CareTrust Plans to Sell or Repurpose 32 Assets, Explore Entry into Behavioral Health

CareTrust REIT (Nasdaq: CTRE) plans to sell, re-tenant or repurpose up to 32 of its assets as 2022 is expected to be a “year of continued recovery” for most of the real estate investment trust’s operators.

Those assets represent roughly 10% of contractural cash rent, according to CareTrust’s earnings announcement issued Wednesday. It was not immediately clear what types of assets were being considered.

President and CEO David Sedgwick said throughout the COVID-19 pandemic the REIT has analyzed its portfolio and pinpointed a handful of operators that “pose an unacceptable risk of default as provider relief measures come to an end.”


“For these relationships and properties, we’ve decided to take advantage of the frothy sellers’ market and remove these cracks and the associated uncertainty from our foundation,” he added.

Despite industry-wide slowed occupancy and ongoing staffing challenges, he said most of CareTrust’s operators are moving toward playing offense – both in treating Covid patients and plans for growth.

San Clemente, Calif.-based CareTrust collected 93% of its contractual cash rent in January, compared to all of 2021 when the REIT collected 100% of contractual rents.


CareTrust had 160 skilled nursing facilities in its portfolio to end the third quarter of 2021 — including its largest tenant, The Ensign Group.

While the latest batch of Provider Relief Funds eased financial stresses for most tenants, Sedgwick noted, that was not the case for everyone.

As part of the REIT’s efforts to “de-risk” its portfolio, CareTrust is exploring an entry into behavioral health by way of transitioning some of its struggling assets.

“We are cautiously optimistic about the opportunity to redevelop and repurpose assets into addiction recovery properties, which we believe would be a higher and better use for some of our real estate,” he said in the release.

In a note issued Wednesday by BMO Capital Markets, analysts said while they “expected some SNF pain” they were “negatively surprised” by the CareTrust’s announcement.

“That said, we see a hot market as providing a unique opportunity to reduce long-term risk and enter behavioral,” the note read.

Sedgwick said the REIT would not “play the ‘defer and hope’ game” with operators and facilities who did not meet financial or operational expectations.

“Rather, we intend to take advantage of the sellers’ market, redeploy any proceeds in new investments underwritten for today’s realities, and use this time to upgrade the risk profile of our growing portfolio,” he said in the news release.

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