The healthcare real estate investment trust (REIT) landscape is rapidly evolving as companies seek new ways to diversify and capture emerging market opportunities. CareTrust REIT Inc. (Nasdaq: CTRE), a San Clemente, California-based REIT primarily focused on senior-care facilities, is the latest player to embrace behavioral health facilities investment as a promising new sector. The company announced plans to repurpose a portion of its real estate portfolio into behavioral health facilities—a strategic shift aimed at strengthening its portfolio and tapping into a high-growth market.
CareTrust’s Portfolio and Strategic Repositioning
CareTrust currently owns 227 facilities across 29 states, with a significant concentration—160 properties—in skilled nursing. In its full-year 2021 earnings report, the company revealed intentions to “pursue the sale, re-tenanting, or repurposing of up to 32 assets” as part of a broader effort to optimize its portfolio.
On its recent annual earnings call, CEO Dave Sedgwick shared additional insights into this initiative. He noted that “a small part of the 32 assets” will be transitioned into behavioral health facilities operated by a “proven operator” in the sector. Subsequent reports identified the partner as Landmark Recovery, an addiction treatment provider based in Franklin, Tennessee.
CareTrust is currently navigating the letter of intent, due diligence, and lease negotiation stages with Landmark Recovery. This partnership represents a key step in the company’s behavioral health facilities investment strategy, converting select CareTrust-owned skilled nursing properties into behavioral health treatment centers aligned with the growing demand for mental health and addiction services.
Why Behavioral Health Facilities Investment?
Sedgwick emphasized several reasons behind this strategic move. Behavioral health real estate typically commands higher rents and enjoys stronger lease coverage ratios compared to senior housing. By repurposing certain facilities, CareTrust hopes to “convert into a higher and better use” and leverage behavioral health as “a powerful new asset management tool.” This approach allows CareTrust not only to strengthen its master leases but also to cultivate a new vertical for future growth.
Moreover, CareTrust seeks to “remove weakness” from its portfolio. The skilled nursing sector has faced challenges including regulatory pressures, staffing shortages, and shifting patient demographics, which have impacted profitability and investor confidence. Against this backdrop, behavioral health facilities investment is seen as more resilient and lucrative, driven by rising awareness, expanded insurance coverage, and an increasing societal focus on mental health and addiction treatment.
The company also plans to take advantage of a “frothy seller’s market” for skilled nursing facilities by selling or re-leasing the 32 identified assets not earmarked for behavioral health conversion. This dual strategy—divesting weaker assets while reinvesting in higher-growth behavioral health properties—positions CareTrust to enhance portfolio quality and long-term returns.
Financial Snapshot and Market Context
In 2021, CareTrust REIT posted $72 million in net income, or $0.74 per share, representing an 11% decline from 2020. However, total revenue increased approximately 7.9% year-over-year to $192 million, reflecting solid operational performance despite headwinds in skilled nursing.
CareTrust’s move into behavioral health facilities investment is consistent with broader trends within the healthcare REIT sector. Behavioral Health Business has chronicled multiple major transactions in this space during 2021:
- Medical Properties Trust (NYSE: MPW) acquired Louisville-based inpatient behavioral health hospital operator Springstone for nearly $1 billion in June.
- Ventas Inc. (NYSE: VTR) purchased a property housing Eating Recovery Center for $58 million in November.
- Sabra Health Care REIT (Nasdaq: SBRA) entered a $325 million mortgage loan agreement in September secured by eight Recovery Centers of America inpatient addiction treatment facilities.
These significant deals illustrate growing investor interest in behavioral health facilities investment, driven by demographic trends, increasing demand for mental health services, and a general shift toward value-based care models.
What This Means for Healthcare REITs and Behavioral Health
The strategic repositioning of CareTrust REIT exemplifies a broader real estate market response to evolving healthcare needs. Behavioral health facilities differ from traditional senior housing or skilled nursing in their operational models, tenant profiles, and growth drivers. They tend to require more specialized care providers but benefit from strong occupancy rates, expanding payer sources, and increasing societal acceptance.
For investors, this means the potential for more stable income streams and higher lease coverage ratios. For operators like Landmark Recovery, partnerships with REITs provide access to capital and real estate expertise needed to scale treatment capacity.
As mental health and addiction treatment demand continues to rise—fueled by the COVID-19 pandemic’s lasting impact on population health—REITs that successfully navigate behavioral health facilities investment could unlock new growth opportunities and improve portfolio resilience.
Looking Ahead
CareTrust REIT’s move into behavioral health marks a meaningful diversification effort and underscores the sector’s growing appeal. The company’s proactive asset management strategy—balancing disposals, re-tenanting, and conversions—positions it to adapt to market realities while capitalizing on a vibrant behavioral health facilities investment market.
With a proven operator like Landmark Recovery in the fold, CareTrust is poised to build a foothold in a space offering higher rents, better lease coverage, and strong growth potential. As more healthcare REITs follow suit, behavioral health facilities investment is set to become a cornerstone asset class in the healthcare real estate landscape.
