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Ventas Reports 2018 Second Quarter Results
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  • Strong Earnings and Growth from High-Quality Portfolio
  • Significant Enhancement of Financial Strength and Liquidity from Over $1.2 Billion in Year-To-Date Capital Recycling
  • Company Receipt of Prepayment Fees on Debt Investments Positively Impacts Results
  • Updates and Improves 2018 Guidance

CHICAGO--(BUSINESS WIRE)--Jul. 27, 2018-- Ventas, Inc. (NYSE: VTR) today announced its results for the second quarter ended June 30, 2018, including income from continuing operations per diluted common share of $0.37, normalized Funds From Operations (“FFO”) per diluted common share of $1.08 and reported FFO per diluted common share, as defined by the National Association of Real Estate Investment Trusts (“NAREIT FFO”), of $0.98.

“We delivered strong earnings and results in the second quarter, as we grew property cash flows in our high-quality, differentiated portfolio, executed on our strategic priorities and recycled capital from previous successful investments to significantly enhance our strong financial position and increase our liquidity,” said Debra A. Cafaro, Ventas Chairman and Chief Executive Officer. “Our entire Ventas team remains sharply focused on delivering results and positioning the Company to extend its long track record of creating value for shareholders. Building on our achievements and strong performance year-to-date and our continued investment activity, we are pleased to again improve our full year 2018 expectations.”

Second Quarter Financial Performance

  • Income from continuing operations per share was $0.37 compared to $0.42 in the same period in 2017. The change from the second quarter 2017 was mainly due to: the recognition of a previously disclosed $21 million, or $0.06 per share, non-cash expense related to the Company’s mutually beneficial agreements with Brookdale Senior Living (NYSE: BKD) in April 2018 (the “Brookdale Agreement”); and the cumulative impact of using the proceeds of asset divestitures and collection of loans receivable primarily to retire and reduce the Company’s debt balance. These impacts were partially offset by total property portfolio growth and the benefit of $27 million, or $0.08 per share, in prepayment fees (the “Ardent Prepayment Fee”) from the Ardent Loans (defined below).
  • Normalized FFO per share grew 2 percent to $1.08 compared to the same period in 2017. The increase from the second quarter 2017 was principally due to the same items as described for income from continuing operations, excluding the impact of the non-cash expense related to the Brookdale Agreement.
  • NAREIT FFO per share was $0.98 compared to $1.04 in the same period in 2017. The change from the second quarter 2017 was driven primarily by the same items as described for income from continuing operations.

Second Quarter 2018 Portfolio Performance

  • For the second quarter 2018, the Company’s same-store total property portfolio (1,057 assets) cash NOI grew 1.3 percent compared to the same period in 2017. Same-store cash NOI growth for the total portfolio and by segment follows:
    Same-Store Cash NOI
Q2 2018
Reported Growth
 
Triple-Net (“NNN”) 4.9%
Seniors Housing Operating Portfolio (“SHOP”) (3.1%)
Office 1.4%
Total Company 1.3%
 
  • The year-over-year changes in the Company’s quarterly same-store property results were driven by:
    • In the NNN portfolio, growth was due largely to in-place lease escalations and the benefit of $2.5 million in cash fees from the Brookdale Agreement.
    • For SHOP, performance was impacted by an expected sequential increase in openings of new communities in the second quarter in select Ventas markets.
    • Office portfolio growth was principally due to strong medical office building (“MOB”) in-place lease escalations and tenant retention in addition to excellent performance from Ventas’s university-based life science properties.

Second Quarter 2018 and Recent Highlights

  • Advancing Ventas’s Attractive Office Portfolio
    • University-Based Life Science: The Company made further advancements in its leading university-based life science development business, which continues to have a robust pipeline, including:
      • Ventas opened its $47 million development in an established innovation hub at its Washington University in St. Louis life science campus. The project is already 77 percent leased and is expected to be 90 percent leased by year end.
      • The Company’s $161 million 3675 Market Street development at its University of Pennsylvania life science campus is over 50 percent leased and, with strong pre-leasing activity, is expected to be 70 percent leased by the time of its anticipated opening in late 2018.
      • Ventas’s $62 million Brown research and development project at Brown University, which is expected to open in 2019, is currently 80 percent leased.
    • Medical Office Building: The Company’s $166 million “trophy” MOB development attached to Sutter Health’s (AA-; Standard & Poor’s) new flagship hospital in downtown San Francisco is currently 82 percent leased, an improvement from 52 percent as of the first quarter 2018, and is anticipated to open in 2019.
  • Continued Capital Allocation Success
    • Ventas sold properties and received final repayments on loans receivable for proceeds of approximately $950 million during and immediately following the quarter, which were principally used to retire indebtedness. Proceeds were mostly comprised of the receipt of $713 million in principal repayments from a $700 million term loan and revolving credit facility (the “Ardent Loans”) the Company made to Ardent Health Services (“Ardent”). Year-to-date 2018 proceeds from capital recycling exceed $1.2 billion.
    • The Company invested nearly $300 million in the second quarter, including its $200 million purchase of 9.75 percent senior unsecured notes issued by Ardent and over $80 million in funding for development and redevelopment projects currently underway.
    • In addition, Ventas made new commitments of approximately $50 million for development and redevelopment projects in its office, seniors housing and health system portfolios.

  • Significant Enhancement of Financial Strength and Liquidity
    • The Company’s financial strength and flexibility were robust at quarter end, including a 0.2x sequential improvement in its net debt to Adjusted Pro Forma EBITDA ratio to 5.3x, fixed charge coverage of 4.5x and total liquidity exceeding $3.1 billion.
    • Ventas has reduced its net debt by nearly $1 billion since December 31, 2017, and the Company’s total indebtedness to gross asset value of 36 percent at quarter end represented a 2-percentage point improvement since year-end 2017.
    • The Company’s second quarter 2018 net cash provided by operating activities grew 7 percent to over $400 million compared to the same period in 2017.
    • In July, Ventas lengthened its debt maturity profile and improved its pricing by renewing and extending its $900 million term loan from 2020 to 2023 and 2024. The Company has refinanced or repaid $2.5 billion in debt since December 31, 2017.
  • Key Operator Updates
    • Ventas’s leading health system operator, Ardent, completed its strategic recapitalization in the second quarter 2018 to streamline its capital structure, increase its cash flow and position its platform for future success.
    • Kindred Healthcare, Inc.’s “go private” transaction with TPG, Welsh, Carson, Anderson & Stowe and Humana (NYSE: HUM) was completed in July, which created a separate, operationally focused and financially strong company (“Kindred Healthcare”) that will continue to operate most of Ventas’s long-term acute care and inpatient rehabilitation facilities. Ventas received $12 million, or $0.03 per share, in fees (the “Kindred Merger Fee”) in connection with the transaction in the third quarter.
  • Industry Leadership: Ms. Cafaro was elected Chair of The Real Estate Roundtable for its fiscal year beginning July 1, 2018. The Real Estate Roundtable is a public policy organization that brings together leaders of the nation’s top real estate ownership, development, lending and management firms to address key national policy issues relating to real estate and the overall economy.

