CareTrust REIT, Inc. (NYSE:CTRE) Q4 2024 Earnings Call Transcript

CareTrust REIT, Inc. (NYSE:CTRE) Q4 2024 Earnings Call Transcript February 13, 2025

CareTrust REIT, Inc. misses on earnings expectations. Reported EPS is $0.32 EPS, expectations were $0.4.

Operator: Thank you for standing by. My name is Karen, and I will be your conference operator today. At this time, I would like to welcome everyone to the CareTrust REIT fourth quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After today’s presentation, there will be an opportunity to ask questions. To ask a question, to withdraw your question, you may press star followed by the number again. I will now turn the call over to Lauren Beale, CareTrust’s Chief Accounting Officer. The floor is yours.

Lauren Beale: Thank you, and welcome to CareTrust’s brief fourth quarter 2024 earnings call. We will make forward-looking statements today based on management’s current expectations, including statements regarding future financial performance, dividends, acquisitions, investment, 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-K and 10-Q filings 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 or SAD.

A reconciliation of these measures to the most comparable GAAP financial measures is available in our earnings press release and Q4 2024 non-GAAP reconciliation, 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, 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 Sedgwick: Thank you. And good morning, everyone. And thank you for joining us as we kick off what we hope to be another very strong year at CareTrust. It’s worth stepping back to consider the broader macro environment. A couple of years ago when the Fed raised interest rates more aggressively than any time in our country’s history, financial markets and the REIT sector in particular faced serious challenges. However, because we had driven down leverage and built up our dry powder, we were uniquely positioned to capitalize on a window of opportunity that opened and continues to open to us today. The elevated rates drove many banks and investors to the sidelines and drove more and larger deal flow our way. We maximized the opportunity by recalibrating the team, deepening strategic relationships, and working flat out resulting in $1.5 billion of investments essentially match funded with $1.5 billion of equity issuance from both the ATM and a follow-on offering.

The full effect of last year’s activities will result in meaningful FFO per share growth this year without any new investments. Today, we are one of the rare REITs that is largely indifferent to a higher for longer outlook. If rates come down, we will certainly benefit. But if they don’t, our balance sheet, our portfolio, our access to capital, the opportunity set in front of us, and our team are all in a stronger position today than we were going into 2024. Our mindset to maximize the window of opportunity open to us has not changed. Neither has our underwriting discipline that has made our portfolio secure and resilient. We do not grow for the sake of growth. We remain laser-focused on long-term FFO per share growth. For us, that will always only be achieved by matching the right operators with the right opportunities and setting them up for success.

Our view, the right operators are those who first take care of their employees so that their employees in turn take care of their residents and patients and loved ones. With respect to those operators in our portfolio, we continue to enjoy exceptional lease coverages. Overall, at 2.82 times EBITDARM and 2.21 times EBITDAR. Our top ten tenants, which account for 80% of triple net revenue, are covering at 3.02 times EBITDARM and 2.37 times EBITDAR. Furthermore, looking at the many acquisitions made last year, the early performance is in line with expectations. The operating environment in general continues to stabilize. With most parts of the portfolio at or ahead of pre-pandemic occupancy, skilled mix, and coverage. Of course, there’s some noise and speculation about what the new administration means for nursing.

It’s too early to be definitive, but our conversation with policymakers, lobbyists, operators, all leads us to believe that the minimum staffing rule will be reversed and that Medicaid and Medicare will continue to be unchanged as the cornerstones of health care in general and skilled nursing in particular. Our operators continue to post superior star ratings and quality measures compared to the industry at large and to their respective state averages as well. We count ourselves truly blessed to be able to associate with some of the best operators in the country. And we can’t thank them enough for all they do for their employees, patients, and residents. Not to mention the security and tailwinds they provide us and our investors. With this solid foundation, we are poised for another year of significant external growth if deal flow is even close to last year.

On January first, we effectively woke up to double-digit FFO per share growth on a run rate basis without accounting for any additional investments. But we are absolutely not resting on last year’s records. We continue to execute our long-term strategy and zealously pursue investments that will expand and diversify the portfolio. James will provide color on the pipeline and the broader opportunity set in front of us. I’ll just say this, I’ve never been more excited about our current trajectory and potential for growth. If you liked our story last year, I think you’re gonna love chapter 2025. James?

