Ventas (VTR) 10-Q 2003 Q3 Quarterly report

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 SEPTEMBER 30, 2003.

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	61-1055020
(State or other jurisdiction)	(I.R.S. Employer Identification No.)

4360 Brownsboro Road, Suite 115

Louisville, Kentucky

(Address of principal executive offices)

40207-1642

(Zip Code)

(502) 357-9000

(Registrant’s telephone number, including area code)

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

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

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

Class of Common Stock:	Outstanding at October 24, 2003:
Common Stock, $.25 par value	80,105,652 Shares

VENTAS, INC.

FORM 10-Q

INDEX

		Page
PART I—FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002	3
	Condensed Consolidated Statements of Income for the Three Months Ended and Nine Months Ended September 30, 2003 and September 30, 2002	4
	Condensed Consolidated Statements of Comprehensive Income for the Nine Months Ended September 30, 2003 and September 30, 2002	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and September 30, 2002	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	41
PART II—OTHER INFORMATION		41
Item 1.	Legal Proceedings	41
Item 5.	Other Information	42
Item 6.	Exhibits and Reports on Form 8-K	43

2

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VENTAS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30, 2003 (Unaudited)			December 31, 2002 (Audited)
Assets
Real estate investments:
Land	$	107,998		$	119,559
Building and improvements		1,020,825			1,101,847
		1,128,823			1,221,406
Accumulated depreciation		(414,594	)		(409,132	)
Total net real estate property		714,229			812,274
Loan receivable, net		16,474			16,528
Total net real estate investments		730,703			828,802
Cash and cash equivalents		10,095			2,455
Restricted cash		8,030			19,953
Deferred financing costs, net		14,676			17,704
Investment in Kindred Healthcare, Inc. common stock		—			16,713
Notes receivable from employees, former employees and accrued interest		3,822			4,139
Other assets		7,074			6,014
Total assets	$	774,400		$	895,780
Liabilities and stockholders’ equity (deficit)
Liabilities:
Senior Notes payable and other debt	$	679,362		$	707,709
United States Settlement		—			43,992
Securities settlement due (purchase of Senior Notes)		—			37,366
Deferred revenue		16,309			18,883
Interest rate swap agreements		44,092			47,672
Accrued dividend		—			16,596
Accrued interest		13,955			7,237
Accounts payable and other accrued liabilities		13,727			25,402
Other liabilities—disputed federal, state and local tax refunds		266			14,156
Deferred income taxes		30,394			30,394
Total liabilities		798,105			949,407
Commitments and contingencies
Stockholders’ equity (deficit):
Preferred stock, unissued		—			—
Common stock		20,652			20,652
Capital in excess of par value		173,665			191,779
Unearned compensation on restricted stock		(1,111	)		(793	)
Accumulated other comprehensive loss		(30,667	)		(26,116	)
Retained earnings (deficit)		(112,302	)		(134,279	)
		50,237			51,243
Treasury stock		(73,942	)		(104,870	)
Total stockholders’ equity (deficit)		(23,705	)		(53,627	)
Total liabilities and stockholders’ equity (deficit)	$	774,400		$	895,780

See notes to condensed consolidated financial statements

3

VENTAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2003		2002			2003			2002
Revenues:
Rental income	$	50,616	$	45,449		$	145,551		$	134,397
Interest income from loan receivable		766		—			2,271			—
Gain on sale of Kindred Healthcare, Inc. common stock		8,117		1,192			9,039			5,014
Interest and other income		280		237			1,325			952
		59,779		46,878			158,186			140,363
Expenses:
General and administrative		3,136		2,410			9,356			7,322
Professional fees		416		900			1,878			2,401
Reversal of contingent liability		—		—			(20,164	)		—
Amortization of restricted stock grants		309		354			910			1,491
Depreciation		10,238		9,823			30,663			29,460
Swap ineffectiveness		—		118			369			298
Net loss on swap breakage		—		—			—			5,407
Loss on extinguishment of debt		—		—			—			6,919
Interest		14,688		17,807			47,136			54,743
Interest on United States Settlement		—		1,331			4,943			4,204
Total expenses		28,787		32,743			75,091			112,245
Income before benefit for income taxes and discontinued operations		30,992		14,135			83,095			28,118
Benefit for income taxes		—		(2,200	)		—			(2,200	)
Income before discontinued operations		30,992		16,335			83,095			30,318
Discontinued operations (including gain/loss on sale of assets)		1,220		758			2,534			25,944
Net income	$	32,212	$	17,093		$	85,629		$	56,262
Earnings Per Share:
Basic:
Income before discontinued operations	$	0.39	$	0.24		$	1.05		$	0.44
Net income	$	0.41	$	0.25		$	1.08		$	0.82
Diluted:
Income before discontinued operations	$	0.38	$	0.23		$	1.04		$	0.43
Net income	$	0.40	$	0.24		$	1.07		$	0.80
Shares used in computing earnings per common share:
Basic		79,389		69,098			79,055			68,895
Diluted		80,258		70,047			79,711			69,978
Dividend declared per common share	$	0.2675	$	0.2375		$	0.8025		$	0.7125

See notes to condensed consolidated financial statements

4

VENTAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	For the Nine Months Ended September 30,
	2003			2002
Net income	$	85,629		$	56,262
Other comprehensive income (loss):
Unrealized loss on interest rate swaps		(11,147	)		(51,091	)
Reclassification adjustment for realized loss on interest rate swaps included in net income during the period		12,125			23,770
Unrealized gain (loss) on Kindred Healthcare, Inc. common stock		3,510			(14,071	)
Reclassification adjustment for realized gain on Kindred Healthcare, Inc. common stock included in net income during the period		(9,039	)		(5,014	)
		(4,551	)		(46,406	)
Net comprehensive income	$	81,078		$	9,856

See notes to condensed consolidated financial statements

5

VENTAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2003			2002
Cash flows from operating activities:
Net income	$	85,629		$	56,262
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation (including discontinued operations)		31,837			31,332
Amortization of deferred financing costs		3,068			2,685
Amortization of restricted stock grants		910			1,491
Normalized rents		(115	)		(144	)
Loss on extinguishment of debt		—			6,919
Gain on sale of Kindred Healthcare, Inc. common stock		(9,039	)		(5,014	)
(Gain) loss on sale of real estate assets (included in discontinued operations)		3,189			(23,450	)
Loss on impairment of asset (included in discontinued operations)		845			—
Amortization of deferred revenue		(2,671	)		(1,998	)
Net loss on swap breakage		—			5,407
Non-cash interest on United States Settlement		2,655			—
Other		(2,437	)		110
Changes in operating assets and liabilities:
Decrease in restricted cash		11,923			1,117
Increase in other assets		(586	)		(1,379	)
Increase in accrued interest		6,718			17,226
Increase (decrease) in accounts payable and accrued and other liabilities		(24,078	)		6,123
Net cash provided by operating activities		107,848			96,687
Cash flows from investing activities:
Net proceeds from sale of real estate		61,159			28,620
Proceeds from sale of Kindred Healthcare, Inc. common stock		20,223			6,950
Collection from loan receivable		151			—
Purchase of furniture and equipment		(258	)		(236	)
Decrease (increase) in notes receivable from employees, former employees and accrued interest		317			(551	)
Net cash provided by investing activities		81,592			34,783
Cash flows from financing activities:
Net change in borrowings under Revolving Credit Facility		(26,450	)		(57,651	)
Proceeds from Senior Notes Offering and Revolving Credit Facility		—			620,300
Purchase of Senior Notes		(37,366	)		—
Repayment of debt		(1,897	)		(17,987	)
Repayment of debt through refinancing		—			(607,106	)
Payment on United States Settlement		(46,647	)		(7,958	)
Payment of deferred financing costs		(40	)		(15,127	)
Payment of swap breakage fee		—			(12,837	)
Proceeds from issuance of stock		10,847			2,546
Cash dividends to stockholders		(80,247	)		(50,125	)
Net cash used in financing activities		(181,800	)		(145,945	)
Increase (decrease) in cash and cash equivalents		7,640			(14,475	)
Cash and cash equivalents—beginning of period		2,455			18,596
Cash and cash equivalents—end of period	$	10,095		$	4,121
Supplemental schedule of noncash activities:
Dividend distribution of Kindred Healthcare, Inc. common stock	$	—		$	17,086

See notes to condensed consolidated financial statements

6

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1—REPORTING ENTITY

Ventas, Inc. (“Ventas” or the “Company”) is a Delaware corporation that elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended, beginning with the year ended December 31, 1999. The Company owns a geographically diverse portfolio of healthcare-related facilities that consisted of 44 hospitals, 203 nursing facilities and nine other healthcare and senior housing facilities in 37 states as of September 30, 2003. The Company and its subsidiaries lease these facilities to healthcare operating companies under “triple-net” or “absolute net” leases. Kindred Healthcare, Inc. and its subsidiaries (collectively, “Kindred”) lease 194 of the Company’s nursing facilities and all but one of the Company’s hospitals as of September 30, 2003. The Company also has investments relating to 25 healthcare and senior housing facilities. The Company conducts substantially all of its business through a wholly owned operating partnership, Ventas Realty, Limited Partnership (“Ventas Realty”) and an indirect, wholly owned limited liability company, Ventas Finance I, LLC (“Ventas Finance”). As of September 30, 2003, Ventas Finance owned 40 of the Company’s skilled nursing facilities, the Company owned two hospitals and Ventas Realty owned all of the Company’s other properties and investments. The Company’s business consists of financing, owning and leasing healthcare-related and senior housing facilities.

NOTE 2—BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. Operating results for the nine-month period ended September 30, 2003 are not necessarily an indication of the results that may be expected for the year ending December 31, 2003. The Condensed Consolidated Balance Sheet as of December 31, 2002 has been derived from the Company’s audited Consolidated Financial Statements for the year ended December 31, 2002. The accompanying Condensed Consolidated Financial Statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. Certain prior year amounts have been reclassified to conform to current year presentation.

The Company has one primary reportable segment, which consists of investments in real estate. The Company’s primary business is financing, owning and leasing healthcare-related and senior housing facilities. See “Note 3—Concentration of Credit Risk.” All of the Company’s leases are triple-net leases, which require the tenants to pay all property-related expenses. The Company does not operate these facilities nor does it allocate capital to maintain the properties. Substantially all depreciation and interest expense reflected in the Condensed Consolidated Statements of Income presented herein relate to the Company’s investment in real estate.

Recently Issued Accounting Standards

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 5” (“FIN No. 46”). FIN No. 46 provides a new consolidation model which determines consolidation based on potential variability in gains and losses of the entity being evaluated. FIN No. 46 applies in the first period ending after December 15, 2003 for variable interest entities formed prior to February 2003. The Company does not expect the adoption of FIN No. 46 to have any impact on the Company’s presentation of its condensed consolidated financial statements.

7

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In April 2002, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 1, and Technical Correction” (“SFAS No. 145”). SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt” (“SFAS No. 4”), required that gains and losses from the extinguishment of debt that were included in the determination of net income be aggregated and, if material, classified as an extraordinary item. The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 required the Company to reclassify certain prior period items that no longer meet the extraordinary classification into continuing operations. Additionally, future gains and losses related to debt extinguishment may be required to be classified as income from continuing operations. The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 became effective in fiscal years beginning after May 15, 2002. As required, on January 1, 2003 the Company adopted SFAS No. 145. In accordance with SFAS No. 145, the Company’s prior year financial statements have been reclassified to include gains and losses from extinguishment of debt in continuing operations. This reclassification has no effect on the Company’s net income.

In December 2002, FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS No. 148”). SFAS No. 148 provides transition methods for entities that elect to adopt the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 requires disclosure of comparable information regarding the Company’s method of accounting for stock-based employee compensation for all interim periods. The Company has stock-based employee compensation plans which are described in “Note 6—Stockholders’ Equity and Stock Options.” The Company accounts for these plans under the intrinsic method of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB Opinion No. 25”), and related interpretations. No stock-based employee compensation cost for options is reflected in net income, as all options granted under the Company’s plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. FASB recently announced that rulemaking to expense stock options would be delayed until the third quarter 2004. The Company is currently studying whether it should defer the adoption of fair value method accounting until such time as FASB adopts final rules regarding the appropriate valuation methods.

In addition, the Company grants shares of restricted stock to certain officers and directors. Shares of restricted stock vest cumulatively in two to four equal annual installments beginning either on the date of the grant or on the first anniversary of the date of the grant. In accordance with the provisions of APB Opinion No. 25, compensation expense is recognized for these restricted stock grants over these vesting periods.

NOTE 3—CONCENTRATION OF CREDIT RISK

As of September 30, 2003, approximately 69.1% of the Company’s properties, based on the original cost of such properties, were skilled nursing facilities. The Company’s remaining properties consist of hospitals, personal care facilities and other healthcare-related and senior housing facilities. The Company’s facilities are located in 37 states with rental revenues from operations in only one state accounting for more than ten percent (10%) of the Company’s total revenues.

As of September 30, 2003, approximately 94.0% of the Company’s properties, based on the original cost of such properties, were operated by Kindred. Approximately 88.2% of the Company’s total revenue for the nine months ended September 30, 2003 was derived from the four amended and restated master lease agreements dated as of April 20, 2001 between Ventas Realty and Kindred (as amended, the “Amended Master Leases”) and the master lease agreement dated as of December 12, 2001 between Ventas Finance and Kindred (as amended and, collectively with the Amended Master Leases, the “Master Leases”).

There can be no assurance that Kindred will have sufficient assets, income and access to financing to enable it to satisfy its obligations under the Master Leases or that Kindred will perform its obligations under the Master Leases. The failure of Kindred to make three consecutive monthly rental payments under any of the Master Leases will trigger an event of default under the Company’s 2002 Credit Agreement (as defined below). The inability or unwillingness of Kindred to satisfy its obligations under the Master Leases would have a material adverse effect on the business, financial condition, results of operations and liquidity of the Company, on the Company’s ability to service its indebtedness and other obligations, and on the Company’s ability to make distributions to its stockholders as required to maintain its status as a REIT (a “Material Adverse Effect”).

