What changed in this filing

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Item 1. Business

2024-02-08 compared with 2023-02-09 · 151 added, 113 removed, 407 unchanged (39% of the section changed)

CareTrust REIT is a self-administered, publicly-traded REIT engaged in the ownership, acquisition, financing, development and leasing of skilled nursing, seniors housing and other healthcare-related properties.

As of December 31, 2022, CareTrust REIT’s real estate portfolio consisted of 216 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of 22,831 operational beds and units located in 28 sta tes with the highest concentration of properties by rental inco me located in California, Texas, Louisiana, Idaho and Arizona.

As of December 31, 2022, we also had other real estate related investments consisting of three real estate secured loans receivable and two mezzanine loans receivable with a carrying value of $156.4 million.

As of December 31, 2023, CareTrust REIT owned, directly or through joint ventures, and leased to independent operators, 226 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) (including facilities classified as held for sale) consisting of 23,928 operational beds and units located in 28 states with the highest concentration of properties by rental income located in California and Texas.

As of December 31, 2023, we also had other real estate related investments consisting of one preferred equity investment, eight real estate secured loans receivable and one mezzanine loan receivable with a carrying value of $180.4 million.

The following table summarizes the Company’s acquisitions from January 1, 2023 through February 8, 2024 (dollars in thousands):

Type of Property Purchase Price (1)

Initial Annual Cash Rent Number of Properties Number of Beds/Units (2)

Initial Annual Cash Rent (2)

Number of Properties Number of Beds/Units (3)

Skilled nursing (4)

$ 169,181 $ 13,764 10 1,256

Multi-service campuses 25,276 1,916 1 168

Assisted living (5)

50,354 4,517 5 327

Total $ 244,811 $ 20,197 16 1,751

(1) Purchase price includes capitalized acquisition costs.

(2) The number of beds/units includes operating beds at the acquisition date.

(2) Initial annual cash rent represents initial cash rent for the first twelve months excluding the impact of straight-line rent or rent abatement in the first one to three months, if applicable.

(3) The number of beds/units includes operating beds at acquisition date.

(4) Includes three SNFs held through joint ventures.

See Note 3, Real Estate Investments, Net , and Note 11, Variable Interest Entities , for additional information.

(5) Includes one ALF held through a joint venture.

See Note 14, Subsequent Events , for additional information.

The following table summarizes other real estate related investments by the Company from January 1, 2023 through February 8, 2024 (dollars in thousands):

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Number of Properties Number of Beds/Units (2)

Senior mortgage secured loan receivable $ 75,000 $ 6,281 18 1,796

Mezzanine loan receivable 25,000 2,750 N/A N/A

Mortgage secured loan receivable 22,250 1,891 5 600

Mortgage secured loan receivable 24,900 2,241 4 690

Mortgage secured loans receivable $ 51,584 $ 4,806 9 772

Mezzanine loans receivable 52,165 7,119 N/A N/A

Preferred equity 1,782 267 N/A N/A

Total $ 105,531 $ 12,192 9 772

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(2) The number of beds/units includes operating beds at the investment date.

From January 1, 2022 through December 31, 2022, we sold seven SNFs, five ALFs, one multi-service campus and one land parcel, resulting in a net loss on sale of property of $3.8 million.

Subsequent to December 31, 2022, we sold one ALF.

We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property (including property taxes, insurance, maintenance and repair costs and capital expenditures, subject to certain exceptions in the case of properties leased to Ensign and Pennant).

From January 1, 2023 through December 31, 2023, we sold one SNF and four ALFs for net proceeds of $18.3 million, resulting in a net gain on sale of property of $2.2 million.

Subsequent to December 31, 2023, we closed on the sale of one SNF and one ALF with an aggregate carrying value of $1.0 million, which approximated the net sales proceeds received.

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

From time to time, we also partner with third-party institutional investors to invest in healthcare

real estate through joint ventures.

Pursuant to our joint ventures, we typically contribute 97.5% of the joint venture’s total investment amount and we receive 100% of the preferred equity interest in the joint venture in exchange for 95% of that total investment and a 50% common equity interest in the joint venture in exchange for the remaining 2.5% of that investment.

Our joint venture partner contributes the remaining 2.5% of the joint venture’s total investment amount in exchange for a 50% common equity interest in the joint venture.

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

We expect to grow our portfolio by pursuing opportunities to acquire additional properties that will be leased to a diverse group of local, regional and national healthcare providers, which may include new or existing skilled nursing operators, as well as seniors housing operators and related businesses.

We also anticipate diversifying our portfolio over time, including by acquiring properties in different geographic markets, and in different asset classes.

In addition, we actively monitor the clinical, regulatory and financial operating results of our tenants, and work to identify opportunities within their operations and

markets that could improve their operating results at our facilities.

In addition, we actively monitor the clinical, regulatory and financial operating results of our tenants, and work to identify opportunities within their operations and markets that could improve their operating results at our facilities.

We communicate such observations to our tenants;

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Moreover, our tenants have sole discretion with respect to the day-to-day operation of the facilities they lease from us, and how and whether to implement any observation we may share with them.

