Chronicle Journal: Finance

Ventas Reports 2020 Second Quarter Results

Ventas, Inc. (NYSE: VTR) (the “Company”) today reported results for the second quarter ended June 30, 2020. The Company also provided an update regarding how its operations and financial condition have been affected by the COVID-19 pandemic.

“Our second quarter results demonstrate the significant benefit of Ventas’s diversified portfolio. We achieved strong performance in our Office and Triple-Net Lease segments, which partially offset the unprecedented impact of the COVID-19 pandemic on our senior housing operating portfolio,” said Debra A. Cafaro, Ventas Chairman and CEO. “During the quarter, we focused on the health and safety of our employees and those individuals using our properties as a first priority. We also took decisive actions to keep Ventas strong and stable and to weather the initial impact of the pandemic. We are also pleased to have reached mutually beneficial agreements with our two largest senior housing tenants, which provide certainty, flexibility and the opportunity for upside participation in the industry’s recovery,” she added.

“Healthcare real estate continues to offer compelling, demographically driven growth potential, and Ventas is well positioned to benefit from these powerful tailwinds. However, the near-term clinical, financial, operational and economic environment remains dynamic and highly uncertain. We are confident that we have the experience, team, operators and diverse portfolio to manage through these uncertainties,” Cafaro concluded.

Justin Hutchens, the Company’s Executive Vice President of Senior Housing, North America, commented, “Second quarter SHOP results were in line with our expectations. Following the significant impact of the COVID-19 pandemic in April, our leading indicators and move-ins showed sustained improvement through the end of the second quarter and into July. Currently, nearly all of our communities are accepting new move-ins and offering a richer living environment for the benefit of seniors and their families. SHOP occupancy in July showed a modest sequential decline, albeit at an improved rate versus the second quarter, because move-ins are still below move-outs. There is resilient demand for senior housing, and we continue to work with our operators to stabilize occupancy and maintain our focus on health and safety.”

Decisive Actions for Strength and Stability

  • Mutually Beneficial Arrangements with Two Largest Tenants in Triple Net (“NNN”) Senior Housing:
    • Ventas reached mutually beneficial arrangements with Brookdale Senior Living Inc. (“Brookdale”), the nation’s largest senior housing operator, to proactively address the financial impact of the COVID-19 pandemic. These arrangements provide certainty, flexibility and the opportunity for upside, while enhancing Brookdale’s stability. Ventas reset Brookdale’s annual cash rent to $100 million, and received up-front consideration approximating $235 million (including $162 million in cash), representing over two and a half years of the cash rent reduction. Warrants exercisable at $3 per share through December 31, 2025 for eight percent of Brookdale’s fully diluted shares were included in the up-front consideration, providing Ventas shareholders with the opportunity for meaningful upside participation in any industry recovery.
    • The Company effectively converted 26 Holiday-operated independent living communities to a SHOP operating model from a NNN lease, and received $100 million in consideration. This transaction enables Ventas to retain upside in the communities over time, receive significant value from the lease guarantor and preserve operational flexibility.
  • Enhancing Ventas Cost Structure, Liquidity and Financial Strength:
    • In mid-June, Ventas adjusted its corporate cost structure in response to the impact of COVID-19 on the Company’s business and to enhance operational efficiency and effectiveness. The Company eliminated roles representing over 25 percent of its corporate positions. As a result of these actions and reductions in senior executive compensation for the year, the Company expects that its third quarter 2020 annualized G&A expense will be approximately $25 to $30 million lower than the level reported in FY 2019.
    • The Ventas Board declared a second quarter dividend of $0.45 per share, enabling the Company, as a prudent measure, to conserve approximately $130 million of cash per quarter compared to the prior quarter dividend distribution.
    • Ventas has reduced its planned 2020 capital expenditures by $0.3 billion to approximately $0.5 billion. The Company expects to fund remaining 2020 development and redevelopment capital expenditures through committed financing.
    • The Company took further steps to strengthen its balance sheet and enhance its liquidity position. Ventas raised $0.5 billion through a senior note issuance in March 2020 and paid down substantially all of its borrowings under its $3.0 billion Revolving Credit Facility in June and July 2020. As of August 5, 2020, the Company has ample liquidity of $3.5 billion, including $2.9 billion of undrawn revolver capacity and $0.6 billion in cash and cash equivalents on hand, and no commercial paper outstanding.
    • The Company ended the quarter with an annualized Adjusted Net Debt to EBITDA ratio of 6.3x and Total Indebtedness to Gross Asset Value of 37 percent.

Second Quarter 2020 Results

Second quarter 2020 financial results for the Company were materially affected by the COVID-19 pandemic. The Company recorded $260 million in non-cash items as a result of its evaluation of the value of certain of its assets and the go forward collectability of certain of its future rents as a result of the pandemic’s impact primarily on senior housing. Results per share are as follows:

Quarter Ended June 30

2020

2019

$ Change

% Change

Net (loss) income attributable to common stockholders (“Net Income (Loss)”)

$(0.42)

$0.58

$(1.00)

(172%)

Reported Funds from Operations, as defined by the National Association of Real Estate Investment Trusts (“Nareit FFO”)

$0.50

$1.13

$(0.63)

(56%)

Normalized Funds from Operations (“FFO”)

$0.77

$0.97

$(0.20)

(21%)

The following table compares the Company’s actual results for Net Income (Loss), Nareit FFO and Normalized FFO per share for second quarter 2020 to second quarter 2019:

Q2 2020 Results Compared to Q2 2019, Per Share

Net Income (Loss)

Nareit FFO

Normalized FFO

Q2 2019 per share reported results

$0.58

$1.13

$0.97

Property Level Net Operating Income (Loss)

(0.19)

(0.19)

(0.19)

Impact of Holiday Lease Termination

0.13

0.13

Write-off of straight-line rental income, net of NCI

(0.14)

(0.14)

Non-cash income tax (expense) / benefit

(0.31)

(0.31)

Allowance on loan investments and impairment of unconsolidated entities

(0.11)

(0.11)

Real estate depreciation and amortization

(0.31)

(Gain)/Loss on sale of real estate assets

(0.05)

Other Items

(0.02)

(0.02)

(0.01)

Q2 2020 per share reported results

$(0.42)

$0.50

$0.77

See page 35 of the second quarter 2020 supplemental for additional information.

Second Quarter Property Results, SHOP Clinical Results and Third Quarter Information

Property Performance: For the second quarter 2020, as expected, the Company’s reported year-over-year same-store total property portfolio (1,074 assets, representing 92 percent of the Company’s cash net operating income (“NOI”)) declined compared to the same period in 2019 driven primarily by the impact of the COVID-19 pandemic. All COVID-19 impacts, including testing, labor, cleaning and supplies, have been reflected in property operating results. The Company’s sequential same-store total property portfolio (1,128 assets, representing 97 percent of the Company’s cash NOI) declined in the second quarter 2020 versus the first quarter 2020 for the same reason.

