CareTrust REIT, Inc. 10-Q

Item 1. Financial Statements. CARETRUST REIT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (Unaudited) September 30, 2020 December 31, 2019 Assets: Real estate investments, net $ 1,423,238 $ 1,414,200 Other real estate investments, net — 33,300 Assets held for sale, net — 34,590 Cash and cash equivalents 19,101 20,327 Accounts and other receivables, net 2,093 2,571 Prepaid expenses and other assets 7,097 10,850 Deferred financing costs, net 2,287 3,023 Total assets $ 1,453,816 $ 1,518,861 Liabilities and Equity: Senior unsecured notes payable, net $ 296,479 $ 295,911 Senior unsecured term loan, net 198,872 198,713 Unsecured revolving credit facility — 60,000 Accounts payable and accrued liabilities 18,232 14,962 Dividends payable 24,197 21,684 Total liabilities 537,780 591,270 Commitments and contingencies (Note 10) Equity: Preferred stock, $ 0.01 par value; 100,000,000 shares authorized, no shares issued and outstanding as of September 30, 2020 and December 31, 2019 — — Common stock, $ 0.01 par value; 500,000,000 shares authorized, 95,214,080 and 95,103,270 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively 952 951 Additional paid-in capital 1,163,418 1,162,990 Cumulative distributions in excess of earnings ( 248,334 ) ( 236,350 ) Total equity 916,036 927,591 Total liabilities and equity $ 1,453,816 $ 1,518,861 See accompanying notes to condensed consolidated financial statements. 1 Table of Contents CARETRUST REIT, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 2020 2019 Revenues: Rental income $ 45,036 $ 31,577 $ 130,007 $ 114,047 Independent living facilities 634 929 1,874 2,676 Interest and other income 17 808 2,314 2,450 Total revenues 45,687 33,314 134,195 119,173 Expenses: Depreciation and amortization 13,086 13,420 39,485 38,759 Interest expense 5,519 7,064 18,082 21,209 Property taxes 857 1,025 2,179 2,307 Independent living facilities 568 806 1,660 2,232 Impairment of real estate investments — 16,692 — 16,692 Provision for loan losses — 1,076 — 1,076 General and administrative 4,105 3,502 12,921 11,418 Total expenses 24,135 43,585 74,327 93,693 Other income (loss): Gain (loss) on sale of real estate — 217 ( 56 ) 217 Net income (loss) $ 21,552 $ ( 10,054 ) $ 59,812 $ 25,697 Earnings (loss) per common share: Basic $ 0.23 $ ( 0.11 ) $ 0.63 $ 0.28 Diluted $ 0.23 $ ( 0.11 ) $ 0.63 $ 0.28 Weighted-average number of common shares: Basic 95,214 95,103 95,195 92,409 Diluted 95,214 95,103 95,195 92,409 See accompanying notes to condensed consolidated financial statements. 2 Table of Contents CARETRUST REIT, INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (in thousands, except share and per share amounts) (Unaudited) Common Stock Additional Paid-in Capital Cumulative Distributions in Excess of Earnings Total Equity Shares Amount Balance at January 1, 2020 95,103,270 $ 951 $ 1,162,990 $ ( 236,350 ) $ 927,591 Issuance of common stock, net — — ( 90 ) — ( 90 ) Vesting of restricted common stock, net of shares withheld for employee taxes 93,061 1 ( 1,987 ) — ( 1,986 ) Amortization of stock-based compensation — — 884 — 884 Common dividends ($ 0.25 per share) — — — ( 23,931 ) ( 23,931 ) Net income — — — 19,325 19,325 Balance at March 31, 2020 95,196,331 $ 952 $ 1,161,797 $ ( 240,956 ) $ 921,793 Issuance of common stock, net — — ( 314 ) — ( 314 ) Vesting of restricted common stock, net of shares withheld for employee taxes 17,749 — — — — Amortization of stock-based compensation — — 963 — 963 Common dividends ($ 0.25 per share) — — — ( 23,931 ) ( 23,931 ) Net income — — — 18,935 18,935 Balance at June 30, 2020 95,214,080 $ 952 $ 1,162,446 $ ( 245,952 ) $ 917,446 Amortization of stock-based compensation — — 972 — 972 Common dividends ($ 0.25 per share) — — — ( 23,934 ) ( 23,934 ) Net income — — — 21,552 21,552 Balance at September 30, 2020 95,214,080 $ 952 $ 1,163,418 $ ( 248,334 ) $ 916,036 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents CARETRUST REIT, INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (in thousands, except share and per share amounts) (Unaudited) Common Stock Additional Paid-in Capital Cumulative Distributions in Excess of Earnings Total Equity Shares Amount Balance at January 1, 2019 85,867,044 $ 859 $ 965,578 $ ( 198,190 ) $ 768,247 Issuance of common stock, net 2,459,000 24 47,219 — 47,243 Vesting of restricted common stock, net of shares withheld for employee taxes 72,229 1 ( 1,496 ) — ( 1,495 ) Amortization of stock-based compensation — — 994 — 994 Common dividends ($ 0.225 per share) — — — ( 20,011 ) ( 20,011 ) Net income — — — 16,053 16,053 Balance at March 31, 2019 88,398,273 $ 884 $ 1,012,295 $ ( 202,148 ) $ 811,031 Issuance of common stock, net 6,641,250 67 148,731 — 148,798 Vesting of restricted common stock, net of shares withheld for employee taxes 33,700 — ( 1,029 ) — ( 1,029 ) Amortization of stock-based compensation — — 1,147 — 1,147 Common dividends ($ 0.225 per share) — — — ( 21,508 ) ( 21,508 ) Net income — — — 19,698 19,698 Balance at June 30, 2019 95,073,223 $ 951 $ 1,161,144 $ ( 203,958 ) $ 958,137 Issuance of common stock, net — — ( 78 ) — ( 78 ) Vesting of restricted common stock, net of shares withheld for employee taxes 30,047 — — — — Amortization of stock-based compensation — — 981 — 981 Common dividends ($ 0.225 per share) — — — ( 21,500 ) ( 21,500 ) Net loss — — — ( 10,054 ) ( 10,054 ) Balance at September 30, 2019 95,103,270 $ 951 $ 1,162,047 $ ( 235,512 ) $ 927,486 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents CARETRUST REIT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) For the Nine Months Ended September 30, 2020 2019 Cash flows from operating activities: Net income $ 59,812 $ 25,697 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including below-market ground leases) 39,529 38,789 Amortization of deferred financing costs 1,462 1,516 Amortization of stock-based compensation 2,819 3,122 Straight-line rental income ( 65 ) ( 1,483 ) Adjustment for collectibility of rental income — 12,078 Noncash interest income — ( 31 ) Loss (gain) on sale of real estate 56 ( 217 ) Interest income distribution from other real estate investment 1,346 463 Impairment of real estate investments — 16,692 Provision for loan losses — 1,076 Change in operating assets and liabilities: Accounts and other receivables, net 543 ( 6,043 ) Prepaid expenses and other assets 267 ( 348 ) Accounts payable and accrued liabilities 2,616 3,847 Net cash provided by operating activities 108,385 95,158 Cash flows from investing activities: Acquisitions of real estate, net of deposits applied ( 42,075 ) ( 298,557 ) Improvements to real estate ( 5,713 ) ( 1,230 ) Purchases of equipment, furniture and fixtures ( 581 ) ( 2,926 ) Investment in real estate mortgage and other loans receivable ( 13,958 ) ( 14,699 ) Principal payments received on real estate mortgage and other loans receivable 80,873 11,959 Repayment of other real estate investment 2,327 2,204 Escrow deposits for potential acquisitions of real estate ( 1,000 ) ( 22,920 ) Net proceeds from sales of real estate 2,189 218 Net cash provided by (used in) investing activities 22,062 ( 325,951 ) Cash flows from financing activities: Proceeds from (costs paid for) the issuance of common stock, net ( 404 ) 195,963 Proceeds from the issuance of senior unsecured term loan — 200,000 Borrowings under unsecured revolving credit facility 15,000 235,000 Payments on unsecured revolving credit facility ( 75,000 ) ( 265,000 ) Payments on senior unsecured term loan — ( 100,000 ) Payments of deferred financing costs — ( 4,534 ) Net-settle adjustment on restricted stock ( 1,986 ) ( 2,524 ) Dividends paid on common stock ( 69,283 ) ( 59,155 ) Net cash (used in) provided by financing activities ( 131,673 ) 199,750 Net decrease in cash and cash equivalents ( 1,226 ) ( 31,043 ) Cash and cash equivalents, beginning of period 20,327 36,792 Cash and cash equivalents, end of period $ 19,101 $ 5,749 Supplemental disclosures of cash flow information: Interest paid $ 12,671 $ 15,648 Supplemental schedule of noncash investing and financing activities: Increase in dividends payable $ 2,513 $ 3,864 Right-of-use asset obtained in exchange for new operating lease obligation $ 599 $ 1,010 Transfer of pre-acquisition costs to acquired assets $ 167 $ 242 Increase in pre-acquisition costs payable $ — $ 137 Sale of real estate settled with notes receivable $ 32,400 $ 27,500 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 1. ORGANIZATION Description of Business— CareTrust REIT, Inc.’s (“CareTrust REIT” or the “Company”) primary business consists of acquiring, financing, developing and owning real property to be leased to third-party tenants in the healthcare sector. As of September 30, 2020, the Company owned and leased to independent operators, 214 skilled nursing, multi-service campuses, assisted living and independent living facilities consisting of 21,779 operational beds and units located in 28 st ates with the highest concentration of properties by rental revenues located in California, Texas, Louisiana, Idaho and Arizona. As of September 30, 2020, the Company also owned and operated one independent living facility which had a total of 168 units located in Texas. In December 2019, COVID-19 was first reported in Wuhan, China, and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. In early 2020, the COVID-19 outbreak spread globally, which led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders. Although some of these governmental restrictions have been lifted or scaled back, ongoing resurgences of COVID-19 have resulted in the reimposition of certain restrictions and may lead to other restrictions being reimplemented in response to efforts to reduce the spread of COVID-19. Given the dynamic nature of these circumstances and the related adverse impact these restrictions have had, and may continue to have, on the economy generally, the Company’s business, results of operations and financial conditio n may be adver sely impacted by the COVID-19 pandemic. The duration and extent of the COVID-19 pandemic’s effect on the Company’s operational and financial performance, and the operational and financial performance of the Company’s tenants, will depend on future developments, which are highly uncertain and cannot be predicted at this time, including new information which may emerge concerning the severity of COVID-19, actions taken to contain COVID-19, future resurgences of COVID-19, and how quickly and to what extent normal economic and operating conditions can resume. The adverse impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition could be material. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation —The accompanying condensed consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all of the disclosures required by GAAP for a complete set of annual audited financial statements. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. In the opinion of management, all adjustments which are of a normal and recurring nature and considered necessary for a fair presentation of the results of the interim periods presented have been included. The results of operations for the interim periods are not necessarily indicative of results for the full year. All intercompany transactions and account balances within the Company have been eliminated. Lessor Accounting —The Company recognizes lease revenue in accordance with Accounting Standards Codification (“ASC”) 842, Leases. The Company’s lease agreements typically contain annual escalators based on the percentage change in the Consumer Price Index which are accounted for as variable lease payments in the period in which the change occurs. For lease agreements that contain fixed rent escalators, the Company generally recognizes lease revenue on a straight-line basis of accounting. The Company generates revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property. Tenant reimbursements related to property taxes and insurance paid by the lessee directly to a third party on behalf of a lessor are required to be excluded from variable payments and from recognition in the lessors’ income statements. Otherwise, tenant recoveries for taxes and insurance are classified as additional rental income recognized by the lessor on a gross basis in its income statements. The Company recognized, on a gross basis, property taxes of $ 0.9 million and $ 2.5 million for the three and nine months ended September 30, 2020, respectively. The Company recognized, on a gross basis, property taxes of $ 0.8 million and $ 2.1 million for the three and nine months ended September 30, 2019, respectively. The Company’s assessment of collectibility of its tenant receivables includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection. The Company considers the operator’s performance and anticipated trends, payment history, and the existence and creditworthiness of guarantees, among other factors, in making this determination. For such leases that are deemed probable of collection, revenue continues to be 6 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) recorded on a straight-line basis over the lease term, if applicable. For such leases that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectibility determination. Such write-offs are recorded as increases or decreases through rental income on the Company’s condensed consolidated statements of operations. For the three and nine months ended September 30, 2020, the Company recorded recovery adjustments of $ 1.0 million and did no t recognize any write-off adjustments to rental income. For the three and nine months ended September 30, 2019, the Company recorded $ 12.1 million of write-off adjustments to rental income related to rental income recognized in prior periods. See Note 3, Real Estate Investments, Net for further detail. Estimates and Assumptions —The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that the assumptions and estimates used in preparation of the underlying consolidated financial statements are reasonable. Actual results, however, could differ from those estimates and assumptions. Real Estate Acquisition Valuation — In accordance with ASC 805, Business Combinations , the Company’s acquisitions of real estate investments generally do not meet the definition of a business, and are treated as asset acquisitions. The assets acquired and liabilities assumed are measured at their acquisition date relative fair values. Acquisition costs are capitalized as incurred. The Company allocates the acquisition costs to the tangible assets, identifiable intangible assets/liabilities and assumed liabilities on a relative fair value basis. The Company assesses fair value based on available market information, such as capitalization and discount rates, comparable sale transactions and relevant per square foot or unit cost information. A real estate