Ventas Reports Second Quarter Normalized FFO of $111.9 Million

Ventas, Inc. (NYSE: VTR) ("Ventas” or the "Company”) said today that normalized Funds From Operations ("FFO”) for the quarter ended June 30, 2010 increased 6.4 percent to $111.9 million, from $105.1 million for the comparable 2009 period. Normalized FFO per diluted common share was $0.71 for the quarter ended June 30, 2010, an increase of 4.4 percent from $0.68 for the comparable 2009 period. Weighted average diluted shares outstanding in the second quarter of 2010 rose by 1.9 percent to 157.4 million, compared to 154.5 million in the comparable 2009 period.

"Ventas delivered another quarter of strong and growing cash flows, from contractual escalations in our triple-net lease business and improving fundamentals in our portfolio of seniors housing assets,” Ventas Chairman, President and Chief Executive Officer Debra A. Cafaro said. "We continue to execute our successful growth and diversification strategy with the recent acquisition of Lillibridge Healthcare Services expanding our owned and managed medical office building portfolio to 8.6 million square feet, making us the national leader in medical office buildings.”

Normalized FFO for the quarter ended June 30, 2010 excludes the net expense (totaling $5.6 million, or $0.04 per diluted share) from merger-related expenses and deal costs and loss on extinguishment of debt, including certain fees and expenses incurred to acquire Lillibridge and to obtain the Company’s favorable $101.6 million jury verdict against HCP, Inc. ("HCP”), offset by a $5.0 million gain on sale and income tax benefit. Normalized FFO for the quarter ended June 30, 2009 excluded the net benefit (totaling $30.5 million, or $0.20 per diluted share) from a $39.0 million gain on sale and income tax benefit, offset by merger-related expenses and deal costs and loss on extinguishment of debt.

Second quarter 2010 normalized FFO per diluted common share versus the comparable period in 2009 benefited from rental increases from the Company’s triple-net lease portfolio, and higher Net Operating Income after management fees ("NOI”) at the Company’s senior living and medical office building ("MOB”) operating portfolios, including a $3 million cash payment received from Sunrise Senior Living, Inc. (NYSE: SRZ) ("Sunrise”) for expense overages at the Company’s Sunrise-managed portfolio, offset by higher weighted average diluted shares outstanding.

FFO, as defined by the National Association of Real Estate Investment Trusts ("NAREIT”), for the second quarter of 2010 increased 4.8 percent to $101.3 million, from $96.6 million in the prior year. Second quarter 2010 NAREIT FFO per diluted common share was $0.64, compared to $0.63 per diluted common share in the second quarter of 2009, a 1.6 percent increase.

Normalized FFO for the six months ended June 30, 2010 was $217.1 million, or $1.38 per diluted common share, an 8.1 percent increase from $200.8 million, or $1.35 per diluted common share, for the comparable 2009 period. Normalized FFO for the six months ended June 30, 2010 excludes the net expense (totaling $7.6 million, or $0.05 per diluted share) from merger-related expenses and deal costs and loss on extinguishment of debt, offset by gain on sale and income tax benefit.

SUNRISE-MANAGED PORTFOLIO

Total Portfolio

The Company’s senior living operating portfolio includes 79 seniors housing communities in North America that are managed by Sunrise. Ventas owns 100 percent of 21 of these communities. Ventas is the managing member of, and has an ownership interest of between 75 percent and 85 percent in, the remaining 58 communities through joint ventures, in which Sunrise owns the noncontrolling interest.

NOI for these 79 communities was $38.8 million for the quarter ended June 30, 2010, compared to $33.9 million for the comparable 2009 period. This 14.6 percent improvement in NOI was due to a 3.5 percent increase in average daily rate, a 190 basis point increase in occupancy and a $3 million cash payment from Sunrise for expense overages. Favorable movements in the Canadian dollar exchange rate had a positive impact on NOI of $1.0 million for the second quarter of 2010 compared to the second quarter of 2009.

"Our portfolio of 79 high-quality, mansion-style seniors housing communities managed by Sunrise exhibited another improving quarter of operating results,” Ventas Executive Vice President and Chief Investment Officer Raymond J. Lewis said. "Year-over-year and sequential performance of the portfolio was positive on many metrics including NOI, occupancy and margin. We are encouraged by the resilience of our assets and based on year-to-date results and improving operating trends, we are increasing our NOI guidance for this productive portfolio of need-driven assisted living communities.”

