UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006

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 of incorporation or organization)	(I.R.S. Employer Identification No.)

10350 Ormsby Park Place, Suite 300

Louisville, Kentucky

(Address of principal executive offices)

40223

(Zip Code)

(502) 357-9000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

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

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

Class of Common Stock:	Outstanding at April 26, 2006:
Common Stock, $0.25 par value	103,887,150 shares

VENTAS, INC.

FORM 10-Q

INDEX

		Page
PART I— FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005	3
	Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2006 and 2005	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32
PART II— OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 6.	Exhibits	33

2

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VENTAS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

	March 31, 2006			December 31, 2005
	(Unaudited)			(Audited)
Assets
Real estate investments:
Land	$	298,185		$	295,363
Building and improvements		2,778,262			2,732,533
		3,076,447			3,027,896
Accumulated depreciation		(569,675	)		(541,346	)
Net real estate property		2,506,772			2,486,550
Loans receivable, net		35,870			39,924
Net real estate investments		2,542,642			2,526,474
Cash and cash equivalents		1,466			1,641
Escrow deposits and restricted cash		61,753			59,667
Deferred financing costs, net		16,844			17,581
Notes receivable - related parties		2,859			2,841
Other		36,040			30,914
Total assets	$	2,661,604		$	2,639,118
Liabilities and stockholders’ equity
Liabilities:
Senior notes payable and other debt	$	1,854,551		$	1,802,564
Deferred revenue		9,953			10,540
Interest rate swap agreement		577			1,580
Accrued dividend		—			37,343
Accrued interest		34,636			14,418
Accounts payable and other accrued liabilities		72,726			74,960
Deferred income taxes		30,394			30,394
Total liabilities		2,002,837			1,971,799
Commitments and contingencies
Stockholders’ equity:
Preferred stock, 10,000 shares authorized, unissued		—			—
Common stock, $0.25 par value; 180,000 shares authorized; 103,850 and 103,523 shares issued at March 31, 2006 and December 31, 2005, respectively		25,974			25,927
Capital in excess of par value		694,531			692,650
Unearned compensation on restricted stock		—			(713	)
Accumulated other comprehensive income (loss)		685			(143	)
Retained earnings (deficit)		(62,308	)		(50,402	)
		658,882			667,319
Treasury stock, 4 and 0 shares at March 31, 2006 and December 31, 2005, respectively		(115	)		—
Total stockholders’ equity		658,767			667,319
Total liabilities and stockholders’ equity	$	2,661,604		$	2,639,118

See notes to condensed consolidated financial statements.

3

VENTAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

	For the Three Months Ended March 31,
	2006		2005
Revenues:
Rental income	$	96,505	$	62,536
Interest income from loans receivable		968		652
Interest and other income		341		612
Total revenues		97,814		63,800
Expenses:
Interest		32,957		16,976
Depreciation		28,470		13,220
Property-level operating expenses		622		552
General, administrative and professional fees (including non-cash stock-based compensation expense of $758 and $420, respectively)		6,631		5,440
Total expenses		68,680		36,188
Income before discontinued operations		29,134		27,612
Discontinued operations		—		(39	)
Net income	$	29,134	$	27,573
Earnings per common share:
Basic:
Income before discontinued operations	$	0.28	$	0.33
Net income	$	0.28	$	0.33
Diluted:
Income before discontinued operations	$	0.28	$	0.32
Net income	$	0.28	$	0.32
Shares used in computing earnings per common share:
Basic		103,751		84,657
Diluted		104,300		85,400
Dividend declared per common share	$	0.395	$	0.360

See notes to condensed consolidated financial statements.

4

VENTAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	For the Three Months Ended March 31,
	2006			2005
Cash flows from operating activities:
Net income	$	29,134		$	27,573
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation (including amounts in discontinued operations)		28,470			13,266
Amortization of deferred financing costs		770			890
Stock-based compensation		758			420
Straight-lining of rental income		(4,950	)		(880	)
Amortization of deferred revenue		(603	)		(636	)
Other		(177	)		(1,046	)
Changes in operating assets and liabilities:
(Increase) decrease in escrow deposits and restricted cash		(2,086	)		8,194
Increase in other assets		(405	)		(703	)
Increase in accrued interest		20,218			10,128
(Decrease) increase in accounts payable and accrued and other liabilities		(1,973	)		859
Net cash provided by operating activities		69,156			58,065
Cash flows from investing activities:
Net investment in real estate property		(48,354	)		(31,139	)
Investment in loans receivable		—			(27,818	)
Proceeds from loans receivable		4,070			997
Other		(231	)		966
Net cash used in investing activities		(44,515	)		(56,994	)
Cash flows from financing activities:
Net change in borrowings under revolving credit facility		52,600			23,300
Proceeds from debt		2,074			—
Repayment of debt		(2,687	)		(1,145	)
Issuance of common stock		253			2,255
Proceeds from stock option exercises		1,360			699
Cash distribution to stockholders		(78,383	)		(27,498	)
Other		(33	)		(268	)
Net cash used in financing activities		(24,816	)		(2,657	)
Net decrease in cash and cash equivalents		(175	)		(1,586	)
Cash and cash equivalents at beginning of period		1,641			3,365
Cash and cash equivalents at end of period	$	1,466		$	1,779
Supplemental schedule of non-cash activities:
Assets and liabilities assumed from acquisition:
Real estate investments	$	—		$	12,110
Escrow deposits and restricted cash		—			248
Debt		—			12,309
Other liabilities		—			49

See notes to condensed consolidated financial statements.

5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF BUSINESS

Ventas, Inc. (together with its subsidiaries, unless otherwise indicated or except where the context otherwise requires, “we,” “us” or “our”) is a healthcare real estate investment trust (“REIT”) with a geographically diverse portfolio of healthcare-related and seniors housing facilities in the United States. As of March 31, 2006, this portfolio consisted of 200 skilled nursing facilities, 41 hospitals and 144 seniors housing and other healthcare-related facilities in 42 states. Except with respect to our medical office buildings, we lease these facilities to healthcare operating companies under “triple-net” or “absolute net” leases, which require the tenants to pay all property-related expenses. We also had real estate loan investments relating to seven healthcare-related and seniors housing facilities as of March 31, 2006.

We conduct substantially all of our business through our wholly owned subsidiaries, Ventas Realty, Limited Partnership (“Ventas Realty”) and PSLT OP, L.P. (“PSLT OP”), and ElderTrust Operating Limited Partnership (“ETOP”), in which we own substantially all of the partnership units.

NOTE 2 – BASIS OF PRESENTATION

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“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 three-month period ended March 31, 2006 are not necessarily an indication of the results that may be expected for the year ending December 31, 2006. The Condensed Consolidated Balance Sheet as of December 31, 2005 has been derived from our audited consolidated financial statements for the year ended December 31, 2005. The accompanying Condensed Consolidated Financial Statements and related notes should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2005. Certain prior period amounts have been reclassified to conform to current year presentation.

We operate through one reportable segment: investment in real estate. Our primary business consists of financing, owning and leasing healthcare-related and seniors housing facilities and leasing or subleasing those facilities to third parties. With the exception of our medical office buildings, we do not operate our facilities nor do we allocate capital to maintain our properties. Substantially all depreciation and interest expenses reflected in the condensed consolidated statements of income relate to our investment in real estate.

Recently Adopted Accounting Standards

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”), which is a revision to SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). SFAS No. 123(R) supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB Opinion No. 25”). Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123, except that SFAS No. 123(R) requires all share-based awards to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative under SFAS No. 123(R). We adopted SFAS No. 123(R) on January 1, 2006. See “Note 6—Stock-Based Compensation.”

Gain on Sale of Facilities

We recognize sales of facilities only upon the closing of the transaction with the purchaser. Payments received from purchasers prior to closing are recorded as deposits and classified as other assets in the consolidated balance sheet. Gains on facilities sold are recognized using the full accrual method upon closing when the collectibility of the sales price is reasonably assured, we are not obligated to perform significant activities after the sale to earn the profit, we have received adequate initial investment from the buyer, and other profit recognition criteria have been satisfied. Gains may be deferred in whole or in part until the sales satisfy the requirements of gain recognition on sales of real estate under SFAS No. 66, “Accounting for Sales of Real Estate.”

NOTE 3 – CONCENTRATION OF CREDIT RISK

As of March 31, 2006, approximately 33.1% and 45.1% of our properties, based on their original cost, were operated by Kindred Healthcare, Inc. (together with its subsidiaries, “Kindred”) and Brookdale Senior Living Inc. (together with its subsidiaries, “Brookdale Senior Living”), respectively, and approximately 60.2% and 27.1% of our properties, based on their original cost, were seniors housing facilities and skilled nursing facilities, respectively. Our remaining properties consist of hospitals, medical office buildings and other healthcare-related facilities. Our facilities are located in 42 states, with facilities in only two states accounting for more than ten percent of total revenues during the three months ended March 31, 2006.

Approximately 51.4% and 76.3% of our total revenues for the three months ended March 31, 2006 and 2005, respectively, were derived from our master lease agreements with Kindred (the “Kindred Master Leases”). Each Kindred Master Lease is a triple-net lease pursuant to which Kindred is required to pay all insurance, taxes, utilities, maintenance and repairs related to the properties. There are several renewal bundles of properties under each Kindred Master Lease, with each bundle containing a varying number of properties. All properties within a bundle have primary terms ranging from ten to fifteen years from May 1, 1998 and, provided certain conditions are satisfied, are subject to three five-year renewal terms.

6

In June 2005, we completed the acquisition of Provident Senior Living Trust (“Provident”) (see “Note 4—Acquisitions”), which leased all of its properties to affiliates of Brookdale Senior Living. As a result of this acquisition, Brookdale Senior Living became a significant source of our total revenues. Approximately 31.3% of our total revenues for the three months ended March 31, 2006 was derived from our lease agreements with Brookdale Senior Living, including facilities we acquired in early 2004 from Brookdale Living Communities, Inc. (together with its subsidiaries, “Brookdale”), now a subsidiary of Brookdale Senior Living.

