What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2020-11-05 · 194 added, 303 removed, 271 unchanged (65% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Real estate investments, net $ 1,577,450 $ 1,448,099

3 unchanged sentences

Accounts and other receivables, net 1,780 1,823

Prepaid expenses and other assets 7,097 10,850

Prepaid expenses and other assets, net 7,448 10,450

Deferred financing costs, net 1,797 2,042

9 unchanged sentences

Preferred stock, $ 0.01 par value;

100,000,000 shares authorized, no shares issued and outstanding as of September 30, 2020 and December 31, 2019

100,000,000 shares authorized, no shares issued and outstanding as of March 31, 2021 and December 31, 2020

Common stock, $ 0.01 par value;

500,000,000 shares authorized, 95,214,080 and 95,103,270 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

500,000,000 shares authorized, 95,981,062 and 95,215,797 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital 1,180,840 1,164,402

4 unchanged sentences

CARETRUST REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED INCOME STATEMENTS

(in thousands, except per share amounts)

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2020 2019 2020 2019

For the Three Months Ended March 31,

Rental income $ 45,246 $ 42,464

6 unchanged sentences

Independent living facilities — 546

Impairment of real estate investments — 16,692 — 16,692

Provision for loan losses — 1,076 — 1,076

General and administrative 5,142 4,054

Total expenses 25,073 24,959

Other income (loss):

Gain (loss) on sale of real estate — 217 ( 56 ) 217

Net income (loss) $ 21,552 $ ( 10,054 ) $ 59,812 $ 25,697

Earnings (loss) per common share:

Loss on sale of real estate ( 192 ) ( 56 )

Net income $ 20,486 $ 19,325

Earnings per common share:

Basic $ 0.21 $ 0.20

19 unchanged sentences

Balance at March 31, 2021 95,981,062 $ 960 $ 1,180,840 $ ( 256,359 ) $ 925,441

Issuance of common stock, net — — ( 314 ) — ( 314 )

Vesting of restricted common stock, net of shares withheld for employee taxes 17,749 — — — —

Amortization of stock-based compensation — — 963 — 963

Common dividends ($ 0.25 per share)

— — — ( 23,931 ) ( 23,931 )

Net income — — — 18,935 18,935

Balance at June 30, 2020 95,214,080 $ 952 $ 1,162,446 $ ( 245,952 ) $ 917,446

Amortization of stock-based compensation — — 972 — 972

Common dividends ($ 0.25 per share)

— — — ( 23,934 ) ( 23,934 )

Net income — — — 21,552 21,552

Balance at September 30, 2020 95,214,080 $ 952 $ 1,163,418 $ ( 248,334 ) $ 916,036

See accompanying notes to condensed consolidated financial statements.

14 unchanged sentences

Balance at March 31, 2020 95,196,331 $ 952 $ 1,161,797 $ ( 240,956 ) $ 921,793

Issuance of common stock, net 6,641,250 67 148,731 — 148,798

Vesting of restricted common stock, net of shares withheld for employee taxes 33,700 — ( 1,029 ) — ( 1,029 )

Amortization of stock-based compensation — — 1,147 — 1,147

Common dividends ($ 0.225 per share)

— — — ( 21,508 ) ( 21,508 )

Net income — — — 19,698 19,698

Balance at June 30, 2019 95,073,223 $ 951 $ 1,161,144 $ ( 203,958 ) $ 958,137

Issuance of common stock, net — — ( 78 ) — ( 78 )

Vesting of restricted common stock, net of shares withheld for employee taxes 30,047 — — — —

Amortization of stock-based compensation — — 981 — 981

Common dividends ($ 0.225 per share)

— — — ( 21,500 ) ( 21,500 )

Net loss — — — ( 10,054 ) ( 10,054 )

Balance at September 30, 2019 95,103,270 $ 951 $ 1,162,047 $ ( 235,512 ) $ 927,486

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash flows from operating activities:

5 unchanged sentences

Straight-line rental income ( 12 ) ( 26 )

Adjustment for collectibility of rental income — 12,078

Noncash interest income — ( 31 )

Loss (gain) on sale of real estate 56 ( 217 )

Loss on sale of real estate 192 56

Interest income distribution from other real estate investment — 1,346

Impairment of real estate investments — 16,692

Provision for loan losses — 1,076

Change in operating assets and liabilities:

Accounts and other receivables, net ( 100 ) 335

Prepaid expenses and other assets 267 ( 348 )

Prepaid expenses and other assets, net 278 454

Accounts payable and accrued liabilities ( 2,453 ) 482

2 unchanged sentences

Acquisitions of real estate, net of deposits applied ( 138,151 ) ( 25,905 )

Improvements to real estate ( 5,713 ) ( 1,230 )

Purchases of equipment, furniture and fixtures ( 581 ) ( 2,926 )

Purchases of equipment, furniture and fixtures and improvements to real estate ( 1,319 ) ( 2,418 )

Investment in real estate mortgage and other loans receivable ( 700 ) ( 100 )

3 unchanged sentences

Net proceeds from sales of real estate 6,814 2,134

Net cash provided by (used in) investing activities 22,062 ( 325,951 )

Net cash used in investing activities ( 133,300 ) ( 24,300 )

Cash flows from financing activities:

Proceeds from (costs paid for) the issuance of common stock, net 16,191 ( 90 )

Proceeds from the issuance of senior unsecured term loan — 200,000

Borrowings under unsecured revolving credit facility 120,000 15,000

Payments on unsecured revolving credit facility ( 75,000 ) ( 265,000 )

Payments on senior unsecured term loan — ( 100,000 )

Payments of deferred financing costs — ( 4,534 )

Net-settle adjustment on restricted stock ( 1,330 ) ( 1,986 )

Dividends paid on common stock ( 23,960 ) ( 21,532 )

Net cash (used in) provided by financing activities ( 131,673 ) 199,750

Net decrease in cash and cash equivalents ( 1,226 ) ( 31,043 )

Net cash provided by (used in) financing activities 110,901 ( 8,608 )

Net increase in cash and cash equivalents 11,550 3,610

Cash and cash equivalents, beginning of period 18,919 20,327

4 unchanged sentences

Increase in dividends payable $ 1,673 $ 2,399

Right-of-use asset obtained in exchange for new operating lease obligation $ 599 $ 1,010

Transfer of pre-acquisition costs to acquired assets $ 358 $ 167

Increase in pre-acquisition costs payable $ — $ 137

Sale of real estate settled with notes receivable $ 32,400 $ 27,500

Sale of real estate settled with note receivable $ — $ 32,400

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

Description of Business— CareTrust REIT, Inc.’s (“CareTrust REIT” or the “Company”) primary business consists of acquiring, financing, developing and owning real property to be leased to third-party tenants in the healthcare sector.

As of September 30, 2020, the Company owned and leased to independent operators, 214 skilled nursing, multi-service campuses, assisted living and independent living facilities consisting of 21,779 operational beds and units located in 28 st ates with the highest concentration of properties by rental revenues located in California, Texas, Louisiana, Idaho and Arizona.

As of September 30, 2020, the Company also owned and operated one independent living facility which had a total of 168 units located in Texas.

In December 2019, COVID-19 was first reported in Wuhan, China, and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic.

In early 2020, the COVID-19 outbreak spread globally, which led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders.