Updated and Improved 2018 Guidance

Ventas updated and improved its 2018 normalized FFO per share and same-store cash NOI growth expectations in addition to updating its outlook for NAREIT FFO and income from continuing operations per share. The Company’s current guidance ranges are as follows:

  FY 2018 Guidance
07/27/2018 Range
Low High
 
Income from Cont. Ops $1.21 $1.24
NAREIT FFO $3.76 $3.82
Normalized FFO $4.02 $4.07
 
  FY 2018 Projected Same-Store
Cash NOI Growth
07/27/2018 Range
Low High
 
NNN 2.5% 3%
SHOP (3%) (1%)
Office 1.75% 2.75%
Total Company 0.75% 1.5%
 

The Company’s updated and improved normalized FFO per share guidance range and implied second half 2018 normalized FFO per share of approximately $1.91 at the midpoint includes the following impacts, which were also incorporated in the Company’s previously disclosed guidance: (i) expected receipt of approximately $1.3 billion in proceeds for the full year 2018 from asset dispositions and receipt of principal repayments on loan investments at a GAAP rate of approximately 8.5 percent, which have been substantially completed to date and the proceeds of which have been used principally to retire indebtedness; (ii) receipt of the Ardent Prepayment Fee in the second quarter 2018 and the Kindred Merger Fee in the third quarter 2018; and (iii) expected proactive debt refinancing with longer-duration debt of $1.5 billion for the full year 2018.

The Company’s guidance does not include new unannounced acquisitions. Guidance includes the funding of $400 million for the full year 2018 in high-quality development and redevelopment projects, mostly in Ventas’s attractive office portfolio.

No equity issuance is included in guidance. The 2018 outlook assumes 359 million weighted average fully-diluted shares. A reconciliation of the Company’s guidance to the Company’s projected GAAP measures is included in this press release.

The Company’s guidance is based on a number of other assumptions that 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.

Second Quarter 2018 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 (844) 776-7841 (or +1 (661) 378-9542 for international callers). The participant passcode is “Ventas.” The conference call is being webcast live by NASDAQ OMX and can be accessed at the Company’s website at www.ventasreit.com. A replay of the webcast will be available following the call online, or by calling (855) 859-2056 (or +1 (404) 537-3406 for international callers), passcode 7465387, beginning at approximately 2:00 p.m. Eastern Time and will remain for 36 days.

Ventas, Inc., an S&P 500 company, is a leading real estate investment trust. Its diverse portfolio of approximately 1,200 assets in the United States, Canada and the United Kingdom consists of seniors housing communities, medical office buildings, life science and innovation centers, inpatient rehabilitation and long-term acute care facilities, health systems and skilled nursing facilities. 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. References to “Ventas” or the “Company” mean Ventas, Inc. and its consolidated subsidiaries unless otherwise expressly noted. More information about Ventas and Lillibridge can be found at www.ventasreit.com and www.lillibridge.com.

The Company routinely announces material information to investors and the marketplace using press releases, Securities and Exchange Commission (“SEC”) filings, public conference calls, webcasts and the Company’s website at www.ventasreit.com/investor-relations. The information that the Company posts to its website may be deemed to be material. Accordingly, the Company encourages investors and others interested in the Company to routinely monitor and review the information that the Company posts on its website, in addition to following the Company’s press releases, SEC filings and public conference calls and webcasts. Supplemental information regarding the Company can be found on the Company’s website under the “Investor Relations” section or at www.ventasreit.com/investor-relations/annual-reports---supplemental-information. A comprehensive listing of the Company’s properties is available at www.ventasreit.com/our-portfolio/properties-by-stateprovince.

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’, borrowers’ or managers’ expected future financial condition, results of operations, cash flows, funds from operations, dividends and dividend plans, financing opportunities and plans, capital markets transactions, business strategy, budgets, projected costs, operating metrics, capital expenditures, competitive positions, acquisitions, investment opportunities, dispositions, merger or acquisition integration, growth opportunities, 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. These forward-looking statements are inherently uncertain, and actual results may differ from the Company’s expectations. The Company does not undertake a duty to update these 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 from expectations depending on a variety of factors discussed in the Company’s filings with the SEC. These factors include without limitation: (a) the ability and willingness of the Company’s tenants, operators, borrowers, managers and other third parties to satisfy 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 and investments; (d) macroeconomic conditions such as a disruption of or lack of access to the capital markets, changes in the debt rating on U.S. government securities, default or delay in payment by the United States of its obligations, and changes in the federal or state budgets resulting in the reduction or nonpayment of Medicare or Medicaid reimbursement rates; (e) the nature and extent of future competition, including new construction in the markets in which the Company’s seniors housing communities and medical office buildings (“MOBs”) are located; (f) the extent and effect of future or pending healthcare reform and regulation, including cost containment measures and changes in reimbursement policies, procedures and rates; (g) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors; (h) the ability of the Company’s tenants, operators and managers, as applicable, to comply with laws, rules and regulations in the operation of the Company’s properties, to deliver high-quality services, to attract and retain qualified personnel and to attract residents and patients; (i) changes in general economic conditions 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, earnings and funding sources; (j) the Company’s ability to pay down, refinance, restructure or extend its indebtedness as it becomes due; (k) the Company’s ability and willingness to maintain its qualification as a REIT in light of economic, market, legal, tax and other considerations; (l) final determination of the Company’s taxable net income for the year ended December 31, 2017 and for the year ending December 31, 2018; (m) the ability and willingness of the Company’s tenants to renew their leases with the Company upon expiration of the leases, the Company’s ability to reposition its properties on the same or better terms in the event of nonrenewal or in the event the Company exercises its right to replace an existing tenant, and obligations, including indemnification obligations, the Company may incur in connection with the replacement of an existing tenant; (n) risks associated with the Company’s senior living operating portfolio, such as factors that can cause volatility in the Company’s operating income and earnings generated by those properties, including without limitation national and regional economic conditions, costs of food, 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) changes in exchange rates for any foreign currency in which the Company may, from time to time, conduct business; (p) year-over-year changes in the Consumer Price Index or the UK Retail Price Index and the effect of those changes on the rent escalators contained in the Company’s leases 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 property, liability and other insurance from reputable, financially stable providers; (r) the impact of increased operating costs and uninsured professional liability claims on the Company’s liquidity, financial condition and results of operations or that of the Company’s tenants, operators, borrowers and managers, and the ability of the Company and the Company’s tenants, operators, borrowers and managers to accurately estimate the magnitude of those claims; (s) risks associated with the Company’s MOB portfolio and operations, including the Company’s ability to successfully design, develop and manage MOBs and to retain key personnel; (t) 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; (u) risks associated with the Company’s investments in joint ventures and unconsolidated entities, including its lack of sole decision-making authority and its reliance on its joint venture partners’ financial condition; (v) the Company’s ability to obtain the financial results expected from its development and redevelopment projects; (w) the impact of market or issuer events on the liquidity or value of the Company’s investments in marketable securities; (x) consolidation activity in the seniors housing and healthcare industries resulting in a change of control of, or a competitor’s investment in, one or more of the Company’s tenants, operators, borrowers or managers or significant changes in the senior management of the Company’s tenants, operators, borrowers or managers; (y) the impact of litigation or any financial, accounting, legal or regulatory issues that may affect the Company or its tenants, operators, borrowers or managers; and (z) changes in accounting principles, or their application or interpretation, and the Company’s ability to make estimates and the assumptions underlying the estimates, which could have an effect on the Company’s earnings.

