Dive Brief:
CareTrust REIT announced Tuesday it plans to buy 31 skilled nursing facilities in Alabama and Tennessee from American Health Partners for about $500 million. The real estate investment trust will buy the properties in partnership with with an unnamed “large third-party healthcare real estate owner,” according to a press release.
The REIT expects the deal to be completed during the fourth quarter. CareTrust will lease the facilities to the Pacs Group, the Ensign Group, Links Healthcare Group and an unnamed company.
CareTrust has been steadily expanding and plans to buy four skilled nursing facilities for $57 million next month in the northeastern U.S., CEO Dave Sedgwick told investors during this week’s third-quarter earnings call.
Dive Insight:
Owning and leasing skilled nursing homes is CareTrust’s bread and butter. Though the REIT operates in 31 states, 75% of its 326 properties are nursing homes.
Tuesday’s deal is the latest in a series of expansions for CareTrust — one analyst on its earnings call noted the REIT had essentially doubled in size since last year.
Should the deal be approved, Utah-based PACS Group will operate 12 facilities in Tennessee, according to the release. The holding company will lease the nursing homes from an affiliate of CareTrust and have the option to purchase six of the facilities between the fourth and seventh years of the lease. The holding group has previously offered senior living services, however, the deal will mark its entrance into the skilled nursing home market.
The Ensign Group, which operates a network of post-acute facilities across 14 states, will operate eight Tennessee-based nursing homes and one in Alabama, according to the release. Ensign will lease six of the facilities from CareTrust and is opting to purchase three others through its own REIT — Standard Bearer Healthcare REIT.
California-based Links Healthcare Group will operate seven Tennessee nursing homes, while an unnamed company will operate the remaining three Tennessee-based facilities.
Collectively, initial annual base rent will run the operators approximately $44.4 million, James Callister, CareTrust’s chief investment officer, said on the earnings call.
The deal comes as lawmakers have pushed for more oversight into the role REITs play in care delivery at long term facilities — a move that’s received mixed reactions from trade organizations.
Sen. Elizabeth Warren, D-Mass., asked the Internal Revenue Service to crack down on how REITs were potentially stretching tax exemptions, after lawmakers worried rental agreements with Medical Properties Trust drove Steward Health Care into bankruptcy. Sen. Edward Markey, D-Mass., also introduced legislation to curtail the impact of REITs in healthcare.
Industry groups warned that a focus on REITs could have a chilling effect on investment in long term care.
“With a rapidly growing elderly population, now is the time for federal policymakers to incentivize investment in long-term care and advance public-private partnerships,” Clif Porter, the American Health Care Association and the National Center for Assisted Living senior vice president of government relations, wrote in opposition to Markey’s proposal this May. “We fear this bill would do the opposite, repelling investors and restricting access to high quality care.”
