Ventas Reports 2015 Second Quarter Results

  • 2015 Second Quarter Normalized FFO Grows Five Percent to $1.18 Per Diluted Share
  • 2015 Normalized FFO Guidance Increases to $4.70 to $4.76 Per Diluted Share
  • CCP Spin-Off and Ardent Hospital Transactions on Track to Close in Third Quarter 2015

CHICAGO--()--Ventas, Inc. (NYSE: VTR) (“Ventas” or the “Company”) today reported that normalized Funds From Operations (“FFO”) for the quarter ended June 30, 2015 increased 19 percent to $394.3 million, from $331.6 million for the comparable 2014 period. Normalized FFO per diluted common share grew five percent to $1.18 for the quarter ended June 30, 2015, as compared to $1.12 for the comparable 2014 period. Weighted average diluted shares outstanding for the second quarter of 2015 increased to 334.0 million, compared to 296.5 million in the second quarter of 2014.

Strong Results and Near-Term Completion of Spin-Off and Ardent Transactions

“We are pleased to report strong second quarter results and increase our expectations for the full year. We drove positive same-store NOI growth in our seniors housing portfolio, generated attractive cash flow and closed accretive acquisitions,” Ventas Chairman and Chief Executive Officer Debra A. Cafaro said. “We are on track to complete our innovative and value creating spin-off of Care Capital Properties and the Ardent hospital acquisition during the third quarter, positioning Ventas to finish 2015 as a superior, faster growing company with outstanding dividend growth and portfolio and operator quality.”

Net income attributable to common stockholders for the quarter ended June 30, 2015 was $149.8 million, or $0.45 per diluted common share. Net income attributable to common stockholders for the quarter ended June 30, 2014 was $138.4 million, or $0.47 per diluted common share.

FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), for the second quarter of 2015 was $389.0 million, or $1.16 per diluted common share. NAREIT FFO for the second quarter of 2014 was $315.8 million, or $1.07 per diluted common share, a per share growth rate of eight percent.

Portfolio Performance

  • Total seniors housing operating portfolio (“SHOP”) net operating income (“NOI”) was $155.4 million in the second quarter, an increase of 24 percent over the comparable 2014 period. Same-store SHOP NOI grew four percent, expressed in constant currency, for the 234 same-store properties over second quarter 2014 results.
  • Same-store cash NOI growth for the Company’s total portfolio (1,342 assets) was 2.4 percent, expressed in constant currency, for the quarter ended June 30, 2015 compared to the same period in 2014. Year-to-date, same-store cash NOI growth for the Company’s total portfolio was 2.8 percent.

Recent Developments

  • As announced on July 7, 2015, the Company reached an agreement with Equity Group Investments (EGI) to capitalize Ardent’s hospital operating company at an implied valuation of $475 million, subject to working capital and other adjustments. Ardent’s equity will be owned by a consortium of EGI, Ardent’s existing management and Ventas (9.9 percent). At closing, Ventas expects to have approximately $1.4 billion invested in high quality owned hospital real estate, and Ardent will enter long term triple net leases with Ventas at an expected going in cash yield approximating 7.5 percent. Funding for the Ardent investment is expected to include a five year unsecured term loan, as well as proceeds of fixed income securities, asset sales and equity.
  • In connection with Ventas’s previously announced plan to spin off (the “Spin-Off”) most of its skilled nursing facility portfolio into an independent, publicly traded REIT named Care Capital Properties, Inc. (“CCP”), CCP filed Amendment No. 2 to its Form 10 registration statement relating to the Spin-Off with the Securities and Exchange Commission on July 15, 2015. The transaction is expected to be completed in August 2015, subject to applicable approvals.
  • Ventas made investments totaling $222 million during the second quarter of 2015 at an expected unlevered cash yield of 6.8 percent. These include an investment in the U.K. with an existing customer and development and redevelopment funding approximating $29 million.

Balance Sheet and Liquidity

  • During the second and third quarters of 2015, Ventas issued and sold a total of 1.6 million shares of common stock for aggregate proceeds of approximately $105 million (before sales commissions) under its “at the market” equity offering program at an average price per share of $64.30.
  • In July 2015, Ventas issued $500 million of 4.125 percent senior notes due 2026.
  • Year-to-date, Ventas has sold assets, including real estate and fixed income securities, and received final loan repayments, generating approximately $591 million in aggregate proceeds. The GAAP yield on the dispositions was seven percent.
  • Ventas generated $373.6 million in operating cash flow in the second quarter of 2015, an increase of 20 percent over Q2 2014. On a per share basis, operating cash flow increased seven percent.
  • The Company’s Net Debt to Adjusted Pro Forma EBITDA at June 30, 2015 was 5.6x. Current debt-to-enterprise value now stands at 35 percent.
  • The Company currently has a strong liquidity position, with approximately $1.7 billion available under its revolving credit facility, as well as $410 million of cash on hand.

Increasing 2015 Normalized FFO Per Share Guidance

Ventas currently expects its 2015 normalized FFO per diluted share to increase to a range between $4.70 and $4.76. This updated guidance range represents five to six percent growth in normalized FFO per share over 2014. Ventas currently expects its 2015 NAREIT FFO per diluted share to increase to a range between $4.51 and $4.61.

The Company’s expectations include its pending acquisition of Ardent upon the terms and timing discussed above. This guidance does not take into account any impact from the Spin-Off. No further investment or disposition activity is included in the Company’s guidance range. Same-store cash NOI is forecast to grow 2.5 to 3.5 percent in 2015, which is consistent with previous guidance. A reconciliation of the Company’s guidance to the Company’s projected GAAP earnings is included in this press release.

The Company’s guidance is based on a number of other assumptions that 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. The Company intends to update its publicly announced guidance following completion of the Spin-Off, but it is not obligated to do so.

SECOND QUARTER CONFERENCE CALL

Ventas will hold a conference call to discuss this earnings release today at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). The dial-in number for the conference call is (877) 474-9505 (or (857) 244-7558 for international callers). The participant passcode is “Ventas.” The conference call is being webcast live by NASDAQ OMX and can be accessed at the Company’s website at www.ventasreit.com. A replay of the webcast will be available following the call online, or by calling (888) 286-8010 (or (617) 801-6888 for international callers), passcode 84642312, beginning at approximately 2:00 p.m. Eastern Time and will remain for 35 days.

