CareTrust REIT, Inc.

Hello, everyone. Thank you for joining us and welcome to the Care Trust second quarter earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Lauren Beale, Chief Accounting Officer. Lauren, please go ahead.

Thank you and welcome to Care Trust REIT's second quarter 2026 earnings call. Today, we will make forward-looking statements based on management's current expectations, including statements regarding future financial performance, dividends, acquisitions, investments, financing plans, business strategies, and growth prospects. These forward-looking statements are subject to risks and uncertainties that could cause actual results to materially differ from our expectations. These risks are discussed in Care Trust REIT's most recent Form 10Q filing with the SEC. We do not undertake a duty to update or revise these statements except as required by law. During the call, the company will reference non-GAAP metrics such as EBITDA, FFO, and FAD. A reconciliation of these measures to the most comparable GAAP financial measures is available in our earnings press release and Q2 2026 financial supplement, which are available 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, Derek Bunker, Chief Financial Officer, and James Callister, Chief Investment Officer. I'll now turn the call over to Dave Sedgwick, CareTrust REIT's President and CEO. Dave?

Thank you, Lauren, and good morning, everybody. Thank you for joining us. The CareTrust flywheel cranked up a few years ago when we hit around seven times our lifetime annual average of investments in 2024 and again in 2025. The team shows no signs of slowing. In fact, the opposite is true. After two back-to-back record-setting years, we are again on pace to deliver in a big way for our operators and shareholders. Last quarter was the single largest investment quarter in our company's history, excluding M&A activity, with approximately $900 million of investments at a blended yield of 8.9%. James, Kyle, Joe, Tri, Josh, JP, Nick, Martin, and Killian. That's the dream team right there responsible for a year's worth of investments in one quarter. I'm so proud of them and proud of the entire Care Trust team across the board. Accounting, asset management, finance, tax, legal, data, operations. Everyone is rowing hard together to make this year a three-peat of record performance. Q2 results achieved record investments in a quarter, record revenues, record FFO per share, and a healthy raise to guidance. Built on a foundation of record operator lease coverage and operator quality care measures. Let me expand on that foundation just a little bit. We're stoked to see our operator quality care measures exceed the industry averages for overall star ratings, health inspections, quality measures, successful discharges, and readmission rates. Let me repeat that. Our operators outperform industry averages for overall star ratings, health inspections, quality measures, successful discharges, and readmission rates after they've had a chance to manage these buildings for at least four years. In my 2025 annual report letter, I discussed how mission critical it is for us to lease our properties to high quality operators and how we view the relationship between them and the value of our real estate investments. A quality operator is one who is driven by a mission, focuses their resources first on becoming the employer of choice and through that becomes the quality care provider of choice in their market. Only after achieving sustained quality care outcomes can a provider and the real estate they operate achieve sustainable financial stability. We have seen this formula for success prove out over the last 25 years. A care trust operator is one who harmonizes mission-driven culture with the clinical and financial sophistication to adapt to an ever-changing environment. We apply those first principles to skilled nursing and senior housing alike. We invest for the long term. The price we pay and the operator we choose are intended to result in long-term quality care. and as a result, compounding value creation. That solid operator foundation and orientation allows us to grow in a sustainable and accelerated way across our three growth engines. Year to date, we have already closed on approximately $1.5 billion and looking forward, the pipeline continues to reload and deal flow continues to be active and interesting across skilled nursing, care homes and shop Both in the U.S. and the U.K. With the balance sheet as strong as it is, the team stronger than ever before, and the opportunity set expanded, and great relationships with partners and new and existing high-quality operators, there has simply never been a more exciting time for Care Trust. With that, I'll hand it off to James for a report on investment activity and the acquisition landscape. James.

