investments Year-to-Date
Ventas Expects 2007 Normalized FFO Per Common Share At High End of Previously Announced Guidance Range of $2.60 to $2.67
LOUISVILLE, KY (November 8, 2007) - Ventas, Inc. (NYSE:VTR) ("Ventas" or the "Company") said today that third quarter 2007 normalized Funds from Operations ("FFO") rose 32 percent to $88.7 million, compared with $67.0 million in the third quarter of 2006.
Normalized FFO per diluted common share in the third quarter of 2007 increased three percent to $0.66, from $0.64 per diluted common share for the comparable 2006 period. Weighted average diluted common shares outstanding in the third quarter of 2007 increased by 28.9 million shares to 133.5 million shares from 104.6 million shares for comparable period in 2006, and both periods reflect the $33.1 million increase in annual rent from the Company's tenant Kindred Healthcare, Inc. (NYSE:KND) ("Kindred") that became effective in the third quarter of 2006. The year-over-year increase in normalized FFO per diluted common share is primarily attributable to the Company's acquisition program and its internal growth related to escalations on its triple-net lease portfolio.
FFO per diluted common share, as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), in the third quarter of 2007 increased 24 percent to $0.73, from $0.59 per diluted common share for the comparable 2006 period.
Normalized Funds Available for Distribution ("FAD") per diluted common share in the third quarter of 2007 increased five percent to $0.62, from $0.59 per diluted common share for the comparable 2006 period. Year-over-year normalized FAD growth benefited from a decrease in straight-lining of rental income per diluted common share, offset by higher capital expenditures per diluted common share. The Company's total third quarter 2007 normalized FAD rose 32 percent to $82.1 million, compared with $62.1 million in the third quarter of 2006.
"Ventas had another excellent quarter, with all aspects of our business performing well and our liquidity position strong," Ventas Chairman, President and Chief Executive Officer Debra A. Cafaro said. "We continue to gain traction in our important medical office building ("MOB") strategic growth area, with year-to-date investments in that sector exceeding $150 million, bringing our MOB portfolio above one million square feet. The 78 Sunrise communities we acquired in the second quarter are fully integrated and delivering very positive results. And our core healthcare triple-net lease portfolio remains a strong, high performing foundation for our Company.
"Our strategy of building a high-quality, diverse and productive portfolio of healthcare and seniors housing assets is producing excellent results," Cafaro added. "Our sector has strong supply/demand fundamentals that are less correlated with economic business cycles. This should enable our portfolio to deliver superior long-term value."
Normalized FFO for the nine months ended September 30, 2007 was $242.9 million, or $2.03 per diluted common share, a 32 percent increase from $184.0 million, or $1.76 per diluted common share, for the comparable 2006 period.
Normalized FFO for the three and nine months ended September 30, 2007 excludes the net benefit (totaling $8.5 million and $34.4 million, respectively) of gains from merger-related currency transactions and income taxes, as well as a gain on the sale of securities, offset by merger-related costs.
SUNRISE PORTFOLIO
Total Portfolio
The Company's senior living portfolio acquired in the second quarter of 2007 from Sunrise Senior Living Real Estate Investment Trust ("Sunrise REIT") and managed by Sunrise Senior Living, Inc. (NYSE:SRZ) ("Sunrise") contains 78 communities. Ventas owns 100 percent of 18 of these communities and has a partnership share of between 75 percent and 85 percent in the remaining 60 communities.
Ventas's partnership share of Net Operating Income after management fees ("NOI") was $29.1 million for those 78 communities for the three months ended September 30, 2007. Total community NOI was $34.0 million for the same period.
72 Stabilized Communities
For the 72 stabilized Sunrise communities, Ventas's share of NOI was $28.3 million for the three months ended September 30, 2007. Total community NOI for the stabilized assets was $33.0 million for the same period.
Average occupancy for these 72 stabilized communities was 93.3 percent during the third quarter, which improved from occupancy of 92.3 percent reported for May and June 2007, the first two full months of Ventas's ownership of the assets. Average monthly sequential NOI at the stabilized Sunrise portfolio increased three percent over May and June results. Sunrise management continues to implement targeted programs to increase occupancy and control variable expenses at the Ventas communities. The quarterly occupancy rates and NOI across the communities were positively affected by these efforts.