8

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Agreement of Indemnity – Third Party Leases

In connection with the Company’s spin off of Kindred in 1998 (the “1998 Spin Off”), the Company assigned its former third party lease obligations (i.e., leases under which an unrelated third party is the landlord) as a tenant or as a guarantor of tenant obligations to Kindred (the “Third Party Leases”). Under the terms of an indemnity agreement relating to the Third Party Leases, Kindred and its subsidiaries have agreed to indemnify and hold the Company harmless from and against all claims against the Company arising out of the Third Party Leases assigned by the Company to Kindred. Either prior to or following the 1998 Spin Off, the tenant’s rights under a subset of the Third Party Leases were assigned or sublet to third parties unrelated to Kindred. If Kindred or such third party subtenants are unable to or do not satisfy the obligations under any Third Party Lease assigned by the Company to Kindred, the lessors may claim that the Company remains liable under the Third Party Leases. The Company believes it may have valid legal defenses to any such claim. However, there can be no assurance the Company would prevail against a claim brought by a lessor under a Third Party Lease. In the event that a lessor should prevail in a claim against the Company, the Company may be entitled to receive revenues from those properties that would mitigate the costs incurred in connection with the satisfaction of such obligations. The Third Party Leases relating to nursing facilities, hospitals, offices and warehouses have remaining terms (excluding renewal periods) of 1 to 10 years. The Third Party Leases relating to ground leases have remaining terms from 1 to 80 years. Under Kindred’s April 2001 bankruptcy plan of reorganization (the “Final Plan”), Kindred assumed and has agreed to fulfill its obligations under the indemnity agreement relating to the Third Party Leases. There can be no assurance that Kindred will have sufficient assets, income and access to financing to enable it to satisfy, or that it will continue to honor, its obligations under the indemnity agreement relating to the Third Party Leases. Under the Final Plan, Kindred has agreed not to renew or extend any Third Party Lease unless it first obtains a release of the Company from liability under such Third Party Lease. As of September 30, 2003, the total aggregate remaining minimum rental payments under the Third Party Leases were $32.5 million.

Agreement of Indemnity – Third Party Contracts

In connection with the 1998 Spin Off, the Company assigned its former third party guaranty agreements to Kindred (the “Third Party Guarantees”). The Company may remain liable on the Third Party Guarantees assigned to Kindred. Under the terms of an indemnity agreement relating to the Third Party Guarantees, Kindred and its subsidiaries have agreed to indemnify and hold the Company harmless from and against all claims against the Company arising out of the Third Party Guarantees assigned by the Company to Kindred. Under the Final Plan, Kindred assumed and agreed to fulfill its obligations under the indemnity agreement relating to the Third Party Guarantees. There can be no assurance that Kindred will have sufficient assets, income and access to financing to enable it to satisfy, or that it will continue to honor, its obligations incurred in connection with the indemnity agreement relating to the Third Party Guarantees. If Kindred is unable to or does not satisfy the obligations under any Third Party Guarantee assigned by the Company to Kindred, then the Company may be liable for the payment and performance of the obligations under any such agreement, but the Company believes it may have valid legal defenses to any such claim under a Third Party Guarantee. As of September 30, 2003, the Company had a $5.0 million potential exposure under these Third Party Guarantees.

NOTE 4—DISPOSITIONS

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets” (“SFAS No. 144”), effective for financial statements issued for fiscal years beginning after December 15, 2001, the results of operations and gain/(loss) on real estate properties sold or held for sale subsequent to December 31, 2001 are reflected in the Condensed Consolidated Statements of Income as “Discontinued Operations” for all periods presented. Interest expense allocated to Discontinued Operations has been estimated based on a proportional allocation of rental income among all of the Company’s facilities.

9

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On March 13, 2002, the Company sold a 125 licensed bed skilled nursing facility located in Las Vegas, Nevada for $1.8 million and recognized a gain of $1.1 million, which was reported as a component of Discontinued Operations. The Company applied net proceeds of $1.5 million as a prepayment of the Company’s indebtedness. On June 20, 2002, the Company sold a 164 licensed bed hospital facility located in Arlington, Virginia and recognized a gain of approximately $22.4 million. The Company applied net proceeds of $27.1 million to reduce the Company’s outstanding indebtedness.

On June 30, 2003, the Company sold to Kindred 16 skilled nursing facilities, consisting of 15 properties in Florida and one property in Texas, which had previously been leased to Kindred under the Master Leases, for $59.7 million in gross cash proceeds. A loss of $5.3 million was recognized and included in Discontinued Operations for the quarter ended June 30, 2003. In addition, Kindred paid the Company a $4.1 million lease termination fee with respect to such properties. The Company used a portion of the net proceeds from the sale and the lease termination fee to repay in full all unpaid amounts under the United States Settlement (defined below). The remaining net proceeds were used to reduce the Company’s outstanding indebtedness. See “Note 5—Recent Developments—Recent Developments Regarding Liquidity.”

During the third quarter ended September 30, 2003, the Company sold a non-operating skilled nursing facility and received a non-binding proposal to purchase another non-operating skilled nursing facility. As a result, the Company recognized a gain of $2.1 million on the sold facility and also recorded a $0.8 million impairment on the other facility.

Set forth below is a summary of the results of operations of the sold and held for sale facilities during the three and nine months ended September 30, 2003 and 2002 (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2003			2002		2003			2002
Rental income	$	—		$	2,201	$	5,149		$	7,221
Lease termination fee		—			—		4,116			—
		—			2,201		9,265			7,221
Interest		—			852		1,523			2,855
Depreciation		—			591		1,174			1,872
Loss on impairment of asset held for sale		845			—		845			—
		845			1,443		3,542			4,727
Income (loss) before gain (loss) on sale of real estate		(845	)		758		5,723			2,494
Gain (loss) on sale of real estate		2,065			—		(3,189	)		23,450
Discontinued operations	$	1,220		$	758	$	2,534		$	25,944

10

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5—RECENT DEVELOPMENTS

Recent Developments Regarding Kindred

Professional Liability Expense

During the fourth quarter of 2002, Kindred began recording substantial increases in costs related to professional liability claims, primarily claims related to its skilled nursing facility operations conducted in Florida and Texas. On June 30, 2003, the Company sold its 15 Florida skilled nursing facilities and its only skilled nursing facility in Texas to Kindred. See “Note 4—Dispositions.” At the time of sale, annualized cash rent for these facilities was $9.0 million. On July 1, 2003, Kindred announced the divestiture of all its Florida and Texas skilled nursing facility operations.

Kindred has publicly stated that it believes professional liability costs are expected to continue to increase in the foreseeable future. There can be no assurance that continued increases in professional liability costs will not have a material adverse effect on the liquidity, financial condition or results of operations of Kindred which could have a material adverse effect on its ability to make rental payments to the Company which, in turn, could have a Material Adverse Effect on the Company.

Master Leases

Effective July 1, 2003, under a separate agreement, the Company and Kindred amended the Amended Master Leases to increase rent on certain facilities under the Amended Master Leases by $8.6 million per year on an annualized basis (May 1, 2003-April 30, 2004) for approximately seven years. This amount will escalate 3.5% annually in accordance with the Amended Master Leases. In addition, all of the Master Leases were amended to provide that all annual escalators under the Master Leases will be in cash at all times and to expand certain cooperation and information sharing provisions of the Master Leases.

Recent Developments Regarding Income Taxes

On April 1, 2003, the Internal Revenue Service (“IRS”) notified the Company that it had completed its review of the Company’s federal income tax returns for the Company’s 1997 and 1998 tax periods. The Joint Committee on Taxation affirmed the IRS Revenue Agent’s report concluding that the Company (1) does not owe any additional taxes for those periods, (2) is entitled to retain the approximately $26 million federal tax refund it received in 1999 for those periods (the “Original Federal Refund Amount”), and (3) is entitled to receive an additional refund of $1.2 million for those periods (the “Additional Federal Refund Amount”). In addition, as a result of the completion of the audit, the Company will retain substantially all of its favorable tax attributes such as net operating loss carryforwards and capital loss carryforwards.

As a result of the Joint Committee on Taxation’s findings, on April 3, 2003, the Company and Kindred agreed to disburse $13.5 million to each company from a previously established escrow account (the “Tax Refund Escrow”). The Tax Refund Escrow held the Original Federal Refund Amount and certain other tax refunds (collectively, the “Tax Refund Escrow Funds”) related to periods ending in years prior to or including the date of the 1998 Spin Off. After payment of certain related expenses, the Company used approximately $13.0 million of its portion of the Tax Refund Escrow Funds to repay debt. As of September 30, 2003, the Company’s share of the amounts currently held in the Tax Refund Escrow was approximately $1.5 million.

In the first quarter ended March 31, 2003, the Company reported an increase of approximately $20.2 million to its operating results, reflecting the reversal of a previously recorded contingent liability. A portion of this contingent liability included the Company’s share of the Tax Refund Escrow Funds reported in Other Liabilities—disputed Federal, State and Local Tax Refunds on the Condensed Consolidated Balance Sheet. The other portion of this

11

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

contingent liability was previously recorded in Accounts Payable and Other Accrued Liabilities on the Condensed Consolidated Balance Sheet to take into account the uncertainties surrounding the outcome of the IRS audit for the Company’s 1997 and 1998 tax periods as well as other federal, state, local, franchise and miscellaneous tax items. As of September 30, 2003, the total contingent liability was $1.5 million.

In September 2003, the Company received the Additional Federal Refund Amount which was deposited in the Tax Refund Escrow. Certain other refunds for tax periods ending on or before 1998 are expected to be deposited in the Tax Refund Escrow when received. The Company has recorded its portion of these expected refunds as a receivable in Other Assets on the Condensed Consolidated Balance Sheet as of September 30, 2003.

Under the terms of the agreement governing the Tax Refund Escrow, when no further claims may be made for tax periods ending on or before 1998, all funds remaining in the Tax Refund Escrow will be distributed equally to the Company and Kindred. In addition, the companies may jointly agree to disburse funds from the Tax Refund Escrow in equal amounts prior to the expiration of applicable statutes of limitations. Any additional disbursements from the Tax Refund Escrow will be made as remaining tax claims are resolved.

Recent Developments Regarding Liquidity

Recent Developments Regarding the Kindred Common Stock

During the nine months ended September 30, 2003, the Company sold 920,814 shares of its common stock in Kindred (“Kindred Common Stock”) for approximately $20.2 million and recognized a gain of $9.0 million on the sale. The Company used the net proceeds from the sale for the reduction of its outstanding indebtedness and for general corporate purposes. During the nine months ended September 30, 2002, the Company disposed of 159,500 shares of Kindred Common Stock for approximately $7.0 million and recognized a gain of $5.0 million. As of September 30, 2003, the Company did not own any shares of Kindred Common Stock.

At December 31, 2002, the Company’s investment in Kindred Common Stock was classified as available for sale in accordance with SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities.” Accordingly, the Kindred Common Stock was measured and reported on the Company’s Condensed Consolidated Balance Sheets at fair value as of December 31, 2002. The Company’s unrealized gains and losses on the Kindred Common Stock are reported as a component of Accumulated Other Comprehensive Loss on the Company’s Condensed Consolidated Balance Sheets.

Repayment of the United States Settlement

On June 30, 2003, the Company used a portion of the net proceeds from the sale of 16 facilities to Kindred to pay in full amounts outstanding under the settlement contained in the Final Plan of the civil and administrative claims asserted by the United States against the Company and Kindred (the “United States Settlement”). See “Note 4—Dispositions.” In connection with the repayment, the Company incurred a $2.7 million expense which is reflected as the United States Settlement interest expense on the Condensed Consolidated Statements of Income for the nine months ended September 30, 2003. As required by GAAP, the United States Settlement has been, since inception, reported on the Company’s balance sheet at an amount that is less than the actual unpaid principal amount under the United States Settlement because the 6% interest rate payable was deemed “below market” at the time of the settlement. The $2.7 million interest expense reflects the difference between the total amount paid by the Company in final repayment of the United States Settlement and the amount of the United States Settlement reflected on the Company’s balance sheet on the date of final repayment. There was no prepayment penalty or other charge payable upon early repayment of the United States Settlement.

12

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2002 Refinancing and Swap Break

On April 17, 2002 (the “2002 Refinancing Date”), the Company, as guarantor, and Ventas Realty, as borrower, entered into a Second Amended and Restated Credit, Security and Guaranty Agreement (the “2002 Credit Agreement”). The 2002 Credit Agreement is a $350 million credit facility consisting of a $60 million term loan (the “Tranche B Term Loan”) and a $290 million revolving credit facility (the “Revolving Credit Facility”). Also the 2002 Refinancing Date, Ventas Realty and Ventas Capital Corporation, a wholly owned subsidiary of Ventas Realty, completed the offering of 8-3/4% Senior Notes due 2009 (the “2009 Senior Notes”) in the aggregate principal amount of $175 million and 9% Senior Notes due 2012 (the “2012 Senior Notes” and, collectively with the 2009 Senior Notes, the “Senior Notes”) in the aggregate principal amount of $225 million.

As a result of the consummation of the sale of the Senior Notes and the establishment of the 2002 Credit Agreement, all of the outstanding indebtedness under the Company’s previous credit agreement was repaid in full (the “2002 Refinancing”). The Company recorded a $6.9 million loss to write-off unamortized deferred financing costs relating to the previous credit agreement. As a result of the 2002 Refinancing, the Company did not expect variable rate debt held by the Company to exceed $450.0 million in the foreseeable future. Accordingly, the Company entered into an agreement with the counterparty under one of its interest rate swap agreements to reduce the $800.0 million notional amount on the interest rate swap by $350.0 million. The Company recorded a $5.4 million loss related to the $350.0 million swap breakage.

