CareTrust REIT, Inc. 10-Q

Item 1. Financial Statements. CARETRUST REIT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (Unaudited) March 31, 2021 December 31, 2020 Assets: Real estate investments, net $ 1,577,450 $ 1,448,099 Other real estate investments, net 15,155 15,000 Assets held for sale, net — 7,226 Cash and cash equivalents 30,469 18,919 Accounts and other receivables, net 1,780 1,823 Prepaid expenses and other assets, net 7,448 10,450 Deferred financing costs, net 1,797 2,042 Total assets $ 1,634,099 $ 1,503,559 Liabilities and Equity: Senior unsecured notes payable, net $ 296,858 $ 296,669 Senior unsecured term loan, net 198,978 198,925 Unsecured revolving credit facility 170,000 50,000 Accounts payable and accrued liabilities 16,898 19,572 Dividends payable 25,924 24,251 Total liabilities 708,658 589,417 Commitments and contingencies (Note 10) Equity: Preferred stock, $ 0.01 par value; 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, 95,981,062 and 95,215,797 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively 960 952 Additional paid-in capital 1,180,840 1,164,402 Cumulative distributions in excess of earnings ( 256,359 ) ( 251,212 ) Total equity 925,441 914,142 Total liabilities and equity $ 1,634,099 $ 1,503,559 See accompanying notes to condensed consolidated financial statements. 1 Table of Contents CARETRUST REIT, INC. CONDENSED CONSOLIDATED INCOME STATEMENTS (in thousands, except per share amounts) (Unaudited) For the Three Months Ended March 31, 2021 2020 Revenues: Rental income $ 45,246 $ 42,464 Independent living facilities — 625 Interest and other income 505 1,251 Total revenues 45,751 44,340 Expenses: Depreciation and amortization 13,473 13,160 Interest expense 5,762 6,714 Property taxes 696 485 Independent living facilities — 546 General and administrative 5,142 4,054 Total expenses 25,073 24,959 Other loss: Loss on sale of real estate ( 192 ) ( 56 ) Net income $ 20,486 $ 19,325 Earnings per common share: Basic $ 0.21 $ 0.20 Diluted $ 0.21 $ 0.20 Weighted-average number of common shares: Basic 95,378 95,161 Diluted 95,385 95,161 See accompanying notes to condensed consolidated financial statements. 2 Table of Contents CARETRUST REIT, INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (in thousands, except share and per share amounts) (Unaudited) Common Stock Additional Paid-in Capital Cumulative Distributions in Excess of Earnings Total Equity Shares Amount Balance at January 1, 2021 95,215,797 $ 952 $ 1,164,402 $ ( 251,212 ) $ 914,142 Issuance of common stock, net 702,000 7 16,184 — 16,191 Vesting of restricted common stock, net of shares withheld for employee taxes 63,265 1 ( 1,331 ) — ( 1,330 ) Amortization of stock-based compensation — — 1,585 — 1,585 Common dividends ($ 0.265 per share) — — — ( 25,633 ) ( 25,633 ) Net income — — — 20,486 20,486 Balance at March 31, 2021 95,981,062 $ 960 $ 1,180,840 $ ( 256,359 ) $ 925,441 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents CARETRUST REIT, INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (in thousands, except share and per share amounts) (Unaudited) Common Stock Additional Paid-in Capital Cumulative Distributions in Excess of Earnings Total Equity Shares Amount Balance at January 1, 2020 95,103,270 $ 951 $ 1,162,990 $ ( 236,350 ) $ 927,591 Issuance of common stock, net — — ( 90 ) — ( 90 ) Vesting of restricted common stock, net of shares withheld for employee taxes 93,061 1 ( 1,987 ) — ( 1,986 ) Amortization of stock-based compensation — — 884 — 884 Common dividends ($ 0.25 per share) — — — ( 23,931 ) ( 23,931 ) Net income — — — 19,325 19,325 Balance at March 31, 2020 95,196,331 $ 952 $ 1,161,797 $ ( 240,956 ) $ 921,793 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents CARETRUST REIT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) For the Three Months Ended March 31, 2021 2020 Cash flows from operating activities: Net income $ 20,486 $ 19,325 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including below-market ground leases) 13,486 13,175 Amortization of deferred financing costs 487 487 Amortization of stock-based compensation 1,585 884 Straight-line rental income ( 12 ) ( 26 ) Loss on sale of real estate 192 56 Interest income distribution from other real estate investment — 1,346 Change in operating assets and liabilities: Accounts and other receivables, net ( 100 ) 335 Prepaid expenses and other assets, net 278 454 Accounts payable and accrued liabilities ( 2,453 ) 482 Net cash provided by operating activities 33,949 36,518 Cash flows from investing activities: Acquisitions of real estate, net of deposits applied ( 138,151 ) ( 25,905 ) 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 ) Principal payments received on real estate mortgage and other loans receivable 56 662 Repayment of other real estate investment — 2,327 Escrow deposits for potential acquisitions of real estate — ( 1,000 ) Net proceeds from sales of real estate 6,814 2,134 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 ) Borrowings under unsecured revolving credit facility 120,000 15,000 Net-settle adjustment on restricted stock ( 1,330 ) ( 1,986 ) Dividends paid on common stock ( 23,960 ) ( 21,532 ) 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 Cash and cash equivalents, end of period $ 30,469 $ 23,937 Supplemental disclosures of cash flow information: Interest paid $ 1,325 $ 2,289 Supplemental schedule of noncash investing and financing activities: Increase in dividends payable $ 1,673 $ 2,399 Transfer of pre-acquisition costs to acquired assets $ 358 $ 167 Sale of real estate settled with note receivable $ — $ 32,400 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 1. ORGANIZATION Description of Business— CareTrust REIT, Inc.’s (“CareTrust REIT” or the “Company”) primary business consists of acquiring, financing, developing and owning real property to be leased to third-party tenants in the healthcare sector. As of 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. 