Exhibit 99.2

VENTAS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of and For the Nine Months Ended September 30, 2014 and For the Year Ended December 31, 2013
 
On June 2, 2014, Ventas, Inc. (“Ventas” or the “Company”) announced that it had entered into a definitive agreement to acquire all of the outstanding shares of American Realty Capital Healthcare Trust, Inc. (“HCT”) in a stock and cash transaction valued at $2.9 billion, or $11.33 per HCT share, including investments expected to be made by HCT prior to completion of the acquisition, substantially all of which have now been completed.
 
The following unaudited pro forma condensed consolidated financial information sets forth:
 
•
The historical consolidated financial information of Ventas as of and for the nine months ended September 30, 2014, derived from Ventas’s unaudited consolidated financial statements, and the historical consolidated statement of income information of Ventas for the year ended December 31, 2013, derived from Ventas’s audited consolidated financial statements;

•
Pro forma adjustments to give effect to Ventas’s 2014 and 2013 acquisitions and other investments, dispositions and significant debt activity (including the August 2014 acquisition of 29 independent living seniors housing communities located in Canada and the April 2014 issuance and sale of $700 million aggregate principal amount of senior notes) on Ventas’s consolidated statements of income for the nine months ended September 30, 2014 and for the year ended December 31, 2013, as if these transactions occurred on January 1, 2013;

•
The historical consolidated financial information of HCT as of and for the nine months ended September 30, 2014, derived from HCT’s unaudited consolidated financial statements, and the historical consolidated statement of income information of HCT for the year ended December 31, 2013, derived from HCT’s audited consolidated financial statements;

•
Pro forma adjustments to give effect to HCT’s 2014 and 2013 acquisitions and other investments, dispositions and significant debt activity on HCT’s consolidated statements of income for the nine months ended September 30, 2014 and for the year ended December 31, 2013, as if these transactions occurred on January 1, 2013;

•
Pro forma adjustments to give effect to Ventas’s acquisition of HCT on Ventas’s consolidated balance sheet as of September 30, 2014, as if the acquisition closed on September 30, 2014; and

•
Pro forma adjustments to give effect to Ventas’s acquisition of HCT on Ventas’s consolidated statements of income for the nine months ended September 30, 2014 and for the year ended December 31, 2013, as if the acquisition closed on January 1, 2013.
 
These unaudited pro forma condensed consolidated financial statements have been prepared for informational purposes only and are based on assumptions and estimates considered appropriate by Ventas’s management; however, they are not necessarily indicative of what Ventas’s consolidated financial condition or results of operations actually would have been assuming the transactions had been consummated as of the dates indicated, nor do they purport to represent Ventas’s consolidated financial position or results of operations for future periods. These unaudited pro forma condensed consolidated financial statements do not include the impact of any synergies that may be achieved in the transactions or any strategies that management may consider in order to continue to efficiently manage Ventas’s operations.  This pro forma condensed consolidated financial information should be read in conjunction with:
 
•
Ventas’s unaudited consolidated financial statements and the related notes thereto as of and for the nine months ended September 30, 2014 included in the Company’s Quarterly Report on Form 10-Q for the quarter then ended, filed with the Securities and Exchange Commission (“SEC”) on October 24, 2014;

•
Ventas’s audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K for the year then ended, filed with the SEC on February 18, 2014, as amended by Amendment No. 1 to the Company’s Annual Report on Form 10-K/A, filed with the SEC on September 4, 2014;

•
HCT’s unaudited consolidated financial statements and the related notes thereto as of and for the nine months ended September 30, 2014 included in HCT’s Quarterly Report on Form 10-Q for the quarter then ended, filed with the SEC on October 31, 2014; and



•
HCT’s audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2013 included in HCT’s Annual Report on Form 10-K for the year then ended, filed with the SEC on February 26, 2014.
 
The acquisition of HCT will be accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification Topic 805, Business Combinations.  The total purchase price of approximately $2.9 billion will be allocated to the assets ultimately acquired and liabilities ultimately assumed based upon their respective fair values.  The allocations of the purchase price reflected in these unaudited pro forma condensed consolidated financial statements have not been finalized and are based upon preliminary estimates of these fair values, which is the best available information at the current time. A final determination of the fair values of the assets acquired and liabilities assumed, which cannot be made prior to the completion of the acquisition, will be based on the actual valuations of the tangible and intangible assets and liabilities that exist as of the date of completion of the acquisition. Consequently, amounts preliminarily allocated to identifiable tangible and intangible assets and liabilities could change significantly from those used in the unaudited pro forma condensed consolidated financial statements and could result in a material change in depreciation and amortization of tangible and intangible assets and liabilities.
 
