Ventas’ Modest Quarter

Ventas Inc. (VTR - Analyst Report), 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 - Snapshot Report). 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 - Analyst Report), 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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