CareTrust REIT, Inc. (CTRE) Q3 2026 Earnings Call Transcript

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. Normalized FFO per share is up 20% over last year. And year-to-date, we've set another record of approximately $2.9 billion invested across all three growth engines, setting up 2027 to be another strong year of growth. Let me put those figures in context. Over the last few years, since Q422, health care REITs have grown assets by 27%. Care Trust's asset base has grown by 375%. And looking at FFO per share growth from 23 through estimates for this year, healthcare read FFO per share will have grown 30%. Care Trust will have grown 47%. Looking at forward estimates, today, Care Trust trades at the lowest growth-adjusted multiple of all healthcare reads. Rates have certainly moved against everyone this fall. If you've ever wondered why we have maintained extremely low leverage and stockpiles of dry powder while simultaneously growing at a record pace, it's precisely for a market like this. In times of rising rates and uncertainty, sellers prioritize the buyer who will close, and that's us. I'll remind you that our meteoric growth rate began, and in no small measure was due to the Fed's aggressive rate hiking in 22 and 23, and during the subsequent hire for longer environment. With last week's announced term loan and upsized revolver, Derek will walk you through how well positioned the balance sheet is today for today's market, and for being able to comfortably close on a robust pipeline of accretive investment opportunities ahead.

Now, on October 1st...

We crossed the start line on a strategic relationship with L&T. This deal combines two growth engines, UK care homes and shop, with L&T acting as the multiplier. Let me say a word or two about L&T. The owner of L&T, Lawrence Tomlinson, has built more than 250 care homes in his career, and his team is now engineered to deliver around 30 care homes per year. No other developer in the UK comes close to that pace. Standardization, vertical integration, and a talented and driven team are the special ingredients that make L&T one of one. When the ramp-up phase flips from triple net to shop, our first-year NOI yield will be in the high 7% range with a strong runway of growth from there to conservatively achieve our target of double-digit returns. It will be the only portfolio of scale across the UK that is brand-new, high-quality, affordable private pay, purpose-built, with 100% en-suite wet rooms competing with a market of much older, often converted buildings, a third of which have en-suite wet rooms. So, in a season of fierce competition for shop assets, L&T provides us with a truly differentiated shop growth engine. That will deliver double-digit returns with future-proofed real estate. In addition to L&T, the core growth engines continue to compound. In the third quarter alone, we closed approximately $740 million of investments at a blended stabilized yield of 8.3%, which James will talk to in a minute. This rate of growth can only happen with the right skilled nursing tenants and shop management companies. Lease coverage set another record this quarter. Skilled nursing EBITDA lease coverage hit 2.62 times, and EBITDARM of 3.26 times across the stabilized portfolio, up again from last quarter. 100% of the skilled nursing facility real estate that we own is licensed and run by independent operators under a triple net lease. This financing structure gives 100% of the operating control to the tenant. Which is why, when they improve the financial performance of the facilities, like you see here, 100% of every dollar above our fixed rent is retained by the operator. So what does this mean in light of our sector-leading lease coverage? It means our operators have the financial capacity to both reinvest into their people and processes, and to adapt to an ever-changing operating environment. So, here's where we stand as we begin to close out another extraordinary year. The CareTrust flywheel is delivering and accelerating. The L&T relationship is just getting started. The pipeline continues to reload, and our balance sheet has capacity to fund it all. And with that, I'll turn it over to James.

Thanks, Dave. Good morning, everyone. As Dave mentioned, in the third quarter, we closed on investments totaling approximately $740 million at a blended stabilized yield of over 8.3%. The largest of these was the 20-facility skilled nursing portfolio in the Southwest that we announced in September. We sourced that transaction off-market and acquired it through a joint venture with a repeat partner. It is triple net lease to an operator that we know well, and it is a strong example of our off-market pipeline at work. In total, third quarter investment activity largely consisted of, one, the acquisition of the Southwest Skilled Nursing Portfolio for approximately $399 million, two, approximately $269 million of senior housing triple net investments led by a 16-home UK care homes portfolio sourced and executed by our London-based team, and three, a two-community addition to our shop platform in Utah for approximately $65 million. We have remained busy since the end of the quarter, closing on just over $1 billion of investments. Headlining that activity was the acquisition of the first 23 L&T homes for approximately $733 million exclusive of transaction costs. As previously announced, these homes are triple net leased to L&T's operating company, CrystalCare, with the ability to convert to shop as these assets stabilize. We also funded approximately $241 million of loans and preferred equity investments with existing operator relationships at a blended yield of approximately 10.9% and closed on the acquisition of three care homes in the UK for approximately $33 million. Taken together, our 2026 investments now stand at approximately $2.9 billion year-to-date at a blended yield of approximately 8.1%. That includes $1.2 billion in UK care homes, roughly $1.1 billion in U.S. skilled nursing and seniors housing triple net, approximately $481 million in loans and preferred equity, primarily secured by skilled nursing facilities, and closed either concurrently with asset acquisitions or anticipation of them, and approximately $80 million in shop. Turning to what lies ahead, our pipeline currently sits at just over $1.2 billion. Roughly one-half of that is the 21 remaining L&T homes under development, which we expect to close between January and September. Roughly another 20% is U.S. SHOP, and the balance is skilled nursing, U.K. care homes, and loan activity. As a reminder on methodology, our pipeline includes only those deals we have a reasonable level of confidence we can close within the next 12 months, and it does not always include larger portfolios we are reviewing. Looking ahead, we expect to keep growing the way we always have, underwriting with discipline, backing operators we trust for the long term, a committed focus on relationships, and structuring deals creatively and collaboratively so that Both sides win this same approach opens the door to more off market opportunities, and we expect these principles to power our growth going forward. And with that, I'll turn it over to Derek for the financial results.

