filings.toolsItem 1. CONSOLIDATED FINANCIAL STATEMENTS
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Item 1. CONSOLIDATED FINANCIAL STATEMENTS
VENTAS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts, unaudited)
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| Assets | |||||||||||
| Real estate investments: | |||||||||||
| Land and improvements | $ | 2,601,218 | $ | 2,437,905 | |||||||
| Buildings and improvements | 27,220,110 | 26,020,048 | |||||||||
| Construction in progress | 458,988 | 310,456 | |||||||||
| Acquired lease intangibles | 1,469,998 | 1,346,190 | |||||||||
| Operating lease assets | 317,369 | 310,307 | |||||||||
| 32,067,683 | 30,424,906 | ||||||||||
| Accumulated depreciation and amortization | (9,978,902) | (9,264,456) | |||||||||
| Net real estate property | 22,088,781 | 21,160,450 | |||||||||
| Secured loans receivable and investments, net | 27,823 | 537,075 | |||||||||
| Investments in unconsolidated real estate entities | 579,172 | 579,949 | |||||||||
| Net real estate investments | 22,695,776 | 22,277,474 | |||||||||
| Cash and cash equivalents | 433,937 | 122,564 | |||||||||
| Escrow deposits and restricted cash | 57,809 | 48,181 | |||||||||
| Goodwill | 1,044,536 | 1,044,415 | |||||||||
| Assets held for sale | 43,191 | 44,893 | |||||||||
| Deferred income tax assets, net | 7,165 | 10,490 | |||||||||
| Other assets | 684,195 | 609,823 | |||||||||
| Total assets | $ | 24,966,609 | $ | 24,157,840 | |||||||
| Liabilities and equity | |||||||||||
| Liabilities: | |||||||||||
| Senior notes payable and other debt | $ | 13,388,498 | $ | 12,296,780 | |||||||
| Accrued interest | 119,685 | 110,542 | |||||||||
| Operating lease liabilities | 197,666 | 190,440 | |||||||||
| Accounts payable and other liabilities | 1,090,028 | 1,031,689 | |||||||||
| Liabilities related to assets held for sale | 5,098 | 6,492 | |||||||||
| Deferred income tax liabilities | 26,141 | 35,570 | |||||||||
| Total liabilities | 14,827,116 | 13,671,513 | |||||||||
| Redeemable OP unitholder and noncontrolling interests | 265,374 | 264,650 | |||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
| Ventas stockholders’ equity: | |||||||||||
| Preferred stock, $1.00 par value; 10,000 shares authorized, unissued | — | — | |||||||||
| Common stock, $0.25 par value; 600,000 shares authorized, 402,381 and 399,707 shares outstanding at September 30, 2023 and December 31, 2022, respectively | 100,647 | 99,912 | |||||||||
| Capital in excess of par value | 15,678,031 | 15,539,777 | |||||||||
| Accumulated other comprehensive loss | (6,182) | (36,800) | |||||||||
| Retained earnings (deficit) | (5,941,303) | (5,449,385) | |||||||||
| Treasury stock, 277 and 10 shares issued at September 30, 2023 and December 31, 2022, respectively | (13,634) | (536) | |||||||||
| Total Ventas stockholders’ equity | 9,817,559 | 10,152,968 | |||||||||
| Noncontrolling interests | 56,560 | 68,709 | |||||||||
| Total equity | 9,874,119 | 10,221,677 | |||||||||
| Total liabilities and equity | $ | 24,966,609 | $ | 24,157,840 |
See accompanying notes.
VENTAS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts, unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Rental income: | |||||||||||||||||||||||
| Triple-net leased | $ | 159,812 | $ | 150,115 | $ | 463,906 | $ | 451,073 | |||||||||||||||
| Outpatient medical and research portfolio | 226,326 | 200,867 | 645,137 | 600,648 | |||||||||||||||||||
| 386,138 | 350,982 | 1,109,043 | 1,051,721 | ||||||||||||||||||||
| Resident fees and services | 754,417 | 668,583 | 2,184,024 | 1,977,760 | |||||||||||||||||||
| Third party capital management revenues | 5,315 | 4,550 | 13,488 | 12,825 | |||||||||||||||||||
| Income from loans and investments | 1,208 | 12,672 | 21,351 | 33,271 | |||||||||||||||||||
| Interest and other income | 2,754 | 489 | 5,529 | 2,191 | |||||||||||||||||||
| Total revenues | 1,149,832 | 1,037,276 | 3,333,435 | 3,077,768 | |||||||||||||||||||
| Expenses | |||||||||||||||||||||||
| Interest | 147,919 | 119,413 | 419,259 | 344,158 | |||||||||||||||||||
| Depreciation and amortization | 370,377 | 301,481 | 957,185 | 873,620 | |||||||||||||||||||
| Property-level operating expenses: | |||||||||||||||||||||||
| Senior housing | 573,715 | 499,972 | 1,658,047 | 1,482,948 | |||||||||||||||||||
| Outpatient medical and research portfolio | 78,915 | 66,098 | 217,999 | 192,609 | |||||||||||||||||||
| Triple-net leased | 3,847 | 3,756 | 11,180 | 11,349 | |||||||||||||||||||
| 656,477 | 569,826 | 1,887,226 | 1,686,906 | ||||||||||||||||||||
| Third party capital management expenses | 1,472 | 1,750 | 4,614 | 4,473 | |||||||||||||||||||
| General, administrative and professional fees | 33,297 | 35,421 | 112,494 | 111,334 | |||||||||||||||||||
| Loss (gain) on extinguishment of debt, net | 612 | 574 | (6,189) | 581 | |||||||||||||||||||
| Transaction expenses and deal costs | 7,125 | 4,782 | 11,580 | 37,852 | |||||||||||||||||||
| Allowance on loans receivable and investments | (66) | (63) | (20,195) | (179) | |||||||||||||||||||
| Gain on foreclosure of real estate | — | — | (29,127) | — | |||||||||||||||||||
| Other | 9,432 | 9,162 | (765) | 30,088 | |||||||||||||||||||
| Total expenses | 1,226,645 | 1,042,346 | 3,336,082 | 3,088,833 | |||||||||||||||||||
| Loss before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests | (76,813) | (5,070) | (2,647) | (11,065) | |||||||||||||||||||
| (Loss) income from unconsolidated entities | (5,119) | 1,970 | 20,512 | (3,346) | |||||||||||||||||||
| Gain on real estate dispositions | 10,711 | 136 | 22,317 | 2,557 | |||||||||||||||||||
| Income tax benefit | 1,662 | 6,027 | 14,237 | 14,307 | |||||||||||||||||||
| (Loss) income from continuing operations | (69,559) | 3,063 | 54,419 | 2,453 | |||||||||||||||||||
| Net (loss) income | (69,559) | 3,063 | 54,419 | 2,453 | |||||||||||||||||||
| Net income attributable to noncontrolling interests | 1,565 | 1,807 | 4,573 | 4,881 | |||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (71,124) | $ | 1,256 | $ | 49,846 | $ | (2,428) | |||||||||||||||
| Earnings per common share | |||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||
| (Loss) income from continuing operations | $ | (0.17) | $ | 0.01 | $ | 0.14 | $ | 0.01 | |||||||||||||||
| Net (loss) income attributable to common stockholders | (0.18) | — | 0.12 | (0.01) | |||||||||||||||||||
| Diluted:1 | |||||||||||||||||||||||
| (Loss) income from continuing operations | $ | (0.17) | $ | 0.01 | $ | 0.13 | $ | 0.01 | |||||||||||||||
| Net (loss) income attributable to common stockholders | (0.18) | — | 0.12 | (0.01) |
1 Potential common shares are not included in the computation of diluted earnings per share (“EPS”) when a loss from continuing operations exists as the effect would be an antidilutive per share amount.
See accompanying notes.
VENTAS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net (loss) income | $ | (69,559) | $ | 3,063 | $ | 54,419 | $ | 2,453 | |||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
| Foreign currency translation (loss) income | (2,858) | (3,685) | 2,922 | (24,427) | |||||||||||||||||||
| Unrealized loss on available for sale securities | — | (1,252) | — | (3,371) | |||||||||||||||||||
| Unrealized gain on derivative instruments | 10,042 | 7,870 | 29,241 | 41,013 | |||||||||||||||||||
| Total other comprehensive income | 7,184 | 2,933 | 32,163 | 13,215 | |||||||||||||||||||
| Comprehensive (loss) income | (62,375) | 5,996 | 86,582 | 15,668 | |||||||||||||||||||
| Comprehensive income (loss) attributable to noncontrolling interests | 379 | (4,308) | 6,118 | 885 | |||||||||||||||||||
| Comprehensive (loss) income attributable to common stockholders | $ | (62,754) | $ | 10,304 | $ | 80,464 | $ | 14,783 |
See accompanying notes.
VENTAS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
For the Three Months Ended September 30, 2023 and 2022
(In thousands, except per share amounts, unaudited)
| For the Three Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | Common Stock Par Value | Capital in Excess of Par Value | Accumulated Other Comprehensive (Loss) Income | Retained Earnings (Deficit) | Treasury Stock | Total Ventas Stockholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2023 | $ | 100,206 | $ | 15,584,858 | $ | (14,552) | $ | (5,688,499) | $ | (13,631) | $ | 9,968,382 | $ | 60,062 | $ | 10,028,444 | |||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | (71,124) | — | (71,124) | 1,565 | (69,559) | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | 8,370 | — | — | 8,370 | (1,186) | 7,184 | |||||||||||||||||||||||||||||||||||||||
| Net change in noncontrolling interests | — | (6,637) | — | — | — | (6,637) | (3,881) | (10,518) | |||||||||||||||||||||||||||||||||||||||
| Dividends to common stockholders—$0.45 per share | — | 9 | — | (181,680) | — | (181,671) | — | (181,671) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock plans, restricted stock grants and other | 441 | 87,998 | — | — | (3) | 88,436 | — | 88,436 | |||||||||||||||||||||||||||||||||||||||
| Adjust redeemable OP unitholder interests to current fair value | — | 11,785 | — | — | — | 11,785 | — | 11,785 | |||||||||||||||||||||||||||||||||||||||
| Redemption of OP Units | — | 18 | — | — | — | 18 | — | 18 | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | 100,647 | $ | 15,678,031 | $ | (6,182) | $ | (5,941,303) | $ | (13,634) | $ | 9,817,559 | $ | 56,560 | $ | 9,874,119 |
| For the Three Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Par Value | Capital in Excess of Par Value | Accumulated Other Comprehensive (Loss) Income | Retained Earnings (Deficit) | Treasury Stock | Total Ventas Stockholders’ Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2022 | $ | 99,913 | $ | 15,514,015 | $ | (56,355) | $ | (5,044,569) | $ | (408) | $ | 10,512,596 | $ | 90,798 | $ | 10,603,394 | |||||||||||||||||||||||||||||||
| Net income | — | — | — | 1,256 | — | 1,256 | 1,807 | 3,063 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | 9,046 | — | — | 9,046 | (6,113) | 2,933 | |||||||||||||||||||||||||||||||||||||||
| Net change in noncontrolling interests | — | (14,645) | — | — | — | (14,645) | (15,939) | (30,584) | |||||||||||||||||||||||||||||||||||||||
| Dividends to common stockholders—$0.45 per share | — | — | — | (180,589) | — | (180,589) | — | (180,589) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock plans, restricted stock grants and other | 1 | 6,101 | — | — | (139) | 5,963 | — | 5,963 | |||||||||||||||||||||||||||||||||||||||
| Adjust redeemable OP unitholder interests to current fair value | — | 27,746 | — | — | — | 27,746 | — | 27,746 | |||||||||||||||||||||||||||||||||||||||
| Redemption of OP Units | — | (14) | — | — | — | (14) | — | (14) | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | 99,914 | $ | 15,533,203 | $ | (47,309) | $ | (5,223,902) | $ | (547) | $ | 10,361,359 | $ | 70,553 | $ | 10,431,912 |
See accompanying notes.
