CareTrust REIT Inc. completed a previously-disclosed $211 million multi-asset acquisition. The transaction grows CareTrust’s existing real estate holdings by 12 properties with 1,734 beds/units and adds over $19.0 million in new annual revenue to the company’s portfolio as of April 1, 2019.
According to a prepared release, the two-state transaction included seven skilled nursing facilities and one skilled nursing and assisted living campus in Louisiana, which were re-tenanted at closing with existing CareTrust tenant Priority Management Group LLC. It also included three skilled nursing facilities and one continuing care retirement community in Texas, which were re-tenanted with Texas-based Southwest LTC, Ltd. under a new master lease with CareTrust.
“We are extremely pleased to be expanding our relationship with Priority Management, and to be completing our inaugural deal with Southwest LTC,” said Mark Lamb, CareTrust’s Chief Investment Officer. “Both operators have excellent reputations for quality care and are highly successful, and both were instrumental in helping us complete an extremely complicated transaction,” he added.
Lamb called the pairing of Priority Management with the eight Louisiana assets “a match made in heaven,” as two of Priority Management’s key principals operated the assets in the past when they were working with previous owners. “They know the properties and their markets especially well and are currently operating other properties in the same and nearby markets,” he said.
Doug Boulware, Chief Executive Officer of Priority Management, added, “We are delighted to be returning to these facilities with CareTrust, and even though the operations are already stable, we believe there is significant upside in both quality and financial performance to be captured here.”
Lamb also explained that Southwest LTC is “the perfect partner for the four Texas properties,” as it already operates facilities in some of the same markets and knows the properties and markets well. “The new buildings fit right in with Southwest LTC’s existing 27-property portfolio and allow them to strategically expand in these Texas markets where they have operated for almost two decades,” he said. Ron Payne, Chief Executive Officer of Southwest LTC, added, “We believe these facilities and markets come with excellent long-term prospects, and the projected synergies with our existing operations will make it relatively easy for us to absorb and improve them.”
Payne also noted that CareTrust had agreed to provide $1.65 million in capital expenditure funds over two years to allow Southwest LTC to address deferred maintenance and cosmetic needs at two of the facilities.
The aggregate purchase price for the acquisition was approximately $215.0 million inclusive of capex commitments and transaction costs. CareTrust and Priority Management amended their existing seven-facility master lease, which has approximately 12.5 years remaining on the term, to add the eight Louisiana assets and increase the annual cash rent due thereunder by approximately $15.6 million. CareTrust and Southwest LTC entered into a new master lease for the four Texas assets, which carries an initial term of fifteen years with two five-year renewal options and CPI-based rent escalators. The acquisition was funded using a combination of cash on hand and CareTrust’s $600 million unsecured revolving credit facility. The Seller was an affiliate of BM Eagle Holdings LLC, which acquired the assets as part of a larger transaction and simultaneously sold to CareTrust 100% of its interest in the newly-formed single-purpose entity that held the 12 assets.