CareTrust REIT, Inc.

conference operator today. At this time, I would like to welcome everyone to Kirkcroft Street first quarter 2024 operating results. All lines have been placed on mute to prevent any background noise. After the speaker 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 a question, press star one again. Thank you. I would now like to turn the call over to Lauren Beal, Senior Vice President and Controller. Please go ahead.

Thanks, Mark. And welcome to Care Trust REIT's first quarter 2024 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's 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. Acceptance required by law, Care Trust REIT and its affiliates do not undertake to publicly update or revise any forward-looking statements or 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 normalize 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. In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by CareTrust. 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, and Bill Wagner, Chief Financial Officer. Our Chief Investment Officer, James Collister, is unable to attend the call today. I'll now turn the call over to Dave Sedgwick, Care Trust REIT's President and CEO. Dave?

Well, hello everybody and thank you for joining us. Let me kick things off today by first excusing our Chief Investment Officer James Collister from the call. Given how busy we have been with acquisitions, you would be justified in guessing that he's just too busy for you. But this morning he has a family matter that trumps his participation with us. So while we're on the subject of investments, I'd like to start by talking about our current robust phase of growth. The sharp increase to interest rates has resulted in a unique situation in our nearly 10 years of business. On the one hand, like everyone, our borrowing costs have increased significantly. But on the other hand, because we conservatively established a fortress balance sheet for times like this, and because of strategic relationships we've formed, and because our cost of equity is remarkably a touch lower than our cost of debt today, we are better positioned to invest and grow than any time in our company's history. It's extraordinary to be able to say that we view interest rates staying higher for longer as a net positive for Care Trust insofar as it should continue to drive investment opportunities in our direction. Those of you who know us best know a couple important guiding principles we follow when it comes to capital allocation. First, we do not grow for growth's sake. Healthcare, real estate, skilled nursing in particular, requires a high level of discipline. Every acquisition should immediately or quickly be accretive and must be matched with the right operator. Second, we are building a company to outlast all of us. We are not nearly as sensitive as the algorithms are to quarter-to-quarter numbers. We run the business for long-term value creation and will at times, when the pipeline justifies it, take some short-term dilution to lock in permanent financing and accretion, and thereby set the table for future growth. We started this year with about $300 million of cash on the balance sheet because we saw the potential for 2024 to be a record year of investments. I want to congratulate the team for such a strong start. They are the best pound-for-pound investment team I know and are tireless when it comes to sourcing and closing deals. With the investment on May 1st, we've already closed approximately $205 million in new investments. Approximately $154 million of that has been either acquisitions or loans with purchase options at an average yield of 9.4%. The other $52 million of deals closed are mezzanine loans at an average yield of 13.6%. Last quarter, I elaborated on our strategic approach to lending. You may recall that we are not agnostic between acquisitions and lending. Lending results in lumpiness to earnings and does not by itself result in long-term growth. However, we do enthusiastically lend to strategic borrowers and operators who we believe will result in real estate acquisitions in the future. Let me put a finer point on that. As of today, we attribute about $260 million of real estate acquisitions in the last 12 months alone and another $200 million of acquisitions in our current pipeline that came from this strategic approach to lending in recent years. If we don't have at least a handshake deal with the borrower or operator for acquisition opportunities in the future, chances are pretty low that we will lend. The deal we closed on Wednesday is a perfect example of this philosophy in action. In case you missed it, on Wednesday we closed on a mortgage loan of $26.7 million at an annual interest rate of 9.1% in connection with the borrower's acquisition of a two-property skilled nursing portfolio in Tennessee with Ensign as a long-term triple net master lease tenant. The relationship with this borrower goes back many years They understand our strong preference to own the real estate, and they provided us a purchase option beginning in the fourth year of the loan. After yesterday's Tennessee deal, our pipeline today sits at approximately $260 million and is roughly 50% acquisitions and 50% loans. It includes one larger deal we have been pursuing for some time that we now feel confident enough to include in our quoted pipe. Furthermore, the pipe today is almost entirely skilled nursing properties. In addition to today's quoted pipe, we are also interested in some other large deals that at this point are not tracking at a high enough probability to include in that number. So, with our line of sight on a reloaded pipeline, we have continued to position the balance sheet to capitalize on this window of opportunity while it remains wide open. we are pleased to report a net debt to EBITDA of 0.6 times. High level, if we don't use any more equity, we can now deploy the $345 million of cash on hand plus the undrawn $600 million line of credit and still only arrive at 3.6 times net debt to EBITDA. In other words, we are locked and loaded to grow in a meaningful way for the next few years. Remember how we quote our pipe. We only quote deals that are at least under LOI, that we believe have a strong likelihood of closing, and should close within the next 12 months. Now, turning to the portfolio. You will see in the supplemental, lease coverage continues to show tremendous strength and security overall. Property level EBITDAR with a 5% management fee and EBITDARM coverage was reported at 2.18 times and 2.78 times, respectively. You may have noted in the supplemental, both Priority Management Group and WLC reported declining coverage from Q3 to Q4. This was due to large one-time reserve accruals for workers' comp and or bad debt Had the reserves been better accounted for during 2023, you would not have seen the type of decline they reported. They had occupancy and labor headwinds in the quarter as well. However, both have favorable state Medicaid rate increases this year that should, among other things, drive coverage higher by year end. We are not worried about either of them or anyone in our top 10. The transition of two Eduro Colorado facilities to Ensign took place on March 1st as expected. Ensign stepped in at a lower rent and Eduro is covering the difference across the remaining seven care trust properties in the master lease. Therefore, we do expect to see fairly tight lease coverage for Eduro this year, but we also expect that coverage to increase going into next year. Also, We are still under contract to sell the portfolio of 11 skilled nursing assets with negative EBITDA in the Midwest. Understandably, financing has been challenging, but the buyer continues to make good faith efforts that lead us to believe a deal will get done. On the regulatory front, a couple items. First, CMS announced a 4.1% Medicare rate increase for fiscal year 2025, effective this October. And second, as we expected, CMS issued their final rule on the minimum staffing mandate. We remain disappointed with a rule that is impossible to implement given the widely publicized staffing shortage in skilled nursing and throughout healthcare today. Furthermore, an unfunded mandate of more staff will not magically make those employees appear. We remain hopeful that reasonable heads will prevail in DC to modify or reverse course altogether. before the mandate takes effect. Now before I hand it over to Bill, let me conclude like this. First, the investment environment is very healthy. Second, we have a balance sheet that provides enormous flexibility and historic capacity for both the near term and midterm. Third, we have an interest rate environment that has opened wide a window of opportunity as long as borrowing costs remain higher for longer. And fourth, we are at the start of demographic tailwinds that should last for decades to come. Bill will now provide you with cover on the numbers we reported yesterday.