Ventas reports 7.8% increase in normalized FFO for year ended December 31, 2009

Ventas, Inc.Feb 18 2010

Ventas, Inc. (NYSE: VTR) (“Ventas” or the “Company”) said today that normalized Funds From Operations (“FFO”) for the year ended December 31, 2009 increased 7.8 percent to $409.0 million, from $379.5 million for the comparable 2008 period. Normalized FFO per diluted common share was $2.68 for the year ended December 31, 2009, compared to $2.71 for the comparable 2008 period. Weighted average diluted shares outstanding totaled 152.8 million for 2009, a 9.2 percent increase from 139.9 million in the comparable 2008 period.

“Our portfolio of mansion-style, need-driven seniors housing managed by Sunrise continued to gain traction in the fourth quarter, with occupancy increasing to 88.8 percent in the 78 stabilized communities”

“2009 was a remarkable year for Ventas. Our cash flows from operations grew over ten percent because our high-quality, diversified healthcare and seniors housing assets demonstrated strength and reliability despite a challenging economic environment,” Ventas Chairman, President and Chief Executive Officer Debra A. Cafaro said. “And we are very pleased to announce that we culminated the decade as the best performing publicly-traded REIT, with a compound annual total shareholder return exceeding 35 percent.

“During the year, we successfully accessed multiple capital markets to improve our liquidity and reduce our leverage, while we remained focused on building shareholder value,” she added. “As 2010 begins, Ventas enjoys a great balance sheet and a hard-working team committed to delivering value to our stakeholders. We are well positioned to execute our strategic growth and diversification plan as we begin a new year and a new decade.”

Normalized FFO for the year ended December 31, 2009 excludes the net expense (totaling $15.6 million, or $0.10 per diluted share) from merger-related expenses and deal costs, including fees and expenses incurred to obtain the Company’s favorable $101.6 million jury verdict against HCP, Inc. (“HCP”), and loss on extinguishment of debt, offset by income tax benefit. Normalized FFO for the year ended December 31, 2008 excluded the net benefit (totaling $32.9 million, or $0.24 per diluted share) from income taxes and the previously recorded contingent liability reversal and gain on extinguishment of debt, offset by the valuation allowance on real estate mortgage loans receivable and merger-related expenses and deal costs.

Fourth quarter 2009 normalized FFO increased 11.5 percent to $104.8 million, from $94.0 million in the 2008 fourth quarter. Normalized FFO per diluted common share in the fourth quarter of 2009 increased 1.5 percent to $0.67, from $0.66 a year earlier. Fourth quarter 2009 normalized FFO per diluted common share versus the comparable period in 2008 benefited from rental increases from the Company’s triple-net lease portfolio; higher Net Operating Income after management fees (“NOI”) at the Company’s senior living and medical office building (“MOB”) operating portfolios; lower interest expense; and lower general, administrative and professional fees, offset by higher weighted average diluted shares outstanding.

Normalized FFO for the quarter ended December 31, 2009 excludes the net expense (totaling $0.8 million) from merger-related expenses and deal costs, including those incurred to obtain the Company’s favorable verdict in its lawsuit against HCP, offset by income tax benefit. Normalized FFO for the quarter ended December 31, 2008 excluded the net benefit (totaling $3.6 million, or $0.03 per diluted share) from income taxes and gain on extinguishment of debt, offset by merger-related expenses and deal costs.

FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), for the fourth quarter of 2009 increased 6.6 percent to $104.0 million, from $97.6 million in the prior year due to the factors stated above. Fourth quarter 2009 NAREIT FFO per diluted common share decreased 2.9 percent to $0.66, from $0.68 a year earlier due to higher weighted average diluted shares outstanding in 2009.

NAREIT FFO for the year ended December 31, 2009 decreased 4.6 percent to $393.4 million, or $2.58 per diluted common share, from $412.4 million, or $2.95 per diluted common share, for the comparable 2008 period. This decrease is principally due to the previously recorded contingent liability reversal and higher weighted average diluted shares outstanding in 2009.

FIRST QUARTER DIVIDEND INCREASES TO $0.535 PER COMMON SHARE

Ventas also said today that its Board of Directors increased the Company’s first quarter 2010 dividend by 4.4 percent to $0.535 per share. The first quarter dividend is payable in cash on March 31, 2010 to stockholders of record on March 12, 2010.

“We are especially pleased that we can increase our dividend and share our strong and growing cash flows with our shareholders,” Cafaro stated. “This decision demonstrates our confidence in the Company’s financial strength and prospects.”

SUNRISE PORTFOLIO

2009 Total Portfolio NOI of $131 Million

The Company’s operating portfolio contains 79 seniors housing communities in North America that are managed by Sunrise Senior Living, Inc. (NYSE: SRZ) (“Sunrise”). Ventas owns 100 percent of 19 of these communities and has an ownership share of between 75 percent and 85 percent in the remaining 60 communities through joint ventures, in which Sunrise owns the noncontrolling interest.

