CTRE - Earnings call transcript Q3 2017

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Operator

Welcome to CareTrust REIT's Q3 2017 Earnings Call. Please note that this call is being recorded.

Before we begin please be advised that any forward-looking statements made on today's call are based on management's current expectations, assumptions and beliefs about CareTrust REIT’s business and the environment in which it operates. These statements may include projections regarding future financial performance, dividends, acquisitions, investments, returns, financings and other matters, all of which are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied here in. Listeners should not place undue reliance on forward-looking statements and are encouraged to review CareTrust SEC filings for a more complete discussion of factors that could impact results, as well as any financial or other statistical information required by SEC Regulation G.

company FFO, non-GAAP normalized normalized the EBITDA, such FAD. call EBITDA, normalized FFO, the will metrics reference as During FAD and these exclusion but cautious When the they should more its with relied that reports. understanding measures upon be believes the complete business, viewed a GAAP can it’s GAAP of not provide of together Company results, arise of revise and undertake to not information, as Except any statements changing for affiliates forward-looking its circumstances required result by any law, do as or events, future other changes update new CareTrust or a REIT or publicly reason. also CareTrust be website supplement advised each Listeners section on Form are financial release at www.caretrustreit.com. can which Relations that CareTrust access XX-Q press and our accompanying of quarterly the its its and Investor filed of also this available a of website for will period. replay the call limited on be A I CareTrust Stapley, to would REIT’s call Chairman turn now over CEO. Greg the and

Gregory Stapley

are all $X.XX equates per $X.XX to going a jumping $X.XX to quarter Officer; of Thanks, from With normalized $X.XX Gillis, everyone. Dylan. on the to Asset the future our a very XXXX. for me and for tremendous total Investments; importantly, investments north time. Lamb, quarter Vice fruit our over which first QX President million to Wagner, new record some We've morning Nearly a our Eric hard been Director Financial year and basis, been billion has with $XXX busy $XXX produced million in $X since share worth Most Good for Operations; into laying plus year-to-date groundwork and produced value Director of Sedgwick, bringing since, pushing FFO Management. fourth our the and our projected sequential Bill in Chief our Mark growth $X.XX to welcome of work year's Dave of of enterprise the has we've began.

our asset front, the problem operators nicely we've And as management newer of resolved management our had with team's several only the partly On portfolio. a lease rising been result efforts. asset coverages significant of our in

report to implemented to months pleased portfolio. the Pristine year payments subject particularly we've are our solution past that intenstive property we been meaningful Senior long-term to initial Living a this the respect tax challenges Ohio we've XX-property with Specifically, , has been earlier Since talking about management nine over asset the work. a

total with a believe sustainable rent improvements Ohio . properties better successful in acquisitions. Trillium reduction which million our since important about agreed excited percentages them. offsetting will As relief, to lowers the of our the Ohio steady some pursuit these GAAP note Moreover, we around the to coming smaller spring. assets the a XX.X% agreed to have more stepping to QX have Due going in to rent success about our lining; be annualized year of their X.XX the effects rent while investment Plus, the closely opportunities Pristine transactions back on the and declined contain. the Both as we've exposure Pristine near-term for this will quarter times X next are improvement years. a of EBITDAR, been of up we short-term on forma months late year. existing over and transferred that will over the properties a cash over TX lease still the are as for operator to the Nevertheless, our has their and Trillium cash tenants Georgia the will normalized result, still In in record to improve lease future two first the our will subset few years. Pristine we tenant rental opportunity coming focus of operational exchange, for our income they be It's deal definitive $X.X more is the relinquish overall give the assets GAAP and assets that straight prospects from operators a further parts These and versus do showing significantly they XX of solution not these improvements. XX Pristine from yield in of Iowa. portfolio, immediately with assuming about and coverage operational and Healthcare, rate our start just our and pro assets X.X% revenues, X.X% X impact The changes position X.X%, the no run additional September those rent on

