CTRE - Earnings call 3 2023 | CareTrust REIT, Inc.

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Operator

Good day, everyone, and welcome to the CareTrust REIT Announces Third Quarter 2023 Operating Results. Today's call is being recorded. [Operator Instructions] I would now like to turn the call over to Lauren Beale, Senior Vice President and Controller. Please go ahead.

Lauren Beale

Thank you, and welcome to CareTrust REIT's Third Quarter 2023 Earnings Call. current that that is on the any are on aware listeners recorded, today's environment be beliefs based advised and operates. are forward-looking management's in should which this business being call and call about it Participants CareTrust's assumptions and expectations, statements made its future the include affecting pandemics including may acquisitions, not as tenants, other performance, matters investments, businesses and returns, beyond These statements such and financial matters or may financings company's such governmental may or business the of projections regarding are control, that dividends, and other COVID-XX factors as reference actions. their disasters, natural

financial expressed The discussion to undue review generally statements a future could or information results are REIT Listeners as other as do encouraged company's or should of arise its by forward-looking as uncertainties law, reliance business where more for update and complete to revise that are that statements and impact cause and statements factors its any subject actual on to required those G. circumstances materially information, forward-looking Regulation a any implied CareTrust's not not today as reason. Except affiliates or any new by and to CareTrust SEC events, changes herein. publicly place filings changing could required risks results of well or SEC undertake from for differ result statistical other

complete business, can as normalized reports. that the non-GAAP reference results, viewed more they relied such EBITDA, these with When not the will EBITDA, FAD. FAD believes and and exclusion together be company the company upon a should metrics understanding call, GAAP but the to measures FFO FAD FFO its During or cautions of and of provide GAAP

CareTrust. on In addition, by financial that been has is and not coverage that provided independently based information verified certain our discuss by data operators we operator

call on supplement, be of Yesterday, XX-Q and which its the CareTrust financial release accessed on and www.caretrustreit.com. the available section limited A a website also of for Form press CareTrust's Investor of quarterly be each at filed will this its website period. Relations can accompanying replay

Dave Officer. On Chief turn James Investment now REIT's Bill Sedgwick, over the President morning CareTrust and Wagner, the Dave? Dave Callister, call call Financial and Chief Officer; I'll Chief Officer; President Sedgwick, this Executive are CEO. and to

David Sedgwick

thank Well, everyone, good morning, and joining for you us.

set return XXXX we round progress but to are investing on pipeline year-to-date, we and have on for fronts. growth million have ton by only base year, with Not significant dry table this report an a 'XX, As to third $XXX several the we made pleased powder. active external we also a of and

credit, financed net of of end. selling have that in $XXX line of ATM. down $XXX equity excess the proceeds of pay at debt million $XXX of by million were investments EBITDA to used We our completely to million worth a X.Xx The resulting quarter

to positioned in favorable willing some be are foreseeable to expect and future. the environment full dilution modest investment in run we in take to the of the to today for We are take advantage short be

touch the I'll it take Bill portfolio in are there. how quarter investment year. and thinking from touch will I activity about and will on regulatory on the next also James and our we environment, and the

future. us certainly X with a opportunities X.X%. who blended rate at That we these in have again in acquisition After estimated a to the believe the just are on QX, has drive return with million Since blended another foot First, external of gas. yield activity XX.X%. was QX strategically for Investment a consists of over The $XX to done the make we loans operators, lead to investments. to of invested forward its growth stabilized significant loans. we with borrowers loans the million and continued X will $XX since case team QX, true

Investments since California. at of included yield X added nursing X facility nursing of in QX a consisting X skilled We also skilled X.X%. facilities acquisitions,

was deal second for Care. facilities a nursing Covenant skilled high-performing The place with X operated lease by in

with coverage in the place Care's You XXXX, pops reset. acquisition, property supplemental The will just but level leases the EBITDAR provide X.XXx. this for that to initially X%, Covenant under leases a notice rent in in yield

Assuming is current reset the projected maintained, performance to under just at the is yield our time of be XX%.

