VENTAS, INC. 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 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, 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 theSecurities 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 endedDecember 31, 2021 and "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter endedMarch 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 the Delta, Omicron 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, and effectively integrate, our acquisitions and investments, including our acquisition ofNew 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, 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 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, 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 of merger, acquisition and investment activity in the healthcare industry or otherwise affecting our tenants, managers or 32 -------------------------------------------------------------------------------- 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 fromSEC filings that has been provided to us by our tenants and managers or been derived fromSEC 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 throughoutthe United States ,Canada and theUnited Kingdom . As ofJune 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 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 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 ofJune 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") andKindred Healthcare, LLC (together with its subsidiaries, "Kindred") leased from us 121 properties, 30 properties and 29 properties, respectively, as ofJune 30, 2022 . As ofJune 30, 2022 , pursuant to long-term management agreements, we engaged independent operators, such asAtria Senior Living, Inc. (together with its subsidiaries, including Holiday Retirement ("Holiday"), "Atria") andSunrise Senior Living, LLC (together with its subsidiaries, "Sunrise"), to manage 557 senior housing communities 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 --------------------------------------------------------------------------------
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 itself, including actions taken to prevent the spread of the virus and its variants, and its extended consequences. The trajectory and future impact of COVID-19 remains highly uncertain. The extent of COVID-19's continuing and ultimate effect on our operational and financial performance will depend on a variety of factors, including the impact of new variants of the virus and the effectiveness of available vaccines against those variants; ongoing clinical experience, which may differ considerably across governmental and regulatory bodies and regions and fluctuate over time; and on other future developments, including the ultimate duration, spread and intensity of the outbreak, the availability of testing, the extent to which governments impose, roll-back or re-impose preventative restrictions and the availability of ongoing government financial support to our business, tenants and operators. Due to these uncertainties, we are not able at this time to estimate the ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows.
Investments and Dispositions
•During the six months ended
•During the six months ended
Liquidity and Capital
•As ofJune 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$335.3 million borrowings outstanding under our commercial paper program. •InJune 2022 , we entered into a Credit and Guaranty Agreement (the "New Credit Agreement") withVentas Realty , as borrower. The New Credit Agreement replacesVentas 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 onVentas Realty's debt ratings. Other Items •During the first quarter of and subsequent to the second quarter of 2022, we received$34.0 million and$20.2 million , respectively, in grants in connection with our Phases 3 and 4 applications to theProvider Relief Fund administered by theU.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. 34 --------------------------------------------------------------------------------
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 June 30, 2022 As of December 31, 2021
Investment mix by asset type (1):
Senior housing communities 66.6 % 67.4 %
MOBs 17.8 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 7.7 7.8
Le Groupe Maurice 7.2 7.3
Ardent 5.3 4.7
Kindred 0.8 1.0
All other 42.5 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
35
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For the Three Months Ended June 30, For the Six Months Ended June 30,
2022 2021 2022 2021
Operations mix by tenant and operator and business
model:
Revenues (1):
SHOP 64.3 % 58.5 % 64.2 % 58.4 %
Brookdale Senior Living (2) 3.6 4.1 3.6 4.1
Kindred 3.3 3.4 3.3 3.4
Ardent 3.2 3.6 3.2 3.6
All others 25.6 30.4 25.7 30.5
Total 100.0 % 100.0 % 100.0 % 100.0 %
Net operating income ("NOI"):
SHOP 33.8 % 26.6 % 35.5 % 26.6 %
Brookdale Senior Living (2) 8.4 8.8 8.1 8.8
Kindred 7.6 7.4 7.3 7.4
Ardent 7.3 7.9 7.0 7.9
All others 42.9 49.3 42.1 49.3
Total 100.0 % 100.0 % 100.0 % 100.0 %
Operations mix by geographic location (3):
