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EX-31.1 - SECTION 302 CEO CERTIFICATION - VENTAS INCvtr-ex311_2015331.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - VENTAS INCvtr-ex322_2015331.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - VENTAS INCvtr-ex321_2015331.htm
EX-12.1 - STATEMENT REGARDING COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES - VENTAS INCvtr-ex121_2015331.htm
EXCEL - IDEA: XBRL DOCUMENT - VENTAS INCFinancial_Report.xls
EX-31.2 - SECTION 302 CFO CERTIFICATION - VENTAS INCvtr-ex312_2015331.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015
OR
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                        TO
Commission file number: 1-10989
 
Ventas, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
 
61-1055020
(I.R.S. Employer
Identification No.)
353 N. Clark Street, Suite 3300
Chicago, Illinois
(Address of Principal Executive Offices)
60654
(Zip Code)
(877) 483-6827
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 (Do not check if a
smaller reporting company)
 
Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨    No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class of Common Stock:
 
Outstanding at April 22, 2015:
Common Stock, $0.25 par value
 
330,882,196



VENTAS, INC.
FORM 10-Q
INDEX

 
 
 
 
 
 
 
 
 
Page
 
 
 
 
 
 
Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014
 
 
 
Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014
 
 
 
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014
 
 
 
Consolidated Statements of Equity for the Three Months Ended March 31, 2015 and the Year Ended December 31, 2014
 
 
 
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1A.
 
Risk Factors
 
 
 
 
 




PART I—FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
VENTAS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
 
March 31,
2015
 
December 31,
2014
Assets
 
 
 
Real estate investments:
 
 
 
Land and improvements
$
2,252,402

 
$
1,956,128

Buildings and improvements
21,933,742

 
19,895,043

Construction in progress
134,195

 
120,123

Acquired lease intangibles
1,300,654

 
1,039,651

 
25,620,993

 
23,010,945

Accumulated depreciation and amortization
(4,202,334
)
 
(4,025,386
)
Net real estate property
21,418,659

 
18,985,559

Secured loans receivable and investments, net
773,773

 
829,756

Investments in unconsolidated entities
95,147

 
91,872

Net real estate investments
22,287,579

 
19,907,187

Cash and cash equivalents
120,225

 
55,348

Escrow deposits and restricted cash
223,772

 
71,771

Deferred financing costs, net
71,386

 
60,328

Other assets
1,736,909

 
1,131,537

Total assets
$
24,439,871

 
$
21,226,171

Liabilities and equity
 
 
 
Liabilities:
 
 
 
Senior notes payable and other debt
$
11,603,925

 
$
10,888,092

Accrued interest
77,359

 
62,097

Accounts payable and other liabilities
1,016,592

 
1,005,232

Deferred income taxes
371,785

 
344,337

Total liabilities
13,069,661

 
12,299,758

Redeemable OP unitholder and noncontrolling interests
257,246

 
172,016

Commitments and contingencies

 

Equity:
 
 
 
Ventas stockholders’ equity:
 
 
 
Preferred stock, $1.00 par value; 10,000 shares authorized, unissued

 

Common stock, $0.25 par value; 600,000 shares authorized, 330,913 and 298,478 shares issued at March 31, 2015 and December 31, 2014, respectively
82,718

 
74,656

Capital in excess of par value
12,616,056

 
10,119,306

Accumulated other comprehensive income
4,357

 
13,121

Retained earnings (deficit)
(1,660,856
)
 
(1,526,388
)
Treasury stock, 32 and 7 shares at March 31, 2015 and December 31, 2014, respectively
(2,385
)
 
(511
)
Total Ventas stockholders’ equity
11,039,890

 
8,680,184

Noncontrolling interest
73,074

 
74,213

Total equity
11,112,964

 
8,754,397

Total liabilities and equity
$
24,439,871

 
$
21,226,171

See accompanying notes.

1


VENTAS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
 
For the Three Months Ended March 31,
 
2015
 
2014
Revenues:
 
 
 
Rental income:
 
 
 
Triple-net leased
$
266,206

 
$
237,846

Medical office buildings
136,990

 
115,223

 
403,196

 
353,069

Resident fees and services
446,914

 
371,061

Medical office building and other services revenue
10,543

 
6,300

Income from loans and investments
22,899

 
10,767

Interest and other income
472

 
273

Total revenues
884,024

 
741,470

Expenses:
 
 
 
Interest
106,590

 
87,841

Depreciation and amortization
247,441

 
193,594

Property-level operating expenses:
 
 
 
Senior living
298,362

 
248,295

Medical office buildings
42,349

 
39,345

 
340,711

 
287,640

Medical office building services costs
6,918

 
3,371

General, administrative and professional fees
34,330

 
32,866

Loss (gain) on extinguishment of debt, net
21

 
(259
)
Merger-related expenses and deal costs
35,172

 
10,760

Other
5,296

 
5,229

Total expenses
776,479

 
621,042

Income before (loss) income from unconsolidated entities, income taxes, discontinued operations, real estate dispositions and noncontrolling interest
107,545

 
120,428

(Loss) income from unconsolidated entities
(251
)
 
248

Income tax benefit (expense)
7,250

 
(3,433
)
Income from continuing operations
114,544

 
117,243

Discontinued operations
(423
)
 
3,031

Gain on real estate dispositions
6,686

 
1,000

Net income
120,807

 
121,274

Net income attributable to noncontrolling interest
365

 
227

Net income attributable to common stockholders
$
120,442

 
$
121,047

Earnings per common share:
 
 
 
Basic:
 
 
 
Income from continuing operations attributable to common stockholders, including real estate dispositions
$
0.37

 
$
0.40

Discontinued operations
(0.00
)
 
0.01

Net income attributable to common stockholders
$
0.37

 
$
0.41

Diluted:
 
 
 
Income from continuing operations attributable to common stockholders, including real estate dispositions
$
0.37

 
$
0.40

Discontinued operations
(0.00
)
 
0.01

Net income attributable to common stockholders
$
0.37

 
$
0.41

Weighted average shares used in computing earnings per common share:
 
 
 
Basic
325,454

 
293,875

Diluted
329,203

 
296,245

Dividends declared per common share
$
0.79

 
$
0.725

See accompanying notes.

2


VENTAS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
 
For the Three Months Ended March 31,
 
2015
 
2014
Net income
$
120,807

 
$
121,274

Other comprehensive loss:
 
 
 
Foreign currency translation
(10,872
)
 
(2,740
)
Change in unrealized gain on marketable securities
1,349

 
1,306

Other
759

 
239

Total other comprehensive loss
(8,764
)
 
(1,195
)
Comprehensive income
112,043

 
120,079

Comprehensive income attributable to noncontrolling interest
365

 
227

Comprehensive income attributable to common stockholders
$
111,678

 
$
119,852

   
See accompanying notes.

3


VENTAS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
For the Three Months Ended March 31, 2015 and the Year Ended December 31, 2014
(Unaudited)
(In thousands, except per share amounts)
 
Common
Stock Par
Value
 
Capital in
Excess of
Par Value
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
(Deficit)
 
Treasury
Stock
 
Total Ventas
Stockholders’
Equity
 
Noncontrolling
Interest
 
Total Equity
Balance at January 1, 2014
$
74,488

 
$
10,078,592

 
$
19,659

 
$
(1,126,541
)
 
$
(221,917
)
 
$
8,824,281

 
$
79,530

 
$
8,903,811

Net income

 

 

 
475,767

 

 
475,767

 
1,419

 
477,186

Other comprehensive loss

 

 
(6,538
)
 

 

 
(6,538
)
 

 
(6,538
)
Retirement of stock
(924
)
 
(220,152
)
 

 

 
221,076

 

 

 

Acquisition-related activity
37

 
10,141

 

 

 

 
10,178

 

 
10,178

Net change in noncontrolling interest

 
1,163

 

 

 

 
1,163

 
(8,662
)
 
(7,499
)
Dividends to common stockholders—$2.965 per share

 

 

 
(875,614
)
 

 
(875,614
)
 

 
(875,614
)
Issuance of common stock
845

 
241,262

 

 

 

 
242,107

 

 
242,107

Issuance of common stock for stock plans
173

 
29,266

 

 

 
3,858

 
33,297

 

 
33,297

Change in redeemable noncontrolling interest

 
(1,082
)
 

 

 

 
(1,082
)
 
1,926

 
844

Adjust redeemable OP unitholder interests to current fair value

 
(32,993
)
 

 

 

 
(32,993
)
 

 
(32,993
)
Purchase of OP units
1

 
(83
)
 

 

 

 
(82
)
 

 
(82
)
Grant of restricted stock, net of forfeitures
36

 
13,192

 

 

 
(3,528
)
 
9,700

 

 
9,700

Balance at December 31, 2014
74,656

 
10,119,306

 
13,121

 
(1,526,388
)
 
(511
)
 
8,680,184

 
74,213

 
8,754,397

Net income

 

 

 
120,442

 

 
120,442

 
365

 
120,807

Other comprehensive loss

 

 
(8,764
)
 

 

 
(8,764
)
 

 
(8,764
)
Acquisition-related activity
7,103

 
2,209,172

 

 

 

 
2,216,275

 

 
2,216,275

Net change in noncontrolling interest

 

 

 

 

 

 
(1,822
)
 
(1,822
)
Dividends to common stockholders—$0.79 per share

 

 

 
(254,910
)
 

 
(254,910
)
 

 
(254,910
)
Issuance of common stock
938

 
284,389

 

 

 

 
285,327

 

 
285,327

Issuance of common stock for stock plans
21

 
3,252

 

 

 
3,890

 
7,163

 

 
7,163

Change in redeemable noncontrolling interest

 
787

 

 

 

 
787

 
318

 
1,105

Adjust redeemable OP unitholder interests to current fair value

 
(4,525
)
 

 

 

 
(4,525
)
 

 
(4,525
)
Purchase of OP units

 
(159
)
 

 

 

 
(159
)
 

 
(159
)
Grant of restricted stock, net of forfeitures

 
3,834

 

 

 
(5,764
)
 
(1,930
)
 

 
(1,930
)
Balance at March 31, 2015
$
82,718

 
$
12,616,056

 
$
4,357

 
$
(1,660,856
)
 
$
(2,385
)
 
$
11,039,890

 
$
73,074

 
$
11,112,964

See accompanying notes.

