Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 2.06M
2: EX-4.1 EX-4.1 Ninth Supplemental Indenture HTML 345K
3: EX-22 EX-22 Guarantor and Issuer Listing HTML 24K
4: EX-31.1 EX-31.1 Section 302 CEO Certification HTML 24K
5: EX-31.2 EX-31.2 Section 302 CFO Certification HTML 24K
6: EX-32.1 EX-32.1 Section 906 CEO Certification HTML 21K
7: EX-32.2 EX-32.2 Section 906 CFO Certification HTML 21K
13: R1 Cover HTML 74K
14: R2 Consolidated Balance Sheets HTML 143K
15: R3 Consolidated Balance Sheets (Parenthetical) HTML 35K
16: R4 Consolidated Statements of Income HTML 144K
17: R5 Consolidated Statements of Comprehensive Income HTML 59K
18: R6 Consolidated Statements of Equity HTML 76K
19: R7 Consolidated Statements of Equity (Parenthetical) HTML 22K
20: R8 Consolidated Statements of Cash Flows HTML 142K
21: R9 Description of Business HTML 28K
22: R10 Accounting Policies HTML 39K
23: R11 Concentration of Credit Risk HTML 41K
24: R12 Dispositions and Impairments HTML 39K
25: R13 Loans Receivable and Investments HTML 50K
26: R14 Investments in Unconsolidated Entities HTML 44K
27: R15 Intangibles HTML 50K
28: R16 Other Assets HTML 32K
29: R17 Senior Notes Payable and Other Debt HTML 98K
30: R18 Fair Values of Financial Instruments HTML 53K
31: R19 Commitments and Contingencies HTML 24K
32: R20 Income Taxes HTML 28K
33: R21 Stockholders' Equity HTML 33K
34: R22 Earnings Per Share HTML 47K
35: R23 Segment Information HTML 164K
36: R24 Accounting Policies (Policies) HTML 34K
37: R25 Accounting Policies (Tables) HTML 36K
38: R26 Concentration of Credit Risk (Tables) HTML 35K
39: R27 Dispositions and Impairments (Tables) HTML 37K
40: R28 Loans Receivable and Investments (Tables) HTML 49K
41: R29 Investments in Unconsolidated Entities (Tables) HTML 40K
42: R30 Intangibles (Tables) HTML 49K
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46: R34 Stockholders' Equity (Tables) HTML 28K
47: R35 Earnings Per Share (Tables) HTML 47K
48: R36 Segment Information (Tables) HTML 162K
49: R37 Description of Business (Details) HTML 40K
50: R38 ACCOUNTING POLICIES - Schedule of VIEs (Details) HTML 47K
51: R39 ACCOUNTING POLICIES - Narrative (Details) HTML 23K
52: R40 CONCENTRATION OF CREDIT RISK - Narrative (Details) HTML 82K
53: R41 CONCENTRATION OF CREDIT RISK - Triple-Net Leased HTML 35K
Properties (Details)
54: R42 DISPOSITIONS AND IMPAIRMENTS - Narrative (Details) HTML 42K
55: R43 DISPOSITIONS AND IMPAIRMENTS - Real Estate Assets HTML 40K
Held For Sale (Details)
56: R44 Loans Receivable and Investments (Details) HTML 75K
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58: R46 Intangibles (Details) HTML 57K
59: R47 Other Assets (Details) HTML 41K
60: R48 SENIOR NOTES PAYABLE AND OTHER DEBT - Summary of HTML 114K
Senior Notes Payables and Other Debt (Details)
61: R49 SENIOR NOTES PAYABLE AND OTHER DEBT - Credit HTML 54K
Facilities, Commercial Paper, Unsecured Term Loans
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(Exact Name of Registrant as Specified in Its Charter)
iDelaware
i61-1055020
(State
or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
i353 N. Clark Street, iSuite 3300
iChicago,
iIllinoisi60654
(Address of Principal Executive Offices)
(i877)
i483-6827
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading
Symbol
Name of Exchange on Which Registered
iCommon Stock $0.25 par value
iVTR
iNew
York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer ☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ iNo☒
Investments
in unconsolidated real estate entities
i606,006
i579,949
Net
real estate investments
i22,106,319
i22,277,474
Cash
and cash equivalents
i145,357
i122,564
Escrow
deposits and restricted cash
i49,924
i48,181
Goodwill
i1,044,699
i1,044,415
Assets
held for sale
i20,233
i44,893
Deferred
income tax assets, net
i10,889
i10,490
Other
assets
i616,747
i609,823
Total
assets
$
i23,994,168
$
i24,157,840
Liabilities
and equity
Liabilities:
Senior notes payable and other debt
$
i12,342,506
$
i12,296,780
Accrued
interest
i93,543
i110,542
Operating
lease liabilities
i189,911
i190,440
Accounts
payable and other liabilities
i1,007,437
i1,031,689
Liabilities
related to assets held for sale
i4,412
i6,492
Deferred
income tax liabilities
i31,871
i35,570
Total
liabilities
i13,669,680
i13,671,513
Redeemable
OP unitholder and noncontrolling interests
i259,886
i264,650
Commitments
and contingencies
i
i
Equity:
Ventas
stockholders’ equity:
Preferred stock, $ii1.00/
par value; ii10,000/ shares authorized,
unissued
i—
i—
Common
stock, $ii0.25/ par value; ii600,000/
shares authorized, ii400,055/ and ii399,707/
shares outstanding at March 31, 2023 and December 31, 2022, respectively
Income
before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests
i11,532
i37,916
Loss
from unconsolidated entities
(i5,623)
(i4,269)
Gain
on real estate dispositions
i10,201
i2,455
Income
tax benefit
i2,802
i4,490
Income
from continuing operations
i18,912
i40,592
Net
income
i18,912
i40,592
Net
income attributable to noncontrolling interests
i1,395
i1,860
Net
income attributable to common stockholders
$
i17,517
$
i38,732
Earnings
per common share
Basic:
Income from continuing operations
$
i0.05
$
i0.10
Net
income attributable to common stockholders
i0.04
i0.10
Diluted:1
Income
from continuing operations
$
i0.05
$
i0.10
Net
income attributable to common stockholders
i0.04
i0.10
______________________________
1
Potential common shares are not included in the computation of diluted earnings per share when a loss from continuing operations exists as the effect would be an antidilutive per share amount.
Assets acquired and liabilities assumed from acquisitions and other:
Real estate investments
$
i—
$
i3,171
Other
assets
i—
i47
Other
liabilities
i—
i2,624
Deferred
income tax liability
i—
i594
See
accompanying notes.
6
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
i
NOTE 1—DESCRIPTION OF BUSINESS
Ventas, Inc. (together with
its consolidated subsidiaries, unless otherwise indicated or except where the context otherwise requires, “we,”“us,”“our,”“Company” and other similar terms), an S&P 500 company, is a real estate investment trust (“REIT”) operating at the intersection of healthcare and real estate. We hold a highly diversified portfolio of senior housing communities, medical office buildings (“MOBs”), life science, research and innovation centers, hospitals and other healthcare facilities, which we generally refer to collectively as “healthcare real estate,” located throughout the United States, Canada and the United Kingdom. As of March 31, 2023, we owned or had investments in approximately i1,200
properties (including properties classified as held for sale). Our company was originally founded in 1983 and is headquartered in Chicago, Illinois with additional corporate offices in Louisville, Kentucky and New York, New York.
We primarily invest in a diversified portfolio of healthcare real estate assets through wholly owned subsidiaries and other co-investment entities. We operate through ithree
reportable business segments: triple-net leased properties, senior housing operating portfolio, which we also refer to as “SHOP” and which was formerly known as senior living operations, and office operations. See “Note 2 – Accounting Policies” and “Note 15 – Segment Information.” Our senior housing communities are either subject to triple-net leases, in which case they are included in our triple-net leased properties reportable business segment, or operated by independent third-party managers, in which case they are included in our SHOP reportable business segment.
As of March 31, 2023, we leased a total of i312
properties (excluding properties within our office operations reportable business segment) to various healthcare operating companies under triple-net or absolute-net leases that obligate the tenants to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures. Our ithree largest tenants, Brookdale Senior Living Inc. (together with its subsidiaries, “Brookdale Senior Living”), Ardent Health Partners, LLC (together
with its subsidiaries, “Ardent”) and Kindred Healthcare, LLC (together with its subsidiaries, “Kindred”) leased from us i121 properties, i30
properties (including i19 MOBs) and i29 properties, respectively, as of March 31, 2023.
As of March
31, 2023, pursuant to long-term management agreements, we engaged independent operators, such as Atria Senior Living, Inc. (together with its subsidiaries, including Holiday Retirement (“Holiday”), “Atria”) and Sunrise Senior Living, LLC (together with its subsidiaries, “Sunrise”), to manage i560 senior housing communities.
As
of March 31, 2023, we owned or had investments in a total of i373 properties in our office operations reportable business segment. These properties generally consist of MOBs that are predominantly located on or contiguous to a health system campus and life science, research and innovation properties that are affiliated with and often located on or contiguous to a university or academic medical campus. Through our Lillibridge Healthcare Services, Inc. subsidiary and our ownership interest in PMB Real Estate Services LLC, we also provide MOB management,
leasing, marketing, facility development and advisory services to highly rated hospitals and health systems throughout the United States.
In addition, from time to time, we make secured and unsecured loans and other investments relating to healthcare real estate or operators.
We have a third-party institutional capital management business, Ventas Investment Management (“VIM”), which includes our open-ended investment vehicle, the Ventas Life Science & Healthcare Real Estate Fund (the “Ventas Fund”). Through VIM, we partner with third-party institutional investors to invest in healthcare real estate through various joint ventures and other co-investment vehicles where we are the sponsor or general partner.
/
7
VENTAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
i
NOTE 2—ACCOUNTING POLICIES
iThe
accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the Securities and Exchange Commission (“SEC”) instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December
31, 2023. The accompanying Consolidated Financial Statements and related notes should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”). Certain prior period amounts have been reclassified to conform to the current period presentation.
i
Accounting Estimates
The preparation of financial statements in accordance with GAAP requires us
to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
i
Principles of Consolidation
The accompanying Consolidated Financial Statements include our accounts and
the accounts of our wholly owned subsidiaries and the joint venture entities over which we exercise control. All intercompany transactions and balances have been eliminated in consolidation, and our net earnings are reduced by the portion of net earnings attributable to noncontrolling interests.
GAAP requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). Substantially all of the assets of the VIEs are real estate investments, and substantially all of the liabilities of the VIEs are mortgage debt. Assets of the consolidated VIEs can only be used to settle obligations of such VIEs. Liabilities of the consolidated VIEs represent
claims against the specific assets of the VIEs. iThe table below summarizes the total assets and liabilities of our consolidated VIEs as reported on our Consolidated Balance Sheets (dollars in thousands):
We applied for grants under the Provider Relief Fund administered by the U.S. Department of Health & Human Services (“HHS”) on behalf of the assisted living communities in our SHOP reportable business segment to partially mitigate losses attributable to COVID-19. These grants are intended to reimburse eligible providers for expenses incurred to prevent, prepare for and respond to COVID-19 and lost revenues attributable to COVID-19. Recipients are not required to repay distributions from the Provider Relief Fund, provided that they attest to and comply with certain terms and conditions, including, not using grants received from the Provider Relief Fund to reimburse expenses or losses that other sources are obligated to reimburse, reporting and record keeping requirements and cooperating with any government audits.
During
the three months ended March 31, 2023, we did not receive any HHS grants. During the three months ended March 31, 2022, we received $i34.0 million in HHS grants in connection with our applications and recognized these grants within property-level operating expenses in our Consolidated Statements of Income in the period in which they were received.
/
8
VENTAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
i
NOTE 3—CONCENTRATION OF CREDIT RISK
As of March 31, 2023, Atria, Sunrise, Brookdale Senior Living, Ardent and Kindred
managed or operated approximately i26.0%, i9.9%, i7.8%,
i5.3% and i0.8%, respectively, of our consolidated real estate investments based on gross book value (excluding properties classified as held for sale as of March 31, 2023).
Because Atria and Sunrise manage our properties in exchange for a management fee from us, we are not directly exposed to their credit risk in the same manner or to the same extent as triple-net tenants like Brookdale Senior Living, Ardent and Kindred.
Based on gross book value, approximately i11.7% and i54.7%
of our consolidated real estate investments were senior housing communities included in the triple-net leased properties and SHOP reportable business segments, respectively (excluding properties classified as held for sale as of March 31, 2023). MOBs, life science, research and innovation centers, inpatient rehabilitation facilities (“IRFs”) and long-term acute care facilities (“LTACs”), health systems, skilled nursing facilities (“SNFs”) and secured loans receivable and investments collectively comprised the remaining i33.6%.
Our consolidated properties were located in i47 states, the District of Columbia, iseven Canadian provinces and the United Kingdom as of March
31, 2023, with properties in ione state (California) accounting for more than i10% of
our total consolidated revenues and net operating income (“NOI,” which is defined as total revenues, less interest and other income, property-level operating expenses and third party capital management expenses) for each of the three months ended March 31, 2023 and 2022. See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and a reconciliation of net income attributable to common stockholders, as computed in accordance with GAAP, to NOI.
