VENTAS, INC. Unless otherwise indicated or except where the context otherwise requires, the terms "we," "us" and "our" and other similar terms in Item 2 of this Quarterly Report on Form 10-Q refer toVentas, Inc. and its consolidated subsidiaries. Cautionary Statements Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements include, among others, statements of expectations, beliefs, future plans and strategies, anticipated results from operations and developments and other matters that are not historical facts. Forward-looking statements include, among other things, statements regarding our and our officers' intent, belief or expectation as identified by the use of words such as "may," "will," "project," "expect," "believe," "intend," "anticipate," "seek," "target," "forecast," "plan," "potential," "estimate," "could," "would," "should" and other comparable and derivative terms or the negatives thereof. The forward-looking statements are based on management's beliefs as well as on a number of assumptions concerning future events. You should not put undue reliance on these forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and other factors that could cause actual events or results to differ materially from those expressed or implied by the forward-looking statements. We do not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made. You are urged to carefully review the disclosures we make concerning risks and uncertainties that may affect our business and future financial performance, including those made below and in "Item 1A, "Risk Factors", of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 (the "2020 Annual Report"). Certain factors that could affect our future results and our ability to achieve our stated goals include, but are not limited to: (a) the impact of the ongoing COVID-19 pandemic, including of the Delta or any other variant, 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 the acquisition of, and the risk of greater than expected costs or other difficulties related to the integration of, New Senior (c) our exposure and the exposure of our tenants, borrowers and managers to complex healthcare and other regulation and the challenges and expense associated with complying with such regulation; (d) the potential for significant general and commercial claims, legal actions, regulatory proceedings or enforcement actions that could subject us or our tenants, borrowers or managers to increased operating costs and uninsured liabilities; (e) the impact of market and general economic conditions, including economic and financial market events, or events that affect consumer confidence, our occupancy rates and resident fee revenues, and the actual and perceived state of the real estate markets, labor markets and public capital markets; (f) our ability, and the ability of our tenants, borrowers and managers, to navigate the trends impacting our or their businesses and the industries in which we or they operate; (g) the risk of bankruptcy, insolvency or financial deterioration of our tenants, borrowers, managers and other obligors and our ability to foreclose successfully on the collateral securing our loans and other investments in the event of a borrower default; (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; (i) our ability to attract and retain talented employees; (j) 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; (k) the risk of changes in healthcare law or regulation or in tax laws, guidance and interpretations, particularly as applied to REITs, that could adversely affect us or our tenants, borrowers or managers; (l) increases in the Company's borrowing costs as a result of becoming more leveraged or as a result of changes in interest rates and phasing out of LIBOR rates; (m) our reliance on third parties to operate a majority of our assets and our limited control and influence over such operations and results; (n) our dependency on a limited number of tenants and managers for a significant portion of our revenues and operating income; (o) the adequacy of insurance coverage provided by our policies and policies maintained by our tenants, managers or other counterparties; (p) the occurrence of cyber incidents that could disrupt our operations, result in the loss of confidential information or damage our business relationships and reputation; (q) the impact of merger, acquisition and investment activity in the healthcare industry or otherwise affecting our tenants, borrowers or managers; and (r) the risk of catastrophic or extreme weather and other natural events and the physical effects of climate change.
Many of these factors are beyond our control and the control of our management.
32
--------------------------------------------------------------------------------Note Regarding Third-Party Information
This Quarterly Report includes information that has been derived fromSEC filings made by our publicly listed tenants or other publicly available information or was provided to us by our tenants and managers. We believe that such information is accurate and that the sources from which it has been obtained are reliable; however, we cannot guarantee the accuracy of such information and have not independently verified the assumptions on which such information is based. Company OverviewVentas, Inc. , an S&P 500 company, is a real estate investment trust operating at the intersection of healthcare and real estate. We hold a highly diversified portfolio of senior housing, life science, research and innovation, and healthcare properties located throughoutthe United States ,Canada and theUnited Kingdom . As ofSeptember 30, 2021 , we owned or had investments in approximately 1,300 properties (including properties classified as held for sale), consisting of senior housing communities, medical office buildings ("MOBs"), life science, research and innovation centers, inpatient rehabilitation facilities ("IRFs") and long-term acute care facilities ("LTACs"), and health systems, which we generally refer to as "healthcare real estate." Our company was originally founded in 1983 and is headquartered inChicago, Illinois with additional corporate offices inLouisville, Kentucky andNew 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 living operations, which we also refer to as SHOP, and office operations. See our Consolidated Financial Statements and the related notes, including "Note 2 - Accounting Policies" and "Note 16 - Segment Information," included in Item 1 of this Quarterly Report on Form 10-Q. Our senior housing properties are either subject to triple-net leases, in which case they are included in our triple-net leased properties reportable business segment, or operated by independent third-party managers, in which case they are included in our senior living operations reportable business segment. As ofSeptember 30, 2021 , we leased a total of 354 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") andKindred Healthcare, LLC (together with its subsidiaries, "Kindred") leased from us 121 properties, 12 properties and 32 properties, respectively, as ofSeptember 30, 2021 . As ofSeptember 30, 2021 , pursuant to long-term management agreements, we engaged independent operators, such asAtria Senior Living, Inc. ("Atria") andSunrise Senior Living, LLC (together with its subsidiaries, "Sunrise"), to manage 551 senior housing communities in our senior living operations segment for us. Through ourLillibridge Healthcare Services, Inc. ("Lillibridge") subsidiary and our ownership interest inPMB Real Estate Services LLC ("PMBRES"), we also provide MOB management, leasing, marketing, facility development and advisory services to highly rated hospitals and health systems throughoutthe 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 -------------------------------------------------------------------------------- During fiscal 2020 and continuing into fiscal 2021, our business has been and continues to be impacted by both the COVID-19 pandemic itself, including actions taken to prevent the spread of the virus and its variants, and the ongoing consequences and effects of the pandemic on our business, including our senior housing business, and the broader economy. The future impact of the COVID-19 pandemic and its ongoing consequences for theU.S. economy and our business remain highly uncertain. The extent of the pandemic's continuing effect on our operational and financial performance will depend on a variety of factors, including the ultimate duration of the pandemic; the speed at which vaccines and other clinical treatments are successfully developed and deployed; the rate of acceptance of available vaccines, particularly among the residents and staff in our senior housing communities and the labor force more broadly; the impact of new variants of the virus and the effectiveness of vaccines and other clinical treatments against those variants; ongoing clinical experience, which may differ considerably across regions and fluctuate over time; the availability of ongoing government financial support to our business, tenants and operators; and the slope and pace of recovery of our senior housing business and theU.S. economy more generally. The pandemic and actions taken in response to the pandemic have had broad economic consequences, including for the labor market and global supply chain, which have affected and may continue to affect our business.
2021 Highlights
Investments and Dispositions
•InSeptember 2021 , we completed our acquisition ofNew Senior Investment Group, Inc. ("New Senior") for a purchase price of$2.3 billion in an all-stock transaction, which added over 100 independent living properties to our senior housing portfolio. We funded the transaction through the issuance of approximately 13.3 million shares of our common stock, the assumption of$482.5 million of New Senior mortgage debt and$1.1 billion of cash paid at closing.
•In
•InJuly 2021 , we received$66 million from Holiday Retirement as repayment in full of secured notes which Holiday Retirement previously issued to us as part of a lease termination transaction entered into inApril 2020 . •InJuly 2021 , we received$224 million for the full redemption of Ardent's outstanding 9.75% Senior Notes due 2026 at a price equal to 107.313% of the principal amount of the notes, plus accrued and unpaid interest. This redemption resulted in a gain of$16.6 million . •During the nine months endedSeptember 30, 2021 , we sold 33 properties for aggregate consideration of$497.3 million and we recognized gains on the sale of these assets of$194.1 million . •In November, we completed the approximately$180 million acquisition of six Canadian senior housing communities that will be operated under a management contract and the$58 million acquisition of a behavioral health center inPlano, Texas . •In the fourth quarter of 2021, we received proceeds of$45.0 million in full repayment of a cash pay note issued in 2020 from Brookdale Senior Living and proceeds of$22.2 million for the sale of certain real estate properties.
