It might be an understatement to say it was an extraordinary week in late October for CareTrust REIT Inc., an owner/investor in 326 healthcare properties.
On Oct. 29, the San Clemente-based real estate investment trust announced its largest ever purchase by forming a joint venture to pay $500 million to acquire 30 more skilled nursing facilities in Tennessee and one in Alabama.
“Tennessee is a really good state for operations,” CareTrust Chief Executive Dave Sedgwick told the Business Journal. “It’s a supportive state in terms of Medicaid reimbursement and a good environment for labor and it has been a favorable high demand state for some time.”
The deal culminates a busy end of October for CareTrust, which has grown to become one of the nation’s largest operators of senior facilities, overseeing 35,406 beds in 31 states (NYSE: CTRE).
Also on Oct. 29, it announced revenue rose 39% to $77.4 million for the quarter ended Sept. 30. Its funds from operations (FFO), a key metric for REITS, was $60.9 million, up from $36.6 million in the same period a year ago.
A day later, it priced 13.8 million shares to raise $500 million to fund the joint venture.
The Hindenburg Explosion
To top its busy week, on Nov. 5 a short trader named Hindenburg Research caused turmoil on Wall Street by questioning a nursing home operator that leases some of CareTrust’s facilities.
Hindenburg Research accused PACS Group Inc. of “systematically scamming taxpayers,” according to a Bloomberg report (NYSE: PACS).
Shares at PACS fell 28% on Nov. 5, its worst day of trading since going public in April. It fell another 41% on the subsequent trading day when it released preliminary third quarter results.
PACS, which manages about 284 nursing facilities across 16 states and serves more than 27,000 patients daily, said in late October it had closed the acquisition of eight nursing homes in Pennsylvania, with four of the facilities being leased from CareTrust.
PACS is set to operate 12 of the CareTrust 31 facilities in Tennessee as well.
The connection tainted CareTrust, whose shares initially fell 4.3%, its worst one-day drop in two years. By the end of the trading session, however, the shares had fallen only 0.7% to $30.85.
CareTrust intends to continue working with PACS and is waiting for it to provide further details on the Hindenburg report, Sedgwick said
“It’s not unusual for very successful healthcare companies to get targeted by short traders.” Sedgwick said.
CareTrust shares took a hit during the pandemic, falling below $13 each. Since February, the shares have risen by about 53% and now sport a $5.7 billion market cap.
The stock reached $33.15 each in September, an all-time high since going public in 2014.
The stock rise can be attributed to the company’s relative lack of debt and its operators’ ability to pay rent, Sedgwick said. As of Sept. 30, CareTrust reported net debt-to-annualized normalized run rate EBITDA of 0.08x, which is below the company’s target leverage range of 4.0x to 5.0x.
“We have a balance sheet that may be unprecedented in REIT land,” Sedgwick said. “We have immense dry powder. The street sees how well levered we are and our extraordinary potential for growth.”