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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

OR

Commission file number: 1-10989

Ventas, Inc.

(Exact name of registrant as specified in its charter)

10350 Ormsby Park Place, Suite 300

Louisville, Kentucky

(Address of principal executive offices)

40223

(Zip Code)

(502) 357-9000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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VENTAS, INC.

FORM 10-Q

INDEX

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VENTAS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

See notes to condensed consolidated financial statements

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VENTAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

See notes to condensed consolidated financial statements

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VENTAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

See notes to condensed consolidated financial statements

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VENTAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

See notes to condensed consolidated financial statements

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1—REPORTING ENTITY

Ventas, Inc. (“Ventas” or the “Company”) is a Delaware corporation that elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended, beginning with the year ended December 31, 1999. Beginning with the 1999 tax year, the Company believes that it has satisfied the requirements to qualify as a REIT. The Company intends to continue to qualify as a REIT for the year ending December 31, 2004 and subsequent years. It is possible that economic, market, legal, tax or other considerations may cause the Company to fail, or elect not, to qualify as a REIT. The Company owns a geographically diverse portfolio of healthcare-related facilities that consisted of 42 hospitals, 201 skilled nursing facilities, 29 senior housing facilities and 15 other facilities in 39 states as of September 30, 2004. Except for the leases on the Company’s six medical office buildings, the Company and its subsidiaries lease these facilities to healthcare operating companies under “triple-net” or “absolute net” leases. Kindred Healthcare, Inc. and its subsidiaries (collectively, “Kindred”) leased 186 of the Company’s skilled nursing facilities and all but one of the Company’s hospitals as of September 30, 2004. The Company also has real estate loan investments relating to 25 healthcare and senior housing facilities. The Company conducts substantially all of its business through a direct wholly owned operating partnership, Ventas Realty, Limited Partnership (“Ventas Realty”), an indirect wholly owned limited liability company, Ventas Finance I, LLC (“Ventas Finance”), and an operating partnership, ElderTrust Operating Partnership (“ETOP”), in which the Company indirectly owns 99.6% of the partnership units. As of September 30, 2004, Ventas Realty owned 40 of the Company’s hospitals, 156 of the Company’s skilled nursing facilities and 25 of the Company’s senior housing and other healthcare facilities, Ventas Finance owned 39 of the Company’s skilled nursing facilities, and ETOP owned five of the Company’s skilled nursing facilities and ten of the Company’s senior housing facilities. The Company directly owned two hospitals.

NOTE 2—BASIS OF PRESENTATION

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. Operating results for the nine-month period ended September 30, 2004 are not necessarily an indication of the results that may be expected for the year ending December 31, 2004. The Condensed Consolidated Balance Sheet as of December 31, 2003 has been derived from the Company’s audited consolidated financial statements for the year ended December 31, 2003. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. Certain prior year amounts have been reclassified to conform to current year presentation.

The Company has one primary reportable segment, which consists of investments in real estate. The Company’s primary business consists of financing, owning and leasing healthcare-related and senior housing facilities. Except for the leases on the Company’s six medical office buildings, all of the Company’s leases are triple-net leases, which require the tenants to pay all property-related expenses. Except for the six medical office buildings, the Company does not operate its facilities nor does it allocate capital to maintain its properties. Substantially all depreciation and interest expense reflected in the Condensed Consolidated Statements of Income relates to the Company’s investment in real estate.

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Recently Issued Accounting Standards

In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statements of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS No. 148”). SFAS No. 148 provides transition methods for entities that elect to adopt the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 requires disclosure of comparable information regarding the Company’s method of accounting for stock-based employee compensation for all interim periods. The Company has stock-based employee compensation plans which are described in “Note 7—Stockholders’ Equity and Stock Options.” The Company accounts for these plans under the intrinsic method of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB Opinion No. 25”), and related interpretations. No stock-based employee compensation cost for options is reflected in net income, as all options granted under the Company’s plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. The Company intends to adopt the fair value method of accounting at such time as FASB adopts final rules regarding the appropriate valuation methods. In addition, the Company grants shares of restricted stock to certain officers and directors. Shares of restricted stock vest cumulatively in two to four equal annual installments beginning either on the date of the grant or on the first anniversary of the date of the grant. In accordance with the provisions of APB Opinion No. 25, compensation expense is recognized for these restricted stock grants over these vesting periods.

