Executive Summary / Key Takeaways

• CareTrust REIT is undergoing a significant transformation, leveraging its disciplined operational model, strong balance sheet, and strategic relationships to capitalize on a unique market window and demographic tailwinds, accelerating growth beyond its historical pace.
• Record-setting investment volume in 2024, fueled by strategic lending initiatives and match-funded with equity, has positioned the company for meaningful FFO and FAD per share growth in 2025 even before considering new deals.
• The planned acquisition of Care REIT plc marks a pivotal strategic move, diversifying the portfolio by geography, operator, payer source, and asset class, while establishing a new growth engine in the UK market.
• Despite a competitive landscape and macroeconomic headwinds, CTRE maintains historically low leverage and ample liquidity, providing significant flexibility to fund its robust pipeline of accretive real estate acquisitions.
• While not driven by proprietary technology, the company's competitive edge lies in its deep operational expertise, disciplined underwriting, and relationship-based approach, which are critical for success in the healthcare real estate sector.

A New Chapter of Accelerated Growth

CareTrust REIT, Inc. (CTRE) has historically operated as a disciplined, focused player in the healthcare real estate sector, primarily centered on skilled nursing and seniors housing properties under triple-net leases. Emerging as a publicly traded entity around 2014, the company built a reputation for conservative management and a strong emphasis on partnering with high-quality operators. This foundational approach, coupled with strategic balance sheet management, particularly the deliberate build-up of dry powder and maintenance of low leverage in recent years, positioned CTRE to seize opportunities when macroeconomic crosswinds shifted.

The period leading into and throughout 2024 marked a significant inflection point. Elevated interest rates, while challenging for some, created a unique market window by driving traditional lenders to the sidelines and increasing the flow of potential deals. CTRE capitalized on this environment with remarkable success, achieving record-setting investments totaling over $1.4 billion in 2024. This volume represented more than six years of growth compared to the company's historical average annual rate. A key enabler of this acceleration was a strategic approach to lending initiated in prior years, where approximately $200 million in debt investments from 2022 through 2023 were specifically aimed at fostering relationships that would generate future real estate acquisitions. This strategy bore fruit, with over $780 million of the 2024 acquisitions stemming directly from these cultivated relationships, many of which were off-market opportunities CTRE might not have otherwise accessed.

This rapid expansion was prudently match-funded with approximately $1.5 billion in equity issuance through ATM programs and a follow-on offering, preserving the company's financial flexibility.

As of March 31, 2025, CTRE's net debt to normalized EBITDA ratio stood at a historically low 0.5x (as of Q4 2024), providing substantial capacity for future growth.

Operational Discipline and Portfolio Strength

At its core, CTRE's business model relies on the performance of its third-party operators. The company's deep operational expertise, stemming from its management team's background, informs a disciplined underwriting process focused on identifying and partnering with operators who demonstrate a commitment to quality care. This focus is reflected in the portfolio's performance metrics. As of Q3 2024, property level EBITDAR (with a 5% management fee) and EBITDARM coverage stood at a robust 2.23x and 2.85x, respectively, with overall coverage ticking up further in Q1 2025. This strong coverage provides a significant buffer against potential operational fluctuations.

The operating environment for healthcare facilities has shown signs of stabilization. Skilled nursing occupancy surpassed pre-pandemic levels in Q2 2024, while assisted living occupancy also saw notable year-over-year and quarter-over-quarter increases. The labor market, a significant challenge in recent years, is normalizing, evidenced by a 35% year-over-year drop in agency labor expense within CTRE's portfolio as of Q2 2024. While regulatory changes, such as California's minimum wage increase for healthcare workers and the vacatur of the federal minimum staffing rule, introduce complexities, the overall trend towards operational recovery supports tenant performance.

While the healthcare industry is increasingly exploring technological advancements like AI in operations, CTRE's competitive advantage is not rooted in proprietary technology developed by the REIT itself. Instead, its strength lies in its operational model, disciplined underwriting, strong balance sheet, and relationship-based approach. These factors enable the company to identify and execute on accretive investments and partner with high-quality operators who may leverage technology within their own operations. This focus on fundamental real estate and operator quality provides a distinct edge in a competitive market.

