Ventas, Inc 10-Q for FY2022 Q3
Ventas, Inc. (VTR)
10-Q
2022-11-04
For: 2022-09-30
View Original
Added on
April 11, 2026
About this 10-Q
Ventas, Inc filed this 10-Q on November 4, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.04B
- up 6.3% from $976.08M a year earlier
- Net income
- $3.06M
- down 95.1% from net income of $62.77M a year earlier
- Diluted EPS
- $0.00
- compared with $0.16 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 November 1, 2022, there were 399,717,985 shares of the registrant’s common stock outstanding.
VENTAS, INC.
FORM 10-Q
INDEX
| Page | ||||||||||||||
Consolidated Financial Statements (Unaudited) | ||||||||||||||
| Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 | ||||||||||||||
| Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021 | ||||||||||||||
| Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021 | ||||||||||||||
| Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2022 and 2021 | ||||||||||||||
| Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 | ||||||||||||||
PART I—FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
VENTAS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts, unaudited)
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| 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, 399,725 and 399,420 shares issued at September 30, 2022 and December 31, 2021, respectively | |||||||||||
| Capital in excess of par value | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained earnings (deficit) | ( | ( | |||||||||
| Treasury stock, 10 and 0 shares issued at September 30, 2022 and December 31, 2021, respectively | ( | ||||||||||
| Total Ventas stockholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See accompanying notes.
1
VENTAS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts, unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| 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 housing | |||||||||||||||||||||||
| Office | |||||||||||||||||||||||
| Triple-net leased | |||||||||||||||||||||||
| Office building and other services costs | |||||||||||||||||||||||
| General, administrative and professional fees | |||||||||||||||||||||||
| Loss on extinguishment of debt, net | |||||||||||||||||||||||
| Transaction expenses and deal costs | |||||||||||||||||||||||
| Allowance on loans receivable and investments | ( | ( | ( | ( | |||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Loss before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) from unconsolidated entities | ( | ||||||||||||||||||||||
| Gain on real estate dispositions | |||||||||||||||||||||||
| Income tax benefit (expense) | ( | ( | |||||||||||||||||||||
| Income from continuing operations | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Net income attributable to noncontrolling interests | |||||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | $ | $ | ( | $ | ||||||||||||||||||
| Earnings per common share | |||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||
| Income from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Net income (loss) attributable to common stockholders | ( | ||||||||||||||||||||||
Diluted:1 | |||||||||||||||||||||||
| Income from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Net income (loss) 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.
See accompanying notes.
2
VENTAS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation loss | ( | ( | ( | ( | |||||||||||||||||||
| Unrealized loss on available for sale securities | ( | ( | ( | ( | |||||||||||||||||||
| Unrealized gain on derivative instruments | |||||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||
| Comprehensive (loss) income attributable to noncontrolling interests | ( | ( | |||||||||||||||||||||
| Comprehensive income attributable to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes.
3
VENTAS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
For the Three Months Ended September 30, 2022 and 2021
(In thousands, except per share amounts, unaudited)
| 2019 | Common Stock Par Value | Capital in Excess of Par Value | Accumulated Other Comprehensive (Loss) Income | Retained Earnings (Deficit) | Treasury Stock | Total Ventas Stockholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Net 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 September 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Acquisition-related activity | |||||||||||||||||||||||||||||||||||||||||||||||
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 September 30, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
See accompanying notes.
4
VENTAS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
For the Nine Months Ended September 30, 2022 and 2021
(In thousands, except per share amounts, unaudited)
| 2019 | Common Stock Par Value | Capital in Excess of Par Value | Accumulated Other Comprehensive (Loss) Income | Retained Earnings (Deficit) | Treasury Stock | Total Ventas Stockholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| 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 September 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Acquisition-related activity | |||||||||||||||||||||||||||||||||||||||||||||||
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 September 30, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
See accompanying notes.
5
VENTAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| For the Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net 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 (benefit) expense | ( | ||||||||||
| Loss (income) and other from unconsolidated entities | ( | ||||||||||
| Distributions from unconsolidated entities | |||||||||||
| Other | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Increase in other assets | ( | ( | |||||||||
| Decrease in accrued interest | ( | ( | |||||||||
| Increase 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 | ( | ( | |||||||||
| Distributions from unconsolidated entities | |||||||||||
| Investment in unconsolidated entities | ( | ( | |||||||||
| Insurance proceeds for property damage claims | |||||||||||
| Net cash used in 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 | ( | ( | |||||||||
| Purchase of noncontrolling interests | ( | ( | |||||||||
| 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 financing activities | ( | ( | |||||||||
| Net increase (decrease) 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.
6
VENTAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands, unaudited)
| For the Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Supplemental schedule of non-cash activities: | |||||||||||
| Assets acquired and liabilities assumed from acquisitions and other: | |||||||||||
| Real estate investments | $ | $ | |||||||||
| Other assets | |||||||||||
| Debt | |||||||||||
| Other liabilities | |||||||||||
| Deferred income tax liability | |||||||||||
| Noncontrolling interests | |||||||||||
| Equity issued | |||||||||||
| Equity issued for redemption of OP Units | |||||||||||
| Investment in unconsolidated entities | |||||||||||
See accompanying notes.
7
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,” “our,” “Company” and other similar terms), an S&P 500 company, is a real estate investment trust (“REIT”) operating at the intersection of healthcare and real estate. We hold a highly diversified portfolio of senior housing communities, medical office buildings (“MOBs”), life science, research and innovation centers, hospitals and other healthcare facilities, which we generally refer to as “healthcare real estate,” located throughout the United States, Canada and the United Kingdom. As of September 30, 2022, we owned or had investments in approximately 1,300 properties (including properties classified as held for sale). Our company was originally founded in 1983 and is headquartered in Chicago, Illinois with additional corporate offices in Louisville, Kentucky and New York, New York.
We primarily invest in a diversified portfolio of healthcare real estate assets through wholly owned subsidiaries and other co-investment entities. We operate through three reportable business segments: triple-net leased properties, senior housing operating portfolio, which we also refer to as “SHOP” and is formerly known as senior living operations, and office operations. See “Note 2 – Accounting Policies” and “Note 16 – Segment Information.” Our senior housing communities are either subject to triple-net leases, in which case they are included in our triple-net leased properties reportable business segment, or operated by independent third-party managers, in which case they are included in our SHOP reportable business segment.
As of September 30, 2022, we leased a total of 331 properties (excluding properties within our office operations reportable business segment) to various healthcare operating companies under triple-net or absolute-net leases that obligate the tenants to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures. Our three largest tenants, Brookdale Senior Living Inc. (together with its subsidiaries, “Brookdale Senior Living”), Ardent Health Partners, LLC (together with its subsidiaries, “Ardent”) and Kindred Healthcare, LLC (together with its subsidiaries, “Kindred”) leased from us 121 properties, 30 properties and 29 properties, respectively, as of September 30, 2022.
As of September 30, 2022, pursuant to long-term management agreements, we engaged independent operators, such as Atria Senior Living, Inc. (together with its subsidiaries, including Holiday Retirement (“Holiday”), “Atria”) and Sunrise Senior Living, LLC (together with its subsidiaries, “Sunrise”), to manage 558 senior housing communities for us.
Through our Lillibridge Healthcare Services, Inc. subsidiary and our ownership interest in PMB Real Estate Services LLC, we also provide MOB management, leasing, marketing, facility development and advisory services to highly rated hospitals and health systems throughout the United States. In addition, from time to time, we make secured and non-mortgage loans and other investments relating to senior housing and healthcare operators or properties.
Continuing Impact of and Response to COVID-19 and Its Extended Consequences
During fiscal 2020 and 2021 and continuing into fiscal 2022, our business has been and is expected to continue to be impacted by COVID-19 and its extended consequences.
Accounting Considerations. We have not identified COVID-19, 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 September 30, 2022, we considered the effect of COVID-19 on certain of our assets 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 both the nine months ended September 30, 2022 and 2021, we recognized no COVID-19 related charges in our Consolidated Statements of Income.
Provider Relief Grants. We applied for grants under the Provider Relief Fund administered by the U.S. Department of Health & Human Services (“HHS”) on behalf of the assisted living communities in our SHOP reportable business segment to partially mitigate losses attributable to COVID-19. These grants are intended to reimburse eligible providers for expenses incurred to prevent, prepare for and respond to COVID-19 and lost revenues attributable to COVID-19. Recipients are not required to repay distributions from the Provider Relief Fund, provided that they attest to and comply with certain terms and conditions.
8
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We received $20.2 million and $54.2 million during the three and nine months ended September 30, 2022, respectively, as compared to zero and $13.6 million during the three and nine months ended September 30, 2021, respectively. We recognized these grants within property-level operating expenses in our Consolidated Statements of Income in the period in which they were received.
Continuing Impact. The trajectory and future impact of COVID-19 and its extended consequences remain highly uncertain and will depend on a variety of factors, including the impact of new variants of the virus and the effectiveness of available vaccines against those variants; ongoing clinical experience, which may differ considerably across governmental and regulatory bodies and regions and fluctuate over time; and other future developments, including the ultimate duration, spread and intensity of the outbreak, the availability of testing, the extent to which governments impose, roll-back or re-impose preventative restrictions and the availability of ongoing government financial support to our business, tenants and operators. Due to these uncertainties, we are not able at this time to estimate the ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows.
NOTE 2—ACCOUNTING POLICIES
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”).
9
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 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.
| As of September 30, 2022 | As of December 31, 2021 | |||||||||||||||||||||||||
| Total Assets | Total Liabilities | Total Assets | Total Liabilities | |||||||||||||||||||||||
| 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 loss from unconsolidated entities 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.
10
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 NHP/PMB as a VIE. As of September 30, 2022, third party investors owned 3.9 million Class A limited partnership units in NHP/PMB (“OP Units”), which represented 34 % of the total units then outstanding, and we owned 7.5 million Class B limited partnership units in NHP/PMB, representing the remaining 66 %. 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 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.
The OP Units are classified outside of permanent equity on our Consolidated Balance Sheets because they may be redeemed by third parties under circumstances that are outside of our control. We reflect the OP Units at the greater of cost or redemption value. As of September 30, 2022 and December 31, 2021, the fair value of the OP Units was $152.9 million and $182.1 million, respectively. We recognize changes in fair value through capital in excess of par value, net of cash distributions paid and purchases by us of any OP Units. Our diluted earnings per share includes the effect of any potential shares outstanding from redemption of the OP Units.
Certain noncontrolling interests of other consolidated joint ventures were also classified as redeemable at September 30, 2022 and December 31, 2021. We record the carrying amount of these noncontrolling interests at the greater of their initial carrying amount (increased or decreased for the noncontrolling interests’ share of net income or loss and distributions) or the redemption value, which is primarily based on the fair value of the underlying real estate asset. Our joint venture partners have certain redemption rights with respect to their noncontrolling interests in these joint ventures that are outside of our control, and the redeemable noncontrolling interests are classified outside of permanent equity on our Consolidated Balance Sheets. We recognize changes in the carrying value of redeemable noncontrolling interests through capital in excess of par value on our Consolidated Balance Sheets.
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 September 30, 2022, we owned four 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 recapture within five years of substantial completion. The amount of the recapture is equal to 100 % of the HTCs during the first year after the completion of the historic rehabilitation and is reduced by 20 % each year during the subsequent five year period. NMTCs are subject to recapture until the end of the seventh year following the qualifying
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VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
Accounting for Real Estate Acquisitions
When we acquire real estate, we first make reasonable judgments about whether the transaction involves an asset or a business. Our real estate acquisitions are generally accounted for as asset acquisitions as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. Regardless of whether an acquisition is considered a business combination or an asset acquisition, we record the cost of the businesses or assets acquired as tangible and intangible assets and liabilities based upon their estimated fair values as of the acquisition date.
We estimate the fair value of buildings acquired on an as-if-vacant basis or replacement cost basis and depreciate the building value over the estimated remaining life of the building, generally not to exceed 35 years. We determine the fair value of other fixed assets, such as site improvements and furniture, fixtures and equipment, based upon the replacement cost and depreciate such value over the assets’ estimated remaining useful lives as determined at the applicable acquisition date. We determine the value of land either by considering the sales prices of similar properties in recent transactions or based on internal analyses of recently acquired and existing comparable properties within our portfolio. We generally determine the value of construction in progress based upon the replacement cost. However, for certain acquired properties that are part of a ground-up development, we determine fair value by using the same valuation approach as for all other properties and deducting the estimated cost to complete the development. During the remaining construction period, we capitalize project costs until the development has reached substantial completion. Construction in progress, including capitalized interest, is not depreciated until the development has reached substantial completion.
Intangibles primarily include the value of in-place leases and acquired lease contracts. We include all lease-related intangible assets and liabilities within acquired lease intangibles and accounts payable and other liabilities, respectively, on our Consolidated Balance Sheets.
The fair value of acquired lease-related intangibles, if any, reflects: (i) the estimated value of any above or below market leases, determined by discounting the difference between the estimated market rent and in-place lease rent; and (ii) the estimated value of in-place leases related to the cost to obtain tenants, including leasing commissions, and an estimated value of the absorption period to reflect the value of the rent and recovery costs foregone during a reasonable lease-up period as if the acquired space was vacant. We amortize any acquired lease-related intangibles to revenue or amortization expense over the remaining life of the associated lease plus any assumed bargain renewal periods. If a lease is terminated prior to its stated expiration or not renewed upon expiration, we recognize all unamortized amounts of lease-related intangibles associated with that lease in operations over the shortened lease term.
We estimate the fair value of purchase option intangible assets and liabilities, if any, by discounting the difference between the applicable property’s acquisition date fair value and an estimate of its future option price. We do not amortize the resulting intangible asset or liability over the term of the lease, but rather adjust the recognized value of the asset or liability upon sale.
In connection with an acquisition, we may assume rights and obligations under certain lease agreements pursuant to which we become the lessee of a given property. We generally assume the lease classification previously determined by the prior lessee absent a modification in the assumed lease agreement. We assess assumed operating leases, including ground leases, to determine whether the lease terms are favorable or unfavorable to us given current market conditions on the acquisition date. To the extent the lease terms are favorable or unfavorable to us relative to market conditions on the acquisition
12
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
date, we recognize an intangible asset or liability at fair value and amortize that asset or liability to interest or rental expense in our Consolidated Statements of Income over the applicable lease term. Where we are the lessee, we record the acquisition date values of leases, including any above or below market value, within operating lease assets and operating lease liabilities on our Consolidated Balance Sheets.
