CareTrust REIT, Inc. 10-Q

Item 1. Financial Statements. CARETRUST REIT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (Unaudited) March 31, 2023 December 31, 2022 Assets: Real estate investments, net $ 1,400,813 $ 1,421,410 Other real estate related investments, at fair value (including accrued interest of $ 1,170 as of March 31, 2023 and $ 1,320 as of December 31, 2022) 140,764 156,368 Assets held for sale, net 17,479 12,291 Cash and cash equivalents 28,070 13,178 Accounts and other receivables 441 416 Prepaid expenses and other assets, net 29,518 11,690 Deferred financing costs, net 5,115 5,428 Total assets $ 1,622,200 $ 1,620,781 Liabilities and Equity: Senior unsecured notes payable, net $ 395,372 $ 395,150 Senior unsecured term loan, net 199,401 199,348 Unsecured revolving credit facility 135,000 125,000 Accounts payable, accrued liabilities and deferred rent liabilities 24,165 24,360 Dividends payable 27,943 27,550 Total liabilities 781,881 771,408 Commitments and contingencies (Note 11) Equity: Preferred stock, $ 0.01 par value; 100,000,000 shares authorized, no shares issued and outstanding as of March 31, 2023 and December 31, 2022 — — Common stock, $ 0.01 par value; 500,000,000 shares authorized, 99,098,090 and 99,010,112 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively 991 990 Additional paid-in capital 1,244,793 1,245,337 Cumulative distributions in excess of earnings ( 405,465 ) ( 396,954 ) Total equity 840,319 849,373 Total liabilities and equity $ 1,622,200 $ 1,620,781 See accompanying notes to condensed consolidated financial statements. 1 Table of Contents CARETRUST REIT, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited) For the Three Months Ended March 31, 2023 2022 Revenues: Rental income $ 46,163 $ 46,007 Interest and other income 4,443 469 Total revenues 50,606 46,476 Expenses: Depreciation and amortization 12,238 13,575 Interest expense 9,827 5,742 Property taxes 880 1,420 Impairment of real estate investments 1,886 59,683 Provision for loan losses, net — 3,844 Property operating expenses 963 447 General and administrative 5,061 5,215 Total expenses 30,855 89,926 Other (loss) income: (Loss) gain on sale of real estate, net ( 70 ) 186 Unrealized losses on other real estate related investments, net ( 454 ) — Total other (loss) income ( 524 ) 186 Net income (loss) $ 19,227 $ ( 43,264 ) Earnings (loss) per common share: Basic $ 0.19 $ ( 0.45 ) Diluted $ 0.19 $ ( 0.45 ) Weighted-average number of common shares: Basic 99,063 96,410 Diluted 99,087 96,410 See accompanying notes to condensed consolidated financial statements. 2 Table of Contents CARETRUST REIT, INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (in thousands, except share and per share amounts) (Unaudited) Common Stock Additional Paid-in Capital Cumulative Distributions in Excess of Earnings Total Equity Shares Amount Balance at January 1, 2023 99,010,112 $ 990 $ 1,245,337 $ ( 396,954 ) $ 849,373 Vesting of restricted common stock, net of shares withheld for employee taxes 87,978 1 ( 1,480 ) — ( 1,479 ) Amortization of stock-based compensation — — 936 — 936 Common dividends ($ 0.28 per share) — — — ( 27,738 ) ( 27,738 ) Net income — — — 19,227 19,227 Balance at March 31, 2023 99,098,090 $ 991 $ 1,244,793 $ ( 405,465 ) $ 840,319 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents CARETRUST REIT, INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (in thousands, except share and per share amounts) (Unaudited) Common Stock Additional Paid-in Capital Cumulative Distributions in Excess of Earnings Total Equity Shares Amount Balance at January 1, 2022 96,296,673 $ 963 $ 1,196,839 $ ( 282,045 ) $ 915,757 Vesting of restricted common stock, net of shares withheld for employee taxes 190,393 2 ( 2,774 ) — ( 2,772 ) Amortization of stock-based compensation — — 1,521 — 1,521 Common dividends ($ 0.275 per share) — — — ( 26,659 ) ( 26,659 ) Net loss — — — ( 43,264 ) ( 43,264 ) Balance at March 31, 2022 96,487,066 $ 965 $ 1,195,586 $ ( 351,968 ) $ 844,583 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents CARETRUST REIT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) For the Three Months Ended March 31, 2023 2022 Cash flows from operating activities: Net income (loss) $ 19,227 $ ( 43,264 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization (including below-market ground leases) 12,252 13,594 Amortization of deferred financing costs 609 520 Unrealized losses on other real estate related investments, net 454 — Amortization of stock-based compensation 936 1,521 Straight-line rental income 7 ( 6 ) Adjustment for collectibility of rental income — 977 Noncash interest income 150 — Loss (gain) on sale of real estate, net 70 ( 186 ) Impairment of real estate investments 1,886 59,683 Provision for loan losses, net — 3,844 Change in operating assets and liabilities: Accounts and other receivables ( 33 ) 337 Prepaid expenses and other assets, net 61 ( 404 ) Accounts payable, accrued liabilities and deferred rent liabilities ( 499 ) ( 2,037 ) Net cash provided by operating activities 35,120 34,579 Cash flows from investing activities: Acquisitions of real estate, net of deposits applied — ( 21,915 ) Purchases of equipment, furniture and fixtures and improvements to real estate ( 2,019 ) ( 1,918 ) Investment in real estate related investments and other loans receivable — ( 2,086 ) Principal payments received on real estate related investments and other loans receivable 15,143 888 Escrow deposits for acquisitions and potential acquisitions of real estate ( 17,172 ) — Net proceeds from sales