What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-08 · 152 added, 199 removed, 192 unchanged (65% of the section changed)

28 unchanged sentences

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 September 30, 2022, we owned and leased to independent operator s, 221 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of 23,135 operational beds and units located in 29 states with the highest concentration of properties by rental revenues located in California, Texas, Louisiana, Idaho and Arizona.

As of September 30, 2022, we also had other real estate related investments consisting of three real estate secured loans receivable and two mezzanine loans receivable with an aggregate carrying value of $158.7 million.

As of March 31, 2023, we owned and leased to independent operator s, 215 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of 22,727 operational beds and units located in 28 states with the highest concentration of properties by rental revenues located in California, Texas, Louisiana, Idaho and Arizona.

As of March 31, 2023, we also had other real estate related investments consisting of three real estate secured loans receivable and one mez zanine loan receivable with an aggregate carrying value of $140.8 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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Recent Developments

COVID-19 and Market Conditions Update

COVID-19 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.

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.

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

While our tenants have experienced some recent increases in occupancy, occupancy rates are still below pre-pandemic levels.

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.

In some cases, we may have to restructure tenants’ long-term obligations and may not be able to do so on terms that are as favorable to us as those currently in place.

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 then remained flat through the fourth quarter of 2021.

Seniors housing occupancy modestly increased through the first three 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, have been on a slow incline from February 2021 through the third quarter of 2022, but have not reached pre-pandemic levels.

This decline in occupancy continued through the fourth quarter of 2021;

however, seniors housing facilities occupancy began to increase in the beginning of the first quarter of 2022 and continued to increase through the three months ended March 31, 2023.

Occupancy levels at our SNFs, which declined at the onset of the COVID-19 pandemic and continued to decline through January 2021, have been on a steady incline through the first quarter of 2023.

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 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 remained elevated during the first three quarters 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 September 30, 2022 is lower compared to 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 as referenced below.

Because of this temporary rule change, overall skilled mix remained slightly elevated in the three months ended March 31, 2023 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.

Department of Health and Human Services (“HHS”) recently renewed the COVID-19 Public Health Emergency, which is currently set to be in force through January 2023, 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 6.2% increase in Federal Medical Assistance Percentages (“FMAP”), which was approved retroactive to January 1, 2020, is effective through March 31, 2023.

If the COVID-19 Public Health Emergency expires or the three-day hospital stay requirement suspension is otherwise lifted or temporary FMAP increases end, our SNFs may experience decreases in occupancy levels or revenues, which may adversely impact the business and financial condition of the operators of our SNFs.

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.

However, the skilled mix in our SNFs during the three months ended March 31, 2023 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 and temporary suspensions are retired.

On January 30, 2023, the U.S.

Department of Health and Human Services (“HHS”) announced that the COVID-19 Public Health Emergency (“PHE”) will end on May 11, 2023.

The PHE has allowed HHS to provide temporary regulatory waivers, including the waiver of the three-day hospital stay requirement for a patient’s Medicare benefits to refresh.

The temporary 6.2% increase in Federal Medical Assistance Percentages (“FMAP”) was approved retroactive to January 1, 2020, but is expected to be phased down by December 31, 2023 under the Consolidated Appropriations Act of 2023 and the ending of the PHE.

With the expiration of the PHE and the potential lifting of the three-day hospital stay requirement, SNFs may experience decreases in occupancy levels or revenues, which may adversely impact the business and financial condition of the operators of our SNFs.

As a result of the foregoing impacts of the COVID-19 pandemic and actions taken in response, 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 and nine months ended September 30, 2022, we collected 93.4% and 94.2% of contractual rents due from our operators including cash deposits used to offset rent shortfalls, and 92.5% and 93.1% excluding cash deposits, respectively.

In October 2022, we collected 95.6% of contractual rents due from our operators, which includes cash deposits.

Excluding those cash deposits, contractual cash rents collected was 92.7%.

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 was not reasonably assured and we moved these two operators to a cash basis method of accounting during the three months ended March 31, 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), rising interest rates 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.

During the three months ended March 31, 2023, we collected 96.3% of contractual rents due from our operators excluding cash deposits.