VENTAS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
For the Nine Months Ended September 30, 2023 and 2022
(In thousands, except per share amounts, unaudited)
| For the Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | Common Stock Par Value | Capital in Excess of Par Value | Accumulated Other Comprehensive (Loss) Income | Retained Earnings (Deficit) | Treasury Stock | Total Ventas Stockholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | 99,912 | $ | 15,539,777 | $ | (36,800) | $ | (5,449,385) | $ | (536) | $ | 10,152,968 | $ | 68,709 | $ | 10,221,677 | |||||||||||||||||||||||||||||||
| Net income | — | — | — | 49,846 | — | 49,846 | 4,573 | 54,419 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | 30,618 | — | — | 30,618 | 1,545 | 32,163 | |||||||||||||||||||||||||||||||||||||||
| Net change in noncontrolling interests | — | (1,781) | — | — | — | (1,781) | (18,267) | (20,048) | |||||||||||||||||||||||||||||||||||||||
| Dividends to common stockholders—$1.35 per share | — | 19 | — | (541,764) | — | (541,745) | — | (541,745) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock plans, restricted stock grants and other | 735 | 136,215 | — | — | (13,098) | 123,852 | — | 123,852 | |||||||||||||||||||||||||||||||||||||||
| Adjust redeemable OP unitholder interests to current fair value | — | 3,852 | — | — | — | 3,852 | — | 3,852 | |||||||||||||||||||||||||||||||||||||||
| Redemption of OP Units | — | (51) | — | — | — | (51) | — | (51) | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | 100,647 | $ | 15,678,031 | $ | (6,182) | $ | (5,941,303) | $ | (13,634) | $ | 9,817,559 | $ | 56,560 | $ | 9,874,119 |
| For the Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Par Value | Capital in Excess of Par Value | Accumulated Other Comprehensive (Loss) Income | Retained Earnings (Deficit) | Treasury Stock | Total Ventas Stockholders’ Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | 99,838 | $ | 15,498,956 | $ | (64,520) | $ | (4,679,889) | $ | — | $ | 10,854,385 | $ | 91,375 | $ | 10,945,760 | |||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | (2,428) | — | (2,428) | 4,881 | 2,453 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | 17,211 | — | — | 17,211 | (3,996) | 13,215 | |||||||||||||||||||||||||||||||||||||||
| Net change in noncontrolling interests | — | (21,166) | — | — | — | (21,166) | (21,707) | (42,873) | |||||||||||||||||||||||||||||||||||||||
| Dividends to common stockholders—$1.35 per share | — | — | — | (541,585) | — | (541,585) | — | (541,585) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for stock plans, restricted stock grants and other | 76 | 31,273 | — | — | (547) | 30,802 | — | 30,802 | |||||||||||||||||||||||||||||||||||||||
| Adjust redeemable OP unitholder interests to current fair value | — | 24,154 | — | — | — | 24,154 | — | 24,154 | |||||||||||||||||||||||||||||||||||||||
| Redemption of OP Units | — | (14) | — | — | — | (14) | — | (14) | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | 99,914 | $ | 15,533,203 | $ | (47,309) | $ | (5,223,902) | $ | (547) | $ | 10,361,359 | $ | 70,553 | $ | 10,431,912 |
See accompanying notes.
VENTAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| For the Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 54,419 | $ | 2,453 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 957,185 | 873,620 | |||||||||
| Amortization of deferred revenue and lease intangibles, net | (44,543) | (48,462) | |||||||||
| Other non-cash amortization | 15,499 | 9,483 | |||||||||
| Allowance on loans receivable and investments | (20,195) | (179) | |||||||||
| Stock-based compensation | 25,298 | 28,786 | |||||||||
| Straight-lining of rental income | (4,425) | (10,131) | |||||||||
| (Gain) loss on extinguishment of debt, net | (6,189) | 581 | |||||||||
| Gain on real estate dispositions | (22,317) | (2,557) | |||||||||
| Income tax benefit | (19,230) | (16,961) | |||||||||
| (Gain) loss and other from unconsolidated entities | (20,512) | 3,352 | |||||||||
| Gain on foreclosure of real estate | (29,127) | — | |||||||||
| Distributions from unconsolidated entities | 12,953 | 15,467 | |||||||||
| Other | (15,777) | 36,422 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Increase in other assets | (55,339) | (53,433) | |||||||||
| Increase (decrease) in accrued interest | 3,775 | (12,772) | |||||||||
| Increase in accounts payable and other liabilities | 9,314 | 27,241 | |||||||||
| Net cash provided by operating activities | 840,789 | 852,910 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Net investment in real estate property | (4,625) | (439,299) | |||||||||
| Investment in loans receivable | (883) | (5,337) | |||||||||
| Proceeds from real estate disposals | 167,296 | 12,481 | |||||||||
| Proceeds from loans receivable | 44,036 | 692 | |||||||||
| Proceeds from sale of interest in unconsolidated entities | 50,054 | — | |||||||||
| Net cash assumed in foreclosure of real estate | 11,615 | — | |||||||||
| Development project expenditures | (239,639) | (126,988) | |||||||||
| Capital expenditures | (160,369) | (154,761) | |||||||||
| Distributions from unconsolidated entities | 74,670 | 28,311 | |||||||||
| Investment in unconsolidated entities | (97,989) | (50,402) | |||||||||
| Insurance proceeds for property damage claims | 14,446 | 9,982 | |||||||||
| Net cash used in investing activities | (141,388) | (725,321) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Net change in borrowings under revolving credit facilities | 6,169 | (19,442) | |||||||||
| Net change in borrowings under commercial paper program | (402,354) | 97,066 | |||||||||
| Proceeds from debt | 2,404,069 | 888,927 | |||||||||
| Repayment of debt | (1,891,003) | (513,606) | |||||||||
| Purchase of noncontrolling interests | (110) | (170) | |||||||||
| Payment of deferred financing costs | (39,225) | (7,664) | |||||||||
| Issuance of common stock, net | 108,455 | — | |||||||||
| Cash distribution to common stockholders | (542,236) | (540,205) | |||||||||
| Cash distribution to redeemable OP unitholders | (4,642) | (4,732) | |||||||||
| Cash issued for redemption of OP Units | (845) | (328) | |||||||||
| Contributions from noncontrolling interests | 11,187 | 51 | |||||||||
| Distributions to noncontrolling interests | (20,867) | (27,152) | |||||||||
| Proceeds from stock option exercises | 1,736 | 8,691 | |||||||||
| Other | (8,628) | (6,392) | |||||||||
| Net cash used in financing activities | (378,294) | (124,956) | |||||||||
| Net increase in cash, cash equivalents and restricted cash | 321,107 | 2,633 | |||||||||
| Effect of foreign currency translation | (106) | (3,592) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 170,745 | 196,597 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 491,746 | $ | 195,638 |
See accompanying notes.
VENTAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands, unaudited)
| For the Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Supplemental schedule of non-cash activities: | |||||||||||
| Assets acquired and liabilities assumed from acquisitions and other: | |||||||||||
| Real estate investments | $ | — | $ | 16,599 | |||||||
| Other assets | 7,873 | 856 | |||||||||
| Other liabilities | 9,000 | 7,747 | |||||||||
| Deferred income tax liability | 12,382 | 960 | |||||||||
| Noncontrolling interests | — | 3,351 | |||||||||
| Settlement of loan receivable | 486,082 | — | |||||||||
| Real estate received in settlement of loan receivable | 1,566,395 | — | |||||||||
| Assumption of debt related to real estate owned | 1,016,804 | — | |||||||||
| Investment in unconsolidated entities | — | 8,100 |
See accompanying notes.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—DESCRIPTION OF BUSINESS
Ventas, Inc. (together with its consolidated subsidiaries, unless otherwise indicated or except where the context otherwise requires, “we,” “us,” “our,” “Company” and other similar terms), an S&P 500 company, is a real estate investment trust (“REIT”) operating at the intersection of healthcare and real estate. We hold a highly diversified portfolio of senior housing communities, outpatient medical buildings, research centers, hospitals and other healthcare facilities, which we generally refer to collectively as “healthcare real estate,” located throughout the United States, Canada and the United Kingdom. As of September 30, 2023, we owned or had investments in approximately 1,400 properties (including properties classified as held for sale). Our company was originally founded in 1983 and is headquartered in Chicago, Illinois with additional corporate offices in Louisville, Kentucky and New York, New York.
We primarily invest in a diversified portfolio of healthcare real estate assets through wholly-owned subsidiaries and other co-investment entities. We operate through three reportable business segments: triple-net leased properties, senior housing operating portfolio, which we also refer to as “SHOP” and which was formerly known as senior living operations, and outpatient medical and research portfolio, which was formerly known as office operations. See “Note 2 – Accounting Policies” and “Note 15 – Segment Information.” Our senior housing communities are either subject to triple-net leases, in which case they are included in our triple-net leased properties reportable business segment, or operated by third-party managers, in which case they are included in our SHOP reportable business segment.
As of September 30, 2023, we leased a total of 335 properties (excluding properties within our outpatient medical and research portfolio reportable business segment) to various healthcare operating companies under triple-net or absolute-net leases that obligate the tenants to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures. Our three largest tenants, Brookdale Senior Living Inc. (together with its subsidiaries, “Brookdale Senior Living”), Ardent Health Partners, LLC (together with its subsidiaries, “Ardent”) and Kindred Healthcare, LLC (together with its subsidiaries, “Kindred”) leased from us 121 properties, 30 properties (including 19 outpatient medical buildings) and 29 properties, respectively, as of September 30, 2023.
