Ventas : Reports 2015 Fourth Quarter and Full Year Results

Ventas, Inc. (NYSE: VTR) (“Ventas” or the “Company”) today announced that reported normalized Funds From Operations (“FFO”) per diluted common share was $4.47 for the year ended December 31, 2015. Reported normalized FFO for the year ended December 31, 2015 was $1.5 billion. Weighted average diluted shares outstanding for the full year increased to 334.0 million, compared to 296.7 million in 2014.

Reported normalized FFO per diluted common share was $1.03 for the fourth quarter of 2015. Fourth quarter 2015 reported normalized FFO was $346.3 million, compared to $342.2 million for the 2014 period.

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 full year 2015 reported results include normalized FFO from those properties for the period January 1 to August 17, 2015.

Normalized FFO for the year ended December 31, 2015 grew 9 percent on a comparable basis (“Comparable”), which adjusts all current and prior periods for the effects of the Spin-Off as if the Spin-Off were completed January 1, 2014. Full-year 2015 Comparable normalized FFO totaled $1.3 billion or $3.95 cents per diluted share. Normalized FFO for the fourth quarter of 2015 grew 7 percent compared to the fourth quarter 2014 on a Comparable basis.

Track Record of Excellence Demonstrated in 2015

“Ventas continued its long track record of consistent outperformance with another exceptional year in 2015,” Ventas Chairman and Chief Executive Officer Debra A. Cafaro said. “Our innovative and value creating spin-off of Care Capital Properties improved the quality of our diversified portfolio and our acquisition of the hospital real estate network of Ardent, a top ten hospital operator, advanced our strategy of building a formidable business in the large, growing and fragmented acute care space. At the same time, the Company delivered superior results to shareholders through 9 percent Comparable FFO per share growth and a 10 percent dividend increase (combined with CCP).

“The Ventas advantage combines our outstanding people, our leading operating partners and our diversified, high quality properties. This unique advantage has enabled us to lead the market and deliver results for shareholders for almost two decades, and gives us confidence that we will sustain our record of excellence into 2016 and beyond,” Cafaro added.

Fourth Quarter and Full Year Net Income and NAREIT FFO

Reported net income attributable to common stockholders for the year ended December 31, 2015 was $417.8 million, or $1.25 per diluted common share. Reported net income attributable to common stockholders for the year ended December 31, 2014 was $475.8 million, or $1.60 per diluted common share.

Reported net income attributable to common stockholders for the quarter ended December 31, 2015 was $124.7 million, or $0.37 per diluted common share. Reported net income attributable to common stockholders for the quarter ended December 31, 2014 was $107.2 million, or $0.36 per diluted common share.

The decrease in full year 2015 reported net income per share from 2014 net income per share is principally due to the inclusion in 2014 of a full year’s results from the properties that were spun off to CCP; higher depreciation expense; and separation and transaction costs in the current year principally related to the 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 2015.

Reported FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT FFO”), for the year ended December 31, 2015 was $1.4 billion, or $4.09 per diluted common share. NAREIT FFO for the fourth quarter of 2015 was $356.9 million, or $1.06 per diluted common share.

Portfolio Performance

• For the year ended December 31, 2015, same-store cash NOI growth for the Company’s total portfolio (1,008) assets was 3.8 percent compared to 2014, in-line with previous company guidance of 3.5 to 4 percent. For the quarter ended December 31, 2015 same-store cash NOI growth for the Company’s total portfolio (1,056) assets was 1.7 percent.
• At a segment level for full year 2015: triple net same-store cash NOI grew 5.8 percent; the seniors housing operating portfolio (“SHOP”) same-store NOI grew 2.3 percent, consistent with previous guidance; and the medical office building (“MOB”) portfolio grew 2 percent.

