Ventas, Inc. — Q2 2021 Form 10-Q
Business context and reporting period. Ventas is a healthcare-focused REIT with approximately 1,200 properties in the U.S., Canada and U.K. Its segments are triple-net leased properties, senior living operations (SHOP) and office operations. This filing covers the quarter and six months ended June 30, 2021; amounts below are in millions unless noted.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $919.2 | $943.2 | $1,829.5 | $1,955.3 |
| Net income (loss) attributable to common stockholders | $86.4 | $(157.2) | $29.2 | $315.9 |
| Diluted EPS attributable to common stockholders | $0.23 | $(0.42) | $0.08 | $0.84 |
| Segment NOI | $423.8 | $442.5 | $846.5 | $968.0 |
| Normalized FFO attributable to common stockholders | $275.2 | $288.3 | $545.6 | $654.4 |
| Adjusted EBITDA | $409.1 | $426.9 | $810.7 | $922.8 |
| Cash from operating activities | Not presented by quarter | $528.9 | $720.0 |
Q2 revenue declined 2.5% year over year; segment NOI declined 4.2%. For the first half, revenue fell 6.4%, NOI 12.6%, and Normalized FFO 16.6%. First-half GAAP net income fell sharply from 2020, which included substantially larger real estate disposition gains and a significant income tax benefit.
- Q2 segment NOI: Triple-net $154.8 (down 9.5%); SHOP $111.1 (down 4.8%); office $137.3 (up 2.6%). First-half NOI declined in all three segments: triple-net 13.8%, SHOP 21.7%, and office 2.4%.
- Senior living: Q2 average SHOP occupancy was 77.4%, versus 82.2% a year earlier; same-store occupancy was 78.0%, versus 82.4%. Lower occupancy and move-in incentives weighed on NOI.
- Cash and debt: June 30 unrestricted cash was $233.8; cash, cash equivalents and restricted cash totaled $274.8. Debt carrying value was $11.76 billion, versus $11.90 billion at year-end 2020. Total equity was $9.98 billion.
- Liquidity: The company reported $170.0 of commercial paper, $46.3 drawn on its $2.75 billion revolving facility and $24.9 restricted for letters of credit. The filing gives different undrawn-capacity figures—$2.7 billion in a note and $2.5 billion in MD&A—which investors should reconcile.
- Cash uses: First-half investing activities used $121.1, including $130.9 of development expenditures and $74.1 of capital expenditures, partly offset by $115.9 of property-sale proceeds. Financing activities used $586.1, including $337.8 of cash distributions to common stockholders.
Material changes and notable items
- Q2 GAAP results improved from a loss to profit, aided by lower depreciation and amortization, the absence of 2020’s $29.7 loan allowance charge, lower merger costs, and a $41.3 gain on a MOB sale. Lower interest expense also helped. These comparisons include significant nonrecurring items.
- SHOP remained pressured by pandemic-related occupancy weakness. Management cited lower COVID-related costs and $13.6 of first-quarter HHS Provider Relief Fund grants as offsets. The pandemic’s continuing financial impact could not be estimated.
- Six-month property dispositions generated $43.8 of gains. Real estate impairments were $97.1 for the first half, primarily reflecting changed intent to hold certain assets; $94.2 related to assets sold or classified as held for sale.
- The company recorded $8.3 of first-half winter-storm expenses. It also recognized a $27.0 debt-extinguishment loss in Q1 following redemption of $400.0 of notes.
- After quarter-end, Ventas received $66.0 from Holiday Retirement loan repayment and $224.0 from redemption of Ardent notes; it expected a $16.6 gain in Q3 on the latter. It also announced redemptions of $263.7 of 2022 notes and $400.0 of 2023 notes, with expected Q3 extinguishment losses of approximately $8 and $21, respectively.
Outlook, risks and contingencies
- No quantified full-year earnings or FFO guidance is provided. Management stated that it believed liquidity was sufficient for anticipated needs, subject to access to capital and other funding sources.
- The proposed all-stock acquisition of New Senior Investment Group, announced June 28, was expected to close in the second half of 2021, subject to customary conditions, including New Senior shareholder approval. The exchange ratio is 0.1561 Ventas shares per New Senior share. Completion, timing, integration costs, benefits and potential liabilities remain uncertain.
- COVID-19, including variants, vaccination uptake, senior-housing occupancy recovery, labor and operating costs, and availability of government support remain key uncertainties. Management noted emerging positive SHOP trends but cautioned that the trajectory and ultimate effects were uncertain.
- Other disclosed risks include tenant/operator concentration and financial distress, healthcare regulation, interest-rate and refinancing exposure, foreign exchange movements, REIT qualification and distributions, litigation and uninsured claims, and the proposed acquisition’s impact on leverage and senior-housing concentration.
- Management reported disclosure controls were effective as of June 30, 2021, with no material change in internal control over financial reporting during the quarter. Management said pending legal matters were not expected to have a material adverse effect, while noting outcomes and defense costs remain uncertain.
Investor verification priorities
- Reconcile the $2.5 billion versus $2.7 billion reported revolving-credit availability and confirm current liquidity after subsequent debt redemptions and share issuance.
- Track SHOP occupancy, resident revenue, labor and other operating costs, and the sustainability of reported recovery trends.
- Separate recurring operating performance from disposition gains, impairments, tax effects, warrant fair-value changes, storm costs and debt-extinguishment losses; review the company’s FFO and Adjusted EBITDA reconciliations.
- Verify the New Senior transaction’s closing, financing and integration plans, including resulting debt, share dilution, operator concentration and expected benefits.
- Review debt maturities, floating-rate exposure and refinancing costs; the filing estimates a 100-basis-point increase in variable rates would raise annualized interest expense by approximately $15.5 million.