We also actively monitor the overall occupancy, skilled mix, and other operating metrics of our tenants on at least a monthly basis including, beginning in the quarter ended June 30, 2020, any stimulus funds received by each tenant.

We also actively monitor the overall occupancy, skilled mix, and other operating metrics of our tenants on at least a monthly basis.

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

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We have also provided select tenants with strategic capital for facility upkeep and modernization, as well as short-term working capital loans when they are awaiting licensure and certification or conducting turnaround work in one or more of our properties, and we may continue to do so in the future.

We have also assisted our tenants with transitioning to lower emissions technologies through our tenant incentive program, where we support efficiency projects through our dedicated tenant capital expenditure budget, providing sustainability incentives rent-free.

In addition, we periodically reassess the investments we have made and the tenant relationships we have entered into, and have selectively disposed of facilities or investments, or terminated such relationships, and we expect to continue making such reassessments and, where appropriate, taking such actions.

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According to the American Health Care Association, the nursing home industry was comprised of approximately 15,000 facilities as of July 2023, as compared with over 15,600 facilities as of July 2016.

We expect that the supply/demand imbalance in the skilled nursing industry will increasingly favor skilled nursing and assisted living providers due to the shift of patient care to lower cost settings and an aging population.

We expect that the supply/demand imbalance in the skilled nursing industry will inc reasingly favor skilled nursing and assisted living providers due to the shift of patient care to lower cost settings and an aging population.

• Increased Demand Driven by Aging Populations .

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At present, the primary market demographic for skilled nursing services is individuals age 75 and older.

The 2020 U.S.

Census reported that there were over 56 million people in the United States in 2020 over the age of 65.

Census estimates this group to be one of the faste st growing segments of the United States population, projecting that it will almost double between 2020 and 2060.

Census estimates that there were over 58 million people in the United States in 2022 over the age of 65.

Census estimates this group to be one of the fastest growing segments of the United States population, projecting that it will almost double between 2020 and 2060.

According to the Centers for Medicare & Medicaid Services, nursing home care facilities and continuing care retirement expenditures are projected to grow from approximately $193.6 billion in 2022, which includes federal expenditures in response to the COVID-19 pandemic, to approximately $283.3 billion in 2031.

Although skilled nursing and seniors housing occupancy rates have declined during the COVID-19 pandemic, we believe that these trends in population will support an increasing demand for skilled nursing services in the long-term, which in turn will likely support an increasing demand for the services provided within our properties.

Although seniors housing and skilled nursing occupancy rates have declined during the COVID-19 pandemic, we believe that these trends in population will support an increasing demand for services in the long-term, which in turn will likely support an increasing demand for the services provided within our properties.

While most factors described above indicate projected growth for our industry, labor shortages and proposed minimum staffing requirements from the Centers for Medicare and Medicaid Services (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments — Regulatory Updates”) have led, and may continue to lead, to increased costs.

Additionally, elevated interest rates and volatility in the capital markets have limited the availability of debt capital, increased our costs of capital to finance acquisitions and increased our borrowing costs.

Further, our operators have experienced increased costs, liquidity constraints and financing difficulties due to the current market conditions, which could cause them to be unable or unwilling to make rental or interest payments when due.

It is difficult to predict the duration of the effects of these economic and market conditions on the industry.

Portfolio Summary

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Charges for these services are generally paid from a combination of government reimbursement and private sources.

As of December 31, 2022, our portfolio included 178 SNFs, 24 o f w hich are located on campuses that also have ALFs or ILFs, which we refer to as multi-service campuses (see below under “Multi-Service Campuses”).

As of December 31, 2023, our portfolio included 151 SNFs (excluding 12 SNFs held for sale).

Included in the 151 SNFs are three SNFs held through joint ventures and one SNF which is non-operational.

In addition, our portfolio includes 25 SNFs located on campuses that also have ALFs or ILFs, which we refer to as multi-service campuses (see below under “Multi-Service Campuses”).

• Assisted Living Facilities .

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Since states often apply differing license classifications, and standards, regulatory requirements may differ significantly between states.

As of December 31, 2022, our portfolio included 36 ALFs, some of which also contain independent living and memory care units.

Included in the 36 ALFs are five ALFs classified as held for sale as of December 31, 2022, two facilities which are in the process of being repurposed and two facilities which are non-operational.

As of December 31, 2023, our portfolio included 34 ALFs (excluding two ALFs classified as held for sale), some of which also contain independent living and memory care units.

Included in the 34 ALFs are two facilities which are in the process of being repurposed and two facilities which are non-operational.

• Independent Living Facilities .

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These facilities offer various services and amenities such as laundry, housekeeping, dining options/meal plans, exercise and wellness programs, transportation, social, cultural and recreational activities, on site security and emergency response programs.

As of December 31, 2022, our portfolio includ ed 2 ILFs.

As of December 31, 2023, our portfolio included two ILFs.

• Multi-Service Campuses.

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We also refer to continuing care retirement communities as multi-service campuses.

These facilities are often marketed as an opportunity for residents to “age in place,” and tend to attract couples where the individuals may require or benefit from differing levels of care.

As of December 31, 2022, our portfolio includ ed 24 fa cilities that we classify as multi-service campuses.

