What changed in this filing

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Item 1. Business

2021-02-10 compared with 2020-02-20 · 209 added, 100 removed, 271 unchanged (53% of the section changed)

CareTrust REIT is a self-administered, publicly-traded REIT engaged in the ownership, acquisition, development and leasing of skilled nursing, seniors housing and other healthcare-related properties.

CareTrust REIT was formed on October 29, 2013 as a wholly owned subsidiary of Ensign with the intent to hold substantially all of Ensign’s real estate business, and became a separate and independent publicly-traded company on June 1, 2014 following the pro rata distribution of the outstanding shares of CareTrust REIT common stock to Ensign’s stockholders (the “Spin-Off”).

As of December 31, 2019 , CareTrust REIT’s real estate portfolio consisted of 216 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”).

Of these properties, 85 are leased to Ensign on a triple-net basis under multiple long-term leases (each, an “Ensign Master Lease” and, collectively, the “Ensign Master Leases”) that have cross default provisions and are all guaranteed by Ensign.

In addition, Ensign provides a guaranty on 11 properties that are leased to The Pennant Group, Inc.

(“Pennant”) on a triple net basis under one long-term lease (the “Pennant Master Lease”).

As of December 31, 2019 , the 85 facilities leased to Ensign had a total of 8,908 beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington, the 11 facilities leased to Pennant had a total of 1,151 beds and units and are located in Arizona, California, Nevada, Texas and Washington and the 120 remaining leased facilities had a total of 11,904 beds and units and are located in California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Louisiana, Maryland, Michigan, Minnesota, Montana, New Mexico, North Carolina, North Dakota, Ohio, Oregon, South Dakota, Texas, Virginia, Washington, West Virginia and Wisconsin.

We also own and operate one ILF which had a total of 168 units and is located in Texas.

As of December 31, 2019 , we also had other real estate investments consisting of one preferred equity investment totaling $3.8 million and two mortgage loans receivable with a carrying value of $29.5 million .

From January 1, 2019 through February 20, 2020 , we acquired eighteen skilled nursing facilities, four multi-service campuses and two assisted living facilities for approximately $352.8 million , which includes capitalized acquisition costs.

As of December 31, 2020, CareTrust REIT’s real estate portfolio consisted of 218 skilled nursing facilities (“SNFs”), multi-service campuses and assisted living facilities (“ALFs”) consisting of 22,466 operational beds and units located in 28 states with the highest concentration of properties by rental income located in California, Texas, Louisiana, Idaho and Arizona.

As of December 31, 2020, we also had other real estate investments consisting of one mezzanine loan receivable with a carrying value of $15.0 million.

From January 1, 2020 through February 10, 2021, we acquired six skilled nursing facilities, one multi-service campus and one assisted living facility for approximately $89.8 million, which includes capitalized acquisition costs.

These acquisitions are expected to generate initial annual cash revenues of approximately $7.6 million and an initial blended yield of approximately 8.5%.

We also made one mezzanine loan with a carrying value of $15.0 million with a fixed interest rate of 12.0%.

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, maintenance and repair costs and capital expenditures, subject to certain exceptions in the case of properties leased to Ensign).

We also extend secured mortgage loans to healthcare operators, secured by healthcare-related properties.

From time to time, we also extend secured mortgage loans to healthcare operators, secured by healthcare-related properties and secured mezzanine loans to healthcare operators, secured by membership interests in healthcare-related properties.

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 additional properties that will be leased to a diverse group of local, regional and national healthcare providers, which may include Ensign and other skilled nursing operators, as well as senior housing operators and related businesses.

We expect to grow our portfolio by pursuing opportunities to acquire additional properties that will be leased to a diverse group of local, regional and national healthcare providers, which may include other skilled nursing operators, as well as seniors 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.

We elected to be taxed as a REIT for U.S.

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According to the American Health Care Association, the nursing home industry was comprised of approximately 15,700 facilities as of December 2016, as compared with over 16,700 facilities as of December 2000.

As of January 29, 2020, the Centers for Medicare & Medicaid Services’ Medicare.gov website reported a total of 15,454 SNFs in the United States.

We expect that the supply/demand imbalance in the skilled nursing industry will increasingly favor skilled nursing and assisted living providers due to the shift of patient care to lower cost settings, an aging population and increasing life expectancies.

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At present, the primary market demographic for skilled nursing services is individuals age 75 and older.

The 2017 U.S.

Census reported that there were over 54 million people in the United States in 2019 over the age of 65.

The 2017 U.S.

Census estimates this group to be one of the fastest growing segments of the United States population, projecting that it will almost double between 2016 and 2060.

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Portfolio Summary

We have a geographically diverse portfolio of properties, consisting of the following types:

We have a geographically diverse portfolio of properties, consisting of the following types as of December 31, 2020:

• Skilled Nursing Facilities.

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Charges for these services are generally paid from a combination of government reimbursement and private sources.

As of December 31, 2019 , our portfolio included 176 SNFs, 18 of which are located on campuses that also have assisted or independent living operations, which we refer to as multi-service campuses.

As of December 31, 2020, our portfolio include d 177 SNFs, 20 of w hich are located on campuses that also have assisted or independent living facilities, which we refer to as multi-service campuses (see below under “Multi-Service Campuses”).

• Assisted Living Facilities .

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ILFs, also known as retirement communities or senior apartments, are not healthcare facilities and are not licensed to provide healthcare services to residents.