The completion of the valuation, the allocation of purchase price, the impact of ongoing integration activities, the timing of completion of the acquisition and other changes in tangible and intangible assets and liabilities that occur prior to completion of the acquisition could cause material differences in the information presented herein.



VENTAS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 30, 2014
(In thousands)

 
Ventas Historical
 
HCT Historical (A)
 
HCT Acquisition Adjustments (B)
 
 
 
Total Pro Forma
Assets
 
 
 
 
 
 
 
 
 
Net real estate investments
$
19,421,537

 
$
2,055,108

 
$
666,993

 
(C)
 
$
22,143,638

Cash and cash equivalents
64,595

 
33,452

 
—

 
 
 
98,047

Escrow deposits and restricted cash
78,746

 
3,135

 
—

 
 
 
81,881

Deferred financing costs, net
64,898

 
17,735

 
(17,735
)
 
(D)
 
64,898

Other assets
1,021,389

 
38,907

 
149,205

 
(E)
 
1,209,501

Total assets
$
20,651,165

 
$
2,148,337

 
$
798,463

 
 
 
$
23,597,965

Liabilities and equity
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Senior notes payable and other debt
$
10,469,106

 
$
926,843

 
$
199,601

 
(F)
 
$
11,595,550

Accrued interest
69,112

 
1,581

 
—

 
 
 
70,693

Accounts payable and other liabilities
965,240

 
98,072

 
(34,849
)
 
(G)
 
1,028,463

Deferred income taxes
361,454

 
—

 
—

 
 
 
361,454

Total liabilities
11,864,912

 
1,026,496

 
164,752

 
 
 
13,056,160

Redeemable OP unitholder and noncontrolling interests
163,080

 
—

 
79,959

 
(H)
 
243,039

Commitments and contingencies
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
Total Ventas stockholders' equity
8,548,796

 
1,110,084

 
565,509

 
(I)
 
10,224,389

Noncontrolling interest
74,377

 
11,757

 
(11,757
)
 
(J)
 
74,377

Total equity
8,623,173

 
1,121,841

 
553,752

 
 
 
10,298,766

Total liabilities and equity
..
 
$
2,148,337

 
$
798,463

 
 
 
$
23,597,965

See accompanying notes to unaudited pro forma condensed consolidated financial statements.



VENTAS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the nine months ended September 30, 2014
(In thousands, except per share amounts)
 
Ventas Historical
 
Ventas 2014 Transactions Adjustments (K)
 
Pro Forma for Ventas 2014 Transactions
 
HCT Historical (A)
 
HCT 2014 Transactions Adjustments (K)
 
Pro Forma for HCT 2014 Transactions
 
HCT Acquisition Adjustments (B)
 
 
 
Total Pro Forma
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Triple-net leased
$
724,778

 
$
14,295

 
$
739,073

 
$
23,562

 
$
6,294

 
$
29,856

 
$
196

 
(L)
 
$
769,125

Medical office buildings
346,711

 
(209
)
 
346,502

 
74,076

 
1,776

 
75,852

 
(277
)
 
(L)
 
422,077

 
1,071,489

 
14,086

 
1,085,575

 
97,638

 
8,070

 
105,708

 
(81
)
 
 
 
1,191,202

Resident fees and services
1,141,781

 
86,675

 
1,228,456

 
96,120

 
19,179

 
115,299

 
—

 
 
 
1,343,755

Medical office building and other services revenue
18,240

 
—

 
18,240

 
—

 
—

 
—

 
—

 
 
 
18,240

Income from loans and investments
39,435

 
2,313

 
41,748

 
986

 
—

 
986

 
(18
)
 
(M)
 
42,716

Interest and other income
814

 
(2
)
 
812

 
—

 
—

 
—

 
—

 
 
 
812

Total revenues
2,271,759

 
103,072

 
2,374,831

 
194,744

 
27,249

 
221,993

 
(99
)
 
 
 
2,596,725

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest
277,811

 
31,229

 
309,040

 
20,593

 
359

 
20,952

 
(4,013
)
 
(N)
 
325,979

Depreciation and amortization
585,636

 
45,158

 
630,794

 
93,262

 
12,440

 
105,702

 
(25,971
)
 
(O)
 
710,525

Property-level operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior living
762,993

 
43,700

 
806,693

 
69,773

 
12,853

 
82,626

 
—

 
 
 
889,319

Medical office buildings
119,827

 
(39
)
 
119,788

 
15,713

 
487

 
16,200

 
—

 
 
 
135,988

 
882,820

 
43,661

 
926,481

 
85,486

 
13,340

 
98,826

 
—

 
 
 
1,025,307

Medical office building services costs
9,565

 
—

 
9,565

 
—

 
—

 
—

 
—

 
 
 
9,565

General, administrative and professional fees
93,638

 
(23
)
 
93,615

 
6,743

 
—

 
6,743

 
—

 
 
