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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM              TO             

Commission file number: 1-10989

 

 

Ventas, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   61-1055020
(State or Other Jurisdiction of Incorporation or Organization)   (I.R.S. Employer Identification No.)

111 S. Wacker Drive, Suite 4800

Chicago, Illinois

(Address of Principal Executive Offices)

60606

(Zip Code)

(877) 483-6827

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  x    Accelerated filer  ¨
Non-accelerated filer  ¨    Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class of Common Stock:

  

Outstanding at October 30, 2009:

Common Stock, $0.25 par value    156,605,778

 

 

 


Table of Contents

VENTAS, INC.

FORM 10-Q

INDEX

 

          Page

PART I—FINANCIAL INFORMATION

  

Item 1.

  

Financial Statements

   3
  

Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008

   3
  

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2009 and 2008

   4
  

Consolidated Statements of Equity for the Nine Months Ended September 30, 2009 and the Year Ended December 31, 2008

   5
  

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008

   6
  

Notes to Consolidated Financial Statements

   7

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   33

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

   47

Item 4.

  

Controls and Procedures

   48

PART II—OTHER INFORMATION

  

Item 1.

   Legal Proceedings    50

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    50

Item 6.

   Exhibits    51

 

2


Table of Contents

PART I—FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

VENTAS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

 

    September 30,
2009
    December 31,
2008
 
    (Unaudited)     (Audited)  

Assets

   

Real estate investments:

   

Land

  $ 557,123      $ 555,015   

Buildings and improvements

    5,641,309        5,593,024   

Construction in progress

    8,611        12,591   
               
    6,207,043        6,160,630   

Accumulated depreciation

    (1,126,516     (987,691
               

Net real estate property

    5,080,527        5,172,939   

Loans receivable, net

    125,410        123,289   
               

Net real estate investments

    5,205,937        5,296,228   

Cash and cash equivalents

    70,889        176,812   

Escrow deposits and restricted cash

    96,477        55,866   

Deferred financing costs, net

    27,804        22,032   

Other

    186,203        220,480   
               

Total assets

  $ 5,587,310      $ 5,771,418   
               

Liabilities and equity

   

Liabilities:

   

Senior notes payable and other debt

  $ 2,615,142      $ 3,136,998   

Deferred revenue

    4,628        7,057   

Accrued interest

    35,481        21,931   

Accounts payable and other accrued liabilities

    175,125        168,198   

Deferred income taxes

    254,622        257,499   
               

Total liabilities

    3,084,998        3,591,683   

Commitments and contingencies

   

Equity:

   

Ventas stockholders’ equity:

   

Preferred stock, $1.00 par value; 10,000 shares authorized, unissued

    —          —     

Common stock, $0.25 par value; 300,000 shares authorized; 156,605 and 143,302 shares issued at September 30, 2009 and December 31, 2008, respectively

 

 

39,155

  

 

 

35,825

  

   

Capital in excess of par value

    2,570,146        2,264,125   

Accumulated other comprehensive income (loss)

    15,080        (21,089

Retained earnings (deficit)

    (139,478     (117,806

Treasury stock, 0 and 15 shares at September 30, 2009 and December 31, 2008, respectively

 

 

—  

  

 

 

(457

               

Total Ventas stockholders’ equity

    2,484,903        2,160,598   

Noncontrolling interest

    17,409        19,137   
               

Total equity

    2,502,312        2,179,735   
               

Total liabilities and equity

  $ 5,587,310      $ 5,771,418   
               

See accompanying notes.

 

3


Table of Contents

VENTAS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

 

    For the Three Months
Ended September 30,
    For the Nine Months
Ended September 30,
 
    2009   2008     2009   2008  

Revenues:

       

Rental income

  $ 126,002   $ 121,172      $ 374,084   $ 358,893   

Resident fees and services

    106,515     108,610        312,853     323,648   

Income from loans and investments

    3,214     3,426        9,828     5,373   

Interest and other income

    99     1,913        493     3,529   
                           

Total revenues

    235,830     235,121        697,258     691,443   

Expenses:

       

Interest

    43,660     50,745        133,942     153,927   

Depreciation and amortization

    50,349     49,997        148,897     176,960   

Property-level operating expenses

    76,338     81,698        224,370     230,497   

General, administrative and professional fees (including non-cash stock-based compensation expense of $3,078 and $3,326 for the three months ended 2009 and 2008, respectively, and $9,215 and $7,816 for the nine months ended 2009 and 2008, respectively)

    9,657     11,626        30,610     29,493   

Foreign currency loss (gain)

    32     (45     31     (151

Loss on extinguishment of debt

    —       344        6,080     460   

Merger-related expenses and deal costs

    5,894     1,248        11,450     3,128   
                           

Total expenses

    185,930     195,613        555,380     594,314   
                           

Income before reversal of contingent liability, income taxes, discontinued operations and noncontrolling interest

    49,900     39,508        141,878     97,129   

Reversal of contingent liability

    —       23,328        —       23,328   

Income tax benefit

    410     415        1,352     14,165   
                           

Income from continuing operations

    50,310     63,251        143,230     134,622   

Discontinued operations

    120     1,555        71,352     32,514   
                           

Net income

    50,430     64,806        214,582     167,136   

Net income attributable to noncontrolling interest, net of tax

    625     1,040        2,168     2,063   
                           

Net income attributable to common stockholders

  $ 49,805   $ 63,766      $ 212,414   $ 165,073   
                           

Earnings per common share:

       

Basic:

       

Income from continuing operations attributable to common stockholders

  $ 0.32   $ 0.44      $ 0.93   $ 0.96   

Discontinued operations

    0.00     0.01        0.47     0.23   
                           

Net income attributable to common stockholders

  $ 0.32   $ 0.45      $ 1.40   $ 1.19   
                           

Diluted:

       

Income from continuing operations attributable to common stockholders

  $ 0.32   $ 0.44      $ 0.93   $ 0.96   

Discontinued operations

    0.00     0.01        0.47     0.23   
                           

Net income attributable to common stockholders

  $ 0.32   $ 0.45      $ 1.40   $ 1.19   
                           

Weighted average shares used in computing earnings per common share:

       

Basic

    156,250     140,759        151,309     138,433   

Diluted

    156,516     141,141        151,439     138,859   

Dividends declared per common share

  $ 0.5125   $ 0.5125      $ 1.5375   $ 1.5375   

See accompanying notes.

 

4


Table of Contents

VENTAS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

For the Nine Months Ended September 30, 2009 and the Year Ended December 31, 2008

(In thousands, except per share amounts)

 

    Common
Stock Par
Value
  Capital in
Excess of
Par Value
    Accumulated
Other
Comprehensive
Income (Loss)
    Retained
Earnings
(Deficit)
    Treasury
Stock
    Total Ventas
Stockholders’
Equity
    Noncontrolling
Interest
    Total Equity  

Balance at January 1, 2008

  $ 33,416   $ 1,840,823      $ 17,416      $ (51,560   $ (626   $ 1,839,469      $ 31,454      $ 1,870,923   

Comprehensive Income:

               

Net income

    —       —          —          222,603        —          222,603        2,684        225,287   

Foreign currency translation

    —       —          (26,142     —          —          (26,142     —          (26,142

Unrealized loss on interest rate swaps

    —       —          (579     —          —          (579     —          (579

Reclassification adjustment for realized loss on interest rate swap included in net income during the year

    —       —          1,103        —          —          1,103        —          1,103   

Unrealized loss on marketable debt securities

    —       —          (12,887     —          —          (12,887     —          (12,887
                           

Comprehensive income

    —       —          —          —          —          184,098        —          186,782   

Acquisitions with noncontrolling interest

    —       —          —          —          —          —          731        731   

Distributions to noncontrolling interest

    —       —          —          —          —          —          (15,732     (15,732

Dividends to common stockholders—$2.05 per share

    —       —          —          (288,849     —          (288,849     —          (288,849

Issuance of common stock

    2,309     406,231        —          —          —          408,540        —          408,540   

Issuance of common stock for stock plans

    64     15,901        —          —          1,047        17,012        —          17,012   

Grant of restricted stock, net of forfeitures

    36     1,170        —          —          (878     328        —          328   
                                                             

Balance at December 31, 2008

    35,825     2,264,125        (21,089     (117,806     (457     2,160,598        19,137        2,179,735   

Comprehensive Income:

               

Net income

    —       —          —          212,414        —          212,414        2,168        214,582   

Foreign currency translation

    —       —          20,424        —          —          20,424        —          20,424   

Unrealized gain on marketable debt securities

    —       —          15,389        —          —          15,389        —          15,389   

Other

    —       —          356        —          —          356        —          356   
                           

Comprehensive income

    —       —          —          —          —          248,583        —          250,751   

Purchase of noncontrolling interest

    —       517        —          —          —          517        (1,226     (709

Contributions from noncontrolling interest

    —       —          —          —          —          —          1,435        1,435   

Distributions to noncontrolling interest

    —       —          —          —          —          —          (7,159     (7,159

Income tax benefit attributable to noncontrolling interest

    —       —          —          —          —          —          1,311        1,311   

Other

    —       —          —          —          —          —          1,743        1,743   

Dividends to common stockholders—$1.5375 per share

    —       —          —          (234,086     —          (234,086     —          (234,086

Issuance of common stock

    3,266     295,935        —          —          —          299,201        —          299,201   

Issuance of common stock for stock plans

    25     9,750        —          —          175        9,950        —          9,950   

Grant of restricted stock, net of forfeitures

    39     (181     —          —          282        140        —          140   
                                                             

Balance at September 30, 2009

  $ 39,155   $ 2,570,146      $ 15,080      $ (139,478   $ —        $ 2,484,903      $ 17,409      $ 2,502,312   
                                                             

See accompanying notes.

