CareTrust Prunes Portfolio in Q3, With Eye Toward 2020 Growth

CareTrust REIT (Nasdaq: CTRE) has spent most of 2019 doing some “spring cleaning” of its portfolio of long-term care facilities — including its senior housing assets — and focused on restructuring its portfolio and transitioning operators in the third quarter with an eye toward future growth in 2020 and beyond.

“After five years, a lot of success and a few challenges, a deep dive on our assets and operators suggests that we could strengthen the portfolio,” CareTrust CEO Greg Stapley said during an earnings call on Friday, Nov. 8.

The San Clemente, California-based health care real estate investment trust (RIT) reported a net loss of $10.1 million in Q3 2019, compared to net income of $14.5 million a year prior. Stapley attributed the numbers to executing on a high volume of dispositions and operator transitions at once, rather than spreading them out over a longer period.


“We believe that the principles of sound stewardship require us not only to grow and diversify earnestly, but to prune the portfolio responsibly from time to time. It also reflects our commitment to aggressively tackle small problems while they are still small,” he said.

CareTrust, which spun off from The Ensign Group (Nasdaq: ENSG) five years ago, owns 209 health care properties in 28 states, and has a roster of 23 operators. There are 35 assisted living facilities and 17 campuses in the portfolio.

During the third quarter, CareTrust acquired Vista del Lago, a 52-unit/96-bed community in San Diego in September. On Oct. 1, the REIT acquired a 99-bed skilled nursing and 72-unit assisted living campus in Sacramento, California, that was leased to Kalesta Healthcare. On Nov. 1, CareTrust transitioned operations of seven assisted living facilities in Florida, Maryland, Indiana and Wisconsin from Priority Life Care to Noble Health Services. 


Stapley and CareTrust COO Dave Sedgwick preferred to view the earnings results as a positive development, as the REIT has now backfilled its operator roster with new companies it believes are positioned to drive revenues and occupancy.

“We’re pleased to say that we have significantly de-risked our portfolio in a relatively short period of time, and these issues are or very soon will be all behind us” Sedgwick said. “The long-term benefits of these changes can’t be over-emphasized.”

Restructuring portfolios and operations has been a recurring theme during this earnings season. Chicago-based health care REIT Ventas (NYSE: VTR) reported subpar senior housing portfolio performance in the third quarter due to an “unprecedented” confluence of pressures, notably on pricing. Brookdale Senior Living (NYSE: BKD) saw its best same-store occupancy growth in five years in Q3 with a 70-basis-point increase in Q3 but still struggled with high labor costs. Capital Senior Living (Nasdaq: CSU) and Five Star Senior Living (Nasdaq: FVE) both emphasized positive momentum in their respective turnaround efforts during earnings calls earlier this week.
CareTrust stock dipped 4.5% in trading Friday, closing at $20.51 per share.

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