What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 158 added, 93 removed, 146 unchanged (63% of the section changed)

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Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to:

(i) the COVID-19 pandemic and the measures taken to prevent its spread and the related impact on our business or the businesses of our tenants;

(i) the COVID-19 pandemic, including the risk of additional surges of COVID-19 infections due to the rate of public acceptance and efficacy of COVID-19 vaccines or to new and more contagious and/or vaccine resistant variants, and the measures taken to prevent the spread of COVID-19 and the related impact on our business or the businesses of our tenants;

(ii) the ability and willingness of our tenants to meet and/or perform their obligations under the triple-net leases we have entered into with them, including, without limitation, their respective obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities;

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Except in the normal course of our public disclosure obligations, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any statement is based.

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

As of March 31, 2021, we 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 .

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

As of June 30, 2021, we owned and leased to independent operators, 223 skilled nursing, multi-service campuses, assisted living and independent living facilities consisting of 23,301 operational beds and units located in 28 states wit h the highest concentration of properties by rental revenues located in California, Texas, Louisiana, Idaho and Arizona.

A s of June 30, 2021, we also had other real estate investments consisting of one mezzanine loan receivable with a carrying value of $15.2 million .

We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property (including property taxes, insurance, maintenance and repair costs and capital expenditures, subject to certain exceptions in the case of properties leased to Ensign and Pennant).

We conduct and manage our business as one operating segment for internal reporting and internal decision-making purposes.

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

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

We also anticipate diversifying our portfolio over time, including by acquiring properties in different geographic markets, and in different asset classes.

In addition, we actively monitor the clinical, regulatory and financial operating results of our tenants, and work to identify opportunities within their operations and markets that could improve their operating results at our facilities.

We communicate such observations to our

In addition, we actively

monitor the clinical, regulatory and financial operating results of our tenants, and work to identify opportunities within their operations and markets that could improve their operating results at our facilities.

We communicate such observations to our tenants;

however, we have no contractual obligation to do so.

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COVID-19 Update

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 implemented in response to efforts to reduce the spread of COVID-19.

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

Tenants of our properties operating pursuant to triple-net master leases have been adversely impacted, and we expect that they will continue to be adversely impacted, by the COVID-19 pandemic.

Our tenants are experiencing increased operating costs as a result of actions they are taking to prevent or mitigate the outbreak or spread of COVID-19 at their facilities, including in connection with their implementation of safety protocols and procedures and other regulatory requirements.

To help offset these costs as well as occupancy declines, various relief programs have been enacted by the government, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which have provided, and we expect will continue to provide some benefits to our tenants subject to the programs’ respective terms and conditions (the “Provider Relief Funds”).

The estimated federal and state COVID-19-related relief approved, received and retained to date by our operators, as reported by our operators, i s approximately $166.1 million.

At March 31, 2 021, two of our ope rators who have received Provider Relief Funds have disclosed that they have returned, or plan to return, all or a portion of the Provider Relief Funds issued to them.

At a portfolio wide level, occupancy levels at our seniors housing facilities remained relatively stable from the onset of the COVID-19 pandemic until the beginning of the fourth quarter of 2020, during which we began to see a decline, and occupancy levels declined further in the first quarter of 2021.

Occupancy levels at our skilled nursing facilities (“SNFs”), which declined at the onset of the COVID-19 pandemic and continued to decline during the remainder of 2020, started to stabilize during the first quarter of 2021 compared to occupancy levels in the fourth quarter of 2020.

To help offset these costs as well as occupancy declines, various relief programs have been enacted by federal and state governments, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which have provided, and we expect will continue to provide some benefits to our tenants subject to the programs’ respective terms and conditions (the “Provider Relief Funds”).

The estimated federal and state relief approved, received and retained to date by our operators, as reported by our operators, is approximately $132.2 million.

At June 30, 2021 , two of our ope rators who received Provider Relief Funds have disclosed that they have returned all or a portion of the Provider Relief Funds issued to them.

Occupancy levels at our skilled nursing facilities (“SNFs”), which declined at the onset of the COVID-19 pandemic and continued to decline through January 2021, have been on a steady incline since February 2021 and continued to increase through the second quarter of 2021.

Beginning in early 2020, the federal government temporarily suspended the three-day hospital stay requirement for a patient’s Medicare benefits to refresh.

Providers can now “skill in place,” eliminating the risk of transferring the patient to the hospital.

