CareTrust REIT Pushes Its Skilled Nursing Strategy With 13 Acquisitions

CareTrust REIT announced 13 skilled nursing acquisitions this week in that part of its continuing senior housing investments.

One set of acquisitions was a southeastern 5-facility, 498 licensed bed, skilled nursing portfolio. As part of that deal, the company entered a triple-net master lease with affiliates of YAD Healthcare, a new operator relationship for the company. The initial term is 10 years with two 5-year extensions and a year 1 contractual lease yield of 9.0% (inclusive of transaction costs) with annual CPI-based escalators, the company said.

The deal was funded with cash on hand. According to Dave Sedgwick, CareTrust REIT’s president and chief executive officer, during a May earnings call, the company entered 2024 with about $300 million cash “because we saw the potential for 2024 to be a record year of investments.”

The remaining acquisitions were another eight skilled nursing facilities in the Southeast, comprising 1,011 skilled nursing beds and 150 assisted living beds. CareTrust funded a $90 million senior mortgage secured by a first-priority lien on the borrowers’ ownership interest in the real estate and carries a five-year maturity with two, 6-month extension options and a starting annual effective yield of 10.7%.

CareTrust’s $90 million loan is part of a $165 million senior mortgage term loan with an interest rate of SOFR (floor 5.15%) + 4.25%. Concurrently with closing, KeyBank National Association purchased a $75 million participation in the mortgage loan from the REIT, it said.

In that earnings call, Sedgwick said the company’s moves are more strategic than opportunistic. “First, we do not grow for growth’s sake,” he said. “Healthcare real estate, skilled nursing in particular requires a high level of discipline. Every acquisition should immediately or quickly be accretive and must be matched with the right operator. Second, we are building a company to outlast all of us. We’re not nearly as sensitive as the algorithms are to quarter-to-quarter numbers. We run the business for long-term value creation and will at times when the pipeline justifies it, take some short term dilution to lock in permanent financing and accretion and thereby set the table for future growth.”

At the time, he said their deal pipeline was valued at $260 million, roughly split between 50% acquisitions and 50% loans. “Furthermore, the pipe today is almost entirely skilled nursing properties in addition to today’s quoted pipe, we are also interested in some other large deals that at this point are not tracking at a high enough probability to include in that number,” Sedgwick said.

He also mentioned a minimum staffing rule from the Centers for Medicare & Medicaid Services. “We remain disappointed with a rule that is impossible to implement given the widely publicized staffing shortage in skilled nursing and throughout healthcare today,” he said. “Furthermore, an unfunded mandate of more staff will not magically make those employees appear. We remain hopeful that reasonable heads will prevail in DC to modify or reverse course altogether before the mandate takes effect.”