Thanks, Dave. Good morning, everyone. During the second quarter, we closed on investments totaling approximately $900 million at a blended, stabilized yield of 8.9%. That capital was deployed across the full breadth of the platform. U.S. skilled nursing sale leasebacks with quality operators in multiple geographies, the continued expansion of our UK care homes platform, sourced and executed by our London-based team, further growth in our shop portfolio, and relationship-driven real estate loans, primarily to skilled nursing operators, closed either alongside asset acquisitions or in anticipation of them. And as Dave noted, we haven't slowed down since the quarter ended. Since June 30, we've closed on an additional approximately $308 million at a blended stabilized yield of approximately 7.8%. Headlining that activity was a 16-property UK care homes portfolio Net Lease to a New Operator Relationship for Care Trust, joined by a two-community $65 million addition to our SHOP platform. Taken together, our 2026 investments now stand at approximately $1.5 billion year-to-date. Breaking that down, roughly $735 million in U.S. triple net skilled nursing and seniors housing, approximately $397 million in U.K. care homes, Approximately $240 million in loans and approximately $81 million in shop. Turning to what's ahead. The pipeline sits at approximately $540 million, roughly two-thirds skilled nursing and one-third loans to strategic partners plus UK care homes. It's a healthy mix. Some singles and doubles alongside mid to large portfolio opportunities. You'll note the immediate pipe doesn't include shop. Timing and Discipline Thank you for joining us today. In shock, even amid stiff competition and compressing cap rates, we're pursuing the right assets with the right operators and see a long runway to scale that portfolio in the quarters and years ahead. And in the UK, our London-based team has widened our aperture considerably. New operators, new sources of deal flow, and a pipeline that keeps building. Across all three, the team continues to surface attractive opportunities to deploy capital. and we like our position in each of these markets. That growth will stay grounded in the same fundamentals that have served us well, disciplined underwriting, durable operator partnerships and a creative, collaborative approach to structuring. With that, I'll hand it to Derek to walk through the quarter's financial results.

Thank you, James. For the quarter, normalized FFO increased 44% over the prior year quarter to $119.7 million. and normalized fad increased 43% to $118.5 million. On a per share basis, normalized FFO was 51 cents, an increase of approximately 19% over the prior year quarter. And normalized fad was also 51 cents, an increase of approximately 19% over the same period. In the second quarter, we raised approximately $364 million of gross proceeds from the settlement of outstanding equity forward contracts to fund investment activity in the quarter. Also in the quarter, we sold 14.4 million shares under forward equity contracts, raising $580.5 million of gross proceeds at a weighted average price of $40.23. and since quarter end, we sold another 2.2 million shares on a forward basis for gross proceeds of $90.6 million at a weighted average price per share of $41.46. As of today, we have approximately 16.6 million shares remaining unsettled under forward sale agreements representing approximately $671.4 million in gross proceeds available to fund future investment activity. In yesterday's earnings press release, we raised our full year 2026 guidance, reflecting our year-to-date investment activity, including the volume we've closed since quarter end. We're now projecting normalized FFO per share of $2.03 to $2.06 and normalized FAT per share of $2.01 to $2.04. At the midpoint, that represents growth of 16.2% in normalized FFO per share, and approximately 15.1% and normalized FAD per share compared to full year 2025 results. Our updated guidance is based on a weighted average diluted share count of 233 million shares and includes the following key assumptions. First, no new investments, loans or dispositions beyond those made year to date. Second, no new debt or equity issuances beyond those made year to date. Third, 2.5% inflation-based rent escalators under our long-term triple net leases. Fourth, $147 million of loans to be repaid throughout the year, of which approximately $104 million has been received so far to date. And fifth, no material change in the GBP to USD spot exchange rate. Additional guidance measures are detailed in the press release yesterday. Lastly, our liquidity continues to remain strong at approximately $1.4 billion as of today, including approximately $90 million of cash on hand, $605 million of availability under our $1.2 billion revolving credit facility, and approximately $671 million of unsettled equity forward contracts. In addition, we have roughly $785.8 million of capacity available under our ATM program. Net debt to annualized normalized run rate EBITDA was 1.0 times at quarter end, well below our long-term target range, and our fixed charge coverage ratio was 9.9 times. We continue to have no scheduled debt maturities prior to 2028. With continued momentum and a reloaded investment pipeline, we have ample dry powder and multiple levers across our capital toolkit to keep funding our recent pace of investment activity. And with that, I'll turn it back to Dave.

