Thank you, everyone, for joining. We're at the top of the hour. We are now in the CareTrust REIT meeting. My name is Farrell Granath, and I am co-lead with Jeff Spector for Healthcare REITs and the BofA REITs team. I'm joined today by Dave Sedgwick, who is the CEO and President of CareTrust. I will pass it over to you, Dave, for opening remarks and if you want to introduce any of your team members who I see are sitting on the sides. Great. Hello, everybody. Thanks for your interest. Bill Wagner, our CFO, is right over there. Derek Bunker, SVP of Strategy and Finance, is over there. My name is Dave. Happy to be with you and CareTrust. If you're new to the story, I'll just give you 45 seconds on us. The story really started back in 1999 when a little nursing home company got started in California called the Ensign Group. We started leasing properties from REITs, and the engine got started and got moving faster and faster. Next thing you know, we were starting to acquire real estate of our own and went public in 2007. By about 2013, 2014, we realized that all this real estate that we owned, we were not getting credit for it by the street. We saw a window of opportunity to spin off that real estate and form CareTrust REIT, which is what we did in June of 2014. For some reason, the street didn't like the fact that we had one tenant. We decided to grow that concentration down, which we have over the years. We averaged about $225 million of investment activity per year for the first nine years or so, adding operators, primarily all triple net skilled nursing, some triple net seniors housing along the way. I became CEO in 2022, although I've been with the company since our early days at the Ensign Group. I'm a recovering nursing home administrator. I come to this seat in a little bit of a different way than other REIT CEOs. That kind of makes sense because the skilled nursing asset class is hypersensitive to the quality of the operator, much more so than your traditional real estate metrics. Last year was bananas. That's a technical term for what happened. After you go on $225 million a year, last year we did $1.5 billion of acquisitions. In the midst of that, we were faced with an opportunity to consider an acquisition in the U.K., which would be our first M&A deal, not to mention our first international deal. After some internal debate, we decided to, even though it ain't broke, why fix it? Because it ain't broke, let's add another engine of growth to the ship from a position of strength, which is what we did. We closed on that in May and internalized that team in July and are working on integrating that company into ours now. We were in London all of last week. I haven't seen my kids now for too long. Can we wrap this up? In the midst of this year, another year of explosive growth, we're on pace to exceed last year. We had a very successful overnight equity offering that maybe some of you participated in a few weeks ago as we announced a $600 million pipeline of deals that we think we're going to be able to execute on here in short order. In the midst, just like last year, in the midst of a very big year, this year we're also thinking about next year and how we can build now a third engine of growth as we are looking at going into the SHOP space in earnest. About 18 months ago, we were about a $2.5 billion market capitalization company. Today we're around $7.5 billion. It seems like quite by accident, but it's been a lot of fun. Thank you for that. As a reminder, this is an open dialogue. Please jump in if you have any questions while we kick things off. I think maybe the biggest highlight is acquisitions. I think can we break into a little bit more about why you made that decision to enter into the U.K.? How long did that take you to maybe make that decision in closing? What has that done now to your portfolio, more meeting the asset classes that you're touching? Yeah, a little inside baseball on it. The deal came to us last summer. We had looked at the U.K. a few times over the previous three or four years, always deal related. Each time we get to know the market a little bit better, get a little bit more comfortable with it. We really did struggle with the decision of whether or not to do it because it ain't broke. We didn't want to distract from the momentum that was building on our core business. What we liked about it was a lot of the same things that we love about the business here. The seniors and skilled nursing business here are prevalent there. You've got a supply-demand imbalance. You've got the silver tsunami wave coming. You've got a mix of private and public funding that we're very familiar with. You have a fragmented market that is ripe for roll-up like here. You have the ability finally for a very concentrated SNF REIT like us, skilled nursing facility REIT like us to diversify a little bit. If there's a little bit of an elevation to the floor of our multiple because of that diversification, we'll take that too. Ultimately, all of those boxes get checked. The biggest