 

5


Table of Contents

VENTAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

     For the Nine Months
Ended September 30,
 
     2009     2008  

Cash flows from operating activities:

    

Net income

   $ 214,582      $ 167,136   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization (including amounts in discontinued operations)

     149,162        180,780   

Amortization of deferred revenue and lease intangibles, net

     (5,151     (7,202

Other amortization expenses

     4,295        3,618   

Stock-based compensation

     9,215        7,816   

Straight-lining of rental income

     (8,961     (11,215

Loss (gain) on extinguishment of debt

     6,080        (63

Net gain on sale of real estate assets (including amounts in discontinued operations)

     (67,011     (25,869

Income tax benefit

     (1,352     (14,165

Reversal of contingent liability

     —          (23,328

Provision for loan losses

     —          5,994   

Other

     87        704   

Changes in operating assets and liabilities:

    

Increase in other assets

     (4,277     (1,294

Increase in accrued interest

     13,550        25,424   

Increase (decrease) in accounts payable and other liabilities

     12,978        (6,528
                

Net cash provided by operating activities

     323,197        301,808   

Cash flows from investing activities:

    

Net investment in real estate property

     (23,728     (47,287

Investment in loans receivable

     (7,373     (98,826

Purchase of marketable debt securities

     —          (63,680

Proceeds from real estate disposals

     96,561        58,379   

Proceeds from loans receivable

     7,908        122   

Capital expenditures

     (7,184     (12,174

Other

     —          322   
                

Net cash provided by (used in) investing activities

     66,184        (163,144

Cash flows from financing activities:

    

Net change in borrowings under revolving credit facilities

     (291,456     (172,216

Proceeds from debt

     304,202        10,359   

Repayment of debt

     (555,290     (83,146

Payment of deferred financing costs

     (13,422     (655

Issuance of common stock, net

     299,201        408,540   

Cash distribution to common stockholders

     (234,086     (215,381

Contributions from noncontrolling interest

     635        —     

Distributions to noncontrolling interest

     (7,496     (5,332

Other

     2,003        6,952   
                

Net cash used in financing activities

     (495,709     (50,879
                

Net (decrease) increase in cash and cash equivalents

     (106,328     87,785   

Effect of foreign currency translation on cash and cash equivalents

     405        (196

Cash and cash equivalents at beginning of period

     176,812        28,334   
                

Cash and cash equivalents at end of period

   $ 70,889      $ 115,923   
                

Supplemental schedule of non-cash activities:

    

Assets and liabilities assumed from acquisitions:

    

Real estate investments

   $ 8,455      $ 38,578   

Other assets

     (9,294     521   

Debt assumed

     —          34,629   

Deferred taxes

     —          650   

Other liabilities

     (1,886     3,571   

Noncontrolling interest

     1,047        249   

See accompanying notes.

 

6


Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—DESCRIPTION OF BUSINESS

Ventas, Inc. (together with its subsidiaries, unless otherwise indicated or except where the context otherwise requires, “we,” “us” or “our”) is a real estate investment trust (“REIT”) with a geographically diverse portfolio of seniors housing and healthcare properties in the United States and Canada. As of September 30, 2009, this portfolio consisted of 501 assets: 243 seniors housing communities, 187 skilled nursing facilities, 40 hospitals and 31 medical office buildings (“MOBs”) and other properties in 43 states and two Canadian provinces. With the exception of our seniors housing communities that are managed by Sunrise Senior Living, Inc. (together with its subsidiaries, “Sunrise”) pursuant to long-term management agreements and the majority of our MOBs, we lease our properties to healthcare operating companies under “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses. We also had real estate loan investments relating to seniors housing and healthcare companies as of September 30, 2009.

We conduct substantially all of our business through our wholly owned subsidiaries, Ventas Realty, Limited Partnership (“Ventas Realty”), PSLT OP, L.P. and Ventas SSL, Inc. Our primary business consists of acquiring, financing and owning seniors housing and healthcare properties and leasing those properties to third parties or operating those properties through independent third party managers.

NOTE 2—ACCOUNTING POLICIES

The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the Securities and Exchange Commission (the “Commission”) instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. Operating results for the three- and nine-month periods ended September 30, 2009 are not necessarily an indication of the results that may be expected for the year ending December 31, 2009. The accompanying Consolidated Financial Statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our Current Report on Form 8-K filed with the Commission on August 7, 2009. Certain prior period amounts have been reclassified to conform to the current period presentation.

Revenue Recognition

Certain of our leases, excluding our master lease agreements with Kindred Healthcare, Inc. (together with its subsidiaries, “Kindred”) (the “Kindred Master Leases”) but including the majority of our leases with Brookdale Senior Living Inc. (together with its subsidiaries, “Brookdale Senior Living”), provide for periodic and determinable increases in base rent. Base rental revenues under these leases are recognized on a straight-line basis over the terms of the applicable lease. Income on our straight-line revenue is recognized when collectibility is reasonably assured. In the event we determine that collectibility of straight-line revenue is not reasonably assured, we establish an allowance for estimated losses. Recognizing rental income on a straight-line basis results in recognized revenue exceeding cash amounts contractually due from our tenants during the first half of the term for leases that have straight-line treatment. The cumulative excess is included in other assets, net of allowances, on our Consolidated Balance Sheets and totaled $75.4 million and $68.2 million at September 30, 2009 and December 31, 2008, respectively.

Certain of our other leases, including the Kindred Master Leases, provide for an annual increase in rental payments only if certain revenue parameters or other substantive contingencies are met. We recognize the increased rental revenue under these leases only if the revenue parameters or other substantive contingencies are

 

7


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met, rather than on a straight-line basis over the term of the applicable lease. We recognize income from rent, lease termination fees and other income when all of the following criteria are met: (i) the agreement has been fully executed and delivered; (ii) services have been rendered; (iii) the amount is fixed or determinable; and (iv) collectibility is reasonably assured.

Resident fees and services are recognized as services are provided. Move-in fees, a component of resident fees and services, are recognized on a straight-line basis over the term of the applicable lease agreement. Lease agreements with residents generally have a term of one year and are cancelable by the resident with 30 days’ notice.

Recently Adopted Accounting Standards

On January 1, 2008, we adopted FASB guidance which defines fair value and provides direction for measuring fair value and providing the necessary disclosures. The guidance does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. The adoption did not have a material impact on our Consolidated Financial Statements.

The guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within levels one and two of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within level three of the hierarchy).

Level one inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access. Level two inputs are inputs other than quoted prices included in level one that are observable for the asset or liability, either directly or indirectly. Level two inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability, other than quoted prices, such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level three inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

We determined the valuation of our current investments in marketable securities, which are included in other assets on our Consolidated Balance Sheets, using level one inputs, which utilize quoted prices in active markets for identical assets or liabilities that we have the ability to access. Additionally, we determined the valuation allowance for loan losses based on level three inputs.

On January 1, 2009, we adopted additional FASB guidance related to fair value, which delayed the requirements related to the valuation of nonfinancial assets and liabilities. The adoption did not have a material impact on our Consolidated Financial Statements.

On January 1, 2009, we adopted FASB guidance related to business combinations, which requires the acquiring entity in a business combination to measure the assets acquired, liabilities assumed (including contingencies) and any noncontrolling interests at their fair values on the acquisition date. The guidance also requires that acquisition-related transaction costs be expensed as incurred, acquired research and development value be capitalized and that acquisition-related restructuring costs be capitalized only if they meet certain

 

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criteria. This guidance did not have a material impact on our Consolidated Financial Statements at the time of adoption. Beginning January 1, 2009, we began expensing acquisition-related transaction costs as incurred. These costs are included in merger-related expenses and deal costs on our Consolidated Statements of Income for the three and nine months ended September 30, 2009.

On January 1, 2009, we adopted FASB guidance which changes the reporting for minority interests, which now must be characterized as noncontrolling interests and classified as a component of consolidated equity. The calculation of income and earnings per share continues to be based on income amounts attributable to the parent and is characterized as net income attributable to common stockholders. As the ownership of a controlled subsidiary increases or decreases, any difference between the consideration paid and the adjustment to the noncontrolling interest balance must be recorded as a component of equity in additional paid-in capital, so long as we maintain a controlling ownership interest. As required, all prior year amounts have been reclassified to reflect our adoption of this guidance.

On January 1, 2009, we adopted FASB guidance relating to convertible debt instruments that may be settled in cash upon conversion. The guidance specifies that issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. As required, all prior year amounts have been restated to reflect our adoption of this guidance. As a result of the adoption, interest expense increased and net income decreased by $1.0 million ($0.01 per diluted share) and $0.9 million ($0.01 per diluted share) for the three months ended September 30, 2009 and 2008, respectively, and $2.9 million ($0.02 per diluted share) and $2.7 million ($0.02 per diluted share) for the nine months ended September 30, 2009 and 2008, respectively, and total equity increased by $12.1 million at December 31, 2008.

In April 2009, the FASB issued guidance relating to the recognition and presentation of other-than-temporary impairments, which requires entities to separate an other-than-temporary impairment of a fixed maturity security into two components when there are credit losses associated with the security that management asserts that it does not have an intent to sell, and it is more likely than not that the entity will not be required to sell the security before recovery of its cost basis. The amount of the other-than-temporary impairment related to a credit loss is recognized in earnings, and the amount of the other-than-temporary impairment related to other factors is recorded in other comprehensive loss. The guidance is effective for periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We elected to adopt this guidance during the second quarter of 2009. The adoption did not have a material impact on our Consolidated Financial Statements.

In April 2009, the FASB issued additional guidance relating to fair value determinations. If an entity determines that there has been a significant decrease in the volume and level of activity for an asset or liability in relation to the normal market activity for such asset or liability (or similar assets or liabilities), then transactions or quoted prices may not accurately reflect fair value. In addition, if there is evidence that the transaction for the asset or liability is not orderly, the entity shall place little, if any, weight on that transaction price as an indicator of fair value. The guidance is effective for periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We elected to adopt this guidance effective January 1, 2009. The adoption did not have a material impact on our Consolidated Financial Statements.

In April 2009, the FASB issued guidance relating to the disclosure of fair value information in interim and annual financial statements. This guidance is effective for periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We adopted this guidance during the second quarter of 2009.

