管理層發言
Thank you all for being here today for the CareTrust REIT's Third Quarter 2025 Operating Results Webcast and Conference Call. I will now pass it over to Lauren Beale, CareTrust's Chief Accounting Officer. Lauren, please continue.
Thank you, and welcome to CareTrust REIT's Third Quarter 2025 Earnings Call. We will make forward-looking statements today based on management's current expectations, including statements regarding future financial performance, dividends, acquisitions, investments, financing plans, business strategies and growth prospects. These forward-looking statements are subject to risks and uncertainties that could cause actual results to materially differ from our expectations. These risks are discussed in CareTrust REIT's most recent Form 10-K and 10-Q filings with the SEC. We do not undertake a duty to update or revise these statements, except as required by law. During the call, the company will reference non-GAAP metrics such as EBITDA, FFO and FAD. A reconciliation of these measures to the most comparable GAAP financial measures is available in our earnings press release and Q3 2025 non-GAAP reconciliation that are available on the Investor Relations section of CareTrust's website at www.caretrustreit.com.
A replay of this call will also be available on the website for a limited period. On the call this morning are Dave Sedgwick, President and Chief Executive Officer; James Callister, Chief Investment Officer; Bill Wagner, Chief Financial Officer; and Derek Bunker, SVP of Strategy and Investor Relations. I'll now turn the call over to Dave Sedgwick, CareTrust REIT's President and CEO. Dave?
Well, thank you, Lauren, and good morning, everybody. Thank you for joining us. This feels a little like déjà vu. Around this time last year, we were in the middle of closing on a significant volume of new investments that were to be giving us a running head start coming into 2025. At the time, I said, if you liked our 2024, you're going to love 2025. Well, this time around, I'll say it again. If you liked our 2025, I think you're going to love our 2026. And with only 2 months remaining, we sure hope you've liked 2025 so far, with third quarter normalized FFO per share of $0.45, representing approximately 18% growth over the prior year quarter and the midpoint of our updated full year guide also representing approximately 18% year-over-year growth. To start, I'd like to make a few observations. First, I'm extremely proud of the CareTrust team. An exceptional year like this is the direct result of their talent, commitment and our culture.
Our investments team led by James are truly rock stars in growing our portfolio, sourcing and sifting through hundreds and hundreds of off-market and brokered opportunities and navigating complex structuring and closing processes to help us deploy record amounts of capital in back-to-back years. Our asset management team notched several wins this quarter in helping identify and mitigate risk, including a seamless transition of a portfolio of skilled nursing facilities to a new regional operator with a stronger credit and reputation, all without any disruption in operations or rent collection. And our accounting team led by Lauren has undertaken a heavy lift consolidating Care REIT's books with ours and preparing for some added complexity as we look to build a SHOP growth engine, and that's just to name a few. Second, I want to express my appreciation and admiration to our operators for their unwavering pursuit of quality care and operational excellence.
A few weeks ago, we hosted our annual operator conference in Southern California, welcoming representatives from almost all of our operators for a few days to swap ideas, learn from business leaders within and outside the healthcare space and recharge a bit. I'm continually reminded that we're privileged to work alongside some of the top operators in the U.S. and U.K. whose superior lease coverage, quality indicators and ratings continue to set a high standard across the industry. Turning now to an update on the quarter. In the third quarter and since, we closed on $495 million of new investments, bringing our year-to-date total investments to over $1.6 billion. This is a historic amount for us, even eclipsing last year's massive year of $1.5 billion. And now with a pipeline of $600 million that seems to reload about as fast as we can close on deals, the momentum continues to accelerate, and we're here for it and ready to execute.
