CareTrust: Lack of Regional Knowledge Undid Trillium’s Skilled Nursing Operation in Ohio

CareTrust REIT (Nasdaq: CTRE) emphasized the importance of local knowledge for skilled nursing operators in its second-quarter earnings call held on Wednesday, both in the case of a planned operator switch in Ohio and in the skilled nursing market more broadly.

Specifically, the San Clemente, Calif.-based real estate investment trust (REIT) is looking to sell three of the seven facilities operated by Trillium Healthcare Group in the Cincinnati area, while finding new tenants for the remaining SNFs.

Trillium had taken over the Cincinnati-area properties in December 2017 from the operator Pristine Senior Living and Post-Acute Care, which had operated 16 buildings for CareTrust in the Buckeye State.


CareTrust chief operating officer Dave Sedgwick characterized those Cincinnati properties as some of the more challenging ones in that portfolio on Wednesday’s call.

“Ohio was a new state for [Trillium], and they’ve struggled to gain traction there,” he said in prepared remarks.

The change, which CareTrust expects to take effect by September 1, will allow the REIT to bring in an operator with “more experience and resources in the region,” and will let Trillium refocus its efforts on Iowa, where CareTrust plans to keep it on as operator at 10 facilities, Sedgwick said.


“After the dust settles on the repositioning of these seven assets, the new Trillium lease will represent approximately 2.2% of our revenue,” he said on the call.

CareTrust executives emphasized the impact of local events and market factors on the SNF landscape, using the failed bed tax in Texas — which many operators and investors had hoped would help struggling operators in the state — as an example. The SNF landscape in that state was directly affected; several skilled nursing buildings in that state are on the market, and more are on the way, CareTrust chief investment officer Mark Lamb noted on the call.

Overall, the REIT reported a total investment outlay of $305.2 million year-to-date, Lamb said, and it expects to add to that in the coming months; the pipeline is the “normal” $100 million to $125 million range.

Omega reported net income of $19.7 million for the quarter, up from $13.3 million during the same time in 2018.

Despite the challenges in the Lone Star State, many of CareTrust’s operators in Texas — the REIT’s second-largest state in terms of asset concentration — are doing well, executives emphasized. And in Ohio, CareTrust was cautiously optimistic about the outcomes for Trio Healthcare and Hillstone Healthcare, which took over the other Pristine buildings.

Trio has made some progress on developing relationships with health care systems and others in the Dayton market, and is poised to benefit from a Medicaid rate increase that Ohio recently passed, Sedgwick noted.

“They’re also not out of the woods yet, but they do have some momentum and some traction that we really never saw in Cincinnati [with Trillium],” he explained.

In general, the impact of local events on the skilled nursing space was a running theme of the earnings call, including on the transaction front.

“Pricing tends to be what pricing has been, and it probably more affected by changes in local markets and what’s going on in the local Medicaid program,” CEO Greg Stapley said.

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