Ventas, Inc. (NYSE: VTR) — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Ventas is a healthcare and senior-housing REIT with approximately 1,200 owned or managed properties in the United States, Canada and the United Kingdom.
Financial performance
| Metric | Q2 2020 | Q2 2019 |
|---|---|---|
| Revenue | $943.2 million | $950.7 million |
| Net income (loss) attributable to common stockholders | $(157.2) million | $210.5 million |
| Diluted EPS | $(0.42) | $0.58 |
| Segment NOI | $442.5 million | $505.1 million |
| Normalized FFO attributable to common stockholders | $288.3 million | $355.3 million |
| Adjusted EBITDA | $426.9 million | $481.4 million |
For the six months ended June 30, revenue was $1.96 billion versus $1.89 billion, net income attributable to common stockholders was $315.9 million versus $336.3 million, and normalized FFO was $654.4 million versus $711.4 million. Six-month operating cash flow was $720.0 million, compared with $729.2 million. These figures reflect substantial nonrecurring gains and charges; normalized FFO and NOI are non-GAAP measures.
At June 30, cash and cash equivalents were $992.8 million and total debt, net, was $12.53 billion, up from $12.16 billion at year-end 2019. The company reported $587.2 million drawn on its $3.0 billion revolving facility, $2.4 billion available under that facility, and no commercial-paper borrowings. As of August 5, management reported approximately $3.5 billion of liquidity, no revolving-facility borrowings and negligible near-term maturities.
Changes and operating trends
- Q2 total segment NOI fell 12.4%. Senior living operations NOI declined 24.1%, triple-net NOI declined 10.0%, and office operations NOI declined 4.9% year over year.
- Same-store senior living NOI decreased 42.7% in Q2; occupancy was 79.7%, versus 86.4% a year earlier. Management attributed pressure to COVID-related lower occupancy and higher operating costs.
- Same-store triple-net NOI fell 30.3%, primarily reflecting a $53.3 million write-off of previously accrued straight-line rent. Same-store office NOI increased 1.1%; office occupancy was 90.4%.
- Q2 depreciation and amortization increased to $349.6 million from $226.2 million, mainly due to impairments and acquisitions. Interest expense rose to $123.1 million from $110.4 million, despite lower weighted-average effective interest rates.
COVID-19, outlook and notable items
- Ventas said senior living occupancy, revenue and NOI weakened as move-ins declined and operating costs rose. It collected substantially all expected senior-housing triple-net rent and substantially all healthcare triple-net rent in Q1 and Q2, but provided tenant support through rent deferrals and lease-deposit applications. It received 99% of contractual office rent in Q2.
- Q2 COVID-related and other asset charges included a $54.2 million rental-income adjustment, $108.8 million of real-estate impairments, $29.7 million of loan and investment allowances, a $10.7 million impairment of an unconsolidated investment, and a $56.4 million deferred-tax-asset valuation allowance. Management said the pandemic’s ultimate financial impact could be material and could not be estimated.
- Ventas cut its quarterly dividend to $0.45 per share from $0.7925, a 43% reduction, conserving about $130 million per quarter. It reduced expected 2020 capital expenditures by $0.3 billion to approximately $0.5 billion, mainly by pausing certain developments; eliminated over 25% of corporate roles; and reduced executive base salaries for the second half. Management expected annualized Q3 2020 G&A to be approximately $25–$30 million below reported full-year 2019 G&A. No specific earnings or FFO forecast is stated in the provided filing text.
- In March, Ventas formed a real-estate fund, contributed six office and research properties, received $620 million cash and retained a 21% interest; it recorded a $224.6 million gain. This drove most of the $227.5 million six-month gain on real-estate dispositions.
- In April, Ventas ended the Holiday triple-net lease on 26 communities and shifted them to a management arrangement, receiving cash and secured notes and recording $50.2 million net income from the termination. In July, after quarter-end, Ventas revised its Brookdale arrangements, receiving approximately $235 million of consideration and setting annual base cash rent at $100 million from July 2020, with escalators beginning in 2022; management said lease changes would reduce NOI.
- Key risks include the pandemic’s duration and effects, tenant and operator financial capacity, rent collection and lease coverage, senior-housing occupancy and costs, access to capital, debt refinancing, and litigation or regulatory exposure. Management noted increased claims risk associated with COVID-19.
Important facts for investors to verify
- Subsequent rent collections, tenant deferrals and the financial condition and rent coverage of senior-housing tenants, particularly Brookdale and Holiday.
- Whether senior-living occupancy, move-ins, operating costs and NOI stabilize or deteriorate further, and how government support affects operators.
- The assumptions underlying the rental adjustments, impairments, credit allowances and tax valuation allowance, and whether additional charges are required.
- Liquidity and refinancing capacity, including the revolving facility maturity, debt maturities and the effect of floating rates; the filing estimates a 100-basis-point increase in variable rates would add about $17 million of annual interest expense.
- Execution and cash-flow effects of the dividend reduction, $0.5 billion capital-expenditure plan, staffing actions, fund contribution and revised Brookdale lease.