$98.7 Million
Company Earns Normalized FFO Per Share of $0.71 and FAD of $0.68
in Second Quarter
Second Quarter Investments Total $173 Million
CHICAGO, IL (August 5, 2008) - Ventas, Inc. (NYSE:VTR) ("Ventas" or the "Company") said today that second quarter 2008 normalized Funds from Operations ("FFO") increased 20 percent to $98.7 million from $82.1 million in the second quarter of 2007. Normalized FFO per diluted common share was $0.71 in the second quarter of 2008, compared to $0.70 in the second quarter of 2007.
Second quarter results benefited from increased revenue due to a full quarter in 2008 of its 79 high-quality, private-pay seniors housing assets managed by Sunrise Senior Living, Inc. (NYSE:SRZ) ("Sunrise") that were acquired primarily in late April 2007. The quarter also benefited from rental increases from the Company's triple-net lease portfolio, accretive investments and lower expenses at the Company's senior living operations. Higher weighted average diluted shares outstanding of 138.7 million in the second quarter of 2008, compared to 117.8 million in the second quarter of 2007 impacted per share amounts. Normalized FFO for the three months ended June 30, 2008 excludes the net benefit (totaling $2.7 million) from income taxes, offset by merger-related and other costs.
"Our balance sheet and liquidity position are strong and our diverse portfolio of triple-net leased and operating assets continues to deliver reliable cash flows and positive results," Ventas Chairman, President and Chief Executive Officer Debra A. Cafaro said. "We are operating from a position of strength that enables us to invest and grow despite a challenging capital markets and economic environment."
FFO per diluted common share, as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), in the second quarter of 2008 decreased to $0.73 from $0.87 a year earlier, due to an $18.6 million gain from a foreign currency hedge in the second quarter of 2007 and higher weighted average diluted shares outstanding in the second quarter of 2008.
Normalized FFO for the six months ended June 30, 2008 was $191.0 million, or $1.39 per diluted common share, a 24 percent increase from $154.2 million, or $1.37 per diluted common share, for the comparable 2007 period. Normalized FFO for the six months ended June 30, 2008 excludes the net benefit (totaling $12.6 million) from income taxes, offset by merger-related and other costs.
SUNRISE PORTFOLIO
Total Portfolio
The Company's operating portfolio contains 79 seniors housing communities in North America that are managed by 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.
Net Operating Income after management fees ("NOI") for those 79 communities was $38.0 million for the three months ended June 30, 2008. Ventas's partnership share of NOI was $33.1 million for the same period.
74 Stabilized Communities
For the 74 stabilized Sunrise communities, total community NOI was $36.8 million for the three months ended June 30, 2008. Ventas's partnership share of NOI was $32.1 million for the same period. Average daily rate in these communities increased 5.5 percent versus the Company's two-month ownership period in the second quarter of 2007 and declined slightly versus first quarter of 2008. The stabilized communities averaged 91 percent occupancy during the second quarter of 2008, compared to 92 percent in the first quarter of 2008 and the Company's two-month ownership period in the second quarter of 2007. During the second quarter of 2008, one asset was reclassified from lease-up to stabilized.
Five Communities in Lease-up
Ventas's Sunrise portfolio also contains five recently developed communities that are in lease-up. Total community NOI for the five lease-up communities was $1.2 million during the second quarter of 2008 versus $0.5 million in the first quarter of 2008. The increase is due to a five percentage point sequential quarterly increase in occupancy (75 percent compared to 70 percent) for the four "mansion" assisted living communities included in the lease-up portfolio. Average occupancy for the 229-unit independent living community located in Ontario and acquired by the Company in December 2007 ("Steeles") increased from 34 percent in the first quarter of 2008 to 46 percent in the second quarter of 2008.
Ventas's partnership share of NOI for the five lease-up assets was $1.0 million for the three months ended June 30, 2008, compared to $0.4 million in first quarter of 2008.
GAAP NET INCOME
Net income applicable to common shares for the quarter ended June 30, 2008 was $71.1 million, or $0.51 per diluted common share, after discontinued operations of $27.7 million, compared with net income applicable to common shares for the quarter ended June 30, 2007 of $174.6 million, or $1.48 per diluted common share, after discontinued operations of $135.2 million.
