CareTrust REIT (Nasdaq: CTRE), which has 157 skilled nursing facilities in its 222-asset portfolio, collected 100% of rent from its tenants in the first quarter. And when it comes to deals in the pipeline, most of those are skilled nursing facilities, the San Clemente, Calif.-based real estate investment trust (REIT) said in its first-quarter earnings call on Friday.
CareTrust’s deal pipeline has returned to its historical range of $125 million to $150 million, CareTrust chief investment officer Mark Lamb said on the call, and the REIT is “cautiously optimistic” that there will be more SNF opportunities in the near future, as larger operators prune their portfolios and mom-and-pop operators exit the business.
“The active pipe is predominantly SNFs, with a few seniors housing assets that we feel are great fits for our operators in that space,” Lamb said on the call.
Current M&A opportunity volume appears to be mostly senior housing, but Lamb noted that overall, deal flow does appear to be picking up its pace in recent weeks. The REIT announced the acquisition of Buena Vista Care Center in early March, as well as the acquisition of the 123-bed El Centro Post-Acute Center after the end of the first quarter.
That said, SNF deals are not easy to come by at the moment.
“There’s an awful lot of capital on the sidelines waiting to pounce,” Lamb said. “I think today is as competitive on the SNF acquisition front as it’s ever been, just due to the lack of supply. Will more and more mom-and-pops head for the hills? Potentially. Do the larger guys kind of pare down on assets that strategically don’t fit? We would expect to see deal flow coming from those buckets, but in terms of what we will be able to grab – that will be interesting, because there’s a lot of competition to acquire skilled nursing assets today.”
CareTrust reported net income of $20.49 million, or 21 cents per share, in the first quarter, compared with net income of $19.33 million, or 20 cents a share, in the year-ago period.
Occupancy recovers slightly
CareTrust’s occupancy recovered moderately, after hitting “a pandemic-era low” in January, chief operating officer and president Dave Sedgwick said on the call, with a 220-basis point recovery by the end of the first quarter.
“On the skilled mix front, the question has revolved around the rate of return to pre-pandemic levels there as well, now that COVID cases in the nursing homes have materially declined,” he said. “At quarter-end, our operators were still around 440 basis points above the pre-pandemic skilled mix norm.”
Overall, CareTrust’s operators have not been affected as much by home health taking more patients who might have gone to the SNF setting; occupancy is more affected by how a given market is affected by COVID-19 and how the hospitals in a given market have been affected, at least according to what those operators have told CareTrust, Sedgwick said.
He also pointed out that in general, while hospitals suspending elective surgeries does affect occupancy, most patients admitted to the SNF setting from the hospital “started their journey from the emergency department,” rather than elective surgery. And that is affected by the lockdowns related to COVID-19.
“The key lead indicator for us is going to be that the restrictions related to COVID entirely are lifted, and people get back to their normal lives,” he said. “It’s hard to imagine that our occupancy fully recovers before that happens.”
Companies featured in this article:
