The spread no one quotes

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A cap rate is a single number standing in for a credit, a building, a regulatory regime, a financing stack, and an exit market. The compression is what makes the number useful, and what makes it dangerous: it hides what you’re actually buying. This issue takes one of the sharpest public-private cap rate gaps in commercial real estate — skilled nursing facility net lease, where the gap often screens 200 to 400 bps wide — and decomposes what can honestly be decomposed. Three SNF-heavy healthcare REITs (CTRE, OHI, SBRA) provide the public side. The private side is an 8% to 9% sale-leaseback screen observed in operator/broker conversations, not a database of 500 facility P&Ls. That distinction is the point: before the operator financials arrive, the cap rate is not evidence. It is an invitation to diligence.

Net lease is a credit trade dressed in deed paper. In a sale-leaseback, the operator sells the building, signs a long-dated triple-net lease, and keeps running the business. The buyer owns the real estate; the operator pays rent, taxes, insurance, and maintenance. The building is collateral. The rent stream is the asset. The operator’s ability to cover the rent is the only thing standing between yield and impairment. Brokers package SLB as exotic real estate. It is closer to senior secured paper with a recovery hedge.

Why SNF is the sharpest test case

Three structural features make SNF the asset class where public and private cap rates diverge most persistently.

Medicaid is the dominant long-stay payor. Around 60 percent of SNF census nationally is Medicaid-funded, often 70 percent or more in lower-acuity markets. Medicare Part A rate updates matter for higher-acuity post-acute mix; they do not reset the Medicaid-heavy long-stay book by themselves. Facility-level economics run near breakeven on an all-payer basis. The credit floor is durable; the credit cushion is not.

Certificate of Need laws partially block new supply. Roughly 34 states maintain CON requirements or moratoria for SNF beds as of 2025, but the moat is melting. South Carolina repealed CON in 2023; Georgia narrowed it in 2024; multiple states have active reform bills in 2025 and 2026. A CON licensed bed is a permitted franchise today and a smaller franchise in five years.

Staffing is still load-bearing, but not as a clean federal mandate. CMS finalized minimum staffing and 24/7 RN requirements in April 2024, then the rule was vacated, delayed, and repealed before the first major compliance dates. That makes a deterministic “mandate cost” model stale. It does not make labor cost go away. A lender still has to underwrite Payroll-Based Journal hours, agency mix, RN availability, state staffing rules, survey history, and whether the operator is already staffing near the standard that federal policy failed to impose.

These three features mean SNF credit is more durable than retail capital prices it but more fragile than the public REIT multiples sometimes imply. The spread between the two is where the decomposition lives.

The setup

Three SNF-heavy healthcare net lease REITs, computed on a consistent methodology: annualized property income divided by enterprise value at 2026-05-22 closing prices. CTRE and OHI use rental revenue; SBRA uses Cash NOI because its RIDEA senior-housing segment generates property-level income without a rent contract. Methodology footer documents the comparability adjustments.

	Implied cap rate	Approx. P/NAV	SNF EBITDAR coverage (TTM 12/31/2025)	WALT (yrs)	New-deal yield (Q1 2026)	SNF mix
CTRE	4.29%	~+5–15% premium	2.52x	11	8.8%	69%
OHI	5.49%	~flat to +10% premium	1.58x	~9	10.9%	55%
SBRA (Cash NOI)	6.60%	~5–10% discount	~2.0x (est.)	7	8.0%	47%

WALT = weighted-average lease term. P/NAV ranges are approximate, drawn from public sell-side commentary and consensus targets in May 2026; treat as directional, not surgical. The ranking — CTRE > OHI > SBRA — is more reliable than the absolute premia.

A note on SBRA. The 6.60% above folds in SBRA’s ~28% RIDEA segment. On a cleaner NNN-only estimate, SBRA’s implied cap rate is roughly 5.5–6.0%. Cash NOI captures what SBRA actually owns; NNN-only is the better cross-REIT comparison.

The private comparison is deliberately weaker: a current private-market screen, not a transaction database and not a facility-level financial dataset. In the North Texas SNF sale-leaseback conversations crossing our desk, the pencil starts around 8% to 9% going-in cap rate for stabilized product. That range is useful because it tells you where sellers, brokers, and private buyers begin the conversation. It is not sufficient to underwrite credit.

