Thank you for joining us. My name is Mandeep, and I will be your conference operator today. I would like to welcome everyone to CareTrust REIT's Second Quarter 2024 Operating Results. All lines have been muted to minimize background noise. After the speaker's remarks, there will be a question-and-answer session. Now, I will turn the call over to Lauren Beale, Senior Vice President and Controller. Please proceed.

Thanks, Mark, and welcome to CareTrust REIT's second quarter 2024 earnings call. We will make forward-looking statements based on management's current expectations, including statements regarding future financial performance, dividends, acquisitions, investments, financings, 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 CareTrust REIT’s most recent Form 10-K and 10-Q SEC filings. We do not undertake any 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 2024 non-GAAP reconciliation available on the investor relations section of the CareTrust 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 Callister, Chief Investment Officer. I'll now turn the call over to Dave Sedgwick, CareTrust REIT’s President and CEO. Dave?

Well, hello everybody, and thank you for joining us. I'm very pleased with the strong first half of the year, particularly as we celebrated our 10-year anniversary this summer with some record performance. I'll first speak to our year-to-date results and outlook for the second half of the year. James will cover the investment landscape and Bill will review the quarter. Thus far in 2024, we have delivered the following: record-setting investments of approximately $765 million at an average yield of 9.5% and counting. Equity issuance of approximately 23.7 million shares for gross proceeds of $580 million. Year-over-year market cap growth of 84% and an enterprise value of $4 billion for the first time. What's just as remarkable as the growth this year is the genuine sense that the momentum is actually building. Funding this growth with equity has not only been more accretive than it would have been with debt this year, but it has continued to set up the company for supercharged growth for the foreseeable future. The first half performance is a result of moves made in recent years to our balance sheet, our team, and strategic investments and relationships that, taken together, have all positioned us to capitalize on opportunities as crosswinds have turned into tailwinds. In our June investor deck, I wrote about our articles of faith. First, the long-term thinking; the price we pay and the operator we choose is intended to result in long-term quality care and, as a result, value creation. We do not live for the quarter. Second, operator first; the most critical decision for any investment is matching the right operator with the right opportunity. Third, scale will come; we're not interested in growth for growth’s sake; each investment should stand on its own. Fourth, a conservative balance sheet; we believe in keeping leverage low to both protect against an uncertain macro environment and to capitalize on windows of opportunity to grow in a significant way. We may take modest short-term dilution when the pipeline justifies it. We have relied on these principles from day one, regardless of the direction of the wind, and we will continue to run the business in this way going forward. 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 2.17 times and 2.78 times, respectively. The scale of underperforming operators remains relatively small and manageable. We have a couple of transitions underway that will result in higher revenues next year from those properties than this year, and we've decided to sell a handful of chronic underperforming assets. The Midwest Smith portfolio that has been held for sale remains in held for sale status as of today. These transitions and dispositions taken together will effectively deal with all of the properties that have underpaid this year. With respect to occupancy, I'm pleased to report that in Q2, we finally reached and then surpassed the pre-pandemic skilled nursing occupancy levels. Skilled mix was down a little bit year-over-year, but we appear to be settling in at a new normal that is quite a bit higher than pre-pandemic skilled mix, about 330 basis points higher. We still have ways to go to get to pre-pandemic levels on the assisted living side, but we did see a 280 basis point increase year-over-year and a 180 basis point increase quarter-over-quarter for the assisted living occupancy. As far as the industry and regulatory front, just a couple of quick comments: two days ago, Medicare announced fiscal year 2025's Medicare rates would increase by 4.2%, and on behalf of CareTrust, I want to express our heartfelt gratitude to Mark Parkinson, who is retiring from the American Healthcare Association at the end of the year. He's provided terrific leadership to the association for a long time, not the least of which was during the pandemic, and we congratulate and welcome Cliff Porter as the new President and CEO of AHCA. We wish both of these important industry leaders luck going forward. Finally, two things: first, I'm very proud of the extraordinary year; like this doesn't happen without a talented team, a strong culture, and sacrifice. I'm grateful to work with the best pound-for-pound team I know. Second, I want to recognize the relentless pursuit of quality care and performance by our operators. We are truly blessed to work with some of the very finest operators in the country and proud to report significantly higher quality measures and star ratings than industry averages. James will now provide you with color on the investment landscape and reloaded pipeline. James?