California 14.4 % 15.2 % 14.4 % 15.3 %
New York 7.5 7.7 7.4 7.7
Texas 6.7 6.0 6.6 6.0
Pennsylvania 5.2 4.6 5.1 4.6
North Carolina 4.3 3.9 4.5 3.8
All others 61.9 62.6 62.0 62.6
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 six months endedJune 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. 36 --------------------------------------------------------------------------------
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 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 ofJune 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 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 SHOP reportable business 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 reportable business segment, we primarily acquire, own, develop, lease and manage MOBs and life science, research and innovation centers throughout theUnited 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
The table below shows our results of operations for the three months endedJune 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 June Increase (Decrease) 30, to Net Income 2022 2021 $ % NOI: SHOP$ 150,610 $ 111,139 $ 39,471 35.5 % Office operations 136,583 137,320 (737) (0.5) Triple-net leased properties 145,812 154,791 (8,979) (5.8) Non-segment 12,998 20,506 (7,508) (36.6) Total NOI 446,003 423,756 22,247 5.2 Interest and other income 1,166 585 581 99.3 Interest expense (113,951) (110,051) (3,900) (3.5) Depreciation and amortization (283,075) (250,700) (32,375) (12.9) General, administrative and professional fees (32,915) (30,588) (2,327) (7.6) (Loss) gain on extinguishment of debt, net (7) 74 (81) (109.5) Transaction expenses and deal costs (13,078) (721) (12,357) nm Allowance on loans receivable and investments 62 59 3 5.1 Other (48,116) 13,490 (61,606) nm
(Loss) income before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests
(43,911) 45,904 (89,815) nm
(Loss) income from unconsolidated entities (1,047) 4,767 (5,814) (122.0)
(Loss) gain on real estate dispositions (34) 41,258 (41,292) (100.1)
Income tax benefit (expense) 3,790 (3,641) 7,431 nm
(Loss) income from continuing operations (41,202) 88,288 (129,490) (146.7)
Net (loss) income (41,202) 88,288 (129,490) (146.7)
Net income attributable to noncontrolling interests 1,214
1,897 683 36.0
Net (loss) income attributable to common stockholders
(149.1)
______________________________
nm - not meaningful
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
For the Three Months Ended June
30, Increase (Decrease) to NOI
2022 2021 $ %
NOI-SHOP:
Resident fees and services $ 658,056 $ 535,952 $ 122,104 22.8 %
Less: Property-level operating expenses (507,446) (424,813) (82,633) (19.5)
NOI $ 150,610 $ 111,139 $ 39,471 35.5
38
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Average Monthly Revenue Per
Average Unit Occupancy for the Three Occupied Room For the Three
Number of Properties at June 30, Months Ended June 30, Months Ended June 30,
2022 2021 2022 2021 2022 2021
Total communities 548 440 80.4 % 77.4 % $ 4,391 $ 4,635
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 June 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 as well as an overall increase in
occupancy and revenue per occupied room, partially offset by higher operating
expenses, driven by macro inflationary impacts on labor, utilities and other
operating expenses.
The following table compares results of operations for our 321 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 June
30, Increase (Decrease) to NOI
2022 2021 $ %
Same-Store NOI-SHOP:
Resident fees and services $ 485,098 $ 440,397 $ 44,701 10.2 %
Less: Property-level operating expenses (366,635) (331,445) (35,190) (10.6)
NOI $ 118,463 $ 108,952 $ 9,511 8.7
Average Monthly Revenue Per
Average Unit Occupancy for the Three Occupied Room For the Three
Number of Properties at June 30, Months Ended June 30, Months Ended June 30,
2022 2021 2022 2021 2022 2021
Same-store communities 321 321 83.7 % 79.8 % $ 4,825 $ 4,594 The NOI increase in our same-store SHOP reportable business segment for the
three months ended
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 ofJune 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 June 30, (Decrease) Increase to NOI 2022 2021 $ % NOI-Office Operations: Rental income$ 199,241 $ 200,388 $ (1,147) (0.6) % Office building and other services revenue 670 2,540 (1,870) (73.6) Total revenues 199,911 202,928 (3,017) (1.5)
Less:
Property-level operating expenses (63,328) (64,950) 1,622 2.5 Office building and other services costs - (658) 658 100.0 NOI$ 136,583 $ 137,320 $ (737) (0.5) Annualized Average Rent Per Occupied Square Foot for the Three Months Ended June Number of Properties at June 30, Occupancy at June 30, 30, 2022 2021 2022 2021 2022 2021 Total office buildings 362 370 89.5 % 89.5 %$ 36 $ 34 The NOI decrease in office operations reportable business segment for the three months endedJune 30, 2022 compared to the same period in 2021 was primarily due to dispositions of non-core assets during 2021, partially offset by successful new leasing, sustained tenant retention, improved parking income and acquisitions subsequent toJune 30, 2021 .