NOTE 3—CONCENTRATION OF CREDIT RISK

As of September 30, 2004, approximately 56.5% of the Company’s properties, based on their original cost, were skilled nursing facilities. The Company’s remaining properties consist of hospitals, personal care facilities and other healthcare-related and senior housing facilities. The Company’s facilities are located in 39 states with rental revenue from operations in only one state accounting for more than 10% of the Company’s total revenues during the year ended December 31, 2003 and the nine months ended September 30, 2004.

As of September 30, 2004, approximately 69.3% of the Company’s properties, based on their original cost, were operated by Kindred. Approximately 82.8% of the Company’s total real estate revenue (consisting of rental revenue plus interest income from loan receivable) for the nine months ended September 30, 2004 was derived from the Company’s (or its subsidiaries’) master lease agreements with Kindred (collectively, the “Kindred Master Leases”).

There can be no assurance that Kindred will have sufficient assets, income and access to financing to enable it to satisfy, or that it will perform, its obligations under the Kindred Master Leases. The failure of Kindred to make three consecutive monthly rental payments under any of the Kindred Master Leases will trigger an event of default under the 2004 Credit Agreement (defined below). The inability or unwillingness of Kindred to satisfy its obligations under the Kindred Master Leases could trigger an event of default under the Company’s debt agreements and would have a material adverse effect on the business, financial condition, results of operations and liquidity of the Company, including the Company’s ability to service its indebtedness and other obligations and to make distributions to its stockholders as required to maintain its status as a REIT (a “Material Adverse Effect”).

Kindred is subject to the reporting requirements of the Securities and Exchange Commission (the “Commission”) and is required to file with the Commission annual reports containing audited financial information and quarterly reports containing unaudited financial information. The information related to Kindred provided in this Quarterly Report on Form 10-Q is derived from filings made with the Commission or other publicly available information, or has been provided to the Company by Kindred. The Company has not verified this information either through an independent investigation or by reviewing Kindred’s public filings. The Company has no reason to believe that such information is inaccurate in any material respect, but there can be no assurance that all such information is accurate. Kindred’s filings with the Commission can be found at the Commission’s website at www.sec.gov. The Company is providing this data for informational purposes only, and the reader of this Quarterly Report on Form 10-Q is encouraged to obtain Kindred’s publicly available filings from the Commission.

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Agreement of Indemnity – Third Party Leases

In connection with the Company’s spin off of Kindred in 1998 (the “1998 Spin Off”), the Company assigned its former third party lease obligations (i.e., leases under which an unrelated third party is the landlord) as a tenant or as a guarantor of tenant obligations (the “Third Party Leases”) to Kindred. Under the terms of an indemnity agreement relating to the Third Party Leases, Kindred agreed to indemnify and hold the Company harmless from and against all claims against the Company arising out of the Third Party Leases assigned by the Company to Kindred. Either prior to or following the 1998 Spin Off, the tenant’s rights under a subset of the Third Party Leases were assigned or sublet to third parties unrelated to Kindred. If Kindred or such third party subtenants are unable to or do not satisfy the obligations under any Third Party Lease assigned by the Company to Kindred, the lessors may claim that the Company remains liable under the Third Party Leases. Although the Company believes it may have valid legal defenses to any such claim there can be no assurance the Company would prevail against a claim brought by a lessor under a Third Party Lease. However, in the event that a lessor should prevail in a claim against the Company, the Company may be entitled to receive revenues from those properties that would mitigate the costs incurred in connection with the satisfaction of such obligations. The Third Party Leases that relate to nursing facilities, hospitals, offices and warehouses have remaining terms (excluding renewal periods) of 1 to 10 years. The Third Party Leases that relate to ground leases have remaining terms from 1 to 80 years. Under Kindred’s April 2001 bankruptcy plan of reorganization (the “Final Plan”), Kindred assumed and agreed to fulfill its obligations under the indemnity agreement relating to the Third Party Leases. There can be no assurance that Kindred will have sufficient assets, income and access to financing to enable it to satisfy, or that it will continue to honor, its obligations under the indemnity agreement relating to the Third Party Leases. Under the Final Plan, Kindred agreed not to renew or extend any Third Party Lease unless it first obtains a release of the Company from liability under such Third Party Lease. As of September 30, 2004, the total aggregate remaining minimum rental payments under the Third Party Leases were $27.2 million.

