Ventas, Inc. — Q2 2023 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Ventas is a healthcare REIT with approximately 1,400 properties in the U.S., Canada and U.K., across senior housing operating portfolio (SHOP), outpatient medical and research, and triple-net leased properties.
Financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $1,106.4M | $1,022.9M | $2,183.6M | $2,040.5M |
| Net income (loss) attributable to common stockholders | $103.5M | ($42.4M) | $121.0M | ($3.7M) |
| Diluted EPS attributable to common stockholders | $0.26 | ($0.11) | $0.30 | ($0.01) |
| NOI (non-GAAP) | $481.1M | $446.0M | $946.9M | $919.0M |
| Normalized FFO (non-GAAP) | $302.3M | $289.0M | $599.2M | $605.7M |
| Operating cash flow | Not separately presented by quarter | $554.6M | $552.6M |
- Revenue increased 8.2% in Q2 and 7.0% for the first half. Q2 NOI rose 7.9%; first-half NOI rose 3.0%.
- Q2 SHOP NOI increased 17.9%, with resident fees up 10.1%; average unit occupancy was 80.5% versus 80.4%, and monthly revenue per occupied room was $4,679 versus $4,388. Same-store SHOP NOI increased 14.0%.
- Q2 outpatient medical and research NOI increased 5.6%; same-store NOI increased 2.4%. Portfolio occupancy was 88.1% versus 89.5%; same-store occupancy was 91.9% versus 91.6%.
- Q2 triple-net leased NOI increased 3.4%; same-store NOI increased 0.6%. Growth reflected contractual escalators and properties obtained through the Santerre transaction.
- Interest expense rose 25.7% in Q2 to $143.3M and 20.7% for the first half to $271.3M. The first-half weighted average effective debt rate increased to 4.11% from 3.52%.
Balance sheet, debt and liquidity
- At June 30, 2023, total assets were $25.1B; debt carrying value was $13.35B (gross debt principal of $13.44B); stockholders’ equity was $10.0B.
- Cash and cash equivalents were $138.6M, with $71.7M of escrow and restricted cash. The company reported approximately $2.7B of liquidity, including undrawn revolver capacity; $135M of commercial paper and $35M of revolver borrowings were outstanding.
- First-half operating cash flow was $554.6M; investing cash outflow was $127.6M and financing cash outflow was $388.1M. Cash, cash equivalents and restricted cash ended the period at $210.3M.
- June debt maturities schedule showed total maturities of $1.68B in 2024 and $2.24B in 2025. Approximately $1.4B of debt was variable rate; management estimated a 100-basis-point rate increase would add about $13.9M to annual interest expense, assuming debt remained unchanged.
Material changes and unusual items
- On May 1, Ventas took ownership of 153 properties by converting its Santerre mezzanine loan to equity. The transaction contributed a $29.1M foreclosure gain and reversals of loan-loss allowances ($12.0M in Q2; $20.0M for the first half). These valuation items supported reported earnings and are not recurring operating revenue.
- Q2 results also included a $33.5M gain from selling part of Ventas’s Ardent ownership interest and favorable changes in Brookdale stock warrant fair value. The warrants were valued at $40.5M at quarter-end, $12.4M above grant-date value. Real estate sale gains were $11.6M for the first half.
- Ventas issued $862.5M of 3.75% exchangeable notes due 2026, primarily to repay the CHC mortgage loan. It prepaid $656.6M of that mortgage in June; $360.2M remained at quarter-end, due June 2024 and bearing SOFR plus 2.69%. In July, Ventas gave notice of intent to repay the remaining balance in August.
- In April, Ventas Canada issued C$600M of 5.398% notes due 2028 and used proceeds to repurchase C$613.7M of 2024 notes, recording an $8.3M debt-extinguishment gain.
- First-half Normalized FFO was below prior year, which included $34.0M of HHS grants that reduced 2022 operating expenses. No HHS grants were received in the first half of 2023.
Outlook, commentary and risks
The filing provides no specific earnings or FFO guidance. Management stated that liquidity should be sufficient for anticipated needs over the next 12 months, assuming access to expected funding sources. It cited improved SHOP occupancy and revenue per occupied room, while noting higher labor and other operating costs and increased borrowing costs.
Key risks include interest-rate and refinancing exposure, tenant or operator financial deterioration, reliance on third-party managers, healthcare regulation and litigation, inflation and labor availability, property and development execution, and the uncertain continuing effects of COVID-19 and other infections. Atria managed assets representing 25.1% of consolidated real estate investment value; Brookdale, Ardent and Kindred each contributed meaningful NOI and tenant concentration. Management said pending legal matters were not expected to have a material adverse effect, but outcomes remain uncertain. The company also noted possible future equity dilution through its ATM program.
Investor verification priorities
- Separate recurring operating performance from Santerre valuation reversals, the foreclosure gain, Ardent sale gain and warrant remeasurement when assessing earnings quality.
- Track SHOP same-store occupancy, resident revenue growth, labor costs and NOI, alongside the impact of the absence of 2022 HHS grants.
- Verify repayment of the remaining CHC mortgage loan and the effect of refinancing costs, variable-rate debt and 2024–2025 maturities.
- Assess liquidity against dividends, development and capital expenditure commitments, and potential ATM share issuance.
- Monitor tenant/operator concentration and the performance of assets acquired through the Santerre loan equitization.
NOI and Normalized FFO are non-GAAP measures; the filing cautions that they supplement, and do not replace, GAAP results.