CareTrust REIT Stock Forecast

CareTrust REIT Stock Forecast: The end of World War II ushered in an era of peace and prosperity. Young newlyweds were reunited and ready to start families, and the country felt hopeful about its future.

Birth rates spiked, and the children born between 1946 and 1964, known as Baby Boomers, suddenly made up a massive part of the world’s population. This group remained the largest living generation until 2019, when the number of Millennials finally took over that title.

From the moment the baby boom started, businesses began to respond, catering to the needs of this huge demographic.

Entire industries based their marketing strategies and product lines on the singular goal of attracting this group. Now that 10,000 Baby Boomers are turning 65 every day, smart companies are looking at the particular needs of an aging population.

Two industries poised for growth as the Baby Boomers get older are healthcare and alternative housing solutions.

Serving Baby Boomers Is BIG Business

Many members of this generation have already downsized from their large family homes to less expensive, easier-to-manage apartments, and over time that trend will grow. Meanwhile, the normal side effects of aging are driving up the need for medical services.

The two industries intersect at senior housing in all of its forms, from independent retirement communities and assisted living to skilled nursing facilities. Investors know this is the right time to explore opportunities in this area, but the question for most is how?

Outside of commercial and institutional investors, only the very wealthy can afford to participate in real estate development – or at least, that’s the general presumption.

As it turns out, there are options specifically designed to make these types of investments available to everyone. One example that is getting a lot of attention is CareTrust REIT.

What is a Real Estate Investment Trust (REIT)?

Real Estate Investment Trusts or REITs are designed to give every investor an opportunity to participate in the real estate market.

Like mutual funds, individuals buy shares of the trust, and all of the money is pooled to purchase, operate, and/or finance income-producing properties. That structure puts real estate investment within reach of people at every level of income.

REITs pay most of their profits back to investors in the form of dividends, so they are primarily regarded as income-producing investments. By law, they aren’t able to retain and reinvest most of their earnings, so there isn’t much capital appreciation in this type of investment.

However, unlike buying and selling real estate directly, REIT shares can be traded quite easily. That liquidity is an attractive benefit for investors who don’t want to commitment of purchasing property outright.

Some REITs operate in a variety of real estate markets, while others specialize in specific types of properties. Examples include residential buildings, office space, healthcare facilities, retail buildings, hotels, and self-storage structures.

Senior living operations, from independent living to skilled care units, are becoming a popular area of focus for REITs due to the increasing need for these services.

What Does CareTrust REIT Do?

When it comes to senior housing, many analysts believe that no REIT does it better than CareTrust [NASDAQ: CTRE].

The group made the 2018 list of Top 10 Best-Performing Healthcare REITs, and it now boasts facilities of varying sizes in 27 states.

CareTrust properties range from independent living to skilled care, broken down as follows:

Campuses – 21
Independent Living – 3
Assisted Living – 39
Skilled Nursing – 153

Senior managers boast 55 years of combined experience in real estate expertise and senior care, positioning the REIT for long-term success.

Is CareTrust REIT a Buy?

CareTrust [NASDAQ: CTRE] started trading publicly in 2014, after being separated from the larger Ensign Group.

Ensign decided that investors would be better served if its physical assets were separate from the day-to-day operation of properties.

At the time, there was quite a bit of concern, because Ensign Group was CareTrust’s only tenant. However, in the five years that followed, CareTrust has branched out considerably, bringing new tenants on-board.

Today, Ensign only accounts for about 33 percent of CareTrust’s revenue, which makes investment in this REIT far less risky.

CareTrust has pursued a robust growth strategy for the past few quarters, acquiring multiple properties in the first half of the year. At the same time, the REIT sold off less desirable assets in an initiative they called “spring cleaning”.

Management has pointed to this as the context for third quarter results. For the period ending September 20, 2019, CareTrust REIT reported the following:

A net loss of $10.1 million, breaking down to a net loss per diluted share of ($0.11).
Normalized Funds From Operations (FFO) came in at $33.6 million, which is $0.35 per diluted share.
Normalized Funds Available for Distribution (FAD) was reported at $34.5 million or $0.36 per diluted share.

Since these reports, CareTrust share prices have come down, which could mean an opportunity to get discounts for those who choose to buy today.

What are the Risks of Buying CareTrust REIT?

REITs are, by definition, not especially diverse, which means they are vulnerable to changes in the real estate market. Individuals can mitigate this risk by adding CareTrust shares to increase diversification in a larger portfolio, so that changing market conditions don’t threaten total returns.

CareTrust [NASDAQ: CTRE] faces a unique challenge among REITs based on its focused investment in senior living facilities: there is a lot of competition.

It’s common knowledge that the need for senior housing is growing, and that growth will continue for at least another decade, and a huge number of investors are looking for ways to get in on the action.

It’s possible that supply may overtake demand, driving profits down industry-wide.