Ventas, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparisons are with Q1 2012 unless otherwise noted. Amounts below are in U.S. dollars. Ventas is a healthcare and seniors housing REIT with more than 1,400 properties across 46 states, the District of Columbia and two Canadian provinces. Its principal segments are triple-net leased properties, senior living operations and medical office buildings (MOBs).
Financial performance and key metrics
| Metric | Q1 2013 | Q1 2012 / prior date |
|---|---|---|
| Total revenue | $684.9 million | $566.4 million; up 20.9% |
| Net income attributable to common stockholders | $112.2 million | $90.6 million; up 23.8% |
| Diluted EPS | $0.38 | $0.31 |
| Continuing-operations EPS attributable to common stockholders | $0.40 | $0.16 |
| Net cash from operating activities | $230.3 million | $245.0 million; down 6.0% |
| Net cash from investing activities | $59.5 million | $(40.3) million |
| Net cash used in financing activities | $(299.9) million | $(197.3) million |
| Cash and cash equivalents at period end | $57.7 million | $67.9 million at Dec. 31, 2012 |
| Debt, including unamortized adjustments | $8.30 billion | $8.41 billion at Dec. 31, 2012 |
| Dividends declared per common share | $0.67 | $0.62; increase of about 8% |
- Segment NOI was $414.7 million, up 19.3%; normalized FFO was $301.6 million versus $263.9 million, and FFO was $295.3 million versus $214.8 million. These are company-defined non-GAAP measures and should be considered alongside GAAP results.
- Segment NOI by business: triple-net leased $214.9 million, up 5.0%; senior living $108.3 million, up 20.2%; MOBs $75.5 million, up 68.6%; and “all other” $16.1 million. The large MOB increase primarily reflects acquisitions and newly consolidated properties.
- Same-store NOI increased 2.1% for triple-net properties, 5.5% for stabilized senior living communities and 1.4% for stabilized MOBs. Senior living occupancy and monthly revenue per occupied room improved; same-store stabilized MOB occupancy was slightly lower year over year.
- Interest expense was $79.6 million, compared with $68.1 million. Management cited higher debt balances, partly offset by lower effective rates; the reported effective interest rate excluding capital leases was 3.7%, versus 4.2%.
Material changes and notable transactions
- Revenue growth reflected acquisitions made after Q1 2012, including Cogdell-related MOBs and senior living communities, as well as higher senior living occupancy and revenue per occupied room. Same-store growth was more modest than total portfolio growth.
- Ventas issued $500.0 million of 2.700% senior notes due 2020 and $258.8 million of 5.45% notes due 2043, and repaid $269.9 million of 6.25% notes at maturity. It also acquired eight senior living facilities for $145.0 million, eliminating related capital lease obligations.
- Investing cash flow benefited from $146.4 million of loan repayments and dispositions; operating cash flow declined amid working-capital changes. Cash distributions to common stockholders were $195.7 million.
- In March, Ventas established a $750 million at-the-market common stock program. It had sold $5.1 million through March 31; the filing also reports $77.3 million of additional net proceeds from sales after quarter-end.
- Discontinued operations were a $5.6 million loss, versus $43.4 million of income in Q1 2012. The prior-year amount included $40.2 million of net disposition gains; 22 properties were classified as held for sale at March 31, 2013.
Liquidity, outlook, risks and contingencies
- At March 31, Ventas reported $57.7 million of unrestricted cash, $99.2 million of escrow deposits and restricted cash, and $1.83 billion of available capacity under its $2.0 billion revolving credit facility. The facility had $164.7 million drawn and matures in October 2015, with a conditional one-year extension option.
- Management said expected liquidity needs—including operations, debt service and maturities, capital expenditures, investment activity and REIT distributions—would generally be funded through operating cash flow, cash, financing, asset sales and the revolver. This is not a quantified earnings or FFO forecast; the filing provides no clear numerical annual guidance.
- About 15.5% of consolidated debt was variable-rate. Management estimated that a 100-basis-point increase in variable rates, with debt unchanged, would raise 2013 interest expense by about $12.5 million, or $0.04 per diluted share. Weighted-average interest rate on total debt was 4.1% at quarter-end.
- Key risks include tenant and operator credit and performance, lease renewals and property repositioning, healthcare reimbursement and regulation, labor and insurance costs, access to capital and refinancing, interest and foreign-exchange movements, and acquisition integration. Kindred and Brookdale accounted for 9.3% and 5.8% of Q1 revenue, respectively; the filing highlights potential effects if either cannot meet obligations or renew leases.
- Ventas had two seniors housing developments underway and had funded $25.4 million toward estimated total commitments of $40 million to $60 million. The Cogdell acquisition-related stockholder litigation settlement was approved by a court on March 25, 2013. Management stated that, apart from matters described in the filing, pending proceedings were not expected to have a material adverse effect, while noting outcomes remain uncertain.
- Management cautioned that interim operating results are not necessarily indicative of full-year results. Disclosure controls and procedures were assessed as effective; no material first-quarter change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether acquisition-driven growth translates into sustained same-store NOI and normalized FFO growth, particularly in MOBs and senior living.
- Tenant and operator financial condition, lease renewal prospects, and continued performance by major tenants and managers.
- Debt maturities, refinancing costs and exposure to variable interest rates, alongside the availability and cost of revolver and ATM equity funding.
- The cash-flow implications of working-capital movements, property investment and development commitments, loan repayments, and the increased dividend.
- Results and carrying values for held-for-sale properties, discontinued operations, tax contingency reserves and other disclosed legal or tax matters.