While we're pleased with the nominal amount of investments, we're also thrilled at the quality of those deals and their transformative impact on CareTrust. I've previously shared about how the first decade of CareTrust has been a success story built primarily around one single engine of growth, U.S. skilled nursing. While we've done triple net deals in seniors housing and have deep familiarity with the space, skilled nursing facilities have been our bread and butter and to be clear, will remain so. In order to position CareTrust to grow in the next decade like we did in our first, we need another growth engine, and we decided to add two for good measure. The second one was officially bolted on to CareTrust with our U.K. acquisition in the second quarter. Since then, we've integrated a London-based team of professionals and closed on our first follow-on transaction there in September. And we're pleased to see the deal pipeline in the U.K. expand and now account for roughly one-third of our $600 million total pipeline.
The third engine of growth is SHOP. While we don't typically speak of deals in our pipeline until they close, we do have an extra dose of confidence in closing our first SHOP deal before year-end, placing all three engines of growth online and hungry going into 2026. As I've said a few times on past calls, if we were only trying to make consensus or focused on our results for this year and next, we may not have expended the significant resources and brainpower on the U.K. or to prepare for SHOP. Instead, our sights are set on where we will be in 10-plus years and how we can get there at a similar pace that drove the second highest total shareholder return amongst all REITs over the past decade. It's with that vision that we undertake the transformative investments in the U.K. and in SHOP. In that vein, while we will always maintain fiscal discipline and are still a very lean organization, we have invested this year across our team of professionals to absorb our massive recent growth and help position us for success as we continue to expand.
We've taken the same approach with our balance sheet, keeping maximum optionality to pair with a unique window of opportunity to capitalize like few others can on the generational demand for post-acute services and housing. So with that in mind, if I compare CareTrust this time last year to where CareTrust is today, I think you're going to love 2026, just as I thought you'd love '25. We are stronger and better across the board. We're a larger REIT with a fortress balance sheet and great liquidity with no near-term debt maturities until 2028. We have a growing portfolio with best-in-class coverage and better diversification across asset mix, operators, geography, and payer mix. We've added talent throughout the organization to support investments, asset management, tax, finance, and data science. And we're about to bolt on the third engine of growth for the next decade with our first SHOP deal closing before the end of the year.
Going into 2026, with a stronger team, better portfolio, and greater liquidity, we're poised to keep the flywheel spinning as we aggressively pursue deals across the three large opportunity sets of U.S. skilled nursing, U.K. care homes, and SHOP. We are not managing the business for the next quarter or year. We have reengineered CareTrust for a multiyear era of accelerated growth. With that, I'll hand it off to James for a report on investment activity and the acquisition landscape. James?
Thanks, Dave. Good morning, everyone. During the third quarter, we completed approximately $59 million of investments, including the transition of several buildings previously leased to Covenant Care to existing and new tenants in a transaction that we feel secures the clinical and financial performance of those facilities for years to come. We also closed on our first U.K. transaction following the Care REIT deal, a two-pack of homes leased to an existing quality operator. In the period since, we closed on another $437 million of investments, the bulk of which occurred across two large portfolio deals comprising 12 skilled nursing facilities and one majority SNF campus across the Southeast and Mid-Atlantic. The first of these transactions located in the South is our first with a large regional operator known for quality care that we've admired for some time, and we could not be more excited to add them to the portfolio.
The Mid-Atlantic transaction was structured as a sale leaseback and adds several facilities to our portfolio with an existing quality operator. Our relationship with that operator originated as part of our commitment a few years ago to lend with a purpose, and we are thrilled to see our lending program continue to bear fruit in the form of additional real estate acquisition opportunities. We're thrilled to get these transactions across the finish line. Since the quarter-end, we also closed on a California skilled nursing facility with an existing operator and on a two-building portfolio of assisted living communities triple net leased to a new operator. Overall, the blended stabilized yield on the post-quarter-end tranche of investments is approximately 8.8%. As we look forward, our investment pipeline remains strong, sitting at approximately $600 million. The quoted pipeline is approximately half U.S. skilled nursing, one-third U.K. care homes, and the remainder SHOP and a few strategic loans.