box that we really wanted to check was having another engine of growth. As you all know, real estate is cyclical. If for whatever reason things chilled on the skilled nursing front from an external growth perspective, we wanted another avenue to continue that to go. We killed that deal once because of other big opportunities that we were pursuing. We decided to re-engage. As we were entering into it in earnest, we brought on Derek Bunker because he joined us. He quarterbacked the deal. Now we just, you know, can't get rid of him. He just sticks around. He stays around. He led that whole deal. That enabled us to do it while not slowing down elsewhere. What potential synergies could you see with this acquisition? As you've closed it in 2025 and now looking into 2026, as you were just saying, the internalization of the team back in July, what could we expect? There is about a $10 million G&A at Care REIT, and we think that we can capture about $5 million of savings. That will probably fully get realized going into next year. The internalization of the team has been great. There are some cultural differences for sure. There are some stereotypical differences between the pace of play and risk appetite between the U.K. and the U.S., and that has certainly been on display since we've taken over. They are traveling up the culture curve pretty quickly. We got them some running shoes to not so subtly say it's time to run. They're custom kicks, coral color. They're hot. I'll show you a picture later if you want to see them. We also discontinued PowerPoint because they haven't had a lot of access to capital to do much, so they've gotten exceptionally talented with PowerPoint. We don't use that much. Just a couple of little anecdotes of how we are getting them on our pace of play. What's fun is, like I said, we were just there last week, and we spent a lot of time looking at the pipeline. The pipeline in the U.K. is growing exponentially. There wasn't really anything there when we took over because while they didn't have any capital, they tried to stay relevant the best they could with PowerPoint. Now there's actual deal flow and excitement crossing their desk, and they're pretty fired up. There is a couple in the $600 million pipeline that we announced. About 60% of that is U.S. skilled nursing, about 20% is SHOP here in the States, and then the rest is a U.K. deal that we are surprised that it's already in the tank and should close this year. I'm getting more excited about what that could mean for next year. Just a quick question on this. I'm afraid, to be very honest, there are a lot of people worried about. Yeah. A couple of thoughts on that. One decision that we had to make out of the gate was, are we going to keep the team in London? Or are we going to do this all on our own and capture $10 million of synergies, right, instead of $5 million? Our thought there was that we'll be better off long term if we keep the team intact. We've got two seasoned investment professionals. We've got a handful of seasoned asset management professionals and a long time of relationships, not just with the existing operators, but with twice as many that are not already operators of ours. What we've seen so far is that there's been a dearth of capital in the U.K. for quite some time. They are hungry for it, and they're bringing us deals on their own. It's all relative. Our size is still relatively small compared to the big guys. If we did $100 million, $200 million, $300 million, $500 million a year of acquisitions there, that'll move the needle for us. That'll be fantastic. Right now, I think it represents about 16% of our revenue out of the gate. Can we hold on to that? Can we grow it? Depends on what we do with SHOPs. Depends on what we do here. I think it's going to be meaningful, especially because we have the team on the ground with relationships that now we're going to throw some gasoline on to really grow that. The other thing is how we compete for deals may be a little bit different in that historically, the lease coverage there has been very, very high and lower yields. Because of the lack of capital, there have been some entrants that have really pushed on yields. The cost is the coverage might be a little bit tighter, right? There might be middle ground there for us to really capture quite a bit of interest from operators wanting to have a little bit better coverage with us. Because of our cost of capital advantage, we can still get us a nice spread and do some damage. I think also when you were just mentioning this potential U.K. deal, back in the earnings call, it didn't seem as much of the U.K. was a part of the conversation. I've seen among peers, U.S. skilled nursing has been kind of dominating the conversation. I guess from the last time we spoke on your earnings call, have you seen an acceleration in their willingness or ability to have these transactions and deals over in the U.K.? Yeah, for sure. Like I said, when we took over, there really wasn't a pipeline at all that we acquired. We