of real estate 3,230 959 Net cash used in investing activities ( 818 ) ( 24,072 ) Cash flows from financing activities: Proceeds from (costs paid for) the issuance of common stock, net ( 501 ) — Borrowings under unsecured revolving credit facility 10,000 25,000 Payments of deferred financing costs ( 21 ) — Net-settle adjustment on restricted stock ( 1,479 ) ( 2,772 ) Dividends paid on common stock ( 27,409 ) ( 26,044 ) 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 Supplemental disclosures of cash flow information: Interest paid $ 6,671 $ 1,355 Supplemental schedule of noncash investing and financing activities: Increase in dividends payable $ 393 $ 615 Right-of-use asset obtained in exchange for new operating lease obligation $ 369 $ — Transfer of pre-acquisition costs to acquired assets $ — $ 7 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 1. ORGANIZATION Description of Business— CareTrust REIT, Inc.’s (“CareTrust REIT” or the “Company”) primary business consists of acquiring, financing, developing and owning real property to be leased to third-party tenants in the healthcare sector. As of March 31, 2023, the Company owned and leased to independent ope rators , 215 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of 22,727 operational beds and un its locate d in 28 st a tes with the highest concentration of properties by rental income located in California, Texas, Louisiana, Idaho and Arizona. As of March 31, 2023, the Company also had other real estate related inves tments consisting of three real estate secured loans receivable and one mezzanine loan receivable with a carrying value of $ 140.8 million. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation —The accompanying condensed consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all of the disclosures required by GAAP for a complete set of annual audited financial statements. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. In the opinion of management, all adjustments which are of a normal and recurring nature and considered necessary for a fair presentation of the results of the interim periods presented have been included. The results of operations for the interim periods are not necessarily indicative of results for the full year. All intercompany transactions and account balances within the Company have been eliminated. 3. REAL ESTATE INVESTMENTS, NET The following table summarizes the Company’s investment in owned properties held for use at March 31, 2023 and December 31, 2022 (dollars in thousands): March 31, 2023 December 31, 2022 Land $ 235,013 $ 238,738 Buildings and improvements 1,477,939 1,483,133 Integral equipment, furniture and fixtures 96,895 97,199 Identified intangible assets 2,833 2,832 Real estate investments 1,812,680 1,821,902 Accumulated depreciation and amortization ( 411,867 ) ( 400,492 ) Real estate investments, net $ 1,400,813 $ 1,421,410 As of March 31, 2023, 213 of the Company’s 215 facilities were leased to various operators under triple-net leases. All of these leases contain annual escalators based on the percentage change in the Consumer Price Index (“CPI”) (but not less than zero), some of which are subject to a cap, or fixed rent escalators. During the year ended December 31, 2022, the Company entered into triple-net lease agreements for two of the Company’s 213 facilities which are being repurposed to behavioral health facilities with rent commencing 12 to 18 months following lease commencement. Two of the Company’s 215 facilities are non-operational and are leased under a short term lease with an expected remaining term of less than one year as of March 31, 2023. As of March 31, 2023, 6 facilities were held for sale. See Note 4, Impairment of Real Estate Investments, Assets Held for Sale, Net and Asset Sales for additional information. 6 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) As of March 31, 2023, the Company’s total future contractual minimum rental income for all of its tenants, excluding operating expense reimbursements and assets held for sale, was as follows (dollars in thousands): Year Amount 2023 (nine months) $ 137,942 2024 184,484 2025 184,644 2026 184,750 2027 181,742 2028 179,626 Thereafter 778,259 Total $ 1,831,447 Tenant Purchase Options Certain of the Company’s operators hold purchase options allowing them to acquire properties they currently lease from the Company. A summary of these purchase options is presented below (dollars in thousands): Asset Type (1) Properties Lease Expiration Option Period Open Date (2) Option Type (3) Current Cash Rent (4) SNF 1 March 2029 4/1/2022 (6) A / B (7) 805 SNF / Campus 2 October 2032 1/1/2023 (5) A 1,097 SNF 4 November 2034 12/1/2024 (6) A 3,891 (1) Excludes a purchase option on an 11 building SNF portfolio representing $ 5.1 million of current cash rent. Tenant is currently not eligible to elect the option. (2) The Company has not received notice of exercise for the option periods that are currently open. (3) Option type includes: A - Fixed base price. B - Fixed capitalization rate on lease revenue. (4) Based on annualized cash revenue for contracts in place as of March 31, 2023. (5) Option window is open for six months from the option period open date. (6) Option window is open until the expiration of the lease term. (7) Purchase option reflects two option types. Rental Income The following table summarizes components of the Company’s rental income (dollars in thousands): For the Three Months Ended March 31, Rental Income 2023 2022 Contractual rent due (1) $ 46,170 $ 46,978 Straight-line rent ( 7 ) 6 