The facilities typically consist of entirely self-contained apartments, complete with their own kitchens, baths and individual living spaces, as well as parking for tenant vehicles.

The facilities typically consist of entirely

self contained apartments, complete with their own kitchens, baths and individual living spaces, as well as parking for tenant vehicles.

They are most often rented unfurnished, and generally can be personalized by the tenants, typically an individual or a couple over the age of 55.

These facilities offer various services and amenities such as laundry, housekeeping, dining options/meal plans, exercise and wellness programs, transportation, social, cultural and recreational activities, on site security and emergency response programs .

As of December 31, 2019 , our portfolio of three ILFs included two that are operated by Ensign and one that is operated by us.

Our portfolio of SNFs, ALFs and ILFs is broadly diversified by geographic location throughout the United States, with concentrations in Texas, California, and Louisiana.

As of December 31, 2020, our portfolio included 2 ILFs.

• Multi-Service Campuses.

Multi-service campuses generally include some combination of co-located SNFs, ALFs, ILFs, and/or memory care units all housed at a single location and operated as a continuum of care.

These facilities are often marketed as an opportunity for residents to “age in place,” and tend to attract couples where the individuals may require or benefit from differing levels of care.

As of December 31, 2020, our portfolio included 20 facilities that we classify as multi-service campuses.

Our portfolio of SNFs, ALFs, ILFs and multi-service campuses is broadly diversified by geographic location throughout the United States, with concentrations in California, Texas, Louisiana, Idaho and Arizona based on rental income.

Significant Master Leases

We have leased a significant number of our properties to subsidiaries of Ensign pursuant to the Ensign Master Leases, which consist of eight triple-net leases, each with its own pool of properties, that have varying maturities and diversity in both property type and geography.

We have leased a significant number of our properties to subsidiaries of Ensign on a triple-net basis under eight long-term leases each with its own pool of properties, that have varying maturities and diversity in both property type and geography (each an “Ensign Master Lease” and collectively, the “Ensign Master Leases”).

The Ensign Master Leases provide for initial terms in excess of ten years with staggered expiration dates and no purchase options.

At Ensign’s option, each Ensign Master Lease may be extended for up to three five year renewal terms beyond the initial term and, if elected, the renewal will be effective for all of the leased property then subject to the applicable Ensign Master Lease.

The rent is a fixed component that was initially set near the time of the Spin-Off.

As of December 31, 2019 , the annualized revenues from the Ensign Master Leases were $53.4 million .

The Ensign Master Leases are guaranteed by Ensign.

During the year ended December 31, 2020, the Company acquired four additional facilities leased to subsidiaries of Ensign on a triple-net basis which are not included under the Ensign Master Leases.

As of December 31, 2020, the annualized contractual rental income from the Ensign Master Leases was $53.4 million, or 31%, and annualized contractual rental income from all Ensign leases was $57.2 million, or 33.0%, of total annualized contractual rental income.

Rent is escalated annually in June under the Ensign Master Leases, and in December for the four additional facilities leased to Ensign, by an amount equal to the product of (1) the lesser of the percentage change in the Consumer Price Index (“CPI”) (but not less than zero) or 2.5%, and (2) the prior year’s rent .

The Ensign Master Leases are guaranteed by Ensign and contain cross-default provisions.

The four additional facilities leased to subsidiaries of Ensign are guaranteed by Ensign but do not contain cross-default provisions with the Ensign Master Leases.

On October 1, 2019, Ensign completed its previously announced separation of its home health and hospice operations and substantially all of its senior living operations into a separate independent publicly traded company through the distribution of shares of Pennant common stock (the “Pennant Spin”).

As a result of the Pennant Spin, on October 1, 2019, the Company amended the Ensign Master Leases to lease 85 facilities to subsidiaries of Ensign, which have a total of 8,908 operational beds, and entered into the Pennant Master Lease to lease 11 facilities, which have a total of 1,151 operational beds.

The contractual initial annual cash rent under the Pennant Master Lease is approximately $7.8 million.

As a result of the Pennant Spin, on October 1, 2019, the Company amended the Ensign Master Leases to reduce the number of facilities covered by the Ensign Master Leases and entered into one long-term triple-net lease (the “Pennant Master Lease”) to lease those facilities to Pennant.

The contractual initial annual cash rent under the Pennant Master Lease was approximately $7.8 million.

The Pennant Master Lease carries an initial term of 15 years, with two five-year renewal options and CPI-based rent escalators.

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If Pennant achieves a specified portfolio coverage ratio and continuously maintains it for a specified period, Ensign’s obligations under the guaranty with respect to the Pennant facilities would be released.

As of December 31, 2019 Ensign and Pennant represented 32% and 5% , respectively, of the Company’s contractual rental income, exclusive of operating expense reimbursements, on an annualized run-rate basis.

As of December 31, 2020, the Company leased 89 facilities to subsidiaries of Ensign, which have a total of 9,546 operational beds and 11 facilities to Pennant, which have a total of 1,193 operational beds and Ensign and Pennant represented 33% and 5%, respectively, of the Company’s contractual rental income, exclusive of operating expense reimbursements, on an annualized run-rate basis.

As of December 31, 2020, 15 of our properties were leased to subsidiaries of Priority Management Group (“PMG”) on a triple-net basis under one long-term lease (the “PMG Master Lease”), and have a total of 2,145 operational beds.