Because of this temporary rule change, overall skilled mix increased in the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Because of this temporary rule change, overall skilled mix remained slightly elevated in the three months ended June 30, 2021 compared to the pre-pandemic skilled mix during the three months ended March 31, 2020.

An increase in skilled mix can, but may not necessarily, offset some or all of the adverse financial impact to the operator of the SNF from a decline in occupancy.

However, the skilled mix in our SNFs during the three months ended March 31, 2021 was lower than the peak level seen in December 2020, and we anticipate that skilled mix in our SNFs will decline as cases of COVID-19 decline.

The higher o perating costs affecting our tenants, and the impact of lower occupancy levels, have adversely impacted and may continue to adversely impact the ability of our tenants to satisfy their rental obligations to us in full or on a timely basis .

W hile we have not seen a need to grant any rent relief to any tenant to date, future adverse changes to tenants’ operating fundamentals, or a reduction in or discontinuation of government support, could change our expectations.

Approximately 100.0% of our contractual rent obligations due for both the first quarter of 2021 and April 2021 have b een collected from our tenants.

Recently, a number of COVID-19 vaccines were provided emergency use authorization.

As of May 6, 2021, based on information provided by operators who have reported such information to us, the majority of our operators’ residents have been fully vaccinated, while less than half of such operators’ staff have received the first dose.

The duration and extent of the COVID-19 pandemic’s effect on our operational and financial performance, and the operational and financial performance of our tenants, will depend on future developments, which are highly uncertain and cannot be predicted at this time, including new information which may emerge concerning the severity of COVID-19, 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 , a ctions taken to contain the spread of COVID-19, resurgences 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.

However, the skilled mix in our SNFs during the three months ended June 30, 2021 was lower than the peak level seen in December 2020, and we anticipate that skilled mix in our SNFs will continue to decline as cases of COVID-19 decline.

The higher operating costs affecting our tenants, and the impact of lower occupancy levels, have adversely impacted and may continue to adversely impact the ability of our tenants to satisfy their rental obligations to us in full or on a timely basis.

Provider Relief Funds not being made available to our seniors housing facilities has also impacted some of our tenants’ ability to continue to meet some of their financial obligations, as they continue to experience lower occupancy levels and higher operating costs.

Subsequent to the quarter ended June 30, 2021, one seniors housing operator failed to pay rent for July and proposed a rent deferral for the months of July, August and a portion of September under a plan that would bring all rent deferrals current by the end of 2021.

We are currently considering their request.

Approximately 100.0% of our contractual rent obligations due for the second quarter of 2021, and approximately 96.2% due for July 2021, have been collected from our tenants before considering any cash deposits on-hand from which we may offset any shortfalls in rent received.

A number of COVID-19 vaccines were issued emergency use authorization by the United States Food and Drug Administration.

As of August 5, 2021, based on information provided by operators who have reported such information to us, almost three-quarters of our operators’ residents have been fully vaccinated, while almost half of such operators’ staff have received at least one dose.

The duration and extent of the COVID-19 pandemic’s effect on our operational and financial performance, and the operational and financial performance of our tenants, will depend on future developments, which are highly uncertain and cannot be predicted at this time, including the rate of public acceptance and usage of vaccines and the effectiveness of vaccines in limiting the spread of COVID-19 and its variants , resurgences of COVID-19 and, in particular, new and more contagious and/or vaccine resistant variants, actions taken to contain the spread of COVID-19 and how quickly and to what extent normal economic and operating conditions can resume.

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

Sale of Real Estate

Senior Notes Issuance and Redemption

On June 17, 2021, our 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 a private offering of $400.0 million aggregate principal amount of 3.875% Senior Notes due 2028 (the “Notes”) to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A and to non-U.S.

persons outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended (the “Securities Act”).

See Note 12, Subsequent Events, for additional information.

The aggregate net proceeds from the sale of the Notes were approxi mately $393.8 million after deducting underwriting fees and other offering expenses.

We used a portion of the net proceeds from the sale of the Notes to redeem all of the Issuers’ outstanding 5.25% Senior Notes due 2025 (the “2025 Notes”) and the remaining proceeds to repay a portion of the borrowings outstanding under our Revolving Facility (as defined below).

On July 1, 2021 (the “Redemption Date”), the Issuers redeemed all $300.0 million aggregate principal amount of their outstanding 2025 Notes.

The 2025 Notes were redeemed at a redemption price equal to 102.625% of the principal amount of the 2025 Notes, plus accrued and unpaid interest thereon up to, but not including, the Redemption Date.