We estimate the fair value of noncontrolling interests assumed consistent with the manner in which we value all of the underlying assets and liabilities.
We calculate the fair value of long-term assumed debt by discounting the remaining contractual cash flows on each instrument at the current market rate for those borrowings, which we approximate based on the rate at which we would expect to incur a replacement instrument on the date of acquisition, and recognize any fair value adjustments related to long-term debt as effective yield adjustments over the remaining term of the instrument.
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.
13
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
◦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 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 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 of impairment 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 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
14
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 September 30, 2022 and December 31, 2021, this cumulative excess totaled $182.3 million and $176.9 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.
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 Housing Operating Portfolio
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
We recognize interest income from loans and investments, including discounts and premiums, using the effective interest method when collectability is reasonably assured. We apply the effective interest method on a loan-by-loan basis and recognize discounts and premiums as yield adjustments over the related loan term. We evaluate collectability of accrued interest receivables separate from the amortized cost basis of our loans. As such, we recognize interest income on an impaired loan to the extent we believe accrued contractual interest payments are collectable. Otherwise interest income is recognized on a cash basis.
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 on our Consolidated Balance Sheets. 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 our Consolidated Statements of Income.
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VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recently Adopted Accounting Standards
In November 2021, the FASB issued Accounting Standards Update 2021-10, Disclosures by Business Entities about Government Assistance (“ASU 2022-10”), which requires expanded annual disclosures for transactions involving the receipt of government assistance. Required disclosures include a description of the nature of the transactions with government entities, our accounting policies for such transactions and their impact to our Consolidated Financial Statements. We adopted ASU 2021-10 on January 1, 2022 and the adoption of this standard is not expected to have a material impact on our Consolidated Financial Statements.
NOTE 3—CONCENTRATION OF CREDIT RISK
As of September 30, 2022, Atria, Sunrise, Brookdale Senior Living, Ardent and Kindred managed or operated approximately 26.7 %, 9.8 %, 7.8 %, 5.3 % and 0.8 %, respectively, of our consolidated real estate investments based on gross book value (excluding properties classified as held for sale as of September 30, 2022). Because Atria and Sunrise manage our properties in exchange for a management fee from us, we are not directly exposed to their credit risk in the same manner or to the same extent as triple-net tenants like Brookdale Senior Living, Ardent and Kindred.
Based on gross book value, approximately 12.6 % and 53.8 % of our consolidated real estate investments were senior housing communities included in the triple-net leased properties and SHOP reportable business segments, respectively (excluding properties classified as held for sale as of September 30, 2022). MOBs, life science, research and innovation centers, inpatient rehabilitation facilities (“IRFs”) and long-term acute care facilities (“LTACs”), health systems, skilled nursing facilities (“SNFs”) and secured loans receivable and investments collectively comprised the remaining 33.6 %. Our consolidated properties were located in 47 states, the District of Columbia, seven Canadian provinces and the United Kingdom as of September 30, 2022, with properties in one state (California) accounting for more than 10 % of our total consolidated revenues and net operating income (“NOI”) for the three months then ended. NOI is defined as total revenues, less interest and other income, property-level operating expenses and office building and other services costs. See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and a reconciliation of net income attributable to common stockholders, as computed in accordance with GAAP, to NOI.
Triple-Net Leased Properties
The properties we lease to Brookdale Senior Living, Ardent and Kindred accounted for a significant portion of our triple-net leased properties segment revenues and NOI. The following table reflects the concentration risk related to our triple-net leased properties including assets held for sale for the periods presented:
| For the Three Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
Revenues (1): | |||||||||||
| Brookdale Senior Living | % | % | |||||||||
| Ardent | |||||||||||
Kindred | |||||||||||
NOI (2): | |||||||||||
| 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.
(2)See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and a reconciliation of net income attributable to common stockholders, as computed in accordance with GAAP, to NOI.
Each of our leases with Brookdale Senior Living, Ardent and Kindred is a triple-net lease that obligates the tenant to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures, and to comply with the terms of the mortgage financing documents, if any, affecting the properties. In addition, each of our Brookdale Senior Living, Ardent and Kindred leases has a corporate guaranty.
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VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In December 2021, Kindred Healthcare, LLC was acquired and began operating under a new healthcare system called ScionHealth. As of September 30, 2022, we leased 29 LTACs to Kindred pursuant to a master lease agreement. Pursuant to the master lease, the 29 LTACs are divided into two renewal groups. The first renewal group is composed of 6 LTACs (“Group 1”) and the second renewal group is composed of 23 LTACs (“Group 2”). In the second quarter of 2022, we and Kindred amended the master lease to, among other things, extend the lease term of Group 1 through April 30, 2028. The lease term for Group 2 ends on April 30, 2025. Although Kindred has the right to renew each of Group 1 and Group 2 for additional lease terms, we cannot assure you that Kindred will exercise any renewal options for either pool, or if the lease term is renewed, amended or extended, the terms thereof.
Senior Housing Operating Portfolio
As of September 30, 2022, Atria and Sunrise, collectively, provided comprehensive property management and accounting services with respect to 347 of our 549 consolidated senior housing communities, for which we pay annual management fees pursuant to long-term management agreements.
On July 30, 2021, Atria acquired the management services division of Holiday, which at the time managed a pool of 26 communities for Ventas. As of September 30, 2022, Atria and its subsidiaries, including Holiday, managed a pool of 255 senior housing communities for Ventas. Ventas has the ongoing right to terminate the management contract for 91 of the communities with short term notice.
As of September 30, 2022, Sunrise managed a pool of 96 senior housing communities for Ventas. Subsequent to March 31, 2022, Ventas and Sunrise Senior Living entered into a revised management agreement for 92 communities with a term expiring May 31, 2035. Under the new management agreement, Sunrise will receive a management fee based on a percentage of revenue and net operating income generated by the applicable communities. Sunrise is also entitled to certain incentive fees if specified performance targets are met. Ventas has the right to freely terminate the management agreement as to all communities if certain performance metrics are not met and may freely terminate the management agreement as to certain specified communities at any time. In addition, Ventas may also terminate the management agreement as it relates to three communities per year subject to the payment of a fee and an aggregate cap on such terminations over the term of the agreement.
We successfully transitioned the operations of 90 senior living communities owned by us and operated under management agreements with Eclipse Senior Living, Inc. (“ESL”) to seven experienced managers on or before January 2, 2022. ESL ceased operation of its management business in early 2022 following completion of the transitions. We incurred certain one-time transition costs and expenses in connection with the transitions, which were recognized within transaction expenses and deal costs in our Consolidated Statements of Income.
We rely on our managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our senior housing operating portfolio efficiently and effectively. We also rely on our managers to set appropriate resident fees, provide accurate property-level financial results in a timely manner and otherwise operate our senior housing communities in compliance with the terms of our management agreements and all applicable laws and regulations.
NOTE 4—ACQUISITIONS OF REAL ESTATE PROPERTY
We acquire and invest in senior housing, medical office buildings, life science, research and innovation centers and other healthcare properties primarily to achieve an expected yield on our investment, to grow and diversify our portfolio and revenue base, and to reduce our dependence on any single tenant, operator or manager, geographic location, asset type, business model or revenue source. Each of our acquisitions disclosed below was accounted for as an asset acquisition.
2022 Acquisitions
During the nine months ended September 30, 2022, we acquired 18 MOBs leased to affiliates of Ardent, one behavioral health center and one research and innovation center, all of which are reported within our office operations segment, and two senior housing communities, which are reported within our SHOP segment, for an aggregate purchase price of $445.9 million.
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VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5—DISPOSITIONS AND IMPAIRMENTS
2022 Activity
During the nine months ended September 30, 2022, we sold one vacant land parcel and one vacant office building for aggregate consideration of $12.5 million and recognized a net gain on the sales of these assets of $2.6 million.
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 (dollars in thousands):
| As of September 30, 2022 | As of December 31, 2021 | |||||||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||||||
| Triple-net leased properties | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| SHOP | ||||||||||||||||||||||||||||||||||||||
| Office operations | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Real Estate Impairment
We recognized impairments of $28.1 million and $75.9 million for the three months ended September 30, 2022 and 2021, respectively, and $55.0 million and $173.0 million for the nine months ended September 30, 2022 and 2021, respectively, which are recorded primarily as a component of depreciation and amortization in our Consolidated Statements of Income. The impairments recorded were primarily the result of a change in our intent to hold or a change in the expected future cash flows of the impaired assets.
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VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6—LOANS RECEIVABLE AND INVESTMENTS
As of September 30, 2022 and December 31, 2021, we had $553.6 million and $549.2 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 (dollars in thousands):
| Amortized Cost | Allowance | Unrealized (Loss) Gain | Carrying Amount | Fair Value | |||||||||||||||||||||||||
| As of September 30, 2022: | |||||||||||||||||||||||||||||
Secured/mortgage loans and other, net (1) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Government-sponsored pooled loan investments, net (1) | ( | ||||||||||||||||||||||||||||
Total investments reported as secured loans receivable and investments, net | ( | ||||||||||||||||||||||||||||
Non-mortgage loans receivable, net (2) | ( | ||||||||||||||||||||||||||||
Marketable debt securities (3) | |||||||||||||||||||||||||||||
| Total loans receivable and investments, net | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||
| As of December 31, 2021: | |||||||||||||||||||||||||||||
Secured/mortgage loans and other, net (1) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Government-sponsored pooled loan investments, net (1) | |||||||||||||||||||||||||||||
Total investments reported as secured loans receivable and investments, net | |||||||||||||||||||||||||||||
Non-mortgage loans receivable, net (2) | ( | ||||||||||||||||||||||||||||
| Total loans receivable and investments, net | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||
______________________________
(1)Includes a $486.1 6.42 one year
(2)Included in other assets on our Consolidated Balance Sheets.
NOTE 7—INVESTMENTS IN UNCONSOLIDATED ENTITIES
We report investments in unconsolidated entities over whose operating and financial policies we have the ability to exercise significant influence under the equity method of accounting. We are not required to consolidate these entities because our joint venture partners have significant participating rights, nor are these entities considered VIEs, as they are controlled by equity holders with sufficient capital. We invest in both real estate entities and operating entities, which are described further below.
Investments in Unconsolidated Real Estate Entities
Through our Ventas Investment Management Platform, which consolidates our extensive third-party capital ventures under a single brand and umbrella, we partner with third-party institutional investors to invest in healthcare real estate through various joint ventures and other co-investment vehicles where we are the sponsor or general partner.
19
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Below is a summary of our investments in unconsolidated real estate entities as of September 30, 2022 and December 31, 2021, respectively (dollars in thousands):
Ownership as of (1) | Carrying Amount as of | |||||||||||||||||||||||||
| September 30, 2022 | December 31, 2021 | September 30, 2022 | December 31, 2021 | |||||||||||||||||||||||
| 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. | ||||||||||||||||||||||||||
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 $4.2 million and $3.2 million for the three months ended September 30, 2022 and 2021, respectively, and $11.5 million and $8.9 million for the nine months ended September 30, 2022 and 2021, respectively. Such amounts are included in office building and other services revenue in our Consolidated Statements of Income.
Investments in Unconsolidated Operating Entities
20
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8—INTANGIBLES
The following is a summary of our intangibles (dollars in thousands):
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||||||||||||||
| Balance | Weighted Average Remaining Amortization Period in Years | Balance | Weighted Average Remaining Amortization Period in Years | ||||||||||||||||||||
| Intangible assets: | |||||||||||||||||||||||
Above-market lease intangibles (1) | $ | $ | |||||||||||||||||||||
In-place and other lease intangibles (2) | |||||||||||||||||||||||
| Goodwill | N/A | N/A | |||||||||||||||||||||
Other intangibles (2) | |||||||||||||||||||||||
| Accumulated amortization | ( | N/A | ( | N/A | |||||||||||||||||||
| Net intangible assets | $ | $ | |||||||||||||||||||||
| Intangible liabilities: | |||||||||||||||||||||||
Below-market lease intangibles (1) | $ | $ | |||||||||||||||||||||
| Other lease intangibles | N/A | N/A | |||||||||||||||||||||
| Accumulated amortization | ( | N/A | ( | N/A | |||||||||||||||||||
| Purchase option intangibles | N/A | N/A | |||||||||||||||||||||
| Net intangible liabilities | $ | $ | |||||||||||||||||||||
______________________________
(1) Amortization of above- and below-market lease intangibles is recorded as a decrease and an increase to revenues, respectively, in our Consolidated Statements of Income.
(2) Amortization of lease intangibles is recorded in depreciation and amortization in our Consolidated Statements of Income.
N/A—Not Applicable.
Above-market lease intangibles and in-place and other lease intangibles are included in acquired lease intangibles within real estate investments on our Consolidated Balance Sheets. Other intangibles (including non-compete agreements, trade names and trademarks) are included in other assets on our Consolidated Balance Sheets. Below-market lease intangibles, other lease intangibles and purchase option intangibles are included in accounts payable and other liabilities on our Consolidated Balance Sheets.
NOTE 9—OTHER ASSETS
The following is a summary of our other assets (dollars in thousands):
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| Straight-line rent receivables | $ | $ | |||||||||
| Non-mortgage loans receivable, net | |||||||||||
| Stock warrants | |||||||||||
| 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.
21
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10—SENIOR NOTES PAYABLE AND OTHER DEBT
The following is a summary of our senior notes payable and other debt (dollars in thousands):
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
Unsecured revolving credit facility (1) | $ | $ | |||||||||
| Commercial paper notes | |||||||||||
| Unsecured term loan due 2023 | |||||||||||
Unsecured term loan due 2025 (2) | |||||||||||
| Unsecured term loan due 2027 | |||||||||||
| Mortgage loans and other | |||||||||||
| Total | |||||||||||
| Deferred financing costs, net | ( | ( | |||||||||
| Unamortized fair value adjustment | |||||||||||
| Unamortized discounts | ( | ( | |||||||||
| Senior notes payable and other debt | $ | $ | |||||||||
______________________________
(1)As of September 30, 2022 and December 31, 2021, respectively, $10.8 million and $30.9 million of aggregate borrowings were denominated in Canadian dollars. Aggregate borrowings of $20.2 million and $25.6 million were denominated in British pounds as of September 30, 2022 and December 31, 2021, respectively.
(2)Canadian Dollar debt obligations shown in U.S. Dollars.
