What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-08 · 166 added, 209 removed, 103 unchanged (78% of the section changed)

12 unchanged sentences

(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;

(iii) the ability of our tenants to comply with applicable laws, rules and regulations in the operation of the properties we lease to them;

(iv) the ability and willingness of our tenants to renew their leases with us upon their expiration, and the ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event we replace an existing tenant, as well as any obligations, including indemnification obligations, we may incur in connection with the replacement of an existing tenant;

(v) the availability of and the ability to identify (a) tenants who meet our credit and operating standards, and (b) suitable acquisition opportunities, and the ability to acquire and lease the respective properties to such tenants on favorable terms;

(vi) the ability to generate sufficient cash flows to service our outstanding indebtedness;

(vii) access to debt and equity capital markets;

(viii) fluctuating interest rates;

(ix) the ability to retain our key management personnel;

(x) the ability to maintain our status as a real estate investment trust (“REIT”);

(xi) changes in the U.S.

(iii) the risk that we may have to incur additional impairment charges related to our assets held for sale if we are unable to sell such assets at the prices we expect;

(iv) the ability of our tenants to comply with applicable laws, rules and regulations in the operation of the properties we lease to them;

(v) the ability and willingness of our tenants to renew their leases with us upon their expiration, and the ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event we replace an existing tenant, as well as any obligations, including indemnification obligations, we may incur in connection with the replacement of an existing tenant;

(vi) the availability of and the ability to identify (a) tenants who meet our credit and operating standards, and (b) suitable acquisition opportunities, and the ability to acquire and lease the respective properties to such tenants on favorable terms;

(vii) the ability to generate sufficient cash flows to service our outstanding indebtedness;

(viii) access to debt and equity capital markets;

(ix) fluctuating interest rates;

(x) the ability to retain our key management personnel;

(xi) the ability to maintain our status as a real estate investment trust (“REIT”);

(xii) changes in the U.S.

tax law and other state, federal or local laws, whether or not specific to REITs;

(xii) other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments;

and (xiii) any additional factors included under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, including in the section entitled “Risk Factors” in Item 1A of Part I of such report, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (the “SEC”).

(xiii) other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments;

and (xiv) any additional factors included under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, including in the section entitled “Risk Factors” in Item 1A of Part I of such report, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (the “SEC”).

Forward-looking statements speak only as of the date of this report.

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 senio rs housing and healthcare-related properties.

As of September 30, 2021, we owned and leased to independent operators, 225 skilled nursing, multi-service campuses, assisted living and independent living facilities (“ILFs”) consisting of 23,541 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 September 30, 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, financing, development and leasing of skilled nursing, senio rs housing and other healthcare-related properties.

As of March 31, 2022, we owned and leased to independent operators, 228 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of 23,834 operational beds and units located in 29 states wit h the highest concentration of properties by rental revenues located in California, Texas, Louisiana, Idaho and Arizona.

As of March 31, 2022, 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 new or existing skilled nursing operators, as well as seniors housing operators and related businesses.

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

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

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.

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;

7 unchanged sentences

Recent Developments

COVID-19 Update

COVID-19 and Market Conditions Update

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, as well as labor shortages resulting in limited admissions, reduced occupancy and higher agency expense.

To help offset these costs as well as occupancy declines, various relief programs have been enacted by federal and state governments, which have provided, and we expect will continue to provide, some payments to our tenants, subject to the programs’ respective terms and conditions.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) established a grant program administered by the U.S.

Department of Health and Human Services (“HHS”) under which grants have been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19 (the “Provider Relief Funds”).

HHS recently closed the application portal for its Phase 4 allocation of approximately $17 billion of Provider Relief Funds and an allocation of approximately $8.5 billion in American Rescue Plan resources for providers serving patients living in rural areas.

We expect that our tenants pursued additional funding from these allocations, and will pursue any future funding that may become available, though there can be no assurance that our tenants will qualify for, or receive, any Phase 4 or American Rescue Plan, or any future, funding.

The estimated federal and state relief approved, received and retained to date by our operators, as reported by our operators, is approximate ly $146.4 million.

At September 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.

Our tenants are also experiencing labor shortages resulting in limited admissions, reduced occupancy and higher agency expense.

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, at which time we began to see a decline.

This decline in occupancy continued through the first quarter of 2021 and remained flat through the third 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 through January 2021, have been on a steady incline since February 2021 and continued to increase through the third quarter of 2021.

This decline in occupancy continued through the first quarter of 2021 then remained flat through the fourth quarter of 2021.