Six Communities in Lease-up
Ventas's Sunrise portfolio also contains six newly developed communities that are in lease-up. These properties are expected to deliver stabilized unlevered yields of between 9 percent and 9.5 percent. Ventas's share of NOI at the development assets was $0.8 million for the three months ended September 30, 2007. These assets collectively are expected to become accretive to earnings by early 2008.
GAAP NET INCOME
Net income available to common stockholders for the quarter ended September 30, 2007 was $28.0 million, or $0.21 per diluted common share, compared with net income for the quarter ended September 30, 2006 of $32.2 million, or $0.31 per diluted common share, after discontinued operations of $1.3 million.
Net income available to common stockholders for the nine months ended September 30, 2007 was $247.7 million, or $2.07 per diluted common share, after discontinued operations of $135.6 million, compared with net income for the nine months ended September 30, 2006 of $90.6 million, or $0.87 per diluted common share, after discontinued operations of $4.4 million.
THIRD QUARTER HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS
Post July 1, 2007 Acquisitions: Over $130 Million of Acquisitions, Including Over $113 Million of MOB Investments
-- In August 2007, Ventas purchased a 76,300 square foot MOB located on
the campus of an HCA hospital in Aurora, Colorado for $11.8 million.
The MOB is currently 85 percent leased. The property was acquired in a
joint venture with one of the Company's existing partners, a national
MOB developer, who will provide management and leasing services for the
property. Ventas has a 98 percent ownership interest in the property.
-- In October 2007, Ventas purchased two additional MOBs, containing
284,000 square feet, in partnership with the same joint venture partner
for an aggregate purchase price of $66.0 million. These MOBs are
located in Colorado Springs, Colorado and are 100 percent leased.
Memorial Health Systems, the largest area hospital system, leases
44 percent for a surgery center and out-patient care. The Company's
joint venture partner will provide management and leasing services and
has an immaterial ownership interest in the properties.
-- In October 2007, Ventas also purchased two MOBs recently developed by a
national MOB developer from whom the Company has previously acquired
properties. The details are as follows:
- Ventas purchased a 30,000 square foot MOB located on the campus of
HCA University Hospital in Tamarac, Florida for $7.6 million. The
MOB is currently 100 percent leased and occupied, with 28 percent
leased to the hospital. The seller will continue to provide
management and leasing services for the property.
- Ventas purchased a 100,000 square foot MOB located on the campus
of HCA Aventura Hospital and Medical Center in Aventura, Florida
for $27.4 million. Currently the MOB is in lease-up; 63 percent
is leased, of which 27 percent is leased to the hospital. The
property is encumbered with a $17.5 million construction loan.
The MOB was acquired in a new joint venture with the developer,
who will continue to provide management and leasing services for
the property. Ventas has a 93 percent ownership interest in the
property.
-- Ventas's MOB investments are expected to generate at least a seven
percent unlevered yield, plus annual escalations.
-- As previously announced, in July 2007, Ventas purchased two seniors
housing communities, leased by Senior Care, Inc., for $18.5 million.
Portfolio and Performance Highlights
-- With this acquisition and divestiture activity:
- annualized revenue from Kindred represents approximately
28 percent of the Company's annualized total revenues;
- annualized revenue from private-pay, non-government-reimbursed
assets represents 68 percent of the Company's annualized total
revenues, computed on the same pro forma basis;
- annualized revenue from the Company's operating assets, where rent
is paid directly from residents of the Company's operating seniors
housing communities and MOB tenants, constitutes approximately
44 percent of its annualized total revenues, computed on the same
pro forma basis;
- assets leased to Kindred represent approximately 15 percent of the
Company's total real estate assets (measured on a gross book value
basis) on its consolidated balance sheet; and
- annualized revenue for the above computations is determined by
excluding the Company's partner's share in revenue in the
numerator and the denominator.
-- Ventas was ranked as one of the top ten best performing REITs in the
MSCI US REIT Index for the five-year period ended September 30, 2007,
with annual total shareholder return of 32.2 percent.
-- The 203 skilled nursing facilities and hospitals leased by the Company
to Kindred produced EBITDARM (earnings before interest, taxes,
depreciation, amortization, rent and management fees) to actual cash
rent coverage of 2.2 times for the trailing twelve-month period ended
June 30, 2007 (the latest date available).
