Ventas, Inc 10-Q for FY2021 Q1
Ventas, Inc. (VTR)
10-Q
2021-05-07
For: 2021-03-31
View Original
Added on
April 11, 2026
About this 10-Q
Ventas, Inc filed this 10-Q on May 7, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).
Headline figures
Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $910.29M
- down 10.1% from $1.01B a year earlier
- Net loss
- $55.4M
- compared with net income of $474.73M a year earlier
- Diluted EPS
- -$0.15
- compared with $1.26 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | |||||||||||||||||||||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||||||||||||||||||
| For the quarterly period ended | |||||||||||||||||||||||
| OR | |||||||||||||||||||||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE | |||||||||||||||||||||||
| ACT OF 1934 FOR THE TRANSITION PERIOD FROM____________TO____________ | |||||||||||||||||||||||
Commission file number: 1-10989
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of Principal Executive Offices)
(877 ) 483-6827
(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 | ||||||||||||
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. Yes ☒ 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). Yes ☒ 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.
| ☒ | Accelerated filer ☐ | Non-accelerated filer | ☐ | |||||||||||||||||
| Smaller reporting company | Emerging growth company | |||||||||||||||||||
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 ☐ No ☒
As of May 4, 2021, there were 375,140,627 shares of the registrant’s common stock outstanding.
VENTAS, INC.
FORM 10-Q
INDEX
| Page | ||||||||||||||
Consolidated Financial Statements (Unaudited) | ||||||||||||||
| Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 | ||||||||||||||
| Consolidated Statements of Income for the Three Months Ended March 31, 2021 and 2020 | ||||||||||||||
| Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and 2020 | ||||||||||||||
| Consolidated Statements of Equity for the Three Months Ended March 31, 2021 and 2020 | ||||||||||||||
| Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 | ||||||||||||||
| Item 1A. | ||||||||||||||
| Item 5. | ||||||||||||||
PART I—FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
VENTAS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| As of March 31, 2021 | As of December 31, 2020 | ||||||||||
| (In thousands, except per share amounts) | |||||||||||
| Assets | |||||||||||
| Real estate investments: | |||||||||||
| Land and improvements | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Construction in progress | |||||||||||
| Acquired lease intangibles | |||||||||||
| Operating lease assets | |||||||||||
| Accumulated depreciation and amortization | ( | ( | |||||||||
| Net real estate property | |||||||||||
| Secured loans receivable and investments, net | |||||||||||
| Investments in unconsolidated real estate entities | |||||||||||
| Net real estate investments | |||||||||||
| Cash and cash equivalents | |||||||||||
| Escrow deposits and restricted cash | |||||||||||
| Goodwill | |||||||||||
| Assets held for sale | |||||||||||
| Deferred income tax assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and equity | |||||||||||
| Liabilities: | |||||||||||
| Senior notes payable and other debt | $ | $ | |||||||||
| Accrued interest | |||||||||||
| Operating lease liabilities | |||||||||||
| Accounts payable and other liabilities | |||||||||||
| Liabilities related to assets held for sale | |||||||||||
| Deferred income tax liabilities | |||||||||||
| Total liabilities | |||||||||||
| Redeemable OP unitholder and noncontrolling interests | |||||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
| Ventas stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
| Common stock, $0.25 par value; 600,000 shares authorized, 375,068 and 374,609 shares issued at March 31, 2021 and December 31, 2020, respectively | |||||||||||
| Capital in excess of par value | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained earnings (deficit) | ( | ( | |||||||||
| Treasury stock, 14 and 0 shares at March 31, 2021 and December 31, 2020, respectively | ( | ||||||||||
| Total Ventas stockholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See accompanying notes.
1
VENTAS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Rental income: | |||||||||||||||||||||||
| Triple-net leased | $ | $ | |||||||||||||||||||||
| Office | |||||||||||||||||||||||
| Resident fees and services | |||||||||||||||||||||||
| Office building and other services revenue | |||||||||||||||||||||||
| Income from loans and investments | |||||||||||||||||||||||
| Interest and other income | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||
| Interest | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Property-level operating expenses: | |||||||||||||||||||||||
| Senior living | |||||||||||||||||||||||
| Office | |||||||||||||||||||||||
| Triple-net leased | |||||||||||||||||||||||
| Office building services costs | |||||||||||||||||||||||
| General, administrative and professional fees | |||||||||||||||||||||||
| Loss on extinguishment of debt, net | |||||||||||||||||||||||
| Merger-related expenses and deal costs | |||||||||||||||||||||||
Allowance on loans receivable and investments | ( | ||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| (Loss) income before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests | ( | ||||||||||||||||||||||
| Loss from unconsolidated entities | ( | ( | |||||||||||||||||||||
| Gain on real estate dispositions | |||||||||||||||||||||||
| Income tax (expense) benefit | ( | ||||||||||||||||||||||
| (Loss) income from continuing operations | ( | ||||||||||||||||||||||
| Net (loss) income | ( | ||||||||||||||||||||||
| Net income attributable to noncontrolling interests | |||||||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | ( | $ | ||||||||||||||||||||
| Earnings per common share | |||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||
| (Loss) income from continuing operations | $ | ( | $ | ||||||||||||||||||||
| Net (loss) income attributable to common stockholders | ( | ||||||||||||||||||||||
| Diluted: | |||||||||||||||||||||||
| (Loss) income from continuing operations | $ | ( | $ | ||||||||||||||||||||
| Net (loss) income attributable to common stockholders | ( | ||||||||||||||||||||||
See accompanying notes.
2
VENTAS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | ||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation | ( | ( | |||||||||||||||||||||
| Unrealized loss on available for sale securities | ( | ( | |||||||||||||||||||||
| Derivative instruments | ( | ||||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Comprehensive (loss) income | ( | ||||||||||||||||||||||
| Comprehensive income (loss) attributable to noncontrolling interests | ( | ||||||||||||||||||||||
| Comprehensive (loss) income attributable to common stockholders | $ | ( | $ | ||||||||||||||||||||
See accompanying notes.
3
VENTAS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
| 2019 | Common Stock Par Value | Capital in Excess of Par Value | Accumulated Other Comprehensive Loss | Retained Earnings (Deficit) | Treasury Stock | Total Ventas Stockholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||
| 2019 | (In thousands, except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Net (loss) income | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||||||||||||||||||||||||||
Net change in noncontrolling interests | ( | ||||||||||||||||||||||||||||||||||||||||||||||
Dividends to common stockholders—$ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for stock plans, restricted stock grants and other | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Adjust redeemable OP unitholder interests to current fair value | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
Redemption of OP Units | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
Net change in noncontrolling interests | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Dividends to common stockholders—$ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock plans, restricted stock grants and other | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Adjust redeemable OP unitholder interests to current fair value | |||||||||||||||||||||||||||||||||||||||||||||||
Redemption of OP Units | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
See accompanying notes.
4
VENTAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In thousands) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of deferred revenue and lease intangibles, net | ( | ( | |||||||||
| Other non-cash amortization | |||||||||||
Allowance on loans receivable and investments | ( | ||||||||||
| Stock-based compensation | |||||||||||
| Straight-lining of rental income | ( | ( | |||||||||
| Loss on extinguishment of debt, net | |||||||||||
| Gain on real estate dispositions | ( | ( | |||||||||
| Gain on real estate loan investments | ( | ( | |||||||||
| Income tax expense (benefit) | ( | ||||||||||
| Loss from unconsolidated entities | |||||||||||
| Distributions from unconsolidated entities | |||||||||||
| Other | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Increase in other assets | ( | ( | |||||||||
| Decrease in accrued interest | ( | ( | |||||||||
| Decrease in accounts payable and other liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Net investment in real estate property | ( | ( | |||||||||
| Investment in loans receivable | ( | ( | |||||||||
| Proceeds from real estate disposals | |||||||||||
| Proceeds from loans receivable | |||||||||||
| Development project expenditures | ( | ( | |||||||||
| Capital expenditures | ( | ( | |||||||||
| Investment in unconsolidated entities | ( | ( | |||||||||
| Insurance proceeds for property damage claims | |||||||||||
| Net cash (used in) provided by investing activities | ( | ||||||||||
| Cash flows from financing activities: | |||||||||||
| Net change in borrowings under revolving credit facilities | |||||||||||
| Net change in borrowings under commercial paper program | ( | ||||||||||
| Proceeds from debt | |||||||||||
| Repayment of debt | ( | ( | |||||||||
| Payment of deferred financing costs | ( | ( | |||||||||
| Issuance of common stock, net | |||||||||||
| Cash distribution to common stockholders | ( | ( | |||||||||
| Cash distribution to redeemable OP unitholders | ( | ( | |||||||||
| Cash issued for redemption of OP Units | ( | ( | |||||||||
| Contributions from noncontrolling interests | |||||||||||
| Distributions to noncontrolling interests | ( | ( | |||||||||
| Proceeds from stock option exercises | |||||||||||
| Other | ( | ( | |||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ||||||||||
| Effect of foreign currency translation | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
See accompanying notes.
5
VENTAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
| For the Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In thousands) | |||||||||||
| Supplemental schedule of non-cash activities: | |||||||||||
| Assets acquired and liabilities assumed from acquisitions and other: | |||||||||||
| Real estate investments | $ | $ | |||||||||
| Other assets | |||||||||||
| Other liabilities | |||||||||||
| Noncontrolling interests | |||||||||||
See accompanying notes.
6
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—DESCRIPTION OF BUSINESS
Ventas, Inc. (together with its consolidated subsidiaries, unless otherwise indicated or except where the context otherwise requires, “we,” “us” or “our”), 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, life science, research and innovation and healthcare properties located throughout the United States, Canada and the United Kingdom. As of March 31, 2021, we owned or had investments in approximately 1,200 properties (including properties classified as held for sale), consisting of senior housing communities, medical office buildings (“MOBs”), life science, research and innovation centers, inpatient rehabilitation facilities (“IRFs”) and long-term acute care facilities (“LTACs”) and health systems, which we generally refer to as “healthcare real estate.” Our company was originally founded in 1983 and is headquartered in Chicago, Illinois with an additional corporate office in Louisville, Kentucky.
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 living operations, which we also refer to as SHOP, and office operations. See “Note 2 – Accounting Policies” and “Note 15 – Segment Information.” Our senior housing properties 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 senior living operations reportable business segment.
As of March 31, 2021, we leased a total of 358 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, 12 properties and 32 properties, respectively, as of March 31, 2021.
As of March 31, 2021, pursuant to long-term management agreements, we engaged independent managers, such as Atria Senior Living, Inc. (“Atria”) and Sunrise Senior Living, LLC (together with its subsidiaries, “Sunrise”), to manage 448 senior housing communities in our senior living operations segment for us.
During fiscal 2020 and continuing into fiscal 2021, our business has been, and is expected to continue to be, negatively impacted by the COVID-19 pandemic and actions taken to prevent its spread.
We have not identified the COVID-19 pandemic, on its own, as a “triggering event” for purposes of evaluating impairment of real estate assets, goodwill and other intangibles, investments in unconsolidated entities and financial instruments. However, as of March 31, 2021, we considered the effect of the pandemic on certain of our assets (described below) and our ability to recover the respective carrying values of these assets. We applied our considerations to existing critical accounting policies that require us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities. We based our estimates on our experience and on assumptions we believe to be reasonable under the circumstances. For the quarter ended March 31, 2021 we recognized no COVID-19 related charges in our Consolidated Statements of Income.
The trajectory and future impact of the COVID-19 pandemic remain highly uncertain, although emerging positive SHOP trends in the United States, if sustained, would improve performance over time. The extent of the pandemic’s continuing and ultimate effect on our operational and financial performance will depend on a variety of factors, including the speed at which available vaccines can be successfully deployed; the rate of acceptance of available vaccines, particularly among the residents and staff in our senior housing communities; 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 regions and fluctuate over time; and on other future developments, including the ultimate duration, spread and intensity of the outbreak, the availability of ongoing government financial support to our business, tenants and operators and the slope and pace of recovery of our senior housing business and the U.S. economy more generally. Due to these uncertainties, we are not able at this time to estimate the continuing impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
NOTE 2—ACCOUNTING POLICIES
The 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, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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, 2020 (the “2020 Annual Report”). Certain prior period amounts have been reclassified to conform to the current period presentation.
