Ventas’ Modest Quarter

Ventas Inc. (VTR), a leading healthcare real estate investment trust (REIT), reported relatively modest third quarter results with steady performances across its diversified portfolio of healthcare and senior housing assets. Funds from operations (FFO), a widely used metric to gauge the performance of REITs and obtained after adding depreciation and other non-cash expenses to net income, were $98.3 million or 63 cents per share during the quarter compared to $113.0 million or 80 cents per share in the year-earlier quarter. The year-over-year decrease in FFO was primarily due to the reversal of a $23.3 million previously recorded contingent liability.
 
Ventas currently has an operating portfolio of 79 senior housing communities in North America that are managed by Sunrise Senior Living Inc. (SRZ). In about 19 of these, Ventas has 100% ownership stake, while in the remaining 60 communities Ventas has a partnership share of 75% to 85% with the balance being owned by Sunrise. During the quarter, net operating income from these properties was $33.4 million compared to $35.2 million in the year-ago period. Average occupancy in the same-store portfolio increased sequentially to 88.1% during the quarter from 87.2% in the second quarter.
 
During the quarter, Ventas completed the development of a 75,000 rentable square medical office building in Parker, Colorado. The property was over 80% leased at completion of the development work. In a marked development during the quarter, Ventas received a positive verdict against HCP, Inc. (HCP), related to the latter’s interference in the acquisition of Sunrise Senior Living REIT in Apr 2007. Ventas was awarded approximately $101.7 million in compensatory damages.
 
At quarter end, Ventas had $9.7 million outstanding under its revolving credit facility, about $853 million available under its other credit facilities, and $126.6 million of cash and short-term cash investments. The debt to total capitalization was approximately 30% and net debt to pro forma earnings before interest, tax, depreciation, and amortization (EBITDA) was 4.2x.

Subsequent to the end of the quarter, Ventas obtained a mortgage debt of $58.4 million, and increased its revolving credit facility to $965 million. Currently, the company has $14.6 million debt maturing in the remainder of 2009 and $169.9 million of debt maturing in 2010. With relatively low leverage and adequate liquidity, Ventas expects its 2009 normalized FFO to vary within $2.62 to $2.65 per share, which is significantly higher than its previous guidance range of $2.55 to $2.62.

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