CareTrust REIT (CTRE) Q2 2026 earnings call transcript

I will now hand the conference over to Lauren Beale, Chief Accounting Officer. Lauren, please go ahead. Thank you and welcome to Care Trust Reads Second Quarter 2026 Earnings Call. Today, we will make forward-looking statements 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 Care Trust Reads' most recent form 10Q filing with the SEC. We do not undertake a duty to update or revise these statements except is required by law. During the call, the company will reference non-gap metrics such as EBITDA, FFO, and FAD.

A reconciliation of these measures to the most comparable gap financial measures is available in our earnings press release and Q2-26 financial supplement, which are available on the investor relations section of Care Trust's website at www. caretrustread. com. A replay of this call will also be available on the website for a limited period. On the call this morning are Dave Sedgwick, President and Chief Executive Officer, Derek Bunker, Chief Financial Officer, and James Callister, Chief Investment Officer. I will now turn the call over to Dave Sedgwick, Care Trust Reads, President, and CEO. Dave?

Thank you, Lauren, and good morning, everybody. Thank you for joining us. The Care Trust flywheel cranked up a few years ago. When we hit around seven times our lifetime annual average of investments in 2024 and again in 2025, the team shows no signs of slowing. In fact, the opposite is true. After two back-to-back record-setting years, we are again on pace to deliver in a big way for our operators and shareholders. Last quarter was the single largest investment quarter in our company's history, excluding M&A activity, with approximately $900 million of investments at a blended yield of 8.9%. James, Kyle, Joe, Trie, Josh, JP, Nick, Martin, and Killian. That's the dream team right there responsible for a year's worth of investments in one quarter.

I'm so proud of them and proud of the entire Care Trust team across the board, accounting, asset management, finance, tax, legal, data, operations. Everyone is rowing hard together to make this year a three-peat of record performance. Q2 results achieved record investments in a quarter, record revenues, record FFO per share, and a healthy raise to guidance. Built on a and operator-quality care measures. Let me expand on that foundation just a little bit.

We're stoked to see our operator-quality care measures exceed the industry averages for overall star ratings, health inspections, quality measures, successful discharges, and readmission rates. Let me repeat that. Our operators outperform industry averages for overall star ratings, health inspections, quality measures, successful discharges, and readmission rates after they've had a chance to manage these buildings for at least four years.

In my 2025 annual report letter, I discussed how mission critical it is for us to lease our properties to high-quality operators and how we view the relationship between them and the value of our real estate investments. A quality operator is one who is driven by admission, focuses their resources first on becoming the employer of choice, and through that becomes the quality care provider of choice in their market. Only after achieving sustained quality care outcomes can a provider and a real estate they operate achieve sustainable financial stability. We have seen this formula for success prove out over the last 25 years. A care trust operator is one who harmonizes mission-driven culture with the clinical and financial sophistication to adapt to an ever-changing environment.

We apply those first principles to skilled nursing and senior housing alike. We invest for the long-term, the price we pay and the operator we choose are intended to result in long-term quality care and as a result compounding value creation. That solid operator foundation and orientation allows us to grow in a sustainable and accelerated way across our three growth engines.

Year to date we have already closed on approximately $1.5 billion and looking forward the pipeline continues to reload and deal flow continues to be active and interesting across skilled nursing care homes and shop both in the US and the UK. With the balance sheet as strong as it is the team stronger than ever before and the opportunity set expanded and great relationship with partners and new and existing high-quality operators there has simply never been a more exciting time for care trust.

With that I'll hand it off to James for a report on investment activity and the acquisition landscape.

Thanks Dave. Good morning everyone. During the second quarter we closed on investments totaling approximately $900 million that have blended stabilized yield of 8.9%. That capital was deployed across the full breadth of the platform. US skilled nursing sale leasebacks with quality operators and multiple geographies. The continued expansion of our UK care homes platform sourced and executed by our London based team. Further growth in our shop portfolio and relationship driven real estate loans primarily to skilled nursing operators closed either alongside asset acquisitions or in anticipation of them and as Dave noted we haven't slowed down since the quarter ended. Since June 30 we've closed on an additional approximately $308 million at a blended stabilized yield of approximately 7.8%.

Headlining that activity was a 16 property UK care homes portfolio net lease to a new operator relationship for care trust joined by a two community $65 million addition to our shop platform. Taken together our 2026 investments now stand at approximately $1.5 billion a year to date. Breaking that down roughly $735 million in US triple net skilled nursing and seniors housing approximately $397 million in UK care homes.

