San Clemente, Calif.-based CareTrust REIT (Nasdaq: CTRE) has transferred operations of its four Five Oaks Healthcare facilities to affiliates of the Ensign Group (Nasdaq: ENSG) as of June 1.
The skilled nursing facilities, all in Washington, were added to a long-term, triple-net master lease between the real estate investment trust and San Juan Capistrano, Calif.-based operator Ensign; it’s one of eight legacy multi-facility master leases between the companies.
The lease was also extended by 10 years to 2036, the companies said in a statement.
CareTrust and Ensign have a history of partnerships, with CareTrust becoming a publicly-traded REIT seven years ago this May, following a spin-off transaction with Ensign. At one point Ensign accounted for 100% of CareTrust’s tenant base; the operator currently accounts for 32.4% of CareTrust’s annualized rental revenues.
“In spite of their unparalleled track record and extremely healthy lease coverage of 1.85x at the time of the spinoff, one of our early mandates was to reduce the Ensign concentration by growing with other strong operators in skilled nursing and seniors housing,” Dave Sedgwick, CareTrust president and chief operating officer, said in a statement.
The REIT’s stance on Ensign has flipped; CareTrust welcomes the growing relationship, Sedgwick added in the statement: “[Ensign’s] EBITDAR lease coverage with us has grown to 3.62x and, needless to say, our shareholders are very supportive of our concentration with Ensign and of our desire to grow the relationship as mutually beneficial opportunities arise.”
Scott Fidel, analyst with financial services firm Stephens, expects Ensign to continue methodically acquiring SNFs this year, calling it “opportunistic M&A” after financial disruption to the industry due to the pandemic.
Ensign has added 1,155 SNF beds to its roster in the first half of the year alone, according to Stephens data.
“It has been several years since we have grown in the State of Washington and we are very excited to add these particular operations to our portfolio because of their cultural and geographical fit,” Barry Port, Chief executive of Ensign, said in the same statement. “We are also pleased to be expanding our continued and growing relationship with CareTrust.”
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