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.
We identify the primary beneficiary of a VIE as the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. We perform this analysis on an ongoing basis.
As it relates to investments in joint ventures, GAAP may preclude consolidation by the sole general partner in certain circumstances based on the type of rights held by the limited partner or partners. We assess limited partners’ rights and their impact on our consolidation conclusions, and we reassess if there is a change to the terms or in the exercisability of the rights of the limited partners, the sole general partner increases or decreases its ownership of limited partnership (“LP”) interests or there is an increase or decrease in the number of outstanding LP interests. We also apply this guidance to managing member interests in limited liability companies (“LLCs”).
We consolidate several VIEs that share the following common characteristics:
•the VIE is in the legal form of an LP or LLC;
•the VIE was designed to own and manage its underlying real estate investments;
•we are the general partner or managing member of the VIE;
•we own a majority of the voting interests in the VIE;
•a minority of voting interests in the VIE are owned by external third parties, unrelated to us;
•the minority owners do not have substantive kick-out or participating rights in the VIE; and
•we are the primary beneficiary of the VIE.
We have separately identified certain special purpose entities that were established to allow investments in life science, research and innovation projects by tax credit investors (“TCIs”). We have determined that these special purpose entities are VIEs, we are a holder of variable interests and we are the primary beneficiary of the VIEs, and therefore we consolidate these special purpose entities. Our primary beneficiary determination is based upon several factors, including but not limited to the
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
rights we have in directing the activities which most significantly impact the VIEs’ economic performance as well as certain guarantees which protect the TCIs from losses should a tax credit recapture event occur.
In general, the assets of consolidated VIEs are available only for the settlement of the obligations of the respective entities. Unless otherwise required by the LP or LLC agreement, any mortgage loans of the consolidated VIEs are non-recourse to us. The table below summarizes the total assets and liabilities of our consolidated VIEs as reported on our Consolidated Balance Sheets.
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||
| Total Assets | Total Liabilities | Total Assets | Total Liabilities | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| NHP/PMB L.P. | $ | $ | $ | $ | ||||||||||||||||||||||
| Other identified VIEs | ||||||||||||||||||||||||||
| Tax credit VIEs | ||||||||||||||||||||||||||
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 adjust our investment in unconsolidated entities for additional contributions made, distributions received as well as our share of the investee's earnings or losses which is included in our Consolidated Statements of Income.
We base the initial carrying value of investments in unconsolidated entities on the fair value of the assets at the time we acquired the joint venture interest. We estimate fair values for our equity method investments based on discounted cash flow models that include all estimated cash inflows and outflows over a specified holding period and, where applicable, any estimated debt premiums or discounts. The capitalization rates, discount rates and credit spreads we use in these models are based upon assumptions that we believe to be within a reasonable range of current market rates for the respective investments.
We generally amortize any difference between our cost basis and the basis reflected at the joint venture level, if any, over the lives of the related assets and liabilities and include that amortization in our share of income or loss from unconsolidated entities. For earnings of equity method investments with pro rata distribution allocations, net income or loss is allocated between the partners in the joint venture based on their respective stated ownership percentages. In other instances, net income or loss may be allocated between the partners in the joint venture based on the hypothetical liquidation at book value method (the “HLBV method”). Under the HLBV method, net income or loss is allocated between the partners based on the difference between each partner’s claim on the net assets of the joint venture at the end and beginning of the period, after taking into account contributions and distributions. Each partner’s share of the net assets of the joint venture is calculated as the amount that the partner would receive if the joint venture were to liquidate all of its assets at net book value and distribute the resulting cash to creditors and partners in accordance with their respective priorities. Under the HLBV method, in any given period, we could record more or less income than the joint venture has generated, than actual cash distributions we receive or than the amount we may receive in the event of an actual liquidation.
Redeemable OP Unitholder and Noncontrolling Interests
We own a majority interest in NHP/PMB L.P. (“NHP/PMB”), a limited partnership formed in 2008 to acquire properties from entities affiliated with Pacific Medical Buildings LLC (“PMB”). Given our wholly owned subsidiary is the general partner and the primary beneficiary of NHP/PMB, we consolidate it as a VIE. As of March 31, 2021, third party investors owned 3.3 million Class A limited partnership units in NHP/PMB (“OP Units”), which represented 31 % of the total units then outstanding, and we owned 7.3 million Class B limited partnership units in NHP/PMB, representing the remaining 69 %. The OP Units may be redeemed at any time at the election of the holder for cash or, at our option, 0.9051 shares of our common stock per OP Unit, subject to further adjustment in certain circumstances. We are party by assumption to a registration rights agreement with the holders of the OP Units that requires us, subject to the terms and conditions and certain exceptions set forth therein, to file and maintain a registration statement relating to the issuance of shares of our common stock upon redemption of OP Units.
As redemption rights are outside of our control, the redeemable OP Units are classified outside of permanent equity on our Consolidated Balance Sheets. We reflect the redeemable OP Units at the greater of cost or redemption value. As of March 31, 2021 and December 31, 2020, the fair value of the redeemable OP Units was $157.6 million and $146.0 million,
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Noncontrolling Interests
Excluding the redeemable noncontrolling interests described above, we present the portion of any equity that we do not own in entities that we control (and thus consolidate) as noncontrolling interests and classify those interests as a component of consolidated equity, separate from total Ventas stockholders’ equity, on our Consolidated Balance Sheets. For consolidated joint ventures with pro rata distribution allocations, net income or loss, and comprehensive income, is allocated between the joint venture partners based on their respective stated ownership percentages. In other cases, net income or loss is allocated between the joint venture partners based on the HLBV method. We account for purchases or sales of equity interests that do not result in a change of control as equity transactions, through capital in excess of par value. We include net income attributable to the noncontrolling interests in net income in our Consolidated Statements of Income and we include the noncontrolling interests share of comprehensive income in our Consolidated Statements of Comprehensive Income.
Accounting for Historic and New Markets Tax Credits
For certain of our life science, research and innovation centers, we are party to contractual arrangements with TCIs that were established to enable the TCIs to receive benefits of historic tax credits (“HTCs”), new markets tax credits (“NMTCs”) or both. As of March 31, 2021, we owned six properties that had syndicated HTCs or NMTCs, or both, to TCIs.
In general, TCIs invest cash into special purpose entities that invest in entities that own the subject property and generate the tax credits. The TCIs receive substantially all of the tax credits and hold only a nominal interest in the economic risk and benefits of the special purpose entities.
HTCs are delivered to the TCIs upon substantial completion of the project. NMTCs are allowed for up to 39% of a qualified investment and are delivered to the TCIs after the investment has been funded and spent on a qualified business. HTCs are subject to 20% recapture per year beginning one year after the completion of the historic rehabilitation of the subject property. NMTCs are subject to 100% recapture until the end of the seventh year following the qualifying investment. We have provided the TCIs with certain guarantees which protect the TCIs from losses should a tax credit recapture event occur. The contractual arrangements with the TCIs include a put/call provision whereby we may be obligated or entitled to repurchase the interest of the TCIs in the special purpose entities at the end of the tax credit recapture period. We anticipate that either the TCIs will exercise their put rights or we will exercise our call rights prior to the applicable tax credit recapture periods.
The portion of the TCI’s investment that is attributed to the put is recorded at fair value at inception in accounts payable and other liabilities on our Consolidated Balance Sheets, and is accreted to the expected put price as interest expense in our Consolidated Statements of Income over the recapture period. The remaining balance of the TCI’s investment is initially recorded in accounts payable and other liabilities on our Consolidated Balance Sheets and will be relieved upon delivery of the tax credit to the TCI, as a reduction in the carrying value of the subject property, net of allocated expenses. Direct and incremental costs incurred in structuring the transaction are deferred and will be recognized as an increase in the cost basis of the subject property upon the recognition of the related tax credit as discussed above.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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Fair Values of Financial Instruments
Fair value is a market-based measurement, not an entity-specific measurement, and we determine fair value based on the assumptions that we expect market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, GAAP establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within levels one and two of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within level three of the hierarchy).
Level one inputs utilize unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access. Level two inputs are 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. Level three inputs are unobservable inputs for the asset or liability, which typically are based on our own assumptions, because there is little, if any, related market activity. If the determination of the fair value measurement is based on inputs from different levels of the hierarchy, the level within which the entire fair value measurement falls is the lowest level input that is significant to the fair value measurement in its entirety. If the volume and level of market activity for an asset or liability has decreased significantly relative to the normal market activity for such asset or liability (or similar assets or liabilities), then transactions or quoted prices may not accurately reflect fair value. In addition, if there is evidence that a transaction for an asset or liability is not orderly, little, if any, weight is placed on that transaction price as an indicator of fair value. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
We use the following methods and assumptions in estimating the fair value of our financial instruments whose fair value is determined on a recurring basis.
•Cash and cash equivalents - The carrying amount of unrestricted cash and cash equivalents reported on our Consolidated Balance Sheets approximates fair value due to the short maturity of these instruments.
•Escrow deposits and restricted cash - The carrying amount of escrow deposits and restricted cash reported on our Consolidated Balance Sheets approximates fair value due to the short maturity of these instruments.
•Loans receivable - We estimate the fair value of loans receivable using level two and level three inputs, including underlying asset performance and credit quality. We discount future cash flows using current interest rates at which similar loans with the same terms and length to maturity would be made to borrowers with similar credit ratings.
•Available for sale securities - We estimate the fair value of marketable debt securities using level two inputs. We observe quoted prices for similar assets or liabilities in active markets that we have the ability to access. We estimate the fair value of certain government-sponsored pooled loan investments using level three inputs. We consider credit spreads, underlying asset performance and credit quality, and default rates.
•Derivative instruments - With the assistance of a third party, we estimate the fair value of derivative instruments, including interest rate caps, interest rate swaps, and foreign currency forward contracts, using level two inputs.
◦Interest rate caps - We observe forward yield curves and other relevant information.
◦Interest rate swaps - We observe alternative financing rates derived from market-based financing rates, forward yield curves and discount rates.
◦Foreign currency forward contracts - We estimate the future values of the two currency tranches using forward exchange rates that are based on traded forward points and calculate a present value of the net amount using a discount factor based on observable traded interest rates.
•Stock warrants - We estimate the fair value of stock warrants using level two inputs that are obtained from public sources. Inputs include equity spot price, dividend yield, volatility and risk-free rate.
•Senior notes payable and other debt - We estimate the fair value of senior notes payable and other debt using level two inputs. We discount the future cash flows using current interest rates at which we could obtain similar
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
borrowings. For mortgage debt, we may estimate fair value using level three inputs, similar to those used in determining fair value of loans receivable (above).
•Redeemable OP unitholder interests - We estimate the fair value of our redeemable OP unitholder interests using level one inputs. We base fair value on the closing price of our common stock, as OP Units may be redeemed at the election of the holder for cash or, at our option, shares of our common stock, subject to adjustment in certain circumstances.
Impairment of Long-Lived and Intangible Assets
We periodically evaluate our long-lived assets, primarily consisting of investments in real estate, for impairment indicators. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying operations. In performing this evaluation, we consider market conditions and our current intentions with respect to holding or disposing of the asset. We adjust the net book value of leased properties and other long-lived assets to fair value if the sum of the expected future undiscounted cash flows, including sales proceeds, is less than book value. We recognize an impairment loss at the time we make any such determination.
If impairment indicators arise with respect to intangible assets with finite useful lives, we evaluate impairment by comparing the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, then we estimate the fair value of the asset and compare the estimated fair value to the intangible asset’s carrying value. We recognize any shortfall from carrying value as an impairment loss in the current period.
We evaluate our investments in unconsolidated entities for impairment at least annually, and whenever events or changes in circumstances indicate that the carrying value of our investment may exceed its fair value. If we determine that a decline in the fair value of our investment in an unconsolidated entity is other-than-temporary, and if such reduced fair value is below the carrying value, we record an impairment.
We test goodwill for impairment at least annually, and more frequently if indicators arise. We first assess qualitative factors, such as current macroeconomic conditions, state of the equity and capital markets and our overall financial and operating performance, to determine the likelihood that the fair value of a reporting unit is less than its carrying amount. If we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we proceed with estimating the fair value of the reporting unit. A goodwill impairment, if any, will be recognized in the period it is determined and is now measured as the amount by which a reporting unit’s carrying value exceeds its fair value.