Adjustment for collectibility (2) — ( 977 ) Total $ 46,163 $ 46,007 (1) Includes initial cash rent and tenant operating expense reimbursements, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by the Company. For tenants on a cash basis, this represents the lesser of the amount that would be recognized on a straight-line basis or cash that has been received. Tenant operating expense reimbursements for the three months ended March 31, 2023 and 2022 were $ 0.7 million and $ 0.6 million, respectively. (2) During the three months ended March 31, 2022, and in accordance with Accounting Standards Codification 842, the Company evaluated the collectibility of lease payments through maturity and determined that it was not probable that the Company would collect substantially all of the contractual obligations from four existing and former operators. As such, the Company reversed $ 0.7 million of operating expense reimbursements, $ 0.2 million of contractual rent and $ 0.1 million of straight-line rent during the three months ended March 31, 2022. If lease payments are subsequently deemed probable of collection, the Company will reestablish the receivable which will result in an increase in rental income for such recoveries. 7 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) Lease Amendments Amended Premier Lease . Effective January 1, 2023, the Company amended its master lease with affiliates of Premier Senior Living, LLC (“Premier”). In connection with the lease amendment, the Company reduced the annual cash rent by $ 1.7 million, to approximately $ 2.6 million. The Premier lease has a remaining term of approximately 8 years with two five-year renewal options and CPI-based rent escalators. Noble VA Lease Termination and New Pennant Lease. Effective March 16, 2023, two ALFs in Wisconsin were removed from a master lease with affiliates of Noble VA Holdings (“Noble”) and the Company terminated the applicable Noble master lease. Annual cash rent under the applicable Noble master lease prior to lease termination was approximately $ 2.3 million. In connection with the lease termination, the Company entered into a new lease with The Pennant Group, Inc. (“Pennant”) with respect to the two ALFs. The applicable Pennant lease has an initial term of approximately 15 years with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the new lease is approximately $ 0.8 million and the master lease provides Pennant with three months deferred rent to be repaid before the expiration or termination of the lease. Amended Hillstone Lease. On March 24, 2023, the Company amended its master lease with affiliates of Hillstone Healthcare, Inc. (“Hillstone”). In connection with the lease amendment, the Company agreed to defer rent of approximately $ 0.7 million for 12 months from December 2022 through November 2023 to be repaid as a percentage of adjusted gross revenues of one underlying facility, as defined in the amended lease, beginning January 1, 2025, until deferred rent has been paid in full. The amended Hillstone lease has a remaining term of approximately 7 years with two five-year renewal options and 2 % fixed rent escalators. 4. IMPAIRMENT OF REAL ESTATE INVESTMENTS, ASSETS HELD FOR SALE, NET AND ASSET SALES During the three months ended March 31, 2023, the Company recognized an impairment charge of $ 1.9 million related to 4 of the 6 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. During the three months ended March 31, 2022, the Company recognized an impairment charge of $ 59.7 million related to 20 properties held for sale. The fair value of the assets held for sale was based on estimated sales prices, which are considered to be Level 3 measurements within the fair value hierarchy. Estimated sales prices were determined using a market approach (comparable sales model), which relies on certain assumptions by management, including: (i) comparable market transactions, (ii) estimated prices per unit, and (iii) binding agreements for sales and non-binding offers to purchase from unrelated third-parties. There are inherent uncertainties in making these assumptions. For the Company’s impairment calculations, the Company’s fair value estimates primarily relied on a market approach and utilized prices per unit ranging from $ 20,000 to $ 85,000 , with a weighted average price per unit of $ 32,000 . Asset Sales and Held for Sale Reclassifications 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, 2023 2022 Number of facilities 1 1 Net sales proceeds $ 3,230 $ 959 Net carrying value 3,300 773 Net (loss) gain on sale $ ( 70 ) $ 186 8 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 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 5. OTHER REAL ESTATE RELATED AND OTHER INVESTMENTS As of March 31, 2023 and December 31, 2022, the Company’s other real estate related investments, at fair value, consisted of the following (dollar amounts in thousands): As of March 31, 2023 Investment Facility Count and Type Principal Balance as of March 31, 2023 Book Value as of March 31, 2023 Book Value as of December 31, 2022 Weighted Average Contractual Interest Rate Maturity Date Senior mortgage secured loan receivable 18 SNF/Campus $ 75,000 $ 72,543 $ 72,543 8.4 % (1) 6/30/2027 Mortgage secured loan receivable 5 SNF 22,250 21,350 21,345 10.5 % (2) 8/1/2025 Mortgage secured loan receivable 4 SNF 24,900 23,796 23,796 9.0 % (2) 9/8/2025 Mezzanine loan receivable (3) 9 SNF — — 14,672 — — Mezzanine loan receivable 18 SNF/Campus 25,000 23,075 24,012 11.0 % 6/30/2032 $ 147,150 $ 140,764 $ 156,368 (1) Rate is net of subservicing