Ventas Reports 2016 Third Quarter Results

28 Oct 2016, 07:53 AM EDT

Strong Earnings, Balance Sheet and Liquidity
Enhanced Portfolio Through $1.5 Billion Life Science and Innovation
Real Estate Acquisition Leased by Leading Universities, Academic
Medical Centers and Research Institutions
Commitment to Grow High-Quality Hospital Business
Updated and Improved 2016 Guidance

CHICAGO–(BUSINESS WIRE)–$VTR–Ventas, Inc. (NYSE: VTR) (“Ventas” or the “Company”) today announced
strong earnings for the third quarter ended September 30, 2016, driven
by the Company’s high-quality healthcare and senior living properties
and accretive investments:

Income from continuing operations per diluted common share for the
third quarter 2016 grew 223 percent to $0.42 compared to the same
period in 2015. The increase from the third quarter 2015 is
principally due to accretive investments, improved property
performance, and lower transaction costs.
Normalized Funds From Operations (“FFO”) for the third quarter 2016
grew 5 percent to $1.03 per diluted common share on a comparable basis
(“Comparable”), which adjusts all prior periods for the effects of the
successful spin off (the “Spin-Off”) of Care Capital Properties, Inc.
(“CCP”) (NYSE: CCP) completed in August 2015.
Reported FFO per diluted common share, as defined by the National
Association of Real Estate Investment Trusts (“NAREIT FFO”), for the
third quarter 2016 grew 28 percent to $1.00 compared to the same
period in 2015.

Strong Quarter Demonstrates the Ventas Advantage

“We are delighted to report strong financial performance in the third
quarter, delivered by our excellent people, platforms and properties,”
said Chairman and Chief Executive Officer Debra A. Cafaro. “With
superior earnings growth, outstanding liquidity, financial strength,
terrific capital markets execution and disciplined capital allocation,
the Ventas team continues to deliver on our promise of producing
reliable growth and income from a high-quality diversified portfolio.
The completion of our acquisition of life science and innovation centers
leased by leading universities and our commitment to finance Ardent’s
expansion and build an excellent hospital business further solidify our
position as the premier provider of capital at the intersection of
health care and real estate. We remain confident in our ability to
continue to drive shareholder value.”

Third Quarter Portfolio Performance

Constant currency cash net operating income (“NOI”) growth for the
Company’s quarterly same-store total portfolio (1,184 assets) was 2.4
percent on a reported basis for the third quarter 2016. Reported
quarterly same-store results by segment follow:

The seniors housing operating portfolio (“SHOP”) same-store cash NOI
grew 2.0 percent, fueled by growth in key markets.
The triple net leased portfolio same-store cash NOI grew 4.2 percent,
benefiting from lease escalations.
Medical office building (“MOB”) portfolio same-store cash NOI grew 0.2
percent, in line with expectations.

Third Quarter & Other Highlights

In October 2016, the Company announced that it issued a commitment to
provide secured debt financing in the amount of $700 million to a
subsidiary of Ardent Health Services (“Ardent”) in connection with
Ardent’s agreement to acquire LHP Hospital Group. The transaction is
expected to be accretive and close in the first quarter of 2017,
pending customary regulatory reviews and approvals.
In September 2016, the Company completed its accretive acquisition of
institutional-quality life science and innovation centers managed by
Wexford Science & Technology, LLC (“Wexford”) for total consideration
of $1.5 billion. The acquisition marks Ventas’s entry into the
attractive life science sector with high-quality real estate leased by
top universities, academic medical centers and research companies and
includes a pipeline of attractive near-term development opportunities.
During and immediately following the quarter, to fund the Wexford
acquisition, Ventas raised over $900 million in aggregate gross
proceeds from the sale of common stock at an average gross price
exceeding $73 per share through a block equity offering and “at the
market” equity issuances. Year-to-date, total equity issuances have
totaled 18.9 million shares and $1.3 billion in aggregate gross
proceeds.
The Company issued $450 million of 3.25 percent 10-year senior notes
in September, which represented the most attractive 10-year bond
issuance in the Company’s history.
During and immediately following the quarter, the Company sold real
estate assets and received final repayment on loans receivable for
aggregate proceeds of $197 million. Year-to-date, the Company has sold
14 properties and received final repayment on loans receivable for
aggregate proceeds of $272 million.

The Company’s credit profile was excellent at quarter-end, including:

5.8x net debt to adjusted EBITDA ratio, consistent with the prior
quarter and a 0.3x improvement year-over-year;
39 percent total indebtedness to gross asset value, an improvement
of one percentage point from the prior quarter and three
percentage points year-over-year; and
4.7x fixed charge coverage, an improvement of 0.1x from the prior
quarter and 0.3x year-over-year.