It includes some singles and doubles as well as some mid- to large-sized portfolio transactions. Please remember that when we quote our pipe, we only include deals that we have a reasonable level of confidence that we can lock up and close within the next 12 months. Our investment pipeline remains active with a mix of broker transactions and proprietary opportunities generated through our operator relationships and other channels. We are seeing sustained deal flow across skilled nursing and seniors housing sectors, including both triple net and SHOP formats and a measured but meaningful rise in overall transaction activity, particularly in seniors housing and the care home market. Our disciplined underwriting approach, combined with a primary emphasis on operator relationships and a commitment to creative, collaborative deal structuring will continue to help fuel growth across the skilled nursing, seniors housing, and U.K. care home market sectors. And with that, I'll turn it over to Bill.
Thank you, James. It's been a privilege for me to serve our colleagues, Board, and shareholders since CareTrust's inception through such an exciting time in our growth story. As previously announced, I will be retiring as CFO at the end of the year and transitioning the role to Derek Bunker, our current SVP of Strategy and Investor Relations. While Derek joined us only this year to help lead the U.K. acquisition, we've known him for many years as he's been active in the post-acute healthcare space. This year, we worked closely together on a thoughtful succession plan, and I have every confidence that he is well prepared to lead the finance organization into its next chapter. With that, I'll turn the call over to Derek to review our quarterly financial results.
Thank you, Bill. For the quarter, normalized FFO increased 55.5% over the prior year quarter to $94.7 million and normalized FAD increased 50.6% to $93.1 million. On a per share basis, normalized FFO increased $0.07 or 18.4% to $0.45 per share and normalized FAD increased $0.05 or 12.8% to $0.44 per share. During the third quarter, we paid off the secured notes and revolvers assumed in the Care REIT transaction, and we entered into interest rate swaps to fix the rate on our $500 million term loan for a period of 3 years with a go-forward all-in rate of 4.6%. Also during the quarter, we raised $736 million of gross proceeds from an equity issuance. These proceeds allowed us to fund third quarter investments and the transactions announced yesterday as well as completely pay down our revolver as of September 30. As of today, we have approximately $380 million available for future issuance under our ATM program.
In yesterday's press release, we adjusted guidance for this year to a range of $1.76 to $1.77 for both normalized FFO and normalized FAD per share. Our equity follow-on in August gave us incredible flexibility to close our near-term pipe while maintaining agility going into 2026 and beyond. But the timing gap between funding and closings that somewhat lagged represented a short-term headwind. As we've now deployed most of that capital and replenished the pipe, all while maintaining net debt-to-EBITDA around 1.1x, we're excited about our ability to continue growing as we prepare to enter 2026. With that said, we'll give full year '26 guidance with our Q4 and full year 2025 update. In addition to the assumptions set forth in our press release yesterday, the updated 2025 guidance assumes the following: total cash rental revenues of approximately $344 million to $345 million and straight-line rent of approximately $9 million; interest income from financing receivables of $12 million; interest income of approximately $96 million; interest expense of approximately $44 million, which includes roughly $5 million of amortization of deferred financing fees, income tax expense of approximately $5 million and G&A expense of approximately $52 million to $53 million, including roughly $12 million of stock compensation.
Lastly, our liquidity continues to remain strong. In addition to approximately $334 million of cash on hand as of November 5, we have full capacity available on our $1.2 billion revolver. And despite our record pace of investments, we continue to maintain low leverage with net debt-to-EBITDA of 0.43x, net debt to enterprise value of 2.4% and a fixed charge coverage ratio of 11x, each as of quarter end. And with that, I will turn it back to Dave.
Great. Thanks, Derek. Well, we hope you have found this report helpful and happy to take your questions now.
分析師問答
Your first question comes from the line of Jonathan Hughes with Raymond James.
Just a question for James. It's great to see the investment activity in the replenished pipeline. I was hoping you could maybe share expected yields across the three buckets of SNFs, U.K. care homes, and seniors housing. And are you seeing those compress as the outlook continues to improve?