Because we lease a substantial portion of our properties to Kindred and Brookdale Senior Living and they are each a significant source of our total revenues, their financial condition and ability and willingness to satisfy their obligations under their respective leases and certain other agreements with us will significantly impact our revenues and our ability to service our indebtedness and to make distributions to our stockholders. We cannot assure you that Kindred or Brookdale Senior Living will have sufficient assets, income and access to financing to enable it to satisfy its obligations under its respective leases and other agreements with us, and any inability or unwillingness on its part to do so would have a material adverse effect on our business, financial condition, results of operation and liquidity, on our ability to service our indebtedness and on our ability to make distributions to our stockholders as required, to maintain our status as a REIT.

Kindred and Brookdale Senior Living are subject to the reporting requirements of the Securities and Exchange Commission (the “Commission”) and are required to file with the Commission annual reports containing audited financial information and quarterly reports containing unaudited interim financial information. The information related to Kindred and Brookdale Senior Living contained or referred to in this Quarterly Report on Form 10-Q is derived from filings made by Kindred or Brookdale Senior Living, as the case may be, with the Commission or other publicly available information, or has been provided to us by Kindred or Brookdale Senior Living. We have not verified this information either through an independent investigation or otherwise. We have no reason to believe that such information is inaccurate in any material respect, but we cannot assure you that all such information is accurate. Kindred’s and Brookdale Senior Living’s filings with the Commission can be found at the Commission’s website at www.sec.gov. We are providing this data for informational purposes only, and you are encouraged to obtain Kindred’s and Brookdale Senior Living’s publicly available filings from the Commission.

NOTE 4 – ACQUISITIONS

The primary reason for our acquisition activity is to invest in healthcare and seniors housing properties with an expected yield on investment, as well as to diversify our properties and revenue base and limit our dependence on any one single tenant for rental revenue.

2006 Acquisitions

During the three months ended March 31, 2006, we acquired five seniors housing facilities for an aggregate purchase price of $48.3 million, with no assumed debt, in three separate transactions. The purchase price was allocated between land and buildings of $2.8 million and $45.5 million, respectively, based upon their estimated fair values. Such estimates are subject to refinement as additional valuation information is received. The buildings are being depreciated over their estimated useful lives, which were determined to be 35 years. The facilities are leased under triple-net leases, each having initial terms ranging from nine to fourteen years and initially providing aggregate, annual cash base rent of $4.0 million.

Subsequent to March 31, 2006, we acquired one seniors housing facility for an aggregate purchase price of $6.9 million, with no assumed debt. The facility is leased under a triple-net lease having an initial term of thirteen years and initially providing annual cash base rent of $0.6 million.

Provident

In June 2005, we completed the acquisition of Provident in a transaction valued at approximately $1.2 billion. Provident was formed as a Maryland real estate investment trust in March 2004 and owned seniors living properties located in the United States. Pursuant to the Provident acquisition, we acquired 68 independent and assisted living facilities in 19 states comprised of approximately 6,819 residential living units, all of which are currently leased to affiliates of Brookdale Senior Living pursuant to triple-net leases with renewal options. As of March 31, 2006, the aggregate annualized contractual cash rent from the Provident properties was approximately $88.5 million.

7

We funded the cash portion of the purchase price for the Provident acquisition, which was approximately $231.0 million, and repaid all outstanding borrowings under Provident’s credit facility at closing from a combination of net proceeds from the sale of $350 million aggregate principal amount of senior notes and borrowings under our revolving credit facility. Additionally, we issued approximately 15.0 million shares of our common stock and share equivalents to Provident equity holders as part of the purchase price for the Provident acquisition. We also assumed approximately $459.4 million of property-level mortgage debt.

Other 2005 Acquisitions

During 2005, we acquired 23 seniors housing facilities, an adjacent parcel of land and one hospital for an aggregate purchase price of $278.2 million, including assumed debt of $74.4 million at the time of the acquisitions. The seniors housing facilities and the hospital are leased under triple-net leases, each having initial terms ranging from ten to fifteen years and initially providing aggregate, annual cash base rent of approximately $23.9 million, subject to escalation as provided in the leases.

Also during 2005, we acquired three medical office buildings for an aggregate purchase price of $13.0 million, including assumed debt of $7.3 million at the time of the acquisitions. These buildings are leased to various tenants under leases having various remaining terms and initially providing aggregate, annual cash base rent of approximately $1.7 million, subject to escalation as provided in the leases. We have engaged third parties to manage the operations at these medical office buildings.

Pro Forma

The following table illustrates the effect on net income and earnings per share as if we had consummated our 2006 and 2005 acquisitions and our July 2005 public offering of common stock as of the beginning of each of the three month periods ended March 31, 2006 and 2005:

	For the Three Months Ended March 31,
	2006		2005
	(in thousands, except per share amounts)
Revenues	$	98,799	$	96,718
Expenses		69,240		69,214
Income before discontinued operations		29,559		27,504
Net income		29,559		27,465
Earnings per common share:
Basic:
Income before discontinued operations	$	0.28	$	0.27
Net income	$	0.28	$	0.27
Diluted:
Income before discontinued operations	$	0.28	$	0.27
Net income	$	0.28	$	0.26
Shares used in computing earnings per common share:
Basic		103,751		102,903
Diluted		104,300		103,646

NOTE 5 – LOANS RECEIVABLE

As of December 31, 2005, loans receivable included approximately $4.0 million relating to a mezzanine loan made to Trans Healthcare, Inc. in 2002. The outstanding balance on this loan was fully repaid in March 2006.

NOTE 6 – STOCK-BASED COMPENSATION

Compensation Plans

We have five plans under which options to purchase common stock and/or shares of restricted stock have been, or may be, granted to officers, employees and non-employee directors, one plan under which executive officers may receive common stock in lieu of compensation and two plans under which certain directors may receive common stock in lieu of director fees (the following are collectively referred to as the “Plans”): (1) the 1987 Incentive Compensation Program (Employee Plan); (2) the 2000 Incentive Compensation Plan (Employee Plan); (3) the 1987 Stock Option Plan for Non-Employee Directors; (4) the 2004 Stock Plan for Directors; (5) the TheraTx, Incorporated 1996 Stock Option/Stock Issuance Plan; (6) the Executive Deferred Stock Compensation Plan; (7) the Common Stock Purchase Plan for Directors (the “Directors Stock Purchase Plan”); and (8) the Nonemployee Director Deferred Stock Compensation Plan.

8

New option and restricted stock grants and stock issuances may only be made under the 2000 Incentive Compensation Plan (Employee Plan), the Executive Deferred Stock Compensation Plan, the 2004 Stock Plan for Directors, the Directors Stock Purchase Plan and the Nonemployee Director Deferred Stock Compensation Plan. No additional grants are permitted under the 1987 Incentive Compensation Program (Employee Plan), the 1987 Stock Option Plan for Non-Employee Directors or the TheraTx, Incorporated 1996 Stock Option/Stock Issuance Plan.

Under the Plans (other than the Executive Deferred Stock Compensation Plan, the Directors Stock Purchase Plan and the Nonemployee Director Deferred Stock Compensation Plan), options are exercisable at the market price on the date of grant, expire ten years from the date of grant, and vest over varying periods ranging from one to four years. As of March 31, 2006, options for 1,504,758 shares had been granted to eligible participants and remained outstanding under the Plans.

We have also granted options and restricted stock to certain officers, employees and non-employee directors outside of the Plans. These options and shares of restricted stock vest over varying periods, and the options are exercisable at the market price on the date of grant and expire ten years from the date of grant. As of March 31, 2006, options for 38,000 shares had been granted outside of the Plans to certain employees and non-employee directors and remained outstanding.

Prior to January 1, 2006, we accounted for the Plans under the recognition and measurement provisions of APB Opinion No. 25, as permitted by SFAS No. 123. Consequently, no stock-based compensation cost relating to stock options was recognized in the consolidated statement of income for any period prior to 2006, as all options granted under the Plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, we adopted the fair value provisions for share-based awards pursuant to SFAS No. 123(R), using the modified-prospective-transition method. Under that transition method, compensation cost recognized in 2006 includes (a) compensation cost for all share-based awards granted prior to, but not yet vested as of January 1, 2006, based on the attribution method and grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all share-based awards granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R), all recognized on a straight line basis as the requisite service periods are rendered. Results for prior periods have not been restated.

The adoption of SFAS No. 123(R) on January 1, 2006 resulted in our net income for the three months ended March 31, 2006 being approximately $241,000 lower than if we had continued to account for stock-based compensation under APB Opinion No. 25 and had no impact on basic and diluted earnings per share as reported for the three months ended March 31, 2006.

The following table illustrates the effect on net income and earnings per share for the first quarter of 2005, if we had applied the fair value recognition provisions of SFAS No. 123(R) to all stock-based compensation granted under equity award plans for awards granted prior to March 31, 2005 (in thousands, except per share amounts):

Net income, as reported	$	27,573
Add: Stock-based employee compensation expense included in reported net income		420
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards		(576	)
Pro forma net income	$	27,417
Earnings per share:
Basic – as reported	$	0.33
Basic – pro forma	$	0.32
Diluted – as reported	$	0.32
Diluted – pro forma	$	0.32

We granted 76,018 shares of restricted stock and restricted stock units during the three months ended March 31, 2006. The market value of restricted stock shares and units on the date of the award is recognized as stock-based compensation expense over the vesting period, with charges to operations of $517,000 and $420,000 for the three months ended March 31, 2006 and 2005, respectively. As required upon the adoption of SFAS No. 123(R), the contra equity balance in unearned compensation on restricted stock of approximately $713,000 as of January 1, 2006 was reversed (i.e. netted against capital in excess of par value) in the Condensed Consolidated Balance Sheet as of March 31, 2006.

9

Stock Options

In determining the estimated fair value of our stock options as of the date of grant, we used the Black-Scholes option pricing model with the following assumptions:

	2006		2005
Risk-free interest rate	4.57	%	4.50	%
Dividend yield	4.95	%	6.61	%
Volatility factors of the expected market price for our common stock	15.00	%	20.29	%
Weighted average expected life of options	6.5 years		10 years

The Black-Scholes option pricing 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 our employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in our opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options.