Triple-Net Leased Properties
i
The
properties we lease to Brookdale Senior Living, Ardent and Kindred accounted for a significant portion of our triple-net leased properties segment revenues and NOI for the three months ended March 31, 2023 and 2022. The following table reflects the concentration risk related to our triple-net leased properties including assets held for sale for the periods presented:
(1)Total
revenues include third party capital management revenues, income from loans and investments and interest and other income.
(2)See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and a reconciliation of net income attributable to common stockholders, as computed in accordance with GAAP, to NOI.
/
Each of our leases with Brookdale Senior Living, Ardent and Kindred is a triple-net lease that obligates the tenant to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures, and to comply with the terms of the mortgage financing documents,
if any, affecting the properties. In addition, each of our Brookdale Senior Living, Ardent and Kindred leases is guaranteed by a corporate parent.
/
9
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Kindred Lease
As of March 31, 2023, we leased i29
properties to Kindred pursuant to a single, triple-net master lease agreement (together with certain other agreements related to such master lease, collectively, the “Kindred Lease”). Pursuant to the Kindred Lease, the i29 properties are divided into two groups. The first group is composed of i6
properties (“Group 1”) and the second group is composed of i23 properties (“Group 2”). The existing term of the Kindred Lease expires on April 30, 2028 for Group 1 and April 30, 2025 for Group 2. Kindred has the option to renew the Group 1 properties for itwo,
i5-year extension at the greater of escalated rent and fair market rental. Kindred has the option to renew the Group 2 properties for ione, i5-year
extension at escalated rent, and following that, itwo additional i5-year extensions at the greater of escalated rent and fair market rent. The Kindred Lease is guaranteed by a parent company.
Senior
Housing Operating Portfolio
As of March 31, 2023, Atria and Sunrise, collectively, provided comprehensive property management and accounting services with respect to i334 of our i551
consolidated senior housing communities, for which we pay annual management fees pursuant to long-term management agreements.
As of March 31, 2023, Atria and its subsidiaries, including Holiday, managed a pool of i242 senior housing communities for Ventas. Ventas has the ongoing right to terminate the management contract
for i91 of the communities with short term notice.
As of March 31, 2023, Sunrise managed i92
communities for Ventas pursuant to multiple management agreements (collectively, the “Sunrise Management Agreements”). Our Sunrise Management Agreements have initial terms expiring between 2035 and 2040. Ventas has the ability to terminate some or all of the Sunrise Management Agreements upon certain circumstances with or without the payment of a fee.
We rely on our managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our senior housing operating portfolio efficiently and effectively. We also rely on our managers to set appropriate resident fees, provide accurate property-level financial results in a timely manner and otherwise operate our senior housing communities in compliance with the terms of our management agreements and all applicable laws and regulations.
i
NOTE
4—DISPOSITIONS AND IMPAIRMENTS
2023 Activity
During the three months ended March 31, 2023, we sold ifive senior housing communities (ithree
of which were vacant), ifour MOBs and itwo vacant triple-net leased properties for aggregate consideration of $i46.4 million
and recognized a net gain on the sale of these assets of $i10.2 million in our Consolidated Statements of Income.
/
10
VENTAS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assets Held for Sale
i
The table below summarizes our real estate assets classified as held for sale including the amounts reported on our Consolidated Balance Sheets, which may include anticipated post-closing settlements of working capital for disposed properties (dollars in thousands):
We recognized impairments of $i8.6 million and $i14.3 million for the three
months ended March 31, 2023 and 2022, respectively, which are recorded primarily as a component of depreciation and amortization in our Consolidated Statements of Income. The impairments recorded were primarily a result of a change in our intent to hold or a change in the future cash flows of the impaired assets.
i
NOTE
5—LOANS RECEIVABLE AND INVESTMENTS
As of March 31, 2023 and December 31, 2022, we had $i525.4 million and $i561.4 million,
respectively, of loans receivable and investments, net of allowance, relating to senior housing and healthcare operators or properties. iThe following is a summary of our loans receivable and investments, net, including amortized cost, fair value and unrealized gains or losses on available for sale investments (dollars in thousands):
Government-sponsored
pooled loan investments, net (2)
i43,406
i—
i43,406
i43,406
Total
investments reported as secured loans receivable and investments, net
i557,075
(i20,000)
i537,075
i537,033
Non-mortgage
loans receivable, net (3)
i28,959
(i4,621)
i24,338
i23,416
Total
loans receivable and investments, net
$
i586,034
$
(i24,621)
$
i561,413
$
i560,449
______________________________
(1)Includes
the Company’s cash-pay non-recourse mezzanine loan to Santerre Health Investors (the “Santerre Mezzanine Loan”), which is no longer outstanding. Other included investments have contractual maturities in 2024 and 2027.
(2)Repaid at par in February 2023.
(3)Included in other assets on our Consolidated Balance Sheets.
On May 1, 2023, we took ownership of the collateral that supported the Santerre Mezzanine Loan by converting the outstanding principal amount of the Santerre Mezzanine Loan to equity, with no additional consideration being paid. As a result, the Santerre Mezzanine Loan is no longer outstanding. The
properties consist of a diverse pool of medical office buildings, senior housing operating portfolio communities, triple-net leased skilled nursing facilities and hospital assets in the United States (such assets, collectively, the “Santerre Portfolio”). Our ownership of the Santerre Portfolio is subject to an existing approximately $i1 billion non-recourse senior loan (the “Santerre Senior Loan”). See “Note 9 – Senior Notes Payable And Other Debt.”
/
11
VENTAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of December 31, 2022, we recognized a $i20.0 million allowance on the Santerre Mezzanine Loan in our Consolidated Statements of Income. The allowance for the Santerre Mezzanine Loan was calculated using the “current expected
credit loss”, or “CECL”, model, which considers relevant information about past events, current conditions and reasonable and supportable forecasts to estimate expected losses as of the most recent balance sheet date. During the three months ended March 31, 2023, we recorded an $i8.0 million partial reversal of the allowance in our Consolidated Statements of Income resulting in a $i12.0
million allowance as of March 31, 2023, primarily due to a change in the fair value of the Santerre Senior Loan and working capital.
i
NOTE 6—INVESTMENTS IN UNCONSOLIDATED ENTITIES
We report investments in unconsolidated entities over
whose operating and financial policies we have the ability to exercise significant influence under the equity method of accounting. We are not required to consolidate these entities because our joint venture partners have significant participating rights, nor are these entities considered VIEs, as they are controlled by equity holders with sufficient capital. We invest in both real estate entities and operating entities which are described further below.
Investments in Unconsolidated Real Estate Entities
Through our Ventas Investment Management Platform, which combines our extensive third-party capital ventures under a single platform, we partner with third-party institutional investors to invest in healthcare real estate through various joint ventures and other co-investment vehicles where we are the
sponsor or general partner.
i
Below is a summary of our investments in unconsolidated real estate entities as of March 31, 2023 and December 31, 2022, respectively (dollars in thousands):
Investment in unconsolidated real estate entities:
Ventas
Life Science & Healthcare Real Estate Fund
i21.0%
i21.0%
$
i261,319
$
i263,979
Pension
Fund Joint Venture
i23.3%
i22.9%
i28,490
i25,028
Research
& Innovation Development Joint Venture
i51.5%
i51.0%
i307,791
i284,962
Ventas
Investment Management Platform
i597,600
i573,969
Atrium
Health & Wake Forest Joint Venture
i48.5%
i48.5%
i9,359
i5,403
All
other (2)
i34.0%-i38.0%
i34.0%-i38.0%
(i953)
i577
Total
investments in unconsolidated real estate entities
$
i606,006
$
i579,949
______________________________
(1)
The entities in which we have an ownership interest may have less than a 100% interest in the underlying real estate. The ownership percentages in the table reflect our interest in the underlying real estate. Joint venture members, including us in some instances, have equity participation rights based on the underlying performance of the investments, which could result in non pro rata distributions.
(2) Includes investments in land parcels, parking structures and other de minimis investments in unconsolidated real estate entities.
/
We provide various services to our unconsolidated real estate entities in exchange for fees and reimbursements. Total management fees earned in connection
with these services were $i3.6 million and $i3.5
million for the three months ended March 31, 2023 and 2022, respectively. Such amounts are included in third party capital management revenues in our Consolidated Statements of Income.
Investments in Unconsolidated Operating Entities
We own investments in unconsolidated operating entities such as Ardent and Atria, which are included within other assets on our Consolidated Balance Sheets. Our i34%
ownership interest in Atria entitles us to customary minority rights and protections, including the right to appoint itwo members to the Atria Board of Directors.
As of March 31, 2023, we held a i9.8%
ownership interest in Ardent, which entitled us to customary minority rights and protections, including the right to appoint ione member to the Ardent Board of Directors. In May 2023, we sold
/
12
VENTAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
approximately i24% of our ownership interest in Ardent to a third-party investor for approximately $i50 million
in total proceeds. As a result of the sale, we expect to recognize approximately $i34 million of gain in the second quarter of 2023 in income from unconsolidated entities in our Consolidated Statements of Income and our ownership interest in Ardent will be reduced to approximately i7.5%.
Following the transaction, we continue to have the same minority rights and protections, including the right to appoint ione member to the Ardent Board of Directors.
i
NOTE
7—INTANGIBLES
i
The following is a summary of our intangibles (dollars in thousands):
Weighted Average Remaining Amortization Period in Years
Balance
Weighted Average Remaining Amortization Period in Years
Intangible assets:
Above-market
lease intangibles (1)
$
i128,867
i5.2
$
i129,038
i5.4
In-place
and other lease intangibles (2)
i1,216,548
i8.4
i1,217,152
i8.0
Goodwill
i1,044,699
N/A
i1,044,415
N/A
Other
intangibles (2)
i34,408
i5.4
i34,404
i5.6
Accumulated
amortization
(i1,093,129)
N/A
(i1,061,305)
N/A
Net
intangible assets
$
i1,331,393
i8.1
$
i1,363,704
i7.8
Intangible
liabilities:
Below-market lease intangibles (1)
$
i333,652
i8.5
$
i333,672
i8.6
Other
lease intangibles
i13,498
N/A
i13,498
N/A
Accumulated
amortization
(i262,169)
N/A
(i258,639)
N/A
Purchase
option intangibles
i3,568
N/A
i3,568
N/A
Net
intangible liabilities
$
i88,549
i8.5
$
i92,099
i8.6
______________________________
(1)
Amortization of above- and below-market lease intangibles is recorded as a decrease and an increase to revenues, respectively, in our Consolidated Statements of Income.
(2) Amortization of lease intangibles is recorded in depreciation and amortization in our Consolidated Statements of Income.
N/A—Not Applicable
/
Above-market lease intangibles and in-place and other lease intangibles are included in acquired lease intangibles within real estate investments on our Consolidated Balance Sheets. Other intangibles (including non-compete agreements, trade names and trademarks) are included in other assets on our Consolidated Balance Sheets. Below-market
lease intangibles, other lease intangibles and purchase option intangibles are included in accounts payable and other liabilities on our Consolidated Balance Sheets.
/
13
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
i
NOTE
8—OTHER ASSETS
i
The following is a summary of our other assets (dollars in thousands):
Stock
warrants represent warrants exercisable at any time prior to December 31, 2025, in whole or in part, for i16.3 million shares of Brookdale Senior Living common stock at an exercise price of $i3.00
per share. These warrants are measured at fair value with changes in fair value being recognized within other expense in our Consolidated Statements of Income.
/
14
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
i
NOTE
9—SENIOR NOTES PAYABLE AND OTHER DEBT
i
The following is a summary of our senior notes payable and other debt (dollars in thousands):
(1)As
of March 31, 2023 and December 31, 2022, respectively, $i18.5 million and $i3.7
million of aggregate borrowings were denominated in Canadian dollars. Aggregate borrowings of $i21.7 million and $i21.5 million were denominated in British pounds as
of March 31, 2023 and December 31, 2022, respectively.
(2)British Pound and Canadian Dollar debt obligations shown in US Dollars.
(3)Our i6.90% senior notes due 2037 are subject to repurchase at the option of the holders, at par, on October 1, 2027, and our i6.59%
senior notes due 2038 are subject to repurchase at the option of the holders, at par, on July 7 in each of 2023 and 2028.
//
15
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Facilities, Commercial Paper, Unsecured Term Loans and Letters of Credit
We
have a $i2.75 billion unsecured revolving credit facility initially priced at LIBOR plus i0.825% based on the
Company’s debt rating. The unsecured revolving credit facility matures in January 2025, but may be extended at our option, subject to the satisfaction of certain conditions, for itwo additional periods of isix months each. The unsecured revolving
credit facility also includes an accordion feature that permits us to increase our aggregate borrowing capacity thereunder to up to $i3.75 billion, subject to the satisfaction of certain conditions, including the receipt of additional commitments for such increase.
