Debunking the Underperformance Myth: Why CareTrust REIT Continues to Win

"Get The Best Of Both Worlds With This REIT: Income & Growth"'

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Current Price: $37.49

Portfolio Purpose: Income 💰

Most investors have heard the story that REITs are “chronic underperformers.” And while a higher-for-longer interest rate environment does create challenges, CareTrust REIT (CTRE) has been a major exception to the narrative.

Since September 2023, the stock has gained nearly 86%, compared to roughly 53% for the S&P 500 over the same period.

So, while many REITs struggled in recent years, CTRE has completely debunked the underperformance myth. And with interest rates expected to trend lower over the next 12–24 months, CTRE may still have some room to run.

A REIT That Thrived Despite a Tough Environment ⚖️

CTRE’s recent success is rooted in its aggressive yet disciplined investment strategy. While many REITs slowed activity due to economic uncertainty, CareTrust REIT pushed forward, completing over $1.5 billion in acquisitions year-to-date.

Their most recent deal—a $27 million cash acquisition of two U.K. care homes—signals continued international expansion.

Today:

    •    The U.K. represents 15.1% of annualized base rent

    •    California remains the largest contributor at 19.5%

What truly sets CTRE apart is its exceptionally strong balance sheet:

    •    Net debt to EBITDA: 0.4x (amongst the lowest in the entire REIT sector)

    •    No meaningful debt maturities until 2028

    •    More than $300M in cash + $1.2B in revolving credit capacity

This financial flexibility positions the company to continue investing aggressively into 2026 and beyond.

CTRE Has Quietly Outperformed Even the S&P 500 📉

Healthcare REITs are typically viewed as defensive, and not market beaters. But CTRE has quietly outperformed the S&P 500 across nearly every major timeframe.

1-Year Total Return: CTRE: 25.93% & VOO: 13.15%

10-Year Price Return: CTRE: 255.22% & VOO: 225.22%

10-Year Total Return: CTRE: 476.03% & VOO: 286.51%

This level of outperformance is unusual for a REIT. Especially, one with conservative leverage and a methodical acquisition strategy.

Dividend, Growth, and Valuation 💸

CTRE’s current dividend yield sits at 3.46%—lower than peers like Realty Income (O) or Agree Realty (ADC). But the lower yield reflects strong price appreciation and a structurally lower cost of capital.

Their latest quarterly results came in mixed:

    •    FFO missed by $0.02

    •    Revenue beat by ~$10M, growing 71% YoY

    •    FAD per share increased from $0.37 to $0.45

    •    Payout ratio remains healthy at 74%

    •    Acquisition pipeline stands at ~$600M

Despite an FFO miss, all major operational metrics grew meaningfully.

Valuation Check ✔️

Using management’s midpoint FFO guidance of $1.765, CTRE trades at a 21.26x forward FFO multiple, which is well above its historical norm of ~14x.

Even assuming a new valuation band between 18x–20x due to stronger growth, shares today look fairly valued.

    •    My attractive buy zone: ~$30–32

    •    Current price (~$38): pricing in most near-term upside

Wall Street’s price target of ~$40 doesn’t leave much margin of safety.

Key Risks to Watch ⚠️

While the long-term thesis remains strong, several risks could affect future returns:

• Limited Near-Term Upside: After such strong outperformance, CTRE’s valuation already reflects higher expectations.

• Economic Softness: An uptick in unemployment could signal weaker economic conditions into 2026, potentially reducing acquisition activity.

• Recession Probability: If the U.S. enters a recession, deal flow may slow materially, limiting growth over the next few years.

Ultimately, CTRE is financially well-positioned, but lower activity would naturally constrain returns.

Bottom Line ✅

I remain cautiously bullish on CareTrust REIT. Lower interest rates should provide a tailwind, and CTRE’s balance sheet strength gives it unmatched flexibility to pursue growth opportunities.

However, with shares trading above historical multiples, investors seeking a margin of safety may want to wait for a pullback closer to the $30 range.

Long term, I still view CTRE as a high-quality REIT capable of compounding value. But expectations for outsized outperformance should be tempered at today’s valuation.

Happy Investing!

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Not financial advice. For educational purposes only. I am not a licensed professional. Do your own due diligence.

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