UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2021~~2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36181

CareTrust REIT, Inc.

(Exact name of registrant as specified in its charter)


Maryland						46-3999490
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

905 Calle Amanecer, Suite 300, San Clemente, CA						92673
(Address of principal executive offices)						(Zip Code)

(949) 542-3130

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CTRE	~~The Nasdaq~~New York Stock ~~Market LLC~~Exchange
		~~(Nasdaq Global Select Market)~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of August ~~4, 2021,~~3, 2022, there were ~~97,035,096~~97,028,742 shares of common stock outstanding.

Table of Contents

INDEX


PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated ~~Income~~ Statements of Operations	2
	Condensed Consolidated Statements of Equity	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	2930

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 6.	Exhibits	33
	Signatures	34

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CARETRUST REIT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(Unaudited)


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Assets:	Assets:					Assets:
Real estate investments, net	Real estate investments, net	$	1,575,403	$	1,448,099	Real estate investments, net	$	1,390,286	$	1,589,971
Other real estate investments	Other real estate investments	15,150		15,000		Other real estate investments	115,168		15,155
Assets held for sale, net	Assets held for sale, net	0		7,226		Assets held for sale, net	141,767		4,835
Cash and cash equivalents	Cash and cash equivalents	1,771		18,919		Cash and cash equivalents	30,267		19,895
Restricted cash		309,187		0

Accounts and other receivables	Accounts and other receivables	1,786		1,823		Accounts and other receivables	875		2,418
Prepaid expenses and other assets, net	Prepaid expenses and other assets, net	7,570		10,450		Prepaid expenses and other assets, net	6,837		7,512
Deferred financing costs, net	Deferred financing costs, net	1,552		2,042		Deferred financing costs, net	572		1,062
Total assets	Total assets	$	1,912,419	$	1,503,559	Total assets	$	1,685,772	$	1,640,848
Liabilities and Equity:	Liabilities and Equity:					Liabilities and Equity:
Senior unsecured notes payable, net	Senior unsecured notes payable, net	$	690,890	$	296,669	Senior unsecured notes payable, net	$	394,706	$	394,262
Senior unsecured term loan, net	Senior unsecured term loan, net	199,031		198,925		Senior unsecured term loan, net	199,242		199,136
Unsecured revolving credit facility	Unsecured revolving credit facility	50,000		50,000		Unsecured revolving credit facility	205,000		80,000
Accounts payable and accrued liabilities		16,804		19,572
Accounts payable, accrued liabilities and deferred rent liabilities						Accounts payable, accrued liabilities and deferred rent liabilities	21,749		25,408
Dividends payable	Dividends payable	26,085		24,251		Dividends payable	26,807		26,285
Total liabilities	Total liabilities	982,810		589,417		Total liabilities	847,504		725,091
Commitments and contingencies (Note 10)		0		0
Commitments and contingencies (Note 11)						Commitments and contingencies (Note 11)	0		0
Equity:	Equity:					Equity:
Preferred stock, $0.01 par value; 100,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020		0		0
Common stock, $0.01 par value; 500,000,000 shares authorized, 96,296,673 and 95,215,797 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		963		952
Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued and outstanding as of June 30, 2022 and December 31, 2021						Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued and outstanding as of June 30, 2022 and December 31, 2021	—		—
Common stock, $0.01 par value; 500,000,000 shares authorized, 96,605,112 and 96,296,673 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively						Common stock, $0.01 par value; 500,000,000 shares authorized, 96,605,112 and 96,296,673 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	966		963
Additional paid-in capital	Additional paid-in capital	1,189,402		1,164,402		Additional paid-in capital	1,195,282		1,196,839
Cumulative distributions in excess of earnings	Cumulative distributions in excess of earnings	(260,756)		(251,212)		Cumulative distributions in excess of earnings	(357,980)		(282,045)
Total equity	Total equity	929,609		914,142		Total equity	838,268		915,757
Total liabilities and equity	Total liabilities and equity	$	1,912,419	$	1,503,559	Total liabilities and equity	$	1,685,772	$	1,640,848

See accompanying notes to condensed consolidated financial statements.

Table of Contents

CARETRUST REIT, INC.

CONDENSED CONSOLIDATED ~~INCOME~~ STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

For the Three Months Ended June 30, For the Six Months Ended June 30,
2021 2020 2021 2020
Revenues:
Rental income $ 47,744 $ 42,507 $ 92,990 $ 84,971
Independent living facilities 0 615 0 1,240
Interest and other income 514 1,046 1,019 2,297
Total revenues 48,258 44,168 94,009 88,508
Expenses:
Depreciation and amortization 13,843 13,239 27,316 26,399
Interest expense 6,534 5,849 12,296 12,563
Property taxes 766 837 1,462 1,322
Independent living facilities 0 546 0 1,092
General and administrative 5,798 4,762 10,940 8,816
Total expenses 26,941 25,233 52,014 50,192
Other loss:
Loss on sale of real estate 0 0 (192) (56)
Net income $ 21,317 $ 18,935 $ 41,803 $ 38,260
Earnings per common share:
Basic $ 0.22 $ 0.20 $ 0.43 $ 0.40
Diluted $ 0.22 $ 0.20 $ 0.43 $ 0.40
Weighted-average number of common shares:
Basic 96,082 95,208 95,732 95,185
Diluted 96,120 95,208 95,755 95,185


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Revenues:
Rental income	$	46,806	$	47,744	$	92,813	$	92,990


Interest and other income	747		514		1,216		1,019
Total revenues	47,553		48,258		94,029		94,009
Expenses:
Depreciation and amortization	12,559		13,843		26,134		27,316
Interest expense	6,303		6,534		12,045		12,296
Property taxes	1,254		766		2,674		1,462

Impairment of real estate investments	1,701		—		61,384		—

Provision for loan losses, net	—		—		3,844		—
Property operating expenses	89		—		536		—

General and administrative	4,978		5,798		10,193		10,940
Total expenses	26,884		26,941		116,810		52,014
Other income (loss):

Gain (loss) on sale of real estate	—		—		186		(192)


Net income (loss)	$	20,669	$	21,317	$	(22,595)	$	41,803
Earnings (loss) per common share:
Basic	$	0.21	$	0.22	$	(0.24)	$	0.43
Diluted	$	0.21	$	0.22	$	(0.24)	$	0.43
Weighted-average number of common shares:
Basic	96,564		96,082		96,487		95,732
Diluted	96,598		96,120		96,487		95,755

See accompanying notes to condensed consolidated financial statements.

Table of Contents

CARETRUST REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands, except share and per share amounts)

(Unaudited)


		Common Stock			Additional Paid-in Capital		Cumulative Distributions in Excess of Earnings				Total Equity			Common Stock			Additional Paid-in Capital		Cumulative Distributions in Excess of Earnings						Total Equity
		Shares	Amount						Total Equity	Shares				Additional Paid-in Capital	Cumulative Distributions in Excess of Earnings
Balance at January 1, 2021		95,215,797	$	952	$	1,164,402	$	(251,212)			$	914,142
Issuance of common stock, net		702,000	7		16,184		—				16,191
Balance at January 1, 2022													Balance at January 1, 2022				96,296,673		$	963	$	1,196,839	$	(282,045)			$	915,757

Vesting of restricted common stock, net of shares withheld for employee taxes	Vesting of restricted common stock, net of shares withheld for employee taxes	63,265	1		(1,331)		—				(1,330)		Vesting of restricted common stock, net of shares withheld for employee taxes	190,393	2		(2,774)		—						(2,772)
Amortization of stock-based compensation	Amortization of stock-based compensation	—	—		1,585		—				1,585		Amortization of stock-based compensation	—	—		1,521		—						1,521
Common dividends ($0.265 per share)		—	—		—		(25,633)				(25,633)
Net income		—	—		—		20,486				20,486
Balance at March 31, 2021		95,981,062	$	960	$	1,180,840	$	(256,359)			$	925,441
Issuance of common stock, net		288,000	3		6,752		—				6,755
Common dividends ($0.275 per share)													Common dividends ($0.275 per share)	—	—		—		(26,659)						(26,659)
Net loss													Net loss	—	—		—		(43,264)						(43,264)
Balance at March 31, 2022													Balance at March 31, 2022	96,487,066	$	965	$	1,195,586	$	(351,968)					$	844,583

Vesting of restricted common stock, net of shares withheld for employee taxes	Vesting of restricted common stock, net of shares withheld for employee taxes	27,611	—		—		—				—		Vesting of restricted common stock, net of shares withheld for employee taxes	118,046	1		(1,698)		—						(1,697)
Amortization of stock-based compensation	Amortization of stock-based compensation	—	—		1,810		—				1,810		Amortization of stock-based compensation	—	—		1,394		—						1,394
Common dividends ($0.265 per share)		—	—		—		(25,714)				(25,714)
Common dividends ($0.275 per share)													Common dividends ($0.275 per share)	—	—		—		(26,681)						(26,681)
Net income	Net income	—	—		—		21,317				21,317		Net income	—	—		—		20,669						20,669
Balance at June 30, 2021		96,296,673	$	963	$	1,189,402	$	(260,756)			$	929,609
Balance at June 30, 2022													Balance at June 30, 2022	96,605,112	$	966	$	1,195,282	$	(357,980)					$	838,268

See accompanying notes to condensed consolidated financial statements.

Table of Contents

CARETRUST REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands, except share and per share amounts)

(Unaudited)

Common Stock Additional
Paid-in
Capital Cumulative
Distributions in Excess of Earnings Total
Equity
Shares Amount
Balance at January 1, 2020 95,103,270 $ 951 $ 1,162,990 $ (236,350) $ 927,591
Issuance of common stock, net — — (90) — (90)
Vesting of restricted common stock, net of shares withheld for employee taxes 93,061 1 (1,987) — (1,986)
Amortization of stock-based compensation — — 884 — 884
Common dividends ($0.25 per share) — — — (23,931) (23,931)
Net income — — — 19,325 19,325
Balance at March 31, 2020 95,196,331 $ 952 $ 1,161,797 $ (240,956) $ 921,793
Issuance of common stock, net — — (314) — (314)
Vesting of restricted common stock, net of shares withheld for employee taxes 17,749 — — — —
Amortization of stock-based compensation — — 963 — 963
Common dividends ($0.25 per share) — — — (23,931) (23,931)
Net income — — — 18,935 18,935
Balance at June 30, 2020 95,214,080 $ 952 $ 1,162,446 $ (245,952) $ 917,446


	Common Stock			Additional Paid-in Capital		Cumulative Distributions in Excess of Earnings		Total Equity
	Shares	Amount
Balance at January 1, 2021	95,215,797	$	952	$	1,164,402	$	(251,212)	$	914,142
Issuance of common stock, net	702,000	7		16,184		—		16,191
Vesting of restricted common stock, net of shares withheld for employee taxes	63,265	1		(1,331)		—		(1,330)
Amortization of stock-based compensation	—	—		1,585		—		1,585
Common dividends ($0.265 per share)	—	—		—		(25,633)		(25,633)
Net income	—	—		—		20,486		20,486
Balance at March 31, 2021	95,981,062	$	960	$	1,180,840	$	(256,359)	$	925,441
Issuance of common stock, net	288,000	3		6,752		—		6,755
Vesting of restricted common stock	27,611	—		—		—		—
Amortization of stock-based compensation	—	—		1,810		—		1,810
Common dividends ($0.265 per share)	—	—		—		(25,714)		(25,714)
Net income	—	—		—		21,317		21,317
Balance at June 30, 2021	96,296,673	$	963	$	1,189,402	$	(260,756)	$	929,609

See accompanying notes to condensed consolidated financial statements.

Table of Contents

CARETRUST REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


		For the Six Months Ended June 30,					For the Six Months Ended June 30,
		2021		2020			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income		$	41,803	$	38,260
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income						Net (loss) income	$	(22,595)	$	41,803
Adjustments to reconcile net (loss) income to net cash provided by operating activities:						Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization (including below-market ground leases)	Depreciation and amortization (including below-market ground leases)	27,345		26,428		Depreciation and amortization (including below-market ground leases)	26,167		27,345
Amortization of deferred financing costs	Amortization of deferred financing costs	1,012		975		Amortization of deferred financing costs	1,040		1,012

Amortization of stock-based compensation	Amortization of stock-based compensation	3,395		1,847		Amortization of stock-based compensation	2,915		3,395
Straight-line rental income	Straight-line rental income	(20)		(48)		Straight-line rental income	(11)		(20)
Adjustment for collectibility of rental income						Adjustment for collectibility of rental income	977		—
Noncash interest income						Noncash interest income	(13)		—
(Gain) loss on sale of real estate						(Gain) loss on sale of real estate	(186)		192

Loss on sale of real estate		192		56
Interest income distribution from other real estate investment		0		1,346

Impairment of real estate investments						Impairment of real estate investments	61,384		—
Provision for loan losses, net						Provision for loan losses, net	3,844		—
Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:
Accounts and other receivables	Accounts and other receivables	(93)		806		Accounts and other receivables	578		(93)
Prepaid expenses and other assets, net	Prepaid expenses and other assets, net	88		528		Prepaid expenses and other assets, net	(1,724)		88
Accounts payable and accrued liabilities		(3,165)		(2,256)
Accounts payable, accrued liabilities and deferred rent liabilities						Accounts payable, accrued liabilities and deferred rent liabilities	(4,074)		(3,165)
Net cash provided by operating activities	Net cash provided by operating activities	70,557		67,942		Net cash provided by operating activities	68,302		70,557
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Acquisitions of real estate, net of deposits applied	Acquisitions of real estate, net of deposits applied	(147,807)		(25,905)		Acquisitions of real estate, net of deposits applied	(21,915)		(147,807)
Purchases of equipment, furniture and fixtures and improvements to real estate	Purchases of equipment, furniture and fixtures and improvements to real estate	(3,463)		(6,234)		Purchases of equipment, furniture and fixtures and improvements to real estate	(3,628)		(3,463)

Investment in real estate mortgage and other loans receivable		(700)		(13,958)
Principal payments received on real estate mortgage and other loans receivable		113		66,961
Repayment of other real estate investment		0		2,327
Investment in real estate related and other loans receivable						Investment in real estate related and other loans receivable	(102,086)		(700)
Principal payments received on real estate related and other loans receivable						Principal payments received on real estate related and other loans receivable	1,026		113

Net proceeds from sales of real estate	Net proceeds from sales of real estate	6,814		2,134		Net proceeds from sales of real estate	959		6,814
Net cash (used in) provided by investing activities		(145,043)		25,325
Net cash used in investing activities						Net cash used in investing activities	(125,644)		(145,043)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from (costs paid for) the issuance of common stock, net		22,946		(404)
Proceeds from the issuance of common stock, net						Proceeds from the issuance of common stock, net	—		22,946
Proceeds from the issuance of senior unsecured notes payable	Proceeds from the issuance of senior unsecured notes payable	400,000		0		Proceeds from the issuance of senior unsecured notes payable	—		400,000

Borrowings under unsecured revolving credit facility	Borrowings under unsecured revolving credit facility	170,000		15,000		Borrowings under unsecured revolving credit facility	125,000		170,000

Payments on unsecured revolving credit facility	Payments on unsecured revolving credit facility	(170,000)		(75,000)		Payments on unsecured revolving credit facility	—		(170,000)

Payments of deferred financing costs		(5,577)		0
Payments on debt extinguishment and deferred financing costs						Payments on debt extinguishment and deferred financing costs	—		(5,577)
Net-settle adjustment on restricted stock	Net-settle adjustment on restricted stock	(1,331)		(1,986)		Net-settle adjustment on restricted stock	(4,469)		(1,331)
Dividends paid on common stock	Dividends paid on common stock	(49,513)		(45,406)		Dividends paid on common stock	(52,817)		(49,513)
Net cash provided by (used in) financing activities		366,525		(107,796)
Net increase (decrease) in cash, cash equivalents, and restricted cash		292,039		(14,529)
Cash, cash equivalents, and restricted cash as of the beginning of period		18,919		20,327
Cash, cash equivalents, and restricted cash as of the end of period		$	310,958	$	5,798
Net cash provided by financing activities						Net cash provided by financing activities	67,714		366,525
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	10,372		292,039
Cash and cash equivalents as of the beginning of period						Cash and cash equivalents as of the beginning of period	19,895		18,919
Cash and cash equivalents as of the end of period						Cash and cash equivalents as of the end of period	$	30,267	$	310,958
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Interest paid	Interest paid	$	10,664	$	11,586	Interest paid	$	10,987	$	10,664
Supplemental schedule of noncash investing and financing activities:	Supplemental schedule of noncash investing and financing activities:					Supplemental schedule of noncash investing and financing activities:
Increase in dividends payable	Increase in dividends payable	$	1,834	$	2,456	Increase in dividends payable	$	522	$	1,834
Right-of-use asset obtained in exchange for new operating lease obligation		$	0	$	599
Increased in deferred financing costs payable		$	618	$	0

Increase in deferred financing costs payable						Increase in deferred financing costs payable	$	—	$	618

Transfer of pre-acquisition costs to acquired assets	Transfer of pre-acquisition costs to acquired assets	$	358	$	167	Transfer of pre-acquisition costs to acquired assets	$	7	$	358

Sale of real estate settled with note receivable		$	0	$	32,400

See accompanying notes to condensed consolidated financial statements.