James Callister: Good morning, everyone. During 2024, CareTrust completed new investments totaling just over $1.5 billion at an estimated stabilized yield of 9.7%. These investments were reflective of a strong and consistent pipeline of activity throughout the year. The investments range in size from one facility to forty-six facilities, from less than $5 million to over $450 million, from real estate acquisitions to acquisition financing, MES lending, and preferred equity investments. We finished off the year with what is for us an impressive effort to close approximately $700 million of new investments at an estimated stabilized yield of 9.9%. During the quarter, we added eighty-one triple net facilities to the portfolio along with several new operators.

Subsequent to the fourth quarter, we have closed on approximately $26.8 million of additional investments at a yield of 10.6%. These investments include the acquisition of the twenty-eighth and final facility related to the large Tennessee transaction previously announced in December, at an initial contractual lease yield to CareTrust of approximately 9%. We also funded approximately $6.4 million under a mezzanine loan related to a small portfolio of skilled nursing facilities in Maryland at an initial yield of 13.2%. Our investment pipeline moving forward continues to be robust as we look to continue 2024’s momentum into 2025. The reloader pipeline today sits at approximately $325 million of real estate acquisitions and consists of some singles and doubles as well as some midsized portfolio transactions.

Not included in our quarter pipeline are a couple of larger portfolio opportunities. The pipeline primarily consists of skilled nursing facilities but also includes some seniors housing. Please remember that when we quote our pipe, 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 twelve months. We continue to look at a healthy flow of marketed opportunities as well as off-market deals brought to us by existing operators and other relationships, including relationships garnered through our decision over the past couple of years to lend with a purpose. Our primary focus has always been and will remain on sourcing and executing on accretive real estate acquisition opportunities.

With that said, we expect to continue to receive inbound requests for loans and will selectively pursue lending opportunities that we feel will lead to attractive real estate acquisitions in the future with best-in-class operators. As we turn to 2025, a consistent flow of inbound opportunities, both marketed and off-market, has us feeling highly optimistic with our built-up team our 2025 investment activity will continue to build on last year’s results. The combination of our access to capital, a focus on accretive transactions with quality operators, and the strong ongoing demand for post-acute and senior care provide an ample runway for pipelines of future growth during the coming year. With that, I’ll turn it over to Bill.

Bill Wagner: Thanks, James. For the quarter, normalized FFO increased 68.1% over the prior year quarter to $72.9 million and normalized FAD increased 63.7% to $74.3 million. On a per share basis, normalized FFO increased four cents or 11.1% to forty cents per share, and normalized FAD also increased four cents to 10.8% to forty-one cents per share. During the fourth quarter and in order to match fund our previously announced robust pipeline, we closed on an overnight offering raising net proceeds of $487 million at $32 per share which pre-funded the November and December investment close. As of today, we have $180 million of cash. After funding those investments and after funding January and February investments, and after receiving the tenant purchase option exercise that closed on February first of $44 million and also after making our dividend payment, which is now roughly $55 million.

In yesterday’s press release, we initiated guidance for the year with normalized FFO per share of $1.68 to $1.72 and for normalized FAD per share of $1.72 to $1.76. This guidance includes all investments made to date, a diluted weighted average share count of 187.5 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 $279 million. Not included in this number is the amortization of lease intangibles that will total about $3.5 million. But this will be in the rental revenue number as required by GAAP. Three, interest income from financing receivables of $11.5 million.

Included in this number is $9 million of cash and $2.5 million of non-cash revenue for GAAP purposes that is subtracted in the FAD reconciliation. Four, interest income of approximately $84 million. The $84 million is made up of $76 million from our loan portfolio, and $8 million is from cash invested in money market funds. Five, interest expense of approximately $21.3 million. Interest expense also includes roughly $4 million of amortization of deferred financing fees, and six, G&A expense of approximately $30 to $37 million and includes about $11.7 million of deferred stock comp. This guidance represents a range of FFO per share growth of 12% to 14.6% and on FAD per share of 11.8% to 14.4% without any additional investments. Our liquidity continues to remain strong.

In addition to cash on hand, we have $1.2 billion available under our new revolver which closed in December. Leverage continues at a store close with the net debt normalized EBITDA ratio of 0.5 times. Our net debt to enterprise value was 3.5% as of quarter end. And we achieved a fixed charge coverage ratio of 17 times. Lastly, towards the end of Q4 and into Q1, we have seen the cost of our equity increase while the cost of our new revolver has decreased to where it may make sense to begin utilizing our new large credit facility, and then decide how we want to term out those draws. We still love having all options on the table with respect to financing, a robust pipeline. And with that, I’ll turn it back to Dave.