Collaborative Agreements with Sunrise

In September 2016, Ventas and Sunrise Senior Living (“Sunrise”)
reached mutually beneficial agreements that strengthen the decade-long
relationship of the companies. These new arrangements provide Sunrise
and its onsite employees with long-term stability, reinforcing their
focus on caring for seniors, and align the companies behind profitable
growth. The agreements reduce management fees paid by Ventas to
Sunrise under existing management contracts, maintain the existing
term of the contracts and provide Sunrise with incentives for future
outperformance. Ventas and Sunrise have also entered into a new
multi-year development pipeline agreement that gives Ventas the option
to fund certain future Sunrise developments.

Continued Leadership Excellence

Ventas Chairman and Chief Executive Officer Debra A. Cafaro was
recognized by the Harvard Business Review as one of “The
Best-Performing CEOs in the World.” She is one of 30 CEOs named to the Harvard
Business Review list for three consecutive years and one of only
two women on this year’s list. Ventas’s financial performance ranked
in the top 30 of 886 companies globally for Ms. Cafaro’s tenure, which
exceeds 17 years.
Ventas Chairman and Chief Executive Officer Debra A. Cafaro was
recognized by Modern Healthcare as one of the “100 Most
Influential People in Healthcare” for 2016. This is the third time Ms.
Cafaro has received this recognition, demonstrating her commitment to
and stature in the healthcare industry.

Updated 2016 Guidance

The Company updated and improved its expectations for full year 2016
constant currency cash NOI growth for the 1,044 assets in the full year
same-store pool to now range from 2.5 to 3 percent in 2016, compared to
its previously disclosed guidance of 2 to 3 percent.

Ventas also increased its outlook for 2016 income from continuing
operations per diluted share to now range between $1.51 and $1.63. The
Company expects reported normalized FFO per diluted share to now range
between $4.10 and $4.13, an increase of nearly 3 cents at the midpoint
and now representing 4 to 5 percent per share growth over 2015 on a
Comparable basis. The Company also increased its NAREIT FFO per diluted
share expectations to range between $4.09 and $4.13.

The Company continues to expect to complete approximately $500 million
in total 2016 dispositions; it has already closed $272 million
year-to-date. Consistent with its practice, the Company’s guidance does
not include any further material 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 (844) 776-7841 (or (661) 378-9542 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 (855) 859-2056 (or (404) 537-3406 for international callers),
passcode 96801614, beginning at approximately 2:00 p.m. Eastern Time and
will remain for 36 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, life science and innovation
centers, 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/annual-reports—supplemental-information.
A comprehensive listing of the Company’s properties is available at www.ventasreit.com/our-portfolio/properties-by-stateprovince.

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
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 Company’s ability to obtain the financial results
expected from its development and redevelopment projects; (w) the impact
of market or issuer events on the liquidity or value of the Company’s
investments in marketable securities; (x) 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; (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.



CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)

	September 30,			June 30,			March 31,			December 31,			September 30,
	2016			2016			2016			2015			2015

Assets
Real estate investments:
Land and improvements	$	2,089,329		$	2,041,880		$	2,060,247		$	2,056,428		$	2,068,467
Buildings and improvements	21,551,049			20,272,554			20,395,386			20,309,599			20,220,624
Construction in progress	192,848			127,647			119,215			92,005			124,381
Acquired lease intangibles	1,522,708			1,332,173			1,343,187			1,344,422			1,347,493
	25,355,934			23,774,254			23,918,035			23,802,454			23,760,965
Accumulated depreciation and amortization	(4,754,532		)	(4,560,504		)	(4,409,554		)	(4,177,234		)	(3,972,544		)
Net real estate property	20,601,402			19,213,750			19,508,481			19,625,220			19,788,421
Secured loans receivable and investments, net	821,663			1,003,561			1,002,598			857,112			766,707
Investments in unconsolidated real estate entities	97,814			96,952			98,120			95,707			96,208
Net real estate investments	21,520,879			20,314,263			20,609,199			20,578,039			20,651,336
Cash and cash equivalents	89,279			57,322			51,701			53,023			65,231
Escrow deposits and restricted cash	89,521			65,626			76,710			77,896			74,491
Goodwill	1,043,075			1,043,479			1,044,983			1,047,497			1,052,321
Assets held for sale	195,252			195,271			54,263			93,060			152,014
Other assets	488,258			417,511			424,436			412,403			418,584
Total assets	$	23,426,264		$	22,093,472		$	22,261,292		$	22,261,918		$	22,413,977

