CareTrust REIT (Nasdaq: CTRE) on Tuesday announced plans to terminate its existing master lease with skilled nursing operator Trillium Healthcare Group in a move that will see the real estate investment trust (REIT) reduce its exposure to the provider from 18 to 11 properties.
The Bradenton, Fla.-based Trillium currently operates 10 CareTrust-owned buildings in Iowa, seven in Ohio, and one in Georgia under a single master lease. The REIT terminated that agreement effective July 15, the company disclosed this week, with a plan to only negotiate a new lease for the Iowa and Georgia properties.
“In recent weeks, we and Trillium have come to the conclusion that a change is best for them and for the Ohio facilities,” CareTrust chief operating officer Dave Sedgwick said in a statement as part of the company’s second-quarter 2019 earnings release.
Trillium will continue to operate the Ohio portfolio until CareTrust can find a new tenant for the properties, though the REIT also plans on selling three of the Buckeye State SNFs on September 1. CareTrust has entered into “substantive negotiations” with a new operator for the remaining four, with a scheduled transfer date of September 1.
“The planned Ohio transactions allow us to dispose of a couple of challenging facilities and install an operator in the remaining assets with more experience and resources in the region, while allowing Trillium to refocus their efforts in Iowa and Georgia,” Sedgwick said.
As a result of the lease termination, CareTrust will write off $2.4 million of accounts and rent receivable for the third quarter; the renegotiated lease with Trillium will represent 2.2% of the REIT’s overall annual cash rental revenue.
The dispositions came after the close of a second quarter that CEO Greg Stapley characterized as “our best-ever quarter for acquisitions,” which saw the REIT expand with existing tenants such as Priority Management Group and Cascadia Healthcare, as well as new partners Next Gen P and Southwest LLC. All in, the San Clemente, Calif.-based REIT reported $241 million in new investments for the quarter.
“Every portfolio can be improved and strengthened, and our solid growth this year has given us a chance to focus on opportunities within both our asset base and our tenant pool to do exactly that,” Stapley said in the statement. “Even though our increased focus on certain asset management matters has commanded a greater degree of the team’s attentions, we have continued to actively work on our investment pipeline and we currently expect to close on additional acquisitions before year end.”
CareTrust reported net income of $19.7 million for the quarter, up from $13.3 million during the same time in 2018; the company will host a conference call with investors and analysts Wednesday.
CTRE shares ended the day at $22.88, up $0.21 or 0.93%.