asset’s fair value may be determined utilizing cash flow projections that incorporate such market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, as well as market and economic conditions. The fair value of tangible assets of an acquired property is based on the value of the property as if it is vacant. As part of the Company’s real estate acquisitions, the Company may commit to provide contingent payments to a seller or lessee (e.g., an earn-out payable upon the applicable property achieving certain financial metrics). Typically, when the contingent payments are funded, cash rent is increased by the amount funded multiplied by a rate stipulated in the agreement. Generally, if the contingent payment is an earn-out provided to the seller, the payment is capitalized to the property’s basis when earn-out becomes probable and estimable. If the contingent payment is an earn-out provided to the lessee, the payment is recorded as a lease incentive and is amortized as a yield adjustment over the life of the lease. Impairment of Long-Lived Assets —At each reporting period, the Company evaluates its real estate investments to be held and used for potential impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The judgment regarding the existence of impairment indicators, used to determine if an impairment assessment is necessary, is based on factors such as, but not limited to, market conditions, operator performance and legal structure. If indicators of impairment are present, the Company evaluates the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying facilities. The most significant inputs to the undiscounted cash flows include, but are not limited to, facility level financial results, a lease coverage ratio, the intended hold period by the Company, and a terminal capitalization rate. The analysis is also significantly impacted by determining the lowest level of cash flows, which generally would be at the master lease level of cash flows. Provisions for impairment losses related to long-lived assets are recognized when expected future undiscounted cash flows are determined to be less than the carrying values of the assets. The impairment is measured as the excess of carrying value over fair value. All impairments are taken as a period cost at that time, and depreciation is adjusted going forward to reflect the new value assigned to the asset. The Company classifies its real estate investments as held for sale when the applicable criteria have been met, which entails a formal plan to sell the properties that is expected to be completed within one year, among other criteria. Upon designation as held for sale, the Company writes down the excess of the carrying value over the estimated fair value less costs to sell, resulting in an impairment of the real estate investments, if necessary, and ceases depreciation. In the event of impairment, the fair value of the real estate investment is based on current market conditions and considers matters such as the forecasted operating cash flows, lease coverage ratios, capitalization rates, comparable sales data, and, where applicable, contracts or the results of negotiations with purchasers or prospective purchasers. 7 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) The Company’s ability to accurately estimate future cash flows and estimate and allocate fair values impacts the timing and recognition of impairments. While the Company believes its assumptions are reasonable, changes in these assumptions may have a material impact on financial results. O ther Real Estate Investments —Included in “Other real estate investments, net,” on the Company’s condensed consolidated balance sheets are mortgage loans receivable. Prior to the adoption of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Subtopic 326) (“ASU 2016-13”), mortgage loans receivable were recorded at amortized cost, which consisted of the outstanding unpaid principal balance, net of unamortized costs and fees directly associated with origination of the loans. Interest income on the Company’s mortgage loans receivable was recognized over the life of the applicable investment using the interest method. Origination costs and fees directly related to the mortgage loans receivable were amortized over the term of the loan as an adjustment to interest income. The Company evaluated at each reporting period each of its other real estate investments for indicators of impairment. An investment was impaired when, based on current information and events, it was probable that the Company would be unable to collect all amounts due according to the existing contractual terms. A reserve would be established for the excess of the carrying value of the investment over its fair value. Income Taxes —The Company has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Company believes it has been organized and has operated, and the Company intends to continue to operate, in a manner to qualify for taxation as a REIT under the Code. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute to its stockholders at least 90% of the Company’s annual REIT taxable income (computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent it distributes as qualifying dividends all of its REIT taxable income to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Recent Accounting Standards Adopted by the Company —In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, that changes the impairment model for most financial instruments by requiring companies to recognize an allowance for expected credit losses, rather than incurred losses as previously required by the other-than-temporary impairment model. ASU 2016-13 applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans receivable, held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures (e.g., loan commitments). In November 2018, the FASB released ASU No. 2018-19, Codification Improvements to Topic 326 Financial Instruments - Credit Losses (“ASU 2018-19”). ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of ASU 2016-13. Instead, impairment of receivables arising from operating leases should be accounted for under Subtopic 842-30 “Leases - Lessor.” Additionally, the FASB issued ASU No. 2019-05, Targeted Transition Relief (“ASU 2019-05”), to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments. The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. ASU 2016-13 became effective for reporting periods beginning after December 15, 2019, and was applied as a cumulative adjustment to retained earnings as of the effective date. The Company adopted ASU 2016-13 on January 1, 2020. With the Company’s primary business being leasing real property to third-party tenants, the majority of receivables that arise in the ordinary course of business qualify as operating leases and are not in the scope of ASU 2016-13. However, based on the instruments held upon adoption on January 1, 2020, the standard applied to the Company’s then outstanding mortgage loans receivable, for which the Company elected the fair value option as provided for by ASU 2019-05. Instruments for which the fair value option has been elected are measured at fair value on a recurring basis with changes in fair value recognized in other income (loss) on the Company’s condensed consolidated statements of operations. Interest income is recognized as earned within interest and other income in the condensed consolidated statements of operations. As of September 30, 2020, the Company had no remaining instruments for which the fair value option had been elected. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) (“ASU 2018-13”) , which modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. ASU 2018-13 was effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of 8 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted ASU 2018-13 on January 1, 2020. Adoption of the new standard did not have a material impact on the Company’s consolidated financial statements. Recent Accounting Pronouncements — In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), that provides optional relief to applying reference rate reform to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”), which will be discontinued by the end of 2021. The amendments in this update are effective immediately and may be applied through December 31, 2022. The Company is still evaluating the impact of ASU 2020-04 and expects to take full advantage of the offered optional expedients and exceptions, but does not expect the adoption of the standard to have a material impact on the Company’s consolidated financial statements. 3. REAL ESTATE INVESTMENTS, NET The following table summarizes the Company’s investment in owned properties as of September 30, 2020 and December 31, 2019 (dollars in thousands): September 30, 2020 December 31, 2019 Land $ 209,280 $ 204,154 Buildings and improvements 1,441,949 1,400,927 Integral equipment, furniture and fixtures 95,392 93,005 Identified intangible assets 1,650 1,650 Real estate investments 1,748,271 1,699,736 Accumulated depreciation and amortization ( 325,033 ) ( 285,536 ) Real estate investments, net $ 1,423,238 $ 1,414,200 As of September 30, 2020 , 214 of the Company’s facilities wer e leased to various operators under triple-net leases. All of these leases contain annual escalators based on the percentage change in the Consumer Price Index (but not less than zero), some of which are subject to a cap, or fixed rent escalators. As of September 30, 2020, the Company had one independent living facility that the Company owned and operated. As of September 30, 2020, the Company’s total future minimum rental revenues for all of its tenants, excluding operating expense reimbursements, were (dollars in thousands): Year Amount 2020 (three months) $ 42,533 2021 170,186 2022 170,284 2023 169,980 2024 170,080 2025 170,183 Thereafter 973,638 Total $ 1,866,884 9 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) The following table summarizes components of the Company’s rental revenue (dollars in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, Rental Income 2020 2019 2020 2019 Contractual rent due (1) $ 42,866 $ 43,109 $ 127,789 $ 124,642 Straight-line rent 17 546 65 1,483 Adjustment for collectibility (2) — ( 12,078 ) — ( 12,078 ) Recovery of previously reversed rent (3) 1,047 — 1,047 — Lease termination revenue (4) 1,106 — 1,106 — Total $ 45,036 $ 31,577 $ 130,007 $ 114,047 (1) Includes initial cash rent and tenant operating expense reimbursements, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by the Company. For tenants on a cash basis, this represents the lesser of the amount that would be recognized on a straight-line basis or cash that has been received. (2) During the three and nine months ended September 30, 2019, and in accordance with ASC 842, the Company evaluated the collectibility of lease payments through maturity and determined that it was not probable that the Company would collect substantially all of the contractual obligations from five operators through maturity. As such, the Company reversed $ 7.8 million of contractual rent, $ 3.5 million of straight-line rent and $ 0.8 million of property taxes during the three and nine months ended September 30, 2019. If lease payments are subsequently deemed probable of collection, the Company increases rental income for such recoveries. (3) During the three and nine months ended September 30, 2020, the Company recovered $ 1.0 million in rental revenue related to one operator that was previously written off. (4) During the three and nine months ended September 30, 2020, in connection with the agreement to terminate its lease agreements with affiliates of Metron Integrated Health Systems (“Metron”) and to sell the facilities to a third-party, the Company received $ 1.1 million from Metron affiliates. Recent Real Estate Acquisitions The following table summarizes the Company’s acquisitions for the nine months ended September 30, 2020 (dollars in thousands): Type of Property Purchase Price (1) Initial Annual Cash Rent Number of Properties Number of Beds/Units (2) Skilled nursing $ 34,845 $ 3,219 3 249 Assisted living 7,396 590 1 62 Total $ 42,241 $ 3,809 4 311 (1) Purchase price includes capitalized acquisition costs. (2) The number of beds/units includes operating beds at acquisition date. 10 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) Sale of Real Estate On February 14, 2020, the Company closed on the sale of six skilled nursing facilities formerly operated by affiliates of Metron. In connection with the sale for $ 36.0 million, the Company received $ 3.5 million in cash and provided subsidiaries of Cascade Capital Group, LLC (“Cascade”), the purchaser of the properties, with a short-term mortgage loan secured by these properties for $ 32.4 million. The mortgage loan bore interest at 7.5 % and initially had a maturity date of March 31, 2020. In connection with the sale, the Company recognized a loss of approximately $ 0.1 million. In April 2020, the mortgage loan was settled with $ 18.9 million in cash and a new mortgage loan for $ 13.9 million . In July 2020, the Company received prepayment in full, including accrued interest, for the new $ 13.9 million mortgage loan . See Note 4, Other Real Estate Investments, Net, for further detail on the new mortgage loan. Lease Amendments On July 15, 2019, the Company terminated its then existing master lease (the “Original Trillium Lease”) with affiliates of Trillium Healthcare Group, LLC (“Trillium”), which covered ten properties in Iowa, seven properties in Ohio and one property in Georgia. On August 16, 2019, the Company entered into a new master lease (the “New Trillium Lease”) with Trillium’s Iowa and Georgia affiliates covering the ten properties in Iowa and the one property in Georgia. The Company recorded an adjustment to reduce rental income for accounts and other receivables by approximately $ 3.8 million in the three months ended September 30, 2019. On September 1, 2019, four of the seven skilled nursing properties in Ohio operated by Trillium under the Original Trillium Lease were transferred to affiliates of Providence Group, Inc. (“Providence”). In connection with the transfer, the Company amended its triple-net master lease with Providence. The amended lease had a remaining initial term of approximately 13 years as of September 1, 2019, and includes two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease with Providence increased by approximately $ 2.1 million. Impairment of Real Estate Investments and Assets Held for Sale On September 1, 2019, the Company sold three of the seven skilled nursing properties in Ohio operated by Trillium under the Original Trillium Lease for a purchase price of $ 28.0 million. During the three months ended September 30, 2019 and prior to the disposition, the Company recorded an impairment expense of approximately $ 7.8 million. In connection with the sale, the Company provided affiliates of CommuniCare Family of Companies (“CommuniCare”), the purchaser of the three Ohio properties, with a mortgage loan secured by the three Ohio properties for approximately $ 26.5 million. See Note 4, Other Real Estate Investments, Net, for additional information. As of September 30, 2019, the Company met the criteria to classify six skilled nursing facilities operated by affiliates of Metron as held for sale, which resulted in an impairment expense of approximately $ 8.8 million to reduce the carrying value to fair value less costs to sell the facilities. The assets held for sale as of December 31, 2019 of $ 34.6 million were primarily comprised of real estate assets. The fair value of the assets impaired during the three months ended September 30, 2019 was based on contractual sales prices, which are considered to be Level 2 measurements within the fair value hierarchy. 