 

 

Same-Store Cash NOI Growth

 

Q2 2020

 

Vs. Q2 2019

(1,074 assets)

Vs. Q1 2020

(1,128 assets)

 

NNN

 

1.4% / $2M

(2.7%) / $(4)M

SHOP

 

(42.7%) / $(65)M

(35.9%) / $(59)M

Office

 

2.7% / $4M

(1.4%) / $(2)M

Total Company

 

(13.6%) / $(59)M

(14.2%) / $(65)M

For the second quarter 2020:

  • NNN Portfolio (39 percent of NOI): Same-store cash NOI growth was due to the receipt of substantially all expected rent from the Company’s NNN tenants, including in-place lease escalations. Sequential performance was negatively impacted by a $3 million cash fee received from Capital Senior Living in the NNN senior housing portfolio in the first quarter. The Company has also received substantially all July rents in this portfolio.
  • SHOP Portfolio (27 percent of NOI): For the sequential same-store pool (390 assets), cash NOI totaled $106 million, and declined $59 million, in line with the Company’s expectations regarding impact from COVID-19. Compared to the first quarter, second quarter average occupancy declined 470 basis points, from 86.9 percent to 82.2 percent, and operating costs increased.
    • Leading Indicators: Within the quarter, leading indicators and move-ins improved from April through the end of June on a sustained basis. In June, leads and move-ins were 77 percent and 70 percent, respectively, as compared to prior year.
    • Occupancy: Occupancy loss was most concentrated in April, and declined at an improving rate intra quarter through the end of June. New resident move-ins continued to be lower than move-outs in each month, at a narrowing gap, which resulted in continued occupancy loss. At the end of the second quarter, occupancy stood at approximately 80.6 percent.
    • Rate: Revenue per occupied room (“RevPOR”) declined minimally year-over-year and 290 basis points sequentially, as the COVID-19 pandemic caused disproportionately large occupancy loss concentrated in higher rate New York and New Jersey markets.
    • Operating Expenses: Operating expenses increased by 3.4 percent sequentially. The quarter included $42 million of COVID-19 related expenses, partially offset by lower non-COVID-19 operating and management fee expenses. COVID-19 operating expense increases trended more favorably intra-quarter as labor hours were reduced and supply costs eased.
    • SHOP Clinical Results and Third Quarter Trends:
      • In July, leads and move-ins continued to improve sequentially, and point-to-point occupancy declined approximately 50 basis points, or about one third the average rate per month experienced in the second quarter.
      • 96 percent of our communities are currently open to new resident move-ins.
      • Our operators have administered COVID-19 tests for over 69,000 front line caregivers and residents.
      • Despite the increase in testing, confirmed COVID-19 cases amongst SHOP residents has continued to improve, from 26 residents per day in April to five per day currently. There are approximately 40,000 SHOP residents in our portfolio.
      • 89 percent of our communities have either never had a confirmed COVID-19 resident case or have not had a confirmed COVID-19 resident case in the last 14 days.
  • Office Portfolio (30 percent of NOI): The Office portfolio showed outstanding performance in the second quarter, delivering strong year-over-year same-store cash NOI growth led by the Company’s university-based Research & Innovation portfolio and stable performance from the Medical Office Building business. The Company received 99 percent of second quarter contractual rent. The Company has already received 97 percent of July Office rents.

Other Recent Highlights & Developments

  • Marguerite M. Nader Appointed to Board of Directors:Marguerite M. Nader, President and Chief Executive Officer, Equity LifeStyle Properties, Inc., has been appointed as an independent member of the Company’s Board of Directors. Nader is a seasoned real estate executive with deep real estate and financial experience and an outstanding record of shareholder value creation.
  • Environmental, Social and Governance (ESG) Recognition: Ventas was named as the top real estate company, and #32 overall, in 3BL Media’s 100 Best Corporate Citizens of 2020.

Second Quarter 2020 Conference Call and Investor Presentation

Ventas will hold a conference call to discuss this earnings release today at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). The dial-in number for the conference call is (844) 776-7841 (or +1 (661) 378-9542 for international callers), and the participant passcode is “Ventas.” The call will also be webcast live by Intrado DM and can be accessed at the Company’s website at www.ventasreit.com. A replay of the call will be available at the Company’s website, or by calling (855) 859-2056 (or +1 (404) 537-3406 for international callers), passcode 5654536, beginning on August 7, 2020, at approximately 1:00 p.m. Eastern Time and will remain available for 30 days.

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

About Ventas

Ventas, Inc. (together with its subsidiaries, unless otherwise expressly noted), an S&P 500 company, is a real estate investment trust with a highly diversified portfolio of senior housing, research and innovation, and healthcare properties located throughout the United States, Canada and the United Kingdom. As of March 31, 2020, Ventas owned or managed through unconsolidated joint ventures approximately 1,200 properties (including properties classified as held for sale), consisting of senior housing communities, medical office buildings, research and innovation centers, inpatient rehabilitation and long-term acute care facilities, and health systems. Through its Lillibridge subsidiary, Ventas provides management, leasing, marketing, facility development and advisory services to highly rated hospitals and health systems throughout the United States. More information about Ventas and Lillibridge can be found at www.ventasreit.com and www.lillibridge.com.

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

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

This press release also includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding the Company’s or its tenants’, operators’, borrowers’ or managers’ expected future financial condition, results of operations, cash flows, funds from operations, dividends and dividend plans, financing opportunities and plans, capital markets transactions, business strategy, budgets, projected costs, operating metrics, capital expenditures, competitive positions, acquisitions, investment opportunities, dispositions, merger or acquisition integration, growth opportunities, expected lease income, continued qualification as a real estate investment trust (“REIT”), plans and objectives of management for future operations and statements that include words such as “anticipate,” “if,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “could,” “should,” “will” and other similar expressions are forward-looking statements. These forward-looking statements are inherently uncertain, and actual results may differ from the Company’s expectations. The Company does not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made.

