Ventas, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Ventas is a healthcare REIT with approximately 1,200 properties and investments across senior housing, medical office, life science and other healthcare real estate in the U.S., Canada and the U.K. Its segments are triple-net leased properties, senior living operations (SHOP) and office operations.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $910.3 million | $1,012.1 million; down 10.1% |
| Net income (loss) attributable to common stockholders | $(57.2) million; $(0.15) per diluted share | $473.1 million; $1.26 per diluted share |
| Normalized FFO attributable to common stockholders | $270.5 million | $366.1 million; down 26.1% |
| Adjusted EBITDA | $401.7 million | $495.8 million; down 19.0% |
| Segment NOI | $422.7 million | $525.5 million; down 19.6% |
| Cash from operating activities | $237.6 million | $314.5 million; down 24.4% |
| Interest expense | $110.8 million | $116.7 million; weighted average effective rate was 3.6% in both periods |
| Total debt, carrying amount | $11.76 billion | $11.90 billion at December 31, 2020 |
Segment NOI as a share of revenue was approximately 46.4%, versus 51.9% in Q1 2020, calculated from reported figures. Cash, cash equivalents and restricted cash totaled $210.2 million at quarter-end, including $169.7 million of unrestricted cash. The company reported $2.7 billion of undrawn capacity under its $2.75 billion revolving facility, with $215.0 million of commercial paper outstanding and $24.9 million restricted for letters of credit. The $0.45-per-share quarterly dividend was declared.
Changes versus the prior comparable period
- SHOP was the largest operating pressure: resident fees fell 8.3%, segment NOI fell 33.5%, and reported average occupancy was 76.3%, versus 86.6% a year earlier. Same-store SHOP NOI fell 42.5% and same-store occupancy was 76.5%, versus 86.9%.
- Triple-net segment NOI declined 17.8%, reflecting portfolio transitions, lower Brookdale lease rent and 2020 property sales. Office segment NOI declined 6.9%; same-store office NOI was down 0.3%, with occupancy of 91.3% versus 91.5%.
- Depreciation and amortization increased $65.3 million, primarily reflecting $78.5 million of real estate impairments, compared with $12.2 million in Q1 2020.
- The year-over-year GAAP earnings comparison is substantially affected by Q1 2020 real estate disposition gains of $226.2 million and an income tax benefit of $149.0 million. Q1 2021 included a $27.1 million net debt-extinguishment loss.
- Operating cash flow declined $76.9 million. Investing cash flow was a $102.6 million outflow, compared with $517.2 million provided in Q1 2020, principally because of lower property-sale proceeds and loan repayments. Financing cash flow was a $377.1 million outflow.
Management commentary, outlook and risks
- Management said COVID-19 continued to negatively affect the business, particularly senior housing, while noting emerging positive SHOP trends in the U.S. if sustained. It could not estimate the pandemic’s continuing financial impact, citing vaccine deployment and acceptance, variants, operating conditions, government support and the pace of recovery.
- The company received $13.6 million in HHS Provider Relief Fund grants for assisted-living communities, partially offsetting pandemic-related losses. Winter storms resulted in $5.2 million of expenses.
- Management stated that liquidity was sufficient for expected needs over the next 12 months, subject to access to multiple capital sources. It cited operating cash flow, cash, debt and equity issuance, asset dispositions and credit facilities as potential sources; there is no specific earnings or FFO guidance in the provided filing text.
- In January 2021, Ventas replaced its $3.0 billion revolving facility with a $2.75 billion facility maturing in 2025, with two optional six-month extensions and an accordion feature up to $3.75 billion. In March it redeemed $400 million of 3.10% notes due 2023, principally using cash.
- Key risks include continued pandemic effects, tenant and operator financial health, concentration and reliance on third-party managers, healthcare regulation, access to capital and interest-rate exposure. A 100-basis-point increase in rates on variable-rate debt was estimated to raise annualized interest expense by approximately $17.1 million. Management said pending legal matters were not expected to have a material adverse effect, but outcomes and costs remain uncertain.
Important facts for investors to verify
- Whether SHOP occupancy, resident revenue and operating costs recover, and whether pandemic relief support continues.
- The basis and potential cash-flow effects of $78.5 million in impairments and the sustainability of the reported loan-allowance reversal.
- Debt maturities and funding needs, including 2021 maturities, commercial paper refinancing and continued access to revolving credit and capital markets.
- Whether normalized FFO and segment NOI trends improve; these are non-GAAP measures and should be assessed alongside GAAP results and operating cash flow.
- Exposure to major operators and tenants, particularly Atria, Sunrise, Brookdale, Ardent and Kindred, and the status of legal, regulatory and other contingencies.