CareTrust REIT, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-Looking Statements Certain statements in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements regarding: future financing plans, business strategies, growth prospects and operating and financial performance; expectations regarding the making of distributions and the payment of dividends; and compliance with and changes in governmental regulations. Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “may,” “will,” “would,” “could,” “should,” “seek(s)” and similar expressions, or the negative of these terms, are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecasted or expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to: (i) the ability and willingness of our tenants to meet and/or perform their obligations under the triple-net leases we have entered into with them, including, without limitation, their respective obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities; (ii) the risk that we may have to incur additional impairment charges related to our assets held for sale if we are unable to sell such assets at the prices we expect; (iii) the impact of healthcare reform legislation, including minimum staffing level requirements, on the operating results and financial conditions of our tenants; (iv) the ability of our tenants to comply with applicable laws, rules and regulations in the operation of the properties we lease to them; (v) the ability and willingness of our tenants to renew their leases with us upon their expiration, and the ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event we replace an existing tenant, as well as any obligations, including indemnification obligations, we may incur in connection with the replacement of an existing tenant; (vi) the availability of and the ability to identify (a) tenants who meet our credit and operating standards, and (b) suitable acquisition opportunities, and the ability to acquire and lease the respective properties to such tenants on favorable terms; (vii) the ability to generate sufficient cash flows to service our outstanding indebtedness; (viii) access to debt and equity capital markets; (ix) fluctuating interest rates; (x) the impact of public health crises, including significant COVID-19 outbreaks as well as other pandemics or epidemics; (xi) the ability to retain our key management personnel; (xii) the ability to maintain our status as a real estate investment trust (“REIT”); (xiii) changes in the U.S. tax law and other state, federal or local laws, whether or not specific to REITs; (xiv) other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments; and (xv) any additional factors included under Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (the “SEC”). Forward-looking statements speak only as of the date of this report. Except in the normal course of our public disclosure obligations, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any statement is based. Overview 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 March 31, 2024, we owned, directly or indirectly through joint ventures, and leased to independent operators, 228 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of 24,189 operational beds and units located in 29 states with the highest concentration of properties by rental income located in California and Texas. As of March 31, 2024, we also had other real estate related investments consisting of one preferred equity investment, nine real estate secured loans receivable and four mezzanine loans receivable with a carrying value of $233.3 million. Recent Developments 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 23 Table of Contents 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. As a result of the above factors our tenants are continuing to experience increased operating costs at their facilities. Our tenants are also experiencing labor shortages resulting in higher operating costs. At a portfolio wide level, occupancy levels at our seniors housing facilities, comprising our ALFs and ILFs, continue to remain below occupancy levels at the onset of the COVID-19 pandemic. Within our SNFs, occupancy levels have continued to improve since their trough in January 2021 and remained stable for the three months ended December 31, 2023 compared to the three months ended September 30, 2023, 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. 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. See “Impairment of Real Estate Assets, Assets Held for Sale and Asset Sales” below. During the three months ended March 31, 2024, we collected 98.0% of contractual rents and interest due from our operators and borrowers excluding cash deposits. 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. Regulatory Updates In March 2024, The Centers for Medicare and Medicaid Services (“CMS”) proposed a payment rate update to SNF reimbursements for fiscal 2025, which includes a net increase of 4.1%, or approximately $1.4 billion in Medicare Part A payments to SNFs. In July 2023, 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. These increases are expected to partially offset some of our tenants’ higher operating costs. On April 22, 2024, CMS issued a final rule regarding minimum staffing requirements and increased inspections at nursing homes in order to establish comprehensive nurse staffing requirements. The rule consists of three core staffing requirements: (1) overall minimum standard of 3.48 total nurse staff hours per resident day; (2) minimum nurse staffing standards of 0.55 hours per resident day for registered nurses and 2.45 hours of care from a certified nurse’s aid per resident per day; and (3) a requirement to have a registered nurse onsite 24 hours a day, seven days a week. The rule includes a staggered implementation approach for which CMS will publish additional details on compliance as the implementation dates approach. The rule also includes possible waivers and temporary hardship exemptions for select facilities, however no funding for the additional staff will be provided. We are currently evaluating the impact of the rule, but believe the 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. 