Seniors housing occupancy modestly increased during the first quarter of 2022 compared to the fourth quarter of 2021.

Occupancy levels at our SNFs, which declined at the onset of the COVID-19 pandemic and continued to decline through January 2021, had been on a slow incline from February through December 2021.

SNF occupancy held stable during the first quarter of 2022 compared to the fourth 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 remained slightly elevated in the three months ended September 30, 2021 compared to the pre-pandemic skilled mix during the three months ended March 31, 2020.

Because of the temporary waiver of the three-day hospital stay requirement, overall skilled mix remained slightly elevated in the three months ended March 31, 2022 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 September 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 and labor shortages, 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 previously 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.

During the six months ended June 30, 2021, we collected all contractual rents due from our operators.

During the three months ended September 30, 2021, we agreed to provide affiliates of Noble Senior Services and Noble VA Holdings, LLC (collectively, “Noble”), a deferral of the unpaid portion of contractual rent for

the months of July, August and September, totaling $1.8 million and representing approximately 4% of our total contractual base rent for the three months ended September 30, 2021.

In connection with our agreement to the rent deferral, we also entered into a purchase agreement to acquire two assisted living facilities owned by Noble, which will be leased back to Noble under a short-term lease agreement upon closing of the acquisition while we pursue other tenants for the long-term.

The deferred rent, as well as all contractual rent for the fourth quarter of 2021, is required to be paid in full upon closing of the acquisition of the two facilities.

During the three months ended September 30, 2021, one facility leased to Noble was designated as held for sale, and we expect to remove the facility from the applicable master lease following the sale.

See Note 3, Real Estate Investments, Net , for additi onal information.

With respect to our other operators, 100.0% of our contractual rent obligations due for the third quarter of 2021 have been collected from our tenants before considering any cash deposits on-hand from which we may offset any shortfalls in rent received.

With respect to our entire portfolio, approximately 96.1% of our contractual rent obligations due for October 2021 have been collected from our tenants before considering any cash deposits on-hand from which we may offset any shortfalls in rent received.

Federal laws and regulations related to COVID-19 vaccine mandates may increase operating costs of our tenants if those mandates make recruiting and retaining qualified nursing and other personnel more difficult.

The Biden-Harris administration issued an Interim Final Rule requiring Medicare and Medicaid-participating facilities and employers with more than 100 employees must mandate their employees to be vaccinated.

Some states have also issued their own orders to employers and healthcare providers that may or may not align with federal directives.

The legality of both federal and state vaccine mandates will likely be decided by the courts.

Until pending laws and regulations related to vaccine mandates are both finalized and adjudicated, our tenants will continue to manage in different ways — from mandating vaccines for all employees to waiting to see how the issue is ultimately resolved.

The mandates, as presently written, may cause disruption to tenants’ operations if employees refuse vaccination and are terminated, and our tenants are not able to replace them in a timely manner or experience increased costs to do so.

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, restrictions imposed on unvaccinated individuals and employee vaccine mandates, labor shortages resulting from the foregoing restrictions and mandates 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.

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”).

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.

During the third quarter of 2021, we recorded a loss on extinguishment of debt of $10.8 million in our condensed consolidated income statements, including a prepayment penalty of $7.9 million and a $2.9 million write-off of deferred financing costs, associated with the redemption of the 2025 Notes.

Asset Held for Sale and Sale of Real Estate

During the third quarter of 2021, we met the held for sale criteria on one assisted living facility.

As of September 30, 2021, the property continued to be held for sale and the carrying value of $4.9 million is primarily comprised of real estate assets.

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.

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

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

However, the skilled mix in our SNFs during the three months ended March 31, 2022 was lower than the peak level seen in December 2020, and we anticipate that the skilled mix in our SNFs will continue to decline as cases of COVID-19 decline or if the suspension of the three-day hospital stay requirement is lifted.

Department of Health and Human Services (“HHS”) recently renewed the COVID-19 Public Health Emergency, which is currently set to be in force through July 2022, and that allows HHS to continue providing temporary regulatory waivers, including the waiver of the three-day hospital stay requirement for a patient’s Medicare benefits to refresh.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) included a temporary suspension of a 2% Medicare sequestration cut through the end of March 2022.

Beginning April 1, 2022, a 1% sequestration cut went into effect through June 30, 2022 with the full 2% cut resuming thereafter.

A temporary increase in Federal Medical Assistance Percentages, which was approved retroactive to January 1, 2020, is effective through June 30, 2022.