The Company’s actual future results and trends may differ materially from expectations depending on a variety of factors discussed in the Company’s filings with the SEC. These factors include without limitation: (a) the effects of the ongoing COVID-19 pandemic and measures intended to prevent its spread on the Company’s business, results of operations, cash flows and financial condition, including declines in revenues and increases in operating costs in the Company’s senior housing operating portfolio, deterioration in the financial conditions of the Company’s tenants and their ability to satisfy their payment obligations to the Company, constraints in the Company’s ability to access capital and other sources of funding; increased risk of claims, litigation and regulatory proceedings and uncertainty that may adversely affect the Company; and the ability of federal, state and local governments to respond to and manage the COVID-19 pandemic successfully; (b) the ability and willingness of the Company’s tenants, operators, borrowers, managers and other third parties to satisfy their obligations under their respective contractual arrangements with the Company, including, in some cases, their obligations to indemnify, defend and hold harmless the Company from and against various claims, litigation and liabilities; (c) the ability of the Company’s tenants, operators, borrowers and managers to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including without limitation obligations under their existing credit facilities and other indebtedness; (d) the Company’s success in implementing its business strategy and the Company’s ability to identify, underwrite, finance, consummate and integrate diversifying acquisitions and investments; (e) macroeconomic conditions such as a disruption of or lack of access to the capital markets, changes in the debt rating on U.S. government securities, default or delay in payment by the United States of its obligations, and changes in the federal or state budgets resulting in the reduction or nonpayment of Medicare or Medicaid reimbursement rates; (f) the nature and extent of future competition, including new construction in the markets in which the Company’s senior housing communities and office buildings are located; (g) the extent and effect of future or pending healthcare reform and regulation, including cost containment measures and changes in reimbursement policies, procedures and rates; (h) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors, including the potential phasing out of the London Inter-bank Offered Rate after 2021; (i) the ability of the Company’s tenants, operators and managers, as applicable, to comply with laws, rules and regulations in the operation of the Company’s properties, to deliver high-quality services, to attract and retain qualified personnel and to attract residents and patients; (j) changes in general economic conditions or economic conditions in the markets in which the Company may, from time to time, compete, and the effect of those changes on the Company’s revenues, earnings and funding sources; (k) the Company’s ability to pay down, refinance, restructure or extend its indebtedness as it becomes due; (l) the Company’s ability and willingness to maintain its qualification as a REIT in light of economic, market, legal, tax and other considerations; (m) final determination of the Company’s taxable net income for the year ended December 31, 2019 and for the year ending December 31, 2020; (n) the ability and willingness of the Company’s tenants to renew their leases with the Company upon expiration of the leases, the Company’s ability to reposition its properties on the same or better terms in the event of nonrenewal or in the event the Company exercises its right to replace an existing tenant, and obligations, including indemnification obligations, the Company may incur in connection with the replacement of an existing tenant; (o) risks associated with the Company’s senior living operating portfolio, such as factors that can cause volatility in the Company’s operating income and earnings generated by those properties, including without limitation national and regional economic conditions, costs of food, materials, energy, labor and services, employee benefit costs, insurance costs and professional and general liability claims, and the timely delivery of accurate property-level financial results for those properties; (p) changes in exchange rates for any foreign currency in which the Company may, from time to time, conduct business; (q) year-over-year changes in the Consumer Price Index or the UK Retail Price Index and the effect of those changes on the rent escalators contained in the Company’s leases and the Company’s earnings; (r) the Company’s ability and the ability of its tenants, operators, borrowers and managers to obtain and maintain adequate property, liability and other insurance from reputable, financially stable providers; (s) the impact of damage to the Company’s properties from catastrophic weather and other natural events and the physical effects of climate change; (t) the impact of increased operating costs and uninsured professional liability claims on the Company’s liquidity, financial condition and results of operations or that of the Company’s tenants, operators, borrowers and managers, and the ability of the Company and the Company’s tenants, operators, borrowers and managers to accurately estimate the magnitude of those claims; (u) risks associated with the Company’s office building portfolio and operations, including the Company’s ability to successfully design, develop and manage office buildings and to retain key personnel; (v) the ability of the hospitals on or near whose campuses the Company’s medical office buildings are located and their affiliated health systems to remain competitive and financially viable and to attract physicians and physician groups; (w) risks associated with the Company’s investments in joint ventures and unconsolidated entities, including its lack of sole decision-making authority and its reliance on its joint venture partners’ financial condition; (x) the Company’s ability to obtain the financial results expected from its development and redevelopment projects; (y) the impact of market or issuer events on the liquidity or value of the Company’s investments in marketable securities; (z) consolidation activity in the senior housing and healthcare industries resulting in a change of control of, or a competitor’s investment in, one or more of the Company’s tenants, operators, borrowers or managers or significant changes in the senior management of the Company’s tenants, operators, borrowers or managers; (aa) the impact of litigation or any financial, accounting, legal or regulatory issues that may affect the Company or its tenants, operators, borrowers or managers; and (bb) changes in accounting principles, or their application or interpretation, and the Company’s ability to make estimates and the assumptions underlying the estimates, which could have an effect on the Company’s earnings.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

June 30,

March 31,

December 31,

September 30,

June 30,

2020

2020

2019

2019

2019

Assets

Real estate investments:

Land and improvements

$

2,256,981

$

2,244,526

$

2,283,929

$

2,280,877

$

2,128,409

Buildings and improvements

23,959,070

23,821,353

24,380,440

24,459,114

22,837,251

Construction in progress

495,888

505,188

461,354

432,713

386,550

Acquired lease intangibles

1,240,488

1,241,646

1,306,152

1,334,915

1,267,322

Operating lease assets

389,302

391,908

385,225

388,480

374,319

28,341,729

28,204,621

28,817,100

28,896,099

26,993,851

Accumulated depreciation and amortization

(7,448,987

)

(7,237,345

)

(7,088,013

)

(6,964,061

)

(6,758,067

)

Net real estate property

20,892,742

20,967,276

21,729,087

21,932,038

20,235,784

Secured loans receivable and investments, net

681,831

623,717

704,612

709,714

693,651

Investments in unconsolidated real estate entities

166,039

165,745

45,022

45,905

47,112

Net real estate investments

21,740,612

21,756,738

22,478,721

22,687,657

20,976,547

Cash and cash equivalents

992,824

2,848,115

106,363

148,063

81,987

Escrow deposits and restricted cash

36,312

38,144

39,739

60,533

56,309

Goodwill

1,050,115

1,050,137

1,051,161

1,049,985

1,050,470

Assets held for sale

81,817

75,039

91,433

4,520

1,754

Deferred income tax assets, net

304

47,495

47,495

Other assets

687,404

802,160

877,296

852,795

821,844

Total assets

$

24,589,388

$

26,617,828

$

24,692,208

$

24,803,553

$

22,988,911

Liabilities and equity

Liabilities:

Senior notes payable and other debt

$

12,530,036

$

14,172,279

$

12,158,773

$

12,053,184

$

10,256,092

Accrued interest

117,687

87,245

111,115

85,214

111,388

Operating lease liabilities

248,912

250,357

251,196

249,237

233,757

Accounts payable and other liabilities

998,186

1,141,309

1,145,700

1,194,162

1,137,980

Liabilities related to assets held for sale

5,773

5,007

5,463

1,531

1,216

Deferred income tax liabilities

56,964

47,533

200,831

147,524

149,454

Total liabilities

13,957,558

15,703,730

13,873,078

13,730,852

11,889,887

Redeemable OP unitholder and noncontrolling interests

231,920

197,701

273,678

312,478

222,662

Commitments and contingencies

Equity:

Ventas stockholders’ equity:

Preferred stock, $1.00 par value; 10,000 shares authorized, unissued

Common stock, $0.25 par value; 373,113; 373,094; 372,811; 372,726; and 371,478; shares issued at June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019, and June 30, 2019, respectively

93,261

93,256

93,185

93,164

92,852

Capital in excess of par value

14,118,119

14,135,657

14,056,453

14,017,030

13,940,117

Accumulated other comprehensive loss

(82,761

)

(103,408

)

(34,564

)

(59,857

)

(39,671

)

Retained earnings (deficit)

(3,816,460

)

(3,491,696

)

(3,669,050

)

(3,384,421

)

(3,173,287

)

Treasury stock, 24; 22; 2; 3; and 0 shares at June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019, and June 30, 2019, respectively

(947

)

(867

)

(132

)

(210

)

Total Ventas stockholders’ equity

10,311,212

10,632,942

10,445,892

10,665,706

10,820,011

Noncontrolling interests

88,698

83,455

99,560

94,517

56,351

Total equity

10,399,910

10,716,397

10,545,452

10,760,223

10,876,362

Total liabilities and equity

$

24,589,388

$

26,617,828

$

24,692,208

$

24,803,553

$

22,988,911

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

For the Three Months Ended

For the Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

Revenues

Rental income:

Triple-net leased

$

176,240

$

196,382

$

371,102

$

396,450

Office

192,925

202,188

401,320

403,616

369,165

398,570

772,422

800,066

Resident fees and services

549,329

520,725

1,126,099

1,042,172

Office building and other services revenue

3,673

2,691

6,801

5,209

Income from loans and investments

19,491

19,529

43,537

36,655

Interest and other income

1,540

9,202

6,393

9,489

Total revenues

943,198

950,717

1,955,252

1,893,591

Expenses

Interest

123,132

110,369

239,828

220,988

Depreciation and amortization

349,594

226,187

598,431

462,107

Property-level operating expenses:

Senior living

432,578

366,837

842,709

727,823

Office

60,752

62,743

125,258

124,828

Triple-net leased

5,275

6,321

11,606

13,754

498,605

435,901

979,573

866,405

Office building services costs

543

515

1,270

1,148

General, administrative and professional fees

29,984

43,079

72,519

83,839

Loss on extinguishment of debt, net

4,022

4,427

Merger-related expenses and deal costs

6,586

4,600

14,804

6,780

Allowance on loans receivable and investments

29,655

29,655

Other

3,382

(11,481

)

7,090

(11,458

)

Total expenses

1,041,481

813,192

1,943,170

1,634,236

(Loss) income before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests

(98,283

)

137,525

12,082

259,355

Loss from unconsolidated entities

(5,850

)

(2,529

)

(16,726

)

(3,475

)

Gain on real estate dispositions

1,254

19,150

227,479

24,597

Income tax (expense) benefit

(56,356

)

57,752

92,660

59,009

(Loss) income from continuing operations

(159,235

)

211,898

315,495

339,486

Net (loss) income

(159,235

)

211,898

315,495

339,486

Net (loss) income attributable to noncontrolling interests

(2,065

)

1,369

(452

)

3,172

Net (loss) income attributable to common stockholders

$

(157,170

)

$

210,529

$

315,947

$

336,314

Earnings per common share

Basic:

(Loss) income from continuing operations

$

(0.43

)

$

0.59

$

0.85

$

0.94

Net (loss) income attributable to common stockholders

(0.42

)

0.58

0.85

0.94

Diluted:1

(Loss) income from continuing operations

$

(0.43

)

$

0.58

$

0.84

$

0.93

Net (loss) income attributable to common stockholders

(0.42

)

0.58

0.84

0.93

Weighted average shares used in computing earnings per common share

Basic

372,982

361,722

372,905

359,301

Diluted

376,024

365,553

376,020

363,100

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.

QUARTERLY CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

For the Quarters Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2020

2020

2019

2019

2019

Revenues

Rental income:

Triple-net leased

$

176,240

$

194,862

$

191,065

$

193,383

$

196,382

Office

192,925

208,395

210,423

214,939

202,188

369,165

403,257

401,488

408,322

398,570

Resident fees and services

549,329

576,770

568,271

541,090

520,725

Office building and other services revenue

3,673

3,128

2,988

2,959

2,691

Income from loans and investments

19,491

24,046

22,382

30,164

19,529

Interest and other income

1,540

4,853

875

620

9,202

Total revenues

943,198

1,012,054

996,004

983,155

950,717

Expenses

Interest

123,132

116,696

116,707

113,967

110,369

Depreciation and amortization

349,594

248,837

348,910

234,603

226,187

Property-level operating expenses:

Senior living

432,578

410,131

405,564

388,011

366,837

Office

60,752

64,506

68,277

67,144

62,743

Triple-net leased

5,275

6,331

6,469

6,338

6,321

498,605

480,968

480,310

461,493

435,901

Office building services costs

543

727

544

627

515

General, administrative and professional fees

29,984

42,535

41,627

40,530

43,079

Loss on extinguishment of debt, net

39

37,434

4,022

Merger-related expenses and deal costs

6,586

8,218

4,151

4,304

4,600

Allowance on loans receivable and investments

29,655

Other

3,382

3,708

(8,315

)

2,164

(11,481

)

Total expenses

1,041,481

901,689

983,973

895,122

813,192

Income before unconsolidated entities, real estate dispositions, income taxes and noncontrolling interests

(98,283

)

110,365

12,031

88,033

137,525

(Loss) income from unconsolidated entities

(5,850

)

(10,876

)

167

854

(2,529

)

Gain on real estate dispositions

1,254

226,225

1,389

36

19,150

Income tax (expense) benefit

(56,356

)

149,016

(694

)

(2,005

)

57,752

(Loss) income from continuing operations

(159,235

)

474,730

12,893

86,918

211,898

Net (loss) income

(159,235

)

474,730

12,893

86,918

211,898

Net (loss) income attributable to noncontrolling interests

(2,065

)

1,613

1,450

1,659

1,369

Net (loss) income attributable to common stockholders

$

(157,170

)

$

473,117

$

11,443

$

85,259

$

210,529

Earnings per common share

Basic:

(Loss) income from continuing operations

$

(0.43

)

$

1.27

$

0.03

$

0.23

$

0.59

Net (loss) income attributable to common stockholders

(0.42

)

1.27

0.03

0.23

0.58

Diluted:1

(Loss) income from continuing operations

$

(0.43

)

$

1.26

$

0.03

$

0.23

$

0.58

Net (loss) income attributable to common stockholders

(0.42

)

1.26

0.03

0.23

0.58

Weighted average shares used in computing earnings per common share

Basic

372,982

372,829

372,663

372,426

361,722

Diluted

376,024

375,997

376,453

376,625

365,553

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.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the Six Months Ended June 30,

2020

2019

Cash flows from operating activities:

Net income

$

315,495

$

339,486

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

598,431

462,107

Amortization of deferred revenue and lease intangibles, net

(6,334

)

(6,145

)

Other non-cash amortization

9,653

11,587

Allowance on loans receivable and investments

29,655

Stock-based compensation

11,557

18,475

Straight-lining of rental income

91,499

(17,000

)

Loss on extinguishment of debt, net

4,427

Gain on real estate dispositions

(227,479

)

(24,597

)

Gain on real estate loan investments

(167

)

Income tax benefit

(95,127

)

(61,195

)

Loss from unconsolidated entities

16,734

3,475

Distributions from unconsolidated entities

1,600

1,300

Other

12,756

5,091

Changes in operating assets and liabilities:

Increase in other assets

(12,463

)

(44,472

)

Increase in accrued interest

7,094

11,398

(Decrease) increase in accounts payable and other liabilities

(32,893

)

25,282

Net cash provided by operating activities

720,011

729,219

Cash flows from investing activities:

Net investment in real estate property

(77,469

)

(208,039

)

Investment in loans receivable

(67,290

)

(507,148

)

Proceeds from real estate disposals

627,804

74,405

Proceeds from loans receivable

106,775

289,657

Development project expenditures

(180,398

)

(114,226

)

Capital expenditures

(53,519

)

(58,381

)

Investment in unconsolidated entities

(7,865

)

(934

)

Insurance proceeds for property damage claims

42

16,939

Net cash provided by (used in) investing activities

348,080

(507,727

)

Cash flows from financing activities:

Net change in borrowings under revolving credit facilities

465,416

(506,551

)

Net change in borrowings under commercial paper program

(565,524

)

269,810

Proceeds from debt

640,533

712,934

Repayment of debt

(111,301

)

(997,061

)

Payment of deferred financing costs

(7,549

)

(6,837

)

Issuance of common stock, net

866,033

Cash distribution to common stockholders

(592,285

)

(567,142

)

Cash distribution to redeemable OP unitholders

(4,628

)

(4,551

)

Cash issued for redemption of OP Units

(570

)

Contributions from noncontrolling interests

346

3,594

Distributions to noncontrolling interests

(6,293

)

(4,103

)

Proceeds from stock option exercises

3,518

25,738

Other

(4,891

)

(6,732

)

Net cash provided by (used in) financing activities

(183,228

)

(214,868

)

Net increase in cash, cash equivalents and restricted cash

884,863

6,624

Effect of foreign currency translation

(1,829

)

208

Cash, cash equivalents and restricted cash at beginning of period

146,102

131,464

Cash, cash equivalents and restricted cash at end of period

$

1,029,136

$

138,296

Supplemental schedule of non-cash activities:

Assets acquired and liabilities assumed from acquisitions and other:

Real estate investments

$

77,111

$

1,069

Other assets

614

183

Debt

55,368

Other liabilities

2,097

1,252

Noncontrolling interests

20,259

QUARTERLY CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the Quarters Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2020

2020

2019

2019

2019

Cash flows from operating activities:

Net (loss) income

$

(159,235

)

$

474,730

$

12,893

$

86,918

$

211,898

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

349,594

248,837

348,910

234,603

226,187

Amortization of deferred revenue and lease intangibles, net

(3,361

)

(2,973

)

(1,483

)

(339

)

(3,299

)

Other non-cash amortization

5,802

3,851

6,075

5,323

5,456

Allowance on loans receivable and investments

29,655

Stock-based compensation

1,043

10,514

7,253

8,195

10,070

Straight-lining of rental income

98,287

(6,788

)

(4,393

)

(8,680

)

(8,511

)

Loss on extinguishment of debt, net

39

37,434

4,022

Gain on real estate dispositions

(1,254

)

(226,225

)

(1,389

)

(36

)

(19,150

)

Gain on real estate loan investments

(167

)

Income tax (benefit) expense

55,146

(150,273

)

1,331

946

(59,480

)

Loss (income) from unconsolidated entities

5,858

10,876

(157

)

(854

)

2,529

Distributions from unconsolidated entities

1,600

200

100

100

Other

8,951

3,805

4,028

4,145

2,808

Changes in operating assets and liabilities:

Decrease (increase) in other assets

1,305

(13,768

)

(17,327

)

(14,894

)

(30,768

)

Increase (decrease) in accrued interest

30,126

(23,032

)

25,646

(27,307

)

29,445

(Decrease) increase in accounts payable and other liabilities

(16,358

)

(16,535

)

(27,391

)

28,775

21,792

Net cash provided by operating activities

405,559

314,452

354,235

354,329

393,099

Cash flows from investing activities:

Net investment in real estate property

2,070

(79,539

)

(18,320

)

(731,766

)

(194,942

)

Investment in loans receivable

(66,239

)

(1,051

)

(610

)

(750,429

)

(502,891

)

Proceeds from real estate disposals

2,365

625,439

70,300

3,150

56,854

Proceeds from loans receivable

7,658

99,117

8,626

719,026

288,382

Development project expenditures

(86,169

)

(94,229

)

(174,078

)

(115,619

)

(64,574

)

Capital expenditures

(26,730

)

(26,789

)

(56,937

)

(41,406

)

(36,426

)

Distributions from unconsolidated entities

21

151

Investment in unconsolidated entities

(2,056

)

(5,809

)

(2,144

)

(777

)

(247

)

Insurance proceeds for property damage claims

42

9,722

3,518

13,941

Net cash (used in) provided by investing activities

(169,101

)

517,181

(163,420

)

(914,152

)

(439,903

)

Cash flows from financing activities:

Net change in borrowings under revolving credit facilities

(2,296,737

)

2,762,153

(848,568

)

785,228

194,224

Net change in borrowings under commercial paper program

(565,524

)

261,016

34,698

75,312

Proceeds from debt

557,774

82,759

806,614

1,493,643

6,343

Repayment of debt

(48,328

)

(62,973

)

(167,781

)

(1,459,074

)

(734,491

)

Payment of deferred financing costs

(5,586

)

(1,963

)

(3,536

)

(11,030

)

Issuance of common stock, net

(165

)

76,217

767,655

Cash distribution to common stockholders

(295,981

)

(296,304

)

(295,931

)

(294,647

)

(284,268

)

Cash distribution to redeemable OP unitholders

(2,303

)

(2,325

)

(2,336

)

(2,331

)

(2,335

)

Cash issued for redemption of OP Units

(570

)

(1,842

)

(361

)

Contributions from noncontrolling interests

191

155

1,323

1,365

2,371

Distributions to noncontrolling interests

(3,750

)

(2,543

)

(3,314

)

(2,300

)

(1,480

)

Proceeds from stock option exercises

129

3,389

2,045

8,396

21,422

Other

63

(4,954

)

(1,918

)

131

142

Net cash (used in) provided by financing activities

(2,094,528

)

1,911,300

(254,393

)

629,935

44,895

Net (decrease) increase in cash, cash equivalents and restricted cash

(1,858,070

)

2,742,933

(63,578

)

70,112

(1,909

)

Effect of foreign currency translation

947

(2,776

)

1,084

188

(26

)

Cash, cash equivalents and restricted cash at beginning of period

2,886,259

146,102

208,596

138,296

140,231

Cash, cash equivalents and restricted cash at end of period

$

1,029,136

$

2,886,259

$

146,102

$

208,596

$

138,296

 

QUARTERLY CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(In thousands)

For the Quarters Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2020

2020

2019

2019

2019

Supplemental schedule of non-cash activities:

Assets acquired and liabilities assumed from acquisitions and other:

Real estate investments

$

76,578

$

533

$

657

$

1,055,412

$

1,069

Other assets

558

56

17

10,940

183

Debt

55,368

907,746

Other liabilities

1,699

398

785

45,084

1,252

Deferred income tax

95

Noncontrolling interests

20,068

191

(206

)

113,522

Equity issued for redemption of OP Units

127

NON-GAAP FINANCIAL MEASURES RECONCILIATION

Funds From Operations (FFO) and Funds Available for Distribution (FAD)1

(Dollars in thousands, except per share amounts)

 

Q2 YoY

2019

2020

Growth

Q2

Q3

Q4

FY

Q1

Q2

YTD

19-'20

Net income (loss) attributable to common stockholders

$

210,529

$

85,259

$

11,443

$

433,016

$

473,117

$

(157,170

)

$

315,947

(175

%)

Net income (loss) attributable to common stockholders per share2

$

0.58

$

0.23

$

0.03

$

1.17

$

1.26

$

(0.42

)

$

0.84

(172

%)

Adjustments:

Depreciation and amortization on real estate assets

224,630

233,078

347,371

1,039,550

247,330

348,110

595,440

Depreciation on real estate assets related to noncontrolling interests

(1,750

)

(2,496

)

(3,682

)

(9,762

)

(3,843

)

(4,068

)

(7,911

)

Depreciation on real estate assets related to unconsolidated entities

167

(456

)

311

187

561

1,307

1,868

Gain on real estate dispositions

(19,150

)

(36

)

(1,389

)

(26,022

)

(226,225

)

(1,254

)

(227,479

)

Gain (loss) on real estate dispositions related to noncontrolling interests

(11

)

343

(6

)

(3

)

(9

)

Gain on real estate dispositions related to unconsolidated entities

(2

)

(67

)

(395

)

(1,263

)

Subtotal: FFO add-backs

203,895

230,023

342,205

1,003,033

17,817

344,092

361,909

Subtotal: FFO add-backs per share

$

0.56

$

0.61

$

0.91

$

2.71

$

0.05

$

0.92

$

0.96

FFO (Nareit) attributable to common stockholders

$

414,424

$

315,282

$

353,648

$

1,436,049

$

490,934

$

186,922

$

677,856

(55

%)

FFO (Nareit) attributable to common stockholders per share

$

1.13

$

0.84

$

0.94

$

3.88

$

1.31

$

0.50

$

1.80

(56

%)

Adjustments:

Change in fair value of financial instruments

(11

)

(7

)

(22

)

(78

)

(10

)

(13

)

(23

)

Non-cash income tax (benefit) expense

(59,480

)

946

1,330

(58,918

)

(140,895

)

55,505

(85,391

)

