Ventas Reports 13 Percent Increase in 2012 Normalized FFO to $3.80 Per Diluted Share
Company Generates Record Cash Flows
Eight Percent Increase in First Quarter Dividend to $0.67 Per Share
Guidance for 2013 Normalized FFO Per Diluted Share Ranges Between $3.99 and $4.07
CHICAGO--(BUSINESS WIRE)-- Ventas, Inc. (NYS: VTR) ("Ventas" or the "Company") said today that normalized Funds From Operations ("FFO") for the year ended December 31, 2012 increased 44 percent to $1.1 billion, from $777.0 million for the comparable 2011 period. Normalized FFO per diluted common share was $3.80 for the year ended December 31, 2012, a 13 percent increase from $3.37 for the comparable 2011 period. Weighted average diluted shares outstanding for the full year rose by 28 percent to 294.5 million, compared to 230.8 million in 2011.
The substantial growth in 2012 normalized FFO per diluted common share compared to 2011 is due primarily to the Company's $2.7 billion of investments in 2012 and the full-year benefit of the Company's 2011 acquisitions, including Nationwide Health Properties, Inc. ("NHP") and the portfolio of senior living communities managed by Atria Senior Living, Inc. ("Atria"). Additionally, the Company benefited from excellent performance by its seniors housing communities managed by Atria and Sunrise Senior Living, LLC ("Sunrise"), rental increases from its triple-net lease portfolio and lower weighted average interest rates. These benefits were partially offset by higher debt balances, an increase in the Sunrise management fee, increases in general and administrative expenses, asset sales and loan repayments in 2011 and 2012 and an increase in weighted average diluted shares outstanding.
"Ventas had another outstanding year of internal and external growth, execution of our long-term strategy and performance, delivering over 22 percent total returns to shareholders and producing record cash flows," Ventas Chairman and Chief Executive Officer Debra A. Cafaro said. "Working collaboratively, our team harnessed the power of our scale and platform to make $2.7 billion in accretive private pay investments, raise capital efficiently and manage our assets to drive strong growth in 2012. For more than a dozen years, Ventas has fulfilled its commitments with consistent superior performance and a strong financial profile, sustaining excellence throughout our Company," she added.
Normalized FFO for the year ended December 31, 2012 excludes the net expense (totaling $95.7 million, or $0.32 per diluted share) from merger-related expenses and deal costs (including integration costs), loss on extinguishment of debt and amortization of other intangibles, partially offset by income tax benefit. Normalized FFO for the year ended December 31, 2011 excluded the net benefit (totaling $47.9 million, or $0.21 per diluted share) from net litigation proceeds and income tax benefit, partially offset by merger-related expenses and deal costs (including integration costs), loss on extinguishment of debt, amortization of other intangibles and mark-to-market adjustment for derivatives.
Net income attributable to common stockholders for the year ended December 31, 2012 was $362.8 million, or $1.23 per diluted common share, including discontinued operations of $57.2 million. Net income attributable to common stockholders for the year ended December 31, 2011 was $364.5 million, or $1.58 per diluted common share, including discontinued operations of $1.4 million. This $1.7 million decrease in net income attributable to common stockholders in 2012 over the prior year is primarily the result of the receipt of net litigation proceeds totaling $202.3 million from HCP, Inc. (the "Litigation Proceeds") in 2011 and higher depreciation in 2012, almost entirely offset by the growth experienced by the Company in 2012 and 2011, as described above. Excluding the Litigation Proceeds from 2011 results, 2012 net income attributable to common stockholders rose by 124 percent, or 76 percent per diluted share. The Company recognized a net gain of $97.6 million during 2012 from real estate activity, which gain is excluded from both normalized FFO and NAREIT FFO (as defined below).
FFO, as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), for the year ended December 31, 2012 increased 24 percent to $1.0 billion, from $824.9 million in the comparable 2011 period. This increase is due primarily to the factors described above for net income excluding the net impact of gains from real estate activity and depreciation.
NAREIT FFO per diluted common share for the year ended December 31, 2012 decreased 2.5 percent to $3.48, from $3.57 in 2011, due principally to the receipt of the Litigation Proceeds in 2011 and higher weighted average diluted shares outstanding in 2012. Excluding the Litigation Proceeds from 2011 results, 2012 FFO rose by 65 percent, or 29 percent per diluted share.
