CareTrust REIT Annual Report 2018

Plain-text annual report

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, 2018or¨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: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨Indicate 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 the preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes 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 be contained,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 this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growthcompany. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:Large accelerated filerx Accelerated fileroNon-accelerated filero Smaller reporting companyo Emerging growth companyoIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨Indicate 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 was lastsold, 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: $1.3 billion.As of February 11, 2019, there were 88,846,942 shares of the registrant’s common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the definitive Proxy Statement for the registrant’s 2019 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within120 days after the end of fiscal year 2018, are incorporated by reference into Part III of this Report. Table of ContentsTABLE OF CONTENTS PART IItem 1.Business4Item 1A.Risk Factors15Item 1B.Unresolved Staff Comments32Item 2.Properties32Item 3.Legal Proceedings33Item 4.Mine Safety Disclosures33PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities33Item 6.Selected Financial Data35Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations36Item 7A.Quantitative and Qualitative Disclosures About Market Risk48Item 8.Financial Statements and Supplementary Data49Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures49Item 9A.Controls and Procedures49Item 9B.Other Information52PART IIIItem 10.Directors, Executive Officers and Corporate Governance52Item 11.Executive Compensation52Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters52Item 13.Certain Relationships and Related Transactions, and Director Independence52Item 14.Principal Accountant Fees and Services52PART IVItem 15.Exhibits, Financial Statements and Financial Statement Schedules53Item 16.10-K Summary54Signatures 542Table of ContentsSTATEMENT 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;expectations regarding the making of distributions and the payment of dividends; and compliance with and changes in governmental regulations.Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “may,” “will,” “would,” “could,” “should,” “seek(s)” and 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,forecasted or expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance thatour expectations will be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actualresults to differ materially from our expectations include, but are not limited to: (i) the ability and willingness of our tenants to meet and/or perform theirobligations under the triple-net leases we have entered into with them and the ability and willingness of Ensign Group, Inc. (“Ensign”) to meet and/orperform its other contractual arrangements that it entered into with us in connection with the Spin-Off (as hereinafter defined) and any of its obligations toindemnify, defend and hold us harmless from and against various claims, litigation and liabilities; (ii) the ability of our tenants to comply with laws, rules andregulations in the operation of the properties we lease to them; (iii) the ability and willingness of our tenants, including Ensign, to renew their leases with usupon their expiration, and the ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event we replace an existingtenant, and obligations, including indemnification obligations, we may incur in connection with the replacement of an existing tenant; (iv) the availabilityof and the ability to identify suitable acquisition opportunities and the ability to acquire and lease the respective properties on favorable terms; (v) the abilityto generate sufficient cash flows to service our outstanding indebtedness; (vi) access to debt and equity capital markets; (vii) fluctuating interest rates; (viii)the ability to retain our key management personnel; (ix) the ability to maintain our status as a real estate investment trust (“REIT”); (x) changes in the U.S.tax law and other state, federal or local laws, whether or not specific to REITs; (xi) other risks inherent in the real estate business, including potential liabilityrelating to environmental matters and illiquidity of real estate investments; and (xii) any additional factors included in this report, including in the sectionentitled “Risk Factors” in Item 1A of this report, as such risk factors may be amended, supplemented or superseded from time to time by other reports we filewith the Securities and Exchange Commission (“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 in the normal course of our public disclosure obligations, we expresslydisclaim any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or anychange in events, conditions or circumstances on which any statement 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 toSEC reporting requirements. Ensign is subject to the reporting requirements of the SEC and is required to file with the SEC annual reports containing auditedfinancial information and quarterly reports containing unaudited financial information. You are encouraged to review Ensign’s publicly available filings,which can be found at the SEC’s website at www.sec.gov.The information related to our tenants contained or referred to in this Annual Report on Form 10-K was provided to us by such tenants or, in the case ofEnsign, derived from SEC filings made by Ensign or other publicly available information. We have not verified this information through an independentinvestigation or otherwise. We have no reason to believe that this information is inaccurate in any material respect, but we cannot provide any assurance ofits accuracy. We are providing this data for informational purposes only.3Table of ContentsPART IAll references in this report to “CareTrust REIT,” the “Company,” “we,” “us” or “our” mean CareTrust REIT, Inc. together with its consolidatedsubsidiaries. Unless the context suggests otherwise, references to “CareTrust REIT, Inc.” mean the parent company without its subsidiaries.ITEM 1.BusinessOur CompanyCareTrust REIT is a self-administered, publicly-traded REIT engaged in the ownership, acquisition, development and leasing of seniors housing andhealthcare-related properties. CareTrust REIT was formed on October 29, 2013 as a wholly owned subsidiary of Ensign with the intent to hold substantiallyall of Ensign’s real estate business, and became a separate and independent publicly-traded company on June 1, 2014 following the pro rata distribution ofthe outstanding shares of CareTrust REIT common stock to Ensign’s stockholders (the “Spin-Off”). As of December 31, 2018, CareTrust REIT’s real estateportfolio consisted of 194 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities(“ILFs”). Of these properties, 92 are leased to Ensign on a triple-net basis under multiple long-term leases (each, an “Ensign Master Lease” and, collectively,the “Ensign Master Leases”) that have cross default provisions and are all guaranteed by Ensign. As of December 31, 2018, the 92 facilities leased to Ensignhad a total of 9,801 beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington and the 102remaining leased facilities had a total of 9,285 beds and units and are located in California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa,Maryland, Michigan, Minnesota, Montana, New Mexico, North Carolina, North Dakota, Ohio, Oregon, South Dakota, Texas, Virginia, Washington, WestVirginia and Wisconsin. We also own and operate three ILFs which had a total of 264 units located in Texas and Utah. As of December 31, 2018, theCompany also had other real estate investments consisting of $5.7 million for two preferred equity investments and a mortgage loan receivable of $12.3million.From January 1, 2018 through February 13, 2019, we acquired fourteen SNFs and three multi-service campuses and provided a term loan secured byfirst mortgages on five SNFs for approximately $177.7 million, which includes actual and estimated capitalized acquisition costs and a $1.4 millioncommitment to fund revenue-producing capital expenditures over the next 24 months on one newly acquired multi-service campus. These acquisitions areexpected to generate initial annual cash revenues of approximately $14.8 million and an initial blended yield of approximately 8.9%.On January 27, 2019, we entered into a Membership Interest Purchase Agreement (“MIPA”) to acquire from BME Texas Holdings, LLC, in a singletransaction, 100% of the membership interests in twelve separate, newly-formed special-purpose limited liability companies (the “SPEs”), each of which willown at closing a single real estate asset. The real estate assets include ten operating skilled nursing facilities and two operating skilled nursing/seniorshousing campuses, primarily located in the southeastern United States. The aggregate purchase price for the acquisition is approximately $211.0 million,exclusive of transaction costs. See Management’s Discussion and Analysis - Recent Investments for additional information.We operate as a REIT that invests in income-producing healthcare-related properties. We generate revenues primarily by leasing healthcare-relatedproperties to healthcare operators in triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property (includingproperty taxes, insurance, and maintenance and repair costs). We conduct and manage our business as one operating segment for internal reporting andinternal decision making purposes. We expect to grow our portfolio, which primarily consists of SNFs, multi-service campuses, ALFs and ILFs, by pursuingopportunities 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 propertiesin different geographic markets, and in different asset classes.We 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 REIT’s wholly owned subsidiary, CareTrust GP, LLC, which is the sole generalpartner of the Operating Partnership. To maintain REIT status, we must meet a number of organizational and operational requirements, including arequirement that we annually distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paiddeduction and excluding any net capital gains.4Table of ContentsOur IndustryThe skilled nursing industry has evolved to meet the growing demand for post-acute and custodial healthcare services generated by an agingpopulation, increasing life expectancies and the trend toward shifting of patient care to lower cost settings. We believe this evolution has led to a number offavorable 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.In response, federal and state governments have adopted cost-containment measures that encourage the treatment of patients in more cost-effective settings such as SNFs, for which the staffing requirements and associated costs are often significantly lower than acute care hospitals,inpatient rehabilitation facilities and other post-acute care settings. As a result, SNFs are generally serving a larger population of higher-acuitypatients than in the past.•Significant Acquisition and Consolidation Opportunities. The skilled nursing industry is large and highly fragmented, characterizedpredominantly by numerous local and regional providers. We believe this fragmentation provides significant acquisition and consolidationopportunities 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 2016, as compared withover 16,700 facilities as of December 2000. We expect that the supply and demand balance in the skilled nursing industry will continue toimprove due to the 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 Statesand seniors account for a higher percentage of the total U.S. population, we believe the overall demand for skilled nursing services will increase.At present, the primary market demographic for skilled nursing services is individuals age 75 and older. According to the 2012 U.S. Census, therewere over 41.5 million people in the United States in 2012 that were over 65 years old. The 2012 U.S. Census estimates this group is one of thefastest growing segments of the United States population and is expected to more than double between 2000 and 2030. According to the Centersfor Medicare & Medicaid Services, nursing home expenditures are projected to grow from approximately $156 billion in 2014 to approximately$274 billion in 2024, representing a compounded annual growth rate of 5.3%. We believe that these trends will support an increasing demand forskilled nursing 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 requiringthe more extensive and sophisticated treatment available at acute care hospitals. Treatment programs include physical, occupational, speech,respiratory and other therapies, including sub-acute clinical protocols such as wound care and intravenous drug treatment. Charges for theseservices are generally paid from a combination of government reimbursement and private sources. As of December 31, 2018, our portfolioincluded 158 SNFs, 18 of which include assisted or independent living operations which we refer to as multi-service campuses.•Assisted Living Facilities. ALFs are licensed healthcare facilities that provide personal care services, support and housing for those who needhelp with 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,meals in a dining room setting and other activities sought by residents. These facilities are often in apartment-like buildings with privateresidences ranging from single rooms to large apartments. Certain ALFs may offer higher levels of personal assistance for residents requiringmemory care as a result of Alzheimer’s disease or other forms of dementia. Levels of personal assistance are based in part on local regulations. Asof December 31, 2018, our portfolio included 35 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 facilitiestypically consist of entirely self-contained apartments, complete with their own kitchens, baths and individual living spaces, as well as parkingfor tenant vehicles. They are most often rented unfurnished, and generally can be personalized by the tenants, typically an individual or a coupleover the age of 55. These facilities offer various services and amenities such as laundry, housekeeping, dining options/meal plans, exercise andwellness programs, transportation, social, cultural and recreational activities, on-site security and5Table of Contentsemergency response programs. As of December 31, 2018, our portfolio of four ILFs includes one that is operated by Ensign and three that areoperated by us.Our portfolio of SNFs, ALFs and ILFs is broadly diversified by geographic location throughout the United States, with concentrations in Texas,California, and Ohio.Significant Master LeasesWe have leased 92 of our properties to subsidiaries of Ensign pursuant to the Ensign Master Leases, which consist of eight triple-net leases, each withits own pool of properties, that have varying maturities and diversity in both property type and geography. The Ensign Master Leases provide for initial termsin excess 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 toeither two 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 theEnsign Master 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 Leaseswere $56.0 million during each of the first two years of the Ensign Master Leases. As of December 31, 2018, the annualized revenues from the Ensign MasterLeases were $59.1 million. The Ensign Master Leases are guaranteed by Ensign.Because we lease many of our properties to Ensign, it represents a substantial portion of our revenues, and its financial condition and ability andwillingness to (i) satisfy its obligations under the Ensign Master Leases and (ii) renew those leases upon expiration of the initial base terms thereof,significantly impacts our revenues and our ability to service our indebtedness and to make distributions to our stockholders. There can be no assurance thatEnsign has sufficient assets, income and access to financing to enable it to satisfy its obligations under the Ensign Master Leases, and any inability orunwillingness on its part to do so would have a material adverse effect on our business, financial condition, results of operations and liquidity, on our abilityto service our indebtedness and other obligations and on our ability to pay dividends to our stockholders, as required for us to qualify, and maintain ourstatus, as a REIT. We also cannot assure you that Ensign will elect to renew its lease arrangements with us upon expiration of the initial base terms or anyrenewal terms thereof or, if such leases are not renewed, that we can reposition the affected properties on the same or better terms. See “Risk Factors - RisksRelated to Our Business - We are dependent on Ensign and other healthcare operators to make payments to us under leases, and an event that materially andadversely affects their business, financial position or results of operations could materially and adversely affect our business, financial position or results ofoperations.”We monitor the creditworthiness of our tenants by evaluating the ability of the tenants to meet their lease obligations to us based on the tenants’financial performance, including the evaluation of any guarantees of tenant lease obligations. The primary basis for our evaluation of the credit quality of ourtenants (and more specifically the tenants’ ability to pay their rent obligations to us) is the tenants’ lease coverage ratios. These coverage ratios include (i)earnings before interest, income taxes, depreciation, amortization and rent (“EBITDAR”) to rent coverage, and (ii) earnings before interest, income taxes,depreciation, amortization, rent and management fees (“EBITDARM”) to rent coverage. We utilize a standardized 5% management fee when we calculatelease coverage ratios. We obtain various financial and operational information from our tenants each month and review this information in conjunction withthe above-described coverage metrics to determine trends and the operational and financial impact of the environment in the industry (including the impactof government reimbursement) and the management of the tenant’s operations. These metrics help us identify potential areas of concern relative to ourtenants’ credit quality and ultimately the tenants’ ability to generate sufficient liquidity to meet its obligations, including its obligation to continue to paythe rent due to us.6Table 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 foroccupancy by asset class, as of December 31, 2018. The number of beds or units that are operational may be less than the official licensed capacity. Total(1) SNFs Multi-Service Campuses ALFs and ILFs(1)State PropertiesBeds/Units FacilitiesBeds CampusesBeds/Units FacilitiesBeds/Units TX 344,145 273,386 2357 5402 CA 263,130 192,201 4654 3275OH 161,484 12949 4535 ——ID 151,241 141172 169 —— IA 15986 13815 2171 —— UT 121,306 9907 1272 2127 WA 121,015 11913 —— 1102 AZ 101,327 7799 1262 2266MI 10669 6480 —— 4189IL 7644 7644 —— ——CO 7770 5517 —— 2253NE 5366 3220 2146 —— VA 5251 —— —— 5251 FL 4404 —— —— 4404NV 3304 192 —— 2212WI 3206 —— —— 3206NC 2100 —— —— 2100MN 262 —— —— 262IN 1162 —— —— 1162NM 1136 1136 —— ——MD 1120 —— —— 1120ND 1110 1110 —— —— GA 1105 1105 —— ——MT 1100 1100 —— —— SD 199 199 —— ——WV 155 —— 155 ——OR 153 1.0053.00 —— ——Total 19719,350 14013,698 182,521 393,131 (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, 2018, 2017 and 2016. Percentage occupancy in thebelow table 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 of acquired facilities are included in the computation following the date of acquisition only).7Table of Contents Year Ended December 31,Property Type201820172016Facilities Leased to Tenants: (1) SNFs77%78%78% Multi-Service Campuses77%79%77% ALFs and ILFs84%82%85%Facilities Operated by CareTrust REIT: ILFs83%80%76% (1)Financial data were derived solely from information provided by our tenants without independent verification by us. The leased facility financial performance data is presentedone quarter in arrears.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, 2018 and 2017. For the Year Ended December 31, 2018Property TypeRental Income(in thousands)Percentof Total Total Beds/Units SNFs$102,55573%13,698Multi-Service Campuses15,54311%2,521ALFs and ILFs21,97516%2,867Total$140,073100%19,086 For the Year Ended December 31, 2017Property TypeRental Income(in thousands)Percentof Total Total Beds/Units SNFs$82,55070%12,716Multi-Service Campuses15,22813%2,264ALFs and ILFs19,85517%3,084Total$117,633100%18,064Geographic Concentration - Rental Income:The following table displays the geographic distribution of annual rental income for properties leased to third-party tenants for the years endedDecember 31, 2018 and 2017.8Table of Contents For the Year Ended December 31, 2018 For the Year Ended December 31, 2017State Rental Income(in thousands)Percentof Total Rental Income(in thousands)Percentof Total CA$26,89719% $20,89618%TX26,56719% 24,07220%OH17,30012% 17,92815%ID10,7708% 6,9636%AZ9,1257% 8,9168%WA6,3535% 5,2724%UT6,1254% 5,9655%MI6,0044% 2,7742%IA5,8054% 5,4715%CO4,1923% 4,0393%IL3,7923% 2,6532%VA3,1372% 1,8562%WI2,8502% 2,5392%FL1,5271% 1,0611%NE1,3961% 1,3601%MN1,2751% 8921%NC1,0691% 1,0441%NM1,0461% 6621%NV1,0381% 1,0101%IN9371% 8031%GA8801% 8181%MD535—% 459—%MT495—% ——%SD395—% ——%OR368—% 180—%WV115—% ——%ND80—% ——%Total$140,073100% $117,633100% ILFs Operated by CareTrust REIT:The following table displays the geographic distribution of ILFs operated by CareTrust REIT and the related number of operational units available foroccupancy as of December 31, 2018. The following table also displays the average monthly revenue per occupied unit for the years ended December 31,2018 and 2017. For the Year EndedDecember 31, 2018For the Year EndedDecember 31, 2017StateFacilities UnitsAverage MonthlyRevenue PerOccupied Unit(1)Average MonthlyRevenue PerOccupied Unit(1)TX2207$1,236$1,236UT1571,2681,337Total32641,2441,263 (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, 2018 are:•Lakeland Hills Independent Living, located in Dallas, Texas, with 168 units;•The Cottages at Golden Acres, located in Dallas, Texas, with 39 units; and9Table of Contents•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 withcash flow growth potential. We intend to invest primarily in SNFs and seniors housing, including ALFs and ILFs, as well as medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities. Our properties are located in 27 states and we intend to continue to acquire properties in otherstates throughout the United States. Although our portfolio currently consists primarily of owned real property, future investments may include firstmortgages, mezzanine debt and other securities issued by, or joint ventures with, REITs or other entities that own real estate consistent with our investmentobjectives.