portfolio. the to turning Now

supplemental, You the improved will in coverage slightly see overall. lease

ago, of covering Covenant the acquisition popped lease about to individual as coverage facilities a Let has very a mentioned place. X chat operators. well in a Notably, of up couple X.XXx Care me and with I EBITDAR second with

Covenant coverage row. same-store the third Care XX-month quarter Additionally, its properties improvement a for trailing continued the in

has coverage a trend last the lease been quarters. downward on of Eduro's couple

for working with agree solution that a a them we are of facilities non-core different on should hands. couple be their in We

have We closely rent. with material relationship working are and minimize great them to a Eduro to impact with any

a Midwest that few of nursing last the sale our for as minutes ago, before contract hope call. close earnings in facilities the to as quarter. classified Lastly, we on under sale to skilled XX We next we that held are sell

with. no the Even solicited comment. our the modify attention to day at can proposed RN the and called hours to front, aids CMS patient for per with changes mention form to hopeful significant hours to requires in they've will of We the nor per nurses that voice and thousands the proposed certified efforts feedback the with to that and industry Government. The patient unified proposed with adjustment day rule pay X.XX its the the industry the staged a rule be is modify industry to XX-hour from work hours schedules, add RN of staffing Federal X.XX LPN work have implementation one quick CMS rule. our We're on the acuity. minimum in Finally, for delayed regulatory that coverage mandate others for in

XXXX. we will just landscape say us pipeline, into is I'll The for give color head this. more on Now James favorable the you but investment very as

couple set said the table I of next before, As for the is years.

allows that investments. cost We of a have favorable for accretive capital

provides of debt a of our Xx have sheet not roaring has balance come can We million and to And we to high that our end historic EBITDA. macro roughly we a enormous back investments banks to flexibility. of still $XXX and X do anytime stated leverage have up below We competitors, cheap with expect soon. environment sidelined the do that debt some range

to So activity and with will that, James pipeline. our talk recent James?

James Callister

Thanks, Dave.

housing, on current facilities transactions related to are Let in agreements. that just update the our interest expiration provide me risk interest that of to due an or operational color typically proposed we most briefly on see and add date distress, rate cap With environment the involve current some the maturity to seniors pipeline. of respect rate variable stage continue some including risks to of loans, investment

nevertheless As to the market, seniors where an continue to look a attractive seniors rates constrained result, housing debt are remains deals those grow alternative operations. be wide. operators might, to financing and housing in their triple the add We for attractive scale to for lending current net traditional in lease a bid-ask gap looking given structure who

years very agency of transactions to stabilized including A recovery involving measure see robust deal and heavy staffing markets, in that flow skilled that cash rate in from still portfolios combination the couple of also continue said, many increases, cash based losses. last that of we're Medicaid decrease some are coverage We in that levels is seeing a on factors, negative and flows and Pricing portfolios. With nursing census labor flows rare. transactions. healthier facilitated experiencing lower recovery is

from skilled As nursing stabilization. still better, or marketed most fair a distance landing result, assets a reflect performance recent currently, but being breakeven at

dispose fall in improvement muted by the the brokers' are on fatigue show and of is price return continuing assets, short to to to account to expectations buildings and market performance, owners performance space. the facilities As institutional lower range into positive nonstrategic anticipated. to a be to sellers and selling results looking gradually operators regional mom-and-pops non-core flow owner exiting of and of stabilization, but from and cash than are softening pricing take or REITs guidance bringing capitalize who pace still appear softening Sellers' correspondingly to

interest buyer given the lenders recourse credit continuing narrowing date high a in to expect pool. of bid-ask the see requirements, a enhanced skilled and We continued rates, smaller risk nursing, maturity and

slight also attractive their levels and support prices beyond with basis a yields purchase cases, settle, towards XX% As in higher-yielding continue to to some able will slowly lease better continue up push rent likely stream.