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There can be no assurance that Ensign has sufficient assets, income and access to financing to enable it to satisfy its obligations under the Ensign Master Leases or its guaranty of the Pennant Master Lease, and any inability or unwillingness on its part to do so would have a material adverse effect on our business, financial condition, results of operations and liquidity, on our ability to service our indebtedness and other obligations and on our ability to pay dividends to our stockholders, as required for us to qualify, and maintain our status, as a REIT.

We also cannot assure you that Ensign will elect to renew the Ensign Master Leases with us upon expiration of the initial base terms or any renewal terms thereof or, if such leases are not renewed, that we can reposition the affected properties on the same or better terms.

See “Risk Factors - Risks Related to Our Business - We are dependent on Ensign and other healthcare operators to make payments to us under leases, and an event that materially and adversely affects their business, financial position or results of operations could materially and adversely affect our business, financial position or results of operations.”

We also cannot assure you that Ensign will elect to renew the Ensign Master Leases

with us upon expiration of the initial base terms or any renewal terms thereof or, if such leases are not renewed, that we can reposition the affected properties on the same or better terms.

See “Risk Factors - Risks Related to Our Business - We are dependent on the healthcare operators that lease our properties to successfully operate their business and make contractual lease payments, and an event that materially and adversely affects their business, financial position or results of operations could materially and adversely affect our business, financial position or results of operations.”

We monitor the creditworthiness of our tenants by evaluating the ability of the tenants to meet their lease obligations to us based on the tenants’ financial performance, including the evaluation of any guarantees of tenant lease obligations.

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These metrics help us identify potential areas of concern relative to our tenants’ credit quality and ultimately the tenants’ ability to generate sufficient liquidity to meet their ongoing obligations, including their obligations to continue paying contractual rents due to us and satisfying other financial obligations to third parties, as prescribed by our triple-net leases.

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 periodically monitor the overall financial and operating strength of our operators.

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 operators may include operators 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 operators 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 operator 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.

Properties by Type:

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The number of beds or units that are operational may be less than the official licensed capacity.

Multi-Service Campuses

ALFs and ILFs (1)

(1) ALFs and ILFs include ALFs or ILFs, or a combination of the two, operated by our tenants and one ILF operated by us.

Total SNFs Multi-Service Campuses ALFs and ILFs

State Properties Beds/Units

TX 41 5,207 35 4,426 3 539 3 242

CA 34 3,965 25 2,806 4 710 5 449

ID 17 1,457 16 1,388 1 69 — —

IA 15 984 13 815 2 169 — —

OH 13 1,284 9 734 4 550 — —

UT 13 1,392 9 913 1 330 3 149

WA 12 1,082 11 980 — — 1 102

AZ 11 1,352 8 986 — — 3 366

IL 8 772 7 644 1 128 — —

LA 8 1,164 7 949 1 215 — —

CO 7 785 5 522 — — 2 263

NE 5 366 3 220 2 146 — —

VA 5 279 — — — — 5 279

FL 4 404 — — — — 4 404

MI 4 189 — — — — 4 189

MT 3 260 3 260 — — — —

NV 3 304 1 92 — — 2 212

WI 3 206 — — — — 3 206

MN 2 62 — — — — 2 62

NC 2 100 — — — — 2 100

GA 1 105 1 105 — — — —

IN 1 162 — — — — 1 162

MD 1 120 — — — — 1 120

ND 1 110 1 110 — — — —

NM 1 136 1 136 — — — —

OR 1 53 1 53 — — — —

SD 1 99 1 99 — — — —

WV 1 67 — — 1 67 — —

Total 218 22,466 157 16,238 20 2,923 41 3,305

Occupancy by Property Type:

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Facilities Leased to Tenants:

SNFs 75 % 78 %

Multi-Service Campuses 73 % 76 %

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Facilities Operated by CareTrust REIT:

ILFs 91 % 89 %

(1) Occupancy data derived solely from information provided by our tenants without independent verification by us.

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(2) As of December 31, 2019, we owned and operated one ILF.

Occupancy data for the year ended December 31, 2019 includes the one ILF owned and operated.

Occupancy data for the year ended December 31, 2018 includes the three ILFs owned and operated.

Occupancy data for the year ended December 31, 2020 and December 31, 2019 includes the one ILF owned and operated.

We sold the one remaining ILF during the three months ended December 31, 2020.

Property Type - Rental Income:

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For the Year Ended December 31, 2020

Property Type

Rental Income

(in thousands)

Property Type Rental Income

(in thousands) Percent

SNFs $ 127,200 73 % 16,238

Multi-Service Campuses 21,517 13 % 2,923

ALFs and ILFs 24,895 14 % 3,305

Due to the adoption of the new lease accounting standards updates (the “new lease ASUs”) on January 1, 2019, the assessment of collectibility of our 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.

Tenant receivables written off for leases determined to be not probable of collection are recorded as decreases through rental income on our consolidated income statements.

Additionally, tenant recoveries for real estate taxes are recognized to the extent that we pay the third party directly and classified as rental income on our consolidated income statements.

See Note 2, Summary of Significant Accounting Policies for further details.

Total $ 173,612 100 % 22,466

For the Year Ended December 31, 2019

Property Type

Rental Income

(in thousands)

Property Type Rental Income

(in thousands) Percent

SNFs $ 115,362 74 % 16,262

Multi-Service Campuses 18,109 12 % 2,460

ALFs and ILFs 22,196 14 % 3,241

Total $ 155,667 100 % 21,963

Geographic Concentration - Rental Income:

The following table displays the geographic distribution of annual rental income for properties leased to third-party tenants for the years ended December 31, 2020 and 2019 (in thousands, except percentages).

