CareTrust REIT, Inc. 10-K

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The discussion below contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those which are discussed in the section titled “Risk Factors.” Also see “Statement Regarding Forward-Looking Statements” preceding Part I. The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements and the notes thereto. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is organized as follows: • Overview • Recent Developments • Results of Operations • Liquidity and Capital Resources • Critical Accounting Estimates • Impact of Inflation 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 December 31, 2024, we owned, directly or indirectly in consolidated joint ventures, and leased to independent operators 258 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”), consisting of 28,088 operational beds and units located in 32 states with the highest concentration of properties by rental income located in California and Texas. As of December 31, 2024, we also had other real estate related investments consisting of three preferred equity investments, 15 real estate secured loans receivable and five mezzanine loans receivable with a carrying value of $795.2 million and one financing receivable with a carrying value of $96.0 million. Recent Developments Market Trends and Uncertainties Recent macroeconomic conditions, particularly inflation (including higher 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 have also increased our costs of capital to finance acquisitions and increased our borrowing costs. We continue to monitor changes in the interest rate environment and the effect of changing rates on our business. 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 elevated operating costs at their facilities. 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 have reached or exceeded occupancy levels prior to the onset of the COVID-19 pandemic, for most of our tenants. As a result of impacts experienced by our operators since the onset of the COVID-19 pandemic and due to recent market trends and uncertainties, 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 and twelve months ended December 31, 2024, we collected 98.8% and 98.5% of contractual rents and interest due from our tenants and borrowers excluding cash deposits, respectively. 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 44 Table of Contents would be adversely impacted and we may incur additional expenses or obligations and be required to recognize additional impairment charges or fair value adjustments. 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 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. After the initial implementation was delayed by the Governor of California in June 2024, SB 525 went into effect on October 16, 2024. The Centers for Medicare and Medicaid Services (“CMS”) issued a final rule on July 31, 2024, updating Medicare payment policies and rates for SNFs for fiscal year 2025. This update includes a 4.2% increase in Medicare Part A payments to SNFs, totaling approximately $1.4 billion. These increases are expected to partially offset some of our tenants’ higher operating costs. Further, in this final rule, CMS expanded its ability to impose penalties on SNFs for health and safety deficiencies/non-compliance by allowing for more per instance and per day civil monetary penalties to be imposed for such health and safety deficiencies/non-compliance, as appropriate. 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. Recent Investments The following table summarizes the Company’s acquisitions from January 1, 2024 through February 12, 2025 (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) $ 732,919 $ 67,924 43 4,632 Multi-service campuses (4) 90,639 7,467 5 683 Assisted living (4) 12,749 1,022 2 102 Total $ 836,307 $ 76,413 50 5,417 (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 facilities held in consolidated joint ventures. See Note 3, Real Estate Investments, Net , and Note 12, Variable Interest Entities for additional information. The following table summarizes our financing receivable investment from January 1, 2024 through February 12, 2025 (dollars in thousands): Investment Type Investment (1) Initial Annual Interest Income (2) Number of Properties Number of Beds/Units (3) Financing receivable $ 95,723 $ 11,560 46 3,820 Total $ 95,723 $ 11,560 46 3,820 (1) Investment does not include transaction costs given they were expensed during the year ended December 31, 2024 as a result of our election to use the fair value option. (2) Represents annualized investment-date interest income. (3) The number of beds/units includes operating beds at the investment date. 45 Table of Contents The following table summarizes other real estate related investments by the Company from January 1, 2024 through February 12, 2025 (dollars in thousands): Investment Type (1) Investment Initial Annual Interest Income (2) Number of Properties Number of Beds/Units (3) Mortgage secured loans receivable $ 496,615 $ 44,210 50 5,172 Mezzanine loans receivable 63,676 8,636 29 3,763 Preferred equity 52,000 5,734 N/A N/A Total $ 612,291 $ 58,580 79 8,935 (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 at loan origination. (3) The number of beds/units includes operating beds at the investment date. Financing Activities On December 18, 2024, we amended and restated our Second Amended Credit Agreement (as defined under “― Liquidity and Capital Resources ― Material Cash Requirements” below). See Note 7, Debt , for additional information. On September 19, 2024, we prepaid in full the $200.0 million aggregate principal amount outstanding under the Term Loan (as defined under “― Liquidity and Capital Resources ― Material Cash Requirements” below). See Note 7, Debt , for additional information. 