Ventas's 2007 Investments Totaled Approximately $2.2 Billion
Ventas Expects 2008 Normalized FFO Per Common Share to Range between $2.75 and $2.82
2008 FIRST QUARTER DIVIDEND INCREASES EIGHT PERCENT TO $0.5125 PER SHARE
LOUISVILLE, KY (February 13, 2008) - Ventas, Inc. (NYSE:VTR) ("Ventas" or the "Company") said today that full year 2007 normalized Funds from Operations ("FFO") per diluted common share rose ten percent to $2.69, compared to $2.44 last year. Normalized FFO increased 30 percent in 2007 to $330.6 million, compared to $255.2 million in 2006.
Normalized FFO for the fourth quarter of 2007 rose 23 percent to $87.7 million, versus $71.2 million for the fourth quarter of 2006. Normalized FFO per diluted common share in the fourth quarter of 2007 decreased one percent to $0.66, from $0.67 per diluted common share for the comparable 2006 period. FFO per diluted common share, as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), in the fourth quarter of 2007 increased nine percent to $0.75, from $0.69 per diluted common share for the comparable 2006 period. Both periods reflect the increase in annual rent from the Company's tenant Kindred Healthcare, Inc. (NYSE:KND) ("Kindred") that became effective in the third quarter of 2006.
During the fourth quarter and year, the Company benefited from both internal growth and accretive acquisitions, offset by the Company's increase in outstanding shares and general and administrative costs, which are principally related to Ventas's acquisition of Sunrise Senior Living Real Estate Investment Trust ("Sunrise REIT") in 2007.
Weighted average diluted common shares outstanding in the fourth quarter of 2007 increased by 28.0 million shares to 133.7 million shares, from 105.7 million shares for the comparable period in 2006.
Normalized FFO for the three months and year ended December 31, 2007 excludes the net benefit (totaling $12.7 million and $47.1 million, respectively) of gains from merger-related currency transactions, income taxes and a gain on the sale of securities, offset by merger-related costs.
Funds Available for Distribution ("FAD") for the fourth quarter of 2007 rose 22 percent to $80.4 million, versus $65.9 million for the fourth quarter of 2006. FAD per diluted common share in the fourth quarter of 2007 decreased three percent to $0.60, from $0.62 per diluted common share for the comparable 2006 period. FAD increased 30 percent in 2007 to $306.9 million, compared to $234.8 million in 2006. FAD per diluted common share rose 11 percent in 2007 to $2.49, from $2.25 in 2006. Year-over-year FAD per diluted common share changed primarily due to the Company's increase in outstanding shares and additional capital expenditures as a result of the Sunrise REIT acquisition and the Company's growing medical office building ("MOB") portfolio, partially offset by higher cash rent on leases that provide for straight-lining of rental income.
"As the top performing healthcare REIT in 2007, Ventas had another excellent year, highlighted by the successful completion of our important Sunrise REIT acquisition. We delivered 12 percent total return to shareholders, built a premier diversified portfolio of seniors housing and healthcare assets and continued to strengthen our high performing team," Ventas Chairman, President and Chief Executive Officer Debra A. Cafaro said. "Our assets are performing well and our balance sheet and liquidity position are strong, which should provide us with excellent opportunities going forward.
"We started 2008 on an outstanding note, with an investment grade credit rating from Standard & Poor's. This "BBB-" rating -- our second -- demonstrates the benefits of our financial discipline and our high quality diversified portfolio," Cafaro added. "Our investment grade rating should enhance our access to capital and decrease our borrowing costs, both of which should benefit our shareholders."
BOARD INCREASES QUARTERLY DIVIDEND BY EIGHT PERCENT
Ventas also said that its Board of Directors voted to increase the Company's first quarter 2008 dividend to $0.5125 per share, an increase of eight percent from the 2007 quarterly dividend of $0.475 per share. The first quarter dividend is payable March 28, 2008 to stockholders of record on March 6, 2008.
"We are pleased to share our cash flow growth with our stockholders by increasing our dividend to an annualized rate of $2.05 per share," Cafaro stated.
