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 September 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 November ~~7, 2022,~~8, 2023, there were 119,112,102 ~~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	2124
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3436
Item 4.	Controls and Procedures	3537

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	3638
Item 1A.	Risk Factors	3638

Item 5.	Other Information	39
Item 6.	Exhibits	3739
	Signatures	3840

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)

September 30, 2022 December 31, 2021
Assets:
Real estate investments, net $ 1,384,166 $ 1,589,971
Other real estate related investments, at fair value (including accrued interest of $1,218 as of September 30, 2022 and $155 as of December 31, 2021) 158,662 15,155
Assets held for sale, net 77,708 4,835
Cash and cash equivalents 4,861 19,895
Accounts and other receivables 808 2,418
Prepaid expenses and other assets, net 19,046 7,512
Deferred financing costs, net 327 1,062
Total assets $ 1,645,578 $ 1,640,848
Liabilities and Equity:
Senior unsecured notes payable, net $ 394,928 $ 394,262
Senior unsecured term loan, net 199,295 199,136
Unsecured revolving credit facility 180,000 80,000
Accounts payable, accrued liabilities and deferred rent liabilities 30,851 25,408
Dividends payable 26,827 26,285
Total liabilities 831,901 725,091
Commitments and contingencies (Note 11)
Equity:
Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued and outstanding as of September 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 September 30, 2022 and December 31, 2021, respectively 966 963
Additional paid-in capital 1,196,662 1,196,839
Cumulative distributions in excess of earnings (383,951) (282,045)
Total equity 813,677 915,757
Total liabilities and equity $ 1,645,578 $ 1,640,848


	September 30, 2023		December 31, 2022
Assets:
Real estate investments, net	$	1,536,048	$	1,421,410
Other real estate related investments, at fair value (including accrued interest of $1,449 as of September 30, 2023 and $1,320 as of December 31, 2022)	181,175		156,368
Assets held for sale, net	21,341		12,291
Cash and cash equivalents	3,485		13,178

Accounts and other receivables	383		416
Prepaid expenses and other assets, net	20,684		11,690
Deferred financing costs, net	4,448		5,428
Total assets	$	1,767,564	$	1,620,781
Liabilities and Equity:
Senior unsecured notes payable, net	$	395,816	$	395,150
Senior unsecured term loan, net	199,507		199,348
Unsecured revolving credit facility	—		125,000
Accounts payable, accrued liabilities and deferred rent liabilities	28,854		24,360
Dividends payable	32,403		27,550
Total liabilities	656,580		771,408
Commitments and contingencies (Note 12)
Equity:
Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued and outstanding as of September 30, 2023 and December 31, 2022	—		—
Common stock, $0.01 par value; 500,000,000 shares authorized, 115,409,356 and 99,010,112 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	1,154		990
Additional paid-in capital	1,566,161		1,245,337
Cumulative distributions in excess of earnings	(457,393)		(396,954)
Total stockholders’ equity	1,109,922		849,373
Noncontrolling interests	1,062		—
Total equity	1,110,984		849,373
Total liabilities and equity	$	1,767,564	$	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 September 30, For the Nine Months Ended September 30,
2022 2021 2022 2021
Revenues:
Rental income $ 47,018 $ 48,087 $ 139,831 $ 141,077
Interest and other income 3,275 518 4,491 1,537
Total revenues 50,293 48,605 144,322 142,614
Expenses:
Depreciation and amortization 12,256 13,968 38,390 41,284
Interest expense 8,355 5,692 20,400 17,988
Property taxes 691 1,004 3,365 2,466
Impairment of real estate investments 12,322 — 73,706 —
Provision for loan losses, net — — 3,844 —
Property operating expenses 3,808 — 4,344 —
General and administrative 5,159 5,196 15,352 16,136
Total expenses 42,591 25,860 159,401 77,874
Other loss:
Loss on extinguishment of debt — (10,827) — (10,827)
Loss on sale of real estate, net (2,287) — (2,101) (192)
Unrealized loss on other real estate related investments (4,706) — (4,706) —
Total other loss (6,993) (10,827) (6,807) (11,019)
Net income (loss) $ 709 $ 11,918 $ (21,886) $ 53,721
Earnings (loss) per common share:
Basic $ 0.01 $ 0.12 $ (0.23) $ 0.56
Diluted $ 0.01 $ 0.12 $ (0.23) $ 0.56
Weighted-average number of common shares:
Basic 96,605 96,297 96,527 95,922
Diluted 96,625 96,297 96,527 95,937


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Rental income	$	51,218	$	47,018	$	145,126	$	139,831


Interest and other income	4,659		3,275		12,910		4,491
Total revenues	55,877		50,293		158,036		144,322
Expenses:
Depreciation and amortization	13,034		12,256		37,988		38,390
Interest expense	11,750		8,355		32,617		20,400
Property taxes	2,167		691		4,437		3,365

Impairment of real estate investments	8,232		12,322		31,510		73,706

Provision for loan losses, net	—		—		—		3,844
Property operating expenses	1,239		3,808		2,860		4,344

General and administrative	5,519		5,159		15,298		15,352
Total expenses	41,941		42,591		124,710		159,401
Other (loss) income:

(Loss) gain on sale of real estate, net	—		(2,287)		1,958		(2,101)

Unrealized losses on other real estate related investments, net	(5,251)		(4,706)		(7,856)		(4,706)
Total other loss	(5,251)		(6,993)		(5,898)		(6,807)
Net income (loss)	8,685		709		27,428		(21,886)
Net loss attributable to noncontrolling interests	(11)		—		(11)		—
Net income (loss) attributable to CareTrust REIT, Inc.	$	8,696	$	709	$	27,439	$	(21,886)

Earnings (loss) per common share attributable to CareTrust REIT, Inc.:
Basic	$	0.08	$	0.01	$	0.27	$	(0.23)
Diluted	$	0.08	$	0.01	$	0.27	$	(0.23)
Weighted-average number of common shares:
Basic	104,011		96,605		100,748		96,527
Diluted	104,311		96,625		100,918		96,527

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, 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
Amortization of stock-based compensation — — 1,380 — 1,380
Common dividends ($0.275 per share) — — — (26,680) (26,680)
Net income — — — 709 709
Balance at September 30, 2022 96,605,112 $ 966 $ 1,196,662 $ (383,951) $ 813,677


	Common Stock			Additional Paid-in Capital		Cumulative Distributions in Excess of Earnings		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Amount
Balance at January 1, 2023	99,010,112	$	990	$	1,245,337	$	(396,954)	$	849,373	$	—	$	849,373

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

Vesting of restricted common stock	25,992	—		—		—		—		—		—
Amortization of stock-based compensation	—	—		924		—		924		—		924
Common dividends ($0.28 per share)	—	—		—		(27,737)		(27,737)		—		(27,737)
Net loss	—	—		—		(484)		(484)		—		(484)
Balance at June 30, 2023	99,124,082	991		1,245,717		(433,686)		813,022		—		813,022
Issuance of common stock, net	16,285,274	163		318,925		—		319,088		—		319,088

Amortization of stock-based compensation	—	—		1,519		—		1,519		—		1,519
Common dividends ($0.28 per share)	—	—		—		(32,403)		(32,403)		—		(32,403)
Contribution from noncontrolling interests	—	—		—		—		—		1,073		1,073
Net income	—	—		—		8,696		8,696		(11)		8,685
Balance at September 30, 2023	115,409,356	$	1,154	$	1,566,161	$	(457,393)	$	1,109,922	$	1,062	$	1,110,984

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
Amortization of stock-based compensation — — 1,802 — 1,802
Common dividends ($0.265 per share) — — — (25,714) (25,714)
Net income — — — 11,918 11,918
Balance at September 30, 2021 96,296,673 $ 963 $ 1,191,204 $ (274,552) $ 917,615


	Common Stock			Additional Paid-in Capital		Cumulative Distributions in Excess of Earnings		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Amount
Balance at January 1, 2022	96,296,673	$	963	$	1,196,839	$	(282,045)	$	915,757	$	—	$	915,757

Vesting of restricted common stock, net of shares withheld for employee taxes	190,393	2		(2,774)		—		(2,772)		—		(2,772)
Amortization of stock-based compensation	—	—		1,521		—		1,521		—		1,521
Common dividends ($0.275 per share)	—	—		—		(26,659)		(26,659)		—		(26,659)
Net loss	—	—		—		(43,264)		(43,264)		—		(43,264)
Balance at March 31, 2022	96,487,066	965		1,195,586		(351,968)		844,583		—		844,583

Vesting of restricted common stock, net of shares withheld for employee taxes	118,046	1		(1,698)		—		(1,697)		—		(1,697)
Amortization of stock-based compensation	—	—		1,394		—		1,394		—		1,394
Common dividends ($0.275 per share)	—	—		—		(26,681)		(26,681)		—		(26,681)
Net income	—	—		—		20,669		20,669		—		20,669
Balance at June 30, 2022	96,605,112	966		1,195,282		(357,980)		838,268		—		838,268


Amortization of stock-based compensation	—	—		1,380		—		1,380		—		1,380
Common dividends ($0.275 per share)	—	—		—		(26,680)		(26,680)		—		(26,680)
Net income	—	—		—		709		709		—		709
Balance at September 30, 2022	96,605,112	$	966	$	1,196,662	$	(383,951)	$	813,677	$	—	$	813,677

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 Nine Months Ended September 30,					For the Nine Months Ended September 30,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net (loss) income		$	(21,886)	$	53,721
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net income (loss)						Net income (loss)	$	27,428	$	(21,886)
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)	38,437		41,328		Depreciation and amortization (including below-market ground leases)	38,031		38,437
Amortization of deferred financing costs	Amortization of deferred financing costs	1,560		1,531		Amortization of deferred financing costs	1,826		1,560
Loss on extinguishment of debt		—		10,827
Unrealized loss on other real estate related investments		4,706		—

Unrealized losses on other real estate related investments, net						Unrealized losses on other real estate related investments, net	7,856		4,706
Amortization of stock-based compensation	Amortization of stock-based compensation	4,295		5,197		Amortization of stock-based compensation	3,379		4,295
Straight-line rental income	Straight-line rental income	(14)		(26)		Straight-line rental income	21		(14)
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	(1,063)		—		Noncash interest income	(129)		(1,063)
Loss on sale of real estate, net		2,101		192
(Gain) loss on sale of real estate, net						(Gain) loss on sale of real estate, net	(1,958)		2,101

Impairment of real estate investments	Impairment of real estate investments	73,706		—		Impairment of real estate investments	31,510		73,706
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	648		(1,775)		Accounts and other receivables	11		648
Prepaid expenses and other assets, net	Prepaid expenses and other assets, net	(2,082)		(20)		Prepaid expenses and other assets, net	(68)		(2,082)
Accounts payable, accrued liabilities and deferred rent liabilities	Accounts payable, accrued liabilities and deferred rent liabilities	5,443		7,388		Accounts payable, accrued liabilities and deferred rent liabilities	4,189		5,443
Net cash provided by operating activities	Net cash provided by operating activities	110,672		118,363		Net cash provided by operating activities	112,096		110,672
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)		(180,323)		Acquisitions of real estate, net of deposits applied	(198,565)		(21,915)
Purchases of equipment, furniture and fixtures and improvements to real estate	Purchases of equipment, furniture and fixtures and improvements to real estate	(5,475)		(4,826)		Purchases of equipment, furniture and fixtures and improvements to real estate	(9,139)		(5,475)

Investment in real estate related investments and other loans receivable	Investment in real estate related investments and other loans receivable	(149,650)		(700)		Investment in real estate related investments and other loans receivable	(50,693)		(149,650)
Principal payments received on other loans receivable		1,166		172
Principal payments received on real estate related investments and other loans receivable						Principal payments received on real estate related investments and other loans receivable	15,703		1,166

Escrow deposits for potential acquisitions of real estate	Escrow deposits for potential acquisitions of real estate	—		(3,100)		Escrow deposits for potential acquisitions of real estate	(4,075)		—
Net proceeds from sales of real estate	Net proceeds from sales of real estate	34,115		6,814		Net proceeds from sales of real estate	14,464		34,115
Net cash used in investing activities	Net cash used in investing activities	(141,759)		(181,963)		Net cash used in investing activities	(232,305)		(141,759)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from the issuance of common stock, net	Proceeds from the issuance of common stock, net	—		22,946		Proceeds from the issuance of common stock, net	319,032		—
Proceeds from the issuance of senior unsecured notes payable		—		400,000

Borrowings under unsecured revolving credit facility	Borrowings under unsecured revolving credit facility	145,000		220,000		Borrowings under unsecured revolving credit facility	185,000		145,000
Payments on senior unsecured notes payable		—		(300,000)

Payments on unsecured revolving credit facility	Payments on unsecured revolving credit facility	(45,000)		(190,000)		Payments on unsecured revolving credit facility	(310,000)		(45,000)

Payments on debt extinguishment and deferred financing costs		—		(14,070)
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	(79,478)		(75,148)		Dividends paid on common stock	(83,089)		(79,478)
Contributions from noncontrolling interests						Contributions from noncontrolling interests	1,073		—
Net cash provided by financing activities	Net cash provided by financing activities	16,053		62,397		Net cash provided by financing activities	110,516		16,053
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(15,034)		(1,203)		Net decrease in cash and cash equivalents	(9,693)		(15,034)
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	$	4,861	$	17,716	Cash and cash equivalents as of the end of period	$	3,485	$	4,861
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Interest paid	Interest paid	$	14,898	$	13,267	Interest paid	$	28,539	$	14,898
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	$	542	$	1,913	Increase in dividends payable	$	4,854	$	542

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	$	—

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	$	12,000	$	—	Sale of real estate settled with notes receivable	$	2,000	$	12,000

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 September 30, ~~2022,~~2023, the Company owned directly or through a joint venture and leased to independent ope~~rators~~rator~~, 221~~s, 225 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of ~~23,135~~23,916 operational beds and un~~its~~units located in ~~29 states~~ 28 states with the highest concentration of properties by rental income located in California, Texas, Louisiana, Idaho and Arizona. As of September 30, ~~2022,~~2023, the Company also had other real estate related ~~investments~~investments consisting of ~~three~~seven real estate secured loans receivable and ~~two~~one mezzanine ~~loans~~loan receivable with ~~an aggregate~~a carrying value of ~~$158.7~~$181.2 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. The accompanying consolidated financial statements of the Company include the accounts of CareTrust REIT, its wholly-owned subsidiaries, and variable interest entities (“VIEs”) over which the Company exercises control. All intercompany transactions and account balances within the Company have been ~~eliminated.~~eliminated, and net earnings are reduced by the portion of net earnings attributable to noncontrolling interests.

