CareTrust REIT, Inc. Q4 FY2024 earnings call

• Macro environment: Fed rate hikes earlier led to challenges, but CareTrust was positioned to capitalize due to low leverage and dry powder. • Portfolio performance: Exceptional lease coverages (2.82 times EBITDARM and 2.21 times EBITDAR for overall, 3.02 times EBITDARM and 2.37 times EBITDAR for top ten tenants). Early performance of last year's acquisitions in line with expectations. • Investment activity: 2024 saw over $1.5 billion in new investments at 9.7% stabilized yield, with $700 million closed at 9.9% at year end, and subsequent $26.8 million in additional investments. Pipeline remains robust with $325 million in reloader pipeline. • Financial results: Normalized FFO and FAD increased year-over-year on a per share basis.

For the quarter, normalized FFO increased 68.1% over the prior year quarter to $72.9 million and normalized FAD increased 63.7% to $74.3 million. On a per share basis, normalized FFO increased four cents or 11.1% to forty cents per share, and normalized FAD also increased four cents to 10.8% to forty-one cents per share.

• Normalized FFO per share guidance: $1.68 to $1.72. • Normalized FAD per share guidance: $1.72 to $1.76. • Assumptions: No additional investments/debt/equity issuances, CPI rent escalations of 2.5%, interest income from financing receivables and other sources, interest expense, and G&A expense within specified ranges.

• Market uncertainties including interest rate changes. • Medicaid/Medicare policy changes and potential impacts on skilled nursing facilities. • Uncertainties related to operator performance and potential bad debt, though guidance assumes no bad debt from PACS or other operators.

Q: Looking at last year's PACS as a driver of investment activity, would the pipeline broaden?

A: Dave Sedgwick said it would expand with existing and possibly new operators, but large portfolios too early to discuss.

Q: Commentary on PACS bad debt and conviction?

A: No bad debt in guidance, expect no bad debt from PACS, wait for their results and point to exceptional lease coverage.

Q: Cap rates shift in pipeline?

A: James Callister said cap rates for skilled nursing remain in 12.5 to 13.5 range, seniors housing maybe slight compression but not notable.

Q: Cost of debt vs equity calculus?

A: Bill Wagner mentioned net debt to EBITDA range of 4-5 times, decision on using revolver or equity based on investment pipeline and deal yields.

Q: Confidence in Medicaid and Medicare not affecting SNF?

A: Dave Sedgwick cited Speaker Johnson's comments and bipartisan support, expecting Medicaid and Medicare to remain unchanged for SNF.

Q: Pipeline cadence and deal flow?

A: James Callister said deal flow remains healthy, no meaningful shift, end-of-year closings due to tax planning etc.

Q: Acquisition performance and coverage ratios?

A: James Callister said some acquisitions too early to judge, but overall performing as projected, some operators given ramp time for stabilization.

Q: Senior housing pipeline appetite?

A: Dave Sedgwick said interested in seniors housing, but need right entry point, historically done some annually.

Q: Medicaid state budget and reimbursement?

A: Dave Sedgwick said no negative surprises expected, some optimism for Texas increase, routine Medicaid rate season.

Q: PACS appetite and external growth?

A: Dave Sedgwick said PACS in holding pattern until earnings release, wait for positive results.

Q: Medicaid matching and Medicare Advantage?

A: Dave Sedgwick said managed Medicare trend likely to continue, sophisticated operators can adjust; FMAP changes unlikely due to political constraints.