Q1 2025 CareTrust REIT Inc Earnings Call
Speaker Change: [music].
Yeah.
Unknown Executive: Thank you for standing by.
Kate: Thank you for standing by my name is Kate and I will be your conference operator today.
Kate: My name is Kate, and I will be your conference operator today.
Kate: At this time, I would like to welcome everyone to the CareTrust's first quarter earnings call. All lines have been placed on mute to prevent any background noise.
Kate: At this time I would like to welcome everyone to the care Trust REIT first quarter earnings calls.
Kate: All lines have been placed on mute to prevent any background noise.
Kate: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone key. If you would like to withdraw your question, press star 1 again. Thank you.
Kate: After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star One again, thank you I.
Lauren Beale: I would now like to turn the call over to Lauren Beale, Chief Accounting Officer. Please go ahead.
Speaker Change: I would now like to turn the call over to Lauren Beale Chief Accounting Officer. Please go ahead.
Lauren Beale: you and welcome to CareTrust REITs first quarter 2025 earning 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.
Lauren Beale: Thank you and welcome to care Trust REIT first quarter 2025 earnings call.
Lauren Beale: 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 strategy and growth prospects.
Lauren Beale: Forward looking statements are subject to risks and uncertainties that could cause actual results to materially differ from our expectations.
Lauren Beale: These risks are discussed in care Trust REIT. Most recent Form 10-K, 10-Q filings with the SEC.
Lauren Beale: We do not undertake the 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, or FAD. A reconciliation of these measures to the most comparable GAAP financial measures is available in our earnings press release and Q1 2025 non-GAAP reconciliation that are available on the investor relations section of CareTrust's website at www.caretrustreit.com.
Lauren Beale: We do not undertake a duty to update or revise these statements except as required by law.
Lauren Beale: During the call the company will reference non-GAAP metrics, such as EBITDA at that though and I think ive watched that a reconciliation of these measures to the most comparable GAAP financial measures is available in our earnings press release in Q1 2025, non-GAAP reconciliation that are available on the Investor Relations section characterize website at Www dot.
Lauren Beale: Care Trust REIT dotcom.
Lauren Beale: A replay of this call will also be available on the website for a limited period.
Lauren Beale: A replay of this call will also be available on the website for a limited period.
Lauren Beale: On the call this morning are Dave Sedgwick, President and Chief Executive Officer, Bill Wagner, Chief Financial Officer, and James Callister, Chief Investment Officer.
Dave Sedgwick: On the call. This morning are Dave Sedgwick, President and Chief Executive Officer, Bill Wagner, Chief Financial Officer.
Hollister: Hollister Chief investment Officer.
Dave Sedgwick: I'll now turn the call over to Dave Sedgwick, CareTrust REIT's President and CEO. Dave? Thank you, Lauren. Good morning, everyone, and thank you for joining us.
Hollister: Now I'll turn the call over to Dave Sedgwick characterize three president and CEO Dave.
Hollister: Thank you Laura and good morning, everyone and thank you for joining US let me begin with our pending strategic acquisition of the London Stock Exchange listed company care REIT.
Dave Sedgwick: Let me begin with our pending strategic acquisition of the London Stock Exchange listed company CareReap. On March 11th, we announced that our offer was unanimously accepted and recommended by Care Reads Board. The voting deadline was last Friday, April 25th, and I'm thrilled to announce that their shareholders have approved the deal.
Hollister: On March 11th we announced that our offer was unanimously accepted and recommended by <unk> Board.
Hollister: The voting deadline was last Friday April 25th and I'm thrilled to announce that their shareholders have approved the deal.
Dave Sedgwick: We expect to officially close on the acquisition next Friday, May 9th. Based on Wednesday's sterling dollar exchange rate and excluding transaction costs, At 108 pence per share, the deal has a purchase price of approximately $856 million. And the portfolio, as of the end of last year, has contractual rent of approximately $68.6 million.
Hollister: We expect to officially closed on the acquisition next Friday may nine.
Hollister: Based on Wednesday's Sterling dollar exchange rate and excluding transaction costs at.
Hollister: At 108 pence per share the deal has a purchase price of approximately $856 million.
Hollister: And the portfolio as of the end of last year has contractual rent of approximately $68 6 million.
Dave Sedgwick: The acquisition of CareEat marks our first M&A activity, our entry into the UK, and the largest deal in our history. So some context, last year was truly an extraordinary year for CareTrust. At the beginning of 2024, we thought that we had a chance to possibly double the highest single year record of investments in our history. But about midway through the year, we started to see a path to more than quadruple that record. So you saw a rapid cadence of deploying capital, issuing equity, and reloading the pipeline on repeat throughout the year. The flywheel and the entire team ran hot and fast.
Hollister: The acquisition of Terry marks our first M&A activity.
Hollister: Our entry into the U K and the largest deal in our history.
Hollister: So some context last year was truly an extraordinary year for care Trust.
Hollister: At the beginning of 2024, we thought that we had a chance to possibly double the highest single year record of investments in our history.
Hollister: But about midway through the year, we started to see a path to more than quadruple that record.
Hollister: So you saw a rapid cadence of deploying capital issuing equity and reloading the pipeline on repeat throughout the year.
Hollister: The flywheel and the entire team ran hot and fast so much so that we've really wrestled with the following question.
Dave Sedgwick: So much so that we really wrestled with the following question. If it ain't broke why fix it? Why look at shop? Why look at the UK? These are all really fair questions that we took seriously.
Hollister: If it Ain't broke quite fixed.
Hollister: When I look at shop, when I look at the U K.
Speaker Change: These are all really fair questions that we take seriously.
Dave Sedgwick: So why the UK's strategic acquisition of CareREIT and why now? Let me tell you why. First, this deal diversifies our business in terms of operator concentration, geography, payer sources and asset class. bringing our U.S. skilled nursing concentration down to approximately 49% by property count and 63% by rental income. Second, in addition to adding CareBeats 134 properties across 15 operators, generating $68.6 million of new annual rent that is covered by more than two times on an EBITDARM basis, the deal also adds to us an experienced UK-based investment, asset management, and accounting team who are hungry to grow again.
Speaker Change: So why are the UK strategic acquisition of carry and why now let.
