Risks Related to Our Business
−Removed: We are dependent on the healthcare operators that lease our properties to successfully operate their businesses and make payments to us under their 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
−Removed: All but one of our properties are operated by our tenants pursuant to triple-net master leases.
−Removed: As a result, we are unable to directly implement strategic business decisions with respect to the daily operation and marketing of these properties.
−Removed: While we have various rights as the property owner under our triple-net leases and monitor our tenants’ and operators’ performance, we may have limited recourse under our master leases if we believe that a tenant or operator is not performing adequately and any failure by a tenant to effectively conduct its operations or to maintain and improve our properties could adversely affect its business reputation and its ability to attract and retain residents in our properties, which in turn, could adversely affect their ability to make rental payments to us and otherwise adversely affect our results of operations, including our ability to repay our outstanding indebtedness or our ability to pay dividends to our stockholders as required to maintain our status as a REIT.
−Removed: Additionally, because each master lease is a triple-net lease, we depend on our tenants to pay all insurance, taxes, utilities and maintenance and repair expenses in connection with these leased properties and to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their business.
−Removed: There can be no assurance that our tenants will have sufficient assets, income and access to financing to enable them to satisfy their payment or indemnification obligations under their leases with us.
+Added: We are dependent on the healthcare operators that lease our properties to successfully operate their businesses 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.
+Added: Because all of our properties are operated by our tenants pursuant to triple-net master leases, we are unable to directly implement strategic business decisions regarding the daily operation and marketing of these properties.
+Added: While we have rights as the property owner under our triple-net leases and monitor our tenants’ and operators’ performance, we may have limited recourse under our master leases if we believe that a tenant or operator is not performing adequately and any failure by a tenant to effectively conduct its operations or to maintain and improve our properties could adversely affect its business reputation and its ability to attract and retain residents in our properties, which in turn, could adversely affect their ability to make rental payments to us and otherwise adversely affect our results of operations, including our ability to repay our outstanding indebtedness or our ability to pay dividends to our stockholders as required to maintain our REIT status.
+Added: Additionally, because each master lease is a triple-net lease, we depend on our tenants to pay all insurance, taxes, utilities and maintenance and repair expenses and to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their business.
+Added: There can be no assurance that our tenants will have sufficient assets, income and financing to enable them to satisfy their contractual lease payment or indemnification obligations.
Ensign leases or provides a guaranty for a significant portion of our properties.
−Removed: As of December 31, 2019, properties leased to Ensign under the Ensign Master Leases represented $53.4 million , or 32% , of our rental revenues, exclusive of operating expense reimbursements, on an annualized run-rate basis, and properties leased to Pennant under the Pennant Master Lease for which Ensign provides a guaranty (the “Pennant Guaranty”) represented $7.8 million , or 5% , of our rental revenues, exclusive of operating expense reimbursements, on an annualized run-rate basis.
−Removed: The inability or unwillingness of Ensign to meet its rent obligations under the Ensign Master Leases or the Pennant Guaranty could materially adversely affect our
−Removed: business, financial position or results of operations.
−Removed: In addition, the inability of Ensign to satisfy its other obligations under its leases, such as the payment of insurance, taxes and utilities, could materially and adversely affect the condition of the properties leased to Ensign as well as Ensign’s business, financial position and results of operations.
−Removed: For these reasons, if Ensign were to experience a material and adverse effect on its business, financial position or results of operations, our business, financial position or results of operations could also be materially and adversely affected.
−Removed: Further, due to our dependence on rental payments from Ensign for a substantial portion of our revenues, we may be limited in our ability to enforce our rights under, or to terminate, the Ensign Master Leases or the Pennant Guaranty.
−Removed: Failure by Ensign to comply with the terms of the Ensign Master Leases or the Pennant Guaranty, or to comply with federal and state healthcare laws and regulations to which the leased properties are subject could require us to find another lessee for such leased property and there could be a decrease in or cessation of rental payments.
−Removed: In such event, we may be unable to locate a suitable lessee at similar rental rates or at all, which would have the effect of reducing our rental revenues.
−Removed: The impact of healthcare reform legislation on us and our tenants cannot accurately be predicted and could adversely affect our results of operations.
−Removed: The healthcare operators to whom we lease our properties are dependent on the healthcare industry and may be susceptible to the risks associated with healthcare reform.
−Removed: Because our properties are used as healthcare properties, we are impacted by the risks associated with healthcare reform.
−Removed: Legislative proposals are introduced or proposed each year that would introduce major changes in the healthcare system, either nationally or at the state level.
−Removed: We cannot accurately predict whether any future legislative proposals will be adopted or, if adopted, what effect, if any, these proposals would have on our tenants and, thus, our business.
−Removed: 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.
−Removed: Efforts by the presidential administration and certain members of Congress to repeal or make significant changes to the Affordable Care Act, its implementation and/or its interpretation in 2017, including the successful repeal of the penalty associated with the individual mandate of the Affordable Care Act, effective for 2019, have cast considerable uncertainty on the future of the Affordable Care Act.
−Removed: For example, on December 14, 2018, a U.S.
−Removed: District Court in Texas ruled the Affordable Care Act unconstitutional in its entirety.
−Removed: 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 and it remains on appeal.
−Removed: 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.
−Removed: We anticipate Congress will continue to review and assess alternative health care delivery and payment systems and may in the future propose and adopt legislation effecting additional fundamental changes in the health care system.
−Removed: For example, some members of Congress have suggested expanding the coverage of government-funded programs, including single-payor models.
−Removed: 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.
−Removed: If our tenants’ residents do not have insurance, it could adversely impact the tenants’ ability to satisfy their obligation to us.
−Removed: Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted, which also may impact our business.
−Removed: For instance, on April 1, 2014, President Obama signed the Protecting Access to Medicare Act of 2014, which, among other things, requires the CMS to measure, track, and publish readmission rates of SNFs by 2017 and implement a value-based purchasing program for SNFs (the “SNF VBP Program”), which commenced October 1, 2018.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Additionally, on November 16, 2015, CMS issued the final rule for a new mandatory Comprehensive Care for Joint Replacement (“CJR”) model focusing on coordinated, patient-centered care.
−Removed: Under this model, the hospital in which the hip or knee replacement takes place is accountable for the costs and quality of care from the time of the surgery through 90 days after, or an “episode” of care.
−Removed: This model initially covered 67 geographic areas throughout the country and most hospitals in those regions are required to participate.
−Removed: Following the implementation of the CJR program, the Medicare revenues of our SNF-operating tenants related to lower extremity joint replacement hospital discharges could be increased or decreased in those geographic areas identified by CMS for mandatory participation in the bundled payment program.
−Removed: If Medicare reimbursement provided to our healthcare tenants is reduced under the CJR model, or under any similar model implemented in the future for
−Removed: different types of procedures, that reduction may have an adverse impact on the ability of our tenants to meet their obligations to us.
−Removed: Tenants that fail to comply with the requirements of, or changes to, governmental reimbursement programs, such as Medicare or Medicaid, may cease to operate or be unable to meet their financial and other contractual obligations to us.
−Removed: The healthcare operators to whom we lease our properties are subject to complex federal, state and local laws and regulations relating to governmental healthcare reimbursement programs.
−Removed: See “Business - Government Regulation, Licensing and Enforcement - Overview.” As a result, our tenants are subject to the following risks, among others:
−Removed: statutory and regulatory changes;
−Removed: retroactive rate adjustments;
−Removed: recovery of program overpayments or set-offs;
−Removed: administrative rulings;
−Removed: policy interpretations;
−Removed: payment or other delays by fiscal intermediaries or carriers;
−Removed: government funding restrictions (at a program level or with respect to specific facilities);
−Removed: interruption or delays in payments due to any ongoing governmental investigations and audits.
−Removed: Healthcare reimbursement will likely continue to be a significant focus for federal and state authorities in their efforts to control costs.
−Removed: We cannot make any assessment as to the ultimate timing or the effect that any future legislative reforms may have on our tenants’ costs of doing business and on the amount of reimbursement by government and other third-party payors.
−Removed: More generally, and because of the dynamic nature of the legislative and regulatory environment for health care products and services, and in light of existing federal budgetary concerns, we cannot predict the impact that broad-based, far-reaching legislative or regulatory changes could have on the U.S.
−Removed: economy, our business or that of our operators and tenants.
−Removed: The failure of any of our tenants to comply with these laws, requirements and regulations could materially and adversely affect their ability to meet their financial and contractual obligations to us.
−Removed: Government investigations and enforcement actions brought against the health care industry have increased dramatically over the past several years and are expected to continue, particularly in the area of Medicare/Medicaid false claims, as well as an increase in the intensity of enforcement actions resulting from these investigations.
−Removed: Some of these enforcement actions represent novel legal theories and expansions in the application of the False Claims Act.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Medicare, Medicaid and other governmental health care payors require that extensive financial information be reported on a periodic basis and in a specific format or content.
−Removed: These requirements are numerous, technical and complex and may not be fully understood or implemented by billing or reporting personnel.
−Removed: With respect to certain types of required information, the False Claims Act may be violated by mere negligence or recklessness in the submission of information to the government even without any intent to defraud.
−Removed: New billing systems, new medical procedures and procedures for which there is not clear guidance may all result in liability.
−Removed: In addition, violations of the Anti-Kickback Law or Stark Law may form the basis for a federal False Claims Act violation.
−Removed: See “Business - Government Regulation, Licensing and Enforcement.”
−Removed: Many states have adopted laws similar to the False Claims Act.
−Removed: Some of the laws apply to claims submitted to private and commercial payors, not just governmental payors.
−Removed: Any violations of such laws by an operator of a health care property could result in loss of accreditation, denial of reimbursement, imposition of fines, suspension or decertification from
−Removed: government healthcare programs, civil liability, and in certain limited instances, criminal penalties, loss of license or closure of the property and/or the incurrence of considerable costs arising from an investigation or regulatory action.
−Removed: If we or our tenants fail to adhere to applicable privacy and security laws, or experience a security incident or breach, this could have a material adverse effect on us or on our tenants’ ability to meet their obligations to us .
−Removed: HIPAA regulates the privacy and security of Protected Health Information, and requires entities subject to HIPAA to promptly notify affected individuals, regulators and in some cases the media, of breaches of Protected Health Information.
−Removed: Some of our tenants are subject to HIPAA.
−Removed: Violations of the HIPAA requirements may result in civil monetary penalties of up to $50,000 per violation with a maximum civil penalty of $1.5 million in a calendar year for violations of the same requirement.
−Removed: However, a single breach or incident can result in violations of multiple requirements, resulting in possible penalties well in excess of $1.5 million.
−Removed: Data breaches and other violations of HIPAA may have other material adverse consequences including material loss of business, regulatory enforcement, substantial legal liability and reputational harm.
−Removed: Certain violations of HIPAA can result in criminal penalties and enforcement.
−Removed: Failure of our tenants to comply with HIPAA could have a material adverse effect on their ability to meet their obligations to us.
−Removed: We 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.
−Removed: 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.
−Removed: Failure to comply with these and other requirements could have a materially adverse effect on our company and the ability of our tenants to meet their obligations to us.
−Removed: 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.
−Removed: While we and our tenants maintain various security controls, there remains a risk of security incidents or breaches resulting from unintentional or deliberate acts by third parties or insiders who attempt to obtain unauthorized access to information, destroy or manipulate data, or disrupt or sabotage information systems.
−Removed: A security incident or breach could result in a material loss of business, regulatory enforcement, substantial legal liability and reputational harm.
−Removed: Where the incident or breach affects a tenant, this could jeopardize the tenant’s ability to fulfill its obligations to us.
−Removed: Tenants that fail to comply with federal, state and local licensure, certification and inspection laws and regulations may cease to operate our healthcare facilities or be unable to meet their financial and other contractual obligations to us.
−Removed: The healthcare operators to whom we lease properties are subject to extensive federal, state, local and industry-related licensure, certification and inspection laws, regulations and standards.
−Removed: Our tenants’ failure to comply with any of these laws, regulations or standards could result in penalties which may include loss or restriction of license, loss of accreditation, denial of reimbursement, imposition of fines, suspension or decertification from federal and state healthcare programs, or closure of the facility.