Liquidity and Capital
•In
•InAugust 2021 ,Ventas Realty Limited Partnership ("Ventas Realty ") issued a make whole notice of redemption for the entirety of the$400.0 million aggregate principal amount of 3.125% senior notes due 2023, resulting in a loss on extinguishment of debt of$20.9 million for the three months endedSeptember 30, 2021 . The redemption settled inSeptember 2021 , principally using cash on hand. •InJuly 2021 ,Ventas Realty andVentas Capital Corporation issued a make whole notice of redemption for the entirety of the$263.7 million aggregate principal amount of 3.25% senior notes due 2022, resulting in a loss on extinguishment of debt of$8.2 million for the three months endedSeptember 30, 2021 . The redemption settled inAugust 2021 , principally using cash on hand. 34 -------------------------------------------------------------------------------- •InFebruary 2021 ,Ventas Realty issued a make whole notice of redemption for the entirety of the$400.0 million aggregate principal amount of 3.10% senior notes dueJanuary 2023 , resulting in a loss on extinguishment of debt of$27.3 million for the three months endedMarch 31, 2021 . The redemption settled inMarch 2021 , principally using cash on hand. •InJanuary 2021 , we entered into an unsecured credit facility comprised of a$2.75 billion unsecured revolving credit facility priced at LIBOR plus 0.825%, which replaced our previous$3.0 billion unsecured revolving credit facility priced at 0.875%. The new unsecured revolving credit facility matures inJanuary 2025 , but may be extended at our option, subject to the satisfaction of certain conditions, for an additional year. The unsecured revolving credit facility also includes an accordion feature that permits us to increase our aggregate borrowing capacity thereunder to up to$3.75 billion , subject to the satisfaction of certain conditions. •During the three months endedSeptember 30, 2021 , we sold 10.6 million shares of our common stock under our "at-the-market" equity offering program ("ATM program") for gross proceeds of$611.7 million , representing an average price of$57.73 per share. During the nine months endedSeptember 30, 2021 , we sold 10.9 million shares of our common stock under our ATM program for gross proceeds of$626.4 million , representing an average price of$57.71 per share.
Other Items
•InMarch 2021 , theVentas Life Science and Healthcare Real Estate Fund, L.P. (the "Ventas Fund ") acquired two Class-A life science properties in theBaltimore -DC life science cluster for$272 million , which increased theVentas Fund's assets under management to$2.1 billion . •In the first quarter of 2021, we received$13.6 million in grants in connection with our Phase 3 applications to theProvider Relief Fund administered by theU.S. Department of Health & Human Services ("HHS") on behalf of the assisted living communities in our senior living operations segment to partially mitigate losses attributable to COVID-19.
•During the nine months ended
35
--------------------------------------------------------------------------------Concentration Risk
We use concentration ratios to identify, understand and evaluate the potential
impact of economic downturns and other adverse events that may affect our asset
types, geographic locations, business models, and tenants, operators and
managers. We evaluate concentration risk in terms of investment mix and
operations mix. Investment mix measures the percentage of our investments that
is concentrated in a specific asset type or that is operated or managed by a
particular tenant, operator or manager. Operations mix measures the percentage
of our operating results that is attributed to a particular tenant, operator or
manager, geographic location or business model. The following tables reflect our
concentration risk as of the dates and for the periods presented:
As of September 30, 2021 As of December 31, 2020
Investment mix by asset type (1):
Senior housing communities 66.7 % 63.5 %
MOBs 17.5 19.7
Life science, research and innovation centers 6.9 7.1
Health systems 5.0 5.2
IRFs and LTACs 1.6 1.7
Skilled nursing facilities ("SNFs") 0.6 0.7
Secured loans receivable and investments, net 1.7 2.1
Investment mix by tenant, operator and manager (1):
Atria 19.9 % 20.8 %
Sunrise 10.0 10.4
Brookdale Senior Living 7.9 8.2
Ardent 4.7 4.9
Kindred 1.0 1.1
All other 56.5 54.6
(1)Ratios are based on the gross book value of consolidated real estate investments (excluding properties classified as held for sale) as of each reporting date.
36
--------------------------------------------------------------------------------
For the Three Months Ended September For the Nine Months Ended September
30, 30,
2021 2020 2021 2020
Operations mix by tenant and operator and business
model:
Revenues (1):
Senior living operations 57.2 % 59.1 % 58.0 % 58.1 %
Brookdale Senior Living (2) 3.8 4.0 4.0 4.5
Ardent 3.3 3.3 3.4 3.2
Kindred 3.5 3.6 3.6 3.4
All others 32.2 30.0 31.0 30.8
Adjusted EBITDA:
Senior living operations 25.2 % 28.6 % 26.5 % 29.9 %
Brookdale Senior Living (2) 9.2 8.9 9.1 9.6
Ardent 7.8 7.4 7.8 6.8
Kindred 8.3 7.9 8.2 7.3
All others 49.5 47.2 48.4 46.4
Net operating income ("NOI"):
Senior living operations 23.2 % 28.4 % 25.4 % 29.1 %
Brookdale Senior Living (2) 8.2 8.8 8.6 9.3
Ardent 7.1 7.2 7.3 6.5
Kindred 7.5 7.8 7.7 7.1
All others 54.0 47.8 51.0 48.0
Operations mix by geographic location (3):
California 14.5 % 15.8 % 15.0 % 15.7 %
New York 7.5 8.0 7.7 8.2
Texas 5.9 6.0 6.0 6.1
Pennsylvania 4.5 4.2 4.6 4.6
North Carolina 3.9 4.0 4.0 4.1
All others 63.7 61.9 62.8 61.2
(1)Total revenues include office building and other services revenue, revenue
from loans and investments and interest and other income (including amounts
related to assets classified as held for sale).
(2)Results exclude eight senior housing communities which are included in the
senior living operations reportable business segment.
(3)Ratios are based on total revenues (including amounts related to assets
classified as held for sale) for each period presented.
See "Non-GAAP Financial Measures" included elsewhere in this Quarterly Report on
Form 10-Q for additional disclosure and reconciliations of net income
attributable to common stockholders, as computed in accordance with GAAP, to
Adjusted EBITDA and NOI, respectively.