Speaker Change: Let me tell you why.
Speaker Change: First this deal Diversifies, our business in terms of operator concentration geography payer sources and asset classes.
Speaker Change: Bringing our U S skilled nursing concentration down to approximately 49% by property count and 63% by rental income.
Speaker Change: Second in addition to adding <unk> 134 properties across 15 operators generating $68 6 million of new annual rent that.
Speaker Change: That is covered by more than two times on an EBIT term basis.
Speaker Change: The deal also adds to us an experienced UK based investment asset management and accounting team, who are hungry to grow again.
Dave Sedgwick: Third, the purchase price represents a significant discount to replacement cost and will be accretive in year one.
Third the purchase price represents a significant discount to replacement cost and it will be accretive in year one.
Dave Sedgwick: Finally, and essentially, the deal adds a new growth engine for CareTrust for years to come. So when you look at that rationale, along with our cost of capital, our balance sheet, the strong demographics and supply-demand tailwinds behind our sectors here in the U.S. and in the U.K.
Speaker Change: Finally and essentially.
Speaker Change: The deal as a new growth engine for care trust for years to come.
Speaker Change: So when you look at that rationale along with our cost of capital our balance sheet, the strong demographics and supply demand tailwind behind our sectors here in the U S and in the UK.
Dave Sedgwick: And you combine all of that with the CareTrust team and culture that continues to get stronger every year, we began to reframe the question of if it ain't broke, we began to believe that because it ain't broke, we have a unique window of opportunity to do something special immediately after last year's exponential growth. We've invested throughout the organization to ensure that the flywheel in the United States does not slow down and that the U.K. will be additive to our current robust U.S. growth engine.
Speaker Change: When you combine all of that.
Speaker Change: With the care Trust team and culture that continues to get stronger every year, we began to reframe. The question of if it Ain't broke we began to believe that because it Ain't broke we have a unique window of opportunity to do something special immediately after last year's exponential growth.
Speaker Change: We've invested throughout the organization to ensure that the flywheel in the United States does not slow down and that the UK will be additive to our current robust U S gross growth engine.
James Callister: James will share with you now color on the deals closed in Q1 and the reloaded pipeline of U.S. deals, along with some insights into our outlook for U.K. growth.
Speaker Change: James will share with you know color on the deals closed in Q1, and the reloaded pipeline of U S deals along with some insights into our outlook for U K growth James.
James Callister: Thanks, Dave.
Speaker Change: Thanks, Dave Good morning, everyone. During the first quarter, we completed three new investments totaling over $47 million at a yield of approximately 10%. These investments included a skilled nursing facility a seniors housing facility on a mezzanine loan related to the acquisition of a skilled nursing portfolio.
James Callister: Good morning, everyone. During the first quarter, we completed three new investments totaling over $47 million at a yield of approximately 10%. These investments included a skilled nursing facility, a senior's housing facility, and a mezzanine loan related to the acquisition of a skilled nursing portfolio.
James Callister: On April 1st, we also closed on the acquisition of a skilled nursing and assisted living campus in Southern California. The acquisition was completed through a joint venture arrangement pursuant to which the company provided a combined common and preferred equity investment totaling approximately $34 million at an initial contractual yield of approximately 9.7%. The joint venture has leased the facility to affiliates of the Ensign Group pursuant to a new 15-year triple net lease that includes two five-year extension options and annual CPI-based escalators. This transaction brings our year-to-date investment total to approximately $82 million at a yield of approximately 10%.
Speaker Change: On April one we also closed on the acquisition of a skilled nursing and assisted living campus in Southern California. The acquisition was completed through a joint venture arrangement pursuant to which the company provided a combined common and preferred equity investment totaling approximately $34 million at an initial contractual yield of approximately nine 7%.
Speaker Change: The joint venture has leased the facility to affiliates to the Ensign group pursuant to a new 15 year Triple net lease that includes two five year extension options and annual CPI based escalators. This transaction brings our year to date investment total to approximately $82 million at a yield of approximately 10%.
James Callister: As we look forward, our investment pipeline remains strong. The reloaded pipe today sits at approximately $500 million and consists predominantly of real estate acquisitions. The quota pipeline includes some singles and doubles, as well as some mid-to-large-sized portfolio transactions. Our quoted pipeline does not include the recently announced U.K. acquisition of CareReap, nor does it include a couple of larger portfolio opportunities that we continue to review. The pipeline primarily consists of skilled nursing facilities, but also includes some senior housing opportunities. And please remember that when we quote our pipe, we only quote deals that we have a reasonable level of confidence that we can lock them up and close within the next 12 months.
Speaker Change: As we look forward our investment pipeline remains strong the reloaded pipe today sits at approximately $500 million and consists predominantly of real estate acquisitions.
Speaker Change: <unk> pipeline includes some singles and doubles as well as some mid to large sized portfolio transactions are quoted pipeline does not include the recently announced <unk> acquisition of cure rate nor does it include a couple of larger portfolio opportunities that we continue to review.
Speaker Change: The pipeline primarily consists of skilled nursing facilities, but also include some senior housing opportunities.
Speaker Change: And please remember that when we quote our pipe we only quote deals that we have a reasonable level of confidence that we can lock them up and close within the next 12 months.
James Callister: We also continue to look at a healthy flow of inbound marketed opportunities as well as off-market opportunities brought to us by existing operators and other relationships. Deals coming across our desk include a consistent flow of both skilled nursing and seniors housing opportunities, and we are seeing a moderate but notable increase in the number of marketed and off-market large portfolio deals on both fronts.
Speaker Change: We also continue to look at a healthy flow of inbound marketing opportunities as well as off market opportunities brought to us by existing operators and other relationships deals coming across our desk include a consistent flow of both skilled nursing and seniors housing opportunities and we are seeing a moderate but notable increase in the number of marketed and off market large.
Speaker Change: Folio deals on both fronts.