Approximately $240 million in loans and approximately $81 million in shop. Turning to what's ahead the pipeline sits at approximately $540 million. Roughly two-thirds skilled nursing and one-third loans to strategic partners plus UK care homes. It's a healthy mix. Some singles and doubles alongside mid to large portfolio opportunities. You'll note the immediate pipe doesn't include shop. That's really just a function of timing and discipline. The team continues to deepen relationships including with high performing operators and we are confident these relationships will drive attractive on and off market opportunities that we expect to convert in future quarters and give us a long runway to scale that portfolio in both the US and the UK.

And our usual reminder on methodology the quoted pipe includes only deals we have a reasonable level of confidence we can lock up and close within the next 12 months and it typically excludes larger portfolios still under review. Stepping back for a moment what gives us real confidence is that all three of our growth engines are producing and skilled nursing deal flow remains deep and steady with proprietary opportunities generated through long standing relationships. In shop even amid stiff competition and compressing cap rates we're pursuing the right assets with the right operators and see a long runway to scale that portfolio in the quarters and years ahead.

And in the UK our London based team has widened our aperture considerably new operators new sources of deal flow and a pipeline that keeps building. Across all three the team continues to surface attractive opportunities to deploy capital and we like our position in each of these markets. That growth will stay grounded in the same fundamentals that have served us well disciplined underwriting durable operator partnerships and a creative collaborative approach to structuring.

With that I'll hand it to Derek to walk through the quarter's financial results.

Thank you James. For the quarter normalized FFO increased 44% over the prior year quarter to $119.7 million and normalized FAD increased 43% to $118.5 million. On a per share basis normalized FFO was 51 cents an increase of approximately 19% over the prior year quarter and normalized FAD was also 51 cents an increase of approximately 19% over the same period. In the second quarter we raised approximately $364 million of gross proceeds from the settlement of outstanding equity forward contracts to fund investment activity in the quarter. Also in the quarter we sold 14.4 million shares under forward equity contracts raising $580.5 million of gross proceeds at a weighted average price of $40.23 and since quarter end we sold another 2.2 million shares on a forward basis for gross proceeds of $90.6 million at a weighted average price per share of $41.46.

As of today we have approximately 16.6 million shares remaining unsettled under forward sale agreements representing approximately $671.4 million in gross proceeds available to fund future investment activity. In yesterday's earnings press release we raised our full year 2026 guidance reflecting our year-to-date investment activity including the volume we've closed since quarter end. We're now projecting normalized FFO per share of $2.03 to $2.06 and normalized FAD per share of $2.01 to $2.04. At the midpoint that represents growth of 16.2% in normalized FFO per share and approximately 15.1% in normalized FAD per share compared to full year 2025 results.

Our updated guidance is based on a weighted average diluted share count of 233 million shares and includes the following key assumptions. First no new investments loans or dispositions beyond those made year to date. Second no new debt or equity issuances beyond those made year to date. Third 2.5% inflation based rent escalators under our long term triple net leases.

Fourth $147 million of loans to be repaid throughout the year of which approximately $104 million has been received so far to date and fifth no material change in the GBP to USD spot exchange rate.

Additional guidance measures are detailed in the press release yesterday. Lastly our liquidity continues to remain strong at approximately $1.4 billion as of today including approximately $90 million of cash on hand, $605 million of availability under our $1.2 billion revolving credit facility and approximately $671 million of unsettled equity forward contracts. In addition we have roughly $785.8 million of capacity available under our ATM program.

Net debt to annualized normalized run rate EBITDA was 1.0 times at quarter end. Well below our long term target range and our fixed charge coverage ratio was 9.9 times. We continue to have no scheduled debt maturities prior to 2028. With continued momentum and a reloaded investment pipeline we have ample dry powder and multiple levers across our capital toolkit to keep funding a recent pace of investment activity and with that I'll turn it back to Dave.

Thank you Derek and thank you James and thank you everybody we're really grateful for everybody's interest and support as I hope you can tell we are super bullish on the character story and not just what we've achieved but where we are headed and with that we'd be happy to answer any of the questions that you might have at this time.