The following tables summarize stock option activity during the three months ended March 31, 2006 and the year ended December 31, 2005:

2006 Activity	Shares		Range of Exercise Prices					Weighted Average Exercise Price
Outstanding at beginning of period	1,341,420		$	3.3125	-	$	27.0900	$	18.2571
Options granted	320,033			30.8300	-		32.7800		30.9720
Options exercised	(108,000	)		11.8600	-		19.0836		12.4235
Options canceled	(10,695	)		16.5443	-		25.4400		19.6252
Outstanding at end of period	1,542,758			3.3125	-		32.7800		21.2936
Exercisable at end of period	1,211,308		$	3.3125	-	$	32.0200	$	19.2472

2005 Activity	Shares		Range of Exercise Prices					Weighted Average Exercise Price
Outstanding at beginning of year	1,617,769		$	3.3125	-	$	25.1700	$	14.1778
Options granted	338,128			24.9300	-		27.0900		25.2693
Options exercised	(606,444	)		6.7500	-		25.1700		11.2443
Options canceled	(8,033	)		13.7356	-		25.4400		22.4613
Outstanding at end of year	1,341,420			3.3125	-		27.0900		18.2571
Exercisable at end of year	992,778		$	3.3125	-	$	27.0900	$	16.1097

NOTE 7 – LITIGATION

Legal Proceedings Presently Defended and Indemnified by Third Parties

The following litigation arose from our operations prior to the time of our spin off of Kindred in May 1998 or relates to assets or liabilities transferred to Kindred in connection with the spin off. Pursuant to the agreements we entered into with Kindred at the time of the spin off, Kindred assumed the defense, on our behalf of the matter described below, among others, and has indemnified us for any fees, costs, expenses and liabilities related to this matter (the “Indemnification”). Under Kindred’s plan of reorganization, Kindred assumed and agreed to abide by the Indemnification and to defend us in this and other matters as required under the spin agreements. However, there can be no assurance that Kindred will continue to defend us in such matters or that Kindred will have sufficient assets, income and access to financing to enable it to satisfy such obligations or its other obligations incurred in connection with the spin off. In addition, the following description is based primarily on information included in Kindred’s public filings and information provided to us by Kindred. There can be no assurance that Kindred has included in its public filings and provided us complete and accurate information in all instances.

10

A stockholder derivative suit entitled Thomas G. White on behalf of Ventas, Inc. v. W. Bruce Lunsford, et al., Case No. 98 C103669, was filed in June 1998 in the Circuit Court of Jefferson County, Kentucky. The complaint alleges, among other things, that certain former officers and directors damaged our company by engaging in breaches of fiduciary duty, insider trading, fraud and securities fraud and damaging our reputation. The suit seeks unspecified damages, interest, punitive damages, reasonable attorneys’ fees, other costs, and any extraordinary equitable and/or injunctive relief permitted by law or equity to assure the plaintiff has an effective remedy. We believe the allegations in the complaint are without merit. In September 2003, Kindred filed a motion to dismiss this action as to all defendants, including us, based on plaintiff’s failure to make demand for remedy upon the appropriate Board of Directors. On July 26, 2005, the Court granted Kindred’s motion and dismissed this action in its entirety. The plaintiff has appealed to the Kentucky Court of Appeals, and the parties have completed their briefing. Kindred has indicated that it intends to continue to defend this action vigorously on our behalf. We are unable at this time to estimate the possible loss or range of loss for this action and, therefore, no provision for liability, if any, resulting from this litigation has been made in our Condensed Consolidated Financial Statements as of March 31, 2006.

Kindred and the subsidiaries of Brookdale Senior Living that lease our properties are parties to certain legal actions and regulatory investigations arising in the normal course of their business. There can be no 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 or such subsidiaries’ liquidity, financial position or results of operations, which in turn could have a material adverse effect on us.

Other Litigation

We are a plaintiff in an action seeking a declaratory judgment and damages entitled Ventas Realty, Limited Partnership et al. v. Black Diamond CLO 1998-1 Ltd., et al., Case No. 99C107076, filed November 22, 1999 in the Circuit Court of Jefferson County, Kentucky. Two of the three defendants in that action, Black Diamond International Funding, Ltd. and BDC Finance, LLC (collectively “Black Diamond”), have asserted counterclaims against us under theories of breach of contract, tortious interference with contract and abuse of process. We dispute the material allegations contained in Black Diamond’s counterclaims and we intend to continue to pursue our claims and defend the counterclaims vigorously. There were no material developments in this action during the three-month period ended March 31, 2006. We are unable at this time to estimate the possible loss or range of loss for the counterclaims in this action, and therefore, no provision for liability, if any, resulting from this litigation has been made in our Condensed Consolidated Financial Statements as of March 31, 2006.

We are party to various other lawsuits arising in the normal course of our 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 us. If management’s assessment of our liability with respect to these actions is incorrect, such lawsuits could have a material adverse effect on us.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Assumption of Certain Operating Liabilities and Litigation

In connection with our spin off of Kindred, Kindred agreed, among other things, to assume all liabilities and to indemnify, defend and hold us harmless from and against certain losses, claims and litigation arising out of the ownership or operation of the healthcare operations or any of the assets transferred to Kindred in the spin off, including without limitation all claims arising out of the third-party leases and third-party guarantees assigned to and assumed by Kindred at the time of the spin off. Under Kindred’s plan of reorganization, Kindred assumed and agreed to fulfill these obligations.

Similarly, in connection with Provident’s acquisition in 2004 of entities related to certain subsidiaries of Brookdale Senior Living, those subsidiaries of Brookdale Senior Living agreed to indemnify and hold Provident (and, as a result of the Provident acquisition, us) harmless from and against, among other things, certain liabilities arising out of the ownership or operation of such entities prior to the acquisition by Provident.

There can be no assurance that Kindred or such Brookdale Senior Living subsidiaries will have sufficient assets, income and access to financing to enable them to satisfy, or that they will be willing to satisfy, their respective obligations under these arrangements. If Kindred or such Brookdale Senior Living subsidiaries do not satisfy or otherwise honor their respective obligations to indemnify, defend and hold us harmless under their respective contractual arrangements with us, then we may be liable for the payment and performance of such obligations and may have to assume the defense of such claims or litigation, which could have a material adverse effect on our business, financial condition, results of operations and liquidity, our ability to service our indebtedness and our ability to make distributions to our stockholders as required to maintain our status as a REIT.

11

Brookdale Leases

Subject to certain limitations and restrictions, if during the first six years of the initial term of our Brookdale leases assumed in connection with the Provident acquisition we, either voluntarily or at Brookdale’s request, obtain new mortgage debt or refinance existing mortgage debt on property covered by a Brookdale lease, then we may be required to pay Brookdale the net proceeds from any such mortgage debt financing or refinancing. Also, subject to certain limitations and conditions, Brookdale may request that we obtain new mortgage debt or refinance existing mortgage debt on the property covered by the Brookdale leases, and we have agreed to use commercially reasonable efforts to pursue any such financing or refinancing from the holder of the then existing mortgage debt on the applicable Brookdale property. In connection with any such financing or refinancing, the rent for the applicable Brookdale property will be increased using a recomputed lease basis increased by an amount equal to the net financed proceeds paid to Brookdale plus any fees, penalties, premiums or other costs related to such financing or refinancing. In addition, if the monthly debt service on any financed or refinanced proceeds paid to Brookdale exceeds the rent increase attributable to those financed or refinanced proceeds, then Brookdale is required to pay the excess. In addition, under certain circumstances, Brookdale will also be required to pay additional amounts relating to increases in debt service and other costs relating to any such financing or refinancing.

NOTE 9 – EARNINGS PER SHARE

The following table shows the amounts used in computing basic and diluted earnings per share:

	For the Three Months Ended March 31,
	2006		2005
	(in thousands, except per share amounts)
Numerator for basic and diluted earnings per share:
Income before discontinued operations	$	29,134	$	27,612
Discontinued operations		—		(39	)
Net income	$	29,134	$	27,573
Denominator:
Denominator for basic earnings per share —weighted average shares		103,751		84,657
Effect of dilutive securities:
Stock options		539		732
Time vesting restricted stock awards		10		11
Dilutive potential common stock		549		743
Denominator for diluted earnings per share —adjusted weighted average shares		104,300		85,400
Basic earnings per share:
Income before discontinued operations	$	0.28	$	0.33
Discontinued operations		—		—
Net income	$	0.28	$	0.33
Diluted earnings per share:
Income before discontinued operations	$	0.28	$	0.32
Discontinued operations		—		—
Net income	$	0.28	$	0.32

12

NOTE 10 – COMPREHENSIVE INCOME

Comprehensive income is comprised of the following:

	For the Three Months Ended March 31,
	2006		2005
	(in thousands)
Net income	$	29,134	$	27,573
Other comprehensive income:
Unrealized gain on interest rate swap		787		4,498
Reclassification adjustment for realized loss on interest rate swap included in net income during the period		41		1,289
		828		5,787
Net comprehensive income	$	29,962	$	33,360

NOTE 11 – SUBSEQUENT EVENT

2006 Unsecured Credit Facility

On April 26, 2006, we entered into a $500 million unsecured revolving credit facility (the “2006 Unsecured Credit Facility”). The 2006 Unsecured Credit Facility replaced our previous $300 million secured revolving credit facility, dated as of September 8, 2004. The 2006 Unsecured Credit Facility matures in 2009 and gives us a one-year extension option, subject to the satisfaction of certain conditions. Additionally, the 2006 Unsecured Credit Facility contains a $100 million “accordion feature” that permits us to increase our borrowing capacity to a total of $600 million.

Generally, borrowings outstanding under the 2006 Unsecured Credit Facility bear interest at a fluctuating LIBOR-based rate per annum plus an applicable percentage based on our consolidated leverage, initially 0.75%. Our previous secured revolving credit facility also bore interest at a fluctuating LIBOR-based rate per annum plus an applicable percentage. The applicable percentage was 1.45% throughout 2006.

