Fitch Ratings has affirmed the ratings of CareTrust REIT, Inc. (NYSE: CTRE), its operating subsidiary CTR Partnership L.P., and financing subsidiary CareTrust Capital Corp., including Long-Term Issuer Default Ratings (IDR) at 'BB+' and unsecured debt ratings at 'BB+'/'RR4'.

The Rating Outlook is Stable.

The affirmation and Stable Outlook reflect Fitch's view that CTRE's operations continue to recover from coronavirus pandemic on skilled nursing facilities (SNFs) and senior housing (SH), with continued long-term demographic tailwinds. Positively, the company has very low leverage below its positive sensitivities, strong financial flexibility and liquidity, very strong contingent liquidity, and strong portfolio-level lease coverage.

Fitch believes that should CTRE maintain leverage below 4.0x, particularly if the company's leverage target were revised below 4.0x, its credit profile would be more consistent with a higher rating. This would be true despite relatively high tenant concentration and a relatively weaker access to unsecured debt markets compared to other investment-grade REITs.

Key Rating Drivers

Strong Leverage and Financial Flexibility: CTRE's leverage is extremely low at roughly 0.7x as of March 31, 2024, which is meaningfully below the 4.0x level which Fitch views as more consistent with a higher IDR. CTRE's financial policy is leverage sustaining between 4.0x and 5.0x and it has been at or below this range in most periods.

The company delevered meaningfully in 2023 after raising equity through its ATM program, and given current cost of debt vs. equity capital for the company, additional equity issuances are likely and would keep leverage well below this long-term target. CTRE's credit profile further benefits from the limited near-term maturities (as described in the liquidity section) and fully unencumbered portfolio.

Tenant Concentration Balanced by Healthy Portfolio Lease Coverage: CTRE's top five tenants represent 68% of annualized base rent (ABR) as of March 31, 2024, which is significant concentration for a healthcare REIT but represents a decline over time. Tenant concentration is balanced by a healthy portfolio-level lease coverage (EBITDAR coverage at 2.2x for the TTM ended Dec. 31, 2023). CTRE's outsized exposure to The Ensign Group, Inc. (Ensign; 34% of ABR at 1Q24) enhances the above-average portfolio level coverage ratio given its 3.3x EBITDAR coverage for the TTM ended Dec. 31, 2023.

Mixed Operator Performance in Non-Ensign Properties: Fitch views the issuer's underwriting track record to be mixed due to sustained operator performance in some non-Ensign properties as new leases have been at lower coverage ratios. Fitch estimates that EBITDAR coverage of non-Ensign properties for the TTM ended Dec. 31, 2023 was around 1.5x. In particular, the company's 7th largest tenant, the Pennant Group, had EBITDAR coverage of

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