Ventas Reports 2020 Third Quarter Results

Ventas, Inc. (NYSE: VTR) (the “Company”) today reported results for the third quarter ended September 30, 2020.

“Our solid third quarter results were driven by our strong and diverse portfolio, steady performance in our Office and Triple-Net Healthcare businesses and stable sequential income in our Senior Housing Operating Portfolio,” said Debra A. Cafaro, Ventas Chairman and CEO. “We also drove our Research and Innovation business forward with our investment in a $1 billion trophy life science portfolio in South San Francisco, while expanding our third-party capital management platform to over $3 billion in assets under management, demonstrating the compelling, demographically driven growth potential of healthcare real estate,” she added.

“In senior housing, our team reached significant mutually beneficial arrangements with Brookdale, our largest tenant. As we assess the Senior Housing Operating Portfolio, move-ins continued to show sustained improvement through the end of the third quarter and October when resident move-ins exceeded move-outs. However, recent clinical and economic trends remain dynamic and highly uncertain and will continue to affect our Senior Housing Operating Portfolio results. The health and safety of our residents, operating partners and frontline caregivers remains our top priority,” Cafaro concluded.

Third Quarter 2020 Results

Third quarter 2020 financial results for the Company were affected by the COVID-19 pandemic. Results per share, compared to third quarter 2019, are as follows:

Net income attributable to common stockholders and Nareit FFO per share in the third quarter 2020 versus the same period in 2019 was the result of $0.21 per share of lower property and interest income and $0.06 per share of non-cash charges, as a result of the COVID-19 pandemic. The non-cash charges, including the write-off of all of the existing straight-line rents receivable from Genesis Healthcare, did not affect the Company’s Normalized FFO in the quarter. See page 34 of the third quarter 2020 supplemental for additional information.

Third Quarter Property Results, SHOP Operating Data and Select Fourth Quarter Information

• Senior Housing Operating (“SHOP”) Portfolio (28 percent of portfolio): For the third quarter 2020, sequential same-store pool (395 assets) cash NOI of $109 million was stable compared to the prior quarter, in line with the Company’s expectations. All COVID-19 SHOP impacts, including elevated testing, labor, cleaning and supplies costs, have been reflected in property operating results.
  • Leading Indicators: Leads and move-ins showed consistently improving trends through the end of September. In September, leads and move-ins were 85 percent and 94 percent, respectively, as compared to the prior year.
  • Occupancy: September average occupancy of 79.6 percent was 130 basis points lower than June average occupancy of 80.9 percent. Occupancy loss declined at an improving rate intra quarter through the end of September. In September, average occupancy of was 30 basis points lower as compared to August 2020 average occupancy.
  • Revenue Per Occupied Room: Revenue per occupied room in the third quarter declined 0.3 percent sequentially in the United States and increased 0.5 percent sequentially in Canada.
  • Operating Expenses: Operating expenses improved 4.5 percent sequentially. Third quarter COVID-19 related operating expenses were lower as compared to the second quarter, though they remain elevated compared to the prior year due to the COVID-19 pandemic.
  • SHOP Operating Data and Fourth Quarter Trends:
    • October resident move-ins exceeded move-outs, netting nearly 100 incremental residents.
    • Ventas’s operators have administered nearly 140,000 COVID-19 tests to front line caregivers and residents.
    • 93 percent of Ventas’s SHOP communities have either never had a confirmed COVID-19 resident case or have not had a confirmed COVID-19 resident case in the last 14 days.
    • Currently, 96 percent of Ventas’s communities are open to new resident move-ins.
  • HHS Provider Relief: Ventas has applied for approximately $35 million in grants under Phase II of the Department of Health and Human Services’ Provider Relief Fund on behalf of its SHOP assisted living communities to partially mitigate losses attributable to COVID-19. Although the Company has begun to receive amounts under some of those applications, there can be no assurance that it will receive all of the grants for which it has applied. The Company continues to evaluate the terms, conditions and permitted uses associated with the grants and is in the process of determining what portions of these grants the Company will be able to retain and use.

• Triple-Net (“NNN”) Portfolio (38 percent of portfolio) :
  • Substantially all expected third quarter and October 2020 rent due to date has been paid by the Company’s NNN tenants.
  • Effective July 1, 2020, Ventas reached mutually beneficial arrangements (the “Brookdale Agreements”) with Brookdale Senior Living Inc. (“Brookdale”), the nation’s largest senior housing operator, to reset Brookdale’s annual cash rent to $100 million. Ventas received up-front consideration approximating $235 million (including $162 million in cash), representing over two and a half years of the cash rent reduction. Warrants exercisable at $3 per share through December 31, 2025, which represented eight percent of Brookdale’s fully diluted shares at the time of grant, were included in the up-front consideration, providing Ventas shareholders with the opportunity for meaningful upside participation in a senior housing recovery. All of the $235 million in consideration is being amortized in Ventas’s GAAP results over the 5.5-year remaining life of the Brookdale lease; and the up-front $162 million cash received is included only in the third quarter 2020 cash NOI and FAD results.
  • Same-store cash NOI growth was driven by the $162 million cash consideration received under the Brookdale Agreements. Excluding receipt of such cash payment, the decline in sequential NNN same store cash NOI was principally the result of the Brookdale cash rent reset.