2. 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. Accordingly, the condensed consolidated financial statements do not include all of the disclosures required by GAAP for a complete set of annual audited financial statements. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. In the opinion of management, all adjustments which are of a normal and recurring nature and considered necessary for a fair presentation of the results of the interim periods presented have been included. The results of operations for the interim periods are not necessarily indicative of results for the full year. All intercompany transactions and account balances within the Company have been eliminated. 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. The amendments in this update are effective immediately and may be applied through December 31, 2022. The Company is still evaluating the impact of ASU 2020-04 and expects to take full advantage of the offered optional expedients and exceptions, but does not expect the adoption of the standard to have a material impact on the Company’s consolidated financial statements. 6 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 3. REAL ESTATE INVESTMENTS, NET 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 Buildings and improvements 1,578,754 1,477,849 Integral equipment, furniture and fixtures 101,131 97,836 Identified intangible assets 2,658 2,352 Real estate investments 1,926,000 1,783,393 Accumulated depreciation and amortization ( 348,550 ) ( 335,294 ) Real estate investments, net $ 1,577,450 $ 1,448,099 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 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): Year Amount 2021 (nine months) $ 132,001 2022 176,082 2023 175,777 2024 174,467 2025 174,441 2026 171,488 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) 766 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. 7 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 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) $ 45,171 $ 42,438 Straight-line rent 12 26 Lease termination revenue (2) 63 — Total $ 45,246 $ 42,464 (1) Includes initial cash rent and tenant operating expense reimbursements, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by the Company. For tenants on a cash basis, this represents the lesser of the amount that would be recognized on a straight-line basis or cash that has been received. (2) During the three 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 three months ended March 31, 2021 (dollars in thousands): Type of Property Purchase Price (1) Initial Annual Cash Rent Number of Properties Number of Beds/Units (2) Skilled nursing $ 15,800 $ 1,492 1 145 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 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. 8 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) On February 14, 2020, the Company closed on the sale of six skilled nursing facilities formerly operated by affiliates of Metron. In connection with the sale for $ 36.0 million, the Company received $ 3.5 million in cash and provided subsidiaries of Cascade Capital Group, LLC (“Cascade”), the purchaser of the properties, with a short-term mortgage loan secured by these properties for $ 32.4 million. The mortgage loan bore interest at 7.5 % and initially had a maturity date of March 31, 2020. In connection with the sale, the Company recognized a loss of approximately $ 0.1 million. In April 2020, the mortgage loan was settled with $ 18.9 million in cash and a new mortgage loan for $ 13.9 million. In July 2020, the Company received prepayment in full, including accrued interest, for the new $ 13.9 million mortgage loan. See Note 4, Other Real Estate Investments, Net, for further detail on the new mortgage loan. Lease Amendments 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 . 4. OTHER REAL ESTATE INVESTMENTS, NET 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. Concurrently, the Company entered into a purchase and sale agreement to purchase the Manteca facility from MCRC, LLC for approximately $ 16.4 million subject to normal diligence and other contingencies. The loan documents provided for a maturity date of the earlier to occur of the closing date of the acquisition, or five business days following the termination of the purchase and sale agreement. MCRC, LLC breached its obligation to sell the Manteca facility to the Company on the terms outlined in the purchase and sale agreement and to repay the real estate loan upon its stated maturity. As a result, the Company commenced non-judicial foreclosure proceedings with respect to the Manteca facility. In January 2020, the borrower further collateralized the loan by causing one of its affiliates to grant the Company a deed of trust in the real estate and improvements that constitute 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. In January 2020, the Company amended the mortgage loan’s maturity date to April 30, 2020. In April 2020, the Company amended the mortgage loan’s maturity date to May 29, 2020. During the 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 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. In July 2020, prepayment for the mortgage loan of $ 13.9 million and accrued interest was received in full by the Company. 