Estimates of fair value used in our evaluation of goodwill (if necessary based on our qualitative assessment), investments in real estate, investments in unconsolidated entities and intangible assets are based upon discounted future cash flow projections or other acceptable valuation techniques that are based, in turn, upon all available evidence including level three inputs, such as revenue and expense growth rates, estimates of future cash flows, capitalization rates, discount rates, general economic conditions and trends, or other available market data such as replacement cost or comparable sales. Our ability to accurately predict future operating results and cash flows and to estimate and determine fair values impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results.
Revenue Recognition
Triple-Net Leased Properties and Office Operations
Certain of our triple-net leases and most of our MOB and life science, research and innovation centers (collectively, “office operations”) leases provide for periodic and determinable increases in base rent. We recognize base rental revenues under these leases on a straight-line basis over the applicable lease term when collectability of substantially all rents is probable. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in other assets on our Consolidated Balance Sheets. At March 31, 2021 and December 31, 2020, this cumulative excess totaled $173.2 million and $169.7 million, respectively (excluding properties classified as held for sale).
Certain of our leases provide for periodic increases in base rent only if certain revenue parameters or other substantive contingencies are met. We recognize the increased rental revenue under these leases as the related parameters or contingencies are met, rather than on a straight-line basis over the applicable lease term.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
We assess the probability of collecting substantially all rents under our leases based on several factors, including, among other things, payment history, the financial strength of the tenant and any guarantors, the historical operations and operating trends of the property, the historical payment pattern of the tenant, the type of property, the value of the underlying collateral, if any, expected future performance of the property and current economic conditions. If our evaluation of these factors indicates it is not probable that we will be able to collect substantially all rents under the lease, we record a charge to rental income. If we change our conclusions regarding the probability of collecting rent payments required by a lease, we may recognize adjustments to rental income in the period we make such change in our conclusions.
Senior Living Operations
Our resident agreements are accounted for as leases and we recognize resident fees and services, other than move-in fees, monthly as services are provided. We recognize move-in fees on a straight-line basis over the average resident stay.
Other
Accounting for Leased Property
We lease real property, primarily land and corporate office space, and equipment, primarily vehicles at our senior housing communities. At lease inception, we establish an operating lease asset and operating lease liability calculated as the present value of future minimum lease payments. As our leases do not provide an implicit rate, we use a discount rate that approximates our incremental borrowing rate available at lease commencement to determine the present value. Our lease expense primarily consists of ground and corporate office leases. Ground lease expense is included in interest expense and corporate office lease expense is included in general, administrative and professional fees in the Company's Consolidated Statements of Income.
NOTE 3—CONCENTRATION OF CREDIT RISK
As of March 31, 2021, Atria, Sunrise, Brookdale Senior Living, Ardent and Kindred managed or operated approximately 21.0 %, 10.6 %, 8.3 %, 5.0 % and 1.1 %, respectively, of our consolidated real estate investments based on gross book value (excluding properties classified as held for sale as of March 31, 2021). Because Atria and Sunrise manage our properties in exchange for the receipt of a management fee from us, we are not directly exposed to the credit risk of our managers in the same manner or to the same extent as our triple-net tenants.
Based on gross book value, approximately 15.4 % and 49.2 % of our consolidated real estate investments were senior housing communities included in the triple-net leased properties and senior living operations reportable business segments, respectively (excluding properties classified as held for sale as of March 31, 2021). MOBs, life science, research and innovation centers, IRFs and LTACs, health systems, skilled nursing facilities (“SNFs”) and secured loans receivable and investments collectively comprised the remaining 35.4 %. Our consolidated properties were located in 45 states, the District of Columbia, seven Canadian provinces and the United Kingdom as of March 31, 2021, with properties in one state (California) accounting for more than 10 % of our total consolidated revenues and net operating income (“ NOI,” which is defined as total revenues, excluding interest and other income, less property-level operating expenses and office building services costs) for the three months then ended.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Triple-Net Leased Properties
The properties we lease to Brookdale Senior Living, Ardent and Kindred account for a significant portion of our triple-net leased properties segment revenues and NOI and the following table reflects the concentration risk related to our triple-net leased properties for the periods presented:
| For the Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
Revenues(1): | |||||||||||
| Brookdale Senior Living | % | % | |||||||||
| Ardent | |||||||||||
| Kindred | |||||||||||
| NOI: | |||||||||||
| Brookdale Senior Living | % | % | |||||||||
| Ardent | |||||||||||
| Kindred | |||||||||||
(1)Total revenues include office building and other services revenue, income from loans and investments and interest and other income.
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 has a corporate guaranty.
Senior Living Operations
As of March 31, 2021, Atria and Sunrise, collectively, provided comprehensive property management and accounting services with respect to 258 of our 439 consolidated senior housing communities, for which we pay annual management fees pursuant to long-term management agreements.
We rely on our managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our senior living operations 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.
NOTE 4—DISPOSITIONS AND IMPAIRMENTS
2021 Activity
During the three months ended March 31, 2021, we sold two MOBs and one triple-net leased property for aggregate consideration of $8.1 million and recognized a gain on the sale of these assets of $2.5 million.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Assets Held for Sale
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.
| As of March 31, 2021 | As of December 31, 2020 | |||||||||||||||||||||||||||||||||||||
| Number of Properties Held for Sale | Assets Held for Sale | Liabilities Related to Assets Held for Sale | Number of Properties Held for Sale | Assets Held for Sale | Liabilities Related to Assets Held for Sale | |||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Triple-Net Leased Properties | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Office Operations(1) | ||||||||||||||||||||||||||||||||||||||
| Senior Living Operations | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
(1)2020 balances relate to anticipated post-closing settlements of working capital.
Real Estate Impairment
We recognized impairments of $78.5 million and $12.2 million, respectively, for the three months ended March 31, 2021 and 2020, which are primarily recorded in depreciation and amortization in our Consolidated Statements of Income. Our recorded impairments were primarily the result of a change in our intent to hold the impaired assets. In most cases, we recognize an impairment in the periods in which our change in intent is made.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
NOTE 5—LOANS RECEIVABLE AND INVESTMENTS
As of March 31, 2021 and December 31, 2020, we had $889.6 million and $900.2 million, respectively, of net loans receivable and investments relating to senior housing and healthcare operators or properties. The 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:
| Amortized Cost | Allowance | Unrealized Gain | Carrying Amount | Fair Value | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| As of March 31, 2021: | |||||||||||||||||||||||||||||
| Secured/mortgage loans and other, net | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Government-sponsored pooled loan investments, net (1) | |||||||||||||||||||||||||||||
Total investments reported as secured loans receivable and investments, net | |||||||||||||||||||||||||||||
| Non-mortgage loans receivable, net | ( | ||||||||||||||||||||||||||||
Marketable debt securities (2) | |||||||||||||||||||||||||||||
| Total loans receivable and investments, net | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||
| As of December 31, 2020: | |||||||||||||||||||||||||||||
| Secured/mortgage loans and other, net | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Government-sponsored pooled loan investments, net (1) | ( | ||||||||||||||||||||||||||||
Total investments reported as secured loans receivable and investments, net | ( | ||||||||||||||||||||||||||||
| Non-mortgage loans receivable, net | ( | ||||||||||||||||||||||||||||
Marketable debt securities (3) | |||||||||||||||||||||||||||||
| Total loans receivable and investments, net | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||
(1)Investment in government-sponsored pool loans has a contractual maturity date in 2021 and 2023.
(2)Investment in marketable debt securities has a contractual maturity date in 2026.
(3)Investment in marketable debt securities has a contractual maturity date in 2024 and 2026.
2021 Activity
During the three months ended March 31, 2021, we received aggregate proceeds of $16.5 million for the redemption and sale of marketable debt securities, resulting in total gains of $1.0 million. As of December 31, 2020, $1.2 million of unrealized gain was presented within accumulated other comprehensive income related to these securities. These securities had a weighted average interest rate of 8.3 % and were due to mature between 2024 and 2026.
In March 2021, $11.9 million of previously reserved non-mortgage loans were forgiven. We derecognized both the amortized cost bases and allowances for these loans during the quarter ended March 31, 2021.
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Investments in Unconsolidated Real Estate Entities
Through our Ventas Investment Management Platform, which consolidates our extensive third-party capital ventures under a single brand and umbrella, we partner with third-party institutional investors to invest with us in healthcare real estate through various joint ventures and other co-investment vehicles where we are the sponsor or general partner. Below is a summary of our investments in unconsolidated real estate entities as of March 31, 2021 and December 31, 2020, respectively:
Ownership As of (1) | Carrying Amount As of | |||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Investment in unconsolidated real estate entities: | ||||||||||||||||||||||||||
| Ventas Life Science & Healthcare Real Estate Fund | $ | $ | ||||||||||||||||||||||||
| Pension Fund Joint Venture | ||||||||||||||||||||||||||
| Research & Innovation Development Joint Venture | ||||||||||||||||||||||||||
| Ventas Investment Management Platform | ||||||||||||||||||||||||||
All other(2) | ||||||||||||||||||||||||||
| Total investments in unconsolidated real estate entities | $ | $ | ||||||||||||||||||||||||
(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. | ||||||||||||||||||||||||||
In March 2021, the Ventas Life Science and Healthcare Real Estate Fund, L.P. (the “Ventas Fund”) acquired two Class-A life science properties in the Baltimore-DC life science cluster for $272 million, which increased assets under management of the Ventas Fund to $2.1 billion.
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 $2.7 million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively, which is included in office building and other services revenue in our Consolidated Statements of Income.
Investments in Unconsolidated Operating Entities
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
NOTE 7—INTANGIBLES
The following is a summary of our intangibles:
| As of March 31, 2021 | As of December 31, 2020 | ||||||||||||||||||||||
| Balance | Remaining Weighted Average Amortization Period in Years | Balance | Remaining Weighted Average Amortization Period in Years | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Intangible assets: | |||||||||||||||||||||||
| Above market lease intangibles | $ | $ | |||||||||||||||||||||
| In-place and other lease intangibles | |||||||||||||||||||||||
| Goodwill | N/A | N/A | |||||||||||||||||||||
| Other intangibles | |||||||||||||||||||||||
| Accumulated amortization | ( | N/A | ( | N/A | |||||||||||||||||||
| Net intangible assets | $ | $ | |||||||||||||||||||||
| Intangible liabilities: | |||||||||||||||||||||||
| Below market lease intangibles | $ | $ | |||||||||||||||||||||
| Other lease intangibles | N/A | N/A | |||||||||||||||||||||
| Accumulated amortization | ( | N/A | ( | N/A | |||||||||||||||||||
| Purchase option intangibles | N/A | N/A | |||||||||||||||||||||
| Net intangible liabilities | $ | $ | |||||||||||||||||||||
N/A—Not Applicable.
NOTE 8—OTHER ASSETS
The following is a summary of our other assets:
| As of March 31, 2021 | As of December 31, 2020 | ||||||||||
| (In thousands) | |||||||||||
| Straight-line rent receivables | $ | $ | |||||||||
| Non-mortgage loans receivable, net | |||||||||||
| Stock warrants | |||||||||||
| Marketable debt securities | |||||||||||
| Other intangibles, net | |||||||||||
| Investment in unconsolidated operating entities | |||||||||||
| Other | |||||||||||
| Total other assets | $ | $ | |||||||||
Stock warrants represent warrants exercisable at any time prior to December 31, 2025, in whole or in part, for 16.3 million shares of Brookdale Senior Living common stock at an exercise price of $3.00 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
NOTE 9—SENIOR NOTES PAYABLE AND OTHER DEBT
The following is a summary of our senior notes payable and other debt:
| As of March 31, 2021 | As of December 31, 2020 | ||||||||||
| (In thousands) | |||||||||||
Unsecured revolving credit facility (1) | $ | $ | |||||||||
| Commercial paper notes | |||||||||||
| Secured revolving construction credit facility due 2022 | |||||||||||
Floating Rate Senior Notes, Series F due 2021 (2) | |||||||||||
| Unsecured term loan due 2023 | |||||||||||
Unsecured term loan due 2025 (2) | |||||||||||
| Mortgage loans and other | |||||||||||
| Total | |||||||||||
| Deferred financing costs, net | ( | ( | |||||||||
| Unamortized fair value adjustment | |||||||||||
| Unamortized discounts | ( | ( | |||||||||
| Senior notes payable and other debt | $ | $ | |||||||||
(1)As of March 31, 2021 and December 31, 2020, respectively, $17.9 million and $12.2 million of aggregate borrowings were denominated in Canadian dollars. Aggregate borrowings of $26.9 million and $27.2 million were denominated in British pounds as of March 31, 2021 and December 31, 2020, respectively.