(3)Our 6.90 % senior notes due 2037 are subject to repurchase at the option of the holders, at par, on October 1, 2027, and our 6.59 % senior notes due 2038 are subject to repurchase at the option of the holders, at par, on July 7 in each of 2023 and 2028.
22
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Facilities, Commercial Paper and Unsecured Term Loans
We have a $2.75 billion unsecured revolving credit facility initially priced at LIBOR plus 0.825 % based on the Company’s debt rating. The unsecured revolving credit facility matures in January 2025, but may be extended at our option, subject to the satisfaction of certain conditions, for two additional periods of six months each. The unsecured revolving credit facility also includes an accordion feature that permits us to increase our aggregate borrowing capacity thereunder to up to $3.75 billion, subject to the satisfaction of certain conditions, including the receipt of additional commitments for such increase.
As of September 30, 2022, we had $2.7 billion of undrawn capacity on our unsecured revolving credit facility with $31.1 million borrowings outstanding and an additional $15.6 million restricted to support outstanding letters of credit. We limit our use of the unsecured revolving credit facility, to the extent necessary, to support our commercial paper program when commercial paper notes are outstanding.
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 September 30, 2022, we had $377.4 million in borrowings outstanding under our commercial paper program.
In June 2022, we entered into a Credit and Guaranty Agreement (the “New Credit Agreement”) with Ventas Realty, as borrower. The New Credit Agreement replaces Ventas Realty’s previous $200.0 million unsecured term loan priced at LIBOR plus 0.90 % that matured in 2023 with a new $500.0 million unsecured term loan that matures in 2027 and is initially priced at Term SOFR plus 0.95 % based on Ventas Realty’s debt ratings. The New Credit Agreement also includes an accordion feature that permits us to increase our aggregate borrowings thereunder to up to $1.25 billion, subject to the satisfaction of certain conditions, including the receipt of additional commitments for such increase.
As of September 30, 2022, we had a C$500.0 million unsecured term loan facility priced at Canadian Dollar Offered Rate (“CDOR”) plus 0.90 % that matures in 2025.
As of September 30, 2022, our indebtedness had the following maturities (dollars in thousands):
| Principal Amount Due at Maturity | Unsecured Revolving Credit Facility and Commercial Paper Notes (1) | Scheduled Periodic Amortization | Total Maturities | ||||||||||||||||||||
| 2022 | $ | $ | $ | $ | |||||||||||||||||||
| 2023 | |||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||
| 2025 | |||||||||||||||||||||||
| 2026 | |||||||||||||||||||||||
| Thereafter | |||||||||||||||||||||||
| Total maturities | $ | $ | $ | $ | |||||||||||||||||||
______________________________
23
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11—FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of our financial instruments were as follows (dollars in thousands):
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Escrow deposits and restricted cash | |||||||||||||||||||||||
| Stock warrants | |||||||||||||||||||||||
| Secured mortgage loans and other, net | |||||||||||||||||||||||
Non-mortgage loans receivable, net (1) | |||||||||||||||||||||||
Government-sponsored pooled loan investments, net | |||||||||||||||||||||||
Derivative instruments (1) | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Senior notes payable and other debt, gross | |||||||||||||||||||||||
Derivative instruments (2) | |||||||||||||||||||||||
| Redeemable OP Units | |||||||||||||||||||||||
(1)Included in other assets on our Consolidated Balance Sheets.
(2)Included in accounts payable and other liabilities on our Consolidated Balance Sheets.
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 12—COMMITMENTS AND CONTINGENCIES
From time to time, we are party to various lawsuits, investigations, claims and other legal and regulatory proceedings arising in connection with our business. These legal and regulatory matters 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 housing operating portfolio, 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. Legal and regulatory matters 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 legal or regulatory matter, 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 legal or regulatory matters could have a material adverse effect on us.
24
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14—STOCKHOLDERS' EQUITY
Capital Stock
We participate in an “at-the-market” equity offering program (“ATM program”), pursuant to which we may, from time to time, sell up to $1.0 billion aggregate gross sales price of shares of our common stock. There were no issuances under the ATM program for the nine months ended September 30, 2022. As of September 30, 2022, $1.0 billion aggregate gross sales price of shares of our common stock remains available for issuance under the ATM program.
Accumulated Other Comprehensive Loss
The following is a summary of our accumulated other comprehensive loss (dollars in thousands):
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| Foreign currency translation loss | $ | ( | $ | ( | |||||||
| Unrealized (loss) gain on available for sale securities | ( | ||||||||||
| Unrealized gain (loss) on derivative instruments | ( | ||||||||||
| Total accumulated other comprehensive loss | $ | ( | $ | ( | |||||||
NOTE 15—EARNINGS PER SHARE
The following table shows the amounts used in computing our basic and diluted earnings per share (in thousands, except per share amounts):
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Numerator for basic and diluted earnings per share: | |||||||||||||||||||||||
| Income from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Net income attributable to noncontrolling interests | |||||||||||||||||||||||
| Net income (loss) 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: | |||||||||||||||||||||||
| Income from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Net income (loss) attributable to common stockholders | ( | ||||||||||||||||||||||
Diluted earnings per share: (1) | |||||||||||||||||||||||
| Income from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Net income (loss) 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.
25
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13—INCOME TAXES
We have elected to be taxed as a REIT under the applicable provisions of the Internal Revenue Code of 1986, as amended, for every year beginning with the year ended December 31, 1999. We have also elected for certain of our subsidiaries to be treated as taxable REIT subsidiaries (“TRS” or “TRS entities”), which are subject to federal, state and foreign income taxes. All entities other than the TRS entities are collectively referred to as the “REIT” within this note. Certain REIT entities are subject to foreign income tax.
Although the TRS entities and certain other foreign entities have paid minimal federal, state and foreign income taxes for the nine months ended September 30, 2022, their income tax liabilities may increase in future periods as we exhaust net operating loss (“NOL”) carryforwards and as our senior living and other operations grow. Such increases could be significant.
Our consolidated provision for income taxes for the three months ended September 30, 2022 and 2021 was a benefit of $6.0 million and an expense of $3.8 million, respectively. Our consolidated provision for income taxes for the nine months ended September 30, 2022 and 2021 was a benefit of $14.3 million and an expense of $9.6 million, respectively. The income tax benefit for the three and nine months ended September 30, 2022 was primarily due to losses in certain of our TRS entities and a $2.0 million benefit from an internal restructuring of a U.S. taxable REIT subsidiary. The income tax expense for the three months ended September 30, 2021 was primarily due to a $3.7 million deferred tax expense related to the release of certain residual tax effects from marketable debt securities. The income tax expense for the nine months ended September 30, 2021 was primarily due to a $3.7 million deferred tax expense related to the release of certain residual tax effects from marketable debt securities, a $2.9 million net deferred tax expense related to an internal restructuring of certain U.S. taxable REIT subsidiaries, and a $3.4 million deferred tax expense related to the revaluation of certain deferred tax liabilities as a result of enacted tax rate changes in the United Kingdom.
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 $40.7 million and $59.3 million as of September 30, 2022 and December 31, 2021, 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 $13.6 million and $11.2 million as of September 30, 2022 and December 31, 2021, 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, 2018 and subsequent years and are subject to audit by state taxing authorities for the year ended December 31, 2017 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, 2017 and subsequent years. We are subject to audit in the United Kingdom generally for periods ended in and subsequent to 2020.
NOTE 16—SEGMENT INFORMATION
As of September 30, 2022, we operated through three reportable business segments: triple-net leased properties, SHOP and office operations. In our triple-net leased properties reportable business segment, we invest in and own senior housing and healthcare properties throughout the United States and the United Kingdom and lease those properties to healthcare operating companies under “triple-net” or “absolute-net” leases that obligate the tenants to pay all property-related expenses. In our SHOP reportable business segment, we invest in senior housing communities throughout the United States and Canada and engage independent operators, such as Atria and Sunrise, to manage those communities. In our office operations reportable business segment, we primarily acquire, own, develop, lease and manage MOBs and life science, research and innovation centers throughout the United States. Information provided for “non-segment” includes income from loans and investments and other miscellaneous income and various corporate-level expenses not directly attributable to any of our three reportable business segments. Assets included in “non-segment” consist primarily of corporate assets, including cash, restricted cash, loans receivable and investments, and miscellaneous accounts receivable.
Our chief operating decision 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 NOI and related measures. We define NOI as total revenues, less interest and other income, property-level operating expenses and office building and other services costs. We consider NOI useful because it allows investors, analysts and our management to measure unlevered property-level operating results and to compare our operating results to the operating results of other real estate companies between periods on a consistent basis. In order to facilitate a clear understanding of our historical consolidated operating results, NOI should be examined in conjunction with net income attributable to common stockholders as presented in our Consolidated
26
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Financial Statements and other financial data included elsewhere in this Quarterly Report on Form 10-Q. See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and reconciliations of net income attributable to common stockholders, as computed in accordance with GAAP, to NOI.
Interest expense, depreciation and amortization, general, administrative and professional fees, income tax expense and other non-property specific revenues and expenses are not allocated to individual reportable business segments for purposes of assessing segment performance. There are no intersegment sales or transfers.
| For the Three Months Ended September 30, 2022 | |||||||||||||||||||||||||||||
| SHOP | Office Operations | Triple-Net Leased Properties | Non-Segment | Total | |||||||||||||||||||||||||
| 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 and other services costs | |||||||||||||||||||||||||||||
| NOI | $ | $ | $ | $ | |||||||||||||||||||||||||
| Interest and other income | |||||||||||||||||||||||||||||
| Interest expense | ( | ||||||||||||||||||||||||||||
| Depreciation and amortization | ( | ||||||||||||||||||||||||||||
| General, administrative and professional fees | ( | ||||||||||||||||||||||||||||
| Loss on extinguishment of debt, net | ( | ||||||||||||||||||||||||||||
| Transaction expenses and deal costs | ( | ||||||||||||||||||||||||||||
| Allowance on loans receivable and investments | |||||||||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||||||||
| Income 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 | $ | ||||||||||||||||||||||||||||
27
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| For the Three Months Ended September 30, 2021 | |||||||||||||||||||||||||||||
| SHOP | Office Operations | Triple-Net Leased Properties | Non-Segment | Total | |||||||||||||||||||||||||
| 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 and other services costs | |||||||||||||||||||||||||||||
| NOI | $ | $ | $ | $ | |||||||||||||||||||||||||
| Interest and other income | |||||||||||||||||||||||||||||
| Interest expense | ( | ||||||||||||||||||||||||||||
| Depreciation and amortization | ( | ||||||||||||||||||||||||||||
| General, administrative and professional fees | ( | ||||||||||||||||||||||||||||
| Loss on extinguishment of debt, net | ( | ||||||||||||||||||||||||||||
| Transaction expenses and deal costs | ( | ||||||||||||||||||||||||||||
| Allowance on loans receivable and investments | |||||||||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||||||||
| Income from unconsolidated entities | |||||||||||||||||||||||||||||
| Gain on real estate dispositions | |||||||||||||||||||||||||||||
| Income tax expense | ( | ||||||||||||||||||||||||||||
| Income from continuing operations | |||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | |||||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | ||||||||||||||||||||||||||||
28
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| For the Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||
| SHOP | Office Operations | Triple-Net Leased Properties | Non-Segment | Total | |||||||||||||||||||||||||
| 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 and other services costs | |||||||||||||||||||||||||||||
| NOI | $ | $ | $ | $ | |||||||||||||||||||||||||
| Interest and other income | |||||||||||||||||||||||||||||
| Interest expense | ( | ||||||||||||||||||||||||||||
| Depreciation and amortization | ( | ||||||||||||||||||||||||||||
| General, administrative and professional fees | ( | ||||||||||||||||||||||||||||
| Loss on extinguishment of debt, net | ( | ||||||||||||||||||||||||||||
| Transaction expenses and deal costs | ( | ||||||||||||||||||||||||||||
| Allowance on loans receivable and investments | |||||||||||||||||||||||||||||
| 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 loss attributable to common stockholders | $ | ( | |||||||||||||||||||||||||||
29
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| For the Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||
| SHOP | Office Operations | Triple-Net Leased Properties | Non-Segment | Total | |||||||||||||||||||||||||
| 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 and other services costs | |||||||||||||||||||||||||||||
| NOI | $ | $ | $ | $ | |||||||||||||||||||||||||
| Interest and other income | |||||||||||||||||||||||||||||
| Interest expense | ( | ||||||||||||||||||||||||||||
| Depreciation and amortization | ( | ||||||||||||||||||||||||||||
| General, administrative and professional fees | ( | ||||||||||||||||||||||||||||
| Loss on extinguishment of debt, net | ( | ||||||||||||||||||||||||||||
| Transaction expenses and deal costs | ( | ||||||||||||||||||||||||||||
| Allowance on loans receivable and investments | |||||||||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||||||||
| Income from unconsolidated entities | |||||||||||||||||||||||||||||
| Gain on real estate dispositions | |||||||||||||||||||||||||||||
| Income tax expense | ( | ||||||||||||||||||||||||||||
| 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 (dollars in thousands):
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Capital Expenditures: | |||||||||||||||||||||||
| SHOP | $ | $ | $ | $ | |||||||||||||||||||
| Office operations | |||||||||||||||||||||||
| Triple-net leased properties | |||||||||||||||||||||||
| Total capital expenditures | $ | $ | $ | $ | |||||||||||||||||||
30
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 (dollars in thousands):
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| Canada | |||||||||||||||||||||||
| United Kingdom | |||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | |||||||||||||||||||
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| Net Real Estate Property: | |||||||||||
| United States | $ | $ | |||||||||
| Canada | |||||||||||
| United Kingdom | |||||||||||
| Total net real estate property | $ | $ | |||||||||
31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated or except where the context otherwise requires, the terms “we,” “us,” “our,” “Company” and other similar terms in Item 2 of this Quarterly Report on Form 10-Q refer to Ventas, Inc. and its consolidated subsidiaries.
Cautionary Statements
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, among others, statements of expectations, beliefs, future plans and strategies, anticipated results from operations and developments and other matters that are not historical facts. Forward-looking statements include, among other things, statements regarding our and our officers’ intent, belief or expectation as identified by the use of words such as “may,” “will,” “project,” “expect,” “believe,” “intend,” “anticipate,” “seek,” “target,” “forecast,” “plan,” “potential,” “opportunity,” “estimate,” “could,” “would,” “should” and other comparable and derivative terms or the negatives thereof.