11 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 4. OTHER REAL ESTATE INVESTMENTS, NET Preferred Equity Investments —In September 2016, the Company completed a $ 2.3 million preferred equity investment with an affiliate of Cascadia Development, LLC. The preferred equity investment yielded a return equal to prime plus 9.5 % but in no event less than 12.0 % calculated on a quarterly basis on the outstanding carrying value of the investment. The investment was used to develop a 99 -bed skilled nursing facility in Boise, Idaho. In connection with its investment, the Company held an option to purchase the development at a fixed-formula price upon stabilization, with an initial lease yield of at least 9.0 %. The project was completed in the first quarter of 2018 and began lease-up in the second quarter of 2018. In January 2020, the Company purchased the skilled nursing facility for approximately $ 18.7 million, which included capitalized acquisition costs. The Company paid $ 15.0 million after receiving back its initial investment of $ 2.3 million and cumulative contractual preferred return through January 17, 2020, the acquisition date, of $ 1.4 million, of which less than $ 0.1 million was recognized as interest income during the nine months ended September 30, 2020. The Company did not recognize any interest income during the three months ended September 30, 2020 related to preferred equity investments. As of September 30, 2020, the Company had no remaining preferred equity investments. Mortgage Loans Receivable —In July 2019, the Company provided MCRC, LLC a real estate loan secured by a 176 -bed skilled nursing facility in Manteca, California for $ 3.0 million, which bore a fixed interest rate of 8 % and required monthly interest payments. Concurrently, the Company entered into a purchase and sale agreement to purchase the Manteca facility from MCRC, LLC for approximately $ 16.4 million subject to normal diligence and other contingencies. The loan documents provided for a maturity date of the earlier to occur of the closing date of the acquisition, or five business days following the termination of the purchase and sale agreement. MCRC, LLC breached its obligation to sell the Manteca facility to the Company on the terms outlined in the purchase and sale agreement and to repay the real estate loan upon its stated maturity. As a result, the Company commenced non-judicial foreclosure proceedings with respect to the Manteca facility. In January 2020, the borrower further collateralized the loan by causing one of its affiliates to grant the Company a deed of trust in the real estate and improvements that constitute the Palm Gardens Assisted Living Facility in Yolo County, California. During the quarter ended June 30, 2020, payment for the loan principal and accrued interest, including default interest, as well as reimbursement for attorney’s fees and certain other costs of suit, were received in full by the Company and, as a result, the Company withdrew all foreclosure-related proceedings related to the Manteca facility loan. In September 2019, the Company provided affiliates of CommuniCare a $ 26.5 million loan secured by mortgages on three skilled nursing facilities sold by the Company to CommuniCare , which bore a fixed interest rate of 10 %. The mortgage loan, which required CommuniCare to make monthly interest payments, was set to mature on February 29, 2020 and included an option to be prepaid before the maturity date. In January 2020, the Company amended the mortgage loan’s maturity date to April 30, 2020. In April 2020, the Company amended the mortgage loan’s maturity date to May 29, 2020. During the quarter ended June 30, 2020, payment for the mortgage loan and accrued interest was received in full by the Company. In February 2020, the Company provided subsidiaries of Cascade a $ 32.4 million loan secured by mortgages on the six skilled nursing facilities formerly operated by affiliates of Metron sold to Cascade in February 2020, as discussed in Note 3, Real Estate Investments, Net. The mortgage loan bore interest at a fixed rate of 7.5 % and had a maturity date of March 31, 2020. In April 2020, the mortg age loan was settled in connection with a new mortgage loan transaction between the Company and a third-party institutional lender as co-lenders, pursuant to which the Company received $ 18.9 million in cash and a new mortgage loan for $ 13.9 million. The new mortgage loan with Cascade was secured by the same six skilled nursing facilities purchased by Cascade and was fo r a combined principal amount of $ 33.9 million, with the Company’s $ 13.9 million portion of the indebtedness initially bearing interest at a variable rate equal to LIBOR plus 4.00 %, subject to a LIBOR floor of 1.75 %. The new mortgage loan had a maturity date of April 29, 2022 and included two six-month extension options. During the three months ended September 30, 2020, prepayment for the mortgage loan of $ 13.9 million and accrued interest was received in full by the Company. As of September 30, 2020, the Company had no remaining mortgage loan receivables. During the three and nine months ended September 30, 2020, the Company recognized zero and $ 2.0 million, respectively, of interest income related to its mortgage loans. During the three and nine months ended September 30, 2019, the Company recognized $ 0.8 million and $ 1.8 million , respectively, of interest income related to its mortgage loans. During the three and nine months ended September 30, 2020, the Company recognized $ 17,000 and $ 0.2 million, respectively, of interest income related to its other loans receivable. During the three and nine months ended September 30, 2019, the Company recognized $ 29,000 and $ 0.1 million, respectively, of interest income related to its other loans receivable. 