Sale of Real Estate and Asset Held for Sale

On February 1, 2021, we closed on the sale of 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.

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The facility was classified as held for sale as of December 31, 2020.

In August 2021, we met the held for sale criteria on one assisted living facility operated by affiliates of Noble Senior Services, and are in the process of estimating its fair value, which is expected to be below the net carrying value of $4.9 million.

The associated impairment loss is expected to be recorded in the quarter ending September 30, 2021.

Recent Investments

From January 1, 2021 through May 6, 2021, we acquired 2 skilled nursing facilities and 4 multi-service campuses for approximately $151.2 million, which includes capitalized acquisition costs.

From January 1, 2021 through August 5, 2021, we acquired 4 skilled nursing facilities and 4 multi-service campuses for approximately $183.6 million, which includes capitalized acquisition costs.

These acquisitions are expected to generate initial annual cash revenues of approximately $13.1 million and an initial blended yield of approximately 7.3%.

See Note 3, Real Estate Investments, Net in the Notes to condensed consolidated financial statements for additional information.

See Note 3, Real Estate Investments, Net and Note 12, Subsequent Events in the Notes to condensed consolidated financial statements for additional information.

At-The-Market Offering of Common Stock

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

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

There was no Prior ATM Program or New ATM Program activity for the three 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

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

There was no Prior ATM Program or ATM Program activity for the three and six months ended June 30, 2020.

The following table summarizes the ATM Program activity for the three and six months ended June 30, 2021 (in thousands, except

per share amounts).

For the Three Months Ended For the Six Months Ended

June 30, 2021 June 30, 2021

Number of shares 288 990

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Gross proceeds (1)

(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.

$ 6,926 $ 23,505

(1) Total gross proceeds is before $0.1 million and $0.3 million of commissions paid to the sales agents during the three and six months ended June 30, 2021, respectively, under the ATM Program.

As of June 30, 2021, we had $476.5 million available for future issuances under the ATM Program.

Results of Operations

Operating Results

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020:

Three Months Ended March 31, Increase

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020:

Three Months Ended June 30, Increase

(Decrease) Percentage

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General and administrative 5,798 4,762 1,036 22 %

Rental income .

The $5.2 million, or 12%, increase in rental income is primarily due to a $4.4 million increase in rental income from real estate investments made after April 1, 2020, $0.9 million from contractual increases in rental rates for our existing tenants and $0.1 million in cash rents due to lease amendments, partially offset by a $0.1 million decrease in rental income due to the disposal of assets in February 2021 and a $0.1 million decrease in tenant reimbursements.

Independent living facilities.

The $0.6 million, or 100%, decrease in revenues from our ILFs was due to the sale of our one remaining ILF to a third party in November 2020.

The $0.5 million, or 100%, decrease in expenses was for the same reason indicated for the decrease in revenues.

Interest and other income.

The $0.5 million, or 51%, decrease in interest and other income was primarily due to a decrease in interest income of $0.9 million due to the repayment of mortgage loans and other loans receivable primarily by CommuniCare in May 2020 and Cascade in July 2020, partially offset by approximately $0.4 million of interest income related to our mezzanine loan to Next VA Star Realty Holdings, LLC originated in November 2020.

See Note 4, Other Real Estate Investments, Net .

Depreciation and amortization.

The $0.6 million, or 5%, increase in depreciation and amortization was primarily due to an increase in depreciation and amortization of $1.4 million related to new real estate investments and capital improvements made after April 1, 2020, partially offset by $0.7 million due to assets becoming fully depreciated after April 1, 2020 and $0.1 million of depreciation related to the disposal of assets.

Interest expense.

The $0.7 million, or 12%, increase in interest expense was primarily due to a higher weighted average debt balance of approximately $157.5 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 due to the issuance of the Notes on June 17, 2021 and the redemption of the 2025 Notes on July 1, 2021, partially offset by lower weighted average interest rates.

Property taxes.

The $0.1 million, or 8%, decrease in property taxes was primarily due to a $0.2 million decrease due to reassessments and decreased effective tax rates, partially offset by an increase of $0.1 million in property taxes due to the transfer of certain properties to new operators in January 2021 that do not make direct tax payments.

General and administrative expense.