-- Supplemental information regarding Ventas's portfolio of 518 healthcare
and seniors housing assets is available on the Company's website under
the "For Investors" section or at
http://www.ventasreit.com/investors/supplemental.asp.
Development Pipeline
-- As previously announced, Ventas plans to acquire an 80 percent interest
in Sunrise at Thorne Mills on Steeles senior living community in
Vaughan, Ontario for Cdn $52.7 million. The acquisition is expected to
be completed during the fourth quarter of 2007. The Steeles community
contains 229 units, with capacity for 256 residents. Residents began
moving in during September 2007, the community is home to 45 new
residents and is approximately 19 percent occupied. It should produce
positive NOI by late 2008. The expected unlevered yield on
stabilization should approximate 8 percent to 8.5 percent, and the
Company expects the acquisition to result in dilution of approximately
($0.01) per diluted common share during the fourth quarter of 2007,
which will be included in the Company's normalized FFO results. There
can be no assurance regarding the timing, closing or performance of
this proposed acquisition.
Balance Sheet, Financing & Capital Markets
-- As previously announced, in September 2007, Moody's Investors Service
upgraded Ventas's unsecured debt rating to Ba1 from Ba2, with a stable
outlook. Ventas's unsecured debt is currently rated BBB- (stable) by
Fitch, BB+ (positive) by Standard & Poor's and Ba1 (stable) by Moody's.
-- In August 2007, Ventas entered into a Cdn $90 million unsecured
revolving credit facility (the "Canadian Credit Facility") with Bank of
Montreal. Pricing under the Canadian Credit Facility is currently at an
all-in rate of 6.3 percent. Ventas used the proceeds of the Canadian
Credit Facility to pay down its existing U.S. $600 million unsecured
revolving credit facility. Borrowings outstanding under the U.S.
unsecured revolving credit facility were $108 million at quarter end.
Additional News
-- As previously announced, Lisa M. Brush recently joined Ventas as Senior
Vice President - Senior Housing Development and Operations. Ms. Brush
previously was Chief Operating Officer of Sunrise REIT, which Ventas
acquired in April 2007.
VENTAS EXPECTS 2007 NORMALIZED FFO AT HIGH END OF PREVIOUSLY ANNOUNCED RANGE
Ventas currently expects its 2007 normalized FFO to be at the high end of its previously announced guidance range of $2.60 to $2.67 per diluted common share. For 2006, Ventas reported normalized FFO per diluted common share of $2.44.
The Company's normalized FFO guidance for all periods assumes that all of the Company's tenants, borrowers and managers continue to meet all of their obligations to the Company. In addition, the Company's normalized FFO guidance (and related U.S. generally accepted accounting principles ("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) merger-related benefits, costs and expenses that are not capitalized under GAAP, including transitional expenses, amortization of fees related to acquisition financing and costs, gains and losses for foreign currency hedge agreements, and expenses relating to the Company's lawsuit against HCP, Inc., (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, (e) the non-cash effect of income tax benefits, and (f) 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.
THIRD QUARTER CONFERENCE CALL
Ventas will hold a conference call to discuss this earnings release on November 9, 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 30 days.
Ventas, Inc. is a leading healthcare real estate investment trust. At the date of this press release, Ventas owns 518 seniors housing and healthcare- related properties located in 43 states and two Canadian provinces. Its diverse portfolio includes 252 seniors housing communities, 197 skilled nursing facilities, 42 hospitals and 27 medical office and other properties. 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, to attract and retain qualified personnel 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 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 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 acquisition of Sunrise Senior Living REIT ("Sunrise REIT"), including the timely delivery of accurate property-level financial results for the Company's properties and the Company's ability to timely and fully realize the expected revenues and cost savings therefrom; (q) factors causing volatility in the Company's revenues generated by the properties acquired in connection with the acquisition of Sunrise REIT, including without limitation national and regional economic conditions, costs of materials, energy, labor and services, employee benefit costs and professional and general liability claims; (r) the movement of U.S. and Canadian exchange rates; (s) 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; (t) 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; and (u) the impact of the Sunrise Senior Living, Inc. strategic review process and accounting, legal and regulatory issues. Many of these factors are beyond the control of the Company and its management.
