CareTrust REIT Annual Report 2015

Plain-text annual report

CARETRUST REIT, INC. FORM 10-K (Annual Report) Filed 02/11/16 for the Period Ending 12/31/15 Address Telephone CIK 27101 PUERTA REAL, SUITE 450 MISSION VIEJO, CA 92691 (949) 487-9500 0001590717 Symbol CTRE SIC Code Fiscal Year 6798 - Real Estate Investment Trusts 12/31 http://www.edgar-online.com © Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-K (Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015or¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number 001-36181 CareTrust REIT, Inc.(Exact name of registrant as specified in its charter) Maryland46-3999490(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification No.)905 Calle Amanecer, Suite 300, San Clemente, CA92673(Address of principal executive offices)(Zip Code)Registrant’s telephone number, including area code (949) 542-3130Securities registered pursuant to Section 12(b) of the Act:Title of each className of each exchange on which registered Common Stock (par value $0.01 per share)The NASDAQ Stock Market LLC(NASDAQ Global Select Market)Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate 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 thepreceding 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 past90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submittedand posted 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 tosubmit and post such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):Large accelerated filero Accelerated filerxNon-accelerated filero(Do not check if a smaller reporting company)Smaller reporting companyoIndicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act.) Yes ¨ No xState the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity waslast sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $392.0 million .As of February 10, 2016 there were 48,146,549 shares of the registrant’s common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the definitive Proxy Statement for the registrant’s 2016 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commissionwithin 120 days after the end of fiscal year 2015, are incorporated by reference into Part III of this Report. Table of ContentsTABLE OF CONTENTS PART IItem 1.Business5Item 1A.Risk Factors15Item 1B.Unresolved Staff Comments30Item 2.Properties30Item 3.Legal Proceedings30Item 4.Mine Safety Disclosures31PART IIItem 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities31Item 6.Selected Financial Data32Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations34Item 7A.Quantitative and Qualitative Disclosures About Market Risk44Item 8.Financial Statements and Supplementary Data45Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures45Item 9A.Controls and Procedures45Item 9B.Other Information46PART IIIItem 10.Directors, Executive Officers and Corporate Governance46Item 11.Executive Compensation46Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters46Item 13.Certain Relationships and Related Transactions, and Director Independence46Item 14.Principal Accountant Fees and Services47PART IVItem 15.Exhibits, Financial Statements and Financial Statement Schedules472Table of ContentsEXPLANATORY NOTEThis report represents the Annual Report on Form 10-K for the fiscal year ended December 31, 2015 for CareTrust REIT, Inc. (“CareTrust” or the“Company”). Prior to June 1, 2014, CareTrust was a wholly owned subsidiary of The Ensign Group, Inc. (“Ensign”). On June 1, 2014, Ensign completed theseparation of its healthcare business and its real estate business into two separate and independent publicly traded companies through the distribution of all of theoutstanding shares of common stock of CareTrust to Ensign stockholders on a pro rata basis (the “Spin-Off”). Ensign stockholders received one share of CareTrustcommon stock for each share of Ensign common stock held at the close of business on May 22, 2014, the record date for the Spin-Off. The Spin-Off was effectivefrom and after June 1, 2014, with shares of CareTrust common stock distributed by Ensign on June 2, 2014.The Company was formed on October 29, 2013 and had minimal activity prior to the Spin-Off. The consolidated and combined financial statements includedin this report reflect, for all periods presented, the historical financial position, results of operations and cash flows of (i) the skilled nursing, assisted living andindependent living facilities that Ensign contributed to the Company immediately prior to the Spin-Off, (ii) the operations of the three independent living facilitiesthat the Company operated immediately following the Spin-Off, and (iii) the new investments that the Company has made after the Spin-Off. “Ensign Properties”is the predecessor of the Company, and its historical financial statements, for the periods prior to the Spin-Off, have been prepared on a “carve-out” basis fromEnsign’s consolidated financial statements using the historical results of operations, cash flows, assets and liabilities attributable to such skilled nursing, assistedliving and independent living facilities, and include allocations of income, expenses, assets and liabilities from Ensign. These allocations reflect significantassumptions. Although management of the Company believes such assumptions are reasonable, the consolidated and combined financial statements do not fullyreflect what the Company’s financial position, results of operations and cash flows would have been had it been a stand-alone company during the periodspresented. As a result, historical financial information is not necessarily indicative of the Company’s future results of operations, financial position and cash flows.Effective May 15, 2014, the Company became subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), and the Company will file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the“SEC”) as long as it remains subject to such Exchange Act requirements. These reports and other information filed by the Company may be read and copied at thePublic Reference Room of the SEC, 100 F Street N.E., Washington, D.C. 20549. Information about the Public Reference Room may be obtained by calling theSEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, and other information about issuers, like the Company, which fileelectronically with the SEC. The address of that site is http://www.sec.gov. The Company makes available its reports on Form 10-K, 10-Q, and 8-K (as well as allamendments to these reports), and other information, free of charge, at the Investor Relations section of its website at www.caretrustreit.com. The informationfound on, or otherwise accessible through, the Company’s website is not incorporated by reference into, nor does it form a part of, this report or any otherdocument that we file with the SEC.STATEMENT REGARDING FORWARD-LOOKING STATEMENTSCertain 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; expectationsregarding 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 similarexpressions, or the negative of these terms, are intended to identify such forward-looking statements. These statements are based on management’s currentexpectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecastedor expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectationswill be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materiallyfrom our expectations include, but are not limited to: (i) the ability to achieve some or all of the benefits that we expected to achieve from the completed Spin-Off;(ii) the ability and willingness of Ensign to meet and/or perform its obligations under the contractual arrangements that it entered into with us in connection withthe Spin-Off, including the Ensign Master Leases (as defined below), and any of its obligations to indemnify, defend and hold us harmless from and against variousclaims, litigation and liabilities; (iii) the ability of our tenants to comply with laws, rules and regulations in the operation of the properties we lease to them; (iv) theability and willingness of our tenants, including Ensign, to renew their leases with us upon their expiration, and the ability to reposition our properties on the sameor better3Table of Contentsterms in the event of nonrenewal or in the event we replace an existing tenant, and obligations, including indemnification obligations, we may incur in connectionwith the replacement of an existing tenant; (v) the availability of and the ability to identify suitable acquisition opportunities and the ability to acquire and lease therespective properties on favorable terms; (vi) the ability to generate sufficient cash flows to service our outstanding indebtedness; (vii) access to debt and equitycapital markets; (viii) fluctuating interest rates; (ix) the ability to retain our key management personnel; (x) the ability to qualify or maintain our status as a realestate investment trust (“REIT”); (xi) changes in the U.S. tax law and other state, federal or local laws, whether or not specific to REITs; (xii) other risks inherentin the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments; and (xiii) any additional factorsincluded in this report, including in the section entitled “Risk Factors” in Item 1A of this report, as such risk factors may be amended, supplemented or supersededfrom time to time by other reports we file with the SEC, including subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q.Forward-looking statements speak only as of the date of this report. Except as required by law, we expressly disclaim any obligation to release publicly anyupdates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions or circumstances on which anystatement is based.TENANT INFORMATIONThis Annual Report on Form 10-K includes information regarding certain of our tenants that lease properties from us, some of which are not subject to SECreporting requirements. Ensign is subject to the reporting requirements of the SEC and is required to file with the SEC annual reports containing audited financialinformation and quarterly reports containing unaudited financial information. The information related to our tenants contained or referred to in this Annual Reporton Form 10-K was provided to us by such tenants or, in the case of our largest tenant Ensign, derived from SEC filings made by Ensign or other publicly availableinformation. We have not verified this information through an independent investigation or otherwise. We have no reason to believe that this information isinaccurate in any material respect, but we cannot provide any assurance of its accuracy. We are providing this data for informational purposes only. You areencouraged to review Ensign’s publicly available filings, which can be found at the SEC’s website at www.sec.gov.4Table of ContentsPART IAll references in this report to “CareTrust,” the “Company,” “we,” “us” or “our” mean CareTrust REIT, Inc. together with its consolidated subsidiaries.Unless the context suggests otherwise, references to “CareTrust REIT, Inc.” mean the parent company without its subsidiaries.ITEM 1.BusinessOur CompanyCareTrust REIT, Inc. (“CareTrust” or the “Company”) was formed on October 29, 2013, as a wholly owned subsidiary of The Ensign Group, Inc.(“Ensign”). On June 1, 2014, Ensign completed the separation of its healthcare business and its real estate business into two separate and independent publiclytraded companies through the distribution of all of the outstanding shares of common stock of the Company to Ensign stockholders on a pro rata basis (the “Spin-Off”). The Spin-Off was effective from and after June 1, 2014, with shares of our common stock distributed to Ensign stockholders on June 2, 2014. CareTrustholds substantially all of the real property that was previously owned by Ensign. As of December 31, 2015, CareTrust’s real estate portfolio consisted of 122skilled nursing facilities (“SNFs”), assisted living facilities (“ALFs”) and independent living facilities (“ILFs”). Of these properties, 94 are leased to Ensign on atriple-net basis under multiple long-term leases (each, an “Ensign Master Lease” and, collectively, the “Ensign Master Leases”) that have cross default provisionsand are all guaranteed by Ensign, 14 are leased to affiliates of Pristine Senior Living ("Pristine") under a long-term, triple-net master lease that is guaranteed byPristine and two of its principals, and 11 properties are leased to seven other tenants on a triple-net basis. We also own and operate three ILFs. As of December 31,2015, the 94 facilities leased to Ensign had a total of 10,121 beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada,Texas, Utah and Washington; the 14 facilities leased to affiliates of Pristine had a total of 1,258 beds and units and are located in Ohio; and the 11 remaining leasedproperties had a total of 765 beds and units and are located in Colorado, Florida, Georgia, Idaho, Minnesota, Virginia and Washington. The three ILFs that we ownand operate had a total of 264 units and are located in Texas and Utah. As of December 31, 2015, the Company had one other real estate investment, consisting ofan $8.5 million preferred equity investment.We acquired the 14 facilities leased to affiliates of Pristine in an acquisition completed on October 1, 2015. We acquired the facilities, which comprise a 14facility skilled nursing and assisted living portfolio, from affiliates of Liberty Nursing Center ("Liberty"), for approximately $176.5 million (the "LibertyAcquisition"). Since the Spin-Off, we have also acquired an additional 11 properties, comprising seven assisted living facilities and four skilled nursing facilities,for approximately $82.6 million.We are an independent publicly traded, self-administered, self-managed real estate investment trust (“REIT”) primarily engaged in the ownership,acquisition and leasing of healthcare-related properties. We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-netlease arrangements, under which the tenant is solely responsible for the costs related to the property (including property taxes, insurance, and maintenance andrepair costs). We conduct and manage our business as one operating segment for internal reporting and internal decision making purposes. We expect to grow ourportfolio by pursuing opportunities to acquire additional properties that will be leased to a diverse group of local, regional and national healthcare providers, whichmay include Ensign, as well as senior housing operators and related businesses. We also anticipate diversifying our portfolio over time, including by acquiringproperties in different geographic markets, and in different asset classes.We have elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. We believe that wehave been organized and have operated, and we intend to continue to operate, in a manner to qualify for taxation as a REIT. We operate through an umbrellapartnership, commonly referred to as an UPREIT structure, in which substantially all of our properties and assets are held through CTR Partnership, L.P. (the“Operating Partnership”). The Operating Partnership is managed by CareTrust’s wholly owned subsidiary, CareTrust GP, LLC, which is the sole general partner ofthe Operating Partnership. To maintain REIT status, we must meet a number of organizational and operational requirements, including a requirement that weannually distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any netcapital gains.Our IndustryWe operate as a REIT that invests in income-producing healthcare-related properties. We expect to grow our portfolio by pursuing opportunities to acquireadditional properties that will be leased to a diverse group of local, regional and national healthcare providers, which may include Ensign, as well as senior housingoperators and related businesses. We also anticipate5Table of Contentsdiversifying our portfolio over time, including by acquiring properties in different geographic markets and in different asset classes. Our portfolio primarilyconsists of SNFs, ALFs and ILFs.The skilled nursing industry has evolved to meet the growing demand for post-acute and custodial healthcare services generated by an aging population,increasing life expectancies and the trend toward shifting of patient care to lower cost settings. The skilled nursing industry has evolved in recent years, which webelieve has led to a number of favorable improvements in the industry, as described below:•Shift of Patient Care to Lower Cost Alternatives. The growth of the senior population in the United States continues to increase healthcare costs. Inresponse, federal and state governments have adopted cost-containment measures that encourage the treatment of patients in more cost-effectivesettings such as SNFs, for which the staffing requirements and associated costs are often significantly lower than acute care hospitals, inpatientrehabilitation facilities and other post-acute care settings. As a result, SNFs are generally serving a larger population of higher-acuity patients than inthe past.•Significant Acquisition and Consolidation Opportunities. The skilled nursing industry is large and highly fragmented, characterized predominantlyby numerous local and regional providers. We believe this fragmentation provides significant acquisition and consolidation opportunities for us.•Widening Supply and Demand Imbalance . The number of SNFs has declined modestly over the past several years. According to the AmericanHealth Care Association, the nursing home industry was comprised of approximately 15,700 facilities as of December 2013, as compared with over16,700 facilities as of December 2000. We expect that the supply and demand balance in the skilled nursing industry will continue to improve due tothe shift of patient care to lower cost settings, an aging population and increasing life expectancies.•Increased Demand Driven by Aging Populations and Increased Life Expectancy . As life expectancy continues to increase in the United States andseniors account for a higher percentage of the total U.S. population, we believe the overall demand for skilled nursing services will increase. Atpresent, the primary market demographic for skilled nursing services is individuals age 75 and older. According to the 2010 U.S. Census, there wereover 40 million people in the United States in 2010 that were over 65 years old. The 2010 U.S. Census estimates this group is one of the fastestgrowing segments of the United States population and is expected to more than double between 2000 and 2030. According to the Centers forMedicare & Medicaid Services, nursing home expenditures are projected to grow from approximately $151 billion in 2012 to approximately $264billion in 2022, representing a compounded annual growth rate of 5.7%. We believe that these trends will support an increasing demand for skillednursing services, which in turn will likely support an increasing demand for our properties.Portfolio SummaryWe have a geographically diverse portfolio of properties, consisting of the following types:•Skilled Nursing Facilities. SNFs are licensed healthcare facilities that provide restorative, rehabilitative and nursing care for people not requiring themore extensive and sophisticated treatment available at acute care hospitals. Treatment programs include physical, occupational, speech, respiratoryand other therapies, including sub-acute clinical protocols such as wound care and intravenous drug treatment. Charges for these services are generallypaid from a combination of government reimbursement and private sources. As of December 31, 2015, our portfolio included 100 SNFs, 13 of whichinclude assisted or independent living operations.•Assisted Living Facilities . ALFs are licensed healthcare facilities that provide personal care services, support and housing for those who need helpwith activities of daily living, such as bathing, eating and dressing, yet require limited medical care. The programs and services may includetransportation, social activities, exercise and fitness programs, beauty or barber shop access, hobby and craft activities, community excursions, mealsin a dining room setting and other activities sought by residents. These facilities are often in apartment-like buildings with private residences rangingfrom single rooms to large apartments. Certain ALFs may offer higher levels of personal assistance for residents requiring memory care as a result ofAlzheimer’s disease or other forms of dementia. Levels of personal assistance are based in part on local regulations. As of December 31, 2015, ourportfolio included 18 ALFs, some of which also contain independent living units.•Independent Living Facilities . ILFs, also known as retirement communities or senior apartments, are not healthcare facilities. The facilities typicallyconsist of entirely self-contained apartments, complete with their own kitchens, baths and individual living spaces, as well as parking for tenantvehicles. They are most often rented unfurnished, and generally can be personalized by the tenants, typically an individual or a couple over the age of55. These facilities offer various services and amenities such as laundry, housekeeping, dining options/meal plans, exercise and wellness programs,transportation, social, cultural and recreational activities, on-site security and6Table of Contentsemergency response programs. As of December 31, 2015, our portfolio of four ILFs includes one that is operated by Ensign and three that are operatedby us.Our portfolio of SNFs, ALFs and ILFs is broadly diversified by geographic location throughout the United States, with concentrations in Texas andCalifornia. Our properties are grouped into four categories: (1) SNFs - these are properties that are comprised exclusively of SNFs; (2) Skilled Nursing Campuses -these are properties that include a combination of SNFs and ALFs or ILFs or both; (3) ALFs and ILFs - these are properties that include ALFs or ILFs, or acombination of the two; and (4) ILFs operated by CareTrust - these are ILFs operated by CareTrust, unlike the other properties, which are leased to third-partyoperators.Significant Master LeasesWe have leased 94 of our properties to subsidiaries of Ensign pursuant to the Ensign Master Leases, which consist of eight triple-net leases, each with itsown pool of properties, that have varying maturities and diversity in both property type and geography. The Ensign Master Leases provide for initial terms inexcess of ten years with staggered expiration dates and no purchase options. At the option of Ensign, each Ensign Master Lease may be extended for up to eithertwo or three five year renewal terms beyond the initial term and, if elected, the renewal will be effective for all of the leased property then subject to the EnsignMaster Lease. The rent is a fixed component that was initially set near the time of the Spin-Off. The annual revenues from the Ensign Master Leases are $56.0million during each of the first two years of the Ensign Master Leases. For the 12 months ended December 31, 2015, the lease coverage ratio of the Ensign MasterLeases was approximately 2.07x based on the ANOI from the leased properties. We define ANOI as earnings before interest, taxes, depreciation, amortization, andrent. A management fee equal to five percent of gross revenues is included as a reduction to ANOI. Commencing on June 1, 2016 and annually thereafter, theannual rents from the Ensign Master Leases will be escalated by an amount equal to the product of (1) the lesser of the percentage change in the Consumer PriceIndex (but not less than zero) or 2.5%, and (2) the prior year’s rent. The Ensign Master Leases are guaranteed by Ensign.On February 5, 2016, we entered into an agreement with Ensign allowing them to voluntarily close and decertify from the Medicare program its operations atone of the 94 properties we lease to Ensign operating subsidiaries, a facility located in Texas, pursuant to one of our Ensign Master Leases (“Master Lease No. 2”).Under the agreement, Ensign will continue to pay 100% of the indivisible master rent due under Master Lease No. 2 throughout the term of that lease and anyrenewals, and will continue to maintain and pay all expenses related to the closed property on a triple-net basis as required by the lease for up to five years. Weestimate that the planned closure will reduce our approximate lease coverage ratio for Master Lease No. 2 from 2.10x to 2.03x, and for the overall Ensign portfoliofrom 2.07x to 2.06x. We also believe that the fair value of the assets after closure will exceed our net book value therefor, and accordingly do not anticipate anyimpairment of value now or in the future. In addition, under the agreement we have the right to unilaterally extricate the property and the Texas licenses andMedicaid bed rights attached thereto from Master Lease No. 2 at our discretion, and to redeploy or dispose of such assets free and clear of the lease without anyobligation to Ensign. We intend to use this right to monetize the recovered assets in due course. We believe that Ensign’s voluntary closure plan for this propertywas based on unique and isolated concerns about this particular property’s operations, and we have no reason to anticipate any similar plans or requests in thefuture with respect to other properties we lease to Ensign.We have leased 14 of our properties to subsidiaries of Pristine pursuant to a triple-net master lease entered into effective as of October 1, 2015, which has aninitial term of 15 years, two five year renewal options and no purchase options. The annual revenues from the Pristine master lease are $17.0 million and will beescalated annually by an amount equal to the product of (1) the lesser of the percentage change in the Consumer Price Index (but not less than zero) or 3.0%, and(2) the prior year’s rent. The Pristine master lease is guaranteed by Pristine and two of its principals.Because we lease most of our properties to Ensign and Pristine, these two tenants are the primary source of our revenues, and their financial condition andability and willingness to (i) satisfy their obligations under their master leases and (ii) renew those leases upon expiration of the initial base terms thereofsignificantly impacts our revenues and our ability to service our indebtedness and to make distributions to our stockholders. There can be no assurance that thesetenants have sufficient assets, income and access to financing to enable them to satisfy their obligations under the master leases, and any inability or unwillingnesson their part to do so would have a material adverse effect on our business, financial condition, results of operations and liquidity, on our ability to service ourindebtedness and other obligations and on our ability to pay dividends to our stockholders, as required for us to qualify, and maintain our status, as a REIT. Wealso cannot assure you that these tenants will elect to renew their lease arrangements with us upon expiration of the initial base terms or any renewal terms thereofor, if such leases are not renewed, that we can reposition the affected properties on the same or better terms. See “Risk Factors - Risks Related to Our Business -We are dependent on Ensign, Pristine and other healthcare operators to make payments to us under leases, and an event that materially and adversely affects theirbusiness, financial position or results of operations could materially and adversely affect our business, financial position or results of operations.”7Table of ContentsProperties by Type:The following table displays the geographic distribution of our facilities by property type and the related number of beds and units available for occupancyby asset class, as of December 31, 2015. The number of beds or units that are operational may be less than the official licensed capacity. Total(1) SNFs Skilled Nursing Campuses ALFsand ILFs(1)State PropertiesBeds/Units FacilitiesBeds CampusesSNFBedsALFBedsILFUnits FacilitiesUnitsCA 181,991 141,465 215812124 2223TX 273,241 222,699 11237720 4322AZ 101,327 7799 1162100— 2266UT 121,305 9907 123537— 2126CO 6633 4380 ———— 2253ID 9567 5408 14524— 390WA 8754 7652 ———— 1102NV 3304 192 ———— 2212NE 5366 3220 210541— ——IA 5356 3185 210962— ——MN 128 —— ———— 128VA 139 —— ———— 139GA 1105 1105 ———— ——FL 2134 —— ———— 2134OH 141,258 11870 323210056 ——Total 12212,408 878,782 131,169562100 221,795 (1)ALFs and ILFs include ALFs or ILFs, or a combination of the two, operated by our tenants and three ILFs operated by us.Occupancy by Property Type:The following table displays occupancy by property type for each of the years ended December 31, 2015, 2014 and 2013. Percentage occupancy in the belowtable is computed by dividing the average daily number of beds occupied by the total number of beds available for use during the periods indicated (beds ofacquired facilities are included in the computation following the date of acquisition only). Year Ended December 31,Property Type201520142013Facilities Leased to Tenants: SNFs77%(1)75%(1)75% Skilled Nursing Campuses76%(1)75%(1)77% ALFs and ILFs85%(1)85%(1)83%Facilities Operated by CareTrust: ILFs76%82%73% (1)Financial data were derived solely from information provided by our tenants without independent verification by us. The facility financial performance data is presented one quarter inarrears.Property Type - Rental Income:The following tables display the annual rental income and total beds/units for each property type leased to third-party tenants for the years endedDecember 31, 2015 and 2014.8Table of Contents For the Year Ended December 31, 2015Property TypeRental Income(in thousands)Percentof Total Total Beds/Units SNFs$48,99874%8,782Skilled Nursing Campuses8,09012%1,831ALFs and ILFs8,89114%1,531Total$65,979100%12,144 For the Year Ended December 31, 2014Property TypeRental Income(in thousands)(1)Percentof Total Total Beds/Units SNFs$38,91875%7,438Skilled Nursing Campuses7,49315%1,443ALFs and ILFs4,95610%1,411Total$51,367100%10,292 (1)Does not reflect the full amount of rental income from subsidiaries of Ensign that is payable pursuant to the Ensign Master Leases.Geographic Concentration - Rental Income:The following table displays the geographic distribution of annual rental income for properties leased to third-party tenants for the years ended December 31,2015 and 2014. For the Year EndedDecember 31, 2015 For the Year EndedDecember 31, 2014 State Rental Income(in thousands)Percentof Total Rental Income(in thousands)(1)Percentof Total CA$15,38423% $12,95225%TX14,05721% 13,09925%AZ8,63313% 7,51015%UT5,7389% 6,00412%CO3,8196% 1,9444%ID3,8276% 2,5575%WA4,2826% 2,9586%NV9832% 1,2332%NE1,3282% 1,4603%IA1,6052% 1,6283%MN5941% 22—VA5621% ——GA4001% ——FL5111% ——OH4,2566% ——Total$65,979100% $51,367100% (1)Does not reflect the full amount of rental income from subsidiaries of Ensign that is payable pursuant to the Ensign Master Leases.ILFs Operated by CareTrust:The following table displays the geographic distribution of ILFs operated by CareTrust and the related number of operational units available for occupancyas of December 31, 2015. The following table also displays the average monthly revenue per occupied unit for the years ended December 31, 2015 and 2014.9Table of Contents For the Year EndedDecember 31, 2015For the Year EndedDecember 31, 2014StateFacilities UnitsAverage MonthlyRevenue PerOccupied Unit(1)Average MonthlyRevenue PerOccupied Unit(1)TX2207$1,176$1,141UT1571,3091,276Total32641,2131,180 (1)Average monthly revenue per occupied unit is equivalent to average effective rent per unit, as we do not offer tenants free rent or other concessions.We view our ownership and operation of the three ILFs as complementary to our real estate business. Our goal is to provide enhanced focus on theiroperations to improve their financial and operating performance. The three ILFs that we own and operate as of December 31, 2015 are:•Lakeland Hills Independent Living, located in Dallas, Texas, with 168 units;•The Cottages at Golden Acres, located in Dallas, Texas, with 39 units; and•The Apartments at St. Joseph Villa, located in Salt Lake City, Utah, with 57 units.Investment and Financing PoliciesOur investment objectives are to increase cash flow, provide quarterly cash dividends, maximize the value of our properties and acquire properties with cashflow growth potential. We intend to invest primarily in SNFs and seniors housing, including ALFs and ILFs, as well as medical office buildings, long-term acutecare hospitals and inpatient rehabilitation facilities. Our properties are located in 15 states and we intend to continue to acquire properties in other states throughoutthe United States. Although our portfolio currently consists primarily of owned real property, future investments may include first mortgages, mezzanine debt andother securities issued by, or joint ventures with, REITs or other entities that own real estate consistent with our investment objectives.Our Competitive StrengthsWe believe that our ability to acquire, integrate and improve facilities is a direct result of the following key competitive strengths:Geographically Diverse Property Portfolio. Our properties are located in 15 different states, with concentrations in Texas and California. The properties inany one state do not account for more than 26% of our total beds and units as of December 31, 2015. We believe this geographic diversification will limit the effectof changes in any one market on our overall performance.Long-Term, Triple-Net Lease Structure. All of our properties (except for the three ILFs that we own and operate) are leased to our tenants under long-term,triple-net leases, pursuant to which the operators are responsible for all facility maintenance and repair, insurance required in connection with the leased propertiesand the business conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary orappropriate for the leased properties and the business conducted on the leased properties.Financially Secure Primary Tenant. Ensign is an established provider of healthcare services with strong financial performance and accounted for 81% ofour 2015 revenues, exclusive of tenant reimbursements. Ensign is subject to the reporting requirements of the SEC and is required to file with the SEC annualreports containing audited financial information and quarterly reports containing unaudited financial information. Ensign’s publicly available filings can be foundat the SEC’s website at www.sec.gov.Ability to Identify Talented Operators . As a result of our management team’s operating experience and network of relationships and insight, we believe thatwe are able to identify and pursue working relationships with qualified local, regional and national healthcare providers and seniors housing operators. We expectto continue our disciplined focus on pursuing investment opportunities, primarily with respect to stabilized assets but also some strategic investment in improvingproperties, while seeking dedicated and engaged operators who possess local market knowledge, have solid operating records and emphasize quality services andoutcomes. We intend to support these operators by providing strategic capital for facility acquisition, upkeep and modernization. Our management team’sexperience gives us a key competitive advantage in objectively evaluating an operator’s financial position, care and service programs, operating efficiencies andlikely business prospects.10Table of ContentsExperienced Management Team. Gregory K. Stapley, our President and Chief Executive Officer, has extensive experience in the real estate and healthcareindustries. Mr. Stapley has more than 29 years of experience in the acquisition, development and disposition of real estate including healthcare facilities and office,retail and industrial properties, including 14 years at Ensign. Our Chief Financial Officer, William M. Wagner, has more than 23 years of accounting and financeexperience, primarily in real estate, including 11 years of experience working extensively for REITs. Most notably he worked for both Nationwide HealthProperties, Inc., a healthcare REIT, and Sunstone Hotel Investors, Inc., a lodging REIT, serving as Senior Vice President and Chief Accounting Officer of eachcompany. David M. Sedgwick, our Vice President of Operations, is a licensed nursing home administrator with more than 12 years of experience in skilled nursingoperations, including turnaround operations, and trained over 100 Ensign nursing home administrators while he was Ensign’s Chief Human Capital Officer. Ourexecutives have years of public company experience, including experience accessing both debt and equity capital markets to fund growth and maintain a flexiblecapital structure.Flexible UPREIT Structure. We operate through an umbrella partnership, commonly referred to as an UPREIT structure, in which substantially all of ourproperties and assets are held through the Operating Partnership. Conducting business through the Operating Partnership will allow us flexibility in the manner inwhich we structure the acquisition of properties. In particular, an UPREIT structure enables us to acquire additional properties from sellers in exchange for limitedpartnership units, which provides property owners the opportunity to defer the tax consequences that would otherwise arise from a sale of their real properties andother assets to us. As a result, this structure allows us to acquire assets in a more efficient manner and may allow us to acquire assets that the owner wouldotherwise be unwilling to sell because of tax considerations.Business StrategiesOur primary goal is to create long-term stockholder value through the payment of consistent cash dividends and the growth of our asset base. To achieve thisgoal, we intend to pursue a business strategy focused on opportunistic acquisitions and property diversification. We also intend to further develop our relationshipswith tenants and healthcare providers with a goal to progressively expand the mixture of tenants managing and operating our properties.The key components of our business strategies include:Diversify Asset Portfolio . We diversify through the acquisition of new and existing facilities from third parties and the expansion and upgrade of currentfacilities. We employ what we believe to be a disciplined, opportunistic acquisition strategy with a focus on the acquisition of skilled nursing, assisted living andindependent living facilities, as well as medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities. As we acquire additionalproperties, we expect to further diversify by geography, asset class and tenant within the healthcare and healthcare-related sectors.Maintain Balance Sheet Strength and Liquidity. We maintain a capital structure that provides the resources and flexibility to support the growth of ourbusiness. We intend to maintain a mix of credit facility debt, mortgage debt and unsecured debt which, together with our anticipated ability to complete futureequity financings, we expect will fund the growth of our property portfolio.Develop New Tenant Relationships. We cultivate new relationships with tenants and healthcare providers in order to expand the mix of tenants operatingour properties and, in doing so, to reduce our dependence on Ensign. We expect that this objective will be achieved over time as part of our overall strategy toacquire new properties and further diversify our portfolio of healthcare properties.Provide Capital to Underserved Operators. We believe there is a significant opportunity to be a capital source to healthcare operators, through theacquisition and leasing of healthcare properties to them that are consistent with our investment and financing strategy at appropriate risk-adjusted rates of returns,which, due to size and other considerations, are not a focus for larger healthcare REITs. We pursue acquisitions and strategic opportunities that meet our investingand financing strategy and that are attractively priced, including funding development of properties through preferred equity or construction loans and thereafterentering into sale and leaseback arrangements with such developers as well as other secured term financing and mezzanine lending. We utilize our managementteam’s operating experience, network of relationships and industry insight to identify both large and small quality operators in need of capital