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). On July 30, 2024, we exercised the call option on the $75.0 million secured borrowing. See Note 7, Debt , for additional information. Public Offering of Common Stock On November 1, 2024, we completed an underwritten public offering of 15.9 million newly issued shares of our common stock at a price of $32.00, resulting in gross proceeds of $507.8 million. The proceeds were used to fund acquisitions during the fourth quarter of 2024. At-The-Market Offering of Common Stock On January 21, 2025, we entered into a new equity distribution agreement to issue and sell, from time to time, up to $750.0 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 $750.0 million “at-the-market” equity offering program (together, with all previous at-the-market equity offering programs, the “Previous ATM Programs” and together with the New ATM Program, the “ATM Programs”). 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, 2024. The following tables summarize the ATM Program activity for the year ended December 31, 2024 (in thousands, except per share amounts). For the Year Ended December 31, 2024 Number of shares 40,986 Average sales price per share $ 26.35 Gross proceeds (1) $ 1,079,852 (1) Total gross proceeds is before $13.4 million of commissions paid to the sales agents and forward adjustments during the year ended December 31, 2024, under the ATM Program. As of February 12, 2025, we had $750.0 million available for future issuances under the ATM Program. 46 Table of Contents Impairment of Real Estate Assets, Assets Held for Sale, and Asset Sales Impairment of Real Estate Assets During the year ended December 31, 2024, we recognized aggregate impairment charges of $42.2 million, of which $18.8 million related to properties held for sale, $9.4 million related to properties held for investment, and $14.0 million related to properties that were sold. 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 year ended December 31, 2024 (dollars in thousands): Year Ended December 31, 2024 Number of facilities 17 Net sales proceeds $ 17,715 Net carrying value 19,923 Net loss on sale $ (2,208) 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 104,447 15 Assets sold (19,923) (17) Impairment of real estate held for sale (37,266) — Assets reclassified to held for investment (5,008) (2) December 31, 2024 $ 57,261 10 Subsequent to December 31, 2024, we sold or disposed of three SNFs, one SNF Campus and one ALF, for which we expect to record an estimated gain on sale of real estate of $3.9 million. 47 Table of Contents Results of Operations Operating Results Our primary business consists of acquiring, developing, financing and owning real property to be leased to third party tenants in the healthcare sector. Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 Year Ended December 31, Increase (Decrease) Percentage Difference 2024 2023 (dollars in thousands) Revenues: Rental income $ 228,261 $ 198,599 $ 29,662 15 % Interest income from financing receivable 1,009 — 1,009 100 % Interest income from other real estate related investments and other income 67,016 19,171 47,845 250 % Expenses: Depreciation and amortization 56,831 51,199 5,632 11 % Interest expense 30,310 40,883 (10,573) (26) % Property taxes 7,838 6,170 1,668 27 % Impairment of real estate investments 42,225 36,301 5,924 16 % Transaction costs 1,326 — 1,326 100 % Provision for loan losses, net 4,900 — 4,900 100 % Property operating expenses 5,714 3,423 2,291 67 % General and administrative 28,923 21,805 7,118 33 % Other income (loss): Loss on extinguishment of debt (657) — (657) 100 % (Loss) gain on sale of real estate, net (2,208) 2,218 (4,426) (200) % Unrealized gain (loss) on other real estate related investments, net 9,045 (6,485) 15,530 (239) % Net loss attributable to noncontrolling interests Net loss attributable to noncontrolling interests (681) (13) (668) * • Not meaningful Rental income. Rental income increased by $29.7 million as detailed below: Year Ended (in thousands) December 31, 2024 December 31, 2023 Increase/(Decrease) Contractual cash rent $ 218,750 $ 192,746 $ 26,004 Tenant reimbursements 6,676 5,498 1,178 Total contractual rent 225,426 198,244 27,182 Straight-line rent (28) (29) 1 Amortization of lease incentives (22) — (22) Amortization of below market leases 2,885 384 2,501 Total rental income $ 228,261 $ 198,599 $ 29,662 