As of September 30, 2023, pursuant to long-term management agreements, we engaged operators, such as Atria Senior Living, Inc. (together with its subsidiaries, including Holiday Retirement (“Holiday”), “Atria”) and Sunrise Senior Living, LLC (together with its subsidiaries, “Sunrise”), to manage 594 senior housing communities.
As of September 30, 2023, we owned or had investments in a total of 461 properties in our outpatient medical and research portfolio reportable business segment. These properties generally consist of outpatient medical buildings that are predominantly located on or contiguous to a health system campus and research properties that are affiliated with and often located on or contiguous to a university or academic medical campus. Through our Lillibridge Healthcare Services, Inc. subsidiary and our ownership interest in PMB Real Estate Services LLC, we also provide outpatient medical building management, leasing, marketing, facility development and advisory services to highly rated hospitals and health systems throughout the United States.
In addition, from time to time, we make secured and unsecured loans and other investments relating to healthcare real estate or operators.
We have a third-party institutional capital management business, Ventas Investment Management (“VIM”), which includes our open-ended investment vehicle, the Ventas Life Science & Healthcare Real Estate Fund (the “Ventas Fund”). Through VIM, we partner with third-party institutional investors to invest in healthcare real estate through various joint ventures and other co-investment vehicles where we are the sponsor or general partner.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2—ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the Securities and Exchange Commission (“SEC”) instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The accompanying Consolidated Financial Statements and related notes should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”). Certain prior period amounts have been reclassified to conform to the current period presentation.
Accounting Estimates
The preparation of financial statements in accordance with 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 period. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying Consolidated Financial Statements include our accounts and the accounts of our wholly-owned subsidiaries and the joint venture entities over which we exercise control. All intercompany transactions and balances have been eliminated in consolidation, and our net earnings are reduced by the portion of net earnings attributable to noncontrolling interests.
GAAP requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). Substantially all of the assets of the VIEs are real estate investments, and substantially all of the liabilities of the VIEs are mortgage loans. Assets of the consolidated VIEs can only be used to settle obligations of such VIEs. Liabilities of the consolidated VIEs represent claims against the specific assets of the VIEs. The table below summarizes the total assets and liabilities of our consolidated VIEs as reported on our Consolidated Balance Sheets (dollars in thousands):
| As of September 30, 2023 | As of December 31, 2022 | |||||||||||||||||||||||||
| Total Assets | Total Liabilities | Total Assets | Total Liabilities | |||||||||||||||||||||||
| NHP/PMB L.P. | $ | 755,811 | $ | 260,651 | $ | 741,890 | $ | 252,518 | ||||||||||||||||||
| Fonds Immobilier Groupe Maurice, S.E.C. | 1,952,453 | 1,177,733 | 1,957,075 | 1,170,928 | ||||||||||||||||||||||
| Other identified VIEs | 1,719,853 | 366,903 | 1,699,949 | 333,185 | ||||||||||||||||||||||
| Tax credit VIEs | 118,994 | 14,158 | 128,240 | 16,767 |
U.S. Department of Health & Human Services Grants
We applied for grants under the Provider Relief Fund administered by the U.S. Department of Health & Human Services (“HHS”) on behalf of the assisted living communities in our SHOP reportable business segment to partially mitigate losses attributable to COVID-19. These grants are intended to reimburse eligible providers for expenses incurred to prevent, prepare for and respond to COVID-19 and lost revenues attributable to COVID-19. Recipients are not required to repay distributions from the Provider Relief Fund, provided that they attest to and comply with certain terms and conditions, including not using grants received from the Provider Relief Fund to reimburse expenses or losses that other sources are obligated to reimburse, complying with reporting and record keeping requirements and cooperating with any government audits.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the three and nine months ended September 30, 2023, we did not receive any HHS grants. During the three and nine months ended September 30, 2022, we received $20.2 million and $54.2 million, respectively, in HHS grants in connection with our applications and recognized these grants within property-level operating expenses in our Consolidated Statements of Income in the period in which they were received.
Accounting for Foreclosed Properties
The Company may receive properties pursuant to a foreclosure, deed in lieu of foreclosure or other legal action in full or partial settlement of loans receivable by taking legal title or physical possession of the properties. We refer to such actions as a “foreclosure” and to such properties as “foreclosed properties”. We account for foreclosed properties received in settlement of loans receivable in accordance with ASC 310, Receivables. Foreclosed real estate received in full or partial satisfaction of a loan and any debt assumed upon foreclosure is recorded at fair value at the time of foreclosure. If the amortized cost basis in the loan exceeds the fair value of the collateral received, the difference is recorded as an allowance on loans receivable and investments in the Consolidated Statements of Income. Conversely, if the fair value of the collateral received is higher than the amortized cost basis in the loan, the difference, less the fair value of any debt assumed, less the principal amount of the loan receivable (after the reversal of previously recorded allowances), and net of working capital assumed and transaction costs, is recorded as a gain on foreclosure of real estate in the Consolidated Statements of Income.
Exchangeable Senior Notes
We account for our exchangeable senior notes in accordance with ASC 470-20, Debt - Debt with Conversion and Other Options (after the adoption of Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”)). We evaluate the exchange features embedded in our exchangeable senior notes in accordance with ASC 815, Derivatives and Hedging. ASC 815 requires embedded derivatives to be separated from their host nonderivative contracts and accounted for as free-standing derivative financial instruments if, and only if, each of the following three criteria is met: (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Certain contracts that involve an entity’s own equity are explicitly exempted from the requirements of ASC 815.
NOTE 3—CONCENTRATION OF CREDIT RISK
As of September 30, 2023, Atria, Sunrise, Brookdale Senior Living, Ardent and Kindred managed or operated approximately 23.6%, 9.3%, 7.6%, 5.1% and 0.8%, respectively, of our consolidated real estate investments based on gross book value (excluding properties classified as held for sale as of September 30, 2023). Because Atria and Sunrise manage our properties in exchange for a management fee from us, we are not directly exposed to their credit risk in the same manner or to the same extent as triple-net tenants like Brookdale Senior Living, Ardent and Kindred.
Based on gross book value, approximately 10.6% and 55.0% of our consolidated real estate investments were senior housing communities included in the triple-net leased properties and SHOP reportable business segments, respectively (excluding properties classified as held for sale as of September 30, 2023). Outpatient medical buildings, research centers, inpatient rehabilitation facilities (“IRFs”) and long-term acute care facilities (“LTACs”), health systems, skilled nursing facilities (“SNFs”) and secured loans receivable and investments collectively comprised the remaining 34.4%. Our consolidated properties were located in 47 states, the District of Columbia, seven Canadian provinces and the United Kingdom as of September 30, 2023, with properties in one state (California) accounting for more than 10% of our total consolidated revenues and net operating income (“NOI,” which is defined as total revenues, less interest and other income, property-level operating expenses and third party capital management expenses) for each of the three months ended September 30, 2023 and 2022. See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and a reconciliation of net income attributable to common stockholders, as computed in accordance with GAAP, to NOI.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Triple-Net Leased Properties
The properties we triple-net leased to Brookdale Senior Living, Ardent and Kindred accounted for a significant portion of total revenues and total NOI for the three months ended September 30, 2023 and 2022. The following table reflects the concentration risk related to our triple-net leased properties including assets held for sale for the periods presented:
| For the Three Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Contribution as a Percentage of Total Revenues (1)****: | |||||||||||
| Brookdale Senior Living | 3.3 | % | 3.6 | % | |||||||
| Ardent | 2.9 | 3.1 | |||||||||
| Kindred | 2.9 | 3.3 | |||||||||
| Contribution as a Percentage of Total NOI (2)****: | |||||||||||
| Brookdale Senior Living | 7.6 | % | 8.0 | % | |||||||
| Ardent | 6.8 | 7.0 | |||||||||
| Kindred | 6.8 | 7.4 |
(1)Total revenues include third party capital management revenues, income from loans and investments and interest and other income.
(2)See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and a reconciliation of net income attributable to common stockholders, as computed in accordance with GAAP, to NOI.
Each of our leases with Brookdale Senior Living, Ardent and Kindred is a triple-net lease that obligates the tenant to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures, and to comply with the terms of the mortgage financing documents, if any, affecting the properties. In addition, each of our Brookdale Senior Living, Ardent and Kindred leases is guaranteed by a corporate parent.
Kindred Lease
As of September 30, 2023, we leased 29 properties to Kindred pursuant to a single, triple-net master lease agreement (together with certain other agreements related to such master lease, collectively, the “Kindred Lease”). As of September 30, 2023, the Kindred Lease represented approximately 6.8% of the Company’s Total NOI.
Pursuant to the Kindred Lease, the 29 properties are divided into two groups. The first group is composed of 6 properties (“Group 1”) and the second group is composed of 23 properties (“Group 2”). The existing term of the Kindred Lease expires on April 30, 2028 for Group 1 and April 30, 2025 for Group 2. Kindred has the option to renew the Kindred Lease for the Group 1 properties for two 5-year extensions at the greater of escalated rent and fair market rent by providing written notice no later than one year prior to the applicable expiration date. Kindred currently has the option to renew the Kindred Lease for the Group 2 properties for one 5-year extension by providing written notice to us before May 1, 2024. The Kindred Lease is guaranteed by a parent company.
The COVID-19 pandemic led to elevated volumes and financial performance at the properties. As the pandemic receded, the financial performance has declined, largely driven by significantly elevated labor expense, including contract labor, and lower volumes. While we believe that Kindred has taken and is taking targeted actions to attempt to improve the performance of the properties, there can be no assurance that Kindred will be able to do so. See also “Part I—Item 1A. Risk Factors—Risks Related to Our Business Operations and Strategy—If we need to replace any of our tenants or managers, we may be unable to do so on as favorable terms, if at all, and we could be subject to delays, limitations and expenses, which could adversely affect our business, financial condition and results of operations”, “Part I—Item 1A. Risk Factors—Risks Related to Our Business Operations and Strategy—A significant portion of our revenues and operating income is dependent on a limited number of tenants and managers, including Brookdale Senior Living, Ardent, Kindred, Atria and Sunrise” and “Part I—Item 1A. Risk Factors—Risks Related to Our Business Operations and Strategy—We face potential adverse consequences from the bankruptcy, insolvency or financial deterioration of our tenants, managers, borrowers and other obligors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Senior Housing Operating Portfolio
As of September 30, 2023, Atria and Sunrise, collectively, provided comprehensive property management and accounting services with respect to 313 of our 583 consolidated senior housing communities, for which we pay annual management fees pursuant to long-term management agreements.
As of September 30, 2023, Atria and its subsidiaries, including Holiday, managed a pool of 221 senior housing communities for Ventas. Ventas has the right to terminate the management contract for 70 of the communities on short notice.