         
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
 
June 30, March 31, December 31, September 30, June 30,
2018 2018 2017 2017 2017
 
Assets
Real estate investments:
Land and improvements $ 2,124,231 $ 2,135,662 $ 2,151,386 $ 2,124,979 $ 2,121,457
Buildings and improvements 22,065,202 22,078,454 22,216,942 21,975,507 21,866,913
Construction in progress 408,313 380,064 344,151 306,179 281,236
Acquired lease intangibles 1,510,698   1,532,223   1,548,074   1,546,555   1,544,252  
26,108,444 26,126,403 26,260,553 25,953,220 25,813,858
Accumulated depreciation and amortization (5,972,774 ) (5,789,422 ) (5,638,099 ) (5,455,389 ) (5,241,197 )
Net real estate property 20,135,670 20,336,981 20,622,454 20,497,831 20,572,661
Secured loans receivable and investments, net 526,553 1,212,519 1,346,359 1,352,434 1,395,404
Investments in unconsolidated real estate entities 101,490   102,544   123,639   117,185   119,794  
Net real estate investments 20,763,713 21,652,044 22,092,452 21,967,450 22,087,859
Cash and cash equivalents 93,684 92,543 81,355 85,063 103,353
Escrow deposits and restricted cash 64,419 71,039 106,898 76,522 68,343
Goodwill 1,034,274 1,035,248 1,034,644 1,034,500 1,034,057
Assets held for sale 15,567 62,534 65,413 35,200 55,555
Other assets 727,477   580,102   573,779   541,060   506,591  
Total assets $ 22,699,134   $ 23,493,510   $ 23,954,541   $ 23,739,795   $ 23,855,758  
 
Liabilities and equity
Liabilities:
Senior notes payable and other debt $ 10,402,897 $ 11,039,812 $ 11,276,062 $ 11,424,145 $ 11,907,997
Accrued interest 93,112 77,764 93,958 95,684 87,248
Accounts payable and other liabilities 1,133,902 1,134,570 1,183,489 944,438 930,167
Liabilities related to assets held for sale 896 60,023 60,265 9,199 9,218
Deferred income taxes 240,941   244,742   250,092   296,272   296,822  
Total liabilities 11,871,748 12,556,911 12,863,866 12,769,738 13,231,452
 
Redeemable OP Unitholder and noncontrolling interests 149,817 132,555 158,490 171,813 182,154
 
Commitments and contingencies
 
Equity:
Ventas stockholders' equity:
Preferred stock, $1.00 par value; 10,000 shares authorized, unissued
Common stock, $0.25 par value; 356,412; 356,317; 356,187; 356,163; and 356,134 shares issued at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017, and June 30, 2017, respectively 89,085 89,062 89,029 89,023 89,016
Capital in excess of par value 13,068,399 13,080,220 13,053,057 13,034,527 13,019,023
Accumulated other comprehensive loss (10,861 ) (14,474 ) (35,120 ) (40,780 ) (45,035 )
Retained earnings (deficit) (2,529,102 ) (2,413,440 ) (2,240,698 ) (2,351,430 ) (2,688,946 )
Treasury stock, 11; 11; 1; 0; and 0 shares at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017, and June 30, 2017, respectively (573 ) (553 ) (42 )    
Total Ventas stockholders' equity 10,616,948 10,740,815 10,866,226 10,731,340 10,374,058
Noncontrolling interests 60,621   63,229   65,959   66,904   68,094  
Total equity 10,677,569   10,804,044   10,932,185   10,798,244   10,442,152  
Total liabilities and equity $ 22,699,134   $ 23,493,510   $ 23,954,541   $ 23,739,795   $ 23,855,758  

   
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
   
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Revenues
Rental income:
Triple-net leased $ 167,870 $ 213,258 $ 358,511 $ 422,585
Office 192,392   186,240   386,560   372,135  
360,262 399,498 745,071 794,720
Resident fees and services 518,989 460,243 1,033,742 924,431
Office building and other services revenue 4,289 3,179 7,617 6,585
Income from loans and investments 56,417 32,368 87,598 52,514
Interest and other income 2,347   202   11,981   683  
Total revenues 942,304 895,490 1,886,009 1,778,933
Expenses
Interest 113,029 113,572 224,392 222,376
Depreciation and amortization 223,634 224,108 456,784 441,891
Property-level operating expenses:
Senior living 361,112 308,625 713,332 620,698
Office 60,301   57,205   120,994   114,119  
421,413 365,830 834,326 734,817
Office building services costs 534 552 649 1,290
General, administrative and professional fees 36,656 33,282 73,830 67,243
(Gain) loss on extinguishment of debt, net (93 ) 36 10,884 345
Merger-related expenses and deal costs 4,494 6,043 21,830 8,099
Other 3,527   1,848   6,647   3,036  
Total expenses 803,194   745,271   1,629,342   1,479,097  
Income before unconsolidated entities, income taxes, discontinued operations, real estate dispositions and noncontrolling interests 139,110 150,219 256,667 299,836
(Loss) income from unconsolidated entities (6,371 ) (106 ) (47,110 ) 3,044
Income tax benefit 734   2,159   3,976   5,304  
Income from continuing operations 133,473 152,272 213,533 308,184
Discontinued operations (23 ) (10 ) (76 )
Gain on real estate dispositions 35,827   719   35,875   44,008  
Net income 169,300 152,968 249,398 352,116
Net income attributable to noncontrolling interests 2,781   1,137   4,176   2,158  
Net income attributable to common stockholders $ 166,519   $ 151,831   $ 245,222   $ 349,958  
Earnings per common share
Basic:
Income from continuing operations $ 0.37 $ 0.43 $ 0.60 $ 0.87
Net income attributable to common stockholders 0.47 0.43 0.69 0.99
Diluted:
Income from continuing operations $ 0.37 $ 0.42 $ 0.59 $ 0.86
Net income attributable to common stockholders 0.46 0.42 0.68 0.98
 
