Investing.com -- Fitch Ratings has upgraded the Long-Term Issuer Default Ratings (IDRs) of CareTrust REIT, Inc. (NASDAQ:NYSE: CTRE ), CTR Partnership, L.P., and issue-level ratings of CTR Partnership, L.P. and CareTrust Capital Corp to ’BBB-’ from ’BB+’. This upgrade comes after the successful acquisition of UK-based Care REIT by CareTrust REIT, Inc. The acquisition, which adds roughly $69 million in annual contractual rent, has significantly improved the company’s operator and geographic diversification.
The ’BBB-’ rating is supported by long-term demographic tailwinds, low leverage, strong financial flexibility, liquidity, and portfolio-level lease coverage, as well as improving diversification. Over the past two years, CareTrust has completed significant external investment, primarily funded by equity. This has improved its scale and geographic and operator diversification.
As of March 31, 2025, the company’s leverage was low at 2.7x, well below the 4.0x level that Fitch considers consistent with a higher Issuer Default Rating (IDR). The company’s financial policy aims to maintain leverage between 4.0x and 5.0x, and it has been at or below this range in most periods.
CareTrust’s credit profile also benefits from its limited near-term maturities and a fully unencumbered portfolio. Improved diversification and scale following the Care REIT acquisition may support wider leverage sensitivities at a given rating level.
As of March 31, 2025, CareTrust’s top five tenants represented 65% of annualized base rent (ABR). However, this concentration has declined over time and should approach 50% following the Care REIT acquisition, aligning more closely with other health care REITs.
The long-term rental income risk profile of CareTrust’s skilled nursing portfolio is viewed by Fitch as being relatively unchanged by the pandemic. Skilled nursing facilities (SNFs) are expected to maintain their role in the U.S. health care system since they deliver complex post-acute and needs-driven care effectively.
CareTrust’s ratings reflect its strong financial metrics, including very low leverage, above-average operator lease coverage, and unsecured borrowing strategy. The ratings also reflect the issuer’s moderately diversified portfolio of triple-net leased health care real estate properties and long-lease maturity profile, which has become further diversified upon the close of the Care REIT acquisition.
In terms of peer analysis, CareTrust’s leverage policy is similar to its SNF-focused peers, Omega Healthcare (NYSE: OHI ) Investors, Inc (NYSE:OHI; BBB-/Stable) and Sabra Health Care REIT (NYSE: WELL ), Inc. (NASDAQ:SBRA; BBB-/Stable). CareTrust is comparable with National Health Investors (NYSE: NHI ), Inc. (NYSE:NHI; BBB-/Stable) in size, as a smaller cap health care REIT with similar tenant diversification, although NHI is more diversified by asset type.
Fitch’s assumptions include the company experiencing same-store net operating income (SSNOI) growth in the low-single digits and interest paid generally hovering between $40 million and $70 million annually. In addition to the Care REIT acquisition, Fitch assumes that CareTrust completes roughly an additional $300 million of acquisitions in 2025, with an average of $230 million annually over the rest of the forecast.
Factors that could lead to negative rating action or downgrade include further pressure on operators through legislation revisions that result in lower coverages or other changes in regulatory framework, or Fitch’s expectation of REIT fixed-charge coverage sustaining below 2.5x. Factors that could lead to positive rating action or upgrade include Fitch’s expectation that CareTrust will show more established access to capital comparable to ’BBB’-rated peers, or Fitch’s expectation that REIT Leverage will sustain below 4.0x.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.