For the Year Ended December 31, 2019

For the Year Ended December 31, 2018

For the Year Ended December 31, 2020 For the Year Ended December 31, 2019

Rental Income

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Percent of Total

Due to the adoption of the new lease ASUs on January 1, 2019, the assessment of collectibility of our 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.

Tenant receivables written off for leases determined to be not probable of collection are recorded as decreases through rental income on our consolidated income statements.

Additionally, tenant recoveries for real estate taxes are recognized to the extent that we pay the third party directly and classified as rental income on our consolidated income statements.

See Note 2, Summary of Significant Accounting Policies for further details.

CA $ 36,853 21 % $ 35,297 23 %

TX 33,276 19 % 32,364 21 %

LA 16,022 9 % 15,880 10 %

ID 13,482 8 % 11,717 8 %

AZ 12,466 7 % 12,461 8 %

OH 9,225 5 % 964 1 %

UT 7,289 4 % 6,740 4 %

MI 5,729 3 % 6,007 4 %

CO 5,561 3 % 5,485 4 %

WA 5,201 3 % 5,145 3 %

IL 4,824 3 % 4,725 3 %

IA 4,672 3 % 2,815 2 %

VA 3,248 2 % 3,171 2 %

WI 2,937 2 % 2,535 2 %

NV 2,092 1 % 2,091 1 %

FL 1,572 1 % 550 — %

NC 1,107 1 % 1,097 1 %

MT 1,079 1 % 550 — %

NM 1,008 1 % 987 1 %

NE 956 1 % 956 1 %

SD 905 1 % 886 1 %

IN 829 1 % 760 — %

GA 810 — % 485 — %

WV 714 — % 384 — %

MD 567 — % 229 — %

ND 442 — % 433 — %

OR 380 — % 376 — %

MN 366 — % 577 — %

Total $ 173,612 100 % $ 155,667 100 %

ILFs Operated by CareTrust REIT:

As of December 31, 2019, we owned and operated one ILF, Lakeland Hills Independent Living, located in Dallas, Texas, with 168 units.

We also previously owned and operated two additional ILFs-The Cottages at Golden Acres, located in Dallas, Texas, with 39 units, and The Apartments at St.

Joseph Villa, located in Salt Lake City, Utah, with 57 units.

During the quarter ended December 31, 2019, we leased one ILF to Ensign concurrently with the Pennant Spin and sold one ILF to a third party, leaving us with one owned and operated ILF.

During the quarter ended December 31, 2020, we sold the one remaining ILF to a third party leaving us with no remaining owned and operated ILFs at December 31, 2020.

Investment and Financing Policies

Our investment objectives are to increase cash flow, provide quarterly cash dividends, maximize the value of our properties and acquire properties with cash flow growth potential.

We intend to invest primarily in SNFs and seniors housing,

including ALFs and ILFs, although we may determine in the future to expand our investments to include medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities.

Our properties are located in 28 states and we intend to continue to acquire properties in other states throughout the United States.

We intend to invest primarily in SNFs and seniors housing, including AL Fs and ILFs, a lthough we may determine in the future to expand our investments to include medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities.

Our properties are located in 28 s tates and we intend to continue to acquire properties in other states throughout the United States.

Although our portfolio currently consists primarily of owned real property, future investments may include first mortgages, mezzanine debt and other securities issued by, or joint ventures with, REITs or other entities that own real estate consistent with our investment objectives.

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Geographically Diverse Property Portfolio.

Our properties are located in 28 different states, with concentrations in Texas, California and Louisiana.

The properties in any one state do not account for more than 21% of our total beds and units as of December 31, 2019 .

Our properties are located in 28 different states, with concentrations in California, Texas, Louisiana, Idaho and Arizona based on rental income.

The properties in any one state do not account for more th an 21% of our total rental income as of December 31, 2020.

We believe this geographic diversification will limit the effect of changes in any one market on our overall performance.

Long-Term, Triple-Net Lease Structure.

All of our properties (except for the one ILF that we own and operate) are leased to our tenants under long-term, triple-net leases, pursuant to which the operators are responsible for all facility maintenance and repair, insurance required in connection with the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

All of our properties are leased to our tenants under long-term, triple-net leases, pursuant to which the operators are responsible for all facility maintenance and repair, insurance required in connection with the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

Financially Secure Primary Tenant.

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Ability to Identify Talented Operators .

We have purchased 130 properties since the Spin-Off through December 31, 2019 and have increased total rental revenue from $41.2 million for the year ended December 31, 2013, the last full fiscal year prior to the Spin-Off, to $155.7 million for the year ended December 31, 2019 , which has resulted in a reduction in Ensign’s share of our rental revenues from 100% for the year ended December 31, 2013 to approximately 38% for the year ended December 31, 2019 , in each case exclusive of operating expense reimbursements and for the year ended December 31, 2019, excluding the properties leased to Pennant pursuant to the Pennant Master Lease that is guaranteed by Ensign.

We have purchase d 138 properties since June 1, 2014, the date we became a separate and independent publicly-traded company, through December 31, 2020 and have increased total rental income from $41.2 million for the year ended December 31, 2013, the last full fiscal year prior to becoming a separate and independent publicly-traded company, to $173.6 million for the year ended December 31, 2020.

We have grown to 22 operators including local, regional and national operators, including Ensign and PMG, which account for 32% and 16% of our total rental income, in each case exclusive of operating expense reimbursements, for the year ended December 31, 2020, respectively.