The $1.0 million, or 22%, increase in general and administrative expense was primarily related to higher stock compensation expense of $0.8 million, higher cash wages of $0.3 million and $0.1 million of other general and administrative expense, partially offset by a decrease of $0.2 million in state and business taxes compared to the prior period.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020:

Six Months Ended June 30, Increase

(Decrease) Percentage

(dollars in thousands)

Rental income $ 92,990 $ 84,971 $ 8,019 9 %

Independent living facilities — 1,240 (1,240) (100) %

Interest and other income 1,019 2,297 (1,278) (56) %

Depreciation and amortization 27,316 26,399 917 3 %

Interest expense 12,296 12,563 (267) (2) %

Property taxes 1,462 1,322 140 11 %

Independent living facilities — 1,092 (1,092) (100) %

General and administrative 10,940 8,816 2,124 24 %

Loss on sale of real estate (192) (56) (136) 243 %

Rental income .

The $2.8 million, or 7%, increase in rental income is primarily due to a $2.3 million increase in rental income from real estate investments made after January 1, 2020, $0.8 million from contractual increases in rental rates for our existing tenants, a $0.3 million increase in cash rents due to lease amendments and $0.1 million of lease termination revenue, partially offset by a $0.6 million decrease in rental income due to the disposal of assets in February 2020 and February 2021 and a $0.1 million decrease in tenant reimbursements.

The $8.0 million, or 9%, increase in rental income is primarily due to a $6.7 million increase in rental income from real estate investments made after January 1, 2020, $1.6 million from contractual increases in rental rates for our existing tenants and $0.4 million in cash rents due to lease amendments, partially offset by a $0.6 million decrease in rental income due to the disposal of assets in February 2020 and February 2021 and a $0.1 million decrease in tenant reimbursements.

Independent living facilities.

The $1.2 million, or 100%, decrease in revenues from our ILFs was due to the sale of our one remaining ILF to a third party in November 2020.

The $0.5 million, or 100%, decrease in expenses was for the same reasons indicated for the decrease in revenues.

The $1.1 million, or 100%, decrease in expenses was for the same reason indicated for the decrease in revenues.

Interest and other income.

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Depreciation and amortization.

The $0.3 million, or 2%, increase in depreciation and amortization was primarily due to an increase in depreciation and amortization of $0.7 million related to new real estate investments made after January 1, 2020, partially offset by $0.3 million due to assets becoming fully depreciated after January 1, 2020 and $0.1 million of depreciation related to the disposal of assets.

The $0.9 million, or 3%, increase in depreciation and amortization was primarily due to an increase in depreciation and amortization of $2.3 million related to new real estate investments and capital improvements made after January 1, 2020, partially offset by $1.2 million due to assets becoming fully depreciated after January 1, 2020 and $0.2 million of depreciation related to the disposal of assets.

Interest expense.

The $1.0 million, or 14%, decrease in interest expense was primarily due to lower weighted average interest rates, partially offset by a higher weighted average debt balance of approximately $23.9 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

The $0.3 million, or 2%, decrease in interest expense was primarily due to lower weighted average interest rates, partially offset by a higher weighted average debt balance of approximately $90.9 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Property taxes.

The $0.2 million, or 44%, increase was primarily due to a $0.3 million decline in property taxes realized upon disposition of assets in February 2020 and the transfer of certain properties to new operators in January 2021 that do not make direct tax payments, partially offset by a decrease of $0.1 million of property taxes due to annual reassessments and decreased effective tax rates.

The $0.1 million, or 11%, increase in property taxes was primarily due to a $0.4 million increase in property taxes realized upon the disposition of assets in February 2020 and the transfer of certain properties to new operators in January 2021 that make direct tax payments, partially offset by a decrease of $0.3 million of property taxes due to reassessments and decreased effective tax rates.

General and administrative expense.

The $1.1 million, or 27%, increase was primarily related to higher stock compensation expense of $0.7 million, higher cash wages of $0.2 million, increased professional service fees of $0.1 million and $0.1 million of other general and administrative expense compared to the prior period.

The $2.1 million, or 24%, increase in general and administrative expense was primarily related to higher stock compensation expense of $1.5 million, higher cash wages of $0.5 million, increased professional service fees of $0.2 million and $0.1 million of other general and administrative expense, partially offset by a decrease of $0.2 million in state and business taxes compared to the prior period.

Loss on sale of real estate .

During the three months ended March 31, 2021, we recorded a $0.2 million loss on sale of real estate related to the sale of one skilled nursing facility.

During the three months ended March 31, 2020, we recorded a $0.1 million loss on sale of real estate related to the sale of six skilled nursing facilities.

During the six months ended June 30, 2021, we recorded a $0.2 million loss on sale of real estate related to the sale of one skilled nursing facility.