really acquired the assets, the relationships, and the team. The momentum is really snowballing right now as operators inside and outside of the portfolio are bringing us relationships and deals off market and some stuff that's hitting the market. There are deals of all sizes percolating out there. Yeah, we think there's some meaningful work to do there. If we then shift over to the SHOP opportunity that you had mentioned. SHOP portunity. Hey, don't get me started with the puns. You guys, I don't do a lot really well. Metaphors, I do. I do puns. SHOP portunity. OK. SHOP erational. All right. I'll make sure to get you a shirt. I'll have it all on there. Yeah. With the SHOP opportunities, I know. You want to say SHOP portunities. With the conversations we've been having, I know that you've been doing things in the back end of potentially building out. There's the thoughts of building out a platform. If transitions were ever a possibility, if not, how are those conversations going? Has that also picked up? Or has now this U.K. opportunity maybe taken more of a forward step in the conversations? Yeah. We're sort of experiencing a repeat of last year, right? Last year we had this crazy year of growth, yet we wanted to figure out how to add another engine of growth in the midst of that. Now we're doing that same thing again with SHOP. In December of last year, we hired a new SV P of Investments over SHOP. Basically, all he does is spend all of his time curating operators and deals for the SHOP vertical. In June, we hired somebody as an associate for him. We're definitely investing in that space. Right now, we have two deals in our pipeline, a $600 million pipeline, that are SHOP. The SHOP clock is ticking, if you will, to be ready. We are investing time and energy into getting ready for those deals to close. We've hired a data engineer out of USC who's brilliant, making us very efficient and fixing the IT kind of piping and plumbing problem with SHOP. The way you asset manage triple net assets is certainly different than how you do a SHOP asset. All of that plumbing is getting worked on right now so that by the time we do close that first and then second deal, we'll be ready. We can do that without really adding much of G&A at all because it's built to suit. It's small enough. Having said that, the opportunity set in front of us is massive with respect to SHOP. There are 40,000 properties compared to 15,000 SNFs and 15,000, give or take, care homes in the U.K. There's a huge opportunity set there from onesie-twosies like we have right now to big portfolios. The beauty of our situation is we don't have to do it. If we're managing this thing for the next few years, you don't do it, in fact, because it's too much brain damage for just the next few years. We're really thinking about forever. If you kind of think about the S curve of a business, we're certainly on the upswing. I don't know how far that S curve up we are. What we're trying to do is adding new S curves to it. The U.K. is one, and then SHOP is another so that we can maintain this pace of growth as we go from $2.5 billion to $7.5 billion to $10.5 billion to whatever. We're currently building the infrastructure to suit the pipeline while feeling really opportunistic about a larger deal if one presents. If there's a large portfolio that comes with the platform, we would need to rethink how we organize ourselves. We have this cost of capital and balance sheet to continue on the gas. I was hoping you could dive into that a little bit more. My next question about your balance sheet right now sits well below where peers are and has been consistently. As well as you just raised overnight, you have a large amount of cash available to you. How do you think about your cost of capital and being able to execute now going forward on these growth objectives? This hyper low leverage era of ours really started, I don't know, Bill, what would you say, end of 2022, early 2023, right? That's when the windows of opportunity really started because the interest rates spiked. We had just kind of re-shored up the portfolio coming out of COVID. Because we had done that so quickly, I think we got some credit for that from the street and said, OK, maybe these guys can start growing again. We started to see the pipe really take shape as we started executing that other strategy of lending and creating those strategic partnerships. We just started working at preparing the balance sheet to take advantage of what could be a six-month window of opportunity. Who really knows? Having that balance sheet as low as it is, we wanted to just have all the optionality that we could to take advantage of whatever crossed our desk and not be restricted by moves in the market. I don't know if you know this, but it's a crazy equity market the last few years. If we could de-risk that, we would do that. This rhythm took place of quoting a pipe, closing and/or issuing equity on the ATM generally to match fund, rinse repeat, rinse repeat, reload. Because we had some view as to