funding for futuregrowth. In appropriate circumstances, we may negotiate with operators to acquire individual healthcare properties from those operators and then lease thoseproperties back to the operators pursuant to long-term triple-net leases.Fund Strategic Capital Improvements. We support operators by providing capital to them for a variety of purposes, including capital expenditures andfacility modernization. We expect to structure these investments as either lease amendments that produce additional rents or as loans that are repaid by operatorsduring the applicable lease term.11Table of ContentsPursue Strategic Development Opportunities. We work with operators and developers to identify strategic development opportunities. These opportunitiesmay involve replacing or renovating facilities that may have become less competitive. We also identify new development opportunities that present attractive risk-adjusted returns. We may provide funding to the developer of a property in conjunction with entering into a sale leaseback transaction or an option to enter into asale leaseback transaction for the property.CompetitionWe compete for real property investments with other REITs, investment companies, private equity and hedge fund investors, sovereign funds, pension funds,healthcare operators, lenders and other institutional investors. Some of these competitors are significantly larger and have greater financial resources and lowercosts of capital than us. Increased competition will make it more challenging to identify and successfully capitalize on acquisition opportunities that meet ourinvestment objectives. Our ability to compete is also impacted by national and local economic trends, availability of investment alternatives, availability and costof capital, construction and renovation costs, existing laws and regulations, new legislation and population trends.In addition, revenues from our properties are dependent on the ability of our tenants and operators to compete with other healthcare operators. Healthcareoperators compete on a local and regional basis for residents and patients and their ability to successfully attract and retain residents and patients depends on keyfactors such as the number of facilities in the local market, the types of services available, the quality of care, reputation, age and appearance of each facility andthe cost of care in each locality. Private, federal and state payment programs and the effect of other laws and regulations may also have a significant impact on theability of our tenants and operators to compete successfully for residents and patients at the properties.EmployeesWe employ approximately 46 employees (including our executive officers), none of whom is subject to a collective bargaining agreement.Government Regulation, Licensing and EnforcementOverviewAs operators of healthcare facilities, Ensign and other tenants of our healthcare properties are typically subject to extensive and complex federal, state andlocal healthcare laws and regulations relating to fraud and abuse practices, government reimbursement, licensure and certificate of need and similar laws governingthe operation of healthcare facilities, and we expect that the healthcare industry, in general, will continue to face increased regulation and pressure in the areas offraud, waste and abuse, cost control, healthcare management and provision of services, among others. These regulations are wide-ranging and can subject ourtenants to civil, criminal and administrative sanctions. Affected tenants may find it increasingly difficult to comply with this complex and evolving regulatoryenvironment because of a relative lack of guidance in many areas as certain of our healthcare properties are subject to oversight from several government agenciesand the laws may vary from one jurisdiction to another. Changes in laws and regulations and reimbursement enforcement activity and regulatory non-complianceby our tenants could have a significant effect on their operations and financial condition, which in turn may adversely affect us, as detailed below and set forthunder “Risk Factors - Risks Related to Our Business.”The following is a discussion of certain laws and regulations generally applicable to operators of our healthcare facilities and, in certain cases, to us.Fraud and Abuse EnforcementThere are various extremely complex federal and state laws and regulations governing healthcare providers’ relationships and arrangements and prohibitingfraudulent and abusive practices by such providers. These laws include, but are not limited to, (i) federal and state false claims acts, which, among other things,prohibit providers from filing false claims or making false statements to receive payment from Medicare, Medicaid or other federal or state healthcare programs,(ii) federal and state anti-kickback and fee-splitting statutes, including the Medicare and Medicaid anti-kickback statute, which prohibit the payment or receipt ofremuneration to induce referrals or recommendations of healthcare items or services, (iii) federal and state physician self-referral laws (commonly referred to as the“Stark Law”), which generally prohibit referrals by physicians to entities with which the physician or an immediate family member has a financial relationship,(iv) the federal Civil Monetary Penalties Law, which prohibits, among other things, the knowing presentation of a false or fraudulent claim for certain healthcareservices and (v) federal and state privacy laws, including the privacy and security rules contained in the Health Insurance Portability and12Table of ContentsAccountability Act of 1996, which provide for the privacy and security of personal health information. Violations of healthcare fraud and abuse laws carry civil,criminal and administrative sanctions, including punitive sanctions, monetary penalties, imprisonment, denial of Medicare and Medicaid reimbursement andpotential exclusion from Medicare, Medicaid or other federal or state healthcare programs. These laws are enforced by a variety of federal, state and local agenciesand can also be enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or“whistleblower” actions. Ensign and our other tenants are (and many of our future tenants are expected to be) subject to these laws, and some of them may in thefuture become the subject of governmental enforcement actions if they fail to comply with applicable laws.ReimbursementSources of revenue for Ensign and our other tenants include (and for our future tenants is expected to include), among other sources, governmentalhealthcare programs, such as the federal Medicare program and state Medicaid programs, and non-governmental payors, such as insurance carriers and healthmaintenance organizations. As federal and state governments focus on healthcare reform initiatives, and as the federal government and many states face significantbudget deficits, efforts to reduce costs by these payors will likely continue, which may result in reduced or slower growth in reimbursement for certain servicesprovided by Ensign and some of our other tenants.Healthcare Licensure and Certificate of NeedOur healthcare facilities are subject to extensive federal, state and local licensure, certification and inspection laws and regulations. In addition, variouslicenses and permits are required to dispense narcotics, operate pharmacies, handle radioactive materials and operate equipment. Many states require certainhealthcare providers to obtain a certificate of need, which requires prior approval for the construction, expansion and closure of certain healthcare facilities. Theapproval process related to state certificate of need laws may impact some of our tenants’ abilities to expand or change their businesses.Americans with Disabilities Act (the “ADA”)Although most of our properties are not required to comply with the ADA because of certain “grandfather” provisions in the law, some of our propertiesmust comply with the ADA and similar state or local laws to the extent that such properties are “public accommodations,” as defined in those statutes. These lawsmay require removal of barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. Under ourtriple-net lease structure, our tenants would generally be responsible for additional costs that may be required to make our facilities ADA-compliant.Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants.Environmental MattersA wide variety of federal, state and local environmental and occupational health and safety laws and regulations affect healthcare facility operations. Thesecomplex federal and state statutes, and their enforcement, involve a myriad of regulations, many of which involve strict liability on the part of the potentialoffender. Some of these federal and state statutes may directly impact us. Under various federal, state and local environmental laws, ordinances and regulations, anowner of real property, such as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connectionwith such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages for injuries to persons andadjacent property). The cost of any required remediation, removal, fines or personal or property damages and the owner’s liability therefore could exceed or impairthe value of the property and/or the assets of the owner. In addition, the presence of such substances, or the failure to properly dispose of or remediate suchsubstances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral which, in turn, could reduce ourrevenues. See “Risk Factors - Risks Related to Our Business - Environmental compliance costs and liabilities associated with real estate properties owned by usmay materially impair the value of those investments.”Compliance ProcessAs an operator of healthcare facilities, Ensign has a program to help it comply with various requirements of federal and private healthcare programs. InOctober 2013, Ensign entered into a corporate integrity agreement (the “CIA”) with the Office of the Inspector General of the U.S. Department of Health andHuman Services. The CIA requires, among other things, that Ensign and its subsidiaries maintain a corporate compliance program to help comply with variousrequirements of federal and private healthcare programs. Although we are no longer a subsidiary of Ensign, we are subject to certain continuing obligations underEnsign’s compliance program, including certain training in Medicare and Medicaid laws for our employees, as required by the CIA.13Table of ContentsREIT QualificationWe elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. Our qualification as aREIT will depend upon our ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code of 1986, as amended (the“Code”), relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels to our stockholders andthe concentration of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification and taxation as a REITunder the Code and that our manner of operation has and will enable us to meet the requirements for qualification and taxation as a REIT.The Operating PartnershipWe own substantially all of our assets and properties and conduct our operations through the Operating Partnership. We believe that conducting businessthrough the Operating Partnership provides flexibility with respect to the manner in which we structure the acquisition of properties. In particular, an UPREITstructure enables us to acquire additional properties from sellers in tax deferred transactions. In these transactions, the seller would typically contribute its assets tothe Operating Partnership in exchange for units of limited partnership interest in the Operating Partnership (“OP Units”). Holders of OP Units will have the right,after a 12-month holding period, to require the Operating Partnership to redeem any or all of such OP Units for cash based upon the fair market value of anequivalent number of shares of CareTrust’s common stock at the time of the redemption. Alternatively, we may elect to acquire those OP Units in exchange forshares of our common stock on a one-for-one basis. The number of shares of common stock used to determine the redemption value of OP Units, and the numberof shares issuable in exchange for OP Units, is subject to adjustment in the event of stock splits, stock dividends, distributions of warrants or stock rights, specifiedextraordinary distributions and similar events. The Operating Partnership is managed by our wholly owned subsidiary, CareTrust GP, LLC, which is the solegeneral partner of the Operating Partnership and owns one percent of its outstanding partnership interests. As of December 31, 2015, CareTrust is the only limitedpartner of the Operating Partnership, owning 99% of its outstanding partnership interests, and we have not issued OP Units to any other party.The benefits of our UPREIT structure include the following:•Access to capital . We believe the UPREIT structure provides us with access to capital for refinancing and growth. Because an UPREIT structureincludes a partnership as well as a corporation, we can access the markets through the Operating Partnership issuing equity or debt as well as thecorporation issuing capital stock or debt securities. Sources of capital include possible future issuances of debt or equity through public offerings orprivate placements.•Growth . The UPREIT structure allows stockholders, through their ownership of common stock, and the limited partners, through their ownership ofOP Units, an opportunity to participate in future investments we may make in additional properties.•Tax deferral . The UPREIT structure provides property owners who transfer their real properties to the Operating Partnership in exchange for OPUnits the opportunity to defer the tax consequences that otherwise would arise from a sale of their real properties and other assets to us or to a thirdparty. As a result, this structure allows us to acquire assets in a more efficient manner and may allow us to acquire assets that the owner wouldotherwise be unwilling to sell because of tax considerations.InsuranceWe maintain, or require in our leases, including the Ensign Master Leases, that our tenants maintain all applicable lines of insurance on our properties andtheir operations. The amount and scope of insurance coverage provided by our policies and the policies maintained by our tenants is customary for similarlysituated companies in our industry. However, we cannot assure you that our tenants will maintain the required insurance coverages, and the failure by any of themto do so could have a material adverse effect on us. We also cannot assure you that we will continue to require the same levels of insurance coverage under ourleases, including the Ensign Master Leases, that such insurance will be available at a reasonable cost in the future or that the insurance coverage provided will fullycover all losses on our properties upon the occurrence of a catastrophic event, nor can we assure you of the future financial viability of the insurers.14Table of ContentsITEM 1A.Risk FactorsRisks Related to Our BusinessWe are dependent on Ensign, Pristine and other healthcare operators to make payments to us under leases, and an event that materially and adversely affectstheir business, financial position or results of operations could materially and adversely affect our business, financial position or results of operations .Following the acquisitions on February 1, 2016, Ensign represents $56.0 million, or 64%, and Pristine represents $17.0 million, or 20%, of our revenues,exclusive of tenant reimbursements, on an annualized basis. Additionally, because each master lease is a triple-net lease, we depend on our tenants to pay allinsurance, taxes, utilities and maintenance and repair expenses in connection with these leased properties and to indemnify, defend and hold us harmless from andagainst various claims, litigation and liabilities arising in connection with their business. There can be no assurance that Ensign, Pristine or our other tenants willhave sufficient assets, income and access to financing to enable them to satisfy their payment obligations under their leases with us. The inability or unwillingnessof Ensign or Pristine to meet their rent obligations under their leases could materially adversely affect our business, financial position or results of operations,including our ability to pay dividends to our stockholders as required to maintain our status as a REIT. The inability of Ensign or Pristine to satisfy their otherobligations under their leases, such as the payment of insurance, taxes and utilities, could materially and adversely affect the condition of the leased properties aswell as their business, financial position and results of operations. For these reasons, if Ensign or Pristine were to experience a material and adverse effect on theirbusinesses, financial position or results of operations, our business, financial position or results of operations could also be materially and adversely affected.Due to our dependence on rental payments from Ensign and Pristine as our primary source of revenues, we may be limited in our ability to enforce our rightsunder, or to terminate, their leases. Failure by Ensign or Pristine to comply with the terms of their leases or to comply with the healthcare regulations to which theleased properties are subject could require us to find another lessee for such leased property and there could be a decrease in or cessation of rental payments. Insuch event, we may be unable to locate a suitable lessee at similar rental rates or at all, which would have the effect of reducing our rental revenues.Tenants that fail to comply with the requirements of, or changes to, governmental reimbursement programs, such as Medicare or Medicaid, may cease tooperate or be unable to meet their financial and other contractual obligations to us.Ensign and other healthcare operators to which we lease properties are subject to complex federal, state and local laws and regulations relating togovernmental healthcare reimbursement programs. See “Business - Government Regulation, Licensing and Enforcement - Overview.” As a result, Ensign andother tenants are subject to the following risks, among others:•statutory and regulatory changes;•retroactive rate adjustments;•recovery of program overpayments or set-offs;•administrative rulings;•policy interpretations;•payment or other delays by fiscal intermediaries or carriers;•government funding restrictions (at a program level or with respect to specific facilities); and•interruption or delays in payments due to any ongoing governmental investigations and audits.Healthcare reimbursement will likely continue to be of significant importance to federal and state authorities. We cannot make any assessment as to theultimate timing or the effect that any future legislative reforms may have on our tenants’ costs of doing business and on the amount of reimbursement bygovernment and other third-party payors. More generally, and because of the dynamic nature of the legislative and regulatory environment for health care productsand services, and in light of existing federal budgetary concerns, we cannot predict the impact that broad-based, far-reaching legislative or regulatory changescould have on the U.S. economy, our business or that of our operators and tenants. The failure of Ensign or any of our other tenants to comply with these laws,requirements and regulations could materially and adversely affect their ability to meet their financial and contractual obligations to us.Finally, government investigations and enforcement actions brought against the health care industry have increased dramatically over the past several yearsand are expected to continue. Some of these enforcement actions represent novel legal theories and expansions in the application of the Federal False Claims Act.The costs for an operator of a health care property15Table of Contentsassociated with both defending such enforcement actions and the undertakings in settling these actions can be substantial and could have a material adverse effecton the ability of an operator to meet its obligations to us.Tenants that fail to comply with federal, state and local licensure, certification and inspection laws and regulations may cease to operate our healthcarefacilities or be unable to meet their financial and other contractual obligations to us.The healthcare operators to which we lease properties are subject to extensive federal, state, local and industry-related licensure, certification and inspectionlaws, regulations and standards. Our tenants’ failure to comply with any of these laws, regulations or standards could result in loss of accreditation, denial ofreimbursement, imposition of fines, suspension or decertification from federal and state healthcare programs, loss of license or closure of the facility. For example,operations at our properties may require a license, registration, certificate of need, provider agreement or certification. Failure of any tenant to obtain, or the loss of,any required license, registration, certificate of need, provider agreement or certification would prevent a facility from operating in the manner intended by suchtenant. Additionally, failure of our tenants to generally comply with applicable laws and regulations could adversely affect facilities owned by us, and thereforecould materially and adversely affect us. See “Business - Government Regulation, Licensing and Enforcement - Healthcare Licensure and Certificate of Need.”Our tenants depend on reimbursement from government and other third-party payors; reimbursement rates from such payors may be reduced, which couldcause our tenants’ revenues to decline and could affect their ability to meet their obligations to us.The federal government and a number of states are currently managing budget deficits, which may put pressure on Congress and the states to decreasereimbursement rates for our tenants, with the goal of decreasing state expenditures under Medicaid programs. The need to control Medicaid expenditures may beexacerbated by the potential for increased enrollment in Medicaid due to unemployment and declines in family incomes. These potential reductions could becompounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement to our tenants under both the Medicaid and Medicareprograms. Potential reductions in Medicaid and Medicare reimbursement to our tenants could reduce the revenues of our tenants and their ability to meet theirobligations to us.The bankruptcy, insolvency or financial deterioration of our tenants could delay or prevent our ability to collect unpaid rents or require us to find new tenants.We receive substantially all of our income as rent payments under leases of our properties. We have no control over the success or failure of our tenants’businesses and, at any time, any of our tenants may experience a downturn in its business that may weaken its financial condition. As a result, our tenants may failto make rent payments when due or declare bankruptcy. Any tenant failures to make rent payments when due or tenant bankruptcies could result in the terminationof the tenant’s lease and could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions toour stockholders (which could adversely affect our ability to raise capital or service our indebtedness). This risk is magnified in situations where we lease multipleproperties to a single tenant, such as Ensign and Pristine, as a multiple property tenant failure could reduce or eliminate rental revenue from multiple properties.If tenants are unable to comply with the terms of the leases, we may be forced to modify the leases in ways that are unfavorable to us. Alternatively, thefailure of a tenant to perform under a lease could require us to declare a default, repossess the property, find a suitable replacement tenant, hire third-partymanagers to operate the property or sell the property. There is no assurance that we would be able to lease a property on substantially equivalent or better termsthan the prior lease, or at all, find another qualified tenant, successfully reposition the property for other uses or sell the property on terms that are favorable to us.It may be more difficult to find a replacement tenant for a healthcare property than it would be to find a replacement tenant for a general commercial property dueto the specialized nature of the business. Even if we are able to find a suitable replacement tenant for a property, transfers of operations of healthcare facilities aresubject to regulatory approvals not required for transfers of other types of commercial operations, which may affect our ability to successfully transition a property.If any lease expires or is terminated, we could be responsible for all of the operating expenses for that property until it is re-leased or sold. If we experience asignificant number of un-leased properties, our operating expenses could increase significantly. Any significant increase in our operating costs may have a materialadverse effect on our business, financial condition and results of operations, and our ability to make distributions to our stockholders.If one or more of our tenants files for bankruptcy relief, the U.S. Bankruptcy Code provides that a debtor has the option to assume or reject the unexpiredlease within a certain period of time. Any bankruptcy filing by or relating to one of our tenants could bar all efforts by us to collect pre-bankruptcy debts from thattenant or seize its property. A tenant bankruptcy16Table of Contentscould also delay our efforts to collect past due balances under the leases and could ultimately preclude collection of all or a portion of these sums. It is possible thatwe may recover substantially less than the full value of any unsecured claims we hold, if any, which may have a material adverse effect on our business, financialcondition and results of operations, and our ability to make distributions to our stockholders. Furthermore, dealing with a tenant’s bankruptcy or other default maydivert management’s attention and cause us to incur substantial legal and other costs.The geographic concentration of some of our facilities could leave us vulnerable to an economic downturn, regulatory changes or acts of nature in thoseareas.Our properties are located in 15 different states, with concentrations in Texas and California. The properties in these two states accounted for approximately26% and 16%, respectively, of the total beds and units in our portfolio, as of December 31, 2015 and approximately 21% and 23%, respectively, of our rentalincome for the year ended December 31, 2015. As a result of this concentration, the conditions of local economies and real estate markets, changes ingovernmental rules, regulations and reimbursement rates or criteria, changes in demographics, state funding, acts of nature and other factors that may result in adecrease in demand and/or reimbursement for skilled nursing services in these states could have a disproportionately adverse effect on our tenants’ revenue, costsand results of operations, which may affect their ability to meet their obligations to us.Our facilities located in Texas are especially susceptible to natural disasters such as hurricanes, tornadoes and flooding, and our facilities located inCalifornia are particularly susceptible to natural disasters such as fires, earthquakes and mudslides. These acts of nature may cause disruption to our tenants, theiremployees and our facilities, which could have an adverse impact on our tenants’ patients and businesses. In order to provide care for their patients, our tenants aredependent on consistent and reliable delivery of food, pharmaceuticals, utilities and other goods to our facilities, and the availability of employees to provideservices at the facilities. If the delivery of goods or the ability of employees to reach our facilities were interrupted in any material respect due to a natural disasteror other reasons, it would have a significant impact on our facilities and our tenants’ businesses at those facilities. Furthermore, the impact, or impending threat, ofa natural disaster may require that our tenants evacuate one or more facilities, which would be costly and would involve risks, including potentially fatal risks, fortheir patients. The impact of disasters and similar events is inherently uncertain. Such events could harm our tenants’ patients and employees, severely damage ordestroy one or more of our facilities, harm our tenants’ business, reputation and financial performance, or otherwise cause our tenants’ businesses to suffer in waysthat we currently cannot predict.We pursue acquisitions of additional properties and seek other strategic opportunities in the ordinary course of our business, which may result in the use of asignificant amount of management resources or significant costs, and we may not fully realize the potential benefits of such transactions.We pursue acquisitions of additional properties and seek acquisitions and other strategic opportunities in the ordinary course of our business. Accordingly,we are often engaged in evaluating potential transactions and other strategic alternatives. In addition, from time to time, we engage in discussions that may result inone or more transactions. Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transaction, wemay devote a significant amount of our management resources to such a transaction, which could negatively impact our operations. We may incur significant costsin connection with seeking acquisitions or other strategic opportunities regardless of whether the transaction is completed and in combining our operations if such atransaction is completed. In the event that we consummate an acquisition or strategic alternative in the future, there is no assurance that we would fully realize thepotential benefits of such a transaction.We operate in a highly competitive industry and face competition from other REITs, investment companies, private equity and hedge fund investors,sovereign funds, healthcare operators, lenders and other investors, some of whom are significantly larger and have greater resources and lower costs of capital.Increased competition will make it more challenging to identify and successfully capitalize on acquisition opportunities that meet our investment objectives. If wecannot identify and purchase a sufficient quantity of suitable properties at favorable prices or if we are unable to finance acquisitions on commercially favorableterms, our business, financial position or results of operations could be materially and adversely affected. Additionally, the fact that we must distribute 90% of ourREIT taxable income in order to maintain our qualification as a REIT may limit our ability to rely upon rental payments from our leased properties or subsequentlyacquired properties in order to finance acquisitions. As a result, if debt or equity financing is not available on acceptable terms, further acquisitions might belimited or curtailed. Transactions involving properties we might seek to acquire entail risks associated with real estate investments generally, including that theinvestment’s performance will fail to meet expectations or that the tenant, operator or manager will underperform.17Table of ContentsRequired regulatory approvals can delay or prohibit transfers of our healthcare properties, which could result in periods in which we are unable to receive rentfor such properties.Our tenants which operate SNFs and other healthcare facilities must be licensed under applicable state law and, depending upon the type of facility, certifiedor approved as providers under the Medicare and/or Medicaid programs. Prior to the transfer of the operations of such healthcare properties to successor operators,the new operator generally must become licensed under state law and, in certain states, receive change of ownership approvals under certificate of need laws(which provide for a certification that the state has made a determination that a need exists for the beds located on the property) and, if applicable, Medicare andMedicaid provider approvals. If an existing lease is terminated or expires and a new tenant is found, then any delays in the new tenant receiving regulatoryapprovals from the applicable federal, state or local government agencies, or the inability to receive such approvals, may prolong the period during which we areunable to collect the applicable rent.We may be required to incur substantial renovation costs to make certain of our healthcare properties suitable for other operators and tenants.Healthcare facilities are typically highly customized and may not be easily adapted to non-healthcare-related uses. The improvements generally required toconform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure, are costly and at times tenant-specific. A new or replacementtenant to operate one or more of our healthcare facilities may require different features in a property, depending on that tenant’s particular operations. If a currenttenant is unable to pay rent and vacates a property, we may incur substantial expenditures to modify a property before we are able to secure another tenant. Also, ifthe property needs to be renovated to accommodate multiple tenants, we may incur substantial expenditures before we are able to release the space. Theseexpenditures or renovations could materially and adversely affect our business, financial condition or results of operations.We may not be able to sell properties when we desire because real estate investments are relatively illiquid, which could materially and adversely affect ourbusiness, financial position or results of operations.Real estate investments generally cannot be sold quickly. In addition, some of our properties serve as collateral for our secured debt obligations and cannotreadily be sold unless the underlying secured mortgage indebtedness is concurrently repaid. We may not be able to vary our portfolio promptly in response tochanges in the real estate market. A downturn in the real estate market could materially and adversely affect the value of our properties and our ability to sell suchproperties for acceptable prices or on other acceptable terms. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of aproperty or portfolio of properties. These factors and any others that would impede our ability to respond to adverse changes in the performance of our propertiescould materially and adversely affect our business, financial position or results of operations.An increase in market interest rates could increase our interest costs on existing and future debt and could adversely affect our stock price.If interest rates increase, so could our interest costs for any new debt and our variable rate debt obligations under our unsecured revolving credit facility andunsecured term loan (the “Credit Facility”). This increased cost could make the financing of any acquisition more costly, as well as lower our current periodearnings. Rising interest rates could limit our ability to refinance existing debt when it matures or cause us to pay higher interest rates upon refinancing. Inaddition, an increase in interest rates could decrease the access third parties have to credit, thereby decreasing the amount they are willing to pay for our assets andconsequently limiting our ability to reposition our portfolio promptly in response to changes in economic or other conditions. Further, the dividend yield on ourcommon stock, as a percentage of the price of such common stock, will influence the price of such common stock. Thus, an increase in market interest rates maylead prospective purchasers of our common stock to expect a higher dividend yield, which could adversely affect the market price of our common stock.If we lose our key management personnel, we may not be able to successfully manage our business and achieve our objectives.Our success depends in large part upon the leadership and performance of our executive management team, particularly Gregory K. Stapley and other keyemployees. If we lose the services of Mr. Stapley or any of our other key employees, we may not be able to successfully manage our business or achieve ourbusiness objectives.18Table of ContentsWe or our tenants may experience uninsured or underinsured losses, which could result in a significant loss of the capital we have invested in a property,decrease anticipated future revenues or cause us to incur unanticipated expense.Our lease agreements with operators (including the Ensign Master Leases) require that the tenant maintain comprehensive liability and hazard insurance, andwe maintain customary insurance for the ILFs that we own and operate. However, there are certain types of losses (including, but not limited to, losses arising fromenvironmental conditions or of a catastrophic nature, such as earthquakes, hurricanes and floods) that may be uninsurable or not economically insurable. Insurancecoverage may not be sufficient to pay the full current market value or current replacement cost of a loss. Inflation, changes in building codes and ordinances,environmental considerations, and other factors also might make it infeasible to use insurance proceeds to replace the property after such property has beendamaged or destroyed. Under such circumstances, the insurance proceeds received might not be adequate to restore the economic position with respect to suchproperty.If one of our properties experiences a loss that is uninsured or that exceeds policy coverage limits, we could lose the capital invested in the damaged propertyas well as the anticipated future cash flows from the property. If the damaged property is subject to recourse indebtedness, we could continue to be liable for theindebtedness even if the property is irreparably damaged.In addition, even if damage to our properties is covered by insurance, a disruption of business caused by a casualty event may result in loss of revenue forour tenants or us. Any business interruption insurance may not fully compensate them or us for such loss of revenue. If one of our tenants experiences such a loss,it may be unable to satisfy its payment obligations to us under its lease with us.Environmental compliance costs and liabilities associated with real estate properties owned by us may materially impair the value of those investments.Under various federal, state and local laws, ordinances and regulations, as a current or previous owner of real estate, we may be required to investigate andclean up certain hazardous or toxic substances or petroleum released at a property, and may be held liable to a governmental entity or to third parties for propertydamage and for investigation and cleanup costs incurred by the third parties in connection with the contamination. In addition, some environmental laws create alien on the contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination. Neither we nor our tenants carryenvironmental insurance on our properties. Although we generally require our tenants, as operators of our healthcare properties, to indemnify us for environmentalliabilities they cause, such liabilities could exceed the financial ability of the tenant to indemnify us or the value of the contaminated property. The presence ofcontamination or the failure to remediate contamination may materially adversely affect our ability to sell or lease the real estate or to borrow using the real estateas collateral. As the owner of a site, we may also be held liable to third parties for damages and injuries resulting from environmental contamination emanatingfrom the site. Although we will be generally indemnified by our tenants for contamination caused by them, these indemnities may not adequately cover allenvironmental costs. We may also experience environmental liabilities arising from conditions not known to us.The impact of healthcare reform legislation on us and our tenants cannot accurately be predicted.Ensign and other healthcare operators to which we lease properites are dependent on the healthcare industry and may be susceptible to the risks associatedwith healthcare reform. Because all of our properties are used as healthcare properites, we are impacted by the risks associated with healthcare reform. Legislativeproposals are introduced or proposed in Congress and in some state legislatures each year that would effect major changes in the healthcare system, eithernationally or at the state level. We cannot accurately predict whether any future legislative proposals will be adopted or, if adopted, what effect, if any, theseproposals would have on our tenants and, thus, our business.Notably, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education ReconciliationAct of 2010 (collectively, the "Affordable Care Act"). The passage of the Affordable Care Act has resulted in comprehensive reform legislation that has expandedhealthcare coverage to millions of uninsured people and provides for significant changes to the U.S. healthcare system over the next several years. These new lawsinclude a large number of health-related provisions, including expanding Medicaid eligibility, requiring most individuals to have health insurance, establishing newregulations on health plans, establishing health insurance exchanges, and modifying certain payment systems to encourage more cost-effective care and a reductionof inefficiencies and waste, including through new tools to address fraud and abuse. To help fund this expansion, the Affordable Care Act outlines certainreductions in Medicare reimbursements for various healthcare providers, including long-term acute care hospitals and SNFs, as well as certain other changes toMedicare payment methodologies. This comprehensive healthcare legislation provides for extensive future rulemaking by regulatory authorities, and also may bealtered or amended. While we can anticipate that some of the rulemaking19Table of Contentsthat will be promulgated by regulatory authorities will affect our tenants and the manner in which they are reimbursed by the federal healthcare programs, wecannot accurately predict today the impact of those regulations on our tenants and, thus, on our business.The Supreme Court’s decision upholding the constitutionality of the individual mandate while striking down the provisions linking federal funding of stateMedicaid programs with a federally mandated expansion of those programs has not reduced the uncertain impact that the law will have on healthcare deliverysystems over the next decade. We can expect that the federal authorities will continue to implement the law, but, because of the Supreme Court’s mixed ruling, theimplementation will take longer than originally expected, with a commensurate increase in the period of uncertainty regarding the law’s full long term financialimpact on the delivery of and payment for healthcare.Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted, which also may impact our business. For instance, onApril 1, 2014, the President signed the Protecting Access to Medicare Act of 2014, which, among other things, requires the Centers for Medicare & MedicaidServices (“CMS”) to measure, track, and publish readmission rates of SNFs by 2017 and implement a value-based purchasing program for SNFs (the “SNF VBPProgram”) by October 1, 2018. The SNF VBP Program will increase Medicare reimbursement rates for SNFs that achieve certain levels of quality performancemeasures to be developed by CMS, relative to other facilities. The value-based payments authorized by the SNF VBP Program will be funded by reducingMedicare payment for all SNFs by 2% and redistributing up to 70% of those funds to high-performing SNFs. If Medicare reimbursement provided to ourhealthcare tenants is reduced under the SNF VBP Program, that reduction may have an adverse impact on the ability of our tenants to meet their obligations to us.If the Spin-Off were to fail to qualify as a tax-free transaction for U.S. federal income tax purposes, Ensign and CareTrust could be subject to significant taxliabilities and, in certain circumstances, we could be required to indemnify Ensign for material taxes pursuant to indemnification obligations under the TaxMatters Agreement that we entered into with Ensign.Ensign has received from the Internal Revenue Service (the “IRS”) a private letter ruling (the “IRS Ruling”), which provides substantially to the effect that,on the basis of certain facts presented and representations and assumptions set forth in the request submitted to the IRS, the Spin-Off will qualify as tax-free underSections 368(a)(1)(D) and 355 of the Code. The IRS Ruling does not address certain requirements for tax-free treatment of the Spin-Off under Section 355 of theCode, and Ensign received a tax opinion from its tax advisors, substantially to the effect that, with respect to such requirements on which the IRS will not rule,such requirements have been satisfied. The IRS Ruling, and the tax opinion that Ensign received from its tax advisors, rely on, among other things, certain facts,representations, assumptions and undertakings, including those relating to the past and future conduct of our and Ensign’s businesses, and the IRS Ruling and thetax opinion would not be valid if such facts, representations, assumptions and undertakings were incorrect in any material respect. Notwithstanding the IRS Rulingand the tax opinion, the IRS could determine the Spin-Off should be treated as a taxable transaction for U.S. federal income tax purposes if it determines any of thefacts, representations, assumptions or undertakings that were included in the request for the IRS Ruling are false or have been violated or if it disagrees with theconclusions in the opinions that are not covered by the IRS Ruling.If the Spin-Off ultimately is determined to be taxable, Ensign would recognize taxable gain in an amount equal to the excess, if any, of the fair market valueof the shares of our common stock held by Ensign on the distribution date over Ensign’s tax basis in such shares. Such taxable gain and resulting tax liabilitywould be substantial.In addition, under the terms of the Tax Matters Agreement that we entered into with Ensign (the “Tax Matters Agreement”), we generally are responsible forany taxes imposed on Ensign that arise from the failure of the Spin-Off to qualify as tax-free for U.S. federal income tax purposes, within the meaning of Sections368(a)(1)(D) and 355 of the Code, to the extent such failure to qualify is attributable to certain actions, events or transactions relating to our stock, assets orbusiness, or a breach of the relevant representations or any covenants made by us in the Tax Matters Agreement, the materials submitted to the IRS in connectionwith the request for the IRS Ruling or the representation letter provided in connection with the tax opinion relating to the Spin-Off. Our indemnification obligationsto Ensign and its subsidiaries, officers and directors are not limited by any maximum amount. If we are required to indemnify Ensign under the circumstance setforth in the Tax Matters Agreement, we may be subject to substantial tax liabilities.We may not be able to engage in desirable strategic transactions and equity issuances because of certain restrictions relating to requirements for tax-freedistributions for U.S. federal income tax purposes. In addition, we could be liable for adverse tax consequences resulting from engaging in significant strategicor capital-raising transactions.Our ability to engage in significant strategic transactions and equity issuances may be limited or restricted in order to preserve, for U.S. federal income taxpurposes, the tax-free nature of the Spin-Off.20Table of ContentsEven if the Spin-Off otherwise qualifies for tax-free treatment under Sections 368(a)(1)(D) and 355 of the Code, it may result in corporate level taxable gainto Ensign under Section 355(e) of the Code if 50% or more, by vote or value, of shares of our stock or Ensign’s stock are acquired or issued as part of a plan orseries of related transactions that includes the Spin-Off. The process for determining whether an acquisition or issuance triggering these provisions has occurred iscomplex, inherently factual and subject to interpretation of the facts and circumstances of a particular case. Any acquisitions or issuances of our stock or Ensignstock within a two-year period after the Spin-Off generally are presumed to be part of such a plan, although we or Ensign, as applicable, may be able to rebut thatpresumption.Under the Tax Matters Agreement that we entered into with Ensign, we also are generally responsible for any taxes imposed on Ensign that arise from thefailure of the Spin-Off to qualify as tax-free for U.S. federal income tax purposes, within the meaning of Sections 368(a)(1)(D) and 355 of the Code, to the extentsuch failure to qualify is attributable to actions, events or transactions relating to our stock, assets or business, or a breach of the relevant representations or anycovenants made by us in the Tax Matters Agreement, the materials submitted to the IRS in connection with the request for the IRS Ruling or the representationletter provided to counsel in connection with the tax opinion.Our agreements with Ensign may not reflect terms that would have resulted from arm’s-length negotiations with unaffiliated third parties.The agreements related to the Spin-Off, including the Separation and Distribution Agreement, the Ensign Master Leases, the Opportunities Agreement (the“Opportunities Agreement”), the Tax Matters Agreement, the Transition Services Agreement and the Employee Matters Agreement (the “Employee MattersAgreement”) we entered into with Ensign, were negotiated in the context of the Spin-Off while we were still a wholly owned subsidiary of Ensign. As a result,although those agreements are intended to reflect arm’s-length terms, they may not reflect terms that would have resulted from arm’s-length negotiations betweenunaffiliated third parties. Conversely, certain agreements related to the Spin-Off may include terms that are more favorable than those that would have resultedfrom arm’s-length negotiations among unaffiliated third parties. Following expiration of those agreements, we may have to enter into new agreements withunaffiliated third parties, and such agreements may include terms that are less favorable to us. The terms of the agreements negotiated in the context of the Spin-Off concern, among other things, divisions and allocations of assets and liabilities and rights and obligations, between Ensign and us.The ownership by our chief executive officer, Gregory K. Stapley, of shares of Ensign common stock may create, or may create the appearance of, conflicts ofinterest.Because of his former position with Ensign, our chief executive officer, Gregory K. Stapley, owns shares of Ensign common stock. Mr. Stapley also ownsshares of our common stock. His individual holdings of shares of our common stock and Ensign common stock may be significant compared to his respective totalassets. These equity interests may create, or appear to create, conflicts of interest when he is faced with decisions that may not benefit or affect CareTrust andEnsign in the same manner.Our potential indemnification liabilities pursuant to the Separation and Distribution Agreement could materially and adversely affect us.The Separation and Distribution Agreement between us and Ensign includes, among other things, provisions governing the relationship between us andEnsign after the Spin-Off. Among other things, the Separation and Distribution Agreement provides for indemnification obligations designed to make usfinancially responsible for substantially all liabilities that may exist relating to or arising out of our business. If we are required to indemnify Ensign under thecircumstances set forth in the Separation and Distribution Agreement, we may be subject to substantial liabilities.In connection with the Spin-Off, Ensign agreed to indemnify us for certain liabilities. However, there can be no assurance that these indemnities will besufficient to insure us against the full amount of such liabilities, or that Ensign’s ability to satisfy its indemnification obligation will not be impaired in thefuture.Pursuant to the Separation and Distribution Agreement, the Tax Matters Agreement and other agreements we entered into in connection with the Spin-Off,Ensign agreed to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that Ensign agreed to retainpursuant to these agreements, and there can be no assurance that Ensign will be able to fully satisfy its indemnification obligations under these agreements.Moreover, even if we ultimately succeed in recovering from Ensign any amounts for which we are held liable, we may be temporarily required to bear these losseswhile seeking recovery from Ensign.21Table of ContentsThe Spin-Off may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws.The Spin-Off and related transactions, including the special dividend paid on December 10, 2014 (the “Special Dividend”), are subject to review undervarious state and federal fraudulent conveyance laws. Under U.S. federal bankruptcy law and comparable provisions of state fraudulent transfer or conveyancelaws, which vary from state to state, the Spin-Off or any of the related transactions could be voided as a fraudulent transfer or conveyance if Ensign (a) distributedproperty with the intent of hindering, delaying or defrauding creditors or (b) received less than reasonably equivalent value or fair consideration in return for suchdistribution, and one of the following is also true at the time thereof: (1) Ensign was insolvent or rendered insolvent by reason of the Spin-Off or any relatedtransaction, (2) the Spin-Off or any related transaction left Ensign with an unreasonably small amount of capital or assets to carry on the business, or (3) Ensignintended to, or believed that, it would incur debts beyond its ability to pay as they mature.As a general matter, value is given under U.S. law for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or avalid antecedent debt is secured or satisfied. A debtor will generally not be considered to have received value under U.S. law in connection with a distribution to itsstockholders.We cannot be certain as to the standards a U.S. court would use to determine whether or not Ensign was insolvent at the relevant time. In general, however, aU.S. court would deem an entity insolvent if: (1) the sum of its debts, including contingent and unliquidated liabilities, was greater than the value of its assets, at afair valuation; (2) the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts,including contingent liabilities, as they become absolute and mature; or (3) it could not pay its debts as they became due.If a U.S. court were to find that the Spin-Off was a fraudulent transfer or conveyance, a court could void the Spin-Off, require stockholders to return toEnsign some or all of the shares of common stock distributed in the Spin-Off or require stockholders to pay as money damages an equivalent of the value of theshares of common stock at the time of the Spin-Off. If a U.S. court were to find that the Special Dividend was a fraudulent transfer or conveyance, a court couldvoid the Special Dividend, require stockholders to return to us some or all of the Special Dividend or require stockholders to pay as money damages an equivalentof the value of the Special Dividend. Moreover, stockholders could be required to return any dividends previously paid by us. With respect to any transfers fromEnsign to us, if any such transfer was found to be a fraudulent transfer, a court could void the transaction or Ensign could be awarded monetary damages for thedifference between the consideration received by Ensign and the fair market value of the transferred property at the time of the Spin-Off.We are subject to certain continuing operational obligations pursuant to Ensign’s 2013 Corporate Integrity Agreement.As part of compliance with various requirements of federal and private healthcare programs, Ensign and its subsidiaries are required to maintain a corporatecompliance program pursuant to a corporate integrity agreement that Ensign entered into in October 2013 with the Office of the Inspector General of the U.S.Department of Health and Human Services. Although we are no longer a subsidiary of Ensign, we are subject to certain continuing operational obligations as partof Ensign’s compliance program pursuant to the CIA, including certain training in Medicare and Medicaid laws for our employees. Failure to timely comply withthe applicable terms of the CIA could result in substantial civil or criminal penalties, which could adversely affect our financial condition and results of operations.Risks Related to Our Status as a REITIf we do not qualify to be taxed as a REIT, or fail to remain qualified as a REIT, we will be subject to U.S. federal income tax as a regular corporation andcould face a substantial tax liability, which could adversely affect our ability to raise capital or service our indebtedness.We currently operate, and intend to continue to operate, in a manner that will allow us to continue to qualify to be taxed as a REIT for U.S. federal incometax purposes. We have elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. We receivedan opinion of our counsel with respect to our qualification as a REIT in connection with the Spin-Off. Investors should be aware, however, that opinions ofadvisors are not binding on the IRS or any court. The opinion of our counsel represents only the view of our counsel based on its review and analysis of existinglaw and on certain representations as to factual matters and covenants made by us, including representations relating to the values of our assets and the sources ofour income. The opinion is expressed as of the date issued. Our counsel has no obligation to advise us or the holders of any of our securities of any subsequentchange in the matters stated, represented or assumed or of any subsequent change in applicable law. Furthermore, both the validity of the opinion of our counseland our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirementson a continuing basis, the results of which will not be monitored by22Table of Contentsour counsel. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are notsusceptible to a precise determination, and for which we will not obtain independent appraisals.If we were to fail to qualify to be taxed as a REIT in any taxable year, we would be subject to U.S. federal income tax, including any applicable alternativeminimum tax, on our taxable income at regular corporate rates, and dividends paid to our stockholders would not be deductible by us in computing our taxableincome. Any resulting corporate liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which in turncould have an adverse impact on the value of our common stock. Unless we were entitled to relief under certain Code provisions, we also would be disqualifiedfrom re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT, which could adverselyaffect our financial condition and results of operations.Qualifying as a REIT involves highly technical and complex provisions of the Code.Qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrativeauthorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Our qualification as a REIT will depend on our satisfaction ofcertain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. In addition, our ability to satisfy therequirements to qualify to be taxed as a REIT may depend in part on the actions of third parties over which we have no control or only limited influence.Legislative or other actions affecting REITs could have a negative effect on us.The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S.Department of the Treasury (the “Treasury”). Changes to the tax laws or interpretations thereof, with or without retroactive application, could materially andadversely affect our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. New legislation, Treasury regulations,administrative interpretations or court decisions could significantly and negatively affect our ability to qualify to be taxed as a REIT or the U.S. federal income taxconsequences to our investors and us of such qualification.We could fail to qualify to be taxed as a REIT if income we receive from our tenants is not treated as qualifying income.Under applicable provisions of the Code, we will not be treated as a REIT unless we satisfy various requirements, including requirements relating to thesources of our gross income. Rents received or accrued by us from our tenants will not be treated as qualifying rent for purposes of these requirements if the leasesare not respected as true leases for U.S. federal income tax purposes and are instead treated as service contracts, joint ventures or some other type of arrangement.If the leases are not respected as true leases for U.S. federal income tax purposes, we will likely fail to qualify to be taxed as a REIT.In addition, subject to certain exceptions, rents received or accrued by us from our tenants will not be treated as qualifying rent for purposes of theserequirements if we or a beneficial or constructive owner of 10% or more of our stock beneficially or constructively owns 10% or more of the total combined votingpower of all classes of stock entitled to vote or 10% or more of the total value of all classes of stock. CareTrust’s charter provides for restrictions on ownership andtransfer of CareTrust’s shares of stock, including restrictions on such ownership or transfer that would cause the rents received or accrued by us from our tenants tobe treated as non-qualifying rent for purposes of the REIT gross income requirements. Nevertheless, there can be no assurance that such restrictions will beeffective in ensuring that rents received or accrued by us from our tenants will not be treated as qualifying rent for purposes of REIT qualification requirements.Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.The maximum U.S. federal income tax rate applicable to income from “qualified dividends” payable by U.S. corporations to U.S. stockholders that areindividuals, trusts and estates is currently 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates. Although these rules do notadversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trustsand estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, whichcould adversely affect the value of the stock of REITs, including our stock.REIT distribution requirements could adversely affect our ability to execute our business plan.We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excludingany net capital gains, in order for us to qualify to be taxed as a REIT (assuming that certain other requirements are also satisfied) so that U.S. federal corporateincome tax does not apply to earnings that we23Table of Contentsdistribute. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT but distribute less than 100% of our REIT taxable income,determined without regard to the dividends paid deduction and including any net capital gains, we will be subject to U.S. federal corporate income tax on ourundistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our stockholders in acalendar year is less than a minimum amount specified under U.S. federal income tax laws. We intend to make distributions to our stockholders to comply with theREIT requirements of the Code.Our funds from operations are generated primarily by rents paid under the Ensign Master Leases. From time to time, we may generate taxable income greaterthan our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible capitalexpenditures, the creation of reserves or required debt or amortization payments. If we do not have other funds available in these situations, we could be required toborrow funds on unfavorable terms, sell assets at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions in order tomake distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid being subject tocorporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity.Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.Even if we remain qualified for taxation as a REIT, we may be subject to certain U.S. federal, state, and local taxes on our income and assets, including taxeson any undistributed income and state or local income, property and transfer taxes. For example, we may hold some of our assets or conduct certain of ouractivities through one or more taxable REIT subsidiaries (each, a “TRS”) or other subsidiary corporations that will be subject to U.S. federal, state, and localcorporate-level income taxes as regular C corporations. In addition, we may incur a 100% excise tax on transactions with a TRS if they are not conducted on anarm’s-length basis. Any of these taxes would decrease cash available for distribution to our stockholders.Complying with REIT requirements may cause us to forgo otherwise attractive acquisition opportunities or liquidate otherwise attractive investments.To qualify to be taxed as a REIT for U.S. federal income tax purposes, we must ensure that, at the end of each calendar quarter, at least 75% of the value ofour assets consists of cash, cash items, government securities and “real estate assets” (as defined in the Code). The remainder of our investments (other thangovernment securities, qualified real estate assets and securities issued by a TRS) generally cannot include more than 10% of the outstanding voting securities ofany one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our totalassets (other than government securities, qualified real estate assets and securities issued by a TRS) can consist of the securities of any one issuer, and no more than25% (20% for taxable years beginning after December 31, 2017) of the value of our total assets can be represented by securities of one or more TRSs. Further, fortaxable years beginning after December 31, 2015, no more than 25% of the value of our total assets may be represented by "nonqualified publicly offered REITdebt instruments" (as defined in the Code). If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse taxconsequences. As a result, we may be required to liquidate or forgo otherwise attractive investments. These actions could have the effect of reducing our incomeand amounts available for distribution to our stockholders.In addition to the asset tests set forth above, to qualify to be taxed as a REIT we must continually satisfy tests concerning, among other things, the sources ofour income, the amounts we distribute to our stockholders and the ownership of our stock. We may be unable to pursue investments that would be otherwiseadvantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying as a REIT. Thus, compliance with the REITrequirements may hinder our ability to make certain attractive investments.Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Income from certain hedging transactions that we mayenter into to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets does not constitute “grossincome” for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met. For taxable yearsbeginning after December 31, 2015, income from new transactions entered into to hedge the income or loss from prior hedging transactions, where theindebtedness or property which was the subject of the prior hedging transaction was extinguished or disposed of, will not constitute gross income for purposes ofthe 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions or fail to properly identify such transaction as a hedge, theincome is likely to be treated as non-qualifying24Table of Contentsincome for purposes of both of the gross income tests. As a result of these rules, we may be required to limit our use of advantageous hedging techniques orimplement those hedges through a TRS. This could increase the cost of our hedging activities because the TRS may be subject to tax on gains or expose us togreater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in the TRS will generally not provide any taxbenefit, except that such losses could theoretically be carried back or forward against past or future taxable income in the TRS.Even if we qualify to be taxed as a REIT, we could be subject to tax on any unrealized net built-in gains in our assets held before electing to be treated as aREIT.Following our REIT election, we will own appreciated assets that were held by a C corporation and were acquired by us in a transaction in which theadjusted tax basis of the assets in our hands was determined by reference to the adjusted basis of the assets in the hands of the C corporation. If we dispose of anysuch appreciated assets during the five-year period following our qualification as a REIT, we will be subject to tax at the highest corporate tax rates on any gainfrom such assets to the extent of the excess of the fair market value of the assets on the date that we became a REIT over the adjusted tax basis of such assets onsuch date, which are referred to as built-in gains. We would be subject to this tax liability even if we qualify and maintain our status as a REIT. Any recognizedbuilt-in gain will retain its character as ordinary income or capital gain and will be taken into account in determining REIT taxable income and our distributionrequirement. Any tax on the recognized built-in gain will reduce REIT taxable income. We may choose not to sell in a taxable transaction appreciated assets wemight otherwise sell during the five-year period in which the built-in gain tax applies in order to avoid the built-in gain tax. However, there can be no assurancesthat such a taxable transaction will not occur. If we sell such assets in a taxable transaction, the amount of corporate tax that we will pay will vary depending on theactual amount of net built-in gain or loss present in those assets as of the time we became a REIT. The amount of tax could be significant.Uncertainties relating to CareTrust’s estimate of its “earnings and profits” attributable to C-corporation taxable years may have an adverse effect on ourdistributable cash flow.In order to qualify as a REIT, a REIT cannot have at the end of any REIT taxable year any undistributed earnings and profits (“E&P”) that are attributable toa C-corporation taxable year. A REIT that has non-REIT accumulated earnings and profits has until the close of its first full tax year as a REIT to distribute suchearnings and profits. Failure to meet this requirement would result in CareTrust’s disqualification as a REIT. In connection with the Company’s intention to qualifyas a real estate investment trust, on October 17, 2014, the Company’s board of directors declared the Special Dividend to distribute the amount of accumulatedE&P allocated to the Company as a result of the Spin-Off. The amount of the Special Dividend was $132.0 million, or approximately $5.88 per common share. Itwas paid on December 10, 2014, to stockholders of record as of October 31, 2014, in a combination of both cash and stock. The cash portion totaled $33.0 millionand the stock portion totaled $99.0 million. The Company issued 8,974,249 shares of common stock in connection with the stock portion of the Special Dividend.The determination of non-REIT earnings and profits is complicated and depends upon facts with respect to which CareTrust may have had less thancomplete information or the application of the law governing earnings and profits, which is subject to differing interpretations, or both. Consequently, there aresubstantial uncertainties relating to the estimate of CareTrust’s non-REIT earnings and profits, and we cannot be assured that the earnings and profits distributionrequirement has been met. These uncertainties include the possibility that the IRS could upon audit, as discussed above, increase the taxable income of CareTrust,which would increase the non-REIT earnings and profits of CareTrust. There can be no assurances that we have satisfied the requirement.Risks Related to Our Capital StructureWe have substantial indebtedness and we have the ability to incur significant additional indebtedness.Following the debt refinancing transaction on February 1, 2016 as described under Management's Discussion and Analysis of Financial Condition - Liquidityand Capital Resources below, we have approximately $445.0 million of indebtedness, consisting of $260.0 million representing our 5.875% Senior Notes due 2021(the “Notes”), a $100.0 million unsecured term loan and an $85.0 million unsecured revolving loan outstanding on our Credit Facility. We also had $315.0 millionavailable capacity to borrow under the Credit Facility. Our high level of indebtedness may have the following important consequences to us. For example, it could:•require us to dedicate a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, therebyreducing our cash flow available to fund working capital, dividends, capital expenditures and other general corporate purposes;25Table of Contents•require us to maintain certain debt coverage and other financial ratios at specified levels, thereby reducing our financial flexibility;•make it more difficult for us to satisfy our financial obligations, including the Notes and borrowings under the Credit Facility;•increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;•expose us to increases in interest rates for our variable rate debt;•limit, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds on favorable terms or at all toexpand our business or ease liquidity constraints;•limit our ability to refinance all or a portion of our indebtedness on or before maturity on the same or more favorable terms or at all;•limit our flexibility in planning for, or reacting to, changes in our business and our industry;•place us at a competitive disadvantage relative to competitors that have less indebtedness;•require us to dispose of one or more of our properties at disadvantageous prices in order to service our indebtedness or to raise funds to pay suchindebtedness at maturity; and• •result in an event of default if we fail to satisfy our obligations under the Notes or our other debt or fail to comply with the financial and otherrestrictive covenants contained in the indenture governing the Notes or the Credit Facility, which event of default could result in all of our debtbecoming immediately due and payable and could permit certain of our lenders to foreclose on our assets securing such debt.In addition, the Credit Facility and the indenture governing the Notes permit us to incur substantial additional debt, including secured debt. If we incuradditional debt, the related risks described above could intensify.We may be unable to service our indebtedness.Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our future financial and operating performance,which in turn is affected by general and regional economic, financial, competitive, business and other factors beyond our control, including the availability offinancing in the international banking and capital markets. Our business may fail to generate sufficient cash flow from operations or future borrowings may beunavailable to us under the Credit Facility or from other sources in an amount sufficient to enable us to service our debt, to refinance our debt or to fund our otherliquidity needs. If we are unable to meet our debt obligations or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of ourdebt. We may be unable to refinance any of our debt on commercially reasonable terms or at all. If we were unable to make payments or refinance our debt orobtain new financing under these circumstances, we would have to consider other options, such as asset sales, equity issuances and/or negotiations with our lendersto restructure the applicable debt. The Credit Facility and the indenture governing the Notes restrict, and market or business conditions may limit, our ability totake some or all of these actions. Any restructuring or refinancing of our indebtedness could be at higher interest rates and may require us to comply with moreonerous covenants that could further restrict our business operations. In addition, the Credit Facility and the indenture governing the Notes permit us to incuradditional debt, including secured debt, subject to the satisfaction of certain conditions.We rely on our subsidiaries for our operating funds.We conduct our operations through subsidiaries and depend on our subsidiaries for the funds necessary to operate and repay our debt obligations. Each of oursubsidiaries is a distinct legal entity and has no obligation, contingent or otherwise, to transfer funds to us. In addition, the ability of our subsidiaries to transferfunds to us could be restricted by the terms of subsequent financings.Covenants in our debt agreements restrict our activities and could adversely affect our business.Our debt agreements contain various covenants that limit our ability and the ability of our subsidiaries to engage in various transactions including, asapplicable:•incurring or guaranteeing additional secured and unsecured debt;•creating liens on our assets;•paying dividends or making other distributions on, redeeming or repurchasing capital stock;26Table of Contents•making investments or other restricted payments;•entering into transactions with affiliates;•issuing stock of or interests in subsidiaries;•engaging in non-healthcare related business activities;•creating restrictions on the ability of our subsidiaries to pay dividends or other amounts to us;• •selling assets;•effecting a consolidation or merger or selling all or substantially all of our assets;•making acquisitions; and•amending certain material agreements, including material leases and debt agreements.These covenants limit our operational flexibility and could prevent us from taking advantage of business opportunities as they arise, growing our business orcompeting effectively. The Credit Facility agreement requires the Company to comply with financial maintenance covenants to be tested quarterly, consisting of amaximum debt to asset value ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating incomeratio, a maximum secured debt to asset value ratio and a maximum secured recourse debt to asset value ratio. We are also required to maintain total unencumberedassets of at least 150% of our unsecured indebtedness under the indenture. Our ability to meet these requirements may be affected by events beyond our control,and we may not meet these requirements. We may be unable to maintain compliance with these covenants and, if we fail to do so, we may be unable to obtainwaivers from the lenders or amend the covenants.Risks Related To Our Common StockOur charter restricts the ownership and transfer of our outstanding stock, which may have the effect of delaying, deferring or preventing a transaction orchange of control of our company.In order for us to qualify to be taxed as a REIT, not more than 50% in value of our outstanding shares of stock may be owned, beneficially or constructively,by five or fewer individuals at any time during the last half of each taxable year after our first taxable year as a REIT. Additionally, at least 100 persons mustbeneficially own our stock during at least 335 days of a taxable year (other than our first taxable year as a REIT). Our charter, with certain exceptions, authorizesour board of directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Our charter also provides that, unless exemptedby the board of directors, no person may own more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of ourcommon stock, or more than 9.8% in value of the outstanding shares of all classes or series of our stock. The constructive ownership rules are complex and maycause shares of stock owned directly or constructively by a group of related individuals or entities to be constructively owned by one individual or entity. Theseownership limits could delay or prevent a transaction or a change in control of us that might involve a premium price for shares of our stock or otherwise be in thebest interests of our stockholders. The acquisition of less than 9.8% of our outstanding stock by an individual or entity could cause that individual or entity to ownconstructively in excess of 9.8% in value of our outstanding stock, and thus violate our charter’s ownership limit. Our charter also prohibits any person fromowning shares of our stock that would result in our being “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify to be taxed as aREIT. In addition, our charter provides that (i) no person shall beneficially or constructively own shares of stock to the extent such beneficial or constructiveownership of stock would result in us failing to qualify as a “domestically controlled qualified investment entity” within the meaning of Section 897(h) of theCode, and (ii) no person shall beneficially or constructively own shares of stock to the extent such beneficial or constructive ownership would cause us to own,beneficially or constructively, more than a 9.9% interest (as set forth in Section 856(d)(2)(B) of the Code) in a tenant of our real property. Any attempt to own ortransfer shares of our stock in violation of these restrictions may result in the transfer being automatically void.Maryland law and provisions in our charter and bylaws may delay or prevent takeover attempts by third parties and therefore inhibit our stockholders fromrealizing a premium on their stock.Our charter and bylaws and Maryland law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids and toencourage prospective acquirors to negotiate with our board of directors rather than to attempt a hostile takeover. Our charter and bylaws, among other things,(1) contain transfer and ownership restrictions on the percentage by number and value of outstanding shares of our stock that may be owned or acquired by anystockholder; (2) provide that stockholders are not allowed to act by non-unanimous written consent; (3) permit the board of directors, without further action of thestockholders, to amend the charter to increase or decrease the aggregate number of authorized shares or the number of shares of any class or series that we have theauthority to issue; (4) permit the board of directors to27Table of Contentsclassify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares;(5) permit only the board of directors to amend the bylaws; (6) establish certain advance notice procedures for stockholder proposals, and provide procedures forthe nomination of candidates for our board of directors; (7) provide that special meetings of stockholders may only be called by the Company or upon writtenrequest of stockholders entitled to be at the meeting; (8) provide that a director may only be removed by stockholders for cause and upon the vote of two-thirds ofthe outstanding shares of common stock; (9) provide for supermajority approval requirements for amending or repealing certain provisions in our charter; and(10) provide for a classified board of directors of three separate classes with staggered terms. In addition, specific anti-takeover provisions of the Maryland GeneralCorporation Law (“MGCL”) could make it more difficult for a third party to attempt a hostile takeover. These provisions include:•“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder”(defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after themost recent date on which the stockholder becomes an interested stockholder, and thereafter impose special appraisal rights and special stockholdervoting requirements on these combinations; and•“control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlledby the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control shareacquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extentapproved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interestedshares.We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with ourboard of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make us immunefrom takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent anacquisition that our board of directors determines is not in our best interests. These provisions may also prevent or discourage attempts to remove and replaceincumbent directors.The market price and trading volume of our common stock may fluctuate.The market price of our common stock may fluctuate, depending upon many factors, some of which may be beyond our control, including, but not limited to:•a shift in our investor base;•our quarterly or annual earnings, or those of other comparable companies;•actual or anticipated fluctuations in our operating results;•our ability to obtain financing as needed;•changes in laws and regulations affecting our business;•changes in accounting standards, policies, guidance, interpretations or principles;•announcements by us or our competitors of significant investments, acquisitions or dispositions;•the failure of securities analysts to cover our common stock after the Spin-Off;•changes in earnings estimates by securities analysts or our ability to meet those estimates;•the operating performance and stock price of other comparable companies;•overall market fluctuations; and•general economic conditions and other external factors.Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad marketfluctuations may adversely affect the trading price of our common stock.28Table of ContentsWe are an emerging growth company, and the reduced disclosure requirements applicable to emerging growth companies may make our common stock lessattractive to investors.We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage ofcertain exemptions from various reporting requirements that are applicable to other public companies. As an emerging growth company, we are not required to,among other things, (1) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financialreporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, (2) comply with any new rules that may be adopted by the Public Company Accounting OversightBoard requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional informationabout the audit and the financial statements of the issuer, (3) comply with any new audit rules adopted by the Public Company Accounting Oversight Board afterApril 5, 2012 unless the SEC determines otherwise, (4) comply with any new or revised financial accounting standards applicable to public companies until suchstandards are also applicable to private companies under Section 102(b)(1) of the JOBS Act, (5) provide certain disclosure regarding executive compensationrequired of larger public companies in our periodic reports, proxy statements and registration statements, or (6) hold a nonbinding advisory vote on executivecompensation and obtain stockholder approval of any golden parachute payments not previously approved. Accordingly, the information that we providestockholders in our filings with the SEC may be different than what is available with respect to other public companies. If some investors find our common stockless attractive as a result of our reliance on these exemptions, there may be a less active trading market for our common stock and our stock price may be morevolatile and adversely affected.In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided inSection 13(a) of the Exchange Act for complying with new or revised accounting standards applicable to public companies. In other words, an emerging growthcompany can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to takeadvantage of this extended transition period. As a result of this election, our financial statements may not be comparable to companies that comply with publiccompany effective dates for such new or revised standards. We may elect to comply with public company effective dates at any time, and such election would beirrevocable pursuant to Section 107(b) of the JOBS Act.We will remain an emerging growth company until the earliest of (1) the last day of the first fiscal year in which our total annual gross revenues exceed $1billion, (2) the date on which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act or any successor statute, whichwould occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completedsecond fiscal quarter, (3) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period, and (4) the end ofthe fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement filed under theSecurities Act of 1933, as amended (the “Securities Act”).Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could materially andadversely affect our business and the market price of our common stock.Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting, which requiresignificant resources and management oversight. Internal control over financial reporting is complex and may be revised over time to adapt to changes in ourbusiness, or changes in applicable accounting rules. We cannot assure you that our internal control over financial reporting will be effective in the future or that amaterial weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective. Mattersimpacting our internal controls may cause us to be unable to report our financial data on a timely basis, or may cause us to restate previously issued financial data,and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listingrules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered public accounting firm reports a materialweakness in our internal control over financial reporting. This could materially adversely affect us by, for example, leading to a decline in the market price for ourcommon stock and impairing our ability to raise capital.As an emerging growth company, we are excluded from Section 404(b) of the Sarbanes-Oxley Act, which otherwise would require our auditors to formallyattest to and report on the effectiveness of our internal control over financial reporting. If we cannot maintain effective disclosure controls and procedures orfavorably assess the effectiveness of our internal control over financial reporting, or, once we are no longer an “emerging growth company,” our independentregistered public accounting firm cannot provide an unqualified attestation report on the effectiveness of our internal control over financial reporting, investorconfidence and, in turn, the market price of our common stock could decline.29Table of ContentsWe cannot assure you of our ability to pay dividends in the future.We expect to make quarterly dividend payments in cash, but in no event will the annual dividend be less than 90% of our REIT taxable income on an annualbasis, determined without regard to the dividends paid deduction and excluding any net capital gains. Our ability to pay dividends may be adversely affected by anumber of factors, including the risk factors described in this annual report. Dividends are authorized by our board of directors and declared by us based upon anumber of factors, including actual results of operations, restrictions under Maryland law or applicable debt covenants, our financial condition, our taxable income,the annual distribution requirements under the REIT provisions of the Code, our operating expenses and other factors our directors deem relevant. We cannotassure you that we will achieve investment results that will allow us to make a specified level of cash dividends or year-to-year increases in cash dividends in thefuture.Furthermore, while we are required to pay dividends in order to maintain our REIT status (as described above under “Risks Related to Our Status as a REIT -REIT distribution requirements could adversely affect our ability to execute our business plan”), we may elect not to maintain our REIT status, in which case wewould no longer be required to pay such dividends. Moreover, even if we do elect to maintain our REIT status, after completing various procedural steps, we mayelect to comply with the applicable distribution requirements by distributing, under certain circumstances, a portion of the required amount in the form of shares ofour common stock in lieu of cash. If we elect not to maintain our REIT status or to satisfy any required distributions in shares of common stock in lieu of cash,such action could negatively affect our business and financial condition as well as the market price of our common stock. No assurance can be given that we willpay any dividends on shares of our common stock in the future.We may issue preferred stock with terms that could dilute the voting power or reduce the value of our common stock.While we have no specific plan to issue preferred stock, our charter authorizes us to issue, without the approval of our stockholders, one or more classes orseries of preferred stock having such designations, powers, privileges, preferences, including preferences over our common stock respecting dividends anddistributions, terms of redemption and relative participation, optional or other rights, if any, of the shares of each such series of preferred stock and anyqualifications, limitations or restrictions thereof, as our board of directors may determine. The terms of one or more classes or series of preferred stock could dilutethe voting power or reduce the value of our common stock. For example, the repurchase or redemption rights or liquidation preferences we could assign to holdersof preferred stock could affect the residual value of the common stock.ERISA may restrict investments by plans in our common stock.A plan fiduciary considering an investment in our common stock should consider, among other things, whether such an investment is consistent with thefiduciary obligations under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including whether such investment might constitute orgive rise to a prohibited transaction under ERISA, the Code or any substantially similar federal, state or local law and, if so, whether an exemption from suchprohibited transaction rules is available.ITEM 1B.Unresolved Staff CommentsNone.ITEM 2. PropertiesOur headquarters are located in San Clemente, California. We lease our corporate office from an unaffiliated third party.The information set forth under “Portfolio Summary” in Item 1 of this Annual Report on Form 10-K is incorporated by reference herein.ITEM 3.Legal ProceedingsNone of the Company or any of its subsidiaries is a party to, and none of their respective properties are the subject of, any material legal proceedings. Pursuant to the Separation and Distribution Agreement we entered into in connection with the Spin-Off (the “Separation and Distribution Agreement”), weassumed any liability arising from or relating to legal proceedings involving the assets owned by us and agreed to indemnify Ensign (and its subsidiaries, directors,officers, employees and agents and certain other30Table of Contentsrelated parties) against any losses arising from or relating to such legal proceedings. In addition, pursuant to the Separation and Distribution Agreement, Ensign hasagreed to indemnify us (including our subsidiaries, directors, officers, employees and agents and certain other related parties) for any liability arising from orrelating to legal proceedings involving Ensign’s healthcare business prior to the Spin-Off, and, pursuant to the Ensign Master Leases, Ensign or its subsidiarieshave agreed to indemnify us for any liability arising from operations at the real property leased from us. Ensign is currently a party to various legal actions andadministrative proceedings, including various claims arising in the ordinary course of its healthcare business, which are subject to the indemnities provided byEnsign to us. While these actions and proceedings are not believed by Ensign to be material, individually or in the aggregate, the ultimate outcome of these matterscannot be predicted. The resolution of any such legal proceedings, either individually or in the aggregate, could have a material adverse effect on Ensign’sbusiness, financial position or results of operations, which, in turn, could have a material adverse effect on our business, financial position or results of operationsif Ensign or its subsidiaries are unable to meet their indemnification obligations.ITEM 4.Mine Safety DisclosuresNone.PART IIITEM 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity SecuritiesCommon EquityOur common stock is listed on the NASDAQ Global Select Market. Set forth below for the fiscal quarters indicated are the reported high and low salesprices per share of our common stock on the NASDAQ Global Select Market. 2015 2014 HighLow HighLowFirst Quarter$14.93$11.12 N/AN/ASecond Quarter$14.35$11.87 $22.34$16.32Third Quarter$13.93$10.40 $20.20$14.00Fourth Quarter$11.98$10.21 $18.49$11.32At February 9, 2016, we had approximately 176 stockholders of record.DividendsTo maintain REIT status, we are required each year to distribute to stockholders at least 90% of our annual REIT taxable income after certain adjustments.All distributions will be made by us at the discretion of our board of directors and will depend on our financial position, results of operations, cash flows, capitalrequirements, debt covenants (which include limits on distributions by us), applicable law, and other factors as our board of directors deems relevant. For example,while the Notes and our Credit Facility permit us to declare and pay any dividend or make any distribution that is necessary to maintain our REIT status, thosedistributions are subject to certain financial tests under the indenture governing the Notes, and therefore, the amount of cash distributions we can make to ourstockholders may be limited.2014. In connection with the Company’s intention to qualify as a real estate investment trust in 2014, on October 17, 2014, the Company’s Board ofDirectors declared the Special Dividend to stockholders of $132.0 million, or approximately $5.88 per common share, which represents the amount of accumulatedearnings and profits allocated to the Company as a result of the Spin-Off. The Special Dividend was paid on December 10, 2014, to stockholders of record as ofOctober 31, 2014, in a combination of both cash and stock. The cash portion totaled $33.0 million and the stock portion totaled $99.0 million. The Company issued8,974,249 shares of common stock in connection with the stock portion of the Special Dividend. During the fourth quarter of 2014, our Board of Directors declareda quarterly cash dividend of $0.125 per share of common stock, which was paid on January 15, 2015, to stockholders of record as of December 31, 2014.2015. During the first quarter of 2015, our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on April 15,2015, to stockholders of record as of March 31, 2015. During the second quarter of 2015, our Board of Directors declared a quarterly cash dividend of $0.16 pershare of common stock, payable on July 15, 2015 to stockholders of record as of June 30, 2015. During the third quarter of 2015, our Board of Directors declared aquarterly cash dividend of $0.16 per share of common stock, payable on October 15, 2015, to stockholders of record as of September 30,31Table of Contents2015. During the fourth quarter of 2015, our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on January 15,2016, to stockholders of record as of December 31, 2015.Issuer Purchases of Equity SecuritiesNone.Stock Price Performance GraphThe graph below compares the cumulative total return of our common stock, the S&P 500 Index, the S&P 500 REIT Index, and the RMS (MSCI U.S. REITTotal Return Index) for the period from June 1, 2014 to December 31, 2015. Total cumulative return is based on a $100 investment in CareTrust common stockand in each of the indexes on June 1, 2014 and assumes quarterly reinvestment of dividends before consideration of income taxes. Stockholder returns over theindicated periods should not be considered indicative of future stock prices or stockholder returns.COMPARISON OF CUMULATIVE TOTAL RETURNAMONG S&P 500, S&P 500 REIT INDEX, RMS AND CARETRUST REIT, INC.RATE OF RETURN TREND COMPARISONJUNE 1, 2014 - DECEMBER 31, 2015(JUNE 1, 2014 = 100)Stock Price Performance Graph Total ReturnITEM 6.Selected Financial DataThe following table sets forth our selected financial data and other data for our company on a historical basis. The following data should be read inconjunction with our audited consolidated and combined financial statements and notes thereto32Table of Contentsand Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein. Our historical operating results may notbe comparable to our future operating results. The comparability of our selected financial data is significantly affected by our acquisitions and new investments in2015, 2014, 2013, 2012 and 2011. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”The selected historical financial data set forth below reflects, for the relevant periods presented, as applicable, the historical financial position, results ofoperations and cash flows of (i) the skilled nursing, assisted living and independent living facilities that Ensign contributed to CareTrust immediately prior to theSpin-Off, (ii) the operations of the three independent living facilities that CareTrust operated immediately following the Spin-Off, and (iii) the new investmentsand financings that the Company has made after the Spin-Off. “Ensign Properties” is the predecessor of the Company, and its historical financial statements havebeen prepared on a “carve-out” basis from Ensign’s consolidated financial statements using the historical results of operations, cash flows, assets and liabilitiesattributable to such skilled nursing, assisted living and independent living facilities, and include allocations of income, expenses, assets and liabilities from Ensign.These allocations reflect significant assumptions. Although CareTrust’s management believes such assumptions are reasonable, the historical financial statementsdo not fully reflect what CareTrust’s financial position, results of operations and cash flows would have been had it been a stand-alone company during the periodspresented prior to the Spin-Off. As of or For the Year Ended December 31, 20152014201320122011 (dollars in thousands, except per share amounts)Income statement data: Total revenues$74,951$58,897$48,796$42,063$31,941Income (loss) before provision for income taxes10,034(8,143)(272)232(6,514)Net income (loss)10,034(8,143)(395)110(5,341)Income (loss) before provision for income taxes per share0.26(0.36)(0.01)0.01(0.29)Net income (loss) per share0.26(0.36)(0.02)0.00(0.24)Balance sheet data: Total assets$673,166$475,140$428,515$397,049$372,216Senior unsecured notes payable (1)254,229253,165———Unsecured revolving credit facility45,000————Secured mortgage indebtedness (1)94,67697,608113,740117,08998,313Senior secured term loan (1)——64,91568,67472,309Senior secured revolving credit facility (1)——78,70120,00015,000Total equity262,288113,462162,689184,548179,609Other financial data: Dividends declared per common share$0.64$6.01$—$—$—FFO(2)34,10914,85323,02321,21311,277FAD(2)37,83116,55923,74021,93311,893(1) On December 31, 2015, we early adopted recently issued accounting standards relating to debt issuance costs, which require certain debt issuance costs relatedto a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debtdiscounts. Additionally, we have elected to present costs related to revolving lines of credit as assets in our balance sheets. (2)We believe that net income, as defined by U.S. generally accepted accounting principles (“GAAP”), is the most appropriate earnings measure. We alsobelieve that Funds From Operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), and Funds Available forDistribution (“FAD”) are important non-GAAP supplemental measures of operating performance for a REIT. FFO is defined as net income (loss) computedin accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate related depreciation and amortization and impairmentcharges. FAD is defined as FFO excluding noncash expenses such as stock-based compensation expense and amortization of deferred financing costs. Webelieve that the use of FFO and FAD, combined with the required GAAP presentations, improves the understanding of operating results of REITs amonginvestors and makes comparisons of operating results among such companies more meaningful. We consider FFO and FAD to be useful measures forreviewing comparative operating and financial performance because, by excluding gains or losses from real estate dispositions, impairment charges and realestate depreciation and amortization, and, for FAD, by excluding noncash expenses such as stock-based compensation expense and amortization of deferredfinancing costs,33Table of ContentsFFO and FAD can help investors compare our operating performance between periods and to other REITs. However, our computation of FFO and FAD maynot be comparable to FFO and FAD reported by other REITs that do not define FFO in accordance with the current NAREIT definition or that interpret thecurrent NAREIT definition or define FAD differently than we do. Further, FFO and FAD do not represent cash flows from operations or net income asdefined by GAAP and should not be considered an alternative to those measures in evaluating our liquidity or operating performance.The following table reconciles our calculations of FFO and FAD for the five years ended December 31, 2015, 2014, 2013, 2012 and 2011 to net income, themost directly comparable financial measure according to GAAP, for the same periods: For the Year Ended December 31, 20152014201320122011 (dollars in thousands)Net income (loss)$10,034$(8,143)$(395)$110$(5,341)Real estate related depreciation and amortization24,07522,99623,41821,10316,618FFO34,10914,85323,02321,21311,277Stock-based compensation1,522154181515Amortization of deferred financing costs2,2001,552699705601FAD$37,831$16,559$23,740$21,933$11,893ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe discussion below contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from thoseanticipated in these forward-looking statements as a result of various factors, including those which are discussed in the section titled “Risk Factors.” Also see“Statement Regarding Forward-Looking Statements” preceding Part I.The following discussion and analysis should be read in conjunction with the “Selected Financial Data” above and our accompanying consolidated andcombined financial statements and the notes thereto.Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is organized as follows:•Overview•Recent Transactions•Results of Operations•Liquidity and Capital Resources•Obligations and Commitments•Capital Expenditures•Critical Accounting Policies•Impact of Inflation•Off-Balance Sheet ArrangementsOverviewCareTrust REIT, Inc. was formed on October 29, 2013, as a wholly owned subsidiary of The Ensign Group, Inc. On June 1, 2014, Ensign completed theseparation of its healthcare business and its real estate business into two separate and independent publicly traded companies through the distribution of all of theoutstanding shares of common stock of the Company to Ensign stockholders on a pro rata basis. The Spin-Off was effective from and after June 1, 2014, withshares of our common stock distributed to Ensign stockholders on June 2, 2014. CareTrust holds substantially all of the real property that was previously owned byEnsign. As of December 31, 2015, CareTrust’s leased portfolio consisted of 119 SNFs, ALFs and ILFs of which 94 properties are leased to Ensign on a triple-netbasis under multiple long-term leases, 14 properties are leased to affiliates of Pristine under a long-term, triple-net lease that is guaranteed by Pristine and two of itsprincipals, and the remaining 11 properties are leased to seven other tenants on a triple-net basis. We also own and operate three ILFs. As of December 31, 2015,the 94 facilities leased to Ensign had a total of 10,121 beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utahand Washington, the 14 facilities leased to Pristine had a34Table of Contentstotal of 1,258 beds and units and are located in Ohio, and the 11 other leased properties had a total of 765 units and are located in Colorado, Florida, Georgia,Idaho, Minnesota, Virginia and Washington. The three ILFs that we own and operate had a total of 264 units and are located in Texas and Utah. As of December31, 2015, the Company had one other real estate investment, consisting of an $8.5 million preferred equity investment.We are a separate and independent publicly traded, self-administered, self-managed REIT primarily engaged in the ownership, acquisition and leasing ofhealthcare-related properties. 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, and maintenance and repair costs). Weconduct and manage our business as one operating segment for internal reporting and internal decision making purposes. We expect to grow our portfolio bypursuing opportunities to acquire additional properties that will be leased to a diverse group of local, regional and national healthcare providers, which may includeEnsign, as well as senior housing operators and related businesses. We also anticipate diversifying our portfolio over time, including by acquiring properties indifferent geographic markets, and in different asset classes.We have elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. We believe that wehave been organized and have operated, and we intend to continue to operate, in a manner to qualify for taxation as a REIT. We operate through an umbrellapartnership, commonly referred to as an UPREIT structure, in which substantially all of our properties and assets are held through our Operating Partnership, CTRPartnership, L.P. The Operating Partnership is managed by CareTrust’s wholly owned subsidiary, CareTrust GP, LLC, which is the sole general partner of theOperating Partnership. To maintain REIT status, we must meet a number of organizational and operational requirements, including a requirement that we annuallydistribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capitalgains.Recent TransactionsOffering of Common StockOn August 18, 2015, we completed an underwritten public offering of 16.33 million newly issued shares of our common stock pursuant to an effectiveregistration statement. We received net proceeds, before offering costs, of $163.7 million from the offering, after giving effect to the issuance and sale of all16.33 million shares of common stock (which included 2.13 million shares sold to the underwriters upon exercise of their option to purchase additional shares), at aprice to the public of $10.50 per share.Unsecured Credit Facility and GECC RefinancingSee “- Liquidity and Capital Resources” below for a description of the Company’s unsecured credit facility, which theCompany entered into in August 2015 and amended in February 2016. We used approximately $95.0 million of proceeds from the new $100.0 million non-amortizing unsecured term loan funded in February 2016 to pay off and terminate our secured mortgage indebtedness with General Electric Capital Corporation(the "GECC Loan").Liberty AcquisitionOn October 1, 2015, the Operating Partnership completed the acquisition, from affiliates of Liberty, of a 14 facility skilled nursing and assisted livingportfolio, for approximately $176.5 million, inclusive of transaction costs of approximately $3.5 million. The facilities are located throughout Ohio and collectivelyinclude 1,102 SNF beds, 100 ALF units and 56 ILF units available for occupancy.In connection with the Liberty acquisition, the Operating Partnership entered into a triple-net basis, long-term lease (the “Pristine Master Lease”), datedJuly 30, 2015, with affiliates of Pristine. The Pristine Master Lease carries an initial term of 15 years with two five-year renewal options and rent escalators basedon the Consumer Price Index. The beginning annual rent under the Pristine Master Lease is $17.0 million. The Pristine Master Lease also includes a right of firstrefusal in favor of the Operating Partnership with respect to any transaction between the tenant and a party other than the Operating Partnership or its affiliates forthe tenant to operate, own, develop, finance, lease, manage, invest in, participate in or otherwise receive revenues from a SNF, ALF, ILF, memory care facility orother healthcare facility (subject to certain exceptions), until the earlier of seven years after the commencement date under the Pristine Master Lease or the date onwhich the tenants have leased at least five healthcare facilities from the Operating Partnership. The tenants’ obligations under the Pristine Master Lease areguaranteed by Pristine and two of its principals pursuant to a Guaranty of Pristine Master Lease.35Table of ContentsResults of OperationsBasis of PresentationPrior to the Spin-Off, the combined financial statements were prepared on a stand-alone basis and were derived from the accounting records of Ensign(which are not included in this report). These statements reflect the combined historical financial condition and results of operations of the carve-out business ofthe entities that own the SNFs, ALFs and ILFs that we own, and the operations of the three ILFs that we operate, in accordance with GAAP. Subsequent to theSpin-Off, the financial statements were prepared on a consolidated basis as the entities that own the properties are now wholly owned subsidiaries of the Company.All intercompany transactions and accounts have been eliminated.Operating ResultsOur primary business consists of acquiring, financing and owning real property to be leased to third party tenants in the healthcare sector.Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 Year Ended December 31, Increase(Decrease) PercentageDifference 2015 2014 (dollars in thousands)Revenues: Rental income$65,979 $51,367 $14,612 28 %Tenant reimbursements5,497 4,956 541 11 %Independent living facilities2,510 2,519 (9) — %Interest and other income965 55 910 1,655 %Expenses: Depreciation and amortization24,133 23,000 1,133 5 %Interest expense25,256 21,622 3,634 17 %Loss on extinguishment of debt— 4,067 (4,067) (100)%Property taxes5,497 4,956 541 11 %Acquisition costs— 47 (47) (100)%Independent living facilities2,376 2,243 133 6 %General and administrative7,655 11,105 (3,450) (31)%Rental income. Rental income was $66.0 million for the year ended December 31, 2015 compared to $51.4 million for the year ended December 31, 2014.The $14.6 million increase in rental income is due primarily to $4.8 million of new incremental rent in place after the Spin-Off and $9.8 million from newinvestments made after October 1, 2014.Independent living facilities. Revenues from our three ILFs that we own and operate were $2.5 million for the year ended December 31, 2015 compared to$2.5 million for the year ended December 31, 2014. Occupancy and average monthly rates stayed constant. Expenses were $2.4 million for the year endedDecember 31, 2015 compared to $2.2 million for the year ended December 31, 2014. The $0.1 million increase was due to higher costs associated with operatingthe facilities.Interest and other income. Interest and other income increased $0.9 million for the year ended December 31, 2015 to $1.0 million compared to $0.1 millionfor the year ended December 31, 2014. The increase was due to the preferred equity investment made in December 2014.Depreciation and amortization. Depreciation and amortization expense increased $1.1 million or 5% for the year ended December 31, 2015 to $24.1 millioncompared to $23.0 million for the year ended December 31, 2014. The $1.1 million increase was primarily due to new investments made after October 1, 2014offset by certain assets which were not transferred to the Company in connection with the Spin-Off.Interest expense. Interest expense increased $3.6 million or 17% for the year ended December 31, 2015 to $25.3 million compared to $21.6 million for theyear ended December 31, 2014. The increase was due to higher net borrowings after the Spin-Off and a $1.2 million write-off of deferred financing fees associatedwith the payoff and termination of our senior secured revolving credit facility, offset by a $1.7 million loss on the settlement of an interest rate swap in 2014.36Table of ContentsGeneral and administrative expense. General and administrative expense decreased $3.5 million for the year ended December 31, 2015 to $7.7 millioncompared to $11.1 million for the year ended December 31, 2014. The $3.5 million decrease is primarily related to decreases in legal and other costs related to theSpin-Off, offset by higher wages and amortization of stock-based compensation.Year Ended December 31, 2014 Compared to Year Ended December 31, 2013 Year Ended December 31, Increase(Decrease) PercentageDifference 2014 2013 (dollars in thousands)Revenues: Rental income$51,367 $41,242 $10,125 25 %Tenant reimbursements4,956 5,168 (212) (4)%Independent living facilities2,519 2,386 133 6 %Interest and other income55 — 55 *Expenses: Depreciation and amortization23,000 23,418 (418) (2)%Interest expense21,622 12,647 8,975 71 %Loss on extinguishment of debt4,067 — 4,067 *Property taxes4,956 5,168 (212) (4)%Acquisition costs47 255 (208) (82)%Independent living facilities2,243 2,138 105 5 %General and administrative11,105 5,442 5,663 104 %Provision for income taxes— 123 (123) (100)%*not meaningfulRental income. Rental income was $51.4 million for the year ended December 31, 2014 compared to $41.2 million for the year ended December 31, 2013.The $10.1 million increase in rental income is due primarily to $7.4 million of new incremental rent in place after the Spin-Off and $2.6 million from propertiesacquired after January 1, 2013.Independent living facilities. Revenues from our three ILFs that we own and operate were $2.5 million for the year ended December 31, 2014 compared to$2.4 million for the year ended December 31, 2013. The increase was due to an increase in occupancy offset by a slight decline in average monthly rate. Expenseswere $2.2 million for the year ended December 31, 2014 compared to $2.1 million for the year ended December 31, 2013. The $0.1 million increase was due tohigher costs associated with operating the facilities.Depreciation and amortization. Depreciation and amortization expense decreased $0.4 million or 2% for the year ended December 31, 2014 to $23.0 millioncompared to $23.4 million for the year ended December 31, 2013. The $0.4 million net change in depreciation and amortization was primarily due to certain assetswhich were not transferred to the Company in connection with the Spin-Off offset by properties acquired after January 1, 2013 and improvements made toproperties after January 1, 2013.Interest expense. Interest expense increased $9.0 million or 71% for the year ended December 31, 2014 to $21.6 million compared to $12.6 million for theyear ended December 31, 2013. The increase was due to higher net borrowings after the Spin-Off as compared to the prior year and a $1.7 million loss on thesettlement of an interest rate swap in 2014 as a result of the early retirement of Ensign’s senior credit facility.General and administrative expense. General and administrative expense increased $5.7 million for the year ended December 31, 2014 to $11.1 millioncompared to $5.4 million for the year ended December 31, 2013. The $5.7 million increase is primarily related to costs associated with being a stand-alone publiccompany such as compensation, legal and other professional fees, and other costs related to the Spin-Off.Liquidity and Capital ResourcesWe are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any netcapital gains, to our stockholders on an annual basis in order to qualify as a REIT for federal37Table of Contentsincome tax purposes. Accordingly, we intend to make, but are not contractually bound to make, regular quarterly dividends to common stockholders from cashflow from operating activities. All such dividends are at the discretion of our board of directors.In connection with the Company’s intention to qualify as a REIT in 2014, on October 17, 2014, the Company’s Board of Directors declared the SpecialDividend of $132.0 million, or approximately $5.88 per common share, which represented the amount of accumulated earnings and profits allocated to theCompany as a result of the Spin-Off. The Special Dividend was paid on December 10, 2014, to stockholders of record as of October 31, 2014, in a combination ofboth cash and stock. The cash portion totaled $33.0 million and the stock portion totaled $99.0 million. The Company issued 8,974,249 shares of common stock inconnection with the stock portion of the Special Dividend.We believe that our available cash, expected operating cash flows and the availability under our Credit Facility will provide sufficient funds for ouroperations, anticipated scheduled debt service payments and dividend requirements for at least the next twelve months.We intend to invest in additional healthcare properties as suitable opportunities arise and adequate sources of financing are