Our portfolio of SNFs, ALFs, ILFs and multi-service campuses is broadly diversified by geographic location throughout the United States, with concentrations in California, Texas, Louisiana, Idaho and Arizona ba sed on rental income.

These facilities are often marketed as an opportunity for residents to “age in place,” and tend to attract couples where the individuals may require or benefit

from differing levels of car e.

As of December 31, 2023, our portfolio included 25 facilities that we classify as multi-service campuses.

Our portfolio of SNFs, ALFs, ILFs and multi-service campuses is broadly diversified by geographic location throughout the United States, with concentrations in California and Texas based on rental income.

Significant Master Leases

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We have leased a significant number of our properties to subsidiaries of Ensign on a triple-net basis under eight long-term leases, each with its own pool of properties, that have varying maturities and diversity in both property type and geography (each an “Ensign Master Lease” and collectively, the “Ensign Master Leases”).

T he Ensign Master Leases provide for initial terms in excess of ten years with staggered expiration dates and no purchase options.

The Ensign Master Leases provide for initial terms in excess of ten years with staggered expiration dates and no purchase options.

At Ensign’s option, each Ensign Master Lease may be extended for up to three five-year renewal terms beyond the initial term and, if elected, the renewal will be effective for all of the leased property then subject to the applicable Ensign Master Lease.

During the year ended December 31, 2020, the Company acquired four additional facilities leased to subsidiaries of Ensign on a triple-net basis under two separate master lease agreements, each of which contains a purchase option.

During the year ended December 31, 2020, the Company acquired four additional facilities, which have a total of 620 operational beds, leased to subsidiaries of Ensign on a triple-net basis under two separate master lease agreements, each of which contains a purchase option.

As of December 31, 2023, annualized contractual rental income from the Ensign Master Leases was $63.8 million, and annualized contractual rental income from all Ensign leases was $67.8 million, representing 31% and 33% of total annualized contractual rental income, respectively.

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As of December 31, 2023, annualized contractual rental income from the PMG Master Lease was $31.2 million, representing 15% of total annualized contractual rental income.

See “Risk Factors - Risks Related to Our Business - We are dependent on the healthcare operators that lease our properties to successfully operate their business and make contractual lease payments, and an event that materially and adversely affects their business, financial position or results of operations could materially and adversely affect our business, financial position or results of operations.”

See “Risk Factors — Risks Related to Our Business and Operati ons — We are dependent on the healthcare operators that lease our properties to successfully operate their business and make contractual lease payments, and an event that materially and adversely affects their business, financial position or results of operations could materially and adversely affect our business, financial position or results of operations.”

We monitor the creditworthiness of our tenants by evaluating the ability of the tenants to meet their lease obligations to us based on the tenants’ financial performance, including the evaluation of any guarantees of tenant lease obligations.

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Properties by Type:

The following table displays the geographic distribution of our facilities and the related number of beds and units available for occupancy by property type, as of December 31, 2022.

The following table displays the geographic distribution of our facilities, excluding those held for sale, and the related number of beds and units available for occupancy by property type, as of December 31, 2023.

The number of beds or units that are operational may be less than the official licensed capacity.

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State Properties Beds/Units

46 5,676 32 3,712 9 1,527 5 437

TX 45 5,871 40 5,123 3 536 2 212

CA 40 4,844 27 3,048 8 1,359 5 437

ID 17 1,474 16 1,405 1 69 — —

IA 15 970 13 801 2 169 — —

UT 13 1,374 9 913 1 272 3 189

AZ 11 1,340 8 971 — — 3 369

WA 10 936 9 839 — — 1 97

IL 11 1,053 7 642 2 275 2 136

WA 10 936 9 839 — — 1 97

LA 8 1,164 7 949 1 215 — —

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OH 6 609 2 226 3 317 1 66

NE 5 366 3 220 2 146 — —

FL 4 420 — — — — 4 420

IA 5 354 3 185 2 169 — —

MI 5 255 — — — — 5 255

NV 3 304 1 92 — — 2 212

NE 5 366 3 220 2 146 — —

MT 3 260 3 260 — — — —

WI 3 206 — — — — 3 206

NV 3 304 1 92 — — 2 212

MN 2 62 — — — — 2 62

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NJ 2 98 — — — — 2 98

IN 1 162 — — — — 1 162

MD 1 120 — — — — 1 120

NM 1 116 1 116 — — — —

WI 2 89 — — — — 2 89

FL 1 80 — — — — 1 80

GA 1 148 1 148 — — — —

KS 1 102 1 102 — — — —

MD 1 120 — — — — 1 120

ND 1 83 1 83 — — — —

NM 1 124 1 124 — — — —

OR 1 53 1 53 — — — —

SD 1 81 1 81 — — — —

WV 1 67 — — 1 67 — —

OR 1 53 1 53 — — — —

Total 212 23,033 151 16,645 25 3,593 36 2,795

(1) Includes three SNFs with 385 beds held in consolidated joint ventures.

Occupancy by Property Type:

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ALFs and ILFs 75 % 74 %

(1) Occupancy data excludes two facilities which are in the process of being repurposed and two non-operational ALFs while we identify an operator.

(2) Occupancy data excludes two non-operational ALFs while we identify an operator.