~~Recent Accounting Pronouncements~~Variable Interest Entities—~~In March 2020,~~The Company is required to continually evaluate its VIE relationships and consolidate these entities when it is determined to be the ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04,~~ ~~Reference Rate Reform (Topic 848) - Facilitation~~primary beneficiary of their operations. A VIE is broadly defined as an entity where either: (i) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support, (ii) substantially all of an entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights, or (iii) the equity investors as a group lack any of the ~~Effects~~following: (a) the power through voting or similar rights to direct the activities of ~~Reference Rate Reform~~an entity that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of an entity, or (c) the right to receive the expected residual returns of an entity. Criterion (iii) above is generally applied to limited partnerships and similarly structured entities by assessing whether a simple majority of the limited partners hold substantive rights to participate in the significant decisions of the entity or have the ability to remove the decision maker or liquidate the entity without cause. If neither of those criteria are met, the entity is a VIE.

The designation of an entity as a VIE is reassessed upon certain events, including, but not limited to: (i) a change to the contractual arrangements of the entity or in the ability of a party to exercise its participation or kick-out rights, (ii) a change to the capitalization structure of the entity, or (iii) acquisitions or sales of interests that constitute a change in control.

A variable interest holder is considered to be the primary beneficiary of a VIE if it has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE. The Company’s consideration of various factors include, but is not limited to, which activities most significantly impact the entity’s economic performance and the ability to direct those activities, its form of ownership interest, its representation on ~~Financial Reporting~~ ~~(“ASU 2020-04”), which provides optional relief~~the VIE’s governing body, the size and seniority of its investment, its ability and the rights of other investors to ~~applying reference rate reform~~participate in policy making decisions, its ability to ~~contracts, hedging relationships,~~manage its ownership interest relative to the other interest holders, and ~~other transactions~~its ability to replace the VIE manager and/or liquidate the entity.

For any investment in a joint venture that ~~reference~~is not considered to be VIE, the ~~London Interbank Offered Rate (“LIBOR”). For U.S. Dollar LIBOR,~~Company would evaluate the ~~overnight, one-month, three-month, six-month~~type of ownership rights held by limited partner(s) that may preclude consolidation by the majority interest holder. The assessment of limited partners’ rights 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, 2022. Adoption of this ASU did not have a materialtheir impact on the ~~Company’s consolidated financial statements.~~control of a joint venture should be made at inception of the joint venture and continually reassessed. See Note 11, Variable Interest Entities, for additional information.

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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 September 30, ~~2022~~2023 and December 31, ~~2021~~2022 (dollars in thousands):


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Land	Land	$	236,298	$	251,787	Land	$	270,806	$	238,738
Buildings and improvements	Buildings and improvements	1,437,292		1,622,019		Buildings and improvements	1,589,195		1,483,133
Integral equipment, furniture and fixtures	Integral equipment, furniture and fixtures	96,306		104,722		Integral equipment, furniture and fixtures	97,957		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	1,772,728		1,979,785		Real estate investments	1,960,790		1,821,902
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(388,562)		(389,814)		Accumulated depreciation and amortization	(424,742)		(400,492)

Real estate investments, net	Real estate investments, net	$	1,384,166	$	1,589,971	Real estate investments, net	$	1,536,048	$	1,421,410

As of September 30, ~~2022, 217~~2023, 221 of the ~~Company’s 221~~ ~~facilities wer~~eCompany’s 225 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. During the ~~second and third quarters of~~year ended December 31, 2022, the Company entered into triple-net lease agreements for two of the Company’s ~~221 facilities~~225 facilities which are being repurposed to behavioral health facilities with rent commencing 12 to 18 months following lease commencement. Two of the Company’s ~~221~~225 facilities are non-operational and are leased under a short term lease with an expected remaining term of less than one year as of September 30, ~~2022.~~2023. As of September 30, ~~2022, 19~~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 September 30, ~~2022,~~2023, the Company’s total future contractual minimum rental income for all of its tenants, excluding operating expense reimbursements, assets held for sale and assets being repurposed, was as follows (dollars in thousands):


Year	Year	Amount		Year	Amount
2022 (three months)		$	48,193
2023		192,638
2023 (three months)				2023 (three months)	$	49,490
2024	2024	192,396		2024	195,754
2025	2025	192,555		2025	196,908
2026	2026	192,661		2026	197,245
2027	2027	189,653		2027	194,079
2028				2028	191,825
Thereafter	Thereafter	1,001,323		Thereafter	960,555
Total	Total	$	2,009,419	Total	$	1,985,856

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)

5,092

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 September 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 September 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 September 30, ~~2022.~~2023.

Rental Income

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


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Rental Income	Rental Income	2022		2021		2022		2021		Rental Income	2023		2022		2023		2022
Contractual rent due(1)	Contractual rent due(1)	$	47,015	$	48,081	$	140,794	$	140,988	Contractual rent due(1)	$	51,225	$	47,015	$	145,147	$	140,794
Straight-line rent	Straight-line rent	3		6		14		26		Straight-line rent	(7)		3		(21)		14
Adjustment for collectibility(2)	Adjustment for collectibility(2)	—		—		(977)		—		Adjustment for collectibility(2)	—		—		—		(977)

Lease termination revenue(3)		—		—		—		63

Total	Total	$	47,018	$	48,087	$	139,831	$	141,077	Total	$	51,218	$	47,018	$	145,126	$	139,831

(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 September 30, 2023 and 2022 ~~and 2021~~ were ~~$0.7~~$2.0 million and ~~$1.0~~$0.7 million, respectively. Tenant operating expense reimbursements for the nine months ended September 30, 2023 and 2022 were $3.9 million and ~~2021 were~~ $2.0 million, ~~and $2.5 million,~~ respectively.

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~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

(2)(2) During thenine months ended September 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 four 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 thenine months ended September 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.

~~(3) During the~~ ~~nine months ended~~ September 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.

~~Recent Real Estate Acquisitions~~

~~The following table summarizes the Company’s acquisitions for the nine months ended September 30, 2022 (dollars in thousands):~~
Type of Property
Purchase Price(1)
Initial Annual Cash Rent Number of Properties
Number of Beds/Units(2)
Skilled nursing $ 8,918 $ 815 1 135
Multi-service campuses 13,003 1,235 1 130
Total $ 21,921 $ 2,050 2 265

~~(1) Purchase price includes capitalized acquisition costs.~~

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

~~Lease Amendments~~

~~Noble Partial Lease Termination and New Landmark Leases.~~ On August 29, 2022, one ALF in Maryland was removed from a master lease with affiliates of Noble Senior Services (“Noble”) and the Company amended the applicable Noble master lease to reflect the removal of the ALF. Annual cash rent under the applicable Noble master lease decreased by approximate~~ly $0.5 million.~~ ~~In connection with the partial lease termination, the Company entered into a lease with Landmark Recovery of Maryland, LLC (“Landmark Maryland”) to repurpose the facility to a be~~havioral health treatment center. Rent under the lease will commence 18 months following commencement of the lease term or, if earlier, upon Landmark Maryland 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.

On June 16, 2022, one ALF in Florida was removed from a master lease with affiliates of Noble and the Company amended the applicable Noble master lease to reflect the removal of the ALF. Annual cash rent under the applicable Noble master lease decreased by approximately $0.6 million. In connection with the partial lease termination, the Company entered into a lease with Landmark Recovery of Florida, LLC (“Landmark Florida”) to repurpose the facility to a behavioral health treatment center. Rent under the lease will commence one year following commencement of the lease term or, if earlier, upon Landmark Florida 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.

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

On March 1, 2022, operations at one 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 one ALF. The applicable Ensign master lease, as amended, had a remaining term at the date of amendment of approximately 11 years, with two 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.

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

Recent Real Estate Acquisitions

The following table summarizes the Company’s acquisitions for the nine months ended September 30, 2023 (dollars in thousands):


Type of Property	Purchase Price(1)		Initial Annual Cash Rent(2)		Number of Properties	Number of Beds/Units(3)
Skilled nursing(4)	$	133,970	$	11,722	8	1,058
Multi-service campuses	25,276		1,916		1	168
Assisted living	39,319		3,495		4	241
Total	$	198,565	$	17,133	13	1,467

(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.

(4) Includes one SNF held through a joint venture. See Note 11, Variable Interest Entities, for additional information. The SNF is currently leased under a short-term lease and a new long-term lease has been entered into with one of the Company’s existing operators and it is expected that this lease will become effective once regulatory approval is obtained. Initial annual cash rent does not consider a rent deferral of $420,000 in the first year upon commencement of the long-term lease to be repaid in 15 installments beginning in year 2.

Lease Amendments and Terminations

Noble VA Lease Termination and New Pennant Lease. Effective March 16, 2023, two ALFs in Wisconsin were removed from a master lease with affiliates of Noble VA Holdings (“Noble VA”) and the Company terminated the applicable Noble VA master lease. Annual cash rent under the applicable Noble VA master lease prior to lease termination was approximately $2.3 million. In connection with the lease termination, the Company entered into a new lease (the “New Pennant Lease”) with The Pennant Group, Inc. (“Pennant”) with respect to the two ALFs. The New Pennant Lease had an initial term at the date of the lease of approximately 15 years with two five-year renewal options and CPI-based rent escalators. Annual cash rent under 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 ~~Eduro Master~~Hillstone Lease. On ~~February~~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, ~~2022,~~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 five-year renewal options and 2% fixed rent escalators.

Amended Momentum Lease. On April 1, 2023, the Company acquired one SNF. In ~~conjunction~~connection with the acquisition, the Company amended its existing triple-net master lease with affiliates of ~~Eduro Healthcare, LLC~~Momentum Skilled Services (“~~Eduro”~~Momentum”) to include the one SNF and extended the initial lease term. The ~~Eduro~~Momentum master lease, as amended, had a remaining term at the date of amendment of approximately ~~12 years, with two 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 one 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 one multi-service campus. The WLC master lease, as amended, had a remaining term at the date of amendment of approximately 1215 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the ~~WLC master~~amended lease ~~as amended,~~ increased by approximately ~~$1.2~~$1.0 million.

Amended Pennant Lease. On July 6, 2023, the Company amended its master lease with affiliates of Pennant (the “Pennant Master Lease”). In connection with the lease amendment, the Company extended the initial lease term. The Pennant Master Lease, as amended, 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 cash rent under the amended Pennant Master Lease remained unchanged.

Premier Termination and Amended Ridgeline Lease. Effective September 1, 2023, six ALFs in Michigan and North Carolina were removed from the master lease with affiliates of Premier Senior Living, LLC (“Premier”) and the Company terminated the Premier master lease. Annual cash rent under the Premier master lease prior to lease termination was approximately $2.7 million. In connection with the lease termination, the Company amended its existing triple-net master lease with affiliates of Ridgeline Properties, LLC (“Ridgeline”) with respect to the six ALFs. The Ridgeline lease had a remaining term at the date of the lease amendment of approximately 15 years with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease increased by approximately $2.7 million. The amended lease provides for $0.2 million in rent abatement and a $0.2 million rent deferral to be repaid beginning in December 2024.

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

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

~~In connection with~~Impairment of Real Estate Investments Held for Sale

During 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~~ three ~~properties representing an aggregate of approximately 10% of contractual cash rent as of~~months ended March 31, ~~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,~~2023, the Company recognized an ~~aggregate~~ impairment charge of ~~$59.7~~$1.9 million ~~related to 20 of the 27~~on four facilities held for sale, ~~properties,~~ which is reported in impairment of real estate investments in the condensed consolidated statements of ~~operations~~operations. During the three months ended June 30, 2023, the Company recognized an impairment charge of $21.4 million on 12 facilities held for sale. During the three months ended September 30, 2023, the Company recognized an impairment charge of $0.2 million on one facility held for sale. These charges are reported in impairment of real estate investments in the condensed consolidated statements of operations.

