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Monday, Nov 28, 2022

CareTrust REIT Beats Goals in Challenging 2020

As several major healthcare real estate investment trusts withdrew 2020 guidance last spring, CareTrust REIT Inc. stuck to its prediction of net income of approximately 76 to 78 cents per share.
The San Clemente-based firm (Nasdaq: CTRE) surpassed its own expectations, reporting on Feb. 11 full-year 2020 net income of 85 cents per share, or $80.87 million.
“When the pandemic broke, we firmly believed that our outstanding operators would find a way to navigate through the challenge,” Chief Executive Greg Stapley told analysts.
“This gave us the confidence to maintain both our dividend and guidance. That confidence proved well placed as CareTrust collected 99.3% of contract rents in 2020.”
CareTrust’s real estate portfolio consists of 218 skilled nursing, assisted living and independent living facilities with 24,176 beds across 28 states.
“These results and the ongoing performance by our tenants under some of the most difficult circumstances imaginable have proven once again the value of our operator-first investment discipline,” Stapley said.
CareTrust has a market cap of about $2.2 billion. Its shares are up some 2.5% since the end of January, and are flat from a year ago.

Exec Promotions, Hires
CareTrust said this month that Chief Operating Officer Dave Sedgwick was promoted to president.
Sedgwick joined CareTrust in 2014. He was previously an executive director at The Ensign Group Inc. of San Juan Capistrano, which spun off CareTrust in 2013.
In addition, James Callister was named general counsel and secretary.
Stapley said Callister is “one of the best-known and most well-respected attorneys in the healthcare REIT world,” noting Callister has served as outside counsel for CareTrust since its inception.
Callister has been a partner at Sherry Meyerhoff Hanson & Crance LLP in Newport Beach since 2012. Prior to that, he was counsel in the Newport Beach office of O’Melveny & Myers LLP and previously served as assistant general counsel at Shea Properties in Aliso Viejo.

Skilled Nursing Rebound?
It’s still too soon to predict the degree of the recovery slope for skilled nursing facilities, though some operators have noted occupancy increases amid COVID wane, CareTrust execs said on its earnings call this month.
About 72% of CareTrust’s properties are skilled nursing facilities, which account for about 83% of its net operating income, according to its annual report.
Federal relief for SNFs included CARES Act funds and regulatory changes such as the waiver of the three-day qualifying stay (which requires a prior inpatient hospital stay of no fewer than three consecutive days to be eligible for coverage of inpatient SNF care).
CareTrust is closely watching federal relief as well as COVID vaccines as a “catalyst” for “return to normal hospital discharge patterns and recovery in SNF occupancy trends,” Sedgwick said.

M&A Pipeline
CareTrust added about $105 million in new assets in 2020.
“To be sure, $105 million is a light year for CareTrust, but we’re thrilled to be reporting that we actually grew both assets and shareholder value in the face of unprecedented headwinds this last year,” Stapley told analysts.
CareTrust execs said its M&A activity is likely to pick up in 2021.
“Refilling the pipe usually takes time, but we’re happy to report that our current pipeline remains in the $125 million to $150 million range, which is consistent with our historical levels,” Chief Investment Officer Mark Lamb told analysts.
“As a reminder, CareTrust generally defines its reportable pipeline as those deals that we are actively pursuing and believe we have a reasonable chance of successfully closing.”
“Assuming continued positive vaccine roll-out news leading to recovery in skilled nursing fundamentals and continued government support funds in the interim, [the company] may be able to put its strong balance sheet to work to drive earnings upside in 2021 through external growth,” Mizuho analyst Omotayo Okusanya said in a report.
Okusanya noted that CareTrust has one of the best balance sheets in the sector, with over $570 million of liquidity. 

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