CONDENSED CONSOLIDATED BALANCE SHEETS As of September 30, 2007, June 30, 2007, March 31, 2007, December 31, 2006 and
September 30, 2006
(In thousands, except per share amounts)
September 30, June 30, March 31, December 31, September 30,
2007 2007 2007 2006 2006
(Unaudited) (Unaudited) (Unaudited) (Audited) (Unaudited)
Assets
Real estate
investments:
Land $564,462 $551,463 $359,104 $357,804 $300,384
Buildings
and
improve-
ments 5,548,290 5,500,868 3,386,697 3,350,033 2,801,301
6,112,752 6,052,331 3,745,801 3,707,837 3,101,685
Accumulated
depreciation (765,598) (718,342) (692,402) (659,584) (627,800)
Net real
estate
property 5,347,154 5,333,989 3,053,399 3,048,253 2,473,885
Loans
receivable,
net 35,556 34,792 35,554 35,647 192,578
Net real
estate
investments 5,382,710 5,368,781 3,088,953 3,083,900 2,666,463
Cash and cash
equivalents 28,573 30,138 - 1,246 1,935
Escrow deposits
and restricted
cash 89,807 99,058 80,039 80,039 52,818
Deferred
financing
costs, net 22,280 23,202 17,984 18,415 18,100
Notes
receivable-
related
parties 2,144 2,126 2,484 2,466 2,518
Other 136,106 148,148 96,707 67,734 66,581
Total
assets $5,661,620 $5,671,453 $3,286,167 $3,253,800 $2,808,415
Liabilities
and
stockholders'
equity
Liabilities:
Senior notes
payable and
other debt $3,267,705 $3,284,642 $2,370,418 $2,329,053 $2,007,128
Deferred
revenue 9,665 10,219 7,607 8,194 8,780
Accrued
dividend - - - 41,949 -
Accrued
interest 46,752 21,157 45,696 19,929 35,460
Accounts
payable and
other accrued
liabilities 152,753 140,493 122,155 114,012 82,585
Deferred
income taxes 313,987 309,215 30,394 30,394 30,394
Total
liabilities 3,790,862 3,765,726 2,576,270 2,543,531 2,164,347
Minority
interest 26,781 26,622 983 393 393
Commitments and
contingencies
Stockholders' equity:
Preferred stock,
10,000 shares
authorized,
unissued - - - - -
Common stock,
$0.25 par value;
133,451, 133,366,
106,314, 106,137
and 104,101 shares
issued at
September 30,
2007, June 30,
2007, March 31,
2007, December 31,
2006 and
September 30,
2006,
respectively 33,371 33,350 26,587 26,545 26,036
Capital in
excess of
par value 1,817,809 1,814,637 771,004 766,470 699,094
Accumulated
other
comprehensive
income 6,652 9,482 914 1,037 1,569
Retained
earnings
(deficit) (13,761) 21,636 (89,591) (84,176) (83,024)
Treasury
stock, 3,
0, 0, 0
and 0 at
September 30,
2007,
June 30,
2007,
March 31, 2007,
December 31,
2006 and
September 30,
2006,
respectively (94) - - - -
Total
stockholders'
equity 1,843,977 1,879,105 708,914 709,876 643,675
Total
liabilities
and
stockholders'
equity $5,661,620 $5,671,453 $3,286,167 $3,253,800 $2,808,415
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 2007 and 2006
(In thousands, except per share amounts)
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2007 2006 2007 2006
Revenues:
Rental income $121,167 $104,004 $359,374 $292,544
Resident fees and services 103,938 - 175,338 -
Interest income from loans
receivable 477 2,566 2,115 4,373
Interest and other income 712 285 2,411 998
Total revenues 226,294 106,855 539,238 297,915
Expenses:
Interest 54,092 34,019 148,771 97,962
Depreciation and amortization 70,716 29,024 161,516 85,380
Property-level operating expenses 71,382 727 122,730 2,003
General, administrative and
professional fees (including
non-cash stock-based compensation
expense of $1,768 and $751 for
the three months ended 2007 and
2006, respectively, and $5,602 and
$2,236 for the nine months ended
2007 and 2006, respectively) 9,315 6,539 24,919 19,457
Foreign currency loss (gain) 116 - (24,245) -
Merger-related expenses 1,535 - 2,327 -
Rent reset costs - 7,361 - 7,361
Reversal of contingent liability - (1,769) - (1,769)
(Gain) loss on extinguishment of
debt (88) - (88) 1,273
Total expenses 207,068 75,901 435,930 211,667
Income before income taxes,
minority interest and discontinued
operations 19,226 30,954 103,308 86,248