12 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 5. FAIR VALUE MEASUREMENTS The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. GAAP guidance defines three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability. Level 3 – Unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques. The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and, depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. Changes in the type of inputs may result in a reclassification for certain assets. The Company does not expect that changes in classifications between levels will be frequent. Items Measured at Fair Value on a Non-Recurring Basis Real Estate Investments: The Company performs quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable. The Company estimates fair values using Level 3 inputs and uses a combined income and market approach. Specifically, t he fair value of the real estate investment is based on current market conditions and considers matters such as the forecasted operating cash flows, lease coverage ratios, capitalization rates, comparable sales data, and, where applicable, contracts or the results of negotiations with purchasers or prospective purchasers. For the three and nine months ended September 30, 2020, there were no real estate assets deemed to be impaired. For the three and nine months ended September 30, 2019, the Company recorded an impairment expense of $ 16.7 million. See Note 3, Real Estate Investments, Net, for additional information. Items Disclosed at Fair Value Considerable judgment is necessary to estimate the fair value disclosure of financial instruments. The estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. A summary of the face values, carrying amounts and fair values of the Company’s financial instruments as of September 30, 2020 and December 31, 2019 using Level 2 inputs for the Notes (as defined in Note 6, Debt, below), and Level 3 inputs, for all other financial instruments, is as follows (dollars in thousands): September 30, 2020 December 31, 2019 Level Face Value Carrying Amount Fair Value Face Value Carrying Amount Fair Value Financial assets: Preferred equity investments 3 $ — $ — $ — $ 2,327 $ 3,800 $ 3,674 Mortgage loans receivable 3 $ — $ — $ — $ 29,500 $ 29,500 $ 29,500 Financial liabilities: Senior unsecured notes payable 2 $ 300,000 $ 296,479 $ 309,000 $ 300,000 $ 295,911 $ 312,750 Cash and cash equivalents, accounts and other receivables, other loans receivable, and accounts payable and accrued liabilities: These balances approximate their fair values due to the short-term nature of these instruments. 13 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) Unsecured revolving credit facility and senior unsecured term loan: The fair values approximate their carrying values as the interest rates are variable and approximate prevailing market interest rates for similar debt arrangements. 6. DEBT The following table summarizes the balance of the Company’s indebtedness as of September 30, 2020 and December 31, 2019 (dollars in thousands): September 30, 2020 December 31, 2019 Principal Amount Deferred Loan Fees Carrying Value Principal Amount Deferred Loan Fees Carrying Value Senior unsecured notes payable $ 300,000 $ ( 3,521 ) $ 296,479 $ 300,000 $ ( 4,089 ) $ 295,911 Senior unsecured term loan 200,000 ( 1,128 ) 198,872 200,000 ( 1,287 ) 198,713 Unsecured revolving credit facility — — — 60,000 — 60,000 $ 500,000 $ ( 4,649 ) $ 495,351 $ 560,000 $ ( 5,376 ) $ 554,624 Senior Unsecured Notes Payable On May 10, 2017, the Company’s wholly owned subsidiary, CTR Partnership, L.P. (the “Operating Partnership”), and its wholly owned subsidiary, CareTrust Capital Corp. (together with the Operating Partnership, the “Issuers”), completed an underwritten public offering of $ 300.0 million aggregate principal amount of 5.25 % Senior Notes due 2025 (the “Notes”). The Notes were issued at par, resulting in gross proceeds of $ 300.0 million and net proceeds of approximately $ 294.0 million after deducting underwriting fees and other offering expenses. The Notes mature on June 1, 2025 and bear interest at a rate of 5.25 % per year. Interest on the Notes is payable on June 1 and December 1 of each year. As of June 1, 2020, the Issuers may redeem the Notes any time at the redemption prices set forth in the indenture. As of September 30, 2020, the Issuers have not elected to redeem any of the Notes. If certain changes of control of the Company occur, holders of the Notes will have the right to require the Issuers to repurchase their Notes at 101 % of the principal amount plus accrued and unpaid interest, if any, to, but not including, the repurchase date. The obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by the Company and certain of the Company’s wholly owned existing and, subject to certain exceptions, future material subsidiaries (other than the Issuers); provided, however, that such guarantees are subject to automatic release under certain customary circumstances. The indenture contains customary covenants such as limiting the ability of the Company and its restricted subsidiaries to: incur or guarantee additional indebtedness; incur or guarantee secured indebtedness; pay dividends or distributions on, or redeem or repurchase, capital stock; make certain investments or other restricted payments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their assets; and create restrictions on the ability of the Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers. The indenture also requires the Company and its restricted subsidiaries to maintain a specified ratio of unencumbered assets to unsecured indebtedness. These covenants are subject to a number of important and significant limitations, qualifications and exceptions. The indenture also contains customary events of default. As of September 30, 2020, the Company was in compliance with all applicable financial covenants under the indenture. Unsecured Revolving Credit Facility and Term Loan On August 5, 2015, the Company, CareTrust GP, LLC, the Operating Partnership, as the borrower, and certain of its wholly owned subsidiaries entered into a credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender, and the lenders party thereto (the “Prior Credit Agreement”). As later amended on February 1, 2016, the Prior Credit Agreement provided the following: (i) a $ 400.0 million unsecured asset based revolving credit facility (the “Prior Revolving Facility”), (ii) a $ 100.0 million non-amortizing unsecured term loan (the “Prior Term Loan” and, together with the Prior Revolving Facility, the “Prior Credit Facility”), and (iii) a $ 250.0 million uncommitted incremental facility. The Prior Revolving Facility was scheduled to mature on August 5, 2019, subject to two six- 14 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) month extension options. The Prior Term Loan was scheduled to mature on February 1, 2023 and could be prepaid at any time subject to a 2 % premium in the first year after issuance and a 1 % premium in the second year after issuance. On February 8, 2019, the Operating Partnership, as the borrower, the Company, as guarantor, CareTrust GP, LLC, and certain of the Operating Partnership’s wholly owned subsidiaries entered into an amended and restated credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender, and the lenders party thereto (the “Amended Credit Agreement”). The Amended Credit Agreement, which amended and restated the Prior Credit Agreement, provides for: (i) an unsecured revolving credit facility (the “Revolving Facility”) with revolving commitments in an aggregate principal amount of $ 600.0 million, including a letter of credit subfacility for 10 % of the then available revolving commitments and a swingline loan subfacility for 10 % of the then available revolving commitments and (ii) an unsecured term loan credit facility (the “Term Loan” and, together with the Revolving Facility, the “Amended Credit Facility”) in an aggregate principal amount of $ 200.0 million. Borrowing availability under the Revolving Facility is subject