The current limited availability or unavailability of grants and other funds being made available to our seniors housing facilities for healthcare related expenses or lost revenues attributable to COVID-19, as well as the tapering of grants and other funds for our SNFs, 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.

As a result of the foregoing impacts of the COVID-19 pandemic, our tenants’ ability to continue to meet some of their financial obligations to us has been negatively impacted.

See “Impairment of Real Estate Assets, Assets Held for Sale and Asset Sales” below.

During the three months ended March 31, 2022, we collected 94.9% of contractual rents due from our operators including cash deposits used to offset rent shortfalls, and 91.8% excluding cash deposits.

During the three months ended March 31, 2022, we determined that it was not probable that we would collect substantially all of the contractual obligations from four existing and former operators and, accordingly, we reversed $0.7 million of operating expense reimbursements, $0.2 million of contractual rent and $0.1 million of straight-line rent.

In addition, we determined that the collectibility of contractual rents from two operators is not reasonably assured and we moved these two operators to a cash basis method of accounting during the three months ended March 31, 2022.

Approximately 93.2% of our contractual rent obligations due for April 2022 have been collected and no cash deposits on hand were applied.

For more information regarding the potential impact of COVID-19 on our business, see “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021.

On April 11, 2022, the Centers for Medicare and Medicaid Services (“CMS”) issued a proposed rule that would decrease the aggregate net payment by 0.7% for fiscal year 2023.

CMS estimates that the aggregate impact of the payment policies in the proposed rule would result in a decrease of approximately $320 million in Medicare Part A payments to SNFs in fiscal year 2023 compared to fiscal year 2022.

Impairment of Real Estate Assets, Assets Held for Sale and Asset Sales

In connection with our ongoing review and monitoring of our investment portfolio and the performance of our tenants, we determined to pursue the sale of 27 properties and repurposing three properties, representing an aggregate of approximately 10% of contractual cash rent as of March 31, 2022.

As of March 31, 2022, we determined that these 27 properties met the criteria to be classified as assets held for sale and, in connection with this determination, we recognized an aggregate impairment charge of $59.7 million related to 20 of the 27 held for sale properties, which is reported in impairment of real estate investments in the condensed consolidated statements of operations for the three months ended March 31, 2022.

The impairment charge was recognized to write down the properties’ aggregate carrying value to their aggregate fair value, less estimated costs to sell.

As of March 31, 2022, the net book value of these 27 properties was $141.7 million.

During the first quarter of 2022, we determined that one ALF that was classified as held for sale at December 31, 2021 no longer met the held for sale criteria.

We reclassified this ALF’s carrying value of $4.8 million out of assets held for sale and recorded catch-up depreciation of approximately $0.1 million during the three months ended March 31, 2022.

During the first quarter of 2022, we closed on the sale of one SNF consisting of 83 beds located in Washington with a carrying value of $0.8 million, for net sales proceeds of $1.0 million.

During the three months ended March 31, 2022, we recorded a gain of $0.2 million in connection with the sale.

Recent Investments

From January 1, 2021 through November 8, 2021, we acquired 4 skilled nursing facilities and 4 multi-service campuses for approximately $183.7 million, which includes capitalized acquisition costs.

From January 1, 2022 through May 5, 2022, we acquired 1 SNF and 1 multi-service campus for approximately $21.9 million, which includes capitalized acquisition costs.

These acquisitions are expected to generate initial annual cash revenues of approximately $2.1 million and an initial blended yield of approximately 9.4%.

2 unchanged sentences

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 “ATM Program”).

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 ATM Program activity for the three months ended September 30, 2021 and there was no Prior ATM Program or ATM Program activity for the three and nine months ended September 30, 2020.

The following table summarizes the ATM Program activity for the nine months ended September 30, 2021 (in thousands, except per share amounts).

For the Nine Months Ended

September 30, 2021

There was no ATM Program activity for the three months ended March 31, 2022.

The following table summarizes the 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

1 unchanged sentence

Gross proceeds (1)

(1) Total gross proceeds is before $0.3 million of commissions paid to the sales agents during the nine months ended September 30, 2021 under the ATM Program.

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

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

As of March 31, 2022, we had $476.5 million available for future issuances under the ATM Program.

Results of Operations

In the first quarter of 2022, we elected to discuss any material changes in our results of operations by comparing our most recently completed quarter to the immediately preceding sequential quarter, as permitted under the recently amended Item 303 of Regulation S-K.