During the three and nine months ended September 30, ~~2022. The~~2022, the Company recognized an impairment charge ~~was recognized~~on sixteen and 27 facilities of $12.3 million and $72.0 million, respectively, all of which were held for sale.

As of September 30, 2023, there were 15 facilities classified as held for sale, all of which have been marked down to ~~write down the properties’ aggregate carrying value to their aggregate~~ fair value less estimated costs to sell.

Following the asset sales and held for sale reclassifications discussed below, 19 properties continued to meet the criteria to be classified as held for sale as of September 30, 2022. During the third quarter of 2022, the Company recognized an additional aggregate impairment charge of $12.3 million related to 16 of the 19 held for sale properties to reduce their carrying value to estimated fair value less costs to sell. As of September 30, 2022, the real estate comprising the remaining 19 properties classified as held for sale had an aggregate carrying value of $77.7 million.

The fair ~~value~~values of the assets held for sale ~~was~~were 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) 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 during the nine months ended September 30, 2023, the Company’s fair value estimates primarily relied on a market approach and utilized prices per unit ranging from $18,000 to $35,000, with a weighted average price per unit of $23,000. For the Company’s impairment calculations during the nine months ended September 30, 2022, the Company’s fair value estimates primarily relied on a market approach and utilized prices per unit ranging from $35,000 to $145,000, with a weighted average price per unit of $80,000.

Impairment of Real Estate Investments Held for Investment

During the three months ended September 30, 2023, the Company recognized an impairment charge of $8.0 million related to one SNF. The Company wrote down its carrying value of $8.7 million to its estimated fair value of $0.7 million, which is included in real estate investments, net on the Company’s condensed consolidated balance sheets. The fair value of the asset was based on comparable market transactions and considered Level 3 measurements within the fair value hierarchy. For the Company’s impairment calculation, the Company’s fair value estimates primarily relied on a market approach and utilized prices per unit of $7,000.

During the second quarter of 2022, the Company recognized an impairment charge of $1.7 million related to one SNF. The Company wrote down its carrying value of $2.8 million to its estimated fair value of $1.1 million, which is included in real estate investments, net on the Company’s condensed consolidated balance sheets. The fair value of the asset was based on comparable market ~~transactions.~~transactions and considered Level 3 measurements within the fair value hierarchy. For the Company’s impairment calculation, the Company’s fair value estimates primarily relied on a market approach and utilized prices per unit of $20,000.

~~Asset Sales and Held for Sale Reclassifications~~

During the first quarter of 2022, the Company determined that one 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 the nine months ended September 30, 2022.

On February 22, 2022, the Company closed on the sale of one 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 nine months ended September 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.

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022(1)		2023		2022(1)
Number of facilities	—		7		4		8
Net sales proceeds(2)	$	—	$	45,157	$	16,464	$	46,116
Net carrying value	—		47,444		14,506		48,217
Net (loss) gain on sale	$	—	$	(2,287)	$	1,958	$	(2,101)

(1) Net sales proceeds, net carrying value and net (loss) gain on sale also reflect a land parcel that was sold during the three and nine months ended September 30, 2022, which is not included in the number of ~~2022,~~facilities.

(2) Net sales proceeds includes $2 million of seller financing in connection with the ~~Company determined that~~sale of one ALF ~~with a carrying value~~in June 2023. Net sales proceeds includes $12 million of $4.9 million, that was classified as held for sale at June 30, 2022 no longer met the held for sale criteria. The Company reclassified this ALF out of assets held for sale at its fair value at the date of the decision not to sell of approximately $4.9 million, or a weighted average price per unit of $125,000.

~~On September 29, 2022, the Company~~ ~~closed on~~seller financing in connection with the sale of six SNFs and one multi-service campus ~~operated by affiliates of Trio Healthcare Holdings, LLC (“Trio”), consisting of 708 beds located~~ in ~~Ohio for net proceeds of $32.8 million. In connection with the sale, the Company provided affiliates of~~ ~~the purchaser of the properties with a~~ ~~$7.0 million term loan that bears interest at 8.5% and has a maturity date of~~ September ~~30, 2025. The Company also provided a $5.0 million bridge loan to four individuals that bears interest at 8.5% and has a maturity date of November 29,~~2022. ~~The seven properties were classified as held for sale at June 30, 2022 with a carrying value of $46.9 million. During the three months ended September 30, 2022, the Company recorded a loss of $2.1 million in connection with the sale.~~

~~5. OTHER REAL ESTATE RELATED INVESTMENTS, AT FAIR VALUE, AND OTHER LOANS RECEIVABLE~~

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

As of September 30, 2022
Investment Facility Count and Type Principal Balance as of September 30, 2022 Book Value as of September 30, 2022
Book Value as of December 31, 2021
Weighted Average Contractual Interest Rate Maturity Date
Senior secured loan receivable 18 SNF/Campus $ 75,000 $ 72,525 $ — 8.4 % [1] 6/30/2027
Secured loan receivable 5 SNF 22,250 22,423 — 9.6 % [2] 8/1/2025
Secured loan receivable 4 SNF 24,900 25,043 — 9.0 % [2] 9/8/2025
Mezzanine loan receivable 9 SNF 15,000 14,667 15,155 12.0 % 11/30/2025
Mezzanine loan receivable 18 SNF/Campus 25,000 24,004 — 11.0 % 6/30/2032
$ 162,150 $ 158,662 $ 15,155

~~[1] Rate is net of subservicing fee.~~

~~[2] Term secured overnight financing rate (“SOFR”) used as of September 30, 2022 was 3.02%. Rates are net of subservicing fees.~~

The following table summarizes the Company’s ~~other real estate related investments~~assets held for sale activity for the ~~nine months ended September 30, 2022 and~~ ~~2021~~periods presented (dollars in thousands):

Nine Months Ended September 30,
2022 2021
Origination of other real estate related investments $ 147,150 $ —
Accrued interest, net 1,063 150
Unrealized loss on other real estate related investments (4,706) —
Net increase in other real estate related investments, at fair value $ 143,507 $ 150


	Net Carrying Value		Number of Facilities
December 31, 2022	$	12,291	5
Additions to assets held for sale	47,064		14
Assets sold	(14,506)		(4)
Impairment of real estate held for sale	(23,508)		—

September 30, 2023	$	21,341	15

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

5. OTHER REAL ESTATE RELATED AND OTHER INVESTMENTS

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


								As of September 30, 2023
Investment	Facility Count and Type	Principal Balance as of September 30, 2023		Fair Value as of September 30, 2023		Fair Value as of December 31, 2022		Weighted Average Contractual Interest Rate			Maturity Date
Senior mortgage secured loan receivable	18 SNF/Campus	$	75,000	$	68,472	$	72,543	8.4	%	(1)	6/30/2027
Mortgage secured loan receivable	5 SNF	22,250		21,210		21,345		10.7	%	(2)	8/1/2025
Mortgage secured loan receivable	4 SNF	24,900		22,716		23,796		9.0	%	(2)	9/8/2025
Mortgage secured loan receivable(3)	1 ALF	2,000		2,000		—		9.0	%		5/31/2024
Mortgage secured loan receivable(4)	2 SNF Campus / ILF	25,993		26,186		—		9.0	%		6/29/2033
Mortgage secured loan receivable(5)	2 SNF	15,727		15,397		—		9.0	%		8/1/2028
Mortgage secured loan receivable(6)	3 SNF	3,564		3,390		—		12.0	%		9/29/2026
Mezzanine loan receivable(7)	9 SNF	—		—		14,672		—			—
Mezzanine loan receivable	18 SNF/Campus	25,000		21,804		24,012		11.0	%		6/30/2032
		$	194,434	$	181,175	$	156,368

(1) Rate is net of subservicing fee.

(2) Term secured overnight financing rate (“SOFR”) used as of September 30, 2023 was 5.32%. Rates are net of subservicing fees.

(3) In ~~September 2022,~~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 ~~$24.9~~$26.0 million ~~term~~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) In July 2023, the Company extended a $15.7 million mortgage loan to a skilled nursing real estate owner. The mortgage loan is secured by two SNFs. The mortgage 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.

(6) In September 2023, the Company extended a $3.6 million mortgage loan as part of a larger, multi-tranche real estate secured term loan facility to a skilled nursing real estate owner. The secured term loan was structured with an “A” 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 Company’s ~~$24.9~~$3.6 million secured ~~term~~mortgage loan constituted the entirety of the “B” tranche with its payments subordinated accordingly. The ~~secured term~~mortgage loan is ~~primarily~~ secured by ~~four skilled nursing facilities operated by an operator in the Southeast.~~three SNFs. The ~~“B” tranche secured term~~mortgage loan is set to mature on September ~~8, 2025,~~29, 2026, with two ~~one-year extension options and ma~~y (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; 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 “B” tranche secured term loan provides for an earnout advance of $4.7 million if certain conditions are met. The "B" tranche secured term loan bears interest at a rate based on term SOFR, calculated as a fraction, with the numerator being the difference between (i) the monthly payment of interest of term SOFR plus a 4.50% spread and (ii) the amount of such monthly payment of interest of term SOFR plus a 2.85% spread, and with the denominator being the average daily balance of the outstanding principal amount during the applicable month, with such fraction expressed as a percentage and annualized, with a term SOFR floor of 1.0% and less a subservicing fee of 100% over 9.00%. The “B” tranche secured term loan requires monthly interest payments. The Company elected the fair value option for the “B” tranche secured term loan.

In August 2022, the Company extended a $22.3 million term loan as part of a larger, multi-tranche real estate secured term loan facility to a skilled nursing real estate owner. The secured term loan was structured with an “A” 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 Company’s $22.3 million secured term loan constituted the entirety of the “B” tranche with its payments subordinated accordingly. The secured term loan is primarily secured by five skilled nursing facilities, four of which will be operated by an existing operator and one of which will be operate~~d by a large, regional skilled nursing operator. The “B” tranche~~ ~~secured~~ ~~term loan is set to mature on August 1, 2025, with two one-year~~six-month extension options and may (subject to certain restrictions) be prepaid in whole ~~or in part before the maturity date for an ex~~it fee ranging from 2% to 3% of the loan plus unpaid interest payments; 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 "B" tranche secured term loan bears interest at a rate based on term secured overnight financing rate, calculated as a fraction, with the numerator being the difference between (i) the monthly payment of interest of term SOFR plus a 4.25% spread and (ii) the amount of such monthly payment of interest of term SOFR plus a 2.75% spread, and with the denominator being the average daily balance of the outstanding principal amount during the applicable month, with such fraction expressed as a percentage and annualized, with a term SOFR floor of 1.0% and less a subservicing fee of 50% over 8.25%. The “B” tranche secured term loan requires monthly interest payments. The Company elected the fair value option for the “B” tranche secured term loan.

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, 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 senior secured 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%0% to 3%2% of ~~the loan plus unpaid interest payments through the end of the month of prepayment; provided, however, that no exit fee is payable~~any proposed financing in connection with ~~portions of~~ the loan being refinanced ~~pursuant to a loan (or loans) provided by or insured~~ by the ~~United States~~U.S. Department of Housing and Urban ~~Development, Federal Housing Administration, or a similar governmental authority. The mezzanine~~Development.

(7) Mezzanine loan ~~bears interest at 11% and is secured by a pledge of membership interests in an up-tier affiliate of~~was prepaid during the ~~borrower group. The mezzanine loan is set to mature on June~~nine months ended September 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 senior secured 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.2023.

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

The ~~fair value option is elected on an instrument by instrument basis~~following table summarizes the Company’s other real estate related investments activity for the nine months ended September 30, 2023 and ~~must be applied to an entire instrument and is irrevocable once elected. The Company’s primary purpose~~2022 (dollars 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.~~thousands):


	Nine Months Ended September 30,
	2023		2022
Origination of other real estate related investments	$	47,534	$	147,150
Accrued interest, net	129		1,063
Unrealized losses on other real estate related investments, net	(7,856)		(4,706)
Prepayments of other real estate related investments	(15,000)		—
Net change in other real estate related investments, at fair value	$	24,807	$	143,507

As of September 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 September 30, 2022										As of September 30, 2023
Investment	Investment	Principal Balance as of September 30, 2022		Book Value as of September 30, 2022		Book Value as of December 31, 2021		Weighted Average Contractual Interest Rate		Maturity Date	Investment	Principal Balance as of September 30, 2023		Book Value as of September 30, 2023		Book Value as of December 31, 2022		Weighted Average Contractual Interest Rate		Maturity Date
Other loans receivable	Other loans receivable	$	14,738	$	14,742	$	3,161	8.5	%	11/29/2022 - 9/30/2025	Other loans receivable	$	14,053	$	14,090	$	9,600	8.7	%	9/1/2023 - 5/31/2026	(1)
Expected credit loss	Expected credit loss	(2,094)		(2,094)		—					Expected credit loss	—		(2,094)		(2,094)
Total	Total	$	12,644	$	12,648	$	3,161				Total	$	14,053	$	11,996	$	7,506

(1) One other loan receivable with a balance of approximately $26,000 had a maturity date of September 1, 2023. This loan was paid off subsequent to September 30, 2023.