Triple-Net Lease Performance and Expirations
Although our lease expirations are staggered, the non-renewal of some or all of our triple-net leases that expire in any given year could have a material adverse effect on us. During the nine months endedSeptember 30, 2021 , we had no triple-net lease renewals or expirations without renewal that, in the aggregate, had a material impact on our financial condition or results of operations for that period. 37 --------------------------------------------------------------------------------
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 withU.S. generally accepted accounting principles ("GAAP") for interim financial information set forth in the Accounting Standards Codification ("ASC"), as published by theFinancial Accounting Standards Board ("FASB"), and with theSEC instructions to Form 10-Q and Article 10 of Regulation S-X. GAAP requires us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base these estimates on our experience and assumptions we believe to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements. We periodically reevaluate our estimates and assumptions, and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Our 2020 Annual Report contains additional information regarding the critical accounting policies that affect our more significant estimates and judgments used in the preparation of our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. There have been no material changes to these policies in 2021. Please refer to "Note 2 - Accounting Policies" of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding recently adopted accounting standards. Results of Operations As ofSeptember 30, 2021 , we operated through three reportable business segments: triple-net leased properties, senior living operations and office operations. In our triple-net leased properties segment, we invest in and own senior housing and healthcare properties throughoutthe United States and theUnited Kingdom and lease those properties to healthcare operating companies under "triple-net" or "absolute-net" leases that obligate the tenants to pay all property-related expenses. In our senior living operations segment, we invest in senior housing communities throughoutthe United States andCanada and engage independent operators, such as Atria and Sunrise, to manage those communities. In our office operations segment, we primarily acquire, own, develop, lease and manage MOBs and life science, research and innovation centers throughout theUnited States. Information provided for "all other" includes income from loans and investments and other miscellaneous income and various corporate-level expenses not directly attributable to any of our three reportable business segments. Assets included in "all other" consist primarily of corporate assets, including cash, restricted cash, loans receivable and investments, and miscellaneous accounts receivable. Our chief operating decision makers evaluate performance of the combined properties in each reportable business segment and determine how to allocate resources to those segments, in significant part, based on segment NOI and related measures. For further information regarding our reportable business segments and a discussion of our definition of segment NOI, see "Note 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. 38 --------------------------------------------------------------------------------
Three Months Ended
The table below shows our results of operations for the three months ended
For the Three Months Ended Increase (Decrease)
September 30, to Net Income
2021 2020 $ %
(Dollars in thousands)
Segment NOI:
Triple-net leased properties $ 178,111 $ 150,738 $ 27,373 18.2 %
Senior living operations 104,380 118,669 (14,289) (12.0)
Office operations 137,622 133,325 4,297 3.2
All other 31,698 20,094 11,604 57.7
Total segment NOI 451,811 422,826 28,985 6.9
Interest and other income 417 572 (155) (27.1)
Interest expense (108,816) (115,505) 6,689 5.8
Depreciation and amortization (313,596) (249,366) (64,230) (25.8)
General, administrative and professional fees (30,259) (32,081) 1,822 5.7
Loss on extinguishment of debt, net (29,792) (7,386) (22,406) nm
Merger-related expenses and deal costs (22,662) (11,325) (11,337) nm
Allowance on loans receivable and investments 60 (4,999) 5,059 nm
Other (33,673) (5,681) (27,992) nm
Loss before unconsolidated entities, real estate
dispositions, income taxes and noncontrolling interests (86,510) (2,945) (83,565) nm
Income from unconsolidated entities 2,772 865 1,907 nm
Gain on real estate dispositions 150,292 12,622 137,670 nm
Income tax (expense) benefit (3,780) 3,195 (6,975) nm
Income from continuing operations 62,774 13,737 49,037 nm
Net income 62,774 13,737 49,037 nm
Net income attributable to noncontrolling interests 2,094 986 (1,108) nm
Net income attributable to common stockholders $ 60,680 $ 12,751 47,929 nm
nm - not meaningful
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 ofSeptember 30, 2021 . For the Three Months Ended Increase September 30, to Segment NOI 2021 2020 $ % (Dollars in thousands)Segment NOI-Triple-Net Leased Properties : Rental income$ 181,379 $ 156,136 $ 25,243 16.2 % Less: Property-level operating expenses (3,268) (5,398) 2,130 39.5 Segment NOI$ 178,111 $ 150,738 27,373 18.2 In our triple-net leased properties reportable business segment, our revenues generally consist of fixed rental amounts (subject to annual contractual escalations) received from our tenants in accordance with the applicable lease terms. We report revenues and property-level operating expenses within our triple-net leased properties reportable business segment for real estate tax and insurance expenses that are paid from escrows collected from our tenants. 39 -------------------------------------------------------------------------------- The segment NOI increase in our triple-net leased portfolio was primarily driven by the$22.3 million non-cash impact of a lease termination in connection with a transition to a new operator under a management contract during the third quarter of 2021 and$14.3 million of COVID-19 related write-offs of previously accrued straight-line rental income during the third quarter of 2020, partially offset by$9.0 million attributable to rental income from communities that were sold or transitioned to our senior housing operating portfolio before the third quarter of 2021. Occupancy rates may affect the profitability of our tenants' operations. For senior housing communities and post-acute properties in our triple-net leased properties reportable business segment, occupancy generally reflects average operator-reported unit and bed occupancy, respectively, for the reporting period. Because triple-net financials are delivered to us following the reporting period, occupancy is reported in arrears. The following table sets forth average continuing occupancy rates related to the triple-net leased properties we owned atSeptember 30, 2021 and 2020 for the second quarter of 2021 and 2020, 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. Average Occupancy Average Occupancy Number of for the Three Number of for the Three Properties Owned at Months Ended June Properties Owned at Months Ended June September 30, 2021 30, 2021 September 30, 2020 30, 2020
Senior housing communities 268 74.5% 303 80.6% SNFs 16 75.2 16 78.9 IRFs and LTACs 36 59.3 35 56.9
The following table compares results of operations for our 338 same-store triple-net leased properties. See "Non-GAAP Financial Measures-NOI" included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure regarding same-store NOI for each of our reportable business segments.
For the Three Months Ended
September 30, Increase to Segment NOI
2021 2020 $ %
(Dollars in thousands)
$ 151,321 $ 139,155 $ 12,166 8.7 % Less: Property-level operating expenses (3,008) (3,876) 868 22.4 Segment NOI$ 148,313 $ 135,279 13,034 9.6
The segment NOI increase in our same-store triple net leased portfolio was
primarily driven by
Segment NOI-Senior Living Operations
The following table summarizes results of operations in our senior living operations reportable business segment, including assets sold or classified as held for sale as ofSeptember 30, 2021 . For senior housing communities in our senior living operations reportable business segment, occupancy generally reflects average operator-reported unit occupancy for the reporting period. For the Three Months Ended Increase (Decrease) September 30, to Segment NOI 2021 2020 $ % (Dollars in thousands) Segment NOI-Senior Living Operations: Resident fees and services$ 558,039 $ 541,322 $ 16,717 3.1 % Less: Property-level operating expenses (453,659) (422,653) (31,006) (7.3) Segment NOI$ 104,380 $ 118,669 (14,289) (12.0) 40
--------------------------------------------------------------------------------
Average Monthly Revenue Per
Average Unit Occupancy for the Occupied Room For the Three
Number of Properties at September 30, Three Months Ended September 30, Months Ended September 30,
2021 2020 2021 2020 2021 2020
Total communities 542 431 79.6 % 79.8 % $ 4,556 $ 4,708
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. Average monthly
revenue per occupied room reflects average resident fees and services per
operator-reported occupied unit for the reporting period. Property-level
operating expenses related to our senior living operations segment include
labor, food, utilities, marketing, management and other costs of operating the
properties.
The period over period segment NOI decrease in our senior living operating
portfolio was primarily driven by lower occupancy and revenue per occupied room
and higher operating expenses, principally labor costs, partially offset by
lower COVID-19 related costs in 2021, the transition of assets from our
triple-net portfolio to our senior living operating portfolio and development
properties placed in service.
The following table compares results of operations for our 306 same-store senior living operating communities.
For the Three Months Ended Decrease
September 30, to Segment NOI
2021 2020 $ %
(Dollars in thousands)
Same-Store Segment NOI-Senior Living Operations:
Resident fees and services $ 439,728 $ 444,029 $ (4,301) (1.0) %
Less: Property-level operating expenses (337,314) (326,767) (10,547) (3.2)
Segment NOI $ 102,414 $ 117,262 (14,848) (12.7)
Average Monthly Revenue Per
Average Unit Occupancy for the Occupied Room For the Three
Number of Properties at September 30, Three Months Ended September 30, Months Ended September 30,
2021 2020 2021 2020 2021 2020
Same-store communities 306
306 82.6 % 82.0 % $ 4,683 $ 4,760
The period over period segment NOI decrease in our same-store senior living
operating portfolio was primarily driven by lower revenue per occupied room and
higher operating expenses, principally labor costs, partially offset by lower
COVID-19 related costs in 2021.
41
--------------------------------------------------------------------------------Segment NOI-Office Operations
The following table summarizes results of operations in our office operations reportable business segment, including assets sold or classified as held for sale as ofSeptember 30, 2021 . For properties in our office operations reportable business segment, occupancy generally reflects occupied square footage divided by net rentable square footage as of the end of the reporting period. For the Three Months Ended Increase September 30, to Segment NOI 2021 2020 $ % (Dollars in thousands) Segment NOI-Office Operations: Rental income$ 201,673 $ 198,376 $ 3,297 1.7 % Office building services revenues 2,872 2,440 432 17.7 Total revenues 204,545 200,816 3,729 1.9
Less:
Property-level operating expenses (66,401) (66,934) 533 0.8 Office building services costs (522) (557) 35 6.3 Segment NOI$ 137,622 $ 133,325 4,297 3.2 Annualized Average Rent Per Occupied Square Foot for the Three Months Ended Number of Properties at September 30, Occupancy at September 30, September 30, 2021 2020 2021 2020 2021 2020 Total office buildings 348
377 90.5 % 89.9 % $ 35 $ 34 The increase in office segment NOI for the three months ended
The following table compares results of operations for our 335 same-store office
buildings.