Ventas, Inc., an S&P 500 company, is a leading real estate investment trust. Its diverse portfolio of more than 1,600 assets in the United States, Canada and the United Kingdom consists of seniors housing communities, medical office buildings, skilled nursing facilities, hospitals and other properties. Through its Lillibridge subsidiary, Ventas provides management, leasing, marketing, facility development and advisory services to highly rated hospitals and health systems throughout the United States. More information about Ventas and Lillibridge can be found at www.ventasreit.com and www.lillibridge.com.

Supplemental information regarding the Company can be found on the Company’s website under the “Investor Relations” section or at www.ventasreit.com/investor-relations/financial-information/supplemental-information. A comprehensive listing of the Company’s properties is available at www.ventasreit.com/our-portfolio/properties-by-location.

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. These statements include, but are not limited to, statements regarding the expected timing of the completion of the proposed transaction with Ardent Medical Services, Inc. ("Ardent Medical Services") and the Spin-Off, the benefits of the proposed transaction with Ardent Medical Services and the Spin-Off, including future financial and operating results, statements regarding plans, objectives, and expectations relating to the proposed transaction with Ardent Medical Services and the Spin-Off and other statements that are not historical facts. In addition, all statements regarding the Company’s or its tenants’, operators’, borrowers’ or managers’ expected future financial condition, results of operations, cash flows, funds from operations, dividends and dividend plans, financing opportunities and plans, capital markets transactions, business strategy, budgets, projected costs, operating metrics, capital expenditures, competitive positions, acquisitions, investment opportunities, dispositions, merger or acquisition 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 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 from expectations depending on a variety of factors discussed in the Company’s filings with the Securities and Exchange Commission. These factors include without limitation: (a) the ability and willingness of the Company’s tenants, operators, borrowers, managers and other third parties to satisfy their obligations under their respective contractual arrangements with the Company, including, in some cases, their obligations to indemnify, defend and hold harmless the Company from and against various claims, litigation and liabilities; (b) the ability of the Company’s tenants, operators, borrowers and managers 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 and other indebtedness; (c) the Company’s success in implementing its business strategy and the Company’s ability to identify, underwrite, finance, consummate and integrate diversifying acquisitions and investments, including investments in different asset types and outside the United States; (d) macroeconomic conditions such as a disruption of or lack of access to the capital markets, changes in the debt rating on U.S. government securities, default or delay in payment by the United States of its obligations, and changes in the federal or state budgets resulting in the reduction or nonpayment of Medicare or Medicaid reimbursement rates; (e) the nature and extent of future competition, including new construction in the markets in which the Company’s seniors housing communities and medical office buildings (“MOBs”) are located; (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 borrowing costs as a result of changes in interest rates and other factors; (h) the ability of the Company’s operators and managers, as applicable, to comply with laws, rules and regulations in the operation of the Company’s properties, to deliver high-quality services, to attract and retain qualified personnel and to attract residents and patients; (i) changes in general economic conditions or economic conditions in the markets in which the Company may, from time to time, compete, and the effect of those changes on the Company’s revenues, earnings and funding sources; (j) the Company’s ability to pay down, refinance, restructure or extend its indebtedness as it becomes due; (k) the Company’s ability and willingness to maintain its qualification as a REIT in light of economic, market, legal, tax and other considerations; (l) final determination of the Company’s taxable net income for the year ended December 31, 2014 and for the year ending December 31, 2015; (m) the ability and willingness of the Company’s tenants to renew their leases with the Company upon expiration of the leases, the Company’s ability to reposition its properties on the same or better terms in the event of nonrenewal or in the event the Company exercises its right to replace an existing tenant or manager, and obligations, including indemnification obligations, the Company may incur in connection with the replacement of an existing tenant or manager; (n) risks associated with the Company’s senior living operating portfolio, such as factors that can cause volatility in the Company’s operating income and earnings generated by those properties, including without limitation national and regional economic conditions, costs of food, materials, energy, labor and services, employee benefit costs, insurance costs and professional and general liability claims, and the timely delivery of accurate property-level financial results for those properties; (o) changes in exchange rates for any foreign currency in which the Company may, from time to time, conduct business; (p) year-over-year changes in the Consumer Price Index or the UK Retail Price Index and the effect of those changes on the rent escalators contained in the Company’s leases and the Company’s earnings; (q) the Company’s ability and the ability of its tenants, operators, borrowers and managers to obtain and maintain adequate property, liability and other insurance from reputable, financially stable providers; (r) the impact of increased operating costs and uninsured professional liability claims on the Company’s liquidity, financial condition and results of operations or that of the Company’s tenants, operators, borrowers and managers, and the ability of the Company and the Company’s tenants, operators, borrowers and managers to accurately estimate the magnitude of those claims; (s) risks associated with the Company’s MOB portfolio and operations, including the Company’s ability to successfully design, develop and manage MOBs, to accurately estimate its costs in fixed fee-for-service projects and to retain key personnel; (t) the ability of the hospitals on or near whose campuses the Company’s MOBs are located and their affiliated health systems to remain competitive and financially viable and to attract physicians and physician groups; (u) the Company’s ability to build, maintain and expand its relationships with existing and prospective hospital and health system clients; (v) risks associated with the Company’s investments in joint ventures and unconsolidated entities, including its lack of sole decision-making authority and its reliance on its joint venture partners’ financial condition; (w) the impact of market or issuer events on the liquidity or value of the Company’s investments in marketable securities; (x) merger and acquisition activity in the seniors housing and healthcare industries resulting in a change of control of, or a competitor’s investment in, one or more of the Company’s tenants, operators, borrowers or managers or significant changes in the senior management of the Company’s tenants, operators, borrowers or managers; (y) the impact of litigation or any financial, accounting, legal or regulatory issues that may affect the Company or its tenants, operators, borrowers or managers; (z) changes in accounting principles, or their application or interpretation, and the Company’s ability to make estimates and the assumptions underlying the estimates, which could have an effect on the Company’s earnings; (aa) the inability to complete the acquisition of Ardent Medical Services and the separation and sale of Ardent Medical Services’ hospital operations on terms acceptable to Ventas or at all; (bb) the failure to satisfy any conditions to completion of the Ardent Medical Services transaction on terms acceptable to Ventas or at all; (cc) the occurrence of any event, change or other circumstances that could give rise to the termination of the Ardent Medical Services purchase agreement or any other agreement relating to the transaction; (dd) the risk that the expected benefits of the Ardent Medical Services transaction, including financial results, may not be fully realized or may take longer to realize than expected; (ee) risks related to disruption of management’s attention from ongoing business operations due to the proposed Ardent Medical Services transaction; (ff) the effect of the announcement of the proposed Ardent Medical Services transaction on Ventas’s or Ardent Medical Services’ relationships with their respective customers, tenants, lenders, operating results and businesses generally; (gg) uncertainties as to the completion and timing of the Spin-Off; and (hh) the impact of the Spin-Off on the businesses of Ventas and CCP. Many of these factors are beyond the control of the Company and its management.