NOI for these 79 communities was $33.3 million for the quarter ended December 31, 2009, compared to $32.2 million for the comparable 2008 period. Total 2009 NOI for the portfolio was $131.0 million, compared to $138.8 for the comparable 2008 period. The comparable 2008 period included approximately $4 million in expense credits that benefited 2008 NOI.

“Our portfolio of mansion-style, need-driven seniors housing managed by Sunrise continued to gain traction in the fourth quarter, with occupancy increasing to 88.8 percent in the 78 stabilized communities,” Ventas Executive Vice President and Chief Investment Officer Raymond J. Lewis said. “We expect 2010 NOI from our portfolio to grow due to the excellent locations and desirable appearance of our communities, an improving economy and Sunrise management's renewed focus on operations.”

Same-Store Stabilized Community Occupancy Improves Sequentially

For the 78 communities that were stabilized in the 2009 third and fourth quarters, average occupancy increased to 88.8 percent in the fourth quarter, versus 88.1 percent in the third quarter. NOI for these 78 communities was $32.7 million in the fourth quarter of 2009, compared to $33.0 million in the third quarter of 2009. Average daily rate was slightly positive in these communities on a sequential basis, rising 0.5 percent, and expenses increased during the fourth quarter, as repair and maintenance allocations were spent, and increased occupancy resulted in higher salaries, wages and benefits and management fee expenses.

For the 77 Sunrise communities that were stabilized in the fourth quarters of both 2009 and 2008, total community NOI increased 3.1 percent to $32.3 million in the fourth quarter of 2009, versus $31.3 million for the comparable 2008 period. Average daily rate rose 3.6 percent, while expenses increased 0.7 percent. Average occupancy decreased 190 basis points year-over-year, from 90.7 percent to 88.8 percent.

GAAP NET INCOME

Net income attributable to common stockholders for the quarter ended December 31, 2009 was $54.1 million, or $0.35 per diluted common share, after discontinued operations of $0.3 million, compared with net income attributable to common stockholders for the quarter ended December 31, 2008 of $57.5 million, or $0.40 per diluted common share, after discontinued operations of $14.6 million.

Net income attributable to common stockholders for the year ended December 31, 2009 was $266.5 million, or $1.74 per diluted common share, after discontinued operations of $71.7 million, compared with net income attributable to common stockholders for the year ended December 31, 2008 of $222.6 million, or $1.59 per diluted common share, after discontinued operations of $47.2 million.

FOURTH QUARTER HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS

Portfolio, Performance and Balance Sheet Highlights

2009 Recap

• Ventas was named the top performing publicly-listed financial company (including banks, insurance companies and REITs) of the decade and ended 2009 with a compound annual total shareholder return (“TSR”) exceeding 35 percent during that period.
• At year end, Ventas was the eighth largest REIT, with an equity market capitalization of $6.9 billion.
• For 2009, the Company delivered a 38.9 percent TSR, compared to 28.6 percent in the MSCI US REIT Index.
• Ventas was included in the S&P 500 Index, widely regarded as the best single gauge of the large cap U.S. equities market. It includes 500 leading companies in major U.S. industries.
• Ventas extended and amended its unsecured revolving credit facilities (the “Revolving Credit Facilities”) from 2010 until 2012, and total capacity increased to $1 billion.
• Ventas issued unsecured senior notes due June 1, 2016, receiving total proceeds of $168.5 million before the underwriting discount and expenses.
• Ventas purchased or repaid $411.5 million aggregate principal amount of its outstanding senior notes due 2009, 2010, 2012, 2014 and 2015.
• Fitch Ratings upgraded the Company’s unsecured debt rating to BBB from BBB-, with a stable outlook.
• Ventas mortgage debt obligations decreased by $148.7 million.
• Ventas raised $172.6 million in first mortgage financing with a weighted average interest rate of 6.3 percent.
• Ventas sold 14 healthcare and seniors housing assets for $153.0 million and realized a gain of $67.3 million.
• Ventas purchased and opened six MOBs valued at $77.7 million, which increased the Company’s MOB portfolio to over 1.7 million square feet. The Company also made additional equity and debt investments in healthcare or seniors housing assets totaling $21.5 million.
• Ventas raised $312.2 million through the issuance and sale of 13.1 million shares of its common stock.
• Cash flows from operations totaled $422.1 million, an increase of 11.1 percent over 2008.
• Kindred Healthcare, Inc. (NYSE: KND) (“Kindred”) extended, from the renewal date of April 30, 2010 through April 30, 2015, the term for 108 assets that it leases from Ventas. Annual cash rent on these assets is approximately $126 million.
• Ventas received a favorable jury verdict of $101.6 million in its litigation against HCP due to HCP’s interference with Ventas’s 2007 acquisition of Sunrise Senior Living REIT.