In April 2023, we collected 97.5% of contractual rents due from our operators excluding cash deposits.

Impact of Macroeconomic Conditions

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

Rising interest rates also increase our costs of capital to finance acquisitions and increase our borrowing costs, and future changes in market interest rates could materially impact the estimated discounted cash flows that are used to determine the fair value of our other real estate related investments.

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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, 2022.

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 became 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, 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 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 nine months ended September 30, 2022.

As of March 31, 2023, five of the original 27 properties remain held for sale.

During the three months ended March 31, 2023, we determined one SNF met the criteria to be classified as held for sale.

During the three months ended March 31, 2023, we recognized an impairment charge of $1.9 million related to four of the six facilities that were classified as held for sale at March 31, 2023, which is reported in impairment of real estate investments in the condensed consolidated statements of operations.

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

Following the asset sales and held for sale reclassifications discussed below, 19 properties continued to meet the criteria to be classified as held for sale as of September 30, 2022.

During the third quarter of 2022, we recognized an aggregate impairment charge of $12.3 million related to 16 of the 19 held for sale properties to reduce their carrying value to estimated fair value less costs to sell.

As of September 30, 2022, the real estate assets comprising the remaining 19 properties classified as held for sale had an aggregate carrying value of $77.7 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.

As of the date of this report, we are considering the sale of a SNF portfolio consisting of 11 properties.

If the likelihood of proceeding with a plan to sell the SNF portfolio significantly increases or certain held for sale criteria are met with respect to the portfolio, we expect we would recognize a material impairment to reduce the portfolio to its estimated fair value in the period in which the circumstances change regarding our potential plans to sell.

As of March 31, 2023, the portfolio was considered recoverable using a weighted average probability of expected undiscounted cash flows based on management’s consideration of various scenarios as of March 31, 2023.

Asset Sales and Held for Sale Reclassifications

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 nine months ended September 30, 2022, we recorded a gain of $0.2 million in connection with the sale.

During the third quarter of 2022, we determined that one ALF, with a carrying value of $4.9 million, that

was classified as held for sale at June 30, 2022 no longer met the held for sale criteria.

We reclassified this ALF out

of assets held for sale at its fair value at the date of the decision not to sell of approximately $4.9 million.

During the third quarter of 2022, we closed on the sale of six SNFs and one multi-service campus, operated by

affiliates of Trio Healthcare Holdings, LLC (“Trio”), consisting of 708 beds located in Ohio for net proceeds of $32.8 million.

In connection with the sale, we provided affiliates of the purchaser of the properties with a $7.0 million term loan that bears interest at 8.5% and has a maturity date of September 30, 2025.

We also provided a $5.0 million bridge loan to four individuals that bears interest at 8.5% and has a maturity date of November 29, 2022.

The seven properties were classified as held for sale at June 30, 2022 with a carrying value of $46.9 million.

During the three months ended September 30, 2022, we recorded a loss of $2.1 million in connection with the sale.

Portfolio Activity

During the third quarter of 2022, a lease we entered into with Landmark Recovery of Maryland, LLC (“Landmark Maryland”) commenced.

In connection with this lease, we are repurposing an existing ALF (previously leased to affiliates of Noble Senior Services) as a behavioral health treatment center that will be operated by Landmark Maryland.

Rent under the lease will commence one year following commencement of the lease term or, if earlier, upon Landmark Maryland 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.

The following table summarizes the Company’s dispositions for the three months ended March 31, 2023 and 2022 (dollars in thousands):

Three Months Ended March 31,

Number of facilities 1 1

Net sales proceeds $ 3,230 $ 959

Net carrying value 3,300 773

Net (loss) gain on sale $ (70) $ 186

The following table summarizes the Company’s assets held for sale activity for the periods presented (dollars in thousands):

Net Carrying Value Number of Facilities

December 31, 2022 $ 12,291 5

Additions to assets held for sale 10,374 2

Assets sold (3,300) (1)

Impairment of real estate held for sale (1,886) —

March 31, 2023 $ 17,479 6

Recent Investments

From January 1, 2022 through November 8, 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 September 2022, we extended a $24.9 million term loan as part of a larger, multi-tranche real estate secured term loan facility to a skilled nursing real estate owner.