 
100,358

Loss on extinguishment of debt, net
5,079

 
(243
)
 
4,836

 
—

 
—

 
—

 
—

 
 
 
4,836

Merger-related expenses and deal costs
37,108

 
(8,893
)
 
28,215

 
36,144

 
(8,159
)
 
27,985

 
—

 
 
 
56,200

Other
25,321

 
—

 
25,321

 
69,317

 
—

 
69,317

 
(69,317
)
 
(P)
 
25,321

Total expenses
1,916,978

 
110,889

 
2,027,867

 
311,545

 
17,980

 
329,525

 
(99,301
)
 
 
 
2,258,091

Income (loss) before income from unconsolidated entities, income taxes, discontinued operations, real estate dispositions and noncontrolling interest
354,781

 
(7,817
)
 
346,964

 
(116,801
)
 
9,269

 
(107,532
)
 
99,202

 
 
 
338,634

Income from unconsolidated entities
549

 
(218
)
 
331

 
—

 
—

 
—

 
—

 
 
 
331

Income tax (expense) benefit
(4,820
)
 
6,066

 
1,246

 
(1,131
)
 
—

 
(1,131
)
 
1,102

 
(Q)
 
1,217

Income (loss) from continuing operations
350,510

 
(1,969
)
 
348,541

 
(117,932
)
 
9,269

 
(108,663
)
 
100,304

 
 
 
340,182

Gain (loss) on real estate dispositions
16,514

 
(17,508
)
 
(994
)
 
—

 
—

 
—

 
—

 
 
 
(994
)
Income (loss) from continuing operations, including real estate dispositions
367,024

 
(19,477
)
 
347,547

 
(117,932
)
 
9,269

 
(108,663
)
 
100,304

 
 
 
339,188

Net income (loss) attributable to noncontrolling interest
964

 
219

 
1,183

 
(1,487
)
 
—

 
(1,487
)
 
1,487

 
(R)
 
1,183

Income (loss) from continuing operations attributable to common stockholders, including real estate dispositions
$
366,060

 
$
(19,696
)
 
$
346,364

 
$
(116,445
)
 
$
9,269

 
$
(107,176
)
 
$
98,817

 
 
 
$
338,005

Income (loss) from continuing operations attributable to common stockholders per common share, including real estate dispositions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
1.24

 
$
—

 
$
1.18

 
$
(0.66
)
 
$
—

 
$
(0.61
)
 
N/A
 
 
 
$
1.06

Diluted
$
1.23

 
$
—

 
$
1.17

 
$
(0.66
)
 
$
—

 
$
(0.61
)
 
N/A
 
 
 
$
1.05

Weighted average shares used in computing earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
293,965

 
—

 
293,965

 
175,234

 
—

 
175,234

 
25,723

 
(S)
 
319,688

Diluted
296,411

 
—

 
296,411

 
175,234

 
—

 
175,234

 
26,914

 
(S)
 
323,325

See accompanying notes to unaudited pro forma condensed consolidated financial statements.


VENTAS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the year ended December 31, 2013
(In thousands, except per share amounts)
 
Ventas Historical
 
Ventas 2014 and 2013 Transactions Adjustments (K)
 
Pro Forma for Ventas 2014 and 2013 Transactions
 
HCT Historical (A)
 
HCT 2014 and 2013 Transactions Adjustments (K)
 
Pro Forma for HCT 2014 and 2013 Transactions
 
HCT Acquisition Adjustments (B)
 
 
 
Total Pro Forma
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Triple-net leased
$
875,877

 
$
70,099

 
$
945,976

 
$
12,880

 
$
27,926

 
$
40,806

 
$
261

 
(L)
 
$
987,043

Medical office buildings
450,107

 
5,957

 
456,064

 
64,075

 
35,182

 
99,257

 
(306
)
 
(L)
 
555,015

 
1,325,984

 
76,056

 
1,402,040

 
76,955

 
63,108

 
140,063

 
(45
)
 
 
 
1,542,058

Resident fees and services
1,406,005

 
198,938

 
1,604,943

 
47,698

 
102,132

 
149,830

 
—

 
 
 
1,754,773

Medical office building and other services revenue
17,809

 
596

 
18,405

 
—

 
—

 
—

 
—

 
 
 
18,405

Income from loans and investments
58,208

 
(3,233
)
 
54,975

 
569

 
—

 
569

 
(13
)
 
(M)
 
55,531

Interest and other income
2,047

 
1

 
2,048

 
89

 
—

 
89

 
—

 
 
 
2,137

Total revenues
2,810,053

 
272,358

 
3,082,411

 
125,311

 
165,240

 
290,551

 
(58
)
 
 
 