Thanks, Dave. Let me just briefly provide an update on the investment environment and on our current pipeline. During Q2, we closed approximately $268 million of investments at an estimated stabilized yield of 9.9%. These investments included the expansion of our relationship with an existing operator, Bayshire, through the $61 million acquisition of three California campus facilities, as well as the start of a new operator relationship with YAD Healthcare in connection with our $81 million acquisition of five skilled nursing facilities in the Carolinas. During the quarter, we also closed two mortgage loans. The first was a $27 million loan to the buyer of two skilled nursing facilities in Tennessee leased to affiliates of the Ensign Group. Starting in year four of that loan, CareTrust has a purchase option to acquire the facilities. We also funded $90 million of a $165 million mortgage loan and a $9 million preferred equity investment in connection with the borrower's acquisition of eight skilled nursing facilities in the Southeast. Since quarter end, we exercised our call right on the remaining $75 million. Yesterday, we also announced that we closed on the $260 million mortgage loan and a $43 million preferred equity investment in connection with the borrower's acquisition of the Prestige portfolio of 37 skilled nursing and assisted living facilities to be operated by affiliates of The PAX Group. Now, turning to the investment environment, the skilled nursing pipeline continues to reload from a steady flow of interesting and actionable opportunities coming across the desk. Competition for skilled nursing acquisitions is high, as ongoing improvement in post-COVID performance has resulted in more facilities approaching or returning to stabilization, and thus pricing on acquisition targets has increased to some degree but has been held in check by the current capital market environment while valuations remain within historical cap rates for skilled nursing. As for who is selling, we continue to see small and midsize regional owner-operators as well as smaller mom-and-pop operators selling their portfolios and exiting the business. The higher buyer demand, combined with operator exhaustion from the COVID years, existing loan maturities, and a somewhat difficult regulatory environment seem to be the primary factors driving these owners to sell. With respect to the regulatory environment, in some states we are seeing stricter annual inspection surveys from regulators and corresponding penalties. In addition, change of ownership approvals in many states are taking longer, and as a result, transactions are delayed as parties wait for regulatory consent. The combination of these factors puts a buyer like us, that has operational roots, is well-capitalized, nimble, and practical, in a position to provide certainty and solutions for sellers and take advantage of an environment that can facilitate accelerated growth. With the closing of the investments announced yesterday, our total investments made year to date equals approximately $765 million at an average yield of 9.5%. The reloaded pipeline today sits at approximately $270 million of real estate acquisitions and consists of some singles and doubles as well as a couple of midsized portfolio transactions. Not included in our quarter pipeline are a couple of larger portfolio opportunities that would not only strengthen existing tenant relationships but also allow us to further diversify our tenant base by commencing relationships with outstanding operators that we have been scouting for some time. Please remember that when we quote our pipeline, we only quote deals that we are actively pursuing under our current underwriting standards and then only if we have a reasonable level of confidence that we can lock them up and close them within the next 12 months. With that, I'll turn it over to Bill.

