SAN CLEMENTE, Calif. — CareTrust REIT Inc. (NASDAQ: CTRE), a San Clemente-based investor, has acquired a 503-bed, four-property skilled nursing portfolio in California.
The transaction is structured as a sale-leaseback with subsidiaries of Covenant Care Inc. As part of the sale, CareTrust and Covenant Care entered into a new master lease, which combined the four newly acquired facilities with four Covenant Care facilities already in CareTrust’s existing portfolio.
CareTrust and Covenant Care first partnered in 2016, when CareTrust purchased two skilled nursing facilities and two assisted living facilities from a private landlord with three separate, standalone leases to Covenant Care subsidiaries in place.
The transaction was designed to help Covenant Care retire existing debt and strengthen its balance sheet. In addition, CareTrust retained the right to re-tenant one of the newly acquired buildings at a future date, at CareTrust’s option.
CareTrust’s total investment was approximately $43.9 million, inclusive of transaction costs, with approximately $4 million in initial annual cash rent. The master lease carries an initial term of 15 years, with two five-year renewal options and CPI-based rent escalators. The three standalone leases that were consolidated and eliminated had remaining lease terms of less than five years.
In conjunction with the sale-leaseback, CareTrust also provided Covenant Care with a short-term, $11.4 million secured term loan at an interest rate of 9 percent. The loan is secured by a first mortgage on a five-property, 440-bed skilled nursing portfolio owned and operated by Covenant Care subsidiaries in Illinois. The sale-leaseback and secured term loan were funded using cash on hand.