fee. (2) Term secured overnight financing rate (“SOFR”) used as of March 31, 2023 was 4.80 %. Rates are net of subservicing fees. (3) Mezzanine loan was prepaid during the three months ended March 31, 2023. The following table summarizes the Company’s other real estate related investments activity for the three months ended March 31, 2023 and 2022 (dollars in thousands): Three Months Ended March 31, 2023 2022 Accrued interest, net $ ( 150 ) $ — Unrealized losses on other real estate related investments, net ( 454 ) — Repayments of other real estate related investments ( 15,000 ) — Net decrease in other real estate related investments, at fair value $ ( 15,604 ) $ — 9 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) As of March 31, 2023 and December 31, 2022, the Company’s other loans receivable, included in prepaid expenses and other assets, net on the Company’s condensed consolidated balance sheets, consisted of the following (dollars in thousands): As of March 31, 2023 Investment Principal Balance as of March 31, 2023 Book Value as of March 31, 2023 Book Value as of December 31, 2022 Weighted Average Contractual Interest Rate Maturity Date Other loans receivable $ 9,453 $ 9,456 $ 9,600 8.5 % 9/1/2023 - 9/30/2025 Expected credit loss — ( 2,094 ) ( 2,094 ) Total $ 9,453 $ 7,362 $ 7,506 The following table summarizes the Company’s other loans receivable activity for the three months ended March 31, 2023 and 2022 (dollars in thousands): Three Months Ended March 31, 2023 2022 Origination of loans receivable $ — $ 2,500 Principal payments ( 143 ) ( 888 ) Accrued interest, net ( 1 ) — Provision for loan losses, net — ( 3,844 ) Net decrease in other loans receivable $ ( 144 ) $ ( 2,232 ) Expected credit losses and recoveries are recorded in provision for loan losses, net in the condensed consolidated statements of operations. During the three months ended March 31, 2022, the Company recorded a $ 4.6 million expected credit loss related to two other loans receivable that were placed on non-accrual status, net of a loan loss recovery of $ 0.8 million related to a loan previously written-off. During the three months ended March 31, 2023, the Company had no additional expected credit loss and did not consider any loan receivable investments to be impaired. The following table summarizes the interest and other income recognized from the Company’s loans receivable and other investments during the three months ended March 31, 2023 and 2022 (dollars in thousands): For the Three Months Ended March 31, Investment 2023 2022 Mortgage secured loans receivable $ 2,704 $ — Mezzanine loans receivable 1,583 450 Other 156 19 Total $ 4,443 $ 469 6. FAIR VALUE MEASUREMENTS The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. GAAP guidance defines three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability. 10 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) Level 3 – Unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques. The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and, depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. Changes in the type of inputs may result in a reclassification for certain assets. The Company does not expect that changes in classifications between levels will be frequent. Items Measured at Fair Value on a Recurring Basis The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, aggregated by the level in the fair value hierarchy within which those instruments fall (dollars in thousands): Level 1 Level 2 Level 3 Balance as of March 31, 2023 Assets: Mortgage secured loans receivable $ — $ — $ 117,689 $ 117,689 Mezzanine loans receivable — — 23,075 23,075 Total $ — $ — $ 140,764 $ 140,764 Level 1 Level 2 Level 3 Balance as of December 31, 2022 Assets: Mortgage secured loans receivable $ — $ — $ 117,684 $ 117,684 Mezzanine loans receivable — — 38,684 38,684 Total $ — $ — $ 156,368 $ 156,368 The following table details the Company’s assets measured at fair value on a recurring basis using Level 3 inputs (dollars in thousands): Investments in Real Estate Secured Loans Investments in Mezzanine Loans Balance at December 31, 2022 $ 117,684 $ 38,684 Accrued interest, net 5 ( 155 ) Unrealized losses on other real estate related investments, net — ( 454 ) Repayments — ( 15,000 ) Balance as of March 31, 2023 $ 117,689 $ 23,075 Real estate secured and mezzanine loans receivable: The fair value of the secured and mezzanine loans receivables were estimated using an internal valuation model that considered the expected future cash flows of the investment, the underlying collateral value, market interest rates and other credit enhancements. As such, the Company classifies each instrument as Level 3 due to the significant unobservable inputs used in determining market interest rates for investments with similar terms. During the three months ended March 31, 2023, the Company recorded an unrealized loss of $ 1.0 million related to one mezzanine loan receivable due to rising interest rates, partially offset by a reversal of a previously recognized unrealized loss of $ 0.5 million related to the repayment of one mezzanine loan receivable. Future changes in market interest rates or collateral value could materially impact the estimated discounted cash flows that are used to determine the fair value of the secured and mezzanine loans receivable. As of March 31, 2023 and December 31, 2022, the Company did no t have any loans that were 90 days or more past due. 11 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) The following table shows the quantitative information about