Care REIT has agreed a deal with US-listed care home provider CareTrust for the sale of the company for £448m.

The recommended cash offer would see Care REIT shareholders receive 108p per share, which represents:

• a 32.8% premium to the closing price of 81.3p on 10 March 2025;
• a 36.0% premium to the one-month volume weighted average price of 79.4p;
• a 34.1% premium to the three-month volume weighted average price of 80.6p; and
• a 28.1% premium to the 12-month volume weighted average price of 84.3p.

It is also a 9.4% discount to its last reported EPRA net tangible assets (NTA) of 119.2p at 31 December 2024.

[QD comment: Here we go again. Another UK REIT about to be lost, again due to its persistently wide share price discount to NAV. Although at a large premium to its share price, the almost 10% discount to NAV this deal values the company feels like too much value is being left on the table, in our opinion. However, we understand the frustration of the persistently wide discount the sector has been battling for almost three years. We are left scratching our heads that while other investors are recognising the value on offer in the UK REIT sector, wide discounts continue to persist.]

Background to, and reasons for, the acquisition

Care REIT’s board said: “Despite the significant financial and operational progress that CRT plc has achieved since its IPO, CRT plc has suffered, in common with the entire UK real estate and investment trust market, from a number of recent market issues including a widespread dislocation of share prices from underlying financial fundamentals such as NAV, investors’ cost of capital increasing with a higher interest rate background, and reduced access to equity capital markets, especially for smaller market capitalisation stocks.

“This has hindered CRT plc’s ability to grow and exploit the opportunities presented by both economies of scale and a highly fragmented care home market. This is best evidenced by CRT plc’s share price which has consistently traded at a discount to its prevailing EPRA NTA per CRT plc share:

• 31.4% average discount to EPRA NTA per CRT plc Share over the three-month period ended 10 March 2025;
• 27.4% average discount to EPRA NTA per CRT plc Share over the one-year period;
• 16.9% average discount to EPRA NTA per CRT plc Share over the three-year period; and
• 10.7% average discount to EPRA NTA per CRT plc Share over the five-year period.”

CRT’s portfolio is valued at £679m as at 31 December 2024, with an aggregate annual contracted rent roll of £51m across 137 different homes and 15 different tenants. 

CRT’s EPRA NTA has grown from 98.2p at IPO in 2017 to 119.2 pence as at 31 December 2024. It has been growing its dividend since IPO, from an annual target of 6.0p per share at IPO to an annual target of 7.2p in 2025. Dividends paid since 2021 have been fully covered by CRT’s adjusted earnings per share. A combination of these NAV increases and dividends have delivered to CRT’s shareholders an average NAV total return of 9.0% per annum since IPO.

The CRT board said that it believes the share price discount does not reflect the current value of its individual property assets nor the longer-term prospects of the portfolio. It believes that many of the factors contributing to the discount are macro-economic and non-CRT specific and, as such, CRT is unlikely to be able to overcome them in at least the short to medium term.

It added that it believes the market is not giving CRT the credit for its operational and financial performance since IPO with a consistent share price discount to EPRA NTA for the last two years which shows little sign of changing. This, it added, will continue to constrain CRT’s access to capital as a smaller market listed entity and its ability to take advantage of the opportunities available to it.

CRT was approached by CareTrust in late 2024 with a view to it acquiring the company. Having negotiated several improved proposals, the CRT board said that the latest proposal allows shareholders the opportunity to exit fully in cash at a price comfortably in excess of what could be achieved via trading shares in a relatively illiquid open market.

Accordingly, CRT’s board unanimously recommends the acquisition to CRT shareholders.

CareTrust

CareTrust is a self-administered US real estate investment trust engaged in the ownership, acquisition, development and leasing of seniors housing and healthcare-related properties. CareTrust is NYSE listed and has an equity market capitalisation of approximately $4.9bn (£3.8bn).

Its portfolio spans 34 states in the US, with over 400 net-leased properties, approximately 43,000 operating beds / units, and 34 operators. All owned properties are leased to tenants under long-term, triple net / FRI leases that include either fixed or CPI-based annual rent escalators. 

CareTrust said that it had spent considerable time evaluating its entry into the UK market and sees attractive underlying dynamics driven by demographics. It added that the acquisition of CRT provides CareTrust with a platform from which to grow in the UK. 

Given its scale and ability to raise capital as well as its confidence in the UK market, CareTrust said that it believes it is well positioned to grow the CRT platform further.

Irrevocable undertakings and timetable

The offer has received irrevocable undertakings from each of the CRT directors in respect of 176,334 CRT shares (0.04% of CRT share capital). It has also received irrevocable undertakings from CRT IM (its manager) representing a further 2.9%.

Shareholders will vote on the offer at a general meeting where it must be approved by at least 75% of shareholders.

Comments

Dave Sedgwick, president and chief executive of CareTrust said: “We have been following the UK for some time looking for the right entry point. We believe we have found it in the Care REIT plc platform, which has assembled what we consider to be an excellent, diversified portfolio of UK assets and operator partnerships. We look forward to combining the Care REIT plc platform with our own and expanding our mission of growing with great operators in the UK.”

Simon Laffin, chair of CRT, said: “Care REIT plc has, since its IPO in 2017, built an attractive portfolio of high-quality homes and tenants while delivering a total accounting return of 70.2 per cent. However, UK investor sentiment has been negative on the UK listed REIT sector over the last few years, exacerbated by the weak macro-economic backdrop and high interest rates, leading to shares trading at significant discounts to net asset value. We have achieved an EPS CAGR of 6.2 per cent. and unbroken dividend growth with a CAGR of 2.0 per cent. since IPO. However, despite our operational progress, Care REIT plc has traded significantly below its net asset value over the last few years, with no sign of this improving in at least the short to medium term. This has made it almost impossible for Care REIT plc to raise new capital to grow the business.

“Becoming part of the $5 billion CareTrust would enable the business to grow and to play a larger role in the UK’s fragmented residential care sector. This would benefit both tenants and residents, as more investment will be available to both enhance our existing care homes and develop much needed new ones in the UK. Importantly, CareTrust’s core values of Operating Expertise, Partnership with Elite Operators and Delivering Growth provide a strong fit with ours.

“Against this background, the Care REIT plc Board believes that the offer from CareTrust provides shareholders the opportunity to receive cash at an attractive premium of 32.8 per cent. to the undisturbed share price, whilst enabling the business access to capital to expand and enhance provision for both tenants and residents. As a result, the Care REIT plc Board has concluded that the Acquisition is in the best interests of Care REIT plc Shareholders and Care REIT plc as a whole.”