During the six months ended June 30, 2020, we recorded a $0.1 million loss on sale of real estate related to the sale of six skilled nursing facilities.

Liquidity and Capital Resources

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All such dividends are at the discretion of our board of directors.

As of March 31, 2021, we had cash and cash equivalen ts of $30.5 million .

During the three months ended March 31, 2021, we sold 702,000 shares of common stock under our New ATM Program for gross proceeds of $16.6 million.

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

As of March 31, 2021, we also had $170.0 million in borrowings outstanding and $430.0 million of availability remaining under the Revolving Facility (as defined below).

We believe that our available cash, expected operating cash flows, and the availability under the New ATM Program and Amended Credit Facility (as defined below) will provide sufficient funds for our operations, anticipated scheduled debt service payments and projected dividend payments for at least the next twelve months.

As of June 30, 2021, we had cash, cash equivalen ts and restricted cash of $311.0 million .

The $309.2 million in restricted cash as of June 30, 2021 related to the cash deposited with the trustee to pay the redemption price of the 2025 Notes.

The 2025 Notes were redeemed on July 1, 2021.

See above under “Recent Developments” and Note 12, Subsequent Events, for additional information.

During the three and six months ended June 30, 2021, we sold 288,000 and 990,000 shares of common stock under our ATM Program for gross proceeds of $6.9 million and $23.5 million, respectively.

As of June 30, 2021, we had $476.5 million available for future issuances under the ATM Program.

As of June 30, 2021, we also had $50.0 million in borrowings outstanding and $550.0 million of availability remaining under the Revolving Facility (as defined below).

We believe that our available cash, expected operating cash flows, and the availability under the ATM Program and Amended Credit Facility (as defined below) will provide sufficient funds for our operations, anticipated scheduled debt service payments and projected dividend payments for at least the next twelve months.

We intend to invest in and/or develop additional healthcare properties as suitable opportunities arise and adequate sources of financing are available.

We expect that future investments in and/or development of properties, including any improvements or renovations of current or newly-acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, borrowings available to us under the Amended Credit Facility, future borrowings or the proceeds from sales of shares of our common stock pursuant to our New ATM Program or additional issuances of common stock or other securities.

We expect that future investments in and/or development of properties, including any improvements or renovations of current or newly-acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, borrowings available to us under the Amended Credit Facility, future borrowings or the proceeds from sales of shares of our common stock pursuant to our ATM Program or additional issuances of common stock or other securities.

In addition, we may seek financing from U.S.

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The following table presents selected data from our condensed consolidated statements of cash flows for the periods presented (dollars in thousands):

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Net cash provided by operating activities $ 70,557 $ 67,942

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

Net cash (used in) provided by investing activities (145,043) 25,325

Net cash provided by (used in) financing activities 366,525 (107,796)

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

Net cash provided by operating activities decreased $2.6 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily due to a decrease of $2.1 million in interest and other income due to the repayments of our preferred equity investment, mortgages and other loans, a change in operating assets and liabilities of $1.4 million, an increase of $0.4 million in cash paid for general and administrative expenses, a decrease of $0.1 million in net operating income from our previously owned ILF, partially offset by a decrease of $1.0 million in interest paid on outstanding indebtedness due to lower weighted average interest rates, partially offset by a higher weighted average debt balance and a $0.4 million net increase in cash rent.

Cash used in investing activities for the three months ended March 31, 2021 was primarily comprised of $138.9 million in acquisitions of real estate and investments in other loans, $1.3 million of purchases of equipment, furniture an d fixtures and improvements to real estate, partially offset by $6.8 million in net proceeds from real estate sales and $0.1 million of payments rece ived from other loans receivable.

C ash used in investing activities for the three months ended March 31, 2020 was primarily comprised of $ 27.0 million in acquisitions of real estate and investments in real estate mortgage loans and $2.4 million of purchases of equipment, furniture and fixtures and improvements to real estate partially offset by $3.0 million of payments received from our preferred equity investment and mortgage and other loans receivable and $2.1 million in net proceeds from real estate sales.

Our cash flows provided by financing activities for the three months ended March 31, 2021 were primarily comprised of $120.0 million in borrowings under our Amended Credit Facility (as defined below), $16.2 million of net proceeds from the issuance of common stock, partially offset by $24.0 million in dividends paid and $1.3 million net settlement adjustment on restricted stock.