Forward-looking statements are based on management’s beliefs as well as on a number of assumptions concerning future events. You should not put undue reliance on these forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and other factors that could cause actual events or results to differ materially from those expressed or implied by the forward-looking statements. We do not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made. 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 our filings with the Securities and Exchange Commission, such as in the sections titled “Cautionary Statements — Summary Risk Factors,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021 and “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
Certain factors that could affect our future results and our ability to achieve our stated goals include, but are not limited to: (a) the impact of the ongoing COVID-19 pandemic and its extended consequences, including of any variants, on our revenue, level of profitability, liquidity and overall risk exposure and the implementation and impact of regulations related to the CARES Act and other stimulus legislation and any future COVID-19 relief measures; (b) our ability to achieve the anticipated benefits and synergies from, and effectively integrate, our acquisitions and investments, including our acquisition of New Senior Investment Group Inc.; (c) our exposure and the exposure of our tenants, managers and borrowers to complex healthcare and other regulation and the challenges and expense associated with complying with such regulation; (d) the potential for significant general and commercial claims, legal actions, regulatory proceedings or enforcement actions that could subject us or our tenants, managers or borrowers to increased operating costs and uninsured liabilities; (e) the impact of market and general economic conditions, including economic and financial market events, inflation, changes in interest rates and exchange rates, supply chain pressures, 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; (f) our ability, and the ability of our tenants, managers and borrowers, to navigate the trends impacting our or their businesses and the industries in which we or they operate; (g) the risk of bankruptcy, insolvency or financial deterioration of our tenants, managers, borrowers and other obligors which may, among other things, have an adverse impact on our financial results and result in recognition of impairments in our reserves, allowances or credit losses in connection therewith and the risk of our ability to foreclose successfully on the collateral securing our loans and other investments in the event of a borrower default; (h) 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, joint ventures and minority interests; (i) risks related to development, redevelopment and construction projects, including costs associated with inflation, rising interest rates, labor conditions and supply chain pressures; (j) our ability to attract and retain talented employees; (k) 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; (l) the risk of changes in healthcare law or regulation or in tax laws, guidance and interpretations, particularly as applied to REITs, that could adversely affect us or our tenants, managers or borrowers; (m) increases in our borrowing costs as a result of becoming more leveraged, rising interest rates and the phasing out of LIBOR rates; (n) our reliance on third parties to operate a majority of our assets and our limited control and influence over such operations and results; (o) our dependency on a limited number of tenants and managers for a significant portion of our revenues and operating income; (p) the adequacy of insurance coverage provided by our policies and policies maintained by our tenants, managers or other counterparties; (q) the occurrence of cyber incidents that could disrupt our operations, result in the loss of confidential information or damage our business relationships and reputation; (r) the impact
32
of merger, acquisition and investment activity in the healthcare industry or otherwise affecting our tenants, managers or borrowers; (s) disruptions to the management and operations of our business and the uncertainties caused by activist investors; and (t) the risk of catastrophic or extreme weather and other natural events and the physical effects of climate change.
Note Regarding Third-Party Information
This Quarterly Report includes information that has been derived from SEC filings that has been provided to us by our tenants and managers or been derived from SEC filings or other publicly available information of our tenants and managers. We believe that such information is accurate and that the sources from which it has been obtained are reliable. However, we cannot guarantee the accuracy of such information and have not independently verified the assumptions on which such information is based.
Company Overview
Ventas, Inc., an S&P 500 company, is a real estate investment trust operating at the intersection of healthcare and real estate. We hold a highly diversified portfolio of senior housing communities, medical office buildings (“MOBs”), life science, research and innovation centers, hospitals and other healthcare facilities, which we generally refer to as “healthcare real estate,” located throughout the United States, Canada and the United Kingdom. As of September 30, 2022, we owned or had investments in approximately 1,300 properties (including properties classified as held for sale). Our company was originally founded in 1983 and is headquartered in Chicago, Illinois with additional corporate offices in Louisville, Kentucky and New York, New York.
We primarily invest in a diversified portfolio of healthcare real estate assets through wholly owned subsidiaries and other co-investment entities. We operate through three reportable business segments: triple-net leased properties, senior housing operating portfolio, which we also refer to as “SHOP” and is formerly known as senior living operations, and office operations. See our Consolidated Financial Statements and the related notes, including “Note 2 – Accounting Policies” and “Note 16 – Segment Information,” included in Item 1 of this Quarterly Report on Form 10-Q. Our senior housing communities are either subject to triple-net leases, in which case they are included in our triple-net leased properties reportable business segment, or operated by independent third-party managers, in which case they are included in our SHOP reportable business segment.
As of September 30, 2022, we leased a total of 331 properties (excluding properties within our office operations reportable business segment) to various healthcare operating companies under triple-net or absolute-net leases that obligate the tenants to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures. Our three largest tenants, Brookdale Senior Living Inc. (together with its subsidiaries, “Brookdale Senior Living”), Ardent Health Partners, LLC (together with its subsidiaries, “Ardent”) and Kindred Healthcare, LLC (together with its subsidiaries, “Kindred”) leased from us 121 properties, 30 properties and 29 properties, respectively, as of September 30, 2022.
As of September 30, 2022, pursuant to long-term management agreements, we engaged independent operators, such as Atria Senior Living, Inc. (together with its subsidiaries, including Holiday Retirement (“Holiday”), “Atria”) and Sunrise Senior Living, LLC (together with its subsidiaries, “Sunrise”), to manage 558 senior housing communities 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 through a strategy of (1) generating reliable and growing cash flows, (2) maintaining a balanced, diversified portfolio of high-quality assets and (3) preserving our financial strength, flexibility and liquidity.
Our ability to access capital in a timely and cost-effective manner is critical to the success of our business strategy because it affects our ability to satisfy existing obligations, including the repayment of maturing indebtedness, and to make future investments. Factors such as general market conditions, interest rates, credit ratings on our securities, expectations of our potential future earnings and cash distributions, and the trading price of our common stock impact our access to and cost of external capital. For that reason, we generally attempt to match the long-term duration of our investments in real property with long-term financing through the issuance of shares of our common stock or the incurrence of long-term fixed rate debt.
33
2022 Highlights
Continuing Impact of and Response to COVID-19 and Its Extended Consequences
During fiscal 2020 and 2021 and continuing into fiscal 2022, our business has been and is expected to continue to be impacted by COVID-19 and its extended consequences. The trajectory and future impact of COVID-19 remains highly uncertain. The extent of COVID-19’s continuing and ultimate effect on our operational and financial performance will depend on a variety of factors, including the impact of new variants of the virus and the effectiveness of available vaccines against those variants; ongoing clinical experience, which may differ considerably across governmental and regulatory bodies and regions and fluctuate over time; and on other future developments, including the ultimate duration, spread and intensity of the outbreak, the availability of testing, the extent to which governments impose, roll-back or re-impose preventative restrictions and the availability of ongoing government financial support to our business, tenants and operators. Due to these uncertainties, we are not able at this time to estimate the ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows.
Investments and Dispositions
•During the nine months ended September 30, 2022, we acquired 18 MOBs leased to affiliates of Ardent, one behavioral health center and one research and innovation center, all of which are reported within our office operations segment, and two senior housing communities, which are reported within our SHOP segment, for an aggregate purchase price of $445.9 million.
•During the nine months ended September 30, 2022, we sold one vacant land parcel and one vacant office building for aggregate consideration of $12.5 million and recognized a net gain on the sales of these assets of $2.6 million.
Liquidity and Capital
•As of September 30, 2022, we had approximately $2.5 billion in liquidity, including availability under our revolving credit facility and cash and cash equivalents on hand, net of $377.4 million borrowings outstanding under our commercial paper program.
•In June 2022, we entered into a Credit and Guaranty Agreement (the “New Credit Agreement”) with Ventas Realty, as borrower. The New Credit Agreement replaces Ventas Realty’s previous $200.0 million unsecured term loan priced at LIBOR plus 0.90% that matured in 2023 with a new $500.0 million unsecured term loan that matures in 2027 and is initially priced at Term SOFR plus 0.95% based on Ventas Realty’s debt ratings.
Other Items
•During the three and nine months ended September 30, 2022, we received $20.2 million and $54.2 million, respectively, in grants in connection with our Phases 3 and 4 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 SHOP segment to partially mitigate losses attributable to COVID-19.
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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, 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 and for the periods presented:
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
Investment mix by asset type (1): | |||||||||||
| Senior housing communities | 66.4 | % | 67.4 | % | |||||||
| MOBs | 18.0 | 17.1 | |||||||||
| Life science, research and innovation centers | 6.9 | 6.7 | |||||||||
| Health systems | 4.9 | 5.0 | |||||||||
| Inpatient rehabilitation facilities (“IRFs”) and long-term acute care facilities (“LTACs”) | 1.5 | 1.5 | |||||||||
| Skilled nursing facilities (“SNFs”) | 0.6 | 0.6 | |||||||||
| Secured loans receivable and investments, net | 1.7 | 1.7 | |||||||||
| Total | 100.0 | % | 100.0 | % | |||||||
Investment mix by tenant, operator and manager (1): | |||||||||||
Atria (2) | 26.7 | % | 27.0 | % | |||||||
| Sunrise | 9.8 | 10.0 | |||||||||
| Brookdale Senior Living | 7.8 | 7.8 | |||||||||
| Le Groupe Maurice | 6.8 | 7.3 | |||||||||
| Ardent | 5.3 | 4.7 | |||||||||
| Kindred | 0.8 | 1.0 | |||||||||
| All other | 42.8 | 42.2 | |||||||||
| Total | 100.0 | % | 100.0 | % | |||||||
______________________________
(1)Ratios are based on the gross book value of consolidated real estate investments (excluding properties classified as held for sale) as of each reporting date.
(2)Includes assets managed by Holiday, which was acquired by Atria in July 2021.
35
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Operations mix by tenant and operator and business model: | |||||||||||||||||||||||
Revenues (1): | |||||||||||||||||||||||
| SHOP | 64.5 | % | 57.2 | % | 64.3 | % | 58.0 | % | |||||||||||||||
Brookdale Senior Living (2) | 3.6 | 3.8 | 3.6 | 4.0 | |||||||||||||||||||
| Kindred | 3.3 | 3.5 | 3.3 | 3.6 | |||||||||||||||||||
| Ardent | 3.1 | 3.3 | 3.2 | 3.4 | |||||||||||||||||||
| All others | 25.5 | 32.2 | 25.6 | 31.0 | |||||||||||||||||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| Net operating income (“NOI”): | |||||||||||||||||||||||
| SHOP | 36.2 | % | 23.2 | % | 35.7 | % | 25.4 | % | |||||||||||||||
Brookdale Senior Living (2) | 8.0 | 8.2 | 8.1 | 8.6 | |||||||||||||||||||
| Kindred | 7.4 | 7.5 | 7.3 | 7.7 | |||||||||||||||||||
| Ardent | 7.0 | 7.1 | 7.0 | 7.3 | |||||||||||||||||||
| All others | 41.4 | 54.0 | 41.9 | 51.0 | |||||||||||||||||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
Operations mix by geographic location (3): | |||||||||||||||||||||||
| California | 14.3 | % | 14.5 | % | 14.4 | % | 15.0 | % | |||||||||||||||
| New York | 7.5 | 7.5 | 7.5 | 7.7 | |||||||||||||||||||
| Texas | 6.7 | 5.9 | 6.6 | 6.0 | |||||||||||||||||||
| Pennsylvania | 5.3 | 4.5 | 5.2 | 4.6 | |||||||||||||||||||
| North Carolina | 4.2 | 3.9 | 4.4 | 4.0 | |||||||||||||||||||
| All others | 62.0 | 63.7 | 61.9 | 62.7 | |||||||||||||||||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
______________________________
(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 SHOP reportable business segment.
(3)Ratios are based on total revenues (including amounts related to assets classified as held for sale) for each period presented.
See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and reconciliations of net income attributable to common stockholders, as computed in accordance with GAAP, to NOI.
Triple-Net Lease Performance and Expirations
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 nine months ended September 30, 2022, 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 2021 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 2022. 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 September 30, 2022, we operated through three reportable business segments: triple-net leased properties, SHOP and office operations. In our triple-net leased properties reportable business segment, we invest in and own senior housing and healthcare properties throughout the United States and the United Kingdom and lease those properties to healthcare operating companies under “triple-net” or “absolute-net” leases that obligate the tenants to pay all property-related expenses. In our SHOP reportable business segment, we invest in senior housing communities throughout the United States and Canada and engage independent operators, such as Atria and Sunrise, to manage those communities. In our office operations reportable business segment, we primarily acquire, own, develop, lease and manage MOBs and life science, research and innovation centers throughout the United States. Information provided for “non-segment” includes income from loans and investments and other miscellaneous income and various corporate-level expenses not directly attributable to any of our three reportable business segments. Assets included in “non-segment” consist primarily of corporate assets, including cash, restricted cash, loans receivable and investments, and miscellaneous accounts receivable.
Our chief operating decision 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 net operating income (“NOI”) and related measures. For further information regarding our reportable business segments and a discussion of our definition of NOI, see “Note 16 – 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.