to no default or event of default under the Amended Credit Agreement having occurred at the time of borrowing. The proceeds of the Term Loan were used, in part, to repay in full all outstanding borrowings under the Prior Term Loan and Prior Revolving Facility under the Prior Credit Agreement. Future borrowings under the Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes. The interest rates applicable to loans under the Revolving Facility are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.10 % to 0.55 % per annum or LIBOR plus a margin ranging from 1.10 % to 1.55 % per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). The interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.50 % to 1.20 % per annum or LIBOR plus a margin ranging from 1.50 % to 2.20 % per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). In addition, the Operating Partnership will pay a facility fee on the revolving commitments under the Revolving Facility ranging from 0.15 % to 0.35 % per annum, based on the debt to asset value ratio of the Company and its consolidated subsidiaries (unless the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt and the Operating Partnership elects to decrease the applicable margin as described above, in which case the Operating Partnership will pay a facility fee on the revolving commitments ranging from 0.125 % to 0.30 % per annum based on the credit ratings of the Company’s senior long-term unsecured debt). As of September 30, 2020, the Operating Partnership had $ 200.0 million outstanding under the Term Loan and no borrowings outstanding under the Revolving Facility. The Revolving Facility has a maturity date of February 8, 2023, and includes, at the sole discretion of the Operating Partnership, two , six-month extension options. The Term Loan has a maturity date of February 8, 2026. The Amended Credit Facility is guaranteed, jointly and severally, by the Company and its wholly owned subsidiaries that are party to the Amended Credit Agreement (other than the Operating Partnership). The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend organizational documents and pay certain dividends and other restricted payments. The Amended Credit Agreement requires the Company to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum debt to asset value ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating income ratio, a maximum secured debt to asset value ratio, a maximum secured recourse debt to asset value ratio, a maximum unsecured debt to unencumbered properties asset value ratio, a minimum unsecured interest coverage ratio and a minimum rent coverage ratio. The Amended Credit Agreement also contains certain customary events of default, including the failure to make timely payments under the Amended Credit Facility or other material indebtedness, the failure to satisfy certain covenants (including the financial maintenance covenants), the occurrence of change of control and specified events of bankruptcy and insolvency. As of September 30, 2020, the Company was in compliance with all applicable financial covenants under the Amended Credit Agreement. 15 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 7. EQUITY Common Stock At-The-Market Offering —On March 10, 2020, the Company entered into a new equity distribution agreement to issue and sell, from time to time, up to $ 500.0 million in aggregate offering price of its common stock through an “at-the-market” equity offering program (the “New ATM Program”). In connection with the entry into the equity distribution agreement and the commencement of the New ATM Program, the Company’s “at-the-market” equity offering program pursuant to the Company’s prior equity distribution agreement, dated as of March 4, 2019, was terminated (the “Prior ATM Program”). There was no New ATM Program or Prior ATM Program activity (or activity under any predecessor at-the-market equity offering programs) for the three months ended September 30, 2020 and 2019 or for the nine months ended September 30, 2020. The following table summarizes predecessor at-the-market equity offering program activity for the nine months ended September 30, 2019 (in thousands, except per share amounts): For the Nine Months Ended September 30, 2019 Number of shares 2,459 Average sales price per share $ 19.48 Gross proceeds* $ 47,893 *Total gross proceeds is before $ 0.6 million of commissions paid to the sales agents during the nine months ended September 30, 2019 under the predecessor at-the-market equity offering program. As of September 30, 2020, the Company had $ 500.0 million available for future issuances under the New ATM Program. Share Repurchase Program —On March 20, 2020, the Company’s Board of Directors authorized a share repurchase program to repurchase up to $ 150.0 million of outstanding shares of the Company’s common stock (the “Repurchase Program”). Repurchases under the Repurchase Program, which expires on March 31, 2023, may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated share repurchase transactions, or other methods of acquiring shares, in each case subject to market conditions and at such times as shall be permitted by applicable securities laws and determined by management. Repurchases under the Repurchase Program may also be made pursuant to a plan adopted under Rule 10b5-1 promulgated under the Exchange Act. The Company expects to finance any share repurchases under the Repurchase Program using available cash and may also use short-term borrowings under the Revolving Facility. The Company did no t repurchase any shares of common stock under the Repurchase Program during the three and nine months ended September 30, 2020 . The Repurchase Program may be modified, discontinued or suspended at any time. Dividends on Common Stock — The following table summarizes the cash dividends on the Company’s common stock declared by the Company’s Board of Directors for the first nine months of 2020 (dollars in thousands, except per share amounts): For the Three Months Ended March 31, 2020 June 30, 2020 September 30, 2020 Dividends declared per share $ 0.25 $ 0.25 $ 0.25 Dividends payment date April 15, 2020 July 15, 2020 October 15, 2020 Dividends payable as of record date $ 23,931 $ 23,931 $ 23,934 Dividends record date March 31, 2020 June 30, 2020 September 30, 2020 8. STOCK-BASED COMPENSATION All stock-based awards are subject to the terms of the CareTrust REIT, Inc. and CTR Partnership, L.P. Incentive Award Plan (the “Plan”). The Plan provides for the granting of stock-based compensation, including stock options, restricted stock, performance awards, restricted stock units and other incentive awards to officers, employees and directors in connection with their employment with or services provided to the Company. 