• Office Portfolio (31 percent of portfolio) :
  • The Company has received 99 percent of third quarter and October Office contractual rent.
  • The Office portfolio again delivered sequentially improving performance in the third quarter, growing reported same store cash NOI 0.4 percent in the third quarter versus the second quarter 2020.
  • Medical Office tenant retention achieved a record 90 percent in third quarter 2020.

Driving Research & Innovation Business

• The Ventas Life Science and Healthcare Real Estate Fund, L.P. (the “Fund”) acquired a trophy life science portfolio (“SSF Life Science Portfolio”) in the premier South San Francisco life science cluster for $1.0 billion at an expected forward cash NOI cap rate of approximately five percent. The portfolio consists of a campus of three newly developed or renovated buildings totaling nearly 800,000 square feet, is 96 percent leased and has a weighted average lease term of over six years. The portfolio is purpose-built for advanced research functions and predominantly dedicated to best-in-class lab space supporting biotechnology and other life sciences research. Ventas’s interest in the SSF Life Science Portfolio, as the sponsor and general partner of the Fund, is 21 percent. The acquisition was financed with over $400 million in mortgage debt at 2.6 percent for ten years. For additional information, please reference the press release issued October 15, 2020.

• Construction of the One uCity project, Ventas’s expansion of the Philadelphia uCity Square submarket, recommenced on October 1, 2020. One uCity is a 400,000 square foot state-of-the-art life science building designed to LEED® standards.

• Ventas now owns or has investments in an R&I portfolio:
  • Containing over seven million square feet and spanning 39 operating properties
  • Including a presence in the top two life science clusters, San Francisco and Cambridge, MA
  • Residing on the campuses of more than 15 top-tier research universities, including University of Pennsylvania, Yale University, Washington University in St Louis, Duke University and Brown University, collectively ranking in the top 5 percent of all NIH funding and conducting over 10 percent of all university life science research and development in the nation
  • Expanding with four new properties, consisting of nearly 1.4 million additional square feet, currently under development with three leading research institutions: the University of Pittsburgh, Arizona State University and Drexel University

Third-Party Capital Management Platform

• With the acquisition of the SSF Life Science Portfolio, the Fund has more than doubled its assets under management to $1.8 billion.

• In October, Ventas formed a joint venture with GIC. The joint venture, of which Ventas is the manager, will initially own four in-progress university-based R&I development projects with total estimated project costs of approximately $930 million. The joint venture may be expanded to over $2 billion in assets through the addition of pre-identified future R&I development projects. This joint venture enables Ventas to retain a majority interest in ongoing R&I developments and accelerate additional projects from its pipeline of opportunities. For additional information, please reference the separate press release issued today.

• Ventas now has over $3 billion in assets under management in vehicles with private third-party capital from institutional sources. This institutional third-party capital management platform provides Ventas and its stakeholders numerous strategic benefits including:
  • Further diversification of Ventas’s capital sources
  • Augmenting Ventas’s significant investment capacity
  • Expanding Ventas’s strategic reach
  • Maximizing the impact of Ventas’s excellent team, industry knowledge and brand
  • Enabling global institutional investors to invest with Ventas in a public or private investment structure
  • Enhancing Ventas’s liquidity and financial flexibility

• The results of both the Fund and the GIC JV assets are expected to be reported on an unconsolidated basis in the Company’s GAAP reported financial statements.

Environmental, Social and Governance (“ESG”) Leadership

• Ventas today published its third annual Corporate Sustainability Report (“CSR”). The report includes details on its new ambitious, long-term environmental goals to significantly reduce the Company’s emissions, energy, water and waste and its commitment to the Science Based Targets initiative (SBTi) to set and measure its emissions goals in alignment with current climate science. The full CSR report and additional information about the Company’s ESG initiatives are available on the Company’s website at www.ventasreit.com/corporate-responsibility .

Balance Sheet and Financial Strength; Organizational Efficiency

• Ventas paid down substantially all of its borrowings under its $3.0 billion Revolving Credit Facility in June and July 2020.

• In October, Ventas used existing cash on hand to reduce near term debt maturities by retiring $236 million of the 3.25% senior notes due in 2022.