 
CONSOLIDATED BALANCE SHEETS
As of June 30, 2015, March 31, 2015, December 31, 2014, September 30, 2014 and June 30, 2014
(In thousands, except per share amounts)
         
June 30, March 31, December 31, September 30, June 30,
2015 2015 2014 2014 2014
 
Assets
Real estate investments:
Land and improvements $ 2,288,356 $ 2,252,402 $ 1,956,128 $ 1,937,888 $ 1,848,922
Buildings and improvements 22,051,067 21,933,742 19,895,043 19,664,973 18,591,786
Construction in progress 145,873 134,195 120,123 116,975 93,629
Acquired lease intangibles 1,308,052   1,300,654   1,039,651   1,039,949   1,009,474  
25,793,348 25,620,993 23,010,945 22,759,785 21,543,811
Accumulated depreciation and amortization (4,428,252 ) (4,202,334 ) (4,025,386 ) (3,833,974 ) (3,657,541 )
Net real estate property 21,365,096 21,418,659 18,985,559 18,925,811 17,886,270
Secured loans receivable and investments, net 789,408 773,773 829,756 407,551 414,051
Investments in unconsolidated entities 85,461   95,147   91,872   88,175   89,423  
Net real estate investments 22,239,965 22,287,579 19,907,187 19,421,537 18,389,744
Cash and cash equivalents 60,532 120,225 55,348 64,595 86,635
Escrow deposits and restricted cash 193,960 223,772 71,771 78,746 75,514
Deferred financing costs, net 68,284 71,386 60,328 64,898 63,399
Other assets 1,712,421   1,736,909   1,131,537   1,021,389   1,175,494  
Total assets $ 24,275,162   $ 24,439,871   $ 21,226,171   $ 20,651,165   $ 19,790,786  
 
Liabilities and equity
Liabilities:
Senior notes payable and other debt $ 11,507,861 $ 11,603,925 $ 10,888,092 $ 10,469,106 $ 9,602,439
Accrued interest 77,631 77,359 62,097 69,112 56,722
Accounts payable and other liabilities 1,026,359 1,016,592 1,005,232 965,240 975,282
Deferred income taxes 370,161   371,785   344,337   361,454   256,392  
Total liabilities 12,982,012 13,069,661 12,299,758 11,864,912 10,890,835
 
Redeemable OP unitholder and noncontrolling interests 199,404 257,246 172,016 163,080 169,292
 
Commitments and contingencies
 
Equity:
Ventas stockholders' equity:
Preferred stock, $1.00 par value; 10,000 shares authorized, unissued
Common stock, $0.25 par value; 331,965; 330,913; 298,478; 294,359; and 294,358 shares issued at June 30, 2015, March 31, 2015, December 31, 2014, September 30, 2014 and June 30, 2014, respectively 82,982 82,718 74,656 73,603 73,602
Capital in excess of par value 12,708,898 12,616,056 10,119,306 9,859,490 9,849,301
Accumulated other comprehensive income 10,180 4,357 13,121 16,156 26,255
Retained earnings (deficit) (1,772,529 ) (1,660,856 ) (1,526,388 ) (1,398,378 ) (1,294,048 )
Treasury stock, 28; 32; 7; 32; and 0 shares at June 30, 2015, March 31, 2015, December 31, 2014, September 30, 2014 and June 30, 2014, respectively (2,048 ) (2,385 ) (511 ) (2,075 )  
Total Ventas stockholders' equity 11,027,483 11,039,890 8,680,184 8,548,796 8,655,110
Noncontrolling interest 66,263   73,074   74,213   74,377   75,549  
Total equity 11,093,746   11,112,964   8,754,397   8,623,173   8,730,659  
Total liabilities and equity $ 24,275,162   $ 24,439,871   $ 21,226,171   $ 20,651,165   $ 19,790,786  

 
CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended June 30, 2015 and 2014
(In thousands, except per share amounts)
       