9 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 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 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 three months ended March 31, 2020. 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. 5. FAIR VALUE MEASUREMENTS The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. GAAP guidance defines three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability. Level 3 – Unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques. The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and, depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. Changes in the type of inputs may result in a reclassification for certain assets. The Company does not expect that changes in classifications between levels will be frequent. Items Measured at Fair Value on a 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 Assets: Mezzanine loan receivable $ — $ — $ 15,155 $ 15,155 Level 1 Level 2 Level 3 Balance as of December 31, 2020 Assets: Mezzanine loan receivable $ — $ — $ 15,000 $ 15,000 10 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 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 Considerable judgment is necessary to estimate the fair value disclosure of financial instruments. The estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. A summary of the face values, carrying amounts and fair values of the Company’s financial instruments as of 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 Level Face Value Carrying Amount Fair Value Face Value Carrying Amount Fair Value Financial liabilities: Senior unsecured notes payable 2 $ 300,000 $ 296,858 $ 309,000 $ 300,000 $ 296,669 $ 311,430 Cash and cash equivalents, accounts and other receivables, other loans receivable, and accounts payable and accrued liabilities: These balances approximate their fair values due to the short-term nature of these instruments. Unsecured revolving credit facility and senior unsecured term loan: The fair values approximate their carrying values as the interest rates are variable and approximate prevailing market interest rates for similar debt arrangements. 6. DEBT The following table summarizes the balance of the Company’s indebtedness as of 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 Senior unsecured notes payable $ 300,000 $ ( 3,142 ) $ 296,858 $ 300,000 $ ( 3,331 ) $ 296,669 Senior unsecured term loan 200,000 ( 1,022 ) 198,978 200,000 ( 1,075 ) 198,925 Unsecured revolving credit facility 170,000 — 170,000 50,000 — 50,000 $ 670,000 $ ( 4,164 ) $ 665,836 $ 550,000 $ ( 4,406 ) $ 545,594 Senior Unsecured Notes Payable On May 10, 2017, the Company’s wholly owned subsidiary, CTR Partnership, L.P. (the “Operating Partnership”), and its wholly owned subsidiary, CareTrust Capital Corp. (together with the Operating Partnership, the “Issuers”), completed an underwritten public offering of $ 300.0 million aggregate principal amount of 5.25 % Senior Notes due 2025 (the “Notes”). The Notes were issued at par, resulting in gross proceeds of $ 300.0 million and net proceeds of approximately $ 294.0 million after deducting underwriting fees and other offering expenses. The Notes mature on June 1, 2025 and bear interest at a rate of 5.25 % per year. Interest on the Notes is payable on June 1 and December 1 of each year. As of June 1, 2020, the Issuers may redeem the Notes any time at the redemption prices set forth in the indenture. As of 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. 11 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) The obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by the Company and certain of the Company’s wholly owned existing and, subject to certain exceptions, future material subsidiaries (other than the Issuers); provided, however, that such guarantees are subject to automatic release under certain customary circumstances. The indenture contains customary covenants such as limiting the ability of the Company and its restricted subsidiaries to: incur or guarantee additional indebtedness; incur or guarantee secured indebtedness; pay dividends or distributions on, or redeem or repurchase, capital stock; make certain investments or other restricted payments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their assets; and create restrictions on the ability of the Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers. The indenture also requires the Company and its restricted subsidiaries to maintain a specified ratio of unencumbered assets to unsecured indebtedness. These covenants are subject to a number of important and significant limitations, qualifications and exceptions. The indenture also contains customary events of default. As of March 31, 2021, the Company was in compliance with all applicable financial covenants under the indenture. Unsecured Revolving Credit Facility and Term Loan 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 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 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. The interest rates applicable to loans under the Revolving Facility are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.10 % to 0.55 % per annum or LIBOR plus a margin ranging from 1.10 % to 1.55 % per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). The interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.50 % to 1.20 % per annum or LIBOR plus a margin ranging from 1.50 % to 2.20 % per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). In addition, the Operating Partnership will pay a facility fee on the revolving commitments under the Revolving Facility ranging from 0.15 % to 0.35 % per