Dave Sedgwick: Great. Well, we hope the report’s been helpful and happy to take your questions now.

Q&A Session

Operator: At this time, I would like to remind everyone in order to ask a question. We will just pause for just a moment to compile the Q&A roster. Your first question comes from the line of Wes Golladay from Baird. Please go ahead. Your line is open.

Wes Golladay: Hey, guys. Looking at last year, you know, PACS was a big driver of the investment activity. Really strong year. When you look at the pipeline now going forward, do you see that start to broaden out? And more specifically, the portfolios that made the larger portfolios, would those be with new operators?

Dave Sedgwick: Yeah. I think this I I think what you’ll see this year is what you’ve seen from us in the past, which is expanding with existing operators and probably adding some new ones. With respect to large portfolios, those are kinda too early to talk about at this point.

Wes Golladay: Okay. Thanks.

Operator: Your next question comes from the line of Feral Granas from Bank of America. Please go ahead. Your line is open.

Feral Granas: Hi. Good afternoon. Thank you for taking my question. Have another question about PACS going forward. I was wondering if you could make some commentary on your conviction as well as is there any bad debt associated within your guidance either to either offset if there were to be an outcome on their current situation.

Dave Sedgwick: No. There’s no bad debt at all in our guidance, and we certainly don’t expect any from PACS. Or any of our operators this year. And so with respect to PACS, it’s it’s too early to really make any comments before they are able to release their results. So we’ll we’ll wait for that and we just point you to the exceptional lease coverage that we have in place with them. And hope to hear from them soon.

Feral Granas: Great. And just one more from me. Just in terms of your pipeline, where are you seeing cap rates either shift and are you seeing any compression going forward?

James Callister: No. Cap rates are really staying where they always have for skilled nursing in the 12.5 to 13.5. I would say somewhere in there, and it remains consistent with yields and somewhere in the 9 to 10 range. On seniors housing, maybe a little bit of compression, but nothing that’s all that notable at this point. No.

Feral Granas: Okay. Thank you very much.

Operator: Your next question comes from the line of John Kilicholsky from Wells Fargo. Please go ahead. Your line is open.

John Kilicholsky: Good afternoon. Thank you. Maybe, Bill, if we could start with your last comment that you made on the call before we turn it over to Q&A. You said your cost of debt is becoming a little bit more attractive here and that cost of equity has creeped up. Could you give us some sort of guardrails on actual numbers around the calculus that, you know, of what you’re looking at here when maybe a more definitive answer so we could understand in our models how you’re thinking about it.

Bill Wagner: Sure. Well, I’ll begin with, we have a stated range of net debt to EBITDA of four to five times. Obviously, if we draw about the revolver, we have a long way to go to get to that range. I think depending upon our investment pipeline, the quoted pipe, and then call it the funnel to the pipeline. It all depends on how that investment flows as to how we will either use our revolver or issue equity under our ATM. If we see a lot of deals at yields that call it were what they were last year, I still think it makes sense to use a portion to fund using equity. But again, it’s it’s a decision that is based on what we see beyond our quoted pipe.

John Kilicholsky: Got it. And then maybe if I might jump over to Medicaid here. And, Dave, you made this comment earlier where there’s a a great sense of confidence that the discussions around, you know, Medicaid and Medicare or Medicaid cuts and Medicare fraud investigations won’t hit you all. So maybe more on the Medicaid side. What gives you the confidence to say that? And if there were to be cut where do you think they would be? And, again, why do you think they would not sort of touch the SNF space?

Dave Sedgwick: Well, it’s really just too early to be like I said in my very definitive on it. But if you if you read what House Speaker Johnson said just a couple of days ago, and you take him at his word, then he and what President Trump has recently said about Medicaid, we have I I think we would say we’d have more reason to believe that it will not be touched than it would be. Speaker Johnson, just Tuesday said Medicaid has never been on the chopping block and that they’re just looking for fraud, waste, and abuse, which of course, we would we would applaud as well. They have there’s bipartisan support for Medicaid as it is today and you have a Trump administration who in the first administration was incredibly supportive to the skilled nursing space. And we expect that that same type of understanding of the importance of Medicaid and the bipartisan support for it to continue.

John Kilicholsky: Got it. Thank you.

Operator: Your next question comes from the line of Austin Wurschmidt from KeyBanc Capital Markets. Please go ahead. Your line is open.