Our unsecured credit facility imposed certain customary restrictions on us, including restrictions pertaining to: (i) liens; (ii) investments; (iii) the incurrence of additional indebtedness; (iv) mergers and dissolutions; (v) certain dividend, distribution
and other payments; (vi) permitted businesses; (vii) transactions with affiliates; (viii) agreements limiting certain liens; and (ix) the maintenance of certain consolidated total leverage, secured debt leverage, unsecured debt leverage and fixed charge coverage ratios and minimum consolidated adjusted net worth, and contains customary events of default.
As of March 31, 2023, we had $i2.7 billion
of undrawn capacity on our unsecured revolving credit facility with $i40.2 million outstanding and an additional $i1.2
million restricted to support outstanding letters of credit. We limit our use of the unsecured revolving credit facility, to the extent necessary, to support our commercial paper program when commercial paper notes are outstanding.
As of March 31, 2023, our $i100.0 million uncommitted line for standby letters of credit had an outstanding balance of $i14.5
million. The agreement governing the line contains certain customary covenants and, under its terms, we are required to pay a commission on each outstanding letter of credit at a fixed rate.
Our wholly owned subsidiary, Ventas Realty, Limited Partnership (“Ventas Realty”), may issue from time to time unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $i1.0 billion. The notes are sold under customary terms in the U.S. commercial paper note market
and are ranked pari passu with all of Ventas Realty’s other unsecured senior indebtedness. The notes are fully and unconditionally guaranteed by Ventas, Inc. As of March 31, 2023, we had $i425.0 million in borrowings outstanding under our commercial paper program.
As of March 31, 2023, we had a C$i500.0 million
unsecured term loan facility priced at Canadian Dollar Offered Rate (“CDOR”) plus i0.90% that matures in 2025.
Senior Notes
In April 2023, our i100%
owned subsidiary, Ventas Canada Finance Limited (“Ventas Canada”), issued and sold C$i600.0 million aggregate principal amount of i5.398% Senior Notes due 2028 in a private placement
at par. Pursuant to cash tender offers, we used the proceeds to repurchase C$i613.7 million in aggregate principal amount of outstanding senior notes due in 2024 for an aggregate purchase price of C$i600.0 million
plus accrued and unpaid interest as disclosed below:
•In April 2023, we repurchased C$i527.0 million principal amount of our i2.80%
Senior Notes, Series E due April 2024 at i97.6% of par value, plus accrued and unpaid interest to, but not including, the settlement date.
•In April 2023, we repurchased C$i86.7 million
principal amount of our i4.125% Senior Notes, Series B due September 2024 at i98.5% of par value, plus accrued and unpaid interest to, but not including, the settlement date.
Mortgages
In
March 2023, we entered into a C$i271.8 million floating rate mortgage debt maturing in 2028 with an interest rate of CDOR + i0.88%. The mortgage is secured by
i14 SHOP communities in Canada.
16
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On May 1, 2023, we took ownership of the collateral that supported the
Santerre Mezzanine Loan, which we refer to as the Santerre Portfolio, by converting the outstanding principal amount of the Santerre Mezzanine Loan to equity, with no additional consideration being paid. Our ownership of the Santerre Portfolio is subject to an existing approximately $i1 billion non-recourse Santerre Senior Loan, which is secured by the Santerre Portfolio, bears interest at a current weighted average rate of LIBOR + i1.84%
and matures on June 9, 2023. We have given notice to extend the maturity of the Santerre Senior Loan to June 2024, which is subject to the satisfaction of certain conditions, including entering into an interest rate cap for the extension period. The Santerre Senior Loan can be repaid in whole or in part prior to its maturity, without penalty, and assets can be released from the liens, subject to certain conditions.
i
As of March
31, 2023, our indebtedness had the following maturities (dollars in thousands):
Principal Amount Due at Maturity
Unsecured
Revolving Credit
Facility and Commercial Paper Notes (1)(2)
Scheduled
Periodic Amortization
Total Maturities
2023
$
i133,125
$
i—
$
i40,145
$
i173,270
2024
i1,704,464
i—
i48,983
i1,753,447
2025
i2,017,550
i465,210
i43,802
i2,526,562
2026
i1,049,484
i—
i37,605
i1,087,089
2027
i1,329,048
i—
i37,348
i1,366,396
Thereafter
i5,347,575
i—
i152,604
i5,500,179
Total
maturities
$
i11,581,246
$
i465,210
$
i360,487
$
i12,406,943
______________________________
(1)At
March 31, 2023, we had $i319.9 million of borrowings outstanding under our unsecured revolving credit facility and commercial paper program, net of $i145.4 million
of unrestricted cash and cash equivalents.
(2) Commercial paper program borrowings are backstopped by the revolving credit facility. As such, our commercial paper program balances are presented at the maturity date of the revolving credit facility.
/
Derivatives and Hedging
In the normal course of our business, interest rate fluctuations affect future cash flows under our variable rate debt obligations, loans receivable and marketable debt securities, and foreign currency exchange rate fluctuations affect our operating results. We follow established risk management policies and
procedures, including the use of derivative instruments, to mitigate the impact of these risks.
We do not use derivative instruments for trading or speculative purposes, and we have a policy of entering into contracts only with major financial institutions based upon their credit ratings and other factors. When considered together with the underlying exposure that the derivative is designed to hedge, we do not expect that the use of derivatives in this manner would have any material adverse effect on our future financial condition or results of operations.
As of March 31, 2023, our variable rate debt obligations of $i1.3 billion
reflect, in part, the effect of $i144.2 million notional amount of interest rate swaps with maturities in March 2027, that effectively convert fixed rate debt to variable rate debt.
As of March 31, 2023, our fixed rate debt obligations of $i11.1 billion
reflect, in part, the effect of $i537.7 million and C$i538.0 million notional amount of interest rate swaps with maturities ranging from October 2023 to April 2031, in each case that effectively
convert variable rate debt to fixed rate debt.
2023 Activity
In the first quarter of 2023, we hedged an incremental $i200.0 million of variable rate debt to fixed rate debt through the execution in March 2023 of two-year $i400.0 million
notional swaps on our unsecured term loan due in 2027, replacing a $i200.0 million notional swap that matured in January 2023. The swap instruments are designated as cash flow hedges.
17
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
March 2023, in connection with our new C$i271.8 million mortgage debt, we entered into an interest rate swap totaling a notional amount of C$i271.8 million with a maturity of March
14, 2028 that effectively converts CDOR-based floating rate debt to fixed rate debt.
In March and April 2023, we entered into a total of $i250.0 million aggregate forward starting swaps with a ten-year weighted average rate of i3.37%:
•In
March 2023, we entered into a total of $i200.0 million of notional forward starting swaps that reduced our exposure to fluctuations in interest rates related to changes in rates between the trade dates of the swaps and the forecasted issuance of long-term debt. The rate on the notional amounts was locked at a ten-year weighted average rate of i3.41%.
The forward-starting interest rate swap instruments are designated as cash flow hedges.
•In April 2023, we entered into a total of $i50.0 million of notional forward starting swaps that reduced our exposure to fluctuations in interest rates related to changes in rates between the trade dates of the swap and the forecasted issuance of long-term debt. The rate on the notional amounts was locked at a ten-year weighted average rate of i3.17%.
The forward-starting interest rate swap instruments are designated as cash flow hedges.
On May 1, 2023, in connection with taking ownership of the Santerre Portfolio, which is collateral for the Santerre Senior Loan, we also took ownership of existing interest rate caps based on LIBOR with an aggregate notional amount of $i1.5 billion that expire in June 2023. The objective of the interest rate caps is to offset the variability of cash flows in the Santerre Senior Loan
interest payments attributable to fluctuations in LIBOR beyond i3.36%. In order to extend the maturity of the Santerre Senior Loan, which we intend to do, we will be required to obtain an interest rate cap in the notional amount of the Santerre Senior Loan covering the extended period, based on market terms and conditions. We currently expect the interest rate cap required in connection with the extension of the Santerre Senior Loan to be available for a minimal cost and to be “out of the money.” As a result, based on current market conditions, we expect to
pay the actual interest due under the Santerre Senior Loan without the benefit of payments from the new interest rate cap.
i
NOTE 10—FAIR VALUES OF FINANCIAL INSTRUMENTS
i
The
carrying amounts and fair values of our financial instruments were as follows (dollars in thousands):
Government-sponsored
pooled loan investments, net (3)
i—
i—
i43,406
i43,406
Derivative
instruments (3)(5)
i17,998
i17,998
i24,316
i24,316
Liabilities:
Senior
notes payable and other debt, gross (3)(4)
i12,406,943
i11,694,570
i12,361,244
i11,493,824
Derivative
instruments (3)(6)
i2,623
i2,623
i145
i145
Redeemable
OP Units (2)
i157,432
i157,432
i162,663
i162,663
______________________________
(1)The
carrying amount approximates fair value due to the short maturity of these instruments.
(2)Level 1: Fair value calculated based on unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access.
(3)Level 2: Fair value calculated using inputs other than quoted prices included in level one that are directly or indirectly observable for the asset or liability. Level two inputs may include quoted prices for similar assets and liabilities in active markets and other inputs for the asset or liability that are observable at commonly quoted intervals, such as interest rates, foreign exchange rates and yield curves.
(4)Level 3: Fair value calculated using unobservable inputs for the asset or liability, which typically are
based on our own assumptions, because there is little, if any, related market activity.
//
18
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(5)Included in other assets on our Consolidated Balance Sheets.
(6)Included in accounts payable and other liabilities
on our Consolidated Balance Sheets.
The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented above are not necessarily indicative of the amounts we would realize in a current market exchange.
i
NOTE 11—COMMITMENTS AND CONTINGENCIES
From
time to time, we are party to various lawsuits, investigations, claims and other legal and regulatory proceedings arising in connection with our business. In certain circumstances, regardless of whether we are a named party in a lawsuit, investigation, claim or other legal or regulatory proceeding, we may be contractually obligated to indemnify, defend and hold harmless our tenants, operators, managers or other third parties against, or may otherwise be responsible for, such actions, proceedings or claims. These claims may include, among other things, professional liability and general liability claims, commercial liability claims, unfair business practices claims and employment claims, as well as regulatory proceedings, including proceedings related to our senior housing operating portfolio, where we are typically the holder of the applicable healthcare license. These claims may not be fully insured and some may allege large damage amounts.
It
is the opinion of management, that the disposition of any such lawsuits, investigations, claims and other legal and regulatory proceedings that are currently pending will not, individually or in the aggregate, have a material adverse effect on us. However, regardless of the merits of a particular action, investigation or claim, we may be forced to expend significant financial resources to defend and resolve these matters. We are unable to predict the ultimate outcome of these lawsuits, investigations, claims and other legal and regulatory proceedings, and if management’s assessment of our liability with respect thereto is incorrect, such actions, investigations and claims could have a material adverse effect on us.
i
NOTE
12—INCOME TAXES
We have elected to be taxed as a REIT under the applicable provisions of the Internal Revenue Code of 1986, as amended, for every year beginning with the year ended December 31, 1999. We have also elected for certain of our subsidiaries to be treated as taxable REIT subsidiaries (“TRS” or “TRS entities”), which are subject to federal, state and foreign income taxes. All entities other than the TRS entities are collectively referred to as the “REIT” within this note. Certain REIT entities are subject to foreign income tax.
Although the
TRS entities and certain other foreign entities have paid minimal federal, state and foreign income taxes for the three months ended March 31, 2023, their income tax liabilities may increase in future periods as we exhaust net operating loss (“NOL”) carryforwards and as our senior living and other operations grow. Such increases could be significant.
Our consolidated provision for income taxes for the three months ended March 31, 2023 and 2022 was a benefit of $i2.8 million
and a benefit of $i4.5 million, respectively. The income tax benefit for the three months ended March 31, 2023 was primarily due to losses in certain of our TRS entities. The income tax benefit for the three months ended March 31, 2022 was primarily due to losses in certain of our TRS entities and a $i2.0 million
benefit from an internal restructuring of a U.S. taxable REIT subsidiary.
Each TRS is a tax paying component for purposes of classifying deferred tax assets and liabilities. Deferred tax liabilities with respect to our TRS entities totaled $i31.9 million and $i35.6
million as of March 31, 2023 and December 31, 2022, respectively, and related primarily to differences between the financial reporting and tax bases of fixed and intangible assets, net of loss carryforwards. Deferred tax assets with respect to our TRS entities totaled $i10.9 million and $i10.5
million as of March 31, 2023 and December 31, 2022, respectively, and related primarily to loss carryforwards.
Generally, we are subject to audit under the statute of limitations by the Internal Revenue Service for the year ended December 31, 2019 and subsequent years and are subject to audit by state taxing authorities for the year ended December 31, 2018 and subsequent years. We are subject to audit generally under the statutes of limitation by the Canada Revenue Agency and provincial authorities with respect to the Canadian entities for the year ended December 31, 2018 and subsequent years. We are subject to audit in the United
Kingdom generally for periods ended in and subsequent to 2021.
/
19
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
i
NOTE
13—STOCKHOLDERS' EQUITY
Capital Stock
We participate in an “at-the-market” equity offering program (“ATM program”), pursuant to which we may, from time to time, sell up to $i1.0 billion aggregate gross sales price of shares of our common stock. There were no issuances under the ATM program for the three months ended March
31, 2023. As of March 31, 2023, $i1.0 billion aggregate gross sales price of shares of our common stock remains available for issuance under the ATM program.