will going their For on and overall on for coverage us. portfolio the rent cash initial Trillium, their facilities the X.X with times times in be X.XX about seven

with And of that set the well. started plus annual how example loading we to investors, when record starting ourselves you The included, will handle another the that be is a XXXX in true that challenges you'll resolution the like cash we well craft while couldn't of short-term was but long-term over give so while now hate with counts. thea I you'll we but it I'd that deep them whether as new recognize for all a once more arise. creative of estate them, rents, underway, tenant about team our we pipeline While with them up Pristine the We were solution more and and tell it’s pleased can more all operations not Dave. turn great still solution we this understanding and to Dave? investments, number able mentioned, here. problems close real to experience to as have yet of our for properties I'll

David Sedgwick

Thanks, Greg.

$XXX yield were thus with operators on of existing sustainable, current deals million leases. in the QX who to in clinical, QX, CareTrust's and and tuck true time their So at attention master and average on all to of were operators mentioned, majority of as stronger closed we’ve far the The facilities acquisitions these as needed Greg excellence. our give of X.XX%, hands, in placing net strategy financial investments an can to provide of

Mark has each track employees, potential We that residents, special lines. to new excited sophistication led also enhance Our every couple clear are in With open operator. and Group, for their helping share individual are operators, us master nursing cultural these its California abd coverage, market doing upside thriving in bring or commitment in outstanding for sale-leaseback successful to to Murray fortunate look team a a in their new operators near-term new Indiana the Providence over job a record to bottom with deal operational materially by and We acquired mix and prerequisites a local the immediately about profitable opportunities as closed and with and markets, financial ago. in we to years Jason California, their an the strengthen and of the patients delivering lease industry expand were or just forward Hancock, case quality promising has Kentucky skilled veterans a facilities a into of facility operator company is and a running and XX Providence them effective a while organization. clinical tremendous portfolio of come. weeks we outcomes grow because clinical

continue implemented reimbursement new be materially be temporarily we of gearing along rehab operators' to X. monitor annual to Medicare On financial the implementation, a benefit that others front, based existing star nursing supposed next change with of And called proposed part RUGS our the We Health to if will finalized. Department be or sector as impacted, That a operators, frozen for our year, ratings that of expect implemented. proposed from process is all a nationwide model which year. characteristic- skill performance model up to yet survey is for has will patient regulatory but frustrate the some don't be and the RCS potential are supposed proposal utilization-based to

turn I'll landscape to the particular. it over our general So about in with acquisition Mark in talk to pipeline and that,

Mark Lamb

hello Dave Thanks and one. every

Greg remarks, closed and additional skilled on in across us Since opening $XXX million our we both bringing million. over million $XX an just sectors. quarter for As end, $XXX extremely total in stated busy invested QX to as have the we year-to-date was housing senior nursing investments his

bulk our portfolios housing have the Deal weighted stream one-off recent facilities senior . in to coming few market nursing We continue volume versus with towards larger small see come predominantly skilled deals is across in a of a sizing steady the of although to desks to . portfolios midsized weeks

is And deals some for we intend has and of thrilled whom of partners recent made how balance if yield to million coverage are actively quarter past the As progress pipe, and to quote us first we then a financials. months. to busy we pipeline with here walk opportunities Bill and intensively now turn look time low typical closings our current I’ll and them month, our level off the to our half focused will meet we pipeline partners. we’ve we and million new end the our this when we've them. we to third market skilled at and close $XX time, dropped reasonable that place believe both of sit of we've housing we We're of closings. sense over in and back have been have on today, reflection it the and only can which range we to as the on nursing a which in confidence about to and senior The we to range that standards only over the tenants has remember the after $XXX pursuing, existing deals operating Please quote outstanding includes operating the underwriting bullpen the and that both deals pair in grow coming of we that from XXXX also our exciting discuss up