Repurchase of Senior Notes

On December 31, 2002, the Company repurchased $783,000 in aggregate principal amount of the 2009 Senior Notes and $33,179,000 in aggregate principal amount of the 2012 Senior Notes on the open market. The total purchase price of $37.4 million was reported as a liability on the Consolidated Balance Sheet as of December 31, 2002 pending settlement of the transaction. On January 6, 2003, the Company paid the purchase price in settlement of the transaction.

Decrease of Applicable Percentage and Increase of Borrowing Base Under 2002 Credit Agreement

Borrowings outstanding under the 2002 Credit Agreement bear interest at an Applicable Percentage (as defined in the 2002 Credit Agreement) over either (i) a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate (as defined in the 2002 Credit Agreement) in effect for the relevant period, plus one half of one percent (0.5%) and (b) the Prime Rate (as defined in the 2002 Credit Agreement) in effect for the relevant period (the “Base Rate”) or (ii) a fluctuating LIBOR-based rate per annum (the “Eurodollar Rate”). With respect to Tranche B Term Loans, the Applicable Percentage is (a) 2.50% for loans bearing interest at the Eurodollar Rate, and (b) 1.00% for loans bearing interest at the Base Rate. With respect to revolving loans under the Revolving Credit Facility, from the inception of the loan through April 6, 2003, the Applicable Percentages were 2.75% for Eurodollar Rate loans, and 1.25% for Base Rate loans. Because of the Company’s improved credit statistics, effective April 7, 2003, the Applicable Percentages under the Revolving Credit Facility were reduced to 2.50% on Eurodollar Rate loans and 1.00% on Base Rate loans.

The total amount that may be borrowed (including outstanding borrowings) under the 2002 Credit Agreement is, as determined at any time, an amount equal to the sum of (i) sixty-five percent (65%) of value of the real properties mortgaged to secure the 2002 Credit Agreement (the “Borrowing Base Properties”), plus (ii) one hundred percent (100%) of amounts on deposit in certain cash collateral or pledged accounts (together, the “Borrowing Base”). Ventas Realty may at any time mortgage additional real properties that satisfy certain conditions set forth in the 2002 Credit Agreement as Borrowing Base Properties in order to increase the Borrowing Base. Subject to the terms and conditions set forth in the 2002 Credit Agreement, Ventas Realty may also obtain a release of various Borrowing Base Properties from the liens and security interests encumbering such properties.

13

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Effective July 1, 2003, the Borrowing Base was increased to $334.8 million based upon a revaluation of the 59 Borrowing Base Properties of $515.0 million. All 59 Borrowing Base Properties are leased to Kindred pursuant to Amended Master Lease No. 1.

As of September 30, 2003, the outstanding indebtedness under the 2002 Credit Agreement was $92.6 million, and the remaining availability under the 2002 Credit Agreement was $242.2 million.

Amendment to the 2002 Credit Agreement

On June 10, 2003, the Company and the lenders under the 2002 Credit Agreement amended the definition of consolidated adjusted net worth to exclude the unrealized gain or loss on interest rate hedges or other interest rate derivatives reported on the Company’s Consolidated Balance Sheet in Accumulated Other Comprehensive Income Loss. The amendment requires that consolidated adjusted net worth be calculated in a manner consistent with other financial covenants in the 2002 Credit Agreement by excluding unrealized gains or losses on interest rate derivatives. Both before and after the amendment, the Company believes it was in compliance with its financial covenants under the 2002 Credit Agreement.

Recent Developments Regarding Dividends

The Company declared the first quarterly dividend for 2003 of $0.2675 per share on February 24, 2003, which was paid in cash on March 17, 2003 to stockholders of record on March 4, 2003. The Company declared the second quarterly dividend for 2003 of $0.2675 per share on May 16, 2003, which was paid in cash on June 24, 2003 to stockholders of record on June 2, 2003. The Company declared the third quarterly dividend for 2003 of $0.2675 per share on August 15, 2003, which was paid in cash on September 25, 2003 to stockholders of record on September 2, 2003. As a REIT, the Company is required to distribute to its stockholders 90% of its taxable income. Although the Company currently intends to distribute 100% or more of its taxable income for 2003 in quarterly installments, there can be no assurance that it will do so or as to when the remaining distributions will be made.

The Company’s estimate of its 2003 taxable income and the related quarterly dividends is based on a number of assumptions, including, but not limited to, the following: Kindred performs its obligations under the Master Leases and the various agreements (the “Spin Agreements”) entered into by the Company and Kindred at the time of the 1998 Spin Off, as such agreements may have been amended and restated in connection with Kindred’s emergence from bankruptcy on April 20, 2001; the Company’s other tenants perform their obligations under their leases with the Company; no capital transactions, acquisitions or divestitures occur; the Company’s tax and accounting positions do not change; and the number of issued and outstanding shares of the Company’s common stock remain relatively unchanged. These assumptions impacting the estimate of the Company’s 2003 taxable income are subject to change and many are outside the control of the Company. If actual results vary from these assumptions, the Company’s expectations regarding future dividends may change.

For purposes of the required REIT distributions, the Company’s taxable income may vary significantly from historical results and from current income determined in accordance with GAAP depending on the resolution of a variety of factors. Under certain circumstances, the Company may be required to make distributions in excess of funds from operations (FFO) (as defined by the National Association of Real Estate Investment Trusts) in order to meet such distribution requirements. In the event that timing differences or cash needs occur, the Company may find it necessary to borrow funds or to issue equity securities (there being no assurance that it will be able to do so) or, if possible, to pay taxable stock dividends, distribute other property or securities or engage in a transaction intended to enable it to meet the REIT distribution requirements. The Company’s ability to engage in certain of these transactions may be restricted in certain circumstances by the terms of the indentures governing the Senior Notes (the “Indentures”) and the 2002 Credit Agreement. If so restricted, such transaction would likely require the consent of the “Required Lenders” under the 2002 Credit Agreement and/or the holders of a majority in principal amount of

14

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

the outstanding Senior Notes under each Indenture and there can be no assurance that such consents would be obtained.In addition, the failure or inability of Kindred to make rental payments under the Master Leases would materially impair the ability of the Company to make distributions. Consequently, there can be no assurance that the Company will be able to make distributions at the required distribution rate or any other rate.

Although the Company intends to continue to qualify as a REIT for the year ending December 31, 2003 and subsequent years, it is possible that economic, market, legal, tax or other considerations may cause the Company to fail, or elect not, to continue to qualify as a REIT in any such year. If the Company were to fail, or elect not, to continue to qualify as a REIT in any such year, the Company would be subject to 35% federal income tax and to the applicable state and local income taxes for the affected years. Such tax obligations would have a Material Adverse Effect on the Company. Unless eligible for limited relief, if the Company failed, or revoked its election, to qualify as a REIT, the Company would not be eligible to elect again to be treated as a REIT before the fifth year after the year of such termination or revocation.

Recent Developments Regarding the Swap

At September 30, 2003, the Company’s variable rate debt balance was approximately $313 million which was consistent with the Company’s internal variable rate debt projections made on December 31, 2002 when the Company recorded a $1.9 million non-cash swap ineffectiveness expense related to the nine month projected excess notional amount of the Company’s interest rate swap over its variable rate debt balances. The aggregate notional amount of the 2003-2008 Swap (as defined in “Quantitative and Qualitative Disclosures about Market Risk”) was $450 million on September 30, 2003. The excess of the notional amount of the 2003-2008 Swap over the Company’s variable rate debt balances is the Excess Notional Amount. Consistent with the Company’s intention to acquire healthcare related and senior housing real estate assets, the Company anticipates that its variable rate debt levels will increase in the future to equal or exceed the notional amount of the 2003-2008 Swap. As a result of the anticipated increased variable rate debt levels, the Company believes that interest expense will rise. If the Company does not increase its variable rate debt balances to equal or exceed the notional amount of the 2003-2008 Swap, then under certain circumstances the Company may record a noncash expense for swap ineffectiveness equal to the portion of the unrealized loss on the 2003-2008 Swap allocable to the excess notional amount of the 2003-2008 Swap or pay to reduce the notional amount of the 2003-2008 Swap to more closely match its variable rate debt balances. Currently the unrealized loss is reported in Accumulated Other Comprehensive Loss on the Condensed Consolidated Balance Sheet.

NOTE 6—STOCKHOLDERS’ EQUITY AND STOCK OPTIONS

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

15

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
Net Income, as reported	$	32,212		$	17,093		$	85,629		$	56,262
Add: Stock-based employee compensation expense included in reported net income		309			354			956			1,491
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards		(386	)		(496	)		(1,196	)		(1,918	)
Pro forma net income	$	32,135		$	16,951		$	85,389		$	55,835
Earnings per share:
Basic – as reported	$	0.41		$	0.25		$	1.08		$	0.82
Basic – pro forma	$	0.40		$	0.25		$	1.08		$	0.81
Diluted – as reported	$	0.40		$	0.24		$	1.07		$	0.80
Diluted – pro forma	$	0.40		$	0.24		$	1.07		$	0.80

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2003		2002		2003		2002
Risk free interest rate	4.2	%	4.1	%	4.0	%	4.1	%
Dividend yield	8.0	%	9.0	%	9.0	%	9.0	%
Volatility factors of the expected market price for the Company’s common stock	0.224	%	0.276	%	0.254	%	0.276	%
Weighted average expected life of options	8 years		9 years		9 years		9 years

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

NOTE 7—LITIGATION

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

The following litigation and other matters arose from the Company’s operations prior to the time of the 1998 Spin Off or relate to assets or liabilities transferred to Kindred in connection with the 1998 Spin Off. Under the Spin Agreements, Kindred agreed to assume the defense, on behalf of the Company, of any claims that (a) were pending at the time of the 1998 Spin Off and which arose out of the ownership or operation of the healthcare operations or

16

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

any of the assets or liabilities transferred to Kindred in connection with the 1998 Spin Off, or (b) were asserted after the 1998 Spin Off and which arose out of the ownership and operation of the healthcare operations or any of the assets or liabilities transferred to Kindred in connection with the 1998 Spin Off, and to indemnify the Company for any fees, costs, expenses and liabilities arising out of such operations (the “Indemnification”). Kindred is presently defending the Company in the matters described below, among others. Under the Final Plan, Kindred assumed and agreed to abide by the Indemnification and to defend the Company in these and other matters as required under the Spin Agreements. However, there can be no assurance that Kindred will continue to defend the Company in such matters or that Kindred will have sufficient assets, income and access to financing to enable it to satisfy such obligations or its obligations incurred in connection with the 1998 Spin Off. In addition, many of the following descriptions are based primarily on information included in Kindred’s public filings and information provided to the Company by Kindred. There can be no assurance that Kindred has included in its public filings and provided the Company complete and accurate information in all instances.

A stockholder derivative suit entitledThomas G. White on behalf of Kindred, Inc. and Ventas, Inc. v. W. Bruce Lunsford, et al., Case No. 98 C103669 was filed in June 1998 in the Jefferson County, Kentucky, Circuit Court. The Complaint alleges, among other things, that certain former officers and directors damaged Kindred and the Company by engaging in violations of the securities laws, including engaging in insider trading, fraud and securities fraud and damaging the reputation of Kindred and the Company. The suit seeks unspecified damages, interest, punitive damages, reasonable attorneys’ fees, expert witness fees and other costs, and any extraordinary equitable and/or injunctive relief permitted by law or equity to assure the plaintiff has an effective remedy. The Company believes the allegations in the Complaint are without merit. On October 4, 2002, Kindred filed with the Court a motion to dismiss this action as to all defendants, including the Company, for lack of prosecution by the plaintiffs. On October 14, 2002, the Court granted Kindred’s motion to dismiss with prejudice. On October 17, 2002, the plaintiffs filed with the Court a motion to vacate that order of dismissal in order to allow further briefing. In response to the plaintiffs October 17, 2002 motion to vacate the order of dismissal, on August 13, 2003, the Court issued an order vacating the order dismissing the suit. On September 17, 2003, Kindred filed a renewed motion to dismiss this action as to all defendants, including the Company. Plaintiffs have not yet responded to this motion. Kindred, on behalf of the Company, intends to continue to defend this action vigorously.

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

17

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Circuit. On April 1, 2003, Kindred, on behalf of the Company, filed defendants’ response brief. There were no material developments in this lawsuit during the quarter ended September 30, 2003. Kindred, on behalf of the Company, intends to continue to defend this action vigorously.

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

Other Litigation

The Company is a plaintiff in an action seeking a declaratory judgment and damages entitledVentas Realty, Limited Partnership et al. v. Black Diamond CLO 1998-1 Ltd., et al.,Case No. 99C107076, filed November 22, 1999 in the Circuit Court of Jefferson County, Kentucky. Two of the three defendants in that action, Black Diamond International Funding, Ltd. and BDC Finance, LLC (collectively “Black Diamond”), have asserted counterclaims against the Company under theories of breach of contract, tortious interference with contract and abuse of process. The Company disputes the material allegations contained in Black Diamond’s counterclaims and the Company intends to continue to pursue its claims and defend the counterclaims vigorously. There were no material developments in this action during the quarter ended September 30, 2003.

The Company is party to various lawsuits arising in the normal course of the Company’s business. It is the opinion of management that, except as set forth in this Note 7, the disposition of these lawsuits will not, individually or in the aggregate, have a Material Adverse Effect on the Company. If management’s assessment of the Company’s liability with respect to these actions is incorrect, such lawsuits could have a Material Adverse Effect on the Company.

No provision for liability, if any, resulting from the aforementioned litigation has been made in the Company’s Condensed Consolidated Financial Statements as of September 30, 2003.