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2015 2014 2015 2014
Revenues:
Rental income:
Triple-net leased $ 260,562 $ 242,726 $ 526,768 $ 480,572
Medical office buildings 140,403   114,890   277,393   230,113  
400,965 357,616 804,161 710,685
Resident fees and services 454,645 374,473 901,559 745,534
Medical office building and other services revenue 9,408 4,367 19,951 10,667
Income from loans and investments 26,068 14,625 48,967 25,392
Interest and other income 236   173   708   446  
Total revenues 891,322 751,254 1,775,346 1,492,724
Expenses:
Interest 107,591 91,501 214,181 179,342
Depreciation and amortization 249,195 190,818 496,636 384,412
Property-level operating expenses:
Senior living 299,252 249,424 597,614 497,719
Medical office buildings 43,321   39,335   85,670   78,680  
342,573 288,759 683,284 576,399
Medical office building services costs 5,764 1,626 12,682 4,997
General, administrative and professional fees 33,962 31,306 68,292 64,172
(Gain) loss on extinguishment of debt, net (455 ) 2,924 (434 ) 2,665
Merger-related expenses and deal costs 14,585 9,599 49,757 20,359
Other 5,091   4,863   10,387   10,092  
Total expenses 758,306   621,396   1,534,785   1,242,438  
Income before income (loss) from unconsolidated entities, income taxes, discontinued operations, real estate dispositions and noncontrolling interest 133,016 129,858 240,561 250,286
Income (loss) from unconsolidated entities 9 348 (242 ) 596
Income tax benefit (expense) 9,789   (3,274 ) 17,039   (6,707 )
Income from continuing operations 142,814 126,932 257,358 244,175
Discontinued operations 67 (255 ) (356 ) 2,776
Gain on real estate dispositions 7,469   11,889   14,155   12,889  
Net income 150,350 138,566 271,157 259,840
Net income attributable to noncontrolling interest 529   168   894   395  
Net income attributable to common stockholders $ 149,821   $ 138,398   $ 270,263   $ 259,445  
Earnings per common share:
Basic:
Income from continuing operations attributable to common stockholders, including real estate dispositions $ 0.45 $ 0.47 $ 0.82 $ 0.87
Discontinued operations 0.00   (0.00 ) (0.00 ) 0.01  
Net income attributable to common stockholders $ 0.45   $ 0.47   $ 0.82   $ 0.88  
Diluted:
Income from continuing operations attributable to common stockholders, including real estate dispositions $ 0.45 $ 0.47 $ 0.82 $ 0.87
Discontinued operations 0.00   (0.00 ) (0.00 ) 0.01  
Net income attributable to common stockholders $ 0.45   $ 0.47   $ 0.82   $ 0.88  
 
Weighted average shares used in computing earnings per common share:
Basic 330,715 293,988 327,890 293,932
Diluted 334,026 296,504 331,424 296,369
 
Dividends declared per common share $ 0.79 $ 0.725 $ 1.58 $ 1.45

 
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
         
2015 Quarters 2014 Quarters
Second First Fourth Third Second
 
Revenues:
Rental income:
Triple-net leased $ 260,562 $ 266,206 $ 245,599 $ 244,206 $ 242,726
Medical office buildings 140,403   136,990   116,907   116,598   114,890  
400,965 403,196 362,506 360,804 357,616
Resident fees and services 454,645 446,914 411,170 396,247 374,473
Medical office building and other services revenue 9,408 10,543 11,124 7,573 4,367
Income from loans and investments 26,068 22,899 15,734 14,043 14,625
Interest and other income 236   472   3,453   368   173  
Total revenues 891,322 884,024 803,987 779,035 751,254
 
Expenses:
Interest 107,591 106,590 99,031 98,469 91,501
Depreciation and amortization 249,195 247,441 241,275 201,224 190,818
Property-level operating expenses:
Senior living 299,252 298,362 273,563 265,274 249,424
Medical office buildings 43,321   42,349   38,715   41,147   39,335  
342,573 340,711 312,278 306,421 288,759
Medical office building services costs 5,764 6,918 7,527 4,568 1,626
General, administrative and professional fees 33,962 34,330 28,108 29,466 31,306
(Gain) loss on extinguishment of debt, net (455 ) 21 485 2,414 2,924
Merger-related expenses and deal costs 14,585 35,172 7,943 16,749 9,599
Other 5,091   5,296   13,604   15,229   4,863  
Total expenses 758,306   776,479   710,251   674,540   621,396  
 
Income before income (loss) from unconsolidated entities, income taxes, discontinued operations, real estate dispositions and noncontrolling interest 133,016 107,545 93,736 104,495 129,858
Income (loss) from unconsolidated entities 9 (251 ) (688 ) (47 ) 348
Income tax benefit (expense) 9,789   7,250   13,552   1,887   (3,274 )
Income from continuing operations 142,814 114,544 106,600 106,335 126,932
Discontinued operations 67 (423 ) (411 ) (259 ) (255 )
Gain on real estate dispositions 7,469   6,686   1,456   3,625   11,889  
Net income 150,350 120,807 107,645 109,701 138,566
Net income attributable to noncontrolling interest 529   365   455   569   168  
Net income attributable to common stockholders $ 149,821   $ 120,442   $ 107,190   $ 109,132   $ 138,398  
 
Earnings per common share:
Basic:
Income from continuing operations attributable to common stockholders, including real estate dispositions $ 0.45 $ 0.37 $ 0.36 $ 0.37 $ 0.47
Discontinued operations 0.00   (0.00 ) (0.00 ) (0.00 ) (0.00 )
Net income attributable to common stockholders $ 0.45   $ 0.37   $ 0.36   $ 0.37   $ 0.47  
Diluted:
Income from continuing operations attributable to common stockholders, including real estate dispositions $ 0.45 $ 0.37 $ 0.36 $ 0.37 $ 0.47
Discontinued operations 0.00   (0.00 ) (0.00 ) (0.00 ) (0.00 )
Net income attributable to common stockholders $ 0.45   $ 0.37   $ 0.36   $ 0.37   $ 0.47  
 
Weighted average shares used in computing earnings per common share:
Basic 330,715 325,454 294,810 294,030 293,988
Diluted 334,026 329,203 297,480 296,495 296,504