Accumulated Other Comprehensive Loss
i
The
following is a summary of our accumulated other comprehensive loss (dollars in thousands):
Numerator for basic and diluted earnings per share:
Income from continuing operations
$
i18,912
$
i40,592
Net
income
i18,912
i40,592
Net
income attributable to noncontrolling interests
i1,395
i1,860
Net
income attributable to common stockholders
$
i17,517
$
i38,732
Denominator:
Denominator
for basic earnings per share—weighted average shares
i399,989
i399,297
Effect
of dilutive securities:
Stock options
i—
i25
Restricted
stock awards
i320
i421
OP
unitholder interests
i3,483
i3,517
Denominator
for diluted earnings per share—adjusted weighted average shares
i403,792
i403,260
Basic
earnings per share:
Income from continuing operations
$
i0.05
$
i0.10
Net
income attributable to common stockholders
i0.04
i0.10
Diluted
earnings per share: (1)
Income from continuing operations
$
i0.05
$
i0.10
Net
income attributable to common stockholders
i0.04
i0.10
______________________________
(1)
Potential common shares are not included in the computation of diluted earnings per share when a loss from continuing operations exists as the effect would be an antidilutive per share amount.
//
20
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
i
NOTE
15—SEGMENT INFORMATION
As of March 31, 2023, we operated through ithree reportable business segments: triple-net leased properties, SHOP and office operations. In our triple-net leased properties reportable business segment, we invest in and own senior housing and healthcare properties throughout the United States and the United Kingdom and lease those properties to healthcare operating companies under triple-net or absolute-net
leases that obligate the tenants to pay all property-related expenses. In our SHOP reportable business segment, we invest in senior housing communities throughout the United States and Canada and engage independent operators, such as Atria and Sunrise, to manage those communities. In our office operations reportable business segment, we primarily acquire, own, develop, lease and manage MOBs and life science, research and innovation centers throughout the United States. Information provided for “non-segment” includes management fees and promote revenues, net of expenses related to our third-party institutional capital management business, income from loans and investments and various corporate-level expenses not directly attributable to any of our ithree
reportable business segments. Assets included in “non-segment” consist primarily of corporate assets, including cash, restricted cash, loans receivable and investments, and miscellaneous accounts receivable.
Our chief operating decision maker evaluates performance of the combined properties in each reportable business segment and determines how to allocate resources to those segments, in significant part, based on NOI and related measures for each segment. We define NOI as total revenues, less interest and other income, property-level operating expenses and third party capital management expenses. We consider NOI useful because it allows investors, analysts and our management to measure unlevered property-level operating results and to compare our operating results to the operating results of other real estate companies between periods on a consistent basis. In order to facilitate
a clear understanding of our historical consolidated operating results, NOI should be examined in conjunction with net income attributable to common stockholders as presented in our Consolidated Financial Statements and other financial data included elsewhere in this Quarterly Report on Form 10-Q. See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and reconciliations of net income attributable to common stockholders, as computed in accordance with GAAP, to NOI.
Interest expense, depreciation and amortization, general, administrative and professional fees, income tax expense and other non-property-specific revenues and expenses are not allocated to individual reportable business segments for purposes of assessing segment performance. There are ino
intersegment sales or transfers.
/
21
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
iSummary
information by reportable business segment is as follows (dollars in thousands):
Net income attributable to noncontrolling interests
i1,860
Net
income attributable to common stockholders
$
i38,732
i
Capital
expenditures, including investments in real estate property and development project expenditures, by reportable business segment are as follows (dollars in thousands):
Our portfolio of properties and mortgage loan and other investments are located in the United States, Canada and the United Kingdom. Revenues are attributed to an individual country based on the location of each property. iGeographic information regarding
our operations is as follows (dollars in thousands):
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated or except where the context otherwise requires, the terms “we,”“us,”“our,”“Company” and other similar terms in Item 2 of this Quarterly Report on Form 10-Q refer to Ventas, Inc. and its consolidated subsidiaries.
Cautionary Statements
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, among others, statements of expectations, beliefs, future plans and strategies, anticipated results from operations and developments and other matters that are not historical facts. Forward-looking statements include, among other things, statements regarding our and our officers’ intent, belief or expectation as identified by the use of words such as “assume,”“may,”“will,”“project,”“expect,”“believe,”“intend,”“anticipate,”“seek,”“target,”“forecast,”“plan,”“potential,”“opportunity,”“estimate,”“could,”“would,”“should” and other comparable and derivative terms or the negatives thereof.
Forward-looking statements are based on management’s
beliefs as well as on a number of assumptions concerning future events. You should not put undue reliance on these forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and other factors that could cause actual events or results to differ materially from those expressed or implied by the forward-looking statements. We do not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made. We urge you to carefully review the disclosures we make concerning risks and uncertainties that may affect our business and future financial performance, including those made below and in our filings with the Securities and Exchange Commission, such as in the sections titled “Cautionary Statements — Summary Risk Factors,”“Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form
10-K for the year ended December 31, 2022.
Certain factors that could affect our future results and our ability to achieve our stated goals include, but are not limited to: (a) the impact of the ongoing COVID-19 pandemic and other viruses and infections, such as flu and respiratory syncytial virus, and their extended consequences, including of any variants, on our revenue, level of profitability, liquidity and overall risk exposure and the implementation and impact of regulations related to the CARES Act and other stimulus legislation and any future COVID-19 relief measures; (b) our ability to achieve the anticipated benefits and synergies from, and effectively integrate, our completed or anticipated acquisitions and investments, including our acquisition of the Santerre Portfolio; (c) our exposure and the exposure of our tenants, managers
and borrowers to complex healthcare and other regulation and the challenges and expense associated with complying with such regulation; (d) the potential for significant general and commercial claims, legal actions, regulatory proceedings or enforcement actions that could subject us or our tenants, managers or borrowers to increased operating costs and uninsured liabilities; (e) the impact of market and general economic conditions on us and our tenants, managers and borrowers, including economic and financial market events, such as bank failures and other events affecting financial institutions, market volatility, increases in inflation, changes in interest rates and exchange rates, tightening of lending standards and reduced availability of credit or capital, supply chain pressures, rising labor costs and historically low unemployment, events that affect consumer confidence, our occupancy rates and resident fee revenues, and the actual and perceived state of the real
estate markets, labor markets and public and private capital markets; (f) our reliance and the reliance of our tenants, managers and borrowers on the financial, credit and capital markets and the risk that those markets may be disrupted or become constrained, including as a result of bank failures or concerns or rumors about such events, tightening of lending standards and reduced availability of credit or capital; (g) our ability, and the ability of our tenants, managers and borrowers, to navigate the trends impacting our or their businesses and the industries in which we or they operate; (h) the risk of bankruptcy, inability to obtain benefits from governmental programs, insolvency or financial deterioration of our tenants, managers, borrowers and other obligors which may, among other things, have an adverse impact on the ability of such parties to pay obligations due to us or our financial results and financial condition; (i) the risk that we may be unable to foreclose
successfully on the collateral securing our loans and other investments in the event of a borrower default and, if we are able to foreclose or otherwise acquire assets in lieu of foreclosure, the risk that we will be required to incur additional expense or indebtedness in connection therewith, that the assets will underperform expectations or that we may not be able to subsequently dispose of all or part of such assets on favorable terms; (j) the recognition of reserves, allowances, credit losses or impairment charges are inherently uncertain, may increase or decrease in the future and may not represent or reflect the ultimate value of, or loss that we ultimately realize with respect to, the relevant assets, which could have an adverse impact on our results of operations and financial condition; (k) the non-renewal of any leases or management agreement or defaults by tenants or managers thereunder and the risk of our inability to replace those tenants or managers on
favorable terms, if at all; (l) our ability to identify and consummate future investments in or dispositions of healthcare assets and effectively
25
manage our portfolio opportunities and our investments in co-investment vehicles, joint ventures and minority interests, including our ability to dispose of such assets on favorable terms as a result of rights of first offer or rights of first refusal in favor of third parties; (m) risks related to development, redevelopment and construction projects, including costs associated with inflation, rising interest rates, labor conditions and supply chain pressures; (n) our ability to attract and retain talented employees; (o) the limitations and significant requirements imposed upon our business as a result of our status as a REIT
and the adverse consequences (including the possible loss of our status as a REIT) that would result if we are not able to comply with such requirements; (p) the risk of changes in healthcare law or regulation or in tax laws, guidance and interpretations, particularly as applied to REITs, that could adversely affect us or our tenants, managers or borrowers; (q) increases in our borrowing costs as a result of becoming more leveraged, including in connection with acquisitions or other investment activity, rising interest rates and the phasing out of LIBOR rates; (r) our reliance on third parties to operate a majority of our assets and our limited control and influence over such operations and results; (s) our dependency on a limited number of tenants and managers for a significant portion of our revenues and operating income; (t) the adequacy and pricing of insurance coverage provided by our policies and policies maintained by our tenants, managers or other counterparties;
(u) the occurrence of cyber incidents that could disrupt our operations, result in the loss of confidential information or damage our business relationships and reputation; (v) the impact of merger, acquisition and investment activity in the healthcare industry or otherwise affecting our tenants, managers or borrowers; (w) disruptions to the management and operations of our business and the uncertainties caused by activist investors; (x) the risk of catastrophic or extreme weather and other natural events and the physical effects of climate change; (y) the impact of purchase accounting adjustments, impairments, write downs and other non-cash charges related to our acquisition of the Santerre Portfolio; and (z) the other factors set forth in our periodic filings with the Securities and Exchange Commission.
Note Regarding Third-Party Information
This
Quarterly Report includes information that has been derived from SEC filings that has been provided to us by our tenants and managers or been derived from SEC filings or other publicly available information of our tenants and managers. We believe that such information is accurate and that the sources from which it has been obtained are reliable. However, we cannot guarantee the accuracy of such information and have not independently verified the assumptions on which such information is based.
Company Overview
Ventas, Inc., an S&P 500 company, is a real estate investment trust operating at the intersection of healthcare and real estate. We hold a highly diversified portfolio of senior housing
communities, medical office buildings (“MOBs”), life science, research and innovation centers, hospitals and other healthcare facilities, which we generally refer to collectively as “healthcare real estate,” located throughout the United States, Canada, and the United Kingdom. As of March 31, 2023, we owned or had investments in approximately 1,200 properties (including properties classified as held for sale). Our company was originally founded in 1983 and is headquartered in Chicago, Illinois with additional corporate offices in Louisville, Kentucky and New York, New York.
We primarily invest in a diversified portfolio of healthcare real estate assets through wholly owned subsidiaries
and other co-investment entities. We operate through three reportable business segments: triple-net leased properties, senior housing operating portfolio, which we also refer to as “SHOP” and which was formerly known as senior living operations, and office operations. See our Consolidated Financial Statements and the related notes, including “Note 2 – Accounting Policies” and “Note 15 – Segment Information,” included in Item 1 of this Quarterly Report on Form 10-Q. Our senior housing communities are either subject to triple-net leases, in which case they are included in our triple-net leased properties reportable business segment, or operated by independent third-party managers, in which case they are included in our SHOP reportable business segment.
As of March 31, 2023, we leased a total of 312 properties (excluding
properties within our office operations reportable business segment) to various healthcare operating companies under triple-net or absolute-net leases that obligate the tenants to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures. Our three largest tenants, Brookdale Senior Living Inc. (together with its subsidiaries, “Brookdale Senior Living”), Ardent Health Partners, LLC (together with its subsidiaries, “Ardent”) and Kindred Healthcare, LLC (together with its subsidiaries, “Kindred”) leased from us 121 properties, 30 properties (including 19 MOBs) and 29 properties, respectively, as of March
31, 2023.
26
As of March 31, 2023, pursuant to long-term management agreements, we engaged independent operators, such as Atria Senior Living, Inc. (together with its subsidiaries, including Holiday Retirement (“Holiday”), “Atria”) and Sunrise Senior Living, LLC (together with its subsidiaries, “Sunrise”), to manage 560 senior housing communities in our SHOP reportable business segment.
As of
March 31, 2023, we owned or had investments in 373 properties in our office operations reportable business segment. These properties generally consist of MOBs that are predominantly located on or contiguous to a health system campus and life science, research and innovation properties that are affiliated with and often located on or contiguous to a university or academic medical campus. Through our Lillibridge Healthcare Services, Inc. (“Lillibridge”) subsidiary and our ownership interest in PMB Real Estate Services LLC (“PMBRES”), we also provide MOB management, leasing, marketing, facility development and advisory services to highly rated hospitals and health systems throughout the United States.
In addition, from time to time, we make secured and unsecured loans and other investments relating to healthcare real estate
or operators.
We have a third-party institutional capital management business, Ventas Investment Management (“VIM”), which includes our open-ended investment vehicle, the Ventas Life Science & Healthcare Real Estate Fund (the “Ventas Fund”). Through VIM, we partner with third-party institutional investors to invest in healthcare real estate through various joint ventures and other co-investment vehicles where we are the sponsor or general partner.
We aim to enhance shareholder value by delivering consistent, superior total returns through a strategy of (1) generating reliable and growing cash flows, (2) maintaining a balanced, diversified portfolio of high-quality assets and (3) preserving our financial strength, flexibility and liquidity.