3,372,904

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest
334,484

 
70,127

 
404,611

 
15,843

 
3,978

 
19,821

 
1,453

 
(N)
 
425,885

Depreciation and amortization
721,959

 
117,354

 
839,313

 
67,456

 
84,176

 
151,632

 
(1,924
)
 
(O)
 
989,021

Property-level operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior living
956,684

 
104,957

 
1,061,641

 
33,151

 
64,703

 
97,854

 
—

 
 
 
1,159,495

Medical office buildings
152,948

 
3,069

 
156,017

 
12,814

 
6,132

 
18,946

 
—

 
 
 
174,963

 
1,109,632

 
108,026

 
1,217,658

 
45,965

 
70,835

 
116,800

 
—

 
 
 
1,334,458

Medical office building services costs
8,315

 
—

 
8,315

 
—

 
—

 
—

 
—

 
 
 
8,315

General, administrative and professional fees
115,106

 
(22
)
 
115,084

 
4,089

 
—

 
4,089

 
—

 
 
 
119,173

Loss on extinguishment of debt, net
1,201

 
243

 
1,444

 
—

 
—

 
—

 
—

 
 
 
1,444

Merger-related expenses and deal costs
21,634

 
(7,276
)
 
14,358

 
13,606

 
(15,239
)
 
(1,633
)
 
—

 
 
 
12,725

Other
18,732

 
—

 
18,732

 
—

 
—

 
—

 
—

 
 
 
18,732

Total expenses
2,331,063

 
288,452

 
2,619,515

 
146,959

 
143,750

 
290,709

 
(471
)
 
 
 
2,909,753

Income (loss) before loss from unconsolidated entities, income taxes, discontinued operations, real estate dispositions and noncontrolling interest
478,990

 
(16,094
)
 
462,896

 
(21,648
)
 
21,490

 
(158
)
 
413

 
 
 
463,151

Loss from unconsolidated entities
(508
)
 
493

 
(15
)
 
—

 
—

 
—

 
—

 
 
 
(15
)
Income tax benefit (expense)
11,828

 
10,691

 
22,519

 
(524
)
 
—

 
(524
)
 
17,296

 
(Q)
 
39,291

Income (loss) from continuing operations
490,310

 
(4,910
)
 
485,400

 
(22,172
)
 
21,490

 
(682
)
 
17,709

 
 
 
502,427

Gain on real estate dispositions
—

 
17,508

 
17,508

 
—

 
—

 
—

 
—

 
 
 
17,508

Income (loss) from continuing operations, including real estate dispositions
490,310

 
12,598

 
502,908

 
(22,172
)
 
21,490

 
(682
)
 
17,709

 
 
 
519,935

Net income attributable to noncontrolling interest
1,380

 
465

 
1,845

 
58

 
—

 
58

 
(58
)
 
(R)
 
1,845

Income (loss) from continuing operations attributable to common stockholders
$
488,930

 
$
12,133

 
$
501,063

 
$
(22,230
)
 
$
21,490

 
$
(740
)
 
$
17,767

 
 
 
$
518,090

Income (loss) from continuing operations attributable to common stockholders per common share, including real estate dispositions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
1.67

 
$
—

 
$
1.71

 
$
(0.15
)
 
$
—

 
$
(0.00
)
 
N/A
 
 
 
$
1.63

Diluted
$
1.66

 
$
—

 
$
1.70

 
$
(0.15
)
 
$
—

 
$
(0.00
)
 
N/A
 
 
 
$
1.61

Weighted average shares used in computing earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
292,654

 
—

 
292,654

 
151,684

 
—

 
151,684

 
25,723

 
(S)
 
318,377

Diluted
295,110

 
—

 
295,110

 
151,684

 
—

 
151,684

 
26,914

 
(S)
 
322,024

See accompanying notes to unaudited pro forma condensed consolidated financial statements.


VENTAS, INC.
 NOTES AND MANAGEMENT’S ASSUMPTIONS TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 1 - BASIS OF PRO FORMA PRESENTATION
 
Ventas, Inc. (“Ventas” or the “Company”) is a real estate investment trust (“REIT”) with a geographically diverse portfolio of seniors housing and healthcare properties in the United States, Canada and the United Kingdom.  The historical consolidated financial statements of Ventas include the accounts of the Company and its wholly owned subsidiaries and joint venture entities over which it exercises control.
 
On June 2, 2014, Ventas announced that it had entered into a definitive agreement to acquire all of the outstanding shares of American Realty Capital Healthcare Trust, Inc. (“HCT”) in a stock and cash transaction valued at $2.9 billion, or $11.33 per HCT share, including investments expected to be made by HCT prior to the acquisition, substantially all of which have now been completed.

NOTE 2 - ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

(A) Reflects historical consolidated financial condition or results of operations of HCT as of or for the nine months ended September 30, 2014 or for the year ended December 31, 2013.  Certain amounts have been reclassified to conform to Ventas’s presentation.