For the Three Months Ended Increase (Decrease)
September 30, to Segment NOI
2021 2020 $ %
(Dollars in thousands)
Same-Store Segment NOI-Office Operations:
Rental income $ 189,296 $ 177,665 $ 11,631 6.5 %
Less: Property-level operating expenses (59,681) (59,175) (506) (0.9)
Segment NOI $ 129,615 $ 118,490 11,125 9.4
Annualized Average Rent Per
Occupied Square Foot
for the Three Months Ended
Number of Properties at September 30, Occupancy at September 30, September 30,
2021 2020 2021 2020 2021 2020
Same-store office buildings 335 335 92.0 % 91.9 % $ 35 $ 34
42--------------------------------------------------------------------------------
The increase in our same-store office operations segment NOI for the three
months ended
Segment NOI -All Other
Information provided for all other segment NOI includes income from loans and investments and other miscellaneous income not directly attributable to any of our three reportable business segments. The$11.6 million increase in all other segment NOI for the three months endedSeptember 30, 2021 over the same period in 2020 was primarily due to the$16.6 million gain recognized in the third quarter of 2021 for the redemption of Ardent's outstanding 9.75% Senior Notes due 2026 and increased management fee revenues from investments in unconsolidated real estate entities, partially offset by reduced interest income from a lower balance of loans receivable investments.
Company Results
Interest and Other Income
The
Interest Expense
The$6.7 million decrease in interest expense for the three months endedSeptember 30, 2021 compared to the same period in 2020 was primarily attributable to lower debt balances. Our weighted average effective interest rate was 3.6% for both the three months endedSeptember 30, 2021 and 2020. Capitalized interest for the three months endedSeptember 30, 2021 and 2020 was$2.7 million and$2.5 million , respectively.
Depreciation and Amortization
The
General, Administrative and Professional Fees
The$1.8 million decrease in general, administrative and professional fees was primarily due to lower professional fees offset by increased compensation and benefits.
Loss on Extinguishment of Debt
The$22.4 million increase in loss on extinguishment of debt is primarily related to the$29.1 million loss recognized during the third quarter of 2021 for the redemptions of$400.0 million aggregate principal amount of 3.125% senior notes due 2023 and$263.7 million aggregate principal amount of 3.25% senior notes due 2022, partially offset by the$7.4 million non-cash loss recognized in the third quarter of 2020 for the redemption of$236.3 million aggregate principal amount of 3.25% senior notes due 2022.
Merger-Related Expenses and Deal Costs
The
43
--------------------------------------------------------------------------------Allowance on Loans Receivable and Investments
The
Other
The
Income from Unconsolidated Entities
The
Gain on Real Estate Dispositions
The$137.7 million increase in gain on real estate dispositions 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 (Expense) Benefit
The$3.8 million of income tax expense for the three months endedSeptember 30, 2021 as compared to the$3.2 million income tax benefit for the same period in 2020 was primarily due to non-cash tax expense relating to the third quarter 2021 redemption of Ardent Senior Notes and a third quarter 2020 income tax benefit from operating losses at our TRS entities. 44 --------------------------------------------------------------------------------
Nine Months Ended
The table below shows our results of operations for the nine months ended
For the Nine Months Ended (Decrease) Increase
September 30, to Net Income
2021 2020 $ %
(Dollars in thousands)
Segment NOI:
Triple-net leased properties $ 487,962 $ 510,234 $ (22,272) (4.4) %
Senior living operations 326,340 402,059 (75,719) (18.8)
Office operations 410,177 412,548 (2,371) (0.6)
All other 73,820 66,001 7,819 11.8
Total segment NOI 1,298,299 1,390,842 (92,543) (6.7)
Interest and other income 1,343 6,965 (5,622) (80.7)
Interest expense (329,634) (355,333) 25,699 7.2
Depreciation and amortization (878,444) (847,797) (30,647) (3.6)
General, administrative and professional fees (101,156) (100,621) (535) (0.5)
Loss on extinguishment of debt, net (56,808) (7,386) (49,422) nm
Merger-related expenses and deal costs (28,000) (26,129) (1,871) (7.2)
Allowance on loans receivable and investments 9,021 (34,654) 43,675 nm
Other (10,755) (16,750) 5,995 35.8
(Loss) income before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests
(96,134) 9,137 (105,271) nm
Income (loss) from unconsolidated entities 7,289 (15,861) 23,150 nm
Gain on real estate dispositions 194,083 240,101 (46,018) (19.2)
Income tax (expense) benefit (9,574) 95,855 (105,429) nm
Income from continuing operations 95,664 329,232 (233,568) (70.9)
Net income 95,664 329,232 (233,568) (70.9)
Net income attributable to noncontrolling interests 5,802 534 (5,268) nm
Net income attributable to common stockholders
328,698 (238,836) (72.7)
nm - not meaningful
Segment NOI-Triple-Net Leased Properties The following table summarizes results of operations in our triple-net leased properties reportable business segment, including assets sold or classified as held for sale as ofSeptember 30, 2021 . For the Nine Months Ended (Decrease) Increase September 30, to Segment NOI 2021 2020 $ % (Dollars in thousands)Segment NOI-Triple-Net Leased Properties : Rental income$ 500,487 $ 527,238 $ (26,751) (5.1) % Less: Property-level operating expenses (12,525) (17,004) 4,479 26.3 Segment NOI$ 487,962 $ 510,234 (22,272) (4.4) nm - not meaningful The decrease in our triple-net leased properties segment NOI for the nine months endedSeptember 30, 2021 compared to the same period in 2020 was primarily driven by (i) a$69.0 million reduction (including$18.2 million of contractual rent) attributable to the net impact of the transition of 26 independent living assets operated by Holiday Retirement, from our triple- 45 -------------------------------------------------------------------------------- net portfolio to our senior housing operating portfolio in the beginning of the second quarter of 2020, (ii) a$17.6 million reduction in rental income under our lease with Brookdale Senior Living following modification of the lease in the third quarter of 2020, and (iii) a$19.5 million reduction attributable to rental income from communities that were sold or transitioned to our senior housing operating portfolio prior toSeptember 30, 2021 . These decreases were partially offset by the$22.3 million non-cash impact of a lease termination in connection with a transition to a new operator under a management contract during the third quarter of 2021 and$67.6 million of COVID-19 related write-offs of previously accrued straight-line rental income during the second and third quarters of 2020. The following table compares results of operations for our 337 same-store triple-net leased properties. For the Nine Months Ended Increase September 30, to Segment NOI 2021 2020 $ %
(Dollars in thousands)
$ 453,612 $ 413,485 $ 40,127 9.7 % Less: Property-level operating expenses (10,658) (10,885) 227 2.1 Segment NOI$ 442,954 $ 402,600 40,354 10.0 nm - not meaningful The increase in our same-store triple-net leased properties segment NOI for the nine months endedSeptember 30, 2021 over the same period in 2020 was attributable primarily to a$60.8 million of COVID-19 related write-offs of previously accrued straight-line rental income during the second and third quarters of 2020, partially offset by$17.6 million in lower rental income recognized under our lease with Brookdale Senior Living following modification of the lease in the third quarter of 2020. Segment NOI-Senior Living Operations The following table summarizes results of operations in our senior living operations reportable business segment, including assets sold or classified as held for sale as ofSeptember 30, 2021 . For the Nine Months Ended September Decrease 30, to Segment NOI 2021 2020 $ % (Dollars in thousands) Segment NOI-Senior Living Operations: Resident fees and services$ 1,622,641 $ 1,667,421 $ (44,780) (2.7) % Less: Property-level operating expenses (1,296,301) (1,265,362) (30,939) (2.4) Segment NOI$ 326,340 $ 402,059 (75,719) (18.8) Average Monthly Revenue Per Average Unit Occupancy For the Nine Occupied Room For the Nine Number of Properties at September 30, Months Ended September 30, Months Ended September 30, 2021 2020 2021 2020 2021 2020 Total communities 542
431 77.8 % 82.7 % $ 4,611 $ 4,811
The period over period decrease in our senior living operations segment NOI was
primarily driven by lower revenue from occupancy and declines in revenue per
occupied room, partially offset by lower operating expenses and the transition
of assets from our triple-net portfolio to our senior living operating portfolio
and development properties placed in service. Lower operating expenses in 2021
reflect the receipt of $13.6 million of HHS grants in the first quarter of 2021,
which partially mitigated COVID-19 losses incurred by our SHOP communities.
