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) September 30, 2023 December 31, 2022 Assets: Real estate investments, net $ 1,536,048 $ 1,421,410 Other real estate related investments, at fair value (including accrued interest of $ 1,449 as of September 30, 2023 and $ 1,320 as of December 31, 2022) 181,175 156,368 Assets held for sale, net 21,341 12,291 Cash and cash equivalents 3,485 13,178 Accounts and other receivables 383 416 Prepaid expenses and other assets, net 20,684 11,690 Deferred financing costs, net 4,448 5,428 Total assets $ 1,767,564 $ 1,620,781 Liabilities and Equity: Senior unsecured notes payable, net $ 395,816 $ 395,150 Senior unsecured term loan, net 199,507 199,348 Unsecured revolving credit facility — 125,000 Accounts payable, accrued liabilities and deferred rent liabilities 28,854 24,360 Dividends payable 32,403 27,550 Total liabilities 656,580 771,408 Commitments and contingencies (Note 12) Equity: Preferred stock, $ 0.01 par value; 100,000,000 shares authorized, no shares issued and outstanding as of September 30, 2023 and December 31, 2022 — — Common stock, $ 0.01 par value; 500,000,000 shares authorized, 115,409,356 and 99,010,112 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively 1,154 990 Additional paid-in capital 1,566,161 1,245,337 Cumulative distributions in excess of earnings ( 457,393 ) ( 396,954 ) Total stockholders’ equity 1,109,922 849,373 Noncontrolling interests 1,062 — Total equity 1,110,984 849,373 Total liabilities and equity $ 1,767,564 $ 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 September 30, For the Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Rental income $ 51,218 $ 47,018 $ 145,126 $ 139,831 Interest and other income 4,659 3,275 12,910 4,491 Total revenues 55,877 50,293 158,036 144,322 Expenses: Depreciation and amortization 13,034 12,256 37,988 38,390 Interest expense 11,750 8,355 32,617 20,400 Property taxes 2,167 691 4,437 3,365 Impairment of real estate investments 8,232 12,322 31,510 73,706 Provision for loan losses, net — — — 3,844 Property operating expenses 1,239 3,808 2,860 4,344 General and administrative 5,519 5,159 15,298 15,352 Total expenses 41,941 42,591 124,710 159,401 Other (loss) income: (Loss) gain on sale of real estate, net — ( 2,287 ) 1,958 ( 2,101 ) Unrealized losses on other real estate related investments, net ( 5,251 ) ( 4,706 ) ( 7,856 ) ( 4,706 ) Total other loss ( 5,251 ) ( 6,993 ) ( 5,898 ) ( 6,807 ) Net income (loss) 8,685 709 27,428 ( 21,886 ) Net loss attributable to noncontrolling interests ( 11 ) — ( 11 ) — Net income (loss) attributable to CareTrust REIT, Inc. $ 8,696 $ 709 $ 27,439 $ ( 21,886 ) Earnings (loss) per common share attributable to CareTrust REIT, Inc.: Basic $ 0.08 $ 0.01 $ 0.27 $ ( 0.23 ) Diluted $ 0.08 $ 0.01 $ 0.27 $ ( 0.23 ) Weighted-average number of common shares: Basic 104,011 96,605 100,748 96,527 Diluted 104,311 96,625 100,918 96,527 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 Stockholders’ Equity Noncontrolling Interests Total Equity Shares Amount Balance at January 1, 2023 99,010,112 $ 990 $ 1,245,337 $ ( 396,954 ) $ 849,373 $ — $ 849,373 Vesting of restricted common stock, net of shares withheld for employee taxes 87,978 1 ( 1,480 ) — ( 1,479 ) — ( 1,479 ) Amortization of stock-based compensation — — 936 — 936 — 936 Common dividends ($ 0.28 per share) — — — ( 27,738 ) ( 27,738 ) — ( 27,738 ) Net income — — — 19,227 19,227 — 19,227 Balance at March 31, 2023 99,098,090 991 1,244,793 ( 405,465 ) 840,319 — 840,319 Vesting of restricted common stock 25,992 — — — — — — Amortization of stock-based compensation — — 924 — 924 — 924 Common dividends ($ 0.28 per share) — — — ( 27,737 ) ( 27,737 ) — ( 27,737 ) Net loss — — — ( 484 ) ( 484 ) — ( 484 ) Balance at June 30, 2023 99,124,082 991 1,245,717 ( 433,686 ) 813,022 — 813,022 Issuance of common stock, net 16,285,274 163 318,925 — 319,088 — 319,088 Amortization of stock-based compensation — — 1,519 — 1,519 — 1,519 Common dividends ($ 0.28 per share) — — — ( 32,403 ) ( 32,403 ) — ( 32,403 ) Contribution from noncontrolling interests — — — — — 1,073 1,073 Net income — — — 8,696 8,696 ( 11 ) 8,685 Balance at September 30, 2023 115,409,356 $ 1,154 $ 1,566,161 $ ( 457,393 ) $ 1,109,922 $ 1,062 $ 1,110,984 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 Stockholders’ Equity Noncontrolling Interests Total Equity Shares Amount Balance at January 1, 2022 96,296,673 $ 963 $ 1,196,839 $ ( 282,045 ) $ 915,757 $ — $ 915,757 Vesting of restricted common stock, net of shares withheld for employee taxes 190,393 2 ( 2,774 ) — ( 2,772 ) — ( 2,772 ) Amortization of stock-based compensation — — 1,521 — 1,521 — 1,521 Common dividends ($ 0.275 per share) — — — ( 26,659 ) ( 26,659 ) — ( 26,659 ) Net loss — — — ( 43,264 ) ( 43,264 ) — ( 43,264 ) Balance at March 31, 2022 96,487,066 965 1,195,586 ( 351,968 ) 844,583 — 844,583 Vesting of restricted common stock, net of shares withheld for employee taxes 118,046 1 ( 1,698 ) — ( 1,697 ) — ( 1,697 ) Amortization of stock-based compensation — — 1,394 — 1,394 — 1,394 Common dividends ($ 0.275 per share) — — — ( 26,681 ) ( 26,681 ) — ( 26,681 ) Net income — — — 20,669 20,669 — 20,669 Balance at June 30, 2022 96,605,112 966 1,195,282 ( 357,980 ) 838,268 — 838,268 Amortization of stock-based compensation — — 1,380 — 1,380 — 1,380 Common dividends ($ 0.275 per share) — — — ( 26,680 ) ( 26,680 ) — ( 26,680 ) Net income — — — 709 709 — 709 Balance at September 30, 2022 96,605,112 $ 966 $ 1,196,662 $ ( 383,951 ) $ 813,677 $ — $ 813,677 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 Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net income (loss) $ 27,428 $ ( 21,886 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization (including below-market ground leases) 38,031 38,437 Amortization of deferred financing costs 1,826 1,560 Unrealized losses on other real estate related