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

1. ORGANIZATION

Description of Business—CareTrust REIT, Inc.’s (“CareTrust REIT” or the “Company”) primary business consists of acquiring, financing, developing and owning real property to be leased to third-party tenants in the healthcare sector. As of June 30, ~~2021,~~2022, the Company owned and leased to independent ~~operators, 223~~operators, 228 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of ~~23,301~~ 23,876 operational beds and ~~units~~units located in 2829 states with the highest concentration of properties by rental ~~revenues~~income located in California, Texas, Louisiana, Idaho and Arizona. AsAs of June 30, ~~2021,~~2022, the Company also had other ~~real~~real estate investments consisting of ~~one mezzanine~~1 senior secured loan receivable and 2 mezzanine loans receivable with aan aggregate carrying value of ~~$15.2~~$115.2 million.

COVID-19—The COVID-19 pandemic has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders. Although most of these governmental restrictions have since been lifted or scaled back, resurgences of COVID-19 and the emergence of new variants thereof have resulted in the reimposition of certain restrictions and may lead to other restrictions being reimplemented in response to efforts to reduce the spread of COVID-19. Given the dynamic nature of these circumstances and the related adverse impact these restrictions have had and may continue to have an adverse impact on the economy generally and the Company’s business, results of operations and financial ~~condition may be adversely impacted by the COVID-19 pandemic.~~

condition. The duration and extent of the COVID-19 pandemic’s effect on the Company’s operational and financial performance, and the operational and financial performance of the Company’s tenants, will depend on future developments, which are highly uncertain and cannot be predicted at this time, including the rate of public acceptance and usage of vaccines and the effectiveness of vaccines in limiting the spread of COVID-19 and its variants, resurgences of COVID-19 and, in particular, new and more contagious and/or vaccine resistant variants, actions taken to contain the spread of COVID-19 and how quickly and to what extent normal economic and operating conditions can resume. The adverse impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition could be material.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The accompanying condensed consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all of the disclosures required by GAAP for a complete set of annual audited financial statements. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021. In the opinion of management, all adjustments which are of a normal and recurring nature and considered necessary for a fair presentation of the results of the interim periods presented have been included. The results of operations for the interim periods are not necessarily indicative of results for the full year. All intercompany transactions and account balances within the Company have been eliminated.

~~Restricted Cash~~—The Company presents cash and cash equivalents separately from restricted cash within the Company’s condensed consolidated balance sheets. The Company includes restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the condensed consolidated statements of cash flows. The Company provides a reconciliation between the balance sheets and statements of cash flows, as required when the balance includes more than one line item for cash, cash equivalents, and restricted cash. The Company also provides a disclosure of the nature of the restrictions related to material restricted cash balances.

As of June 30, 2021, the Company had $309.2 million in restricted cash related to the cash deposited with the trustee to pay the redemption price of the $300.0 million aggregate principal amount of 5.25% Senior Notes due 2025 (the “2025 Notes”). The 2025 Notes were redeemed on July 1, 2021. See Note 6, ~~Debt, and Note 12,~~ ~~Subsequent Events,~~ ~~for further detail.~~

~~Table of Contents~~

~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

~~Cash, cash equivalents and restricted cash consisted of the following as of June 30, 2021 and December 31, 2020 (dollars in thousands):~~

June 30, 2021 December 31, 2020
Cash and cash equivalents $ 1,771 $ 18,919
Restricted cash 309,187 0
Cash, cash equivalents and restricted cash $ 310,958 $ 18,919

Recent Accounting Pronouncements—In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), ~~that~~which provides optional relief to applying reference rate reform to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”). For U.S. Dollar LIBOR, the overnight, one-month, three-month, six-month and one-year LIBOR rates will be discontinued in June 2023, while other U.S. Dollar LIBOR rates ~~will be~~were discontinued at the end of 2021. The amendments in this update are effective immediately and may be applied through December 31, ~~2022. The Company is still evaluating the impact~~2022. Adoption of this ASU ~~2020-04 and expects to take full advantage of the offered optional expedients and exceptions, but does~~did not ~~expect the adoption of the standard to~~ have a material impact on the Company’s consolidated financial statements.

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

3. REAL ESTATE INVESTMENTS, NET

The following table summarizes the Company’s real estate properties held for investment ~~in owned properties as of~~at June 30, ~~2021~~2022 and December 31, ~~2020~~2021 (dollars in thousands):


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Land	Land	$	244,740	$	205,356	Land	$	236,682	$	251,787
Buildings and improvements	Buildings and improvements	1,588,961		1,477,849		Buildings and improvements	1,430,948		1,622,019
Integral equipment, furniture and fixtures	Integral equipment, furniture and fixtures	101,441		97,836		Integral equipment, furniture and fixtures	96,128		104,722
Identified intangible assets	Identified intangible assets	2,658		2,352		Identified intangible assets	2,832		1,257

Real estate investments	Real estate investments	1,937,800		1,783,393		Real estate investments	1,766,590		1,979,785
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(362,397)		(335,294)		Accumulated depreciation and amortization	(376,304)		(389,814)

Real estate investments, net	Real estate investments, net	$	1,575,403	$	1,448,099	Real estate investments, net	$	1,390,286	$	1,589,971

As of June 30, ~~2021~~2022, ~~all 223~~ 226 of the Company’s ~~facilities~~228 facilities were leased to various operators under triple-net leases. All of these leases contain annual escalators based on the percentage change in the Consumer Price Index (“CPI”) (but not less than zero), some of which are subject to a cap, or fixed rent escalators.

~~Table~~ NaN of ~~Contents~~the Company’s 228 facilities are non-operational and are leased under a short term lease with an expected term of less than one year as of June 30, 2022. As of June 30, 2022, 27 facilities were held for sale.

~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

As of June 30, ~~2021,~~2022, the Company’s total future contractual minimum rental income for all of its tenants, excluding operating expense reimbursements, ~~were~~was as follows (dollars in thousands):


Year	Year	Amount		Year	Amount
2021 (six months)		$	93,754
2022		188,644
2022 (six months)				2022 (six months)	$	98,897
2023	2023	188,438		2023	197,657
2024	2024	187,091		2024	196,480
2025	2025	187,062		2025	196,452
2026	2026	187,166		2026	196,557
2027				2027	193,547
Thereafter	Thereafter	1,020,115		Thereafter	1,011,035
Total	Total	$	2,052,270	Total	$	2,090,625

Tenant Purchase Options

Certain of the Company’s operators hold purchase options allowing them to acquire properties they currently lease from the Company. A summary of these purchase options is presented below (dollars in thousands):

Asset Type

Properties

Lease Expiration

Next Option Open Date

Option Type(1)

Current Cash Rent(2)

Asset Type

Properties

Lease Expiration

Next Option Open Date

Option Type(1)

Current Cash Rent(2)

ALF

October 2034

1/1/2022

3,282

ALF

(6)

October 2034

1/1/2023

(3)

2,287

SNF

November 2030

1/1/2022

4,800

SNF

November 2030

1/1/2023

(3)

4,944

SNF

March 2029

4/1/2022

B / C(3)

779

SNF

March 2029

4/1/2022

(4)

B / C(5)

805

SNF / Campus

October 2032

1/1/2023

959

SNF / Campus

October 2032

1/1/2023

(3)

1,065

SNF

November 2034

12/1/2024

3,789

SNF

November 2034

12/1/2024

(4)

3,796

ALF

October 2034

1/1/2026

1,559

ALF

(6)

October 2034

1/1/2026

(3)

1,598

(1) Option type includes:

A - Fixed base price plus a specified share on any appreciation.

B - Fixed base price.

C - Fixed capitalization rate on lease revenue.

(2) Based on annualized cash revenue for contracts in place as of June 30, ~~2021.~~2022.

(3) Option window is open for six months.

(4) Option window is open until the expiration of the lease term.

(5) Purchase option reflects two option types.

(6) Includes properties classified as held for sale as of June 30, 2022.

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

Rental Income

The following table summarizes components of the Company’s rental income (dollars in thousands):


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
Rental Income	Rental Income	2021		2020		2021		2020		Rental Income	2022		2021		2022		2021
Contractual rent due(1)	Contractual rent due(1)	$	47,736	$	42,485	$	92,907	$	84,923	Contractual rent due(1)	$	46,801	$	47,736	$	93,779	$	92,907
Straight-line rent	Straight-line rent	8		22		20		48		Straight-line rent	5		8		11		20

Adjustment for collectibility(2)										Adjustment for collectibility(2)	—		—		(977)		—

Lease termination revenue~~(2)~~(3)	Lease termination revenue~~(2)~~(3)	0		0		63		0		Lease termination revenue~~(2)~~(3)	—		—		—		63
Total	Total	$	47,744	$	42,507	$	92,990	$	84,971	Total	$	46,806	$	47,744	$	92,813	$	92,990

(1) Includes initial contractual cash rent and tenant operating expense reimbursements, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by the Company. For tenants on a cash basis, this represents the lesser of the amount that would be recognized on a straight-line basis or cash that has been received. Tenant operating expense reimbursements for the three months ended June 30, 2022 and 2021 were $0.7 million and $0.8 million, respectively. Tenant operating expense reimbursements for the six months ended June 30, 2022 and 2021 were $1.3 million and $1.5 million, respectively.

~~(2)~~(2) During the six months ended June 30, 2022, and in accordance with Accounting Standards Codification 842, the Company evaluated the collectibility of lease payments through maturity and determined that it was not probable that the Company would collect substantially all of the contractual obligations from 4 existing and former operators. As such, the Company reversed $0.7 million of operating expense reimbursements, $0.2 million of contractual rent and $0.1 million of straight-line rent during the six months ended June 30, 2022. If lease payments are subsequently deemed probable of collection, the Company will increase rental income for such recoveries.

(3) During the six months ended June 30, 2021, in connection with the agreement to terminate its lease agreements with ~~affiliates of~~ Metron Integrated Health Systems (“Metron”) and to sell the facilities to a ~~third-party,~~third party, the Company received approximately $0.1 million from Metron affiliates.

Recent Real Estate Acquisitions

The following table summarizes the Company’s acquisitions for the six months ended June 30, ~~2021~~2022 (dollars in thousands):


Type of Property	Type of Property	Purchase Price(1)		Initial Annual Cash Rent			Number of Properties	Number of Beds/Units(2)	Type of Property	Purchase Price(1)		Initial Annual Cash Rent		Number of Properties	Number of Beds/Units(2)
Skilled nursing	Skilled nursing	$	25,457	$	2,295	(4)	2	268	Skilled nursing	$	8,918	$	815	1	135
Multi-service campuses~~(3)~~	Multi-service campuses~~(3)~~	125,708		8,604			4	640	Multi-service campuses~~(3)~~	13,003		1,235		1	130

Total	Total	$	151,165	$	10,899		6	908	Total	$	21,921	$	2,050	2	265

(1) Purchase price includes capitalized acquisition costs.

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

~~(3) Initial~~Lease Amendments

Noble Partial Lease Termination and New Landmark Lease. On June 16, 2022, 1 ALF in Florida was removed from a master lease with affiliates of Noble Senior Services (“Noble”) and the Company amended the applicable Noble master lease to reflect the removal of the ALF. Annual cash rent under the applicable Noble master lease decreased by approximately $0.6 million. In connection with the partial lease termination, the Company entered into a lease with Landmark Recovery of Florida, LLC (“Landmark”) to repurpose the facility as a behavioral health treatment center. Rent under the lease will commence one year following commencement of the lease term or, if earlier, upon Landmark obtaining all licensure, permits, and other required regulatory authorizations with respect to operating the facility. The lease will expire on the 20th anniversary of the rent commencement date and contains 1 10-year renewal option and CPI-based rent escalators.

Pennant Partial Lease Termination and Amended Ensign Master Leases. On April 1, 2022, operations at 2 ALFs in California and Washington operated by affiliates of The Pennant Group, Inc. (“Pennant”) were transferred to affiliates of The Ensign Group, Inc. (“Ensign”). In connection with the transfers, the Company amended the Pennant master lease to reflect the removal of the 2 ALFs and amended 2 existing triple-net master leases with Ensign to include the 2 ALFs. The applicable Ensign master leases have remaining terms of approximately five years and 16 years, respectively, both with 3 five-year renewal options and CPI-based rent escalators. Annual cash rent under each of the two applicable Ensign master leases, as amended, increased by approximately $0.4 million and annual cash rent ~~represents~~under the Pennant master lease, as amended, decreased by $0.8 million.

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

On March 1, 2022, operations at 1 ALF in Arizona operated by affiliates of Pennant were transferred to affiliates of Ensign. In connection with the transfer, the Company amended the Pennant master lease to reflect the removal of the ALF and amended an existing triple-net master lease with Ensign to include the 1 ALF. The applicable Ensign master lease had a remaining term at the date of amendment of approximately 11 years, with 2 five-year renewal options and CPI-based rent escalators. Annual cash rent under the applicable Ensign master lease, as amended, increased by approximately $0.3 million and annual cash rent under the Pennant master lease, as amended, decreased by the same amount.

Amended Eduro Master Lease.On February 1, 2022, the Company acquired 1 SNF. In conjunction with the acquisition, the Company amended its existing triple-net master lease with affiliates of Eduro Healthcare, LLC (“Eduro”) to include the 1 SNF and extended the initial lease term. The Eduro master lease, as amended, had a remaining term at the date of amendment of approximately 12 years, with 2 five-year renewal options and CPI-based rent escalators. Annual cash rent under the Eduro master lease, as amended, increased by approximately $0.8 million.

Amended WLC Master Lease. On March 1, 2022, the Company acquired 1 multi-service campus. In conjunction with the acquisition, the Company amended its existing triple-net master lease with affiliates of WLC Management Firm, LLC (“WLC”) to include the 1 multi-service campus. The WLC master lease, as amended, had a remaining term at the date of amendment of approximately 12 years, with 2 five-year renewal options and CPI-based rent escalators. Annual cash rent under the WLC master lease, as amended, increased by approximately $1.2 million.

4. IMPAIRMENT OF REAL ESTATE INVESTMENTS, ASSETS HELD FOR SALE, NET AND ASSET SALES

In connection with the Company’s ongoing review and monitoring of its investment portfolio and the performance of its tenants, during the first ~~twelve months~~quarter of 2022, the Company determined to pursue the sale of 27 properties and the repurposing of 3 properties representing an aggregate of approximately 9% of contractual cash rent ~~upon commencement~~as of June 30, 2022. As of March 31, 2022, the Company determined that these 27 properties met the criteria to be classified as assets held for sale and, in connection with this determination, the Company recognized an aggregate impairment charge of $59.7 million related to 20 of the ~~Company’s long-term net leases,~~27 held for sale properties, which ~~occurred during~~is reported in impairment of real estate investments in the ~~three~~condensed consolidated statements of operations for the six months ended June 30, ~~2021, upon~~2022. The impairment charge was recognized to write down the ~~tenants’ receipt of licensing approval and increases~~properties’ aggregate carrying value to ~~$9.4 million in the second year with CPI-based annual escalators thereafter.~~

~~(4) Included within initial annual cash rent is approximately $0.8 million of initial rent which is subject~~their aggregate fair value, less estimated costs to ~~a fixed escalator in the first twelve months and increases to $0.9 million in the second year with CPI-based annual escalators thereafter.~~

~~Asset Sales and Assets Held for Sale~~

sell. As of June 30, 2021, there were 0 assets classified as held for sale. During the fourth quarter of 2020, the Company met the criteria to classify 1 skilled nursing facility operated by affiliates of Five Oaks Healthcare, LLC as held for sale. Assets held for sale include2022, the net book value of ~~property~~the 27 properties classified as held for sale was $141.8 million, which is comprised of the real estate assets.

The fair value of the assets held for sale was based on estimated sales prices, which are considered to be Level 3 measurements within the fair value hierarchy. Estimated sales prices were 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) negotiations with prospective buyers. There are inherent uncertainties in making these assumptions. For the Company’s impairment calculations, the Company’s fair value estimates primarily relied on a market approach and utilized prices per unit ranging from $40,000 to $175,000, with a weighted average price per unit of $91,000.

During the second quarter of 2022, the Company ~~plans~~recognized an impairment charge of $1.7 million related to ~~sell within~~1 SNF. The Company wrote down its carrying value of $2.8 million to its estimated fair value of $1.1 million, which is included in real estate investments, net on the ~~next year. If~~Company’s condensed consolidated balance sheets. The fair value of the ~~determination is made that~~asset was based on comparable market transactions. For the Company’s impairment calculation, the Company’s fair value estimates primarily relied on a market approach and utilized prices per unit of $20,000.

During the first quarter of 2022, the Company determined that 1 ALF that was classified as held for sale at December 31, 2021 no longer ~~expects to sell an asset within~~met the ~~next year, the asset is~~held for sale criteria. The Company reclassified this ALF’s carrying value of $4.8 million out of assets held for ~~sale.~~ sale and recorded catch-up depreciation of approximately $0.1 million during the six months ended June 30, 2022.

On February ~~1, 2021,~~22, 2022, the Company closed on the sale of ~~the one skilled nursing facility~~1 SNF, operated by affiliates of Cascadia Healthcare, LLC (“Cascadia”), consisting of 9083 beds located in Washington with a carrying value of ~~$7.2~~$0.8 million, for net sales proceeds of ~~$7.0~~$1.0 million. During the six months ended June 30, ~~2021,~~2022, the Company recorded a ~~loss~~gain of $0.2 million in connection with the sale.