4


VENTAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
For the Three Months Ended March 31,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
120,807

 
$
121,274

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization (including amounts in discontinued operations)
247,453

 
193,876

Amortization of deferred revenue and lease intangibles, net
(6,603
)
 
(5,383
)
Other non-cash amortization
(519
)
 
(1,965
)
Stock-based compensation
6,307

 
6,044

Straight-lining of rental income, net
(8,679
)
 
(7,914
)
Loss (gain) on extinguishment of debt, net
21

 
(259
)
Gain on real estate dispositions (including amounts in discontinued operations)
(6,686
)
 
(2,437
)
Income tax (benefit) expense
(7,850
)
 
3,433

Loss (income) from unconsolidated entities
251

 
(248
)
Other
2,860

 
3,076

Changes in operating assets and liabilities:
 
 
 
Decrease in other assets
4,615

 
6,241

Increase in accrued interest
15,792

 
6,753

Decrease in accounts payable and other liabilities
(23,600
)
 
(38,070
)
Net cash provided by operating activities
344,169

 
284,421

Cash flows from investing activities:
 
 
 
Net investment in real estate property
(1,072,539
)
 
(181,866
)
Investment in loans receivable and other
(39,573
)
 
(1,192
)
Proceeds from real estate disposals
166,341

 
26,150

Proceeds from loans receivable
92,056

 
1,163

Purchase of marketable securities

 
(25,000
)
Funds held in escrow for future development expenditures
4,003

 
2,602

Development project expenditures
(33,467
)
 
(23,948
)
Capital expenditures
(21,171
)
 
(16,134
)
Other
(4,180
)
 
(125
)
Net cash used in investing activities
(908,530
)
 
(218,350
)
Cash flows from financing activities:
 
 
 
Net change in borrowings under credit facility
(452,897
)
 
181,754

Proceeds from debt
1,092,833

 

Repayment of debt
(24,647
)
 
(67,773
)
Purchase of noncontrolling interest
(2,660
)
 

Payment of deferred financing costs
(14,435
)
 
(167
)
Issuance of common stock, net
285,327

 

Cash distribution to common stockholders
(254,910
)
 
(213,473
)
Cash distribution to redeemable OP unitholders
(2,365
)
 
(1,402
)
Purchases of redeemable OP units
(569
)
 

Distributions to noncontrolling interest
(1,822
)
 
(2,237
)
Other
5,690

 
1,641

Net cash provided by (used in) financing activities
629,545

 
(101,657
)
Net increase (decrease) in cash and cash equivalents
65,184

 
(35,586
)
Effect of foreign currency translation on cash and cash equivalents
(307
)
 
561

Cash and cash equivalents at beginning of period
55,348

 
94,816

Cash and cash equivalents at end of period
$
120,225

 
$
59,791

See accompanying notes.

5



VENTAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(In thousands)
 
For the Three Months Ended March 31,
 
2015
 
2014
Supplemental schedule of non-cash activities:
 
 
 
Assets and liabilities assumed from acquisitions:
 
 
 
Real estate investments
$
2,542,829

 
$
2,952

Other assets acquired
16,711

 

Debt assumed
177,857

 

Other liabilities
45,736

 
2,952

Deferred income tax liability
44,117

 

Noncontrolling interests
87,245

 

Equity issued
2,204,585

 

See accompanying notes.


6


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—DESCRIPTION OF BUSINESS
Ventas, Inc. (together with its subsidiaries, unless otherwise indicated or except where the context otherwise requires, “we,” “us” or “our”), an S&P 500 company, is a real estate investment trust (“REIT”) with a highly diversified portfolio of seniors housing and healthcare properties located throughout the United States, Canada and the United Kingdom. As of March 31, 2015, we owned more than 1,600 properties (including properties classified as held for sale), consisting of seniors housing communities, medical office buildings (“MOBs”), skilled nursing and other facilities, and hospitals, and we had one property under development. Our company was originally founded in 1983 and is currently headquartered in Chicago, Illinois.
We primarily invest in seniors housing and healthcare properties through acquisitions and lease our properties to unaffiliated tenants or operate them through independent third-party managers. As of March 31, 2015, we leased a total of 952 properties (excluding MOBs and properties classified as held for sale) to various healthcare operating companies under “triple-net” or “absolute-net” leases that obligate the tenants to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures, and we engaged independent operators, such as Atria Senior Living, Inc. (“Atria”) and Sunrise Senior Living, LLC (together with its subsidiaries, “Sunrise”), to manage a total of 305 of our seniors housing communities for us pursuant to long-term management agreements. Our two largest tenants, Brookdale Senior Living Inc. (together with its subsidiaries, “Brookdale Senior Living”) and Kindred Healthcare, Inc. (together with its subsidiaries, “Kindred”) leased from us 145 properties (excluding six properties included in investments in unconsolidated entities) and 83 properties, respectively, as of March 31, 2015.
Through our Lillibridge Healthcare Services, Inc. (“Lillibridge”) subsidiary and our ownership interest in PMB Real Estate Services LLC (“PMBRES”), we also provide MOB management, leasing, marketing, facility development and advisory services to highly rated hospitals and health systems throughout the United States. In addition, from time to time, we make secured and unsecured loans and other investments relating to seniors housing and healthcare operators or properties.
NOTE 2—ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the Securities and Exchange Commission (“SEC”) 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 three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The accompanying Consolidated Financial Statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 13, 2015. Certain prior period amounts have been reclassified to conform to the current period presentation.
Principles of Consolidation
The accompanying Consolidated Financial Statements include our accounts and the accounts of our wholly owned subsidiaries and the joint venture entities over which we exercise control. All intercompany transactions and balances have been eliminated in consolidation, and our net earnings are reduced by the portion of net earnings attributable to noncontrolling interests.
GAAP requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; and (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. We consolidate our investment in a VIE when we determine that we are its primary beneficiary. We may change our original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affects the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary.

7


We identify the primary beneficiary of a VIE as the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. We perform this analysis on an ongoing basis.
As it relates to investments in joint ventures, GAAP may preclude consolidation by the sole general partner in certain circumstances based on the type of rights held by the limited partner(s). We assess limited partners’ rights and their impact on the presumption of control of the limited partnership by the sole general partner when an investor becomes the sole general partner, and we reassess if there is a change to the terms or in the exercisability of the rights of the limited partners, the sole general partner increases or decreases its ownership of limited partnership interests, or there is an increase or decrease in the number of outstanding limited partnership interests. We also apply this guidance to managing member interests in limited liability companies.
Redeemable OP Unitholder and Noncontrolling Interests
We own a majority interest in NHP/PMB L.P. (“NHP/PMB”), a limited partnership formed in 2008 to acquire properties from entities affiliated with Pacific Medical Buildings LLC. We consolidate NHP/PMB, as our wholly owned subsidiary is the general partner and exercises control of the partnership. As of March 31, 2015, third party investors owned 2,812,402 Class A limited partnership units in NHP/PMB (“OP Units”), which represented 29.4% of the total units then outstanding, and we owned 6,762,711 Class B limited partnership units in NHP/PMB, representing the remaining 70.6%. At any time following the first anniversary of the date of their issuance, the OP Units may be redeemed at the election of the holder for cash or, at our option, 0.7866 shares of our common stock per unit, subject to adjustment in certain circumstances. We are party by assumption to a registration rights agreement with the holders of the OP Units that requires us, subject to the terms and conditions and certain exceptions set forth therein, to file and maintain a registration statement relating to the issuance of shares of our common stock upon redemption of OP Units.
On January 16, 2015, in connection with our acquisition of American Realty Capital Healthcare Trust, Inc. (“HCT”), each of the 7,057,271 issued and outstanding limited partnership units of American Realty Capital Healthcare Trust Operating Partnership, L.P. (subsequently renamed Ventas Realty Capital Healthcare Trust Operating Partnership, L.P. (“Ventas Realty OP”)), a limited partnership in which HCT was the sole general partner prior to the acquisition, was converted into a newly created class of limited partnership units (“Class C Units”) at the 0.1688 exchange ratio payable to HCT stockholders in the acquisition, net of any Class C Units withheld to pay taxes. We consolidate Ventas Realty OP, as our wholly owned subsidiary is the general partner and exercises control of the partnership. The Class C Units may be redeemed at the election of the holder for one share of our common stock per unit or, at our option, an equivalent amount in cash, subject to adjustment in certain circumstances. As of March 31, 2015, third party investors owned 1,118,525 Class C Units, which represented 3.7% of the total units then outstanding, and we owned 28,550,812 Class C Units and 176,374 OP units in Ventas Realty OP, representing the remaining 96.3%. In April 2015, third party investors redeemed 445,541 Class C Units for approximately $32.6 million. We are party by assumption to a registration rights agreement with the holders of the Class C Units that requires us, subject to the terms and conditions and certain exceptions set forth therein, to file and maintain a registration statement relating to the issuance of shares of our common stock upon redemption of Class C Units.
As redemption rights are outside of our control, the redeemable OP unitholder interests are classified outside of permanent equity on our Consolidated Balance Sheets. We reflect the redeemable OP unitholder interests at the greater of cost or fair value. As of March 31, 2015 and December 31, 2014, the fair value of the redeemable OP unitholder interests was $248.1 million and $159.1 million, respectively. We recognize changes in fair value through capital in excess of par value, net of cash distributions paid and purchases by us of any OP Units or Class C Units. Our diluted earnings per share (“EPS”) includes the effect of any potential shares outstanding from redemption of the OP Units or Class C Units.
Certain noncontrolling interests of other consolidated joint ventures were also classified as redeemable at March 31, 2015 and December 31, 2014. Accordingly, we record the carrying amount of these noncontrolling interests at the greater of their initial carrying amount (increased or decreased for the noncontrolling interest’s share of net income or loss and distributions) or the redemption value. Our joint venture partners have certain redemption rights with respect to their noncontrolling interests in these joint ventures that are outside of our control, and the redeemable noncontrolling interests are classified outside of permanent equity on our Consolidated Balance Sheets. We recognize changes in the carrying value of redeemable noncontrolling interests through capital in excess of par value.

