Ventas, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Ventas is a healthcare real estate REIT with approximately 1,300 properties in the U.S., Canada and U.K., operating through triple-net leased, senior housing operating portfolio (SHOP) and office operations segments. Financial amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1,022.9 | $919.2 | $2,040.5 | $1,829.5 |
| Net income (loss) attributable to common stockholders | $(42.4) | $86.4 | $(3.7) | $29.2 |
| Net operating income (NOI, non-GAAP) | $446.0 | $423.8 | $919.0 | $846.5 |
| Normalized FFO attributable to common stockholders (non-GAAP) | $289.0 | $275.2 | $605.7 | $545.6 |
| Net cash provided by operating activities | Not separately presented for quarter | $552.6 | $528.9 |
- Q2 revenue increased 11.3% year over year, primarily reflecting higher SHOP resident fees; SHOP revenue rose 22.8% and SHOP NOI rose 35.5%. Q2 same-store SHOP NOI increased 8.7%, with occupancy of 83.7% versus 79.8% and monthly revenue per occupied room of $4,825 versus $4,594.
- Q2 office operations NOI was $136.6 million, down 0.5%; same-store office NOI rose 3.3%. Triple-net leased NOI fell 5.8%, while same-store triple-net NOI declined 0.5%.
- Q2 NOI increased 5.2%, but the company recorded a $42.4 million common-stockholder loss, compared with $86.4 million income a year earlier. Key year-over-year pressures included a $61.6 million adverse swing in “Other,” primarily a $61.1 million increase in unrealized losses on Brookdale stock warrants; $12.4 million higher transaction expenses; and the absence of the prior-year $41.3 million gain on sale of an office building.
- For the first half, revenue rose 11.5% and NOI rose 8.6%. Common-stockholder results moved to a $3.7 million loss from $29.2 million income. First-half Normalized FFO increased 11.0%, supported by SHOP growth and grants, partly offset by lower loan-investment income.
- Management reported no COVID-19-related charges for either six-month period. HHS grants of $34.0 million were received in the first half and reduced SHOP operating expenses; a further $20.2 million was received in July 2022.
Cash flow, debt and liquidity
- First-half operating cash flow was $552.6 million. Investing activities used $559.3 million, including $388.3 million of net real estate investment, $81.9 million of development expenditures and $91.0 million of capital expenditures. Financing activities used $12.9 million. Cash, cash equivalents and restricted cash ended at $176.0 million.
- June 30 total debt carrying value was $12.33 billion ($12.39 billion gross); it was $12.03 billion at December 31, 2021. Cash and cash equivalents were $127.1 million. The filing reports approximately $2.5 billion of liquidity, including revolving-facility availability and cash, net of commercial paper borrowings.
- The $2.75 billion revolving credit facility had $2.7 billion of undrawn capacity, $45.6 million outstanding and $25.0 million reserved for letters of credit. Commercial paper outstanding was $335.3 million. In June, Ventas replaced a $200 million term loan due 2023 with a $500 million unsecured term loan due 2027, initially priced at Term SOFR plus 0.95%.
- First-half interest expense was $224.7 million versus $220.8 million; the weighted-average effective interest rate was 3.52% versus 3.60%. Variable-rate debt was $1.40 billion. Management estimates a 100-basis-point rate increase, holding variable debt constant, would raise annualized interest expense by about $13.8 million, or $0.03 per diluted share.
- Ventas declared dividends of $0.45 per share in each of Q1 and Q2. Management stated it expects liquidity to be sufficient for anticipated needs, subject to continued access to capital sources.
Outlook, risks and notable items
- The filing provides no specific full-year 2022 earnings or operating guidance. Management says the ultimate effects of COVID-19 and its consequences remain uncertain and cannot currently be estimated.
- Management attributed SHOP improvement to acquisitions, higher occupancy and revenue per occupied room, and HHS grants. Inflation in labor, utilities and other costs partially offset improvement. Occupancy at total SHOP communities was 80.4% in Q2, versus 77.4% a year earlier, while monthly revenue per occupied room was lower at $4,391 versus $4,635.
- Other risks highlighted include rising interest rates and borrowing costs, inflation and construction pressures, tenant/operator financial deterioration, reliance on third-party managers, healthcare regulation, litigation and uninsured claims, and concentration among tenants and managers. Atria managed assets representing 26.7% of consolidated real estate investment gross book value; Brookdale, Ardent and Kindred accounted for 7.7%, 5.3% and 0.8%, respectively.
- During the first half, Ventas acquired 20 office-related properties and one senior housing community for $395.3 million, and sold one vacant land parcel for $6.2 million, recognizing a $2.4 million gain. It recorded $26.9 million of real estate impairments, versus $97.1 million in the first half of 2021.
- Management said pending legal matters are not expected to have a material adverse effect individually or in aggregate, but outcomes are uncertain and legal costs or uninsured liabilities could be significant. Disclosure controls were deemed effective; no significant new risk factors were reported for Q2.
Investor facts to verify
- Reconcile GAAP losses with NOI and Normalized FFO, and assess the recurring versus nonrecurring nature of warrant valuation changes, transaction costs and tax items.
- Track SHOP same-store occupancy, resident revenue and expense inflation, separating operating improvement from acquisitions and temporary HHS grants.
- Review debt maturities, variable-rate exposure, refinancing costs and liquidity assumptions; confirm the timing and terms of upcoming debt obligations.
- Assess tenant and manager concentrations, triple-net lease renewals and the financial health of key operators, including the status of Kindred lease groups.
- Monitor COVID-19 developments, grant availability, impairments, development commitments and potential legal or regulatory exposures.