Same-Store Stabilized Community NOI and Margin Increase Year-Over-Year and Sequentially; Occupancy Improves 120 Basis Points Versus 2009

For the 78 Sunrise communities that were stabilized in the second and first quarters of 2010, NOI was $37.3 million in the second quarter, compared to $33.1 million in the first quarter. This 12.7 percent increase in NOI was due to lower expenses, a $2.3 million payment from Sunrise attributable to the stabilized communities for expense overages, stable average daily rate of $178 and stable occupancy of 88.4 percent.

For the 78 Sunrise communities that were stabilized in the second quarters of both 2010 and 2009, total community NOI increased 10.6 percent to $37.3 million in the second quarter of 2010, versus $33.7 million for the comparable 2009 period. This improvement in NOI was due to a 3.5 percent increase in average daily rate to $178, a $2.3 million payment from Sunrise for expense overages and a 120 basis point increase in occupancy to 88.4 percent.

GAAP NET INCOME

Net income attributable to common stockholders for the quarter ended June 30, 2010 was $58.1 million, or $0.37 per diluted common share, after discontinued operations of $5.5 million, compared with net income attributable to common stockholders for the quarter ended June 30, 2009 of $88.4 million, or $0.57 per diluted common share, after discontinued operations of $42.4 million.

Net income attributable to common stockholders for the six months ended June 30, 2010 was $110.7 million, or $0.70 per diluted common share, after discontinued operations of $6.0 million, compared with net income attributable to common stockholders for the six months ended June 30, 2009 of $162.6 million, or $1.09 per diluted common share, after discontinued operations of $71.5 million.

SECOND QUARTER HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS

Portfolio, Performance and Balance Sheet Highlights

Lillibridge Healthcare Services Acquisition

• On July 1, Ventas completed its acquisition of Lillibridge Healthcare Services, Inc. (with its related entities, "Lillibridge”) and real estate interests in 96 MOBs and ambulatory facilities. Ventas owns 100 percent of 38 MOBs and between 5 percent and 20 percent of 58 MOBs. With this acquisition, Ventas becomes the national leader in the growing MOB/outpatient sector. Highlights of the transaction include:
  • The total purchase price was $381 million. Of this amount, approximately 93 percent will be allocable to the real estate interests in 96 MOBs, and approximately 7 percent will be allocable to Lillibridge’s integrated platform of property management, leasing, construction and development, advisory and asset management services/businesses and intangible assets. An additional $10 million restricted stock award was made to key Lillibridge employees, which will fully vest over five years, to promote alignment and retention.
  • The total purchase price represents approximately 15x normalized estimated annualized second half 2010 EBITDA (earnings before interest, taxes, depreciation and amortization) of the acquired assets and businesses.
  • The allocated real estate purchase price for interests in the 96 MOBs represents (1) a capitalization rate of 7.6 percent to 7.9 percent on Ventas’s share of annualized second half 2010 expected cash NOI, and (2) a per square foot value of between $150 and $160.
  • The allocated purchase price for the Lillibridge services businesses represents 2.5 times annualized second half 2010 expected revenues from those businesses.
  • MOBs should now contribute approximately 8 percent of Ventas’s annualized NOI, compared to 5 percent prior to the Lillibridge acquisition. Additionally, annualized NOI from private-pay sources should now rise to 58 percent, from 56 percent.
  • Lillibridge manages for third parties 31 MOBs comprising 1.2 million square feet.
  • The Lillibridge acquisition provides Ventas with immediate scale in the MOB space, as it now owns or manages 8.6 million square feet in 20 states (including the District of Columbia) from 153 MOBs.
  • 92 percent of the Lillibridge owned assets are located in highly desirable "on campus” locations of the sponsoring hospital or health system.
  • The Lillibridge acquisition is expected to be immediately accretive to 2010 normalized FFO.
  • The transaction was funded with cash on hand, borrowings under the Company’s revolving credit facility, and the assumption of mortgage debt. Since the completion of the transaction, approximately $133 million in mortgage debt has been repaid. The wholly owned assets are unencumbered, except for $76 million in mortgage debt. Ventas’s share of mortgage debt on the assets in which Ventas has a minority interest totals $49 million.

Other Acquisitions and Dispositions

• Ventas sold four seniors housing communities in June 2010 for $22.5 million, including a lease termination fee of $0.2 million. The Company recognized a gain from the sale of approximately $4.9 million in the second quarter.
• The Company acquired the noncontrolling interests in two of its Sunrise-managed assets for $9.9 million.