Because our business is not seasonal, we believe this comparison provides a more relevant and informative representation of the changes to our results of operations over time.

For purposes of this Quarterly Report on Form 10-Q, we also continue to discuss any material changes in our results of operations for the most recently completed quarter compared to the corresponding prior year period pursuant to Item 303 of Regulation S-K.

Operating Results

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

Three Months Ended September 30, Increase

Three Months Ended March 31, 2022 Compared to Three Months Ended December 31, 2021:

Three Months Ended Increase

(Decrease) Percentage

March 31, 2022 December 31, 2021

(dollars in thousands)

Rental income $ 46,007 $ 49,118 $ (3,111) (6) %

Independent living facilities — 634 (634) (100) %

Interest and other income 469 619 (150) (24) %

2 unchanged sentences

Property taxes 1,420 1,108 312 28 %

Independent living facilities — 568 (568) (100) %

Impairment of real estate investments 59,683 — 59,683 *

Provision for loan losses, net 3,844 — 3,844 *

Property operating expenses 447 — 447 *

General and administrative 5,215 10,738 (5,523) (51) %

Loss on extinguishment of debt (10,827) — (10,827) 100 %

Other income:

Gain on sale of real estate 186 115 71 62 %

• Not meaningful

Rental income .

The $3.1 million, or 7%, increase in rental income is primarily due to a $4.1 million increase in rental income from real estate investments made after July 1, 2020, $1.0 million from contractual increases in rental rates for our existing tenants, a $0.1 million increase in tenant reimbursements and $0.1 million in cash rents due to lease amendments, partially offset by a $1.1 million decrease in lease termination revenue, a $1.0 million decrease from the recovery of previously reversed rent and a $0.1 million decrease in rental income due to the disposal of assets in February 2021.

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 $0.6 million, or 100%, decrease in expenses from our ILFs was for the same reason indicated for the decrease in revenues.

The $3.1 million, or 6%, decrease in rental income is primarily due to a $2.6 million decrease in rental income and tenant reimbursements related to moving certain tenants to a cash basis method of accounting, a $1.0 million write-off of uncollectible rent, and a $0.1 million decrease in tenant reimbursements, partially offset by an increase of $0.3 million due to contractual increases in rental rates for our existing tenants and $0.2 million from real estate investments made after October 1, 2021.

Interest and other income.

The $0.5 million increase in interest and other income was primarily due to our mezzanine loan to Next VA Star Realty Holdings, LLC originated in November 2020.

See Note 4, Other Real Estate Investments, Net .

The $0.2 million, or 24%, decrease in interest and other income was primarily due to a decrease of $0.1 million related to a forfeited sales deposit recognized in the three months ended December 31, 2021 and a

decrease of $0.1 million due to placing one other loan receivable on non-accrual status during the three months ended March 31, 2022.

Depreciation and amortization.

The $0.9 million, or 7%, increase in depreciation and amortization was primarily due to an increase in depreciation and amortization of $1.7 million related to new real estate investments and capital improvements made after July 1, 2020, partially offset by a decrease in depreciation of $0.7 million due to assets becoming fully depreciated after July 1, 2020 and a decrease in depreciation of $0.1 million related to the disposal of assets in February 2021.

The $0.5 million, or 3%, decrease in depreciation and amortization was primarily due to a decrease of $0.5 million due to assets reclassified as held for sale and a decrease of $0.2 million due to assets becoming fully depreciated after October 1, 2021, partially offset by an increase of $0.2 million related to new real estate investments and capital improvements made after October 1, 2021.

Interest expense.

The $0.2 million, or 3%, increase in interest expense was primarily due to an increase of $0.3 million in interest expense related to a higher weighted average debt balance under the Revolving Facility and a $3.9 million increase in interest expense related to the issuance of the Notes on June 17, 2021, partially offset by a $4.0 million decrease in interest expense due to the redemption of the 2025 Notes on July 1, 2021.

The $0.1 million, or 1%, increase in interest expense was primarily due to a higher weighted average debt balance and a higher interest rate under the Revolving Facility during the three months ended March 31, 2022.

Property taxes.

The $0.1 million, or 17%, in crease in property taxes was primarily due to a $0.3 million increase due to new real estate investments made after July 1, 2020, partially offset by a decrease of $0.2 million in property taxes due to reassessments and decreased effective tax rates.

The $0.3 million, or 28%, increase in property taxes was primarily due to changes in estimates of property taxes expected to be paid directly by us as a result of certain assets being designated as held for sale during the three months ended March 31, 2022.