~~On February 14, 2020,~~ There was no rent reduction under the ~~Company closed on the sale of 6 skilled nursing facilities formerly operated by affiliates of Metron. In~~Cascadia master lease in connection with the sale for $36.0 million, the Company received $3.5 million in cash and provided subsidiaries of Cascade Capital Group, LLC (“Cascade”), the purchaser of the properties, with a short-term mortgage loan secured by these properties for $32.4 million. The mortgage loan bore interest at 7.5% and initially had a maturity date of March 31, 2020. In connection with the sale, the Company recognized a loss of approximately $0.1 million during the three months ended March 31, 2020. In April 2020, the mortgage loan was settled with $18.9 million in cash and a new mortgage loan for $13.9 million. In July 2020, the Company received prepayment in full, including accrued interest, for the new $13.9 million mortgage loan. See Note 4, sale.

~~Other Real Estate Investments, Net,~~ ~~for further detail on the mortgage loan.~~

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

~~Lease Amendments~~5. OTHER REAL ESTATE INVESTMENTS AND OTHER LOANS RECEIVABLE

~~Five Oaks Lease Termination~~As of June 30, 2022 and ~~Amended Ensign Master Lease.~~ ~~On June 1,~~December 31, 2021, operating affiliates of The Ensign Group, Inc. (“Ensign”) acquired certain operations and assets of Five Oaks Healthcare, LLC (“Five Oaks”) under an agreement with Five Oaks. The agreement granted Ensign the ~~right to occupy and operate 4~~Company’s other real estate investments consisted of the following (dollars in thousands):


								As of June 30, 2022
Investment	Facility Count and Type	Principal Balance as of June 30, 2022		Book Value as of June 30, 2022		Book Value as of December 31, 2021		Weighted Average Contractual Interest Rate		Maturity Date
Senior secured loan receivable	18 SNF/Campus	$	75,000	$	75,018	$	—	8.5	%	6/30/2027
Mezzanine loan receivable	9 SNF	15,000		15,150		15,155		12.0	%	11/30/2025
Mezzanine loan receivable	18 SNF/Campus	25,000		25,000		—		11.0	%	6/30/2032
		$	115,000	$	115,168	$	15,155

The following table summarizes the Company’s other real estate investments activity for the six months ended June 30, 2022 and 2021 (dollars in thousands):


	Six Months Ended June 30,
	2022		2021
Origination of other real estate investments	$	100,000	$	—
Accrued interest, net	13		150
Net increase in other real estate investments	$	100,013	$	150

In June 2022, the Company extended a $75.0 million term loan to a skilled nursing ~~facilities~~real estate owner as part of a larger, multi-tranche, senior secured term loan facility. The senior secured term loan was structured with an “A” tranche, a “B” tranche, and a “C” tranche (with the “C” tranche being the most subordinate). The Company’s $75.0 million term loan constituted the entirety of the “C” tranche with its payments subordinated accordingly. The senior secured term loan facility is secured by an 18-facility skilled nursing portfolio in ~~Washington that were previously being~~the Mid-Atlantic region, to be operated by Five Oaks. In conjunction with consenting to the transfer, the Company terminated the existing Five Oaks master lease, and amended and extended the term of an existing triple-net master lease with Ensign to include the 4a large, regional skilled nursing facilities. The Ensign lease, as amended, has a remaining term of approximately 15 years, with 3 five-year renewal options and CPI-based rent escalators. Annual cash rent under the terminated Five Oaks master lease was approximately $2.6 million, and annual cash rent under the amended Ensign lease increased by the same amount.

~~Twenty/20 Lease Termination and New Noble Master Lease. On December 1, 2020, 5 assisted living facilities in Virginia operated by Twenty/20 Management, Inc. (“Twenty/20”) were transferred to affiliates of Noble VA Holdings, LLC (“Noble”).~~operator. In connection with the ~~transfer,~~senior secured term loan facility and the borrower’s acquisition of the skilled nursing portfolio, the Company ~~entered into~~also extended to the borrower group a ~~new triple-net master lease with Noble.~~$25.0 million mezzanine loan. The ~~new lease has~~“C” tranche of the senior secured term loan bears interest at 8.5%, less a ~~remaining initial term~~servicing fee equal to the positive difference, if any, between the lesser of ~~approximately 14 years, with 2 five-year renewal options~~the contractual interest payment and ~~CPI-based rent escalators. Initial annual cash rent under~~actual payment of interest made by the ~~new lease is approximately $3.2 million~~.

~~4. OTHER REAL ESTATE INVESTMENTS, NET~~

~~Mezzanine Loan Receivable—In November 2020, the Company provided Next VA Star Realty Holdings, LLC~~borrower and a ~~mezzanine loan for 9 skilled nursing facilities secured by membership interests~~hypothetical interest payment at a rate of 8.25%, resulting in ~~affiliates of Next VA Star Realty Holdings, LLC for approximately $15.0 million, at~~ an ~~annual~~effective interest rate of ~~12%~~8.375%. The “C” tranche term loan ~~requires monthly interest payments,~~ is set to mature on ~~November~~June 30, ~~2025,~~2027 and may (subject to certain restrictions) be prepaid in whole or in part before the maturity date ~~if paid in full and~~ for an exit fee ranging from 1% to 3% of the loan plus unpaid interest payments ~~equal~~through the end of the month of prepayment; provided, however, that no exit fee is payable in connection with portions of the loan being refinanced pursuant to ~~24 months (less the amount of monthly interest payments made~~a loan (or loans) provided by or insured by the United States Department of Housing and Urban Development, Federal Housing Administration, or a similar governmental authority. The mezzanine loan bears interest at 11% and is secured by a pledge of membership interests in an up-tier affiliate of the borrower group. The mezzanine loan is set to mature on June 30, 2032, and may (subject to certain restrictions) be prepaid in whole or in part before the maturity date, commencing on June 30, 2029, for an exit fee ranging from 1% to 3% of the loan plus unpaid interest payments through the date of ~~prepayment). During the three~~prepayment. The “C” tranche term loan and ~~six months ended June 30, 2021, the Company recognized $0.4 million and $0.9 million, respectively, of interest income related to its~~ mezzanine ~~loan.~~

~~Mortgage Loans Receivable��In July 2019, the Company provided MCRC, LLC a real estate~~ loan ~~secured by a 176-bed skilled nursing facility in Manteca, California for $3.0 million, which bore a fixed interest rate of 8% and required~~both require monthly interest payments. ~~Concurrently,~~The Company elected the ~~Company entered into a purchase~~fair value option for both the “C” tranche term loan and ~~sale agreement~~the mezzanine loan. The fair value option is elected on an instrument by instrument basis and must be applied to ~~purchase~~an entire instrument and is irrevocable once elected. The Company’s primary purpose in electing the ~~Manteca facility from MCRC, LLC~~fair value option for ~~approximately $16.4 million subject~~these instruments was to ~~normal diligence and other contingencies. The loan documents provided for a maturity date~~align with management’s view of the ~~earlier to occur~~underlying economics of the ~~closing date of~~loans and the ~~acquisition, or~~ ~~five~~ ~~business days following the termination of the purchase and sale agreement. MCRC, LLC breached its obligation to sell the Manteca facility to the Company on the terms outlined~~manner in ~~the purchase and sale agreement and to repay the real estate~~which they are managed.

See Note 12, Subsequent Events for information regarding a $22.3 million “B” tranche term loan upon its stated maturity. As a result, the Company commenced non-judicial foreclosure proceedings with respect to the Manteca facility. In January 2020, the borrower further collateralized the loan by causing one of its affiliates to grant the Company a deed of trust in the real estate and improvements that constitute Palm Gardens Assisted Living Facility in Yolo County, California. During the three months ended June 30, 2020, payment for the loan principal and accrued interest, including default interest, as well as reimbursement for attorney’s fees and certain other costs of suit, were received in fullextended by the Company ~~and, as~~to a ~~result, the Company withdrew all foreclosure-related proceedings related to the Manteca facility loan.~~borrower in August 2022.

In September 2019, the Company provided affiliates of CommuniCare Family of Companies (“CommuniCare”) a $26.5 million loan secured by mortgages on the 3 skilled nursing facilities sold to CommuniCare, which bore a fixed interest rate of 10%. The mortgage loan, which required CommuniCare to make monthly interest payments, was set to mature on February 29, 2020 and included an option to be prepaid before the maturity date. In January 2020, the Company amended the mortgage loan’s maturity date to April 30, 2020. In April 2020, the Company amended the mortgage loan’s maturity date to May 29, 2020. During the three months ended June 30, 2020, payment for the mortgage loan and accrued interest was received in full by the Company.

In February 2020, the Company provided subsidiaries of Cascade a $32.4 million loan secured by mortgages on the 6 skilled nursing facilities formerly operated by affiliates of Metron and sold to Cascade in February 2020, as discussed in Note 3, ~~Real Estate Investments, Net.~~ The mortgage loan bore interest at 7.5% and initially had a maturity date of March 31, 2020. In April 2020, the mortgage loan was settled in connection with a new mortgage loan transaction between the Company and a third-party institutional lender as co-lenders, pursuant to which the Company received $18.9 million in cash and a new mortgage loan for $13.9 million. The new mortgage loan with Cascade was secured by the same 6 skilled nursing facilities purchased by Cascade and was for a combined principal amount of $33.9 million, with the Company’s $13.9 million portion of the indebtedness initially bearing interest at a variable rate equal to LIBOR plus 4.00%, subject to a LIBOR floor of 1.75%. The

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

~~new mortgage loan had a maturity date~~

As of ~~April 29,~~June 30, 2022 and December 31, 2021, the Company’s other loans receivable, included in prepaid expenses and other assets, net on the Company’s condensed consolidated balance sheets, consisted of the following (dollars in thousands):


							As of June 30, 2022
Investment	Principal Balance as of June 30, 2022		Book Value as of June 30, 2022		Book Value as of December 31, 2021		Weighted Average Contractual Interest Rate		Maturity Date
Other loans receivable	$	5,377	$	5,383	$	3,161	8.0	%	9/1/2023 - 12/31/2023
Expected credit loss	(4,594)		(4,594)		—
Total	$	783	$	789	$	3,161

The following table summarizes the Company’s other loans receivable activity for the six months ended June 30, 2022 and ~~included~~2021 (dollars in thousands):


	Six Months Ended June 30,
	2022		2021
Origination of loans receivable	$	2,500	$	700
Principal payments	(276)		(113)
Accrued interest	(2)		5
Expected credit loss	(5,344)		—
Loan loss recovery	750		—
Net change in other loans receivable	$	(2,372)	$	592

Expected credit losses and recoveries are recorded in provision for loan losses, net in the condensed consolidated statements of operations. During the six months ended June 30, 2022, the Company recorded a $4.6 million expected credit loss related to 2 ~~six-month extension options. In July 2020, prepayment for the mortgage~~other loans receivable that were placed on non-accrual status, including an unfunded loan commitment of ~~$13.9~~$0.4 million, ~~and accrued interest was received in full by the Company.~~

net of a loan loss recovery of $0.8 million related to a loan previously written-off. As of ~~June 30,~~December 31, 2021, the Company had ~~0 mortgage~~no expected credit loss and did not consider any loan ~~receivables.~~receivable investments to be impaired.

~~During both~~The following table summarizes the interest and other income recognized from the Company’s loans receivable and other investments during the three and six months ended June 30, 2022 and 2021 the Company recognized 0 interest income related to mortgage loans. During the three and six months ended June 30, 2020, the Company recognized $0.9 million and $2.0 million of interest income, respectively, related to its mortgage loans. During the three and six months ended June 30, 2021, the Company recognized less than $0.1 million and $0.1 million of interest income, respectively, related to its other loans receivable. During the three and six months ended June 30, 2020, the Company recognized $0.1 million and $0.2 million of interest income, respectively, related to its other loans receivable.(dollars in thousands):

~~Preferred Equity Investments~~—In September 2016, the Company completed a $2.3 million preferred equity investment with an affiliate of Cascadia Development, LLC. The preferred equity investment yielded a return equal to prime plus 9.5% but in no event less than 12.0% calculated on a quarterly basis on the outstanding carrying value of the investment. The investment was used to develop a 99-bed skilled nursing facility in Boise, Idaho. In connection with its investment, the Company obtained an option to purchase the development at a fixed-formula price upon stabilization, with an initial lease yield of at least 9.0%. The project was completed in the first quarter of 2018 and began lease-up during the second quarter of 2018. In January 2020, the Company purchased the skilled nursing facility for approximately $18.7 million, inclusive of transaction costs. The Company paid $15.0 million after receiving back its initial investment of $2.3 million and cumulative contractual preferred return through January 17, 2020, the acquisition date, of $1.4 million, of which less than $0.1 million was recognized as interest income during the six months ended June 30, 2020. The Company did not recognize any interest income during the three months ended June 30, 2020 or the three and six months ended June 30, 2021 related to preferred equity investments. As of June 30, 2021, the Company had 0 preferred equity investments.


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
Investment	2022		2021		2022		2021
Senior secured loan receivable	$	17	$	—	$	17	$	—
Mezzanine loans receivable	713		455		1,163		905


Other	17		59		36		114
Total	$	747	$	514	$	1,216	$	1,019

5.6. FAIR VALUE MEASUREMENTS

The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. GAAP guidance defines three levels of inputs that may be used to measure fair value:

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3 – Unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and, depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. Changes in the type of inputs may result in a reclassification for certain assets. The Company does not expect that changes in classifications between levels will be frequent.

~~Table of Contents~~

~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

Items Measured at Fair Value on a Recurring Basis

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, aggregated by the level in the fair value hierarchy within which those instruments fall (dollars in thousands):


		Level 1		Level 2		Level 3		Balance as of June 30, 2021			Level 1		Level 2		Level 3		Balance as of June 30, 2022
Assets:	Assets:									Assets:
Mezzanine loan receivable		$	0	$	0	$	15,150	$	15,150
Senior secured loan receivable										Senior secured loan receivable	$	—	$	—	$	75,018	$	75,018
Mezzanine loans receivable										Mezzanine loans receivable	—		—		40,150		40,150


		Level 1		Level 2		Level 3		Balance as of December 31, 2020			Level 1		Level 2		Level 3		Balance as of December 31, 2021
Assets:	Assets:									Assets:
Mezzanine loan receivable	Mezzanine loan receivable	$	0	$	0	$	15,000	$	15,000	Mezzanine loan receivable	$	—	$	—	$	15,155	$	15,155

The following table details the Company’s assets measured at fair value on a recurring basis using Level 3 inputs (dollars in thousands):


	Investments in Senior Secured Loan		Investments in Mezzanine Loans
Balance at December 31, 2021	$	—	$	15,155
Loan originations	75,000		25,000
Accrued interest, net	18		(5)
Balance as of June 30, 2022	$	75,018	$	40,150

~~Mezzanine loan receivable:~~Senior secured and mezzanine loans receivables: The fair value of the senior secured and mezzanine ~~loan receivable was~~loans receivables were estimated using an internal valuation model that considered the expected future cash flows of the investment, the underlying collateral value, market interest rates and other credit enhancements. As such, the Company classifies ~~the~~each instrument as Level 3 due to the significant unobservable inputs used in determining market interest rates for investments with similar terms. As of June 30, 2022, the fair values of the senior secured loan receivable and the mezzanine loan receivable originated in June 2022 are not sensitive to market interest rates due to the recent issuance of the loans at market interest rates. Future changes in market interest rates could materially impact the estimated discounted ~~cash~~cash flows. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company did 0tnot have any loans measured at fair value that were 90 days or more past due.

For the three and six months ended June 30, ~~2021,~~2022, there were no classification changes in assets and liabilities with Level 3 inputs in the fair value hierarchy.

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

Items Disclosed at Fair Value

Considerable judgment is necessary to estimate the fair value disclosure of financial instruments. The estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. A summary of the face ~~values,~~value, carrying ~~amounts~~amount and fair ~~values~~value of ~~the Company’s financial instruments as of June 30, 2021 and December 31, 2020 using Level 2 inputs for~~ the Notes (as defined in Note 6,7, Debt, below), as of June 30, 2022 and December 31, 2021 using Level 2 inputs is as follows (dollars in thousands):

June 30, 2021 December 31, 2020
Level Face
Value Carrying
Amount Fair
Value Face
Value Carrying
Amount Fair
Value
Financial liabilities:
2028 Senior unsecured notes payable 2 $ 400,000 $ 393,842 $ 410,000 $ 0 $ 0 $ 0
2025 Senior unsecured notes payable(1)
2 300,000 297,048 307,875 300,000 296,669 311,430

~~(1) The $300.0 million aggregate principal amount of the 2025 Notes were redeemed on July 1, 2021. See Note 12,~~ ~~Subsequent Events,~~ ~~for further detail.~~


		June 30, 2022						December 31, 2021
	Level	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value



Financial liabilities:
Senior unsecured notes payable	2	$	400,000	$	394,706	$	336,000	$	400,000	$	394,262	$	410,500

Cash and cash equivalents, ~~restricted cash,~~ accounts and other receivables, ~~other loans receivable, and~~ accounts payable, and accrued liabilities: ~~These balances~~The carrying values for these instruments approximate their fair values due to the short-term nature of these instruments.

Senior unsecured notes payable: The fair value of the Notes was determined using third-party quotes derived from orderly trades.

Unsecured revolving credit facility and senior unsecured term loan: The fair values approximate their carrying values as the interest rates are variable and approximate prevailing market interest rates for similar debt arrangements.

