What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-02 compared with 2024-05-02 · 120 added, 94 removed, 253 unchanged (46% of the section changed)

25 unchanged sentences

(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Annual Report on Form 10-K for the year ended December 31, 2023, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (the “SEC”).

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, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (the “SEC”).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.

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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.

As of June 30, 2024, we owned, directly or indirectly through joint ventures, and leased to independent operators 235 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of 25,058 operational beds and units located in 30 states with the highest concentration of properties by rental income located in California and Texas.

As of June 30, 2024, we also had other real estate related investments consisting of two preferred equity investments, 11 real estate secured loans receivable and four mezzanine loans receivable with a carrying value of $433.5 million.

Recent Developments

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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.

Within our SNFs, occupancy levels have continued to improve since their trough in January 2021 and remained stable for the three months ended March 31, 2024 compared to the three months ended December 31, 2023, for most of our tenants.

As a result of impacts experienced by our operators since the onset of the COVID-19 pandemic, the ability of some of our tenants and borrowers 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.

During the three months ended June 30, 2024, we collected 98.3% of contractual rents and interest due from our operators and borrowers excluding cash deposits.

In the event our tenants or borrowers 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 and interest income would be adversely impacted and we may incur additional expenses or obligations and be required to recognize additional impairment charges or fair value adjustments.

Regulatory Updates

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, which was initially required to be effective 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.

On June 22, 2024, the Governor of California announced that the implementation of SB 525 will be delayed until October 15, 2024 at the earliest and no later than January 1, 2025.

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.

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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.

Recent Investments

The following table summarizes our acquisitions from January 1, 2024 through May 2, 2024 (dollars in thousands):

The following table summarizes our acquisitions from January 1, 2024 through August 1, 2024 (dollars in thousands):

Type of Property Purchase Price (1)

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(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):

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

The following table summarizes our other real estate related investments from January 1, 2024 through August 1, 2024 (dollars in thousands):

Investment Type (1)

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Mezzanine loans receivable 52,165 7,119 26 3,202

Preferred equity 52,000 5,734 N/A N/A

Total $ 555,840 $ 53,032 73 7,347

1 unchanged sentence

(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.

For floating rate loans, interest income has been calculated using the benchmark rate at loan origination.

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

Payment on Secured Borrowing

On July 30, 2024, we exercised the call option on the $75.0 million secured borrowing.

See Note 14, Subsequent Events , for additional information.

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”).

On May 6, 2024, 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

In the event we enter into an ATM forward contract to sell shares of common stock pursuant to the ATM Program, we would expect to fully physically settle forward equity sales by delivery of shares of common stock to the forward purchaser and receive cash proceeds upon one or more settlement dates, which are typically a one-year term, at our discretion, prior to the final settlement date, at which time we would expect to receive aggregate net cash proceeds at settlement equal to the number of shares sold on a forward basis multiplied by the relevant forward price per share.

The weighted average forward sale price that we would expect to receive upon physical settlement would be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchaser’s stock borrowing costs and (iii) scheduled dividends through the settlement.

The following tables summarize the ATM Program activity for the three and six months ended June 30, 2024 (in thousands, except per share amounts).

For the Three Months Ended For the Six Months Ended

June 30, 2024

Number of shares 12,145 23,745

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Gross proceeds (1)

(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.

$ 306,534 $ 579,767

(1) Total gross proceeds is before $3.8 million and $7.2 million of commissions paid to the sales agents during the three and six months ended June 30, 2024, respectively, under the ATM Program.

During the three and six months ended June 30, 2023, we executed forward equity sales under the ATM Program with a financial institution acting as a forward purchaser to sell 6,736,089 shares of common stock at a weighted average sales price of $19.71 per share before commissions and offering expenses.

We did not receive any proceeds from the sales of our shares of common stock by the forward sellers.

As of June 30, 2023, we had not settled any portion of these forward equity sales, which were subsequently settled during the second half of 2023.

No forward equity sales were executed or settled under the ATM Program during the three and six months ended June 30, 2024, and there were no outstanding ATM forward contracts that had not settled as of June 30, 2024.

As of June 30, 2024, we had $193.5 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.

During the three months ended June 30, 2024, we determined that a portfolio of eight ALFs met the held for sale criteria and classified these properties as held for sale at June 30, 2024.

