CareTrust REIT, Inc. (CTRE) Q2 2026 Earnings Call Transcript

Hello, everyone. Thank you for joining us, and welcome to the CareTrust 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 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Lauren Beal, Chief Accounting Officer. Lauren, please go ahead.

Thank you, and welcome to CareTrust Wreath'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 CareTrust REIT's most recent Form 10-Q 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 CareTrust'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 Collister, 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, Tree, 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 CareTrust 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's 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 U.K. 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 CareTrust 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 UK 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. That's really just a function of timing and discipline. The team continues to deepen relationships, including with high-performing operators, and we are confident these relationships will drive attractive on- and off-market opportunities that we expect to convert in future quarters and give us a long runway to scale that portfolio in both the U.S. and the U.K. And our usual reminder on methodology. The quoted pipe includes only deals we have a reasonable level of confidence we can lock up and close within the next 12 months, and it typically excludes larger portfolios still under review. Stepping back for a moment, what gives us real confidence is that all three of our growth engines are producing. In skilled nursing, deal flow remains deep and steady, with proprietary opportunities generated through long-standing relationships. In shop, 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 $0.51, an increase of approximately 19% over the prior year quarter. And normalized FAD was also $0.51, 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 FAD 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% in 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 one to raise your hand to withdraw your question press star one 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 kilichowski with wells fargo please go ahead uh james maybe if i could start with you you gave some helpful color in the opening remarks uh especially about building out the the shop pipeline and it not being mentioned in the or shop not being mentioned 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's 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 and 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 your deal with them would look like, the terms on which you do it, and you get really all that kind of pre-baked so you can react quickly when the right deal in the right area comes up for you to work with that particular operator or manager. And I think the team's done a great job of developing a lot of those relationships and being ready really to continue and ramp up pursuing acquisitions in different parts of the country.

And then 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 SNF 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. And there's also, I'd say, the same for, you know, SNF and one or two in the UK as well. So there's always a 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 Wershmed 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 U.K. since acquiring CareReit. But what I'm wondering is, how much should 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. And I would say that 16 facilities, it doesn't, you know, deals that size and UK 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, you know, at scale and to operate well at scale. And this is really their first jump back in after selling their portfolio last year. So 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 upper 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 was that the underwriting always starts and ends with who is the operator going to be. And if we do not have what we think is a quality operator to match with a great opportunity, we're simply going to pass on that deal. We'd much rather take an A 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, which 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 Handel. I'm sitting here for Juan. I was curious if there are any opportunities to convert existing senior housing tenants to either shop in the U.S. or U.K.?

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 U.S. and in the U.K. covers rent really well. And so 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. And so it was more of a defensive play to convert to a shot. So because ours covers so well, there's less opportunity to do that. And however, you know, as we look forward, everything's on the table, but 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 PAX today. What's the willingness to move forward? What have the 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 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, you know, more pipeline or sources of deals than just the traditionally marketed deals. I think also that, you know, as you start to look at, you know, maybe structures beyond just the triple net, they've done a great job of starting to form relationships for us to start looking at, you know, deals like that that might work in other structures, like, you know, a shop if something presented itself.

So I think, Michael, that's pretty much what I mean, just opening the way in which deals come to us beyond just traditionally marketed deals and thus really increasing the chances to get more opportunities. got it and maybe just to follow up on john's question earlier about the no shopping in the pipeline you know i think you cited timing and discipline so like obviously um like how do you like you can only take advantage of the opportunities that you see the same time you are trying to maintain a certain level of discipline around you know what you're seeing But then also, you know, the underlying strength of the business is so strong and, you know, it feels like everyone's outperforming their own underwriting.

So how do you kind of manage that across the portfolio and your opportunities that you're seeing and making sure that you're in on the right deals and then also making sure you're not missing out on things, but also not just acquiring just for the sake of acquiring? yeah i mean it's a tough balance i would say but i you know i think what we try to do is we try to really look at deals and pick our spots right and we try to find those opportunities where we feel like there's real confidence that we have that this can get to an irr that we really want to pursue and we'll stretch to try 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 and 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 highlight it, 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 entrance 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 sniffs larger deals you know you maybe see a little teeny bit of compression and cap rates but overall you still see the same where they've been it's just really uh having relationships that help you source more off market because there is more off-market than listed in the SNF world. And 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?