In May 2009, the FASB issued guidance relating to subsequent events, which establishes general standards of accounting for and disclosure of events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. The guidance sets forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential

 

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recognition or disclosure in the financial statements and the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements. We are required to disclose the date through which we have evaluated subsequent events and transactions and the basis for that date. We adopted this guidance during the second quarter of 2009. The adoption did not have any effect on our Consolidated Financial Statements. We have evaluated disclosure of subsequent events and transactions through the time of filing on November 4, 2009 for this Quarterly Report on Form 10-Q.

On July 1, 2009, the FASB launched the ASC, which changes U.S. GAAP from a standards-based model to a topical-based model. The topics are organized by ASC number and are updated with an Accounting Standards Update. The ASC is the single source of nongovernmental authoritative U.S. GAAP for interim and annual periods ending after September 15, 2009. The ASC did not have any impact on our Consolidated Financial Statements as it does not change the accounting of or disclosure for transactions, only how U.S. GAAP guidance is catalogued and referenced.

Fair Values of Financial Instruments

The following methods and assumptions were used in estimating fair value disclosures for financial instruments.

 

   

Cash and cash equivalents: The carrying amount of unrestricted cash and cash equivalents reported in our Consolidated Balance Sheets approximates fair value due to the short maturity of these instruments.

 

   

Loans receivable: The fair value of loans receivable is estimated by discounting the future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

 

   

Marketable debt securities: The fair value of marketable debt securities is estimated using quoted prices in active markets for identical assets or liabilities that we have the ability to access.

 

   

Senior notes payable and other debt: The fair values of borrowings are estimated by discounting the future cash flows using current interest rates at which similar borrowings could be made by us.

NOTE 3—CONCENTRATION OF CREDIT RISK

As of September 30, 2009, approximately 39.3%, 22.2% and 14.3% of our properties, based on the gross book value of real estate investments, were managed or operated by Sunrise, Brookdale Senior Living (whose subsidiaries include Brookdale Living Communities, Inc. (“Brookdale”) and Alterra Healthcare Corporation (“Alterra”)) and Kindred, respectively. Seniors housing communities and skilled nursing facilities constituted approximately 75.0% and 12.8%, respectively, of our portfolio, based on the gross book value of real estate investments, as of September 30, 2009. Our properties are located in 43 states and two Canadian provinces, with properties in only two states accounting for 10% or more of total revenues during the nine months ended September 30, 2009.

Triple-Net Leased Properties

Approximately 26.5% and 25.5% of our total revenues and 38.6% and 38.1% of our total net operating income (“NOI”) (including amounts in discontinued operations) for the nine months ended September 30, 2009 and 2008, respectively, were derived from the Kindred Master Leases. The properties leased to Kindred pursuant to the Kindred Master Leases are grouped into bundles, with each bundle containing a varying number of properties. All properties within a bundle have initial primary terms ranging from ten to fifteen years from May 1, 1998 and, provided certain conditions are satisfied, are subject to three five-year renewal terms. Kindred has renewed, through April 30, 2015, its leases covering all 109 assets owned by us (one of which we subsequently sold in June 2009 (see “Note 4—Dispositions”)) whose initial base term will expire on April 30, 2010.

 

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The lease term for each of ten bundles will expire on April 30, 2013 unless Kindred provides us with a renewal notice with respect to those individual bundles on or before April 30, 2012. The ten bundles expiring in 2013 contain an aggregate of 89 assets currently representing approximately $117 million of annual base rent. Each of these bundles covers not less than six assets, including at least one hospital. Kindred is required to continue to perform all of its obligations under the applicable lease for any assets that are not renewed until expiration of the term on April 30, 2013, including without limitation, payment of all rental amounts. For any bundles not renewed, we will have at least one year to arrange for the repositioning of the applicable properties with new operators. In addition, we own or have the rights to all licenses and certificates of need at the properties, and Kindred has extensive and detailed obligations to cooperate and ensure an orderly transition of the properties not renewed to another operator. We cannot assure you, if Kindred does not renew one or more bundles, that we would be successful in identifying suitable replacement operators or that we will be able to enter into leases with new tenants or operators on terms as favorable to us as our current leases, if at all.

Approximately 12.9% and 12.8% of our total revenues and 19.1% and 19.3% of our total NOI (including amounts in discontinued operations) for the nine months ended September 30, 2009 and 2008, respectively, were derived from our lease agreements with Brookdale Senior Living. Our leases with Brookdale have primary terms of fifteen years, commencing either January 28, 2004 or October 19, 2004, and, provided certain conditions are satisfied, are subject to two ten-year renewal terms. Our leases with Alterra also have primary terms of fifteen years, commencing either October 20, 2004 or December 16, 2004, and, provided certain conditions are satisfied, are subject to two five-year renewal terms. Brookdale Senior Living guarantees all of Brookdale’s and Alterra’s obligations under these leases, and all of our Brookdale Senior Living leases are cross-defaulted.

Each of the Kindred Master Leases and our leases with Brookdale Senior Living is a triple-net lease pursuant to which the tenant is required to pay all insurance, taxes, utilities and maintenance and repairs related to the properties. In addition, the tenants are required to comply with the terms of the mortgage financing documents, if any, affecting the properties.

In view of the fact that Kindred and Brookdale Senior Living lease a substantial portion of our triple-net leased properties and are each a significant source of our total revenues and operating income, their financial condition and ability and willingness to satisfy their obligations under their respective leases and other agreements with us, as well as their willingness to renew those leases upon expiration of the terms thereof, have a considerable impact on our results of operations and our ability to service our indebtedness and to make distributions to our stockholders. We cannot assure you that Kindred or Brookdale Senior Living will have sufficient assets, income and access to financing to enable it to satisfy its obligations under its respective leases and other agreements with us, and any inability or unwillingness on its part to do so would have a material adverse effect on our business, financial condition, results of operations and liquidity, our ability to service our indebtedness and our ability to make distributions to our stockholders, as required for us to continue to qualify as a REIT (a “Material Adverse Effect”). We also cannot assure you that Kindred or Brookdale Senior Living will elect to renew its respective leases with us upon expiration of the initial base terms or any renewal terms thereof.

Each of Kindred and Brookdale Senior Living is subject to the reporting requirements of the Commission and is required to file with the Commission annual reports containing audited financial information and quarterly reports containing unaudited financial information. The information related to Kindred and Brookdale Senior Living contained or referred to in this Quarterly Report on Form 10-Q is derived from filings made by Kindred or Brookdale Senior Living, as the case may be, with the Commission or other publicly available information, or has been provided to us by Kindred or Brookdale Senior Living. We have not verified this information either through an independent investigation or by reviewing Kindred’s or Brookdale Senior Living’s public filings. We have no reason to believe that this information is inaccurate in any material respect, but we cannot assure you that all of this information is accurate. Kindred’s and Brookdale Senior Living’s filings with the Commission can be found at the Commission’s website at www.sec.gov. We are providing this data for informational purposes only, and you are encouraged to obtain Kindred’s and Brookdale Senior Living’s publicly available filings from the Commission.

 

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Senior Living Operations

We are party to long-term management agreements with Sunrise pursuant to which Sunrise currently provides comprehensive property management and accounting services with respect to 79 of our seniors housing communities. Each management agreement has a term of 30 years from its effective date, the earliest of which began in 2004. Approximately 44.5% and 45.7% of our total revenues and 18.0% and 20.3% of our earnings before interest, taxes, depreciation and amortization (“EBITDA”) (including amounts in discontinued operations) for the nine months ended September 30, 2009 and 2008, respectively, were attributable to senior living operations managed by Sunrise.

Unlike Kindred and Brookdale Senior Living, Sunrise does not lease properties from us, but rather acts as a property manager for all of our senior living operations and a joint venture partner with respect to 60 of our seniors housing communities. Therefore, while we are not directly exposed to credit risk with Sunrise, Sunrise’s inability to efficiently and effectively manage our properties and to provide timely and accurate accounting information with respect thereto could have a Material Adverse Effect on us. Although we have various rights as owner under the Sunrise management agreements, we rely on Sunrise’s personnel, good faith, expertise, historical performance, technical resources and information systems, proprietary information and judgment to manage our seniors housing communities efficiently and effectively. We also rely on Sunrise to set resident fees and otherwise operate those properties pursuant to our management agreements. Any adverse developments in Sunrise’s business and affairs or financial condition, including without limitation, the acceleration of its indebtedness, the inability to renew or extend its revolving credit facility, the enforcement of default remedies by its counterparties, or the commencement of insolvency proceedings under the U.S. Bankruptcy Code by or against Sunrise could have a Material Adverse Effect on us.

Sunrise is subject to the reporting requirements of the Commission and is required to file with the Commission annual reports containing audited financial information and quarterly reports containing unaudited financial information. The information related to Sunrise contained or referred to in this Quarterly Report on Form 10-Q is derived from filings made by Sunrise with the Commission or other publicly available information, or has been provided to us by Sunrise. We have not verified this information either through an independent investigation or by reviewing Sunrise’s public filings. We have no reason to believe that this information is inaccurate in any material respect, but we cannot assure you that all of this information is accurate. Sunrise’s filings with the Commission can be found at the Commission’s website at www.sec.gov. We are providing this data for informational purposes only, and you are encouraged to obtain Sunrise’s publicly available filings from the Commission.

NOTE 4—DISPOSITIONS

We present separately, as discontinued operations, in all periods presented the results of operations for all long-lived assets disposed of or held for sale.

2009 Dispositions

In June 2009, we sold six skilled nursing facilities to Kindred for total consideration of $58.0 million, consisting of a $55.7 million aggregate sale price and a $2.3 million lease termination fee. The proceeds from the sale are currently being held in an Internal Revenue Code Section 1031 exchange escrow account with a qualified intermediary. Cash rent for these assets for the May 1, 2008 to April 30, 2009 lease year was approximately $5.6 million. We recognized a net gain from the sale of these assets of $38.9 million in the second quarter of 2009.

During the first quarter of 2009, we sold five seniors housing assets, one hospital and one MOB to the existing tenants for an aggregate sale price (before expenses) of $95.5 million. We recognized a net gain from the sales of these assets of $27.8 million in the first quarter of 2009.