Impairment of real estate investments.

During the three months ended March 31, 2022, we recognized an aggregate impairment charge of $59.7 million related to 20 properties that all met the held for sale criteria during the quarter.

See above under “Recent Developments” for additional information.

No impairment charges were recognized during the three months ended December 31, 2021.

Provision for loan losses, net.

During the three months ended March 31, 2022, we recorded a $4.6 million expected credit loss related to two other loans receivable that were placed on a non-accrual status, partially offset by a $0.8 million recovery related to one other loan receivable that was previously written off.

Property operating expenses.

During the three months ended March 31, 2022, we recognized $0.5 million of property operating expens es related to assets we plan to sell or repurpose.

No similar expe nses were incurred during the three months ended December 31, 2021.

General and administrative expense.

The $1.1 million, or 27%, increase in general and administrative expense was primarily related to higher stock compensation expense of $0.8 million and higher cash wages of $0.3 million.

Loss on extinguishment of debt.

During the three months ended September 30, 2021, we recorded a $10.8 million loss on extinguishment of debt , including a prepayment penalty of $7.9 million and a $2.9 million write-off of deferred financing costs associated with the redemption of the 2025 Notes.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020:

Nine Months Ended September 30, Increase

The $5.5 million, or 51%, decrease in general and administrative expense was primarily related to a decrease in stock compensation expense of $4.1 million and a decrease in non-routine transaction costs of $1.4 million during the three months ended March 31, 2022 compared to the three months ended December 31, 2021.

Gain on sale of real estate.

During the three months ended March 31, 2022, we recorded a $0.2 million gain on sale of real estate related to the sale of one SNF.

Durin g the three months ended December 31, 2021, we recorded a $0.1 million gain on sale of real estate related to the sale of one land parcel.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021:

Three Months Ended March 31, Increase

(Decrease) Percentage

1 unchanged sentence

Rental income $ 46,007 $ 45,246 $ 761 2 %

Independent living facilities — 1,874 (1,874) (100) %

Interest and other income 469 505 (36) (7) %

2 unchanged sentences

Property taxes 1,420 696 724 104 %

Independent living facilities — 1,660 (1,660) (100) %

Impairment of real estate investments 59,683 — 59,683 *

Provision for loan losses, net 3,844 — 3,844 *

Property operating expenses 447 — 447 *

General and administrative 5,215 5,142 73 1 %

Loss on extinguishment of debt (10,827) — (10,827) 100 %

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

Other income (loss):

Gain (loss) on sale of real estate 186 (192) 378 (197) %

• Not meaningful

Rental income .

The $11.1 million, or 9%, increase in rental income is primarily due to a $10.8 million increase in rental income from real estate investments made after January 1, 2020, $2.6 million from contractual increases in rental rates for our existing tenants and $0.5 million in cash rents due to lease amendments, partially offset by a $1.1 million decrease in lease termination revenue, a $1.0 million decrease from the recovery of previously reversed rent and a $0.7 million decrease in rental income due to the disposal of assets in February 2020 and February 2021.

Independent living facilities.

The $1.9 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 $1.7 million, or 100%, decrease in expenses from our ILFs was for the same reason indicated for the decrease in revenues.

The $0.8 million, or 2%, increase in rental income is primarily due to a $2.9 million increase in rental income from real estate investments made after January 1, 2021, $0.8 million due to contractual increases in rental rates for our existing tenants and a $0.3 million increase in tenant reimbursements, partially offset by a $2.2 million decrease in rental income and tenant reimbursements related to moving certain tenants to a cash basis method of accounting and a $1.0 million write-off of uncollectible rent.

Interest and other income.

The $0.8 million, or 34%, decrease in interest and other income was primarily due to a decrease in interest income of $2.2 million due to the repayment of mortgage loans and other loans receivable primarily by Manteca in May 2020, CommuniCare in May 2020 and Cascade in July 2020, partially offset by approximately $1.4 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 .

The $36,000, or 7%, decrease in interest and other income is primarily due to placing one other loan receivable on non-accrual status during the three months ended March 31, 2022.

Depreciation and amortization.

The $1.8 million, or 5%, increase in depreciation and amortization was primarily due to an increase in depreciation and amortization of $4.0 million related to new real estate investments and capital improvements made after January 1, 2020, partially offset by a decrease in depreciation of $1.9 million due to assets becoming fully depreciated after January 1, 2020 and a decrease in depreciation of $0.3 million related to the disposal of assets in February 2020 and February 2021.