FOURTH QUARTER 2012
Fourth quarter 2012 normalized FFO increased 13 percent to $293.6 million, from $259.3 million for the comparable 2011 period. Normalized FFO per diluted common share was $0.99 for the quarter ended December 31, 2012, an increase of 11 percent from $0.89 for the comparable 2011 period. Weighted average diluted shares outstanding for the fourth quarter rose by two percent to 297.1 million, compared to 290.6 million in 2011.
Net income attributable to common stockholders for the quarter ended December 31, 2012 was $86.3 million, or $0.29 per diluted common share, including expense associated with discontinued operations of $11.7 million, compared with net income attributable to common stockholders for the quarter ended December 31, 2011 of $192.9 million, or $0.66 per diluted common share, including expense associated with discontinued operations of $0.6 million and the Litigation Proceeds of $116.9 million received in the fourth quarter of 2011.
NAREIT FFO for the quarter ended December 31, 2012 was $284.0 million, a decrease from $359.1 million in the comparable 2011 period. NAREIT FFO per diluted common share for the quarter ended December 31, 2012 decreased 23 percent to $0.96, from $1.24 in 2011. This decrease is primarily due to the receipt of $116.9 million in Litigation Proceeds in the fourth quarter of 2011 and higher weighted average diluted shares outstanding in 2012.
FIRST QUARTER DIVIDEND INCREASES EIGHT PERCENT TO $0.67 PER COMMON SHARE
Ventas also said today that its Board of Directors increased the Company's first quarter 2013 dividend by eight percent to $0.67 per share. The dividend is payable in cash on March 28, 2013 to stockholders of record on March 8, 2013.
"Sustained dividend growth is an important part of the consistent superior total returns we aim to provide our investors. We are pleased to increase our first quarter dividend by eight percent, which reflects our strong cash flow growth and our confidence in our business and our opportunities," Cafaro said.
PRIVATE PAY SENIORS HOUSING OPERATING PORTFOLIO
Annual Total Portfolio NOI Exceeds $386 Million, Quarterly Same-Store NOI Grows 6.2 Percent and Occupancy Rises 360 Basis Points
At December 31, 2012, the Company's seniors housing operating portfolio included 125 private pay seniors housing communities managed by Atria and 95 private pay seniors housing communities managed by Sunrise. Net Operating Income ("NOI") for this portfolio totaled $386.6 million after management fees and $455.8 million before management fees, including discontinued operations and recent acquisitions. Excluding results from seniors housing communities acquired in December and, therefore, not in the Company's previous NOI guidance of $383 million to $385 million, NOI for 2012 totaled $386.2 million.
One hundred ninety-four of these private pay seniors housing communities were owned by the Company for the full fourth quarters of 2012 and 2011 ("same-store"). Average unit occupancy in the same-store communities rose 360 basis points to 91.9 percent in the fourth quarter of 2012 compared to the fourth quarter of 2011.
NOI before management fees for these same-store communities increased 6.2 percent to $107.3 million in the fourth quarter of 2012, versus $101.0 million in the fourth quarter of 2011. Same-store NOI after management fees increased by 2.1 percent, from $88.8 million in the fourth quarter of 2011 to $90.6 million in the fourth quarter of 2012. The Sunrise management fee increased in 2012 to its contractual level.
Investments and Dispositions
Ventas closed $2.7 billion in investments during 2012, including Cogdell Spencer, Inc. and 16 private pay seniors housing communities managed by Sunrise. Excluding the Atria transaction described below, the current unlevered cash yield on these investments approximates eight percent. Private pay assets accounted for 97 percent of the investments. Fourth quarter investments totaling $1 billion included seniors housing assets, medical office buildings and secured loans.
Ventas acquired 100 percent of various private investment funds (the "Funds") previously managed by Lazard Frères Real Estate Investors LLC or its affiliates. The acquired Funds now own, among other things, (a) a 34 percent interest in Atria and (b) 3.7 million shares of Ventas common stock. The total purchase price for these interests was approximately $242 million. The Atria management team now owns the remaining 66 percent of Atria. Ventas also extinguished its obligation related to the "Earnout," a contingent performance-based payment, for an additional $44 million, which represented the discounted net present value of the Earnout on the Company's balance sheet.