37
Three Months Ended September 30, 2022 and 2021
The table below shows our results of operations for the three months ended September 30, 2022 and 2021 and the effect of changes in those results from period to period on our net income attributable to common stockholders (dollars in thousands):
| For the Three Months Ended September 30, | Increase (Decrease) to Net Income | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| NOI: | |||||||||||||||||||||||
| SHOP | $ | 168,611 | $ | 104,380 | $ | 64,231 | 61.5 | % | |||||||||||||||
| Office operations | 135,316 | 137,622 | (2,306) | (1.7) | |||||||||||||||||||
| Triple-net leased properties | 146,359 | 178,111 | (31,752) | (17.8) | |||||||||||||||||||
| Non-segment | 14,925 | 31,698 | (16,773) | (52.9) | |||||||||||||||||||
| Total NOI | 465,211 | 451,811 | 13,400 | 3.0 | |||||||||||||||||||
| Interest and other income | 489 | 417 | 72 | 17.3 | |||||||||||||||||||
| Interest expense | (119,413) | (108,816) | (10,597) | (9.7) | |||||||||||||||||||
| Depreciation and amortization | (301,481) | (313,596) | 12,115 | 3.9 | |||||||||||||||||||
| General, administrative and professional fees | (35,421) | (30,259) | (5,162) | (17.1) | |||||||||||||||||||
| Loss on extinguishment of debt, net | (574) | (29,792) | 29,218 | 98.1 | |||||||||||||||||||
| Transaction expenses and deal costs | (4,782) | (22,662) | 17,880 | 78.9 | |||||||||||||||||||
| Allowance on loans receivable and investments | 63 | 60 | 3 | 5.0 | |||||||||||||||||||
| Other | (9,162) | (33,673) | 24,511 | 72.8 | |||||||||||||||||||
| Loss before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests | (5,070) | (86,510) | 81,440 | 94.1 | |||||||||||||||||||
| Income from unconsolidated entities | 1,970 | 2,772 | (802) | (28.9) | |||||||||||||||||||
| Gain on real estate dispositions | 136 | 150,292 | (150,156) | (99.9) | |||||||||||||||||||
| Income tax benefit (expense) | 6,027 | (3,780) | 9,807 | nm | |||||||||||||||||||
| Income from continuing operations | 3,063 | 62,774 | (59,711) | (95.1) | |||||||||||||||||||
| Net income | 3,063 | 62,774 | (59,711) | (95.1) | |||||||||||||||||||
| Net income attributable to noncontrolling interests | 1,807 | 2,094 | 287 | 13.7 | |||||||||||||||||||
| Net income attributable to common stockholders | $ | 1,256 | $ | 60,680 | $ | (59,424) | (97.9) | ||||||||||||||||
______________________________
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NOI—Senior Housing Operating Portfolio
The following table summarizes results of operations in our SHOP reportable business segment, including assets sold or classified as held for sale as of September 30, 2022 (dollars in thousands):
| For the Three Months Ended September 30, | Increase (Decrease) to NOI | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| NOI—SHOP: | |||||||||||||||||||||||
| Resident fees and services | $ | 668,583 | $ | 558,039 | $ | 110,544 | 19.8 | % | |||||||||||||||
| Less: Property-level operating expenses | (499,972) | (453,659) | (46,313) | (10.2) | |||||||||||||||||||
| NOI | $ | 168,611 | $ | 104,380 | $ | 64,231 | 61.5 | ||||||||||||||||
38
| Number of Properties at September 30, | Average Unit Occupancy for the Three Months Ended September 30, | Average Monthly Revenue Per Occupied Room for the Three Months Ended September 30, | |||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Total communities | 549 | 542 | 81.3 | % | 79.6 | % | $ | 4,399 | $ | 4,556 | |||||||||||||||||||||||||
Resident fees and services include all amounts earned from residents at our senior housing communities, such as rental fees related to resident leases, extended health care fees and other ancillary service income. Property-level operating expenses related to our SHOP reportable business segment include labor, food, utilities, marketing, management and other costs of operating the properties. For senior housing communities in our SHOP reportable business segment, occupancy generally reflects average operator-reported unit occupancy for the reporting period. Average monthly revenue per occupied room reflects average resident fees and services per operator-reported occupied unit for the reporting period.
The NOI increase in our SHOP reportable business segment for the three months ended September 30, 2022 compared to the same period in 2021 was driven by acquisitions, primarily the acquisition of over 100 independent living communities from New Senior in September 2021, positive trends in occupancy and revenue and higher HHS grants received, which are reflected as a reduction in property-level operating expenses, partially offset by higher operating expenses, driven by macro inflationary impacts on labor, utilities, repairs and maintenance and food costs. During the three months ended September 30, 2022, HHS grants received reduced property-level operating expenses by $20.2 million. No HHS grants were received during the same period in 2021.
The following table compares results of operations for our 320 same-store SHOP communities (dollars in thousands). See “Non-GAAP Financial Measures—NOI” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure regarding same-store NOI for each of our reportable business segments.
| For the Three Months Ended September 30, | Increase (Decrease) to NOI | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| Same-Store NOI—SHOP: | |||||||||||||||||||||||
| Resident fees and services | $ | 490,162 | $ | 451,043 | $ | 39,119 | 8.7 | % | |||||||||||||||
| Less: Property-level operating expenses | (351,818) | (346,529) | (5,289) | (1.5) | |||||||||||||||||||
| NOI | $ | 138,344 | $ | 104,514 | $ | 33,830 | 32.4 | ||||||||||||||||
| Number of Properties at September 30, | Average Unit Occupancy for the Three Months Ended September 30, | Average Monthly Revenue Per Occupied Room for the Three Months Ended September 30, | |||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Same-store communities | 320 | 320 | 84.7 | % | 82.1 | % | $ | 4,829 | $ | 4,582 | |||||||||||||||||||||||||
The NOI increase in our same-store SHOP reportable business segment for the three months ended September 30, 2022 compared to the same period in 2021 was primarily driven by positive trends in occupancy and revenue as well as higher HHS funds received, partially offset by higher operating expenses, driven by macro inflationary impacts on labor, utilities, repairs and maintenance and food costs. During the three months ended September 30, 2022, HHS grants received reduced property-level operating expenses by $20.2 million.
39
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 September 30, 2022 (dollars in thousands). For properties in our office operations reportable business segment, occupancy generally reflects occupied square footage divided by net rentable square footage as of the end of the reporting period.
| For the Three Months Ended September 30, | (Decrease) Increase to NOI | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| NOI—Office Operations: | |||||||||||||||||||||||
| Rental income | $ | 200,867 | $ | 201,673 | $ | (806) | (0.4) | % | |||||||||||||||
| Office building and other services revenue | 547 | 2,872 | (2,325) | (81.0) | |||||||||||||||||||
| Total revenues | 201,414 | 204,545 | (3,131) | (1.5) | |||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Property-level operating expenses | (66,098) | (66,401) | 303 | 0.5 | |||||||||||||||||||
| Office building and other services costs | — | (522) | 522 | 100.0 | |||||||||||||||||||
| NOI | $ | 135,316 | $ | 137,622 | $ | (2,306) | (1.7) | ||||||||||||||||
| Number of Properties at September 30, | Occupancy at September 30, | Annualized Average Rent Per Occupied Square Foot for the Three Months Ended September 30, | |||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Total office buildings | 361 | 348 | 89.7 | % | 90.5 | % | $ | 36 | $ | 35 | |||||||||||||||||||||||||
The NOI decrease in office operations reportable business segment for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to dispositions of non-core assets during 2021, partially offset by leasing activity, high tenant retention, favorable expense controls and acquisitions subsequent to September 30, 2021.
The following table compares results of operations for our 332 same-store office buildings (dollars in thousands):
| For the Three Months Ended September 30, | Increase (Decrease) to NOI | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| Same-Store NOI—Office Operations: | |||||||||||||||||||||||
| Rental income | $ | 188,929 | $ | 183,997 | $ | 4,932 | 2.7 | % | |||||||||||||||
| Less: Property-level operating expenses | (61,471) | (59,287) | (2,184) | (3.7) | |||||||||||||||||||
| NOI | $ | 127,458 | $ | 124,710 | $ | 2,748 | 2.2 | ||||||||||||||||
| Number of Properties at September 30, | Occupancy at September 30, | Annualized Average Rent Per Occupied Square Foot for the Three Months Ended September 30, | |||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Same-store office buildings | 332 | 332 | 91.5 | % | 91.1 | % | $ | 37 | $ | 36 | |||||||||||||||||||||||||
The NOI increase in our same-store office operations reportable business segment for the three months ended September 30, 2022 compared to the same period in 2021 was primarily driven by strong retention and favorable expense controls.
40
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 September 30, 2022 (dollars in thousands):
| For the Three Months Ended September 30, | Decrease to NOI | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| NOI—Triple-Net Leased Properties: | |||||||||||||||||||||||
| Rental income | $ | 150,115 | $ | 181,379 | $ | (31,264) | (17.2) | % | |||||||||||||||
| Less: Property-level operating expenses | (3,756) | (3,268) | (488) | (14.9) | |||||||||||||||||||
| NOI | $ | 146,359 | $ | 178,111 | $ | (31,752) | (17.8) | ||||||||||||||||
In our triple-net leased properties reportable business segment, our revenues generally consist of fixed rental amounts (subject to contractual escalations) received from our tenants in accordance with the applicable lease terms. We report revenues and property-level operating expenses within our triple-net leased properties reportable business segment for real estate tax and insurance expenses that are paid from escrows collected from our tenants.
The NOI decrease in our triple-net leased properties for the three months ended September 30, 2022 compared to the same period in 2021 was primarily driven by rental income from communities that were transitioned to our senior housing operating portfolio or sold prior to the third quarter of 2022.
Occupancy rates may affect the profitability of our tenants’ operations. For senior housing communities and post-acute properties in our triple-net leased properties reportable business segment, occupancy generally reflects average operator-reported unit and bed occupancy, respectively, for the reporting period. Because triple-net financials are delivered to us following the reporting period, occupancy is reported in arrears. The following table sets forth average continuing occupancy rates for the second quarter of 2022 and 2021 related to the triple-net leased properties we owned at September 30, 2022 and 2021, 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 September 30, 2022 | Average Occupancy for the Three Months Ended June 30, 2022 | Number of Properties Owned at September 30, 2021 | Average Occupancy for the Three Months Ended June 30, 2021 | |||||||||||||||||||||||
Senior housing communities | 260 | 76.3% | 268 | 74.5% | ||||||||||||||||||||||
| SNFs | 16 | 83.1 | 16 | 75.2 | ||||||||||||||||||||||
| IRFs and LTACs | 36 | 55.4 | 36 | 59.3 | ||||||||||||||||||||||
The following table compares results of operations for our 330 same-store triple-net leased properties (dollars in thousands):
| For the Three Months Ended September 30, | Increase (Decrease) to NOI | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| Same-Store NOI—Triple-Net Leased Properties: | |||||||||||||||||||||||
| Rental income | $ | 147,999 | $ | 147,816 | $ | 183 | 0.1 | % | |||||||||||||||
| Less: Property-level operating expenses | (3,616) | (2,833) | (783) | (27.6) | |||||||||||||||||||
| NOI | $ | 144,383 | $ | 144,983 | $ | (600) | (0.4) | ||||||||||||||||
NOI in our same-store triple-net leased portfolio for the three months ended September 30, 2022 compared to the same period in 2021 was relatively flat.
41
NOI—Non-Segment
Information provided for non-segment NOI includes income from loans and investments and other miscellaneous income not directly attributable to any of our three reportable business segments. The $16.8 million decrease in non-segment NOI for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to reduced interest income from a lower balance of loans receivable investments due to the redemption of Ardent’s senior notes and payoff of certain notes in 2021.
Company Results
Interest Expense
The $10.6 million increase in interest expense for the three months ended September 30, 2022 compared to the same period in 2021 was due to an increase of $6.6 million due to higher debt balances, an increase of $3.3 million due to a higher effective interest rate and an increase of $0.7 million due to lower capitalized interest. Our weighted average debt outstanding was $12.4 billion and $11.7 billion for the three months ended September 30, 2022 and 2021, respectively. Our weighted average effective interest rate was 3.72% and 3.61% for the three months ended September 30, 2022 and 2021, respectively. Capitalized interest was $2.0 million and $2.7 million for the three months ended September 30, 2022 and 2021, respectively.
Depreciation and Amortization
The $12.1 million decrease in depreciation and amortization expense for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to a net decrease of $50.6 million in impairments recognized in the third quarter of 2022 as compared to the same period in 2021, partially offset by an increase of $41.7 million of depreciation on assets acquired from New Senior Investment Group Inc. (“New Senior”).
General, Administrative and Professional Fees
The $5.2 million increase in general, administrative and professional fees for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to increased professional fees and the return to a more normalized business environment.
Loss on Extinguishment of Debt, Net
The $29.2 million decrease in loss on extinguishment of debt, net for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to the $29.1 million loss recognized in 2021 in connection with the redemptions of approximately $700 million of senior notes due in 2022 and 2023.
Transaction Expenses and Deal Costs
The $17.9 million decrease in transaction expenses and deal costs for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to higher costs in 2021 related to operator transitions.
Allowance on Loans Receivable and Investments
Allowance on loans receivable and investments was relatively flat for the three months ended September 30, 2022 compared to the same period in 2021.
Other
The $24.5 million decrease in other expense for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to a decrease of $24.0 million in unrealized loss on stock warrants received in connection with the Brookdale Senior Living lease modification in the third quarter of 2020. As of September 30, 2022, the fair value of the stock warrants was $38.2 million, which was $10.1 million higher than the value at the grant date.
42
Income from Unconsolidated Entities
The $0.8 million decrease in income from unconsolidated entities for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to our share of lower net income from our unconsolidated entities.
Gain on Real Estate Dispositions
The $150.2 million decrease in gain on real estate dispositions for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to the dispositions of 14 medical office buildings and one triple-net leased property that resulted in gains on sale of real estate of $148.8 million recognized during the third quarter of 2021.
Income Tax Benefit (Expense)
The $6.0 million of income tax benefit for the three months ended September 30, 2022 was primarily due to operating losses at certain of our TRS entities. The $3.8 million of income tax expense for the three months ended September 30, 2021 was primarily due to a $3.7 million deferred tax expense related to the release of certain residual tax effects from marketable debt securities.