We expect to record a loss on extinguishment of debt in the amount of $1.3 million representing the write-off of unamortized deferred financing costs related to our previous secured revolving credit facility during the second quarter of 2006.

NOTE 12 – CONDENSED CONSOLIDATING INFORMATION

We and certain of our direct and indirect wholly owned subsidiaries (the “Wholly Owned Subsidiary Guarantors”) have fully and unconditionally guaranteed, on a joint and several basis, the obligation to pay principal and interest with respect to each series of senior notes issued by Ventas Realty and Ventas Capital Corporation (“Ventas Capital” and together with Ventas Realty, the “Issuers”). ETOP, of which we own substantially all of the partnership units, and certain of its wholly owned subsidiaries (the “ETOP Subsidiary Guarantors” and collectively, with the Wholly Owned Subsidiary Guarantors, the “Guarantors”), have also provided a guarantee, on a joint and several basis, of the senior notes. We have other subsidiaries (“Non-Guarantor Subsidiaries”) that have not provided a guarantee of the senior notes and therefore are not directly obligated with respect to the senior notes. Contractual and legal restrictions, including those contained in the instruments governing certain Non-Guarantor Subsidiaries’ outstanding indebtedness, may under certain circumstances restrict our ability to obtain cash from our Non-Guarantor Subsidiaries for the purpose of meeting our debt service obligations, including our guarantee of payment of principal and interest on the senior notes. Additionally, as of March 31, 2006, approximately $112.4 million of the net assets of Ventas Realty were mortgaged to secure our revolving credit facility; however, those mortgages were released in connection with the 2006 Unsecured Credit Facility. Certain of our real estate assets are also subject to mortgages. The following summarizes our condensed consolidating information as of March 31, 2006 and December 31, 2005 and for the three months ended March 31, 2006 and 2005:

13

CONDENSED CONSOLIDATING BALANCE SHEET

As of March 31, 2006

(in thousands)	Ventas, Inc.		ETOP and ETOP Subsidiary Guarantors		Wholly Owned Subsidiary Guarantors		Issuers (1)			Non - Guarantor Subsidiaries		Consolidated Elimination			Consolidated
Assets
Net real estate investments	$	11,949	$	55,666	$	936,146	$	958,927		$	579,954	$	—		$	2,542,642
Cash and cash equivalents		1		—		—		874			591		—			1,466
Escrow deposits and restricted cash		223		—		27,093		18,528			15,909		—			61,753
Deferred financing costs, net		—		—		—		16,811			33		—			16,844
Notes receivable-related parties		1,734		—		—		1,125			—		—			2,859
Equity in affiliates		273,747		80,851		90,906		724,039			15		(1,169,558	)		—
Investment in affiliates		—		9,039		—		—			—		(9,039	)		—
Other		—		549		16,200		10,468			8,823		—			36,040
Total assets	$	287,654	$	146,105	$	1,070,345	$	1,730,772		$	605,325	$	(1,178,597	)	$	2,661,604
Liabilities and stockholders’ equity
Liabilities:
Senior notes payable and other debt	$	—	$	421	$	299,571	$	1,232,837		$	321,722	$	—		$	1,854,551
Intercompany		—		2,528		125,000		(132,500	)		4,972		—			—
Deferred revenue		38		—		1,794		8,121			—		—			9,953
Interest rate swap agreement		—		—		—		577			—		—			577
Accrued interest		—		—		1,438		31,405			1,793		—			34,636
Accounts payable and other accrued liabilities		2,720		104		23,050		32,951			13,508		393			72,726
Deferred income taxes		30,394		—		—		—			—		—			30,394
Total liabilities		33,152		3,053		450,853		1,173,391			341,995		393			2,002,837
Total stockholders’ equity		254,502		143,052		619,492		557,381			263,330		(1,178,990	)		658,767
Total liabilities and stockholders’ equity	$	287,654	$	146,105	$	1,070,345	$	1,730,772		$	605,325	$	(1,178,597	)	$	2,661,604

(1) Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offerings of the senior notes and has no assets or operations.

14

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2005

(in thousands)	Ventas, Inc.		ETOP and ETOP Subsidiary Guarantors		Wholly Owned Subsidiary Guarantors		Issuers (1)			Non- Guarantor Subsidiaries		Consolidated Elimination			Consolidated
Assets
Net real estate investments	$	12,117	$	56,200	$	946,916	$	925,791		$	585,450	$	—		$	2,526,474
Cash and cash equivalents		1		1		1		1,026			612		—			1,641
Escrow deposits and restricted cash		220		26		26,734		17,595			15,092		—			59,667
Deferred financing costs, net		—		—		—		17,581			—		—			17,581
Notes receivable-related parties		1,716		—		—		1,125			—		—			2,841
Equity in affiliates		374,862		80,390		109,519		724,039			15		(1,288,825	)		—
Investment in affiliates		—		9,039		—		—			—		(9,039	)		—
Other		—		509		13,057		9,893			7,455		—			30,914
Total assets	$	388,916	$	146,165	$	1,096,227	$	1,697,050		$	608,624	$	(1,297,864	)	$	2,639,118
Liabilities and stockholders’ equity
Liabilities:
Senior notes payable and other debt	$	—	$	424	$	300,631	$	1,180,239		$	321,270	$	—		$	1,802,564
Intercompany		—		2,696		125,000		(132,500	)		4,804		—			—
Deferred revenue		44		—		1,900		8,596			—		—			10,540
Interest rate swap agreement		—		—		—		1,580			—		—			1,580
Accrued dividend		37,272		71		—		—			—		—			37,343
Accrued interest		—		3		1,429		11,190			1,796		—			14,418
Accounts payable and other accrued liabilities		2,346		103		22,846		36,163			13,109		393			74,960
Deferred income taxes		30,394		—		—		—			—		—			30,394
Total liabilities		70,056		3,297		451,806		1,105,268			340,979		393			1,971,799
Total stockholders’ equity		318,860		142,868		644,421		591,782			267,645		(1,298,257	)		667,319
Total liabilities and stockholders’ equity	$	388,916	$	146,165	$	1,096,227	$	1,697,050		$	608,624	$	(1,297,864	)	$	2,639,118

(1) Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offerings of the senior notes and has no assets or operations.

15

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the three months ended March 31, 2006

(in thousands)	Ventas, Inc.		ETOP and ETOP Subsidiary Guarantors			Wholly Owned Subsidiary Guarantors		Issuers (1)		Non- Guarantor Subsidiaries		Consolidated Elimination			Consolidated
Revenues:
Rental income	$	594	$	1,422		$	27,583	$	52,802	$	14,104	$	—		$	96,505
Interest income from loans receivable		—		—			—		968		—		—			968
Equity earnings (loss) in affiliates		28,911		(22	)		11,273		—		—		(40,162	)		—
Interest and other income		20		—			4		257		60		—			341
Total revenues		29,525		1,400			38,860		54,027		14,164		(40,162	)		97,814
Expenses:
Interest		—		157			4,725		22,437		5,638		—			32,957
Depreciation		168		535			10,770		11,249		5,748		—			28,470
Property-level operating expenses		—		—			—		115		507		—			622
General, administrative and professional fees		223		115			1,894		3,449		950		—			6,631
Intercompany interest		—		(168	)		—		—		168		—			—
Total expenses		391		639			17,389		37,250		13,011		—			68,680
Net income	$	29,134	$	761		$	21,471	$	16,777	$	1,153	$	(40,162	)	$	29,134

(1) Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offerings of the senior notes and has no assets or operations.

16

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the three months ended March 31, 2005

(in thousands)	Ventas, Inc.		ETOP and ETOP Subsidiary Guarantors			Wholly Owned Subsidiary Guarantors		Issuers (1)			Non- Guarantor Subsidiaries		Consolidated Elimination			Consolidated
Revenues:
Rental income	$	574	$	1,419		$	8,619	$	47,832		$	4,092	$	—		$	62,536
Interest income from loans receivable		—		—			—		652			—		—			652
Equity earnings in affiliates		27,318		(156	)		786		—			—		(27,948	)		—
Interest and other income		18		20			11		552			11		—			612
Total revenues		27,910		1,283			9,416		49,036			4,103		(27,948	)		63,800
Expenses:
Interest		—		9			2,484		12,724			1,759		—			16,976
Depreciation		172		535			1,325		10,044			1,144		—			13,220
Property-level operating expenses		—		—			—		108			444		—			552
General, administrative and professional fees		165		174			803		3,948			350		—			5,440
Intercompany interest		—		2			—		(148	)		146		—			—
Total expenses		337		720			4,612		26,676			3,843		—			36,188
Income before discontinued operations		27,573		563			4,804		22,360			260		(27,948	)		27,612
Discontinued operations		—		(39	)		—		—			—		—			(39	)
Net income	$	27,573	$	524		$	4,804	$	22,360		$	260	$	(27,948	)	$	27,573

(1) Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offerings of the senior notes and has no assets or operations.

17

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2006

(in thousands)	Ventas, Inc.			ETOP and ETOP Subsidiary Guarantors			Wholly Owned Subsidiary Guarantors			Issuers (1)			Non- Guarantor Subsidiaries			Consolidated Elimination		Consolidated
Net cash provided by operating activities	$	757		$	1,069		$	17,574		$	44,423		$	5,333		$	—	$	69,156
Net cash used in investing activities		(18	)		—			—			(44,443	)		(54	)		—		(44,515	)
Cash flows from financing activities:
Net change in borrowings under revolving credit facility		—			—			—			52,600			—			—		52,600
Proceeds from debt		—			—			—			—			2,074			—		2,074
Repayment of debt		—			(3	)		(1,060	)		—			(1,624	)		—		(2,687	)
Other		—			—			—			(33	)		—			—		(33	)
Issuance of common stock		253			—			—			—			—			—		253
Proceeds from stock option exercises		1,360			—			—			—			—			—		1,360
Cash distributions from (to) affiliates		75,812			(848	)		(16,515	)		(52,699	)		(5,750	)		—		—
Cash distributions to stockholders		(78,164	)		(219	)		—			—			—			—		(78,383	)
Net cash used in financing activities		(739	)		(1,070	)		(17,575	)		(132	)		(5,300	)		—		(24,816	)
Net decrease in cash and cash equivalents		—			(1	)		(1	)		(152	)		(21	)		—		(175	)
Cash and cash equivalents at beginning of period		1			1			1			1,026			612			—		1,641
Cash and cash equivalents at end of period	$	1		$	—		$	—		$	874		$	591		$	—	$	1,466

(1) Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offerings of the senior notes and has no assets or operations.

