Ventas, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. Ventas is a healthcare real estate REIT with approximately 1,300 properties across the U.S., Canada and U.K. Its segments are triple-net leased properties, senior living operations (SHOP) and office operations. This unaudited filing covers the quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods.
Financial results and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $976.1M | $918.9M | $2,805.6M | $2,874.2M |
| Net income attributable to common stockholders | $60.7M | $12.8M | $89.9M | $328.7M |
| Diluted EPS attributable to common stockholders | $0.16 | $0.03 | $0.24 | $0.87 |
| Segment NOI | $451.8M | $422.8M | $1,298.3M | $1,390.8M |
| Normalized FFO attributable to common stockholders | $280.0M | $283.0M | $825.6M | $937.4M |
| Adjusted EBITDA | $429.5M | $417.3M | $1,240.3M | $1,340.1M |
Amounts are rounded; FFO, Normalized FFO, NOI and Adjusted EBITDA are non-GAAP measures as defined by the company. Q3 2021 revenue rose 6.2%, while common-stockholder net income increased largely alongside higher real estate sale gains. Nine-month common-stockholder net income fell 72.7%; the prior-year period included a substantial tax benefit.
- Cash flow: Nine-month operating cash flow was $760.3M, down 34.1%. Investing activities used $716.3M, including the New Senior acquisition; financing activities used $299.6M. Cash, cash equivalents and restricted cash totaled $196.5M at period end, versus $451.6M at year-end 2020.
- Debt and liquidity: Balance-sheet debt, net of deferred financing costs, discounts and premiums, was $12.08B, versus $11.90B at December 31, 2020. The company reported $2.7B of undrawn capacity on its $2.75B revolving facility, with $49.1M borrowed and $24.9M restricted for letters of credit; commercial paper outstanding was $370M. Weighted-average debt interest rate at quarter-end was 3.4%.
- Balance sheet: Total assets were $25.04B and total equity was $11.17B at September 30, 2021. Cash and cash equivalents were $143.8M; assets held for sale were $316.8M.
- Segment operating trends: Q3 NOI increased 18.2% in triple-net leases to $178.1M and 3.2% in office operations to $137.6M, but fell 12.0% in senior living to $104.4M. SHOP occupancy was 79.6% versus 79.8% a year earlier; average monthly revenue per occupied room declined to $4,556 from $4,708. Office occupancy was 90.5%, compared with 89.9%.
Material changes and notable items
- Ventas completed its $2.3B all-stock acquisition of New Senior on September 21, issuing approximately 13.3M shares, paying $1.1B cash and assuming $482.5M of mortgage debt. New Senior added more than 100 independent living properties.
- During the nine months, Ventas sold 33 properties for $497.3M and recognized $194.1M of gains. It recorded $173.0M of real estate impairments, primarily related to changed plans to hold certain assets; 32 properties were classified as held for sale.
- Nine-month interest expense declined $25.7M, while loss on debt extinguishment rose to $56.8M after redemptions of senior notes. Ventas also issued $500M of 2.50% notes due 2031.
- Ventas sold 10.9M shares through its ATM program in the first nine months for gross proceeds of $626.4M. It paid $0.45 per common share in each of the first three quarters.
- Q3 senior-living NOI was pressured by lower revenue per occupied room and higher costs, principally labor. Office same-store NOI and triple-net same-store NOI increased; triple-net growth was substantially affected by prior-year COVID-related straight-line rent write-offs.
Outlook, risks and contingencies
Management stated that it believes available liquidity is sufficient for the next 12 months’ operating, debt-service, investment, capital expenditure and distribution needs, assuming access to multiple capital sources. The filing provides no specific earnings or FFO guidance. Management cautioned that continuing COVID-19 effects remain uncertain, including impacts from variants, vaccination acceptance, labor-market and supply-chain conditions, government support and the pace of senior-housing recovery. It also noted potential effects on borrowing costs and credit ratings.
- Management reported no COVID-19-related charges in the income statement for the nine months, but identified ongoing pandemic-related operating and financial uncertainty. SHOP results remained affected by occupancy, pricing and labor costs; $13.6M of HHS grants helped mitigate 2021 SHOP losses.
- Ventas expected to complete transitions of 90 communities from Eclipse Senior Living to other operators by year-end 2021; timing and costs are uncertain. One-time transition expenses are expected.
- Kindred’s proposed acquisition by LifePoint and subsequent separation of businesses were expected to close by year-end, subject to approvals; effects on Ventas and its lease were uncertain.
- Ventas recorded $9.9M of natural-disaster expenses in the first nine months. The New Senior acquisition-related federal complaints were dismissed, and the related state action was settled without admission of liability. Management said other pending legal matters were not expected to have a material adverse effect, while noting outcomes cannot be assured.
- Other disclosed exposures include tenant/operator concentration, healthcare regulation, refinancing and interest-rate risk, REIT distribution requirements, and reliance on third-party operators. A 100-basis-point increase in variable rates was estimated to raise annualized interest expense by about $14.7M.
Important facts for investors to verify
- Whether SHOP occupancy and resident revenue recover sufficiently to offset labor and other operating-cost pressures.
- The acquired New Senior portfolio’s integration, financing and contribution to results, including the effect of new shares and assumed debt.
- Cash generation, refinancing requirements and access to revolving, commercial-paper, debt and equity markets; review the detailed debt-maturity schedule.
- How much reported earnings and NOI depend on property sale gains, impairments, debt-extinguishment charges and other adjustments; compare GAAP results with the company’s non-GAAP reconciliations.
- Completion and cost of operator transitions, and the outcome and effect of Kindred-related transactions.