investments, net 7,856 4,706 Amortization of stock-based compensation 3,379 4,295 Straight-line rental income 21 ( 14 ) Adjustment for collectibility of rental income — 977 Noncash interest income ( 129 ) ( 1,063 ) (Gain) loss on sale of real estate, net ( 1,958 ) 2,101 Impairment of real estate investments 31,510 73,706 Provision for loan losses, net — 3,844 Change in operating assets and liabilities: Accounts and other receivables 11 648 Prepaid expenses and other assets, net ( 68 ) ( 2,082 ) Accounts payable, accrued liabilities and deferred rent liabilities 4,189 5,443 Net cash provided by operating activities 112,096 110,672 Cash flows from investing activities: Acquisitions of real estate, net of deposits applied ( 198,565 ) ( 21,915 ) Purchases of equipment, furniture and fixtures and improvements to real estate ( 9,139 ) ( 5,475 ) Investment in real estate related investments and other loans receivable ( 50,693 ) ( 149,650 ) Principal payments received on real estate related investments and other loans receivable 15,703 1,166 Escrow deposits for potential acquisitions of real estate ( 4,075 ) — Net proceeds from sales of real estate 14,464 34,115 Net cash used in investing activities ( 232,305 ) ( 141,759 ) Cash flows from financing activities: Proceeds from the issuance of common stock, net 319,032 — Borrowings under unsecured revolving credit facility 185,000 145,000 Payments on unsecured revolving credit facility ( 310,000 ) ( 45,000 ) Payments of deferred financing costs ( 21 ) — Net-settle adjustment on restricted stock ( 1,479 ) ( 4,469 ) Dividends paid on common stock ( 83,089 ) ( 79,478 ) Contributions from noncontrolling interests 1,073 — Net cash provided by financing activities 110,516 16,053 Net decrease in cash and cash equivalents ( 9,693 ) ( 15,034 ) Cash and cash equivalents as of the beginning of period 13,178 19,895 Cash and cash equivalents as of the end of period $ 3,485 $ 4,861 Supplemental disclosures of cash flow information: Interest paid $ 28,539 $ 14,898 Supplemental schedule of noncash investing and financing activities: Increase in dividends payable $ 4,854 $ 542 Right-of-use asset obtained in exchange for new operating lease obligation $ 369 $ — Transfer of pre-acquisition costs to acquired assets $ — $ 7 Sale of real estate settled with notes receivable $ 2,000 $ 12,000 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 September 30, 2023, the Company owned directly or through a joint venture and leased to independent ope rator s, 225 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of 23,916 operational beds and units located in 28 states with the highest concentration of properties by rental income located in California, Texas, Louisiana, Idaho and Arizona. As of September 30, 2023, the Company also had other real estate related investments consisting of seven real estate secured loans receivable and one mezzanine loan receivable with a carrying value of $ 181.2 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. The accompanying consolidated financial statements of the Company include the accounts of CareTrust REIT, its wholly-owned subsidiaries, and variable interest entities (“VIEs”) over which the Company exercises control. All intercompany transactions and account balances within the Company have been eliminated, and net earnings are reduced by the portion of net earnings attributable to noncontrolling interests. Variable Interest Entities —The Company is required to continually evaluate its VIE relationships and consolidate these entities when it is determined to be the primary beneficiary of their operations. A VIE is broadly defined as an entity where either: (i) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support, (ii) substantially all of an entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights, or (iii) the equity investors as a group lack any of the following: (a) the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of an entity, or (c) the right to receive the expected residual returns of an entity. Criterion (iii) above is generally applied to limited partnerships and similarly structured entities by assessing whether a simple majority of the limited partners hold substantive rights to participate in the significant decisions of the entity or have the ability to remove the decision maker or liquidate the entity without cause. If neither of those criteria are met, the entity is a VIE. The designation of an entity as a VIE is reassessed upon certain events, including, but not limited to: (i) a change to the contractual arrangements of the entity or in the ability of a party to exercise its participation or kick-out rights, (ii) a change to the capitalization structure of the entity, or (iii) acquisitions or sales of interests that constitute a change in control. A variable interest holder is considered to be the primary beneficiary of a VIE if it has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE. The Company’s consideration of various factors include, but is not limited to, which activities most significantly impact the entity’s economic performance and the ability to direct those activities, its form of ownership interest, its representation on the VIE’s governing body, the size and seniority of its investment, its ability and the rights of other investors to participate in policy making decisions, its ability to manage its ownership interest relative to the other interest holders, and its ability to replace the VIE manager and/or liquidate the entity. For any investment in a joint venture that is not considered to be VIE, the Company would evaluate the type of ownership rights held by limited partner(s) that may preclude consolidation by the majority interest holder. The assessment of limited partners’ rights and their impact on the control of a joint venture should be made at inception of the joint venture and continually reassessed. See Note 11, Variable Interest Entities , for additional information. 