Loss on extinguishment of debt, net

4,022

37,434

39

41,900

(Gain) loss on non-real estate dispositions related to unconsolidated entities

(3

)

(34

)

19

(18

)

239

239

Merger-related expenses, deal costs and re-audit costs

5,564

4,726

5,089

18,208

8,773

6,605

15,378

Amortization of other intangibles

121

121

121

484

118

118

236

Other items related to unconsolidated entities

1,377

502

374

3,291

(875

)

(263

)

(1,138

)

Non-cash impact of changes to equity plan

2,584

1,729

1,165

7,812

6,895

(3,337

)

3,558

Natural disaster (recoveries) expenses, net

(13,339

)

(101

)

(10,704

)

(25,683

)

941

252

1,193

Impact of Holiday lease termination

(50,184

)

(50,184

)

Write-off of straightline rental income, net of noncontrolling interests

52,368

52,368

Allowance on loan investments and impairment of unconsolidated entities

40,320

40,320

Subtotal: normalized FFO add-backs

(59,165

)

45,316

(2,589

)

(13,002

)

(124,814

)

101,371

(23,444

)

Subtotal: normalized FFO add-backs per share

$

(0.16

)

$

0.12

$

(0.01

)

$

(0.04

)

$

(0.33

)

$

0.27

$

(0.06

)

Normalized FFO attributable to common stockholders

$

355,259

$

360,598

$

351,059

$

1,423,047

$

366,120

$

288,293

$

654,412

(19

%)

Normalized FFO attributable to common stockholders per share

$

0.97

$

0.96

$

0.93

$

3.85

$

0.97

$

0.77

$

1.74

(21

%)

Non-cash items included in normalized FFO:

Amortization of deferred revenue and lease intangibles, net

(3,299

)

(339

)

(1,483

)

(7,967

)

(2,973

)

(3,362

)

(6,335

)

Other non-cash amortization, including fair market value of debt

5,335

5,444

6,075

22,985

3,851

5,803

9,654

Stock-based compensation

7,486

6,466

6,088

26,111

3,619

4,380

7,999

Straight-lining of rental income

(8,511

)

(8,680

)

(4,393

)

(30,073

)

(6,788

)

(5,526

)

(12,314

)

Subtotal: non-cash items included in normalized FFO

1,011

2,891

6,287

11,056

(2,291

)

1,295

(996

)

Cash Impact of Holiday Lease Termination

33,795

33,795

FAD Capital Expenditures3

(33,777

)

(39,695

)

(55,400

)

(152,582

)

(24,972

)

(26,102

)

(51,074

)

Normalized FAD attributable to common stockholders

$

322,493

$

323,794

$

301,946

$

1,281,521

$

338,857

$

297,281

$

636,137

(8

%)

Merger-related expenses, deal costs and re-audit costs

(5,564

)

(4,726

)

(5,089

)

(18,208

)

(8,773

)

(6,605

)

(15,378

)

Other items related to unconsolidated entities

(1,377

)

(502

)

(374

)

(3,291

)

875

263

1,138

FAD attributable to common stockholders

$

315,552

$

318,566

$

296,483

$

1,260,022

$

330,959

$

290,939

$

621,897

(8

%)

Weighted average diluted shares

365,553

376,625

376,453

369,886

375,997

376,024

376,020

1 Per share quarterly amounts may not add to annual per share amounts due to material changes in the Company’s weighted average diluted share count, if any. Per share amounts may not add to total per share amounts due to rounding.

2 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.

3 2019 FAD Capital Expenditures have been updated to exclude the impact of Initial Capital Expenditures. Impact on quarterly reported values are as follows: Q2 2019 ($0.6M), Q3 2019 ($1.7M), Q4 2019 ($1.5M), Q1 2020 ($1.8M), Q2 2020 ($0.6M).

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. However, since real estate values historically have risen or fallen with market conditions, many industry investors deem presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. For that reason, the Company considers FFO, normalized FFO, FAD and normalized FAD to be appropriate supplemental measures of operating performance of an equity REIT. In particular, the Company believes that normalized FFO is useful because it allows investors, analysts and Company management to compare the Company’s operating performance to the operating performance of other real estate companies and between periods on a consistent basis without having to account for differences caused by non-recurring items and other non-operational events such as transactions and litigation. In some cases, the Company provides information about identified non-cash components of FFO and normalized FFO because it allows investors, analysts and Company management to assess the impact of those items on the Company’s financial results.

The Company uses the National Association of Real Estate Investment Trusts (“Nareit”) definition of FFO. Nareit defines FFO as net income attributable to common stockholders (computed in accordance with GAAP), excluding gains or losses from sales of real estate property, including gains or losses on re-measurement of equity method investments, and impairment write-downs of depreciable real estate, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis. The Company defines normalized FFO as FFO excluding the following income and expense items (which may be recurring in nature): (a) merger-related costs and expenses, including amortization of intangibles, transition and integration expenses, and deal costs and expenses, including expenses and recoveries relating to acquisition lawsuits; (b) the impact of any expenses related to asset impairment and valuation allowances, the write-off of unamortized deferred financing fees, or additional costs, expenses, discounts, make-whole payments, penalties or premiums incurred as a result of early retirement or payment of the Company’s debt; (c) the non-cash effect of income tax benefits or expenses, the non-cash impact of changes to the Company’s executive equity compensation plan, derivative transactions that have non-cash mark-to-market impacts on the Company’s income statement and non-cash charges related to leases; (d) the financial impact of contingent consideration, severance-related costs and charitable donations made to the Ventas Charitable Foundation; (e) gains and losses for non-operational foreign currency hedge agreements and changes in the fair value of financial instruments; (f) gains and losses on non-real estate dispositions and other unusual items related to unconsolidated entities; (g) expenses related to the re-audit and re-review in 2014 of the Company’s historical financial statements and related matters; (h) net expenses or recoveries related to natural disasters and (i) any other incremental items set forth in the normalized FFO reconciliation included herein.

Normalized FAD represents normalized FFO excluding non-cash components and straight-line rent adjustments, deducting FAD Capital Expenditures plus cash received related to lease terminations and modifications. FAD Capital Expenditures are (i) Ventas-invested capital expenditures, whether routine or non-routine, that extend the useful life of a property but are not expected to generate incremental income for the Company (ii) Office Building and Triple-Net leasing commissions paid to third-party agents and (iii) capital expenditures for second-generation tenant improvements. It excludes (i) costs for a first generation lease (e.g., a development project) or related to properties that have undergone redevelopment and (ii) Initial Capital Expenditures, which are defined as capital expenditures required to bring a newly acquired or newly transitioned property up to standard. Initial Capital Expenditures are typically incurred within the first 12 months after acquisition or transition, respectively.

FAD represents normalized FAD after subtracting merger-related expenses, deal costs and re-audit costs and other unusual items related to unconsolidated entities.

FFO, normalized FFO, FAD and normalized FAD presented herein may not be comparable to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. FFO, normalized FFO, FAD and normalized FAD should not be considered as alternatives to net income attributable to common stockholders (determined in accordance with GAAP) as indicators of the Company’s financial performance or as alternatives to cash flow from operating activities (determined in accordance with GAAP) as measures of the Company’s liquidity, nor are they necessarily indicative of sufficient cash flow to fund all of the Company’s needs. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO, normalized FFO, FAD and normalized FAD should be examined in conjunction with net income attributable to common stockholders as presented elsewhere herein.