Thanks, James. For the quarter, normalized FFO increased 37% over the prior quarter to $129.2 million, and normalized FAD increased 36% to $127 million. On a per-share basis, normalized FFO was $0.54, an increase of 20% over the prior quarter, and normalized FAD was $0.53, an increase of 20% over the same period. During the third quarter, we settled all of the 14.4 million shares outstanding under our May Forward Equity offering for gross proceeds of $578 million. We also issued 7 million shares under our ATM program at a weighted average price of $40.11 for gross proceeds of $280 million. Subsequent to quarter end, we closed on a new $700 million unsecured term loan maturing in 2032, and we expanded our unsecured revolving credit facility to $2 billion. We used the term loan proceeds to repay borrowings under the revolver and to fund investment activity. We're grateful to our bank partners, existing and new, for their support on both the term loan and the revolver upsides. Together, they provide a deep, reliable source of capital, extend our runway, and position us well to keep funding our growth. In yesterday's earnings press release, we raised the low end of our full year 2026 guidance, which we last increased in October. We're now projecting normalized FFO per share of $2.08 to $2.09. And normalized FAD per share of $2.04 to $2.05. At the midpoint, that represents growth of 18.5% in normalized FFO per share and 16.2% in normalized FAD per share compared to full-year 2025 results. Our guidance is based on a weighted average diluted share count of 240 million shares and includes the following key assumptions. First, no new investments, loans, or dispositions beyond those made or announced 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 $111 million have been received so far to date. And fifth, no material change in the pound sterling to U.S. dollar spot exchange rate. Additional guidance measures are detailed in the press release yesterday. Looking forward, our liquidity remains strong. As of today, it stands at approximately $2.3 billion, including approximately $100 million of cash on hand, $1.6 billion of availability under our $2 billion revolving credit facility, and $599 million of capacity available under our ATM program. Net debt to annualized normalized run rate EBITDA was 1.4 times at quarter end. Proforma, including all investments year to date, it's approximately 2.7 times, still well below the low end of our long-term target range of 4 to 5 times. Our fixed charge coverage ratio was 10.5 times at quarter end, and we continue to have no scheduled debt maturities prior to 2028. It's worth underlining that with the added capacity from our credit facility upsize, we have more than sufficient funds to close on our pipeline and keep leverage below our stated target range. We typically allow about 12 months to close on our stated pipeline. All else equal, if we were to utilize that capacity to fund the pipeline, by the end of 2027, we could be reporting another year of double-digit, normalized FFO per share growth. While keeping pro-forma leverage still well below that range, all without access in capital markets. And later next year, we expect to begin converting our L&T homes to a Rodea structure by acquiring the Opcos at a 20% yield on in-place EBITDA. Shop would then become a more meaningful portion of our run rate FFO, with multiple years of strong growth thereafter given the quality and vintage of L&T homes. Simply put, our balance sheet is built for the identified and actionable opportunities ahead, with flexibility to pull other levers for further accretive investments we source and close. And with that, I'll turn it back to Dave.

Great. Thanks, Derek. Looking ahead to 2027 with all of its uncertainty, I think after today's update, you understand why we are as bullish as ever about our ability to deliver meaningful per-share growth for our shareholders. Our recent outsized growth in assets and FFO per share has been a result of a differentiated strategy. With L&T, we are again differentiating ourselves by partnering with the envy of the UK care home development sector. We look forward to sharing more of the progress as that and our other pipelines deliver. We're happy to take your questions now.

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. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Pharrell Granath with Bank of America. Your line is open. Please go ahead.

You know, what makes L&T's development model different from other providers and how that's translating into better returns for care trusts? And then, is this an opportunity you could replicate with other partners, or is it fairly unique to L&T?

You know, you were, I think, muted for the beginning of that question. If you wouldn't mind, could you repeat it?

Sure. Could you just talk about what makes L&T's development model different from other providers, and is this an opportunity you could replicate with other partners?