The following table compares results of operations for our 276 same-store senior living operating communities.
46
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For the Nine Months Ended September (Decrease) Increase
30, to Segment NOI
2021 2020 $ %
(Dollars in thousands)
Same-Store Segment NOI-Senior Living Operations:
Resident fees and services $ 1,203,139 $ 1,310,561 $ (107,422) (8.2) %
Less: Property-level operating expenses (924,139) (955,292) 31,153 3.3
Segment NOI $ 279,000 $ 355,269 (76,269) (21.5)
Average Monthly Revenue Per
Average Unit Occupancy For the Nine Occupied Room For the Nine
Number of Properties at September 30, Months Ended September 30, Months Ended September 30,
2021 2020 2021 2020 2021 2020
Same-store communities 276
276 80.9 % 85.0 % $ 4,938 $ 5,117
The period over period decrease in our same-store senior living operations
segment NOI was primarily attributable to lower revenue from occupancy and
declines in revenue per occupied room, partially offset by lower COVID-19 costs
during 2021. Lower operating expenses in 2021 reflect the receipt of $7.5
million of HHS grants in the first quarter of 2021, which partially mitigated
COVID-19 losses incurred by our SHOP communities.
Segment NOI-Office Operations
The following table summarizes results of operations in our office operations
reportable business segment, including assets sold or classified as held for
sale as of September 30, 2021 .
For the Nine Months Ended (Decrease) Increase
September 30, to Segment NOI
2021 2020 $ %
(Dollars in thousands)
Segment NOI-Office Operations:
Rental income $ 599,516 $ 599,696 $ (180) - %
Office building services revenue 7,756 6,871 885 12.9
Total revenues 607,272 606,567 705 0.1
Less:
Property-level operating expenses (195,297) (192,192) (3,105) (1.6) Office building services costs (1,798) (1,827) 29 1.6 Segment NOI$ 410,177 $ 412,548 (2,371) (0.6) Annualized Average Rent Per Occupied Square Foot For the Nine Months Ended Number of Properties at September 30, Occupancy at September 30, September 30, 2021 2020 2021 2020 2021 2020 Total office buildings 348 377 90.5 % 89.9 %$ 34 $ 33 The decrease in our office operations segment NOI for the nine months endedSeptember 30, 2021 over the same period in 2020 was attributable primarily to assets sold in the first quarter of 2020, business interruption proceeds received in 2020 and dispositions of non-core assets for the nine months endedSeptember 30, 2021 . These decreases were partially offset by new leasing, increased tenant retention and improved parking revenues. 47 -------------------------------------------------------------------------------- The following table compares results of operations for our 330 same-store office buildings. For the Nine Months Ended Increase (Decrease) September 30, to Segment NOI 2021 2020 $ % (Dollars in thousands) Same-Store Segment NOI-Office Operations: Rental income$ 546,297 $ 523,813 $ 22,484 4.3 % Less: Property-level operating expenses (172,526) (165,896) (6,630) (4.0) Segment NOI$ 373,771 $ 357,917 15,854 4.4 Annualized Average Rent Per Occupied Square Foot For the Nine Months Ended Number of Properties at September 30, Occupancy at September 30, September 30, 2021 2020 2021 2020 2021 2020 Same-store office buildings 330
330 92.0 % 91.9 % $ 35 $ 33
The increase in our same-store office operations segment NOI for the nine months
ended September 30, 2021 over the same period in 2020 was primarily due to
contractual rent escalators, new leasing, increased retention and improved
parking income.
Segment NOI -All Other
The $7.8 million increase in all other segment NOI for the nine months ended
September 30, 2021 over the same period in 2020 was primarily due to the $16.6
million gain recognized in the third quarter of 2021 for the redemption of
Ardent's outstanding 9.75% Senior Notes due 2026 and increased management fee
revenues from investments in unconsolidated real estate entities, partially
offset by reduced interest income from a lower balance of loans receivable
investments.
Company Results
Interest and Other Income
The $5.6 million decrease in interest and other income for the nine months ended
September 30, 2021 over the same period in 2020 was primarily due to a 2020
reduction of a liability related to an acquisition and lower interest income on
short term investments.
Interest Expense
The $25.7 million decrease in total interest expense for the nine months ended
September 30, 2021 over the same period in 2020 was primarily attributable to a
decrease of $36.5 million due to lower debt balances, partially offset by an
increase of $10.9 million due to a higher effective interest rate. Our weighted
average effective interest rate was 3.6% and 3.5% for the nine months ended
September 30, 2021 and 2020, respectively. Capitalized interest for the nine
months ended September 30, 2021 and 2020 was $8.5 million and $8.1 million ,
respectively.
Depreciation and Amortization
The $30.6 million increase in depreciation and amortization expense was
primarily due to the $173.0 million of 2021 impairments relating to properties
that were sold or classified as held for sale, partially offset by $129.5
million of COVID-19 related and disposition related impairments recognized in
2020.
48
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General, Administrative and Professional Fees
The $0.5 million increase in general, administrative and professional fees was
primarily due to increased stock-based compensation, partially offset by lower
professional fees and the impact of a reduced headcount in 2020.
Loss on Extinguishment of Debt, Net
The$49.4 million increase in loss on extinguishment of debt, net for the nine months endedSeptember 30, 2021 compared to the same period in 2020 was due to$56.8 million of losses recognized during 2021 for the redemptions of$400.0 million aggregate principal amount of 3.125% senior notes due 2023,$263.7 million aggregate principal amount of 3.25% senior notes due 2022 and$400.0 million aggregate principal amount of 3.10% senior notes dueJanuary 2023 , partially offset by the$7.4 million non-cash loss recognized in the third quarter of 2020 for the redemption of$236.3 million aggregate principal amount of 3.25% senior notes due 2022. Merger-Related Expenses and Deal Costs The$1.9 million increase in merger-related expenses and deal costs was primarily attributable to increased costs in the third quarter of 2021 associated with operator transitions, including ESL, partially offset by costs incurred in the third quarter of 2020, including expenses related to the modification of our lease with Brookdale Senior Living, severance related charges and captive insurance organization costs. Allowance on Loans Receivable and Investments The$43.7 million change in allowance on loans receivable and investments was due to the recognition of COVID-19 related credit losses in the second quarter of 2020, which were partially reversed in the first quarter of 2021 due to a change in our estimate of credit losses.
Other
The$6.0 million decrease in other was primarily due to the change in fair value of stock warrants received in connection with the Brookdale Senior Living lease modification in the third quarter of 2020, partially offset by additional expenses relating to 2021 natural disaster events. Income (Loss) from Unconsolidated Entities The$7.3 million of income from unconsolidated entities for the nine months endedSeptember 30, 2021 versus the$15.9 million of loss from unconsolidated entities for the same period in 2020 was due to an impairment of our investment in an unconsolidated operating entity in the second quarter of 2020 and our share of operating results from our unconsolidated entities. Gain on Real Estate Dispositions The$46.0 million decrease in gain on real estate dispositions was primarily due to gains recognized in 2020 related to our disposition of six properties during the first quarter of 2020, partially offset by$194.1 million in gains during 2021 for the sale of 33 properties. Income Tax (Expense) Benefit The$9.6 million of income tax expense for the nine months endedSeptember 30, 2021 as compared to the$95.9 million income tax benefit for the same period in 2020 was primarily due to a$152.9 million deferred tax benefit related to the internal restructuring of certainU.S. taxable REIT subsidiaries completed within the first quarter of 2020, partially offset by changes in the valuation allowance against deferred tax assets of certain of our TRS entities. The benefit resulted from the transfer of assets subject to certain deferred tax liabilities from taxable REIT subsidiaries to the entities other than the TRS entities in this tax-free transaction. 49 --------------------------------------------------------------------------------
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 withU.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 and between periods on
a consistent basis without having to account for differences caused by
non-recurring items and other non-operational events such as transactions and
litigation. In some cases, we provide information about identified non-cash
components of FFO and Normalized FFO because it allows investors, analysts and
our management to assess the impact of those items on our financial results.