(2)Canadian Dollar debt obligations shown in US Dollars.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Credit Facilities, Commercial Paper and Unsecured Term Loans
In January 2021, we entered into an amended and restated unsecured credit facility (the “New Credit Facility”) comprised of a $2.75 billion unsecured revolving credit facility initially priced at LIBOR plus 0.825 % based on the Company’s debt rating. The New Credit Facility replaced our previous $3.0 billion unsecured revolving credit facility priced at 0.875 %. The New Credit Facility matures in January 2025, but may be extended at our option, subject to the satisfaction of certain conditions, for two additional periods of six months each. The New Credit Facility also includes an accordion feature that permits us to increase our aggregate borrowing capacity thereunder to up to $3.75 billion, subject to the satisfaction of certain conditions.
As of March 31, 2021, we had $2.7 billion of undrawn capacity on our New Credit Facility with $44.8 million outstanding and an additional $24.9 million restricted to support outstanding letters of credit. We limit our use of the New Credit Facility, to the extent necessary, to support our commercial paper program when commercial paper notes are outstanding, which as of March 31, 2021 we had $0.2 billion of commercial paper outstanding.
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, 2021, we had $215.0 million in borrowings outstanding under our commercial paper program.
As of March 31, 2021, we had a $200.0 million unsecured term loan priced at LIBOR plus 0.90 % that matures in 2023. The term loan also includes an accordion feature that effectively permits us to increase our aggregate borrowings thereunder to up to $800.0 million.
As of March 31, 2021, we had a C$500 million unsecured term loan facility priced at Canadian Dollar Offered Rate (“CDOR”) plus 0.90 % that matures in 2025.
As of March 31, 2021, we had a $400.0 million secured revolving construction credit facility with $154.3 million of borrowings outstanding. The secured revolving construction credit facility matures in 2022 and is primarily used to finance the development of life science, research and innovation centers and other construction projects.
Senior Notes
In February 2021, Ventas Realty issued a make whole redemption for the entirety of the $400.0 million aggregate principal amount of 3.10 % senior notes due January 2023, resulting in a loss on extinguishment of debt of $27.3 million for the three months ended March 31, 2021. The redemption settled principally using cash on hand.
As of March 31, 2021, our indebtedness had the following maturities:
| Principal Amount Due at Maturity | Unsecured Revolving Credit Facility and Commercial Paper Notes (1) | Scheduled Periodic Amortization | Total Maturities | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| 2021 | $ | $ | $ | $ | |||||||||||||||||||
| 2022 | |||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||
| 2025 | |||||||||||||||||||||||
| Thereafter | |||||||||||||||||||||||
| Total maturities | $ | $ | $ | $ | |||||||||||||||||||
(1)At March 31, 2021, we had $90.1 million of borrowings outstanding under our unsecured revolving credit facility and commercial paper program, net of $169.7 million of unrestricted cash and cash equivalents.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
NOTE 10—FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of our financial instruments were as follows:
| As of March 31, 2021 | As of December 31, 2020 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Escrow deposits and restricted cash | |||||||||||||||||||||||
| Stock warrants | |||||||||||||||||||||||
| Secured mortgage loans and other, net | |||||||||||||||||||||||
| Non-mortgage loans receivable, net | |||||||||||||||||||||||
Marketable debt securities | |||||||||||||||||||||||
Government-sponsored pooled loan investments, net | |||||||||||||||||||||||
| Derivative instruments | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Senior notes payable and other debt, gross | |||||||||||||||||||||||
| Derivative instruments | |||||||||||||||||||||||
| Redeemable OP Units | |||||||||||||||||||||||
For a discussion of the assumptions considered, refer to “Note 2 – Accounting Policies.” 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.
NOTE 11—LITIGATION
From time to time, we are party to various lawsuits, investigations, claims and other legal and regulatory proceedings arising in connection with our business. These claims may include, among other things, professional liability and general liability claims, commercial liability claims, unfair business practice claims and employment claims, as well as regulatory proceedings, including proceedings related to our senior living operations, where we are typically the holder of the applicable healthcare license. 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. In other circumstances, certain of our tenants, operators, managers or other third parties may be obligated to indemnify, defend and hold us harmless in whole or in part with respect to certain actions, legal or regulatory proceedings. We cannot assure you that these third parties will be able to satisfy their defense and indemnification obligations to us. Claims to which we are subject or for which we are otherwise responsible 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.
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.
21
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, 2021, 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 provisions for income taxes for the three months ended March 31, 2021 and 2020 were an expense of $2.2 million and a benefit of $149.0 million, respectively. The income tax expense for the three months ended March 31, 2021 was primarily due to a $2.8 million net deferred tax expense related to an internal restructuring of certain US taxable REIT subsidiaries. The expense resulted from the transfer of assets subject to certain deferred tax assets from taxable REIT subsidiaries to the REIT in a tax-free transaction. The income tax benefit for the three months ended March 31, 2020 was primarily due to a $152.9 million net deferred tax benefit related to an internal restructuring of certain U.S. taxable REIT subsidiaries.
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 $65.8 million and $62.6 million as of March 31, 2021 and December 31, 2020, 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 $11.6 million and $10.0 million as of March 31, 2021 and December 31, 2020, 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, 2017 and subsequent years and are subject to audit by state taxing authorities for the year ended December 31, 2016 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, 2016 and subsequent years. We are subject to audit in the United Kingdom generally for periods ended in and subsequent to 2019.
NOTE 13—STOCKHOLDERS' EQUITY
Capital Stock
From time to time, we may sell our common stock under an “at-the-market” equity offering program (“ATM program”). As of March 31, 2021, we have $744.1 million remaining under our existing ATM program. During the three months ended March 31, 2021, we sold 0.2 million shares of our common stock under our ATM program for gross proceeds of $57.22 per share.
Accumulated Other Comprehensive Loss
The following is a summary of our accumulated other comprehensive loss:
| As of March 31, 2021 | As of December 31, 2020 | ||||||||||
| (In thousands) | |||||||||||
| Foreign currency translation | $ | ( | $ | ( | |||||||
| Available for sale securities | |||||||||||
| Derivative instruments | ( | ( | |||||||||
| Total accumulated other comprehensive loss | $ | ( | $ | ( | |||||||
22
NOTE 14—EARNINGS PER SHARE
The following table shows the amounts used in computing our basic and diluted earnings per share:
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||||||||||
| Numerator for basic and diluted earnings per share: | |||||||||||||||||||||||
| (Loss) income from continuing operations | $ | ( | $ | ||||||||||||||||||||
| Net (loss) income | ( | ||||||||||||||||||||||
| Net income attributable to noncontrolling interests | |||||||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | ( | $ | ||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
Denominator for basic earnings per share—weighted average shares | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Stock options | |||||||||||||||||||||||
| Restricted stock awards | |||||||||||||||||||||||
| OP unitholder interests | |||||||||||||||||||||||
Denominator for diluted earnings per share—adjusted weighted average shares | |||||||||||||||||||||||
| Basic earnings per share: | |||||||||||||||||||||||
| (Loss) income from continuing operations | $ | ( | $ | ||||||||||||||||||||
| Net (loss) income attributable to common stockholders | ( | ||||||||||||||||||||||
Diluted earnings per share:(1) | |||||||||||||||||||||||
| (Loss) income from continuing operations | $ | ( | $ | ||||||||||||||||||||
| Net (loss) income attributable to common stockholders | ( | ||||||||||||||||||||||
(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.
NOTE 15—SEGMENT INFORMATION
As of March 31, 2021, we operated through three reportable business segments: triple-net leased properties, senior living operations and office operations. In our triple-net leased properties 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 senior living operations 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 segment, we primarily acquire, own, develop, lease and manage MOBs and life science, research and innovation centers throughout the United States. Information provided for “all other” 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 “all other” consist primarily of corporate assets, including cash, restricted cash, loans receivable and investments, and miscellaneous accounts receivable.
Our chief operating decision makers evaluate performance of the combined properties in each reportable business segment and determine how to allocate resources to those segments, in significant part, based on segment NOI and related measures. We define segment NOI as total revenues, less interest and other income, property-level operating expenses and office building services costs. We consider segment 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, segment 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.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
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 no intersegment sales or transfers.
Summary information by reportable business segment is as follows:
| For the Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||
| Triple-Net Leased Properties | Senior Living Operations | Office Operations | All Other | Total | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Rental income | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Resident fees and services | |||||||||||||||||||||||||||||
| Office building and other services revenue | |||||||||||||||||||||||||||||
| Income from loans and investments | |||||||||||||||||||||||||||||
| Interest and other income | |||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||
| Interest and other income | |||||||||||||||||||||||||||||
| Property-level operating expenses | |||||||||||||||||||||||||||||
| Office building services costs | |||||||||||||||||||||||||||||
| Segment NOI | $ | $ | $ | $ | |||||||||||||||||||||||||
| Interest and other income | |||||||||||||||||||||||||||||
| Interest expense | ( | ||||||||||||||||||||||||||||
| Depreciation and amortization | ( | ||||||||||||||||||||||||||||
| General, administrative and professional fees | ( | ||||||||||||||||||||||||||||
| Loss on extinguishment of debt, net | ( | ||||||||||||||||||||||||||||
| Merger-related expenses and deal costs | ( | ||||||||||||||||||||||||||||
| Allowance on loans receivable and investments | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Loss from unconsolidated entities | ( | ||||||||||||||||||||||||||||
| Gain on real estate dispositions | |||||||||||||||||||||||||||||
| Income tax expense | ( | ||||||||||||||||||||||||||||
| Loss from continuing operations | ( | ||||||||||||||||||||||||||||
| Net loss | ( | ||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | |||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | |||||||||||||||||||||||||||
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
| For the Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||
| Triple-Net Leased Properties | Senior Living Operations | Office Operations | All Other | Total | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Rental income | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Resident fees and services | |||||||||||||||||||||||||||||
| Office building and other services revenue | |||||||||||||||||||||||||||||
| Income from loans and investments | |||||||||||||||||||||||||||||
| Interest and other income | |||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||
| Interest and other income | |||||||||||||||||||||||||||||
| Property-level operating expenses | |||||||||||||||||||||||||||||
| Office building services costs | |||||||||||||||||||||||||||||
| Segment NOI | $ | $ | $ | $ | |||||||||||||||||||||||||
| Interest and other income | |||||||||||||||||||||||||||||
| Interest expense | ( | ||||||||||||||||||||||||||||
| Depreciation and amortization | ( | ||||||||||||||||||||||||||||
| General, administrative and professional fees | ( | ||||||||||||||||||||||||||||
| Merger-related expenses and deal costs | ( | ||||||||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||||||||
| Loss from unconsolidated entities | ( | ||||||||||||||||||||||||||||
| Gain on real estate dispositions | |||||||||||||||||||||||||||||
| Income tax benefit | |||||||||||||||||||||||||||||
| Income from continuing operations | |||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||
Net income attributable to noncontrolling interests | |||||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | ||||||||||||||||||||||||||||
Capital expenditures, including investments in real estate property and development project expenditures, by reportable business segment are as follows:
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Capital expenditures: | |||||||||||||||||||||||
| Triple-net leased properties | $ | $ | |||||||||||||||||||||
| Senior living operating properties | |||||||||||||||||||||||
| Office properties | |||||||||||||||||||||||
| Total capital expenditures | $ | $ | |||||||||||||||||||||
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
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. Geographic information regarding our operations is as follows:
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| United States | $ | $ | |||||||||||||||||||||
| Canada | |||||||||||||||||||||||
| United Kingdom | |||||||||||||||||||||||
| Total revenues | $ | $ | |||||||||||||||||||||
| As of March 31, 2021 | As of December 31, 2020 | ||||||||||
| (In thousands) | |||||||||||
| Net real estate property: | |||||||||||
| United States | $ | $ | |||||||||
| Canada | |||||||||||
| United Kingdom | |||||||||||
| Total net real estate property | $ | $ | |||||||||
26
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” and “our” 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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 “may,” “will,” “project,” “expect,” “believe,” “intend,” “anticipate,” “seek,” “target,” “forecast,” “plan,” “potential,” “estimate,” “could,” “would,” “should” and other comparable and derivative terms or the negatives thereof. The 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. You are urged 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 “Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”).