 
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2015 and 2014
(In thousands)
  2015   2014
Cash flows from operating activities:
Net income $ 271,157 $ 259,840
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amounts in discontinued operations) 496,660 385,940
Amortization of deferred revenue and lease intangibles, net (13,630 ) (9,879 )
Other non-cash amortization 909 (2,928 )
Stock-based compensation 11,192 11,411
Straight-lining of rental income, net (16,761 ) (17,231 )
(Gain) loss on extinguishment of debt, net (434 ) 2,665
Gain on real estate dispositions (including amounts in discontinued operations) (14,432 ) (14,142 )
Gain on sale of marketable securities (5,800 )
Income tax (benefit) expense (18,240 ) 6,407
Loss (income) from unconsolidated entities 242 (596 )
Other 17,967 6,494
Changes in operating assets and liabilities:
(Increase) decrease in other assets (9,711 ) 11,208
Increase in accrued interest 16,108 2,374
Decrease in accounts payable and other liabilities (17,503 ) (45,861 )
Net cash provided by operating activities 717,724 595,702
Cash flows from investing activities:
Net investment in real estate property (1,253,910 ) (271,526 )
Investment in loans receivable and other (55,659 ) (44,488 )
Proceeds from real estate disposals 273,191 52,350
Proceeds from loans receivable 93,275 5,980
Purchase of marketable securities (46,689 )
Proceeds from sale or maturity of marketable securities 57,225
Funds held in escrow for future development expenditures 4,003 2,602
Development project expenditures (62,630 ) (44,423 )
Capital expenditures (43,429 ) (35,526 )
Other (8,813 ) (3,713 )
Net cash used in investing activities (996,747 ) (385,433 )
Cash flows from financing activities:
Net change in borrowings under credit facility (321,334 ) (199,951 )
Proceeds from debt 1,107,971 696,661
Repayment of debt (278,442 ) (272,726 )
Purchase of noncontrolling interest (3,816 )
Payment of deferred financing costs (14,608 ) (6,846 )
Issuance of common stock, net 352,167
Cash distribution to common stockholders (516,404 ) (426,952 )
Cash distribution to redeemable OP unitholders (4,697 ) (2,762 )
Purchases of redeemable OP units (33,188 )
Distributions to noncontrolling interest (9,467 ) (4,908 )
Other 5,928   (574 )
Net cash provided by (used in) financing activities 284,110   (218,058 )
Net increase (decrease) in cash and cash equivalents 5,087 (7,789 )
Effect of foreign currency translation on cash and cash equivalents 97 (392 )
Cash and cash equivalents at beginning of period 55,348   94,816  
Cash and cash equivalents at end of period $ 60,532   $ 86,635  
 
Supplemental schedule of non-cash activities:
Assets and liabilities assumed from acquisitions:
Real estate investments $ 2,554,590 $ 54,282
Other assets acquired 16,505 1,634
Debt assumed 177,857 51,115
Other liabilities 49,788 3,675
Deferred income tax liability 51,620 1,126
Noncontrolling interests 87,245
Equity issued 2,204,585

 
QUARTERLY CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
         
2015 Quarters 2014 Quarters
Second First Fourth Third Second
Cash flows from operating activities:
Net income $ 150,350 $ 120,807 $ 107,645 $ 109,701 $ 138,566
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amounts in discontinued operations) 249,207 247,453 241,291 201,236 192,064
Amortization of deferred revenue and lease intangibles, net (7,027 ) (6,603 ) (4,096 ) (4,896 ) (4,496 )
Other non-cash amortization 1,428 (519 ) 304 2,312 (963 )
Stock-based compensation 4,885 6,307 4,202 5,381 5,367
Straight-lining of rental income, net (8,082 ) (8,679 ) (9,043 ) (12,413 ) (9,317 )
(Gain) loss on extinguishment of debt, net (455 ) 21 485 2,414 2,924
Gain on real estate dispositions (including amounts in discontinued operations) (7,746 ) (6,686 ) (1,457 ) (3,584 ) (11,705 )
Gain on real estate loan investments (1,206 ) (249 )
Gain on sale of marketable securities (5,800 )
Income tax (benefit) expense (10,390 ) (7,850 ) (13,851 ) (1,987 ) 2,974
(Income) loss from unconsolidated entities (9 ) 251 688 47 (348 )
Other 15,107 2,860 2,140 7,105 3,418
Changes in operating assets and liabilities:
(Increase) decrease in other assets (14,326 ) 4,615 8,623 (14,514 ) 4,967
Increase (decrease) in accrued interest 316 15,792 (6,877 ) 12,461 (4,379 )
Increase (decrease) in accounts payable and other liabilities 6,097   (23,600 ) 6,025   21,256   (7,791 )
Net cash provided by operating activities 373,555 344,169 334,873 324,270 311,281
Cash flows from investing activities:
Net investment in real estate property (181,371 ) (1,072,539 ) (284,250 ) (912,510 ) (89,660 )
Investment in loans receivable and other (16,086 ) (39,573 ) (432,556 ) (21,948 ) (43,296 )
Proceeds from real estate disposals 106,850 166,341 5,500 60,396 26,200
Proceeds from loans receivable 1,219 92,056 17,984 49,593 4,817
Purchase of marketable securities (50,000 ) (21,689 )
Proceeds from sale or maturity of marketable securities 57,225 21,689
Funds held in escrow for future development expenditures 4,003 1,988
Development project expenditures (29,163 ) (33,467 ) (35,613 ) (26,952 ) (20,475 )
Capital expenditures (22,258 ) (21,171 ) (31,219 ) (20,709 ) (19,392 )
Other (4,633 ) (4,180 ) (10,704 ) (296 ) (3,588 )
Net cash used in investing activities (88,217 ) (908,530 ) (818,870 ) (850,737 ) (167,083 )
Cash flows from financing activities:
Net change in borrowings under credit facility 131,563 (452,897 ) 693,887 46,267 (381,705 )
Proceeds from debt 15,138 1,092,833 1,311,046 696,661
Repayment of debt (253,795 ) (24,647 ) (246,278 ) (632,391 ) (204,953 )
Purchase of noncontrolling interest (1,156 ) (2,660 )
Payment of deferred financing costs (173 ) (14,435 ) 726 (8,100 ) (6,679 )
Issuance of common stock, net 66,840 285,327 242,107
Cash distribution to common stockholders (261,494 ) (254,910 ) (235,200 ) (213,462 ) (213,479 )
Cash distribution to redeemable OP unitholders (2,332 ) (2,365 ) (1,548 ) (1,452 ) (1,360 )
Purchases of redeemable OP units (32,619 ) (569 ) (503 )
Contributions from noncontrolling interest 491
Distributions to noncontrolling interest (7,645 ) (1,822 ) (2,799 ) (1,852 ) (2,671 )
Other 238   5,690   25,153   23   (2,215 )
Net cash (used in) provided by financing activities (345,435 ) 629,545   476,036   500,079   (116,401 )
Net (decrease) increase in cash and cash equivalents (60,097 ) 65,184 (7,961 ) (26,388 ) 27,797
Effect of foreign currency translation on cash and cash equivalents 404 (307 ) (1,286 ) 4,348 (953 )
Cash and cash equivalents at beginning of period 120,225   55,348   64,595   86,635   59,791  
Cash and cash equivalents at end of period $ 60,532   $ 120,225   $ 55,348   $ 64,595   $ 86,635  
 