Yeah, thank you. Thanks a lot for the question. I realize this is our first conference call since announcing the L&T deal. So allow me to take a few minutes to provide you maybe a little bit more color than you bargained for with that question, if that's okay. The way we view this deal, we've called it strategic for a reason. If you look at the going-in triple net yield, that's not really how we measure the value of the deal, nor why we characterize it as strategic. That triple net yield in two to three years will be in the high 7% to low 8% range. For our first shop, NOI Yield, with plenty of room to run toward our unlevered double-digit returns. So we view the deal in a couple of ways. We view this pricing in a couple of ways. We bought the shop at, if we bought shop at a 5.8% cap rate and underwrote year three at 7.8%, that's a 16% CAGR for those first couple of years. And essentially, we traded two years of growth for downside protection while retaining 28 plus years of upside. And the 7.8% yield is based on a trailing three annualized EBITDA. If we assume some growth in year one of shop, call it just 5%, that's actually an 8.2% year one shop yield. So, if you compare that first-year NOI yield for a newly built home to how older assets trade in the U.S. today, I think you see how we view it. If we only measured the value of this acquisition of 45 L&T care homes by the same… On levered return targets we have in the U.S., we would do the deal all day long, but even earning those returns starting from a higher, safer yield is too simplistic of a way to measure the value of the L&T deal, or why we characterize it as strategic. So, a little bit more specific to your question, L&T is really the most prolific developer of care homes in the U.K. Their proprietary, vertically integrated, fanatically standardized approach, iterated over 30 years, builds homes to an unparalleled yield on cost in the mid to high teens. And they're currently capable of delivering around 30 homes per year. So the development pipeline and their development pipeline beyond the next homes that we have under contract to buy stand at over 150 sites and counting. It's really why we call them one of one. So our deal with L&T delivers 45 newly developed care homes in initial lease-up phase without prohibitive lease-up risk or dilution. And the relationship and current deal provide a path to lock up not only that massive and growing shop pipeline for ourselves for many years to come, but also to capture those yield-on-cost economics. So the bespoke structure that we have really solves the problem that traditionally prohibit REITs from developing or buying brand new properties and lease-up. And so that gives, I think, a lot more than you bargained for, but it describes why L&T is so strategic for us. Would we do other development? Sure, we could here and there, but on a programmatic way at scale, I think L&T is really one of one.

No, thank you very much. I, you know, we certainly appreciate the additional color there. And maybe just to follow up, you know, beyond the initial 45 homes, I mean, how do you see the relationship growing? And what sort of drives the decision to keep acquiring completed homes versus maybe, you know, exercising the option to acquire the broader platform in the future?

Yeah, I think some more color on it is originally. We were working with L&T to figure out how to acquire the whole development company, and that's where we spent a lot of time this year for six months plus. We were trying to figure that out. Ultimately, we decided that the more prudent approach would be to take this first step of doing an asset deal that will allow us to show our investors. How they do deliver, in fact, on time, how they lease up, how the NOI performs, and all these other development metrics, so that as we see that proven to ourselves and proven to our investors, I think the decision to proceed and acquire all of L&T will become self-evident. Okay, thank you very much. You bet.

Your next question comes from the line of Austin Verschmidt with KeyBank Capital Markets. Your line is open. Please go ahead.

Thanks. Good morning, everyone. Maybe sticking with L&T, I mean, given the basis that these assets have been developed at for all the reasons you cited, one, does it really put them at a competitive advantage from a, you know, Rev4 perspective relative to the quality of the assets? And two, does it give them a longer runway or ability to push Rev4 relative to where other developers need to set rate, I guess, to make the economics work for construction? Thanks.

Yeah, we believe that that's exactly what it does. You kind of answered the question in your question, but the product positioning here is really what we would consider the sweet spot. We enter the UK by acquiring a mid-market portfolio that performs very well. We have incredibly high lease coverage, high occupancy, and there's certainly a market need for that. A lot of development in the UK and in the States targets that high-end luxury sector. And what the L&T targets is sort of that upper-middle class, so private Hey, only. But about, you know, 10% below that real high-end REVPOR that gives a ton of pricing power and super attractive, especially because it's competing with, in a market that has about a third of the UK care homes today have ensuite wet rooms. And, of course, L&T with 100% and being brand new and priced as it is, I think there's going to be a ton of upside there.

Maybe could you just frame what the, you know, what that rev poor spread is versus market or what it would take to develop a new asset today?

Yeah, hey, Austin, it's James. I think typical development we see in the UK runs about 250,000 pounds per unit or so L&T develops. We're about 100,000 pounds less than that per unit, I would say. I think their average weekly fee is around 1,500 pounds, which I think, like Dave said, is 10 to 15 percent below what we see in the luxury market above them, which is a great sweet spot, we think, that allows for room to grow into the future, given the new nature of the asset, given that it's en suite wet rooms that are in markets that are. Pretty significantly underbedded when it comes to ensuite wetrooms.