James maybe if I could start with you you gave some helpful color in the opening remark especially about building out the the shop pipeline and it not being mentioned in the or shop not being mentioned the current pipeline. Could you talk a little bit more about building those relationships with operators and how that'll eventually translate in the volume of how we could think about the cadence of that? Yeah sure I mean I think that it's hard to predict the cadence John is really sure what's going to hit the market or what off market is going to come but I think that building relationships with these operators and managers finding the ones you can use in different regions of the country or have proven track records there that have maybe experiences with other publics and they're reporting in back office just really allows you to more quickly pursue transactions that come up it opens up the off market pipe one as you develop relationships with them and really as you really start to develop frameworks with them of what your deal with them would look like the terms on which you do it and you get really all that kind of pre-baked so you can react quickly when the right deal in the right area comes up for you to work with that particular operator or manager and I think the team's doing a great job of developing a lot of those relationships and and you know being ready really to continue and ramp up pursuing acquisitions in different parts of the country.

Yeah I mean there's a few you know portfolios tinkering around out there I would say there's down or two shop portfolios they're larger out there that we're reviewing to see how attractive they are and whether we want to pursue them there's also I'd say the same for you know sniff and one or two in the UK as well so there's always a seemingly a couple of them floating around but there are a couple shop ones out there that we're looking at but we'll see if they're really you know worth us pursuing or if we think that there's traction there.

Yeah I mean the scale did impact the pricing a little bit Austin I would say that it would uh 16 facilities it doesn't you know deals that size and you don't come around all the time so there's definitely a teeny bit of a premium there we definitely see it as a launching point with this operator we feel like they've demonstrated in the past their ability to operate you know at scale and to operate well at scale and this is really their first jump back in after selling their portfolio last year so we definitely see it as a launching pad to grow with them in the future.

Well I think one of our our first principles as we started the company was that the underwriting always starts and ends with who is the operator going to be and if we do not have what we think is a quality operator to match with a great opportunity we're simply going to pass on that deal we'd much rather take an A operator in a B market than settle for a mediocre operator in a great market.

So that's just in our DNA that's the discipline we have and if we do have which we do have great operators we don't mind concentration building with one or another because over time the the diversification and concentration sort of takes care of itself.

You know we've we've certainly thought about that the challenge that we have in doing that is is that our senior housing portfolio here in the US and in the UK covers rent really well and so there's there's very little motivation for the operators to to walk away from that type of lease coverage. I think a lot of those conversions that have happened in our space have been kind of from a defensive posture where maybe things haven't been performing super well or there hasn't been really strong coverage and so it was more of a defensive play to convert to to shop so because ours covers so well there's less opportunity to do that and however you know as we look forward everything's on the table but I think more likely for us shop will be coming from being on offense and identifying great assets that we really want to own and and and have operations responsibility for with with great partners and that's a follow-up I wanted to ask on what we're thinking about with PAC today what's the willingness to move forward what have discussions been for the year today?

Yeah so we're really pleased to see PAC's performance this year happy to see them back to normal filing cadence really happy to see their investments in in compliance and happy to see them back on on the growth path. We haven't done anything with PAC's for a while but that's not for lack of trying we have looked at some deals with them and we'd be happy to to to grow with them again if the opportunity presents itself.

James in your program remarks we're talking about the UK I think you talked about widening the aperture so maybe you can provide a little bit more color of what you meant specifically by that. Sure I think what I mean by that is that I think the team there's done a great job of going beyond just seeing marketed deals but also using operator relationships and other relationships they have or that we formed to to bring you know more pipeline or sources of deals than just the traditionally marketed deals I think also that you know as you start to look at you know maybe structures beyond just the triple net they've done a great job starting to form relationships for us to start looking at you know deals like that that might work in other structures like you know a shop if something presented itself so I think Michael that's pretty much what I mean just opening the the way in which deals come to us beyond just traditionally marketed deals and thus really increasing the chances we get more opportunities.

Yeah I mean it's a tough balance I would say but I you know I think what we try to do is we try to really look at deals and pick our spots right and we try to find those opportunities where we feel like there's real confidence that we have that this can get to an IRR that we really want to pursue and we'll stretch to try to go get it but on the other hand we don't feel a huge compulsion to have to stretch to do a deal that doesn't make sense for us we're finding opportunities to put money to work and really good deals on the SNF side and in the UK care home side and so when it comes to shop we're going to continue developing relationships continue to look at and underwrite a lot of deals we're going to continue to pick our spots with the right partners operators and stretch to try to go get those opportunities but not go beyond what we feel is you know wise or prudent just in the name of growth so I think we work really hard to try to pick those spots knowing that we don't have to do a deal to grow when we've got opportunities with SNFs and care homes.

