Image source: The Motley Fool.
DATE
Thursday, August 7, 2025 at 1 p.m. ET
CALL PARTICIPANTS
President and Chief Executive Officer — Dave Sedgwick
Chief Financial Officer — Bill Wagner
Chief Investment Officer — James Callister
Senior Vice President, Strategy and Investor Relations — Derek Bunker
Need a quote from a Motley Fool analyst? Email [email protected]
TAKEAWAYS
Investments Closed-- Approximately $1.1 billion deployed during Q2 2025, including the acquisition of Care REIT and entry into the UK care home market.
Total Revenues-- Total revenues increased 63.3% in the second quarter over the prior year quarter, reflecting accretive acquisitions and portfolio expansion.
Normalized FFO and FAD per Share--
Quarterly Dividend-- Increased 15.5% year-over-year, with management stating the payout ratio remains "comfortable"
Post-Acquisition Investments-- Nearly $220 million of investments closed following the Care REIT acquisition; pipeline of approximately $600 million for deals expected to close within the next twelve months.
Per Share Metrics-- Normalized FFO was $0.43 per share, and normalized FAD was $0.43 per share.
ATM and Term Loan Activity-- Raised approximately $355 million from equity sales and closed a $500 million term loan.
Debt Structure-- Entered an interest rate swap fixing term loan at 4.6% for three years; fixed-rate debt now comprises 93% of total debt.
Leverage and Liquidity-- Net debt to annualized normalized EBITDA of 2x; $65 million cash on hand and $1.14 billion revolver availability at quarter end.
Guidance Raised-- Full-year guidance range set at $1.77 to $1.79 for both normalized FFO and normalized FAD per share, using a diluted weighted average of 195.3 million shares for guidance and no additional investments or capital raises assumed for the remainder of the year.
Synergy Realization Targets-- Management expects about 50% of $10 million targeted run-rate synergies to materialize primarily in Q1 of next year.
UK Expansion-- with ongoing efforts to grow the UK care home pipeline
SHOP Opportunity-- Active pursuit of senior housing operating platform (SHOP) deals, with management anticipating completion of at least one deal within the next twelve months.
SUMMARY
Management highlighted record-setting acquisition activity, with significant capital deployed across the US and UK, contributing to strong revenue growth (total revenues up 63.3% year-over-year in the second quarter) and per-share earnings growth (normalized FFO per share up 19.4% and normalized FAD per share up 16.2% year-over-year, all non-GAAP). The company raised its annual guidance for normalized FFO and normalized FAD per share to $1.77 to $1.79, assuming no further capital activity in the current year. Debt structure improvements included a new interest rate swap and increased fixed-rate debt composition to 93%, supporting ongoing investment capacity.
The investment pipeline of approximately $600 million contains a mix of skilled nursing, seniors housing, and UK care home opportunities expected to close within the next twelve months.
Bill Wagner stated that future bond issuance timing depends on achieving investment grade ratings from additional agencies, as well as funding needs and current equity pricing.
Management indicated a strategic focus on developing new operator relationships and selectively entering the SHOP segment, emphasizing operator quality over deal size.
Synergy realization from the Care REIT integration remains on track, with management indicating that approximately 50% of the previously signaled $10 million run rate in synergies is expected to be realized primarily in Q1 2026, with expectations that the majority of targeted cost savings will occur in Q1 2026.
INDUSTRY GLOSSARY
FFO (Funds From Operations): A non-GAAP financial metric commonly used for REITs, calculated as net income adjusted for depreciation and amortization, to assess operating performance.
FAD (Funds Available for Distribution): Represents FFO after deducting recurring capital expenditures, reflecting cash available to pay dividends.
SHOP (Senior Housing Operating Portfolio): Properties where the REIT participates in property-level operating income and expenses, rather than simply collecting rent under a triple-net lease.
Triple Net Lease: A lease agreement in which the tenant is responsible for property taxes, insurance, and maintenance, in addition to rent payments.
RIDEA: A structure under the REIT Investment Diversification and Empowerment Act allowing REITs to participate in profits and losses from operating senior living facilities.
ATM (At-the-Market) Offering: A method for companies to sell shares directly into the market over time at prevailing prices, rather than issuing shares in a single offering.
Full Conference Call Transcript
On the call this morning are Dave Sedgwick, president and chief executive officer, Bill Wagner, chief financial officer, James Callister, chief investment officer, and Derek Bunker, SVP strategy and investor relations. I'll now turn the call over to Dave Sedgwick, CareTrust REIT's president and CEO. Dave?