Net income applicable to common shares for the six months ended June 30, 2008 was $103.1 million, or $0.75 per diluted common share, after discontinued operations of $28.6 million, compared with net income applicable to common shares for the six months ended June 30, 2007 of $219.7 million, or $1.96 per diluted common share, after discontinued operations of $136.7 million.
SECOND QUARTER HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS
Portfolio, Performance and Balance Sheet Highlights
Dispositions
-- As previously announced, in April, Ventas sold seven
healthcare assets for an aggregate sale price of $68.6 million
or $90,000 per bed. Ventas recognized a gain from the sale of
$25.9 million in the second quarter. The Company also
received a $1.6 million lease termination fee.
-- In July, Ventas entered into an agreement to sell five seniors
housing assets to the current tenant for an aggregate sale
price of $62.5 million. The contract price represents
$145,000 per unit and a capitalization rate of approximately
6.5 percent on rent and EBITDAR (earnings before interest,
taxes, depreciation, amortization and rent) at the assets.
Although there can be no assurances, the Company expects to
close the sale in the third quarter of 2008 and record a gain.
Investments
-- In April, Ventas purchased $50 million principal amount of
fixed rate unsecured corporate debt issued by a national acute
care hospital company at a discount for $44.8 million. This
debt matures in October 2012, and the effective interest rate
is 9.2 percent to maturity.
-- In May, Ventas acquired a medical office building ("MOB") in
Casper, Wyoming for approximately $29 million. The MOB will
be occupied by a partnership between a major national
specialty hospital operator and a prominent local physician
group, and is expected to generate a lease yield of
approximately nine percent to Ventas.
-- On June 30, 2008, Ventas purchased $112.5 million principal
amount of first mortgage debt issued by a national provider of
healthcare services, primarily skilled nursing care. The debt
was purchased at a discount for $98.8 million, resulting in an
effective interest rate to maturity of LIBOR plus 533 basis
points. The loan-to-value of Ventas's investment is
approximately 38 percent. The debt matures in January 2012,
and the borrower has a one-year extension option subject to
certain conditions. The debt purchased by Ventas is senior in
priority to approximately $3.3 billion of invested capital in
the borrower.
Portfolio
-- With the closed acquisition and divestiture activity:
> annualized revenue from Kindred Healthcare, Inc.
(NYSE:KND) ("Kindred") represents approximately 28
percent of the Company's annualized total revenues;
> annualized revenue from private-pay, non-government-
reimbursed owned 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 45 percent
of its annualized total revenues, computed on the same
pro forma basis;
> assets leased to Kindred represent approximately
fifteen 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 ("SNFs") and hospitals
("LTACs") 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 March 31,
2008 (the latest date available).
-- Supplemental information regarding Ventas's portfolio of 514
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
-- The Company's debt to total capitalization at June 30, 2008
was approximately 36 percent.
Medicare Reimbursement - Skilled Nursing Facilities
-- On July 31, 2008, the Centers for Medicare & Medicaid Services
("CMS") issued its final Medicare reimbursement update for
SNFs for Reimbursement Year ("RY") 2009, commencing October 1,
2008 and ending September 30, 2009. Under the rule, for RY
2009 SNFs will receive a "market basket" rate increase of 3.4
percent.
VENTAS REAFFIRMS 2008 NORMALIZED FFO AND FAD GUIDANCE
Ventas reaffirmed that it 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. The Company's normalized FFO and FAD guidance for all periods is subject to certain assumptions and qualifications, which have been previously disclosed, and which are subject to change and outside the control of the Company. There can be no assurance that the Company will achieve these results. The Company may from time to time update its publicly announced guidance, but it is not obligated to do so.