18

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2005

(in thousands)	Ventas, Inc.			ETOP and ETOP Subsidiary Guarantors			Wholly Owned Subsidiary Guarantors			Issuers (1)			Non- Guarantor Subsidiaries			Consolidated Elimination		Consolidated
Net cash provided by operating activities	$	201		$	1,314		$	5,635		$	50,543		$	372		$	—	$	58,065
Net cash used in investing activities		(9,133	)		—			—			(47,861	)		—			—		(56,994	)
Cash flows from financing activities:
Net change in borrowings under revolving credit facility		—			—			—			23,300			—			—		23,300
Repayment of debt		—			(3	)		(745	)		—			(397	)		—		(1,145	)
Issuance of common stock		2,255			—			—			—			—			—		2,255
Proceeds from stock option exercises		699			—			—			—			—			—		699
Cash distributions from (to) affiliates		33,472			(1,317	)		(4,876	)		(26,683	)		(596	)		—		—
Cash distribution to stockholders		(27,498	)		—			—			—			—			—		(27,498	)
Other		—			—			—			(268	)		—			—		(268	)
Net cash provided by (used in) financing activities		8,928			(1,320	)		(5,621	)		(3,651	)		(993	)		—		(2,657	)
Net (decrease) increase in cash and cash equivalents		(4	)		(6	)		14			(969	)		(621	)		—		(1,586	)
Cash and cash equivalents at beginning of period		48			37			9			1,846			1,425			—		3,365
Cash and cash equivalents at end of period	$	44		$	31		$	23		$	877		$	804		$	—	$	1,779

(1) Ventas Capital is a wholly owned direct subsidiary of Ventas Realty that was formed to facilitate the offerings of the senior notes and has no assets or operations.

NOTE 13 – ETOP CONDENSED CONSOLIDATING INFORMATION

ETOP, of which we own substantially all of the partnership interests, and the ETOP Subsidiary Guarantors have provided full and unconditional guarantees, on a joint and several basis with us and the Wholly Owned Subsidiary Guarantors, of the obligation to pay principal and interest with respect to each series of senior notes. See “Note 12—Condensed Consolidating Information.” Certain of ETOP’s other direct and indirect wholly owned subsidiaries (the “ETOP Non-Guarantor Subsidiaries”) have not provided a guarantee of the senior notes and therefore are not directly obligated with respect to the senior notes. Contractual and legal restrictions, including those contained in the instruments governing certain of the ETOP Non-Guarantor Subsidiaries’ outstanding indebtedness, may under certain circumstances restrict ETOP’s (and, therefore, our) ability to obtain cash from the ETOP Non-Guarantor Subsidiaries for the purpose of satisfying our and ETOP’s debt service obligations, including our respective guarantees of payment of principal and interest on the senior notes. Certain of the ETOP Subsidiary Guarantors’ properties are subject to mortgages.

19

CONDENSED CONSOLIDATING BALANCE SHEET

As of March 31, 2006

(in thousands)	ETOP and ETOP Subsidiary Guarantors			ETOP Non- Guarantor Subsidiaries		Consolidated Elimination			Consolidated
Assets
Net real estate investments	$	55,666		$	88,324	$	—		$	143,990
Cash and cash equivalents		—			463		—			463
Escrow deposits and restricted cash		—			5,741		—			5,741
Equity in affiliates		80,851			15		(80,866	)		—
Investment in affiliates		9,039			—		—			9,039
Other		549			1,213		—			1,762
Total assets	$	146,105		$	95,756	$	(80,866	)	$	160,995
Liabilities and partners’ equity
Liabilities:
Senior notes payable and other debt	$	421		$	66,429		—		$	66,850
Intercompany		(5,120	)		5,120		—			—
Note payable to affiliate		7,648			—		—			7,648
Accrued interest		—			429		—			429
Accounts payable and other accrued liabilities		104			2,877		—			2,981
Total liabilities		3,053			74,855		—			77,908
Total partners’ equity		143,052			20,901		(80,866	)		83,087
Total liabilities and partners’ equity	$	146,105		$	95,756	$	(80,866	)	$	160,995

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2005

(in thousands)	ETOP and ETOP Subsidiary Guarantors			ETOP Non-Guarantor Subsidiaries		Consolidated Elimination			Consolidated
Assets
Net real estate investments	$	56,200		$	88,992	$	—		$	145,192
Cash and cash equivalents		1			438		—			439
Escrow deposits and restricted cash		26			5,590		—			5,616
Equity in affiliates		80,390			15		(80,405	)		—
Investment in affiliates		9,039			—		—			9,039
Other		509			1,366		—			1,875
Total assets	$	146,165		$	96,401	$	(80,405	)	$	162,161
Liabilities and partners’ equity
Liabilities:
Senior notes payable and other debt	$	424		$	66,776	$	—		$	67,200
Intercompany		(4,804	)		4,804		—			—
Note payable to affiliate		7,500			—		—			7,500
Accrued dividend		71			—		—			71
Accrued interest		3			431		—			434
Accounts payable and other accrued liabilities		103			3,017		—			3,120
Total liabilities		3,297			75,028		—		$	78,325
Total partners’ equity		142,868			21,373		(80,405	)		83,836
Total liabilities and partners’ equity	$	146,165		$	96,401	$	(80,405	)	$	162,161

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CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the three months ended March 31, 2006

(in thousands)	ETOP and ETOP Subsidiary Guarantors			ETOP Non-Guarantor Subsidiaries			Consolidated Elimination		Consolidated
Revenues:
Rental income	$	1,422		$	2,689		$	—	$	4,111
Equity loss in affiliates		(22	)		—			22		—
Interest and other income		—			32			—		32
Total revenues		1,400			2,721			22		4,143
Expenses:
Interest		157			1,265			—		1,422
Depreciation		535			796			—		1,331
Property-level operating expenses		—			330			—		330
General, administrative and professional fees		115			184			—		299
Intercompany interest		(168	)		168			—		—
Total expenses		639			2,743			—		3,382
Net income (loss)	$	761		$	(22	)	$	22	$	761

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the three months ended March 31, 2005

(in thousands)	ETOP and ETOP Subsidiary Guarantors			ETOP Non-Guarantor Subsidiaries			Consolidated Elimination		Consolidated
Revenues:
Rental income	$	1,419		$	2,861		$	—	$	4,280
Equity loss in affiliates		(156	)		—			156		—
Interest and other income		20			30			—		50
Total revenues		1,283			2,891			156		4,330
Expenses:
Interest		9			1,485			—		1,494
Depreciation		535			837			—		1,372
Property-level operating expenses		—			331			—		331
General, administrative and professional fees		174			248			—		422
Intercompany interest		2			146			—		148
Total expenses		720			3,047			—		3,767
Income (loss) before discontinued operations		563			(156	)		156		563
Discontinued operations		(39	)		—			—		(39	)
Net income (loss)	$	524		$	(156	)	$	156	$	524

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2006

(in thousands)	ETOP and ETOP Subsidiary Guarantors			ETOP Non-Guarantor Subsidiaries			Consolidated Elimination		Consolidated
Net cash provided by operating activities	$	1,069		$	811		$	—	$	1,880
Net cash used in investing activities		—			(128	)		—		(128	)
Cash flows from financing activities:
Repayment of debt		(3	)		(347	)		—		(350	)
Cash distributions to partners		(1,067	)		(311	)		—		(1,378	)
Net cash used in financing activities		(1,070	)		(658	)		—		(1,728	)
Net (decrease) increase in cash and cash equivalents		(1	)		25			—		24
Cash and cash equivalents at beginning of period		1			438			—		439
Cash and cash equivalents at end of period	$	—		$	463		$	—	$	463

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2005

(in thousands)	ETOP and ETOP Subsidiary Guarantors			ETOP Non-Guarantor Subsidiaries			Consolidated Elimination		Consolidated
Net cash provided by (used in) operating activities	$	1,314		$	(254	)	$	—	$	1,060
Net cash from investing activities		—			—			—		—
Cash flows from financing activities:
Repayment of debt		(3	)		(324	)		—		(327	)
Cash distributions to partners		(1,317	)		(141	)		—		(1,458	)
Net cash used in financing activities		(1,320	)		(465	)		—		(1,785	)
Net decrease in cash and cash equivalents		(6	)		(719	)		—		(725	)
Cash and cash equivalents at beginning of period		37			1,173			—		1,210
Cash and cash equivalents at end of period	$	31		$	454		$	—	$	485

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

Cautionary Statements

Unless otherwise indicated or except where the context otherwise requires, the terms “we,” “us” and “our” and other similar terms in this Quarterly Report on Form 10-Q refer to Ventas, Inc. and its consolidated subsidiaries.

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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements regarding our 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. These forward-looking statements are inherently uncertain, and security holders must recognize that actual results may differ from our expectations. We do not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made.

