Ventas Reports 2015 Third Quarter Results

Ventas, Inc. (NYSE: VTR) (“Ventas” or the “Company”) today announced that reported normalized Funds From Operations (“FFO”) for the quarter ended September 30, 2015 was $365.5 million, compared to $332.8 million for the 2014 period. Reported normalized FFO per diluted common share was $1.09 for the quarter ended September 30, 2015. Weighted average diluted shares outstanding for the third quarter of 2015 increased to 336.3 million, compared to 296.5 million in the third quarter of 2014.

These current and prior period reported results include in discontinued operations normalized FFO from the 355 properties that are now owned by Care Capital Properties, Inc. (“CCP”) (NYSE:CCP). The spin-off of CCP as an independent, publicly traded company (the “Spin-Off”) was successfully completed on August 17, 2015. Ventas’s third quarter 2015 reported results include normalized FFO from those properties for the period July 1 - August 17, 2015.

On a comparable basis (“Comparable”), adjusting all current and prior periods for the effects of the Spin-Off as if the Spin-Off were completed January 1, 2014, normalized FFO for the quarter ended September 30, 2015 totaled $330.1 million or $0.98 cents per diluted share, representing a Comparable per share growth rate of 7 percent compared to the third quarter 2014.

Strong Results and Innovative Transactions Completed

“We drove strong results, including over four percent same-store cash NOI growth, and completed our innovative and value creating spin-off of Care Capital Properties and the Ardent hospital acquisition, during the quarter,” Ventas Chairman and Chief Executive Officer Debra A. Cafaro said. “We have a terrific portfolio, enhanced growth prospects, leading operating partners and excellent liquidity. With our positive momentum, we are pleased to increase our full year 2015 guidance range for same-store cash flow growth and normalized FFO per share.”

Third Quarter Net Income and NAREIT FFO

Reported net income attributable to common stockholders for the quarter ended September 30, 2015 was $22.9 million, or $0.07 per diluted common share. Reported net income attributable to common stockholders for the quarter ended September 30, 2014 was $109.1 million, or $0.37 per diluted common share.

The decrease in third quarter 2015 reported net income per share from 2014 net income per share is principally due to the inclusion in the third quarter of 2014 of a full quarter’s results from the properties that were spun off to CCP; higher depreciation expense; and separation and transaction costs in the current period principally relating to the CCP Spin-Off and the Ardent transactions. These factors were partially offset by higher net operating income (“NOI”) due to accretive investments and improved property performance in the third quarter 2015.

Reported FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), for the third quarter of 2015 was $260.7 million, or $0.78 per diluted common share. Reported NAREIT FFO for the third quarter of 2014 was $304.1 million, or $1.03 per diluted common share.

Portfolio Performance

• Same-store cash NOI growth for the Company’s total portfolio (1,024 assets) was 4.3 percent, expressed in constant currency, for the quarter ended September 30, 2015 compared to the same period in 2014. Year-to-date, same-store cash NOI growth for the Company’s total portfolio (1,015 assets) was 4.4 percent.
• Total seniors housing operating portfolio (“SHOP”) NOI was $150.3 million in the third quarter, an increase of 15 percent over the respective 2014 period. Same-store SHOP NOI grew 3.2 percent, expressed in constant currency, for the 239 same-store properties over third quarter 2014 results.

Third Quarter Developments

• The Company completed its acquisition of Ardent Health Services and simultaneously sold its hospital operating company (“Ardent”) to a consortium composed of Equity Group Investments, Ardent’s management team and Ventas. Ventas now has approximately $1.3 billion invested in high quality 100% owned hospital real estate operated by Ardent, a top ten US hospital company, as its tenant under long-term triple-net leases at a going-in cash yield approximating 7.5 percent after all costs and expenses and 8 percent before such costs and expenses. Ventas invested $26 million for its 9.9 percent share of Ardent equity.
• The Company successfully completed its Spin-Off of most of its skilled nursing facility portfolio into CCP, a pure-play skilled nursing REIT, on August 17, 2015.
• The Company made $28 million in development and redevelopment funding during the third quarter.
• Ventas paid its shareholders a dividend of $0.73 per share in the third quarter, representing a reported FFO payout ratio of 67 percent. As previously communicated, Ventas’s third quarter 2015 dividend to shareholders, combined with CCP’s third quarter dividend, delivered a 10 percent increase for shareholders compared to the third quarter 2014.

Balance Sheet and Liquidity

• During the third quarter of 2015, Ventas issued and sold a total of 1 million shares of common stock for aggregate proceeds of approximately $67 million (before sales commissions) under its “at the market” equity offering program, of which approximately 580,000 were previously reported; and issued $500 million of 4.125 percent senior notes due 2026.
• The Company completed a $900 million five year term loan with a variable interest rate of LIBOR plus 97.5 basis points in August.
• In August, in connection with the Spin-Off, the Company received a dividend from CCP of $1.3 billion.
• During and following the quarter, Ventas sold assets generating proceeds of $92 million and gains exceeding $9 million.
• During the quarter, Ventas repaid $1.0 billion of debt in addition to payments that reduced its outstanding balance under the Company’s Revolving Credit Facility. This $1.0 billion of repaid debt had a weighted average maturity of 1.5 years and weighted average interest rate approximating 3.3 percent.
• The Company has a strong liquidity position and credit profile, including:
  • $2 billion availability under its Revolving Credit Facility and $65 million of cash;
  • Debt maturities totaling only $667 million through 2016;
  • A weighted average debt maturity exceeding seven years;
  • Net Debt to Adjusted Pro Forma EBITDA at September 30, 2015 of 6.1x; and
  • Current debt-to-enterprise value at 36 percent.

2015 Normalized FFO Per Share and Same Store Cash Flow Guidance Increased from Previously Provided Range

Ventas currently expects its 2015 reported normalized FFO per diluted share to increase to a range between $4.43 and $4.46, compared to its previously provided guidance range of $4.39 to $4.45. If achieved, this would represent 7 to 8 percent growth in normalized FFO per share over 2014 on a Comparable basis. Ventas currently expects its 2015 NAREIT reported FFO per diluted share to be between $4.03 and $4.07.

Same-store cash NOI is forecast to grow 3.5 to 4 percent in 2015, an improvement from the Company’s prior range of 2.5 to 3.5 percent, driven by enhancement of our high-quality portfolio following the CCP Spin-Off. SHOP same-store cash NOI is now forecast to grow 2 to 3 percent, while triple-net same-store NOI is estimated to grow 5.5 to 6 percent in 2015.

The Company’s current expectations do not include any material additional investments, dispositions or capital activity. 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.

THIRD 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 (800) 706-7741 (or (617) 614-3471 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 23997249, 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 nearly 1,300 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. 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 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; and (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. Many of these factors are beyond the control of the Company and its management.

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, FAD and normalized 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. Normalized FAD represents normalized FFO excluding non-cash components, straight-line rental adjustments and deducting capital expenditures, including tenant allowances and leasing commissions. FAD represents normalized FAD after subtracting merger-related expenses, deal costs and re-audit costs.

FFO, normalized FFO, FAD and normalized 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, FAD and normalized 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, FAD and normalized FAD should be examined in conjunction with net income as presented elsewhere herein.