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 27 different states, with concentrations in Texas, California and Ohio. Theproperties in any one state do not account for more than 21% of our total beds and units as of December 31, 2018. We believe this geographic diversificationwill limit the effect of 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 leasedproperties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other servicesnecessary or appropriate 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 41%of our 2018 revenues, exclusive of tenant reimbursements. Ensign is subject to the reporting requirements of the SEC and is required to file with the SECannual reports containing audited financial information and quarterly reports containing unaudited financial information. Ensign’s publicly available filingscan be found at the SEC’s website at www.sec.gov.Ability to Identify Talented Operators. We have purchased 108 properties since the Spin-Off through December 31, 2018 and have increased totalrental revenue from $41.2 million for the year ended December 31, 2013, the last full fiscal year prior to the Spin-Off, to $140.1 million for the year endedDecember 31, 2018, which has resulted in a reduction in Ensign’s share of our rental revenues from approximately 100% for the year ended December 31,2013 to approximately 41% for the year ended December 31, 2018, in each case exclusive of tenant reimbursements. As a result of our management team’soperating experience and network of relationships and insight, we believe that we are able to identify and pursue working relationships with qualified local,regional and national healthcare providers and seniors housing operators. We expect to continue our disciplined focus on pursuing investment opportunities,primarily with respect to stabilized assets but also some strategic investment in new and/or improving properties, while seeking dedicated and engagedoperators who possess local market knowledge, have solid operating records and emphasize quality services and outcomes. We intend to support theseoperators by providing strategic capital for facility acquisition, upkeep and modernization. Our management team’s experience gives us a key competitiveadvantage in objectively evaluating an operator’s financial position, care and service programs, operating efficiencies and likely business prospects.Experienced Management Team. Gregory K. Stapley, our President and Chief Executive Officer, has extensive experience in the real estate andhealthcare industries. Mr. Stapley has more than 30 years of experience in the acquisition, development and disposition of real estate including healthcarefacilities and office, retail and industrial properties, including nearly 15 years at Ensign where he was instrumental in assembling the portfolio that we nowlease back to Ensign. Our Chief Financial Officer, William M. Wagner, has more than 25 years of accounting and finance experience, primarily in real estate,including more than 14 years of experience working extensively for REITs. Most notably, he worked for both Nationwide Health Properties, Inc., a healthcareREIT, and Sunstone Hotel Investors, Inc., a lodging REIT, serving as Senior Vice President and Chief Accounting Officer of each company prior to joining usas our Chief Financial Officer. David M. Sedgwick, our Chief Operating Officer, is a licensed nursing home administrator with more than 13 years ofexperience in skilled nursing operations, including turnaround operations, and trained over 100 Ensign nursing home administrators while he was Ensign’sChief Human Capital Officer. Mark Lamb, our Chief Investment Officer, is a licensed nursing home administrator with more10Table of Contentsthan six years serving as administrator of healthcare facilities for Plum Healthcare and North American Healthcare, Inc. and more than seven years serving inacquisition and portfolio management capacities for various entities. Our executives have years of public company experience, including experienceaccessing both debt and equity capital markets to fund growth and maintain a flexible capital structure.Flexible UPREIT Structure. We operate through an umbrella partnership, commonly referred to as an UPREIT structure, in which substantially all ofour properties and assets are held through the Operating Partnership. Conducting business through the Operating Partnership will allow us flexibility in themanner in which we structure the acquisition of properties. In particular, an UPREIT structure enables us to acquire additional properties from sellers inexchange for limited partnership units, which provides property owners the opportunity to defer the tax consequences that would otherwise arise from a saleof their real properties and other assets to us. As a result, this structure allows us to acquire assets in a more efficient manner and may allow us to acquire assetsthat the owner would otherwise 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. Toachieve this goal, we intend to pursue a business strategy focused on opportunistic acquisitions and property diversification. We also intend to furtherdevelop our relationships with tenants and healthcare providers with a goal to progressively expand the mixture of tenants managing and operating ourproperties.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 ofcurrent facilities and strategically investing in new developments with options to acquire the developments at stabilization. We employ what we believe tobe a disciplined, opportunistic acquisition strategy with a focus on the acquisition of skilled nursing, assisted living and independent living facilities, as wellas medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities. As we acquire additional properties, we expect to furtherdiversify 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 and unsecured debt which, together with our anticipated ability to complete future equityfinancings, including issuances of our common stock under an at-the-market equity program, 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 tenantsoperating our 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 overallstrategy to acquire 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 ofreturn, which, due to size and other considerations, are not a focus for larger healthcare REITs. We pursue acquisitions and strategic opportunities that meetour investing and financing strategy and that are attractively priced, including funding development of properties through preferred equity or constructionloans and thereafter entering into sale and leaseback arrangements with such developers as well as other secured term financing and mezzanine lending. Weutilize our management team’s operating experience, network of relationships and industry insight to identify both large and small quality operators in needof capital funding for future growth. In appropriate circumstances, we may negotiate with operators to acquire individual healthcare properties from thoseoperators and then lease those properties 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 byoperators during the applicable lease term.Pursue Strategic Development Opportunities. We work with operators and developers to identify strategic development opportunities. Theseopportunities may involve replacing or renovating facilities that may have become less competitive. We also identify new development opportunities thatpresent attractive risk-adjusted returns. We may provide funding to the developer of a property in conjunction with entering into a sale leaseback transactionor an option to enter into a sale leaseback transaction for the property.11Table of ContentsCompetitionWe compete for real property investments with other REITs, investment companies, private equity and hedge fund investors, sovereign funds, pensionfunds, healthcare operators, lenders and other institutional investors. Some of these competitors are significantly larger and have greater financial resourcesand lower costs of capital than us. Increased competition will make it more challenging to identify and successfully capitalize on acquisition opportunitiesthat meet our investment objectives. Our ability to compete is also impacted by national and local economic trends, availability of investment alternatives,availability and cost of 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.Healthcare operators compete on a local and regional basis for residents and patients and their ability to successfully attract and retain residents and patientsdepends on key factors such as the number of facilities in the local market, the types of services available, the quality of care, reputation, age and appearanceof each facility and the cost of care in each locality. Private, federal and state payment programs and the effect of other laws and regulations may also have asignificant impact on the ability of our tenants and operators to compete successfully for residents and patients at the properties.EmployeesWe employ approximately 57 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, stateand local healthcare laws and regulations relating to fraud and abuse practices, government reimbursement, licensure and certificate of need and similar lawsgoverning the operation of healthcare facilities, and we expect that the healthcare industry, in general, will continue to face increased regulation and pressurein the areas of fraud, waste and abuse, cost control, healthcare management and provision of services, among others. These regulations are wide-ranging andcan subject our tenants to civil, criminal and administrative sanctions. Affected tenants may find it increasingly difficult to comply with this complex andevolving regulatory environment because of a relative lack of guidance in many areas as certain of our healthcare properties are subject to oversight fromseveral government agencies and the laws may vary from one jurisdiction to another. Changes in laws and regulations and reimbursement enforcementactivity and regulatory non-compliance by our tenants could have a significant effect on their operations and financial condition, which in turn mayadversely affect us, as detailed below and set forth under “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 andprohibiting fraudulent and abusive practices by such providers. These laws include, but are not limited to, (i) federal and state false claims acts, which, amongother things, prohibit providers from filing false claims or making false statements to receive payment from Medicare, Medicaid or other federal or statehealthcare programs, (ii) federal and state anti-kickback and fee-splitting statutes, including the Medicare and Medicaid anti-kickback statute, which prohibitthe payment or receipt of remuneration to induce referrals or recommendations of healthcare items or services, (iii) federal and state physician self-referrallaws (commonly referred to as the “Stark Law”), which generally prohibit referrals by physicians to entities with which the physician or an immediate familymember has a financial relationship, (iv) the federal Civil Monetary Penalties Law, which prohibits, among other things, the knowing presentation of a falseor fraudulent claim for certain healthcare services and (v) federal and state privacy laws, including the privacy and security rules contained in the HealthInsurance Portability and Accountability Act of 1996, which provide for the privacy and security of personal health information. Violations of healthcarefraud and abuse laws carry civil, criminal and administrative sanctions, including punitive sanctions, monetary penalties, imprisonment, denial of Medicareand Medicaid reimbursement and potential exclusion from Medicare, Medicaid or other federal or state healthcare programs. These laws are enforced by avariety of federal, state and local agencies and can also be enforced by private litigants through, among other things, federal and state false claims acts, whichallow 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)12Table of Contentssubject to these laws, and some of them may in the future become the subject of governmental enforcement actions if they fail to comply with applicablelaws.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 facesignificant budget deficits, efforts to reduce costs by these payors will likely continue, which may result in reduced or slower growth in reimbursement forcertain services provided by Ensign and our other tenants.Increased Government Oversight of Skilled Nursing FacilitiesSection 1150B of the Social Security Act requires employees of federally funded long-term care facilities to immediately report any reasonablesuspicion of a crime committed against a resident of that facility. Those reports must be submitted to at least one law enforcement agency and the applicableCenters for Medicare & Medicaid Services (“CMS”) Survey Agency. Covered individuals who fail to report under Section 1150B are subject to variouspenalties, including civil monetary penalties of up to $300,000 and possible exclusion from participation in any Federal health care program. Medicareregulations require SNFs to establish and implement written policies to ensure the reporting of crimes that occur in federally funded SNFs in accordance withSection 1150B.In August 2017, the U.S. Department of Health & Human Services (“HHS”) Office of Inspector General (“OIG”) issued a preliminary report regardingquality of care concerns by operators of SNFs. In its report, the OIG determined that CMS has inadequate procedures in place to ensure that incidents ofpotential abuse or neglect of Medicare beneficiaries residing in SNFs are identified and reported. The report was issued in connection with the OIG’s ongoingreview of potential abuse and neglect of Medicare beneficiaries residing in SNFs.As a result of the OIG report, CMS enforcement activity against SNF operators may increase, especially with regard to the reporting of potential abuse orneglect of SNF residents. If any of our tenants or their employees are found to have violated any applicable reporting requirements, they may become subjectto penalties or other sanctions.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.The approval 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. Theselaws may require removal of barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable.Under our triple-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.These complex federal and state statutes, and their enforcement, involve a myriad of regulations, many of which involve strict liability on the part of thepotential offender. Some of these federal and state statutes may directly impact us. Under various federal, state and local environmental laws, ordinances andregulations, an owner of real property, such as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposedof in connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages forinjuries to persons and adjacent property). The cost of any required remediation, removal, fines or13Table of Contentspersonal or property damages and the owner’s liability therefore could exceed or impair the 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 such substances, may adversely affect the owner’s ability to sell or rent suchproperty or to borrow using such property as collateral which, in turn, could reduce our revenues. See “Risk Factors - Risks Related to Our Business -Environmental compliance costs and liabilities associated with real estate properties owned by us may materially impair the value of those investments.”REIT 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 stockholdersand the concentration of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification and taxationas a REIT under the Code and that our manner of operation has and will enable us to continue to meet the requirements for qualification and taxation as aREIT.The Operating PartnershipWe own substantially all of our assets and properties and conduct our operations through the Operating Partnership. We believe that conductingbusiness through the Operating Partnership provides flexibility with respect to the manner in which we structure the acquisition of properties. In particular, anUPREIT structure enables us to acquire additional properties from sellers in tax deferred transactions. In these transactions, the seller would typicallycontribute its assets to the Operating Partnership in exchange for units of limited partnership interest in the Operating Partnership (“OP Units”). Holders of OPUnits 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 thefair market value of an equivalent number of shares of CareTrust REIT’s common stock at the time of the redemption. Alternatively, we may elect to acquirethose OP Units in exchange for shares of our common stock on a one-for-one basis. The number of shares of common stock used to determine the redemptionvalue of OP Units, and the number of 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, specified extraordinary distributions and similar events. The Operating Partnership is managed by our wholly ownedsubsidiary, CareTrust GP, LLC, which is the sole general partner of the Operating Partnership and owns one percent of its outstanding partnership interests. Asof December 31, 2018, CareTrust REIT is the only limited partner of the Operating Partnership, owning 99% of its outstanding partnership interests, and wehave 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 offeringsor private placements.•Growth. The UPREIT structure allows stockholders, through their ownership of common stock, and the limited partners, through their ownershipof OP 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 athird party. As a result, this structure allows us to acquire assets in a more efficient manner and may allow us to acquire assets that the ownerwould otherwise 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 propertiesand their operations. The amount and scope of insurance coverage provided by our policies and the policies maintained by our tenants is customary forsimilarly situated companies in our industry. However, we cannot assure you that our tenants will maintain the required insurance coverages, and the failureby any of them to 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 insurancecoverage under our leases, including the Ensign Master Leases, that such insurance will be available at a reasonable cost in the future or that the insurancecoverage provided will fully cover all losses on our properties upon the occurrence of a catastrophic event, nor can we assure you of the future financialviability of the insurers.14Table of ContentsAvailable InformationWe file annual, quarterly and current reports, proxy statements and other information with SEC. The SEC maintains an internet site that contains thesereports, and other information about issuers, like us, which file electronically with the SEC. The address of that site is http://www.sec.gov. We make availableour reports on Form 10-K, 10-Q, and 8-K (as well as all amendments to these reports), and other information, free of charge, at the Investor Relations section ofour website at www.caretrustreit.com. The information found on, or otherwise accessible through, our website is not incorporated by reference into, nor does itform a part of, this report or any other document that we file with the SEC.ITEM 1A.Risk FactorsRisks Related to Our BusinessWe are dependent on Ensign 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.As of December 31, 2018, Ensign represents $59.1 million or 41%, of our rental revenues, on an annualized run-rate basis. Additionally, because eachmaster lease is a triple-net lease, we depend on our tenants to pay all insurance, taxes, utilities and maintenance and repair expenses in connection with theseleased properties and to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with theirbusiness. There can be no assurance that Ensign or our other tenants will have sufficient assets, income and access to financing to enable them to satisfy theirpayment or indemnification obligations under their leases with us. In addition, any failure by a tenant to effectively conduct its operations or to maintain andimprove our properties could adversely affect its business reputation and its ability to attract and retain residents in our properties. The inability orunwillingness of Ensign to meet its rent obligations under its 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 to satisfy its other obligationsunder its leases, such as the payment of insurance, taxes and utilities, could materially and adversely affect the condition of the leased properties as well asEnsign’s business, financial position and results of operations. For these reasons, if Ensign were to experience a material and adverse effect on its business,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 for a substantial portion of our revenues, we may be limited in our ability to enforce our rightsunder, or to terminate, Ensign’s leases. Failure by Ensign to comply with the terms of its leases or to comply with federal and state healthcare laws andregulations to which the leased properties are subject could require us to find another lessee for such leased property and there could be a decrease in orcessation of rental payments. In such event, we may be unable to locate a suitable lessee at similar rental rates or at all, which would have the effect ofreducing our rental revenues.The impact of healthcare reform legislation on us and our tenants cannot accurately be predicted.Ensign and other healthcare operators to which we lease properties are dependent on the healthcare industry and may be susceptible to the risksassociated with healthcare reform. Because all of our properties are used as healthcare properties, we are impacted by the risks associated with healthcarereform. Legislative proposals are introduced or proposed in Congress and in some state legislatures each year that would affect major changes in thehealthcare system, either nationally or at the state level. We cannot accurately predict whether any future legislative proposals will be adopted or, if adopted,what effect, if any, these proposals would have on our tenants and, thus, our business.In March 2010, President Obama signed the Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the“Affordable Care Act”) into law. The passage of the Affordable Care Act resulted in comprehensive reform legislation that expanded healthcare coverage tomillions of uninsured people and provided for significant changes to the U.S. healthcare system over several years. In May 2017, members of the House ofRepresentatives approved legislation to repeal portions of the Affordable Care Act, which legislation was submitted to the Senate for approval. On July 25,2017, the Senate rejected a complete repeal; however, on December 22, 2017, the Tax Cuts and Jobs Act was enacted and signed into law, one part of whichrepealed the "individual mandate" introduced by the Affordable Care Act starting in 2019. Furthermore, on October 12, 2017, President Trump signed anExecutive Order, the purpose of which was to, among other things, (i) cut healthcare cost-sharing reduction subsidies, (ii) allow more small businesses to jointogether to purchase insurance coverage,15Table of Contents(iii) extend short-term coverage policies, and (iv) expand employers’ ability to provide workers cash to buy coverage elsewhere. At this time, it is uncertainwhether any additional healthcare reform legislation will ultimately become law and we cannot predict the ultimate content, timing or effect of anyhealthcare reform legislation or the impact of potential legislation on our business. If our tenants’ patients do not have insurance, it could adversely impactthe tenants’ ability to pay rent and operate a practice.Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted, which also may impact our business. Forinstance, on April 1, 2014, President Obama signed the Protecting Access to Medicare Act of 2014, which, among other things, requires the CMS to measure,track, and publish readmission rates of SNFs by 2017 and implement a value-based purchasing program for SNFs (the “SNF VBP Program”), whichcommenced October 1, 2018. The SNF VBP Program increases Medicare reimbursement rates for SNFs that achieve certain levels of quality performancemeasures developed by CMS, relative to other facilities. The value-based payments authorized by the SNF VBP Program funded by reducing Medicarepayment for all SNFs by 2% and redistributing up to 70% of those funds to high-performing SNFs. However, there is no assurance that payments made byCMS as a result of the SNF VBP Program will be sufficient to cover a facility’s costs. If Medicare reimbursement provided to our healthcare tenants is reducedunder the SNF VBP Program, that reduction may have an adverse impact on the ability of our tenants to meet their obligations to us.Additionally, on November 16, 2015, CMS issued the final rule for a new mandatory Comprehensive Care for Joint Replacement (“CJR”) modelfocusing on coordinated, patient-centered care. Under this model, the hospital in which the hip or knee replacement takes place is accountable for the costsand quality of care from the time of the surgery through 90 days after, or an “episode” of care. This model initially covered 67 geographic areas throughoutthe country and most hospitals in those regions are required to participate. Following the implementation of the CJR program, the Medicare revenues of ourSNF-operating tenants related to lower extremity joint replacement hospital discharges could be increased or decreased in those geographic areas identifiedby CMS for mandatory participation in the bundled payment program. If Medicare reimbursement provided to our healthcare tenants is reduced under theCJR model, that reduction may have an adverse impact on the ability of our tenants to meet their obligations to us.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 a significant focus for federal and state authorities in their efforts to control costs. We cannot makeany assessment as to the ultimate timing or the effect that any future legislative reforms may have on our tenants’ costs of doing business and on the amountof reimbursement by government and other third-party payors. More generally, and because of the dynamic nature of the legislative and regulatoryenvironment for health care products and services, and in light of existing federal budgetary concerns, we cannot predict the impact that broad-based, far-reaching legislative or regulatory changes could have on the U.S. economy, our business or that of our operators and tenants. The failure of Ensign or any ofour operators and other tenants to comply with these laws, requirements and regulations could materially and adversely affect their ability to meet theirfinancial and contractual obligations to us.Finally, government investigations and enforcement actions brought against the health care industry have increased dramatically over the past severalyears and are expected to continue. Some of these enforcement actions represent novel legal theories and expansions in the application of the False ClaimsAct.The False Claims Act provides that any person who “knowingly presents, or causes to be presented” a “false or fraudulent claim for payment orapproval” to the U.S. government, or its agents and contractors, is liable for a civil penalty ranging from $5,500 to $11,000 per claim, plus three times theamount of damages sustained by the government. Under the16Table of ContentsFalse Claims Act’s so-called “reverse false claims,” liability also could arise for “using” a false record or statement to “conceal,” “avoid” or “decrease” an“obligation” (which can include the retention of an overpayment) “to pay or transmit money or property to the Government.” The False Claims Act alsoempowers and provides incentives to private citizens (commonly referred to as qui tam relator or whistleblower) to file suit on the government’s behalf. Thequi tam relator’s share of the recovery can be between 15% and 25% in cases in which the government intervenes, and 25% to 30% in cases in which thegovernment does not intervene. Notably, the Affordable Care Act amended certain jurisdictional bars to the False Claims Act, effectively narrowing the“public disclosure bar” (which generally requires that a whistleblower suit not be based on publicly disclosed information) and expanding the “originalsource” exception (which generally permits a whistleblower suit based on publicly disclosed information if the whistleblower is the original source of thatpublicly disclosed information), thus potentially broadening the field of potential whistleblowers.Medicare requires that extensive financial information be reported on a periodic basis and in a specific format or content. These requirements arenumerous, technical and complex and may not be fully understood or implemented by billing or reporting personnel. With respect to certain types ofrequired information, the False Claims Act may be violated by mere negligence or recklessness in the submission of information to the government evenwithout any intent to defraud. New billing systems, new medical procedures and procedures for which there is not clear guidance may all result in liability.The costs for an operator of a health care property associated with both defending such enforcement actions and the undertakings in settling theseactions can be substantial and could have a material adverse effect on the ability of an operator to meet its obligations to us.Tenants that fail to structure their facility contractual relationships in light of anti-kickback statutes and self-referral laws expose themselves tosignificant risk that could result in their inability to meet their financial and other contractual obligations to us.In addition to reimbursement, operators of healthcare facilities must exercise extreme care in structuring their contractual relationships with vendors,physicians and other healthcare providers who provide goods and services to healthcare facilities, in particular, the anti-kickback statutes and self-referrallaws, noted below.Federal “Fraud and Abuse” Laws and Regulations. The Medicare and Medicaid anti-fraud and abuse amendments to the Social Security Act (the“Anti-Kickback Law”) make it a felony, subject to certain exceptions, to engage in illegal remuneration arrangements with vendors, physicians and otherhealth care providers for the referral of Medicare beneficiaries or Medicaid recipients. When a violation occurs, the government may proceed criminally orcivilly. If the government proceeds criminally, a violation is a felony and may result in imprisonment for up to five years, fines of up to $25,000 andmandatory exclusion from participation in all federal health care programs. If the government proceeds civilly, it may impose a civil monetary penalty of$50,000 per violation and an assessment of not more than three times the total amount of remuneration involved, and it may exclude the parties fromparticipation in all federal health care programs. Many states have enacted similar laws to, and in some cases broader than the Anti-Kickback Law. Exclusionfrom these programs would have a material adverse effect on the operations and financial condition of Ensign or any of our other healthcare operators.The scope of prohibited payments in the Anti-Kickback Law is broad. The U. S. Department of Health and Human Services has published regulationswhich describe certain “safe harbor” arrangements that will not be deemed to constitute violations of the Anti-Kickback Law. An arrangement that fitssquarely into a safe harbor is immune from prosecution under the Anti-Kickback Statute. The safe harbors described in the regulations are narrow and do notcover a wide range of economic relationships which many SNFs, physicians and other health care providers consider to be legitimate business arrangementsnot prohibited by the statute. Because the regulations describe safe harbors and do not purport to describe comprehensively all lawful or unlawful economicarrangements or other relationships between health care providers and referral sources, health care providers having these arrangements or relationships maybe required to alter them in order to ensure compliance with the Anti-Kickback Law.Restrictions on Referrals. The federal physician self-referral law and its implementing regulations (commonly referred to as the “Stark Law”) prohibitsproviders of “designated health services” from billing Medicare or Medicaid if the patient is referred by a physician (or his/her immediate family member)with a financial relationship with the entity, unless an exception applies. “Designated health services” include clinical laboratory services; physical therapyservices; occupational therapy services; radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasoundservices; radiation therapy services and supplies; durable medical equipment and services; parenteral and enteral nutrients, equipment and supplies;prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospitalservices. The Stark Law also prohibits the furnishing entity from17Table of Contentssubmitting a claim for reimbursement or otherwise billing Medicare or any other person or entity for improperly referred designated health services.An entity that submits a claim for reimbursement in violation of the Stark Law must refund any amounts collected and may be: (1) subject to a civilpenalty of up to $15,000 for each self-referred service; and (2) excluded from participation in federal health care programs. In addition, a physician or entitythat has participated in a “scheme” to circumvent the operation of the Stark Law is subject to a civil penalty of up to $100,000 and possible exclusion fromparticipation in federal health care programs.CMS has established a voluntary self-disclosure program under which health care facilities and other entities may report Stark violations and seek areduction in potential refund obligations. However, the program is relatively new and therefore it is difficult to determine at this time whether it will providesignificant monetary relief to health care facilities that discover inadvertent Stark Law violations.The costs of an operator of a health care property for any non-compliance with the Anti-Kickback Law and Stark Laws can be substantial and couldhave a material adverse effect on the ability of an operator to meet its obligations to us.Tenants that fail to adhere to HIPAA and the HITECH Act’s privacy and security requirements expose themselves to significant risk that could result intheir inability to meet their financial and other contractual obligations to us.Potentially significant legal exposure exists for healthcare operators under state and federal laws which govern the use and disclosure of confidentialpatient health information and patients’ rights to access and amend their own health information. The Administrative Simplification Requirements of theHealth Insurance Portability and Accountability Act of 1996 (“HIPAA”) established national standards to facilitate the electronic exchange of ProtectedHealth Information (“PHI”) and to maintain the privacy and security of the PHI. These standards have a major effect on healthcare providers which transmitPHI in electronic form in connection with HIPAA standard transactions (e.g., health care claims). In particular, HIPAA established standards governing: (1)electronic transactions and code sets; (2) privacy; (3) security; and (4) national identifiers. Failure of our operators to comply could result in criminal andcivil penalties, which could have a material adverse effect on the ability of our tenants to meet their obligations to us.Title XIII of the Affordable Care Act, otherwise known as the Health Information Technology for Economic and Clinical Health Act (the “HITECHAct”), provides for an investment of almost $20 billion in public monies for the development of a nationwide health information technology (“HIT”)infrastructure. The HIT infrastructure is intended to improve health care quality, reduce costs and facilitate access to certain information. The HITECH Actalso expands the scope and application of the administrative simplification provisions of HIPAA, and its implementing regulations, (i) imposing a writtennotice obligation upon covered entities for security breaches involving “unsecured” PHI, (ii) expanding the scope of a provider’s electronic health recorddisclosure tracking obligations, (iii) substantially limiting the ability of health care providers to sell PHI without patient authorization, (iv) increasingpenalties for violations, and (v) providing for enforcement of violations by state attorneys general. While the effects of the HITECH Act cannot be predictedat this time, the obligations imposed thereunder could have a material adverse effect on the financial condition of our operators, which could have a materialadverse effect on the ability of our tenants to meet their 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 andinspection laws, regulations and standards. Our tenants’ failure to comply with any of these laws, regulations or standards could result in loss or restriction oflicense, loss of accreditation, denial of reimbursement, imposition of fines, suspension or decertification from federal and state healthcare programs, or closureof the facility. For example, operations at our properties may require a license, registration, certificate of need, provider agreement or certification. Failure ofany tenant to obtain, or the loss or restrictions on any required license, registration, certificate of need, provider agreement or certification would prevent afacility from operating in the manner intended by such tenant. Additionally, failure of our tenants to generally comply with applicable laws and regulationscould adversely affect facilities owned by us, result in adverse publicity and loss of reputation, and therefore could materially and adversely affect us. See“Business - Government Regulation, Licensing and Enforcement - Healthcare Licensure and Certificate of Need.”18Table of ContentsOur 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 maybe exacerbated by the potential for increased enrollment in Medicaid due to unemployment and declines in family incomes. These potential reductions couldbe compounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement to our tenants under both the Medicaid andMedicare programs. Potential reductions in Medicaid and Medicare reimbursement to our tenants could reduce the revenues of our tenants and their ability tomeet their obligations 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 newtenants.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 tenantshave in the past, and may in the future, fail to make rent payments when due or our tenants may declare bankruptcy.Any tenant failures to make rent payments when due or tenant bankruptcies could result in the termination of the tenant’s lease and could have amaterial adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders (which couldadversely affect our ability to raise capital or service our indebtedness). This risk is magnified in situations where we lease multiple properties to a singletenant, such as Ensign, as a multiple property tenant failure could reduce or eliminate rental revenue from multiple properties.If a tenant is unable to comply with the terms of its lease, we may be forced to establish reserves for unpaid amounts due to us from the tenant, move to acash basis method of accounting for recognizing rental revenues from the tenant or otherwise modify the lease with such tenant in ways that are unfavorableto us. Alternatively, the failure of a tenant to perform under a lease could require us to declare a default, repossess the property, find a suitable replacementtenant, hire third-party managers to operate the property or sell the property. For example, during the year ended December 31, 2017, we determined torecognize Pristine Senior Living, LLC (“Pristine”) rental revenues on a cash basis and established a $10.4 million reserve related to Pristine’s obligation tous. After Pristine transitioned an initial seven facilities to an operator designated by us, during the year ended December 31, 2018, we entered into asubsequent agreement with Pristine to surrender the remaining facilities operated by Pristine, and transition them to operators designated by us, with acompletion date of April 30, 2018. See Note 2, “Summary of Significant Accounting Policies” and Note 3, “Real Estate Investments, Net” for furtherinformation.If a tenant is unable to comply with the terms of its lease, there is no assurance that we would be able to lease a property on substantially equivalent orbetter terms than the prior lease, or at all, find another qualified tenant, successfully reposition the property for other uses or sell the property on terms that arefavorable 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 generalcommercial property due to the specialized nature of the business. Even if we are able to find a suitable replacement tenant for a property, transfers ofoperations of healthcare facilities are subject to regulatory approvals not required for transfers of other types of commercial operations, resulting in delays inreceiving reimbursement, or a potential loss of a facility’s reimbursement for a period of time, which may affect our ability to successfully transition aproperty.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 weexperience a significant number of un-leased properties, our operating expenses could increase significantly. Any significant increase in our operating costsmay have a material adverse 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 theunexpired lease 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-bankruptcydebts from that tenant or seize its property. A tenant bankruptcy could also delay our efforts to collect past due balances under the leases and couldultimately preclude collection of all or a portion of these sums. It is possible that we may recover substantially less than the full value of any unsecuredclaims we hold, if any, which may have a material adverse effect on our business, financial condition and results of operations, and our ability19Table of Contentsto make distributions to our stockholders. Furthermore, dealing with a tenant’s bankruptcy or other default may divert management’s attention and cause usto incur substantial legal and other costs.If we must replace any of our tenants or operators, we may have difficulty identifying replacements and we may be required to incur substantial renovationcosts to make certain that our healthcare properties are suitable for other operators and tenants.If we or our tenants terminate or do not renew the leases for our properties, we would attempt to reposition those properties with another tenant oroperator. Healthcare facilities are typically highly customized and may not be easily adapted to non-healthcare-related uses. The improvements are generallyrequired to conform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure and security, are costly and at times tenant-specific. A new or replacement tenant to operate one or more of our healthcare facilities may require different features in a property, depending on thattenant’s particular operations. If a current tenant is unable to pay rent and vacates a property, we may incur substantial expenditures to modify a propertybefore we are able to secure another tenant. Also, if the property needs to be renovated to accommodate multiple tenants, we may incur substantialexpenditures before we are able to release the space. In addition, approvals of local authorities for such modifications and/or renovations may be necessary,resulting in delays in transitioning a facility to a new tenant. These expenditures or renovations and delays could materially and adversely affect ourbusiness, financial condition or results of operations. In addition, we may fail to identify suitable replacements or enter into leases or other arrangements withnew tenants or operators on a timely basis or on terms as favorable to us as our current leases, if at all.