What the prospect database does contain is facility metadata: name, address, certified beds, ownership type, CMS quality ratings, and market. What it does not contain is the thing that matters most: trailing revenue, expense structure, rent burden, EBITDAR, census mix, Medicaid rate exposure, or actual operator coverage.

Private-side item	Evidence quality	How to use it
8% to 9% going-in cap screen	Observed underwriting / broker convention	Anchor for the spread conversation
Addresses, certified beds, ownership, ratings	CMS / Care Compare metadata	Useful for sourcing and triage
EBITDAR coverage, DSCR, NOI	Not observed in the source data	Must be obtained from operator financials

EBITDAR coverage (operator earnings before interest, taxes, depreciation, amortization, and rent, divided by rent + management fee) measures the operator’s ability to cover the landlord’s rent. DSCR (debt service coverage ratio) measures the landlord’s ability to cover mortgage debt service out of net rent. The two are related but distinct: a deal can have strong EBITDAR coverage (operator is healthy) and weak DSCR (landlord is over-levered), or vice versa. In SNF lending, the lender usually cares about both: landlord DSCR tells you whether the loan works, while operator lease coverage tells you whether the rent survives.

Sensitivity to current debt cost. A 65% LTV SNF mortgage at 7.5% to 8.0% debt cost needs materially more rent yield than the same asset under a 6.0% debt stack. If the deal is pitched at an 8.0% cap rate and the operator’s true coverage is thin, the landlord’s DSCR cushion can vanish quickly. That is a financing fact, not a proof that any specific facility works.

Against an 8.5% private-market screen, the spread is roughly 420 bps for CTRE, 300 bps for OHI, and 190 bps for SBRA on portfolio Cash NOI. Against SBRA’s cleaner NNN-only estimate, its spread is closer to 250 to 300 bps. These are starting coordinates, not precision instruments.

Itemizing the spread

A note on method before the numbers. The honest way to decompose a public-private cap rate spread is not to list seven or eight components and add them. They overlap and double-count. Liquidity and illiquidity are two sides of the same coin; credit cushion and operator concentration both buy down expected loss. Naive addition produces sums that exceed the observed spread by hundreds of bps — a tell.

The reframe: group the components into two buckets. The first can be estimated from public-market structure and financing. The second cannot be responsibly estimated until the private operator’s financials are in hand.

Bucket 1: Vehicle premium. This is the asymmetry between holding SNF real estate in a publicly traded REIT (daily exit, broker liquidity, lower marginal cost of capital, deployment franchise, scale financing) and holding it directly through a private SLB (no daily exit, narrow buyer pool, regional debt cost, single-asset operating cost). The vehicle premium plausibly runs 150 to 300 bps across the cohort. CTRE is at the high end; SBRA is lower because smaller scale and RIDEA exposure dilute the wrapper benefits. OHI sits in the middle.

The arithmetic anchor is simple. At ~50% leverage and a 200–250 bp debt-cost differential between unsecured REIT paper and regional SNF mortgage debt, financing alone accounts for roughly 100–125 bps. Mid-lease refinance risk on the private side adds another 25–50 bps. Public REIT corporate G&A works the other way, offsetting some of the gross premium. Net, 150–300 bps is a defensible bracket without claiming false precision.

The same vehicle premium is observable a second way: as the price-to-NAV premium each REIT trades at. CTRE at +5 to +15% above consensus NAV translates to cap-rate compression at the public level; SBRA at a 5–10% discount translates the other way. The P/NAV rank order (CTRE > OHI > SBRA) matches the implied-cap-rate rank order — the same vehicle asymmetry being priced in both metrics.

Bucket 2: Operator credit. This is the part the cap rate tempts you to fake. Public REITs disclose portfolio coverage: CTRE at 2.52x, OHI Core at 1.58x, SBRA around 2.0x. A private facility does not become comparable because you know its address and bed count. You need rent burden, census mix, Medicare acuity, Medicaid rate exposure, wage pressure, agency labor, survey trajectory, management fee treatment, and trailing EBITDAR. Until then, the honest credit differential is unknown, not “0 to 150 bps” or any other tidy range.

