CareTrust REIT Q3 2026 Earnings Call Transcript
CareTrust REIT (NASDAQ:CTRE) reported third-quarter financial results on Friday. The transcript from the company’s third-quarter earnings call has been provided below.
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View the webcast at https://events.q4inc.com/attendee/313959106
Summary
CareTrust REIT reported a 20% year-over-year increase in normalized FFO per share, reaching $0.54.
The company invested approximately $2.9 billion year-to-date across three growth engines, indicating strong growth momentum for 2027.
CareTrust REIT’s asset base grew by 375% since Q4 2022, significantly outpacing the 27% growth of healthcare REITs overall.
A strategic relationship with L&T was announced, expected to deliver double-digit returns through a pipeline of UK care homes and a unique SHOP growth engine.
In Q3, $740 million of investments were closed at a blended stabilized yield of 8.3%, including a significant skilled nursing portfolio and UK care homes.
The balance sheet is well-positioned with a new $700 million unsecured term loan and an expanded $2 billion revolving credit facility.
Full-year 2026 guidance was raised, projecting normalized FFO per share growth of 18.5% over 2025.
The company maintains a low leverage profile with net debt to EBITDA at 2.7 times, providing financial flexibility for future growth.
Management expressed confidence in continuing double-digit growth driven by diversified investment strategies and strong operator relationships.
Full Transcript
OPERATOR
Trust Third Quarter 2026 Earnings Conference Call. After today’s prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Lauren Beale, Chief Accounting Officer. Lauren, please go ahead.
Lauren Beale (Chief Accounting Officer)
Thank you and welcome to CareTrust REIT’s third 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 Q3 2026 financial supplement, which are available on the Investor Relations section of CareTrust REIT’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 is Dave Sedgwick, President and Chief Executive Officer, Derek Bunker, Chief Financial Officer and James Callister, Chief Investment Officer.
I’ll now turn the call over to Dave Sedgwick, CareTrust REIT’s President and CEO. Dave.
David Sedgwick (President and CEO)
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 Q4 ’22, healthcare REITs have grown assets by 27%. CareTrust’s asset base has grown by 375%. And looking at FFO per share growth from ’23 through estimates for this year, healthcare REIT FFO per share will have grown 30%. CareTrust will have grown 47%. Looking at forward estimates today, CareTrust trades at the lowest growth-adjusted multiple of all healthcare REITs. 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 higher-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 EBITDAR lease coverage hit 2.62 times and EBITDARM of 3.26 times across the stabilized portfolio, up again from last quarter.
One hundred percent 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.
James Callister (CIO and Secretary)
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 leased 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: 1) the acquisition of the Southwest skilled nursing portfolio for approximately $399 million; 2) 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 3) a 2-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 Crystal Care with the ability to convert to SHOP as the 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 US 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 in 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 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 US SHOP and the balance is skilled nursing, UK 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.
Derek Bunker (Chief Financial Officer)
Thanks, James. For the quarter, normalized FFO increased 37% over the prior-year 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-year 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 upsize. 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; pro forma, 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 accessing capital markets.
And later next year we expect to begin converting our LNT homes to a RIDEA 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 LNT 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.
David Sedgwick (President and CEO)
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 LNT. We are again differentiating ourselves by partnering with the envy of the U.K. 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.
OPERATOR
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. 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 Farel Granath with Bank of America. Your line is open. Please go ahead.
Farel Granath (Analyst at Bank of America)
About what makes LNT’s development model different from other providers and how that’s translating into better returns for CareTrust REIT. And then is this an opportunity you could replicate with other partners, or is it fairly unique to LNT?
David Sedgwick (President and CEO)
You know, you were, I think, muted for the beginning of that question. If you wouldn’t mind, could you repeat it?
Farel Granath (Analyst at Bank of America)
Sure. Could you just talk about what makes LNT’s development model different from other providers, and is this an opportunity you could replicate with other partners?
