CareTrust on Friday inked a contract to sell 11 skilled nursing facilities it had previously targeted for divestiture, a sale that comes of amid a highly active period for the real estate investment trust.
While terms of the contract weren’t immediately disclosed, company leaders on a third-quarter earnings call appeared pleased to move the portfolio off its books. The facilities accounted for approximately $5 million in annual rent, or about $400,000 monthly, but had been delinquent in the recent past. Though the operator paid some rent in the third quarter, it was less than 100%, leaders said.
CareTrust is also positioning itself to transition some properties being operated by Eduro Healthcare, a Utah-based skilled nursing company with 41 facilities in nine states.
“Eduro’s lease coverage has been on a downward trend the last couple quarters. We are working with them on a solution for a couple of their non-core facilities that we agree should be in different hands,” said CEO Dave Sedgwick. “We have a great relationship with Eduoro and are working closely with them to minimize any material impact to rent.”
Later, questioned by analysts about whether Eduro would be able to keep meeting its rent obligations, Sedgwick said CareTrust had clear visibility into the company’s financial operations.
“They’re an open book to us and we’re working with them,” he added. “We don’t expect any hiccup to rent.”
On the acquisition side, CareTrust picked up three SNFs during quarter three, including two under the Covenant Care umbrella. The new buildings bring the Covenant portfolio’s EBITDAR coverage up to 1.43 times. A measure above 1.0 means a company has a healthier debt-to-interest ratio. That number was pushed upward by the new facilities’ strong lease coverage, and that coverage could go higher as early as 2027 when lease terms reset, Sedgwick said.
Covenant Care also was showing improving coverage in its existing properties over the last three quarters, Sedgwick added.
But the latest pickups also give CareTrust an out should the California-based Covenant get itself into a possible downward scenario.
Sedgwick said Covenant’s facilities have attracted unsolicited attention in the past, and adding two buildings to the portfolio make it a stronger candidate for sale, should the need arise.
Overall, leaders remained upbeat about their ability to maintain and update holdings to increase rent coverage, or sell off non-core properties to keep finding an extensive deal pipeline.
Increased competition from other REITs, including Welltower, which earlier this month said it may take a deeper dive into SNF investment, didn’t overly concern executives. Instead, they noted that capital for many owners and would-be buyers remains tight, giving the REIT a potential upperhand. The company has an active pipeline of $175 million, mostly with single- and double-site deals.
“We do not expect the banks to come roaring back with cheap debt any time soon,” Sedgwick said. “Sellers bringing buildings to market range from institutional owners or REITS continuing to dispose of non-core and non-strategic assets to regional owner operators and mom-and-pops who are fatigued and are looking to capitalize on a return to positive cashflow by selling and exiting the space.”