(B) Reflects adjustments to record the acquisition of HCT by Ventas based upon the estimated purchase price of approximately $2.9 billion.  The calculation of the estimated purchase price to be allocated is as follows (in millions, except per share amounts):

Equity to be issued (26.9 million shares at $67.13 per share)
$
1,806

Cash to be paid (assumed to be funded with borrowings under Ventas’s unsecured revolving credit facility)
192

Assumption or repayment of net debt
930

Estimated purchase price
$
2,928

 
 

(C) Reflects adjustment to record the estimated increase over HCT’s historical investment in real estate based upon the preliminary estimated fair value for the tangible and intangible real estate assets to be acquired.  These estimated values are as follows (in millions):

Land and improvements
 
$
333

Buildings and improvements
 
2,174

Acquired lease intangibles
 
215

Estimated fair value of net real estate investments
 
$
2,722

 
 
 

(D) Reflects the write-off of HCT’s historical deferred financing costs, which were not assigned any value in the preliminary purchase price allocation.

(E) Reflects adjustments to eliminate assets of HCT included in the historical consolidated financial information that Ventas is not acquiring as part of the working capital consideration, net of other acquired assets, primarily consisting of approximately $150 million of other intangible assets.



(F) Reflects the following adjustments (in millions):

Write-off of HCT’s historical fair value of debt adjustments
 
$
(4
)
Fair value of debt adjustment recorded in connection with the acquisition
 
11

HCT debt anticipated to be repaid at closing
 
(620
)
Anticipated borrowings under Ventas’s unsecured revolving credit facility
 
812

Pro forma adjustment to debt
 
$
199

 
 
 

(G) Reflects adjustments to eliminate historical other liabilities of HCT that were not assigned any value in the preliminary purchase price allocation and the recording of approximately $32 million of various lease intangibles, which were recorded based on preliminary fair value calculations.

(H) Reflects the adjustment to record the fair value of the redeemable OP unitholder interests, which are valued at a price of $11.33 per unit (the acquisition value of each share of HCT common stock at the time the acquisition was announced).

(I) Reflects the write-off of HCT’s historical equity, net of the issuance of 26.9 million shares of Ventas common stock in connection with the HCT acquisition, which are valued at $1.8 billion. 

(J) Reflects the adjustment to record the reclassification of HCT’s historical noncontrolling interest value to redeemable OP unitholder interests.

NOTE 3 - ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(K) Adjustments reflect the effect on Ventas’s and HCT’s historical consolidated statements of income of Ventas’s and HCT’s respective significant 2014 and 2013 transactions, as if those transactions were consummated on January 1, 2013.  With respect to Ventas, these adjustments primarily relate to certain acquisitions and dispositions (including its August 2014 acquisition of 29 independent living seniors housing communities located in Canada) and debt repayments and issuances.  With respect to HCT, these adjustments primarily relate to various asset acquisitions. Adjustments made to merger-related expenses and deal costs reflect the elimination of non-recurring expenses resulting from Ventas’s and HCT’s 2014 and 2013 acquisitions that are assumed, for purposes of these unaudited pro forma condensed consolidated financial statements, to have occurred on January 1, 2013.  Such expenses include legal and professional fees, title insurance fees, recording fees and certain taxes, none of which is considered material individually or in the aggregate.

(L) Reflects the net amortization of above and below market lease intangibles recorded by Ventas as a result of the HCT acquisition and the elimination of HCT’s historical amortization related to above and below market lease intangibles.

(M) Reflects the elimination of HCT’s historical revenues attributable to assets that Ventas is not acquiring as part of the acquisition.

(N) Reflects the following adjustments (in millions):

 
 
For the Nine Months Ended September 30, 2014
 
For the Year Ended December 31, 2013
Write-off of HCT’s historical fair value of debt adjustments
 
$
1

 
$
1

Fair value of debt adjustment recorded in connection with the acquisition
 
(2
)
 
(4
)
HCT debt anticipated to be repaid at closing
 
(5
)
 
(1
)
Anticipated borrowings under Ventas’s unsecured revolving credit facility
 
7

 
10

Write-off of HCT’s deferred financing costs
 
(5
)
 
(4
)
Pro forma adjustment to interest expense
 
$
(4
)
 
$
2




(O) Based on the preliminary purchase price allocation, Ventas expects to allocate $333 million to land and $2.2 billion to buildings and improvements. Depreciation expense is calculated on a straight-line basis based on Ventas’s purchase price allocation and using a 35-year life for buildings and permanent structural improvements, a five-year life for furniture and equipment and a ten-year life for land improvements. Additionally, Ventas’s purchase price allocation includes $180 million of acquired in-place lease intangibles. Further, the adjustment reflects the elimination of historical depreciation and amortization expense relating to the merger, as follows (in thousands):