Nine Months Ended September 30, 2022 and 2021
The table below shows our results of operations for the nine months ended September 30, 2022 and 2021 and the effect of changes in those results from period to period on our net income attributable to common stockholders (dollars in thousands):
| For the Nine Months Ended September 30, | Increase (Decrease) to Net Income | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| NOI: | |||||||||||||||||||||||
| SHOP | $ | 494,812 | $ | 326,340 | $ | 168,472 | 51.6 | % | |||||||||||||||
| Office operations | 409,873 | 410,177 | (304) | (0.1) | |||||||||||||||||||
| Triple-net leased properties | 439,724 | 487,962 | (48,238) | (9.9) | |||||||||||||||||||
| Non-segment | 39,789 | 73,820 | (34,031) | (46.1) | |||||||||||||||||||
| Total NOI | 1,384,198 | 1,298,299 | 85,899 | 6.6 | |||||||||||||||||||
| Interest and other income | 2,191 | 1,343 | 848 | 63.1 | |||||||||||||||||||
| Interest expense | (344,158) | (329,634) | (14,524) | (4.4) | |||||||||||||||||||
| Depreciation and amortization | (873,620) | (878,444) | 4,824 | 0.5 | |||||||||||||||||||
| General, administrative and professional fees | (111,334) | (101,156) | (10,178) | (10.1) | |||||||||||||||||||
| Loss on extinguishment of debt, net | (581) | (56,808) | 56,227 | 99.0 | |||||||||||||||||||
| Transaction expenses and deal costs | (37,852) | (28,000) | (9,852) | (35.2) | |||||||||||||||||||
| Allowance on loans receivable and investments | 179 | 9,021 | (8,842) | (98.0) | |||||||||||||||||||
| Other | (30,088) | (10,755) | (19,333) | nm | |||||||||||||||||||
| Loss before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests | (11,065) | (96,134) | 85,069 | 88.5 | |||||||||||||||||||
| (Loss) income from unconsolidated entities | (3,346) | 7,289 | (10,635) | (145.9) | |||||||||||||||||||
| Gain on real estate dispositions | 2,557 | 194,083 | (191,526) | (98.7) | |||||||||||||||||||
| Income tax benefit (expense) | 14,307 | (9,574) | 23,881 | nm | |||||||||||||||||||
| Income from continuing operations | 2,453 | 95,664 | (93,211) | (97.4) | |||||||||||||||||||
| Net income | 2,453 | 95,664 | (93,211) | (97.4) | |||||||||||||||||||
| Net income attributable to noncontrolling interests | 4,881 | 5,802 | 921 | 15.9 | |||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (2,428) | $ | 89,862 | $ | (92,290) | (102.7) | ||||||||||||||||
______________________________
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43
NOI—Senior Housing Operating Portfolio
The following table summarizes results of operations in our SHOP reportable business segment, including assets sold or classified as held for sale as of September 30, 2022 (dollars in thousands):
| For the Nine Months Ended September 30, | Increase (Decrease) to NOI | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| NOI—SHOP: | |||||||||||||||||||||||
| Resident fees and services | $ | 1,977,760 | $ | 1,622,641 | $ | 355,119 | 21.9 | % | |||||||||||||||
| Less: Property-level operating expenses | (1,482,948) | (1,296,301) | (186,647) | (14.4) | |||||||||||||||||||
| NOI | $ | 494,812 | $ | 326,340 | $ | 168,472 | 51.6 | ||||||||||||||||
| Number of Properties at September 30, | Average Unit Occupancy For the Nine Months Ended September 30, | Average Monthly Revenue Per Occupied Room For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Total communities | 549 | 542 | 80.6 | % | 77.8 | % | $ | 4,386 | $ | 4,611 | |||||||||||||||||||||||||
The NOI increase in our SHOP reportable business segment for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily driven by acquisitions, primarily the acquisition of over 100 independent living communities from New Senior in September 2021, positive trends in occupancy and higher HHS grants received, which are reflected as a reduction in property-level operating expenses, partially offset by higher operating expenses. During the nine months ended September 30, 2022 and 2021, HHS grants received reduced property-level operating expenses by $54.2 million and $13.6 million, respectively.
The following table compares results of operations for our 319 same-store SHOP communities (dollars in thousands):
| For the Nine Months Ended September 30, | Increase (Decrease) to NOI | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| Same-Store NOI—SHOP: | |||||||||||||||||||||||
| Resident fees and services | $ | 1,446,875 | $ | 1,320,954 | $ | 125,921 | 9.5 | % | |||||||||||||||
| Less: Property-level operating expenses | (1,058,222) | (1,003,008) | (55,214) | (5.5) | |||||||||||||||||||
| NOI | $ | 388,653 | $ | 317,946 | $ | 70,707 | 22.2 | ||||||||||||||||
| Number of Properties at September 30, | Average Unit Occupancy For the Nine Months Ended September 30, | Average Monthly Revenue Per Occupied Room For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Same-store communities | 319 | 319 | 83.7 | % | 80.1 | % | $ | 4,854 | $ | 4,627 | |||||||||||||||||||||||||
The NOI increase in our same-store SHOP reportable business segment for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily driven by positive trends in occupancy and revenue as well as higher HHS grants received, which are reflected as a reduction in property-level operating expenses, partially offset by higher operating expenses, driven by macro inflationary impacts on labor, utilities, repairs and maintenance and food costs. During the nine months ended September 30, 2022 and 2021, HHS grants received reduced property-level operating expenses by $42.3 million and $7.5 million, respectively.
44
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 September 30, 2022 (dollars in thousands):
| For the Nine Months Ended September 30, | Increase (Decrease) to NOI | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| NOI—Office Operations: | |||||||||||||||||||||||
| Rental income | $ | 600,648 | $ | 599,516 | $ | 1,132 | 0.2 | % | |||||||||||||||
| Office building and other services revenue | 1,834 | 7,756 | (5,922) | (76.4) | |||||||||||||||||||
| Total revenues | 602,482 | 607,272 | (4,790) | (0.8) | |||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Property-level operating expenses | (192,609) | (195,297) | 2,688 | 1.4 | |||||||||||||||||||
| Office building and other services costs | — | (1,798) | 1,798 | 100.0 | |||||||||||||||||||
| NOI | $ | 409,873 | $ | 410,177 | $ | (304) | (0.1) | ||||||||||||||||
| Number of Properties at September 30, | Occupancy at September 30, | Annualized Average Rent Per Occupied Square Foot For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Total office buildings | 361 | 348 | 89.7 | % | 90.5 | % | $ | 36 | $ | 34 | |||||||||||||||||||||||||
The NOI decrease in our office operations reportable business segment for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to dispositions of non-core assets during 2021, partially offset by high tenant retention, leasing activity, acquisitions subsequent to September 30, 2021 and favorable expense controls.
The following table compares results of operations for our 331 same-store office buildings (dollars in thousands):
| For the Nine Months Ended September 30, | Increase (Decrease) to NOI | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| Same-Store NOI—Office Operations: | |||||||||||||||||||||||
| Rental income | $ | 562,152 | $ | 542,183 | $ | 19,969 | 3.7 | % | |||||||||||||||
| Less: Property-level operating expenses | (179,420) | (172,300) | (7,120) | (4.1) | |||||||||||||||||||
| NOI | $ | 382,732 | $ | 369,883 | $ | 12,849 | 3.5 | ||||||||||||||||
| Number of Properties at September 30, | Occupancy at September 30, | Annualized Average Rent Per Occupied Square Foot For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Same-store office buildings | 331 | 331 | 91.8 | % | 91.5 | % | $ | 36 | $ | 35 | |||||||||||||||||||||||||
The NOI increase in our same-store office operations reportable business segment for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to leasing activity, high tenant retention, improved parking income and favorable expense controls.
45
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 September 30, 2022 (dollars in thousands):
| For the Nine Months Ended September 30, | (Decrease) Increase to NOI | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| NOI—Triple-Net Leased Properties: | |||||||||||||||||||||||
| Rental income | $ | 451,073 | $ | 500,487 | $ | (49,414) | (9.9) | % | |||||||||||||||
| Less: Property-level operating expenses | (11,349) | (12,525) | 1,176 | 9.4 | |||||||||||||||||||
| NOI | $ | 439,724 | $ | 487,962 | $ | (48,238) | (9.9) | ||||||||||||||||
The NOI decrease in our triple-net leased properties for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily driven by a reduction in rental income from communities that were transitioned to our senior housing operating portfolio or sold prior to the third quarter of 2022 and prior lease resolutions with tenants who were materially affected by the COVID-19 pandemic.
The following table compares results of operations for our 330 same-store triple-net leased properties (dollars in thousands):
| For the Nine Months Ended September 30, | Decrease to NOI | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| Same-Store NOI—Triple-Net Leased Properties: | |||||||||||||||||||||||
| Rental income | $ | 444,686 | $ | 445,180 | $ | (494) | (0.1) | % | |||||||||||||||
| Less: Property-level operating expenses | (10,769) | (10,055) | (714) | (7.1) | |||||||||||||||||||
| NOI | $ | 433,917 | $ | 435,125 | $ | (1,208) | (0.3) | ||||||||||||||||
NOI in our same-store triple-net leased properties reportable business segment for the nine months ended September 30, 2022 compared to the same period in 2021 was relatively flat.
NOI—Non-Segment
The $34.0 million decrease in non-segment NOI for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to reduced interest income from a lower balance of loans receivable investments due to the redemption of Ardent’s senior notes, payoff of certain notes and sale of marketable debt securities in 2021.
Company Results
Interest Expense
The $14.5 million increase in interest expense for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to an increase of $14.6 million due to higher debt balances and an increase of $1.3 million due to lower capitalized interest, partially offset by a decrease of $1.8 million due to a lower effective interest rate. Our weighted average debt outstanding was $12.4 billion and $11.9 billion for the nine months ended September 30, 2022 and 2021, respectively. Our weighted average effective interest rate was 3.58% and 3.60% for the nine months ended September 30, 2022 and 2021, respectively. Capitalized interest for the nine months ended September 30, 2022 and 2021 was $7.2 million and $8.5 million, respectively.
Depreciation and Amortization
Depreciation and amortization expense was relatively flat for the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to decreased impairments recorded relating to properties that were sold or classified as held for sale, partially offset by increased depreciation on assets acquired primarily from New Senior.
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General, Administrative and Professional Fees
The $10.2 million increase in general, administrative and professional fees was primarily due to the return to a more normalized business environment and the inclusion of a portion of New Senior’s overhead.
Loss on Extinguishment of Debt, Net
The $56.2 million decrease in loss on extinguishment of debt, net for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to $56.8 million of losses recognized during 2021 in connection with the redemptions of $1.1 billion of senior notes due in 2022 and 2023.
Transaction Expenses and Deal Costs
The $9.9 million increase in transaction expenses and deal costs was primarily attributable to $20.5 million incurred in connection with stockholder relations matters in 2022, partially offset by $15.2 million increased costs associated with operator transitions in 2021.
Allowance on Loans Receivable and Investments
The $8.8 million decrease in allowance on loans receivable and investments was primarily due to the reversal of a previously recorded credit loss in the first quarter of 2021 as a result of successful collections.
Other
The $19.3 million increase in other expense was primarily due to an increase of $29.5 million in unrealized loss on the stock warrants received in connection with the Brookdale Senior Living lease modification in the third quarter of 2020, partially offset by $7.9 million of additional expenses in 2021 relating to natural disaster events. As of September 30, 2022, the fair value of the stock warrants was $38.2 million, which was $10.1 million higher than the value at the grant date.
(Loss) Income from Unconsolidated Entities
The $10.6 million change in (loss) income from unconsolidated entities for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to our share of increased net loss from our unconsolidated entities.
Gain on Real Estate Dispositions
The $191.5 million decrease in gain on real estate dispositions was primarily due to $194.1 million in gains during 2021 for the sale of 33 properties, partially offset by the net gain of $2.6 million in 2022 for the sale of a vacant land parcel and a vacant office building.
Income Tax Benefit (Expense)
The $14.3 million of income tax benefit for the nine months ended September 30, 2022 was primarily due to losses in certain of our TRS entities and a $2.0 million benefit from an internal restructuring of a U.S. taxable REIT subsidiary. The $9.6 million of income tax expense for the same period in 2021 was primarily due to a $3.7 million deferred tax expense related to the release of certain residual tax effects from marketable debt securities, a $2.9 million net deferred tax expense related to an internal restructuring of certain U.S. taxable REIT subsidiaries, and a $3.4 million deferred tax expense related to the revaluation of certain deferred tax liabilities as a result of enacted tax rate changes in the United Kingdom.
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Non-GAAP Financial Measures
We consider certain non-GAAP financial measures to be useful supplemental measures of our operating performance. A non-GAAP financial measure is a measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are not so excluded from or included in the most directly comparable measure calculated and presented in accordance with U.S. GAAP. Described below are the non-GAAP financial measures used by management to evaluate our operating performance and that we consider most useful to investors, together with reconciliations of these measures to the most directly comparable GAAP measures.
The non-GAAP financial measures we present in this Quarterly Report on Form 10-Q may not be comparable to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. You should not consider these measures as alternatives to net income attributable to common stockholders (determined in accordance with GAAP) as indicators of our financial performance or as alternatives to cash flow from operating activities (determined in accordance with GAAP) as measures of our liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs. In order to facilitate a clear understanding of our consolidated historical operating results, you should examine these measures in conjunction with net income attributable to common stockholders as presented in our Consolidated Financial Statements and other financial data included elsewhere in this Quarterly Report on Form 10-Q.
Funds From Operations and Normalized Funds From Operations Attributable to Common Stockholders
Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. However, since real estate values historically have risen or fallen with market conditions, many industry investors deem presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. For that reason, we consider Funds From Operations attributable to common stockholders (“FFO”) and Normalized FFO to be appropriate supplemental measures of operating performance of an equity REIT. We believe that the presentation of FFO, combined with the presentation of required GAAP financial measures, has improved the understanding of operating results of REITs among the investing public and has helped make comparisons of REIT operating results more meaningful. Management generally considers FFO to be a useful measure for understanding and comparing our operating results because, by excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment losses on depreciable real estate and real estate asset depreciation and amortization (which can differ across owners of similar assets in similar condition based on historical cost accounting and useful life estimates), FFO can help investors compare the operating performance of a company’s real estate across reporting periods and to the operating performance of other companies. We believe that Normalized FFO is useful because it allows investors, analysts and our management to compare our operating performance to the operating performance of other real estate companies across periods on a consistent basis without having to account for differences caused by non-recurring items and other non-operational events such as transactions and litigation. In some cases, we provide information about identified non-cash components of FFO and Normalized FFO because it allows investors, analysts and our management to assess the impact of those items on our financial results.
We use the National Association of Real Estate Investment Trusts (“Nareit”) definition of FFO. Nareit defines FFO as net income attributable to common stockholders (computed in accordance with GAAP) excluding gains (or losses) from sales of real estate property, including gain (or loss) on re-measurement of equity method investments and impairment write-downs of depreciable real estate, plus real estate depreciation and amortization, and after adjustments for unconsolidated entities and noncontrolling interests. Adjustments for unconsolidated entities and noncontrolling interests will be calculated to reflect FFO on the same basis. We define Normalized FFO as Nareit FFO excluding the following income and expense items, without duplication: (a) transaction expenses and deal costs, including transaction, integration and severance-related costs and expenses, and amortization of intangibles, in each case net of noncontrolling interests’ share of these items and including Ventas’ share of these items from unconsolidated entities; (b) the impact of expenses related to asset impairment and valuation allowances, the write-off of unamortized deferred financing fees or additional costs, expenses, discounts, make-whole payments, penalties or premiums incurred as a result of early retirement or payment of our debt; (c) the non-cash effect of income tax benefits or expenses, the non-cash impact of changes to our executive equity compensation plan, derivative transactions that have non-cash mark-to-market impacts on our Consolidated Statements of Income and non-cash charges related to leases; (d) the financial impact of contingent consideration; (e) gains and losses for non-operational foreign currency hedge agreements and changes in the fair value of financial instruments; (f) gains and losses on non-real estate dispositions and other items related to unconsolidated entities; (g) net expenses or recoveries related to materially disruptive events; and (h) other items set forth in the Normalized FFO reconciliation included herein.
