Tangible Value

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⚠️ The article about CareTrust REIT $CTRE published by Barron's yesterday afternoon has caught the attention of several REIT executives. Here is a rebuttal from an investor who knows the space well... "It was surprising to read the Barrons article. It appears the writer has conflated two completely different asset classes and two completely different types of growth. CTRE is primarily a Skilled Nursing focussed REIT. Their cash flow comes from leases with operators such as Ensign. These leases have 2-3% escalators which is CTRE’s growth in cash flow (organically no earnings growth as these leases are straight lined). Rest of their growth comes from investment driven growth from new investments and loans which is solely a function of their cost of capital vs. investment yield - very much like a bank. Underlying asset performance is a function of payers such as Federal and state governments. This is why these properties are lower margin assets as government will only allow so much profitability in healthcare. Private pay Senior Housing is a consumer business where consumers pay for it. Some are good and others are not. Government has nothing to do with payment. Senior Housing Operating Portfolio or SHOP is equity structure where REITs like Welltower Inc. $WELL and Ventas, Inc. $VTR owns those assets. REIT’s cash flow grows or falls with underlying cash flow growth of the assets. For example WELL’s same store growth has been running mid teens (as opposed 2-3% for CTRE). Companies with higher organic growth trades at much higher multiple than lower growth (say Costco vs a Bank). Companies with government payer trades at much lower multiple than companies with private pay consumer business because of stroke of the pen risk (health insurers vs. Hermes). The lack of understanding of actually what these companies do and underlying growth profile is simply stunning. We expect better from a highly reputed publisher like Barrons."