The following table compares results of operations for our 331 same-store office buildings (dollars in thousands):
For the Three Months Ended June
30, Increase (Decrease) to NOI
2022 2021 $ %
Same-Store NOI-Office Operations:
Rental income $ 185,908 $ 180,049 $ 5,859 3.3 %
Less: Property-level operating expenses (58,953) (57,107) (1,846) (3.2)
NOI $ 126,955 $ 122,942 $ 4,013 3.3
Annualized Average Rent Per
Occupied Square Foot
for the Three Months Ended June
Number of Properties at June 30, Occupancy at June 30, 30,
2022 2021 2022 2021 2022 2021
Same-store office buildings 331 331 91.6 % 91.3 % $ 36 $ 35
The NOI increase in our same-store office operations reportable business segment
for the three months ended June 30, 2022 compared to the same period in 2021 was
primarily driven by strong retention, new leasing and favorable expense
controls.
40
--------------------------------------------------------------------------------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 ofJune 30, 2022 (dollars in thousands): For the Three Months Ended June 30, (Decrease) Increase to NOI 2022 2021 $ %NOI-Triple-Net Leased Properties : Rental income$ 149,397 $ 159,223 $ (9,826) (6.2) % Less: Property-level operating expenses (3,585) (4,432) 847 19.1 NOI$ 145,812 $ 154,791 $ (8,979) (5.8) 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 endedJune 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 second 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 first quarter of 2022 and 2021 related to the triple-net leased properties we owned atJune 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 Average Occupancy for Number of Average Occupancy for Properties Owned at the Three Months Properties Owned at the Three Months June 30, 2022 Ended March 31, 2022 June 30, 2021 Ended March 31, 2021
Senior housing communities 260 74.9% 281 76.0% SNFs 16 80.7 16 75.8 IRFs and LTACs 36 58.1 35 59.0
Declines in occupancy are primarily the result of COVID-19 impacts.
The following table compares results of operations for our 330 same-store triple-net leased properties (dollars in thousands):
For the Three Months Ended June
30, (Decrease) Increase to NOI
2022 2021 $ %
Same-Store NOI-Triple-Net Leased Properties :
Rental income $ 147,406 $ 148,238 $ (832) (0.6) %
Less: Property-level operating expenses (3,355) (3,427) 72 2.1
NOI $ 144,051 $ 144,811 $ (760) (0.5)
The decrease in NOI in our same-store triple-net leased portfolio for the three
months ended June 30, 2022 compared to the same period in 2021 was primarily
driven by lease resolutions after June 30, 2021 with several smaller senior
housing triple-net tenants who were materially affected by COVID-19.
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$7.5 million decrease in non-segment NOI for the three months endedJune 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$3.9 million increase in interest expense for the three months endedJune 30, 2022 compared to the same period in 2021 was due to an increase of$4.9 million as a result of higher debt balances, offset by a decrease of$1.3 million due to a lower effective interest rate. Our weighted average effective interest rate was 3.54% and 3.58% for the three months endedJune 30, 2022 and 2021, respectively. Capitalized interest was$2.7 million for both the three months endedJune 30, 2022 and 2021.