Although some of these governmental restrictions have been lifted or scaled back, ongoing resurgences of COVID-19 have resulted in the reimposition of certain restrictions and may lead to other restrictions being reimplemented in response to efforts to reduce the spread of COVID-19.

Given the dynamic nature of these circumstances and the related adverse impact these restrictions have had, and may continue to have, on the economy generally, the Company’s business, results of operations and financial conditio n may be adver sely impacted by the COVID-19 pandemic.

The duration and extent of the COVID-19 pandemic’s effect on the Company’s operational and financial performance, and the operational and financial performance of the Company’s tenants, will depend on future developments, which are highly uncertain and cannot be predicted at this time, including new information which may emerge concerning the severity of COVID-19, actions taken to contain COVID-19, future resurgences of COVID-19, and how quickly and to what extent normal economic and operating conditions can resume.

As of March 31, 2021, the Company owned and leased to independent operators, 222 skilled nursing, multi-service campuses, assisted living and independent living facilities consisting of 23,222 operational beds and units located in 28 states with the highest concentration of properties by rental revenues located in California, Texas, Louisiana, Idaho and Arizona.

As of March 31, 2021, we also had other real estate investments consisting of one mezzanine loan receivable with a carrying value of $ 15.2 million.

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, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders.

Although most of these governmental restrictions have since been lifted or scaled back, resurgences of COVID-19 and the emergence of new variants thereof have resulted in the reimposition of certain restrictions and may lead to other restrictions being reimplemented in response to efforts to reduce the spread of COVID-19.

Given the dynamic nature of these circumstances and the related adverse impact these restrictions have had, and may continue to have, on the economy generally, the Company’s business, results of operations and financial condition may be adversely impacted by the COVID-19 pandemic.

The duration and extent of the COVID-19 pandemic’s effect on the Company’s operational and financial performance, and the operational and financial performance of the Company’s tenants, will depend on future developments, which are highly uncertain and cannot be predicted at this time, including new information which may emerge concerning the timing of vaccine rollouts, public acceptance and usage of vaccines and the effectiveness of vaccines in limiting the spread of COVID-19 and its variants that may continue to occur, and how quickly and to what extent normal economic and operating conditions can resume.

The adverse impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition could be material.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Basis of Presentation —The accompanying condensed consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Article 10 of Regulation S-X.

4 unchanged sentences

All intercompany transactions and account balances within the Company have been eliminated.

Lessor Accounting —The Company recognizes lease revenue in accordance with Accounting Standards Codification (“ASC”) 842, Leases.

The Company’s lease agreements typically contain annual escalators based on the percentage change in the Consumer Price Index which are accounted for as variable lease payments in the period in which the change occurs.

For lease agreements that contain fixed rent escalators, the Company generally recognizes lease revenue on a straight-line basis of accounting.

The Company generates revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property.

Tenant reimbursements related to property taxes and insurance paid by the lessee directly to a third party on behalf of a lessor are required to be excluded from variable payments and from recognition in the lessors’ income statements.

Otherwise, tenant recoveries for taxes and insurance are classified as additional rental income recognized by the lessor on a gross basis in its income statements.

The Company recognized, on a gross basis, property taxes of $ 0.9 million and $ 2.5 million for the three and nine months ended September 30, 2020, respectively.

The Company recognized, on a gross basis, property taxes of $ 0.8 million and $ 2.1 million for the three and nine months ended September 30, 2019, respectively.

The Company’s assessment of collectibility of its tenant receivables includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection.

The Company considers the operator’s performance and anticipated trends, payment history, and the existence and creditworthiness of guarantees, among other factors, in making this determination.

For such leases that are deemed probable of collection, revenue continues to be

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

recorded on a straight-line basis over the lease term, if applicable.

For such leases that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectibility determination.

Such write-offs are recorded as increases or decreases through rental income on the Company’s condensed consolidated statements of operations.

For the three and nine months ended September 30, 2020, the Company recorded recovery adjustments of $ 1.0 million and did no t recognize any write-off adjustments to rental income.

For the three and nine months ended September 30, 2019, the Company recorded $ 12.1 million of write-off adjustments to rental income related to rental income recognized in prior periods.

See Note 3, Real Estate Investments, Net for further detail.

Estimates and Assumptions —The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

Management believes that the assumptions and estimates used in preparation of the underlying consolidated financial statements are reasonable.

Actual results, however, could differ from those estimates and assumptions.

Real Estate Acquisition Valuation — In accordance with ASC 805, Business Combinations , the Company’s acquisitions of real estate investments generally do not meet the definition of a business, and are treated as asset acquisitions.

The assets acquired and liabilities assumed are measured at their acquisition date relative fair values.

Acquisition costs are capitalized as incurred.

The Company allocates the acquisition costs to the tangible assets, identifiable intangible assets/liabilities and assumed liabilities on a relative fair value basis.

The Company assesses fair value based on available market information, such as capitalization and discount rates, comparable sale transactions and relevant per square foot or unit cost information.

A real estate asset’s fair value may be determined utilizing cash flow projections that incorporate such market information.

Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, as well as market and economic conditions.

The fair value of tangible assets of an acquired property is based on the value of the property as if it is vacant.

As part of the Company’s real estate acquisitions, the Company may commit to provide contingent payments to a seller or lessee (e.g., an earn-out payable upon the applicable property achieving certain financial metrics).

Typically, when the contingent payments are funded, cash rent is increased by the amount funded multiplied by a rate stipulated in the agreement.

Generally, if the contingent payment is an earn-out provided to the seller, the payment is capitalized to the property’s basis when earn-out becomes probable and estimable.

If the contingent payment is an earn-out provided to the lessee, the payment is recorded as a lease incentive and is amortized as a yield adjustment over the life of the lease.

Impairment of Long-Lived Assets —At each reporting period, the Company evaluates its real estate investments to be held and used for potential impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

The judgment regarding the existence of impairment indicators, used to determine if an impairment assessment is necessary, is based on factors such as, but not limited to, market conditions, operator performance and legal structure.

If indicators of impairment are present, the Company evaluates the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying facilities.

The most significant inputs to the undiscounted cash flows include, but are not limited to, facility level financial results, a lease coverage ratio, the intended hold period by the Company, and a terminal capitalization rate.

The analysis is also significantly impacted by determining the lowest level of cash flows, which generally would be at the master lease level of cash flows.

Provisions for impairment losses related to long-lived assets are recognized when expected future undiscounted cash flows are determined to be less than the carrying values of the assets.

The impairment is measured as the excess of carrying value over fair value.

All impairments are taken as a period cost at that time, and depreciation is adjusted going forward to reflect the new value assigned to the asset.

The Company classifies its real estate investments as held for sale when the applicable criteria have been met, which entails a formal plan to sell the properties that is expected to be completed within one year, among other criteria.

Upon designation as held for sale, the Company writes down the excess of the carrying value over the estimated fair value less costs to sell, resulting in an impairment of the real estate investments, if necessary, and ceases depreciation.

In the event of impairment, the fair value of the real estate investment is based on current market conditions and considers matters such as the forecasted operating cash flows, lease coverage ratios, capitalization rates, comparable sales data, and, where applicable, contracts or the results of negotiations with purchasers or prospective purchasers.

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

The Company’s ability to accurately estimate future cash flows and estimate and allocate fair values impacts the timing and recognition of impairments.

While the Company believes its assumptions are reasonable, changes in these assumptions may have a material impact on financial results.