SECOND QUARTER CONFERENCE CALL
Ventas will hold a conference call to discuss this earnings release on August 6, 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, Inc. is a leading healthcare real estate investment trust. At the date of this press release, Ventas owns 514 seniors housing and healthcare- related properties located in 43 states and two Canadian provinces. Its diverse portfolio includes 253 seniors housing communities, 192 skilled nursing facilities, 41 hospitals and 28 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 Company's ability and willingness to maintain its qualification as a REIT due to economic, market, legal, tax or other considerations; (m) final determination of the Company's taxable net income for the year ended December 31, 2007 and for the year ending December 31, 2008; (n) 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; (o) risks associated with the Company's seniors housing communities managed by Sunrise Senior Living, Inc. ("Sunrise"), including the timely delivery of accurate property-level financial results for the Company's properties; (p) factors causing volatility in the Company's revenues generated by its seniors housing communities managed by Sunrise, including without limitation national and regional economic conditions, costs of materials, energy, labor and services, employee benefit costs and professional and general liability claims; (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; (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; (t) the impact of market or issuer events on the liquidity or value of the Company's investments in marketable securities; and (u) the impact of the Sunrise 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 SHEETSAs of June 30, 2008, March 31, 2008, December 31, 2007, September 30, 2007 and
June 30, 2007
(In thousands, except per share amounts)
June March December September June
30, 31, 31, 30, 30,
2008 2008 2007 2007 2007
Assets
Real estate
investments:
Land $569,711 $567,523 $572,092 $564,462 $551,463
Buildings and
improvements 5,700,555 5,668,239 5,718,273 5,548,290 5,500,868
6,270,266 6,235,762 6,290,365 6,112,752 6,052,331
Accumulated
depreciation (905,608) (855,148) (816,352) (765,598) (718,342)
Net real estate
property 5,364,658 5,380,614 5,474,013 5,347,154 5,333,989
Loans receivable,
net 118,565 19,945 19,998 35,556 34,792
Net real estate
investments 5,483,223 5,400,559 5,494,011 5,382,710 5,368,781
Cash and cash
equivalents 29,268 51,347 28,334 28,573 30,138
Escrow deposits and
restricted cash 40,038 52,621 54,077 89,807 99,058
Deferred financing
costs, net 20,742 21,978 22,836 22,280 23,202
Notes receivable-
related parties 1,752 2,109 2,092 2,144 2,126
Other 142,038 123,174 115,278 136,106 148,148
Total assets $5,717,061 $5,651,788 $5,716,628 $5,661,620 $5,671,453
Liabilities and
stockholders'
equity
Liabilities:
Senior notes
payable and
other debt $3,251,418 $3,157,111 $3,360,499 $3,267,705 $3,284,642
Deferred revenue 8,050 8,700 9,065 9,665 10,219
Accrued interest 20,261 46,748 20,790 46,752 21,157
Accounts payable
and other accrued
liabilities 142,399 142,386 173,576 152,753 140,493
Deferred income
taxes 282,080 286,153 297,590 313,987 309,215
Total
liabilities 3,704,208 3,641,098 3,861,520 3,790,862 3,765,726
Minority interest 30,957 32,316 31,454 26,781 26,622
Commitments and
contingencies
Stockholders' equity:
Preferred stock,
10,000 shares
authorized,
unissued - - - - -
Common stock,
$0.25 par value;
138,477, 138,369,
133,665, 133,451
and 133,366
shares issued at
June 30, 2008,
March 31, 2008,
December 31, 2007,
September 30, 2007
and June 30, 2007,
respectively 34,619 34,592 33,416 33,371 33,350
Capital in excess
of par value 2,021,074 2,015,661 1,821,294 1,817,809 1,814,637
Accumulated other
comprehensive
income 12,831 14,819 17,416 6,652 9,482
Retained earnings
(deficit) (86,610) (86,698) (47,846) (13,761) 21,636
Treasury stock,