(1) Occupancy data excludes two facilities which are in the process of being repurposed, one non-operational SNF and two non-operational ALFs.

(2) Occupancy data excludes two facilities which are in the process of being repurposed and two non-operational ALFs.

(3) Occupancy data derived solely from information provided by our tenants without independent verification by us.

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(in thousands) Percent

SNFs $ 135,701 72 % 16,193

$ 145,589 73 % 17,366

Multi-Service Campuses 35,779 18 % 3,593

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Total $ 198,599 100 % 23,928

(1) Includes three SNFs held in consolidated joint ventures.

For the Year Ended December 31, 2022 As of December 31, 2022

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CO 5,960 3 % 5,796 3 %

IA 5,318 3 % 5,322 3 %

WA 4,893 2 % 4,793 3 %

IA 4,584 2 % 5,318 3 %

OH 4,141 2 % 4,128 2 %

MI 3,003 2 % 3,081 2 %

MT 2,254 1 % 2,188 1 %

NV 2,231 1 % 2,177 1 %

NC 1,172 1 % 1,135 1 %

MI 2,069 1 % 3,003 2 %

GA 1,454 1 % 944 1 %

MN 1,100 1 % 1,064 1 %

NM 1,083 1 % 937 1 %

NE 1,020 1 % 995 1 %

GA 944 1 % 949 *

SD 972 * 944 *

NM 937 * 1,023 *

WV 776 * 751 *

VA 539 * 3,449 2 %

WI 556 * 520 *

NC 505 * 1,172 1 %

ND 475 * 461 *

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FL 25 * 222 *

IN 130 * 855 *

Total $ 198,599 100 % $ 187,506 100 %

• Represents less than 1%

(1) Includes three SNFs held in consolidated joint ventures.

Investment and Financing Policies

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We are expanding our investments into behavioral health facilities and we may determine in the future to expand our investments to include medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities.

Our properties are located in 28 s tates and we intend to continue to acquire properties in other states throughout the United States.

Although our portfolio currently consists primarily of owned real property, future investments may include first mortgages, mezzanine debt and other securities issued by, or joint ventures with, REITs or other entities that own real estate consistent with our investment objectives.

We may utilize the RIDEA structure for future acquisitions (see “Business Strategies - Diversify Asset Portfolio” below).

Our properties are located in 28 states and we intend to continue to acquire properties in other states throughout the United States.

Although our portfolio currently consists primarily of owned real property, we have also invested in joint ventures through which we own properties, as well as mortgage loans receivable and mezzanine loans.

We expect that our future investments may also include first mortgages, mezzanine debt and other securities issued by, or joint ventures with, REITs or other entities that own real estate consistent with our investment objectives.

Our Competitive Strengths

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Geographically Diverse Property Portfolio.

Our properties are located in 28 different states, with concentrations in California, Texas, Louisiana, Idaho and Arizona based on rental income.

The properties in any one state do not account for more th a n 27% of our total rental income as of December 31, 2022.

Our properties are located in 28 different states, with concentrations in California and Texas base d on rental i ncome.

The properties in any one state do not account for more than 30% of our total rental income as of December 31, 2023.

We believe this geographic diversification will limit the effect of changes in any one market on our overall performance.

Long-Term, Triple-Net Lease Structure.

All of our properties, except two properties under a short-term lease, are leased to our tenants under long-term, triple-net leases, pursuant to which the operators are responsible for all facility maintenance and repair, insurance required in connection with the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

All of our owned properties (including properties we own through joint ventures, excluding one SNF which is non-operational), are leased to our tenants under long-term, triple-net leases, pursuant to which the operators are responsible for all facility maintenance and repair, insurance required in connection with the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

Financially Secure Primary Tenant.

Ensign is an established provider of healthcare services with strong financial performance and accounted for 35% of our 2022 rental income, exclusive of operating expense reimbursements.

Ensign is an established provider of healthcare services with strong financial performance and accounted for 33% of total annualized contractual rental income as of December 31, 2023.

Ensign is subject to the 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 publicly available filings can be found at the SEC’s website at www.sec.gov.

Investments in Joint Ventures .

From time to time, we partner with third-party institutional investors to invest in healthcare real estate through joint ventures.

Our joint venture partner contributes the remaining 2.5% of the joint venture’s total investment amount in exchange for a 50% common ownership interest in the joint venture.

These are investments that we typically consolidate as they are variable interest entities and as we are considered to be the primary beneficiary and have the power to direct the activities that most significantly impact the entity’s economic performance and have the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant.

Lower Cost of Capital .

Our ability to access the capital markets provides us greater flexibility to manage our cost of capital and also offers us the ability to fund future acquisitions through the issuance of additional shares, including under our ATM Program (as defined below).

During the year ended December 31, 2023, we sold approximately 30.9 million shares at an average gross price of $20.86 for gross proceeds of approximately $643.8 million under our ATM Program to fund future acquisitions.

Ability to Identify Talented Operators .

As a result of our management team’s operating experience and network of relationships and insight, we believe that we are able to identify and pursue working relationships with qualified local, regional and national healthcare providers and seniors housing operators.