Supplemental schedule of non-cash activities:
Assets and liabilities assumed from acquisitions:
Real estate investments $ 11,761 $ 2,542,829 $ 16,746 $ 299,713 $ 51,330
Other assets acquired (206 ) 16,711 11,597 2,049 1,634
Debt assumed 177,857 12,926 177,035 51,115
Other liabilities 4,052 45,736 4,598 15,766 723
Deferred income tax liability 7,503 44,117 641 108,961 1,126
Noncontrolling interests 87,245
Equity issued 2,204,585 10,178

                   
NON-GAAP FINANCIAL MEASURES RECONCILIATION
Funds From Operations (FFO) and Funds Available for Distribution (FAD)(1)
(Dollars in thousands, except per share amounts)
 
Tentative Estimates
Preliminary and Midpoint
YOY   Subject to Change YOY
2014   2015       Growth   FY2015 - Guidance   Growth
Q2 Q3   Q4   FY   Q1   Q2  

YTD

  '14-'15   Low   High   '14-'15E
Net income attributable to common stockholders $ 138,398 $ 109,132 $ 107,190 $ 475,767 $ 120,442 $ 149,821 $ 270,263 $ 570,305   $ 584,808
Net income attributable to common stockholders per share $ 0.47 $ 0.37 $ 0.36 $ 1.60 $ 0.37 $ 0.45 $ 0.82 $ 1.70 $ 1.75
 
Adjustments:
Depreciation and amortization on real estate assets 189,219 199,617 239,465 820,344 245,651 247,392 493,043 964,000 988,000
Depreciation on real estate assets related to noncontrolling interest (2,661 ) (2,503 ) (2,506 ) (10,314 ) (2,052 ) (1,964 ) (4,016 ) (7,800 ) (8,200 )
Depreciation on real estate assets related to unconsolidated entities 1,495 1,471 1,332 5,792 1,462 1,464 2,926 5,700 6,100
Gain on real estate dispositions (11,889 ) (3,625 ) (1,456 ) (17,970 ) (6,686 ) (7,469 ) (14,155 ) (22,500 ) (27,500 )
Discontinued operations:
(Gain) loss on real estate dispositions (45 ) 41 (52 ) (1,494 ) (277 ) (277 ) (277 ) (277 )
Depreciation and amortization on real estate assets 1,247     12     15     1,555     12     12     24         48     48  
Subtotal: FFO add-backs 177,366 195,013 236,798 797,913 238,387 239,158 477,545 939,171 958,171
Subtotal: FFO add-backs per share   $ 0.60     $ 0.66     $ 0.80     $ 2.69     $ 0.72     $ 0.72     $ 1.44         $ 2.80     $ 2.86      
FFO (NAREIT) attributable to common stockholders $ 315,764 $ 304,145 $ 343,988 $ 1,273,680 $ 358,829 $ 388,979 $ 747,808 23 % $ 1,509,476 $ 1,542,979 20 %
FFO (NAREIT) attributable to common stockholders per share   $ 1.07     $ 1.03     $ 1.16     $ 4.29     $ 1.09     $ 1.16     $ 2.26     8 %   $ 4.51     $ 4.61     6 %
 
Adjustments:
Change in fair value of financial instruments 109 4,595 485 5,121 (46 ) 70 24 500 (1,100 )
Non-cash income tax expense (benefit) 2,974 (1,987 ) (13,851 ) (9,431 ) (7,850 ) (10,389 ) (18,239 ) (27,000 ) (33,000 )
Loss (gain) on extinguishment of debt, net 2,924 2,414 485 5,013 21 (39 ) (18 ) 1,000 2,000
Merger-related expenses, deal costs and re-audit costs 9,602 23,401 10,625 54,389 36,002 15,135 51,137 88,500 81,500
Amortization of other intangibles 255     255     480     1,246     591     591     1,182         2,300     2,500  
Subtotal: normalized FFO add-backs 15,864 28,678 (1,776 ) 56,338 28,718 5,368 34,086 65,300 51,900
Subtotal: normalized FFO add-backs per share   $ 0.05     $ 0.10     $ (0.01 )   $ 0.19     $ 0.09     $ 0.02     $ 0.10         $ 0.19     $ 0.15      
Normalized FFO attributable to common stockholders $ 331,628 $ 332,823 $ 342,212 $ 1,330,018 $ 387,547 $ 394,347 $ 781,894 19 % $ 1,574,776 $ 1,594,879 19 %
Normalized FFO attributable to common stockholders per share   $ 1.12     $ 1.12     $ 1.15     $ 4.48     $ 1.18     $ 1.18     $ 2.36     5 %   $ 4.70     $ 4.76     6 %
 