~~Table of Contents~~

~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

6.7. DEBT

The following table summarizes the balance of the Company’s indebtedness as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 (dollars in thousands):


		June 30, 2021						December 31, 2020							June 30, 2022						December 31, 2021
		Principal Amount		Deferred Loan Fees		Carrying Value		Principal Amount		Deferred Loan Fees		Carrying Value			Principal Amount		Deferred Loan Fees		Carrying Value		Principal Amount		Deferred Loan Fees		Carrying Value
2028 Senior unsecured notes payable		$	400,000	$	(6,158)	$	393,842	$	0	$	0	$	0
2025 Senior unsecured notes payable		300,000		(2,952)		297,048		300,000		(3,331)		296,669
Senior unsecured notes payable														Senior unsecured notes payable	$	400,000	$	(5,294)	$	394,706	$	400,000	$	(5,738)	$	394,262
Senior unsecured term loan	Senior unsecured term loan	200,000		(969)		199,031		200,000		(1,075)		198,925		Senior unsecured term loan	200,000		(758)		199,242		200,000		(864)		199,136
Unsecured revolving credit facility	Unsecured revolving credit facility	50,000		0		50,000		50,000		0		50,000		Unsecured revolving credit facility	205,000		—		205,000		80,000		—		80,000
		$	950,000	$	(10,079)	$	939,921	$	550,000	$	(4,406)	$	545,594		$	805,000	$	(6,052)	$	798,948	$	680,000	$	(6,602)	$	673,398

Senior Unsecured Notes Payable

~~2025~~2028 Senior Notes. On ~~May 10, 2017,~~June 17, 2021, the Company’s 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 an underwritten public offering of $300.0 million aggregate principal amount of 5.25% Senior Notes due 2025. The 2025 Notes were issued at par, resulting in gross proceeds of $300.0 million and net proceeds of approximately $294.0 million after deducting underwriting fees and other offering expenses. The 2025 Notes were scheduled to mature on June 1, 2025 and bore interest at a rate of 5.25% per year. Interest on the 2025 Notes was payable on June 1 and December 1 of each year. On July 1, 2021, the Issuers redeemed all $300.0 million aggregate principal amount of the 2025 Notes. See Note 12, ~~Subsequent Events,~~ ~~for additional information.~~

~~2028 Senior Notes.~~ ~~On June 17, 2021, the Issuers~~ completed a private offering of $400.0 million aggregate principal amount of 3.875% Senior Notes due 2028 (the “Notes”) to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended. The Notes were issued at par, resulting in gross proceeds of $400.0 million and net proceeds of approximately $393.8 million after deducting underwriting fees and other offering expenses. 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 Issuers may redeem some or all of the Notes at any time prior to March 30, 2028 at a price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest on the Notes, if any, to, but not including, the redemption date, plus a “make-whole” premium. At any time on or after March 30, 2028, the Issuers may redeem some or all of the Notes at a redemption price equal to 100% of the principal amount of the Notes redeemed plus accrued interest on the Notes, if any, to, but not including, the redemption date. In addition, at any time on or prior to June 30, 2024, up to 40% of the aggregate principal amount of the Notes may be redeemed with the net proceeds of certain equity offerings at a redemption price of 103.875% of the aggregate principal amount of Notes to be redeemed plus accrued and unpaid interest on the Notes, if any, to, but not including, the redemption date. If certain changes of control of the Company occur, the Issuers will be required to make an offer to holders of the Notes to repurchase their Notes at a price of 101% of their principal amount plus accrued and unpaid interest, if any, to, but not including, the repurchase date.

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

The obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by the Company and all of CareTrust’s existing and future subsidiaries (other than the Issuers) that guarantee obligations under the Amended Credit Facility (as defined below); provided, however, that such guarantees are subject to automatic release under certain customary circumstances.

The indenture governing the Notes contains customary covenants such as limiting the ability of the Company and its restricted subsidiaries to: incur or guarantee additional indebtedness; incur or guarantee secured indebtedness; pay dividends or distributions on, or redeem or repurchase, capital stock; make certain investments or other restricted payments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their assets; and create restrictions on the ability of the Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers. The indenture governing the Notes also requires the Company and its restricted subsidiaries to maintain a specified ratio of unencumbered

~~Table of Contents~~

~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

assets to unsecured indebtedness. These covenants are subject to a number of important and significant limitations, qualifications and exceptions. The indenture governing the Notes also contains customary events of default.

As of June 30, ~~2021,~~2022, the Company was in compliance with all applicable financial covenants under ~~the indenture governing the 2025 Notes and~~ the indenture governing the Notes.

Unsecured Revolving Credit Facility and Term Loan

On February 8, 2019, the Operating Partnership, as the borrower, the Company, as guarantor, CareTrust GP, LLC, and certain of the Operating Partnership’s wholly owned subsidiaries entered into an 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 (the “Amended Credit Agreement”). The Amended Credit Agreement, which amended and restated the Company’s prior credit agreement, provides for: (i) an unsecured revolving credit facility (the “Revolving Facility”) with revolving commitments in an aggregate principal amount of $600.0 million, including a letter of credit subfacility for 10% of the then available revolving commitments and a swingline loan subfacility for 10% of the then available revolving commitments and (ii) an unsecured term loan credit facility (the “Term Loan” and, together with the Revolving Facility, the “Amended Credit Facility”) in an aggregate principal amount of $200.0 million. Borrowing availability under the Revolving Facility is subject to no default or event of default under the Amended Credit Agreement having occurred at the time of borrowing. ~~The proceeds of the Term Loan were used, in part, to repay in full all outstanding borrowings under the Company’s prior term loan and revolving facility under its prior credit agreement.~~ Future borrowings under the Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes.

The interest rates applicable to loans under the Revolving Facility are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.10% to 0.55% per annum or LIBOR plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). The interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.50% to 1.20% per annum or LIBOR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). In addition, the Operating Partnership will pay a facility fee on the revolving commitments under the Revolving Facility ranging from 0.15% to 0.35% per annum, based on the debt to asset value ratio of the Company and its consolidated subsidiaries (unless the Company obtains certain specified investment grade ratings on its 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 on the credit ratings of the Company’s senior long-term unsecured debt). As of June 30, ~~2021,~~2022, the Operating Partnership had ~~$200.0~~$200.0 million of borrowings outstanding under the Term Loan and $~~50.0~~205.0 million ~~of borrowings~~ outstanding under the Revolving Facility. ~~Subsequent to June 30, 2021, the Operating Partnership borrowed an additional $50.0 million under the Revolving Facility. See Note 12,~~ ~~Subsequent Events~~ ~~for additional information.~~

The Revolving Facility has a maturity date of February 8, 2023, and includes, at the sole discretion of the Operating Partnership, 2, six-month extension options. The Term Loan has a maturity date of February 8, 2026.

The Amended Credit Facility is guaranteed, jointly and severally, by the Company and its wholly owned subsidiaries that are party to the Amended Credit Agreement (other than the Operating Partnership). The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend organizational documents and pay certain dividends and other restricted

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

payments. The Amended Credit Agreement requires the Company to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum debt to asset value ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating income ratio, a maximum secured debt to asset value ratio, a maximum secured recourse debt to asset value ratio, a maximum unsecured debt to unencumbered properties asset value ratio, a minimum unsecured interest coverage ratio and a minimum rent coverage ratio. The Amended Credit Agreement also contains certain customary events of default, including the failure to make timely payments under the Amended Credit Facility or other material indebtedness, the failure to satisfy certain covenants (including the financial maintenance covenants), the occurrence of change of control and specified events of bankruptcy and insolvency.

~~Table of Contents~~

~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

As of June 30, ~~2021,~~2022, the Company was in compliance with all applicable financial covenants under the Amended Credit Agreement.

7.8. EQUITY

Common Stock

At-The-Market Offering—On March 10, 2020, the Company 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 its common stock through an “at-the-market” equity offering program (the “ATM Program”). In connection with the entry into the equity distribution agreement and the commencement of the ATM Program, the Company’s “at-the-market” equity offering program pursuant to the Company’s prior equity distribution agreement, dated as of March 4, 2019, was terminated (the “Prior ATM Program”).

There was ~~0 Prior ATM Program or~~no ATM Program activity for the three and six months ended June 30, ~~2020.~~2022. The following table summarizes the ATM Program activity for the three and six months ended June 30, 2021 (in thousands, except per share amounts).


	For the Three Months Ended		For the Six Months Ended
	June 30, 2021		June 30, 2021
Number of shares	288		990
Average sales price per share	$	24.05	$	23.74
Gross proceeds(1)	$	6,926	$	23,505

(1) Total gross proceeds is before $0.1 million and $0.3 million of commissions paid to the sales agents during the three and six months ended June 30, 2021, respectively, under the ATM Program.

As of June 30, ~~2021,~~2022, the Company had $476.5 million available for future issuances under the ATM Program.

Share Repurchase Program—On March 20, 2020, the Company’s Board of Directors authorized a share repurchase program ~~to repurchase~~for up to $150.0 million of outstanding shares of the Company’s common stock (the “Repurchase Program”). Repurchases under the Repurchase Program, which expires on March 31, 2023, may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated share repurchase transactions, or other methods of acquiring shares, in each case subject to market conditions and at such times as shall be permitted by applicable securities laws and determined by management. Repurchases under the Repurchase Program may also be made pursuant to a plan adopted under Rule 10b5-1 promulgated under the Securities Exchange ~~Act.~~Act of 1934, as amended. The Company expects to finance any share repurchases under the Repurchase Program using available cash and may also use short-term borrowings under the Revolving Facility. Through June 30, 2022, t~~The~~he Company ~~did 0t repurchase~~has not repurchased any shares of common stock under the Repurchase ~~Program during the three and six months ended~~Program. As of June 30, ~~2021 and 2020~~2022., $150.0 million remained available under the Repurchase Program. The Repurchase Program may be modified, discontinued or suspended at any time.

Dividends on Common Stock—The following table summarizes the cash dividends ~~on the Company’s~~per share of common stock declared by the Company’s Board of Directors for the first six months of ~~2021~~2022 (dollars in thousands, except per share amounts):

For the Three Months Ended

March 31, 2021

June 30, 2021

March 31, 2022

June 30, 2022

Dividends declared per share

0.265

Dividends declared per share

0.275

Dividends payment date

April 15, 2021

July 15, 2021

Dividends payment date

April 15, 2022

July 15, 2022

Dividends payable as of record date(1)

25,633

25,714

Dividends payable as of record date(1)

26,691

26,683

Dividends record date

March 31, 2021

June 30, 2021

Dividends record date

March 31, 2022

June 30, 2022

(1) Dividends payable includes dividends on performance stock awards that will be paid if and when the shares subject to such awards vest.

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

9. STOCK-BASED COMPENSATION

All stock-based awards are subject to the terms of the CareTrust REIT, Inc. and CTR Partnership, L.P. Incentive Award Plan (the “Plan”). The Plan provides for the granting of stock-based compensation, including stock options, restricted stock, performance awards, restricted stock units, relative total stockholder return based stock awards (“TSR Awards”) and other incentive awards to officers, employees and directors in connection with their employment with or services provided to the Company. Under the Plan, 5,000,000 shares have been authorized for awards.

~~Restricted Stock Awards—In connection with~~Under the ~~separation of the healthcare business and real estate business of Ensign into two separate and independent publicly traded companies (the “Spin-Off”) on June 1, 2014, employees of Ensign~~

~~Table of Contents~~

~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

who had unvested shares of restricted stock were given one share of CareTrust REIT unvested restricted stock totaling 207,580 shares at the Spin-Off. These restricted shares were subject to a time vesting provision only and the Company did not recognize any stock compensation expense associated with these awards. During the year ended December 31, 2020, 1,760 shares were forfeited. At June 30, 2021, there were 0 unvestedPlan, restricted stock awards ~~outstanding.~~

~~In January 2021 and February 2021, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”~~(“RSAs”) granted ~~140,514 and 99,189 shares of restricted stock, respectively,~~in fiscal 2022 to officers and employees. Each share had a fair market value on the date of grant of $22.48 and $22.18 per share, respectively, based on the closing market price of the Company’s common stock on that date, and the sharesemployees vest in 3 equal annual installments beginning on the first anniversary of the grant ~~date.~~

~~In January 2021,~~date over a three year period. RSAs granted to non-employee members of the ~~Compensation Committee granted 108,414 performance stock awards to officers. Each share had a fair market value~~Board of Directors (“Board Awards”) vest in full on the ~~date of grant of $22.48 per share, based on the closing market price~~earlier to occur of the Company’s ~~common stock on that~~next annual meeting of stockholders or the first anniversary of the grant date. Performance stock awards (“PSA”) granted to employees are subject to both time and performance based conditions and vest over a one~~-to three-year period.~~ -to-three year period for PSAs granted in 2021 or over a one-to-four year period for PSAs granted prior to 2021.

The ~~amount~~following table summarizes the RSAs and PSAs activity for the six months ended June 30, 2022:


	Shares	Weighted Average Share Price
Unvested balance at December 31, 2021	891,333	$	20.91
Granted:
RSAs	9,684	17.56

Board Awards	25,992	16.93
Vested	(501,479)	20.60
Forfeited	(1,900)	21.50
Unvested balance at June 30, 2022	423,630	$	20.96

As of June 30, 2022, the weighted-average remaining vesting period of such ~~performance~~ awards that will ultimately vest is dependent on the Company’s Normalized Funds from Operations per share, as defined by the Compensation Committee, meeting or exceeding a specified per share amount for the applicable vesting period.

Additionally, in February 2021, the Compensation Committee granted 99,189 performance stock awards to officers. Each share had an estimated fair market value on the date of grant of $27.98 per share. Performance stock awards are subject to both time and performance based conditions and cliff vest after a three-year period. The amount of such performance awards that will ultimately vest is dependent on the Company’s total shareholder return (“TSR”) performance relative to a custom TSR peer group consisting of 16 other publicly traded healthcare REITs and will range from 0% to 200% of the TSR awards initially granted. Compensation expense for awards with performance-based vesting conditions is recognized based upon the grant date fair value per share multiplied by the estimated number of performance stock awards to be earned after considering the Company’s expectation of future performance and is recognized provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied. Forfeitures of stock-based awards are recognized as they occur.

The fair value of the TSR-based performance stock awards is estimated on the date of the grant using a Monte Carlo valuation model. The risk-free rate is based on the U.S. Treasury yield curve in effect at the grant date for the expected performance period. Expected volatility is based on historical volatility for the most recent 2.84 year period ending on the grant date for the Company and the selected TSR peer group, and is calculated on a daily basis. The following are the key assumptions used in this valuation:

~~Risk-free interest rate~~

~~0.27~~

~~Expected stock price volatility~~

~~52.93~~

~~Expected service period~~

~~2.84 years~~

~~Expected dividend yield (assuming full reinvestment)~~

In April 2021, the Compensation Committee granted 20,266 shares of restricted stock to non-employee members of the Board of Directors. Each share had a fair market value on the date of grant of $24.18 per share, based on the closing market price of the Company’s common stock on that date, and the shares vest in full on the earlier to occur of April 30, 2022 or the Company’s 2022 Annual Meeting of Stockholders.was 1.9 years.

The following table summarizes the stock-based compensation expense recognized ~~during~~for the periods presented (dollars in thousands):
For the Three Months Ended June 30, For the Six Months Ended June 30,
2021 2020 2021 2020
Stock-based compensation expense $ 1,810 $ 963 $ 3,395 $ 1,847


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Stock-based compensation expense	$	1,394	$	1,810	$	2,915	$	3,395

As of June 30, ~~2021, ther~~2022, there was ~~e was $13.2~~$8.9 million of unamortized stock-based compensation expense related to the unvested ~~awards~~RSAs, PSAs and ~~the weighted-average remaining vesting period of such awards was 2.2 years.~~TSR Awards.

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

9.10. EARNINGS (LOSS) PER COMMON SHARE

The following table presents the calculation of basic and diluted earnings (loss) per common share (“EPS”) for the Company’s common stock for the three and six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, and reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS (amounts in thousands, except per share amounts):

For the Three Months Ended June 30, For the Six Months Ended June 30,
2021 2020 2021 2020
Numerator:
Net income $ 21,317 $ 18,935 $ 41,803 $ 38,260
Less: Net income allocated to participating securities (116) (75) (234) (148)
Numerator for basic and diluted earnings available to common stockholders $ 21,201 $ 18,860 $ 41,569 $ 38,112
Denominator:
Weighted-average basic common shares outstanding 96,082 95,208 95,732 95,185
Dilutive market condition stock awards 38 0 23 0
Weighted-average diluted common shares outstanding 96,120 95,208 95,755 95,185
Earnings per common share, basic $ 0.22 $ 0.20 $ 0.43 $ 0.40
Earnings per common share, diluted $ 0.22 $ 0.20 $ 0.43 $ 0.40

~~The Company’s unvested restricted shares associated with its incentive award plan and unvested restricted shares issued to employees of Ensign at the Spin-Off have been excluded from the above calculation of earnings per diluted share for the three and six months ended June 30, 2021 and 2020, as applicable, when their inclusion would have been anti-dilutive.~~


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Numerator:
Net income (loss)	$	20,669	$	21,317	$	(22,595)	$	41,803
Less: Net income allocated to participating securities	(94)		(116)		(211)		(234)
Numerator for basic and diluted earnings available to common stockholders	$	20,575	$	21,201	$	(22,806)	$	41,569
Denominator:
Weighted-average basic common shares outstanding	96,564		96,082		96,487		95,732
Dilutive performance stock awards	34		38		—		23
Weighted-average diluted common shares outstanding	96,598		96,120		96,487		95,755

Earnings (loss) per common share, basic	$	0.21	$	0.22	$	(0.24)	$	0.43
Earnings (loss) per common share, diluted	$	0.21	$	0.22	$	(0.24)	$	0.43
Antidilutive unvested RSAs, PSAs and TSR Awards excluded from the computation	341		439		431		439

~~10.~~11. COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries are and may become from time to time a party to various claims and lawsuits arising in the ordinary course of business, which are not individually or in the aggregate anticipated to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. Claims and lawsuits may include matters involving general or professional liability asserted against the Company’s tenants, which are the responsibility of the Company’s tenants and for which the Company is entitled to be indemnified by its tenants under the insurance and indemnification provisions in the applicable leases.

