01—Abstract
Summary
Summary of the 10-K filed February 27, 2004. Cited figures are marked; the original filing is the authoritative source.
Ventas, Inc. (NYSE: VTR) is a healthcare real estate investment trust that owns 42 hospitals, 194 nursing facilities and nine other healthcare and senior housing facilities in 37 states as of December 31, 2003.
Kindred Healthcare, Inc. leased 186 of its nursing facilities and all but one of its hospitals, and Kindred accounted for approximately 94.3% of total real estate revenues in 2003. Rental income was $191.2 milliona in 2003, up from $176.0 million in 2002, and net income was $162.8 million, or $2.03 per diluted share, including $66.0 million from discontinued operations. Net cash provided by operating activities was $137.4 million.
The balance sheet shows total assets of $812.9 millionb and Senior Notes payable and other debt of $640.6 million at year-end 2003, down from $707.7 million in 2002. During 2003 the company sold 16 skilled nursing facilities to Kindred for $59.7 million in gross proceeds, sold ten facilities to Kindred in December for $79 million in gross proceeds, prepaid the United States Settlement in full, and disposed of its remaining Kindred Common Stock. Dividends declared were $1.07 per share for 2003, and the company expects to distribute 100% or more of its taxable income for 2004.
Subsequent to year-end, Ventas completed the ElderTrust merger on February 5, 2004 for an all-cash transaction valued at $184 millionc, and agreed to acquire 14 independent and assisted living facilities from Brookdale for $115 million, with seven acquired as of February 26, 2004. Investors should weigh the concentration of revenue in Kindred, the company's dependence on Kindred's ability to meet its lease obligations, and the variable-rate exposure hedged through interest rate swaps.
02—Key points
Key Highlights
- Rental income of $191.2 million in 2003 versus $176.0 million in 2002, with the filing citing a 3.5% annual rent escalator and $8.6 million of added annualized rent from July 2003 facility amendments.
- Net income of $162.8 million ($2.03 per diluted share) in 2003, including a $20.2 million reversal of a contingent liability and $66.0 million from discontinued operations, mainly property sale gains.
- Kindred accounted for approximately 94.3% of total real estate revenues in 2003, creating significant tenant concentration risk.
- Senior Notes payable and other debt fell to $640.6 million at December 31, 2003 from $707.7 million, and $261.8 million of revolving credit availability remained under the 2002 Credit Agreement.
- Dividends declared of $1.07 per share in 2003 versus $0.95 in 2002; the first 2004 quarterly dividend was $0.325 per share.
- ElderTrust merger completed February 5, 2004 for $184 million, adding nine assisted living, one independent living, five skilled nursing, and three office facilities.
- Brookdale transaction to acquire 14 independent and assisted living facilities for $115 million, with seven acquired by February 26, 2004.
03—Questions
Frequently Asked Questions
How dependent is Ventas on Kindred Healthcare?
Very dependent. Kindred leases 186 nursing facilities and all but one hospital, and accounted for approximately 94.3% of 2003 total real estate revenues. The filing states that Kindred's inability or unwillingness to satisfy its lease obligations could have a Material Adverse Effect on the company, including its ability to maintain REIT status.
What drove the increase in 2003 net income?
Net income rose to $162.8 million from $65.7 million. Key contributors were $66.0 million of discontinued operations (largely gains on property sales to Kindred), a $20.2 million reversal of a previously recorded contingent liability, and $9.0 million of gain on the sale of Kindred Common Stock, partly offset by a $5.2 million net loss on swap breakage.
How is the company financed and what debt does it carry?
At December 31, 2003, total debt was $640.6 million, consisting of the CMBS Loan ($215.4 million), Senior Notes due 2009 and 2012 ($174.2 million and $191.8 million principal outstanding), and the Tranche B Term Loan ($59.1 million). The revolving credit facility had no balance, leaving $261.8 million available. Floating-rate exposure is hedged through an interest rate swap on $330 million notional.
What are the main near-term acquisitions and their funding?
The ElderTrust merger closed February 5, 2004 for $184 million, funded with $101 million of equity from cash on ElderTrust's balance sheet, proceeds from the December 2003 Kindred sale, and revolver draws, and subject to about $83 million of property-level debt. The Brookdale acquisitions total $115 million, expected to be funded by assuming about $41 million of non-recourse debt plus cash and revolver draws.
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