SUNRISE PORTFOLIO
Total Portfolio
The Company's senior living operating portfolio contains 79 communities in North America that are managed by Sunrise Senior Living, Inc. (NYSE:SRZ) ("Sunrise"). Ventas owns 100 percent of 18 of these communities and has a partnership share of between 75 percent and 85 percent in the remaining 61 communities, with Sunrise owning the minority interest in those 61 communities.
Ventas's partnership share of Net Operating Income after management fees ("NOI") was $28.9 million for those 79 communities for the three months ended December 31, 2007. Total community NOI was $33.7 million for the same period.
72 Stabilized Communities
For the 72 stabilized Sunrise communities, Ventas's share of NOI was $28.0 million for the three months ended December 31, 2007. Total community NOI for the stabilized assets was $32.6 million for the same period. Revenues increased two percent versus third quarter results at the stabilized communities.
Average occupancy of 93 percent and strong revenue performance for these 72 stabilized communities during the fourth quarter demonstrate the quality and strength of the Sunrise portfolio and the market for seniors housing.
Seven Communities in Lease-up
Ventas's Sunrise portfolio also contains seven recently developed communities that are in lease-up, including the Company's newly acquired Sunrise at Thorne Mills on Steeles senior living community in Vaughan, Ontario ("Steeles"). Ventas's share of NOI at the development assets was $0.9 million for the three months ended December 31, 2007.
GAAP NET INCOME
Net income available to common stockholders for the quarter ended December 31, 2007 was $29.4 million, or $0.22 per diluted common share, compared with net income for the quarter ended December 31, 2006 of $40.8 million, or $0.39 per diluted common share, after discontinued operations of $1.1 million.
Net income available to common stockholders for the year ended December 31, 2007 was $277.1 million, or $2.25 per diluted common share, after discontinued operations of $135.6 million, compared with net income for the year ended December 31, 2006 of $131.4 million, or $1.25 per diluted common share, after discontinued operations of $5.5 million.
FOURTH QUARTER HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS
-- Ventas's 2007 normalized FFO growth per diluted common share of
ten percent was the sixth consecutive year of double-digit growth.
-- Ventas was the only REIT in the top five performers of the MSCI US REIT
Index for each of the one-, three-, five- and ten-year periods ended
December 31, 2007. For the five-year period ended December 31, 2007,
Ventas delivered a 39 percent compound annual total shareholder return
("TSR"), making it the third best performing REIT in the MSCI US REIT
Index, which had an annualized TSR of 18 percent for the same period.
-- Ventas's investments for the year totaled approximately $2.2 billion,
including the Sunrise REIT acquisition and over $150 million of MOB
acquisitions.
-- Ventas's MOB portfolio now consists of over one million square feet,
and the Company has existing partnerships with four quality MOB
developer-operators.
-- During 2007, Ventas sold one hospital and 21 skilled nursing facilities
to Kindred and received $175.0 million in total cash proceeds,
representing a six percent capitalization rate on rent.
-- As previously announced, Ventas prevailed in a preliminary phase of its
lawsuit against HCP, Inc. ("HCP") pending in the United States District
Court for the Western District of Kentucky, when the Court denied HCP's
motion to dismiss Ventas's lawsuit. The litigation arises from the
Company's 2007 acquisition of Sunrise REIT. The parties have commenced
the discovery phase of the litigation.
Portfolio and Performance Highlights
-- Ventas acquired an 80 percent interest in Steeles. The Steeles
community contains 229 units, with capacity for 256 residents.
Residents began moving in during September 2007, and the community is
now home to 79 new residents and is approximately 31 percent occupied.
It should produce positive NOI by the second half of 2008. The
expected unlevered yield on stabilization should approximate 8 percent
to 8.5 percent.
-- In January 2008, Ventas purchased one seniors housing community located
in Texas for $5.1 million and leased it to an affiliate of Capital
Senior Living Corporation. The asset contains 47 units. The lease
provides Ventas with an initial cash yield of approximately
7.75 percent and an expected unlevered yield over the life of the lease
of approximately 8.6 percent.
