CareTrust REIT, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-Looking Statements Certain statements in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements regarding: future financing plans, business strategies, growth prospects and operating and financial performance; expectations regarding the making of distributions and the payment of dividends; and compliance with and changes in governmental regulations. Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “may,” “will,” “would,” “could,” “should,” “seek(s)” and similar expressions, or the negative of these terms, are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecasted or expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to: (i) the COVID-19 pandemic and the measures taken to prevent its spread and the related impact on our business or the businesses of our tenants; (ii) the ability and willingness of our tenants to meet and/or perform their obligations under the triple-net leases we have entered into with them, including, without limitation, their respective obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities; (iii) the ability of our tenants to comply with applicable laws, rules and regulations in the operation of the properties we lease to them; (iv) the ability and willingness of our tenants to renew their leases with us upon their expiration, and the ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event we replace an existing tenant, as well as any obligations, including indemnification obligations, we may incur in connection with the replacement of an existing tenant; (v) the availability of and the ability to identify (a) tenants who meet our credit and operating standards, and (b) suitable acquisition opportunities, and the ability to acquire and lease the respective properties to such tenants on favorable terms; (vi) the ability to generate sufficient cash flows to service our outstanding indebtedness; (vii) access to debt and equity capital markets; (viii) fluctuating interest rates; (ix) the ability to retain our key management personnel; (x) the ability to maintain our status as a real estate investment trust (“REIT”); (xi) changes in the U.S. tax law and other state, federal or local laws, whether or not specific to REITs; (xii) other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments; and (xiii) any additional factors included under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019, including in the section entitled “Risk Factors” in Item 1A of Part I of such report, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (the “SEC”). Forward-looking statements speak only as of the date of this report. Except in the normal course of our public disclosure obligations, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any statement is based. Overview CareTrust REIT is a self-administered, publicly-traded REIT engaged in the ownership, acquisition, development and leasing of seniors housing and healthcare-related properties. As of September 30, 2020, we 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 states with the highest concentration of properties by rental revenues located in California, Texas, Louisiana, Idaho and Arizona. As of September 30, 2020, we had 85 facilities leased to The Ensign Group, Inc. (“Ensign”), which had a total of 8,883 operational beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington, and our 129 remaining leased properties had a total of 12,896 operational beds and units and are located in Arizona, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Louisiana, Maryland, Michigan, Minnesota, Montana, Nevada, New Mexico, North Carolina, North Dakota, Ohio, Oregon, South Dakota, Texas, Utah, Virginia, Washington, West Virginia and Wisconsin. As of September 30, 2020, we also owned and operated one independent living facility (“ILF”), which had a total of 168 units and was located in Texas. We sold this ILF subsequent to September 30, 2020. See Note 12, Subsequent Events , for further detail. We generate 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 (including property taxes, insurance, and maintenance and repair costs). We conduct and manage our business as one operating segment for internal reporting and internal decision-making purposes. We expect to grow our portfolio by pursuing opportunities to acquire 20 Table of Contents additional properties that will be leased to a diverse group of local, regional and national healthcare providers, which may include Ensign, as well as senior housing operators and related businesses. We also anticipate diversifying our portfolio over time, including by acquiring properties in different geographic markets, and in different asset classes. In addition, we actively monitor the clinical, regulatory and financial operating results of our tenants, and work to identify opportunities within their operations and markets that could improve their operating results at our facilities. We communicate such observations to our tenants; however, we have no contractual obligation to do