0, 0, 14, 3
and 0 shares at
June 30, 2008,
March 31, 2008,
December 31, 2007,
September 30, 2007
and June 30, 2007,
respectively (18) - (626) (94) -
Total
stockholders'
equity 1,981,896 1,978,374 1,823,654 1,843,977 1,879,105
Total
liabilities and
stockholders'
equity $5,717,061 $5,651,788 $5,716,628 $5,661,620 $5,671,453
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Six Months Ended June 30, 2008 and 2007
(In thousands, except per share amounts)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2008 2007 2008 2007
Revenues:
Rental income $123,889 $118,252 $246,596 $234,597
Resident fees and services 107,312 71,400 215,038 71,400
Income from loans and investments 1,480 1,679 1,947 2,502
Interest and other income 832 586 1,696 835
Total revenues 233,513 191,917 465,277 309,334
Expenses:
Interest 52,444 54,414 105,308 93,223
Depreciation and amortization 57,975 57,467 129,635 89,746
Property-level operating expenses 71,842 50,407 148,799 51,348
General, administrative and
professional fees (including non-
cash stock-based compensation
expense of $2,541 and $1,820 for
the three months ended 2008 and
2007, respectively, and $4,490
and $3,834 for the six months
ended 2008 and 2007, respectively) 9,610 8,023 17,867 15,604
Foreign currency gain (27) (18,575) (106) (24,361)
Merger-related expenses 1,234 792 1,880 792
Loss on extinguishment of debt 195 - 116 -
Total expenses 193,273 152,528 403,499 226,352
Income before income taxes,
minority interest and
discontinued operations 40,240 39,389 61,778 82,982
Income tax benefit 3,712 5,611 13,750 5,611
Income before minority interest
and discontinued operations 43,952 45,000 75,528 88,593
Minority interest, net of tax 545 408 1,023 413
Income from continuing operations 43,407 44,592 74,505 88,180
Discontinued operations 27,659 135,205 28,613 136,723
Net income 71,066 179,797 103,118 224,903
Preferred stock dividends and
issuance costs - 5,199 - 5,199
Net income applicable to common
shares $71,066 $174,598 $103,118 $219,704
Earnings per common share:
Basic:
Income from continuing operations
applicable to common shares $0.31 $0.34 $0.54 $0.75
Discontinued operations 0.20 1.15 0.21 1.22
Net income applicable to common
shares $0.51 $1.49 $0.75 $1.97
Diluted:
Income from continuing operations
applicable to common shares $0.31 $0.33 $0.54 $0.74
Discontinued operations 0.20 1.15 0.21 1.22
Net income applicable to common
shares $0.51 $1.48 $0.75 $1.96
Weighted average shares used in
computing earnings per common
share:
Basic 138,133 117,419 137,257 111,763
Diluted 138,737 117,825 137,705 112,264
Dividends declared per common share $0.5125 $0.475 $1.0250 $0.950
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
2008 Quarters 2007 Quarters
Second First Fourth Third Second
Revenues:
Rental income $123,889 $122,707 $122,806 $119,362 $118,252
Resident fees and
services 107,312 107,726 106,888 103,938 71,400
Income from loans and
investments 1,480 467 471 477 1,679
Interest and other
income 832 864 583 712 586
Total revenues 233,513 231,764 230,748 224,489 191,917
Expenses:
Interest 52,444 52,864 54,723 53,373 54,414
Depreciation and
amortization 57,975 71,660 72,018 70,189 57,467
Property-level operating
expenses 71,842 76,957 75,395 71,382 50,407
General, administrative
and professional fees
(including non-cash
stock-based compensation
expense of $2,541,
$1,949, $1,891, $1,768
and $1,820, respectively) 9,610 8,257 11,506 9,315 8,023
Foreign currency (gain)
loss (27) (79) (35) 116 (18,575)
Merger-related expenses 1,234 646 652 1,535 792
Loss (gain) on
extinguishment of debt 195 (79) - (88) -
Total expenses 193,273 210,226 214,259 205,822 152,528
Income before income
taxes, minority
interest and
discontinued operations 40,240 21,538 16,489 18,667 39,389
Income tax benefit 3,712 10,038 12,968 9,463 5,611
Income before minority
interest and
discontinued operations 43,952 31,576 29,457 28,130 45,000