-- With these acquisitions and divestiture activity:
-- annualized revenue from Kindred represents approximately 27 percent
of the Company's annualized total revenues;
-- annualized revenue from private-pay, non-government-reimbursed
assets represents 69 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
45 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.
-- 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 12-month period ended
September 30, 2007 (the latest date available).
-- Supplemental information regarding Ventas's portfolio of 520 seniors
housing and healthcare assets is available on the Company's website
under the "For Investors" section or at
http://www.ventasreit.com/investors/supplemental.asp.
Balance Sheet, Financing & Capital Markets
-- Ventas's equity market capitalization at December 31, 2007 was
$6.0 billion, an increase from $4.5 billion at December 31, 2006.
-- In January 2008, Ventas raised $191.9 million through the issuance and
sale of 4.5 million shares of its common stock at $42.78 per share,
after deducting the underwriter's discount.
-- Also, in January 2008, Ventas increased to Cdn $105.0 million the
borrowing capacity under its Canadian unsecured revolving credit
facility (the "Canadian Revolving Credit Facility"), from
$90.0 million. Ventas used the additional proceeds to pay off
construction debt that was maturing on one of its Canadian Sunrise
facilities.
-- In February 2008, Standard & Poor's upgraded Ventas's unsecured debt
rating to BBB- from BB+, with a stable outlook. Ventas's unsecured
debt is currently rated BBB- (stable) by Fitch, BBB- (stable) by
Standard & Poor's and Ba1 (stable) by Moody's Investors Service.
-- Liquidity Updates
-- At February 13, 2008, the Company had substantially all of its
$600.0 million unsecured U.S. revolving credit facility available
and Cdn $14.1 million of undrawn availability under the Canadian
Revolving Credit Facility and held $82.4 million in short-term cash
investments.
-- The Company's debt to total capitalization at December 31, 2007 was
approximately 36 percent.
Additional News
-- Skilled nursing facilities received a 3.3 percent increase in Medicare
reimbursement for fiscal year 2008. Long-term acute care hospitals
("LTACs") were the subject of favorable legislation passed in
December 2007 that, among other things, suspends the 25-percent rule
for freestanding LTACs for three years, limits future supply of LTACs
and calls for further review of patient certification criteria for
LTACs. The Centers for Medicare and Medicaid Services (CMS) recently
proposed a three percent net rate increase for freestanding LTACs for
fiscal year 2009, which begins July 1, 2008.
-- Julie M. Dreixler, 46, recently joined Ventas as Senior Vice
President - Human Resources. Ms. Dreixler most recently was Vice
President, Human Resources of Cardinal Health, Inc., and previously
held human resources positions at Sara Lee Coffee & Tea, GE Capital,
Citibank and Chicago Title and Trust Company.
VENTAS ISSUES 2008 NORMALIZED FFO AND FAD GUIDANCE
Ventas currently expects its 2008 normalized FFO to be between $2.75 and $2.82 per diluted common share and FAD to be between $2.56 and $2.63 per diluted common share. Included within the Company's 2008 normalized FFO and FAD range is approximately $8 million to $10 million, or $0.06 to $0.07 per diluted share, of non-cash equity compensation.
The Company's normalized FFO and FAD 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 and FAD 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, (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, if any, 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 14, 2008, 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 expects to file its Form 10-K for the year ended December 31, 2007 on or about February 28, 2008.
Ventas, Inc. is a leading healthcare real estate investment trust. At the date of this press release, Ventas owns 520 seniors housing and healthcare-related properties located in 43 states and two Canadian provinces. Its diverse portfolio includes 254 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 ended December 31, 2007 and for the year ending December 31, 2008; (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.