so. Moreover, our tenants have sole discretion with respect to the day-to-day operation of the facilities they lease from us, and how and whether to implement any observation we may share with them. We also actively monitor the overall occupancy, skilled mix, and other operating metrics of our tenants on at least a monthly basis including, beginning in the quarter ended June 30, 2020, any stimulus funds received by each tenant. We have replaced tenants in the past, and may elect to replace tenants in the future, if they fail to meet the terms and conditions of their leases with us. The replacement tenants may include tenants with whom we have had no prior landlord-tenant relationship as well as current tenants with whom we are comfortable expanding our relationships. We have also provided select tenants with strategic capital for facility upkeep and modernization, as well as short-term working capital loans when they are awaiting licensure and certification or conducting turnaround work in one or more of our properties, and we may continue to do so in the future. In addition, we periodically reassess the investments we have made and the tenant relationships we have entered into, and have selectively disposed of facilities or investments, or terminated such relationships, and we expect to continue making such reassessments and, where appropriate, taking such actions. Recent Developments COVID-19 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 since 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 implemented 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, our business, results of operations and financial condition may be adversely impacted by the COVID-19 pandemic. Tenants of our properties operating pursuant to triple-net master leases, as well as the single ILF that we owned and operated as of September 30, 2020, have been adversely impacted, and we expect will continue to be adversely impacted, by the COVID-19 pandemic. Our tenants are experiencing increased operating costs as a result of actions they are taking to prevent or mitigate the outbreak or spread of COVID-19 at their facilities, including in connection with their implementation of safety protocols and procedures, the cost of increased purchases of personal protective equipment and increased staffing costs. To assist our tenants, we ordered approximately $1.2 million in personal protective equipment from March 27, 2020 t o September 30, 2020, which has been fully reimbursed as of November 5, 2020, and provided it to our tenants at our volume-discounted cost to enable them to benefit from the cost efficiencies of our bulk order. At a portfolio wide level, occupancy levels at our senior housing facilities have remained relatively stable throughout the COVID-19 pandemic, while occupancy levels at our skilled nursing facilities (“SNFs”) continued to decline during the three months ended September 30, 2020 compared to occupancy levels in the second quarter of 2020, and may continue to decline primarily due to, among other things, (i) state mandated temporary suspensions on new admissions during COVID-19 outbreaks, (ii) with respect to our SNFs, governmental restrictions that required the temporary deferral of elective surgeries in referring hospitals, (iii) with respect to our SNFs, the imposition of strict visitation policies that may deter new patients, and (iv) with respect to our senior housing properties, declines in inquiries and tours, deferred move-ins and increased move-outs due to concerns about possible COVID-19 outbreaks. Beginning in early 2020, the federal government temporarily suspended the three-day hospital stay requirement for a patient’s Medicare benefits to refresh. Providers can now “skill in place,” eliminating the risk of transferring the patient to the hospital. Because of this temporary rule change, skilled mix in some facilities has increased, while overall occupancy has declined. An increase in skilled mix could, but may not necessarily, offset some or all of the adverse financial impact to the operator of the SNF from a decline in occupancy. The higher o perating costs affecting our tenants, and, for some of our SNFs and senior housing facilities, the impact of lower occupancy levels, has adversely impacted and may continue to adversely impact the ability of our tenants to satisfy their rental obligations to us in full or on a timely basis . Two SNF tenants proposed rent deferrals shortly after the pandemic was declared; however, after undergoing a financial and operating performance review, and considering the impact of stimulus funding, both tenants determined that no rent deferral or other assistance was necessary. One senior housing tenant 21 Table of Contents recently proposed partial rent relief, and we are in ongoing discussions with that tenant. W hile we have not seen a need to grant any rent relief to any tenant to date, future adverse changes to tenants’ operating fundamentals, or a reduction in or discontinuation of government support, could change our expectations. Approximatel