HCT Acquisition Adjustments
 
Weighted Average Useful Life (Years)
 
For the Nine Months Ended September 30, 2014
 
For the Year Ended December 31, 2013
Elimination of HCT’s historical and pro forma depreciation and amortization
N/A

 
$
(105,702
)
 
$
(151,632
)
Ventas’s HCT Acquisition Adjustments for depreciation and amortization, by asset type:
 
 
 
 
 
Site improvements
9.1

 
6,647

 
8,863

Building and improvements
33.4

 
52,185

 
69,580

Furniture and equipment
5.0

 
4,878

 
6,504

In-place lease intangibles
6.3

 
16,021

 
64,761

Total
N/A

 
79,731

 
149,708

Adjustment for depreciation and amortization
N/A

 
$
(25,971
)
 
$
(1,924
)
 
 
 
 
 
 

(P) Reflects the elimination of costs and fees directly attributable to the merger and fees associated with the ultimate disposition of HCT’s assets. The $69.3 million adjustment represents (i) a $56.4 million fair value adjustment of the Listing Note (as disclosed in Note 10 to HCT’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014), and (ii) $12.9 million of asset management expenses paid by HCT to a related party (as disclosed in Note 15 to HCT’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014).

(Q) Reflects adjustment to eliminate the historical tax expense of HCT, offset by the estimated tax benefit Ventas expects to recognize due to the acquisition.

(R) Reflects the elimination of HCT’s noncontrolling interest that Ventas is not acquiring as part of the acquisition.

(S) Reflects the issuance of 26.9 million shares of Ventas common stock upon consummation of the HCT acquisition, including the impact of redeemable OP units issued on the acquisition date.





NOTE 4 - FUNDS FROM OPERATIONS AND NORMALIZED FUNDS FROM OPERATIONS
 
Ventas’s historical and pro forma funds from operations (“FFO”) and normalized FFO for the nine months ended September 30, 2014 and the year ended December 31, 2013 are summarized as follows (in thousands):

VENTAS, INC.
UNAUDITED PRO FORMA FFO AND NORMALIZED FFO
For the nine months ended September 30, 2014
(In thousands, except per share amounts)
 
Ventas Historical
 
Ventas 2014 Transactions Adjustments
 
Pro Forma for Ventas 2014 Transactions
 
HCT Historical
 
HCT 2014 Transactions Adjustments
 
Pro Forma for HCT 2014 Transactions
 
HCT Acquisition Adjustments
 
Total Pro Forma
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to common stockholders, including real estate dispositions
$
366,060

 
$
(19,696
)
 
$
346,364

 
$
(116,445
)
 
$
9,269

 
$
(107,176
)
 
$
98,817

 
$
338,005

Discontinued operations
2,517

 
(3,738
)
 
(1,221
)
 
—

 
—

 
—

 
—

 
(1,221
)
Net income (loss) attributable to common stockholders
368,577

 
(23,434
)
 
345,143

 
(116,445
)
 
9,269

 
(107,176
)
 
98,817

 
336,784

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate depreciation and amortization
580,879

 
45,158

 
626,037

 
93,077

 
12,440

 
105,517

 
(25,971
)
 
705,583

Real estate depreciation related to noncontrolling interest
(7,808
)
 
—

 
(7,808
)
 
—

 
—

 
—

 
—

 
(7,808
)
Real estate depreciation related to unconsolidated entities
4,460

 
—

 
4,460

 
—

 
—

 
—

 
—

 
4,460

(Gain) loss on real estate dispositions
(16,514
)
 
17,508

 
994

 
—

 
—

 
—

 
—

 
994

Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gain on real estate dispositions
(1,442
)
 
1,037

 
(405
)
 
—

 
—

 
—

 
—

 
(405
)
Depreciation on real estate assets
1,540

 
(352
)
 
1,188

 
—

 
—

 
—

 
—

 
1,188

FFO
929,692

 
39,917

 
969,609

 
(23,368
)
 
21,709

 
(1,659
)
 
72,846

 
1,040,796

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in fair value of financial instruments
4,636

 
—

 
4,636

 
—

 
—

 
—

 
—

 
4,636

Non-cash income tax expense (benefit)
4,420

 
(6,066
)
 
(1,646
)
 
1,131

 
—

 
1,131

 
(1,102
)
 
(1,617
)
Loss on extinguishment of debt, net
4,528

 
(243
)
 
4,285

 
—

 
—

 
—

 
—

 
4,285

Merger-related expenses, deal costs and re-audit costs
43,764

 
(8,893
)
 
34,871

 
36,144

 
(8,159
)
 