6 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 3. REAL ESTATE INVESTMENTS, NET The following table summarizes the Company’s investment in owned properties held for use at September 30, 2023 and December 31, 2022 (dollars in thousands): September 30, 2023 December 31, 2022 Land $ 270,806 $ 238,738 Buildings and improvements 1,589,195 1,483,133 Integral equipment, furniture and fixtures 97,957 97,199 Identified intangible assets 2,832 2,832 Real estate investments 1,960,790 1,821,902 Accumulated depreciation and amortization ( 424,742 ) ( 400,492 ) Real estate investments, net $ 1,536,048 $ 1,421,410 As of September 30, 2023, 221 of the Company’s 225 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 225 facilities which are being repurposed to behavioral health facilities with rent commencing 12 to 18 months following lease commencement. Two of the Company’s 225 facilities are non-operational and are leased under a short term lease with an expected remaining term of less than one year as of September 30, 2023. As of September 30, 2023, 15 facilities were held for sale. See Note 4, Impairment of Real Estate Investments, Assets Held for Sale, Net and Asset Sales, for additional information. 7 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) As of September 30, 2023, the Company’s total future contractual minimum rental income for all of its tenants, excluding operating expense reimbursements, assets held for sale and assets being repurposed, was as follows (dollars in thousands): Year Amount 2023 (three months) $ 49,490 2024 195,754 2025 196,908 2026 197,245 2027 194,079 2028 191,825 Thereafter 960,555 Total $ 1,985,856 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 (5) A / B (7) 832 SNF / Campus 2 (8) October 2032 1/1/2024 (6) A 1,097 SNF 4 November 2034 12/1/2024 (5) A 3,891 (1) Excludes a purchase option on an 11 building SNF portfolio classified as held for sale as of September 30, 2023 and 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 September 30, 2023. (5) Option window is open until the expiration of the lease term. (6) Option window is open for six months from the option period open date. (7) Purchase option reflects two option types. (8) Includes one property classified as held for sale as of September 30, 2023. Rental Income The following table summarizes components of the Company’s rental income (dollars in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, Rental Income 2023 2022 2023 2022 Contractual rent due (1) $ 51,225 $ 47,015 $ 145,147 $ 140,794 Straight-line rent ( 7 ) 3 ( 21 ) 14 Adjustment for collectibility (2) — — — ( 977 ) Total $ 51,218 $ 47,018 $ 145,126 $ 139,831 (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 September 30, 2023 and 2022 were $ 2.0 million and $ 0.7 million, respectively. Tenant operating expense reimbursements for the nine months ended September 30, 2023 and 2022 were $ 3.9 million and $ 2.0 million, respectively. (2) During the nine months ended September 30, 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 nine months ended September 30, 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. 8 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) Recent Real Estate Acquisitions The following table summarizes the Company’s acquisitions for the nine months ended September 30, 2023 (dollars in thousands): Type of Property Purchase Price (1) Initial Annual Cash Rent (2) Number of Properties Number of Beds/Units (3) Skilled nursing (4) $ 133,970 $ 11,722 8 1,058 Multi-service campuses 25,276 1,916 1 168 Assisted living 39,319 3,495 4 241 Total $ 198,565 $ 17,133 13 1,467 (1) Purchase price includes capitalized acquisition costs. (2) Initial annual cash rent represents initial cash rent for the first twelve months excluding the impact of rent abatement in the first one to three months, if applicable. (3) The number of beds/units includes operating beds at the acquisition date. (4) Includes one SNF held through a joint venture. See Note 11, Variable Interest Entities , for additional information. The SNF is currently leased under a short-term lease and a new long-term lease has been entered into with one of the Company’s existing operators and it is expected that this lease will become effective once regulatory approval is obtained. Initial annual cash rent does not consider a rent deferral of $ 420,000 in the first year upon commencement of the long-term lease to be repaid in 15 installments beginning in year 2. Lease Amendments and Terminations 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 VA”) and the Company terminated the applicable Noble VA master lease. Annual cash rent under the applicable Noble VA master lease prior to lease termination was approximately $ 2.3 million. In connection with the lease termination, the Company entered into a new lease (the “New Pennant Lease”) with The Pennant Group, Inc. (“Pennant”) with respect to the two ALFs. The New Pennant Lease had an initial term at the date of the lease of approximately 15 years with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the new lease was 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 had a remaining term at the date of amendment of approximately 7 years with two five-year renewal options and 2 % fixed rent escalators. Amended Momentum Lease . On April 1, 2023, the Company acquired one SNF. In connection with the acquisition, the Company amended its existing triple-net master lease with affiliates of Momentum Skilled Services (“Momentum”) to include the one SNF and extended the initial lease term. The Momentum master lease, as amended, had a remaining term at the date of amendment 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. Amended Pennant Lease. On July 6, 2023, the Company amended its master lease with affiliates of Pennant (the “Pennant