That's a tough one. And just last one for me, Dave or Derek, appreciate the commentary about the balance sheet flexibility you've built, but how much does kind of the shift in funding, you know, alternatives or how you're thinking about funding, does it change your ability to be competitive with any of the acquisition channels?

Hey, Austin, it's Derek. I don't think so, really. If we look back at, you know, similar historical periods in a rising rate or higher for longer environment, we've been able to capture more of that market share and deal flow. And I think we came into, you know, the most recent hire for longer environment this year, really well positioned, not just from the balance sheet, but the other intangibles, the team in place, the momentum, and that all kind of carries through and keeps that flywheel going. And I think the pressure, if we do face any, is probably perhaps more significant on other players and, you know, kind of capital providers. And we're starting to see, I think, a little bit of that. Generally, you know, if you look at the HUD market in particular, where rates are pretty sticky tied to the Treasury, and that's such a common takeout or exit for some of the bridge or alternative financing deal flow, allowing us to be positioned for that kind of growth, we feel is a It's just as strong as ever. So we're still very excited. We like our positioning right now and feel like we can keep performing as we have over the past few years.

That's great. Thanks, everybody.

Thanks, Austin.

Your next question comes from the line of Jamie Feldman with Wells Fargo. Your line is open. Please go ahead.

Hey, good morning. This is Jesus. Time for Jamie. Thanks for taking the question. Just kind of staying with L&T over here. Hey, Dave. Just sticking with L&T, once the L&T home ramps towards stabilization, can you talk about the factors that determine whether you converted immediately to shop versus continuing to collect the triple net run?

Well, I think we're going to be eager to convert. In fact, if there's opportunities to convert buildings that are While on their way to stabilization, we may have conversations with the L&T team about bringing them on earlier. So I think that's going to be our bias, is to bring them on earlier rather than later.

Great. And on the $274 million of the recent loan of preferred equity investments you guys made, just how can we think about the durability of that 10.6% yield and any potential path to future ownership on those assets?

Hey, Jesus, it's James. So I think the durability is good. Those are great borrowers with great tenants running the buildings. So we really like those investments. Most of those were done with past relationships that we have where either we've already kind of acquired assets with that group or have future deals with them anticipated already that the loans were kind of done in connection with with our lending with a purpose. So, you know, that's what I would say on the loan since the end of Q3.

That's perfect. Thanks, guys. Thanks, Jesus.

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

Hi, this is Robin Hanlon sitting in for Juan. I just wanted to touch on active asset management opportunities. Just given elevated lease coverage in SNFs and Senior House and Triple Net, do you see any opportunities to monetize some of that profitability and perhaps bring forward earnings growth from rent reset either via asset transitions or otherwise?

Yeah, it's a great question. First, just philosophically, I think I would say that we have always believed that As far as skilled nursing lease coverage goes, the stronger the better. When underwriting new deals, we regularly sacrifice a little bit of yield for higher tenant coverage. We do not have a short memory about how often tailwinds can turn to headwinds for our tenants there. Having said that, not all tenants and leases are equally strong, and our asset management team is always actively evaluating the portfolio. Last year, we talked about... Proactively replacing a skilled nursing tenant whose coverage was slipping, and the replacement tenant came in in the same rent and immediately brought us better credit and brought the facilities improved stability. And just last month, we again proactively replaced a Midwest SNF operator with a longtime care trust tenant who was willing to increase rent by 6%. And that's an example of a replacement tenant leveraging their strong coverage. That they have with us to facilitate their growth while improving rent for us. So our asset management team will continue to look for win-win portfolio repositioning just like that. And like you alluded to, given some of the extremely high covering master leases and evolving plans for some tenants, we expect there to be more opportunities like that in coming years.

Thank you. And on the performer leverage, now closer to two, seven times low, but above prior trend levels, how are you thinking about equity to help fund the remaining L&T transactions yet to close and or other future opportunities? And then also the ability to maintain your financial flexibility despite sort of a flattish pressure to date and then also being able to generate WG growth in 27?

Yeah, I would just say that from our perspective, we look at where we sit today through the same kind of lens as we have over the past year or two. We try to look beyond short-term noise. We feel, like I said earlier, pretty well positioned from a balance sheet to flex it either way. And really, part of the bank debt rework was to set the table and make sure that we extend the window for us to be opportunistic. So we'll always be price sensitive along with all the other factors that go into how we capitalize our deals. I'll say that, you know, if you look at our track record, we've been very active. And so it would be hard to say that we wouldn't continue to be active in that regard just to find the balance between. Really maximizing value for shareholders while retaining as much flexibility and positioning to keep pursuing the pipeline and beyond because we still feel like we're in early innings of a multi-year growth phase.

Your next question comes from the line of Vikram Malhotra with Mizuho. Your line is open. Please go ahead.