As a result of our management team’s operating experience and network of relationships and insight, we believe that we are able to identify and pursue working relationships with qualified local, regional and national healthcare providers and seniors housing operators.

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Experienced Management Team.

Stapley, our President and Chief Executive Officer, has extensive experience in the real estate and healthcare industries.

Stapley has more than 30 years of experience in the acquisition, development and disposition of real estate including healthcare facilities and office, retail and industrial properties, including nearly 15 years at Ensign where he was instrumental in assembling the portfolio that we now lease back to Ensign.

Stapley, our Chief Executive Officer, has extensive experience in the real estate and healthcare industries.

Stapley has more than 30 years of experience in the acquisition, development, financing and disposition of real estate including healthcare facilities and office, retail and industrial properties, including nearly 15 years at Ensign where he was a co-founder, and was instrumental in assembling the portfolio that we now lease back to Ensign and Pennant.

Sedgwick, our President and Chief Operating Officer, has more than 20 years of experience in the skilled nursing and seniors housing industry.

Sedgwick served as our Vice President-Operations from 2014 to 2018, as our Chief Operating Officer from 2018 to the present, and was appointed President in February 2021.

Sedgwick’s duties involve him in matters related to new investments, asset management, portfolio management, portfolio optimization, investor relations and capital markets for the Company.

Prior to joining CareTrust, Mr.

Sedgwick served as the Chief Human Capital Officer and President of Corporate Services at Ensign.

Sedgwick has been a licensed nursing home administrator since 2001.

Our Chief Financial Officer, William M.

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Most notably, he worked for both Nationwide Health Properties, Inc., a healthcare REIT, and Sunstone Hotel Investors, Inc., a lodging REIT, serving as Senior Vice President and Chief Accounting Officer of each company prior to joining us as our Chief Financial Officer.

Sedgwick, our Chief Operating Officer, is a licensed nursing home administrator with more than 14 years of experience in skilled nursing operations, including turnaround operations, and trained over 100 Ensign nursing home administrators while he was Ensign’s Chief Human Capital Officer.

Mark Lamb, our Chief Investment Officer, is a licensed nursing home administrator with more than six years serving as administrator of healthcare facilities for Plum Healthcare and North American Healthcare, Inc.

and more than eight years serving in acquisition and portfolio management capacities for various entities.

Our executives have years of public company experience, including experience accessing both debt and equity capital markets to fund growth and maintain a flexible capital structure.

Lamb has served as our Chief Investment Officer since August 2018.

Lamb previously served as our Director of Investments from July 2014 to August 2018, and has been instrumental in building the Company’s portfolio since becoming a public company.

Lamb is a licensed nursing home administrator and, prior to join ing the Company in 2014, served as an administrator at one of Plum Healthcare’s flagship post-acute facilities from 2011 to 2014.

Prior to 2011, Mr.

Lamb served in acquisition and portfolio management capacities for various entities for more than nine years.

Our exe cutives have years of public company experience, including experience accessing both debt and equity capital markets to fund growth and maintain a flexible capital structure.

Flexible UPREIT Structure.

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Conducting business through the Operating Partnership will allow us flexibility in the manner in which we structure the acquisition of properties.

In particular, an UPREIT structure enables us to acquire additional properties from sellers in exchange for limited partnership units, which provides property owners the opportunity to defer the tax consequences that would otherwise arise from a sale of their real properties and other assets to us.

In particular, an UPREIT structure enables us to acquire additional properties from sellers in exchange for limited

partnership units, which provides property owners the opportunity to defer the tax consequences that would otherwise arise from a sale of their real properties and other assets to us.

As a result, this structure allows us to acquire assets in a more efficient manner and may allow us to acquire assets that the owner would otherwise be unwilling to sell because of tax considerations.

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Develop New Tenant Relationships.

We cultivate new relationships with tenants and healthcare providers in order to expand the mix of tenants operating our properties and, in doing so, to reduce our dependence on Ensign.

We cultivate new relationships with tenants and healthcare providers in order to expand the mix of tenants operating our properties.

We expect that this objective will be achieved over time as part of our overall strategy to acquire new properties and further diversify our portfolio of healthcare properties.

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In addition, revenues from our properties are dependent on the ability of our tenants and operators to compete with other healthcare operators.

Healthcare operators compete on a local and regional basis for residents and patients and their ability to successfully attract and retain residents and patients depends on key factors such as the number of facilities in the local market, the types of services available, the quality of care, reputation, age and appearance of each facility and the cost of care in each locality.

the types of services available, the quality of care, reputation, age and appearance of each facility and the cost of care in each locality.

Private, federal and state payment programs and the effect of other laws and regulations may also have a significant impact on the ability of our tenants and operators to compete successfully for residents and patients at the properties.

We employ approximately 52 employees (including our executive officers), none of whom is subject to a collective bargaining agreement.

Sustainability

As a healthcare-focused real estate investment trust, our assets are an integral part of the overall healthcare continuum in the communities that our tenants serve.

We believe that environmental sustainability is an important part of our commitment to helping people live and age well in those communities.

We are working to implement sustainable practices and providing tenant education, support and incentives to avoid or reduce practices in our corporate offices and by our tenants at our net-leased properties that may have negative environmental impacts.

In addition, as a landlord and capital supplier to a key segment of the healthcare industry, we seek opportunities to use our influence to encourage and incentivize fair and healthy work environments for healthcare workers and suitable living conditions for patients and residents, and to promote diversity, inclusion and the ethical treatment of employees, residents, patients and others wherever our activities and influence can be felt.