8


Noncontrolling Interests
Excluding the redeemable noncontrolling interests described above, we present the portion of any equity that we do not own in entities that we control (and thus consolidate) as noncontrolling interests and classify those interests as a component of consolidated equity, separate from total Ventas stockholders’ equity, on our Consolidated Balance Sheets. For consolidated joint ventures with pro rata distribution allocations, net income or loss is allocated between the joint venture partners based on their respective stated ownership percentages. In other cases, net income or loss is allocated between the joint venture partners based on the hypothetical liquidation at book value method. We account for purchases or sales of equity interests that do not result in a change of control as equity transactions, through capital in excess of par value. In addition, we include net income attributable to the noncontrolling interests in net income in our Consolidated Statements of Income.
Business Combinations
We account for acquisitions using the acquisition method and allocate the cost of the businesses acquired among tangible and recognized intangible assets and liabilities based upon their estimated fair values as of the acquisition date. Recognized intangibles primarily include the value of in-place leases, acquired lease contracts, tenant and customer relationships, trade names/trademarks and goodwill. We do not amortize goodwill, which represents the excess of the purchase price paid over the fair value of the net assets of the acquired business and is included in other assets on our Consolidated Balance Sheets.
We estimate the fair value of buildings acquired on an as-if-vacant basis and depreciate the building value over the estimated remaining life of the building, generally not to exceed 35 years. We determine the allocated value of other fixed assets, such as site improvements and furniture, fixtures and equipment, based upon the replacement cost and depreciate such value over the assets’ estimated remaining useful lives as determined at the applicable acquisition date. We determine the value of land either by considering the sales prices of similar properties in recent transactions or based on internal analyses of recently acquired and existing comparable properties within our portfolio. We generally determine the value of construction in progress based upon the replacement cost. However, for certain acquired properties that are part of a ground-up development, we determine fair value by using the same valuation approach as for all other properties and deducting the estimated cost to complete the development. During the remaining construction period, we capitalize interest expense until the development has reached substantial completion. Construction in progress, including capitalized interest, is not depreciated until the development has reached substantial completion.
The fair value of acquired lease-related intangibles, if any, reflects: (i) the estimated value of any above and/or below market leases, determined by discounting the difference between the estimated market rent and in-place lease rent; and (ii) the estimated value of in-place leases related to the cost to obtain tenants, including leasing commissions, and an estimated value of the absorption period to reflect the value of the rent and recovery costs foregone during a reasonable lease-up period as if the acquired space was vacant. We amortize any acquired lease-related intangibles to revenue or amortization expense over the remaining life of the associated lease plus any assumed bargain renewal periods. If a lease is terminated prior to its stated expiration or not renewed upon expiration, we recognize all unamortized amounts of lease-related intangibles associated with that lease in operations at that time.
We estimate the fair value of tenant or other customer relationships acquired, if any, by considering the nature and extent of existing business relationships with the tenant or customer, growth prospects for developing new business with the tenant or customer, the tenant’s credit quality, expectations of lease renewals with the tenant, and the potential for significant, additional future leasing arrangements with the tenant, and we amortize that value over the expected life of the associated arrangements or leases, including the remaining terms of the related leases and any expected renewal periods.
In connection with a business combination, we may assume rights and obligations under certain lease agreements pursuant to which we become the lessee of a given property. We assume the lease classification previously determined by the prior lessee absent a modification in the assumed lease agreement. We assess assumed operating leases, including ground leases, to determine whether the lease terms are favorable or unfavorable to us given current market conditions on the acquisition date. To the extent the lease terms are favorable or unfavorable to us relative to market conditions on the acquisition date, we recognize an intangible asset or liability at fair value and amortize that asset or liability to interest or rental expense in our Consolidated Statements of Income over the applicable lease term. We include all lease-related intangible assets and liabilities within acquired lease intangibles and accounts payable and other liabilities, respectively, on our Consolidated Balance Sheets.
We determine the fair value of loans receivable acquired in connection with a business combination by discounting the estimated future cash flows using current interest rates at which similar loans with the same terms and length to maturity would be made to borrowers with similar credit ratings. We do not establish a valuation allowance at the acquisition date because the estimated future cash flows already reflect our judgment regarding their uncertainty. We recognize the difference between the acquisition date fair value and the total expected cash flows as interest income using an effective interest method over the life

9


of the applicable loan. Subsequent to the acquisition date, we evaluate changes regarding the uncertainty of future cash flows and the need for a valuation allowance, as appropriate.
We estimate the fair value of noncontrolling interests assumed consistent with the manner in which we value all of the underlying assets and liabilities.
We calculate the fair value of long-term debt by discounting the remaining contractual cash flows on each instrument at the current market rate for those borrowings, which we approximate based on the rate at which we would expect to incur a replacement instrument on the date of acquisition, and recognize any fair value adjustments related to long-term debt as effective yield adjustments over the remaining term of the instrument.
Impairment of Long-Lived Assets
We periodically evaluate our long-lived assets, primarily consisting of investments in real estate, for impairment indicators. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying operations. In performing this evaluation, we consider market conditions and our current intentions with respect to holding or disposing of the asset. We adjust the net book value of leased properties and other long-lived assets to fair value if the sum of the expected future undiscounted cash flows, including sales proceeds, is less than book value. We recognize any shortfall from carrying value as an impairment loss in the current period.
Fair Values of Financial Instruments
Fair value is a market-based measurement, not an entity-specific measurement, and we determine fair value based on the assumptions that we expect market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, GAAP establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within levels one and two of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within level three of the hierarchy).
Level one inputs utilize unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access. Level two inputs consist of inputs other than quoted prices included in level one that are directly or indirectly observable for the asset or liability. Level two inputs may include quoted prices for similar assets and liabilities in active markets and other inputs for the asset or liability that are observable at commonly quoted intervals, such as interest rates, foreign exchange rates and yield curves. Level three inputs are unobservable inputs for the asset or liability, which typically are based on our own assumptions, because there is little, if any, related market activity. If the determination of the fair value measurement is based on inputs from different levels of the hierarchy, the level within which the entire fair value measurement falls is the lowest level input that is significant to the fair value measurement in its entirety. If the volume and level of market activity for an asset or liability has decreased significantly relative to the normal market activity for that asset or liability (or similar assets or liabilities), then transactions or quoted prices may not accurately reflect fair value. In addition, if there is evidence that a transaction for an asset or liability is not orderly, little, if any, weight is placed on that transaction price as an indicator of fair value. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
We use the following methods and assumptions in estimating the fair value of our financial instruments.
Cash and cash equivalents - The carrying amount of unrestricted and restricted cash and cash equivalents reported on our Consolidated Balance Sheets approximates fair value due to the short maturity of these instruments.
Loans receivable - We estimate the fair value of loans receivable using level two and level three inputs: we discount the future cash flows using current interest rates at which similar loans with the same terms and length to maturity would be made to borrowers with similar credit ratings.
Marketable debt securities - We estimate the fair value of corporate bonds using level two inputs: we observe quoted prices for similar assets or liabilities in active markets that we have the ability to access. We estimate the fair value of certain government-sponsored pooled loan investments using level three inputs: we consider credit spreads, underlying asset performance and credit quality, default rates and any other applicable criteria.
Derivative instruments - With the assistance of a third party, we estimate the fair value of derivative instruments, including interest rate caps, interest rate swaps and foreign currency forward contracts, using level two inputs: for interest rate caps, we observe forward yield curves and other relevant information; for interest rate swaps, we observe alternative financing rates derived from market-based financing rates, forward yield curves and discount rates; and for foreign currency forward contracts, we estimate the future values of the two currency tranches using