Agreement of Indemnity – Third Party Contracts

In connection with the 1998 Spin Off, the Company assigned its former third party guaranty agreements (the “Third Party Guarantees”) to Kindred. Under the terms of an indemnity agreement relating to the Third Party Guarantees, Kindred agreed to indemnify and hold the Company harmless from and against all claims against the Company arising out of the Third Party Guarantees assigned by the Company to Kindred. Under the Final Plan, Kindred assumed and agreed to fulfill its obligations under the indemnity agreement relating to the Third Party Guarantees. There can be no assurance that Kindred will have sufficient assets, income and access to financing to enable it to satisfy, or that it will continue to honor, its obligations under the indemnity agreement relating to the Third Party Guarantees. If Kindred is unable to or does not satisfy the obligations under any Third Party Guarantee assigned by the Company to Kindred, the beneficiaries may claim that the Company remains liable under the Third Party Guarantees. Although the Company believes it may have valid legal defenses to any such claim there can be no assurance that the Company would prevail against a claim brought by a beneficiary under a Third Party Guarantee. As of September 30, 2004, the Third Party Guarantees related to $5.0 million in outstanding obligations.

NOTE 4—ACQUISITIONS

During the nine months ended September 30, 2004, the Company completed the acquisitions described below (the “2004 Transactions”). The primary reason for these acquisitions was to invest in healthcare and senior housing properties with an expected yield on investment, as well as to diversify the Company’s properties and revenue base and reduce its dependence on Kindred for rental revenue.

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

ElderTrust Merger

On February 5, 2004, the Company acquired all outstanding common shares of ElderTrust (“ElderTrust”) in an all cash transaction valued at $184.0 million (the “ElderTrust Transaction”). At the close of the ElderTrust Transaction, ElderTrust had approximately $33.5 million in unrestricted and restricted cash. After transaction costs, the net investment of the ElderTrust Transaction was approximately $160.0 million.

The ElderTrust Transaction added nine assisted living facilities, one independent living facility, five skilled nursing facilities, two medical office buildings and a financial office building (the “ElderTrust Properties”) to the Company’s portfolio. The ElderTrust Properties are leased by the Company to various operators under leases having remaining terms primarily ranging from four to 11 years and providing for aggregate, annual cash base rent of approximately $16.4 million, subject to escalation as provided in the leases. Concurrent with the consummation of the ElderTrust Transaction, the Company also purchased all of the limited partnership units in ETOP, ElderTrust’s majority owned operating partnership, then held by third parties at $12.50 per unit, other than 31,455 Class C Units in ETOP (which will remain outstanding). ETOP owns directly or indirectly all of the ElderTrust Properties. The Company’s ownership of the ElderTrust Properties is subject to approximately $82.4 million of property-level debt and other liabilities.

Transactions with Brookdale

During the period from January 1, 2004 through May 12, 2004, the Company acquired 15 independent living or assisted living facilities (each, a “Brookdale Facility”) from certain affiliates of Brookdale Living Communities, Inc. (“Brookdale”), for an aggregate purchase price of $157.4 million (the “Brookdale Transaction”). The Brookdale Facilities are leased by the Company to affiliates of Brookdale pursuant to a master lease (the “Brookdale Master Lease”) containing ten properties and five separate single facility leases (the Brookdale Master Lease and the five single facility leases are collectively referred to as the “Brookdale Leases”) all of which are triple-net leases guaranteed by Brookdale (the “Brookdale Guaranty”) having an initial term of 15 years and providing for aggregate, annual cash base rent of approximately $14.5 million, subject to escalation as provided in the leases.

