Ventas(US:VTR)2023-05-09 19:09PART I—FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Ventas, Inc. as of March 31, 2023, and for the three months ended March 31, 2023 and 2022, including Balance Sheets, Statements of Income, Comprehensive Income, Equity, and Cash Flows, along with accompanying notes Consolidated Balance Sheets As of March 31, 2023, total assets decreased to $23.99 billion from $24.16 billion, while total liabilities remained stable at $13.67 billion and total equity declined to $10.06 billion Consolidated Balance Sheet Summary (in thousands) | Account | As of March 31, 2023 | As of December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $23,994,168 | $24,157,840 | | Net real estate property | $20,999,309 | $21,160,450 | | Cash and cash equivalents | $145,357 | $122,564 | | Total Liabilities | $13,669,680 | $13,671,513 | | Senior notes payable and other debt | $12,342,506 | $12,296,780 | | Total Equity | $10,064,602 | $10,221,677 | Consolidated Statements of Income Total revenues for Q1 2023 increased to $1.08 billion, but net income attributable to common stockholders declined to $17.5 million ($0.04 per diluted share) from $38.7 million ($0.10 per diluted share) in the prior-year period, primarily due to higher expenses Statement of Income Summary (in thousands, except per share data) | Metric | For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenues | $1,077,245 | $1,017,554 | | Total expenses | $1,065,713 | $979,638 | | Net income | $18,912 | $40,592 | | Net income attributable to common stockholders | $17,517 | $38,732 | | Diluted EPS | $0.04 | $0.10 | Consolidated Statements of Cash Flows In Q1 2023, net cash from operating activities decreased to $242.8 million, investing activities used significantly less cash at $56.3 million, and financing activities reversed from providing $165.4 million to using $162.1 million Cash Flow Summary (in thousands) | Cash Flow Activity | For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $242,817 | $274,553 | | Net cash used in investing activities | ($56,280) | ($437,326) | | Net cash (used in) provided by financing activities | ($162,107) | $165,382 | | Net increase in cash | $24,430 | $2,609 | Notes to Consolidated Financial Statements The notes detail Ventas's healthcare REIT business across three segments, its ~1,200 properties, key tenants, $46.4 million in dispositions, $12.3 billion in debt, and the impact of absent prior-year HHS grants on SHOP NOI - Ventas operates a diversified portfolio of ~1,200 healthcare real estate properties through three segments: Triple-Net Leased Properties, Senior Housing Operating Portfolio (SHOP), and Office Operations2425 - Significant tenant/manager concentration exists with Atria, Sunrise, and Brookdale Senior Living, who managed or operated 26.0%, 9.9%, and 7.8% of consolidated real estate investments by gross book value, respectively39 - In Q1 2023, the company sold 11 properties for $46.4 million, recognizing a net gain of $10.2 million48 - Total senior notes payable and other debt stood at $12.34 billion as of March 31, 2023. Subsequent to quarter-end, the company issued C$600 million of senior notes due 2028 to repurchase notes maturing in 20246977 - On May 1, 2023, the company acquired the Santerre Portfolio by converting its mezzanine loan to equity. This portfolio is subject to an existing ~$1 billion non-recourse senior loan5280 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial condition, operations, and liquidity, highlighting segment performance, NOI decline due to absent prior-year government grants, strategic activities, concentration risks, and non-GAAP measures like FFO and NOI Company Overview and 2023 Highlights Ventas, a diversified healthcare REIT, highlights Q1 2023 strategic dispositions, new development commitments, significant financing activities, and the May 1 acquisition of the Santerre Portfolio and sale of Ardent ownership interest for ~$50 million - On May 1, 2023, Ventas acquired the Santerre Portfolio (a diverse pool of MOBs, SHOP communities, SNFs, and hospitals) by converting its mezzanine loan to equity. The portfolio is subject to an existing ~$1 billion non-recourse senior loan134135 - In Q1 2023, the company sold 11 properties for $46.4 million and committed to a new $61.8 million MOB development in Roseville, CA, which is 100% pre-leased to Sutter Health134 - In May 2023, Ventas sold ~24% of its ownership interest in Ardent for ~$50 million, expecting to recognize a ~$34 million gain in Q2 2023. Its ownership is now reduced to ~7.5%137 - The company executed several financing activities, including issuing C$600M of senior notes due 2028 to refinance debt, entering a new C$271.8M mortgage, and executing $250M in forward-starting swaps136 Concentration Risk The company monitors concentration risk, with senior housing communities comprising 66.4% of investments, Atria as the largest manager at 26.0% of gross book value, and the SHOP segment contributing 36.0% of total NOI Investment Mix by Asset Type (as of March 31, 2023) | Asset Type | Percentage | | :--- | :--- | | Senior housing communities | 66.4% | | MOBs | 18.0% | | Life science, research and innovation | 7.0% | | Health systems | 4.9% | | All other | 3.7% | Operations Mix by NOI (Q1 2023) | Segment / Tenant | Percentage of NOI | | :--- | :--- | | SHOP | 36.0% | | Brookdale Senior Living | 8.0% | | Ardent | 7.1% | | Kindred | 7.0% | | All others | 41.9% | Results of Operations Total NOI for Q1 2023 decreased 1.5% to $465.9 million, mainly due to a 4.5% decline in SHOP NOI from absent prior-year HHS grants, with Office and Triple-Net segments also seeing slight decreases, and net income impacted by higher interest expense NOI by Segment (in thousands) | Segment | Q1 2023 NOI | Q1 2022 NOI | % Change | | :--- | :--- | :--- | :--- | | SHOP | $167,771 | $175,591 | (4.5)% | | Office operations | $136,719 | $137,974 | (0.9)% | | Triple-net leased properties | $145,943 | $147,553 | (1.1)% | | Total