The secured term loan was structured with an “A” 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).

Our $24.9 million secured term loan constituted the entirety of the “B” tranche with its payments subordinated accordingly.

The secured term loan is primarily secured by four skilled nursing faciliti es operated by an operator in the Southeast.

The “B” tranche secured term loan is set to mature on September 8, 2025, with two one-year extension options and ma y (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;

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 “B” tranche secured term loan provides for an earnout advance of $4.7 million if certain conditions are met.

The “B” tranche secured term loan bears interest at a rate based on term secured overnight financing rate (“SOFR”), calculated as a fraction, with the numerator being the difference between (i) the monthly payment of interest of term SOFR plus a 4.50% spread and (ii) the amount of such monthly payment of interest of term SOFR plus a 2.85% spread, and with the denominator being the average daily balance of the outstanding principal amount during the applicable month, with such fraction expressed as a percentage and annualized, with a term SOFR floor of 1.00% and less a subservicing fee of 100% over 9.00%.

The “B” tranche secured term loan requires monthly interest payments.

In August 2022, we extended a $22.3 million term loan as part of a larger, multi-tranche real estate secured term loan facility to a skilled nursing real estate owner.

Our $22.3 million secured term loan constituted the entirety of the “B” tranche with its payments subordinated accordingly.

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

The “B” tranche secured term loan is set to mature on August 1, 2025, with two one-year extension options and may (subject to certain restrictions) be prepaid in whole or in part before the maturity date for an ex it fee ranging from 2% to 3% of the loan plus unpaid interest payments;

The “B” tranche secured term loan bears interest at a rate based on term SOFR, calculated as a fraction, with the numerator being the difference between (i) the monthly payment of interest of term SOFR plus a 4.25% spread and (ii) the amount of such monthly payment of interest of term SOFR plus a 2.75% spread, and with the denominator being the average daily balance of the outstanding principal amount during the applicable month, with such fraction expressed as a percentage and annualized, with a term SOFR floor of 1.00% and less a subservicing fee of 50% over 8.25%.

The “B” tranche secured term loan requires monthly interest payments.

From January 1, 2023 through May 10, 2023, we acquired three SNFs and two ALFs for approximately $47.5 million, which includes estimated capitalized acquisition costs and capital expenditure commitments.

These acquisitions are expected to generate initial annual cash revenues of approximately $4.5 million and an initial blended yield of approximately 9.6% before the impact of any rent abatement.

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 and nine months ended September 30, 2022 and the three months ended September 30, 2021.

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

Number of shares 990

Average sales price per share $ 23.74

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

On February 24, 2023, 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 addition to the issuance and sale of shares of our common stock, we may also enter into one or more forward sales agreements (each, an “ATM forward contract”) with sales agents for the sale of shares of our common stock under the ATM Program.

There was no ATM Program activity (or activity under any predecessor at-the-market equity offering programs) for the three months ended March 31, 2023 and 2022.

As of March 31, 2023, we had $500.0 million available for future issuances under the ATM Program.

In April 2023, we executed a 12-month forward equity sale under the ATM Program with a financial institution acting as a forward purchaser to sell 1,757,500 shares of common stock at a weighted average sales price of $19.91 per share before commissions and offering expenses.

We did not receive any proceeds from the sale of our shares of common stock by the forward sellers.

We currently expect to fully physically settle the forward equity sales by delivery of shares of common stock to the forward purchaser and receive cash proceeds upon one or more settlement dates, at our discretion, prior to the final settlement date in the second quarter of 2024, at which time we expect to receive aggregate net cash proceeds at settlement equal to the number of shares specified in such forward equity sale multiplied by the relevant forward price per share.

The weighted average forward sale price that we expect to receive upon physical settlement will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchaser’s stock borrowing costs and (iii) scheduled dividends through the settlement.

We have not settled any portion of this forward equity sale as of the date of this report.