Our actual future results and trends may differ materially depending on a variety of factors discussed in our filings with the Securities and Exchange Commission (the “Commission”). Factors that may affect our plans or results include without limitation:

• the ability and willingness of our operators, tenants, borrowers and other third parties to meet and/or perform the obligations under their various contractual arrangements with us;

• the ability and willingness of Kindred Healthcare, Inc. (together with its subsidiaries, “Kindred”), Brookdale Living Communities, Inc. (together with its subsidiaries, “Brookdale”) and Alterra Healthcare Corporation (together with its subsidiaries, “Alterra”) to meet and/or perform their obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities under our respective contractual arrangements with Kindred, Brookdale and Alterra;

• the ability of our operators, tenants and borrowers to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including without limitation obligations under their existing credit facilities;

• our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate and integrate diversifying acquisitions or investments, including those in different asset types and outside the United States;

• the nature and extent of future competition;

• the extent of future or pending healthcare reform and regulation, including cost containment measures and changes in reimbursement policies, procedures and rates;

• increases in our cost of borrowing;

• the ability of our operators to deliver high quality care and to attract patients;

• the results of litigation affecting us;

• changes in general economic conditions and/or economic conditions in the markets in which we may, from time to time, compete;

• our ability to pay down, refinance, restructure and/or extend our indebtedness as it becomes due;

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• the movement of interest rates and the resulting impact on the value of and the accounting for our interest rate swap agreement;

• our ability and willingness to maintain our qualification as a REIT due to economic, market, legal, tax or other considerations;

• final determination of our taxable net income for the year ended December 31, 2005 and for the year ending December 31, 2006;

• the ability and willingness of our tenants to renew their leases with us upon expiration of the leases and our ability to relet our properties on the same or better terms in the event such leases expire and are not renewed by the existing tenants;

• the impact on the liquidity, financial condition and results of operations of our operators, tenants and borrowers resulting from increased operating costs and uninsured liabilities for professional liability claims, and the ability of our operators, tenants and borrowers to accurately estimate the magnitude of these liabilities; and

• the value of our rental reset right with Kindred, which is dependent on a variety of factors and is highly speculative.

Many of these factors are beyond our control and the control of our management.

Kindred and Brookdale Senior Living Information

Kindred and Brookdale Senior Living Inc. (together with its subsidiaries, which include Brookdale and Alterra, “Brookdale Senior Living”) are subject to the reporting requirements of the Commission and are required to file with the Commission annual reports containing audited financial information and quarterly reports containing unaudited interim financial information. The information related to Kindred and Brookdale Senior Living contained or referred to in this Quarterly Report on Form 10-Q is derived from filings made by Kindred or Brookdale Senior Living, as the case may be, with the Commission or other publicly available information, or has been provided to us by Kindred or Brookdale Senior Living. We have not verified the information related to Kindred or Brookdale Senior Living either through an independent investigation or otherwise. We have no reason to believe that such information is inaccurate in any material respect, but we cannot assure you that all such information is accurate. Kindred’s and Brookdale Senior Living’s filings with the Commission can be found at the Commission’s website at www.sec.gov. We are providing this data for informational purposes only, and you are encouraged to obtain Kindred’s and Brookdale Senior Living’s publicly available filings from the Commission.

Background Information

We are a healthcare REIT with a geographically diverse portfolio of healthcare-related and seniors housing facilities in the United States. As of March 31, 2006, this portfolio consisted of 200 skilled nursing facilities, 41 hospitals and 144 seniors housing and other healthcare-related facilities in 42 states. Except with respect to our medical office buildings, we lease these facilities to healthcare operating companies under “triple-net” or “absolute net” leases, which require the tenants to pay all property-related expenses. We also had real estate loan investments relating to seven healthcare-related and seniors housing facilities as of March 31, 2006.

We conduct substantially all of our business through our wholly owned subsidiaries, Ventas Realty, Limited Partnership (“Ventas Realty”) and PSLT OP, L.P. (“PSLT OP”), and ElderTrust Operating Limited Partnership (“ETOP”), in which we own substantially all of the partnership units. Our primary business consists of financing, owning and leasing healthcare-related and seniors housing facilities and leasing or subleasing those facilities to third parties.

Our business strategy is comprised of two primary objectives: (1) diversifying our portfolio of properties and (2) increasing our earnings. We intend to continue to diversify our real estate portfolio by operator, facility type, geography and reimbursement source through investments in, and/or acquisitions or development of, additional healthcare-related and/or seniors housing assets across a wide spectrum.

As of March 31, 2006, approximately 33.1% and 45.1% of our properties, based on their original cost, were operated by Kindred and Brookdale Senior Living, respectively. Approximately 51.4% and 31.3% of our total revenues for the three months ended March 31, 2006 were derived from our master lease agreements with Kindred (the “Kindred Master Leases”) and our leases with Brookdale Senior Living, respectively.

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Recent Developments Regarding Acquisitions

During the three months ended March 31, 2006, we acquired five seniors housing facilities for an aggregate purchase price of $48.3 million, with no assumed debt, in three separate transactions. The properties are leased under triple-net leases, each having initial terms ranging from nine to fourteen years and initially providing aggregate, annual cash base rent of $4.0 million.

Subsequent to March 31, 2006, we acquired one seniors housing facility for an aggregate purchase price of $6.9 million, with no assumed debt. The facility is leased under a triple-net lease having an initial term of thirteen years and initially providing annual cash base rent of $0.6 million.

Recent Developments Regarding Government Regulation

Medicare Reimbursement; Long-Term Acute Care Hospitals

On April 12, 2006, the Centers for Medicare & Medicaid Services (“CMS”) placed on public display a proposed rule to revise the hospital inpatient prospective payment system and to implement the Deficit Reduction Act of 2005 (“DRA”). The rule also proposes changes to the methodology used to reimburse long-term acute care hospitals. Comments to this proposed rule may be submitted through June 12, 2006.

On January 19, 2006, CMS placed on public display a proposed rule to update the long-term acute care hospitals prospective payment system (LTAC PPS) payment rates for the 2007 rate year (July 1, 2006 through June 30, 2007). Under this proposed rule, long-term acute care hospitals will receive no market basket inflation increase in Medicare payments starting July 1, 2006. The proposed rule also adds new restrictions on payments for short-stay outlier cases, makes adjustments to the labor portion of the federal rate and increases the outlier fixed loss threshold, along with a slight increase in the budget neutrality adjustment. If this rule becomes final, the combined effective decrease in rate year 2007 Medicare revenues for long-term acute care hospitals would be $362 million, or 11.1% on the total historical patient mix and volume.

The January 19, 2006 proposed rule also discusses the research that was to be conducted by Research Triangle Institute (RTI) to determine the feasibility of implementing the recommendations of the Medicare Payment Advisory Commission (MedPac). They were asked to clearly define the role of long-term acute care hospitals in the inpatient continuum of care by establishing facility and patient criteria and for Medicare’s Quality Improvement Organizations (QIOs) to play a larger role in reviewing admissions for medical necessity and for compliance with any facility and patient criteria.

Comments on the January 19, 2006 proposed rule were accepted through March 20, 2006, and a final rule is expected to be published later in the second quarter of 2006.

We are currently analyzing these proposed rules and at this time we cannot predict what impact they will have on the liquidity or profitability of the operators of our long-term acute care hospitals.

Medicare Reimbursement; Skilled Nursing Facilities

The April 12, 2006 proposed rule described above may also affect skilled nursing facilities. Under the proposed rule, for skilled nursing facility cost reporting periods beginning on or after October 1, 2005, reimbursement of uncollectible Medicare coinsurance amounts for all beneficiaries (other than beneficiaries of both Medicare and Medicaid) is reduced from 100% to 70%. CMS estimates that the change in the treatment of bad debt will result in a decrease in payments to skilled nursing facilities of $490 million over the five-year period from fiscal year 2006 to 2010.

The proposed rule also includes various options for classifying and weighing patients transferred to a skilled nursing facility after a hospital stay less than the mean length of stay associated with that particular diagnosis-related group. This change in methodology could affect skilled nursing facility admissions, although, we currently cannot predict what impact it will have on the liquidity or profitability of the operators of our skilled nursing facilities.

Finally, under the proposed rule, the $1,740 annual cap on Medicare part B reimbursement for physical therapy and speech-language pathology services and the separate annual cap of $1,740 on occupational therapy would be lifted for those patients who can demonstrate medical necessity. Unless Congress takes prior action, the caps will go back into effect on January 1, 2007.

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On August 4, 2005, CMS published a final rule under the prospective payment system for skilled nursing facilities. Pursuant to the rule, CMS, among other things, adopted a refinement to the resource utilization groups (“RUGs”) used to determine payment for beneficiaries in skilled nursing facilities which increases the number of RUGs from 44 to 53. CMS also increased the case mix index adjustment for all RUGs categories, and implemented a market basket increase of 3%. The market basket increase became effective on October 1, 2005, and the RUGs refinements became effective January 1, 2006. The overall effect of these changes in 2006 is projected by CMS to be a 0.1% increase in aggregate Medicare payments, but within this aggregate CMS expects some facilities to have modest decreases and some to have modest increases.

Medicaid Reimbursement; Skilled Nursing Facilities

The April 12, 2006 rule proposed by CMS also mitigates both state and federal Medicaid expenditures by establishing additional Medicaid eligibility restrictions. Collectively, these Medicaid eligibility restrictions are anticipated to reduce Medicaid payments to skilled nursing facility operators in the future.

At this time, it is not possible to predict whether significant Medicaid rate freezes, cuts or other program changes will be adopted, and if so, by how many states or the impact of such action on our operators. However, severe and widespread Medicaid rate cuts or freezes could have a material adverse effect on our skilled nursing facility operators and in turn could have an adverse effect on us.

Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which requires us to make estimates and judgments about future events that affect the reported amounts in the financial statements and the related disclosures. We believe that the following critical accounting policies, among others, affect our more significant estimates and judgments used in the preparation of our financial statements.

Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”), which is a revision to SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). SFAS No. 123(R) supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB Opinion No. 25”). Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123, except that SFAS No. 123(R) requires all share-based awards to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative under SFAS No. 123(R).

As required, we adopted the provisions of this accounting standard on January 1, 2006. We applied the modified prospective method of adoption in which compensation cost is recognized beginning on the date we adopt the accounting standard for all share-based awards granted after the adoption date and for all awards granted to employees prior to the adoption date that remain unvested on the adoption date. See “Note 6— Stock-Based Compensation” regarding the effect the adoption of SFAS No. 123(R) had on our condensed consolidated financial statements.

