On October 25, 2019 Ventas, Inc. (NYSE: VTR) reported its results for the third quarter ended September 30, 2019 (Press release, Ventas, OCT 25, 2019, View Source [SID1234542531]).

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"Ventas delivered strong enterprise level results in the third quarter, driven by our diverse portfolio including robust performance in our Medical Office, Healthcare and Research & Innovation portfolios, our high quality and accretive investments and effective capital markets execution. We have maintained the midpoint of our normalized FFO per share expectations for 2019, and we continue to invest in our future," said Debra A. Cafaro, Ventas Chairman and CEO.

Cafaro added, "Given challenging senior housing market conditions, our senior housing operating portfolio did not perform consistent with historical patterns or our expectations in the quarter, a trend we expect to continue for the balance of the year. As a result, while national leading indicators of supply and demand in the senior housing sector continue to improve, giving us confidence in the powerful upside that lies ahead, we have reduced our 2019 property level guidance for our senior housing operating business. This changed expectation leads us to conclude that our return to enterprise growth will occur after 2020.

"We have built a strong, diverse and resilient business well positioned to capitalize on strong demographic demand growth. We are committed to enhancing value for shareholders and are taking actions that will improve performance and deliver growth and value."

Third Quarter 2019 Company Performance

Net income attributable to common stockholders per diluted share for the third quarter 2019 was $0.23 compared to $0.28 in the same period in 2018. The year-over-year change was principally driven by the positive contribution from new investments, more than offset by higher depreciation and amortization in the third quarter 2019 and the receipt of a $12 million cash fee (the "2018 Fee") in the third quarter of 2018.
Reported Funds from Operations per share, as defined by the National Association of Real Estate Investment Trusts ("Nareit FFO") was $0.84 compared to $0.88 in the same period in 2018. The change from 2018 results was due to the factors described above, excluding the impact of depreciation and amortization.
Normalized Funds from Operations ("FFO") per share for the third quarter 2019 was $0.96 compared to $0.99 in 2018. The change from 2018 was primarily the result of growth in income from new investments, more than offset by the receipt of the 2018 Fee in the third quarter of 2018.
Third Quarter 2019 Portfolio Performance

For the third quarter 2019, the Company’s quarterly same-store total property portfolio (1,107 assets, representing 93 percent of the company’s consolidated assets) cash net operating income ("NOI") rose 0.1 percent compared to the same period in 2018. Year-to-date 2019, the Company’s full year same-store total property portfolio (1,094 assets) cash NOI grew 0.5 percent compared to the same period in 2018. Reported same-store cash NOI performance by segment for the third quarter 2019 and year-to-date 2019 are as follows:

Third quarter year-over-year changes in the Company’s same-store property results were driven by:
NNN portfolio: Growth was primarily the result of net in-place lease escalations.
SHOP portfolio: Same-store SHOP performance was below expectations, driven by the cumulative effect of new openings in a dynamic competitive market, which pressured revenue. While average third quarter 2019 occupancy was 70 basis points lower than the third quarter 2018, the year-over-year occupancy gap widened materially in September, ending the quarter approximately 115 basis points lower than third quarter-end 2018. Meanwhile, price competition drove wider re-leasing spreads year-over-year. Industry-wide, senior housing demand is accelerating and the positive trend of lower new construction starts continued, particularly in assisted living, where fewer than 1,000 units broke ground in the quarter in primary markets.
Office portfolio: Growth was led by outstanding performance in the Company’s university-based Research & Innovation ("R&I") properties and complemented by steady growth in the Company’s medical office building ("MOB") portfolio, which is benefitting from the implementation and success of operational and sustainability initiatives. Third quarter 2019 office results included a $4.7 million cash lease termination fee, which was not included in same-store results.
2019 Investment Highlights

The Company has announced $3.8 billion in year-to-date investments (at 100 percent share), including $1.8 billion in Le Groupe Maurice and $900 million in attractive R&I developments. Investment highlights from the quarter include:

Completed Portfolio Investment with Le Groupe Maurice ("LGM"): As previously announced, Ventas completed its investment in a Class A portfolio of 29 operating apartment-like senior housing assets in the attractive Quebec market, and five in-progress developments, through an equity partnership with LGM (the "LGM Acquisition"). The LGM portfolio is fully integrated and performing well.
Investment in Future Growth in R&I Development: Ventas accelerated its investments in future growth through new developments in the third quarter 2019, driven principally by the R&I development pipeline. Recent updates include:
Pitt Immune Transplant & Therapy Center:Commenced construction on a $280 million, 350,000 square foot development that is 70 percent pre-leased to the University of Pittsburgh with strong incremental leasing demand.
College of Nursing and Health Professions, Drexel University: Executed a 30-year lease with Drexel University for a new development that will house Drexel’s College of Nursing and Health Professions in the uCity Square Knowledge Community ("uCity"). Drexel’s lease is for 100 percent of the building, which will be approximately 260,000 square feet and produce an expected GAAP yield of nearly 10 percent. Construction of the College of Nursing and Health Professions is expected to commence by mid-2020 and the building is set to open by 2022.
Expanding uCity: The Ventas uCity in-place portfolio is currently 98 percent leased with robust demand, including for the recently announced One uCity development. In the third quarter of 2019, Ventas acquired land and other assets in the thriving Philadelphia uCity market, supporting an additional 450,000 square feet of developable space.
Expanding Ardent Investment at Attractive Yield: Ventas began funding a $28 million investment in the development of a new on-campus outpatient cancer center, Harrington Cancer Center, leased to Ardent Health System at an approximately eight percent cash yield, which is expected to be completed in 2021.
Redevelopment: Ventas committed to invest $36 million in redevelopment capital projects in the third quarter 2019 across four medical office buildings leased to Banner Health in Phoenix, Arizona, as well as $15 million across several SHOP assets focused on LED lighting retrofits with various operators.
2019 Office Excellence