Income tax benefit 9,463 - 15,074 -
Income before minority interest
and discontinued operations 28,689 30,954 118,382 86,248
Minority interest, net of tax 675 - 1,088 -
Income from continuing operations 28,014 30,954 117,294 86,248
Discontinued operations - 1,287 135,623 4,385
Net income 28,014 32,241 252,917 90,633
Preferred stock dividends and
issuance costs - - 5,199 -
Net income available to common
stockholders $28,014 $32,241 $247,718 $90,633
Earnings per common share:
Basic:
Income from continuing operations
applicable to common shares $0.21 $0.30 $0.94 $0.83
Discontinued operations - 0.01 1.14 0.04
Net income available to common
stockholders $0.21 $0.31 $2.08 $0.87
Diluted:
Income from continuing operations
applicable to common shares $0.21 $0.30 $0.94 $0.83
Discontinued operations - 0.01 1.13 0.04
Net income available to common
stockholders $0.21 $0.31 $2.07 $0.87
Weighted average shares used in
computing earnings per common
share:
Basic 133,205 104,021 118,989 103,886
Diluted 133,503 104,568 119,422 104,415
Dividends declared per common
share $0.475 $0.395 $1.425 $1.185
QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
2007 Quarters 2006 Quarters
Third Second First Fourth Third
Revenues:
Rental income $121,167 $120,057 $118,150 $113,408 $104,004
Resident fees and
services 103,938 71,400 - - -
Interest income from
loans receivable 477 815 823 2,641 2,566
Interest and other
income 712 1,450 249 1,888 285
Total revenues 226,294 193,722 119,222 117,937 106,855
Expenses:
Interest 54,092 55,148 39,531 38,582 34,019
Depreciation and
amortization 70,716 57,994 32,806 31,792 29,024
Property-level operating
expenses 71,382 50,407 941 1,168 727
General, administrative
and professional fees
(including non-cash
stock-based compensation
expense of $1,768,
$1,820, $2,014, $810
and $751, respectively) 9,315 8,023 7,581 6,679 6,539
Foreign currency loss
(gain) 116 (18,575) (5,786) - -
Merger-related expenses 1,535 792 - - -
Rent reset costs - - - - 7,361
Reversal of contingent
liability - - - - (1,769)
Gain on extinguishment
of debt (88) - - - -
Total expenses 207,068 153,789 75,073 78,221 75,901
Income before income
taxes, minority
interest and
discontinued operations 19,226 39,933 44,149 39,716 30,954
Income tax benefit 9,463 5,611 - - -
Income before minority
interest and
discontinued operations 28,689 45,544 44,149 39,716 30,954
Minority interest, net
of tax 675 408 5 - -
Income from continuing
operations 28,014 45,136 44,144 39,716 30,954
Discontinued operations - 134,661 962 1,081 1,287
Net income 28,014 179,797 45,106 40,797 32,241
Preferred stock dividends
and issuance costs - 5,199 - - -
Net income available to
common stockholders $28,014 $174,598 $45,106 $40,797 $32,241
Earnings per common share:
Basic:
Income from continuing
operations applicable
to common shares $0.21 $0.34 $0.42 $0.38 $0.30
Discontinued operations - 1.15 0.01 0.01 0.01
Net income available to
common stockholders $0.21 $1.49 $0.43 $0.39 $0.31
Diluted:
Income from continuing
operations applicable
to common shares $0.21 $0.34 $0.41 $0.38 $0.30
Discontinued operations - 1.14 0.01 0.01 0.01
Net income available to
common stockholders $0.21 $1.48 $0.42 $0.39 $0.31
Shares used in computing
earnings per common share:
Basic 133,205 117,419 106,044 105,155 104,021
Diluted 133,503 117,825 106,775 105,667 104,568
Dividends declared per
common share $0.475 $0.475 $0.475 $0.395 $0.395
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2007 and 2006
(In thousands)
(Unaudited)
2007 2006
Cash flows from operating activities:
Net income $252,917 $90,633
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization (including
amounts in discontinued operations) 162,501 87,232
Amortization of deferred revenue and lease
intangibles, net (6,629) (1,809)
Other amortization expenses 1,981 2,320
Stock-based compensation 5,602 2,236