27,985

 
—

 
62,856

Amortization of other intangibles
766

 
—

 
766

 
—

 
—

 
—

 
—

 
766

Normalized FFO
$
987,806

 
$
24,715

 
$
1,012,521

 
$
13,907

 
$
13,550

 
$
27,457

 
$
71,744

 
$
1,111,722



Ventas’s historical and pro forma FFO and normalized FFO per diluted share outstanding for the nine months ended September 30, 2014 follows (in thousands, except per share amounts) (1):
 
Ventas Historical
 
Total Pro Forma
 
 
 
 
Income from continuing operations attributable to common stockholders, including real estate dispositions
$
1.23

 
$
1.05

Discontinued operations
0.01

 
(0.00
)
Net income attributable to common stockholders
1.24

 
1.04

Adjustments:
 
 
 
Real estate depreciation and amortization
1.96

 
2.18

Real estate depreciation related to noncontrolling interest
(0.03
)
 
(0.02
)
Real estate depreciation related to unconsolidated entities
0.02

 
0.01

(Gain) loss on real estate dispositions
(0.06
)
 
0.00

Discontinued operations:
 
 
 
Gain on real estate dispositions
(0.00
)
 
(0.00
)
Depreciation on real estate assets
0.01

 
0.00

FFO
3.14

 
3.22

Adjustments:
 
 
 
Change in fair value of financial instruments
0.02

 
0.01

Non-cash income tax expense (benefit)
0.01

 
(0.01
)
Loss on extinguishment of debt, net
0.02

 
0.01

Merger-related expenses, deal costs and re-audit costs
0.15

 
0.19

Amortization of other intangibles
0.00

 
0.00

Normalized FFO
$
3.33

 
$
3.44

 
 
 
 
Dilutive shares outstanding used in computing FFO and normalized FFO per common share
296,411

 
323,325

 
 
(1) Per share amounts may not add due to rounding.


VENTAS, INC.
UNAUDITED PRO FORMA FFO AND NORMALIZED FFO
For the year ended December 31, 2013
(In thousands, except per share amounts)
 
Ventas Historical
 
Ventas 2014 and 2013 Transactions Adjustments
 
Pro Forma for Ventas 2014 and 2013 Transactions
 
HCT Historical
 
HCT 2014 and 2013 Transactions Adjustments
 
Pro Forma for HCT 2014 and 2013 Transactions
 
HCT Acquisition Adjustments
 
Total Pro Forma
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to common stockholders, including real estate dispositions
$
488,930

 
$
12,133

 
$
501,063

 
$
(22,230
)
 
$
21,490

 
$
(740
)
 
$
17,767

 
$
518,090

Discontinued operations
(35,421
)
 
3,069

 
(32,352
)
 
—

 
—

 
—

 
—

 
(32,352
)
Net income (loss) attributable to common stockholders
453,509

 
15,202

 
468,711

 
(22,230
)
 
21,490

 
(740
)
 
17,767

 
485,738

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate depreciation and amortization
716,412

 
117,354

 
833,766

 
66,975

 
84,176

 
151,151

 
(1,924
)
 
982,993

Real estate depreciation related to noncontrolling interest
(10,512
)
 
—

 
(10,512
)
 
—

 
—

 
—

 
—

 
(10,512
)
Real estate depreciation related to unconsolidated entities
6,543

 
—

 
6,543

 
—

 
—

 
—

 
—

 
6,543

Gain on re-measurement of equity interest upon acquisition, net
(1,241
)
 
—

 
(1,241
)
 
—

 
—

 
—

 
—

 
(1,241
)
Gain on real estate dispositions
—

 
(17,508
)
 
(17,508
)
 
—

 
—

 
—

 
—

 
(17,508
)
Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Gain on real estate dispositions
(4,059
)
 
(1,241
)
 
(5,300
)
 
—

 
—

 
—

 
—

 
(5,300
)
Depreciation on real estate assets
47,806

 
(9,066
)
 
38,740

 
—

 
—

 
—

 
—

 
38,740

FFO
1,208,458

 
104,741

 
1,313,199

 
44,745

 
105,666

 
150,411

 
15,843

 
1,479,453

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in fair value of financial instruments
449

 
—

 
449

 
—

 
—

 
—

 
—

 
449

Non-cash income tax (benefit) expense
(11,828
)
 
(10,691
)
 
(22,519
)
 
524

 
—

 
524

 
(17,296
)
 
(39,291
)
Loss on extinguishment of debt, net
1,048

 
243

 
1,291

 
—

 
—

 
—

 
—

 
1,291

Merger-related expenses, deal costs and re-audit fees
21,560

 
(7,276
)
 
14,284

 
13,606

 
(15,239
)
 
(1,633
)
 