unobservable inputs related to the Level 3 fair value measurements comprising the investments in secured and mezzanine loans receivables as of March 31, 2023: Type Book Value as of March 31, 2023 Valuation Technique Unobservable Inputs Range Mortgage secured loans receivable $ 117,689 Discounted cash flow Discount Rate 10 % - 13 % Mezzanine loans receivable 23,075 Discounted cash flow Discount Rate 12 % - 13 % For the three months ended March 31, 2023, there were no classification changes in assets and liabilities with Level 3 inputs in the fair value hierarchy. Items Disclosed at Fair Value Considerable judgment is necessary to estimate the fair value disclosure of financial instruments. The estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. A summary of the face value, carrying amount and fair value of the Notes (as defined in Note 7, Debt, below) as of March 31, 2023 and December 31, 2022 using Level 2 inputs is as follows (dollars in thousands): March 31, 2023 December 31, 2022 Level Face Value Carrying Amount Fair Value Face Value Carrying Amount Fair Value Financial liabilities: Senior unsecured notes payable 2 $ 400,000 $ 395,372 $ 346,868 $ 400,000 $ 395,150 $ 345,036 Cash and cash equivalents, accounts and other receivables, accounts payable, and accrued liabilities: The carrying values for these instruments approximate their fair values due to the short-term nature of these instruments. Senior unsecured notes payable: The fair value of the Notes was determined using third-party quotes derived from orderly trades. Unsecured revolving credit facility and senior unsecured term loan: The fair values approximate their carrying values as the interest rates are variable and approximate prevailing market interest rates for similar debt arrangements. 7. DEBT The following table summarizes the balance of the Company’s indebtedness as of March 31, 2023 and December 31, 2022 (dollars in thousands): March 31, 2023 December 31, 2022 Principal Amount Deferred Loan Fees Carrying Value Principal Amount Deferred Loan Fees Carrying Value Senior unsecured notes payable $ 400,000 $ ( 4,628 ) $ 395,372 $ 400,000 $ ( 4,850 ) $ 395,150 Senior unsecured term loan 200,000 ( 599 ) 199,401 200,000 ( 652 ) 199,348 Unsecured revolving credit facility 135,000 — 135,000 125,000 — 125,000 $ 735,000 $ ( 5,227 ) $ 729,773 $ 725,000 $ ( 5,502 ) $ 719,498 Senior Unsecured Notes Payable 2028 Senior Notes. On June 17, 2021, the Company’s wholly owned subsidiary, CTR Partnership, L.P. (the “Operating Partnership”), and its wholly owned subsidiary, CareTrust Capital Corp. (together with the Operating Partnership, the “Issuers”), completed a private offering of $ 400.0 million aggregate principal amount of 3.875 % Senior Notes due 2028 (the “Notes”) to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended. The Notes were issued at par, resulting in gross proceeds of $ 400.0 million and net proceeds of approximately $ 393.8 million after deducting underwriting fees and other offering expenses. The Notes mature on June 30, 2028. The Notes accrue interest at a rate of 12 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 3.875 % per annum payable semiannually in arrears on June 30 and December 30 of each year, commencing on December 30, 2021. The Issuers may redeem some or all of the Notes at any time prior to March 30, 2028 at a price equal to 100 % of the principal amount of the Notes redeemed plus accrued and unpaid interest on the Notes, if any, to, but not including, the redemption date, plus a “make-whole” premium. At any time on or after March 30, 2028, the Issuers may redeem some or all of the Notes at a redemption price equal to 100 % of the principal amount of the Notes redeemed plus accrued interest on the Notes, if any, to, but not including, the redemption date. In addition, at any time on or prior to June 30, 2024, up to 40 % of the aggregate principal amount of the Notes may be redeemed with the net proceeds of certain equity offerings at a redemption price of 103.875 % of the aggregate principal amount of Notes to be redeemed plus accrued and unpaid interest on the Notes, if any, to, but not including, the redemption date. If certain changes of control of the Company occur, the Issuers will be required to make an offer to holders of the Notes to repurchase their Notes at a price of 101 % of their principal amount plus accrued and unpaid interest, if any, to, but not including, the repurchase date. The obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by the Company and all of CareTrust’s existing and future subsidiaries (other than the Issuers) that guarantee obligations under the Amended Credit Facility (as defined below); provided, however, that such guarantees are subject to automatic release under certain customary circumstances. The indenture governing the Notes contains customary covenants such as limiting the ability of the Company and its restricted subsidiaries to: incur or guarantee additional indebtedness; incur or guarantee secured indebtedness; pay dividends or distributions on, or redeem or repurchase, capital stock; make certain investments or other restricted payments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their assets; and create restrictions on the ability of the Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers. The indenture governing the Notes also requires the Company and its restricted subsidiaries to maintain a specified ratio of unencumbered assets to unsecured indebtedness. These covenants are subject to a number of important and significant limitations, qualifications and exceptions. The indenture governing the Notes also contains customary events of default. As of March 31, 2023, the Company was in compliance with all applicable financial covenants under the indenture governing the Notes. Unsecured Revolving Credit Facility and Term Loan On December 16, 2022, the Operating Partnership, as the borrower, the Company, as guarantor, CareTrust GP, LLC, and certain of the Operating Partnership’s wholly owned subsidiaries, entered into 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 Second Amended Credit Agreement, which amends and restates the Company’s 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. 