Liquidity and Balance Sheet

• At June 30, 2010, the Company had $126.3 million outstanding under its Revolving Credit Facilities, $872.7 million of undrawn availability, and $27.8 million of cash and short-term cash investments.
• The Company’s debt to total capitalization at June 30, 2010 was approximately 26 percent. The Company’s net debt to Adjusted Pro Forma EBITDA at quarter end was 4.0x.
• The Company redeemed all $142.7 million principal amount outstanding of its 7?% Senior Notes due 2015 by using its call option. The Company achieved a 7 percent return on this investment, inclusive of the 3.6 percent premium paid and acceleration of unamortized deferred financing fees. These amounts are excluded from normalized FFO.

Portfolio

• The 197 skilled nursing facilities and hospitals leased by the Company to Kindred Healthcare, Inc. (NYSE: KND) ("Kindred”) produced EBITDARM (earnings before interest, taxes, depreciation, amortization, rent and management fees) to actual cash rent coverage of 2.1 times for the trailing 12-month period ended March 31, 2010 (the latest date available).
• "Same-store” cash NOI growth was 2.6 percent in the second quarter of 2010 for the 394 triple-net leased healthcare and seniors housing assets owned by the Company in the second quarter of 2010 and 2009.
• "Same-store” NOI growth for the Company’s portfolio was 5.4 percent in the second quarter of 2010 compared to the second quarter of 2009.

Additional Information

• As previously announced, Glenn J. Rufrano, President and Chief Executive Officer of Cushman & Wakefield, the world’s largest privately held commercial property and real estate services company with 231 offices located around the globe, was appointed to Ventas's Board of Directors.
• Ventas has filed its appellate briefs in support of the favorable $101.6 million damage award against HCP rendered in the United States District Court for the Western District of Kentucky (the "Court”). HCP seeks to, among other things, overturn the jury verdict and obtain a new trial. Ventas is vigorously contesting HCP’s appeal. In addition, Ventas has appealed portions of the Court’s decision and is seeking the right to prove punitive and other damages caused by HCP’s wrongful actions. The case arises out of Ventas’s 2007 acquisition of Sunrise Senior Living REIT. The matter is now pending before the United States Court of Appeals for the Sixth Circuit. The briefing schedule has been completed.
• Supplemental information regarding the Company can be found on the Company’s website under the "For Investors” section or at www.ventasreit.com/investors/supplemental.asp.

VENTAS INCREASES 2010 NORMALIZED FFO PER DILUTED SHARE GUIDANCE TO $2.75 TO $2.80

Ventas currently expects its 2010 normalized FFO per diluted share to range between $2.75 and $2.80, improving its previously announced 2010 guidance of between $2.69 and $2.75 per diluted share.

The Company also increased its guidance for its 79 high-quality seniors housing assets managed by Sunrise to generate between $139 million and $145 million in NOI for the full year, improving its previously announced guidance range of $128 million to $138 million.

The Company's normalized FFO guidance (and related GAAP earnings projections) for all periods assumes 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 (a) gains and losses on the sales of assets, (b) merger-related costs and expenses, including transaction costs, amortization of intangibles and transition and integration expenses, deal costs and expenses, and earnout payments, including expenses relating to the Company’s lawsuit against HCP, (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 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, (e) net proceeds, if any, the Company may receive from its lawsuit against HCP related to the acquisition of Sunrise Senior Living REIT, (f) the impact of future unannounced acquisitions or divestitures (including pursuant to tenant options to purchase) and capital transactions, and (g) the reversal or incurrence of contingent liabilities.

The Company's guidance is based on a number of other assumptions, which 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.

A reconciliation of the Company's guidance to the Company's projected GAAP earnings is attached to this press release. The Company may from time to time update its publicly announced guidance, but it is not obligated to do so.

SECOND 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) 597-5311. 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 23585623, beginning at approximately 1:00 p.m. Eastern Time and will be archived for 30 days.

Ventas, Inc., an S&P 500 company, is a leading healthcare real estate investment trust. As of June 30, 2010, Ventas owned 503 seniors housing and healthcare properties located in 43 states and two Canadian provinces. Its diverse portfolio included 242 seniors housing communities, 187 skilled nursing facilities, 40 hospitals, and 34 medical office buildings and other properties.