Jonathan, sure. I think across the three spectrums, I mean, I don't think there's going to be too big of a surprise. I think across SNFs, you're going to see typically with a 9 handle on it for the yield, I think that now and again, we find deals where we'll trade a little bit of yield for coverage. We like that trade-off in some deals to sleep better at night. In the U.K., it's going to be pre-tax leakage somewhere around 8.5% or higher. And then I think in seniors, there's really a range, Jonathan, depending on the age, the CapEx needs, the market. You do see a little bit of compression in rates in seniors housing for sure. I think that depending on the market and the need for CapEx, we're still going to look for something that gives us a year 1 yield of 7% or higher.
Okay. And are there any loans or preferred investments in the pipeline? Or is it all?
There's a couple of strategic loans or preferred, but not anything meaningful really, Jonathan.
Okay. And then just one more from me for Bill or Derek, I'm not sure who wants to answer. But just given the duration gap or timing mismatch mentioned in the guidance update, I believe you have a forward component for equity raises. Are there any plans to utilize that in the future and try and minimize that duration gap?
Yes. Jonathan, it's Derek. We look at everything case by case and try to match up the duration of funding with the pipeline. So I wouldn't say never, but the pipeline seems to be closing at a pretty brisk pace and replenished at an equally brisk pace. And so it hasn't made a ton of sense to kind of go down that route yet, but we'll keep that option open for the future.
Thank you, Bill. I want to say I've enjoyed the time spent together in the past 10 years. Congrats on a great career and enjoy your free time, and Derek, congrats...
Your next question comes from the line of Michael Carroll with RBC.
Can you guys provide some color on the type of investments that CareTrust has made to kind of build out its seniors housing operating portfolio? I mean when did those investments start? And should we expect like this kind of flow into 2026 with higher G&A as you kind of build out that platform?
Yes. I'd say we started in earnest at the very, very end of last year with bringing on a senior investment professional, added to that in the middle of the year, some more bandwidth on the investment team and then data science and asset management as we near the end of this year. So not to mention tax and accounting as well. So it's been a process that's kind of gone throughout the year. I think as we go into the new year, and we'll have that first deal online, we will probably look to add, I don't know, two or three more people potentially throughout next year related to SHOP.
Okay. And then can you kind of talk a little bit about the SHOP deals that you're looking at right now? And I know there's a few larger portfolios that might come with platforms. I mean, is that interesting to you? Or is it not needed anymore just given these investments you've highlighted that you already made in the SHOP platform, so you really need to bring on a new platform right now?
Yes. I think what we've done is decided to not just wait on the sidelines for a perfect large portfolio deal to fall in our lap, and we wanted to get after it, and that's what we've done. And so we've tied up this smaller SHOP deal, built the infrastructure to suit that pipeline. And I think that can now grow and scale pretty well. And like always, we'll look at anything that hits the market of any size. And if it makes sense, we'll pursue it.
This is Farrell Granath. I wanted to ask about the market dynamics in comparison to the U.K. and the U.S. You mentioned that U.S. skilled nursing is your core focus, but it seems like there are more opportunities emerging in the U.K., which we didn't fully capture during the recent closing of a few U.K. care homes. Could you elaborate on whether this is due to increased competition or opportunistic pricing?
Yes. Farrell, it's James. When we acquired Care REIT, it had been stagnant for several years. Building up that pipeline and securing deals takes time. Currently, about one-third of our pipeline is in the U.K., indicating that it is expanding and becoming more active. There have been recently announced large transactions in the U.K., and there's significant activity there. We believe we are still competitive in that market, and the pipeline has been steadily growing since we closed the Care REIT deal, showing consistent slow growth in size.
Okay. And I was just wanted to touch on how you had mentioned the investment into a data science platform. I was just curious what kind of application you would expect to use that for and maybe where we could see that show up in the portfolio going forward?