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 its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). The interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.50 % to 1.20 % per annum or 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 its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). In addition, the Operating Partnership will pay a facility fee on the 13 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) revolving commitments under the Revolving Facility ranging from 0.15 % to 0.35 % per annum, based on the debt to asset value ratio of the Company and its consolidated subsidiaries (unless the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt and the Operating Partnership elects to decrease the applicable margin as described above, in which case the Operating Partnership will pay a facility fee on the revolving commitments ranging from 0.125 % to 0.30 % per annum based on the credit ratings of the Company’s senior long-term unsecured debt). As of March 31, 2023, the Operating Partnership had $ 200.0 million of borrowings 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 the sole discretion of the Operating Partnership, two six-month extension options. The Term Loan has a maturity date of February 8, 2026. The Second Amended Credit Facility is guaranteed, jointly and severally, by the Company and its wholly owned subsidiaries that are party to the Second Amended Credit Agreement (other than the Operating Partnership). The Second Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend organizational documents and pay certain dividends and other restricted payments. The Second Amended Credit Agreement requires the Company to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum debt to asset value ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating income ratio, a maximum secured debt to asset value ratio, a maximum secured recourse debt to asset value ratio, a maximum unsecured debt to unencumbered properties asset value ratio, a minimum unsecured interest coverage ratio and a minimum rent coverage ratio. The Second Amended Credit Agreement also contains certain customary events of default, including the failure to make timely payments under the Second Amended Credit Facility or other material indebtedness, the failure to satisfy certain covenants (including the financial maintenance covenants), the occurrence of change of control and specified events of bankruptcy and insolvency. As of March 31, 2023, the Company was in compliance with all applicable financial covenants under the Second Amended Credit Agreement. 8. EQUITY Common Stock At-The-Market Offering —On February 24, 2023, the Company entered into a new equity distribution agreement to issue and sell, from time to time, up to $ 500.0 million in aggregate offering price of its common stock through an “at-the-market” equity offering program (the “ATM Program”). In addition to the issuance and sale of shares of our common stock, the Company may also enter into one or more forward sales agreements (each, an “ATM forward contract”) with sales agents for the sale of the Company’s shares of 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, the Company had $ 500.0 million available for future issuances under the ATM Program. Share Repurchase Program —On March 20, 2020, the Company’s board of directors authorized a share repurchase program for up to $ 150.0 million of outstanding shares of the Company’s common stock (the “Repurchase Program”). Repurchases under the Repurchase Program were authorized 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 were also allowed to be made pursuant to a plan adopted under Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company did not repurchase any shares of common stock under the Repurchase Program, which expired on March 31, 2023. 14 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) Dividends on Common Stock — The following table summarizes the cash dividends per share of common stock declared by the Company’s board of directors for the three months ended March 31, 2023 (dollars in thousands, except per share amounts): For the Three Months Ended March 31, 2023 Dividends declared per share $ 0.28 Dividends payment date April 14, 2023 Dividends payable as of record date (1) $ 27,846 Dividends record date March 31, 2023 (1) Dividends payable includes dividends on performance stock awards that will be paid if and when the shares subject to such awards vest. 9. STOCK-BASED COMPENSATION All stock-based awards are subject to the terms of the CareTrust REIT, Inc. and CTR Partnership, L.P. Incentive Award Plan (the “Plan”). The Plan provides for the granting of stock-based compensation, including stock options, restricted stock, performance awards, restricted stock units, relative total stockholder return based stock awards and other incentive awards to officers, employees and directors in connection