 

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2008 Dispositions

In December 2008, we sold five seniors housing communities to the existing tenant for an aggregate sale price of $62.5 million. We realized a gain from the sale of these assets of $21.5 million in the fourth quarter of 2008, $8.3 million of which was deferred due to a $10.0 million loan we made to the buyer in conjunction with the sale and will be recognized over a period of three years from the date of sale. We recognized $0.1 million and $0.4 million, respectively, of the gain during the three and nine months ended September 30, 2009.

In April 2008, we sold seven properties for an aggregate sale price of $69.1 million. We recognized a net gain from the sale of these assets of $25.9 million in the second quarter of 2008. In addition, we received a lease termination fee from the existing tenant of $1.6 million.

Set forth below is a summary of the results of operations for the three- and nine-month periods ended September 30, 2009 and 2008 with respect to the properties sold during the nine months ended September 30, 2009 and the year ended December 31, 2008:

 

     For the Three Months
Ended September 30,
  For the Nine Months
Ended September 30,
         2009            2008           2009            2008    
     (In thousands)

Revenues:

          

Rental income

   $ —      $ 4,426   $ 3,360    $ 15,454

Interest and other income

     —        24     2,423      1,683
                          
     —        4,450     5,783      17,137

Expenses:

          

Interest

     —        1,923     1,173      6,672

Depreciation and amortization

     —        972     269      3,820
                          
     —        2,895     1,442      10,492
                          

Income before gain on sale of real estate assets

     —        1,555     4,341      6,645

Gain on sale of real estate assets

     120      —       67,011      25,869
                          

Discontinued operations

   $ 120    $ 1,555   $ 71,352    $ 32,514
                          

NOTE 5—INTANGIBLES

At September 30, 2009, net intangible assets consisted of above market resident leases ($1.5 million), in-place resident leases ($4.9 million) and other intangibles ($2.3 million). At December 31, 2008, net intangible assets consisted of above market resident leases ($1.6 million), in-place resident leases ($5.3 million) and other intangibles ($2.1 million). The weighted average amortization period of intangible assets at September 30, 2009 was approximately three years.

At September 30, 2009 and December 31, 2008, net intangible liabilities, comprised of below market resident leases, were $1.9 million and $2.3 million, respectively. The weighted average amortization period of intangible liabilities at September 30, 2009 was approximately three years.

NOTE 6—LOANS RECEIVABLE

As of December 31, 2008, we held a receivable for three outstanding first mortgage loans (the “Sunwest Loans”) in the aggregate principal amount of $20.0 million. These loans, made in 2005, originally accrued interest at a non-default annual rate of 9%. During the third quarter of 2008, the borrowers defaulted on certain of their obligations under the Sunwest Loans, including the monthly payment of principal and interest to us. The Sunwest Loans were originally secured by four seniors housing communities containing approximately 300 units

 

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and were jointly and severally guaranteed by Sunwest Management, Inc. (“Sunwest”) and two of its principals. Receivers were appointed at, and we initiated foreclosure actions on, each asset securing the Sunwest Loans during 2008. We also commenced a collection and enforcement action against the guarantors. During 2008, we recorded a provision for loan losses on the Sunwest Loans of $6.0 million, which was based on estimated discounted cash flows and other valuation metrics, including the fair value of the collateral.

The foreclosure of two seniors housing communities securing one of the Sunwest Loans is currently stayed by receivership proceedings instituted by the Commission involving Sunwest and the other guarantors. Our collection and enforcement action against the Sunwest guarantors was dismissed without prejudice due to the receivership proceedings, but may be reinstated by us at anytime.

On September 30, 2009, we completed the non-judicial foreclosure of a seniors housing community located in Merced, California related to one of the Sunwest Loans. Immediately upon foreclosure, we sold the property to an affiliate of one of our existing tenants for approximately $6.3 million. In connection with the sale, we provided $5.0 million of first mortgage financing to the purchaser, secured by, among other things, the property, and received cash consideration of $1.2 million after expenses. The loan matures in September 2012, bears interest at a variable rate of 30-day LIBOR plus 6.5% per annum and is guaranteed by our tenant. We did not recognize any gain or loss as a result of this transaction. The net carrying value of the remaining two Sunwest Loans at September 30, 2009 was $8.8 million.

Although we cannot give any assurances regarding the value of our recovery on the collateral for the remaining Sunwest Loans, we currently expect that the estimated fair value of the foreclosed assets, if foreclosure proceedings are successful, will approximate the current net carrying value. If foreclosure proceedings are successful, we may take ownership of the seniors housing communities and engage healthcare operators to operate them under a management or lease arrangement, or we may sell one or more of the properties.

NOTE 7—SENIOR NOTES PAYABLE AND OTHER DEBT

The following is a summary of our senior notes payable and other debt as of September 30, 2009 and December 31, 2008:

 

     September 30,
2009
    December 31,
2008
 
     (In thousands)  

Unsecured revolving credit facilities

   $ 9,713      $ 300,207   

8 3/4% Senior Notes due 2009

     —          49,807   

6 3/4% Senior Notes due 2010

     1,375        122,980   

3 7/8% Convertible Senior Notes due 2011

     230,000        230,000   

9% Senior Notes due 2012

     82,433        191,821   

6 5/8% Senior Notes due 2014

     71,654        175,000   

7 1/8% Senior Notes due 2015

     142,669        170,000   

6 1/2% Senior Notes due 2016

     400,000        200,000   

6 3/4% Senior Notes due 2017

     225,000        225,000   

Mortgage loans and other

     1,485,268        1,474,325   
                

Total

     2,648,112        3,139,140   

Unamortized fair value adjustment

     12,337        14,256   

Unamortized commission fees and discounts

     (45,307     (16,398
                

Senior notes payable and other debt

   $ 2,615,142      $ 3,136,998   
                

 

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As of September 30, 2009, our indebtedness had the following maturities:

 

     Principal Amount
Due at Maturity
   Unsecured
Revolving Credit
Facilities (1)
   Scheduled Periodic
Amortization
   Total Maturities
     (In thousands)

2009

   $ 14,620    $ —      $ 8,134    $ 22,754

2010

     169,946      —        26,946      196,892

2011

     288,511      —        25,533      314,044

2012

     388,937      9,713      21,953      420,603

2013

     150,962      —        16,364      167,326

Thereafter

     1,454,187      —        72,306      1,526,493
                           

Total maturities

   $ 2,467,163    $ 9,713    $ 171,236    $ 2,648,112
                           

 

(1) At September 30, 2009, we had $70.9 million of unrestricted cash and cash equivalents and $55.7 million held in an Internal Revenue Code Section 1031 exchange escrow account with a qualified intermediary, for cash available of $116.9 million, net of amounts outstanding on our unsecured revolving credit facilities.

The principal amounts due at maturity above reflect our intent to extend $9.4 million of 2009 maturities to 2010 pursuant to our extension options with the lenders.

As of September 30, 2009, our joint venture partners’ share of total debt was $159.9 million.

Unsecured Revolving Credit Facilities

In March 2009, we amended the terms of our unsecured revolving credit facilities to, among other things, extend the maturity of a portion of the borrowing capacity thereunder to April 26, 2012. In connection with the amendments, we increased our aggregate borrowing capacity under the unsecured revolving credit facilities to $867.0 million, of which $277.0 million matures on April 26, 2010 and $590.0 million matures in 2012 (the “2012 capacity”). The U.S. credit facility also includes an “accordion” feature that permits us to further expand our aggregate borrowing capacity to $1.0 billion upon satisfaction of certain conditions.

In November 2009, we received commitments from two financial institutions that increased our 2012 capacity by $125.0 million, to $715.0 million from $590.0 million. The commitments also increased our aggregate borrowing capacity under our unsecured revolving credit facilities to $965.0 million. These commitments have closed, and the borrowing capacity under these commitments is currently available to us.

Borrowings under our unsecured revolving credit facilities bear interest at a fluctuating rate per annum (based on U.S. or Canadian LIBOR, the Canadian Bankers’ Acceptance rate, or the U.S. or Canadian Prime rate), plus an applicable percentage based on our consolidated leverage. At September 30, 2009, the applicable percentage was 0.75% for 2010 maturities and 2.80% for 2012 maturities. Our unsecured revolving credit facilities have a 20 basis point facility fee.

Senior Notes Offering

In April 2009, we completed the sale of $200.0 million aggregate principal amount of 6 1/2% senior notes due 2016 (the “2016 Notes”) of Ventas Realty and a wholly owned subsidiary, Ventas Capital Corporation (“Ventas Capital” and together with Ventas Realty, the “Issuers”), at a 15 3/4% discount to par value, and received net proceeds of $166.0 million.

The 2016 Notes are substantially similar in all respects to the Issuers’ other 6 1/2% senior notes due 2016, except that the 2016 Notes were issued with original issue discount and, thus, are a separate series from, and have a different CUSIP number than, the other notes.

 

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Debt Repayments, Purchases and Tender Offers

During the nine months ended September 30, 2009, we purchased in open market transactions and/or through cash tender offers $361.6 million of our senior notes composed of: $121.6 million principal amount of our outstanding 6 3/4% senior notes due 2010, $109.4 million principal amount of our outstanding 9% senior notes due 2012, $103.3 million principal amount of our outstanding 6 5/8% senior notes due 2014 and $27.3 million principal amount of our outstanding 7 1/8% senior notes due 2015. We recognized a net loss on extinguishment of debt of $0 and $6.1 million for the three and nine months ended September 30, 2009, respectively, related to these transactions.

We also repaid in full, at par, $49.8 million principal amount of our outstanding 8 3/4% senior notes due 2009 at maturity on May 1, 2009, and we repaid $7.1 million and $82.6 million in mortgage debt during the three and nine months ended September 30, 2009, respectively.

We funded these repayments, purchases and tender offers with the net proceeds from the sale of the 2016 Notes, our concurrent offering of common stock and cash on hand. See “Note 11—Capital Stock.”