Results of Operations

Three Months Ended September 30, 2022 Compared to Three Months Ended June 30, 2022:

Three Months Ended March 31, 2023 Compared to Three Months Ended December 31, 2022:

Three Months Ended Increase

(Decrease) Percentage

September 30, 2022 June 30, 2022

March 31, 2023 December 31, 2022

(dollars in thousands)

8 unchanged sentences

Loss on sale of real estate (70) (1,668) 1,598 *

Unrealized loss on other real estate related investments (4,706) — (4,706) *

Unrealized losses on other real estate related investments, net (454) (2,396) 1,942 *

• Not meaningful

Rental income .

Rental income increased by $0.2 million as detailed below:

Three Months Ended

(in thousands) September 30, 2022 June 30, 2022 Increase/(Decrease)

Rental income decreased by $1.5 million as detailed below:

Three Months Ended Increase/(Decrease)

(in thousands) March 31, 2023 December 31, 2022

Contractual cash rent (1)

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Straight-line rent (7) 3 (10)

Adjustment for collectibility (2)

Total change in rental income $ 46,163 $ 47,675 $ (1,512)

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

Contractual cash rent increased by $0.3 million due to an increase of $0.4 million from increases in rental rates for our existing tenants, partially offset by a $0.1 million decrease in rental income related to moving certain tenants to a cash basis method of accounting.

Contractual cash rent decreased by $1.9 million due to a $2.2 million decrease in rental income related to lower cash collections from tenants on a cash basis method of accounting, partially offset by an increase of $0.3 million from increases in rental rates for our existing tenants.

(2) During the three months ended December 31, 2022, the Company wrote off $0.4 million of uncollectible rent.

Interest and other income.

The $2.5 million, or 338%, increase in interest and other income was primarily due to the origination of loans receivable in June, August and September 2022.

See above under “Recent Developments” for additional information.

Depreciation and amortization.

The $0.3 million, or 2%, decrease in depreciation and amortization was primarily due to assets becoming fully depreciated after April 1, 2022.

The $0.3 million, or 7%, increase in interest and other income was primarily due to a prepayment penalty of $0.5 million related to the prepayment of one mezzanine loan receivable during the three months ended March 31, 2023, partially offset by a decrease of $0.1 million due to repayments of other loans and a decrease of $0.1 million due to fewer number of days during the three months ended March 31, 2023 compared to the three months ended December 31, 2022.

Depreciation and amortizati on.

The $0.3 million, or 3%, increase in depreciation and amortization was primarily due to an increase of $0.3 million due to reclassifying assets out of held for sale during the three months ended December 31, 2022 and an increase of $0.1 million due to capital improvements made after October 1, 2022, partially offset by a decrease of $0.1 million due to assets becoming fully depreciated after October 1, 2022.

Interest expense.

Interest expense increased by $0.2 million as detailed below:

Change in interest expense for the three months ended September 30, 2022 compared to the three months ended June 30, 2022

Change in interest expense for the three months ended March 31, 2023 compared to the three months ended December 31, 2022

(in thousands)

Increase in interest rates for the Revolving Facility (as defined below) $ 798

Decrease in outstanding borrowing amount for the Revolving Facility, net $ (598)

Increase in interest rates for the Term Loan (as defined below) 385

Increase in outstanding borrowing amount for the Revolving Facility, net 486

Increase in interest rates for the Revolving Facility (as defined below) 366

Other changes in interest expense 66

Total change in interest expense $ 2,052

Net change in interest expense $ 219

Property taxes.

The $0.6 million, or 45%, decrease in property taxes was primarily due to $0.5 million of changes in estimates during the three months ended September 30, 2022 of property taxes expected to be paid directly by us as a result of certain assets being designated as held for sale and a $0.1 million decrease due to reassessments.

The $0.1 million, or 9%, decrease in property taxes was primarily due to the sale of properties in December 2022.

Impairment of real estate investments.

During the three months ended September 30, 2022, we recognized an impairment charge of $12.3 million related to 16 properties classified as held for sale during the quarter.

See above under “Recent Developments” for additional information.

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, 2023, we recognized an impairment charge of $1.9 million related to four properties classified as held for sale during the quarter.