Depreciation and Amortization
The
General, Administrative and Professional Fees
The$2.3 million increase in general, administrative and professional fees for the three months endedJune 30, 2022 compared to the same period in 2021 was primarily due to the return to a more normalized business environment and the inclusion of a portion of New Senior's overhead.
(Loss) Gain on Extinguishment of Debt, Net
Loss on extinguishment of debt, net was relatively flat for the three months
ended
Transaction Expenses and Deal Costs
The$12.4 million increase in transaction expenses and deal costs for the three months endedJune 30, 2022 compared to the same period in 2021 was primarily due to costs incurred in connection with stockholder relations matters.
Allowance on Loans Receivable and Investments
Allowance on loans receivable and investments was relatively flat for the three
months ended
Other
The$61.6 million increase in other expense for the three months endedJune 30, 2022 compared to the same period in 2021 was primarily due to an increase of$61.1 million in unrealized loss on stock warrants received in connection with the Brookdale Senior Living lease modification in the third quarter of 2020. As ofJune 30, 2022 , the fair value of the stock warrants was$39.6 million , which was$11.5 million higher than the value at the grant date.
Loss (Income) from Unconsolidated Entities
The$5.8 million increase in loss from unconsolidated entities for the three months endedJune 30, 2022 compared to the same period in 2021 was primarily due to our share of increased net loss from our unconsolidated entities. 42 --------------------------------------------------------------------------------
(Loss) Gain on Real Estate Dispositions
The$41.3 million decrease in gain on real estate dispositions for the three months endedJune 30, 2022 compared to the same period in 2021 was primarily due to the second quarter 2021 sale of one MOB for a gain of$41.3 million .
Income Tax Benefit (Expense)
The$3.8 million of income tax benefit for the three months endedJune 30, 2022 was primarily due to operating losses at certain of our TRS entities and a net benefit for the unwind of certain tax credit structure during the first quarter of 2022. The$3.6 million of income tax expense for the three months endedJune 30, 2021 was primarily due to a$2.8 million net deferred tax expense related to an internal restructuring of certainU.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 theUnited Kingdom .
Six Months Ended
The table below shows our results of operations for the six months endedJune 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 Six Months Ended June Increase (Decrease) 30, to Net Income 2022 2021 $ % NOI: SHOP$ 326,201 $ 221,960 $ 104,241 47.0 % Office operations 274,557 272,555 2,002 0.7 Triple-net leased properties 293,365 309,851 (16,486) (5.3) Non-segment 24,864 42,122 (17,258) (41.0) Total NOI 918,987 846,488 72,499 8.6 Interest and other income 1,702 926 776 83.8 Interest expense (224,745) (220,818) (3,927) (1.8) Depreciation and amortization (572,139) (564,848) (7,291) (1.3) General, administrative and professional fees (75,913) (70,897) (5,016) (7.1) Loss on extinguishment of debt, net (7) (27,016) 27,009 100.0 Transaction expenses and deal costs (33,070) (5,338) (27,732) nm Allowance on loans receivable and investments 116 8,961 (8,845) (98.7) Other (20,926) 22,918 (43,844) nm Loss before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests (5,995) (9,624) 3,629 37.7 (Loss) income from unconsolidated entities (5,316) 4,517 (9,833) nm Gain on real estate dispositions 2,421 43,791 (41,370) (94.5) Income tax benefit (expense) 8,280 (5,794) 14,074 nm (Loss) income from continuing operations (610) 32,890 (33,500) (101.9) Net (loss) income (610) 32,890 (33,500) (101.9)
Net income attributable to noncontrolling interests 3,074
3,708 634 17.1
Net (loss) income attributable to common stockholders
(112.6)
______________________________
nm - not meaningful
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
For the Six Months Ended June 30, Increase (Decrease) to NOI
2022 2021 $ %
NOI-SHOP:
Resident fees and services $ 1,309,177 $ 1,064,602 $ 244,575 23.0 %
Less: Property-level operating expenses (982,976) (842,642) (140,334) (16.7)
NOI $ 326,201 $ 221,960 $ 104,241 47.0
Average Monthly Revenue Per
Average Unit Occupancy For the Six Occupied Room For the Six Months
Number of Properties at June 30, Months Ended June 30, Ended June 30,
2022 2021 2022 2021 2022 2021
Total communities 548 440 80.2 % 76.8 % $ 4,382 $ 4,642
The NOI increase in our SHOP reportable business segment for the six months
ended June 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 , an overall increase in occupancy
and higher HHS grants received, which are reflected as a reduction in
property-level operating expenses. During the first quarter of 2022 and 2021,
HHS grants received reduced property-level operating expenses by $32.8 million
and $13.6 million , respectively.