Hey, Mike, you know, 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, you know, it's always uncertain and people's capital needs and plans change all the time. But I think we're, you know, 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 okay good morning thanks for taking my questions my first one is on the composition of your financing deceivables i know that that can

also refer to your sales leaseback so curious if what percentage of that is potentially sniffs given that sniffs has been a smaller proportion of your acquisition pipeline as outright purchases Yeah.

Hey, Pharrell. It's Derek. It's almost 100% SNF. These are really exciting, compelling sale-lease-back opportunities. 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.

Okay, 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 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. upwards and then some. And so I think we've given ourselves some runway to maneuver and be flexible depending upon how those macro conditions continue to unfold. But right now we're really just pricing it out and watching those rates daily and trying to be opportunistic about it.

Okay. Thank you so much.

Your next question comes from Rich anderson with canter fitzgerald please go ahead hey thanks good morning um so there's one pretty clear disconnect going on in in your world and that is you guys are not finding many in the way of shop uh 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 gonna you're not gonna talk about their process but and you're you're the one with the best cost of capital in the group so um i guess um it it all doesn't sort of ring clear to me um except for the fact that you know you're going to be very uh disciplined and all that but when you're on the ground looking at deals that you're competing with i mean how far off are you missing from the ultimate winner uh is it coming down to pricing you know what what is it that's causing yours to be such a slow out of the gate process and shop whereas others are really moving quite fast maybe james can give a little bit of um more vibrant color to the the specific question on you know how 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,

you know, we have not, 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 opportunistic 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 because there are portfolios out there that I think will eventually check all the boxes for us.

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, Rich? And so when we look at it and we look at a deal and we say, look, what do we feel like the projections are here, what's the IRR going to be, what's the return, what's the risk-adjusted return, and you start getting facilities that are portfolios that are in the mid-90s occupancy that are stable, or the pricing's going to a mid to low five cap, and you start looking at that versus a plethora of SNF and other opportunities that are going to be in the nines or high eights, and you start looking at the risk-adjusted return, and you think, you know, maybe it's wiser to put some allocated capital to where we have most opportunities with a better risk-adjusted return for us if the pricing is just going to be too risky for us and not get the returns that we're looking for. So that's really what process that you go through. Yeah.

Okay. And then last quickly for me, Dave, maybe for you, like, what do you like about skilled nursing business? And I asked 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, 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.

Oh, 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 health care 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 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 a fail comment. So thank you for that. Great color. Appreciate it. Thanks, Rich. All right.

Your next question comes from Alec Feigen with Bayer. 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 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. Um, but even, even with that, there's the, the asset management portfolio management team here is always looking to improve and, and take, take assets from maybe weakening hands to, to stronger hands, but there's nothing that's, that's currently underway that would impact, uh, you know, guidance or, or our results at all.

Nothing of significance. got it 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 hey guys good morning it's dave i um i know dave that there's always uh headlines and risks 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, you know, 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, you know, skilled, whatever the case might be. Are you seeing any shift within the mix in kind of the skilled nursing business that's giving 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 comfortable with it, and there's quite an appetite to grow in today's environment.

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 more quickly?

Dave, are you talking about the Q3? Yeah. I mean, that's really a function of, I think, what you're talking about is in the UK, sometimes some of the parts of the transactions have to be structured a little differently as kind of a loan to own to facilitate closing while licensure is being received. So we anticipate that would turn into real estate in the next six 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 Stroyak 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?

Yeah, I mean, there's always a purpose behind the loans, Michael, really. It's that, you know, they're either going to be done alongside asset acquisitions or in contemplation of. So whether it's a purchase option or an agreement that real estate deals will follow, it's really a way for us to unlock the door to future real estate acquisitions with that particular borrower or operator. 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 that?

And what's the timeframe that you guys are assuming there? yeah i mean i think it's those are two are pretty stable assets i think that we see a lot of opportunity for they're well positioned for rate growth they're well positioned for some opx savings one of the facilities has some expansion potential that we're actively you know looking at so we definitely see you know a low double digit ira return there and i think really you know 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 Yadov with Mizuno. Please go ahead.

Yeah, thank you for taking my question. This is Jyoti on for Vikram. So you guys mentioned record coverage.

Can you talk about perhaps the potential for rent resets, like over time or at 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 for 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 allows us to continue to expand our and their missions. Hope everybody has a great weekend.

This concludes today's call. Thank you for attending. You may now disconnect.