Ventas Inc. (VTR), a leading healthcare real estate investment trust (REIT), reported third quarter 2011 funds from operations (FFO) of $264.2 million or 91 cents per share, compared to $108.9 million or 69 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 third quarter 2011 was $255.1 million or 88 cents per share compared to $115.4 million or 73 cents in the year-ago quarter. The recurring FFO per share for the quarter beat the Zacks Consensus Estimate by 6 cents.
The increase in year-over-year FFO was primarily due to the accretive effect of the acquisitions of Nationwide Health Properties Inc. and Atria Senior Living Group, Inc., partially offset by higher weighted average diluted shares outstanding during the quarter.
Total revenues during the reported quarter were $565.9 million compared to $264.7 million in the year-earlier quarter. Revenues during third quarter 2011 were well above the Zacks Consensus Estimate of $550.0 million.
Same-store cash net operating income (NOI) increased 2.7% during third 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 third quarter of 2010.
Ventas currently has an operating portfolio of 79 senior housing communities in North America that are managed by Sunrise Senior Living Inc. (SRZ). NOI from all 79 properties was $40.0 million during the reported quarter, compared to $39.0 million in the year-ago period.
The year-over-year increase was primarily due to a 4.1% rise in average daily rate and a 120 bps increase in average occupancy to 90.6%. NOI for the Atria-managed communities was $47.5 million with average unit occupancy of 87.4%.
During the quarter, Ventas collected $102.8 million in cash from HCP, Inc. (HCP) as compensatory damages to honor a 2009 jury verdict. The verdict relates to the lawsuit filed by Ventas regarding the ‘Tortious Interference’ by HCP with business expectation arising out of the former’s acquisition of Sunrise in April 2007.
At quarter-end, the company had $57.5 million of cash and short-term cash investments with debt to total capitalization of 31% and net-debt-to-adjusted-pro-forma-EBITDA (earnings before interest, tax, depreciation, and amortization) of 4.7x.
Subsequent to the quarter-end, Ventas obtained a new four-year unsecured revolving credit facility worth $2 billion to replace its existing $1 billion credit facility that was scheduled to mature in April 2012. The new credit facility bears an interest rate at 125 basis points over LIBOR, while the previous credit facility was priced at 280 basis points over LIBOR.
The new credit facility is scheduled to mature in October 2015 and has an accordion feature that would enable Ventas to extend the maturity by an additional year subject to the fulfillment of certain conditions. At the same time, the company can increase the borrowing capacity of the credit facility to $2.5 billion.
The new credit line provides greater financial flexibility to Ventas to address any upcoming debt maturities and increases its liquidity. Presently, the company has a liquidity of $1.8 billion. Furthermore, the new credit facility reduced the interest burden of the company besides increasing its borrowing capacity to enable it to capitalize on favorable investment opportunities.
With superior quarterly results, Ventas raised its earlier recurring FFO guidance for full year 2011 from the range of $3.17 – $3.23 to $3.34 – $3.36 per share. The increase in earnings expectations also stems from the accretive effect of the acquisition of Nationwide Health Properties and Atria. We maintain our Neutral recommendation on Ventas, which presently has a Zacks #3 Rank translating into a short-term Hold rating.
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