During the three and six months ended June 30, 2024, we recognized an impairment charge of $25.7 million and $28.5 million, respectively, related to properties held for sale, which is reported in impairment of real estate investments in the condensed consolidated statements of operations.

Asset Sales and Held for Sale Reclassifications

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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,

The following table summarizes our dispositions for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2024 2023 2024 2023

Number of facilities 1 3 3 4

1 unchanged sentence

Net carrying value 73 11,206 1,108 14,506

Net gain (loss) on sale $ 11 $ (70)

Net gain on sale $ 21 $ 2,028 $ 32 $ 1,958

The following table summarizes our assets held for sale activity for the periods presented (dollars in thousands):

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Impairment of real estate held for sale (28,455) —

March 31, 2024 $ 12,483 13

June 30, 2024 $ 28,753 20

Results of Operations

Three Months Ended March 31, 2024 Compared to Three Months Ended December 31, 2023:

Three Months Ended June 30, 2024 Compared to Three Months Ended March 31, 2024:

Three Months Ended Increase

(Decrease) Percentage

March 31, 2024 December 31, 2023

June 30, 2024 March 31, 2024

(dollars in thousands)

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Gain on sale of real estate, net 21 11 10 91 %

Unrealized (loss) gain on other real estate related investments, net (612) 1,371 (1,983) (145) %

Net income (loss) attributable to noncontrolling interests 4 (2) 6 *

Unrealized loss on other real estate related investments, net (1,877) (612) (1,265) *

Net (loss) income attributable to noncontrolling interests (340) 4 (344) *

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Rental income .

Rental income increased by approximately $29,000 as detailed below:

Rental income increased by approximately $1.9 million as detailed below:

Three Months Ended Increase/(Decrease)

(in thousands) March 31, 2024 December 31, 2023

(in thousands) June 30, 2024 March 31, 2024

Contractual cash rent $ 52,972 $ 51,430 $ 1,542

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Straight-line rent (7) (7) —

Amortization of lease incentive (4) — (4)

Amortization of below market lease intangible 575 575 —

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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.

Total contractual cash rent increased by $1.9 million due to a $2.4 million increase in rental income from real estate investments made after January 1, 2024, a $0.4 million increase in rental rates for our existing tenants, and a $0.4 million

increase in tenant reimbursements, partially offset by a $1.3 million decrease in rental income related to certain tenants on a cash basis method of accounting.

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.

The $3.9 million, or 41%, increase in interest and other income was primarily due to an increase of $2.3 million of interest income on new loan investments made after January 1, 2024, an increase of $1.5 million on money market funds and an increase of $0.2 million related to a loan origination fee received during the three months ended June 30, 2024.

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.

The $0.4 million, or 3%, increase in depreciation and amortization was primarily due to an increase of $0.7 million due to acquisitions and capital improvements made after January 1, 2024, partially offset by a decrease of $0.3 million due to assets becoming fully depreciated after January 1, 2024.

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

Interest expense increased by approximately $0.5 million as detailed below:

Change in interest expense for the three months ended June 30, 2024 compared to the three months ended March 31, 2024

(in thousands)

Interest on the secured borrowing $ 456

Decrease in interest for the Term Loan (as defined below) (5)

Other changes in interest expense 2

Total change to interest expense $ 451

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.

The $0.2 million, or 10%, increase in property taxes was primarily due to a $0.3 million increase related to acquisitions made after January 1, 2024, partially offset by a decrease of $0.1 million due to the sale of one SNF.

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.

During the three months ended June 30, 2024, we recognized impairment charges of $25.7 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.

During the three months ended March 31, 2024, we recognized an impairment charge of $2.7 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.

During the three months ended June 30, 2024 and March 31, 2024, we recognized $0.3 million and $0.7 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:

General and administrative expense decreased by $0.7 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

(in thousands) June 30, 2024 March 31, 2024

Cash compensation $ 1,542 $ 1,765 $ (223)

Incentive compensation 1,500 1,500 —

Share-based compensation 1,406 2,120 (714)

Professional services 628 738 (110)

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Gain on sale of real estate, net.

During the three months ended June 30, 2024, we recorded a $21,000 gain on sale of real estate related to the sale of one SNF.

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.

Unrealized loss on other real estate related investments, net.