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 27 different states, with concentrations in Texas, California and Ohio. The properties in these three states accounted forapproximately 21%, 16% and 8%, respectively, of the total beds and units in our portfolio, as of December 31, 2018 and approximately 19%, 19% and 12%,respectively, of our rental income for the year ended December 31, 2018. As a result of this concentration, the conditions of local economies and real estatemarkets, changes in governmental rules, regulations and reimbursement rates or criteria, changes in demographics, state funding, acts of nature and otherfactors that may result in a decrease in demand and/or reimbursement for skilled nursing services in these states could have a disproportionately adverseeffect on our tenants’ revenue, costs and 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,their employees and our facilities, which could have an adverse impact on our tenants’ patients and businesses. In order to provide care for their patients, ourtenants are dependent on consistent and reliable delivery of food, pharmaceuticals, utilities and other goods to our facilities, and the availability ofemployees to provide services at the facilities. If the delivery of goods or the ability of employees to reach our facilities is interrupted in any material respectdue to a natural disaster or other reasons, it would have a significant impact on our facilities and our tenants’ businesses at those facilities. Furthermore, theimpact, or impending threat, of a natural disaster may require that our tenants evacuate one or more facilities, which would be costly and would involve risks,including potentially fatal risks, for the patients at such facilities. The impact of disasters and similar events is inherently uncertain. Such events could harmour tenants’ patients and employees, severely damage or destroy one or more of our facilities, harm our tenants’ business, reputation and financialperformance, or otherwise cause our tenants’ businesses to suffer in ways that 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 ofa significant 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 indiscussions that may result in one or more transactions. Although there is uncertainty that any of these discussions will result in definitive agreements or thecompletion of any transaction, we may devote a significant amount of our management resources to such a transaction, which could negatively impact ouroperations. We may incur significant costs in connection with seeking acquisitions or other strategic opportunities regardless of whether the transaction iscompleted and in combining our operations if such a transaction is completed. In addition, there is no assurance that we will fully realize the potentialbenefits of any past or future acquisition or strategic transaction.20Table of ContentsAdditionally, we have preferred equity interests in a limited number of joint ventures. Our use of joint ventures may be subject to risks that may not bepresent with other ownership methods. Our joint ventures may involve property development, which presents additional risks that could render adevelopment project less profitable or not profitable at all and, under certain circumstances, may prevent completion of development activities onceundertaken.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 we cannot identify and purchase a sufficient quantity of suitable properties at favorable prices or if we are unable to finance acquisitions on commerciallyfavorable terms, or at all, our business, financial position or results of operations could be materially and adversely affected. Furthermore, any futureacquisitions may require the issuance of securities, the incurrence of debt, or assumption of contingent liabilities, each of which could materially adverselyimpact our business, financial condition or results of operations. Additionally, the fact that we must distribute 90% of our REIT taxable income in order tomaintain our qualification as a REIT may limit our ability to rely upon rental payments from our leased properties or subsequently acquired properties inorder to finance acquisitions. As a result, if debt or equity financing is not available on acceptable terms, further acquisitions might be limited or curtailed.Transactions involving properties we might seek to acquire entail risks associated with real estate investments generally, including that the investment’sperformance will fail to meet expectations or that the tenant, operator or manager will underperform.Increased competition has resulted and may further result in lower net revenues for some of our tenants and may affect their ability to meet their financialand other contractual obligations to us.The healthcare industry is highly competitive. The occupancy levels at, and results of operations from, our facilities are dependent on our abilityand the ability of our tenants to compete with other tenants and operators on a number of different levels, including the quality of care provided, reputation,the physical appearance of a facility, price, the range of services offered, family preference, alternatives for healthcare delivery, the supply of competingproperties, physicians, staff, referral sources, location, and the size and demographics of the population in the surrounding area. In addition, our tenants facean increasingly competitive labor market for skilled management personnel and nurses. A shortage of nurses or other trained personnel or general inflationarypressures on wages may force tenants to enhance pay and benefits packages to compete effectively for skilled personnel, or to use more expensive contractpersonnel, but they be unable to offset these added costs by increasing the rates charged to residents. Any increase in labor costs and other property operatingexpenses or any failure by our tenants to attract and retain qualified personnel could reduce the revenues of our tenants and their ability to meet theirobligations to us.Our tenants also compete with numerous other companies providing similar healthcare services or alternatives such as home health agencies, lifecare at home, community-based service programs, retirement communities and convalescent centers. We cannot be certain that our tenants will be able toachieve occupancy and rate levels, or manage their expenses, in a way that will enable them to meet all of their obligations to us. Further, many competingcompanies may have resources and attributes that are superior to those of our tenants. They may encounter increased competition that could limit their abilityto maintain or attract residents or expand their businesses or to manage their expenses, either of which could adversely affect their ability to meet theirobligations to us, potentially decreasing our revenues, impairing our assets, and/or increasing our collection and dispute costs.Required regulatory approvals can delay or prohibit transfers of our healthcare properties, which could result in periods in which we are unable to receiverent for such properties.Our tenants that operate SNFs and other healthcare facilities must be licensed under applicable state law and, depending upon the type of facility,certified or approved as providers under the Medicare and/or Medicaid programs. Prior to the transfer of the operations of such healthcare properties tosuccessor operators, the new operator generally must become licensed under state law and, in certain states, receive change of ownership approvals undercertificate 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, ifapplicable, file for a Medicare and Medicaid change of ownership (commonly referred to as a CHOW). If an existing lease is terminated or expires and a newtenant is found, then any delays in the new tenant receiving regulatory approvals from the applicable federal, state or local government agencies, or theinability to receive such approvals, may prolong the period during which we are unable to collect the applicable rent.21Table of ContentsWe may not be able to sell properties when we desire because real estate investments are relatively illiquid, which could materially and adversely affectour business, financial position or results of operations.Real estate investments generally cannot be sold quickly. We may not be able to vary our portfolio promptly in response to changes in the real estatemarket. A downturn in the real estate market could materially and adversely affect the value of our properties and our ability to sell such properties foracceptable 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 a propertyor 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.Certain of our existing debt obligations are variable rate obligations with interest and related payments that vary with the movement of certain indices,and in the future we may incur additional indebtedness in connection with the entry into new credit facilities or the financing of any acquisition ordevelopment activity. If interest rates increase, so could our interest costs for any new debt and our variable rate debt obligations under our New RevolvingFacility and New Term Loan (each as defined below). This increased cost could make the financing of any acquisition more costly, as well as lower ourcurrent period earnings. Rising interest rates could limit our ability to refinance existing debt when it matures or cause us to pay higher interest rates uponrefinancing. In addition, an increase in interest rates could decrease the access third parties have to credit, thereby decreasing the amount they are willing topay for our assets and consequently limiting our ability to reposition our portfolio promptly in response to changes in economic or other conditions. Further,the dividend yield on our common stock, as a percentage of the price of such common stock, will influence the price of such common stock. Thus, an increasein market interest rates may lead prospective purchasers of our common stock to expect a higher dividend yield, which could adversely affect the marketprice of our common stock.In addition, our Amended Credit Agreement (as defined below) uses LIBOR as a reference rate for our New Term Loan and New Revolving Facility,such that the interest rate applicable to such loans may, at our option, be calculated based on LIBOR. In July 2017, the U. K.’s Financial Conduct Authority,which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. The U.S. Federal Reserve has begun publishing a SecuredOvernight Funding Rate, which is intended to replace U.S. dollar LIBOR. Plans for alternative reference rates for other currencies have also been announced.At this time, we cannot predict how markets will respond to these proposed alternative rates or the effect of any changes to LIBOR or the discontinuation ofLIBOR. If LIBOR is no longer available or if our lenders have increased costs due to changes in LIBOR, we may experience potential increases in interestrates on our variable rate debt, which could adversely impact our interest expense, results of operations and cash flows.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 otherkey employees. 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 achieveour business objectives.We 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 hazardinsurance, and we maintain customary insurance for the ILFs that we own and operate. However, there are certain types of losses (including, but not limitedto, losses arising from environmental conditions or of a catastrophic nature, such as earthquakes, hurricanes and floods) that may be uninsurable or noteconomically insurable. Insurance coverage may not be sufficient to pay the full current market value or current replacement cost of a loss. Inflation, changesin building codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to replace theproperty after such property has been damaged or destroyed. Under such circumstances, the insurance proceeds received might not be adequate to restore theeconomic position with respect to such property.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 damagedproperty as well as the anticipated future cash flows from the property. If the damaged property is subject to recourse indebtedness, we could continue to beliable for the indebtedness even if the property is irreparably damaged.22Table of ContentsIn 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 revenuefor our 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 sucha 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 investigateand clean 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 forproperty damage and for investigation and cleanup costs incurred by the third parties in connection with the contamination. In addition, some environmentallaws create a lien on the contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination. Neither wenor our tenants carry environmental insurance on our properties. Although we generally require our tenants, as operators of our healthcare properties, toindemnify us for environmental liabilities they cause, such liabilities could exceed the financial ability of the tenant to indemnify us or the value of thecontaminated property. The presence of contamination or the failure to remediate contamination may materially adversely affect our ability to sell or leasethe real estate or to borrow using the real estate as collateral. As the owner of a site, we may also be held liable to third parties for damages and injuriesresulting from environmental contamination emanating from the site. Although we will be generally indemnified by our tenants for contamination caused bythem, these indemnities may not adequately cover all environmental costs. We may also experience environmental liabilities arising from conditions notknown to 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, conflictsof interest.Because of his former position with Ensign, our chief executive officer, Gregory K. Stapley, owns shares of Ensign common stock. Mr. Stapley alsoowns shares of our common stock. His individual holdings of shares of our common stock and Ensign common stock may be significant compared to hisrespective total assets. These equity interests may create, or appear to create, conflicts of interest when he is faced with decisions that may not benefit or affectCareTrust REIT and Ensign in the same manner.We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harmour business.We rely on information technology networks and systems, including the internet, to process, transmit and store electronic information, and to manageor support a variety of business processes, including financial transactions and records, and maintaining personal identifying information and tenant andlease data. We purchase some of our information technology from vendors, on whom our systems depend. We rely on commercially available systems,software, tools and monitoring to provide security for the processing, transmission and storage of confidential tenant and customer data, includingindividually identifiable information relating to financial accounts. Although we have taken steps to protect the security of our information systems and thedata maintained in those systems, it is possible that our safety and security measures will not prevent the systems’ improper functioning or damage, or theimproper access or disclosure of personally identifiable information such as in the event of cyber-attacks. In addition, due to the fast pace andunpredictability of cyber threats, long-term implementation plans designed to address cybersecurity risks become obsolete quickly. Security breaches,including physical or electronic break-ins, computer viruses, malware, works, attacks by hackers or foreign governments, disruptions from unauthorizedaccess and tampering (including through social engineering such as phishing attacks), coordinated denial-of-service attacks, impersonation of authorizedusers and similar breaches, can create system disruptions, shutdowns or result in a loss of company assets or unauthorized disclosure of confidentialinformation. The risk of security breaches has generally increased as the number, intensity and sophistication of attacks and intrusions from around the worldhave increased. In some cases, it may be difficult to anticipate or immediately detect such incidents and the damage they cause. In addition, our technologyinfrastructure and information systems are vulnerable to damage or interruption from natural disasters, power loss and telecommunications failures. Anyfailure to maintain proper function, security and availability of our information systems and the data maintained in those systems could interrupt ouroperations, damage our reputation, subject us to liability claims or regulatory penalties and could have a materially adverse effect on our business, financialcondition and results of operations.Our assets may be subject to impairment charges.At each reporting period, we evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence ofimpairment indicators is based on factors such as market conditions, operator performance23Table of Contentsand legal structure. If we determine that a significant impairment has occurred, we are required to make an adjustment to the net carrying value of the asset,which could have a material adverse effect on our results of operations in the period in which the write-off occurs.We have now, and may have in the future, exposure to contingent rent escalators We receive revenue primarily by leasing our assets under leases that are long-term triple-net leases in which the rental rate is generally fixed withannual rent escalations, subject to certain limitations. Almost all of our leases contain escalators contingent on changes in the Consumer Price Index, subjectto maximum fixed percentages. If the Consumer Price Index does not increase, our revenues may not increase. In addition, if economic conditions result insignificant increases in the Consumer Price Index, but the escalations under our leases are capped, our growth and profitability also may be limited.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. federalincome tax purposes. We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. Wereceived an opinion of our counsel with respect to our qualification as a REIT in connection with the Spin-Off. Investors should be aware, however, thatopinions of advisors 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 andanalysis of existing law and on certain representations as to factual matters and covenants made by us, including representations relating to the values of ourassets and the sources of our income. The opinion is expressed as of the date issued. Our counsel has no obligation to advise us or the holders of any of oursecurities of any subsequent change in the matters stated, represented or assumed or of any subsequent change in applicable law. Furthermore, both thevalidity of the opinion of our counsel and our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution,stockholder ownership and other requirements on a continuing basis, the results of which will not be monitored by our counsel. Our ability to satisfy the assettests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, andfor 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 applicablealternative minimum tax, on our taxable income at regular corporate rates, and dividends paid to our stockholders would not be deductible by us incomputing our taxable income. Any resulting corporate liability could be substantial and would reduce the amount of cash available for distribution to ourstockholders, which in turn could 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 disqualified from 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 asa REIT, which could adversely affect 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 oursatisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. In addition, our abilityto satisfy the requirements 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 limitedinfluence.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 theU.S. Department of the Treasury (the “Treasury”). Changes to the tax laws or interpretations thereof, with or without retroactive application, could materiallyand adversely affect our investors or us. We cannot predict how changes in the tax laws, including any tax reform called for by the new presidentialadministration, might affect our investors or us. New legislation, Treasury regulations, administrative interpretations or court decisions could significantlyand negatively affect our ability to qualify to be taxed as a REIT or the U.S. federal income tax consequences to our investors and us of such qualification.24Table of ContentsOn December 22, 2017, the Tax Cuts and Jobs Act was enacted. The Tax Cuts and Jobs Act makes significant changes to the U.S. federal income taxrules for taxation of individuals and corporations, generally effective for taxable years beginning after December 31, 2017. Most of the changes applicable toindividuals are temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026. The Tax Cuts and Jobs Act makesnumerous large and small changes to the tax rules that do not affect REITs directly but may affect our stockholders and may indirectly affect us.While the changes in the Tax Cuts and Jobs Act generally appear to be favorable with respect to REITs, the extensive changes to non-REIT provisionsin the Code are complex and lack developed administrative guidance. As a result, the impact of certain aspects of these new rules on us and our stockholdersis currently unclear. Technical corrections or other amendments to these rules, and administrative guidance interpreting the new rules, may be forthcoming atany time or may be significantly delayed. No prediction can be made regarding whether new legislation or regulation (including new tax measures) will beenacted by legislative bodies or governmental agencies, nor can we predict what consequences would result from this legislation or regulation. Accordingly,no assurance can be given that the currently anticipated tax treatment of an investment will not be modified by legislative, judicial or administrativechanges, possibly with retroactive effect.Prospective stockholders are urged to consult with their tax advisors with respect to the status of the Tax Cuts and Jobs Act and any other regulatory oradministrative developments and proposals and their potential effect on investment in our stock.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 theleases are 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 ofarrangement. 