See above under “Recent Developments - Impairment of Real Estate Assets, Assets Held for Sale, and Asset Sales” for additional information.

During the three months ended December 31, 2022, we recognized an aggregate impairment charge of $5.4 million related to three properties that met the held for sale criteria during the quarter and one property held for investment.

Property operating expenses.

During the three months ended September 30, 2022, we recognized $3.8 million of property operating expenses related to assets we plan to sell or repurpose, or have sold.

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, 2023 and December 31, 2022, we recognized $1.0 million and $0.7 million, respectively, of property operating expenses related to assets we plan to sell or repurpose, or have sold.

General and administrative expense.

General and administrative expense increased by $0.2 million as detailed below:

Three Months Ended

(in thousands) September 30, 2022 June 30, 2022 Increase/(Decrease)

Three Months Ended Increase/(Decrease)

(in thousands) March 31, 2023 December 31, 2022

Cash compensation $ 1,550 $ 1,339 $ 211

Incentive compensation 1,300 600 700

Share-based compensation 936 1,463 (527)

Incentive compensation 1,550 600 950

Professional services 474 598 (124)

3 unchanged sentences

Loss on sale of real estate.

During the three months ended September 30, 2022, we recorded a $2.1 million loss on sale of real estate related to the sale of six SNFs and one multi-service campus and a $0.2 million loss on sale of real estate related to the sale of a land parcel.

Unrealized loss on other real estate related investments.

During the three months ended September 30, 2022, we recorded a $4.7 million unrealized loss on one secured loan receivable and two mezzanine loans receivable .

The unrealized loss is due to rising interest rates.

No unrealized losses were recognized during the three months ended June 30, 2022.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021:

Nine Months Ended September 30,

During the three months ended March 31, 2023, we recorded a $0.1 million loss on sale of real estate related to the sale of one ALF.

During the three months ended December 31, 2022, we recorded a $1.7 million loss on sale of real estate related to the sale of five ALFs.

Unrealized losses on other real estate related investments, net.

During the three months ended March 31, 2023, we recorded a $1.0 million unrealized loss on one mezzanine loan receivable, partially offset by a $0.5 million reversal of a previously recognized unrealized loss related to the prepayment of one mezzanine loan receivable.

During the three months ended December 31, 2022, we recorded a $2.4 million unrealized loss on two mortgage secured loans receivable.

The unrealized losses are due to rising interest rates.

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022:

Three Months Ended Increase

(Decrease) Percentage

March 31, 2023 March 31, 2022

(dollars in thousands)

8 unchanged sentences

General and administrative 5,061 5,215 (154) (3) %

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

Loss on sale of real estate, net (2,101) (192) (1,909) 994 %

Unrealized loss on other real estate related investments (4,706) — (4,706) *

(Loss) gain on sale of real estate (70) 186 (256) (138) %

Unrealized losses on other real estate related investments, net (454) — (454) *

• Not meaningful

Rental income .

Rental income decreased by $1.2 million as detailed below:

Nine Months Ended

(in thousands) September 30, 2022 September 30, 2021 Increase/(Decrease)

Rental income increased by $0.2 million as detailed below:

Three Months Ended Increase/(Decrease)

(in thousands) March 31, 2023 March 31, 2022

Contractual cash rent (1)

$ 45,461 $ 46,342 $ (881)

Tenant reimbursements 709 636 73

Total contractual rent 46,170 46,978 (808)

140,794 140,988 (194)

Straight-line rent (7) 6 (13)

Adjustment for collectibility (2)

(977) — (977)

Lease termination revenue [3]

Total change in rental income $ 46,163 $ 46,007 $ 156

[1] Includes initial contractual cash rent and tenant reimbursements, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by the Company.

(1) Includes initial contractual cash rent, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by the Company.

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

Total contractual cash rent decreased by $0.2 million due to a $8.3 million decrease related to moving certain tenants to a cash basis method of accounting subsequent to January 1, 2022 and a $0.5 million decrease in tenant reimbursements, partially offset by an increase of $5.3 million in contractual cash rent from real estate investments made after January 1, 2021 and $3.4 million due to increases in rental rates for our existing tenants.