Our
ability to access capital in a timely and cost-effective manner is critical to the success of our business strategy because it affects our ability to satisfy existing obligations, including the repayment of maturing indebtedness, and to make future investments. Factors such as general market conditions, interest rates, credit ratings on our securities, expectations of our potential future earnings and cash distributions, and the trading price of our common stock impact our access to and cost of external capital. For that reason, we generally attempt to match the long-term duration of our investments in real property with long-term financing through the issuance of shares of our common stock or the incurrence of long-term fixed rate debt.
2023 Highlights
Continuing
Impact of and Response to COVID-19 and Its Extended Consequences
Starting in 2020, our business was significantly impacted by both the COVID-19 pandemic itself, including actions taken to prevent the spread of the virus and its variants, and its extended consequences. The trajectory and future impact of COVID-19 remains highly uncertain. The extent of COVID-19’s continuing and ultimate effect on our operational and financial performance will depend on a variety of factors, including the impact of new variants of the virus and the effectiveness of available vaccines against those variants; ongoing clinical experience, which may differ considerably across governmental and regulatory bodies and regions and fluctuate over time; and on other future developments, including the ultimate duration, spread and intensity of the outbreak, the availability of testing, the extent to which governments
impose, roll-back or re-impose preventative restrictions and the availability of ongoing government financial support to our business, tenants and operators. Due to these uncertainties, we are not able at this time to estimate the ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows.
Investments and Dispositions
•During the three months ended March 31, 2023, we committed to a MOB ground-up development located on the Sutter Roseville Medical Center campus in Roseville, California. The $61.8 million project includes the development of a new class A MOB and is 100% pre-leased to affiliates of Sutter Health for a 15-year lease term.
•During
the three months ended March 31, 2023, we sold five senior housing communities (three of which were vacant), four MOBs and two vacant triple-net leased properties for aggregate consideration of $46.4 million and recognized a net gain on the sale of these assets of $10.2 million in our Consolidated Statements of Income.
•On May 1, 2023, we took ownership of the collateral that supported our cash-pay mezzanine loan to Santerre Health Investors (the “Santerre Mezzanine Loan”) by converting the outstanding principal amount of the Santerre Mezzanine Loan to equity, with no additional consideration being paid. As a result, the Santerre Mezzanine Loan is no longer
27
outstanding.
The Company received payment of full contractual interest on the Santerre Mezzanine Loan through the April 2023 payment date. The properties consist of a diverse pool of medical office buildings, senior housing operating portfolio communities, triple-net leased skilled nursing facilities and hospital assets in the United States (such assets, collectively, the “Santerre Portfolio”). Our ownership of the Santerre Portfolio is subject to an existing approximately $1 billion non-recourse senior loan (the “Santerre Senior Loan”) secured by the Santerre Portfolio.
Liquidity and Capital
•As of March 31, 2023, we had approximately $2.4 billion
in liquidity, including availability under our revolving credit facility and cash and cash equivalents on hand, with $425.0 million borrowings outstanding under our commercial paper program.
•As of March 31, 2023, we have $1.0 billion remaining under our “at-the-market” equity offering program (“ATM program”), under which we may sell up to $1.0 billion aggregate gross sales price of shares of our common stock.
•In March 2023, we entered into a new five year C$271.8 million mortgage debt secured by 14 SHOP communities in Canada at an effective fixed rate of 4.36%.
•In the first quarter
of 2023, we hedged an incremental $200.0 million of variable rate debt to fixed rate debt through the execution in March 2023 of two-year $400.0 million notional swaps on our unsecured term loan due in 2027, replacing a $200.0 million notional swap that matured in January 2023.
•In March and April 2023, we entered into a total of $250.0 million aggregate forward starting swaps with a ten-year weighted average rate of 3.37%.
•In April 2023, our 100% owned subsidiary, Ventas Canada Finance Limited (“Ventas Canada”), issued and sold C$600.0 million aggregate principal amount of 5.398% Senior Notes due 2028 in a private placement at par. Pursuant to cash tender offers, we used the proceeds to repurchase C$613.7 million in aggregate principal amount of
outstanding senior notes due in 2024 for an aggregate purchase price of C$600.0 million plus accrued and unpaid interest to, but not including, the settlement date.
•Our ownership of the Santerre Portfolio is subject to an existing approximately $1 billion non-recourse Santerre Senior Loan, which is secured by the Santerre Portfolio, bears interest at a current weighted average rate of LIBOR + 1.84% and matures on June 9, 2023. We have given notice to extend the maturity of the Santerre Senior Loan to June 2024, which is subject to the satisfaction of certain conditions, including entering into an interest rate cap for the extension period. The Santerre Senior Loan can be repaid in whole or in part prior to its maturity, without penalty, and assets can be released from the liens, subject to certain conditions.
Other
Items
•As of March 31, 2023, we held a 9.8% ownership interest in Ardent, which entitled us to customary minority rights and protections, including the right to appoint one member to the Ardent Board of Directors. In May 2023, we sold approximately 24% of our ownership interest in Ardent to a third-party investor for approximately $50 million in total proceeds. As a result of the sale, we expect to recognize approximately $34 million of gain in the second quarter of 2023 in income from unconsolidated entities in our Consolidated Statements of Income and our ownership interest in Ardent will be reduced to approximately 7.5%. Following the transaction, we continue to have the same minority rights and protections, including the right to appoint one member to the Ardent Board of Directors.
28
Concentration
Risk
We use concentration ratios to identify, understand and evaluate the potential impact of economic downturns and other adverse events that may affect our asset types, geographic locations, business models, and tenants, operators and managers. We evaluate concentration risk in terms of investment mix and operations mix. Investment mix measures the percentage of our investments that is concentrated in a specific asset type or that is operated or managed by a particular tenant, operator or manager. Operations mix measures the percentage of our operating results that is attributed to a particular tenant, operator or manager, geographic location or business model.
The following tables reflect our concentration risk as of the dates and for the periods presented:
Inpatient rehabilitation facilities (“IRFs”) and long-term acute care facilities (“LTACs”)
1.5
1.5
Skilled nursing facilities (“SNFs”)
0.6
0.6
Secured
loans receivable and investments, net
1.6
1.8
Total
100.0
%
100.0
%
Investment mix by tenant, operator and manager (1):
Atria (2)
26.0
%
26.0
%
Sunrise
9.9
9.8
Lillibridge
9.3
9.3
Brookdale
Senior Living
7.8
7.8
Le Groupe Maurice
7.1
7.0
Wexford
6.6
6.6
Ardent
5.3
5.3
Kindred
0.8
0.8
All
other
27.2
27.4
Total
100.0
%
100.0
%
______________________________
(1)Ratios are based on the gross book value of consolidated real estate investments (excluding properties classified as held for sale) as of each reporting date.
Operations mix by tenant and operator and business model:
Revenues (1):
SHOP
65.5
%
64.0
%
Brookdale
Senior Living (2)
3.5
3.7
Kindred
3.0
3.3
Ardent
3.1
3.2
All
others
24.9
25.8
Total
100.0
%
100.0
%
Net operating income (“NOI”):
SHOP
36.0
%
37.1
%
Brookdale
Senior Living (2)
8.0
7.8
Kindred
7.0
7.0
Ardent
7.1
6.8
All
others
41.9
41.3
Total
100.0
%
100.0
%
Operations mix by geographic location (3):
California
14.3
%
15.0
%
New
York
7.7
7.4
Texas
6.5
6.6
Pennsylvania
5.2
4.8
North
Carolina
4.2
4.4
All others
62.1
61.8
Total
100.0
%
100.0
%
______________________________
(1)Total
revenues include third party capital management revenues, revenue from loans and investments and interest and other income (including amounts related to assets classified as held for sale).
(2)Results exclude nine senior housing communities which are included in the SHOP reportable business segment.
(3)Ratios are based on total revenues (including amounts related to assets classified as held for sale) for each period presented.
See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and reconciliations of net income attributable to common stockholders, as computed in accordance with GAAP, to NOI.
Triple-Net
Lease Performance and Expirations
Any failure, inability or unwillingness by our tenants to satisfy their obligations under our triple-net leases could have a material adverse effect on us. Also, if our tenants are not able or willing to renew our triple-net leases upon expiration, we may be unable to reposition the applicable properties on a timely basis or on the same or better economic terms, if at all. Although our lease expirations are staggered, the non-renewal of some or all of our triple-net leases that expire in any given year could have a material adverse effect on us. During the three months ended March 31, 2023, we had no triple-net lease renewals or expirations without renewal that, in the aggregate, had a material impact on our financial condition or results of operations for that period.
Critical
Accounting Policies and Estimates
Our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the SEC instructions to Form 10-Q and Article 10 of Regulation S-X. GAAP requires us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities, the disclosure of contingent assets
30
and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base these estimates on our experience and assumptions we believe to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements. We periodically reevaluate our estimates and assumptions, and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain.
Our 2022 Annual Report contains additional information regarding the critical accounting policies that affect our more significant estimates and judgments
used in the preparation of our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. There have been no material changes to these policies in 2023.
Results of Operations
As of March 31, 2023, we operated through three reportable business segments: triple-net leased properties, SHOP and office operations. In our triple-net leased properties reportable business segment, we invest in and own senior housing and healthcare properties throughout the United States and the United Kingdom and lease those properties to healthcare operating companies under triple-net or absolute-net leases
that obligate the tenants to pay all property-related expenses. In our SHOP reportable business segment, we invest in senior housing communities throughout the United States and Canada and engage independent operators, such as Atria and Sunrise, to manage those communities. In our office operations reportable business segment, we primarily acquire, own, develop, lease and manage MOBs and life science, research and innovation centers throughout the United States. Information provided for “non-segment” includes income from loans and investments and other miscellaneous income and various corporate-level expenses not directly attributable to any of our three reportable business segments. Assets included in “non-segment” consist primarily of corporate assets, including cash, restricted cash, loans receivable and investments, and miscellaneous accounts receivable.
Our chief
operating decision maker evaluates performance of the combined properties in each reportable business segment and determines how to allocate resources to those segments, in significant part, based on net operating income (“NOI”) and related measures for each segment. For further information regarding our reportable business segments and a discussion of our definition of NOI, see “Note 15 – Segment Information” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and reconciliations of net income attributable to common stockholders, as computed in accordance with GAAP, to NOI.
The table below shows our results of operations for the three months ended March 31, 2023 and 2022 and the effect of changes in those results from period to period on our net income attributable to common stockholders (dollars in thousands):
For
the Three Months Ended March 31,
(Decrease) Increase to Net Income
2023
2022
$
%
NOI:
SHOP
$
167,771
$
175,591
$
(7,820)
(4.5)
%
Office
operations
136,719
137,974
(1,255)
(0.9)
Triple-net leased properties
145,943
147,553
(1,610)
(1.1)
Non-segment
15,432
11,866
3,566
30.1
Total
NOI
465,865
472,984
(7,119)
(1.5)
Interest and other income
1,743
536
1,207
nm
Interest expense
(128,075)
(110,794)
(17,281)
(15.6)
Depreciation
and amortization
(282,119)
(289,064)
6,945
2.4
General, administrative and professional fees
(44,798)
(42,998)
(1,800)
(4.2)
Transaction
expenses and deal costs
(1,386)
(19,992)
18,606
93.1
Allowance on loans receivable and investments
8,064
54
8,010
nm
Other
(7,762)
27,190
(34,952)
(128.5)
Income
before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests
11,532
37,916
(26,384)
(69.6)
Loss from unconsolidated entities
(5,623)
(4,269)
(1,354)
(31.7)
Gain
on real estate dispositions
10,201
2,455
7,746
nm
Income tax benefit
2,802
4,490
(1,688)
(37.6)
Income from
continuing operations
18,912
40,592
(21,680)
(53.4)
Net income
18,912
40,592
(21,680)
(53.4)
Net
income attributable to noncontrolling interests
1,395
1,860
465
25.0
Net income attributable to common stockholders
$
17,517
$
38,732
$
(21,215)
(54.8)
______________________________
nm
- not meaningful
NOI—SHOP
The following table summarizes results of operations in our SHOP reportable business segment, including assets sold or classified as held for sale as of March 31, 2023 (dollars in thousands):
For
the Three Months Ended March 31,
Increase (Decrease) to NOI
2023
2022
$
%
NOI—SHOP:
Resident fees and services
$
704,993
$
651,121
$
53,872
8.3
%
Less:
Property-level operating expenses
(537,222)
(475,530)
(61,692)
(13.0)
NOI
$
167,771
$
175,591
$
(7,820)
(4.5)
Number
of Properties at March 31,
Average Unit Occupancy for the Three Months Ended March 31,
Average Monthly Revenue Per Occupied Room for the Three Months Ended March 31,
2023
2022
2023
2022
2023
2022
Total
communities
551
546
80.6
%
80.0
%
$
4,624
$
4,370
32
Resident
fees and services include all amounts earned from residents at our senior housing communities, such as rental fees related to resident leases, extended health care fees and other ancillary service income. Property-level operating expenses related to our SHOP reportable business segment include labor, food, utilities, marketing, management and other costs of operating the properties. For senior housing communities in our SHOP reportable business segment, occupancy generally reflects average operator-reported unit occupancy for the reporting period. Average monthly revenue per occupied room reflects average resident fees and services per operator-reported occupied unit for the reporting period.