10


forward exchange rates that are based on traded forward points and calculate a present value of the net amount using a discount factor based on observable traded interest rates.
Senior notes payable and other debt - We estimate the fair value of senior notes payable and other debt using level two inputs: we discount the future cash flows using current interest rates at which we could obtain similar borrowings. For mortgage debt, we may estimate fair value using level three inputs.
Redeemable OP unitholder interests - We estimate the fair value of our redeemable OP unitholder interests using level one inputs: we base fair value on the closing price of our common stock, as units may be redeemed at the election of the holder for cash or, at our option, shares of our common stock, subject to adjustment in certain circumstances.
Revenue Recognition
Triple-Net Leased Properties and MOB Operations
Certain of our triple-net leases and most of our MOB leases provide for periodic and determinable increases in base rent. We recognize base rental revenues under these leases on a straight-line basis over the applicable lease term when collectibility is reasonably assured. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in other assets on our Consolidated Balance Sheets. At March 31, 2015 and December 31, 2014, this cumulative excess totaled $195.2 million (net of allowances of $155.9 million) and $188.0 million (net of allowances of $145.1 million), respectively.
Certain of our leases provide for periodic increases in base rent only if certain revenue parameters or other substantive contingencies are met. We recognize the increased rental revenue under these leases as the related parameters or contingencies are met, rather than on a straight-line basis over the applicable lease term.
Senior Living Operations
We recognize resident fees and services, other than move-in fees, monthly as services are provided. We generally recognize move-in fees on a straight-line basis over the average resident stay. Our lease agreements with residents generally have terms of 12 to 18 months and are cancelable by the resident upon 30 days’ notice.
Other
We recognize interest income from loans and investments, including discounts and premiums, using the effective interest method when collectibility is reasonably assured. We apply the effective interest method on a loan-by-loan basis and recognize discounts and premiums as yield adjustments over the related loan term. We recognize interest income on an impaired loan to the extent our estimate of the fair value of the collateral is sufficient to support the balance of the loan, other receivables and all related accrued interest. When the balance of the loan, other receivables and all related accrued interest is equal to or less than our estimate of the fair value of the collateral, we recognize interest income on a cash basis. We provide a reserve against an impaired loan to the extent our total investment in the loan exceeds our estimate of the fair value of the loan collateral.
We recognize income from rent, lease termination fees, development services, management advisory services, and all other income when all of the following criteria are met in accordance with SEC Staff Accounting Bulletin 104: (i) the applicable agreement has been fully executed and delivered; (ii) services have been rendered; (iii) the amount is fixed or determinable; and (iv) collectibility is reasonably assured.
Allowances
We assess the collectibility of our rent receivables, including straight-line rent receivables. We base our assessment of the collectibility of rent receivables (other than straight-line rent receivables) on several factors, including, among other things, payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, if any, and current economic conditions. If our evaluation of these factors indicates it is probable that we will be unable to recover the full value of the receivable, we provide a reserve against the portion of the receivable that we estimate may not be recovered. We also base our assessment of the collectibility of straight-line rent receivables on several factors, including, among other things, the financial strength of the tenant and any guarantors, the historical operations and operating trends of the property, the historical payment pattern of the tenant and the type of property. If our evaluation of these factors indicates it is probable that we will be unable to receive the rent payments due in the future, we provide a reserve against the recognized straight-line rent receivable asset for the portion, up to its full value, that we estimate may not be recovered. If we change our assumptions or estimates regarding the collectibility of future rent payments required by a lease, we may adjust our reserve to increase or reduce the rental revenue recognized in the period we make such change in our assumptions or estimates.

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Recently Issued or Adopted Accounting Standards
In 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue From Contracts With Customers (“ASU 2014-09”), which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. ASU 2014-09 is effective for us beginning January 1, 2017, although on April 1, 2015, the FASB proposed a one-year deferral of the effective date for ASU 2014-09. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our consolidated financial statements, as a substantial portion of our revenue consists of rental income from leasing arrangements, which are specifically excluded from ASU 2014-09.
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”), which makes certain changes to both the variable interest model and the voting model, including changes to (1) the identification of variable interests (fees paid to a decision maker or service provider), (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. ASU 2015-02 is effective for us beginning January 1, 2016. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. Upon adoption, we will apply the new guidance on a retrospective basis and adjust the balance sheet of each individual period presented to reflect the period-specific effects of applying the new guidance. This guidance is effective for us beginning January 1, 2016. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our consolidated financial statements.
NOTE 3—CONCENTRATION OF CREDIT RISK
As of March 31, 2015, Atria, Sunrise, Brookdale Senior Living and Kindred managed or operated approximately 21.1%, 11.0%, 8.2% and 2.0%, respectively, of our real estate investments based on gross book value (excluding properties classified as held for sale as of March 31, 2015). Seniors housing communities constituted approximately 61.5% of our real estate investments based on gross book value (excluding properties classified as held for sale as of March 31, 2015), while MOBs, skilled nursing and other facilities, and hospitals collectively comprised the remaining 38.5%. Our properties were located in 47 states, the District of Columbia, seven Canadian provinces and the United Kingdom as of March 31, 2015, with properties in one state (California) accounting for more than 10% of our total revenues and total net operating income (“NOI,” which is defined as total revenues, excluding interest and other income, less property-level operating expenses and medical office building services costs) for the three months then ended.
Triple-Net Leased Properties
For the three months ended March 31, 2015 and 2014, approximately 5.5% and 5.5%, respectively, of our total revenues and 9.1% and 9.0%, respectively, of our total NOI (in each case excluding amounts in discontinued operations) were derived from our lease agreements with Brookdale Senior Living. For the same periods, approximately 5.3% and 7.4%, respectively, of our total revenues and 8.8% and 12.2%, respectively, of our total NOI (in each case excluding amounts in discontinued operations) were derived from our lease agreements with Kindred. Each of our leases with Brookdale Senior Living and Kindred is a triple-net lease that obligates the tenant to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures, and to comply with the terms of the mortgage financing documents, if any, affecting the properties. In addition, each of these leases has guaranty and cross-default provisions tied to other leases with the same tenant or its affiliates, as well as bundled lease renewals.
The properties we lease to Brookdale Senior Living and Kindred accounted for a significant portion of our triple-net leased properties segment revenues and NOI for the three months ended March 31, 2015 and 2014. If either Brookdale Senior Living or Kindred becomes unable or unwilling to satisfy its obligations to us or to renew its leases with us upon expiration of the terms thereof, our financial condition and results of operations could decline and our ability to service our indebtedness and to make distributions to our stockholders could be limited. We cannot assure you that Brookdale Senior Living and Kindred will have sufficient assets, income and access to financing to enable them to satisfy their respective obligations to us, and any failure, inability or unwillingness by Brookdale Senior Living or Kindred to do so could have a material adverse effect on our business, financial condition, results of operations and liquidity, our ability to service our indebtedness and other obligations and our ability to make distributions to our stockholders, as required for us to continue to qualify as a REIT (a “Material

12


Adverse Effect”). We also cannot assure you that Brookdale Senior Living and Kindred will elect to renew their respective leases with us upon expiration of the leases or that we will be able to reposition any non-renewed properties on a timely basis or on the same or better economic terms, if at all.
In December 2014, we entered into favorable agreements with Kindred to transition or sell the operations of nine licensed healthcare assets, make modifications to the master leases governing 34 leased assets, and reimburse us for certain deferred capital expenditures at skilled nursing facilities previously transferred to new operators. In January 2015, Kindred paid us $37 million in connection with these agreements, which is being amortized over the remaining lease term for the 34 assets governed by the modified master leases. We own or have the rights to all licenses and CONs at the nine properties to be transitioned or sold, and Kindred has extensive and detailed obligations to cooperate and ensure an orderly transition of the properties to another operator.
Senior Living Operations
As of March 31, 2015, Atria and Sunrise, collectively, provided comprehensive property management and accounting services with respect to 269 of our seniors housing communities, for which we pay annual management fees pursuant to long-term management agreements.
Because Atria and Sunrise manage our properties in exchange for the receipt of a management fee from us, we are not directly exposed to the credit risk of our managers in the same manner or to the same extent as our triple-net tenants. However, we rely on our managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our senior living operations efficiently and effectively. We also rely on our managers to set appropriate resident fees and otherwise operate our seniors housing communities in compliance with the terms of our management agreements and all applicable laws and regulations. Although we have various rights as the property owner under our management agreements, including various rights to terminate and exercise remedies under the agreements as provided therein, Atria’s or Sunrise’s failure, inability or unwillingness to satisfy its respective obligations under those agreements, to efficiently and effectively manage our properties or to provide timely and accurate accounting information with respect thereto could have a Material Adverse Effect on us. In addition, significant changes in Atria’s or Sunrise’s senior management or equity ownership or any adverse developments in their businesses and affairs or financial condition could have a Material Adverse Effect on us.
Our 34% ownership interest in Atria entitles us to certain rights and minority protections, as well as the right to appoint two of five members on the Atria Board of Directors.
Brookdale Senior Living, Kindred, Atria and Sunrise Information
Each of Brookdale Senior Living and Kindred is subject to the reporting requirements of the SEC and is required to file with the SEC annual reports containing audited financial information and quarterly reports containing unaudited financial information. The information related to Brookdale Senior Living and Kindred contained or referred to in this Quarterly Report on Form 10-Q has been derived from SEC filings made by Brookdale Senior Living or Kindred, as the case may be, or other publicly available information, or was provided to us by Brookdale Senior Living or Kindred, and we have not verified this information through an independent investigation or otherwise. We have no reason to believe that this information is inaccurate in any material respect, but we cannot assure you of its accuracy. We are providing this data for informational purposes only, and you are encouraged to obtain Brookdale Senior Living’s and Kindred’s publicly available filings, which can be found at the SEC’s website at www.sec.gov.
Neither Atria nor Sunrise is currently subject to the reporting requirements of the SEC. The information related to Atria and Sunrise contained or referred to within this Quarterly Report on Form 10-Q has been derived from publicly available information or was provided to us by Atria or Sunrise, as the case may be, and we have not verified this information through an independent investigation or otherwise. We have no reason to believe that this information is inaccurate in any material respect, but we cannot assure you of its accuracy.
NOTE 4—ACQUISITIONS OF REAL ESTATE PROPERTY
The following summarizes our acquisition and development activities during the three months ended March 31, 2015 and the year ended December 31, 2014. We acquire and invest in seniors housing and healthcare properties primarily to achieve an expected yield on investment, to grow and diversify our portfolio and revenue base, and to reduce our dependence on any single tenant, operator or manager, geographic location, asset type, business model or revenue source.

