01—Abstract
Summary
Summary of the 10-K filed March 31, 1999. Cited figures are marked; the original filing is the authoritative source.
Ventas, Inc. (then named Ventas, Inc., ticker VTR on the NYSE) is a real estate company that owns or leases 45 hospitals, 219 nursing centers and eight personal care facilities in 36 states as of December 31, 1998.
Substantially all of its rental income comes from Vencor, Inc., its primary tenant, which leases the properties under four triple-net Master Lease Agreements. For the eight months ended December 31, 1998, Vencor accounted for approximately 98.7% of revenues. The company reported rental income of $149.9 milliona, net income of $26.8 million ($0.39 per diluted share), and total assets of $959.7 million, against stockholders' equity deficit of $(9.0) million at year-end 1998.
The company intends to operate as a REIT beginning January 1, 1999. The filing discloses substantial doubt about the company's ability to continue as a going concern. The auditors cite Vencor's financial difficulties, including covenant violations, a waiver of covenants through March 31, 1999, and the $275 millionb bridge loan due October 30, 1999.
Vencor has requested interim rent concessions, which the company rejected. The company agreed not to exercise remedies for non-payment of rent due April 1, 1999, through April 12, 1999. It has suspended its original diversification strategy and retained Merrill Lynch as financial advisor to review Vencor's condition and refinancing alternatives.
Vencor has also asserted potential claims against the company arising from the 1998 reorganization, which the company intends to contest. For investors, the central issues are the dependence on Vencor's rent payments, the going-concern qualification, and the refinancing of the $275 millionc loan. The company had $65.8 million in cash and overnight investments as of March 19, 1999, and a $202.7 million revolving credit balance outstanding with $47.3 million available as of that date.
02—Key points
Key Highlights
- Rental income of $149.9 million for the eight months ended December 31, 1998, of which $147.9 million came from Vencor leases.
- Vencor accounted for approximately 98.7% of revenues; the four Master Leases are triple-net with base annual rent of about $221.5 million plus a 2% escalator.
- Auditors included a going-concern explanatory paragraph, citing Vencor's financial condition and a $275 million bridge loan due October 30, 1999.
- Net income of $26.8 million, or $0.39 per diluted share, including an $8.1 million after-tax extraordinary loss on debt extinguishment.
- Total assets of $959.7 million and a stockholders' equity deficit of $(9.0) million at December 31, 1998.
- Company rejected Vencor's request for interim rent concessions and agreed not to pursue rent-default remedies for the April 1, 1999 payment through April 12, 1999.
- Cash and overnight investments of $65.8 million as of March 19, 1999; the company plans to pay down or refinance the remaining $275 million loan.
03—Questions
Frequently Asked Questions
Why is there substantial doubt about the company's ability to continue as a going concern?
Auditors cited Vencor's operating results, its level of indebtedness, and reduced reimbursement rates, which could impair Vencor's ability to pay rent. They also noted Vencor's covenant waiver runs only through March 31, 1999, and the company's $275 million bridge loan due October 30, 1999 must be extended, refinanced or repaid.
How dependent is the company on Vencor?
Very dependent. Vencor accounted for approximately 98.7% of revenues for the eight months ended December 31, 1998, and the company's ability to service debt and pay distributions depends on Vencor's rent payments under the Master Leases.
How will the company address the $275 million loan due October 30, 1999?
The company, with Merrill Lynch, is reviewing alternatives including cash flow from operations, available revolving credit borrowings, public or private debt or equity issuance, and asset sales, or a combination. The filing states there can be no assurance these efforts will succeed.
What is the company's status regarding REIT election?
The company intends to be taxed as a REIT beginning with its taxable year starting January 1, 1999, and paid its first dividend of $0.39 per share, declared January 13, 1999. Qualification depends on meeting ongoing distribution and income tests, and the filing notes there is no assurance it will meet them.
What claims could Vencor bring against the company?
Vencor has asserted various potential claims arising out of the 1998 Reorganization, including questions about potential fraudulent conveyance issues. The company intends to vigorously defend any such claims if they are asserted in a legal or mediation proceeding, and says that if the claims prevailed they could materially affect results and its ability to pay dividends.
04—Continue