CareTrust REIT, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 16, 2022. This is an annual report, not a standalone fourth-quarter filing. CareTrust is a healthcare-property REIT whose revenues are primarily rents under long-term triple-net leases.
Business context and portfolio
- At year-end, the portfolio comprised 227 facilities and 23,650 operational beds and units across 29 states, plus a $15.2 million mezzanine loan receivable.
- Portfolio occupancy reported by tenants declined year over year: SNFs 69% vs. 75%; multi-service campuses 66% vs. 73%; ALFs and ILFs 73% vs. 86%. CareTrust says this data is tenant-provided and not independently verified.
- Ensign accounted for 32% of 2021 rental revenue and PMG for 15%. California and Texas accounted for 25% and 20%, respectively, of rental revenue.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $192.4 million | $178.3 million | +8% |
| Rental income | $190.2 million | $173.6 million | +10% |
| Net income | $72.0 million | $80.9 million | -11% |
| Diluted EPS | $0.74 | $0.85 | -13% |
| Net cash from operations | $156.9 million | $145.7 million | +8% |
- Net income was about 37% of revenue, compared with about 45% in 2020. The filing does not provide a comparable operating-margin measure in the supplied text.
- General and administrative expense rose 65% to $26.9 million, including a $7.1 million increase in stock-based compensation; 2021 stock-based compensation expense was $10.8 million. The company disclosed a $3.5 million cumulative out-of-period adjustment, including $0.9 million relating to prior periods, which it said was not material to previously issued statements.
- Interest expense was essentially flat at $23.7 million. A $10.8 million loss on debt extinguishment included a $7.9 million prepayment penalty and $2.9 million write-off of financing costs.
- Cash and cash equivalents were $19.9 million. Debt principal totaled $680.0 million: $400 million of 3.875% notes due 2028, a $200 million term loan due 2026, and $80 million drawn on a $600 million revolving facility. The company reported $520 million of revolver availability and compliance with debt covenants at year-end.
- Investing activities used $192.6 million, primarily for real estate acquisitions. Financing activities provided $36.7 million, reflecting the new notes, facility borrowings and ATM issuance, partly offset by redemption of the prior notes and dividends paid.
- Declared dividends were $1.06 per share for 2021 versus $1.00 in 2020. The board determines distributions; debt covenants and REIT requirements may affect cash available for dividends.
Material changes and significant items
- Rental growth primarily reflected investments made after January 1, 2020 and contractual rent increases. Rental income also included $63,000 of lease-termination revenue in 2021, versus $1.2 million in 2020.
- CareTrust issued $400 million of 3.875% senior notes in June 2021 and redeemed all $300 million of 5.25% notes due 2025 in July, recording the related $10.8 million extinguishment loss.
- FY2021 acquisitions totaled about $196.1 million for ten properties, with stated initial annual cash rent of $13.1 million; the two acquired ALFs were not yet operational and had no initial rent. The filing also reports additional acquisitions through February 16, 2022.
- Cash dividends paid were $100.8 million. The company issued 990,000 shares through its ATM program for gross proceeds of $23.5 million and did not repurchase shares during the year.
Outlook, commentary and risks
- No quantified earnings or acquisition guidance is provided. Management said it expected cash flow, cash on hand, revolver availability and ATM capacity to cover needs for at least the next 12 months, while future acquisitions depend on available financing and suitable opportunities.
- Management reported that SNF occupancy had improved through Q4 2021, while seniors-housing occupancy had declined and remained flat through Q4. COVID-related costs, labor shortages and reduced occupancy continued to pressure tenants; management said the effects could be material.
- Approximately 100% of Q4 contractual rent and 93.2% of January 2022 rent had been collected, before applying cash deposits. Noble’s deferred $1.8 million of rent and its Q4 2021 rent were paid at the December acquisition closing.
- CareTrust planned to pursue sale, re-tenanting or repurposing of up to 32 assets in 2022, representing about 10% of contractual cash rent. This is a stated plan, not a completed disposition.
- Key risks include tenant credit and concentration, COVID-19 and staffing pressures, Medicare/Medicaid reimbursement and regulation, occupancy recovery, property repositioning, geographic and natural-disaster exposure, and interest-rate/refinancing risk. A 100-basis-point increase in rates on year-end variable-rate debt was estimated to add about $2.8 million of annual interest expense.
Important facts for investors to verify
- Review tenant financial performance and lease coverage, particularly for Ensign and PMG, and assess whether tenant concentration and reported occupancy trends have changed.
- Check collection and lease status after January 2022, including outcomes for the Noble properties and the planned repositioning of up to 32 assets.
- Track acquisition yields and the timing of rent commencement for properties that were not operational or awaiting licensing or an operator.
- Confirm debt maturities, refinancing of the revolving facility due in 2023, variable-rate exposure and the transition away from LIBOR.
- Assess dividend coverage and the effects of stock compensation and the disclosed out-of-period adjustment on reported results. The financial statements received an unqualified audit opinion; management and the auditor reported effective internal control over financial reporting.