We use the National Association of Real Estate Investment Trusts ("Nareit")
definition of FFO. Nareit defines FFO as net income attributable to common
stockholders (computed in accordance with GAAP), excluding gains or losses from
sales of real estate property, including gains or losses on re-measurement of
equity method investments, and impairment write-downs of depreciable real
estate, plus real estate depreciation and amortization, and after adjustments
for unconsolidated partnerships and entities. Adjustments for unconsolidated
partnerships and entities will be calculated to reflect FFO on the same basis.
We define Normalized FFO as FFO excluding the following income and expense items
(which may be recurring in nature): (a) merger-related costs and expenses,
including amortization of intangibles, transition and integration expenses, and
deal costs and expenses, including expenses and recoveries relating to
acquisition lawsuits; (b) the impact of any expenses related to asset impairment
and valuation allowances, the write-off of unamortized deferred financing fees,
or additional costs, expenses, discounts, make-whole payments, penalties or
premiums incurred as a result of early retirement or payment of our debt;
(c) the non-cash effect of income tax benefits or expenses, the non-cash impact
of changes to our executive equity compensation plan, derivative transactions
that have non-cash mark-to-market impacts on our Consolidated Statements of
Income and non-cash charges related to leases; (d) the financial impact of
contingent consideration, severance-related costs and charitable donations made
to the Ventas Charitable Foundation ; (e) gains and losses for non-operational
foreign currency hedge agreements and changes in the fair value of financial
instruments; (f) gains and losses on non-real estate dispositions and other
unusual items related to unconsolidated entities; (g) expenses related to the
re-audit and re-review in 2014 of our historical financial statements and
related matters; (h) net expenses or recoveries related to natural disasters;
and (i) any other incremental items set forth in the Normalized FFO
reconciliation included herein.
50
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The following table summarizes our FFO and Normalized FFO for the three and nine
months ended September 30, 2021 and 2020. The decrease in Normalized FFO for the
nine months ended September 30, 2021 over the same period in 2020 is principally
due to the impact of COVID-19 on our senior housing business, lower rental
income from our triple-net lease with Brookdale Senior Living, and the impact of
the dispositions during 2020 and 2021, partially offset by a decrease in
interest expense.
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(In thousands)
Net income attributable to common stockholders $ 60,680
312,524 247,969 874,920 843,409
Real estate depreciation related to noncontrolling interests
(4,641) (4,475) (13,937) (12,386)
Real estate depreciation related to unconsolidated entities
4,474 1,360 13,107 3,228
Gain (loss) on real estate dispositions related to noncontrolling interests
232 - 225 (9)
Gain on real estate dispositions (150,292) (12,622) (194,083) (240,101)
FFO attributable to common stockholders 222,977 244,983 770,094 922,839
Adjustments:
Change in fair value of financial instruments 25,451 1,157 (18,768) 1,134 Non-cash income tax expense (benefit) 2,146 (4,763) 4,656 (90,153) Loss on extinguishment of debt, net 34,654 7,386 61,670 7,386
Gain on transactions related to unconsolidated entities (8,808)
(244) (8,839) (5)
Merger-related expenses, deal costs and re-audit costs 25,531
12,793 32,660 28,171
Amortization of other intangibles (22,085) 118 (21,853) 354
Other items related to unconsolidated entities 987 290 1,131 (848)
Non-cash impact of changes to equity plan (2,359) (1,923) 4,084 1,635
Natural disaster expenses, net 1,552 125 9,807 1,318
Impact of Holiday lease termination - - - (50,184)
Write-off of straight-line rental income, net of
noncontrolling interests - 18,408 - 70,776
Allowance on loan investments and impairment of
unconsolidated entities, net of noncontrolling interests (58) 4,635 (9,015) 44,955
Normalized FFO attributable to common stockholders
51
--------------------------------------------------------------------------------Adjusted EBITDA
We consider Adjusted EBITDA an important supplemental measure because it
provides another manner in which to evaluate our operating performance and
serves as another indicator of our credit strength and our ability to service
our debt obligations. We define Adjusted EBITDA as consolidated earnings before
interest, taxes, depreciation and amortization (including non-cash stock-based
compensation expense, asset impairment and valuation allowances), excluding
gains or losses on extinguishment of debt, our partners' share of EBITDA of
consolidated entities, merger-related expenses and deal costs, expenses related
to the re-audit and re-review in 2014 of our historical financial statements,
net gains or losses on real estate activity, gains or losses on remeasurement of
equity interest upon acquisition, changes in the fair value of financial
instruments, unrealized foreign currency gains or losses, net expenses or
recoveries related to natural disasters and non-cash charges related to leases,
and including Ventas' share of EBITDA from unconsolidated entities and
adjustments for other immaterial or identified items. The following table sets
forth a reconciliation of net income attributable to common stockholders to
Adjusted EBITDA:
For the Three Months Ended For the Nine Months Ended September
September 30, 30,
2021 2020 2021 2020
(In thousands)
Net income attributable to common stockholders
108,816 115,505 329,634 355,333
Loss on extinguishment of debt, net 29,792 7,386 56,808 7,386
Taxes (including tax amounts in general, administrative and professional fees)
5,151 (1,849) 13,602 (92,056)
Depreciation and amortization 313,596 249,366 878,444 847,797
Non-cash stock-based compensation expense 4,700 5,765 26,165 17,322
Merger-related expenses, deal costs and re-audit costs 22,662
11,325 28,000 26,128
Net income attributable to noncontrolling interests, adjusted for partners' share of consolidated entity EBITDA
(6,578) (6,359) (19,991) (18,096)
Loss from unconsolidated entities, adjusted for Ventas share of EBITDA from unconsolidated entities
14,002 11,811 49,581 39,983
Gain on real estate dispositions (150,292) (12,622) (194,083) (240,100)
Unrealized foreign currency loss (gain) 33 (146) 158 (152)
Change in fair value of financial instruments 25,448 1,155 (18,775) 1,133
Natural disaster expenses, net 1,566 181 9,859 1,162
Write-off of straight-line rental income from Holiday lease termination
- - - (50,184)
Write-off of straight-line rental income, net of
noncontrolling interests - 18,408 - 70,776
Allowance on loan investments and impairment of
unconsolidated entities, net of noncontrolling
interests (58) 4,635 (9,013) 44,955
Adjusted EBITDA $ 429,518 $ 417,312 $ 1,240,251 $ 1,340,085
52--------------------------------------------------------------------------------
NOI
We also consider NOI an important supplemental measure because it allows
investors, analysts and our management to assess our unlevered property-level
operating results and to compare our operating results with those of other real
estate companies and between periods on a consistent basis. We define NOI as
total revenues, less interest and other income, property-level operating
expenses and office building services costs. Cash receipts may differ due to
straight-line recognition of certain rental income and the application of other
GAAP policies. The following table sets forth a reconciliation of net income
attributable to common stockholders to NOI:
For the Three Months Ended For the Nine Months Ended September
September 30, 30,
2021 2020 2021 2020
(In thousands)
Net income attributable to common stockholders
(417) (572) (1,343) (6,965)
Interest expense 108,816 115,505 329,634 355,333
Depreciation and amortization 313,596 249,366 878,444 847,797
General, administrative and professional fees 30,259 32,081 101,156 100,621
Loss on extinguishment of debt, net 29,792 7,386 56,808 7,386
Merger-related expenses, deal costs and re-audit costs 22,662
11,325 28,000 26,129
Allowance on loans receivable and investments (60) 4,999 (9,021) 34,654
Other 33,673 5,681 10,755 16,750
Net income attributable to noncontrolling interests 2,094 986 5,802 534
(Income) loss from unconsolidated entities (2,772) (865) (7,289) 15,861
Income tax expense (benefit) 3,780 (3,195) 9,574 (95,855)
Gain on real estate dispositions (150,292) (12,622) (194,083) (240,101)
NOI $ 451,811 $ 422,826 $ 1,298,299 $ 1,390,842
See "Results of Operations" for discussions regarding both segment NOI and
same-store segment NOI. We define same-store as properties owned, consolidated
and operational for the full period in both comparison periods and are not
otherwise excluded; provided, however, that we may include selected properties
that otherwise meet the same-store criteria if they are included in
substantially all of, but not a full, period for one or both of the comparison
periods, and in our judgment such inclusion provides a more meaningful
presentation of our portfolio performance.