Good morning. Thanks so much for taking the questions. I guess just first on the L&T deal and thinking about when, if and when this convert to RIDEA, I think you've talked about roughly a high 7%. Healed on conversion or anticipated. And I'm wondering, you know, what's the likelihood of that yield being higher, perhaps higher ref4 or higher margin? Because I think the occupancy on stabilization is more of a fixed number. But what's the likelihood of that yield being higher based on other, you know, kind of top line parameters?

I'd say there's a good likelihood it is. You know, as Dave mentioned, that high 7% going in yield when we do flip to Rodea, which is what we're planning on and what LMT is planning on, is on trailing 3 annualized EBITDA. And so assuming no growth, that's kind of year one. Assuming very modest growth, you're getting into the low 8% yields. And at stabilization, it's really kind of low 90% occupancy, still very, I would say, strong positioning from a REF Corp perspective, given their situation in the market being all private pay, 100% en suite wet rooms. But at a cost that's, you know, 10 to 15% below kind of similar higher quality assets in the markets that they're competing in. So we think there's a lot of organic growth beyond that. And I think to be able to step in on proven in place high 7% yields. For two to three-year-old vintage assets at scale with a partner that's developing more and more, I think that is really where we start to get super excited about not just that yield, but what the whole portfolio and then some can do for us.

And then what about just can you clarify the tax impact, you know, either what the rate is likely, is there room to like lower the rate or lower the dollar amount sort of in the UK, given the, you know, that seven high sevens may be like a seven or something, but are there factors that can drive that tax rate lower?

Absolutely. We have opportunity to, there's some leakage there that we can make some progress on that we're eager to. And I think that's something that we will spend some time focusing on over the next 12 to 24 months, not just for the L&T portfolio, but. All of our UK assets as well. And so that's achievable. It might take a little time and a little bit of strategy, but we're able to probably capture or to protect about, you know, call it a quarter of the leakage we're experiencing right now.

Okay, great. And then just maybe last one. I mean, there was a question asked about, I guess, rent step ups given coverages in the triple net SNF portfolio. But I'm wondering within US SNFs. Are there other ways to perhaps accelerate the growth, whether it is perhaps taking a position in Enopco, you know, or perhaps like a RIDEA-like structure in certain select-SNSF relationships? Any color there, is there a way to accelerate the, you know, or take advantage of the still improving operations in your tenants?

Yeah, thanks, Vikram. We don't have any plans today to take a Rodea position with skilled nursing assets, but other things are certainly on the table. I think investing, taking a minority position in an Opco could be interesting, as others have done. And, you know, I think at the end of the day, we, like I said a moment ago, we do not have a short memory about skilled nursing, and things always tend to change, regulations tend to change, and we really do value our operators having. A lot of cushion to be able to adapt to however the regulatory landscape changes. Having said that, we are actively looking to answer that question, and there's multiple ways to answer it. And we have such massive lease coverage that in our portfolio in particular, there's going to be interesting ways to tap into that in the coming year. Got it.

Thanks so much. You bet.

Your next question comes from the line of Dave Rogers with Raymond James. Your line is open. Please go ahead.

Yeah, good morning out there. I wanted to ask about the 150-plus sites and counting at L&T that you kind of mentioned, right? And I think you've alluded to the idea that, you know, you guys could be able to get access to those sites. I mean, can you talk about the agreement or any additional agreements that you might have or could structure with L&T that would kind of get you access to those, and should we think about those looking similar to what you're doing now, or would the timeframe kind of be different, you know, negating the current structure?

Yeah, I think what I would say is that we have a general high-level agreement that would lock up that pipeline in connection with locking up L&T Development Company that would not just lock up that pipeline, but also as we incorporate L&T, would provide a truly differentiated story, which is that we would then capture that. Mid to high teen yield on cost for all of those for ourselves after we've paid for the company. So there's a really long-term strategic play there that we're considering. But the relationship is such that I think we're really pursuing with L&T a win-win approach. And I think in coming quarters, we'll get closer to some more specifics that we'll be able to share with you.

Thanks for that, Dave. And then maybe one for James on the shop acquisitions. I think about $250 million of the pipeline or so plus or minus. It sounds like it's in U.S. shop. Can you just talk maybe a little bit more about what you're seeing there, what you've been targeting, and, you know, where you're having success relative to kind of what you've been doing in the U.K.?

Yeah, I think that when it comes to shop, Dave, I think that... We really don't like boxes, I guess I'd say. I mean, I think that we want to look at everything and we want to do the right deals. I think that what we're seeing, a lot of what everybody is seeing, and I think that for. We love to always see newer product in great markets. I think that there's a lot of that out there. We're focusing on those deals where we have particular relationships with the seller or with the operator going forward, or we have the right operator solution in place. And I think we're seeing success in tying a number of those deals up, as you see in the pipe. I think that Those deals are really priced pretty consistent with what you're seeing in the market and cap rates in the market. But because of relationships we have with the operator or the seller, we've had success in tying those up and they create really exciting opportunities going forward. But again, I don't think we're really looking at any particular box. I think that we recognize, given how much capital is chasing shop right now, that you're going to have more success when you can sharpshoot deals that are off market or that you have a particular in to go and get. And that's what we're focusing on.