Mortgages

In June 2009, we closed a pool of sixteen first-mortgage loans aggregating $114.2 million, secured by thirteen of our seniors housing communities leased to Brookdale Senior Living and three of our seniors housing communities leased to another tenant. In October 2009, we closed the seventeenth and final first-mortgage loan in the pool in the amount of $17.9 million, secured by an additional seniors housing community leased to Brookdale Senior Living, bringing the total aggregate principal amount of the seventeen-property loan pool to $132.1 million. These loans mature in July 2019, and the total weighted average fixed interest rate for the pool is 6.68% per annum.

In October 2009, we closed a first-mortgage loan in the original principal amount of $40.5 million, secured by one of our seniors housing communities leased to another tenant. The loan matures in November 2014 and bears interest at a fixed rate of 5.14% per annum.

NOTE 8—FAIR VALUES OF FINANCIAL INSTRUMENTS

As of September 30, 2009 and December 31, 2008, the carrying amounts and fair values of our financial instruments were as follows:

 

     September 30, 2009     December 31, 2008  
     Carrying
Amount
    Fair Value     Carrying
Amount
    Fair Value  
     (In thousands)  

Cash and cash equivalents

   $ 70,889      $ 70,889      $ 176,812      $ 176,812   

Loans receivable, net

     125,410        120,048        123,289        111,942   

Marketable debt securities

     67,800        67,800        51,550        51,550   

Senior notes payable and other debt, gross

     (2,648,112     (2,582,815     (3,139,140     (2,949,268

Fair value estimates are subjective in nature and depend on a number of important assumptions, including estimates of future cash flows, risks, discount rates and relevant comparable market information associated with each financial instrument. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented above are not necessarily indicative of the amounts we would realize in a current market exchange.

At September 30, 2009, we held marketable debt securities, classified as available-for-sale, with an aggregate amortized cost basis and fair value of $65.3 million and $67.8 million, respectively. At December 31,

 

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2008, these securities had an aggregate amortized cost basis and fair value of $64.4 million and $51.6 million, respectively. The contractual maturities of our marketable debt securities range from October 1, 2012 to April 15, 2016. We do not intend to sell these securities and it is more likely than not that we will not be required to sell these securities prior to maturity.

NOTE 9—LITIGATION

Legal Proceedings Defended and Indemnified by Third Parties

Kindred, Brookdale, Alterra, Sunrise and our other tenants, operators and managers are parties to certain legal actions and regulatory investigations arising in the normal course of their business. In certain cases, the tenant, operator or manager, as applicable, has agreed to indemnify, defend and hold us harmless against these actions and investigations. We cannot assure you that the resolution of any litigation or investigations, either individually or in the aggregate, would not have a material adverse effect on Kindred’s, Brookdale’s, Alterra’s, Sunrise’s or such other tenants’, operators’ and managers’ liquidity, financial condition or results of operations, which, in turn, could have a Material Adverse Effect on us.

Litigation Related to the Sunrise REIT Acquisition

On May 3, 2007, we filed a lawsuit against HCP, Inc. (“HCP”) in the United States District Court for the Western District of Kentucky, entitled Ventas, Inc. v. HCP, Inc., Case No. 07-cv-238-JGH. We asserted claims of tortious interference with contract and tortious interference with prospective business advantage. Our complaint alleged that HCP interfered with our purchase agreement to acquire the assets and liabilities of Sunrise Senior Living Real Estate Investment Trust (“Sunrise REIT”) and with the process for unitholder consideration of the purchase agreement. The complaint alleged, among other things, that HCP made certain improper and misleading public statements and/or offers to acquire Sunrise REIT and that HCP’s actions caused us to suffer substantial damages, including, among other things, the payment of materially greater consideration to acquire Sunrise REIT resulting from the substantial increase in the purchase price above the original contract price necessary to obtain unitholder approval and the delay in closing the acquisition, as well as the negative movements in the foreign currency exchange rates and the per share price of our common equity during such delay. We sought substantial monetary relief and punitive damages against HCP. On July 2, 2007, HCP filed its response to our complaint, along with a motion to dismiss the lawsuit. On December 19, 2007, the District Court denied HCP’s motion to dismiss.

On April 8, 2008, HCP filed a motion requesting permission from the District Court to add a counterclaim against us. The counterclaim alleged that Sunrise REIT failed to conduct a fair sale process when it put itself up for sale in 2006 and that we, as the alleged successor to Sunrise REIT, were responsible for those actions. On July 25, 2008, the District Court granted HCP’s motion to amend its answer to include the counterclaim. HCP sought compensatory and punitive damages. On November 13, 2008, HCP filed a motion requesting permission to amend its counterclaim to assert an additional count for an alleged negligent misrepresentation made by Sunrise REIT for which HCP contended that we, as the alleged successor of Sunrise REIT, were responsible. On December 8, 2008, the District Court granted HCP permission to amend its counterclaim, subject to our right to file a motion challenging all of HCP’s counterclaims on the pleadings. On December 23, 2008, we filed a motion challenging all of HCP’s counterclaims on the pleadings. On March 25, 2009, the District Court granted us judgment on the pleadings against all counterclaims brought by HCP against us and dismissed HCP’s counterclaims with prejudice. On April 8, 2009, HCP filed a motion requesting permission from the District Court to file an amended pleading seeking to restate the counterclaims that the District Court dismissed on March 25, 2009. On May 26, 2009, the District Court denied HCP’s motion for leave to file a second amended counterclaim, confirming the dismissal of HCP’s counterclaims.

On July 16, 2009, the District Court denied HCP’s summary judgment motion as to our claim for tortious interference with business expectation, permitting us to present that claim against HCP at trial. The District Court

 

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granted HCP’s motion for summary judgment as to our claim for tortious interference with contract and dismissed that claim. The District Court also granted in part and denied in part our summary judgment motion to dismiss certain of HCP’s affirmative defenses. The District Court also ruled that we could not seek to recover a portion of our alleged damages.

On September 4, 2009, the jury unanimously held that HCP tortiously interfered with our business expectation to acquire Sunrise REIT at the agreed price by employing significantly wrongful means, which under the District Court’s jury instruction included conduct such as fraudulent misrepresentation, deceit and coercion. The jury awarded us $101.6 million in damages from HCP, which is the full amount of damages the District Court permitted us to seek at trial. On September 8, 2009, the District Court entered judgment on the jury’s verdict, awarding us damages of $101.6 million.

On September 22, 2009, HCP filed various post-trial motions with the District Court, including a motion requesting that the District Court overturn the jury’s verdict and enter judgment for HCP or, in the alternative, award HCP a new trial. This motion is currently pending before the District Court. We intend to contest HCP’s post-trial motions vigorously and believe they have no merit, although there can be no assurance of the outcome of the post-trial motions.

On September 22, 2009, we filed a motion requesting that the District Court award us approximately $20 million in pre-judgment interest and/or modify the award to increase it by approximately $4 million to reflect the currency rates in effect on September 8, 2009, the date of entry of the judgment.

If the District Court upholds the jury’s verdict and denies HCP’s post-trial motions, HCP has indicated that it intends to appeal. We intend to vigorously defend the jury’s verdict in any such appeal and to defend the District Court’s rulings against HCP; however, there can be no assurance of the outcome of any such appeal. In addition, we have the right to appeal or cross-appeal as to certain rulings of the District Court, including those that limited our damages at trial.

On October 7, 2009, the District Court ordered that execution of the judgment against HCP will be stayed, pending resolution of post-trial motions, only if HCP posts a bond or other approved security in the amount of $25 million. HCP posted a $25 million letter of credit in our favor on October 19, 2009. The District Court further ruled that, in the event it upholds the jury’s verdict in the post-trial proceedings, execution of the judgment will be stayed pending appeal only if HCP posts a bond or other approved security in the full amount of the judgment, which is currently $101.6 million.

Other Litigation

We are party to various other lawsuits, investigations and claims (some of which may not be insured) arising in the normal course of our business, including without limitation in connection with the operations of our seniors housing communities managed by Sunrise. It is the opinion of management that, except as set forth in this Note 9, the disposition of these actions, investigations and claims will not, individually or in the aggregate, have a Material Adverse Effect on us. However, we are unable to predict the ultimate outcome of pending litigation, investigations and claims, and if management’s assessment of our liability with respect to these actions, investigations and claims is incorrect, such actions, investigations and claims could have a Material Adverse Effect on us.

NOTE 10 —INCOME TAXES

Certain of our subsidiaries, such as the entities acquired or formed in connection with the Sunrise REIT acquisition, have elected to be treated as taxable REIT subsidiaries (“TRS” or “TRS entities”) and, therefore, are subject to federal and state income taxes. Although the TRS entities were not liable for any cash federal income

 

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taxes for the three- or nine-month periods ended September 30, 2009, federal income taxes of certain of these TRS entities may increase in future years as we exhaust net operating loss carryforwards and as additional seniors housing communities are developed and occupied. Such increases could be significant.

The consolidated provision for income taxes for the three-month periods ended September 30, 2009 and 2008 was a deferred benefit of $0.4 million and $0.4 million, respectively, which was primarily due to the TRS entities. The deferred benefit for the three-month periods ended September 30, 2009 and 2008 was reduced by income tax expense of $0.4 million and $0.6 million, respectively, related to the noncontrolling interest share of net income. The consolidated provision for income taxes for the nine-month periods ended September 30, 2009 and 2008 was a deferred benefit of $1.4 million and $14.2 million, respectively, which was also primarily due to the TRS entities. The deferred benefit for the nine-month periods ended September 30, 2009 and 2008 was reduced by income tax expense of $1.3 million and $1.4 million, respectively, related to the noncontrolling interest share of net income. Realization of a deferred tax benefit is dependent in part upon generating sufficient taxable income in future periods. Our net operating loss carryforwards are currently scheduled to expire in subsequent years through 2028.

Each TRS is a tax paying component for purposes of classifying deferred tax assets and liabilities. Net deferred tax liabilities related to TRS entities totaled $254.6 million and $257.5 million at September 30, 2009 and December 31, 2008, respectively, and related primarily to book and tax basis differences for fixed and intangible assets and to net operating losses.

