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Ventas Beats in 3Q, Ups Outlook

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Ventas, Inc (VTR - Free Report) , a real estate investment trust (REIT), reported third quarter 2012 funds from operations (FFO) of $289.7 million or 97 cents per share compared with $264.2 million or 91 cents in the year-earlier quarter. Reported FFO in the quarter beat the Zacks Consensus Estimate by 3 cents.

Excluding the non-recurring items, FFO in the reported quarter stood at $284.9 million or 96 cents per share, compared with $255.1 million or 88 cents in the year-ago quarter.

The year-over-year upside in FFO was primarily driven by $1.7 billion worth of year-to-date accretive acquisitions like Cogdell Spencer, 16 private pay senior living communities from Sunrise Senior Living, Inc. , and rental increases from the company’s triple lease portfolio. However, it was partially offset by higher administrative expenses and a relatively high number of weighted average shares outstanding during the quarter.

Total revenue during the quarter was $641.9 million compared with $555.4 million in the year-earlier quarter. Total revenue during the reported quarter beat the Zacks Consensus Estimate of $628.0 million.

As of September 30, 2012, Ventas had an operating portfolio of 95 private pay seniors housing communities managed by Sunrise and 117 private pay seniors housing communities managed by Atria. Total occupancy in these communities increased 140 basis points sequentially to 90.4%. Net operating income (NOI) before management fees stood at $118.3 million.
During the third quarter of 2012, total NOI before management fees for the same-store communities increased 9.7% year over year to $108.6 million. Same-store occupancy increased 300 basis points to 90.6%. Same-store cash NOI for the company’s total portfolio (1,222 assets) increased 3.5 % year over year.

Ventas invested $420 million in multiple acquisitions during the quarter, including 36 high-quality medical office buildings (MOBs). Additionally, the company opened two MOBs (100% leased) totaling over 300,000 square feet. Ventas also received loan proceeds of $87 million during the quarter through various asset sale transactions.

During the quarter, Ventas sold $275 million of 3.25% senior notes scheduled to mature in 2022. Additionally the company prepaid fully an unsecured term loan ($200 million) and repaid in full $73 million of the NHP 8.25% senior notes and $170 million in mortgage debt. Subsequent to the end of the quarter, the company closed a $180 million unsecured term loan with a five-year maturity.

As of September 30, 2012, the company had $705 million of debt under its unsecured revolving credit facility, $507 million under its unsecured term loan facility, and $59.0 million in cash and cash equivalents. Presently, Ventas has approximately $1.6 billion of borrowing capacity available under its unsecured revolving credit facility.

At quarter-end, debt to total capitalization stood at 29% and net-debt-to-adjusted-pro-forma-EBITDA (earnings before interest, tax, depreciation and amortization) was 5.0x.

With superior quarterly results, Ventas increased its recurring FFO guidance from the range of $3.70–$3.74 per share to $3.76–$3.78 for full year 2012. The company expects NOI for its total Sunrise- and Atria-managed seniors housing operating portfolio to be in the range of $383 million – $385 million for 2012.

Ventas currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, HCP Inc (HCP - Free Report) also holds a Zacks #3 Rank.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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