Well, our investment in data science is going to really have a global reach throughout the company across all departments, making us smarter and faster across the board. There's an obvious application to the SHOP business and wanting to be a real value-add capital partner for the folks managing those properties for us. But we really do expect to see a positive impact both to productivity, decision-making and efficiency throughout the whole organization as we continue to scale.
I guess just for the team as a whole, just curious of how we should think about G&A. I recognize it's early to give any sort of '26 official guidance, but any sort of parameters on how big the G&A cost side could grow next year would be appreciated.
Sure. We mentioned that part of the increase this year is related to STIs. We've achieved some significant targets in both growth and performance, and this will reset going into next year. There is a slight increase that aligns with the earlier response about our investments in the team across the organization, which are aimed at preparing for SHOP and supporting the continued growth observed last year and this year. Looking ahead to Q4, it will likely resemble Q3, but next year will involve some fluctuations. We'll provide more details in the next quarter, but we hope to maintain productivity gains while managing the STI reset, aiming to align closely with the trends seen in Q3 and Q4.
Great. And then just curious, we've seen some of your peers kind of look at different opportunities to grow in skilled nursing via RIDEA or OpCo investments. Curious on the appetite or lack thereof to do something similar and pursue skilled nursing, OpCo or RIDEA investments.
Yes, it is interesting. I think that I would never say never. And I would say that for the right operator, right deal, we could consider something. Nothing in our pipeline or anything that we're actively working on contemplates that, but also found some of those plays recently really interesting.
Great. Just going back to the SHOP deals in the pipeline, Dave, I know you've been focused on finding the right operator. And just wondering if when we see the initial SHOP deals cross and close, should we assume that those have been struck with kind of a future pipeline in mind that's going to be sort of an expansive relationship? And then at this point in time, is there any specific number of operators that you're initially targeting?
I think we will approach SHOP similarly to how we have with skilled nursing, evaluating each case individually. Some deals will include growth opportunities while others might not. However, for any deal we pursue, we will likely seek to strengthen that relationship, regardless of whether there’s a clear path forward. That will be our strategy.
And then I don't recall if you've discussed this or not, but is the SHOP engine of growth, is that strictly a domestic strategy or something that could also expand into the U.K.?
Yes. Right now, we're focused on the U.S. But again, like I said in the previous question, I would never say never. I think there would be conceivably application for that in the U.K. in the future as well.
Then just one last one for me. Just going to the lease transitions in the third quarter. Can you specifically kind of discuss how you were able to achieve the rent increase on those transitions and how that coverage level compares to where it stood previously and just overall kind of why that made sense?
We had a few instances, and I believe you're referring to Covenant Care. A couple of years ago, their coverage was quite limited, leading to watch-list discussions among investors. They had been on the market for several years, and we chose to take a more active role by pursuing the acquisition of Covenant Care. We then transitioned those assets to stable, experienced operators instead of a group looking to sell. This move allowed us to address any concerns we had regarding the portfolio.
Your next question comes from the line of John Pawlowski with Green Street.
My first question is on the U.K. care home portfolio. I know coverage levels were stable quarter-over-quarter, but they are down a touch from the coverage levels you disclosed in May. So can you remind me what specifically has driven potentially soft revenue or outsized expenses since you closed the portfolio to drive that tick down in coverage?
No, I wouldn't call out anything thematic or general there. I think that's just idiosyncratic across the board and not a cause for any concern for us.
Okay. Second question is a follow-up to Juan. Derek, I didn't quite follow the response. I interpret it right that the absolute dollars of G&A is going to start settling out at the Q3 and Q4 levels? Or is there another year of outsized growth ahead?