Capital expenditures for each property leased under the Company’s triple-net leases are generally the responsibility of the tenant, except that, for the facilities leased to subsidiaries of Ensign and ~~The~~ Pennant, ~~Group, Inc. (“Pennant”),~~ the tenant will have an option to require the Company to finance certain capital expenditures up to an aggregate of 20% of the Company’s initial investment in such property, subject to a corresponding rent increase at the time of funding. For the Company’s other triple-net master leases, ~~subject to approval by the Company,~~ the tenants ~~may~~also have the option to request capital expenditure funding that would generally be subject to a corresponding rent increase at the time of funding, ~~and~~ which are subject to tenant compliance with the conditions to the Company’s approval and funding of their requests. As of June 30, ~~2021,~~2022, the Company had committed to fund ~~certain~~expansions, construction and capital improvements at certain triple-net leased facilities totaling ~~$13.1~~$7.2 million, of which ~~$11.6~~$1.9 million is susubject to rent increase at the time of funding.

~~11.~~12. CONCENTRATION OF RISK

Concentrations of credit risk arise when one or more tenants, operators, or obligors related to the Company’s investments are engaged in similar business activities or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions.

Major operator ~~concentrations~~concentration - ~~– As~~The Company has operators from which it derived 10% or more of June 30, 2021, Ensign leased 93 skilled nursing, multi-service campuses, assisted living and independent living facilities which had a total of 9,907 beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington. The 4 states in which Ensign leases the highest concentration of properties byits rental ~~revenues as of June 30, 2021 are Texas, California, Arizona and Utah. During~~revenue for the three and six months ended June 30, ~~2021, Ensign represented 31%~~2022 and ~~32%, respectively, of~~2021. The following table sets forth information regarding the Company’s ~~rental income,~~major operators as of June 30, 2022 and 2021:

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

~~exclusive of operating expense reimbursements. During both the three and six months ended June 30, 2020, Ensign represented 32% of the~~


	Number of Facilities			Number of Beds/Units			Percentage of Total Revenue(1)
Operator	SNF	Campus	ALF/ILF	SNF	Campus	ALF/ILF	Three Months Ended		Six Months Ended
June 30, 2022
Ensign(2)	83	8	7	8,756	997	678	35	%	35	%
Priority Management Group	13	2	—	1,742	402	—	16	%	16	%

June 30, 2021
Ensign(2)	81	8	4	8,515	997	395	31	%	32	%
Priority Management Group	13	2	—	1,742	402	—	15	%	15	%

(1) The Company’s rental income, exclusive of operating expense reimbursements.

(2) Ensign is subject to the registration and reporting requirements of the SEC and is required to file with the SEC annual reports containing audited financial information and quarterly reports containing unaudited financial information. Ensign’s financial statements, as filed with the SEC, can be found at http://www.sec.gov. The Company has not verified this information through an independent investigation or otherwise.

AsMajor geographic concentration – The following table provides information regarding the Company’s concentrations with respect to certain states, from which the Company derived 10% or more of ~~June 30, 2021, Priority Management Group (“PMG”) leased 15 skilled nursing and campus facilities which had a total of 2,144 beds and units, and are located in Louisiana and Texas. During both~~its rental revenue for the three and six months ended June 30, ~~2021, PMG represented 15% of the Company’s rental income, exclusive of operating expense reimbursements. During both the three and six months ended June 30, 2020, PMG represented 17% of the~~2022:


	Number of Facilities			Number of Beds/Units			Percentage of Total Revenue(1)
State	SNF	Campus	ALF/ILF	SNF	Campus	ALF/ILF	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022

CA	27	8	5	3,048	1,359	449	27	%	26	%
TX	38	3	3	4,849	536	242	22	%	22	%

(1) The Company’s rental income, exclusive of operating expense reimbursements.

~~12.~~13. SUBSEQUENT EVENTS

The Company evaluates subsequent events in accordance with ASC 855, Subsequent Events. The Company evaluates subsequent events up until the date the condensed consolidated financial statements are issued.

~~Senior Unsecured Notes Payable~~Recent Investment

On ~~July~~August 1, 2021 (the “Redemption Date”), the Issuers redeemed all $300.0 million aggregate principal amount of the 2025 Notes at a redemption price equal to 102.625% of the principal amount of the 2025 Notes, plus accrued and unpaid interest thereon up to, but not including, the Redemption Date. During the third quarter of 2021,2022, the Company ~~recorded~~extended a ~~loss on the extinguishment of debt of $10.8~~$22.3 million ~~including~~“B” tranche secured term loan to a ~~prepayment penalty of approximately $7.9 million and an approximately $2.9 million write-off of deferred financing costs associated~~skilled nursing real estate owner in connection with the ~~redemption~~borrower’s acquisition of ~~the 2025 Notes.~~

~~Recent Acquisition and Amended Lease Agreement~~

~~In August 2021, the Company acquired 2~~5 skilled nursing facilities ~~for approximately $32.5 million, which includes estimated capitalized acquisition costs.~~located in the state of California. The ~~facilities were leased~~secured loan was structured with an “A” tranche and a “B” tranche (with the payments on the “B” tranche being subordinate to ~~affiliates~~the “A” tranche pursuant to the terms of ~~Ensign. In conjunction with~~a written agreement between the ~~acquisition of~~lenders). The loan facility is primarily secured by the ~~2 facilities, the Company amended and extended the initial term of an existing triple-net master lease with Ensign to include the 2~~5 skilled nursing ~~facilities. The Ensign lease, as amended, has a remaining initial term~~facilities, 4 of approximately 17 years, with 3 five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease increased by approximately $2.2 million, with GAAP rent increasing by $2.5 million due to a $5.0 million prepayment of rent made at closing, which will be ~~amortized on a straight-line basis over the remaining lease term. The Operating Partnership drew on the Revolving Facility to fund the acquisition.~~

~~Asset Held for Sale~~

~~In August 2021, the Company met the held for sale criteria on 1 assisted living facility~~ operated by ~~affiliates~~an existing operator and 1 of ~~Noble Senior Services,~~which will be operated by a large, regional skilled nursing operator. The “B” tranche term loan carries a three-year maturity (with 2, 1-year extension options) and ~~is in~~bears interest at a rate based on term secured overnight financing rate, with a floor of approximately 8.5%. The $22.3 million “B” tranche term loan was funded using a combination of cash on hand and borrowings under the process of estimating its fair value, which is expected to be below the net carrying value of $4.9 million. The associated impairment loss is expected to be recorded in the quarter ending September 30, 2021.Company’s Revolving Facility.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Certain statements in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements regarding: future financing plans, business strategies, growth prospects and operating and financial performance; expectations regarding the making of distributions and the payment of dividends; and compliance with and changes in governmental regulations.

Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “may,” “will,” “would,” “could,” “should,” “seek(s)” and similar expressions, or the negative of these terms, are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecasted or expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to: (i) the COVID-19 pandemic, including the risk of additional surges of COVID-19 infections due to the rate of public acceptance and efficacy of COVID-19 vaccines or to new and more contagious and/or vaccine resistant variants, and the measures taken to prevent the spread of COVID-19 and the related impact on our business or the businesses of our tenants; (ii) the ability and willingness of our tenants to meet and/or perform their obligations under the triple-net leases we have entered into with them, including, without limitation, their respective obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities; (iii) the risk that we may have to incur additional impairment charges related to our assets held for sale if we are unable to sell such assets at the prices we expect; (iv) the ability of our tenants to comply with applicable laws, rules and regulations in the operation of the properties we lease to them; ~~(iv)~~(v) the ability and willingness of our tenants to renew their leases with us upon their expiration, and the ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event we replace an existing tenant, as well as any obligations, including indemnification obligations, we may incur in connection with the replacement of an existing tenant; ~~(v)~~(vi) the availability of and the ability to identify (a) tenants who meet our credit and operating standards, and (b) suitable acquisition opportunities, and the ability to acquire and lease the respective properties to such tenants on favorable terms; ~~(vi)~~(vii) the ability to generate sufficient cash flows to service our outstanding indebtedness; ~~(vii)~~(viii) access to debt and equity capital markets; ~~(viii)~~(ix) fluctuating interest rates; ~~(ix)~~(x) the ability to retain our key management personnel; ~~(x)~~(xi) the ability to maintain our status as a real estate investment trust (“REIT”); ~~(xi)~~(xii) changes in the U.S. tax law and other state, federal or local laws, whether or not specific to REITs; ~~(xii)~~(xiii) other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments; and ~~(xiii)~~(xiv) any additional factors included under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, including in the section entitled “Risk Factors” in Item 1A of Part I of such report, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (the “SEC”).

Forward-looking statements speak only as of the date of this report. Except in the normal course of our public disclosure obligations, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any statement is based.

Overview

CareTrust REIT is a self-administered, publicly-traded REIT engaged in the ownership, acquisition, financing, development and leasing of skilled nursing, seniors housing and other healthcare-related properties. As of June 30, ~~2021,~~2022, we owned and leased to independent operators, ~~223~~228 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of ~~23,301~~23,876 operational beds and units located in 2829 states with the highest concentration of properties by rental revenues located in California, Texas, Louisiana, Idaho and Arizona. AsAs of June 30, ~~2021,~~2022, we also had other real estate investments consisting of one ~~mezzanine~~senior secured loan receivable and two mezzanine loans receivable with aan aggregate carrying value of ~~$15.2 million~~.$115.2 million.

We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property (including property taxes, insurance, maintenance and repair costs and capital expenditures, subject to certain exceptions in the case of properties leased to Ensign and Pennant). From time to time, we also extend secured mortgage loans to healthcare operators, secured by healthcare-related properties, and secured mezzanine loans to healthcare operators, secured by membership interests in healthcare-related properties. We conduct and manage our business as one operating segment for internal reporting and internal decision-making

Table of Contents

purposes. We expect to grow our portfolio by pursuing opportunities to acquire additional properties that will be leased to a diverse group of local, regional and national healthcare providers, which may include new or existing skilled nursing operators, as well as seniors housing operators, behavioral health facilities and related businesses. We also anticipate diversifying our portfolio over time, including by acquiring properties in different geographic markets, and in different asset classes. In addition, we actively

~~Table of Contents~~

monitor the clinical, regulatory and financial operating results of our tenants, and work to identify opportunities within their operations and markets that could improve their operating results at our facilities. We communicate such observations to our tenants; however, we have no contractual obligation to do so. Moreover, our tenants have sole discretion with respect to the day-to-day operation of the facilities they lease from us, and how and whether to implement any observation we may share with them. We also actively monitor the overall occupancy, skilled mix, and other operating metrics of our tenants on at least a monthly basis including, beginning in the quarter ended June 30, 2020, any stimulus funds received by each tenant. We have replaced tenants in the past, and may elect to replace tenants in the future, if they fail to meet the terms and conditions of their leases with us. In addition, we may, from time to time, repurpose facilities for other uses, such as behavioral health. The replacement tenants may include tenants with whom we have had no prior landlord-tenant relationship as well as current tenants with whom we are comfortable expanding our relationships. We have also provided select tenants with strategic capital for facility upkeep and modernization, as well as short-term working capital loans when they are awaiting licensure and certification or conducting turnaround work in one or more of our properties, and we may continue to do so in the future. In addition, we periodically reassess the investments we have made and the tenant relationships we have entered into, and have selectively disposed of facilities or investments, or terminated such relationships, and we expect to continue making such reassessments and, where appropriate, taking such actions.

Recent Developments

COVID-19 and Market Conditions Update

Tenants of our properties operating pursuant to triple-net master leases have been adversely impacted, and we expect that they will continue to be adversely impacted, by the COVID-19 pandemic. Our tenants are experiencing increased operating costs as a result of actions they are taking to prevent or mitigate the outbreak or spread of COVID-19 at their facilities, including in connection with their implementation of safety protocols and procedures and other regulatory requirements. ~~To help offset these costs as well as~~Our tenants are also experiencing labor shortages resulting in limited admissions, reduced occupancy ~~declines, various relief programs have been enacted by federal~~ and ~~state governments, including the~~ Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which have provided, and we expect will continue to provide some benefits to our tenants subject to the programs’ respective terms and conditions (the “Provider Relief Funds”). The estimated federal and state relief ~~approved, received and retained to date by our operators, as reported by our operators, is approximately $132.2 million.~~ ~~At June 30, 2021, two of our operators who received Provider Relief Funds have disclosed that they have returned all or a portion of the Provider Relief Funds issued to them.~~higher agency expense.

At a portfolio wide level, occupancy levels at our seniors housing facilities remained relatively stable from the onset of the COVID-19 pandemic until the beginning of the fourth quarter of 2020, ~~during~~at which time we began to see a decline. This decline ~~and~~in occupancy ~~levels declined further in~~continued through the ~~second~~first quarter of 2021 then remained flat through the fourth quarter of 2021. Seniors housing occupancy modestly increased through the first two quarters of 2022 compared to the fourth quarter of 2021, but still lags compared to pre-pandemic occupancy levels. Occupancy levels at our ~~skilled nursing facilities (“SNFs”),~~SNFs, which declined at the onset of the COVID-19 pandemic and continued to decline through January 2021, ~~have~~had been on a ~~steady~~slow incline ~~since~~from February 2021 ~~and continued to increase~~ through the second quarter of ~~2021.~~2022, but have not reached pre-pandemic levels. Beginning in early 2020, the federal government temporarily suspended the three-day hospital stay requirement for a patient’s Medicare benefits to refresh. Providers can now “skill in place,” eliminating the risk of transferring the patient to the hospital. Because of ~~this~~the temporary ~~rule change,~~waiver of the three-day hospital stay requirement, overall skilled mix ~~remained slightly elevated~~began increasing at the start of the COVID-19 pandemic and peaked in December 2020, at which time it began declining while still remaining above pre-pandemic levels. Skilled mix increased again during the ~~three months ended June 30, 2021~~first quarter of 2022 compared to the pre-pandemic skilled mix during the three months ended March 31, 2020. However, the skilled mix in our SNFs during the three months ended June 30, 2022 decreased compared to the three months ended March 31, 2022 and was lower than the peak level seen in December 2020, and we anticipate that the skilled mix in our SNFs will continue to decline if cases of COVID-19 decline or if the suspension of the three-day hospital stay requirement is lifted. An increase in skilled mix can, but may not necessarily, offset some or all of the adverse financial impact to the operator of the SNF from a decline in occupancy. ~~However,~~

The U.S. Department of Health and Human Services (“HHS”) recently renewed the ~~skilled mix~~COVID-19 Public Health Emergency, which is currently set to be in ~~our SNFs during~~force through October 2022, and that allows HHS to continue providing temporary regulatory waivers, including the ~~three months ended~~waiver of the three-day hospital stay requirement for a patient’s Medicare benefits to refresh. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) included a temporary suspension of a 2% Medicare sequestration cut through the end of March 2022. Beginning April 1, 2022, a 1% sequestration cut went into effect through June 30, ~~2021~~2022 with the full 2% cut resuming thereafter. A temporary 6.2% increase in Federal Medical Assistance Percentages, which was ~~lower than the peak level seen in~~approved retroactive to January 1, 2020, is effective through December ~~2020, and we anticipate that skilled mix in our SNFs will continue to decline as cases of COVID-19 decline.~~31, 2022.

The ~~higher operating costs affecting our tenants,~~current limited availability or unavailability of grants and the impact of lower occupancy levels, have adversely impacted and may continue to adversely impact the ability of our tenants to satisfy their rental obligations to us in full or on a timely basis. Provider Relief Funds notother funds being made available to our seniors housing facilities for healthcare related expenses or lost revenues attributable to COVID-19, as well as the tapering of grants

Table of Contents

and other funds for our SNFs, has also impacted some of our tenants’ ability to continue to meet some of their financial obligations, as they continue to experience lower occupancy levels and higher operating costs. ~~Subsequent~~

As a result of the foregoing impacts of the COVID-19 pandemic, our tenants’ ability to continue to meet some of their financial obligations to us has been negatively impacted. See “Impairment of Real Estate Assets, Assets Held for Sale and Asset Sales” below. During the ~~quarter~~three and six months ended June 30, ~~2021,~~2022, we collected 93.9% and 94.4% of contractual rents due from our operators including cash deposits used to offset rent shortfalls, and 92.1% and 92.0% excluding cash deposits, respectively. In July 2022, we collected 102.1% of contractual rents due from our operators, which includes cash deposits. Excluding those cash deposits, contractual cash rents collected was 94.1%.

During the three months ended March 31, 2022, we determined that it was not probable that we would collect substantially all of the contractual obligations from four existing and former operators and, accordingly, we reversed $0.7 million of operating expense reimbursements, $0.2 million of contractual rent and $0.1 million of straight-line rent. In addition, we determined that the collectibility of contractual rents from two operators is not reasonably assured and we moved these two operators to a cash basis method of accounting during the three months ended March 31, 2022. During the three months ended June 30, 2022, we moved one additional operator to a cash basis method of accounting.

