CareTrust REIT, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited. CareTrust is a healthcare-property REIT that primarily leases facilities to third-party operators under triple-net leases.
Business context and portfolio
At quarter-end, the company owned and leased 134 healthcare facilities with 13,214 beds and units, operated three independent-living facilities with 264 units, and held an $8.7 million preferred-equity investment. Its properties were located in 18 states. Ensign leased 94 facilities; this concentration is a significant tenant exposure.
Financial results and position
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Total revenue | $23.6 million | $17.0 million |
| Net income | $5.5 million | $2.0 million |
| Diluted EPS | $0.11 | $0.06 |
| Operating cash flow | $15.0 million | $11.1 million |
| Cash and equivalents | $4.7 million | $11.5 million at Dec. 31, 2015 |
| Total assets | $743.5 million | $673.2 million at Dec. 31, 2015 |
| Total equity | $364.1 million | $262.3 million at Dec. 31, 2015 |
Revenue increased about 39% year over year, largely from investments made since January 2015. Net income rose about 170%; net margin was approximately 23%, versus 12% a year earlier. Depreciation and amortization was $7.3 million, interest expense $6.2 million, property taxes $1.8 million, and general and administrative expense $2.2 million.
Investing cash outflow was $83.8 million, primarily for $68.0 million of property acquisitions and $15.7 million of acquisition escrow deposits. Financing provided $62.0 million, including common-stock proceeds and new borrowing; cash declined $6.8 million during the quarter. The company declared dividends of $0.17 per share.
At March 31, debt principal totaled $365.0 million: $260.0 million of 5.875% senior notes due 2021, a $100.0 million unsecured term loan due 2023, and $5.0 million drawn on a $400.0 million revolving facility due 2019, with two six-month extension options. Debt carrying value was $358.9 million. The company reported compliance with applicable debt covenants. It stated that cash, operating cash flows, and revolver availability should fund operations, scheduled debt service, and dividends for at least 12 months.
Material changes and transactions
- In February, the company amended its credit agreement, increasing revolving commitments to $400 million and adding a $100 million unsecured term loan. About $95 million of the term-loan proceeds repaid and terminated secured GECC mortgage debt.
- On March 28, the company issued 9.78 million shares at $11.35 per share, with estimated net proceeds of $105.7 million. Shares outstanding increased to 57.5 million at quarter-end.
- Q1 acquisitions included nine Iowa skilled-nursing facilities and additional assisted-living and skilled-nursing properties. Management reported 21 properties acquired from January 1 through May 10 for approximately $115.3 million, including estimated transaction costs.
- Interest expense increased 5% year over year. The period included a $0.3 million write-off of deferred financing costs related to the GECC refinancing; savings from repaying that loan partly offset costs on new borrowings.
Outlook, risks, and contingencies
No specific earnings or revenue guidance was provided. Management intends to pursue acquisitions as suitable opportunities and financing permit, and expects to fund investments with cash, revolver borrowings, future debt, or additional securities. Subsequent to quarter-end, acquisitions included properties in Ohio, Idaho, Virginia, and North Carolina; the filing describes anticipated initial annual rent from these transactions but does not provide a formal forecast.
Key risks include reliance on tenants’ ability to pay rent and comply with healthcare regulations, concentration in Ensign (94 facilities), access to capital and refinancing, variable interest rates, acquisition availability, and maintaining REIT status. A 100-basis-point increase in rates, assuming unchanged variable-rate debt, would have increased Q1 interest expense by approximately $0.3 million. No interest-rate swaps were in place. The filing reports no material legal proceedings; it also notes Ensign’s existing DOJ settlement and corporate integrity agreement, with CareTrust subject to certain continuing operational obligations but no liability for the investigation.
Important facts for investors to verify
- Ensign tenant concentration, lease guarantees, rent coverage, and the financial condition of other major operators.
- Acquisition execution, lease commencement and rent collection, including properties acquired after quarter-end.
- Available revolver capacity, debt covenants, refinancing needs, and sensitivity to changes in interest rates.
- Cash available for dividends and acquisitions, given quarter-end cash of $4.7 million and continued investment activity.
- Whether the company continues to qualify as a REIT and satisfies required distribution and other tax rules.