18

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 8—EARNINGS PER SHARE

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2003		2002		2003		2002
Numerator for Basic and Diluted Earnings Per Share:
Income before Discontinued Operations	$	30,992	$	16,335	$	83,095	$	30,318
Discontinued Operations		1,220		758		2,534		25,944
Net Income	$	32,212	$	17,093	$	85,629	$	56,262
Denominator:
Denominator for Basic Earnings Per Share—Weighted Average Shares		79,389		69,098		79,055		68,895
Effect of Dilutive Securities:
Stock Options		818		901		627		1,000
Time Vesting Restricted Stock Awards		51		48		29		83
Dilutive Potential Common Stock		869		949		656		1,083
Denominator for Diluted Earnings Per Share—Adjusted Weighted Average		80,258		70,047		79,711		69,978
Basic Earnings Per Share:
Income before Discontinued Operations	$	0.39	$	0.24	$	1.05	$	0.44
Discontinued Operations		0.02		0.01		0.03		0.38
Net Income	$	0.41	$	0.25	$	1.08	$	0.82
Diluted Earnings Per Share:
Income before Discontinued Operations	$	0.38	$	0.23	$	1.04	$	0.43
Discontinued Operations		0.02		0.01		0.03		0.37
Net Income	$	0.40	$	0.24	$	1.07	$	0.80

19

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9 – CONDENSED CONSOLIDATING INFORMATION

The Company and certain of its direct and indirect wholly owned subsidiaries (the “Subsidiary Guarantors”) have fully and unconditionally guaranteed, on a joint and several basis, the obligation to pay principal and interest with respect to the Senior Notes of Ventas Realty and Ventas Capital Corporation (“Ventas Capital,” and together with Ventas Realty, the “Issuers”). The Company has other subsidiaries (“Non-Guarantor Subsidiaries”) that are not included among the Subsidiary Guarantors, and such Non-Guarantor Subsidiaries are not obligated with respect to the Senior Notes. Contractual and legal restrictions, including those contained in the agreements governing the Company’s collateralized mortgage-backed securities transaction (“CMBS Transaction”), may under certain circumstances restrict the Company’s ability to obtain cash from its Non-Guarantor Subsidiaries for the purpose of meeting its debt service obligations, including the Company’s guarantee of payment of principal and interest on the Senior Notes. Additionally, as of December 31, 2002, approximately $161.6 million of the net assets of Ventas Realty were mortgaged to secure the 2002 Credit Agreement.

20

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following summarizes the unaudited condensed consolidating information for the Company as of September 30, 2003 and December 31, 2002 and for the three and nine months ended September 30, 2003 and 2002:

CONDENSED CONSOLIDATING BALANCE SHEET

September 30, 2003

(In thousands)	Ventas, Inc.		Subsidiary Guarantors (a)		Issuers (b)		Non- Guarantor Subsidiaries (c)			Consolidated Elimination			Consolidated
Assets
Total net real estate investments	$	13,675	$	—	$	613,227	$	103,801					$	730,703
Cash and cash equivalents		48		—		10,041		6						10,095
Restricted cash		1,527		—		1,461		5,042						8,030
Deferred financing costs, net		—		—		10,305		4,371						14,676
Notes receivable from employees		1,768		—		2,054		—						3,822
Equity in affiliates		22,102		1,323		—		—		$	(23,425	)		—
Other assets		315		—		6,116		643						7,074
Total assets	$	39,435	$	1,323	$	643,204	$	113,863		$	(23,425	)	$	774,400
Liabilities and stockholders’ equity (deficit)
Liabilities:
Senior Notes payable and other debt	$	—	$	—	$	458,588	$	220,774					$	679,362
Deferred revenue		103		—		13,287		2,919						16,309
Interest rate swap agreements		—		—		44,092		—						44,092
Accrued interest		—		—		13,621		334						13,955
Accounts payable, intercompany and other accrued liabilities		1,710		—		12,017		—						13,727
Other liabilities – disputed tax refunds and accumulated interest		266		—		—		—						266
Deferred income taxes		30,394		—		—		—						30,394
Total liabilities		32,473		—		541,605		224,027						798,105
Total stockholders’ equity (deficit)		6,962		1,323		101,599		(110,164	)		(23,425	)		(23,705	)
Total liabilities and stockholders’ equity (deficit)	$	39,435	$	1,323	$	643,204	$	113,863		$	(23,425	)	$	774,400

(a) The Subsidiary Guarantors consist of Ventas LP Realty, LLC (“Ventas LLC”), Ventas Healthcare Properties, Inc. (“VHPI”) and Ventas TRS, LLC (“TRS”). VHPI and TRS currently have no assets or operations. Ventas LLC is a wholly owned direct subsidiary of the Company and has no other assets or operations other than owning a 1% limited partnership interest in Ventas Realty.

(b) Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offering of the Senior Notes and has no assets or operations.

(c) The Non-Guarantor Subsidiaries consist of Ventas Specialty I, Inc., Ventas Finance I, Inc., Ventas Specialty I, LLC and Ventas Finance I, LLC, which were formed in 2001 in conjunction with the Company’s CMBS Transaction.

21

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2002

(In thousands)	Ventas, Inc.			Subsidiary Guarantors (a)		Issuers (b)		Non - Guarantor Subsidiaries (c)			Consolidated Elimination			Consolidated
Assets
Total net real estate investments	$	14,194		$	—	$	706,728	$	107,880					$	828,802
Cash and cash equivalents		48			—		2,406		1						2,455
Restricted cash		14,395			—		510		5,048						19,953
Deferred financing costs, net		—			—		12,311		5,393						17,704
Investment in Kindred Healthcare, Inc. common stock		—			—		16,713		—						16,713
Notes receivable from employees		1,716			—		2,423		—						4,139
Equity in affiliates		54,160			1,606		—		—		$	(55,766	)		—
Other assets		688			—		3,735		1,591						6,014
Total assets	$	85,201		$	1,606	$	744,826	$	119,913		$	(55,766	)	$	895,780
Liabilities and stockholders’ equity (deficit)
Liabilities:
Senior Notes payable and other debt	$	—		$	—	$	485,038	$	222,671					$	707,709
United States Settlement		43,992			—		—		—						43,992
Securities settlement due		—			—		37,366		—						37,366
Deferred revenue		123			—		15,517		3,243						18,883
Interest rate swap agreements		—			—		47,672		—						47,672
Accrued dividend		16,596			—		—		—						16,596
Accrued interest		—			—		6,843		394						7,237
Accounts payable, intercompany and other accrued liabilities		7,451			—		17,951		—						25,402
Other liabilities – disputed tax refunds and accumulated interest		14,156			—		—		—						14,156
Deferred income taxes		30,394			—		—		—						30,394
Total liabilities		112,712			—		610,387		226,308						949,407
Total stockholders’ equity (deficit)		(27,511	)		1,606		134,439		(106,395	)		(55,766	)		(53,627	)
Total liabilities and stockholders’ equity (deficit)	$	85,201		$	1,606	$	744,826	$	119,913		$	(55,766	)	$	895,780

(a) The Subsidiary Guarantors consist of Ventas LLC, VHPI and TRS. VHPI and TRS currently have no assets or operations. Ventas LLC is a wholly owned direct subsidiary of the Company and has no other assets or operations other than owning a 1% limited partnership interest in Ventas Realty.

(b) Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offering of the Senior Notes and has no assets or operations.

(c) The Non-Guarantor Subsidiaries consist of Ventas Specialty I, Inc., Ventas Finance I, Inc., Ventas Specialty I, LLC and Ventas Finance I, LLC, which were formed in 2001 in conjunction with the Company’s CMBS Transaction.

22

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three months ended September 30, 2003

(In thousands)	Ventas, Inc.		Subsidiary Guarantors (a)		Issuers (b)		Non - Guarantor Subsidiaries (c)		Consolidated Elimination			Consolidated
Revenues:
Rental income	$	555	$	—	$	41,610	$	8,451				$	50,616
Interest income from loan receivable		—		—		766		—					766
Equity earnings in affiliate(s)		31,734		270		—		—	$	(32,004	)		—
Gain on sale of Kindred Healthcare, Inc. common stock		—		—		8,117		—					8,117
Interest and other income		139		—		137		4					280
Total revenues		32,428		270		50,630		8,455		(32,004	)		59,779
Expenses:
General and administrative		35		—		2,577		524					3,136
Professional fees		4		—		342		70					416
Amortization of restricted stock grants		3		—		254		52					309
Depreciation		174		—		8,704		1,360					10,238
Interest		—		—		12,981		1,707					14,688
Total expenses		216		—		24,858		3,713					28,787
Income (loss) before discontinued operations		32,212		270		25,772		4,742		(32,004	)		30,992
Discontinued operations		—		—		1,220		—					1,220
Net income (loss)	$	32,212	$	270	$	26,992	$	4,742	$	(32,004	)	$	32,212

(a) The Subsidiary Guarantors consist of Ventas LLC, VHPI and TRS. VHPI and TRS currently have no assets or operations. Ventas LLC is a wholly owned direct subsidiary of the Company and has no other assets or operations other than owning a 1% limited partnership interest in Ventas Realty.

(b) Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offering of the Senior Notes and has no assets or operations.

(c) The Non-Guarantor Subsidiaries consist of Ventas Specialty I, Inc., Ventas Finance I, Inc., Ventas Specialty I, LLC and Ventas Finance I, LLC, which were formed in 2001 in conjunction with the Company’s CMBS Transaction.

23

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three months ended September 30, 2002

(In thousands)	Ventas, Inc.			Subsidiary Guarantors (a)		Issuers (b)		Non - Guarantor Subsidiaries (c)		Consolidated Elimination			Consolidated
Revenues:
Rental income	$	495		$	—	$	36,785	$	8,169				$	45,449
Equity earnings in affiliate(s)		15,865			125		—		—	$	(15,990	)		—
Gain on sale of Kindred Healthcare, Inc. common stock		—			—		1,192		—					1,192
Interest and other income		75			—		135		27					237
Total revenues		16,435			125		38,112		8,196		(15,990	)		46,878
Expenses:
General and administrative		25			—		1,979		406					2,410
Professional fees		9			—		739		152					900
Amortization of restricted stock grants		3			—		292		59					354
Depreciation		174			—		8,286		1,363					9,823
Swap ineffectiveness		—			—		118		—					118
Interest		—			—		14,953		2,854					17,807
Interest on United States Settlement		1,331			—		—		—					1,331
Total expenses		1,542			—		26,367		4,834					32,743
Income (loss) before benefit for income taxes and discontinued operations		14,893			125		11,745		3,362		(15,990	)		14,135
Benefit for income taxes		(2,200	)		—		—		—					(2,200	)
Income (loss) before discontinued operations		17,093			125		11,745		3,362		(15,990	)		16,335
Discontinued operations		—			—		758		—					758
Net income (loss)	$	17,093		$	125	$	12,503	$	3,362	$	(15,990	)	$	17,093

(a) The Subsidiary Guarantors consist of Ventas LLC, VHPI and TRS. VHPI and TRS currently have no assets or operations. Ventas LLC is a wholly owned direct subsidiary of the Company and has no other assets or operations other than owning a 1% limited partnership interest in Ventas Realty.

(b) Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offering of the Senior Notes and has no assets or operations.

(c) The Non-Guarantor Subsidiaries consist of Ventas Specialty I, Inc., Ventas Finance I, Inc., Ventas Specialty I, LLC and Ventas Finance I, LLC, which were formed in 2001 in conjunction with the Company’s CMBS Transaction.

24

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Nine months ended September 30, 2003

(In thousands)	Ventas, Inc.			Subsidiary Guarantors (a)		Issuers (b)		Non - Guarantor Subsidiaries (c)		Consolidated Elimination			Consolidated
Revenues:
Rental income	$	1,557		$	—	$	119,016	$	24,978				$	145,551
Interest income from loan receivable		—			—		2,271		—					2,271
Equity earnings in affiliate(s)		69,248			569		—		—	$	(69,817	)		—
Gain on sale of Kindred Healthcare, Inc. common stock		—			—		9,039		—					9,039
Interest and other income		249			—		1,064		12					1,325
Total revenues		71,054			569		131,390		24,990		(69,817	)		158,186
Expenses:
General and administrative		97			—		7,708		1,551					9,356
Professional fees		19			—		1,547		312					1,878
Reversal of contingent liability		(20,164	)		—		—		—					(20,164	)
Amortization of restricted stock grants		9			—		750		151					910
Depreciation		521			—		26,063		4,079					30,663
Swap ineffectiveness		—			—		369		—					369
Interest		—			—		40,610		6,526					47,136
Interest on United States Settlement		4,943			—		—		—					4,943
Total expenses		(14,575	)		—		77,047		12,619					75,091
Income (loss) before discontinued operations		85,629			569		54,343		12,371		(69,817	)		83,095
Discontinued operations		—			—		2,534		—					2,534
Net income (loss)	$	85,629		$	569	$	56,877	$	12,371	$	(69,817	)	$	85,629

(a) The Subsidiary Guarantors consist of Ventas LLC, VHPI and TRS. VHPI and TRS currently have no assets or operations. Ventas LLC is a wholly owned direct subsidiary of the Company and has no other assets or operations other than owning a 1% limited partnership interest in Ventas Realty.

(b) Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offering of the Senior Notes and has no assets or operations.

(c) The Non-Guarantor Subsidiaries consist of Ventas Specialty I, Inc., Ventas Finance I, Inc., Ventas Specialty I, LLC and Ventas Finance I, LLC, which were formed in 2001 in conjunction with the Company’s CMBS Transaction.