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 increased by $27.2 million due to an increase of $25.9 million in contractual cash rent from real estate investments made after 48 Table of Contents January 1, 2023, an increase of $5.1 million from increases in rental rates for our existing tenants, a $1.2 million increase in tenant reimbursements, and an increase of $0.4 million related to transfers of facilities between operators, partially offset by a $4.6 million decrease in rental income related to certain tenants on a cash basis method of accounting and a $0.8 million decrease related to the disposal of real estate. Interest income from financing receivable. During the year ended December 31, 2024, we recorded $1.0 million of interest income related to an investment classified as a financing receivable in December 2024. Interest income from other real estate related investments and other income. The $47.8 million, or 250%, increase in interest and other income is primarily due to an increase of $33.2 million related to the origination of loans receivable subsequent to January 1, 2023, an increase of $16.2 million in interest income on money market funds, 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 year ended December 31, 2024, partially offset by a decrease of $1.5 million related to repayments of loans receivable and a decrease of $0.7 million related to prepayment penalties on one mezzanine loan receivable and one mortgage loan receivable during the year ended December 31, 2023. See above under “Recent Developments” for additional information on the origination of loans receivable. Depreciation and amortization. Depreciation and amortization expense increased $5.6 million, or 11%, for the year ended December 31, 2024 from $56.8 million compared to $51.2 million for the year ended December 31, 2023. The $5.6 million increase in depreciation and amortization was primarily due to an increase of $9.8 million related to new real estate investments and capital improvements made after January 1, 2023, partially offset by a decrease in depreciation of $2.8 million due to assets becoming fully depreciated after January 1, 2023, and a $1.4 million decrease from assets sold and classified as held for sale. Interest expense. Interest expense decreased by $10.6 million as detailed below: Change in interest expense for the year ended December 31, 2024 compared to the year ended December 31, 2023 (in thousands) Decreases to interest expense due to: Decrease in outstanding borrowing amount for the Prior Revolving Facility $ (8,517) Decrease due to prepayment of Term Loan (4,007) Total decrease to interest expense (12,524) Increases to interest expense due to: Issuance of secured borrowing 931 Increase in interest rates for the Term Loan 650 Other changes in interest expense 370 Total increases to interest expense 1,951 Total change in interest expense $ (10,573) Property taxes . Property taxes increased $1.7 million, or 27%, for the year ended December 31, 2024 compared to December 31, 2023. The increase was primarily due to a $2.8 million increase in property taxes due to new real estate investments made after January 1, 2023, partially offset by a decrease of $1.1 million related to properties sold after January 1, 2023. Impairment of real estate investments. During the year ended December 31, 2024, we recognized aggregate impairment charges of $42.2 million, of which $18.8 million related to properties held for sale, $9.4 million related to properties held for investment, and $14.0 million related to properties that were sold. 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. Transaction costs. During the year ended December 31, 2024, we recognized $1.3 million of transaction costs related to the investment in a financing receivable for which we elected the fair value option. No such transaction costs were recorded during the year ended December 31, 2023. 49 Table of Contents Provision for loan losses, net. During the year ended December 31, 2024, we recorded a $4.9 million expected credit loss related to one other loan receivable with a principal balance of $4.9 million that has been placed on non-accrual status. No provision for loan losses was recognized during the year ended December 31, 2023. Property operating expenses. During the years ended December 31, 2024 and 2023, we recognized $5.7 million and $3.4 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 $7.1 million as detailed below: Year Ended (in thousands) December 31, 2024 December 31, 2023 Increase/(Decrease) Incentive compensation $ 9,699 $ 5,350 $ 4,349 Cash compensation 6,474 5,636 838 Share-based compensation 6,130 5,153 977 Other administrative expense 1,400 1,041 359 Professional services 2,785 2,399 386 Taxes and insurance 1,019 908 111 Other expenses 1,416 1,318 98 Total change in general and administrative expense $ 28,923 $ 21,805 $ 7,118 Loss on extinguishment of debt. During the year ended December 31, 2024, we recorded a $0.7 million loss on extinguishment of debt related to the exit fee associated with the call of the secured borrowing and the write-off of deferred financing