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 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 exposure and the exposure of our tenants, borrowers and managers to complex healthcare and other regulation and the challenges and expense associated with complying with such regulation; (c) the potential for significant general and commercial claims, legal actions, regulatory proceedings or enforcement actions that could subject us or our tenants, borrowers or managers to increased operating costs and uninsured liabilities; (d) the impact of market and general economic conditions, including economic and financial market events, or 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 capital markets; (e) our ability, and the ability of our tenants, borrowers and managers, to navigate the trends impacting our or their businesses and the industries in which we or they operate; (f) the risk of bankruptcy, insolvency or financial deterioration of our tenants, borrowers, managers and other obligors and our ability to foreclose successfully on the collateral securing our loans and other investments in the event of a borrower default; (g) our ability to identify and consummate future investments in or dispositions of healthcare assets and effectively manage our portfolio opportunities and our investments in co-investment vehicles; (h) our ability to attract and retain talented employees; (i) 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; (j) 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, borrowers or managers; (k) increases in the Company’s borrowing costs as a result of becoming more leveraged or as a result of changes in interest rates and phasing out of LIBOR rates; (l) our reliance on third parties to operate a majority of our assets and our limited control and influence over such operations and results; (m) our dependency on a limited number of tenants and managers for a significant portion of our revenues and operating income; (n) the adequacy of insurance coverage provided by our policies and policies maintained by our tenants, managers or other counterparties; (o) the occurrence of cyber incidents that could disrupt our operations, result in the loss of confidential information or damage our business relationships and reputation; (p) the impact of merger, acquisition and investment activity in the healthcare industry or otherwise affecting our tenants, borrowers or managers; and (q) the risk of catastrophic or extreme weather and other natural events and the physical effects of climate change.
Many of these factors are beyond our control and the control of our management.
27
Note Regarding Third-Party Information
This Quarterly Report includes information that has been derived from SEC filings made by our publicly listed tenants or other publicly available information or was provided to us by 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, life science, research and innovation, and healthcare properties located throughout the United States, Canada and the United Kingdom. As of March 31, 2021, we owned or had investments in approximately 1,200 properties (including properties classified as held for sale), consisting of senior housing communities, medical office buildings (“MOBs”), life science, research and innovation centers, inpatient rehabilitation facilities (“IRFs”) and long-term acute care facilities (“LTACs”), and health systems, which we generally refer to as “healthcare real estate.” Our company was originally founded in 1983 and is headquartered in Chicago, Illinois with an additional corporate office in Louisville, Kentucky.
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 living operations, which we also refer to as SHOP, 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 properties 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 senior living operations reportable business segment.
As of March 31, 2021, we leased a total of 358 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, 12 properties and 32 properties, respectively, as of March 31, 2021.
As of March 31, 2021, pursuant to long-term management agreements, we engaged independent operators, such as Atria Senior Living, Inc. (“Atria”) and Sunrise Senior Living, LLC (together with its subsidiaries, “Sunrise”), to manage 448 senior housing communities in our senior living operations segment for us.
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 non-mortgage loans and other investments relating to senior housing and healthcare operators or properties.
We aim to enhance shareholder value by delivering consistent, superior total returns by (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.
28
During fiscal 2020 and continuing into fiscal 2021, our business has been, and is expected to continue to be, negatively impacted by the COVID-19 pandemic and actions taken to prevent its spread. The trajectory and future impact of the COVID-19 pandemic remain highly uncertain, although emerging positive SHOP trends in the United States, if sustained, would improve performance over time. The extent of the pandemic’s continuing and ultimate effect on our operational and financial performance will depend on a variety of factors, including the speed at which available vaccines can be successfully deployed; the rate of acceptance of available vaccines, particularly among the residents and staff in our senior housing communities; 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 regions and fluctuate over time; and on other future developments, including the ultimate duration, spread and intensity of the outbreak, the availability of ongoing government financial support to our business, tenants and operators and the slope and pace of recovery of our senior housing business and the U.S. economy more generally. Due to these uncertainties, we are not able at this time to estimate the continuing impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows.
First Quarter 2021 Highlights
Investments and Dispositions
•During the three months ended March 31, 2021, we received aggregate proceeds of $16.5 million for the redemption or sale of marketable debt securities, resulting in total gains of $1.0 million. These securities had a weighted average interest rate of 8.3% and were due to mature between 2024 and 2026
•During the three months ended March 31, 2021, we reversed an $8.8 million allowance on certain government-sponsored pooled loan investments. In April 2021, we received $19.2 million in full repayment of this previously reserved investment.
•During the three months ended March 31, 2021, we sold three properties for aggregate consideration of $8.1 million and we recognized gains on the sale of these assets of $2.5 million.
Liquidity and Capital
•In February 2021, Ventas Realty Limited Partnership (“Ventas Realty”) issued a make whole redemption for the entirety of the $400.0 million aggregate principal amount of 3.10% senior notes due January 2023, resulting in a loss on extinguishment of debt of $27.3 million for the three months ended March 31, 2021. The redemption settled in March, principally using cash on hand.
•In January 2021, we entered into an unsecured credit facility comprised of a $2.75 billion unsecured revolving credit facility priced at LIBOR plus 0.825%, which replaced our previous $3.0 billion unsecured revolving credit facility priced at 0.875%. The new unsecured revolving credit facility matures in January 2025, but may be extended at our option, subject to the satisfaction of certain conditions, for an additional year. The unsecured revolving credit facility also includes an accordion feature that permits us to increase our aggregate borrowing capacity thereunder to up to $3.75 billion, subject to the satisfaction of certain conditions.
•For the three months ended March 31, 2021, we sold an aggregate of 0.2 million shares of common stock under our “at-the-market” equity offering program (“ATM program”) for gross proceeds of $57.22 per share.
Other Items
•In March 2021, the Ventas Life Science and Healthcare Real Estate Fund, L.P. (the “Ventas Fund”) acquired two Class-A life science properties in the Baltimore-DC life science cluster for $272 million, which increased the Ventas Fund’s assets under management to $2.1 billion.
•In the first quarter of 2021, we received $13.6 million in grants in connection with our Phase 3 applications to the Provider Relief Fund administered by the U.S. Department of Health & Human Services (“HHS”) on behalf of the assisted living communities in our senior living operations segment to partially mitigate losses attributable to COVID-19.
•During the three months ended March 31, 2021, we recognized $5.2 million of expenses relating to winter storms.
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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:
| As of March 31, 2021 | As of December 31, 2020 | ||||||||||
Investment mix by asset type(1): | |||||||||||
| Senior housing communities | 64.6 | % | 63.5 | % | |||||||
| MOBs | 18.5 | 19.7 | |||||||||
| Life science, research and innovation centers | 7.1 | 7.1 | |||||||||
| Health systems | 5.3 | 5.2 | |||||||||
| IRFs and LTACs | 1.7 | 1.7 | |||||||||
| Skilled nursing facilities (“SNFs”) | 0.7 | 0.7 | |||||||||
| Secured loans receivable and investments, net | 2.1 | 2.1 | |||||||||
Investment mix by tenant, operator and manager(1): | |||||||||||
| Atria | 21.0 | % | 20.8 | % | |||||||
| Sunrise | 10.6 | 10.4 | |||||||||
| Brookdale Senior Living | 8.3 | 8.2 | |||||||||
| Ardent | 5.0 | 4.9 | |||||||||
| Kindred | 1.1 | 1.1 | |||||||||
| All other | 54.0 | 54.6 | |||||||||
(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.
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| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Operations mix by tenant and operator and business model: | |||||||||||||||||||||||
Revenues(1): | |||||||||||||||||||||||
| Senior living operations | 58.3 | % | 57.0 | % | |||||||||||||||||||
Brookdale Senior Living(2) | 4.1 | 4.6 | |||||||||||||||||||||
| Ardent | 3.5 | 3.0 | |||||||||||||||||||||
| Kindred | 3.6 | 3.2 | |||||||||||||||||||||
| All others | 30.5 | 32.2 | |||||||||||||||||||||
| Adjusted EBITDA: | |||||||||||||||||||||||
| Senior living operations | 27.7 | % | 33.1 | % | |||||||||||||||||||
Brookdale Senior Living(2) | 9.2 | 9.3 | |||||||||||||||||||||
| Ardent | 7.8 | 6.1 | |||||||||||||||||||||
| Kindred | 8.2 | 6.5 | |||||||||||||||||||||
| All others | 47.1 | 45.0 | |||||||||||||||||||||
| Net operating income (“NOI”): | |||||||||||||||||||||||
| Senior living operations | 26.6 | % | 31.7 | % | |||||||||||||||||||
Brookdale Senior Living(2) | 8.8 | 8.8 | |||||||||||||||||||||
| Ardent | 7.5 | 5.8 | |||||||||||||||||||||
| Kindred | 7.8 | 6.2 | |||||||||||||||||||||
| All others | 49.3 | 47.5 | |||||||||||||||||||||
Operations mix by geographic location(3): | |||||||||||||||||||||||
| California | 15.4 | % | 15.3 | % | |||||||||||||||||||
| New York | 7.7 | 8.6 | |||||||||||||||||||||
| Texas | 6.0 | 5.7 | |||||||||||||||||||||
| Pennsylvania | 4.6 | 4.7 | |||||||||||||||||||||
| Illinois | 3.9 | 4.1 | |||||||||||||||||||||
| All others | 62.3 | 61.6 | |||||||||||||||||||||
(1)Total revenues include office building and other services revenue, revenue from loans and investments and interest and other income (including amounts related to assets classified as held for sale).
(2)Results exclude eight senior housing communities which are included in the senior living operations 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 Adjusted EBITDA and NOI, respectively.
Triple-Net Lease Performance and Expirations
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, 2021, 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.
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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 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 2020 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 2021. Please refer to “Note 2 – Accounting Policies” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding recently adopted accounting standards.
Results of Operations
As of March 31, 2021, we operated through three reportable business segments: triple-net leased properties, senior living operations and office operations. In our triple-net leased properties 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 senior living operations 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 segment, we primarily acquire, own, develop, lease and manage MOBs and life science, research and innovation centers throughout the United States. Information provided for “all other” 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 “all other” consist primarily of corporate assets, including cash, restricted cash, loans receivable and investments, and miscellaneous accounts receivable.
Our chief operating decision makers evaluate performance of the combined properties in each reportable business segment and determine how to allocate resources to those segments, in significant part, based on segment NOI and related measures. For further information regarding our reportable business segments and a discussion of our definition of segment 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.
