01—Abstract
Summary
Summary of the 10-K filed February 29, 2008. Cited figures are marked; the original filing is the authoritative source.
Ventas, Inc. (VTR), a REIT, reported that as of December 31, 2007 it owned 519 seniors housing and healthcare-related assets (253 seniors housing communities, 197 skilled nursing facilities, 42 hospitals and 27 medical office and other properties) in 43 states and two Canadian provinces.
Total revenues for 2007 were $771.8 milliona, up from $415.9 million in 2006, driven largely by the April 26, 2007 acquisition of Sunrise Senior Living Real Estate Investment Trust for approximately $2.0 billion including assumed debt. The filing states that resident fees and services from Sunrise-managed communities contributed $282.2 million for the period from April 26 through December 31, 2007. Net income applicable to common shares was $277.1 million, compared with $131.4 million in 2006, and included $135.6 million from discontinued operations, mainly a $129.5 million gain on sale of real estate tied to the sale of 22 properties to Kindred.
Concentration risk is significant. Kindred Healthcare accounted for 30.8% of 2007 total revenues and Brookdale Senior Living for 15.7%, while Sunrise-managed properties produced 36.2% of total revenues. Total indebtedness was approximately $3.4 billionb at year-end, and the company's Funds From Operations (FFO) applicable to common shares was $377.7 million for 2007 versus $249.7 million in 2006.
Management reported that internal control over financial reporting was effective, excluding the Sunrise Properties, which represented 38.1%c of net assets and 36.6% of total revenues. The filing also flags uncertainty around Sunrise, which has not been timely filing its own reports and is exploring strategic alternatives including a possible sale.
For investors, the key issues are the dependence on a few operators, the operational exposure created by moving into managed senior living through the Sunrise acquisition, and the REIT distribution requirements. The company declared $1.90d per share in dividends for 2007 and a first-quarter 2008 dividend of $0.5125 per share.
02—Key points
Key Highlights
- Total revenues of $771.8 million in 2007, up from $415.9 million in 2006, reflecting the Sunrise REIT acquisition, which added $282.2 million of resident fees and services from April 26 through December 31, 2007.
- Net income applicable to common shares of $277.1 million in 2007 versus $131.4 million in 2006, including $135.6 million from discontinued operations driven by a $129.5 million gain on sale of real estate.
- Portfolio of 519 assets at December 31, 2007, across 43 states and two Canadian provinces, including 77 seniors housing communities acquired from Sunrise REIT.
- Concentrated tenant exposure: Kindred Healthcare (30.8% of 2007 total revenues) and Brookdale Senior Living (15.7%), with Sunrise-managed properties contributing 36.2%.
- Total indebtedness of approximately $3.4 billion at December 31, 2007, with senior notes payable and other debt of $3.36 billion on the balance sheet.
- FFO applicable to common shares of $377.7 million in 2007 versus $249.7 million in 2006, per the company's non-GAAP reconciliation.
- Dividends declared of $1.90 per share for 2007 and a first-quarter 2008 dividend of $0.5125 per share, with the company expecting to distribute 100% or more of 2008 taxable net income.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 29, 2008Financial Statements
| Revenue | $746.70M |
| Operating Expenses | $636.34M |
| Interest Expense | $196.66M |
| Net Income | $280.58M |
| EPS (Basic) | $2.23 |
| EPS (Diluted) | $2.22 |
| Shares Outstanding (Basic) | 122.60M |
| Shares Outstanding (Diluted) | 123.01M |
05—Questions
Frequently Asked Questions
What was the main driver of the revenue increase in 2007?
The filing attributes the increase mainly to the April 26, 2007 acquisition of Sunrise REIT. It added $282.2 million of resident fees and services from April 26 through December 31, 2007, and rental income rose to $484.0 million from $405.9 million, with the filing citing Kindred Master Lease escalators and full-year effects of 2006 acquisitions.
How much of the company's revenue depends on Kindred and Brookdale?
For 2007, Kindred accounted for 30.8% of total revenues ($240.6 million) and Brookdale Senior Living accounted for 15.7% ($122.8 million). The filing states that their financial condition and willingness to renew leases will significantly affect revenues and the company's ability to service debt and make distributions.
What risks does the Sunrise relationship create?
Sunrise manages 79 of the company's seniors housing communities under long-term management agreements, and the company relies on Sunrise for operations and accurate property-level financial results. The filing notes Sunrise has not been timely filing its required reports, is facing legal, accounting and regulatory difficulties, and may be delisted from the NYSE if it fails to file its 2006 Form 10-K by March 17, 2008.
How leveraged is the company and how did it finance the Sunrise acquisition?
Total indebtedness was approximately $3.4 billion at December 31, 2007. The Sunrise acquisition was funded through $530.0 million of senior interim loan borrowings, a Series A Senior Preferred Stock issuance of 700,000 shares, and assumption of $861.1 million of existing mortgage debt. The company then sold 26,910,000 common shares in May 2007 for $1.05 billion in net proceeds, which were used to redeem the preferred stock and repay the interim loan.
Does the company remain a REIT, and what constrains its distributions?
The company states it has elected REIT status since 1999 and intends to remain qualified, which requires distributing at least 90% of REIT taxable income. The filing notes that a Sunrise REIT structure, former C corporation built-in gains tax exposure through December 31, 2008, and the Provident-related exposure to Brookdale properties could create corporate-level taxes or jeopardize REIT status if the company fails to meet qualification tests.
06—Continue