y 98.7% of our contractual rent obligations due for October have b een collected from our tenants before considering any cash deposits on-hand from which we may offset any shortfalls in rent received. Additionally, our last outstanding mortgage loan receivable was repaid in the third quarter of 2020 . The following relief progra ms enacted by the government have provided and we expect will continue to provide some benefits to our tenants and are subject to terms and conditions, including, but not limited to, attestation, recordkeeping and reporting requirements to Department of Health and Human Services (“HHS”): • The Families First Coronavirus Response Act (“Families First Act”) - Under the Families First Act, a temporary 6.2% increase in Federal Medical Assistance Percentages (“FMAP”) was approved retroactive to January 1, 2020, and several states have directed FMAP funds to SNFs, which has included some of our tenants. • The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) - Under the CARES Act, a substantial amount of our tenants have received, or are expected to receive, assistance from a $100 billion relief fund (such funds, the “Provider Relief Funds”) provided for eligible health care providers, which includes operators of SNFs. Additionally, a Payroll Protection Program was established under the CARES Act to provide Small Business Administration loans to businesses with fewer than 500 employees that may be partially forgivable. The CARES Act also includes a temporary suspension from May 1, 2020 through December 31, 2020 of a 2% Medicare sequestration cut, and a deferral of the employer’s Social Security remittances through December 31, 2020. On October 22, 2020, Health Resources and Services Administration (“HRSA”) released a public notice, supporting the July 20, 2020 notice, informing relief recipients of the timing of future reporting requirements for those recipients that accepted one or more payments exceeding $10,000 in the aggregate. Recipients of relief funds will be required to report their use of funds by submitting healthcare related expenses attributable to COVID-19 that another source has not reimbursed and lost revenues, up to the amount of difference between their 2019 and 2020 actual patient care revenue. Recipients will have until June 30, 2021 to expend relief funds. Any funds received in excess of expenses attributable to COVID-19 and the recipient’s lost revenue, measured as a negative change in year-over-year actual revenue from patient care related sources, will be required to be returned. The estimated federal and state COVID-19-related relief approved, received and retained to date by our operators, as reported by our operators, is $115.0 million. At September 30, 2020, two of our operators who have received COVID-19 relief have disclosed that they have returned, or plan to return, Provider Relief Funds issued to them. In July 2020, the federal government announced that it would send point-of-care testing supplies for COVID-19 to all SNFs in the country. In connection with the initiatives discussed above, the federal government will be requiring that all SNFs in states with a 5% positivity rate or greater test all SNF staff each week. The new testing mandate has resulted in higher operating costs when the amount of tests received does not cover the amount of tests required by each facility. The duration and extent of the COVID-19 pandemic’s effect on our operational and financial performance, and the operational and financial performance of our 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, any resurgences of COVID-19 that may continue to occur, and how quickly and to what extent normal economic and operating conditions can resume. The adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition could be material. See Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q for more information regarding the risks we face as result of the COVID-19 pandemic. Sales of Real Estate On February 14, 2020, we closed on the sale of six skilled nursing facilities formerly operated by affiliates of Metron Integrated Health Systems (“Metron”) . In connection with the sale for $36.0 million, we 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, we recognized a loss of approximately $0.1 million during the three months ended March 31, 2020. In April 2020, the mortgage loan was settled in connection with a new mortgage loan transaction between us and a third-party institutional lender as co-lenders, pursuant to which we received $18.9 million in cash 22 Table of Contents 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 for a combined principal amount of $33.9 million, with our $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. In July 2020, prepayment for the mortgage loan of $13.9 million and accrued interest was received in full by us. On November 1, 2020, we closed on the sale of our remaining owned and operated ILF to a third party for a purchase price of $4.5 million. Recent Investments From January 1, 2020 through November 