costs associated with the prepayment of the Term Loan (as defined below). No loss on extinguishment of debt was recognized during the year ended December 31, 2023. (Loss) gain on sale of real estate, net . During the year ended December 31, 2024, we recorded a $2.3 million loss on the sale of real estate related to the sale of 12 SNFs, partially offset by a $0.1 million gain on the sale of real estate related to the sale of four ALFs and one SNF. During the year ended December 31, 2023, we recorded a $2.3 million gain on sale of real estate related to the sale of two ALFs and one SNF, partially offset by a $0.1 million loss on sale of real estate related to the sale of two ALFs. Unrealized gain (loss) on other real estate related investments, net . During the year ended December 31, 2024, we recorded an unrealized gain of $17.8 million due to a decrease in interest rates during the second half of 2024, partially offset by an unrealized loss of $8.8 million due to an increase in interest rates during the first half of 2024. During the year ended December 31, 2023, we recorded an unrealized loss of $8.1 million 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. Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 For discussion related to the results of operations and changes in financial condition for fiscal 2023 compared to fiscal 2022, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2023 Annual Report on Form 10-K, which was filed with the SEC on February 8, 2024. 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; 50 Table of Contents • 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-acquir ed properties, will depend on and will be financed by, in whole or in part, our existing cash, borrowings available to us under the Third Amended Revolving 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 o ur cash balance, available borrowing capacity under the Third Amended Revolving Facility, 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. 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. 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 January 21, 2025, 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. 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. We currently are in compliance with all debt covenants on our outstanding indebtedness. Cash Flows The following table presents selected data from our consolidated statements of cash flows for the years presented: Year Ended December 31, 2024 2023 (dollars in thousands) Net cash provided by operating activities $ 244,251 $ 154,767 Net cash used in investing activities (1,513,683) (267,815) Net cash provided by financing activities 1,188,806 394,318 Net (decrease) increase in cash and cash equivalents (80,626) 281,270 Cash and cash equivalents as of the beginning of period 294,448 13,178 Cash and cash equivalents as of the end of period $ 213,822 $ 294,448 Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 Net cash provided by operating activities for the year ended December 31, 2024 was $244.3 million compared to $154.8 million for the year ended December 31, 2023, an increase of $89.5 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 received on our other real estate related investments. Operating cash outflows consist primarily of interest expense on our 51 Table of Contents borrowings and general and administrative expenses. The net increase of $89.5 million in cash provided by operating activities for the year ended December 31, 2024 is primarily due to an increase in interest income received on our other real estate related investments, rental income received, and a decrease in cash paid for interest expense, partially offset by an increase in cash paid for operating expenses related to assets we plan to sell, have sold, or repurpose and an increase in cash paid for general and administrative expense. Cash used in investing activities for the year ended December 31, 2024 was primarily comprised of $1,472.1 million in acquisitions of real estate, investments in real estate related investments and other loans receivable, and investments in financing receivable, $8.0 million of purchases of equipment, furniture and fixtures and improvements to real estate, and $52.0 million in preferred equity investments, partially offset by $13.9 million in net proceeds from real estate sales and $4.5 million of payments received on real estate related investments and other loans receivable. 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 and $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. Our cash flows provided by financing activities for the year ended December 31, 2024 were primarily comprised of $1,552.9 million of net proceeds from the issuance of common stock, $75.0 million in proceeds from a secured borrowing and $19.8 million in contributions from noncontrolling interests net of distributions, partially offset by a $200.0 million prepayment of the Term Loan, $172.2 million in dividends paid, a $75.0 million payment on the secured borrowing, a $9.2 million payment on extinguishment of debt and deferred financing costs, and a $2.5 million net settlement adjustment on restricted stock. 