The following table summarizes the Company’s other loans receivable activity for the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (dollars in thousands):


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2022		2021			2023		2022
Origination of loans receivable	Origination of loans receivable	$	14,500	$	700	Origination of loans receivable	$	5,160	$	14,500
Principal payments	Principal payments	(416)		(172)		Principal payments	(703)		(416)
Accrued interest, net	Accrued interest, net	(3)		39		Accrued interest, net	33		(3)
Expected credit loss		(5,344)		—
Loan loss recovery		750		—
Net increase in other loans receivable		$	9,487	$	567
Provision for loan losses, net						Provision for loan losses, net	—		(4,594)

Net change in other loans receivable						Net change in other loans receivable	$	4,490	$	9,487

Expected credit losses and recoveries are recorded in provision for loan losses, net in the condensed consolidated statements of operations. During the nine months ended September 30, 2022, the Company recorded a $4.6 million expected credit loss related to two 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. During the ~~three~~nine months endedSeptember 30, ~~2022, the Company wrote-off $2.5 million, related to one other loan receivable that was previously fully reserved, in connection with the sale of~~ 2023~~six SNFs and one multi-service campus.~~ ~~As of December 31, 2021,~~, the Company had no additional expected credit loss and did not consider any loan receivable investments to be impaired.

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

The following table summarizes the interest and other income recognized from the Company’s loans receivable and other investments during the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (dollars in thousands):


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Investment	Investment	2022		2021		2022		2021		Investment	2023		2022		2023		2022
Secured loans receivable		$	2,098	$	—	$	2,115	$	—
Mortgage secured loans receivable										Mortgage secured loans receivable	$	3,741	$	2,098	$	9,207	$	2,115
Mezzanine loans receivable	Mezzanine loans receivable	1,163		460		2,326		1,365		Mezzanine loans receivable	702		1,163		2,980		2,326

Other	Other	14		58		50		172		Other	216		14		723		50
Total	Total	$	3,275	$	518	$	4,491	$	1,537	Total	$	4,659	$	3,275	$	12,910	$	4,491

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~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

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:

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

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

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

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

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 September 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 September 30, 2022			Level 1		Level 2		Level 3		Balance as of September 30, 2023
Assets:	Assets:									Assets:
Secured loans receivable		$	—	$	—	$	119,991	$	119,991
Mortgage secured loans receivable										Mortgage secured loans receivable	$	—	$	—	$	159,371	$	159,371
Mezzanine loans receivable	Mezzanine loans receivable	—		—		38,671		38,671		Mezzanine loans receivable	—		—		21,804		21,804
Total	Total	$	—	$	—	$	158,662	$	158,662	Total	$	—	$	—	$	181,175	$	181,175


		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

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

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 Real Estate Secured Loans Investments in Mezzanine Loans
Balance at December 31, 2021 $ — $ 15,155
Loan originations 122,150 25,000
Accrued interest, net 839 224
Unrealized loss on other real estate related investments (2,998) (1,708)
Balance as of September 30, 2022 $ 119,991 $ 38,671


	Investments in Real Estate Secured Loans		Investments in Mezzanine Loans
Balance at December 31, 2022	$	117,684	$	38,684
Loan originations	47,534		—
Accrued interest, net	292		(163)
Unrealized losses on other real estate related investments, net	(6,139)		(1,717)
Repayments	—		(15,000)
Balance as of September 30, 2023	$	159,371	$	21,804

Real estate secured and mezzanine loans ~~receivables:~~receivable: The fair value of the 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. During the three months ended September 30, ~~2022,~~2023, the Company recorded an unrealized loss of ~~$4.7~~$5.3 million ~~on the Company’s secured~~related to four mortgage loans and one mezzanine ~~loans~~loan receivable due to rising interest rates. During the nine months ended September 30, 2023, the Company recorded an unrealized loss of $8.1 million related to five mortgage loans and one mezzanine loan receivable due to rising interest rates and a $0.3 million loss due to a loan origination fee paid, partially offset by a reversal of a previously recognized unrealized loss of $0.5 million related to the repayment of one mezzanine loan receivable. Future changes in market interest rates or collateral value could

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~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

materially impact the estimated discounted cash flows that are used to determine the fair value of the secured and mezzanine loans receivable. As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company did not have any loans ~~measured at fair value~~ 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 September 30, ~~2022~~:2023:

Type

Book Value as of September 30, ~~2022~~2023

Valuation Technique

Unobservable Inputs

Range

~~Secured~~Mortgage secured loans receivable

~~119,991~~159,371

Discounted cash flow

Discount Rate

9%10% - ~~13%~~15%

Mezzanine ~~loans~~loan receivable

~~38,671~~21,804

Discounted cash flow

Discount Rate

12% - ~~14%~~15%

For the ~~three and~~ nine months ended September 30, ~~2022,~~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 September 30, ~~2022~~2023 and December 31, ~~2021~~2022 using Level 2 inputs is as follows (dollars in thousands):


			September 30, 2022						December 31, 2021								September 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	$	394,928	$	331,000	$	400,000	$	394,262	$	410,500	Senior unsecured notes payable	2	$	400,000	$	395,816	$	352,500	$	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.

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

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 September 30, ~~2022~~2023 and December 31, ~~2021~~2022 (dollars in thousands):


		September 30, 2022						December 31, 2021							September 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	$	(5,072)	$	394,928	$	400,000	$	(5,738)	$	394,262	Senior unsecured notes payable	$	400,000	$	(4,184)	$	395,816	$	400,000	$	(4,850)	$	395,150
Senior unsecured term loan	Senior unsecured term loan	200,000		(705)		199,295		200,000		(864)		199,136		Senior unsecured term loan	200,000		(493)		199,507		200,000		(652)		199,348
Unsecured revolving credit facility(1)	Unsecured revolving credit facility(1)	180,000		—		180,000		80,000		—		80,000		Unsecured revolving credit facility(1)	—		—		—		125,000		—		125,000
		$	780,000	$	(5,777)	$	774,223	$	680,000	$	(6,602)	$	673,398		$	600,000	$	(4,677)	$	595,323	$	725,000	$	(5,502)	$	719,498

(1) Deferred financing fees are included in deferred financing costs, net on the balance sheet, and not reflected as a reduction to the unsecured revolving credit facility.

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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~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

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.

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 September 30, ~~2022,~~2023, the Company was in compliance with all applicable financial covenants under the indenture governing the Notes.

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

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~~(as amended from time to time, 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.

On October 10, 2023, the Operating Partnership, the Company, CareTrust GP, LLC, certain of the Operating Partnership’s wholly owned subsidiaries and KeyBank National Association entered into the First Amendment to the Second Amended Credit Agreement (the “First Amendment”). The First Amendment restates the definition of Consolidated Total Asset Value to include net proceeds from at-the-market forward commitments executed but not yet closed as of the relevant date as if such proceeds had actually been received.

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~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

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 September 30, ~~2022,~~2023, the Operating Partnership had $200.0 million of borrowings outstanding under the Term Loan and ~~$180.0 million~~no borrowings 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, 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 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.

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CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

As of September 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,~~September 15, 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 “New ATM Program”) and terminated its previous $500.0 million “at-the-market” equity offering program (the “Previous ATM Program” and together with the New ATM Program, the “ATM Program”). In addition to the issuance and sale of shares of 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 nine months ended September 30, 2023, the Company entered into ATM forward contracts under the ATM Program with a financial institution acting as a forward purchaser to sell 9,058,140 and 15,794,229 shares of common stock, respectively, at a weighted average initial sales price of $19.99 and $19.87 per share, respectively, before commissions and offering expenses. During the three months ended September 30, 2023, the Company settled 10,893,229 shares outstanding under the ATM forward contracts at a weighted average sales price of $19.57 for net proceeds of $213.1 million. For the remaining shares subject to the ATM forward contracts, the Company will not receive any proceeds from sales of those shares of common stock by the forward sellers until the forward contracts are settled.

There was no ATM Program activity (or activity under any predecessor at-the-market equity offering programs) for the three and nine months ended September 30, ~~2022 and the three months ended September 30, 2021.~~2022. The following table summarizes the ATM Program activity under the ATM forward contracts and direct issuances for the three and nine months ended September 30, ~~2021~~2023 (in thousands, ~~except~~expect per share amounts).

~~For the Nine Months Ended~~

~~September 30, 2021~~

~~Number of shares~~

~~990~~

~~Average sales price per share~~

~~23.74~~

~~Gross proceeds(1)~~

~~23,505~~


	For the Three Months Ended		For the Nine Months Ended
	September 30, 2023		September 30, 2023
Number of shares	16,285		16,285
Average sales price per share	$	19.89	$	19.89
Gross proceeds(1)	$	323,886	$	323,886

(1) Total gross proceeds is before ~~$0.3~~$4.0 million of commissions paid to the sales agents and forward adjustments during both the three and nine months ended September 30, ~~2021~~2023, respectively, under the ATM Program. As of September 30, 2023, 4,901,000 shares of common stock at the weighted average initial sales price of $20.00 per share, before commissions and offering expenses, remain outstanding under the ATM forward contracts.

As of September 30, ~~2022,~~2023, the Company had ~~$476.5~~$496.0 million available for future issuances under the New 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~~

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(Unaudited)

~~short-term borrowings under the Revolving Facility. Through September 30, 2022, the Company has not repurchased any shares of common stock under the Repurchase Program. As of~~ ~~September 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~~board of ~~Directors~~directors for the first nine months of ~~2022~~2023 (dollars in thousands, except per share amounts):


		For the Three Months Ended							For the Three Months Ended
		March 31, 2022		June 30, 2022		September 30, 2022			March 31, 2023		June 30, 2023		September 30, 2023
Dividends declared per share	Dividends declared per share	$	0.275	$	0.275	$	0.275	Dividends declared per share	$	0.28	$	0.28	$	0.28
Dividends payment date	Dividends payment date	April 15, 2022		July 15, 2022		October 14, 2022		Dividends payment date	April 14, 2023		July 14, 2023		October 13, 2023
Dividends payable as of record date(1)	Dividends payable as of record date(1)	$	26,691	$	26,683	$	26,683	Dividends payable as of record date(1)	$	27,846	$	27,853	$	32,403
Dividends record date	Dividends record date	March 31, 2022		June 30, 2022		September 30, 2022		Dividends record date	March 31, 2023		June 30, 2023		September 29, 2023

(1) Dividends payable includes dividends on performance stock awards that will be paid if and when the shares subject to such awards ~~vest.~~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”~~PSAs”) 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 since 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 nine months ended September 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	RSAs	9,684	17.56		RSAs	1,272	19.43

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 September 30, 2022		423,630	$	20.96
Unvested balance at September 30, 2023					Unvested balance at September 30, 2023	352,202	$	20.28

As of September 30, ~~2022,~~2023, the weighted-average remaining vesting period of such awards was ~~1.6~~1.5 years.

~~The following table summarizes the stock-based compensation expense recognized for the periods presented (dollars in thousands):~~
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2022 2021 2022 2021
Stock-based compensation expense $ 1,380 $ 1,802 $ 4,295 $ 5,197

~~As of September 30, 2022, there was $7.6 million of unamortized stock-based compensation expense related to the unvested RSAs, PSAs and TSR Awards.~~

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(Unaudited)

The following table summarizes the stock-based compensation expense recognized for the periods presented (dollars in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Stock-based compensation expense	$	1,519	$	1,380	$	3,379	$	4,295

For the nine months ended September 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 nine months ended September 30, 2023, approximately $0.9 million of previously recognized stock-based compensation expense was reversed due to forfeitures of stock awards.

As of September 30, 2023, there was $5.7 million of unamortized stock-based compensation expense related to the unvested RSAs and TSR Awards.

