Ventas, Inc. — Q1 2011 Form 10-Q
Business context and reporting period
Unaudited results for the three months ended March 31, 2011, compared with Q1 2010. Ventas is a healthcare and seniors-housing REIT with 602 assets in the U.S. and Canada, including triple-net leased properties, managed senior living communities, and medical office buildings (MOBs).
Financial performance and liquidity
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Revenue | $270.5 million | $240.9 million |
| Net income attributable to common stockholders | $49.0 million; $0.31 basic and $0.30 diluted per share | $52.6 million; $0.34 per share |
| Operating cash flow | $130.8 million | $115.6 million |
| NOI | $178.1 million | $161.7 million, excluding discontinued operations |
| FFO / normalized FFO | $101.0 million / $121.0 million | $103.0 million / $105.2 million |
| Adjusted EBITDA | $167.4 million | $155.9 million |
Revenue increased about 12.3%. MOB operations benefited substantially from the 2010 Lillibridge acquisition; senior living revenue also grew. Cash and cash equivalents were $41.9 million at quarter-end, with $35.4 million of restricted cash and $988.9 million of available revolving-credit capacity. Total liabilities were $3.05 billion. Debt carrying value was $2.57 billion ($2.60 billion gross); the revolver had $8 million drawn and matures April 26, 2012. The company reported $230 million of convertible notes due November 2011. Q1 cash dividends paid were $93.7 million; the declared quarterly dividend rose 7.4% to $0.575 per share.
Material changes versus Q1 2010
- GAAP net income attributable to common stockholders fell 6.9%, while normalized FFO rose about 15.0% and Adjusted EBITDA rose about 7.4%.
- Q1 2011 included a $16.5 million debt-extinguishment loss after repayment of $307.2 million of mortgage debt, and $6.4 million of merger-related and deal costs. These items weighed on GAAP earnings and FFO.
- Ventas issued 5.563 million shares for net proceeds of approximately $300 million, primarily used to repay mortgage debt and for general corporate purposes. Debt carrying value declined from $2.90 billion at year-end 2010.
- Operating cash flow increased 13.2%. Investing cash flow was positive $31.7 million, mainly reflecting loan repayments and marketable-security sales; financing cash flow was negative $142.5 million, principally from debt repayment and dividends.
Outlook, risks and unusual items
- Ventas expected to close its $3.1 billion Atria asset acquisition in the first half of 2011 and its $7.4 billion stock-for-stock NHP acquisition in Q3 2011; neither closing was assured. Management expected to fund them with equity, cash, credit facilities, and assumed debt. The filing provides no numerical earnings guidance.
- At quarter-end, 4.8% of debt was variable-rate. Management estimated a 100-basis-point rate increase would add about $1.0 million to 2011 interest expense, or approximately $0.01 per diluted share, assuming debt balances held constant.
- Tenant and operator concentration is material. Sunrise managed 79 communities; Kindred and Brookdale contributed 23.0% and 10.9% of Q1 revenue, respectively. The filing warns that their financial capacity, lease renewals, and Sunrise’s management performance could affect Ventas’s results and liquidity.
- CMS proposed 2012 reimbursement changes for skilled nursing facilities. One proposal could reduce the standard payment rate by 11.3%; the final rule was pending. The proposed LTAC hospital rate update was a 1.5% increase.
- Seven putative shareholder lawsuits challenged the pending NHP merger and sought to block it; Ventas said the claims lacked merit. Separately, Ventas’s $101.6 million jury award against HCP in litigation tied to the Sunrise REIT acquisition was on appeal; a decision was expected in 2011, but the outcome was uncertain.
- In April 2011, Ventas received $112.4 million in final repayment of a mortgage loan and expected to recognize an approximately $3.3 million gain in Q2.
Important facts for investors to verify
- Whether Atria and NHP closed on the anticipated timetable, and their ultimate financing, share issuance, debt and integration effects.
- Repayment or refinancing plans for the $230 million convertible notes due November 2011 and the April 2012 revolver maturity.
- Final CMS skilled-nursing reimbursement provisions and the resulting impact on tenant/operator finances and lease coverage.
- Current credit, operating performance and lease-renewal prospects of major tenants and Sunrise-managed communities.
- Developments in the NHP merger litigation and HCP appeal, including any effect on transaction timing or recovery of the jury award.