We expect to continue our disciplined focus on pursuing investment opportunities, primarily with respect to stabilized assets but also some strategic investment in new and/or improving properties, while seeking dedicated and engaged operators who possess local market knowledge, have solid operating records and emphasize quality services and outcomes.

We expect to continue our disciplined focus on pursuing investment opportunities, primarily with respect to stabilized assets but also some strategic investments in new and/or improving properties, while seeking dedicated and engaged operators who possess local market knowledge, have solid operating records and emphasize quality services and outcomes.

We intend to support these operators by providing strategic capital for facility acquisition, upkeep and modernization.

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Most notably, he worked for both Nationwide Health Properties, Inc., a healthcare REIT, and Sunstone Hotel Investors, Inc., a lodging REIT, serving as Senior Vice President and Chief Accounting Officer of each company prior to joining us as our Chief Financial Officer.

Callister was appointed as our Executive Vice President effective July 2022 and Chief Investment Officer effective December 31, 2022, succeeding Mark D.

Lamb in that role.

Callister was appointed as our Executive Vice President effective July 2022 and Chief Investment Officer effective December 31, 2022.

Callister continues to serve as Secretary, and previously served as General Counsel from February 2021 to July 2022.

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Callister worked as a real estate attorney and a partner at the law firm of Sherry Meyerhoff Hanson & Crance LLP and, before that, at the law firm of O’Melveny & Myers LLP.

Since 2008, he has worked almost exclusively on healthcare REIT transactions, closing on acquisitions or financings of over 300 skilled nursing, seniors housing, and independent living facilities.

Callister has assisted in the structure, negotiating and closing of all of our acquisitions since our formation as a REIT.

As an attorney, Mr.

Callister worked for nearly 20 years in private practice representing and advising clients in a diverse array of real estate transactions.

Callister’s transactions-based legal experience has focused on the representation of publicly-traded REITs in the acquisition, disposition, leasing, and financing of healthcare-related properties.

Callister holds a B.A.

in History from Brigham Young University and a J.D.

Reuben Clark Law School at Brigham Young University, where he graduated magna cum laude.

Flexible UPREIT Structure.

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Conducting business through the Operating Partnership allows us flexibility in the manner in which we structure the acquisition of properties.

In particular, an UPREIT structure enables us to acquire additional properties from sellers in exchange for limited

partnership units, which provides property owners the opportunity to defer the tax consequences that would otherwise arise from a sale of their real properties and other assets to us.

In particular, an UPREIT structure enables us to acquire additional properties from sellers in exchange for limited partnership units, which provides property owners the opportunity to defer the tax consequences that would otherwise arise from a sale of their real properties and other assets to us.

As a result, this structure allows us to acquire assets in a more efficient manner and may allow us to acquire assets that the owner would otherwise be unwilling to sell because of tax considerations.

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We employ what we believe to be a disciplined, opportunistic acquisition strategy with a focus on the acquisition of SNFs, ALFs and ILFs.

We plan to expand our investments into behavioral health facilities and we may determine in the future to expand our investments to include medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities.

As we acquire, or invest in, additional properties, we expect to further diversify by geography, asset class and tenant within the healthcare and healthcare-related sectors.

We may invest in seniors housing managed communities operated by third-party property managers pursuant to property management agreements utilizing the structure proposed in the REIT Investment Diversification and Empowerment Act of 2007, which is commonly referred to as a “RIDEA” structure.

The seniors housing managed communities structure would give us direct exposure to the risks and benefits of the operations of the communities.

The third-party property managers would manage our communities in exchange for the receipt of a management fee, and as such, we would not be directly exposed to the credit risk of the property managers in the same manner or to the same extent as our triple-net tenants.

Under this management structure, we would be required to rely on a third-party operator to hire and train all facility employees, enter into third-party contracts for the benefit of the facility, comply with laws, and provide resident care and we would be substantially limited in our ability to control or influence day-to-day operators.

Maintain Balance Sheet Strength and Liquidity.

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We expect to structure these investments as either lease amendments that produce additional rents or as loans that are repaid by operators during the applicable lease term.

We have also assisted our

tenants with transitioning to lower emissions technologies through our tenant incentive program, where we support efficiency projects through our dedicated tenant capital expenditure budget, providing sustainability incentives rent-free.

Pursue Strategic Development Opportunities.

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In addition, revenues from our properties are dependent on the ability of our tenants and operators to compete with other healthcare operators.

Healthcare operators compete on a local and regional basis for residents and patients and their ability to

successfully attract and retain residents and patients depends on key factors such as the number of facilities in the local market, the types of services available, the quality of care, reputation, age and appearance of each facility and the cost of care in each locality.

Healthcare operators compete on a local and regional basis for residents and patients and their ability to successfully attract and retain residents and patients depends on key factors such as the number of facilities in the local market, the types of services available, the quality of care, reputation, age and appearance of each facility and the cost of care in each locality.

Private, federal and state payment programs and the effect of other laws and regulations may also have a significant impact on the ability of our tenants and operators to compete successfully for residents and patients at the properties.

Sustainability and Corporate Social Responsibility

As a healthcare-focused REIT, our assets are an integral part of the overall healthcare continuum in the communities that our tenants serve.