Master Lease”). In connection with the lease amendment, the Company extended the initial lease term. The Pennant Master Lease, as amended, had a remaining term at the date of amendment of approximately 15 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended Pennant Master Lease remained unchanged. Premier Termination and Amended Ridgeline Lease. Effective September 1, 2023, six ALFs in Michigan and North Carolina were removed from the master lease with affiliates of Premier Senior Living, LLC (“Premier”) and the Company terminated the Premier master lease. Annual cash rent under the Premier master lease prior to lease termination was approximately $ 2.7 million. In connection with the lease termination, the Company amended its existing triple-net master lease with affiliates of Ridgeline Properties, LLC (“Ridgeline”) with respect to the six ALFs. The Ridgeline lease had a remaining term at the date of the lease amendment 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 $ 2.7 million. The amended lease provides for $ 0.2 million in rent abatement and a $ 0.2 million rent deferral to be repaid beginning in December 2024. 9 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 4. IMPAIRMENT OF REAL ESTATE INVESTMENTS, ASSETS HELD FOR SALE, NET AND ASSET SALES Impairment of Real Estate Investments Held for Sale During the three months ended March 31, 2023, the Company recognized an impairment charge of $ 1.9 million on four facilities held for sale, which is reported in impairment of real estate investments in the condensed consolidated statements of operations. During the three months ended June 30, 2023, the Company recognized an impairment charge of $ 21.4 million on 12 facilities held for sale. During the three months ended September 30, 2023, the Company recognized an impairment charge of $ 0.2 million on one facility held for sale. These charges are reported in impairment of real estate investments in the condensed consolidated statements of operations. During the three and nine months ended September 30, 2022, the Company recognized an impairment charge on sixteen and 27 facilities of $ 12.3 million and $ 72.0 million, respectively, all of which were held for sale. As of September 30, 2023, there were 15 facilities classified as held for sale, all of which have been marked down to fair value less estimated costs to sell. The fair values of the assets held for sale were 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 during the nine months ended September 30, 2023, the Company’s fair value estimates primarily relied on a market approach and utilized prices per unit ranging from $ 18,000 to $ 35,000 , with a weighted average price per unit of $ 23,000 . For the Company’s impairment calculations during the nine months ended September 30, 2022, the Company’s fair value estimates primarily relied on a market approach and utilized prices per unit ranging from $ 35,000 to $ 145,000 , with a weighted average price per unit of $ 80,000 . Impairment of Real Estate Investments Held for Investment During the three months ended September 30, 2023, the Company recognized an impairment charge of $ 8.0 million related to one SNF. The Company wrote down its carrying value of $ 8.7 million to its estimated fair value of $ 0.7 million, which is included in real estate investments, net on the Company’s condensed consolidated balance sheets. The fair value of the asset was based on comparable market transactions and considered Level 3 measurements within the fair value hierarchy. For the Company’s impairment calculation, the Company’s fair value estimates primarily relied on a market approach and utilized prices per unit of $ 7,000 . During the second quarter of 2022, the Company recognized an impairment charge of $ 1.7 million related to one SNF. The Company wrote down its carrying value of $ 2.8 million to its estimated fair value of $ 1.1 million, which is included in real estate investments, net on the Company’s condensed consolidated balance sheets. The fair value of the asset was based on comparable market transactions and considered Level 3 measurements within the fair value hierarchy. For the Company’s impairment calculation, the Company’s fair value estimates primarily relied on a market approach and utilized prices per unit of $ 20,000 . 10 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) Asset Sales and Held for Sale Reclassifications The following table summarizes the Company’s dispositions for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 (1) 2023 2022 (1) Number of facilities — 7 4 8 Net sales proceeds (2) $ — $ 45,157 $ 16,464 $ 46,116 Net carrying value — 47,444 14,506 48,217 Net (loss) gain on sale $ — $ ( 2,287 ) $ 1,958 $ ( 2,101 ) (1) Net sales proceeds, net carrying value and net (loss) gain on sale also reflect a land parcel that was sold during the three and nine months ended September 30, 2022, which is not included in the number of facilities. (2) Net sales proceeds includes $ 2 million of seller financing in connection with the sale of one ALF in June 2023. Net sales proceeds includes $ 12 million of seller financing in connection with the sale of six SNFs and one multi-service campus in September 2022. 