Ventas Inc. (VTR), a leading healthcare real estate investment trust (REIT), reported fourth quarter 2010 funds from operations (FFO) of $108.3 million or 68 cents per share, compared to $104.0 million or 66 cents in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and other non-cash expenses to net income.

Excluding the non-recurring items, FFO for fourth quarter 2010 was $121.4 million or 77 cents per share compared to $104.8 million or 67 cents in the year-ago quarter. The recurring FFO per share for the quarter beat the Zacks Consensus Estimate by 2 cents.

The increase in year-over-year FFO was primarily due to rental increases from its triple-net lease portfolio, and higher Net Operating Income (NOI) from its senior living and medical office building (MOB) operating portfolios, partially offset by higher weighted average diluted shares outstanding during the quarter.

For full year 2010, Ventas reported FFO of $421.5 million or $2.67 per share, compared to $393.4 million or $2.58 in the previous year. Recurring FFO for fiscal 2010 was $454.0 million or $2.88 per share compared to $409.0 million or $2.68 in 2009. The recurring FFO per share for the reported fiscal exceeded the Zacks Consensus Estimate by 2 cents.

Total revenues during the reported quarter were $268.0 million compared to $237.9 million in the year-earlier quarter. Revenues during fourth quarter 2010 were well below the Zacks Consensus Estimate of $275.0 million.

For full year 2010, total revenues were $1.0 billion compared to $931.6 million in the previous year. Total revenues for the reported fiscal were in line with the Zacks Consensus Estimate.

Ventas currently has an operating portfolio of 79 senior housing communities in North Americathat are managed by Sunrise Senior Living Inc. (SRZ). Ventas previously had a 100% ownership stake in about 21 of the 79 senior housing communities that were managed by Sunrise. During the quarter, Ventas acquired full ownership of all the 58 senior living communities from Sunrise, who would continue to manage all 79 communities.

NOI from all 79 properties was $42.6 million during the reported quarter, compared to $33.3 million in the year-ago period. The year-over-year increase was primarily due to a 2.9% rise in average daily rate, a 170 bps increase in occupancy and lower management fees. Same-store NOI for all the triple-net leased healthcare and seniors housing assets owned by the company increased 2.7% during the quarter on a year-over-year basis.

During fourth quarter 2010, Ventas acquired full ownership of all the real estate assets of Atria Senior Living Group, the fourth largest operator of assisted living properties in the U.S., for $3.1 billion. The purchase price included the assumption of $1.6 billion in debt, $1.35 billion worth of common stock of Ventas, and $150 million in cash.

With the deal, Ventas will own 118 high-quality seniors housing assets in the premium markets of the New York metropolitan area, New England, Boston, and California. The portfolio includes approximately 13,500 units, with a median community age of 12 years and an average occupancy rate of over 87%.

For full year 2010, Ventas announced over $3.7 billion worth of acquisitions. In addition, the company sold approximately $40 million worth of assets for a profit of $17.3 million and received $17.6 million in final repayments on its loans receivable investments. Total cash flow from operations during fiscal 2010 increased 6% year-over-year to $447.6 million.

During the quarter, Ventas sold $400 million worth of senior notes due 2015. At year-end 2010, the company had $40 million available under its revolving credit facility, $956.8 million additional undrawn availability, and $21.8 million of cash and short-term cash investments. The company’s debt to total capitalization at fiscal-end was approximately 26% with net-debt-to-adjusted-EBITDA (earnings before interest, tax, depreciation, and amortization) being 4.2x.

Subsequent to the quarter-end, Ventas sold approximately 5.6 million shares at $53.93 each and received total proceeds of $300 million. For first quarter 2011, the company increased its quarterly dividend payout by 7.5% to $0.575 per share.

The latest dividend payout by Ventas reinforces industry expectations of seeing healthcare sector take a lead in dividend payments in the overall U.S. REIT industry in 2011. According to data complied by Bloomberg, healthcare REITs would have the best dividend payouts in the industry, benefiting from better-than-expected year-over-year revenue growth and accretive results from over $11 billion acquisitions announced in 2010.

For full year 2011, Ventas expects recurring FFO in the range of $3.06 – $3.14 per share, with NOI from Sunrise-owned properties in the range of $152 million – $157 million. We maintain our ‘Neutral’ recommendation on the stock, which presently has a Zacks #3 Rank translating into a short-term ‘Hold’ rating.

 
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