Thank you, Derek, and thank you, James, and thank you, everybody. We're really grateful for everybody's interest and support. As I hope you can tell, we are super bullish on the Care Trust story and not just what we've achieved, but where we are headed. And with that, I would be happy to answer any of the questions that you might have at this time.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. And if you are muted locally, please remember to unmute your device. Your first question comes from John Kilachowski with Wells Fargo. Please go ahead.

James, maybe if I could start with you, you gave some helpful color in the opening remarks, especially about building out the shop pipeline and it not being mentioned in the, or shop not being mentioned in the current pipeline. Could you talk a little bit more about building those relationships with operators and how that will eventually translate into volumes and how we should think about the cadence of that?

Yeah, sure. I mean, I think that it's hard to predict the cadence, John, because you're never really sure what's going to hit the market or what off market is going to come. But I think that Building relationships with these operators and managers, finding the ones you can use in different regions of the country or have proven track records there that have maybe experiences with other publics and their reporting in back office just really allows you to more quickly pursue transactions that come up. It opens up the off-market pipeline as you develop relationships with them and really as you really start to develop frameworks with them of what and many more.

Would you also mind talking about the portfolio deals outside of the quoted pipeline? You know, maybe you don't want to speak to specific deals, but can you talk about the composition of where you're, you know, seeing those opportunities? Or is it more sniff-tilted? Are there shop portfolios out there that you're currently evaluating? I'm just kind of curious what the composition looks like more than anything.

Yeah, I mean, there's a few, you know, portfolios tinkering around out there. I would say there's one or two shop portfolios that are larger out there that we're reviewing to see how attractive they are and whether we want to pursue them. There's also, I'd say the same for, you know, Sniff and one or two in the UK as well. So there's always seemingly a couple of them floating around, but there are a couple of shop ones out there that we're looking at. But we'll see if they're really, you know, worth us pursuing or if we think that there's traction there. Thank you.

Your next question comes from Austin Werschmid with KeyBank Capital Markets. Please go ahead.

Thanks. Good morning out there. With respect to the care home portfolio investment in August, I think this might be one of the largest purchases you've done in the UK since acquiring Care REIT. But what I'm wondering is how much of the scale impact pricing? and, you know, do you view this deal to open the door to potential future deals given the new relationship there with the operator?

Yeah, I mean, the scale did impact the pricing a little bit. Austin, I would say that 16 facilities, it doesn't, you know, deals that size and you don't come around all the time. So there's definitely a teeny bit of a premium there. We definitely see it as a launching point with this operator. We feel like they've demonstrated in the past their ability to operate to operate well at scale. This is really their first jump back in after selling their portfolio last year. We definitely see it as a launching pad to grow with them in the future.

And then, you know, Dave, as you think about tenant and geographic concentration and, you know, kind of ensuring that, you know, you do have the right diversification balanced with, you know, partnering with the highest quality operators consistent with the above average metrics that you highlight in your remarks. I mean, how do you think about striking that right balance moving forward?

Well, I think one of our first principles as we started the company Thank you for having me. Operator in a B market than settle for a mediocre operator in a great market. So that's just in our DNA. That's the discipline we have. And if we do have great operators, we don't mind concentration building with one or another because over time, The diversification and concentration sort of takes care of itself. Appreciate the thoughts. Thanks for the time. Thanks, Austin.

Your next question comes from Juan Sanabria with BMO Capital Markets. Please go ahead.

Hi, this is Robin Hanlon. I'm sitting at Juan Sanabria. I was curious if there are any opportunities to convert existing senior housing tenants to either shop in the US or UK?

You know, we've certainly thought about that. The challenge that we have in doing that is that our senior housing portfolio here in the US and in the UK covers rent really well. There's very little motivation for the operators to walk away from that type of lease coverage. I think a lot of those conversions that have happened in our space have been kind of from a defensive posture where maybe things haven't been performing super well or there hasn't been really strong coverage. It was more of a defensive play to convert to shop. Because ours covers so well, there's less opportunity to do that. However, as we look forward, everything's on the table. I think more likely for us, shop will be coming from being on offense and identifying great assets that we really want to own and have operations responsibility for with great partners.