−Removed: Though the regulatory environment in which SNFs operate is more restrictive than for ALFs, ALFs face similar penalties for noncompliance with applicable legal requirements.
−Removed: For example, operations at our properties may require a license, registration, certificate of need, provider agreement or certification.
−Removed: Failure of any tenant to obtain, or the loss or imposition of restrictions on any required license, registration, certificate of need, provider agreement or certification would prevent a facility from operating in the manner intended by such tenant.
−Removed: Additionally, failure of our tenants to generally comply with applicable laws and regulations could adversely affect facilities owned by us, result in adverse publicity and reputational harm, and therefore could materially and adversely affect us.
−Removed: See “Business - Government Regulation, Licensing and Enforcement - Healthcare Licensure and Certificate of Need.”
+Added: As of December 31, 2020, properties leased to Ensign under all Ensign leases represe nted $57.2 million, or 33%, o f our rental income, exclusive of operating expense reimbursements, on an annualized run-rate basis, and properties leased to Pennant under the Pennant Master Lease for which Ensign provides a guaranty (the “Pennant Guaranty”) represented $7.8 million, or 5% , of our rental income, exclusive of operating expense reimbursements, on an annualized run-rate basis.
+Added: Ensign’s inability or unwillingness to meet its lease obligations or its obligations pursuant to the Pennant Guaranty could materially adversely affect our business, financial position or results of operations.
+Added: In addition, Ensign’s inability to satisfy its other lease obligations including payment of insurance, taxes and utilities, could materially and adversely affect the condition of the properties leased to Ensign as well as Ensign’s business, financial position and results of operations.
+Added: Accordingly, if Ensign were to experience a material and adverse effect on its business, financial position or results of operations, our business, financial position or results of operations could also be materially and adversely affected.
+Added: Further, our dependence on Ensign’s rental payments for a substantial portion of our rental income may limit our ability to enforce our rights under the Ensign leases or the Pennant Guaranty or to terminate the Ensign leases.
+Added: Ensign’s failure to comply with its lease obligations or its obligations pursuant to the Pennant Guaranty, or with federal and state healthcare laws and regulations to which the leased properties are subject, could require us to find another lessee for such leased properties and result in a decrease in or cessation of rental payments.
+Added: In such event, we may be unable to locate a suitable lessee at similar rental rates or at all, which would reduce our rental income.
+Added: The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition.
+Added: Long-term care residents are at high risk for infection and severe illness or possible death from COVID-19 due to their advanced age, likelihood of underlying medical conditions, and the group living setting of long-term care facilities.
+Added: To date, there have been significant COVID-19 outbreaks in long-term care facilities all over the world.
+Added: These outbreaks have affected not only the residents, but also the health care providers and visitors to these facilities.
+Added: The COVID-19 pandemic has 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.
+Added: These measures impose restrictions on 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.
+Added: Although some of these restrictions have been lifted or scaled back, resurgences of COVID-19 and the emergence of more readily transmissible variants have resulted in the re-imposition of certain restrictions and may lead to other restrictions being implemented.
+Added: Recently, two COVID-19 vaccines were approved for full use.
+Added: While the supply of COVID-19 vaccine in the United States is currently limited, states have generally prioritized residents of long-term care facilities, health care providers, and, increasingly, people 65 and older to receive the vaccine.
+Added: However, distribution of the vaccine has taken longer than expected due to logistics, lack of resources, scheduling, staffing issues and vaccine resistance, and availability is expected to remain scarce for the next several months, even as newer, more contagious variants of COVID-19 circulate worldwide.
+Added: To meet these challenges, the Biden administration has announced a vaccine offensive plan that calls for greatly expanding access to the vaccine and using the Defense Production Act to expand vaccine production.
+Added: Experts do not know how long immunity lasts after vaccination or exactly what percentage of the population would need to be vaccinated to achieve herd (or population)
+Added: immunity to COVID-19.
+Added: The Biden administration also proposed a $1.9 trillion spending package to combat the economic downturn and the pandemic, including $20 billion for a national vaccine program.
+Added: At this time, it is uncertain whether any such proposal will ultimately become law and we cannot predict the ultimate content, timing or effect of any such legislation or the impact of potential legislation on our business.
+Added: Given the adverse impact the pandemic and pandemic-related restrictions have had, and may continue to have, on the economy generally and the prevalence of outbreaks within long-term care facilities, our business, results of operations and financial condi tion have been adversely impacted, and may in the future be materially adversely impacted, by the COVID-19 pandemic.
+Added: The COVID-19 pandemic and measures to prevent its spread subject us to various risks and uncertainties, some of which have adversely affected our business, and all of which could materially adversely affect our business, results of operations and financial condition, including the following:
+Added: • the inability of our tenants to pay contractual rent in full, on a timely basis or at all due to increases in operating costs incurred by our tenants or declines in occupancy rates at their facilities, which would adversely impact our rental income, and the adverse impact on our rental income if we grant rent deferrals, reductions or other restructurings or accommodations to any of our tenants;
+Added: • the possibility that we may be required to write-off unpaid rental payments, incur lease accounting charges due to the uncollectibility of rental payments and/or accede to unfavorable modifications of lease terms if a tenant is unable to pay contractual rent;
+Added: and/or the possibility that adverse market conditions or declines in the operating performance of our tenants or borrowers may result in asset impairment charges or credit losses on our loans receivable if we determine that the full amount of our investments are not recoverable;
+Added: • the financial deterioration of one or more of our tenants or borrowers (which has, and could continue to result from, among other reasons (i) temporary cessation or limitations on certain medical procedures which in turn results in a reduction in hospital patients and the need for post-acute care services offered by our tenants, (ii) increased operating costs and staffing requirements related to compliance with Centers for Disease Control and Prevention (“CDC”) protocols, (iii) increased scrutiny by regulators of infection control and prevention measures, (iv) potential repayments of relief funds received by tenants as changes in federal guidelines are published and potential false claims act and whistleblower liability for violations of relief fund terms and conditions, (v) nursing or other staffing shortages exacerbated by the pandemic;
+Added: or (vi) decisions by elderly individuals to avoid or delay entrance into assisted living and other long-term care facilities in order to minimize their potential for exposure to COVID-19 in group living situations), which may result in such tenant(s) experiencing insolvency or initiating bankruptcy or similar proceedings which adversely affect our ability to collect rent or interest payments from such tenants and result in increased costs to us ;
+Added: • increased costs or delays that we have incurred, and may continue to incur, if we need to reposition or transition any of our currently-leased properties to another tenant or operator, which have, and may continue to, adversely impact our revenues and results of operations ;
+Added: • risks related to lawsuits and regulatory enforcement actions related to COVID-19 outbreaks involving us, our tenants, operators or borrowers, including increases in the costs of business, negative publicity and/or further decreases in occupancy and/or profitability at our facilities (we note, however, that liability protections provided to health care providers under the PREP Act, as summarized below, may reduce the risk of legal liability for certain actions taken by our operators in connection with the COVID-19 pandemic);
+Added: • deterioration of state and local economic conditions and job losses, which has, and may continue to, decrease demand for and occupancy levels of our properties and cause our rental rates and property values to be negatively impacted;
+Added: • possible complete or partial closures of, or other operational issues at, one or more of our properties resulting from government actions or directives, which may intensify the risk of rent deferrals or non-payment of contractual obligations by our tenants or operators;
+Added: • material increases in COVID-19 related claims and litigation against nursing home and seniors housing operators (whether by residents, employees, contractors, suppliers, etc.) causing their insurance coverage to increase to levels which could negatively impact their financial performance and ability to meet their contractual lease obligations to us;
+Added: • limitations on our access to capital and other sources of funding, which could adversely affect the availability and terms of future borrowings or refinancings or other forms of capital raising, including issuances under our New ATM Program (as defined below), and which could adversely impact our ability to make new property investments;
+Added: • our ability to continue to make cash distributions to our stockholders commensurate with historical levels;
+Added: • our ability to repay outstanding debt or maintain compliance with covenants under our Amended Credit Facility (as defined below) and the indenture governing our Notes.
+Added: The Public Readiness and Emergency Preparedness Act (the “PREP Act”), enacted in 2005, authorizes the HHS Secretary to issue a declaration to provide liability immunity to certain individuals and entities, including health care providers, against any claim of loss caused by, arising out of, relating to, or resulting from the manufacture, distribution, administration or use of medical countermeasures, including a qualified pandemic, except for cases involving willful misconduct.
+Added: The HHS Secretary first declared on January 31, 2020 that a public health emergency exists under the PREP Act in connection with the COVID-19 pandemic, which triggered the PREP Act provisions.
+Added: A declaration lasts until the HHS Secretary declares that the public health emergency no longer exists or upon the expiration of the 90-day period beginning on the date that the HHS Secretary declared a public health emergency exists, whichever occurs first.
+Added: The HHS Secretary has renewed this declaration multiple times, and is currently set to be in force through April 2021.
+Added: The PREP Act is intended to protect health care providers, including many of our tenants, operators or borrowers, from liability for using or administering medical devices or medications that have been sanctioned on some level, even if not formally approved by the United States Food and Drug Administration or CDC.
+Added: The PREP Act is especially important for our tenants that want to offer treatment options to their residents who test positive for COVID-19.
+Added: If courts do not enforce the provisions of the PREP Act to provide liability immunity for certain health care providers, such as nursing home and seniors housing operators, or if the Biden administration scales back or rescinds any previous declarations to invoke the PREP Act, our tenants, operators or borrowers, the financial performance of our tenants, operators or borrowers and ability to meet their contractual obligations to us could be adversely affected.
+Added: 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 th is time, including new information which may emerge concerning the severity of COVID-19 and the current and future variants thereof, actions taken to contain COVID-19, resurgences of COVID-19 that may continue to occur, the efficacy of COVID-19 vaccines and how quickly and to what extent normal economic and operating conditions resume.
+Added: Even after the COVID-19 pandemic has subsided, we may experience adverse impacts to our business, financial condition, results of operations, and prospects as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future.
+Added: The adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition could be material.
Our tenants depend on reimbursement from government and other third-party payors and if reimbursement rates from such payors are reduced by future legislative reform, it could cause our tenants’ revenues to decline and could affect their ability to meet their obligations to us.
3 unchanged sentences
The need to control Medicaid expenditures may be exacerbated by the potential for increased enrollment in Medicaid due to unemployment and declines in family incomes.
−Removed: These potential reductions could be compounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement to our tenants under both the Medicaid and Medicare
+Added: These potential reductions could be compounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement to our tenants under both the Medicaid and Medicare programs.
While we cannot make any assessment as to the ultimate timing or the effect that any future legislative reforms may have on our tenants’ costs of doing business and on the amount of reimbursement by government and other third-party payors, potential reductions in Medicaid and Medicare reimbursement, or in non-governmental third-party payor reimbursement, to our tenants could reduce the revenues of our tenants and their ability to meet their obligations to us.
−Removed: On November 12, 2019, CMS issued CMS-2393-P, its proposed Medicaid Fiscal Accountability Rule (“MFAR”).
−Removed: As proposed, MFAR would further regulate and in some cases materially reform, eliminate or prompt the replacement of certain state Medicaid supplemental payment systems and financing arrangements that currently benefit healthcare providers.
−Removed: These supplemental payment systems take various forms in the states where they are in effect, including for example provider or so-called “bed” tax arrangements, intergovernmental transfers (“IGT”) and upper payment limit (“UPL”) payments.
−Removed: Several of the healthcare operators to whom we lease our properties benefit from these supplemental payment systems.
−Removed: The proposed MFAR is currently in a comment period and may be changed before a final rule is adopted, or may not be adopted at all.
−Removed: If MFAR is adopted in a format that materially reduces available Medicaid reimbursement to our tenants, it could reduce our tenants’ revenues and their ability to meet their obligations to us.
−Removed: The bankruptcy, insolvency or financial deterioration of our tenants could delay or prevent our ability to collect unpaid rents or require us to find new tenants.
+Added: Bankruptcy, insolvency or financial deterioration of our tenants could delay or prevent collection of unpaid rents or require us to find new tenants.
We receive substantially all of our income as rental payments under leases of our properties.