Human Capital Resources

Supporting our people is a foundational value for us.

We believe our success depends on our ability to attract, develop and retain key personnel.

Our core philosophies and policies in this regard include:

Compensation and Benefits.

The skills, experience and industry knowledge of key employees significantly benefit our performance.

We believe we offer competitive compensation (including salary, incentive bonus and equity) and benefits packages (including a 401(k) plan with a fixed employer contribution and Flexible Spending Accounts (FSAs), among others).

Our compensation program is designed to attract and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our stockholders.

As of December 31, 2020, we employed approximately 15 full-time em ployees (including our executive officers), none of whom is subject to a collective bargaining agreement.

Prior to the COVID-19 pandemic, all of our employees were based out of our corporate office in San Clemente, California, other than three full-time employees who worked remotely.

With the COVID-19 pandemic, we have temporarily closed our corporate office and most of our employees are currently working remotely.

To address the dynamic nature of COVID-19 and remote work, the Company has offered workforce flexibility for all employees.

Retention and Turnover.

Recruiting, hiring, training and retaining excellent employees is a high priority for us.

These activities carry real and substantial costs, which we regard as a meaningful investment in our workforce and our company.

We believe that employee turnover is costly both in direct and indirect ways, and we are committed to employee retention and satisfaction.

During the year ended December 31, 2020, and excluding the ILF that we sold during 2020, we experienced turnover of two full-time employees, neither of whom were executive officers.

Sphere of Influence.

We believe that the creation of an engaging and mutually supportive corporate culture that acknowledges and celebrates the value and contributions of all stakeholders is core to our long-term success.

As an extension of our commitment to the many peop le who contribute to our success, we encourage and incentivize our triple-net tenants through subsidies and other economic incentives to reflect a similar commitment to integrity and corporate responsibility by voluntarily particip ating in our Tenant Code of Conduct and Corporate Responsibility Program (the “Tenant ESG Program”), and particularly by valuing the healthcare workers in their employ who deliver care in our facilities every day.

These principles are reflected in our Policy on Human Capital, our Policy on Human Rights and Responsibilities and our proprietary Tenant ESG Program.

Government Regulation, Licensing and Enforcement

As operators of healthcare facilities, tenants of our healthcare properties are typically subject to extensive and complex federal, state and local healthcare laws and regulations relating to fraud and abuse practices, government reimbursement, licensure and certificate of need and similar laws governing the operation of healthcare facilities, and we expect that the healthcare industry, in general, will continue to face increased regulation and pressure in the areas of fraud, waste and abuse, cost control, healthcare management and provision of services, among others.

As operators of healthcare facilities, tenants of our healthcare properties are typically subject to extensive and complex federal, state and local healthcare laws and regulations relating to fraud and abuse practices, government reimbursement, licensure and certificate of need and similar laws governing the operation of healthcare facilities, and we expect that the healthcare industry, in general, will continue to face significant regulation and pressure in the areas of fraud, waste and abuse, cost control, healthcare management and provision of services, among others.

These regulations are wide-ranging and can subject our tenants to civil, criminal and administrative sanctions.

Affected tenants may find it increasingly difficult and costly to comply with this complex and evolving regulatory environment because of a relative lack of guidance in many areas as certain of our healthcare properties are subject to oversight from several government agencies and the laws may vary from one jurisdiction to another.

Changes in laws and regulations and reimbursement enforcement activity and regulatory non-compliance by our tenants could have a significant effect on their operations and financial condition, which in turn may adversely affect us, as detailed below and set forth under “Risk Factors - Risks Related to Our Business.”

The following is a discussion of certain laws and regulations generally applicable to operators of our healthcare facilities and, in certain cases, to us.

Fraud and Abuse Enforcement

The following is a discussion of certain laws and regulations generally applicable to our tenants (as operators of our healthcare facilities) and, in certain cases, to us.

There are various extremely complex federal and state laws and regulations governing healthcare providers’ relationships and arrangements and prohibiting fraudulent and abusive practices by such providers.

These laws include, but are not limited to, (i) federal and state false claims acts, which, among other things, prohibit providers from filing false claims or making false statements to receive payment from Medicare, Medicaid or other federal or state healthcare programs, (ii) federal and state anti-kickback and fee-splitting statutes, including the Medicare and Medicaid anti-kickback statute, which prohibit the payment or receipt of remuneration to induce referrals or recommendations of healthcare items or services, (iii) federal and state physician self-referral laws (including the federal law commonly referred to as the “Stark Law”), which generally prohibit referrals by physicians to entities with which the physician or an immediate family member has a financial relationship, and (iv) the federal Civil Monetary Penalties Law, which prohibits, among other things, the knowing presentation of a false or fraudulent claim for certain healthcare services.

These laws include, but are not limited to, (i) federal and state false claims acts, which, among other things, prohibit providers from filing false claims or making false statements to receive payment from Medicare, Medicaid or other federal or state healthcare programs, (ii) federal and state anti-kickback and fee-splitting statutes, including the Medicare and Medicaid anti-kickback statute, which prohibit the payment or receipt of remuneration to induce referrals or recommendations of healthcare items or services, (iii) federal and state provider self-referral laws (including the federal law commonly referred to as the “Stark Law”), which generally prohibit referrals by physicians and in some cases other providers to entities with which the physician or an immediate family member has a financial relationship, and (iv) the federal Civil Monetary Penalties Law, which prohibits, among other things, the knowing presentation of a false or fraudulent claim for certain healthcare services.