25

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Nine months ended September 30, 2002

(In thousands)	Ventas, Inc.			Subsidiary Guarantors (a)		Issuers (b)		Non- Guarantor Subsidiaries (c)		Consolidated Elimination			Consolidated
Revenues:
Rental income	$	1,464		$	—	$	108,789	$	24,144				$	134,397
Equity earnings in affiliate(s)		57,228			479		—		—	$	(57,707	)		—
Gain on sale of Kindred Healthcare, Inc. common stock		—			—		5,014		—					5,014
Interest and other income		211			—		668		73					952
Total revenues		58,903			479		114,471		24,217		(57,707	)		140,363
Expenses:
General and administrative		76			—		5,998		1,248					7,322
Professional fees		25			—		1,967		409					2,401
Amortization of restricted stock grants		15			—		1,222		254					1,491
Depreciation		521			—		24,852		4,087					29,460
Swap ineffectiveness		—			—		298		—					298
Net loss on swap breakage		—			—		5,407		—					5,407
Loss on extinguishment of debt		—			—		6,919		—					6,919
Interest		—			—		45,859		8,884					54,743
Interest on United States Settlement		4,204			—		—		—					4,204
Total expenses		4,841			—		92,522		14,882					112,245
Income (loss) before benefit from income tax and discontinued operations		54,062			479		21,949		9,335		(57,707	)		28,118
Benefit from income tax		(2,200	)		—		—		—					(2,200	)
Income (loss) before discontinued operations		56,262			479		21,949		9,335		(57,707	)		30,318
Discontinued operations		—			—		25,944		—					25,944
Net income (loss)	$	56,262		$	479	$	47,893	$	9,335	$	(57,707	)	$	56,262

(a) The Subsidiary Guarantors consist of Ventas LLC, VHPI and TRS. VHPI and TRS currently have no assets or operations. Ventas LLC is a wholly owned direct subsidiary of the Company and has no other assets or operations other than owning a 1% limited partnership interest in Ventas Realty.

(b) Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offering of the Senior Notes and has no assets or operations.

(c) The Non-Guarantor Subsidiaries consist of Ventas Specialty I, Inc., Ventas Finance I, Inc., Ventas Specialty I, LLC and Ventas Finance I, LLC, which were formed in 2001 in conjunction with the Company’s CMBS Transaction.

26

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine months ended September 30, 2003

(In thousands)	Ventas, Inc.			Subsidiary Guarantors (a)			Issuers (b)			Non - Guarantor Subsidiaries (c)			Consolidated Elimination			Consolidated
Net cash provided by (used in) operating activities	$	83,307		$	569		$	75,749		$	18,042		$	(69,819	)	$	107,848
Net cash provided by (used in) investing activities		(52	)		—			81,644			—						81,592
Cash flows from financing activities:
Net change in borrowings under Revolving Credit Facility		—			—			(26,450	)		—						(26,450	)
Purchase of Senior Notes		—			—			(37,366	)		—						(37,366	)
Repayment of debt		—			—			—			(1,897	)					(1,897	)
Payment on United States Settlement		(46,647	)		—			—			—						(46,647	)
Payment of deferred financing costs		—			—			(40	)		—						(40	)
Proceeds from issuance of stock		10,847			—			—			—						10,847
Cash dividends to stockholders		(80,247	)		—			—			—						(80,247	)
Cash distributions from (to) affiliates		32,792			(569	)		(85,902	)		(16,140	)		69,819			—
Net cash provided by (used in) financing activities		(83,255	)		(569	)		(149,758	)		(18,037	)		69,819			(181,800	)
Increase (decrease) in cash and cash equivalents		—			—			7,635			5						7,640
Cash and cash equivalents at beginning of period		48			—			2,406			1						2,455
Cash and cash equivalents at end of period	$	48		$	—		$	10,041		$	6					$	10,095

(a) The Subsidiary Guarantors consist of Ventas LLC, VHPI and TRS. VHPI and TRS currently have no assets or operations. Ventas LLC is a wholly owned direct subsidiary of the Company and has no other assets or operations other than owning a 1% limited partnership interest in Ventas Realty.

(b) Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offering of the Senior Notes and has no assets or operations.

(c) The Non-Guarantor Subsidiaries consist of Ventas Specialty I, Inc., Ventas Finance I, Inc., Ventas Specialty I, LLC and Ventas Finance I, LLC, which were formed in 2001 in conjunction with the Company’s CMBS Transaction.

27

VENTAS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine months ended September 30, 2002

(In thousands)	Ventas, Inc.			Subsidiary Guarantors (a)			Issuers (b)			Non - Guarantor Subsidiaries (c)			Consolidated Elimination			Consolidated
Net cash provided by (used in) operating activities	$	56,385		$	479		$	80,276		$	17,254		$	(57,707	)	$	96,687
Net cash provided by (used in) investing activities		(1,158	)		—			35,941			—						34,783
Cash flows from financing activities:
Net change in borrowings under Revolving Credit Facility		—			—			(57,651	)		—						(57,651	)
Proceeds from Senior Notes Offering and Revolving Credit Facility		—			—			620,300			—						620,300
Repayment of debt		—			—			(16,261	)		(1,726	)					(17,987	)
Repayment of debt through Refinancing		—			—			(607,106	)		—						(607,106	)
Payment on United States Settlement		(7,958	)		—			—			—						(7,958	)
Payment of deferred financing costs		—			—			(15,127	)		—						(15,127	)
Payment of swap breakage fee		—			—			(12,837	)		—						(12,837	)
Proceeds from issuance of stock		2,546			—			—			—						2,546
Cash dividends to stockholders		(50,125	)		—			—			—						(50,125	)
Cash distributions from (to) affiliates		(1,293	)		(479	)		(40,408	)		(15,527	)		57,707			—
Net cash provided by (used in) financing activities		(56,830	)		(479	)		(129,090	)		(17,253	)		57,707			(145,945	)
Increase (decrease) in cash and cash equivalents		(1,603	)		—			(12,873	)		1						(14,475	)
Cash and cash equivalents at beginning of period		1,651			—			16,945			—						18,596
Cash and cash equivalents at end of period	$	48		$	—		$	4,072		$	1					$	4,121

(a) The Subsidiary Guarantors consist of Ventas LLC, VHPI and TRS. VHPI and TRS currently have no assets or operations. Ventas LLC is a wholly owned direct subsidiary of the Company and has no other assets or operations other than owning a 1% limited partnership interest in Ventas Realty.

(b) Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offering of the Senior Notes and has no assets or operations .

(c) The Non-Guarantor Subsidiaries consist of Ventas Specialty I, Inc., Ventas Finance I, Inc., Ventas Specialty I, LLC and Ventas Finance I, LLC, which were formed in 2001 in conjunction with the Company’s CMBS Transaction.

28

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statements

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding Ventas, Inc.’s (“Ventas” or the “Company”) and its subsidiaries’ expected future financial position, results of operations, cash flows, funds from operations, dividends and dividend plans, financing plans, business strategy, budgets, projected costs, capital expenditures, competitive positions, growth opportunities, expected lease income, continued qualification as a real estate investment trust (“REIT”), plans and objectives of management for future operations and statements that include words such as “anticipate,” “if,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “could,” “should,” “will” and other similar expressions are forward-looking statements. Such forward-looking statements are inherently uncertain, and security holders must recognize that actual results may differ from the Company’s expectations. The Company does not undertake a duty to update such forward-looking statements.

Actual future results and trends for the Company may differ materially depending on a variety of factors discussed in the Company’s filings with the Securities and Exchange Commission (the “Commission”). Factors that may affect the plans or results of the Company include, without limitation, (a) the ability and willingness of Kindred Healthcare, Inc. (“Kindred”) and certain of its affiliates to continue to meet and/or perform their obligations under their contractual arrangements with the Company and the Company’s subsidiaries, including without limitation the lease agreements and various agreements entered into by the Company and Kindred at the time of the Company’s spin off of Kindred on May 1, 1998 (the “1998 Spin Off”), as such agreements may have been amended and restated in connection with Kindred’s emergence from bankruptcy on April 20, 2001, (b) the ability and willingness of Kindred to continue to meet and/or perform its obligation to indemnify and defend the Company for all litigation and other claims relating to the healthcare operations and other assets and liabilities transferred to Kindred in the 1998 Spin Off, (c) the ability of Kindred and the Company’s other operators to maintain the financial strength and liquidity necessary to satisfy their respective obligations and duties under the leases and other agreements with the Company, and their existing credit agreements, (d) the Company’s success in implementing its business strategy, (e) the nature and extent of future competition, (f) the extent of future healthcare reform and regulation, including cost containment measures and changes in reimbursement policies, procedures and rates, (g) increases in the cost of borrowing for the Company, (h) the ability of the Company’s operators to deliver high quality care and to attract patients, (i) the results of litigation affecting the Company, (j) changes in general economic conditions and/or economic conditions in the markets in which the Company may, from time to time, compete, (k) the ability of the Company to pay down, refinance, restructure, and/or extend its indebtedness as it becomes due, (l) the movement of interest rates and the resulting impact on the value of and the accounting for the Company’s interest rate swap agreement, (m) the ability and willingness of the Company to maintain its qualification as a REIT due to economic, market, legal, tax or other considerations, (n) final determination of the Company’s taxable net income for the year ending December 31, 2003, (o) the ability and willingness of the Company’s tenants to renew their leases with the Company upon expiration of the leases and the Company’s ability to relet its properties on the same or better terms in the event such leases expire and are not renewed by the existing tenants, and (p) the impact on the liquidity, financial condition and results of operations of Kindred and the Company’s other operators resulting from increased operating costs and uninsured liabilities for professional liability claims, and the ability of Kindred and the Company’s other operators to accurately estimate the magnitude of such liabilities. Many of such factors are beyond the control of the Company and its management.

Kindred Information

Kindred is subject to the reporting requirements of the Commission and is required to file with the Commission annual reports containing audited financial information and quarterly reports containing unaudited financial information. The information related to Kindred provided in this Quarterly Report on Form 10-Q is derived from filings made with the Commission or other publicly available information, or has been provided by Kindred. The

29

Company has not verified this information either through an independent investigation or by reviewing Kindred’s public filings. The Company has no reason to believe that such information is inaccurate in any material respect, but there can be no assurance that all such information is accurate. The Company is providing this data for informational purposes only, and the reader of this Quarterly Report on Form 10-Q is encouraged to obtain Kindred’s publicly available filings from the Commission.

Background Information

Ventas, Inc. (“Ventas” or the “Company”) is a Delaware corporation that elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended, beginning with the year ended December 31, 1999. The Company owns a geographically diverse portfolio of healthcare related facilities that consisted of 44 hospitals, 203 nursing facilities and nine other healthcare and senior housing facilities in 37 states as of September 30, 2003. The Company and its subsidiaries lease these facilities to healthcare operating companies under “triple-net” or “absolute net” leases. Kindred Healthcare, Inc. and its subsidiaries (hereinafter collectively, “Kindred”) lease 194 of the Company’s nursing facilities and all but one of the Company’s hospitals as of September 30, 2003. The Company also has investments relating to 25 healthcare and senior housing facilities. The Company conducts substantially all of its business through a wholly owned operating partnership, Ventas Realty, Limited Partnership (“Ventas Realty”) and an indirect, wholly owned limited liability company, Ventas Finance I, LLC (“Ventas Finance”). As of September 30, 2003, Ventas Finance owned 40 of the Company’s skilled nursing facilities, the Company owned two hospitals and Ventas Realty owned all of the Company’s other properties and investments. The Company’s business consists of financing, owning and leasing healthcare-related and senior housing facilities.

The Company’s business strategy is comprised of two primary objectives: diversifying its portfolio of properties and increasing its earnings. The Company intends to diversify its portfolio by operator, facility type and reimbursement source. The Company intends to invest in or acquire additional healthcare-related and/or senior housing properties, which could include hospitals, nursing centers, assisted or independent living facilities and ancillary healthcare facilities that are operated by qualified providers in their industries.

As of September 30, 2003, approximately 94.0% of the Company’s properties, based on the original cost of such properties, were operated by Kindred. Approximately 88.2% of the Company’s total revenue for the nine months ended September 30, 2003 was derived from the four amended and restated master lease agreements dated as of April 20, 2001 between Ventas Realty and Kindred (the “Amended Master Leases”) and the master lease agreement dated as of December 12, 2001 between Ventas Finance and Kindred (as amended and, collectively with the Amended Master Leases, the “Master Leases”).

Recent Developments Regarding Government Regulations

Recent federal legislation and regulations set forth revised payment mechanisms for skilled nursing facility (“SNF”) and long-term acute care hospital (“LTAC”) services. The full economic impact of new laws and other recent developments discussed below are under review by the long-term care industry and by the Company and its tenants.

Medicare Reimbursement; Skilled Nursing Facilities

The Balanced Budget Act of 1997 established a prospective payment system for SNFs (the “SNF PPS”). The SNF PPS classifies patients into distinct payment groups based on a patients’ clinical characteristics. Under the SNF PPS, a SNF is reimbursed based upon the expected resource needs of its patients in each such payment category, rather than on a reasonable cost basis that reflects costs incurred.

On August 4, 2003, the Centers for Medicare and Medicaid Services (“CMS”) published the SNF payment rates for the 2004 federal fiscal year. Under this update, SNFs will receive a 3.0% increase in Medicare payments for the 2004 federal fiscal year (i.e., October 1, 2003 through September 30, 2004). According to CMS, this increase will result in approximately $400 million more in annual payments to SNFs. In addition, CMS will further adjust rates by an additional 3.26% to reflect the cumulative forecast error since the start of the SNF PPS on July 1,

30

1998. According to CMS, this forecast error adjustment will result in approximately $450 million more in annual payments to SNFs. Taken together, both rate increases will total approximately $850 million (a 6.4% increase). Finally, two temporary payment increases – a 20% temporary per diem add-on for certain payment categories and a 6.7% temporary payment increase for other categories – will continue through federal fiscal year 2004. These temporary payment add-ons will continue until CMS implements a refined case mix classification system to better account for medically complex patients.