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Three Months Ended March 31, 2021 and 2020
The table below shows our results of operations for the three months ended March 31, 2021 and 2020 and the effect of changes in those results from period to period on our net income attributable to common stockholders.
| For the Three Months Ended March 31, | (Decrease) Increase to Net Income | ||||||||||||||||||||||
| 2021 | 2020 | $ | % | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Segment NOI: | |||||||||||||||||||||||
| Triple-net leased properties | $ | 155,060 | $ | 188,531 | $ | (33,471) | (17.8) | % | |||||||||||||||
| Senior living operations | 110,821 | 166,639 | (55,818) | (33.5) | |||||||||||||||||||
| Office operations | 135,236 | 145,336 | (10,100) | (6.9) | |||||||||||||||||||
| All other | 21,615 | 25,000 | (3,385) | (13.5) | |||||||||||||||||||
| Total segment NOI | 422,732 | 525,506 | (102,774) | (19.6) | |||||||||||||||||||
| Interest and other income | 341 | 4,853 | (4,512) | (93.0) | |||||||||||||||||||
| Interest expense | (110,767) | (116,696) | 5,929 | 5.1 | |||||||||||||||||||
| Depreciation and amortization | (314,148) | (248,837) | (65,311) | (26.2) | |||||||||||||||||||
| General, administrative and professional fees | (40,309) | (40,460) | 151 | 0.4 | |||||||||||||||||||
| Loss on extinguishment of debt, net | (27,090) | — | (27,090) | nm | |||||||||||||||||||
| Merger-related expenses and deal costs | (4,617) | (8,218) | 3,601 | 43.8 | |||||||||||||||||||
| Allowance on loans receivable and investments | 8,902 | — | 8,902 | nm | |||||||||||||||||||
| Other | 9,428 | (5,783) | 15,211 | nm | |||||||||||||||||||
(Loss) income before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests | (55,528) | 110,365 | (165,893) | nm | |||||||||||||||||||
| Loss from unconsolidated entities | (250) | (10,876) | 10,626 | 97.7 | |||||||||||||||||||
| Gain on real estate dispositions | 2,533 | 226,225 | (223,692) | (98.9) | |||||||||||||||||||
| Income tax (expense) benefit | (2,153) | 149,016 | (151,169) | nm | |||||||||||||||||||
| (Loss) income from continuing operations | (55,398) | 474,730 | (530,128) | nm | |||||||||||||||||||
| Net (loss) income | (55,398) | 474,730 | (530,128) | nm | |||||||||||||||||||
| Net income attributable to noncontrolling interests | 1,811 | 1,613 | (198) | (12.3) | |||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (57,209) | $ | 473,117 | (530,326) | nm | |||||||||||||||||
nm - not meaningful
Segment 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, 2021.
| For the Three Months Ended March 31, | (Decrease) Increase to Segment NOI | ||||||||||||||||||||||
| 2021 | 2020 | $ | % | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Segment NOI—Triple-Net Leased Properties: | |||||||||||||||||||||||
| Rental income | $ | 159,885 | $ | 194,862 | $ | (34,977) | (17.9) | % | |||||||||||||||
| Less: Property-level operating expenses | (4,825) | (6,331) | 1,506 | 23.8 | |||||||||||||||||||
| Segment NOI | $ | 155,060 | $ | 188,531 | (33,471) | (17.8) | |||||||||||||||||
In our triple-net leased properties reportable business segment, our revenues generally consist of fixed rental amounts (subject to annual 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.
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The segment NOI decrease in our triple-net leased portfolio was primarily driven by a $20.0 million reduction from the transition of communities from our triple-net portfolio including the removal of 26 Holiday communities at the start of the second quarter 2020, $8.9 million for lower rental income on the Brookdale lease that was modified at the start of the third quarter of 2020 and $4.3 million for rental income from communities sold during 2020.
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 related to the triple-net leased properties we owned at March 31, 2021 and 2020 for the fourth quarter of 2020 and 2019, 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.
| Number of Properties Owned at March 31, 2021 | Average Occupancy for the Three Months Ended December 31, 2020 | Number of Properties Owned at March 31, 2020 | Average Occupancy for the Three Months Ended December 31, 2019 | |||||||||||||||||||||||
Senior housing communities | 284 | 79.2% | 329 | 86.2% | ||||||||||||||||||||||
| SNFs | 16 | 79.7 | 16 | 87.6 | ||||||||||||||||||||||
IRFs and LTACs | 35 | 57.2 | 36 | 51.5 | ||||||||||||||||||||||
The following table compares results of operations for our 355 same-store triple-net leased properties. 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, | Decrease to Segment NOI | ||||||||||||||||||||||
| 2021 | 2020 | $ | % | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
Same-Store Segment NOI—Triple-Net Leased Properties: | |||||||||||||||||||||||
| Rental income | $ | 158,470 | $ | 167,910 | $ | (9,440) | (5.6) | % | |||||||||||||||
| Less: Property-level operating expenses | (4,812) | (4,130) | (682) | (16.5) | |||||||||||||||||||
| Segment NOI | $ | 153,658 | $ | 163,780 | (10,122) | (6.2) | |||||||||||||||||
The segment NOI decrease in our same-store triple net leased portfolio was primarily driven by $8.9 million in lower rental income from the Brookdale lease modification at the start of the third quarter of 2020 and lower rental income in 2021 on leases whereby rental income is no longer recognized on a straight-line basis, partially offset by rent increases due to contractual escalations pursuant to the terms of our leases.
Segment NOI—Senior Living Operations
The following table summarizes results of operations in our senior living operations reportable business segment, including assets sold or classified as held for sale as of March 31, 2021. For senior housing communities in our senior living operations reportable business segment, occupancy generally reflects average operator-reported unit occupancy for the reporting period.
| For the Three Months Ended March 31, | Decrease to Segment NOI | ||||||||||||||||||||||
| 2021 | 2020 | $ | % | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Segment NOI—Senior Living Operations: | |||||||||||||||||||||||
| Resident fees and services | $ | 528,650 | $ | 576,770 | $ | (48,120) | (8.3) | % | |||||||||||||||
| Less: Property-level operating expenses | (417,829) | (410,131) | (7,698) | (1.9) | |||||||||||||||||||
| Segment NOI | $ | 110,821 | $ | 166,639 | (55,818) | (33.5) | |||||||||||||||||
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| 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, | |||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||
| Total communities | 439 | 400 | 76.3 | % | 86.6 | % | $ | 4,649 | $ | 5,056 | |||||||||||||||||||||||||
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 senior living operations segment include labor, food, utilities, marketing, management and other costs of operating the properties.
The segment NOI decrease in our senior living operating portfolio was primarily driven by lower occupancy and increased net operating costs resulting from the COVID-19 pandemic. Operating costs were partially mitigated by the receipt of $13.6 million of HHS grants during the first quarter of 2021. This is partially offset by the transition of 26 independent living assets at the start of the second quarter 2020, operated by Holiday from our triple-net portfolio to our senior living operating portfolio.
The following table compares results of operations for our 389 same-store senior living operating communities.
| For the Three Months Ended March 31, | (Decrease) Increase to Segment NOI | ||||||||||||||||||||||
| 2021 | 2020 | $ | % | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
Same-Store Segment NOI—Senior Living Operations: | |||||||||||||||||||||||
| Resident fees and services | $ | 478,479 | $ | 569,564 | $ | (91,085) | (16.0) | % | |||||||||||||||
| Less: Property-level operating expenses | (381,861) | (401,518) | 19,657 | 4.9 | |||||||||||||||||||
| Segment NOI | $ | 96,618 | $ | 168,046 | (71,428) | (42.5) | |||||||||||||||||
| 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, | |||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||
| Same-store communities | 389 | 389 | 76.5 | % | 86.9 | % | $ | 4,922 | $ | 5,157 | |||||||||||||||||||||||||
The segment NOI decrease in our same-store senior living operating portfolio was primarily driven by lower occupancy resulting from the COVID-19 pandemic. This is partially offset by lower operating costs as a result of the receipt of $13.2 million of HHS grants in the first quarter of 2021, which partially mitigate COVID-19 losses incurred by our SHOP communities.
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Segment 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, 2021. 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, | (Decrease) Increase to Segment NOI | ||||||||||||||||||||||
| 2021 | 2020 | $ | % | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Segment NOI—Office Operations: | |||||||||||||||||||||||
| Rental income | $ | 197,455 | $ | 208,395 | $ | (10,940) | (5.2) | % | |||||||||||||||
| Office building services costs | 2,345 | 2,174 | 171 | 7.9 | |||||||||||||||||||
| Total revenues | 199,800 | 210,569 | (10,769) | (5.1) | |||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Property-level operating expenses | (63,946) | (64,506) | 560 | 0.9 | |||||||||||||||||||
| Office building services costs | (618) | (727) | 109 | 15.0 | |||||||||||||||||||
| Segment NOI | $ | 135,236 | $ | 145,336 | (10,100) | (6.9) | |||||||||||||||||
| Number of Properties at March 31, | Occupancy at March 31, | Annualized Average Rent Per Occupied Square Foot for the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||
| Total office buildings | 373 | 377 | 89.3 | % | 90.2 | % | $ | 34 | $ | 34 | |||||||||||||||||||||||||
The office segment NOI decrease was primarily driven by assets sold in the first quarter of 2020 and business interruption proceeds received in the first quarter of 2020, partially offset by active leasing at recently developed properties, continued tenant retention and contractual rent increases.
The following table compares results of operations for our 347 same-store office buildings.
| For the Three Months Ended March 31, | Increase (Decrease) to Segment NOI | ||||||||||||||||||||||
| 2021 | 2020 | $ | % | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
Same-Store Segment NOI—Office Operations: | |||||||||||||||||||||||
| Rental income | $ | 185,936 | $ | 184,738 | $ | 1,198 | 0.6 | % | |||||||||||||||
| Less: Property-level operating expenses | (59,337) | (57,784) | (1,553) | (2.7) | |||||||||||||||||||
| Segment NOI | $ | 126,599 | $ | 126,954 | (355) | (0.3) | |||||||||||||||||
| Number of Properties at March 31, | Occupancy at March 31, | Annualized Average Rent Per Occupied Square Foot for the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||
| Same-store office buildings | 347 | 347 | 91.3 | % | 91.5 | % | $ | 34 | $ | 34 | |||||||||||||||||||||||||
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Same-store operations decreased slightly in the first quarter of 2021 over the same period in 2020 due to lower real estate tax subsidies in the first quarter of 2021 compared to the same period in 2020, partially offset by continued tenant retention and contractual rent escalators.
All Other
Information provided for all other segment NOI includes income from loans and investments and other miscellaneous income not directly attributable to any of our three reportable business segments. The $3.4 million decrease in all other segment NOI for the three months ended March 31, 2021 over the same period in 2020 is primarily due to lower income from loans receivable investments due to lower interest rates on floating rate loans and first quarter 2020 payoffs, partially offset by increased management fees received from our unconsolidated real estate entities.
Interest and Other Income
The $4.5 million decrease in interest and other income is primarily due to first quarter 2020 reduction of a liability related to an acquisition.
Interest Expense
The $5.9 million decrease in total interest expense for the three months ended March 31, 2021 compared to the same period in 2020 is primarily due to lower debt balances. Our weighted average effective interest rate was 3.6% for both the three months ended March 31, 2021 and 2020. Capitalized interest for the three months ended March 31, 2021 and 2020 was $3.1 million and $2.9 million, respectively.
Depreciation and Amortization
Depreciation and amortization expense increased $65.3 million during the three months ended March 31, 2021 compared to the same period in 2020 primarily due to $78.5 million of impairments recognized in the first quarter of 2021 as compared to $12.2 million of impairment in the first quarter of 2020.
Loss on Extinguishment of Debt, Net
Loss on extinguishment of debt, net for the three months ended March 31, 2021 was primarily due to the make whole redemption for the entirety of the $400.0 million aggregate principal amount of 3.10% senior notes due January 2023.
Merger-Related Expenses and Deal Costs
The $3.6 million decrease in merger-related expenses and deal costs is primarily attributable to severance related charges and captive insurance organizational costs incurred in 2020.
Allowance on Loans Receivable and Investments
The allowance on loans receivable and investments for the three months ended March 31, 2021 was due to a change in our estimate of credit losses and the corresponding reversal of allowances as of March 31, 2021.
Other
The $15.2 million change in other expenses is primarily due to a $21.0 million increase in the fair value of Brookdale stock warrants during the first quarter of 2021, partially offset by expenses relating to winter storms during the first quarter of 2021.
Loss from Unconsolidated Entities
The $10.6 million decrease in the loss from unconsolidated entities is primarily due to our share of a non-cash tax expense in the first quarter of 2020 from one of our unconsolidated operating entities.
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Gain on Real Estate Dispositions
The $223.7 million decrease in gain on real estate dispositions is primarily due to our sale of six properties for a gain in the first quarter of 2020.
Income Tax (Expense) Benefit
The $151.2 million change from income tax benefit to an income tax expense for the three months ended March 31, 2021 compared to the same period in 2020 is primarily due to a $152.9 million deferred tax benefit related to the internal restructuring of certain U.S. taxable REIT subsidiaries completed within the first quarter of 2020.