And as a follow-up, I wanted to ask on where things stand with PACS today. What's the willingness to move forward? What have discussions been sort of year to date?

Yeah, so we're really pleased to see Pax's performance this year. Happy to see them back to normal filing cadence. Really happy to see their investments in compliance and happy to see them back on the growth path. We haven't done anything with PACS for a while, but that's not for lack of trying. We have looked at some deals with them, and we'd be happy to grow with them again if the opportunity presents itself.

Your next question comes from Michael Goldsmith with UBS. Please go ahead.

Good morning. Thanks a lot for taking my question. James, in your prepared remarks when talking about the UK, I think you talked about widening the aperture. So maybe you can provide a little bit more color of what you meant specifically by that.

Sure. I think what I mean by that is that I think the team there has done a great job of going beyond just seeing marketed deals, but also using operator relationships and other relationships they have or that we've formed to bring customers Thank you, Michael. That's pretty much what I mean. Just opening the The way in which deals come to us beyond just traditionally marketed deals and thus really increasing the chances we get more opportunities.

And maybe just to follow up on John's question earlier about the shop in the pipeline, you know, I think you cited timing and discipline. So, like, obviously. You can only take advantage of the opportunities that you see at the same time you are trying to maintain a certain level of discipline around what you're seeing, but then also you know the underlying strength of the business is so strong and it feels like everyone's outperforming their own underwriting. How do you manage that across the portfolio and your opportunities that you're seeing and making sure that you're in on the right deals and making sure you're not missing out on things but also not just acquiring just for the sake of acquiring?

Thank you so much for joining us. to go get it. But on the other hand, we don't feel a huge compulsion to have to stretch to do a deal that doesn't make sense for us. We're finding opportunities to put money to work and really good deals on the SNF side and in the UK care home side. And so when it comes to shop, we're going to continue developing relationships, continue to look at and underwrite a lot of deals. We're going to continue to pick our spots with the right partners, operators and stretch to try to go get those opportunities but not go beyond what we feel is wise or prudent just in the name of growth. So I think we work really hard to try to pick those spots knowing that we don't have to do a deal to grow when we've got opportunities with SNFs and care homes.

Thank you very much. Good luck in the back half. Thanks, Michael.

Your next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.

Yep, thanks. James, just with the increased private market interest in the healthcare real estate space in general, I mean, how has that impacted acquisition cap rates? I mean, have you seen cap rates just broadly drift lower, and is there any one property type where you've seen that more apparent? I know I think in the past you highlighted there's probably the most competition in the shop space, but what have you seen on the SNF space and maybe the UK care home space?

I mean, yeah, shop is pretty well out there. There's a lot more private market entrants right now. Cap rates are compressing as a result. You've got more competitive processes. I think in the sniff world, we don't see too much of that really at all. I think you see the same players that there's been over the past several years, the same buyer pool, I think, really competing for the deals. And so... You know, portfolio deals and SNFs, larger deals, you know, you maybe see a little teeny bit of compression in cap rates, but overall you still see the same where they've been. It's just really having relationships that help you source more off market because there is more off market than listed in the SNF world. In the UK, I think you do see a slow influx of additional players on the private entrance side, for sure. I don't think we've seen it impact dramatically the competitive process, but I would say you see an uptick in buyer entrance, but I haven't seen it really have that much of an impact at all on cap rates or bidding up processes.

Great. And then, I guess, Derek or Dave, can you talk about the purchase options? I know that you have a few, meaning your tenants can potentially acquire one of your current assets. I know there was a window that opened up for one specific smaller purchase option, and there's a few that's coming up here over the next few quarters or so. I mean, how should we think about that? Do you think that those could potentially be executed on, or is that just an option out there that will just kind of expire eventually?

Mike, we do expect and kind of bake in that there's a high likelihood that those will be exercised. Of course, until we get the notices of exercise, it's always uncertain and people's capital needs and plans change all the time. But I think we're constantly in discussion with those Tenants that have options. It's a good relationship. It's collaborative. And it's not the end of the world if they exercise. We always look to do deals down the road with them in the future. But, you know, as of right now, we put a high likelihood that those would be exercised. Okay, great.

Thank you. Thanks, Mike.