Weighted average shares used in computing earnings per common share
Basic 356,228 355,024 356,175 354,719
Diluted 359,000 358,311 358,931 357,919
 
Dividends declared per common share $ 0.79 $ 0.775 $ 1.58 $ 1.55

 
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
         
For the Quarters Ended
June 30, March 31, December 31, September 30, June 30,
2018 2018 2017 2017 2017
Revenues
Rental income:
Triple-net leased $ 167,870 $ 190,641 $ 205,176 $ 212,370 $ 213,258
Office 192,392   194,168   191,826   189,506   186,240  
360,262 384,809 397,002 401,876 399,498
Resident fees and services 518,989 514,753 457,101 461,700 460,243
Office building and other services revenue 4,289 3,328 3,896 3,196 3,179
Income from loans and investments 56,417 31,181 32,109 32,985 32,368
Interest and other income 2,347   9,634   5,180   171   202  
Total revenues 942,304 943,705 895,288 899,928 895,490
 
Expenses
Interest 113,029 111,363 111,951 113,869 113,572
Depreciation and amortization 223,634 233,150 232,650 213,407 224,108
Property-level operating expenses:
Senior living 361,112 352,220 313,769 315,598 308,625
Office 60,301   60,693   58,279   60,609   57,205  
421,413 412,913 372,048 376,207 365,830
Office building services costs 534 115 1,683 418 552
General, administrative and professional fees 36,656 37,174 34,930 33,317 33,282
(Gain) loss on extinguishment of debt, net (93 ) 10,977 (102 ) 511 36
Merger-related expenses and deal costs 4,494 17,336 1,632 804 6,043
Other 3,527   3,120   3,986   13,030   1,848  
Total expenses 803,194   826,148   758,778   751,563   745,271  
 
Income before unconsolidated entities, income taxes, discontinued operations, real estate dispositions and noncontrolling interests 139,110 117,557 136,510 148,365 150,219
(Loss) income from unconsolidated entities (6,371 ) (40,739 ) (4,355 ) 750 (106 )
Income tax benefit 734   3,242   46,680   7,815   2,159  
Income from continuing operations 133,473 80,060 178,835 156,930 152,272
Discontinued operations (10 ) (15 ) (19 ) (23 )
Gain on real estate dispositions 35,827   48   214,985   458,280   719  
Net income 169,300 80,098 393,805 615,191 152,968
Net income attributable to noncontrolling interests 2,781   1,395   1,251   1,233   1,137  
Net income attributable to common stockholders $ 166,519   $ 78,703   $ 392,554   $ 613,958   $ 151,831  
 
Earnings per common share
Basic:
Income from continuing operations $ 0.37 $ 0.22 $ 0.50 $ 0.44 $ 0.43
Net income attributable to common stockholders 0.47 0.22 1.10 1.72 0.43
Diluted:
Income from continuing operations $ 0.37 $ 0.22 $ 0.50 $ 0.44 $ 0.42
Net income attributable to common stockholders 0.46 0.22 1.09 1.71 0.42
 
Weighted average shares used in computing earnings per common share
Basic 356,228 356,112 355,966 355,929 355,024
Diluted 359,000 358,853 359,184 359,333 358,311

 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
  For the Six Months Ended
June 30,
2018   2017
Cash flows from operating activities:
Net income $ 249,398 $ 352,116
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 456,784 441,891
Amortization of deferred revenue and lease intangibles, net (23,837 ) (10,849 )
Other non-cash amortization 8,650 6,584
Stock-based compensation 14,273 13,396
Straight-lining of rental income, net 28,085 (11,155 )
Loss on extinguishment of debt, net 10,884 345
Gain on real estate dispositions (35,875 ) (44,008 )
Gain on real estate loan investments (13,202 ) (4 )
Income tax benefit (5,317 ) (7,104 )
Loss (income) from unconsolidated entities 47,110 (17 )
Gain on re-measurement of equity interest upon acquisition, net (3,027 )
Distributions from unconsolidated entities 2,634 3,134
Other 1,124 1,348
Changes in operating assets and liabilities:
Decrease in other assets 12,776 16,079
(Decrease) increase in accrued interest (1,504 ) 4,550
Decrease in accounts payable and other liabilities (41,647 ) (39,878 )
Net cash provided by operating activities 710,336 723,401
Cash flows from investing activities:
Net investment in real estate property (12,257 ) (324,492 )
Investment in loans receivable and other (211,554 ) (718,233 )
Proceeds from real estate disposals 312,243 104,570
Proceeds from loans receivable 866,097 25,067
Development project expenditures (155,682 ) (143,269 )
Capital expenditures (42,029 ) (55,952 )
Distributions from unconsolidated entities 6,792
Investment in unconsolidated entities (40,033 ) (39,048 )
Insurance proceeds for property damage claims 2,329   1,393  
Net cash provided by (used in) investing activities 725,906 (1,149,964 )
Cash flows from financing activities:
Net change in borrowings under revolving credit facilities (197,726 ) 364,456
Proceeds from debt 750,316 1,028,509
Repayment of debt (1,431,887 ) (656,536 )
Purchase of noncontrolling interests (2,429 ) (15,809 )
Payment of deferred financing costs (6,348 ) (19,687 )
Issuance of common stock, net 73,596
Cash distribution to common stockholders (563,395 ) (550,965 )
Cash distribution to redeemable OP unitholders (3,744 ) (3,720 )
Cash issued for redemption of OP and Class C Units (975 )
Contributions from noncontrolling interests 2,227
Distributions to noncontrolling interests (7,808 ) (4,156 )
Other (1,995 ) 9,702  
Net cash (used in) provided by financing activities (1,465,991 ) 227,617  
Net decrease in cash, cash equivalents and restricted cash (29,749 ) (198,946 )
Effect of foreign currency translation (401 ) 3,288
Cash, cash equivalents and restricted cash at beginning of period 188,253   367,354  
Cash, cash equivalents and restricted cash at end of period $ 158,103   $ 171,696  
 
Supplemental schedule of non-cash activities:
Assets acquired and liabilities assumed from acquisitions and other:
Real estate investments $ 28,916 $ 205,266
Utilization of funds held for an Internal Revenue Code Section 1031 exchange (84,995 )
Other assets 4,112 (4,096 )
Debt 64,629
Other liabilities 15,944 65,754
Deferred income tax liability (16,180 )
Noncontrolling interests 1,972
Equity issued for redemption of OP and Class C Units 266 22,359