As of September 30, 2023, Sunrise managed 92 communities for Ventas pursuant to multiple management agreements (collectively, the “Sunrise Management Agreements”). Our Sunrise Management Agreements have initial terms expiring between 2035 and 2040. Ventas has the ability to terminate some or all of the Sunrise Management Agreements under certain circumstances.
We rely on our managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our senior housing operating portfolio efficiently and effectively. We also rely on our managers to set appropriate resident fees, provide accurate property-level financial results in a timely manner and otherwise operate our senior housing communities in compliance with the terms of our management agreements and all applicable laws and regulations.
NOTE 4—DISPOSITIONS AND IMPAIRMENTS
2023 Activity
During the nine months ended September 30, 2023, we sold seven senior housing communities (four of which were vacant), five outpatient medical buildings, two research centers, nine triple-net leased properties (two of which were vacant) and one land parcel for aggregate consideration of $167.3 million and recognized a gain on the sale of these assets of $22.3 million in our Consolidated Statements of Income.
Assets Held for Sale
The table below summarizes our real estate assets classified as held for sale including the amounts reported on our Consolidated Balance Sheets, which may include anticipated post-closing settlements of working capital for disposed properties (dollars in thousands):
| As of September 30, 2023 | As of December 31, 2022 | |||||||||||||||||||||||||||||||||||||
| Number of Properties Held for Sale | Assets Held for Sale | Liabilities Related to Assets Held for Sale | Number of Properties Held for Sale | Assets Held for Sale | Liabilities Related to Assets Held for Sale | |||||||||||||||||||||||||||||||||
| SHOP | 7 | $ | 41,108 | $ | 4,435 | 3 | $ | 44,852 | $ | 5,675 | ||||||||||||||||||||||||||||
| Outpatient Medical and Research Portfolio (1) | 1 | 1,393 | 520 | — | 41 | 817 | ||||||||||||||||||||||||||||||||
| Triple-net leased properties | 1 | 690 | 143 | — | — | — | ||||||||||||||||||||||||||||||||
| Total | 9 | $ | 43,191 | $ | 5,098 | 3 | $ | 44,893 | $ | 6,492 |
(1)Balances as of December 31, 2022 primarily relate to sold assets that will be settled post close.
Real Estate Impairments
We recognized impairments of $72.7 million and $28.1 million for the three months ended September 30, 2023 and 2022, respectively, and $92.0 million and $55.0 million for the nine months ended September 30, 2023 and 2022, respectively, which are recorded primarily as a component of depreciation and amortization in our Consolidated Statements of Income. The impairments recorded were primarily a result of a change in our intent to hold or a change in the future cash flows of the impaired assets.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5—LOANS RECEIVABLE AND INVESTMENTS
As of September 30, 2023 and December 31, 2022, we had $52.4 million and $561.4 million, respectively, of loans receivable and investments, net of allowance, relating to senior housing and healthcare operators or properties. The following is a summary of our loans receivable and investments, net, including amortized cost, fair value and unrealized gains or losses on available for sale investments (dollars in thousands):
| Amortized Cost | Allowance | Carrying Amount | Fair Value | ||||||||||||||||||||||||||
| As of September 30, 2023: | |||||||||||||||||||||||||||||
| Secured/mortgage loans and other, net (1) | $ | 27,823 | $ | — | $ | 27,823 | $ | 27,853 | |||||||||||||||||||||
| Non-mortgage loans receivable, net (2) | 29,012 | (4,425) | 24,587 | 23,396 | |||||||||||||||||||||||||
| Total loans receivable and investments, net | $ | 56,835 | $ | (4,425) | $ | 52,410 | $ | 51,249 | |||||||||||||||||||||
| As of December 31, 2022: | |||||||||||||||||||||||||||||
| Secured/mortgage loans and other, net (3) | $ | 513,669 | $ | (20,000) | $ | 493,669 | $ | 493,627 | |||||||||||||||||||||
| Government-sponsored pooled loan investments, net (4) | 43,406 | — | 43,406 | 43,406 | |||||||||||||||||||||||||
| Total investments reported as secured loans receivable and investments, net | 557,075 | (20,000) | 537,075 | 537,033 | |||||||||||||||||||||||||
| Non-mortgage loans receivable, net (2) | 28,959 | (4,621) | 24,338 | 23,416 | |||||||||||||||||||||||||
| Total loans receivable and investments, net | $ | 586,034 | $ | (24,621) | $ | 561,413 | $ | 560,449 |
(1)Investments have contractual maturities in 2024 and 2027.
(2)Included in other assets on our Consolidated Balance Sheets.
(3)Includes the Company’s cash-pay non-recourse mezzanine loan to Santerre Health Investors (the “Santerre Mezzanine Loan”), which was no longer outstanding as of September 30, 2023. Other included investments have contractual maturities in 2024 and 2027.
(4)Repaid at par in February 2023.
On May 1, 2023, we took ownership of the properties that secured the Santerre Mezzanine Loan by converting the outstanding principal amount of the Santerre Mezzanine Loan to equity, with no additional consideration being paid. As a result, the Santerre Mezzanine Loan is no longer outstanding. The properties consisted of a diverse pool of outpatient medical buildings, senior housing operating portfolio communities, triple-net leased skilled nursing facilities and hospital assets in the United States, which, at the time, also secured a $1 billion non-recourse senior mortgage loan issued under the CHC Commercial Mortgage Trust 2019-CHC (the “CHC Mortgage Loan”). For additional information regarding the CHC Mortgage Loan, see “Note 9 – Senior Notes Payable And Other Debt.”
As of December 31, 2022, we recognized a $20.0 million allowance on the Santerre Mezzanine Loan in our Consolidated Statements of Income. The allowance for the Santerre Mezzanine Loan was calculated using the “current expected credit loss”, or “CECL”, model, which considers relevant information about past events, current conditions and reasonable and supportable forecasts to estimate expected losses as of the most recent balance sheet date. During the nine months ended September 30, 2023, we reversed the $20.0 million allowance and recognized a gain on foreclosure of real estate of $29.1 million in our Consolidated Statements of Income. The gain is the fair value of the properties that secured the Santerre Mezzanine Loan, less the fair value of the CHC Mortgage Loan, less the principal amount of the Santerre Mezzanine Loan on May 1, 2023 (after the reversal of previously recorded allowances), and net of non-real estate assets and liabilities and transaction costs. For additional information, see “Note 10 – Fair Value Measurements”.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6—INVESTMENTS IN UNCONSOLIDATED ENTITIES
We report investments in unconsolidated entities over whose operating and financial policies we have the ability to exercise significant influence under the equity method of accounting. We are not required to consolidate these entities because our joint venture partners have significant participating rights, nor are these entities considered VIEs, as they are controlled by equity holders with sufficient capital. We invest in both real estate entities and operating entities which are described further below.
Investments in Unconsolidated Real Estate Entities
Through our Ventas Investment Management platform, which combines our extensive third-party capital ventures under a single platform, we partner with third-party institutional investors to invest in healthcare real estate through various joint ventures and other co-investment vehicles where we are the sponsor or general partner.
Below is a summary of our investments in unconsolidated real estate entities as of September 30, 2023 and December 31, 2022, respectively (dollars in thousands):
| Ownership as of (1) | Carrying Amount as of | |||||||||||||||||||||||||
| September 30, 2023 | December 31, 2022 | September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||
| Investments in unconsolidated real estate entities: | ||||||||||||||||||||||||||
| Ventas Life Science & Healthcare Real Estate Fund | 20.6% | 21.0% | $ | 268,514 | $ | 263,979 | ||||||||||||||||||||
| Pension Fund Joint Venture | 23.6% | 22.9% | 27,052 | 25,028 | ||||||||||||||||||||||
| Research & Innovation Development Joint Venture | 51.4% | 51.0% | 260,526 | 284,962 | ||||||||||||||||||||||
| Ventas Investment Management platform | 556,092 | 573,969 | ||||||||||||||||||||||||
| Atrium Health & Wake Forest Joint Venture | 48.5% | 48.5% | 22,443 | 5,403 | ||||||||||||||||||||||
| All other (2) | 34.0%-37.5% | 34.0%-37.5% | 637 | 577 | ||||||||||||||||||||||
| Total investments in unconsolidated real estate entities | $ | 579,172 | $ | 579,949 |
(1) The entities in which we have an ownership interest may have less than a 100% interest in the underlying real estate. The ownership percentages in the table reflect our interest in the underlying real estate. Joint venture members, including us in some instances, have equity participation rights based on the underlying performance of the investments, which could result in non pro rata distributions.
(2) Includes investments in parking structures and other de minimis investments in unconsolidated real estate entities. The balance as of September 30, 2023 includes investments in unconsolidated real estate entities that are recorded in accounts payable and other liabilities on our Consolidated Balance Sheets.
We provide various services to our unconsolidated real estate entities in exchange for fees and reimbursements. Total management fees earned in connection with these services were $3.6 million and $4.2 million for the three months ended September 30, 2023 and 2022, respectively, and $10.9 million and $11.5 million for the nine months ended September 30, 2023 and 2022, respectively. Such amounts are included in third party capital management revenues in our Consolidated Statements of Income.
Investments in Unconsolidated Operating Entities
We own investments in unconsolidated operating entities such as Ardent and Atria, which are included within other assets on our Consolidated Balance Sheets. Our 34% ownership interest in Atria entitles us to customary minority rights and protections, including the right to appoint two members to the Atria Board of Directors.
As of September 30, 2023, we held a 7.5% ownership interest in Ardent, which entitles us to customary minority rights and protections, including the right to appoint one member to the Ardent Board of Directors. In May 2023, we sold approximately 24% of our ownership interest in Ardent to a third-party investor for $50.1 million in total proceeds. As a result of the sale, we recognized $33.5 million of gain for the nine months ended September 30, 2023 in income from unconsolidated entities in our Consolidated Statements of Income and our ownership interest in Ardent was reduced from 9.8% to 7.5%.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7—INTANGIBLES
The following is a summary of our intangibles (dollars in thousands):
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||||||||||||||
| Balance | Weighted Average Remaining Amortization Period in Years | Balance | Weighted Average Remaining Amortization Period in Years | ||||||||||||||||||||
| Intangible assets: | |||||||||||||||||||||||
| Above-market lease intangibles (1) | $ | 136,506 | 5.1 | $ | 129,038 | 5.4 | |||||||||||||||||
| In-place and other lease intangibles (2) | 1,333,492 | 7.7 | 1,217,152 | 8.0 | |||||||||||||||||||
| Goodwill | 1,044,536 | N/A | 1,044,415 | N/A | |||||||||||||||||||
| Other intangibles (2) | 34,400 | 5.0 | 34,404 | 5.6 | |||||||||||||||||||
| Accumulated amortization | (1,163,233) | N/A | (1,061,305) | N/A | |||||||||||||||||||
| Net intangible assets | $ | 1,385,701 | 7.5 | $ | 1,363,704 | 7.8 | |||||||||||||||||
| Intangible liabilities: | |||||||||||||||||||||||
| Below-market lease intangibles (1) | $ | 330,143 | 8.0 | $ | 333,672 | 8.6 | |||||||||||||||||
| Other lease intangibles | 13,498 | N/A | 13,498 | N/A | |||||||||||||||||||
| Accumulated amortization | (259,958) | N/A | (258,639) | N/A | |||||||||||||||||||
| Purchase option intangibles | 3,568 | N/A | 3,568 | N/A | |||||||||||||||||||
| Net intangible liabilities | $ | 87,251 | 8.0 | $ | 92,099 | 8.6 |
(1) Amortization of above- and below-market lease intangibles is recorded as a decrease and an increase to revenues, respectively, in our Consolidated Statements of Income.
