What happened
Shares of CareTrust REIT (CTRE 1.63%) jumped 14.3% in May, according to data provided by S&P Global Market Intelligence. The healthcare-focused real estate investment trust (REIT) benefited from reporting solid first-quarter results last month.
So what
CareTrust REIT posted decent first-quarter results in early May. The healthcare REIT collected 95% of the rent it billed during the quarter. It also reported collecting 93% of its April rent without applying any security deposits to cover rent.
However, that's down from the 100% rent-collection rate over the past two years, which was helped partly by government-relief funds. Overall, the company noted that most of its tenants are navigating the continued challenges of the pandemic, enabling them to keep paying rent.
Image source: Getty Images.
The REIT also noted that occupancy remained stable in its skilled nursing portfolio during the quarter. Meanwhile, it reported a slight improvement in senior-housing occupancy. That's noteworthy, considering that senior-housing occupancy was flat for most of last year.
Overall, CareTrust REIT grew its normalized funds available for distribution (FAD) by 4.8%, compared to the prior year. That enabled the REIT to maintain a solid dividend payout ratio of 71%, even after increasing its payment by 3.8% earlier this year.
The healthcare REIT also added a couple of new properties to the portfolio. It purchased a skilled nursing facility in Texas for $8.9 million and a skilled nursing campus in Illinois for $13.1 million. The company reported an improvement in its deal flow during the quarter, suggesting more acquisitions are coming. Meanwhile, the REIT is also making progress on its disposition plan to sell up to 32 assets and derisk the portfolio, which will help fund new deals, including its planned expansion into behavioral health.
While CareTrust REIT is optimistic about the future, analysts remain cautious. In early June, Capital One analyst Daniel Bernstein reinstated coverage on the REIT with an equal weight rating and a $21.50 price target. The analyst sees the potential for execution risk as the company derisks the portfolio and has a negative view of the skilled nursing sector in the near term, given the continued pandemic-related headwinds.
Now what
CareTrust continues to face some lingering impacts from the pandemic. However, it's taking steps to address that with its plan to derisk its portfolio.
Meanwhile, it offers investors a rather generous dividend that yields around 6% that it can comfortably cover with cash flow. That makes it a potentially attractive option for investors seeking income and exposure to the long-term recovery in senior housing and skilled nursing.
