VENTAS, INC.
Fitch Ratings has assigned a 'BBB' rating to the proposed senior unsecured notes issued by
Key Rating Drivers
Deleveraging Delayed: Fitch expects Ventas's leverage will decline as the senior housing operating portfolio continues to recover from lows, with the company exhibiting double-digit same-store NOI growth in the segment through 2022 and 2023. Fitch still believes the company will be able to organically reduce REIT leverage to within the 5x-6x range, consistent with a 'BBB+' rating in the long term. However, Ventas's pace of deleveraging has been slower than previously projected despite its operational performance.
As a result, Fitch expects the company's leverage to remain above 6x through 2025 absent additional deleveraging capital allocation such as equity issuance and asset sales. Ventas has had elevated leverage above 6x since 2019 and did not achieve significant post-pandemic deleveraging. This led to elevated leverage in 2022 and 2023, due in part to the assumption of debt related to the Santerre portfolio. Fitch views a 'BBB' rating as appropriate for Ventas until it is able to consistently maintain leverage below the 6x threshold.
Senior Housing Recovery in Progress: Fitch assumes senior housing NOI will continue to grow meaningfully over the ratings horizon, driven by improving occupancy rates and strong rent growth. Fitch also assumes occupancy rates will return to and exceed pre-pandemic levels due to a combination of healthy demographic trends and a favorable supply backdrop.
Fitch expects the 80+ age cohort to grow at a faster rate than the overall population over the next decade. Senior housing new starts remain depressed and significantly lower than 2017 peak levels due to rising construction costs and stricter bank lending standards. Senior housing rent growth, both asking and in-place, has accelerated, and improving occupancy rates should help rent growth outpace inflationary cost pressures.
Durable Cash Flows in Outpatient Medical Segment: Ventas's Outpatient Medical portfolio is primarily focused on on-campus medical office buildings at ~18% of cash NOI as of
Fitch views the portfolio's proximity to hospitals and the system affiliation with high-quality health and hospital systems as an indicator of the desirability of the real estate, as well as the high portfolio quality of Ventas's assets. The company does not disclose the percentage of assets that are single-tenant versus multi-tenant.
High Growth in Research Segment: NOI growth in the past decade for life science, which makes up most of Ventas's Research portfolio, was well above the average for all property sectors. Fitch assumes the sector will continue to perform well. The sector has multi-decade demand drivers, including an aging population, growing global drug demand and a supportive regulatory environment. Low vacancy rates in many markets are expected to support mid- to high-single-digit annual rent growth.
Most of Ventas's research properties are in five of the top six life science clusters, with academic centers and commercial phase biopharma firms comprising the majority of tenants. Barriers to entry in the life science sector are high, given the importance of specificity for lab real estate and the clustering of real estate based on human talent, industry depth and innovation hubs.
Derivation Summary
Ventas's ratings reflect its diversified and high-quality portfolio of health care real estate and its generally conservative financial policies, though with currently elevated leverage. The ratings also reflect Ventas's strong liquidity and above-average access to capital relative to both health care REITs specifically and the broader REIT universe.
Ventas is rated higher than smaller or more narrowly focused health care REITs such as
Fitch rates the IDRs of the parent REIT and subsidiary operating partnership on a consolidated basis using the weak parent/strong subsidiary approach and open access and control factors, based on the entities operating as a single enterprise with strong legal and operational ties.
Key Assumptions
The company grows revenue in the mid-single digits over the forecast, driven by growth in SHOP. Margins also improve slightly over the ratings horizon;
The company spends roughly
The company completes
No additional acquisitions or dispositions are explicitly assumed in the model beyond 2024, but Fitch assumes any acquisitions would be completed at leverage neutral levels;
No equity issuances are assumed beyond 2024;
The company refinances debt such that gross debt is roughly flat over the ratings horizon;
REIT leverage remains above 6.0x through 2025.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch's expectation of REIT leverage, measured as net debt/recurring operating EBITDA after net distributions to noncontrolling interests, sustaining below 6.0x;
Fitch's expectation of REIT fixed-charge coverage sustaining above 3.0x.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch's expectation of REIT leverage sustaining above 7.0x;
Fitch's expectation of REIT fixed-charge coverage sustaining below 2.5x;
Fitch's expectation of UA/UD sustaining below 2.0x.
Liquidity and Debt Structure
Sufficient Liquidity: Fitch estimates Ventas's sources of liquidity (unrestricted cash, availability under the revolving credit facilities, as well as retained cash flow from operations) are sufficient to cover its uses (debt maturities, all committed and remaining development expenditures and maintenance capex) by roughly 1.1x through 2025.
Overall, Ventas has a well-staggered debt maturity profile. The year with the largest amount of debt maturing is 2026, with roughly 14% of debt maturing. Ventas maintained approximately
Below-Average Contingent Liquidity: Fitch estimates that Ventas's UA/UD at 1.8x by assuming an 8.5% stressed cap rate as of YE 2023. Investment-grade REITs rated by Fitch typically have UA/UD ratios around 2.0x, indicating Ventas has below-average amounts of unencumbered assets relative to unsecured borrowings.
The financeability of the underlying real estate is a core tenet of investment-grade REIT ratings. Senior housing, medical office buildings and life science properties generally benefit from strong access to contingent liquidity sources, including multiple durable mortgage capital sources as well as more pro-cyclical bank mortgage and commercial mortgage-backed securities markets.
Issuer Profile
Ventas (NYSE: VTR) is a diversified REIT that acquires, develops, leases, sells and manages health care real estate in the
Date of Relevant Committee
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Ventas has an ESG Relevance Score of '4' for Exposure to Social Impacts as an owner, operator and provider of real estate to
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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