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 47,064 14 Assets sold ( 14,506 ) ( 4 ) Impairment of real estate held for sale ( 23,508 ) — September 30, 2023 $ 21,341 15 11 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 5. OTHER REAL ESTATE RELATED AND OTHER INVESTMENTS As of September 30, 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 September 30, 2023 Investment Facility Count and Type Principal Balance as of September 30, 2023 Fair Value as of September 30, 2023 Fair Value as of December 31, 2022 Weighted Average Contractual Interest Rate Maturity Date Senior mortgage secured loan receivable 18 SNF/Campus $ 75,000 $ 68,472 $ 72,543 8.4 % (1) 6/30/2027 Mortgage secured loan receivable 5 SNF 22,250 21,210 21,345 10.7 % (2) 8/1/2025 Mortgage secured loan receivable 4 SNF 24,900 22,716 23,796 9.0 % (2) 9/8/2025 Mortgage secured loan receivable (3) 1 ALF 2,000 2,000 — 9.0 % 5/31/2024 Mortgage secured loan receivable (4) 2 SNF Campus / ILF 25,993 26,186 — 9.0 % 6/29/2033 Mortgage secured loan receivable (5) 2 SNF 15,727 15,397 — 9.0 % 8/1/2028 Mortgage secured loan receivable (6) 3 SNF 3,564 3,390 — 12.0 % 9/29/2026 Mezzanine loan receivable (7) 9 SNF — — 14,672 — — Mezzanine loan receivable 18 SNF/Campus 25,000 21,804 24,012 11.0 % 6/30/2032 $ 194,434 $ 181,175 $ 156,368 (1) Rate is net of subservicing fee. (2) Term secured overnight financing rate (“SOFR”) used as of September 30, 2023 was 5.32 %. Rates are net of subservicing fees. (3) In June 2023, the Company closed on the sale of one ALF. In connection with the sale, the Company provided affiliates of the purchaser of the properties with a $ 2.0 million mortgage loan. The mortgage loan is secured by the ALF. The mortgage loan has a one-year extension option and may be prepaid in whole before the maturity date. (4) In June 2023, the Company extended a $ 26.0 million mortgage loan to a skilled nursing real estate owner. The mortgage loan is secured by one SNF campus and one ILF. The mortgage loan is set to mature on June 29, 2033 and may (subject to certain restrictions) be prepaid in whole before the maturity date for an exit fee ranging from 0 % to 3 % of the loan plus unpaid interest payments. (5) In July 2023, the Company extended a $ 15.7 million mortgage loan to a skilled nursing real estate owner. The mortgage loan is secured by two SNFs. The mortgage loan is set to mature on August 1, 2028, with one five-year extension option and may (subject to certain restrictions) be prepaid in whole before the maturity date for an exit fee ranging from 2 % to 3 % of the loan plus unpaid interest payments; provided, however, that no exit fee is payable in connection with the loan being refinanced pursuant to a loan (or loans) provided by Fannie Mae, Freddie Mac, Federal Housing Administration, or a similar governmental authority. (6) In September 2023, the Company extended a $ 3.6 million mortgage 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). The Company’s $ 3.6 million secured mortgage loan constituted the entirety of the “B” tranche with its payments subordinated accordingly. The mortgage loan is secured by three SNFs. The mortgage loan is set to mature on September 29, 2026, with two six-month extension options and may (subject to certain restrictions) be prepaid in whole before the maturity date for an exit fee ranging from 0 % to 2 % of any proposed financing in connection with the loan being refinanced by the U.S. Department of Housing and Urban Development. (7) Mezzanine loan was prepaid during the nine months ended September 30, 2023. 12 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) The following table summarizes the Company’s other real estate related investments activity for the nine months ended September 30, 2023 and 2022 (dollars in thousands): Nine Months Ended September 30, 2023 2022 Origination of other real estate related investments $ 47,534 $ 147,150 Accrued interest, net 129 1,063 Unrealized losses on other real estate related investments, net ( 7,856 ) ( 4,706 ) Prepayments of other real estate related investments ( 15,000 ) — Net change in other real estate related investments, at fair value $ 24,807 $ 143,507 As of September 30, 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 September 30, 2023 Investment Principal Balance as of September 30, 2023 Book Value as of September 30, 2023 Book Value as of December 31, 2022 Weighted Average Contractual Interest Rate Maturity Date Other loans receivable $ 14,053 $ 14,090 $ 9,600 8.7 % 9/1/2023 - 5/31/2026 (1) Expected credit loss — ( 2,094 ) ( 2,094 ) Total $ 14,053 $ 11,996 $ 7,506 (1) One other loan receivable with a balance of approximately $ 26,000 had a maturity date of September 1, 2023. This loan was paid off subsequent to September 30, 2023. The following table summarizes the Company’s other loans receivable activity for the nine months ended September 30, 2023 and 2022 (dollars in thousands): Nine Months Ended September 30, 2023 2022 Origination of loans receivable $ 5,160 $ 14,500 Principal payments ( 703 ) ( 416 ) Accrued interest, net 33 ( 3 ) Provision for loan losses, net — ( 4,594 ) Net change in other loans receivable $ 4,490 $ 9,487 Expected credit losses and recoveries are recorded in provision for loan losses, net in the condensed consolidated statements of operations. During the nine months ended September 30, 2022, the Company recorded a $ 4.6 million expected credit loss related to two other loans receivable that have been placed on non-accrual status, including an unfunded loan commitment of $ 0.4 million, net of a loan loss recovery of $ 0.8 million related to a loan previously written-off. During the nine months ended September 30, 2023 , the Company had no additional expected credit loss and did not consider any loan receivable investments to be impaired. 13 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) The following table summarizes the interest and other income recognized from the Company’s loans receivable and other investments during the three and nine months ended September 30, 2023 and 2022 (dollars in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, Investment 2023 2022 2023 2022 Mortgage secured loans receivable $ 3,741 $ 2,098 $ 9,207 $ 2,115 Mezzanine loans receivable 702 1,163 2,980 2,326 Other 216 14 723 50 Total $ 4,659 $ 3,275 $ 12,910 $ 4,491 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. 