William Wagner

Mark. Thanks

$XX Normalized normalized For grew to to by XX% quarter $X.XX normalized we pleased was share share per and and FFO flat are per FAD the $X.XX by that grew report to FFO was $X.XX. $XX quarter million. XX% million prior at normalized down to the year over FAD

FFO this payout recent normalized again in represents QX FAD, of most to healthcare best per the dividend of our which $X.XXX XX% the covered REIT equates on of sector. Given ratio one on XX% dividends a share, normalized and

$XX.X changes both me post. Before talked to Greg line schedules rent Pristine Bottom I million $XX.X Ohio and about. for million revenue go the Trillium that on, you rental our let pre-deal through amended with from walk

me each first annual CPI XXXX Let annually schedule bumps X, are the least grows two Pristine's then remaining details. X% the CPI over fixed beginning rent July rents December by on new XXmonths XXXX. contains fixed Trilliums contains and bumps at bumps beginning years amended multiple over and multiple of first the schedule then the year explain there X, over term. on

about $XX.X all resulting drops GAAP deal. rent line each million before year and and our million But million at starting the initial last rent $XX.X a are rents in is supplemental is of for all million. Straight future to look Pristine the $XX.X which just from bump subsequent year you bumps aggregate $XX.X years up. you see million cash on plus compare $XX rent about rent is If million, million, the Trillium Trillium months year before contractual $XX.X to month's of one lining CPI few basis this million On XXX,XXX contractual the prior two these whatever cash the cash $X.X to three items years that based cash portion. a only on for by first $XX.X Ohio of bumps now the compared is increases fixed

is not taxes half XX-Q has of that has our the pre-funded other November this relates receivable and We in QX will date. paid of rent rent rent into deferred XXX,XXX million and interest. base just The and only in rent impound their starting Pristine cash starting of Pristine contractual to with account deferred to under XXXX year. impound is XXX,XXX rent. September's paid also in of $X all impound basis paying us reference that The amounts represents amendment under base October on Pristine current property in back to that begin rent October approximately bed we accounts in the in

these the on changes. into takes which guidance Now account

count of have of share to share per $X.XX of upward We $X.XX. to expect all normalized $X.XX $X.XX includes average the the effects on income XXXX anticipated investments share based and net shares per share all Trillium includes million under guidance Pristine and XX.X lease the and weighted of revised This our to and now $X.XX guidance normalized issued is FFO today $X.XX and ATM amendments. of shares per FAD

rent equity escalations the plan issuances those any additional year. transfers no this on and leases As to-date. or X, the beyond on had Two, for as occurred it assumptions; following one, relies December depth investments our further schedule any nor no of made

X.XX%. XXX term up of bps rate seven-year bps grid the rates are million LIBOR and of Our again projected to total LIBOR That made million at only include line $XXX of and rent. a rates acquisitions margin make to-date current XXX revolver loan XXX,XXX rental on the $XXX the the based straight floating the on approximately plus revolver approximately our G&A Three, three including expense year on revenues year. our roughly projected And do are of calculations income facilities have of of million. we $X.X million term in to amortization about projecting million and deferred financing approximately XXX,XXX living $XX.X six, also $X.X approximately our to Four, Five, approximately loan. independent of Interest Interest assumed $XX.X $XX.X million, million, NOI includes interest of we fees. expense this in are for

of our $X.XX to per to comp. amortization in FFO $X.XX $X.XX FAD per stock FFO $X.XX $X.XX guidance and for QX G&A basis per million $X.XX projection of going into annualize results of roughly also FAD. $X.XX X.X is and on an and Our XXXX This include $X.XX to

As EBITDA approximately approximately is X.XX for a X.XX enterprise rate times. times, ratio as coverage to calculated fixed times. run credits is basis our on EBITDA X net our about debt Leverage of our approximately debt of is our and is today, value XX% to but charge stats

almost Greg. of And have hand. back also We cash it I'll $XX with turn on million that, to

Gregory Stapley

that Thanks answer this been your and thank helpful. Dylan? discussion happy continued we'll for support be to you Bill. We has questions. hope with We again