Your next question comes from Pharrell Granath with Bank of America. Please go ahead.

Hey, good morning. Thanks for taking my questions. My first one is on the composition of your financing receivables. I know that that can also refer to your sales leaseback. So curious if what percentage of that is potentially SNFs, given that SNFs has been a smaller proportion of your acquisition pipeline as outright purchases.

Yeah. Hey, Vero. It's Derek. It's almost 100% SNF. These are really Exciting, compelling sale-leaseback opportunities. You know, the bulk of the financing receivables have purchase options that are eight, nine years out. And there's a lot of uncertainty in the meantime about those exercise. We view them more in substance as an owned triple net. But for accounting purposes, it falls within the financing receivable bucket. But these are really high-quality assets in the skilled nursing space.

Thank you. And then also just given the growing debate around the path of Fed policy, I'm curious how you're thinking about your cost of capital and especially being able to leverage either your balance sheet or also continue to lean into your equity. If there's any updated thoughts.

Yeah, you know, we prepare for all uncertainties and I think it's a benefit of having relatively low leverage. It gives us the optionality depending upon Fed policy and and other macro factors. So we really like carrying a little balance on the revolver. It's competitive for us. We really like the price of our equity right now. We've got the optionality to do something longer term or term loan. All those are on the table. We're looking at the full toolkit. And for right now, looking at the pipeline, we've got earmarked probably the settlement of our equity forwards and then some. And so I think we've given ourselves some runway to Hey, thanks. Good morning.

So there's one pretty clear disconnect going on in your world, and that is you guys are not finding many in the way of shop transactions, and I know you're working hard at it, but some of your peers are, it's raining shop, you know? And so you're not going to talk about their process, and you're the one with the best cost of capital in the group. So I guess it all doesn't sort of and so on.

more vibrant color to the specific question on how far off are we versus the competition. But I would say one of the main differences between us and some of our peers is we view shop as a long-term complementary growth engine to the Care Trust story. I think some of our peers have really pivoted and gone all in on SHOP. And with that type of publicized strategic change, there's quite a bit of motivation on their side to put money to work and show that they're executing on that new strategy. Whereas we have, I think, the luxury of being opportunity across all three. And if we have the ability to put double digit FFO per share growth by maintaining that discipline and being opportunistic across all three, we really prefer that approach than kind of putting ourselves in a corner per se to have to do a ton of shop to show that we're executing on a particular strategy. I think that's high level why it appears that we've been more measured in our deployment of shop capital. But I wouldn't be surprised either, Rich, if we did do a large shop portfolio deal in the future. For us, that can happen. Okay, and James, any comment on where you're missing?

Yeah, I mean, look, if you're missing, you're almost always missing on price, right, Reg? Thank you for joining us.

Okay. And then last, quickly for me, Dave, maybe for you, what do you like about the skilled nursing business? And I ask that question a little tongue-in-cheek, but you're obviously making a spread on your investments, but if for some reason the acquisition environment suddenly screeched to a halt, you'd be stuck with a 2% growth platform in U.S. skilled nursing. So, you know, Assuming I'm right about that, what is the draw to skilled nursing as an industry for you? And I'm not suggesting it's right or wrong. I'm just asking the question, your perspective on it.

We've got a long, as you know me, I personally and we as a company have a long relationship and history in skilled nursing. That's where we come from back in the Ensign days in 1999 when Ensign started. So we know and love this business. We view it as a vital part of the healthcare continuum in the country. We see it as too important to fail. We saw that during the pandemic. And we see as the demographics continue to grow, blow up over the next 25 years that it will continue to be a really important part of the healthcare continuum. Not only that, because our history is so deep with skilled nursing, I think we do, as our least coverage and track record demonstrates, I think we do a really good job of identifying The best operators out there who can do it the right way, providing high quality care. And to James's earlier point, what it does is it produces really high risk adjusted returns for us compared to just about any other asset class.

I do like that too important to fail comment. So thank you for that great color. Appreciate it. All right.

Your next question comes from Alec Fegan with BEAR. Please go ahead.

Hey, thanks for taking my question. Are there any portfolio initiatives that you're working on with SNF operators, large or small?

