Profits in the Nursing Home Industry
Skilled Nursing News had an article discussing how profitable they have become.
The average person does not think too fondly of nursing homes. It’s well known that patients face abuse and neglect in these facilities, and for many, a nursing home is a place where their loved one died or experienced a traumatic incident.
However, for business executives, the nursing home sector presents a chance to get rich beyond their wildest dreams.
David Sedgewick is the CEO of CareTrust, a Real Estate Investment Trust (REIT) that leases properties to nursing home operators.
“We saw that during the pandemic, and as the demographics continue to blow up over the next 25 years, [skilled nursing] will continue to be an important part of the healthcare continuum,” said Sedgwick.
As a result of this promising prediction and its history as the real estate subsidiary of Ensign Group, CareTrust has made a number of multinational deals with nursing home operators.
This past quarter was a banner one for CareTrust, as it marked the single largest investment quarter in the company’s history, excluding M&A activity, with about $900 million in investments at a blended yield of 8.9%.
All of this wheeling and dealing has been great for the bottom line, as CareTrust’s reported net income is $89 million, or 38 cents per diluted weighted-average common share for 2Q, and normalized funds from operations amount to $119.7 million, or 51 cents per diluted weighted-average common share.
“In skilled nursing, deal flow remains deep and steady, with proprietary opportunities generated through long-standing relationships,” James Callister, Chief Investment Officer said. “In the UK, our London-based team has widened our aperture considerably: new operators, new sources of deal flow.”
Since June 30, CareTrust has closed on an additional $308 million at 7.8% yield for a 16-property portfolio in the UK, creating a new operator relationship for the REIT, and a two-community seniors housing addition for $65 million.
Derek Bunker, Chief Financial Officer, mentioned briefly the high likelihood of purchase options for tenants, with that exercise “baked in” as an option for tenants to become owner-operators.
“It’s always uncertain, people’s capital needs and plans change all the time,” said Bunker. “We’re constantly in discussion with those tenants that have options. It’s a good relationship. It’s collaborative, and it’s not the end of the world. If they exercise, we always look to do deals down the road with them in the future.”
While these c-suite businessmen seem to live on top of the world, the residents living in their properties endure a much harsher reality.
Ensign Group, for example, is one of the most atrocious operators of skilled nursing facilities. As previously mentioned by our blog, Ensign takes in the sickest patients to get more in government benefits all while cutting nursing hours to wring out as much profit as possible.
In addition, the company uses tunneling to shuffle funds around to its associated companies like CareTrust for fraudulent purposes.
For nursing home executives and some investors, there’s nothing more important than the statistics of success. There are people behind all of these charts and numbers though, and these people are suffering and dying all while those at the top proudly announce a deal for a new facility.