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2015 Acquisitions
HCT Acquisition
In January 2015, we acquired HCT in a stock and cash transaction, which added 152 properties to our portfolio. At the effective time of the merger, each share of HCT common stock outstanding (other than shares held by us, HCT or our respective subsidiaries, which shares were cancelled) was converted into the right to receive either 0.1688 shares of our common stock (with cash paid in lieu of fractional shares) or $11.33 per share in cash, at the election of each HCT shareholder. Shares of HCT common stock for which a valid election was not made were converted into the stock consideration. We funded the transaction through the issuance of approximately 28.4 million shares of our common stock and 1.1 million limited partnership units that are redeemable for shares of our common stock and the payment of approximately $11 million in cash (excluding cash in lieu of fractional shares). In addition, we assumed $167 million of mortgage debt and repaid approximately $730 million of debt, net of HCT cash on hand.
Other 2015 Acquisitions
In 2015, we made other investments totaling approximately $320 million, including the acquisition of five triple-net
leased properties in the United Kingdom and 12 skilled nursing facilities.

Estimated Fair Value
We are accounting for our 2015 acquisitions under the acquisition method in accordance with ASC Topic 805, Business Combinations (“ASC 805”). Our initial accounting for acquisitions completed during the three months ended March 31, 2015 remains subject to further adjustment. The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed, which we determined using level two and level three inputs:
 
Triple-Net Leased Properties
 
Senior Living Operations
 
MOB Operations
 
Total
 
(In thousands)
Land and improvements
$
91,559

 
$
70,713

 
$
170,683

 
$
332,955

Buildings and improvements
637,136

 
703,080

 
1,038,984

 
2,379,200

Acquired lease intangibles
28,334

 
83,867

 
167,720

 
279,921

Other assets
127,790

 
271,823

 
334,661

 
734,274

Total assets acquired
884,819

 
1,129,483

 
1,712,048

 
3,726,350

Notes payable and other debt

 
77,940

 
99,917

 
177,857

Other liabilities

28,738

 
44,499

 
44,403

 
117,640

Total liabilities assumed
28,738

 
122,439

 
144,320

 
295,497

Net assets acquired
856,081

 
1,007,044

 
1,567,728

 
3,430,853

Redeemable OP unitholder interests assumed
 
 
 
 
 
 
87,244

Cash acquired
 
 
 
 
 
 
54,716

Equity issued
 
 
 
 
 
 
2,216,355

Total cash used


 


 


 
$
1,072,538

Included in other assets above is $665.8 million of goodwill, which represents the excess of the purchase price over the fair value of the assets acquired and liabilities assumed as of the acquisition date. Goodwill has been allocated to our reportable business segments as follows: triple-net leased properties - $117.8 million; senior living operations - $217.8 million; and MOB operations - $330.2 million.
Aggregate Revenue and NOI
For the three months ended March 31, 2015, aggregate revenues and NOI derived from our 2015 real estate acquisitions during our period of ownership were $65.7 million and $39.7 million, respectively.
Transaction Costs
As of March 31, 2015, we had incurred a total of $33.5 million of acquisition-related costs related to our completed 2015 acquisitions, all of which were expensed as incurred and included in merger-related expenses and deal costs in our

14


Consolidated Statements of Income for the applicable periods. For the three months ended March 31, 2015 and 2014, we expensed $22.8 million and $0, respectively, of these acquisition-related costs related to our completed 2015 acquisitions.
Unaudited Pro Forma
The following table illustrates the effect on net income and earnings per share if we had consummated the HCT acquisition as of January 1, 2014.
 
For the Three Months Ended March 31,
 
2015
 
2014
 
(In thousands, except per share amounts)
Revenues
$
957,702

 
$
814,824

Income from continuing operations attributable to common stockholders, including real estate dispositions
$
123,064

 
$
119,989

Earnings per common share:
 
 
 
Basic:
 
 
 
Income from continuing operations attributable to common stockholders, including real estate dispositions
$
0.35

 
$
0.37

Diluted:
 
 
 
Income from continuing operations attributable to common stockholders, including real estate dispositions
$
0.34

 
$
0.37

Weighted average shares used in computing earnings per common share:
 
 
 
Basic
353,869

 
322,290

Diluted
358,736

 
325,778

Acquisition-related costs related to the HCT acquisition are not expected to have a continuing impact and, therefore, have been excluded from these pro forma results. The pro forma results also do not include the impact of any synergies that may be achieved in the HCT acquisition, any reduction in our borrowing costs resulting from the acquisition or any strategies that management may consider in order to continue to efficiently manage our operations, nor do they give pro forma effect to any other acquisitions, dispositions or capital markets transactions that we completed during the periods presented. These pro forma results are not necessarily indicative of the operating results that would have been obtained had the HCT acquisition occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.
2014 Acquisitions
Holiday Canada Acquisition
In August 2014, we acquired 29 seniors housing communities located in Canada from Holiday Retirement (the “Holiday Canada Acquisition”) for a purchase price of CAD 957.0 million. We also paid CAD 26.9 million in costs relating to the early repayment of debt at closing. We funded the Holiday Canada Acquisition initially through borrowings under a CAD 791.0 million unsecured term loan that we incurred in July 2014 (and subsequently repaid primarily through a private placement of senior notes in Canada) and the assumption of CAD 193.7 million of debt.
Other 2014 Acquisitions
During the year ended December 31, 2014, we also acquired three triple-net leased private hospitals (located in the United Kingdom), 26 triple-net leased seniors housing communities and four seniors housing communities that are being operated by independent third-party managers for aggregate consideration of approximately $812.0 million. We also paid $18.8 million in costs relating to the early repayment of debt at closing of the applicable transactions. In addition, we acquired a construction design, planning and consulting business to complement our MOB operations through the issuance of 148,241 shares of our common stock.
Completed Developments
During 2014, we completed the development of two MOBs and one seniors housing community, representing $41.2 million of net real estate property on our Consolidated Balance Sheets as of December 31, 2014.

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Estimated Fair Value
We are accounting for our 2014 acquisitions under the acquisition method in accordance with ASC 805 and have completed our initial accounting, which is subject to further adjustment. The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed in our 2014 real estate acquisitions, which we determined using level two and level three inputs:
 
Triple-Net Leased Properties
 
Senior Living Operations
 
Total
 
(In thousands)
Land and improvements
$
45,586

 
$
100,281

 
$
145,867

Buildings and improvements
546,849

 
1,081,384

 
1,628,233

Acquired lease intangibles
28,883

 
36,452

 
65,335

Other assets
227

 
12,393

 
12,620

Total assets acquired
621,545

 
1,230,510

 
1,852,055

Notes payable and other debt
12,927

 
228,150

 
241,077

Other liabilities

8,609

 
124,714

 
133,323

Total liabilities assumed
21,536

 
352,864

 
374,400

Net assets acquired
600,009

 
877,646

 
1,477,655

Cash acquired
227

 
8,704

 
8,931

Total cash used
$
599,782

 
$
868,942

 
$
1,468,724

NOTE 5—DISPOSITIONS
2015 Activity
During the three months ended March 31, 2015, we sold 21 triple-net leased properties and 22 MOBs for aggregate consideration of $336.7 million, including a $5.0 million lease termination fee (included within triple-net leased rental income in our Consolidated Statements of Income). As of March 31, 2015, $153.9 million of the proceeds received from these sales was held in an Internal Revenue Code Section 1031 exchange escrow account with a qualified intermediary and is intended to be used for qualifying acquisitions during 2015. We recognized a gain on the sales of these assets of $28.2 million (net of taxes), of which $21.4 million is being deferred due to an unsecured loan we made to the buyer in connection with the sale of certain assets. The gain will be deferred and subsequently recognized into income as principal payments are made on the loan over its five-year term. In April 2015, we sold two MOBs for aggregate consideration of $46.0 million.
2014 Activity
During the three months ended March 31, 2014, we sold three triple-net leased properties and three MOBs for aggregate consideration of $26.2 million and recognized a net gain on the sales of these assets of $2.9 million, of which $1.7 million is reported within discontinued operations in our Consolidated Statements of Income.
Discontinued Operations and Assets Held for Sale
We present separately, as discontinued operations in all periods presented, the results of operations for all real estate assets classified as held for sale as of March 31, 2015, and all real estate assets disposed of during the period from January 1, 2013 through March 31, 2015, that meet the criteria of discontinued operations.


16


The table below summarizes our real estate assets classified as held for sale as of March 31, 2015 and December 31, 2014, including the amounts reported within other assets and accounts payable and other liabilities on our Consolidated Balance Sheets.
 
 
March 31, 2015
 
December 31, 2014
 
 
Number of Properties Held for Sale (1)
 
Other Assets
 
Accounts Payable and Other Liabilities
 
Number of Properties Held for Sale (1)
 
Other Assets
 
Accounts Payable and Other Liabilities
 
 
(Dollars in thousands)
Triple-net leased properties
 
14

 
$
46,519

 
$
1,346

 
14

 
$
34,097

 
$
1,330

MOB operations
 
14

 
127,706

 
36,917

 
36

 
176,366

 
48,895

Total
 
28

 
$
174,225

 
$
38,263

 
50

 
$
210,463

 
$
50,225

 
 
 
 
 
(1)
The operations for three triple-net leased properties and two MOBs are reported in discontinued operations in our Consolidated Statements of Income.

We recognized impairments of $19.2 million and $4.8 million for the three months ended March 31, 2015 and 2014, respectively, which are recorded primarily as a component of depreciation and amortization. For the three months ended March 31, 2014, $0.4 million of impairments were recorded in discontinued operations in our Consolidated Statements of Income.