The following table compares results of operations for our 320 same-store SHOP communities (dollars in thousands):
For the Six Months Ended June
30, Increase (Decrease) to NOI
2022 2021 $ %
Same-Store NOI-SHOP:
Resident fees and services $ 960,473 $ 873,408 $ 87,065 10.0 %
Less: Property-level operating expenses (709,105) (659,016) (50,089) (7.6)
NOI $ 251,368 $ 214,392 $ 36,976 17.2
Average Monthly Revenue Per
Average Unit Occupancy For the Six Occupied Room For
the Six Months
Number of Properties at June 30, Months Ended June 30, Ended June 30,
2022 2021 2022 2021 2022 2021
Same-store communities 320 320 83.2 % 79.2 % $ 4,851 $ 4,636
The NOI increase in our same-store SHOP reportable business segment for the six
months ended June 30, 2022 compared to the same period in 2021 was primarily
driven by an increase in occupancy and revenue per occupied room partially
offset by higher operating expenses, driven by macro inflationary impacts on
labor, utilities and other operating expenses. During the first quarter of 2022
and 2021, HHS grants received reduced property-level operating expenses by $21.1
million and $7.6 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 ofJune 30, 2022 (dollars in thousands): For the Six Months Ended June 30, Increase (Decrease) to NOI 2022 2021 $ % NOI-Office Operations: Rental income$ 399,781 $ 397,843 $ 1,938 0.5 % Office building and other services revenue 1,287 4,884 (3,597) (73.6) Total revenues 401,068 402,727 (1,659) (0.4)
Less:
Property-level operating expenses (126,511) (128,896) 2,385 1.9 Office building and other services costs - (1,276) 1,276 100.0 NOI$ 274,557 $ 272,555 $ 2,002 0.7 Annualized Average Rent Per Occupied Square Foot For the Six Months Ended Number of Properties at June 30, Occupancy at June 30, June 30, 2022 2021 2022 2021 2022 2021 Total office buildings 362 370 89.5 % 89.5 %$ 36 $ 34 The NOI increase in our office operations reportable business segment for the six months endedJune 30, 2022 compared to the same period in 2021 was primarily driven by strong retention, new leasing and favorable expense controls.
The following table compares results of operations for our 331 same-store office buildings (dollars in thousands):
For the Six Months Ended June
30, Increase (Decrease) to NOI
2022 2021 $ %
Same-Store NOI-Office Operations:
Rental income $ 373,489 $ 358,382 $ 15,107 4.2 %
Less: Property-level operating expenses (118,192) (113,277) (4,915) (4.3)
NOI $ 255,297 $ 245,105 $ 10,192 4.2
Annualized Average Rent Per
Occupied Square Foot For the
Number of Properties at June 30, Occupancy at June 30, Six Months Ended June 30,
2022 2021 2022 2021 2022 2021
Same-store office buildings 331 331 91.6 % 91.3 % $ 36 $ 35
The NOI increase in our same-store office operations reportable business segment
for the six months ended June 30, 2022 compared to the same period in 2021 was
primarily due to strong retention, new leasing and favorable expense controls.
