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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 117 added, 82 removed, 187 unchanged (52% of the section changed)

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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.

As of June 30, 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 23,876 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 June 30, 2022, we also had other real estate investments consisting of one senior secured loan receivable and two mezzanine loans receivable with an aggregate carrying value of $115.2 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).

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We have replaced tenants in the past, and may elect to replace tenants in the future, if they fail to meet the terms and conditions of their leases with us.

In addition, we may, from time to time, repurpose facilities for other uses, such as behavioral health.

The replacement tenants may include tenants with whom we have had no prior landlord-tenant relationship as well as current tenants with whom we are comfortable expanding our relationships.

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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.

Seniors housing occupancy modestly increased through the first two quarters of 2022 compared to the fourth quarter of 2021, but still lags compared to pre-pandemic occupancy levels.

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 2021 through the second quarter of 2022, but have not reached pre-pandemic levels.

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 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.

Because of the temporary waiver of the three-day hospital stay requirement, overall skilled mix began increasing at the start of the COVID-19 pandemic and peaked in December 2020, at which time it began declining while still remaining above pre-pandemic levels.

Skilled mix increased again during the first quarter of 2022 compared to the pre-pandemic skilled mix during the three months ended March 31, 2020.

However, the skilled mix in our SNFs during the three months ended June 30, 2022 decreased compared to the three months ended March 31, 2022 and was lower than the peak level seen in December 2020, and we anticipate that the skilled mix in our SNFs will continue to decline if cases of COVID-19 decline or if the suspension of the three-day hospital stay requirement is lifted.

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, 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.

Department of Health and Human Services (“HHS”) recently renewed the COVID-19 Public Health Emergency, which is currently set to be in force through October 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.

A temporary 6.2% increase in Federal Medical Assistance Percentages, which was approved retroactive to January 1, 2020, is effective through December 31, 2022.

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 and six months ended June 30, 2022, we collected 93.9% and 94.4% of contractual rents due from our operators including cash deposits used to offset rent shortfalls, and 92.1% and 92.0% excluding cash deposits, respectively.

In July 2022, we collected 102.1% of contractual rents due from our operators, which includes cash deposits.

Excluding those cash deposits, contractual cash rents collected was 94.1%.

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.

During the three months ended June 30, 2022, we moved one additional operator to a cash basis method of accounting.

The substantial inflationary pressures that our economy continues to face has resulted in many headwinds for us and our tenants, most notably in the form of rising interest rates, volatility in the capital markets, a softening of consumer sentiment and early signs of a potential broader economic slowdown.

These current macroeconomic conditions, particularly inflation (including rising wages and supply costs) and related changes to consumer spending, including, but not limited to, causing individuals to delay or defer moves to seniors housing, could adversely impact our tenants’ ability to meet some of their financial obligations to us.

In addition, current macroeconomic conditions and the resulting market volatility may adversely impact our ability to sell properties on acceptable terms, if at all, which could result in additional impairment charges.

For more information regarding the potential impact of COVID-19 and macroeconomic conditions 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.

SNF Reimbursement Rates

On July 29, 2022, the Centers for Medicare and Medicaid Services (“CMS”) issued a final rule that will increase the aggregate net pay ment by 2.7% for fis cal year 2023.

CMS estimates that the aggregate impact of the payment policies in the final rule will result in an increase of approximately $904 million in Medicare Part A payments to SNFs in fiscal year 2023 compared to fiscal year 2022.

The payment rates will become effective on October 1, 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.

In connection with our ongoing review and monitoring of our investment portfolio and the performance of our tenants, during the first quarter of 2022, we determined to pursue the sale of 27 properties and the repurposing of three properties, representing an aggregate of approximately 9% of contractual cash rent as of June 30, 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.

As of June 30, 2022, the net book value of these 27 properties was $141.8 million.

During the second quarter of 2022, we recognized an impairment charge of $1.7 million related to one SNF.

We wrote down its carrying value of $2.8 million to its estimated fair value of $1.1 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.

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

Portfolio Activity

During the second quarter of 2022, we entered into a lease with Landmark Recovery of Florida, LLC (“Landmark”) to repurpose an existing ALF (previously leased to affiliates of Noble Senior Services) as a behavioral health treatment center.