24 Table of Contents Recent Investments The following table summarizes our acquisitions from January 1, 2024 through May 2, 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 $ 38,311 $ 3,450 2 140 Multi-service campuses (5) 78,344 6,268 4 569 Assisted living (4) 11,036 1,022 1 86 Total $ 127,691 $ 10,740 7 795 (1) Purchase price includes capitalized acquisition costs. (2) Initial annual cash rent represents initial cash rent for the first twelve months. (3) The number of beds/units includes operating beds at acquisition date. (4) Includes one ALF held through a joint venture. See Note 3, Real Estate Investments, Net , and Note 11, Variable Interest Entities for additional information. (5) Includes two multi-service campuses held through a joint venture. See Note 14, Subsequent Events , for additional information. The following table summarizes our other real estate related investments from January 1, 2024 through May 2, 2024 (dollars in thousands): Investment Type (1) Investment Annual Initial Interest Income (2) Number of Properties Number of Beds/Units (3) Mortgage secured loan receivable $ 26,675 $ 2,427 2 271 Mezzanine loans receivable $ 52,165 $ 7,119 26 3,202 Total $ 78,840 $ 9,546 28 3,473 (1) Table excludes a $1.0 million mortgage loan originated in connection with the sale of one ALF during the period presented. (2) Represents annualized acquisition-date interest income, less subservicing fees, if applicable. For floating rate loans, interest income has been calculated using the benchmark rate floor. (3) The number of beds/units includes operating beds at the investment date. At-The-Market Offering of Common Stock On September 15, 2023, we entered into a new equity distribution agreement to issue and sell, from time to time, up to $500.0 million in aggregate offering price of our common stock through an “at-the-market” equity offering program (the “New ATM Program”) and terminated our previous $500.0 million “at-the-market” equity offering program (the “Previous ATM Program” and together with the New ATM Program, the “ATM Program”). In addition to the issuance and sale of shares of our common stock, the ATM Program also provides for the ability to enter into one or more forward sales agreements (each, an “ATM forward contract”) with sales agents for the sale of our shares of common stock under the ATM Program. The following tables summarize the ATM Program activity for the three months ended March 31, 2024 (in thousands, except per share amounts). For the Three Months Ended March 31, 2024 Number of shares 11,600 Average sales price per share $ 23.55 Gross proceeds (1) $ 273,233 (1) Total gross proceeds is before $3.4 million of commissions paid to the sales agents during the three months ended March 31, 2024, under the ATM Program. As of March 31, 2024, we had $0.9 million available for future issuances under the New ATM Program. Impairment of Real Estate Assets, Assets Held for Sale, and Asset Sales During the three months ended March 31, 2024, we recognized an impairment charge of $2.7 million related to properties held for sale, which is reported in impairment of real estate investments in the condensed consolidated income statements. 25 Table of Contents Asset Sales and Held for Sale Reclassifications We periodically reassess our investments and tenant relationships, and from time to time we have selectively disposed of certain facilities or investments, or terminated tenant relationships, and we expect to continue making such reassessments and, where appropriate, taking such actions. 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. Upon designation as held for sale, we cease depreciation and record the investment at the lower of carrying value or estimated fair value less costs to sell, which could result in an impairment of the real estate investments held for sale, if necessary. The following table summarizes our dispositions for the three months ended March 31, 2024 and 2023 (dollars in thousands): Three Months Ended March 31, 2024 2023 Number of facilities 2 1 Net sales proceeds $ 1,046 $ 3,230 Net carrying value 1,035 3,300 Net gain (loss) on sale $ 11 $ (70) 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, 2023 $ 15,011 14 Additions to assets held for sale 1,251 1 Assets sold (1,035) (2) Impairment of real estate held for sale (2,744) — March 31, 2024 $ 12,483 13 26 Table of Contents Results of Operations Three Months Ended March 31, 2024 Compared to Three Months Ended December 31, 2023: Three Months Ended Increase (Decrease) Percentage Difference March 31, 2024 December 31, 2023 (dollars in thousands) Revenues: Rental income $ 53,502 $ 53,473 $ 29 — % Interest and other income 9,568 6,261 3,307 53 % Expenses: Depreciation and amortization 13,448 13,211 237 2 % Interest expense 8,228 8,266 (38) — % Property taxes 1,801 1,733 68 4 % Impairment of real estate investments 2,744 4,791 (2,047) (43) % Property operating expenses 660 563 97 17 % General and administrative 6,838 6,507 331 5 % Other loss: Gain on sale of real estate, net 11 260 (249) (96) % Unrealized (loss) gain on other real estate related investments, net (612) 1,371 (1,983) (145) % Net income Net income (loss) attributable to noncontrolling interests 4 (2) 6 * • Not meaningful Rental income . Rental income increased by approximately $29,000 as detailed below: Three Months Ended Increase/(Decrease) (in thousands) March 31, 2024 December 31, 2023 Contractual cash rent $ 51,430 $ 51,515 $ (85) Tenant reimbursements 1,504 1,582 (78) Total contractual rent 52,934 53,097 (163) Straight-line rent (7) (8) 1 Amortization of below market lease intangible 575 384 191 Total amount in rental income $ 53,502 $ 53,473 $ 29 Total contractual rent includes initial contractual cash rent and tenant operating expense reimbursements, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by the Company. For tenants on a cash basis, this represents the lesser of the amount that would be recognized on a straight-line basis or cash that has been received. Total contractual cash rent decreased by $0.2 million due to a $1.1 million decrease in rental income related to certain tenants on a cash basis method of accounting and a $0.1 million decrease in tenant reimbursements, partially offset by a $0.7 million increase in rental income from real estate investments made after October 1, 2023 and a $0.3 million increase in rental rates for our existing tenants. Interest and other income. The $3.3 million, or 53%, increase in interest and other income was primarily due to an increase of $2.4 million of interest income on money market funds and an increase of $1.4 million of interest income on new loan investments made after October 1, 2023, partially offset by a decrease of $0.3 million related to repayments of loans receivable and a decrease of $0.2 million related to a prepayment penalty received during the three months ended December 31, 2023. Depreciation and amortization. The $0.2 million, or 2%, increase in depreciation and amortization was primarily due to an increase of $0.4 million due to acquisitions and capital improvements made after October 1, 2023, partially offset by a decrease of $0.2 million due to assets becoming fully depreciated after October 1, 2023. 27 Table of Contents Interest expense. Interest expense decreased by approximately $38,000 as detailed below: Change in interest expense for the three months ended March 31, 2024 compared to the three months ended December 31, 2023 (in thousands) Decrease in interest for the Term Loan (as defined below) $ (40) Other changes in interest expense 2 Total change to interest expense $ (38) Property taxes. The $0.1 million, or 4%, increase in property taxes was primarily due to a $0.1 million increase related to acquisitions made after October 1, 2023. Impairment of real estate investments. During the three months ended March 31, 2024, we recognized impairment charges of $2.7 million related to properties held for sale. See above under “Recent Developments - Impairment of Real Estate Assets, Assets Held for Sale, and Asset Sales” for additional information. During the three months ended December 31, 2023, we recognized an impairment charge of $4.8 million related to properties held for sale. Property operating expenses. During the three months ended March 31, 2024 and December 31, 2023, we recognized $0.7 million and $0.6 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 increased by $0.3 million as detailed below: Three Months Ended Increase/(Decrease) (in thousands) March 31, 2024 December 31, 2023 Share-based compensation $ 2,120 $ 1,774 $ 346 Cash compensation 1,765 1,380 385 Incentive compensation 1,500 1,650 (150) Professional services 738 615 123 Taxes and insurance 205 205 — Other expenses 510 883 (373) General and administrative expense $ 6,838 $ 6,507 $ 331 Gain on sale of real estate, net. During the three months ended March 31, 2024, we recorded an $11,000 gain on sale of real estate, net related to the sale of one SNF and one ALF. During the three months ended December 31, 2023, we recorded a $0.3 million gain on sale of real estate related to the sale of one ALF. Unrealized (loss) gain on other real estate related investments, net. During the three months ended March 31, 2024, we recorded an $0.8 million unrealized loss on our secured and mezzanine loans receivable due to an increase in interest rates, partially offset by unrealized gains of $0.2 million due to an increase in expected cash flows on floating rate loans. During the three months ended December 31, 2023, we recorded a $1.4 million unrealized gain due to a reversal of a previously recognized unrealized loss related to the partial repayment of one mortgage loan receivable, a decrease in interest rates and a decrease in projected forward interest rates. 28 Table of Contents Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023: Three Months Ended Increase (Decrease) Percentage Difference March 31, 2024 March 31, 2023 (dollars in thousands) Revenues: Rental income $ 53,502 $ 46,163 $ 7,339 16 % Interest and other income 9,568 4,443 5,125 115 % Expenses: Depreciation and amortization 13,448 12,238 1,210 10 % Interest expense 8,228 9,827 (1,599) (16) % Property taxes 1,801 880 921 105 % Impairment of real estate investments 2,744 1,886 858 45 % Property operating expenses 660 963 (303) (31) % General and administrative 6,838 5,061 1,777 35 % Other loss: Gain (loss) on sale of real estate, net 11 (70) 81 (116) % Unrealized losses on other real estate related investments, net (612) (454) (158) 35 % Net income Net income attributable to noncontrolling interests 4 — 4 * • Not meaningful Rental income . Rental income increased by $7.3 million as detailed below: Three Months Ended Increase/(Decrease) (in thousands) March 31, 2024 March 31, 2023 Contractual cash rent $ 51,430 $ 45,461 $ 5,969 Tenant reimbursements 1,504 709 795 Total contractual rent 52,934 46,170 6,764 Straight-line rent (7) (7) — Amortization of below market lease intangible 575 — 575 Total amount in rental income $ 53,502 $ 46,163 $ 7,339 Total contractual rent includes initial contractual cash rent and tenant operating expense reimbursements, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by the Company. For tenants on a cash basis, this represents the lesser of the amount that would be recognized on a straight-line basis or cash that has been received. Total contractual cash rent increased by $6.8 million due to a $4.2 million increase in rental income from real estate investments made after January 1, 2023, a $1.3 million increase in rental rates for our existing tenants, a $0.8 million increase in tenant reimbursements, a $0.5 million increase in rental income related to certain tenants on a cash basis method of accounting, and a $0.2 million increase in rental rates due to the transfer of two facilities to a new operator, partially offset by a $0.2 million decrease in rental income related to dispositions made after January 1, 2023. Interest and other income. The $5.1 million increase in interest and other income was primarily due to an increase of $3.5 million of interest income on money market funds, an increase of $2.6 million due to the origination of loans receivable after January 1, 2023, and an increase of $0.2 million due to originations of other loans, partially offset by a decrease of $0.7 million of interest income due to loan repayments and a decrease of $0.5 million related to a prepayment penalty on one mezzanine loan receivable during the three months ended March 31, 2023. Depreciation and amortization. The $1.2 million, or 10%, increase in depreciation and amortization was primarily due to an increase of $2.0 million related to acquisitions and capital improvements made after January 1, 2023, partially offset 29 Table of Contents by a decrease of $0.5 million due to assets becoming fully depreciated after January 1, 2023 and a decrease of $0.3 million due to classifying assets as held for sale after January 1, 2023. Interest expense. Interest expense decreased by $1.6 million as detailed below: Change in interest expense for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 (in thousands) Decrease in outstanding borrowing amount for the Revolving Facility, net $ (1,932) Increase in interest rates for the Term Loan 400 Other changes in interest expense (67) Total change to interest expense $ (1,599) Property taxes. The $0.9 million, or 105%, increase in property taxes was due to a $0.8 million increase related to acquisitions made after January 1, 2023 and an increase of $0.1 million due to the transfer of certain properties to new operators in March 2023 that do not make direct tax payments. Impairment of real estate investments. During the three months ended March 31, 2024, we recognized impairment charges of $2.7 million related to properties held for sale. See above under “Recent Developments - Impairment of Real Estate Assets, Assets Held for Sale, and Asset Sales” for additional information. During the three months ended March 31, 2023, we recognized an impairment charge of $1.9 million related to properties held for sale as of March 31, 2023. Property operating expenses. During the three months ended March 31, 2024 and 2023, we recognized $0.7 million and $1.0 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 increased by $1.8 million as detailed below: Three Months Ended Increase/(Decrease) (in thousands) March 31, 2024 March 31, 2023 Share-based compensation $ 2,120 $ 936 $ 1,184 Cash compensation 1,765 1,550 215 Incentive compensation 1,500 1,550 (50) Professional services 738 474 264 Taxes and insurance 205 204 1 Other expenses 510 347 163 General and administrative expense $ 6,838 $ 5,061 $ 1,777 Gain (loss) on sale of real estate, net. During the three months ended March 31, 2024, we recorded a $11,000 gain on sale of real estate, net related to the sale of one SNF and one ALF. During the three months ended March 31, 2023, we recorded a $70,000 loss on sale of real estate related to the sale of one ALF. Unrealized losses on other real estate related investments, net. During the three months ended March 31, 2024, we recorded a $0.8 million unrealized loss on our secured and mezzanine loans receivable due to an increase in interest rates, partially offset by unrealized gains of $0.2 million due to an increase in expected cash flows on floating rate loans due to an increase in projected forward interest rates. During the three months ended March 31, 2023, we recorded a $1.0 million unrealized loss on one mezzanine loan receivable due to rising interest rates, partially offset by a $0.5 million reversal of a previously recognized unrealized loss related to the prepayment of one mezzanine loan receivable. 30 Table of Contents Liquidity and Capital Resources To qualify as a REIT for federal income tax purposes, we are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, to our stockholders on an annual basis. Accordingly, we intend to make, but are not contractually bound to make, regular quarterly dividends to common stockholders from cash flow from operating activities. All such dividends are at the discretion of our board of directors. Our short-term liquidity requirements consist primarily of operating and interest expenses directly associated with our properties, including: • interest expense and scheduled debt maturities on outstanding indebtedness; • general and administrative expenses; • dividend plans; • operating lease obligations; and • capital expenditures for improvements to our properties. Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions and other investments (including mortgage and mezzanine loan originations), capital expenditures, and scheduled debt maturities. 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. In addition, we may seek financing from U.S. government agencies, including through Fannie Mae and the U.S. 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 and interest payments on our other real estate related investments, together with our cash balance of $451.2 million and available borrowing capacity of $600.0 million under the Revolving Facility (as defined below), each at March 31, 2024, 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. We currently do not expect to sell any of our properties to meet liquidity needs, although we may do so from time to time as part of our hold strategy on an investment-by-investment basis. 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 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. During the three months ended March 31, 2024, we sold $273.2 million of shares of our common stock under the New ATM Program. As of March 31, 2024, the Company had $0.9 million available for future issuances under the New 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. However, there can be no assurance that we will be able to refinance our indebtedness, incur additional indebtedness or access additional sources of capital, such as by issuing common stock or other debt or equity securities, on terms that are acceptable to us or at all. As of March 31, 2024, we are in compliance with all debt covenants on our outstanding indebtedness. 31 Table of Contents Cash Flows The following table presents selected data from our condensed consolidated statements of cash flows for the periods presented (dollars in thousands): For the Three Months Ended March 31, 2024 2023 Net cash provided by operating activities $ 48,820 $ 35,120 Net cash used in investing activities (123,241) (818) Net cash provided by (used in) financing activities 231,146 (19,410) Net increase in cash and cash equivalents 156,725 14,892 Cash and cash equivalents as of the beginning of period 294,448 13,178 Cash and cash equivalents as of the end of period $ 451,173 $ 28,070 Net cash provided by operating activities increased for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Operating cash inflows are derived primarily from the rental payments received under our lease agreements, including as a result of new investments, and interest payments on our other real estate related investments. Operating cash outflows consist primarily of interest expense on our borrowings and general and administrative expenses. The net increase of $13.7 million in cash provided by operating activities for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 is primarily due to an increase in rental income received, an increase in interest income received on our other real estate related investments, and a decrease in cash paid for interest expense, partially offset by an increase in cash paid for general and administrative expense. Cash used in investing activities for the three months ended March 31, 2024 was primarily comprised of $122.9 million in acquisitions of real estate, investment in real estate related investments and other loans receivable and escrow deposits for potential acquisitions of real estate and $0.4 million of purchases of equipment, furniture and fixtures and improvements to real estate. Cash used in investing activities for the three months ended March 31, 2023 was primarily comprised of $17.2 million in escrow deposits for acquisitions of real estate and $2.0 million of purchases of equipment, furniture and fixtures and improvements to real estate, partially offset by $15.1 million of principal payments received from our other real estate related investments and other loans receivable and $3.2 million in net proceeds from real estate sales. Our cash flows provided by financing activities for the three months ended March 31, 2024 were primarily comprised of $269.8 million in net proceeds from the issuance of common stock and $0.4 million in contributions from noncontrolling interests, partially offset by $36.5 million in dividends paid and a $2.5 million net settlement adjustment on restricted stock. Our cash flows used in financing activities for the three months ended March 31, 2023 were primarily comprised of $27.4 million in dividends paid, a $1.5 million net settlement adjustment on restricted stock and $0.5 million in costs paid for the issuance of common stock, partially offset by $10.0 million in borrowings under our Revolving Facility (as defined below). Material Cash Requirements Our material cash requirements from known contractual and other obligations include: 3.875% Senior Unsecured Notes due 2028 On June 17, 2021, our wholly owned subsidiary, CTR Partnership, L.P. (the “Operating Partnership”), and its wholly owned subsidiary, CareTrust Capital Corp. (together with the Operating Partnership, the “Issuers”), completed a private offering of $400.0 million aggregate principal amount of 3.875% Senior Notes due 2028 (the “Notes”). 