—

 
12,651

Amortization of other intangibles
1,022

 
—

 
1,022

 
—

 
—

 
—

 
—

 
1,022

Normalized FFO
$
1,220,709

 
$
87,017

 
$
1,307,726

 
$
58,875

 
$
90,427

 
$
149,302

 
$
(1,453
)
 
$
1,455,575



Ventas’s historical and pro forma FFO and normalized FFO per diluted share outstanding for the year ended December 31, 2013 follows (in thousands, except per share amounts) (1):
 
Ventas Historical
 
Total Pro Forma
 
 
 
 
Income from continuing operations attributable to common stockholders, including real estate dispositions
$
1.66

 
$
1.61

Discontinued operations
(0.12
)
 
(0.10
)
Net income attributable to common stockholders
1.54

 
1.51

Adjustments:
 
 
 
Real estate depreciation and amortization
2.43

 
3.05

Real estate depreciation related to noncontrolling interest
(0.04
)
 
(0.03
)
Real estate depreciation related to unconsolidated entities
0.02

 
0.02

Gain on re-measurement of equity interest upon acquisition, net
(0.00
)
 
(0.00
)
Gain on real estate dispositions
—

 
(0.05
)
Discontinued operations:
 
 
 
Gain on real estate dispositions
(0.01
)
 
(0.02
)
Depreciation on real estate assets
0.16

 
0.12

FFO
4.09

 
4.59

Adjustments:
 
 
 
Change in fair value of financial instruments
0.00

 
0.00

Non-cash income tax benefit
(0.04
)
 
(0.12
)
Loss on extinguishment of debt, net
0.00

 
0.00

Merger-related expenses, deal costs and re-audit costs
0.07

 
0.04

Amortization of other intangibles
0.00

 
0.00

Normalized FFO
$
4.14

 
$
4.52

 
 
 
 
Dilutive shares outstanding used in computing FFO and normalized FFO per common share
295,110

 
322,024

 
 
(1) Per share amounts may not add due to rounding.








Unaudited pro forma FFO and normalized FFO are presented herein for informational purposes only and are based on available information and assumptions that the Company’s management believes to be reasonable; however, they are not necessarily indicative of what Ventas’s FFO or normalized FFO actually would have been assuming the transactions had occurred as of the dates indicated.
 
Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time.  However, since real estate values historically have risen or fallen with market conditions, many industry investors deem presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.  To overcome this problem, Ventas considers FFO and normalized FFO to be appropriate measures of operating performance of an equity REIT.  In particular, Ventas believes that normalized FFO is useful because it allows investors, analysts and Ventas management to compare Ventas’s operating performance to the operating performance of other real estate companies and between periods on a consistent basis without having to account for differences caused by unanticipated items and other events such as transactions and litigation.  In some cases, Ventas provides information about identified non-cash components of FFO and normalized FFO because it allows investors, analysts and Ventas management to assess the impact of those items on Ventas’s financial results.

Ventas uses the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO.  NAREIT defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of real estate property, including gain on re-measurement of equity method investments, and impairment write-downs of depreciable real estate, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.  Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis.  Ventas defines normalized FFO as FFO excluding the following income and expense items (which may be recurring in nature): (a) merger-related costs and expenses, including amortization of intangibles, transition and integration expenses, and deal costs and expenses, including expenses and recoveries relating to the Company’s acquisition lawsuits; (b) the impact of any expenses related to asset impairment and valuation allowances, the write-off of unamortized deferred financing fees, or additional costs, expenses, discounts, make-whole payments, penalties or premiums incurred as a result of early retirement or payment of the Company’s debt; (c) the non-cash effect of income tax benefits or expenses and derivative transactions that have non-cash mark-to-market impacts on the Company’s consolidated statements of income; (d) the impact of future acquisitions or divestitures (including pursuant to tenant options to purchase) and capital transactions; (e) the financial impact of contingent consideration, severance-related costs, charitable donations made to the Ventas Charitable Foundation, gains and losses for non-operational foreign currency hedge agreements and changes in the fair value of financial instruments; and (f) expenses related to the re-audit and re-review of the Company’s historical financial statements and related matters.
 
FFO and normalized FFO presented herein may not be identical to FFO and normalized FFO presented by other real estate companies due to the fact that not all real estate companies use the same definitions.  FFO and normalized FFO should not be considered as alternatives to net income (determined in accordance with GAAP) as indicators of Ventas’s financial performance or as alternatives to cash flow from operating activities (determined in accordance with GAAP) as measures of Ventas’s liquidity, nor is FFO and normalized FFO necessarily indicative of sufficient cash flow to fund all of Ventas’s needs.  Ventas believes that in order to facilitate a clear understanding of Ventas’s consolidated historical operating results, FFO and normalized FFO should be examined in conjunction with net income as presented in the unaudited pro forma condensed consolidated financial statements.