CareTrust REIT(CTRE)2024-08-04 14:57Financial Data and Key Metrics - Normalized FFO increased 52% YoY to $52 million, and normalized FAD increased 49.5% to $54 million [17] - Normalized FFO per share increased $0.01 to $0.36, and normalized FAD per share also increased $0.01 to $0.37 [17] - The company raised its 2024 guidance for normalized FFO per share to $1.46-$1.48 and normalized FAD per share to $1.50-$1.52 [18] - Total cash rental revenues for 2024 are projected to be $212-$213 million, with CPI rent escalations of 2.5% [18] - Interest income is expected to be $61 million, with $48 million from the loan portfolio and $13 million from money market funds [19] - Interest expense is projected at $34 million, with an assumed interest rate of 6.9% for the term loan [19] - G&A expense is estimated at $25-$27 million, including $5.8 million of deferred stock compensation [19] Business Line Data and Key Metrics - Property-level EBITDAR coverage was 2.17x, and EBITDARM coverage was 2.78x [8] - Skilled nursing occupancy surpassed pre-pandemic levels, with skilled mix settling 330 bps higher than pre-pandemic levels [9] - Assisted living occupancy increased 280 bps YoY and 180 bps QoQ [9] - The company closed $268 million in Q2 investments at a stabilized yield of 9.9%, including acquisitions and mortgage loans [12][13] - Year-to-date investments totaled $765 million at an average yield of 9.5% [16] Market Data and Key Metrics - Medicare rates for fiscal year 2025 will increase by 4.2% [10] - The skilled nursing acquisition market is competitive, with pricing increasing due to post-COVID performance improvements [14] - Small and midsize regional operators are selling portfolios due to COVID exhaustion, loan maturities, and regulatory challenges [15] Company Strategy and Industry Competition - The company focuses on long-term thinking, operator-first decisions, and maintaining a conservative balance sheet [7] - Investments are made with a focus on quality care and value creation, avoiding growth for growth's sake [7] - The company leverages its operational roots, strong capitalization, and nimbleness to provide certainty for sellers and accelerate growth [15] - The pipeline includes $270 million of real estate acquisitions, with potential for larger portfolio opportunities to diversify tenant relationships [16] Management Commentary on Operating Environment and Future Outlook - Management highlighted the strong first half of 2024, with record investments and equity issuance [5] - The company is positioned to capitalize on demographic tailwinds expected to last for decades [21] - Labor market normalization is improving, with agency expenses dropping 35% YoY [43] - The company expects to complete transitions and dispositions of underperforming assets by year-end [29][42] Other Important Information - The company has $100 million in cash and $600 million available under its revolver, with a net debt to normalized EBITDA ratio of 0.4x [20] - Leverage is at an all-time low, with a net debt to enterprise value of 2.6% and a fixed charge coverage ratio of 8.2x [20] - The company plans to continue funding its pipeline with equity as long as equity prices remain favorable relative to long-term debt costs [20] Q&A Session Summary Question: How does the company balance acquisition expectations with underwriting discipline? - The company focuses on relationships, operator selection, and creative transaction structures to maintain discipline while pursuing opportunities [23] Question: What is the mix of new vs. existing relationships in the pipeline? - The pipeline includes both new and existing relationships, with a mix of deal sources from brokers, operators, and recent partnerships [24] Question: Thoughts on the leverage target range of 4-5x? - The company maintains flexibility to stay below the target range to fuel growth but may increase leverage if significant growth opportunities arise [26] Question: How does the company view capital recycling for future investments? - Capital recycling will be limited and specific to underperforming assets, with no significant impact on funding growth [28] Question: What are the underwriting standards for new deals? - The company targets 1.4x coverage and yields in the 9% range, with enhanced collaboration on underwriting for assets not yet stabilized [32] Question: What are the cap rates for recent transactions? - Cap rates remain within historical ranges, with some flexibility for larger deals to ensure sustainable rent streams [33] Question: What is the yield expectation for the $270 million pipeline? - Yields are expected to remain in the mid-9% range, consistent with historical levels [37] Question: Impact of labor market normalization on tenants? - Labor market normalization is improving, with agency expenses down 35% YoY, providing tailwinds for coverage [43] Question: Thoughts on future Medicare rate increases? - Medicare rate increases may remain elevated due to lagging inflationary effects, but future trends are uncertain [49] Question: Is there a limit on the loan book size? - No immediate limits, with the loan book tied to expected off-market acquisitions [50]