 
QUARTERLY CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
  For the Quarters Ended
June 30,   March 31,   December 31,   September 30,   June 30,
2018 2018 2017 2017 2017
Cash flows from operating activities:
Net income $ 169,300 $ 80,098 $ 393,805 $ 615,191 $ 152,968
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 223,634 233,150 232,650 213,407 224,108
Amortization of deferred revenue and lease intangibles, net (19,972 ) (3,865 ) (4,254 ) (5,434 ) (5,834 )
Other non-cash amortization 4,873 3,777 4,872 4,602 4,124
Stock-based compensation 7,149 7,124 6,620 6,527 6,695
Straight-lining of rental income, net 31,707 (3,622 ) (5,750 ) (6,229 ) (5,778 )
(Gain) loss on extinguishment of debt, net (93 ) 10,977 (102 ) 511 36
Gain on real estate dispositions (35,827 ) (48 ) (214,985 ) (458,280 ) (719 )
(Gain) loss on real estate loan investments (13,211 ) 9 (120 ) (4 )
Income tax benefit (1,642 ) (3,675 ) (47,980 ) (8,515 ) (2,959 )
Loss (income) from unconsolidated entities 6,371 40,739 4,355 (750 ) 106
Distributions from unconsolidated entities 1,245 1,389 767 775 754
Other 1,214 (90 ) 1,801 6,091 696
Changes in operating assets and liabilities:
Decrease (increase) in other assets 7,513 5,263 (7,670 ) (37,691 ) 9,710
Increase (decrease) in accrued interest 15,020 (16,524 ) (1,620 ) 8,138 9,291
Increase (decrease) in accounts payable and other liabilities 5,036   (46,683 ) (15,982 ) 20,601   (15,607 )
Net cash provided by operating activities 402,317 308,019 346,527 358,824 377,587
Cash flows from investing activities:
Net investment in real estate property (807 ) (11,450 ) (318,193 ) (21,999 ) (40,655 )
Investment in loans receivable and other (207,173 ) (4,381 ) (14,086 ) (15,800 ) (16,875 )
Proceeds from real estate disposals 136,873 175,370 245,121 510,183 19,570
Proceeds from loans receivable 723,003 143,094 16,736 59,294 21,704
Development project expenditures (81,793 ) (73,889 ) (88,662 ) (67,154 ) (56,817 )
Capital expenditures (21,412 ) (20,617 ) (49,171 ) (27,435 ) (32,117 )
Distributions from unconsolidated entities 6,792 353 5,816
Investment in unconsolidated entities (932 ) (39,101 ) (18,821 ) (3,351 ) (12,108 )
Insurance proceeds for property damage claims 802   1,527   26      
Net cash provided by (used in) investing activities 555,353 170,553 (226,697 ) 439,554 (117,298 )
Cash flows from financing activities:
Net change in borrowings under revolving credit facilities (471,569 ) 273,843 45 20,282 341,634
Proceeds from debt 11,797 738,519 53,212 29,928 231,295
Repayment of debt (214,769 ) (1,217,118 ) (143,559 ) (568,989 ) (636,040 )
Purchase of noncontrolling interests (2,429 )
Payment of deferred financing costs (30 ) (6,318 ) (871 ) (6,739 ) (13,303 )
Issuance of common stock, net 73,596
Cash distribution to common stockholders (281,760 ) (281,635 ) (276,320 ) (275,597 )
Cash distribution to redeemable OP unitholders (1,886 ) (1,858 ) (1,957 ) (1,827 )
Cash issued for redemption of OP and Class C Units (320 ) (655 )
Contributions from noncontrolling interests 2,175 125
Distributions to noncontrolling interests (4,469 ) (3,339 ) (1,939 ) (5,092 ) (1,746 )
Other 2,692   (4,687 ) 39   841   6,405  
Net cash used in financing activities (962,743 ) (503,248 ) (93,073 ) (805,871 ) (275,458 )
Net (decrease) increase in cash, cash equivalents and restricted cash (5,073 ) (24,676 ) 26,757 (7,493 ) (15,169 )
Effect of foreign currency translation (406 ) 5 (89 ) (2,618 ) 3,406
Cash, cash equivalents and restricted cash at beginning of period 163,582   188,253   161,585   171,696   183,459  
Cash, cash equivalents and restricted cash at end of period $ 158,103   $ 163,582   $ 188,253   $ 161,585   $ 171,696  

 
QUARTERLY CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
  For the Quarters Ended
June 30,   March 31,   December 31,   September 30,   June 30,
2018 2018 2017 2017 2017
Supplemental schedule of non-cash activities:
Assets acquired and liabilities assumed from acquisitions and other:
Real estate investments $ 6 $ 28,910 $ 219,135 $ 1,505 $ 16,347
Utilization of funds held for an Internal Revenue Code Section 1031 exchange (201,753 )
Other assets 4,112 1,830 (1,450 ) (3,723 )
Debt 10,602 12,167
Other liabilities 6 15,938 6,788 (1,664 ) (2,922 )
Deferred income tax liability 1,247 64 3,384
Noncontrolling interests 575 1,655 (5 )
Equity issued for redemption of OP and Class C Units 266 1,308 335 288

               
NON-GAAP FINANCIAL MEASURES RECONCILIATION

Funds From Operations (FFO) and Funds Available for Distribution (FAD)1

(Dollars in thousands, except per share amounts)
 
YOY
2017   2018   Growth
    Q2   Q3   Q4   FY   Q1  

Q2

 

YTD

  '17-'18
Income from continuing operations $ 152,272 $ 156,930 $ 178,835 $ 643,949 $ 80,060 $ 133,473 $ 213,533 (12 %)
Income from continuing operations per share   $ 0.42     $ 0.44     $ 0.50     $ 1.80     $ 0.22     $ 0.37     $ 0.59     (12 %)
Discontinued operations (23 ) (19 ) (15 ) (110 ) (10 ) (10 )
Gain on real estate dispositions 719     458,280     214,985     717,273     48     35,827     35,875  
Net income 152,968 615,191 393,805 1,361,112 80,098 169,300 249,398
Net income attributable to noncontrolling interests   1,137     1,233     1,251     4,642     1,395     2,781     4,176      
Net income attributable to common stockholders $ 151,831 $ 613,958 $ 392,554 $ 1,356,470 $ 78,703 $ 166,519 $ 245,222 10 %
Net income attributable to common stockholders per share   $ 0.42     $ 1.71     $ 1.09     $ 3.78     $ 0.22     $ 0.46     $ 0.68     10 %
Adjustments:
Depreciation and amortization on real estate assets 222,347 211,784 230,996 881,088 231,495 222,092 453,587
Depreciation on real estate assets related to noncontrolling interests (1,817 ) (1,911 ) (1,842 ) (7,565 ) (1,811 ) (1,776 ) (3,587 )
Depreciation on real estate assets related to unconsolidated entities 1,458 855 731 4,231 1,030 302 1,332
Impairment on equity method investment 35,708 35,708
Gain on re-measurement of equity interest upon acquisition, net (3,027 )
Gain on real estate dispositions (719 ) (458,280 ) (214,985 ) (717,273 ) (48 ) (35,827 ) (35,875 )
Gain on real estate dispositions related to noncontrolling interests 18 18 1,508 1,508
Gain on real estate dispositions related to unconsolidated entities (82 )   (986 )   (12 )   (1,057 )            
Subtotal: FFO add-backs 221,187 (248,520 ) 14,888 156,415 266,374 186,299 452,673
Subtotal: FFO add-backs per share   $ 0.62     $ (0.69 )   $ 0.04     $ 0.44     $ 0.74     $ 0.52     $ 1.26      
FFO (NAREIT) attributable to common stockholders $ 373,018 $ 365,438 $ 407,442 $ 1,512,885 $ 345,077 $ 352,818 $ 697,895 (5 %)
FFO (NAREIT) attributable to common stockholders per share   $ 1.04     $ 1.02     $ 1.13     $ 4.22     $ 0.96     $ 0.98     $ 1.94     (6 %)
 
