San Clemente, CA-based real estate investment trust CareTrust REIT returned to “significant external growth” this year, President and CEO Dave Sedgwick said as the company released earnings results for the third quarter.
“There has been a continual flow of deals crossing our desk that we expect will continue in 2024,” he added in a press release issued in conjunction with Friday’s third-quarter earnings call. On Friday’s call, he said that “[t]he team has continued to drive forward with its foot on the gas.”
After completing the sale of one senior living property in October, CareTrust has two senior living properties, one skilled nursing facility and one portfolio of 11 SNFs held for sale.
The REIT’s investment pipeline is approximately $175 million, according to Sedgwick.
“Not only have we made a significant return to external growth by investing $280 million year to date, but also we have set the table for 2024 and 2025, with an active pipeline and a ton of dry powder, “ he said. “We are willing to take some modest dilution in the short run to be positioned to take full advantage of the favorable investment environment we are in today and expect to be in for the foreseeable future.”
Chief Investment Officer James Callister said that most of the proposed senior housing transactions in the pipeline involve communities that are “in some stage of operational distress, typically due to maturity day risk or variable interest rate loans, including risks related to the expiration of interest rate cap agreements.”
But Callister said that the REIT continues to see “robust deal flow” in skilled nursing transactions.
“Pricing that is based on stabilized cash flows and coverage is still very rare. With that said, we’re also seeing a decrease from the last couple of years in transactions involving portfolios that are experiencing negative cash flows and heavy losses,” Callister added. “Most skilled nursing assets being marketed currently reflect recent performance landing at break-even or better, but still a fair distance from stabilization.”
Lease coverage slightly improved overall in the third quarter. For example, Covenant Care earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs, or EBITDAR, coverage increased to 1.43x with the acquisition of two facilities.
“Additionally, the same-store Covenant Care properties continued its trailing 12-month coverage improvement for the third quarter in a row,” Sedgwick said.
Third-quarter total net income was $8.7 million, with a net income per share of $0.08. Chief Financial Officer Bill Wagner said that normalized funds from operations, or FFO, for the third quarter increased 1.5% over the same quarter in 2022, to $36.6 million, and normalized funds available for distribution, or FAD, increased by 2% to $38.8 million.
On a per share basis, he said, normalized FFO decreased $0.02 to $0.35 per share, and normalized FAD decreased $0.02 to $0.37 per share.
The REIT reported that 97.5% of contractual rents had been collected.
CareTrust also reported a quarterly dividend of $0.28 per share, representing a payout ratio of approximately 76% on normalized FAD.
Regarding the Centers for Medicare & Medicaid Services proposed minimum staffing mandate, Sedgwick said, “We add our voice to the thousands of others in our industry that have called for significant changes to the proposed minimum staffing mandate from the federal government. …The industry is unified in its efforts to work with CMS to modify the proposed rule to be in a form that the industry can work with.”