O ther Real Estate Investments —Included in “Other real estate investments, net,” on the Company’s condensed consolidated balance sheets are mortgage loans receivable.

Prior to the adoption of Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments - Credit Losses (Subtopic 326) (“ASU 2016-13”), mortgage loans receivable were recorded at amortized cost, which consisted of the outstanding unpaid principal balance, net of unamortized costs and fees directly associated with origination of the loans.

Interest income on the Company’s mortgage loans receivable was recognized over the life of the applicable investment using the interest method.

Origination costs and fees directly related to the mortgage loans receivable were amortized over the term of the loan as an adjustment to interest income.

The Company evaluated at each reporting period each of its other real estate investments for indicators of impairment.

An investment was impaired when, based on current information and events, it was probable that the Company would be unable to collect all amounts due according to the existing contractual terms.

A reserve would be established for the excess of the carrying value of the investment over its fair value.

Income Taxes —The Company has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”).

The Company believes it has been organized and has operated, and the Company intends to continue to operate, in a manner to qualify for taxation as a REIT under the Code.

To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute to its stockholders at least 90% of the Company’s annual REIT taxable income (computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP).

As a REIT, the Company generally will not be subject to federal income tax to the extent it distributes as qualifying dividends all of its REIT taxable income to its stockholders.

If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions.

Recent Accounting Standards Adopted by the Company —In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, that changes the impairment model for most financial instruments by requiring companies to recognize an allowance for expected credit losses, rather than incurred losses as previously required by the other-than-temporary impairment model.

ASU 2016-13 applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans receivable, held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures (e.g., loan commitments).

In November 2018, the FASB released ASU No.

2018-19, Codification Improvements to Topic 326 Financial Instruments - Credit Losses (“ASU 2018-19”).

ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of ASU 2016-13.

Instead, impairment of receivables arising from operating leases should be accounted for under Subtopic 842-30 “Leases - Lessor.” Additionally, the FASB issued ASU No.

2019-05, Targeted Transition Relief (“ASU 2019-05”), to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments.

The fair value option election does not apply to held-to-maturity debt securities.

Entities are required to make this election on an instrument-by-instrument basis.

ASU 2016-13 became effective for reporting periods beginning after December 15, 2019, and was applied as a cumulative adjustment to retained earnings as of the effective date.

The Company adopted ASU 2016-13 on January 1, 2020.

With the Company’s primary business being leasing real property to third-party tenants, the majority of receivables that arise in the ordinary course of business qualify as operating leases and are not in the scope of ASU 2016-13.

However, based on the instruments held upon adoption on January 1, 2020, the standard applied to the Company’s then outstanding mortgage loans receivable, for which the Company elected the fair value option as provided for by ASU 2019-05.

Instruments for which the fair value option has been elected are measured at fair value on a recurring basis with changes in fair value recognized in other income (loss) on the Company’s condensed consolidated statements of operations.

Interest income is recognized as earned within interest and other income in the condensed consolidated statements of operations.

As of September 30, 2020, the Company had no remaining instruments for which the fair value option had been elected.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820) (“ASU 2018-13”) , which modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures.

ASU 2018-13 was effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.

All other amendments should be applied retrospectively to all periods presented upon their effective date.

The Company adopted ASU 2018-13 on January 1, 2020.

Adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements — In March 2020, the FASB issued ASU No.

Recent Accounting Pronouncements — In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), that provides optional relief to applying reference rate reform to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”), which will be discontinued by the end of 2021.

1 unchanged sentence

The Company is still evaluating the impact of ASU 2020-04 and expects to take full advantage of the offered optional expedients and exceptions, but does not expect the adoption of the standard to have a material impact on the Company’s consolidated financial statements.

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

REAL ESTATE INVESTMENTS, NET

The following table summarizes the Company’s investment in owned properties as of September 30, 2020 and December 31, 2019 (dollars in thousands):

September 30, 2020 December 31, 2019

The following table summarizes the Company’s investment in owned properties as of March 31, 2021 and December 31, 2020 (dollars in thousands):

March 31, 2021 December 31, 2020

Land $ 243,457 $ 205,356

5 unchanged sentences

Real estate investments, net $ 1,577,450 $ 1,448,099

As of September 30, 2020 , 214 of the Company’s facilities wer e leased to various operators under triple-net leases.

As of March 31, 2021 , all 222 of the Company’s facilities wer e leased to various operators under triple-net leases.

All of these leases contain annual escalators based on the percentage change in the Consumer Price Index (but not less than zero), some of which are subject to a cap, or fixed rent escalators.

As of September 30, 2020, the Company had one independent living facility that the Company owned and operated.

As of September 30, 2020, the Company’s total future minimum rental revenues for all of its tenants, excluding operating expense reimbursements, were (dollars in thousands):

2020 (three months) $ 42,533

As of March 31, 2021, the Company’s total future contractual minimum rental income for all of its tenants, excluding operating expense reimbursements, were (dollars in thousands):

2021 (nine months) $ 132,001

Thereafter 860,010

Total $ 1,864,266

Tenant Purchase Options

Certain of the Company’s operators hold purchase options allowing them to acquire properties they currently lease from the Company.

A summary of these purchase options is presented below (dollars in thousands):

Asset Type Properties Lease Expiration 1st Option Open Date Option Type (1)

Current Cash Rent (2)

ALF 7 October 2034 1/1/2021 A $ 3,207

SNF 11 November 2030 1/1/2022 C 4,800

SNF 1 March 2029 4/1/2022 B / C (3)

SNF / Campus 2 October 2032 1/1/2023 B 959

SNF 4 November 2034 12/1/2024 B 3,789

ALF 2 October 2034 1/1/2026 A 1,559

(1) Option type includes:

A - Fixed base price plus a specified share on any appreciation.

B - Fixed base price.

C - Fixed capitalization rate on lease revenue.

(2) Based on annualized cash revenue for contracts in place at March 31, 2021.

(3) Purchase option reflects two option types.

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

The following table summarizes components of the Company’s rental revenue (dollars in thousands):

For the Three Months Ended September 30, For the Nine Months Ended September 30,

Rental Income

The following table summarizes components of the Company’s rental income (dollars in thousands):

For the Three Months Ended March 31,

Rental Income 2021 2020

Contractual rent due (1)

1 unchanged sentence

Straight-line rent 12 26

Adjustment for collectibility (2)

— ( 12,078 ) — ( 12,078 )

Recovery of previously reversed rent (3)

1,047 — 1,047 —

Lease termination revenue (2)

1,106 — 1,106 —

Total $ 45,246 $ 42,464

1 unchanged sentence

For tenants on a cash basis, this represents the lesser of the amount that would be recognized on a straight-line basis or cash that has been received.

(2) During the three and nine months ended September 30, 2019, and in accordance with ASC 842, the Company evaluated the collectibility of lease payments through maturity and determined that it was not probable that the Company would collect substantially all of the contractual obligations from five operators through maturity.

As such, the Company reversed $ 7.8 million of contractual rent, $ 3.5 million of straight-line rent and $ 0.8 million of property taxes during the three and nine months ended September 30, 2019.

If lease payments are subsequently deemed probable of collection, the Company increases rental income for such recoveries.

(3) During the three and nine months ended September 30, 2020, the Company recovered $ 1.0 million in rental revenue related to one operator that was previously written off.