Medicare Reimbursement; Long-Term Acute Care Hospitals

Pursuant to the Medicare provisions of the Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 and the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000, LTACs are transitioning to a prospective payment system (the “LTAC PPS”), pursuant to which LTACs’ reimbursement rates will be determined based upon classifications of its patients that are intended to take into account expected clinical resource needs (as payments are made under the SNF PPS method).

Under the LTAC PPS, a provider may choose to receive interim payments by: (1) billing each patient at the earlier of the time of discharge or 60 days from the time of admission; or (2) electing a periodic interim payment methodology which estimates the total annual LTAC reimbursement by a hospital and converts that amount into bi-weekly payments. Updates to the LTAC payment rates are published annually for the LTAC rate year, which first coincided with the federal fiscal year. However, in a final rule published on June 6, 2003, CMS announced its change to the rate year for the LTAC PPS from the federal fiscal year to a rate year of July 1 through June 30, which began on July 1, 2003.

For LTACs utilizing the cost-based reimbursement system as of October 1, 2002, a 5-year phase-in period has been implemented to transition such LTACs from cost-based reimbursement to prospective payment under the LTAC PPS. At the beginning of any cost reporting period during the phase-in, such LTACs may exercise a one-time non-revocable election to transition fully to the LTAC PPS rate.

On July 31, 2003, Kindred filed with CMS to convert 59 of its 61 LTACs immediately to the full federal rates under the new payment system. Kindred has stated that it continues to review the extensive regulations associated with the new LTAC PPS. Based upon Kindred’s analysis to date, Kindred has stated that it believes that the new system should not have a material impact on its hospital operating results but may negatively impact operating cash flows in the short term. Kindred’s estimates are based upon current patient acuity and expense levels in Kindred’s LTACs. These facts, among others, are subject to significant change. As a result of these uncertainties, Kindred has stated that it cannot predict the ultimate impact of the new LTAC PPS on its hospital operating results and there can be no assurance that such regulations or operational changes resulting from these regulations will not have a material adverse effect on Kindred which, in turn, could have a Material Adverse Effect on the Company.

Medicaid Reimbursement

Approximately two-thirds of all nursing home residents are dependent on Medicaid. Medicaid reimbursement rates, however, typically are less than the amounts charged by the operators of the Company’s SNFs. Moreover, rising Medicaid costs and decreasing state revenues caused by current economic conditions have prompted an increasing number of states to cut or consider reductions in Medicaid funding as a means of balancing their respective state budgets. Existing and future initiatives affecting Medicaid reimbursement may reduce utilization of (and reimbursement for) services offered by the operators of the Company’s SNFs.

In early 2003, many states announced actual or potential budget shortfalls. As a result of these budget shortfalls, many states have announced that they are implementing or considering implementing “freezes” or cuts in Medicaid rates paid to SNF providers. The Company cannot predict the extent to which Medicaid rate freezes or cuts will ultimately be adopted, the number of states that will adopt them nor the impact of such adoption on the Company’s operators. However, extensive Medicaid rate cuts or freezes could have a material adverse effect on the Company’s operators’ liquidity, financial condition and results of operations, which could affect adversely their ability to make rental payments to the Company which, in turn, could have a Material Adverse Effect on the Company.

31

On May 28, 2003, the federal Jobs and Growth Tax Relief Reconciliation Act (“Tax Relief Act”) was enacted, which included a $10 billion increase in Medicaid federal funding through federal fiscal year 2004. In addition, the Tax Relief Act provides an additional $10 billion in state fiscal relief for federal fiscal years 2003 and 2004 to assist states with funding shortfalls. It is anticipated that these temporary federal funding provisions will mitigate state Medicaid funding reductions through federal fiscal year 2004.

Nursing Home Quality Initiative

In late 2002, the U.S. Department of Health and Human Services launched the Nursing Home Quality Initiative program. This program, which is designed to provide consumers with comparative information about nursing home quality measures, rates nursing homes on various quality of care indicators. If the operators of the Company’s SNFs are unable to achieve quality of care ratings that are comparable or superior to those of their competitors, patients may choose alternate facilities, which could cause operating revenues to decline. In the event the financial condition or operating revenues of these operators are adversely affected, the operators’ ability to make rental payments to the Company could be adversely affected, which, in turn, could have a Material Adverse Effect on the Company.

Critical Accounting Policies and Estimates

The Company’s Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), which require the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures. The Company believes that the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its Condensed Consolidated Financial Statements.

Impairment of Long-Lived Assets

The Company periodically evaluates its long-lived assets, primarily consisting of its investments in real estate, for impairment indicators. If indicators of impairment are present, the Company evaluates the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying operations. The Company adjusts the net book value of leased properties and other long-lived assets to fair value, if the sum of the expected future cash flow or sales proceeds is less than book value. Future events could occur which would cause the Company to conclude that impairment indicators exist and an impairment loss is warranted.

In the third quarter ended September 30, 2003, the Company recorded a $0.8 million impairment on one of its non-operating skilled nursing facilities. The Company has not recorded rent on this facility since August 2001.

Legal Contingencies

The Company is currently involved in certain legal proceedings. As described further in “Note 7—Litigation” to the Condensed Consolidated Financial Statements, the Company is currently involved in certain legal proceedings and other matters that arose from the Company’s operations prior to the time of the 1998 Spin Off or relate to assets or liabilities transferred to Kindred in connection with the 1998 Spin Off. Under the various agreements (the “Spin Agreements”) entered into by the Company and Kindred at the time of the 1998 Spin Off, as such agreements may have been amended and restated in connection with Kindred’s emergence from bankruptcy on April 20, 2001, Kindred agreed to assume the defense, on behalf of the Company, of any claims that (a) were pending at the time of the 1998 Spin Off and which arose out of the ownership or operation of the healthcare operations or any of the assets or liabilities transferred to Kindred in connection with the 1998 Spin Off, or (b) were asserted after the 1998 Spin Off and which arose out of the ownership and operation of the healthcare operations or any of the assets or liabilities transferred to Kindred in connection with the 1998 Spin Off, and to indemnify the Company for any fees, costs, expenses and liabilities arising out of such operations. Kindred is presently defending the Company in these matters, however, there can be no assurance that Kindred will continue to defend the Company in such matters or that Kindred will have sufficient assets, income and access to financing to enable it to satisfy such obligations. A change in Kindred’s ability or willingness to perform under these commitments could have a Material Adverse Effect on the Company.

32

The Company is also involved in other litigation as further described in “Note 7—Litigation” to the Condensed Consolidated Financial Statements. It is the opinion of management that, except as set forth in “Note 7—Litigation” to the Condensed Consolidated Financial Statements, the disposition of such matters will not, individually or in the aggregate, have a Material Adverse Effect on the Company. If management’s assessment of the Company’s liability with respect to these actions in incorrect, such matters could have a Material Adverse Effect on the Company.

Fair Value of Derivative Instruments

The valuation of derivative instruments requires the Company to make estimates and judgments that affect the fair value of the instruments. Fair value for the Company’s derivatives are verified with a third party consultant which utilizes pricing models that consider forward yield curves and discount rates. Such amounts and the recognition of such amounts in the Condensed Consolidated Financial Statements of the Company are subject to significant estimates which may change in the future.

At September 30, 2003, the Company’s variable rate debt balance was approximately $313 million which was consistent with the Company’s internal variable rate debt projections made on December 31, 2002 when the Company recorded a $1.9 million non-cash swap ineffectiveness expense related to the nine month projected excess notional amount of the Company’s interest rate swap over its variable rate debt balances. The aggregate notional amount of the 2003-2008 Swap (as defined in “Quantitative and Qualitative Disclosures about Market Risk”) was $450 million on September 30, 2003. The excess of the notional amount of the 2003-2008 Swap over the Company’s variable rate debt balances is the Excess Notional Amount. Consistent with the Company’s intention to acquire healthcare related and senior housing real estate assets, the Company anticipates that its variable rate debt levels will increase in the future to equal or exceed the notional amount of the 2003-2008 Swap. As a result of the anticipated increased variable rate debt levels, the Company believes that interest expense will rise. If the Company does not increase its variable rate debt balances to equal or exceed the notional amount of the 2003-2008 Swap, then under certain circumstances the Company may record a noncash expense for swap ineffectiveness equal to the portion of the unrealized loss on the 2003-2008 Swap allocable to the excess notional amount of the 2003-2008 Swap or pay to reduce the notional amount of the 2003-2008 Swap to more closely match its variable rate debt balances. Currently the unrealized loss is reported in Accumulated Other Comprehensive Loss on the Condensed Consolidated Balance Sheet.

Income Taxes

For the nine months ended September 30, 2003, a provision for income tax was not recorded due to the Company’s ability and intention to distribute to its stockholders at least 100% of its estimated 2003 taxable income and to continue to qualify as a REIT.

The Company’s estimation of its 2003 taxable income and the related quarterly dividends is based on a number of assumptions, including, but not limited to, the following: Kindred performs its obligations under the Master Leases and the Spin Agreements; the Company’s other tenants perform their obligations under their leases with the Company; no capital transactions, acquisitions or divestitures occur; the Company’s tax and accounting positions do not change; and the number of issued and outstanding shares of the Company’s common stock remain relatively unchanged. These assumptions which impact the estimate of the Company’s 2003 taxable income are subject to change and many are outside the control of the Company. If actual results vary from these assumptions, the Company’s expectations regarding future dividends may change.

Although the Company intends to continue to qualify as a REIT for the year ending December 31, 2003 and subsequent years, it is possible that economic, market, legal, tax or other considerations may cause the Company to fail, or elect not, to continue to qualify as a REIT in any such year. If the Company were to fail, or elect not, to continue to qualify as a REIT in any such year, the Company would be subject to 35% federal income tax and to the applicable state and local income taxes for the affected years. Such tax obligations would have a Material Adverse Effect on the Company. Unless eligible for limited relief, if the Company failed, or revoked its election, to qualify as a REIT, the Company would not be eligible to elect again to be treated as a REIT before the fifth year after the year of such termination or revocation.

33

Results of Operations

Three Months Ended September 30, 2003 and 2002

Rental income for the three months ended September 30, 2003 was $50.6 million, of which $48.6 million (96.1%) resulted from leases with Kindred. The rental income from Kindred includes $0.6 million related to the amortization of deferred revenue recorded as a result of (a) the Company’s receipt of common stock in Kindred (“Kindred Common Stock”) under Kindred’s April 2001 bankruptcy plan of reorganization (the “Final Plan”) on April 20, 2001 and (b) the receipt in 2001 of $4.5 million of additional future rent under the Master Leases. The rental income for the three months ended September 30, 2002 was $45.4 million, of which $44.9 million (98.8%) resulted from leases with Kindred. The $5.2 million increase in rental income reflects (a) the 3.5% increase in the rent paid under the Master Leases effective May 1, 2003, (b) the $8.6 million increase in annualized rent on certain Kindred facilities effective July 1, 2003 and (c) $1.5 million in rent earned under the master lease (the “THI Master Lease”) in the three months ended September 30, 2003 entered into by Ventas Realty and certain subsidiaries of Trans Healthcare, Inc. (“THI”) on November 4, 2002.

Interest income from the loan receivable was $0.8 million for the three months ended September 30, 2003. This amount relates to interest income received in connection with a mezzanine loan made by Ventas Realty to THI on November 4, 2002.

During the three months ended September 30, 2003, the Company disposed of its remaining 780,814 shares of Kindred Common Stock for an average net price of approximately $23 per share and recognized a gain of $8.1 million. The Company used the net proceeds of $17.6 million for the reduction of the Company’s outstanding indebtedness and for general corporate purposes. During the three months ended September 30, 2002, the Company disposed of 40,000 shares of Kindred Common Stock for an average net price of approximately $41 per share and recognized a gain of $1.2 million. The net proceeds of $1.6 million were used to reduce the Company’s outstanding indebtedness. As of September 30, 2003, the Company did not own any shares of Kindred common stock.

Expenses totaled $28.8 million for the three months ended September 30, 2003 and included $10.2 million of depreciation expense and $14.7 million of interest on debt financing. Expenses totaled $32.7 million for the three months ended September 30, 2002. The $3.9 million decrease resulted primarily from (a) a $3.1 million decrease in interest expense, (b) a $1.3 million decrease in the United States Settlement (defined below) interest and (c) offsetting increases in general and administrative expenses and professional fees of $0.2 million and depreciation expense of $0.4 million.

Interest expense excluding the interest on the settlement of the civil and administrative claims asserted by the United States against the Company and Kindred (the “United States Settlement”) decreased $3.1 million to $14.7 million for the three months ended September 30, 2003 from $17.8 million for the three months ended September 30, 2002. Interest expense includes $1.0 million of amortized deferred financing costs for each of the three months ended September 30, 2003 and 2002. Interest expense included in discontinued operations was $0.9 million for the three months ended September 30, 2002. The decrease in interest expense was due primarily to (a) a $2.2 million decrease as a result of reduced debt balances, (b) a $1.0 million decrease from reduced interest rates, and (c) a $0.8 million decrease from the amortization of a deferred gain recorded in connection with a 1999 transaction to shorten the maturity of the Company’s 1998 Swap (as defined below) which covered the period between July 1, 2003 and December 31, 2007 (See “Quantitative and Qualitative Disclosures about Market Risk”). Funds paid to reduce the principal balance were raised through cash flows from operations, asset sales, proceeds from the sale of Kindred Common Stock and an equity offering completed December 2002.

General, administrative and professional fee expenses totaled $3.6 million and $3.3 million for the three months ended September 30, 2003 and 2002, respectively. The increase in general and administrative costs is primarily attributable to costs associated with the Company’s initiative to develop, market and implement its strategic diversification program, to improve its overall asset management system, and to attract and retain appropriate personnel to achieve its business objectives. Professional fees decreased due to the Company’s staffing arrangements and related reduction in outsourcing needs.

