CareTrust REIT (NYSE: CTRE) announced Tuesday that it has reached an agreement with the board of directors of Care REIT on the terms of a recommended cash offer to be made for the acquisition of Care REIT by CR United Bidco Ltd, a wholly-owned subsidiary of CareTrust.
CareTrust is acquiring Care REIT for $1.39 per share, representing $577 million in equity and $240 million in debt for a total of $817M. In-place U.K. debt is at 4.6%.
The acquisition represents a 32.8% premium to Care REIT’s March 10 closing share price and a 28.1% premium to the volume-weighted average share price of Care REIT for the twelve-month period ended March 10, 2025.
“We have been following the U.K. for some time looking for the right entry point. We believe we have found it in the Care REIT platform, which has assembled what we consider to be an excellent, diversified portfolio of U.K. assets and operator partnerships. We look forward to combining the Care REIT platform with our own and expanding our mission of growing with great operators in the U.K.,” Dave Sedgwick, CareTrust’s President and Chief Executive Officer said in the press release.
Care REIT is a U.K.-based real estate investment trust listed on the Main Market of the London Stock Exchange focused on investing in care homes throughout the U.K. It has built a diversified real estate portfolio of 137 care homes, comprising approximately 7,500 operating beds leased to 15 operators across England, Scotland and Northern Ireland. All homes are subject to long-term, triple-net leases with a weighted average remaining lease term of 20 years and annual inflation-based rent escalators, most with a floor of 2% and a cap of 4%.
Care REIT reported annual contractual rent of approximately $66 million as of September 30, 2024, which represents an initial yield, based on CareTrust’s investment, of approximately 8.1%. Care REIT had also reported portfolio EBITDARM rent coverage of 2.2x for the trailing twelve month period ending on that same date.
“CareTrust has spent considerable time evaluating its entry into the U.K. market and sees attractive underlying dynamics underpinning an investment of this size at this time,” the company stated in a press release. “CareTrust believes that the highly fragmented U.K. care home market is in the early innings of a demand-supply imbalance driven by an aging population with growing care needs, muted new inventory as construction and borrowing costs remain high, and tight capital availability.”
The transaction has been unanimously approved by the boards of directors of both CareTrust and Care REIT and is currently expected to close in the second quarter of 2025.
However, the acquisition is intended to be effected by means of a scheme of arrangement under Part 26 of the U.K. Companies Act, and is, therefore, subject to court approval as well as approval by Care REIT’s shareholders and the satisfaction or waiver of other ordinary conditions to closing.
Meanwhile, Bidco has obtained irrevocable undertakings from Care REIT‘s directors and certain of its other shareholders to vote in favor of the “scheme” in respect of, in aggregate, 12,305,991 Care REIT shares, representing approximately 3.0% of Care REIT’s issued ordinary share capital.
Piper Sandler Ltd is acting as sole financial advisor and Jones Day is acting as legal advisor to CareTrust.
“We see U.K. demographics and limited supply as attractive and generally similar to the U.S.,” Juan Sanabria, investment analyst for BMO Capital Markets, said.
The transaction’s overall exposure to the U.K. will now comprise 16% of rental income. It also reduces the exposure from PACS Group (NYSE: PACS) to 11% from 14%, which Sanabria noted as “a positive in our view given uncertainties.” The deal will include rental income from the following U.K. properties: 4% from Welford, 4% from Minster, and 3% from Holmes.