We believe that environmental sustainability is an important part of our commitment to helping people live and age well in those communities.

We are working to implement sustainable practices in our corporate offices and to provide tenant education, support and incentives to make sustainable improvements at our net-leased properties.

In 2022, we published our second annual Corporate Responsibility Report (our “ESG Report”) as part of our ongoing commitment to provide regular reporting on our environmental, social and governance (“ESG”) priorities.

As triple-net landlords, our core responsibility lies in tracking, educating, and incentivizing our tenants, who hold decision-making authority at the property level, to make sustainable and financially prudent business decisions.

We believe that environmental sustainability is an important part of our commitment to helping people live and age well in those com munities.

We are committed to sustainable practices in our corporate offices and to providing tenant education, support and incentives to make sustainable improvements at our net-leased properties.

In 2023, we published our third annual Corporate Sustainability Report (our “ESG Report”) as part of our ongoing commitment to provide regular reporting on our environmental, social and governance (“ESG”) priorities.

Our ESG Report outlines our high priority ESG initiatives and goals for our company and our property portfolio.

In our 2022 ESG Report, we included a Global Reporting Initiative (“GRI”) Index in reference to the GRI Standards to further align with applicable global standards for sustainability reporting.

During 2020, with the assistance of Conservice ESG, our ESG consultant, we designed a monitoring plan to collect key environmental data from a pilot group of 50 of our net-leased properties.

The plan’s objective was to begin benchmarking energy and water usage and the impact of our facilities on greenhouse gas emissions and climate change.

During 2021, we implemented the plan’s monitoring systems and began collecting data for this pilot group of 50 properties, increasing to almost 100 properties by the end of 2022.

In our 2022 ESG Report, we included a Global Reporting Initiative (“GRI”) Index in reference to the GRI Standards as well as a Task Force on Climate-Related Financial Disclosures (“TCFD”) index to further align with applicable global standards for sustainability reporting.

Beginning in 2020, with the assistance of an ESG consultant, we designed a monitoring plan to collect key environmental data from a pilot group of 50 of our net-leased properties.

The plan’s objective was to benchmark energy and water usage and the impact of our facilities on greenhouse gas emissions and climate change.

During 2021, we implemented the plan’s monitoring systems and began collecting data for this pilot group of 50 properties, increasing to 100 properties by the end of 2023.

During 2023, we added waste tracking for the 100 properties.

We expect the data to help us identify the most promising opportunities for improvement in our portfolio, set informed ESG goals and measure progress over time.

In addition, as a landlord and capital supplier to a key segment of the healthcare industry, we will seek further opportunities to encourage and incentivize fair and healthy work environments for healthcare workers and suitable living conditions for patients and residents, and to promote diversity, inclusion and the ethical treatment of employees, residents, patients and others wherever our activities and influence can be felt.

In addition, as a landlord and capital supplier to a key segment of the healthcare industry, we intend to seek further opportunities to encourage and incentivize fair and healthy work environments for healthcare workers and suitable living conditions for patients and residents, and to promote diversity, inclusion and the ethical treatment of employees, residents, patients and others wherever our activities and influence can be felt.

During 2023, we partnered with a third party to conduct a portfolio level physical climate risk assessment on all standing assets.

Physical risks assessed were heat, flood, precipitation, fire, and drought.

In the overall portfolio physical climate risk assessment, four risk categories were defined with a portfolio risk percentage provided for each category, addressing each physi cal risk.

The climate risk assessment found that the highest risk for our portfolio was heat caused by higher temperatures.

During 2023, we distributed a Tenant Climate Risk-Opportunity Survey and received a 50% response rate.

This survey helped contribute to ESG dialogue with tenants and overall improved our risk management strategy.

The survey found transitional risks for our tenants due to transitioning to a low carbon economy including increased material costs, volatility in utilities’ pricing, market preference for greener buildings, and higher insurance premiums.

Also in 2020, we published our Tenant Code of Conduct & Corporate Responsibility (our “Tenant ESG Program”).

The Tenant ESG Program provides our eligible triple-net tenants with monetary inducements to make sustainable improvements to our properties.

Incentive options include a wide variety of opportunities for tenants to upgrade everything from energy and environmental systems to water-saving landscaping and more.

Incentive options include a wide variety of opportunities for tenants to upgrade everything from energy and

environmental systems to water-saving landscaping and more.

Our board of directors has authorized annual allocations of up to $500,000 to fund the Tenant ESG Program.

As disclosed in our 2022 ESG Report, we tracked $260,000 in environmental improvements at our properties from August 2021 to October 2022.

In 2022, we created and implemented an ESG checklist to be used to review new potential acquisitions.

The checklist will help our team better identify and address ESG-related risk and opportunities in each potential acquisition including how tenant-operators can track utility energy and water usage, whether properties are in parts of the country where the U.S.

Department of Energy has helped enable energy data for benchmarking purposes and how tenants can grow, develop and enhance their own ESG policies.

In addition, we created and implemented an ESG training program to train all employees on our ESG commitments to increase awareness.

As disclosed in our 2022 ESG Report, we tracked $567,304 in environmental improvements at our properties from September 2022 to September 2023.