with their employment with or services provided to the Company. Under the Plan, 5,000,000 shares have been authorized for awards. Under the Plan, restricted stock awards (“RSAs”) vest in equal annual installments over a three year period for the RSAs granted in 2022 and 2021 and a four year period for the RSAs granted in 2020. RSAs granted to non-employee members of the board of directors (“Board Awards”) vest in full on the earlier to occur of the Company’s next Annual Meeting of Stockholders or one year . Performance stock awards (“PSA”) granted are subject to both time and performance based conditions and vest over a one -to- three year period for PSAs granted in 2021 and over a one -to- four year period for PSAs granted in 2020. The amount of such PSAs that will ultimately vest is dependent on the Company’s Normalized Funds from Operations (“NFFO”) per share, as defined by the Compensation Committee, meeting or exceeding a specified per share amount for the applicable vesting period. Relative total shareholder return units (“TSR Units”) granted in 2022 and 2021 are subject to both time and market based conditions and cliff vest after a three-year period. The amount of such market awards that will ultimately vest is dependent on the Company’s total shareholder return (“TSR”) performance relative to a custom TSR peer group consisting of other publicly traded healthcare REITs and will range from 0 % to 200 % of the TSR Units initially granted. The RSAs, PSAs, and Board Awards are valued on the date of grant based on the closing price of the Company’s common stock, while the TSR Units are valued on the date of grant using a Monte Carlo valuation model. The vesting of certain awards may accelerate, as defined in the grant agreement, upon retirement, a change in control or other events. The following table summarizes the status of the restricted stock award and performance award activity for the three months ended March 31, 2023: Shares Weighted Average Share Price Unvested balance at December 31, 2022 573,609 $ 20.63 Vested ( 159,775 ) 21.59 Forfeited ( 60,545 ) 21.20 Unvested balance at March 31, 2023 353,289 $ 20.10 As of March 31, 2023, the weighted-average remaining vesting period of such awards w as 1.9 years. The following table summarizes the stock-based compensation expense recognized for the periods presented (dollars in thousands): For the Three Months Ended March 31, 2023 2022 Stock-based compensation expense $ 936 $ 1,521 For the three months ended March 31, 2023, approximately $ 0.9 million of previously recognized stock-based compensation expense was reversed due to forfeitures of stock awards. 15 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) As of March 31, 2023, there was $ 8.5 million of unamortized stock-based compensation expense related to the unvested RSAs, PSAs and TSR Awards. 10. EARNINGS (LOSS) PER COMMON SHARE The following table presents the calculation of basic and diluted earnings (loss) per common share (“EPS”) for the Company’s common stock for the three months ended March 31, 2023 and 2022, and reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS (amounts in thousands, except per share amounts): For the Three Months Ended March 31, 2023 2022 Numerator: Net income (loss) $ 19,227 $ ( 43,264 ) Less: Net income allocated to participating securities ( 89 ) ( 117 ) Numerator for basic and diluted earnings available to common stockholders $ 19,138 $ ( 43,381 ) Denominator: Weighted-average basic common shares outstanding 99,063 96,410 Dilutive performance stock awards 24 — Weighted-average diluted common shares outstanding 99,087 96,410 Earnings (loss) per common share, basic $ 0.19 $ ( 0.45 ) Earnings (loss) per common share, diluted $ 0.19 $ ( 0.45 ) Antidilutive unvested restricted stock awards, total shareholder units and performance awards excluded from the computation 318 534 11. COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries are and may become from time to time a party to various claims and lawsuits arising in the ordinary course of business, which are not individually or in the aggregate anticipated to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. Claims and lawsuits may include matters involving general or professional liability asserted against the Company’s tenants, which are the responsibility of the Company’s tenants and for which the Company is entitled to be indemnified by its tenants under the insurance and indemnification provisions in the applicable leases. Capital expenditures for each property leased under the Company’s triple-net leases are generally the responsibility of the tenant, except that, for the facilities leased to subsidiaries of The Ensign Group, Inc., under multiple long-term leases, and Pennant, the tenant will have an option to require the Company to finance certain capital expenditures up to an aggregate of 20 % of the Company’s initial investment in such property, subject to a corresponding rent increase at the time of funding. For the Company’s other triple-net master leases, the tenants also have the option to request capital expenditure funding that would generally be subject to a corresponding rent increase at the time of funding, which are subject to tenant compliance with the conditions to the Company’s approval and funding of their requests. As of March 31, 2023, the Company 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. 12. CONCENTRATION OF RISK Concentrations of credit risk arise when one or more tenants, operators, or obligors related to the Company’s investments are engaged in similar business activities or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. 