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, ~~2022~~2023


☐			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	New York Stock Exchange

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 ~~3, 2022,~~2, 2023, there were 99,476,284 ~~were 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 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	1920
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2931
Item 4.	Controls and Procedures	3032

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	3133
Item 1A.	Risk Factors	31
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	3233

Item 5.	Other Information	34
Item 6.	Exhibits	3334
	Signatures	3435

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, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Assets:	Assets:					Assets:
Real estate investments, net	Real estate investments, net	$	1,390,286	$	1,589,971	Real estate investments, net	$	1,528,234	$	1,421,410
Other real estate investments		115,168		15,155
Other real estate related investments, at fair value (including accrued interest of $1,136 as of June 30, 2023 and $1,320 as of December 31, 2022)						Other real estate related investments, at fair value (including accrued interest of $1,136 as of June 30, 2023 and $1,320 as of December 31, 2022)	166,822		156,368
Assets held for sale, net	Assets held for sale, net	141,767		4,835		Assets held for sale, net	21,554		12,291
Cash and cash equivalents	Cash and cash equivalents	30,267		19,895		Cash and cash equivalents	1,145		13,178

Accounts and other receivables	Accounts and other receivables	875		2,418		Accounts and other receivables	387		416
Prepaid expenses and other assets, net	Prepaid expenses and other assets, net	6,837		7,512		Prepaid expenses and other assets, net	14,029		11,690
Deferred financing costs, net	Deferred financing costs, net	572		1,062		Deferred financing costs, net	4,781		5,428
Total assets	Total assets	$	1,685,772	$	1,640,848	Total assets	$	1,736,952	$	1,620,781
Liabilities and Equity:	Liabilities and Equity:					Liabilities and Equity:
Senior unsecured notes payable, net	Senior unsecured notes payable, net	$	394,706	$	394,262	Senior unsecured notes payable, net	$	395,594	$	395,150
Senior unsecured term loan, net	Senior unsecured term loan, net	199,242		199,136		Senior unsecured term loan, net	199,454		199,348
Unsecured revolving credit facility	Unsecured revolving credit facility	205,000		80,000		Unsecured revolving credit facility	280,000		125,000
Accounts payable, accrued liabilities and deferred rent liabilities	Accounts payable, accrued liabilities and deferred rent liabilities	21,749		25,408		Accounts payable, accrued liabilities and deferred rent liabilities	21,039		24,360
Dividends payable	Dividends payable	26,807		26,285		Dividends payable	27,843		27,550
Total liabilities	Total liabilities	847,504		725,091		Total liabilities	923,930		771,408
Commitments and contingencies (Note 11)	Commitments and contingencies (Note 11)	0		0		Commitments and contingencies (Note 11)
Equity:	Equity:					Equity:
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		966		963
Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued and outstanding as of June 30, 2023 and December 31, 2022						Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued and outstanding as of June 30, 2023 and December 31, 2022	—		—
Common stock, $0.01 par value; 500,000,000 shares authorized, 99,124,082 and 99,010,112 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively						Common stock, $0.01 par value; 500,000,000 shares authorized, 99,124,082 and 99,010,112 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	991		990
Additional paid-in capital	Additional paid-in capital	1,195,282		1,196,839		Additional paid-in capital	1,245,717		1,245,337
Cumulative distributions in excess of earnings	Cumulative distributions in excess of earnings	(357,980)		(282,045)		Cumulative distributions in excess of earnings	(433,686)		(396,954)
Total equity	Total equity	838,268		915,757		Total equity	813,022		849,373
Total liabilities and equity	Total liabilities and equity	$	1,685,772	$	1,640,848	Total liabilities and equity	$	1,736,952	$	1,620,781

See accompanying notes to condensed consolidated financial statements.

Table of Contents

CARETRUST REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

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


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Revenues:
Rental income	$	47,745	$	46,806	$	93,908	$	92,813


Interest and other income	3,808		747		8,251		1,216
Total revenues	51,553		47,553		102,159		94,029
Expenses:
Depreciation and amortization	12,716		12,559		24,954		26,134
Interest expense	11,040		6,303		20,867		12,045
Property taxes	1,390		1,254		2,270		2,674

Impairment of real estate investments	21,392		1,701		23,278		61,384

Provision for loan losses, net	—		—		—		3,844
Property operating expenses	658		89		1,621		536

General and administrative	4,718		4,978		9,779		10,193
Total expenses	51,914		26,884		82,769		116,810
Other (loss) income:

Gain on sale of real estate, net	2,028		—		1,958		186

Unrealized losses on other real estate related investments, net	(2,151)		—		(2,605)		—
Total other (loss) income	(123)		—		(647)		186
Net (loss) income	$	(484)	$	20,669	$	18,743	$	(22,595)
(Loss) earnings per common share:
Basic	$	(0.01)	$	0.21	$	0.19	$	(0.24)
Diluted	$	(0.01)	$	0.21	$	0.19	$	(0.24)
Weighted-average number of common shares:
Basic	99,117		96,564		99,090		96,487
Diluted	99,117		96,598		99,194		96,487

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, 2023	99,010,112	$	990	$	1,245,337	$	(396,954)	$	849,373

Vesting of restricted common stock, net of shares withheld for employee taxes	87,978	1		(1,480)		—		(1,479)
Amortization of stock-based compensation	—	—		936		—		936
Common dividends ($0.28 per share)	—	—		—		(27,738)		(27,738)
Net income	—	—		—		19,227		19,227
Balance at March 31, 2023	99,098,090	991		1,244,793		(405,465)		840,319

Vesting of restricted common stock	25,992	—		—		—		—
Amortization of stock-based compensation	—	—		924		—		924
Common dividends ($0.28 per share)	—	—		—		(27,737)		(27,737)
Net loss	—	—		—		(484)		(484)
Balance at June 30, 2023	99,124,082	$	991	$	1,245,717	$	(433,686)	$	813,022

Common Stock Additional
Paid-in
Capital Cumulative
Distributions in Excess of Earnings Total
Equity
Shares Amount
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 190,393 2 (2,774) — (2,772)
Amortization of stock-based compensation — — 1,521 — 1,521
Common dividends ($0.275 per share) — — — (26,659) (26,659)
Net loss — — — (43,264) (43,264)
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 118,046 1 (1,698) — (1,697)
Amortization of stock-based compensation — — 1,394 — 1,394
Common dividends ($0.275 per share) — — — (26,681) (26,681)
Net income — — — 20,669 20,669
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, 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


	Common Stock			Additional Paid-in Capital		Cumulative Distributions in Excess of Earnings		Total Equity
	Shares	Amount
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	190,393	2		(2,774)		—		(2,772)
Amortization of stock-based compensation	—	—		1,521		—		1,521
Common dividends ($0.275 per share)	—	—		—		(26,659)		(26,659)
Net loss	—	—		—		(43,264)		(43,264)
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	118,046	1		(1,698)		—		(1,697)
Amortization of stock-based compensation	—	—		1,394		—		1,394
Common dividends ($0.275 per share)	—	—		—		(26,681)		(26,681)
Net income	—	—		—		20,669		20,669
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 CASH FLOWS

(in thousands)

(Unaudited)


		For the Six Months Ended June 30,					For the Six Months Ended June 30,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net (loss) income		$	(22,595)	$	41,803
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net income (loss)						Net income (loss)	$	18,743	$	(22,595)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:						Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization (including below-market ground leases)	Depreciation and amortization (including below-market ground leases)	26,167		27,345		Depreciation and amortization (including below-market ground leases)	24,983		26,167
Amortization of deferred financing costs	Amortization of deferred financing costs	1,040		1,012		Amortization of deferred financing costs	1,217		1,040

Unrealized losses on other real estate related investments, net						Unrealized losses on other real estate related investments, net	2,605		—
Amortization of stock-based compensation	Amortization of stock-based compensation	2,915		3,395		Amortization of stock-based compensation	1,860		2,915
Straight-line rental income	Straight-line rental income	(11)		(20)		Straight-line rental income	14		(11)
Adjustment for collectibility of rental income	Adjustment for collectibility of rental income	977		—		Adjustment for collectibility of rental income	—		977
Noncash interest income	Noncash interest income	(13)		—		Noncash interest income	184		(13)
(Gain) loss on sale of real estate		(186)		192
Gain on sale of real estate, net						Gain on sale of real estate, net	(1,958)		(186)

Impairment of real estate investments	Impairment of real estate investments	61,384		—		Impairment of real estate investments	23,278		61,384
Provision for loan losses, net	Provision for loan losses, net	3,844		—		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	578		(93)		Accounts and other receivables	14		578
Prepaid expenses and other assets, net	Prepaid expenses and other assets, net	(1,724)		88		Prepaid expenses and other assets, net	(330)		(1,724)
Accounts payable, accrued liabilities and deferred rent liabilities	Accounts payable, accrued liabilities and deferred rent liabilities	(4,074)		(3,165)		Accounts payable, accrued liabilities and deferred rent liabilities	(3,624)		(4,074)
Net cash provided by operating activities	Net cash provided by operating activities	68,302		70,557		Net cash provided by operating activities	66,986		68,302
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	(21,915)		(147,807)		Acquisitions of real estate, net of deposits applied	(172,453)		(21,915)
Purchases of equipment, furniture and fixtures and improvements to real estate	Purchases of equipment, furniture and fixtures and improvements to real estate	(3,628)		(3,463)		Purchases of equipment, furniture and fixtures and improvements to real estate	(6,380)		(3,628)

Investment in real estate related and other loans receivable		(102,086)		(700)
Principal payments received on real estate related and other loans receivable		1,026		113
Investment in real estate related investments and other loans receivable						Investment in real estate related investments and other loans receivable	(27,262)		(102,086)
Principal payments received on real estate related investments and other loans receivable						Principal payments received on real estate related investments and other loans receivable	15,287		1,026

Escrow deposits for potential acquisitions of real estate						Escrow deposits for potential acquisitions of real estate	(300)		—
Net proceeds from sales of real estate	Net proceeds from sales of real estate	959		6,814		Net proceeds from sales of real estate	14,464		959
Net cash used in investing activities	Net cash used in investing activities	(125,644)		(145,043)		Net cash used in investing activities	(176,644)		(125,644)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from the issuance of common stock, net		—		22,946
Proceeds from the issuance of senior unsecured notes payable		—		400,000
Proceeds from (costs paid for) the issuance of common stock, net						Proceeds from (costs paid for) the issuance of common stock, net	(629)		—

Borrowings under unsecured revolving credit facility	Borrowings under unsecured revolving credit facility	125,000		170,000		Borrowings under unsecured revolving credit facility	155,000		125,000

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

Payments on debt extinguishment and deferred financing costs		—		(5,577)

Payments of deferred financing costs						Payments of deferred financing costs	(21)		—
Net-settle adjustment on restricted stock	Net-settle adjustment on restricted stock	(4,469)		(1,331)		Net-settle adjustment on restricted stock	(1,479)		(4,469)
Dividends paid on common stock	Dividends paid on common stock	(52,817)		(49,513)		Dividends paid on common stock	(55,246)		(52,817)
Net cash provided by financing activities	Net cash provided by financing activities	67,714		366,525		Net cash provided by financing activities	97,625		67,714
Net increase in cash and cash equivalents		10,372		292,039
Net (decrease) increase in cash and cash equivalents						Net (decrease) increase in cash and cash equivalents	(12,033)		10,372
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 beginning of period	13,178		19,895
Cash and cash equivalents as of the end of period	Cash and cash equivalents as of the end of period	$	30,267	$	310,958	Cash and cash equivalents as of the end of period	$	1,145	$	30,267
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Interest paid	Interest paid	$	10,987	$	10,664	Interest paid	$	21,000	$	10,987
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	$	522	$	1,834	Increase in dividends payable	$	294	$	522
Right-of-use asset obtained in exchange for new operating lease obligation						Right-of-use asset obtained in exchange for new operating lease obligation	$	369	$	—

Increase in deferred financing costs payable		$	—	$	618

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

Sale of real estate settled with notes receivable						Sale of real estate settled with notes receivable	$	2,000	$	—

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, ~~2022,~~2023, the Company owned and leased to independent operators ~~228~~, 224 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of ~~23,876~~ 23,694 operational beds and un~~its~~units located in 2928 states with the highest concentration of properties by rental income located in California, Texas, Louisiana, Idaho and Arizona. AsAs of June 30, ~~2022,~~2023, the Company also had other r~~eal~~real estate related investments consisting of ~~1 senior~~five real estate secured loans receivable and one mezzanine loan receivable ~~and 2 mezzanine loans receivable~~ with ~~an aggregate~~a carrying value of ~~$115.2~~$166.8 million.