Set forth below is a summary of our results of operations for properties within discontinued operations for the three months ended March 31, 2015 and 2014.
 
For the Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Revenues:
 
 
 
Rental income
$
72

 
$
2,200

Interest and other income

 
750

 
72

 
2,950

Expenses:
 
 
 
Interest
252

 
678

Depreciation and amortization
12

 
281

Property-level operating expenses
88

 
281

Other
143

 
116

 
495

 
1,356

(Loss) income before gain on real estate dispositions
(423
)
 
1,594

Gain on real estate dispositions

 
1,437

Discontinued operations
$
(423
)
 
$
3,031


17


NOTE 6—LOANS RECEIVABLE AND INVESTMENTS
As of March 31, 2015 and December 31, 2014, we had $886.4 million and $927.7 million, respectively, of net loans receivable and investments relating to seniors housing and healthcare operators or properties. The following is a summary of our net loans receivable and investments as of March 31, 2015 and December 31, 2014, including amortized cost, fair value and unrealized gains (losses) on available-for-sale investments:
 
 
March 31, 2015
 
 
Carrying Amount
 
Amortized Cost
 
Fair Value
 
Unrealized Gain (Loss)
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
Secured mortgage loans and other
 
$
710,451

 
$
710,451

 
$
745,394

 
$

Government-sponsored pooled loan investments
 
63,322

 
61,539

 
63,322

 
1,783

Total investments reported as Secured loans receivable and investments, net
 
773,773

 
771,990

 
808,716

 
1,783

Unsecured loans receivable
 
35,307

 
35,307

 
37,185

 

Marketable securities
 
77,350

 
71,000

 
77,350

 
6,350

Total investments reported as Other assets
 
112,657

 
106,307

 
114,535

 
6,350

Total net loans receivable and investments
 
$
886,430

 
$
878,297

 
$
923,251

 
$
8,133

 
 
December 31, 2014
 
 
Carrying Amount
 
Amortized Cost
 
Fair Value
 
Unrealized Gain (Loss)
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
Secured mortgage loans and other
 
$
766,641

 
$
766,641

 
$
774,789

 
$

Government-sponsored pooled loan investments
 
63,115

 
61,377

 
63,115

 
1,738

Total investments reported as Secured loans receivable and investments, net
 
829,756

 
828,018

 
837,904

 
1,738

Unsecured loans receivable
 
21,862

 
21,862

 
23,164

 

Marketable securities
 
76,046

 
71,000

 
76,046

 
5,046

Total investments reported as Other assets
 
97,908

 
92,862

 
99,210

 
5,046

Total net loans receivable and investments
 
$
927,664

 
$
920,880

 
$
937,114

 
$
6,784

During the year ended December 31, 2014, we made a $425.0 million secured mezzanine loan investment that has a blended annual interest rate of 8.1% and has contractual maturities ranging between 2016 and 2019, and we purchased $71.0 million principal amount of senior unsecured corporate bonds, a $38.7 million interest in a government-sponsored pooled loan investment, and $21.7 million of marketable equity securities. During the year ended December 31, 2014, we sold all of our marketable equity securities for $22.3 million and recognized a gain of $0.6 million. Our investments in marketable debt securities and government-sponsored pooled loans are classified as available-for-sale, with contractual maturity dates in 2022 and 2023.

During the three months ended March 31, 2015, we received aggregate proceeds of $86.2 million in final repayment of one secured and one unsecured loan receivable. We recognized gains aggregating $1.5 million on the repayment of these loans receivable that are recorded in income from loans and investments in our Consolidated Statements of Income for the three months ended March 31, 2015.

During the year ended December 31, 2014, we received aggregate proceeds of $55.9 million in final repayment of three secured and two unsecured loans receivable. We recognized aggregate gains aggregating $5.2 million on the repayment of these loans receivable that are recorded in income from loans and investments in our Consolidated Statements of Income for the year ended December 31, 2014.

NOTE 7—INVESTMENTS IN UNCONSOLIDATED ENTITIES

18


We report investments in unconsolidated entities over whose operating and financial policies we have the ability to exercise significant influence under the equity method of accounting. We are not required to consolidate these entities because our joint venture partners have significant participating rights, nor are these entities considered VIEs, as they are controlled by equity holders with sufficient capital. At March 31, 2015 and December 31, 2014, we had ownership interests (ranging from 5% to 25%) in joint ventures that owned 51 properties. We account for our interests in these joint ventures, as well as our 34% interest in Atria, under the equity method of accounting.
With the exception of our interest in Atria, we serve as the managing member of each unconsolidated entity and provide various services in exchange for fees and reimbursements. Total management fees earned in connection with these entities were $1.9 million and $2.2 million for the three months ended March 31, 2015 and 2014, respectively.
NOTE 8—INTANGIBLES
The following is a summary of our intangibles as of March 31, 2015 and December 31, 2014:
 
March 31, 2015
 
December 31, 2014
 
Balance
 
Remaining
Weighted Average
Amortization
Period in Years
 
Balance
 
Remaining
Weighted Average
Amortization
Period in Years
 
(Dollars in thousands)
Intangible assets:
 
 
 
 
 
 
 
Above market lease intangibles
$
230,710

 
8.8
 
$
210,573

 
8.2
In-place and other lease intangibles
1,069,944

 
19.0
 
829,078

 
23.9
Goodwill and other intangibles
1,146,286

 
7.9
 
489,384

 
7.9
Accumulated amortization
(575,397
)
 
 N/A
 
(549,026
)
 
 N/A
Net intangible assets
$
1,871,543

 
16.9
 
$
980,009

 
19.9
Intangible liabilities:
 
 
 
 
 
 
 
Below market lease intangibles
$
456,165

 
14.7
 
$
425,092

 
14.7
Other lease intangibles
36,067

 
30.3
 
32,103

 
26.1
Accumulated amortization
(163,652
)
 
 N/A
 
(158,480
)
 
 N/A
Purchase option intangibles
22,644

 
 N/A
 
22,900

 
 N/A
Net intangible liabilities
$
351,224

 
15.5
 
$
321,615

 
15.2
 
 
 
 
 
N/A—Not Applicable.
Above market lease intangibles and in-place and other lease intangibles are included in acquired lease intangibles within real estate investments on our Consolidated Balance Sheets. Goodwill and other intangibles (including non-compete agreements, trade names and trademarks) are included in other assets on our Consolidated Balance Sheets. Below market lease intangibles, other lease intangibles and purchase option intangibles are included in accounts payable and other liabilities on our Consolidated Balance Sheets. For the three months ended March 31, 2015 and 2014, our net amortization related to these intangibles was $32.2 million and $20.6 million, respectively. The estimated net amortization related to these intangibles for the remainder of 2015 and the subsequent four years is as follows: remainder of 2015 — $99.1 million; 2016 — $81.9 million; 2017 — $35.1 million; 2018 — $26.3 million; and 2019 — $20.3 million.

19


NOTE 9—OTHER ASSETS
The following is a summary of our other assets as of March 31, 2015 and December 31, 2014:
 
March 31,
2015
 
December 31,
2014
 
(In thousands)
Straight-line rent receivables, net
$
195,177

 
$
187,969

Unsecured loans receivable and investments, net
35,307

 
21,862

Goodwill and other intangibles, net
1,127,590

 
472,052

Assets held for sale
174,225

 
210,463

Marketable securities
77,350

 
76,046

Other
127,260

 
163,145

Total other assets
$
1,736,909

 
$
1,131,537


20


NOTE 10—SENIOR NOTES PAYABLE AND OTHER DEBT
The following is a summary of our senior notes payable and other debt as of March 31, 2015 and December 31, 2014:
 
March 31,
2015
 
December 31,
2014
 
(In thousands)
Unsecured revolving credit facility (1)
$
451,924

 
$
919,099

3.125% Senior Notes due 2015
400,000

 
400,000

6% Senior Notes due 2015
234,420

 
234,420

1.55% Senior Notes due 2016
550,000

 
550,000

1.250% Senior Notes due 2017
300,000

 
300,000

2.00% Senior Notes due 2018
700,000

 
700,000

Unsecured term loan due 2018 (3)
200,000

 
200,000

Unsecured term loan due 2019 (3)
781,655

 
790,634

4.00% Senior Notes due 2019
600,000

 
600,000

3.00% Senior Notes, Series A due 2019 (2)
315,333

 
344,204

2.700% Senior Notes due 2020
500,000

 
500,000

4.750% Senior Notes due 2021
700,000

 
700,000

4.25% Senior Notes due 2022
600,000

 
600,000

3.25% Senior Notes due 2022
500,000

 
500,000

3.300% Senior Notes due 2022 (2)
197,083

 

3.750% Senior Notes due 2024
400,000

 
400,000

4.125% Senior Notes, Series B due 2024 (2)
197,083

 
215,128

3.500% Senior Note due 2025
600,000

 

6.90% Senior Notes due 2037
52,400

 
52,400

6.59% Senior Notes due 2038
22,973

 
22,973

5.45% Senior Notes due 2043
258,750

 
258,750

5.70% Senior Notes due 2043
300,000

 
300,000

4.375% Senior Notes due 2045
300,000

 

Mortgage loans and other (4)
2,423,221

 
2,284,763

Total
11,584,842

 
10,872,371

Unamortized fair value adjustment
47,431

 
41,853

Unamortized discounts
(28,348
)
 
(26,132
)
Senior notes payable and other debt
$
11,603,925

 
$
10,888,092

 
 
 
 
 
(1)
$15.9 million and $164.1 million of aggregate borrowings were in the form of Canadian dollars as of March 31, 2015 and December 31, 2014, respectively.
(2)
These borrowings are in the form of Canadian dollars.
(3)
These amounts represent in aggregate the approximate $1.0 billion of unsecured term loan borrowings under our unsecured credit facility, of which $98.1 million included in the 2019 tranche is in the form of Canadian dollars.
(4)
2015 excludes debt related to real estate assets classified as held for sale as of March 31, 2015. The total mortgage debt for these properties as of March 31, 2015 was $33.4 million and is included in accounts payable and other liabilities on our Consolidated Balance Sheet. 2014 excludes debt related to real estate assets classified as held for sale as of December 31, 2014. The total mortgage debt for these properties as of December 31, 2014 was $43.5 million and was included in accounts payable and other liabilities on our Consolidated Balance Sheet.


