CareTrust REIT(US:CTRE)2022-08-05 20:08Financial Data and Key Metrics Changes - Normalized FFO slightly decreased by 0.7% over the prior quarter to $35.6 million, while normalized FAD decreased by 1.7% to $37.5 million [25] - Rental income for the quarter was $46.8 million, an increase from $46 million in Q1, attributed to a decrease in cash rents offset by new investments and CPI bumps [26] - Cash collections for the quarter were 93.9% of contractual rent, which included the application of $900,000 in security deposits; without these deposits, collections were 92.1% [27][28] Business Line Data and Key Metrics Changes - Average quarterly occupancy for skilled nursing operators grew by 1.4% (98 basis points) over Q1, while occupancy for seniors housing grew by 2.8% (215 basis points) [13] - The company reported 94% of rent collected in the quarter with cash deposits, and 94% exclusive of cash deposits for July [13] Market Data and Key Metrics Changes - The regulatory environment showed improvement with a final market basket adjustment from CMS at 2.7% and a recalibration of PDPM over two years instead of all at once [14] - The acquisition disposition market for skilled nursing and seniors housing facilities has been changing, with lenders tightening or pulling back on lending due to recession concerns [15] Company Strategy and Development Direction - The company is focused on derisking its portfolio through dispositions and re-tenanting, aiming to close most of this work by Q4 [10][17] - The investment strategy is adapting to a changing market, with expectations that pricing will moderate and sellers will prefer buyers like CareTrust that offer certainty [11][20] Management's Comments on Operating Environment and Future Outlook - Management noted that the current macro environment presents both challenges and opportunities, with skilled nursing historically benefiting during recessionary periods [12] - The company is optimistic about the future, expecting to complete most of its disposition work by year-end and seeing evidence of improved operator performance [32][36] Other Important Information - The company closed on a $75 million C piece loan secured by skilled nursing facilities at a rate of 8.4% and a term of five years, along with a $25 million mezzanine loan at 11% for 10 years [19] - Liquidity remains strong with approximately $16 million in cash and $385 million available under the revolver, with a net debt to normalized EBITDA ratio of 4.3 times [28] Q&A Session Summary Question: Clarification on re-tenanting and asset sales - Management indicated that the decision to re-tenant or sell assets is fluid, with some operators showing improved performance, making re-tenanting more attractive [31] Question: Impact of dilution on long-term decisions - Management emphasized a preference for dispositions over re-tenanting to ensure long-term financial strength, despite potential short-term dilution [36] Question: Cap rates and coverage levels in the transaction market - Management noted that cap rates are not moving quickly due to tightening lending standards, but there is a shift towards valuing transactional acumen [39] Question: Originating more loans versus acquisitions - Management stated that traditional acquisitions remain a priority, but lending has been a valuable avenue for investment in the absence of traditional opportunities [46] Question: Wage growth in the seniors housing and SNF space - Management observed that while wages peaked earlier in the year, there are signs of moderation, with increased job applications and decreased agency usage [53] Question: Revenue impact from sales and re-tenanting - Management indicated that more clarity on revenue impacts will be provided in the next call, as the restructuring process is still ongoing [56]