5, 2020 , we acquired three skilled nursing facilities and one assisted living facility for approximately $42.2 million, which includes capitalized acquisition costs. These acquisitions are expected to generate initial annual cash revenues of approximately $3.8 million and an initial blended yield of approximately 9.0%. See Note 3, Real Estate Investments, Net in the Notes to condensed consolidated financial statements for additional information. Results of Operations Operating Results Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019: Three Months Ended September 30, Increase (Decrease) Percentage Difference 2020 2019 (dollars in thousands) Revenues: Rental income $ 45,036 $ 31,577 $ 13,459 43 % Independent living facilities 634 929 (295) (32) % Interest and other income 17 808 (791) (98) % Expenses: Depreciation and amortization 13,086 13,420 (334) (2) % Interest expense 5,519 7,064 (1,545) (22) % Property taxes 857 1,025 (168) (16) % Independent living facilities 568 806 (238) (30) % Impairment of real estate investments — 16,692 (16,692) (100) % Provision for loan losses — 1,076 (1,076) (100) % General and administrative 4,105 3,502 603 17 % Other income: Gain on sale of real estate — 217 (217) (100) % Rental income . The $13.5 million, or 43%, increase in rental income is primarily due to a $12.1 million adjustment for collectibility of rental income during the three months ended September 30, 2019, a $1.6 million increase in rental income from real estate investments made after July 1, 2019, $1.1 million of lease termination revenue, $1.0 million from the recovery of previously reversed rent, $0.7 million from increases in rental rates for our existing tenants and $0.1 million increase from replacing existing tenants during the prior year, partially offset by a $1.7 million decrease in cash rents due to lease amendments and a $1.4 million decrease in rental income due to the disposal of assets in September 2019 and February 2020. Independent living facilities. The $0.3 million, or 32%, decrease in revenues from our ILFs was primarily due to the sale of one ILF to a third party and the lease of one ILF to Ensign during the fourth quarter ended December 31, 2019, partially offset by an increase in occupancy at our remaining ILF, Lakeland Hills Independent Living. The $0.2 million, or 30%, decrease in expenses was primarily for the same reasons indicated for the decrease in revenues. We sold our last remaining owned and operated ILF subsequent to September 30, 2020. See Note 12, Subsequent Events , for further detail. Interest and other income. The $0.8 million, or 98%, decrease in interest and other income was primarily due to the repayment of mortgage loans receivable by Covenant Care in August 2019, Providence Group in December 2019, Manteca in 23 Table of Contents May 2020 and CommuniCare Family of Companies (“CommuniCare”) in May 2020. See Note 4, Other Real Estate Investments, Net. Depreciation and amortization. The $0.3 million, or 2%, decrease in depreciation and amortization was primarily due to the disposal of assets, partially offset by new real estate investments made after July 1, 2019. Interest expense. The $1.5 million, or 22%, decrease in interest expense was primarily due to lower weighted average interest rates and a lower weighted average debt balance for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. Property taxes. The $0.2 million, or 16%, decrease was primarily due to the disposal of assets, partially offset by changes in operators that do not make direct tax payments. Impairment of real estate investments . On September 1, 2019, we sold three of the seven skilled nursing properties in Ohio operated by Trillium Healthcare Group, LLC (“Trillium”) for a purchase price of $28.0 million. Prior to the disposition, we recorded an impairment expense of approximately $7.8 million during the three months ended September 30, 2019. Additionally, during the three months ended September 30, 2019, we met the criteria to classify six skilled nursing facilities then operated by 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. There was no impairment of real estate investments during the three months ended September 30, 2020. Provision for loan losses. During the three months ended September 30, 2019, we determined the remaining contractual obligations under the bridge loan agreement to Priority Life Care, LLC (“Priority”) were not collectible and recorded a $1.1 million provision for loan losses. There was no provision for loan losses during the three months ended September 30, 2020. General and administrative expense. The $0.6 million, or 17%, increase was primarily related to higher cash wages of $0.6 million compared to the prior period. Gain on sale of real estate . During the three months ended September 30, 2019, we recorded a $0.2 million gain on sale of real estate related to the sale of three skilled nursing properties. There was no gain on sale of real estate during the three months ended September 30, 2020. Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019: Nine Months Ended September 30, Increase (Decrease) Percentage Difference 2020 2019 (dollars in thousands) Revenues: Rental income $ 130,007 $ 114,047 $ 15,960 14 % Independent living facilities 1,874 2,676 (802) (30) % Interest and other income 2,314 2,450 (136) (6) % Expenses: Depreciation and amortization 39,485 38,759 726 2 % Interest expense 18,082 21,209 (3,127) (15) % Property taxes 2,179 2,307 (128) (6) % Independent living facilities 1,660 2,232 (572) (26) % Impairment of real estate investments — 16,692 (16,692) (100) % Provision for loan losses — 1,076 (1,076) (100) % General and administrative 12,921 11,418 1,503 13 % Other (loss) income: (Loss) gain on sale of real estate (56) 217 (273) (126) % Rental income . The $16.0 million, or 14%, increase in rental income is primarily due to a $12.1 million adjustment for collectibility of rental income during the nine months ended September 30, 2019, $11.4 million in rental income from real estate investments made after January 1, 2019, $1.1 million of lease termination revenue, $1.0 million from recovery of 24 Table of Contents previously reversed rent, $0.9 million from increases in rental rates for our existing tenants and a $0.4 million increase in tenant reimbursements, partially offset by a $5.3 million decrease in cash rents due to lease amendments, a $5.1 million decrease in rental income due to the disposal of assets in September 2019 and February 2020 and a $0.5 million decrease from replacing existing tenants during the prior year. Independent living facilities. The $0.8 million, or 30%, decrease in revenues from our ILFs was primarily due to the sale of one ILF to a third party and the lease of one ILF to Ensign during the fourth quarter ended December 31, 2019, partially offset by an increase in occupancy at our remaining ILF, Lakeland Hills Independent Living. The $0.6 million, or 26%, decrease in expenses was primarily for the same reasons indicated for the decrease in revenues. We sold our last remaining owned and operated ILF subsequent to September 30, 2020. See Note 12, Subsequent Events , for further detail. Interest and other income. The $0.1 million, or 6%, decrease in interest and other income was primarily due to the repayment of mortgage loans receivable by Covenant Care in August 2019, Providence Group in December 2019, Manteca in May 2020 and CommuniCare in May 2020, slightly offset by interest income related to our mortgage loans receivable that we provided to Manteca in July 2019, CommuniCare in September 2019 and Cascade in February 2020. See Note 4, Other Real Estate Investments, Net. Depreciation and amortization. The $0.7 million, or 2%, increase in depreciation and amortization was primarily due to new real estate investments made after January 1, 2019, partially offset by the disposal of assets. Interest expense. The $3.1 million, or 15%, decrease in interest expense was primarily due to lower weighted average interest rates and a lower weighted average debt balance for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Property taxes. The $0.1 million, or 6%, decrease was primarily due to the disposal of assets, partially offset by changes in operators that do not make direct tax payments. Impairment of real estate investments. On September 1, 2019, we sold three of the seven skilled nursing properties in Ohio operated by Trillium for a purchase price of $28.0 million. Prior to the disposition, we recorded an impairment expense of approximately $7.8 million during the nine months ended September 30, 2019. Additionally, during the nine months ended September 30, 2019, we met the criteria to classify six skilled nursing facilities then operated by 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. There was no impairment of real estate investments during the nine months ended September 30, 2020. Provision for loan losses. During the nine months ended September 30, 2019, we determined the remaining contractual obligations under the bridge loan agreement to Priority were not collectible and recorded a $1.1 million provision for loan losses. There was no provision for loan losses during the nine months ended September 30, 2020. General and administrative expense. The $1.5 million, or 13%, increase was primarily related to higher cash wages of $1.7 million and an increase of $0.3 million in state franchise tax, partially offset by a decrease of $0.3 million related to stock-based compensation and $0.2 million related to other corporate expenses. (Loss) gain on sale of real estate . During the nine months ended September 30, 2020, we recorded a $0.1 million loss on sale of real estate related to the sale of six skilled nursing facilities. During the nine months ended September 30, 2019, we recorded a $0.2 million gain on sale of real estate related to the sale of three skilled nursing facilities. Liquidity and Capital Resources To qualify as a REIT for federal income tax purposes, we are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, to our stockholders