During 2012, Ventas sold 43 properties and received final repayment on loans totaling $422 million in aggregate proceeds, including certain fees. The Company recognized a net gain of $81.0 million from these dispositions. In the fourth quarter, Ventas sold assets and received final repayment on loans totaling $120 million in aggregate proceeds and recognized a net gain.
Returns and Dividends
Ventas delivered total shareholder return ("TSR") of 22.3 percent in 2012 and 25.1 percent compound annual TSR for the ten-year period ended December 31, 2012. Ventas TSR exceeded the RMS and S&P 500 Index in each of the trailing one-, three-, five- and ten-year periods.
Ventas paid an annual per share dividend of $2.48 in 2012, an eight percent increase over the prior year.
Liquidity, Capital Raising, Ratings and Balance Sheet
Ventas maintains investment grade ratings from all three nationally recognized rating agencies, and Moody's improved its outlook to "positive" in December 2012. Ventas's senior unsecured debt is currently rated BBB+ (stable) by Fitch, Baa2 (positive) by Moody's and BBB (stable) by Standard & Poor's.
Ventas issued and sold $2.6 billion aggregate principal amount of senior notes and term loan at a weighted average stated interest rate of 3.2 percent and a weighted average maturity at the time of issuance of 7.7 years and redeemed or repaid $780.4 million aggregate principal amount of its outstanding unsecured debt and $344.2 million of mortgage debt. The $2.6 billion includes the previously announced $700 million aggregate principal amount of 2.00 percent senior notes due 2018 and the $225 million aggregate principal amount of 3.25 percent senior notes due 2022 the Company issued in December 2012.
Ventas sold approximately 6 million shares of its common stock in an underwritten public offering and received proceeds of $342.5 million and ended the year with 291.9 million shares outstanding.
The Company's debt to total capitalization at December 31, 2012 was approximately 31 percent.
The Company's net debt to Adjusted Pro Forma EBITDA (as defined herein) at December 31, 2012 was 5.4x.
At December 31, 2012, the Company had $541 million of borrowings outstanding under its unsecured revolving credit facility and $68 million of cash and cash equivalents.
Cash Flow Growth
Cash flows from operations totaled $992.8 million in 2012, an increase of 74 percent over the prior year, excluding the $202.3 million of Litigation Proceeds received in 2011. The Company generated approximately $195 million in cash flows from operations in 2012 after recurring capital expenditures and dividends. Weighted average diluted shares outstanding rose 28 percent year over year.
"Same-store" cash NOI growth for the Company's total portfolio (525 assets) was 4.4 percent in 2012 compared to 2011, excluding the Sunrise management fee in both periods.
PORTFOLIO, UPDATE ON RE-LEASING & ADDITIONAL INFORMATION
Ventas has now entered into lease renewals, new leases or sale contracts for all 89 licensed healthcare facilities currently leased by Kindred Healthcare, Inc. (NYS: KND) ("Kindred") whose lease term was up for renewal May 1, 2013. The Company expects 2013 cash revenue and NOI from these 89 assets to be $125 million, compared to 2012 rent for all 89 facilities of $125 million, consistent with Ventas's expectations. Of the 54 properties marketed by Ventas, 49 properties have been leased to seven qualified skilled nursing facility operators, and five assets are under contract for sale. Kindred has renewed or entered into a new lease for 35 properties. While definitive agreements have been executed for all 54 marketed properties and Ventas expects all transactions to be completed, and for operating transitions to occur, during the first half of 2013, these transactions and operating transitions remain subject to normal closing conditions, including regulatory approval. Accordingly, there can be no assurance that the transactions will be completed, that the expected operating transitions will occur or that projected revenue and/or NOI will be achieved by the Company. More information on these 2013 renewal assets is contained at www.ventasreit.com/investor-relations.
The 196 skilled nursing facilities ("SNFs") and long-term acute care hospitals ("LTACs") master leased by the Company to Kindred produced EBITDARM (earnings before interest, taxes, depreciation, amortization, rent and management fees) to actual cash rent coverage of 1.9x for the trailing 12-month period ended September 30, 2012 (the latest date available).
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.
