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CareTrust REIT’s “exciting and busy” second quarter included acquisitions in senior living, but future deals in the sector in the near term may be challenged by “a gap between seller and buyer pricing expectations,” Chief Investment Officer James Callister said Friday on the San Clemente, CA-based real estate investment trust’s second-quarter earnings call.

The quarter’s “positive momentum” included $200 million in investments through eight transactions with six new operators, representing “some of the best work done in that short amount of time in our history,” President and CEO Dave Sedgwick said.

The deals included the acquisition of 12 new facilities, including four assisted living/memory care communities, one assisted living/skilled nursing campus and seven skilled nursing facilities, Callister said. Some of the transactions closed after the quarter ended, he added.

In June, after the end of the quarter, CareTrust closed on three other transactions, including a two-community memory care portfolio in Michigan and Ohio operated by affiliates of Ridgeline Management, as well as a 125-bed SNF in Texas, according to Callister, materials provided in conjunction with the call and a June press release.

Additionally, the REIT funded a $26 million mortgage loan secured by an independent living/assisted living/skilled nursing campus in Loma Linda, CA, he said. The facilities are known as Linda Valley Villa, Linda Valley Assisted Living and Linda Valley Care Center, CareTrust previously announced. The independent living community is operated by an affiliate of Chancellor Health Care, and the assisted living community and SNF are operated by affiliates of the Providence Group.

‘Ample dry powder’

After an “extremely busy” first half of the year, Sedgwick said, CareTrust is “going into the second half of the year with ample dry powder to continue to grow the business and set up the company for a return to growth in 2024.”

With regard to senior living properties, however, Callister said, “We are still seeing a gap between seller and buyer pricing expectations.

“Much of the seniors housing deal flow coming across our desk involves increasing numbers of facilities in some stage of operational distress, as sellers face hikes and variable interest rate loans and/or maturity day risk,” he continued.

The REIT’s pipeline sits at approximately $150 million and consists mostly of skilled nursing properties, executives said.

Occupancy levels in the senior living portfolio’s independent living and assisted living properties “are continuing to show signs of recovery following the onset of the COVID-19 pandemic, although they have not yet fully normalized to pre-pandemic levels,” the REIT said in its quarterly report.

Behavioral health still of interest

Sedgwick said that CareTrust has not been “super aggressive” in pursuing its previously announced plan to diversify its portfolio by investing in behavioral health, including by converting some underperforming assisted living communities in its portfolio into residential addiction recovery centers.

“Our strategy with respect to behavioral has been to shoot some bullets before cannonballs,” he said. “We want to take a bit of a measured approach and test out the thesis. …Candidly, we’ve been so busy with our bread and butter and have seen so many great opportunities with the skilled nursing [and] seniors housing assets, that’s taken all of our attention.”

Property renovations are underway, the CEO said, “and those will come online as soon as they are ready — I think early next year.”

Behavioral health is “still very much an area of interest for us,” Sedgwick said. “The priority [is] to identify the best operators in the space.”

As part of a portfolio repositioning plan announced in 2022, CareTrust sold one assisted living community in the quarter, in May, and sold another one in June after the quarter ended. Three assisted living communities are on the market — two of them, with a total of 245 beds, are under a purchase and sale agreement, and one, with 64 beds, is under a signed letter of intent. Six others are being or have been re-tenanted or converted.

As of June 30, the REIT’s portfolio included 32 senior living communities, 25 senior living/skilled nursing campuses and 148 SNFs.

Chief Financial Officer Bill Wagner reported that, for the second quarter, CareTrust reported a net loss of $0.5 million, or $0.01 per diluted weighted-average common share; normalized funds from operations of $34.6 million, or $0.35 per diluted weighted-average common share; and normalized funds available for distribution of $36.1 million, or $0.36 per diluted weighted-average common share.

For additional coverage of this earnings call, see McKnight’s Long-Term Care News and the McKnight’s Business Daily.