on an annual basis. Accordingly, we intend to make, but are not contractually bound to make, regular quarterly dividends to common stockholders from cash flow from operating activities. All such dividends are at the discretion of our board of directors. As of September 30, 2020, we had cash and cash equivalen ts of $19.1 million. On March 10, 2020, we 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 our 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 25 Table of Contents Program, our “at-the-market” equity offering program pursuant to our prior equity distribution agreement, dated as of March 4, 2019, was terminated (the “Prior ATM Program”). There was no Prior ATM Program or New ATM Program activity for the three and nine months ended September 30, 2020 . As of September 30, 2020, we had $500.0 million available for future issuances under the New ATM Program. As of September 30, 2020, we also had no borrowings outstanding under the Revolving Facility (as defined below), after repaying the outstanding balance of the Revolving Facility during the nine months ended September 30, 2020. We believe that our available cash, expected operating cash flows, and the availability under the New ATM Program and Amended Credit Facility (as defined below) will provide sufficient funds for our operations, anticipated scheduled debt service payments and projected dividend payments for at least the next twelve months. We intend to invest in and/or develop additional healthcare properties as suitable opportunities arise and adequate sources of financing are available. We expect that future investments in and/or development of properties, including any improvements or renovations of current or newly-acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, borrowings available to us under the Amended Credit Facility, future borrowings or the proceeds from sales of shares of our common stock pursuant to our New ATM Program or additional issuances of common stock or other securities. In addition, we may seek financing from U.S. government agencies, including through Fannie Mae and the U.S. Department of Housing and Urban Development, in appropriate circumstances in connection with acquisitions and refinancing of existing mortgage loans. We have filed an automatic shelf registration statement with the U.S. Securities and Exchange Commission that expires in March 2023, which will allow us or certain of our subsidiaries, as applicable, to offer and sell shares of common stock, preferred stock, warrants, rights, units and debt securities through underwriters, dealers or agents or directly to purchasers, in one or more offerings on a continuous or delayed basis, in amounts, at prices and on terms we determine at the time of the offering. Although we are subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incur additional indebtedness for acquisitions or other purposes, if needed. However, there can be no assurance that we will be able to refinance our indebtedness, incur additional indebtedness or access additional sources of capital, such as by issuing common stock or other debt or equity securities, on terms that are acceptable to us or at all. Cash Flows The following table presents selected data from our condensed consolidated statements of cash flows for the periods presented (dollars in thousands): For the Nine Months Ended September 30, 2020 2019 Net cash provided by operating activities $ 108,385 $ 95,158 Net cash provided by (used in) investing activities 22,062 (325,951) 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 Net cash provided by operating activities increased $13.2 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to an increase of rental income due to acquisitions, increase in rental rates for existing tenants subsequent to September 30, 2019 and decrease in interest paid on outstanding indebtedness due to lower weighted average interest rates and a lower weighted average debt balance. Cash provided by investing activities for the nine months ended September 30, 2020 was primarily comprised of $83.2 million of payments received from preferred equity investments and mortgage and other loans receivable and $2.2 million in net proceeds from real estate sales, partially offset by $57.0 million in acquisitions of real estate and investments in real estate mortgage loans and $6.3 million of improvement in real estate and purchases of furniture, fixtures and equipment. C ash used in investing activities for the nine months ended September 30, 2019 was primarily comprised of $ 336.2 million in acquisitions of real estate and investments in real estate mortgage loans and $4.2 million of improvement in real estate and 26 Table of Contents purchases of furniture, fixtures and equipment partially offset by $14.2 million of payments received from preferred equity investments and mortgage and other loans receivable and $0.2 million in net proceeds from real estate sales. Our cash flows used in financing activities for the nine months ended September 30, 2020 were primarily comprised of $69.3 million in dividends paid, a $2.0 million net settlement adjustment on restricted stock, $0.4 million in costs paid for the issuance of common stock and $60.0 million in net repayments under our Amended Credit Facility (as defined below). Our cash flows provided by financing activities for the nine months ended September 30, 2019 were primarily comprised of $ 70 .0 million in net borrowings under our Amended Credit Facility and Prior Credit Facility (as defined below) and $ 196.0 million in net proceeds from common stock sales under our predecessor at-the-market equity offering program and April 2019 equity offering, partially offset by $ 59.2 million in dividends paid, $4. 