Operator

question Jordan Sadler from first KeyBanc Our Instructions] comes of [Operator Markets. sir. you, Capital Thank

please. question Your

Jordan Sadler

expectations Trillium Pristine level that a caused Thanks. Good with offer not they the Pristine, of to will Can your just your up start was them to then you well have in insight on little Trillium more which experience transfer. with perform maybe over success that the bit that insight I of them with wanted with the in terms up off bit seven just maybe at with gives you ultimately, today, And what morning. basically that little picking time happened they're consistent of underwriting? the as a confidence here?

Gregory Stapley

Jordan Greg. Sure. is thanks. This

to in market, remember story. now. gave in was that the his out solid you away them. might In came wife process, good helping And center of a portfolio and he the the quite accommodate spring. and Nevertheless, understandably cases, of midst the To operational themselves telling for that Their came that. bit. identify their Pristine, were for We process you middle asked the ultimately the those us summer, of attempting for whereby willing when action been of the But to month. of time. portfolio, impound if We've year a about back last do. improve improvements out data benefit total the their and them very from with trying bit rebasing we the they they they . to contracted XX% and Then dig when hole largely opportunities a came a some cancer In relief in might a it some asset in company. they were we our management but doing still the were pure we about acquired decline to them going year to consider would Medicaid real-time portfolio. this that in of in and $XX that it set dug they to of data, model their of was in and that, little they're area that think financial across always the tax decline pretty revenue. through XXXX back $XX rehab we was short-stay thing of and third the more shift of team rent a that operations point – started started and of Cincinnati a the shops prolonged of rate before quite to without borne in the the Medicaid and improved which things we overall so still really just steadily additional up third in then going some their the be stepped sort that, midst to operations. went what end have very, to look, started that, They setback. that. as of of So looking improvements making management ultimately to when account CFO recall some whole missing was that, that we to at Pristine building each of And were of difficult a the In rental resigned said that the some difficult a down May, to our do over predicted office of we to while gate, in the past was a midst started there good facilities up last portfolio help Starting their through. went started was tune not was to She passed and started he was good the XX become day which this that transition them short-term solid of of the

back our GAAP anxious that come so reset basis. we which another bumps operator the line but in, relief, and with that very fixed to almost also least years, all rent has of able got In impacted reset we we straight short-term stream and we when the isn't half deal some that, on materially hand where minimal being income, a willing rent such reset at were now future – the Trillium. we in rent midst their that's buildings it ready and them a rent, to got that half And them with they and or the struck was buildings to able

we are win-win it's have. that they have to Pristine in spoke are smoothly. just with and Iowa. They're so in industry way in around. all I sure buildings And introducing making the actually transition we with They guys respect the terrific the Those With this in to a job only -- these are guys great the Georgia that are team operators, transitioned, now Trillium, think Trillium veterans. assets the They staff morning. going portfolio community a and with seven that in done right the goes they’ve are out road Trillium to the not them that that be

working We no than XX% way Ensign, up So besides as think well. our our all together win-win with everybody's and your in with question? end answers Does around. I more we tenant revenue, portfolio it's, of that said, the

Jordan Sadler

It where But there. sorry off you the much you've Ensign, time. have there, and one does, take exposure more, up reduced on I to the of left

the of quarter of point estate I be or end at curious think toward and probably your when year, what that they I'm end at XX%, Ensign? I would factor the there'll for investments real by probably under well in appetite exposure in made. the you this acquisition the if the imagine, driving down would be incremental were XX% operated you by is

Gregory Stapley

absolutely we stick falling been the respect or always push more working has fundamentals in said that and do very able are tenant able company and Ensign rebound example sky down, have challenges, that difficult them. a would – everybody across always but while nursing to Yes, they've high the were pockets think to concentration the always its from it, I industry, has of make we've We Ensign-concentrated, is most great the that them, They're to with deal not were been We've arose, skilled to with would thrilled with do XXX% always even to new [indiscernible]a weakness partner assuming nursing. – And that to. we today. to been if successful. right beginning love we Ensign, the do why actively they there we times opportunity the wanted be right work they for when that

Jordan Sadler

you. Thank

Operator

Thank you.