Austin Wurschmidt: Great. Thanks. Bill, just wanna go back to your answer to the last question and and also your comment in the prepared remarks about, you know, the the source of funding kinda will depend on, you know, the pipeline in front of you. But, you know, the pipeline today at $325 million is say somewhat larger than maybe the average it was at various periods last year. Points in time, and and the team still seems very bullish on opportunities ahead. But, I mean, should we take the comments about, you know, may make sense to use the credit facility, you know, in the near term and term that out as, you know, any sense that there’s an air pocket in deal activity immediately in front of you and that then you’ll take it in stride? You know, as the year progresses and you have a little better visibility.

Bill Wagner: Well, as it relates to the quoted pipe, $300 plus million. First, we’ll use cash on hand. So that’s gonna take out a large portion of that. I don’t think we see right now any air pockets in our investment pipeline. It continues as it did last year to replenish. So that gives us so that causes us pause each time we go to sign up a deal as to how we wanna invest it, how we wanna fund it. Right now, we we do like the price of our equity. And I would say we would continue to fund using equity. But having that revolver come down in pricing relative to the cost of our equity causes us a little more pause unlike last year to possibly maybe use that to to funding.

Austin Wurschmidt: That’s helpful. And then maybe just, you know, for the team or or whomever, you know, does the fluctuations in in your stock price I mean, you referenced you still like the cost of the equity. Does that change how aggressive you’d be on more of the all them, you know, value add, you know, investment opportunities where you were willing to maybe take a lower initial lease yield with, you know, potential upside in the coming years. Did that sort of change the, you know, sandbox, if you will, that you’re playing in on the types of deals that are attractive to you today?

Dave Sedgwick: No. It doesn’t. I think we we underwrite each deal on its own, and we we get the the right risk-adjusted returns that the deal presents.

Austin Wurschmidt: No problem. For the time.

Dave Sedgwick: Thanks, Austin.

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

Michael Carroll: Yep. Thanks. Just talking about, I guess, deal volume. I mean, how should we think about the cadence of the overall investment activity? It looks like the pipeline today is fairly similar to what it was at the end of 2024. Is that just due to, like, normal seasonal patterns that sellers trying to rush to sell before the end of the year, or has there been pause of activity due to the macro uncertainty? I mean, how should we think about that cadence over the last two months or so?

James Callister: Yeah. Mike, I’ll take this, James. I mean, I I don’t think there’s been a pause in the cadence. I don’t think that you know, we see much of a change in deal flow. It still remains healthy. You know? We still see deals coming in really weekly. So I think that you know, if anything, you see a rush of closings towards the end of the year as deals you’ve been working under in the year kinda start to having to come to a head and get done and tax planning, etcetera. But I don’t think we’ve seen a meaningful shift in cadence of deal flow coming across our desk. In the last six to twelve months. It’s been healthy. And consistent.

Michael Carroll: Okay. And then and, James, can you provide details on the recent acquisition, I guess, the ones that you’re transitioning new operators and you’re banking on them stabilizing. And, I mean, in general, over the past eighteen months, have they performed in line with your expectations? So kind of marching back up to that mid one four one five type coverage ratio?

James Callister: Yeah. I mean, some of them, it’s just too early, Mike. Right? I mean, Tennessee in particular, it’s just too early really to see that from when they got in to now. We just don’t have a full set of financials probably that really would show that, but on the whole, I would say, yeah. And I think that you know, we don’t have any reason to believe they’re not on track to get where and when we’ve stabilized them going. And I would add that, you know, a key part of the equation and the risk-adjusted return as well as the credit, you know, and the lower coverage going in, the more credit we’re gonna insist on and as of right now, we see those performing, you know, as projected.

Michael Carroll: Okay. And then when should we expect to see those coverage ratios start to kind of click into the the sub and I’m specifically looking at links and, I mean, great if you could talk about it, but I know it’s one specific operator, so you might not wanna give us too many details. But, I mean, I think the first four buildings were acquired in, what, mid 2023. I mean, will that start to roll onto this up sometime in 2025?

Dave Sedgwick: Mike, probably not because Links in particular, you might recall they we gave them think, a two-year ramp and their rent to get to stabilization. And so we we that one in particular had a longer lead time than others. When we acquire new facilities, and we bring in new operators, we give them the time they need to to wrap their arms around the the the buildings, get them seasoned and stabilized before we start putting that in in this up.

Michael Carroll: Okay. So for our links, you’ll give it to us in year three, so which would be 2026 to give us the trailing number for that?

Dave Sedgwick: I would expect so. Yeah.

Michael Carroll: Alright. Great. Thank you.

