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Item 7. Management’s Discussion and Analysis

2024-02-08 compared with 2023-02-09 · 153 added, 212 removed, 175 unchanged (68% of the section changed)

10 unchanged sentences

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 comprised 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 states with the highest concentration of properties by rental income located in California, Texas, Louisiana, Idaho and Arizona.

As of December 31, 2022, we also had other real estate 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, we owned, directly or indirectly 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”), 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.

Recent Developments

COVID-19 Update

Tenants of our properties operating pursuant to triple-net master leases have been adversely impacted, and we expect that they will continue to be adversely impacted, by the COVID-19 pandemic.

Our tenants are experiencing increased operating costs as a result of actions they are taking to prevent or mitigate the outbreak or spread of COVID-19 at their facilities.

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

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

The current limited availability or unavailability of grants and other funds being made available to our seniors housing facilities for healthcare related expenses or lost revenues attributable to COVID-19, as well as the tapering of grants and other funds for our SNFs, has also impacted some of our tenants’ ability to continue to meet some of their financial obligations, as they continue to experience lower occupancy levels and higher operating costs.

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

At a portfolio wide level, occupancy levels at our seniors housing facilities remained relatively stable from the onset of the COVID-19 pandemic until the beginning of the fourth quarter of 2020, at which time we began to see a decline.

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

however, seniors housing facilities occupancy has begun to increase in the beginning of the first quarter of 2022 and continued throughout 2022.

Occupancy levels at our SNFs, which declined at the onset of the COVID-19 pandemic and continued to decline through January 2021, have been on a steady incline through the fourth quarter of 2022.

Beginning in early 2020, the federal government temporarily suspended the three-day hospital stay requirement for a patient’s Medicare benefits to refresh.

Providers can now “skill in place,” eliminating the risk of transferring the patient to the hospital.

Because of this temporary rule change, overall skilled mix remained slightly elevated in the three months ended December 31, 2022 compared to the pre-pandemic skilled mix during the three months ended March 31, 2020.

An increase in skilled mix can, but may not necessarily, offset some or all of the adverse financial impact to the operator of the SNF from a decline in occupancy.

However, the skilled mix in our SNFs during the three months ended December 31, 2022 was lower than the peak level seen in December 2020, and we anticipate that skilled mix in our SNFs will continue to decline as cases of COVID-19 decline and temporary suspensions are retired.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) included a temporary suspension of a 2% Medicare sequestration cut through the end of March 2022.

Beginning April 1, 2022, a 1% sequestration cut went into effect through June 30, 2022 with the full 2% cut resuming thereafter.

On January 30, 2023, the U.S.

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

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

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

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

As a result of the foregoing impacts of the COVID-19 pandemic and actions taken in response, our tenants’ ability to continue to meet some of their financial obligations to us has been negatively impacted.

See “Impairment of Real Estate Assets, Assets Held for Sale and Asset Sales” below.

During the three and twelve months ended December 31, 2022, we collected 95.5% and 95.2% of contractual rents due from our operators including cash deposits used to offset rent shortfalls, respectively.

During both the three and twelve months ended December 31, 2022, we collected 94.0% of contractual rents due from our operators excluding cash deposits.

In January 2023, we collected 94.5% of contractual rents due from our operators.

During the year ended December 31, 2022, we determined that it was not probable that we would collect substantially all of the contractual obligations from five existing and former operators and, accordingly, we reversed $0.7 million of operating expense reimbursements, $0.2 million of contractual rent and $0.5 million of straight-line rent.

In addition, we determined that the collectibility of contractual rents from four operators was not probable and we moved these four operators to a cash basis method of accounting during the year ended December 31, 2022.

Impact of Macroeconomic Conditions

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

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

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

Market Trends and Uncertainties

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

Higher interest rates also increase our costs of capital to finance acquisitions and increase our borrowing costs.

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

For more information regarding the potential impact of COVID-19 and macroeconomic conditions on our business, see “Risk Factors” in Item 1A of this report.

SNF Reimbursement Rates

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

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

The payment rates became effective on October 1, 2022.

Impairment of Real Estate Assets, Assets Held for Sale, and Asset Sales

In connection with our ongoing review and monitoring of our investment portfolio and the performance of our tenants, during the first quarter of 2022, we determined to pursue the sale of 27 properties and the repurposing of three properties, representing an aggregate of approximately 10% of contractual cash rent as of March 31, 2022.

As of March 31, 2022, we determined that these 27 properties met the criteria to be classified as assets held for sale.

During the year ended December 31, 2022, we recognized an aggregate impairment charge of $79.1 million, of which $45.0 million related to 12 facilities that have been sold, $18.0 million related to 10 facilities that were classified as held for sale in the first quarter of 2022 and reclassified to held for use in the third and fourth quarters of 2022, $14.4 million related to five facilities that were held for sale as of December 31, 2022, and $1.7 million related to one facility that was held for use during the year.

