Investing.com -- Moody’s Ratings has affirmed the Ba1 corporate family rating (CFR) of CareTrust REIT (NYSE: CTRE ), Inc. and the Ba1 backed senior unsecured rating of its main operating subsidiary, CTR Partnership, L.P., collectively referred to as CareTrust. The speculative grade liquidity rating (SGL) remains at SGL-1. Moody’s has revised the outlook for both entities to positive from stable on May 28, 2025.
The decision to maintain the ratings is due to CareTrust’s consistent operational performance, robust credit metrics, and a demonstrated commitment to keeping leverage modest as it pursues growth through acquisitions. The shift to a positive outlook is based on Moody’s expectation that CareTrust will continue to expand and diversify its healthcare real estate portfolio in terms of tenant, location, and property sub-type, all while maintaining modest leverage and strong liquidity.
CareTrust’s Ba1 CFR represents the long-term, triple-net structure of its healthcare lease investments, which ensures stable cash flows. The REIT also benefits from sound rent coverage across most of its leases, indicating that its tenants are well-equipped to meet rent payments. Additional credit strengths include CareTrust’s low leverage, strong fixed charge coverage, and solid liquidity. Net debt/EBITDA remains in the low 2x range pro forma for recent investment activities.
In recent years, CareTrust has sped up its growth, enhancing its size and diversification. Gross assets increased to $5.3 billion pro forma for the REIT’s acquisition of Care REIT plc in May 2025, up from $2.0 billion as of year-end 2022. The acquisition of Care REIT marks CareTrust’s entry into the United Kingdom (UK) care home market, which is experiencing favorable supply and demand dynamics that will support stable operating fundamentals for the next several years. It is expected that CareTrust will aim to expand its presence in this highly fragmented market.
Key credit challenges include CareTrust’s modest size compared to its healthcare REIT peers and integration risk associated with its rapid pace of growth. CareTrust also has significant tenant concentration. The REIT’s top three tenants make up a combined 42% of pro forma rental income, although these exposures have continued to decline.
CareTrust generally has strong rent coverage metrics across its portfolio, particularly for its largest operators, which is a crucial risk mitigator. The REIT’s largest tenant, The Ensign Group (NASDAQ: ENSG ), has exceptionally strong coverage at 4.25x EBITDARM for 2024. However, there is increased risk surrounding its second largest tenant, PACS Group, which is under federal investigation for its billing practices and facing shareholder lawsuits. These facilities are performing well with 3.24x EBITDARM coverage and the operator remains current on its rents.
CareTrust’s SGL-1 reflects the REIT’s positive free cash flow, lack of near-term debt maturities, and capacity on its $1.2 billion revolving line of credit. As of May 2, 2025, the REIT had $45 million cash and $825 million available on its revolver, as well as commitments for a $500 million unsecured term loan.
Factors that could lead to a ratings upgrade include stable operating performance, improving rent coverage trends, increased size with gross assets exceeding $4 billion, and improved tenant diversification. CareTrust would also need to maintain a strong financial profile, with net debt to EBITDA below 4.5x and fixed charge coverage above 5x.
Conversely, a ratings downgrade could occur due to operating challenges as evidenced by declining rent collections or rent coverage metrics. Net debt to EBITDA approaching 6x or fixed charge coverage below 3.5x would also lead to a ratings downgrade.
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