CareTrust: Micro-Level Skilled Nursing Gains Outweigh Macro Pains

CareTrust REIT (NASDAQ: CTRE) has made moves to divest from a troubled operator, but management still remained upbeat about the potential for skilled nursing success in the year to come.

After a positive experience transitioning seven of its 16 properties operated by Pristine Senior Living and Post-Acute Care in Ohio, CareTrust will market the remaining nine facilities over the coming months.

Despite a smooth shift to new operator Trillium Healthcare LLC last year, Pristine missed $2.3 million in rent payments, forcing CareTrust to place the company on a cash-only plan with a recorded reserve, Stapley said.

“They’ve discovered that it’s much more difficult to shrink than it is to grow, and this has hampered their recovery efforts,” CareTrust CEO Greg Stapley said on a Wednesday afternoon fourth-quarter earnings call with shareholders and analysts.

The Muncie, Ind.-based Pristine has already agreed to hand management over to new operators of CareTrust’s choosing, Stapley said. CareTrust already has term sheets in hand for several of the properties, according to Stapley, and the company expects to close on concrete deals over the next few months.

Since turning the properties over to new owners, the facilities have seen 30% increase in EBITDAR, with particular progress once new managed-care contracts took force on February 1, according to the San Clemente, Calif.-based CareTrust.

Stapley and the rest of CareTrust’s management team characterized the Pristine problems as a minor blemish on a positive fourth quarter and year, touting the success of tenant The Ensign Group (NYSE: ENSG) as a key ingredient to the REIT’s stability.

“Success in the SNF business is less about macro factors and more about the capabilities of individual operators,” vice president of operations Dave Sedgwick said. “During a year when many outside observers predicted regulatory headwinds would be insurmountable, Ensign actually grew its market share in many of the same-store markets, and grew its portfolio coverage with us from 2.1x at the start of the year to 2.17x at year end.”

Tale of the tape

CareTrust had net income of $2.3 million in the fourth quarter of 2017, and $25.9 million for the full year. Stapley characterized 2017 as a record year for the REIT, with $308 million in acquisitions and a new eight-year, $300 million bond issue.

The company has a $75 million to $100 million pipeline, and other than Ensign, no other tenant accounts for more than 9% of the REIT’s revenue.

The executives’ comments mirror those coming out of Ensign and Sabra Health Care REIT’s (NASDAQ: SBRA) earnings calls; players from both companies acknowledged the regulatory and financial storms battering the skilled nursing industry, but noted that opportunities exist where savvy players can find them.

“Our outlook is more positive than ever. It’s hard not to be enthusiastic when you see improving coverage, on average, across the board,” Sedgwick said.

Written by Alex Spanko

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Alex Spanko
Alex covers the long-term health care industry for Aging Media Network, with a specific interest in the intersection of finance and policy. Outside of work, he reads nonfiction, experiments in the kitchen, yells at Mets games, and enjoys pretty much any type of whiskey or scotch — often all at the same time.

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