Dave Sedgwick: Well, good morning, everybody, and thank you for joining us. Before I share the highlights for the quarter and the many good things yet to come, I think it's important to take a minute to step back and put our growth over the past two years in context. In the second quarter and since, we closed on approximately $1.1 billion of investments. Highlighted, of course, by our acquisition of Care REIT and entry into the UK care home market closed in May. Over the past eighteen months, we have deployed roughly $2.7 billion of investments, eclipsing the total amount we invested in the prior eight years since our inception.
During our Q4 call, when we celebrated a record $1.5 billion of investments in 2024, which is seven times the amount of our annual average, I mentioned how we would not rest on that record but would instead continue full steam ahead. Well, we quickly followed through and closed our first M&A deal in the Care REIT acquisition in May, diversifying our operator bench, our asset type mix, our payer mix, our geographic concentration, and providing a compelling exposure to a key market in which we expect to grow simultaneously with our US opportunity set. Again, the team did not stop there.
Since closing on Care REIT, we closed on another nearly $220 million of investments and yesterday announced a reloaded pipeline of approximately $600 million that James will talk about in his update. Now the results of this record pace of investments is total revenues are up 63.3% in the second quarter over the prior year quarter. Normalized FFO per share is up about 19%, and normalized FAD per share is up about 16%, each over the same period. We've also increased our quarterly dividend by 15.5% year over year while maintaining a comfortable payout ratio. Turning to an update on the quarter, the integration of the Care REIT assets is off to a strong start.
James has promised not to use the word plucky again in this, and I promise I won't use a British accent. But I will say we are pleased with the operator relationships that we stepped into and have already game-planned with many of them how to grow together in the near future. We continue to introduce ourselves to the market and expect more care home opportunities to find their way into our pipeline over time. At the end of June, we acquired Care REIT's former external manager and began the integration of those employees into CareTrust.
They're a talented group that brings to the table experience with these assets in market and deep relationships with operators and other key industry participants. And we believe that CareTrust UK team will help us source, identify, underwrite, and close on growth opportunities there. While it's fun to celebrate all of our recent investments and it's important to highlight what makes us so excited about the near and long-term future prospects, I'll reiterate what I conveyed on the last few earnings calls. We are not done. We very much feel like we're still in startup mode and hungry to prove ourselves and produce sustainable FFO per share growth over many years to come.
In order to keep the flywheel ripping, along with investing in real assets, we've been investing in the people and systems to support their integration and our future growth. In addition to building out our UK presence, we've added key professionals here in the US across tax, finance, investments, and asset management that position us to grow in more markets and more diversified ways. Our expanded team is stronger, smarter, and hungrier than ever before. And this behind-the-scenes investment in the team, like our investments in real assets, will continue to pay off over time. With that, I'll hand it off to James for a report on investment activity and the acquisition landscape.
James Callister: Thanks, Dave. Good morning, everyone. During the second quarter, in addition to closing the Care REIT acquisition in May, we completed the acquisition of its external manager and began the process of welcoming those employees to CareTrust. As Dave mentioned, leveraging this platform allows us to focus simultaneously on our growth in both the US and UK, across skilled nursing, seniors housing, and care home asset types. Also in the quarter, through a joint venture where we provided approximately 95% of the total required investment capital, we closed on a $146 million portfolio of 10 skilled nursing assets in the Pacific Northwest leased to two high-caliber existing operators. These are quality assets that we're very excited about.
And it's a testament to the hard work of our team up and down the organization to close on a transaction of this size immediately on the heels of the Care REIT deal. In the rest of the quarter and since, we deployed approximately $110 million in additional capital across skilled nursing real estate acquisitions, preferred equity investments, and a mortgage loan. These deals bring our total investments closed year to date of approximately $1.2 billion. As we look forward, our investment pipeline remains strong, sitting at approximately $600 million.
The quoted pipeline includes some singles and doubles, as well as some mid to large-sized portfolio transactions, and primarily consists of skilled nursing facilities, also includes a couple of seniors housing deals and a UK care home opportunity. 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 twelve months. We continue to see a robust pipeline of both broker-marketed deals and off-market opportunities sourced through our operator network and other relationships. The flow of prospects spans skilled nursing and seniors housing assets, both triple net and SHOP, with a measured yet meaningful uptick in overall volume.
At the same time, we're building our pipeline in the UK, actively evaluating potential acquisitions across the pond, and regularly meeting with established and new operators who value a capital partner like CareTrust in a capital-tight environment. The UK care home sector represents an additional avenue of accretive growth where our rigorous underwriting, operational expertise, strong balance sheet, advantaged cost of capital, and proven certainty of closing position us to win. Importantly, our pursuit of UK transactions will not slow our primary focus on sourcing and executing high-return real estate acquisitions in the United States. As evidenced by around $215 million in US investments closed post-Care REIT acquisition and by our reloaded pipeline.
And with that, I'll turn it over to Bill.
Bill Wagner: Thanks, James. For the quarter, normalized FFO increased 58.2% over the prior year quarter to $83.1 million. The normalized FAD increased by 53.9% to $83.1 million. On a per share basis, normalized FFO increased 7¢ or 19.4% to $0.43 per share and normalized FAD increased 6¢ or 16.2% to 43¢ per share. During the second quarter, we raised approximately $355 million cash from equity sales under our ATM and closed on a $500 million term loan. These proceeds allowed us to fund investments including a portion of the UK, to pay off our revolver balance as of June 30, and subsequent to quarter end, pay off approximately $260 million of debt we assumed as part of the Care REIT acquisition.
Also after quarter end, we entered into an interest rate swap to fix the rate on our new term loan for a period of three years with the go-forward all-in rate of 4.6%, bringing our fixed rate debt as a percentage of total debt to 93%. In yesterday's press release, we raised guidance for this year to $1.77 to $1.79 for both normalized FFO and normalized FAD per share. This guidance includes all investments closed today, a diluted weighted average share count of 195.3 million shares, and also relies on the following six assumptions. One, no additional investments nor any further debt or equity issuances this year. Two, CPI rent escalations have 2.5%.
Our total cash rental revenues for the year are projected to be approximately $338 million. Not included in this number is straight-line rent of $8 million and the amortization of lease intangibles of $2 million. Three, interest income from financing receivables of $12 million. Four, interest income of approximately $87 million which is made up of $80 million from our loan portfolio, and $7 million from cash invested in money market funds. Five, interest expense of approximately $44 million, which includes roughly $5 million of amortization of deferred financing fees. And six, G&A expense of approximately $48 million to $52 million and includes about $12 million of stock compensation. Lastly, our liquidity continues to remain strong.
In addition to $65 million of cash on hand, we have $1.14 billion available under our revolver. And despite our record pace of investments, we continue to maintain low leverage with a net debt to annualized normalized EBITDA of two times. Our net debt to enterprise value was 12.3% as of quarter end, and we achieved a fixed charge coverage ratio of 8.2 times. And with that, I'll turn it back to Dave.
Dave Sedgwick: Thank you, Bill. Super excited about the performance and super grateful and proud of the team for what we've been able to accomplish over the last couple of years and last quarter. Happy to take your questions.
Operator: Thank you. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. Your first question comes from the line of John Kilicholsky from Wells Fargo. Please go ahead.
John Kilicholsky: Good afternoon. Thank you, team. Maybe if we could just start on the pipeline, would you mind kind of talking about the composition of that? I'm curious how much of a contribution the UK is already starting to see and if you're seeing that ramping. And then maybe part two of that would be what percentage of that is SHOP, if any? And, Dave, you get bonus points for using a British accent.
Dave Sedgwick: No. I'm gonna defer it to James to answer this one. We'll see if he uses the accent or not. We'll find out on that.
James Callister: I gotta be true to myself, so it's gonna be me. You know? The pipeline, John, the majority of it is still US skilled nursing. The remainder of it is a combination of US seniors and UK. There's definitely a UK transaction in there, and that ramp continues to grow as we engage in and develop relationships with the broker and operator community. And I think that, you know, there is a component of the seniors housing in the US that does consist of SHOP. You know, we have twelve months to realize on that, but we are continuing to actively look at SHOP and try to source the right deals when we find them.
John Kilicholsky: Got it. That's helpful. And then of the SHOP deals that you're looking at, could you kind of talk about maybe strategically the ones that you're interested in, whether it's core, core plus, or value add, and the kind of what markets are you looking at? I'm just kind of curious how you're positioning yourself versus peers.
James Callister: Yeah. I mean, I think we're pretty open, John. I think we're really focused on the right operator manager relationships based on the deals that come in and looking at can we really find an operator or manager solution that we really like and get comfortable with. I think we're pretty open on the deals. I think we're gonna be more competitive in some than others. So, you know, I think we're really looking at everything. Focusing on the right operator managed solution for that deal. And focusing on the ones that, you know, maybe others, you know, will be more competitive than we would.
But focusing on the ones we feel like are in our lane and that we can source the right operator for.
John Kilicholsky: Alright. Very helpful. Thank you.
Dave Sedgwick: Thanks, John.
Operator: Your next question is coming from the line of Farrell Granath of Bank of America.
