Stapley: Federal Relief to Sustain CareTrust’s Skilled Nursing Tenants for Multiple Quarters

Senior living and skilled nursing landlord CareTrust REIT (Nasdaq: CTRE) on Friday projected a relative period of financial calm ahead for the sector as emergency Department of Health and Human Services (HHS) funding continues to insulate its tenants from serious hardships.

“The HHS provider relief funds appear to be providing our skilled nursing operators with enough runway to continue operating comfortably for the next few quarters, while vaccines, therapeutics, and other mitigating measures roll out,” CEO and chairman Greg Stapley said on the company’s third-quarter earnings call with investors and analysts.

CareTrust’s portfolio of operators reported a total of $115 million in federal aid, though top tenant The Ensign Group (Nasdaq: ENSG) — from which the real estate investment trust (REIT) spun out back in 2014 — notably returned all of its relief cash amidst two consecutive record quarters for earnings.

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The Pennant Group (Nasdaq: PNTG), another Ensign spin-off that now contains all of the operator’s former non-skilled business lines, similarly sent back its federal relief, according to CareTrust.

As for the remainder of the company’s tenants, executives were cautious about predicting further distributions from the roughly $30 billion remaining in the HHS Provider Relief Fund (PRF). But the amount doled out thus far was enough for at least near-term stability, according to Stapley.

The company collected 98% of its rent due between April and October of this year, Stapley said, with just one smaller senior living tenant representing the exception for that trend into November.

“Bottom line, we see several more quarters of fairly predictable and manageable operating performance, especially if the promised vaccines are effective and rolled out quickly — and we also see a path to a soft landing for most operators if we get into an extended recovery,” Stapley said. “We will continue to advocate for our health care providers as the pandemic continues to unfold.”

CareTrust reported net income of $21.6 million in the third quarter of 2020; the company had logged a $10.1 million loss over the same span in 2019. Year-to-date, the San Clemente, Calif.-based REIT has brought in $59.8 million, up from $25.7 million through the first three quarters of last year.

As they had in previous quarters, CareTrust executives predicted further exits from the industry by smaller providers, offering potential opportunities for the REIT to continue growing. In particular, chief investment officer Mark Lamb pointed to a $16.5 million September deal that saw CareTrust add two more properties to its existing master lease with operator Eduro Healthcare.

“It was an operator who wanted to exit. Our operator, Eduro, felt very good about coming in and taking over and being able to reach another level, from a performance perspective, despite COVID,” Lamb said. “That continues to be our bread and butter.”

The Eduro deal saw CareTrust pick up a pair of facilities in Montana, the REIT’s first transaction both sourced and completed since the start of the pandemic.

“We’re committed to continuing to grow,” Stapley said. “We have great operators in the wings that we would like to bring in, and great operators in the portfolio that we would like to expand. While it’s more difficult, we’re not really going to let the pandemic slow us down.”

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