21


As of March 31, 2015, our indebtedness had the following maturities:
 
Principal Amount
Due at Maturity
 
Unsecured
Revolving Credit
Facility (1)
 
Scheduled Periodic
Amortization
 
Total Maturities
 
(In thousands)
2015
$
710,661

 
$

 
$
32,399

 
$
743,060

2016
861,817

 

 
38,933

 
900,750

2017
865,425

 

 
28,590

 
894,015

2018
1,101,879

 
451,924

 
22,392

 
1,576,195

2019
2,251,927

 

 
14,694

 
2,266,621

Thereafter (2)
5,055,379

 

 
148,822

 
5,204,201

Total maturities
$
10,847,088

 
$
451,924

 
$
285,830

 
$
11,584,842

 
 
 
 
 
(1)
As of March 31, 2015, we had $120.2 million of unrestricted cash and cash equivalents and $153.9 million of cash held in an Internal Revenue Code Section 1031 exchange escrow account with a qualified intermediary, for $177.8 million of net borrowings outstanding under our unsecured revolving credit facility.
(2)
Includes $52.4 million aggregate principal amount of our 6.90% senior notes due 2037 that is subject to repurchase, at the option of the holders, on October 1 in each of 2017 and 2027, and $23.0 million aggregate principal amount of 6.59% senior notes due 2038 that is subject to repurchase, at the option of the holders, on July 7 in each of 2018, 2023 and 2028.
Unsecured Revolving Credit Facility and Unsecured Term Loans
Our unsecured credit facility is comprised of a $2.0 billion revolving credit facility priced at LIBOR plus 1.0% as of March 31, 2015, and a $200.0 million four-year term loan and an $800.0 million five-year term loan, each priced at LIBOR plus 1.05% as of March 31, 2015. The revolving credit facility matures in January 2018, but may be extended, at our option subject to the satisfaction of certain conditions, for an additional period of one year. The $200.0 million and $800.0 million term loans mature in January 2018 and January 2019, respectively. The unsecured credit facility also includes an accordion feature that permits us to increase our aggregate borrowing capacity thereunder to up to $3.5 billion.
As of March 31, 2015, we had $451.9 million of borrowings outstanding, $13.3 million of letters of credit outstanding and $1.5 billion of unused borrowing capacity available under our unsecured revolving credit facility.
Senior Notes
In January 2015, we issued and sold $600.0 million aggregate principal amount of 3.500% senior notes due 2025 at a public offering price equal to 99.663% of par, for total proceeds of $598.0 million before the underwriting discount and expenses, and $300.0 million aggregate principal amount of 4.375% senior notes due 2045 at a public offering price equal to 99.500% of par, for total proceeds of $298.5 million before the underwriting discount and expenses.
Also in January 2015, Ventas Canada Finance Limited issued and sold CAD 250.0 million aggregate principal amount of 3.30% senior notes, series C due 2022 at an offering price equal to 99.992% of par, for total proceeds of CAD 250.0 million before the agent fees and expenses. The notes were offered on a private placement basis in Canada.

22


NOTE 11—FAIR VALUES OF FINANCIAL INSTRUMENTS
As of March 31, 2015 and December 31, 2014, the carrying amounts and fair values of our financial instruments were as follows:
 
March 31, 2015
 
December 31, 2014
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
120,225

 
$
120,225

 
$
55,348

 
$
55,348

Secured loans receivable, net
710,451

 
745,394

 
766,641

 
774,789

Unsecured loans receivable, net
35,307

 
37,185

 
21,862

 
23,164

Government-sponsored pooled loan investments
63,322

 
63,322

 
63,115

 
63,115

Marketable securities
77,350

 
77,350

 
76,046

 
76,046

Liabilities:
 
 
 
 
 
 
 
Senior notes payable and other debt, gross
11,584,842

 
12,181,893

 
10,872,371

 
11,197,131

Derivative instruments and other liabilities
1,740

 
1,740

 
2,743

 
2,743

Redeemable OP unitholder interests
248,129

 
248,129

 
159,134

 
159,134

Fair value estimates are subjective in nature and based upon several important assumptions, including estimates of future cash flows, risks, discount rates and relevant comparable market information associated with each financial instrument. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented above are not necessarily indicative of the amounts we would realize in a current market exchange.
NOTE 12—LITIGATION
Litigation Relating to the HCT Acquisition
In the weeks following the announcement on June 2, 2014 of our agreement to acquire HCT, a total of 13 putative class actions were filed by purported HCT stockholders challenging the transaction. Certain of the actions also purport to bring derivative claims on behalf of HCT. Among other things, the lawsuits allege that the directors of HCT breached their fiduciary duties by approving the transaction and that we and our subsidiaries, Stripe Sub, LLC and Stripe OP, LP, aided and abetted this purported breach of fiduciary duty. The complaints seek injunctive relief and damages.
Ten of these actions were filed in the Circuit Court for Baltimore City, Maryland and consolidated under the caption In re: American Realty Capital, Healthcare Trust, Inc. Shareholder & Derivative Litigation, Case No. 24-C-14-003534, two actions were filed in the Supreme Court of the State of New York, County of New York, and one action was filed in the United States District Court of Maryland.
On January 2, 2015, the parties to the consolidated state court action agreed to a memorandum of understanding regarding settlement of all claims asserted on behalf of each alleged class of HCT stockholders. In connection with the settlement contemplated by that memorandum of understanding, each action and all claims asserted therein will be dismissed, subject to approval by each applicable court. The proposed settlement terms require HCT to make certain additional disclosures related to the merger, which were set forth in HCT's Current Report on Form 8-K dated January 2, 2015. The memorandum of understanding further contemplates that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, including confirmatory discovery and court approval following notice to HCT’s stockholders. If the parties enter into a stipulation of settlement, a hearing will be scheduled at which the court will consider the fairness, reasonableness and adequacy of the settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement, that the applicable court will approve any proposed settlement, or that any eventual settlement will be under the same terms as those contemplated by the memorandum of understanding.
On January 5, 2015, the parties to the federal action also agreed to a memorandum of understanding regarding settlement of all claims asserted on behalf of each alleged class of HCT stockholders. In connection with the settlement contemplated by that memorandum of understanding, each action and all claims asserted therein will be dismissed, subject to approval by each applicable court. The proposed settlement terms require HCT to make certain additional disclosures related to the merger,which

23


were set forth in HCT's Current Report on Form 8-K dated January 5, 2015. The memorandum of understanding further contemplates that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, including confirmatory discovery and court approval following notice to HCT’s stockholders. If the parties enter into a stipulation of settlement, a hearing will be scheduled at which the court will consider the fairness, reasonableness and adequacy of the settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement, that the applicable court will approve any proposed settlement, or that any eventual settlement will be under the same terms as those contemplated by the memorandum of understanding.
We believe that each of these actions is without merit.
Proceedings against Tenants, Operators and Managers
From time to time, Brookdale Senior Living, Kindred, Atria, Sunrise and our other tenants, operators and managers are parties to certain legal actions, regulatory investigations and claims arising in the conduct of their business and operations. Even though we generally are not party to these proceedings, the unfavorable resolution of any such actions, investigations or claims could, individually or in the aggregate, materially adversely affect such tenants’, operators’ or managers’ liquidity, financial condition or results of operations and their ability to satisfy their respective obligations to us, which, in turn, could have a Material Adverse Effect on us.
Proceedings Indemnified and Defended by Third Parties
From time to time, we are party to certain legal actions, regulatory investigations and claims for which third parties are contractually obligated to indemnify, defend and hold us harmless. The tenants of our triple-net leased properties and, in some cases, their affiliates are required by the terms of their leases and other agreements with us to indemnify, defend and hold us harmless against certain actions, investigations and claims arising in the course of their business and related to the operations of our triple-net leased properties. In addition, third parties from whom we acquired certain of our assets and, in some cases, their affiliates are required by the terms of the related conveyance documents to indemnify, defend and hold us harmless against certain actions, investigations and claims related to the acquired assets and arising prior to our ownership or related to excluded assets and liabilities. In some cases, a portion of the purchase price consideration is held in escrow for a specified period of time as collateral for these indemnification obligations. We are presently being defended by certain tenants and other obligated third parties in these types of matters. We cannot assure you that our tenants, their affiliates or other obligated third parties will continue to defend us in these matters, that our tenants, their affiliates or other obligated third parties will have sufficient assets, income and access to financing to enable them to satisfy their defense and indemnification obligations to us or that any purchase price consideration held in escrow will be sufficient to satisfy claims for which we are entitled to indemnification. The unfavorable resolution of any such actions, investigations or claims could, individually or in the aggregate, materially adversely affect our tenants’ or other obligated third parties’ liquidity, financial condition or results of operations and their ability to satisfy their respective obligations to us, which, in turn, could have a Material Adverse Effect on us.
Proceedings Arising in Connection with Senior Living and MOB Operations; Other Litigation
From time to time, we are party to various legal actions, regulatory investigations and claims (some of which may not be insured and some of which may allege large damage amounts) arising in connection with our senior living and MOB operations or otherwise in the course of our business. In limited circumstances, the manager of the applicable seniors housing community or MOB may be contractually obligated to indemnify, defend and hold us harmless against such actions, investigations and claims. It is the opinion of management that, except as otherwise set forth in this Note 12, the disposition of any such actions, investigations and claims that are currently pending will not, individually or in the aggregate, have a Material Adverse Effect on us. However, regardless of their merits, we may be forced to expend significant financial resources to defend and resolve these matters. We are unable to predict the ultimate outcome of these actions, investigations and claims, and if management’s assessment of our liability with respect thereto is incorrect, such actions, investigations and claims could have a Material Adverse Effect on us.
NOTE 13—INCOME TAXES
We have elected to be taxed as a REIT under the applicable provisions of the Code for every year beginning with the year ended December 31, 1999. We have also elected for certain of our subsidiaries to be treated as taxable REIT subsidiaries (“TRS” or “TRS entities”), which are subject to federal and state income taxes. All entities other than the TRS entities are collectively referred to as “the REIT” within this Note 13.
Although the TRS entities have paid minimal cash federal income taxes for the three months ended March 31, 2015, their federal income tax liabilities may increase in future periods as we exhaust net operating loss (“NOL”) carryforwards and as our senior living operations reportable business segment grows. Such increases could be significant.