Straight-lining of rental income (12,932) (14,735)
Gain on sale of assets (including amounts in
discontinued operations) (129,478) -
Loss on extinguishment of debt - 1,273
Reversal of contingent liability - (1,769)
Loss on bridge financing 2,550 -
Deferred tax benefit (15,074) -
Other (378) 764
Changes in operating assets and liabilities:
Increase in other assets 16,326 (18,958)
Increase in accrued interest 22,628 21,042
Increase in other liabilities 47,959 10,017
Net cash provided by operating activities 347,973 178,246
Cash flows from investing activities:
Net investment in real estate property (1,310,186) (63,978)
Investment in loans receivable - (156,849)
Proceeds from sale of assets 157,400 -
Proceeds from sale of securities 7,773 -
Proceeds from loans receivable 23,764 4,244
Capital expenditures (3,444) (334)
Escrow funds returned from an Internal Revenue
Code Section 1031 exchange 9,000 -
Other 322 4,447
Net cash used in investing activities (1,115,371) (212,470)
Cash flows from financing activities:
Net change in borrowings under unsecured
revolving credit facility 46,400 72,300
Net change in borrowings under secured
revolving credit facility - (89,200)
Net change in borrowings under Canadian credit
facility 84,159 -
Issuance of bridge financing 1,230,000 -
Repayment of bridge financing (1,230,000) -
Proceeds from debt 9,410 223,605
Repayment of debt (143,775) (12,997)
Debt and preferred stock issuance costs (4,300) -
Payment of deferred financing costs (5,534) (3,754)
Purchase of foreign currency hedge (8,489) -
Issuance of common stock 1,045,729 696
Cash distribution to preferred stockholders (3,449) -
Cash distribution to common stockholders (219,253) (160,598)
Other 8,194 4,466
Net cash provided by financing activities 809,092 34,518
Net increase in cash and cash equivalents 41,694 294
Effect of foreign currency translation on cash
and cash equivalents (14,367) -
Cash and cash equivalents at beginning of period 1,246 1,641
Cash and cash equivalents at end of period $28,573 $1,935
QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
2007 Quarters 2006 Quarters
Third Second First Fourth Third
Cash flows from
operating activities:
Net income $28,014 $179,797 $45,106 $40,797 $32,241
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization
(including amounts
in discontinued
operations) 70,716 58,352 33,433 32,421 29,651
Amortization of
deferred revenue and
lease intangibles,
net (3,027) (2,998) (604) (603) (611)
Other amortization
expenses 322 549 1,110 933 778
Stock-based
compensation 1,768 1,820 2,014 768 751
Straight-lining of
rental income (4,326) (4,337) (4,269) (5,228) (4,871)
Gain on sale of assets
(including amounts in
discontinued
operations) - (129,478) - - -
Reversal of contingent
liability - - - - (1,769)
Loss on bridge
financing - 2,550 - - -
Deferred tax benefit (9,463) (5,611) - - -
Realized gain on
foreign currency hedge - 5,786 - - -
Unrealized gain on
foreign currency hedge - - (5,786) - -
Net gain on sale of
securities - (864) - (1,379) -
Other 463 (11) 34 (276) 904
Changes in operating
assets and liabilities:
Decrease (increase) in
other assets 25,972 6,931 (16,577) (22,863) (15,747)
Increase (decrease) in
accrued interest 25,125 (28,245) 25,748 (15,531) 20,999
Increase (decrease) in
other liabilities 46,570 (6,542) 7,931 31,445 10,485
Net cash provided by
operating
activities 182,134 77,699 88,140 60,484 72,811
Cash flows from
investing activities:
Net investment in real
estate property (81,835) (1,198,000) (30,351) (426,278) -
Investment in loans
receivable - - - (34,219) (156,849)
Proceeds from sale of
assets - 157,400 - - -
Proceeds from sale of
securities - 2,701 5,072 - -
Proceeds from loans
receivable 643 23,011 110 191,167 88
Capital expenditures (2,242) (1,166) (36) (89) (101)
Escrow funds returned
from an Internal
Revenue Code Section