I mean yeah shop is pretty well you know out there there's a lot more private market entrance right now cap rates are compressing as a result you've got more competitive processes I think in the SNF world we don't see too much of that really at all I think you see the same players that there's been over the past several years the same buyer pool I think really competing for the deals and so you know portfolio deals and SNFs larger deals you know you maybe see a little teeny bit of compression in cap rates but overall you still see the same where they've been it's just really having relationships that help you source more off market because there is more off market than listed in the SNF world and in the UK I think you do see a slow influx of additional players on the private entrance side for sure I don't think we've seen it impact dramatically the competitive process but I would say you see an uptick in buyer entrance but I haven't seen it really have that much of an impact at all on on cap rates or you know bidding up processes.

Hey Mike you know we do expect and kind of bake in that there's a high likelihood that those will be exercised of course until we get the notices of of exercise you know it's always uncertain and people's capital needs and plans change all the time but I think we're you know we're constantly in discussion with those tenants that have options it's a good relationship it's collaborative and it's not the end of the world if they exercise we always look to do deals down the road with them in the future but you know as of right now we put a high likelihood that those would be exercised.

Yeah hey Pharrell it's Derek it's almost 100% SNF. These are really exciting compelling sale lease back opportunities you know the bulk of the financing receivables have purchase options that are eight nine years out and there's a lot of uncertainty in the meantime about those purposes it falls within the financing receivable bucket but these are really quality high quality assets in the skilled nursing space.

Yeah you know we prepare for all uncertainties and I think it's a benefit of having relatively low leverage it gives us the optionality depending upon Fed policy and and other macro factors so we really like carrying a little balance on the revolver. It's competitive for us we really like the price of our equity right now we've got the optionality to do something longer term or term loan. All those are on the table we're looking at the full toolkit and for right now looking at the pipeline we've got earmarked probably the settlement of our equity forwards and then some and so I think we've given ourselves some runway to maneuver on the flexible depending upon how those macro conditions continue to unfold but right now we're really just pricing it out and watching those rates daily and trying to be opportunistic about it.

Maybe James can give a little bit of more vibrant color to the specific question on you know how far off are we versus the competition but I would say one of the main differences between us and some of our peers is you know we have not we've we've used shop as a long-term complementary growth engine to the care trust story. I think some of our peers have really pivoted and gone all in on shop and with that type of publicly publicized strategic change there's there's quite a bit of motivation on their side to put money to work and show that that's that they're executing on that new strategy whereas we have I think the luxury of being opportunistic across all three and if we have the ability to put double digit FFO per share growth by maintaining that discipline and being opportunistic across all three I we really prefer that approach than kind of putting ourselves in a corner per se to have to do a ton of shop to show that we're executing on a particular strategy.

I think that's high level why it appears that we've been more measured in our in our deployment of shop capital but I wouldn't be surprised either Rich if if we did do a large shop portfolio deal in the future for us that can happen because there are portfolios out there that I think will eventually check all the boxes for us.

Yeah I mean look it's no see if you're missing you're almost always missing on price right Rich and so when we look at it and we look at a deal and we say look what do we feel like the projections are here what's the IR are going to be what's the return what's the risk adjusted return and you start getting facilities that are portfolios that are in the mid 90s occupancy that are stable where the pricing is going to a mid to low five cap and you start looking at that versus a plethora of SNF and other opportunities that are going to be in the nines or high eights and you start looking at the the risk adjusted return and you think you know maybe it's wiser to put some allocated capital to where we have most opportunities with a better risk adjusted return for us if the pricing is just going to be to risk it for us and not get the returns that we're looking for so that's really what process that you go through.