The foregoing principles and additional ESG initiatives are reflected in our Environmental, Social and Governance policy adopted on October 29, 2021, and previously published Policy on Human Capital, Policy on Human Rights and Responsibilities, Policy on Environmental Sustainability and our proprietary Tenant ESG Program.

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Our Policy on Human Capital reflects our commitment to the dignity and rights of all people, especially our employees and others whose professional lives may be impacted by our properties and business activities.

It represents a critical commitment to, and investment in, the current and long-term health and well-being of

our organization and its people.

It represents a critical commitment to, and investment in, the current and long-term health and well-being of our organization and its people.

We believe our success depends on our ability to attract, develop and retain key personnel.

During 2023, we conducted an employee satisfaction survey with a 100% response rate and an overall satisfaction rate of 86%.

The survey found that 70% or more employees agree that our comprehensive benefits package is very competitive and a strong point of working for CareTrust, employees are highly committed to their future at CareTrust, and that CareTrust has a culture that values inclusivity.

CareTrust invests significant time and resources in supporting and developing our employees and creating a desirable workplace.

Our core philosophies and policies in this regard include:

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As of December 31, 2023, we emplo yed 17 full-time employees (including our executive officers), none of whom is subject to a collective bargaining agreement.

At the onset of the COVID-19 pandemic, we temporarily closed our corporate office and most of our employees were working remotely;

however, we have since reopened our corporate office with continued workforce flexibility to promote employee safety.

Our comprehensive benefits package includes flexible work hours, the option to work remotely, and company workspaces/amenities.

Retention and Turnover.

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These activities carry real and substantial costs, which we regard as a meaningful investment in our workforce and our company.

We believe that employee turnover is costly in direct and indirect ways, and we are committed to employee retention and satisfaction .

During the year ended December 31, 2022, we experienced turnover of one full-time employee, excluding our executive officers.

I n addition, during the year ended December 31, 2022, we transitioned the role of our Chief Executive Officer from Mr.

Stapley to Mr.

Sedgwick, effective January 1, 2022, and our Chief Investment Officer from Mr.

Callister, effective December 31, 2022.

We believe that employee turnover is costly in direct and indirect ways, and we are committed to employee retention and satisfac tion.

During the year ended December 31, 2023, we experienced turnover of three full-time employees, excluding our executive officers.

Training and Education.

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Government Regulation, Licensing and Enforcement

As operators of healthcare facilities, tenants of our healthcare properties are typically subject to extensive and complex federal, state and local healthcare laws and regulations relating to fraud and abuse practices, government reimbursement, licensure and certificate of need and similar laws governing the operation of healthcare facilities, and we expect that the healthcare industry, in general, will continue to face significant regulation and pressure in the areas of fraud, waste and abuse, cost control, healthcare management and provision of services, among others.

cost control, healthcare management and provision of services, among others.

These regulations are wide-ranging and can subject our tenants to civil, criminal and administrative sanctions.

Affected tenants may find it increasingly difficult and costly to comply with this complex and evolving regulatory environment because of a relative lack of guidance in many areas as certain of our healthcare properties are subject to oversight from several government agencies and the legal requirements often vary from one jurisdiction to another.

Changes in laws and regulations and reimbursement enforcement activity and regulatory non-compliance by our tenants could have a significant effect on their operations and financial condition, which in turn may adversely affect us, as detailed below and set forth under “Risk Factors - Risks Related to Our Business.”

The following is a discussion of certain laws and regulations generally applicable to our tenants (as operators of our healthcare facilities) and, in certain cases, to us.

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Violations of healthcare fraud and abuse laws carry civil, criminal and administrative sanctions, including punitive sanctions, monetary penalties, imprisonment, denial of Medicare and Medicaid reimbursement and potential exclusion from Medicare, Medicaid or other federal or state healthcare programs.

These laws are enforced by a variety of federal, state and local agencies and can also be enforced by private litigants through,

among other things, federal and state false claims acts, which allow private litigants to bring qui tam or “whistleblower” actions.

These laws are enforced by a variety of federal, state and local agencies and can also be enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or “whistleblower” actions.

Ensign and our other tenants are (and many of our future tenants are expected to be) subject to these laws, and some of them may in the future become the subject of governmental enforcement actions if they fail to comply with applicable laws.

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government, or its agents and contractors, is liable for a civil penalty ranging from $5,500 to $11,000 per claim, plus three times the amount of damages sustained by the government.

Under the False Claims Act’s so-called “reverse false claims,” liability also could arise for “using” a false record or statement to “conceal,” “avoid” or “decrease” an “obligation” (which can include the retention of an overpayment) “to pay or transmit money or property to the government.” The False Claims Act also empowers and provides incentives to private citizens (commonly referred to as qui tam relator or whistleblower) to file suit on the government’s behalf.

provides incentives to private citizens (commonly referred to as qui tam relator or whistleblower) to file suit on the government’s behalf.

The qui tam relator’s share of the recovery can be between 15% and 25% in cases in which the government intervenes, and 25% to 30% in cases in which the government does not intervene.

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The Republican Party currently controls the United States House of Representatives (by a slim majority) and the Democratic Party currently controls the Senate (by a slim majority).