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 combinedvoting power of all classes of stock entitled to vote or 10% or more of the total value of all classes of stock. CareTrust REIT’s charter provides for restrictionson ownership and transfer of CareTrust REIT’s shares of stock, including restrictions on such ownership or transfer that would cause the rents received oraccrued by us from our tenants to be treated as non-qualifying rent for purposes of the REIT gross income requirements. Nevertheless, there can be noassurance that such restrictions will be effective in ensuring that rents received or accrued by us from our tenants will not be treated as qualifying rent forpurposes 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. However, for taxableyears beginning after December 31, 2017 and before January 1, 2026, under the recently enacted Tax Cuts and Jobs Act, noncorporate taxpayers may deductup to 20% of certain qualified business income, including "qualified REIT dividends" (generally, dividends received by a REIT shareholder that are notdesignated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income taxrate of 29.6% on such income. Although these rules do not adversely affect the taxation of REITs, the more favorable rates applicable to regular corporatequalified dividends, together with the recently reduced corporate tax rate (currently, 21%), could cause investors who are individuals, trusts and estates toperceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which couldadversely affect the value of the stock of REITs, including our stock. Although these rules do not adversely affect the taxation of REITs, the more favorablerates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to berelatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock ofREITs, 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 andexcluding any 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 corporate income tax does not apply to earnings that we25Table 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 taxableincome, determined without regard to the dividends paid deduction and including any net capital gains, we will be subject to U.S. federal corporate incometax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to ourstockholders in a calendar year is less than a minimum amount specified under U.S. federal income tax laws. We intend to make distributions to ourstockholders to comply with the REIT requirements of the Code.Our funds from operations are generated primarily by rents paid under leases with our tenants, including Ensign. From time to time, we may generatetaxable income greater than our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash or theeffect of nondeductible capital expenditures, the creation of reserves or required debt or amortization payments. If we do not have other funds available inthese situations, we could be required to borrow funds on unfavorable terms, sell assets at disadvantageous prices or distribute amounts that would otherwisebe invested in future acquisitions in order to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REITdistribution requirement and to avoid being subject to corporate income tax and the 4% excise tax in a particular year. These alternatives could increase ourcosts 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, includingtaxes on any undistributed income and state or local income, property and transfer taxes. For example, we may hold some of our assets or conduct certain ofour activities through one or more taxable REIT subsidiaries (each, a “TRS”) or other subsidiary corporations that will be subject to U.S. federal, state, andlocal corporate-level income taxes as regular C corporations. In addition, we may incur a 100% excise tax on transactions with a TRS if they are notconducted on an arm’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 valueof our 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 votingsecurities of any 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 thevalue of our total assets (other than government securities, qualified real estate assets and securities issued by a TRS) can consist of the securities of any oneissuer, and no more than 25% (20% for taxable years beginning after December 31, 2017) of the value of our total assets can be represented by securities ofone or more TRSs. Further, for taxable years beginning after December 31, 2015, no more than 25% of the value of our total assets may be represented by“nonqualified publicly offered REIT debt instruments” (as defined in the Code). If we fail to comply with these requirements at the end of any calendarquarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing ourREIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate or forgo otherwise attractive investments. Theseactions could have the effect of reducing our income and 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, thesources of our income, the amounts we distribute to our stockholders and the ownership of our stock. We may be unable to pursue investments that would beotherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying as a REIT. Thus, compliance withthe REIT requirements 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 wemay enter 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“gross income” for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met. For taxableyears beginning 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 forpurposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions or fail to properly identify suchtransaction as a hedge, the income is likely to be treated as non-qualifying26Table 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.We own appreciated assets that were held by a C corporation and were acquired by us in a transaction in which the adjusted tax basis of the assets in ourhands was determined by reference to the adjusted basis of the assets in the hands of the C corporation. If we dispose of any such appreciated assets during thefive-year period following our qualification as a REIT, we will be subject to tax at the highest corporate tax rates on any gain from such assets to the extent ofthe 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 on such date, which are referred toas built-in gains. We would be subject to this tax liability even if we qualify and maintain our status as a REIT. Any recognized built-in gain will retain itscharacter as ordinary income or capital gain and will be taken into account in determining REIT taxable income and our distribution requirement. Any tax onthe recognized built-in gain will reduce REIT taxable income. We may choose not to sell in a taxable transaction appreciated assets we might otherwise sellduring 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 assurances that such ataxable 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 REIT’s estimate of its “earnings and profits” attributable to C-corporation taxable years may have an adverse effecton our distributable 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 areattributable to a 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 REITto distribute such earnings and profits. Failure to meet this requirement would result in CareTrust REIT’s disqualification as a REIT. In connection with theCompany’s intention to qualify as a real estate investment trust, on October 17, 2014, the Company’s board of directors declared the Special Dividend todistribute the amount of accumulated E&P allocated to the Company as a result of the Spin-Off. The amount of the Special Dividend was $132.0 million, orapproximately $5.88 per common share. It was paid on December 10, 2014, to stockholders of record as of October 31, 2014, in a combination of both cashand 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.The determination of non-REIT earnings and profits is complicated and depends upon facts with respect to which CareTrust REIT may have had lessthan complete information or the application of the law governing earnings and profits, which is subject to differing interpretations, or both. Consequently,there are substantial uncertainties relating to the estimate of CareTrust REIT’s non-REIT earnings and profits, and we cannot be assured that the earnings andprofits distribution requirement has been met. These uncertainties include the possibility that the IRS could upon audit, as discussed above, increase thetaxable income of CareTrust REIT, which would increase the non-REIT earnings and profits of CareTrust REIT. There can be no assurances that we havesatisfied the requirement.Risks Related to Our Capital StructureWe have substantial indebtedness and we have the ability to incur significant additional indebtedness.As of February 13, 2019, we have approximately $500.0 million of indebtedness, consisting of $300.0 million representing our 5.25% Senior Notes due2025 (the “Notes”) and $200.0 million under our New Term Loan, and no borrowings outstanding under the New Revolving Facility. High levels ofindebtedness 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;27Table 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 Amended 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 allto expand 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 Amended Credit Facility, which event of default could result in all of ourdebt becoming immediately due and payable and could permit certain of our lenders to foreclose on our assets securing such debt.In addition, the Amended Credit Facility and the indenture governing the Notes permit us to incur substantial additional debt, including secured debt,subject to our compliance with certain financial covenants set forth in the Amended Credit Agreement (as defined below) governing the Amended CreditFacility and the indenture governing the Notes. For example, borrowing availability under the New Revolving Facility is subject to our compliance with aconsolidated leverage ratio that requires our ratio of Adjusted Consolidated Debt to Consolidated Total Asset Value (each as defined in the Amended CreditAgreement) be less than 60%. If we incur additional 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 operatingperformance, which in turn is affected by general and regional economic, financial, competitive, business and other factors beyond our control, including theavailability of financing in the international banking and capital markets. Our business may fail to generate sufficient cash flow from operations or futureborrowings may be unavailable to us under the Amended Credit Facility or from other sources in an amount sufficient to enable us to service our debt, torefinance our debt or to fund our other liquidity needs. If we are unable to meet our debt obligations or to fund our other liquidity needs, we will need torestructure or refinance all or a portion of our debt. We may be unable to refinance any of our debt on commercially reasonable terms or at all. If we wereunable to make payments or refinance our debt or obtain new financing under these circumstances, we would have to consider other options, such as assetsales, equity issuances and/or negotiations with our lenders to restructure the applicable debt. The Amended Credit Facility and the indenture governing theNotes restrict, and market or business conditions may limit, our ability to take some or all of these actions. Any restructuring or refinancing of ourindebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.In addition, the Amended Credit Facility and the indenture governing the Notes permit us to incur additional debt, including secured debt, subject to thesatisfaction 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. Eachof our subsidiaries is a distinct legal entity and has no obligation, contingent or otherwise, to transfer funds to us. In addition, the ability of our subsidiaries totransfer funds to us could be restricted by the terms of subsequent financings and the indenture governing the Notes.28Table of ContentsCovenants 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;•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 distributions 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 ourbusiness or competing effectively. The Amended Credit Agreement requires the Company to comply with financial maintenance covenants to be testedquarterly, consisting of a maximum debt to asset value ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cashdistributions to operating income ratio, a maximum secured debt to asset value ratio, a maximum secured recourse debt to asset value ratio, a maximumunsecured debt to unencumbered properties asset value ratio, a minimum unsecured interest coverage ratio and a minimum rent coverage ratio. We are alsorequired to maintain total unencumbered assets of at least 150% of our unsecured indebtedness under the indenture. Our ability to meet these requirementsmay 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 obtain waivers from the lenders or amend the covenants.A downgrade of our credit rating could impair our ability to obtain additional debt financing on favorable terms, if at all, and significantly reduce thetrading price of our common stock.If any rating agency downgrades our credit rating, or places our rating under watch or review for possible downgrade, then it may be more difficult orexpensive for us to obtain additional debt financing, and the trading price of our common stock may decline. Factors that may affect our credit rating include,among other things, our financial performance, our success in raising sufficient equity capital, adverse changes in our debt and fixed charge coverage ratios,our capital structure and level of indebtedness and pending or future changes in the regulatory framework applicable to our operators and our industry. Wecannot assure that these credit agencies will not downgrade our credit rating in the future.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 orconstructively, 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 least100 persons must beneficially own our stock during at least 335 days of a29Table of Contentstaxable year (other than our first taxable year as a REIT). Our charter, with certain exceptions, authorizes our board of directors to take such actions as arenecessary and desirable to preserve our qualification as a REIT. Our charter also provides that, unless exempted by the board of directors, no person may ownmore than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock, or more than 9.8% in value ofthe outstanding shares of all classes or series of our stock. The constructive ownership rules are complex and may cause shares of stock owned directly orconstructively by a group of related individuals or entities to be constructively owned by one individual or entity. These ownership limits could delay orprevent a transaction or a change in control of us that might involve a premium price for shares of our stock or otherwise be in the best interests of ourstockholders. 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 taxedas a REIT. In addition, our charter provides that (i) no person shall beneficially or constructively own shares of stock to the extent such beneficial orconstructive ownership of stock would result in us failing to qualify as a “domestically controlled qualified investment entity” within the meaning ofSection 897(h) of the Code, and (ii) no person shall beneficially or constructively own shares of stock to the extent such beneficial or constructive ownershipwould 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 realproperty. Any attempt to own or transfer 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 stockholdersfrom realizing 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. As currently in effect, our charter andbylaws, among other things, (1) contain transfer and ownership restrictions on the percentage by number and value of outstanding shares of our stock thatmay be owned or acquired by any stockholder; (2) provide that stockholders are not allowed to act by non-unanimous written consent; (3) permit the board ofdirectors, without further action of the stockholders, to amend the charter to increase or decrease the aggregate number of authorized shares or the number ofshares of any class or series that we have the authority to issue; (4) permit the board of directors to classify or reclassify any unissued shares of common orpreferred stock and set the preferences, rights and other terms of the classified or reclassified shares; (5) establish certain advance notice procedures forstockholder proposals, and provide procedures for the nomination of candidates for our board of directors; (6) provide that special meetings of stockholdersmay only be called by the Company or upon written request of stockholders entitled to be at the meeting; (7) provide that a director may only be removed bystockholders for cause and upon the vote of two-thirds of the outstanding shares of common stock; and (8) provide for supermajority approval requirementsfor amending or repealing certain provisions in our charter. In addition, specific anti-takeover provisions of the Maryland General Corporation 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 “controlshare acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to theextent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding allinterested shares.We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiatewith our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended tomake us immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delayor prevent an acquisition that our board of directors determines is not in our best interests. These provisions may also prevent or discourage attempts toremove and replace incumbent directors.30Table of ContentsThe 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 notlimited 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, including potential future equity or debt issuances;•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;•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 broadmarket fluctuations may adversely affect the trading price of our common stock.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, whichrequire significant resources and management oversight. Internal control over financial reporting is complex and may be revised over time to adapt tochanges in our business, or changes in applicable accounting rules. We cannot assure you that our internal control over financial reporting will be effective inthe future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls wereeffective. Matters impacting our internal controls may cause us to be unable to report our financial data on a timely basis, or may cause us to restatepreviously issued financial data, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violationsof applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and thereliability of our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registeredpublic accounting firm reports a material weakness 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 our common stock and impairing our ability to raise capital.Additionally, our independent registered public accounting firm is required pursuant to Section 404(b) of the Sarbanes-Oxley Act to attest to theeffectiveness of our internal control over financial reporting on an annual basis. If we cannot maintain effective disclosure controls and procedures or internalcontrol over financial reporting, or our independent registered public accounting firm cannot provide an unqualified attestation report on the effectiveness ofour internal control over financial reporting, investor confidence and, in turn, the market price of our common stock could decline.We cannot assure you of our ability to pay dividends in the future.We expect to make quarterly dividend payments in cash with the annual dividend amount no 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 affectedby a number of factors, including the risk factors described in this31Table of Contentsannual report. Dividends are authorized by our board of directors and declared by us based upon a number 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 theREIT provisions of the Code, our operating expenses and other factors our directors deem relevant. We cannot assure you that we will achieve investmentresults that will allow us to make a specified level of cash dividends or year-to-year increases in cash dividends in the future.