The $0.1 million, or 1%, increase in depreciation and amortization was primarily due to an increase in depreciation and amortization of $1.2 million related to new real estate investments and capital improvements made after January 1, 2021, partially offset by a decrease in depreciation of $0.6 million due to assets becoming fully depreciated after January 1, 2021 and a $0.5 million decrease from assets reclassified as held for sale

Interest expense.

The $0.1 million, or 1%, decrease in interest expense was primarily due a $1.0 million decrease in interest expense related to a lower weighted average interest rate on the term loan, a $3.9 million decrease in interest expense due to the redemption of the 2025 Notes on July 1, 2021 and a lower weighted average interest rate, partially offset by a $4.5 million increase in interest expense related to the issuance of the Notes on June 17, 2021, a $0.3 million increase in interest expense related to a higher weighted average debt balance under the Revolving Facility and an increase of $0.1 million in interest expense related to the amortization of deferred financing fees.

Interest expense decreased by $20,000 during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 due to the redemption in full of our 5.25% Senior Notes due 2025 in July 2021, offset by the issuance in June 2021 of our Notes at a lower interest rate.

Property taxes.

The $0.3 million, or 13%, increase in property taxes was primarily due to a $0.4 million increase in pro perty taxes due to closing credits realized upon the disposition of assets in February 2020 and the transfer of certain properties to new operators in January 2021 th at do not make direct tax payments and a $0.4 million increase due to new real

estate investments made after January 1, 2020, partially offset by a decrease of $0.5 million of property taxes due to reassessments and decreased effective tax rates.

The $0.7 million, or 104%, increase in property taxes was primarily due to a $0.3 million increase due to changes in estimates of property taxes expected to be paid directly by us as a result of certain assets being designated as held for sale during the three months ended March 31, 2022, a $0.3 million increase due to new real estate investments made after January 1, 2021 and a $0.1 million increase related to the transfer of certain properties to new operators that do not make direct tax payments.

Impairment of real estate investments.

During the three months ended March 31, 2022, we recognized an aggregate impairment charge of $59.7 million related to 20 properties that all met the held for sale criteria during the quarter.

See above under “Recent Developments” for additional information.

No impairment charges were recognized during the three months ended March 31, 2021.

Provision for loan losses, net.

During the three months ended March 31, 2022, we recorded a $4.6 million expected credit loss related to two other loans receivable that were placed on non-accrual status, partially offset by a $0.8 million recovery related to one other loan receivable that was previously written off.

Property operating expenses.

During the three months ended March 31, 2022, we recognized $0.5 million of property operating expenses related to assets we plan to sell or repurpose.

No similar expenses were incurred during the three months ended March 31, 2021.

General and administrative expense.

The $3.2 million, or 25%, increase in general and administrative expense was primarily related to higher stock compensation expense of $2.4 million and higher cash wages of $0.8 million compared to the prior period.

Loss on extinguishment of debt.

During the nine months ended September 30, 2021, we recorded a $10.8 million loss on extinguishment of debt , including a prepayment penalty of $7.9 million and a $2.9 million write-off of deferred financing costs, associated with the redemption of the 2025 Notes.

Loss on sale of real estate .

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

The $0.1 million, or 1%, increase in general and administrative expense was primarily related to higher cash wages of $0.3 million, partially offset by lower professional services expense of $0.1 million and lower stock compensation expense of $0.1 million during the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Gain (loss) on sale of real estate.

During the three months ended March 31, 2022, we recorded a $0.2 million gain on sale of real estate related to the sale of one SNF.

Du ring 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 SNF.

Liquidity and Capital Resources

2 unchanged sentences

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

As of September 30, 2021, we had cash and cash equivalents of $17.7 million.

During the nine months ended September 30, 2021, we sold 990,000 shares of common stock under our ATM Program for gross proceeds of $23.5 million.

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

As of September 30, 2021, we also had $80.0 million in borrowings outstanding and $520.0 million of availability remaining under the Revolving Facility.

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 ATM Program or additional issuances of common stock or other securities.

Our short-term liquidity requirements consist primarily of operating and interest expenses directly associated with our properties, including:

• interest expense and scheduled debt maturities on outstanding indebtedness;

• general and administrative expenses;

• dividend plans;

• operating lease obligations;

• capital expenditures for improvements to our properties.

Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, capital expenditures, and scheduled debt maturities.

We intend to invest in and/or develop additional healthcare and seniors housing properties as suitable opportunities arise and so long as 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 (as defined below), 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.