the funnel of deals coming into the pipe, we were over equitizing that and just got it down to where it's become a we kind of really love it. You know, we love having that flexibility. When the U.K. deal then crossed our desk, for example, you give us a $1 billion opportunity in front of us and put it all on the line and still be underneath our 4x net debt to EBITDA, 4x-5x net debt to EBITDA. Are you kidding? For a company of our size, that just, it's a huge advantage that we have. I guess also then, now turning back over to SNFs, and we're thinking about, I'm now also looking at the U.S. market and how those conversations and potentially if you're still seeing transactions pick up, are you seeing greater competition in those conversations? Are you seeing any differences in cap rates? If you can put a relative to the U.K. cap rates for SNFs. Yeah. The competition for U.S. SNFs is pretty steady. There's always a bid, and if there's more than two, it feels like there's good competition for it. The beauty of our situation today as opposed to 2022 is that we've developed these relationships that have essentially created an off-market pipe of deals where we get first crack at it. It's not so much competition for it. These are deals that we would have never seen. The market hasn't seen them. These guys tie them up and bring it to us to help them close. That's just a really clear advantage that we never enjoyed before the last couple of years. On the stuff that's marketed, yeah, there's competition. There always is. I think we have a cost of capital and relationship and reputation strengths there that help us get our fair share of the marketed stuff as well. You would expect to see skilled nursing acquisitions for us be in the 9%, somewhere in the 9%. Could we go below a 9% to get a big portfolio deal and maybe pay a premium there? We could do that. In the U.K. for the care homes, those are much more like assisted living, memory care type facilities than skilled nursing. Keep that in mind when I say that the cap rates there are going to be probably for us in the 8%, maybe into the 9% if we can. It's just this push and pull with the yield and the coverage. Back in the day here in the States, when triple -net seniors housing was a thing, you would see lease coverages in the 1x- 1.2 x. Whereas there, it's always been about 2x on an EBITDAR basis, so maybe 1.75x- 1.80x on a DAR basis. Because of the market, there's been a little bit disrupted because of lack of capital, lack of competition. I think we'll probably be somewhere in the 8%, like I said, maybe a 9% if we're lucky. There's the tax leakage component there where we're losing somewhere around 100 bps, maybe even more on it, which is real. We've got to factor that in as we decide between different asset classes. I guess also on the coverage that you were just mentioning, we've seen your coverage continue to go up across your whole portfolio. Now it's above 2.5x, about 2.68 x for EBITDAR coverage. I'm curious to hear your thoughts. Have we reached a new normal? Are we always going to be sitting in a type of coverage where we're above the 2x? Or was this a result of the environment? It's tough to say. I think the challenge with keeping it perpetually rising is that when, so just to clarify, when we quote our coverage, that's not 100% of the assets we own, right? Because when you're acquiring like we do, we want to give the new acquisitions and the new operators some time to season before we reflect that coverage. If you acquire something at, call it a 1x coverage, kind of aggressive investment, knowing that you believe this is going to go to a 1.75x in the course of the next 18 months, at what point do you start quoting that? Probably not right out of the gate because the new operator doesn't even have his or her own financials to go off of, right? You do give it some time to season. By the time you bring it in, you're not going to wait until it goes to 2x to bring it in. You're probably going to bring it in as soon as it's stabilized at a 1.40x. That should naturally kind of, all the new investments kind of bring it down a little bit. Over time, if it continues to perform, it is going to be that push-pull between it. I wouldn't expect it to skyrocket as we layer in the newer investments as they've seasoned. You're going to diversify by asset class or stratify it that way. If you're talking just about skilled nursing, we're absolutely thrilled with anything north of 1.40x- 1.50 x. Whether it continues on from here or not remains to be seen. Just on that point, one thing about us that might be a little bit unique is that we happily and consistently, as we underwrite, sacrifice a little bit of the yield in exchange for coverage for our operators. We want all of our energy to be on growth and not on recycling capital, which is a euphemism for a failed investment. If we give up a little bit of yield there, just a tiny bit of accretion on that fund out of the gate, then all of our energy can be on just growing the business. All of our energy