James Callister: Turning to our pending acquisition of CareRead, we are very excited about the immediate and long-term benefits of these assets and about utilizing the talented, seasoned team there, as well as our own experience and relationships to expand the UK portfolio this year and beyond. We are actively reviewing acquisition opportunities in the UK and continue to meet with existing and new operators eager for a capital partner like CareTrust to take advantage of a compelling operating environment. We feel that UK care home investment opportunities provide an additional pipeline of accretive acquisitions where we are uniquely positioned to win deals with our competitive advantages of deep underwriting and operating experience, pristine balance sheet, access to and cost of capital, and certainty of closing.
Speaker Change: Turning to our pending acquisition of Kerry we are very excited about the immediate and long term benefits of these assets and about utilizing the talented seasoned team there as well as our own experience and relationships to expand the UK portfolio. This year and beyond we are actively reviewing acquisition opportunities in the U K and continue to meet with.
Speaker Change: Listing and new operators eager for a capital partner like care Trust to take advantage of a compelling operating environment, we feel that UK care home investment opportunities provide an additional pipeline of accretive acquisitions, where we are uniquely positioned to win deals with our competitive advantages of deep underwriting and operating experience pristine.
Speaker Change: Balance sheet access to and cost of capital and certainty of closing and while we are keen to find and close on UK acquisitions and as evidenced by our reloaded investment pipe. We are careful to not let those efforts slow the pace of our primary focus of sourcing and executing on accretive real estate acquisition opportunity.
James Callister: And while we are keen to find and close on UK acquisitions, and as evidenced by our reloaded investment pipe, we are careful to not let those efforts slow the pace of our primary focus of sourcing and executing on accretive real estate acquisition opportunities here in the US.
Speaker Change: He's here in the U S with that I'll turn it over to Bill.
Bill Wagner: With that, I'll turn it over to Bill. Thanks, James. For the quarter, Normalized FFO increased 67.4% over the prior year quarter to $77.8 million, and Normalized FAD increased by 66% to $80.8 million. On a per share basis, Normalized FFO increased 7 cents or 20% to 42 cents per share. Normalized FAD increased 6 cents or 16.2% to 43 cents per share.
Bill: Thanks, James for the quarter normalized <unk> increased 67, 4% over the prior year quarter to $77 8 million.
Bill: Normalized fad increased by 66% to $80 8 million.
Bill: On a per share basis normalized <unk> increased seven or.
Bill: Or 20% to <unk> 42 per share normalized <unk> increased <unk>, <unk> or 16, 2% to 40 <unk> per share.
Bill Wagner: During the first quarter, and in conjunction with the UK transaction, we were required to put cash into escrow in order to evidence sufficient funds to cover our acquisition of CareReach shares in anticipation of shareholder approval of the transaction. The deposit of cash into escrow was made primarily through a draw on our revolvers. In addition to acquiring CareReach issued shares using the cash held in escrow, we intend to assume CareReach's existing debt, which was approximately $259 million as of year end. We expect to refinance that debt subsequent to the transaction closing with a portion of the proceeds from a $500 million five-year term loan from our bank group that we expect to close this month, subject to ordinary closing conditions.
Bill: During the first quarter and in conjunction with the UK transaction, we're required to put cash into escrow in order to evidence sufficient funds to cover our acquisition of <unk> shares in anticipation of shareholder approval of the transaction.
Bill: But the positive cash into escrow was made primarily through a draw on our revolver.
Bill: In addition to acquiring carry to issue shares using the cash held in escrow, we intend to assume care rates existing debt, which was approximately $259 million as of year end.
Bill: We expect to refinance that debt subsequent to the transaction closing with a portion of the proceeds from a 500 million dollar five year term loan from our bank group that we expect to close this much this month subject to ordinary closing conditions.
Bill Wagner: The excess cash from the term loan would also help fund our $500 million pipeline.
The excess cash from the term loan would also help fund our $500 million pipeline.
Bill Wagner: In yesterday's press release, we raised guidance for this year with normalized FFO per share of $1.69 to $1.73 and for normalized FAD per share of $1.73 to $1.77. This guidance includes all investments closed to date, a diluted weighted average share count of 190.6 million shares, and also relies on the following assumptions. One, no additional investments nor any further debt or equity issuances this year. to CPI rent escalations of two and a half percent. Total cash rental revenues for the year are projected to be approximately $284 million. not included in this number is the amortization of lease intangibles that will total about $3.5 million, but this will be in the rental revenue number as required by 3.
Bill: In Yesterdays press release, we raised guidance for this year with normalized <unk> per share of $1 69 to $1 73 and for normalized <unk> per share of $1 73 to $1 77.
Bill: This guidance includes all investments close to date, a diluted weighted average share count of 190, <unk> $19 6 million shares and also relies on the following assumptions.
Bill: One no additional investments nor any further debt or equity issuances this year.
Bill: To CPI rent escalations of two 5%.
Bill: Our total cash rental revenues for the year are projected to be approximately $284 million.
Bill: Not included in this number is the amortization of lease intangibles that will total about $3 5 million, but this will be in the rental revenue number as required by GAAP.
Bill Wagner: Interest income from financing receivables of $11.5 million. Included in this number is $9 million of cash and $2.5 million of non-cash revenue for GAAP purposes that is subtracted in the FAD reconciliation. for interest income of approximately $90 million. The $90 million is made up of $76 million from our loan portfolio and $14 million from cash invested in money market funds. The $6 million increase from last quarter in interest income is from the cash held in the escrow account for funds needed to close the UK transaction. by interest expense of approximately $24.3 million up from $21.3 million in last quarter's guidance due to the line draw for the escrow account related to the UK transaction.
Bill: Three interest income from financing receivables of $11 5 million included in this number is $9 million of cash and $2 5 million of non cash revenue for GAAP purposes that is subtracted and the reconciliation.
Bill: Four interest income of approximately $90 million.
Bill: $90 million is made up of $76 million from our loan portfolio and $14 million from cash invested in money market funds, the $6 million increase from last quarter and interest income is from the cash held in the escrow account for funds needed to close the U K.
Bill: Action.
Bill: Five interest expense of approximately $24 3 million up from $21 3 million in last quarter's guidance due to the line draw for the escrow account related to the UK transaction.
Bill Wagner: Interest expense also includes roughly $4 million of amortization of deferred financing. and six, G&A expense of approximately $33 to $37 million and includes about $11.7 million of deferred stock.
Bill: Interest expense also includes roughly $4 million of amortization of deferred financing fees.