NON-GAAP FINANCIAL MEASURES RECONCILIATION

Net Debt to Adjusted Pro Forma EBITDA1

(Dollars in thousands)

For the Three Months Ended June 30, 2020:

Net loss attributable to common stockholders

$

(157,170

)

Adjustments:

Interest

123,132

Taxes (including tax amounts in general, administrative and professional fees)

57,500

Depreciation and amortization

349,594

Non-cash stock-based compensation expense

1,043

Merger-related expenses, deal costs and re-audit costs

6,586

Net income attributable to noncontrolling interests, adjusted for consolidated joint venture partners’ share of EBITDA

(5,639

)

Loss from unconsolidated entities, adjusted for Ventas share of EBITDA from unconsolidated entities

10,439

Gain on real estate dispositions

(1,254

)

Unrealized foreign currency gains

(37

)

Change in fair value of financial instruments

(13

)

Natural disaster expenses (recoveries), net

198

Impact of Holiday lease termination

(50,184

)

Write-off of straightline rental income, net of noncontrolling interests

52,368

Allowance on loan investments and impairment of unconsolidated entities

40,320

Adjusted EBITDA

$

426,883

Adjustments for current period activity

24,210

Adjusted Pro Forma EBITDA

$

451,093

Adjusted Pro Forma EBITDA annualized

$

1,804,372

As of June 30, 2020:

Total debt

$

12,530,036

Cash

(992,824

)

Restricted cash pertaining to debt

(19,239

)

Consolidated joint venture partners’ share of debt

(257,004

)

Ventas share of debt from unconsolidated entities

116,688

Net debt

$

11,377,657

Net debt to Adjusted Pro Forma EBITDA

6.3

x

1 Totals may not add due to rounding.

The table above illustrates net debt to pro forma earnings before interest, taxes, depreciation and amortization (including non-cash stock-based compensation expense, asset impairment and valuation allowances), excluding gains or losses on extinguishment of debt, consolidated joint venture partners’ share of EBITDA, merger-related expenses and deal costs, expenses related to the re-audit and re-review in 2014 of the Company’s historical financial statements, net gains or losses on real estate activity, gains or losses on re-measurement of equity interest upon acquisition, changes in the fair value of financial instruments, unrealized foreign currency gains or losses, net expenses or recoveries related to natural disasters and non-cash charges related to lease terminations, and including (a) the Company’s share of EBITDA from unconsolidated entities and (b) adjustments for other immaterial or identified items (“Adjusted EBITDA”).

The information above considers the pro forma effect on Adjusted EBITDA of the Company’s activity during the three months ended June 30, 2020, as if the transactions had been consummated as of the beginning of the period (“Adjusted Pro Forma EBITDA”) and considers any other incremental items set forth in the Adjusted Pro Forma EBITDA reconciliation included herein.

The Company believes that net debt, Adjusted Pro Forma EBITDA and net debt to Adjusted Pro Forma EBITDA are useful to investors, analysts and Company management because they allow the comparison of the Company’s credit strength between periods and to other real estate companies without the effect of items that by their nature are not comparable from period to period.

NON-GAAP FINANCIAL MEASURES RECONCILIATION

Net Operating Income (NOI) and Same-Store Cash NOI by Segment (Constant Currency)

(Dollars in thousands)

For the Three Months Ended June 30, 2020 and 2019

Triple-Net

Senior Housing Operating

Office

Non-Segment

Total

For the Three Months Ended June 30, 2020:

Net loss attributable to common stockholders

$

(157,170

)

Adjustments:

Interest and other income

(1,540

)

Interest

123,132

Depreciation and amortization

349,594

General, administrative and professional fees

29,984

Merger-related expenses and deal costs

6,586

Allowance on loans receivable and investments

29,655

Other

3,382

Loss from unconsolidated entities

5,850

Gain on real estate dispositions

(1,254

)

Income tax expense

56,356

Net loss attributable to noncontrolling interests

(2,065

)

Reported segment NOI

$

170,965

$

116,751

$

133,887

$

20,907

$

442,510

Adjustments to Cash NOI:

Straight-lining of rental income

(2,183

)

(3,343

)

(5,526

)

Non-cash rental income

(1,803

)

(1,238

)

(3,041

)

Impact of Holiday lease termination

(50,184

)

(50,184

)

Write-off of straightline rental income

53,304

898

54,202

NOI not included in cash NOI1

(3,315

)

(1,886

)

(1,697

)

(6,898

)

Non-segment NOI

(20,907

)

(20,907

)

Cash NOI

$

166,784

$

114,865

$

128,507

$

$

410,156

Adjustments to Same-store NOI:

Cash NOI not included in same-store

(715

)

(28,403

)

(4,900

)

(34,018

)

Same-store cash NOI (constant currency)

$

166,069

$

86,462

$

123,607

$

$

376,138

Percentage increase (decrease)

1.4

%

(42.7

%)

2.7

%

(13.6

%)

For the Three Months Ended June 30, 2019:

Net income attributable to common stockholders

$

210,529

Adjustments:

Interest and other income

(9,202

)

Interest

110,369

Depreciation and amortization

226,187

General, administrative and professional fees

43,079

Loss on extinguishment of debt, net

4,022

Merger-related expenses and deal costs

4,600

Other

(11,481

)

Loss from unconsolidated entities

2,529

Gain on real estate dispositions

(19,150

)

Income tax benefit

(57,752

)

Net income attributable to noncontrolling interests

1,369

Reported segment NOI

$

190,061

$

153,888

$

140,780

$

20,370

$

505,099

Adjustments to Cash NOI:

Straight-lining of rental income

(3,993

)

(4,519

)

(8,512

)

Non-cash rental income

(959

)

(2,210

)

(3,169

)

Cash modification fees

462

462

NOI not included in cash NOI1

(20,454

)

(350

)

(9,780

)

(30,584

)

Non-segment NOI

(20,370

)

(20,370

)

NOI impact from change in FX

(208

)

(650

)

(858

)

Cash NOI

$

164,447

$

152,888

$

124,733

$

$

442,068

Adjustments to Same-store NOI:

Cash NOI not included in same-store

(679

)

(1,936

)

(4,360

)

(6,975

)

Same-store cash NOI (constant currency)

$

163,768

$

150,952

$

120,373

$

$

435,093

1 Excludes sold assets, assets held for sale, development properties not yet operational and land parcels.

For the Three Months Ended June 30, 2020 and March 31, 2020

 

Triple-Net

Senior Housing Operating

Office

Non-Segment

Total

For the Three Months Ended June 30, 2020:

Net loss attributable to common stockholders

$

(157,170

)

Adjustments:

Interest and other income

(1,540

)

Interest

123,132

Depreciation and amortization

349,594

General, administrative and professional fees

29,984

Merger-related expenses and deal costs

6,586

Allowance on loans receivable and investments

29,655

Other

3,382

Loss from unconsolidated entities

5,850

Gain on real estate dispositions

(1,254

)

Income tax expense

56,356

Net loss attributable to noncontrolling interests

(2,065

)

Reported segment NOI

$

170,965

$

116,751

$

133,887

$

20,907

$

442,510

Adjustments to Cash NOI:

Straight-lining of rental income

(2,183

)

(3,343

)

(5,526

)

Non-cash rental income

(1,803

)

(1,238

)

(3,041

)

Impact of Holiday lease termination

(50,184

)

(50,184

)

Write-off of straightline rental income

53,304

898

54,202

NOI not included in cash NOI1

(3,315

)

(1,886

)

(1,697

)

(6,898

)

Non-segment NOI

(20,907

)

(20,907

)