annum, based on the debt to asset value ratio of the Company and its consolidated subsidiaries (unless the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt and the Operating Partnership elects to decrease the applicable margin as described above, in which case the Operating Partnership will pay a facility fee on the revolving commitments ranging from 0.125 % to 0.30 % per annum based on the credit ratings of the Company’s senior long-term unsecured debt). As of 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. The Term Loan has a maturity date of February 8, 2026. The Amended Credit Facility is guaranteed, jointly and severally, by the Company and its wholly owned subsidiaries that are party to the Amended Credit Agreement (other than the Operating Partnership). The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend organizational documents and pay certain dividends and other restricted 12 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 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 March 31, 2021, the Company was in compliance with all applicable financial covenants under the Amended Credit Agreement. 7. EQUITY Common Stock At-The-Market Offering —On March 10, 2020, the Company entered into a new equity distribution agreement to issue and sell, from time to time, up to $ 500.0 million in aggregate offering price of its common stock through an “at-the-market” equity offering program (the “New ATM Program”). In connection with the entry into the equity distribution agreement and the commencement of the New ATM Program, the Company’s “at-the-market” equity offering program pursuant to the Company’s prior equity distribution agreement, dated as of March 4, 2019, was terminated (the “Prior ATM Program”). There was no 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 Average sales price per share $ 23.62 Gross proceeds (1) $ 16,579 (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”). Repurchases under the Repurchase Program, which expires on March 31, 2023, may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated share repurchase transactions, or other methods of acquiring shares, in each case subject to market conditions and at such times as shall be permitted by applicable securities laws and determined by management. Repurchases under the Repurchase Program may also be made pursuant to a plan adopted under Rule 10b5-1 promulgated under the Exchange Act. The Company expects to finance any share repurchases under the Repurchase Program using available cash and may also use short-term borrowings under the Revolving Facility. The Company did no t repurchase any shares of common stock under the Repurchase Program during the three months ended March 31, 2021 and 2020 . The Repurchase Program may be modified, discontinued or suspended at any time. 13 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 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, 2021 Dividends declared per share $ 0.265 Dividends payment date April 15, 2021 Dividends payable as of record date $ 25,633 Dividends record date March 31, 2021 8. STOCK-BASED COMPENSATION All stock-based awards are subject to the terms of the CareTrust REIT, Inc. and CTR Partnership, L.P. Incentive Award Plan (the “Plan”). The Plan provides for the granting of stock-based compensation, including stock options, restricted stock, performance awards, restricted stock units and other incentive awards to officers, employees and directors in connection with their employment with or services provided to the Company. 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. 14 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 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 March 31, 2021 2020 Stock-based compensation expense $ 1,585 $ 884 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 . 9. 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, 2021 2020 Numerator: Net income $ 20,486 $ 19,325 Less: Net income allocated to participating securities ( 119 ) ( 75 ) Numerator for basic and diluted earnings available to common stockholders $ 20,367 $ 19,250 Denominator: Weighted-average basic common shares outstanding 95,378 95,161 Weighted-average diluted common shares outstanding 95,385 95,161 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. 10. COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries are and may become from time to time a party to various claims and lawsuits arising in the ordinary course of business, which are not individually or in the aggregate anticipated to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. Claims and lawsuits may include matters involving general or professional liability asserted against the Company’s tenants, which are the responsibility of the 15 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 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. (“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. 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 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. 11. 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. Ensign’s financial statements, as filed with the SEC, can be found at http://www.sec.gov. The Company has not verified this information through an independent investigation or otherwise. As of 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. 12. SUBSEQUENT EVENTS The Company evaluates subsequent events in accordance with ASC 855, Subsequent Events . The Company evaluates subsequent events up until the date the condensed consolidated financial statements are issued. 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. 16 Table of Contents