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 measured at fair value on a recurring basis as of September 30, 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 September 30, 2023 Assets: Mortgage secured loans receivable $ — $ — $ 159,371 $ 159,371 Mezzanine loans receivable — — 21,804 21,804 Total $ — $ — $ 181,175 $ 181,175 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 14 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 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 Loan originations 47,534 — Accrued interest, net 292 ( 163 ) Unrealized losses on other real estate related investments, net ( 6,139 ) ( 1,717 ) Repayments — ( 15,000 ) Balance as of September 30, 2023 $ 159,371 $ 21,804 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 September 30, 2023, the Company recorded an unrealized loss of $ 5.3 million related to four mortgage loans and one mezzanine loan receivable due to rising interest rates. During the nine months ended September 30, 2023, the Company recorded an unrealized loss of $ 8.1 million related to five mortgage loans and one mezzanine loan receivable due to rising interest rates and a $ 0.3 million loss due to a loan origination fee paid, 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 September 30, 2023 and December 31, 2022, the Company did no t have any loans that were 90 days or more past due. 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 September 30, 2023: Type Book Value as of September 30, 2023 Valuation Technique Unobservable Inputs Range Mortgage secured loans receivable $ 159,371 Discounted cash flow Discount Rate 10 % - 15 % Mezzanine loan receivable 21,804 Discounted cash flow Discount Rate 12 % - 15 % For the nine months ended September 30, 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 September 30, 2023 and December 31, 2022 using Level 2 inputs is as follows (dollars in thousands): September 30, 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 $ 395,816 $ 352,500 $ 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. 15 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 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 September 30, 2023 and December 31, 2022 (dollars in thousands): September 30, 2023 December 31, 2022 Principal Amount Deferred Loan Fees Carrying Value Principal Amount Deferred Loan Fees Carrying Value Senior unsecured notes payable $ 400,000 $ ( 4,184 ) $ 395,816 $ 400,000 $ ( 4,850 ) $ 395,150 Senior unsecured term loan 200,000 ( 493 ) 199,507 200,000 ( 652 ) 199,348 Unsecured revolving credit facility (1) — — — 125,000 — 125,000 $ 600,000 $ ( 4,677 ) $ 595,323 $ 725,000 $ ( 5,502 ) $ 719,498 (1) Deferred financing fees are included in deferred financing costs, net on the balance sheet, and not reflected as a reduction to the unsecured revolving credit facility. 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 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 September 30, 2023, the Company was in compliance with all applicable financial covenants under the indenture governing the Notes. 16 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 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 (as amended from time to time, 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. On October 10, 2023, the Operating Partnership, the Company, CareTrust GP, LLC, certain of the Operating Partnership’s wholly owned subsidiaries and KeyBank National Association entered into the First Amendment to the Second Amended Credit Agreement (the “First Amendment”). The First Amendment restates the definition of Consolidated Total Asset Value to include net proceeds from at-the-market forward commitments executed but not yet closed as of the relevant date as if such proceeds had actually been received. 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 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 September 30, 2023, the Operating Partnership had $ 200.0 million of borrowings outstanding under the Term Loan and no borrowings 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. 17 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) As of September 30, 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 September 15, 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 “New ATM Program”) and terminated its previous $ 500.0 million “at-the-market” equity offering program (the “Previous ATM Program” and together with the New ATM Program, the “ATM Program”). In addition to the issuance and sale of shares of its 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. The Company expects to fully physically settle forward equity sales by delivery of shares of common stock to the forward purchaser and receive cash proceeds upon one or more settlement dates, which are typically a one-year term, at the Company’s discretion, prior to the final settlement date, at which time the Company expects to receive aggregate net cash proceeds at settlement equal to the number of shares sold on a forward basis 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. During the three and nine months ended September 30, 2023, the Company entered into ATM forward contracts under the ATM Program with a financial institution acting as a forward purchaser to sell 9,058,140 and 15,794,229 shares of common stock, respectively, at a weighted average initial sales price of $ 19.99 and $ 19.87 per share, respectively, before commissions and offering expenses. During the three months ended September 30, 2023, the Company settled 10,893,229 shares outstanding under the ATM forward contracts at a weighted average sales price of $ 19.57 for net proceeds of $ 213.1 million. For the remaining shares subject to the ATM forward contracts, the Company will not receive any proceeds from sales of those shares of common stock by the forward sellers until the forward contracts are settled. There was no ATM Program activity (or activity under any predecessor at-the-market equity offering programs) for the three and nine months ended September 30, 2022. The following table summarizes