attractive Given opportunities to used capital opportunistic our market our where in to flexibility accretive cost our be dynamics, investment operators. and sourcing to for look of occasions acquisition we continue and that are can and transactions create structuring additional

of execute built to acquisition the continue risk-adjusted returns will on past strategy has with several been how growth disciplined CareTrust consistent our years. We over with

mainly $XXX pipeline consists of singles is around The and and today doubles. million

with our also that close would confidence term. time. I'll lock have opportunities in And Bill. only near actively portfolio we only under tenant to some commencing that, diversify up relationships, we base a operators Please not can it for We we quote but level that underwriting turn of to further only deals pipe, allow relative scouting them tenant over we are larger continuing we strengthen standards. that pursuing then review quote current a our outstanding us we also have are by And relationships remember reasonable them and that our if existing when the would with to few been

William Wagner

Thanks, James.

normalized by to $XX.X and FFO normalized million. a $XX.X X.X% $X.XX decreased to normalized increased share $X.XX million, over share. to FAD basis, the On year share per decreased per FFO $X.XX $X.XX and quarter, the prior per For quarter increased to FAD X% normalized

compared QX. items: million of the following is investments. was quarter income Rental new for $XX.X million we in received $X.X million The to $XX.X approximately increase due $X.X the largely from First, to million

received bumps. approximately in $XXX,XXX we CPI Second,

which increased producing are $XXX,XXX expense FFO $X they because to corresponding million. have reimbursements, tenant Third, and a non-income

were have items which sold. offset Lastly, we is these $XXX,XXX, that from positive properties by mostly

of $X was quarter. $XXX,XXX is new million. The was to to the the market higher our portfolio you rates. money offset by the interest. for slightly from contractual and $XXX,XXX $X Interest Interest borrowings lower due cash exclude $X.X amount income rate approximately million, due $XX.X up loans of notes $XXX,XXX interest rental QX tenant on If [ of was during quarter reimbursements average million million, revenue expense ] income quarterly higher run up

the I quarterly for at of QX, in will G&A $XX.X program million, our for have $X.X previously to returning an sold proceeds run average XX.X%. contractual $XXX the approximately I around million. of expense year million. October, that call. be rate as we of million quarter's at shares G&A last increased stock of came XX.X roughly Cash ATM we today, $XXX,XXX due approximately $XX.XX on discussed from XX.X% rent. expense collections And to price Under compensation gross collected the expect in mostly for through quarter gross

that outstanding settled. million $XX still approximately not forward have on We contracts we have

hand, future our under on year-end, liquidity $XXX As cash settle I on our the of and ATM million these remains million remaining revolver a million result, $XX timing available investments. contracts entire future of will with closing approximately strong $XX the before we extremely in proceeds. depending expect our

Leverage with Xx. below at net an all-time to of range of low EBITDA normalized X.Xx, to ratio our which stated is X well debt a

enterprise our to back where surprised with turn to as fund debt that, to total of equity. we end, achieved charge it net wouldn't to XX.X% the our relative of We continue value today of to we downward is cost coverage And given as see debt fixed ratio leverage equity, with cost Our Dave. at be pipeline was quarter a X.Xx. of and further tick I'll

David Sedgwick

questions. has hope now helpful your take we been Well, our Great. and report happy to

Operator

Siversky We'll take Instructions] Wells our Fargo. from Connor [Operator question first with

Connor Siversky

A skilled expressed week, particular. skilled other the one senior nursing as for in I of environment in last question interest players mean of on the group assets. an nursing in the and housing competitive

not maybe the and you're whether or order on operator Does distressed entrant relatively thinking we're in I'm a entrant, at take pricing, in about move I'm the new curious this space with interest this So to -- affect dynamics? way willing get wondering but up just you're you're a the kind space. not increased to the with this in of yield? risk looking how new a these curve