Minority interest, net
of tax 545 478 610 675 408
Income from continuing
operations 43,407 31,098 28,847 27,455 44,592
Discontinued operations 27,659 954 554 559 135,205
Net income 71,066 32,052 29,401 28,014 179,797
Preferred stock
dividends and issuance
costs - - - - 5,199
Net income applicable to
common shares $71,066 $32,052 $29,401 $28,014 $174,598
Earnings per common share:
Basic:
Income from continuing
operations applicable
to common shares $0.31 $0.23 $0.22 $0.21 $0.34
Discontinued operations 0.20 0.01 0.00 0.00 1.15
Net income applicable to
common shares $0.51 $0.24 $0.22 $0.21 $1.49
Diluted:
Income from continuing
operations applicable
to common shares $0.31 $0.22 $0.22 $0.21 $0.33
Discontinued operations 0.20 0.01 0.00 0.00 1.15
Net income applicable to
common shares $0.51 $0.23 $0.22 $0.21 $1.48
Shares used in computing
earnings per common
share:
Basic 138,133 136,381 133,300 133,205 117,419
Diluted 138,737 136,673 133,685 133,503 117,825
Dividends declared per
common share $0.5125 $0.5125 $0.475 $0.475 $0.475
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2008 and 2007
(In thousands)
For the Six Months
Ended June 30,
2008 2007
Cash flows from operating activities:
Net income $103,118 $224,903
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization
(including amounts in discontinued
operations) 129,811 91,785
Amortization of deferred revenue and
lease intangibles, net (5,383) (3,602)
Other amortization expenses 1,129 1,659
Stock-based compensation 4,490 3,834
Straight-lining of rental income (7,429) (8,606)
Gain on extinguishment of debt (91) -
Gain on sale of real estate assets
(including amounts in discontinued
operations) (25,869) (129,478)
Income tax benefit (13,750) (5,611)
Loss on bridge financing - 2,550
Net gain on sale of marketable equity
securities - (864)
Other 1,737 23
Changes in operating assets and
liabilities:
Decrease (increase) in other assets 5,450 (9,646)
Decrease in accrued interest (570) (2,497)
(Decrease) increase in other
liabilities (21,461) 1,389
Net cash provided by operating
activities 171,182 165,839
Cash flows from investing activities:
Net investment in real estate
property (6,360) (1,220,915)
Investment in loans receivable (98,826) -
Purchase of marketable debt
securities (44,780) -
Proceeds from real estate disposals 58,379 157,400
Proceeds from sale of securities - 7,773
Proceeds from loans receivable 288 15,685
Capital expenditures (3,836) (1,202)
Other 340 340
Net cash used in investing activities (94,795) (1,040,919)
Cash flows from financing activities:
Net change in borrowings under
revolving credit facilities (83,416) 156,200
Issuance of bridge financing - 1,230,000
Repayment of bridge financing - (1,230,000)
Proceeds from debt 6,354 8,315
Repayment of debt (52,617) (131,716)
Debt and preferred stock issuance costs - (4,300)
Payment of deferred financing costs (689) (5,403)
Issuance of common stock 191,668 1,045,979
Cash distribution to preferred
stockholders - (3,449)
Cash distribution to common
stockholders (141,882) (155,842)
Other 5,257 (2,394)
Net cash (used in) provided by
financing activities (75,325) 907,390
Net increase in cash and cash equivalents 1,062 32,310
Effect of foreign currency translation on
cash and cash equivalents (128) (3,418)
Cash and cash equivalents at beginning of
period 28,334 1,246
Cash and cash equivalents at end of
period $29,268 $30,138
QUARTERLY CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
2008 Quarters 2007 Quarters
Second First Fourth Third Second
Cash flows from operating
activities:
Net income $71,066 $32,052 $29,401 $28,014 $179,797
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization
(including amounts
in discontinued
operations) 57,975 71,836 72,544 70,716 58,352
Amortization of
deferred revenue
and lease
intangibles, net (2,272) (3,111) (3,190) (3,027) (2,998)
Other amortization
expenses 491 638 475 322 549
Stock-based compensation 2,541 1,949 1,891 1,768 1,820