The substantial inflationary pressures that our economy continues to face has resulted in many headwinds for us and our tenants, most notably in the form of rising interest rates, volatility in the capital markets, a softening of consumer sentiment and early signs of a potential broader economic slowdown. These current macroeconomic conditions, particularly inflation (including rising wages and supply costs) and related changes to consumer spending, including, but not limited to, causing individuals to delay or defer moves to seniors housing, ~~operator failed~~could adversely impact our tenants’ ability to ~~pay rent for July~~meet some of their financial obligations to us. In addition, current macroeconomic conditions and ~~proposed a rent deferral~~the resulting market volatility may adversely impact our ability to sell properties on acceptable terms, if at all, which could result in additional impairment charges.

For more information regarding the potential impact of COVID-19 and macroeconomic conditions on our business, see “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the ~~months~~year ended December 31, 2021.

SNF Reimbursement Rates

On July 29, 2022, the Centers for Medicare and Medicaid Services (“CMS”) issued a final rule that will increase the aggregate net payment by 2.7% for fiscal year 2023. CMS estimates that the aggregate impact of ~~July, August~~the payment policies in the final rule will result in an increase of approximately $904 million in Medicare Part A payments to SNFs in fiscal year 2023 compared to fiscal year 2022. The payment rates will become effective on October 1, 2022.

Impairment of Real Estate Assets, Assets Held for Sale, and ~~a portion of September under a plan that would bring all rent deferrals current by the end of 2021. We are currently considering their request. Approximately 100.0%~~Asset Sales

In connection with our ongoing review and monitoring of our investment portfolio and the performance of our tenants, during the first quarter of 2022, we determined to pursue the sale of 27 properties and the repurposing of three properties, representing an aggregate of approximately 9% of contractual cash rent ~~obligations due~~as of June 30, 2022. As of March 31, 2022, we determined that these 27 properties met the criteria to be classified as assets held for sale and, in connection with this determination, we recognized an aggregate impairment charge of $59.7 million related to 20 of the 27 held for sale properties, which is reported in impairment of real estate investments in the condensed consolidated statements of operations for the six months ended June 30, 2022. The impairment charge was recognized to write down the properties’ aggregate carrying value to their aggregate fair value, less estimated costs to sell. As of June 30, 2022, the net book value of these 27 properties was $141.8 million.

During the second quarter of 2022, we recognized an impairment charge of $1.7 million related to one SNF. We wrote down its carrying value of $2.8 million to its estimated fair value of $1.1 million.

During the first quarter of 2022, we determined that one ALF that was classified as held for sale at December 31, 2021 no longer met the held for sale criteria. We reclassified this ALF’s carrying value of $4.8 million out of assets held for sale and recorded catch-up depreciation of approximately ~~96.2% due for July 2021, have been collected from our tenants before considering any cash deposits on-hand from which we may offset any shortfalls in rent received.~~$0.1 million during the three months ended March 31, 2022.

~~A number~~

During the first quarter of ~~COVID-19 vaccines were issued emergency use authorization by~~2022, we closed on the ~~United States Food and Drug Administration.~~ Assale of ~~August 5, 2021, based on information provided by operators who have reported such information to us, almost three-quarters~~one SNF consisting of ~~our operators’ residents have been fully vaccinated, while almost half~~83 beds located in Washington with a carrying value of ~~such operators’ staff have received at least one dose.~~$0.8 million, for net sales proceeds of $1.0 million. During the three months ended March 31, 2022, we recorded a gain of $0.2 million in connection with the sale.

2021

Table of Contents

Portfolio Activity

~~The duration and extent~~During the second quarter of ~~the COVID-19 pandemic’s effect on our operational and financial performance, and the operational and financial performance~~2022, we entered into a lease with Landmark Recovery of our tenants, will depend on future developments, which are highly uncertain and cannot be predicted at this time, including the rate of public acceptance and usage of vaccines and the effectiveness of vaccines in limiting the spread of COVID-19 and its variants, resurgences of COVID-19 and, in particular, new and more contagious and/or vaccine resistant variants, actions taken to contain the spread of COVID-19 and how quickly and to what extent normal economic and operating conditions can resume. The adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition could be material.

~~Senior Notes Issuance and Redemption~~

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”Florida, LLC (“Landmark”) to ~~persons reasonably believed~~repurpose an existing ALF (previously leased to be qualified institutional buyers pursuant to Rule 144A and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). See Note 12, ~~Subsequent Events,~~ ~~for additional information. The aggregate net proceeds from the sale of the Notes were approximately $393.8 million~~ after deducting underwriting fees and other offering expenses. We used a portion of the net proceeds from the sale of the Notes to redeem all of the Issuers’ outstanding 5.25% Senior Notes due 2025 (the “2025 Notes”) and the remaining proceeds to repay a portion of the borrowings outstanding under our Revolving Facility (as defined below).

On July 1, 2021 (the “Redemption Date”), the Issuers redeemed all $300.0 million aggregate principal amount of their outstanding 2025 Notes. The 2025 Notes were redeemed at a redemption price equal to 102.625% of the principal amount of the 2025 Notes, plus accrued and unpaid interest thereon up to, but not including, the Redemption Date.

~~Sale of Real Estate and Asset Held for Sale~~

On February 1, 2021, we closed on the sale of one skilled nursing facility consisting of 90 beds located in Washington with a carrying value of $7.2 million, for net sales proceeds of $7.0 million. We recorded a loss of $0.2 million in connection with the sale. The facility was classified as held for sale as of December 31, 2020.

~~In August 2021, we met the held for sale criteria on one assisted living facility operated by~~ affiliates of Noble Senior ~~Services,~~Services) as a behavioral health treatment center. Rent under the Landmark lease will commence one year following commencement of the lease term or, if earlier, upon Landmark obtaining all licensure, permits, and ~~are~~ other required regulatory authorizations with respect to operating the facility. The lease will expire on the 20th anniversary of the rent commencement date and contains one 10-year renewal option and CPI-based rent escalators. See Note 3, Real Estate Investments, Net in the ~~process~~Notes to condensed consolidated financial statements for additional information. During the second quarter of ~~estimating its fair value,~~2022, we entered into leases with Landmark to repurpose two additional Noble facilities into behavioral health treatment centers, which ~~is expected to be below~~will commence upon the ~~net carrying value~~occurrence of ~~$4.9 million. The associated impairment loss is expected to be recorded in the quarter ending September 30, 2021.~~certain events.

Recent Investments

From January 1, ~~2021~~2022 through August ~~5, 2021,~~4, 2022, we acquired ~~4 skilled nursing facilities~~1 SNF and 41 multi-service ~~campuses~~campus for approximately ~~$183.6~~$21.9 million, which includes capitalized acquisition costs. These acquisitions are expected to generate initial annual cash revenues of approximately ~~$13.1~~$2.1 million and an initial blended yield of approximately ~~7.3%~~9.4%. See Note 3, Real Estate Investments, Net~~and Note 12,~~ ~~Subsequent Events~~ in the Notes to condensed consolidated financial statements for additional information.

In June 2022, we extended a $75.0 million term loan to a skilled nursing real estate owner as part of a larger, multi-tranche, senior secured term loan facility. The senior secured term loan was structured with an “A” tranche, a “B” tranche, and a “C” tranche (with the “C” tranche being the most subordinate). Our $75.0 million term loan constituted the entirety of the “C” tranche with its payments subordinated accordingly. The senior secured term loan facility is secured by an 18-facility skilled nursing portfolio in the Mid-Atlantic region, to be operated by a large, regional skilled nursing operator. In connection with the senior secured term loan facility and the borrower’s acquisition of the skilled nursing portfolio, we also extended to the borrower group a $25.0 million mezzanine loan. The “C” tranche term loan bears interest at 8.5%, less a servicing fee equal to the positive difference, if any, between the lesser of the contractual interest payment and actual payment of interest made by the borrower and a hypothetical interest payment at a rate of 8.25%, resulting in an effective interest rate of 8.375%. The ”C” tranche term loan is set to mature on June 30, 2027 and may (subject to certain restrictions) be prepaid in whole or in part before the maturity date for an exit fee ranging from 1% to 3% of the loan plus unpaid interest payments through the end of the month of prepayment; provided, however, that no exit fee is payable in connection with portions of the loan being refinanced pursuant to a loan (or loans) provided by or insured by the United States Department of Housing and Urban Development, Federal Housing Administration, or a similar governmental authority. The mezzanine loan bears interest at 11% and is secured by a pledge of membership interests in an up-tier affiliate of the borrower group. The mezzanine loan is set to mature on June 30, 2032, and may (subject to certain restrictions) be prepaid in whole or in part before the maturity date, commencing on June 30, 2029, for an exit fee ranging from 1% to 3% of the loan plus unpaid interest payments through the date of prepayment. The “C” tranche term loan and mezzanine loan both require monthly interest payments.

On August 1, 2022, we extended a $22.3 million “B” tranche secured term loan to a skilled nursing real estate owner in connection with the borrower’s acquisition of five skilled nursing facilities located in the state of California. The secured loan was structured with an “A” tranche and a “B” tranche (with the payments on the “B” tranche being subordinate to the “A” tranche pursuant to the terms of a written agreement between the lenders). The loan facility is primarily secured by the five skilled nursing facilities, four of which will be operated by an existing operator and one of which will be operated by a large, regional skilled nursing operator. The “B” tranche term loan carries a three-year maturity (with two, 1-year extension options) and bears interest at a rate based on term secured overnight financing rate, with a floor of approximately 8.5%. The $22.3 million “B” tranche term loan was funded using a combination of cash on hand and borrowings under our Revolving Facility (as defined below).

Table of Contents

At-The-Market Offering of Common Stock

On March 10, 2020, we entered into a new equity distribution agreement to issue and sell, from time to time, up to $500.0 million in aggregate offering price of our common stock through an “at-the-market” equity offering program (the “ATM Program”). In connection with the entry into the equity distribution agreement and the commencement of the ATM Program, our “at-the-market” equity offering program pursuant to our prior equity distribution agreement, dated as of March 4, 2019, was terminated (the “Prior ATM Program”).

There was no ~~Prior ATM Program or~~ ATM Program activity for the three and six months ended June 30, ~~2020.~~2022. The following table summarizes the ATM Program activity for the three and six months ended June 30, 2021 (in thousands, except

~~Table of Contents~~

per share amounts).


	For the Three Months Ended		For the Six Months Ended
	June 30, 2021		June 30, 2021
Number of shares	288		990
Average sales price per share	$	24.05	$	23.74
Gross proceeds(1)	$	6,926	$	23,505

(1) Total gross proceeds is before $0.1 million and $0.3 million of commissions paid to the sales agents during the three and six months ended June 30, 2021, respectively, under the ATM Program.

As of June 30, ~~2021,~~2022, we had $476.5 million available for future issuances under the ATM Program.

Results of Operations

~~Operating Results~~

Three Months Ended June 30, ~~2021~~2022 Compared to Three Months Ended ~~June 30, 2020:~~March 31, 2022:


		Three Months Ended June 30,				Increase (Decrease)		Percentage Difference			Three Months Ended				Increase (Decrease)		Percentage Difference
		2021		2020							June 30, 2022		March 31, 2022
		(dollars in thousands)									(dollars in thousands)
Revenues:	Revenues:									Revenues:
Rental income	Rental income	$	47,744	$	42,507	$	5,237	12	%	Rental income	$	46,806	$	46,007	$	799	2	%

Independent living facilities		—		615		(615)		(100)	%

Interest and other income	Interest and other income	514		1,046		(532)		(51)	%	Interest and other income	747		469		278		59	%
Expenses:	Expenses:									Expenses:
Depreciation and amortization	Depreciation and amortization	13,843		13,239		604		5	%	Depreciation and amortization	12,559		13,575		(1,016)		(7)	%
Interest expense	Interest expense	6,534		5,849		685		12	%	Interest expense	6,303		5,742		561		10	%

Property taxes	Property taxes	766		837		(71)		(8)	%	Property taxes	1,254		1,420		(166)		(12)	%
Independent living facilities		—		546		(546)		(100)	%

Impairment of real estate investments										Impairment of real estate investments	1,701		59,683		(57,982)		(97)	%

Provision for loan losses, net										Provision for loan losses, net	—		3,844		(3,844)		(100)	%
Property operating expenses										Property operating expenses	89		447		(358)		(80)	%

General and administrative	General and administrative	5,798		4,762		1,036		22	%	General and administrative	4,978		5,215		(237)		(5)	%
Other income:										Other income:

Gain on sale of real estate										Gain on sale of real estate	—		186		(186)		(100)	%

•Not meaningful

Rental income. The ~~$5.2~~$0.8 million, or ~~12%~~2%, increase in rental income is primarily due to a ~~$4.4~~$1.0 million write-off of uncollectible rent during the three months ended March 31, 2022, an increase ~~in rental income from real estate investments made after April 1, 2020, $0.9~~of $0.4 million ~~from~~due to contractual increases in rental rates for our existing tenants and ~~$0.1~~$0.3 million ~~in cash rents due to lease amendments,~~from real estate investments made after January 1, 2022, partially offset by a ~~$0.1~~$0.9 million decrease in rental income ~~due~~and tenant reimbursements related to ~~the disposal of assets in February 2021 and a $0.1 million decrease in tenant reimbursements.~~

~~Independent living facilities.~~ ~~The $0.6 million, or 100%, decrease in revenues from our ILFs was due to the sale of our one remaining ILF~~moving certain tenants to a ~~third party in November 2020. The $0.5 million, or 100%, decrease in expenses was for the same reason indicated for the decrease in revenues.~~cash basis method of accounting subsequent to January 1, 2022.

Interest and other income. The ~~$0.5~~$0.3 million, or ~~51%~~59%, ~~decrease~~increase in interest and other income was primarily due to ~~a decrease in interest income~~the origination of ~~$0.9 million due to the repayment of mortgage loans and other~~ loans receivable ~~primarily by CommuniCare~~ in ~~May 2020 and Cascade in July 2020, partially offset by approximately $0.4 million of interest income related to our mezzanine loan to Next VA Star Realty Holdings, LLC originated in November 2020.~~June 2022. See ~~Note 4,~~ ~~Other Real Estate Investments, Net~~.above under “Recent Developments” for additional information.

Depreciation and amortization. The ~~$0.6~~$1.0 million, or 5%7%, ~~increase~~decrease in depreciation and amortization was primarily due to ~~an increase in depreciation~~a decrease of $1.0 million due to assets reclassified as held for sale at March 31, 2022 and ~~amortization~~a decrease of ~~$1.4 million related to new real estate investments and capital improvements made after April 1, 2020, partially offset by $0.7~~$0.2 million due to assets becoming fully depreciated after ~~April~~January 1, ~~2020 and $0.1 million of depreciation related to the disposal of assets.~~

~~Interest expense.~~ The $0.7 million, or 12%, increase in interest expense was primarily due to a higher weighted average debt balance of approximately $157.5 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 due to the issuance of the Notes on June 17, 2021 and the redemption of the 2025 Notes on July 1, 2021, partially offset by lower weighted average interest rates.

~~Table of Contents~~

~~Property taxes.~~ ~~The $0.1 million, or8%,decrease in property taxes was primarily due to a $0.2 million decrease due to reassessments and decreased effective tax rates,~~2022, partially offset by an increase of ~~$0.1 million in property taxes due to the transfer of certain properties to new operators in January 2021 that do not make direct tax payments.~~

~~General and administrative expense.~~ The $1.0 million, or 22%, increase in general and administrative expense was primarily related to higher stock compensation expense of $0.8 million, higher cash wages of $0.3 million and $0.1 million of other general and administrative expense, partially offset by a decrease of $0.2 ~~million in state and business taxes compared to the prior period.~~

~~Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020:~~

Six Months Ended June 30, Increase
(Decrease) Percentage
Difference
2021 2020
(dollars in thousands)
Revenues:
Rental income $ 92,990 $ 84,971 $ 8,019 9 %
Independent living facilities — 1,240 (1,240) (100) %
Interest and other income 1,019 2,297 (1,278) (56) %
Expenses:
Depreciation and amortization 27,316 26,399 917 3 %
Interest expense 12,296 12,563 (267) (2) %
Property taxes 1,462 1,322 140 11 %
Independent living facilities — 1,092 (1,092) (100) %
General and administrative 10,940 8,816 2,124 24 %
Other loss:
Loss on sale of real estate (192) (56) (136) 243 %

~~Rental income~~. The $8.0 million, or 9%, increase in rental income is primarily due to a $6.7 million increase in rental income from real estate investments made after January 1, 2020, $1.6 million from contractual increases in rental rates for our existing tenants and $0.4 million in cash rents due to lease amendments, partially offset by a $0.6 million decrease in rental income due to the disposal of assets in February 2020 and February 2021 and a $0.1 million decrease in tenant reimbursements.

~~Independent living facilities.~~ The $1.2 million, or 100%, decrease in revenues from our ILFs was due to the sale of our one remaining ILF to a third party in November 2020. The $1.1 million, or 100%, decrease in expenses was for the same reason indicated for the decrease in revenues.

~~Interest and other income.~~ The $1.3 million, or 56%, decrease in interest and other income was primarily due to a decrease in interest income of $2.2 million due to the repayment of mortgage loans and other loans receivable primarily by Manteca in May 2020, CommuniCare in May 2020 and Cascade in July 2020, partially offset by approximately $0.9 million of interest income related to our mezzanine loan to Next VA Star Realty Holdings, LLC originated in November 2020. See Note 4, ~~Other Real Estate Investments, Net~~.

~~Depreciation and amortization.~~ ~~The $0.9 million, or 3%, increase in depreciation and amortization was primarily due to an increase in depreciation and amortization of $2.3~~ million related to new real estate investments and capital improvements made after January 1, ~~2020,~~2022.