5 million in payments of deferred financing costs and a $2.5 million net settlement adjustment on restricted stock. Indebtedness 5.25% Senior Unsecured Notes due 2025 and Issuer and Guarantor Financial Information On May 10, 2017, the Issuers completed a public offering of $300.0 million aggregate principal amount of 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, beginning on December 1, 2017. 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 CareTrust REIT 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 Notes, issued by CTR Partnership, L.P. (the “Operating Partnership”), and its wholly owned subsidiary, CareTrust Capital Corp. (together with the Operating Partnership, the “Issuers”), on May 10, 2017 are jointly and severally, fully and unconditionally, guaranteed by CareTrust REIT, Inc., as the parent guarantor (the “Parent Guarantor”), and the wholly owned subsidiaries of the Parent Guarantor other than the Issuers (collectively, the “Subsidiary Guarantors” and, together with the Parent Guarantor, the “Guarantors”), subject to automatic release under certain customary circumstances, including if the Subsidiary Guarantor is sold or sells all or substantially all of its assets, the Subsidiary Guarantor is designated “unrestricted” for covenant purposes under the indenture governing the Notes, the Subsidiary Guarantor’s guarantee of other indebtedness which resulted in the creation of the guarantee of the Notes is terminated or released, or the requirements for legal defeasance or covenant defeasance or to discharge the indenture have been satisfied. In March 2020, the SEC adopted amendments to reduce and si mplify the financial disclosure requirements for guarantors and issuers of guaranteed registered securities. The amendments are effective January 4, 2021, but voluntary compliance with the amendments in advance of January 4, 2021 is permitted. We have elected to comply with these amendments as of January 1, 2020 . As a result, we will no longer include in the financial statement footnotes of our Quarterly and Annual Reports on Form 10-Q and Form 10-K separate condensed consolidating financial information for our wholly owned subsidiaries who issued or guaranteed the Notes. In addition, in accordance with the amendments adopted by the SEC, because the assets, liabilities and results of operations of the combined issuers and guarantors of the Notes are not materially different than the corresponding amounts presented in our condensed consolidated financial statements, we are also not required to present combined summary financial information regarding such subsidiary issuers and guarantors. The following provides information regarding the entity structure of the Parent Guarantor, the Issuers and the Subsidiary Guarantors: CareTrust REIT, Inc. – The Parent Guarantor was formed on October 29, 2013 in connection with the separation of Ensign’s healthcare business and its real estate business into two separate and independently publicly traded companies (the “Spin-Off”). The Parent Guarantor was a wholly owned subsidiary of Ensign prior to the effective date of the Spin-Off on June 1, 2014. The Parent Guarantor has not conducted any operations or had any business since the Spin-Off. CTR Partnership, L.P. and CareTrust Capital Corp. – The Issuers, each of which is a wholly owned subsidiary of the Parent Guarantor, were formed on May 8, 2014 and May 9, 2014, respectively, in anticipation of the Spin-Off and the related transactions. The Issuers did not conduct any operations or have any business prior to the date of the consummation of the Spin-Off related transactions. The Operating Partnership directly invests in real estate and real estate related assets and 27 Table of Contents therefore does not rely solely on the cash flow generated by the Subsidiary Guarantors and their ability to make cash available to the Issuers, by dividend or otherwise. However, in the event that the earnings or available assets of the Issuers are insufficient, the Issuers’ ability to pay principal and interest on the Notes could be dependent on the cash flow generated by the Subsidiary Guarantors and their ability to make such cash available to the Issuers. CareTrust Capital Corp., a co-issuer of the Notes, has no material assets and conducts no operations. Therefore, it has no independent ability