CareTrust Sees Smooth Sailing, SNF-Heavy Pipeline in Q3

CareTrust REIT (Nasdaq: CTRE) had a rosy report for the third quarter of 2018 — and is optimistic about what’s to come next year.

“Our third quarter went about as smoothly as any in our history,” Greg Stapley, CareTrust’s chairman, president, and CEO, said on the call. “We closed on a couple of nice deals, we saw robust demand for our equity under our [at-the-market] program, and we continue to watch closely and actively our tenants’ operations.”

He particularly praised the status of facilities that transitioned to new operators over the past year. Several of the transitioned operations are running ahead of pro-forma guidance, with several doing well enough that CareTrust is actively looking for opportunities to grow with them, Stapley said.


In addition, the company’s leverage is at an all-time low, while earnings are at an all-time high, he noted.

“In short, in what started as a challenging year in a lot of ways, both CareTrust and our operators are finishing 2018 very well,” he said on the call. “And we see an outstanding 2019 on the horizon.”

The San Clemente, Calif.-based real estate investment trust (REIT) reported net income of $14.5 million, or 18 cents per share, for the third quarter — an increase of 28% over the year-ago period.


Several operators have improved their coverage over the course of the year, chief operating officer Dave Sedgwick said on the call. In the second quarter, CareTrust was focusing on transitioning properties in Ohio to Trio Healthcare, Hillstone Healthcare, and Trillium Healthcare; Trillium is “hitting their stride,” while Trio working through the usual transition challenges and is on track for the year, Sedgwick said.

“Hillstone, which took the remaining two and arguably most challenging of the Ohio assets, has admittedly surprised us a bit, significantly exceeding performance and lease coverage expectations ahead of schedule in their two facilities,” he went on.

The REIT closed $42 million in investments in the third quarter, Mark Lamb, CareTrust’s chief investment officer, said on the call. These included skilled nursing facilities in Fargo, N.D., and in Aberdeen S.D., both with Salt Lake City-based Eduro Healthcare. CareTrust also purchased the Villas at Saratoga, located in Saratoga, Calif.

The company’s pipeline, which is in the $125 million to $150 million range, is made up almost exclusively of SNF assets, Lamb said, which analysts noted is unusual compared with other major health care REITs. But on the senior housing side, many markets are overbuilt and overpriced, Stapley said.

“With the skilled nursing side, we’re really comfortable in that space,” he said. “We get much better yields on our investments in that space, and right now we don’t perceive it as being any more risky than a lot of the senior housing assets that are on the market out there. We’re happy to take the risk premium that the market will give us when we acquire those and not feel like we’re assuming any real risk when we do so.”

CareTrust’s stock closed up 5.1%, or 92 cents, at $18.96 per share.

Written by Maggie Flynn

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