Liquidity, Balance Sheet & Credit Ratings

• In February 2010, Moody's Investors Service upgraded Ventas's unsecured debt rating to Baa3 from Ba1, with a stable outlook. Ventas's unsecured debt is currently rated BBB (stable) by Fitch, BBB- (stable) by Standard & Poor's and Baa3 (stable) by Moody's.
• Since October 2009, the Company has received $210 million of additional lending commitments for the 2012 maturity of its Revolving Credit Facilities. As a result, the Company’s Revolving Credit Facilities now total $1.0 billion. The first portion of the Revolving Credit Facilities, maturing April 26, 2012, includes $800 million of borrowing capacity and is priced at LIBOR plus 280 basis points. The second portion of the Revolving Credit Facilities, which matures on April 26, 2010, contains $200 million of borrowing capacity and is priced at LIBOR plus 75 basis points.
• At December 31, 2009, the Company had $8.5 million outstanding under its Revolving Credit Facilities; $988.4 million of undrawn availability; and $107.4 million of cash and short-term cash investments.
• The Company’s debt to total capitalization at December 31, 2009 was approximately 28 percent. The Company’s net debt to pro forma EBITDA at quarter end was 4.1x.

Investments and Dispositions

• In December 2009, Ventas completed the acquisition of four Class “A” MOBs, with a total of approximately 316,000 rentable square feet, in two separate transactions. The MOBs are located on hospital campuses serving the major metropolitan markets of Chicago, Illinois, Denver, Colorado and Westminster, Maryland. All are on the campus of not-for-profit, highly rated health systems. The Company expects stabilized yields to exceed eight percent.
• Ventas’s MOB portfolio consists of over 1.7 million square feet. The Company now has existing relationships with eight quality MOB managers, including five of the top 20 MOB developers in the U.S.

Portfolio

• The 197 skilled nursing facilities and hospitals leased by the Company to Kindred produced EBITDARM (earnings before interest, taxes, depreciation, amortization, rent and management fees) to actual cash rent coverage of 2.1 times for the trailing twelve-month period ended September 30, 2009 (the latest date available).
• "Same-store" annual cash NOI growth was 3.4 percent in 2009 for the 397 triple-net leased healthcare and seniors housing assets owned by the Company for the full 2008 and 2009 periods.

Verdict Against HCP – Update

• HCP has appealed the jury verdict against it, including the $101.6 million damage award in favor of Ventas, rendered in the United States District Court for the Western District of Kentucky (the “Court”). HCP seeks to overturn the jury verdict and obtain a new trial, as well as to reinstate its counterclaims (which alleged that Sunrise Senior Living REIT engaged in wrongful conduct and which alleged that such conduct was attributable to Ventas). Those counterclaims had been previously dismissed by the Court.
• Ventas intends to vigorously contest HCP’s appeal. Ventas also has appealed the Court’s decision not to permit the jury to consider granting Ventas punitive damages, as well as the exclusion of other damages from the jury’s consideration, such as those caused by the delay in closing the acquisition of Sunrise Senior Living REIT due to HCP’s wrongful actions.
• The matter is now pending before the United States Court of Appeals for the Sixth Circuit. All briefs are due to be filed, and oral argument is expected to be heard, in 2010.

Additional Information

• Debra A. Cafaro has been elected Chair of NAREIT for the 2009-2010 term.
• Beginning in 2009, consistent with U.S. generally accepted accounting principles (“GAAP”), Ventas is recognizing additional non-cash interest expense in connection with the Company’s $230 million principal amount of 3⅞% convertible senior notes due 2011. This non-cash interest expense decreased 2009 FFO per diluted share by approximately $0.01 per share per quarter. As required by GAAP, this additional non-cash interest expense is reflected in the Company’s prior period results, which have been restated for comparability.
• Supplemental information regarding the Company can be found on the Company’s website under the “For Investors” section or at www.ventasreit.com/investors/supplemental.asp.

VENTAS ISSUES 2010 NORMALIZED FFO AND FAD GUIDANCE

Ventas currently expects its 2010 normalized FFO per diluted share to range between $2.69 and $2.75 per diluted common share and normalized FAD to be between $2.55 and $2.62 per diluted common share. The Company's normalized FFO and FAD guidance (and related GAAP earnings projections) for all periods assumes that all of the Company's tenants and borrowers continue to meet all of their obligations to the Company. In addition, the Company's normalized FFO and FAD guidance excludes (a) gains and losses on the sales of assets, (b) merger-related costs and expenses, deal costs and expenses, and earnout payments, including expenses relating to the Company’s lawsuit against HCP, (c) 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 or premiums incurred as a result of early retirement or payment of the Company’s debt, (d) the non-cash effect of income tax benefits or expenses, (e) net proceeds, if any, the Company may receive from its lawsuit against HCP related to the acquisition of Sunrise Senior Living REIT, (f) the impact of future unannounced acquisitions or divestitures (including pursuant to tenant options to purchase)(other than the investment of year-end cash on hand) and capital transactions, and (g) the reversal or incurrence of contingent liabilities.

The Company's guidance is based on a number of other assumptions, which are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company's expectations may change. There can be no assurance that the Company will achieve these results.

A reconciliation of the Company's guidance to the Company's projected GAAP earnings is attached to this press release. The Company may from time to time update its publicly announced guidance, but it is not obligated to do so.