to service the interest and principal obligations under the Notes. Subsidiary Guarantors – The Subsidiary Guarantors consist of all of the subsidiaries of the Parent Guarantor other than the Issuers. The Parent Guarantor conducts a substantial portion of its business operations through the Subsidiary Guarantors, which include all of the entities that were wholly owned subsidiaries of Ensign prior to the consummation of the Spin-Off, among others. The indenture contains customary covenants such as limiting the ability of CareTrust REIT and its restricted subsidiaries to: incur or guarantee additional indebtedness; incur or guarantee secured indebtedness; 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 pay dividends or distributions on, or redeem or repurchase, capital stock, including a restriction on the ability of the Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers, subject to certain other exceptions, unless: (i) there is no default or event of default under the indenture; (ii) the Issuers are in compliance with specified limitations on indebtedness under the indenture; and (iii) the payments do not exceed a specified restricted payment basket. Dividends or distributions are also permitted if the Parent Guarantor’s board of directors believes in good faith they are necessary to maintain Parent Guarantor’s REIT status or to avoid any excise tax or income tax imposed on Parent Guarantor, provided there is no default or event of default under the indenture. Further, the Issuers and their restricted subsidiaries are not permitted to create or cause to become effective any encumbrance or restriction on the ability of the Issuers to, among other things, pay dividends or make distributions, pay indebtedness, make loans or advances to the Issuers or their restricted subsidiaries or transfer property or assets to the Issuers or their restricted subsidiaries, other than in connection with certain customary exceptions such as in respect of the indenture or the Amended Credit Facility. The indenture also requires CareTrust REIT 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, we were 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-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. 28 Table of Contents 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 off the credit ratings of the Company’s senior long-term unsecured debt) . As of September 30, 2020, we 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 our so le discretion, 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, we were in compliance with all applicable financial covenants under the Amended Credit Agreement. Obligations and Commitments The following table summarizes our contractual obligations and commitments as of September 30, 2020 (in thousands): Payments Due by Period Total Less than 1 Year 1 Year to Less than 3 Years 3 Years to Less than 5 Years More than 5 years Senior unsecured notes payable (1) $ 378,750 $ 15,750 $ 31,500 $ 331,500 $ — Senior unsecured term loan (2) 217,936 3,353 6,687 6,696 201,200 Unsecured revolving credit facility (3) 2,156 916 1,240 — — Operating leases 3,857 260 390 104 3,103 Total $ 602,699 $ 20,279 $ 39,817 $ 338,300 $ 204,303 (1) Amounts include interest payments of $78.8 million. (2) Amounts include interest payments of $17.9 million. (3) Amounts include payments related to the credit facility fee. 29 Table of Contents Capital Expenditures Capital expenditures for each property leased under our 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 us to finance certain capital expenditures up to an aggregate of 20% of our initial investment in such property, subject to a corresponding rent increase at the time of funding. For our other triple-net master leases, subject to approval by us, 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 our approval and funding of their requests. As of September 30, 2020, we 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 s ubject to rent increase at the time of funding. Critical Accounting Policies and Estimates Our condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q have been prepared in accordance with GAAP for interim financial information set forth in the Accounting Standards Codification, as published by the Financial Accounting Standards Board. GAAP requires us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base these estimates on our experience and assumptions we believe to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements. We periodically reevaluate our estimates and assumptions, and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Please refer to “Critical Accounting Policies and Estimates” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 20, 2020, for further information regarding the critical accounting policies that affect our more significant estimates and judgments used in the preparation of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. There have been no material changes in such critical accounting policies during the nine months ended September 30, 2020.