1 unchanged sentence

Department of Housing and Urban Development, in appropriate circumstances in connection with acquisitions and refinancing of existing mortgage loans.

We believe that our expected operating cash flow from rent collections, interest payments on our other real estate investments, and borrowings under our Amended Credit Facility, together with our cash balance of $26.6 million, available borrowing capacity of $495.0 million under the Revolving Facility (as defined below) and availability under the ATM Program of $476.5 million, each at March 31, 2022, will be sufficient to meet ongoing debt service requirements, dividend plans, operating lease obligations, capital expenditures, working capital requirements and other needs for at least the next 12 months.

We expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.

While we are currently pursuing the sale, re-tenanting or repurposing of certain of our assets in connection with our ongoing review and monitoring of our investment portfolio as described under “Recent Developments” above, we currently do not expect to sell any of our properties to meet liquidity needs, although we may do so in the future.

Our quarterly cash dividend, any share repurchases under our Repurchase Program (as defined below) and any failure of our operators to pay rent may impact our available capital resources.

On March 20, 2020, our board of directors authorized a share repurchase program to repurchase up to $150.0 million of outstanding shares of our 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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

Through March 31, 2022, we have not repurchased any shares of common stock under the Repurchase Program and, as

of March 31, 2022, we had $150.0 million of remaining authorization under the Repurchase Program.

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

We have filed an automatic shelf registration statement with the U.S.

2 unchanged sentences

However, there can be no assurance that we will be able to refinance our indebtedness, incur additional indebtedness or access additional sources of capital, such as by issuing common stock or other debt or equity securities, on terms that are acceptable to us or at all.

We currently are in compliance with all debt covenants on our outstanding indebtedness.

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

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Net cash provided by operating activities $ 34,579 $ 33,949

Net cash (used in) provided by investing activities (181,963) 22,062

Net cash provided by (used in) financing activities 62,397 (131,673)

Net decrease in cash and cash equivalents (1,203) (1,226)

Net cash used in investing activities (24,072) (133,300)

Net cash (used in) provided by financing activities (3,816) 110,901

Net increase in cash and cash equivalents 6,691 11,550

Cash and cash equivalents as of the beginning of period 19,895 18,919

Cash and cash equivalents as of the end of period $ 26,586 $ 30,469

Net cash provided by operating activities increased $10.0 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Net cash provided by operating activities increased $0.6 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

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 $10.0 million in cash provided by operating activities for the nine months ended September 30, 2021 is primarily due to increased rental payments as a result of new investments, partially offset by an increase in cash paid for interest on outstanding indebtedness due to the timing of interest payments, 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 nine months ended September 30, 2021 was primarily comprised of $184.1 million in acquisitions of real estate and investments in other loans and $4.8 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 $0.2 million of payments received from other loans receivable.

Cash provided by investing activities for the nine months ended September 30, 2020 was primarily comprised of $83.2 million of payments received from our preferred equity investment and mortgage and other loans receivable and $2.2 million in net proceeds from real estate sales, partially offset by $57.0 million in acquisitions of real estate and investments in real estate mortgage loans and $6.3 million of purchases of equipment, furniture and fixtures and improvements to real estate.

Our cash flows provided by financing activities for the nine months ended September 30, 2021 were primarily comprised of $400.0 million of proceeds from the issuance of the Notes, $30.0 million in net borrowings under our Amended Credit Facility and $22.9 million of net proceeds from the issuance of common stock under the ATM Program, partially offset by $300.0 million of payments to redeem the 2025 Notes, $75.1 million in dividends paid, $14.1 million in payments on debt extinguishment and deferred financing costs and a $1.3 million net settlement adjustment on restricted stock.

Our cash flows used in financing activities for the nine months ended September 30, 2020 were primarily comprised of $69.3 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.

The net increase of $0.6 million in cash provided by operating activities for the three months ended March 31, 2022 is primarily due to increased rental payments as a result of new investments, partially offset by moving certain tenants to a cash basis method of accounting and an increase in cash paid for general and administrative expenses.

Cash used in investing activities for the three months ended March 31, 2022 was primarily comprised of $24.0 million in acquisitions of real estate and investments in other loans and $1.9 million of purchases of equipment, furniture and fixtures and improvements to real estate, partially offset by $1.0 million in net proceeds from real estate sales and $0.9 million of payments received from other loans receivable.

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 and $1.3 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.