available. We expect that futureinvestments in properties, including any improvements or renovations of current or newly-acquired properties, will depend on and will be financed by, in whole orin part, our existing cash, borrowings available to us under the Credit Facility, future borrowings or the proceeds from additional issuances of common stock orother securities. In addition, we may seek financing from U.S. government agencies, including through Fannie Mae and the U.S. Department of Housing and UrbanDevelopment, in appropriate circumstances in connection with acquisitions and refinancings of existing mortgage loans.We have also filed a shelf registration statement with the SEC that expires in January 2019, which will allow us to offer and sell shares of common stock,preferred stock, and warrants through underwriters, dealers or agents or directly to purchasers, on a continuous or delayed basis, in amounts, at prices and on termswe determine at the time of the offering.Although we are subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incuradditional indebtedness for acquisitions or other purposes, if needed. However, there can be no assurance that we will be able to refinance our indebtedness, incuradditional indebtedness or access additional sources of capital, such as by issuing common stock or other debt or equity securities, on terms that are acceptable tous or at all.Cash FlowsThe following table presents selected data from our consolidated and combined statements of cash flows for the years presented: Year Ended December 31, 2015 2014 2013 (dollars in thousands)Net cash provided by operating activities$40,254 $21,906 $26,632Net cash used in investing activities(234,649) (53,596) (54,733)Net cash provided by financing activities180,542 56,115 28,261Net (decrease) increase in cash and cash equivalents(13,853) 24,425 160Cash and cash equivalents at beginning of period25,320 895 735Cash and cash equivalents at end of period$11,467 $25,320 $895Year Ended December 31, 2015 Compared to Year Ended December 31, 2014Net cash provided by operating activities for the year ended December 31, 2015 was $40.3 million compared to $21.9 million for the year endedDecember 31, 2014, an increase of $18.3 million. The increase was primarily due to net income in 2015 compared to a net loss in 2014 totaling $17.9 million,including noncash charges, and a net increase in operating assets and liabilities of $0.4 million.Net cash used in investing activities for the year ended December 31, 2015 was $234.6 million compared to $53.6 million for the year ended December 31,2014, an increase of $181.1 million. The increase was primarily due to greater38Table of Contentsinvestments in real estate in 2015 compared to 2014 offset by lesser purchases of furniture, fixtures and equipment in 2015 compared to 2014 and no preferredequity investments made in 2015.Net cash provided by financing activities for the year ended December 31, 2015 was $180.5 million compared to $56.1 million for the year endedDecember 31, 2014, an increase of $124.4 million. This increase was primarily due to net proceeds of $163.0 million from our offering of common stock, $184.3million in lower payments on debt, $11.2 million in lower dividends paid, and $11.1 million in lower deferred financing fees offset by lower net borrowings in2015 of $240.7 million and no net contributions from Ensign in 2015.Year Ended December 31, 2014 Compared to Year Ended December 31, 2013Net cash provided by operating activities for the year ended December 31, 2014 was $21.9 million compared to $26.6 million for the year endedDecember 31, 2013, a decrease of $4.7 million. The decrease was primarily due to larger net loss in 2014 after adding back noncash charges which totaled $3.8million and a net decrease in operating assets and liabilities of $0.9 million.Net cash used in investing activities for the year ended December 31, 2014 was $53.6 million compared to $54.7 million for the year ended December 31,2013, a decrease of $1.1 million. The decrease was primarily the result of lower investments in real estate in 2014 compared to 2013.Net cash provided by financing activities for the year ended December 31, 2014 was $56.1 million compared to $28.3 million for the year endedDecember 31, 2013, an increase of $27.9 million. This increase was due to the following: issuance of debt totaling $320.7 million for the year ended December 31,2014 compared to $58.7 million for the year ended December 31, 2013, an increase of $262.0 million; payments on debt totaling $222.5 million for the year endedDecember 31, 2014 compared to $7.2 million for the year ended December 31, 2013, an increase of $215.3 million; payments of deferred financing costs totaling$13.4 million for the year ended December 31, 2014 compared to $0.7 million for the year ended December 31, 2013, an increase of $12.7 million; net contributionfrom Ensign totaling $4.4 million for the year ended December 31, 2014 compared to a net distribution from Ensign of $22.5 million for the year endedDecember 31, 2013, a change of $26.9 million; and cash dividends paid on common stock in 2014 of $33.0 million.IndebtednessSenior Unsecured NotesOn May 30, 2014, the Operating Partnership, and its wholly owned subsidiary, CareTrust Capital Corp. (together with the Operating Partnership, the“Issuers”), completed a private offering of $260.0 million aggregate principal amount of 5.875% Senior Notes due 2021 (the “Notes”). The Notes were issued atpar, resulting in gross proceeds of $260.0 million and net proceeds of approximately $253.0 million after deducting underwriting fees and other offering expenses.We transferred approximately $220.8 million of the net proceeds of the offering of the Notes to Ensign, and used the remaining net proceeds of the offering to paythe cash portion of the Special Dividend. The Notes mature on June 1, 2021 and bear interest at a rate of 5.875% per year. Interest on the Notes is payable onJune 1 and December 1 of each year, beginning on December 1, 2014. The Issuers subsequently exchanged the Notes for substantially identical notes registeredunder the Securities Act of 1933.The Issuers may redeem the Notes any time prior to June 1, 2017 at a redemption price of 100% of the principal amount of the Notes redeemed plusaccrued and unpaid interest on the Notes, if any, to, but not including, the redemption date, plus a “make whole” premium described in the indenture governing theNotes and, at any time on or after June 1, 2017, at the redemption prices set forth in the indenture. In addition, at any time on or prior to June 1, 2017, up to 35% ofthe aggregate principal amount of the Notes may be redeemed with the net proceeds of certain equity offerings if at least 65% of the originally issued aggregateprincipal amount of the Notes remains outstanding. If certain changes of control of CareTrust occur, holders of the Notes will have the right to require the Issuersto repurchase their Notes at 101% of the 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 CareTrust and certain ofCareTrust’s wholly owned existing and, subject to certain exceptions, future material subsidiaries (other than the Issuers); provided, however, that such guaranteesare subject to automatic release under certain customary circumstances, including if the subsidiary guarantor is sold or sells all or substantially all of its assets, thesubsidiary guarantor is designated “unrestricted” for covenant purposes under the indenture, the subsidiary guarantor’s guarantee of other indebtedness whichresulted in the creation of the guarantee of the Notes is terminated or released, or the requirements for legal39Table of Contentsdefeasance or covenant defeasance or to discharge the indenture have been satisfied. See Note 13, Summarized Condensed Consolidating and CombiningInformation .The indenture contains covenants limiting the ability of CareTrust and its restricted subsidiaries to: incur or guarantee additional indebtedness; incur orguarantee 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 theIssuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers. The indenture also requires CareTrust and its restricted subsidiaries tomaintain a specified ratio of unencumbered assets to unsecured indebtedness. These covenants are subject to a number of important and significant limitations,qualifications and exceptions. The indenture also contains customary events of default.As of December 31, 2015, we were in compliance with all applicable financial covenants under the indenture.Unsecured Credit FacilityOn August 5, 2015, the Company, CareTrust GP, LLC, the Operating Partnership, as the borrower, and certain of its wholly owned subsidiaries entered intoa credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender, and the lenders party thereto(the “Credit Agreement”). The Credit Agreement initially provided for an unsecured asset-based revolving credit facility (the “Revolving Facility”) withcommitments in an aggregate principal amount of $300.0 million from a syndicate of banks and other financial institutions, and an accordion feature that allows theOperating Partnership to increase the borrowing availability by up to an additional $200.0 million. A portion of the proceeds of the Revolving Facility were used topay off and terminate the Company’s existing secured asset-based revolving credit facility under a credit agreement dated May 30, 2014, with SunTrust Bank, asadministrative agent, and the lenders party thereto (the “SunTrust Refinancing”). As of December 31, 2015, there was $45.0 million outstanding under the CreditFacility.After the end of the fiscal year, on February 1, 2016, the Company, CareTrust GP, LLC, the Operating Partnership, as the borrower, and certain of its whollyowned subsidiaries entered into the First Amendment (the “Amendment”) to the Credit Agreement. Pursuant to the Amendment, (i) commitments in respect of theCredit Facility were increased by $100.0 million to $400.0 million total, (ii) a new $100.0 million non-amortizing unsecured term loan (the “Term Loan” and,together with the Revolving Facility, the "Credit Facility") was funded and (iii) the uncommitted incremental facility was increased by $50.0 million to $250.0million. Approximately $95.0 million of the proceeds of the Term Loan were used to pay off and terminate the GECC Loan (the "GECC Refinancing"). See"General Electric Capital Corporation Loan" below.The Credit Agreement has a maturity date of August 5, 2019, and includes two, six-month extension options. The Term Loan, which matures on February 1,2023, may be prepaid at any time subject to a 2% premium in the first year after issuance and a 1% premium in the second year after issuance.The Credit Agreement initially provided that, subject to customary conditions, including obtaining lender commitments and pro forma compliance withfinancial maintenance covenants under the Credit Agreement, the Operating Partnership may seek to increase the aggregate principal amount of the revolvingcommitments and/or establish one or more new tranches of incremental revolving or term loans under the Credit Facility in an aggregate amount not to exceed$200.0 million. Pursuant to the Amendment, the uncommitted incremental facility was increased by $50.0 million to $250.0 million effective February 1, 2016.The Company does not currently have any commitments for such increased loans.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 0.75%to 1.40% per annum or applicable LIBOR plus a margin ranging from 1.75% to 2.40% per annum based on the debt to asset value ratio of the Company and itssubsidiaries (subject to decrease at the Company’s election if the Company obtains certain specified investment grade ratings on its senior long term unsecureddebt). Pursuant to the Amendment, the interest rates applicable to the Term Loan are, at the Company’s option equal to a base rate plus a margin ranging from0.95% to 1.60% per annum or applicable LIBOR plus a margin ranging from 1.95% to 2.60% per annum based on the debt to asset value ratio of the Company andits subsidiaries (subject to decrease at the Company's election if the Company obtains certain specified investment grade ratings on its senior long term unsecureddebt).In addition, the Company will pay a commitment fee on the unused portion of the commitments under the Revolving Facility of 0.15% or 0.25% per annum,based upon usage of the Revolving Facility (unless the Company obtains certain specified investment grade ratings on its senior long term unsecured debt andelects to decrease the applicable margin as described above, in which case the Company will pay a facility fee on the revolving commitments ranging from 0.125%to 0.30% per annum based upon the credit ratings of its senior long term unsecured debt).40Table of ContentsThe Credit Facility is guaranteed, jointly and severally, by the Company and its wholly owned subsidiaries that are party to the Credit Agreement (other thanthe Operating Partnership). The Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of theCompany and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations,amend certain material agreements and pay certain dividends and other restricted payments. The Credit Agreement requires the Company to comply with financialmaintenance covenants to be tested quarterly, consisting of a maximum debt to asset value ratio, a minimum fixed charge coverage ratio, a minimum tangible networth, a maximum cash distributions to operating income ratio, a maximum secured debt to asset value ratio and a maximum secured recourse debt to asset valueratio. The Credit Agreement also contains certain customary events of default, including that the Company is required to operate in conformity with therequirements for qualification and taxation as a REIT.As of December 31, 2015, the Company was in compliance with all applicable financial covenants under the Credit Agreement.General Electric Capital Corporation LoanAs of December 31, 2015, ten of our properties were subject to secured mortgage indebtedness to the GECC Loan, which we assumed in connectionwith the Spin-Off. The outstanding amount of this mortgage indebtedness was approximately $95.0 million as of December 31, 2015, including an advance ofapproximately $50.7 million that was made on May 30, 2014. This advance bears interest at a floating rate equal to three-month LIBOR plus 3.35%, reset monthlyand subject to a LIBOR floor of 0.50%, with monthly principal and interest payments based on a 25 year amortization. The remaining indebtedness under theGECC Loan bears interest at a blended rate of 7.25% per annum until, but not including, June 29, 2016, and then converts to the floating rate described above. TheGECC Loan matures on May 30, 2017, subject to two 12-month extension options, the exercise of which is conditioned, in each case, on the absence of any then-existing default and the payment of an extension fee equal to 0.25% of the then-outstanding principal balance. Provided there is no then-existing default and upon30 days written notice, the original portion of the GECC Loan, approximately $46.2 million as of December 31, 2015, is prepayable without penalty, in whole butnot in part, after January 31, 2016. The new portion of the GECC Loan, approximately $48.9 million as of December 31, 2015, is prepayable without penalty, inwhole but not in part, after January 31, 2016.The GECC Loan is guaranteed by the Company, contains customary affirmative and negative covenants, as well as customary events of default, andrequires us to comply with specified financial maintenance covenants.As of December 31, 2015, the Company was in compliance with all applicable financial covenants under the GECC Loan.As of February 1, 2016, in connection with the Amendment, the GECC Loan was paid off and terminated as part of the GECC Refinancing. Obligations and CommitmentsThe following table summarizes our contractual obligations and commitments at December 31, 2015 (in thousands): Payments Due by Period Total Lessthan1 Year 1 Yearto Lessthan3 Years 3 Yearsto Lessthan5 Years Morethan5 yearsSenior Unsecured Notes (1)$344,013 $15,275 $30,550 $30,550 $267,638Credit Facility (2)51,525 1,826 3,641 46,058 —Mortgage Notes Payable (3)102,785 8,009 94,776 — —Operating lease560 129 271 160 —Total$498,883 $25,239 $129,238 $76,768 $267,638(1)Amounts include interest payments of $84.0 million.(2)Represents borrowings of $45.0 million outstanding at December 31, 2015 and the unused Credit Facility fee. On February 1, 2016, we entered into anamendment to the Credit Facility which, among other things, increased commitments in respect of the Credit Facility to $400.0 million and provided for a$100.0 million Term Loan. See "Indebtedness-Unsecured Credit Facility" above for further information.41Table of Contents(3)Amounts include interest payments of $7.8 million. The $48.9 million variable rate portion of the GECC debt assumes an interest rate of 3.85%. Asdescribed above, the GECC Loan was paid off and terminated on February 1, 2016 as part of the GECC Refinancing.Capital ExpendituresWe anticipate incurring average annual capital expenditures of $400 to $500 per unit in connection with the operations of our three ILFs. Capitalexpenditures for each property leased under triple-net leases are generally the responsibility of the tenant, except that, for the Ensign Master Leases, the tenant willhave an option to require us to finance certain capital expenditures up to an aggregate of 20% of our initial investment in such property.Critical Accounting PoliciesBasis of Presentation . The accompanying consolidated and combined financial statements of the Company reflect, for all periods presented, the historicalfinancial position, results of operations and cash flows of (i) the skilled nursing, assisted living and independent living facilities that Ensign contributed to usimmediately prior to the Spin-Off, (ii) the operations of the three independent living facilities that we operated immediately following the Spin-Off, and (iii) thenew investments that we have made after the Spin-Off. Our financial statements, prior to the Spin-Off, have been prepared on a “carve-out” basis from Ensign’sconsolidated financial statements using the historical results of operations, cash flows, assets and liabilities attributable to such skilled nursing, assisted living andindependent living facilities.The combined statements of operations, prior to the Spin-Off, reflect allocations of general corporate expenses from Ensign including, but not limited to,executive management, finance, legal, information technology, human resources, employee benefits administration, treasury, risk management, procurement, andother shared services. See Note 6, Related Party Transactions .Management believes that the assumptions and estimates used in preparation of the underlying consolidated and combined financial statements arereasonable. However, the consolidated and combined financial statements herein do not necessarily reflect what our financial position, results of operations or cashflows would have been if the Company had been a stand-alone company during the periods presented. As a result, historical financial information is not necessarilyindicative of our future results of operations, financial position or cash flows.Estimates and Assumptions. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reportedamounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.Real Estate Depreciation and Amortization . Real estate costs related to the acquisition and improvement of properties are capitalized and amortized overthe expected useful life of the asset on a straight-line basis. Repair and maintenance costs are charged to expense as incurred and significant replacements andbetterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. We consider the period offuture benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are capitalized and amortized over the shorter of thetenant’s lease term or expected useful life. We anticipate the estimated useful lives of our assets by class to be generally as follows: Buildings25-40 yearsBuilding improvements10-25 yearsTenant improvementsShorter of lease term or expected useful lifeIntegral equipment, furniture and fixtures5 yearsReal Estate Acquisition Valuation . In accordance with Accounting Standard Codification ("ASC") 805, Business Combinations , we record the acquisitionof income-producing real estate as a business combination. If the acquisition does not meet the definition of a business, we record the acquisition as an assetacquisition. Under both methods, all assets acquired and liabilities assumed are measured at their acquisition date fair values. For transactions that are businesscombinations, acquisition costs are expensed as incurred and restructuring costs that do not meet the definition of a liability at the acquisition date are expensed inperiods subsequent to the acquisition date. For transactions that are an asset acquisition, acquisition costs are capitalized as incurred.42Table of ContentsWe assess the acquisition date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar to those used byindependent appraisers, generally utilizing a discounted cash flow analysis that applies appropriate discount and/or capitalization rates and available marketinformation. Estimates of future cash flows are based on a number of factors, including historical operating results, known and anticipated trends, and market andeconomic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it were vacant.Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require us to make significant assumptions to estimatemarket lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years theproperty will be held for investment. The use of inappropriate assumptions would result in an incorrect valuation of our acquired tangible assets, identifiableintangibles and assumed liabilities, which would impact the amount of our net income.Impairment of Long-Lived Assets. Management periodically evaluates our real estate investments for impairment indicators, including the evaluation of ourassets’ useful lives. Management also assesses the carrying value of our real estate investments whenever events or changes in circumstances indicate that thecarrying amount of the assets may not be recoverable. The judgment regarding the existence of impairment indicators is based on factors such as, but not limitedto, market conditions, operator performance and legal structure. If indicators of impairment are present, management evaluates the carrying value of the related realestate investments in relation to the future undiscounted cash flows of the underlying facilities. Provisions for impairment losses related to long-lived assets arerecognized when expected future undiscounted cash flows are determined to be less than the carrying values of the assets. An adjustment is made to the netcarrying value of the real estate investments for the excess of carrying value over fair value. All impairments are taken as a period cost at that time and depreciationis adjusted going forward to reflect the new value assigned to the asset.If we decide to sell real estate properties, we evaluate the recoverability of the carrying amounts of the assets. If the evaluation indicates that the carryingvalue is not recoverable from estimated net sales proceeds, the property is written down to estimated fair value less costs to sell.In the event of impairment, the fair value of the real estate investment is determined by market research, which includes valuing the property in its currentuse as well as other alternative uses, and involves significant judgment. Our estimates of cash flows and fair values of the properties are based on current marketconditions and reflect matters such as rental rates and occupancies for comparable properties, recent sales data for comparable properties, and, where applicable,contracts or the results of negotiations with purchasers or prospective purchasers. Our ability to accurately estimate future cash flows and estimate and allocate fairvalues impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a materialimpact on financial results.Other Real Estate Investments. Preferred equity investments with characteristics of debt instruments are accounted for as acquisition, development andconstruction loans held for investment, stated at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses andaccrued interest, net of reserves. We recognize interest income on a quarterly basis based on the outstanding investment including any accrued and unpaid interest.We periodically evaluate each of our investments for indicators of impairment. An investment is impaired when, based on current information and events, itis probable that we will be unable to collect all amounts due according to the existing contractual terms. A reserve is established for the excess of the carryingvalue of the investment over its fair value, or, as a practical expedient, the value of the collateral if the loan is collateral dependent.Deferred Financing Costs. External costs incurred from placement of our debt are capitalized and amortized on a straight-line basis over the terms of therelated borrowings, which approximates the effective interest method. For our senior unsecured notes payable and our mortgage notes payable, deferred financingcosts are netted against the outstanding debt amounts on the balance sheet. For our Credit Facility, deferred financing costs are shown gross and are included inassets on our balance sheet. See Note 2 Summary of Significant Accounting Policies-Recently Adopted Accounting Standards in our financial statements for furtherdiscussion.Revenue Recognition. We recognize rental revenue, including rental abatements, lease incentives and contractual fixed increases attributable to operatingleases, if any, from tenants under lease arrangements with minimum fixed and determinable increases on a straight-line basis over the non-cancellable term of therelated leases when collectability is reasonably assured. Tenant recoveries related to the reimbursement of real estate taxes, insurance, repairs and maintenance, andother operating expenses are recognized as revenue in the period the expenses are incurred and presented gross if we are the primary obligor and, with respect topurchasing goods and services from third-party suppliers, have discretion in selecting the supplier and bear43Table of Contentsthe associated credit risk. For the years ended December 31, 2015, 2014 and 2013, such tenant reimbursement revenues consist of real estate taxes. Contingentrevenue, if any, is not recognized until all possible contingencies have been eliminated.We evaluate the collectability of rents and other receivables on a regular basis based on factors including, among others, payment history, the operations, theasset type and current economic conditions. If our evaluation of these factors indicates we may not recover the full value of the receivable, we provide a reserveagainst the portion of the receivable that we estimate may not be recovered. This analysis requires us to determine whether there are factors indicating a receivablemay not be fully collectible and to estimate the amount of the receivable that may not be collected. We did not reserve any receivables as of December 31, 2015and 2014.Income Taxes. Our operations have historically been included in Ensign’s U.S. federal and state income tax returns and all income taxes have been paid byEnsign. Income tax expense and other income tax related information contained in these consolidated financial statements are presented on a separate tax returnbasis as if we filed our own tax returns. Management believes that the assumptions and estimates used to determine these tax amounts are reasonable. However, theconsolidated financial statements herein may not necessarily reflect our income tax expense or tax payments in the future, or what our tax amounts would havebeen if we had been a stand-alone company during the periods presented.We have elected to be taxed as a REIT under the Code, and intend to operate as such beginning with our taxable year ended December 31, 2014. To qualifyas a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable incometo our stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income ascalculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we distribute qualifying dividends to ourstockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income taxrates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year duringwhich qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions.In connection with our intention to qualify as a REIT in 2014, on October 17, 2014, our board of directors declared a special dividend of $132.0 million, orapproximately $5.88 per common share, which represents the amount of accumulated earnings and profits, or “E&P,” allocated to us as a result of the Spin-Off.The Special Dividend was intended to purge us of accumulated E&P attributable to the period prior to our first taxable year as a REIT. The Special Dividend waspaid on December 10, 2014, to stockholders of record as of October 31, 2014, in a combination of both cash and stock. The cash portion totaled $33.0 million andthe stock portion totaled $99.0 million. We issued 8,974,249 shares of common stock in connection with the stock portion of the Special Dividend.Stock-Based Compensation. We account for share-based awards in accordance with ASC Topic 718, Compensation - Stock Compensation (“ASC 718”).ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. ASC 718 requires all entities to applya fair value-based measurement method in accounting for share-based payment transactions with employees except for equity instruments held by employee shareownership plans.Impact of InflationOur rental income in future years will be impacted by changes in inflation. All of our triple-net lease agreements, including the Ensign Master Leases,provide for an annual rent escalator based on the percentage change in the Consumer Price Index (but not less than zero), subject to maximum fixed percentages.Off-Balance Sheet ArrangementsNone.ITEM 7A.Quantitative and Qualitative Disclosures About Market RiskAs of December 31, 2015, our primary market risk exposure was interest rate risk with respect to our variable rate indebtedness under the GECC Loan.Approximately $48.9 million of the GECC Loan bears interest at a floating rate equal to three month LIBOR plus 3.35%, reset monthly and subject to a LIBORfloor of 0.50%, with monthly principal and interest payments based on a 25 year amortization. The remaining approximately $46.2 million of the GECC Loanbears interest at a blended rate of 7.25% per annum until, but not including, June 29, 2016, and thereafter at the floating rate described above. As of February 1,2016, the GECC Loan was paid off and terminated as part of the GECC Refinancing.44Table of ContentsAs of December 31, 2015, our Credit Agreement provided for revolving commitments in an aggregate principal amount of $300.0 million from a syndicateof banks and other financial institutions. At December 31, 2015, we had $45.0 million of outstanding borrowings under the Revolving Facility. As of February 1,2016, pursuant to the Amendment, (i) commitments in respect of the Revolving Facility were increased by $100.0 million to $400.0 million total, and (ii) the$100.0 million Term Loan was funded. Interest rates per annum applicable to loans under the Credit Facility are, at the Company’s option, equal to either a baserate plus a margin ranging from 0.75% to 1.40% per annum, for revolving loans, and 0.95% to 1.60% per annum, for term loans, or LIBOR plus a margin rangingfrom 1.75% to 2.40% per annum, for revolving loans, and 1.95% to 2.60% per annum, for term loans, based on the debt to asset value ratio of the Company and itssubsidiaries (subject to decrease at the Company's election if the Company obtains certain specified investment grade ratings on its senior long term unsecureddebt).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 interestexpense on refinanced indebtedness. Assuming a 100 basis point increase in the interest rate related to our variable rate debt, and assuming no change in ouroutstanding debt balance as described above, annual interest expense under the floating rate portion of the GECC Loan and the Credit Facility would haveincreased $0.9 million for the year ended December 31, 2015.We may, in the future, manage, or hedge, interest rate risks related to our borrowings by means of interest rate swap agreements. However, the REITprovisions of the Code substantially limit our ability to hedge our assets and liabilities. See “Risk Factors - Risks Related to Our Status as a REIT - Complyingwith REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.” As of December 31, 2015, we had no swap agreementsto 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.ITEM 8. Financial Statements and Supplementary DataSee the Index to Consolidated and Combined Financial Statements included in this report.ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosuresNone.ITEM 9A.Controls and ProceduresDisclosure Controls and ProceduresWe 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 toensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized and reported within the time periodsspecified in the SEC’s rules and regulations and that such information is accumulated and communicated to management, including our Chief Executive Officerand Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls andprocedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance ofachieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls andprocedures.As of December 31, 2015, we carried out an evaluation, under the supervision and with the participation of management, including our Chief ExecutiveOfficer and Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer andChief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2015.Management’s Annual Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonableassurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and (iii) provide reasonableassurance regarding45Table of Contentsprevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.Our management evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of SponsoringOrganizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on this evaluation, our management concluded thatour internal control over financial reporting was effective as of December 31, 2015.Attestation Report of the Independent Registered Public Accounting FirmAs long as we remain an “emerging growth company,” as defined in the JOBS Act, we will not be required to comply with the auditor attestationrequirements related to internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act.Changes in Internal Control over Financial ReportingThere 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 December 31, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control overfinancial reporting.ITEM 9B.Other InformationNone.PART IIIITEM 10.Directors, Executive Officers and Corporate GovernanceThe information required under Item 10 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days afterthe end of our fiscal year ended December 31, 2015 in connection with our 2016 Annual Meeting of Stockholders.Code of Conduct and EthicsWe have adopted a code of business conduct and ethics that applies to all employees, including employees of our subsidiaries, as well as each member of ourBoard of Directors. The code of business conduct and ethics is available at our website at www.caretrustreit.com under the Investors-Corporate Governancesection. We intend to satisfy any disclosure requirement under applicable rules of the Securities and Exchange Commission or NASDAQ Stock Market regardingan amendment to, or waiver from, a provision of this code of business conduct and ethics by posting such information on our website, at the address specifiedabove.ITEM 11.Executive CompensationThe information required under Item 11 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days afterthe end of our fiscal year ended December 31, 2015 in connection with our 2016 Annual Meeting of Stockholders.ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required under Item 12 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days afterthe end of our fiscal year ended December 31, 2015 in connection with our 2016 Annual Meeting of Stockholders.ITEM 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required under Item 13 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days afterthe end of our fiscal year ended December 31, 2015 in connection with our 2016 Annual Meeting of Stockholders.46Table of ContentsITEM 14.Principal Accountant Fees and ServicesThe information required under Item 14 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days afterthe end of our fiscal year ended December 31, 2015 in connection with our 2016 Annual Meeting of Stockholders.PART IVITEM 15.Exhibits, Financial Statements and Financial Statement Schedules(a)(1)Financial Statements See Index to Consolidated and Combined Financial Statements on page F-1 of this report. (a)(2)Financial Statement Schedules Schedule III: Real Estate Assets and Accumulated Depreciation Note: All other schedules have been omitted because the required information is presented in the financial statements and the related notesor because the schedules are not applicable. (a)(3)Exhibits 2.1Separation and Distribution Agreement, dated as of May 23, 2014, by and between The Ensign Group, Inc. and CareTrust REIT, Inc.(incorporated by reference to Exhibit 2.1 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on June 5, 2014). 2.2Purchase and Sale Agreement and Joint Escrow Instructions, dated May 13, 2015, by and among CTR Partnership, L.P. and the entitiesparty thereto as sellers (incorporated by reference to Exhibit 10.1 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on August10, 2015, is incorporated herein by reference). 2.3First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions, dated as of July 30, 2015, by and among CTRPartnership, L.P. and the entities party thereto as sellers (incorporated by reference to Exhibit 10.2 to CareTrust REIT, Inc.’s CurrentReport on Form 8-K, filed on August 10, 2015, is incorporated herein by reference). 3.1Articles of Amendment and Restatement of CareTrust REIT, Inc. (incorporated by reference to Exhibit 3.1 to CareTrust REIT, Inc.’sRegistration Statement on Form 10, filed on May 13, 2014). 3.2Amended and Restated Bylaws of CareTrust REIT, Inc. (incorporated by reference to Exhibit 3.2 to CareTrust REIT, Inc.’s RegistrationStatement on Form 10, filed on May 13, 2014). 4.1Indenture, dated as of May 30, 2014, among CTR Partnership, L.P. and CareTrust Capital Corp., as Issuers, the guarantors named therein,and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to CareTrust REIT, Inc.’s CurrentReport on Form 8-K, filed on June 5, 2014). 4.2Form of 2021 Note (included in Exhibit 4.1 above). 4.3Specimen Stock Certificate of CareTrust REIT, Inc. (incorporated by reference to Exhibit 4.1 to CareTrust REIT, Inc.’s RegistrationStatement on Form 10, filed on April 15, 2014). 10.1Form of Master Lease by and among certain subsidiaries of The Ensign Group, Inc. and certain subsidiaries of CareTrust REIT, Inc.(incorporated by reference to Exhibit 10.1 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on June 5, 2014). 10.2Form of Guaranty of Master Lease by The Ensign Group, Inc. in favor of certain subsidiaries of CareTrust REIT, Inc., as landlords underthe Ensign Master Leases (incorporated by reference to Exhibit 10.2 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on June5, 2014). 10.3Master Lease, dated as of July 30, 2015, by and among CTR Partnership, L.P. and the entities party thereto as tenants (incorporated byreference to Exhibit 10.3 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on August 10, 2015). 