Adjustments:
Change in fair value of financial instruments (153 ) 8 81 (41 ) (91 ) 45 (46 )
Non-cash income tax benefit (2,959 ) (8,515 ) (6,768 ) (22,387 ) (3,675 ) (1,642 ) (5,317 )
Impact of tax reform (36,539 ) (36,539 )
Loss (gain) on extinguishment of debt, net 47 486 (97 ) 839 10,987 4,707 15,694
(Gain) loss on non-real estate dispositions related to unconsolidated entities (16 ) (22 ) (5 ) (39 ) 4 4
Merger-related expenses, deal costs and re-audit costs 7,036 2,741 1,917 14,823 19,245 7,540 26,785
Amortization of other intangibles 365 328 327 1,458 328 190 518
Other items related to unconsolidated entities 280 1,207 1,489 3,188 2,847 878 3,725
Non-cash charges related to lease terminations 21,299 21,299
Non-cash impact of changes to equity plan 1,711 1,372 1,371 5,453 1,581 1,292 2,873
Natural disaster expenses (recoveries), net     9,810     1,791     11,601     (383 )   79     (304 )
Subtotal: normalized FFO add-backs 6,311 7,415 (36,433 ) (21,644 ) 30,843 34,388 65,231
Subtotal: normalized FFO add-backs per share   $ 0.02     $ 0.02     $ (0.10 )   $ (0.06 )   $ 0.09     $ 0.10     $ 0.18      
Normalized FFO attributable to common stockholders $ 379,329 $ 372,853 $ 371,009 $ 1,491,241 $ 375,920 $ 387,206 $ 763,126 2 %
Normalized FFO attributable to common stockholders per share   $ 1.06     $ 1.04     $ 1.03     $ 4.16     $ 1.05     $ 1.08     $ 2.13     2 %
 
Non-cash items included in normalized FFO:
Amortization of deferred revenue and lease intangibles, net (5,834 ) (5,434 ) (4,254 ) (20,537 ) (3,865 ) (2,992 ) (6,857 )
Other non-cash amortization, including fair market value of debt 4,124 4,602 4,872 16,058 3,777 4,873 8,650
Stock-based compensation 4,984 5,155 5,249 21,090 5,543 5,857 11,400
Straight-lining of rental income, net (5,778 )   (6,229 )   (5,750 )   (23,134 )   (3,622 )   (6,572 )   (10,194 )

Subtotal: non-cash items included in normalized FFO

(2,504 ) (1,906 ) 117 (6,523 ) 1,833 1,166 2,999
Capital expenditures   (33,148 )   (30,899 )   (49,812 )   (138,778 )   (22,233 )   (23,584 )   (45,817 )    
Normalized FAD attributable to common stockholders   $ 343,677     $ 340,048     $ 321,314     $ 1,345,940     $ 355,520     $ 364,788     $ 720,308     6 %
Merger-related expenses, deal costs and re-audit costs (7,036 ) (2,741 ) (1,917 ) (14,823 ) (19,245 ) (7,540 ) (26,785 )
Other items related to unconsolidated entities   (280 )   (1,207 )   (1,489 )   (3,188 )   (2,847 )   (878 )   (3,725 )    
FAD attributable to common stockholders   $ 336,361     $ 336,100     $ 317,908     $ 1,327,929     $ 333,428     $ 356,370     $ 689,798     6 %
Weighted average diluted shares 358,311     359,333     359,184     358,566     358,853     359,000     358,931  
 
1 Per share quarterly amounts may not add to annual per share amounts due to material changes in the Company’s weighted average diluted share count, if any.
 

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. However, since real estate values historically have risen or fallen with market conditions, many industry investors deem presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. For that reason, the Company considers FFO, normalized FFO, FAD and normalized FAD to be appropriate supplemental measures of operating performance of an equity REIT. In particular, the Company believes that normalized FFO is useful because it allows investors, analysts and Company management to compare the Company’s operating performance to the operating performance of other real estate companies and between periods on a consistent basis without having to account for differences caused by non-recurring items and other non-operational events such as transactions and litigation. In some cases, the Company provides information about identified non-cash components of FFO and normalized FFO because it allows investors, analysts and Company management to assess the impact of those items on the Company’s financial results.

The Company uses the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO. NAREIT defines FFO as net income attributable to common stockholders (computed in accordance with GAAP), excluding gains or losses from sales of real estate property, including gains or losses on re-measurement of equity method investments, and impairment write-downs of depreciable real estate, 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 the following income and expense items (which may be recurring in nature): (a) merger-related costs and expenses, including amortization of intangibles, transition and integration expenses, and deal costs and expenses, including expenses and recoveries relating to acquisition lawsuits; (b) 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, make-whole payments, penalties or premiums incurred as a result of early retirement or payment of the Company’s debt; (c) the non-cash effect of income tax benefits or expenses, the non-cash impact of changes to the Company’s executive equity compensation plan, derivative transactions that have non-cash mark-to-market impacts on the Company’s income statement and non-cash charges related to lease terminations; (d) the financial impact of contingent consideration, severance-related costs and charitable donations made to the Ventas Charitable Foundation; (e) gains and losses for non-operational foreign currency hedge agreements and changes in the fair value of financial instruments; (f) gains and losses on non-real estate dispositions and other unusual items related to unconsolidated entities; (g) expenses related to the re-audit and re-review in 2014 of the Company’s historical financial statements and related matters; and (h) net expenses or recoveries related to natural disasters. Normalized FAD represents normalized FFO excluding non-cash components, which include straight-line rental adjustments, and deducting capital expenditures, including certain tenant allowances and leasing commissions. FAD represents normalized FAD after subtracting merger-related expenses, deal costs and re-audit costs and other unusual items related to unconsolidated entities.