David Sedgwick (President and CEO)
Yeah. Thank you. Thanks a lot for the question. I realize this is our first conference call since announcing the LNT 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 ways. 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 years. 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 EBITDAR. 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 measure the value of this acquisition of 45 LNT care homes by the same unlevered 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 LNT deal or why we characterize it as strategic. So a little bit more specific to your question: LNT 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 they’re the development pipe, and their development pipeline beyond the next homes that we have under contract to buy stands at over 150 sites and counting.
It’s really why we call them one of one. So our deal with LNT 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 prohibits REITs from developing or buying brand-new properties in lease-up.
And so that gives, I think, a lot more than you bargained for, but it describes why LNT is so strategic for us. Would we do other development? Sure we could, here and there. But on a programmatic basis at scale, I think LNT is really one of one.
Farel Granath (Analyst at Bank of America)
No, thank you very much. We certainly appreciate the additional color there. And maybe just to follow up, beyond the initial 45 homes, how do you see the relationship growing and what sort of drives the decision to keep acquiring completed homes versus maybe exercising the option to acquire the broader platform in the future?
David Sedgwick (President and CEO)
I think some more color on it is, originally we were working with LNT 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 LNT will become self-evident.
Farel Granath (Analyst at Bank of America)
Thank you very much.
OPERATOR
Your next question comes from the line of Austin Verschmidt with KeyBanc Capital Markets. Your line is open. Please go ahead.
Austin Verschmidt (Analyst at KeyBanc Capital Markets)
Thanks. Good morning, everyone. Maybe sticking with LNT, 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 RevPAR perspective relative to the quality of the assets; and two, does it give them a longer runway or ability to push RevPAR relative to where other developers need to set rate, I guess, to make the economics work for construction? Thanks.
David Sedgwick (President and CEO)
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 U.K. by acquiring a mid-market portfolio that performs very well— incredibly high lease coverage, high occupancy— and there’s certainly a market need for that. A lot of development in the U.K. and in the States targets that high-end luxury sector, and what LNT targets is sort of that upper middle class— so private-pay only, but about, you know, 10% below that real high-end RevPAR.
That gives a ton of pricing power and is super attractive, especially because it’s competing in a market that has about a third of the U.K. care homes today with ensuite wet rooms, and of course LNT with 100% and being brand new and priced as it is, I think there’s going to be a ton of upside there.
Austin Verschmidt (Analyst at KeyBanc Capital Markets)
Maybe could you just frame what that RevPAR spread is versus market, or what it would take to develop a new asset today?
James Callister (CIO and Secretary)
Yeah. Hey Austin, it’s James. I think typical development we see in the U.K. runs about £250,000 per unit or so. LNT develops for about £100,000 less than that per unit, I would say. I think their average weekly fee is around £1,500, which I think, like Dave said, is 10% to 15% 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 ensuite wet rooms, and that they’re in markets that are pretty significantly underbedded when it comes to ensuite wet rooms.
Austin Verschmidt (Analyst at KeyBanc Capital Markets)
That’s helpful. And then just last one for me, Dave or Derek, appreciate the commentary about the balance sheet flexibility you 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?
Derek Bunker (Chief Financial Officer)
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 higher-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 just 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 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.
Austin Verschmidt (Analyst at KeyBanc Capital Markets)
That’s great. Thanks, everybody.
Derek Bunker (Chief Financial Officer)
Thanks, Austin.
OPERATOR
Your next question comes from the line of Jamie Feldman with Wells Fargo. Your line is open. Please go ahead.
Jesus (Analyst at Wells Fargo)
Hey, good morning. This is Jesus for Jamie. Thanks for taking the question. Just kind of staying with LNT over here. Hey, Dave, just sticking with LNT. Once the LNT home ramps towards stabilization, can you talk about the factors that determine whether you convert it immediately to SHOP versus continuing to collect a triple-net run?