Straight-lining of rental
income (3,670) (3,759) (4,379) (4,326) (4,337)
Loss (gain) on
extinguishment of debt 17 (108) - - -
Gain on sale of real
estate assets
(including amounts in
discontinued
operations) (25,869) - - - (129,478)
Net gain on sale of
marketable equity
securities - - - - (864)
Loss on bridge financing - - - - 2,550
Income tax benefit (3,712) (10,038) (12,968) (9,463) (5,611)
Realized gain on foreign
currency hedge - - - - 5,786
Unrealized gain on
foreign currency hedge - - - - -
Other 936 801 (264) 463 (11)
Changes in operating
assets and liabilities:
(Increase) decrease in
other assets (10,278) 15,728 29,386 25,972 6,931
(Decrease) increase in
accrued interest (26,528) 25,958 (27,534) 25,125 (28,245)
Increase (decrease) in
other liabilities 5,859 (27,320) (33,525) 46,570 (6,542)
Net cash provided by
operating activities 66,556 104,626 51,837 182,134 77,699
Cash flows from investing
activities:
Net investment in real
estate property (389) (5,971) (54,604) (72,835) (1,190,564)
Investment in loans
receivable (98,826) - - - -
Purchase of marketable
debt securities (44,780) - - - -
Proceeds from real estate
disposals 58,379 - - - 157,400
Proceeds from sale of
securities - - - - 2,701
Proceeds from loans
receivable 226 62 (525) 643 15,575
Capital expenditures (2,904) (932) (2,928) (2,242) (1,166)
Other 357 (17) 52 (18) 358
Net cash used in
investing activities (87,937) (6,858) (58,005) (74,452) (1,015,696)
Cash flows from financing
activities:
Net change in borrowings
under revolving credit
facilities 88,800 (172,216) 46,027 (25,641) 4,700
Issuance of bridge
financing - - - - 1,230,000
Repayment of bridge
financing - - - - (1,230,000)
Proceeds from debt 1,353 5,001 44,422 1,095 8,315
Repayment of debt (23,413) (29,204) (40,838) (12,059) (14,446)
Debt and preferred stock
issuance costs - - - - (4,300)
Payment of deferred
financing costs (14) (675) (2,322) (131) (4,991)
Issuance of common stock - 191,668 1,589 (250) 1,045,979
Cash distribution to
preferred stockholders - - - - (3,449)
Cash distribution to
common stockholders (70,976) (70,906) (63,486) (63,411) (63,371)
Other 3,391 1,866 11,165 2,099 3,116
Net cash (used in)
provided by financing
activities (859) (74,466) (3,443) (98,298) 971,553
Net (decrease) increase
in cash and cash
equivalents (22,240) 23,302 (9,611) 9,384 33,556
Effect of foreign
currency translation on
cash and cash
equivalents 161 (289) 9,372 (10,949) (3,418)
Cash and cash equivalents
at beginning of period 51,347 28,334 28,573 30,138 -
Cash and cash equivalents
at end of period $29,268 $51,347 $28,334 $28,573 $30,138
FUNDS FROM OPERATIONS, NORMALIZED FFO AND FUNDS AVAILABLE
FOR DISTRIBUTION
(In thousands, except per share amounts)
2008 Quarters 2007 Quarters
Second First Fourth Third Second
Net income applicable to
common shares $71,066 $32,052 $29,401 $28,014 $174,598
Adjustments:
Depreciation and
amortization on real
estate assets 57,791 71,480 71,840 70,022 57,300
Depreciation on real estate
assets related to minority
interest (1,578) (1,501) (1,391) (1,420) (938)
Discontinued operations:
Gain on sale of real estate
assets (25,869) - - - (129,478)
Depreciation and
amortization on real estate
assets - 176 527 527 730
FFO 101,410 102,207 100,377 97,143 102,212
Gain on foreign currency
hedge - - - - (18,528)
Preferred stock issuance
costs - - - - 1,750
Bridge loan fee - - - - 2,550
Merger-related expenses 1,234 646 652 1,535 792
Gain on sale of securities - - - - (864)
Income tax benefit (4,171) (10,404) (13,342) (9,897) (5,856)
Loss (gain) on
extinguishment of debt 195 (79) - (88) -
Normalized FFO 98,668 92,370 87,687 88,693 82,056
Straight-lining of rental
income (3,670) (3,759) (4,379) (4,326) (4,337)
Routine capital
expenditures (1,133) (823) (2,927) (2,243) (1,166)
FAD $93,865 $87,788 $80,381 $82,124 $76,553
Per diluted share(1):
Net income applicable to
common shares $0.51 $0.23 $0.22 $0.21 $1.48