Bill: And six G&A expense of approximately 33% to $37 million and includes about $11 7 million of deferred stock comp.
Bill Wagner: We plan on updating this guidance again once the UK transaction closes. Lastly, our liquidity continues to remain strong. Subsequent quarter end, we raised roughly $100 million via the ATM and used $50 million of that to pay down the revolver to $375 million. In addition to $45 million of cash on hand, we have $825 million available under our revolver and we are extremely thankful for our tremendous bank group in backing us on a $500 million term loan that we have commitments for and expect to close this Leverage continues at a historic lows with Net Depth to Normalized Depedal Ratio of 0.5 times.
Bill: We plan on updating this guidance again once the UK transaction closes.
Bill: Lastly, our liquidity continues to remain strong subsequent to quarter end, we raised roughly $100 million via the ATM and used $50 million of that to pay down the revolver to $375 million.
Bill: In addition to $45 million of cash on hand, we have $825 million available under our revolver and we are extremely thankful for our tremendous bank group and backing us on a $500 million term loan that we have commitments for and expect to close this month.
Bill: Leverage continues at historic lows with net debt to normalized EBITDA ratio of 0.5 times.
Bill Wagner: Our net debt to enterprise value was 2.9%. as of quarter end, and we achieved a fixed charge covered ratio of 15.2 times. After the UK transaction closes, we expect our net debt to annualize Normalized EDIT THAW ratio to be below 2.5 times, which is still well below our target range of 4 to 5.
Bill: Our net debt to enterprise value was two 9%.
Bill: As of quarter end, and we achieved a fixed charge covered ratio of $15 two times.
Bill: After the UK transaction closes, we expect our net debt to annualized.
Bill: Normalized EBITDA ratio to be below two five times, which is still well below our target range of four to five times.
Dave Sedgwick: And with that, I'll turn it back to David. Thank you both, we hope that our report has been helpful and. Thank you for your interest and support.
Dave Sedgwick: With that I'll turn it back to Dave.
Dave Sedgwick: Thank you boss, we hope that our report is that helpful.
Dave Sedgwick: Thank you for your interest and support we are happy to take any questions My house.
Kate: We're happy to take any questions you might have. At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster.
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.
Dave Sedgwick: We will pause for just a moment to compile the Q&A roster.
Carol Gannis: Your first question comes from the line of Carol Gannis with Bank of America. Your line is open.
Speaker Change: Your first question comes from the line of Caroline goodness.
Speaker Change: Bank of America. Your line is open.
Farrell Granite: Hi, good afternoon. This is Farrell Granite. Thank you for taking my question.
Farrell Granite: Hi, Good afternoon. This is farrell granite.
Speaker Change: Thanks for taking my question. My first one is can you. Please make some comments on possible expectations with the general macro specifically with policy and provider taxes and the impacts of that can flow through to your portfolio.
Farrell Granite: My first one is, can you please make some comments on possible expectations with the general macro, specifically with policy and provider taxes and the impacts of that could flow through to your portfolio? Hey, Farrell. Yeah, there's really no real change in our outlook from our last call on potential Medicaid cuts. I think along with everyone else, we're just monitoring the process. It's unfortunately too soon to... be definitive on this one way or the other. So, you know, there continues to be widespread bipartisan support for Medicaid and protecting the care for seniors in nursing homes, especially so.
Farrell Granite: Earl.
Farrell Granite: Yes, Theres really no real change in our outlook from our last call on potential Medicaid cuts.
Farrell Granite: I think along with everyone else, we're just monitoring the process.
Farrell Granite: It's unfortunately too soon to.
Farrell Granite: Be definitive on this one way or the other.
Farrell Granite: So there continues to be widespread bipartisan support for Medicaid and protecting the care for seniors in nursing homes, especially so.
Farrell Granite: We will. We will monitor the progress in that budget process along with everyone else.
We will.
Farrell Granite: We will monitor the progress and that budget process, along with everyone else.
Farrell Granite: Thank you and also I was curious if you could draw a framework of what are the conditions for you to enter into a debt investment rather than a portfolio or property acquisition? Yeah, our default is. of course, always to prioritize acquisition. What we've been, the way we've talked about debt investments over the last Really a couple of years is a means to an end. If we see that there's an opportunity through a loan, to build a relationship that's strategic in nature, because this this borrower or operator is a is a key relationship that we think can lead to real growth in the future, real acquisitions in the future.
Speaker Change: Thank you and also I was curious if you could draw a framework of what are the conditions for you to enter into.
Farrell Granite: That investment rather than portfolio or property acquisitions.
Farrell Granite: Yeah, our default is.
Farrell Granite: Of course always to prioritize acquisitions.
Farrell Granite: While we've been the way we've talked about debt investments over the last.
Farrell Granite: Really a couple of years as a means to an end.
Farrell Granite: If if we see that there is an opportunity through alone.
Farrell Granite: To build a relationship that strategic in nature.
Farrell Granite: This this borrower operator.
Farrell Granite:
Farrell Granite: As a as a key relationship that we think can lead to real growth in the future real acquisitions in the future.
Farrell Granite: Then, and really only then, would we entertain alone. So the loan book has increased quite a bit over the last couple of years. But the 1.5 billion of investments that we did last year, about half of those were tied. Those strategic relationships that we made through lending in in previous. period. And if you look at the 500 million of acquisitions that is largely acquisitions in our pipeline today. The vast majority of that are off-market deals that have come from.
Farrell Granite: Then and really only then would we entertain alone.
Farrell Granite: No.
Farrell Granite: The loan book has increased quite a bit over the last couple of years.
Farrell Granite: But the one 5 billion of investments that we did last year about half of those were tied.
Two.
Farrell Granite: Those strategic relationships that we've made through lending.
Farrell Granite: In previous <unk>.
Farrell Granite: <unk>.
Farrell Granite: And if you look at the 500 million of acquisitions that is largely acquisitions in our pipeline today.
Farrell Granite: The vast majority of that are off market deals that have come from.
Farrell Granite: those relationships that we've that we've created from those long Okay, thank you. You bet.
Farrell Granite: Those relationships that we've that we've created from those loans.
Speaker Change: Okay. Thank you.