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The following table summarizes our FFO and Normalized FFO for the three and nine months ended September 30, 2022 and 2021 (dollars in thousands). The increase in Normalized FFO for the nine months ended September 30, 2022 over the same period in 2021 is primarily due to increased net operating income at our senior housing communities as a result of improved occupancy, acquisitions since the second quarter of 2021, including the acquisition of over 100 independent living communities from New Senior, and higher HHS grants received, partially offset by lower interest income on loan investments.
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | 1,256 | $ | 60,680 | $ | (2,428) | $ | 89,862 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Depreciation and amortization on real estate assets | 300,796 | 312,524 | 871,212 | 874,920 | |||||||||||||||||||
| Depreciation on real estate assets related to noncontrolling interests | (4,315) | (4,641) | (13,099) | (13,937) | |||||||||||||||||||
| Depreciation on real estate assets related to unconsolidated entities | 8,980 | 4,474 | 23,866 | 13,107 | |||||||||||||||||||
| Gain on real estate dispositions | (136) | (150,292) | (2,557) | (194,083) | |||||||||||||||||||
| Gain on real estate dispositions related to noncontrolling interests | 21 | 232 | 38 | 225 | |||||||||||||||||||
| Gain on real estate dispositions and other related to unconsolidated entities | (2,388) | — | (2,689) | — | |||||||||||||||||||
| Nareit FFO attributable to common stockholders | 304,214 | 222,977 | 874,343 | 770,094 | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Change in fair value of financial instruments | 415 | 25,451 | 8,371 | (18,768) | |||||||||||||||||||
| Non-cash income tax (benefit) expense | (5,777) | 2,146 | (16,961) | 4,656 | |||||||||||||||||||
| Loss on extinguishment of debt, net of noncontrolling interests and including Ventas’ share attributable to unconsolidated entities | 574 | 34,654 | 581 | 61,670 | |||||||||||||||||||
| Gain on transactions related to unconsolidated entities | — | (8,808) | (3) | (8,839) | |||||||||||||||||||
| Transaction expenses and deal costs, net of noncontrolling interests and including Ventas’ share attributable to unconsolidated entities | 6,551 | 25,531 | 42,866 | 32,660 | |||||||||||||||||||
| Amortization of other intangibles including Ventas’ share attributable to unconsolidated entities | 268 | (22,085) | 804 | (21,853) | |||||||||||||||||||
| Other items related to unconsolidated entities | 170 | 987 | (984) | 1,131 | |||||||||||||||||||
| Non-cash impact of changes to equity plan | (2,565) | (2,359) | 2,252 | 4,084 | |||||||||||||||||||
| Materially disruptive events, net including Ventas’ share attributable to unconsolidated entities | 1,982 | 1,552 | 347 | 9,807 | |||||||||||||||||||
| Allowance on loan investments, net of noncontrolling interests | (61) | (58) | (175) | (9,015) | |||||||||||||||||||
| Normalized FFO attributable to common stockholders | $ | 305,771 | $ | 279,988 | $911,441 | $825,627 | |||||||||||||||||
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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 and other services costs.
The following table sets forth a reconciliation of net income attributable to common stockholders to NOI (dollars in thousands):
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | 1,256 | $ | 60,680 | $ | (2,428) | $ | 89,862 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Interest and other income | (489) | (417) | (2,191) | (1,343) | |||||||||||||||||||
| Interest expense | 119,413 | 108,816 | 344,158 | 329,634 | |||||||||||||||||||
| Depreciation and amortization | 301,481 | 313,596 | 873,620 | 878,444 | |||||||||||||||||||
| General, administrative and professional fees | 35,421 | 30,259 | 111,334 | 101,156 | |||||||||||||||||||
| Loss on extinguishment of debt, net | 574 | 29,792 | 581 | 56,808 | |||||||||||||||||||
| Transaction expenses and deal costs | 4,782 | 22,662 | 37,852 | 28,000 | |||||||||||||||||||
| Allowance on loans receivable and investments | (63) | (60) | (179) | (9,021) | |||||||||||||||||||
| Other | 9,162 | 33,673 | 30,088 | 10,755 | |||||||||||||||||||
| Net income attributable to noncontrolling interests | 1,807 | 2,094 | 4,881 | 5,802 | |||||||||||||||||||
| (Income) loss from unconsolidated entities | (1,970) | (2,772) | 3,346 | (7,289) | |||||||||||||||||||
| Income tax (benefit) expense | (6,027) | 3,780 | (14,307) | 9,574 | |||||||||||||||||||
| Gain on real estate dispositions | (136) | (150,292) | (2,557) | (194,083) | |||||||||||||||||||
| NOI | $ | 465,211 | $ | 451,811 | $ | 1,384,198 | $ | 1,298,299 | |||||||||||||||
See “Results of Operations” for discussions regarding both NOI and same-store NOI. We define same-store as properties owned, consolidated and operational for the full period in both comparison periods and that are not otherwise excluded; provided, however, that we may include selected properties that otherwise meet the same-store criteria if they are included in substantially all of, but not a full, period for one or both of the comparison periods, and in our judgment such inclusion provides a more meaningful presentation of our segment performance.
Newly acquired development properties and recently developed or redeveloped properties in our SHOP reportable business segment will be included in same-store once they are stabilized for the full period in both periods presented. These properties are considered stabilized upon the earlier of (a) the achievement of 80% sustained occupancy or (b) 24 months from the date of acquisition or substantial completion of work. Recently developed or redeveloped properties in our office operations and triple-net leased properties reportable business segments will be included in same-store once substantial completion of work has occurred for the full period in both periods presented. Our senior housing operating portfolio and triple-net leased properties that have undergone operator or business model transitions will be included in same-store once operating under consistent operating structures for the full period in both periods presented.
Properties are excluded from same-store if they are: (i) sold, classified as held for sale or properties whose operations were classified as discontinued operations in accordance with GAAP; (ii) impacted by materially disruptive events such as flood or fire; (iii) for SHOP, those properties that are currently undergoing a materially disruptive redevelopment; (iv) for our office operations and triple-net leased properties reportable business segments, those properties for which management has an intention to institute, or has instituted, a redevelopment plan because the properties may require major property-level expenditures to maximize value, increase NOI, or maintain a market-competitive position and/or achieve property stabilization, most commonly as the result of an expected or actual material change in occupancy or NOI; or (v) for SHOP and triple-net leased properties reportable business segments, those properties that are scheduled to undergo operator or business model transitions, or have transitioned operators or business models after the start of the prior comparison period.
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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 reported USD, while prior comparison period’s results are adjusted and converted to USD based on the average exchange rate for the current period.
Liquidity and Capital Resources
Our principal sources of liquidity are cash flows from operations, proceeds from the issuance of debt and equity securities, borrowings under our unsecured revolving credit facility and commercial paper program, and proceeds from asset sales.
For the next 12 months, our principal liquidity needs are to: (i) fund operating expenses; (ii) meet our debt service requirements; (iii) repay maturing mortgage and other debt; (iv) fund acquisitions, investments and commitments and any development and redevelopment activities; (v) fund capital expenditures; and (vi) make distributions to our stockholders and unitholders, as required for us to continue to qualify as a REIT. Depending upon the availability of external capital, we believe our liquidity is sufficient to fund these uses of cash. We expect that these liquidity needs generally will be satisfied by a combination of the following: cash flows from operations, cash on hand, debt assumptions and financings (including secured financings), issuances of debt and equity securities, dispositions of assets (in whole or in part through joint venture arrangements with third parties) and borrowings under our revolving credit facilities and commercial paper program. However, an inability to access liquidity through multiple capital sources concurrently could have a material adverse effect on us.
Our material contractual obligations arising in the normal course of business primarily consist of long-term debt and related interest payments, and operating obligations which include ground lease obligations. During the nine months ended September 30, 2022, 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 2021 Annual Report. See “Note 10 – Senior Notes Payable And Other Debt” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding our significant debt activities.
While decreased revenue and net operating income as a result of COVID-19 could lead to downgrades of our short- or long-term credit ratings 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 COVID-19 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.
Credit Facilities, Commercial Paper and Unsecured Term Loans
We have a $2.75 billion unsecured revolving credit facility initially priced at LIBOR plus 0.825% based on the Company’s debt rating. The unsecured revolving credit facility matures in January 2025, but may be extended at our option, subject to the satisfaction of certain conditions, for two additional periods of six months each. The 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, including the receipt of additional commitments for such increase.
As of September 30, 2022, we had $2.7 billion of undrawn capacity on our unsecured revolving credit facility with $31.1 million borrowings outstanding and an additional $15.6 million restricted to support outstanding letters of credit. We limit our use of the unsecured revolving credit facility, to the extent necessary, to support our commercial paper program when commercial paper notes are outstanding.
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 September 30, 2022, we had $377.4 million in borrowings outstanding under our commercial paper program.
In June 2022, we entered into a Credit and Guaranty Agreement (the “New Credit Agreement”) with Ventas Realty, as borrower. The New Credit Agreement replaces Ventas Realty’s previous $200.0 million unsecured term loan priced at LIBOR plus 0.90% that matured in 2023 with a new $500.0 million unsecured term loan that matures in 2027 and is initially priced at Term SOFR plus 0.95% based on Ventas Realty’s debt ratings. The New Credit Agreement also includes an accordion feature that permits us to increase our aggregate borrowings thereunder to up to $1.25 billion, subject to the satisfaction of certain conditions, including the receipt of additional commitments for such increase.
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As of September 30, 2022, we had a C$500.0 million unsecured term loan facility priced at Canadian Dollar Offered Rate (“CDOR”) plus 0.90% that matures in 2025.
Senior Notes
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
We participate in an “at-the-market” equity offering program (“ATM program”), pursuant to which we may, from time to time, sell up to $1.0 billion aggregate gross sales price of shares of our common stock. There were no issuances under the ATM program for the nine months ended September 30, 2022. As of September 30, 2022, $1.0 billion aggregate gross sales price of shares of our common stock remains available for issuance under the ATM program.
Derivatives and Hedging
In the normal course of our business, interest rate fluctuations affect future cash flows under our variable rate debt obligations, loans receivable and marketable debt securities, and foreign currency exchange rate fluctuations affect our operating results. We follow established risk management policies and procedures, including the use of derivative instruments, to mitigate the impact of these risks.
Dividends
During the nine months ended September 30, 2022, we declared a dividend of $0.45 per share of our common stock in each of the first, second and third quarter. 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 2022.
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 nine months ended September 30, 2022 and 2021 (dollars in thousands):
| For the Nine Months Ended September 30, | (Decrease) Increase to Cash | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | $ | 196,597 | $ | 451,640 | $ | (255,043) | (56.5)% | ||||||||||||||||
| Net cash provided by operating activities | 852,910 | 760,315 | 92,595 | 12.2 | |||||||||||||||||||
| Net cash used in investing activities | (725,321) | (716,343) | (8,978) | (1.3) | |||||||||||||||||||
| Net cash used in financing activities | (124,956) | (299,612) | 174,656 | 58.3 | |||||||||||||||||||
| Effect of foreign currency translation | (3,592) | 522 | (4,114) | nm | |||||||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 195,638 | $ | 196,522 | $ | (884) | (0.4) | ||||||||||||||||
______________________________
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Cash Flows from Operating Activities
Cash flows from operating activities increased $92.6 million during the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to increased net operating income at our senior housing communities as a result of improved occupancy, HHS grants received and acquisitions including the acquisition of over 100 independent living communities from New Senior, partially offset by decreased net operating income at our triple-net leased properties as a result of a reduction in rental income from communities that were transitioned to our senior housing operating portfolio or sold prior to the third quarter of 2022.
Cash Flows from Investing Activities
Cash flows from investing activities decreased $9.0 million during the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to decreased proceeds from real estate dispositions and fewer proceeds received from the repayment of loans receivable, partially offset by decreased acquisitions and lower development project expenditures in 2022.
Cash Flows from Financing Activities
Cash flows from financing activities increased $174.7 million during the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to the 2021 redemptions of $1.1 billion of senior notes due in 2022 and 2023, partially offset by the 2021 issuance of 10.9 million shares of common stock through our ATM equity offering program and decreased borrowings under our commercial paper program in 2022.
Capital Expenditures
The terms of our triple-net leases generally obligate our tenants to pay all capital expenditures necessary to maintain and improve our triple-net leased properties. However, from time to time, we may fund the capital expenditures for our triple-net leased properties through loans or advances to the tenants, which may increase the amount of rent payable with respect to the properties in certain cases. We may also fund capital expenditures for which we may become responsible upon expiration of our triple-net leases or in the event that our tenants are unable or unwilling to meet their obligations under those leases. We also expect to fund capital expenditures related to our SHOP and office operations reportable business segments with the cash flows from the properties or through additional borrowings. We expect that these liquidity needs generally will be satisfied by a combination of the following: cash flows from operations, cash on hand, debt assumptions and financings (including secured financings), issuances of debt and equity securities, dispositions of assets (in whole or in part through joint venture arrangements with third parties) and borrowings under our revolving credit facilities.
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.
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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 September 30, 2022, we had 15 properties under development pursuant to these agreements, including six 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 communities to maximize the value, increase NOI, maintain a market-competitive position, achieve property stabilization or change the primary use of the property.
Off-Balance Sheet Arrangements
We own interests in certain unconsolidated entities as described in “Note 7 – 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 10 – 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 September 30, 2022, we had $15.6 million outstanding letters of credit obligations. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources except those described above.
Guarantor and Issuer Financial Information
Ventas, Inc. has fully and unconditionally guaranteed the obligation to pay principal and interest with respect to the outstanding senior notes issued by our 100% owned subsidiary, Ventas Realty. None of our other subsidiaries is obligated with respect to Ventas Realty’s outstanding senior notes.
Ventas, Inc. has also fully and unconditionally guaranteed the obligation to pay principal and interest with respect to the outstanding senior notes issued by our 100% owned subsidiary, Ventas Canada Finance Limited (“Ventas Canada”). None of our other subsidiaries is obligated with respect to Ventas Canada’s outstanding senior notes, all of which were issued on a private placement basis in Canada.