Our cash flows used in financing activities for the three months ended March 31, 2022 were primarily comprised of $26.0 million in dividends paid and a $2.8 million net settlement adjustment on restricted stock, partially offset by $25.0 million in borrowings under our Amended Credit Facility (as defined below).

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 and $16.2 million of net proceeds from the issuance of common stock under our ATM Program, partially offset by $24.0 million in dividends paid and a $1.3 million net settlement adjustment on restricted stock.

Material Cash Requirements

Our material cash requirements from known contractual and other obligations, including commitments for capital expenditures, include:

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.

On June 17, 2021, the Issuers completed a private offering of $400.0 million aggregate principal amount of 3.875% Senior Notes due 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;

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

S ee No te 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 September 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

On May 10, 2017, the Issuers completed a public offering of $300.0 million aggregate principal amount of the 2025 Notes.

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 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 6, Debt, 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 independent 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.

The Parent Guarantor has not conducted any operations or had any business since the Spin-Off.

CTR Partnership, L.P.

and CareTrust Capital Corp.

– The Issuers, each of which is a wholly owned subsidiary of the Parent Guarantor, were formed on May 8, 2014 and May 9, 2014, respectively, in anticipation of the Spin-Off and the related transactions.

The Issuers did not conduct any operations or have any business prior to the date of the consummation of the Spin-Off related transactions.

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 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 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 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;

incur or guarantee secured indebtedness;

make certain investments or other restricted payments;

enter into transactions with affiliates;

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 was no default or event of default under the indenture;

(ii) the 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 March 31, 2022, we were in compliance with all applicable financial covenants under the indenture governing the Notes.

See Note 7, Debt, to our condensed consolidated financial statements included in this report for further information about the Notes.

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:

Our 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”) 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 our prior term loan and revolving facility under our 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 off the credit ratings of the Company’s senior long-term unsecured debt).

As of September 30, 2021, we had $200.0 million outstanding under the Term Loan and $80.0 million outstanding under the Revolving Facility.

As of March 31, 2022, we had $200.0 million outstanding under the Term Loan and $105.0 million outstanding under the Revolving Facility.

The Revolving Facility has a maturity date of February 8, 2023, and includes, at our sole discretion, t wo, 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 payments.

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

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

As of September 30, 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 September 30, 2021 (in thousands):

Payments Due by Period

1 Year 1 Year

3 Years 3 Years

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

Senior unsecured term loan (2) 214,020 3,221 6,433 204,366 —

Unsecured revolving credit facility (3) 82,550 1,878 80,672 — —

Operating leases 3,597 266 176 104 3,051

Total $ 809,270 $ 21,468 $ 118,281 $ 235,470 $ 434,051

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

(2) Amounts include interest payments of $14.0 million .

(3) Amounts include payments related to the credit facility f ee of $1.3 million and interest payments of $1.3 million.

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 our consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if we obtain certain specified investment grade ratings on our 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 our consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if we obtain certain specified investment grade ratings on our 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 our consolidated subsidiaries (unless we obtain certain specified investment grade ratings on our 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 our senior long-term unsecured debt).

Interest payments on the Term Loan and Revolving Facility are due monthly and facility fee payments are due quarterly.

As of March 31, 2022, we were in compliance with all applicable financial covenants under the Amended Credit Agreement.

See Note 7, Debt, to our condensed consolidated financial statements included in this report for further information about the Amended Credit Agreement.

Capital Expenditures

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

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 September 30, 2021, we had committed t o fund certain capital improvements at certain triple-net leased facilities totaling $11.7 million, of which $10.4 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.

As of March 31, 2022 , we had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities totaling $5.5 million, of which $4.4 million is subject to rent increase at the time of funding.

We expect to fund the capital expenditures in the next one to two years.

See Note 11, Commitments and Contingencies, to our condensed consolidated financial statements included in this report for further information regarding our obligation to finance certain capital expenditures under our triple-net leases.

Dividend Plans

We are required to pay dividends in order to maintain our REIT status and we expect to make quarterly dividend payments in cash with the annual dividend amount no less than 90% of our annual REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains.

See Note 8, Equity, to our condensed consolidated

financial statements included in this report for a summary of the cash dividends per share of our common stock declared by our Board of Directors for the three months ended March 31, 2022 .

Critical Accounting Policies and Estimates

5 unchanged sentences

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, 2021, filed with the SEC on February 16, 2022, 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 nine months ended September 30, 2021.

There have been no material changes in such critical accounting policies during the three months ended March 31, 2022.

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