Rent under the Landmark lease will commence one year following commencement of the lease term or, if earlier, upon Landmark obtaining all licensure, permits, and other required regulatory authorizations with respect to operating the facility.

The lease will expire on the 20th anniversary of the rent commencement date and contains one 10-year renewal option and CPI-based rent escalators.

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

During the second quarter of 2022, we entered into leases with Landmark to repurpose two additional Noble facilities into behavioral health treatment centers, which will commence upon the occurrence of certain events.

Recent Investments

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.

From January 1, 2022 through August 4, 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%.

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

In June 2022, we extended a $75.0 million term loan to a skilled nursing real estate owner as part of a larger, multi-tranche, senior secured term loan facility.

The senior secured term loan was structured with an “A” tranche, a “B” tranche, and a “C” tranche (with the “C” tranche being the most subordinate).

Our $75.0 million term loan constituted the entirety of the “C” tranche with its payments subordinated accordingly.

The senior secured term loan facility is secured by an 18-facility skilled nursing portfolio in the Mid-Atlantic region, to be operated by a large, regional skilled nursing operator.

In connection with the senior secured term loan facility and the borrower’s acquisition of the skilled nursing portfolio, we also extended to the borrower group a $25.0 million mezzanine loan.

The “C” tranche term loan bears interest at 8.5%, less a servicing fee equal to the positive difference, if any, between the lesser of the contractual interest payment and actual payment of interest made by the borrower and a hypothetical interest payment at a rate of 8.25%, resulting in an effective interest rate of 8.375%.

The ”C” tranche term loan is set to mature on June 30, 2027 and may (subject to certain restrictions) be prepaid in whole or in part before the maturity date for an exit fee ranging from 1% to 3% of the loan plus unpaid interest payments through the end of the month of prepayment;

provided, however, that no exit fee is payable in connection with portions of the loan being refinanced pursuant to a loan (or loans) provided by or insured by the United States Department of Housing and Urban Development, Federal Housing Administration, or a similar governmental authority.

The mezzanine loan bears interest at 11% and is secured by a pledge of membership interests in an up-tier affiliate of the borrower group.

The mezzanine loan is set to mature on June 30, 2032, and may (subject to certain restrictions) be prepaid in whole or in part before the maturity date, commencing on June 30, 2029, for an exit fee ranging from 1% to 3% of the loan plus unpaid interest payments through the date of prepayment.

The “C” tranche term loan and mezzanine loan both require monthly interest payments.

On August 1, 2022, we extended a $22.3 million “B” tranche secured term loan to a skilled nursing real estate owner in connection with the borrower’s acquisition of five skilled nursing facilities located in the state of California.

The secured loan was structured with an “A” tranche and a “B” tranche (with the payments on the “B” tranche being subordinate to the “A” tranche pursuant to the terms of a written agreement between the lenders).

The loan facility is primarily secured by the five skilled nursing facilities, four of which will be operated by an existing operator and one of which will be operated by a large, regional skilled nursing operator.

The “B” tranche term loan carries a three-year maturity (with two, 1-year extension options) and bears interest at a rate based on term secured overnight financing rate, with a floor of approximately 8.5%.

The $22.3 million “B” tranche term loan was funded using a combination of cash on hand and borrowings under our Revolving Facility (as defined below).

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 “ATM Program”).

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

There was no ATM Program activity for the three and six months ended June 30, 2022.

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 ATM Program.

As of March 31, 2022, we had $476.5 million available for future issuances under the 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, 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 March 31, 2022 Compared to Three Months Ended December 31, 2021:

Three Months Ended June 30, 2022 Compared to Three Months Ended March 31, 2022:

Three Months Ended Increase

(Decrease) Percentage

March 31, 2022 December 31, 2021

June 30, 2022 March 31, 2022

(dollars in thousands)

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Rental income .

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.