Liabilities and equity
Liabilities:
Senior notes payable and other debt	$	11,252,327		$	10,901,131		$	11,247,730		$	11,206,996		$	11,284,957
Accrued interest	70,790			80,157			66,988			80,864			67,440
Accounts payable and other liabilities	930,103			735,287			738,327			779,380			791,556
Liabilities related to assets held for sale	77,608			88,967			12,625			34,340			48,860
Deferred income taxes	315,713			320,468			333,354			338,382			352,658
Total liabilities	12,646,541			12,126,010			12,399,024			12,439,962			12,545,471

Redeemable OP unitholder and noncontrolling interests	209,278			217,686			191,739			196,529			198,832

Commitments and contingencies

Equity:
Ventas stockholders’ equity:
Preferred stock, $1.00 par value; 10,000 shares authorized, unissued	—			—			—			—			—
Common stock, $0.25 par value; 353,793; 341,055; 337,486; 334,386 and 333,027 shares issued at September 30, 2016, June 30, 2016, March 31, 2016, December 31, 2015 and September 30, 2015, respectively	88,431			85,246			84,354			83,579			83,238
Capital in excess of par value	12,870,566			11,961,951			11,758,306			11,602,838			11,523,312
Accumulated other comprehensive loss	(49,614		)	(44,195		)	(19,932		)	(7,565		)	(592		)
Retained earnings (deficit)	(2,420,766		)	(2,313,287		)	(2,208,474		)	(2,111,958		)	(1,992,848		)
Treasury stock, 1; 0; 1; 44 and 61 shares at September 30, 2016, June 30, 2016, March 31, 2016, December 31, 2015 and September 30, 2015, respectively	(78		)	—			(59		)	(2,567		)	(3,675		)
Total Ventas stockholders’ equity	10,488,539			9,689,715			9,614,195			9,564,327			9,609,435
Noncontrolling interest	81,906			60,061			56,334			61,100			60,239
Total equity	10,570,445			9,749,776			9,670,529			9,625,427			9,669,674
Total liabilities and equity	$	23,426,264		$	22,093,472		$	22,261,292		$	22,261,918		$	22,413,977



CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Revenues:
Rental income:
Triple-net leased	$	210,424		$	201,028		$	635,030		$	571,591
Office	158,273			142,755			446,496			420,287
	368,697			343,783			1,081,526			991,878
Resident fees and services	461,974			454,825			1,390,387			1,356,384
Office building and other services revenue	4,317			10,000			17,006			29,951
Income from loans and investments	31,566			18,924			78,098			66,192
Interest and other income	562			74			792			719
Total revenues	867,116			827,606			2,567,809			2,445,124
Expenses:
Interest	105,063			97,135			312,001			263,422
Depreciation and amortization	208,387			226,332			666,735			657,262
Property-level operating expenses:
Senior living	312,145			304,540			932,675			902,154
Office	48,972			43,305			136,619			129,152
	361,117			347,845			1,069,294			1,031,306
Office building services costs	974			6,416			6,277			19,098
General, administrative and professional fees	31,567			32,114			95,387			100,399
Loss on extinguishment of debt, net	383			15,331			3,165			14,897
Merger-related expenses and deal costs	16,217			62,145			25,073			105,023
Other	2,430			4,795			8,901			13,948
Total expenses	726,138			792,113			2,186,833			2,205,355
Income before unconsolidated entities, income taxes, discontinued operations, real estate dispositions and noncontrolling interest	140,978			35,493			380,976			239,769
Income (loss) from unconsolidated entities	931			(955		)	2,151			(1,197		)
Income tax benefit	8,537			10,697			28,507			27,736
Income from continuing operations	150,446			45,235			411,634			266,308
Discontinued operations	(118		)	(22,383		)	(755		)	13,434
(Loss) gain on real estate dispositions	(144		)	265			31,779			14,420
Net income	150,184			23,117			442,658			294,162
Net income attributable to noncontrolling interest	732			265			1,064			1,047
Net income attributable to common stockholders	$	149,452		$	22,852		$	441,594		$	293,115
Earnings per common share:
Basic:
Income from continuing operations attributable to common stockholders, including real estate dispositions	$	0.43		$	0.14		$	1.29		$	0.85
Discontinued operations	(0.00		)	(0.07		)	(0.00		)	0.04
Net income attributable to common stockholders	$	0.43		$	0.07		$	1.29		$	0.89
Diluted:
Income from continuing operations attributable to common stockholders, including real estate dispositions	$	0.42		$	0.14		$	1.28		$	0.84
Discontinued operations	(0.00		)	(0.07		)	(0.00		)	0.04
Net income attributable to common stockholders	$	0.42		$	0.07		$	1.28		$	0.88

Weighted average shares used in computing earnings per common share:
Basic	350,274			332,491			341,610			329,440
Diluted	354,186			336,338			345,352			333,210

Dividends declared per common share	$	0.73		$	0.73		$	2.19		$	2.31