~~COVID-19—~~The COVID-19 pandemic has had and may continue to have an adverse impact on the economy generally and the Company’s business, results of operations and financial 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, ~~2021.~~2022. 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.

~~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”), 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 were discontinued at the end of 2021. The amendments in this update are effective immediately and may be applied through December 31, 202~~2. Adoption of this ASU did not 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~~investment in owned properties held for ~~investment~~use at June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (dollars in thousands):


		June 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Land	Land	$	236,682	$	251,787	Land	$	266,010	$	238,738
Buildings and improvements	Buildings and improvements	1,430,948		1,622,019		Buildings and improvements	1,575,661		1,483,133
Integral equipment, furniture and fixtures	Integral equipment, furniture and fixtures	96,128		104,722		Integral equipment, furniture and fixtures	97,755		97,199
Identified intangible assets	Identified intangible assets	2,832		1,257		Identified intangible assets	2,832		2,832

Real estate investments	Real estate investments	1,766,590		1,979,785		Real estate investments	1,942,258		1,821,902
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(376,304)		(389,814)		Accumulated depreciation and amortization	(414,024)		(400,492)

Real estate investments, net	Real estate investments, net	$	1,390,286	$	1,589,971	Real estate investments, net	$	1,528,234	$	1,421,410

As of June 30, ~~2022~~, ~~226~~2023, 222 of the Company’s ~~228 facilities wer~~e224 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. ~~NaN~~Two of the Company’s ~~228~~224 facilities are non-operational and are leased under a short term lease with an expected remaining term of less than one year as of June 30, ~~2022.~~2023. As of June 30, ~~2022, 27~~2023, 15 facilities were held for sale. See Note 4, Impairment of Real Estate Investments, Assets Held for Sale, Net and Asset Sales, for additional information.

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

As of June 30, ~~2022,~~2023, the Company’s total future contractual minimum rental income for all of its tenants, excluding operating expense reimbursements and assets held for sale, was as follows (dollars in thousands):


Year	Year	Amount		Year	Amount
2022 (six months)		$	98,897
2023		197,657
2023 (six months)				2023 (six months)	$	98,155
2024	2024	196,480		2024	197,155
2025	2025	196,452		2025	198,310
2026	2026	196,557		2026	198,853
2027	2027	193,547		2027	195,687
2028				2028	193,433
Thereafter	Thereafter	1,011,035		Thereafter	941,966
Total	Total	$	2,090,625	Total	$	2,023,559

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(1)

Properties

Lease Expiration

Next Option Open Date

Option Type(1)

Current Cash Rent(2)

Asset Type(1)

Properties

Lease Expiration

Option Period Open Date(2)

Option Type(3)

Current Cash Rent(4)

ALF

(6)

October 2034

1/1/2023

(3)

2,287

SNF

November 2030

1/1/2023

(3)

4,944

SNF

March 2029

4/1/2022

(4)

B / C(5)

805

SNF

March 2029

4/1/2022

(5)

A / B(7)

832

SNF / Campus

October 2032

1/1/2023

(3)

1,065

SNF / Campus

(8)

October 2032

1/1/2024

(6)

1,097

SNF

November 2034

12/1/2024

(4)

3,796

SNF

November 2034

12/1/2024

(5)

3,891

ALF

(6)

October 2034

1/1/2026

(3)

1,598

(1) Excludes a purchase option on an 11 building SNF portfolio classified as held for sale as of June 30, 2023 and representing $5.1 million of current cash rent. Tenant is currently not eligible to elect the option.

(2) The Company has not received notice of exercise for the option periods that are currently open.

(3) Option type includes:

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

B ~~- Fixed base price.~~

C - Fixed capitalization rate on lease revenue.

~~(2)~~(4) Based on annualized cash revenue for contracts in place as of June 30, ~~2022.~~2023.

~~(3) Option window is open for six months.~~

~~(4)~~(5) Option window is open until the expiration of the lease term.

~~(5)~~(6) Option window is open for six months from the option period open date.

(7) Purchase option reflects two option types.

~~(6)~~(8) Includes ~~properties~~one property classified as held for sale as of June 30, ~~2022.~~

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~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

2023.

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	2022		2021		2022		2021		Rental Income	2023		2022		2023		2022
Contractual rent due(1)	Contractual rent due(1)	$	46,801	$	47,736	$	93,779	$	92,907	Contractual rent due(1)	$	47,752	$	46,801	$	93,922	$	93,779
Straight-line rent	Straight-line rent	5		8		11		20		Straight-line rent	(7)		5		(14)		11
Adjustment for collectibility(2)	Adjustment for collectibility(2)	—		—		(977)		—		Adjustment for collectibility(2)	—		—		—		(977)

Lease termination revenue(3)		—		—		—		63

Total	Total	$	46,806	$	47,744	$	92,813	$	92,990	Total	$	47,745	$	46,806	$	93,908	$	92,813

(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, 2023 and 2022 ~~and 2021~~ were ~~$0.7~~$1.2 million and ~~$0.8~~$0.7 million, respectively. Tenant operating expense reimbursements for the six months ended June 30, 2023 and 2022 were $1.9 million 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 4four existing and former operators. As such, the Company reversed ~~$0.7~~$0.7 million of operating expense reimbursements, ~~$0.2~~$0.2 million of contractual rent and ~~$0.1~~$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 reestablish the receivable which will result in an increase in rental income for such recoveries.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

Recent Real Estate Acquisitions

The following table summarizes the Company’s acquisitions for the six months ended June 30, ~~2022~~2023 (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(2)		Number of Properties	Number of Beds/Units(3)
Skilled nursing	Skilled nursing	$	8,918	$	815	1	135	Skilled nursing	$	107,858	$	9,085	7	871
Multi-service campuses	Multi-service campuses	13,003		1,235		1	130	Multi-service campuses	25,276		1,916		1	168

Assisted living								Assisted living	39,319		3,495		4	241
Total	Total	$	21,921	$	2,050	2	265	Total	$	172,453	$	14,496	12	1,280

(1) Purchase price includes capitalized acquisition costs.

(2) Initial annual cash rent represents initial cash rent for the first twelve months excluding the impact of rent abatement in the first one to three months, if applicable.

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

Lease Amendments

Amended Premier Lease. Effective January 1, 2023, the Company amended its master lease with affiliates of Premier Senior Living, LLC (“Premier”). In connection with the lease amendment, the Company reduced the annual cash rent by $1.7 million, to approximately $2.6 million. The Premier lease, as amended, had a remaining term at the date of amendment of approximately 8 years with two five-year renewal options and CPI-based rent escalators.

Noble ~~Partial~~VA Lease Termination and New ~~Landmark~~Pennant Lease. ~~On June~~Effective March 16, ~~2022, 1 ALF~~2023, two ALFs in ~~Florida was~~Wisconsin were removed from a master lease with affiliates of Noble ~~Senior Services~~VA Holdings (“~~Noble”~~Noble VA”) and the Company ~~amended~~terminated the applicable Noble VA master ~~lease to reflect the removal of the ALF.~~lease. Annual cash rent under the applicable Noble VA master lease ~~decreased by~~prior to lease termination was approximately ~~$0.6~~$2.3 million. In connection with the ~~partial~~ lease termination, the Company entered into a new 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~~with respect 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~~two ALFs. The applicable ~~Ensign master leases have remaining terms~~Pennant lease had an initial term at the date of the lease of approximately ~~five~~15 years ~~and 16 years, respectively, both~~ with 3two five-year renewal options and CPI-based rent escalators. Annual cash rent under ~~each~~the new lease was approximately $0.8 million and the master lease provides Pennant with three months deferred rent to be repaid before the expiration or termination of the lease.

Amended Hillstone Lease. On March 24, 2023, the Company amended its master lease with affiliates of Hillstone Healthcare, Inc. (“Hillstone”). In connection with the lease amendment, the Company agreed to defer rent of approximately $0.7 million for 12 months from December 2022 through November 2023 to be repaid as a percentage of adjusted gross revenues of one underlying facility, as defined in the amended lease, beginning January 1, 2025, until deferred rent has been paid in full. The amended Hillstone lease had a remaining term at the date of amendment of approximately 7 years with two ~~applicable Ensign~~five-year renewal options and 2% fixed rent escalators.

Amended Momentum Lease. On April 1, 2023, the Company acquired one SNF. In connection with the acquisition, the Company amended its existing triple-net master ~~leases, as amended, increased by approximately $0.4 million~~lease with affiliates of Momentum Skilled Services (“Momentum”) to include the one SNF and ~~annual cash rent under~~extended the ~~Pennant~~initial lease term. The Momentum master lease, as amended, ~~decreased~~had a remaining term at the date of amendment of approximately 15 years, with two five-year renewal options and CPI-based rent escalators. Annual rent under the amended lease increased by ~~$0.8~~approximately $1.0 million.

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

During the three and six months ended June 30, 2023, the Company recognized an impairment charge on 12 and 15 facilities of $21.4 million and $23.3 million, respectively, which is reported in impairment of real estate investments in the condensed consolidated statements of operations. As of June 30, 2023, there were 15 facilities classified as held for sale, all of which have been marked down to fair value and considered Level 3 measurements within the fair value hierarchy. During the three and six months ended June 30, 2022, the Company recognized an impairment charge on one and 21 facilities of $1.7 million and $61.4 million, respectively.

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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, wit~~h 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 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 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 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 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.~~binding agreements for sales and non-binding offers to purchase from unrelated third-parties. 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 ~~rangin~~granging from ~~$40,000~~$18,000 to ~~$175,000,~~$35,000, with a weighted average price per unit of ~~$91,000.~~$21,000.

~~During~~Asset Sales and Held for Sale Reclassifications

The following table summarizes the ~~second quarter~~Company’s dispositions for the three and six months ended June 30, 2023 and 2022 (dollars in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Number of facilities	3		—		4		1
Net sales proceeds(1)	$	13,234	$	—	$	16,464	$	959
Net carrying value	11,206		—		14,506		773
Net gain on sale	$	2,028	$	—	$	1,958	$	186

(1) Net sales proceeds includes $2 million of ~~2022,~~seller financing in connection with the ~~Company recognized an impairment charge~~sale of ~~$1.7~~one ALF in June 2023. The $2.0 million ~~related to 1 SNF. The Company wrote down its carrying value of $2.8 million to its estimated fair value of $1.1 million, which~~mortgage loan is included in other real estate related investments ~~net~~ on the Company’s condensed consolidated balance sheets.