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. In particular, 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 and between 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 gains or losses 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 partnerships and entities. Adjustments for unconsolidated partnerships and entities will be calculated to reflect FFO on the same basis. We define normalized FFO as FFO excluding the following income and expense items (which may be recurring in nature): (a) merger-related costs and expenses, including amortization of intangibles, transition and integration expenses, and deal costs and expenses, including expenses and recoveries relating to acquisition lawsuits; (b) the impact of any 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, severance-related costs and charitable donations made to the Ventas Charitable Foundation; (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 unusual items related to unconsolidated entities; (g) expenses related to the re-audit and re-review in 2014 of our historical financial
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statements and related matters; (h) net expenses or recoveries related to natural disasters; and (i) any other incremental items set forth in the normalized FFO reconciliation included herein.
The following table summarizes our FFO and normalized FFO for the three months ended March 31, 2021 and 2020. The decrease in normalized FFO for the three months ended March 31, 2021 over the same period in 2020 is principally due to the impact of COVID-19 on our senior housing business, lower rental income from our triple-net lease with Brookdale Senior Living, and the impact of our contribution of six properties to the Ventas Fund in the first quarter of 2020, partially offset by a decrease in interest expense.
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (57,209) | $ | 473,117 | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Real estate depreciation and amortization | 312,869 | 247,330 | |||||||||||||||||||||
| Real estate depreciation related to noncontrolling interests | (4,618) | (3,843) | |||||||||||||||||||||
| Real estate depreciation related to unconsolidated entities | 4,018 | 561 | |||||||||||||||||||||
| Loss on real estate dispositions related to noncontrolling interests | — | (6) | |||||||||||||||||||||
| Gain on real estate dispositions | (2,533) | (226,225) | |||||||||||||||||||||
| FFO attributable to common stockholders | 252,527 | 490,934 | |||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Change in fair value of financial instruments | (21,008) | (10) | |||||||||||||||||||||
| Non-cash income tax expense (benefit) | 1,344 | (140,895) | |||||||||||||||||||||
Loss on extinguishment of debt, net | 27,090 | — | |||||||||||||||||||||
| (Gain) loss on non-real estate dispositions related to unconsolidated entities | (21) | 239 | |||||||||||||||||||||
| Merger-related expenses, deal costs and re-audit costs | 5,360 | 8,773 | |||||||||||||||||||||
| Amortization of other intangibles | 116 | 118 | |||||||||||||||||||||
| Other items related to unconsolidated entities | 101 | (875) | |||||||||||||||||||||
| Non-cash impact of changes to equity plan | 8,741 | 6,895 | |||||||||||||||||||||
| Natural disaster expenses, net | 5,127 | 941 | |||||||||||||||||||||
Allowance on loan investments, net of noncontrolling interests | (8,900) | — | |||||||||||||||||||||
| Normalized FFO attributable to common stockholders | $ | 270,477 | $ | 366,120 | |||||||||||||||||||
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Adjusted EBITDA
We consider Adjusted EBITDA an important supplemental measure because it provides another manner in which to evaluate our operating performance and serves as another indicator of our credit strength and our ability to service our debt obligations. We define Adjusted EBITDA as consolidated earnings before interest, taxes, depreciation and amortization (including non-cash stock-based compensation expense, asset impairment and valuation allowances), excluding gains or losses on extinguishment of debt, our partners’ share of EBITDA of consolidated entities, merger-related expenses and deal costs, expenses related to the re-audit and re-review in 2014 of our historical financial statements, net gains or losses on real estate activity, gains or losses on remeasurement of equity interest upon acquisition, changes in the fair value of financial instruments, unrealized foreign currency gains or losses, net expenses or recoveries related to natural disasters and non-cash charges related to leases, and including Ventas’ share of EBITDA from unconsolidated entities and adjustments for other immaterial or identified items. The following table sets forth a reconciliation of net income attributable to common stockholders to Adjusted EBITDA:
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (57,209) | $ | 473,117 | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Interest | 110,767 | 116,696 | |||||||||||||||||||||
| Loss on extinguishment of debt, net | 27,090 | — | |||||||||||||||||||||
Taxes (including tax amounts in general, administrative and professional fees) | 3,436 | (147,707) | |||||||||||||||||||||
Depreciation and amortization | 314,148 | 248,837 | |||||||||||||||||||||
| Non-cash stock-based compensation expense | 16,072 | 10,514 | |||||||||||||||||||||
| Merger-related expenses, deal costs and re-audit costs | 4,617 | 8,218 | |||||||||||||||||||||
| Net income attributable to noncontrolling interests, adjusted for partners’ share of consolidated entity EBITDA | (6,775) | (6,098) | |||||||||||||||||||||
| Loss from unconsolidated entities, adjusted for Ventas share of EBITDA from unconsolidated entities | 16,707 | 17,733 | |||||||||||||||||||||
| Gain on real estate dispositions | (2,533) | (226,225) | |||||||||||||||||||||
| Unrealized foreign currency loss (gain) | 70 | (73) | |||||||||||||||||||||
| Change in fair value of financial instruments | (21,006) | (9) | |||||||||||||||||||||
| Natural disaster expenses, net | 5,174 | 783 | |||||||||||||||||||||
Allowance on loan investments, net of noncontrolling interests | (8,900) | — | |||||||||||||||||||||
| Adjusted EBITDA | $ | 401,658 | $ | 495,786 | |||||||||||||||||||
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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 office building services costs. Cash receipts may differ due to straight-line recognition of certain rental income and the application of other GAAP policies. The following table sets forth a reconciliation of net income attributable to common stockholders to NOI:
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (57,209) | $ | 473,117 | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Interest and other income | (341) | (4,853) | |||||||||||||||||||||
| Interest expense | 110,767 | 116,696 | |||||||||||||||||||||
| Depreciation and amortization | 314,148 | 248,837 | |||||||||||||||||||||
| General, administrative and professional fees | 40,309 | 40,460 | |||||||||||||||||||||
| Loss on extinguishment of debt, net | 27,090 | — | |||||||||||||||||||||
| Merger-related expenses and deal costs | 4,617 | 8,218 | |||||||||||||||||||||
| Allowance on loans receivable and investments | (8,902) | — | |||||||||||||||||||||
| Other | (9,428) | 5,783 | |||||||||||||||||||||
| Net income attributable to noncontrolling interests | 1,811 | 1,613 | |||||||||||||||||||||
| Loss from unconsolidated entities | 250 | 10,876 | |||||||||||||||||||||
| Income tax expense (benefit) | 2,153 | (149,016) | |||||||||||||||||||||
| Gain on real estate dispositions | (2,533) | (226,225) | |||||||||||||||||||||
| NOI | $ | 422,732 | $ | 525,506 | |||||||||||||||||||
See “Results of Operations” for discussions regarding both segment NOI and same-store segment NOI. We define same-store as properties owned, consolidated and operational for the full period in both comparison periods and 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 portfolio performance.
Newly acquired development properties and recently developed or redeveloped properties in our senior living operations 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 segments will be included in same-store once substantial completion of work has occurred for the full period in both periods presented. Our senior living operations 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) those properties that are currently undergoing a materially disruptive redevelopment; (iv) for our office operations, those properties for which management has an intention to institute 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; or (v) for the senior living operations and triple-net leased 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
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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
During the three months ended March 31, 2021, our principal sources of liquidity were cash flows from operations, proceeds from the issuance of debt and equity securities, borrowings under our unsecured revolving credit facility, 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.
While continuing decreased revenue and net operating income as a result of the COVID-19 pandemic could lead to downgrades of our long-term credit rating and therefore adversely impact our cost of borrowing, we currently believe we will continue to have access to one or more debt markets during the duration of the pandemic and could seek to enter into secured debt financings or issue debt and equity securities to satisfy our liquidity needs, although no assurances can be made in this regard.
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 financing activities.
Credit Facilities, Commercial Paper and Unsecured Term Loans
In January 2021, we entered into an amended and restated unsecured credit facility (the “New Credit Facility”) comprised of a $2.75 billion unsecured revolving credit facility initially priced at LIBOR plus 0.825% based on the Company’s debt rating. The New Credit Facility replaced our previous $3.0 billion unsecured revolving credit facility priced at 0.875%. The New Credit Facility matures in January 2025, but may be extended at our option, subject to the satisfaction of certain conditions, for two additional periods of six months each. The New Credit Facility also includes an accordion feature that permits us to increase our aggregate borrowing capacity thereunder to up to $3.75 billion, subject to the satisfaction of certain conditions.
As of March 31, 2021, we had $2.7 billion of undrawn capacity on our New Credit Facility with $44.8 million outstanding and an additional $24.9 million restricted to support outstanding letters of credit. We limit our use of the New Credit Facility, to the extent necessary, to support our commercial paper program when commercial paper notes are outstanding, which as of March 31, 2021 we had $0.2 billion of commercial paper outstanding.
Our wholly owned subsidiary, 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 United States 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, 2021, we had $215.0 million of borrowings outstanding under our commercial paper program.
As of March 31, 2021, we had a $200.0 million unsecured term loan priced at LIBOR plus 0.90% that matures in 2023. The term loan also includes an accordion feature that effectively permits us to increase our aggregate borrowings thereunder to up to $800.0 million.
As of March 31, 2021, we had a C$500 million unsecured term loan facility priced at Canadian Dollar Offered Rate (“CDOR”) plus 0.90% that matures in 2025.
As of March 31, 2021, we had a $400.0 million secured revolving construction credit facility with $154.3 million of borrowings outstanding. The secured revolving construction credit facility matures in 2022 and is primarily used to finance the development of life science, research and innovation centers and other construction projects.
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Senior Notes
In February 2021, Ventas Realty issued a make whole redemption for the entirety of the $400.0 million aggregate principal amount of 3.10% senior notes due January 2023, resulting in a loss on extinguishment of debt of $27.3 million for the three months ended March 31, 2021. The redemption settled in March 2021, principally using cash on hand.
We may, from time to time, seek to retire or purchase our outstanding senior notes 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.
Equity Offerings
From time to time, we may sell our common stock under an “at-the-market” equity offering program (“ATM program”). During the three months ended March 31, 2021, we sold 0.2 million shares of common stock under our ATM program for gross proceeds of $57.22 per share. As of March 31, 2021, $744.1 million of our common stock remained available for sale under our 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.
Dividends
During the three months ended March 31, 2021, 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 2021.
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.
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Cash Flows
The following table sets forth our sources and uses of cash flows:
| For the Three Months Ended March 31, | Increase (Decrease) to Cash | ||||||||||||||||||||||
| 2021 | 2020 | $ | % | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | $ | 451,640 | $ | 146,102 | $ | 305,538 | nm | ||||||||||||||||
| Net cash provided by operating activities | 237,593 | 314,452 | (76,859) | (24.4) | % | ||||||||||||||||||
| Net cash (used in) provided by investing activities | (102,612) | 517,181 | (619,793) | nm | |||||||||||||||||||
| Net cash (used in) provided by financing activities | (377,067) | 1,911,300 | (2,288,367) | nm | |||||||||||||||||||
Effect of foreign currency translation | 658 | (2,776) | 3,434 | nm | |||||||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 210,212 | $ | 2,886,259 | (2,676,047) | nm | |||||||||||||||||
nm - not meaningful
Cash Flows from Operating Activities
Cash flows from operating activities decreased $76.9 million during the three months ended March 31, 2021 over the same period in 2020 due primarily to the impact of COVID-19 on our senior housing business, lower rental income from our triple-net lease with Brookdale Senior Living, and the impact of our sale of properties in the first quarter of 2020, partially offset by a decrease in interest expense.
Cash Flows from Investing Activities
Cash flows from investing activities decreased $0.6 billion during the three months ended March 31, 2021 over the same period in 2020 primarily due to fewer proceeds from real estate dispositions and loan repayments.
Cash Flows from Financing Activities
Cash flows from financing activities decreased $2.3 billion during the three months ended March 31, 2021 over the same period in 2020 primarily due to higher debt borrowings under revolving credit facilities and commercial paper, net of repayments, in the first quarter 2020, the March 2021 redemption of $400.0 million senior notes due 2023, partially offset by lower dividends to common stockholders.
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 senior living operations 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.