Non-cash items included in normalized FFO:
Amortization of deferred revenue and lease intangibles, net (4,496 ) (4,896 ) (4,096 ) (18,871 ) (6,603 ) (7,027 ) (13,630 ) (27,100 ) (28,100 )
Other non-cash amortization, including fair market value of debt (963 ) 2,312 304 (312 ) (519 ) 1,428 909 4,700 5,700
Stock-based compensation 5,367 5,381 4,202 20,994 6,307 4,885 11,192 20,700 22,700
Straight-lining of rental income, net (9,317 )   (12,413 )   (9,043 )   (38,687 )   (8,679 )   (8,082 )   (16,761 )       (32,100 )   (33,100 )
Subtotal: non-cash items included in normalized FFO (9,409 ) (9,616 ) (8,633 ) (36,876 ) (9,494 ) (8,796 ) (18,290 ) (33,800 ) (32,800 )
Capital expenditures   (21,445 )   (21,822 )   (32,527 )   (92,928 )   (22,148 )   (23,520 )   (45,668 )       (112,500 )   (120,000 )    
Normalized FAD attributable to common stockholders $ 300,774 $ 301,385 $ 301,052 $ 1,200,214 $ 355,905 $ 362,031 $ 717,936 20 % $ 1,428,476 $ 1,442,079 20 %
Normalized FAD attributable to common stockholders per share   $ 1.01     $ 1.02     $ 1.01     $ 4.05     $ 1.08     $ 1.08     $ 2.17     7 %   $ 4.26     $ 4.30     6 %
Merger-related expenses, deal costs and re-audit costs   (9,602 )   (23,401 )   (10,625 )   (54,389 )   (36,002 )   (15,135 )   (51,137 )       (88,500 )   (81,500 )    
FAD attributable to common stockholders $ 291,172 $ 277,984 $ 290,427 $ 1,145,825 $ 319,903 $ 346,896 $ 666,799 19 % $ 1,339,976 $ 1,360,579 18 %
FAD attributable to common stockholders per share   $ 0.98     $ 0.94     $ 0.98     $ 3.86     $ 0.97     $ 1.04     $ 2.01     6 %   $ 4.00     $ 4.06     4 %
Weighted average diluted shares 296,504 296,495 297,480 296,677 329,203 334,026 331,424 335,059     335,059  
 
1 Totals and per share amounts may not add due to rounding. Per share quarterly amounts may not add to annual per share amounts due to material changes in the Company’s weighted average diluted share count, if any.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market conditions, many industry investors deem presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. For that reason, the Company considers FFO, normalized FFO and FAD to be appropriate measures of operating performance of an equity REIT. In particular, the Company believes that normalized FFO is useful because it allows investors, analysts and Company management to compare the Company’s operating performance to the operating performance of other real estate companies and between periods on a consistent basis without having to account for differences caused by unanticipated items and other events such as transactions and litigation. In some cases, the Company provides information about identified non-cash components of FFO and normalized FFO because it allows investors, analysts and Company management to assess the impact of those items on the Company’s financial results.

The Company uses the NAREIT definition of FFO. NAREIT defines FFO as net income attributable to common stockholders (computed in accordance with GAAP) excluding gains (or losses) from sales of real estate property, including gain on re-measurement of equity method investments, and impairment write-downs of depreciable real estate, 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. The Company defines normalized FFO as FFO excluding the following income and expense items (which may be recurring in nature): (a) merger-related costs and expenses, including amortization of intangibles, transition and integration expenses, and deal costs and expenses, including expenses and recoveries relating to acquisition lawsuits; (b) the impact of any expenses related to asset impairment and valuation allowances, the write-off of unamortized deferred financing fees, or additional costs, expenses, discounts, make-whole payments, penalties or premiums incurred as a result of early retirement or payment of the Company’s debt; (c) the non-cash effect of income tax benefits or expenses and derivative transactions that have non-cash mark-to-market impacts on the Company’s income statement; (d) except as specifically stated in the case of guidance, the impact of future acquisitions or divestitures (including pursuant to tenant options to purchase) and capital transactions; (e) the financial impact of contingent consideration, charitable donations made to the Ventas Charitable Foundation, gains and losses for non-operational foreign currency hedge agreements and changes in the fair value of financial instruments; and (f) expenses related to the re-audit and re-review in 2014 of the Company’s historical financial statements and related matters. FAD represents normalized FFO excluding non-cash components, straight-line rental adjustments and capital expenditures, including tenant allowances and leasing commissions.

FFO, normalized FFO and FAD presented herein may not be comparable to similar measures presented by other real estate companies due to the fact that not all real estate companies use the same definitions. FFO, normalized FFO and FAD should not be considered as alternatives to net income (determined in accordance with GAAP) as indicators of the Company’s financial performance or as alternatives to cash flow from operating activities (determined in accordance with GAAP) as measures of the Company’s liquidity, nor are they 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, normalized FFO and FAD should be examined in conjunction with net income as presented elsewhere herein.

NON-GAAP FINANCIAL MEASURES RECONCILIATION

Net Debt to Adjusted Pro Forma EBITDA

 

The following information considers the pro forma effect on net income, interest, depreciation and amortization, and noncontrolling interest of the Company’s investments and other capital transactions that were completed during the three months ended June 30, 2015, 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 (including non-cash stock-based compensation expense), excluding gains or losses on extinguishment of debt, income or loss from noncontrolling interest and unconsolidated entities, merger-related expenses and deal costs, expenses related to the re-audit and re-review in 2014 of the Company’s historical financial statements, net gains on real estate activity and changes in the fair value of financial instruments (including amounts in discontinued operations) (“Adjusted Pro Forma EBITDA”) (dollars in thousands):

        Net income attributable to common stockholders   $ 149,821
Pro forma adjustments for current period investments, capital transactions and dispositions (2,458 )
Pro forma net income for the three months ended June 30, 2015 147,363
Add back:
Pro forma interest 106,384
Pro forma depreciation and amortization 250,092
Stock-based compensation 4,885
Gain on real estate dispositions (7,746 )

Gain on extinguishment of debt, net

(455 )

Gain from unconsolidated entities

(9 )
Pro forma noncontrolling interest 226
Income tax benefit (9,789 )
Change in fair value of financial instruments 70
Other taxes 1,220
Merger-related expenses, deal costs and re-audit costs 15,010  
Adjusted Pro Forma EBITDA 507,251  
Adjusted Pro Forma EBITDA annualized $ 2,029,004  
 
 
As of June 30, 2015:
Debt $ 11,507,861
Cash, adjusted for cash escrows pertaining to debt (204,761 )
Net debt $ 11,303,100  
 
Net debt to Adjusted Pro Forma EBITDA 5.6   x
 

 
NON-GAAP FINANCIAL MEASURES RECONCILIATION 1, 2
NOI by Segment
(In thousands)
         