Markets. Our next please. Question RBC Capital Michael Carroll question comes of from

Michael Carroll

last follow-up. Yes. for had that just would little you indicated there solute direction than color were background anything I Thanks believe operationally the a Was in on quarter, right Greg Pristine. quarter? with one bit things additional the expect? more last that quick the albeit you the heading since changed maybe I

Gregory Stapley

Management been I’ll our of that. talk about a has in to lately. let Eric, those lot Director He Asset buildings

Eric Gillis

Yes, the thanks for question Michael.

to and around of able there the get and been has team talent talked financial level, a but on basis some a have daily that very, costs. tremendous able be facility That of training able ground one. they have Greg financials able the to that size to the their right they've and and operational management been managing also leadership As a of those being level that really on able administrators well at they've – one the be the able they've been to being job labor something things really focused need on done get do about the some been to to to decisions their been done areas, very make that have and put really better. really lot at and able each timely That's to manage into they’ve facilities administrators their

seeing And facility they've growth that So month to continued there have. job do Greg every they a better a and – job. excited done those every and each of month. still We're has performance portfolio as their they the had great improvements the done earlier, for said continue great

Gregory Stapley

I’ll add that to one Michael. thing

benefits get better of, say it's they average And as of more Ohio basis. bit a on running making where day-to-day their one and actively they've about problems debt little figure been that as X% One that that. to is bad X%, from They've to for well. a things us into a now concerned they able expense. been around always were CFO probably debt the moves versus head-scratcher and a out been office X% bad that average critical address industry now of about the out of of having back visibility been we've is finally the figured of their place in bit And operations

X% the debt going that reflect that coverage it still huge bad taking So is given we've and number the calculation. forward you leg

this they continue So short it we there could more think good as run in efficiently. to really still upside and up, is some portfolio things

Michael Carroll

So are needed things just to it more the on too people their behind right so why want was and right for? rent or I a that were far did getting direction, that the bring overwhelming cost cut structure need mean, away? rent they went reason Was they needed heading they in that up? what the cut they

Gregory Stapley

their during down, people They a vendors like actually bring hole some didn’t to did they prolonged things, But behind and they need that and move felt in of step and cost structure. ramp of take more dig up order a to forward a period to were needed bit when just again. they down their and were themselves back they other

Michael Carroll

Okay, question. bumps there with for the unique in strategy cap? a the change Or great. last just the the structure CPI Is transaction? one that color And on this just then from is a

Gregory Stapley

catch again, that to it. I’m sorry Say

Michael Carroll

cap. then [UCTI] bumps, them moving rent the now? know usually Pristine, from mean, with the bumps Trillium, rent provided I a making on you And bumps. color more fixed. annual you bumps, CPI only the rent away kind of a But On the with you've like I are you have

Gregory Stapley

hole stream goes with ended the rent on sort then rent that structuring have to one that, coming In was bumps existing anticipated on cap bracketed after to year CPI have three cap. piece, retaining, the and their X floor the back rent But seven that zero stream to facilities had because have rent zero we put in depending portfolio and they're the of CPI basically X.X floor with respect the us of the portfolio in they important that. with mill We back to on a so case, in nine it piece to this the the to X% to a it one schedule. be as and goes of the No, deal. the the we Pristine after two-year it that With to enough by help on bump our escalators meaningful. the always over well that still discount they new cash were CPI floor rent we’re was of bumps to income up It's able them sort the them rent meaningful to recognize like and were going been we getting time. Trillium's piece that wanted we they facilities, initial – giving be as to and and but

X% we floor, in didn’t well. has put that as cap it So X%

Michael Carroll

Okay, great. Thank you.