(2) Amortization of lease intangibles is recorded in depreciation and amortization in our Consolidated Statements of Income.
N/A—Not Applicable
Above-market lease intangibles and in-place and other lease intangibles are included in acquired lease intangibles within real estate investments on our Consolidated Balance Sheets. Other intangibles (including non-compete agreements, trade names and trademarks) are included in other assets on our Consolidated Balance Sheets. Below-market lease intangibles, other lease intangibles and purchase option intangibles are included in accounts payable and other liabilities on our Consolidated Balance Sheets.
NOTE 8—OTHER ASSETS
The following is a summary of our other assets (dollars in thousands):
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| Straight-line rent receivables | $ | 192,137 | $ | 187,536 | |||||||
| Deferred lease costs | 112,194 | 101,185 | |||||||||
| Non-mortgage loans receivable, net | 24,587 | 24,338 | |||||||||
| Stock warrants | 34,906 | 23,621 | |||||||||
| Other intangibles, net | 5,774 | 6,393 | |||||||||
| Investment in unconsolidated operating entities | 80,039 | 95,363 | |||||||||
| Other | 234,558 | 171,387 | |||||||||
| Total other assets | $ | 684,195 | $ | 609,823 |
Stock warrants represent warrants exercisable at any time prior to December 31, 2025, in whole or in part, for 16.3 million shares of Brookdale Senior Living common stock at an exercise price of $3.00 per share. These warrants are measured at fair value with changes in fair value being recognized within other expense in our Consolidated Statements of Income.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9—SENIOR NOTES PAYABLE AND OTHER DEBT
The following is a summary of our senior notes payable and other debt (dollars in thousands):
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| Unsecured revolving credit facility (1)(2) | $ | 31,677 | $ | 25,230 | |||||||
| Commercial paper notes | — | 403,000 | |||||||||
| 2.55% Senior Notes, Series D due 2023 (2) | — | 202,967 | |||||||||
| 3.50% Senior Notes due 2024 | 400,000 | 400,000 | |||||||||
| 3.75% Senior Notes due 2024 | 400,000 | 400,000 | |||||||||
| 4.125% Senior Notes, Series B due 2024 (2) | 120,242 | 184,515 | |||||||||
| 2.80% Senior Notes, Series E due 2024 (2) | 53,795 | 442,837 | |||||||||
| Unsecured term loan due 2025 (2) | 368,270 | 369,031 | |||||||||
| 3.50% Senior Notes due 2025 | 600,000 | 600,000 | |||||||||
| 2.65% Senior Notes due 2025 | 450,000 | 450,000 | |||||||||
| 4.125% Senior Notes due 2026 | 500,000 | 500,000 | |||||||||
| 3.25% Senior Notes due 2026 | 450,000 | 450,000 | |||||||||
| 3.75% Exchangeable Senior Notes due 2026 | 862,500 | — | |||||||||
| Unsecured term loan due February 2027 | 200,000 | — | |||||||||
| Unsecured term loan due June 2027 | 500,000 | 500,000 | |||||||||
| 2.45% Senior Notes, Series G due 2027 (2) | 349,856 | 350,579 | |||||||||
| 3.85% Senior Notes due 2027 | 400,000 | 400,000 | |||||||||
| 4.00% Senior Notes due 2028 | 650,000 | 650,000 | |||||||||
| 5.398% Senior Notes, Series I due 2028 (2) | 441,924 | — | |||||||||
| 4.40% Senior Notes due 2029 | 750,000 | 750,000 | |||||||||
| 3.00% Senior Notes due 2030 | 650,000 | 650,000 | |||||||||
| 4.75% Senior Notes due 2030 | 500,000 | 500,000 | |||||||||
| 2.50% Senior Notes due 2031 | 500,000 | 500,000 | |||||||||
| 3.30% Senior Notes, Series H due 2031 (2) | 220,962 | 221,419 | |||||||||
| 6.90% Senior Notes due 2037 (3) | 52,400 | 52,400 | |||||||||
| 6.59% Senior Notes due 2038 (3) | 21,413 | 22,823 | |||||||||
| 5.70% Senior Notes due 2043 | 300,000 | 300,000 | |||||||||
| 4.375% Senior Notes due 2045 | 300,000 | 300,000 | |||||||||
| 4.875% Senior Notes due 2049 | 300,000 | 300,000 | |||||||||
| Mortgage loans and other | 3,106,323 | 2,436,443 | |||||||||
| Total | 13,479,362 | 12,361,244 | |||||||||
| Deferred financing costs, net | (87,172) | (63,410) | |||||||||
| Unamortized fair value adjustment | 17,547 | 23,535 | |||||||||
| Unamortized discounts | (21,239) | (24,589) | |||||||||
| Senior notes payable and other debt | $ | 13,388,498 | $ | 12,296,780 |
(1)As of September 30, 2023 and December 31, 2022, respectively, $12.5 million and $3.7 million of aggregate borrowings were denominated in Canadian dollars. Aggregate borrowings of $19.2 million and $21.5 million were denominated in British pounds as of September 30, 2023 and December 31, 2022, respectively.
(2)British Pound and Canadian Dollar debt obligations shown in US Dollars.
(3)Our 6.90% senior notes due 2037 are subject to repurchase at the option of the holders, at par, on October 1, 2037, and our 6.59% senior notes due 2038 are subject to repurchase at the option of the holders, at par, on July 7, 2028.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Facilities, Commercial Paper, Unsecured Term Loans and Letters of Credit
We have a $2.75 billion unsecured revolving credit facility priced at SOFR plus 0.925%, which is subject to adjustment based on the Company’s debt ratings. The unsecured revolving credit facility matures in January 2025, but may be extended at our option, subject to the satisfaction of certain conditions, for two additional periods of six months each. The unsecured revolving credit facility also includes an accordion feature that permits us to increase our aggregate borrowing capacity thereunder to up to $3.75 billion, subject to the satisfaction of certain conditions, including the receipt of additional commitments for such increase.
Our unsecured revolving credit facility imposed certain customary restrictions on us, including restrictions pertaining to: (i) liens; (ii) investments; (iii) the incurrence of additional indebtedness; (iv) mergers and dissolutions; (v) certain dividend, distribution and other payments; (vi) permitted businesses; (vii) transactions with affiliates; (viii) agreements limiting certain liens; and (ix) the maintenance of certain consolidated total leverage, secured debt leverage, unsecured debt leverage and fixed charge coverage ratios and minimum consolidated adjusted net worth, and contains customary events of default.
As of September 30, 2023, we had $2.7 billion of undrawn capacity on our unsecured revolving credit facility with $31.7 million outstanding and an additional $1.2 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.
As of September 30, 2023, our $100.0 million uncommitted line for standby letters of credit had an outstanding balance of $15.0 million. The agreement governing the line contains certain customary covenants and, under its terms, we are required to pay a commission on each outstanding letter of credit at a fixed rate.
Our wholly-owned subsidiary, Ventas Realty, Limited Partnership (“Ventas Realty”), may issue from time to time unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $1.0 billion. The notes are sold under customary terms in the U.S. commercial paper note market and are ranked pari passu with all of Ventas Realty’s other unsecured senior indebtedness. The notes are fully and unconditionally guaranteed by Ventas, Inc. As of September 30, 2023, we had no borrowings outstanding under our commercial paper program.
Ventas Realty has a $500.0 million unsecured term loan priced at Term SOFR plus 0.95%, which is subject to adjustment based on Ventas Realty’s debt ratings. This term loan is fully and unconditionally guaranteed by Ventas, Inc. It matures in June 2027 and includes an accordion feature that permits Ventas Realty to increase the 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.
On September 6, 2023, Ventas Realty entered into a $200.0 million unsecured term loan priced at SOFR plus 0.95%, which is subject to adjustment based on Ventas Realty’s debt ratings. This term loan is fully and unconditionally guaranteed by Ventas, Inc. It matures in February 2027 and includes an accordion feature that permits Ventas Realty to increase the aggregate borrowings thereunder to up to $500.0 million, subject to the satisfaction of certain conditions, including the receipt of additional commitments for such increase.
As of September 30, 2023, Ventas Canada Finance Limited, Ventas SSL Ontario II, Inc. and Ventas SSL Ontario III, Inc., as borrowers, had a C$500.0 million unsecured term loan facility priced at Canadian Dollar Offered Rate (“CDOR”) plus 0.90% that matures in January 2025.
Exchangeable Senior Notes
In June 2023, Ventas Realty issued $862.5 million aggregate principal amount of its 3.75% Exchangeable Senior Notes due 2026 (the “Exchangeable Notes”) in a private placement. The Exchangeable Notes are senior, unsecured obligations of Ventas Realty and are fully and unconditionally guaranteed on an unsecured and unsubordinated basis by Ventas. The Exchangeable Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2023. The Exchangeable Notes mature on June 1, 2026, unless earlier exchanged, redeemed or repurchased. The net proceeds from the Exchangeable Notes were primarily used to repay the CHC Mortgage Loan. As of September 30, 2023, we had $862.5 million aggregate principal amount of the Exchangeable Notes outstanding.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Exchangeable Notes are exchangeable at an initial exchange rate of 18.2460 shares of our common stock per $1,000 principal amount of Exchangeable Notes (equivalent to an initial exchange price of approximately $54.81 per share of common stock). The initial exchange rate is subject to adjustment, including in the event of the payment of a quarterly dividend in excess of $0.45 per share, but will not be adjusted for any accrued and unpaid interest. Upon exchange of the Exchangeable Notes, Ventas Realty will pay cash up to the aggregate principal amount of the Exchangeable Notes to be exchanged and pay or deliver (or cause to be delivered), as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at Ventas Realty’s election, in respect of the remainder, if any, of its exchange obligation in excess of the aggregate principal amount of the Exchangeable Notes being exchanged. Prior to the close of business on the business day immediately preceding March 1, 2026, the Exchangeable Notes will be exchangeable at the option of the noteholders only upon the satisfaction of specified conditions and during certain periods described in the indenture governing the Exchangeable Notes. On or after March 1, 2026, until the close of business on the business day immediately preceding the maturity date, the Exchangeable Notes will be exchangeable at the option of the noteholders at any time regardless of these conditions or periods.