• During and subsequent to the third quarter, the Company issued and sold under its “at the market” equity offering program a total of 1.5 million shares of common stock at an average gross issuance price of $44.88 per share, resulting in nearly $67 million in gross proceeds, used to fund its equity portion of the SSF Life Science investment.

• As of November 5, 2020, the Company has robust liquidity of $3.2 billion, including $2.9 billion of undrawn revolver capacity and $0.3 billion in cash and cash equivalents on hand, and no commercial paper outstanding.

• The Company ended the quarter with an annualized Adjusted Net Debt to EBITDA ratio of 6.8x and Total Indebtedness to Gross Asset Value of 37 percent.

• As a result of its decisive actions, the Company realized approximately $30 million of annualized SG&A savings in the third quarter relative to the SG&A reported in FY 2019, consistent with its previous estimates.

Third Quarter Dividend

The Company paid its third quarter 2020 dividend of $0.45 per share on October 13, 2020 to stockholders of record on October 1, 2020.

Third Quarter 2020 Conference Call and Investor Presentation

Ventas will hold a conference call to discuss this earnings release today at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). The dial-in number for the conference call is (844) 776-7841 (or +1 (661) 378-9542 for international callers), and the participant passcode is “Ventas.” The call will also be webcast live by Intrado DM and can be accessed at the Company’s website at www.ventasreit.com . A replay of the call will be available at the Company’s website, or by calling (855) 859-2056 (or +1 (404) 537-3406 for international callers), passcode 1296127, beginning on November 6, 2020, at approximately 1:00 p.m. Eastern Time and will remain available for 30 days.

A presentation outlining the Company’s third quarter results and a business update is posted to the "Investor Presentations" section of Ventas’s website at https://www.ventasreit.com/investor-presentations .

About Ventas

Ventas, an S&P 500 company, operates at the intersection of two powerful and dynamic industries – healthcare and real estate. As one of the world’s foremost Real Estate Investment Trusts (REIT), we use the power of capital to unlock the value of real estate, partnering with leading care providers, developers, research and medical institutions, innovators and healthcare organizations whose success is buoyed by the demographic tailwind of an aging population. For more than twenty years, Ventas has followed a successful strategy that endures: combining a high-quality diversified portfolio of properties and capital sources to manage through cycles, working with industry leading partners, and a collaborative and experienced team focused on producing consistent growing cash flows and superior returns on a strong balance sheet, ultimately rewarding Ventas shareholders. As of September 30, 2020, Ventas owned or managed through unconsolidated joint ventures approximately 1,200 properties.

The Company routinely announces material information to investors and the marketplace using press releases, Securities and Exchange Commission (“SEC”) filings, public conference calls, webcasts and the Company’s website at www.ventasreit.com/investor-relations . The information that the Company posts to its website may be deemed to be material. Accordingly, the Company encourages investors and others interested in the Company to routinely monitor and review the information that the Company posts on its website, in addition to following the Company’s press releases, SEC filings and public conference calls and webcasts. Supplemental information regarding the Company can be found on the Company’s website under the “Investor Relations” section or at https://www.ventasreit.com/investor-relations/annual-reports-supplemental-information . A comprehensive listing of the Company’s properties is available at www.ventasreit.com/our-portfolio/properties-by-stateprovince .

Non-GAAP Financial Measures

This press release includes certain financial performance measures not defined by generally accepted accounting principles in the Unites States (“GAAP”). Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in this press release. We believe such measures provide investors with additional information concerning our operating performance and a basis to compare our performance with the performance of other REITs. Our definitions and calculations of these non-GAAP measures may not be the same as similar measures reported by other REITs.

These non-GAAP financial measures should not be considered 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.

Certain of the information contained herein, including intra-quarter operating information and number of confirmed cases of COVID-19, has been provided by our operators and we have not verified this information through an independent investigation or otherwise. We have no reason to believe that this information is inaccurate in any material respect, but we cannot assure you of its accuracy.