1 unchanged sentence
As a result, our tenants have in the past, and may in the future, fail to make rent payments when due, or our tenants may declare bankruptcy.
−Removed: Any tenant failures to make rent payments when due or tenant bankruptcies could result in the termination of the tenant’s lease and could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders (which could adversely affect our ability to raise capital or service our indebtedness).
−Removed: This risk is magnified in situations where we lease multiple properties to a single tenant, such as Ensign, as a multiple property tenant failure could reduce or eliminate rental revenue from multiple properties.
−Removed: If a tenant is unable to comply with the terms of its lease, we may be forced to write off unpaid amounts due to us from the tenant, move to a cash basis method of accounting for recognizing rental revenues from the tenant or otherwise modify the lease with such tenant in ways that are unfavorable to us.
−Removed: Alternatively, the failure of a tenant to perform under a lease could require us to declare a default, repossess the property, find a suitable replacement tenant, hire third-party managers to operate the property or sell the property.
+Added: Tenant bankruptcies or failures to make rent payments when due could result in termination of the tenant’s lease and could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders (which could adversely affect our ability to raise capital or service our indebtedness).
+Added: This risk is magnified where we lease multiple properties to a single tenant, such as Ensign.
+Added: If a tenant is unable to comply with the terms of its lease, we may be forced to write off unpaid amounts due to us from the tenant, move to a cash basis method of accounting for recognizing rental income from the tenant or otherwise modify the tenant’s lease in ways that are unfavorable to us.
+Added: Alternatively, failure of a tenant to perform under a lease could require us to declare a default, repossess the property, find a suitable replacement tenant, hire third-party managers to operate the property or
+Added: sell the property.
See Note 2, Summary of Significant Accounting Policies and Note 3, Real Estate Investments, Net for further information.
−Removed: If a tenant is unable to comply with the terms of its lease, there is no assurance that we would be able to lease a property on substantially equivalent or better terms than the prior lease, or at all, find another qualified tenant, successfully reposition the property for other uses or sell the property on terms that are favorable to us.
−Removed: If any lease expires or is terminated, we could be responsible for all of the operating expenses for that property until it is re-leased or sold.
−Removed: If we experience a significant number of un-leased properties, our operating expenses could increase significantly.
−Removed: Any significant increase in our operating costs may have a material adverse effect on our business, financial condition and results of operations, and our ability to make distributions to our stockholders.
If one or more of our tenants files for bankruptcy relief, the U.S.
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It is possible that we may recover substantially less than the full value of any unsecured claims we hold, if any, which may have a material adverse effect on our business, financial condition and results of operations, and our ability to make distributions to our stockholders.
−Removed: Furthermore, dealing with a tenant’s bankruptcy or other default may divert management’s attention and cause us to incur substantial legal and other costs.
−Removed: Additionally, because we lease many of our properties to healthcare providers who provide long-term custodial care to the elderly, evicting operators for failure to pay rent while the property is occupied typically involves specific procedural or regulatory requirements and may not be successful.
−Removed: Even if eviction is possible, we may determine not to do so due to reputational or other risks.
−Removed: If we must replace any of our tenants or operators, we may have difficulty identifying replacements and we may be required to incur substantial renovation costs to make certain that our healthcare properties are suitable for other operators and tenants.
−Removed: If we or our tenants terminate or do not renew the leases for our properties, we would attempt to reposition those properties with another tenant or operator.
+Added: Replacement tenants or operators may be difficult to identify and we may be required to incur substantial renovation costs to make our healthcare properties suitable for such tenants or operators.
+Added: If our tenants terminate or do not renew their leases with us, we would attempt to reposition the properties with another tenant or operator.
Rental payments on such properties could decline or cease altogether while we reposition the properties with a suitable replacement tenant or operator and we may be required to fund certain expenses and obligations (e.g., real estate taxes, debt costs and maintenance expenses) to preserve the value of, and avoid the imposition of liens on, such properties while they are being repositioned.
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The improvements generally required to conform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure and security, are costly and at times tenant-specific.
−Removed: A new or replacement tenant to operate one or more of our healthcare facilities may require different features in a property, depending on that tenant’s particular operations.
+Added: A new or replacement tenant may require different features in a property, depending on that tenant’s particular operations.
If a current tenant is unable to pay rent and vacates a property, we may incur substantial expenditures to modify a property before we are able to secure another tenant.
−Removed: Also, if the property needs to be renovated to accommodate multiple tenants, we may incur substantial expenditures before we are able to release the space.
−Removed: In addition, approvals of local authorities for such modifications and/or renovations may be necessary, resulting in delays in transitioning a facility to a new tenant.
+Added: In addition, approvals of local authorities for any required modifications and/or renovations may be necessary, resulting in delays in transitioning a facility to a new tenant.
These expenditures or renovations and delays could materially and adversely affect our business, financial condition or results of operations.
In addition, we may fail to identify suitable replacements or enter into leases or other arrangements with new tenants or operators on a timely basis or on terms as favorable to us as our current leases, if at all.
−Removed: Once a suitable replacement tenant or operator has taken over operation of a property, it may still take an extended period of time before such property is fully repositioned and value restored, if at all.
+Added: If we experience a significant number of un-leased properties due to the inability to find suitable replacement tenants or successfully reposition the property, our operating expenses could increase significantly.
+Added: Even after a suitable replacement tenant or operator has taken over operation of a property, it may still take an extended period of time before such property is fully repositioned and value restored, if at all.
Any of these results could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to stockholders.
The geographic concentration of some of our facilities could leave us vulnerable to an economic downturn, regulatory changes or acts of nature in those areas.
−Removed: Our properties are located in 28 different states, with our highest concentrations by rental income in California, Texas and Louisiana.
−Removed: The properties in these three states accounted for approximately 18%, 21% and 5%, respectively, of the total beds and units in our portfolio, as of December 31, 2019 and approximately 23% , 21% and 10% , respectively, of our rental income for the year ended December 31, 2019 .
−Removed: As a result of this concentration, the conditions of local economies and real estate markets, including increases in real estate taxes, changes in governmental rules, regulations and reimbursement rates or criteria, changes in demographics, state funding, acts of nature and other factors that may result in a decrease in demand and/or reimbursement for skilled nursing services in these states could have a disproportionately adverse effect on our tenants’ revenue, costs and results of operations, which may affect their ability to meet their obligations to us.
+Added: As a result of the concentration of our properties in California, Texas, Louisiana, Idaho and Arizona as described in “Portfolio Summary” under Item 1 of this Annual Report on Form 10-K, the conditions of local economies and real estate markets, including increases in real estate taxes, changes in governmental rules, regulations and reimbursement rates or criteria, changes in demographics, state funding, acts of nature and other factors that may result in a decrease in demand and/or reimbursement for skilled nursing services in these states could have a disproportionately adverse effect on our tenants’ revenue, costs and results of operations, which may affect their ability to meet their obligations to us.
Our facilities located in Texas and Louisiana are especially susceptible to natural disasters such as hurricanes, tornadoes and flooding, and our facilities located in California are particularly susceptible to natural disasters such as fires, earthquakes and mudslides.
These acts of nature may cause disruption to our tenants, their employees and our facilities, which could have an adverse impact on our tenants’ patients and businesses.
−Removed: In order to provide care for their patients, our tenants are dependent on consistent and reliable delivery of food, pharmaceuticals, utilities and other goods to our facilities, and the availability of employees to provide services at the facilities.
+Added: In order to provide patient care, our tenants are dependent on consistent and reliable delivery of food, pharmaceuticals, utilities and other goods to our facilities, and the availability of employees to provide services at the facilities.
If the delivery of goods or the ability of employees to reach our facilities is interrupted in any material respect due to a natural disaster or other reasons, it would have a significant impact on our facilities and our tenants’ businesses at those facilities.
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In addition, to the extent that significant changes in the climate occur in areas where our properties are located, we may experience extreme weather and changes in precipitation and temperature, all of which may result in physical damage to or a decrease in demand for properties located in these areas or affected by these conditions.
−Removed: Should the impact of climate change be material in nature, including destruction of our properties, or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected.
+Added: Should the impact of climate change be
+Added: material in nature, including destruction of our properties, or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected.
In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties and could also require us to spend more on our new development properties without a corresponding increase in revenue.
−Removed: We pursue acquisitions of additional properties and seek other strategic opportunities in the ordinary course of our business, which may result in the use of a significant amount of management resources or significant costs, and we may not fully realize the potential benefits of such transactions.
−Removed: We regularly review potential transactions in order to maximize stockholder value.
−Removed: We pursue acquisitions of additional properties and seek acquisitions and other strategic opportunities in the ordinary course of our business.
−Removed: Accordingly, we are often engaged in evaluating potential transactions and other strategic alternatives.
−Removed: In addition, from time to time, we engage in discussions that may result in one or more transactions.
−Removed: Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transaction, we may devote a significant amount of our management resources to such a transaction, which could negatively impact our operations.
−Removed: We may incur significant costs in connection with seeking acquisitions or other strategic opportunities regardless of whether the transaction is completed and in combining our operations if such a transaction is completed.
+Added: We pursue property acquisitions and seek strategic opportunities in the ordinary course of our business, which may result in significant usage of management resources or costs, and we may not fully realize the potential benefits of such transactions.
+Added: We regularly review, evaluate, engage in discussions regarding, and pursue acquisitions of properties and seek other strategic opportunities in the ordinary course of business in order to maximize stockholder value.
+Added: We may devote a significant amount of our management resources to, and incur significant costs in connection with, such transactions, which may not result in definitive agreements or the completion of any transaction and, could negatively impact our operations.
In addition, there is no assurance that we will fully realize the potential benefits of any past or future acquisition or strategic transaction.
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Our joint ventures may involve property development, which presents additional risks that could render a development project less profitable or not profitable at all and, under certain circumstances, may prevent completion of development activities once undertaken.
−Removed: We operate in a highly competitive industry and face competition from other REITs, investment companies, private equity and hedge fund investors, sovereign funds, healthcare operators, lenders and other investors, some of whom are significantly larger and have greater resources and lower costs of capital.
−Removed: Increased competition will make it more challenging to identify and successfully capitalize on acquisition opportunities that meet our investment objectives.
If we cannot identify and purchase a sufficient quantity of suitable properties at favorable prices or if we are unable to finance acquisitions on commercially favorable terms, or at all, our business, financial position or results of operations could be materially and adversely affected.
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Additionally, the fact that we must distribute 90% of our REIT taxable income in order to maintain our qualification as a REIT may limit our ability to rely upon rental payments from our leased properties or subsequently acquired properties in order to finance acquisitions.
−Removed: As a result, if debt or equity financing is not available on acceptable terms, further acquisitions might be limited or curtailed.
−Removed: Transactions involving properties we might seek to acquire entail risks associated with real estate investments generally, including that the investment’s performance will fail to meet expectations or that the tenant, operator or manager will underperform.
+Added: As a result, if debt or equity financing is not available on acceptable terms, further acquisitions might be limited.
Increased competition has resulted and may further result in lower net revenues for some of our tenants and may affect their ability to meet their financial and other contractual obligations to us.
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They may encounter increased competition that could limit their ability to maintain or attract residents or expand their businesses or to manage their expenses, either of which could adversely affect their ability to meet their obligations to us, potentially decreasing our revenues, impairing our assets, and/or increasing our collection and dispute costs.
−Removed: In addition, if development of senior housing facilities outpaces demand for those assets in markets in which we are located, those markets may become saturated and our senior housing tenants and operators could experience decreased occupancy, which may affect their ability to meet their financial and other contractual obligations to us.
+Added: In addition, if development of seniors housing facilities outpaces demand for those assets in markets in which we are located, those markets may become saturated and our seniors housing tenants and operators could experience decreased occupancy, which may affect their ability to meet their financial and other contractual obligations to us.
Required regulatory approvals can delay or prohibit transfers of our healthcare properties, which could result in periods in which we are unable to receive rent for such properties.
Our tenants that operate SNFs and other healthcare facilities must be licensed under applicable state law and, depending upon the type of facility, certified or approved as providers under the Medicare and/or Medicaid programs.