(4) During the three and nine months ended September 30, 2020, in connection with the agreement to terminate its lease agreements with affiliates of Metron Integrated Health Systems (“Metron”) and to sell the facilities to a third-party, the Company received $ 1.1 million from Metron affiliates.

(2) During the three months ended March 31, 2021, in connection with the agreement to terminate its lease agreements with affiliates of Metron Integrated Health Systems (“Metron”) and to sell the facilities to a third-party, the Company received $ 0.1 million from Metron affiliates.

Recent Real Estate Acquisitions

The following table summarizes the Company’s acquisitions for the nine months ended September 30, 2020 (dollars in thousands):

The following table summarizes the Company’s acquisitions for the three months ended March 31, 2021 (dollars in thousands):

Type of Property Purchase Price (1)

1 unchanged sentence

Skilled nursing $ 15,800 $ 1,492 1 145

Assisted living 7,396 590 1 62

Multi-service campuses (3)

125,708 8,604 4 640

Total $ 141,508 $ 10,096 5 785

(1) Purchase price includes capitalized acquisition costs.

(2) The number of beds/units includes operating beds at acquisition date.

(2) The number of beds/units includes operating beds at the acquisition date.

(3) Initial annual cash rent represents the first twelve months of rent upon commencement of the Company’s long-term net leases, which is scheduled to occur upon the tenants’ receipt of licensing approval and increases to $ 9.4 million in the second year with Consumer Price Index (“CPI”) based annual escalators thereafter.

The facilities are currently being leased back to the seller under a short-term lease with a term of less than one year.

Asset Sales and Assets Held for Sale

As of March 31, 2021, there were no assets classified as held for sale.

During the fourth quarter of 2020, the Company met the criteria to classify one skilled nursing facility operated by affiliates of Five Oaks Healthcare, LLC as held for sale.

Assets held for sale include the net book value of property the Company plans to sell within the next year.

If the determination is made that the Company no longer expects to sell an asset within the next year, the asset is reclassified out of assets held for sale.

On February 1, 2021, the Company closed on the sale of the one skilled nursing facility consisting of 90 beds located in Washington with a carrying value of $ 7.2 million, for net sales proceeds of $ 7.0 million.

The Company recorded a loss of $ 0.2 million in connection with the sale.

On November 1, 2020, the Company sold the one remaining owned and operated independent living facility consisting of 168 units located in Texas with an aggregate carrying value of $ 4.2 million for gross proceeds of $ 4.5 million.

In connection with the sale, the Company recognized a gain of $ 20,000 during the three months ended December 31, 2020.

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

Sale of Real Estate

On February 14, 2020, the Company closed on the sale of six skilled nursing facilities formerly operated by affiliates of Metron.

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Lease Amendments

On July 15, 2019, the Company terminated its then existing master lease (the “Original Trillium Lease”) with affiliates of Trillium Healthcare Group, LLC (“Trillium”), which covered ten properties in Iowa, seven properties in Ohio and one property in Georgia.

On August 16, 2019, the Company entered into a new master lease (the “New Trillium Lease”) with Trillium’s Iowa and Georgia affiliates covering the ten properties in Iowa and the one property in Georgia.

The Company recorded an adjustment to reduce rental income for accounts and other receivables by approximately $ 3.8 million in the three months ended September 30, 2019.

On September 1, 2019, four of the seven skilled nursing properties in Ohio operated by Trillium under the Original Trillium Lease were transferred to affiliates of Providence Group, Inc.

(“Providence”).

In connection with the transfer, the Company amended its triple-net master lease with Providence.

The amended lease had a remaining initial term of approximately 13 years as of September 1, 2019, and includes two five-year renewal options and CPI-based rent escalators.

Annual cash rent under the amended lease with Providence increased by approximately $ 2.1 million.

Impairment of Real Estate Investments and Assets Held for Sale

On September 1, 2019, the Company sold three of the seven skilled nursing properties in Ohio operated by Trillium under the Original Trillium Lease for a purchase price of $ 28.0 million.

During the three months ended September 30, 2019 and prior to the disposition, the Company recorded an impairment expense of approximately $ 7.8 million.

In connection with the sale, the Company provided affiliates of CommuniCare Family of Companies (“CommuniCare”), the purchaser of the three Ohio properties, with a mortgage loan secured by the three Ohio properties for approximately $ 26.5 million.

See Note 4, Other Real Estate Investments, Net, for additional information.

As of September 30, 2019, the Company met the criteria to classify six skilled nursing facilities operated by affiliates of Metron as held for sale, which resulted in an impairment expense of approximately $ 8.8 million to reduce the carrying value to fair value less costs to sell the facilities.

The assets held for sale as of December 31, 2019 of $ 34.6 million were primarily comprised of real estate assets.

The fair value of the assets impaired during the three months ended September 30, 2019 was based on contractual sales prices, which are considered to be Level 2 measurements within the fair value hierarchy.

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

Twenty/20 Lease Termination and New Noble Master Lease .

On December 1, 2020, five assisted living facilities in Virginia operated by Twenty/20 Management, Inc.

(“Twenty/20”) were transferred to affiliates of Noble VA Holdings, LLC (“Noble”).

In connection with the transfer, the Company entered into a new triple-net master lease with Noble.

The new lease has a remaining initial term of approximately 14 years, with two five-year renewal options and CPI-based rent escalators.

Initial annual cash rent under the new lease is approximately $ 3.2 million .

OTHER REAL ESTATE INVESTMENTS, NET

Preferred Equity Investments —In September 2016, the Company completed a $ 2.3 million preferred equity investment with an affiliate of Cascadia Development, LLC.

The preferred equity investment yielded a return equal to prime plus 9.5 % but in no event less than 12.0 % calculated on a quarterly basis on the outstanding carrying value of the investment.

The investment was used to develop a 99 -bed skilled nursing facility in Boise, Idaho.

In connection with its investment, the Company held an option to purchase the development at a fixed-formula price upon stabilization, with an initial lease yield of at least 9.0 %.

The project was completed in the first quarter of 2018 and began lease-up in the second quarter of 2018.

In January 2020, the Company purchased the skilled nursing facility for approximately $ 18.7 million, which included capitalized acquisition costs.

The Company paid $ 15.0 million after receiving back its initial investment of $ 2.3 million and cumulative contractual preferred return through January 17, 2020, the acquisition date, of $ 1.4 million, of which less than $ 0.1 million was recognized as interest income during the nine months ended September 30, 2020.

The Company did not recognize any interest income during the three months ended September 30, 2020 related to preferred equity investments.

As of September 30, 2020, the Company had no remaining preferred equity investments.

Mezzanine Loan Receivable —In November 2020, the Company provided Next VA Star Realty Holdings, LLC a mezzanine loan for nine skilled nursing facilities secured by membership interests in affiliates of Next VA Star Realty Holdings, LLC for approximately $ 15.0 million, at an annual interest rate of 12 %.

The loan requires monthly interest payments, is set to mature on November 30, 2025, and may (subject to certain restrictions) be prepaid before the maturity date if paid in full and for an exit fee ranging from 1 % to 3 % of the loan plus unpaid interest payments equal to 24 months (less the amount of monthly interest payments made by the borrower through the date of prepayment).

During the three months ended March 31, 2021, the Company recognized $ 0.5 million of interest income related to its mezzanine loan.

Mortgage Loans Receivable —In July 2019, the Company provided MCRC, LLC a real estate loan secured by a 176 -bed skilled nursing facility in Manteca, California for $ 3.0 million, which bore a fixed interest rate of 8 % and required monthly interest payments.

