CareTrust REIT Acquires Southern California Assisted Living Facility in Joint Venture Investment

Rhea-AI Summary

CareTrust REIT, Inc. (NYSE:CTRE) has acquired The Villas at San Bernardino, a 78-unit assisted living and memory care facility in California. The acquisition involved a $10.7 million combined common equity and preferred equity investment with a 9.3% initial contractual yield. The facility will be operated by Oxford Health Group under a new triple-net lease agreement, featuring fixed annual rent escalators and a 10-year initial term. The investments were funded using cash on hand.

Insights

Financial Analyst

The acquisition of The Villas at San Bernardino by CareTrust REIT represents a strategic expansion in the healthcare real estate sector, particularly within the assisted living and memory care niche. The combined equity investment of $10.7 million and the initial contractual yield of 9.3% are significant figures. This yield is notably higher than the average real estate investment trust (REIT) dividend yield, which typically ranges between 4% and 6%. Such a high yield could potentially indicate either a strong confidence in the profitability of the new acquisition or higher associated risks.

Moreover, the joint venture arrangement and the triple-net lease agreement with Oxford Health Group, featuring 2% fixed annual rent escalators, suggest a stable long-term income stream for CareTrust. The financial structure of this deal, particularly the use of cash on hand for funding, shows CareTrust's liquidity and could be viewed favorably by investors as it avoids immediate dilution of existing equity or increase in debt levels.

However, investors should also consider the potential risks inherent in the healthcare real estate market, such as regulatory changes, operational risks associated with new operator relationships and the sensitivity of this sector to economic downturns. Additionally, the success of this investment will largely depend on Oxford Health Group's operational performance and the ability to integrate healthcare services effectively.

Market Research Analyst

The assisted living and memory care industry is a growing market, driven by an aging population and increasing demand for senior housing solutions that offer integrated healthcare services. CareTrust REIT's acquisition aligns with industry trends, positioning the company to capitalize on this demographic shift. The partnership with Oxford Health Group, a midsize operator focusing on high acuity residents, reflects a strategic move to collaborate with organizations that have specialized expertise in managing complex care requirements.

As the managing member of the joint venture, CareTrust REIT has a significant level of control and oversight, which could mitigate some of the risks associated with entrusting operations to a new partner. The ability to further age in the community setting is a competitive differentiator that could lead to higher occupancy rates and resident retention, translating into consistent revenue growth for CareTrust.

From a market perspective, investors might see this acquisition as a proactive approach to diversifying CareTrust's portfolio and enhancing its market position in a niche yet expanding segment of the healthcare real estate market. The long-term lease agreement also provides visibility into future cash flows, which is a key factor in evaluating the stability and growth prospects of REITs.

Healthcare Industry Analyst

The partnership between CareTrust REIT and Oxford Health Group in managing The Villas at San Bernardino represents a convergence of real estate management and healthcare service delivery. This type of arrangement is becoming more common as healthcare providers seek to offer residents the ability to age in place by providing higher levels of care within residential settings.

The operational strategy of integrating healthcare services, as emphasized by Oxford Health Group, is essential in the assisted living and memory care sector. This approach can lead to better health outcomes and higher satisfaction for residents, which in turn may result in a competitive edge for the facility. The introduction of new operator relationships, as seen with Oxford, is indicative of CareTrust's willingness to innovate and adapt to changing market demands.

It is important to note that the success of such facilities relies heavily on the quality of care and the ability to adapt to evolving healthcare regulations. As such, the performance of this investment will be contingent upon Oxford Health Group's operational excellence and compliance with healthcare standards. Stakeholders should monitor the integration process and operational metrics closely to assess the long-term viability of this venture.

SAN CLEMENTE, Calif.--(BUSINESS WIRE)-- CareTrust REIT, Inc. (NYSE:CTRE) announced today that it has acquired The Villas at San Bernardino, a 78-unit assisted living and memory care facility located in San Bernardino, California.

In connection with its acquisition of the facility, CareTrust and a third-party regional healthcare real estate investor entered into a joint venture arrangement under which CareTrust provided a combined common equity and preferred equity investment amount totaling $10.7 million. CareTrust is the managing member of the joint venture entity. CareTrust’s initial contractual yield on its combined preferred and common equity investments in the joint venture is approximately 9.3%.

The facility will be operated by Oxford Health Group, a new operator relationship for CareTrust. Oxford is a midsize California seniors housing operator that focuses on strategically integrating healthcare services into its communities, allowing higher acuity residents to further age in the community setting. Oxford and the joint venture landlord entered into a new, triple-net lease agreement that provides for 2% fixed annual rent escalators (commencing with the third lease year), a 10-year initial term, and four, 5-year extension options.

“We are thrilled to kick off 2024 with the acquisition of a quality assisted living property with a new relationship with an accomplished operator,” said James Callister, CareTrust’s Chief Investment Officer. “We anticipate expanding the relationship as we find more assisted living properties that fit our shared criteria,” said Mr. Callister.

The investments were funded using cash on hand.

About CareTrust™

CareTrust REIT, Inc. is a self-administered, publicly-traded real estate investment trust engaged in the ownership, acquisition, development and leasing of skilled nursing, seniors housing and other healthcare-related properties. With a nationwide portfolio of long-term net-leased properties, and a growing portfolio of quality operators leasing them, CareTrust REIT is pursuing both external and organic growth opportunities across the United States. More information about CareTrust REIT is available at www.caretrustreit.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240109088920/en/

CareTrust REIT, Inc., (949) 542-3130, ir@caretrustreit.com

Source: CareTrust REIT, Inc.

FAQ

What did CareTrust REIT, Inc. (NYSE:CTRE) acquire?

CareTrust REIT, Inc. (NYSE:CTRE) acquired The Villas at San Bernardino, a 78-unit assisted living and memory care facility located in San Bernardino, California.

What was the investment amount for the acquisition?

The combined common equity and preferred equity investment amount totaled $10.7 million.

Who will operate the facility?

The facility will be operated by Oxford Health Group, a midsize California seniors housing operator.

How were the investments funded?

The investments were funded using cash on hand.

What are the terms of the lease agreement?

The new triple-net lease agreement provides for 2% fixed annual rent escalators, a 10-year initial term, and four, 5-year extension options.