−Removed: Prior to the transfer of the operations of such healthcare properties to successor operators, the new operator generally must become licensed under state law and, in certain states, receive change of ownership approvals under certificate of need laws (which provide for a certification that the state has made a determination that a need exists for the beds located on the property) and, if applicable, file for a Medicare and Medicaid change of ownership (commonly referred to as a CHOW).
−Removed: If an existing lease is terminated or expires and a new tenant is found, then any delays in the new tenant receiving regulatory approvals from the applicable federal, state or local government agencies, or the inability to receive such approvals, may prolong the period during which we are unable to collect the applicable rent and the property may experience performance declines.
+Added: Prior to the transfer of the operations of such healthcare properties to successor operators, the new operator generally must become licensed under state law and, in certain states, receive change of ownership approvals under certificate of need laws (which provide for a
+Added: certification that the state has made a determination that a need exists for the beds located on the property) and, if applicable, file for a Medicare and Medicaid change of ownership.
+Added: Upon termination or expiration of existing leases, delays or the failure of the new tenant in receiving regulatory approvals from the applicable federal, state or local government agencies, may prolong the period during which we are unable to collect rent and the property may experience performance declines.
We could also incur substantial additional expenses in connection with any licensing, receivership or change of ownership proceedings.
We may not be able to sell properties when we desire because real estate investments are relatively illiquid, which could materially and adversely affect our business, financial position or results of operations.
−Removed: Real estate investments generally cannot be sold quickly.
−Removed: As a result, we may not be able to vary our portfolio promptly in response to changes in the real estate market.
−Removed: A downturn in the real estate market could materially and adversely affect the value of our properties and our ability to sell such properties for acceptable prices or on other acceptable terms.
+Added: Real estate investments are generally illiquid.
+Added: As a result, we may be unable to vary our portfolio promptly in response to changes in the real estate market.
+Added: A downturn in the real estate market could materially and adversely affect the value of our properties and our ability to sell such properties for acceptable prices or terms.
We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property or portfolio of properties.
These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could materially and adversely affect our business, financial position or results of operations and our ability to pay dividends and make distributions.
−Removed: If we lose our key management personnel, we may not be able to successfully manage our business and achieve our objectives.
−Removed: Our success depends in large part upon the leadership, skill, reputation, business contacts and performance of our executive management team, particularly Gregory K.
−Removed: Stapley and other key employees.
−Removed: If we lose the services of Mr.
−Removed: Stapley or any of our other key employees, we may not be able to successfully manage our business or achieve our business objectives.
We or our tenants may experience uninsured or underinsured losses, which could result in a significant loss of the capital we have invested in a property, decrease anticipated future revenues or cause us to incur unanticipated expenses.
−Removed: Our lease agreements with operators require that the tenant maintain general and professional liability insurance and comprehensive liability and hazard insurance.
−Removed: We maintain customary insurance for the one ILF that we own and operate.
+Added: Our lease agreements require that the tenant maintain general and professional liability insurance and comprehensive liability and hazard insurance.
However, there are certain types of losses (including, but not limited to, losses arising from environmental conditions or of a catastrophic nature, such as earthquakes, wildfires, hurricanes and floods) that may be uninsurable or not economically insurable.
−Removed: In addition, from time to time insurance markets change, with carriers entering or exiting the general and professional liability, property and casualty, business interruption, employment practices and other lines of insurance for the healthcare industry upon which our tenants rely for protection from the effects of accidents or unanticipated claims, sometimes resulting in premium increases that make procuring customary coverages uneconomical.
−Removed: Insurance coverage may not be sufficient to pay the full current market value or current replacement cost of a loss.
+Added: In addition, insurance coverage may be insufficient to pay the full current market value or replacement cost of any loss.
Inflation, changes in tort liability laws, changes in building codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to protect a tenant in a liability claim or replace a property after such property has been damaged or destroyed.
Under such circumstances, the insurance proceeds received might not be adequate to restore the economic position with respect to such tenant or property.
−Removed: If one of our tenants experiences a material general or professional liability loss that is uninsured or that exceeds policy coverage limits, it may be unable to satisfy its payment obligations to us under its lease with us.
+Added: If one of our tenants experiences a material general or professional liability loss that is uninsured or exceeds policy coverage limits, it may be unable to satisfy its lease payment obligations to us.
If one of our properties experiences a loss that is uninsured or that exceeds policy coverage limits, we could lose the capital invested in the damaged property as well as the anticipated future cash flows from the property.
−Removed: If the damaged property is subject to recourse indebtedness, we could continue to be liable for the indebtedness even if the property is irreparably damaged.
−Removed: In addition, even if damage to our properties is covered by insurance, a disruption of business caused by a casualty event may result in loss of revenue for our tenants or us.
−Removed: Any business interruption insurance may not fully compensate them or us for such loss of revenue.
−Removed: If one of our tenants experiences such a loss, it may be unable to satisfy its payment obligations to us under its lease with us.
−Removed: Environmental compliance costs and liabilities associated with real estate properties owned by us may materially impair the value of those investments.
−Removed: Under various federal, state and local laws, ordinances and regulations, as a current or previous owner of real estate, we may be required to investigate and clean up certain hazardous or toxic substances or petroleum released at a property, and may be held liable to a governmental entity or to third parties for property damage and for investigation and cleanup costs incurred by the third parties in connection with the contamination.
−Removed: In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination.
−Removed: Neither we nor our tenants carry environmental insurance on our properties.
−Removed: Although we generally require our tenants, as operators of our healthcare properties, to indemnify us for environmental liabilities they cause, such liabilities could exceed the financial ability of the tenant to indemnify us or the value of the contaminated property.
−Removed: The presence of contamination or the failure to remediate contamination may materially adversely affect our ability to sell or lease the real estate or to borrow using the real estate as collateral.
−Removed: As the owner of a site, we may also be held liable to third parties for damages and injuries resulting from environmental contamination emanating from the site.
−Removed: Although we will be generally indemnified by our tenants for contamination caused by them, these indemnities may not adequately cover all environmental costs.
−Removed: We may also experience environmental liabilities arising from conditions not known to us.
+Added: In addition, even if damage to our properties is covered by insurance, business disruptions caused by a casualty event may result in lost revenue for our tenants or us for which insurance may not fully compensate them or us for such loss of revenue.
+Added: If one of our tenants experiences such a loss, it may be unable to satisfy its lease payment obligations to us.
The ownership by our chief executive officer, Gregory K.
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These equity interests may create, or appear to create, conflicts of interest when he is faced with decisions that may not benefit or affect CareTrust REIT, Ensign or Pennant in the same manner.
−Removed: We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.
−Removed: We rely on information technology networks and systems, including the internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, and maintaining personal identifying information and tenant and lease data.
−Removed: We purchase some of our information technology from vendors, on whom our systems depend.
−Removed: We rely on commercially available systems, software, tools and monitoring to provide security for the processing, transmission and storage of confidential tenant and customer data, including individually identifiable information relating to financial accounts.
−Removed: Although we have taken steps to protect the security of our information systems, we have, from time to time, experienced threats to our data and systems, including malware and computer virus attacks and it is possible that in the future our safety and security measures will not prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks.
−Removed: In addition, due to the fast pace and unpredictability of cyber threats, long-term implementation plans designed to address cybersecurity risks become obsolete quickly.
−Removed: Security breaches, including physical or electronic break-ins, computer viruses, malware, works, attacks by hackers or foreign governments, disruptions from unauthorized access and tampering (including through social engineering such as phishing attacks), coordinated denial-of-service attacks, impersonation of authorized users and similar breaches, can create system disruptions, shutdowns or result in a loss of company assets or unauthorized disclosure of confidential information.
−Removed: The risk of security breaches has generally increased as the number, intensity and sophistication of attacks and intrusions from around the world have increased.
−Removed: In some cases, it may be difficult to anticipate or immediately detect such incidents and the damage they cause.
−Removed: In addition, our technology infrastructure and information systems are vulnerable to damage or interruption from natural disasters, power loss and telecommunications failures.
−Removed: Any failure to maintain proper function, security and availability of our information systems and the data maintained in those systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Our assets have been subject to impairment charges in the past and may be subject to future impairment charges, which could negatively impact our results of operations.
−Removed: At each reporting period, we evaluate our real estate investments and other assets for impairment indicators whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
−Removed: The judgment regarding the existence of impairment indicators is based on factors such as market conditions, operator performance and legal structure.
−Removed: If we determine that an impairment has occurred, we are required to make an adjustment to the net carrying value of the asset, which could have a material adverse effect on our results of operations in the period in which the write-off occurs.
−Removed: For example, in the three months ended September 30, 2019, we recorded impairment charges of approximately $16.7 million , resulting in a net loss of $10.1 million for the quarter.
−Removed: Such impairment charges may make it more difficult for us to meet the financial ratios in our Amended Credit Agreement and may reduce the borrowing base available to us under our Revolving Facility, which may reduce the amounts of cash we would otherwise have available to pay expenses, service other indebtedness and operate our business.
−Removed: We have now, and may have in the future, exposure to contingent rent escalators, which could hinder our profitability and growth.
−Removed: We receive revenue primarily by leasing our assets under leases that are long-term triple-net leases in which the rental rate is generally fixed with annual rent escalations, subject to certain limitations.
−Removed: Almost all of our leases contain escalators contingent on changes in the Consumer Price Index, subject to maximum fixed percentages.
+Added: We are, and may continue to be, exposed to contingent rent escalators, which could hinder our profitability and growth.
+Added: We derive revenue primarily by leasing our assets under long-term triple-net leases with rental rates that, subject to certain limitations, are generally fixed with annual rent escalations contingent on changes in the Consumer Price Index, subject to maximum fixed percentages.
If the Consumer Price Index does not increase, our revenues may not increase.
In addition, if economic conditions result in significant increases in the Consumer Price Index, but the escalations under our leases are capped, our growth and profitability also may be limited.
+Added: Risks Related to Laws and Regulations
+Added: Healthcare reform legislation impacts cannot accurately be predicted and could adversely affect our results of operations.
+Added: We and the healthcare operators leasing our properties depend on the healthcare industry and are susceptible to risks associated with healthcare reform.
+Added: Legislative proposals are introduced each year that would introduce major changes in the healthcare system, both nationally and at the state level.
+Added: In light of the transfer of power from the Trump administration to the Biden administration, and the change in control of the United States Senate, we believe that efforts may be made to, among other things:
+Added: (i) repeal much of the deregulation and regulatory changes made to the PPACA during the previous
+Added: administration;
+Added: (ii) expand health insurance coverage to more individuals, potentially by enacting legislation creating a single-payor health insurance model;
+Added: and (iii) transition Federal payment programs further in the direction of value based care, but we cannot predict whether or in what form any of these measures will be enacted, or what effect they would have on our business or the businesses of our tenants if enacted.
+Added: Efforts may also be made to reduce the age at which individuals become eligible for Medicare, which could have an adverse impact on our tenants because Medicare sometimes reimburses long term care providers at rates lower than those paid by commercial payors.
+Added: We also believe that additional resources may be dedicated to regulatory enforcement, which could increase our tenants’ costs of doing business and negatively impact their ability to pay their rent obligations to us.
+Added: Additional stimulus funding for state and local governments may have a positive impact on our tenants because it may alleviate some pressures on state and local governments to reduce overall Medicaid expenditures.
+Added: Our tenants are subject to extensive federal, state and local laws and regulations affecting the healthcare industry that include those relating to, among other things, licensure, conduct of operations, ownership of facilities, addition of facilities and equipment, allowable costs, services, prices for services, qualified beneficiaries, quality of care, patient rights and insurance, fraudulent or abusive behavior, and financial and other arrangements that may be entered into by healthcare providers.
+Added: See “Government Regulation, Licensing and Enforcement” in Item 1 of this Annual Report on Form 10-K for more information.
+Added: If our tenants or operators fail to comply with the laws, regulations and other requirements applicable to their businesses and the operation of our properties, they could become ineligible to receive reimbursement from governmental and private third-party payor programs, face bans on admissions of new patients or residents, suffer civil or criminal penalties or be required to make significant operational changes.
+Added: Changes in enforcement policies by federal and state governments have also resulted in a significant increase in inspection rates, citations of regulatory deficiencies and sanctions, including terminations from Medicare and Medicaid programs, bars on Medicare and Medicaid payments for new admissions, civil monetary penalties and criminal penalties.