16 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) Restricted Stock Awards — In connection with the separation of the healthcare business and real estate business of The Ensign Group, Inc. (“Ensign”) into two separate and independently publicly traded companies (the “Spin-Off”), employees of Ensign who had unvested shares of restricted stock were given one share of CareTrust REIT unvested restricted stock totaling 207,580 shares at the Spin-Off. These restricted shares are subject to a time vesting provision only and the Company does not recognize any stock compensation expense associated with these awards. As of September 30, 2020, there were 1,760 unvested restricted stock awards outstanding that were issued in connection with the Spin-Off. In January 2020 and March 2020, the Compensation Committee of the Company’s Board of Directors granted 27,000 and 107,790 shares of restricted stock, respectively, to officers and employees. Each share had a fair market value on the date of grant of $ 22.18 and $ 19.06 per share, respectively, based on the closing market price of the Company’s common stock on that date, and the shares vest in four equal annual installments beginning on the first anniversary of the grant date. Additionally, in March 2020, the Compensation Committee granted 107,790 performance stock awards to officers. Each share had a fair market value on the date of grant of $ 19.06 per share, based on the closing market price of the Company’s common s tock on that date. Performance stock awards are subject to both time and performance based conditions and vest over a one - to four-year period. The amount of performance awards that will ultimately vest is dependent on the Company’s Normalized Funds from Operations (“NFFO”) per share, as defined by the Compensation Committee, meeting or exceeding fiscal year over year growth of 5.0 % or greater. In April 2020, the Compensation Committee of the Company's Board of Directors gra nted 27,611 shares of restricted stock to members of the Board of Directors. Each share had a fair market value on the date of grant o f $ 16.48 p er share, based on the c losing market price of the Company's common stock on that date, and the shares vest in full on the earlier to occur of April 29, 2021 or the Company’s 2021 Annual Meeting of Stockholders. The following table summarizes the stock-based compensation expense recognized (dollars in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 2020 2019 Stock-based compensation expense $ 972 $ 981 $ 2,819 $ 3,122 As of September 30, 2020, there was $ 6.5 million of unamortized stock-based compensation expense related to unvested awards and the weighted-average remaining vesting period of such awards was 2.5 years. 17 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 9. EARNINGS (LOSS) PER COMMON SHARE The following table presents the calculation of basic and diluted earnings (loss) per common share (“EPS”) for the Company’s common stock for the three and nine months ended September 30, 2020 and 2019, and reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS (amounts in thousands, except per share amounts): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 2020 2019 Numerator: Net income (loss) $ 21,552 $ ( 10,054 ) $ 59,812 $ 25,697 Less: Net income allocated to participating securities ( 75 ) ( 66 ) ( 224 ) ( 231 ) Numerator for basic and diluted earnings (loss) available to common stockholders $ 21,477 $ ( 10,120 ) $ 59,588 $ 25,466 Denominator: Weighted-average basic common shares outstanding 95,214 95,103 95,195 92,409 Weighted-average diluted common shares outstanding 95,214 95,103 95,195 92,409 Earnings (loss) per common share, basic $ 0.23 $ ( 0.11 ) $ 0.63 $ 0.28 Earnings (loss) per common share, diluted $ 0.23 $ ( 0.11 ) $ 0.63 $ 0.28 The Company’s unvested restricted shares associated with its incentive award plan and unvested restricted shares issued to employees of Ensign at the Spin-Off have been excluded from the above calculation of earnings (loss) per diluted share for the three and nine months ended September 30, 2020 and 2019, when their inclusion would have been anti-dilutive. 10. COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries are and may become from time to time a party to various claims and lawsuits arising in the ordinary course of business, which are not individually or in the aggregate anticipated to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. Claims and lawsuits may include matters involving general or professional liability asserted against the Company’s tenants, which are the responsibility of the Company’s tenants and for which the Company is entitled to be indemnified by its tenants under the insurance and indemnification provisions in the applicable leases. Capital expenditures for each property leased under the Company’s triple-net leases are generally the responsibility of the tenant, except that, for the facilities leased to subsidiaries of Ensign and The Pennant Group, Inc., the tenant will have an option to require the Company to finance certain capital expenditures up to an aggregate of 20 % of the Company’s initial investment in such property, subject to a corresponding rent increase at the time of funding. For the Company’s other triple-net master leases, subject to approval by the Company, the tenants may request capital expenditure funding that would generally be subject to a corresponding rent increase at the time of funding and which are subject to tenant compliance with the conditions to the Company’s approval and funding of their requests. As of September 30, 2020, the Company had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities totaling $ 14.1 million, of which $ 12.9 million is subject to rent increase at the time of funding. 11. CONCENTRATION OF RISK Major operator concentrations – As of September 30, 2020, Ensign leased 85 skilled nursing, multi-service campuses, assisted living and independent living facilities which had a total of 8,883 beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington. The four states in which Ensign leases the 18 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) highest concentration of properties by rental revenues as of September 30, 2020 are California, Texas, Arizona and Utah. During the three and nine months ended September 30, 2020, Ensign represented 30 % and 31 %, respectively, of the Company’s rental income, exclusive of operating expense reimbursements. During the three and nine months ended September 30, 2019 Ensign represented 50 % and 40 %, respectively, of the Company’s rental income, exclusive of operating expense reimbursements. Ensign is subject to the registration and reporting requirements of the SEC and is required to file with the SEC annual reports containing audited financial information and quarterly reports containing unaudited financial information. Ensign’s financial statements, as filed with the SEC, can be found at http://www.sec.gov. The Company has not verified this information through an independent investigation or otherwise. As of September 30, 2020, Priority Management Group (“PMG”) leased 15 skilled nursing and campus facilities which had a total of 2,145 beds and units, and are located in Louisiana and Texas. During both the three and nine months ended September 30, 2020, PMG represented 16 % of the Company’s rental income, exclusive of operating expense reimbursements. During the three and nine months ended September 30, 2019 PMG represented 22 % and 15 %, respectively, of the Company’s rental income, exclusive of operating expense reimbursements. 12. SUBSEQUENT EVENTS The Company evaluates subsequent events in accordance with ASC 855, Subsequent Events . The Company evaluates subsequent events up until the date the condensed consolidated financial statements are issued. Asset Sale On November 1, 2020, the Company closed on the sale of its remaining owned and operated ILF to a third party for a purchase price of $ 4.5 million. The Company does not expect to record a material gain or loss in connection with the sale. 19 Table of Contents