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, 2021, we had 13 properties under development pursuant to these agreements, including three properties that are owned by an unconsolidated real estate entity. In addition, from time to time, we engage in redevelopment projects with respect to our existing senior housing
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communities to maximize the value, increase NOI, maintain a market-competitive position, achieve property stabilization or change the primary use of the property.
Contractual Obligations
During the three months ended March 31, 2021, 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 2020 Annual Report.
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, 2021, we had $24.9 million outstanding letter 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 under “Contractual Obligations.”
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, including the senior notes that were jointly issued with Ventas Capital Corporation. Ventas Capital Corporation is a direct 100% owned subsidiary of Ventas Realty that has no assets or operations, but was formed in 2002 solely to facilitate offerings of senior notes by a limited partnership. None of our other subsidiaries (excluding Ventas Realty and Ventas Capital Corporation) 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 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.
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.
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The following summarizes our guarantor and issuer balance sheet and statement of income information as of March 31, 2021 and December 31, 2020 and for the three months ended March 31, 2021 and the year ended December 31, 2020.
Balance Sheet Information
| As of March 31, 2021 | |||||||||||
| Guarantor | Issuer | ||||||||||
| (In thousands) | |||||||||||
| Assets | |||||||||||
| Investment in and advances to affiliates | $ | 16,564,893 | $ | 2,728,041 | |||||||
| Total assets | 16,714,666 | 2,843,081 | |||||||||
| Liabilities and equity | |||||||||||
| Intercompany loans | 10,643,999 | (4,249,765) | |||||||||
| Total liabilities | 10,850,387 | 3,648,187 | |||||||||
| Redeemable OP unitholder and noncontrolling interests | 87,235 | — | |||||||||
| Total equity (deficit) | 5,777,044 | (805,106) | |||||||||
| Total liabilities and equity | 16,714,666 | 2,843,081 | |||||||||
Balance Sheet Information
| As of December 31, 2020 | |||||||||||
| Guarantor | Issuer | ||||||||||
| (In thousands) | |||||||||||
| Assets | |||||||||||
| Investment in and advances to affiliates | $ | 16,576,278 | $ | 2,727,931 | |||||||
| Total assets | 16,937,149 | 2,844,339 | |||||||||
| Liabilities and equity | |||||||||||
| Intercompany loans | 10,691,626 | (4,532,350) | |||||||||
| Total liabilities | 10,918,320 | 3,577,009 | |||||||||
Redeemable OP unitholder and noncontrolling interests | 89,669 | — | |||||||||
| Total equity (deficit) | 5,929,161 | (732,670) | |||||||||
| Total liabilities and equity | 16,937,149 | 2,844,339 | |||||||||
Statement of Income Information
| For the Three Months Ended March 31, 2021 | |||||||||||||||||||||||
| Guarantor | Issuer | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Equity earnings in affiliates | $ | (59,110) | $ | — | |||||||||||||||||||
| Total revenues | (57,550) | 35,836 | |||||||||||||||||||||
| Loss before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests | (56,760) | (74,246) | |||||||||||||||||||||
| Net loss | (57,209) | (74,246) | |||||||||||||||||||||
| Net loss attributable to common stockholders | (57,209) | (74,246) | |||||||||||||||||||||
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Statement of Income Information
| For the Year Ended December 31, 2020 | |||||||||||||||||||||||||||||
| Guarantor | Issuer | ||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Equity earnings in affiliates | $ | 469,311 | $ | — | |||||||||||||||||||||||||
| Total revenues | 474,392 | 143,259 | |||||||||||||||||||||||||||
| Income (loss) before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests | 440,210 | (215,406) | |||||||||||||||||||||||||||
| Net income (loss) | 439,149 | (202,845) | |||||||||||||||||||||||||||
| Net income (loss) attributable to common stockholders | 439,149 | (202,845) | |||||||||||||||||||||||||||
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 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 LIBOR rates or prime rates. To manage these risks, we continuously monitor our level of floating rate debt with respect to total debt and other factors, including our assessment of current and future economic conditions.
As of March 31, 2021 and December 31, 2020, the fair value of our secured and non-mortgage loans receivable, based on our estimates of currently prevailing rates for comparable loans, was $591.0 million and $565.7 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.
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:
| As of March 31, 2021 | As of December 31, 2020 | ||||||||||
| (In thousands) | |||||||||||
| Gross book value | $ | 10,074,085 | $ | 10,458,262 | |||||||
| Fair value | 10,815,619 | 11,550,236 | |||||||||
| Fair value reflecting change in interest rates: | |||||||||||
| -100 basis points | 11,418,782 | 12,204,507 | |||||||||
| +100 basis points | 10,273,544 | 10,951,483 | |||||||||
The decrease in our fixed rate debt from December 31, 2020 to March 31, 2021 was due primarily to the make whole redemption of $400.0 million of senior notes due in 2023.
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The table below sets forth certain information with respect to our debt, excluding premiums and discounts.
| As of March 31, 2021 | As of December 31, 2020 | As of March 31, 2020 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Balance: | |||||||||||||||||
| Fixed rate: | |||||||||||||||||
| Senior notes | $ | 8,483,829 | $ | 8,869,036 | $ | 8,503,244 | |||||||||||
| Unsecured term loans | 200,000 | 200,000 | 200,000 | ||||||||||||||
| Secured revolving construction credit facility | — | — | 152,427 | ||||||||||||||
| Mortgage loans and other | 1,390,256 | 1,389,227 | 1,324,682 | ||||||||||||||
| Variable rate: | |||||||||||||||||
| Senior notes | 238,892 | 235,664 | 213,386 | ||||||||||||||
| Unsecured revolving credit facility | 44,799 | 39,395 | 2,888,159 | ||||||||||||||
| Unsecured term loans | 398,152 | 392,773 | 355,644 | ||||||||||||||
| Commercial paper notes | 215,000 | — | — | ||||||||||||||
| Secured revolving construction credit facility | 154,281 | 154,098 | — | ||||||||||||||
| Mortgage loans and other | 724,955 | 702,878 | 619,227 | ||||||||||||||
| Total | $ | 11,850,164 | $ | 11,983,071 | $ | 14,256,769 | |||||||||||
| Percentage of total debt: | |||||||||||||||||
| Fixed rate: | |||||||||||||||||
| Senior notes | 71.6 | % | 73.9 | % | 59.6 | % | |||||||||||
| Unsecured term loans | 1.7 | 1.7 | 1.4 | ||||||||||||||
| Secured revolving construction credit facility | — | — | 1.1 | ||||||||||||||
| Mortgage loans and other | 11.7 | 11.6 | 9.3 | ||||||||||||||
| Variable rate: | |||||||||||||||||
| Senior notes | 2.0 | 2.0 | 1.5 | ||||||||||||||
| Unsecured revolving credit facility | 0.4 | 0.3 | 20.3 | ||||||||||||||
| Unsecured term loans | 3.4 | 3.3 | 2.5 | ||||||||||||||
| Commercial paper notes | 1.8 | — | — | ||||||||||||||
| Secured revolving construction credit facility | 1.3 | 1.3 | — | ||||||||||||||
| Mortgage loans and other | 6.1 | 5.9 | 4.3 | ||||||||||||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||
Weighted average interest rate at end of period: | |||||||||||||||||
| Fixed rate: | |||||||||||||||||
| Senior notes | 3.8 | % | 3.7 | % | 3.7 | % | |||||||||||
| Unsecured term loans | 3.6 | 3.6 | 2.0 | ||||||||||||||
| Secured revolving construction credit facility | — | — | 4.5 | ||||||||||||||
| Mortgage loans and other | 3.5 | 3.5 | 3.7 | ||||||||||||||
| Variable rate: | |||||||||||||||||
| Senior notes | 1.0 | 1.0 | 2.5 | ||||||||||||||
| Unsecured revolving credit facility | 1.0 | 1.0 | 1.5 | ||||||||||||||
| Unsecured term loans | 1.3 | 1.4 | 2.6 | ||||||||||||||
| Commercial paper notes | 0.2 | — | — | ||||||||||||||
| Secured revolving construction credit facility | 1.9 | 1.9 | — | ||||||||||||||
| Mortgage loans and other | 1.9 | 1.9 | 3.8 | ||||||||||||||
| Total | 3.4 | 3.4 | 3.2 | ||||||||||||||
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The variable rate debt in the table above reflects, in part, the effect of $146.7 million notional amount of interest rate swaps with maturities ranging from March 2022 to May 2022, 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 $305.3 million and C$144.9 million notional amount of interest rate swaps with maturities ranging from January 2023 to December 2029 in each case that effectively convert variable rate debt to fixed rate debt.
The increase in our outstanding variable rate debt at March 31, 2021 compared to December 31, 2020 is primarily attributable to borrowings under our commercial paper program.
Assuming a 100 basis point increase in the weighted average interest rate related to our variable rate debt and assuming no change in our variable rate debt outstanding as of March 31, 2021, interest expense on an annualized basis would increase by approximately $17.1 million, or $0.05 per diluted common share.
As of March 31, 2021 and December 31, 2020, our joint venture partners’ aggregate share of total debt was $275.1 million and $271.6 million, respectively, with respect to certain properties we owned through consolidated joint ventures. Total debt does not include our portion of debt related to investments in unconsolidated real estate entities, which was $252.5 million and $213.0 million as of March 31, 2021 and December 31, 2020, 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, 2021 (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, 2021 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, 2021. 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, 2021, 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 2021 (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 – Litigation” 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 2020 Annual Report.
ITEM 1A. RISK FACTORS
In the first quarter of 2021 there were no significant new risk factors from those disclosed under Part I, Item 1A. “Risk Factors” of our 2020 Annual Report. However, the risks and uncertainties that we face are not limited to those set forth in the 2020 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, 2021.
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 | 15,325 | $ | 49.13 | — | — | ||||||||||||||||||
| February 1 through February 28 | 54,763 | 54.61 | — | — | |||||||||||||||||||
| March 1 through March 31 | 41,640 | 54.81 | — | — | |||||||||||||||||||
| Total | 111,728 | 53.93 | — | — | |||||||||||||||||||
(1)Repurchases represent shares withheld to pay taxes on the vesting of restricted stock granted to employees under our 2006 Incentive Plan or 2012 Incentive Plan or restricted stock units granted to employees under the Nationwide Health Properties, Inc. (“NHP”) 2005 Performance Incentive Plan and assumed by us in connection with our acquisition of NHP. The value of the shares withheld is the closing price of our common stock on the date the vesting or exercise occurred (or, if not a trading day, the immediately preceding trading day) or the fair market value of our common stock at the time of exercise, as the case may be.
ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS
The exhibits required by Item 601 of Regulation S-K which are filed with this report are listed below.
| Exhibit Number | Description of Document | |||||||
| First Amendment to the Credit and Guaranty Agreement, dated as of January 29, 2021, among Ventas Realty, Limited Partnership, as Borrower, Ventas, Inc., as Guarantor, the Lenders identified therein, and Bank of America, N.A., as Administrative Agent. | ||||||||
Third Amended and Restated Credit and Guaranty Agreement, dated as of January 29, 2021, among Ventas Realty, Limited Partnership, Ventas SSL Ontario II, Inc., Ventas SSL Ontario III, Inc., Ventas Canada Finance Limited, Ventas UK Finance, Inc., and Ventas Euro Finance, LLC, as Borrowers, Ventas, Inc., as Guarantor, the Lenders identified therein, Bank of America, N.A., as Administrative Agent, and Bank of America, N.A. and JPMorgan Chase Bank, N.A., as L/C Issuers (incorporated by reference to Exhibit 10.1 to Ventas, Inc.’s Current Report on Form 8-K, filed on February 2, 2021). | ||||||||
List of Guarantors and Issuers of Guaranteed Securities. | ||||||||
| 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. | ||||||||
| 101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2021, 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. | |||||||
| 104 | 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.
Date: May 7, 2021
| VENTAS, INC. | ||||||||
| By: | /s/ DEBRA A. CAFARO | |||||||
| Debra A. Cafaro Chairman and Chief Executive Officer | ||||||||
| By: | /s/ ROBERT F. PROBST | |||||||
| Robert F. Probst Executive Vice President and Chief Financial Officer | ||||||||
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