The NOI decrease in our SHOP reportable business segment for the three months ended March 31, 2023 compared to the same period in 2022 was driven
by $34.0 million of HHS grants received in 2022, which are reflected as a reduction in property-level operating expenses, offset by higher revenues in 2023 driven by higher occupancy and revenue per occupied room. No HHS grants were received in 2023.
The following table compares results of operations for our 507 same-store SHOP communities (dollars in thousands). See “Non-GAAP Financial Measures—NOI” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure regarding same-store NOI for each of our reportable business segments.
For
the Three Months Ended March 31,
Increase (Decrease) to NOI
2023
2022
$
%
Same-Store NOI—SHOP:
Resident fees and
services
$
652,941
$
605,469
$
47,472
7.8
%
Less: Property-level operating expenses
(494,380)
(440,725)
(53,655)
(12.2)
NOI
$
158,561
$
164,744
$
(6,183)
(3.8)
Number
of Properties at March 31,
Average Unit Occupancy for the Three Months Ended March 31,
Average Monthly Revenue Per Occupied Room for the Three Months Ended March 31,
2023
2022
2023
2022
2023
2022
Same-store
communities
507
507
81.3
%
80.5
%
$
4,646
$
4,352
The NOI decrease in our same-store SHOP reportable business segment for the three months ended March
31, 2023 compared to the same period in 2022 was primarily driven by $30.7 million of HHS grants received in 2022, offset by higher revenues in 2023 driven by higher occupancy and revenue per occupied room. No HHS grants were received in 2023.
NOI—Office Operations
The following table summarizes results of operations in our office operations reportable business segment, including assets sold or classified as held for sale as of March 31, 2023 (dollars in thousands). For properties in our office operations reportable business segment, occupancy generally reflects occupied square footage divided by net rentable square footage as of the end of the reporting period.
For
the Three Months Ended March 31,
Increase (Decrease) to NOI
2023
2022
$
%
NOI—Office Operations:
Rental income
$
203,004
$
200,540
$
2,464
1.2
%
Third
party capital management revenues
628
617
11
1.8
Total revenues
203,632
201,157
2,475
1.2
Less:
Property-level
operating expenses
(66,913)
(63,183)
(3,730)
(5.9)
NOI
$
136,719
$
137,974
$
(1,255)
(0.9)
33
Number
of Properties at March 31,
Occupancy at March 31,
Annualized Average Rent Per Occupied Square Foot for the Three Months Ended March 31,
2023
2022
2023
2022
2023
2022
Total office buildings
355
361
89.6
%
90.5
%
$
37
$
36
The
NOI decrease in office operations reportable business segment for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to dispositions of non-core assets, partially offset by leasing activity, high tenant retention, improved parking revenues and acquisitions subsequent to March 31, 2022.
The following table compares results of operations for our 327 same-store office buildings (dollars in thousands):
For
the Three Months Ended March 31,
Increase (Decrease) to NOI
2023
2022
$
%
Same-Store NOI—Office Operations:
Rental
income
$
191,770
$
187,593
$
4,177
2.2
%
Less: Property-level operating expenses
(62,690)
(59,513)
(3,177)
(5.3)
NOI
$
129,080
$
128,080
$
1,000
0.8
Number
of Properties at March 31,
Occupancy at March 31,
Annualized Average Rent Per Occupied Square Foot for the Three Months Ended March 31,
2023
2022
2023
2022
2023
2022
Same-store office buildings
327
327
91.5
%
91.2
%
$
37
$
37
The
NOI increase in our same-store office operations reportable business segment for the three months ended March 31, 2023 compared to the same period in 2022 was primarily driven by leasing activity, high tenant retention and improved parking revenues.
NOI—Triple-Net Leased Properties
The following table summarizes results of operations in our triple-net leased properties reportable business segment, including assets sold or classified as held for sale as of March 31, 2023 (dollars in thousands):
For
the Three Months Ended March 31,
(Decrease) Increase to NOI
2023
2022
$
%
NOI—Triple-Net Leased Properties:
Rental
income
$
149,739
$
151,561
$
(1,822)
(1.2)
%
Less: Property-level operating expenses
(3,796)
(4,008)
212
5.3
NOI
$
145,943
$
147,553
$
(1,610)
(1.1)
In
our triple-net leased properties reportable business segment, our revenues generally consist of fixed rental amounts (subject to contractual escalations) received from our tenants in accordance with the applicable lease terms. We report revenues and property-level operating expenses within our triple-net leased properties reportable business segment for real estate tax and insurance expenses that are paid from escrows collected from our tenants.
The NOI decrease in our triple-net leased properties for the three months ended March 31, 2023 compared to the same period in 2022 was primarily driven by rental income from communities that were transitioned to our senior housing operating portfolio or sold and lease resolutions with several smaller senior housing triple-net tenants who were materially affected by COVID-19, offset by additional
rental income received and contractual rent escalators.
34
Occupancy rates may affect the profitability of our tenants’ operations. For senior housing communities and post-acute properties in our triple-net leased properties reportable business segment, occupancy generally reflects average operator-reported unit and bed occupancy, respectively, for the reporting period. Because triple-net financials are delivered to us following the reporting period, occupancy is reported in arrears. The following table sets forth average continuing occupancy rates for the fourth quarter of 2022 and 2021 related to the triple-net leased properties we owned at March 31, 2023 and 2022,
respectively. The table excludes non-stabilized properties, properties owned through investments in unconsolidated real estate entities, certain properties for which we do not receive occupancy information and properties acquired or properties that transitioned operators for which we do not have a full quarter of occupancy results.
The following table compares results of operations for our 312 same-store triple-net leased properties (dollars in thousands):
For
the Three Months Ended March 31,
Increase to NOI
2023
2022
$
%
Same-Store NOI—Triple-Net Leased Properties:
Rental
income
$
149,738
$
146,426
$
3,312
2.3
%
Less: Property-level operating expenses
(3,794)
(3,798)
4
0.1
NOI
$
145,944
$
142,628
$
3,316
2.3
The
NOI increase in our same-store triple-net leased portfolio for the three months ended March 31, 2023 compared to the same period in 2022 was primarily driven by additional rental income received and contractual rent escalators, partially offset by previously executed lease resolutions with several smaller senior housing triple-net tenants who were materially affected by COVID-19.
NOI—Non-Segment
Information provided for non-segment NOI includes management fees and promote revenues, net of expenses, related to our third-party institutional capital management business, income from loans and investments and various corporate-level expenses not directly attributable to any of our three reportable business segments. The $3.6 million increase in non-segment
NOI for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to higher interest income from loans receivable and investments due to higher interest rates, partially offset by a $43.4 million loan investment that was repaid at par in February 2023.
Company Results
Interest and Other Income
The $1.2 million increase in interest and other income for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to higher interest rates earned on our bank deposits.
Interest
Expense
The $17.3 million increase in interest expense for the three months ended March 31, 2023 compared to the same period in 2022 was due to a higher effective interest rate. Our weighted average debt outstanding was $12.4 billion and $12.3 billion for the three months ended March 31, 2023 and 2022, respectively. Our weighted average effective interest rate was 4.04% and 3.49% for the three months ended March 31, 2023 and 2022, respectively. Capitalized interest was $2.7 million and $2.5 million for the three months ended March 31, 2023 and 2022,
respectively.
35
Depreciation and Amortization
The $6.9 million decrease in depreciation and amortization expense for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to less impairment recognized in the first quarter of 2023 as compared to the same period in 2022.
General, Administrative and Professional Fees
The $1.8 million increase in general, administrative and professional
fees for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to inflationary impacts and the return to a more normalized business environment.
Transaction Expenses and Deal Costs
The $18.6 million decrease in transaction expenses and deal costs for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to higher costs in 2022 in connection with stockholder relations matters.
Allowance on Loans Receivable and Investments
The $8.0 million change in allowance on
loans receivable and investments for the three months ended March 31, 2023 compared to the same period in 2022 was due to an $8.0 million partial reversal in the current quarter of the $20.0 million allowance recognized in the fourth quarter of 2022 on the Santerre Mezzanine Loan, resulting in a remaining $12.0 million allowance, primarily due to a change in the fair value of the Santerre Senior Loan and working capital. As of March 31, 2023, the Santerre Mezzanine Loan had a gross book value of $485.3 million. On May 1, 2023, we took ownership of the collateral that supported the Santerre Mezzanine Loan by converting the outstanding principal amount of the Santerre Mezzanine Loan to equity, with no additional consideration being paid. As a result, the Santerre Mezzanine Loan is no longer outstanding.
Other
The
$35.0 million change in other expense for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to a decrease of $27.6 million in unrealized gain on stock warrants received in connection with the Brookdale Senior Living lease modification and a $6.6 million change relating to materially disruptive events, primarily clean-up costs and impairment associated with winter storm Elliott. As of March 31, 2023, the fair value of the stock warrants was $24.6 million, which was $3.5 million lower than the value at the grant date.
Loss from Unconsolidated Entities
The $1.4 million increase in loss from unconsolidated entities for the three months ended March
31, 2023 compared to the same period in 2022 was primarily due to our share of higher net loss from our unconsolidated entities.
Gain on Real Estate Dispositions
The $7.7 million increase in gain on real estate dispositions for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to the dispositions of five senior housing communities (three of which were vacant), four MOBs and two vacant triple-net leased properties, which resulted in a gain on sale of $10.2 million recognized during the first quarter of 2023.
Income Tax Benefit
The $2.8 million of income tax benefit
for the three months ended March 31, 2023 was primarily due to operating losses at certain of our TRS entities. The $4.5 million of income tax benefit for the three months ended March 31, 2022 was primarily due to losses in certain of our TRS entities and a $2.0 million benefit from an internal restructuring of a U.S. taxable REIT subsidiary.
36
Non-GAAP Financial Measures
We consider certain non-GAAP financial measures to be useful supplemental
measures of our operating performance. A non-GAAP financial measure is a measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are not so excluded from or included in the most directly comparable measure calculated and presented in accordance with U.S. GAAP. Described below are the non-GAAP financial measures used by management to evaluate our operating performance and that we consider most useful to investors, together with reconciliations of these measures to the most directly comparable GAAP measures.
The non-GAAP financial measures we present in this Quarterly Report on Form 10-Q may not be comparable to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. You should not consider these measures as alternatives to net income attributable
to common stockholders (determined in accordance with GAAP) as indicators of our financial performance or as alternatives to cash flow from operating activities (determined in accordance with GAAP) as measures of our liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs. In order to facilitate a clear understanding of our consolidated historical operating results, you should examine these measures in conjunction with net income attributable to common stockholders as presented in our Consolidated Financial Statements and other financial data included elsewhere in this Quarterly Report on Form 10-Q.
Funds From Operations and Normalized Funds From Operations Attributable to Common Stockholders
Historical cost accounting for real estate assets implicitly
assumes that the value of real estate assets diminishes predictably over time. However, since real estate values historically have risen or fallen with market conditions, many industry investors deem presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. For that reason, we consider Funds From Operations attributable to common stockholders (“FFO”) and Normalized FFO to be appropriate supplemental measures of operating performance of an equity REIT. We believe that the presentation of FFO, combined with the presentation of required GAAP financial measures, has improved the understanding of operating results of REITs among the investing public and has helped make comparisons of REIT operating results more meaningful. Management generally considers FFO to be a useful measure for understanding and comparing our operating results because, by excluding gains and losses related to sales of previously
depreciated operating real estate assets, impairment losses on depreciable real estate and real estate asset depreciation and amortization (which can differ across owners of similar assets in similar condition based on historical cost accounting and useful life estimates), FFO can help investors compare the operating performance of a company’s real estate across reporting periods and to the operating performance of other companies. We believe that Normalized FFO is useful because it allows investors, analysts and our management to compare our operating performance to the operating performance of other real estate companies across periods on a consistent basis without having to account for differences caused by non-recurring items and other non-operational events such as transactions and litigation. In some cases, we provide information about identified non-cash components of FFO and Normalized FFO because it allows investors, analysts and our management to assess the
impact of those items on our financial results.
We use the National Association of Real Estate Investment Trusts (“Nareit”) definition of FFO. Nareit defines FFO as net income attributable to common stockholders (computed in accordance with GAAP) excluding gains (or losses) from sales of real estate property, including gain (or loss) on re-measurement of equity method investments and impairment write-downs of depreciable real estate, plus real estate depreciation and amortization, and after adjustments for unconsolidated entities and noncontrolling interests. Adjustments for unconsolidated entities and noncontrolling interests will be calculated to reflect FFO on the same basis. We define Normalized FFO as Nareit FFO excluding the following income and expense items, without duplication: (a) transaction expenses and deal costs, including transaction, integration and severance-related
costs and expenses, and amortization of intangibles, in each case net of noncontrolling interests’ share of these items and including Ventas’ share of these items from unconsolidated entities; (b) the impact of expenses related to asset impairment and valuation allowances, the write-off of unamortized deferred financing fees or additional costs, expenses, discounts, make-whole payments, penalties or premiums incurred as a result of early retirement or payment of our debt; (c) the non-cash effect of income tax benefits or expenses, the non-cash impact of changes to our executive equity compensation plan, derivative transactions that have non-cash mark-to-market impacts on our Consolidated Statements of Income and non-cash charges related to leases; (d) the financial impact of contingent consideration; (e) gains and losses for non-operational foreign currency hedge agreements and changes in the fair value of financial instruments; (f) gains and losses on non-real estate
dispositions and other items related to unconsolidated entities; (g) net expenses or recoveries related to materially disruptive events; and (h) other items set forth in the Normalized FFO reconciliation included herein.