Adjustments:
Depreciation and
amortization on real estate
assets 0.42 0.52 0.54 0.53 0.49
Depreciation on real estate
assets related to minority
interest (0.01) (0.01) (0.01) (0.01) (0.01)
Discontinued operations:
Gain on sale of real estate
assets (0.19) - - - (1.10)
Depreciation and
amortization on real estate
assets - 0.00 0.00 0.00 0.01
FFO 0.73 0.75 0.75 0.73 0.87
Gain on foreign currency
hedge - - - - (0.16)
Preferred stock issuance
costs - - - - 0.01
Bridge loan fee - - - - 0.02
Merger-related expenses 0.01 0.01 0.00 0.01 0.01
Gain on sale of securities - - - - (0.01)
Income tax benefit (0.03) (0.08) (0.10) (0.07) (0.05)
Loss (gain) on
extinguishment of debt 0.00 (0.00) - (0.00) -
Normalized FFO 0.71 0.68 0.66 0.66 0.70
Straight-lining of rental
income (0.03) (0.03) (0.03) (0.03) (0.04)
Routine capital expenditures (0.01) (0.01) (0.02) (0.02) (0.01)
FAD $0.68 $0.64 $0.60 $0.62 $0.65
(1) Per share amounts may not add due to rounding.
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 routine 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 per diluted common share guidance for the year ending December 31, 2008:
GUIDANCE
For the Year
Ending
December 31, 2008
Net income applicable to common shares $1.36 - $1.43
Adjustments:
Depreciation and amortization on real
estate assets and depreciation related to
minority interest 1.70 - 1.70
FFO 3.06 - 3.13
Adjustments:
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 routine
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 trailing twelve months ended June 30, 2008, 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
June 30, 2008 $173,175
Add back:
Pro forma interest (including discontinued operations) 215,081
Pro forma depreciation and amortization (including
discontinued operations) 273,420
Stock-based compensation 8,149
Loss on extinguishment of debt 28
Income tax benefit (36,181)
Minority interest 2,820
Net gain on real estate disposals (25,869)
Other taxes 1,610
Pro forma EBITDA $612,233
As of June 30, 2008:
Debt $3,251,418
Cash (38,429)
Net debt $3,212,989
Net debt to pro forma EBITDA 5.2 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.
Non-GAAP Financial Measures Reconciliation
(In thousands, except per share amounts)
For the Six Months
Ended June 30,
2008 2007
Net income applicable to common shares $103,118 $219,704
Adjustments:
Depreciation and amortization on real
estate assets 129,271 88,982
Depreciation on real estate assets
related to minority interest (3,079) (938)
Discontinued operations:
Gain on sale of real estate assets (25,869) (129,478)
Depreciation and amortization on real
estate assets 176 1,866
FFO 203,617 180,136
Gain on foreign currency hedge - (24,314)
Preferred stock issuance costs - 1,750
Bridge loan fee - 2,550
Merger-related expenses 1,880 792
Gain on sale of securities - (864)
Income tax benefit (14,575) (5,856)
Loss on extinguishment of debt 116 -
Normalized FFO 191,038 154,194
Straight-lining of rental income (7,429) (8,606)
Routine capital expenditures (1,956) (1,202)
FAD $181,653 $144,386
Per diluted share(1):
Net income applicable to common shares $0.75 $1.96
Adjustments:
Depreciation and amortization on real
estate assets 0.94 0.79
Depreciation on real estate assets
related to minority interest (0.02) (0.01)
Discontinued operations:
Gain on sale of real estate assets (0.19) (1.15)
Depreciation and amortization on
real estate assets - 0.02
FFO 1.48 1.60
Gain on foreign currency hedge - (0.22)
Preferred stock issuance costs - 0.02
Bridge loan fee - 0.02
Merger-related expenses 0.01 0.01
Gain on sale of securities - (0.01)
Deferred tax benefit (0.11) (0.05)
Loss on extinguishment of debt - -
Normalized FFO 1.39 1.37
Straight-lining of rental income (0.05) (0.08)
Routine capital expenditures (0.01) (0.01)
FAD $1.32 $1.29
(1) Per share amounts may not add due to rounding.
- END -
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