+Added: Our tenants and operators could be forced to expend considerable resources responding to an investigation, lawsuit or other enforcement action under applicable laws or regulations.
+Added: Additionally, if our tenants’ residents do not have insurance, it could adversely impact the tenants’ ability to satisfy their obligation to us.
+Added: We cannot predict whether any future legislative proposals will be adopted or, if adopted, the impact these proposals would have on our tenants or our business.
+Added: Tenants that fail to comply with applicable requirements of governmental reimbursement programs, such as Medicare or Medicaid, may cease to operate or be unable to meet their financial and other contractual obligations to us.
+Added: Our tenants are subject to the following risks, among others, relating to governmental healthcare reimbursement programs:
+Added: statutory and regulatory changes;
+Added: retroactive rate adjustments;
+Added: recovery of program overpayments or set-offs;
+Added: administrative rulings;
+Added: policy interpretations;
+Added: payment or other delays by fiscal intermediaries or carriers;
+Added: government funding restrictions (at a program level or with respect to specific facilities);
+Added: and interruption or delays in payments due to any ongoing governmental investigations and audits.
+Added: We expect healthcare reimbursement will continue to be a significant focus for federal and state authorities in their cost control efforts.
+Added: We cannot predict the timing or effects of any future legislative reforms on our tenants’ business costs or government and other third-party payor reimbursement.
+Added: More generally, because of the dynamic nature of the legislative and regulatory environment for health care products and services, and in light of existing federal budgetary concerns, we cannot predict the impact that broad-based, far-reaching legislative or regulatory changes could have on the U.S.
+Added: economy, our business or that of our operators and tenants.
+Added: The failure of any of our tenants to comply with these laws, requirements and regulations could materially and adversely affect their ability to meet their financial and contractual obligations to us.
+Added: Government investigations and enforcement actions brought against the health care industry have increased dramatically over the past several years and are expected to continue, particularly in the area of Medicare/Medicaid false claims, as well as an increase in the intensity of enforcement actions resulting from these investigations.
+Added: Some of these enforcement actions represent novel legal theories and expansions in the application of the False Claims Act.
+Added: Medicare, Medicaid and other governmental health care payors require reporting of extensive financial information in a specific format or content.
+Added: These requirements are technical and complex and may not be properly implemented by billing or reporting personnel.
+Added: For certain required information, False Claims Act violations may occur without any intent to defraud by mere negligence or recklessness in information submission to the government.
+Added: New billing systems, medical procedures and procedures for which there is not clear guidance may all result in liability.
+Added: In addition, violations of the Anti-Kickback Law or Stark Law and, for provider tenants who received pandemic relief funds, the failure to comply with terms and conditions related to receipt or repayment of those funds, may form the basis for a federal False Claims Act violation.
+Added: See “Government Regulation, Licensing and Enforcement,” in Item 1 of this Annual Report on Form 10-K for more information.
+Added: Many states have adopted laws similar to the False Claims Act, some of which apply to claims submitted to private and commercial payors, not just governmental payors.
+Added: Violations of such laws by an operator of a health care property could result in loss of accreditation, denial of reimbursement, imposition of fines, suspension or decertification from government healthcare programs, civil liability, and in certain limited instances, criminal penalties, loss of license or closure of the property and/or the incurrence of considerable costs arising from an investigation or regulatory action.
+Added: If we or our tenants fail to adhere to applicable privacy and security laws, or experience a security incident or breach, this could have a material adverse effect on us or on our tenants’ ability to meet their obligations to us .
+Added: We and our tenants are subject to HIPAA and various other state and federal laws that relate to privacy, security and the reporting of data breaches involving personal information as discussed in “Government Regulation, Licensing and Enforcement - Privacy, Security and Data Breach Notification Laws” in Item 1 of this Annual Report on Form 10-K.
+Added: Failure to comply with these requirements could have a materially adverse effect on us and the ability of our tenants to meet their obligations to us.
+Added: 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.
+Added: While we and our tenants maintain various security controls, there is a risk of security incidents or breaches resulting from unintentional or deliberate acts by third parties or insiders attempting to obtain unauthorized access to information, destroy or manipulate data, or disrupt or sabotage information systems.
+Added: The trend toward increased remote work and rapid implementation of telehealth within the health care industry in response to the pandemic may have created new or increased cyber risks.
+Added: Cyber-attacks range from individual attempts to gain unauthorized access to our IT systems to sophisticated attacks by hacking groups and some nation-state actors.
+Added: Information technology systems are a vital part of the business of our Company and our tenants, and a security incident or breach could result in a material loss of business, business interruption, loss of patient or other critical data, regulatory enforcement, substantial legal liability and reputational harm.
+Added: Despite the deployment of commercially reasonable efforts and sophisticated techniques to prevent cyber-attacks, information systems remain potentially vulnerable because the techniques used by hackers continue to evolve and may not be identified until launched against a target, and may be designed not to be detected.
+Added: In fact, some cyber-attacks may not be detected for an extended period of time.
+Added: As a result, we or our tenants may be unsuccessful in implementing successful cybersecurity protections.
+Added: A successful cyber-attack, security incident or breach occurring at or involving the Company could have a material adverse impact on our Company.
+Added: Where the cyber-attack, incident or breach occurs at or involves a tenant, this could jeopardize the tenant’s ability to fulfill its obligations to us.
+Added: Tenants that fail to comply with federal, state and local licensure, certification and inspection laws and regulations may cease to operate our healthcare facilities or be unable to meet their financial and other contractual obligations to us.
+Added: The healthcare operators to whom we lease properties are subject to extensive federal, state, local and industry-related licensure, certification and inspection laws, regulations and standards.
+Added: Our tenants’ failure to comply with any of these laws, regulations or standards could result in penalties which may include loss or restriction of license, loss of accreditation, denial of reimbursement, imposition of fines, suspension or decertification from federal and state healthcare programs, or closure of the facility.
+Added: Though the regulatory environment in which SNFs operate is more restrictive than for ALFs, ALFs face similar penalties for noncompliance with applicable legal requirements.
+Added: For example, operations at our properties may require a license, registration, certificate of need, provider agreement or certification.
+Added: Failure of any tenant to obtain, or the loss or imposition of restrictions on any required license, registration, certificate of need, provider agreement or certification would prevent a facility from operating in the manner intended by such tenant.
+Added: Additionally, failure of our tenants to generally comply with applicable laws and regulations could adversely affect facilities owned by us, result in adverse publicity and reputational harm, and therefore could materially and adversely affect us.
+Added: See “Government Regulation, Licensing and Enforcement - Healthcare Licensure and Certificate of Need” in Item 1 of this Annual Report on Form 10-K for additional information.
+Added: Environmental compliance costs and liabilities may materially impair the value of properties owned by us.
+Added: Under various federal, state and local laws, ordinances and regulations, as a current or previous owner of real estate, we may be required to investigate and clean up certain hazardous or toxic substances or petroleum released at a property, and may be held liable to a governmental entity or to third parties for property damage and for investigation and cleanup costs incurred by the third parties in connection with the contamination.
+Added: In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination.
+Added: Neither we nor our tenants carry environmental insurance on our properties.
+Added: Contamination or the failure to remediate contamination may materially adversely affect our ability to sell or lease the real estate or to borrow using the real estate as collateral.
+Added: As the owner of a site, we may also be held liable to third parties for damages and injuries resulting from environmental contamination emanating from the site.
+Added: Although we generally require our tenants, as operators of our healthcare properties, to indemnify us for environmental liabilities they cause, such liabilities could exceed the financial ability of the tenant to indemnify us or the value of the contaminated property.
+Added: We may also experience environmental liabilities arising from conditions not known to us.
Risks Related to Our Status as a REIT
−Removed: If we do not qualify to be taxed as a REIT, or fail to remain qualified as a REIT, we will be subject to U.S.
−Removed: federal income tax as a regular corporation and could face a substantial tax liability, which could adversely affect our ability to raise capital or service our indebtedness.
+Added: If we fail to qualify or remain qualified as a REIT, we will be subject to U.S.
+Added: federal income tax as a regular corporation and could face substantial tax liability, which could adversely affect our ability to raise capital or service our indebtedness.
We currently operate, and intend to continue to operate, in a manner that will allow us to continue to qualify to be taxed as a REIT for U.S.
1 unchanged sentence
We elected to be taxed as a REIT for U.S.
−Removed: federal income tax purposes beginning with our taxable year ended December 31, 2014.
+Added: federal income tax purposes
+Added: beginning with our taxable year ended December 31, 2014.
We received an opinion of our counsel with respect to our qualification as a REIT in connection with the Spin-Off.
5 unchanged sentences
Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals.
−Removed: If we were to fail to qualify to be taxed as a REIT in any taxable year, we would be subject to U.S.
+Added: If we fail to qualify to be taxed as a REIT in any year, we would be subject to U.S.
federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates, and dividends paid to our stockholders would not be deductible by us in computing our taxable income.
−Removed: Any resulting corporate liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which in turn could have an adverse impact on the value of our common stock.
−Removed: Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT, which could adversely affect our financial condition and results of operations.
−Removed: Qualifying as a REIT involves highly technical and complex provisions of the Code.
−Removed: Qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist.
−Removed: Even a technical or inadvertent violation could jeopardize our REIT qualification.
−Removed: Our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis.
−Removed: In addition, our ability to satisfy the requirements to qualify to be taxed as a REIT may depend in part on the actions of third parties over which we have no control or only limited influence.
+Added: Any resulting corporate liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which could have an adverse impact on the value of our common stock.
+Added: Unless we were entitled to relief under cer tain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT, which could adversely affect our financial condition and results of operations.
Legislative or other actions affecting REITs could have a negative effect on us.
5 unchanged sentences
New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify to be taxed as a REIT or the U.S.
−Removed: federal income tax consequences to our investors and us of such qualification.
−Removed: On December 22, 2017, the Tax Cuts and Jobs Act was enacted.
−Removed: The Tax Cuts and Jobs Act makes significant changes to the U.S.
−Removed: federal income tax rules for taxation of individuals and corporations, generally effective for taxable years beginning after December 31, 2017.
−Removed: Most of the changes applicable to individuals are temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026.
−Removed: The Tax Cuts and Jobs Act makes numerous large and small changes to the tax rules that do not affect REITs directly but may affect our stockholders and may indirectly affect us.
−Removed: While the changes in the Tax Cuts and Jobs Act generally appear to be favorable with respect to REITs, the extensive changes to non-REIT provisions in the Code are complex and lack developed administrative guidance.
−Removed: As a result, the impact of certain aspects of these new rules on us and our stockholders is currently unclear.
−Removed: Technical corrections or other amendments to these rules, and administrative guidance interpreting the new rules, may be forthcoming at any time or may be significantly delayed.
+Added: federal income tax consequences to our investors and us of such qual ification.
+Added: For instance, the “Tax Cuts and Jobs Act” (the “Act”) significantly changed the U.S.
+Added: federal income tax laws applicable to businesses and their owners, including REITs and their shareholders.
+Added: Technical corrections or othe r amendments to the Act or administrative guidance interpreting the Act may be forthcoming at any time.
+Added: We cannot predict the long-term effect of the Act or any future law changes on REITs or their shareholders.
+Added: Changes to the U.S.
+Added: federal tax laws and interpretations thereof, whether under the Act or otherwise, could adversely affect an investment in our stock
No prediction can be made regarding whether new legislation or regulation (including new tax measures) will be enacted by legislative bodies or governmental agencies, nor can we predict what consequences would result from this legislation or regulation.
Accordingly, no assurance can be given that the currently anticipated tax treatment of an investment will not be modified by legislative, judicial or administrative changes, possibly with retroactive effect.
−Removed: Prospective stockholders are urged to consult with their tax advisors with respect to the status of the Tax Cuts and Jobs Act and any other regulatory or administrative developments and proposals and their potential effect on investment in our stock.
We could fail to qualify to be taxed as a REIT if income we receive from our tenants is not treated as qualifying income.
1 unchanged sentence
Rents received or accrued by us from our tenants will not be treated as qualifying rent for purposes of these requirements if the leases are not respected as true leases for U.S.