Speaker Change: You bet.
Austin Wurschmidt: Your next question comes from the line of Austin Wurschmidt with KeyBank Capital Markets, Inc. Your line is open. All right, and I hope everybody's doing well out there.
Speaker Change: Your next question comes from the line of Austin, where Smith with Keybanc Capital Markets, Inc. Your line is open.
Speaker Change: Alright, and I hope everybody's doing well out there.
Austin Wurschmidt: My first question just on the CARE REIT transaction, just wanted to pinpoint, I mean, any changes to the annualized earnings or FAD accretion from the initial underwriting or initial disclosure just from either escalators that have kicked in, additional synergies, or just how you plan to finance the transaction? Yeah, we will. I know that's, that's the pressing question on everybody's mind. And we will provide answers to those questions. and a little bit over a week when we announced the deal. Until then, we're still fairly limited to what we can I understand. I thought that may be the case.
Speaker Change: Question just.
Speaker Change: <unk> care re transaction, just just wanted to pinpoint any changes to the annualized earnings RFID accretion from the initial underwriting.
Speaker Change: Our initial disclosure just from either escalators that have kicked in additional synergies or just how you plan to finance the transaction.
Speaker Change: Yes, we will.
Speaker Change: I know that's that's the <unk>.
Speaker Change: Pressing.
Speaker Change: <unk> on everybody's mind, and we will provide.
Speaker Change: Answers to those questions a little bit over a week, when we announced the deal.
Speaker Change: Until then we're still fairly limited to what we can say.
Speaker Change: Alright fair understand.
Speaker Change: That may be the case.
Austin Wurschmidt: Maybe James or Dave, could you just size up what a reasonable volume or investment pipeline we should think about for the UK market, you know, focused more on the normal core singles and doubles, and then also speak to the yields that you're seeing in that market, you know, overall. Yeah, I'll start and James can add some color if mine was too dull. The pipeline there is going to take some time to catch up, right, to mature to the point like we have it here in the States. So there are a number of call it singles and doubles that we're currently looking at.
Dave Sedgwick: <unk> or Dave could you just size up what a reasonable volume of our investment pipeline, we should think about for the UK market.
Dave Sedgwick: Focused more on the normal course singles and doubles and then also speak to the yields that youre seeing in that market.
Dave Sedgwick: Overall.
James: Yes, I'll start and James can add some color of mine was to Dol.
Dave Sedgwick:
Speaker Change: The pipeline there is going to take some time to catch up right to mature to the point like we have it here in the states. So there are a number of.
Dave Sedgwick: Call It singles and doubles.
Speaker Change: We're currently looking at.
Austin Wurschmidt: The range of cap rates, I think, is maybe going to be a little bit wider in the UK than you're used to seeing us here in the States, simply because, as you know, skilled nursing in the States, those cap rates stay fairly low. fixed and tight, regardless of the cycle that we're in. But in the UK, these care homes are more like a hybrid assisted living memory care with some nursing home capabilities into it. And so there's a wider range of quality and and therefore cap rates, too. So you might you might see something in the.
Speaker Change: The range of cap rates I think is maybe going to be a little bit wider in the UK than you're used to seeing us here in the states simply because as you know skilled nursing in the states with cap rates stay fairly.
Speaker Change: Fixed and tight regardless of the cycle that we're in.
Speaker Change: But in the U K these.
Speaker Change: The care homes or or more like a hybrid assisted living memory care with some nursing home capabilities into it and so there is a wider range of quality and.
Speaker Change: And therefore cap rates too so you might you might see something in the.
Austin Wurschmidt: you know, high sevens, eights, and nines, depending on the particulars of the deal. I don't think we have a goal, just like we don't here, we approach it the same, which is we want to find the right deals and not set a goal of the number we want, but when the right deal is there. You know, I'll try to get plucky and go get it. It's helpful.
Speaker Change: High Sevens eights and nines, depending on the.
Speaker Change: The particulars of the deal.
Speaker Change: That's helpful. And then just okay. I just think I'd add Austin that look we I don't think we have a goal just like we don't hear we approached it the same which is we want to find the right deals and not set a goal of the number we want but when the right deals there.
Speaker Change: I will try to get <unk>, you'll get it.
Speaker Change: Okay. That's helpful and then if I can squeeze in just one more.
Austin Wurschmidt: And if I can squeeze in just one more, pivoting a little bit here, but I know we're able to look at the coverage ratios that you provide in the supplemental and looking at kind of packed things, you know, trending very well, but just speaking more broadly across the real estate as well as the other loan investments. Curious for an update of how these properties are performing over the last six to nine months relative to what you initially underwrote, and just wondering how you're thinking or planning for any and all outcomes as you await for them to file their financials hopefully here sometime soon.
Speaker Change: Pivoting a little bit here, but I know, we're able to look at the coverage ratios.
Speaker Change: That you provide in the supplemental and looking at kind of packs things trending very well, but just speaking more broadly across the real estate as well as the other loan investments curious for an update of how these properties are performing over the last six to nine months relative to what you initially underwrote and just wondering how youre thinking.
Speaker Change: <unk>.
Speaker Change: Our planning for any and all outcomes as you wait for them to file their financials.
Speaker Change: Hopefully here sometime soon thanks.
Austin Wurschmidt: Thanks. Yeah, thanks, Austin. With respect to PACS, I think you were just asking specifically about them. We really don't have any comment or update besides just having the data and the coverage speak for itself at this point. Still waiting for their their, their release and Thank you for taking the question.
Speaker Change: Yes, Thanks, Austin with respect to tax I think you were just asking specifically about them.
Speaker Change: We really don't have any comment or update besides just having.
Speaker Change: The data and the coverage speak for itself at this point still waiting for there.
Speaker Change: There are their release and disclosures.
Speaker Change: I'm good thanks for taking my questions you bet.
Rich Anderson: Your next question comes from the line of Rich Anderson with Redbush Securities. Your line is open. Thanks and good morning. So you answered the question why UK, you asked yourself last year. Well, that's a great question. I think we, we certainly feel like there's plenty to do in the UK. I think the benefit that we have with this particular deal is. We're not having to figure things out on our own and start from here, but we have the. the team based in the UK that we can just kind of David Sedgwick, William Wagner, Austin Wurschmidt, William Kilichowski, James Callister, Unknown I think the same kind of process and rationale applies.