Effective October 19, 2004, the Brookdale Leases were amended to increase the annual rent escalators to the greater of (i) 2% or (ii) 75% of the annual increase in the consumer price index. Also effective October 19, 2004, Brookdale is required to maintain a security deposit in an amount equal to six months fixed rent.

Other Acquisitions

During the third quarter of 2004, the Company acquired two assisted living facilities and four medical office buildings for an aggregate purchase price of $38.0 million. The two assisted living facilities are leased under triple-net leases having initial terms of 15 years and providing aggregate, annual cash base rent of approximately $2.5 million, subject to escalation as provided in the leases. The four medical office buildings are leased to various tenants under leases having remaining terms ranging from four to six years and providing for aggregate, annual cash base rent of approximately $1.4 million, subject to escalation as provided in the leases. The Company has engaged managers to manage the operations at the four medical office buildings.

During the second quarter of 2004 the Company also acquired three assets for an aggregate purchase price of $28.0 million. The three acquired facilities are leased under triple-net leases having initial terms ranging from 10 to 15 years and providing for aggregate, annual cash base rent of approximately $2.9 million, subject to escalation as provided in the leases.

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Estimated Fair Value

The 2004 Transactions were accounted for under the purchase method. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in millions). Such estimates are subject to refinement as additional valuation information is received. The Company is in the process of computing fair values, thus, the allocation of the purchase price is subject to refinement.

The buildings are being depreciated over their estimated useful lives, which were determined to be 30 years for those acquired in the ElderTrust Transaction and 35 years for all other 2004 Transactions.

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Pro Forma

The following table illustrates the effect on net income and earnings per share as if the Company had consummated the 2004 Transactions and the Equity Offering (defined below) as of the beginning of the three-month and nine-month periods ended September 30, 2004 and 2003, respectively (in thousands, except per share amounts):

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5—DISPOSITIONS

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets” (“SFAS No. 144”), the results of operations and gain/(loss) on real estate properties sold or held for sale are reflected in the Condensed Consolidated Statements of Income as “Discontinued Operations” for all periods presented. Interest expense allocated to Discontinued Operations has been estimated based on a proportional allocation of rental income among all of the Company’s facilities.

During the nine months ended September 30, 2004, the Company did not dispose of any assets or have any operating assets classified as held for sale, and therefore no amounts were reported in discontinued operations. Set forth below is a summary of the results of operations of the facilities that were sold and held for sale during the three and nine months ended September 30, 2003 (in thousands):

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6—BORROWING ARRANGEMENTS

2004 Credit Agreement

On September 8, 2004, the Company, as guarantor, and Ventas Realty, as borrower, entered into a three-year revolving line of credit totaling $300 million (the “2004 Credit Agreement”). The 2004 Credit Agreement replaced the Company’s revolving credit facility and term loan under its Second Amended and Restated Credit, Security and Guaranty Agreement, dated as of April 17, 2002 (the “2002 Credit Agreement”). Subject to certain conditions, Ventas Realty may extend for one year the 2004 Credit Agreement and increase its borrowing capacity to an amount not to exceed $450.0 million.

Generally, borrowings outstanding under the 2004 Credit Agreement bear interest at a fluctuating LIBOR-based rate per annum plus an applicable percentage ranging from 1.05% to 1.75% depending on the Company’s consolidated leverage ratio. The applicable percentage was 1.25% at September 30, 2004.

The Company has guaranteed Ventas Realty’s obligations under the 2004 Credit Agreement. Such obligations are secured by liens on certain of Ventas Realty’s real property assets and any related leases, rents and personal property, and, at Ventas Realty’s option, may be secured by certain cash collateral. Currently, 46 real properties owned or leased by Ventas Realty are mortgaged to secure the 2004 Credit Agreement (the “Borrowing Base Properties”). As of September 30, 2004, the net book value of the Borrowing Base Properties was $117.0 million. As of September 30, 2004, the borrowing base under the 2004 Credit Agreement was $299.7 million, the aggregate principal balance of outstanding obligations (excluding outstanding letters of credit of $0.5 million) was $173.5 million and the remaining availability was $125.7 million.