Violations of healthcare fraud and abuse laws carry civil, criminal and administrative sanctions, including punitive sanctions, monetary penalties, imprisonment, denial of Medicare and Medicaid reimbursement and potential exclusion from Medicare, Medicaid or other federal or state healthcare programs.

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• State and Federal “Fraud and Abuse” Laws and Regulations .

The Medicare and Medicaid anti-fraud and abuse amendments to the Social Security Act (the “Anti-Kickback Law”) make it a felony, subject to certain exceptions, to engage in illegal remuneration arrangements with vendors, physicians and other health care providers for the referral of Medicare beneficiaries or Medicaid recipients.

The Medicare and Medicaid anti-fraud and abuse amendments to the Social Security Act (the “Anti-Kickback Law”) make it a felony, subject to certain exceptions, for any person to engage in illegal remuneration arrangements with vendors, physicians and other health care providers for the referral of Medicare beneficiaries or Medicaid recipients.

When a violation occurs, the government may proceed criminally or civilly.

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Because the regulations describe safe harbors and do not purport to describe comprehensively all lawful and unlawful economic arrangements or other relationships between health care providers and referral sources, health care providers entering into these arrangements or relationships may be required to alter them in order to ensure compliance with the Anti-Kickback Law and may be subject to significant liability should an arrangement that does not fully satisfy a safe harbor be determined to be illegal.

On November 20, 2020, the US Department of Health and Human Services (“HHS”) promulgated significant new Anti-Kickback Law regulations, including changes to existing safe harbors and the creation of new safe harbors, in an effort to reduce regulatory burden and incentivize coordinated care, including value-based arrangements.

The False Claims Act provides that any person who “knowingly presents, or causes to be presented” a “false or fraudulent claim for payment or approval” to the U.S.

government, or its agents and contractors, is liable for a civil penalty ranging from $5,500 to $11,000 per claim, plus three times the amount of damages sustained by the government.

Under the False Claims Act’s so-called “reverse false claims,” liability also could arise for “using” a false record or statement to “conceal,” “avoid” or “decrease” an “obligation” (which can include the retention of an overpayment) “to pay or transmit money or property to the government.” The False Claims Act also empowers and provides incentives to private citizens (commonly referred to as qui tam relator or whistleblower) to file suit on the government’s behalf.

The qui tam relator’s share of the recovery can be between 15% and 25% in cases in which the government intervenes, and 25% to 30% in cases in which the government does not intervene.

Notably, the Affordable Care Act amended certain jurisdictional bars to the False Claims Act, effectively narrowing the “public disclosure bar” (which generally requires that a whistleblower suit not be based on publicly disclosed information) and expanding the “original source” exception (which generally permits a whistleblower suit based on publicly

disclosed information if the whistleblower is the original source of that publicly disclosed information), thus potentially broadening the field of potential whistleblowers.

• Restrictions on Referrals .

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Many designated health services are commonly provided in SNFs and ALFs.

The new regulations promulgated by HHS, discussed above in “State and Federal ‘Fraud and Abuse’ Laws and Regulations” , include significant changes to the Stark Law regulations, including (i) new exceptions designed to enable more value-based arrangements, (ii) a modification to the existing exception for electronic health records items and services, and (iii) new exceptions for limited remuneration to physicians and for cybersecurity technology and related services.

An entity that submits a claim for reimbursement in violation of the Stark Law must refund any amounts collected and may be:

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In addition, a physician or entity that has participated in a “scheme” to circumvent the operation of the Stark Law is subject to a civil penalty of up to $100,000 and possible exclusion from participation in federal health care programs.

CMS established a new voluntary self-disclosure program in 2017 under which health care facilities and other entities may report Stark violations and seek a reduction in potential refund obligations.

However, the program is relatively new and therefore it is difficult to determine at this time whether it will provide significant monetary relief to health care facilities that discover inadvertent Stark Law violations.

Many states have adopted laws similar to the Stark Law.

The scope of those laws vary.

Reimbursement

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Such changes to reimbursement methodologies could have a material impact on our tenants and we cannot provide assurances that the current revenue levels will be maintained under any future reimbursement arrangements.

In addition, the impact of other

health care reform efforts, such as “Medicare for all”, are impossible to predict.

See “Risk Factors - Risks Related to Our Business - The impact of healthcare reform legislation on us and our tenants cannot accurately be predicted.”

In addition, the impact of other health care reform efforts, such as “Medicare for all” or the provision of a new Medicare-like public option for consumers to receive health insurance, are impossible to predict.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”) serves as the primary vehicle for comprehensive healthcare reform in the United States.

Efforts by the Trump administration and certain members of Congress to repeal or make significant changes to the Affordable Care Act, its implementation and/or its interpretation including the successful repeal of the penalty associated with the individual mandate of the Affordable Care Act, continue to cast uncertainty on the future of the Affordable Care Act.

For example, on December 14, 2018, a U.S.

District Court in Texas ruled the Affordable Care Act unconstitutional in its entirety.

This decision was appealed, and on December 18, 2019, the Fifth Circuit Court of Appeals ruled that the Affordable Care Act’s individual mandate was unconstitutional but remanded the case for further analysis.

On November 10, 2020, the Supreme Court of the United States heard oral arguments, but a decision has not yet been issued.