1031 exchange 9,000 - - - -
Other (18) 358 (18) 52 (17)
Net cash used in
investing activities (74,452) (1,015,696) (25,223) (269,367) (156,879)
Cash flows from
financing activities:
Net change in borrowings
under unsecured
revolving credit
facility (109,800) 4,700 151,500 (15,300) (94,700)
Net change in
borrowings under
secured revolving
credit facility - - - - -
Net change in
borrowings under
Canadian credit
facility 84,159 - - - -
Issuance of bridge
financing - 1,230,000 - - -
Repayment of bridge
financing - (1,230,000) - - -
Proceeds from debt 1,095 8,315 - 225,400 221,531
Repayment of debt (12,059) (14,446) (117,270) (3,087) (2,620)
Debt and preferred
stock issuance costs - (4,300) - - -
Payment of deferred
financing costs (131) (4,991) (412) (1,122) (853)
Purchase of foreign
currency hedge - - (8,489) - -
Issuance of common stock (250) 1,045,979 - - -
Cash distributions to
preferred stockholders - (3,449) - - -
Cash distributions to
common stockholders (63,411) (63,371) (92,471) - (41,141)
Other 2,099 3,116 2,979 2,303 1,854
Net cash (used in)
provided by financing
activities (98,298) 971,553 (64,163) 208,194 84,071
Net increase (decrease)
in cash and cash
equivalents 9,384 33,556 (1,246) (689) 3
Effect of foreign
currency translation
on cash and cash
equivalents (10,949) (3,418) - - -
Cash and cash
equivalents at
beginning of period 30,138 - 1,246 1,935 1,932
Cash and cash
equivalents at end of
period $28,573 $30,138 $- $1,246 $1,935
FUNDS FROM OPERATIONS, NORMALIZED FFO AND FUNDS AVAILABLE
FOR DISTRIBUTION
(In thousands, except per share amounts)
2007 Quarters 2006 Quarters
Third Second First Fourth Third
Net income available to
common stockholders $28,014 $174,598 $45,106 $40,797 $32,241
Adjustments:
Depreciation and
amortization on real estate
assets 70,549 57,827 32,209 31,172 28,544
Depreciation on real estate
assets related to minority
interest (1,420) (938) - - -
Discontinued operations:
Gain on sale of real estate
assets - (129,478) - - -
Depreciation and
amortization on real estate
assets - 203 609 612 612
FFO 97,143 102,212 77,924 72,581 61,397
Gain on foreign currency
hedge - (18,528) (5,786) - -
Preferred stock issuance costs - 1,750 - - -
Bridge loan fee - 2,550 - - -
Merger-related expenses 1,535 792 - - -
Gain on sale of securities - (864) - (1,379) -
Deferred tax benefit (9,897) (5,856) - - -
Rent reset costs - - - - 7,361
Reversal of contingent
liability - - - - (1,769)
Gain on extinguishment of
debt (88) - - - -
Normalized FFO 88,693 82,056 72,138 71,202 66,989
Straight-lining of rental
income (4,326) (4,337) (4,269) (5,228) (4,871)
Capital expenditures (2,243) (1,166) (36) (89) (46)
FAD $82,124 $76,553 $67,833 $65,885 $62,072
Per diluted share:
Net income available to common
stockholders $0.21 $1.48 $0.42 $0.39 $0.31
Adjustments:
Depreciation and amortization
on real estate assets 0.53 0.49 0.31 0.30 0.27
Depreciation on real estate
assets related to minority
interest (0.01) (0.01) - - -
Discontinued operations:
Gain on sale of real estate
assets - (1.10) - - -
Depreciation and amortization
on real estate assets - - 0.01 0.01 0.01
FFO 0.73 0.87 0.73 0.69 0.59
Gain on foreign currency hedge - (0.16) (0.05) - -
Preferred stock issuance costs - 0.01 - - -
Bridge loan fee - 0.02 - - -
Merger-related expenses 0.01 0.01 - - -
Gain on sale of securities - (0.01) - (0.01) -
Deferred tax benefit (0.07) (0.05) - - -
Rent reset costs - - - - 0.07
Reversal of contingent liability - - - - (0.02)
Gain on extinguishment of debt - - - - -
Normalized FFO 0.66 0.70 0.68 0.67 0.64
Straight-lining of rental
income (0.03) (0.04) (0.04) (0.05) (0.05)
Capital expenditures (0.02) (0.01) (0.00) (0.00) (0.00)
FAD $0.62 $0.65 $0.64 $0.62 $0.59
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 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 and capital expenditures.