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As a result, the Company commenced non-judicial foreclosure proceedings with respect to the Manteca facility.

In January 2020, the borrower further collateralized the loan by causing one of its affiliates to grant the Company a deed of trust in the real estate and improvements that constitute the Palm Gardens Assisted Living Facility in Yolo County, California.

During the quarter ended June 30, 2020, payment for the loan principal and accrued interest, including default interest, as well as reimbursement for attorney’s fees and certain other costs of suit, were received in full by the Company and, as a result, the Company withdrew all foreclosure-related proceedings related to the Manteca facility loan.

In September 2019, the Company provided affiliates of CommuniCare a $ 26.5 million loan secured by mortgages on three skilled nursing facilities sold by the Company to CommuniCare , which bore a fixed interest rate of 10 %.

In January 2020, the borrower further collateralized the loan by causing one of its affiliates to grant the Company a deed of trust in the real estate and improvements that constitute Palm Gardens Assisted Living Facility in Yolo County, California.

During the three months ended June 30, 2020, payment for the loan principal and accrued interest, including default interest, as well as reimbursement for attorney’s fees and certain other costs of suit, were received in full by the Company and, as a result, the Company withdrew all foreclosure-related proceedings related to the Manteca facility loan.

In September 2019, the Company provided affiliates of CommuniCare a $ 26.5 million loan secured by mortgages on the three skilled nursing facilities sold to CommuniCare , which bore a fixed interest rate of 10 %.

The mortgage loan, which required CommuniCare to make monthly interest payments, was set to mature on February 29, 2020 and included an option to be prepaid before the maturity date.

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In April 2020, the Company amended the mortgage loan’s maturity date to May 29, 2020.

During the quarter ended June 30, 2020, payment for the mortgage loan and accrued interest was received in full by the Company.

During the three months ended June 30, 2020, payment for the mortgage loan and accrued interest was received in full by the Company.

In February 2020, the Company provided subsidiaries of Cascade a $ 32.4 million loan secured by mortgages on the six skilled nursing facilities formerly operated by affiliates of Metron sold to Cascade in February 2020, as discussed in Note 3, Real Estate Investments, Net.

The mortgage loan bore interest at a fixed rate of 7.5 % and had a maturity date of March 31, 2020.

In April 2020, the mortg age loan was settled in connection with a new mortgage loan transaction between the Company and a third-party institutional lender as co-lenders, pursuant to which the Company received $ 18.9 million in cash and a new mortgage loan for $ 13.9 million.

The new mortgage loan with Cascade was secured by the same six skilled nursing facilities purchased by Cascade and was fo r a combined principal amount of $ 33.9 million, with the Company’s $ 13.9 million portion of the indebtedness initially bearing interest at a variable rate equal to LIBOR plus 4.00 %, subject to a LIBOR floor of 1.75 %.

The mortgage loan bore interest at 7.5 % and initially had a maturity date of March 31, 2020.

In April 2020, the mortgage loan was settled in connection with a new mortgage loan transaction between the Company and a third-party institutional lender as co-lenders, pursuant to which the Company received $ 18.9 million in cash and a new mortgage loan for $ 13.9 million.

The new mortgage loan with Cascade was secured by the same six skilled nursing facilities purchased by Cascade and was for a combined principal amount of $ 33.9 million, with the Company’s $ 13.9 million portion of the indebtedness initially bearing interest at a variable rate equal to LIBOR plus 4.00 %, subject to a LIBOR floor of 1.75 %.

The new mortgage loan had a maturity date of April 29, 2022 and included two six-month extension options.

During the three months ended September 30, 2020, prepayment for the mortgage loan of $ 13.9 million and accrued interest was received in full by the Company.

As of September 30, 2020, the Company had no remaining mortgage loan receivables.

During the three and nine months ended September 30, 2020, the Company recognized zero and $ 2.0 million, respectively, of interest income related to its mortgage loans.

During the three and nine months ended September 30, 2019, the Company recognized $ 0.8 million and $ 1.8 million , respectively, of interest income related to its mortgage loans.

During the three and nine months ended September 30, 2020, the Company recognized $ 17,000 and $ 0.2 million, respectively, of interest income related to its other loans receivable.

During the three and nine months ended September 30, 2019, the Company recognized $ 29,000 and $ 0.1 million, respectively, of interest income related to its other loans receivable.

In July 2020, prepayment for the mortgage loan of $ 13.9 million and accrued interest was received in full by the Company.

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

As of March 31, 2021, the Company had no remaining mortgage loan receivables.

During the three months ended March 31, 2021 and 2020, the Company recognized no interest income and $ 1.1 million of interest income, respectively, related to its mortgage loans.

During both the three months ended March 31, 2021 and 2020, the Company recognized $ 0.1 million of interest income related to its other loans receivable.

Preferred Equity Investments —In September 2016, the Company completed a $ 2.3 million preferred equity investment with an affiliate of Cascadia Development, LLC.

The preferred equity investment yielded a return equal to prime plus 9.5 % but in no event less than 12.0 % calculated on a quarterly basis on the outstanding carrying value of the investment.

The investment was used to develop a 99 -bed skilled nursing facility in Boise, Idaho.

In connection with its investment, the Company obtained an option to purchase the development at a fixed-formula price upon stabilization, with an initial lease yield of at least 9.0 %.

The project was completed in the first quarter of 2018 and began lease-up during the second quarter of 2018.

In January 2020, the Company purchased the skilled nursing facility for approximately $ 18.7 million, inclusive of transaction costs.

The Company did not recognize any interest income during the three months ended March 31, 2021 related to preferred equity investments.

As of March 31, 2021, the Company had no remaining preferred equity investments.

FAIR VALUE MEASUREMENTS

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The Company does not expect that changes in classifications between levels will be frequent.

Items Measured at Fair Value on a Non-Recurring Basis

Real Estate Investments:

The Company performs quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable.

The Company estimates fair values using Level 3 inputs and uses a combined income and market approach.

Specifically, t he fair value of the real estate investment is based on current market conditions and considers matters such as the forecasted operating cash flows, lease coverage ratios, capitalization rates, comparable sales data, and, where applicable, contracts or the results of negotiations with purchasers or prospective purchasers.

For the three and nine months ended September 30, 2020, there were no real estate assets deemed to be impaired.

For the three and nine months ended September 30, 2019, the Company recorded an impairment expense of $ 16.7 million.

See Note 3, Real Estate Investments, Net, for additional information.

Items Measured at Fair Value on a Recurring Basis

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020, aggregated by the level in the fair value hierarchy within which those instruments fall (dollars in thousands):

Level 1 Level 2 Level 3 Balance as of March 31, 2021

Mezzanine loan receivable $ — $ — $ 15,155 $ 15,155

Level 1 Level 2 Level 3 Balance as of December 31, 2020

Mezzanine loan receivable $ — $ — $ 15,000 $ 15,000

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

Mezzanine loan receivable:

The fair value of the mezzanine loan receivable was estimated using an internal valuation model that considered the expected future cash flows of the investment, the underlying collateral value, market interest rates and other credit enhancements.

As such, the Company classifies the instrument as Level 3 due to the significant unobservable inputs used in determin ing market interest rates for investments with similar terms.

Future changes in market interest rates could materially impact the estimated discounted cash flows.

A s of March 31, 2021 and December 31, 2020, the Company did no t have any loans that were 90 days or more past due.