This and other changes may impact the number of individuals that elect to obtain public or private health insurance or the scope of such coverage, if purchased.

Given the change in control of Congress, we anticipate Congress will renew efforts to expand health insurance coverage and to assess alternative health care delivery and payment systems.

Congress may in the future propose and adopt legislation effecting additional fundamental changes in the health care system.

For example, some members of Congress have suggested expanding the coverage of government-funded programs, including single-payor models.

The Biden administration supports building on PPACA to expand health insurance coverage to more citizens, including through the addition of a Medicare-like public option, increasing the value of certain tax credits to lower premiums, and expanding access to Medicaid;

it has not yet publicly supported a single-payor model.

In addition, although the Democratic Party now controls the United States House of Representatives (by a slim majority) and Senate (by virtue of the Vice President casting the tie-breaking vote), legislation would likely require at least some support from both Republican and Democratic lawmakers to become law.

At this time, it is uncertain whether any additional healthcare reform legislation will ultimately become law and we cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on our business.

tenants’ residents do not have insurance, it could adversely impact the tenants’ ability to satisfy their obligations to us.

Expansion of health insurance coverage to more citizens could have a positive financial impact on our tenants’ and their ability to satisfy their obligations to us.

Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted, which also may impact our business.

For instance, CMS is required to measure, track, and publish readmission rates of SNFs and to implement a value-based purchasing program for SNFs (the “SNF VBP Program”).

The SNF VBP Program increases Medicare reimbursement rates for SNFs that achieve certain levels of quality performance measures developed by CMS, relative to other facilities.

The value-based payments authorized by the SNF VBP Program are funded by reducing Medicare payment for all SNFs by 2% and redistributing up to 70% of those funds to high-performing SNFs.

However, there is no assurance that payments made by CMS as a result of the SNF VBP Program will be sufficient to cover a facility’s costs.

If Medicare reimbursement provided to our healthcare tenants is reduced under the SNF VBP Program, that reduction may have an adverse impact on the ability of our tenants to meet their obligations to us.

See “Risk Factors - Risks Related to Our Business - Healthcare reform legislation impacts cannot accurately be predicted and could adversely affect our results of operations” for additional risks related to changes in Medicare reimbursement.

Increased Government Oversight of Skilled Nursing Facilities

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Our healthcare facilities are subject to extensive federal, state and local licensure, certification and inspection laws and regulations.

In addition, various licenses and permits are required to operate SNFs, ALFs, and ILFs, dispense narcotics, operate pharmacies, handle radioactive materials and operate equipment.

In addition, various licenses and permits are required to operate SNFs and ALFs, dispense narcotics, operate pharmacies, handle radioactive materials and operate equipment.

Many states require certain healthcare providers to obtain a certificate of need, which requires prior approval for the construction, modification and closure of certain healthcare facilities.

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The Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) regulates the privacy and security of certain health information (“Protected Health Information”) and requires entities subject to HIPAA to provide notification of breaches of Protected Health Information.

Entities subject to HIPAA include health plans, healthcare clearinghouses, and most health care providers (including some of our tenants).

Entities subject to HIPAA include health plans, healthcare clearinghouses, and most health care providers (including many of our tenants).

Business associates of these entities who create, receive, maintain or transmit Protected Health Information are also subject to HIPAA.

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However, a single breach or incident can result in violations of multiple requirements, resulting in possible penalties well in excess of $1.5 million.

Breaches of unsecured Protected Health Information and other violations of HIPAA may have other material adverse consequences including material loss of business, regulatory enforcement, substantial legal liability and reputational harm.

Breaches of unsecured Protected Health Information and other violations of HIPAA may have other material adverse consequences including material loss of business, business interruption, loss of patient or other critical data, regulatory enforcement, substantial legal liability and reputational harm.

Certain violations of HIPAA can result in criminal penalties and enforcement.

Our Company and our tenants are subject to various other state and federal laws that relate to privacy, security and the reporting of data breaches involving personal information.

For example, various state laws and regulations may require notification of affected individuals in the event of a data breach involving social security numbers, dates of birth and credit card information.

Failure to comply with such requirements could have a materially adverse effect on our Company and the ability of our tenants to meet their obligations to us.

Failure of our tenants to comply with HIPAA could have a material adverse effect on their ability to meet their obligations to us.

Furthermore, the adoption of new privacy, security and data breach notification laws at the federal and state level could require us or our tenants to incur significant compliance costs.

Various other state and federal laws relate to privacy, security and the reporting of data breaches involving personal information (together with HIPAA, “Privacy Laws”).

For example, various state laws and regulations may regulate the privacy and security of personal information, and require notification of affected individuals in the event of a data breach involving such individual’s personal information (including an individual’s name plus social security number, date of birth or credit card information, for example).

Failure of the Company or its tenants to comply with applicable Privacy Laws could have a materially adverse effect on our Company.

Failure of our tenants to comply with applicable Privacy Laws could have a material adverse effect on their ability to meet their obligations to us.

Furthermore, the adoption of new Privacy Laws at the federal and state level could require us or our tenants to incur significant compliance costs.

Americans with Disabilities Act (the “ADA”)

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In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral which, in turn, could reduce our revenues.

See “Risk Factors - Risks Related to Our Business - Environmental compliance costs and liabilities associated with real estate properties owned by us may materially impair the value of those investments.”

See “Risk Factors - General Risk Factors - Environmental compliance costs and liabilities may materially impair the value of properties owned by us.”

REIT Qualification

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business