phone on a conference table

CareTrust REIT has made “significant progress” regarding 32 properties it previously designated as candidates for sale, repositioning or restructuring, President and CEO Dave Sedgwick said Friday on the real estate investment trust’s fourth-quarter and full-year 2022 earnings call.

The San Clemente, CA-based REIT sold 13 of the 32 properties for a total of $68.8 million, has five smaller senior living communities still on the market, and decided to keep 14 senior living communities, he said.

Of the five properties on the market, Sedgwick said, two are under contract and one is under a letter of intent, with the other two still being actively marketed. Of the five properties, only one paid rent last year, for a total of $377,000, he said.

“For the 14 properties retained, in 2022, we collected about $5.2 million of $8.6 million of contractual rent,” Sedgwick said. In 2023, he added, CareTrust REIT estimates that eight of the 14 properties will produce cash rent of approximately $3.5 million. 

“A couple of operators” will be taking over management of some of the 14 communities, and two communities are being converted to behavioral health facilities to be operated by Landmark, a new operator in CareTrust’s portfolio. Eight properties will continue to be managed by two operators already managing them.

An uptick in deals

Chief Investment Officer James Callister said that the REIT continues to see “an uptick in seniors housing, skilled nursing and behavioral deals coming across our desk. Many of the facilities being sold consist of distressed seniors housing assets with owners that are facing high interest variable rate loans and have to exit.”

CareTrust’s pipeline is in the range of $100 million to $125 million, he said, and is “primarily made up of skilled nursing, but also includes some seniors housing assets.”

“The deals include some of our standard one- to two-facility acquisition opportunities in addition to small or medium-sized portfolios that would allow us to not only enter new states, but also expand in states where we have a limited presence,” Callister said.

Macro dynamics unchanged

Regarding the market, Sedgwick said, “Many of the themes from last quarter’s call are still applicable today, starting with the macro dynamics at play.”

The Federal Reserve’s response to inflation has had a “significant” effect on the credit market, as was intended, he said. “Even with our sector-leading leverage, the rapidly risen rates undeniably eat into earnings and slow what has also been a sector-leading [funds from operations] per share growth rate over the past five years,” Sedgwick added.

“The good news,” he continued, “is that even with the elevated cost of capital, we can still make accretive investments, and intend to do so. And positively, as we mentioned last quarter, the flip side of the tighter credit market continues to be a tipping of the scales in our direction for brokers and sellers who are looking for certainty to close. Our operators are also poised to find some relief to the staffing challenges if and when a recession begins to drive people back to work, where jobs are secure here in healthcare.”