CareTrust REIT remains interested in acquiring senior living communities, despite it being a couple of years since the company made a deal that was limited to senior housing, Chief Investment Officer Mark Lamb told analysts Wednesday during the real estate investment trust’s first-quarter earnings call.
“We’re asset class-agnostic and, frankly, it’s all about the operator,” he said. “We continue to underwrite senior housing deals every day, but the reality of it is we just haven’t been able to pair an acquisition target with an operator that we like. Sometimes we’ll find assets that we really like, [but] maybe it’s geographically in a spot that we don’t have the right fit from an operator perspective. And then conversely, we continue to nurture relationships with senior housing operators, but we just haven’t found anything that has fit both for us.”
CareTrust President and CEO Greg Stapley added: “Everything is on the table. We haven’t redlined seniors housing. We just haven’t seen a ton of it lately that we thought was a good match for our operator pool.”
Of the 199 properties in CareTrust REIT’s portfolio, 144 are skilled nursing facilities, 36 are senior housing properties and 19 are multi-service campuses, according to a financial supplement for the first quarter posted on the REIT’s website.
During the quarter, among the properties acquired by CareTrust was Oakview Healthcare, a 128-bed/unit skilled nursing and assisted living campus in Mt. Carmel, IL, for $9 million. The property was added to existing tenant WLC Management Firm’s master lease.
Plans by The Ensign Group to spin off its home health and hospice agencies, along with most of it senior living businesses, into a new company called The Pennant Group will bring new opportunities, Stapley said.
The proposed spinoff is expected to be completed in or before the fourth quarter, according to Ensign.
CareTrust itself was spun off from Ensign in 2014, when it became a separate and independent publicly traded, self-administered and self-managed REIT. At that time, CareTrust owned almost all of the real property that had been owned by Ensign before the spinoff and leased those properties to Ensign on a triple-net basis.
Now, CareTrust REIT owns 93 of Ensign’s 245 skilled nursing and assisted living facilities, and Ensign is CareTrust’s top tenant by rent, according to a financial supplement for the first quarter posted on the REIT’s website.
Stapley said “the logical approach” would be to give Pennant time “for the dust to settle on their spin” before contemplating deals. “However, we’re opportunistic acquirers, and if the right opportunity came along sooner than that, we’d certainly explore it with them,” he added.
A few current CareTrust assets will become part of Pennant, Stapley said, but he added that from the perspective of the REIT, “the spinoff is largely a nonevent.”
“It won’t reduce our rental income and, according to their proposal to us, instead of one guarantor we’ll have two well-capitalized companies, public companies, guaranteeing that Pennant master lease,” he said. “So the only visible change from our perspective would be a reduction on our tenant concentration with our largest tenant.”
Stapley characterized Ensign as “a good tenant with solid lease coverage” and said he expects Pennant “to be every bit as good.”
“I think this spin is probably a positive thing for everybody,” he said. “We certainly know the guys that are going to be running Pennant very, very well and think very, very highly of them. …We think there’s some things about this spin that actually make a ton of sense for both companies and for us as well.”