Cash NOI

$

166,784

$

114,865

$

128,507

$

$

410,156

Adjustments to Same-store NOI:

Cash NOI not included in same-store

(9,345

)

(4,231

)

(13,576

)

Same-store cash NOI (constant currency)

$

166,784

$

105,520

$

124,276

$

$

396,580

Percentage decrease

(2.7

%)

(35.9

%)

(1.4

%)

(14.2

%)

For the Three Months Ended March 31, 2020:

Net income attributable to common stockholders

$

473,117

Adjustments:

Interest and other income

(4,853

)

Interest

116,696

Depreciation and amortization

248,837

General, administrative and professional fees

42,535

Merger-related expenses and deal costs

8,218

Other

3,708

Loss from unconsolidated entities

10,876

Gain on real estate dispositions

(226,225

)

Income tax benefit

(149,016

)

Net income attributable to noncontrolling interests

1,613

Reported segment NOI

$

188,531

$

166,639

$

145,336

$

25,000

$

525,506

Adjustments to Cash NOI:

Straight-lining of rental income

(2,693

)

(4,095

)

(6,788

)

Non-cash rental income

(1,529

)

(1,104

)

(2,633

)

Cash modification fees

3,029

(1,000

)

2,029

NOI not included in cash NOI1

(15,744

)

211

(7,476

)

(23,009

)

Non-segment NOI

(25,000

)

(25,000

)

NOI impact from change in FX

(189

)

(1,273

)

(1,462

)

 

Cash NOI

$

171,405

$

165,577

$

131,661

$

$

468,643

Adjustments to Same-store NOI:

Cash modification fees not in same-store

1,000

1,000

Cash NOI not included in same-store

(984

)

(6,622

)

(7,606

)

NOI impact from change in FX not in same-store

38

38

Same-store cash NOI (constant currency)

$

171,405

$

164,631

$

126,039

$

$

462,075

1 Excludes sold assets, assets held for sale, development properties not yet operational and land parcels.

For the Six Months Ended June 30, 2020 and 2019

 

Triple-Net

Senior Housing

Operating

Office

Non-Segment

Total

For the Six Months Ended June 30, 2020:

Net income attributable to common stockholders

$

315,947

Adjustments:

Interest and other income

(6,393

)

Interest

239,828

Depreciation and amortization

598,431

General, administrative and professional fees

72,519

Merger-related expenses and deal costs

14,804

Allowance on loans receivable and investments

29,655

Other

7,090

Loss from unconsolidated entities

16,726

Gain on real estate dispositions

(227,479

)

Income tax benefit

(92,660

)

Net loss attributable to noncontrolling interests

(452

)

Reported segment NOI

$

359,496

$

283,390

$

279,224

$

45,906

$

968,016

Adjustments to Cash NOI:

Straight-lining of rental income

(4,876

)

(7,438

)

(12,314

)

Non-cash rental income

(3,332

)

(2,343

)

(5,675

)

Cash modification fees

3,029

(1,000

)

2,029

Impact of Holiday lease termination

(50,184

)

(50,184

)

Write-off of straightline rental income

53,304

898

54,202

NOI not included in cash NOI1

(19,058

)

(1,709

)

(9,172

)

(29,939

)

Non-segment NOI

(45,906

)

(45,906

)

Cash NOI

$

338,379

$

281,681

$

260,169

$

$

880,229

Adjustments to Same-store NOI:

Cash modification fees not in same-store

1,000

1,000

Cash NOI not included in same-store

(2,014

)

(53,949

)

(12,144

)

(68,107

)

Same-store cash NOI (constant currency)

$

336,365

$

227,732

$

249,025

$

$

813,122

Percentage increase (decrease)

2.7

%

(26.2

%)

4.3

%

(7.0

%)

For the Six Months Ended June 30, 2019:

Net income attributable to common stockholders

$

336,314

Adjustments:

Interest and other income

(9,489

)

Interest

220,988

Depreciation and amortization

462,107

General, administrative and professional fees

83,839

Loss on extinguishment of debt, net

4,427

Merger-related expenses and deal costs

6,780

Other

(11,458

)

Loss from unconsolidated entities

3,475

Gain on real estate dispositions

(24,597

)

Income tax benefit

(59,009

)

Net income attributable to noncontrolling interests

3,172

Reported segment NOI

$

382,696

$

314,349

$

281,266

$

38,238

$

1,016,549

Adjustments to Cash NOI:

Straight-lining of rental income

(7,574

)

(9,426

)

(17,000

)

Non-cash rental income

(1,979

)

(3,996

)

(5,975

)

Cash modification fees

100

100

NOI not included in cash NOI1

(43,339

)

(1,131

)

(20,128

)

(64,598

)

Non-segment NOI

(38,238

)

(38,238

)

NOI impact from change in FX

(310

)

(851

)

(1,161

)

Cash NOI

$

329,594

$

312,367

$

247,716

$

$

889,677

Adjustments to Same-store NOI:

Cash NOI not included in same-store

(2,166

)

(3,726

)

(9,001

)

(14,893

)

Same-store cash NOI (constant currency)

$

327,428

$

308,641

$

238,715

$

$

874,784

1 Excludes sold assets, assets held for sale, development properties not yet operational and land parcels.

The Company considers NOI and same-store cash NOI as important supplemental measures because they allow investors, analysts and the Company’s management to assess its unlevered property-level operating results and to compare its operating results with those of other real estate companies and between periods on a consistent basis. The Company defines NOI as total revenues, less interest and other income, property-level operating expenses and office building services costs. In the case of NOI, cash receipts may differ due to straight-line recognition of certain rental income and the application of other GAAP policies. The Company defines same-store as properties owned, consolidated and operational for the full period in both comparison periods and are not otherwise excluded; provided, however, that the Company may include selected properties that otherwise meet the same-store criteria if they are included in substantially all of, but not a full, period for one or both of the comparison periods, and in the Company’s judgment such inclusion provides a more meaningful presentation of its portfolio performance. Newly acquired or recently developed or redeveloped properties in the Company’s Seniors Housing Operating Portfolio (“SHOP”) will be included in same-store once they are stabilized for the full period in both periods presented. These properties are considered stabilized upon the earlier of (a) the achievement of 80% sustained occupancy or (b) 24 months from the date of acquisition or substantial completion of work. Recently developed or redeveloped properties in the Office and Triple-Net Leased Portfolios will be included in same-store once substantial completion of work has occurred for the full period in both periods presented. SHOP and Triple-Net Leased properties that have undergone operator or business model transitions will be included in same-store once operating under consistent operating structures for the full period in both periods presented.

Properties are excluded from same-store if they are: (i) sold, classified as held for sale or properties whose operations were classified as discontinued operations in accordance with GAAP; (ii) impacted by materially disruptive events such as flood or fire; (iii) those properties that are currently undergoing a materially disruptive redevelopment; (iv) for the Office Portfolio, those properties for which management has an intention to institute a redevelopment plan because the properties may require major property-level expenditures to maximize value, increase net operating income, or maintain a market-competitive position and/or achieve property stabilization; or (v) for the SHOP and Triple-Net Leased Portfolios, those properties that are scheduled to undergo operator or business model transitions, or have transitioned operators or business models after the start of the prior comparison period.

To eliminate the impact of exchange rate movements, all same-store NOI measures assume constant exchange rates across comparable periods, using the following methodology: the current period’s results are shown in actual reported USD, while prior comparison period’s results are adjusted and converted to USD based on the average exchange rate for the current period.

Contacts:

Sarah Whitford
(877) 4-VENTAS

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