CareTrust REIT, Inc. Q1 FY2025 earnings call

• Pending strategic acquisition of Care REIT: On March 11th, offer was unanimously accepted and recommended by Care REIT's Board, shareholders approved the deal, expected to close on May 9th. Purchase price approximately $856 million, portfolio has contractual rent of approximately $68.6 million. Diversifies business in multiple aspects, adds experienced team, purchase price is discount to replacement cost and accretive in year one, adds new growth engine.
• First quarter investments: Completed three new investments totaling over $47 million, closed acquisition of a skilled nursing and assisted living campus in Southern California through joint venture, year-to-date investment total $82 million at 10% yield. Investment pipeline strong at ~$500 million, predominantly real estate acquisitions, includes skilled nursing facilities and senior housing opportunities.
• Pending Care REIT acquisition: Excited about immediate and long-term benefits, actively reviewing acquisition opportunities in UK, uniquely positioned to win deals in UK with competitive advantages.

No specific product segments detailed in terms of absolute financial performance and revenue contribution %; however, key financials mentioned include normalized FFO increased 67.4% over prior year quarter to $77.8 million, normalized FAD increased by 66% to $80.8 million. Per share, normalized FFO increased $0.07 or 20% to $0.42 per share, and normalized FAD increased $0.06 or 16.2% to $0.43 per share. Year-to-date investment total is approximately $82 million at a yield of approximately 10%.

• Raised guidance for this year with normalized FFO per share of $1.69 to $1.73 and for normalized FAD per share of $1.73 to $1.77. Includes all investments closed to date, diluted weighted average share count of 190.6 million shares. Assumptions include no additional investments/debt/equity issuances this year, CPI rent escalations of 2.5%, interest income from financing receivables and loan portfolio, interest expense increase due to UK transaction escrow, G&A expense range. Plan to update guidance again once UK transaction closes.
• Liquidity strong: Subsequent quarter end raised ~$100 million via ATM and used $50 million to pay down revolver to $375 million, $45 million cash on hand, $825 million available under revolver, $500 million term loan expected to close this month.

No specific risks detailed in the provided transcript beyond general mention of forward-looking statements being subject to risks and uncertainties discussed in Form 10-K and 10-Q filings.

Q: Can you please make some comments on possible expectations with the general macro, specifically with policy and provider taxes, and the impacts that can flow through to your portfolio?

A: Hey, Farrell. Yes, there's really no real change in our outlook from our last call on potential Medicaid cuts. I think along with everyone else, we're just monitoring the process and it's unfortunately too soon to be definitive on this one way or the other. So, you know, there continues to be widespread bipartisan support for Medicaid and protecting the care for seniors and nursing homes especially. So, we will monitor the progress in that budget process along with everyone else.

Q: Can you talk about possible expectations with the general macro, specifically policy and provider taxes, and their impacts on the portfolio?

A: Dave Sedgwick mentioned no real change in outlook on Medicaid cuts, monitoring the process with bipartisan support for Medicaid and care for seniors/nursing homes.

Q: On the Care REIT transaction, any changes to annualized earnings or FAD accretion from initial underwriting?

A: Dave Sedgwick said they will provide answers in a little over a week when announcing the deal, still limited to what can be said now.

Q: Size up reasonable volume or investment pipeline for UK market, focus on singles and doubles, and yields?

A: Dave Sedgwick said pipeline in UK will take time to mature, cap rates in UK may be wider than US, range from high 7s to 9s depending on deal particulars; James Callister added they approach it the same as US, looking for right deals.

Q: Update on how properties are performing relative to initial underwriting?

A: Dave Sedgwick said no comment or update besides data and coverage speaking for itself, still waiting for PACs release and disclosures.

Q: Why UK, does why not SHOP take front and center?

A: Dave Sedgwick said plenty to do in UK, not having to figure things out on own with UK team, and same process applies to SHOP, waiting for right entry point.

Q: Is $500 million pipeline just US?

A: Dave Sedgwick said $500 million pipeline is just US.

Q: Compare returns in US and UK in terms of cap rates and IRRs?

A: Dave Sedgwick said most of US $500 million pipeline is skilled nursing with higher yield than UK, but UK deals can be in 9s or 8s, all accretive and need individual underwriting.

Q: Talk about CMS reimbursement for fiscal year 2026, Medicare rate increase?

A: Dave Sedgwick said Medicare rate increase is fine, rate blends to about 2.2% across portfolio, in line with historical increases.

Q: By doing large deal in UK, did it put you on the map, seeing new relationships, and lending in UK?

A: Dave Sedgwick said response from operators and brokers was overwhelming, not looking to lend in UK today, just traditional acquisitions and leases.

Q: Near-term opportunity in UK, how long to build pipeline, can more deals happen in back half of year?

A: Dave Sedgwick hoped to get something done this year, but existing pipeline in UK was thin, team there hasn't had access to capital, next year more likely to see mature pipeline form.

Q: Talk about U.S. Smith market, competitive landscape change post PACs deal?

A: James Callister said competitive landscape pretty unchanged, same groups, same amount of capital, same deal flow, some regionals/mom-and-pops feeling like good time to sell.

Q: On guidance, $600 million cash on balance sheet, assumed in guidance?

A: Bill Wagner said restricted cash is invested in money market accounts with escrow agent, included in interest income increase from last quarter's guidance.

Q: Watch list and cash paying tenants, comfort level no surprises?

A: Dave Sedgwick said feel good about strength of overall portfolio, coverage ticked up, dealing with non-paying assets by selling/transitioning, not expecting surprises.

Q: Top 10 tenant list, feeling on Lynx and Champion Care's trajectory?

A: Dave Sedgwick said feeling really good about both, Lynx has long ramp of rent bumps, making sure next rent bump is fair before putting in front of everybody.

Q: Term loan multi-currency, cost and differential between US and pound interest rates?

A: Bill Wagner said term loan won't be in pounds, amendment to existing credit facility, pricing on term loan just inside revolver.

Q: Operators' access to financing, any industry-wise challenges like ABL?

A: Dave Sedgwick said not seeing any such challenges