2015 and Fourth Quarter Highlights

• Ventas completed the innovative and strategic spin-off of Care Capital Properties and acquired $1.3 billion of Ardent’s hospital real estate network, further enhancing and diversifying the Company’s high-quality portfolio and creating a platform for growth.
• The Company made $5.2 billion in acquisitions in 2015. In addition, Ventas committed to funding approximately $350 million in new development and redevelopment projects, primarily in seniors housing and medical office buildings.
• In the fourth quarter of 2015, the Company acquired $93 million in high quality MOBs that were previously managed by the Company and in which the Company had a minority interest.
• In the fourth quarter, the Company committed to funding approximately $240 million in new high-quality development and redevelopment projects, including:
  • A $166 million ($150 million at the Company’s share), 233,000 square foot multi-tenant “trophy” medical office building development in a 90 / 10 joint venture with Ventas’s existing development partner, Pacific Medical Buildings. The development is located in downtown San Francisco and is connected to Sutter Health’s (AA-; Standard & Poor’s) new flagship hospital, which is currently under construction. The project is expected to be 75 percent leased upon opening.
  • The redevelopment of four Atria communities totaling $86 million. The communities are located in top coastal markets including New York, San Francisco and Philadelphia.
• The Company sold 65 properties and received final repayment on loans receivable for aggregate proceeds of approximately $708 million in 2015. Of these dispositions, 8 properties were sold during the fourth quarter, generating proceeds of $105 million.
• Ventas paid its shareholders dividends of $3.04 per share in 2015. Ventas also distributed, on a tax free basis, shares of CCP valued at $8.51 per Ventas share to effectuate the Spin-Off.
• To fund new investments, Ventas issued and sold a total of 1.4 million shares of common stock in the fourth quarter for aggregate proceeds of approximately $75 million at an average gross price of $54.87 (before sales commissions) under its “at the market” equity offering program. For the full-year of 2015, Ventas issued and sold 7.2 million shares of common stock for aggregate proceeds of approximately $500 million under its “at the market” equity offering program. 5.8 million of these shares were issued prior to the Spin-Off at an average price of $72.94 (before sales commissions) and 1.4 million shares were issued following the Spin-Off at an average price of $54.87 (before sales commissions).
• The Company’s credit profile was strong at year-end, including fixed charge coverage of 4.5x, net debt to adjusted pro forma EBITDA of 6.1x, and a weighted average maturity approximating 7 years. At year-end, Ventas’s debt to total capitalization was 37 percent.

Recent Developments

• To fund new investments, Ventas issued and sold a total of 1.6 million shares of common stock since January 1, 2016 for aggregate proceeds of approximately $92 million at an average gross price of $55.88 (before sales commissions) under its “at the market” equity offering program. The Company’s fully diluted full year 2016 share count is assumed to be 340.4 million.
• Since January 1, 2016 Ventas has sold 6 properties for aggregate proceeds of approximately $61 million.
• The Company currently has a strong liquidity position, with approximately $2.0 billion available under its revolving credit facility, as well as $236 million of cash on hand.

First Quarter Dividend

The Company said today that its Board of Directors declared a dividend for the first quarter of $0.73 per share. The dividend is payable in cash on March 31, 2016 to stockholders of record on March 7, 2016.

2016 Guidance Range for Reported Normalized FFO of $4.07 to $4.15 Per Diluted Share

Ventas currently expects its 2016 reported normalized FFO per diluted share to range between $4.07 and $4.15, representing 3 to 5 percent growth over 2015 on a Comparable basis. Ventas currently expects its 2016 NAREIT reported FFO per diluted share to be between $4.13 and $4.21.

Total Company same-store cash NOI is forecast to grow 1.5 to 3 percent in 2016. Triple-net same-store cash NOI is forecast to grow 2 to 3 percent, SHOP same-store cash NOI is forecast to grow 1 to 3 percent and MOB same-store cash NOI is estimated to grow 1 to 2 percent in 2016.

The Company’s guidance assumes continued sale of assets, estimating $500 million in proceeds in 2016. The net proceeds are assumed to be reinvested in approximately $350 million in acquisitions and to fund development and redevelopment projects.

Consistent with its practice, the Company’s guidance does not include any further material investments, dispositions or capital activity. A modest reduction in leverage in 2016 to below 6x net debt to adjusted pro forma EBITDA is also assumed in its 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.

FOURTH 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) 703-6105 (or (857) 244-7304 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 97749067, 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 approximately 1,300 assets in the United States, Canada and the United Kingdom consists of seniors housing communities, medical office buildings, skilled nursing facilities, specialty hospitals and general acute care hospitals. 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; (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 tenants, 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, 2015 and for the year ending December 31, 2016; (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, and obligations, including indemnification obligations, the Company may incur in connection with the replacement of an existing tenant; (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 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) 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; (v) the impact of market or issuer events on the liquidity or value of the Company’s investments in marketable securities; (w) consolidation 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; (x) 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 (y) 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.

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 historically have 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 (or loss) 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, severance-related costs, 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 identical to those 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.