The Company incurred a loss on extinguishment of debt in the amount of $1.4 million representing the write-off of unamortized deferred financing costs related to the 2002 Credit Agreement.

Summary of Debt

The following is a summary of the Company’s debt and certain interest rate and maturity information as of September 30, 2004 and December 31, 2003 (in thousands):

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Continued

ET Sub-Woodbridge, L.P., an indirect subsidiary of the Company acquired by the Company pursuant to the ElderTrust Transaction, is the obligor under the Woodbridge Bonds. An event of default has existed under the Woodbridge Bonds since 2002. The event of default is the result of the failure of ET Sub-Woodbridge, L.P. to maintain a debt service coverage ratio of at least 1.00:1.00 on the compliance date. . The Company believes that the bondholders of the Woodbridge Bonds (the “Bondholders”) have the right to call the Woodbridge Bonds at any time as a result of the event of default at 103% of par. The Company has not received a formal waiver from the Trustee with respect to such event of default. However, the Company believes that the Bondholders have instructed the Trustee not to take action on the event of default at this time. The next compliance date with respect to the Woodbridge Bonds is December 31, 2004, and the Company expects to continue to be in default at that time. The Woodbridge Bonds have a current outstanding principal balance of $9.2 million. The Woodbridge Bonds are prepayable on August 1, 2005 at 103% of par.

Scheduled Maturities of Borrowing Arrangements

As of September 30, 2004, the Company’s indebtedness had the following maturities (in thousands):

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 7—STOCKHOLDERS’ EQUITY AND STOCK OPTIONS

Equity Offering

On March 15, 2004, the Company completed the sale of two million shares of the Company’s common stock in an underwritten public offering (the “Equity Offering”) under the Company’s universal shelf registration statement, declared effective by the Commission on July 8, 2002. The Company received $51.1 million in net proceeds from the sale, which the Company used to repay indebtedness under the 2002 Credit Agreement and for general corporate purposes, including the funding of a portion of the Brookdale Transaction. As of September 30, 2004, $599.1 million aggregate offering price of securities remained available for offering under the Company’s universal shelf registration statement.

Deferred Stock Plans

On September 9, 2004 the Board of Directors of the Company approved the Ventas, Inc. Nonemployee Director Deferred Stock Compensation Plan (the “Director Deferred Stock Plan”). The Director Deferred Stock Plan permits each nonemployee member of the Board of Directors of the Company, in lieu of receipt his or her fees in cash (“Fees”), to defer any or all of such Fees and to receive the deferred Fees in the form of shares of common stock of the Company in an amount equal to the amount of such deferred Fees divided by the fair market value of a share of common stock of the Company as of the date on which such Fees would otherwise have been paid to such director. 500,000 shares of common stock of the Company have been reserved for issuance under the terms of the Director Deferred Stock Plan.

On September 9, 2004 the Board of Directors of the Company approved the Ventas, Inc. Executive Deferred Stock Compensation Plan (the “Executive Deferred Stock Plan”). The Executive Deferred Stock Plan permits each executive officer of the Company, in lieu of receipt of his or her cash compensation (“Compensation”), to defer any or all of such Compensation and to receive the deferred Compensation in the form of shares of common stock of the Company in an amount equal to the amount of such deferred Compensation divided by the fair market value of a share of common stock of the Company as of the date on which such Compensation would otherwise have been paid to such executive officer. 500,000 shares of common stock of the Company have been reserved for issuance under the terms of the Executive Deferred Stock Plan.

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Stock Options

The Company has five plans under which options to purchase its common stock have been, or may be, granted to officers, employees, and non-employee directors and one plan under which certain directors may receive common stock of the Company in lieu of director fees. The Company accounts for its stock-based employee compensation plans under the recognition and measurement principles of APB Opinion No. 25, and related interpretations. No stock-based employee compensation cost for stock options is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to all stock-based employee compensation (in thousands, except per share amounts):

In determining the estimated fair value of the Company’s stock options as of the date of grant, a Black-Scholes option pricing model was used with the following assumptions:

The Black-Scholes options valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different than those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. See “Note 2—Basis of Presentation—Recently Issued Accounting Standards.”