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 aREIT - REIT distribution requirements could adversely affect our ability to execute our business plan”), we may elect not to maintain our REIT status, inwhich case we would no longer be required to pay such dividends. Moreover, even if we do elect to maintain our REIT status, after completing variousprocedural steps, we may elect to comply with the applicable distribution requirements by distributing, under certain circumstances, a portion of the requiredamount in the form of shares of our common stock in lieu of cash. If we elect not to maintain our REIT status or to satisfy any required distributions in sharesof 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 will pay any dividends on shares of our common stock in the future.Your ownership percentage in us may be diluted in the future.From time to time in the future, we may issue additional shares of our common stock in connection with sales under our ATM Program (as definedbelow), other capital markets transactions or in connection with other transactions. In addition, pursuant to our CareTrust REIT, Inc. and CTR Partnership,L.P. Incentive Award Plan (the “Incentive Award Plan”), we expect to grant equity incentive awards to our officers, employees and directors in connectionwith their employment with or services provided to us. These issuances and awards may cause your percentage ownership in us to be diluted in the future andcould have a dilutive effect on our earnings per share and reduce the value of our common stock.In addition, while we have no specific plan to issue preferred stock, our charter authorizes us to issue, without the approval of our stockholders, oneor more classes or series of preferred stock having such designations, powers, privileges, preferences, including preferences over our common stock respectingdividends and distributions, terms of redemption and relative participation, optional or other rights, if any, of the shares of each such series of preferred stockand any qualifications, limitations or restrictions thereof, as our board of directors may determine. The terms of one or more classes or series of preferred stockcould dilute the voting power or reduce the value of our common stock. For example, the repurchase or redemption rights or liquidation preferences we couldassign to holders of 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 withthe fiduciary obligations under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including whether such investment mightconstitute or give rise to a prohibited transaction under ERISA, the Code or any substantially similar federal, state or local law and, if so, whether anexemption from such prohibited 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.Except for the three ILFs that we own and operate, all of our properties are leased under long-term, triple-net leases. The following table displays theexpiration of the annualized contractual cash rental revenues under our lease agreements as of December 31, 2018 by year and total investment (dollars inthousands) and, in each case, without giving effect to any renewal options:Lease Maturity Percent of Total Percent ofYearInvestmentInvestmentRentTotal Rent2024$34,4152.4%$3,2692.2%202658,1574.0%6,6064.5%202755,9293.9%5,8614.0%202879,9145.5%7,9695.5%2029115,3068.0%9,9846.8%2030282,89819.5%25,42417.4%2031385,81726.6%36,30125.0%2032210,52614.5%23,53716.1%2033225,84715.6%26,88118.5%Total$1,448,809100.0%$145,832100.0%The information set forth under “Portfolio Summary” in Item 1 of this Annual Report on Form 10-K is incorporated by reference herein.32Table of ContentsITEM 3.Legal ProceedingsThe Company and its subsidiaries are and may become from time to time a party to various claims and lawsuits arising in the ordinary course ofbusiness, but none of the Company or any of its subsidiaries is, and none of their respective properties are, the subject of any material legal proceedings.Claims and lawsuits may include matters involving general or professional liability asserted against our tenants, which are the responsibility of our tenantsand for which we are entitled to be indemnified by our tenants under the insurance and indemnification provisions in the applicable leases. Pursuant to the Separation and Distribution Agreement we entered into in connection with the Spin-Off (the “Separation and Distribution Agreement”),we assumed 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 other related parties) against any losses arising from or relating to such legal proceedings. In addition,pursuant to the Separation and Distribution Agreement, Ensign has agreed to indemnify us (including our subsidiaries, directors, officers, employees andagents and certain other related parties) for any liability arising from or relating to legal proceedings involving Ensign’s healthcare business prior to the Spin-Off, and, pursuant to the Ensign Master Leases, Ensign or its subsidiaries have agreed to indemnify us for any liability arising from operations at the realproperty leased from us. Ensign is currently a party to various legal actions and administrative proceedings, including various claims arising in the ordinarycourse of its healthcare business, which are subject to the indemnities provided by Ensign to us. While these actions and proceedings are not believed byEnsign to be material, individually or in the aggregate, the ultimate outcome of these matters cannot be predicted. The resolution of any such legalproceedings, either individually or in the aggregate, could have a material adverse effect on Ensign’s business, financial position or results of operations,which, in turn, could have a material adverse effect on our business, financial position or results of operations if Ensign or its subsidiaries are unable to meettheir indemnification obligations.ITEM 4.Mine Safety DisclosuresNone.PART IIITEM 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofCommon EquityOur common stock is listed on the Nasdaq Global Select Market under the symbol “CTRE.”At February 11, 2019, we had approximately 73 stockholders of record.To maintain REIT status, we are required each year to distribute to stockholders at least 90% of our annual REIT taxable income after certainadjustments. 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, capital requirements, debt covenants (which include limits on distributions by us), applicable law, and other factors as our board of directorsdeems relevant. For example, while the Notes and our Amended Credit Agreement permit us to declare and pay any dividend or make any distribution that isnecessary to maintain our REIT status, those distributions are subject to certain financial tests under the indenture governing the Notes, and therefore, theamount of cash distributions we can make to our stockholders may be limited.Distributions with respect to our common stock can be characterized for federal income tax purposes as taxable ordinary dividends, nondividenddistributions or a combination thereof. Following is the characterization of our annual cash dividends on common stock: Year Ended December 31,Common Stock2018 2017Ordinary dividend$0.8025 $0.6450Non-dividend distributions0.0175 0.0950 $0.8200 $0.7400Issuer Purchases of Equity SecuritiesWe did not repurchase any shares of our common stock during the three months ended December 31, 2018.33Table of ContentsStock 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, the RMS (MSCI U.S. REITTotal Return Index) and the SNL U.S. REIT Healthcare Index for the period from June 1, 2014 to December 31, 2018. Total cumulative return is based on a$100 investment in CareTrust REIT common stock and in each of the indices on June 1, 2014 and assumes quarterly reinvestment of dividends beforeconsideration of income taxes. Stockholder returns over the indicated periods should not be considered indicative of future stock prices or stockholderreturns. COMPARISON OF CUMULATIVE TOTAL RETURNAMONG S&P 500, S&P 500 REIT INDEX, RMS, SNL US REIT HEALTHCARE AND CARETRUST REIT, INC.RATE OF RETURN TREND COMPARISONJUNE 1, 2014 - DECEMBER 31, 2018(JUNE 1, 2014 = 100)Stock Price Performance Graph Total ReturnThe stock performance graph shall not be deemed soliciting material or to be filed with the SEC or subject to Regulation 14A or 14C under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, nor shall it be incorporated byreference into any past or future filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically request that it be treated assoliciting material or specifically incorporate it by reference into a filing under the Securities Act of 1933 or the Exchange Act.34Table of ContentsITEM 6.Selected Financial DataThe following table sets forth selected financial data and other data for our company on a historical basis. The following data should be read inconjunction with our audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition andResults of Operations included elsewhere herein. Our historical operating results may not be comparable to our future operating results. The comparability ofthe selected financial data presented below is significantly affected by our acquisitions and new investments in each of the years presented. See Item 7,“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of or For the Year Ended December 31, 20182017201620152014 (dollars in thousands, except per share amounts)Income statement data: Total revenues$156,941$132,982$104,679$74,951$58,897Income (loss) before provision for income taxes57,92325,87429,35310,034(8,143)Net income (loss)57,92325,87429,35310,034(8,143)Income (loss) before provision for income taxes per share, basic0.730.350.520.26(0.36)Income (loss) before provision for income taxes per share, diluted0.720.350.520.26(0.36)Net income (loss) per share, basic0.730.350.520.26(0.36)Net income (loss) per share, diluted0.720.350.520.26(0.36)Balance sheet data: Total assets$1,291,762$1,184,986$925,358$673,166$475,140Senior unsecured notes payable, net295,153294,395255,294254,229253,165Senior unsecured term loan, net99,61299,51799,422——Unsecured revolving credit facility95,000165,00095,00045,000—Secured mortgage indebtedness, net———94,67697,608Total equity768,247594,617452,430262,288113,462Other financial data: Dividends declared per common share$0.82$0.74$0.68$0.64$6.01FFO(1)101,53662,27561,48334,10914,853FAD(1)104,98966,40665,11837,83116,559(1)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 FundsAvailable for Distribution (“FAD”) are important non-GAAP supplemental measures of operating performance for a REIT. Because the historical costaccounting convention used for real estate assets requires straight-line depreciation except on land, such accounting presentation implies that the valueof real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and otherconditions, presentations of operating results for a REIT that uses historical cost accounting for depreciation could be less informative. Thus, NAREITcreated FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among otheritems, from net income, as defined by GAAP. FFO is defined as net income (loss) computed in accordance with GAAP, excluding gains or losses fromreal estate dispositions, plus real estate related depreciation and amortization and impairment charges. FAD is defined as FFO excluding noncashincome and expenses such as amortization of stock-based compensation, amortization of deferred financing costs and the effect of straight-line rent. Webelieve that the use of FFO and FAD, combined with the required GAAP presentations, improves the understanding of operating results of REITsamong investors and makes comparisons of operating results among such companies more meaningful. We consider FFO and FAD to be usefulmeasures for reviewing comparative operating and financial performance because, by excluding gains or losses from real estate dispositions,impairment charges and real estate depreciation and amortization, and, for FAD, by excluding noncash income and expenses such as amortization ofstock-based compensation, amortization of deferred financing costs, and the effect of straight line rent, FFO and FAD can help investors compare ouroperating performance between periods and to other REITs. However, our computation of FFO and FAD may not be comparable to FFO and FADreported by other REITs that do not define FFO in accordance with the current NAREIT definition or that35Table of Contentsinterpret the current NAREIT definition or define FAD differently than we do. Further, FFO and FAD do not represent cash flows from operations or netincome as defined 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, 2018, 2017, 2016, 2015 and 2014 to netincome, the most directly comparable financial measure according to GAAP, for the same periods: For the Year Ended December 31, 20182017201620152014 (dollars in thousands)Net income (loss)$57,923$25,874$29,353$10,034$(8,143)Real estate related depreciation and amortization45,66439,04931,86524,07522,996(Gain) loss on sale of real estate(2,051)—265——Impairment of real estate investment—890———Gain on disposition of other real estate investment—(3,538)———FFO101,53662,27561,48334,10914,853Amortization of deferred financing costs1,9382,0592,2392,2001,552Amortization of stock-based compensation3,8482,4161,5461,522154Straight-line rental income(2,333)(344)(150)——FAD$104,989$66,406$65,118$37,831$16,559ITEM 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.” Alsosee “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 consolidatedfinancial 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 is a self-administered, publicly-traded REIT engaged in the ownership, acquisition, development and leasing of seniors housing andhealthcare-related properties. As of December 31, 2018, the 92 facilities leased to Ensign had a total of 9,801 beds and units and are located in Arizona,California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington and the 102 remaining leased properties had a total of 9,285 beds andunits and are located in California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Maryland, Michigan, Minnesota, Montana, New Mexico, NorthCarolina, North Dakota, Ohio, Oregon, South Dakota, Texas, Virginia, Washington, West Virginia and Wisconsin. We also own and operate three ILFs whichhad a total of 264 units located in Texas and Utah. As of December 31, 2018, we also had other real estate investments consisting of $5.7 million for twopreferred equity investments and a mortgage loan receivable of $12.3 million.36Table of ContentsRecent TransactionsAt-The-Market Offering of Common StockIn May 2017, we entered into an equity distribution agreement to issue and sell, from time to time, up to $300.0 million in aggregate offering priceof our common stock through an “at-the-market” equity offering program (the “ATM Program”). The following table summarizes the quarterly ATM Programactivity for 2018 (shares and dollars in thousands, except per share amounts): For the Three Months Ended March 31, 2018 June 30, 2018 September 30, 2018 December 31, 2018 TotalNumber of shares— 2,989 4,772 2,504 10,265Average sales price per share$— $16.13 $17.62 $19.98 $17.76Gross proceeds*$— $48,198 $84,077 $50,046 $182,321*Total gross proceeds is before $0.6 million, $1.1 million and $0.6 million of commissions paid to the sales agents under the ATM Program duringthe three months ended June 30, 2018, September 30, 2018 and December 31, 2018, respectively.As of December 31, 2018, we had approximately $53.7 million available for future issuances under the ATM Program. From January 1, 2019 toJanuary 11, 2019, we sold 2.5 million shares of common stock at an average price of $19.48 per share for $47.9 million in gross proceeds. At February 13,2019 we had approximately $5.8 million available for future issuances under the ATM Program. See Liquidity and Capital Resources for additionalinformation.Recent and Pending InvestmentsFrom January 1, 2018 through February 13, 2019, we acquired fourteen skilled nursing facilities and three multi-service campuses and provided aterm loan secured by first mortgages on five skilled nursing facilities for approximately $177.7 million, which includes actual and estimated capitalizedacquisition costs and a $1.4 million commitment to fund revenue-producing capital expenditures over the next 24 months on one newly acquired multi-service campus. These acquisitions are expected to generate initial annual cash revenues of approximately $14.8 million and an initial blended yield ofapproximately 8.9%. See Note 3, Real Estate Investments, Net, and Note 14, Subsequent Events in the Notes to Consolidated Financial Statements foradditional information.On January 27, 2019, we entered into a Membership Interest Purchase Agreement (“MIPA”) to acquire from BME Texas Holdings, LLC, in a singletransaction, 100% of the membership interests in twelve separate, newly-formed special-purpose limited liability companies (the “SPEs”), each of which willown at closing a single real estate asset. The real estate assets include ten operating skilled nursing facilities and two operating skilled nursing/seniorshousing campuses, primarily located in the southeastern United States. The aggregate purchase price for the acquisition is approximately $211.0 million,exclusive of transaction costs. Should the transaction contemplated by the MIPA ultimately close, we expect that the twelve real estate assets will be leased atclosing to replacement operators, at least one of which is expected to be an existing Company tenant, under long-term master leases at an anticipated initiallease yield of approximately 8.9%, before taking into account transaction costs. The transaction contemplated by the MIPA is subject to multiple closingconditions, including without limitation, the acquisition of the assets by the SPEs, the full performance of other agreements to which we and our subsidiariesare not a party, the execution and timely completion of separate transition agreements between the incoming and outgoing operators, and multiple third-party approvals.Recent DispositionsDuring the year ended December 31, 2018, we sold three ALFs consisting of 102 units located in Idaho with an aggregate carrying value of $10.9million for an aggregate price of $13.0 million. In connection with the sale, we recognized a gain of $2.1 million.37Table of ContentsLease Terminations and Related AgreementsPristine Lease Termination. On February 27, 2018 (the “LTA Effective Date”) we entered into a Lease Termination Agreement (the “LTA”) withaffiliates of Pristine Senior Living, LLC (“Pristine”) under which Pristine agreed to surrender all nine remaining facilities operated by Pristine, with acompletion date of April 30, 2018. Under the LTA, Pristine agreed to continue to operate the facilities until possession could be surrendered, and theoperations therein transitioned, to operator(s) designated by us. Among other things, Pristine also agreed to amend certain pending agreements to sell therights to certain Ohio Medicaid beds (the “Bed Sales Agreements”) and cooperate with us to turn over any claim or control it might have had with respect tothe sale process and the proceeds thereof, if any, to us. The transactions were timely completed, and on May 1, 2018, Trio Healthcare, Inc. (“Trio”) took overoperations in the seven facilities based primarily in the Dayton, Ohio area under a new 15-year master lease, while Hillstone Healthcare, Inc. (“Hillstone”)assumed the operation of the two facilities in Willard and Toledo, Ohio under a new 12-year master lease. In addition, amendments to the Bed SalesAgreements were subsequently executed, confirming us as the sole seller of the bed rights and the sole recipient of any proceeds therefrom. The aggregateannual base rent due under the new master leases with Trio and Hillstone is approximately $10.0 million, subject to CPI-based or fixed escalators.Under the LTA we agreed, upon Pristine’s full performance of the terms thereof, to terminate Pristine’s master lease and all future obligations ofthe tenant thereunder; however, under the terms of the master lease the Company’s security interest in Pristine’s accounts receivable has survived any suchtermination. Such security interest was subject to the prior lien and security interest of Pristine’s working capital lender, Capital One, National Association(“CONA”), with whom the Company has an existing intercreditor agreement that defines the relative rights and responsibilities of CONA with respect to theloan and lease collateral represented by Pristine’s accounts receivable and the Company’s respective security interests therein.OnPointe Lease Terminations. On March 12, 2018, we terminated two separate facility leases between us and affiliates of OnPointe Health(“OnPointe”), which covered two properties located in Albuquerque, New Mexico and Brownsville, Texas. The Brownsville lease termination also terminatedan option agreement which would have granted the tenant the right, under certain circumstances, to purchase the Brownsville property. OnPointe continuedto operate the facilities following the lease terminations, and worked cooperatively with us to effectuate an orderly transfer of the operations in the twoproperties to two existing CareTrust tenants as described below.On May 1, 2018, OnPointe completed the operational transfers of both facilities. An affiliate of Eduro Healthcare, LLC (“Eduro”) assumedoperational responsibility for the Albuquerque property, and we entered into a lease amendment with Eduro amending their existing master lease with us toadd the Albuquerque property thereto. An affiliate of Providence Group, Inc. (“Providence”) assumed operational responsibility for the Brownsville property,and we entered into a lease amendment with Providence amending their existing master lease with us to add the Brownsville property thereto. The aggregateannual base rent increase under the Eduro and Providence master leases, as amended, was approximately equivalent to the aggregate annual base rent we werereceiving under the two OnPointe leases.Results of OperationsOperating ResultsOur primary business consists of acquiring, developing, financing and owning real property to be leased to third party tenants in the healthcare sector. 