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) that guarantee obligations under the Second Amended Credit Facility (as defined below). As of March 31, 2024, we were in compliance with all applicable financial covenants under the indenture governing the Notes. See Note 7, Debt, to our condensed consolidated financial statements included in this report for further information about the Notes. 32 Table of Contents 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 (as amended from time to time, 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 substantially all of our subsidiaries. The Second Amended Credit Agreement, which amends and restates our amended and restated credit and guaranty agreement, dated as of February 8, 2019 (as amended, the “Prior Credit Agreement”) provides for: (i) an unsecured revolving credit facility (the “Revolving Facility”) with revolving commitments in an aggregate principal amount of $600.0 million, including a letter of credit subfacility for 10% of the then available revolving commitments and a swingline loan subfacility for 10% of the then available revolving commitments and (ii) the continuation of the unsecured term loan credit facility which was previously extended under the Prior Credit Agreement (the “Term Loan” and together with the Revolving Facility, the “Second Amended Credit Facility”) in an aggregate principal amount of $200.0 million. Future borrowings under the Second Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes. 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 March 31, 2024, 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, t wo six-month extension options. The Term Loan has a maturity date of February 8, 2026. The interest rates applicable to loans under the Revolving Facility are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.10% to 0.55% per annum or Adjusted Term SOFR or Adjusted Daily Simple SOFR (each as defined in the Second Amended Credit Agreement) plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of the Company and our consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if we obtain certain specified investment grade ratings on our senior long-term unsecured debt). The interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.50% to 1.20% per annum or Adjusted Term SOFR or Adjusted Daily Simple SOFR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and our consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if we obtain certain specified investment grade ratings on our senior long-term unsecured debt). In addition, the Operating Partnership will pay a facility fee on the revolving commitments under the Revolving Facility ranging from 0.15% to 0.35% per annum, based on the debt to asset value ratio of the Company and our consolidated subsidiaries (unless we obtain certain specified investment grade ratings on our senior long-term unsecured debt and the Operating Partnership elects to decrease the applicable margin as described above, in which case the Operating Partnership will pay a facility fee on the revolving commitments ranging from 0.125% to 0.30% per annum based off the credit ratings of our senior long-term unsecured debt). As of March 31, 2024, we were in compliance with all applicable financial covenants under the Second Amended Credit Agreement. See Note 7, Debt, to our condensed consolidated financial statements included in this report for further information about the Second Amended Credit Agreement. Capital Expenditures As of March 31, 2024, we had committed to fund expansions, construction, capital improvements and ESG incentives, which provides eligible triple-net tenants with monetary inducements to make sustainable improvements to our properties, at certain triple-net leased facilities totaling $13.1 million, of which $4.9 million is subject to rent increase at the time of funding. We expect to fund the capital expenditures in the next one to two years. See Note 12, Commitments and Contingencies, to our condensed consolidated financial statements included in this report for further i nformation regarding our obligation to finance certain capital expenditures under our triple-net leases. Dividend Plans We are required to pay dividends in order to maintain our REIT status and we expect to make quarterly dividend payments in cash with the annual dividend amount no less than 90% of our annual REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. See Note 8, Equity, to our condensed consolidated 33 Table of Contents financial statements included in this report for a summary of the cash dividends per share of our common stock declared by our board of directors for the three months ended March 31, 2024 . Critical Accounting Policies and Estimates Our condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information set forth in the Accounting Standards Codification, as published by the Financial Accounting Standards Board. GAAP requires us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base these estimates on our experience and assumptions we believe to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements. We periodically reevaluate our estimates and assumptions, and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Please refer to “Critical Accounting Policies and Estimates” in the “Management’s Discussion and Analysis of Financial Condition and Results of Ope rations” section of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 8, 2024, for further information regarding the critical accounting policies that affect our more significant estimates and judgments used in the preparation of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. There have been no material changes in such critical accounting policies during the three months ended March 31, 2024.