34

After discontinued operations of $1.2 million or $0.02 per diluted share, net income for the three months ended September 30, 2003 was $32.2 million or $0.40 per diluted share. After discontinued operations of $0.8 million, or $0.01 per diluted share, net income for the three months ended September 30, 2002 was $17.1 million or $0.24 per diluted share. See “Note 4—Dispositions” to the Condensed Consolidated Financial Statements.

Nine Months Ended September 30, 2003 and 2002

Rental income for the nine months ended September 30, 2003 was $145.6 million, of which $139.6 million (95.9%) resulted from leases with Kindred. The rental income from Kindred includes $1.8 million related to the amortization of deferred revenue recorded as a result of the Company’s receipt of Kindred Common Stock under the Final Plan on April 20, 2001 and the receipt of $4.5 million of additional future rent under the Master Leases. The rental income for the nine months ended September 30, 2002 was $134.4 million, of which $132.8 million (98.8%) resulted from leases with Kindred. The $11.2 million increase in rental income reflects (a) the 3.5% increase in the rent paid under the Master Leases effective May 1, 2003, (b) the $8.6 million increase on annualized rent on certain Kindred facilities effective July 1, 2003 and (c) $4.5 million in additional rent earned during the nine months ended September 30, 2003 under the THI Master Lease.

Interest income from the loan receivable was $2.3 million for the nine months ended September 30, 2003. This amount relates to interest income received in connection with a mezzanine loan made by Ventas Realty to THI on November 4, 2002.

Interest and other income totaled approximately $1.3 million for the nine months ended September 30, 2003 as compared to approximately $1.0 million for the nine months ended September 30, 2002. The increase is primarily attributable to the recovery of a previously written-off receivable by the Company, partially offset by a reduction in interest income resulting from reduced interest rates.

During the nine months ended September 30, 2003, the Company disposed of the remaining 920,814 shares of Kindred Common Stock for an average net price of $22 per share and recognized a gain of $9.0 million. The Company used the net proceeds of $20.2 million for the reduction the Company’s outstanding indebtedness and for general corporate purposes. During the nine months ended September 30, 2002, the Company disposed of 159,500 shares of Kindred Common Stock for an average net price of $43 per share and recognized a gain of $5.0 million. The net proceeds of $6.9 million were used to reduce the Company’s outstanding indebtedness. As of September 30, 2003, the Company did not own any shares of Kindred Common Stock.

Expenses totaled $75.1 million for the nine months ended September 30, 2003 and included $30.7 million of depreciation expense, $47.1 million of interest on debt financing and $4.9 million of interest on the United States Settlement. Expenses for this period included an offset of $20.2 million resulting from the reversal of a previously recorded contingent liability. Expenses totaled $112.2 million for the nine months ended September 30, 2002. Excluding the $20.2 million offset, expenses for the nine months ended September 30, 2003 decreased $17.0 million from the same period in 2002. The decrease resulted primarily from (a) a $7.6 million decrease in interest expense, (b) a $5.4 million expense recorded in the second quarter of 2002 related to the loss on a $350 million notional swap breakage, (c) a $6.9 million expense in the second quarter of 2002 related to the loss from the early extinguishment of debt, (d) a $0.7 million offsetting increase in the United States Settlement interest and (e) an offsetting net increase of $1.5 million in general and administrative expense and professional fees.

During the three months ended March 31, 2003, the Company reported an increase of approximately $20.2 million to its operating results, reflecting the reversal of a previously recorded contingent liability. See “Note 5—Recent Developments—Recent Developments Regarding Income Taxes” to the Condensed Consolidated Financial Statements.

Interest expense excluding the interest on the United States Settlement decreased $7.6 million to $47.1 million for the nine months ended September 30, 2003 from $54.7 million for the nine months ended September 30, 2002. Interest expense includes $3.1 million and $2.7 million of amortized deferred financing costs for the nine months ended September 30, 2003 and 2002, respectively. Interest expense included in discontinued operations was $1.5

35

and $2.9 million for the nine months ended September 30, 2003 and 2002, respectively. The decrease in interest expense was due primarily to (a) a $6.8 million decrease as a result of reduced debt balances, (b) a $1.3 million decrease from reduced interest rates, and (c) a $0.8 million decrease from the amortization of a deferred gain recorded in connection with a 1999 transaction to shorten the maturity of the Company’s 1998 Swap (as defined below) which covered the period between July 1, 2003 and December 31, 2007. Funds paid to reduce the principal balance were raised through cash flows from operations, asset sales, proceeds from the sale of Kindred Common Stock, and the issuance of nine million shares of the Company’s common stock in December 2002.

In connection with the refinancing of its indebtedness under its prior credit agreement, in the quarter ended June 30, 2002, the Company incurred a loss from extinguishment of debt of $6.9 million related to the write-off of unamortized deferred financing costs associated with its prior credit agreement.

On June 30, 2003, the Company incurred a $2.7 million expense relating to the early repayment of the United States Settlement that is reflected as the United States Settlement interest expense on the Company’s Condensed Consolidated Statements of Income for the nine months ended September 30, 2003. As required by GAAP, the United States Settlement has been, since inception, reported on the Company’s balance sheet at an amount that is less than the actual unpaid principal amount under the United States Settlement because the 6% interest rate payable was deemed “below market” at the time of the settlement. The $2.7 million interest expense reflects the difference between the total amount paid by the Company in final repayment of the United States Settlement and the amount of the United States Settlement reflected on the Company’s balance sheet on the date of final repayment. There was no prepayment penalty or other charges upon early repayment of the United States Settlement.

General, administrative and professional fee expenses totaled $11.2 million and $9.7 million for the nine months ended September 30, 2003 and 2002, respectively. The increase is primarily attributable to costs associated with the Company’s initiative to develop and market its strategic diversification program, to improve its overall asset management system, and to attract and retain appropriate personnel to achieve its business objectives.

After discontinued operations of $2.5 million, or $0.03 per diluted share, net income for the nine months ended September 30, 2003 was $85.6 million or $1.07 per diluted share. After discontinued operations of $25.9 million, or $0.37 per diluted share, net income for the nine months ended September 30, 2002 was $56.3 million or $0.80 per diluted share. See “Note 4—Dispositions” to the Condensed Consolidated Financial Statements.

Discontinued Operations

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of Long Lived Assets,” the net income and gain on sale of real estate for properties sold subsequent to December 31, 2001 is reflected in the Condensed Consolidated Statements of Income as Discontinued Operations for all periods presented. On June 30, 2003, the Company sold its 15 SNFs in Florida and its only SNF in Texas for a total of $59.7 million in gross cash proceeds. A loss of $5.3 million was recognized and included in Discontinued Operations. During the third quarter ended September 30, 2003, the Company sold a non-operating SNF and received a non-binding proposal to purchase another non-operating skilled nursing facility. As a result, the Company recognized a gain of $2.1 million on the sold facility and also recorded a $0.8 million impairment on the other facility. In the second quarter ended June 30, 2002, the Company sold a skilled nursing facility to an unrelated third party and recognized a gain of $1.1 million which was included as a component of Discontinued Operations. On June 20, 2002, the Company sold a 64 licensed bed hospital facility located in Arlington, Virginia to an unrelated third party and recognized a gain of $22.4 million which was also included as a component of Discontinued Operations. See “Note 4—Dispositions” to the Condensed Consolidated Financial Statements.

Funds from Operations

Funds from operations (“FFO”) for the three and nine months ended September 30, 2003 totaled $40.3 million and $120.5 million, respectively. FFO for the three and nine months ended September 30, 2002 totaled $27.5 million and $64.0 million respectively. FFO for the three and nine months ended September 30, 2003 and 2002 is summarized in the following table (in thousands):

36

	Three Months Ended September 30,					Nine Months Ended September 30,
	2003			2002		2003		2002
Net income	$	32,212		$	17,093	$	85,629	$	56,262
Adjustments:
Depreciation on real estate assets		10,164			9,768		30,461		29,312
Other Items:
Discontinued Operations:
Real estate depreciation – discontinued		—			591		1,174		1,872
(Gain) loss on sale of real estate		(2,065	)		—		3,189		(23,450	)
FFO	$	40,311		$	27,452	$	120,453	$	63,996

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. To overcome this problem, the Company considers FFO an appropriate measure of performance of an equity REIT and uses the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO. NAREIT defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis.

FFO presented herein is not necessarily comparable to FFO presented by other real estate companies due to the fact that not all real estate companies use the same definition. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company’s financial performance, as an alternative to cash flow from operating activities (determined in accordance with GAAP), as a measure of the Company’s liquidity, nor is FFO necessarily indicative of sufficient cash flow to fund all of the Company’s needs. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO should be examined in conjunction with net income as presented elsewhere in this Form 10-Q.

Liquidity and Capital Resources

During the nine months ended September 30, 2003, the Company’s principal sources of liquidity came from cash flow from operations, proceeds from the sale of real estate assets and the sale of Kindred Common Stock. See “Note 4—Dispositions” and “Note 5—Recent Developments—Recent Developments Regarding Kindred” and “—Recent Developments Regarding Liquidity—Repayment of the United States Settlement” to the Condensed Consolidated Financial Statements.

The Company intends to fund future investments through cash flow from operations, borrowings under the 2002 Credit Agreement, disposition of assets and issuance of secured or unsecured long-term debt or other securities. As of September 30, 2003, the Company had cash and cash equivalents of $10.1 million, restricted cash of $8.0 million (comprised of $5.0 million of deposits held in connection with its collateralized mortgage-backed securitization (“CMBS”) financing, escrows under the THI Master Lease and the Company’s portion of the amounts on deposit in the Tax Refund Escrow (as defined in “Note 5—Recent Developments—Recent Developments Regarding Income Taxes”)), outstanding borrowings of $33.3 million under the Revolving Credit Facility (as defined below), and unused availability under the Revolving Credit Facility of $242.2 million. Through the pledge of additional property as collateral to the lenders under the 2002 Credit Agreement and/or increased valuations of assets mortgaged, the Company, as of September 30, 2003, could have increased availability under its Revolving Credit Facility to $256.7 million.

Cash provided by operations totaled $107.8 million for the nine months ended September 30, 2003. For the nine months ended September 30, 2002 cash provided by operations totaled $96.7 million. The increase from 2002 is primarily a result of the $13.0 million cash distribution from the Tax Refund Escrow, increased cash flows from rent, interest income on loans receivable and reduced interest expense on debt.

37

Cash flows provided by investing activities for the nine months ended September 30, 2003 totaled $81.6 million and includes $61.2 million in net proceeds from the sale of real estate and $20.2 million in proceeds from the sale of Kindred Common Stock. Net cash provided by investing activities for the nine months ended September 30, 2002 was $34.8 million and includes $28.6 million in proceeds from the sale of real estate and $7.0 million in proceeds from the sale of Kindred Common Stock.

Net cash used in financing activities for the nine months ended September 30, 2003 totaled $181.8 million and included net payments of $26.5 million under the Revolving Credit Facility, a $37.4 million payment in settlement of the repurchase of the Senior Notes on December 31, 2002, full repayment on the United States Settlement of $46.6 million and $80.2 million of cash dividend payments (consisting of the fourth quarter 2002 dividend, the first quarter 2003 dividend, the second quarter 2003 dividend and the third quarter 2003 dividend). Net cash used in financing activities for the nine months ended September 30, 2002 totaled $145.9 million and included $62.4 million net principal payment on the 2002 Credit Agreement, the Company’s prior credit agreement and the Company’s CMBS loan (“CMBS Loan”), $15.1 million in financing fees, $12.8 million in swap breakage costs, a $8.0 million payment on the United States Settlement and $50.1 million of cash dividend payments.

On June 19, 2002, the Company filed a universal shelf registration statement on Form S-3 with the Commission relating to $750 million of common stock, preferred stock, debt securities, depository shares and warrants. The registration statement became effective on July 8, 2002. The Company may publicly offer these securities from time to time at prices and on terms to be determined at the time of relevant offerings. As of September 30, 2003, $651.0 million of these securities remained available for offering under the shelf registration statement. The Company believes that the shelf registration statement will assist in providing it with flexibility in raising debt and/or equity financing in order to implement its diversification strategy.

In order to continue to qualify as a REIT, the Company must make annual distributions to its stockholders of at least 90% of its “REIT taxable income” (excluding net capital gain). The Company intends to pay dividends of $1.07 per share for 2003, but not less than 100% of the Company’s taxable income for 2003. The Company declared the first quarterly dividend for 2003 of $0.2675 per share on February 24, 2003, which was paid in cash on March 17, 2003 to stockholders of record on March 4, 2003. The Company declared the second quarterly dividend for 2003 of $0.2675 per share on May 16, 2003, which was paid in cash on June 24, 2003 to stockholders of record on June 2, 2003. The Company declared the third quarterly dividend for 2003 of $0.2675 per share on August 15, 2003, which was paid in cash on September 25, 2003 to stockholders of record on September 2, 2003. Although the Company currently intends to distribute 100% or more of its taxable income for 2003 in quarterly installments, there can be no assurance that it will do so or as to when the remaining distributions will be made.

The Company anticipates that it generally will have sufficient cash or liquid assets to enable it to satisfy the 90% distribution requirement. It is possible, however, that the Company, from time to time, may not have sufficient cash or other liquid assets to meet the 90% distribution requirement or to distribute such greater amount as may be necessary to avoid income and excise taxation.

For purposes of the required REIT distributions, the Company’s taxable income may vary significantly from historical results and from current income determined in accordance with GAAP depending on a variety of factors. Under certain circumstances, the Company may be required to make distributions in excess of FFO (as defined by NAREIT) in order to meet such distribution requirements. In the event that timing differences or cash needs occur, the Company may find it necessary to borrow funds or to issue equity securities (there being no assurance that it will be able to do so) or, if possible, to pay taxable stock dividends, distribute other property or securities or engage in a transaction intended to enable it to meet the REIT distribution requirements. The Company’s ability to engage in certain of these transactions may be restricted in certain circumstances by the terms of the indentures governing the Senior Notes (the “Indentures”) and 2002 Credit Agreement. If so restricted, such transaction would likely require the consent of the “Required Lenders” under the 2002 Credit Agreement and/or the holders of a majority in principal amount of the outstanding Notes under each Indenture, and there can be no assurance that such consents would be obtained. In addition, the failure of Kindred to make rental payments under the Master Leases would materially impair the ability of the Company to make distributions. Consequently, there can be no assurance that the Company will be able to make distributions at the required distribution rate or any other rate.

