CareTrust REIT, Inc. Q3 FY2024 earnings call

• Entered into a material contract to acquire a portfolio of 31 skilled nursing assets in Tennessee for $500 million, expected to close by year end, with an estimated yield of 9%. - Expect to acquire $57 million of skilled nursing facilities in the Northeast next month. - Delivered year-over-year market cap growth of 123%, record-setting investments of approximately $917 million at an average stabilized yield of 9.4%, pending acquisitions of approximately $500 million with a 9% stabilized expected yield, equity issuance of approximately 41 million shares for gross proceeds of $1.1 billion, and a net debt to EBITDA of 0.08 times. - Pipeline including pending deals is $700 million, almost all real estate acquisitions. - Return on investment from strategic debt relationships: approximately $780 million of acquisitions in 2024 directly resulted from these relationships. - Operators achieve superior star ratings and quality measures; the Midwest Skilled Nursing portfolio was sold in the quarter. - During the third quarter, closed on approximately $441 million of new investments, including a $216 million loan and $43 million preferred equity investment. Since quarter end, closed on approximately $89 million additional investments, including a $75 million Mid-Atlantic portfolio. - Updated investments pipeline to $700 million, including a $500 million acquisition of 31 skilled nursing facilities by a CareTrust affiliated joint venture.

Normalized FFO increased 66% over the prior year quarter to $60.9 million and normalized FAD increased by 60% to $61.9 million. On a per share basis, normalized FFO increased $0.03 to $0.38 per share and normalized FAD increased $0.02 to $0.39 per share. Investments included over $1.4 billion projected for 2024, with approximately $825 million of that being real estate acquisitions and $590 million of debt investments, at a blended estimated stabilized yield of 9.3% after rent ramps.

• Updated guidance for normalized FFO per share from a range of $1.46-$1.48 to a new range of $1.49-$1.50 and for normalized FAD per share from $1.50-$1.52 to a new range of $1.53-$1.54. - Assumptions include no additional investments beyond the pending $57 million deal, CPI rent escalations of 2.5%, interest income of approximately $65 million, interest expense of approximately $30 million, and G&A expense of $26-$28 million. - Liquidity remains strong with approximately $230 million in cash, working to upsize the revolver to $1.2 billion. - Net debt to normalized EBITDA ratio of 0.08 times, net debt to enterprise value of 0.4% at quarter end, and fixed charge coverage ratio of 9.7 times.

• Rich Anderson asked about risks of inbound problems from rapid growth, and Dave Sedgwick responded that underwriting discipline hasn't changed, with focus on operator match and operating discipline. - Concerns about potential recapture of inflation in Medicare and Medicaid reimbursements and its impact on coverage ratios over time.

Q: Talked about the trade-off between investment volume and complex deal structures, are more complex structures necessary to get transactions done?

A: Yes, complex structures come through relationships and are off-market, and conversation is more efficient now.

Q: Mix of $200 million pipeline between own and loan investments?

A: The vast majority is real estate acquisitions, very little loan activity.

Q: Views on seniors housing opportunities?

A: Open to compelling opportunities with right people and operators.

Q: Portfolio deal coverage and Links relationship?

A: Assets have stabilized pro forma with ~1.5 coverage, new master leases with consistent terms.

Q: Joint venture structure and call right?

A: Preferred equity stays out, call right between years 4-7 to acquire entire venture.

Q: Dispositions and rent collection?

A: No rents collected on dispositions, no rent expectation on remaining assets held for sale.

Q: Managing risks of rapid growth?

A: Underwriting discipline remains, focus on operator match and operating discipline.

Q: Impact of Medicare/Medicaid reimbursement changes?

A: Operating environment stable, demographic tailwinds provide runway for growth.