CareTrust REIT, Inc. Q2 FY2025 earnings call

• Over the past 18 months, CareTrust REIT deployed roughly $2.7 billion of investments, including the $1.1 billion closed in the second quarter and the acquisition of Care REIT and entry into the U.K. care home market in May.
• Integration of Care REIT assets is off to a strong start, with good operator relationships established.
• In the second quarter, completed acquisition of an external manager, closed on a $146 million portfolio of 10 skilled nursing assets in the Pacific Northwest, and has a pipeline of approximately $600 million.
• Raised $355 million from equity sales under ATM and $500 million term loan, used proceeds to fund investments and pay off debt, and entered into an interest rate swap to fix the rate on the new term loan.

Total revenues in the second quarter were up 63.3% compared to the prior year quarter. Normalized FFO per share increased about 19% to $0.43 per share, and normalized FAD per share increased about 16% to $0.43 per share. Normalized FFO for the quarter increased 58.2% over the prior year quarter to $83.1 million, and normalized FAD also increased 53.9% to $83.1 million.

• Raised guidance for the year to $1.77 to $1.79 for both normalized FFO and normalized FAD per share.
• Guidance includes all investments closed to date, a diluted weighted average share count of 195.3 million shares, and is based on assumptions such as no additional investments/debt/equity issuances this year, CPI rent escalations of 2.5%, interest income from various sources, interest expense, and G&A expense.

• Forward-looking statements are subject to risks and uncertainties that could cause actual results to materially differ from expectations, as discussed in CareTrust REIT's most recent Form 10-K and 10-Q filings with the SEC.

Q: Maybe if we could just start on the pipeline. Would you mind kind of talking about the composition of that? I'm curious how much of a contribution in the U.K. is already starting to see and if you're seeing that ramping? And then maybe part 2 of that would be what percentage of that is SHOP, if any?

A: The pipeline's majority is still U.S. skilled nursing. The remainder is a combination of U.S. seniors and U.K. There is a U.K. transaction in the pipeline, and the ramp continues. Some of the seniors housing in the U.S. consists of SHOP.

Q: Of the SHOP deals that you're looking at, could you kind of talk about maybe strategically the ones that you're interested in, whether it's core, core+ or value-add and the kind of what tier markets are you looking at?

A: We're pretty open. Focused on right operator manager relationships based on deals coming in. Looking at everything, focusing on right operator management solution for the deal.

Q: This is Farrell Granath. I also just wanted to dig in a little bit deeper on what you're seeing in your pipeline as some of the overhang when it came to SNFs has kind of lifted slightly with the passing of the reconciliation bill. I was wondering if you've seen anything else come into the market more or if you've seen greater competition for assets of both SNFs, senior housing or even SHOP as you're coming to the table?

A: Haven't seen meaningful uptick or impact from The Big Beautiful Bill on deal flow. Deal flow is consistent, with a little uptick recently. Same buyers in skilled nursing market; a few more entrants on private equity side for seniors housing.

Q: I guess, James, I wanted to quickly touch on the pipeline where you said that there were a few seniors housing deals. I mean, are those deals SHOP deals? Or are they just traditional triple net lease type transactions?

A: There's some of both in the pipeline.

Q: I know like how can you talk about like the RIDEA platform that you've been kind of looking to get into? I mean, are we -- how is that market looking? Are we any closer to some type of transaction on that side or anything interesting out there to you?

A: Looking at a range of opportunities from large deals with teams/platforms to more modest ones. Will be opportunistic, focusing on right operators for SHOP. Expect to get something done with SHOP within next 12 months.

Q: Has the competitive landscape made it more difficult, I guess, specifically on the seniors housing side? I know cap rates for SNFs rarely change. I'm assuming that, that's still kind of holding true. But are you seeing any type of compression on the seniors housing side that might make it more difficult?

A: Cap rates in seniors housing have a wider range depending on various factors. Don't think it makes it particularly difficult; just a different range than skilled side. Can still compete with right opportunity and operator.

Q: First, on the new investment-grade rating, just can you speak on what you would do for the next issuance, whether private placement or another term loan and when that would be?

A: Next issuance would likely wait until getting investment grade from all agencies. Depends on investment pipeline and closing at the time. Equity is nicely priced, so that's a good way to fund investments.

Q: Second for me is thinking of opportunities with new operators. Are you looking at new operators? And would you look to finance deals with them or buy assets right away to start relationships? And just any commentary on new operators?

A: Spent time developing bench of new operators. Will continue to see combination of growing with existing operators and bringing on new ones.

Q: Most of my questions have been answered, but just curious your thoughts on the overall -- I know you talked a little bit about The Big Beautiful Bill already, but like the overall regulatory backdrop, I think, again, things look like they've gone pretty well from a Medicare and Medicaid perspective this year. But if you're kind of talking about next year where you potentially have increased budget deficits because of The One Big Beautiful Bill, does that put additional pressure potentially on what reimbursement could look like next year? Do we start to kind of have the word sequestration thrown around a little bit next year?

A: It remains to be seen. Encouraged by broad bipartisan support for Medicaid, particularly for skilled nursing and senior care, which will likely defend Medicaid rates for senior care.

Q: Just honing in again a little bit on sort of the relationship side. Are the SHOP operators you're speaking to mostly relationships you've had a track record worth? And would that sort of be the initial foray or your preference, I guess? Or similarly, are you casting a much wider net as you are across the skilled side?

A: Casting a wider net with SHOP. These are some new relationships to CareTrust but also long-standing relationships with individuals at CareTrust. Spending time vetting operators due to different economics in SHOP environment.

Q: Have you spoken to any of your existing relationships within the portfolio about potential conversion opportunities from the triple-net structure to the RIDEA structure?

A: No, focus is on growing the SHOP space de novo.

Q: Just would love to hear an update. You touched a little bit on the integration, but would like to hear a little bit on some of the synergy side potentially. If you could provide a figure, how far along are you in sort of realizing some of those synergies? And just any potential upside to maybe your initial thoughts now that you've had some time to digest the portfolio and integrate some of the team.

A: So far, so good. Confidence in forecast and synergies has increased. Synergies were signaled to be on a run rate of about $10 million, with 50% of that likely kicking in mostly in Q1 next year, and still on track.