San Clemente, Calif., Based CareTrust REIT (Nasdaq: CTRE) transferred operations of its four Five Oaks healthcare facilities to subsidiaries of the Ensign Group (Nasdaq: ENSG) on June 1.
The skilled nursing facilities, all located in Washington, have been added to a long-term, triple net head lease between the real estate investment trust and the San Juan Capistrano, Calif.-Based operator Ensign; this is one of eight existing master leases for multiple facilities between the companies.
The lease was also extended for 10 years until 2036, the companies said in a statement.
CareTrust and Ensign have a history of partnerships, with CareTrust becoming a publicly traded REIT seven years ago in May, following a spin-off from Ensign. At one point, Ensign represented 100% of CareTrust’s tenant base; the operator currently represents 32.4% of the annualized rental income of CareTrust.
“Despite their unrivaled track record and extremely healthy 1.85 times rental coverage at the time of the split, one of our first mandates was to reduce Ensign’s focus by growing with other strong operators. in the area of skilled nursing and senior housing, ”Dave Sedgwick, President and COO of CareTrust said in a statement.
The REIT’s position on Ensign has changed; CareTrust welcomes the growing relationship, Sedgwick added in the statement: “[Ensign’s] EBITDAR lease coverage with us has increased 3.62 times and, needless to say, our shareholders are very supportive of our focus with Ensign and our desire to grow the relationship as mutually beneficial opportunities arise. “
Scott Fidel, analyst at financial services firm Stephens, expects Ensign to continue methodically acquiring SNFs this year, calling it “opportunistic mergers and acquisitions” after a financial disruption to the industry due to the pandemic.
Ensign added 1,155 SNF beds to its list in the first half of the year alone, according to data from Stephens.
“We have been expanding in Washington State for several years and are very happy to add these particular operations to our portfolio due to their cultural and geographic fit,” said Barry Port, Managing Director of Ensign, in the same press release. . “We are also delighted to extend our continuing and growing relationship with CareTrust. “