The ~~fair value of the asset was based on comparable market transactions. For~~following table summarizes 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 met the held for sale criteria. The Company reclassified this ALF’s carrying value of $4.8 million out of assets held for sale ~~and recorded catch-up depreciation of approximately $0.1 million during~~activity for the ~~six months ended June 30, 2022.~~periods presented (dollars in thousands):

On February 22, 2022, the Company closed on the sale of 1 SNF, operated by affiliates of Cascadia Healthcare, LLC (“Cascadia”), consisting of 83 beds located in Washington with a carrying value of $0.8 million, for net sales proceeds of $1.0 million. During the six months ended June 30, 2022, the Company recorded a gain of $0.2 million in connection with the sale. There was no rent reduction under the Cascadia master lease in connection with the sale.


	Net Carrying Value		Number of Facilities
December 31, 2022	$	12,291	5
Additions to assets held for sale	47,047		14
Assets sold	(14,506)		(4)
Impairment of real estate held for sale	(23,278)		—

June 30, 2023	$	21,554	15

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

5. OTHER REAL ESTATE ~~INVESTMENTS~~RELATED AND OTHER ~~LOANS RECEIVABLE~~INVESTMENTS

As of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company’s other real estate related investments, at fair value, consisted of the following ~~(dollars~~(dollar amounts in thousands):


									As of June 30, 2022											As of June 30, 2023
Investment	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	Investment	Facility Count and Type	Principal Balance as of June 30, 2023		Book Value as of June 30, 2023		Book Value as of December 31, 2022		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
Senior mortgage secured loan receivable												Senior mortgage secured loan receivable	18 SNF/Campus	$	75,000	$	71,488	$	72,543	8.4	%	(1)	6/30/2027
Mortgage secured loan receivable												Mortgage secured loan receivable	5 SNF	22,250		21,208		21,345		10.6	%	(2)	8/1/2025
Mortgage secured loan receivable												Mortgage secured loan receivable	4 SNF	24,900		23,503		23,796		9.0	%	(2)	9/8/2025
Mortgage secured loan receivable(3)												Mortgage secured loan receivable(3)	1 ALF	2,000		2,000		—		9.0	%		5/31/2024
Mortgage secured loan receivable(4)												Mortgage secured loan receivable(4)	2 SNF Campus / ILF	25,993		25,993		—		9.0	%		6/29/2033
Mezzanine loan receivable(5)												Mezzanine loan receivable(5)	9 SNF	—		—		14,672		—			—
Mezzanine loan receivable	Mezzanine loan receivable	18 SNF/Campus	25,000		25,000		—		11.0	%	6/30/2032	Mezzanine loan receivable	18 SNF/Campus	25,000		22,630		24,012		11.0	%		6/30/2032
			$	115,000	$	115,168	$	15,155						$	175,143	$	166,822	$	156,368

(1) Rate is net of subservicing fee.

(2) Term secured overnight financing rate (“SOFR”) used as of June 30, 2023 was 5.11%. Rates are net of subservicing fees.

(3) In June 2023, the Company closed on the sale of one ALF. In connection with the sale, the Company provided affiliates of the purchaser of the properties with a $2.0 million mortgage loan. The mortgage loan is secured by the ALF. The mortgage loan has a one-year extension option and may be prepaid in whole before the maturity date.

(4) In June 2023, the Company extended a $26.0 million mortgage loan to a skilled nursing real estate owner. The mortgage loan is secured by one SNF campus and one ILF. The mortgage loan is set to mature on June 29, 2033 and may (subject to certain restrictions) be prepaid in whole before the maturity date for an exit fee ranging from 0% to 3% of the loan plus unpaid interest payments.

(5) Mezzanine loan was prepaid during the six months ended June 30, 2023.

The following table summarizes the Company’s other real estate related investments activity for the six months ended June 30, ~~2022~~2023 and ~~2021~~2022 (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 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 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, the Company also extended to the borrower group a $25.0 million mezzanine loan. The “C” tranche of the senior secured 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. The Company elected the fair value option for both the “C” tranche term loan and the mezzanine loan. The fair value option is elected on an instrument by instrument basis and must be applied to an entire instrument and is irrevocable once elected. The Company’s primary purpose in electing the fair value option for these instruments was to align with management’s view of the underlying economics of the loans and the manner in which they are managed.


	Six Months Ended June 30,
	2023		2022
Origination of other real estate related investments	$	28,243	$	100,000
Accrued interest, net	(184)		13
Unrealized losses on other real estate related investments, net	(2,605)		—
Repayments of other real estate related investments	(15,000)		—
Net increase in other real estate related investments, at fair value	$	10,454	$	100,013

~~See Note 12,~~

~~Subsequent Events~~ ~~for information regarding a $22.3 million “B” tranche term loan extended by the Company to a borrower in August 2022.~~

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

As of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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										As of June 30, 2023
Investment	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	Investment	Principal Balance as of June 30, 2023		Book Value as of June 30, 2023		Book Value as of December 31, 2022		Weighted Average Contractual Interest Rate		Maturity Date
Other loans receivable	Other loans receivable	$	5,377	$	5,383	$	3,161	8.0	%	9/1/2023 - 12/31/2023	Other loans receivable	$	10,328	$	10,333	$	9,600	8.5	%	8/31/2023 - 9/30/2025
Expected credit loss	Expected credit loss	(4,594)		(4,594)		—					Expected credit loss	—		(2,094)		(2,094)
Total	Total	$	783	$	789	$	3,161				Total	$	10,328	$	8,239	$	7,506

The following table summarizes the Company’s other loans receivable activity for the six months endedJune 30, ~~2022~~2023 and ~~2021~~2022 (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


	Six Months Ended June 30,
	2023		2022
Origination of loans receivable	$	1,019	$	2,500
Principal payments	(287)		(276)
Accrued interest, net	1		(2)
Provision for loan losses, net	—		(4,594)

Net increase (decrease) in other loans receivable	$	733	$	(2,372)

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 2two other loans receivable that ~~were~~have been placed on non-accrual status, including an unfunded loan commitment of $0.4 million, net of a loan loss recovery of $0.8 million related to a loan previously written-off. ~~As of December 31, 2021,~~During the six months endedJune 30, 2023, the Company had no additional expected credit loss and did not consider any loan receivable investments to be impaired.

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~~2023 and ~~2021~~2022 (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,
Investment	Investment	2022		2021		2022		2021		Investment	2023		2022		2023		2022
Senior secured loan receivable		$	17	$	—	$	17	$	—
Mortgage secured loans receivable										Mortgage secured loans receivable	$	2,762	$	17	$	5,466	$	17
Mezzanine loans receivable	Mezzanine loans receivable	713		455		1,163		905		Mezzanine loans receivable	695		713		2,278		1,163

Other	Other	17		59		36		114		Other	351		17		507		36
Total	Total	$	747	$	514	$	1,216	$	1,019	Total	$	3,808	$	747	$	8,251	$	1,216

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:

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~~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.

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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.

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, ~~2022~~2023 and December 31, ~~2021,~~2022, 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, 2022			Level 1		Level 2		Level 3		Balance as of June 30, 2023
Assets:	Assets:									Assets:
Senior secured loan receivable		$	—	$	—	$	75,018	$	75,018
Mortgage secured loans receivable										Mortgage secured loans receivable	$	—	$	—	$	144,192	$	144,192
Mezzanine loans receivable	Mezzanine loans receivable	—		—		40,150		40,150		Mezzanine loans receivable	—		—		22,630		22,630
Total										Total	$	—	$	—	$	166,822	$	166,822


		Level 1		Level 2		Level 3		Balance as of December 31, 2021			Level 1		Level 2		Level 3		Balance as of December 31, 2022
Assets:	Assets:									Assets:
Mezzanine loan receivable		$	—	$	—	$	15,155	$	15,155
Mortgage secured loans receivable										Mortgage secured loans receivable	$	—	$	—	$	117,684	$	117,684
Mezzanine loans receivable										Mezzanine loans receivable	—		—		38,684		38,684
Total										Total	$	—	$	—	$	156,368	$	156,368

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			Investments in Real Estate Secured Loans		Investments in Mezzanine Loans
Balance at December 31, 2021		$	—	$	15,155
Balance at December 31, 2022						Balance at December 31, 2022	$	117,684	$	38,684
Loan originations	Loan originations	75,000		25,000		Loan originations	28,243		—
Accrued interest, net	Accrued interest, net	18		(5)		Accrued interest, net	(21)		(163)
Balance as of June 30, 2022		$	75,018	$	40,150
Unrealized losses on other real estate related investments, net						Unrealized losses on other real estate related investments, net	(1,714)		(891)
Repayments						Repayments	—		(15,000)
Balance as of June 30, 2023						Balance as of June 30, 2023	$	144,192	$	22,630

~~Senior~~Real estate secured and mezzanine loans ~~receivables:~~receivable: The fair value of the ~~senior~~ secured and mezzanine 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 each instrument as Level 3 due to the significant unobservable inputs used in determining market interest rates for investments with similar terms. ~~As of~~During the three months ended June 30, ~~2022,~~2023, the ~~fair values~~Company recorded an unrealized loss of ~~the senior secured loan receivable~~$1.9 million related to three mortgage loans and ~~the~~one mezzanine loan receivable ~~originated in June 2022 are not sensitive~~due to ~~market~~rising interest rates and a $0.3 million loss due to a loan origination fee paid. During the ~~recent issuance~~six months ended June 30, 2023, the Company recorded an unrealized loss of $2.8 million related to three mortgage loans and one mezzanine loan receivable due to rising interest rates, partially offset by a reversal of a previously recognized unrealized loss of $0.5 million related to the ~~loans at market interest rates.~~repayment of one mezzanine loan receivable. Future changes in market interest rates or collateral value could materially impact the estimated discounted ~~cash flows. As of June 30, 2022 and December 31, 2021, the Company did not have any loans measured at fair value~~cash flows that ~~were 90 days or more past due.~~

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

are used to

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(Unaudited)

determine the fair value of the secured and mezzanine loans receivable. As of June 30, 2023 and December 31, 2022, the Company did not have any loans that were 90 days or more past due.

The following table shows the quantitative information about unobservable inputs related to the Level 3 fair value measurements comprising the investments in secured and mezzanine loans receivables as of June 30, 2023:

Type

Book Value as of June 30, 2023

Valuation Technique

Unobservable Inputs

Range

Mortgage secured loans receivable

144,192

Discounted cash flow

Discount Rate

10% - 14%

Mezzanine loan receivable

22,630

Discounted cash flow

Discount Rate

12% - 14%

For the six months ended June 30, 2023, there were no classification changes in assets and liabilities with Level 3 inputs in the fair value hierarchy.

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 value, carrying amount and fair value of the Notes (as defined in Note 7, Debt, below) as of June 30, ~~2022~~2023 and December 31, ~~2021~~2022 using Level 2 inputs is as follows (dollars in thousands):


			June 30, 2022						December 31, 2021								June 30, 2023						December 31, 2022
		Level	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value			Level	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value

Financial liabilities:	Financial liabilities:														Financial liabilities:
Senior unsecured notes payable	Senior unsecured notes payable	2	$	400,000	$	394,706	$	336,000	$	400,000	$	394,262	$	410,500	Senior unsecured notes payable	2	$	400,000	$	395,594	$	346,588	$	400,000	$	395,150	$	345,036

Cash and cash equivalents, accounts and other receivables, accounts payable, and accrued liabilities: 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.