I think I would just add one little note to that, that, you know, this, we're coming up on our first year in the shop space as a company. And given what's in our pipeline right now, there's some real near-term shop investments that I think will close in Q1. We'll have done about $400 million. of shop in the U.S. in our first 12 months, give or take a month. And as active as it is right now and seeing what the funnel of deals look like that the team's pursuing, I would be really surprised if next year wasn't quite a bit more than that for U.S. shop. No pressure, James.

All right. Thanks for that, guys. Appreciate it.

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

Yeah, thanks. Dave or James, can you talk about what you're tracking on the portfolio side? I know in the prior press releases, Care Trust was pretty overt saying that the stated pipeline excludes portfolio transactions. It didn't seem to be as overt in this most recent update. I mean, is the portfolio availability similar to what it was three or six months ago, or was the portfolio that Care Trust was kind of hinting at that L&T deal, and there's fewer out there?

I mean, I think at the time, the portfolio we were hinging at was the L&T deal, but there's always two or three large portfolio deals, it seems like, particularly in the SNF space, circulating at a given time, Mike, that I think that we're always looking at. You can't control when those come to market. But I think that's the portfolio deal flow, I think, is pretty consistent with where it's been the last six to 12 months. There's always a few circulating.

Okay. And then, James, on the SNF portfolio transactions, I mean, how does CareTrust compete on that? Is that like the relationships that you've created that kind of gives you the inside track on that? Or is the more, I guess, private buyers that are generally more aggressive on pricing that typically makes it harder to get those deals done? I guess what's the give or take there on the ability to complete a larger SNF transaction?

Other than my pretty face, Mike, I would say that...

Mike, that was a softball. You should know better.

If you think about the fact that such a larger portion of sniff deals are off-market and are not marketed, unlike the shop space, that I think you really have to have a committed... Focus on relationships, and that's what drives a good portion of the deals. And I think also we benefit a lot from the fact that we have been involved in so many of the bigger deals that we do get more calls, I think, because of that. When you combine the relationships plus the track record, I think we're towards the top of the list of buyers for any of the larger or medium to large size transactions that come out. I think we've shown we've benefited from that, and I think Deal flow will continue to show us benefiting from that. But I would say it's predominantly a relationship-driven market on the sniff side, particularly with medium to large-sized deals.

I thought you were going to say it's predominantly because of your good looks.

Well, I too. Equally.

If I can switch on one more and to give to Derek, I mean, if I look at the purchase option disclosure in the sub, it looks like there could be roughly $340 million of transactions that could be exercised before the year end in 27. Obviously, some of these is just the option window opens and still has several years before it closes. How many of those purchase options could be exercised, I think, by the end of next year? And does the recent jump in interest rates make it less likely that those get exercised here in the near term?

Yeah, you know, it's tough because we base it on not just at the inception of the lease or when the option was written, the feedback that the tenant provided, but basically on ongoing conversations with them. And those can change, as you mentioned, on interest rates, but also on other factors that they're considering. They've got diverse portfolios. They have other needs that drive sellers and operators. So it does change, you know, period to period. I would say generally we like to view it, I think, conservatively and assume that most, if not all, would be exercised early in the window. Now, obviously, that's not always the case. And I think looking back in the recent history, most have, but certainly we've seen some that haven't. And we could point to interest rates or other considerations from those tenants and not exercising. I think certainly logically, but also anecdotally, we've seen higher rates pressure a bit those tenants with those options. And I think we're well positioned there to either extend or to offer other solutions for their portfolio, as they look to not just exercise this option, but... How can they look at portfolio in whole. So I think overall, we would probably assume most of those would be exercised. Now, as you can see, some of that is just some of those are multi window options. And our disclosure is really about sort of the first of could be several tranches. So it's not 100%, and even within that subset, it's probably likely that at least some will kind of consider their options at that point and decide to pursue a different path.

Okay, great. Thank you. Thanks, Mike.

Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Your line is open. Please go ahead.

Ah, yes. Good morning, everyone. Congrats on the quarter. You know, you guys put up massive numbers, 20% earnings growth, great rent coverage, everything is going in the right direction, but yet you kind of have flat stock performance this morning. And I think the key question everyone's asking is how sustainable is this going forward? Derek, I think you gave a couple of really good points earlier on about what 2027 growth could look like still in the double digits, just kind of given what the pipeline looks like. But again, the key question is kind of given cost of capital is going up. Even with all the liquidity that you have, how do we kind of get comfortable with this idea that this really is a multi-year growth story rather than growth kind of dramatically slowing, you know, in 2028, for example. It sounds like 2027 is going to be pretty good, but like in 2028, how do we kind of think about no risk of a huge step down in earnings growth?