Newly acquired development properties and recently developed or redeveloped
properties in our senior living operations segment will be included in
same-store once they are stabilized for the full period in both periods
presented. These properties are considered stabilized upon the earlier of (a)
the achievement of 80% sustained occupancy or (b) 24 months from the date of
acquisition or substantial completion of work. Recently developed or redeveloped
properties in our office operations and triple-net leased properties segments
will be included in same-store once substantial completion of work has occurred
for the full period in both periods presented. Our senior living operations and
triple-net leased properties that have undergone operator or business model
transitions will be included in same-store once operating under consistent
operating structures for the full period in both periods presented.
Properties are excluded from same-store if they are: (i) sold, classified as
held for sale or properties whose operations were classified as discontinued
operations in accordance with GAAP; (ii) impacted by materially disruptive
events such as flood or fire; (iii) for SHOP, those properties that are
currently undergoing a materially disruptive redevelopment; (iv) for our office
operations and triple-net lease properties, 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 the senior living
operations and triple-net leased segments, those properties that are scheduled
to undergo operator or business model transitions, or have transitioned
operators or business models after the start of the prior comparison period.
To eliminate the impact of exchange rate movements, all portfolio
performance-based disclosures assume constant exchange rates across comparable
periods, using the following methodology: the current period's results are shown
in actual
53
--------------------------------------------------------------------------------reported USD, while prior comparison period's results are adjusted and converted to USD based on the average exchange rate for the current period.
Liquidity and Capital Resources
During the nine months endedSeptember 30, 2021 , our principal sources of liquidity were cash flows from operations, proceeds from the issuance of debt and equity securities, borrowings under our unsecured revolving credit facility, and proceeds from asset sales. For the next 12 months, our principal liquidity needs are to: (i) fund operating expenses; (ii) meet our debt service requirements; (iii) repay maturing mortgage and other debt; (iv) fund acquisitions, investments and commitments and any development and redevelopment activities; (v) fund capital expenditures; and (vi) make distributions to our stockholders and unitholders, as required for us to continue to qualify as a REIT. Depending upon the availability of external capital, we believe our liquidity is sufficient to fund these uses of cash. We expect that these liquidity needs generally will be satisfied by a combination of the following: cash flows from operations, cash on hand, debt assumptions and financings (including secured financings), issuances of debt and equity securities, dispositions of assets (in whole or in part through joint venture arrangements with third parties) and borrowings under our revolving credit facilities and commercial paper program. However, an inability to access liquidity through multiple capital sources concurrently could have a material adverse effect on us. While continuing decreased revenue and net operating income as a result of the COVID-19 pandemic could lead to downgrades of our long-term credit rating and therefore adversely impact our cost of borrowing, we currently believe we will continue to have access to one or more debt markets during the duration of the pandemic and could seek to enter into secured debt financings or issue debt and equity securities to satisfy our liquidity needs, although no assurances can be made in this regard.
See "Note 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 financing activities.
Loans Receivable and Investments
InOctober 2021 , we received proceeds of$45.0 million in full repayment of a cash pay note from Brookdale Senior Living. The note was issued to us in connection with the modification of our lease with Brookdale Senior Living in the third quarter of 2020. InJuly 2021 , we received$66 million from Holiday Retirement as repayment in full of secured notes which Holiday Retirement previously issued to us as part of a lease termination transaction entered into inApril 2020 . InJuly 2021 , we received aggregate proceeds of$224 million from the redemption of Ardent's outstanding 9.75% Senior Notes due 2026 at a price equal to 107.313% of the principal amount of the notes, plus accrued and unpaid interest. The redemption resulted in a gain of$16.6 million which is recorded in income from loans and investments in our Consolidated Statements of Income. As ofDecember 31, 2020 ,$23.0 million of unrealized gain related to these securities was included in accumulated other comprehensive income.
Credit Facilities, Commercial Paper and Unsecured Term Loans
InJanuary 2021 , we entered into an amended and restated unsecured credit facility (the "New Credit Facility") comprised of a$2.75 billion unsecured revolving credit facility initially priced at LIBOR plus 0.825% based on the Company's debt rating. The New Credit Facility replaced our previous$3.0 billion unsecured revolving credit facility priced at 0.875%. The New Credit Facility matures inJanuary 2025 , but may be extended at our option, subject to the satisfaction of certain conditions, for two additional periods of six months each. The New Credit Facility also includes an accordion feature that permits us to increase our aggregate borrowing capacity thereunder to up to$3.75 billion , subject to the satisfaction of certain conditions. As ofSeptember 30, 2021 , we had$2.7 billion of undrawn capacity on our New Credit Facility with$49.1 million borrowings outstanding and an additional$24.9 million restricted to support outstanding letters of credit. We limit our use of the New Credit Facility, to the extent necessary, to support our commercial paper program when commercial paper notes are outstanding. As ofSeptember 30, 2021 , we had$370.0 million of commercial paper outstanding. 54 -------------------------------------------------------------------------------- Our wholly owned subsidiary,Ventas Realty , may issue from time to time unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of$1.0 billion . The notes are sold under customary terms inthe United States commercial paper note market and are ranked pari passu with all ofVentas Realty's other unsecured senior indebtedness. The notes are fully and unconditionally guaranteed byVentas, Inc. As ofSeptember 30, 2021 , we had$370.0 million of borrowings outstanding under our commercial paper program. As ofSeptember 30, 2021 , we had a$200.0 million unsecured term loan priced at LIBOR plus 0.90% that matures in 2023. The term loan also includes an accordion feature that effectively permits us to increase our aggregate borrowings thereunder to up to$800.0 million .
As of
During the three months ended
Senior Notes
In
InAugust 2021 ,Ventas Realty issued a make whole notice of redemption for the entirety of the$400.0 million aggregate principal amount of 3.125% senior notes due 2023, resulting in a loss on extinguishment of debt of$20.9 million for the three months endedSeptember 30, 2021 . The redemption settled inSeptember 2021 , principally using cash on hand. InJuly 2021 ,Ventas Realty andVentas Capital Corporation issued a make whole notice of redemption for the entirety of the$263.7 million aggregate principal amount of 3.25% senior notes due 2022, resulting in a loss on extinguishment of debt of$8.2 million for the three months endedSeptember 30, 2021 . The redemption settled inAugust 2021 , principally using cash on hand. InFebruary 2021 ,Ventas Realty issued a make whole notice of redemption for the entirety of the$400.0 million aggregate principal amount of 3.10% senior notes dueJanuary 2023 , resulting in a loss on extinguishment of debt of$27.3 million for the three months endedMarch 31, 2021 . The redemption settled inMarch 2021 , principally using cash on hand. We may, from time to time, seek to retire or purchase our outstanding senior notes for cash or in exchange for equity securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, prospects for capital and other factors. The amounts involved may be material. Equity Offerings
In
From time to time, we may sell our common stock under an "at-the-market" equity
offering program ("ATM program"). As of September 30, 2021 , we had $129.0
million remaining under our existing ATM program. During the three months ended
September 30, 2021 , we sold 10.6 million shares of our common stock under our
ATM program for gross proceeds of $611.7 million , representing an average price
of $57.73 per share. During the nine months ended September 30, 2021 , we sold
10.9 million shares of our common stock under our ATM program for gross proceeds
of $626.4 million , representing an average price of $57.71 per share.