−Removed: federal income tax purposes and are instead treated as service contracts, joint ventures or some other type of arrangement.
+Added: federal income tax purposes and are instead treated as service contracts, joint ventures or arrangement.
If the leases are not respected as true leases for U.S.
9 unchanged sentences
Dividends payable by REITs, however, generally are not eligible for the reduced rates.
−Removed: However, for taxable years beginning after December 31, 2017 and before January 1, 2026, under the recently enacted Tax Cuts and Jobs Act, noncorporate taxpayers may deduct up to 20% of certain qualified business income, including "qualified REIT dividends" (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S.
+Added: However, for taxable years beginning after December 31, 2017 and before January 1, 2026, under the recently enacted Tax Cuts and Jobs Act, noncorporate taxpayers may deduct up to 20% of certain qualified business income, including "qualified REIT dividends" (generally, dividends received by a REIT shareholder that are not
+Added: designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S.
federal income tax rate of 29.6% on such income.
Although these rules do not adversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends, together with the recently reduced corporate tax rate (currently, 21%), could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our stock.
−Removed: Although these rules do not
−Removed: adversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our stock.
+Added: Although these rules do not adversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our stock.
REIT distribution requirements could adversely affect our ability to execute our business plan.
18 unchanged sentences
Complying with REIT requirements may cause us to forgo otherwise attractive acquisition opportunities or liquidate otherwise attractive investments.
−Removed: To qualify to be taxed as a REIT for U.S.
−Removed: federal income tax purposes, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and “real estate assets” (as defined in the Code).
−Removed: The remainder of our investments (other than government securities, qualified real estate assets and securities issued by a TRS) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer.
−Removed: In addition, in general, no more than 5% of the value of our total assets (other than government securities, qualified real estate assets and securities issued by a TRS) can consist of the securities of any one issuer, and no more than 25% (20% for taxable years beginning after December 31, 2017) of the value of our total assets can be represented by securities of one or more TRSs.
−Removed: Further, for taxable years beginning after December 31, 2015, no more than 25% of the value of our total assets may be represented by “nonqualified publicly offered REIT debt instruments” (as defined in the Code).
−Removed: If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.
−Removed: As a result, we may be required to liquidate or forgo otherwise attractive investments.
−Removed: These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
−Removed: In addition to the asset tests set forth above, to qualify to be taxed as a REIT we must continually satisfy tests concerning, among other things, the sources of our income, the amounts we distribute to our stockholders and the ownership of our stock.
−Removed: We may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying as a REIT.
+Added: To qualify as a REIT for U.S.
+Added: federal income tax purposes, we must on an ongoing basis satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our shares of beneficial interest.
+Added: We may be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution.
Thus, compliance with the REIT requirements may hinder our ability to make certain attractive investments.
5 unchanged sentences
As a result of these rules, we may be required to limit our use of advantageous hedging techniques or implement those hedges through a TRS.
−Removed: This could increase the cost of our hedging activities because the TRS may be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear.
+Added: This could increase the cost of our hedging activities because the TRS may be subject to tax on gains or expose us to greater risks associated with changes in interest rates
+Added: than we would otherwise want to bear.
In addition, losses in the TRS will generally not provide any tax benefit, except that such losses could theoretically be carried back or forward against past or future taxable income in the TRS.
−Removed: Even if we qualify to be taxed as a REIT, we could be subject to tax on any unrealized net built-in gains in our assets held before electing to be treated as a REIT.
−Removed: We own appreciated assets that were held by a C corporation and were acquired by us in a transaction in which the adjusted tax basis of the assets in our hands was determined by reference to the adjusted basis of the assets in the hands of the C corporation.
−Removed: If we dispose of any such appreciated assets during the five-year period following our qualification as a REIT, we will be subject to tax at the highest corporate tax rates on any gain from such assets to the extent of the excess of the fair market value of the assets on the date that we became a REIT over the adjusted tax basis of such assets on such date, which are referred to as built-in gains.
−Removed: We would be subject to this tax liability even if we qualify and maintain our status as a REIT.
−Removed: Any recognized built-in gain will retain its character as ordinary income or capital gain and will be taken into account in determining REIT taxable income and our distribution requirement.
−Removed: Any tax on the recognized built-in gain will reduce REIT taxable income.
−Removed: We may choose not to sell in a taxable transaction appreciated assets we might otherwise sell during the period in which the built-in gain tax applies in order to avoid the built-in gain tax.
−Removed: However, there can be no assurances that such a taxable transaction will not occur.
−Removed: If we sell such assets in a taxable transaction, the amount of corporate tax that we will pay will vary depending on the actual amount of net built-in gain or loss present in those assets as of the time we became a REIT.
−Removed: The amount of tax could be significant.
−Removed: Uncertainties relating to CareTrust REIT’s estimate of its “earnings and profits” attributable to C-corporation taxable years may have an adverse effect on our distributable cash flow.
−Removed: In order to qualify as a REIT, a REIT cannot have at the end of any REIT taxable year any undistributed earnings and profits (“E&P”) that are attributable to a C-corporation taxable year.
−Removed: A REIT that has non-REIT accumulated earnings and profits has until the close of its first full tax year as a REIT to distribute such earnings and profits.
−Removed: Failure to meet this requirement would result in CareTrust REIT’s disqualification as a REIT.
−Removed: In connection with the Company’s intention to qualify as a real estate investment trust, on October 17, 2014, the Company’s board of directors declared the Special Dividend to distribute the amount of accumulated E&P allocated to the Company as a result of the Spin-Off.
−Removed: The amount of the Special Dividend was $132.0 million, or approximately $5.88 per common share.
−Removed: It was paid on December 10, 2014, to stockholders of record as of October 31, 2014, in a combination of both cash and stock.
−Removed: The cash portion totaled $33.0 million and the stock portion totaled $99.0 million.
−Removed: The Company issued 8,974,249 shares of common stock in connection with the stock portion of the Special Dividend.
−Removed: The determination of non-REIT earnings and profits is complicated and depends upon facts with respect to which CareTrust REIT may have had less than complete information or the application of the law governing earnings and profits, which is subject to differing interpretations, or both.
−Removed: Consequently, there are substantial uncertainties relating to the estimate of CareTrust REIT’s non-REIT earnings and profits, and we cannot be assured that the earnings and profits distribution requirement has been met.
−Removed: These uncertainties include the possibility that the IRS could upon audit, as discussed above, increase the taxable income of CareTrust REIT, which would increase the non-REIT earnings and profits of CareTrust REIT.
−Removed: There can be no assurances that we have satisfied the requirement.
−Removed: Risks Related to Our Capital Structure
−Removed: We have substantial indebtedness and we have the ability to incur significant additional indebtedness.
−Removed: 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”).
−Removed: The Amended Credit Agreement provides for:
−Removed: (i) an unsecured revolving credit facility (the “New 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) a $200.0 million unsecured term loan credit facility (the “Term Loan” and together with the New Revolving Facility, the “Amended Credit Facility”).
−Removed: As of December 31, 2019 , we had approximately $560.0 million of indebtedness, consisting of $300.0 million representing our 5.25% Senior Notes due 2025 (the “Notes”), $200.0 million under our Term Loan and $60.0 million in borrowings outstanding under the New Revolving Facility.
−Removed: High levels of indebtedness may have the following important consequences to us.
−Removed: For example, it could:
+Added: Risks Related to Our Capital Resources and Indebtedness
+Added: From time to time, we may have substantial indebtedness and we are able to incur significant additional indebtedness.
+Added: As of December 31, 2020, we had approximately $550.0 million of indebtedness, consisting of $300.0 million representing our 5.25% Senior Notes due 2025 (the “Notes”), $200.0 million under our unsecured term loan credit facility (the “Term Loan”) and $50.0 million in borrowings outstanding under our unsecured revolving credit facility (the “New Revolving Facility”).
+Added: High levels of indebtedness could have one or more of the following adverse consequences, among others:
require us to dedicate a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, thereby reducing our cash flow available to fund working capital, dividends, capital expenditures and acquisitions and other general corporate purposes;
require us to maintain certain debt coverage and other financial ratios at specified levels, thereby reducing our financial flexibility;
−Removed: make it more difficult for us to satisfy our financial obligations, including the Notes and borrowings under the Amended Credit Facility;
+Added: make it more difficult for us to satisfy our financial obligations, including the Notes and borrowings under the Amended Credit Facility (as defined below);
increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;
−Removed: expose us to increases in interest rates for our variable rate debt;
limit, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds on favorable terms or at all to expand our business or ease liquidity constraints;
limit our ability to refinance all or a portion of our indebtedness on or before maturity on the same or more favorable terms or at all;
−Removed: limit our flexibility in planning for, or reacting to, changes in our business and our industry;
−Removed: place us at a competitive disadvantage relative to competitors that have less indebtedness;
−Removed: require us to dispose of one or more of our properties at disadvantageous prices in order to service our indebtedness or to raise funds to pay such indebtedness at maturity;
−Removed: result in an event of default if we fail to satisfy our obligations under the Notes or our other debt or fail to comply with the financial and other restrictive covenants contained in the indenture governing the Notes or the Amended Credit Agreement, which event of default could result in all of our debt becoming immediately due and payable and could permit certain of our lenders to foreclose on our assets securing such debt.
−Removed: In addition, the Amended Credit Agreement and the indenture governing the Notes permit us to incur substantial additional debt, including secured debt, subject to our compliance with certain financial covenants set forth in the Amended Credit Agreement and the indenture governing the Notes.
−Removed: See “Risk Factors - Risks Related to Our Capital Structure - Covenants in our debt agreements restrict our activities and could adversely affect our business” for a summary of these covenants.
+Added: and require us to dispose of one or more of our properties at disadvantageous prices in order to service our indebtedness or to raise funds to pay such indebtedness at maturity.
+Added: In addition, failure to satisfy our obligations under the Notes or our other debt or to comply with the financial and other restrictive covenants contained in the indenture governing the Notes or the Amended Credit Agreement (as defined below), could result in an event of default, which could result in all of our debt becoming immediately due and payable and permit certain of our lenders to foreclose on our assets securing such debt.
+Added: Further, our Amended Credit Agreement and the indenture governing the Notes permit us to incur substantial additional debt, including secured debt, subject to our compliance with certain financial covenants set forth in the Amended Credit Agreement and the indenture governing the Notes.
+Added: See “Risk Factors - Risks Related to Our Capital Resources and Indebtedness - Covenants in our debt agreements restrict our activities and could adversely affect our business” for a summary of these covenants.
We may be unable to service our indebtedness.
−Removed: Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our future financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors beyond our control, including the availability of financing in the international banking and capital
+Added: Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our future financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors beyond our control, including the availability of financing in the international banking and capital markets.
Our business may fail to generate sufficient cash flow from operations or future borrowings may be unavailable to us under the Amended Credit Facility or from other sources in an amount sufficient to enable us to service our debt, to refinance our debt or to fund our other liquidity needs.
If we are unable to meet our debt obligations or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt.
−Removed: We may be unable to refinance any of our debt on commercially reasonable terms or at all.
−Removed: If we were unable to make payments or refinance our debt or obtain new financing under these circumstances, we would have to consider other options, such as asset sales, equity issuances and/or negotiations with our lenders to restructure the applicable debt.
−Removed: The Amended Credit Agreement and the indenture governing the Notes restrict, and market or business conditions may limit, our ability to take some or all of these actions.
−Removed: Any restructuring or refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.
−Removed: In addition, the Amended Credit Agreement and the indenture governing the Notes permit us to incur additional debt, including secured debt, subject to the satisfaction of certain conditions.
+Added: We may be unable to refinance such debt on commercially reasonable terms or at all.
+Added: If we were unable to make payments or refinance our debt or obtain new financing under these circumstances, we would have to consider other options, such as asset sales, equity issuances and/or negotiations with our lenders to restructure such debt.
+Added: The Amended Credit Agreement and the indenture governing the Notes restrict, and market or business conditions may limit our ability to take these actions.
+Added: Any debt restructuring or refinancing could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.
We rely on our subsidiaries for our operating funds.
−Removed: We conduct our operations through subsidiaries and depend on our subsidiaries for the funds necessary to operate and repay our debt obligations.