Well, You can't predict the future. But one way to help predict the future is to build it. And I think the L&T relationship does provide us an opportunity to answer that question for many years to come. If, in fact, we lock up L&T and that... Seemingly endless pipeline, that's years and years of brand newly developed shop assets that you can bank on. But in addition to that, if you look at, you know, I think that question was. When we got that question in 2024, it made a lot of sense. And in fact, I remember answering that question with some timidity because we had gone from, you know, doing 225 million a year for the first nine years of our existence to 1.5 billion. And we got asked that question in the middle of that explosive growth. How is this? Is this a blip or not? And I remember being maybe a little bit too honest by saying, yeah, I'm not sure. We'll see. And then we followed that up with 1.8 and then now 2.9 billion. The difference going forward from the growth that we've had is that today our team is bigger and better and more capable. The access to capital is fantastic. The liquidity is there, and we have more opportunities and engines for growth than we did a few years ago. So that's why I would say, unlike when I had to answer that question in 24, when this Growth stories really started kicking in. I don't have the timidity as I look forward in the next near to midterm. We're very confident that we're going to be able to continue to grow in a meaningful way.

There's a lot of swag in your LinkedIn post. I'll have to say that, Dave.

Thank you.

And then one more follow-up, if you don't mind. On the sharp side, I know a lot of your peers are kind of out there giving a whole bunch of targets to want to be 30% sharp by this time or 40% sharp by this time. Are you guys looking along that same mindset? And if you are, could you just kind of lay that out and generally what kind of growth profile you also expect? From shop on a going forward basis, whether it's LNC or when you're kind of seeing bigger picture.

Yeah, we really love, like I just said, right? We positioned our company strategically, I would say, in a differentiated way from many of our peers. And I think, as you mentioned at the beginning, our results have been differentiated as well. We really like to be able to grow in skilled nursing, in shop, and in care homes, and now a fourth UK shop method with L&T. Having said that, and so we haven't put out targets, we don't want to box ourselves in to not do great accretive deals in skilled nursing because it's going to... Hinder our ability to hit some stated goal. Having said that, we fully expect shop in the U.S. and U.K. combined to become very meaningful parts of our portfolio in coming years. We just don't have, you know, a target that we're trying to hit.

Gotcha. All right. All the best.

Thanks, Taylor.

Your next question comes from the line of Michael Goldsmith with UBS. Your line is open. Please go ahead.

Good morning. Thanks a lot for taking my question. Maybe following up on that last question, Dave and DB, you've got more levers to pull today than you've had in the past between U.S. Skilled Nursing, U.S. Shop, UK Care, L&T, and Credit. So if you're allocating the next dollar of capital today, where are you seeing the best risk-adjusted return? And is there any channels that you'd like to deploy more significantly to, but just pricing or availability is holding you back?

You know, if you set them all side by side, ultimately you get to very similar risk adjusted returns. And that's why we love all of our kids the same. We really don't right now, we're not in a position where we're having to choose between the two. Or three or four. We take it one deal at a time, case by case, and we try to get the best risk-adjusted returns we can get. And they're all very similar based on our disciplined underwriting.

Thanks for that. And then as a follow-up, you know, James on the shop, it really seems like you've stepped out of the shade and into the sun on the pipeline there. Just, you know, are you still underwriting the current pipeline to low double-digit unlevered IRRs? And maybe you can frame the going in yields and the NOI growth you're expecting in the first couple of years. And then also just how would you characterize the mix between stabilized assets and assets and deals you're underwriting were meaningful upside over time.

Thanks.

Yeah, sure. So, Michael, I think that, you know, As cap rates compress, you really have to have an increased kind of conviction on the growth story of the assets that we're looking at. We still want to underwrite that low double-digit unlevered IRR, a 10-year hold. I think that what you're seeing in the market today really is some lease-up stuff that has higher year-over-year growth stuff, but most of what's out there is pretty stabilized stuff. With occupancy in the 90s. So it becomes increasingly important to remain disciplined in the underwriting and have the right sharpshooter operator who's going to be able to drive growth going forward and having really the right metrics and indicators of growth for those assets. I think that with cap rate compression, that's becoming more important. And the temptation to do volume for volume sake has to be kind of put in the back seat. And you have to focus on the right underwriting conviction and the growth story that you can get to that IRR.

Thank you very much. Good luck in the fourth quarter. Thanks, Mike.

Your next question comes from the line of Mike Mueller with J.P. Morgan. Your line is open. Please go ahead.

Yeah, hi. Derek, I think you said you can generate double digit growth in 27 without accessing the capital markets just by using the debt capacity you have to fund the pipeline. Question is, is that the plan or was it more of an academic statement and you're likely to continue to kind of tap equity to at least partially fund it?