Table of Contents

Interest expense. The $0.6 million, or 10%, increase in interest expense was primarily due to an increase in interest expense of $0.5 million related to a higher interest rate under the Revolving Facility and the Term Loan (as defined below) and an increase of $0.1 million related to a higher weighted average debt balance under the Revolving Facility during the three months ended June 30, 2022.

Property taxes. The $0.2 million, or12%,decrease in property taxes was primarily due to changes in estimates of property taxes expected to be paid directly by us as a result of certain assets being designated as held for sale during the three months ended March 31, 2022.

Impairment of real estate investments. During the three months ended June 30, 2022, we recognized an impairment charge of $1.7 million related to one property. During the three months ended March 31, 2022, we recognized an aggregate impairment charge of $59.7 million related to 20 properties that all met the held for sale criteria during the quarter. See above under “Recent Developments” for additional information.

Provision for loan losses, net. During the three months ended March 31, 2022, we recorded a $4.6 million expected credit loss related to two other loans receivable that were placed on a non-accrual status, partially offset by a $0.8 million recovery related to one other loan receivable that was previously written off. No provision for loan losses was recorded during the three months ended June 30, 2022.

Property operating expenses. During the three months ended June 30, 2022, we recognized $0.1 million of property operating expenses related to assets we plan to sell or repurpose. During the three months ended March 31, 2022, we recognized $0.4 million of property operating expenses related to assets we plan to sell or repurpose.

General and administrative expense. The $0.2 million, or 5%, decrease in general and administrative expense was primarily related to a decrease in incentive compensation of $0.5 million, a decrease in stock compensation expense of $0.1 million and a decrease in cash wages of $0.1 million, partially offset by an increase in legal and other professional services of $0.2 million, an increase in other administrative costs of $0.2 million and an increase in state and local taxes of $0.1 million during the three months ended June 30, 2022 compared to the three months ended March 31, 2022.

Gain on sale of real estate. During the three months ended March 31, 2022, we recorded a $0.2 million gain on sale of real estate related to the sale of one SNF.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021:


	Six Months Ended June 30,				Increase (Decrease)		Percentage Difference
	2022		2021
	(dollars in thousands)
Revenues:
Rental income	$	92,813	$	92,990	$	(177)	*


Interest and other income	1,216		1,019		197		19	%
Expenses:
Depreciation and amortization	26,134		27,316		(1,182)		(4)	%
Interest expense	12,045		12,296		(251)		(2)	%


Property taxes	2,674		1,462		1,212		83	%

Impairment of real estate investments	61,384		—		61,384		*

Provision for loan losses, net	3,844		—		3,844		*
Property operating expenses	536		—		536		*

General and administrative	10,193		10,940		(747)		(7)	%
Other income (loss):

Gain (loss) on sale of real estate	186		(192)		378		(197)	%

•Not meaningful

Rental income. The $0.2 million decrease in rental income is primarily due to a $5.6 million decrease in rental income and tenant reimbursements related to moving certain tenants to a cash basis method of accounting and a $1.0 million write-off of uncollectible rent, partially offset by a $4.7 million increase in rental income from real estate investments made

Table of Contents

after January 1, 2021, $1.2 million due to contractual increases in rental rates for our existing tenants and a $0.5 million increase in tenant reimbursements.

Interest and other income. The $0.2 million, or 19%, increase in interest and other income is primarily due to the origination of loans receivable in June 2022. See above under “Recent Developments” for additional information.

Depreciation and amortization. The $1.2 million, or 4%, decrease in depreciation and amortization was primarily due to a $2.1 million decrease from assets reclassified as held for sale and a decrease in depreciation of $0.9 million due to assets becoming fully depreciated after January 1, ~~2020~~2021, partially offset by an increase in depreciation and ~~$0.2~~amortization of $1.8 million ~~of depreciation~~ related to ~~the disposal of assets.~~new real estate investments and capital improvements made after January 1, 2021.

Interest expense. The $0.3 million, or 2%, decrease in interest expense was primarily due to ~~lower weighted average~~a $7.9 million decrease in interest ~~rates, partially offset by~~expense related to the redemption of the prior senior notes on July 1, 2021 and a ~~higher~~decrease of $0.1 million related to a lower weighted average debt balance under the Revolving Facility, partially offset by an increase of ~~approximately $90.9~~$7.2 million ~~for~~related to the issuance of the Notes (as defined below) on June 17, 2021 and an increase of $0.5 million related to a higher interest rate under the Revolving Facility and the Term Loan during the six months ended June 30, 2022.

Property taxes. The $1.2 million, or83%,increase in property taxes was primarily due to a $0.6 million increase due to new real estate investments made after January 1, 2021, a $0.4 million increase due to changes in estimates of property taxes expected to be paid directly by us as a result of certain assets being designated as held for sale during the six months ended June 30, 2022, a $0.1 million increase related to the transfer of certain properties to new operators that do not make direct tax payments and a $0.1 million increase related to two non-operational properties at June 30, 2022.

Impairment of real estate investments. During the six months ended June 30, 2022, we recognized an aggregate impairment charge of $61.4 million related to 20 properties that all met the held for sale criteria during the quarter and one property that is currently held for investment. See above under “Recent Developments” for additional information. No impairment charges were recognized during the six months ended June 30, 2021.

Provision for loan losses, net. During the six months ended June 30, 2022, we recorded a $4.6 million expected credit loss related to two other loans receivable that were placed on non-accrual status, partially offset by a $0.8 million recovery related to one other loan receivable that was previously written off. No provision for loan losses were recognized during the six months ended June 30, 2021.

Property operating expenses. During the six months ended June 30, 2022, we recognized $0.5 million of property operating expenses related to assets we plan to sell or repurpose. No similar expenses were incurred during the six months ended June 30, 2021.

General and administrative expense. The $0.7 million, or 7%, decrease in general and administrative expense was primarily related to a decrease in incentive compensation of $0.8 million, lower stock compensation expense of $0.5 million, lower professional services expense of $0.1 million and lower other administrative expense of $0.1 million, partially offset by higher cash wages of $0.8 million during the six months ended June 30, 2022 compared to the six months ended June 30, ~~2020.~~2021.

~~Property taxes.~~ ~~The $0.1 million, or11%,~~increase in property taxes was primarily due to a $0.4 million increase in property taxes realized upon the disposition of assets in February 2020 and the transfer of certain properties to new operators in January 2021 that make direct tax payments, partially offset by a decrease of $0.3 million of property taxes due to reassessments and decreased effective tax rates.

~~Table of Contents~~

~~General and administrative expense.~~ The $2.1 million, or 24%, increase in general and administrative expense was primarily related to higher stock compensation expense of $1.5 million, higher cash wages of $0.5 million, increased professional service fees of $0.2 million and $0.1 million of other general and administrative expense, partially offset by a decrease of $0.2 million in state and business taxes compared to the prior period.

~~Loss~~Gain (loss) on sale of real ~~estate~~estate. .During the six months ended June 30, 2022, we recorded a $0.2 million gain on sale of real estate related to the sale of one SNF. During the six months ended June 30, 2021, we recorded a $0.2 million loss on sale of real estate related to the sale of one ~~skilled nursing facility. During the six months ended June 30, 2020, we recorded a $0.1 million loss on sale of real estate related to the sale of six skilled nursing facilities.~~SNF.

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.

AsOur short-term liquidity requirements consist primarily of ~~June 30, 2021, we had cash, cash equivalen~~operating and interest expenses directly associated with our properties, including:

•tsinterest expense and ~~restricted cash~~scheduled debt maturities on outstanding indebtedness;

•general and administrative expenses;

•dividend plans;

Table of Contents

•~~$311.0 million~~operating lease obligations; and

•~~. The~~ capital expenditures for improvements to our properties.~~$309.2 million~~ ~~in restricted cash as~~

Our long-term liquidity needs consist primarily of ~~June 30, 2021 related to the cash deposited with the trustee~~funds necessary to pay ~~the redemption price of the 2025 Notes. The 2025 Notes were redeemed on July 1, 2021. See above under “Recent Developments”~~for acquisitions and ~~Note 12,~~ ~~Subsequent Events,~~ ~~for additional information.~~

~~During the three~~other investments (including mortgage and ~~six months ended June 30, 2021, we sold 288,000~~mezzanine loan originations), capital expenditures, and 990,000 shares of common stock under our ATM Program for gross proceeds of $6.9 million and $23.5 million, respectively. As of June 30, 2021, we had $476.5 million available for future issuances under the ATM Program.

~~As of June 30, 2021, we also~~ ~~had $50.0 million in borrowings outstanding and $550.0 million of~~ availability remaining under the Revolving Facility (as defined below). We believe that our available cash, expected operating cash flows, and the availability under the ATM Program and Amended Credit Facility (as defined below) will provide sufficient funds for our operations, anticipated scheduled debt ~~service payments and projected dividend payments for at least the next twelve months.~~

maturities. We intend to invest in and/or develop additional healthcare and seniors housing properties as suitable opportunities arise and so long as adequate sources of financing are available. We expect that future investments in and/or development of properties, including any improvements or renovations of current or newly-acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, borrowings available to us under the Amended Credit Facility, 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, interest payments on our other real estate investments, and borrowings under our Amended Credit Facility, together with our cash balance of $30.3 million, available borrowing capacity of $395.0 million under the Revolving Facility and availability under the ATM Program of $476.5 million, each at June 30, 2022, will be sufficient to meet ongoing debt service requirements, dividend plans, operating lease obligations, capital expenditures, working capital requirements and other needs for at least the next 12 months. We expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements. While we are currently pursuing the sale, re-tenanting or repurposing of certain of our assets in connection with our ongoing review and monitoring of our investment portfolio as described under “Recent Developments” above, we currently do not expect to sell any of our properties to meet liquidity needs, although we may do so in the future. Our quarterly cash dividend, any share repurchases under our Repurchase Program (as defined below) and any failure of our operators to pay rent or of our borrowers to make interest or principal payments may impact our available capital resources.

On March 20, 2020, our board of directors authorized a share repurchase program to repurchase up to $150.0 million of outstanding shares of our common stock (the “Repurchase Program”). Repurchases under the Repurchase Program, which expires on March 31, 2023, may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated share repurchase transactions, or other methods of acquiring shares, in each case subject to market conditions and at such times as shall be permitted by applicable securities laws and determined by management. Repurchases under the Repurchase Program may also be made pursuant to a plan adopted under Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We expect to finance any share repurchases under the Repurchase Program using available cash and may also use short-term borrowings under the Revolving Facility. Through June 30, 2022, we have not repurchased any shares of common stock under the Repurchase Program and, as of June 30, 2022, we had $150.0 million of remaining authorization under the Repurchase Program. The Repurchase Program may be modified, discontinued or suspended at any time.

We have filed an automatic shelf registration statement with the U.S. Securities and Exchange Commission that expires in March 2023 ~~which will allow~~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.

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.

Table of Contents

Cash Flows

The following table presents selected data from our condensed consolidated statements of cash flows for the periods presented (dollars in thousands):
For the Six Months Ended June 30,
2021 2020

Net cash provided by operating activities $ 70,557 $ 67,942
Net cash (used in) provided by investing activities (145,043) 25,325
Net cash provided by (used in) financing activities 366,525 (107,796)
Net increase (decrease) in cash, cash equivalents, and restricted cash 292,039 (14,529)
Cash, cash equivalents, and restricted cash as of the beginning of period 18,919 20,327
Cash, cash equivalents, and restricted cash as of the end of period $ 310,958 $ 5,798


	For the Six Months Ended June 30,
	2022		2021

Net cash provided by operating activities	$	68,302	$	70,557
Net cash used in investing activities	(125,644)		(145,043)
Net cash provided by financing activities	67,714		366,525
Net increase in cash and cash equivalents	10,372		292,039
Cash and cash equivalents as of the beginning of period	19,895		18,919
Cash and cash equivalents as of the end of period	$	30,267	$	310,958

Net cash provided by operating activities ~~increased $2.6~~decreased $2.3 million for the six months ended June 30, ~~2021~~2022 compared to the six months ended June 30, ~~2020.~~2021. 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 investments. Operating cash outflows consist primarily of interest expense on our borrowings and general and administrative expenses. The net ~~increase~~decrease of ~~$2.6~~$2.3 million in cash provided by operating activities for the six months ended June 30, ~~2021~~2022 is primarily due to increased rental payments as a result of new investments and a decrease in cash paid for interest on outstanding indebtedness due to lower weighted average interest rates, partially offset by a decrease in interest and other income due to the repayments of our other real estate investments and an increase in cash paid for general and administrative ~~expenses.~~expense, interest expense and operating expenses related to assets we plan to sell or repurpose, partially offset by increased rental income due to timing of payments and increased interest payments on our other real estate investments.

Cash used in investing activities for the six months ended June 30, 2022 was primarily comprised of $124.0 million in acquisitions of real estate and investments in real estate related and other loans and $3.6 million of purchases of equipment, furniture and fixtures and improvements to real estate, partially offset by $1.0 million in net proceeds from real estate sales and $1.0 million of payments received from other loans receivable. Cash used in investing activities for the six months ended June 30, 2021 was primarily comprised of $148.5 million in acquisitions of real estate and investments in real estate related and other loans and $3.5 million of purchases of equipment, furniture and fixtures and improvements to real estate, partially offset by $6.8 million in net proceeds from real estate sales and $0.1 million of payments received from other loans receivable. ~~Cash~~

Our cash flows provided by ~~investing~~financing activities for the six months ended June 30, ~~2020 was~~2022 were primarily comprised of ~~$69.3 million of payments received from our preferred equity investment and mortgage and other loans receivable and $2.1~~$125.0 million in ~~net proceeds from real estate sales,~~borrowings under our Amended Credit Facility, partially offset by ~~$39.9~~$52.8 million in ~~acquisitions of real estate~~dividends paid and ~~investments in real estate mortgage loans and $6.2~~a $4.5 million ~~of purchases of furniture, fixtures and equipment and improvements to real estate.~~

net settlement adjustment on restricted stock. Our cash flows provided by financing activities for the six months ended June 30, 2021 were primarily comprised of $400.0 million of proceeds from the issuance of the Notes and $22.9 million of net proceeds from the issuance of common stock under the ATM Program, partially offset by $49.5 million in dividends paid, $5.6 million in payments of deferred financing costs and a $1.3 million net settlement adjustment on restricted stock.

Material Cash Requirements

Our material cash ~~flows used in financing activities~~requirements from known contractual and other obligations, including commitments for the six months ended June 30, 2020 were primarily comprised of $45.4 million in dividends paid, a $2.0 million net settlement adjustment on restricted stock, $0.4 million paid for common stock offering related costs and $60.0 million in net repayments under our Amended Credit Facility.

~~Indebtedness~~capital expenditures, 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 ~~Issuers~~Operating Partnership, the “Issuers”), completed a private offering of $400.0 million aggregate principal amount of 3.875% Senior Notes due 2028 to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act. The Notes were issued at par, resulting in gross proceeds of $400.0 million and net proceeds of approximately ~~$393.8 million~~ ~~after deducting underwriting fees and other offering expenses. 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.

~~Table of Contents~~

The indenture governing the Notes requires CareTrust REIT and its restricted subsidiaries to maintain a specified ratio of unencumbered assets to unsecured indebtedness. These covenants are subject to a number of important and significant limitations, qualifications and exceptions. The indenture also contains customary events of default.

As of June 30, ~~2021,~~2022, we were in compliance with all applicable financial covenants under the indenture governing the Notes.

~~5.25% Senior Unsecured Notes due 2025 and Issuer and Guarantor Financial Information~~

On May 10, 2017, the Issuers completed a public offering of $300.0 million aggregate principal amount of the 2025 Notes. The 2025 Notes were issued at par, resulting in gross proceeds of $300.0 million and net proceeds of approximately $294.0 million after deducting underwriting fees and other offering expenses. The 2025 Notes were scheduled to mature on June 1, 2025 and bore interest at a rate of 5.25% per year. Interest on the 2025 Notes was payable on June 1 and December 1 of each year, beginning on December 1, 2017. On July 1, 2021, the Issuers redeemed all $300.0 million aggregate principal amount of the 2025 Notes. See ~~above under “Recent Developments” and~~ Note ~~12,~~7, ~~Subsequent Events,~~Debt, ~~for additional information.~~

The obligations under the 2025 Notes were fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by CareTrust REIT (the “Parent Guarantor”) and all of CareTrust REIT’s existing and future subsidiaries (other than the Issuers) that guaranteed obligations under the Amended Credit Facility; provided, however, that such guarantees were subject to automatic release under certain customary circumstances, including if the Subsidiary Guarantor was sold or sold all or substantially all of its assets, the Subsidiary Guarantor was designated “unrestricted” for covenant purposes under the indenture governing the 2025 Notes, the Subsidiary Guarantor’s guarantee of other indebtedness which resulted in the creation of the guarantee of the 2025 Notes was terminated or released, or the requirements for legal defeasance or covenant defeasance or to discharge the indenture had been satisfied.

~~The~~ ~~following provides information regarding the entity structure of the Parent Guarantor, the Issuers and the Subsidiary Guarantors of the 2025 Notes:~~

CareTrust REIT, Inc. – The Parent Guarantor was formed on October 29, 2013 in connection with the separation of Ensign’s healthcare business and its real estate business into two separate and independent publicly traded companies (the “Spin-Off”). The Parent Guarantor was a wholly owned subsidiary of Ensign prior to the effective date of the Spin-Off on June 1, 2014. The Parent Guarantor has not conducted any operations or had any business since the Spin-Off.