+Added: We conduct our operations through subsidiaries and depend on our subsidiaries for the funds necessary to operate and repay our debt obligations, including funds transfers to us which are necessary to make the payments due under the Notes.
+Added: While all of our subsidiaries are currently guarantors of the Notes, under certain circumstances, one or more of our subsidiaries may be released from, or may not be required to provide, a guarantee of the Notes, and in such circumstances, will not be responsible for any obligations with respect to the Notes.
Each of our subsidiaries is a distinct legal entity and has no obligation, contingent or otherwise, to transfer funds to us.
−Removed: In addition, the ability of our subsidiaries to transfer funds to us could be restricted by the terms of subsequent financings and the indenture governing the Notes.
+Added: In addition, the ability of our subsidiaries to transfer funds to us could be restricted by the terms of subsequent financings.
Covenants in our debt agreements restrict our activities and could adversely affect our business.
−Removed: Our debt agreements contain various covenants that limit our ability and the ability of our subsidiaries to engage in various transactions including, as applicable:
+Added: Our debt agreements contain covenants that limit our and our subsidiaries’ ability to engage in various transactions including, as applicable:
incurring or guaranteeing additional secured and unsecured debt;
5 unchanged sentences
engaging in non-healthcare related business activities;
−Removed: • creating restrictions on the ability of our subsidiaries to pay distributions or other amounts to us;
+Added: creating restrictions on the ability of our subsidiaries to pay distributions
+Added: or other amounts to us;
selling assets;
1 unchanged sentence
making acquisitions;
−Removed: • amending certain material agreements, including material leases and debt agreements.
+Added: and amending certain material agreements, including material leases and debt agreements.
These covenants limit our operational flexibility and could prevent us from taking advantage of business opportunities as they arise, growing our business or competing effectively.
−Removed: The Amended Credit Agreement requires us 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.
−Removed: 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.
−Removed: We are also required to maintain total unencumbered assets of at least 150% of our unsecured indebtedness under the indenture governing the Notes.
−Removed: Our ability to meet these requirements may be affected by events beyond our control, and we may not meet these
−Removed: requirements.
−Removed: We may be unable to maintain compliance with these covenants and, if we fail to do so, we may be unable to obtain waivers from the lenders or amend the covenants.
−Removed: An increase in market interest rates could increase our interest costs on existing and future debt and could adversely affect our stock price.
−Removed: Certain of our existing debt obligations are variable rate obligations with interest and related payments that vary with the movement of certain indices, and in the future we may incur additional indebtedness in connection with the entry into new credit facilities or the financing of any acquisition or development activity.
−Removed: If interest rates increase, so could our interest costs for any new debt and our variable rate debt obligations under our New Revolving Facility and Term Loan.
−Removed: This increased cost could make the financing of any acquisition more costly, as well as lower our current period earnings.
+Added: The Amended Credit Agreement requires us to comply with financial maintenance covenants to be tested quarterly and also contains customary events of default, including the failure to make timely payments under the Amended Credit Facility or other material indebtedness, failure to satisfy certain covenants (including financial maintenance covenants), the occurrence of change of control and specified events of bankruptcy and insolvency.
+Added: We also must maintain total unencumbered assets of at least 150% of our unsecured indebtedness under the indenture governing the Notes.
+Added: Our ability to meet these requirements may be affected by events beyond our control and, if we fail to do so, we may be unable to obtain waivers from the lenders or amend the covenants.
+Added: Increases in interest rates could increase our existing and future debt borrowing costs and adversely affect our stock price.
+Added: Certain of our existing debt obligations require interest and related payments to vary with the movement of certain indices, and we may incur additional indebtedness in connection with new credit facilities or financing of acquisitions or development activities.
+Added: Increased interest rates would increase our interest costs for any new debt and our obligations under our New Revolving Facility and Term Loan, which could make acquisition financings more costly or lower our current period earnings.
Rising interest rates could limit our ability to refinance existing debt when it matures or cause us to pay higher interest rates upon refinancing.
−Removed: In addition, an increase in interest rates could decrease the access third parties have to credit, thereby decreasing the amount they are willing to pay for our assets and consequently limiting our ability to reposition our portfolio promptly in response to changes in economic or other conditions.
+Added: In addition, interest rate increases could decrease credit access globally, thereby decreasing the amount others are willing to pay for our assets and limiting our ability to reposition our portfolio promptly in response to changes in economic or other conditions.
Further, the dividend yield on our common stock, as a percentage of the price of such common stock, will influence the price of such common stock.
Thus, an increase in market interest rates may lead prospective purchasers of our common stock to expect a higher dividend yield, which could adversely affect the market price of our common stock.
−Removed: Our Amended Credit Agreement uses LIBOR as a reference rate for our Term Loan and Revolving Facility, such that the interest rate applicable to such loans may, at our option, be calculated based on LIBOR.
+Added: Our Amended Credit Agreement uses LIBOR a s a reference rate for our Term Loan and Revolving Facility, such that the interest rate applicable to such loans may, at our option, be calculated based on LIBOR.
In July 2017, the U.
K.’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021.
+Added: In the U.S., it is anticipated that publication of 1-week and 2-month U.S.
+Added: dollar LIBOR will end on December 31, 2021, with all other U.S.
+Added: dollar LIBOR tenors ceasing on June 30, 2023.
Federal Reserve has begun publishing a Secured Overnight Funding Rate (“SOFR”), which is intended to replace U.S.
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Additionally, plans for alternative reference rates for other currencies have also been announced.
−Removed: We have material borrowings under our Amended Credit Agreement that are indexed to LIBOR.
−Removed: At this time, we cannot predict how markets will respond to these proposed alternative rates or the effect of any changes to LIBOR or the discontinuation of LIBOR.
−Removed: However, if LIBOR is no longer available, if future rates based upon a successor reference rate such as SOFR (or a new method of calculating LIBOR) are higher than LIBOR rates as currently determined or if our lenders have increased costs due to changes in LIBOR, we may experience potential increases in interest rates on our variable rate debt, which could adversely impact our interest expense, results of operations and cash flows.
−Removed: A downgrade of our credit rating could impair our ability to obtain additional debt financing on favorable terms, if at all, and significantly reduce the trading price of our common stock.
−Removed: Our credit rating can affect the amount and type of capital we can access, as well as the terms of any financing we may obtain.
−Removed: Factors that may affect our credit rating include, among other things, our financial performance, our success in raising sufficient equity capital, adverse changes in our debt and fixed charge coverage ratios, our capital structure and level of indebtedness and pending or future changes in the regulatory framework applicable to our operators and our industry.
+Added: From time to time, we have material borrowings under our Amended Credit Agreement that are indexed to LIBOR.
+Added: We cannot predict how markets will respond to these proposed alternative rates or the effect of any changes to LIBOR or the discontinuation of LIBOR.
+Added: However, if future rates based upon a successor reference rate such as SOFR (or a new method of calculating LIBOR) are higher than LIBOR rates as currently determined or if our lenders have increased costs due to changes in LIBOR, we may experience increases in interest rates on our variable rate debt, which could adversely impact our interest expense, results of operations and cash flows.
+Added: A credit rating downgrade could impair our ability to obtain additional deb t financing on favorable terms, if at all, and significantly reduce the trading price of our common stock.
+Added: Our credit rating can affect the amount, type and terms of capital financings we obtain.
+Added: Factors affecting our credit rating include, among others, our financial performance, success in raising sufficient equity capital, adverse changes in our debt and fixed charge coverage ratios, our capital structure, level of indebtedness and future changes in the regulatory framework applicable to our operators and industry.
We may be unable to maintain our current credit ratings, and in the event that our current credit ratings deteriorate, a ratings agency downgrades our credit rating or places our rating under watch or review for possible downgrade, we would likely incur higher borrowing costs, which would make it more difficult or expensive to obtain additional financing or refinance existing obligations and commitments and the trading price of our common stock may decline.
−Removed: Risks Related To Our Common Stock
+Added: Risks Related To Our Common Stock and Organizational Documents
Our charter restricts the ownership and transfer of our outstanding stock, which may have the effect of delaying, deferring or preventing a transaction or change of control of our company.
2 unchanged sentences
Our charter, with certain exceptions, authorizes our board of directors to take such actions as are necessary and desirable to preserve our qualification as a REIT.
−Removed: Our charter also provides that, unless exempted by the board of directors, no person may own more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock, or more than 9.8% in value of the outstanding shares of all classes or series of our stock.
−Removed: The constructive ownership rules are complex and may cause shares of stock owned directly or
−Removed: constructively by a group of related individuals or entities to be constructively owned by one individual or entity.
−Removed: These ownership limits could delay or prevent a transaction or a change in control of us that might involve a premium price for shares of our stock or otherwise be in the best interests of our stockholders.
+Added: Our charter also provides that, unless exempted by the board of directors, no person may own more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock, or more than 9.8% in value of the outstanding shares of all classes or
+Added: series of our stock.
+Added: The constructive ownership rules are complex and may cause shares of stock owned directly or constructively by a group of related individuals or entities to be constructively owned by one individual or entity.
+Added: These ownership limits could delay or prevent a transaction or a change in control of us that might involve a premium price for shares of our stock or otherwise be in our stockholders’ best interests.
The acquisition of less than 9.8% of our outstanding stock by an individual or entity could cause that individual or entity to own constructively in excess of 9.8% in value of our outstanding stock, and thus violate our charter’s ownership limit.
2 unchanged sentences
Any attempt to own or transfer shares of our stock in violation of these restrictions may result in the transfer being automatically void.
−Removed: Maryland law and provisions in our charter and bylaws may delay or prevent takeover attempts by third parties and therefore inhibit our stockholders from realizing a premium on their stock.
−Removed: Our charter and bylaws and Maryland law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids and to encourage prospective acquirors to negotiate with our board of directors rather than to attempt a hostile takeover.
+Added: Maryland law and provisions in our charter and bylaws may inhibit our stockholders from realizing a premium on their stock by delaying or preventing takeover attempts by third parties.
+Added: Our charter, bylaws and Maryland law contain provisions intended to deter coercive takeovers and inadequate takeover bids and to encourage prospective acquirors to negotiate with our board of directors rather than to attempt a hostile takeover.
As currently in effect, our charter and bylaws, among other things, (1) contain transfer and ownership restrictions on the percentage by number and value of outstanding shares of our stock that may be owned or acquired by any stockholder;
−Removed: (2) provide that stockholders are not allowed to act by non-unanimous written consent;
−Removed: (3) permit the board of directors, without further action of the stockholders, to amend the charter to increase or decrease the aggregate number of authorized shares or the number of shares of any class or series that we have the authority to issue;
+Added: (2) prohibit stockholders action by non-unanimous written consent;
+Added: (3) permit the board of directors, without further action of the stockholders, to amend the charter to increase or decrease the aggregate number of authorized shares or the number of shares of any class or series that may be issued;
(4) permit the board of directors to classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares;
2 unchanged sentences
(7) provide that a director may only be removed by stockholders for cause and upon the vote of two-thirds of the outstanding shares of common stock;
−Removed: and (8) provide for supermajority approval requirements for amending or repealing certain provisions in our charter.
−Removed: In addition, specific anti-takeover provisions of the Maryland General Corporation Law (“MGCL”) could make it more difficult for a third party to attempt a hostile takeover.
−Removed: These provisions include:
+Added: and (8) require supermajority approval to amend or repeal certain charter provisions.
+Added: In addition, specific anti-takeover provisions of the Maryland General Corporation Law (“MGCL”) could make it more difficult for a third party to attempt a hostile takeover, including:
• “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose special appraisal rights and special stockholder voting requirements on these combinations;
• “control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
−Removed: We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal.
−Removed: These provisions are not intended to make us immune from takeovers.
−Removed: However, these provisions may delay, defer or prevent a change of control or other transaction even if such transaction involves a premium price for our common stock or our stockholders believe that such transaction is otherwise in their best interests.
+Added: We believe these provisions protect our stockholders from coercive or unfair takeover tactics by requiring potential acquirors to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal.
+Added: These provisions are not intended to prevent all takeovers, but they may delay, defer or prevent a change of control transaction even if such transaction involves a premium price for our common stock or our stockholders it is in their best interests.
These provisions may also prevent or discourage attempts to remove and replace incumbent directors.
