(Credit: Thomas Barwick / Getty Images)
Although occupancy has improved steadily in CareTrust REIT’s skilled nursing portfolio, overall occupancy in the third quarter remained flat for senior living, despite a significant rise in admissions, Chairman and CEO Greg Stapley said during a third-quarter earnings call on Monday.
President and Chief Operating Officer Dave Sedgwick attributed the “treadmill of assisted living occupancy” to one operator, Noble Senior Services, electing to “discharge a host of residents for various reasons” from two communities. With those discharges now largely completed, Sedgwick said, he expects to see senior living occupancy recover more quickly.
Noble Senior Services
Last quarter, Noble requested 90-day flexibility in rent payments, Sedgwick said. The real estate investment trust expects Noble to repay those rents, along with the rest owed in 2021, by the end of the year, he said.
Although Noble has not received any money from the Provider Relief Fund to date, the company does expect to receive assistance under the Phase 4 distribution, according to CareTurst.
“The provider relief funding has been critical for most of our tenants, and several still need it,” Sedgwick said. “This Phase 4 round is especially important for our assisted living operators, who haven’t benefited previously to the same degree as our skilled nursing tenants.”
CareTrust transitioned two communities in Wisconsin to Noble last quarter. Sedgwick reported that Noble is performing ahead of expectations despite COVID-19 and that move-ins have picked up. The transition, Chief Investment Officer Mark Lamb said, gives Noble an opportunity to build on its strength and form a cluster with other properties it has in the vicinity.
CareTrust also has a pending $12 million acquisition of two Noble memory care communities in New Jersey that will be run by different operators. The communities have been empty for some time, undergoing renovations, executives said. CareTrust leaders said they intend to put more money into those properties with the expectation of collecting rent sometime in the first half of 2022.
Investments
Pricing for both seniors living and skilled nursing properties continues to be disconnected from current and historical operating performance, Lamb said, adding that he has seen a few more reasonable numbers for some mid-market assets and that CareTrust is seriously considering those opportunities.
Chairman and CEO Stapley said that although the industry faces challenges of a workforce shortage and rising labor costs, pricing for properties in both senior living and skilled nursing markets have been “unusually strong.”
“We understand perfectly why recent performance is less relevant, but recovery projections and the future operating assumptions being used by some buyers appear to be very aggressive,” Lamb said. “For our part, we continue to underwrite carefully and look for good opportunities, and are content to let overpriced assets go to less experienced and ultra-high leverage buyers.”
Lamb said the REIT’s active deal pipeline is between $125 million and $150 million, noting that it is mostly composed of stand-alone properties and smaller portfolios equally weighted between senior living and skilled nursing assets. CareTrust, he added, has closed $184 million in deals year to date, and more deals may be completed before 2021 is done.
Looking ahead to 2022 and 2023, Lamb said, the investment sales community continues to expect that a wave of deals will be coming to the market. And although he said he can’t predict when, Lamb said he expects that pricing eventually will settle as the pandemic subsides, supply chain issues resolve and interest rates increase.
Sedgwick said that near- and long-term projects for its senior living and skilled nursing portfolios remain “constructive.” Steadily improving occupancy and continuing relief funding, especially for CareTrust’s assisted living operators, bodes well for the portfolio, he added.