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

Juan Sanabria: Hi. Good morning. Just hoping you could talk a little bit more about the pipeline. Kinda mentioned senior housing a couple times. So just curious if there’s any more appetite on the senior side if we’re seeing more deal flow there and would that include shop, which I know you’ve kind of talked about previously and just the last little bit of that, cap rate expectations for the seniors housing pieces of the transaction pipeline.

Dave Sedgwick: Yeah. Thanks, Juan. Yeah. I think we’ve been really interested in looking at seniors and from a shop perspective. Call it, for the last couple years. And I I think that interest remains and it’s all gonna just come down to finding the right entry point if if we can find it. Historically, we’ve always done some seniors housing. Just about every year. Which has kept the concentration kinda where it has been throughout our ten years. We’ve done some triple net as you know recently. And but, you know, we’ll we’ll it remains to be seen. We we really have to find that right entry point to go into the shop space.

Juan Sanabria: Okay. Great. And then just going back to Medicaid and political uncertainty, you know, one of the avenues being discussed is just pulling back on Medicaid expansion. How do you think that would play through and or impact skilled nursing if that were to come to fruition just to to play out that scenario whether or not it happens or not. It kinda it’s not withstanding.

Dave Sedgwick: Yeah. I I I would not view if that’s if that’s the direction that it goes, I would not view that as a a serious concern for skilled nursing. I think the the bulk of that expansion was for younger able-bodied folks who who, you know, were added to the Medicaid roles and if that gets, you know, if they throw a work work requirements and and different eligibility requirements, that wouldn’t I would not expect that to hit skilled nursing.

Juan Sanabria: Thank you very much. Alright.

Operator: Your next question comes from the line of Rich Anderson from Wedbush. Please go ahead. Your line is open.

Rich Anderson: Hey. Thanks. So comments around PACS is you know, I appreciate that. You know, you you had a sort of a follow on, you know, kinda completion in the in 2025 with them. One at one facility. But I’m just I’m just curious what your appetite is to do work with them at this stage given, you know, the uncertainty around them. Would you be open to doing a deal with them today, or are you sort of in a holding pattern? As it relates to your external growth?

Dave Sedgwick: I I think PACS themselves are probably in a bit in a bit of a holding pattern until they can release earnings. And and I think it will wait to see how that how that earnings release comes out and and hope that it’s a positive one.

Rich Anderson: Okay. Fair enough. And then on your on your shop comments, if if so, if you were to sort of get something moving in that direction, where do you see it executing? Would it be acquiring an enterprise that has the people and process in place, or would you build it organically?

Dave Sedgwick: I I think it’s still to be determined. I I think you could all options would I would say are on the table with respect to shop. It’s certainly a compelling area. For the same reasons why skilled nursing is is such a strong place to be. The demographics are just incredible. And the next five years from now, it’s projected that there will be more than four million more people aged eighty years or older. So that that long anticipated silver tsunami appears to now be breaking. And so the the demographics and the supply and demand, it’s it’s a it’s obviously a very compelling area that we’re very familiar with. On the skilled side, and a lot of that leads over to the the shop side.

Rich Anderson: Okay. And then just one last one for me. In your $1.5 billion of investment last year, how much of that was sort of the normal course replenishment of your visible pipeline, which is today, $325 million, and was there any amount in that $1.5 billion that would be quote unquote larger portfolios that were in addition to what, you know, you characterize as your pipeline. I’m just curious as to the makeup of the 2024 external growth platform and how that might be extrapolated into 2025 in terms of deal volume. Thank you.

Dave Sedgwick: Yeah. So the way we handle the the the a number that we have a very high amount of confidence in. It certainly is not inclusive of everything that we are underwriting or reviewing or chasing even. The bigger the deal, the higher the threshold that we have on it. Before we include it in the number. So as the year went on, you know, we we were certainly working on for example, the Tennessee deal. Right. Throughout the year, but we were not including that until we we really had to. Because it was it was that certain that we were gonna get it done. And so we we announced what we feel very confident in. We execute, and we replenish that five as we we stated replenish quoted pipeline as deals either closed, fall out, or or get replenished.

Rich Anderson: So of the $1.5 billion last year, is it fair to say that fifty percent of it was this sort of replenishment movement and fifty percent was stuff that wasn’t in that pipeline, but ultimately worked out, like, in the case of Tennessee. Is that is that a reasonable breakout of what happened last year?