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 a $1.5 million net settlement adjustment on restricted stock. Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 For discussion related to the cash flows for fiscal 2023 compared to fiscal 2022, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2023 Annual Report on Form 10-K, which was filed with the SEC on February 8, 2024. 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 Amended Credit Facility (as defined below). As of December 31, 2024, we were in compliance with all applicable financial covenants under the indenture governing the Notes. See Note 7, Debt, to our consolidated financial statements included in this report for further information about the Notes. 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 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 “Prior 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 Prior 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. 52 Table of Contents 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. On September 19, 2024 (the “Prepayment Date”), we prepaid all $200.0 million aggregate principal amount of our outstanding Term Loan. The Term Loan was prepaid at the principal amount of the Term Loan, plus accrued and unpaid interest thereon up to, but not including, the Prepayment Date. During the third quarter of 2024, we recorded a loss on extinguishment of debt of $0.3 million related to the write-off of deferred financing costs associated with the prepayment of the Term Loan. On December 18, 2024, we, together with certain of our subsidiaries, entered into a third amended and restated credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender, and the lenders party thereto (as amended from time to time, the “Third Amended Credit Agreement”). The Third Amended Credit Agreement, which amends and restates our Second Amended Credit Agreement provides for an unsecured revolving credit facility (the “Third Amended Revolving Facility”) with revolving commitments in an aggregate principal amount of $1.2 billion, 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. Future borrowings under the Third Amended Revolving Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes. The Third Amended Credit Agreement also provides that, subject to customary conditions, including obtaining lender commitments and pro forma compliance with financial maintenance covenants under the Third Amended Credit Agreement, the Operating Partnership may seek to increase the aggregate principal amount of the revolving commitments and/or establish one or more new tranches of term loans under the Third Amended Credit Facility in an aggregate amount not to exceed $800.0 million. As of December 31, 2024, we had no borrowings outstanding under the Third Amended Revolving Facility. The Third Amended Revolving Facility has a maturity date of February 9, 2029, and includes, at our sole discretion, two, six-month extension options. Prior to the prepayment, the Term Loan had a maturity date of February 8, 2026. The interest rates applicable to loans under the Third Amended Revolving Facility are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.05% to 0.55% per annum or Adjusted Term SOFR or Adjusted Daily Simple SOFR (each as defined in the Third Amended Credit Agreement) plus a margin ranging from 1.05% 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). In addition, the Operating Partnership will pay a facility fee on the revolving commitments under the Third Amended 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 the Company’s senior long-term unsecured debt). As of December 31, 2024, we were in compliance with all applicable financial covenants under the Third Amended Credit Agreement. See Note 7, Debt, to our consolidated financial statements included in this report for further information about the Third Amended Credit Agreement. Capital Expenditures As of December 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 tot aling $6.6 million, of which $5.7 million is s ubject to rent increase at the time of funding. We expect to fund the capital ex penditures in the next one to two years. As of December 31, 2024, we entered into a purchase and sale agreement which provided for an earn-out obligation of up to $10.0 million for one SNF in Virginia which was acquired during 2024. The earn-out is available, contingent on the operator achieving certain thresholds per the agreement, beginning in October 2025 through October 2026. S ee Note 13, Commitments and Contingencies, to our consolidated financial statements included in this report for further information 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 53 Table of Contents regard to the dividends paid deduction and excluding any net capital gains. See Note 8, Equity and Redeemable Noncontrolling Interest, 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 2024, 2023 and 2022. Critical Accounting Estimates 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. 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. 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. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying facilities. The most significant inputs to the undiscounted cash flows include, but are not limited to, historical and projected facility level financial results, a lease coverage ratio, the intended hold period by us, and a terminal capitalization rate. The analysis is also significantly impacted by determining the lowest level of cash flows, which generally would be at the master lease level of cash flows. Provisions for impairment losses related to long-lived assets are recognized when expected future undiscounted cash flows are determined to be less than the carrying values of the assets. 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. Upon designation as held for sale, we write down the excess of the carrying value over the estimated fair value less costs to sell, resulting in an impairment of the real estate investments, if necessary, and cease depreciation. The fair value of the assets held for sale is based on estimated sales prices, which are considered to be Level 3 measurements within the fair value hierarchy. Estimated sales prices are determined using a market approach (comparable sales model), which relies on certain assumptions by management, including: (i) comparable market transactions, (ii) estimated prices per unit, and (iii) binding agreements for sales and non-binding offers to purchase from unrelated third-parties. There are inherent uncertainties in making these assumptions. If circumstances arise that previously were considered unlikely and, as a result, we decide not to sell a real estate investment previously classified as held for sale or otherwise no longer meets the held for sale criteria, the respective assets are reclassified as real estate investments held for use. 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 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, 2024. Revenue Recognition. We recognize lease revenue in accordance with ASC 842, Leases . See Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements for further detail. Our assessment of collectibility of tenant receivables includes a binary assessment of whether or not substantially all of the amounts due under a 54 Table of Contents tenant’s lease agreement are probable of collection. This assessment involves significant judgment by management and considers the operator’s performance and anticipated trends, payment history, and the existence and creditworthiness of guarantees, among other factors, in making this determination. For such leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term, if applicable. For such leases that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectibility determination. Management’s judgement can impact the timing of write-offs and recovery adjustments. We did not materially change the assumptions used in the analysis during the year ended December 31, 2024. Fair Value of Other Real Estate Related Investments. We have elected the fair value option for our mortgage loans receivable, mezzanine loans receivable and financing receivable for which such election is permitted, as provided for under ASC 825, Financial Instruments (“ASC 825”). For financial instruments that are traded in an "active market," the best measure of fair value is the quoted market price. In cases where market-observable data is not available, the data used for the measurement must reflect assumptions that market participants would use in pricing the asset or liability (including adjustments that market participants demand for the risk associated with the unobservable data or the model used to determine fair value). We have concluded to use a present value technique, a discounted cash flow model, to determine fair value. The determination of estimated fair value of our mortgage loans, mezzanine loans and financing receivable requires the use of both macroeconomic and microeconomic assumptions and/or inputs, which are generally based on current market and economic conditions, such as changes in the risk-free or benchmark rate and changes attributable to instrument-specific credit risk (e.g., changes in credit spread associated with the instrument). Changes in market and/or economic conditions could have a significant adverse effect on the estimated fair value of our financial instruments. Changes to assumptions, including assumed benchmark rates and credit spreads, may significantly impact the estimated fair value of our investments. Because of the inherent uncertainty of valuation, the estimated fair value of our financial instruments may differ significantly from the values that would have been used had a ready market for the financial instruments existed, and the differences could be material to our consolidated financial statements. Impact of Inflation Our rental income in future years will be impacted by changes in inflation. Almost all of our triple-net lease agreements, including the Ensign leases, provide for an annual rent escalator based on the percentage change in the Consumer Price Index (but not less than zero), subject to maximum fixed percentages.