VENTAS ISSUES 2013 NORMALIZED FFO PER DILUTED SHARE GUIDANCE OF $3.99 TO $4.07
Ventas currently expects its 2013 normalized FFO per diluted share, excluding the impact of unannounced acquisitions, divestitures and capital transactions, to range between $3.99 and $4.07. The Company now expects 2013 NOI for its total Atria- and Sunrise-managed seniors housing operating portfolio to be between $430 million and $440 million, representing approximately five to eight percent same-store NOI growth.
The Company's guidance assumes first quarter investments approximating $100 million and dispositions and loan repayments approximating $300 million during the year. In addition, the guidance assumes $400 million of debt issuance.
Excluding non-cash items from normalized FFO (projected to be $0.12 per diluted share), computed consistent with prior periods, the midpoint of the Company's guidance range constitutes approximately nine percent per share growth in 2013. A reconciliation of the Company's guidance, and the non-cash items, to the Company's projected GAAP earnings is attached to this press release at page 12.
The Company's normalized FFO guidance (and related GAAP earnings projections) for all periods assumes, with certain immaterial exceptions, 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 guidance excludes, other than as specifically stated, (a) net gains on the sales of real property assets, including gain on re-measurement of equity method investments, (b) merger-related costs and expenses, including amortization of intangibles and transition and integration expenses, and deal costs and expenses, (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, make-whole payments, penalties 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 and derivative transactions that have non-cash mark-to-market impacts on the Company's income statement, and (e) the impact of future unannounced acquisitions or divestitures (including pursuant to tenant options to purchase) and capital transactions.
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 may from time to time update its publicly announced guidance, but it is not obligated to do so.
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 (617) 597-5380. The participant passcode is "Ventas." The conference call is being webcast live by Thomson Reuters and can be accessed at the Company's website at www.ventasreit.com or www.earnings.com. A replay of the webcast will be available today online, or by calling (617) 801-6888, passcode 18439203, beginning at approximately 12:00 p.m. Eastern Time and will be archived for 28 days.
Ventas, Inc., an S&P 500 company, is a leading healthcare real estate investment trust. Its diverse portfolio of more than 1,400 assets in 47 states (including the District of Columbia) and two Canadian provinces consists of seniors housing communities, skilled nursing facilities, hospitals, medical office buildings 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.
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', managers' or borrowers' 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 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 budget resulting in the reduction or nonpayment of Medicare or Medicaid reimbursement rates; (e) the nature and extent of future competition; (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 due to economic, market, legal, tax or other considerations; (l) final determination of the Company's taxable net income for the year ended December 31, 2012 and the year ending December 31, 2013; (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 U.S. and Canadian currency exchange rates; (p) year-over-year changes in the Consumer Price Index and the effect of those changes on the rent escalators contained in the Company's leases, including the rent escalators for two of the Company's master lease agreements with Kindred, 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 liquidity, financial condition and results of operations of the Company's tenants, operators, borrowers and managers, and the ability of 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 healthcare industry resulting in a change of control of one or more of our tenants, operators, borrowers or managers or significant changes in the senior management of our tenants, operators, borrowers or managers; and (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.Many of these factors are beyond the control of the Company and its management.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2012, September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011
(In thousands, except per share amounts)
Real estate investments:
Land and improvements
Buildings and improvements
Construction in progress
Acquired lease intangibles
Accumulated depreciation and amortization
Net real estate property
Secured loans receivable, net
Investments in unconsolidated entities
Net real estate investments
Cash and cash equivalents
Escrow deposits and restricted cash
Deferred financing costs, net
Liabilities and equity
Senior notes payable and other debt
Accounts payable and other liabilities
Deferred income taxes
Redeemable OP unitholder and noncontrolling interests
Commitments and contingencies
Ventas stockholders' equity:
Preferred stock, $1.00 par value; 10,000 shares authorized, unissued
Common stock, $0.25 par value; 295,565, 295,534, 295,370, 289,027, and 288,823 shares issued at December 31, 2012, September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011, respectively
Capital in excess of par value
Accumulated other comprehensive income
Retained earnings (deficit)
Treasury stock, 3,699, 0, 0, 10 and 14 shares at December 31, 2012, September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011, respectively
Total Ventas stockholders' equity
Total liabilities and equity