Ventas Inc. (VTR), a leading healthcare real estate investment trust (REIT), reported second quarter 2011 funds from operations (FFO) of $100.6 million or 57 cents per share, compared to $101.3 million or 64 cents in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and other non-cash expenses to net income.
Excluding the non-recurring items, FFO for second quarter 2011 was $141.5 million or 80 cents per share compared to $111.9 million or 71 cents in the year-ago quarter. The recurring FFO per share for the quarter beat the Zacks Consensus Estimate by 3 cents.
The increase in year-over-year FFO was primarily due to rental increases from its triple-net lease portfolio, and higher Net Operating Income (NOI) from its senior living and medical office building (MOB) operating portfolios, partially offset by higher weighted average diluted shares outstanding during the quarter and higher general and administrative expenses.
Total revenues during the reported quarter were $364.7 million compared to $243.3 million in the year-earlier quarter. Revenues during second quarter 2011 were well above the Zacks Consensus Estimate of $328.0 million.
Same-store cash NOI increased 2.7% during second quarter 2011 for the company’s triple-net leased healthcare and seniors housing assets, compared to the year-ago quarter. For the total portfolio, same-store cash NOI growth was 2.6% during the reported quarter, compared to the second quarter of 2010.
Ventas currently has an operating portfolio of 79 senior housing communities in North Americathat are managed by Sunrise Senior Living Inc. (SRZ). NOI from all 79 properties was $39.5 million during the reported quarter, compared to $38.8 million in the year-ago period. The year-over-year increase was primarily due to a 4.4% rise in average daily rate and a 100 bps increase in average occupancy to 89.4%.
During second quarter 2011, Ventas acquired its rival Nationwide Health Properties Inc. in an all-stock deal. The transaction worth $7.4 billion created one of the largest publicly traded REITs in the U.S. and arguably the leading healthcare REIT as per value.
The merged entity brings two of the most complementary customer franchises together in healthcare real estate market and gives way to a much diversified body with better scope. The merged company will have over 1,300 total assets in 47 states, the District of Columbia and two Canadian provinces at their disposal.
During second quarter 2011, Ventas also acquired 117 private pay seniors housing communities from Atria Senior Living Group, Inc. Post-acquisition, Atria continues to manage these properties.
Ventas sold $700.0 million worth of aggregate principal amount of 4.75% senior notes due 2021 during the quarter. In addition, the company received proceeds of $112.4 million in final repayment of a first mortgage loan and recognized an income of $3.3 million in connection with this repayment.
At quarter-end, the company had $139.5 million outstanding under its revolving credit facility, $851.2 million additional undrawn availability, and $26.7 million of cash and short-term cash investments. At present, Ventas has over $1 billion available under its credit facility. The company’s debt to total capitalization at June 30, 2011 was approximately 34% with net-debt-to-adjusted-pro-forma-EBITDA (earnings before interest, tax, depreciation, and amortization) being 5.6x.
With superior quarterly results, Ventas raised its earlier recurring FFO guidance for full year 2011 from the range of $3.06 – $3.14 per share to $3.17 – $3.23. The increase in earnings expectations also stems from the accretive effect of the acquisition of Nationwide Health Properties. We maintain our ‘Neutral’ recommendation on the stock, which presently has a Zacks #2 Rank translating into a short-term ‘Buy’ rating.
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