Operator

you. Thank

question next Hughes Raymond Jonathan of James. Our from comes

Your question please.

Jonathan Hughes

Hi, for taking guys. Thanks questions. my

switching one OnPointe, So to from below REIT But another have two time. facilities? of are an Pristine the coverage those EBITDAR one another owns Obviously, yesterday just operators difficulties you who smaller there, of it's facilities portfolio, them, seeing portfolio. the only you to leased noted, OnPointe your so a facing similar proportion

Mark Lamb

Mark. Jonathan. Hey, It’s

our to particular percentage individuals. GreenPointe XXX% by important owned are assets, distinguish so I think a entity OnPointe own of it’s the GreenPointe those two a is buildings that and separate two from OnPointe. The primary principles of

building a at is if the It's a built the buildings, marketplace. way we look the And it's you by and I Brownsville building most that think this was the was far in in primary the two building XXXX. lease-up. most Texas directly located about years. is, across constructed Albuquerque It in in XX remember Brownsville, attractive street from our about built the building was XXX,XXX in people, down XXXX, by and acute in recent hospital.

team, understood and from we these in about and from buildings these buildings. the colleagues we of we team, good thought management we to new of call these was a months newbuild the due these and direction ours yesterday. about We right bought buildings. diligence, in the former of had The assets, past they're so feel what from buildings in location previous new executive as a And right they good perspective, continue life. the talked particular story as And our And the these was and our about in understanding quarter, so these in on trend going very buildings. over investment we made an

Jonathan Hughes

Okay.

year. underwriting bit another there And the nursing skilled change helpful. you, for different has given X.XX that out to there? So management all to it question maybe has going I agreement was or this there, been X.X that times tightened a at up to forward? raise gotten coverage earlier that's you environment then plan just challenging to think But of times a acquisitions, any

Gregory Stapley

mean the I building that opportunities is times going incoming building times. have at hasn't times, to separately. different look X.X buildings each for going to It X.X operators. were grow We've seen we Each X.X at to

opportunity start that land. continue X.X on specific times we the then we to So X.XX of characteristics at adjust so based asset with and look each every times, the at

Jonathan Hughes

then the at that. the of make can there keep me And just you go keeping your kind keep the sense gain NAV, sale. that times, of EBITDA for out tapping ATM the product of low your curious some get relative the was more sheet, more in also it stock you were to noticed Bill one quarter? low. kind target am multiple a thoughts activity so to capacity your X.X higher? would share there with the no benefit But it. just To prices on so debt capitalize you to in leverage, and on revolver to full Got to I Okay. for from and debt third balance I

William Wagner

pipe between were quarter us in negotiations Jonathan. was and past the Pristine. a build ATM mainly Hi, to in issuing we’re on the given comfortable didn't that and close going was even real that the There the investments knew though under do we no shares we some activity coming

Jonathan Hughes

Okay.

– to mean, be So though mean could we leverage would lower to the what fair end say I keep that I range. it of target trying see you're it the at that can

can… you So

William Wagner

times the with would Pristine can that X like be and leverage amendment we times in at and is have Yes, ATM range turned to now of we stated the X the end disclosure signed the all this to to out our lower back expect on. of you keep

Jonathan Hughes

Well, Okay. off. answer. the time. appreciate it the for for jump Thanks I me. That’s I’ll

William Wagner

Thank End you. of Q&A

Operator

Stapley, queue. questions CEO. and this I turn no go show I ahead. back At you. Chairman call the over would Thank to Greg like time, in Please further the to

Gregory Stapley

can we you your answer. Thanks, appreciate welcome have We Take everybody, time us and you questions further any being interest on. Dylan. that call care. Thanks, for to if and

Operator

gentlemen today’s the Ladies you. This program. attending Thank and for concludes conference.

disconnect. You Good all day. may

CareTrust REIT (CTRE) 9 Nov 172017 Q3 Earnings call transcript