8-K: CareTrust REIT to Acquire Care REIT plc for $817 Million in Cash

CareTrust REIT announced a definitive agreement to acquire Care REIT plc, a UK-based real estate investment trust, for approximately $817 million, including debt assumption.

Summary

• CareTrust REIT, Inc. (CTRE) has announced a firm intention to make a cash offer to acquire Care REIT plc (CRT) through its subsidiary, CR United Bidco Limited.
• The offer is for 108 pence in cash for each Care REIT share, valuing Care REIT's existing issued and to be issued ordinary share capital at approximately US$577 million.
• Including the assumption of Care REIT's net debt of approximately US$240 million, the total purchase price is approximately US$817 million.
• The acquisition represents a 32.8% premium to Care REIT's March 10, 2025 closing share price.
• Completion of the Acquisition is conditional on shareholder approval, court sanction, and other customary conditions.
• The transaction has been unanimously approved by the boards of directors of both CareTrust and Care REIT and is expected to be completed in the second quarter of 2025.
• CareTrust intends to finance the acquisition through borrowings under its existing unsecured revolving credit facility.
• CareTrust has received irrevocable undertakings from Care REIT's directors and certain other shareholders to vote in favor of the Scheme in respect of, in aggregate, 12,305,991 Care REIT Shares, representing approximately 3.0% of Care REIT's issued ordinary share capital.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the strategic acquisition, the attractive premium offered, and the expected benefits of entering the UK market. The management's comments and the unanimous board approvals further contribute to the positive outlook.

Positives

• CareTrust gains a diversified portfolio of 137 care homes in the UK with long-term, triple-net leases.
• The acquisition provides CareTrust with a platform for growth in the fragmented UK care home market.
• CareTrust expects to benefit from favorable demographic trends and a demand-supply imbalance in the UK care home sector.
• The acquisition is expected to be accretive to CareTrust's earnings.
• CareTrust's management has extensive experience in the sector and values partnerships with operators.
• Care REIT reported annual contractual rent of approximately US$66 million as of September 30, 2024, which represents an initial yield, based on CareTrusts investment, of approximately 8.1%.
• Care REIT had also reported portfolio EBITDARM rent coverage of 2.2x for the trailing twelve month period ending on that same date.

Negatives

• The acquisition is subject to shareholder and court approvals, and customary closing conditions, which could delay or prevent the transaction from closing.
• CareTrust is assuming approximately $240 million of Care REIT's net debt.
• Integration of Care REIT's operations may present challenges.
• Currency exchange rate fluctuations could impact the value of the acquisition.
• Changes in UK regulations or healthcare policies could negatively impact Care REIT's business.

Risks

• Failure to obtain shareholder or court approval.
• Inability to successfully integrate Care REIT's operations.
• Changes in global, political, economic, business, competitive, market and regulatory forces.
• Future currency exchange and interest rates fluctuations.
• Tenants' ability and willingness to meet their obligations under leases.
• Impact of healthcare reform legislation.
• Tenants' ability to comply with applicable laws, rules and regulations.
• Ability of CareTrust and its affiliates to generate sufficient cash flows to service outstanding indebtedness.
• CareTrust's ability to retain key management personnel.
• Changes in tax laws and tax rates.
• Other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments.

Future Outlook

CareTrust expects the acquisition to provide a platform for growth in the UK care home market, driven by favorable demographic trends and a demand-supply imbalance.

Management Comments

• Dave Sedgwick, CareTrust's President and Chief Executive Officer, stated, 'We have been following the UK for some time looking for the right entry point. We believe we have found it in the Care REIT platform, which has assembled what we consider to be an excellent, diversified portfolio of UK assets and operator partnerships. We look forward to combining the Care REIT platform with our own and expanding our mission of growing with great operators in the UK.'

Industry Context

The acquisition reflects a growing trend of US healthcare REITs expanding into international markets to diversify their portfolios and capitalize on favorable demographic trends in developed countries.

Comparison to Industry Standards

• Sabra Health Care REIT (SBRA) and Omega Healthcare Investors (OHI) are examples of other healthcare REITs with international investments, although their primary focus remains in the United States.
• The 8.1% initial yield is competitive compared to recent transactions in the UK care home sector.
• The 2.2x EBITDARM rent coverage is within the typical range for well-managed care home portfolios.

Stakeholder Impact

• CareTrust shareholders are expected to benefit from the accretive acquisition and the diversification of the company's portfolio.
• Care REIT shareholders will receive a cash premium for their shares.
• Care REIT's tenants are expected to benefit from CareTrust's scale and access to capital.
• Residents of Care REIT's care homes are expected to benefit from continued investment in the properties.

Next Steps

• Care REIT will prepare the Scheme Document to be distributed to CRT plc Shareholders in due course.
• CRT plc Shareholders are advised to read carefully and in full the Scheme Document and related Forms of Proxy once these have been despatched.
• CareTrust will seek shareholder and court approvals for the acquisition.
• CareTrust will work to satisfy all closing conditions and complete the acquisition in the second quarter of 2025.

Key Dates