7. DEBT

The following table summarizes the balance of the Company’s indebtedness as of June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (dollars in thousands):


		June 30, 2022						December 31, 2021							June 30, 2023						December 31, 2022
		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
Senior unsecured notes payable	Senior unsecured notes payable	$	400,000	$	(5,294)	$	394,706	$	400,000	$	(5,738)	$	394,262	Senior unsecured notes payable	$	400,000	$	(4,406)	$	395,594	$	400,000	$	(4,850)	$	395,150
Senior unsecured term loan	Senior unsecured term loan	200,000		(758)		199,242		200,000		(864)		199,136		Senior unsecured term loan	200,000		(546)		199,454		200,000		(652)		199,348
Unsecured revolving credit facility	Unsecured revolving credit facility	205,000		—		205,000		80,000		—		80,000		Unsecured revolving credit facility	280,000		—		280,000		125,000		—		125,000
		$	805,000	$	(6,052)	$	798,948	$	680,000	$	(6,602)	$	673,398		$	880,000	$	(4,952)	$	875,048	$	725,000	$	(5,502)	$	719,498

Senior Unsecured Notes Payable

2028 Senior Notes. On 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 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

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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.

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~~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 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, ~~2022,~~2023, the Company was in compliance with all applicable financial covenants under the indenture governing the Notes.

Unsecured Revolving Credit Facility and Term Loan

On ~~February 8, 2019,~~December 16, 2022, 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 ana second 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~~“Second Amended Credit Agreement”). The Second Amended Credit Agreement, which amends and restates the Company’s amended and restated credit and guaranty agreement, dated as of February 8, 2019 (as amended, the ~~Company’s prior credit agreement,~~“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) anthe continuation of the unsecured term loan credit facility which was previously extended under the Prior Credit Agreement (the “Term Loan” and together with the Revolving Facility, the ~~“Amended~~“Second 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.~~ Future borrowings under the Second Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes.

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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, ~~2022,~~2023, the Operating Partnership had $200.0 million of borrowings outstanding under the Term Loan and ~~$205.0~~$280.0 million outstanding under the Revolving Facility.

The Revolving Facility has a maturity date of February ~~8, 2023,~~9, 2027, and includes, at the sole discretion of the Operating Partnership, 2,two six-month extension options. The Term Loan has a maturity date of February 8, 2026.

The Second Amended Credit Facility is guaranteed, jointly and severally, by the Company and its wholly owned subsidiaries that are party to the Second Amended Credit Agreement (other than the Operating Partnership). The Second 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

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~~(Unaudited)~~

payments. The Second 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 Second Amended Credit Agreement also contains certain customary events of default, including the failure to make timely payments under the Second 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, ~~2022,~~2023, the Company was in compliance with all applicable financial covenants under the Second Amended Credit Agreement.

8. EQUITY

Common Stock

At-The-Market Offering—On ~~March 10, 2020,~~February 24, 2023, 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 addition to the issuance and sale of shares of its common stock, the Company may also enter into one or more forward sales agreements (each, an “ATM forward contract”) with sales agents for the sale of the Company’s shares of common stock under the ATM Program.

The Company expects to fully physically settle forward equity sales by delivery of shares of common stock to the forward purchaser and receive cash proceeds upon one or more settlement dates, which are typically a one-year term, at the Company’s discretion, prior to the final settlement date, at which time the Company expects to receive aggregate net cash proceeds at settlement equal to the number of shares sold on a forward basis multiplied by the relevant forward price per share. The weighted average forward sale price that the Company expects to receive upon physical settlement will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchaser’s stock borrowing costs and (iii) scheduled dividends through the settlement. During the three and six months ended June 30, 2023, the Company executed forward equity sales under the ATM Program with a financial institution acting as a forward purchaser to sell 6,736,089 shares of common stock at a weighted average sales price of $19.71 per share before commissions and offering expenses. The Company did not receive any proceeds from the sales of its shares of common stock by the forward sellers. As of June 30, 2023, the Company has not settled any portion of these forward equity sales.

There was no ATM Program activity (or activity under any predecessor at-the-market equity offering programs) for the three and six months ended June 30, 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, ~~2022,~~2023, the Company had ~~$476.5~~$367.2 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 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 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, the Company has not repurchased any shares of common stock under the Repurchase Program. As of~~ ~~June 30, 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 per share of common stock declared by the Company’s Board of Directors for the first six months of 2022 (dollars in thousands, except per share amounts):
For the Three Months Ended
March 31, 2022 June 30, 2022
Dividends declared per share $ 0.275 $ 0.275
Dividends payment date April 15, 2022 July 15, 2022
Dividends payable as of record date(1)
$ 26,691 $ 26,683
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.~~

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Dividends on Common Stock—The following table summarizes the cash dividends per share of common stock declared by the Company’s board of directors for the first six months of 2023 (dollars in thousands, except per share amounts):


	For the Three Months Ended
	March 31, 2023		June 30, 2023
Dividends declared per share	$	0.28	$	0.28
Dividends payment date	April 14, 2023		July 14, 2023
Dividends payable as of record date(1)	$	27,846	$	27,853
Dividends record date	March 31, 2023		June 30, 2023

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

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.

Under the Plan, restricted stock awards (“RSAs”) ~~granted in fiscal 2022 to employees~~ vest in equal annual installments ~~beginning on the first anniversary of the grant date~~ over a three year ~~period.~~period for the RSAs granted in 2022 and 2021 and a four year period for the RSAs granted in 2020. RSAs granted to non-employee members of the ~~Board~~board of ~~Directors~~directors (“Board Awards”) vest in full on the earlier to occur of the Company’s next ~~annual meeting~~Annual Meeting of ~~stockholders~~Stockholders or ~~the first anniversary of the grant date.~~one year. 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 for PSAs granted in 2021 orand over a one-to-four year period for PSAs granted ~~prior~~in 2020. The amount of such PSAs that will ultimately vest is dependent on the Company’s Normalized Funds from Operations (“NFFO”) per share, as defined by the Compensation Committee, meeting or exceeding a specified per share amount for the applicable vesting period. Relative total shareholder return units (“TSR Units”) granted in 2022 and 2021 are subject to ~~2021.~~both time and market based conditions and cliff vest after a three-year period. The amount of such market 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 other publicly traded healthcare REITs and will range from 0% to 200% of the TSR Units initially granted. The RSAs, PSAs, and Board Awards are valued on the date of grant based on the closing price of the Company’s common stock, while the TSR Units are valued on the date of grant using a Monte Carlo valuation model. The vesting of certain awards may accelerate, as defined in the grant agreement, upon retirement, a change in control or other events.

The following table summarizes the ~~RSAs~~status of the restricted stock award and ~~PSAs~~performance award activity for the six months ended June 30, ~~2022:~~2023:


		Shares	Weighted Average Share Price			Shares	Weighted Average Share Price
Unvested balance at December 31, 2021		891,333	$	20.91
Unvested balance at December 31, 2022					Unvested balance at December 31, 2022	573,609	$	20.63
Granted:	Granted:				Granted:
RSAs		9,684	17.56

Board Awards	Board Awards	25,992	16.93		Board Awards	24,768	19.38
Vested	Vested	(501,479)	20.60		Vested	(185,767)	20.94
Forfeited	Forfeited	(1,900)	21.50		Forfeited	(61,680)	21.19
Unvested balance at June 30, 2022		423,630	$	20.96
Unvested balance at June 30, 2023					Unvested balance at June 30, 2023	350,930	$	20.28

As of June 30, ~~2022,~~2023, the weighted-average remaining vesting period of such awards ~~was 1.9~~was 1.7 years.

The following table summarizes the stock-based compensation expense recognized for the periods presented (dollars in thousands):
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, 2022, there was~~ ~~$8.9 million~~ ~~of unamortized stock-based compensation expense related to the unvested RSAs, PSAs and TSR Awards.~~


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Stock-based compensation expense	$	924	$	1,394	$	1,860	$	2,915

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For the three and six months ended June 30, 2023, approximately $0.6 million of previously recognized stock-based compensation expense related to the PSAs was reversed as the awards are not expected to meet the performance conditions. For the six months ended June 30, 2023, approximately $0.9 million of previously recognized stock-based compensation expense was reversed due to forfeitures of stock awards.

As of June 30, 2023, there was $7.2 million of unamortized stock-based compensation expense related to the unvested RSAs and TSR Awards.

10. (LOSS) EARNINGS ~~(LOSS)~~ PER COMMON SHARE

The following table presents the calculation of basic and diluted (loss) earnings ~~(loss)~~ per common share (“EPS”) for the Company’s common stock for the three and six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, 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,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Numerator:	Numerator:									Numerator:
Net income (loss)		$	20,669	$	21,317	$	(22,595)	$	41,803
Net (loss) income										Net (loss) income	$	(484)	$	20,669	$	18,743	$	(22,595)
Less: Net income allocated to participating securities	Less: Net income allocated to participating securities	(94)		(116)		(211)		(234)		Less: Net income allocated to participating securities	(89)		(94)		(178)		(211)
Numerator for basic and diluted earnings available to common stockholders	Numerator for basic and diluted earnings available to common stockholders	$	20,575	$	21,201	$	(22,806)	$	41,569	Numerator for basic and diluted earnings available to common stockholders	$	(573)	$	20,575	$	18,565	$	(22,806)
Denominator:	Denominator:									Denominator:
Weighted-average basic common shares outstanding	Weighted-average basic common shares outstanding	96,564		96,082		96,487		95,732		Weighted-average basic common shares outstanding	99,117		96,564		99,090		96,487
Dilutive performance stock awards		34		38		—		23
Dilutive potential common shares - performance stock awards										Dilutive potential common shares - performance stock awards	—		34		90		—
Dilutive potential common shares - forward equity agreements										Dilutive potential common shares - forward equity agreements	—		—		14		—
Weighted-average diluted common shares outstanding	Weighted-average diluted common shares outstanding	96,598		96,120		96,487		95,755		Weighted-average diluted common shares outstanding	99,117		96,598		99,194		96,487

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
(Loss) earnings per common share, basic										(Loss) earnings per common share, basic	$	(0.01)	$	0.21	$	0.19	$	(0.24)
(Loss) earnings per common share, diluted										(Loss) earnings per common share, diluted	$	(0.01)	$	0.21	$	0.19	$	(0.24)
Antidilutive unvested restricted stock awards, total shareholder return units, performance awards, and forward equity shares excluded from the computation										Antidilutive unvested restricted stock awards, total shareholder return units, performance awards, and forward equity shares excluded from the computation	500		341		316		431

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 The Ensign Group, Inc., under multiple long-term leases, and 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, the tenants also have the option to request capital expenditure funding that would generally be subject to a corresponding rent increase at the time of funding, which are subject to tenant compliance with the conditions to the Company’s approval and funding of their requests. As of June 30, ~~2022,~~2023, the Company had committed to fund

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

expansions, construction and capital improvements at certain triple-net leased facilities totaling ~~$7.2~~$14.2 million, of which ~~$1.9~~$2.7 million is su~~bject~~subject to rent increase at the time of funding.