Dave Sedgwick: No. I don’t think so. I think if you roll back the tape, you’ll see you’d have to go back to each time that we updated our pipe number and compare that with what closed and and then I I would say probably that the Pennsylvania I’m sorry, that the Tennessee deal was the one that would not have been included in sort of run rate quoted pipe because we we really did wait until that thing was was signed up and and it was a material investment which required us to disclose it. So I think the sign if you factor that if you take that one out, maybe, from the the quoted pipe numbers along the way, that that might give you a better read.

Rich Anderson: Okay. Enough. Very much.

Dave Sedgwick: You bet. Thank you.

Operator: Again, should you have a question, press star followed by number one. Your next question comes from the line of Omotayo Okusanya from Deutsche Bank. Please go ahead. Your line is open.

Omotayo Okusanya: Yes. Good afternoon, everyone. Just curious on on the Medicaid side from the state perspective as a start to gear up for their for their yearly budget, are you kind of any early indications of what might be happening in terms of just Medicaid reimbursement at the state level in the key states you have exposure to?

Dave Sedgwick: We don’t expect any any negative surprises on that front. Based on what we’ve heard from our operators, there’s some just to give you one little piece of color. There there is some building optimism that Texas will see a fair size increase. Which would obviously be very welcome news to that state that is historically been underfunded. But we’ve also been disappointed by that type of hope in Texas for too. So besides that, I think we’re expecting it to be a pretty routine season with respect to Medicaid rate.

Omotayo Okusanya: K. That’s helpful. And then, again, sticking to the Medicaid conversation. Again, appreciate some of the color you’ve put on how the government may be kind of thinking about it. But I do think one other popular theme is this idea of the government just kind of pulls back on the amount of, you know, kind of Medicaid matching they’re doing and they asked the states to be much more responsible for it. Any thoughts around that line of thinking about how you know, put you could see potential evolution of Medicaid and on the Medicare side, also a lot of thoughts around, you know, they start to push much more Medicare Advantage versus traditional Medicare. And I think, again, with Medicare Advantage, the reimbursement rate tends to be lower to to the operator. So, again, just any thoughts on those kind of two thoughts around how the Trump administration may attack this.

Dave Sedgwick: Sure. And I’ll go in reverse order. I think the the trend is is certainly not the industry’s friend with respect to managed Medicare. That that trend has been in place for gosh, I’ve been in the business twenty-five years, and it’s it’s been part of the discussion this whole time. And that’s gonna I I I don’t expect that to reverse. I think that trend will continue and Medicare Advantage will continue to eat into regular fee-for-service Medicare. And and so then that what I’m about? Historically, Anne, going forward is the same as true, is that the more sophisticated operators are able to adjust to that. They’re able to invest in those relationships with the managed care organizations and gain share from that.

So, yes, it’s it’s challenging, and there’s lower length of stay. You can actually capture some share. And if you’re really sophisticated, you can net net not do too poorly from that. With respect to the FMAP, you know, I guess, just spitballing, you’ve got a house that does not have nearly the majority that it had during Trump 1.0, and in the first administration, you know, President Trump ran on building the wall and repealing Obamacare. Health care reform. And they were unable to pass any of these types of approaches to to chip away at the Medicaid rates. And now you have a a fairly razor-thin majority. And so as a as they look at that, I think you’re gonna have the same type of opposition with much less room for error. By in the house and but also those Republican governors are are not interested in having taking on more of that that burden.

There’s just no room really to cut. For Medicaid for skilled nursing, and I think the states and the federal government are more aware of that today than they ever have been based on what happened with the pandemic.

Omotayo Okusanya: If that’s how close it is, I mean, I mean, those with one more. Just around PACS, again, I know it’s a bit of a black box today. But how do you guys kinda think about a worst-case scenario as it pertains to kind of, you know, the current federal investment investigation. Just, you know, you guys are kind of handicapping this thing. Like, worst-case scenario is what in your mind?

Dave Sedgwick: No. We don’t we don’t don’t really wanna speculate on that. In this forum. We we we don’t have a worst-case scenario that we’re concerned about right now. We think that gonna be just fine, and and we we really don’t have much more to come in before they themselves are able to come in.

Omotayo Okusanya: Fair enough. Thank you.

Dave Sedgwick: You bet.

Operator: If there are no more questions, I will now wrap up the Q&A session. I will now turn the call over to Dave Sedgwick, Chief Executive Officer for closing remarks.

Dave Sedgwick: Well, thank you guys very much for your interest and support. Look forward to another very strong year here at CareTrust. Have a great day.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining, and you may now disconnect.