For properties classified as held for sale, the impairment charges were recognized to write down the properties to the lower of their carrying value or their aggregate fair value, less estimated costs to sell.

For properties classified as held for use, the impairment charges were recognized to write down the properties to their fair value.

Following the asset sales and held for sale reclassifications discussed below, five properties continued to meet the criteria to be classified as held for sale as of December 31, 2022.

As of December 31, 2022, the real estate assets comprising the remaining five properties classified as held for sale had an aggregate carrying value of $12.3 million.

Asset Sales and Held for Sale Reclassifications

During the first quarter of 2022, we determined that one ALF that was classified as held for sale at December 31, 2021 no longer met the held for sale criteria.

We reclassified this ALF’s carrying value of $4.8 million out of assets held for sale and recorded catch-up depreciation of approximately $0.1 million during the year ended December 31, 2022.

During the first quarter of 2022, we closed on the sale of one SNF consisting of 83 beds located in Washington with a carrying value of $0.8 million, for net sales proceeds of $1.0 million.

During the year ended December 31, 2022, we recorded a gain of $0.2 million in connection with the sale.

During the third quarter of 2022, we determined that one ALF, with a carrying value of $4.9 million, that was classified as held for sale at June 30, 2022 no longer met the held for sale criteria.

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

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

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

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

We also provided a $5.0 million bridge loan to four individuals that bore interest at 8.5% and was subsequently paid off during the fourth quarter of 2022.

Prior to their sale, the seven properties had been classified as held for sale, with a carrying value of $46.9 million.

During the year ended December 31, 2022, we recorded a loss of $2.1 million in connection with the sale.

During the fourth quarter of 2022, we closed on the sale of five ALFs, operated by affiliates of Noble VA Holdings, LLC (“Noble”), consisting of 301 beds located in Virginia for net proceeds of $11.0 million.

Prior to their sale, the five properties had been classified as held for sale, with a carrying value of $12.7 million.

During the year ended December 31, 2022, we recorded a loss of $1.7 million in connection with the sale.

During the fourth quarter of 2022, we determined that nine ALFs, with a carrying value of $50.8 million, that were classified as held for sale at September 30, 2022, no longer met the held for sale criteria.

We reclassified the nine ALFs out of assets held for sale at their fair value at the date of the decision not to sell of approximately $47.8 million.

During the first quarter of 2023, we closed on the sale of one ALF, with a carrying value of $3.3 million, which approximated the net sales proceeds received.

The facility was classified as held for sale at December 31, 2022.

Impairment of Assets Held For Use

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

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

Portfolio Activity

During the year ended 2022, two leases we entered into with Landmark Recovery of Maryland, LLC (“Landmark Maryland”) and Landmark Recovery of Florida, LLC (“Landmark Florida”) commenced.

In connection with the leases, we are repurposing two existing ALFs (previously leased to affiliates of Noble Senior Services) as behavioral health treatment centers that will be operated by Landmark Maryland and Landmark Florida, respectively.

Rent under the leases will commence 12 to 18 months following commencement of the lease term or, if earlier, upon Landmark Maryland and Landmark Florida obtaining all licensure, permits, and other required regulatory authorizations with respect to operating the facility.

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

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

As a result of the above factors, together with the additional protective measures taken by our tenants in response to and following the COVID-19 pandemic, our tenants are continuing to experience increased operating costs at their facilities.

Our tenants are also experiencing labor shortages resulting in reduced admissions and higher operating costs.

At a portfolio wide level, occupancy levels at our seniors housing facilities, comprising our ALFs and ILFs, are continuing to show signs of recovery following the onset of the COVID-19 pandemic, although they have not yet fully normalized to pre-pandemic levels.

Within our SNFs, occupancy levels have continued to improve since their trough in January 2021 and are reaching pre-COVID occupancy levels for most of our tenants.

As a result of impacts experienced by our tenants since the onset of the COVID-19 pandemic, the ability of some of our tenants to meet their financial obligations to us in full has been negatively impacted.

See “Impairment of Real Estate Assets, Assets Held for Sale and Asset Sales” below.

During the three and twelve months ended December 31, 2023, we collected 100.0% and 97.7% of contractual rents due from our operators excluding cash deposits, respectively.

From time to time in the past, we have taken actions to reposition one or more properties with a replacement tenant or sell the property and, in certain cases, we have also restructured tenants’ long-term obligations.

In the event our tenants are unable to satisfy their obligations to

us and we are unable to effect these actions on terms that are as favorable to us as those currently in place, our rental income would be adversely impacted and we may incur additional expenses or obligations and be required to recognize additional impairment charges.

For more information regarding the potential impact of public health crises, including COVID-19, and macroeconomic conditions on our business, see “Risk Factors” in Item 1A of this report.

Regulatory Updates

In July 2023, The Centers for Medicare and Medicaid Services (“CMS”) approved its payment rate update to SNF reimbursements for fiscal 2024, which commenced October 1, 2023, and includes a net increase of 4.0%, or approximately $1.4 billion, in Medicare Part A payments to SNFs.