During the three months ended June 30, 2024, we recorded a $2.4 million unrealized loss on our secured and mezzanine loans receivable due to an increase in estimated credit spreads, partially offset by unrealized gains of $0.5 million due to an increase in expected cash flows on floating rate loans.

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.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023:

Three Months Ended Increase

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023:

Six Months Ended Increase

(Decrease) Percentage

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

(dollars in thousands)

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General and administrative 12,974 9,779 3,195 33 %

Gain (loss) on sale of real estate, net 11 (70) 81 (116) %

Gain on sale of real estate, net 32 1,958 (1,926) (98) %

Unrealized losses on other real estate related investments, net (2,489) (2,605) 116 (4) %

Net income attributable to noncontrolling interests 4 — 4 *

Net loss attributable to noncontrolling interests (336) — (336) *

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Rental income increased by $15.0 million as detailed below:

Three Months Ended

Six Months Ended

Increase/(Decrease)

(in thousands) March 31, 2024 March 31, 2023

(in thousands) June 30, 2024 June 30, 2023

Contractual cash rent $ 104,402 $ 91,997 $ 12,405

2 unchanged sentences

Straight-line rent (14) (14) —

Amortization of lease incentives (4) — (4)

Amortization of below market lease intangible 1,150 — 1,150

2 unchanged sentences

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.

Total contractual cash rent increased by $13.9 million due to a $9.8 million increase in rental income from real estate investments made after January 1, 2023, a $2.5 million increase in rental rates for our existing tenants, a $1.5 million increase in tenant reimbursements, and a $0.5 million increase in rental income related to certain tenants on a cash basis method of accounting, partially offset by a $0.4 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.

The $14.8 million increase in interest and other income was primarily due to an increase of $8.3 million of interest income on money market funds, an increase of $7.4 million due to the origination of loans receivable after January 1, 2023, an increase of $0.4 million due to originations of other loans, and an increase of $0.2 million related to a loan origination fee received during the six months ended June 30, 2024, partially offset by a decrease of $1.0 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 six months ended June 30, 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

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.

The $2.4 million, or 9%, increase in depreciation and amortization was primarily due to an increase of $4.3 million related to acquisitions and capital improvements made after January 1, 2023, partially offset by a decrease of $1.2 million due to assets becoming fully depreciated after January 1, 2023 and a decrease of $0.7 million due to classifying assets as held for sale after January 1, 2023.

Interest expense.

Interest expense decreased by $4.0 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

Change in interest expense for the six months ended June 30, 2024 compared to the six months ended June 30, 2023

(in thousands)

Decrease in outstanding borrowing amount for the Revolving Facility, net $ (1,932)

Decrease in interest due to reduction in outstanding borrowing amount for the Revolving Facility, net $ (4,990)

Increase in interest rates for the Term Loan 608

Interest on the secured borrowing 456

Other changes in interest expense (34)

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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.

The $1.5 million, or 66%, increase in property taxes was due to a $1.9 million increase related to acquisitions made after January 1, 2023, partially offset by $0.4 million of changes in estimates during the six months ended June 30, 2024 of property taxes paid directly by us as a result of certain assets being designated as held for sale.

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.

During the six months ended June 30, 2024, we recognized impairment charges of $28.5 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.

During the six months ended June 30, 2023, we recognized an impairment charge of $23.3 million related to properties classified as held for sale.

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.

During the six months ended June 30, 2024 and 2023, we recognized $0.9 million and $1.6 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 $3.2 million as detailed below:

Three Months Ended

Six Months Ended

Increase/(Decrease)

(in thousands) March 31, 2024 March 31, 2023

(in thousands) June 30, 2024 June 30, 2023

Share-based compensation $ 3,526 $ 1,860 $ 1,666

5 unchanged sentences

General and administrative expense $ 12,974 $ 9,779 $ 3,195

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.

Gain on sale of real estate, net.

During the six months ended June 30, 2024, we recorded a $32,000 gain on sale of real estate, net related to the sale of two SNFs and one ALF.

During the six months ended June 30, 2023, we recorded a $2.0 million gain on sale of real estate, net related to the sale of three ALFs and one SNF.

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.

During the six months ended June 30, 2024, we recorded a $3.2 million unrealized loss on our secured and mezzanine loans receivable due to an increase in interest rates, partially offset by unrealized gains of $0.7 million due to an increase in expected cash flows on floating rate loans due to an increase in projected forward interest rates.