The $0.8 million, or 2%, increase in rental income is primarily due to a $1.0 million write-off of uncollectible rent during the three months ended March 31, 2022, an increase of $0.4 million due to contractual increases in rental rates for our existing tenants and $0.3 million from real estate investments made after January 1, 2022, partially offset by a $0.9 million decrease in rental income and tenant reimbursements related to moving certain tenants to a cash basis method of accounting subsequent to January 1, 2022.

Interest and other income.

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.

The $0.3 million, or 59%, incr ease in interest and other income was primarily due to the origination of loans receivable in June 2022.

See above under “Recent Developments” for additional information.

Depreciation and amortization.

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.

The $1.0 million, or 7%, decrease in depreciation and amortization was primarily due to a decrease of $1.0 million due to assets reclassified as held for sale at March 31, 2022 and a decrease of $0.2 million due to assets becoming fully depreciated after January 1, 2022, partially offset by an increase of $0.2 million related to new real estate investments and capital improvements made after January 1, 2022.

Interest expense.

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.

The $0.6 million, or 10%, increase in interest expense was primarily due to an increase in interest expense of $0.5 million related to a higher interest rate under the Revolving Facility and the Term Loan (as defined below) and an increase of $0.1 million related to a higher weighted average debt balance under the Revolving Facility during the three months ended June 30, 2022.

Property taxes.

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.

The $0.2 million, or 12%, decrease 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 June 30, 2022, we recognized an impairment charge of $1.7 million related to one property.

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.

No provision for loan losses was recorded during the three months ended June 30, 2022.

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.

During the three months ended June 30, 2022, we recognized $0.1 million of property operating expenses related to assets we plan to sell or repurpose.

During the three months ended March 31, 2022, we recognized $0.4 million of property operating expenses related to assets we plan to sell or repurpose.

General and administrative expense.

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.

The $0.2 million, or 5%, decrease in general and administrative expense was primarily related to a decrease in incentive compensation of $0.5 million, a decrease in stock compensation expense of $0.1 million and a decrease in cash wages of $0.1 million, partially offset by an increase in legal and other professional services of $0.2 million, an increase in other administrative costs of $0.2 million and an increase in state and local taxes of $0.1 million during the three months ended June 30, 2022 compared to the three months ended March 31, 2022.

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

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021:

Six Months Ended June 30, Increase

(Decrease) Percentage

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Rental income .

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.

The $0.2 million decrease in rental income is primarily due to a $5.6 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, partially offset by a $4.7 million increase in rental income from real estate investments made

after January 1, 2021, $1.2 million due to contractual increases in rental rates for our existing tenants and a $0.5 million increase in tenant reimbursements.

Interest and other income.

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.

The $0.2 million, or 19%, increase in interest and other income is primarily due to the origination of loans receivable in June 2022.

See above under “Recent Developments” for additional information.

Depreciation and amortization.

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

The $1.2 million, or 4%, decrease in depreciation and amortization was primarily due to a $2.1 million decrease from assets reclassified as held for sale and a decrease in depreciation of $0.9 million due to assets becoming fully depreciated after January 1, 2021, partially offset by an increase in depreciation and amortization of $1.8 million related to new real estate investments and capital improvements made after January 1, 2021.

Interest expense.

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.

The $0.3 million, or 2%, decrease in interest expense was primarily due to a $7.9 million decrease in interest expense related to the redemption of the prior senior notes on July 1, 2021 and a decrease of $0.1 million related to a lower weighted average debt balance under the Revolving Facility, partially offset by an increase of $7.2 million related to the issuance of the Notes (as defined below) o n June 17, 2021 and an increase of $0.5 million related to a higher interest rate under the Revolving Facility and the Term Loan during the six months ended June 30, 2022.

Property taxes.

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.

The $1.2 million, or 83%, inc rease in property taxes was primarily due to a $0.6 million increase due to new real estate investments made after January 1, 2021, a $0.4 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 six months ended June 30, 2022, a $0.1 million increase related to the transfer of certain properties to new operators that do not make direct tax payments and a $0.1 million increase related to two non-operational properties at June 30, 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.

During the six months ended June 30, 2022, we recognized an aggregate impairment charge of $61.4 million related to 20 properties that all met the held for sale criteria during the quarter and one property that is currently held for investment.