This increase is expected to partially offset some of our tenants’ higher operating costs.

On September 1, 2023, CMS issued proposed rules regarding minimum staffing requirements and increased inspections at nursing homes in order to establish comprehensive nurse staffing requirements.

The proposed rule consists of three core staffing proposals:

(1) minimum nurse staffing standards of 0.55 hours per resident day for registered nurses and 2.45 hours of care from a nurse aid per resident per day;

(2) a requirement to have a registered nurse onsite 24 hours a day, seven days a week;

and (3) enhanced facility assessment requirements.

The proposed rule also includes a staggered implementation approach and possible hardship exemptions for select facilities.

Comments on the proposed rule had to be submitted by November 6, 2023.

It is uncertain when the proposed rules will be finalized and become effective, what the ultimate scope and timing of the staffing requirements will be thereunder, and whether any such requirements will be accompanied by additional funding to offset any increased costs associated with meeting these requirements for our operators.

Depending on the ultimate level of staffing required, an unfunded mandate to increase staff may have a material and adverse impact on the financial condition of our tenants.

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.

Recent Investments

From January 1, 2022 through February 9, 2023, we acquired one SNF and one multi-service campus for approxima tely $21.9 million, which includes capitalized acquisition costs.

These acquisitions are expected to generate initial annual cash revenues of approximately $2.1 million and an initial blended yield of approximately 9.4%.

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

In September 2022, we extended a $24.9 million term loan as part of a larger, multi-tranche real estate secured term loan facility to a skilled nursing real estate owner.

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

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

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

The “B” tranche secured term loan is set to mature on September 8, 2025, with two one-year extension options and ma y (subject to certain restrictions) be prepaid in whole or in part before the maturity date for an exit fee ranging from 1% to 3% of the loan plus unpaid interest payments;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 (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) 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 on 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):

Investment Type Investment Annual Initial Interest Income (1)

Number of Properties Number of Beds/Units (2)

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

(1) Represents annualized acquisition-date interest income on any mortgage secured loans receivable and mezzanine loans, less subservicing fees, if applicable.

For floating rate loans, interest income has been calculated using the benchmark rate floor.

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

At-The-Market Offering of Common Stock

On March 10, 2020, we entered into a new equity distribution agreement to issue and sell, from time to time, up to $500.0 million in aggregate offering price of our common stock through an “at-the-market” equity offering program (the “ATM Program”).

The following table summarizes the ATM Program activity for the year ended December 31, 2022 (in thousands, except per share amounts).

On February 24, 2023, we entered into an equity distribution agreement to issue and sell, from time to time, up to $500.0 million in aggregate offering price of our common stock through an “at-the-market” equity offering program (the “Previous ATM Program”).

On September 15, 2023, we terminated the Previous ATM Program and entered into a new equity distribution agreement to issue and sell, from time to time, up to $500.0 million in aggregate offering price of our common stock through an “at-the-market” equity offering program (the “New ATM Program” and together with the Previous ATM Program, the “ATM Program”).

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

There were no outstanding ATM forward contracts that had not settled as of December 31, 2023.

The following tables summarize the ATM Program activity (or activity under any predecessor at-the-market equity offering programs) for the year ended December 31, 2023 (in thousands, except per share amounts).

For the Year Ended

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Gross proceeds (1)

(1) Total gross proceeds is before $0.6 million of commissions paid to the sales agents during the year ended December 31, 2022 under the ATM Program.

(1) Total gross proceeds is before $8.3 million of commissions paid to the sales agents and forward adjustments during the year ended December 31, 2023, under the ATM Program.

As of December 31, 2023, we had $274.1 million available for future issuances under the ATM Program.

Impairment of Real Estate Assets, Assets Held for Sale, and Asset Sales

Impairment of Real Estate Assets

During the year ended December 31, 2023, we recognized aggregate impairment charges of $36.3 million, of which $26.8 million related to properties held for sale, $8.0 million related to properties held for investment, and $1.5 million related to properties that were sold.

Asset Sales and Held for Sale Reclassifications

The following table summarizes our dispositions for the twelve months ended December 31, 2023 (dollars in thousands):

Twelve Months Ended December 31,

Number of facilities 5

Net sales proceeds $ 18,313

Net carrying value 16,095

Net gain on sale $ 2,218

The following table summarizes our 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 47,114 14

Assets sold (16,095) (5)

Impairment of real estate held for sale (28,299) —

December 31, 2023 (1)

(1) Includes two facilities sold subsequent to December 31, 2023.

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.

These facilities were classified as held for sale as of December 31, 2023.