16 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) Major operator concentration - The Company has operators from which it derived 10% or more of its rental revenue for the three months ended March 31, 2023 and 2022. The following table sets forth information regarding the Company’s major operators as of March 31, 2023 and 2022: Number of Facilities Number of Beds/Units Percentage of Total Revenue (1) Operator SNF Campus ALF/ILF SNF Campus ALF/ILF March 31, 2023 Ensign (2) 83 8 7 8,741 997 661 36 % Priority Management Group 13 2 — 1,742 402 — 17 % March 31, 2022 Ensign (2) 83 8 5 8,756 997 495 34 % Priority Management Group 13 2 — 1,742 402 — 16 % (1) The Company’s rental income, exclusive of operating expense reimbursements. (2) Ensign is subject to the registration and reporting requirements of the SEC and is required to file with the SEC annual reports containing audited financial information and quarterly reports containing unaudited financial information. Ensign’s financial statements, as filed with the SEC, can be found at http://www.sec.gov. The Company has not verified this information through an independent investigation or otherwise. Major geographic concentration – The following table provides information regarding the Company’s concentrations with respect to certain states, from which the Company derived 10% or more of its rental revenue for the three months ended March 31, 2023 and 2022: Number of Facilities Number of Beds/Units Percentage of Total Revenue (1) State SNF Campus ALF/ILF SNF Campus ALF/ILF March 31, 2023 CA 27 8 5 3,048 1,359 437 28 % TX 38 3 3 4,849 536 242 23 % March 31, 2022 CA 27 8 5 3,048 1359 449 26 % TX 38 3 3 4,829 536 242 22 % (1) Represents the Company’s rental income, exclusive of operating expense reimbursements and adjustments for collectibility. 13. SUBSEQUENT EVENTS The Company evaluates subsequent events in accordance with ASC 855, Subsequent Events . The Company evaluates subsequent events up until the date the condensed consolidated financial statements are issued. Recent Acquisitions, New and Amended Lease Agreements On April 1, 2023, the Company acquired two SNFs in Texas and Kansas for approximately $ 17.2 million, which includes estimated capitalized acquisition costs and capital expenditure commitments. In connection with the acquisition of the facility in Texas, the Company amended an existing master lease with affiliates of Momentum Skilled Services (“Momentum”) and extended the initial term of the lease. The Momentum lease, as amended, has a remaining initial term of approximately 15 years, with two five-year renewal options and CPI based rent escalators. Annual cash rent under the amended lease increased by approximately $ 1.0 million. In connection with the acquisition of the facility in Kansas, the Company entered into a new master lease with an affiliate of Summit Healthcare Management. The new master lease has an initial term of approximately 15 years, with two five-year renewal options and CPI based rent escalators. Annual cash rent under the new lease is approximately $ 0.7 million and the master lease provides for one month rent abatement. The acquisition was funded using cash on hand. On May 1, 2023, the Company acquired two ALFs in Illinois for approximately $ 18.2 million, which includes estimated capitalized acquisition costs. In connection with the acquisition of the two facilities, the Company entered into a new 17 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) master lease with affiliates of Chapters Living, LLC. The new master lease has an initial term of approximately 15 years, with two five-year renewal options and CPI based rent escalators. Annual cash rent under the new lease is approximately $ 1.7 million and the master lease provides for rent abatement of the first three months. The acquisition was funded using proceeds from the Company’s unsecured revolving credit facility. On May 1, 2023, the Company acquired one SNF in Georgia for approximately $ 12.1 million, which includes estimated capitalized acquisition costs. In connection with the acquisition of the facility, the Company entered into a new master lease with an affiliate of Elevation Group, LLC. The new master lease has an initial term of approximately 15 years, with two five-year renewal options and CPI based rent escalators. Annual cash rent under the new lease is approximately $ 1.1 million. The acquisition was funded using proceeds from the Company’s unsecured revolving credit facility. Recent Asset Sales On May 1, 2023, the Company closed on the sale of one ALF consisting of 30 beds located in Texas with a carrying value of $ 2.6 million, which approximated the net sales proceeds received. The facility was classified as held for sale as of March 31, 2023. At-The-Market Offering of Common Stock In April 2023, the Company 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. The Company did not receive any proceeds from the sale of its shares of common stock by the forward sellers. The Company currently expects 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 the Company’s discretion, prior to the final settlement date in the second quarter of 2024, at which time the Company expects 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 the Company expects 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. The Company has not settled any portion of this forward equity sale as of the date the condensed consolidated financial statements are issued. 18 Table of Contents