The company actively manages its portfolio, addressing underperforming assets through transitions to new operators or strategic dispositions. These actions, such as the sale of a Midwest SNF portfolio and the designation of other chronic underperformers for sale or transition by the end of 2024, are expected to result in higher revenues from these properties in the future, as they were not contributing meaningfully to rent this year.

Strategic Expansion and Diversification

Building on the momentum of 2024, CTRE embarked on a transformative strategic initiative in the first quarter of 2025: the planned acquisition of Care REIT plc, a UK-based healthcare REIT, for approximately $856 million including assumed debt. Expected to close in May 2025, this transaction is the largest in CTRE's history and marks its entry into the UK market.

The strategic rationale for this acquisition is multi-faceted. It significantly diversifies CTRE's business across several dimensions: operator concentration, geography, payer sources, and asset classes (as UK care homes offer a hybrid model). This move is expected to reduce the company's US skilled nursing concentration to approximately 49% by property count and 63% by rental income post-closing. Furthermore, the acquisition is anticipated to be accretive in year one and is viewed as adding a new growth engine for the company for years to come, leveraging an experienced UK-based team.

The company's robust pipeline of US-based opportunities remains active, standing at approximately $500 million (U.S. only) as of May 2025, predominantly consisting of real estate acquisitions. To support this pipeline and the UK acquisition, CTRE has secured a $500 million five-year term loan expected to close in May 2025, in addition to its upsized $1.2 billion revolving credit facility and a new $750 million ATM program.

This strong liquidity position and access to capital provide the flexibility needed to continue executing on its growth strategy.

Outlook and Risk Considerations

CTRE's guidance for 2025 reflects the earnings power of its recent investments. The Q1 2025 guidance projects normalized FFO per share of $1.69 to $1.73 and normalized FAD per share of $1.73 to $1.77. This guidance is based on investments closed to date, a diluted weighted average share count of 190.6 million shares, 2.5% CPI rent escalations, and specific revenue and expense projections. Importantly, this guidance serves as a baseline and excludes the potential impact of the broader investment pipeline currently under review, which could provide further upside. Management plans to update guidance once the Care REIT acquisition closes.

The company operates within a competitive landscape, facing other healthcare REITs like Omega Healthcare Investors (OHI) and Sabra Health Care REIT (SBRA), as well as larger diversified players like Welltower (WELL), private equity, and tech-enabled operators. While CTRE is smaller in scale compared to some rivals (with EBITDA significantly lower than OHI's), its competitive advantages lie in its historically low leverage (D/E ratio of 0.18 TTM vs. OHI's 1.07 TTM and SBRA's 0.89 TTM), deep operational expertise, disciplined underwriting, and the ability to offer certainty of closing in transactions. These factors position CTRE effectively, particularly in sourcing off-market deals through its relationship-based lending strategy.

Despite the positive outlook, several risks warrant consideration. Macroeconomic conditions, including elevated interest rates and inflation, could continue to pressure tenant financial health. Regulatory changes, such as state-level minimum wage increases or potential future federal staffing mandates (despite the recent vacatur), could increase operator costs. The integration of the Care REIT acquisition presents risks, including potential diversion of management attention, unforeseen costs, and challenges in integrating operations across different regulatory and cultural environments. Furthermore, international investments expose the company to foreign currency fluctuations and other country-specific risks. Management acknowledges these risks and highlights mitigation strategies, including maintaining a strong balance sheet, actively managing tenant relationships, and addressing underperforming assets.

Conclusion

CareTrust REIT is in a period of dynamic transformation, moving beyond its established track record of disciplined, steady growth to capitalize on a unique confluence of market opportunities and demographic tailwinds. The strategic pivot towards accelerated investment, fueled by a strong balance sheet and relationship-driven lending, has already yielded record results in 2024 and positions the company for significant baseline earnings growth in 2025. The planned acquisition of Care REIT plc represents a bold step towards meaningful diversification and the establishment of a new international growth engine. While challenges exist in the form of macroeconomic pressures, regulatory uncertainties, and integration risks, CTRE's core strengths – its operational discipline, conservative financial posture, and relationship-based competitive approach – provide a solid foundation. For investors, the story is one of a company leveraging its historical strengths to pursue a higher growth trajectory, with the successful execution of its robust pipeline and the integration of its international expansion being key indicators to watch.