[2] During the nine months ended September 30, 2022, the Company wrote off $1.0 million of uncollectible rent.

[3] During the nine months ended September 30, 2021, the Company received approximately $0.1 million of lease termination revenue.

Contractual cash rent decreased by $0.9 million due to a $1.8 million decrease in rental income related to lower cash collections from tenants on a cash basis method of accounting and a $0.6 million decrease due to dispositions, partially offset by an increase of $1.3 million from increases in rental rates for our existing tenants and an increase of $0.3 million from real estate investments made after January 1, 2022.

(2) During the three months ended March 31, 2022, the Company wrote off $1.0 million of uncollectible rent.

Interest and other income.

The $3.0 million, or 192%, increase in interest and other income is primarily due to an increase of $3.1 million related to the origination of loans receivable in June, August and September 2022 partially offset by a decrease of $0.1 million related to repayments of other loans.

See above under “Recent Developments” for additional information.

The $4.0 million increase in interest and other income was primarily due to an increase of $3.5 million due to the origination of loans receivable in June, August and September 2022 and a prepayment penalty of $0.5 million during the three months ended March 31, 2023.

Depreciation and amortization.

The $2.9 million, or 7%, decrease in depreciation and amortization was primarily due to a $3.6 million decrease from assets reclassified as held for sale and a decrease in depreciation of $1.7 million due to assets becoming fully depreciated after January 1, 2021, partially offset by an increase in depreciation and amortization of $2.4 million related to new real estate investments and capital improvements made after January 1, 2021.

The $1.3 million, or 10%, decrease in depreciation and amortization was primarily due to a decrease of $1.0 million due to assets becoming fully depreciated after January 1, 2022 and a decrease of $0.7 million due to classifying assets as held for sale during the three months ended March 31, 2022, partially offset by an increase of $0.3 million related to new real estate investments and capital improvements made after January 1, 2022 and a $0.1 million increase due to reclassifying assets out of held for sale during the three months ended December 31, 2022.

Interest expense.

Interest expense increased by $4.1 million as detailed below:

Change in interest expense for the nine months ended September 30, 2022 compared to September 30, 2021

Change in interest expense for the three months ended March 31, 2023 compared to the three months ended March 31, 2022

(in thousands)

Increases to interest expense due to:

Issuance of the Notes - June 17, 2021 $ 7,110

Increase in interest rates for the Term Loan $ 2,284

Increase in outstanding borrowing amount for the Revolving Facility, net 976

Increase in interest rates for the Revolving Facility 1,129

Increase in outstanding borrowing amount for the Revolving Facility, net 586

Other changes in interest expense 86

Total increases to interest expense 10,290

Decreases to interest expense due to:

Redemption of the prior senior notes - July 1, 2021 (7,878)

Total decreases to interest expense (7,878)

Total change in interest expense $ 2,412

Net change in interest expense $ 4,085

Property taxes.

The $0.9 million, or 36%, increase in property taxes was primarily due to a $0.7 million increase due to new real estate investments made after January 1, 2021, 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 September 30, 2022.

The $0.5 million, or 38%, decrease in property taxes was primarily due to a decrease of $0.4 million due to 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, and a decrease of $0.2 million due to the sale of properties in September 2022, December 2022 and January 2023, partially offset by an increase of $0.1 million due to reassessments.

Impairment of real estate investments.

During the nine months ended September 30, 2022, we recognized aggregate impairment charges of $73.7 million related to properties held for sale during fiscal 2022 and one property that is currently held for investment.

See above under “Recent Developments” for additional information.

No impairment charges were recognized during the nine months ended September 30, 2021.

During the three months ended March 31, 2023, we recognized an impairment charge of $1.9 million related to four properties classified as held for sale during the quarter.

See above under “Recent Developments - Impairment of Real Estate Assets, Assets Held for Sale, and Asset Sales” for additional information.

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.

Provision for loan losses, net.

During the nine months ended September 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 nine months ended September 30, 2021.

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.

No such provision for loan losses was recorded during the three months ended March 31, 2023.

Property operating expenses.