David Sedgwick (President and CEO)
Well, I think we’re going to be eager to convert. In fact, if there’s opportunities to convert buildings that are well on their way to stabilization, we may have conversations with the LNT 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.
Jesus (Analyst at Wells Fargo)
Great. And on the $274 million of the recent loan and preferred equity investments you guys made, just how should we think about the durability of that 10.6% yield and any potential path to future ownership on those assets?
James Callister (CIO and Secretary)
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 loans since the end of Q3.
Jesus (Analyst at Wells Fargo)
That’s perfect. Thanks, guys.
James Callister (CIO and Secretary)
Thanks, Jesus.
OPERATOR
Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open. Please go ahead.
Robin Haylen (Analyst at BMO Capital Markets)
Hi, this is Robin Haylen sitting in for Juan. I just wanted to touch on active asset management opportunities. Just given elevated lease coverage and, let’s say, NIPs and senior housing triple-net, do you see any opportunities to monetize some of that profitability and perhaps bring forward earnings growth from rent resets either via asset transitions or otherwise?
David Sedgwick (President and CEO)
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 on 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 CareTrust REIT 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.
Robin Haylen (Analyst at BMO Capital Markets)
Thank you. And on the pro forma leverage now closer to 2.7 times, low but above prior trend levels, how are you thinking about equity to help fund the remaining LNT 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 double digit growth in 27.
Derek Bunker (Chief Financial Officer)
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.
OPERATOR
Thank you. Your next question comes from the line of Vikram Malhotra with Mizuho. Your line is open. Please go ahead.
Vikram Malhotra (Analyst at Mizuho)
Morning. Thanks so much for taking the questions. I guess just first on the LNT deal and thinking about when, if and when this converts to RIDEA, I think you’ve talked about roughly a high 7% yield on conversion or anticipated, and I’m wondering what’s the likelihood of that yield being higher? Perhaps higher RevPOR 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 kind of top-line parameters?
Derek Bunker (Chief Financial Officer)
I’d say there’s a good likelihood it is. As Dave mentioned, that high-7% going-in yield when we do flip to RIDEA, which is what we’re planning on and what LNT’s planning on, is on trailing three 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 RevPOR perspective given their situation in the market—being all private pay, 100% ensuite wet rooms, but at a cost that’s 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 full portfolio and then some can do for us.
Vikram Malhotra (Analyst at Mizuho)
And then what about just, can you clarify the tax impact? You know, either what the rate likely is there— 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, maybe like a seven or something? But are there factors that can drive that tax rate lower?
Derek Bunker (Chief Financial Officer)
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 LNT 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, call it, a quarter of the leakage we’re experiencing right now.
Vikram Malhotra (Analyst at Mizuho)
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 U.S. SNFs are there other ways to perhaps accelerate the growth? Whether it is perhaps taking a position in an OpCo or perhaps like a RIDEA-like structure in certain select SNF relationships. Any color there if there’s a way to accelerate the, you know, or take advantage of the still improving operations in your tenants.
David Sedgwick (President and CEO)
Yeah, thanks, Vikram. We don’t have any plans today to take a RIDEA 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.
Vikram Malhotra (Analyst at Mizuho)
Got it. Thanks so much.
OPERATOR
Your next question comes from the line of Dave Rogers with Raymond James. Your line is open. Please go ahead.
Dave Rogers (Analyst at Raymond James)
Yeah, good morning out there. Wanted to ask about the 150-plus sites and counting at LNT 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 LNT 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?
David Sedgwick (President and CEO)
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 LNT’s development company. That would not just lock up that pipeline, but also, as we incorporate LNT, 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 LNT 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.
Dave Rogers (Analyst at Raymond James)
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. 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 UK?
James Callister (CIO and Secretary)
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 we’re seeing a lot of what everybody is seeing and I think that 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.
David Sedgwick (President and CEO)
I think I would just add one little note to that. You know, 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 looks like that the team’s pursuing, I would be really surprised if next year wasn’t quite a bit more than that for us.
Shop. No pressure, James.