38Table of ContentsYear Ended December 31, 2018 Compared to Year Ended December 31, 2017 Year Ended December 31, Increase(Decrease) PercentageDifference 2018 2017 (dollars in thousands)Revenues: Rental income$140,073 $117,633 $22,440 19 %Tenant reimbursements11,924 10,254 1,670 16 %Independent living facilities3,379 3,228 151 5 %Interest and other income1,565 1,867 (302) (16)%Expenses: Depreciation and amortization45,766 39,159 6,607 17 %Interest expense27,860 24,196 3,664 15 %Loss on the extinguishment of debt— 11,883 (11,883) *Property taxes11,924 10,254 1,670 16 %Independent living facilities2,964 2,733 231 8 %Impairment of real estate investment— 890 (890) *Reserve for advances and deferred rent— 10,414 (10,414) *General and administrative12,555 11,117 1,438 13 %* Not meaningfulRental income. Rental income was $140.0 million for the year ended December 31, 2018 compared to $117.6 million for the year ended December 31,2017. The $22.4 million or 19% increase in rental income is primarily due to $19.2 million from real estate investments made after January 1, 2017, $2.6million from increases in rental rates for our existing tenants and $2.0 million of straight-line rent, partially offset by a $0.8 million decrease in cash rents asof December 31, 2018 and a $0.7 million decrease in rental income due to the sale of three assisted living facilities in March 2018.Independent living facilities. Revenues from our three ILFs that we own and operate were $3.4 million for the year ended December 31, 2018 comparedto $3.2 million for the year ended December 31, 2017. The $0.2 million or 5% increase was primarily due to increased occupancy at these facilities. Expensesfor our three ILFs were $2.9 million for the year ended December 31, 2018 compared to $2.7 million for the year ended December 31, 2017. The $0.2 millionor 8% increase was primarily due to the increased occupancy at these facilities.Interest and other income. Interest and other income decreased $0.3 million for the year ended December 31, 2018 to $1.6 million compared to $1.9million for the year ended December 31, 2017. The decrease was primarily due to the interest income associated with the disposition in May 2017 of onepreferred equity investment, partially offset by an increase of interest income related to the mortgage loan receivable that we provided to the ProvidenceGroup in October 2017.Depreciation and amortization. Depreciation and amortization expense increased $6.6 million, or 17%, for the year ended December 31, 2018 to $45.8million compared to $39.2 million for the year ended December 31, 2017. The $6.6 million increase was primarily due to new real estate investments madeafter January 1, 2017.Interest expense. Interest expense increased $3.7 million, or 15%, for the year ended December 31, 2018 to $27.9 million compared to $24.2 million forthe year ended December 31, 2017. The increase was primarily due to a higher weighted average outstanding balance on our Prior Revolving Facility (asdefined below) and higher LIBOR interest rates.Loss on the extinguishment of debt. Loss on the extinguishment of debt for the year ended December 31, 2017 consisted of $7.6 million related to theredemption of our 5.875% Senior Notes due 2021 at a redemption price of 102.938%, and a $4.2 million write-off of deferred financing costs associated withsuch redemption that was completed during the year ended December 31, 2017.Impairment of real estate investments. In April 2017, we and Ensign mutually determined that La Villa Rehab & Healthcare Center (“La Villa”) hadreached the natural end of its useful life as a skilled nursing facility and that the facility was no longer economically viable, the improvements thereon couldnot be economically repurposed to any other use, and the cost to remove the obsolete improvements and reclaim the underlying land for redevelopment wasexpected to exceed the market value of the land. Ensign agreed to wind up and terminate the operations of the facility and we transferred title to the property39Table of Contentsto Ensign. There was no adjustment to the contractual rent under the applicable master lease. As a result of the transfer, we wrote-off the net book value of LaVilla during the year ended December 31, 2017.Reserve for advances and deferred rent. Included in the reserve for advances and deferred rent for the year ended December 31, 2017 is $0.8 million forunpaid cash rents and $9.6 million for other tenant receivables related to the properties previously net leased to subsidiaries of Pristine. See previousdisclosure under “Recent Transactions-Lease Terminations and Related Agreements-Pristine Lease Termination” for further discussion.General and administrative expense. General and administrative expense increased $1.4 million or 13% for the year ended December 31, 2018 to $12.5million compared to $11.1 million for the year ended December 31, 2017. The increase is primarily related to an increase in the amortization of stock-basedcompensation of $1.4 million.Year Ended December 31, 2017 Compared to Year Ended December 31, 2016 Year Ended December 31, Increase(Decrease) PercentageDifference 2017 2016 (dollars in thousands)Revenues: Rental income$117,633 $93,126 $24,507 26%Tenant reimbursements10,254 7,846 2,408 31%Independent living facilities3,228 2,970 258 9%Interest and other income1,867 737 1,130 153%Expenses: Depreciation and amortization39,159 31,965 7,194 23%Interest expense24,196 22,873 1,323 6%Loss on the extinguishment of debt11,883 326 11,557 *Property taxes10,254 7,846 2,408 31%Independent living facilities2,733 2,549 184 7%Impairment of real estate investments890 — 890 *Acquisition costs— 205 (205) *Reserve for advances and deferred rent10,414 — 10,414 *General and administrative11,117 9,297 1,820 20%* Not meaningfulRental income. Rental income was $117.6 million for the year ended December 31, 2017 compared to $93.1 million for the year ended December 31,2016. The $24.5 million or 26% increase in rental income is due primarily to $24.7 million from investments made after January 1, 2016, $1.0 million fromincreases in rental rates for our existing tenants and $0.3 million of straight-line rent, partially offset by a $0.8 million decrease due to placing one tenant on acash basis in the year ended December 31, 2017 and a $0.7 million decrease in rental rate for one tenant.Independent living facilities. Revenues from our three ILFs that we own and operate were $3.2 million for the year ended December 31, 2017 comparedto $3.0 million for the year ended December 31, 2016. The $0.3 million increase was primarily due to increased occupancy at these facilities and a higheraverage rental rate per unit. Expenses for our three ILFs were $2.7 million for the year ended December 31, 2017 compared to $2.5 million for the year endedDecember 31, 2016. The $0.2 million or 7% increase was primarily due to the increased occupancy at these facilities.Interest and other income. Interest and other income increased $1.1 million for the year ended December 31, 2017 to $1.9 million compared to $0.8million for the year ended December 31, 2016. The increase was due to $0.5 million of net interest income related to the disposition in May 2017 of onepreferred equity investment, $0.4 million of interest income from two preferred equity investments that closed in July and September 2016 and $0.2 millionof interest income related to our mortgage loan receivable that we provided in October 2017.Depreciation and amortization. Depreciation and amortization expense increased $7.2 million, or 23%, for the year ended December 31, 2017 to $39.2million compared to $32.0 million for the year ended December 31, 2016. The $7.2 million increase was primarily due to new investments made after January1, 2016.40Table of ContentsInterest expense. Interest expense increased $1.3 million, or 6%, for the year ended December 31, 2017 to $24.2 million compared to $22.9 million forthe year ended December 31, 2016. The net increase was due primarily to the fourteen days during the year ended December 31, 2017 when both our $300.0million 5.25% Senior Notes due 2025 and our $260.0 million 5.875% Senior Notes due 2021 were outstanding, higher interest rates on our floating rate debtprimarily related to our senior unsecured term loan and a higher average net borrowings on our Prior Revolving Facility.Loss on the extinguishment of debt. Included in the loss on the extinguishment of debt is $7.6 million related to the redemption of our 5.875% SeniorNotes due 2021 at a redemption price of 102.938%, and a $4.2 million write-off of deferred financing costs associated with such redemption that wascompleted during the year ended December 31, 2017. Included in the loss on the extinguishment of debt for the year ended December 31, 2016 is a $0.3million write-off of deferred financing fees associated with the payoff and termination our secured mortgage indebtedness with General Electric CapitalCorporation (the “GECC Loan”).Impairment of real estate investments. In April 2017, we and Ensign mutually determined that La Villa had reached the natural end of its useful life as askilled nursing facility and that the facility was no longer economically viable, the improvements thereon could not be economically repurposed to any otheruse, and the cost to remove the obsolete improvements and reclaim the underlying land for redevelopment was expected to exceed the market value of theland. Ensign agreed to wind up and terminate the operations of the facility and we transferred title to the property to Ensign. There was no adjustment to thecontractual rent under the applicable master lease. As a result of the transfer, we wrote-off the net book value of La Villa during the year ended December 31,2017.Reserve for advances and deferred rent. Included in the reserve for advances and deferred rent for the year ended December 31, 2017 is $0.8 million forunpaid cash rents and $9.6 million for other tenant receivables related to the properties previously net leased to subsidiaries of Pristine. See previousdisclosure under “Recent Transactions-Lease Terminations and Related Agreements-Pristine Lease Termination” for further discussion.General and administrative expense. General and administrative expense increased $1.8 million for the year ended December 31, 2017 to $11.1 millioncompared to $9.3 million for the year ended December 31, 2016. The increase is primarily related to higher cash wages of $0.9 million, amortization of stock-based compensation of $0.9 million and higher professional fees of $0.2 million, partially offset by lower state and local taxes of $0.2 million.Liquidity and Capital ResourcesTo qualify as a REIT for federal income tax purposes, we are required to distribute at least 90% of our REIT taxable income, determined without regardto the dividends paid deduction and excluding any net capital gains, to our stockholders on an annual basis. Accordingly, we intend to make, but are notcontractually bound to make, regular quarterly dividends to common stockholders from cash flow from operating activities. All such dividends are at thediscretion of our board of directors. As of December 31, 2018, we had cash and cash equivalents of $36.8 million.During the year ended December 31, 2018, we sold approximately 10.3 million shares of our common stock under our ATM Program at an averageprice of $17.76 per share for $182.3 million in gross proceeds before $2.3 million of commissions paid to the sales agents. At December 31, 2018, we hadapproximately $53.7 million available for future issuances under the ATM Program. Subsequent to December 31, 2018, we sold an additional 2.5 millionshares of our common stock under our ATM Program and we have approximately $5.8 million available for future issuances under the ATM Program as ofFebruary 13, 2019. We intend to renew or replace our ATM Program following or just before its substantial exhaustion.As of December 31, 2018, there was $95.0 million outstanding under the Prior Revolving Facility. On February 8, 2019, we amended and restated ourCredit Facility, which now provides for (i) an unsecured revolving credit facility (the “New Revolving Facility”) with revolving commitments in anaggregate principal amount of $600.0 million, including a letter of credit subfacility for 10% of the then available revolving commitments and a swinglineloan subfacility for 10% of the then available revolving commitments and (ii) a $200.0 million unsecured term loan credit facility (the “New Term Loan” andtogether with the New Revolving Facility, the “Amended Credit Facility”). The proceeds of the New Term Loan were used, in part, to repay in full alloutstanding borrowings under the Prior Term Loan and Prior Revolving Facility (each as defined below). As of February 13, 2019, there was $200.0 millionoutstanding under the New Term Loan, and no borrowings outstanding under the New Revolving Facility. See Note 6, Debt, Note 7, Equity and Note14, Subsequent Events, in the Notes to Consolidated Financial Statements for additional information. Borrowing availability under the New RevolvingFacility is subject to our compliance with certain financial covenants set forth in the Amended Credit Agreement governing the New Revolving Facility,including a consolidated leverage ratio that requires our ratio of Adjusted Consolidated Debt to41Table of ContentsConsolidated Total Asset Value (each as defined in the Amended Credit Agreement) be less than 60%. We believe that our available cash, expected operatingcash flows, our ATM Program and New Revolving Facility will provide sufficient funds for our operations, anticipated scheduled debt service payments anddividend plans 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 thatfuture investments in properties, including any improvements or renovations of current or newly-acquired properties, will depend on and will be financed by,in whole or in part, our existing cash, borrowings available to us under the Amended Credit Facility, future borrowings or the proceeds from sales of shares ofour common stock pursuant to our ATM Program or additional issuances of common stock or other securities. In addition, we may seek financing from U.S.government agencies, including through Fannie Mae and the U.S. Department of Housing and Urban Development, in appropriate circumstances inconnection with acquisitions and refinancing of existing mortgage loans.We have filed an automatic shelf registration statement with the SEC that expires in May 2020, which will allow us or certain of our subsidiaries, asapplicable, to offer and sell shares of common stock, preferred stock, warrants, rights, units and debt securities through underwriters, dealers or agents ordirectly to purchasers, on a continuous or delayed basis, in amounts, at prices and on terms we determine at the time of the offering.Although we are subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incuradditional indebtedness for acquisitions or other purposes, if needed. However, there can be no assurance that we will be able to refinance our indebtedness,incur additional indebtedness or access additional sources of capital, such as by issuing common stock or other debt or equity securities, on terms that areacceptable to us or at all.Cash FlowsThe following table presents selected data from our consolidated statements of cash flows for the years presented: Year Ended December 31, 2018 2017 2016 (dollars in thousands)Net cash provided by operating activities$99,357 $88,800 $64,431Net cash used in investing activities(115,069) (302,559) (284,642)Net cash provided by financing activities45,595 213,168 216,244Net increase (decrease) in cash and cash equivalents29,883 (591) (3,967)Cash and cash equivalents at beginning of period6,909 7,500 11,467Cash and cash equivalents at end of period$36,792 $6,909 $7,500Year Ended December 31, 2018 Compared to Year Ended December 31, 2017Net cash provided by operating activities for the year ended December 31, 2018 was $99.3 million compared to $88.8 million for the year endedDecember 31, 2017, an increase of $10.5 million. The increase was primarily due to an increase in net income of $32.0 million, partially offset by a decreasein noncash income and expenses of $20.4 million and a $1.1 million change in operating assets and liabilities.Net cash used in investing activities for the year ended December 31, 2018 was $115.1 million compared to $302.6 million for the yearended December 31, 2017, a decrease of $187.5 million. The decrease was primarily the result of a $184.9 million decrease in cash used to acquire real estate,a $13.0 million increase in net proceeds from the sale of real estate, a $6.8 million decrease of investments in other loan receivables and a $3.2 millionincrease from principal payments received on real estate mortgage and other loans receivable, partially offset by prior period cash proceeds of $7.5 millionrelated to the sale of other real estate investments, an increase of $6.5 million in improvements to real estate, $5.0 million of escrow deposits for acquisitionsof real estate and an increase of $1.4 million of purchases of furniture, fixtures and equipment.Net cash provided by financing activities for the year ended December 31, 2018 was $45.6 million compared to $213.2 million for the year endedDecember 31, 2017, a decrease of $167.6 million. This decrease was primarily due to a decrease of $172.4 million in net borrowings, an increase in dividendspaid of $10.4 million and $0.4 million of net-settle adjustments on restricted stock, partially offset by a $9.5 million increase in net proceeds from sales of ourcommon stock under our ATM Program and a $6.1 million decrease in payments of deferred financing costs.42Table of ContentsYear Ended December 31, 2017 Compared to Year Ended December 31, 2016Net cash provided by operating activities for the year ended December 31, 2017 was $88.8 million compared to $64.4 million for the year endedDecember 31, 2016, an increase of $24.4 million. The increase was primarily due to an increase in noncash income and expenses of $31.9 million, partiallyoffset by a $4.0 million change in operating assets and liabilities and a decrease in net income of $3.5 million.Net cash used in investing activities for the year ended December 31, 2017 was $302.6 million compared to $284.6 million for the year endedDecember 31, 2016, an increase of $18.0 million. The increase was primarily the result of a $15.3 million increase in acquisitions, $12.4 million increase dueto an investment in real estate mortgage loan receivable, a $2.9 million reduction in net proceeds of sale of real estate and $0.3 million of purchases offurniture, fixtures and equipment, partially offset by a decrease of $7.5 million for the sale of other real estate investment, a reduction of $4.7 million inpreferred equity investments and $0.7 million in escrow deposits related to acquisitions.Net cash provided by financing activities for the year ended December 31, 2017 was $213.2 million compared to $216.2 million for the year endedDecember 31, 2016, a decrease of $3.0 million. This decrease was primarily due to higher repayments of debt of $135.6 million, a decrease in net proceeds of$30.1 million from sales of our common stock, an increase in dividends paid of $15.3 million, increased payments of deferred financing fees of $4.7 millionand $0.3 million of net-settlement adjustments on restricted stock, partially offset by an increase in borrowings in the amount of $183.0 million.IndebtednessSenior Unsecured NotesOn May 10, 2017, the Operating Partnership, and its wholly owned subsidiary, CareTrust Capital Corp. (together with the Operating Partnership, the“Issuers”), completed a public offering of $300.0 million aggregate principal amount of 5.25% Senior Notes due 2025. The Notes were issued at par, resultingin gross proceeds of $300.0 million and net proceeds of approximately $294.0 million after deducting underwriting fees and other offering expenses. Weused the net proceeds from the offering of the Notes to redeem all $260.0 million aggregate principal amount outstanding of our 5.875% Senior Notes due2021, including payment of the redemption price of 102.938% and all accrued and unpaid interest thereon. We used the remaining portion of the netproceeds of the Notes offering to pay borrowings outstanding under our Prior Revolving Facility. The Notes mature on June 1, 2025 and bear interest at a rateof 5.25% per year. Interest on the Notes is payable on June 1 and December 1 of each year, beginning on December 1, 2017.The Issuers may redeem the Notes any time before June 1, 2020 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 indenturegoverning the Notes and, at any time on or after June 1, 2020, at the redemption prices set forth in the indenture. At any time on or before June 1, 2020, up to40% of the aggregate principal amount of the Notes may be redeemed with the net proceeds of certain equity offerings if at least 60% of the originally issuedaggregate principal amount of the Notes remains outstanding. In such case, the redemption price will be equal to 105.25% of the aggregate principal amountof the Notes to be redeemed plus accrued and unpaid interest, if any, to, but not including the redemption date. If certain changes of control of CareTrustREIT occur, holders of the Notes will have the right to require the Issuers to repurchase their Notes at 101% of the principal amount plus accrued and unpaidinterest, 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 REIT and certainof CareTrust REIT’s wholly owned existing and, subject to certain exceptions, future material subsidiaries (other than the Issuers); provided, however, thatsuch guarantees are subject to automatic release under certain customary circumstances, including if the subsidiary guarantor is sold or sells all orsubstantially all of its assets, the subsidiary guarantor is designated “unrestricted” for covenant purposes under the indenture, the subsidiary guarantor’sguarantee of other indebtedness which resulted in the creation of the guarantee of the Notes is terminated or released, or the requirements for legal defeasanceor covenant defeasance or to discharge the indenture have been satisfied. See Note 12, Summarized Condensed Consolidating Information, in the Notes toConsolidated Financial Statements.The indenture contains customary covenants such as limiting the ability of CareTrust REIT and its restricted subsidiaries to: incur or guaranteeadditional indebtedness; incur or guarantee secured indebtedness; pay dividends or distributions on, or redeem or repurchase, capital stock; make certaininvestments or other restricted payments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their assets;and create restrictions on the ability of the Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers. The indenture alsorequires CareTrust REIT and its restricted subsidiaries to maintain a specified ratio of unencumbered assets to unsecured indebtedness. These43Table of Contentscovenants are subject to a number of important and significant limitations, qualifications and exceptions. The indenture also contains customary events ofdefault.As of December 31, 2018, we were in compliance with all applicable financial covenants under the indenture.Unsecured Revolving Credit Facility and Term LoanOn August 5, 2015, the Company, CareTrust GP, LLC, the Operating Partnership, as the borrower, and certain of its wholly owned subsidiaries enteredinto a credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender, and the lendersparty thereto (as amended in February 2016, the “Prior Credit Agreement”). The Prior Credit Agreement provided for (i) an unsecured asset-based revolvingcredit facility (the “Prior Revolving Facility”) with commitments in an aggregate principal amount of $400.0 million from a syndicate of banks and otherfinancial institutions, and an accordion feature that allows the Operating Partnership to increase the borrowing availability by up to an additional $250.0million, and (ii) a $100.0 million non-amortizing unsecured term loan (the “Prior Term Loan”). The Prior Revolving Facility was schedule to mature onAugust 5, 2019, and included two six-month extension options. The Prior Term Loan, which was scheduled to mature on February 1, 2023, could be prepaidat any time subject to a 2% premium in the first year after issuance and a 1% premium in the second year after issuance.As of December 31, 2018, we had $100.0 million outstanding under the Prior Term Loan and there was $95.0 million outstanding under the PriorRevolving Facility.As of December 31, 2018, we were in compliance with all applicable financial covenants under the Credit Agreement.On February 8, 2019, the Company, CareTrust GP, LLC, and certain of the Operating Partnership’s wholly owned subsidiaries entered into an amendedand restated credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender, and thelenders party thereto (the “Amended Credit Agreement”). The Amended Credit Agreement amends and restates the Company’s Prior Credit Agreement andnow provides for (i) a New Revolving