CareTrust REIT, Inc.

Good morning. My name is Colby, and I will be your conference operator today. At this time, I would like to welcome everyone to the CARE Trust REIT second quarter 2023 operating results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star followed by the number one. Thank you. I will now turn the call over to Lauren Beal, CareTrust Senior Vice President and Controller. You may begin.

Thank you and welcome to CareTrust REIT's second quarter 2023 earnings call. Participants should be aware that this call is being recorded and listeners are advised that any forward-looking statements made on today's call are based on management's current expectations, assumptions, and beliefs about Care Trust business and the environment in which it operates. These statements may include projections regarding future financial performance, dividends, acquisitions, investments, returns, financings, and other matters, and may or may not reference other matters affecting the company's business or the businesses of its tenants, including factors that are beyond their control, such as natural disasters, pandemics, such as COVID-19, and governmental actions. The company's statements today, and its business generally, are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied herein. Listeners should not place undue reliance on forward-looking statements and are encouraged to review Care Trust SEC filings for a more complete discussion of factors that could impact results, as well as any financial or other statistical information required by SEC Regulation G. Except as required by law, Care Trust REIT and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances, or for any other reason. During the call, the company will reference non-GAAP metrics such as EBITDA, FFO, and FAD, or FAD, and normalized EBITDA, FFO, and FAD. When viewed together with GAAP results, the company believes these measures can provide a more complete understanding of its business. but cautions that they should not be relied upon to the exclusion of GAAP reports. Yesterday, Care Trust filed its Form 10-Q, an accompanying press release, and its quarterly financial supplement, each of which can be accessed on the investor relations section of Care Trust's website at www.caretrustreit.com. A replay of this call will also be available on the website for a limited period. On the call this morning are Dave Sedgwick, President and Chief Executive Officer, Bill Wagner, Chief Financial Officer, and James Collister, Chief Investment Officer. I will now turn the call over to Dave Sedgwick, Care Trust REIT's President and CEO. Dave?

Well, good morning, everyone, and thank you for joining us. Q2 saw continued positive momentum on many fronts, investments, operator relationships, the existing portfolio, and equity issuance. I'll touch briefly on these and on the regulatory environment before handing the call over to James and Bill to provide more color. First, investments and operator relationships. Investing roughly $200 million at our historic yields across eight transactions with six new operators in one quarter represents some of the best work done in that short amount of time in our history. Last year, with the dearth of attractive acquisition opportunities, we decided to lend more than in years past. Our view of lending is that in most cases, those loans do not directly produce real growth because of the short-term nature of the returns and the need to immediately recycle the payoffs. However, there is a strategic case for measured lending activity here if several criteria are met that lead us to believe there will be real growth opportunities with that borrower or operator in the future. In fact, of the roughly $200 million invested in the quarter, $128 million is an indirect result of last year's lending activities. Capital has not historically been the constraint for us to grow. For Care Trust, the choice of operator has always been the most important consideration for new investment. we are thrilled to welcome six new operators in the quarter. That deeper bench opens up new markets and new opportunities for investment. We are eager to help grow these relationships and to continue to expand our existing operator relationships as well. Second, looking at the existing portfolio, last quarter I gave more color around one skilled nursing operator, not in our top 10. with negative lease coverage that accounted for roughly $5 million of contractual rent. We decided the best path forward is to classify these assets as held for sale and are currently negotiating the sale of these properties. We've therefore removed this operator from the supplemental. In the SUP, we have reported on lease coverage in an expanded way since the pandemic began. We've been reporting coverage in three ways. First, on a pre-pandemic basis. Two, excluding provider relief funds. And three, amortizing those provider relief funds through their eligible periods. When you look at coverage, excluding the relief funds, trailing 12 property level EVIT-DAR coverage for the portfolio through March 23 increased to 2.13 times overall compared to the 12 months leading up to December 2022 of 2.01 times. Removing the properties now held for sale contributed to 9 bps to the overall coverage improvement. Finally, on the regulatory front, two quick comments. First, we continue to wait for the proposed minimum staffing requirement from the Biden administration. We don't have any more insight really into what to expect and has been speculated by many others. And second, we're pleased to see the announcement this week of the net 4% increase to the Medicare rate effective October for fiscal year 2024. So the first half of the year was extremely busy for the whole team here. We're excited for the new investments and the new operator relationships. We're pleased to see the vast majority of the portfolio doing well and positioned to expand together, including the investment and equity issuance from the ATM forward. Year to date, we have already funded 96% of the 215 million of new investments and are going into the second half of the year with ample dry powder to continue to grow the business and set up the company for a return to growth in 2024. With that, James, we'll talk about our recent investment activity and pipeline.