Dave Rogers (Analyst at Raymond James)
All right, thanks for that, guys. Appreciate it.
OPERATOR
Your next question comes from the line of Michael Carroll with RBC Capital Markets. Your line is open. Please go ahead.
Michael Carroll (Analyst at RBC Capital Markets)
Yeah, thanks, Dave. Or James, can you talk about what you’re tracking on the portfolio side? I know in the press releases CareTrust REIT 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 CareTrust REIT was kind of hinting at that LNT deal and there’s fewer out there?
And then, James, on the SNF portfolio transactions, I mean, how does CareTrust REIT compete on that? Is that like the relationships that you’ve created that kind of gives you the inside track on that, or is there more, I guess, private buyers that are generally more aggressive on pricing that typically makes it harder to get those deals done? So I guess what’s the give or take there on the ability to complete a larger SNF transaction?
David Sedgwick (President and CEO)
Other than my pretty face, Mike? I would say that, Mike, that was a softball. You should know better.
James Callister (CIO and Secretary)
If you think about the fact that such a larger portion of SNF deals are off market and are not marketed, unlike the Shop space, 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 SNF side, particularly with medium to large size deals.
David Sedgwick (President and CEO)
I thought you were going to say it’s predominantly because of your good looks. I too, yeah. Equally.
Michael Carroll (Analyst at RBC Capital Markets)
If I can switch one more to give to Derek. I mean, if I look at the purchase option disclosure in the SUP, 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, it’s 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?
Derek Bunker (Chief Financial Officer)
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 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 on 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 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 the portfolio in whole. So I think overall we would probably assume most of those would be exercised. Now, as you could see, some of that is just some of those are multi-window options, and our disclosure is really about sort of the first of what 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.
Michael Carroll (Analyst at RBC Capital Markets)
Okay, great. Thank you.
Derek Bunker (Chief Financial Officer)
Thanks, Mike.
OPERATOR
Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Your line is open. Please go ahead.
Omotayo Okusanya (Analyst at Deutsche Bank)
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 of 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, 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 ’27 is going to be pretty good, but like in ’28, how do we kind of think about no risk of a huge step down in earnings growth?
David Sedgwick (President and CEO)
Well, you can’t predict the future, but one way to help predict the future is to build it. And I think the LNT relationship does provide us an opportunity to answer that question for many years to come. If, in fact, we lock up LNT 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: 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 story really started kicking in, I don’t have the timidity as I look forward in the next, you know, near to midterm.
We’re very confident that we’re going to be able to continue to grow in a meaningful way.
Omotayo Okusanya (Analyst at Deutsche Bank)
There’s a lot of swag in your LinkedIn post, I’ll have to say that, Dave.
David Sedgwick (President and CEO)
Thank you.
Omotayo Okusanya (Analyst at Deutsche Bank)
And then one more follow-up, if you don’t mind. On the Shop side, I know a lot of your peers are kind of out there giving a whole bunch of targets— want to be 30% Shop by this time or 40% Shop by this time. Are you guys thinking 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 LNT or when you kind of think bigger picture?
David Sedgwick (President and CEO)
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 in now a fourth UK Shop method with LNT 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 UK 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.
Omotayo Okusanya (Analyst at Deutsche Bank)
Gotcha. All right, all the best.
David Sedgwick (President and CEO)
Thanks, Tayo.
OPERATOR
Your next question comes from the line of Michael Goldsmith with UBS. Your line is open. Please go ahead.
Michael Goldsmith (Analyst at UBS)
Good morning. Thanks a lot for taking my question. Maybe following up on that last question, David, D.B., 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, LNT, and credit. So if you’re allocating the next dollar of capital today, where are you seeing the best risk-adjusted return? And if there is one, are there any channels that you’d like to deploy more significantly to, but just pricing or availability is holding you back?
David Sedgwick (President and CEO)
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— 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.
Michael Carroll (Analyst at RBC Capital Markets)
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 it’s 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 deals you’re underwriting where there’s meaningful upside over time?