During the nine months ended September 30, 2022, we recognized $4.3 million of property operating expenses related to assets we plan to sell or repurpose, or have sold.

No similar expenses were incurred during the nine months ended September 30, 2021.

During the three months ended March 31, 2023 and March 31, 2022, we recognized $1.0 million and $0.4 million, respectively, of property operating expenses related to assets we plan to sell or repurpose, or have sold.

General and administrative expense.

General and administrative expense decreased by $0.2 million as detailed below:

Nine Months Ended

(in thousands) September 30, 2022 September 30, 2021 Increase/(Decrease)

Three Months Ended Increase/(Decrease)

(in thousands) March 31, 2023 March 31, 2022

Cash compensation $ 1,550 $ 1,720 $ (170)

Incentive compensation 2,950 3,550 (600)

Share-based compensation 936 1,521 (585)

Incentive compensation 1,550 1,050 500

Professional services 474 339 135

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Total change in general and administrative expense $ 5,061 $ 5,215 $ (154)

Loss on extinguishment of debt.

D uring 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 prior senior notes.

Loss on sale of real estate, net.

During the nine months ended September 30, 2022, we recorded a $2.1 million loss on sale of real estate related to the sale of six SNFs and one multi-service campus and a $0.2 million loss on sale of real estate related to the sale of a land parcel, partially offset by a $0.2 million gain on sale of real estate related to the sale of one SNF.

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 SNF.

Unrealized loss on other real estate related investments.

During the nine months ended September 30, 2022, we recorded a $4.7 million unrealized loss on one secured loan receivable and two mezzanine loans receivable .

The unrealized loss is due to rising interest rates.

No unrealized losses were recognized during the nine months ended September 30, 2021.

(Loss) gain on sale of real estate.

During the three months ended March 31, 2023, we recorded a $0.1 million loss on sale of real estate related to the sale of one ALF.

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.

Unrealized losses on other real estate related investments, net.

No unrealized losses were recognized during the three months ended March 31, 2022.

Liquidity and Capital Resources

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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 Second 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.

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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 related investments, and borrowings under our Amended Credit Facility, together with our cash balance of $4.9 million, available

borrowing capacity of $420.0 million unde r the Revolving Facility and availability under the ATM Program of $476.5 million, each at September 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 believe that our expected operating cash flow from rent collections, interest payments on our other real estate related investments, and borrowings under our Second Amended Credit Facility, together with our cash balance of $28.1 million, available borrowing capacity of $465.0 million unde r the Revolving Facility and availability of $500 million under the ATM Program, each at March 31, 2023, 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 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”).

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

Our quarterly cash dividend 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.

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

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.

Securities and Exchange Commission that expires in February 2026 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.

On February 24, 2023, we entered into the ATM Program.

In addition to the issuance and sale of shares of our common stock, we may also enter into one or more ATM forward contracts with sales agents for the sale of shares of our common stock under the ATM Program.

See “At-The-Market Offering of Common Stock” for information regarding activity under the ATM Program.

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 Nine Months Ended September 30,

For the Three Months Ended March 31,

Net cash provided by operating activities $ 35,120 $ 34,579

Net cash used in investing activities (818) (24,072)

Net cash provided by financing activities 16,053 62,397

Net decrease in cash and cash equivalents (15,034) (1,203)

Net cash used in financing activities (19,410) (3,816)

Net increase in cash and cash equivalents 14,892 6,691

Cash and cash equivalents as of the beginning of period 13,178 19,895

Cash and cash equivalents as of the end of period $ 28,070 $ 26,586

Net cash provided by operating activities decreased $7.7 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Net cash provided by operating activities remained stable for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

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 related investments.

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

The net decrease of $7.7 million in cash provided by operating activities for the nine months ended September 30, 2022 is primarily due to an increase in cash paid for general and administrative expense, interest expense, a decrease in rental income received and operating expenses related to assets we plan to sell, have sold, or repurpose, partially offset by interest income received on our other real estate related investments.