Rich Anderson: Your next question comes from the line of Rich Anderson with Wedbush Securities. Your line is open.
Rich Anderson: Good morning, So you answered the question why U K, you ask yourself last year.
Rich Anderson: It does.
Why not shop, now take a bit more front and center with you going forward or or do you do you feel like you're sticking to your triple net netting for the for the time being and let let to the UK process sort of get folded into the business and so on plenty to do there.
Rich Anderson: <unk>.
Rich Anderson: Well that's a great question I think we we certainly feel like there is.
Rich Anderson: To do in the U K I think the benefit that we have.
Rich Anderson: With this particular deal is.
Rich Anderson: We're not having to figure things out on our own and start from here, but we have the.
Rich Anderson: The team based in the UK that we can just kind of.
Facilitate enable and power to get back to the growth story.
Rich Anderson: <unk>.
Rich Anderson: With respect to shop.
Rich Anderson: Hum.
Rich Anderson: The same.
Rich Anderson: Kind of process and rationale applies.
Rich Anderson: We've been looking at shop like we've said for the last Now, a couple of years, and I think we're just looking for the right entry point there, like we've like we've been looking for the right entry point into the UK, and we'll be patient and wait for the right. The Right Deal.
Rich Anderson: We've been looking at shop like we've said for the last.
Rich Anderson: Now a couple of years and I think we're just looking for the right entry point there like we like we've been looking for the right entry point into the U K and we will be patient and wait for the right.
Rich Anderson: The right deal.
Rich Anderson: Okay, in terms of the pipeline, the 500 million, is that just US or does that include UK? Well, I'm sorry if I. Yeah, that's just us. Okay. And so when you think about returns, are they fairly on top of one another what you see in the US and what you're seeing in the UK, in terms of you know, cap rates and IRRs and all that? Well, in the U.S., I think James could correct me, but I believe that most of what's in that 500 million is skilled nursing. So you're going to see a higher yield than I think what we might be looking at in the UK, but it's still too early.
Rich Anderson: Okay.
Rich Anderson: In terms of the pipeline the $500 million is that just U S or does that include UK.
Rich Anderson: As well I'm, sorry, if I missed that.
Rich Anderson: U S. Okay, and so when you think about returns are they fairly on top of one another what you see in the U S and what Youre seeing in the U K in terms of cap rates and <unk> and all that.
Rich Anderson: Well in the U S.
Rich Anderson: I think.
Rich Anderson: James could correct me, but I believe that most of what's in that $500 million in skilled nursing, so youre going to see a higher yield than I think what we are.
Rich Anderson: It might be looking at in the U K, but it's still too early we might see some.
Rich Anderson: We might see some. Some deals in the UK in the nines. might also see some in the eights. So I think they're they're all going to be accretive and but and fairly close to each other but different assets. Each deal will As you know, I've got to underwrite individually.
Rich Anderson: Some deals in the U K in the nines.
Rich Anderson: I might also see some in the eights so.
Rich Anderson:
Rich Anderson: I think they're all going to be accretive in but.
Rich Anderson: And fairly close to each other but different assets.
Rich Anderson: It's still as.
Rich Anderson: As you know we've got to underwrite individually.
Rich Anderson: Great, last for me, you know, you guys were good enough to sort of dig into the whole CMS. Reimbursement for Fiscal Year 2026. I know the headline is 2.8. Can you talk about the moving parts there and what the real number is for the way you see it today for your portfolio and whether or not you're kind of happy with it? What they're assuming for next year or suggesting for next year, where do you stand on that? We talk a lot about Medicaid, but where are you on Medicare? Sure, thanks, Rich. Yeah, I think Medicare's, you know, I think the rate increase is fine.
Speaker Change: Great last for me.
Rich Anderson: We're good enough to sort of dig into the whole CMS.
Speaker Change: Reimbursement.
Speaker Change: For fiscal year 2026, I know the headline is two eight could you talk about the moving parts there and.
Speaker Change: What the real number is for.
Speaker Change: The way you see it today for your portfolio and whether or not youre.
Speaker Change: Happy with that.
Speaker Change: What what they're there.
Speaker Change: Assuming for next year or suggesting for next year, where do you stand on that we've talked a lot about Medicaid, but where are you on Medicare. Thanks.
Rich Anderson: Sure. Thanks, Rich Yeah, I think Medicare is.
Speaker Change: I think the rate increase was fine.
Rich Anderson: For us, there's the headline rate, but then the devil's in the details. Every facility is going to have its own unique increase based on different variables that go into that. So, you know, I think for us, as you look at across the board, it blends to about a 2.2% across our portfolio. Which, you know, of course, you'd like it to be more, but it's fine. None of our operators are concerned about that. It's kind of in line with historical increases. Fair enough. Thanks very much.
Speaker Change: There's the headline rate, but then.
Speaker Change: The Devil's in the details every facility is going to have its own <unk>.
Speaker Change: Nique increase based on different variables that go into that.
Speaker Change: So I think for US as you look at it.
Speaker Change: Across the board.
Speaker Change: <unk> to about a 2.2% across our portfolio.
Speaker Change: Which.
Speaker Change: Of course, you'd like it to be more of a that's fine none of our operators or are concerned about that.
Speaker Change: It's kind of in line with historical increases there.
Okay fair enough thanks very much.
Speaker Change: Okay.
Wes Golladay: Your next question comes from the line of Wes Golladay with Baird. Your line is open.
Speaker Change: Your next question comes from the line of Wes Golladay with Baird. Your line is open.
Wes Golladay: Hey guys, by doing a large deal in the UK, did that put you on the map? Are you seeing a lot of new relationships? And then we also start lending in the UK?
Speaker Change: Hey, guys by doing a large deal in the U K does that put you on the map, where you've seen a lot of new relationships and then we also start lending in the U K.
Wes Golladay: Yeah, Wes, I'd say we put out a press release a couple of weeks ago just when we announced that our offer was best and final. And what I said there is what I'll say right now, which is regardless of the outcome of the vote, we feel like we had already won because of the response from operators there and brokers. It was really overwhelming.