NOI | $465,865 | $472,984 | (1.5)% | - The SHOP segment's NOI decrease was driven by $34.0 million of HHS grants received in Q1 2022, which were not repeated in Q1 2023. Excluding this, performance improved due to higher occupancy and revenue per occupied room151 - Same-store SHOP occupancy increased to 81.3% in Q1 2023 from 80.5% in Q1 2022, with average monthly revenue per occupied room (RevPOR) increasing to $4,646 from $4,352153 - Interest expense increased by $17.3 million (15.6%) YoY due to a higher weighted average effective interest rate (4.04% in Q1 2023 vs. 3.49% in Q1 2022)164 - Transaction expenses decreased by $18.6 million YoY, primarily due to higher costs in 2022 related to stockholder relations matters167 Non-GAAP Financial Measures For Q1 2023, Nareit FFO was $294.4 million and Normalized FFO was $296.9 million, lower than Q1 2022's $327.2 million and $316.7 million respectively, primarily because prior year figures included $34.0 million in HHS grants FFO and Normalized FFO Reconciliation (in thousands) | Metric | For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net income attributable to common stockholders | $17,517 | $38,732 | | Adjustments (Depreciation, Gain on Sale, etc.) | $276,891 | $288,481 | | Nareit FFO attributable to common stockholders | $294,408 | $327,213 | | Normalizing Adjustments | $2,463 | ($10,558) | | Normalized FFO attributable to common stockholders | $296,871 | $316,655 | - Normalized FFO for Q1 2022 included $34.0 million of HHS grants. Excluding these grants, Normalized FFO for Q1 2023 increased over the same period in 2022177 Liquidity and Capital Resources As of March 31, 2023, Ventas had $2.4 billion in liquidity, with key capital activities including issuing C$600 million in senior notes to refinance 2024 maturities, entering a new C$271.8 million mortgage, and declaring a $0.45 per share dividend - The company's principal sources of liquidity are cash flows from operations, debt and equity issuances, its revolving credit facility, and asset sales186 - As of March 31, 2023, the company had $2.7 billion of undrawn capacity on its unsecured revolving credit facility and $425.0 million in borrowings outstanding under its commercial paper program191193 - In April 2023, Ventas Canada issued C$600.0 million of 5.398% Senior Notes due 2028 and used the proceeds to repurchase C$613.7 million of notes due in 2024195 - The 'at-the-market' (ATM) equity program has $1.0 billion of remaining capacity. No shares were sold under the program in Q1 2023198 - A dividend of $0.45 per common share was declared for the quarter203 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate and foreign currency risks, with $12.4 billion in total debt (89.5% fixed-rate), where a 100 basis point increase on variable-rate debt would raise annual interest expense by $13.0 million, mitigated by derivatives Debt Composition as of March 31, 2023 | Debt Type | Balance (in thousands) | Percentage of Total | | :--- | :--- | :--- | | Fixed rate | $11,109,628 | 89.5% | | Variable rate | $1,297,315 | 10.5% | | Total | $12,406,943 | 100.0% | - A hypothetical 100 basis point increase in the weighted average interest rate on variable-rate debt would increase annualized interest expense by approximately $13.0 million, or $0.03 per diluted share233 - The company uses interest rate swaps to manage its debt profile. As of Q1 2023, swaps effectively converted some fixed-rate debt to variable and a larger amount of variable-rate debt to fixed231 - The company is subject to foreign currency risk from its Canadian and U.K. operations. It uses a layered hedging approach to mitigate this risk, and a one standard deviation change in exchange rates would have a minimal (<$0.01 per share) impact on Normalized FFO235 Item 4. Controls and Procedures As of March 31, 2023, the CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level, with no material changes in internal controls over financial reporting during Q1 2023 - Management, including the CEO and CFO, evaluated disclosure controls and procedures and found them to be effective as of March 31, 2023236 - No changes occurred during Q1 2023 that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting237 PART II—OTHER INFORMATION Item 1. Legal Proceedings The company reports no new material legal proceedings and no material developments in previously reported legal proceedings during the quarter - There have been no new material legal proceedings or material developments in existing ones since the 2022 Annual Report240 Item 1A. Risk Factors There were no significant new risk factors identified in the first quarter of 2023 compared to those disclosed in the company's 2022 Annual Report on Form 10-K - No significant new risk factors arose in Q1 2023 beyond those disclosed in the 2022 Annual Report241 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2023, the company repurchased 264,659 common shares at an average price of $49.19, primarily as shares withheld to satisfy tax obligations upon the vesting of restricted stock for employees, not as part of a publicly announced plan Issuer Purchases of Equity Securities (Q1 2023) | Period | Total Shares Repurchased | Average Price Per Share | | :--- | :--- | :--- | | January 2023 | 169,436 | $48.77 | | February 2023 | 60,896 | $50.73 | | March 2023 | 34,327 | $48.56 | | Total | 264,659 | $49.19 | - All repurchases represent shares withheld to pay taxes on the vesting of restricted stock granted to employees and were not part of a publicly announced repurchase program243 Item 5. Other Information This item is not applicable for the reporting period - Not applicable244 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including a new debt indenture for the 5.398% Senior Notes due 2028, a list of guarantors, CEO and CFO certifications, and XBRL data files - Key exhibits include the Ninth Supplemental Indenture for new Senior Notes, CEO/CFO certifications (Rules 13a-14(a) and 13a-14(b)), and XBRL financial data246