Our bylaws provide that the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
−Removed: Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland is the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us,
−Removed: (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee, (iii) any action asserting a claim arising pursuant to any provision of the MGCL, or (iv) any action asserting a claim governed by the internal affairs doctrine, and any of our record or beneficial stockholders who commences such an action shall cooperate in a request that the action be assigned to the Court’s Business & Technology Case Management Program.
−Removed: This exclusive forum provision is intended to apply to claims arising under the MGCL and would not apply to claims brought pursuant to the Exchange Act of 1934 or Securities Act of 1933, each as amended, or any other claim for which the federal courts have exclusive jurisdiction.
+Added: Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland is the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee, (iii) any action asserting a claim arising pursuant to any provision of the MGCL, or (iv) any action asserting a claim governed by the internal affairs doctrine, and any of our record or beneficial stockholders who commences such an action shall cooperate in a request that the action be assigned to the Court’s Business & Technology Case Management Program.
+Added: This exclusive forum provision is intended to apply to claims arising under the MGCL and would not apply to claims brought pursuant to the Exchange Act of
+Added: 1934 or Securities Act of 1933, each as amended, or any other claim for which the federal courts have exclusive jurisdiction.
The exclusive forum provision in our bylaws will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.
4 unchanged sentences
If a court were to find the exclusive forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we might incur additional costs associated with resolving such action in other jurisdictions.
−Removed: The market price and trading volume of our common stock may fluctuate.
−Removed: The market price of our common stock may fluctuate, depending upon many factors, some of which may be beyond our control, including, but not limited to:
−Removed: • a shift in our investor base;
−Removed: • our quarterly or annual earnings, or those of other comparable companies;
−Removed: • actual or anticipated fluctuations in our operating results;
−Removed: • our ability to obtain financing as needed, including potential future equity or debt issuances;
−Removed: • changes in laws and regulations affecting our business;
−Removed: • changes in accounting standards, policies, guidance, interpretations or principles;
−Removed: • announcements by us or our competitors of significant investments, acquisitions or dispositions;
−Removed: • the failure of securities analysts to cover our common stock;
−Removed: • changes in earnings estimates by securities analysts or our ability to meet those estimates;
−Removed: • the operating performance and stock price of other comparable companies;
−Removed: • changes in our dividend policy;
−Removed: • impairment charges affecting the carrying value of one or more of our investments;
−Removed: • sales of common stock under our New ATM Program (as defined below) or by our management team;
−Removed: • overall market fluctuations;
−Removed: • general economic or political conditions and other external factors.
−Removed: Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company.
−Removed: These broad market fluctuations may adversely affect the trading price of our common stock.
−Removed: Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could materially and adversely affect our business and the market price of our common stock .
−Removed: Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting, which require significant resources and management oversight.
−Removed: Internal control over financial reporting is complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules.
−Removed: We cannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective.
−Removed: Matters impacting our internal controls may cause us to be unable to report our financial data on a timely basis, or may cause us to restate previously issued financial data, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules.
−Removed: There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.
−Removed: Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered public accounting firm reports a material weakness in our internal control over financial reporting.
−Removed: This could materially adversely affect us by, for example, leading to a decline in the market price for our common stock and impairing our ability to raise capital.
−Removed: Additionally, our independent registered public accounting firm is required pursuant to Section 404(b) of the Sarbanes-Oxley Act to attest to the effectiveness of our internal control over financial reporting on an annual basis.
−Removed: If we cannot maintain effective disclosure controls and procedures or internal control over financial reporting, or our independent registered public accounting firm cannot provide an unqualified attestation report on the effectiveness of our internal control over financial reporting, investor confidence and, in turn, the market price of our common stock could decline.
+Added: General Risk Factors
+Added: We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.
+Added: We rely on information technology networks and systems, including the internet, to process, transmit and store electronic information, and to manage or support our business processes, including financial transactions and records, and maintaining personal information and tenant and lease data.
+Added: We purchase some of our information technology from vendors, on whom our systems depend.
+Added: We rely on commercially available systems, software, tools and monitoring to provide security for the processing, transmission and storage of confidential tenant and customer data, including financial account information.
+Added: Although we have taken steps to protect the security of our information systems, we have, from time to time, experienced threats to our data and systems, including malware and computer virus attacks and it is possible that in the future our safety and security measures will not prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks.
+Added: In addition, due to the fast pace and unpredictability of cyber threats, long-term implementation plans designed to address cybersecurity risks become obsolete quickly.
+Added: Security breaches, including physical or electronic break-ins, computer viruses, malware, works, attacks by hackers or foreign governments, disruptions from unauthorized access and tampering (including through social engineering such as phishing attacks), coordinated denial-of-service attacks, impersonation of authorized users and similar breaches, can create system disruptions, shutdowns or result in a loss of company assets or unauthorized disclosure of confidential information.
+Added: The risk of security breaches has generally increased as the number, intensity and sophistication of attacks and intrusions from around the world have increased.
+Added: In some cases, it may be difficult to anticipate or immediately detect such incidents and the damage they cause.
+Added: In addition, our technology infrastructure and information systems are vulnerable to damage or interruption from natural disasters, power loss and telecommunications failures.
+Added: Failure to maintain proper function, security and availability of our information systems and the data maintained in those systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.
+Added: We have and may in the future incur impairment charges, which could negatively impact our results of operations.
+Added: At each reporting period, we evaluate our real estate investments and other assets for impairment indicators whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
+Added: The existence of impairment indicators is based on factors such as market conditions, operator performance and legal structure.
+Added: If we determine that an impairment has occurred, we are required to adjust the net carrying value of the asset, which could have a material adverse effect on our results of operations in the period in which the write-off occurs.
+Added: For example, in the three months ended September 30, 2019, we recorded impairment charges of approximately $16.7 million, resulting in a net loss of $10.1 million for the quarter.
+Added: Such impairment charges may make it more difficult for us to meet the financial ratios in our Amended Credit Agreement and may reduce the borrowing base available to us under our Revolving Facility, which may reduce the amounts of cash we would otherwise have available to pay expenses, service other indebtedness and operate our business.
+Added: Environmental, social and governance matters may cause us to incur additional costs, make personnel changes, and affect the attractiveness of our stock to investors.
+Added: Shareholder, public and governmental expectations have been increasing with respect to corporate responsibility, sustainability, diversity and inclusion and related environmental, social and governance (collectively “ESG”) matters.
+Added: Shareholder advisory services and other organizations have developed and publish, and others may in the future develop and
+Added: publish, rating systems and other scoring and reporting mechanisms to evaluate and compare the ESG performance of our Company and others.
+Added: These ratings systems frequently change, and scores are often based on a relative ranking which may cause a company’s score to deteriorate if peer companies’ rankings improve.
+Added: Keeping up with such changes may divert management’s time and attention from other business priorities.
+Added: In addition, current shareholders and prospective investors may use these ratings and/or their own internal ESG benchmarks to determine whether and to what extent they may choose to invest in our securities, engage with us to advocate for improved ESG performance or disclosure, make voting decisions as shareholders, or take other actions to hold us and our board of directors accountable with respect to ESG matters.
+Added: Some legislatures, government agencies and listing exchanges have mandated or proposed, and others may in the future further mandate, certain ESG disclosure or performance.
+Added: For example, board diversity and inclusion is an ESG topic that is receiving heightened attention from lawmakers and listing exchanges.
+Added: The State of California, where we currently maintain our principal executive offices, has enacted laws requiring companies to meet stated gender and diversity requirements on their boards of directors by specific deadlines.
+Added: In addition, the Nasdaq Stock Market LLC, where our common stock is currently listed, has filed a proposal with the SEC that, if approved, would require most Nasdaq-listed companies to meet specified board diversity requirements within a defined compliance period and face potential delisting if they do not explain any failure to meet the requirements.
+Added: If we are unable to recruit, attract and/or retain qualified members of our board of directors to maintain compliance with the diversity requirements of applicable mandates within the prescribed timelines, we could be exposed to costly fines and penalties.
+Added: We may also face reputational damage in the event our corporate responsibility initiatives or objectives, including with respect to board diversity, do not meet the standards or expectations of shareholders, prospective investors, lawmakers, listing exchanges or other constituencies, or if we are unable to achieve acceptable ESG ratings from third party rating services.
+Added: Failure to comply with ESG-related laws, exchange policies or stakeholder expectations could materially and adversely impact the value of our stock and related cost of capital, and limit our ability to fund future growth.
We cannot assure you of our ability to pay dividends in the future.
−Removed: We expect to make quarterly dividend payments in cash with the annual dividend amount no less than 90% of our REIT taxable income on an annual basis, determined without regard to the dividends paid deduction and excluding any net capital gains.
+Added: We expect to make quarterly dividend payments in cash with the annual dividend amount no less than 90% of our annual REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains.
Our ability to pay dividends may be adversely affected by a number of factors, including the risk factors described in this annual report.
−Removed: Dividends are authorized by our board of directors and declared by us based upon a number of factors, including actual results of operations, restrictions under Maryland law or applicable debt covenants, our financial condition, our taxable income, the annual distribution requirements under the REIT provisions of the Code, our operating expenses and other factors our directors deem relevant.
−Removed: We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash dividends or year-to-year increases in cash dividends in the future.
−Removed: Furthermore, while we are required to pay dividends in order to maintain our REIT status (as described above under “Risks Related to Our Status as a REIT - REIT distribution requirements could adversely affect our ability to execute our business plan”), we may elect not to maintain our REIT status, in which case we would no longer be required to pay such dividends.
−Removed: Moreover, even if we do elect to maintain our REIT status, after completing various procedural steps, we may elect to comply with the applicable distribution requirements by distributing, under certain circumstances, a portion of the required amount in the form of shares of our common stock in lieu of cash.
−Removed: If we elect not to maintain our REIT status or to satisfy any required distributions in shares of common stock in lieu of cash, such action could negatively affect our business and financial condition as well as the market price of our common stock.
−Removed: No assurance can be given that we will pay any dividends on shares of our common stock in the future.
−Removed: Your ownership percentage in our common stock may be diluted in the future.
−Removed: From time to time in the future, we may issue additional shares of our common stock in connection with sales under our New ATM Program, other capital markets transactions or in connection with other transactions or acquisitions.
−Removed: Such issuances and transactions will generally not require stockholder approval, subject to the applicable rules of Nasdaq.
−Removed: In addition, pursuant to our CareTrust REIT, Inc.
−Removed: and CTR Partnership, L.P.
−Removed: Incentive Award Plan (the “Incentive Award Plan”), we expect to grant equity incentive awards to our officers, employees and directors in connection with their employment with or services provided to us.
−Removed: These issuances and awards may cause your percentage ownership in our common stock to be diluted in the future and could have a dilutive effect on our earnings per share and reduce the value of our common stock.
−Removed: In addition, while we have no specific plan to issue preferred stock, our charter authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, powers, privileges, preferences, including preferences over our common stock respecting dividends and distributions, terms of redemption and relative participation, optional or other rights, if any, of the shares of each such series of preferred stock and any qualifications, limitations or restrictions thereof, as our board of directors may determine.
−Removed: The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock.
−Removed: For example, the repurchase or
−Removed: redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of our common stock.
+Added: Dividends are authorized by our board of directors and declared by us based upon a number of factors, including but not limited to actual results of operations, restrictions under Maryland law or applicable debt covenants, our financial condition, our taxable income, the annual distribution requirements under the REIT provisions of the Code and our operating expenses.
+Added: There is no assurance that our operating results will allow for specified levels of cash dividends or year-to-year increases in the future.
+Added: Furthermore, while we are required to pay dividends in order to maintain our REIT status (as described under “Risks Related to Our Status as a REIT - REIT distribution requirements could adversely affect our ability to execute our business plan”), we may elect not to maintain our REIT status and discontinue paying dividends.
+Added: Even if we do elect to maintain our REIT status, after completing various procedural steps, we may elect to comply with the applicable distribution requirements by distributing, under certain circumstances, a portion of the required amount in the form of shares of our common stock in lieu of cash.
+Added: Either of these actions could negatively affect our business and financial condition as well as the market price of our common stock.
Unresolved Staff Comments
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.