Yes. I mean, look, there's a lot of puts and takes. We've grown tremendously. We're building out SHOP. And so each quarter, as we assess our needs, we'll probably continue to invest in both our team and platform to make sure we're meeting both the acquisitions that we've closed over the past years as well as the pipeline and really what's kind of funneling into the pipeline. The one that is resetting is the STI, and that's been kind of a big pickup from this year over the prior year. That will reset. But obviously, we've made further investments. So without trying to kind of steal the thunder from next quarter because I know that's everyone's anxious to await it. I think that's just sort of the puts and takes there. It's going to be elevated because of those investments in the team, but there's a little bit of a pickup when we reset that STI.
Your next question comes from the line of John Kilichowski with Wells Fargo.
Fantastic. Dave, in the press release, you made the comment that the pipeline is swelling. I'm just kind of curious, this time last year versus right now, would you say that the opportunity set looks even bigger for you, kind of implying the potential for a larger '26 than '25? And then on top of that, I'd love to know how much of this pipeline is sort of being populated by the off-market deals that you were able to source from those loans that you've made previously and maybe what you think that runway is for you?
John, from your lips, you know what I mean, we certainly believe that the opportunity set today versus 12 months ago has expanded, right? 12 months ago, we had one sandbox to play in, and now we've got really three. And so we do see a big potential for another significant year of growth next year. We only have really visibility into our pipeline, though. So it's hard to predict exactly how it will all shake out. But we, I would say, are more bullish than ever based on the fact that the team is bigger and stronger. We've got more engines of growth to fuel and there's plenty of activity in the funnel of deal flow above our stated pipe.
Got it. And then maybe on the SHOP deals, just a little bit on underwriting. Could you remind us where these assets will land on the risk curve? What IRRs are you targeting? And then what are your expectations for stabilized occupancy and margins on these assets?
Yes, we are generally aiming for low double-digit internal rates of return on these investments, and there are various paths to achieve that. Regarding occupancy, it will vary by case, but we hope to reach stabilization in the low 90%. Over the next decade, the demographics should help drive that number higher.
Rich, we don't hear you. Can you hear me now? Okay, great. Sorry, I will get this right eventually. Congratulations, Dave, on the CFO promotion. I want to acknowledge the move to SHOP, which has been anticipated. When reflecting on what you have achieved over the past few years, it's certainly impressive regarding external growth. However, in year two, you're still facing a similar organic growth profile, with a low single-digit growth rate in the current portfolio. What drives the decision for SHOP? Is it aimed at enhancing your external growth, or is it an acknowledgment that you want to provide a stronger organic growth story to investors moving forward? What is your motivation behind this?
That's a great question. Both points are strong reasons for us to implement the SHOP engine. As I mentioned in my prepared remarks, if we’re only focusing on short-term results, it’s simply not worth the effort. The U.K. opportunity didn't make sense for us because we have significant potential in the U.S. skilled nursing sector in the near term, but we are also considering the long-term. When I think about the next 10, 15, or 20 years for CareTrust, maintaining a robust growth rate in our core area is essential, and adding SHOP is a logical step that justifies the investment.
Okay. Fair enough. In terms of SHOP, you kind of talked about this in a sort of a tertiary way, but do you see you're sort of targeting more stabilized assets out of the gate? Are you comfortable going all-in value add? Or what's sort of the mentality around your SHOP execution kind of out of the gate?
Yes. I would say we plan to approach it with a similar mindset as we do with skilled nursing, reflecting the priority of the operator and leveraging their expertise. Not all operators in skilled nursing or senior housing are suited for turnarounds, and not every operator fits every region. Our role is to connect the right operator with the right opportunity, which gives us a broad playing field. We can handle stabilization as well as turnaround projects. However, I believe that a challenging turnaround in a difficult market requiring significant capital expenditures is likely not going to be our priority.
There are no further questions at this time. I will now turn the call back to Dave Sedgwick for closing remarks. Dave?
All right. Well, thank you. Thank you, everybody, for your interest and questions. We're super bullish on going into 26 in the next several years as you can tell. If you have any other questions, you know where to reach us. Have a great rest of the day.
Thank you. This concludes today's call. Thank you for attending. You may now disconnect.