Ventas, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Ventas is a healthcare REIT with approximately 1,300 properties across the United States, Canada and the United Kingdom. Its segments are senior housing operating portfolio (SHOP), office operations, and triple-net leased properties. Unless otherwise noted, amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $1,037.3m | $976.1m | $3,077.8m | $2,805.6m |
| Net income (loss) attributable to common stockholders | $1.3m | $60.7m | $(2.4)m | $89.9m |
| Net operating income (NOI), non-GAAP | $465.2m | $451.8m | $1,384.2m | $1,298.3m |
| Normalized FFO attributable to common stockholders, non-GAAP | $305.8m | $280.0m | $911.4m | $825.6m |
| Cash from operating activities | Not separately reported for the quarter | Not separately reported for the quarter | $852.9m | $760.3m |
Q3 basic and diluted EPS attributable to common stockholders was $0.00, versus $0.16 a year earlier; nine-month EPS was $(0.01), versus $0.24. Q3 total NOI increased 3.0% and normalized FFO increased about 9.2%; nine-month NOI increased 6.6% and normalized FFO increased about 10.4%.
- Segment trends, Q3 year over year: SHOP NOI rose 61.5% to $168.6m; office operations NOI fell 1.7% to $135.3m; triple-net leased NOI fell 17.8% to $146.4m. Same-store SHOP NOI rose 32.4%, office NOI 2.2%, while triple-net NOI declined 0.4%.
- SHOP operating indicators: Total community occupancy was 81.3%, up from 79.6%; same-store occupancy was 84.7%, up from 82.1%. Average monthly revenue per occupied room for the total portfolio was $4,399 versus $4,556.
- Margins and costs: Property-level costs, particularly labor, utilities, repairs and food, increased amid inflation. Q3 interest expense rose $10.6m year over year to $119.4m; the weighted-average effective debt rate was 3.72% versus 3.61%.
Cash, debt and liquidity
- Nine-month investing cash outflow was $725.3m and financing cash outflow was $125.0m. Cash, cash equivalents and restricted cash ended the period at $195.6m, including $145.1m of unrestricted cash.
- Debt carrying value was $12.21bn at September 30, 2022, compared with $12.03bn at December 31, 2021. Gross debt was $12.28bn; $1.41bn was variable-rate debt.
- Management reported approximately $2.5bn of liquidity, including revolving-facility availability and cash, net of $377.4m of commercial paper. The $2.75bn revolving facility had $2.7bn of undrawn capacity, subject to $15.6m restricted for letters of credit.
- A 100-basis-point increase in rates on variable-rate debt outstanding at quarter-end would raise annualized interest expense by an estimated $14.1m, or approximately $0.03 per diluted share.
- Ventas declared $0.45 per common share in each of the first three quarters ($1.35 year to date). Management said it intended to distribute more than 100% of 2022 taxable income after NOL carryforwards.
Changes, outlook and risks
- Revenue growth was led by SHOP resident fees, which rose 19.8% in Q3, reflecting acquisitions, improved occupancy and higher resident revenues. SHOP results also benefited from $20.2m of Q3 Provider Relief Fund grants; grants reduced SHOP expenses by $54.2m for the nine-month period, versus $13.6m in 2021.
- Despite higher revenue and NOI, GAAP earnings fell sharply: 2021 included $150.3m of Q3 real estate disposition gains and $194.1m for the first nine months, compared with $0.1m and $2.6m, respectively, in 2022. Nine-month 2022 also included a $3.3m loss from unconsolidated entities.
- Nine-month acquisitions totaled $445.9m, including 18 medical office buildings and other healthcare properties and two senior housing communities. Two assets were sold for $12.5m. Real estate impairments were $28.1m in Q3 and $55.0m for nine months, down from $75.9m and $173.0m, respectively, in 2021.
- Management stated that liquidity should be sufficient for expected needs, assuming access to capital sources; the filing does not provide a specific earnings or FFO forecast. COVID-19’s future effects remain uncertain, and management said it could not estimate the ultimate impact.
- Key risks include inflation and labor costs, rising rates and refinancing costs, COVID-19 and possible changes in government support, reliance on third-party operators and major tenants, healthcare regulation, tenant/operator financial deterioration, development cost pressures, and legal or regulatory claims. Management said pending legal matters were not expected to have a material adverse effect, while noting outcomes and indemnification recoveries cannot be assured.
Important facts for investors to verify
- How sustainable SHOP occupancy and NOI gains are after accounting for acquisitions and Provider Relief Fund support.
- Whether SHOP cost inflation, particularly labor and utilities, continues to outpace revenue growth.
- Debt maturity and refinancing exposure, variable-rate borrowing costs, and the availability and cost of capital.
- Tenant and operator performance and lease-renewal exposure, including Kindred/ScionHealth lease terms and major-operator concentration.
- The assumptions and property-level impacts underlying impairment charges, held-for-sale assets, and management’s liquidity assessment.
NOI and Normalized FFO are non-GAAP measures; Ventas cautions they are supplemental and may not be comparable with similarly named measures used by other companies.