Long-Lived Assets

Investments in real estate properties are recorded at cost. We account for acquisitions using the purchase method. The cost of the properties acquired is allocated among tangible land, buildings and equipment and recognized intangibles based upon estimated fair values in accordance with the provisions of SFAS No. 141, “Business Combinations.” We estimate fair values of the components of assets acquired as of the acquisition date or engage a third party appraiser as necessary. Recognized intangibles, if any, include the value of acquired lease contracts and related customer relationships.

Our method for determining fair value varies with the categorization of the asset acquired. We estimate the fair value of buildings on an as-if-vacant basis, and depreciate the building value over the estimated remaining life of the building. We determine the allocated value of other fixed assets based upon the replacement cost and depreciate such value over their estimated remaining useful lives. We determine the value of land either based on real estate tax assessed values in relation to the total value of the asset, internal analyses of recently acquired and existing comparable properties within our portfolio or third party appraisals. The fair value of in-place leases, if any, reflects (i) above and below market leases, if any, determined by discounting the difference between the estimated current market rent and the in-place rentals, the resulting intangible asset of which is amortized to rental revenue over the remaining life of the associated lease plus any fixed rate renewal periods, if applicable, (ii) the estimated value of the cost to obtain tenants, including tenant allowances, tenant improvements and

26

leasing commissions, which is amortized over the remaining life of the associated lease, and (iii) an estimated value of the absorption period to reflect the value of the rents and recovery costs foregone during a reasonable lease-up period, as if the acquired space was vacant, which is amortized over the remaining life of the associated lease. We also estimate the value of tenant or other customer relationships acquired by considering the nature and extent of existing business relationships with the tenant, growth prospects for developing new business with such tenant, such tenant’s credit quality, expectations of lease renewals with such tenant, and the potential for significant, additional future leasing arrangements with such tenant. We amortize such value, if any, over the expected term of the associated arrangements or leases, which would include the remaining lives of the related leases and any expected renewal periods.

Impairment of Long-Lived Assets

We periodically evaluate our long-lived assets, primarily consisting of our investments in real estate, for impairment indicators. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying operations and adjust 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. An impairment loss is recognized at the time we make any such adjustment. Future events could occur which would cause us to conclude that impairment indicators exist and an impairment loss is warranted.

Revenue Recognition

Certain of our leases, excluding the Kindred Master Leases, provide for periodic and determinable increases in base rent. Base rental revenues under these leases are recognized on a straight-line basis over the term of the applicable lease. Certain of our other leases, including the Kindred Master Leases, provide for an annual increase in rental payments only if certain revenue parameters or other contingencies are met. We recognize the increased rental revenue under these leases only if the revenue parameters or other contingencies are met rather than on a straight-line basis over the term of the applicable lease. We recognize income from rent, lease termination fees and other income once all of the following criteria are met in accordance with the Commission’s Staff Accounting Bulletin 104: (i) the agreement has been fully executed and delivered; (ii) services have been rendered; (iii) the amount is fixed or determinable; and (iv) the collectibility is reasonably assured.

Gain on Sale of Facilities

We recognize sales of facilities only upon the closing of the transaction with the purchaser. Payments received from purchasers prior to closing are recorded as deposits and classified as other assets in the consolidated balance sheet. Gains on facilities sold are recognized using the full accrual method upon closing when the collectibility of the sales price is reasonably assured, we are not obligated to perform significant activities after the sale to earn the profit, we have received adequate initial investment from the buyer, and other profit recognition criteria have been satisfied. Gains may be deferred in whole or in part until the sales satisfy the requirements of gain recognition on sales of real estate under SFAS No. 66, “Accounting for Sales of Real Estate.”

Loans and Other Amounts Receivable from Third Parties

We evaluate the collectibility of loans and other amounts receivable from third parties based on a number of factors, including (i) corporate and facility level financial and operations reports, (ii) compliance with the financial covenants set forth in the borrowing or lease agreement, (iii) the financial stability of the applicable borrow or tenant and any guarantor and (iv) the payment history of the borrower or tenant. Our level of reserves, if any, for loans and other amounts receivable from third parties fluctuates depending upon all of the factors previously mentioned.

Legal Contingencies

We are involved in litigation as described in “Note 7—Litigation” of the Notes to Condensed Consolidated Financial Statements. We evaluate such matters by (i) ascertaining the probability that such litigation could result in a loss for us and (ii) determining an estimate of any possible loss. In accordance with SFAS No. 5, “Accounting for Contingencies,” we accrue for any probable losses that are estimable and disclose any loss contingencies that are possible. If management’s assessment of our liability with respect to these actions is incorrect, such matters could have a material adverse effect on us.

Certain Information Regarding ElderTrust Operating Limited Partnership

Not later than the deadline prescribed by the Exchange Act, we will cause ETOP to file a Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. Such Quarterly Report, upon filing, shall be deemed incorporated by reference in this Quarterly Report on Form 10-Q.

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Results of Operations

The table below shows our results of operations for the three months ended March 31, 2006 and 2005 and the absolute and percentage change in those results from period to period (dollars in thousands).

	Three Months Ended March 31,					Change
	2006		2005			$			%
Revenues:
Rental income	$	96,505	$	62,536		$	33,969		54.3	%
Interest income from loans receivable		968		652			316		48.5
Interest and other income		341		612			(271	)	(44.3	)
Total revenues		97,814		63,800			34,014		53.3
Expenses:
Interest		32,957		16,976			15,981		94.1
Depreciation		28,470		13,220			15,250		115.4
Property-level operating expenses		622		552			70		12.7
General, administrative and professional fees (including non-cash stock-based compensation expense of $758 and $420, respectively)(1)		6,631		5,440			1,191		21.9
Total expenses		68,680		36,188			32,492		89.8
Income before discontinued operations		29,134		27,612			1,522		5.5
Discontinued operations		—		(39	)		39		nm
Net income	$	29,134	$	27,573		$	1,561		5.7	%

nm - Not meaningful

(1) Expense includes approximately $241 in 2006 ($0 in 2005) related to the expensing of stock options as required upon the adoption of SFAS No. 123(R) on January 1, 2006.

Revenues

The increase in our first quarter 2006 rental income over the same period in 2005 reflects (i) a $26.4 million increase resulting from additional rent related to properties acquired in the Provident acquisition, (ii) a $1.7 million increase resulting from the 3.5% annual increase in the rent paid under Kindred Master Leases effective May 1, 2005, and (iii) additional rent relating to the other properties acquired during the period from April 1, 2005 to March 31, 2006. See “Note 4—Acquisitions” of the Notes to Condensed Consolidated Financial Statements.

The increase in interest income from loans receivable is primarily due to loans made or acquired by us during the period from April 1, 2005 to December 31, 2005.

The decrease in interest and other income relates to the absence in 2006 of an upfront fee received in 2005 in conjunction with our investment in a portfolio of eight distressed mortgage loans.

Expenses

Total interest expense increased $16.0 million in the first quarter of 2006 over 2005, primarily due to an $18.2 million increase from higher loan balances as a result of a 2005 acquisition activity, partially offset by a $2.1 million decrease from lower effective interest rates. Interest expense includes $0.8 million and $0.9 million of amortized deferred financing costs for the three months ended March 31, 2006 and 2005, respectively. Our effective interest rate decreased to 7.4 percent for the three months ended March 31, 2006 from 8.0 percent for the same period in 2005.

Depreciation expense increased primarily due to depreciation with respect to the properties acquired during the period from April 1, 2005 to March 31, 2006. See “Note 4—Acquisitions” of the Notes to Condensed Consolidated Financial Statements.

The increase in general, administrative and professional fees is primarily attributable to costs associated with the growth in our asset base and our initiative to develop and market our strategic diversification program, engage in comprehensive asset management, comply with regulatory requirements and attract and retain appropriate personnel to achieve our business objectives and the expensing of stock options as a result of our adoption of SFAS No. 123(R).

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Funds from Operations

Our funds from operations (“FFO”) for the three months ended March 31, 2006 and 2005 are summarized in the following table:

	For the Three Months Ended March 31,
	2006		2005
	(in thousands)
Net income	$	29,134	$	27,573
Adjustments:
Depreciation on real estate assets		28,329		13,129
Other items:
Discontinued operations
Real estate depreciation – discontinued		—		46
Funds from operations	$	57,463	$	40,748

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, we consider FFO an appropriate measure of performance of an equity REIT, and we use the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO. NAREIT defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of real estate property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

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 our financial performance or as an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is FFO necessarily indicative of sufficient cash flow to fund all of our needs. We believe that in order to facilitate a clear understanding of our consolidated historical operating results, FFO should be examined in conjunction with net income as presented in the Condensed Consolidated Financial Statements and data included elsewhere in this Quarterly Report on Form 10-Q.

Liquidity and Capital Resources

During the three months ended March 31, 2006, our principal sources of liquidity were cash flows from operations and borrowings under our secured revolving credit facility. We anticipate that cash flows from operations over the next twelve months will be adequate to fund our business operations, dividends to stockholders and debt amortization. Capital requirements for acquisitions may require funding from borrowings, assumption of debt from the seller and issuance of secured or unsecured long-term debt or other securities, including equity.

We intend to continue to fund future investments through cash flows from operations, borrowings under our new unsecured revolving credit facility, assumption of indebtedness, disposition of assets and issuance of secured or unsecured long-term debt or other securities. As of March 31, 2006, we had cash and cash equivalents of $1.5 million, escrow deposits and restricted cash of $61.8 million and unused credit availability of $158.0 million under our previous secured revolving credit facility.

In April 2006, we filed an automatic shelf registration statement on Form S-3 with the Commission relating to the sale, from time to time, of an indeterminate amount of debt securities and related guarantees, common stock, preferred stock, depository shares and warrants. The registration statement replaces our previous universal shelf registration statement, under which approximately $500 million of securities remained available for offering.

Also in April 2006, we entered into a new $500 million unsecured revolving credit facility which replaces our previous $300 million secured revolving credit facility. We believe our new shelf registration statement and new unsecured revolving credit facility will provide us with greater flexibility with raising capital.