Farrell Granath: Hello. Good afternoon. This is Farrell Granath. I also just wanted to dig in a little bit deeper of what you're seeing in your pipeline. You know, as some of the overhang when it came to SNFs is kind of lifted slightly with the passing of the reconciliation bill. Was wondering if you've seen anything else come into the market more or if you've seen greater competition for assets. Of both SNF, Senior Housing or even SHOP as you're coming to the table?
James Callister: You know, I don't think we've seen a meaningful uptick or impact from the big, beautiful bill on deal flow at all. I think that you still see regional owner operators and mom and pop starting to bring, you know, assets to the market. As their recovery is kind of, you know, made most of their way through their recovery following, you know, COVID and as that has stabilized, a lot of them bringing more stuff to bear and to the market. But I haven't seen really any impact from the big, beautiful bill. I think that deal flow is consistent. It's probably getting a little uptick recently.
I think that it's pretty much the same buyers at the table in the skilled nursing market as it's been for a while. I would say on seniors, maybe a few more entrants. On the private equity side, private money side, but still primarily the publics and the known private equity groups have been there for a while now.
Farrell Granath: Great. Thank you. And my second question is about the potential synergies as you were just mentioning about the integration of the CRT team. Of what we could maybe see, especially given your G&A ticked up slightly and with the expectation of that going forward of what that could turn into even in out years.
Dave Sedgwick: Yeah. Farrell, this is Derek. I think first of all, it's going really well. We're excited about those teams, and we felt like with the record pace of investments in real assets over the past eighteen months, it was important to make sure we build a team around it to take care of it. And to position ourselves for that diversified growth across markets and kind of future opportunities. So I think you'll see that continue to bear out through the rest of the year. But we feel like we've made a lot of headway.
We've at the end of June, we brought in those UK teams already and we made quite a bit of investment in the US team as well. So may not be done, but we've made a lot of headway. We're really excited about the progress so far and feel like we've positioned ourselves well too. Support that growth.
Farrell Granath: Okay. Thank you so much.
Dave Sedgwick: Thanks, Farrell.
Operator: The next question is coming from the line of Michael Carroll from RBC Capital Markets. Please go ahead.
Michael Carroll: Yep. Thanks. I guess, James, I wanna quickly touch on the pipeline where you said that there were a few seniors housing deals. I mean, are those deals SHOP deals, or are they just traditional triple net lease type transactions?
James Callister: Some of both in there.
Michael Carroll: And then I know like, how can you talk about to, like, the RIDEA platform that you've been kinda looking to get into? I mean, are we how's that market looking? Are we any closer to some type of transaction on that side or anything interesting out there to you?
Dave Sedgwick: I would say that with respect to RIDEA, what we've been saying for, I guess, about the last eighteen months is still very true, which is like James said, we're looking at a range of opportunities. A range of entry points from large deals that would come with the team and platform all the way down to onesie twosies. That would be a more modest entry and we're gonna be opportunistic. We don't feel any, you know, pressure to be fast about it. We wanna get it right. And I think James' answer to the previous question was right on where it's less about the size of the deal for SHOP, and it's all about the operator.
When you look at our lease coverage, it's so high relatively speaking. And that's based on matching great opportunities with great operators. And if we can stay true to that, with respect to SHOP as well, then all of our energy can really be focused on growth. And so I'll say we continue to look at the field, and we'll be opportunistic. I'd be really surprised if we didn't get something done with respect to SHOP within the next, you know, twelve months.
Michael Carroll: Alright. Thanks, Dave. That's helpful then. I guess last for me is, has the competitive landscape made it more difficult, I guess, specifically on the seniors housing side? I know cap rates for SNFs rarely change. I'm assuming that's still kinda holding true. But are you seeing any type compression on the seniors housing side that might make it more difficult?
James Callister: I wouldn't say to make it more difficult. You just have a much bigger range in the seniors housing world of cap rates, Mike. Depending on location, the quality type, the newness of the asset, a whole host of other things. So you see just a different wider range of cap rates than you see on the skilled side. I think anything that makes it particularly difficult. I mean, as you get into lower cap rates, may not be as competitive as others. But I don't think there's anything makes it particularly difficult.
There are more prospective buyers, but I think with the right opportunity, when we've got the right operator, you know, we can be pretty gritty and still compete.
Michael Carroll: Okay. Great. Thank you.
Dave Sedgwick: Thanks, Mike.
Operator: Your next question is coming from the line of Alec Feygin from Baird. Please go ahead.
Alec Feygin: Hi, and thanks for taking my question. You know, first, on the new investment grade rating, just can you speak on what you would do for the next issuance, whether private placement or another term loan? And, when that would be?