This press release contains “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. The forward-looking statements are based on management’s beliefs as well as on a number of assumptions concerning future events. Readers of these materials are cautioned not to 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. Ventas, Inc. (the “Company”) does not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made. Certain factors that could prevent the Company from achieving its stated goals include, but are not limited to: (a) the effects of the ongoing COVID-19 pandemic and measures intended to manage the pandemic on the Company’s business, results of operations, cash flows and financial condition, including declines in revenues and increases in operating costs in the Company’s senior housing operating portfolio, deterioration in the financial condition of the Company’s tenants and their ability to satisfy their payment obligations to the Company; constraints in the Company’s ability to access capital and other sources of financing; increased risk of claims, litigation and regulatory proceedings that may adversely affect the Company; and the ability of federal, state and local governments to respond to and manage the COVID-19 pandemic effectively; (b) the ability and willingness of the Company’s tenants, operators, borrowers, managers and other third parties to satisfy their obligations under their respective contractual arrangements with the Company, including, in some cases, their obligations to indemnify, defend and hold harmless the Company from and against various claims, litigation and liabilities; (c) the ability of the Company’s tenants, operators, borrowers and managers to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including without limitation obligations under their existing credit facilities and other indebtedness; (d) the Company’s ability to implement its business strategy; (e) a disruption of or lack of access to the capital markets, changes in the debt rating on U.S. government securities, default or delay in payment by the United States of its obligations and changes in federal or state budgets resulting in the reduction or nonpayment of Medicare or Medicaid reimbursement rates; (f) the nature and extent of future competition, including new construction in the markets in which the Company’s senior housing communities and office buildings are located; (g) the extent and effect of the results of the Presidential election on, and more broadly, future or pending healthcare reform and regulation, including cost containment measures and changes in reimbursement policies, procedures and rates; (h) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors, including the potential phasing out of the London Inter-bank Offered Rate after 2021; (i) the ability of the Company’s tenants, operators and managers, as applicable, to comply with laws, rules and regulations in the operation of the Company’s senior housing properties, to deliver high-quality services, to attract and retain qualified personnel and to attract residents and patients; (j) changes in general economic conditions or economic conditions in the markets in which the Company may, from time to time, compete, and the effect of those changes on the Company’s revenues, earnings and funding sources; (k) the Company’s level of indebtedness and ability to pay down, refinance, restructure or extend its indebtedness as it becomes due; (l) the Company’s ability and willingness to maintain its qualification as a REIT in light of economic, market, legal, tax and other considerations; (m) final determination of the Company’s taxable net income for the year ending December 31, 2020; (n) the ability and willingness of the Company’s tenants to renew their leases with the Company upon expiration of the leases, the Company’s ability to reposition its properties on the same or better terms in the event of nonrenewal or in the event the Company exercises its right to replace an existing tenant, and obligations, including indemnification obligations, the Company may incur in connection with the replacement of an existing tenant; (o) risks associated with the Company’s senior living operating portfolio, such as factors that can cause volatility in the Company’s operating income and earnings generated by those properties, including without limitation national and regional economic conditions, costs of food, materials, energy, labor and services, employee benefit costs, insurance costs and professional and general liability claims, and the timely delivery of accurate property-level financial results for those properties; (p) changes in exchange rates for any foreign currency in which the Company may, from time to time, conduct business; (q) year-over-year changes in the Consumer Price Index or the UK Retail Price Index and the effect of those changes on the rent escalators contained in the Company’s leases and the Company’s earnings; (r) the Company’s ability and the ability of its tenants, operators, borrowers and managers to obtain and maintain adequate property, liability and other insurance from reputable, financially stable providers; (s) the impact of damage to the Company’s properties from catastrophic weather and other natural events and the physical effects of climate change; (t) the impact of increased operating costs and uninsured professional liability claims on the Company’s liquidity, financial condition and results of operations or that of the Company’s tenants, operators, borrowers and managers, and the ability of the Company and the Company’s tenants, operators, borrowers and managers to accurately estimate the magnitude of those claims; (u) risks associated with the Company’s office building portfolio and operations, including the Company’s ability to successfully design, develop and manage office buildings and to retain key personnel; (v) the ability of the hospitals on or near whose campuses the Company’s medical office buildings are located and their affiliated health systems to remain competitive and financially viable and to attract physicians and physician groups; (w) risks associated with the Company’s investments in joint ventures and unconsolidated entities, including its lack of sole decision-making authority and its reliance on its joint venture partners’ financial condition; (x) the Company’s ability to obtain the financial results expected from its development and redevelopment projects; (y) the impact of market or issuer events on the liquidity or value of the Company’s investments in marketable securities; (z) consolidation activity in the senior housing and healthcare industries resulting in a change of control of, or a competitor’s investment in, one or more of the Company’s tenants, operators, borrowers or managers or significant changes in the senior management of the Company’s tenants, operators, borrowers or managers; (aa) the impact of litigation or any financial, accounting, legal or regulatory issues that may affect the Company or its tenants, operators, borrowers or managers; (bb) changes in accounting principles, or their application or interpretation, and the Company’s ability to make estimates and the assumptions underlying the estimates, which could have an effect on the Company’s earnings; and (cc) the other factors set forth in the Company’s periodic filings with the SEC.

1 Potential common shares are not included in the computation of diluted earnings per share when a loss from continuing operations exists as the effect would be an antidilutive per share amount.