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 concentration - The Company has operators from which it derived 10% or more of its rental revenue for the three and six months ended June 30, ~~2022~~2023 and ~~2021.~~2022. The following table sets forth information regarding the Company’s major operators as of June 30, ~~2022~~2023 and ~~2021:~~2022:

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~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~


		Number of Facilities			Number of Beds/Units			Percentage of Total Revenue(1)					Number of Facilities			Number of Beds/Units			Percentage of Total Revenue(1)
Operator	Operator	SNF	Campus	ALF/ILF	SNF	Campus	ALF/ILF	Three Months Ended		Six Months Ended		Operator	SNF	Campus	ALF/ILF	SNF	Campus	ALF/ILF	Three Months Ended		Six Months Ended
June 30, 2023												June 30, 2023
Ensign(2)												Ensign(2)	83	8	7	8,741	997	661	36	%	36	%
Priority Management Group												Priority Management Group	13	2	—	1,742	402	—	16	%	16	%

June 30, 2022	June 30, 2022											June 30, 2022
Ensign(2)	Ensign(2)	83	8	7	8,756	997	678	35	%	35	%	Ensign(2)	83	8	7	8,756	997	678	35	%	35	%
Priority Management Group	Priority Management Group	13	2	—	1,742	402	—	16	%	16	%	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.~~reimbursements and adjustments for collectibility.

(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.

Major 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 its rental revenue for the three and six months ended June 30, 2023 and 2022:


		Number of Facilities			Number of Beds/Units			Percentage of Total Revenue(1)					Number of Facilities			Number of Beds/Units			Percentage of Total Revenue(1)
State	State	SNF	Campus	ALF/ILF	SNF	Campus	ALF/ILF	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022		State	SNF	Campus	ALF/ILF	SNF	Campus	ALF/ILF	Three Months Ended		Six Months Ended
June 30, 2023												June 30, 2023
CA												CA	29	9	5	3,307	1,527	437	28	%	28	%
TX												TX	40	3	2	5,126	536	212	23	%	23	%

June 30, 2022												June 30, 2022
CA	CA	27	8	5	3,048	1,359	449	27	%	26	%	CA	27	8	5	3,048	1,359	449	27	%	26	%
TX	TX	38	3	3	4,849	536	242	22	%	22	%	TX	38	3	3	4,849	536	242	22	%	22	%

(1) ~~The~~Represents the Company’s rental income, exclusive of operating expense ~~reimbursements.~~reimbursements and adjustments for collectibility.

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.

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

Recent ~~Investment~~Investments

On ~~August 1, 2022,~~July 17, 2023, the Company extended a ~~$22.3~~$15.7 million ~~“B” tranche~~mortgage secured ~~term~~ loan to a skilled nursing real estate ~~owner in connection with the borrower’s acquisition of 5~~owner. The mortgage loan is secured by a two-facility skilled nursing ~~facilities located~~portfolio 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 5 skilled nursing facilities, 4 of which will beFlorida, operated by ~~an existing operator and 1 of 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~~ bears interest at ~~a rate based on term secured overnight financing rate, with a floor of approximately 8.5%.~~9.0%, payable monthly. The ~~$22.3 million “B” tranche~~ term loan is set to mature on August 1, 2028, with one five-year extension option and may (subject to certain restrictions) be prepaid in whole before the maturity date for an exit fee ranging from 2% to 3% of the loan plus unpaid interest payments; provided, however, that no exit fee is payable in connection with the loan being refinanced pursuant to a loan (or loans) provided by Fannie Mae, Freddie Mac, Federal Housing Administration, or a similar governmental authority. The investment was funded using ~~a combination of~~proceeds from the Revolving Facility as well as cash on ~~hand and borrowings~~hand.

At-The-Market Offering of Common Stock

In July 2023, the Company executed forward equity sales under the ~~Company’s Revolving Facility.~~ATM Program with a financial institution acting as a forward purchaser to sell 3,839,348 shares of common stock at a weighted average sales price of $19.94 per share before commissions and offering expenses. The Company did not receive any proceeds from the sale of its shares of common stock by the forward sellers.

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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~~impact of possible additional surges of COVID-19 infections ~~due to~~or the ~~rate~~risk of ~~public acceptance and efficacy of COVID-19 vaccines~~other pandemics, epidemics or ~~to new and more contagious and/or vaccine resistant variants, and the~~infectious disease outbreaks, measures taken to prevent the spread of ~~COVID-19~~such outbreaks 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; (v) the ability and willingness of our tenants to renew their leases with us upon their expiration, and the ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event we replace an existing tenant, as well as any obligations, including indemnification obligations, we may incur in connection with the replacement of an existing tenant; (vi) the availability of and the ability to identify (a) tenants who meet our credit and operating standards, and (b) suitable acquisition opportunities, and the ability to acquire and lease the respective properties to such tenants on favorable terms; (vii) the ability to generate sufficient cash flows to service our outstanding indebtedness; (viii) access to debt and equity capital markets; (ix) fluctuating interest rates; (x) the ability to retain our key management personnel; (xi) the ability to maintain our status as a real estate investment trust (“REIT”); (xii) changes in the U.S. tax law and other state, federal or local laws, whether or not specific to REITs; (xiii) other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments; and (xiv) any additional factors included under Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021, including in~~2022, our Quarterly Report on Form 10-Q for the ~~section entitled “Risk Factors” in Item 1A of Part I of such~~quarter ended March 31, 2023 and this 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, ~~2022,~~2023, we owned and leased to independent ~~operators, 228~~operators, 224 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of ~~23,876~~23,694 operational beds and units located in 2928 states ~~wit~~h with the highest concentration of properties by rental revenues located in California, Texas, Louisiana, Idaho and Arizona. As of June 30, ~~2022,~~2023, we also had other real estate related investments consisting of ~~one senior~~five real estate secured ~~loan~~loans receivable and ~~two~~one mezzanine ~~loans~~loan receivable with an aggregate carrying value of ~~$115.2~~$166.8 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

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purposes. We expect to grow our portfolio by pursuing opportunities to acquire additional properties that will be leased to a

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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 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 have, and may from time to time in the future, 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

Post COVID-19 Pandemic Conditions and ~~Market Conditions Update~~Outlook

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 adverse conditions that emerged, and have continued, during the COVID-19 pandemic. Our tenants are experiencing increased operating costs as a result of actions they ~~are taking~~took 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.~~facilities. Our tenants are also experiencing labor shortages resulting in limited admissions, higher operating costs and continued reduced occupancy ~~and higher agency expense.~~

levels. At a portfolio wide level, occupancy levels at our seniors housing facilities, ~~remained relatively stable from~~comprising our ALFs and ILFs, are continuing to show signs of recovery following the onset of the COVID-19 pandemic, ~~until the beginning of the fourth quarter of 2020, at which time we began~~although they have not yet fully normalized to ~~see a decline. This decline~~pre-pandemic levels. Within our SNFs, occupancy levels have continued to improve since their trough in occupancy continued through the 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 ofJanuary 2021, but still ~~lags compared~~remain below pre-COVID occupancy levels for most of our tenants.

Federal and state governmental relief programs enacted during the pandemic provided temporary assistance to ~~pre-pandemic~~many of our tenants during the COVID-19 pandemic. These included the Public Health and Social Services Emergency Fund that began funding in late 2021, a temporary suspension of Medicare sequestration cuts under the Coronavirus Aid, Relief, and Economic Security Act and a temporary 6.2% increase in Federal Medical Assistance Percentage (“FMAP”) that was approved retroactive to January 1, 2020 and will be phased down by December 31, 2023 under the Consolidated Appropriations Act of 2023. The tapering and/or end of these relief programs has impacted, and may continue to adversely impact, the business and financial condition of our tenants, as they continue to experience lower occupancy ~~levels. Occupancy~~ levels ~~at our SNFs, which declined at the onset of~~and higher operating costs.

In response to the COVID-19 pandemic, the U.S. Department of Health and ~~continued~~Human Services (“HHS”) enacted the COVID-19 Public Health Emergency (“PHE”) that allowed HHS to ~~decline through January 2021, had been on a slow incline from February 2021 through the second quarter~~provide temporary regulatory waivers, including waiver of ~~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~~This waiver had the ~~risk~~effect of ~~transferring the patient to the hospital. Because of the temporary waiver of the three-day hospital stay requirement, overall skilled mix 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 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 periodically 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~~COVID-19 pandemic, especially during surges 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.~~outbreaks. 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.~~

occupancy declines. The U.S. Department of Health and Human Services (“HHS”) recently renewed the COVID-19 Public Health Emergency, which is currently set to be in force through October 2022, and that allows HHS to continue providing temporary regulatory waivers,PHE, including ~~the~~HHS’s waiver of the three-day hospital stay requirement, expired on May 11, 2023. With the expiration of the PHE and the lifting of the three-day hospital stay requirement, our SNFs may experience decreases in occupancy levels or revenues, which may have a further adverse impact on the business and financial condition of the operators of our SNFs.

State specific approaches have been developed including various states having increased their Medicaid base rates or taken other measures to account 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, 2022 with the full 2% cut resuming thereafter. A temporary 6.2%~~ increase in ~~Federal Medical Assistance Percentages,~~expenses as a result of the COVID-19 pandemic. For example, Texas has increased its Medicaid rate to offset the expiration of the FMAP, which ~~was approved retroactive to January 1, 2020,~~ is effective through ~~December 31, 2022.~~

~~The current limited availability or unavailability of grants and other funds being made~~at least August 2023. There is no assurance that these measures will continue, will be widely available to our ~~seniors housing facilities~~tenants or will sufficiently offset the impact that the government relief programs previously provided.

In July 2023, The Centers for ~~healthcare related expenses~~Medicare and Medicaid Services approved its payment rate update to SNF reimbursements for fiscal 2024, commencing October 1, 2023, which includes a net increase of 4.0%, or ~~lost revenues attributable to COVID-19, as well as the tapering of grants~~approximately $1.4

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~~and other funds for our SNFs, has also impacted~~billion, in Medicare Part A payments to SNFs. This increase is expected to partially offset 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.

As a result of impacts experienced by our tenants since the ~~foregoing impacts~~onset of the COVID-19 pandemic, the ability of some of our ~~tenants’ ability~~tenants to continue to meet ~~some of~~ their financial obligations to us in full has been negatively impacted. See “Impairment of Real Estate Assets, Assets Held for Sale and Asset Sales” below. During the three and six months ended June 30, ~~2022,~~2023, we collected ~~93.9%~~96.7% and ~~94.4%~~96.4%, respectively, 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.~~deposits. In July ~~2022,~~2023, we collected ~~102.1%~~98.0% of contractual rents due from our operators ~~which includes~~excluding cash deposits. ~~Excluding those cash deposits, contractual cash rents collected was 94.1%.~~

~~During~~From time to time in the ~~three months ended March 31, 2022,~~past, we ~~determined that it was not probable that~~have taken actions to reposition one or more properties with a replacement tenant or sell the property and, in certain cases, we ~~would collect substantially all of~~may also determine to restructure tenants’ long-term obligations. In the ~~contractual~~event our tenants are unable to satisfy their 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 assuredto us and we ~~moved~~are unable to effect these ~~two operators~~actions on terms that are as favorable to ~~a cash basis method~~us as those currently in place, our rental income could be adversely impacted and we may incur additional expenses or obligations and be required to recognize additional impairment charges.