We have evaluated and concluded that the exchange options embedded in our exchangeable senior notes are eligible for the entity’s own equity scope exception from ASC 815 and therefore, do not need to be bifurcated. Accordingly, we record our exchangeable senior notes as liabilities (included in senior notes payable and other debt on our Consolidated Balance Sheets).
Senior Notes
In April 2023, our 100% owned subsidiary, Ventas Canada Finance Limited (“Ventas Canada”), issued and sold C$600.0 million aggregate principal amount of 5.398% Senior Notes due 2028 in a private placement at par. Pursuant to cash tender offers, we used the proceeds to repurchase C$613.7 million in aggregate principal amount of outstanding senior notes due in 2024 for an aggregate purchase price of C$600.0 million plus accrued and unpaid interest as disclosed below:
-
In April 2023, we repurchased C$527.0 million principal amount of our 2.80% Senior Notes, Series E due April 2024 at 97.6% of par value, plus accrued and unpaid interest to, but not including, the settlement date.
-
In April 2023, we repurchased C$86.7 million principal amount of our 4.125% Senior Notes, Series B due September 2024 at 98.5% of par value, plus accrued and unpaid interest to, but not including, the settlement date.
As a result of the tender offers, we recognized a gain on extinguishment of debt of $8.3 million in our Consolidated Statements of Income for the nine months ended September 30, 2023.
Mortgages
In March 2023, we entered into a C$271.8 million floating rate mortgage loan maturing in 2028 with an interest rate of CDOR + 0.88%. The mortgage is secured by 14 SHOP communities in Canada.
On May 1, 2023, we took ownership of the properties that supported the Santerre Mezzanine Loan by converting the outstanding principal amount of the Santerre Mezzanine Loan to equity, with no additional consideration being paid. The properties consisted of a diverse pool of 153 assets, which, at the time, also secured the CHC Mortgage Loan. At the time of the equitization of the Santerre Mezzanine Loan, there was $1 billion outstanding under the CHC Mortgage Loan and it accrued interest at a weighted average rate of LIBOR + 1.84% and had matured on June 9, 2023. The CHC Mortgage Loan was recorded at fair value, which approximates par, on May 1, 2023.
On June 8, 2023, we voluntary prepaid, without penalty, $656.6 million of the CHC Mortgage Loan. In connection with the prepayment, 83 properties were released from the collateral securing the CHC Mortgage Loan.
On June 9, 2023, we extended the maturity date of the CHC Mortgage Loan to June 9, 2024 and amended the CHC Mortgage Loan to replace its LIBOR-based rates with SOFR-based rates.
In August 2023, we repaid the remaining balance of the CHC Mortgage Loan of $360.2 million at which time the CHC Mortgage Loan was no longer outstanding.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In July 2023, we entered into a $426.8 million fixed rate mortgage loan, which accrues interest at 5.91%, matures in 2033 and is secured by 19 SHOP communities in the United States. In October 2023, we purchased a $32.0 million tranche of this Company indebtedness at a discounted price, reducing the net effective interest rate of the mortgage loan to 5.60% and the net amount of the mortgage loan to $394.8 million.
As of September 30, 2023, our indebtedness had the following maturities (dollars in thousands):
| Principal Amount Due at Maturity | Unsecured Revolving Credit Facility and Commercial Paper Notes (1) | Scheduled Periodic Amortization | Total Maturities | ||||||||||||||||||||
| 2023 | $ | 69,697 | $ | — | $ | 14,068 | $ | 83,765 | |||||||||||||||
| 2024 | 1,226,139 | — | 49,573 | 1,275,712 | |||||||||||||||||||
| 2025 | 2,064,351 | 31,677 | 44,432 | 2,140,460 | |||||||||||||||||||
| 2026 | 1,911,778 | — | 38,272 | 1,950,050 | |||||||||||||||||||
| 2027 | 1,542,951 | — | 38,051 | 1,581,002 | |||||||||||||||||||
| Thereafter | 6,295,814 | — | 152,559 | 6,448,373 | |||||||||||||||||||
| Total maturities | $ | 13,110,730 | $ | 31,677 | $ | 336,955 | $ | 13,479,362 |
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.
We do not use derivative instruments for trading or speculative purposes, and we have a policy of entering into contracts only with major financial institutions based upon their credit ratings and other factors. When considered together with the underlying exposure that the derivative is designed to hedge, we do not expect that the use of derivatives in this manner would have any material adverse effect on our future financial condition or results of operations.
As of September 30, 2023, our variable rate debt obligations of $1.1 billion reflect, in part, the effect of $143.7 million notional amount of interest rate swaps with maturities in March 2027, that effectively convert fixed rate debt to variable rate debt.
As of September 30, 2023, our fixed rate debt obligations of $12.4 billion reflect, in part, the effect of $537.2 million and C$561.3 million notional amount of interest rate swaps with maturities ranging from October 2023 to April 2031, in each case, that effectively convert variable rate debt to fixed rate debt.
2023 Activity
In the first quarter of 2023, we hedged an incremental $200.0 million of variable rate debt to fixed rate debt through the execution in March 2023 of two-year $400.0 million notional swaps on our unsecured term loan due in June 2027, replacing a $200.0 million notional swap that matured in January 2023. The swap instruments are designated as cash flow hedges.
In March 2023, in connection with our new C$271.8 million mortgage loan, we entered into an interest rate swap totaling a notional amount of C$271.8 million with a maturity of March 14, 2028 that effectively converts CDOR-based floating rate debt to fixed rate debt.
In March and April 2023, we entered into a total of $250.0 million aggregate forward starting swaps with a ten-year weighted average rate of 3.37%. In July 2023, we terminated the above-mentioned forward starting swaps in conjunction with the issuance of the $426.8 million fixed rate mortgage loan due in 2033.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10—FAIR VALUE MEASUREMENTS
Overview
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that financial assets and liabilities carried at fair value be classified and disclosed in one of the following categories:
-
Level 1: Fair value calculated based on unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access.
-
Level 2: Fair value calculated using inputs other than quoted prices included in level one that are directly or indirectly observable for the asset or liability. Level two inputs may include quoted prices for similar assets and liabilities in active markets and other inputs for the asset or liability that are observable at commonly quoted intervals, such as interest rates, foreign exchange rates and yield curves.
-
Level 3: Fair value calculated using unobservable inputs for the asset or liability, which typically are based on our own assumptions, because there is little, if any, related market activity.
The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented are not necessarily indicative of the amounts we would realize in a current market exchange or transaction.
Financial Instruments Measured at Fair Value
The table below summarizes the carrying amounts and fair values of our financial instruments either recorded or disclosed on a recurring basis (dollars in thousands):
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents (1) | $ | 433,937 | $ | 433,937 | $ | 122,564 | $ | 122,564 | |||||||||||||||
| Escrow deposits and restricted cash (1) | 57,809 | 57,809 | 48,181 | 48,181 | |||||||||||||||||||
| Stock warrants (3)(5) | 34,906 | 34,906 | 23,621 | 23,621 | |||||||||||||||||||
| Secured mortgage loans and other, net (3)(4) | 27,823 | 27,853 | 493,669 | 493,627 | |||||||||||||||||||
| Non-mortgage loans receivable, net (3)(4)(5) | 24,587 | 23,396 | 24,338 | 23,416 | |||||||||||||||||||
| Government-sponsored pooled loan investments, net (3) | — | — | 43,406 | 43,406 | |||||||||||||||||||
| Derivative instruments (3)(5) | 48,713 | 48,713 | 24,316 | 24,316 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Senior notes payable and other debt, gross (3)(4) | 13,479,362 | 12,503,789 | 12,361,244 | 11,493,824 | |||||||||||||||||||
| Derivative instruments (3)(6) | 44 | 44 | 145 | 145 | |||||||||||||||||||
| Redeemable OP Units (2) | 153,351 | 153,351 | 162,663 | 162,663 |
(1)The carrying amount approximates fair value due to the short maturity of these instruments.
(2)Level 1 within fair value hierarchy.
(3)Level 2 within fair value hierarchy.
(4)Level 3 within fair value hierarchy.
(5)Included in other assets on our Consolidated Balance Sheets.
(6)Included in accounts payable and other liabilities on our Consolidated Balance Sheets.
Other Items Measured at Fair Value on a Nonrecurring Basis
Real estate recorded as held for sale and any associated real estate impairment recorded due to the shortening of the expected hold period due to our change in intent to hold the asset (see “Note 4 – Dispositions And Impairments”) are measured at fair value on a nonrecurring basis. We estimate the fair value of assets held for sale and any associated impairment charges based primarily on current sales price expectations, which reside within Level 2 of the fair value hierarchy.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Real estate impairment charges recorded due to our evaluation of recoverability when events or changes in circumstances indicate the carrying amount may not be recoverable are based on company-specific inputs and our assumptions about the marketability of the properties as observable inputs are not available. As such, we have determined that these fair value measurements generally reside within Level 3 of the fair value hierarchy. We estimate the fair value of real estate deemed to not be recoverable using the income approach and unobservable data such as net operating income and estimated capitalization and discount rates, and giving consideration to local and national industry market data including comparable sales.
The fair value of the collateral received in connection with the equitization of the Santerre Mezzanine Loan on May 1, 2023 was determined using fair value determinations within Level 1, 2 and 3 of the fair value hierarchy. The fair value of the non-real estate assets and liabilities was based on their cost, given the short term nature of those balances and because cost was the best information available, which reside within Level 1 of the fair value hierarchy. The fair value of the CHC Mortgage Loan, which approximates par, was based on the absence of recent underlying trading activity, consideration of the near-term maturity date and adjustments for the credit-worthiness of the borrower, which reside within Level 2 of the fair value hierarchy.
The fair value of the real estate properties that secured the Santerre Mezzanine Loan of $1.566 billion (net of $31.8 million of capital expenditures) on May 1, 2023 was determined using unobservable inputs primarily within Level 3 of the fair value hierarchy. For SHOP and outpatient medical properties, fair value was based on either an income or market approach that took into account unobservable inputs such as direct capitalization rates, estimated NOI, market rents, costs per unit, replacement cost and estimates of future cash flows, which are based on a number of factors including historical operating results, known trends and market and economic conditions. For the majority of the SHOP properties, fair value was based on an income approach with significant unobservable inputs that included an average direct capitalization rate of 6.8% on estimated expected stabilized NOI, adjusted based on cost per unit in certain cases. For the majority of the outpatient medical properties, fair value was based on an income approach with significant unobservable inputs that included an average direct capitalization rate of 6.7% on estimated expected stabilized NOI, adjusted based on cost per square foot in certain cases. For triple-net leased properties, fair value was primarily based on an average estimated per bed value by property by state of $88,000, which was determined based on an assessment of recent transactions adjusted for property, operator and other characteristics such as contractual rent, tenant payment history, underlying operating trends, reimbursement rates and other market data.