Results of Operations

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General and administrative 21,805 20,165 1,640 8 %

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

Loss on sale of real estate, net (3,769) (77) (3,692) *

Unrealized loss on other real estate related investments (7,102) — (7,102) *

Other (loss) income:

Gain (loss) on sale of real estate, net 2,218 (3,769) 5,987 (159) %

Unrealized loss on other real estate related investments, net (6,485) (7,102) 617 (9) %

Net loss attributable to noncontrolling interests

Net loss attributable to noncontrolling interests (13) — (13) *

• Not meaningful

Rental income.

Rental income decreased by $2.7 million as detailed below:

Rental income increased by $11.1 million as detailed below:

(in thousands) December 31, 2023

4 unchanged sentences

Total contractual rent 198,244 188,906 9,338

188,906 190,100 (1,194)

Straight-line rent (29) 17 (46)

Below market lease 384 — 384

Adjustment for collectibility — (1,417) 1,417

(1,417) — (1,417)

Lease termination revenue — 63 (63)

Total change in rental income $ 187,506 $ 190,195 $ (2,689)

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

Total amount in rental income $ 198,599 $ 187,506 $ 11,093

Total contractual rent includes initial contractual cash rent and tenant reimbursements, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by us.

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

Total contractual cash rent decreased by $1.2 million due to a $10.6 million decrease in rental income related to certain tenants on a cash basis method of accounting and a $0.8 million decrease in tenant reimbursements, partially offset by an increase of $5.9 million in contractual cash rent from real estate investments made after January 1, 2021 and $4.3 million from increases in rental rates for our existing tenants.

Total contractual cash rent increased by $9.3 million due to an increase of $9.1 million in contractual cash rent from real estate investments made after January 1, 2022, an increase of $5.7 million from increases in rental rates for our existing tenants and a $2.7 million increase in tenant reimbursements, partially offset by a $7.8 million decrease in rental income related to certain tenants on a cash basis method of accounting and a $0.4 million decrease due to dispositions.

During the year ended December 31, 2022, the Company wrote off $1.4 million of uncollectible rent.

Interest and other income.

The $6.5 million, or 300%, increase in interest and other income is primarily due to an increase of $6.7 million related to the origination of loans receivable in June, August and September 2022 partially offset by a

decrease of $0.2 million related to repayments of other loans.

The $10.5 million, or 122%, increase in interest and other income is primarily due to an increase of $10.3 million related to the origination of loans receivable subsequent to January 1, 2022, an increase of $1.3 million in interest income on money market funds and an increase of $0.6 million related to prepayment penalties, partially offset by a decrease of $1.4 million related to repayments of loans receivable and a decrease of $0.3 million related to a loan origination fee during the year ended December 31, 2022.

See above under “Recent Developments” for additional information on the origination of loans receivable.

Depreciation and amortization.

Depreciation and amortization expense decreased $5.0 million, or 9%, for the year ended December 31, 2022 to $50.3 million compared to $55.3 million for the year ended December 31, 2021.

The $5.0 million decrease in depreciation and amortization was primarily due to a $5.0 million decrease from assets sold and classified as held for sale and a decrease in depreciation of $2.8 million due to assets becoming fully depreciated after January 1, 2021, partially offset by an increase in depreciation and amortization of $2.8 million related to new real estate investments and capital improvements made after January 1, 2021.

Depreciation and amortization expense increased $0.9 million, or 2%, for the year ended December 31, 2023 to $51.2 million compared to $50.3 million for the year ended December 31, 2022.

The $0.9 million increase in depreciation and amortization was primarily due to an increase of $4.0 million related to new real estate investments and capital improvements made after January 1, 2022 and an increase of $1.1 million related to properties reclassified to held for investment during the year ended December 31, 2022, partially offset by a decrease in depreciation of $2.8 million due to assets becoming fully depreciated after January 1, 2022 and a $1.4 million decrease from assets sold and classified as held for sale.

Interest expense.

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(in thousands)

Increases to interest expense due to:

Issuance of the 2028 senior unsecured notes - June 17, 2021 $ 7,110

Increase in interest rates for the senior unsecured term loan $ 6,826

Increase in outstanding borrowing amount for the unsecured revolving facility, net 2,095

Increase in interest rates for the unsecured revolving credit facility 5,275

Decrease in outstanding borrowing amount for the unsecured revolving facility, net (1,607)

Other changes in interest expense 381

Total increases to interest expense 14,209

Decreases to interest expense due to:

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

Total decreases to interest expense (7,878)

Total change in interest expense $ 6,331

Total change to interest expense $ 10,875

Property taxes .

Property taxes increased $1.8 million, or 42%, for the year ended December 31, 2023 compared to December 31, 2022.

The increase was primarily due to a $0.6 million increase in property taxes due to new real estate investments made after January 1, 2021, a $0.2 million increase in property taxes related to two non-operational properties at December 31, 2022 and a $0.1 million increase in property taxes due to the transfer of certain properties to new operators in January 2021 that do not make direct tax payments, partially offset by a decrease of $0.1 million of property taxes due to reassessments and decreased effective tax rates.

