Another player in the healthcare real estate investment trust space is turning to the behavioral space as a way to diversify.
CareTrust REIT Inc. executives said Thursday that it will repurpose some of its properties into behavioral health facilities.
The San Clemente, California-based senior-care facility real estate investment trust owns 227 facilities in 29 states 160 of which are skilled-nursing facilities. In its full-year 2021 earnings release, CareTrust said that it would “pursue the sale, re-tenanting, or repurposing of up to 32 assets.”
On the company’s annual earnings conference call on Thursday, CareTrust REIT CEO Dave Sedgwick said that “a small part of the 32 assets” will be run by a “proven operator” in the behavioral health space.
Behavioral Health Business learned later in the day that the operator was Franklin, Tennessee-based addiction recovery company Landmark Recovery.
CareTrust REIT (Nasdaq: CTRE) has vetted the operator and is in a letter of intent, due diligence and lease negotiation stage in the deal with the operator, Sedgwick said.
The company is seeking to remove weakness from its portfolio of companies and hopes to take advantage of “the frothy seller’s market” for skilled-nursing facilities. The 32 properties that aren’t leased by the behavioral health operator will be sold or be leased to new tenants.
“We’ve been looking at this asset class for years and are thrilled to have found a proven operator we’re excited about an entry point with some of our very own properties to convert into a higher and better use,” Sedgwick said. “This will be a powerful new asset management tool to prune and strengthen master leases in the future and to provide the company with a new growth vertical as well.”
Sedgwick said that behavioral health typically sees higher rents and operates at better lease coverage than senior housing.
“Repurposing some of our properties would give us the entry point into behavioral health we’ve been looking for, and give our team a powerful new asset management
CareTrust REIT posted $72 million in net income — or $0.74 per share — in 2021 which was down 11% compared to 2020. Revenue increased by about 7.9% year-over-year to $192 million.
In 2021, Behavioral Health Business reported on notable moves by REITs attempting to diversify by getting into the behavioral health space. In June, Louisville-based inpatient behavioral health hospital operator Springstone was acquired by Birmingham, Alabama-based Medical Properties Trust (NYSE: MPW) for nearly $1 billion.
In November, Chicago-based Ventas Inc. (NYSE: VTR) revealed it acquired a building where Eating Recovery Center operates for $58 million. And in September, Irvine, California-based Sabra Health Care REIT (Nasdaq: SBRA) entered into a proposed agreement to provide Recovery Centers of America (RCA) with a $325 million mortgage loan, which would be secured by eight inpatient addiction treatment facilities.
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