Impact 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.~~Macroeconomic Conditions

The substantial inflationary pressures that our economy continues to face has resulted in many headwinds for us and our tenants, most notably in the form of rising interest rates, volatility in the capital markets, a softening of consumer sentiment and ~~early~~ signs of a potential broader economic slowdown. These current macroeconomic conditions, particularly inflation (including rising wages and supply costs), rising interest rates and related changes to consumer spending, including, but not limited to, causing individuals to delay or defer moves to seniors housing, has adversely impacted and could continue to adversely impact our tenants’ ability to meet some of their financial obligations to us. Rising interest rates also increase our costs of capital to finance acquisitions and increase our borrowing costs, and future changes in market interest rates could materially impact the estimated discounted cash flows that are used to determine the fair value of our other real estate related investments. In addition, current macroeconomic conditions and the resulting market volatility may adversely impact our ability to sell properties on acceptable terms, if at all, which could result in additional impairment charges.

For more information regarding the potential impact of COVID-19 and macroeconomic conditions on our business, see “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the 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 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 Asset Sales

~~In connection with our ongoing review and monitoring of our investment portfolio and~~During the ~~performance of our tenants, during the first quarter of 2022,~~six months ended June 30, 2023, we ~~determined~~decided to pursue the sale of 27a SNF portfolio consisting of 11 properties as well as one additional property and classified these 12 SNFs as held for sale.

During the ~~repurposing of~~ three ~~properties, representing an aggregate of approximately 9% of contractual cash rent as of~~and six months ended 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,~~2023, we recognized an ~~aggregate~~ impairment charge on 12 and 15 facilities of ~~$59.7~~$21.4 million ~~related to 20 of the 27 held for sale properties,~~and $23.3 million, respectively, which is reported in impairment of real estate investments in the condensed consolidated statements of ~~operations~~operations. Two of the 15 facilities impaired and classified as held for sale were sold during the ~~six~~three months ended June 30, ~~2022.~~2023. The impairment ~~charge was~~charges were recognized to write down the properties’ aggregate carrying value to their aggregate fair value, less estimated costs to sell. ~~As of~~

Asset Sales and Held for Sale Reclassifications

The following table summarizes our dispositions for the three and six months ended June 30, 2023 and 2022 ~~the net book value of these 27 properties was $141.8 million.~~(dollars in thousands):

~~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 $0.1 million during the three months ended March 31, 2022.

During the first quarter of 2022, we closed on the sale of one SNF consisting of 83 beds located in Washington with a carrying value of $0.8 million, for net sales proceeds of $1.0 million. During the three months ended March 31, 2022, we recorded a gain of $0.2 million in connection with the sale.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Number of facilities	3		—		4		1
Net sales proceeds	$	13,234	$	—	$	16,464	$	959
Net carrying value	11,206		—		14,506		773
Net gain on sale	$	2,028	$	—	$	1,958	$	186

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

During the second quarter of 2022, we entered into a lease with Landmark Recovery of Florida, LLC (“Landmark”) to repurpose an existing ALF (previously leased to affiliates of Noble Senior 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 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 Notes to condensed consolidated financial statements for additional information. During the second quarter of 2022, we entered into leases with Landmark to repurpose two additional Noble facilities into behavioral health treatment centers, which will commence upon the occurrence of certain events.


	Net Carrying Value		Number of Facilities
December 31, 2022	$	12,291	5
Additions to assets held for sale	47,047		14
Assets sold	(14,506)		(4)
Impairment of real estate held for sale	(23,278)		—

June 30, 2023	$	21,554	15

Recent Investments

From January 1, ~~2022~~2023 through August ~~4, 2022,~~3, 2023, we acquired ~~1 SNF and 1~~seven SNFs, one multi-service campus, and four ALFs for approximately ~~$21.9~~$172.5 million, which includes estimated capitalized acquisition costs. These acquisitions are expected to generate initial annual cash revenues of approximately ~~$2.1~~$14.5 million and an initial blended yield of approximately ~~9.4%. See Note 3,~~ ~~Real Estate Investments, Net~~ ~~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 part8.4% before the ~~maturity date for an exit fee ranging from 1%~~impact of any rent abatement.

From January 1, 2023 through August 3, 2023, we originated $41.7 million in mortgage loans. These investments are expected to ~~3% of the loan plus unpaid~~generate annual 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 floorincome of approximately ~~8.5%. The $22.3~~$3.8 million ~~“B” tranche term loan was funded using a combination~~and an initial blended yield of ~~cash on hand and borrowings under our Revolving Facility (as defined below)~~approximately 9.0%.

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At-The-Market Offering of Common Stock

On ~~March 10, 2020,~~February 24, 2023, we entered into a new equity distribution agreement to issue and sell, from time to time, up to $500.0 million in aggregate offering price of our common stock through an “at-the-market” equity offering program (the “ATM Program”). In addition to the issuance and sale of shares of our common stock, we may also enter into one or more forward sales agreements (each, an “ATM forward contract”) with sales agents for the sale of shares of our common stock under the ATM Program.

From January 1, 2023 through August 3, 2023, we executed forward equity sales under the ATM Program with a financial institution acting as a forward purchaser to sell an aggregate of 10,575,437 shares of common stock at a weighted average sales price of $19.80 per share before commissions and offering expenses. We did not receive any proceeds from the sale of our shares of common stock by the forward sellers. We currently expect to fully physically settle forward equity sales by delivery of shares of common stock to the forward purchaser and receive cash proceeds upon one or more settlement dates, which are typically a one-year term, at our discretion, prior to the final settlement date, at which time we expect to receive aggregate net cash proceeds at settlement equal to the number of shares sold on a forward basis multiplied by the relevant forward price per share. The weighted average forward sale price that we expect to receive upon physical settlement will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchaser’s stock borrowing costs and (iii) scheduled dividends through the settlement. We have not settled any portion of these forward equity sales as of the date of this report.

~~(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, 2022,~~August 3, 2023, we had ~~$476.5~~$290.7 million available for future issuances under the ATM Program.

~~Results of Operations~~

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

Three Months Ended Increase
(Decrease) Percentage
Difference
June 30, 2022 March 31, 2022
(dollars in thousands)
Revenues:
Rental income $ 46,806 $ 46,007 $ 799 2 %
Interest and other income 747 469 278 59 %
Expenses:
Depreciation and amortization 12,559 13,575 (1,016) (7) %
Interest expense 6,303 5,742 561 10 %
Property taxes 1,254 1,420 (166) (12) %
Impairment of real estate investments 1,701 59,683 (57,982) (97) %
Provision for loan losses, net — 3,844 (3,844) (100) %
Property operating expenses 89 447 (358) (80) %
General and administrative 4,978 5,215 (237) (5) %
Other income:
Gain on sale of real estate — 186 (186) (100) %

•~~Not meaningful~~

~~Rental income~~. The $0.8 million, or 2%, increase in rental income is primarily due to a $1.0 million write-off of uncollectible rent during the three months ended March 31, 2022, an increase of $0.4 million due to contractual increases in rental rates for our existing tenants and $0.3 million from real estate investments made after January 1, 2022, partially offset by a $0.9 million decrease in rental income and tenant reimbursements related to moving certain tenants to a cash basis method of accounting subsequent to January 1, 2022.

~~Interest and other income.~~ ~~The $0.3 million, or 59%, increase in interest and other income was primarily due to the origination of loans receivable in June 2022. See above under “Recent Developments” for additional information.~~

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

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~~Interest expense.~~

Results of Operations

Three Months Ended June 30, 2023 Compared to Three Months Ended March 31, 2023:


	Three Months Ended				Increase (Decrease)		Percentage Difference
	June 30, 2023		March 31, 2023
	(dollars in thousands)
Revenues:
Rental income	$	47,745	$	46,163	$	1,582	3	%


Interest and other income	3,808		4,443		(635)		(14)	%
Expenses:
Depreciation and amortization	12,716		12,238		478		4	%
Interest expense	11,040		9,827		1,213		12	%


Property taxes	1,390		880		510		58	%

Impairment of real estate investments	21,392		1,886		19,506		*


Property operating expenses	658		963		(305)		(32)	%

General and administrative	4,718		5,061		(343)		(7)	%
Other loss:

Gain (loss) on sale of real estate, net	2,028		(70)		2,098		*
Unrealized losses on other real estate related investments, net	(2,151)		(454)		(1,697)		*

•Not meaningful

Rental income. Rental income increased by $1.6 million as detailed below:


	Three Months Ended				Increase/(Decrease)
(in thousands)	June 30, 2023		March 31, 2023
Contractual cash rent	$	46,536	$	45,461	$	1,075
Tenant reimbursements	1,216		709		507
Total contractual rent(1)	47,752		46,170		1,582
Straight-line rent	(7)		(7)		—



Rental income	$	47,745	$	46,163	$	1,582

(1) Includes initial contractual cash rent, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by the Company. For tenants on a cash basis, this represents the lesser of the amount that would be recognized on a straight-line basis or cash that has been received.Total contractual cash rent increased by $1.6 million due to a $1.2 million increase in rental income from real estate investments made after January 1, 2023, a $0.5 million increase in tenant reimbursements, and a $0.4 million increase in rental rates for our existing tenants, partially offset by a $0.4 million decrease in rental income related to lower cash collections from tenants on a cash basis method of accounting and a $0.1 million decrease in rental income related to dispositions in June 2023.

Interest and other income. The $0.6 million, or ~~10%~~14%, ~~increase~~decrease in interest ~~expense~~and other income was primarily due to ~~an increase in interest expense~~a prepayment penalty received of $0.5 million related to the prepayment of one mezzanine loan receivable during the three months ended March 31, 2023 and a ~~higher~~decrease of $0.4 million due to repayment of the mezzanine loan, partially offset by an increase of $0.2 million of interest ~~rate under the Revolving Facility and the Term Loan (as defined below)~~income on money market funds and an increase of $0.1 million ~~related~~of interest income on other loans due to rising interest rates and a higher ~~weighted average debt balance under the Revolving Facility~~number of days during the three months ended June 30, ~~2022.~~2023 compared to the three months ended March 31, 2023.

Depreciation and amortization. The $0.5 million, or 4%, increase in depreciation and amortization was primarily due to an increase of $0.6 million due to acquisitions and capital improvements made after January 1, 2023, partially offset by a decrease of $0.1 million due to assets becoming fully depreciated after January 1, 2023.

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Interest expense. Interest expense increased by $1.2 million as detailed below:


	Change in interest expense for the three months ended June 30, 2023 compared to the three months ended March 31, 2023
	(in thousands)
Increase in outstanding borrowing amount for the Revolving Facility, net	$	985
Increase in interest rates for the Term Loan (as defined below)	187
Increase in interest rates for the Revolving Facility (as defined below)	41

Net change in interest expense	$	1,213

Property taxes. The ~~$0.2~~$0.5 million, or ~~12%~~58%, ~~decrease~~increase in property taxes was primarily due to $0.4 million of changes in estimates during the three months ended June 30, 2023 of property taxes ~~expected to be~~ paid directly by us as a result of certain assets being designated as held for sale ~~during~~and a $0.1 million increase in property taxes due to the ~~three months ended~~transfer of certain properties to new operators in March ~~31, 2022.~~2023 that do not make direct tax payments.

Impairment of real estate investments. During the three months ended June 30, ~~2022,~~2023, we recognized an impairment charge of ~~$1.7~~$21.4 million related to ~~one property.~~12 properties classified as held for sale during the quarter. See above under “Recent Developments - Impairment of Real Estate Assets, Assets Held for Sale, and Asset Sales” for additional information. During the three months ended March 31, ~~2022,~~2023, we recognized an ~~aggregate~~ impairment charge of ~~$59.7~~$1.9 million related to 20four properties ~~that all met the~~classified as 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,~~2023 and March 31, 2023, we recognized ~~$0.1~~$0.7 million and $1.0 million, respectively, 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~~repurpose, or ~~repurpose.~~have sold.