The increase was primarily due to a $1.4 million increase in property taxes due to new real estate investments made after January 1, 2022, a $0.9 million increase due to property taxes expected to be paid directly by us as a result of certain assets being designated as held for sale, a $0.4 million increase in property taxes due to existing operators that no longer make direct tax payments and an increase of $0.2 million of property taxes due to reassessments and increased effective tax rates, partially offset by a decrease of $1.0 million related to properties sold after January 1, 2022 and a decrease of $0.1 million due to the transfer of certain properties to new operators that make direct tax payments.

Impairment of real estate investments.

During the twelve months ended December 31, 2023, we recognized aggregate impairment charges of $36.3 million, of which $26.8 million related to properties held for sale, $8.0 million related to properties held for investment, and $1.5 million related to properties that were sold.

During the year ended December 31, 2022, we recognized aggregate impairment charges of $79.1 million, of which $14.4 million related to properties held for sale, $19.7 million related to properties held for investment, and $45.0 million related to properties that were sold.

See above under “Recent Developments” for additional information.

No impairment charges were recognized during the year ended December 31, 2021.

Provision for loan losses, net.

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Property operating expenses.

During the year ended December 31, 2022, we recognized $5.0 million of property operating expenses related to assets we plan to sell or repurpose, or have sold.

No similar expenses were incurred during the year ended December 31, 2021.

During the years ended December 31, 2023 and 2022, we recognized $3.4 million and $5.0 million, respectively, of property operating expenses related to assets we plan to sell or repurpose, re-tenant, or have sold.

General and administrative expense.

General and administrative expense decreased by $6.7 million as detailed below:

(in thousands) December 31, 2022 December 31, 2021 Increase/(Decrease)

General and administrative expense increased by $1.6 million as detailed below:

(in thousands) December 31, 2023

December 31, 2022

Increase/(Decrease)

Cash compensation $ 5,636 $ 6,107 $ (471)

Share-based compensation [1]

5,758 10,832 (5,074)

Incentive compensation 5,350 3,550 1,800

Share-based compensation 5,153 5,758 (605)

Professional services 2,399 1,897 502

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Taxes and insurance 908 897 11

Non-routine transaction costs 6 1,424 (1,418)

Other expenses 1,318 1,033 285

Total change in general and administrative expense $ 21,805 $ 20,165 $ 1,640

[1] Share-based compensation decreased $5.1 million for the year ended December 31, 2022 compared to December 31, 2021.

The decrease is primarily due to accelerated vesting of awards for one executive in the fourth quarter of 2021 in connection with his retirement.

Loss on extinguishment of debt.

During the year ended December 31, 2021, we recorded a $10.8 million loss on extinguishment of debt, including a prepayment penalty of $7.9 million and a $2.9 million write-off of deferred financing costs associated with the redemption of the prior senior notes.

No loss on extinguishment of debt was recognized during the year ended December 31, 2022.

Loss on sale of real estate, net .

Gain (loss) on sale of real estate, net .

During the year ended December 31, 2023, we recorded a $2.3 million gain on sale of real estate related to the sale of 2 ALFs and one SNF, partially offset by a $0.1 million loss on sale of real estate related to the sale of two ALFs.

During the year ended December 31, 2022, we recorded a $3.8 million loss on sale of real estate related to the sale of six SNFs, five ALFs and one multi-service campus and a $0.2 million loss on sale of real estate related to the sale of a land parcel, partially offset by a $0.2 million gain on sale of real estate related to the sale of one SNF.

During the year ended December 31, 2021, we recorded a $0.2 million loss on sale of real estate related to the sale of one SNF, partially offset by a $0.1 million gain on sale of real estate related to the sale of a land parcel adjacent to one of our SNFs.

Unrealized loss on other real estate related investments .

During the year ended December 31, 2022, we recorded a $7.1 million unrealized loss on three mortgage secured loans receivable and two mezzanine loans receivable.

The unrealized loss is due to rising interest rates.

No unrealized losses were recognized during the year ended December 31, 2021.

Unrealized loss on other real estate related investments, net .

During the year ended December 31, 2023, we recorded an unrealized loss of $8.1 million on our secured and mezzanine loans receivable due to rising interest rates and a $0.3 million loss due to a loan origination fee paid, partially offset by unrealized gains of $0.7 million due to a decrease in projected forward interest rates and a reversal of a previously recognized unrealized loss of $1.2 million related to the repayment of one mezzanine loan receivable and the partial repayment of one mortgage loan receivable.

During the year ended December 31, 2022, we recorded a $7.1 million unrealized loss on our secured and mezzanine loans receivable.

The unrealized loss was due to rising interest rates.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

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We intend to invest in and/or develop additional healthcare and seniors housing properties as suitable opportunities arise and so long as adequate sources of financing are available.

We expect that future investments in and/or development of properties, including any

improvements or renovations of current or newly-acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, borrowings available to us under the Second Amended Credit Facility (as defined below), future borrowings or the proceeds from sales of shares of our common stock pursuant to our ATM Program or additional issuances of common stock or other securities.

