Ventas, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Ventas is a REIT with approximately 1,200 senior housing, healthcare, medical office and research properties in the U.S., Canada and U.K.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $918.9M | $983.2M | $2,874.2M | $2,876.7M |
| Net income attributable to common stockholders | $12.8M | $85.3M | $328.7M | $421.6M |
| Diluted EPS attributable to common stockholders | $0.03 | $0.23 | $0.87 | $1.15 |
| Segment NOI | $422.8M | $520.4M | $1,390.8M | $1,537.0M |
| Normalized FFO attributable to common stockholders | $283.0M | $360.6M | $937.4M | $1,072.0M |
| Adjusted EBITDA | $417.3M | $490.5M | $1,340.1M | $1,452.6M |
- Q3 revenue declined 6.5%; nine-month revenue was essentially flat. Common-stockholder net income fell 85% in Q3 and 22% year to date.
- Q3 segment NOI declined 18.8%; nine-month segment NOI declined 9.5%. Q3 NOI fell across triple-net properties (19.4%), senior living operations (22.5%), office operations (10.7%) and all other (35.3%).
- Senior living same-store Q3 NOI fell 42.2%, with occupancy at 76.6% versus 86.4% a year earlier. Same-store office NOI decreased 6.2% in Q3, while nine-month same-store office NOI increased 1.0%.
- Operating cash flow for the first nine months was $1,154.4M, versus $1,083.5M a year earlier. Investing activities provided $186.6M, compared with $1,421.9M used in 2019; financing activities used $857.7M. Cash, cash equivalents and restricted cash ended at $628.5M.
- At September 30, total debt carrying value was $12,047.9M, versus $12,158.8M at year-end 2019. Cash and cash equivalents were $588.3M. The company reported $2.9B available under its revolving facility and no commercial paper outstanding. As of November 5, management reported approximately $3.2B in total liquidity.
Material changes and unusual items
- COVID-19 weighed on senior living occupancy and costs, rental collectability and office parking revenue. Leads, tours and move-ins improved from July through September, but senior living occupancy continued to decline and pandemic-related costs remained elevated.
- Ventas recorded rental-income adjustments of $20.3M in Q3 and $74.5M for the first nine months for rents deemed not probable of collection. It also recorded loan and investment credit-loss charges of $5.0M in Q3 and $34.7M year to date. Q2 included $108.8M of real-estate impairment and a $56.4M deferred-tax-asset valuation allowance.
- Nine-month results included a $240.1M gain on real estate dispositions, primarily the contribution of six properties to a newly formed fund. This transaction generated $620M in cash consideration and a 21% fund interest. The nine-month income-tax benefit of $95.9M included a $152.9M deferred tax benefit from an internal restructuring, partly offset by a valuation allowance.
- The July Brookdale agreement provided approximately $235M of upfront consideration, including cash, a $45M note and warrants. Annual base cash rent was set at $100M, with 3% escalators beginning in 2022. The lease was modified, and Ventas wrote off previously accrued straight-line rent.
- The Holiday transaction moved 26 independent living assets from triple-net leasing to managed operations. Ventas recognized $50.2M of net income from the lease termination in Q2.
Outlook, liquidity and risks
- Management did not provide a numerical earnings or operating guidance in the supplied filing text. It said the pandemic’s impact could be material and could not be reliably estimated; clinical trends had worsened in recent weeks, with renewed restrictions in some jurisdictions.
- Ventas applied for approximately $35M of Phase II Provider Relief Fund grants on behalf of assisted-living communities and also applied under Phase III. Some Phase II amounts had begun to arrive, but approval, retention and permitted use remained uncertain; any retained grants were not expected to fully offset senior-living pandemic losses.
- The company reduced its quarterly dividend to $0.45 per share from $0.7925 in Q1, conserving approximately $130M per quarter versus the earlier rate. It also reduced corporate roles and executive salaries. Q3 dividend was paid in October.
- Key risks include continued COVID-19 disruption, tenant and operator credit and rent-paying capacity, senior-living labor and operating costs, debt refinancing and capital-market access, interest-rate exposure, and potential litigation or regulatory claims affecting operators. Management cited $3.2B of liquidity as of November 5; the filing’s debt schedule lists approximately $510.8M of maturities for 2021.
Important facts for investors to verify
- Whether senior-living occupancy and operating costs recover, and how that affects same-store NOI and cash flow.
- Collections and future adjustments on rents deemed not probable of collection, including the modified Brookdale lease and other tenant accommodations.
- Provider Relief Fund approvals, conditions, amounts retained and any repayment or compliance obligations.
- Debt maturities, facility-extension conditions, refinancing costs and the maintenance of reported liquidity.
- How much reported earnings and FFO depend on property-sale gains, tax benefits, impairment and other adjustments; review GAAP results alongside company-defined non-GAAP measures.