45
--------------------------------------------------------------------------------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 ofJune 30, 2022 (dollars in thousands): For the Six Months Ended June 30, (Decrease) Increase to NOI 2022 2021 $ %NOI-Triple-Net Leased Properties : Rental income$ 300,958 $ 319,108 $ (18,150) (5.7) % Less: Property-level operating expenses (7,593) (9,257) 1,664 18.0 NOI$ 293,365 $ 309,851 $ (16,486) (5.3) The NOI decrease in our triple-net leased properties for the six months endedJune 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 and sold prior toJune 30, 2022 , slightly offset by an acquisition inSeptember 2021 .
The following table compares results of operations for our 330 same-store triple-net leased properties (dollars in thousands):
For the Six Months Ended June
30, (Decrease) Increase to NOI
2022 2021 $ %
Same-Store NOI-Triple-Net Leased Properties :
Rental income $ 296,687 $ 297,362 $ (675) (0.2) %
Less: Property-level operating expenses (7,153) (7,222) 69 1.0
NOI $ 289,534 $ 290,140 $ (606) (0.2)
The NOI decrease in our same-store triple-net leased properties reportable
business segment for the six months ended June 30, 2022 compared to the same
period in 2021 was primarily driven by lease resolutions after June 30, 2021
with several smaller senior housing triple-net tenants who were materially
affected by COVID-19.
NOI- Non-Segment
The$17.3 million decrease in non-segment NOI for the six months endedJune 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$3.9 million increase in interest expense for the six months endedJune 30, 2022 compared to the same period in 2021 was primarily due to an increase of$8.0 million due to higher debt balances and an increase of$0.5 million due to higher capitalized interest, partially offset by a decrease of$5.1 million due to a lower effective interest rate. Our weighted average effective interest rate was 3.52% and 3.60% for the six months endedJune 30, 2022 and 2021, respectively. Capitalized interest for the six months endedJune 30, 2022 and 2021 was$5.2 million and$5.8 million , respectively.
Depreciation and Amortization
The$7.3 million increase in depreciation and amortization expense was primarily due to$83.7 million of depreciation on assets acquired from New Senior, partially offset by a net decrease in impairments recognized in 2022 as compared to 2021. 46 --------------------------------------------------------------------------------
General, Administrative and Professional Fees
The$5.0 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, partially offset by lower compensation.
Loss on Extinguishment of Debt, Net
The$27.0 million decrease in loss on extinguishment of debt, net for the six months endedJune 30, 2022 compared to the same period in 2021 was due to the make whole redemption of the$400.0 million aggregate principal amount of 3.10% senior notes dueJanuary 2023 during the first quarter of 2021.
Transaction Expenses and Deal Costs
The
Allowance on Loans Receivable and Investments
The$8.8 million change 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$43.8 million increase in other expense was primarily due to an increase of$53.5 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$8.3 million of expenses relating to 2021 winter storms. As ofJune 30, 2022 , the fair value of the stock warrants was$39.6 million , which was$11.5 million higher than the value at the grant date.
(Loss) Income from Unconsolidated Entities
The
Gain on Real Estate Dispositions
The$41.4 million decrease in gain on real estate dispositions was primarily due to the second quarter 2021 sale of one MOB for a gain of$41.3 million , partially offset by the first quarter 2022 sale of one vacant land parcel for a gain of$2.4 million .
Income Tax Benefit (Expense)
The$8.3 million of income tax benefit for the six months endedJune 30, 2022 was primarily due to losses in certain of our TRS entities and a$2.0 million benefit from an internal restructuring of aU.S. taxable REIT subsidiary. The$5.8 million of income tax expense for the same period in 2021 was primarily due to a$2.8 million net deferred tax expense related to an internal restructuring of certainU.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 theUnited Kingdom . 47 --------------------------------------------------------------------------------
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 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.