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 September 30, 2022 and December 31, 2021 and for the nine months ended September 30, 2022 and the year ended December 31, 2021 (in thousands).
Balance Sheet Information
| As of September 30, 2022 | |||||||||||
| Guarantor | Issuer | ||||||||||
| Assets | |||||||||||
| Investment in and advances to affiliates | $ | 17,689,343 | $ | 3,045,738 | |||||||
| Total assets | 17,788,139 | 3,158,274 | |||||||||
| Liabilities and equity | |||||||||||
| Intercompany loans | 11,561,972 | (3,822,831) | |||||||||
| Total liabilities | 11,781,799 | 4,216,515 | |||||||||
| Redeemable OP unitholder and noncontrolling interests | 106,070 | — | |||||||||
| Total equity (deficit) | 5,900,270 | (1,058,241) | |||||||||
| Total liabilities and equity | 17,788,139 | 3,158,274 | |||||||||
| As of December 31, 2021 | |||||||||||
| Guarantor | Issuer | ||||||||||
| Assets | |||||||||||
| Investment in and advances to affiliates | $ | 17,448,874 | $ | 3,045,738 | |||||||
| Total assets | 17,561,305 | 3,156,840 | |||||||||
| Liabilities and equity | |||||||||||
| Intercompany loans | 10,742,915 | (3,563,060) | |||||||||
| Total liabilities | 10,972,521 | 4,097,362 | |||||||||
Redeemable OP unitholder and noncontrolling interests | 98,356 | — | |||||||||
| Total equity (deficit) | 6,490,428 | (940,522) | |||||||||
| Total liabilities and equity | 17,561,305 | 3,156,840 | |||||||||
Statement of Income Information
| For the Nine Months Ended September 30, 2022 | |||||||||||||||||||||||
| Guarantor | Issuer | ||||||||||||||||||||||
| Equity earnings in affiliates | $ | 71,232 | $ | — | |||||||||||||||||||
| Total revenues | 76,951 | 111,694 | |||||||||||||||||||||
| Loss before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests | (894) | (125,368) | |||||||||||||||||||||
| Net loss | (2,428) | (125,368) | |||||||||||||||||||||
| Net loss attributable to common stockholders | (2,428) | (125,368) | |||||||||||||||||||||
For the Year Ended December 31, 2021 | |||||||||||||||||||||||||||||
| Guarantor | Issuer | ||||||||||||||||||||||||||||
| Equity earnings in affiliates | $ | 133,143 | $ | — | |||||||||||||||||||||||||
| Total revenues | 137,348 | 158,255 | |||||||||||||||||||||||||||
| Income (loss) before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests | 49,694 | (215,773) | |||||||||||||||||||||||||||
| Net income (loss) | 49,008 | (215,777) | |||||||||||||||||||||||||||
| Net income (loss) attributable to common stockholders | 49,008 | (215,777) | |||||||||||||||||||||||||||
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion of our exposure to various market risks contains forward-looking statements that involve risks and uncertainties. These projected results have been prepared utilizing certain assumptions considered reasonable in light of information currently available to us. Nevertheless, because of the inherent unpredictability of interest rates and other factors, actual results could differ materially from those projected in such forward-looking information.
We are exposed to market risk related to changes in interest rates with respect to borrowings under our unsecured revolving credit facility, commercial paper program and our unsecured term loans, certain of our mortgage loans that are floating rate obligations, mortgage loans receivable that bear interest at floating rates and available for sale securities. These market risks result primarily from changes in benchmark interest rates. To manage these risks, we continuously monitor our level of variable rate debt with respect to total debt and other factors, including our assessment of current and future economic conditions.
As of September 30, 2022 and December 31, 2021, the fair value of our secured and non-mortgage loans receivable, based on our estimates of current prevailing rates for comparable loans, was $475.1 million and $498.0 million, respectively.
The fair value of our fixed rate debt is based on current market interest rates at which we could obtain similar borrowings. Increases in market interest rates typically result in a decrease in the fair value of fixed rate debt while decreases in market interest rates typically result in an increase in the fair value of fixed rate date. While changes in market interest rates affect the fair value of our fixed rate debt, these changes do not affect the interest expense associated with our fixed rate debt. Therefore, interest rate risk does not have a significant impact on our fixed rate debt obligations until their maturity or earlier prepayment and refinancing. If interest rates have risen at the time we seek to refinance our fixed rate debt, whether at maturity or otherwise, our future earnings and cash flows could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of refinancing may reduce our overall borrowing costs.
To highlight the sensitivity of our fixed rate debt to changes in interest rates, the following summary shows the effects of a hypothetical instantaneous change of 100 basis points in interest rates (dollars in thousands):
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| Gross book value | $ | 10,870,832 | $ | 10,990,982 | |||||||
| Fair value | 9,980,685 | 11,766,336 | |||||||||
| Fair value reflecting change in interest rates: | |||||||||||
| -100 basis points | 10,432,204 | 12,437,306 | |||||||||
| +100 basis points | 9,565,104 | 11,164,150 | |||||||||
Our fixed rate debt was relatively flat from December 31, 2021 to September 30, 2022.
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The table below sets forth certain information with respect to our debt, excluding premiums and discounts (dollars in thousands):
| As of September 30, 2022 | As of December 31, 2021 | As of September 30, 2021 | |||||||||||||||
| Balance: | |||||||||||||||||
| Fixed rate: | |||||||||||||||||
| Senior notes | $ | 8,599,445 | $ | 8,729,102 | $ | 8,309,779 | |||||||||||
| Unsecured term loans | 200,000 | 200,000 | 200,000 | ||||||||||||||
| Secured revolving construction credit facility | — | — | — | ||||||||||||||
| Mortgage loans and other | 2,071,387 | 2,061,880 | 2,109,342 | ||||||||||||||
| Subtotal fixed rate | 10,870,832 | 10,990,982 | 10,619,121 | ||||||||||||||
| Variable rate: | |||||||||||||||||
| Senior notes | — | — | 236,630 | ||||||||||||||
| Unsecured revolving credit facility | 31,057 | 56,448 | 49,141 | ||||||||||||||
| Unsecured term loans | 661,637 | 395,757 | 394,384 | ||||||||||||||
| Commercial paper notes | 377,400 | 280,000 | 370,000 | ||||||||||||||
| Secured revolving construction credit facility | — | — | — | ||||||||||||||
| Mortgage loans and other | 335,604 | 369,951 | 473,470 | ||||||||||||||
| Subtotal variable rate | 1,405,698 | 1,102,156 | 1,523,625 | ||||||||||||||
| Total | $ | 12,276,530 | $ | 12,093,138 | $ | 12,142,746 | |||||||||||
| Percentage of total debt: | |||||||||||||||||
| Fixed rate: | |||||||||||||||||
| Senior notes | 70.0 | % | 72.1 | % | 68.4 | % | |||||||||||
| Unsecured term loans | 1.6 | 1.7 | 1.6 | ||||||||||||||
| Secured revolving construction credit facility | — | — | — | ||||||||||||||
| Mortgage loans and other | 16.9 | 17.0 | 17.4 | ||||||||||||||
| Variable rate: | |||||||||||||||||
| Senior notes | — | — | 1.9 | ||||||||||||||
| Unsecured revolving credit facility | 0.3 | 0.5 | 0.4 | ||||||||||||||
| Unsecured term loans | 5.4 | 3.3 | 3.2 | ||||||||||||||
| Commercial paper notes | 3.1 | 2.3 | 3.0 | ||||||||||||||
| Secured revolving construction credit facility | — | — | — | ||||||||||||||
| Mortgage loans and other | 2.7 | 3.1 | 4.1 | ||||||||||||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||
Weighted average interest rate at end of period: | |||||||||||||||||
| Fixed rate: | |||||||||||||||||
| Senior notes | 3.7 | % | 3.7 | % | 3.7 | % | |||||||||||
| Unsecured term loans | 3.6 | 3.6 | 3.6 | ||||||||||||||
| Secured revolving construction credit facility | — | — | — | ||||||||||||||
| Mortgage loans and other | 3.7 | 3.6 | 3.6 | ||||||||||||||
| Variable rate: | |||||||||||||||||
| Senior notes | — | — | 1.0 | ||||||||||||||
| Unsecured revolving credit facility | 3.5 | 1.1 | 1.1 | ||||||||||||||
| Unsecured term loans | 4.2 | 1.4 | 1.3 | ||||||||||||||
| Commercial paper notes | 3.4 | 0.3 | 0.2 | ||||||||||||||
| Secured revolving construction credit facility | — | — | — | ||||||||||||||
| Mortgage loans and other | 3.9 | 1.7 | 1.7 | ||||||||||||||
| Total | 3.7 | 3.4 | 3.4 | ||||||||||||||
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The variable rate debt in the table above reflects, in part, the effect of $145.1 million notional amount of interest rate swaps maturing on March 2027, in each case that effectively convert fixed rate debt to variable rate debt. In addition, the fixed rate debt in the table above reflects, in part, the effect of $338.2 million and C$269.4 million notional amount of interest rate swaps with maturities ranging from January 2023 to April 2031 in each case that effectively convert variable rate debt to fixed rate debt.
The increase in our outstanding variable rate debt at September 30, 2022 compared to December 31, 2021 is primarily attributable to borrowings under our unsecured term loan and commercial paper program, partially offset by payoffs of mortgage loans.
Assuming a 100 basis point increase in the weighted average interest rate related to our consolidated variable rate debt and assuming no change in our consolidated variable rate debt outstanding as of September 30, 2022 of $1.4 billion, interest expense on an annualized basis would increase by approximately $14.1 million, or $0.03 per diluted common share.
As of September 30, 2022 and December 31, 2021, our joint venture partners’ aggregate share of total consolidated debt was $274.2 million and $278.0 million, respectively, with respect to certain properties we owned through consolidated joint ventures.
Total consolidated debt does not include our portion of unconsolidated debt related to investments in unconsolidated real estate entities, which was $431.8 million and $338.1 million as of September 30, 2022 and December 31, 2021, 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 nine months ended September 30, 2022 (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 and nine months ended September 30, 2022 would decrease or increase as applicable, by less than 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 September 30, 2022. 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 September 30, 2022, at the reasonable assurance level.
Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting during the third quarter of 2022 (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 12 – Commitments And Contingencies” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated by reference into this Item 1. Except as set forth therein, there have been no new material legal proceedings and no material developments in the legal proceedings reported in our 2021 Annual Report.
ITEM 1A. RISK FACTORS
In the third quarter of 2022, there were no significant new risk factors from those disclosed under Part I, Item 1A. “Risk Factors” of our 2021 Annual Report and Part II, Item 1A. “Risk Factors” of our first quarter Form 10-Q. However, the risks and uncertainties that we face are not limited to those set forth in the 2021 Annual Report and first quarter Form 10-Q. 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 September 30, 2022.
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 | ||||||||||||||||||||
| July 1 through July 31 | — | $ | — | — | — | ||||||||||||||||||
| August 1 through August 31 | 32 | 52.46 | — | — | |||||||||||||||||||
| September 1 through September 30 | — | — | — | — | |||||||||||||||||||
| Total | 32 | $ | 52.46 | — | — | ||||||||||||||||||
______________________________
(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
| Exhibit Number | Description of Document | |||||||
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 September 30, 2022, 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: November 4, 2022
| 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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Exhibit 22
List of Guarantors and Issuers of Guaranteed Securities
As of September 30, 2022, Ventas, Inc. is the guarantor of the outstanding guaranteed debt securities of its subsidiaries, as listed below.
| Debt Instrument | Issuer | |||||||
| 2.55% Senior Notes, Series D due 2023 | Ventas Canada Finance Limited | |||||||
| 3.50% Senior Notes due 2024 | Ventas Realty, Limited Partnership | |||||||
| 3.75% Senior Notes due 2024 | Ventas Realty, Limited Partnership | |||||||
| 4.125% Senior Notes, Series B due 2024 | Ventas Canada Finance Limited | |||||||
| 2.80% Senior Notes, Series E due 2024 | Ventas Canada Finance Limited | |||||||
| 3.50% Senior Notes due 2025 | Ventas Realty, Limited Partnership | |||||||
| 2.65% Senior Notes due 2025 | Ventas Realty, Limited Partnership | |||||||
| 4.125% Senior Notes due 2026 | Ventas Realty, Limited Partnership | |||||||
| 3.25% Senior Notes due 2026 | Ventas Realty, Limited Partnership | |||||||
| 2.45% Senior Notes, Series G due 2027 | Ventas Canada Finance Limited | |||||||
| 3.85% Senior Notes due 2027 | Ventas Realty, Limited Partnership | |||||||
| 4.00% Senior Notes due 2028 | Ventas Realty, Limited Partnership | |||||||
| 4.40% Senior Notes due 2029 | Ventas Realty, Limited Partnership | |||||||
| 3.00% Senior Notes due 2030 | Ventas Realty, Limited Partnership | |||||||
4.75% Senior Notes due 2030 | Ventas Realty, Limited Partnership | |||||||
| 2.50% Senior Notes due 2031 | Ventas Realty, Limited Partnership | |||||||
| 3.30% Senior Notes, Series H due 2031 | Ventas Canada Finance Limited | |||||||
| 5.70% Senior Notes due 2043 | Ventas Realty, Limited Partnership | |||||||
| 4.375% Senior Notes due 2045 | Ventas Realty, Limited Partnership | |||||||
| 4.875% Senior Notes due 2049 | Ventas Realty, Limited Partnership | |||||||
Exhibit 31.1
I, Debra A. Cafaro, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Ventas, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report, any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 4, 2022
| /s/ DEBRA A. CAFARO | ||
Debra A. Cafaro Chairman and Chief Executive Officer | ||
Exhibit 31.2
I, Robert F. Probst, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Ventas, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report, any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 4, 2022
| /s/ ROBERT F. PROBST | ||
Robert F. Probst Executive Vice President and Chief Financial Officer | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Ventas, Inc. (the "Company") for the period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Debra A. Cafaro, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 4, 2022
| /s/ DEBRA A. CAFARO | ||
Debra A. Cafaro Chairman and Chief Executive Officer | ||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Ventas, Inc. (the "Company") for the period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert F. Probst, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 4, 2022
| /s/ ROBERT F. PROBST | ||
Robert F. Probst Executive Vice President and Chief Financial Officer | ||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.