10.4Guaranty of Master Lease, dated as of July 30, 2015, by Pristine Senior Living, LLC, Christopher T. Cook, and Stephen Ryan in favor ofCTR Partnership, L.P. (incorporated by reference to Exhibit 10.4 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on August10, 2015, is incorporated herein by reference). Table of Contents10.5Nomination Agreement, dated as of July 30, 2015, by and among CTR Partnership, L.P., Pristine Senior Living of Mansfield, LLC andPristine Senior Living of Fremont, LLC. (incorporated by reference to Exhibit 10.5 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on August 10, 2015, is incorporated herein by reference). 10.6Opportunities Agreement, dated as of May 30, 2014, by and between The Ensign Group, Inc. and CareTrust REIT, Inc. (incorporated byreference to Exhibit 10.3 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on June 5, 2014). 10.7Transition Services Agreement, dated as of May 30, 2014, by and between The Ensign Group, Inc. and CareTrust REIT, Inc. (incorporatedby reference to Exhibit 10.4 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on June 5, 2014). 10.8Tax Matters Agreement, dated as of May 30, 2014, by and between The Ensign Group, Inc. and CareTrust REIT, Inc. (incorporated byreference to Exhibit 10.5 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on June 5, 2014). 10.9Employee Matters Agreement, dated as of May 30, 2014, by and between The Ensign Group, Inc. and CareTrust REIT, Inc. (incorporatedby reference to Exhibit 10.6 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on June 5, 2014). 10.10Contribution Agreement, dated as of May 30, 2014, by and among CTR Partnership L.P., CareTrust GP, LLC, CareTrust REIT, Inc. andThe Ensign Group, Inc. (incorporated by reference to Exhibit 10.7 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on June 5,2014). 10.11Credit and Guaranty Agreement, dated August 5, 2015, by and among CareTrust REIT, Inc., CareTrust GP, LLC, CTR Partnership, L.P.,certain of its wholly owned subsidiaries, KeyBank National Association and the lenders party thereto (incorporated by reference to Exhibit10.1 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on August 6, 2015). 10.12First Amendment to Credit and Guaranty Agreement, dated February 1, 2016, by and among CareTrust REIT, Inc., CTR Partnership, L.P.,the other guarantors therein and KeyBank National Association, as administrative agent, and the other lenders party thereto (whichincludes as Annex A thereto an amended and restatement of the Credit and Guaranty Agreement) (incorporated by reference to Exhibit10.1 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on February 4, 2016). 10.13Fifth Amended and Restated Loan Agreement, dated as of May 30, 2014, by and among certain subsidiaries of CareTrust REIT, Inc. asborrowers, and General Electric Capital Corporation as agent and lender (incorporated by reference to Exhibit 10.10 to CareTrust REIT,Inc.’s Current Report on Form 8-K, filed on June 5, 2014). 10.14Form of Indemnification Agreement between CareTrust REIT, Inc. and its directors and officers (incorporated by reference to Exhibit10.11 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on June 5, 2014). 10.15Incentive Award Plan (incorporated by reference to Exhibit 10.9 to CareTrust REIT, Inc.’s Registration Statement on Form 10, filed onMay 13, 2014). 10.16Amended and Restated Partnership Agreement of CTR Partnership, L.P. (incorporated by reference to Exhibit 3.4 to CareTrust REIT,Inc.’s Registration Statement on Form S-4, filed on August 28, 2014). +10.17Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.15 to CareTrust REIT, Inc.’s Annual Report on Form 10-K,filed on February 11, 2015). +10.18Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.16 to CareTrust REIT, Inc.’s Annual Report on Form10-K, filed on February 11, 2015). *21.1List of Subsidiaries of CareTrust REIT, Inc. *23.1Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. *23.2Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm. *31.1Certification of Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Actof 2002. *31.2Certification of Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Actof 2002. **32.1Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002. 48Table of Contents*101.INSXBRL Instance Document *101.SCHXBRL Taxonomy Extension Schema Document *101.CALXBRL Taxonomy Extension Calculation Linkbase Document *101.DEFXBRL Taxonomy Extension Definition Linkbase Document *101.LABXBRL Taxonomy Extension Label Linkbase Document *101.PREXBRL Taxonomy Extension Presentation Linkbase Document *Filed herewith.**Furnished herewith.+Management contract or compensatory plan or arrangement.49Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. CARETRUST REIT, INC. By:/ S / GREGORY K. STAPLEY Gregory K. Stapley President and Chief Executive Officer Dated: February 11, 2016Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated.Name Title Date /s/ GREGORY K. STAPLEY Director, President and Chief Executive Officer (PrincipalExecutive Officer) February 11, 2016Gregory K. Stapley /s/ WILLIAM M. WAGNER Chief Financial Officer, Treasurer and Secretary(Principal Financial Officer and Principal AccountingOfficer) February 11, 2016William M. Wagner /s/ ALLEN C. BARBIERI Director February 11, 2016Allen C. Barbieri /s/ JON D. KLINE Director February 11, 2016Jon D. Kline /s/ DAVID G. LINDAHL Director February 11, 2016David G. Lindahl /s/ GARY B. SABIN Director February 11, 2016Gary B. Sabin 50Table of ContentsINDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm with respect to CareTrust REIT, Inc.F-2Report of Independent Registered Public Accounting Firm with respect to Ensign PropertiesF-3Consolidated Balance Sheets as of December 31, 2015 and 2014F-4Consolidated and Combined Statements of Operations for the years ended December 31, 2015, 2014 and 2013F-5Consolidated and Combined Statements of Comprehensive Income (Loss) for the years ended December 31, 2015, 2014 and 2013F-6Consolidated and Combined Statements of Equity for the years ended December 31, 2015, 2014 and 2013F-7Consolidated and Combined Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013F-8Notes to Consolidated and Combined Financial StatementsF-9 Schedule III: Real Estate Assets and Accumulated DepreciationF-35F-1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofCareTrust REIT, Inc.We have audited the accompanying consolidated balance sheets of CareTrust REIT, Inc. (the “Company”), as of December 31, 2015 and 2014, and the relatedconsolidated and combined statements of operations, comprehensive income (loss), equity, and cash flows for each of the two years in the period endedDecember 31, 2015. Our audit also included the financial statement schedule listed in the Index at Item 15(a)(2), Schedule III - Real Estate and AccumulatedDepreciation. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial statements and schedule based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluatingthe overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of CareTrust REIT, Inc. as of December 31, 2015and 2014, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2015, in conformity withaccounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered inrelation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.As discussed in Note 2 to the consolidated financial statements, the Company changed its presentation of debt issuance costs as a result of the adoption of theamendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2015-03, Interest - Imputation of Interest (Subtopic835-30): Simplifying the Presentation of Debt Issuance Costs, effective for interim and annual reporting periods January 1, 2016, which effective December 31,2015, the Company elected to early adopt./s/ ERNST & YOUNG LLPIrvine, CaliforniaFebruary 11, 2016F-2Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofThe Ensign Group, Inc.Mission Viejo, CaliforniaWe have audited the accompanying combined statements of operations, comprehensive income (loss), equity, and cash flows of Ensign Properties (the“Company”), as defined in the notes to the combined financial statements, for the year ended December 31, 2013. Our audit also included the financial statementschedule for the year ended December 31, 2013, listed in the Index. These combined financial statements and the financial statement schedule are the responsibilityof the Company’s management. Our responsibility is to express an opinion on these combined financial statements and the financial statement schedule based onour audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control overfinancial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.In our opinion, such combined financial statements present fairly, in all material respects, the results of operations and cash flows of Ensign Properties forthe year ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, suchfinancial statement schedule, when considered in relation to the basic combined financial statements taken as a whole, presents fairly, in all material respects, theinformation set forth therein.As described in Note 1 and Note 2, the accompanying combined financial statements of the Company are comprised of the real property interests andindependent living facility businesses of The Ensign Group, Inc., and contain related party transactions that may not be reflective of the actual amounts whichwould have been incurred had the Company operated as a separate entity apart from The Ensign Group, Inc. Included in Note 6 to the combined financialstatements is a summary of related party transactions./s/ DELOITTE & TOUCHE LLPCosta Mesa, CaliforniaMarch 14, 2014 (August 28, 2014 as to the earnings (loss) per share information described in Note 10 and the condensed combining information in Note 13)F-3Table of ContentsCARETRUST REIT, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share and per share amounts) December 31, 2015 2014Assets: Real estate investments, net$645,614 $436,215Other real estate investments8,477 7,532Cash and cash equivalents11,467 25,320Accounts receivable (related party receivables of $0 at December 31, 2015 and $2,275 at December 31, 2014 - Note 6)2,342 2,291Prepaid expenses and other assets2,083 809Deferred financing costs, net3,183 2,973Total assets$673,166 $475,140Liabilities and Equity: Senior unsecured notes payable, net$254,229 $253,165Unsecured revolving credit facility45,000 —Mortgage notes payable, net94,676 97,608Accounts payable and accrued liabilities9,269 6,959Dividends payable7,704 3,946Total liabilities410,878 361,678Commitments and contingencies (Note 11) Equity: Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued and outstanding as ofDecember 31, 2015 and 2014— —Common stock, $0.01 par value; 500,000,000 shares authorized, 47,664,742 and 31,251,157 shares issued andoutstanding as of December 31, 2015 and 2014, respectively477 313Additional paid-in capital410,217 246,041Cumulative distributions in excess of earnings(148,406) (132,892)Total equity262,288 113,462Total liabilities and equity$673,166 $475,140See accompanying notes to consolidated and combined financial statements.F-4Table of ContentsCARETRUST REIT, INC.CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS(in thousands, except per share amounts) Year Ended December 31, 2015 2014 2013Revenues: Rental income (related party rental income of $16,308, $32,667 and $0 for theyear ended December 31, 2015, 2014 and 2013, respectively – Note 6)$65,979 $51,367 $41,242Tenant reimbursements (related party tenant reimbursements of $1,406, $2,842and $0 for the year ended December 31, 2015, 2014 and 2013, respectively –Note 6)5,497 4,956 5,168Independent living facilities2,510 2,519 2,386Interest and other income965 55 —Total revenues74,951 58,897 48,796Expenses: Depreciation and amortization24,133 23,000 23,418Interest expense25,256 21,622 12,647Loss on extinguishment of debt— 4,067 —Property taxes5,497 4,956 5,168Acquisition costs— 47 255Independent living facilities2,376 2,243 2,138General and administrative7,65511,105 5,442Total expenses64,917 67,040 49,068Income (loss) before provision for income taxes10,034 (8,143) (272)Provision for income taxes— — 123Net income (loss)$10,034 $(8,143) $(395)Earnings (loss) per common share: Basic$0.26 $(0.36) $(0.02)Diluted$0.26 $(0.36) $(0.02)Weighted-average number of common shares: Basic37,380 22,788 22,228Diluted37,380 22,788 22,228See accompanying notes to consolidated and combined financial statements.F-5Table of ContentsCARETRUST REIT, INC.CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(in thousands) Year Ended December 31, 2015 2014 2013Net income (loss)$10,034 $(8,143) $(395)Other comprehensive income: Unrealized gain on interest rate swap— 167 1,038Reclassification adjustment on interest rate swap— 1,661 —Comprehensive income (loss)$10,034 $(6,315) $643See accompanying notes to consolidated and combined financial statements.F-6Table of ContentsCARETRUST REIT, INC.CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY(in thousands, except share and per share amounts) Common Stock AdditionalPaid-inCapital CumulativeDistributionsin Excessof Earnings InvestedEquity AccumulatedOtherComprehensiveIncome (Loss) TotalEquityShares Amount Balance at January 1, 2013— $— $— $— $187,414 $(2,866) $184,548Unrealized gain on interest rate swap— — — — — 1,038 1,038Net capital distribution to Ensign— — — — (22,502) — (22,502)Issuance of common stock1,000 — — — — — —Net loss— — — — (395) — (395)Balance at December 31, 20131,000 — — — 164,517 (1,828) 162,689Net capital contribution from Ensign— — — — 4,356 — 4,356Unrealized gain on interest rate swap— — — — — 167 167Reclassification adjustment on interestrate swap— — — — — 1,661 1,661Net capital distribution to Ensign— — — — (10,475) — (10,475)Reclassification of invested equity tocommon stock and additional paid-incapital in conjunction with the Spin-Off(Note 1)22,227,358 222 146,980 — (147,202) — —Vesting of restricted common stock48,550 1 (1) — — — —Amortization of stock-basedcompensation— — 154 — — — 154Special dividend at $5.88 per share8,974,249 90 98,908 (131,999) — — (33,001)Common dividend at $0.125 per share— — — (3,946) — — (3,946)Net income (loss)— — — 3,053 (11,196) — (8,143)Balance at December 31, 201431,251,157 313 246,041 (132,892) — — 113,462Issuance of common stock, net16,330,000 163 162,800 — — — 162,963Vesting of restricted common stock, netof shares withheld for employee taxes83,585 1 (146) — — — (145)Amortization of stock-basedcompensation— — 1,522 — — — 1,522Common dividends ($0.64 per share)— — — (25,548) — — (25,548)Net income— — — 10,034 — — 10,034Balance at December 31, 201547,664,742 $477 $410,217 $(148,406) $— $— $262,288See accompanying notes to consolidated and combined financial statements.F-7Table of ContentsCARETRUST REIT, INC.CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2015 2014 2013Cash flows from operating activities: Net income (loss)$10,034 $(8,143) (395)Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization24,133 23,000 23,418Amortization of deferred financing costs and debt discount2,200 1,603 821Write-off of deferred financing costs1,208 — —Amortization of stock-based compensation1,522 154 —Noncash interest income(945) (32) —Loss on extinguishment of debt— 1,998 —Loss on settlement of interest rate swap— 1,661 —Loss on disposition of equipment, furniture and fixtures— — 206Change in operating assets and liabilities: Accounts receivable(2,326) 4 5Accounts receivable due from related party2,275 (2,275) —Prepaid expenses and other assets(86) 445 266Interest rate swap— (1,661) —Accounts payable and accrued liabilities2,239 5,152 2,311Net cash provided by operating activities40,254 21,906 26,632Cash flows from investing activities: Acquisition of real estate(232,466) (25,742) (35,656)Improvements to real estate(187) (579) —Purchases of equipment, furniture and fixtures(276) (19,275) (19,931)Preferred equity investment— (7,500) —Escrow deposits for acquisition of real estate(1,750) (500) —Net proceeds from the sale of vacant land30 — —Cash proceeds from sale of equipment, furniture and fixtures— — 854Net cash used in investing activities(234,649) (53,596) (54,733)Cash flows from financing activities: Proceeds from the issuance of common stock, net162,963 — —Proceeds from the issuance of senior unsecured notes payable— 260,000 —Borrowings under unsecured credit facility45,000 — —Borrowings under senior secured revolving credit facility35,000 10,000 58,700Proceeds from the issuance of mortgage notes payable— 50,676 —Repayments of borrowings under senior secured revolving credit facility(35,000) (88,701) —Payments on the mortgage notes payable(3,183) (68,155) (3,457)Payments on senior secured term loan— (65,624) (3,750)Payments of deferred financing costs(2,303) (13,436) (730)Net-settle adjustment on restricted stock(145) — —Dividends paid on common stock(21,790) (33,001) —Net contribution from (distribution to) Ensign (Note 6)— 4,356 (22,502)Net cash provided by financing activities180,542 56,115 28,261Net (decrease) increase in cash and cash equivalents(13,853) 24,425 160Cash and cash equivalents, beginning of period25,320 895 735Cash and cash equivalents, end of period$11,467 $25,320 895Supplemental disclosures of cash flow information: Interest paid$21,687 $17,243 $12,657Income taxes paid$— $104 $100Supplemental schedule of noncash operating, investing and financing activities: Increase in dividends payable$3,758 $3,946 $—Application of escrow deposit to acquisition of real estate$500 $— $—Distributions paid to common stockholders through common stock issuances$— $98,998 $—Holdback of purchase price to acquire real estate$— $300 $—Operating assets and liabilities that were not transferred to CareTrust$— $1,042 $—Equipment, furniture and fixtures that were not transferred to CareTrust$— $(11,684) $—Net capital distribution to Ensign$— $10,475 $—See accompanying notes to consolidated and combined financial statements.F-8Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS1. ORGANIZATIONSeparation from Ensign— Prior to June 1, 2014, CareTrust REIT, Inc. (“CareTrust” or the “Company”) was a wholly owned subsidiary of The EnsignGroup, Inc. (“Ensign”). On June 1, 2014, Ensign completed the separation of its healthcare business and its real estate business into two separate and independentpublicly traded companies through the distribution of all of the outstanding shares of common stock of CareTrust to Ensign stockholders on a pro rata basis (the“Spin-Off”). Ensign stockholders received one share of CareTrust common stock for each share of Ensign common stock held at the close of business on May 22,2014, the record date for the Spin-Off. The Spin-Off was effective from and after June 1, 2014, with shares of CareTrust common stock distributed by Ensign onJune 2, 2014. The Company was formed on October 29, 2013 and had minimal activity prior to the Spin-Off.Prior to the Spin-Off, the Company and Ensign entered into a Separation and Distribution Agreement, setting forth the mechanics of the Spin-Off,certain organizational matters and other ongoing obligations of the Company and Ensign. The Company and Ensign or their respective subsidiaries, as applicable,also entered into a number of other agreements to govern the relationship between Ensign and the Company after the Spin-Off, including eight long-term leases(the “Ensign Master Leases”), under which Ensign leases 94 healthcare facilities on a triple-net basis.In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 505-60, Equity—Spinoffs andReverse Spinoffs , the accounting for the separation of the Company follows its legal form, with Ensign as the legal and accounting spinnor and the Company as thelegal and accounting spinnee, due to the relative significance of Ensign’s healthcare business, the relative fair values of the respective companies, the retention ofall senior management (except Mr. Gregory K. Stapley) by Ensign, and other relevant indicators. The assets and liabilities contributed to the Company fromEnsign, or incurred in connection with the Spin-Off in the case of certain debt, were as follows (dollars in thousands): Real estate investments, net$421,846Cash78,731Accounts receivable and prepaid assets and other current assets1,900Deferred financing costs, net11,088Debt(359,512)Other liabilities(6,838)Net contribution$147,215Description of Business— The Company’s primary business consists of acquiring, financing and owning real property to be leased to third-partytenants in the healthcare sector. As of December 31, 2015 , the Company owned and leased to independent operators, including Ensign, 119 skilled nursing,assisted living and independent living facilities which had a total of 12,144 beds and units located in Arizona, California, Colorado, Florida, Georgia, Idaho, Iowa,Minnesota, Nebraska, Nevada, Ohio, Texas, Utah, Virginia and Washington. The Company also owns and operates three independent living facilities which had atotal of 264 units located in Texas and Utah. As of December 31, 2015 , the Company also had one other real estate investment, consisting of an $8.5 millionpreferred equity investment. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation —The accompanying consolidated and combined financial statements of the Company reflect, for all periods presented, thehistorical financial position, results of operations and cash flows of (i) the skilled nursing, assisted living and independent living facilities that Ensign contributedto the Company immediately prior to the Spin-Off and (ii) the operations of the three independent living facilities that the Company operated immediatelyfollowing the Spin-Off. The consolidated and combined financial statements included in this report also reflect the new investments that the Company has madeafter the Spin-Off. For the periods prior to the Spin-Off, the Company’s financial statements have been prepared on a “carve-out” basis from Ensign’s consolidatedfinancial statements using the historical results of operations, cash flows, assets and liabilities attributable to such skilled nursing, assisted living and independentliving facilities (the “Ensign Properties”).For the periods prior to the Spin-Off, the combined statements of operations reflect allocations of general corporate expenses from Ensign including,but not limited to, executive management, finance, legal, information technology, humanF-9Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSresources, employee benefits administration, treasury, risk management, procurement, and other shared services. See further discussion in Note 6, Related PartyTransactions .Management believes that the assumptions and estimates used in preparation of the underlying consolidated and combined financial statements arereasonable. However, the consolidated and combined financial statements for the periods prior to June 1, 2014, do not necessarily reflect what the Company’sfinancial position, results of operations or cash flows would have been if the Company had been a stand-alone company during those periods presented. Thehistorical financial information prior to June 1, 2014, is not necessarily indicative of the Company’s future results of operations, financial position or cash flows.The accompanying consolidated and combined financial statements of the Company were prepared in accordance with accounting principles generallyaccepted in the United States (“GAAP”) and reflect the financial position, results of operations and cash flows for the Company. All intercompany transactions andaccount balances within the Company have been eliminated.Estimates and Assumptions —The preparation of financial statements in conformity with GAAP requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and thereported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.Reclassifications —Certain amounts in the Company’s consolidated and combined financial statements for prior periods have been reclassified toconform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.Real Estate Depreciation and Amortization —Real estate costs related to the acquisition and improvement of properties are capitalized and amortizedover the expected useful life of the asset on a straight-line basis. Repair and maintenance costs are charged to expense as incurred and significant replacements andbetterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers theperiod of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are capitalized and amortized over the shorter ofthe tenant’s lease term or expected useful life. The Company anticipates the estimated useful lives of its assets by class to be generally as follows: Building 25-40 yearsBuilding improvements 10-25 yearsTenant improvements Shorter of lease term or expected useful lifeIntegral equipment, furniture and fixtures 5 years Real Estate Acquisition Valuation — In accordance with ASC 805, Business Combinations , the Company records the acquisition of income-producing real estate as a business combination. If the acquisition does not meet the definition of a business, the Company records the acquisition as an assetacquisition. Under both methods, all assets acquired and liabilities assumed are measured at their acquisition date fair values. For transactions that are businesscombinations, acquisition costs are expensed as incurred and restructuring costs that do not meet the definition of a liability at the acquisition date are expensed inperiods subsequent to the acquisition date. For transactions that are asset acquisitions, acquisition costs are capitalized as incurred.The Company assesses the acquisition date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar tothose used by independent appraisers, generally utilizing a discounted cash flow analysis that applies appropriate discount and/or capitalization rates and availablemarket information. Estimates of future cash flows are based on a number of factors, including historical operating results, known and anticipated trends, andmarket and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it were vacant.Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require the Company to make significant assumptionsto estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number ofyears the property will be held for investment.F-10Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSThe use of inappropriate assumptions would result in an incorrect valuation of the Company’s acquired tangible assets, identifiable intangibles and assumedliabilities, which would impact the amount of the Company’s net income.Impairment of Long-Lived Assets —At least annually, management evaluates the Company’s real estate investments for impairment indicators,including the evaluation of our assets’ useful lives. Management also assesses the carrying value of the Company’s real estate investments whenever events orchanges in circumstances indicate that the carrying amount of the assets may not be recoverable. The judgment regarding the existence of impairment indicators isbased on factors such as, but not limited to, market conditions, operator performance and legal structure. If indicators of impairment are present, managementevaluates the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying facilities. Provisions forimpairment losses related to long-lived assets are recognized when expected future undiscounted cash flows are determined to be less than the carrying values ofthe assets. An adjustment is made to the net carrying value of the real estate investments for the excess of carrying value over fair value. All impairments are takenas a period cost at that time, and depreciation is adjusted going forward to reflect the new value assigned to the asset.If the Company decides to sell real estate properties, we evaluate the recoverability of the carrying amounts of the assets. If the evaluation indicatesthat the carrying value is not recoverable from estimated net sales proceeds, the property is written down to estimated fair value less costs to sell.In the event of impairment, the fair value of the real estate investment is determined by market research, which includes valuing the property in itscurrent use as well as other alternative uses, and involves significant judgment. The Company’s estimates of cash flows and fair values of the properties are basedon current market conditions and consider matters such as rental rates and occupancies for comparable properties, recent sales data for comparable properties, and,where applicable, contracts or the results of negotiations with purchasers or prospective purchasers. The Company’s ability to accurately estimate future cash flowsand estimate and allocate fair values impacts the timing and recognition of impairments. While the Company believes its assumptions are reasonable, changes inthese assumptions may have a material impact on financial results.Other Real Estate Investments — Preferred equity investments are accounted for at unpaid principal balance, plus accrued return, net of reserves. TheCompany recognizes return income on a quarterly basis based on the outstanding investment including any accrued and unpaid return. As the preferred member ofthe joint venture, the Company is not entitled to share in the joint venture’s earnings or losses. Rather, the Company is entitled to receive a preferred return, whichis deferred if the cash flow of the joint venture is insufficient to pay all of the accrued preferred return. The unpaid accrued preferred return is added to the balanceof the preferred equity investment up to the estimated economic outcome assuming a hypothetical liquidation of the book value of the joint venture. Any unpaidaccrued preferred return, whether recorded or unrecorded by us, will be repaid upon redemption.The Company periodically evaluates each of its other real estate investments for indicators of impairment. An investment is impaired when, based oncurrent information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms. A reserve is establishedfor the excess of the carrying value of the investment over its fair value. Cash and Cash Equivalents —Cash and cash equivalents consist of bank term deposits and money market funds with original maturities of 3 monthsor less at time of purchase and therefore approximate fair value. The fair value of these investments is determined based on “Level 1” inputs, which consist ofunadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets. The Company places its cash and short-term investments with high credit quality financial institutions.The Company’s cash and cash equivalents balance periodically exceeds federally insurable limits. The Company monitors the cash balances in itsoperating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or aresubject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts.Deferred Financing Costs —External costs incurred from placement of our debt are capitalized and amortized on a straight-line basis over the terms ofthe related borrowings, which approximates the effective interest method. For our senior unsecured notes payable and our mortgage notes payable, deferredfinancing costs are netted against the outstanding debt amounts on the balance sheet. For our unsecured revolving credit facility, deferred financing costs are showngross and areF-11Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSincluded in assets on our balance sheet, as discussed further in the Recently Adopted Accounting Standards section below. See Note 7, Debt , for the newpresentation of deferred financing costs. Amortization of deferred financing costs is classified as interest expense in our consolidated and combined statements ofoperations. Accumulated amortization of deferred financing costs was $3.3 million and $2.2 million at December 31, 2015 and December 31, 2014 , respectively.When financings are terminated, unamortized deferred financing costs, as well as charges incurred for the termination, are expensed at the time thetermination is made. Gains and losses from the extinguishment of debt are presented within income from continuing operations in our consolidated and combinedstatements of operations.Revenue Recognition —The Company recognizes rental revenue, including rental abatements, lease incentives and contractual fixed increasesattributable to operating leases, if any, from tenants under lease arrangements with minimum fixed and determinable increases on a straight-line basis over the non-cancellable term of the related leases when collectability is reasonably assured. Tenant recoveries related to the reimbursement of real estate taxes, insurance,repairs and maintenance, and other operating expenses are recognized as revenue in the period the expenses are incurred and presented gross if the Company is theprimary obligor and, with respect to purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and bears the associatedcredit risk. For the years ended December 31, 2015, 2014 and 2013, such tenant reimbursement revenues consist of real estate taxes. Contingent revenue, if any, isnot recognized until all possible contingencies have been eliminated.The Company evaluates the collectability of rents and other receivables on a regular basis based on factors including, among others, payment history,the operations, the asset type and current economic conditions. If our evaluation of these factors indicates we may not recover the full value of the receivable, weprovide a reserve against the portion of the receivable that we estimate may not be recovered. This analysis requires us to determine whether there are factorsindicating a receivable may not be fully collectible and to estimate the amount of the receivable that may not be collected. We did not reserve any receivables as ofDecember 31, 2015 or December 31, 2014 .Income Taxes —The Company’s operations prior to the Spin-Off were historically included in Ensign’s U.S. federal and state income tax returns andall income taxes for periods prior to the Spin-Off were paid by Ensign. Income tax expense and other income tax related information contained in theseconsolidated and combined financial statements are presented on a separate tax return basis as if the Company filed its own tax returns for all periods. Managementbelieves that the assumptions and estimates used to determine these tax amounts are reasonable. However, the consolidated and combined financial statementsherein may not necessarily reflect the Company’s income tax expense or tax payments in the future, or what its tax amounts would have been if the Company hadbeen a stand-alone company prior to the Spin-Off.The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), beginning with its taxable yearended December 31, 2014 . The Company believes it has been organized and has operated, and the Company intends to continue to operate, in a manner to qualifyfor taxation as a REIT under the Code. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirementto distribute at least 90% of the Company’s annual REIT taxable income to its stockholders (which is computed without regard to the dividends paid deduction ornet capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subjectto federal income tax to the extent it distributes qualifying dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will besubject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT forfederal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Companyrelief under certain statutory provisions. In connection with the Company’s intention to qualify as a real estate investment trust in 2014, on October 17, 2014 , the Company’s board ofdirectors declared a special dividend (the “Special Dividend”) of $132.0 million , or approximately $5.88 per common share, which represents the amount ofaccumulated earnings and profits, or “E&P,” allocated to the Company as a result of the Spin-Off. The Special Dividend was intended to purge the Company ofaccumulated E&P attributable to the period prior to the Company’s first taxable year as a REIT. The Special Dividend was paid on December 10, 2014 , tostockholders of record on October 31, 2014 , in a combination of both cash and stock. The cash portion totaled $33.0 million and the stock portion totaled $99.0million . The Company issued 8,974,249 shares of common stock in connection with the stock portion of the Special Dividend.F-12Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSDerivatives and Hedging Activities —The Company evaluates variable and fixed interest rate risk exposure on a routine basis and to the extent theCompany believes that it is appropriate, it will offset most of its variable rate risk exposure by entering into interest rate swap agreements. It is the Company’spolicy to only utilize derivative instruments for hedging purposes (i.e., not for speculation). The Company formally designates its interest rate swap agreements ashedges and documents all relationships between hedging instruments and hedged items. The Company formally assesses effectiveness of its hedging relationships,both at the hedge inception and on an ongoing basis, then measures and records ineffectiveness. The Company would discontinue hedge accounting prospectively(i) if it is determined that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item, (ii) when the derivative expires or is sold,terminated or exercised, (iii) if it is no longer probable that the forecasted transaction will occur, or (iv) if management determines that designation of thederivative as a hedge instrument is no longer appropriate.Effective May 30, 2014, the Company de-designated its interest rate swap contract that historically qualified for cash flow hedge accounting. This wasdue to the termination of the interest rate swap agreement related to the early retirement of the senior secured credit facility in place prior to the Spin-Off. As aresult, the loss previously recorded in accumulated other comprehensive loss related to the interest rate swap was recognized in interest expense in the consolidatedand combined statements of operations during the year ended December 31, 2014. There was no outstanding interest rate swap contract as of December 31, 2015 .Stock-Based Compensation —The Company accounts for share-based payment awards in accordance with ASC Topic 718, Compensation – StockCompensation (“ASC 718”). ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. ASC718 requires all entities to apply a fair value-based measurement method in accounting for share-based payment transactions with directors, officers and employeesexcept for equity instruments held by employee share ownership plans. Net income (loss) reflects stock-based compensation expense of $1.5 million and $0.2million for the years ended December 31, 2015 and 2014, respectively.Concentration of Credit Risk —The Company is subject to concentrations of credit risk consisting primarily of operating leases on our ownedproperties. See Note 12, Concentration of Risk , for a discussion of major operator concentration.Segment Disclosures —The FASB accounting guidance regarding disclosures about segments of an enterprise and related information establishesstandards for the manner in which public business enterprises report information about operating segments. The Company has one reportable segment consisting ofinvestments in healthcare-related real estate assets.Earnings (Loss) Per Share —The Company calculates earnings (loss) per share (“EPS”) in accordance with ASC 260, Earnings Per Share . Basic EPSis computed by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period. Diluted EPSreflects the additional dilution for all potentially-dilutive securities. Basic and diluted EPS for the years ended December 31, 2014 and 2013 were retroactivelyrestated for the number of basic and diluted shares outstanding immediately following the Spin-Off.Beds, Units, Occupancy and Other Measures —Beds, units, occupancy and other non-financial measures used to describe real estate investmentsincluded in these Notes to the Consolidated and Combined Financial Statements are presented on an unaudited basis.Recently Issued Accounting Standards Update — In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in anamount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU No. 2014-09 supersedes the revenuerequirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU No. 2014-09 doesnot apply to lease contracts within the scope of Leases (Topic 840). In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date of itsnew revenue recognition standard by one year. The standard will be effective for annual reporting periods, and interim periods therein, beginning after December15, 2017. The Company is currently assessing the impact of adopting ASU No. 2014-09 but does not believe it will have a material effect on income fromoperations or the Company’s financial position. In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements (Subtopic 205-40), Disclosure of Uncertainties about anEntity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”). The amendments in ASU No. 2014-15 require management to evaluate, for each annualand interim reporting period, whether thereF-13Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSare conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after thedate that the financial statements are issued (or are available to be issued when applicable) and, if so, provide related disclosures. ASU No. 2014-15 is effective forannual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted forannual or interim reporting periods for which the financial statements have not previously been issued. We believe the adoption of this guidance will not have amaterial effect on income from operations or the Company’s financial position.In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU No. 2015-02”),which makes certain changes to both the variable interest model and the voting model, including changes to (1) the identification of variable interests (fees paid toa decision maker or service provider), (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiarydetermination. ASU No. 2015-02 is effective for fiscal years, and interim periods within these fiscal years, beginning after December 15, 2015. The Company doesnot expect the adoption of ASU No. 2015-02 to have a significant impact on its consolidated financial statements.In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for Measurement-PeriodAdjustments (“ASU No. 2015-16”). ASU No. 2015-16 eliminates the requirement that an acquirer in a business combination account for measurement-periodadjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of theadjustment, including the effect on earnings of any amounts it would have recorded in previous periods if the accounting had been completed at the acquisitiondate. ASU No. 2015-16 is effective for fiscal years, and interim periods within these fiscal years, beginning after December 15, 2015, with early adoptionpermitted. The Company does not expect the adoption of ASU No. 2015-16 to have a significant impact on its consolidated financial statements.Recently Adopted Accounting Standards —On December 31, 2015, the Company retrospectively early adopted, for all comparative periods presented,ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs . The amendments in ASU No. 2015-03 require that debt issuance costs related to arecognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Theadoption of ASU No. 2015-03 resulted in a change to the location where debt issuance costs are presented in the balance sheet and did not have any other materialimpact on the Company's financial statements.In August 2015, the FASB issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update) (“ASU No. 2015-15”).ASU No. 2015-15 was issued by the FASB in response to questions that arose after the issuance of ASU No. 2015-03, to incorporate an SEC staff announcementthat the SEC staff will not object to an entity presenting the cost of securing a revolving line of credit as an asset, regardless of whether a balance is outstanding.ASU No. 2015-15 was effective upon announcement.3. REAL ESTATE INVESTMENTS, NETThe following tables summarize our investment in owned properties at December 31, 2015 , and December 31, 2014 (dollars in thousands): December 31,2015 December 31,2014Land$91,311 $75,072Buildings and improvements627,453 417,414Integral equipment, furniture and fixtures54,388 47,134Real estate investments773,152 539,620Accumulated depreciation(127,538) (103,405)Real estate investments, net$645,614 $436,215As of December 31, 2015 , all but 25 of the Company’s net-leased facilities were leased to subsidiaries of Ensign under the Ensign Master Leaseswhich commenced on June 1, 2014. The obligations under the Ensign Master Leases are guaranteed by Ensign. A default by any subsidiary of Ensign with regardto any facility leased pursuant to an Ensign MasterF-14Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSLease will result in a default under all of the Ensign Master Leases. The annual revenues from the Ensign Master Leases are $56.0 million during each of the firsttwo years of the Ensign Master Leases. Commencing on June 1, 2016, the annual revenues from the Ensign Master Leases will be escalated annually by an amountequal to the product of (1) the lesser of the percentage change in the Consumer Price Index (“CPI”) (but not less than zero ) or 2.5% , and (2) the prior year’s rent.In addition to rent, the subsidiaries of Ensign that are tenants under the Ensign Master Leases are solely responsible for the costs related to the leased properties(including property taxes, insurance, and maintenance and repair costs).As of December 31, 2015 , our total future minimum rental revenues for all of our tenants were (dollars in thousands): YearAmount2016$80,439201780,439201880,439201980,439202080,439Thereafter753,620 $1,155,815 Recent Real Estate AcquisitionsThe following recent real estate acquisitions were accounted for as asset acquisitions:Bethany Rehabilitation CenterIn January 2015, the Company acquired the Bethany Rehabilitation Center, a skilled nursing facility located in Lakewood, Colorado, for $18.1 million, which includes capitalized acquisition costs of $0.1 million .In connection with the acquisition, the Company entered into a triple-net master lease with Eduro Healthcare LLC. The lease carries an initial term of15 years with two five -year renewal options and CPI-based rent escalators. The Company anticipates initial annual lease revenues of $1.7 million .Mira Vista Care CenterIn April 2015, the Company acquired the Mira Vista Care Center, a skilled nursing facility located in Mount Vernon, Washington, for $9.3 million ,which includes capitalized acquisition costs of $0.2 million .In connection with the acquisition, the Company entered into a triple-net master lease with Five Oaks Healthcare, LLC (the "Five Oaks MasterLease"). The lease carries an initial term of 15 years with two five -year renewal options and CPI-based rent escalators. The Company anticipates initial annuallease revenues of $ 0.9 million .Shoreline Health & Rehabilitation CenterIn June 2015, the Company acquired the Shoreline Health & Rehabilitation Center, a skilled nursing facility located in Shoreline, Washington, for$6.8 million , which includes capitalized acquisition costs of $0.2 million .In connection with the acquisition, the Company amended the Five Oaks Master Lease to include the Shoreline Health & Rehabilitation Center andanticipates additional annual lease revenues of $0.7 million as a result of the amendment.Bristol Court Assisted LivingIn July 2015, the Company acquired Bristol Court Assisted Living, a memory care facility located in St. Petersburg, Florida, for $8.5 million , whichincludes capitalized acquisition costs of $72,000 .F-15Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSIn connection with the acquisition, the Company entered into a triple-net master lease with Better Senior Living Consulting, LLC (the "BSLC MasterLease"). The BSLC Master Lease carries an initial term of 15 years with two five -year renewal options and CPI-based rent escalators. The Company anticipatesinitial annual lease revenues of $0.7 million .Shamrock Nursing and Rehabilitation CenterIn July 2015, the Company acquired the Shamrock Nursing and Rehabilitation Center, a skilled nursing facility located in Dublin, Georgia, for $8.3million , which includes capitalized acquisition costs of $49,000 .In connection with the acquisition, the Company entered into a triple-net master lease with Trillium Healthcare Group, LLC. The lease carries aninitial term of 15 years with two five -year renewal options and CPI-based rent escalators. The Company anticipates initial annual lease revenues of $0.8 million .Asbury Place Assisted LivingIn September 2015, the Company acquired Asbury Place Assisted Living, an assisted living and memory care facility located in Pensacola, Florida, for$5.4 million , which includes capitalized acquisition costs of $49,000 .In connection with the acquisition, the Company amended the BSLC Master Lease to include Asbury Place Assisted Living and anticipates additionalannual lease revenues of $0.5 million as a result of the amendment.Liberty Healthcare PortfolioOn October 1, 2015, the Company acquired the Liberty Healthcare Portfolio, a 14 facility skilled nursing and assisted living portfolio in Ohio, for$176.5 million inclusive of transaction costs. The acquisition was primarily funded with the net proceeds from the Company's common stock offering of $163.0million in August 2015, with the remainder funded by a draw on the unsecured revolving credit facility. Prior to the acquisition, the Liberty Healthcare Portfoliowas owner-occupied and unaffiliated with the Company or the current tenant.In connection with the acquisition, the Company entered into a triple-net master lease with Pristine Senior Living, LLC. The lease carries an initialterm of 15 years with two five -year renewal options and CPI-based rent escalators. The Company anticipates initial annual lease revenues of $17.0 million .4. OTHER REAL ESTATE INVESTMENTSIn December 2014, the Company completed a $7.5 million preferred equity investment with Signature Senior Living, LLC and Milestone RetirementCommunities. The preferred equity investment yields 12.0% calculated on a quarterly basis on the outstanding carrying value of the investment. The investmentwill be used to develop Signature Senior Living at Arvada, a planned 134 -unit upscale assisted living and memory care community in Arvada, Colorado that willbe constructed on a five -acre site. In connection with its investment, CareTrust obtained an option to purchase the Arvada development at a fixed-formula priceupon stabilization, with an initial lease yield of at least 8.0% . The project is expected to be completed in mid 2016 .During the years ended December 31, 2015 and 2014, the Company recognized $0.9 million and $32,000 of interest income and this unpaid amountwas added to the outstanding carrying value of the investment.5. FAIR VALUE MEASUREMENTSUnder GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is requiredto measure other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired long-lived assets). Fair value is definedas the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset orliability in an orderly transaction between market participants on the measurement date. The GAAP fair value framework uses a 3 -tiered approach. Fair valuemeasurements are classified and disclosed in one of the following three categories: F-16Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS•Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;•Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, andmodel-derived valuations in which significant inputs and significant value drivers are observable in active markets; and•Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair valuemeasurement and unobservable.Financial Instruments: Considerable judgment is necessary to estimate the fair value of financial instruments. The estimates of fair value presentedherein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. A summary of the face values, carryingamounts and fair values of the Company’s financial instruments as of December 31, 2015 and December 31, 2014 using Level 2 inputs, for the senior unsecurednotes payable, and Level 3 inputs, for all other financial instruments, is as follows (dollars in thousands): December 31, 2015 December 31, 2014 Face Value Carrying Amount Fair Value Face Value Carrying Amount Fair ValueFinancial assets: Preferred equity investment$7,500 $8,477 $8,477 $7,500 $7,532 $7,532Financial liabilities: Senior unsecured notes payable$260,000 $254,229 $263,575 $260,000 $253,165 $265,200Mortgage notes payable$95,022 $94,676 $97,067 $98,205 $97,608 $101,822Cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities: These balances approximate their fair values due to theshort-term nature of these instruments.Preferred equity investment : The fair value of the preferred equity investment is estimated using an internal valuation model that considered theexpected future cash flows of the investment, the underlying collateral value and other credit enhancements.Senior unsecured notes payable : The fair value of the senior unsecured notes payable was determined using third-party quotes derived from orderlytrades.Unsecured revolving credit facility: The fair value approximates its carrying value as the interest rate is variable and approximates prevailing marketinterest rates for similar debt arrangements.Mortgage notes payable: The fair value of the Company’s notes payable is estimated using a discounted cash flow analysis based on management’sestimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and othercredit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identicalliability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an assetor quoted prices for similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, suchas the income approach or the market approach. The Company classifies these inputs as Level 3 inputs. 6. RELATED PARTY TRANSACTIONSAllocation of corporate expenses —For the years ended December 31, 2014 and 2013, the consolidated and combined statements of operations of theCompany include Ensign revenues and expenses that are specifically identifiable or otherwise attributable to the Company. The specific identification methodologywas utilized for all of the items on the statements of operations excluding general corporate expenses. For the periods prior to the Spin-Off, Ensign Properties’operations were fully integrated with Ensign, including executive management, finance, treasury, corporate income tax, human resources, legal services and othershared services. These costs were allocated to the Company on a systematic basis utilizing a direct usage basis when identifiable, with the remainder allocated ontime study, or percentage of the total revenues. The primary allocation method was a time study based on time devoted to Ensign Properties’ activities.F-17Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSAllocated expenses for these general and administrative services of $7.4 million and $5.4 million for the years ended December 31, 2014 and 2013 arereflected in general and administrative expense, in addition to direct expenses which are included in total expenses. There was no allocation for the year endedDecember 31, 2015. The Company’s financial statements may not be indicative of future performance and do not necessarily reflect what the results of operations,financial position and cash flows would have been had the Company operated as an independent, publicly-traded company during the years ended December 31,2014 and 2013.Rental income from Ensign —The Company derives a majority of its rental income through operating lease agreements with Ensign. Ensign is aholding company with no direct operating assets, employees or revenue. All of Ensign’s operations are conducted by separate independent subsidiaries, each ofwhich has its own management, employees and assets. See Note 12, Concentration of Risk , for a discussion of major operator concentration.Christopher R. Christensen, one of the Company’s directors from June 1, 2014 through April 15, 2015, serves as the chief executive officer of Ensignas well as a member of Ensign’s board of directors. As such, all rental income and tenant reimbursements earned related to the Ensign Master Leases during Mr.Christensen's tenure on our board are considered related party in nature. For the years ended December 31, 2015 and 2014, the Company recognized $16.3 millionand $32.7 million in rental income, respectively, from Ensign while Mr. Christensen sat on the Board of Directors of the Company as well as $1.4 million and $2.8million of tenant reimbursements, respectively. As of December 31, 2014 , the Company also had accounts receivable totaling $2.3 million due from Ensign fortenant reimbursements. After April 15, 2015, the effective date of Mr. Christensen's resignation from our board of directors, rental income and tenantreimbursements related to the Ensign Master Leases, and any related accounts receivable, are not considered earned or due from a related party.Centralized cash management system —Prior to the Spin-Off, the Company participated in Ensign’s centralized cash management system. Inconjunction therewith, the intercompany transactions between the Company and Ensign had been considered to be effectively settled in cash in these financialstatements. The net effect of the settlement of these intercompany transactions, in addition to cash transfers to and from Ensign, are reflected in “Net contributionfrom Ensign” on the consolidated and combined statements of cash flows. The “Net contribution (distribution) from/to Ensign” was $4.4 million and $(22.5)million for the years ended December 31, 2014 and 2013, respectively.7. DEBTThe following table summarizes the balance of our indebtedness as of December 31, 2015 and 2014 (in thousands): December 31, 2015 December 31, 2014 PrincipalDeferredCarrying PrincipalDeferredCarrying AmountLoan FeesValue AmountLoan FeesValue Senior unsecured notes payable$260,000$(5,771)$254,229 $260,000$(6,835)$253,165Mortgage notes payable95,022(346)94,676 98,205(597)97,608Unsecured revolving credit facility45,000—45,000 ——— $400,022$(6,117)$393,905 $358,205$(7,432)$350,773Senior Unsecured Notes PayableOn May 30, 2014, 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 $260.0 million aggregate principal amount of5.875% Senior Notes due 2021 (the “Notes”). The Notes were issued at par, resulting in gross proceeds of $260.0 million and net proceeds of approximately$253.0 million after deducting underwriting fees and other offering expenses. We transferred approximately $220.8 million of the net proceeds of the offering ofthe Notes to Ensign, and used the remaining portion of the net proceeds of the offering to pay the cash portion of the Special Dividend. The Notes mature onJune 1, 2021 and bear interest at a rate of 5.875% per year. Interest on the Notes is payable on June 1 and December 1 of each year, beginning on December 1,2014. The Issuers subsequently exchanged the Notes for substantially identical notes registered under the Securities Act of 1933.F-18Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSThe Issuers may redeem the Notes any time prior to June 1, 2017 at a redemption price of 100% of the principal amount of the Notes redeemed plusaccrued and unpaid interest on the Notes, if any, to, but not including, the redemption date, plus a “make whole” premium described in the indenture governing theNotes and, at any time on or after June 1, 2017, at the redemption prices set forth in the indenture. In addition, at any time on or prior to June 1, 2017, up to 35% ofthe aggregate principal amount of the Notes may be redeemed with the net proceeds of certain equity offerings if at least 65% of the originally issued aggregateprincipal amount of the Notes remains outstanding. If certain changes of control of the Company occur, holders of the Notes will have the right to require theIssuers to repurchase their Notes at 101% of the 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 certain ofthe Company’s wholly owned existing and, subject to certain exceptions, future material subsidiaries (other than the Issuers); provided, however, that suchguarantees are subject to automatic release under certain customary circumstances, including if the subsidiary guarantor is sold or sells all or substantially all of itsassets, the subsidiary guarantor is designated “unrestricted” for covenant purposes under the indenture, the subsidiary guarantor’s guarantee of other indebtednesswhich resulted in the creation of the guarantee of the Notes is terminated or released, or the requirements for legal defeasance or covenant defeasance or todischarge the indenture have been satisfied. See Note 13, Summarized Condensed Consolidating and Combining Information .The indenture contains covenants 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 restrictedpayments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their assets; and create restrictions on the abilityof the Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers. The indenture also requires the Company and its restrictedsubsidiaries to maintain a specified ratio of unencumbered assets to unsecured indebtedness. These covenants are subject to a number of important and significantlimitations, qualifications and exceptions. The indenture also contains customary events of default.As of December 31, 2015 , the Company was in compliance with all applicable financial covenants under the indenture.Unsecured Revolving Credit FacilityOn August 5, 2015, the Company, CareTrust GP, LLC, the Operating Partnership, as the borrower, and certain of its wholly owned subsidiariesentered into a credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender, and the lendersparty thereto (the “Credit Agreement”). The Credit Agreement provides for an unsecured asset-based revolving credit facility (the “Revolving Facility”) withcommitments in an aggregate principal amount of $300.0 million from a syndicate of banks and other financial institutions, and an accordion feature that allows theOperating Partnership to increase the borrowing availability by up to an additional $200.0 million . A portion of the proceeds of the Revolving Facility were usedto pay off and terminate the Company’s existing secured asset-based revolving credit facility under a credit agreement dated May 30, 2014, with SunTrust Bank, asadministrative agent, and the lenders party thereto (the “SunTrust Refinancing”). As of December 31, 2015, there was $45.0 million outstanding under the CreditFacility.The Credit Agreement has a maturity date of August 5, 2019, and includes two , six -month extension options.The Credit Agreement also provides that, subject to customary conditions, including obtaining lender commitments and pro forma compliance withfinancial maintenance covenants under the Credit Agreement, the Operating Partnership may seek to increase the aggregate principal amount of the revolvingcommitments and/or establish one or more new tranches of incremental revolving or term loans under the Credit Agreement in an aggregate amount not to exceed$200.0 million . The Company does not currently have any commitments for such increased loans.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 from0.75% to 1.40% per annum or applicable LIBOR plus a margin ranging from 1.75% to 2.40% per annum based on the debt to asset value ratio of the Company andits subsidiaries (subject to decrease at the Company’s election if the Company obtains certain specified investment grade ratings on its senior long term unsecureddebt). In addition, the Company will pay a commitment fee on the unused portion of the commitments under the Revolving Facility of 0.15% or 0.25% per annum,based upon usage of the Revolving Facility (unless the Company obtains certain specified investment grade ratings on its senior long term unsecured debt andelects to decrease the applicable margin as described above,F-19Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSin which case the Company will pay a facility fee on the revolving commitments ranging from 0.125% to 0.30% per annum based upon the credit ratings of itssenior long term unsecured debt).The Obligations under the Credit Agreement are guaranteed, jointly and severally, by the Company and its wholly owned subsidiaries that are party tothe Credit Agreement (other than the Operating Partnership). The Credit Agreement contains customary covenants that, among other things, restrict, subject tocertain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage inacquisitions, mergers or consolidations, amend certain material agreements and pay certain dividends and other restricted payments. The Credit Agreementrequires the Company to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum debt to asset value ratio, a minimum fixedcharge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating income ratio, a maximum secured debt to asset value ratio and amaximum secured recourse debt to asset value ratio. The Credit Agreement also contains certain customary events of default, including that the Company isrequired to operate in conformity with the requirements for qualification and taxation as a REIT.As of December 31, 2015 , the Company was in compliance with all applicable financial covenants under the Credit Agreement.Senior Secured Revolving Credit FacilityOn May 30, 2014, the Operating Partnership entered into a credit and guaranty agreement (the “Secured Credit Agreement”), which governed oursenior secured revolving credit facility (the “Secured Credit Facility”), with several banks and other financial institutions and lenders (the “Lenders”) and SunTrustBank, in its capacity as administrative agent for the Lenders, as an issuing bank and swingline lender. The Secured Credit Agreement provided for a borrowingcapacity of $150.0 million and included an accordion feature that allowed the Operating Partnership to increase the borrowing availability by up to an additional$75.0 million , subject to terms and conditions. The Secured Credit Facility was secured by mortgages on certain of the real properties owned by the Company’ssubsidiaries and the amount available to be borrowed under the Secured Credit Agreement was based on a borrowing base calculation relating to the mortgagedproperties, determined according to, among other factors, the mortgageability cash flow as such term is defined in the Secured Credit Agreement. The SecuredCredit Facility was also secured by certain personal property of the Company’s subsidiaries that have provided mortgages, the Company’s interests in theOperating Partnership and the Company’s and its subsidiaries’ equity interests in the Company’s subsidiaries that have guaranteed the Operating Partnership’sobligations under the Secured Credit Agreement. The Secured Credit Agreement was paid off and terminated as a part of the SunTrust Refinancing.GECC LoanAs of December 31, 2015, ten of our properties were subject to secured mortgage indebtedness to General Electric Capital Corporation (the “GECCLoan”), which we assumed in connection with the Spin-Off. The outstanding amount of this mortgage indebtedness was approximately $95.0 million as ofDecember 31, 2015 , including an advance of approximately $50.7 million that was made on May 30, 2014. This advance bears interest at a floating rate equal to 3-month LIBOR plus 3.35% , reset monthly and subject to a LIBOR floor of 0.50% , with monthly principal and interest payments based on a 25 year amortization.The remaining indebtedness under the GECC Loan bears interest at a blended rate of 7.25% per annum until, but not including, June 29, 2016, and then convertsto the floating rate described above. The GECC Loan matures on May 30, 2017 , subject to two 12 -month extension options, the exercise of which is conditioned,in each case, on the absence of any then-existing default and the payment of an extension fee equal to 0.25% of the then-outstanding principal balance. Providedthere is no then-existing default and upon 30 days written notice, the original portion of the GECC Loan, approximately $46.2 million as of December 31, 2015 , isprepayable without penalty, in whole but not in part, after January 31, 2016. The new portion of the GECC Loan, approximately $48.9 million as of December 31,2015 , is prepayable without penalty, in whole but not in part, after January 31, 2016.The GECC Loan is guaranteed by the Company, contains customary affirmative and negative covenants, as well as customary events of default, andrequires us to comply with specified financial maintenance covenants. As of December 31, 2015 , the Company was in compliance with all applicable financialcovenants under the GECC Loan. Promissory Notes with Johnson Land Enterprises, LLCOn October 1, 2009, Ensign entered into four separate promissory notes with Johnson Land Enterprises, LLC, for an aggregate of $10.0 million . OnMay 30, 2014, in connection with the Spin-Off, three of the promissory notes were paid in full and the remaining promissory note was assumed by the Company.This promissory note was paid off in July 2015.F-20Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSInterest ExpenseDuring the years ended December 31, 2015, 2014 and 2013, the Company incurred $25.3 million , $21.6 million and $12.6 million of interest expense,respectively. Included in interest expense for the year ended December 31, 2015 was $2.2 million of amortization of deferred financing costs and a $1.2 millionwrite-off of deferred financing fees associated with the SunTrust Refinancing. Included in interest expense for the year ended December 31, 2014 was $1.6 millionof amortization of deferred financing costs, $0.1 million of amortization of debt discount and a $1.7 million loss on settlement of interest rate swap. Included ininterest expense for the year ended December 31, 2013 was $0.7 million of amortization of deferred financing costs and $0.1 million of amortization of debtdiscount. As of December 31, 2015 and December 31, 2014 , the Company’s interest payable was $1.9 million and $1.7 million , respectively.Schedule of Debt MaturitiesAs of December 31, 2015, our debt maturities were (dollars in thousands): YearAmount2016$2,765201792,2572018—201945,0002020—Thereafter260,000 $400,0228. EQUITYCommon StockOffering of Common Stock - On August 18, 2015, the Company completed an underwritten public offering of 16.33 million newly issued shares of itscommon stock pursuant to an effective registration statement. The Company received net proceeds, before offering costs, of $163.7 million from the offering, aftergiving effect to the issuance and sale of all 16.33 million shares of common stock (which included 2.13 million shares sold to the underwriters upon exercise oftheir option to purchase additional shares), at a price to the public of $10.50 per share.Special Dividend - In connection with the Company’s intention to qualify as a real estate investment trust in 2014, on October 17, 2014 , theCompany’s Board of Directors declared the Special Dividend of $132.0 million , or approximately $5.88 per common share, which represents the amount ofaccumulated E&P allocated to the Company as a result of the Spin-Off. The Special Dividend was paid on December 10, 2014 , to stockholders of record as ofOctober 31, 2014 , in a combination of both cash and stock. The cash portion totaled $33.0 million and the stock portion totaled $99.0 million . The Companyissued 8,974,249 shares of common stock in connection with the stock portion of the Special Dividend.Dividends on Common Stock — During the fourth quarter of 2014, our Board of Directors declared a quarterly cash dividend of $0.125 per share ofcommon stock, payable on January 15, 2015 to stockholders of record as of December 31, 2014 .During the first quarter of 2015, our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on April 15,2015 to stockholders of record as of March 31, 2015 . During the second quarter of 2015, our Board of Directors declared a quarterly cash dividend of $0.16 pershare of common stock, payable on July 15, 2015 to stockholders of record as of June 30, 2015. During the third quarter of 2015, our Board of Directors declared aquarterly cash dividend of $0.16 per share of common stock, payable on October 15, 2015 to stockholders of record as of September 30, 2015. During the fourthquarter of 2015, our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on January 15, 2016 to stockholders ofrecord as of December 31, 2015.9. STOCK-BASED COMPENSATIONAll stock-based awards are subject to the terms of the CareTrust REIT, Inc. and CTR Partnership, L.P. Incentive Award Plan (the “Plan”). The Planprovides for the granting of stock-based compensation, including stock options, restricted stock, performance awards, restricted stock units and other incentiveawards to officers, employees and directors in connection with their employment with or services provided to the Company.F-21Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSThe following table summarizes our restricted stock awards at December 31, 2015: SharesWeighted AverageShare PriceUnvested balance at December 31, 2014155,040$12.23Granted272,30012.70Vested(32,643)12.23Unvested balance at December 31, 2015394,697$12.56The Company recognized $1.5 million and $0.2 million of compensation expense associated with all grants for the years ended December 31, 2015and 2014, respectively. As of December 31, 2015 , there was $3.7 million of unamortized stock-based compensation expense related to these unvested awards andthe weighted-average remaining vesting period of such awards was 3.2 years. In connection with the Spin-Off, employees of Ensign who had unvested shares of restricted stock were given one share of CareTrust unvestedrestricted stock totaling 207,580 shares at the Spin-Off. These restricted shares are subject to a time vesting provision only and the Company does not recognizeany stock compensation expense associated with these awards. During the year ended December 31, 2015 , 70,200 shares vested or were forfeited. AtDecember 31, 2015 , there were 88,830 unvested restricted stock awards outstanding.10. EARNINGS PER COMMON SHAREThe following table presents the calculation of basic and diluted EPS for the Company’s common stock for the years ended December 31, 2015, 2014 and2013, and reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstandingused in the calculation of diluted EPS for the years ended December 31, 2015, 2014 and 2013 (amounts in thousands, except per share amounts): Year Ended December 31, 2015 2014 2013Numerator: Net income (loss)$10,034 $(8,143) $(395)Less: Net income allocated to participating securities(286) — —Numerator for basic and diluted earnings (loss) available to common stockholders$9,748 $(8,143) $(395)Denominator: Weighted-average basic common shares outstanding37,380 22,788 22,228Weighted-average diluted common shares outstanding37,380 22,788 22,228 Earnings (loss) per common share, basic$0.26 $(0.36) $(0.02)Earnings (loss) per common share, diluted$0.26 $(0.36) $(0.02)The Company’s unvested restricted shares associated with its incentive award plan and unvested restricted shares issued to employees of Ensign at the Spin-Off have been excluded from the above calculation of earnings (loss) per share for the years ended December 31, 2015, 2014 and 2013, as their inclusion wouldhave been anti-dilutive.11. COMMITMENTS AND CONTINGENCIESU.S. Government Settlement —In October 2013, Ensign completed and executed a settlement agreement (the “Settlement Agreement”) with the U.S.Department of Justice (“DOJ”). This settlement agreement fully and finally resolved a DOJ investigation of Ensign related primarily to claims submitted to theMedicare program for rehabilitation services provided at skilled nursing facilities in California and certain ancillary claims. Pursuant to the Settlement Agreement,Ensign made a single lump-sum remittance to the government in the amount of $48.0 million in October 2013. Ensign denied engaging in any illegal conduct andagreed to the settlement amount without any admission of wrongdoing in order to resolve the allegations and avoid the uncertainty and expense of protractedlitigation.F-22Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSIn connection with the settlement and effective as of October 1, 2013, Ensign entered into a five -year corporate integrity agreement with the Office ofInspector General-HHS (the “CIA”). The CIA acknowledges the existence of Ensign’s current compliance program, and requires that Ensign continue during theterm of the CIA to maintain a compliance program designed to promote compliance with the statutes, regulations, and written directives of Medicare, Medicaid,and all other Federal health care programs. Ensign is also required to maintain several elements of its existing program during the term of the CIA, includingmaintaining a compliance officer, a compliance committee of the board of directors, and a code of conduct. The CIA requires that Ensign conduct certainadditional compliance-related activities during the term of the CIA, including various training and monitoring procedures, and maintaining a disciplinary processfor compliance obligations. Participation in federal healthcare programs by Ensign is not affected by the Settlement Agreement or the CIA. In the event of an uncured materialbreach of the CIA, Ensign could be excluded from participation in federal healthcare programs and/or subject to prosecution. The Company is subject to certaincontinuing operational obligations as part of Ensign’s compliance program pursuant to the CIA, but otherwise has no liability related to the DOJ investigation.Legal Matters —None of the Company or any of its subsidiaries is a party to, and none of their respective properties are the subject of, any materiallegal proceedings.12. CONCENTRATION OF RISKMajor operator concentration – The Company has one major tenant, Ensign , from which the Company derived the majority of its overall revenueduring the years ended December 31, 2015 , 2014 and 2013. As of December 31, 2015 , Ensign leased 94 skilled nursing, assisted living and independent livingfacilities which had a total of 10,121 beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah andWashington. The four states in which Ensign leases the highest concentration of properties are California, Texas, Utah and Arizona. Additionally, on October 1,2015, the Company acquired the Liberty Healthcare Portfolio, a 14 facility skilled nursing and assisted living portfolio in Ohio, for $176.5 million inclusive oftransaction costs. The Company has leased these 14 facilities to subsidiaries of Pristine Senior Living ("Pristine") pursuant to a triple-net master lease entered intoeffective as of October 1, 2015, which has an initial term of 15 years , two five year renewal options and no purchase options. The annual revenues from thePristine master lease are $17.0 million and will be escalated annually by an amount equal to the product of (1) the lesser of the percentage change in the ConsumerPrice Index (but not less than zero ) or 3.0% , and (2) the prior year’s rent. The Pristine master lease is guaranteed by Pristine and two of its principals.Ensign’s financial statements can be found at Ensign’s website http://www.ensigngroup.net.13. SUMMARIZED CONDENSED CONSOLIDATING AND COMBINING INFORMATIONThe 5.875% Senior Notes due 2021 issued by the Issuers on May 30, 2014 are jointly and severally, fully and unconditionally, guaranteed byCareTrust REIT, Inc., as the parent guarantor (the “Parent Guarantor”), and certain 100% owned subsidiaries of the Parent Guarantor other than the Issuers(collectively, the “Subsidiary Guarantors” and, together with the Parent Guarantor, the “Guarantors”), subject to automatic release under certain customarycircumstances, including if the Subsidiary Guarantor is sold or sells all or substantially all of its assets, the Subsidiary Guarantor is designated “unrestricted” forcovenant purposes under the indenture governing the Notes, the Subsidiary Guarantor’s guarantee of other indebtedness which resulted in the creation of theguarantee of the Notes is terminated or released, or the requirements for legal defeasance or covenant defeasance or to discharge the Indenture have been satisfied.The following provides information regarding the entity structure of the Parent Guarantor, the Issuers and the Subsidiary Guarantors:CareTrust REIT, Inc. – The Parent Guarantor was formed on October 29, 2013 in anticipation of the Spin-Off and the related transactions and was awholly owned subsidiary of Ensign prior to the effective date of the Spin-Off on June 1, 2014. The Parent