Dividends

The Company declared its first quarterly dividend for 2004 of $0.325 per share on February 26, 2004, which was paid in cash on March 25, 2004 to stockholders of record on March 15, 2004. The Company declared its second quarterly dividend for 2004 of $0.325 per share on May 21, 2004, which was paid in cash on June 24, 2004 to stockholders of record on June 7, 2004. The Company declared its third quarterly dividend for 2004 of $0.325 per share on September 9, 2004, which was paid in cash on September 30, 2004 to stockholders of record on September 20, 2004. As a REIT, the Company is required to distribute to its stockholders 90% of its taxable income. Although the Company currently intends to distribute 100% or more of its taxable income for 2004 in quarterly installments, there can be no assurance that it will do so or as to when the remaining distributions will be made.

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company’s estimate of its 2004 taxable income and the related quarterly dividends is based on a number of assumptions, including, but not limited to, the following: Kindred performs its obligations under the Kindred Master Leases and the various agreements (the “Spin Agreements”) entered into by the Company and Kindred at the time of the 1998 Spin Off, as such agreements may have been amended and restated in connection with Kindred’s emergence from bankruptcy on April 20, 2001; the Company’s other tenants perform their obligations under their leases with the Company; no capital transactions, acquisitions or divestitures occur; the Company’s tax and accounting positions do not change; and the number of issued and outstanding shares of the Company’s common stock remain relatively unchanged. These assumptions impacting the estimate of the Company’s 2004 taxable income are subject to change and many are outside the control of the Company. If actual results vary from these assumptions, the Company’s expectations regarding future dividends may change.

For purposes of the required REIT distributions, the Company’s taxable income may vary significantly from historical results and from current income determined in accordance with GAAP depending on the resolution of a variety of factors. Under certain circumstances, the Company may be required to make distributions in excess of funds from operations (“FFO”) in order to meet such distribution requirements. In the event that timing differences or cash needs occur, the Company may find it necessary to borrow funds or to issue equity securities (there being no assurance that it will be able to do so) or, if possible, to pay taxable stock dividends, distribute other property or securities or engage in a transaction intended to enable it to meet the REIT distribution requirements. The Company’s ability to engage in certain of these transactions may be restricted in certain circumstances by the terms of the indentures governing the 2009 Notes, the 2012 Notes and the 2014 Notes (defined below) of Ventas Realty and Ventas Capital Corporation (“Ventas Capital,” and together with Ventas Realty, the “Issuers”) (collectively, the “Senior Notes”) and the 2004 Credit Agreement (See “Note 12—Subsequent Event”). If so restricted, such transaction would likely require the consent of the Required Lenders (as defined in the 2004 Credit Agreement) and/or the holders of a majority in principal amount of each series of outstanding Senior Notes, and there can be no assurance that such consents would be obtained. In addition, the failure or inability of Kindred to make rental payments under the Kindred Master Leases would materially impair the ability of the Company to make distributions. Consequently, there can be no assurance that the Company will be able to make distributions at the required distribution rate or any other rate.

Although the Company intends to continue to qualify as a REIT for the year ending December 31, 2004 and subsequent years, it is possible that economic, market, legal, tax or other considerations may cause the Company to fail, or elect not, to continue to qualify as a REIT in any such year. If the Company were to fail, or elect not, to continue to qualify as a REIT in any such year, the Company would be subject to 35% federal income tax and to the applicable state and local income taxes for the affected years. Such tax obligations would have a Material Adverse Effect on the Company. Unless eligible for limited relief, if the Company failed, or revoked its election, to qualify as a REIT, the Company would not be eligible to elect again to be treated as a REIT before the fifth taxable year after the year of such termination or revocation.