Thanks, James. For the quarter, normalized FFO increased by 52% over the prior year quarter to $52 million. Normalized FAD increased by 49.5% to $54 million. On a per share basis, normalized FFO increased by $0.01 to $0.36 per share, and normalized FAD also increased by $0.01 to $0.37 per share. Again, this quarter because of our replenishing robust pipeline, we continue to take advantage of our ATM and issued $306.5 million of equity under the ATM during the second quarter, resulting in us having $495 million of cash on the balance sheet at quarter end. Since quarter end, we have used roughly $380 million for investments, leaving us with approximately $100 million as we sit here today. In yesterday's press release, we updated and raised our guidance for this year from normalized FFO per share of $1.42 to $1.44 to a new range of $1.46 to $1.48 and for normalized FAD per share from $1.46 to $1.48 to a new range of $1.50 to $1.52. This guidance includes all investments made to date, a diluted weighted average share count of 146.9 million shares, and also relies on the following assumptions: one, no additional investments nor any further debt or equity issuances this year; two, CPI rent escalations of 2.5%. Our total cash rental revenues for the year are projected to be approximately $212 million to $213 million. We've eliminated the reserve discussion going forward as the properties that were making up the reserve are set to be sold, and we don't have any revenue in guidance for them. Not included in this number is the amortization of below-market lease intangible that will total about $2.3 million, but this will be in the rental revenue number as required by GAAP. Three, interest income of approximately $61 million. The $61 million is made up of $48 million from our loan portfolio and $13 million from cash invested in money market funds. Four, interest expense of approximately $34 million. In our calculations, we have assumed an interest rate of 6.9% for the term loan. Interest expense also includes roughly $2.5 million of amortization of deferred financing fees. And five, G&A expense of approximately $25 million to $27 million, which includes about $5.8 million of deferred stock compensation. Our liquidity continues to remain strong. We have approximately $100 million in cash today and our entire $600 million available under our revolver. Leverage hit an all-time low with a net debt to normalized EBITDA ratio of 0.4 times. Our net debt to enterprise value was 2.6% as of quarter end, and we achieved a fixed charge coverage ratio of 8.2 times. Lastly, as long as the price of our equity relative to the current cost of long-term debt issuance remains pretty comparable, we believe that it makes much better sense to continue to fund this replenishing pipeline with equity. Our net debt to EBITDA range of 4 times to 5 times is still our range; it just may take some time and a lot of investments to get back there, which, like I said last quarter, we plan on doing. And with that, I'll turn it back to Dave.

Well, thank you guys. Let me conclude the call with three things: First, our year-to-date investments equal approximately 3.5 times our life-to-date average annual growth rate, and we're not finished with this year. Second, we have a balance sheet that provides enormous flexibility and historic capacity for both the near term and midterm. Third, we are at the start of demographic tailwinds that should last for decades to come. We hope our report has been helpful, and thank you for your continued support. Happy to now take some questions.

Thank you. Our first question comes from Jonathan Hughes with Raymond James. Please go ahead.

Hey, good morning out there. Thanks for the prepared remarks and commentary, and it's been great to see the success over the past 10 years. I asked this on the last call, but James was not available to answer. So I'll ask it again to hopefully hear the perspective from his mouth, but the expectations are very high for continued acquisition activity given the leverage profile, and with that comes pressure to get deals done. What I think I heard you say is becoming a more competitive acquisition environment. Can you talk about how you manage to balance those expectations for continued investment activity while maintaining underwriting discipline?

Yeah. Sure, Jonathan. Thanks for the question. I think we really continue what we've been doing, which is we're focusing on relationships, finding the right operators, and developing more avenues where pipeline deals can come to us. As we continue to expand on the relationships that we've forged, as we continue lending with a purpose, as we continue to be seen as a creative, flexible transaction partner with high certainty of closing, opportunities will continue to present themselves both traditionally through the broker community, but also organically through existing operators, joint venture partners, and relationships we've worked really hard to develop over the past two years.

That's great. And then on the pipeline that you're looking at today, what percentage of that would be from existing relationships? What would be new? I think you mentioned there were some potential new relationships. I wasn't clear if that was in the pipeline or like the larger deals that would not be included in the pipeline.

A little of both. The pipeline consists of a couple that would be new relationships for us, and a couple that would be existing longer-term relationships. I would say the pipeline consists pretty exclusively of skilled nursing right now, but it's a mix between new operators and current operators. It's a mix of deal sources, some from brokers, some from existing operators, some from relationships we've done deals with in the last 12 months. It's a little bit of all of that.

