Ventas, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise noted. Ventas is a healthcare real estate REIT with approximately 1,200 properties across the U.S., Canada and the U.K. Its segments are senior housing operating portfolio (SHOP), office operations and triple-net leased properties.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $1,077.2 million | $1,017.6 million; up 5.9% |
| Net income attributable to common stockholders | $17.5 million; $0.04 per diluted share | $38.7 million; $0.10 per diluted share |
| Net operating income (NOI, non-GAAP) | $465.9 million | $473.0 million; down 1.5% |
| Normalized FFO attributable to common stockholders (non-GAAP) | $296.9 million | $316.7 million |
| Cash from operations | $242.8 million | $274.6 million |
| Debt carrying value at March 31 | $12.34 billion | $12.30 billion at December 31, 2022 |
| Cash and cash equivalents at March 31 | $145.4 million | $122.6 million at December 31, 2022 |
Total NOI was approximately 43.3% of revenue, compared with 46.5% a year earlier. This derived ratio is not a company-reported GAAP margin. Gross debt principal was $12.41 billion; the company reported approximately $2.4 billion of liquidity, including revolving-facility availability. The $2.75 billion revolver had $40.2 million drawn and $2.7 billion of undrawn capacity; commercial paper outstanding was $425.0 million. The quarterly common dividend was $0.45 per share.
- SHOP: Revenue rose 8.3% to $705.0 million, while segment NOI fell 4.5% to $167.8 million. Average occupancy increased to 80.6% from 80.0%; monthly revenue per occupied room rose to $4,624 from $4,370.
- Office operations: NOI decreased 0.9% to $136.7 million. Same-store NOI increased 0.8%; occupancy was 89.6%, versus 90.5%.
- Triple-net leased: NOI decreased 1.1% to $145.9 million; same-store NOI increased 2.3%.
Material changes versus the prior period
- Revenue growth was led by SHOP, but Q1 2022 included $34.0 million of HHS COVID-related grants that reduced operating expenses; no grants were received in Q1 2023. Management said higher SHOP occupancy and resident revenue partially offset the grant comparison. Normalized FFO was lower year over year, though management stated it increased excluding the prior-year grants.
- Net income attributable to common stockholders fell 54.8%. Interest expense increased $17.3 million, primarily due to a higher effective borrowing rate (4.04% versus 3.49%). Other expense also worsened by $35.0 million, primarily reflecting lower unrealized gains on Brookdale warrants and winter-storm-related costs and impairment. Lower transaction costs and an $8.0 million reversal of the Santerre loan allowance partly offset these pressures.
- Operating cash flow declined $31.7 million. Investing cash use was much lower than in Q1 2022, primarily because of lower acquisition activity; financing cash flow shifted to a $162.1 million use, compared with $165.4 million provided in Q1 2022.
- Ventas sold 11 properties for $46.4 million and recorded a $10.2 million gain. It also entered a C$271.8 million mortgage financing secured by 14 Canadian SHOP communities.
Outlook, risks and unusual items
- Management said liquidity should be sufficient for anticipated needs over the next 12 months, subject to continued access to multiple capital sources. The filing provides no specific full-year earnings or FFO guidance.
- On May 1, 2023, Ventas converted its Santerre mezzanine loan into ownership of the collateral portfolio, without additional consideration. The portfolio is subject to an approximately $1.0 billion non-recourse senior loan bearing interest at LIBOR plus 1.84%, then due June 9, 2023. Ventas had given notice to extend it to June 2024, subject to conditions including an interest-rate cap. The extension and related financing remain key execution risks.
- In May, Ventas sold approximately 24% of its Ardent ownership interest for about $50 million and expected to recognize approximately $34 million of gain in Q2 2023. In April, it issued C$600 million of 5.398% notes due 2028 and used the proceeds to repurchase C$613.7 million principal of 2024 notes.
- Key exposures include higher interest rates and refinancing costs, labor and inflation pressures, senior-housing occupancy and operator performance, tenant/operator concentration, healthcare regulation, and the uncertain effects of COVID-19 and other infections. A 100-basis-point increase in rates on Q1-end variable-rate debt was estimated to raise annualized interest expense by about $13 million.
- Management did not expect currently pending legal matters, individually or together, to have a material adverse effect, but noted outcomes are uncertain and defense costs may be significant. No significant new risk factors were reported.
Important facts for investors to verify
- Whether SHOP occupancy and resident revenue growth can offset labor and operating-cost inflation after the prior-year grant comparison.
- Santerre loan-to-ownership accounting, the portfolio’s operating performance, and the status, terms and refinancing of its approximately $1.0 billion senior loan.
- Debt maturity and interest-rate exposure, including the benefit and cost of hedges and the company’s ability to maintain liquidity and refinance obligations.
- The eventual Q2 gain from the Ardent stake sale and its effect on ongoing equity-method income and ownership rights.
- Normalized FFO and NOI trends alongside GAAP earnings and operating cash flow; these non-GAAP measures are company-defined and should not replace GAAP results.