Generally, we are subject to audit under the statute of limitations by the Internal Revenue Service for the year ended December 31, 2006 and subsequent years and are subject to audit by state taxing authorities for the year ended December 31, 2005 and subsequent years. The potential impact on income tax expense of years open under the statute of limitations for Canadian entities acquired as part of the Sunrise REIT acquisition is not expected to be material.

NOTE 11—CAPITAL STOCK

In April 2009, we filed an automatic shelf registration statement on Form S-3 with the Commission relating to the sale, from time to time, of an indeterminate amount of debt securities and related guarantees, common stock, preferred stock, depositary shares and warrants. The registration statement replaced our previous automatic shelf registration statement, which expired pursuant to the Commission’s rules.

In April 2009, we completed the sale of 13,062,500 shares of our common stock in an underwritten public offering pursuant to the shelf registration statement. We received $299.7 million in net proceeds from the sale, which we used, together with our net proceeds from the sale of the 2016 Notes, to fund our cash tender offers with respect to the outstanding senior notes of the Issuers, to repay debt and for general corporate purposes. See “Note 7—Senior Notes Payable and Other Debt.”

 

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NOTE 12—EARNINGS PER COMMON SHARE

The following table shows the amounts used in computing basic and diluted earnings per common share:

 

     For the Three Months
Ended September 30,
   For the Nine Months
Ended September 30,
     2009    2008    2009    2008
     (In thousands, except per share amounts)

Numerator for basic and diluted earnings per share:

           

Income from continuing operations attributable to common stockholders

   $ 49,685    $ 62,211    $ 141,062    $ 132,559

Discontinued operations

     120      1,555      71,352      32,514
                           

Net income attributable to common stockholders

   $ 49,805    $ 63,766    $ 212,414    $ 165,073
                           

Denominator:

           

Denominator for basic earnings per share—weighted average shares

     156,250      140,759      151,309      138,433

Effect of dilutive securities:

           

Stock options

     171      243      94      272

Restricted stock awards

     95      21      36      23

Convertible notes

     —        118      —        131
                           

Denominator for diluted earnings per share—adjusted weighted average shares

     156,516      141,141      151,439      138,859
                           

Basic earnings per share:

           

Income from continuing operations attributable to common stockholders

   $ 0.32    $ 0.44    $ 0.93    $ 0.96

Discontinued operations

     0.00      0.01      0.47      0.23
                           

Net income attributable to common stockholders

   $ 0.32    $ 0.45    $ 1.40    $ 1.19
                           

Diluted earnings per share:

           

Income from continuing operations attributable to common stockholders

   $ 0.32    $ 0.44    $ 0.93    $ 0.96

Discontinued operations

     0.00      0.01      0.47      0.23
                           

Net income attributable to common stockholders

   $ 0.32    $ 0.45    $ 1.40    $ 1.19
                           

 

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NOTE 13—COMPREHENSIVE INCOME

Comprehensive income is comprised of the following:

 

     For the Three Months
Ended September 30,
    For the Nine Months
Ended September 30,
 
     2009    2008     2009    2008  
     (In thousands)  

Net income

   $ 50,430    $ 64,806      $ 214,582    $ 167,136   

Other comprehensive income:

          

Unrealized loss on interest rate swap

     —        —          —        (600

Foreign currency translation

     13,475      (5,467     20,424      (10,444

Reclassification adjustment for realized loss on interest rate swap included in net income during the period

     —        13        —        1,144   

Unrealized gain (loss) on marketable debt securities

     2,982      (2,542     15,389      (2,681

Other

     34      —          356      —     
                              

Total other comprehensive income (loss)

     16,491      (7,996     36,169      (12,581
                              

Comprehensive income

     66,921      56,810        250,751      154,555   

Less: Income attributable to noncontrolling interest

     625      1,040        2,168      2,063   
                              

Comprehensive income attributable to common stockholders

   $ 66,296    $ 55,770      $ 248,583    $ 152,492   
                              

NOTE 14—SEGMENT INFORMATION

We operate through two reportable business segments: triple-net leased properties and senior living operations. Our triple-net leased properties segment consists of acquiring, financing and owning seniors housing and healthcare properties in the United States and leasing those properties to healthcare operating companies under “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses. Our senior living operations segment consists of investments in seniors housing communities located in the United States and Canada for which we engage Sunrise to manage the operations.

Our MOB segment consists of leasing space primarily to physicians and other healthcare businesses and engaging third parties to manage those operations. Due to our limited operation of and allocation of capital to the MOBs, the MOB segment is not individually reported and is included in “All Other” because it does not meet the quantitative thresholds of disclosure at the current time.

We evaluate performance of the combined properties in each segment based on net operating income from continuing operations before interest (excluding income from loans and investments), income taxes, depreciation and amortization, foreign currency gains/losses, general, administrative and professional fees, merger-related expenses and deal costs, gains/losses on extinguishment of debt and noncontrolling interest. There are no intersegment sales or transfers.

All other revenues consist primarily of rental income related to the MOBs, income from loans and investments and other miscellaneous income.

 

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Summary information by business segment is as follows:

For the three months ended September 30, 2009:

 

     Triple-Net
Leased
Properties
    Senior
Living
Operations
    All
Other
    Total  
     (In thousands)  

Revenues:

        

Rental income

   $ 116,926      $ —        $ 9,076      $ 126,002   

Resident fees and services

     —          106,515        —          106,515   

Income from loans and investments

     —          —          3,214        3,214   

Interest and other income

     44        3        52        99   
                                

Total revenues

   $ 116,970      $ 106,518      $ 12,342      $ 235,830   
                                

Segment net operating income

   $ 116,926      $ 33,384      $ 9,083      $ 159,393   

Interest and other income

     44        3        52        99   

Interest expense

     (21,221     (21,500     (939     (43,660

Depreciation and amortization

     (29,984     (17,174     (3,191     (50,349

General, administrative and professional fees

     —          —          (9,657     (9,657

Loss on extinguishment of debt

     —          (32     —          (32

Merger-related expenses and deal costs

     (11     (5,805     (78     (5,894
                                

Income (loss) before reversal of contingent liability, income taxes, discontinued operations and noncontrolling interest

   $ 65,754      $ (11,124   $ (4,730   $ 49,900   
                                

For the three months ended September 30, 2008:

 

     Triple-Net
Leased
Properties
    Senior
Living
Operations
    All
Other
    Total  
     (In thousands)  

Revenues:

        

Rental income

   $ 114,093      $ —        $ 7,079      $ 121,172   

Resident fees and services

     —          108,610        —          108,610   

Income from loans and investments

     —          —          3,426        3,426   

Interest and other income

     1,466        40        407        1,913   
                                

Total revenues

   $ 115,559      $ 108,650      $ 10,912      $ 235,121   
                                

Segment net operating income

   $ 114,093      $ 35,206      $ 2,211      $ 151,510   

Interest and other income

     1,466        40        407        1,913   

Interest expense

     (26,290     (23,493     (962     (50,745

Depreciation and amortization

     (29,876     (18,035     (2,086     (49,997

General, administrative and professional fees

     —          —          (11,626     (11,626

Foreign currency gain

     —          45        —          45   

Loss on extinguishment of debt

     (344     —          —          (344

Merger-related expenses and deal costs

     —          (1,248     —          (1,248
                                

Income (loss) before reversal of contingent liability, income taxes, discontinued operations and noncontrolling interest

   $ 59,049      $ (7,485   $ (12,056   $ 39,508   
                                

 

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For the nine months ended September 30, 2009:

 

     Triple-Net
Leased
Properties
    Senior
Living
Operations
    All
Other
    Total  
     (In thousands)  

Revenues:

        

Rental income

   $ 348,278      $ —        $ 25,806      $ 374,084   

Resident fees and services

     —          312,853        —          312,853   

Income from loans and investments

     —          —          9,828        9,828   

Interest and other income

     209        12        272        493   
                                

Total revenues

   $ 348,487      $ 312,865      $ 35,906      $ 697,258   
                                

Segment net operating income

   $ 348,278      $ 97,726      $ 26,391      $ 472,395   

Interest and other income

     209        12        272        493   

Interest expense

     (64,203     (66,851     (2,888     (133,942

Depreciation and amortization

     (90,032     (50,112     (8,753     (148,897

General, administrative and professional fees

     —          —          (30,610     (30,610

Foreign currency loss

     —          (31     —          (31

Loss on extinguishment of debt

     (6,012     —          (68     (6,080

Merger-related expenses and deal costs

     (185     (11,160     (105     (11,450
                                

Income (loss) before reversal of contingent liability, income taxes, discontinued operations and noncontrolling interest

   $ 188,055      $ (30,416   $ (15,761   $ 141,878   
                                

For the nine months ended September 30, 2008:

 

     Triple-Net
Leased
Properties
    Senior
Living
Operations
    All
Other
    Total  
     (In thousands)  

Revenues:

        

Rental income

   $ 339,515      $ —        $ 19,378      $ 358,893   

Resident fees and services

     —          323,648        —          323,648   

Income from loans and investments

     —          —          5,373        5,373   

Interest and other income

     2,057        306        1,166        3,529   
                                

Total revenues

   $ 341,572      $ 323,954      $ 25,917      $ 691,443   
                                

Segment net operating income

   $ 339,515      $ 106,655      $ 11,247      $ 457,417   

Interest and other income

     2,057        306        1,166        3,529   

Interest expense

     (79,839     (71,479     (2,609     (153,927

Depreciation and amortization

     (90,154     (81,099     (5,707     (176,960

General, administrative and professional fees

     —          —          (29,493     (29,493

Foreign currency gain

     —          151        —          151   

(Loss) gain on extinguishment of debt

     (539     79        —          (460

Merger-related expenses and deal costs

     —          (3,128     —          (3,128
                                

Income (loss) before reversal of contingent liability, income taxes, discontinued operations and noncontrolling interest

   $ 171,040      $ (48,515   $ (25,396   $ 97,129   
                                

 

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     For the Three Months
Ended September 30,
   For the Nine Months
Ended September 30,
     2009    2008    2009     2008
     (In thousands)

Capital expenditures:

          

Triple-net leased properties

   $ 101    $ 6,263    $ 10,249 (1)    $ 11,363

Senior living operations

     2,762      4,813      5,361        7,304

All other expenditures

     4,663      37,545      24,597        40,794
                            

Total capital expenditures

   $ 7,526    $ 48,621    $ 40,207      $ 59,461
                            

 

(1) Includes $9.3 million from funds held in an Internal Revenue Code Section 1031 exchange escrow account with a qualified intermediary.