FFO, normalized FFO, FAD and normalized FAD presented herein may not be comparable to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. FFO, normalized FFO, FAD and normalized FAD should not be considered as alternatives to net income or income from continuing operations (both 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 they necessarily indicative of sufficient cash flow to fund all of the Company’s needs. The Company believes that income from continuing operations is the most comparable GAAP measure because it provides insight into the Company’s continuing operations. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO, normalized FFO, FAD and normalized FAD should be examined in conjunction with net income and income from continuing operations as presented elsewhere herein.

 
NON-GAAP FINANCIAL MEASURES RECONCILIATION

EPS, FFO and FAD Guidance Attributable to Common Stockholders 1,2

(Dollars in millions, except per share amounts)
 
Tentative / Preliminary and Subject to Change
FY2018 - Guidance   FY2018 - Per Share
Low   High Low   High
                 
Income from Continuing Operations   $435   $447   $1.21   $1.24
   
Gain on Real Estate Dispositions 36 41 0.10 0.11
Other Adjustments 3 (6 ) (8 ) (0.02 ) (0.02 )
                 
Net Income Attributable to Common Stockholders   $465   $480   $1.29   $1.34
 
Depreciation and Amortization Adjustments 884 896 2.46 2.49
Gain on Real Estate Dispositions (36 ) (41 ) (0.10 ) (0.11 )
Other Adjustments 3 37 37 0.10 0.10
                 
FFO (NAREIT) Attributable to Common Stockholders   $1,350   $1,372   $3.76   $3.82
 
Merger-Related Expenses, Deal Costs and Re-Audit Costs 44 39 0.12 0.11
Loss on Extinguishment of Debt, Net 55 65 0.15 0.18
Other Adjustments 3,4 (5 ) (14 ) (0.01 ) (0.04 )
                 
Normalized FFO Attributable to Common Stockholders $1,444 $1,462 $4.02 $4.07
% Year-Over-Year Growth           (3 %)   (2 %)
 
Non-Cash Items Included in Normalized FFO 6 2
Capital Expenditures (143 ) (148 )
           
Normalized FAD Attributable to Common Stockholders   $1,307   $1,316  
 
Merger-Related Expenses, Deal Costs and Re-Audit Costs (44 ) (39 )
Other Adjustments 3 (5 ) (4 )
           
FAD Attributable to Common Stockholders   $1,258   $1,273  
 
Weighted Average Diluted Shares (in millions) 359 359

1 The Company’s guidance constitutes forward-looking statements within the meaning of the federal securities laws and is based on a number of assumptions that are subject to change and many of which are outside the control of the Company. Actual results may differ materially from the Company’s expectations depending on factors discussed in the Company’s filings with the Securities and Exchange Commission.

2 Per share quarterly amounts may not add to annual per share amounts due to changes in the Company's weighted average diluted share count, if any.

3 See table titled “Funds From Operations (FFO) and Funds Available for Distribution (FAD)” for detailed breakout of adjustments for each respective category.

4 Includes adjustments related to one-time write-offs of straight-line rent, market lease intangibles and deferred revenue, all related to the Brookdale Agreement.

NON-GAAP FINANCIAL MEASURES RECONCILIATION
Net Debt to Adjusted Pro Forma EBITDA
(Dollars in thousands)

The following table illustrates net debt to pro forma earnings, which includes amounts in discontinued operations, before interest, taxes, depreciation and amortization (including non-cash stock-based compensation expense), excluding gains or losses on extinguishment of debt, consolidated joint venture partners’ share of EBITDA, merger-related expenses and deal costs, expenses related to the re-audit and re-review in 2014 of the Company’s historical financial statements, net gains or losses on real estate activity, gains or losses on re-measurement of equity interest upon acquisition, changes in the fair value of financial instruments, unrealized foreign currency gains or losses, net expenses or recoveries related to natural disasters and non-cash charges related to lease terminations, and including the Company’s share of EBITDA from unconsolidated entities and adjustments for other immaterial or identified items (“Adjusted EBITDA”).

The following information considers the pro forma effect on Adjusted EBITDA of the Company’s activity during the three months ended June 30, 2018, as if the transactions had been consummated as of the beginning of the period (“Adjusted Pro Forma EBITDA”).

The Company believes that net debt, Adjusted Pro Forma EBITDA and net debt to Adjusted Pro Forma EBITDA are useful to investors, analysts and Company management because they allow the comparison of the Company’s credit strength between periods and to other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual credit quality.

For a reconciliation of net debt to Adjusted Pro Forma EBITDA for the quarter ended March 31, 2018, please refer to the reconciliation included in the Company’s Current Report on Form 8-K filed with the SEC on April 27, 2018, which reconciliation is hereby incorporated by reference.

 
Income from continuing operations $ 133,473
Discontinued operations
Gain on real estate dispositions 35,827  
Net income 169,300
Net income attributable to noncontrolling interests 2,781  
Net income attributable to common stockholders 166,519
Adjustments:
Interest 113,029
Gain on extinguishment of debt, net (93 )
Taxes (including tax amounts in general, administrative and professional fees) 181
Depreciation and amortization 223,634
Non-cash stock-based compensation expense 7,149
Merger-related expenses, deal costs and re-audit costs 6,232
Net income attributable to noncontrolling interests, net of consolidated joint venture partners’ share of EBITDA (1,567 )
Loss from unconsolidated entities, net of Ventas share of EBITDA from unconsolidated entities 14,564
Gain on real estate dispositions (35,827 )
Unrealized foreign currency losses 335
Change in fair value of financial instruments 25
Non-cash charges related to lease terminations 21,299
Natural disaster expenses (recoveries), net 79  
Adjusted EBITDA 515,559
Pro forma adjustments for current period activity (33,470 )
Adjusted Pro Forma EBITDA $ 482,089  
 
Adjusted Pro Forma EBITDA annualized $ 1,928,356  
 
As of June 30, 2018:
Total debt $ 10,402,897
Cash (93,684 )
Restricted cash pertaining to debt (26,960 )
Consolidated joint venture partners’ share of debt (110,580 )
Ventas share of debt from unconsolidated entities 58,666  
Net debt $ 10,230,339  
 
Net debt to Adjusted Pro Forma EBITDA 5.3 x
 

NON-GAAP FINANCIAL MEASURES RECONCILIATION
Net Operating Income (NOI) and Same-Store Cash NOI by Segment
(Dollars in thousands)

The Company considers NOI and same-store cash NOI as important supplemental measures because they allow investors, analysts and the Company’s management to assess its unlevered property-level operating results and to compare its operating results with those of other real estate companies and between periods on a consistent basis. The Company defines NOI as total revenues, less interest and other income, property-level operating expenses and office building services costs. In the case of NOI, cash receipts may differ due to straight-line recognition of certain rental income and the application of other GAAP policies. The Company believes that income from continuing operations is the most comparable GAAP measure for both NOI and same-store cash NOI because it provides insight into the Company’s continuing operations. The Company defines same-store as properties owned, consolidated, operational and reported under a consistent business model for the full period in both comparison periods, and excluding assets intended for disposition and for SHOP, those properties that transitioned operators after the start of the prior comparison period, and for office operations, redevelopment assets. To normalize for exchange rate movements, all same-store cash NOI measures assume constant exchange rates across comparable periods, using the following methodology: the current period’s results are shown in actual reported USD, while prior comparison period’s results are adjusted and converted to USD based on the average exchange rate for the current period.