48
--------------------------------------------------------------------------------
The following table summarizes our FFO and Normalized FFO for the three and six
months ended June 30, 2022 and 2021 (dollars in thousands). The increase in
Normalized FFO for the six months ended June 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, higher revenue per occupied room,
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 June For the Six Months Ended June
30, 30,
2022 2021 2022 2021
Net (loss) income attributable to common stockholders
$ 86,391 $ (3,684) $ 29,182 Adjustments: Depreciation and amortization on real estate assets 282,313 249,527 570,416 562,397 Depreciation on real estate assets related to noncontrolling interests (4,335) (4,678) (8,784) (9,296) Depreciation on real estate assets related to unconsolidated entities 7,621 4,615 14,886 8,633 Loss (gain) on real estate dispositions 34 (41,258) (2,421) (43,791)
(Loss) gain on real estate dispositions related to noncontrolling interests
- (7) 17 (7)
Gain on real estate dispositions related to
unconsolidated entities (301) - (301) -
Nareit FFO attributable to common stockholders 242,916 294,590 570,129 547,118
Adjustments:
Change in fair value of financial instruments 37,837 (23,211) 7,956 (44,219) Non-cash income tax (benefit) expense (5,379) 1,166 (11,184) 2,510
Loss (gain) on extinguishment of debt, net of noncontrolling interests and including Ventas' share attributable to unconsolidated entities
7 (74) 7 27,016
Gain on transactions related to unconsolidated entities - (10) (3) (31)
Transaction expenses and deal costs, net of noncontrolling interests and including Ventas' share attributable to unconsolidated entities
15,027 1,769 36,315 7,128
Amortization of other intangibles including Ventas' share attributable to unconsolidated entities
268 116 536 233
Other items related to unconsolidated entities (1,285) 43 (1,154) 143
Non-cash impact of changes to equity plan (2,389) (2,298) 4,817 6,443
Materially disruptive events, net including Ventas' share attributable to unconsolidated entities
2,074 3,128 (1,635) 8,255
Allowance on loan investments, net of noncontrolling interests
(61) (57) (114) (8,955)
Normalized FFO attributable to common stockholders
$ 275,162 $605,670 $545,641 49
--------------------------------------------------------------------------------
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 June For the Six Months Ended June
30, 30,
2022 2021 2022 2021
Net (loss) income attributable to common stockholders $ (42,416) $ 86,391 $ (3,684) $ 29,182
Adjustments:
Interest and other income (1,166) (585) (1,702) (926)
Interest expense 113,951 110,051 224,745 220,818
Depreciation and amortization 283,075 250,700 572,139 564,848
General, administrative and professional fees 32,915 30,588 75,913 70,897
Loss (gain) on extinguishment of debt, net 7 (74) 7 27,016
Transaction expenses and deal costs 13,078 721 33,070 5,338
Allowance on loans receivable and investments (62) (59) (116) (8,961)
Other 48,116 (13,490) 20,926 (22,918)
Net income attributable to noncontrolling interests 1,214
1,897 3,074 3,708
(Loss) income from unconsolidated entities 1,047 (4,767) 5,316 (4,517)
Income tax (benefit) expense (3,790) 3,641 (8,280) 5,794
(Loss) gain on real estate dispositions 34 (41,258) (2,421) (43,791)
NOI $ 446,003 $ 423,756 $ 918,987 $ 846,488
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.