We expect that future investments in and/or development of properties, including any improvements or renovations of current or newly-acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, borrowings available to us under the Second Amended Credit Facility (as defined below), future borrowings or the proceeds from sales of shares of our common stock pursuant to our ATM Program or additional issuances of

common stock or other securities.

In addition, we may seek financing from U.S.

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Department of Housing and Urban Development, in appropriate circumstances in connection with acquisitions and refinancing of existing mortgage loans.

We believe that our expected operating cash flow from rent collections, interest payments on our other real estate related investments, and borrowings under our Second Amended Credit Facility, together with o ur cash balance of $13.2 million, available borrowing capacity of $475.0 million under the Revolving Facility and availability under the ATM Program, each at December 31, 2022, will be sufficient to meet ongoing debt service requirements, dividend plans, operating lease obligations, capital expenditures, working capital requirements and other needs for at least the next 12 months.

We believe that our expected operating cash flow from rent collections and interest payments on our other real estate related investments, together with o ur cash balance of $294.4 million, available borrowing capacity of $600.0 million under the Revolving Facility (as defined below), and availability of $274.1 million under the ATM Program, each at December 31, 2023, will be sufficient to meet ongoing debt service requirements, dividend plans, operating lease obligations, capital expenditures, working capital requirements and other needs for at least the next 12 months.

We expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.

While we are currently pursuing the sale, re-tenanting or repurposing of certain of our assets in connection with our ongoing review and monitoring of our investment portfolio as described under “Recent Developments” above, we currently do not expect to sell any of our properties to meet liquidity needs, although we may do so in the future.

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

On March 20, 2020, our board of directors authorized a share repurchase program to repurchase up to $150.0 million of outstanding shares of our common stock (the “Repurchase Program”).

Repurchases under the Repurchase Program, which expires on March 31, 2023, may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated share repurchase transactions, or other methods of acquiring shares, in each case subject to market conditions and at such times as shall be permitted by applicable securities laws and determined by management.

Repurchases under the Repurchase Program may also be made pursuant to a plan adopted under Rule 10b5-1 promulgated under the Exchange Act.

We expect to finance any share repurchases under the Repurchase Program using available cash and may also use short-term borrowings under the Revolving Facility.

We did not repurchase any shares of common stock under the Repurchase Program during the year ended December 31, 2022.

The Repurchase Program may be modified, discontinued or suspended at any time.

While we are currently pursuing the sale, re-tenanting or repurposing of certain of our assets in connection with our ongoing review and monitoring of our investment portfolio, we currently do not expect to sell any of our properties to meet liquidity needs, although we may do so in the future.

Our quarterly cash dividend and any failure of our operators to pay rent or of our borrowers to make interest or principal payments may impact our available capital resources.

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

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

Securities and Exchange Commission that expires in February 2026 and at or prior to such time we expect to file a new shelf registration statement.

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

On September 15, 2023, we entered into the New ATM Program.

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

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

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

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Net cash used in investing activities (267,815) (127,400)

Net cash (used in) provided by financing activities (23,732) 36,738

Net (decrease) increase in cash and cash equivalents (6,717) 976

Cash and cash equivalents at beginning of period 19,895 18,919

Cash and cash equivalents at end of period $ 13,178 $ 19,895

Net cash provided by (used in) financing activities 394,318 (23,732)

Net increase (decrease) in cash and cash equivalents 281,270 (6,717)

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

Cash and cash equivalents as of the end of period $ 294,448 $ 13,178

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Net cash provided by operating activities for the year ended December 31, 2022 was $144.4 million compared to $156.9 million for the year ended December 31, 2021, a decrease of $12.5 million.

Operating cash inflows are derived primarily from the rental payments received under our lease agreements, including as a result of new investments, and interest payments on our other real estate related investments.

Net cash provided by operating activities for the year ended December 31, 2023 was $154.8 million compared to $144.4 million for the year ended December 31, 2022, an increase of $10.4 million.

Operating cash inflows are derived primarily from the rental payments received under our lease agreements, including as a result of new investments, and interest payments received on our other real estate related investments.

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

The net decrease of $12.5 million in cash provided by operating activities for the year ended December 31, 2022 is primarily due to a decrease in rental income received, an increase in cash paid for interest expense and an increase in cash paid for operating expenses related to assets we plan to sell, have sold, or repurpose, partially offset by interest income received on our other real estate related investments.

Cash used in investing activities for the year ended December 31, 2022 was primarily comprised of $171.6 million in acquisitions of real estate and investments in real estate related investments and other loans receivable, and $7.3 million of purchases of, and improvements to, equipment, furniture and fixtures and real estate, partially offset by $6.3 million of payments received from our other loans receivable and $45.1 million in net proceeds from real estate sales.