Cash Flows from Operating Activities

Cash flows provided by operating activities were $69.2 million and $58.1 million for the three months ended March 31, 2006 and 2005, respectively. The increase primarily resulted from FFO that was higher for the three months ended March 31, 2006 as a result of our real estate acquisitions, partially offset by changes in operating assets and liabilities at March 31, 2006.

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Cash Flows from Investing Activities

Cash flows used in investing activities were $44.5 million and $57.0 million for the three months ended March 31, 2006 and 2005, respectively. These activities consisted primarily of our investments in real estate and mortgage loans.

Cash Flows from Financing Activities

Net cash used in financing activities totaled $24.8 million for the three months ended March 31, 2006. The uses primarily included (i) $78.4 million of cash dividend payments and (ii) aggregate principal payments on mortgage obligations of $2.7 million. The proceeds included (i) $52.6 million from net borrowings under our secured revolving credit facility, (ii) $2.1 million from an addition to an existing mortgage and (iii) $1.6 million from the issuance of common stock upon the exercise of stock options and other issuances.

Net cash used in financing activities totaled $2.7 million for the three months ended March 31, 2005. The uses primarily included (i) $27.5 million of cash dividend payments and (ii) aggregate principal payments on mortgage obligations of $1.1 million. The proceeds included (i) $23.3 million from net borrowings under our secured revolving credit facility and (ii) $3.0 million from the issuance of common stock upon the exercise of stock options and other issuances.

Except with respect to our medical office buildings, capital expenditures to maintain and improve our leased properties generally will be incurred by our tenants. Accordingly, we do not believe that we will incur any major expenditures in connection with these 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, we anticipate that any expenditures relating to the maintenance of leased properties for which we 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, our liquidity may be affected adversely. Our ability to borrow funds may be restricted in certain circumstances by the terms of our unsecured revolving credit facility and the indentures governing our outstanding senior notes.

Reset Right

We have a one-time right under each Kindred Master Lease (the “Reset Right”), exercisable by notice (the “Reset Notices”) given on or after January 20, 2006 and on or before July 19, 2007, to increase the rent to a then fair market rental rate for a total fee of $4.6 million payable on a pro-rata basis at the time of exercise under the applicable Kindred Master Lease. If we deliver the Reset Notices prior to July 19, 2006, the increased rent, if any, would be effective on July 19, 2006, and if we deliver the Reset Notices after July 19, 2006, the increased rent, if any, would be effective on the date the Reset Notices are delivered. The Reset Right applies to the original Kindred Master Leases on a lease-by-lease basis. If the Reset Right is exercised for any Kindred Master Lease, the annual escalations currently applicable to that particular Kindred Master lease may be altered or reduced, depending on market conditions at the time.

On January 19, 2006, CMS issued a proposed rule regarding 2007 fiscal year payments for long-term acute care hospitals. The proposed rule contains a number of proposed changes to current long-term acute care hospitals payment policy that could result in an eleven percent Medicare rate cut to long-term acute care hospitals. The rule proposed by CMS remains subject to industry comment and is not expected to be final until sometime in the second quarter of 2006. See “Recent Developments Regarding Government Regulation—Medicare Reimbursement; Long-Term Acute Care Hospitals.” We have not yet given the Reset Notices because we are analyzing the potential impact, if any, of CMS’s proposed rule on Kindred and on our portfolio of 39 Kindred-operated long-term acute care hospitals. We are also assessing the likelihood that the proposed rule will be adopted in its current form or modified as a result of industry comment and review. Based on our preliminary analysis of the rule and the performance of our Kindred-operated facilities, we believe the Reset Right should deliver significant value for our shareholders; however, the value of the Reset Right is highly speculative and is dependent on and may be influenced by a variety of factors and market conditions, including without limitation Medicare and Medicaid rules and regulations, EBITDARM (defined as earnings before interest, income taxes, depreciation, amortization, rent and management fees) to rent coverage ratios and the terms of the Kindred Master Leases. Changes in one or any combination of these or other factors could have a material impact on the value of the Reset Right. In no event will the base rent under the Kindred Master Leases decrease as a result of the Reset Right. We cannot assure you as to the value of the Reset Right, including the value that may be determined by the independent appraiser selected under the Kindred Master Leases.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion of our 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 us. 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.

We receive revenue primarily by leasing our assets under long-term triple-net leases in which the rental rate is generally fixed with annual escalators, subject to certain limitations. We also earn revenue from our mortgage loans. Our obligations under our revolving credit facilities are floating rate obligations whose interest rate and related monthly interest payments vary with the movement in LIBOR. The general fixed nature of our assets and the variable nature of our obligations create interest rate risk. If interest rates were to rise significantly, our lease and other revenue might not be sufficient to meet our debt obligations. In order to mitigate this risk, in September 2001, we entered into an interest rate swap agreement in the notional amount of $450.0 million to hedge floating rate debt for the period between July 1, 2003 and June 30, 2008 (the “Swap”). The Swap is treated as a cash flow hedge for accounting purposes and is with a highly rated counterparty on which we pay a fixed rate of 5.385% and receive LIBOR from the counterparty. In December 2003, due to our lower expected future variable rate debt balances as a result of the sale of ten facilities, we reduced the notional amount of the Swap for the period from December 11, 2003 through June 29, 2006 from $450.0 million to $330.0 million. In December 2005, due to our lower expected future variable rate debt balances as a result of our payoff of our commercial mortgage backed securities loan, we further reduced the notional amount of the swap to $100.0 million for the remaining term of the Swap. There are no collateral requirements under the Swap. As of March 31, 2006, the notional amount of the Swap was $100.0 million, which is scheduled to expire on June 30, 2008.

To highlight the sensitivity of the Swap and our fixed rate debt 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 March 31, 2006 and December 31, 2005:

	As of March 31, 2006					As of December 31, 2005
	Swap			Fixed Rate Debt		Swap			Fixed Rate Debt
	(in thousands)
Notional amount	$	100,000			N/A	$	100,000			N/A
Book value		N/A		$	1,593,910		N/A		$	1,594,322
Fair value		(577	)		1,705,667		(1,580	)		1,765,805
Fair value reflecting change in interest rates:
-100 BPS		(2,607	)		1,794,140		(3,847	)		1,860,688
+100 BPS		1,402			1,623,517		(634	)		1,677,903

N/A – Not applicable.

We paid $0.2 million under the Swap during the three months ended March 31, 2006. Assuming that interest rates do not change, we estimate that we will pay approximately $0.8 million on the Swap during the year ending December 31, 2006.

We had approximately $260.6 million of variable rate debt outstanding as of March 31, 2006 and approximately $208.2 million of variable rate debt outstanding as of December 31, 2005. The increase in our outstanding variable rate debt from December 31, 2005 is primarily attributable to our net borrowings under our revolving credit facility. The Swap currently effectively hedges $100.0 million of our outstanding variable rate debt. Any amounts of variable rate debt in excess of $100.0 million are subject to interest rate changes. However, pursuant to the terms of certain leases with one of our tenants, if interest rates increase on certain debt that we have totaling $109.5 million as of March 31, 2006, our tenant is required to pay us additional rent (on a dollar-for-dollar basis) in an amount equal to the increase in interest expense resulting from the increased interest rates. Therefore, the increase in interest expense related to this debt is equally offset by an increase in additional rent due to us from the tenant. As of March 31, 2006, there was minimal cash flow impact from the fluctuation of interest rates on variable rate debt since we effectively hedged nearly all of our variable rate debt. The fair value of our fixed and variable rate debt is based on current interest rates at which similar borrowings could be made by us.

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We may engage in additional hedging strategies in the future, depending on management’s analysis of the interest rate environment and the costs and risks of such strategies. Our market risk sensitive instruments are not entered into for trading purposes.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to us is timely communicated to the officers who certify our financial reports and to other members of our management and Board of Directors.

Based upon their evaluation as of March 31, 2006, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that information required to be disclosed by us in our Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

Internal Control Over Financial Reporting

During the first quarter of 2006, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information contained in “Note 7–Litigation” of the Notes to Condensed Consolidated Financial Statements is incorporated by reference into this Item 1. Except as set forth therein, there has been no material change in the status of the legal proceedings reported in our Annual Report on Form 10-K for the year ended December 31, 2005.

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ITEM 6. EXHIBITS

Exhibit Number	Description of Document	Location of Document
10.1	Credit and Guaranty Agreement dated as of April 26, 2006 among Ventas Realty, Limited Partnership, as borrower, Ventas, Inc. and the other guarantors named therein, Bank of America, N.A., as Administrative Agent, Issuing Bank and Swingline Lender and the lendors identified therein.	Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on May 2, 2006.
31.1	Certification of Debra A. Cafaro, Chairman, President and Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.	Filed herewith.
31.2	Certification of Richard A. Schweinhart, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.	Filed herewith.
32.1	Certification of Debra A. Cafaro, Chairman, President and Chief Executive Officer, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. 1350.	Filed herewith.
32.2	Certification of Richard A. Schweinhart, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. 1350.	Filed herewith.

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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: May 2, 2006

VENTAS, INC.
By:	/s/ DEBRA A. CAFARO
	Debra A. Cafaro
	Chairman, President and
	Chief Executive Officer
By:	/s/ RICHARD A. SCHWEINHART
	Richard A. Schweinhart
	Executive Vice President and
	Chief Financial Officer

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Exhibits

Exhibit Number	Description of Document	Location of Document
10.1	Credit and Guaranty Agreement dated as of April 26, 2006 among Ventas Realty, Limited Partnership, as borrower, Ventas, Inc. and the other guarantors named therein, Bank of America, N.A., as Administrative Agent, Issuing Bank and Swingline Lender, and the lendors identified therein.	Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on May 2, 2006.
31.1	Certification of Debra A. Cafaro, Chairman, President and Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.	Filed herewith.
31.2	Certification of Richard A. Schweinhart, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.	Filed herewith.
32.1	Certification of Debra A. Cafaro, Chairman, President and Chief Executive Officer, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. 1350.	Filed herewith.
32.2	Certification of Richard A. Schweinhart, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. 1350.	Filed herewith.

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