Yes. Okay. Last one for me, maybe for Bill or Dave, but can you talk about that leverage target range of four to five times? You did say that's still the target, but I think we've only been within that range a few times in the past five years. Of course, with lower leverage does come a better equity multiple, but as we think about earnings power on a fully levered basis, should we really be thinking about that four to five times leverage range or maybe more like three to four? Just any thoughts on that. Thank you.

Well, I think you're right. We have kept it quite a bit lower than that stated range in order to fuel this elevated growth rate that we're experiencing right now, and we'd like to keep that flexibility to take advantage of opportunities like this. But, we're not moving off of that four to five times just because, look, if we grow in a significant way, we want to be able to have the flexibility to go up to that range again if we need to. And you're right, as interest rates come down, it becomes really interesting to see what that accretion looks like as we're able to pull that lever a little bit more.

Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Hey, and good morning out there. As you guys continue to make what I'll call these seed investments to some extent in loans like you did early in Q3, I guess what sort of the multiplier effect or how much beyond those dollars invested would you expect to do in future real estate investment to justify moving forward with the shorter-term loan investments?

Well, it's hard to put a concrete number on it. When we started this strategy of loaning with this purpose in mind of multiplying and creating a pipeline of acquisitions from it, what I could tell you is we've received a return on that strategy and investment far quicker and larger than I would have suspected when we started a couple of years ago. If you look at what we've closed this year and what's in the pipeline, it's north of $300 million of acquisitions that have occurred because of some of those relationships and loans that we've made. So as long as we stick to that discipline, I'm not just filling a void or putting money out to do it on a short-term basis, but there's at least a handshake deal, and sometimes a contractual obligation for a real estate acquisition from it, we're going to continue to be open to that.

I appreciate the thoughts there. And then, Dave, you kind of highlighted the additional disposition you teed up this quarter, seems like a specific situation. I guess given the volume of investment opportunities in front of you, could we see capital recycling become a bigger piece of future funding for new investments just to enhance overall portfolio quality, credit quality, and just kind of in a normal portfolio management discipline?

Yeah, I think it's fair to expect there to be a little bit of that on a routine, regular basis, but nothing significant or sizable. I wouldn't expect going forward. We certainly don't need the proceeds of that to fund growth. It's very specific to particular assets and operators, and like I said in my remarks, it's a really small, manageable piece of the portfolio. It's not going to be anything more than that as we sit here today.

And then just from a timing perspective, the Midwest operator certainly that one's kind of been drilled out a little bit longer than probably you had anticipated for these assets you just added to the pool this quarter. Any sense on timing of when you'd expect to transact?

Well, you're right. Some things are taking longer than I would expect, and so I'm a little bit hesitant to predict, but I'm hopeful that we'll have this transition and disposition work done by the end of the year.

Thanks for the time.

Our next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.

Yes, thanks. James, can you provide some color on what is CareTrust's current underwriting standards when you're pursuing new deals? And how have these standards changed over the past eight months? I mean, obviously, interest rates have come down, and competition has picked up. How are you looking at transactions a little differently today than maybe you were at the start of the year?

I don’t think we look at them too differently. Mike, I think that we're still going to shoot to try to get, you know, a 1.4 coverage and on skilled nursing a yield that is at least in the nines. That's what we're going to continue to shoot for. I think what has maybe changed, call it, in the last few years is that as we find opportunities that are on the path back to being stable, but are not there, I think there is an enhanced collaborative process with tenants to really underwrite carefully what we think stabilized coverage is going to be at those facilities and how the operator is going to be able to get there. We need to ensure that we and the tenant are comfortable with the assumptions we're making and that we see the right metrics and indicators for getting back to a 1.4-type coverage in our typical yield range. So I think that you don't see as much stabilization still yet as maybe years past, but I think we've gotten better at working with tenants to enhance that underwriting process of how long the turnaround takes and when they can achieve that.