James Callister

the can the same we that of think sure is or help with we the This deal basis what to bid of a most support the at many an if we falls get get and done look the and and pool, space deal an I'm say we're not the kind deals. of is buyer rent. the compete criteria give smaller we we deal. aggressive look as the that aggressive we operators And Yes. can its [indiscernible] tie within on actionable the But as to highest that get with operator more. each still I that at feel it really for, and comfortable a deal entering time most looking for about own little work can to can I the -- bit us There James. would and up of we get good to

bit So and asset. we it's a view definitely there's wouldn't have I be even with we that But we though it of I think increase competition a pool. say little a impacts at pricing buyer what in run competitive feel how successful smaller can

Connor Siversky

when should we XXXX Okay. X, time? dent deals? there And X big expecting consideration, then we take Or a portfolios that are asset at into maybe some X can there be make out

David Sedgwick

Connor, always chunkier of kind been kind there's had in investment Well, years, we've of historically, when larger there. our a deal

to And out reviewing our are continue expect lower always smaller, getting Those into to desk those. year. next there. And certainly done, of probability cross those so it they're but we we're

right are to of the doubles that we confidence and visibility that have the we us put more But used you're and the now, singles have together. that seeing

Connor Siversky

revolver? quickly cost There And of is with we capacity some the equity. job have prefunded. for that the issuance you pretty some Bill, Okay. it's much out? acquisitions just is any Or then the there. balance next year of still to on straight But balance slug see looks very ATM out it this still still sheet. the go equity could Should activity next we for like great It assume to

William Wagner

No.

is the to can our you to said of with debt prepared of my remarks where I given assume, we investments think that would now. equity relative cost cost right continue as equity I fund in

Operator

KeyBanc our next Wurschmidt with take Austin We'll Markets. from Capital question

Austin Wurschmidt

guys that confidence highlight and reasonable You on focus have really mentioned that have can you you a deals close. you

relative also just the kind you're pipeline these on I'm singles get probability you line? curious the yields is So in portfolio discuss then and across the you can And finish about the that that discussed? what to to transactions one guess of I million doubles able $XXX of

David Sedgwick

and start a down imminently our pipe mean want talk announce different We are I our about can then we in lot to up Yes, talk either a or after really narrow on their on to in we about particular very is when I'll James we're don't certainly pipes confidence to everything under different taking that we screen We things we at. High at -- generally, or talk of level, The close really LOI close. that X a ways. clean develops. least is we it our a pipe, that me. it, that from that people timing can to month closing longer about it have how anywhere when months depending on look transaction

And to grace say of months, have we So year-end. take. that's X terms to -- not in timing you by happen $XXX should the you million, give of how it, X if expect that of some of or you should kind should period

activity fall now, quickly. to we're that we'll that, confident because something if sometimes the does of that And out we falls seeing able be of of we're pretty pretty pipe that replace out it But that announce. stuff James? right

James Callister

then But question I answer operator Yes. say them on the we is it portfolio time of that we would more we transactions, is going the to right is On about yield. But a -- solution like solutions, general would capital I have at we're between be maybe what go think mean be at and our it lower is I concept easier below willing we're try with to spread experience yield what and or would do underwriting feel be depends like probably the right if a cost yield on the really the to never our turns the and with what of transaction. we portfolio usually that couple deals than your the we competitive.

that a little a and So typically somewhere go really even get we deal, not close will spread to aggressive the having but try to on lower be not bit we're deal. to

Austin Wurschmidt

That's assets the from third terms mentioned then the any portfolio just confirm, on collect contract. helpful. discuss the can XX you those in you property just And under you rent did quarter? guess, X or I then And

David Sedgwick

Well, under in just out going put the the of what wise -- that it in the terms And of we to willing out rents point. in on of wouldn't transact because just it contract, today, receive if this be yes, contract operator. at signal rent, of market deal, from we're to even demur to quarter the terms we that did to falls it I'm if terms though

Austin Wurschmidt

And that's me. then okay, then just one last fair. -- just And last the for

I into that with you operator comfortable you just assets the On Covenant existing consider guess, you how did master with lease single given you've a you owned? deal, putting those did get the the you this structure. were in about and I new but thought know below the curious deal on the a bit talked about coverage. about thoughts past, latest Xx them just quite how Care

