Small-Cap REITs: Resilience Amid Big Tech Dominance

Current Performance of Small-Cap REITs

Small-cap REITs like SBRA, LTC, and CTRE are demonstrating stable performance, with SBRA reaffirming its 2024 guidance, LTC maintaining financial stability, and CTRE using EBITDA for meaningful performance comparisons. FFO and AFFO are highlighted as key metrics, though not substitutes for cash flow or net income.

"While we are pleased with this out performance, given that it's early in the year, we feel it's most prudent to reaffirm our full year 2024 guidance ranges at this time, and we will revisit these ranges for our second quarter earnings call." --- (SBRA, earning call, 2024/Q1)

"We believe that our current cash balance, cash flow from operations available for distribution or reinvestment, our borrowing capacity and our potential ability to access the capital markets are sufficient to provide for payment of our current operating costs, meet debt obligations and pay common dividends at least sufficient to maintain our REIT status and repay borrowings at, or prior to, their maturity." --- (LTC, sec filing, 2024/Q1)

"The Company considers EBITDA and Normalized EBITDA, in each case attributable to CareTrust REIT, Inc., useful in understanding the Company's operating results independent of its capital structure, indebtedness and other charges that are not indicative of its ongoing results, thereby allowing for a more meaningful comparison of operating performance between periods and against other REITs." --- (CTRE, press release, 2024/05/02)

"While FFO and AFFO are relevant and widely used measures of operating performance of REITs, they do not represent cash flows from operations or net income as defined by GAAP and should not be considered an alternative to those measures in evaluating our liquidity or operating performance." --- (SBRA, sec filing, 2024/Q1)

"We believe that by excluding the effect of historical cost depreciation, which may be of limited relevance in evaluating current performance, FFO facilitates comparisons of operating performance between periods." --- (LTC, sec filing, 2024/Q1)

Financial Health Indicators

CareTrust REIT's EBITDA highlights its financial health, while LTC Properties faces potential regulatory impacts and various risks, including lease renewals, inflation, and capital access, which could affect its financial stability.

"Non-GAAP Financial Measures EBITDA attributable to CareTrust REIT, Inc. represents net income (loss) attributable to CareTrust REIT, Inc. before interest expense (including amortization of deferred financing costs), amortization of stock-based compensation, and depreciation and amortization." --- (CTRE, press release, 2024/05/02)

"There can be no assurance that these rules or future regulations modifying Medicare skilled nursing facility payment rates or other requirements for Medicare and/or Medicaid participation will not have an adverse effect on the financial condition of our borrowers and lessees which could, in turn, adversely impact the timing or level of their payments to us." --- (LTC, sec filing, 2024/Q1)

"major operators; our ability to renew leases or enter into favorable terms of renewals or new leases; the impact of inflation, operator financial or legal difficulties; the sufficiency of collateral securing mortgage loans; an impairment of our real estate investments; the relative illiquidity of our real estate investments; our ability to develop and complete construction projects; our ability to invest cash proceeds for health care properties; a failure to qualify as a REIT; our ability to grow if access to capital is limited; and a failure to maintain or increase our dividend." --- (LTC, sec filing, 2024/Q1)

Market Positioning

Small-cap REITs like SBRA, LTC, and CTRE are strategically positioning themselves by closely monitoring market conditions, leveraging strong balance sheets, and forming strategic relationships. This approach allows them to adapt, compete effectively, and invest in growth opportunities despite economic fluctuations.

"We regularly monitor the effects of economic and market conditions on our operations and financial position, as well as on the operations and financial position of our tenants and borrowers, in order to respond and adapt to the ongoing changes in our operating environment." --- (SBRA, sec filing, 2024/Q1)

"And then I appreciate your comment on smaller kind of one-off deals moving the needle, but can you just speak to the competition in the transaction market today?" --- (LTC, earning call, 2024/Q1)

"But on the other hand, because we conservatively established a fortress balance sheet for times like this, and because of strategic relationships we've formed and because our cost of equity is remarkably a, a touch lower than our cost of debt today, we are better positioned to invest and grow than any time in our company's history." --- (CTRE, earning call, 2024/Q1)

"We would have a lag to our earnings growth. We positioned the balance sheet based on our confidence level in our ability to continue to do what we have been doing over the last 12 months." --- (CTRE, earning call, 2024/Q1)

Future Growth Prospects

Small-cap REITs like CTRE, SBRA, and LTC are well-positioned for future growth, with strong financial flexibility, strategic capital commitments, and robust investment pipelines. These companies are gearing up for productive years ahead, focusing on high-growth areas such as assisted living facilities.

"Today's cash on hand is approximately $230 million. Together with full availability under our revolver, we have tremendous flexibility to fund growth for the foreseeable future. Mr. Sedgwick, concluded, 'As we celebrate this 10-year milestone, I extend my deepest gratitude to our team and operators for their invaluable contributions to our success.'" --- (CTRE, press release, 2024/06/04)

"As of March 31, 2024, our aggregate commitment for future capital and other expenditures related to facilities leased under triple-net operating leases was approximately $21 million, of which $16 million will directly result in incremental rental income, and approximately $11 million will be spent over the next 12 months." --- (SBRA, sec filing, 2024/Q1)

"In summary, as we redirect our efforts towards strategic growth the entire LTC team is geared up for a highly productive 2024. Now I’d like to turn the call over to Pam." --- (LTC, earning call, 2024/Q1)

"As with most of our operators, we hope to continue to match them with opportunities for future growth. YAD Healthcare's Chief Executive Officer, Hershy Alter, said, 'CareTrust has been an ideal transaction partner and we are grateful for the opportunity to spread YAD Healthcare's commitment to the highest level of care, excellence, and innovation to additional facilities in our existing footprint.' CareTrust also reported that with these two related investments, the Company's year-to-date investments now total approximately $386 million, and the investment pipeline is reloaded with approximately $460 million of near-term, actionable opportunities." --- (CTRE, press release, 2024/06/03)

"So the AL growth is going to be stronger than the IL growth, simply because you've got more tools to impact the revenue line than you do in IL, which effectively isn't really a health care facility, even though there's been acuity creep, which is why we got the PLR letter back in 2020." --- (SBRA, earning call, 2024/Q1)