CONSOLIDATED BALANCE SHEETS As of December 31, 2007, September 30, 2007, June 30, 2007, March 31, 2007 and
December 31, 2006
(In thousands, except per share amounts)
December 31, September 30, June 30, March 31, December 31,
2007 2007 2007 2007 2006
Assets
Real estate
investments:
Land $572,092 $564,462 $551,463 $359,104 $357,804
Buildings
and
improve-
ments 5,718,273 5,548,290 5,500,868 3,386,697 3,350,033
6,290,365 6,112,752 6,052,331 3,745,801 3,707,837
Accumulated
depreciation (816,352) (765,598) (718,342) (692,402) (659,584)
Net real
estate
property 5,474,013 5,347,154 5,333,989 3,053,399 3,048,253
Loans
receivable,
net 19,998 35,556 34,792 35,554 35,647
Net real
estate
investments 5,494,011 5,382,710 5,368,781 3,088,953 3,083,900
Cash and cash
equivalents 28,334 28,573 30,138 - 1,246
Escrow deposits
and restricted
cash 54,077 89,807 99,058 80,039 80,039
Deferred
financing
costs, net 22,836 22,280 23,202 17,984 18,415
Notes
receivable-
related
parties 2,092 2,144 2,126 2,484 2,466
Other 115,278 136,106 148,148 96,707 67,734
Total
assets $5,716,628 $5,661,620 $5,671,453 $3,286,167 $3,253,800
Liabilities
and
stockholders'
equity
Liabilities:
Senior notes
payable and
other debt $3,360,499 $3,267,705 $3,284,642 $2,370,418 $2,329,053
Deferred
revenue 9,065 9,665 10,219 7,607 8,194
Accrued
dividend - - - - 41,949
Accrued
interest 20,790 46,752 21,157 45,696 19,929
Accounts
payable and
other accrued
liabilities 173,576 152,753 140,493 122,155 114,012
Deferred
income taxes 297,590 313,987 309,215 30,394 30,394
Total
liabilities 3,861,520 3,790,862 3,765,726 2,576,270 2,543,531
Minority
interest 31,454 26,781 26,622 983 393
Commitments and
contingencies
Stockholders' equity:
Preferred stock,
10,000 shares
authorized,
unissued - - - - -
Common stock,
$0.25 par value;
133,651, 133,451,
133,366, 106,314
and 106,137 shares
issued at
December 31,
2007,
September 30,
2007,
June 30,
2007, March 31,
2007 and December
31, 2006,
respectively 33,416 33,371 33,350 26,587 26,545
Capital in
excess of
par value 1,821,294 1,817,809 1,814,637 771,004 766,470
Accumulated
other
comprehensive
income 17,416 6,652 9,482 914 1,037
Retained
earnings
(deficit) (47,846) (13,761) 21,636 (89,591) (84,176)
Treasury
stock, 14, 3,
0, 0 and 0
shares at
December 31,
2007, September
30, 2007,
June 30, 2007,
March 31,
2007 and
December 31,
2006,
respectively (626) (94) - - -
Total
stockholders'
equity 1,823,654 1,843,977 1,879,105 708,914 709,876
Total
liabilities
and
stockholders'
equity $5,716,628 $5,661,620 $5,671,453 $3,286,167 $3,253,800
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months and Years Ended December 31, 2007 and 2006
(In thousands, except per share amounts)
For the Three Months For the Year Ended
Ended December 31, December 31,
2007 2006 2007 2006
Revenues:
Rental income $124,611 $113,408 $483,985 $405,952
Resident fees and services 106,888 - 282,226 -
Interest income from loans
receivable 471 2,641 2,586 7,014
Interest and other income 583 1,888 2,994 2,886
Total revenues 232,553 117,937 771,791 415,852
Expenses:
Interest 55,447 38,582 204,218 136,544
Depreciation and amortization 72,545 31,792 234,061 117,172
Property-level operating expenses 75,395 1,168 198,125 3,171
General, administrative and
professional fees (including non-
cash stock-based compensation
expense of $1,891 and $810 for
the three months ended 2007 and
2006, respectively, and $7,493
and $3,046 for the year ended
2007 and 2006, respectively) 11,506 6,679 36,425 26,136
Foreign currency gain (35) - (24,280) -
Merger-related expenses 652 - 2,979 -
Rent reset costs - - - 7,361
Reversal of contingent liability - - - (1,769)
(Gain) loss on extinguishment of