         
Triple-Net
Leased Senior Living Office
Properties Operations Operations All Other Total
For the Three Months Ended June 30, 2018
Income from continuing operations $ 133,473
Adjustments:
Interest and other income (2,347 )
Interest 113,029
Depreciation and amortization 223,634
General, administrative and professional fees 36,656
Gain on extinguishment of debt, net (93 )
Merger-related expenses and deal costs 4,494
Other 3,527
Loss from unconsolidated entities 6,371
Income tax benefit (734 )
Reported Segment NOI $ 169,047 $ 157,877 $ 133,534 $ 57,552 518,010
Adjustments:
Modification fee 2,500 2,500
Normalizing adjustment for technology costs 284 284
NOI not included in same-store (6,236 ) (15,925 ) (15,995 ) (38,156 )
Straight-lining of rental income 35,742 (4,035 ) 31,707
Non-cash rental income (18,779 ) (359 ) (19,138 )
Non-segment NOI       (57,552 ) (57,552 )
13,227   (15,641 ) (20,389 ) (57,552 ) (80,355 )
Same-Store cash NOI (Constant Currency) $ 182,274   $ 142,236   $ 113,145   $   $ 437,655  
 
Percentage increase 4.9 % (3.1 )% 1.4 % 1.3 %

         
Triple-Net
Leased Senior Living Office
Properties Operations Operations All Other Total
For the Three Months Ended June 30, 2017
Income from continuing operations $ 152,272
Adjustments:
Interest and other income (202 )
Interest 113,572
Depreciation and amortization 224,108
General, administrative and professional fees 33,282
Loss on extinguishment of debt, net 36
Merger-related expenses and deal costs 6,043
Other 1,848
Loss from unconsolidated entities 106
Income tax benefit (2,159 )
Reported Segment NOI $ 214,383 $ 151,618 $ 130,331 $ 32,574 528,906
Adjustments:
Normalizing adjustment for technology costs 1,449 1,449
NOI not included in same-store (34,929 ) (7,021 ) (13,932 ) (55,882 )
Straight-lining of rental income (1,143 ) (4,635 ) (5,778 )
Non-cash rental income (4,842 ) (160 ) (5,002 )
Non-segment NOI (32,574 ) (32,574 )
NOI impact from change in FX 327   718       1,045  
(40,587 ) (4,854 ) (18,727 ) (32,574 ) (96,742 )
Same-Store cash NOI (Constant Currency) $ 173,796   $ 146,764   $ 111,604   $   $ 432,164  

 
NON-GAAP FINANCIAL MEASURES RECONCILIATION

NOI and Same-Store Cash NOI by Segment Guidance 1,2

(Dollars in millions, except per share amounts)
 
FY2018 - Guidance
Tentative / Preliminary and Subject to Change
      Non-  
NNN SHOP Office Segment Total
High End
Income from Continuing Operations $ 447
Depreciation and Amortization3 907
Interest Expense, G&A, Other Income and Expenses4 671  
Reported Segment NOI5 $ 737 $ 631 $ 541 $ 117 2,025
Normalizing Adjustment for Technology Costs6 1 1
Non-Cash and Non-Same-Store Adjustments (32 ) (66 ) (85 ) (117 ) (301 )
Same-Store Cash NOI5 705 566 456 1,725
Percentage Increase 3.0 % (1.0 %) 2.75 % NM 1.5 %
 
Modification Fees (3 )   (0 )   (3 )
Adjusted Same-Store Cash NOI5 $ 702   $ 566   $ 456   $   $ 1,722  
Adjusted Percentage Increase 2.6 % (1.0 %) 2.7 % NM 1.3 %
 
Low End
Income from Continuing Operations $ 435
Depreciation and Amortization3 896
Interest Expense, G&A, Other Income and Expenses4 676  
Reported Segment NOI5 $ 734 $ 620 $ 537 $ 112 2,007
Normalizing Adjustment for Technology Costs6 1 1
Non-Cash and Non-Same-Store Adjustments (33 ) (66 ) (85 ) (112 ) (295 )
Same-Store Cash NOI5 701 555 452 1,713
Percentage Increase 2.5 % (3.0 %) 1.75 % NM 0.75 %
 
Modification Fees (3 )   (0 )   (3 )
Adjusted Same-Store Cash NOI5 $ 698   $ 555   $ 451   $   $ 1,710  
Adjusted Percentage Increase 2.1 % (3.0 %) 1.7 % NM 0.6 %
 
Prior Year
Income from Continuing Operations $ 644
Depreciation and Amortization3 888
Interest Expense, G&A, Other Income and Expenses4 550  
Reported Segment NOI $ 845 $ 593 $ 525 $ 119 2,082
Normalizing Adjustment for Technology Costs6 3 3
Non-Cash and Non-Same-Store Adjustments (162 ) (24 ) (81 ) (119 ) (386 )
NOI Impact from Change in FX 1   (0 )     1  
Same-Store Cash NOI 684 572 444 1,700
Modification Fees          
 
Adjusted Same-Store Cash NOI $ 684   $ 572   $ 444   $   $ 1,700  
 
2018
GBP (£) to USD ($) 1.32
USD ($) to CAD (C$) 1.32

1 The Company’s guidance constitutes forward-looking statements within the meaning of the federal securities laws and is based on a number of assumptions that are subject to change and many of which are outside the control of the Company. Actual results may differ materially from the Company’s expectations depending on factors discussed in the Company’s filings with the Securities and Exchange Commission.

2 See tables titled “Net Operating Income (NOI) and Same-Store Cash NOI by Segment” for the three months ended June 30, 2018 for a detailed breakout of adjustments for each respective category.

3 Includes real estate depreciation and amortization, corporate depreciation and amortization and amortization of other intangibles.

4 Includes interest expense, general and administrative expenses (including stock-based compensation), loss on extinguishment of debt, merger-related expenses and deal costs, income from unconsolidated entities, income tax benefit, and other income and expenses.

5 Totals may not add across due to minor corporate-level adjustments and rounding.

6 Represents costs expensed by one operator related to implementation of new software.

Source: Ventas, Inc.

Ventas, Inc.
Ryan K. Shannon
(877) 4-VENTAS