During the six months ended June 30, 2023, we recorded a $2.8 million unrealized loss on our secured and mezzanine loans receivable and a $0.3 million loss due to a loan origination fee paid, partially offset by a $0.5 million reversal of a previously recognized unrealized loss related to the prepayment of one mezzanine loan receivable.

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.

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.

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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 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 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, available borrowing capacity under the Revolving Facility (as defined below) and availability under the ATM Program 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.

While we may from time to time sell properties as part of our hold / investment strategy on an investment-by-investment basis, we currently do not expect to sell any of our properties to meet liquidity needs.

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.

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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.

On May 6, 2024, 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.

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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.

As of June 30, 2024, we are in compliance with all debt covenants on our outstanding indebtedness.

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,

For the Six Months Ended June 30,

Net cash provided by operating activities $ 101,795 $ 66,986

Net cash used in investing activities (468,637) (176,644)

Net cash provided by (used in) financing activities 231,146 (19,410)

Net increase in cash and cash equivalents 156,725 14,892

Net cash provided by financing activities 567,528 97,625

Net increase (decrease) in cash and cash equivalents 200,686 (12,033)

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

Cash and cash equivalents as of the end of period $ 495,134 $ 1,145

Net cash provided by operating activities increased for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Net cash provided by operating activities increased for the six months ended June 30, 2024 compared to the six months ended June 30, 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).

The net increase of $34.8 million in cash provided by operating activities for the six months ended June 30, 2024 compared to the six months ended June 30, 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 six months ended June 30, 2024 was primarily comprised of $458.5 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, $9.0 million in preferred equity investments and $1.3 million of purchases of equipment, furniture and fixtures and improvements to real estate.

Cash used in investing activities for the six months ended June 30, 2023 was primarily comprised of $200.0 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 $6.4 million of purchases of equipment, furniture and fixtures and improvements to real estate, partially offset by $15.3 million of principal payments received from our other real estate related investments and other loans receivable and $14.5 million in net proceeds from real estate sales.

Our cash flows provided by financing activities for the six months ended June 30, 2024 were primarily comprised of $572.2 million in net proceeds from the issuance of common stock, $75.0 million in proceeds from a secured borrowing and $0.6 million in contributions from noncontrolling interests, partially offset by $77.7 million in dividends paid and a $2.5 million net settlement adjustment on restricted stock.

Our cash flows provided by financing activities for the six months ended June 30, 2023 were primarily comprised of $155.0 million in borrowings under our Revolving Facility (as defined below), partially offset by $55.2 million in dividends paid, a $1.5 million net settlement adjustment on restricted stock and $0.6 million in costs paid for the issuance of common stock.

Material Cash Requirements

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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.

As of June 30, 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.

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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.

As of June 30, 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.

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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.

As of June 30, 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.

Secured Borrowing

On June 3, 2024, KeyBank National Association purchased a $75.0 million undivided participation interest in a $165.0 million mortgage loan from us (see Note 5, Other Real Estate Related and Other Investments , for additional information), which bears interest at a rate of SOFR, with a term SOFR floor of 3.0%, plus 2.5% or 2.25%, depending on the debt yield of the loan, and payable monthly.

As the transaction did not qualify as a sale in accordance with GAAP, we recorded the participation interest as a secured borrowing in the amount of $75.0 million in the condensed consolidated balance sheet.

The participating interest may be prepaid in whole before the maturity date for an exit fee of up to 0.50% of the loan plus unpaid interest.

The participation interest provides for a put option, subject to certain restrictions and a call option for the then-outstanding loan amount plus accrued and unpaid interest.

As of June 30, 2024, the interest rate in effect for the secured borrowing was 7.83%.

On July 30, 2024, we exercised the call option on the $75.0 million secured borrowing.

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.

As of June 30, 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 $14.3 million, of which $6.5 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.

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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 condensed 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 the three months ended March 31, 2024 .

See Note 8, Equity, to our condensed 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 the three months ended June 30, 2024 .

Critical Accounting Policies and Estimates

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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.

There have been no material changes in such critical accounting policies during the six months ended June 30, 2024.

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-Q

Item 2. Management’s Discussion and Analysis