CareTrust REIT is holding a record stash of credit and cash, and company leaders said Friday they are about to unleash a wave of spending on primarily skilled nursing acquisitions.

“This time last year, we started to sense a window of opportunity opening to return to external growth in a meaningful way,” President and CEO Dave Sedgwick said on the company’s fourth-quarter earnings call.

Increased deal flow led to $288 million in new investments in 2023, while the trust also completed repositioning some core holdings. At the end of the year, CareTrust was sitting on $600 million in credit and just under $300 million in cash.

“We have never had this amount of dry powder,” Sedgwick said. “Why? Because we expect 2024 to be a strong year of investments and we have positioned ourselves accordingly.”

Already in the first quarter of this year, CareTrust has made $63 million in new investments, including $52 million in loans. The recap for investors followed the announcement last Tuesday of a significant loan involving 25 properties with nearly 3,000 skilled beds.

Historic rates persist

It appears company executives are eager to go on a SNF-buying bonanza.

“Our investment pipeline remains active and primarily consists of skilled nursing facilities, with a few assisted livings and multi-use campus opportunities mixed in,” said Chief Financial Officer James Callister.

The immediate $250 million pipeline, he added, comprises mostly single or double property projects, and does not include some “chunkier” regional options that CareTrust also is evaluating.

“We expect the skilled nursing transaction market to become increasingly active with the continued bifurcation between assets that are cash-flowing and distressed products,” Callister added. “Pricing on stabilized or close-to-stabilized SNF portfolios continues to hover at historical cap rates, helped by increases in state Medicaid rates and some easing of labor challenges.”

Later, he said that only about 20% of offerings in the SNF market are “kind of stable or getting stable” but that the share is slowly creeping up.

“That’s the trend right now. But at what stage of returning to positive cash flow is a seller wanting to put their buildings up for sale?” Callister asked. Some retire and want to get out right as they turn the corner. Others are waiting a little longer to get more stable.”

CareTrust and other REITS are seeing competition from regional operators that want to grow. 

The market includes mostly sellers with nonprofit affiliation, moms-and-pops fatigued by difficult years in the industry and looking to exit, and “regional owner/operators of stabilized  portfolios looking to sell and recycle capital,” Callister observed.

Meanwhile, pricing for distressed skilled nursing operations has “softened slightly,” he noted, with more coming to market as they face escalating variable rate loans or maturity dates on bridge-to-HUD or other loans.

“We expect this trend to continue and to lead to potential acquisition opportunities” as more fall short of meeting benchmarks required for last-resort government financing, Callister said.

Some SNF issues remain

Sedgwick had announced on the trust’s last earnings call that leaders had inked a deal to sell 11 challenged SNFs. Friday, he acknowledged that sale of those primarily Midwestern assets had still not been finalized.

“Understandably, financing has been challenging, but the buyer continues to make good faith efforts that lead us to believe a deal will get done,” he said. Later, he told investors that the “pretty fair” odds of collecting rent from the properties while the deal gets done is one reason the unidentified buyer was chosen.

In separate news, Sedgwick said the transition of two Eduro buildings to another operator was set for March 1, and the changeover was expected to improve Eduro’s ability to meet its portfolio lease obligations.