For the three months ended March 31, 2021, there were no changes in assets and liabilities with Level 3 inputs in the fair value hierarchy.

Items Disclosed at Fair Value

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The estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments.

A summary of the face values, carrying amounts and fair values of the Company’s financial instruments as of September 30, 2020 and December 31, 2019 using Level 2 inputs for the Notes (as defined in Note 6, Debt, below), and Level 3 inputs, for all other financial instruments, is as follows (dollars in thousands):

September 30, 2020 December 31, 2019

A summary of the face values, carrying amounts and fair values of the Company’s financial instruments as of March 31, 2021 and December 31, 2020 using Level 2 inputs for the Notes (as defined in Note 6, Debt, below), is as follows (dollars in thousands):

March 31, 2021 December 31, 2020

Value Carrying

Financial assets:

Preferred equity investments 3 $ — $ — $ — $ 2,327 $ 3,800 $ 3,674

Mortgage loans receivable 3 $ — $ — $ — $ 29,500 $ 29,500 $ 29,500

Financial liabilities:

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These balances approximate their fair values due to the short-term nature of these instruments.

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

Unsecured revolving credit facility and senior unsecured term loan:

The fair values approximate their carrying values as the interest rates are variable and approximate prevailing market interest rates for similar debt arrangements.

The following table summarizes the balance of the Company’s indebtedness as of September 30, 2020 and December 31, 2019 (dollars in thousands):

September 30, 2020 December 31, 2019

The following table summarizes the balance of the Company’s indebtedness as of March 31, 2021 and December 31, 2020 (dollars in thousands):

March 31, 2021 December 31, 2020

Principal Amount Deferred Loan Fees Carrying Value Principal Amount Deferred Loan Fees Carrying Value

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As of June 1, 2020, the Issuers may redeem the Notes any time at the redemption prices set forth in the indenture.

As of September 30, 2020, the Issuers have not elected to redeem any of the Notes.

As of March 31, 2021, the Issuers have not elected to redeem any of the Notes.

If certain changes of control of the Company occur, holders of the Notes will have the right to require the Issuers to repurchase their Notes at 101 % of the principal amount plus accrued and unpaid interest, if any, to, but not including, the repurchase date.

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

The obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by the Company and certain of the Company’s wholly owned existing and, subject to certain exceptions, future material subsidiaries (other than the Issuers);

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The indenture also contains customary events of default.

As of September 30, 2020, the Company was in compliance with all applicable financial covenants under the indenture.

As of March 31, 2021, the Company was in compliance with all applicable financial covenants under the indenture.

Unsecured Revolving Credit Facility and Term Loan

On August 5, 2015, the Company, CareTrust GP, LLC, the Operating Partnership, as the borrower, and certain of its wholly owned subsidiaries entered into a credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender, and the lenders party thereto (the “Prior Credit Agreement”).

As later amended on February 1, 2016, the Prior Credit Agreement provided the following:

(i) a $ 400.0 million unsecured asset based revolving credit facility (the “Prior Revolving Facility”), (ii) a $ 100.0 million non-amortizing unsecured term loan (the “Prior Term Loan” and, together with the Prior Revolving Facility, the “Prior Credit Facility”), and (iii) a $ 250.0 million uncommitted incremental facility.

The Prior Revolving Facility was scheduled to mature on August 5, 2019, subject to two six-

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

month extension options.

The Prior Term Loan was scheduled to mature on February 1, 2023 and could be prepaid at any time subject to a 2 % premium in the first year after issuance and a 1 % premium in the second year after issuance.

On February 8, 2019, the Operating Partnership, as the borrower, the Company, as guarantor, CareTrust GP, LLC, and certain of the Operating Partnership’s wholly owned subsidiaries entered into an amended and restated credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender, and the lenders party thereto (the “Amended Credit Agreement”).

The Amended Credit Agreement, which amended and restated the Prior Credit Agreement, provides for:

The Amended Credit Agreement provides for:

(i) an unsecured revolving credit facility (the “Revolving Facility”) with revolving commitments in an aggregate principal amount of $ 600.0 million, including a letter of credit subfacility for 10 % of the then available revolving commitments and a swingline loan subfacility for 10 % of the then available revolving commitments and (ii) an unsecured term loan credit facility (the “Term Loan” and, together with the Revolving Facility, the “Amended Credit Facility”) in an aggregate principal amount of $ 200.0 million.

Borrowing availability under the Revolving Facility is subject to no default or event of default under the Amended Credit Agreement having occurred at the time of borrowing.

The proceeds of the Term Loan were used, in part, to repay in full all outstanding borrowings under the Prior Term Loan and Prior Revolving Facility under the Prior Credit Agreement.

The proceeds of the Term Loan were used, in part, to repay in full all outstanding borrowings under the Company’s prior term loan and revolving facility under its prior credit agreement.

Future borrowings under the Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes.

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In addition, the Operating Partnership will pay a facility fee on the revolving commitments under the Revolving Facility ranging from 0.15 % to 0.35 % per annum, based on the debt to asset value ratio of the Company and its consolidated subsidiaries (unless the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt and the Operating Partnership elects to decrease the applicable margin as described above, in which case the Operating Partnership will pay a facility fee on the revolving commitments ranging from 0.125 % to 0.30 % per annum based on the credit ratings of the Company’s senior long-term unsecured debt).

As of September 30, 2020, the Operating Partnership had $ 200.0 million outstanding under the Term Loan and no borrowings outstanding under the Revolving Facility.

As of March 31, 2021, the Operating Partnership had $ 200.0 million outstanding under the Term Loan and $ 170.0 million of borrowings outstanding under the Revolving Facility.

The Revolving Facility has a maturity date of February 8, 2023, and includes, at the sole discretion of the Operating Partnership, two , six-month extension options.

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The Amended Credit Facility is guaranteed, jointly and severally, by the Company and its wholly owned subsidiaries that are party to the Amended Credit Agreement (other than the Operating Partnership).

The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend organizational documents and pay certain dividends and other restricted payments.

The Amended Credit Agreement requires the Company to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum debt to asset value ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating income ratio, a maximum secured debt to asset value ratio, a maximum secured recourse debt to asset value ratio, a maximum unsecured debt to unencumbered properties asset value ratio, a minimum unsecured interest coverage ratio and a minimum rent coverage ratio.

The Amended Credit Agreement also contains certain customary events of default, including the failure to make timely payments under the Amended Credit Facility or other material indebtedness, the failure to satisfy certain covenants (including the financial maintenance covenants), the occurrence of change of control and specified events of bankruptcy and insolvency.

As of September 30, 2020, the Company was in compliance with all applicable financial covenants under the Amended Credit Agreement.

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

As of March 31, 2021, the Company was in compliance with all applicable financial covenants under the Amended Credit Agreement.

At-The-Market Offering —On March 10, 2020, the Company entered into a new equity distribution agreement to issue and sell, from time to time, up to $ 500.0 million in aggregate offering price of its common stock through an “at-the-market” equity offering program (the “New ATM Program”).

In connection with the entry into the equity distribution agreement and the commencement of the New ATM Program, the Company’s “at-the-market” equity offering program pursuant to the Company’s prior equity distribution agreement, dated as of March 4, 2019, was terminated (the “Prior ATM Program”).