Our portfolio of properties and real estate investments are located in the United States and Canada. Revenues are attributed to an individual country based on the location of each property.

Geographic information regarding our business segments is as follows:

 

     For the Three Months
Ended September 30,
   For the Nine Months
Ended September 30,
     2009    2008    2009    2008
     (In thousands)

Revenues:

           

United States

   $ 216,679    $ 215,383    $ 643,852    $ 633,240

Canada

     19,151      19,738      53,406      58,203
                           

Total revenues

   $ 235,830    $ 235,121    $ 697,258    $ 691,443
                           

 

     September 30,
2009
   December 31,
2008
     (In thousands)

Long-lived assets:

     

United States

   $ 4,665,068    $ 4,729,379

Canada

     415,459      443,560
             

Total long-lived assets

   $ 5,080,527    $ 5,172,939
             

NOTE 15—CONDENSED CONSOLIDATING INFORMATION

We and certain of our direct and indirect wholly owned subsidiaries (the “Subsidiary Guarantors”) have fully and unconditionally guaranteed, on a joint and several basis, the obligation to pay principal and interest with respect to the outstanding senior notes of the Issuers. Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offering of the senior notes and has no assets or operations. In addition, Ventas Realty and the Subsidiary Guarantors have fully and unconditionally guaranteed, on a joint and several basis, the obligation to pay principal and interest with respect to our outstanding convertible senior notes. In April 2009, ElderTrust Operating Limited Partnership (“ETOP”), of which we owned substantially all of the partnership units, was liquidated and dissolved. Accordingly, the financial results of ETOP and its direct and indirect wholly owned subsidiaries are no longer separately reported but are now included among the Subsidiary Guarantors. We have other subsidiaries (“Non-Guarantor Subsidiaries”) that are not included among the Subsidiary Guarantors, and such subsidiaries are not obligated with respect to the senior notes or the senior convertible notes. Contractual and legal restrictions, including those contained in the instruments governing certain Non-Guarantor Subsidiaries’ outstanding indebtedness, may under certain circumstances restrict our ability to obtain cash from our Non-Guarantor Subsidiaries for the purpose of meeting our debt service obligations, including our guarantee of payment of principal and interest on the senior notes and our primary obligation to pay principal and interest on the convertible senior notes. Certain of our real estate assets are also subject to mortgages. The following summarizes our condensed consolidating information as of September 30, 2009 and December 31, 2008 and for the three- and nine-month periods ended September 30, 2009 and 2008:

 

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CONDENSED CONSOLIDATING BALANCE SHEET

As of September 30, 2009

 

     Ventas, Inc.     Wholly
Owned
Subsidiary
Guarantors
   Issuers     Non-
Guarantor
Subsidiaries
   Consolidated
Elimination
    Consolidated
     (In thousands)

Assets

              

Net real estate investments

   $ 9,658      $ 2,181,855    $ 779,461      $ 2,234,963    $ —        $ 5,205,937

Cash and cash equivalents

     —          5,448      17,968        47,473      —          70,889

Escrow deposits and restricted cash

     215        9,509      67,225        19,528      —          96,477

Deferred financing costs, net

     1,336        1,462      14,647        10,359      —          27,804

Investment in and advances to affiliates

     1,169,788        —        1,238,007        —        (2,407,795     —  

Other

     19        66,690      86,532        32,962      —          186,203
                                            

Total assets

   $ 1,181,016      $ 2,264,964    $ 2,203,840      $ 2,345,285    $ (2,407,795   $ 5,587,310
                                            

Liabilities and equity

              

Liabilities:

              

Senior notes payable and other debt

   $ 219,810      $ 372,881    $ 888,015      $ 1,134,436    $ —        $ 2,615,142

Intercompany loans

     (44,737     464,137      (419,400     —        —          —  

Deferred revenue

     5        495      2,371        1,757      —          4,628

Accrued interest

     (2,585     4,137      28,731        5,198      —          35,481

Accounts payable and other accrued liabilities

     15,130        61,113      37,387        61,495      —          175,125

Deferred income taxes

     254,622        —        —          —        —          254,622
                                            

Total liabilities

     442,245        902,763      537,104        1,202,886      —          3,084,998

Total equity

     738,771        1,362,201      1,666,736        1,142,399      (2,407,795     2,502,312
                                            

Total liabilities and equity

   $ 1,181,016      $ 2,264,964    $ 2,203,840      $ 2,345,285    $ (2,407,795   $ 5,587,310
                                            

 

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CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2008

 

     Ventas, Inc.     Wholly
Owned
Subsidiary
Guarantors
   Issuers     Non-
Guarantor
Subsidiaries
   Consolidated
Elimination
    Consolidated
     (In thousands)

Assets

              

Net real estate investments

   $ 10,144      $ 2,220,757    $ 812,954      $ 2,252,373    $ —        $ 5,296,228

Cash and cash equivalents

     —          10,325      144,918        21,569      —          176,812

Escrow deposits and restricted cash

     216        9,792      19,555        26,303      —          55,866

Deferred financing costs, net

     1,752        687      11,243        8,350      —          22,032

Investment in and advances to affiliates

     1,170,475        9,039      1,119,378        —        (2,298,892     —  

Other

     11        58,998      84,612        76,859      —          220,480
                                            

Total assets

   $ 1,182,598      $ 2,309,598    $ 2,192,660      $ 2,385,454    $ (2,298,892   $ 5,771,418
                                            

Liabilities and equity

              

Liabilities:

              

Senior notes payable and other debt

   $ 216,518      $ 496,174    $ 1,351,526      $ 1,072,780    $ —        $ 3,136,998

Intercompany loans

     (940     488,555      (513,602     25,987      —          —  

Deferred revenue

     11        554      3,617        2,875      —          7,057

Accrued interest

     —          1,928      15,721        4,282      —          21,931

Accounts payable and other accrued liabilities

     12,578        68,272      26,019        61,329      —          168,198

Deferred income taxes

     257,499        —        —          —        —          257,499
                                            

Total liabilities

     485,666        1,055,483      883,281        1,167,253      —          3,591,683

Total equity

     696,932        1,254,115      1,309,379        1,218,201      (2,298,892     2,179,735
                                            

Total liabilities and equity

   $ 1,182,598      $ 2,309,598    $ 2,192,660      $ 2,385,454    $ (2,298,892   $ 5,771,418
                                            

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the Three Months Ended September 30, 2009

 

     Ventas, Inc.     Wholly
Owned
Subsidiary
Guarantors
    Issuers     Non-
Guarantor
Subsidiaries
   Consolidated
Elimination
    Consolidated
     (In thousands)

Revenues:

             

Rental income

   $ 593      $ 40,978      $ 69,591      $ 14,840    $ —        $ 126,002

Resident fees and services

     —          27,813        —          78,702      —          106,515

Income from loans and investments

     —          —          3,214        —        —          3,214

Equity earnings in affiliates

     49,103        446        —          —        (49,549     —  

Interest and other income

     —          1        92        6      —          99
                                             

Total revenues

     49,696        69,238        72,897        93,548      (49,549     235,830

Expenses:

             

Interest

     1,078        5,667        20,668        16,247      —          43,660

Depreciation and amortization

     164        21,481        10,079        18,625      —          50,349

Property-level operating expenses

     —          20,613        125        55,600      —          76,338

General, administrative and professional fees

     (12     3,609        4,747        1,313      —          9,657

Foreign currency (gain) loss

     (49     47        26        8      —          32

Merger-related expenses and deal costs

     —          5,804        90        —        —          5,894

Intercompany interest

     (880     8,201        (7,321     —        —          —  
                                             

Total expenses

     301        65,422        28,414        91,793      —          185,930
                                             

Income before income taxes, discontinued operations and noncontrolling interest

     49,395        3,816        44,483        1,755      (49,549     49,900

Income tax benefit

     410        —          —          —        —          410
                                             

Income from continuing operations

     49,805        3,816        44,483        1,755      (49,549     50,310

Discontinued operations

     —          —          120        —        —          120
                                             

Net income

     49,805        3,816        44,603        1,755      (49,549     50,430

Net (loss) income attributable to noncontrolling interest, net of tax

     —          (387     —          1,012      —          625
                                             

Net income attributable to common stockholders

   $ 49,805      $ 4,203      $ 44,603      $ 743    $ (49,549   $ 49,805
                                             

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the Three Months Ended September 30, 2008

 

     Ventas, Inc.     Wholly
Owned
Subsidiary
Guarantors
    Issuers     Non-
Guarantor
Subsidiaries
    Consolidated
Elimination
    Consolidated  
     (In thousands)  

Revenues:

            

Rental income

   $ 577      $ 40,337      $ 67,667      $ 12,591      $ —        $ 121,172   

Resident fees and services

     —          28,808        —          79,802        —          108,610   

Income from loans and investments

     —          —          3,426        —          —          3,426   

Equity earnings in affiliates

     42,111        1,373        —          —          (43,484     —     

Interest and other income

     19        21        1,817        56        —          1,913   
                                                

Total revenues

     42,707        70,539        72,910        92,449        (43,484     235,121   

Expenses:

            

Interest

     970        9,342        26,798        13,635        —          50,745   

Depreciation and amortization

     162        22,647        9,985        17,203        —          49,997   

Property-level operating expenses

     —          19,970        6,091        55,637        —          81,698   

General, administrative and professional fees

     1,548        3,379        5,737        962        —          11,626   

Foreign currency loss (gain)

     8        (53     —          —          —          (45

Loss (gain) on extinguishment of debt

     —          2        344        (2     —          344   

Merger-related expenses and deal costs

     —          1,248        —          —          —          1,248   

Intercompany interest

     (4     12,066        (12,307     245        —          —     
                                                

Total expenses

     2,684        68,601        36,648        87,680        —          195,613   
                                                

Income before reversal of contingent liability, income taxes, discontinued operations and noncontrolling interest