debt - - (88) 1,273
Total expenses 215,510 78,221 651,440 289,888
Income before income taxes,
minority interest and
discontinued operations 17,043 39,716 120,351 125,964
Income tax benefit 12,968 - 28,042 -
Income before minority interest
and discontinued operations 30,011 39,716 148,393 125,964
Minority interest, net of tax 610 - 1,698 -
Income from continuing operations 29,401 39,716 146,695 125,964
Discontinued operations - 1,081 135,623 5,466
Net income 29,401 40,797 282,318 131,430
Preferred stock dividends and
issuance costs - - 5,199 -
Net income available to common
stockholders $29,401 $40,797 $277,119 $131,430
Earnings per common share:
Basic:
Income from continuing
operations applicable to
common shares $0.22 $0.38 $1.15 $1.21
Discontinued operations - 0.01 1.11 0.05
Net income available to common
stockholders $0.22 $0.39 $2.26 $1.26
Diluted:
Income from continuing operations
applicable to common shares $0.22 $0.38 $1.15 $1.20
Discontinued operations - 0.01 1.10 0.05
Net income available to common
stockholders $0.22 $0.39 $2.25 $1.25
Weighted average shares used in
computing earnings per common share:
Basic 133,300 105,155 122,597 104,206
Diluted 133,685 105,667 123,012 104,731
Dividends declared per common share $0.475 $0.395 $1.90 $1.58
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
2006
2007 Quarters Fourth
Fourth Third Second First Quarter
Revenues:
Rental income $124,611 $121,167 $120,057 $118,150 $113,408
Resident fees and
services 106,888 103,938 71,400 - -
Interest income from
loans receivable 471 477 815 823 2,641
Interest and other
income 583 712 1,450 249 1,888
Total revenues 232,553 226,294 193,722 119,222 117,937
Expenses:
Interest 55,447 54,092 55,148 39,531 38,582
Depreciation and
amortization 72,545 70,716 57,994 32,806 31,792
Property-level operating
expenses 75,395 71,382 50,407 941 1,168
General, administrative
and professional fees
(including non-cash
stock-based compensation
expense of $1,891,
$1,768, $1,820, $2,014
and $810, respectively) 11,506 9,315 8,023 7,581 6,679
Foreign currency (gain)
loss (35) 116 (18,575) (5,786) -
Merger-related expenses 652 1,535 792 - -
Gain on extinguishment
of debt - (88) - - -
Total expenses 215,510 207,068 153,789 75,073 78,221
Income before income
taxes, minority
interest and
discontinued operations 17,043 19,226 39,933 44,149 39,716
Income tax benefit 12,968 9,463 5,611 - -
Income before minority
interest and
discontinued operations 30,011 28,689 45,544 44,149 39,716
Minority interest, net
of tax 610 675 408 5 -
Income from continuing
operations 29,401 28,014 45,136 44,144 39,716
Discontinued operations - - 134,661 962 1,081
Net income 29,401 28,014 179,797 45,106 40,797
Preferred stock
dividends and issuance
costs - - 5,199 - -
Net income available to
common stockholders $29,401 $28,014 $174,598 $45,106 $40,797
Earnings per common
share:
Basic:
Income from continuing
operations applicable
to common shares $0.22 $0.21 $0.34 $0.42 $0.38
Discontinued operations - - 1.15 0.01 0.01
Net income available to
common stockholders $0.22 $0.21 $1.49 $0.43 $0.39
Diluted:
Income from continuing
operations applicable
to common shares $0.22 $0.21 $0.34 $0.41 $0.38
Discontinued operations - - 1.14 0.01 0.01
Net income available to
common stockholders $0.22 $0.21 $1.48 $0.42 $0.39
Shares used in computing
earnings per common share:
Basic 133,300 133,205 117,419 106,044 105,155
Diluted 133,685 133,503 117,825 106,775 105,667
Dividends declared per
common share $0.475 $0.475 $0.475 $0.475 $0.395
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2007 and 2006
(In thousands)
2007 2006
Cash flows from operating activities:
Net income $282,318 $131,430
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization
(including amounts in discontinued
operations) 235,045 119,653
Amortization of deferred revenue and
lease intangibles, net (9,819) (2,412)
Other amortization expenses 2,456 3,253
Stock-based compensation 7,493 3,046
Straight-lining of rental income (17,311) (19,963)
Gain on sale of assets (including
amounts in discontinued operations) (129,478) -
Net gain on sale of marketable equity
securities (864) (1,379)
Loss on extinguishment of debt - 1,273
Reversal of contingent liability - (1,769)
Loss on bridge financing 2,550 -
Income tax benefit (28,042) -
Other 222 488
Changes in operating assets and
liabilities:
Decrease (increase) in other assets 45,712 (41,684)
(Decrease) increase in accrued
interest (4,906) 5,511
Increase in other liabilities 14,434 41,420
Net cash provided by operating activities 399,810 238,867
Cash flows from investing activities:
Net investment in real estate
property (1,348,354) (490,311)
Investment in loans receivable - (191,068)
Proceeds from real estate disposals 157,400 -
Proceeds from sale of securities 7,773 -
Proceeds from loans receivable 15,803 195,411
Capital expenditures (6,372) (368)
Escrow funds returned from an Internal
Revenue Code Section 1031 exchange - 9,902
Other 374 (5,540)
Net cash used in investing activities (1,173,376) (481,974)
Cash flows from financing activities:
Net change in borrowings under
unsecured revolving credit facility 92,300 57,000
Net change in borrowings under
secured revolving credit facility - (89,200)
Net change in borrowings under
Canadian credit facility 84,286 -
Issuance of bridge financing 1,230,000 -
Repayment of bridge financing (1,230,000) -
Proceeds from debt 53,832 449,005
Repayment of debt (184,613) (16,084)
Debt and preferred stock issuance costs (4,300) -
Payment of deferred financing costs (7,856) (4,876)
Issuance of common stock 1,047,318 831
Cash distribution to preferred
stockholders (3,449) -
Cash distribution to common stockholders (282,739) (160,598)
Other 10,870 6,634
Net cash provided by financing activities 805,649 242,712
Net increase (decrease) in cash and
cash equivalents 32,083 (395)
Effect of foreign currency translation on
cash and cash equivalents (4,995) -
Cash and cash equivalents at
beginning of period 1,246 1,641
Cash and cash equivalents at end of period $28,334 $1,246
QUARTERLY CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
2006
2007 Quarters Fourth
Fourth Third Second First Quarter
Cash flows from
operating activities:
Net income $29,401 $28,014 $179,797 $45,106 $40,797
Adjustments to
reconcile net income
to net cash provided
by operating activities:
Depreciation and
amortization
(including amounts in
discontinued
operations) 72,544 70,716 58,352 33,433 32,421
Amortization of
deferred revenue and
lease intangibles,
net (3,190) (3,027) (2,998) (604) (603)
Other amortization
expenses 475 322 549 1,110 933
Stock-based
compensation 1,891 1,768 1,820 2,014 768
Straight-lining of
rental income (4,379) (4,326) (4,337) (4,269) (5,228)
Gain on sale of assets
(including amounts in
discontinued
operations) - - (129,478) - -
Net gain on sale of
marketable equity
securities - - (864) - (1,379)
Loss on bridge
financing - - 2,550 - -
Income tax
benefit (12,968) (9,463) (5,611) - -
Realized gain on
foreign currency
hedge - - 5,786 - -
Unrealized gain on
foreign currency hedge - - - (5,786) -
Other (264) 463 (11) 34 (276)
Changes in operating
assets and
liabilities:
Decrease (increase)
in other assets 29,386 25,972 6,931 (16,577) (22,863)
(Decrease) increase
in accrued
interest (27,534) 25,125 (28,245) 25,748 (15,531)
(Decrease) increase