Guarantor did not conduct any operations or have anybusiness prior to the date of issuance of the Notes and the consummation of the Spin-Off related transactions.F-23Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSCTR Partnership, L.P. and CareTrust Capital Corp. – The Issuers, each of which is a 100% owned subsidiary of the Parent Guarantor, were formed onMay 8, 2014 and May 9, 2014 , respectively, in anticipation of the Spin-Off and the related transactions. The Issuers did not conduct any operations or have anybusiness prior to the date of issuance of the Notes and the consummation of the Spin-Off related transactions.Subsidiary Guarantors – Each of the Subsidiary Guarantors is a 100% owned subsidiary of the Parent Guarantor. Prior to the consummation of theSpin-Off, each of the Subsidiary Guarantors was a wholly owned subsidiary of Ensign. The Ensign Properties entities consist of the Subsidiary Guarantors (otherthan the general partner of the Operating Partnership which was formed on May 8, 2014 in anticipation of the Spin-Off and the related transactions) and thesubsidiaries of the Parent Guarantor that are not Subsidiary Guarantors or Issuers (collectively, the “Non-Guarantor Subsidiaries”).Pursuant to Rule 3-10 of Regulation S-X, the following summarized consolidating information is provided for the Parent Guarantor, the Issuers, theSubsidiary Guarantors and the Non-Guarantor Subsidiaries with respect to the Notes. This summarized financial information has been prepared from the financialstatements of the Company and Ensign Properties and the books and records maintained by the Company and Ensign Properties. As described above, the ParentGuarantor and the Issuers did not conduct any operations or have any business during the periods prior to June 1, 2014.The summarized financial information may not necessarily be indicative of the results of operations or financial position had the Parent Guarantor, theIssuers, the Subsidiary Guarantors or the Non-Guarantor Subsidiaries all been in existence or operated as independent entities during the relevant period or had theEnsign Properties entities been operated as subsidiaries of the Parent Guarantor during such period.F-24Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING BALANCE SHEETSDECEMBER 31, 2015(in thousands, except share and per share amounts) ParentGuarantor Issuers CombinedSubsidiaryGuarantors CombinedNon-GuarantorSubsidiaries Elimination ConsolidatedAssets: Real estate investments, net$— $256,209 $348,454 $40,951 $— $645,614Other real estate investments— — 8,477 — — 8,477Cash and cash equivalents— 11,467 — — — 11,467Accounts receivable— 519 1,695 128 — 2,342Prepaid expenses and other assets— 2,079 4 — — 2,083Deferred financing costs, net— 3,183 — — — 3,183Investment in subsidiaries269,992 365,368 — — (635,360) —Intercompany— — 59,160 4,186 (63,346) —Total assets$269,992 $638,825 $417,790 $45,265 $(698,706) $673,166Liabilities and Equity: Senior unsecured notes payable, net$— $254,229 $— $— $— $254,229Mortgage notes payable, net— — — 94,676 — 94,676Unsecured revolving credit facility— 45,000 — — — 45,000Accounts payable and accrued liabilities— 6,258 2,433 578 — 9,269Dividends payable7,704 — — — — 7,704Intercompany— 63,346 — — (63,346) —Total liabilities7,704 368,833 2,433 95,254 (63,346) 410,878Equity: Common stock, $0.01 par value; 500,000,000shares authorized, 47,664,742 shares issuedand outstanding as of December 31, 2015477 — — — — 477Additional paid-in capital410,217 266,929 374,660 (52,899) (588,690) 410,217Cumulative distributions in excess of earnings(148,406) 3,063 40,697 2,910 (46,670) (148,406)Total equity262,288 269,992 415,357 (49,989) (635,360) 262,288Total liabilities and equity$269,992 $638,825 $417,790 $45,265 $(698,706) $673,166F-25Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING BALANCE SHEETSDECEMBER 31, 2014(in thousands, except share and per share amounts) ParentGuarantor Issuers CombinedSubsidiaryGuarantors CombinedNon-GuarantorSubsidiaries Elimination ConsolidatedAssets: Real estate investments, net$— $26,104 $366,199 $43,912 $— $436,215Other real estate investments— — 7,532 — — 7,532Cash and cash equivalents— 25,320 — — — 25,320Accounts receivable— — 2,170 121 — 2,291Prepaid expenses and other assets— 808 1 — — 809Deferred financing costs, net— 2,973 — — — 2,973Investment in subsidiaries117,408 335,020 — — (452,428) —Intercompany— — 15,262 1,323 (16,585) —Total assets$117,408 $390,225 $391,164 $45,356 $(469,013) $475,140Liabilities and Equity: Senior unsecured notes payable, net$— $253,165 $— $— $— $253,165Mortgage notes payable, net— — 557 97,051 — 97,608Accounts payable and accrued liabilities— 3,067 3,308 584 — 6,959Dividends payable3,946 — — — — 3,946Intercompany— 16,585 — — (16,585) —Total liabilities3,946 272,817 3,865 97,635 (16,585) 361,678Equity: Common stock, $0.01 par value; 500,000,000shares authorized, 31,251,157 shares issuedand outstanding as of December 31, 2014313 — — — — 313Additional paid-in capital246,041 125,551 374,660 (52,899) (447,312) 246,041Cumulative distributions in excess of earnings(132,892) (8,143) 12,639 620 (5,116) (132,892)Total equity113,462 117,408 387,299 (52,279) (452,428) 113,462Total liabilities and equity$117,408 $390,225 $391,164 $45,356 $(469,013) $475,140 F-26Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING STATEMENTS OF OPERATIONSFOR THE YEAR ENDED DECEMBER 31, 2015(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors CombinedNon-GuarantorSubsidiaries Elimination ConsolidatedRevenues: Rental income$— $9,979 $45,100 $10,900 $— $65,979Tenant reimbursements— 655 4,375 467 — 5,497Independent living facilities— — 2,510 — — 2,510Interest and other income— 19 946 — — 965Total revenues— 10,653 52,931 11,367 — 74,951Expenses: Depreciation and amortization— 3,165 18,007 2,961 — 24,133Interest expense— 19,616 18 5,622 — 25,256Property taxes— 655 4,375 467 — 5,497Independent living facilities— — 2,376 — — 2,376General and administrative1,171 6,360 97 27 — 7,655Total expenses1,171 29,796 24,873 9,077 — 64,917Income in Subsidiary11,205 30,348 — — (41,553) —Net income$10,034 $11,205 $28,058 $2,290 $(41,553) $10,034F-27Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING AND COMBINING STATEMENTS OF OPERATIONSFOR THE YEAR ENDED DECEMBER 31, 2014(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors CombinedNon-GuarantorSubsidiaries Elimination ConsolidatedRevenues: Rental income$— $139 $42,337 $8,891 $— $51,367Tenant reimbursements— 11 4,460 485 — 4,956Independent living facilities— — 2,519 — — 2,519Interest and other income— 23 32 — — 55Total revenues— 173 49,348 9,376 — 58,897Expenses: Depreciation and amortization— 34 19,577 3,389 — 23,000Interest expense— 10,425 6,315 4,882 — 21,622Loss on extinguishment of debt— — 4,067 — — 4,067Property taxes— 11 4,460 485 — 4,956Acquisition costs— — 47 — — 47Independent living facilities— — 2,243 — — 2,243General and administrative— 11,105 — — — 11,105Total expenses— 21,575 36,709 8,756 — 67,040(Loss) income in Subsidiary(8,143) 13,259 — — (5,116) —Net (loss) income(8,143) (8,143) 12,639 620 (5,116) (8,143)Other comprehensive income: Unrealized gain on interest rate swap— — 167 — — 167Reclassification adjustment on interest rateswap— — 1,661 — — 1,661Comprehensive (loss) income$(8,143) $(8,143) $14,467 $620 $(5,116) $(6,315) F-28Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSCONDENSED COMBINING STATEMENTS OF OPERATIONSFOR THE YEAR ENDED DECEMBER 31, 2013(in thousands) CombinedSubsidiaryGuarantors CombinedNon-GuarantorSubsidiaries CombinedRevenues: Rental income$35,730 $5,512 $41,242Tenant reimbursements4,602 566 5,168Independent living facilities2,386 — 2,386Total revenues42,718 6,078 48,796Expenses: Depreciation and amortization20,031 3,387 23,418Interest expense8,898 3,749 12,647Property taxes4,602 566 5,168Acquisition costs255 — 255Independent living facilities2,007 131 2,138General and administrative5,442 — 5,442Total expenses41,235 7,833 49,068Income (loss) before provision for income taxes1,483 (1,755) (272)Provision for income taxes109 14 123Net income (loss)1,374 (1,769) (395)Other comprehensive income: Unrealized gain on interest rate swap1,038 — 1,038Comprehensive income (loss)$2,412 $(1,769) $643F-29Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWSFOR THE YEAR ENDED DECEMBER 31, 2015(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors CombinedNon-GuarantorSubsidiaries Elimination ConsolidatedCash flows from operating activities: Net cash (used in) provided byoperating activities$(15) $(9,894) $44,675 $5,488 $— $40,254Cash flows from investing activities: Acquisition of real estate— (232,466) — — — (232,466)Improvements to real estate— (19) (168) — — (187)Purchases of equipment, furniture, andfixtures— (195) (81) — — (276)Escrow deposits for acquisition of realestate— (1,750) — — — (1,750)Net proceeds from sale of vacant land— — 30 — — 30Distribution from subsidiary21,790 — — — (21,790) —Intercompany financing(162,803) 46,761 — — 116,042 —Net cash used in investing activities(141,013) (187,669) (219) — 94,252 (234,649)Cash flows from financing activities: Proceeds from the issuance of commonstock, net162,963 — — — — 162,963Borrowings under unsecured revolvingcredit facility— 45,000 — — — 45,000Borrowings under senior secured revolvingcredit facility— 35,000 — — — 35,000Repayments of borrowings under seniorsecured revolving credit facility— (35,000) — — — (35,000)Payments on the mortgage notes payable— — (558) (2,625) — (3,183)Net-settle adjustment on restricted stock(145) — — — — (145)Payments of deferred financing costs— (2,303) — — — (2,303)Dividends paid on common stock(21,790) — — — — (21,790)Distribution to Parent— (21,790) — — 21,790 —Intercompany financing— 162,803 (43,898) (2,863) (116,042) —Net cash provided by (used in)financing activities141,028 183,710 (44,456) (5,488) (94,252) 180,542Net decrease in cash and cash equivalents— (13,853) — — — (13,853)Cash and cash equivalents, beginning of period— 25,320 — — — 25,320Cash and cash equivalents, end of period ofperiod$— $11,467 $— $— $— $11,467 F-30Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING AND COMBINING STATEMENTS OF CASH FLOWSFOR THE YEAR ENDED DECEMBER 31, 2014(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors CombinedNon-GuarantorSubsidiaries Elimination ConsolidatedCash flows from operating activities: Net cash (used in) provided byoperating activities$— $(21,185) $38,955 $4,136 $— $21,906Cash flows from investing activities: Acquisition of real estate— (25,742) — — — (25,742)Improvements to real estate— — (579) — — (579)Purchases of equipment, furniture andfixtures— (95) (14,819) (4,361) — (19,275)Preferred equity investment— — (7,500) — — (7,500)Escrow deposit for acquisition of realestate— (500) — — — (500)Distribution from subsidiary33,001 — — — (33,001) —Intercompany financing— (141,231) — — 141,231 —Net cash provided by (used in)investing activities33,001 (167,568) (22,898) (4,361) 108,230 (53,596)Cash flows from financing activities: Proceeds from the issuance of seniorunsecured notes payable— 260,000 — — — 260,000Proceeds from the senior securedrevolving credit facility— — 10,000 — — 10,000Proceeds from the issuance of mortgagenotes payable— — — 50,676 — 50,676Payments on the senior secured revolvingcredit facility— — (88,701) — — (88,701)Payments on the mortgage notes payable— — (66,905) (1,250) — (68,155)Payments on the senior secured term loan— — (65,624) — — (65,624)Payments of deferred financing costs— (12,926) — (510) — (13,436)Net contribution from Ensign— — 52,385 (48,029) — 4,356Dividends paid on common stock(33,001) — — — — (33,001)Distribution to Parent— (33,001) — — 33,001 —Intercompany financing— — 141,893 (662) (141,231) —Net cash (used in) provided byfinancing activities(33,001) 214,073 (16,952) 225 (108,230) 56,115Net increase (decrease) in cash and cashequivalents— 25,320 (895) — — 24,425Cash and cash equivalents, beginning of period— — 895 — — 895Cash and cash equivalents, end of period$— $25,320 $— $— $— $25,320 F-31Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSCONDENSED COMBINING STATEMENTS OF CASH FLOWSFOR THE YEAR ENDED DECEMBER 31, 2013(in thousands) CombinedSubsidiaryGuarantors CombinedNon-GuarantorSubsidiaries CombinedCash flows from operating activities: Net cash provided by operating activities$24,793 $1,839 $26,632Cash flows from investing activities: Acquisition of real estate(35,656) — (35,656)Purchases of equipment, furniture and fixtures(15,728) (4,203) (19,931)Cash proceeds from the sale of equipment, furniture and fixtures854 — 854Net cash used in investing activities(50,530) (4,203) (54,733)Cash flows from financing activities: Proceeds from the senior secured revolving credit facility58,700 — 58,700Payments on the mortgage notes payable(2,249) (1,208) (3,457)Payments on the senior secured term loan(3,750) — (3,750)Payments of deferred financing costs(730) — (730)Net (distribution to) contribution from Ensign(26,074) 3,572 (22,502)Net cash provided by financing activities25,897 2,364 28,261Net increase in cash and cash equivalents160 — 160Cash and cash equivalents, beginning of period735 — 735Cash and cash equivalents, end of period$895 $— $895F-32Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)The following table presents our quarterly financial data. This information has been prepared on a basis consistent with that of our audited consolidated andcombined financial statements. Our quarterly results of operations for the periods presented are not necessarily indicative of future results of operations. Ourquarterly financial data, for periods prior to the Spin-Off, has been prepared on a “carve-out” basis from Ensign’s combined financial statements using thehistorical results of operations, cash flows, assets and liabilities attributable to the Company. This unaudited quarterly data should be read together with theaccompanying consolidated and combined financial statements and related notes thereto (in thousands, except per share amounts): For the Year Ended December 31, 2015 First Quarter Second Quarter Third Quarter Fourth QuarterOperating data: Total revenues $16,958 $17,376 $17,985 $22,632Income before provision for income taxes 2,038 2,266 727 5,003Provision for income taxes — — — —Net income 2,038 2,266 727 5,003Earnings per common share, basic 0.06 0.07 0.02 0.10Earnings per common share, diluted 0.06 0.07 0.02 0.10Other data: Weighted-average number of common shares outstanding, basic 31,257 31,278 39,125 47,660Weighted-average number of common shares outstanding, diluted 31,257 31,278 39,125 47,660 For the Year Ended December 31, 2014 First Quarter Second Quarter Third Quarter Fourth QuarterOperating data: Total revenues $12,871 $14,065 $15,884 $16,077(Loss) income before provision for income taxes (362) (10,325) 1,967 630Provision for income taxes 36 17 — —Net (loss) income (398) (10,342) 1,967 630(Loss) earnings per common share, basic (0.02) (0.47) 0.09 0.03(Loss) earnings per common share, diluted (0.02) (0.47) 0.09 0.03Other data: Weighted-average number of common shares outstanding, basic 22,228 22,231 22,255 24,419Weighted-average number of common shares outstanding, diluted 22,228 22,231 22,436 24,58615. SUBSEQUENT EVENTSThe Company evaluates subsequent events in accordance with ASC 855, Subsequent Events . The Company evaluates subsequent events up until thedate the consolidated and combined financial statements are issued.On February 1, 2016, the Company, CareTrust GP, LLC, the Operating Partnership, as the borrower, and certain of its wholly owned subsidiariesentered into the First Amendment (the “Amendment”) to the Credit Agreement. Pursuant to the Amendment, (i) commitments in respect of the Revolving Facilitywere increased by $100.0 million to $400.0 million total, (ii) a new $100.0 million non-amortizing unsecured term loan (the “Term Loan” and, together with theRevolving Facility, the "Credit Facility") was funded and (iii) the uncommitted incremental facility was increased by $50.0 million to $250.0 million . The CreditFacility continues to mature on August 5, 2019. The Term Loan, which matures on February 1, 2023, may be prepaid at any time subject to a 2% premium in thefirst year after issuance and a 1% premium in the second year afterF-33Table of Contentsissuance. Approximately $95.0 million of the proceeds of the Term Loan were used to pay off and terminate the Company’s existing secured mortgageindebtedness under the GECC Loan (the “GECC Refinancing”).Pursuant to the Amendment, the interest rates applicable to the Term Loan are, at the Company’s option, equal to either a base rate plus a marginranging from 0.95% to 1.60% per annum or LIBOR plus a margin ranging from 1.95% to 2.60% per annum based on the debt to asset value ratio of the Companyand its subsidiaries (subject to decrease at the Company’s election if the Company obtains certain specified investment grade ratings on its senior long termunsecured debt). Interest rates and commitment fees applicable to loans under the Revolving Facility were unchanged.On February 1, 2016, in connection with the Amendment, the GECC Loan was paid off and terminated as part of the GECC Refinancing.On February 1, 2016, the Company acquired a portfolio of nine skilled nursing facilities in Iowa which includes 518 skilled nursing beds and intendsto account for this investment as an asset acquisition. The portfolio is leased to Trillium Healthcare Group, LLC through an amendment to their existing masterlease. The purchase price, inclusive of estimated transaction costs, was approximately $32.7 million , with initial annual rental revenue of approximately $3.2million . The amended master lease has a remaining term of 15.0 years with two five -year renewal options and CPI-based rent escalators.On February 1, 2016, the Company acquired New Haven of San Angelo, a 30 -unit assisted living and memory care facility in San Angelo, Texas andintends to account for this investment as an asset acquisition. The facility will be operated by New Haven Assisted Living under a triple-net master leasearrangement. The purchase price, inclusive of estimated transaction costs, was approximately $4.9 million , with initial annual rental revenue of approximately$0.4 million . The master lease carries an initial term of 12.5 years with two five -year renewal options and CPI-based rent escalators. The 30 -unit facility includesland for potential future expansions to up to 60 units.On February 5, 2016, the Company entered into an agreement with Ensign allowing them to voluntarily close and decertify from the Medicareprogram its operations at one of the 94 properties the Company leases to Ensign operating subsidiaries, a facility located in Texas, pursuant to one of the MasterLeases (“Master Lease No. 2”). Under the agreement, Ensign will continue to pay 100% of the indivisible master rent due under Master Lease No. 2 throughout theterm of that lease and any renewals, and will continue to maintain and pay all expenses related to the closed property on a triple-net basis as required by the leasefor up to five years . The Company estimates that the planned closure will reduce the approximate lease coverage ratio for Master Lease No. 2 from 2.10 x to 2.03x, and for the overall Ensign portfolio from 2.07 x to 2.06 x. The Company also believes that the fair value of the assets after closure will exceed our net bookvalue therefor, and accordingly does not anticipate any impairment of value now or in the future. In addition, under the agreement the Company has the right tounilaterally extricate the property and the Texas licenses and Medicaid bed rights attached thereto from Master Lease No. 2 at our discretion, and to redeploy ordispose of such assets free and clear of the lease without any obligation to Ensign. The Company intends to use this right to monetize the recovered assets in duecourse. The Company believes that Ensign’s voluntary closure plan for this property was based on unique and isolated concerns about this particular property’soperations, and the Company has no reason to anticipate any similar plans or requests in the future with respect to any of the other properties leased to Ensign. F-34Table of ContentsSCHEDULE IIIREAL ESTATE ASSETS AND ACCUMULATED DEPRECIATIONDECEMBER 31, 2015(dollars in thousands) Initial Cost to Company Gross Carrying Value Description Facility Location Encum. Land Building Improvs. Costs Cap. Since Acq. Land Building Improvs. Total Accum.Depr. Const./Ren.Date Acq. DateSkilled NursingProperties: Ensign Highland LLC Highland Manor Phoenix, AZ $5,476 $257 $976 $926 $257 $1,902 $2,159 $846 2013 2000Meadowbrook HealthAssociates LLC Sabino Canyon Tucson, AZ 6,059 425 3,716 1,940 425 5,656 6,081 1,964 2012 2000Terrace Holdings AZLLC Desert Terrace Phoenix, AZ 7,324 113 504 971 113 1,475 1,588 450 2004 2002Rillito Holdings LLC Catalina Tucson, AZ 8,850 471 2,041 3,055 471 5,096 5,567 1,664 2013 2003Valley Health HoldingsLLC North Mountain Phoenix, AZ 15,692 629 5,154 1,519 629 6,673 7,302 2,315 2009 2004Cedar Avenue HoldingsLLC Upland Upland, CA 13,387 2,812 3,919 1,994 2,812 5,913 8,725 2,458 2011 2005Granada InvestmentsLLC Camarillo Camarillo, CA 11,289 3,526 2,827 1,522 3,526 4,349 7,875 1,653 2010 2005Plaza Health HoldingsLLC Park Manor Walla Walla, WA 6,756 450 5,566 1,055 450 6,621 7,071 2,532 2009 2006MountainviewCommunity Care LLC Park View Gardens Santa Rosa, CA 7,439 931 2,612 653 931 3,265 4,196 1,470 1963 2006CM Health HoldingsLLC Carmel Mountain San Diego, CA — 3,028 3,119 2,071 3,028 5,190 8,218 1,785 2012 2006Polk Health HoldingsLLC Timberwood Livingston, TX — 60 4,391 1,167 60 5,558 5,618 2,058 2009 2006Snohomish HealthHoldings LLC Emerald Hills Lynnwood, WA — 741 1,663 1,998 741 3,661 4,402 1,725 2009 2006Cherry Health Holdings,Inc. Pacific Care Hoquiam, WA — 171 1,828 2,038 171 3,866 4,037 1,448 2010 2006Golfview Holdings LLC Cambridge SNF Richmond, TX — 1,105 3,110 1,067 1,105 4,177 5,282 1,421 2007 2006Tenth East HoldingsLLC Arlington Hills Salt Lake City, UT — 332 2,426 2,507 332 4,933 5,265 1,624 2013 2006Trinity Mill HoldingsLLC Carrollton Carrollton, TX — 664 2,294 902 664 3,196 3,860 1,456 2007 2006Cottonwood HealthHoldings LLC Holladay Salt Lake City, UT — 965 2,070 958 965 3,028 3,993 1,484 2008 2007Verde Villa HoldingsLLC Lake Village Lewisville, TX — 600 1,890 470 600 2,360 2,960 888 2011 2007Mesquite HealthHoldings LLC Willow Bend Mesquite, TX — 470 1,715 8,661 470 10,376 10,846 3,914 2012 2007Arrow Tree HealthHoldings LLC Arbor Glen Glendora, CA — 2,165 1,105 324 2,165 1,429 3,594 646 1965 2007Fort Street HealthHoldings LLC Draper Draper, UT — 443 2,394 759 443 3,153 3,596 975 2008 2007Trousdale HealthHoldings LLC Brookfield Downey, CA — 1,415 1,841 1,861 1,415 3,702 5,117 1,140 2013 2007Ensign Bellflower LLC Rose Villa Bellflower, CA — 937 1,168 357 937 1,525 2,462 583 2009 2007RB Heights HealthHoldings LLC Osborn Scottsdale, AZ — 2,007 2,793 1,762 2,007 4,555 6,562 1,522 2009 2008San Corrine HealthHoldings LLC Salado Creek San Antonio, TX — 310 2,090 719 310 2,809 3,119 956 2005 2008Temple Health HoldingsLLC Wellington Temple, TX — 529 2,207 1,163 529 3,370 3,899 1,076 2008 2008Anson Health HoldingsLLC Northern Oaks Abilene, TX — 369 3,220 1,725 369 4,945 5,314 1,458 2012 2008F-35Table of ContentsWillits HealthHoldings LLC Northbrook Willits, CA — 490 1,231 500 490 1,731 2,221 491 2011 2008Lufkin HealthHoldings LLC Southland Lufkin, TX — 467 4,644 782 467 5,426 5,893 853 1988 2009Lowell HealthHoldings LLC Littleton Littleton, CO — 217 856 1,735 217 2,591 2,808 677 2012 2009Jefferson RalstonHoldings LLC Arvada Arvada, CO — 280 1,230 834 280 2,064 2,344 469 2012 2009Lafayette HealthHoldings LLC Julia Temple Englewood, CO — 1,607 4,222 6,195 1,607 10,417 12,024 2,453 2012 2009Hillendahl HealthHoldings LLC Golden Acres Dallas, TX — 2,133 11,977 1,421 2,133 13,398 15,531 2,698 1984 2009Price Health HoldingsLLC Pinnacle Price, UT — 193 2,209 849 193 3,058 3,251 561 2012 2009Silver Lake HealthHoldings LLC Provo Provo, UT — 2,051 8,362 2,011 2,051 10,373 12,424 1,644 2011 2009Jordan HealthProperties LLC Copper Ridge West Jordan, UT — 2,671 4,244 1,507 2,671 5,751 8,422 858 2013 2009Regal Road HealthHoldings LLC Sunview Youngstown, AZ — 767 4,648 729 767 5,377 6,144 1,041 2012 2009Paredes HealthHoldings LLC Alta Vista Brownsville, TX — 373 1,354 190 373 1,544 1,917 249 1969 2009Expressway HealthHoldings LLC Veranda Harlingen, TX — 90 675 430 90 1,105 1,195 208 2011 2009Rio Grande HealthHoldings LLC Grand Terrace McAllen, TX — 642 1,085 870 642 1,955 2,597 400 2012 2009Fifth East HoldingsLLC Paramount Salt Lake City,UT — 345 2,464 1,065 345 3,529 3,874 712 2011 2009Emmett HealthcareHoldings LLC River's Edge Emmet, ID — 591 2,383 69 591 2,452 3,043 425 1972 2010Burley HealthcareHoldings LLC Parke View Burley, ID — 250 4,004 424 250 4,428 4,678 859 2011 2010Northshore HealthcareHoldings LLC Montebello (Silver Springs) Houston, TX — 486 2,349 1,041 486 3,390 3,876 727 2012 2010Josey RanchHealthcare HoldingsLLC Heritage Gardens Carrollton, TX — 1,382 2,293 478 1,382 2,771 4,153 438 1996 2010Everglades HealthHoldings LLC Victoria Ventura Ventura, CA — 1,847 5,377 682 1,847 6,059 7,906 1,025 1990 2011Irving Health HoldingsLLC Beatrice Manor Beatrice, NE — 60 2,931 245 60 3,176 3,236 493 2011 2011Falls City HealthHoldings LLC Careage Estates of Falls City Falls City, NE — 170 2,141 82 170 2,223 2,393 313 1972 2011Gillette Park HealthHoldings LLC Careage of Cherokee Cherokee, IA — 163 1,491 12 163 1,503 1,666 272 1967 2011Gazebo Park HealthHoldings LLC Careage of Clarion Clarion, IA — 80 2,541 97 80 2,638 2,718 496 1978 2011Oleson Park HealthHoldings LLC Careage of Ft. Dodge Ft. Dodge, IA — 90 2,341 759 90 3,100 3,190 680 2012 2011Arapahoe HealthHoldings LLC Oceanview Texas City, TX — 158 4,810 759 128 5,599 5,727 912 2012 2011Dixie Health HoldingsLLC Hurricane Hurricane, UT — 487 1,978 98 487 2,076 2,563 239 1978 2011Memorial HealthHoldings LLC Pocatello Pocatello, ID — 537 2,138 698 537 2,836 3,373 525 2007 2011Bogardus HealthHoldings LLC Whittier East Whittier, CA — 1,425 5,307 1,079 1,425 6,386 7,811 1,179 2011 2011South Dora HealthHoldings LLC Ukiah Ukiah, CA — 297 2,087 1,621 297 3,708 4,005 1,534 2013 2011Silverada HealthHoldings LLC Rosewood Reno, NV — 1,012 3,282 103 1,012 3,385 4,397 359 1970 2011Orem Health HoldingsLLC Orem Orem, UT — 1,689 3,896 3,235 1,689 7,131 8,820 1,502 2011 2011Renne Avenue HealthHoldings LLC Monte Vista Pocatello, ID — 180 2,481 966 180 3,447 3,627 469 2013 2012Stillhouse HealthHoldings LLC Stillhouse Paris, TX — 129 7,139 6 129 7,145 7,274 450 2009 2012Fig Street HealthHoldings LLC Palomar Vista Escondido, CA — 329 2,653 1,094 329 3,747 4,076 1,133 2007 2012F-36Table of ContentsLowell Lake HealthHoldings LLC Owyhee Owyhee, ID — 49 1,554 29 49 1,583 1,632 125 1990 2012Queensway HealthHoldings LLC Atlantic Memorial Long Beach, CA — 999 4,237 2,331 999 6,568 7,567 2,062 2008 2012Long Beach HealthAssociates LLC Shoreline Long Beach, CA — 1,285 2,343 2,172 1,285 4,515 5,800 938 2013 2012Kings Court HealthHoldings LLC Richland Hills Ft. Worth, TX — 193 2,311 318 193 2,629 2,822 229 1965 201251st Avenue HealthHoldings LLC Legacy Amarillo, TX — 340 3,925 32 340 3,957 4,297 323 1970 2013Ives Health HoldingsLLC San Marcos San Marcos, TX — 371 2,951 274 371 3,225 3,596 236 1972 2013Guadalupe HealthHoldings LLC The Courtyard (Victoria East) Victoria, TX — 80 2,391 15 80 2,406 2,486 149 2013 2013Queens City HealthHoldings LLC La Villa (Victoria West) Victoria, TX — 212 732 8 212 740 952 69 1960 201349th Street HealthHoldings LLC Omaha Omaha, NE — 129 2,418 24 129 2,442 2,571 218 1970 2013Willows HealthHoldings LLC Cascade Vista Redmond, WA — 1,388 2,982 202 1,388 3,184 4,572 319 1966 2013Tulalip Bay Holdings Mountain View Marysville, WA — 1,722 2,642 (980) 742 2,642 3,384 220 1989 2013CTR Partnership,L.P. Bethany RehabilitationCenter Lakewood, CO — 1,668 15,375 — 1,668 15,375 17,043 352 1989 2015CTR Partnership,L.P. Mira Vista Care Center Mount Vernon,WA — 1,601 7,425 — 1,601 7,425 9,026 139 1987 2015CTR Partnership,L.P. Shoreline Health andRehabilitation Center Shoreline, WA — 1,462 5,034 — 1,462 5,034 6,496 73 2010 2015CTR Partnership,L.P. Shamrock Nursing andRehabilitation Center Dublin GA — 251 7,855 — 251 7,855 8,106 98 2014 2015CTR Partnership,L.P. Pristine Senior Living ofBeavercreek Beavercreek,OH — 892 17,159 — 892 17,159 18,051 107 2012 2015CTR Partnership,L.P. Pristine Senior Living ofCincinnati-Delhi Cincinnati, OH — 284 11,104 — 284 11,104 11,388 70 1992 2015CTR Partnership,L.P. Pristine Senior Living ofCincinnati-Riverview Cincinnati, OH — 833 18,086 — 833 18,086 18,919 113 1967 2015CTR Partnership,L.P. Pristine Senior Living ofCincinnati-Three Rivers Cincinnati, OH — 1,091 16,151 — 1,091 16,151 17,242 101 1962 2015CTR Partnership,L.P. Pristine Senior Living ofEnglewood Englewood, OH — 1,014 18,541 — 1,014 18,541 19,555 116 2008 2015CTR Partnership,L.P. Pristine Senior Living ofPortsmouth Portsmouth, OH — 282 9,726 — 282 9,726 10,008 61 2007 2015CTR Partnership,L.P. Pristine Senior Living ofToledo Toledo, OH — 93 10,365 — 93 10,365 10,458 65 1970 2015CTR Partnership,L.P. Pristine Senior Living ofOxford Oxford, OH — 211 8,772 — 211 8,772 8,983 55 2003 2015CTR Partnership,L.P. Pristine Senior Living ofBellbrook Bellbrook, OH — 214 2,573 — 214 2,573 2,787 16 1981 2015CTR Partnership,L.P. Pristine Senior Living ofXenia Xenia, OH — 205 3,564 — 205 3,564 3,769 22 1967 2015CTR Partnership,L.P. Pristine Senior Living ofJamestown Jamestown, OH — 266 4,725 — 266 4,725 4,991 30 1974 2015 82,272 66,748 366,403 81,235 65,738 448,648 514,386 75,161 Skilled NursingCampus Properties: Ensign SouthlandLLC Southland Care Norwalk, CA — 966 5,082 2,213 966 7,295 8,261 3,725 2011 1999F-37Table of ContentsSky Holdings AZ LLC Bella Vita (Desert Sky) Glendale, AZ 12,750 289 1,428 1,752 289 3,180 3,469 1,295 2004 2002Lemon River HoldingsLLC Plymouth Tower Riverside, CA — 494 1,159 4,853 494 6,012 6,506 1,773 2012 2009Wisteria HealthHoldings LLC Wisteria Abilene, TX — 746 9,903 290 746 10,193 10,939 1,249 2008 2011Mission CCRC LLC St. Joseph's Villa Salt Lake City,UT — 1,962 11,035 464 1,962 11,499 13,461 1,769 1994 2011Wayne HealthHoldings LLC Careage of Wayne Wayne, NE — 130 3,061 122 130 3,183 3,313 463 1978 20114th Street HealthHoldings LLC West Bend Care Center West Bend, IA — 180 3,352 — 180 3,352 3,532 469 2006 2011Big Sioux River HealthHoldings LLC Hillcrest Health Hawarden, IA — 110 3,522 75 110 3,597 3,707 466 1974 2011Prairie Health HoldingsLLC Colonial Manor ofRandolph Randolph, NE — 130 1,571 22 130 1,593 1,723 358 2011 2011Salmon River HealthHoldings LLC Discovery Care Center Salmon, ID — 168 2,496 — 168 2,496 2,664 213 2012 2012CTR Partnership, L.P. Pristine Senior Living ofDayton-Centerville Dayton, OH — 3,912 22,458 — 3,912 22,458 26,370 140 2007 2015CTR Partnership, L.P. Pristine Senior Living ofWillard Willard, OH — 143 11,097 — 143 11,097 11,240 69 1985 2015CTR Partnership, L.P. Pristine Senior Living ofMiddletown Middletown, OH — 990 7,484 — 990 7,484 8,474 47 1985 2015 12,750 10,220 83,648 9,791 10,220 93,439 103,659 12,036 Assisted andIndependent LivingProperties: Avenue N HoldingsLLC Cambridge ALF Rosenburg, TX — 124 2,301 392 124 2,693 2,817 905 2007 2006Moenium HoldingsLLC Grand Court Mesa, AZ — 1,893 5,268 1,210 1,893 6,478 8,371 2,202 1986 2007Lafayette HealthHoldings LLC Chateau Des Mons Englewood, CO — 420 1,160 189 420 1,349 1,769 230 2011 2009Expo Park HealthHoldings LLC Canterbury Gardens Aurora, CO — 570 1,692 248 570 1,940 2,510 429 1986 2010Wisteria HealthHoldings LLC Wisteria IND Abilene, TX — 244 3,241 81 244 3,322 3,566 603 2008 2011Everglades HealthHoldings LLC Lexington Ventura, CA — 1,542 4,012 113 1,542 4,125 5,667 444 1990 2011Flamingo HealthHoldings LLC Desert Springs ALF Las Vegas, NV — 908 4,767 281 908 5,048 5,956 1,187 1986 201118th Place HealthHoldings LLC Rose Court Phoenix, AZ — 1,011 2,053 490 1,011 2,543 3,554 396 1974 2011Boardwalk HealthHoldings LLC Park Place Reno, NV — 367 1,633 51 367 1,684 2,051 221 1993 2012Willows HealthHoldings LLC Cascade Plaza Redmond, WA — 2,835 3,784 395 2,835 4,179 7,014 415 2013 2013Lockwood HealthHoldings LLC Santa Maria Santa Maria, CA — 1,792 2,253 585 1,792 2,838 4,630 408 1967 2013Saratoga HealthHoldings LLC Lake Ridge Orem, UT — 444 2,265 176 444 2,441 2,885 157 1995 2013CTR Partnership, L.P. Lily & Syringa ALF Idaho Falls, ID — 70 2,674 — 70 2,674 2,744 72 1995 2014CTR Partnership, L.P. Caring Hearts Pocatello, ID — 80 3,404 — 80 3,404 3,484 93 2008 2014CTR Partnership, L.P. Turtle & Crain ALF Idaho Falls, ID — 110 5,427 — 110 5,427 5,537 147 2013 2014CTR Partnership, L.P. Prelude Cottages ofWoodbury Woodbury, MN — 430 6,714 — 430 6,714 7,144 168 2011 2014CTR Partnership, L.P. English Meadows SeniorLiving Community Christiansburg,VA — 250 6,114 — 250 6,114 6,364 153 2011 2014CTR Partnership, L.P. Bristol Court AssistedLiving Saint Petersburg,FL — 645 7,322 — 645 7,322 7,967 92 2010 2015CTR Partnership, L.P. Asbury Place AssistedLiving Pensacola, FL — 212 4,992 — 212 4,992 5,204 41 1997 2015F-38Table of Contents — 13,947 71,076 4,211 13,947 75,287 89,234 8,363 Independent LivingProperties: Hillendahl HealthHoldings LLC Cottages at Golden Acres Dallas, TX — 315 1,769 271 315 2,040 2,355 596 1984 2009Mission CCRC LLC St. Joseph's Villa IND Salt Lake City,UT — 411 2,312 125 411 2,437 2,848 532 1994 2011Hillview HealthHoldings LLC Lakeland Hills ALF Dallas, TX — 680 4,872 730 680 5,602 6,282 979 1996 2011 — 1,406 8,953 1,126 1,406 10,079 11,485 2,107 $95,022 $92,321 $530,080 $96,363 $91,311 $627,453 $718,764 $97,667 F-39Table of ContentsSCHEDULE IIIREAL ESTATE ASSETS AND ACCUMULATED DEPRECIATIONDECEMBER 31, 2015(dollars in thousands) Year Ended December 31,Real estate: 2015 2014 2013Balance at the beginning of theperiod $492,486 $456,052 $410,009Acquisitions 226,078 25,252 35,656Improvements 230 12,162 10,387Assets not transferred toCareTrust — (980) —Sales of vacant land (30) — —Balance at the end of the period $718,764 $492,486 $456,052Accumulated depreciation: Balance at the beginning of theperiod $(78,897) $(62,572) $(47,877)Depreciation expense (18,770) (16,325) (14,695)Balance at the end of the period $(97,667) $(78,897) $(62,572)F-40EXHIBIT 21.1LIST OF SUBSIDIARIES OF CARETRUST REIT, INC.*1.CareTrust GP, LLC** 50.Lockwood Health Holdings LLC2.CTR Partnership, L.P.** 51.Long Beach Health Associates LLC3.CareTrust Capital Corp.** 52.Lowell Health Holdings LLC4.18th Place Health Holdings LLC 53.Lowell Lake Health Holdings LLC5.49th Street Health Holdings LLC 54.Lufkin Health Holdings LLC6.4th Street Holdings LLC 55.Meadowbrook Health Associates LLC7.51st Avenue Health Holdings LLC 56.Memorial Health Holdings LLC8.Anson Health Holdings LLC 57.Mesquite Health Holdings LLC9.Arapahoe Health Holdings LLC 58.Mission CCRC LLC10.Arrow Tree Health Holdings LLC 59.Moenium Holdings LLC11.Avenue N Holdings LLC 60.Mountainview Communitycare LLC12.Big Sioux River Health Holdings LLC 61.Northshore Healthcare Holdings LLC13.Boardwalk Health Holdings LLC 62.Oleson Park Health Holdings LLC14.Bogardus Health Holdings LLC 63.Orem Health Holdings LLC15.Burley Healthcare Holdings LLC 64.Paredes Health Holdings LLC16.Casa Linda Retirement LLC 65.Plaza Health Holdings LLC17.Cedar Avenue Holdings LLC 66.Polk Health Holdings LLC18.Cherry Health Holdings LLC 67.Prairie Health Holdings LLC19.CM Health Holdings LLC 68.Price Health Holdings LLC20.Cottonwood Health Holdings LLC 69.Queen City Health Holdings LLC21.Dallas Independence LLC 70.Queensway Health Holdings LLC22.Dixie Health Holdings LLC 71.RB Heights Health Holdings LLC23.Emmett Healthcare Holdings LLC 72.Regal Road Health Holdings LLC24.Ensign Bellflower LLC 73.Renee Avenue Health Holdings LLC25.Ensign Highland LLC 74.Rillito Holdings LLC26.Ensign Southland LLC 75.Rio Grande Health Holdings LLC27.Everglades Health Holdings LLC 76.Salmon River Health Holdings LLC28.Expo Park Health Holdings LLC 77.Salt Lake Independence LLC29.Expressway Health Holdings LLC 78.San Corrine Health Holdings LLC30.Falls City Health Holdings LLC 79.Saratoga Health Holdings LLC31.Fifth East Holdings LLC 80.Silver Lake Health Holdings LLC32.Fig Street Health Holdings LLC 81.Silverada Health Holdings LLC33.Flamingo Health Holdings LLC 82.Sky Holdings AZ LLC34.Fort Street Health Holdings LLC 83.Snohomish Health Holdings LLC35.Gazebo Park Health Holdings LLC 84.South Dora Health Holdings LLC36.Gillette Park Health Holdings LLC 85.Stillhouse Health Holdings LLC37.Golfview Holdings LLC 86.Temple Health Holdings LLC38.Granada Investments LLC 87.Tenth East Holdings LLC39.Guadalupe Health Holdings LLC 88.Terrace Holdings AZ LLC40.Hillendahl Health Holdings LLC 89.Trinity Mill Holdings LLC41.Hillview Health Holdings LLC 90.Trousdale Health Holdings LLC42.Irving Health Holdings LLC 91.Tulalip Bay Health Holdings LLC43.Ives Health Holdings LLC 92.Valley Health Holdings LLC44.Jefferson Ralston Holdings LLC 93.Verde Villa Holdings LLC45.Jordan Health Properties LLC 94.Wayne Health Holdings LLC46.Josey Ranch Healthcare Holdings LLC 95.Willits Health Holdings LLC47.Kings Court Health Holdings LLC 96.Willows Health Holdings LLC48.Lafayette Health Holdings LLC 97.Wisteria Health Holdings LLC49.Lemon River Holdings LLC 98.CTR Arvada Preferred, LLC***Unless otherwise indicated, the jurisdiction of formation or incorporation, as applicable, of each of the subsidiaries listed herein is Nevada.**Formed or incorporated in Delaware.Exhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-196634) pertaining to the Incentive Award Plan of CareTrustREIT, Inc. and Form S-3 (No. 333-208925) of CareTrust REIT, Inc., of our report dated February 11, 2016, with respect to the consolidated and combinedfinancial statements and schedule of CareTrust REIT, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2015./s/ ERNST & YOUNG LLPIrvine, CaliforniaFebruary 11, 2016Exhibit 23.2Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in Registration Statement No. 333-196634 on Form S-8 and No. 333-208925 on Form S-3 of our report dated March14, 2014 (August 28, 2014 as to the earnings (loss) per share information described in Note 10 and the condensed combining information in Note 13), relating tothe combined financial statements and financial statement schedule of Ensign Properties (which report expresses an unqualified opinion and includes anexplanatory paragraph that refers to related party transactions with The Ensign Group, Inc.) appearing in the Annual Report on Form 10-K of CareTrust REIT, Inc.for the year ended December 31, 2015./s/ DELOITTE & TOUCHE LLP Costa Mesa, CaliforniaFebruary 11, 2016Exhibit 31.1CERTIFICATIONI, Gregory K. Stapley, certify that:1. I have reviewed this Annual Report on Form 10-K of CareTrust REIT, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. By: /s/ Gregory K. Stapley Gregory K. Stapley President and Chief Executive OfficerDate: February 11, 2016Exhibit 31.2CERTIFICATIONI, William M. Wagner, certify that:1. I have reviewed this Annual Report on Form 10-K of CareTrust REIT, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. By: /s/ William M. Wagner William M. Wagner Chief Financial Officer, Treasurer and SecretaryDate: February 11, 2016Exhibit 32Certification of Chief Executive Officer andChief Financial Officer Pursuant to18 U.S.C. Section 1350, As Adopted Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002In connection with the Annual Report on Form 10-K of CareTrust REIT, Inc. (the “Company”) for the fiscal year ended December 31, 2015, as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), Gregory K. Stapley, as President and Chief Executive Officer of the Company, andWilliam M. Wagner, as Chief Financial Officer, Secretary and Treasurer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to their knowledge:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Gregory K. StapleyName: Gregory K. StapleyTitle: President and Chief Executive OfficerDate: February 11, 2016 /s/ William M. WagnerName: William M. WagnerTitle: Chief Financial Officer, Treasurer and SecretaryDate: February 11, 2016The foregoing certification is being furnished pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities and ExchangeAct of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in suchfiling.

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