NOTE 8—LITIGATION

Legal Proceedings Presently Defended and Indemnified by Kindred Under the Spin Agreements

The following litigation and other matters arose from the Company’s operations prior to the time of the 1998 Spin Off or relate to assets or liabilities transferred to Kindred in connection with the 1998 Spin Off. Under the Spin Agreements, Kindred agreed to assume the defense, on behalf of the Company, of any claims that (a) were pending at the time of the 1998 Spin Off and which arose out of the ownership or operation of the healthcare operations or any of the assets or liabilities transferred to Kindred in connection with the 1998 Spin Off, or (b) were asserted after the 1998 Spin Off and which arose out of the ownership and operation of the healthcare operations or any of the assets or liabilities transferred to Kindred in connection with the 1998 Spin Off, and to indemnify the Company for any fees, costs, expenses and liabilities arising out of such operations (the “Indemnification”). Kindred is presently defending the Company in the matters described below, among others. Under the Final Plan, Kindred assumed and agreed to abide by the Indemnification and to defend the Company in these and other matters as required under the

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Spin Agreements. However, there can be no assurance that Kindred will continue to defend the Company in such matters or that Kindred will have sufficient assets, income and access to financing to enable it to satisfy such obligations or its obligations incurred in connection with the 1998 Spin Off. In addition, many of the following descriptions are based primarily on information included in Kindred’s public filings and information provided to the Company by Kindred. There can be no assurance that Kindred has included in its public filings and provided the Company complete and accurate information in all instances.

A stockholder derivative suit entitled Thomas G. White on behalf of Ventas, Inc. v. W. Bruce Lunsford, et al., Case No. 98 C103669 was filed in June 1998 in the Jefferson County, Kentucky, Circuit Court. The complaint alleges, among other things, that certain former officers and directors damaged the Company by engaging in breaches of fiduciary duty, insider trading, fraud and securities fraud and damaging the reputation of the Company. The suit seeks unspecified damages, interest, punitive damages, reasonable attorneys’ fees, other costs, and any extraordinary equitable and/or injunctive relief permitted by law or equity to assure the plaintiff has an effective remedy. The Company believes the allegations in the complaint are without merit. On October 4, 2002, Kindred filed with the Court a motion to dismiss this action as to all defendants, including the Company, for lack of prosecution by the plaintiffs. On October 14, 2002, the Court granted Kindred’s motion to dismiss with prejudice. On October 17, 2002, the plaintiffs filed with the Court a motion to vacate that order of dismissal in order to allow further briefing. In response to the plaintiffs’ October 17, 2002 motion to vacate the order of dismissal, on August 13, 2003, the Court issued an order declining to dismiss the suit. In September 2003, Kindred filed a motion to dismiss this action as to all defendants, including the Company, based on plaintiff’s failure to make demand for remedy upon the appropriate Board of Directors. On March 18, 2004, the presiding judge recused himself and this action was reassigned. In July 2004 the Court ruled that it would consider the motion to dismiss this action based upon plaintiffs’ failure to make demand for remedy upon the appropriate Board of Directors. Kindred has indicated that it intends to continue to defend this action vigorously on behalf of the Company. The Company is unable at this time to estimate the possible loss or range of loss for this action and, therefore, no provision for liability, if any, resulting from this litigation has been made in the Company’s Condensed Consolidated Financial Statements as of September 30, 2004.

A class action lawsuit entitled Sally Pratt, et al. v. Ventas, Inc. et al. was filed on May 25, 2001 in the United States District Court for the Western District of Kentucky (Civil Action No. 3-01CV-317-H). The putative class action complaint alleged that the Company and certain current and former officers and employees of the Company engaged in a fraudulent scheme to conceal the true nature and substance of the 1998 Spin Off resulting in (a) a violation of the Racketeer Influenced and Corrupt Organizations Act, (b) bankruptcy fraud, (c) common law fraud, and (d) a deprivation of plaintiffs’ civil rights. The plaintiffs allege that the defendants failed to act affirmatively to explain and disclose the fact that the Company was the entity that had been known as Vencor, Inc. prior to the 1998 Spin Off and that a new separate and distinct legal entity assumed the name of Vencor, Inc. after the 1998 Spin Off. The plaintiffs contended that the defendants filed misleading documents in the plaintiffs’ state court lawsuits that were pending at the time of the 1998 Spin Off and that the defendants deceptively used the Delaware bankruptcy proceedings of Vencor, Inc. (now Kindred) to stay lawsuits against the Company. As a result of these actions, the plaintiffs maintained that they and similarly situated individuals suffered and will continue to suffer severe financial harm. The suit sought compensatory damages (trebled with interest), actual and punitive damages, reasonable attorneys’ fees, costs and expenses, declaratory and injunctive and any and all other relief to which the plaintiffs may be entitled. Before any class of plaintiffs was certified, this action was dismissed in its entirety on February 4, 2002 because it was deemed to be an impermissible collateral attack on the Delaware Bankruptcy Court’s confirmation order. The plaintiffs thereafter filed an appeal of the District Court’s dismissal to the United States Court of Appeals for the Sixth Circuit. However, on plaintiffs’ motion, the appeal was stayed after the plaintiffs separately filed a motion with the Delaware Bankruptcy Court seeking, among other things, to have the Delaware Bankruptcy Court set aside portions of the releases of the Company contained in the Final Plan, as such releases might apply to the plaintiffs. On September 19, 2002, the Delaware Bankruptcy Court denied the plaintiffs’ motion. On February 28, 2003, the plaintiffs resumed their Sixth Circuit appeal. On April 20, 2004, the Sixth Circuit affirmed the District Court’s dismissal of this action, and that dismissal is now final.