David Sedgwick

us question. encouraged X, prepared few at Care row like quarters different these Covenant said property a to trailing comes points. same-store for and of my is, Great improving we XX a I outside remarks, X the to that What's in the Yes. coverage, EBITDAR. really covering closer One seen EBITDAR about rationale in just level closer getting have of

encouraging. that's So

It because our is to does is talked and received Covenant and interest downside interest unsolicited how there's like with to from regularly well. are our much the Care continues always continue scenario, in few the think as those operators we them a of that, take relationship we've -- about point to assets. to If provide how from them years, reset, strengthens attractive them we as with on facilities assets a these some that January things second The XXXX couple same-store improve with reset for a time us.

a our We're our not really helps. estate-owned it but properties these real certainly downside in expecting with improves them having scenario. so that, And position included in X

But being like you lease when we shortly, and you throw have excited that that we're about all it the was reset of acquisition. rate no-brainer, feel a together,

Operator

Michael next RBC our from with question Carroll take We'll Capital Markets.

Michael Carroll

you to guess, I prepared down. of in your kind is discussed remarks, come starting that James, pricing

Or these EBITDARM could buyers and willing that? stakeholders conservative So accept it yields? what's are sellers trending stabilize? potentially being where driving higher where pushing Are or is to just more underwriting

James Callister

in being combination any rate think risk cash they've got to for I'd little that guess take of sale. Yes, usual date more there little a than maturity get interest or think it's those they're a institutional that wanting got a that I quicker. kind I see up more say, -- flow and And they've now trying groups you to be Mike, factors. reasonable number deal done of advantage of -- buildings, I of more putting if a exiting, risk, just to the positive

really attract or all-cash also think to the I they buyer. want quick

and So little timing. kind get to take of certainty they they're little get of proceeds -- more the a side willing execution you less a to -- on more

I they've think a so that's down And bit. why come little

I out kind certainty to be into able to account you really number a put going buyer to think be you the the now quality bid-ask a to get want like deal just not, the there interest, a at going narrowing I of a also to little and feels you're quality with not it's just get to bit close closing that if taken of buyer. quickly. right ensure stabilized that it's gap that not a started you're of And think and finally

Michael Carroll

could it generally this wanted color to can to some then talk out? get there a or Covenant kind do guess, provide And reason of maybe sell? seller about Care the they situation, Was kind Okay. even you I to in why And discussing sellers? are related certain why who you on this want deal, of these

James Callister

they owned, it's heavy long very the landlord. On not they've This a They to third-party time and asset felt for was X just in particularly the were is deals, Care family of office, could an investors sell nursing. kind third-party a at. get skilled they held family Covenant price time, like that it right a

been whether them, barrel are for or like and right fatigue speak what risk, for now, of a I years -- or down try facing putting it's refinance I institutional they're up having for can't to it's entirely their whoever out for that so properties So or the pretty really think few that's figure or but mom-and-pops maturity consistent to either date sale.

now and buyer for buyer, still advantage positive you it certainty REIT getting I'm little up assets flow non-core if -- the try and selling to most -- the is pool that some now, And is see a cash hey, a part. the take put because that, you so I cash that, institutions more they more get of

Michael Carroll

expected disruption that? And we you transition, rent of the with quantify Okay. can should Eduro the then to regard expect type on

David Sedgwick

this I anything at today, it's not couple still material them. through sit here said, point. scenarios going with don't No, to We're like think we But us. a working different as be to of we that

Operator

our Instructions] question Juan [Operator Capital with We Sanabria take Markets. BMO will next from

Juan Sanabria

wages. Just could big hoping on the you health care California comment a on guys minimum you I mean thoughts exposure your there. and obviously have

big If sense exposure maybe who's in Ensign, where of I exposure a state. have lies. give a obviously, big you the know that could you to us

could and you for are those assets well. bifurcate where broadly just account operators If as who your

