CareTrust REIT President and CEO
Greg Stapley

Changing operators on a portfolio of seven assisted living communities is one of the ways that San Clemente, CA-based CareTrust REIT is working to “rinse out any real softness in the portfolio and position CareTrust for solid operating performance going into 2020 and beyond,” President and CEO Greg Stapley said Friday.

The changes come as the REIT marks five years since its spin off from San Juan Capistrano, CA-based The Ensign Group, Stapley noted on the real estate investment trust’s third-quarter earnings call.

The REIT reported a net loss of $10.1 million and net loss per diluted weighted-average common share of $0.11 for the quarter; normalized funds from operations of $33.6 million, or $0.35 per diluted weighted-average common share; and normalized funds available for distribution of $34.5 million, or $0.36 per diluted weighted-average common share.

Effective Nov. 1, Chief Operating Officer Dave Sedgwick said, Noble Senior Services is the new operator of the assisted living portfolio formerly operated by Priority Life Care. The seven properties are located across four eastern states, he said. Another option was selling the portfolio, Sedgwick said.

“The impetus for the change was a combination of inconsistent performance and Priority’s strategic shift toward focusing entirely on their consulting and management fee business instead of leasing, real estate and owning their operations,” he said. “That being the case, it was clear to us that another operator would likely be able to perform better in these assets, and we made the switch.”

Sedgwick said CareTrust REIT has been “chronically disappointed with the performance and the lack of resources and attention that the buildings have been getting.”

Noble’s approach to marketing, specifically, is “more aggressive than Priority,” he said.

“This is really their whole operation instead of maybe being distracted and spread out, spread thin. This is everything for them,” Sedgwick said. “And they have local leaders already in the state of Florida, for example, that have been there, that know that market very well. So from a marketing perspective, they have a different approach, and they also see expenses that they believe that they can right-size.”

$35 million in new investments

In the third quarter and beyond, CareTrust REIT has closed on approximately $35 million in new investments, Chief Investment Officer Mark Lamb said.

Among them:

  • The $12.5 million acquisition of Vista del Lago, a 52-unit, 96-bed memory care community in Escondido, CA, which added “an old friend from the industry, but a new tenant to our portfolio, Bayshire Senior Communities,” Lamb said. Bayshire is based on San Diego. The lease term is 15 years, with two five-year renewal options.
  • The $14.2 million acquisition of a 72-unit assisted living and 99-bed skilled nursing facility campus in Sacramento, called Saint Claire’s Nursing Center and Saint Francis Senior Residence. Both have been leased to existing tenant Kalesta Healthcare. Kalesta assumed operations on Oct. 1, rebranding the campus as City Creek Post-Acute and Assisted Living.

The REIT’s acquisition pipeline is valued at approximately $100 million, Lamb said. “It consists mostly of singles and doubles and includes almost exclusively of ‘tack-ons’ for our existing operating partners,” he added.

In senior living, Lamb said, “We continue to see smaller but compelling opportunities that we believe can be accretive to us and our operators, so we are optimistic that we’ll be able to add to our seniors housing portfolio over the coming quarters.”

‘High hopes’ for Pennant

CareTrust REIT also owns 11 Pennant Group senior housing properties in its portfolio, and Eagle, ID-based Pennant was one of the REIT’s top five tenants by rent as of Sept. 30 (based on properties that formerly were with Ensign), according to supplemental information released in conjunction with the earnings call.

Pennant spun off from Ensign effective Oct.1 to focus on senior living, home health and hospice.

“We love this new entity. We know these guys very, very well; they’re superstars in every sense of the word, and we have high praise and high hopes for their future as a stand-alone company,” Stapley said. “We wouldn’t be surprised at all if they experience some growing pains here early on, but we have great confidence in them over the long term and hope to be able to expand our relationship with them in time.”

For additional coverage of the earnings call, see sister brand McKnight’s Long-Term Care News.