Speaker Change: Yes.
Speaker Change: I would say.
Speaker Change: We put out a press release a couple of weeks ago, just when we announced that our offer was best and final.
Speaker Change: And what I said, there is what I'll say right now which is.
Speaker Change: Regardless of the outcome of the vote, we feel like we had already won because of the response from operators there and brokers.
Speaker Change: It was really overwhelming we went out there a couple of weeks ago.
Wes Golladay: We went out there a couple of weeks ago and met with. Several operators and they are, they really are hungry to grow with us. So we think that there's going to be a great opportunity.
Speaker Change: Met with.
Speaker Change: Several operators and.
Speaker Change: They really are hungry to grow with us so.
Speaker Change: We think that theres going to be a great opportunity we are not looking too.
Wes Golladay: We are not looking to. a land into that market today are just looking to to your your traditional acquisitions and leases. Thank you.
Speaker Change: Lend into that market today are just looking to.
Speaker Change: Do you or your traditional acquisitions and leases.
Speaker Change: Thank you.
Speaker Change: Yes.
Michael Carroll: Your next question comes from the line of Michael Carroll with RBC Capital Markets. Your line is open. Yeah, thanks. I just want to clarify on, I guess, the near term opportunity in the UK. I know the pipeline doesn't have any UK deals. I believe, James, you kind of highlighted that it might take some time, or maybe Dave, I forget who it was, that it might take time to kind of build up that pipeline. But obviously, David, you just announced in that press release, you referenced that you're getting some reverse inquiry. So, I mean, how long does it take to start to build that pipeline over there?
Speaker Change: Your next question comes from the line of Michael Carroll with RBC capital markets. Your line is open.
Speaker Change: Yes. Thanks, I just wanted to clarify on I guess, the near term opportunity in the U K I know the pipeline doesn't have any UK deals I believe James you kind of highlighted that it might take some time or maybe Dave I forget who it was that it might take time to kind of build up that pipeline.
Speaker Change: But obviously, David you just announced and that that press release, you referenced that you are getting some reverse inquiry. So I mean, how long does it take to start to build that pipeline over there is Ken more deals happen in the back half of this year or does it take longer to build that out.
Michael Carroll: Can more deals happen in the back half of this year? Or does it take longer to build that out? I would hope that we could. My hope is that we can get something done this year, but. But like I said, it's going to take some time because we're. The team there, while they've been there a long time, they haven't really had access to capital. And so the existing pipeline that we're stepping into was fairly... But, you know, not to put too much pressure on James, you know. If he doesn't get something done this year, he might be.
Speaker Change: I would hope that we could.
Speaker Change: My hope is that we could get something done this year, but.
Speaker Change: But like I said, it's going to take some time because we were.
Speaker Change: The team there while.
Speaker Change: While they've been there a long time, they havent really had access to capital and so the existing pipeline.
We're stepping into his was fairly soon.
Speaker Change: And.
Speaker Change: But not to put too much pressure on James.
Speaker Change: He doesn't get something done this year it might be I'm just.
Michael Carroll: I'm just kidding.
Speaker Change: Kidding.
Speaker Change: Okay.
Michael Carroll: We'll try to get something done this year, but I think next year it'd be more likely that we start to see a more mature pipeline for him. Okay, great.
Speaker Change: We'll try to get something done this year, but I think next year it would be more likely that we start to see a more mature pipeline form.
Speaker Change: Okay, Great and then James can you talk a little bit about the U S sniff market.
Michael Carroll: And then James, can you talk a little bit about the US market? And has this market changed at all over the past six months or post the Pax deal? I mean, is there less capital looking for deals? Or is that capital more on the sidelines, just kind of waiting to see kind of what happens with the Medicaid outlook? I mean, has the competitive landscape changed at all? I don't think it has really at all, Mike. I think there's still the same groups, same amount of capital out there looking at deals. I think there's just about the same deal flow out there.
Speaker Change: Has this market changed at all over the past six months or post the <unk> deal I mean is there a less capital looking for deals or is that capital at more on the sidelines just kind of waiting to see kind of what happens with the Medicaid outlook I mean, it has a cost competitive landscape changed at all.
Speaker Change: I don't think you Havent really at all Mike I think there is still the same groups and amount of capital out there looking at deals I think there is just about the same deal flow out there I think you still if anything you know some of the noise has maybe some regionals are mom and pops.
Michael Carroll: I think you still, if anything, you know, some of the noise has maybe some regionals or mom and pops, you know, feeling like it's a good time to sell. So I think it's pretty unchanged. Same pretty Fierce Competitive Landscape. fame. You know, pretty consistent buyer pool and kind of same groups, typically at the same deal table.
Speaker Change: Feeling like its a good time to sell so I think it's pretty unchanged staying pretty.
Speaker Change: Fierce competitive landscape.
Speaker Change: <unk>.
Speaker Change: Pretty consistent buyer pool.
Speaker Change: And kind of the same groups typically at the same deal table.
Michael Carroll: Okay, and then just last one, I guess for a bill related to guidance, I know, I know you said that the CARE REIT deal is not included in that, and I believe you mentioned this when you did your walkthrough, but I know that you have about $600 million of cash on the balance sheet. I mean, did I hear that correctly? Just assume that is invested in like money market type funds within guidance? That restricted cash is invested in some money market accounts with the escrow agent. And that's what you assumed that's in your updated guidance range.
Speaker Change: Okay, and then just last one I guess for bill related to guidance I know you said that the care reveals not included in that and I believe you mentioned this when you did your your walk through but I know that you have about $600 million of cash on the balance sheet. I mean did I hear that correctly just as soon that is invested in Mike.
Speaker Change: Money market type funds within guidance.
Speaker Change: That restricted cash is invested in.
Speaker Change: Some money market accounts with the escrow agent.
Speaker Change: And Thats, what you assumed in your updated guidance range.
Michael Carroll: That is that is included in the that that represents an increase over last quarter's guidance for interesting. Okay, great.
Speaker Change: Yes that is that is included in the debt that represents an increase over last quarters guidance for interest income.
Speaker Change: Okay, great. Thank you.
Speaker Change: Okay.