Yeah, I think it was a little more of the latter sort of thought exercise, and I think we view that as a... A fallback and a sort of a plan C, if you will. We don't want to have to rely on certain sources of capital, but I think. Given where we have been able to tap capital over the past couple of years and where we sit today, we're super confident that we will be able to access capital markets. It was sort of to suggest what it would look like without that. Although our stock price has come in, I think we're still seeing a ton of accretive opportunities, even at these levels. So I wouldn't be surprised to see us continue to participate somewhat in other forms of capital. But for us, the analysis is pricing, duration, and kind of the multifactor approach we typically look at. That would only be what we see as an improvement over utilizing the revolver.

Okay. And then in thinking about the current interest rate volatility and looking back over time, what has it taken to kind of get the going-in SNF yields to deviate materially from, you know, the kind of 9% level that we tend to think of?

Deviate up or down?

Either way. I mean, it just seems like rates could just jump or go down and you see nines across the board.

You know, I think that for the 25 plus years I've been in the business, they simply haven't moved much at all, regardless of political, regulatory, economic pendulum swings. And I think the reason for that is there's a constant tension between a bid and a bid. For these assets, and the stroke of the pen risk, headline risk, that keeps it kind of right where it's at. So skilled nursing has proven to be very, very sticky.

Okay. Appreciate it. Thank you. Thanks, Mike.

Your next question comes from the line of Rich Anderson with Cantor Fitzgerald. Your line is open. Please go ahead.

Thanks. Good morning out there. So, on L&T, how many beds are we talking about in the 45 homes? I'm guessing around 3,000. Is that right?

So... When I talked about L&T, I said that they are hyper-standardized. They really have one building size that has like three different templates, and there's 66 units in each.

Right, right. So that's about 3,000 units. And so if I'm doing my math right, you're buying them at 500,000 a bed. James, you said earlier, and using U.S. dollars, that development out there is $335,000 a bed. So that sounds like paying above replacement costs. Again, correct me if I'm wrong. I'm just spitballing here. And I coincide that observation with why would they be willing to pay you during the lease-up? Why are they willing to be taking that hit up front? And perhaps the reason is because they're being compensated up front with this purchase price. Is that the right way to think about it?

I mean, yeah, I think that is the right way to think about it. And I think the relationship drove that structure as well. And I think when you add, you know, reach the scale together with, you know, you can definitely get caught up on the per unit price. But I think if you look at the opportunity in 18 months, two years, whenever it is to convert to Rodea at a high sevens, low eight, that per unit price, that we do that deal all day here if we could. And so I think that it is the scale. I think that they are willing to cover the lease payment over this period because of the price that we paid. And we view it as when we get in there and take over Rodea, it's still an advantageous return to us, particularly given the lack of similar opportunities that we see at that scale and that vintage of asset here in the States. Okay.

Second question is, this is an, you know, higher quality en suite, wet rooms, as they say, and your care REIT transaction was not that. And I'm wondering if that kind of gives you comfort, like sort of bookending the UK opportunity where on one side of the ledger, you know, it's sort of middle market quality triple net, and this is higher quality, ultimately shop. Is that the way you're thinking about it? Are you trying to surround the opportunity in the UK? Am I saying that right? Again, not to put words in your mouth. Thanks.

Yeah. Yeah, I think that is how we see it. I think we really like the triple net business there, middle market, because the lease coverage is so strong and occupancy is so high. But as we think about our shop strategy in the UK... Like in the United States, we'd like to, you know, we prefer newer, higher-end properties for our shop play. Okay, fair enough. Thanks very much. Thanks, Rich.

Your next question comes from the line of Alec Fagan with Baird. Your line is open. Please go ahead.

Hey, Dave and team. I appreciate you guys answering all our questions. I'll just do one. With your long memory in the skilled nursing industry, do you kind of have any views going into, you know, maybe the next year or two with the, you know, big win in the midterms and the changing of the party in both houses of Congress?

Yeah, look, I've been Personally, in skilled nursing and senior housing for over 25 years. I've seen just about every type of government composition in D.C. And, you know, during the big, beautiful bill debate, we reemphasized repeatedly that senior care is one of those very few, you know, issues that has bipartisan support. And we saw that play out in that bill as it got passed. I think that what we've seen over the years is that both sides really do believe that seniors deserve adequate funding, appropriate regulation, good care, and we welcome any opportunity to highlight the strong lease coverage, the star ratings, the quality metrics that our tenants provide for the sector. So, happy to work with whoever is currently in power.

Got it. That's it for me. Thank you. Thanks, Alec.

There are no further questions at this time, and we have reached the end of the Q&A session. I will now turn the call back to Dave Sedgwick for closing remarks.

Thank you, everybody, for your questions and interest. You know where to find us if you've got follow-ups. We hope you have a great weekend.

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