NOTE 11—COMMITMENTS AND CONTINGENCIES
From time to time, we are party to various lawsuits, investigations, claims and other legal and regulatory proceedings arising in connection with our business. In certain circumstances, regardless of whether we are a named party in a lawsuit, investigation, claim or other legal or regulatory proceeding, we may be contractually obligated to indemnify, defend and hold harmless our tenants, operators, managers or other third parties against, or may otherwise be responsible for, such actions, proceedings or claims. These claims may include, among other things, professional liability and general liability claims, commercial liability claims, unfair business practices claims and employment claims, as well as regulatory proceedings, including proceedings related to our senior housing operating portfolio, where we are typically the holder of the applicable healthcare license. These claims may not be fully insured and some may allege large damage amounts.
It is the opinion of management, that the disposition of any such lawsuits, investigations, claims and other legal and regulatory proceedings that are currently pending will not, individually or in the aggregate, have a material adverse effect on us. However, regardless of the merits of a particular action, investigation or claim, we may be forced to expend significant financial resources to defend and resolve these matters. We are unable to predict the ultimate outcome of these lawsuits, investigations, claims and other legal and regulatory proceedings, and if management’s assessment of our liability with respect thereto is incorrect, such actions, investigations and claims could have a material adverse effect on us.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12—INCOME TAXES
We have elected to be taxed as a REIT under the applicable provisions of the Internal Revenue Code of 1986, as amended, for every year beginning with the year ended December 31, 1999. We have also elected for certain of our subsidiaries to be treated as taxable REIT subsidiaries (“TRS” or “TRS entities”), which are subject to federal, state and foreign income taxes. All entities other than the TRS entities are collectively referred to as the “REIT” within this note. Certain REIT entities are subject to foreign income tax.
Although the TRS entities and certain other foreign entities have paid minimal federal, state and foreign income taxes for the nine months ended September 30, 2023, their income tax liabilities may increase in future periods as we exhaust net operating loss (“NOL”) carryforwards and as our senior living and other operations grow. Such increases could be significant.
Our consolidated provision for income taxes for the three months ended September 30, 2023 and 2022 was a benefit of $1.7 million and a benefit of $6.0 million, respectively. Our consolidated provision for income taxes for the nine months ended September 30, 2023 and 2022 was a benefit of $14.2 million and a benefit of $14.3 million, respectively. The income tax benefit for the three and nine months ended September 30, 2023 was primarily due to losses in certain of our TRS entities and a $8.0 million benefit from internal restructurings of U.S. TRS entities. The income tax benefit for the three and nine months ended September 30, 2022 was primarily due to losses in certain of our TRS entities and a $2.0 million benefit from an internal restructuring of a U.S. TRS.
Each TRS is a tax paying component for purposes of classifying deferred tax assets and liabilities. Deferred tax liabilities with respect to our TRS entities totaled $26.1 million and $35.6 million as of September 30, 2023 and December 31, 2022, respectively, and related primarily to differences between the financial reporting and tax bases of fixed and intangible assets, net of loss carryforwards. Deferred tax assets with respect to our TRS entities totaled $7.2 million and $10.5 million as of September 30, 2023 and December 31, 2022, respectively, and related primarily to loss carryforwards.
Generally, we are subject to audit under the statute of limitations by the Internal Revenue Service for the year ended December 31, 2019 and subsequent years and are subject to audit by state taxing authorities for the year ended December 31, 2018 and subsequent years. We are subject to audit generally under the statutes of limitation by the Canada Revenue Agency and provincial authorities with respect to the Canadian entities for the year ended December 31, 2018 and subsequent years. We are subject to audit in the United Kingdom generally for periods ended in and subsequent to 2021.
NOTE 13—STOCKHOLDERS' EQUITY
Capital Stock
We participate in an “at-the-market” equity offering program (“ATM program”), pursuant to which we may, from time to time, sell up to $1.0 billion aggregate gross sales price of shares of our common stock. During the three months ended September 30, 2023, we sold 1.8 million shares of our common stock under our ATM program for gross proceeds of $84.8 million, representing an average price of $48.19 per share. During the nine months ended September 30, 2023, we sold 2.3 million shares of our common stock under our ATM program for gross proceeds of $110.4 million, representing an average price of $47.89 per share. As of September 30, 2023, the remaining amount available under our ATM program for future sales of common stock was $889.6 million.
Accumulated Other Comprehensive Loss
The following is a summary of our accumulated other comprehensive loss (dollars in thousands):
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| Foreign currency translation loss | $ | (57,252) | $ | (60,364) | |||||||
| Unrealized gain on derivative instruments | 51,070 | 23,564 | |||||||||
| Total accumulated other comprehensive loss | $ | (6,182) | $ | (36,800) |
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14—EARNINGS PER SHARE
The following table shows the amounts used in computing our basic and diluted earnings per share (in thousands, except per share amounts):
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Numerator for basic and diluted earnings per share: | |||||||||||||||||||||||
| (Loss) income from continuing operations | $ | (69,559) | $ | 3,063 | $ | 54,419 | $ | 2,453 | |||||||||||||||
| Net (loss) income | (69,559) | 3,063 | 54,419 | 2,453 | |||||||||||||||||||
| Net income attributable to noncontrolling interests | 1,565 | 1,807 | 4,573 | 4,881 | |||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (71,124) | $ | 1,256 | $ | 49,846 | $ | (2,428) | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Denominator for basic earnings per share—weighted average shares | 402,859 | 399,646 | 401,424 | 399,513 | |||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Stock options | — | — | — | 11 | |||||||||||||||||||
| Restricted stock awards | 327 | 381 | 268 | 390 | |||||||||||||||||||
| OP unitholder interests | 3,469 | 3,516 | 3,474 | 3,517 | |||||||||||||||||||
| Denominator for diluted earnings per share—adjusted weighted average shares | 406,655 | 403,543 | 405,166 | 403,431 | |||||||||||||||||||
| Basic earnings per share: | |||||||||||||||||||||||
| (Loss) income from continuing operations | $ | (0.17) | $ | 0.01 | $ | 0.14 | $ | 0.01 | |||||||||||||||
| Net (loss) income attributable to common stockholders | (0.18) | 0.00 | 0.12 | (0.01) | |||||||||||||||||||
| Diluted earnings per share: (1) | |||||||||||||||||||||||
| (Loss) income from continuing operations | $ | (0.17) | $ | 0.01 | $ | 0.13 | $ | 0.01 | |||||||||||||||
| Net (loss) income attributable to common stockholders | (0.18) | 0.00 | 0.12 | (0.01) | |||||||||||||||||||
(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.
The dilutive effect of our Exchangeable Notes is calculated using the if-converted method in accordance with ASU 2020-06. We are required, pursuant to the indenture governing the Exchangeable Notes, to settle the aggregate principal amount of the Exchangeable Notes in cash and may elect to settle any remaining exchange obligation (i.e., the stock price in excess of the exchange obligation) in cash, shares of our common stock, or a combination thereof. Under the if-converted method, we include the number of shares required to satisfy the exchange obligation, assuming all the Exchangeable Notes are exchanged. The average closing price of our common stock for the three and nine months ended September 30, 2023 is used as the basis for determining the dilutive effect on earnings per share. The average price of our common stock for each of the three and nine months ended September 30, 2023 was less than the initial exchange price of $54.81 and, therefore, all associated shares were antidilutive.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 15—SEGMENT INFORMATION
As of September 30, 2023, we operated through three reportable business segments: triple-net leased properties, SHOP and outpatient medical and research portfolio. In our triple-net leased properties reportable business segment, we invest in and own senior housing and healthcare properties throughout the United States and the United Kingdom and lease those properties to healthcare operating companies under triple-net or absolute-net leases that obligate the tenants to pay all property-related expenses. In our SHOP reportable business segment, we invest in senior housing communities throughout the United States and Canada and engage operators, such as Atria and Sunrise, to manage those communities. In our outpatient medical and research portfolio reportable business segment, we primarily acquire, own, develop, lease and manage outpatient medical buildings and research centers throughout the United States. Information provided for “non-segment” includes management fees and promote revenues, net of expenses related to our third-party institutional capital management business, income from loans and investments 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 maker evaluates performance of the combined properties in each reportable business segment and determines how to allocate resources to those segments, in significant part, based on NOI and related measures for each segment. We define NOI as total revenues, less interest and other income, property-level operating expenses and third party capital management expenses. We consider NOI useful because it allows investors, analysts and our management to measure unlevered property-level operating results and to compare our operating results to the operating results of other real estate companies between periods on a consistent basis. In order to facilitate a clear understanding of our historical consolidated operating results, NOI should be examined in conjunction with net income attributable to common stockholders as presented in our Consolidated Financial Statements and other financial data included elsewhere in this Quarterly Report on Form 10-Q. See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and reconciliations of net income attributable to common stockholders, as computed in accordance with GAAP, to NOI.
Interest expense, depreciation and amortization, general, administrative and professional fees, income tax expense and other non-property-specific revenues and expenses are not allocated to individual reportable business segments for purposes of assessing segment performance. There are no intersegment sales or transfers.