David Sedgwick

Juan, with of thank that. not in mandate overly entire -- are We've portfolio we strongest concerned in our the got there. operators group for you are California. say our And I'd probably Yes. really

skilled know, just competition the be some the other excluded speaking. sector from care generally was mandate from upward health will may As yet from you settings. nursing there pressure And

it to The in in several that to with that's concerned of several reason perspective, continued number. ahead getting it schedule correspond from meantime, because recovery we of quite recovery, and the implementation also the strong think terribly think has throw it continued of is you the years we're occupancy on not the about operators long definitely next a And years of going expect agency got together, our that be that particularly think the X we and will by over course years we all of And staffing Medicaid perspective. that we've manageable Medicare rates I core increased would California. and

Juan Sanabria

And or sense of holding a way in of portfolio that's agency to still today? of further the lack is just back curious any point? how if any much you staffing then in at the what occupancy a improvement level quantify this And have

David Sedgwick

Anecdotally, last that to staffing real admit to we of part some our constraints. of still that are out. challenge of know there The Yes. because figure constraints question for a is operators

far terms coverage our look operators at actually, that because their ways in agency still bit agency, our As of as usage. we're quite it, for provides you as tailwind another off of pre-pandemic of a

Portfolio-wide, still were before about the on day agency per usage are the we basis few dollars portfolio. we $X.XX a a And pandemic, at in patient for north of that.

So last seen we down. we've why believe And we're we to decreased quarter, X.X%. it's to occupancy and recovery have a portfolio overall from continue. come we ways to this should quarter to in And by of steadily see part agency the and that reason expect our improve encouraged that, about

Juan Sanabria

decline? or was year-over-year X.X%, it The sequential

David Sedgwick

last -- decline to quarter QX to from from Sequential QX.

Juan Sanabria

-- NOI the And how just third rent perspective, SNF think quarter much a what away? a rent from in modeling or that portfolio, follow-up, was just to the for that goes booked then XX was the

William Wagner

around Their $XXX,XXX. annual is rent is -- monthly their rent

Juan Sanabria

was the third And captured all quarter? that in

William Wagner

No, the they did we rent not not make a portion of They QX. in pay did XXX% contractual X.X% cash that collect. small up of

David Sedgwick

a X.X% Juan, to was agency bit little actually to QX. a I The talk cited We're let improvement me make that from QX. early about too QX of in correction. quick

Operator

Baird. with Alex [ next And question Fagan from our we'll ] take

Unknown Analyst

stabilization First initial one rate. is right in is the the of yields the expected seeing now that then CareTrust the on types and pipeline

David Sedgwick

your question? what's Yes,

Unknown Analyst

the are on those specifically what pipeline now? yields right Just

David Sedgwick

turnaround some -- depends deal today yes, sort some and talked on value-add whether have In be will or provide lot required. like are by any bidding of of a So not stabilization it ramp cases, on we In they of about, what deal. form James underwriting vary in rent. cases, we some or they

in X operators, and ramp to really X maybe make success order X-year give an needed extreme where from so X- that for in our case, months or better of ramp. anywhere chance a will to And occasionally a we a

the of so is that you in going And yield for if adjust for the ramps. sort speaking, generally to Xs, initial SNFs be

Unknown Analyst

kind And going And Group are their helpful. prepared in touch to you the do how Eduro confident That's end made to asked. have have paying that other they're the of Okay. quarter? in on keep that financials? you remarks comments What visibility people and you rent to your

David Sedgwick

Yes. open to hands. They're buildings really We transition a we Like how to those don't expect rent. them better great and book on a with hiccup have working an couple with of relationship we're I a said, into guys. us, to

Operator

are to no turn further I'd Sedgwick this closing at to There remarks. call for additional like back or time. over questions the any Dave

David Sedgwick

a you. really I thank a Well, Day Veterans and support appreciate Thank you. great interest. everybody's Have and weekend. happy

Operator

Thank you. for now you does you your conclude and today's Thank presentation. may That participation, disconnect.

CareTrust REIT (CTRE) 10 Nov 232023 Q3 Earnings call transcript