10. EARNINGS (LOSS) PER COMMON SHARE

The following table presents the calculation of basic and diluted earnings (loss) per common share attributable to CareTrust REIT, Inc. (“EPS”) for the Company’s common stock for the three and nine months ended September 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 September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Numerator:	Numerator:									Numerator:
Net income (loss)		$	709	$	11,918	$	(21,886)	$	53,721
Net income (loss) attributable to CareTrust REIT, Inc.										Net income (loss) attributable to CareTrust REIT, Inc.	$	8,696	$	709	$	27,439	$	(21,886)
Less: Net income allocated to participating securities	Less: Net income allocated to participating securities	(94)		(116)		(305)		(350)		Less: Net income allocated to participating securities	(89)		(94)		(267)		(305)
Numerator for basic and diluted earnings available to common stockholders	Numerator for basic and diluted earnings available to common stockholders	$	615	$	11,802	$	(22,191)	$	53,371	Numerator for basic and diluted earnings available to common stockholders	$	8,607	$	615	$	27,172	$	(22,191)
Denominator:	Denominator:									Denominator:
Weighted-average basic common shares outstanding	Weighted-average basic common shares outstanding	96,605		96,297		96,527		95,922		Weighted-average basic common shares outstanding	104,011		96,605		100,748		96,527
Dilutive performance stock awards		20		—		—		15
Dilutive potential common shares - performance stock awards										Dilutive potential common shares - performance stock awards	201		20		128		—
Dilutive potential common shares - forward equity agreements										Dilutive potential common shares - forward equity agreements	99		—		42		—
Weighted-average diluted common shares outstanding	Weighted-average diluted common shares outstanding	96,625		96,297		96,527		95,937		Weighted-average diluted common shares outstanding	104,311		96,625		100,918		96,527

Earnings (loss) per common share, basic		$	0.01	$	0.12	$	(0.23)	$	0.56
Earnings (loss) per common share, diluted		$	0.01	$	0.12	$	(0.23)	$	0.56
Antidilutive unvested RSAs, PSAs and TSR Awards excluded from the computation		341		535		478		436
Earnings (loss) per common share attributable to CareTrust REIT, Inc., basic										Earnings (loss) per common share attributable to CareTrust REIT, Inc., basic	$	0.08	$	0.01	$	0.27	$	(0.23)
Earnings (loss) per common share attributable to CareTrust REIT, Inc., diluted										Earnings (loss) per common share attributable to CareTrust REIT, Inc., diluted	$	0.08	$	0.01	$	0.27	$	(0.23)
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	317		341		317		478

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

11. VARIABLE INTEREST ENTITIES

Noncontrolling Interests—The Company has entered into ventures with unrelated third parties to own real estate and has concluded that such ventures are VIEs. As the Company exercises power over and receives economic benefits from the VIEs, the Company is considered the primary beneficiary and consolidates the VIEs. The Company presents the portion of any equity that the Company does not own in entities that the Company controls (and thus consolidates) as noncontrolling interests and classifies those interests as a component of consolidated equity, separate from stockholders' equity, on the Company’s consolidated balance sheets. For consolidated joint ventures, the Company allocates net income or loss utilizing the hypothetical liquidation at book value method, in which the Company allocates income or loss based on the change in each unitholders’ claim on the net assets of the joint venture partners at period end after adjusting for any distributions or contributions made during such period. The Company includes net income (loss) attributable to the noncontrolling interests in net income (loss) in the consolidated statements of operations.

During the three months ended September 30, 2023, the Company entered into a joint venture (“JV”), whereunder the Company contributed $25.5 million into the JV that purchased one SNF located in California for $26.1 million. The JV partner contributed the remaining $0.6 million of equity. The Company contributed to the JV an amount equal to 95% of the JV’s total investment amount in the one newly-acquired SNF and holds 100% of the preferred equity ownership interests in the JV. In addition, the Company contributed an amount equal to 2.5% of the JV’s total investment amount in the one SNF for a 50% common ownership interest in the JV.

During the three months ended September 30, 2023, the Company entered into a JV, whereunder the Company contributed $2.4 million into the JV, which made a deposit on a potential real estate acquisition. Upon the closing date of the real estate acquisition, the Company will hold an amount equal to 95% of the JV’s total investment amount and will hold 100% of the preferred equity ownership interest and an amount equal to 2.5% of the JV’s total investment amount for a 50% common ownership interest in the JV.

Total assets and total liabilities include VIE assets and liabilities as follows (in thousands):


	September 30, 2023		December 31, 2022
Assets:






Real estate investments, net	$	26,058	$	—
Prepaid and other assets	2,800		—
Total assets	28,858		—
Liabilities:
Accounts payable, accrued liabilities and deferred rent liabilities	701		—
Total liabilities	$	701	$	—

~~11.~~12. 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 tounder certain master lease agreements, with subsidiaries of The Ensign Group, Inc. and Pennant, under which 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. The Company has also provided select tenants with strategic capital for facility upkeep and modernization. As of September 30, ~~2022,~~2023, the Company had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities ~~totaling $16.1~~ totaling $11.8 million, of which ~~$3.9~~$3.2 million is subject to rent increase at the time of funding.

~~12.~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

13. 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.

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~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

Major operator concentration - The Company has operators from which it derived 10% or more of its rental revenue for the three and nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022. The following table sets forth information regarding the Company’s major operators as of September 30, ~~2022~~2023 and ~~2021:~~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)
Operator	Operator	SNF	Campus	ALF/ILF	SNF	Campus	ALF/ILF	Three Months Ended		Nine Months Ended		Operator	SNF	Campus	ALF/ILF	SNF	Campus	ALF/ILF	Three Months Ended		Nine Months Ended
September 30, 2023												September 30, 2023
Ensign(2)												Ensign(2)	83	8	7	8,741	997	661	34	%	36	%
Priority Management Group												Priority Management Group	13	2	—	1,742	402	—	15	%	16	%

September 30, 2022	September 30, 2022											September 30, 2022
Ensign(2)	Ensign(2)	83	8	7	8,741	997	661	36	%	35	%	Ensign(2)	83	8	7	8,741	997	661	36	%	35	%
Priority Management Group	Priority Management Group	13	2	—	1,742	402	—	16	%	16	%	Priority Management Group	13	2	—	1,742	402	—	16	%	16	%

September 30, 2021
Ensign(2)		83	8	4	8,756	997	395	33	%	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 nine months ended September 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 September 30, 2022		Nine Months Ended September 30, 2022		State	SNF	Campus	ALF/ILF	SNF	Campus	ALF/ILF	Three Months Ended		Nine Months Ended
September 30, 2023												September 30, 2023
CA												CA	30	9	5	3,494	1,527	437	29	%	28	%
TX												TX	40	3	2	5,126	536	212	22	%	23	%

September 30, 2022												September 30, 2022
CA	CA	27	8	5	3,048	1,359	437	27	%	27	%	CA	27	8	5	3,048	1,359	437	27	%	27	%
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.

14. 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)

Unsecured Revolving Credit Facility Amendment

On October 10, 2023, the Company amended the Second Amended Credit Agreement to restate the definition of Consolidated Total Asset Value. See Note 7, Debt, for additional information.

Asset Sales

On October 20, 2023, the Company closed on the sale of one ALF consisting of 135 beds located in Florida with a carrying value of $1.6 million, which approximated the net sales proceeds received. The facility was classified as held for sale as of September 30, 2023.

New Lease Agreement

On October 24, 2023, the Company entered into a new master lease (the “New Ridgeline Lease”) with affiliates of Ridgeline to lease two ALFs in New Jersey which were non-operational and under a short-term lease. The New Ridgeline Lease has an initial term at the date of the lease of approximately 10 years from the facility opening date, which is expected to occur in the second quarter of 2024 upon final regulatory approval and final licensing of both facilities, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the new lease is approximately $1.0 million beginning on the first day of the second lease year.

Recent Acquisitions

On October 25, 2023, the Company entered and contributed $34.2 million into a JV that purchased two SNFs located in California for $35.1 million. The JV partner contributed the remaining $0.9 million of equity. Each SNF was acquired subject to a triple-net lease with affiliates of Covenant Care, LLC (“Covenant Care”) as the tenant and licensed operator.The Company contributed to the JV an amount equal to 95% of the JV’s total investment amount in the two newly-acquired SNFs and holds 100% of the preferred equity ownership interests in the JV.In addition, the Company contributed an amount equal to 2.5% of the JV’s total investment amount in the two SNFs for a 50% common ownership interest in the JV. Both leases assumed as part of the transaction have a remaining initial term of approximately 6 years, with two five-year renewal options and 2% fixed annual rent increases. Annual cash rent under the leases is approximately $2.0 million. In 2027, the leases provide for a rent reset in which the JV may propose rent, capped at 10% of gross revenues, effective January 1, 2027. If the proposed rent reset is not accepted, the JV has the option to replace the current tenant. The Company’s contribution was funded using proceeds from the ATM Program.

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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 impact of possible additional surges of COVID-19 infections or the risk of other pandemics, epidemics or infectious disease outbreaks, measures taken to prevent the spread of 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 Reports on Form 10-Q for the ~~section entitled “Risk Factors” in Item 1A of Part I of such~~quarters ended March 31, 2023 and June 30, 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.~~properties. As of September 30, ~~2022,~~2023, we owned, directly or through a joint venture, and leased to independent ~~operators, 221~~operators, 225 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of ~~23,135~~23,916 operational beds and units located in 2928 states with the highest concentration of properties by rental revenues located in California, Texas, Louisiana, Idaho and Arizona. As of September 30, ~~2022,~~2023, we also had other real estate related investments consisting of ~~three~~seven real estate secured loans receivable and ~~two~~ one mezzanine ~~loans~~loan receivable with an aggregate carrying value of ~~$158.7~~$181.2 million.

We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property (including property taxes, insurance, maintenance and repair costs and capital expenditures, subject to certain exceptions in the case of properties leased to Ensign and Pennant). From time to time, we also extend secured mortgage loans to healthcare operators, secured by healthcare-related properties, and secured mezzanine loans to healthcare operators, secured by membership interests in healthcare-related properties. We also partner with third-party institutional investors to invest in healthcare real estate through various joint

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ventures. We conduct and manage our business as one operating segment for internal reporting and internal decision-making 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 during, and have continued following, 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 three 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 adversely 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, have been on a slow incline from February 2021 through the third 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 remained elevated during the first three quarters 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 September 30, 2022 is lower compared to 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 as referenced below.~~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 January 2023, and that allows HHS to continue providing temporary regulatory waivers,PHE, including ~~the~~HHS’s waiver of the three-day hospital stay requirement, ~~for a patient’s Medicare benefits to refresh. The Coronavirus Aid, Relief,~~expired on May 11, 2023. With the expiration of the PHE and ~~Economic Security Act (the “CARES Act”) included a temporary suspension~~the lifting 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 (“FMAP”), which was approved retroactive to January 1, 2020, is effective through March 31, 2023. If the COVID-19 Public Health Emergency expires or the three-day hospital stay requirement, ~~suspension is otherwise lifted or temporary FMAP increases end,~~ our SNFs may experience decreases in occupancy levels or revenues, which may ~~adversely~~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 the increase in expenses as a result of the COVID-19 pandemic. For example, Texas approved a $900 million general Medicaid rate increase as part of the overall state budget effective September 1, 2023, which will allow for the increase in its Medicaid rate to offset the expiration of the FMAP. There is no assurance that these measures

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~~The current limited availability or unavailability of grants and other funds being made~~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 (“CMS”) approved its payment rate update to SNF reimbursements for fiscal 2024, which commenced October 1, 2023, and includes a net increase of 4.0%, or ~~lost revenues attributable~~approximately $1.4 billion, in Medicare Part A payments to ~~COVID-19, as well as the tapering of grants and other funds for our SNFs, has also impacted~~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.

On September 1, 2023, CMS issued proposed rules regarding minimum staffing requirements and increased inspections at nursing homes in order to establish comprehensive nurse staffing requirements. The proposed rule consists of three core staffing proposals: (1) minimum nurse staffing standards of 0.55 hours per resident day for registered nurses and 2.45 hours of care from a nurse aid per resident per day; (2) a requirement to have a registered nurse onsite 24 hours a day, seven days a week; and (3) enhanced facility assessment requirements. The proposed rule also includes a staggered implementation approach and possible hardship exemptions for select facilities. Comments on the proposed rule had to be submitted by November 6, 2023. It is uncertain when the proposed rules will be finalized and become effective, what the ultimate scope and timing of the staffing requirements will be thereunder, and whether any such requirements will be accompanied by additional funding to offset any increased costs associated with meeting these requirements for our operators. Depending on the ultimate level of staffing required, an unfunded mandate to increase staff may have a material and adverse impact on the financial condition of our tenants.

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 nine months ended September 30, ~~2022,~~2023, we collected ~~93.4%~~97.5% and ~~94.2%~~96.9%, respectively, of contractual rents due from our operators ~~including cash deposits used to offset rent shortfalls, and 92.5% and 93.1%~~ excluding cash ~~deposits, respectively.~~deposits. In October ~~2022,~~2023, we collected ~~95.6%~~99.3% of contractual rents due from our operators ~~which includes~~excluding cash deposits. ~~Excluding those cash deposits, contractual cash rents collected was 92.7%.~~

~~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 was 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 became 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, we determined to pursue the sale of 27 properties and the repurposing of~~ three ~~properties, representing an aggregate of approximately 10% of contractual cash rent as of~~months ended March 31, ~~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 of ~~$59.7~~$1.9 million ~~related to 20 of the 27~~on four facilities held for ~~sale properties, which is~~sale. During the three months ended June 30, 2023, we recognized an impairment charge of $21.4 million on 12 facilities held for sale. During the three months ended September 30, 2023, we recognized an impairment charge of $0.2 million on one facility held for sale. These charges are reported in impairment of real estate investments in the condensed consolidated statements of ~~operations for the nine months ended September 30, 2022.~~operations. 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.