Cash used in investing activities for the year ended December 31, 2021 was primarily comprised of $194.0 million in acquisitions of real estate and investments in real estate related investments and other loans receivable and $6.0 million of purchases of, and improvements to, equipment, furniture and fixtures and real estate, partially offset by $0.4 million of payments received from our other loans receivable and $7.0 million in net proceeds from real estate sales.

Our cash flows used in financing activities for the year ended December 31, 2022 were primarily comprised of $106.1 million in dividends paid, $5.4 million in payments of deferred financing costs and a $4.5 million net settlement adjustment on restricted stock, partially offset by $47.2 million of net proceeds from the issuance of common stock under the ATM Program and $45.0 million in net borrowings under our Second Amended Credit Facility (as defined below).

Our cash flows provided by financing activities for the year ended December 31, 2021 were primarily comprised of $393.8 million of net proceeds from the issuance of the Notes, $30.0 million in net borrowings under our Prior Credit Agreement (as defined below) and $22.9 million of net proceeds from the issuance of common stock under the ATM Program, partially offset by $307.9 million of payments to redeem our prior senior notes, $100.8 million in dividends paid, and a $1.3 million net settlement adjustment on restricted stock.

The net increase of $10.4 million in cash provided by operating activities for the year ended December 31, 2022 is primarily due to an increase in rental income received, interest income received on our other real estate related investments, and a decrease in cash paid for operating expenses related to assets we plan to sell, have sold, or repurpose, partially offset by an increase in cash paid for interest expense.

Cash used in investing activities for the year ended December 31, 2023 was primarily comprised of $297.9 million in acquisitions of real estate and investments in real estate related investments and other loans receivable, $11.0 million of purchases of equipment, furniture and fixtures and improvements to real estate, and $1.8 million in preferred equity investments, partially offset by $26.5 million of payments received on real estate related investments and other loans receivable and $16.3 million in net proceeds from real estate sales.

Cash used in investing activities for the year ended December 31, 2022 was primarily comprised of $171.6 million in acquisitions of real estate and investments in real estate related investments and other loans receivable and $7.3 million of purchases of equipment, furniture and fixtures and improvements to real estate, partially offset by $6.3 million of payments received from our other loans receivable and $45.1 million in net proceeds from real estate sales.

Our cash flows provided by financing activities for the year ended December 31, 2023 were primarily comprised of $634.4 million of net proceeds from the issuance of common stock under the ATM Program and $1.9 million in net contributions from noncontrolling interests, partially offset by $125.0 million in net payments under our Revolving Credit Facility (as defined below), $115.5 million in dividends paid and $1.5 million in net settlement adjustment on restricted stock.

Our cash flows used in financing activities for the year ended December 31, 2022 were primarily comprised of $106.1 million in dividends paid, $5.4 million in payments of deferred financing costs and a $4.5 million net settlement adjustment on restricted stock, partially offset by $47.2 million of net proceeds from the issuance of common stock under the Prior ATM Program and $45.0 million in net borrowings under our Revolving Facility.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

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(the “Operating Partnership”), and its wholly owned subsidiary, CareTrust Capital Corp.

(together with the Operating Partnership, the “Issuers”), completed a private

offering of $400.0 million aggregate principal amount of 3.875% Senior Notes due 2028 (the “Notes”).

(together with the Operating Partnership, the “Issuers”), completed a private offering of $400.0 million aggregate principal amount of 3.875% Senior Notes due 2028 (the “Notes”).

The Notes mature on June 30, 2028.

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

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

The obligations under the Notes are guaranteed, jointly and severally, on an unsecured basis, by us and all of our subsidiaries (other than the Issuers) that guarantee obligations under the Second Amended Credit Facility (as defined below).

As of December 31, 2023, we were in compliance with all applicable financial covenants under the indenture governing the Notes.

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Unsecured Revolving Credit Facility and Term Loan

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

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

The Second Amended Credit Agreement, which amends and restates our amended and restated credit and guaranty agreement, dated as of February 8, 2019 (as amended, the “Prior Credit Agreement”) provides for:

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Future borrowings under the Second Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes.

As of December 31, 2022, we had $200.0 million outstanding under the Term Loan and $125.0 million outstanding under the Revolving Facility.

On October 10, 2023, we entered into the First Amendment to the Second Amended Credit Agreement with KeyBank National Association (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.

As of December 31, 2023, we had $200.0 million 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 our sole discretion, two, six-month extension options.

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Capital Expenditures

As of December 31, 2022, we had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities totali ng $15.7 million, of which $2.7 million is subject to rent increase at the time of funding.

As of December 31, 2023, we had committed to fund expansions, construction, capital improvements and ESG incentives at certain triple-net leased facilities tot aling $9.2 million, of which $2.4 million is s ubject to rent increase at the time of funding.

We expect to fund the capital expenditures in the next one to two years.

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We are required to pay dividends in order to maintain our REIT status, and we expect to make quarterly dividend payments in cash with the annual dividend amount no less than 90% of our annual REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains.