in other
liabilities (33,525) 46,570 (6,542) 7,931 31,445
Net cash provided
by operating
activities 51,837 182,134 77,699 88,140 60,484
Cash flows from
investing activities:
Net investment in real
estate property (54,604) (72,835) (1,190,564) (30,351) (426,278)
Investment in loans
receivable - - - - (34,219)
Proceeds from real
estate disposals - - 157,400 - -
Proceeds from sale of
securities - - 2,701 5,072 -
Proceeds from loans
receivable (525) 643 15,575 110 191,167
Capital expenditures (2,928) (2,242) (1,166) (36) (89)
Other 52 (18) 358 (18) 52
Net cash used in
investing
activities (58,005) (74,452) (1,015,696) (25,223) (269,367)
Cash flows from
financing activities:
Net change in
borrowings under
unsecured revolving
credit facility 45,900 (109,800) 4,700 151,500 (15,300)
Net change in
borrowings under
Canadian credit
facility 127 84,159 - - -
Issuance of bridge
financing - - 1,230,000 - -
Repayment of bridge
financing - - (1,230,000) - -
Proceeds from debt 44,422 1,095 8,315 - 225,400
Repayment of debt (40,838) (12,059) (14,446) (117,270) (3,087)
Debt and preferred
stock issuance costs - - (4,300) - -
Payment of deferred
financing costs (2,322) (131) (4,991) (412) (1,122)
Issuance of common
stock 1,589 (250) 1,045,979 - -
Cash distributions to
preferred stockholders - - (3,449) - -
Cash distributions to
common stockholders (63,486) (63,411) (63,371) (92,471) -
Other 11,165 2,099 3,116 (5,510) 2,303
Net cash (used in)
provided by
financing
activities (3,443) (98,298) 971,553 (64,163) 208,194
Net (decrease) increase
in cash and cash
equivalents (9,611) 9,384 33,556 (1,246) (689)
Effect of foreign
currency translation
on cash and cash
equivalents 9,372 (10,949) (3,418) - -
Cash and cash
equivalents at
beginning of period 28,573 30,138 - 1,246 1,935
Cash and cash
equivalents at end of
period $28,334 $28,573 $30,138 $- $1,246
FUNDS FROM OPERATIONS, NORMALIZED FFO AND FUNDS AVAILABLE
FOR DISTRIBUTION
(In thousands, except per share amounts)
2006
2007 Quarters Fourth
Fourth Third Second First Quarter
Net income available to
common stockholders $29,401 $28,014 $174,598 $45,106 $40,797
Adjustments:
Depreciation and
amortization on real
estate assets 72,367 70,549 57,827 32,209 31,172
Depreciation on real
estate assets related
to minority interest (1,391) (1,420) (938) - -
Discontinued operations:
Gain on sale of real estate
assets - - (129,478) - -
Depreciation and
amortization on real
estate assets - - 203 609 612
FFO 100,377 97,143 102,212 77,924 72,581
Gain on foreign currency
hedge - - (18,528) (5,786) -
Preferred stock issuance
costs - - 1,750 - -
Bridge loan fee - - 2,550 - -
Merger-related expenses 652 1,535 792 - -
Gain on sale of securities - - (864) - (1,379)
Income tax benefit (13,342) (9,897) (5,856) - -
Gain on extinguishment of
debt - (88) - - -
Normalized FFO 87,687 88,693 82,056 72,138 71,202
Straight-lining of rental
income (4,379) (4,326) (4,337) (4,269) (5,228)
Capital expenditures (2,927) (2,243) (1,166) (36) (89)
FAD $80,381 $82,124 $76,553 $67,833 $65,885
Per diluted share:
Net income available to
common stockholders $0.22 $0.21 $1.48 $0.42 $0.39
Adjustments:
Depreciation and
amortization on real
estate assets 0.54 0.53 0.49 0.31 0.30
Depreciation on real estate
assets related to minority
interest (0.01) (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
FFO 0.75 0.73 0.87 0.73 0.69
Gain on foreign currency
hedge - - (0.16) (0.05) -
Preferred stock issuance
costs - - 0.01 - -
Bridge loan fee - - 0.02 - -
Merger-related expenses 0.00 0.01 0.01 - -
Gain on sale of securities - - (0.01) - (0.01)
Income tax benefit (0.10) (0.07) (0.05) - -
Gain on extinguishment of
debt - - - - -
