CareTrust REIT, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Financial statements are unaudited; amounts below are in millions except per-share data.
Business context
CareTrust owns and leases healthcare real estate, primarily under triple-net leases, and also invests in real-estate-secured and mezzanine loans. At quarter-end, it owned 225 facilities across 28 states, comprising 23,916 operational beds and units, and held $181.2 million of real-estate-related loans.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $55.9 | $50.3 | $158.0 | $144.3 |
| Net income (loss) attributable to CareTrust | $8.7 | $0.7 | $27.4 | $(21.9) |
| Diluted EPS | $0.08 | $0.01 | $0.27 | $(0.23) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $112.1 | $110.7 |
Q3 net margin was approximately 15.6%, compared with 1.4% a year earlier; nine-month 2023 net margin was approximately 17.4%, versus a net loss in the comparable 2022 period. These results include significant impairment and fair-value items. Nine-month impairment expense fell to $31.5 million from $73.7 million, while interest expense rose to $32.6 million from $20.4 million. Rental income increased 4% for the nine months; interest and other income increased 187%, mainly reflecting newer loan investments.
At September 30, assets were $1.768 billion, total equity $1.111 billion, and cash and cash equivalents $3.5 million. Debt carrying value was $595.3 million: $395.8 million of senior notes and $199.5 million of term loan; the $600 million revolver had no borrowings outstanding. The notes carry a 3.875% fixed rate and mature in 2028; the term loan is variable-rate and matures in 2026. CareTrust reported compliance with applicable debt covenants.
Nine-month investing cash outflow was $232.3 million, including real estate acquisitions and investments; financing cash inflow was $110.5 million, supported by $319.0 million of net common-stock proceeds and partly offset by dividends and net revolver repayments. Cash declined $9.7 million from year-end 2022. The quarterly dividend declared was $0.28 per share.
Material changes and notable items
- CareTrust acquired 13 properties for $198.6 million in the first nine months, with stated initial annual cash rent of $17.1 million. Rental income also benefited from acquisitions, escalators, and tenant reimbursements.
- It recognized $31.5 million of nine-month real-estate impairment, including an $8.0 million Q3 write-down on one SNF and $23.1 million on properties held for sale. Fifteen facilities were held for sale at quarter-end; their estimated values rely on Level 3 assumptions.
- Other real-estate-related investments rose to $181.2 million. These are Level 3 fair-value measurements; nine-month unrealized losses were $7.9 million, attributed mainly to rising interest rates.
- The September ATM program allowed up to $500 million of stock issuance. During Q3, 16.3 million shares were issued under the program, generating $319.0 million gross proceeds and $319.0 million net cash proceeds for the nine-month cash-flow statement; the filing separately reports $213.1 million net proceeds from Q3 forward-contract settlements. A further 4.9 million shares remained subject to forward contracts at quarter-end. Share issuance increased outstanding shares materially.
- After quarter-end, CareTrust reported a credit-agreement amendment, sale of one Florida ALF, a new lease for two New Jersey ALFs, and a $34.2 million JV contribution toward two California SNFs.
Outlook, risks, and contingencies
The filing provides no formal earnings or financial guidance. Management said cash flows, cash on hand, the $600 million revolver capacity, unsettled forward equity contracts, and remaining ATM availability were expected to cover needs for at least 12 months. It also expects to fund acquisitions and other long-term needs through operating cash flow and financing arrangements. Capital-improvement commitments totaled $11.8 million, of which $3.2 million is subject to rent increases when funded.
Rent collection was 97.5% of contractual rent due in Q3 and 96.9% year to date, excluding cash deposits; October collections were 99.3%. Management cited tenant labor shortages, operating-cost inflation, occupancy below pre-pandemic levels for many operators, and the expiration of pandemic relief and the federal public health emergency. Proposed federal nursing-home staffing requirements could increase tenant costs; funding and final requirements remained uncertain. Other risks include tenant payment and lease-renewal capacity, interest rates, refinancing and capital-market access, property-sale prices, and additional impairments. Ensign accounted for 34% of Q3 revenue and Priority Management Group for 15%; California and Texas contributed 29% and 22%, respectively.
Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. Ordinary-course claims and lawsuits were disclosed, but no material legal proceedings were reported.
Most important facts for investors to verify
- Tenant rent collections, tenant financial health, and concentration exposure—particularly Ensign, Priority Management Group, California, and Texas.
- Progress and realized proceeds from selling the 15 held-for-sale facilities, and whether further impairments are needed.
- Actual cash proceeds and dilution from outstanding ATM forward contracts and future equity issuance.
- Variable-rate debt costs, covenant headroom, and liquidity needs given low cash balances and planned investment activity.
- Credit performance and valuation assumptions for the $181.2 million Level 3 loan portfolio, including sensitivity to interest rates and collateral values.
- Effects on tenants of staffing rules, labor costs, occupancy trends, and changes in government reimbursement or relief.