Ventas’s office business delivered exceptional performance and achievements year to date:

The R&I portfolio delivered outstanding third quarter 2019 growth, including occupancy levels approaching 97 percent and year-over-year cash same-store NOI growth exceeding 10 percent supported by continued leasing success.
The MOB portfolio, composed of 20 million square feet, demonstrated strong positive trends on tenant satisfaction and retention, resulting from the Company’s focused efforts.
Ventas’s South Street Landing near Brown University won a Richard H. Driehaus Foundation National Preservation Award for its historic preservation work.
Financial Strength and Liquidity

Ventas’s Net Debt to Adjusted Pro Forma EBITDA ratio was 5.9x in the third quarter. As anticipated, leverage increased sequentially principally as a result of the timing of equity raised in the second quarter and the completion of the LGM Acquisition in the third quarter.
Third quarter and recent capital market activity includes:
The Company extended its maturity profile and managed interest rate risk via the issuance of $650 million of 3.00% Senior Notes due 2030, the proceeds of which were used to retire $600 million of 4.25% Senior Notes due 2022.
Ventas managed currency risk by financing a portion of the LGM Acquisition in Canadian dollars through the closing of a C$500M unsecured bank term loan in September. The term loan is attractively priced at CDOR + 90 basis points and matures in January 2025.
The Company had robust available liquidity from cash on hand and existing credit facilities totaling $1.8 billion at the end of the third quarter 2019, net of outstanding commercial paper.
Demonstrated Leadership Excellence and Commitment to ESG (Environmental, Social, Governance) Principles

Ms. Cafaro was again recognized as one of Harvard Business Review’s Top 100 Best Performing CEOs in the World for the sixth consecutive year. She is one of only 14 global CEOs who have been named to HBR’s list consistently since 2014, placing Ventas’s financial accomplishments in the top four percent of all firms measured. In addition, the Company’s non-financial performance metrics significantly improved in 2019 to its highest ever rating for the two ESG measures which make up 30% of the result.
Ventas was named to the Dow Jones Sustainability World Index for the first time and retained its place on the Dow Jones Sustainability North America Index ("DJSI"). The first global sustainability benchmark to track the largest and leading sustainability-driven publicly listed companies, only companies that rank within the top 10 percent of their industries are included in the DJSI World Index.
Ventas maintained its #1 position among the four listed healthcare real estate participants in the GRESB real estate ESG assessment for the third consecutive year. GRESB is a premier ESG benchmark for real assets, and covers more than 1,000 property companies, REITs, funds and developers.
Ventas released its second annual Corporate Sustainability Report ("CSR") earlier today. Ventas’s 2019 CSR describes the Company’s achievements, and reaffirms its commitment to ESG leadership. The CSR, which was produced consistent with globally recognized best practices, also details Ventas’s enhanced strategic ESG framework and newly-established ESG goals.
Third Quarter Dividend

The Company paid its third quarter 2019 dividend of $0.7925 per share on October 11, 2019 to stockholders of record on October 1, 2019.

Updated 2019 Guidance

Ventas is updating its outlook for 2019 per share net income attributable to common stockholders, Nareit FFO and normalized FFO, as described below. The Company is also updating its previous overall and segment same-store cash NOI growth guidance.

Assumptions for Ventas’s 2019 updated normalized FFO per share guidance are materially consistent with the Company’s previously disclosed guidance, and include the impacts of announced investments and associated capital markets activities. Total same-store guidance has been updated to reflect revisions to segment-level outlooks, with office and NNN increases more than offset by a reduction in SHOP expectations. The SHOP guidance change reflects third quarter revenue trends, a dynamic and competitive market, and lower occupancy levels entering the fourth quarter. With respect to the Company’s NNN senior housing portfolio, the Company continues to estimate that it will incur approximately a ($10 million) net impact to its NOI from proactively addressing leases with select lower credit operators, which impact is contained in non-same store results.

A reconciliation of the Company’s 2019 guidance to the Company’s projected GAAP measures is included in this press release. The Company’s 2019 guidance is based on a number of other assumptions that are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company’s expectations may change. There can be no assurance that the Company will achieve these results.

Third Quarter 2019 Conference Call

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 NASDAQ OMX 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 4816549, beginning on October 25, 2019, at approximately 1:00 p.m. Eastern Time and will remain available for 30 days.

Ventas, Inc., an S&P 500 company, is a leading real estate investment trust. Its diverse portfolio of approximately 1,200 assets in the United States, Canada and the United Kingdom consists of senior housing communities, medical office buildings, university-based 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. References to "Ventas" or the "Company" mean Ventas, Inc. and its consolidated subsidiaries unless otherwise expressly noted. 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.