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Kindred is a party to certain legal actions and regulatory investigations arising in the normal course of its business. The Company is a party to certain legal actions and regulatory investigations that arise from the normal course of its prior healthcare operations, which legal actions and regulatory investigations are being defended by Kindred under the Indemnification. Neither the Company nor Kindred is able to predict the ultimate outcome of pending litigation and regulatory investigations. In addition, there can be no assurance that the Centers for Medicare and Medicaid Services or other regulatory agencies will not initiate additional investigations related to Kindred’s business or the Company’s prior healthcare business in the future, nor can there be any assurance that the resolution of any litigation or investigations, either individually or in the aggregate, would not have a material adverse effect on Kindred’s liquidity, financial position or results of operations, which in turn could have a Material Adverse Effect on the Company.

Other Litigation

The Company is a plaintiff in an action seeking a declaratory judgment and damages entitled Ventas Realty, Limited Partnership et al. v. Black Diamond CLO 1998-1 Ltd., et al., Case No. 99C107076, filed November 22, 1999 in the Circuit Court of Jefferson County, Kentucky. Two of the three defendants in that action, Black Diamond International Funding, Ltd. and BDC Finance, LLC (collectively “Black Diamond”), have asserted counterclaims against the Company under theories of breach of contract, tortious interference with contract and abuse of process. The Company disputes the material allegations contained in Black Diamond’s counterclaims and the Company intends to continue to pursue its claims and defend the counterclaims vigorously. There were no material developments in this action during the three months ended September 30, 2004. The Company is unable at this time to estimate the possible loss or range of loss for the counterclaims in this action, and therefore, no provision for liability, if any, resulting from this litigation has been made in the Company’s Condensed Consolidated Financial Statements as of September 30, 2004.

The Company is the plaintiff in an action entitled Ventas, Inc. v. Sullivan & Cromwell, Case No. 02-5232 filed by the Company June 27, 2002 in the Superior Court of the District of Columbia. The complaint asserts claims of legal malpractice and breach of fiduciary duty by Sullivan & Cromwell in connection with its legal representation of the Company in the 1998 Spin-Off. The Court has denied all of Sullivan & Cromwell’s motions to dismiss the action to date. The Court set a January 23, 2006 trial date for this action. Although the Company intends to pursue its claims in this action vigorously, there can be no assurances that the Company will prevail on any of the claims in this action, or, if the Company does prevail on one or more of the claims, the amount of the recovery that may be awarded to the Company for such claims.

The Company is party to various other lawsuits arising in the normal course of the Company’s business. It is the opinion of management that, except as set forth in this Note 8, the disposition of these lawsuits will not, individually or in the aggregate, have a Material Adverse Effect on the Company. If management’s assessment of the Company’s liability with respect to these actions is incorrect, such lawsuits could have a Material Adverse Effect on the Company.

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VENTAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9—EARNINGS PER SHARE

The following table shows the amounts used in computing basic and diluted earnings per share (in thousands, except per share amounts):