We've got we've got along as you know me I personally and we as a company have a long relationship and history in skilled nursing that's that's where we come from back in the the n-sign days in 1999 when when n-sign started so we know and love this this business we we view it as a vital part of the health care continuum in the country we see it as too too important to fail we saw that during the pandemic and we see as the demographics continue to blow up over the next you know 25 years that it will continue to be a really important part of of the health care continuum not only that because our our history is so deep with skilled nursing I think we we do as as our least coverage and track record demonstrates I think we do a really good job of identifying the best operators out there who can who can do it the right way providing high quality care and and to to James's earlier point it what it does is it produces really high risk adjusted turns for us compared to just about any other asset class I do like that too important to fail comment though thank you for that great color appreciate it all right your next question comes from alex vegan with bear please go ahead hey thanks for taking my question are there any portfolio initiative that you're working on with sniff operators large or small what do you I'm not sure what you're asking what do you mean portfolio initiative well so there's been some there's been some other of your peers working on some pretty large portfolio initiatives either replacing operators doing changes to leases extending leases is there any of that going on in your portfolio oh no I mean there's always there's always some there's always scrutiny right on the on the portfolio but as you look in the stop you see just really really healthy lease coverage but even even with that there's the the asset management portfolio management team here is always looking to improve and and take take assets from maybe weakening hands to stronger hands but there's nothing that's that's currently underway that would impact you know guidance or our results at all nothing of significance yeah thank you that's it for me you bet have a good one your next question comes from adi rogers with ramen james please go ahead hey guys good morning and save I um I know days that there's always headlines and risks from a regulatory standpoint out there but I'm wondering maybe to ask that question a different way are you seeing anything in the acquisition pipeline that either the operators are bringing you or you know increasingly turning down where there's more risk and vice versa are there asset types or or areas where you're now feeling there's less risk that are opening up opportunities and I don't up that's more rehab less you know skilled whatever the case might be are you think any shift within the mix in in kind of the skilled nursing business that's given you this opportunity to continue to acquire so so so well no Dave I characterize the skilled nursing environment right now as stable I think from a regulatory standpoint from a reimbursement standpoint there have definitely been previous periods of time that have been more choppy but right now I'd say it's it's really stable I think the operators and we feel comfortable with it and and there's there's quite an appetite to to grow in today's environment and then maybe one follow up it's it's pretty small but the loan that's closed in the third quarter one any details about that small asset and then maybe a bigger question around that is is that instructive or could that be instructive of any way where you might get more assets back that you'd want to own more quickly Dave are you talking about Q3 yes yeah I mean that's really a function of I think what you're talking about is the in the UK sometimes some of the parts of the transactions have to be structured a little differently as kind of a loan to own to facilitate closing while licensure is being received so we anticipate that would turn into real estate in the next six to 12 months for instance we closed a transaction you know last fall that was under this loan to own and just recently they got the licensure and converted into the real estate so that's really what that is it's just a function to help facilitate closing earlier while you're waiting for licensure right thank you your next question comes from michael stroyak with green street please go ahead thanks good morning it sounds like loans or decent charge of the pipeline can you just talk about the strategic rationale these particular loans and if we should expect loans to continue to be a meaningful part of external growth moving forward yeah I mean there's always a purpose behind the loans michael really it's that you know they're either going to be done alongside asset acquisitions or in contemplation of so whether it's a purchase option or an agreement that real estate deals will follow it's really a way for us to unlock the door to future real estate acquisitions with that particular borrower or operator and so those relationships that cycle has been a very virtuous one for us it's been very successful for us in the past and been a driver of a lot of the growth that's happened over the last couple of years in a cycle that with the right operators and the right properties that will continue to feed it's never going to become anywhere close to the primary business but it'll be you know fluctuate quarter to quarter but when those opportunities arise and we see real estate in the future it's a cycle we'll feed understood um and maybe one on the most recent shop deal I guess where do you ultimately see that mid six percent yield stabilizing that and what's the time frame that you guys are assuming there yeah I mean I think it's those are two are pretty stable assets I think that we see a lot of opportunity for their well positioned for rate growth their well positioned for some off X savings one of the facilities has some expansion potential that we're actively you know looking at so we definitely see you know a low double digit IRR return there and I think really you know we would look at margin expansion from the low 30s to the high 30s in the next two to three years thanks for the time your next question comes from G. O. T. Yadav with Mizzoule please go ahead yeah thank you for taking my question this is Jordi on for the cramps so you guys mentioned record coverage can you talk about perhaps the potential for rent research like overtime or at generations yeah I think in the supplemental we we show the the maturity of our rents starting I think in 2031 so that that's when the conversation kind of begins the least coverage is so strong overall that as we as we get there in 2031 and beyond there will certainly be opportunities to to reset those rents to to more market rates but it's a few years off got it that's all for me thank you so much there are no further questions at this time I will now turn the call back to Dave Sedgwick with closing remarks well thank you everybody for your your time and interest really just want to take a second to again acknowledge the amazing team here at care trust and thank them for the hard work thank you for our operators as well setting the high standard of quality care out there that allows us to continue to expand our and their missions hope everybody has a great weekend this concludes today's call thank you for attending you may now disconnect