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Summary information by reportable business segment is as follows (dollars in thousands):
| For the Three Months Ended September 30, 2023 | |||||||||||||||||||||||||||||
| SHOP | Outpatient Medical and Research Portfolio | Triple-Net Leased Properties | Non-Segment | Total | |||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Rental income | $ | — | $ | 226,326 | $ | 159,812 | $ | — | $ | 386,138 | |||||||||||||||||||
| Resident fees and services | 754,417 | — | — | — | 754,417 | ||||||||||||||||||||||||
| Third party capital management revenues | — | 662 | — | 4,653 | 5,315 | ||||||||||||||||||||||||
| Income from loans and investments | — | — | — | 1,208 | 1,208 | ||||||||||||||||||||||||
| Interest and other income | — | — | — | 2,754 | 2,754 | ||||||||||||||||||||||||
| Total revenues | $ | 754,417 | $ | 226,988 | $ | 159,812 | $ | 8,615 | $ | 1,149,832 | |||||||||||||||||||
| Total revenues | $ | 754,417 | $ | 226,988 | $ | 159,812 | $ | 8,615 | $ | 1,149,832 | |||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||
| Interest and other income | — | — | — | 2,754 | 2,754 | ||||||||||||||||||||||||
| Property-level operating expenses | 573,715 | 78,915 | 3,847 | — | 656,477 | ||||||||||||||||||||||||
| Third party capital management expenses | — | — | — | 1,472 | 1,472 | ||||||||||||||||||||||||
| NOI | $ | 180,702 | $ | 148,073 | $ | 155,965 | $ | 4,389 | 489,129 | ||||||||||||||||||||
| Interest and other income | 2,754 | ||||||||||||||||||||||||||||
| Interest expense | (147,919) | ||||||||||||||||||||||||||||
| Depreciation and amortization | (370,377) | ||||||||||||||||||||||||||||
| General, administrative and professional fees | (33,297) | ||||||||||||||||||||||||||||
| Loss on extinguishment of debt, net | (612) | ||||||||||||||||||||||||||||
| Transaction expenses and deal costs | (7,125) | ||||||||||||||||||||||||||||
| Allowance on loans receivable and investments | 66 | ||||||||||||||||||||||||||||
| Other | (9,432) | ||||||||||||||||||||||||||||
| Loss from unconsolidated entities | (5,119) | ||||||||||||||||||||||||||||
| Gain on real estate dispositions | 10,711 | ||||||||||||||||||||||||||||
| Income tax benefit | 1,662 | ||||||||||||||||||||||||||||
| Loss from continuing operations | (69,559) | ||||||||||||||||||||||||||||
| Net loss | (69,559) | ||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 1,565 | ||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | (71,124) |
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| For the Three Months Ended September 30, 2022 | |||||||||||||||||||||||||||||
| SHOP | Outpatient Medical and Research Portfolio | Triple-Net Leased Properties | Non-Segment | Total | |||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Rental income | $ | — | $ | 200,867 | $ | 150,115 | $ | — | $ | 350,982 | |||||||||||||||||||
| Resident fees and services | 668,583 | — | — | — | 668,583 | ||||||||||||||||||||||||
| Third party capital management revenues | — | 547 | — | 4,003 | 4,550 | ||||||||||||||||||||||||
| Income from loans and investments | — | — | — | 12,672 | 12,672 | ||||||||||||||||||||||||
| Interest and other income | — | — | — | 489 | 489 | ||||||||||||||||||||||||
| Total revenues | $ | 668,583 | $ | 201,414 | $ | 150,115 | $ | 17,164 | $ | 1,037,276 | |||||||||||||||||||
| Total revenues | $ | 668,583 | $ | 201,414 | $ | 150,115 | $ | 17,164 | $ | 1,037,276 | |||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||
| Interest and other income | — | — | — | 489 | 489 | ||||||||||||||||||||||||
| Property-level operating expenses | 499,972 | 66,098 | 3,756 | — | 569,826 | ||||||||||||||||||||||||
| Third party capital management expenses | — | — | — | 1,750 | 1,750 | ||||||||||||||||||||||||
| NOI | $ | 168,611 | $ | 135,316 | $ | 146,359 | $ | 14,925 | 465,211 | ||||||||||||||||||||
| Interest and other income | 489 | ||||||||||||||||||||||||||||
| Interest expense | (119,413) | ||||||||||||||||||||||||||||
| Depreciation and amortization | (301,481) | ||||||||||||||||||||||||||||
| General, administrative and professional fees | (35,421) | ||||||||||||||||||||||||||||
| Loss on extinguishment of debt, net | (574) | ||||||||||||||||||||||||||||
| Transaction expenses and deal costs | (4,782) | ||||||||||||||||||||||||||||
| Allowance on loans receivable and investments | 63 | ||||||||||||||||||||||||||||
| Other | (9,162) | ||||||||||||||||||||||||||||
| Income from unconsolidated entities | 1,970 | ||||||||||||||||||||||||||||
| Gain on real estate dispositions | 136 | ||||||||||||||||||||||||||||
| Income tax benefit | 6,027 | ||||||||||||||||||||||||||||
| Income from continuing operations | 3,063 | ||||||||||||||||||||||||||||
| Net income | 3,063 | ||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 1,807 | ||||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 1,256 |
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| For the Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||
| SHOP | Outpatient Medical and Research Portfolio | Triple-Net Leased Properties | Non-Segment | Total | |||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Rental income | $ | — | $ | 645,137 | $ | 463,906 | $ | — | $ | 1,109,043 | |||||||||||||||||||
| Resident fees and services | 2,184,024 | — | — | — | 2,184,024 | ||||||||||||||||||||||||
| Third party capital management revenues | — | 1,849 | — | 11,639 | 13,488 | ||||||||||||||||||||||||
| Income from loans and investments | — | — | — | 21,351 | 21,351 | ||||||||||||||||||||||||
| Interest and other income | — | — | — | 5,529 | 5,529 | ||||||||||||||||||||||||
| Total revenues | $ | 2,184,024 | $ | 646,986 | $ | 463,906 | $ | 38,519 | $ | 3,333,435 | |||||||||||||||||||
| Total revenues | $ | 2,184,024 | $ | 646,986 | $ | 463,906 | $ | 38,519 | $ | 3,333,435 | |||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||
| Interest and other income | — | — | — | 5,529 | 5,529 | ||||||||||||||||||||||||
| Property-level operating expenses | 1,658,047 | 217,999 | 11,180 | — | 1,887,226 | ||||||||||||||||||||||||
| Third party capital management expenses | — | — | — | 4,614 | 4,614 | ||||||||||||||||||||||||
| NOI | $ | 525,977 | $ | 428,987 | $ | 452,726 | $ | 28,376 | 1,436,066 | ||||||||||||||||||||
| Interest and other income | 5,529 | ||||||||||||||||||||||||||||
| Interest expense | (419,259) | ||||||||||||||||||||||||||||
| Depreciation and amortization | (957,185) | ||||||||||||||||||||||||||||
| General, administrative and professional fees | (112,494) | ||||||||||||||||||||||||||||
| Gain on extinguishment of debt, net | 6,189 | ||||||||||||||||||||||||||||
| Transaction expenses and deal costs | (11,580) | ||||||||||||||||||||||||||||
| Allowance on loans receivable and investments | 20,195 | ||||||||||||||||||||||||||||
| Gain on foreclosure of real estate | 29,127 | ||||||||||||||||||||||||||||
| Other | 765 | ||||||||||||||||||||||||||||
| Income from unconsolidated entities | 20,512 | ||||||||||||||||||||||||||||
| Gain on real estate dispositions | 22,317 | ||||||||||||||||||||||||||||
| Income tax benefit | 14,237 | ||||||||||||||||||||||||||||
| Income from continuing operations | 54,419 | ||||||||||||||||||||||||||||
| Net income | 54,419 | ||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 4,573 | ||||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 49,846 |
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| For the Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||
| SHOP | Outpatient Medical and Research Portfolio | Triple-Net Leased Properties | Non-Segment | Total | |||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Rental income | $ | — | $ | 600,648 | $ | 451,073 | $ | — | $ | 1,051,721 | |||||||||||||||||||
| Resident fees and services | 1,977,760 | — | — | — | 1,977,760 | ||||||||||||||||||||||||
| Third party capital management revenues | — | 1,834 | — | 10,991 | 12,825 | ||||||||||||||||||||||||
| Income from loans and investments | — | — | — | 33,271 | 33,271 | ||||||||||||||||||||||||
| Interest and other income | — | — | — | 2,191 | 2,191 | ||||||||||||||||||||||||
| Total revenues | $ | 1,977,760 | $ | 602,482 | $ | 451,073 | $ | 46,453 | $ | 3,077,768 | |||||||||||||||||||
| Total revenues | $ | 1,977,760 | $ | 602,482 | $ | 451,073 | $ | 46,453 | $ | 3,077,768 | |||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||
| Interest and other income | — | — | — | 2,191 | 2,191 | ||||||||||||||||||||||||
| Property-level operating expenses | 1,482,948 | 192,609 | 11,349 | — | 1,686,906 | ||||||||||||||||||||||||
| Third party capital management expenses | — | — | — | 4,473 | 4,473 | ||||||||||||||||||||||||
| NOI | $ | 494,812 | $ | 409,873 | $ | 439,724 | $ | 39,789 | 1,384,198 | ||||||||||||||||||||
| Interest and other income | 2,191 | ||||||||||||||||||||||||||||
| Interest expense | (344,158) | ||||||||||||||||||||||||||||
| Depreciation and amortization | (873,620) | ||||||||||||||||||||||||||||
| General, administrative and professional fees | (111,334) | ||||||||||||||||||||||||||||
| Loss on extinguishment of debt, net | (581) | ||||||||||||||||||||||||||||
| Transaction expenses and deal costs | (37,852) | ||||||||||||||||||||||||||||
| Allowance on loans receivable and investments | 179 | ||||||||||||||||||||||||||||
| Other | (30,088) | ||||||||||||||||||||||||||||
| Loss from unconsolidated entities | (3,346) | ||||||||||||||||||||||||||||
| Gain on real estate dispositions | 2,557 | ||||||||||||||||||||||||||||
| Income tax benefit | 14,307 | ||||||||||||||||||||||||||||
| Income from continuing operations | 2,453 | ||||||||||||||||||||||||||||
| Net income | 2,453 | ||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 4,881 | ||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | (2,428) |
Capital expenditures, including investments in real estate property and development project expenditures, by reportable business segment are as follows (dollars in thousands):
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Capital Expenditures: | |||||||||||||||||||||||
| SHOP | $ | 99,115 | $ | 114,453 | $ | 254,795 | $ | 313,396 | |||||||||||||||
| Outpatient medical and research portfolio | 62,455 | 44,150 | 143,073 | 403,976 | |||||||||||||||||||
| Triple-net leased properties | 1,006 | 1,268 | 6,765 | 3,676 | |||||||||||||||||||
| Total capital expenditures | $ | 162,576 | $ | 159,871 | $ | 404,633 | $ | 721,048 |
VENTAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Our portfolio of properties and mortgage loan and other investments are located in the United States, Canada and the United Kingdom. Revenues are attributed to an individual country based on the location of each property. Geographic information regarding our operations is as follows (dollars in thousands):
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| United States | $ | 1,025,544 | $ | 918,106 | $ | 2,967,419 | $ | 2,719,097 | |||||||||||||||
| Canada | 116,926 | 112,550 | 344,372 | 337,503 | |||||||||||||||||||
| United Kingdom | 7,362 | 6,620 | 21,644 | 21,168 | |||||||||||||||||||
| Total revenues | $ | 1,149,832 | $ | 1,037,276 | $ | 3,333,435 | $ | 3,077,768 |
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| Net Real Estate Property: | |||||||||||
| United States | $ | 19,110,447 | $ | 18,168,224 | |||||||
| Canada | 2,775,041 | 2,782,350 | |||||||||
| United Kingdom | 203,293 | 209,876 | |||||||||
| Total net real estate property | $ | 22,088,781 | $ | 21,160,450 |
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