General and administrative expense. ~~The $0.2 million, or 5%, decrease in general~~General and administrative expense ~~was primarily related to a decrease in incentive compensation~~decreased by $0.3 million as detailed below:


	Three Months Ended				Increase/(Decrease)
(in thousands)	June 30, 2023		March 31, 2023
Cash compensation	$	1,267	$	1,550	$	(283)
Incentive compensation	1,025		1,550		(525)
Share-based compensation	924		936		(12)
Professional services	704		474		230
Taxes and insurance	276		204		72
Other expenses	522		347		175
General and administrative expense	$	4,718	$	5,061	$	(343)

Gain (loss) on sale 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 duringreal estate, net. 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,~~2023, we recorded a ~~$0.2~~$2.1 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~~SNF 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,~~one ALF, partially offset by a ~~$4.7~~$0.1 million ~~increase in rental income from~~loss on sale of real estate related to the sale of one ALF. During the three months ended March 31, 2023, we recorded a $0.1 million loss on sale of real estate related to the sale of one ALF.

Unrealized losses on other real estate related investments, ~~made~~net. During the three months ended June 30, 2023, we recorded a $1.9 million unrealized loss on three mortgage loans and one mezzanine loan receivable and a $0.3 million loss related to a loan origination fee paid. During the three months ended March 31, 2023, we recorded a $1.0 million unrealized loss on one mezzanine loan receivable, partially offset by a $0.5 million reversal of a previously recognized unrealized loss related to the prepayment of one mezzanine loan receivable.

2425

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~~after January 1, 2021, $1.2~~Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022:


	Six Months Ended				Increase (Decrease)		Percentage Difference
	June 30, 2023		June 30, 2022
	(dollars in thousands)
Revenues:
Rental income	$	93,908	$	92,813	$	1,095	1	%


Interest and other income	8,251		1,216		7,035		579	%
Expenses:
Depreciation and amortization	24,954		26,134		(1,180)		(5)	%
Interest expense	20,867		12,045		8,822		73	%


Property taxes	2,270		2,674		(404)		(15)	%

Impairment of real estate investments	23,278		61,384		(38,106)		(62)	%

Provision for loan losses, net	—		3,844		(3,844)		*
Property operating expenses	1,621		536		1,085		202	%

General and administrative	9,779		10,193		(414)		(4)	%
Other loss:

Gain on sale of real estate, net	1,958		186		1,772		*
Unrealized losses on other real estate related investments, net	(2,605)		—		(2,605)		*

•Not meaningful

Rental income. Rental income increased by $1.1 million as detailed below:


	Six Months Ended				Increase/(Decrease)
(in thousands)	June 30, 2023		June 30, 2022
Contractual cash rent	$	91,997	$	91,453	$	544
Tenant reimbursements	1,925		1,349		576
Total contractual rent(1)	93,922		92,802		1,120
Straight-line rent	(14)		11		(25)



Rental income	$	93,908	$	92,813	$	1,095

(1) Includes initial contractual cash rent, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by the Company. For tenants on a cash basis, this represents the lesser of the amount that would be recognized on a straight-line basis or cash that has been received.Total contractual cash rent increased by $1.1 million due to ~~contractual increases~~a $1.6 million increase in rental rates for our existing tenants, an increase of $1.2 million from real estate investments made after January 1, 2022, a $1.0 million write-off of uncollectible rent, and a ~~$0.5~~$0.6 million increase in tenant ~~reimbursements.~~reimbursements, partially offset by a $3.2 million decrease in rental income related to lower cash collections from tenants on a cash basis method of accounting and a $0.1 million decrease due to dispositions.

Interest and other income. The ~~$0.2~~$7.0 million ~~or 19%,~~ increase in interest and other income iswas primarily due to an increase of $7.1 million due to the origination of loans receivable inafter January 1, 2022 and a prepayment penalty of $0.5 million during the six months ended June 30, 2023, partially offset by a decrease of $0.4 million of interest income due to a loan repayment and a decrease of $0.2 million of interest income due to a loan origination fee received during the six months ended June 30, 2022.~~See above under “Recent Developments” for additional information.~~

Depreciation and amortization. The $1.2 million, or 4%5%, 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~~$1.8 million due to assets becoming fully depreciated after January 1, ~~2021,~~2022 and a decrease of $0.7 million due to classifying assets as held for sale after January 1, 2022, partially offset by an increase ~~in depreciation and amortization~~ of ~~$1.8~~$0.9 million related to new real estate investments and capital improvements made after January 1, ~~2021.~~2022 and a $0.4 million increase due to reclassifying assets out of held for sale during the three months ended December 31, 2022.

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Interest expense. ~~The $0.3~~Interest expense increased by $8.8 million or 2%, decrease in interest expense was primarily due to a $7.9 million decrease in interest expense related to the redemption of the prior senior notes on July 1, 2021 and a decrease of $0.1 million related to a lower weighted average debt balance under the Revolving Facility, partially offset by an increase of $7.2 million related to the issuance of the Notes (as defined below) oas detailed below:~~n 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.~~


	Change in interest expense for the six months ended June 30, 2023 compared to the six months ended June 30, 2022
	(in thousands)
Increase in interest rates for the Term Loan	$	4,425
Increase in interest rates for the Revolving Facility	2,282
Increase in outstanding borrowing amount for the Revolving Facility, net	1,941
Other changes in interest expense	174
Net change in interest expense	$	8,822

Property taxes. The ~~$1.2~~$0.4 million, or ~~83%~~15%, ~~increase~~decrease in property taxes was primarily due to a ~~$0.6~~decrease of $0.5 million ~~increase~~ due to ~~new real estate investments made~~the sale of properties after January 1, ~~2021, a $0.4 million~~2022, partially offset by an 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~~due to the transfer of certain properties to new operators in March 2023 that do not make direct tax ~~payments and a $0.1 million increase related to two non-operational properties at June 30, 2022.~~payments.

Impairment of real estate investments. During the six months ended June 30, 2023, we recognized an impairment charge of $23.3 million related to 15 properties classified as held for sale. See above under “Recent Developments - Impairment of Real Estate Assets, Assets Held for Sale, and Asset Sales” for additional information. During the 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, 2021.21 properties.

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 such provision for loan losses ~~were recognized~~was recorded during the six months ended June 30, ~~2021.~~2023.

Property operating expenses. During the six months ended June 30, 2023 and June 30, 2022, we recognized $1.6 million and $0.5 million, respectively, 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.~~repurpose, or have sold.

General and administrative expense. ~~The $0.7 million, or 7%, decrease in general~~General and administrative expense ~~was primarily related to~~decreased by $0.4 million as detailed below:


	Six Months Ended				Increase/(Decrease)
(in thousands)	June 30, 2023		June 30, 2022
Cash compensation	$	2,817	$	3,436	$	(619)
Incentive compensation	2,575		1,650		925
Share-based compensation	1,860		2,915		(1,055)
Professional services	1,179		888		291
Taxes and insurance	480		488		(8)
Other expenses	868		816		52
General and administrative expense	$	9,779	$	10,193	$	(414)

Gain on sale of real estate, net. 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 mill~~ion, partially offset by higher cash wages of $0.8 million during~~During the six months ended June 30, ~~2022 compared to the six months ended June 30, 2021.~~

~~Gain (loss)~~2023, we recorded a $2.1 million gain on sale of real ~~estate.~~ estate related to the sale of one SNF and one ALF, partially offset by a $0.1 million loss on sale of real estate related to the sale of two ALFs. 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.

Unrealized losses on other real estate related investments, net. During the six months ended June 30, ~~2021,~~2023, we recorded a ~~$0.2~~$2.8 million unrealized loss on three mortgage loans receivable and one mezzanine loan receivable and a $0.3 million loss ~~on sale~~due to a loan origination fee paid, partially offset by a $0.5 million reversal of ~~real estate~~a previously recognized unrealized loss related to the ~~sale~~prepayment of one ~~SNF.~~mezzanine loan receivable. No unrealized losses were recognized during the six months ended June 30, 2022.

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Liquidity and Capital Resources

To qualify as a REIT for federal income tax purposes, we are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, to our stockholders on an annual basis. Accordingly, we intend to make, but are not contractually bound to make, regular quarterly dividends to common stockholders from cash flow from operating activities. All such dividends are at the discretion of our board of directors.

Our short-term liquidity requirements consist primarily of operating and interest expenses directly associated with our properties, including:

•interest expense and scheduled debt maturities on outstanding indebtedness;

•general and administrative expenses;

•dividend plans;

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•operating lease obligations; and

•capital expenditures for improvements to our properties.

Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions and other investments (including mortgage and mezzanine loan originations), capital expenditures, and scheduled debt maturities. We intend to invest in and/or develop additional healthcare and seniors housing properties as suitable opportunities arise and so long as adequate sources of financing are available. We expect that future investments in and/or development of properties, including any improvements or renovations of current or newly-acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, borrowings available to us under the Second Amended Credit Facility (as defined below), future borrowings or the proceeds from sales of shares of our common stock pursuant to our ATM Program or additional issuances of common stock or other securities. In addition, we may seek financing from U.S. government agencies, including through Fannie Mae and the U.S. Department of Housing and Urban Development, in appropriate circumstances in connection with acquisitions and refinancing of existing mortgage loans.

We believe that our expected operating cash flow from rent collections, interest payments on our other real estate related investments, and borrowings under our Second Amended Credit Facility, together with our cash balance of ~~$30.3~~$1.1 million, available borrowing capacity of ~~$395.0~~$320.0 million under the Revolving Facility, approximately $132.8 million in forward equity sales which can be settled at any time through the second quarter of 2024, before commissions and offering expenses, and availability of $367.2 million under the ATM Program, ~~of $476.5 million,~~ each at June 30, ~~2022,~~2023, will be sufficient to meet ongoing debt service requirements, dividend plans, operating lease obligations, capital expenditures, working capital requirements and ~~other~~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~~February 2026 and at or prior to such time we expect to file a new shelf registration statement. The shelf registration statement allows us or certain of our subsidiaries, as applicable, to offer and sell shares of common stock, preferred stock, warrants, rights, units and debt securities through underwriters, dealers or agents or directly to purchasers, in one or more offerings on a continuous or delayed basis, in amounts, at prices and on terms we determine at the time of the offering.On February 24, 2023, we entered into the ATM Program. In addition to the issuance and sale of shares of our common stock, we may also enter into one or more ATM forward contracts with sales agents for the sale of shares of our common stock under the ATM Program. See “At-The-Market Offering of Common Stock” for information regarding activity under the ATM Program.

Although we are subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incur additional indebtedness for acquisitions or other purposes, if needed. However, there can be no assurance that we will be able to refinance our indebtedness, incur additional indebtedness or access additional sources of capital, such as by issuing common stock or other debt or equity securities, on terms that are acceptable to us or at all.

~~We currently~~As of June 30, 2023, we are in compliance with all debt covenants on our outstanding indebtedness.