What do you, I'm not sure what you're asking. What do you mean portfolio initiatives?

Well, so there's been some, There's been some other of your peers working on some pretty large portfolio initiatives, either replacing operators, doing changes to leases, extending leases. Is there any of that going on in your portfolio?

Oh, no. I mean, there's always there's always some there's always scrutiny, right, on the on the portfolio. But as you look in the SOP, You see just really, really healthy lease coverage. But even with that, the asset management, portfolio management team here is always looking to improve and take assets from maybe weakening hands to stronger hands. But there's nothing that's currently underway that would impact... Thank you. That's it for me.

You bet.

Have a good one.

Your next question comes from Addie Rogers with Raymond James. Please go ahead.

I know, Dave, that there's always headlines and risk from a regulatory standpoint out there, but I'm wondering maybe to ask that question a different way. Are you seeing anything in the acquisition pipeline that either the operators are bringing you or you're increasingly turning down where there's more risk and vice versa? Are there asset types or areas where you're now feeling there's less risk that are opening up opportunities? And I don't know if that's more rehab, less skilled, whatever the case might be. Are you seeing any shift within the mix in kind of the skilled nursing business that's given you this opportunity to continue to acquire so well?

No, Dave, I characterize the skilled nursing environment right now as stable. I think from a regulatory standpoint, from a reimbursement standpoint, there have definitely been previous periods of time that have been more choppy. But right now, I'd say it's really stable. I think the operators and we feel And then maybe one follow up.

It's pretty small, but the loan to own that closed in the third quarter. One, any details about that small asset? And then maybe a bigger question around that is, is that instructive or could that be instructive of any way where you might get more assets back that you'd want to own?

David, are you talking about the Q3? Yeah. So we anticipate that would turn into real estate in the next 6 to 12 months. For instance, we closed a transaction last fall that was under this loan to own, and just recently they got licensure and converted it into the real estate. So that's really what that is. It's just a function to help facilitate closing earlier while you're waiting for licensure.

Great. Thank you.

Your next question comes from Michael Stroyek with Green Street. Please go ahead.

Thanks. Good morning. It sounds like loans are a decent chunk of the pipeline. Can you just talk about the strategic rationale of these particular loans and if we should expect loans to continue to be a meaningful part of external growth moving forward?

Thank you so much for joining us. and so those relationships that cycle has been a very virtuous one for us it's been very successful for us in the past and been a driver of a lot of the growth that's happened over the last couple of years in a cycle that with the right operators and the right properties that will continue to feed it's never going to become anywhere close to the primary business but it'll be you know fluctuate quarter to quarter but when those opportunities arise and we see real estate in the future it's a cycle we'll feed

Understood. And maybe one on the most recent shop deal. I guess, where do you ultimately see that mid 6% yield stabilizing at? And what's the timeframe that you guys are assuming there?

Yeah, I mean, I think those two are pretty stable assets. I think that we see a lot of opportunity for they're well positioned for rate growth. are well positioned for some OpEx savings. One of the facilities has some expansion potential that we're actively looking at. So we definitely see a low double-digit IRR return there. And I think really we would look at margin expansion from the low 30s to the high 30s in the next two to three years.

Got it. Thanks for the time.

Your next question comes from Jyoti Yadav with Mizuho. Please go ahead.

Yeah, thank you for taking my question. This is Jyoti Yadav for Vikram. So you guys mentioned record coverage. Can you talk about perhaps the potential for rent resets over time or at expirations?

Yeah, I think in the supplemental, we show the maturity of our rents starting, I think, in 2031. So that's when the conversation kind of begins. The lease coverage is so strong overall that as we get there in 2031 and beyond, there will certainly be opportunities to reset those rents to more market rates. But it's a few years off.

Got it. That's all from me.

Thank you so much.

There are no further questions at this time. I will now turn the call back to Dave Sedgwick with closing remarks.

Well, thank you everybody for your time and interest. Really just want to take a second to again acknowledge the amazing team here at Care Trust and thank them for the hard work. Thank you for our operators as well, setting the high standard of quality care out there that This concludes today's call. Thank you for attending. You may now disconnect.