CTRE earnings call transcript, November 5, 2026

percent 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 US today, I think you see how we view it. If we only measure the value of this acquisition. Of 45 L&T care homes by the same unlevered return targets we have in the US, 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 UK. 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 stand 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. 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. 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 broad? or 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 how the NOI perform. And all these other development metrics so that as as we see that proven to ourselves and proven to our investors, I think the decision to proceed and acquire all of all of L&T will become. You know, self-evident.

Thank you very much.

You bet.

Maybe could you just frame what the, you know, what that 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 for 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% 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 that are in markets that are pretty significantly under. vetted when it comes to ensuite wet rooms and telephone and 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 the acquisition channels?

Hey Austin, it's Derek.

Thanks Austin.

Hey Dave.

That's perfect.

Thanks guys.

Thanks Jesus.

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. 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 long time care trust tenant who is 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.

Hello, 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 and then also being able to generate WG growth in 27. Yeah, I would just say that from our perspective, we we look at where we sit today through this. 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. 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 ever 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. Thank 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 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 buying. 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. 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.

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. We'll 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 size deals. I thought you were going to say it's predominantly because of your good looks. Well, I too. Yeah. 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 three hundred and forty million dollars of transactions that could be. Exercized before the year ended in twenty seven. 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? 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 but basically ongoing conversations with them and those can change, as you mentioned, on 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 we like to view it, I think, conservative. 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 have. And we could point to interest rates or other considerations from those tenants and not exercising. I think certainly logically, but also, you know, 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 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 exercise. 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 it's probably likely that at least some will will kind of consider their options at that point and decide to pursue a different path.

Thanks, Mike.

Thanks for that.

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? More 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 under. Right. That low double digit unlevered IRR 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 of 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 backseat. 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.

Thanks, Mike.

Thanks, Rich.

Thanks, Alec.