the ATM Program activity under the ATM forward contracts and direct issuances for the three and nine months ended September 30, 2023 (in thousands, expect per share amounts). For the Three Months Ended For the Nine Months Ended September 30, 2023 September 30, 2023 Number of shares 16,285 16,285 Average sales price per share $ 19.89 $ 19.89 Gross proceeds (1) $ 323,886 $ 323,886 (1) Total gross proceeds is before $ 4.0 million of commissions paid to the sales agents and forward adjustments during both the three and nine months ended September 30, 2023, respectively, under the ATM Program. As of September 30, 2023, 4,901,000 shares of common stock at the weighted average initial sales price of $ 20.00 per share, before commissions and offering expenses, remain outstanding under the ATM forward contracts. As of September 30, 2023, the Company had $ 496.0 million available for future issuances under the New ATM Program. 18 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 first nine months of 2023 (dollars in thousands, except per share amounts): For the Three Months Ended March 31, 2023 June 30, 2023 September 30, 2023 Dividends declared per share $ 0.28 $ 0.28 $ 0.28 Dividends payment date April 14, 2023 July 14, 2023 October 13, 2023 Dividends payable as of record date (1) $ 27,846 $ 27,853 $ 32,403 Dividends record date March 31, 2023 June 30, 2023 September 29, 2023 (1) Dividends payable includes dividends on performance stock awards that will be paid if and when the shares subject to such awards vest if deemed probable of meeting their performance condition. 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 (“PSAs”) 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 since 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 nine months ended September 30, 2023: Shares Weighted Average Share Price Unvested balance at December 31, 2022 573,609 $ 20.63 Granted: RSAs 1,272 19.43 Board Awards 24,768 19.38 Vested ( 185,767 ) 20.94 Forfeited ( 61,680 ) 21.19 Unvested balance at September 30, 2023 352,202 $ 20.28 As of September 30, 2023, the weighted-average remaining vesting period of such awards w as 1.5 years. 19 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) The following table summarizes the stock-based compensation expense recognized for the periods presented (dollars in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2023 2022 2023 2022 Stock-based compensation expense $ 1,519 $ 1,380 $ 3,379 $ 4,295 For the nine months ended September 30, 2023, approximately $ 0.6 million of previously recognized stock-based compensation expense related to the PSAs was reversed as the awards are not expected to meet the performance conditions. For the nine months ended September 30, 2023, approximately $ 0.9 million of previously recognized stock-based compensation expense was reversed due to forfeitures of stock awards. As of September 30, 2023, there was $ 5.7 million of unamortized stock-based compensation expense related to the unvested RSAs and TSR Awards. 10. EARNINGS (LOSS) PER COMMON SHARE The following table presents the calculation of basic and diluted earnings (loss) per common share attributable to CareTrust REIT, Inc. (“EPS”) for the Company’s common stock for the three and nine months ended September 30, 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 September 30, For the Nine Months Ended September 30, 2023 2022 2023 2022 Numerator: Net income (loss) attributable to CareTrust REIT, Inc. $ 8,696 $ 709 $ 27,439 $ ( 21,886 ) Less: Net income allocated to participating securities ( 89 ) ( 94 ) ( 267 ) ( 305 ) Numerator for basic and diluted earnings available to common stockholders $ 8,607 $ 615 $ 27,172 $ ( 22,191 ) Denominator: Weighted-average basic common shares outstanding 104,011 96,605 100,748 96,527 Dilutive potential common shares - performance stock awards 201 20 128 — Dilutive potential common shares - forward equity agreements 99 — 42 — Weighted-average diluted common shares outstanding 104,311 96,625 100,918 96,527 Earnings (loss) per common share attributable to CareTrust REIT, Inc., basic $ 0.08 $ 0.01 $ 0.27 $ ( 0.23 ) Earnings (loss) per common share attributable to CareTrust REIT, Inc., diluted $ 0.08 $ 0.01 $ 0.27 $ ( 0.23 ) Antidilutive unvested restricted stock awards, total shareholder return units, performance awards, and forward equity shares excluded from the computation 317 341 317 478 20 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 11. VARIABLE INTEREST ENTITIES Noncontrolling Interests —The Company has entered into ventures with unrelated third parties to own real estate and has concluded that such ventures are VIEs. As the Company exercises power over and receives economic benefits from the VIEs, the Company is considered the primary beneficiary and consolidates the VIEs. The Company presents the portion of any equity that the Company does not own in entities that the Company controls (and thus consolidates) as noncontrolling interests and classifies those interests as a component of consolidated equity, separate from stockholders' equity, on the Company’s consolidated balance sheets. For consolidated joint ventures, the Company allocates net income or loss utilizing the hypothetical liquidation at book value method, in which the Company allocates income or loss based on the change in each unitholders’ claim on the net assets of the joint venture partners at period end after adjusting for any distributions or contributions made during such period. The Company includes net income (loss) attributable to the noncontrolling interests in net income (loss) in the consolidated statements of operations. During the three months ended September 30, 2023, the Company entered into a joint venture (“JV”), whereunder the Company contributed $ 25.5 million into the JV that purchased one SNF located in California for $ 26.1 million. The JV partner