CTR Partnership, L.P. and CareTrust Capital Corp. – The Issuers, each of which is a wholly owned subsidiary of the Parent Guarantor, were formed on May 8, 2014 and May 9, 2014, respectively, in anticipation of the Spin-Off and the related transactions. The Issuers did not conduct any operations or have any business prior to the date of the consummation of the Spin-Off related transactions. The Operating Partnership directly invests in real estate and real estate related assets and therefore does not rely solely on the cash flow generated by the Subsidiary Guarantors and their ability to make cash available to the Issuers, by dividend or otherwise. However, in the event that the earnings or available assets of the Issuers were insufficient, the Issuers’ ability to pay principal and interest on the 2025 Notes could have been dependent on the cash flow generated by the Subsidiary Guarantors and their ability to make such cash available to the Issuers. CareTrust Capital Corp., a co-issuer of the 2025 Notes, has no material assets and conducts no operations. Therefore, it had no independent ability to service the interest and principal obligations under the 2025 Notes.

Subsidiary Guarantors – The Subsidiary Guarantors consisted of all of the subsidiaries of the Parent Guarantor other than the Issuers. The Parent Guarantor conducts a substantial portion of its business operations through the Subsidiary Guarantors.

The assets and liabilities and results of operations of the combined guarantors (the Parent Guarantor and the Subsidiary Guarantors) and the Issuers of the 2025 Notes are not materially different than the corresponding amounts presented in our condensed consolidated financial ~~statements.~~

~~The indenture governing~~statements included in this report for further information about the 2025 Notes contained customary covenants such as limiting the ability of CareTrust REIT and its restricted subsidiaries to: incur or guarantee additional indebtedness; incur or guarantee secured indebtedness; make certain investments or other restricted payments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their assets, and pay dividends or distributions on, or redeem or repurchase, capital stock, including a restriction on the ability of the Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers, subject to certain other exceptions, unless: (i) there was no default or event of default under the indenture; (ii) the

~~Table of Contents~~Notes.

Issuers were in compliance with specified limitations on indebtedness under the indenture; and (iii) the payments did not exceed a specified restricted payment basket. Dividends or distributions were also permitted if the Parent Guarantor’s board of directors believed in good faith they were necessary to maintain Parent Guarantor’s REIT status or to avoid any excise tax or income tax imposed on Parent Guarantor, provided there was no default or event of default under the indenture. Further, the Issuers and their restricted subsidiaries were not permitted to create or cause to become effective any encumbrance or restriction on the ability of the Issuers to, among other things, pay dividends or make distributions, pay indebtedness, make loans or advances to the Issuers or their restricted subsidiaries or transfer property or assets to the Issuers or their restricted subsidiaries, other than in connection with certain customary exceptions such as in respect of the indenture or the Amended Credit Facility.

~~As of June 30, 2021, we were in compliance with all applicable financial covenants under the indenture governing the 2025 Notes.~~

Unsecured Revolving Credit Facility and Term Loan

~~On February 8, 2019, the Operating Partnership, as the borrower, the Company, as guarantor, CareTrust GP, LLC, and certain of the Operating Partnership’s wholly owned subsidiaries entered into an~~Our 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 (the “Amended Credit Agreement”)~~. The Amended Credit Agreement~~ provides for: (i)

Table of Contents

an unsecured revolving credit facility (the “Revolving Facility”) with revolving commitments in an aggregate principal amount of $600.0 million, including a letter of credit subfacility for 10% of the then available revolving commitments and a swingline loan subfacility for 10% of the then available revolving commitments and (ii) an unsecured term loan credit facility (the “Term Loan” and, together with the Revolving Facility, the “Amended Credit Facility”) in an aggregate principal amount of $200.0 million. Borrowing availability under the Revolving Facility is subject to no default or event of default under the Amended Credit Agreement having occurred at the time of borrowing. The proceeds of the Term Loan were used, in part, to repay in full all outstanding borrowings under our prior term loan and revolving facility under our prior credit agreement. Future borrowings under the Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes.

As of June 30, 2022, we had $200.0 million outstanding under the Term Loan and $205.0 million outstanding under the Revolving Facility. The Revolving Facility has a maturity date of February 8, 2023, and includes, at our sole discretion, two, six-month extension options. The Term Loan has a maturity date of February 8, 2026.

The interest rates applicable to loans under the Revolving Facility are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.10% to 0.55% per annum or LIBOR plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of ~~the Company and its~~our consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if ~~the Company obtains~~we obtain certain specified investment grade ratings on ~~its~~our senior long-term unsecured debt). The interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.50% to 1.20% per annum or LIBOR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of ~~the Company and its~~our consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if ~~the Company obtains~~we obtain certain specified investment grade ratings on ~~its~~our senior long-term unsecured debt). In addition, the Operating Partnership will pay a facility fee on the revolving commitments under the Revolving Facility ranging from 0.15% to 0.35% per annum, based on the debt to asset value ratio of ~~the Company and its~~our consolidated subsidiaries (unless ~~the Company obtains~~we obtain certain specified investment grade ratings on ~~its~~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~~our senior long-term unsecured debt). Interest payments on the Term Loan and Revolving Facility are due monthly and facility fee payments are due quarterly.

As of June 30, 2021, we had $200.0 million outstanding under the Term Loan and $50.0 million outstanding under the Revolving Facility. Subsequent to June 30, 2021, we borrowed an additional $50.0 million under our Revolving Facility to fund the acquisition of two SNFs in August 2021. See Note 12, ~~Subsequent Events~~ ~~for additional information.~~

~~The Revolving Facility has a maturity date of February 8, 2023, and includes, at our sole discretion, two, six-month extension options. The Term Loan has a maturity date of February 8, 2026.~~

The Amended Credit Facility is guaranteed, jointly and severally, by the Company and its wholly-owned subsidiaries that are party to the Amended Credit Agreement (other than the Operating Partnership). The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend organizational documents and pay certain dividends and other restricted payments. The Amended Credit Agreement requires the Company to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum debt to asset value ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating income ratio, a maximum secured debt to asset value ratio, a maximum secured recourse debt to asset value ratio, a maximum unsecured debt to unencumbered properties asset value ratio, a minimum unsecured interest coverage ratio and a minimum rent coverage ratio. The Amended Credit Agreement also contains certain

~~Table of Contents~~

customary events of default, including the failure to make timely payments under the Amended Credit Facility or other material indebtedness, the failure to satisfy certain covenants (including the financial maintenance covenants), the occurrence of change of control and specified events of bankruptcy and insolvency.

~~As of June 30, 2021,~~2022, we were in compliance with all applicable financial covenants under the Amended Credit Agreement.

~~Obligations and Commitments~~

~~The following table summarizes our contractual obligations and commitments as of June 30, 2021 (in thousands):~~

Payments Due by Period
Total Less
than
1 Year 1 Year
to Less
than
3 Years 3 Years
to Less
than
5 Years More
than
5 years
2028 Senior unsecured notes payable (1) $ 509,103 $ 16,103 $ 31,000 $ 31,000 $ 431,000
2025 Senior unsecured notes payable (2) 309,187 309,187 — — —
Senior unsecured term loan (3) 214,930 3,243 6,477 205,210 —
Unsecured revolving credit facility (4) 52,453 1,525 50,928 — —
Operating leases 3,662 265 230 104 3,063
Total $ 1,089,335 $ 330,323 $ 88,635 $ 236,314 $ 434,063

~~(1)Amounts include interest payments of $109.1 million.~~

~~(2)Amount includes the redemption price of the 2025 Notes. The 2025 Notes were redeemed on July 1, 2021. See above under “Recent Developments” and Note 12,~~ ~~Subsequent Events~~ ~~for additional information.~~

~~(3)Amounts include interest payments of $14.9 million.~~

~~(4)Amounts include payments related to the credit facility fee of $1.5 million and interest payments of $1.0 million. Amounts do not include $50.0 million in additional borrowings under the Revolving Facility made in August 2021.~~ See Note ~~12,~~7, ~~Subsequent Events~~Debt, to our condensed consolidated financial statements included in this report for ~~additional information.~~further information about the Amended Credit Agreement.

Capital Expenditures

Capital expenditures for each property leased under our triple-net leases are generally the responsibility of the tenant, except that, for the facilities leased to subsidiaries of Ensign and Pennant, the tenant will have an option to require us to finance certain capital expenditures up to an aggregate of 20% of our initial investment in such property, subject to a corresponding rent increase at the time of funding. For our other triple-net master leases, subject to approval by us, the tenants may request capital expenditure funding that would generally be subject to a corresponding rent increase at the time of funding and which are subject to tenant compliance with the conditions to our approval and funding of their requests. As of June 30, ~~2021,~~2022, we had committed toto fund ~~certain~~expansions, construction and capital improvements at certain triple-net leased facilities totaling ~~$13.1~~$7.2 million, of which ~~$11.6~~$1.9 million is subject to rent increase at the time of funding. We expect to fund the ~~majority of the funding of these commitments to be completed over~~capital expenditures in the next one to two years. See Note 11, Commitments and Contingencies, to our condensed 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 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 and six months ended June 30, 2022.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q have been prepared in accordance with ~~GAAP~~accounting principles generally accepted in the United States (“GAAP”) for interim financial information set forth in the Accounting Standards Codification, as published by the Financial Accounting Standards Board. GAAP requires us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base these estimates on our experience and assumptions we believe to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements. We periodically reevaluate our estimates and assumptions, and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Please refer to “Critical Accounting Policies and Estimates” in the ~~“Management’s~~

Table of Contents

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the SEC

~~Table of Contents~~

on February ~~10, 2021,~~16, 2022, 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 six months ended June 30, ~~2021.~~2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our primary market risk exposure is interest rate risk with respect to our variable rate indebtedness.

Our Amended Credit Agreement provides for revolving commitments in an aggregate principal amount of $600.0 million and an unsecured term loan facility in an aggregate principal amount of $200.0 million from a syndicate of banks and other financial institutions.

The interest rates applicable to loans under the Revolving Facility are, at the Company’s option, equal to either a base rate plus a margin ranging from 0.10% to 0.55% per annum or LIBOR plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). The interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.50% to 1.20% per annum or LIBOR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). As of June 30, ~~2021,~~2022, we had a ~~$200.0~~$200.0 million Term Loan outstanding and had ~~$50.0~~$205.0 million outstanding under the Revolving Facility.

An increase in interest rates could make the financing of any acquisition by us more costly as well as increase the costs of our variable rate debt obligations. Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness. Increased inflation may also have a pronounced negative impact on the interest expense we pay in connection with our outstanding indebtedness, as these costs could increase at a rate higher than our rents.

In addition, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, has announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. However, for U.S. dollar LIBOR, the relevant date was deferred to June 30, 2023 for certain tenors (including overnight and one, three, six and 12 months), at which time the LIBOR administrator will cease publication of U.S. dollar LIBOR. Despite this deferral, the LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. These actions indicate that the continuation of U.S. LIBOR on the current basis cannot and will not be guaranteed after June 30, 2023. Moreover, it is possible that U.S. LIBOR will be discontinued or modified prior to June 30, 2023. ~~When~~Upon the earlier of LIBOR ~~ceases~~ceasing to exist or the maturity date of our Revolving Facility, we ~~will need~~expect to enter into an amendment to the Amended Credit Agreement and, while we cannot predict what alternative index would be negotiated with our ~~lenders.~~lenders, we expect the secured overnight financing rate (“SOFR”) to be used as the replacement for LIBOR. If future rates based upon SOFR or any other successor reference rate are higher or more volatile than LIBOR rates as currently determined or if our lenders have increased costs due to changes in LIBOR, we may experience potential increases in interest rates on our variable rate debt, which could adversely impact our interest expense, results of operations and cash flows. Based on our outstanding debt balance as of June 30, ~~2021~~2022 described above and the interest rates applicable to our outstanding debt at June 30, ~~2021,~~2022, assuming a 100 basis point increase in the interest rates related to our variable rate debt, interest expense would have increased approximately ~~$1.3~~$2.0 million for the six months ended June 30, ~~2021.~~2022.

We may, in the future, manage, or hedge, interest rate risks related to our borrowings by means of interest rate swap agreements. However, the REIT provisions of the Internal Revenue Code of 1986, as amended, substantially limit our ability to hedge our assets and liabilities. See “Risk Factors — Risks Related to Our Status as a REIT — Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities,” which is included in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. As of June 30, ~~2021,~~2022, we had no swap agreements to hedge our interest rate risks. We also expect to manage our exposure to interest rate risk by maintaining a mix of fixed and variable rates for our indebtedness.

Table of Contents

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the ~~Securities~~ Exchange ~~Act of 1934, as amended (“Exchange Act”))~~Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and regulations and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the

~~Table of Contents~~

desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of June 30, ~~2021,~~2022, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, as of June 30, ~~2021.~~2022.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company and its subsidiaries are and may become from time to time a party to various claims and lawsuits arising in the ordinary course of business, but none of the Company or any of its subsidiaries is, and none of their respective properties are, the subject of any material legal proceedings. Claims and lawsuits may include matters involving general or professional liability asserted against its tenants, which are the responsibility of its tenants and for which the Company is entitled to be indemnified by its tenants under the insurance and indemnification provisions in the applicable leases.

Item 1A. Risk Factors.

We have disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 risk factors which materially affect our business, financial condition, or results of operations. There have been no material changes from the risk factors previously disclosed.

Table of Contents

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the three months ended June 30, 2022, we acquired shares of our common stock held by employees who tendered shares to satisfy tax withholding obligations upon the vesting of previously issued restricted stock awards. Specifically, the number of shares of common stock acquired from employees and the average prices paid per share for each month in the second quarter ended June 30, 2022 are shown in the table below.


Period	Total Number of Shares Purchased	Average Price Paid per Share
April 1 - April 30, 2022	—	$	—
May 1 - May 31, 2022	100,220	16.93
June 1 - June 30, 2022	—	—
Total	100,220	$	16.93

On March 20, 2020, our Board of Directors authorized us to repurchase up to $150.0 million of outstanding shares of our common ~~stock (the “Repurchase Program”).~~stock. Repurchases under the Repurchase Program, which expires on March 31, 2023, may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated share repurchase transactions, or other methods of acquiring shares, in each case subject to market conditions and at such times as shall be permitted by applicable securities laws and determined by management. Repurchases under the Repurchase Program may also be made pursuant to a plan adopted under Rule 10b5-1 promulgated under the Exchange Act. ~~We did~~Through June 30, 2022, we have not ~~repurchase~~repurchased any shares of our common stock under the Repurchase Program ~~during the three months ended June 30, 2021~~ and $150.0 million remains available for the repurchase of shares of our common stock under the Repurchase Program as of June 30, ~~2021.~~2022. The Repurchase Program may be modified, discontinued or suspended at any time.

Table of Contents

Item 6. Exhibits.


Exhibit Number						Description of the Document


~~2.1~~						Membership Interest Purchase Agreement, dated as of January 27, 2019, by and between BME Texas Holdings LLC and CTR Partnership, L.P. (Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on April 2, 2019 is incorporated herein by reference).

3.1						Articles of Amendment and Restatement of CareTrust REIT, Inc. (Exhibit 3.1 to the Company’s Registration Statement on Form 10, filed on May 13, 2014, is incorporated herein by reference).

3.2						Articles of Amendment, dated May 30, 2018, to the Articles of Amendment and Restatement of CareTrust REIT, Inc. (Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on May 31, 2018, is incorporated herein by reference).

3.3						Amended and Restated Bylaws of CareTrust REIT, Inc. (Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on March 7, 2019, ~~is incorporated herein by reference).~~

~~4.1~~						Indenture, dated as of June 17, 2021, among CTRE Partnership, L.P., CareTrust Capital Corp., CareTrust REIT, Inc., the other guarantors named therein, and Wells Fargo Bank, National Associate, as trustee (Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 17, 2021 is incorporated herein by reference).

~~4.2~~						~~Form of 3.875% Senior Note due 2028 (Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 17, 2021 is incorporated herein by reference).~~

~~22.1~~						~~List of Subsidiary Issuers and Guarantors of CareTrust REIT, Inc. (Exhibit 22.1 to the Company's Quarterly Report on Form 10-Q, filed on May 7, 2020,~~ is incorporated herein by reference).

*31.1						Certification of Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2						Certification of Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

**32.1						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

*101.SCH						Inline XBRL Taxonomy Extension Schema Document

*101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

*101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

*101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

*101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

*104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Filed herewith

** Furnished herewith

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CareTrust REIT, Inc.
August ~~5, 2021~~4, 2022	By:	/s/ ~~Gregory K. Stapley~~David M. Sedgwick
		~~Gregory K. Stapley~~David M. Sedgwick
		President and Chief Executive Officer (duly authorized officer)

August ~~5, 2021~~4, 2022	By:	/s/ William M. Wagner
		William M. Wagner
		Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)


	Payments Due by Period
	Total		Less than 1 Year		1 Year to Less than 3 Years		3 Years to Less than 5 Years		More than 5 years
2028 Senior unsecured notes payable (1)	$	509,103	$	16,103	$	31,000	$	31,000	$	431,000
2025 Senior unsecured notes payable (2)	309,187		309,187		—		—		—
Senior unsecured term loan (3)	214,930		3,243		6,477		205,210		—
Unsecured revolving credit facility (4)	52,453		1,525		50,928		—		—
Operating leases	3,662		265		230		104		3,063
Total	$	1,089,335	$	330,323	$	88,635	$	236,314	$	434,063