Okay. And where are cap rates today? I know you said in your prepared remarks they're still within historical ranges. There are a couple of large debt deals that you announced, I guess, post-quarter end that were at 7.9 and 8.5. What's the reason that you're willing to go below nine for those transactions? Is it just because they are larger type transactions? Are you willing to go a little bit lower on the debt side? How should we think about that?

I think we're willing to go a little lower anytime the deal is sizable and competitive. Also, Mike, as we do bigger deals, we want to create a sustainable rent or interest stream, and if we take a little hit on yield for more comfort on coverage, we're going to make that trade more often than not, especially on larger deals. I think that's kind of what you see with the loan yesterday and the loan in June — that exact approach.

Okay. And I don't know if you can talk too much about the Prestige transaction, but what were the give-and-takes on doing that as a mortgage versus buying some of the real estate? Additionally, how do you think about creating that type of transaction utilizing different levers?

I'd say, look, when we looked at it from, you know, thinking of whether it would work from an acquisition perspective, when we tried the opportunity to next take, we gotta take our spots. We felt like doing it completely on our own would be a tough solve and we're going to have difficulty unlocking the value of some of the assets, including particular, the 15 leasehold assets that are with third-party landlords. So, we liked better the profile of aligning the borrower and operator who both put equity into the real estate side of the deal. We like that we still got over $40 million of essentially real estate equity in the prep we put out. On that particular deal, we felt like the loan made more sense and was a better structure for us. But we look at each deal individually, and our preference is always going to be to acquire. Sometimes we pick our spots and see a different alignment structure may fit what we're looking to do better, and that was the case with Prestige.

Okay. Great. Thanks.

Our next question comes from the line of Juan Sanabria with BMO Capital Markets. Please go ahead.

Hi, thanks for the time. Just curious about the $270 million pipeline and the mix between fee-simple loans. How should we think about the blended year yield there given you mentioned increased competition?

You mean on the loan itself, Juan, the one we announced yesterday?

No, so for the pipeline, the $270 million, what are the yield expectations given the higher competition level?

So it's all skilled nursing, and I would say that the yields are still where they've been for us. I mean, it's going to be more likely than not in the nines. We push it where we can, where coverage seems like it's going to fit for that deal. But I think what you see in the pipeline right now is right in the sweet spot of where we've been, which is in the mid-nines.

Just to clarify, there's no loans in that $270 million pipeline that we've quoted. It's just fee-simple acquisitions.

Okay. And then how should we think about the remaining dispositions and repositioning that are left to be done hopefully by year-end in terms of any offsetting dilution to the sort of the current run rate?

No, I think in guidance, we're not expecting any income from any of those facilities that are being transitioned or sold. So anything that we're able to transition and then recycle is going to be accretive next year for us.

Okay. That's it for me. Thank you very much. Oh, one more. Bill, can you clarify or comment if there's been any ATM activity quarter-to-date?

There has not been any ATM activity quarter to date subsequent to the quarter, mostly because we've been in a blackout.

Our next question comes from the line of John Pinkowski with Wells Fargo. Please go ahead.

Thank you. It looks like you've transitioned a few assets to held for sale, and we know there have been some operators you've been patient with. Are you getting to the point where you're more likely to transition those out? What's the impact on guidance there?

Yeah. That's exactly right. We have gone from being patient to acting on those to make a change. All the transitions that are ongoing and the dispositions that we've announced effectively deal with all of the underpayments for this year. So once that's all complete, as we get new rents from the transition of assets, that will be additive to next year, and then we'll be able to recycle those other assets into new acquisitions.

Got it. And then maybe jumping to this morning's jobs report and some of the discussions we've heard about a softening labor environment, how has that started to flow through, if at all, to your tenants? Are you seeing any improvement in your ability to get away from the door? Do you expect that to translate to better coverage?