24


Our consolidated provision for income taxes for the three months ended March 31, 2015 and 2014 was a benefit of $7.3 million and expense of $3.4 million, respectively. The income tax benefit for the three months ended March 31, 2015 is due primarily to operating losses at our TRS entities. The income tax expense for the three months ended March 31, 2014 was due primarily to operating income at our TRS entities.
Realization of a deferred tax benefit related to NOLs depends in part upon generating sufficient taxable income in future periods. Our NOL carryforwards begin to expire in 2024 with respect to our TRS entities and in 2016 for the REIT.
Each TRS and foreign investment is a tax paying component for purposes of classifying deferred tax assets and liabilities. Net deferred tax liabilities with respect to our TRS and foreign investment entities totaled $371.8 million and $344.3 million as of March 31, 2015 and December 31, 2014, respectively, and related primarily to differences between the financial reporting and tax bases of fixed and intangible assets and to loss carryforwards.
Generally, we are subject to audit under the statute of limitations by the Internal Revenue Service for the year ended December 31, 2011 and subsequent years and are subject to audit by state taxing authorities for the year ended December 31, 2010 and subsequent years. We are subject to audit by the Canada Revenue Agency and provincial authorities with respect to entities acquired or formed in connection with our 2007 acquisition of Sunrise Senior Living Real Estate Investment Trust generally for periods subsequent to the acquisition. We are also subject to audit in Canada for periods subsequent to the acquisition, and certain prior periods, with respect to the entities acquired in connection with the Holiday Canada Acquisition.
NOTE 14—STOCKHOLDERS’ EQUITY
Capital Stock
In January 2015, in connection with the HCT acquisition, we issued approximately 28.4 million shares of our common stock and 1.1 million Class C Units that are redeemable for our common stock.
In January 2015, we issued and sold 3,750,202 shares of common stock under our previous “at-the-market” (“ATM”) equity offering program for aggregate net proceeds of $285.4 million, after sales agent commissions of $4.4 million. In March 2015, we replaced our previous shelf registration statement that was scheduled to expire in April in accordance with the SEC’s rules with a new universal shelf registration statement, rendering our previous ATM program inaccessible.  In connection therewith, we established a new ATM program pursuant to which we may sell, from time to time, up to an aggregate of $1.0 billion of our common stock.  We have not issued any shares of common stock under the new ATM program.
Accumulated Other Comprehensive Income
The following is a summary of our accumulated other comprehensive income as of March 31, 2015 and December 31, 2014:
 
March 31, 2015
 
December 31, 2014
 
(In thousands)
Foreign currency translation
$
(10,006
)
 
$
866

Unrealized gain on marketable securities
8,133

 
6,784

Other
6,230

 
5,471

Total accumulated other comprehensive income
$
4,357

 
$
13,121


25


NOTE 15—EARNINGS PER COMMON SHARE
The following table shows the amounts used in computing our basic and diluted earnings per common share:
 
For the Three Months Ended March 31,
 
2015
 
2014
 
(In thousands, except per share amounts)
Numerator for basic and diluted earnings per share:
 
 
 
Income from continuing operations attributable to common stockholders, including real estate dispositions
$
120,865

 
$
118,016

Discontinued operations
(423
)
 
3,031

Net income attributable to common stockholders          
$
120,442

 
$
121,047

Denominator:
 
 
 
Denominator for basic earnings per share—weighted average shares
325,454

 
293,875

Effect of dilutive securities:
 
 
 
Stock options
531

 
394

Restricted stock awards
70

 
47

OP units
3,148

 
1,929

Denominator for diluted earnings per share—adjusted weighted average shares
329,203

 
296,245

Basic earnings per share:
 
 
 
Income from continuing operations attributable to common stockholders, including real estate dispositions
$
0.37

 
$
0.40

Discontinued operations
(0.00
)
 
0.01

Net income attributable to common stockholders          
$
0.37

 
$
0.41

Diluted earnings per share:
 
 
 
Income from continuing operations attributable to common stockholders, including real estate dispositions
$
0.37

 
$
0.40

Discontinued operations
(0.00
)
 
0.01

Net income attributable to common stockholders          
$
0.37

 
$
0.41


NOTE 16—SEGMENT INFORMATION
As of March 31, 2015, we operated through three reportable business segments: triple-net leased properties, senior living operations and MOB operations. Under our triple-net leased properties segment, we acquire and own seniors housing and healthcare properties throughout the United States and the United Kingdom and lease those properties to healthcare operating companies under “triple-net” or “absolute-net” leases that obligate the tenants to pay all property-related expenses. In our senior living operations segment, we invest in seniors housing communities throughout the United States and Canada and engage independent operators, such as Atria and Sunrise, to manage those communities. In our MOB operations segment, we primarily acquire, own, develop, lease and manage MOBs. Information provided for “all other” includes income from loans and investments and other miscellaneous income and various corporate-level expenses not directly attributable to any of our three reportable business segments. Assets included in “all other” consist primarily of corporate assets, including cash, restricted cash, deferred financing costs, loans receivable and investments, and miscellaneous accounts receivable.
We evaluate performance of the combined properties in each reportable business segment based on segment profit, which we define as NOI adjusted for income/loss from unconsolidated entities. We define NOI as total revenues, less interest and other income, property-level operating expenses and medical office building services costs. We consider segment profit useful because it allows investors, analysts and our management to measure unlevered property-level operating results and to compare our operating results to the operating results of other real estate companies and between periods on a consistent basis. In order to facilitate a clear understanding of our historical consolidated operating results, segment profit should be examined in conjunction with net income as presented in our Consolidated Financial Statements and other financial data included elsewhere in this Quarterly Report on Form 10-Q.

26


Interest expense, depreciation and amortization, general, administrative and professional fees, income tax expense/benefit, discontinued operations and other non-property specific revenues and expenses are not allocated to individual reportable business segments for purposes of assessing segment performance. There are no intersegment sales or transfers.
Summary information by reportable business segment is as follows:
For the three months ended March 31, 2015:
 
Triple-Net
Leased
Properties
 
Senior
Living
Operations
 
MOB
Operations
 
All
Other
 
Total
 
(In thousands)
Revenues:
 
 
 
 
 
 
 
 
 
Rental income
$
266,206

 
$

 
$
136,990

 
$

 
$
403,196

Resident fees and services

 
446,914

 

 

 
446,914

Medical office building and other services revenue
1,136

 

 
8,858

 
549

 
10,543

Income from loans and investments

 

 

 
22,899

 
22,899

Interest and other income

 

 

 
472

 
472

Total revenues
$
267,342

 
$
446,914

 
$
145,848

 
$
23,920

 
$
884,024

Total revenues
$
267,342

 
$
446,914

 
$
145,848

 
$
23,920

 
$
884,024

Less:
 
 
 
 
 
 
 
 
 
Interest and other income

 

 

 
472

 
472

Property-level operating expenses

 
298,362

 
42,349

 

 
340,711

Medical office building services costs

 

 
6,918

 

 
6,918

Segment NOI
267,342

 
148,552

 
96,581

 
23,448

 
535,923

Income (loss) from unconsolidated entities
425

 
(422
)
 
(25
)
 
(229
)
 
(251
)
Segment profit
$
267,767

 
$
148,130

 
$
96,556

 
$
23,219

 
535,672

Interest and other income
 

 
 

 
 

 
 

 
472

Interest expense
 

 
 

 
 

 
 

 
(106,590
)
Depreciation and amortization
 

 
 

 
 

 
 

 
(247,441
)
General, administrative and professional fees
 

 
 

 
 

 
 

 
(34,330
)
Loss on extinguishment of debt, net
 
 
 
 
 
 
 
 
(21
)
Merger-related expenses and deal costs
 

 
 

 
 

 
 

 
(35,172
)
Other
 

 
 

 
 

 
 

 
(5,296
)
Income tax benefit
 

 
 

 
 

 
 

 
7,250

Discontinued operations
 

 
 

 
 

 
 

 
(423
)
Gain on real estate dispositions
 
 
 
 
 
 
 
 
6,686

Net income
 

 
 

 
 

 
 

 
$
120,807



27


For the three months ended March 31, 2014:
 
Triple-Net
Leased
Properties
 
Senior
Living
Operations