Ventas, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a standalone fourth-quarter filing; quarterly figures are identified separately below. Amounts are U.S. dollars unless noted.
Business context
Ventas is a healthcare and seniors housing REIT operating through triple-net leased properties, senior living operations, and office operations. At year-end, it owned approximately 1,200 properties across the United States, Canada, and the United Kingdom, with 22 properties under development. Seniors housing accounted for about 63% of real estate investment at cost and 68% of 2019 revenue.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $3.873 billion | $3.746 billion | +3.4% |
| Net income attributable to common stockholders | $433.0 million | $409.5 million | +5.8% |
| Diluted EPS | $1.17 | $1.14 | +2.6% |
| Segment NOI | $2.051 billion | $2.030 billion | +1.1% |
| FFO | $1.436 billion | $1.308 billion | +9.8% |
| Normalized FFO | $1.423 billion | $1.462 billion | -2.7% |
| Cash from operating activities | $1.438 billion | $1.381 billion | +4.1% |
2019 segment NOI was $754 million for triple-net properties (+1.9%), $630 million for senior living operations (+1.1%), and $574 million for office operations (+6.6%). Same-store senior living NOI fell 3.9%, reflecting lower occupancy and higher property expenses; same-store office NOI rose 1.6%, and same-store triple-net NOI rose 5.1%.
At December 31, 2019, total assets were $24.7 billion and senior notes and other debt were $12.2 billion, up from $10.7 billion a year earlier. Cash and cash equivalents were $106 million, with an additional $40 million of escrow deposits and restricted cash. The company reported $2.3 billion of available liquidity under its revolving credit facility, after internal limits. The weighted-average effective interest rate was 3.8% for 2019, versus 3.9% in 2018; a 100-basis-point increase on year-end variable-rate debt was estimated to raise annual interest expense by about $19 million.
Net cash used in investing activities was $1.585 billion, largely reflecting acquisitions, loans, and development spending. Financing activities provided $161 million, including debt issuance and common stock proceeds. The declared common dividend was $3.17 per share for 2019. Management expected to distribute at least 100% of 2020 taxable net income after use of net operating loss carryforwards; the filing does not provide earnings or FFO guidance for 2020.
Material changes and unusual items
- Ventas acquired an 87% interest in 34 Canadian seniors housing communities through the LGM partnership, with a stated portfolio value of $1.8 billion. The transaction included assumed Canadian mortgage debt, and the company issued shares to help fund the acquisition.
- Triple-net and office rental income increased, while resident fees rose 4.0%; however, senior living property operating expenses rose 5.2%. Same-store senior living revenue was nearly flat and NOI declined.
- Normalized FFO decreased mainly because 2018 included a $12.3 million Kindred-related fee and other loan repayment and fee income. Reported FFO rose, in part, because of items excluded from normalized FFO.
- Real estate impairments were $133.6 million in 2019, compared with $29.5 million in 2018. Debt extinguishment losses were $41.9 million, primarily associated with early repayment of senior notes. A $56.3 million income tax benefit included a $57.6 million reversal of valuation allowances at certain taxable REIT subsidiaries.
- Ventas adopted ASC 842 lease accounting in 2019, recording operating lease assets and liabilities; the company said the change in presentation of tenant tax and insurance amounts did not affect net income.
- The fourth quarter reported revenue of $996.0 million and net income attributable to common stockholders of $11.4 million, or $0.03 diluted EPS. These quarterly results were substantially below the third quarter’s $85.3 million of common-stockholder net income; the filing’s quarterly table does not attribute the full sequential decline to one item.
Outlook, risks, and contingencies
Management’s stated strategy is to grow reliable cash flows, maintain a diversified portfolio, and preserve financial flexibility. It described operating cash flow, cash on hand, debt and equity issuance, asset dispositions, and borrowing facilities as expected sources for the coming year’s operating, debt-service, investment, capital expenditure, and distribution needs.
Principal risks include the ability of major tenants Brookdale, Ardent, and Kindred to meet lease obligations and the reliance on Atria and Sunrise to manage a substantial senior living portfolio. Other material exposures include labor and operating cost inflation, occupancy and new construction, healthcare regulation and reimbursement changes, refinancing and interest-rate risk, LIBOR transition, property impairments, development execution, insurance and liability claims, environmental matters, foreign exchange, and REIT qualification and distribution requirements. A large portion of triple-net rent is concentrated in 2025 lease expirations, including 180 properties representing 40.4% of 2019 triple-net segment rental income.
The company reported it was in compliance with debt covenants at year-end. Management stated that pending legal matters were not expected to have a material adverse effect, while noting outcomes cannot be assured. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; the internal-control assessment excluded the acquired LGM operations.
Key facts for investors to verify
- Tenant and operator credit quality, particularly Brookdale, Ardent, Kindred, Atria, and Sunrise, and the cash-flow implications of the 2025 lease expirations.
- Whether senior living occupancy, resident pricing, and expense trends improve after the 2019 same-store NOI decline.
- The composition and potential recurrence of impairment charges, debt retirement costs, tax benefits, and insurance recoveries affecting reported earnings and FFO.
- Debt maturities, refinancing access, variable-rate exposure, and available liquidity, including the commercial paper balance and revolving facility capacity.
- The LGM portfolio’s operating contribution, integration, development pipeline, and financing, as well as the effect of 2019 share issuance on per-share performance.
- 2020 taxable income and dividend coverage. The filing states the intended distribution policy but does not provide a quantified 2020 earnings or FFO forecast.