contributed the remaining $ 0.6 million of equity. The Company contributed to the JV an amount equal to 95 % of the JV’s total investment amount in the one newly-acquired SNF and holds 100 % of the preferred equity ownership interests in the JV. In addition, the Company contributed an amount equal to 2.5 % of the JV’s total investment amount in the one SNF for a 50 % common ownership interest in the JV. During the three months ended September 30, 2023, the Company entered into a JV, whereunder the Company contributed $ 2.4 million into the JV, which made a deposit on a potential real estate acquisition. Upon the closing date of the real estate acquisition, the Company will hold an amount equal to 95 % of the JV’s total investment amount and will hold 100 % of the preferred equity ownership interest and an amount equal to 2.5 % of the JV’s total investment amount for a 50 % common ownership interest in the JV. Total assets and total liabilities include VIE assets and liabilities as follows (in thousands): September 30, 2023 December 31, 2022 Assets: Real estate investments, net $ 26,058 $ — Prepaid and other assets 2,800 — Total assets 28,858 — Liabilities: Accounts payable, accrued liabilities and deferred rent liabilities 701 — Total liabilities $ 701 $ — 12. 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 for the facilities leased under certain master lease agreements, with subsidiaries of The Ensign Group, Inc. and Pennant, under which 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. The Company has also provided select tenants with strategic capital for facility upkeep and modernization. As of September 30, 2023, the Company had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities totaling $ 11.8 million, of which $ 3.2 million is subject to rent increase at the time of funding. 21 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) 13. 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. Major operator concentration - The Company has operators from which it derived 10% or more of its rental revenue for the three and nine months ended September 30, 2023 and 2022. The following table sets forth information regarding the Company’s major operators as of September 30, 2023 and 2022: Number of Facilities Number of Beds/Units Percentage of Total Revenue (1) Operator SNF Campus ALF/ILF SNF Campus ALF/ILF Three Months Ended Nine Months Ended September 30, 2023 Ensign (2) 83 8 7 8,741 997 661 34 % 36 % Priority Management Group 13 2 — 1,742 402 — 15 % 16 % September 30, 2022 Ensign (2) 83 8 7 8,741 997 661 36 % 35 % Priority Management Group 13 2 — 1,742 402 — 16 % 16 % (1) The Company’s rental income, exclusive of operating expense reimbursements and adjustments for collectibility. (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 and nine months ended September 30, 2023 and 2022: Number of Facilities Number of Beds/Units Percentage of Total Revenue (1) State SNF Campus ALF/ILF SNF Campus ALF/ILF Three Months Ended Nine Months Ended September 30, 2023 CA 30 9 5 3,494 1,527 437 29 % 28 % TX 40 3 2 5,126 536 212 22 % 23 % September 30, 2022 CA 27 8 5 3,048 1,359 437 27 % 27 % TX 38 3 3 4,849 536 242 22 % 22 % (1) Represents the Company’s rental income, exclusive of operating expense reimbursements and adjustments for collectibility. 14. 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. 22 Table of Contents CARETRUST REIT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) Unsecured Revolving Credit Facility Amendment On October 10, 2023, the Company amended the Second Amended Credit Agreement to restate the definition of Consolidated Total Asset Value. See Note 7, Debt , for additional information. Asset Sales On October 20, 2023, the Company closed on the sale of one ALF consisting of 135 beds located in Florida with a carrying value of $ 1.6 million, which approximated the net sales proceeds received. The facility was classified as held for sale as of September 30, 2023. New Lease Agreement On October 24, 2023, the Company entered into a new master lease (the “New Ridgeline Lease”) with affiliates of Ridgeline to lease two ALFs in New Jersey which were non-operational and under a short-term lease. The New Ridgeline Lease has an initial term at the date of the lease of approximately 10 years from the facility opening date, which is expected to occur in the second quarter of 2024 upon final regulatory approval and final licensing of both facilities, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the new lease is approximately $ 1.0 million beginning on the first day of the second lease year. Recent Acquisitions On October 25, 2023, the Company entered and contributed $ 34.2 million into a JV that purchased two SNFs located in California for $ 35.1 million. The JV partner contributed the remaining $ 0.9 million of equity. Each SNF was acquired subject to a triple-net lease with affiliates of Covenant Care, LLC (“Covenant Care”) as the tenant and licensed operator. The Company contributed to the JV an amount equal to 95 % of the JV’s total investment amount in the two newly-acquired SNFs and holds 100 % of the preferred equity ownership interests in the JV. In addition, the Company contributed an amount equal to 2.5 % of the JV’s total investment amount in the two SNFs for a 50 % common ownership interest in the JV. Both leases assumed as part of the transaction have a remaining initial term of approximately 6 years, with two five-year renewal options and 2 % fixed annual rent increases. Annual cash rent under the leases is approximately $ 2.0 million. In 2027, the leases provide for a rent reset in which the JV may propose rent, capped at 10 % of gross revenues, effective January 1, 2027. If the proposed rent reset is not accepted, the JV has the option to replace the current tenant. The Company’s contribution was funded using proceeds from the ATM Program. 23 Table of Contents