Components that don’t fit either bucket cleanly: CON moat erosion affects both public and private SNF owners, though local exposure matters. Measurement basis also creates noise: public implied cap rates are annualized property income against current enterprise value, while private SLB quotes are usually in-place rent against proposed purchase price. On a portfolio with 2% escalators and a 7 to 11 year WALT, that alone can move the comparison by 50 to 100 bps.

So the honest decomposition is deliberately incomplete: 150 to 300 bps of the spread can be explained by vehicle structure, financing, liquidity, franchise, and refi risk. The remaining spread may be operator credit, local market risk, measurement noise, or real mispricing. You cannot know which from a sourced facility list.

What survives the decomposition

Within that more limited framework, what survives?

CTRE. The tightest implied cap rate is mostly a vehicle story: cleanest deployment franchise, lowest marginal debt cost, strongest disclosed coverage, and the clearest P/NAV premium. CTRE is not “cheap” because a private facility might screen at 8.5%. The market is paying for a liquid wrapper, scaled financing, and a portfolio whose reported SNF coverage is materially stronger than OHI’s. One caveat: CTRE’s coverage is partly an Ensign credit vote (~30% of revenue), not a wrapper-only vote.

OHI. The middle implied cap rate fits the middle case: scale and liquidity, but heavier SNF concentration, lower disclosed Core coverage, and an active CommuniCare disposition overhang. The useful question is whether OHI’s valuation pays enough for the concentration and workout risk relative to CTRE and SBRA.

SBRA. SBRA is the messiest comp because Cash NOI includes RIDEA operating exposure. On portfolio Cash NOI it looks wide; on a cleaner NNN-only estimate it looks closer to OHI. That is a methodology warning, not a trade signal.

The cohort summary. No name is clearly mispriced off a private cap-rate screen alone. A large part of the public-private spread is plausibly vehicle premium — liquidity, financing, franchise value, refi access — while the residual cannot be interpreted until private-side operator credit is actually measured. A cap-rate spread without coverage is not a credit thesis.

The directional read, if you want one. The decomposition supports a view on the vehicle premium, not a claim that any private facility is cheap or any public REIT is mispriced. What confirms compression: OHI’s CommuniCare disposition clearing inside 8.5% to institutional buyers, or the first sovereign-scale private healthcare net lease allocation. What kills it: public REIT multiples derating faster than private cap rates compress, or real facility P&Ls showing that 8% to 9% quotes are simply payment for weak rent coverage.

What would change my mind

A major institutional allocator builds a dedicated private healthcare net lease allocation. If a sovereign, a CalPERS-scale allocator, or a multi-strategy fund commits $1B+ to private healthcare net lease specifically, private cap rates compress toward the public side and the spread narrows. Allocating to public REITs would do the opposite: it would compress public cap rates further and widen the spread.
FY 2027 Medicare SNF PPS final rule plus state Medicaid rate actions set the reimbursement backdrop. CMS issued the FY 2027 Medicare SNF PPS proposed rule in April 2026, with a proposed 2.4% Medicare rate update. But a specialist lender will not stop there. The stronger credit read is state by state: Medicaid rebasing, quality add-ons, provider taxes, managed-care pass-throughs, and Medicare post-acute mix.
The CommuniCare workout prices cleanly. OHI expects roughly $480M in Q2 dispositions. Where those assets clear — cap rate, buyer type, time to close — is a direct read on what the private SLB market pays for distressed-operator product.
A CON-repeal wave clears Texas or Florida. Either materially erodes the moat for the largest private SNF markets and can widen required private cap rates independent of operator credit.

What we’re watching next

Q2 2026 supplementals drop late July. Three lines to read:

OHI’s CommuniCare disposition cap rate. The cleanest near-term private-market print against the 8% to 9% screen.
CTRE and OHI marginal debt issuance. Any new unsecured or term loan in Q2 prints the current marginal cost. Watch the spread vs. the 4 percent legacy stack — that is the deployment engine’s true forward economics.
FY2027 SNF PPS final rule and state Medicaid rate actions. The next reimbursement checks.

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Methodology + sources

Implied cap rate: annualized property income divided by enterprise value at 2026-05-22 close. Property income is rental revenue for CTRE and OHI; mortgage interest income is excluded. SBRA uses portfolio Cash NOI because RIDEA produces property-level income without a rent contract. EV includes common equity, debt, preferred equity, convertibles where applicable, and cash. Rental revenue is GAAP straight-line; cash rent would compute cap rates roughly 30 to 50 bps lower on portfolios with 2% annual escalators and 7 to 11 year WALT.