See Note 8, Equity, to our consolidated financial

statements included in this report for a summary of the cash dividends per share of our common stock declared by our board of directors for 2022, 2021 and 2020.

See Note 8, Equity, to our consolidated financial statements included in this report for a summary of the cash dividends per share of our common stock declared by our board of directors for 2023, 2022 and 2021.

Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

Management believes that the assumptions and estimates used in preparation of the underlying consolidated financial statements are reasonable.

Actual results, however, could differ from those estimates and assumptions.

Certain accounting policies are considered to be critical accounting policies.

Critical accounting policies are those policies that require management to make significant estimates and/or assumptions about matters that are uncertain at the time the estimates and/or assumptions are made or where we are required to make significant judgments and assumptions with respect to the practical application of accounting principles in our business operations.

Critical accounting policies are by definition those policies that are material to our financial statements and for which the impact of changes in estimates, assumptions, and judgments could have a material impact to our financial statements.

The following critical accounting policies discussion reflects what we believe are the most significant estimates, assumptions, and judgments used in the preparation of our consolidated financial statements.

This discussion of our critical accounting policies is intended to supplement the description of our accounting policies in the footnotes to our consolidated financial statements and to provide additional insight into the information used by management when evaluating significant estimates, assumptions, and judgments.

Accounting estimates are deemed critical if they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.

Below is a summary of the critical accounting estimates used in the preparation of our consolidated financial statements.

For a discussion of our significant accounting policies, see Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included in this report.

Real Estate Acquisition Valuation .

In accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations , our acquisitions of real estate investments generally do not meet the definition of a business, and are treated as asset acquisitions.

The assets acquired and liabilities assumed are measured at their acquisition date relative fair values.

Acquisition costs are capitalized as incurred.

We allocate the acquisition costs to the tangible assets, identifiable intangible assets/liabilities and assumed liabilities on a relative fair value basis.

Purchase price allocations contain uncertainties because they require management to make significant estimates and assumptions and to apply judgment to allocate the purchase price of real estate acquired among its components.

We assess fair value based on available market information, such as capitalization and discount rates, comparable sale transactions and relevant per square foot or unit cost information.

A real estate asset’s fair value may be determined utilizing cash flow projections that incorporate such market information.

Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, as well as market and economic conditions.

The fair value of land is derived from comparable sales of land within the same submarket and/or region.

The fair value of buildings and improvements and integral equipment, furniture and fixtures considers the value of the property as if it was vacant as well as replacement costs, depreciation factors, and other relevant market information.

The use of different assumptions in these fair value inputs could significantly affect the reported amounts of the allocation of the acquisition on a relative fair value basis and the related depreciation expense recorded for such assets.

If actual results are materially different than the assumptions used to determine fair value of the assets acquired and liabilities assumed, it is possible that adjustments to the carrying values of such assets and liabilities will have a material impact on our financial position and results of operations.

Furthermore, if actual results are not consistent with estimates or assumptions, we may be exposed to an impairment charge that could materially adversely impact our financial position and results of operations.

We have not materially changed the assumptions used in the analysis during the year ended December 31, 2022.

Impairment of Long-Lived Assets.

At each reporting period, we evaluate our real estate investments held for use for potential impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

The judgment regarding the existence of impairment indicators, used to determine if an impairment assessment is necessary, is based on factors such as, but not limited to, market conditions, operator performance and legal structure.

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The impairment is measured as the excess of carrying value over fair value.

The fair value of the real estate investment is based on current market conditions and considers matters such as the forecasted operating cash flows, lease coverage ratios, capitalization rates, and, where applicable, terms of recent lease agreements or the results of negotiations with prospective tenants.

We classify our real estate investments as held for sale when the applicable criteria have been met, which includes a formal plan to sell the properties that is expected to be completed within one year, among other criteria.

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A real estate investment that is reclassified is measured and recorded individually at the lower of (a) its carrying amount before the real estate investment was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the real estate investment been continuously classified as held for use, or (b) the fair value at the date of the decision not to sell or change in circumstances that led to the real estate investment no longer meeting the criteria of held for sale.

The fair value of the real estate investment is determined in a similar manner to the fair value determination for real estate investments held for use described above.

Our ability to accurately estimate future cash flows and estimate and allocate fair values impacts the timing and recognition of impairments.

While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on financial results.

Given the ongoing impacts of COVID-19, the projected cash flows that we use to assess fair value for purposes of impairment testing are subject to greater uncertainty than normal.

If in the future we reduce our estimate of cash flow projections, we may need to impair some of these assets.

Given the impacts of current macroeconomic events, the projected cash flows that we use to assess fair value for purposes of impairment testing are subject to greater uncertainty than normal.

If in the future we reduce our estimate of cash flow projections, we may need to impair our real estate assets.

We have not materially changed the assumptions used in the analysis during the year ended December 31, 2023.

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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 7. Management’s Discussion and Analysis