Ventas, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; the filing also reports fourth-quarter results. Amounts are U.S. dollars unless noted.
Business context
Ventas is a healthcare real estate investment trust (REIT) with approximately 1,200 owned or managed properties in the U.S., Canada and U.K. Its segments are triple-net leased properties, senior living operations (SHOP) and office operations. Senior housing represented 64.4% of consolidated real estate investments at cost and 68.4% of total revenues.
Financial results and liquidity
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $3.795 billion | $3.873 billion | Down 2.0% |
| Net income attributable to common stockholders | $439.1 million | $433.0 million | Up 1.4% |
| Diluted EPS | $1.17 | $1.17 | Flat |
| FFO attributable to common stockholders | $1.269 billion | $1.436 billion | Down 11.6% |
| Normalized FFO attributable to common stockholders | $1.250 billion | $1.423 billion | Down 12.2% |
| Net cash from operating activities | $1.450 billion | $1.438 billion | Up 0.9% |
| Segment NOI | $1.848 billion | $2.051 billion | Down 9.9% |
2020 fourth-quarter revenue was $921.2 million and net income attributable to common stockholders was $110.5 million, or $0.29 per diluted share. Quarterly revenue declined from $996.0 million in Q4 2019; common-stockholder net income was $11.4 million in that quarter.
Senior living operations NOI fell 14.5% to $538.5 million; same-store SHOP NOI fell 30.5%. Same-store occupancy declined to 79.6% from 86.9%. Triple-net NOI declined 10.8% to $673.1 million, including rent collectability adjustments and the Brookdale lease revision. Office NOI declined 4.3% to $549.4 million, although same-store office NOI increased 1.2%.
Cash and cash equivalents were $413.3 million at year-end, versus $106.4 million a year earlier. Cash, cash equivalents and restricted cash totaled $451.6 million. Total debt was $11.9 billion on the balance sheet ($12.0 billion gross principal); interest expense was $469.5 million, up 4.0%, while the weighted-average effective interest rate decreased to 3.5% from 3.8%. The company reported approximately $3.3 billion of liquidity at year-end and approximately $3.0 billion as of February 16, 2021. It was in compliance with debt covenants at December 31.
Material changes, outlook and risks
- COVID-19 reduced senior housing occupancy and revenue and increased operating costs. Management said the pandemic’s ultimate effects on operations, cash flows and financial condition could not yet be estimated.
- Ventas reduced its quarterly dividend from $0.7925 per share in Q1 2020 to $0.45 beginning in Q2; total declared dividends were $2.1425 per share for 2020. Management expects to distribute at least 100% of 2021 taxable net income after use of net operating loss carryforwards, but the Board determines dividends quarterly.
- COVID-related and other unusual items included $74.6 million of rental-income adjustments for rent deemed not probable of collection; $153.8 million of real estate impairment charges (including $126.5 million attributed to pandemic effects); $34.7 million of credit-loss charges on loans and investments; and a $10.7 million impairment of an unconsolidated operating investment. Provider Relief Fund grants of $35.1 million were recognized in Q4; additional $13.6 million received after year-end was expected to be recognized in 2021.
- Reported net income benefited from $262.2 million of real estate disposition gains and a $96.5 million income tax benefit, including a tax benefit from internal restructuring. These items helped offset weaker operating performance; normalized FFO declined materially.
- Portfolio actions included the revised Brookdale master lease, which reset annual base cash rent to $100 million beginning July 2020, and transition of 26 Holiday communities from triple-net leases to managed senior living operations. Ventas also formed its investment-management platform, reporting more than $3 billion in assets under management.
- Capital actions included issuing $500 million of 4.75% notes due 2030, retiring $236.3 million of 3.25% notes due 2022, and entering a new $2.75 billion revolving credit facility in January 2021. In February 2021, Ventas announced redemption of $400 million of notes due 2023, expected to settle in March.
- Principal risks include continuing pandemic effects, tenant/operator financial distress and concentration, reliance on third-party managers, healthcare regulation and reimbursement, access to capital, leverage and interest rates, refinancing, property impairment, and climate and other physical risks. The filing provides no specific earnings or FFO guidance.
Investor verification priorities
- Track senior housing occupancy, same-store SHOP NOI, operating costs and the pace of recovery; confirm any later-period impact of vaccines, variants and restrictions.
- Review rent collections, tenant credit and lease terms, particularly Brookdale, Ardent and Kindred, and verify whether pandemic-related rent adjustments or accommodations persist.
- Reconcile GAAP net income with FFO and normalized FFO, including disposition gains, tax benefits, impairments and rent write-offs.
- Confirm Provider Relief Fund grant eligibility, compliance and recognition, and whether any grants must be repaid.
- Monitor debt maturities, refinancing costs, liquidity, variable-rate exposure and execution of the announced note redemption.
- Assess dividend sustainability against operating cash flow, required REIT distributions and the reduced quarterly dividend.
KPMG issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting; management also concluded controls were effective as of December 31, 2020.