Despite high interest rates, CareTrust REIT (NYSE: CTRE) is well positioned to invest and gain from the steady flow of attractive investment deals prevalent in the skilled nursing sector today, with executives underlining the company’s access to capital to feed a historic robust phase of growth.

“We conservatively established a fortressed balance sheet for times like this, and because of strategic relationships we’ve formed and because our cost of equity is remarkably a touch lower than our cost of debt today, we are better positioned to invest and grow than at any time in our company’s history,” Dave Sedgwick, CareTrust’s president and CEO, said during the company’s call to discuss its 2024 first quarter results on Friday. “It’s extraordinary to be able to say that we view interest rates staying higher for longer as a net positive for CareTrust insofar as it should continue to drive investment opportunities in our direction.” 

The California-based real estate investment trust’s balance sheet affords it enormous flexibility and historic capacity for both the near term and mid-term, he said.

“We started this year with about $300 million of cash on the balance sheet because we saw the potential for keeping money for a record year of investments,” Sedgwick said, adding that approximately $205 million of new acquisition and financing deals have been completed already in 2024. About $154 million of that amount has been either on acquisitions or loans with purchase options at an average yield of 9.4%, while $52 million of the deals closed are mezzanine loans at an average yield of 13.6%, he shared.

Of CareTrust’s newest investment on May 1, Sedgwick said it comprised a mortgage loan of $26.7 million at an annual interest rate of 9.1% in connection with the borrower’s acquisition of a two-property skilled nursing portfolio in Tennessee, with Ensign as a long term triple net master lease tenant.

Following this latest deal, CareTrust’s replenished investment pipeline sits at roughly $260 million, encompassing roughly 50% acquisitions and 50% loans of mostly skilled nursing assets and not including some of the larger portfolio deals under review, Sedgwick shared.

“In addition to today’s quoted pipeline, we are also interested in some other large deals that at this point are not tracking at a high enough probability to be included in that number. So with our line of sight on a reloaded pipeline, we have continued to position the balance sheet to capitalize on this window of opportunity while it remains wide open,” he said.

For the first quarter of 2024, CareTrust reported net income of $28.7 million, or $0.22 per diluted share. The REIT reported a normalized FFO of $46.5 million, or $0.35 per diluted share, during the quarter, missing Wall Street’s consensus estimates of $0.36 by 1 cent.

On Friday, shares of CareTrust traded at $25.02, down 28 cents, or 1.13%.

An abundance of possible SNF investments

The last year has seen an increase in the availability of skilled nursing acquisitions, and CareTrust is focused on moving on the larger-sized ones, executives said as they discussed the company’s growth strategy while highlighting their strong relationships and balance sheet.

“[Deals] are coming in every day. And if we think those are actionable and will get eventually into our pipeline – we’re continuing to raise equity,” CareTrust’s chief financial officer, Bill Wagner said. “It’s primarily skilled nursing portfolios that we’re looking at,” he said. “We’re chasing more larger deals than we have historically, but fairly consistent with the last 12 months.”

CareTrust is close to finalizing the sale of it 11-SNF portfolio, with executives sharing that $1 million dollars in nonrefundable deposit has been received on the deal, which should close in the next month or two.

“We’re still under contract to sell a portfolio of 11 skilled nursing assets with negative EBITDAR in the Midwest. Understandably financing has been challenging but the buyer continues to make good faith efforts that lead us to believe a deal will get done,” Sedgewick said.

Expectations for proceeds from the Midwest SNF portfolio were increased by $220,000 to $10.9 million, with $15,000 paid per bed, according to investment analysts.

Staffing mandate opposition

Weighing on the federal government’s minimum staffing mandate, CareTrust executives said it was untenable because of both a lack of funding and scarcity of workers.

“We remain disappointed with a rule that is impossible to implement given the widely publicized staffing shortage in skilled nursing and throughout health care today,” said Sedgwick. “Furthermore, an unfunded mandate of more staff will not magically make those employees appear. We remain hopeful that reasonable heads will prevail in D.C. to modify or reverse course altogether before the mandate takes effect.”