~~Following~~During the ~~asset sales and held for sale reclassifications discussed below, 19 properties continued to meet the criteria to be classified as held for sale as of~~three months ended September 30, 2022. During the third quarter of 2022, we recognized an aggregate impairment charge of $12.3 million related to 16 of the 19 held for sale properties to reduce their carrying value to estimated fair value less costs to sell. As of September 30, 2022, the real estate assets comprising the remaining 19 properties classified as held for sale had an aggregate carrying value of $77.7 million.

~~During the second quarter of 2022,~~2023, we recognized an impairment charge of ~~$1.7~~$8.0 million related to one SNF. We wrote down its carrying value of ~~$2.8~~$8.7 million to its estimated fair value of ~~$1.1 million.~~$0.7 million, which is included in real estate investments, net on our condensed consolidated balance sheets. The fair value of the asset was based on comparable market transactions.

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Asset Sales and Held for Sale Reclassifications

~~During~~The following table summarizes our dispositions for the ~~first quarter of~~three and nine months ended September 30, 2023 and 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~~(dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Number of facilities	—		7		4		8
Net sales proceeds	$	—	$	45,157	$	16,464	$	46,116
Net carrying value	—		47,444		14,506		48,217
Net (loss) gain on sale	$	—	$	(2,287)	$	1,958	$	(2,101)

The following table summarizes our assets held for sale ~~and recorded catch-up depreciation of approximately $0.1 million during~~activity for the ~~three months ended March 31, 2022.~~periods presented (dollars in thousands):

~~During the first quarter of 2022,~~


	Net Carrying Value		Number of Facilities
December 31, 2022	$	12,291	5
Additions to assets held for sale	47,064		14
Assets sold	(14,506)		(4)
Impairment of real estate held for sale	(23,508)		—

September 30, 2023	$	21,341	15

On October 20, 2023, we closed on the sale of one ~~SNF~~ALF consisting of 83135 beds located in ~~Washington~~Florida with a carrying value of ~~$0.8~~$1.6 million, ~~for~~which approximated the net sales proceeds ~~of $1.0 million. During the nine months ended September 30, 2022, we recorded a gain of $0.2 million in connection with the sale.~~

~~During the third quarter of 2022, we determined that one ALF, with a carrying value of $4.9 million, that~~

received. The facility was classified as held for sale ~~at June~~as of September 30, ~~2022 no longer met~~2023.

New Lease Agreement

On October 24, 2023, the ~~held for sale criteria. We reclassified this ALF out~~

Company entered into a new master lease (the “New Ridgeline Lease”) with affiliates of ~~assets held for sale at its fair value~~Ridgeline Properties, LLC to lease two ALFs in New Jersey which were non-operational and under a short-term lease. The New Ridgeline Lease has an initial term at the date of the ~~decision not to sell~~lease of approximately ~~$4.9 million.~~

~~During~~10 years from the ~~third quarter of 2022, we closed on the sale of six SNFs and one multi-service campus, operated by~~

~~affiliates of Trio Healthcare Holdings, LLC (“Trio”), consisting of 708 beds located in Ohio for net proceeds of $32.8 million. In connection~~facility opening date with the sale, we provided affiliates of the purchaser of the properties with a $7.0 million term loan that bears interest at 8.5% and has a maturity date of September 30, 2025. We also provided a $5.0 million bridge loan to four individuals that bears interest at 8.5% and has a maturity date of November 29, 2022. The seven properties were classified as held for sale at June 30, 2022 with a carrying value of $46.9 million. During the three months ended September 30, 2022, we recorded a loss of $2.1 million in connection with the sale.

~~Portfolio Activity~~

During the third quarter of 2022, a lease we entered into with Landmark Recovery of Maryland, LLC (“Landmark Maryland”) commenced. In connection with this lease, we are repurposing an existing ALF (previously leased to affiliates of Noble Senior Services) as a behavioral health treatment center that will be operated by Landmark Maryland. Rent under the lease will commence one year following commencement of the lease term or, if earlier, upon Landmark Maryland 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~~two five-year renewal ~~option~~options and CPI-based rent escalators. ~~See Note 3,~~ Annual cash rent under the new lease is approximately $1.0 million beginning on the first day of the second lease year.

Other Real Estate ~~Investments, Net~~ inInvestment Transactions

In March 2023, the ~~Notes to condensed consolidated financial statements for additional information.~~

Company received full repayment of the outstanding balance of a $15 million mezzanine loan receivable.

Recent Investments

From January 1, ~~2022~~2023 through November ~~8, 2022,~~9, 2023, we acquired ~~1 SNF and 1~~ten SNFs, one multi-service campus, and four ALFs for approximately ~~$21.9~~$233.7 million, which includes estimated capitalized acquisition costs. These acquisitions are expected to generate initial annual cash revenues of approximately ~~$2.1~~$19.2 million and an initial blended yield of approximately ~~9.4%. See Note 3,~~ ~~Real Estate Investments, Net~~ 8.2% before the impact of any rent abatement.

From January 1, 2023 through November 9, 2023, we originated $45.3 million in ~~the Notes~~mortgage loans. These investments are expected to ~~condensed consolidated financial statements for additional information.~~generate annual interest income of approximately $4.2 million and an initial blended yield of approximately 9.2%.

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In September 2022, we extended a $24.9 million term loan as part of a larger, multi-tranche real estate secured term loan facility to a skilled nursing real estate owner. The secured term loan was structured with an “A” 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). Our $24.9 million secured term loan constituted the entirety of the “B” tranche with its payments subordinated accordingly. The secured term loan is primarily secured by four skilled nursing faciliti~~es operated by an operator in the Southeast. The “B” tranche~~ ~~secured~~ ~~term loan is set to mature on September 8, 2025, with two one-year extension options and ma~~y (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; 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 “B” tranche secured term loan provides for an earnout advance of $4.7 million if certain conditions are met. The “B” tranche secured term loan bears interest at a rate based on term secured overnight financing rate (“SOFR”), calculated as a fraction, with the numerator being the difference between (i) the monthly payment of interest of term SOFR plus a 4.50% spread and (ii) the amount of such monthly payment of interest of term SOFR plus a 2.85% spread, and with the denominator being the average daily balance of the outstanding principal amount during the applicable month, with such fraction expressed as a percentage and annualized, with a term SOFR floor of 1.00% and less a subservicing fee of 100% over 9.00%. The “B” tranche secured term loan requires monthly interest payments.

In August 2022, we extended a $22.3 million term loan as part of a larger, multi-tranche real estate secured term loan facility to a skilled nursing real estate owner. The secured term loan was structured with an “A” 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). Our $22.3 million secured term loan constituted the entirety of the “B” tranche with its payments subordinated accordingly. The secured term loan is primarily secured by five skilled nursing facilities, four of which will be operated by an existing operator and one of which will be operate~~d by a large, regional skilled nursing operator. The “B” tranche~~ ~~secured~~ ~~term loan is set to mature on August 1, 2025, with two one-year extension options and may (subject to certain restrictions) be prepaid in whole or in part before the maturity date for an ex~~it fee ranging from 2% to 3% of the loan plus unpaid interest payments; 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 “B” tranche secured term loan bears interest at a rate based on term SOFR, calculated as a fraction, with the numerator being the difference between (i) the monthly payment of interest of term SOFR plus a 4.25% spread and (ii) the amount of such monthly payment of interest of term SOFR plus a 2.75% spread, and with the denominator being the average daily balance of the outstanding principal amount during the applicable month, with such fraction expressed as a percentage and annualized, with a term SOFR floor of 1.00% and less a subservicing fee of 50% over 8.25%. The “B” tranche secured term loan requires monthly interest payments.

At-The-Market Offering of Common Stock

On ~~March 10, 2020,~~September 15, 2023, we entered into a new equity distribution agreement to issue and sell, from time to time, up to $500.0 million in aggregate offering price of our common stock through an “at-the-market” equity offering program (the “New ATM Program”) and terminated our previous $500.0 million “at-the-market” equity offering program (the “Previous ATM Program” and together with the New ATM Program, the “ATM Program”). In addition to the issuance and sale of shares of our common stock, 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 November 9, 2023, we entered into ATM forward contracts under the ATM Program with a financial institution acting as a forward purchaser to sell an aggregate of 15,794,229 shares of common stock at a weighted average initial sales price of $19.87 per share before commissions and offering expenses. During the three months ended September 30, 2023, we settled 10,893,229 shares outstanding under the ATM forward contracts at a weighted average sales price of $19.57 for net proceeds of $213.1 million. For the remaining shares subject to the ATM forward contracts, we will not receive any proceeds from sales of those shares of common stock by the forward sellers until the forward contracts are settled. 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.


	~~For the Nine Months Ended~~
	~~September 30, 2021~~
~~Number of shares~~	~~990~~
~~Average sales price per share~~	$	~~23.74~~
~~Gross proceeds(1)~~	$	~~23,505~~


	For the Three Months Ended		For the Nine Months Ended
	September 30, 2023		September 30, 2023
Number of shares	16,285		16,285
Average sales price per share	$	19.89	$	19.89
Gross proceeds(1)	$	323,886	$	323,886

As of September 30, ~~2022, we~~2023, 4,901,000 shares of common stock at the weighted average initial sales price of $20.00 per share as of September 30, 2023, before commissions and offering expenses, remain outstanding under the ATM forward contracts.

As of November 9, 2023, we had ~~$476.5~~$496.0 million ~~available~~available for future issuances under the New ATM Program.

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Results of Operations

Three Months Ended September 30, ~~2022~~2023 Compared to Three Months Ended June 30, ~~2022:~~2023:


		Three Months Ended				Increase (Decrease)		Percentage Difference			Three Months Ended				Increase (Decrease)		Percentage Difference
		September 30, 2022		June 30, 2022							September 30, 2023		June 30, 2023
		(dollars in thousands)									(dollars in thousands)
Revenues:	Revenues:									Revenues:
Rental income	Rental income	$	47,018	$	46,806	$	212	—	%	Rental income	$	51,218	$	47,745	$	3,473	7	%

Interest and other income	Interest and other income	3,275		747		2,528		338	%	Interest and other income	4,659		3,808		851		22	%
Expenses:	Expenses:									Expenses:
Depreciation and amortization	Depreciation and amortization	12,256		12,559		(303)		(2)	%	Depreciation and amortization	13,034		12,716		318		3	%
Interest expense	Interest expense	8,355		6,303		2,052		33	%	Interest expense	11,750		11,040		710		6	%

Property taxes	Property taxes	691		1,254		(563)		(45)	%	Property taxes	2,167		1,390		777		56	%

Impairment of real estate investments	Impairment of real estate investments	12,322		1,701		10,621		624	%	Impairment of real estate investments	8,232		21,392		(13,160)		(62)	%

Property operating expenses	Property operating expenses	3,808		89		3,719		*		Property operating expenses	1,239		658		581		88	%

General and administrative	General and administrative	5,159		4,978		181		4	%	General and administrative	5,519		4,718		801		17	%
Other loss:	Other loss:									Other loss:

Loss on sale of real estate		(2,287)		—		(2,287)		*
Unrealized loss on other real estate related investments		(4,706)		—		(4,706)		*
Gain on sale of real estate, net										Gain on sale of real estate, net	—		2,028		(2,028)		(100)	%
Unrealized losses on other real estate related investments, net										Unrealized losses on other real estate related investments, net	(5,251)		(2,151)		(3,100)		144	%
Net income										Net income
Net loss allocated to noncontrolling interests										Net loss allocated to noncontrolling interests	(11)		—		(11)		*

•Not meaningful

Rental income. Rental income increased by ~~$0.2~~$3.5 million as detailed below:


		Three Months Ended							Three Months Ended				Increase/(Decrease)
(in thousands)	(in thousands)	September 30, 2022		June 30, 2022		Increase/(Decrease)		(in thousands)	September 30, 2023		June 30, 2023
Contractual cash rent[1]		$	46,338	$	46,088	$	250
Contractual cash rent								Contractual cash rent	$	49,234	$	46,536	$	2,698
Tenant reimbursements	Tenant reimbursements	677		713		(36)		Tenant reimbursements	1,991		1,216		775
Total contractual rent(1)	Total contractual rent(1)	47,015		46,801		214		Total contractual rent(1)	51,225		47,752		3,473
Straight-line rent	Straight-line rent	3		5		(2)		Straight-line rent	(7)		(7)		—

Total change in rental income		$	47,018	$	46,806	$	212
Rental income								Rental income	$	51,218	$	47,745	$	3,473

~~[1]~~(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.~~Contractual~~ Total contractual cash rent increased by ~~$0.3~~$3.5 million due to ana $2.5 million increase ofin rental income from real estate investments made after April 1, 2023, a $0.8 million increase in tenant reimbursements, and a $0.4 million ~~from increases~~increase in rental rates for our existing tenants, partially offset by a ~~$0.1~~$0.2 million decrease in rental income related to ~~moving certain tenants to a cash basis method of accounting.~~dispositions in June 2023.