     40,023        1,938        36,262        4,769        (43,484     39,508   

Reversal of contingent liability

     23,328        —          —          —          —          23,328   

Income tax benefit

     415        —          —          —          —          415   
                                                

Income from continuing operations

     63,766        1,938        36,262        4,769        (43,484     63,251   

Discontinued operations

     —          (4     1,219        340        —          1,555   
                                                

Net income

     63,766        1,934        37,481        5,109        (43,484     64,806   

Net (loss) income attributable to noncontrolling interest, net of tax

     —          (582     —          1,622        —          1,040   
                                                

Net income attributable to common stockholders

   $ 63,766      $ 2,516      $ 37,481      $ 3,487      $ (43,484   $ 63,766   
                                                

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the Nine Months Ended September 30, 2009

 

     Ventas, Inc.     Wholly
Owned
Subsidiary
Guarantors
    Issuers     Non-
Guarantor
Subsidiaries
    Consolidated
Elimination
    Consolidated
     (In thousands)

Revenues:

            

Rental income

   $ 1,758      $ 118,433      $ 206,451      $ 47,442      $ —        $ 374,084

Resident fees and services

     —          80,569        —          232,284        —          312,853

Income from loans and investments

     —          —          9,828        —          —          9,828

Equity earnings in affiliates

     210,663        1,857        —          —          (212,520     —  

Interest and other income

     —          (4     470        27        —          493
                                              

Total revenues

     212,421        200,855        216,749        279,753        (212,520     697,258

Expenses:

            

Interest

     3,219        16,894        68,086        45,743        —          133,942

Depreciation and amortization

     488        61,892        30,332        56,185        —          148,897

Property-level operating expenses

     —          58,533        359        165,478        —          224,370

General, administrative and professional fees

     77        11,233        15,573        3,727        —          30,610

Foreign currency (gain) loss

     (44     59        18        (2     —          31

Loss on extinguishment of debt

     —          —          6,012        68        —          6,080

Merger-related expenses and deal costs

     —          11,155        295        —          —          11,450

Intercompany interest

     (2,381     30,114        (27,735     2        —          —  
                                              

Total expenses

     1,359        189,880        92,940        271,201        —          555,380
                                              

Income before income taxes, discontinued operations and noncontrolling interest

     211,062        10,975        123,809        8,552        (212,520     141,878

Income tax benefit

     1,352        —          —          —          —          1,352
                                              

Income from continuing operations

     212,414        10,975        123,809        8,552        (212,520     143,230

Discontinued operations

     —          (1,866     61,857        11,361        —          71,352
                                              

Net income

     212,414        9,109        185,666        19,913        (212,520     214,582

Net (loss) income attributable to noncontrolling interest, net of tax

     —          (1,302     —          3,470        —          2,168
                                              

Net income attributable to common stockholders

   $ 212,414      $ 10,411      $ 185,666      $ 16,443      $ (212,520   $ 212,414
                                              

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the Nine Months Ended September 30, 2008

 

     Ventas, Inc.     Wholly
Owned
Subsidiary
Guarantors
    Issuers     Non-
Guarantor
Subsidiaries
    Consolidated
Elimination
    Consolidated  
     (In thousands)  

Revenues:

            

Rental income

   $ 1,718      $ 113,604      $ 201,109      $ 42,462      $ —        $ 358,893   

Resident fees and services

     —          85,892        —          237,756        —          323,648   

Income from loans and investments

     —          —          5,373        —          —          5,373   

Equity earnings in affiliates

     133,497        4,156        —          —          (137,653     —     

Interest and other income

     56        157        3,029        287        —          3,529   
                                                

Total revenues

     135,271        203,809        209,511        280,505        (137,653     691,443   

Expenses:

            

Interest

     2,839        27,019        81,046        43,023        —          153,927   

Depreciation and amortization

     486        71,434        30,614        74,426        —          176,960   

Property-level operating expenses

     —          58,555        6,387        165,555        —          230,497   

General, administrative and professional fees

     4,514        9,948        11,901        3,130        —          29,493   

Foreign currency gain

     (1     (89     —          (61     —          (151

Loss (gain) on extinguishment of debt

     —          31        537        (108     —          460   

Merger-related expenses and deal costs

     —          3,128        —          —          —          3,128   

Intercompany interest

     (146     36,223        (36,779     702        —          —     
                                                

Total expenses

     7,692        206,249        93,706        286,667        —          594,314   
                                                

Income (loss) before reversal of contingent liability, income taxes, discontinued operations and noncontrolling interest

     127,579        (2,440     115,805        (6,162     (137,653     97,129   

Reversal of contingent liability

     23,328        —          —          —          —          23,328   

Income tax benefit

     14,165        —          —          —          —          14,165   
                                                

Income (loss) from continuing operations

     165,072        (2,440     115,805        (6,162     (137,653     134,622   

Discontinued operations

     —          39        31,669        806        —          32,514   
                                                

Net income (loss)

     165,072        (2,401     147,474        (5,356     (137,653     167,136   

Net (loss) income attributable to noncontrolling interest, net of tax

     —          (1,487     —          3,550        —          2,063   
                                                

Net income (loss) attributable to common stockholders

   $ 165,072      $ (914   $ 147,474      $ (8,906   $ (137,653   $ 165,073   
                                                

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2009

 

     Ventas, Inc.     Wholly
Owned
Subsidiary
Guarantors
    Issuers     Non-
Guarantor
Subsidiaries
    Consolidated
Elimination
   Consolidated  
     (In thousands)  

Net cash provided by operating activities

   $ 1,173      $ 70,485      $ 189,744      $ 61,795      $ —      $ 323,197   

Net cash provided by (used in) investing activities

     —          58,047        35,854        (27,717     —        66,184   

Cash flows from financing activities:

             

Net change in borrowings under revolving credit facilities

     —          (41,216     (250,240     —          —        (291,456

Proceeds from debt

     —          —          166,000        138,202        —        304,202   

Repayment of debt

     —          (89,836     (411,473     (53,981     —        (555,290

Net change in intercompany debt

     (43,797     (11,769     78,856        (23,290     —        —     

Payment of deferred financing costs

     —          (986     (8,840     (3,596     —        (13,422

Issuance of common stock, net

     299,201        —          —          —          —        299,201   

Cash distribution (to) from affiliates

     (24,494     10,777        72,744        (59,027     —        —     

Cash distribution to common stockholders

     (234,086     —          —          —          —        (234,086

Contributions from noncontrolling interest

     —          —          —          635        —        635   

Distributions to noncontrolling interest

     —          (379     —          (7,117     —        (7,496

Other

     2,003        —          —          —          —        2,003   
                                               

Net cash used in financing activities

     (1,173     (133,409     (352,953     (8,174     —        (495,709
                                               

Net (decrease) increase in cash and cash equivalents

     —          (4,877     (127,355     25,904        —        (106,328

Effect of foreign currency translation on cash and cash equivalents

     —          —          405        —          —        405   

Cash and cash equivalents at beginning of period

     —          10,325        144,918        21,569        —        176,812   
                                               

Cash and cash equivalents at end of period

   $ —        $ 5,448      $ 17,968      $ 47,473      $ —      $ 70,889   
                                               

 

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2008

 

     Ventas, Inc.     Wholly
Owned
Subsidiary
Guarantors
    Issuers     Non-
Guarantor
Subsidiaries
    Consolidated
Elimination
   Consolidated  
     (In thousands)  

Net cash (used in) provided by operating activities

   $ (7,016   $ 49,527      $ 138,825      $ 120,472      $ —      $ 301,808   

Net cash used in investing activities

     (52     (34,708     (109,480     (18,904     —        (163,144

Cash flows from financing activities:

             

Net change in borrowings under revolving credit facilities

     —          (22,916     (149,300     —          —        (172,216

Proceeds from debt

     —          —          —          10,359        —        10,359   

Repayment of debt

     —          (51,102     (18,508     (13,536     —        (83,146

Net change in intercompany debt

     43,636        (37,984     (2,333     (3,319     —        —     

Payment of deferred financing costs

     —          (632     (395     372        —        (655

Issuance of common stock, net

     408,540        —          —          —          —        408,540   

Cash distribution (to) from affiliates

     (236,703     111,223        224,961        (99,481     —        —     

Cash distribution to common stockholders

     (215,357     (24     —          —          —        (215,381

Distributions to noncontrolling interest

     —          —          —          (5,332     —        (5,332

Other

     6,952        (1,332     —          1,332        —        6,952   
                                               

Net cash provided by (used in) financing activities

     7,068        (2,767     54,425        (109,605     —        (50,879
                                               

Net increase (decrease) in cash and cash equivalents

     —          12,052        83,770        (8,037     —        87,785   

Effect of foreign currency translation on cash and cash equivalents

     —          —          (196     —          —        (196

Cash and cash equivalents at beginning of period

     —          6,040        494        21,800        —        28,334   
                                               

Cash and cash equivalents at end of period

   $ —        $ 18,092      $ 84,068      $ 13,763      $ —      $ 115,923   
                                               

 

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Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statements

Unless otherwise indicated or except where the context otherwise requires, the terms “we,” “us” and “our” and other similar terms in this Quarterly Report on Form 10-Q refer to Ventas, Inc. and its consolidated subsidiaries.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements regarding our or our 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, 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. These forward-looking statements are inherently uncertain, and security holders must recognize that actual results may differ from our expectations. We do not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made.

Our actual future results and trends may differ materially depending on a variety of factors discussed in our filings with the Securities and Exchange Commission (the “Commission”). These factors include without limitation:

 

   

The ability and willingness of our operators, tenants, borrowers, managers and other third parties to meet and/or perform the obligations under their respective contractual arrangements with us, including, in some cases, their obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities;

 

   

The ability of our operators, tenants, 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;

 

   

Our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate and integrate diversifying acquisitions or investments, including those in different asset types and outside the United States;

 

   

The nature and extent of future competition;