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.
Normalized FFO Guidance for the Year Ending December 31, 2007
The following table illustrates the Company's normalized FFO guidance per diluted common share for the year ending December 31, 2007:
GUIDANCE
For the Year
Ending
December 31, 2007
Net income available to common stockholders $2.26 - $2.33
Adjustments:
Depreciation and amortization on real estate
assets, depreciation related to minority
interest and gain on sale of real estate
assets, net 0.83 - 0.83
FFO 3.09 - 3.16
Merger-related items:
Gain on foreign currency hedge, gain on sale
of securities, merger-related expenses and
income tax benefit, net (0.49) - (0.49)
Normalized FFO 2.60 - 2.67
Straight-lining of rental income and
capital expenditures (0.18) - (0.18)
FAD $2.42 - $2.49
Net Debt to Pro Forma EBITDA
The 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 September 30, 2007, 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, taxes, depreciation and amortization ("EBITDA") (dollars in thousands):
Pro forma net income for trailing twelve months ended
September 30, 2007 $240,631
Add back:
Pro forma interest (including discontinued operations) 244,975
Pro forma depreciation and amortization (including
discontinued operations) 280,953
Stock-based compensation 6,412
Gain on extinguishment of debt (88)
Income tax benefit (37,852)
Minority interest 2,654
Net gain on real estate disposals (129,478)
Other taxes 1,212
Pro forma EBITDA $609,419
As of September 30, 2007:
Debt $3,267,705
Cash (43,212)
Net debt $3,224,493
Net debt to pro forma EBITDA 5.3 x
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 September 30, 2007
2007 $23,869
2008 180,963
2009 531,691
2010 282,539
2011 303,591
Thereafter 1,931,399
Total maturities 3,254,052
Unamortized fair value adjustment 20,777
Unamortized discounts (7,123)
Senior notes payable and other debt $3,267,706
Sunrise's pro rata share of total maturities is approximately $151.8 million.
Non-GAAP Financial Measures Reconciliation (In thousands, except per share
amounts)
For the Nine Months
Ended September 30,
2007 2006
Net income available to common stockholders $247,718 $90,633
Adjustments:
Depreciation and amortization on real
estate assets 160,585 84,602
Depreciation on real estate assets
related to minority interest (2,358) -
Discontinued operations:
Gain on sale of real estate assets (129,478) -
Depreciation and amortization on real
estate assets 812 1,852
FFO 277,279 177,087
Gain on foreign currency hedge (24,314) -
Preferred stock issuance costs 1,750 -
Bridge loan fee 2,550 -
Merger-related expenses 2,327 -
Gain on sale of securities (864) -
Deferred tax benefit (15,753) -
Rent reset costs - 7,361
Reversal of contingent liability - (1,769)
(Gain) loss on extinguishment of debt (88) 1,273
Normalized FFO 242,887 183,952
Straight-lining of rental income (12,932) (14,735)
Capital expenditures (3,445) -
FAD $226,510 $169,217
Per diluted share:
Net income available to common stockholders $2.07 $0.87
Adjustments:
Depreciation and amortization on real
estate assets 1.34 0.81
Depreciation on real estate assets
related to minority interest (0.02) -
Discontinued operations:
Gain on sale of real estate assets (1.08) -
Depreciation and amortization on real
estate assets 0.01 0.02
FFO 2.32 1.70
Gain on foreign currency hedge (0.20) -
Preferred stock issuance costs 0.01 -
Bridge loan fee 0.02 -
Merger-related expenses 0.02 -
Gain on sale of securities (0.01) -
Deferred tax benefit (0.13) -
Rent reset costs - 0.07
Reversal of contingent liability - (0.02)
Loss on extinguishment of debt - 0.01
Normalized FFO 2.03 1.76
Straight-lining of rental income (0.11) (0.15)
Capital expenditures (0.03) -
FAD $1.90 $1.61
- END -
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