50
--------------------------------------------------------------------------------
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 six months endedJune 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 continuing 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 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 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 ofJune 30, 2022 , we had$2.7 billion of undrawn capacity on our unsecured revolving credit facility with$45.6 million borrowings outstanding and an additional$25.0 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 theU.S. 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 ofJune 30, 2022 , we had$335.3 million in borrowings outstanding under our commercial paper program. InJune 2022 , we entered into a Credit and Guaranty Agreement (the "New Credit Agreement") withVentas Realty , as borrower. The New Credit Agreement replacesVentas 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 onVentas 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. 51 --------------------------------------------------------------------------------
As of
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 six months ended June 30, 2022 . As of June 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 six months endedJune 30, 2022 , we declared a dividend of$0.45 per share of our common stock in each of the first and second 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. 52 --------------------------------------------------------------------------------
Cash Flows
The following table sets forth our sources and uses of cash flows for the six
months ended
For the Six Months Ended June
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 552,632 528,856 23,776 4.5
Net cash used in investing activities (559,260) (121,105) (438,155) nm
Net cash used in financing activities (12,946) (586,073) 573,127 97.8
Effect of foreign currency translation (992) 1,450 (2,442) nm
Cash, cash equivalents and restricted cash at end of period
$ 176,031 $ 274,768 $ (98,737) (35.9)
______________________________
nm - not meaningful
Cash Flows from Operating Activities
Cash flows from operating activities increased$23.8 million during the six months endedJune 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, higher revenue per occupied room, HHS grants received and acquisitions including the acquisition of over 100 independent living communities from New Senior, partially offset by increased transaction expenses and deal costs primarily due to expenses relating to the stockholder relations matters in 2022.
Cash Flows from Investing Activities
Cash flows from investing activities decreased$438.2 million during the six months endedJune 30, 2022 compared to the same period in 2021 primarily due to increased acquisitions and decreased proceeds from real estate dispositions, partially offset by lower development project expenditures in 2022.
Cash Flows from Financing Activities
Cash flows from financing activities increased$573.1 million during the six months endedJune 30, 2022 compared to the same period in 2021 primarily due to incremental proceeds from our new$500.0 million unsecured term loan and decreased borrowings under our revolving credit facilities 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.
53
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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 June 30, 2022 , we had
15 properties under development pursuant to these agreements, including seven
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, atJune 30, 2022 , we had$25.0 million outstanding letters of credit obligations. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources except those described above.
Guarantor and Issuer Financial Information
Ventas, Inc. has also fully and unconditionally guaranteed the obligation to pay principal and interest with respect to the outstanding senior notes issued by our 100% owned subsidiary,Ventas Canada Finance Limited ("Ventas Canada"). None of our other subsidiaries is obligated with respect to Ventas Canada's outstanding senior notes, all of which were issued on a private placement basis inCanada . Under certain circumstances, contractual and legal restrictions, including those contained in the instruments governing our subsidiaries' outstanding mortgage indebtedness, may restrict our ability to obtain cash from our subsidiaries for the purpose of meeting our debt service obligations, including our payment guarantees with respect toVentas Realty's and Ventas Canada's senior notes. 54 -------------------------------------------------------------------------------- The following summarizes our guarantor and issuer balance sheet and statement of income information as ofJune 30, 2022 andDecember 31, 2021 and for the six months endedJune 30, 2022 and the year endedDecember 31, 2021 (in thousands). Balance Sheet Information As of June 30, 2022 Guarantor Issuer Assets Investment in and advances to affiliates$ 17,795,253 $ 3,045,738 Total assets 17,888,438 3,154,422 Liabilities and equity Intercompany loans 11,497,438 (3,842,175) Total liabilities 11,721,239 4,170,108
Redeemable OP unitholder and noncontrolling interests 100,215
-
Total equity (deficit) 6,066,984
(1,015,686)
Total liabilities and equity 17,888,438 3,154,422
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 4,097,362Redeemable 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 Six Months Ended June 30, 2022
Guarantor Issuer
Equity earnings in affiliates $ 58,675 $ -
Total revenues 62,243 74,213
Loss before unconsolidated entities, real estate
dispositions, income taxes and noncontrolling interests (2,591) (81,160)
Net loss (3,684) (81,160)
Net loss attributable to common stockholders (3,684) (81,160)
For the Year Ended December 31, 2021
Guarantor Issuer
Equity earnings in affiliates $ 133,143 $ -
Total revenues 137,348 158,255Income (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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