There was no New ATM Program or Prior ATM Program activity (or activity under any predecessor at-the-market equity offering programs) for the three months ended September 30, 2020 and 2019 or for the nine months ended September 30, 2020.

The following table summarizes predecessor at-the-market equity offering program activity for the nine months ended September 30, 2019 (in thousands, except per share amounts):

For the Nine Months Ended

September 30, 2019

There was no Prior ATM Program or New ATM Program activity for the three months ended March 31, 2020.

The following table summarizes the New ATM Program activity for the three months ended March 31, 2021 (in thousands, except per share amounts).

For the Three Months Ended

March 31, 2021

Number of shares 702

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Gross proceeds (1)

*Total gross proceeds is before $ 0.6 million of commissions paid to the sales agents during the nine months ended September 30, 2019 under the predecessor at-the-market equity offering program.

As of September 30, 2020, the Company had $ 500.0 million available for future issuances under the New ATM Program.

(1) Total gross proceeds is before $ 0.2 million of commissions paid to the sales agents during the three months ended March 31, 2021 under the New ATM Program.

As of March 31, 2021, the Company had $ 483.4 million available for future issuances under the New ATM Program.

Share Repurchase Program —On March 20, 2020, the Company’s Board of Directors authorized a share repurchase program to repurchase up to $ 150.0 million of outstanding shares of the Company’s common stock (the “Repurchase Program”).

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The Company expects to finance any share repurchases under the Repurchase Program using available cash and may also use short-term borrowings under the Revolving Facility.

The Company did no t repurchase any shares of common stock under the Repurchase Program during the three and nine months ended September 30, 2020 .

The Company did no t repurchase any shares of common stock under the Repurchase Program during the three months ended March 31, 2021 and 2020 .

The Repurchase Program may be modified, discontinued or suspended at any time.

Dividends on Common Stock — The following table summarizes the cash dividends on the Company’s common stock declared by the Company’s Board of Directors for the first nine months of 2020 (dollars in thousands, except per share amounts):

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

Dividends on Common Stock — The following table summarizes the cash dividends on the Company’s common stock declared by the Company’s Board of Directors for the first three months of 2021 (dollars in thousands, except per share amounts):

For the Three Months Ended

March 31, 2020 June 30, 2020 September 30, 2020

March 31, 2021

Dividends declared per share $ 0.265

Dividends payment date April 15, 2020 July 15, 2020 October 15, 2020

Dividends payment date April 15, 2021

Dividends payable as of record date $ 25,633

Dividends record date March 31, 2020 June 30, 2020 September 30, 2020

Dividends record date March 31, 2021

STOCK-BASED COMPENSATION

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The Plan provides for the granting of stock-based compensation, including stock options, restricted stock, performance awards, restricted stock units and other incentive awards to officers, employees and directors in connection with their employment with or services provided to the Company.

Restricted Stock Awards —In connection with the separation of the healthcare business and real estate business of the Ensign Group, Inc.

(“Ensign”) into two separate and independently publicly traded companies (the “Spin-Off”) on June 1, 2014, employees of Ensign who had unvested shares of restricted stock were given one share of CareTrust REIT unvested restricted stock totaling 207,580 shares at the Spin-Off.

These restricted shares were subject to a time vesting provision only and the Company did not recognize any stock compensation expense associated with these awards.

During the year ended December 31, 2020, 1,760 shares were forfeited.

At March 31, 2021, there were no unvested restricted stock awards outstanding.

In January 2021 and February 2021, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) granted 140,514 and 99,189 shares of restricted stock, respectively, to officers and employees.

Each share had a fair market value on the date of grant of $ 22.48 and $ 22.18 per share, respectively, based on the closing market price of the Company’s common stock on that date, and the shares vest in three equal annual installments beginning on the first anniversary of the grant date.

In January 2021, the Compensation Committee granted 108,414 performance stock awards to officers.

Each share had a fair market value on the date of grant of $ 22.48 per share, based on the closing market price of the Company’s common stock on that date.

Performance stock awards are subject to both time and performance based conditions and vest over a one -to three-year period.

The amount of such performance awards that will ultimately vest is dependent on the Company’s Normalized Funds from Operations (“NFFO”) per share, as defined by the Compensation Committee, meeting or exceeding a specified per share amount for the applicable vesting period.

Additionally, in February 2021, the Compensation Committee granted 99,189 performance stock awards to officers.

Each share had an estimated fair market value on the date of grant of $ 27.98 per share.

Performance stock awards are subject to both time and performance based conditions and cliff vest over a three-year period.

The amount of such performance awards that will ultimately vest is dependent on the Company’s total shareholder return (“TSR”) performance relative to a custom TSR peer group consisting of 16 other publicly traded healthcare REITs and will range from 0 % to 200 % of the TSR awards initially granted.

Compensation expense for awards with performance-based vesting conditions is recognized based upon the grant date fair value per share for each component multiplied by the estimated number of performance stock awards to be earned after considering the Company’s expectation of future performance and is recognized provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied.

Forfeitures of stock-based awards are recognized as they occur.

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

Restricted Stock Awards — In connection with the separation of the healthcare business and real estate business of The Ensign Group, Inc.

(“Ensign”) into two separate and independently publicly traded companies (the “Spin-Off”), employees of Ensign who had unvested shares of restricted stock were given one share of CareTrust REIT unvested restricted stock totaling 207,580 shares at the Spin-Off.

These restricted shares are subject to a time vesting provision only and the Company does not recognize any stock compensation expense associated with these awards.

As of September 30, 2020, there were 1,760 unvested restricted stock awards outstanding that were issued in connection with the Spin-Off.

In January 2020 and March 2020, the Compensation Committee of the Company’s Board of Directors granted 27,000 and 107,790 shares of restricted stock, respectively, to officers and employees.

Each share had a fair market value on the date of grant of $ 22.18 and $ 19.06 per share, respectively, based on the closing market price of the Company’s common stock on that date, and the shares vest in four equal annual installments beginning on the first anniversary of the grant date.

Additionally, in March 2020, the Compensation Committee granted 107,790 performance stock awards to officers.

Each share had a fair market value on the date of grant of $ 19.06 per share, based on the closing market price of the Company’s common s tock on that date.

Performance stock awards are subject to both time and performance based conditions and vest over a one - to four-year period.

The amount of performance awards that will ultimately vest is dependent on the Company’s Normalized Funds from Operations (“NFFO”) per share, as defined by the Compensation Committee, meeting or exceeding fiscal year over year growth of 5.0 % or greater.

In April 2020, the Compensation Committee of the Company's Board of Directors gra nted 27,611 shares of restricted stock to members of the Board of Directors.

Each share had a fair market value on the date of grant o f $ 16.48 p er share, based on the c losing market price of the Company's common stock on that date, and the shares vest in full on the earlier to occur of April 29, 2021 or the Company’s 2021 Annual Meeting of Stockholders.

The fair value of the TSR-based performance stock awards is estimated on the date of the grant using a Monte Carlo valuation model.

The risk-free rate is based on the U.S.

Treasury yield curve in effect at the grant date for the expected performance period.

Expected volatility is based on historical volatility for the most recent 2.84 year period ending on the grant date for the Company and the selected TSR peer group, and is calculated on a daily basis.