Interest and other income. The ~~$2.5~~$0.9 million, or ~~338%~~22%, increase in interest and other income was primarily due to an increase of $1.0 million of interest income on new loan investments made after April 1, 2023 and an increase of $0.1 million of interest income on other loans due to a higher number of days during the ~~origination~~three months ended September 30, 2023 compared to the three months ended June 30, 2023, partially offset by a decrease of ~~loans receivable in June, August and September 2022. See above under “Recent Developments” for additional information.~~$0.2 million of interest income on money market funds.

Depreciation and amortization. The $0.3 million, or 2%3%, ~~decrease~~increase in depreciation and amortization was primarily due to an increase of $0.7 million due to acquisitions and capital improvements made after April 1, 2023, partially offset by a decrease of $0.3 million due to assets classified as held for sale and a decrease of $0.1 million due to assets becoming fully depreciated after April 1, ~~2022.~~2023.

Table of Contents

Interest expense. Interest expense increased by ~~$2.1~~$0.7 million as detailed below:

~~Table of Contents~~


	Change in interest expense for the three months ended September 30, ~~2022~~2023 compared to the three months ended June 30, ~~2022~~2023
	(in thousands)
Increase in ~~interest rates~~outstanding borrowing amount for the Revolving Facility, ~~(as defined below)~~net	$	~~798~~364
Increase in interest rates for the Term Loan (as defined below)	~~772~~208
Increase in ~~outstanding borrowing amount~~interest rates for the Revolving Facility ~~net~~(as defined below)	~~486~~138
~~Other changes in interest expense~~	~~(4)~~
~~Total~~Net change in interest expense	$	~~2,052~~710

Property taxes. The ~~$0.6~~$0.8 million, or ~~45%~~56%, ~~decrease~~increase in property taxes was primarily due to ~~$0.5~~a $0.6 million ~~of changes in estimates during the three months ended September 30, 2022 of~~increase related to acquisitions made after April 1, 2023 and a $0.2 million increase due to property taxes expected to be paid directly by us as a result of certain assets being designated as held for ~~sale and a $0.1 million decrease due to reassessments.~~sale.

Impairment of real estate investments. During the three months ended September 30, ~~2022,~~2023, we recognized an impairment ~~charge~~charges of ~~$12.3~~$8.0 million related to ~~16 properties classified as~~one property held for ~~sale during the quarter.~~investment and $0.2 million related to one property held for sale. See above under “Recent ~~Developments”~~Developments - Impairment of Real Estate Assets, Assets Held for Sale, and Asset Sales” for additional information. 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.

Property operating expenses. During the three months ended September 30, ~~2022,~~2023 and June 30, 2023, we recognized ~~$3.8~~$1.2 million and $0.7 million, respectively, of property operating expenses related to assets we plan to sell or repurpose, or have sold. ~~During the three months ended June 30, 2022, we recognized $0.1 million of property operating expenses related to assets we plan to sell or repurpose.~~

General and administrative expense. General and administrative expense increased by ~~$0.2~~$0.8 million as detailed below:


		Three Months Ended							Three Months Ended				Increase/(Decrease)
(in thousands)	(in thousands)	September 30, 2022		June 30, 2022		Increase/(Decrease)		(in thousands)	September 30, 2023		June 30, 2023
Cash compensation	Cash compensation	$	1,332	$	1,716	$	(384)	Cash compensation	$	1,439	$	1,267	$	172
Share-based compensation								Share-based compensation	1,519		924		595
Incentive compensation	Incentive compensation	1,300		600		700		Incentive compensation	1,125		1,025		100
Share-based compensation		1,380		1,394		(14)
Professional services	Professional services	412		548		(136)		Professional services	604		704		(100)
Taxes and insurance	Taxes and insurance	205		279		(74)		Taxes and insurance	224		276		(52)
Other expenses	Other expenses	530		441		89		Other expenses	608		522		86
Total change in general and administrative expense		$	5,159	$	4,978	$	181
General and administrative expense								General and administrative expense	$	5,519	$	4,718	$	801

~~Loss~~Gain on sale of real ~~estate.~~estate, net. During the three months ended ~~September~~June 30, ~~2022,~~2023, we recorded a $2.1 million gain on sale of real 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 ~~six SNFs and~~ one ~~multi-service campus and a $0.2 million~~ALF. No gain or loss on sale of real estate ~~related to~~was recognized during the ~~sale of a land parcel.~~three months ended September 30, 2023.

Unrealized ~~loss~~losses on other real estate related ~~investments.~~investments, net. During the three months ended September 30, ~~2022,~~2023, we recorded a ~~$4.7~~$5.3 million unrealized loss on four mortgage loans receivable and one ~~secured~~mezzanine loan receivable. 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 ~~two mezzanine loans receivable~~.a $0.3 million loss related to a loan origination fee paid. The unrealized loss is due to rising interest rates.~~No unrealized losses were recognized during the three months ended June 30, 2022.~~

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Nine Months Ended September 30, ~~2022~~2023 Compared to Nine Months Ended September 30, ~~2021:~~2022:


		Nine Months Ended September 30,				Increase (Decrease)		Percentage Difference			Nine Months Ended				Increase (Decrease)		Percentage Difference
		2022		2021							September 30, 2023		September 30, 2022
		(dollars in thousands)									(dollars in thousands)
Revenues:	Revenues:									Revenues:
Rental income	Rental income	$	139,831	$	141,077	$	(1,246)	(1)	%	Rental income	$	145,126	$	139,831	$	5,295	4	%

Interest and other income	Interest and other income	4,491		1,537		2,954		192	%	Interest and other income	12,910		4,491		8,419		187	%
Expenses:	Expenses:									Expenses:
Depreciation and amortization	Depreciation and amortization	38,390		41,284		(2,894)		(7)	%	Depreciation and amortization	37,988		38,390		(402)		(1)	%
Interest expense	Interest expense	20,400		17,988		2,412		13	%	Interest expense	32,617		20,400		12,217		60	%

Property taxes	Property taxes	3,365		2,466		899		36	%	Property taxes	4,437		3,365		1,072		32	%

Impairment of real estate investments	Impairment of real estate investments	73,706		—		73,706		*		Impairment of real estate investments	31,510		73,706		(42,196)		(57)	%

Provision for loan losses, net	Provision for loan losses, net	3,844		—		3,844		*		Provision for loan losses, net	—		3,844		(3,844)		(100)	%
Property operating expenses	Property operating expenses	4,344		—		4,344		*		Property operating expenses	2,860		4,344		(1,484)		(34)	%

General and administrative	General and administrative	15,352		16,136		(784)		(5)	%	General and administrative	15,298		15,352		(54)		—	%
Other loss:	Other loss:									Other loss:
Loss on extinguishment of debt		—		(10,827)		10,827		(100)	%
Loss on sale of real estate, net		(2,101)		(192)		(1,909)		994	%
Unrealized loss on other real estate related investments		(4,706)		—		(4,706)		*

Gain (loss) on sale of real estate, net										Gain (loss) on sale of real estate, net	1,958		(2,101)		4,059		(193)	%
Unrealized losses on other real estate related investments, net										Unrealized losses on other real estate related investments, net	(7,856)		(4,706)		(3,150)		67	%
Net income										Net income
Net loss allocated to noncontrolling interests										Net loss allocated to noncontrolling interests	(11)		—		(11)		*

•Not meaningful

Rental income. Rental income ~~decreased~~increased by ~~$1.2~~$5.3 million as detailed below:


		Nine Months Ended							Nine Months Ended				Increase/(Decrease)
(in thousands)	(in thousands)	September 30, 2022		September 30, 2021		Increase/(Decrease)		(in thousands)	September 30, 2023		September 30, 2022
Contractual cash rent	Contractual cash rent	$	138,768	$	138,491	$	277	Contractual cash rent	$	141,231	$	138,768	$	2,463
Tenant reimbursements	Tenant reimbursements	2,026		2,497		(471)		Tenant reimbursements	3,916		2,026		1,890
Total contractual rent [1]		140,794		140,988		(194)
Total contractual rent(1)								Total contractual rent(1)	145,147		140,794		4,353
Straight-line rent	Straight-line rent	14		26		(12)		Straight-line rent	(21)		14		(35)
Adjustment for collectibility[2]		(977)		—		(977)
Lease termination revenue[3]		—		63		(63)
Adjustment for collectibility (2)								Adjustment for collectibility (2)	—		(977)		977

Total change in rental income		$	139,831	$	141,077	$	(1,246)

Rental income								Rental income	$	145,126	$	139,831	$	5,295

~~[1]~~(1) Includes initial contractual cash rent, ~~and tenant reimbursements,~~ as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by the Company. For tenants on a cash basis, this represents the lesser of the amount that would be recognized on a straight-line basis or cash that has been received.Total contractual cash rent ~~decreased~~increased by ~~$0.2~~$4.4 million due to ~~a $8.3 million decrease related to moving certain tenants to a cash basis method of accounting subsequent to January 1, 2022 and a $0.5 million decrease in tenant reimbursements, partially offset by~~ an increase of ~~$5.3~~$4.9 million in ~~contractual cash rent~~ from real estate investments made after January 1, ~~2021 and $3.4~~2022, a $3.9 million ~~due to increases~~increase in rental rates for our existing ~~tenants.~~tenants and a $1.9 million increase in tenant reimbursements, partially offset by a $5.5 million decrease in rental income related to lower cash collections from tenants on a cash basis method of accounting and a $0.8 million decrease due to dispositions after January 1, 2022.

~~[2]~~(2) During the nine months ended September 30, 2022, the Company wrote off $1.0 million of uncollectible rent.

~~[3]~~Interest and other income. ~~During~~The $8.4 million increase in interest and other income was primarily due to an increase of $8.9 million due to the origination of loans receivable after January 1, 2022, a prepayment penalty of $0.4 million during the nine months ended September 30, ~~2021, the Company received approximately $0.1 million of lease termination revenue.~~

~~Interest~~2023, and ~~other income.~~ ~~The $3.0 million, or 192%, increase in interest and other income is primarily due to~~ an increase of ~~$3.1~~$0.2 million ~~related to the origination~~ of ~~loans receivable in June, August and September 2022~~interest income on money market funds, partially offset by a decrease of ~~$0.1~~$0.9 million ~~related~~of interest income due to ~~repayments~~a loan repayment and a decrease of ~~other loans. See above under “Recent Developments” for additional information.~~

~~Table~~$0.2 million of ~~Contents~~interest income due to a loan origination fee received during the nine months ended September 30, 2022.

Depreciation and amortization. The ~~$2.9~~$0.4 million, or 7%1%, decrease in depreciation and amortization was primarily due to a ~~$3.6 million~~ decrease ~~from assets reclassified as held for sale and a decrease in depreciation~~ of ~~$1.7~~$2.4 million due to assets becoming fully depreciated after January 1, ~~2021,~~2022 and a decrease of $1.0 million due to classifying assets as held for sale after January 1, 2022, partially offset by an increase ~~in depreciation and amortization~~ of ~~$2.4~~$2.3 million related to ~~new real estate investments~~acquisitions and capital improvements made after January 1, ~~2021.~~2022 and a $0.7 million increase due to reclassifying assets out of held for sale during the three months ended December 31, 2022.

Table of Contents

Interest expense.Interest expense increased by~~$2.4~~ $12.2 million as detailed below:


	Change in interest expense for the nine months ended September 30, ~~2022~~2023 compared to the nine months ended September 30, ~~2021~~2022
	(in thousands)
~~Increases to interest expense due to:~~
~~Issuance of the Notes - June 17, 2021~~	$	~~7,110~~
Increase in interest rates for the Term Loan	~~1,461~~$	6,002
Increase in interest rates for the Revolving Facility	3,623
Increase in outstanding borrowing amount for the Revolving Facility, net	~~976~~
~~Increase in interest rates for the Revolving Facility~~	~~714~~2,286
Other changes in interest expense	29306
~~Total increases to interest expense~~	~~10,290~~
~~Decreases to interest expense due to:~~
~~Redemption of the prior senior notes - July 1, 2021~~	~~(7,878)~~
~~Total decreases to interest expense~~	~~(7,878)~~
~~Total~~Net change in interest expense	$	~~2,412~~12,217

Property taxes. The ~~$0.9~~$1.1 million, or ~~36%~~32%, increase in property taxes was ~~primarily~~ due to a $0.9 million increase due to property taxes expected to be paid directly by us as a result of certain assets being designated as held for sale, a $0.7 million increase ~~due~~related to ~~new real estate investments~~acquisitions made after January 1, ~~2021, a $0.1~~2022, an increase of $0.2 million due to reassessments, and an increase ~~related~~of $0.2 million due to the transfer of certain properties to new operators in March 2023 that do not make direct tax payments, ~~and~~partially offset by a ~~$0.1~~decrease of $0.9 million ~~increase related~~due to ~~two non-operational~~the sale of properties ~~at September 30,~~after January 1, 2022.

Impairment of real estate investments. During the nine months ended September 30, 2023, we recognized an impairment charge of $23.1 million related to properties classified as held for sale, $8.0 million related to properties held for investment, and $0.4 million related to properties that were sold. See above under “Recent Developments - Impairment of Real Estate Assets, Assets Held for Sale, and Asset Sales” for additional information. During the nine months ended September 30, 2022, we recognized an aggregate impairment ~~charges~~charge of $73.7 million related to properties held for sale during fiscal 2022 and one property that is currently held for investment. See above under “Recent Developments” for additional information. No impairment charges were recognized during the nine months ended September 30, 2021.sale.