Normalized FFO 0.66 0.66 0.70 0.68 0.67
Straight-lining of rental
income (0.03) (0.03) (0.04) (0.04) (0.05)
Capital expenditures (0.02) (0.02) (0.01) (0.00) (0.00)
FAD $0.60 $0.62 $0.65 $0.64 $0.62
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 and FAD Guidance for the Year Ending December 31, 2008
The following table illustrates the Company's normalized FFO and FAD guidance per diluted common share for the year ending December 31, 2008:
GUIDANCE
For the Year
Ending
December 31, 2008
Net income available to common stockholders $1.36 - $1.43
Depreciation and amortization on real estate
assets and depreciation related to
minority interest 1.70 - 1.70
FFO 3.06 - 3.13
Income tax benefit, gain/loss on
foreign currency, and merger-related
expenses, net (0.31) - (0.31)
Normalized FFO 2.75 - 2.82
Straight-lining of rental income and
capital expenditures (0.19) - (0.19)
FAD $2.56 - $2.63
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 year ended December 31, 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 the twelve months ended
December 31, 2007 $267,832
Add back:
Pro forma interest (including discontinued
operations) 228,248
Pro forma depreciation and amortization (including
discontinued operations) 291,604
Stock-based compensation 7,493
Gain on extinguishment of debt (88)
Pro forma income tax benefit (54,592)
Pro forma minority interest 2,374
Net gain on real estate disposals (129,478)
Other taxes 1,489
Pro forma EBITDA $614,882
As of December 31, 2007:
Debt $3,360,499
Cash (37,155)
Net debt $3,323,344
Net debt to pro forma EBITDA 5.4 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 December
31, 2007
2008 $193,101
2009 605,762
2010 282,138
2011 303,191
2012 527,221
Thereafter 1,436,263
Total maturities 3,347,676
Unamortized fair value adjustment 19,669
Unamortized discounts (6,846)
Senior notes payable and other debt $3,360,499
Sunrise's pro rata share of total maturities is approximately $157.1 million.
Non-GAAP Financial Measures Reconciliation (In thousands, except per share
amounts)
For the Year Ended
December 31,
2007 2006
Net income available to common
stockholders $277,119 $131,430
Adjustments:
Depreciation and amortization on real
estate assets 232,952 115,788
Depreciation on real estate assets
related to minority interest (3,749) -
Discontinued operations:
Gain on sale of real estate assets (129,478) -
Depreciation and amortization on real
estate assets 812 2,450
FFO 377,656 249,668
Gain on foreign currency hedge (24,314) -
Preferred stock issuance costs 1,750 -
Bridge loan fee 2,550 -
Merger-related expenses 2,979 -
Gain on sale of securities (864) (1,379)
Income tax benefit (29,095) -
Rent reset costs - 7,361
Reversal of contingent liability - (1,769)
(Gain) loss on extinguishment of debt (88) 1,273
Normalized FFO 330,574 255,154
Straight-lining of rental income (17,311) (19,963)
Capital expenditures (6,372) (368)
FAD $306,891 $234,823
Per diluted share:
Net income available to common
stockholders $2.25 $1.25
Adjustments:
Depreciation and amortization on real
estate assets 1.89 1.11
Depreciation on real estate assets
related to minority interest (0.03) -
Discontinued operations:
Gain on sale of real estate assets (1.05) -
Depreciation and amortization on real
estate assets 0.01 0.02
FFO 3.07 2.38
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) (0.01)
Income tax benefit (0.24) -
Rent reset costs - 0.07
Reversal of contingent liability - (0.02)
Loss on extinguishment of debt - 0.01
Normalized FFO 2.69 2.44
Straight-lining of rental income (0.14) (0.19)
Capital expenditures (0.05) -
FAD $2.49 $2.25
- END -
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