February 15, 2019, Steve Monroe, SeniorCare Investor - While many REITs have been net sellers in the last couple of years, especially in the skilled nursing market, CareTrust REIT has been quite the opposite, growing its portfolio to nearly 200 healthcare properties by the start of 2019.
In its latest deal, the REIT announced a large sale/leaseback acquisition in the state of California. Involving four skilled nursing facilities and 503 beds, this portfolio has been owned and operated by Covenant Care.
CareTrust already had a relationship with Covenant, having previously acquired two other skilled nursing and assisted living assets from a private landlord in 2016 and leased them back to the California-based operator under three separate leases.
With the acquisition of four more SNFs, those leases, each with under five years left on their terms, will be consolidated into one master lease with an initial 15-year term, two five-year renewal options and CPI-based escalators. That certainly shows confidence in Covenant Care.
Inclusive of transaction costs, the total investment in the four properties was $43.9 million, or $87,300 per bed, or a roughly 13% cap rate based on estimated EBITDA. Initial annual cash rent from the portfolio will reach approximately $4 million.
In addition to the acquisition, CareTrust retained the right to re-tenant one of the newly-acquired buildings at a future date, at CareTrust’s option.
Covenant also obtained an $11.4 million short-term loan with a 9.0% interest rate from CareTrust, secured by a first mortgage on five Covenant-owned skilled nursing facilities in Illinois. To fund that and the acquisition, CareTrust used its cash on hand.