REIT	Annualized property income	Enterprise value (5/22)	Implied cap rate
OHI	$1,067M (Q1 rental income × 4, straight-line)	$19,430M	5.49%
CTRE	$446M (FY26 rental guidance midpoint, straight-line)	$10,390M	4.29%
SBRA	$555M (Q1 Cash NOI × 4)	$8,400M	6.60%

Annualization conventions: OHI Q1 rental income × 4 still includes CommuniCare cash rent before the announced Q2 disposition, so it is current but not fully forward. CTRE uses FY26 rental guidance midpoint because acquisition pace makes Q1 × 4 unrepresentative. SBRA Q1 Cash NOI × 4 carries senior-housing seasonality. A hedge-fund desk running a uniform methodology would get slightly different cap rates; the rank order is robust.

SBRA segment cross-check: SBRA’s Q1 2026 supplemental p. 4 discloses SNF-segment annualized Cash NOI of $258.8M against SNF gross investment of $2.78B, implying ~9.3% on gross book. Useful directional data, but not a market cap rate.

Source filings: OHI Q1 2026 8-K, accession 0000888491-26-000016, filed 2026-04-28. CTRE Q1 2026 8-K, accession 0001628280-26-032150, filed 2026-05-07. SBRA Q1 2026 8-K, accession 0001492298-26-000011, filed 2026-04-29.

Cap rate type comparability: public implied cap rates are forward-ish annualized rental revenue or Cash NOI against current enterprise value. Private SLB screens are usually in-place or trailing rent against proposed purchase price. On a portfolio with 2% escalators and a 7 to 11 year WALT, basis alone can move the comparison by 50 to 100 bps.

Coverage ratios (TTM): Q1 2026 supplementals disclose TTM ended 12/31/2025. CTRE SNF EBITDAR 2.52x; OHI Core EBITDAR 1.58x; SBRA SNF EBITDAR estimated at ~2.0x from disclosed EBITDARM 2.46x with 4% management fee adjustment. No comparable private-facility coverage ratio is used because the prospect database does not contain observed operator P&Ls.

Marginal debt cost: BBB-/BBB healthcare REIT unsecured indications as of May 2026 imply roughly 5.5–6.5%. Private SNF mortgage references are market context only, not a re-underwriting of specific facilities.

Illiquidity premium: the 150–300 bp vehicle-premium bucket is sized against published private real-estate illiquidity frameworks plus financing, franchise, refi, and G&A offsets.

Staffing policy context: CMS finalized minimum staffing and 24/7 RN requirements in April 2024 (CMS fact sheet), but the rule was vacated in April 2025 and CMS later repealed the minimum HPRD and 24/7 RN requirements after a 10-year implementation / enforcement moratorium (Federal Register 2025-21792; HHS summary; AHA summary). This draft treats staffing as a labor-market and state-rule underwriting item.

FY 2027 Medicare SNF PPS context: CMS issued the FY 2027 SNF PPS proposed rule on April 2, 2026, proposing a 2.4% Medicare rate update. This is a Medicare Part A post-acute signal, not a substitute for state Medicaid rate diligence.

SNF margin context: MedPAC March 2024 reports freestanding SNF all-payer total margin of -1.4% in 2022; AHCA’s March 2024 survey reports 87% of nursing homes operating at a loss or between 0% and 3% total margin. These support only the narrow claim that facility economics are thin.

Private SLB screen: the 8% to 9% private-side reference is an observed underwriting / broker-conversation screen for stabilized Texas SNF sale-leaseback opportunities. It is not a transaction database or facility-level financial dataset. The internal prospect database contains CMS / Care Compare metadata, but no observed facility revenue, NOI, rent coverage, DSCR, or operator P&Ls. Any modeled rows generated from that prospect universe are excluded from this draft’s evidentiary base.

What this is not: Investment, tax, or legal advice. A recommendation to buy or sell any specific REIT or sale-leaseback. A complete analysis of healthcare net lease. The decomposition framework ports to other credit-sensitive net lease sectors; the answers do not.