Provision for loan losses, net. During the nine months ended September 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 nine months ended September 30, ~~2021.~~2023.

Property operating expenses. During the nine months ended September 30, 2023 and 2022, we recognized $2.9 million and $4.3 million, respectively, of property operating expenses related to assets we plan to sell or repurpose, or have sold. ~~No similar expenses were incurred during the nine months ended September 30, 2021.~~

~~Table of Contents~~

General and administrative expense. General and administrative expense decreased by ~~$0.8~~$0.1 million as detailed below:


		Nine Months Ended							Nine Months Ended				Increase/(Decrease)
(in thousands)	(in thousands)	September 30, 2022		September 30, 2021		Increase/(Decrease)		(in thousands)	September 30, 2023		September 30, 2022
Cash compensation	Cash compensation	$	4,767	$	4,049	$	718	Cash compensation	$	4,256	$	4,767	$	(511)
Incentive compensation	Incentive compensation	2,950		3,550		(600)		Incentive compensation	3,700		2,950		750
Share-based compensation	Share-based compensation	4,295		5,197		(902)		Share-based compensation	3,379		4,295		(916)
Professional services	Professional services	1,299		1,350		(51)		Professional services	1,783		1,299		484
Taxes and insurance	Taxes and insurance	693		641		52		Taxes and insurance	704		693		11
Other expenses	Other expenses	1,348		1,349		(1)		Other expenses	1,476		1,348		128
Total change in general and administrative expense		$	15,352	$	16,136	$	(784)
General and administrative expense								General and administrative expense	$	15,298	$	15,352	$	(54)

~~Loss on extinguishment of debt.~~ During the nine months ended September 30, 2021, we recorded a $10.8 million loss on extinguishment of debt, including a prepayment penalty of $7.9 million and a $2.9 million write-off of deferred financing costs associated with the redemption of the prior senior notes.

~~Loss~~Gain (loss) on sale of real estate, net. During the nine months ended September 30, 2023, we recorded a $2.1 million gain on sale of real 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 nine months ended September 30, 2022, we recorded a $2.1 million loss on sale of real estate related to the sale of six SNFs and one multi-service campus and a $0.2 million loss on sale of real estate related to the sale of a land parcel, partially offset by a $0.2 million gain on sale of real estate related to the sale of one SNF.

Table of Contents

Unrealized losses on other real estate related investments, net. During the nine months ended September 30, ~~2021,~~2023, we recorded an unrealized loss of $8.1 million related to five mortgage loans and one mezzanine loan receivable due to rising interest rates and a ~~$0.2~~$0.3 million loss ~~on sale~~due to a loan origination fee paid, partially offset by a reversal of ~~real estate~~a previously recognized unrealized loss of $0.5 million related to the ~~sale~~repayment of one ~~SNF.~~

~~Unrealized loss on other real estate related investments.~~ mezzanine loan receivable. During the nine months ended September 30, 2022, we recorded a $4.7 million unrealized loss on one secured loan receivable and two mezzanine loans ~~receivable~~.receivable. The unrealized loss is due to rising interest rates.~~No unrealized losses were recognized during the nine months ended September 30, 2021.~~

Liquidity and Capital Resources

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

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

•interest expense and scheduled debt maturities on outstanding indebtedness;

•general and administrative expenses;

•dividend plans;

•operating lease obligations; and

•capital expenditures for improvements to our properties.

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

We believe that our expected operating cash flow from rent collections, interest payments on our other real estate related investments, and borrowings under our Second Amended Credit Facility, together with our cash balance of ~~$4.9~~$3.5 million, available

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borrowing capacity of ~~$420.0~~$600.0 million ~~unde~~runder the Revolving Facility, 4,901,000 shares of common stock subject to forward equity sale contracts at the weighted average initial sales price of $20.00 per share, before commissions and offering expenses, which can be settled at any time before the one year anniversary of the applicable forward contract, and availability of $496.0 million under the ATM Program, ~~of $476.5 million,~~ each at September 30, ~~2022,~~2023, will be sufficient to meet ongoing debt service requirements, dividend plans, operating lease obligations, capital expenditures, working capital requirements and other needs for at least the next 12 months. We expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements. While we are currently pursuing the sale, re-tenanting or repurposing of certain of our assets in connection with our ongoing review and monitoring of our investment portfolio as described under “Recent Developments” above, we currently do not expect to sell any of our properties to meet liquidity needs, although we may do so in the future. Our quarterly cash dividend ~~any share repurchases under our Repurchase Program (as defined below)~~ and any failure of our operators to pay rent or of our borrowers to make interest or principal payments may impact our available capital resources.

On March 20, 2020, our board of directors authorized a share repurchase program to repurchase up to $150.0 million of outstanding shares of our common stock (the “Repurchase Program”). Repurchases under the Repurchase Program, which expires on March 31, 2023, may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated share repurchase transactions, or other methods of acquiring shares, in each case subject to market conditions and at such times as shall be permitted by applicable securities laws and determined by management. Repurchases under the Repurchase Program may also be made pursuant to a plan adopted under Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We expect to finance any share repurchases under the Repurchase Program using available cash and may also use short-term borrowings under the Revolving Facility. Through ~~September 30, 2022, we have not repurchased any shares of common stock under the Repurchase Program and, as of~~ ~~September 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 September 15, 2023, we entered into the New ATM Program. In addition to the issuance and sale of shares of our common stock, we may also enter into one or more ATM forward contracts with sales agents for the sale of shares of our common stock under the ATM Program. See “At-The-Market Offering of Common Stock” for information regarding activity under the ATM Program.

Although we are subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incur additional indebtedness for acquisitions or other purposes, if needed. However, there can be no

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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 September 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 Nine Months Ended September 30,					For the Nine Months Ended September 30,
		2022		2021			2023		2022

Net cash provided by operating activities	Net cash provided by operating activities	$	110,672	$	118,363	Net cash provided by operating activities	$	112,096	$	110,672
Net cash used in investing activities	Net cash used in investing activities	(141,759)		(181,963)		Net cash used in investing activities	(232,305)		(141,759)
Net cash provided by financing activities	Net cash provided by financing activities	16,053		62,397		Net cash provided by financing activities	110,516		16,053
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(15,034)		(1,203)		Net decrease in cash and cash equivalents	(9,693)		(15,034)
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	$	4,861	$	17,716	Cash and cash equivalents as of the end of period	$	3,485	$	4,861

Net cash provided by operating activities ~~decreased $7.7 million~~increased for the nine months ended September 30, ~~2022~~2023 compared to the nine months ended September 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~~increase of ~~$7.7~~$1.4 million in cash provided by operating activities for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 is primarily due to an increase in cash paid for general and administrative expense, interest expense, a decrease in rental income received and operating expenses related to assets we plan to sell, have sold, or repurpose, partially offset by interest income received on our other real estate related ~~investments.~~investments, an increase in rental income received, and a decrease in cash paid for general and administrative expense, partially offset by an increase in cash paid for interest expense.

Cash used in investing activities for the nine months ended September 30, 2023 was primarily comprised of $253.3 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 $9.1 million of purchases of equipment, furniture and fixtures and improvements to real estate, partially offset by $15.7 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 nine months ended September 30, 2022 was primarily comprised of $171.6 million in acquisitions of real estate and investments in real estate related investments and other loans receivable and $5.5 million of purchases of equipment, furniture and fixtures and improvements to real estate, partially offset by $34.1 million in net proceeds from real estate sales and $1.2 million of principal payments received from other loans receivable. C~~ash used in investing~~

Our cash flows provided by financing activities for the nine months ended September 30, ~~2021 was~~2023 were primarily comprised of $184.1 million in acquisitions of real estate and investments in other loans and $4.8 million of purchases of equipment, furniture and fixtures and improvements to real estate, partially offset by $6.8$319.0 million in net proceeds from ~~real estate sales~~the issuance of common stock and ~~$0.2~~$1.1 million ~~of principal~~in contributions from noncontrolling interests, partially offset by $125.0 million in net payments ~~received from other loans receivable.~~

under our Revolving Facility (as defined below), $83.1 million in dividends paid and a $1.5 million net settlement adjustment on restricted stock. Our cash flows provided by financing activities for the nine months ended September 30, 2022 were primarily comprised of $100.0 million in net borrowings under our ~~Amended~~Prior Credit ~~Facility,~~Agreement (as defined below), partially offset by $79.5 million in dividends paid and a $4.5 million net settlement adjustment on restricted stock. O

~~ur cash flows provided by financing activities for the nine months ended September 30, 2021 were primarily comprised~~Table of $400.0 million of proceeds from the issuance of the Notes, $30.0 million in net borrowings under our Amended Credit Facility and $22.9 million of net proceeds from the issuance of common stock under the ATM Program, partially offset by $300 million of payments to redeem the prior senior notes, $75.1 million in dividends paid, $14.1 million in payments on debt extinguishment and deferred financing costs and a $1.3 million net settlement adjustment on restricted stock.Contents

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) that guarantee obligations under the Second Amended Credit Facility (as defined below). As of September 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.

Unsecured Revolving Credit Facility and Term Loan

~~Table~~On December 16, 2022, we, together with certain of ~~Contents~~

~~Our~~our subsidiaries, entered into a second amended and restated credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender (as amended from time to time, the “Second Amended Credit Agreement”). The Operating Partnership is the borrower under the Second Amended Credit Agreement, and the ~~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) 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.

On October 10, 2023, we entered into the First Amendment to the Second Amended Credit Agreement with KeyBank National Association (the “First Amendment”). The First Amendment restates the definition of Consolidated Total Asset Value to include net proceeds from at-the-market forward commitments executed but not yet closed as of the relevant date as if such proceeds had actually been received.

As of September 30, ~~2022,~~2023, we had ~~$200.0~~$200.0 million outstanding under the Term Loan and ~~$180.0 million~~no borrowings 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.~~

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As of September 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 September 30, ~~2022~~,2023, we had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities totaling ~~$16.1~~$11.8 million, of which ~~$3.9~~$3.2 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,~~12, 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 nine~~ months ended September 30, ~~2022~~2023.

Critical Accounting Policies and Estimates

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

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they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Please refer to “Critical Accounting Policies and Estimates” in the “Management’s Discussion and Analysis of Financial Condition and Results of 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 nine months ended September 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 Second 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 September 30, ~~2022,~~2023, we had a $200.0 million Term Loan outstanding and had ~~$180.0 million~~no borrowings outstanding under the Revolving Facility.

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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 September 30, ~~2022~~2023 described above and the interest rates applicable to our outstanding debt at September 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 $2.9~~approximately $1.5 million forfor the nine months ended September 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 September 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 September 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 September 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 September 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 Reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 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.

Investments through joint ventures involve risks not present in investments in which we are the sole investor.

We have invested, and may continue to invest, as a joint venture partner in joint ventures. Such investments may involve risks not otherwise present when acquiring real estate directly, including for example:

•the joint venture partner(s) may at any time have economic or business interests or goals which are or which may become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in the joint venture or the timing of termination or liquidation of the joint venture;

•the possibility that the joint venture partner(s) might become insolvent or bankrupt;

•the possibility that we may incur liabilities as a result of an action taken by the joint venture partner(s);

•joint ventures may share certain approval rights over major decisions;

•a joint venture partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT;

•our ability to sell or transfer our interest in the joint ventures on advantageous terms when we so desire may be limited or restricted under the terms of our agreements with the counterparties in the joint ventures;

•we may be required to contribute additional capital if the counterparties in the joint ventures fail to fund their share of required capital contributions;

•disputes between us and a joint venture partner may result in litigation or arbitration that would increase our expenses and distract our officers and directors from focusing their time and effort on our business and result in subjecting the properties owned by the applicable joint venture to additional risk; or

•under certain joint venture arrangements, neither joint venture partner may have the power to control the venture, and an impasse could be reached which might have a negative influence on the joint venture.

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Item 5. Other Information.

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).

*10.1						First Amendment to Second Amended and Restated Credit and Guarantee Agreement, dated as of October 10, 2023, by and among CTR Partnership, L.P., CareTrust REIT, Inc. and KeyBank National Association

*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.
November ~~8, 2022~~9, 2023	By:	/s/ David M. Sedgwick
		David M. Sedgwick
		President and Chief Executive Officer (duly authorized officer)

November ~~8, 2022~~9, 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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Type of Property	Purchase Price(1)		Initial Annual Cash Rent		Number of Properties	Number of Beds/Units(2)
Skilled nursing	$	8,918	$	815	1	135
Multi-service campuses	13,003		1,235		1	130

Total	$	21,921	$	2,050	2	265


	Investments in Real Estate Secured Loans		Investments in Mezzanine Loans
Balance at December 31, 2021	$	—	$	15,155
Loan originations	122,150		25,000
Accrued interest, net	839		224
Unrealized loss on other real estate related investments	(2,998)		(1,708)
Balance as of September 30, 2022	$	119,991	$	38,671