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CareTrust REIT Inc (CTRE) (Q1 2024) Earnings Call Transcript Highlights: Robust Growth and ...

GuruFocus Research
·4-min read

  • Normalized FFO: Increased 32.9% over the prior year quarter to $46.5 million.

  • Normalized FAD: Increased 33.1% to $48.7 million.

  • Normalized FFO per share: Remained flat at $0.35.

  • Normalized FAD per share: Remained flat at $0.37.

  • Cash on balance sheet: Ended the quarter with $451 million, up from $294 million at year end.

  • Net debt to EBITDA: Reported at 0.6 times.

  • Total cash rental revenues: Projected to be approximately $210 million to $211 million for the year.

  • Interest income: Expected to be about $44 million for the year.

  • Interest expense: Anticipated to be around $33 million, assuming an interest rate of 6.9%.

  • General and Administrative (G&A) expenses: Estimated to be $23 million to $24 million, including about $5.9 million of deferred stock compensation.

  • Leverage: Net debt to enterprise value was 4.1% at quarter end.

  • Fixed charge coverage ratio: Achieved a ratio of 7.5 times.

Release Date: May 03, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • CareTrust REIT Inc (NYSE:CTRE) reported a robust phase of growth with significant investments, closing approximately $205 million in new investments with high yields.

  • The company has a strong balance sheet with $345 million in cash and an undrawn $600 million line of credit, providing substantial financial flexibility.

  • Normalized Funds From Operations (FFO) increased by 32.9% and Funds Available for Distribution (FAD) increased by 33.1% compared to the prior year.

  • CareTrust REIT Inc (NYSE:CTRE) has a strategic approach to lending, focusing on relationships that may lead to future real estate acquisitions, attributing about $260 million of real estate acquisitions in the last 12 months to this strategy.

  • The company's lease coverage ratios remain strong, indicating healthy operational performance at the property level.

Negative Points

  • Increased borrowing costs due to higher interest rates, although partially offset by strategic financial management.

  • Some portfolio properties, specifically those managed by Priority Management Group and WLC, reported declining coverage due to one-time reserve accruals and operational headwinds.

  • Challenges in the regulatory environment, particularly with the CMS staffing mandate, which could impact operational capabilities in skilled nursing facilities.

  • The company is still under contract to sell a portfolio of 11 skilled nursing assets with negative EBITDA, facing financing challenges although progress is being made.

  • CareTrust REIT Inc (NYSE:CTRE) collected 98% of rents, with 2% uncollected due to underperformance in some senior housing operations, although improvements are expected.

Q & A Highlights

Q: Can you discuss how you balance the expectations for continued investment activity while maintaining underwriting discipline? A: Dave Sedgwick, President & CEO, explained that the company maintains a disciplined approach, not growing for growth's sake. They have added headcount in the last 18 months to handle the pace of growth and are well-positioned to take advantage of current opportunities.

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Q: What is the reason for settling ATM issuances right now instead of putting them on a forward basis? A: Bill Wagner, CFO, mentioned that settling ATM issuances immediately provides better visibility on the closing dates of investments expected within 12 months, minimizing dilution by taking cash now.

Q: Given the strong cash balance, should we expect continued equity issuance via the ATM? A: Bill Wagner, CFO, indicated that the company continues to raise equity against actionable deals that are expected to enter the pipeline, considering the equity price and the yields those deals will produce.

Q: How has the competitive landscape for larger portfolio deals changed post-COVID? A: Dave Sedgwick, President & CEO, noted that competition depends on the deal type. Stabilized cash-flowing deals attract more competition, while those requiring a turnaround see fewer competitors.

Q: Can you comment on the 2% of rents that weren't collected this quarter? A: Dave Sedgwick, President & CEO, mentioned that a few operators, primarily in seniors housing, underperformed but are showing signs of improvement, which should lead to better rent collection moving forward.

Q: What is the timing to deploy the capital for the rest of 2024? A: Dave Sedgwick, President & CEO, stated that they have high confidence in closing the quoted investment pipeline within 12 months, though the exact timing can vary due to regulatory approvals required for skilled nursing acquisitions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.