Cash used in investing activities for the nine months ended September 30, 2022 was primarily comprised of $171.6 million in acquisitions of real estate and investments in real estate related and other loans and $5.5 million of purchases of equipment, furniture and fixtures and improvements to real estate, partially offset by $34.1 million in net proceeds from real estate sales and $1.2 million of principal payments received from other loans receivable.

C ash 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 principal payments received from other loans receivable.

Our cash flows provided by financing activities for the nine months ended September 30, 2022 were primarily comprised of $100.0 million in net borrowings under our Amended Credit Facility, partially offset by $79.5 million in dividends paid and a $4.5 million net settlement adjustment on restricted stock.

O ur 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 million of payments to redeem the prior senior 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.

The net increase of $0.5 million in cash provided by operating activities for the three months ended March 31, 2023 is primarily due to an increase in interest income received on our other real estate related investments, partially offset by an increase in cash paid for interest expense, general and administrative expense and operating expenses related to assets we plan to sell, have sold, or repurpose.

Cash used in investing activities for the three months ended March 31, 2023 was primarily comprised of $17.2 million in escrow deposits for acquisition of real estate and $2.0 million of purchases of equipment, furniture and fixtures and improvements to real estate, partially offset by $15.1 million of principal payments received from our other real estate related investments and other loans receivable and $3.2 million in net proceeds from real estate sales.

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.

Our cash flows used in financing activities for the three months ended March 31, 2023 were primarily comprised of $27.4 million in dividends paid, a $1.5 million net settlement adjustment on restricted stock and $0.5 million in costs paid for the issuance of common stock, partially offset by $10.0 million in borrowings under our Revolving Facility (as defined below).

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 Prior Credit Agreement (as defined below).

Material Cash Requirements

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

Our material cash requirements from known contractual and other obligations include:

3.875% Senior Unsecured Notes due 2028

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(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.

(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”).

The Notes mature on June 30, 2028.

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

As of September 30, 2022, we were in compliance with all applicable financial covenants under the indenture governing the Notes.

The obligations under the Notes are guaranteed, jointly and severally, on an unsecured basis, by us and all of our subsidiaries (other than the Issuers).

As of March 31, 2023, 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

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.

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 September 30, 2022, we had $200.0 million outstanding under the Term Loan and $180.0 million outstanding under the Revolving Facility.

On December 16, 2022, we, together with certain of our subsidiaries, entered into a second amended and restated credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender (the “Second Amended Credit Agreement”).

The Operating Partnership is the borrower under the Second Amended Credit Agreement, and the obligations thereunder are guaranteed, jointly and severally, on an unsecured basis, by us and certain of our subsidiaries.

The Second Amended Credit Agreement, which amends and restates our amended and restated credit and guaranty agreement, dated as of February 8, 2019 (as amended, the “Prior 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) the continuation of the unsecured term loan credit facility which was previously extended under the Prior Credit Agreement (the “Term Loan” and together with the Revolving Facility, the “Second Amended Credit Facility”) in an aggregate principal amount of $200.0 million.

Future borrowings under the Second 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, 2023, we had $200.0 million outstanding under the Term Loan and $135.0 million outstanding under the Revolving Facility.

The Revolving Facility has a maturity date of February 9, 2027, and includes, at our sole discretion, t wo six-month extension options.

The Term Loan has a maturity date of February 8, 2026.

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 September 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.

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 Adjusted Term SOFR or Adjusted Daily Simple SOFR (each as defined in the Second Amended Credit Agreement) plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of the Company and 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 Adjusted Term SOFR or Adjusted Daily Simple SOFR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and 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 the Company and 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).

As of March 31, 2023, we were in compliance with all applicable financial covenants under the Second Amended Credit Agreement.

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

Capital Expenditures

As of September 30, 2022 , we had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities totaling $16.1 million, of which $3.9 million is subject to rent increase at the time of funding.

As of March 31, 2023 , we had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities totaling $14.8 million, of which $1.6 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 and nine months ended September 30, 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 months ended March 31, 2023 .

Critical Accounting Policies and Estimates

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However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements.

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.

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, 2022, filed with the SEC on February 9, 2023, 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, 2022.

There have been no material changes in such critical accounting policies during the three months ended March 31, 2023.

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