Thank you very much. Good luck in the fourth quarter.
James Callister (CIO and Secretary)
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 to that low double-digit unlevered IRR for a 10-year hold. I think that what you’re seeing in the market today really is some, you know, lease-up stuff that has, you know, 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’s sake has to be kind of put in the backseat and you have to focus on the right underwriting conviction and the growth story that you can get to that IRR.
David Sedgwick (President and CEO)
Thanks, Mike.
OPERATOR
Your next question comes from the line of Mike Mueller with J.P. Morgan. Your line is open. Please go ahead.
Mike Mueller (Analyst at J.P. Morgan)
Yeah, hi Derek. I think you said you could 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?
Derek Bunker (Chief Financial Officer)
Yeah, I think it was a little more of the latter sort of thought exercise, and I think we view that as a fallback and 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 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 multi-factor approach we typically look at that would only be what we see as an improvement over utilizing the revolver.
Mike Mueller (Analyst at J.P. Morgan)
Okay. And then in thinking about the current interest rate volatility and looking back over time, what does it take 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.
Derek Bunker (Chief Financial Officer)
Deviate up or down?
Mike Mueller (Analyst at J.P. Morgan)
Either way. I mean, it just seems like rates could just jump or go down and you see nines across the board.
Derek Bunker (Chief Financial Officer)
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 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.
Mike Mueller (Analyst at J.P. Morgan)
Okay, appreciate it. Thank you.
David Sedgwick (President and CEO)
Thanks, Mike.
OPERATOR
Your next question comes from the line of Rich Anderson with Cantor Fitzgerald. Your line is open. Please go ahead.
Rich Anderson (Analyst at Cantor Fitzgerald)
Thanks. Good morning out there. So on LNT, how many beds are we talking about in the 45 homes? I’m guessing around 3,000, is that right?
James Callister (CIO and Secretary)
So when I talked about LNT, 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,
Rich Anderson (Analyst at Cantor Fitzgerald)
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 US dollars, that development out there is 335,000 a bed. So that sounds like paying above replacement costs, correct. Again, correct me if I’m wrong. I’m just, I’m just spitballing here, but. And I coincide that observation with why would they be willing to pay you during the lease-up? Why would they be 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?
James Callister (CIO and Secretary)
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 that when you add, you know, Rich, 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 RIDEA 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 impact over this period because of the price that we paid. And we view it as when we get in there and take over in RIDEA, 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.
Rich Anderson (Analyst at Cantor Fitzgerald)
Okay, second question is this is a, you know, higher-quality ensuite 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?
Is—am I saying that right? Again, not to put words in your mouth.
James Callister (CIO and Secretary)
Thanks. Yeah, yeah, I think that is how we see it. I think we really like the triple-net business there because 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.
Rich Anderson (Analyst at Cantor Fitzgerald)
Okay, fair enough. Thanks very much.
David Sedgwick (President and CEO)
Thanks, Rich.
OPERATOR
Your next question comes from the line of Alec Fagin with Baird. Your line is open. Please go ahead.
Alec Fagin (Analyst at Baird)
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?
David Sedgwick (President and CEO)
Yeah, look, I’ve been personally in skilled nursing and senior housing for over 25 years, seen just about every type of government composition in D.C., and, you know, during the Build Back Better bill debate, we re-emphasized 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. And so, you know, 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, you know, the strong lease coverage, star ratings, the quality metrics that our tenants provide for the sector. So happy to work with whoever is currently in power.
Alec Fagin (Analyst at Baird)
Got it. That’s it for me. Thank you.
David Sedgwick (President and CEO)
Thanks, Alec.
OPERATOR
There are no further questions at this time and we have reached the end of the Q and A session. I will now turn the call back to Dave Sedgwick for closing remarks.
David Sedgwick (President and CEO)
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.
OPERATOR
This concludes today’s call. Thank you for attending. You may now disconnect.
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