Due to this, healthcare reform legislation would likely require at least some support from both Republican and Democratic lawmakers to become law and it is uncertain whether any healthcare reform legislation will ultimately become law.

to this, healthcare reform legislation would likely require at least some support from both Republican and Democratic lawmakers to become law and it is uncertain whether any healthcare reform legislation will ultimately become law.

We cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on our business.

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If Medicare reimbursement provided to our healthcare tenants is reduced under the SNF VBP Program, that reduction may have an adverse impact on the ability of our tenants to meet their obligations to us.

See “Risk Factors - Risks Related to Our Business - Healthcare reform legislation impacts cannot accurately be predicted and could adversely affect our results of operations” for additional risks related to changes in Medicare reimbursement.

Increased Government Oversight of Skilled Nursing Facilities

See “Risk Factors — Risks Related to Our Business and Operations — Healthcare reform legislation impacts cannot accurately be predicted and could adversely affect our results of operations” for additional risks related to changes in Medicare reimbursement.

Increased Government Oversight and Transparency

Section 1150B of the Social Security Act requires employees of federally funded long-term care facilities to immediately report any reasonable suspicion of a crime committed against a resident of that facility.

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Covered individuals who fail to report under Section 1150B are subject to various penalties, including civil monetary penalties of up to $300,000 and possible exclusion from participation in any Federal health care program.

Medicare regulations require

SNFs to establish and implement written policies to ensure the reporting of crimes that occur in federally funded SNFs in accordance with Section 1150B.

Medicare regulations require SNFs to establish and implement written policies to ensure the reporting of crimes that occur in federally funded SNFs in accordance with Section 1150B.

In August 2017, the HHS Office of Inspector General (“OIG”) issued a preliminary report regarding quality of care concerns by operators of SNFs.

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If any of our tenants or their employees are found to have violated any applicable reporting requirements, they may become subject to penalties or other sanctions up to and including loss of licensure.

In November 2023, CMS adopted a final rule implementing certain portions of the Affordable Care Act, requiring the disclosure of certain ownership, managerial, and other information regarding Medicare SNFs and Medicaid nursing facilities.

This final rule defines the term “real estate investment trust,” which sets the stage for Medicare SNFs to disclose whether each direct or indirect owning or managing entity is a real estate investment trust.

This may enable CMS and others to scrutinize more closely how direct and indirect ownership and management correlate with care outcomes and to determine which environments are more likely to deliver better care for residents and patients.

Healthcare Licensure and Certificate of Need

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The Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) regulates the privacy and security of certain health information (“Protected Health Information”) and requires entities subject to HIPAA to provide notification of breaches of Protected Health Information.

Entities subject to HIPAA include health plans, healthcare clearinghouses, and most health care providers (including many of our tenants).

Entities subject to HIPAA include health plans, healthcare

clearinghouses, and most health care providers (including many of our tenants).

Business associates of these entities who create, receive, maintain or transmit Protected Health Information are also subject to HIPAA.

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Some of these federal and state statutes may directly impact us.

Under various federal, state and local environmental laws, ordinances and regulations, an owner of real property, such as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government

fines and damages for injuries to persons and adjacent property).

The cost of any required remediation, removal, fines or personal or property damages and the owner’s liability therefore could exceed or impair the value of the property and/or the assets of the owner.

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See “Risk Factors - General Risk Factors - Environmental compliance costs and liabilities may materially impair the value of properties owned by us.”

Labor and Employment Matters

A wide variety of federal, state and local labor and employment laws and regulations impact healthcare facility operations.

Our tenants are required to comply with all applicable federal, state and local laws and regulations relating to employment, including occupational safety and health requirements, minimum staffing, wage and hour laws, overtime and other compensation requirements, employee benefits and other leave and sick pay requirements, proper classification of workers as employee or independent contractors, and immigration and equal employment opportunity laws, among others.

These laws and regulations can vary significantly among jurisdictions, can change, and can be highly technical and involve strict liability for noncompliance with technical detail.

Costs and expenses related to these requirements are a significant operating expense and may increase as laws and regulations change.

For example, on October 13, 2023, California Senate Bill No.

525 (“SB 525”) was signed into law, requiring a substantial increase in the minimum wage for workers operating in certain health care facilities.

As a result of SB 525, certain health care facilities (including licensed skilled nursing facilities) operating in California are required to increase the wages of their covered health care employees to at least $21 per hour from June 1, 2024 to May 31, 2026, $22 or $23 per hour (depending on facility type) from June 1, 2026 to May 31, 2028, and $25 per hour after June 1, 2028.

REIT Qualification

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federal income tax purposes beginning with our taxable year ended December 31, 2014.

Our qualification as a REIT will depend upon our ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code of 1986, as amended (the “Code”), relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels to our stockholders and the concentration of ownership of our capital stock.

Our qualification as a REIT will depend upon our ability to meet, on a continuing basis, various complex

requirements under the Internal Revenue Code of 1986, as amended (the “Code”), relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels to our stockholders and the concentration of ownership of our capital stock.

We believe that we are organized in conformity with the requirements for qualification and taxation as a REIT under the Code and that our manner of operation has and will enable us to continue to meet the requirements for qualification and taxation as a REIT.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business