37
The following table summarizes our FFO and Normalized FFO for the three months ended March 31, 2023 and 2022 (dollars in thousands). Normalized FFO for the three months ended March 31, 2022 includes $34.0 million of HHS grants received in 2022, which reduced property-level operating expenses. Excluding HHS grants, Normalized FFO for the three months ended March
31, 2023 increased over the same period in 2022 due to increased net operating income from our properties led by our SHOP reportable business segment as a result of increased revenues, partially offset by higher interest expense.
Depreciation and amortization on real estate assets
281,477
288,103
Depreciation
on real estate assets related to noncontrolling interests
(4,377)
(4,449)
Depreciation on real estate assets related to unconsolidated entities
10,177
7,265
Gain on real estate dispositions
(10,201)
(2,455)
(Loss)
gain on real estate dispositions related to noncontrolling interests
(5)
17
Gain on real estate dispositions and other related to unconsolidated entities
(180)
—
Nareit
FFO attributable to common stockholders
294,408
327,213
Adjustments:
Change in fair value of financial instruments
(77)
(29,881)
Non-cash
income tax benefit
(4,272)
(5,805)
Loss (gain) on transactions related to unconsolidated entities
180
(3)
Transaction
expenses and deal costs, net of noncontrolling interests and including Ventas’ share attributable to unconsolidated entities
2,104
21,288
Amortization of other intangibles including Ventas’ share attributable to unconsolidated entities
96
268
Other items related to unconsolidated
entities
1,087
131
Non-cash impact of changes to equity plan
7,222
7,206
Materially disruptive events, net including Ventas’ share attributable to unconsolidated entities
4,186
(3,709)
Allowance
on loan investments and impairment of unconsolidated entities, net of noncontrolling interests
(8,063)
(53)
Normalized FFO attributable to common stockholders
$
296,871
$
316,655
38
NOI
We
also consider NOI an important supplemental measure because it allows investors, analysts and our management to assess our unlevered property-level operating results and to compare our operating results with those of other real estate companies and between periods on a consistent basis. We define NOI as total revenues, less interest and other income, property-level operating expenses and third party capital management expenses.
The following table sets forth a reconciliation of net income attributable to common stockholders to NOI (dollars in thousands):
Net income attributable to noncontrolling interests
1,395
1,860
Loss
from unconsolidated entities
5,623
4,269
Income tax benefit
(2,802)
(4,490)
Gain on real estate dispositions
(10,201)
(2,455)
NOI
$
465,865
$
472,984
See
“Results of Operations” for discussions regarding both NOI and same-store NOI. We define same-store as properties owned, consolidated and operational for the full period in both comparison periods and that are not otherwise excluded; provided, however, that we may include selected properties that otherwise meet the same-store criteria if they are included in substantially all of, but not a full, period for one or both of the comparison periods, and in our judgment such inclusion provides a more meaningful presentation of our segment performance.
Newly acquired development properties and recently developed or redeveloped properties in our SHOP reportable business segment will be included in same-store once they are stabilized for the full period in both periods presented. These properties are considered stabilized upon the earlier of (a) the achievement of 80% sustained occupancy
or (b) 24 months from the date of acquisition or substantial completion of work. Recently developed or redeveloped properties in our office operations and triple-net leased properties reportable business segments will be included in same-store once substantial completion of work has occurred for the full period in both periods presented. Our senior housing operating portfolio and triple-net leased properties that have undergone operator or business model transitions will be included in same-store once operating under consistent operating structures for the full period in both periods presented.
Properties are excluded from same-store if they are: (i) sold, classified as held for sale or properties whose operations were classified as discontinued operations in accordance with GAAP; (ii) impacted by materially disruptive events such as flood or fire; (iii) for SHOP, those properties
that are currently undergoing a materially disruptive redevelopment; (iv) for our office operations and triple-net leased properties reportable business segments, those properties for which management has an intention to institute, or has instituted, a redevelopment plan because the properties may require major property-level expenditures to maximize value, increase NOI, or maintain a market-competitive position and/or achieve property stabilization, most commonly as the result of an expected or actual material change in occupancy or NOI; or (v) for SHOP and triple-net leased properties reportable business segments, those properties that are scheduled to undergo operator or business model transitions, or have transitioned operators or business models after the start of the prior comparison period.
To eliminate the impact of exchange rate movements, all portfolio performance-based
disclosures assume constant exchange rates across comparable periods, using the following methodology: the current period’s results are shown in actual
39
reported USD, while prior comparison period’s results are adjusted and converted to USD based on the average exchange rate for the current period.
Liquidity and Capital Resources
Our principal sources of liquidity are cash flows from operations, proceeds from the issuance of debt and equity securities, borrowings under
our unsecured revolving credit facility and commercial paper program, and proceeds from asset sales.
For the next 12 months, our principal liquidity needs are to: (i) fund operating expenses; (ii) meet our debt service requirements; (iii) repay maturing mortgage and other debt; (iv) fund acquisitions, investments and commitments and any development and redevelopment activities; (v) fund capital expenditures; and (vi) make distributions to our stockholders and unitholders, as required for us to continue to qualify as a REIT. Depending upon the availability of external capital, we believe our liquidity is sufficient to fund these uses of cash. We expect that these liquidity needs generally will be satisfied by a combination of the following: cash flows from operations, cash on hand, debt assumptions and financings (including secured financings), issuances of debt and equity securities,
dispositions of assets (in whole or in part through joint venture arrangements with third parties) and borrowings under our revolving credit facilities and commercial paper program. However, an inability to access liquidity through multiple capital sources concurrently could have a material adverse effect on us.
Our material contractual obligations arising in the normal course of business primarily consist of long-term debt and related interest payments, and operating obligations which include ground lease obligations. During the three months ended March 31, 2023, there were no significant changes to our contractual obligations from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report. See “Note 9 – Senior Notes Payable And Other Debt” of the Notes to Consolidated Financial
Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding our significant debt activities.
We may, from time to time, seek to retire or purchase our outstanding indebtedness for cash or in exchange for equity securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, prospects for capital and other factors. The amounts involved may be material.
Loans Receivable and Investments
As of March 31, 2023, the Santerre Mezzanine Loan had a principal balance of $486.1 million
and gross book value of $485.3 million, and was priced at LIBOR + 6.42%. On May 1, 2023, we took ownership of the collateral that supported the Santerre Mezzanine Loan by converting the outstanding principal amount of the Santerre Mezzanine Loan to equity, with no additional consideration being paid. As a result, the Santerre Mezzanine Loan is no longer outstanding.
Credit Facilities, Commercial Paper, Unsecured Term Loans and Letters of Credit
As of March 31, 2023, we had $2.7 billion of undrawn capacity on our unsecured revolving credit facility with $40.2 million outstanding and an additional $1.2 million restricted to support outstanding letters of credit. We limit our use of the unsecured revolving
credit facility, to the extent necessary, to support our commercial paper program when commercial paper notes are outstanding.
As of March 31, 2023, our $100.0 million uncommitted line for standby letters of credit had an outstanding balance of $14.5 million. The agreement governing the line contains certain customary covenants and, under its terms, we are required to pay a commission on each outstanding letter of credit at a fixed rate.
Our wholly owned subsidiary, Ventas Realty, Limited Partnership (“Ventas Realty”), may issue from time to time unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $1.0 billion. The notes are sold under customary terms in the U.S. commercial paper note market and are ranked
pari passu with all of Ventas Realty’s other unsecured senior indebtedness. The notes are fully and unconditionally guaranteed by Ventas, Inc. As of March 31, 2023, we had $425.0 million in borrowings outstanding under our commercial paper program.
As of March 31, 2023, we had a C$500.0 million unsecured term loan facility priced at Canadian Dollar Offered Rate (“CDOR”) plus 0.90% that matures in 2025.
40
Senior Notes
In April 2023, our 100% owned subsidiary,
Ventas Canada Finance Limited (“Ventas Canada”), issued and sold C$600.0 million aggregate principal amount of 5.398% Senior Notes due 2028 in a private placement at par. Pursuant to cash tender offers, we used the proceeds to repurchase C$613.7 million in aggregate principal amount of outstanding senior notes due in 2024 for an aggregate purchase price of C$600.0 million plus accrued and unpaid interest as disclosed below:
•In April 2023, we repurchased C$527.0 million principal amount of our 2.80% Senior Notes, Series E due April 2024 at 97.6% of par value, plus accrued and unpaid interest to, but not including, the settlement date.
•In April 2023, we repurchased C$86.7 million principal amount of our 4.125% Senior Notes, Series B due September
2024 at 98.5% of par value, plus accrued and unpaid interest to, but not including, the settlement date.
Mortgages
In March 2023, we entered into a C$271.8 million floating rate mortgage debt maturing in 2028 with an interest rate of CDOR + 0.88%. The mortgage is secured by 14 SHOP communities in Canada.
On May 1, 2023, we took ownership of the collateral that supported the Santerre Mezzanine Loan, which we refer to as the Santerre Portfolio, by converting the outstanding principal amount of the Santerre Mezzanine Loan to equity, with no additional consideration being paid. Our ownership of the Santerre Portfolio is subject to an existing approximately $1 billion non-recourse
Santerre Senior Loan, which is secured by the Santerre Portfolio, bears interest at a current weighted average rate of LIBOR + 1.84% and matures on June 9, 2023. We have given notice to extend the maturity of the Santerre Senior Loan to June 2024, which is subject to the satisfaction of certain conditions, including entering into an interest rate cap for the extension period. The Santerre Senior Loan can be repaid in whole or in part prior to its maturity, without penalty, and assets can be released from the liens, subject to certain conditions.
Equity Offerings
We participate in an “at-the-market” equity offering program (“ATM program”), pursuant to which we may, from time to time, sell up to $1.0 billion aggregate gross sales price of
shares of our common stock. There were no issuances under the ATM program for the three months ended March 31, 2023. As of March 31, 2023, $1.0 billion aggregate gross sales price of shares of our common stock remains available for issuance under the ATM program.
Derivatives and Hedging
In the normal course of our business, interest rate fluctuations affect future cash flows under our variable rate debt obligations, loans receivable and marketable debt securities, and foreign currency exchange rate fluctuations affect our operating results. We follow established risk management policies and procedures, including the use of derivative instruments, to mitigate the impact of these risks.
In
the first quarter of 2023, we hedged an incremental $200.0 million of variable rate debt to fixed rate debt through the execution in March 2023 of two-year $400.0 million notional swaps on our unsecured term loan due in 2027, replacing a $200.0 million notional swap that matured in January 2023. The swap instruments are designated as cash flow hedges.
In March 2023, in connection with our new C$271.8 million mortgage debt, we entered into an interest rate swap totaling a notional amount of C$271.8 million with a maturity of March 14, 2028 that effectively converts CDOR-based floating rate debt to fixed rate debt.
In March and April 2023, we entered into a total of $250.0 million aggregate forward starting swaps with a ten-year weighted average rate of
3.37%:
•In March 2023, we entered into a total of $200.0 million of notional forward starting swaps that reduced our exposure to fluctuations in interest rates related to changes in rates between the trade dates of the swaps and the forecasted issuance of long-term debt. The rate on the notional amounts was locked at a ten-year weighted average rate of 3.41%. The forward-starting interest rate swap instruments are designated as cash flow hedges.
41
•In April 2023, we entered into a total of $50.0 million of notional forward starting swaps that reduced our exposure to fluctuations in interest rates related
to changes in rates between the trade dates of the swap and the forecasted issuance of long-term debt. The rate on the notional amounts was locked at a ten-year weighted average rate of 3.17%. The forward-starting interest rate swap instruments are designated as cash flow hedges.
On May 1, 2023, in connection with taking ownership of the Santerre Portfolio, which is collateral for the Santerre Senior Loan, we also took ownership of existing interest rate caps based on LIBOR with an aggregate notional amount of $1.5 billion that expire in June 2023. The objective of the interest rate caps is to offset the variability of cash flows in the Santerre Senior Loan interest payments attributable to fluctuations in LIBOR beyond 3.36%. In order to extend the maturity of the Santerre Senior Loan, which we intend to do, we will be required to obtain
an interest rate cap in the notional amount of the Santerre Senior Loan covering the extended period, based on market terms and conditions. We currently expect the interest rate cap required in connection with the extension of the Santerre Senior Loan to be available for a minimal cost and to be “out of the money.” As a result, based on current market conditions, we expect to pay the actual interest due under the Santerre Senior Loan without the benefit of payments from the new interest rate cap.