Mortgages
InSeptember 2021 , we assumed mortgage debt of$482.5 million in connection with the New Senior Acquisition, including a$25.4 million fair value premium which will be amortized over the remaining term through interest expense in our Consolidated Statement of Income. See "Note 4 -Acquisitions Of Real Estate Property". 55 --------------------------------------------------------------------------------
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 endedSeptember 30, 2021 , we declared a dividend of$0.45 per share of our common stock in each of the first, second and third quarter, respectively. In order to continue to qualify as a REIT, we must make annual distributions to our stockholders of at least 90% of our REIT taxable income (excluding net capital gain). In addition, we will be subject to income tax at the regular corporate rate to the extent we distribute less than 100% of our REIT taxable income, including any net capital gains. We intend to pay dividends greater than 100% of our taxable income, after the use of any net operating loss carryforwards, for 2021. We expect that our cash flows will exceed our REIT taxable income due to depreciation and other non-cash deductions in computing REIT taxable income and that we will be able to satisfy the 90% distribution requirement. However, from time to time, we may not have sufficient cash on hand or other liquid assets to meet this requirement or we may decide to retain cash or distribute such greater amount as may be necessary to avoid income and excise taxation. If we do not have sufficient cash on hand or other liquid assets to enable us to satisfy the 90% distribution requirement, or if we desire to retain cash, we may borrow funds, issue additional equity securities, pay taxable stock dividends, if possible, distribute other property or securities or engage in a transaction intended to enable us to meet the REIT distribution requirements or any combination of the foregoing.
Cash Flows
The following table sets forth our sources and uses of cash flows:
For the Nine Months Ended
September 30, Increase (Decrease) to Cash
2021 2020 $ %
(Dollars in thousands)
Cash, cash equivalents and restricted cash at
beginning of period $ 451,640 $ 146,102 $ 305,538 nm
Net cash provided by operating activities 760,315 1,154,413 (394,098) (34.1) %
Net cash (used in) provided by investing activities (716,343)
186,625 (902,968) nm Net cash used in financing activities (299,612) (857,699) 558,087 65.1 Effect of foreign currency translation 522 (951) 1,473 nm Cash, cash equivalents and restricted cash at end of period$ 196,522 $ 628,490 (431,968) (68.7) nm - not meaningful
Cash Flows from Operating Activities
Cash flows from operating activities decreased$394.1 million during the nine months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to the COVID-19 impact on our triple-net leased and senior housing business, the impact of up-front consideration received in the third quarter of 2020 relating to our lease modification with Brookdale Senior Living, subsequent lower rental income from our triple-net lease with Brookdale Senior Living, partially offset by a decrease in interest expense.
Cash Flows from Investing Activities
Cash flows from investing activities decreased$903.0 million during the nine months endedSeptember 30, 2021 over the same period in 2020 primarily due to the$1.1 billion paid in connection with the New Senior Acquisition, fewer proceeds from real estate dispositions, partially offset by proceeds received from the repayment of loans receivable. 56 --------------------------------------------------------------------------------
Cash Flows from Financing Activities
Cash flows used in financing activities decreased$558.1 million during the nine months endedSeptember 30, 2021 over the same period in 2020 primarily due to the 2021 issuance of 10.9 million shares of common stock through our ATM equity offering program, lower dividends to common stockholders during 2021, proceeds from the 2021 issuance of$500 million senior notes due 2031 and higher proceeds received in 2021 from commercial paper and revolving credit facility, partially offset by 2021 redemption of$1.1 billion of senior notes due in 2022 and 2023.
Capital Expenditures
The terms of our triple-net leases generally obligate our tenants to pay all capital expenditures necessary to maintain and improve our triple-net leased properties. However, from time to time, we may fund the capital expenditures for our triple-net leased properties through loans or advances to the tenants, which may increase the amount of rent payable with respect to the properties in certain cases. We may also fund capital expenditures for which we may become responsible upon expiration of our triple-net leases or in the event that our tenants are unable or unwilling to meet their obligations under those leases. We also expect to fund capital expenditures related to our senior living operations and office operations reportable business segments with the cash flows from the properties or through additional borrowings. We expect that these liquidity needs generally will be satisfied by a combination of the following: cash flows from operations, cash on hand, debt assumptions and financings (including secured financings), issuances of debt and equity securities, dispositions of assets (in whole or in part through joint venture arrangements with third parties) and borrowings under our revolving credit facilities. To the extent that unanticipated capital expenditure needs arise or significant borrowings are required, our liquidity may be affected adversely. Our ability to borrow additional funds may be restricted in certain circumstances by the terms of the instruments governing our outstanding indebtedness. We are party to certain agreements that obligate us to develop senior housing or healthcare properties funded through capital that we and, in certain circumstances, our joint venture partners provide. As ofSeptember 30, 2021 , we had 12 properties under development pursuant to these agreements, including three properties that are owned by an unconsolidated real estate entity. In addition, from time to time, we engage in redevelopment projects with respect to our existing senior housing communities to maximize the value, increase NOI, maintain a market-competitive position, achieve property stabilization or change the primary use of the property.
Contractual Obligations
During the three months ended
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, atSeptember 30, 2021 , we had$24.9 million outstanding letter of credit obligations. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources except those described above under "Contractual Obligations."
Guarantor and Issuer Financial Information
Ventas, Inc. has fully and unconditionally guaranteed the obligation to pay principal and interest with respect to the outstanding senior notes issued by our 100% owned subsidiary,Ventas Realty , including the senior notes that were jointly issued withVentas Capital Corporation .Ventas Capital Corporation is a direct 100% owned subsidiary ofVentas Realty that has no assets or operations, but was formed in 2002 solely to facilitate offerings of senior notes by a limited partnership. None of our other subsidiaries (excludingVentas Realty andVentas Capital Corporation ) is obligated with respect toVentas Realty's outstanding senior notes. 57 --------------------------------------------------------------------------------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 inCanada . 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 toVentas Realty's and Ventas Canada's senior notes. The following summarizes our guarantor and issuer balance sheet and statement of income information as ofSeptember 30, 2021 andDecember 31, 2020 and for the nine months endedSeptember 30, 2021 and the year endedDecember 31, 2020 . Balance Sheet Information As of September 30, 2021 Guarantor Issuer (In thousands) Assets Investment in and advances to affiliates$ 17,366,051 $ 3,045,738 Total assets 17,503,720 3,158,027 Liabilities and equity Intercompany loans 10,452,948 (3,657,080) Total liabilities 10,703,026 4,073,436
Redeemable OP unitholder and noncontrolling interests 86,106
-
Total equity (deficit) 6,714,588
(915,409)
Total liabilities and equity 17,503,720 3,158,027
Balance Sheet Information
As of December 31, 2020
Guarantor Issuer
(In thousands)
Assets
Investment in and advances to affiliates $ 16,576,278 $ 2,727,931
Total assets 16,937,149 2,844,339
Liabilities and equity
Intercompany loans 10,691,626 (4,532,350)
Total liabilities 10,918,320 3,577,009Redeemable OP unitholder and noncontrolling interests 89,669
-
Total equity (deficit) 5,929,161
(732,670)
Total liabilities and equity 16,937,149
2,844,339
58
--------------------------------------------------------------------------------
Statement of Income Information
For the
Nine Months Ended
Guarantor Issuer
(In thousands)
Equity earnings in affiliates $ 132,175 $ -
Total revenues 134,544 108,731
Income (loss) before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests
91,291 (188,600)
Net income (loss) 89,862 (188,604)
Net income (loss) attributable to common stockholders 89,862 (188,604)
Statement of Income Information
For the
Year Ended
Guarantor Issuer
(In thousands)
Equity earnings in affiliates $ 469,311 $ -
Total revenues 474,392 143,259
Income (loss) before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests
440,210 (215,406) Net income (loss) 439,149 (202,845) Net income (loss) attributable to common stockholders 439,149 (202,845)
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