The following are the key assumptions used in this valuation:

For the Three Months Ended March 31, 2021

Risk free interest rate 0.27 %

Expected stock price volatility 52.93 %

Expected service period 2.84 years

Expected dividend yield (assuming full reinvestment) — %

The following table summarizes the stock-based compensation expense recognized (dollars in thousands):

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2020 2019 2020 2019

For the Three Months Ended March 31,

Stock-based compensation expense $ 1,585 $ 884

As of September 30, 2020, there was $ 6.5 million of unamortized stock-based compensation expense related to unvested awards and the weighted-average remaining vesting period of such awards was 2.5 years.

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

EARNINGS (LOSS) PER COMMON SHARE

The following table presents the calculation of basic and diluted earnings (loss) per common share (“EPS”) for the Company’s common stock for the three and nine months ended September 30, 2020 and 2019, and reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS (amounts in thousands, except per share amounts):

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2020 2019 2020 2019

Net income (loss) $ 21,552 $ ( 10,054 ) $ 59,812 $ 25,697

As of March 31, 2021, there was $ 14.5 million of unamortized stock-based compensation expense related to unvested awards and the weighted-average remaining vesting period of such awards was 2.5 years .

EARNINGS PER COMMON SHARE

The following table presents the calculation of basic and diluted earnings per common share (“EPS”) for the Company’s common stock for the three months ended March 31, 2021 and 2020, and reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS (amounts in thousands, except per share amounts):

For the Three Months Ended March 31,

Net income $ 20,486 $ 19,325

Net income allocated to participating securities ( 119 ) ( 75 )

Numerator for basic and diluted earnings (loss) available to common stockholders $ 21,477 $ ( 10,120 ) $ 59,588 $ 25,466

Numerator for basic and diluted earnings available to common stockholders $ 20,367 $ 19,250

Weighted-average basic common shares outstanding 95,378 95,161

Weighted-average diluted common shares outstanding 95,385 95,161

Earnings (loss) per common share, basic $ 0.23 $ ( 0.11 ) $ 0.63 $ 0.28

Earnings (loss) per common share, diluted $ 0.23 $ ( 0.11 ) $ 0.63 $ 0.28

The Company’s unvested restricted shares associated with its incentive award plan and unvested restricted shares issued to employees of Ensign at the Spin-Off have been excluded from the above calculation of earnings (loss) per diluted share for the three and nine months ended September 30, 2020 and 2019, when their inclusion would have been anti-dilutive.

Earnings per common share, basic $ 0.21 $ 0.20

Earnings per common share, diluted $ 0.21 $ 0.20

The Company’s unvest ed restricted shares associated with its incentive award plan and unvested restricted shares issued to employees of Ensign at the Spin-Off ha ve been excluded from the above calculation of earnings per diluted share for the three months ended March 31, 2021 and 2020, when their inclusion would have been anti-dilutive.

COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries are and may become from time to time a party to various claims and lawsuits arising in the ordinary course of business, which are not individually or in the aggregate anticipated to have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

Claims and lawsuits may include matters involving general or professional liability asserted against the Company’s tenants, which are the responsibility of the Company’s tenants and for which the Company is entitled to be indemnified by its tenants under the insurance and indemnification provisions in the applicable leases.

Capital expenditures for each property leased under the Company’s triple-net leases are generally the responsibility of the tenant, except that, for the facilities leased to subsidiaries of Ensign and The Pennant Group, Inc., the tenant will have an option to require the Company to finance certain capital expenditures up to an aggregate of 20 % of the Company’s initial investment in such property, subject to a corresponding rent increase at the time of funding.

For the Company’s other triple-net master leases, subject to approval by the Company, the tenants may request capital expenditure funding that would generally be subject to a corresponding rent increase at the time of funding and which are subject to tenant compliance with the conditions to the Company’s approval and funding of their requests.

As of September 30, 2020, the Company had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities totaling $ 14.1 million, of which $ 12.9 million is subject to rent increase at the time of funding.

CONCENTRATION OF RISK

Major operator concentrations – As of September 30, 2020, Ensign leased 85 skilled nursing, multi-service campuses, assisted living and independent living facilities which had a total of 8,883 beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington.

The four states in which Ensign leases the

Claims and lawsuits may include matters involving general or professional liability asserted against the Company’s tenants, which are the responsibility of the

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

highest concentration of properties by rental revenues as of September 30, 2020 are California, Texas, Arizona and Utah.

During the three and nine months ended September 30, 2020, Ensign represented 30 % and 31 %, respectively, of the Company’s rental income, exclusive of operating expense reimbursements.

During the three and nine months ended September 30, 2019 Ensign represented 50 % and 40 %, respectively, of the Company’s rental income, exclusive of operating expense reimbursements.

Company’s tenants and for which the Company is entitled to be indemnified by its tenants under the insurance and indemnification provisions in the applicable leases.

(“Pennant”), the tenant will have an option to require the Company to finance certain capital expenditures up to an aggregate of 20 % of the Company’s initial investment in such property, subject to a corresponding rent increase at the time of funding.

As of March 31, 2021, the Company had committed to fund certain capital improvements at certain triple-net leased facilities totaling $ 14.1 million, of which $ 13.1 million is subject to rent increase at the time of funding.

CONCENTRATION OF RISK

Major operator concentrations – As of March 31, 2021, Ensign leased 89 skilled nursing, multi-service campuses, assisted living and independent living facilities which had a total of 9,551 beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington .

The four states in w hich Ensign leases the highest concentration of properties by rental revenues as of March 31, 2021 are Texas, California, Arizona and Utah.

During both the three months ended March 31, 2021 and 2020, Ensign represented 32 % of the Company’s rental income, exclusive of operating expense reimbursements.

Ensign is subject to the registration and reporting requirements of the SEC and is required to file with the SEC annual reports containing audited financial information and quarterly reports containing unaudited financial information.

1 unchanged sentence

The Company has not verified this information through an independent investigation or otherwise.

As of September 30, 2020, Priority Management Group (“PMG”) leased 15 skilled nursing and campus facilities which had a total of 2,145 beds and units, and are located in Louisiana and Texas.

During both the three and nine months ended September 30, 2020, PMG represented 16 % of the Company’s rental income, exclusive of operating expense reimbursements.

During the three and nine months ended September 30, 2019 PMG represented 22 % and 15 %, respectively, of the Company’s rental income, exclusive of operating expense reimbursements.

As of March 31, 2021 , Priority Management Group (“PMG”) leased 15 skilled nursing and campus facilities which had a total of 2,144 beds and units, and are located in Louisiana and Texas.

During both the three months ended March 31, 2021 and 2020, PMG represented 16 % of the Company’s rental income, exclusive of operating expense reimbursements.

SUBSEQUENT EVENTS

1 unchanged sentence

The Company evaluates subsequent events up until the date the condensed consolidated financial statements are issued.

On November 1, 2020, the Company closed on the sale of its remaining owned and operated ILF to a third party for a purchase price of $ 4.5 million.

The Company does not expect to record a material gain or loss in connection with the sale.

Recent Acquisition

In April 2021, the Company acquired one skilled nursing facility with the Company’s existing tenant Bayshire, LLC (“Bayshire”).

The amended lease with Bayshire has a remaining term of approximately 13 years.

The purchase price for the facility was approximately $ 9.7 million , which includes an estimated purchase price and capitalized acquisition costs.

The estimated contractual initial annual cash rent from the acquisition is approximately $ 0.8 million and increases to $ 0.9 million in the second year with CPI-based annual escalators thereafter.

The acquisition was funded using cash on hand.

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

What changed 10-Q

Item 1. Financial Statements