can be on growing the business instead and being able to absorb the headlines. If you're going to invest in skilled nursing, you better have a strong stomach for headlines. For Idaho, saying they're going to cut Medicaid by 4%. You ready for that? If not, don't buy CareTrust. Or buy CareTrust because you know that our coverage is such that we can absorb these shocks, especially when skilled nursing is a necessary, required piece of the infrastructure of health care in the country. If it is required and you've got the best operators with great coverage, and don't hyperventilate when you see a headline, there's a reason why we get the highest cap rates of all asset classes. I'll get off my soapbox. How does this feel? It's getting back, while it sends you on to various other asking thoughts. I've personally spent my entire career in skilled nursing and seniors housing. I'm a recovering nursing home administrator. For the last 25 years, we have seen it all. We've seen times where Republicans are better for skilled nursing and Democrats are better for skilled nursing. We've even seen a pandemic. We've seen economic crisis. We've seen state budgets in disarray. We've seen monumental changes to the way Medicare pays skilled nursing providers. We've seen a year with a 10% cut to the Medicare rate. Yet the best operators, year in and year out, cycle after cycle, find a way to adapt and thrive. As we look at this, there's a lot of hand wringing around the big, beautiful bill. We got countless inquiries from investors and research analysts about, hey, we heard this is how they're going to cut Medicaid. We went down all these rabbit holes with them while telling them, look, we really don't think that all Medicaid beneficiaries and providers are created equally and that there is a sacred cow here, and that is nursing homes with respect to Medicaid. That proved out to be the case for the big, beautiful bill. That doesn't mean that for the next few years, there won't be some changes, change is inevitable with respect to the regulations and reimbursement approaches. Like I said, if skilled nursing hasn't been killed by now, it never will, particularly with the demographic wave that is on its way. I'll bring it back to the headline. I think maybe a few people who know about CareTrust have heard the PACS exposure. I was wondering if you could add any commentary around that. I know there was a forbearance agreement over OHI that came to the news. There's another operator that was gone after by the DOJ. Where do you sit today? How are they performing? How do you view them as an operator? I'm not going to, but I could go on for a long time. You have a nice time limit. We continue to receive information from PACS about the facilities that we own, and they're performing very well. One comment I'll make on the Hindenburg piece that came out against PACS is that it's the first nursing home hit piece in the history of man that didn't have even one sentence about patient care. That was maybe the most shocking thing. The quality of care, the customer service, the quality measures, the star ratings, the fundamental business of caring for people in nursing homes—if that was suspected, that would certainly have been highlighted in that piece. The fact that they continued and continue to this day to have superior occupancy and skilled mix is a testament to that because every single day in every market that they're in, a vote is cast with every discharge from a hospital about where they want to send their patient to get care. It seems to us that those fundamentals are still very much in place. There have been several announcements about PACS, about their Part B revenue, that they are reversing that. If you strip out all of the Part B revenue with PACS from our portfolio, they're still north of 2x coverage. Their CFO, you saw the news yesterday, was let go or resigned. The silver lining, if any, on that news is that maybe that means that clears the path for an auditor to sign off on an audit. It's pretty difficult, I think, to do that while a CFO is under investigation. Hopefully, they'll be able to give us some news and give you all news around their KPIs and their timing on filing. From what we can see, they continue to deliver good care, take good care of these facilities, and they're performing very well. Great. To wrap it up, we have three rapid-fire questions. OK, as you can tell, it's hard for me to be rapid-fire. When Fed starts to cut, do you expect borrowing rates for long-term debt to decline, stay flat, or potentially rise? This is in context of like the 10-year, obviously. I don't know. What do you think? This is you. All on you. I don't know. OK. No worries. Last year, the majority of companies stated that they are ramping up spending on AI initiatives. How would you characterize your plans over the next year? Higher, flat, or lower? Higher. Do you believe same-store NOI for your sector will be higher, lower, or the same next year? Higher. Wonderful. Thank you so much for joining us. Thank you.