Ventas, Inc. — Q3 2023 Form 10-Q
Business context and period. Ventas is a healthcare real estate REIT with senior housing operating communities (SHOP), outpatient medical and research properties, and triple-net leased properties. It owned or invested in approximately 1,400 properties across the U.S., Canada and the U.K. The filing covers the quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $1.150 billion | $1.037 billion | $3.333 billion | $3.078 billion |
| Net income (loss) attributable to common stockholders | $(71.1) million | $1.3 million | $49.8 million | $(2.4) million |
| Basic EPS attributable to common stockholders | $(0.18) | $0.00 | $0.12 | $(0.01) |
| NOI (non-GAAP) | $489.1 million | $465.2 million | $1.436 billion | $1.384 billion |
| Normalized FFO attributable to common stockholders (non-GAAP) | $304.6 million | $305.8 million | $903.8 million | $911.4 million |
| Cash provided by operating activities | Not presented quarterly in the supplied filing text | Not presented quarterly in the supplied filing text | $840.8 million | $852.9 million |
- Q3 revenue increased about 10.9%; NOI rose 5.1%. Common-stockholder net loss was primarily associated with higher depreciation and impairment expense, including $72.7 million of real estate impairments in the quarter.
- For the nine months, revenue rose about 8.3% and NOI rose 3.7%, while Normalized FFO declined about 0.8%. Higher property NOI was offset in part by higher interest expense and the absence of 2022 HHS grants.
- Q3 segment NOI increased year over year: SHOP 7.2%, outpatient medical and research 9.4%, and triple-net leased 6.6%. SHOP same-store NOI rose 3.5%; same-store occupancy was 83.6%, versus 82.5%. Outpatient portfolio occupancy was 87.6%, versus 89.7%.
- At September 30, cash and cash equivalents were $433.9 million; cash, cash equivalents and restricted cash totaled $491.7 million. Management reported more than $3.1 billion of liquidity, including undrawn revolving-credit capacity. The $2.75 billion revolver had $31.7 million drawn, and commercial paper borrowings were zero.
- Debt carrying value was $13.388 billion (gross debt $13.479 billion), up from $12.297 billion carrying value at December 31, 2022. Weighted-average effective borrowing cost was 4.19% for the first nine months, versus 3.58% in 2022. About $1.276 billion of maturities were scheduled in 2024 and $2.140 billion in 2025.
- Operating cash flow was $840.8 million for the first nine months. Cash used in investing was $141.4 million and cash used in financing was $378.3 million. The company paid $542.2 million in common-stockholder distributions during the period.
Material changes and unusual items
- In May, Ventas took ownership of a 153-asset portfolio through equitization of its Santerre mezzanine loan. It reversed a prior $20.0 million allowance and recorded a $29.1 million foreclosure gain; the new properties also contributed to segment growth and increased depreciation.
- Ventas issued $862.5 million of 3.75% exchangeable notes due 2026, primarily to repay the CHC mortgage loan. It repaid the remaining $360.2 million CHC balance in August. New debt and higher rates contributed to increased interest expense.
- Q3 interest expense increased $28.5 million year over year; the average effective rate rose to 4.33% from 3.72%. The filing estimates that a 100-basis-point increase on September 30 variable-rate debt of $1.1 billion would add approximately $11 million to annual interest expense.
- Real estate impairments were $92.0 million for the first nine months, versus $55.0 million in 2022. The company sold 23 properties and a land parcel for $167.3 million and recognized $22.3 million of gains in the period.
- Ventas sold part of its Ardent ownership for $50.1 million, recognizing a $33.5 million gain; its interest declined from 9.8% to 7.5%. It also recorded $14.5 million of insurance reimbursements for disruptive-event damage, primarily winter storm Elliott.
- Ventas issued 2.3 million shares through its at-the-market program for $110.4 million gross proceeds during the first nine months; $889.6 million remained available under the program at quarter-end.
Outlook, risks and contingencies
Management provided no specific earnings or operating guidance in the supplied filing text. It said liquidity should be sufficient for expected needs over the next 12 months, using operating cash flow, cash, debt and equity financing, asset sales and credit facilities; access to multiple capital sources is important, and inability to access them could materially harm liquidity. The company intends to distribute more than 100% of 2023 REIT taxable income after applicable loss carryforwards.
- Management cited inflationary labor costs as a continuing pressure on senior housing expenses. It noted that Kindred’s property performance had weakened after pandemic-era elevated volumes, amid lower volumes and higher labor costs; improvement is not assured.
- Results remain exposed to interest rates, refinancing costs, credit-market availability, occupancy and resident-fee trends, tenant and operator financial health, healthcare regulation, development costs, and potential asset impairments. Atria, Sunrise and several tenants/operators represent meaningful portfolio concentrations.
- Management said pending legal and regulatory matters were not expected individually or collectively to have a material adverse effect, but outcomes are uncertain and defense or resolution costs could be significant. No significant new risk factors were reported for Q3.
- Subsequent to quarter-end, Ventas purchased a $32.0 million tranche of a July mortgage at a discount, reducing its stated net amount to $394.8 million and net effective rate to 5.60%.
Key facts for investors to verify
- Whether SHOP occupancy and resident revenue growth can continue to outpace labor and other operating-cost inflation, and how much of reported growth came from acquired Santerre properties.
- The recurring earnings and cash-flow effects of higher debt balances and rates, alongside the 2024–2026 refinancing and maturity schedule.
- The extent to which reported nine-month earnings benefited from the Santerre foreclosure gain, Ardent-sale gain, asset-disposition gains and insurance reimbursements; review GAAP results alongside NOI and Normalized FFO.
- Tenant and operator performance, particularly Kindred, Brookdale, Ardent, Atria and Sunrise, as well as outpatient occupancy trends.
- Potential dilution from further ATM share issuance and the terms and potential share settlement of the exchangeable notes.
- Management’s stated liquidity assessment, REIT distribution plans, and the possible effects of impairments, legal matters and uninsured claims.