Our cash flows used in financing activities for the three months ended March 31, 2020 were primarily comprised of $ 21.5 million in dividends paid and a $2.0 million net settlement adjustment on restricted stock, partially offset by $15.0 million in net borrowings under our Amended Credit Facility.

Net increase (decrease) in cash, cash equivalents, and restricted cash 292,039 (14,529)

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

Cash, cash equivalents, and restricted cash as of the end of period $ 310,958 $ 5,798

Net cash provided by operating activities increased $2.6 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Operating cash inflows are derived primarily from the rental payments received under our lease agreements, including as a result of new investments, and interest payments on our other real estate investments.

Operating cash outflows consist primarily of interest expense on our borrowings and general and administrative expenses.

The net increase of $2.6 million in cash provided by operating activities for the six months ended June 30, 2021 is primarily due to increased rental payments as a result of new investments and a decrease in cash paid for interest on outstanding indebtedness due to lower weighted average interest rates, partially offset by a decrease in interest and other income due to the repayments of our other real estate investments and an increase in cash paid for general and administrative expenses.

Cash used in investing activities for the six months ended June 30, 2021 was primarily comprised of $148.5 million in acquisitions of real estate and investments in other loans and $3.5 million of purchases of equipment, furniture and fixtures and improvements to real estate, partially offset by $6.8 million in net proceeds from real estate sales and $0.1 million of payments received from other loans receivable.

Cash provided by investing activities for the six months ended June 30, 2020 was primarily comprised of $69.3 million of payments received from our preferred equity investment and mortgage and other loans receivable and $2.1 million in net proceeds from real estate sales, partially offset by $39.9 million in acquisitions of real estate and investments in real estate mortgage loans and $6.2 million of purchases of furniture, fixtures and equipment and improvements to real estate.

Our cash flows provided by financing activities for the six months ended June 30, 2021 were primarily comprised of $400.0 million of proceeds from the issuance of the Notes, $22.9 million of net proceeds from the issuance of common stock under the ATM Program, partially offset by $49.5 million in dividends paid, $5.6 million in payments of deferred financing costs and a $1.3 million net settlement adjustment on restricted stock.

Our cash flows used in financing activities for the six months ended June 30, 2020 were primarily comprised of $45.4 million in dividends paid, a $2.0 million net settlement adjustment on restricted stock, $0.4 million paid for common stock offering related costs and $60.0 million in net repayments under our Amended Credit Facility.

3.875% Senior Unsecured Notes due 2028

On June 17, 2021, the Issuers completed a private offering of $400.0 million aggregate principal amount of 3.875% Senior Notes due 2028 to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A and to non-U.S.

persons outside the United States in reliance on Regulation S under the Securities Act.

The Notes were issued at par, resulting in gross proceeds of $400.0 million and net proceeds of approximately $393.8 million after deducting underwriting fees and other offering expenses.

The Notes mature on June 30, 2028.

The Notes accrue interest at a rate of 3.875% per annum payable semiannually in arrears on June 30 and December 30 of each year, commencing on December 30, 2021.

The obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by the Company and all of CareTrust’s existing and future subsidiaries (other than the Issuers) that guarantee obligations under the Amended Credit Facility (as defined below);

provided, however, that such guarantees are subject to automatic release under certain customary circumstances.

See above under “Recent Developments” and Note 6, Debt , for additional information.

The indenture governing the Notes requires CareTrust REIT and its restricted subsidiaries to maintain a specified ratio of unencumbered assets to unsecured indebtedness.

These covenants are subject to a number of important and significant limitations, qualifications and exceptions.

The indenture also contains customary events of default.

As of June 30, 2021, we were in compliance with all applicable financial covenants under the indenture governing the Notes.

5.25% Senior Unsecured Notes due 2025 and Issuer and Guarantor Financial Information

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The 2025 Notes were issued at par, resulting in gross proceeds of $300.0 million and net proceeds of approximately $294.0 million after deducting underwriting fees and other offering expenses.

The Notes mature on June 1, 2025 and bear interest at a rate of 5.25% per year.

Interest on the Notes is payable on June 1 and December 1 of each year, beginning on December 1, 2017.

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

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

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

The obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by CareTrust REIT (the “Parent Guarantor”) and CareTrust REIT’s wholly owned existing and, subject to certain exceptions, future material subsidiaries (other than the Issuers) (the “Subsidiary Guarantors”);

provided, however, that such guarantees are subject to automatic release under certain customary circumstances, including if the Subsidiary Guarantor is sold

or sells all or substantially all of its assets, the Subsidiary Guarantor is designated “unrestricted” for covenant purposes under the indenture, the Subsidiary Guarantor’s guarantee of other indebtedness which resulted in the creation of the guarantee of the Notes is terminated or released, or the requirements for legal defeasance or covenant defeasance or to discharge the indenture have been satisfied.

The following provides information regarding the entity structure of the Parent Guarantor, the Issuers and the Subsidiary Guarantors:

The 2025 Notes were scheduled to mature on June 1, 2025 and bore interest at a rate of 5.25% per year.

Interest on the 2025 Notes was payable on June 1 and December 1 of each year, beginning on December 1, 2017.

On July 1, 2021, the Issuers redeemed all $300.0 million aggregate principal amount of the 2025 Notes.

See above under “Recent Developments” and Note 12, Subsequent Events, for additional information.

The obligations under the 2025 Notes were fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by CareTrust REIT (the “Parent Guarantor”) and all of CareTrust REIT’s existing and future subsidiaries (other than the Issuers) that guaranteed obligations under the Amended Credit Facility;

provided, however, that such guarantees were subject to automatic release under certain customary circumstances, including if the Subsidiary Guarantor was sold or sold all or substantially all of its assets, the Subsidiary Guarantor was designated “unrestricted” for covenant purposes under the indenture governing the 2025 Notes, the Subsidiary Guarantor’s guarantee of other indebtedness which resulted in the creation of the guarantee of the 2025 Notes was terminated or released, or the requirements for legal defeasance or covenant defeasance or to discharge the indenture had been satisfied.

The following provides information regarding the entity structure of the Parent Guarantor, the Issuers and the Subsidiary Guarantors of the 2025 Notes:

CareTrust REIT, Inc.

– The Parent Guarantor was formed on October 29, 2013 in connection with the separation of Ensign’s healthcare business and its real estate business into two separate and independently publicly traded companies (the “Spin-Off”).

The Parent Guarantor was a wholly owned subsidiary of Ensign prior to the effective date of the Spin-Off on June 1, 2014.

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The Operating Partnership directly invests in real estate and real estate related assets and therefore does not rely solely on the cash flow generated by the Subsidiary Guarantors and their ability to make cash available to the Issuers, by dividend or otherwise.

However, in the event that the earnings or available assets of the Issuers are insufficient, the Issuers’ ability to pay principal and interest on the Notes could be dependent on the cash flow generated by the Subsidiary Guarantors and their ability to make such cash available to the Issuers.

However, in the event that the earnings or available assets of the Issuers were insufficient, the Issuers’ ability to pay principal and interest on the 2025 Notes could have been dependent on the cash flow generated by the Subsidiary Guarantors and their ability to make such cash available to the Issuers.

CareTrust Capital Corp., a co-issuer of the 2025 Notes, has no material assets and conducts no operations.

Therefore, it has no independent ability to service the interest and principal obligations under the Notes.

Subsidiary Guarantors – The Subsidiary Guarantors consist of all of the subsidiaries of the Parent Guarantor other than the Issuers.

Therefore, it had no independent ability to service the interest and principal obligations under the 2025 Notes.

Subsidiary Guarantors – The Subsidiary Guarantors consisted of all of the subsidiaries of the Parent Guarantor other than the Issuers.

The Parent Guarantor conducts a substantial portion of its business operations through the Subsidiary Guarantors.

The assets and liabilities and results of operations of the combined guarantors (the Parent Guarantor and the Subsidiary Guarantors) and the Issuers of the 2025 Notes are not materially different than the corresponding amounts presented in our condensed consolidated financial statements.

The indenture contains customary covenants such as limiting the ability of CareTrust REIT and its restricted subsidiaries to:

The indenture governing the 2025 Notes contained customary covenants such as limiting the ability of CareTrust REIT and its restricted subsidiaries to:

incur or guarantee additional indebtedness;

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merge or consolidate or sell all or substantially all of their assets, and pay dividends or distributions on, or redeem or repurchase, capital stock, including a restriction on the ability of the Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers, subject to certain other exceptions, unless:

(i) there is no default or event of default under the indenture;

(ii) the Issuers are in compliance with specified limitations on indebtedness under the indenture;

and (iii) the payments do not exceed a specified restricted payment basket.

Dividends or distributions are also permitted if the Parent Guarantor’s board of directors believes in good faith they are necessary to maintain Parent Guarantor’s REIT status or to avoid any excise tax or income tax imposed on Parent Guarantor, provided there is no default or event of default under the indenture.