Juan Sanabria: Your next question comes from the line of Juan Sanabria with VMO Capital Markets. Your line is open. Hi, just curious on the watch list and kind of cash paying tenants, how things are trending in your comfort level that there won't be any surprises as we look out for the next few quarters.
Speaker Change: Your next question comes from the line of Juan Sanabria with BMO capital markets. Your line is open.
Hi, Josh.
Speaker Change: Just curious on the watch list and kind of cash paying tenants how things are trending in your comfort level that there won't be any.
Speaker Change: And as we look out for the next <unk>.
Speaker Change: <unk>.
Okay.
Juan Sanabria: Well, by definition, if we knew of a surprise, it wouldn't be one. But having said that, we feel pretty good about the strength of the overall portfolio, as you saw on the overall coverage tick up. Already, it was a ridiculously high coverage to begin with, and it ticked up further last quarter. I think we have a pretty good handle on The folks that are not paying and we're trying to deal with those by selling or transitioning those assets.
Speaker Change: Well by definition, if we knew of a surprise that wouldn't be one.
Speaker Change: But having said that.
Speaker Change: Okay.
Speaker Change: We feel pretty good.
Speaker Change: The strength of the overall portfolio as you saw in <unk>.
Speaker Change: Overall coverage tick up already was.
Speaker Change: A ridiculously high coverage to begin with and it ticked up further in the last quarter.
Speaker Change: I think we have a pretty good handle on.
The folks at <unk>.
Speaker Change: Are not paying and we're trying to deal with those by selling or transitioning those assets. So.
Juan Sanabria: I would be surprised if we had a surprise. Fair enough.
Speaker Change: I would be surprised if we had a surprise.
Speaker Change: Fair enough.
Juan Sanabria: And then just maybe just looking at the top 10 tenant lists, you've got Lynx and Champion Care that have transition assets, but how are you feeling about their trajectory and the pace of how they're executing on their on the business plans. Yeah, yeah, that's a great question. Feeling really good about both. both on track or a little bit ahead of schedule. With links, they've been in there the longest and but they also have the longest. ramp of rent bumps based on their their initial large deal that we did with them. So we want to just make sure that that next rent bumped, you know.
Speaker Change: And then just maybe just looking at the top 10 tenant list, you've got links and champion cabinet at.
Speaker Change: Transition assets, but how are you feeling about.
Speaker Change: Their trajectory and.
Speaker Change: The pace of how they're executing on their business plans.
Speaker Change: Yes, that's a great question, we're feeling really good about both.
Speaker Change: Both on track or a little bit ahead of schedule.
Speaker Change: With links they've been in there the longest.
Speaker Change: But they also have the longest ramp.
Speaker Change: Rent bumps based on their initial large deal that we did with them. So we want to just make sure that that <unk>.
Speaker Change: Next.
Hi.
Speaker Change: Our rent bumps.
Juan Sanabria: is fair to them before we put them in. in front of everybody. Great.
Speaker Change: Is fair to them before we put them in front of everybody.
Juan Sanabria: And then if I could be greedy, one more question for Bill, is the term loan you guys are talking about with the banks, I'm assuming that that'd be multi-currency, is that correct? And do you have a sense of kind of what the cost may be and differential between the US and pound? Interest rates. Yes, it won't be in pounds. It's going to be an amendment to our existing credit facility. So the credit facility will go from 1.2 to 1.7, 500 million of that will be a term loan and the pricing on the term loan will be just inside our revolver.
Speaker Change: Great and then if I could be greedy one more question for bill.
As the turmoil you guys are talking about with the banks.
Speaker Change: You mean that the multi currency is that correct and do you have a sense of kind of what the cost might be a differential between the U S and pound.
Speaker Change: Interest rates.
Speaker Change: Yes, it won't be in pounds, it's going to be an amendment to our existing credit facility. So the credit facility will go from one two to $1 70 $500 million of that will be a term loan and the pricing on the term loan will be just inside our revolver.
Juan Sanabria: Thank you.
Speaker Change: Thank you.
Speaker Change: Okay.
Kate: Before going to the next question, again, if you would like to ask a question, press star 1 on your telephone keypad.
Before going to the next question again, if you would like to ask a question press Star one on your telephone Keypad. Your next question comes from the line of Tayo Okusanya with Deutsche Bank.
Omotayo Okusanya: Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Your line is full. Yes, good afternoon. So again, rent coverage ratio is going up. It sounds like generally the health of the operators is good. Just kind of curious, you know, the operators kind of access to financing at this point. You did have one of your peers this morning talk about one of their tenants having some challenges with their ABL. So curious, are you seeing any of that industry-wise at this point? And also, are there any challenges for operators also, or even for you, as it pertains to kind of GSE financing?
Speaker Change: Your line is open.
Speaker Change: Yes.
Speaker Change: Good afternoon, so again rent coverage ratios going up it sounds like generally the health of the operators is good.
Speaker Change: Curious.
Speaker Change: Operator.
Speaker Change: Access to financing at this point you did have one of your peers. This morning talk about one of the attendants.
Speaker Change: Challenges with the ABL curious are you seeing any of that industry wise at this point and also are there any challenges for operators also oil and for you as a person.
Speaker Change: Kind of GSE financing.
Omotayo Okusanya: No, we're not seeing anything like that. All right. Good to know. Thank you. Thanks, Tyler.
Speaker Change: No, we're not seeing anything like that.
Speaker Change: Alright, good to know thank you.
Tayo: Thanks Tayo.
Dave Sedgwick: I will now turn the call back to David Sedgwick for closing remarks. Well, again, thank you very much. We're, as you can tell, very excited about the the quick and Robust start to the year and I really appreciate everybody's support.
Tayo: I will now turn the call back to David Cedric for closing remarks.
David Cedric: Well again, thank you very much where as you can tell.
Tayo: Very excited about.
Tayo: The quick.
Tayo: Robust start to the year and really appreciate everybody's support have a great weekend.
Unknown Executive: Have a great weekend.
Kate: Ladies and gentlemen, that concludes today's call. You can now disconnect. Thank you and have a great day.
Speaker Change: Ladies and gentlemen that concludes today's call you may now disconnect. Thank you and have a great day.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
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