CareTrust Poised For 10.8% Boom In 2024: Analyst Praises Portfolio Optimization & Balance Sheet

RBC Capital Markets analyst Michael Carroll upgraded the rating of CareTrust REIT, Inc. CTRE to Outperform from Sector Perform, raising the price target to $23 from $19.

Carroll thinks CTRE is uniquely positioned in the current environment to deploy accretive capital aggressively. 

The analyst notes that management is winding down its portfolio optimization plan with six assets re-stabilizing and 15 properties held for sale. 

Carroll expects the six re-stabilizing properties to add $2.6 million of incremental rent, $0.02/share, in 2024, and the assets held for sale should generate ~$20-25 million of net proceeds. 

Also Read: CareTrust's Growth Prospects: Analyst Upgrades Amid Growing Pipeline Of Opportunities, Accretive Acquisitions

The analyst believes that the rest of the operating portfolio is recovering nicely and does not expect any new sizable issues to occur, at least in the near term.

CTRE's net debt to EBITDA ratio has dropped from the low-4.0x range a year ago to 3.5x today, adds the analyst.

Carroll expects management will continue primarily using equity to fund its investment pace, maintaining leverage in the mid-3.0x range in 2024 and pushing it lower to the low-3.0x range in 2025. 

The analyst estimates the 2025 AFFO estimates could push higher by ~$0.06/share if management allowed leverage to tick up to 4.5x (mid-point of the target range).

The company's skilled nursing (SNF) competitive landscape has also improved over the past several quarters. 

The analyst notes that more aggressive private buyers had to take a step back (due to the disruptive capital markets), allowing the REITs to be more competitive. The disruptive capital markets have caused several traditional financing sources and levered buyers to step back. 

Thus, CTRE has been more successful in deploying capital, completing $240.7 million YTD deals at healthy valuations, with the most recent yielding a 9.7% cap rate, Carroll adds.

Additionally, CTRE can fund these investments primarily with equity, driving solid external growth and, at the same time, reducing leverage metrics. 

The analyst estimates ~$350 million of annual acquisitions, primarily financed with equity, should drive ~$0.06-0.08/share of incremental AFFO.

Overall, Carroll estimates a core growth rate of 10.8% in 2024 and 8.3% in 2025.

Price Action: CTRE shares are trading higher by 0.62% to $20.24 on Tuesday.