Dividends
During the three months ended March 31, 2023, we declared a dividend of $0.45 per share of our common stock. In order to continue to qualify as a REIT, we must make annual distributions to our stockholders of at least 90% of our REIT taxable
income (excluding net capital gain). In addition, we will be subject to income tax at the regular corporate rate to the extent we distribute less than 100% of our REIT taxable income, including any net capital gains. We intend to pay dividends greater than 100% of our taxable income, after the use of any net operating loss carryforwards, for 2023.
We expect that our cash flows will exceed our REIT taxable income due to depreciation and other non-cash deductions in computing REIT taxable income and that we will be able to satisfy the 90% distribution requirement. However, from time to time, we may not have sufficient cash on hand or other liquid assets to meet this requirement or we may decide to retain cash or distribute such greater amount as may be necessary to avoid income and excise taxation. If we do not have sufficient cash on hand or other liquid assets to enable us to satisfy
the 90% distribution requirement, or if we desire to retain cash, we may borrow funds, issue additional equity securities, pay taxable stock dividends, if possible, distribute other property or securities or engage in a transaction intended to enable us to meet the REIT distribution requirements or any combination of the foregoing.
Cash Flows
The following table sets forth our sources and uses of cash flows for the three months ended March 31, 2023 and 2022 (dollars in thousands):
For
the Three Months Ended March 31,
(Decrease) Increase to Cash
2023
2022
$
%
Cash, cash equivalents and restricted cash at beginning of period
$
170,745
$
196,597
$
(25,852)
(13.1)%
Net
cash provided by operating activities
242,817
274,553
(31,736)
(11.6)
Net cash used in investing activities
(56,280)
(437,326)
381,046
87.1
Net
cash (used in) provided by financing activities
(162,107)
165,382
(327,489)
(198.0)
Effect of foreign currency translation
106
241
(135)
(56.0)
Cash,
cash equivalents and restricted cash at end of period
$
195,281
$
199,447
$
(4,166)
(2.1)
Cash Flows from Operating Activities
Cash flows from operating activities decreased $31.7 million during the three months ended March 31, 2023
compared to the same period in 2022 primarily due to no HHS grants received and higher interest expense in 2023, partially offset by higher property NOI in 2023, and higher transaction expenses and deal costs in 2022 in connection with stockholder relations matters.
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Cash Flows from Investing Activities
Cash flows from investing activities increased $381.0 million during the three months ended March 31, 2023 compared to the same period in 2022 primarily due to higher acquisition volume in 2022.
Cash
Flows from Financing Activities
Cash flows from financing activities decreased $327.5 million during the three months ended March 31, 2023 compared to the same period in 2022 primarily due to decreased borrowings under our commercial paper program in 2023.
Capital Expenditures
The terms of our triple-net leases generally obligate our tenants to pay all capital expenditures necessary to maintain and improve our triple-net leased properties. However, from time to time, we may fund the capital expenditures for our triple-net leased properties through loans or advances to the tenants, which may increase the amount of rent payable with respect to the properties in
certain cases. We may also fund capital expenditures for which we may become responsible upon expiration of our triple-net leases or in the event that our tenants are unable or unwilling to meet their obligations under those leases. We also expect to fund capital expenditures related to our SHOP and office operations reportable business segments with the cash flows from the properties or through additional borrowings. We expect that these liquidity needs generally will be satisfied by a combination of the following: cash flows from operations, cash on hand, debt assumptions and financings (including secured financings), issuances of debt and equity securities, dispositions of assets (in whole or in part through joint venture arrangements with third parties) and borrowings under our revolving credit facilities and commercial paper program.
To the extent that unanticipated capital expenditure
needs arise or significant borrowings are required, our liquidity may be affected adversely. Our ability to borrow additional funds may be restricted in certain circumstances by the terms of the instruments governing our outstanding indebtedness.
We are party to certain agreements that obligate us to develop senior housing or healthcare properties funded through capital that we and, in certain circumstances, our joint venture partners provide. As of March 31, 2023, we had seven active and committed projects pursuant to these agreements, including three projects that are unconsolidated.
In addition, from time to time, we engage in redevelopment projects with respect to our existing senior housing communities to maximize the value, increase NOI, maintain
a market-competitive position, achieve property stabilization or change the primary use of the property.
Off-Balance Sheet Arrangements
We own interests in certain unconsolidated entities as described in “Note 6 – Investments In Unconsolidated Entities.” Except in limited circumstances, our risk of loss is limited to our investment in the joint venture and any outstanding loans receivable. In addition, we have certain properties which serve as collateral for debt that is owed by a previous owner of certain of our facilities, as described under “Note 9 – Senior Notes Payable And Other Debt” to the Consolidated Financial Statements. Our risk of loss for these certain properties is limited to the outstanding debt balance plus penalties, if any. Further, we use financial derivative instruments
to hedge interest rate and foreign currency exchange rate exposure. Finally, at March 31, 2023, we had $15.7 million outstanding letters of credit obligations. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources except those described above.
Guarantor and Issuer Financial Information
Ventas, Inc. has fully and unconditionally guaranteed the obligation to pay principal and interest with respect to the outstanding senior notes issued by our 100% owned subsidiary, Ventas Realty. None of our other subsidiaries
is obligated with respect to Ventas Realty’s outstanding senior notes.
Ventas, Inc. has also fully and unconditionally guaranteed the obligation to pay principal and interest with respect to the outstanding senior notes issued by our 100% owned subsidiary, Ventas Canada Finance Limited (“Ventas Canada”). None of our other subsidiaries is obligated with respect to Ventas Canada’s outstanding senior notes, all of which were issued on a private placement basis in Canada.
In connection with the acquisition of Nationwide Health Properties, Inc. (“NHP”), our 100% owned subsidiary Nationwide Health Properties, LLC (“NHP LLC”), as successor to NHP, assumed the obligation to pay principal and interest
43
with respect to the outstanding senior notes issued by NHP. Neither we nor any of our subsidiaries (other than NHP LLC) is obligated with respect to any of NHP LLC’s outstanding senior notes.
In addition, Ventas, Inc. has fully and unconditionally guaranteed the obligations under our $2.75 billion unsecured revolving credit facility, our C$500.0 million unsecured term loan facility, the New Credit Agreement and our $100.0 million uncommitted line for standby letters of credit.
Under certain circumstances, contractual
and legal restrictions, including those contained in the instruments governing our subsidiaries’ outstanding mortgage indebtedness, may restrict our ability to obtain cash from our subsidiaries for the purpose of meeting our debt service obligations, including our payment guarantees with respect to Ventas Realty’s and Ventas Canada’s senior notes.
The following summarizes our guarantor and issuer balance sheet and statement of income information as of March 31, 2023 and December 31, 2022 and for the three months ended March 31, 2023 and the year ended December
31, 2022 (in thousands) for each of Ventas Realty, as issuer of certain notes registered under the Exchange Act, and Ventas, Inc., on an unconsolidated basis, as guarantor of such notes:
Loss before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests
(45,383)
(173,407)
Net
loss
(47,447)
(173,407)
Net loss attributable to common stockholders
(47,447)
(173,407)
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion of our exposure to various market risks contains forward-looking statements that involve risks and uncertainties. These projected results have been prepared utilizing certain assumptions considered reasonable in light of information currently available to us. Nevertheless, because of the inherent unpredictability of interest rates and other factors, actual results could differ materially from those projected in such forward-looking information.
We are exposed to market risk related to changes in interest rates with respect to borrowings under our unsecured revolving credit facility, commercial paper program and our unsecured term loans, certain of our mortgage loans that are floating rate obligations, mortgage loans
receivable that bear interest at floating rates and available for sale securities. These market risks result primarily from changes in benchmark interest rates. To manage these risks, we continuously monitor our level of variable rate debt with respect to total debt and other factors, including our assessment of current and future economic conditions.
As of March 31, 2023 and December 31, 2022, the fair value of our secured and non-mortgage loans receivable, based on our estimates of current prevailing rates for comparable loans, was $524.7 million and $517.0 million, respectively.
The fair value of our fixed rate debt is based on current market interest rates at which we could obtain similar borrowings.
Increases in market interest rates typically result in a decrease in the fair value of fixed rate debt while decreases in market interest rates typically result in an increase in the fair value of fixed rate date. While changes in market interest rates affect the fair value of our fixed rate debt, these changes do not affect the interest expense associated with our fixed rate debt. Therefore, interest rate risk does not have a significant impact on our fixed rate debt obligations until their maturity or earlier prepayment and refinancing. If interest rates have risen at the time we seek to refinance our fixed rate debt, whether at maturity or otherwise, our future earnings and cash flows could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of refinancing may reduce our overall borrowing costs.
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To
highlight the sensitivity of our fixed rate debt to changes in interest rates, the following summary shows the effects of a hypothetical instantaneous change of 100 basis points in interest rates (dollars in thousands):
The
variable rate debt in the table above reflects, in part, the effect of $144.2 million notional amount of interest rate swaps with maturities on March 2027, in each case that effectively convert fixed rate debt to variable rate debt. In addition, the fixed rate debt in the table above reflects, in part, the effect of $537.7 million and C$538.0 million notional amount of interest rate swaps with maturities ranging from October 2023 to April 2031, in each case that effectively convert variable rate debt to fixed rate debt. In the first quarter of 2023, we hedged an incremental $200.0 million of variable rate debt to fixed rate debt through the execution in March 2023 of two-year $400.0 million notional swaps on our unsecured term loan due in 2027, replacing a $200.0 million notional swap that matured in January 2023. The swap instruments are designated as cash flow hedges.
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The
decrease in our outstanding variable rate debt and increase in our outstanding fixed rate debt at March 31, 2023 compared to December 31, 2022 is primarily attributable to interest rate swap activity in 2023 effectively converting an incremental $200.0 million of variable rate debt to fixed rate debt.
Assuming a 100 basis point increase in the weighted average interest rate related to our consolidated variable rate debt and assuming no change in our consolidated variable rate debt outstanding as of March 31, 2023 of $1.3 billion, interest expense on an annualized basis would increase by approximately $13.0 million, or $0.03 per diluted common share.
As
of March 31, 2023 and December 31, 2022, our joint venture partners’ aggregate share of total consolidated debt was $280.3 million and $279.0 million, respectively, with respect to certain properties we owned through consolidated joint ventures.
Total consolidated debt does not include our portion of unconsolidated debt related to investments in unconsolidated real estate entities, which was $469.1 million and $454.4 million as of March 31, 2023 and December 31, 2022, respectively.
As a result of our Canadian and United Kingdom operations, we are subject to fluctuations in certain foreign currency
exchange rates that may, from time to time, affect our financial condition and operating performance. Based solely on our results for the three months ended March 31, 2023 (including the impact of existing hedging arrangements), if the value of the U.S. dollar relative to the British pound and Canadian dollar were to increase or decrease by one standard deviation compared to the average exchange rate during the year, our Normalized FFO per share for the three months ended March 31, 2023 would decrease or increase as applicable, by less than $0.01 per share or 1%. We will continue to mitigate these risks through a layered approach to hedging looking out for the next year and continual assessment of our foreign operational capital structure. Nevertheless, we cannot assure you that any such fluctuations will not have an effect on our earnings.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2023. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of March 31, 2023, at the reasonable assurance level.
Internal
Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting during the first quarter of 2023 (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
The information contained in “Note 11 – Commitments And Contingencies” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated by reference into this Item 1. Except as set forth therein, there have been no new material legal proceedings and no material developments in the legal proceedings reported in our 2022 Annual Report.
ITEM 1A. RISK FACTORS
In the first quarter of 2023, there were no significant new risk factors from those disclosed under Part I, Item
1A. “Risk Factors” of our 2022 Annual Report. However, the risks and uncertainties that we face are not limited to those set forth in the 2022 Annual Report. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business, results of operations and financial condition.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
We do not have a publicly announced repurchase plan or program in effect. The table below summarizes other repurchases of our common stock
made during the quarter ended March 31, 2023.
Number of Shares
Repurchased (1)
Average Price Per Share
Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs
January 1 through January 31
169,436
$
48.77
—
—
February 1 through February 28
60,896
50.73
—
—
March
1 through March 31
34,327
48.56
—
—
Total
264,659
$
49.19
—
—
______________________________
(1)Repurchases
represent shares withheld to pay taxes on the vesting of restricted stock granted to employees under our 2012 Incentive Plan. The value of the shares withheld is the closing price of our common stock on the date the vesting (or, if the vesting date is not a trading day, on the immediately preceding trading day).
Ninth Supplemental Indenture dated as of April 21, 2023 by and among Ventas Canada Finance Limited,
as Issuer, Ventas, Inc., as Guarantor, and Computershare Trust Company of Canada, as Trustee, relating to the 5.398% Senior Notes, Series I due 2028.
Certification of Debra A. Cafaro, Chairman and Chief Executive Officer,
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
Certification of Robert F. Probst, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
Certification of Debra
A. Cafaro, Chairman and Chief Executive Officer, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350.
Certification of Robert F. Probst, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350.
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The following materials from the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2023, formatted in XBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Equity, (v) the Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements.
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Cover Page Interactive Data File (formatted as inline XBRL).
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