Bill Wagner: Yeah. Alec, it's Bill. The next issuance, if we did a bond offering, we probably wait until we get investment grade from all the different agencies. And it all depends on the size would all depend on, the investment pipeline and what we're closing on at the time. But with equity priced so nicely right now, that's a real good way to fund our investments.
Alec Feygin: Yeah. It makes sense. And, you know, second for me is, you know, thinking of opportunities with new operators. Are you, you know, looking at new operators and would you look to finance deals with them? Or buy assets right away to start relationships and just any commentary on new operators?
Dave Sedgwick: Yeah. Alec, I think we spent quite a bit of time developing a bench of new operators. And that's been the case from day one. It continues to be the case. I think as we continue to execute on this pipe, you will see a you'll continue to see a combination of growing with existing operators and bringing on some new ones.
Alec Feygin: Alright. That's it for me. Thank you.
Dave Sedgwick: Thanks a lot, Alec.
Operator: Your next question is coming from the line of Omotayo Okusanya of Deutsche Bank. Please go ahead.
Omotayo Okusanya: We don't hear a question.
Dave Sedgwick: Dave? Yep.
Omotayo Okusanya: Yeah. Hey. Sorry about that. So most of my questions have been answered, but just curious your thoughts on the overall I know you talked a little bit about the big beautiful bill already, but like, the overall regulatory backdrop, I think again, things look like they've gone pretty well from a Medicare and Medicaid perspective this year. But if you're kind of talking about next year where you potentially have, you know, increased budget deficits because of the one beautiful bill. Or because of the one big beautiful bill does that put additional pressure potentially on what reimbursement could look like next year?
Do we start to kind of have the word sequestration thrown around a little bit next year?
Dave Sedgwick: Oh, I suppose it remains to be seen. I think what we're really encouraged by, though, is when there is so much talk and hand-wringing over the risks associated to Medicaid in particular, I think what we saw was, in fact, that Medicaid, particularly for skilled nursing, for senior care, has broad bipartisan support. Both at the federal and state level. And if there are some pressures more locally, I think that reality will continue to defend the Medicaid rate for senior care above and prioritize it above maybe other Medicaid participants that maybe are younger, able-bodied, that sort of thing.
Omotayo Okusanya: Gotcha. Okay. Thank you.
Dave Sedgwick: Alright, Kyle. Thanks.
Operator: Your next question is coming from the line of Austin Wurschmidt from KeyBanc Capital Markets. Please go ahead.
Austin Wurschmidt: Thanks. Hello, everybody.
Dave Sedgwick: Hey, Austin.
Austin Wurschmidt: Just honing in again a little bit on sort of the relationship side. Are the SHOP operators you're speaking to mostly relationships you've had a track record with? And would that sort of be the initial foray or your preference, I guess? Or, you know, similarly, are you casting a much wider net, you know, as you are, you know, across the skilled side?
Dave Sedgwick: I would say that we're casting a wider net with respect to SHOP. And these are in some respects, new relationships to CareTrust, but in some respects, long-standing relationships with individuals at CareTrust. So I think that we're gonna we're spending a lot of time on that front making sure that we've fully vetted these operators because, you know, the economics are different when it's a SHOP environment. And we want to make sure we get that right.
Austin Wurschmidt: Have you spoken to any of your existing relationships within the portfolio about potential conversion opportunities? From the triple net structure to the RIDEA structure?
Dave Sedgwick: No. That's not our focus. Our focus is really growing that space de novo.
Austin Wurschmidt: Understood. That's helpful. And then just one more for me. I just would love to hear an update. You know, you touched a little bit on the integration, but would like to hear a little bit on some of the synergy side potentially. You know, if you could provide a figure, you know, how far along are you in sort of realizing some of those synergies and just any potential upside to maybe your initial thoughts now that you've had some time to, you know, digest the portfolio and integrate some of the team? Thanks.
Dave Sedgwick: Hey, Austin. It's Derek. Yeah. So far, so good. Really excited about the team. I think as we have continued to dig in and go through the process, our confidence in our forecast and what we thought we could accomplish together, has only increased. I think last time we had signaled that they were on a run rate about $10 million, and our synergies are about 50% of that. That would probably kick in mostly in Q1 next year. And I think we're still on track with all that, and it's looking solid.
Austin Wurschmidt: Thanks, everybody.
Dave Sedgwick: Thanks, Austin.
Operator: I will now turn the call back over to Dave Sedgwick, CEO, for closing remarks. Please go ahead.
Dave Sedgwick: Okay. Thank you. Well, I really appreciate everybody's time and interest, and wish you a nice end of the week. Thank you.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.