Yeah. We do. We are seeing and hearing from our operators that the labor environment is normalizing. In our portfolio alone, we've seen agency expense drop by 35% in the last year compared to year-over-year. So that's a good trend. There's still some agency excess in the portfolio, so there's some tailwind there for us as that continues to normalize.

Our next question comes from the line of Rich Anderson with Wedbush. Please go ahead.

Thanks. Question back on the disposition. If I missed it, I apologize, but do you have an idea of what type of volume we could be talking about to sort of eliminate your problem children in the portfolio?

No. I mean, my hesitation in answering that is that when assets are on the market, we're a little reluctant to talk openly about pricing expectations and what we would expect to receive. We just don't want to tip our hand too much to the market, but there is information in the queue about what we've done in terms of impairments, and you can kind of put some things together there.

Okay. In terms of the balance sheet, your non-existent leverage ratio. Is the method to really use that in this environment even though we're seeing interest rates come down now, but still high relative probably to recent norms? Is the method to have some room to inherit reasonably priced debt if you were to go and buy something of size, and then you can fold that into your balance sheet that way? Is that the only way you could see anytime soon getting up to your 4.5 type of leverage ratio?

Hey, Rich, it's Bill. The only way over the next 12 months that I see us getting that leverage back up to our stated range would be some serious investment flow. I don't think it's realistic that in the next 12 months we'll get up there but having leverage so low right now does allow us the optionality of assuming debt on larger transactions, as well as utilizing the revolver when interest rates come down.

Do you have a sense of how much earnings you're leaving off the table because of your leverage profile? One would think that if you had more leverage, you'd have more earnings.

No, I don't think so right now because of the price, given where rates are at relative to the price of equity. I don't think we're leaving, I don't think we're losing anything there. I think the outlook is where we'll see, as Dave said in his prepared remarks, some supercharged growth when rates come down and we have to tap that debt lever to really see it.

Yes. High-class problem. Last question, CMS, you mentioned 4.2% for FY 2025. I actually think that was revised up from the original proposal, a bit, but do you think this is it, the last year, 2025, of this sort of elevated number as it relates to recapture of inflation and all that sort of stuff? Do we start to trend back down to a more typical 2% growth rate in fiscal 2026? I'm just curious about your thoughts there. Thanks.

Well, thanks. I'd like to phone a friend on that one and call folks at AHCA to confirm or deny what I'm about to say. So with that disclaimer, I think that we're not quite back yet to getting — I don't think we've outrun the inflationary effects on the math because the Medicare and Medicaid rates depend on the state. There are a couple of years of lag that go into that math. The rate increase we're getting for fiscal year 2025 isn't really based on 2024 inflation on labor; it's actually further back than that. So I think that we still might have a little bit more of a elevated rate increase profile going forward but, that's, like I said, I could be wrong, but I think that's my take on it.

Okay. Sounds good. Thanks very much.

Our next question comes from the line of Alec Feygin with Baird. Please go ahead.

Hi. Thanks for taking my question. First one for me is, is there a limit on how big the loan book can get? Is there anything in the covenants or internal to the company?

No, I don't think we're going to bump up against any covenants anytime soon. We care about it and look at it. But the tolerance that we have for it is really connected, like I said earlier, to the expected off-market acquisitions that it brings. Virtually, all of the acquisitions that that strategy has brought have been off-market deals that we would not have otherwise seen.

Yeah. Makes sense. Kind of switching to the tenant watch list, is there any difference quarter over quarter in operators who are on that watch list?

No.

Got it. And what drove the $25 million impairment? Was there anything operator specific or real estate specific?

Yeah. It was classifying a number of assets as held for sale.

That concludes our Q&A session. I'll now turn the call back to Dave Sedgwick for closing remarks.

Well, guys, I really appreciate your time and your interest. Again, just want to thank the CareTrust team for an extraordinary year to date and I'm really excited to see how the second half of the year shapes up as we prepare for an amazing 2025. Have a great weekend, everybody.

This concludes today's call.