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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,					For the Six Months Ended June 30,
		2022		2021			2023		2022

Net cash provided by operating activities	Net cash provided by operating activities	$	68,302	$	70,557	Net cash provided by operating activities	$	66,986	$	68,302
Net cash used in investing activities	Net cash used in investing activities	(125,644)		(145,043)		Net cash used in investing activities	(176,644)		(125,644)
Net cash provided by financing activities	Net cash provided by financing activities	67,714		366,525		Net cash provided by financing activities	97,625		67,714
Net increase in cash and cash equivalents		10,372		292,039
Net (decrease) increase in cash and cash equivalents						Net (decrease) increase in cash and cash equivalents	(12,033)		10,372
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 beginning of period	13,178		19,895
Cash and cash equivalents as of the end of period	Cash and cash equivalents as of the end of period	$	30,267	$	310,958	Cash and cash equivalents as of the end of period	$	1,145	$	30,267

Net cash provided by operating activities decreased ~~$2.3 million~~ for the six months ended June 30, ~~2022~~2023 compared to the six months ended June 30, ~~2021.~~2022. Operating cash inflows are derived primarily from the rental payments received under our lease agreements, including as a result of new investments, and interest payments on our other real estate related investments. Operating cash outflows consist primarily of interest expense on our borrowings and general and administrative expenses. The net decrease of ~~$2.3~~$1.3 million in cash provided by operating activities for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 is primarily due to an increase in cash paid for ~~general and administrative expense,~~ interest expense and operating expenses related to assets we plan to sell, have sold, or repurpose,, partially offset by ~~increased rental~~an increase in interest income ~~due to timing of payments and increased interest payments~~received on our other real estate ~~investments.~~related investments, an increase in rental income received, and a decrease in cash paid for general and administrative expense.

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

Our cash flows provided by financing activities for the six months ended June 30, ~~2021 was~~2023 were primarily comprised of ~~$148.5~~$155.0 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,~~borrowings under our Revolving Facility (as defined below), partially offset by ~~$6.8~~$55.2 million in dividends paid, a $1.5 million net ~~proceeds from real estate sales~~settlement adjustment on restricted stock and ~~$0.1~~$0.6 million in costs paid for the issuance of ~~payments received from other loans receivable.~~

common stock. Our cash flows provided by financing activities for the six months ended June 30, 2022 were primarily comprised of $125.0 million in borrowings under our ~~Amended~~Prior Credit ~~Facility,~~Agreement (as defined below), partially offset by $52.8 million in dividends paid and a $4.5 million 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 requirements from known contractual and other obligations ~~including commitments for 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 Operating Partnership, the “Issuers”), completed a private offering of $400.0 million aggregate principal amount of 3.875% Senior Notes due 2028 (the “Notes”). The Notes mature on June 30, 2028. The Notes accrue interest at a rate of 3.875% per annum payable semiannually in arrears on June 30 and December 30 of each year, commencing on December 30, 2021. The obligations under the Notes are guaranteed, jointly and severally, on an unsecured basis, by us and all of our subsidiaries (other than the Issuers). As of June 30, ~~2022,~~2023, we were in compliance with all applicable financial covenants under the indenture governing the Notes. See Note 7, Debt, to our condensed consolidated financial statements included in this report for further information about the Notes.

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Unsecured Revolving Credit Facility and Term Loan

~~Our~~On December 16, 2022, we, together with certain of our subsidiaries, entered into a second amended and restated credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender (the “Second Amended Credit Agreement”). The Operating Partnership is the borrower under the Second Amended Credit Agreement, and the ~~lenders party thereto (the “Amended~~obligations thereunder are guaranteed, jointly and severally, on an unsecured basis, by us and certain of our subsidiaries. The Second Amended Credit Agreement, which amends and restates our amended and restated credit and guaranty agreement, dated as of February 8, 2019 (as amended, the “Prior Credit Agreement”) provides for: (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) anthe continuation of the unsecured term loan credit facility which was previously extended under the Prior Credit Agreement (the “Term Loan” and together with the Revolving Facility, the ~~“Amended~~“Second Amended Credit Facility”) in an aggregate principal amount of $200.0 million. Future borrowings under the Second Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes.

As of June 30, ~~2022,~~2023, we had $200.0 million outstanding under the Term Loan and ~~$205.0~~$280.0 million outstanding under the Revolving Facility. The Revolving Facility has a maturity date of February ~~8, 2023,~~9, 2027, 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~~Adjusted Term SOFR or Adjusted Daily Simple SOFR (each as defined in the Second Amended Credit Agreement) plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of the Company and our consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if we obtain certain specified investment grade ratings on our senior long-term unsecured debt). The interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.50% to 1.20% per annum or ~~LIBOR~~Adjusted Term SOFR or Adjusted Daily Simple SOFR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and our consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if we obtain certain specified investment grade ratings on our senior long-term unsecured debt). In addition, the Operating Partnership will pay a facility fee on the revolving commitments under the Revolving Facility ranging from 0.15% to 0.35% per annum, based on the debt to asset value ratio of the Company and our consolidated subsidiaries (unless we obtain certain specified investment grade ratings on our senior long-term unsecured debt and the Operating Partnership elects to decrease the applicable margin as described above, in which case the Operating Partnership will pay a facility fee on the revolving commitments ranging from 0.125% to 0.30% per annum based off the credit ratings of our senior long-term unsecured debt). ~~Interest payments on the Term Loan and Revolving Facility are due monthly and facility fee payments are due quarterly.~~

As of June 30, ~~2022,~~2023, we were in compliance with all applicable financial covenants under the Second Amended Credit Agreement. See Note 7, Debt, to our condensed consolidated financial statements included in this report for further information about the Second Amended Credit Agreement.

Capital Expenditures

As of June 30, ~~2022~~,2023, we had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities totaling ~~$7.2~~$14.2 million, of which ~~$1.9~~$2.7 million is subject to rent increase at the time of funding. We expect to fund the capital expenditures in the next one to two years. See Note 11, Commitments and Contingencies, to our condensed consolidated financial statements included in this report for further ~~information~~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~~board of ~~Directors~~directors for the three ~~and six~~ months ended June 30, ~~2022~~2023.

Critical Accounting Policies and Estimates

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

~~Table of Contents~~

~~“Management’s~~ “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, ~~2021,~~2022, filed with the SEC on February ~~16, 2022,~~9, 2023, 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, ~~2022.~~2023.

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~~Adjusted Term SOFR or Adjusted Daily Simple SOFR (each as defined in the Second Amended Credit Agreement) plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of the Company and 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~~Adjusted Term SOFR or Adjusted Daily Simple SOFR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and 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, ~~2022,~~2023, we had a $200.0 million Term Loan outstanding and had ~~$205.0~~$280.0 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. Upon the earlier of LIBOR ceasing to exist or the maturity date of our Revolving Facility, we 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, 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, ~~2022~~2023 described above and the interest rates applicable to our outstanding debt at June 30, ~~2022,~~2023, assuming a 100 basis point increase in the interest rates related to our variable rate debt, interest expense would have increased ap~~proximately $2.0~~approximately $2.4 million forfor the six months ended June 30, ~~2022.~~2023.

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, ~~2021.~~2022. As of June 30, ~~2022,~~2023, 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.

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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 Exchange 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 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, ~~2022,~~2023, 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, ~~2022.~~2023.

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, ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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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, ~~2021~~2022 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 risk factors which materially affect our business, financial condition, or results of operations. ~~There~~Other than revisions to the risk factor below, there have been no material changes from the risk factors previously ~~disclosed.~~disclosed in such reports.

Healthcare reform legislation impacts cannot accurately be predicted and could adversely affect our results of operations.

We and the healthcare operators leasing our properties depend on the healthcare industry and are susceptible to risks associated with healthcare reform. Legislative proposals are introduced each year that would introduce major changes in the healthcare system, both nationally and at the state level. For example, we believe that efforts may be made to, among other things, transition Federal payment programs further in the direction of value based care, but we cannot predict whether or in what form any of these measures may be enacted, or what effect they would have on our business or the businesses of our tenants if enacted. Efforts may also be made to reduce the age at which individuals become eligible for Medicare, which could have an adverse impact on our tenants because Medicare sometimes reimburses long term care providers at rates lower than those paid by commercial payors. In addition, the Biden Administration announced a focus on implementing minimum staffing requirements and increased inspections as part of nursing home reforms announced in the 2022 State of the Union Address, and in July 2022, CMS announced it was evaluating a proposed federal staffing mandate for SNFs. Specifically, CMS sought input on establishing minimum staffing requirements for long-term care facilities and issued updates to guidance on minimum health and safety standards that long-term care facilities must meet to participate in Medicare and Medicaid and updated and developed new guidance in the State Operations Manual to address issues that significantly affect residents of long-term care facilities. CMS has announced that it is continuing to review the comments it received in response to its request for information on establishing minimum staffing requirements for long-term care facilities, and that it remains committed to proposing a minimum staffing standard. It is uncertain whether such a mandate will be implemented and, if it is, whether it will be accompanied by additional funding to offset any increased staffing requirements for our operators. If additional funding is unavailable at sufficient levels or at all, a mandate to increase staffing levels in SNFs may have a material adverse effect on the operating results and financial condition of our tenants.

Our tenants are subject to extensive federal, state and local laws and regulations affecting the healthcare industry that include those relating to, among other things, licensure, conduct of operations, ownership of facilities, addition of facilities and equipment, allowable costs, services, prices for services, qualified beneficiaries, quality of care, patient rights and insurance, fraudulent or abusive behavior, and financial and other arrangements that may be entered into by healthcare providers. See “Government Regulation, Licensing and Enforcement” in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2022 for more information. If our tenants or operators fail to comply with the laws, regulations and other requirements applicable to their businesses and the operation of our properties, they could become ineligible to receive reimbursement from governmental and private third-party payor programs, face bans on admissions of new patients or residents, suffer civil or criminal penalties or be required to make significant operational changes. We believe that additional resources may be dedicated to regulatory enforcement, which could increase our tenants’ costs of doing business and negatively impact their ability to pay their rent obligations to us. Changes in enforcement policies by federal and state governments have also resulted in a significant increase in inspection rates, citations of regulatory deficiencies and sanctions, including terminations from Medicare and Medicaid programs, bars on Medicare and Medicaid payments for new admissions, civil monetary penalties and criminal penalties. Our tenants and operators could be forced to expend considerable resources responding to an investigation, lawsuit or other enforcement action under applicable laws or regulations. Additionally, if our tenants’ residents do not have insurance, it could adversely impact the tenants’ ability to satisfy their obligation to us. We cannot predict whether any future legislative proposals will be adopted or, if adopted, the impact these proposals would have on our tenants or our business.

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Item ~~2. Unregistered Sales of Equity Securities and Use of Proceeds.~~5. Other Information.

~~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.~~ 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. Through June 30, 2022, we have not repurchased any shares of our common stock under the Repurchase Program and $150.0 million remains available for the repurchase of shares of our common stock under the Repurchase Program as of June 30, 2022.~~The Repurchase Program may be modified, discontinued or suspended at any time.~~

~~Table of Contents~~

None.

Item 6. Exhibits.


Exhibit Number						Description of the Document


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).

*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

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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 ~~4, 2022~~3, 2023	By:	/s/ David M. Sedgwick
		David M. Sedgwick
		President and Chief Executive Officer (duly authorized officer)

August ~~4, 2022~~3, 2023	By:	/s/ William M. Wagner
		William M. Wagner
		Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)

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	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


	For the Three Months Ended
	March 31, 2022		June 30, 2022
Dividends declared per share	$	0.275	$	0.275
Dividends payment date	April 15, 2022		July 15, 2022
Dividends payable as of record date(1)	$	26,691	$	26,683
Dividends record date	March 31, 2022		June 30, 2022


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