See above under “Recent Developments” for additional information.

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

No impairment charges were recognized during the six months ended June 30, 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.

During the six months ended June 30, 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.

No provision for loan losses were recognized during the six months ended June 30, 2021.

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.

During the six months ended June 30, 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 six months ended June 30, 2021.

General and administrative expense.

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.

The $0.7 million, or 7%, decrease in general and administrative expense was primarily related to a decrease in incentive compensation of $0.8 million, lower stock compensation expense of $0.5 million, lower professional services expense of $0.1 million and lower other administrative expense of $0.1 mill ion, partially offset by higher cash wages of $0.8 million during the six months ended June 30, 2022 compared to the six months ended June 30, 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.

During the six months ended June 30, 2022, we recorded a $0.2 million gain on sale of real estate related to the sale of one SNF.

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 SNF.

Liquidity and Capital Resources

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• 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.

Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions and other investments (including mortgage and mezzanine loan originations), 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.

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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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 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 $30.3 million, available borrowing capacity of $395.0 million under the Revolving Facility and availability under the ATM Program of $476.5 million, each at June 30, 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.

Our quarterly cash dividend, any share repurchases under our Repurchase Program (as defined below) and any failure of our operators to pay rent or of our borrowers to make interest or principal payments 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”).

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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.

Through June 30, 2022 , we have not repurchased any shares of common stock under the Repurchase Program and, as of June 30, 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.

Securities and Exchange Commission that expires in March 2023, which will allow us or certain of our subsidiaries, as applicable, to offer and sell shares of common stock, preferred stock, warrants, rights, units and debt securities through underwriters, dealers or agents or directly to purchasers, in one or more offerings on a continuous or delayed basis, in amounts, at prices and on terms we determine at the time of the offering.

Securities and Exchange Commission that expires in March 2023 and at or prior to such time we expect to file a new shelf registration statement.

The shelf registration statement allows us or certain of our subsidiaries, as applicable, to offer and sell shares of common stock, preferred stock, warrants, rights, units and debt securities through underwriters, dealers or agents or directly to purchasers, in one or more offerings on a continuous or delayed basis, in amounts, at prices and on terms we determine at the time of the offering.

Although we are subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incur additional indebtedness for acquisitions or other purposes, if needed.

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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 $ 68,302 $ 70,557

Net cash used in investing activities (125,644) (145,043)

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

Net cash provided by financing activities 67,714 366,525

Net increase in cash and cash equivalents 10,372 292,039

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Cash and cash equivalents as of the end of period $ 30,267 $ 310,958

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.

Net cash provided by operating activities decreased $2.3 million for the six months ended June 30, 2022 compared to the six months ended June 30, 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 $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.

The net decrease of $2.3 million in cash provided by operating activities for the six months ended June 30, 2022 is primarily due to an increase in cash paid for general and administrative expense, interest expense and operating expenses related to assets we plan to sell or repurpose , partially offset by increased rental income due to timing of payments and increased interest payments on our other real estate investments.

Cash used in investing activities for the six months ended June 30, 2022 was primarily comprised of $124.0 million in acquisitions of real estate and investments in real estate related and other loans and $3.6 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 $1.0 million of payments received from other loans receivable.

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 real estate related and 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.

Our cash flows provided by financing activities for the six months ended June 30, 2022 were primarily comprised of $125.0 million in borrowings under our Amended Credit Facility, partially offset by $52.8 million in dividends paid and a $4.5 million net settlement adjustment on restricted stock.

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 and $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.

Material Cash Requirements

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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.

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 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.

As of March 31, 2022, we were in compliance with all applicable financial covenants under the indenture governing the Notes.

As of June 30, 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.

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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.

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.

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.

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

As of June 30, 2022, we had $200.0 million outstanding under the Term Loan and $205.0 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.

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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.

As of June 30, 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

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.

As of June 30, 2022 , we had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities totaling $7.2 million, of which $1.9 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.

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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 .

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 and six months ended June 30, 2022 .

Critical Accounting Policies and Estimates

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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, 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 three months ended March 31, 2022.

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 six months ended June 30, 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