Further, the Issuers and their restricted subsidiaries are not permitted to create or cause to become effective any encumbrance or restriction on the ability of the Issuers to, among other things, pay dividends or make distributions, pay indebtedness, make loans or advances to the Issuers or their restricted subsidiaries or transfer property or assets to the Issuers or their restricted subsidiaries, other than in connection with certain customary exceptions such as in respect of the indenture or the Amended Credit Facility.

The indenture also requires CareTrust REIT and its restricted subsidiaries to maintain a specified ratio of unencumbered assets to unsecured indebtedness.

These covenants are subject to a number of important and significant limitations, qualifications and exceptions.

The indenture also contains customary events of default.

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

(i) there was no default or event of default under the indenture;

Issuers were in compliance with specified limitations on indebtedness under the indenture;

and (iii) the payments did not exceed a specified restricted payment basket.

Dividends or distributions were also permitted if the Parent Guarantor’s board of directors believed in good faith they were necessary to maintain Parent Guarantor’s REIT status or to avoid any excise tax or income tax imposed on Parent Guarantor, provided there was no default or event of default under the indenture.

Further, the Issuers and their restricted subsidiaries were not permitted to create or cause to become effective any encumbrance or restriction on the ability of the Issuers to, among other things, pay dividends or make distributions, pay indebtedness, make loans or advances to the Issuers or their restricted subsidiaries or transfer property or assets to the Issuers or their restricted subsidiaries, other than in connection with certain customary exceptions such as in respect of the indenture or the Amended Credit Facility.

As of June 30, 2021, we were in compliance with all applicable financial covenants under the indenture governing the 2025 Notes.

Unsecured Revolving Credit Facility and Term Loan

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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.

(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.

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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 off the credit ratings of the Company’s senior long-term unsecured debt).

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

As of June 30, 2021, we had $200.0 million outstanding under the Term Loan and $50.0 million outstanding under the Revolving Facility.

Subsequent to June 30, 2021, we borrowed an additional $50.0 million under our Revolving Facility to fund the acquisition of two SNFs in August 2021.

See Note 12, Subsequent Events for additional information.

The Revolving Facility has a maturity date of February 8, 2023, and includes, at our sole discretion, t wo, six-month extension options.

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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, we were in compliance with all applicable financial covenants under the Amended Credit Agreement.

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 June 30, 2021, we were in compliance with all applicable financial covenants under the Amended Credit Agreement.

Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of March 31, 2021 (in thousands):

The following table summarizes our contractual obligations and commitments as of June 30, 2021 (in thousands):

Payments Due by Period

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2028 Senior unsecured notes payable (1) $ 509,103 $ 16,103 $ 31,000 $ 31,000 $ 431,000

2025 Senior unsecured notes payable (2) 309,187 309,187 — — —

Senior unsecured term loan (3) 214,930 3,243 6,477 205,210 —

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(1) Amounts include interest payments of $109.1 million.

(2) Amounts include interest payments of $15.9 m illion.

(2) Amount includes the redemption price of the 2025 Notes.

The 2025 Notes were redeemed on July 1, 2021.

See above under “Recent Developments” and Note 12, Subsequent Events for additional information.

(3) Amounts include interest payments of $14.9 million.

(4) Amounts include payments related to the credit facility f ee of $1.5 million and interest payments of $1.0 million.

Amounts do not include $50.0 million in additional borrowings under the Revolving Facility made in August 2021.

See Note 12, Subsequent Events for additional information.

Capital Expenditures

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

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

As of June 30, 2021, we had committed t o fund certain capital improvements at certain triple-net leased facilities totaling $13.1 million, of which $11.6 million is subject to rent increase at the time of funding.

We expect the majority of the funding of these commitments to be completed over the next one to two years.

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We periodically reevaluate our estimates and assumptions, and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain.

Please refer to “Critical Accounting Policies and Estimates” in the “Management’s Discussion and Analysis of Financial Condition and Results of Ope rations” section of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 10, 2021, for further information regarding the critical accounting policies that affect our more significant estimates and judgments used in the preparation of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q .

There have been no material changes in such critical accounting policies during the three months ended March 31, 2021.

on February 10, 2021, for further information regarding the critical accounting policies that affect our more significant estimates and judgments used in the preparation of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

There have been no material changes in such critical accounting policies during the six months ended June 30, 2021.

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 2. Management’s Discussion and Analysis