2015 Quarters 2014 Quarters
Second First Fourth Third Second
Revenues
 
Triple-Net
Triple-Net Rental Income $ 260,562 $ 266,206 $ 245,599 $ 244,206 $ 242,726
 
Medical Office Buildings
Medical Office - Stabilized 129,145 123,211 104,171 103,780 101,795
Medical Office - Lease up 8,129 8,429 6,675 6,767 6,839
Medical Office - Other 3,129   5,350   6,061   6,051   6,256
Total Medical Office Buildings - Rental Income 140,403   136,990   116,907   116,598   114,890
Total Rental Income 400,965 403,196 362,506 360,804 357,616
 
Medical Office Building Services Revenue 7,749   8,858   9,218   5,937   2,722
Total Medical Office Buildings - Revenue 148,152 145,848 126,125 122,535 117,612
 
Triple-Net Services Revenue 1,139 1,136 1,136 1,136 1,145
Non-Segment Services Revenue 520   549   770   500   500
Total Medical Office Building and Other Services Revenue 9,408 10,543 11,124 7,573 4,367
 
Seniors Housing Operating
Seniors Housing - Stabilized 438,110 431,890 398,855 385,511 363,618
Seniors Housing - Lease up 16,535 15,024 12,083 10,109 10,227
Seniors Housing - Other     232   627   628
Total Resident Fees and Services 454,645 446,914 411,170 396,247 374,473
 
Non-Segment Income from Loans and Investments 26,068   22,899   15,734   14,043   14,625
Total Revenues, excluding Interest and Other Income 891,086 883,552 800,534 778,667 751,081
 
Property-Level Operating Expenses
 
Medical Office Buildings
Medical Office - Stabilized 38,491 36,807 33,331 34,807 33,641
Medical Office - Lease up 3,087 3,242 2,509 2,738 2,733
Medical Office - Other 1,743   2,300   2,875   3,602   2,961
Total Medical Office Buildings 43,321 42,349 38,715 41,147 39,335
 
Seniors Housing Operating
Seniors Housing - Stabilized 286,321 286,277 262,915 256,702 241,380
Seniors Housing - Lease up 12,931 12,085 10,421 7,972 7,473
Seniors Housing - Other     227   600   571
Total Seniors Housing 299,252   298,362   273,563   265,274   249,424
Total Property-Level Operating Expenses 342,573 340,711 312,278 306,421 288,759
 
Medical Office Building Services Costs 5,764 6,918 7,527 4,568 1,626
 
Net Operating Income
 
Triple-Net
Triple-Net Properties 260,562 266,206 245,599 244,206 242,726
Triple-Net Services Revenue 1,139   1,136   1,136   1,136   1,145
Total Triple-Net 261,701 267,342 246,735 245,342 243,871
 
Medical Office Buildings
Medical Office - Stabilized 90,654 86,404 70,840 68,973 68,154
Medical Office - Lease up 5,042 5,187 4,166 4,029 4,106
Medical Office - Other 1,386 3,050 3,186 2,449 3,295
Medical Office Building Services 1,985   1,940   1,691   1,369   1,096
Total Medical Office Buildings 99,067 96,581 79,883 76,820 76,651
 
Seniors Housing Operating
Seniors Housing - Stabilized 151,789 145,613 135,940 128,809 122,238
Seniors Housing - Lease up 3,604 2,939 1,662 2,137 2,754
Seniors Housing - Other     5   27   57
Total Seniors Housing 155,393 148,552 137,607 130,973 125,049
Non-Segment 26,588   23,448   16,504   14,543   15,125
Net Operating Income $ 542,749   $ 535,923   $ 480,729   $ 467,678   $ 460,696
 
1 Amounts above are adjusted to exclude discontinued operations for all periods presented.
2 Amounts above are not restated for changes between categories from quarter to quarter.

 
NON-GAAP FINANCIAL MEASURES RECONCILIATION
(Dollars in thousands)
 
Total Portfolio Same-Store Constant Currency Cash NOI
 
  For the Three Months Ended
June 30,
2015   2014
 
Net Operating Income $ 542,749 $ 460,696
 
Adjustments:
NOI Not Included in Same-Store (75,173 ) (14,974 )
Straight-Lining of Rental Income (8,081 ) (9,319 )
Non-Cash Rental Income (6,199 ) (3,629 )
Non-Segment NOI (26,588 ) (15,125 )
Constant Currency Adjustment   (945 )
(116,041 ) (43,992 )
 
Constant Currency NOI as Reported $ 426,708   $ 416,704  
 
Percentage Increase 2.4 %
 
NON-GAAP FINANCIAL MEASURES RECONCILIATION
(Dollars in thousands)
 
Total Portfolio Same-Store Constant Currency Cash NOI
 
  For the Six Months Ended
June 30,
2015   2014
 
Net Operating Income $ 1,078,672 $ 910,882
 
Adjustments:
Lease Modification Fee 5,200
NOI Not Included in Same-Store (159,137 ) (34,810 )
Straight-Lining of Rental Income (16,760 ) (17,217 )
Non-Cash Rental Income (12,008 ) (8,353 )
Non-Segment NOI (50,038 ) (26,392 )
Constant Currency Adjustment   (1,256 )
(232,743 ) (88,028 )
 
Constant Currency NOI as Reported $ 845,929   $ 822,854  
 
Percentage Increase 2.8 %

 
NON-GAAP FINANCIAL MEASURES RECONCILIATION
(Dollars in thousands)
 
Senior Housing Operating Portfolio Same-Store Constant Currency NOI
 
  For the Three Months Ended
June 30,
2015   2014
 
Net Operating Income $ 155,393 $ 125,049
 
Less:
NOI Not Included in Same-Store (28,013 ) (1,862 )
Constant Currency Adjustment   (667 )
(28,013 ) (2,529 )
 
Constant Currency NOI as Reported $ 127,380   $ 122,520  
 
Percentage Increase 4.0 %

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Contacts

Ventas, Inc.
Lori B. Wittman
(877) 4-VENTAS

Contacts

Ventas, Inc.
Lori B. Wittman
(877) 4-VENTAS