Currently, Ventas owns 599 seniors housing and healthcare properties located in 44 states (including the District of Columbia) and two Canadian provinces. 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 can be found on its website at www.ventasreit.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 position, results of operations, cash flows, funds from operations, dividends and dividend plans, financing plans, business strategy, budgets, projected costs, operating metrics, capital expenditures, competitive positions, acquisitions, investment opportunities, merger integration, growth opportunities, dispositions, 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. Such forward-looking statements are inherently uncertain, and security holders must recognize that actual results may differ from the Company’s expectations. The Company does not undertake a duty to update such 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 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 meet and/or perform 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 or investments, including those in different asset types and outside the United States; (d) the nature and extent of future competition; (e) the extent of future or pending healthcare reform and regulation, including cost containment measures and changes in reimbursement policies, procedures and rates; (f) increases in the Company’s cost of borrowing as a result of changes in interest rates and other factors; (g) the ability of the Company’s operators and managers, as applicable, to deliver high quality services, to attract and retain qualified personnel and to attract residents and patients; (h) the results of litigation affecting the Company; (i) changes in general economic conditions and/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 and its ability to access the capital markets or other sources of funds; (j) the Company’s ability to pay down, refinance, restructure and/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, 2009 and for the year ending December 31, 2010; (m) the ability and willingness of the Company’s tenants to renew their leases with the Company upon expiration of the leases and the Company’s ability to reposition its properties on the same or better terms in the event such leases expire and are not renewed by the Company’s tenants or in the event the Company exercises its right to replace an existing tenant upon default; (n) risks associated with the Company’s senior living operating portfolio, such as factors causing volatility in the Company’s operating income and earnings generated by its properties, including without limitation national and regional economic conditions, costs of 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) the movement of U.S. and Canadian exchange rates; (p) year-over-year changes in the Consumer Price Index and the effect of those changes on the rent escalators, including the rent escalator for Master Lease 2 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 liability and other insurance from reputable and 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) the ability and willingness of the lenders under the Company’s unsecured revolving credit facilities to fund, in whole or in part, borrowing requests made by the Company from time to time; (t) risks associated with the Company’s recent acquisition of businesses owned and operated by Lillibridge, including its ability to successfully design, develop and manage MOBs and to retain key personnel; (u) 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; (v) the Company’s ability to maintain or expand its relationships with its existing and future hospital and health system clients; (w) risks associated with the Company’s investments in joint ventures, including its lack of sole decision-making authority and its reliance on its joint venture partners’ financial condition; (x) the impact of market or issuer events on the liquidity or value of the Company’s investments in marketable securities; and (y) the impact of any financial, accounting, legal or regulatory issues that may affect the Company or its major tenants, operators or managers. Many of these factors are beyond the control of the Company and its management.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. To overcome this problem, the Company considers FFO and normalized FFO and FAD appropriate measures of performance of an equity REIT. The Company believes that these measures of operating performance may be used by investors to measure and compare operating performance between periods. The Company uses the NAREIT definition of FFO. NAREIT defines FFO as net income, computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis. The Company defines normalized FFO as FFO excluding certain income and expense items as listed below. Normalized FAD represents normalized FFO excluding straight-line rental adjustments and routine capital expenditures. Routine capital expenditures represent improvements or betterments to real estate properties that extend or increase the useful life of the asset and are required to continue to generate current revenues and to maintain the value of the property subsequent to acquisition. Routine capital expenditures exclude the noncontrolling interest share for joint venture properties. As many investors are interested in those capital expenditures made by a company that are not revenue enhancing in nature, the Company adjusts normalized FFO for routine capital expenditures to arrive at normalized FAD.

FFO and normalized FFO and FAD presented herein are not necessarily comparable to FFO and normalized FFO and FAD presented by other real estate companies due to the fact that not all real estate companies use the same definitions. FFO and normalized FFO and FAD should not be considered as alternatives to net income (determined in accordance with GAAP) as indicators of the Company’s financial performance or as alternatives to cash flow from operating activities (determined in accordance with GAAP) as measures of the Company’s liquidity, nor are FFO and normalized FFO and FAD necessarily indicative of sufficient cash flow to fund all of the Company’s needs. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO and normalized FFO and FAD should be examined in conjunction with net income as presented elsewhere herein.

The Company’s normalized FFO excludes the following items (which may be recurring in nature): (a) gains and losses on the sales of assets, (b) merger-related costs and expenses and deal costs and expenses, including expenses relating to the Company’s lawsuit against HCP, (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 or premiums incurred as a result of early debt retirement or payment of the Company’s debt, and (d) the non-cash effect of income tax benefits/expenses.

NORMALIZED FFO AND FAD GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2010

The following table illustrates the Company’s normalized FFO and FAD per diluted common share guidance for the year ending December 31, 2010:

Net Debt to Adjusted Pro Forma EBITDA

The following information considers the pro forma effect on net income, interest and depreciation of the Company’s investments and other capital transactions that were completed during the three months ended June 30, 2010, as if the transactions had been consummated as of the beginning of the period. The following table illustrates net debt to pro forma earnings before interest, taxes, depreciation and amortization (including of non-cash stock-based compensation), excluding merger-related expenses and deal costs and gains or losses on real estate disposals ("Adjusted Pro Forma EBITDA”) (dollars in thousands):