38

Although the Company intends to continue to qualify as a REIT for the year ended December 31, 2003 and subsequent years, it is possible that economic, market, legal, tax or other considerations may cause the Company to fail, or elect, not to continue to qualify as a REIT in any such year. If the Company were to fail, or elect, not to continue to qualify as a REIT in any such tax year, the Company would be subject to 35% federal income tax and to the applicable state and local income taxes for the affected years. Such tax obligations would have a Material Adverse Effect on the Company. Unless eligible for limited relief, if the Company failed, or revoked its election to qualify as a REIT the Company would not be eligible to elect again to be treated as a REIT before the fifth taxable year after the year of such termination or revocation.

Capital expenditures to maintain and improve the leased properties generally will be incurred by the Company’s tenants. Accordingly, the Company does not believe that it will incur any major expenditures in connection with the leased properties. After the terms of the leases expire, or in the event that the tenants are unable or unwilling to meet their obligations under the leases, the Company anticipates that any expenditures relating to the maintenance of leased properties for which it may become responsible will be funded by cash flows from operations or through additional borrowings. To the extent that unanticipated expenditures or significant borrowings are required, the Company’s liquidity may be affected adversely. The Company’s ability to borrow funds may be restricted in certain circumstances by the 2002 Credit Agreement and the Indentures.

Recent Developments Regarding Liquidity

Repurchase of Senior Notes

On December 31, 2002, the Company repurchased $783,000 in aggregate principal amount of its 8-3/4% Senior Notes due 2009 (the “2009 Senior Notes”) and $33,179,000 in aggregate principal amount of its 9% Senior Notes due 2012 (the “2012 Senior Notes” and, together with the 2009 Senior Notes, the “Senior Notes”) on the open market. The total purchase price of $37.4 million was reported as a liability on the Consolidated Balance Sheet as of December 31, 2002 pending settlement of the transaction. On January 6, 2003, the Company paid the purchase price in settlement to the broker who effectuated the repurchase of the Senior Notes.

Decrease of Applicable Percentage and Increase of Borrowing Base Under the 2002 Credit Agreement

On April 17, 2002 (the “2002 Refinancing Date”), the Company, as guarantor, and Ventas Realty, as borrower, entered into a Second Amended and Restated Credit, Security and Guaranty Agreement (the “2002 Credit Agreement”). The 2002 Credit Agreement is a $350 million credit facility consisting of a $60 million term loan and a $290 million revolving credit facility (the “Revolving Credit Facility”). See “Note 5—Recent Developments—Recent Developments Regarding Liquidity—Decrease of Applicable Percentage” and “—Increase of Borrowing Base Under the 2002 Credit Agreement” to the Condensed Consolidated Financial Statements.

The total amount that may be borrowed (including outstanding borrowings) under the 2002 Credit Agreement is, as determined at any time, an amount equal to the sum of (i) sixty-five percent (65%) of value of the real properties mortgaged to secure the 2002 Credit Agreement (the “Borrowing Base Properties”), plus (ii) one hundred percent (100%) of amounts on deposit in certain cash collateral or pledged accounts (together, the Borrowing Base”). Ventas Realty may at any time include additional real properties that satisfy certain conditions set forth in the 2002 Credit Agreement as Borrowing Base Properties in order to increase the Borrowing Base. Subject to the terms and conditions set forth in the 2002 Credit Agreement, Ventas Realty may also obtain a release of various Borrowing Base Properties from the liens and security interests encumbering such properties.

Effective July 1, 2003, the Borrowing Base was increased to $334.8 million based upon a revaluation of the 59 Borrowing Base Properties of $515.0 million. All 59 properties are leased to Kindred pursuant to Amended Master Lease No. 1.

39

Amendment to the 2002 Credit Agreement

On June 10, 2003, the Company and the lenders under the 2002 Credit Agreement amended the definition of consolidated adjusted net worth to exclude the unrealized gain or loss on interest rate hedges on other interest rate derivatives reported on the Company’s Consolidated Balance Sheet as Accumulated Other Comprehensive Loss. The amendment requires that consolidated adjusted net worth be calculated in a manner consistent with other financial covenants in the 2002 Credit Agreement by excluding unrealized gains or losses on interest rate derivatives. Both before and after the amendment, the Company believes it was in compliance with its financial covenants under the 2002 Credit Agreement.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion of the Company’s exposure to various market risks contains “forward-looking statements” that involve risks and uncertainties. These projected results have been prepared utilizing certain assumptions considered reasonable in light of information currently available to the Company. Nevertheless, because of the inherent unpredictability of interest rates as well as other factors, actual results could differ materially from those projected in such forward-looking information.

The Company earns revenue by leasing its assets under leases that primarily are long-term triple-net leases in which the rental rate is generally fixed with annual escalators, subject to certain limitations. A portion of the Company’s debt obligations are floating rate obligations whose interest rate and related monthly interest payments vary with the movement in LIBOR. The general fixed nature of the Company’s assets and the variable nature of a portion of the Company’s debt obligations creates interest rate risk. If interest rates were to rise significantly, the Company’s lease revenue might not be sufficient to meet its debt obligations. In order to mitigate this risk, in 1998 the Company entered into an $800 million (later reduced to $425.0) million notional amount interest rate swap (the “1998 Swap”) which matured on June 30, 2003.

On September 28, 2001, the Company entered into a second interest rate swap agreement (the “2003-2008 Swap”) to hedge floating-rate debt for the period between July 1, 2003 and June 30, 2008, under which the Company pays a fixed rate at 5.385% and receives LIBOR from the highly rated counterparty of the agreement. The 2003-2008 Swap is treated as a cash flow hedge. There are no collateral requirements under this agreement. The notional amount of the 2003-2008 Swap is $450 million and is scheduled to decline as follows:

Notional Amount	Date
$300,000,000	June 30, 2006
150,000,000	June 30, 2007
—	June 30, 2008

In accordance with the terms of the agreement governing the CMBS Loan, on December 11, 2001, Ventas Finance purchased an interest rate cap from a highly rated counterparty (the “Buy Cap”). Because the Company already hedged its consolidated interest rate risk through the 1998 Swap and 2003-2008 Swap, on December 11, 2001, the Company sold an interest rate cap (the “Sell Cap”) for the same notional value ($225 million) and on the same terms (5-year amortizing 8% LIBOR cap) as the Buy Cap. If LIBOR should exceed the 8% cap, the Sell Cap would require the Company to pay the counterparty and the Buy Cap would require the counterparty to pay Ventas Finance for the interest accruing in excess of the 8% LIBOR cap. The Buy Cap and the Sell Cap are shown separately as an asset and a liability on the Company’s balance sheet, respectively. The Company believes that the economic substance of the Buy Cap offsets the net cash flow exposure of the Sell Cap.

At September 30, 2003, the 2003-2008 Swap was reported at its fair value of $44.1 million in liabilities in the Condensed Consolidated Balance Sheet. The offsetting adjustment is reported as a deferred loss in Accumulated Other Comprehensive Loss. The Buy and Sell Caps are reported at their fair value of approximately $0.4 million in other assets and other liabilities, respectively, in the Condensed Consolidated Balance Sheet. The offsetting adjustments for each of these instruments are reported in the Condensed Consolidated Statements of Income and net to zero for the nine months ended September 30, 2003.

40

When interest rates rise, the interest rate swaps increase in fair value to the Company and when interest rates fall, the interest rate swaps decline in fair value to the Company. Generally, interest rate swap agreements with longer terms evidence greater dollar values of variation when interest rates change. To highlight the sensitivity of the interest rate swaps to changes in interest rates, the following summary shows the effects of a hypothetical instantaneous change of 100 basis points (BPS) in interest rates as of September 30, 2003:

	2003-2008 Swap			Sell Cap			Buy Cap
Notional Amount	$	450,000,000		$	225,000,000		$	225,000,000
Fair Value to the Company		(44,091,570	)		(371,511	)		371,511
Fair Value to the Company
Reflecting Change in Interest Rates
-100 BPS		(60,896,063	)		(92,030	)		92,030
+100 BPS		(28,004,127	)		(979,780	)		979,780

The carrying value of the Company’s variable rate debt approximates fair value. There is no cash flow impact from the fluctuation of interest rates since the Company currently hedges 100% of its variable rate debt. As of September 30, 2003, the carrying value of the fixed rate debt is $366.0 million and the fair value of the fixed rate debt is $399.1 million based on open market trading activity at a bid price of 109 provided by a third party.

ITEM 4. CONTROLS AND PROCEDURES

The Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) as of September 30, 2003. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer has each concluded that the Company’s disclosure controls and procedures are effective to timely alert them to material information relating to the Company (including its consolidated subsidiaries) required to be included in Company’s filings under the Securities and Exchange Act of 1934, as amended. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Except as set forth in “Note 7—Litigation” to the Condensed Consolidated Financial Statements (which is incorporated by reference into this Item 1), there has been no material change in the status of the legal proceedings reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

41

ITEM 5. OTHER INFORMATION

In August of 2002, Debra A. Cafaro, the Company’s Chairman of the Board, President and Chief Executive Officer, and T. Richard Riney, the Company’s Executive Vice President, General Counsel and Corporate Secretary, each entered into non-discretionary, written 10b5-1 sales plans relating to options held by them for estate and financial planning purposes. As of September 30, 2003, all shares purchased with these options covered by Ms. Cafaro’s sales plan have been sold. As of October 27, 2003, Ms. Cafaro owned 719,837 shares of the Company’s common stock (605,819 of which are vested) and is therefore in compliance with the Company’s minimum stock ownership guidelines for senior executives. As of October 27, 2003, Ms. Cafaro also owns 718,258 options (511,329 of which are vested). As of October 27, 2003, Mr. Riney’s sales plan provided for the future sale of up to 50,000 shares of the Company’s common stock, solely upon the exercise of options owned by Mr. Riney which have a weighted average exercise price of $6.75. Under Mr. Riney’s sales plan, the next sale is scheduled to occur on November 3, 2003, subject to certain restrictions and conditions contained in Mr. Riney’s sales plan. As of October 27, 2003, Mr. Riney owned an additional 269,047 shares of the Company’s common stock (231,584 of which are vested) and is therefore in compliance with the Company’s minimum stock ownership guidelines for senior executives. As of October 27 2003, Mr. Riney also owns 310,146 options (247,646 of which are vested).

On July 19, 2003, the Company’s Preferred Stock Purchase Rights issued pursuant the Rights Agreement, dated July 20, 1993, as amended (the “Rights Plan”), with National City Bank, as Rights Agent, expired in accordance with the terms of the Rights Plan.

42

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

10.1.1	Second Amendment to Mezzanine Loan Agreement, dated as of September 30, 2003, by and between Ventas, Realty, Limited Partnership and Trans Healthcare, Inc. and the subsidiaries of Trans Healthcare, Inc. named therein.
10.1.2	Second Amendment to Guaranty, dated as of September 30, 2003, by and between Ventas Realty, Limited Partnership and Trans Healthcare of Ohio, Inc.
10.1.3	Second Amendment to Master Lease Agreement dated as of September 30, 2003, by and between Ventas Realty, Limited Partnership and THI of Ohio at Chardon, LLC, THI of Ohio at Greenbriar North, LLC, Trans Healthcare of Ohio, Inc., THI of Ohio ALFS at the Commons, LLC, THI of Maryland at South River, LLC, Millennium Health and Rehabilitation Center of Forestville, LLC and Millennium Health and Rehabilitation Center of Ellicott City, LLC.
31.1	Certification of Debra A. Cafaro, Chairman, President and Chief Executive Officer of Ventas, Inc., pursuant to 13a-14(a) under the Securities Exchange Act of 1934 as amended.
31.2	Certification of Richard A. Schweinhart, Senior Vice President and Chief Financial Officer of Ventas, Inc., pursuant to 13a-14(a) under the Securities Exchange Act of 1934 as amended.
32.1	Certification of Debra A. Cafaro, Chairman, President and Chief Executive Officer of Ventas, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Richard A. Schweinhart, Senior Vice President and Chief Financial Officer of Ventas, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Reports on Form 8-K

On July 2, 2003, the Company furnished a Current Report on Form 8-K announcing that, the Company had completed the previously announced sale of 16 skilled nursing facilities in Florida and Texas to its primary tenant, Kindred, which had been leasing those properties from the Company.

On July 2, 2003, the Company furnished a Current Report on Form 8-K announcing that it would issue its second quarter 2003 earnings on Wednesday evening, July 23, 2003.

On July 24, 2003, the Company furnished a Current Report on Form 8-K announcing, pursuant to Item 9, the Company’s results of operations and financial condition as of and for the quarter ended June 30, 2003.

On August 13, 2003, the Company furnished a Current Report on Form 8-K re-issuing in an updated format its historical financial statements and certain other financial information in connection with the adoption of SFAS No. 145.

On October 3, 2003, the Company furnished a Current Report on Form 8-K announcing, pursuant to Item 9, that it will issue its third quarter 2003 earnings on Monday evening, October 27, 2003.

43

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: October 28, 2003

VENTAS, INC.
By:	/s/ Debra A. Cafaro
	Debra A. Cafaro
	Chairman, President and
	Chief Executive Officer

By:	/s/ Richard A. Schweinhart
	Richard A. Schweinhart
	Senior Vice President and
	Chief Financial Officer

44