Facility with revolving commitments in an aggregate principal amount of $600.0 million, including a letter of creditsubfacility for 10% of the then available revolving commitments and a swingline loan subfacility for 10% of the then available revolving commitments and(ii) a $200.0 million New Term Loan. The proceeds of the New Term Loan were used, in part, to repay in full all outstanding borrowings under the Prior TermLoan and Prior Revolving Facility. See Note 14, Subsequent Events, in the Notes to Consolidated Financial Statements for additional information.The New Revolving Facility has a maturity date of February 8, 2023, and includes two, six-month extension options. The New Term Loan has amaturity date of February 8, 2026.The Amended Credit Agreement provides that, subject to customary conditions, including obtaining lender commitments and pro forma compliancewith financial maintenance covenants under the Amended Credit Agreement, the Operating Partnership may seek to increase the aggregate principal amountof the revolving commitments and/or establish one or more new tranches of term loans under the Amended Credit Facility in an aggregate amount not toexceed $500.0 million. The Company does not currently have any commitments for such increased commitments or loans.The interest rates applicable to loans under the New Revolving Facility are, at the Operating Partnership’s option, equal to either a base rate plus amargin ranging from 0.10% to 0.55% per annum or LIBOR plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio ofthe Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specifiedinvestment grade ratings on its senior long-term unsecured debt). The interest rates applicable to loans under the New Term Loan are, at the OperatingPartnership’s option, equal to either a base rate plus a margin ranging from 0.50% to 1.20% per annum or LIBOR plus a margin ranging from 1.50% to2.20% per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’selection if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). In addition, the Operating Partnership willpay a facility fee on the revolving commitments under the New Revolving Facility ranging from 0.15% to 0.35% per annum, based on the debt to asset valueratio of the Company and its consolidated subsidiaries (unless the Company obtains certain specified investment grade ratings on its senior long-termunsecured debt and the Operating Partnership elects to decrease the applicable margin as described above, in which case the Operating Partnership will pay afacility fee on the revolving commitments ranging from 0.125% to 0.30% per annum based off the credit ratings of the Company’s senior long-termunsecured debt).Loans made under the Amended Credit Facility are not subject to interim amortization prior to the final maturity date therefor (other than swinglineloans which are due and payable within ten (10) business days of the date on which they were advanced if sooner than the final maturity date of the AmendedCredit Facility). The Operating Partnership is not required to repay any loans (other than swingline loans) under the Amended Credit Facility prior to thematurity date therefor, other than to44Table of Contentsthe extent the outstanding revolving borrowings exceed the aggregate revolving commitments under the New Revolving Facility. The Operating Partnershipis permitted to prepay all or any portion of the loans under the New Revolving Facility prior to maturity without premium or penalty, subject toreimbursement of any LIBOR breakage costs of the lenders. The Operating Partnership is permitted to prepay all or any portion of the loans under the NewTerm Loan prior to maturity subject to a 2% prepayment premium in the first year after issuance and a 1% prepayment premium in the second year afterissuance and to reimbursement of any LIBOR breakage costs of the lenders.The Amended Credit Facility is guaranteed, jointly and severally, by the Company and its wholly owned subsidiaries that are party to the AmendedCredit Agreement (other than the Operating Partnership). The Amended Credit Agreement contains customary covenants that, among other things, restrict,subject to certain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments,engage in acquisitions, mergers or consolidations, enter into certain transactions with affiliates, create restrictions on distributions from subsidiaries and paycertain dividends and other restricted payments. The Amended Credit Agreement requires the Company to comply with financial maintenance covenants tobe tested quarterly, consisting of a maximum debt to asset value ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, a maximumcash distributions to operating income ratio, a maximum secured debt to asset value ratio, a maximum secured recourse debt to asset value ratio, a maximumunsecured debt to unencumbered properties asset value ratio, a minimum unsecured interest coverage ratio and a minimum rent coverage ratio. The AmendedCredit Agreement also contains certain customary events of default, including the failure to make timely payments under the Amended Credit Facility orother material indebtedness, the failure to satisfy certain covenants, the occurrence of change of control and specified events of bankruptcy and insolvency.Obligations and CommitmentsThe following table summarizes our contractual obligations and commitments at December 31, 2018 (in thousands): Payments Due by Period Total Lessthan1 Year 1 Yearto Lessthan3 Years 3 Yearsto Lessthan5 Years Morethan5 yearsSenior unsecured notes payable (1)$402,375 $15,750 $31,500 $31,500 $323,625Senior unsecured term loan (2)118,535 4,534 9,081 104,920 —Unsecured revolving credit facility (3)97,892 97,892 — — —Operating lease160 141 19 — —Total$618,962 $118,317 $40,600 $136,420 $323,625(1)Amounts include interest payments of $102.4 million.(2)Amounts include interest payments of $18.5 million.(3)The unsecured revolving credit facility includes payments related to the unused Revolving Facility fee under the Prior Revolving Facility.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 our triple-net leases are generally the responsibility of the tenant, except that, for the facilities leased tosubsidiaries of Ensign under eight master leases (“Ensign Master Leases”), the tenant will have an option to require us to finance certain capital expendituresup to an aggregate of 20% of our initial investment in such property, subject to a corresponding rent increase at the time of funding. For our other triple-netmaster leases, the tenants also have the option to request capital expenditure funding that would also be subject to a corresponding rent increase at the timeof funding, which are subject to tenant compliance with the conditions to our approval and funding of their requests.Critical Accounting PoliciesBasis of Presentation. The accompanying consolidated financial statements of the Company reflect, for all periods presented, the historical financialposition, results of operations and cash flows of (i) the net-leased SNFs, multi-service campuses, ALFs and ILFs, (ii) the operations of the three ILFs that weown and operate, and (iii) the preferred equity45Table of Contentsinvestments and mortgage loan receivable. Historical financial information is not necessarily indicative of our future results of operations, financial positionor cash flows.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 statementsand the reported amounts of revenue and expenses during the reporting periods. Management believes that the assumptions and estimates used in preparationof the underlying consolidated financial statements are reasonable. Actual results, however, could differ from those estimates and assumptions.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 significantreplacements and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. Weconsider the period of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are capitalized and amortizedover the shorter of the tenant’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 yearsIdentified intangible assetsShorter of lease term or expected useful lifeReal Estate Acquisition Valuation. In accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, we record theacquisition of income-producing real estate as a business combination. If the acquisition does not meet the definition of a business, we record the acquisitionas an asset acquisition. Under both methods, all assets acquired and liabilities assumed are measured at their acquisition date fair values. For transactions thatare business combinations, acquisition costs are expensed as incurred and restructuring costs that do not meet the definition of a liability at the acquisitiondate are expensed in periods subsequent to the acquisition date. For transactions that are an asset acquisition, acquisition costs are capitalized as incurred.We 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 marketand 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 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.As part of our asset acquisitions, we may commit to provide contingent payments to a seller or lessee (e.g., an earn-out payable upon the applicableproperty achieving certain financial metrics). Typically, when the contingent payments are funded, cash rent is increased by the amount funded multiplied bya rate stipulated in the agreement. Generally, if the contingent payment is an earn-out provided to the seller, the payment is capitalized to the property’sbasis. If the contingent payment is an earn-out provided to the lessee, the payment is recorded as a lease incentive and is amortized as a yield adjustment overthe life of the lease.Impairment of Long-Lived Assets. At each reporting period, management evaluates our real estate investments for impairment indicators, including theevaluation of our assets’ useful lives. Management also assesses the carrying value of our real estate investments whenever events or changes incircumstances indicate that the carrying amount of the assets may not be recoverable. The judgment regarding the existence of impairment indicators is basedon 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 carryingvalues of the assets. An adjustment is made to the net carrying value of the46Table of Contentsreal estate investments for the excess of carrying value over fair value. All impairments are taken as a period cost at that time and depreciation is adjustedgoing 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 thecarrying 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. Our estimates of cash flows and fair values of the properties are based oncurrent market conditions 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 andestimate and allocate fair values impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in theseassumptions may have a material impact on financial results. During the year ended December 31, 2017, we recorded an impairment loss of $0.9 millionrelated to its investment in La Villa. In April 2017, we mutually determined with Ensign that La Villa had reached the natural end of its useful life as a skillednursing facility and that the facility was no longer economically viable, the improvements thereon could not be economically repurposed to any other use,and the cost to remove the obsolete improvements and reclaim the underlying land for redevelopment was expected to exceed the market value of the land.Ensign agreed to wind up and terminate the operations of the facility and we transferred title to the property to Ensign. There was no adjustment to thecontractual rent under the applicable master lease. Additionally, we agreed that the licensed beds would be transferred to another facility included in theEnsign Master Leases.Other Real Estate Investments. Included in Other Real Estate Investments are preferred equity investments and a mortgage loan receivable. Preferredequity investments are accounted for at unpaid principal balance, plus accrued return, net of reserves. We recognize return income on a quarterly basis basedon the outstanding investment including any accrued and unpaid return, to the extent there is outside contributed equity or cumulative earnings fromoperations. As the preferred member of the joint venture, we are not entitled to share in the joint venture’s earnings or losses. Rather, we are entitled to receivea preferred return, which is deferred if the cash flow of the joint venture is insufficient to pay all of the accrued preferred return. The unpaid accrued preferredreturn is added to the balance of the preferred equity investment up to the estimated economic outcome assuming a hypothetical liquidation of the bookvalue of the joint venture. Any unpaid accrued preferred return, whether recorded or unrecorded by us, will be repaid upon redemption or as available cashflow is distributed from the joint venture.Our mortgage loan receivable is recorded at amortized cost, which consists of the outstanding unpaid principal balance, net of unamortized costs andfees directly associated with the origination of the loan.Interest income on our mortgage loan receivable is recognized over the life of the investment using the interest method. Origination costs and feesdirectly related to loans receivable are amortized over the term of the loan as an adjustment to interest income.We evaluate at each reporting period each of our 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 isestablished for 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 three 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. We place cash and short-terminvestments with high credit quality financial institutions.Our cash and cash equivalents balance periodically exceeds federally insurable limits. We monitor the cash balances in our operating accounts andadjust the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to otheradverse conditions in the financial markets. To date, we have experienced no loss or lack of access to cash in 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 senior unsecured term loan, deferredfinancing costs are netted against the outstanding debt47Table of Contentsamounts on the balance sheet. For our Amended Credit Facility, deferred financing costs are included in assets on our balance sheet.Revenue Recognition. We recognize rental revenue, including rental abatements, lease incentives and contractual fixed increases attributable tooperating 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 we are theprimary obligor and, with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier and bear theassociated credit risk. For the years ended December 31, 2018, 2017 and 2016, 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, theoperations, 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. As of December 31, 2017, wereserved $0.8 million for unpaid cash rents and $9.6 million for other tenant receivables related to the properties previously net leased to subsidiaries ofPristine. We recorded no reserves for the years ended December 31, 2016 and December 31, 2018. See Note 3, “Real Estate Investments, Net” for furtherdiscussion.Income Taxes. Our operations have historically been included in Ensign’s U.S. federal and state income tax returns and all income taxes have beenpaid by Ensign. Income tax expense and other income tax related information contained in these consolidated financial statements are presented on aseparate tax return basis as if we filed our own tax returns. Management believes that the assumptions and estimates used to determine these tax amounts arereasonable. However, the consolidated financial statements herein may not necessarily reflect our income tax expense or tax payments in the future, or whatour tax amounts would have been if we had been a stand-alone company during the periods presented.We elected to be taxed as a REIT under the Code, and have operated as such beginning with our taxable year ended December 31, 2014. To qualify as aREIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxableincome to our stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal netincome as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we distribute qualifyingdividends to our stockholders. 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 regularcorporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable yearsfollowing the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions.Stock-Based Compensation. We account for share-based awards in accordance with ASC Topic 718, Compensation - Stock Compensation (“ASC718”). ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. ASC 718 requires allentities to apply a fair value-based measurement method in accounting for share-based payment transactions with employees except for equity instrumentsheld by employee share ownership plans.See Note 2, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements for information concerning recentlyissued accounting standards.Impact of InflationOur rental income in future years will be impacted by changes in inflation. Almost all of our triple-net lease agreements, including the Ensign MasterLeases, provide for an annual rent escalator based on the percentage change in the Consumer Price Index (but not less than zero), subject to maximum fixedpercentages.Off-Balance Sheet ArrangementsNone.ITEM 7A.Quantitative and Qualitative Disclosures About Market RiskOur primary market risk exposure is interest rate risk with respect to our variable rate indebtedness.48Table of ContentsOur Prior Credit Agreement provided for revolving commitments in an aggregate principal amount of $400.0 million from a syndicate of banks andother financial institutions. The interest rates per annum applicable to loans under the Prior Revolving Facility were, at the Company’s option, equal to eithera 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 thedebt to asset value ratio of the Company and its subsidiaries. Under the Prior Credit Agreement, interest rates applicable to the Prior Term Loan were, at theCompany’s option, equal to a base rate plus a margin ranging from 0.95% to 1.60% per annum or applicable LIBOR plus a margin ranging from 1.95% to2.60% per annum based on the debt to asset value ratio of the Company and its subsidiaries. As of December 31, 2018, we had a $100.0 million Prior TermLoan outstanding and there was $95.0 million outstanding under the Prior Revolving Facility.An increase in interest rates could make the financing of any acquisition by us more costly as well as increase the costs of our variable rate debtobligations. Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancingand increase interest expense on refinanced indebtedness. Assuming a 100 basis point increase in the interest rates related to our variable rate debt, andassuming no change in our outstanding debt balance as described above, interest expense would have increased approximately $2.0 million for the yearended December 31, 2018.On February 8, 2019, we entered into the Amended Credit Agreement, which amended and restated our Prior Credit Agreement. Our Amended CreditAgreement provides for (i) a New Revolving Facility in an aggregate principal amount of $600.0 million, including a letter of credit subfacility for 10% ofthe then available revolving commitments and a swingline loan subfacility for 10% of the then available revolving commitments, and (ii) a $200.0 millionNew Term Loan.The interest rates applicable to loans under the New Revolving Facility are, at the Company’s option, equal to either a base rate plus a margin rangingfrom 0.10% to 0.55% per annum or LIBOR plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of the Company andits consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings onits senior long-term unsecured debt). The interest rates applicable to loans under the New Term Loan are, at the Company’s option, equal to either a base rateplus a margin ranging from 0.50% to 1.20% per annum or LIBOR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset valueratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specifiedinvestment grade ratings on its senior long-term unsecured debt). In addition, the Company will pay a facility fee on the revolving commitments under theNew Revolving Facility ranging from 0.15% to 0.35% per annum, based on the debt to asset value ratio of the Company and its consolidated subsidiaries(unless the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt and the Company elects to decrease theapplicable margin as described above, in which case the Operating Partnership will pay a facility fee on the revolving commitments ranging from 0.125% to0.30% per annum based off the credit ratings of the Company’s senior long-term unsecured debt). As of February 13, 2019, we had $200.0 millionoutstanding under the New Term Loan and there were no outstanding borrowings under the New Revolving Facility.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 -Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.” As of December 31, 2018, we had noswap agreements to hedge our interest rate risks. We also expect to manage our exposure to interest rate risk by maintaining a mix of fixed and variable ratesfor our indebtedness.ITEM 8. Financial Statements and Supplementary DataSee the Index to Consolidated Financial Statements on page F-1 of 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 timeperiods specified in the SEC’s rules and regulations and that such information is accumulated and communicated to management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating thedisclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated,49Table of Contentscan provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.As of December 31, 2018, 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 Officerand Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2018.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) and15d-15(f) of the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies andprocedures 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 reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and ourdirectors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets thatcould have a material effect on the financial statements.We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and ChiefFinancial Officer, regarding 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 concludedthat our internal control over financial reporting was effective as of December 31, 2018.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 ExchangeAct) that occurred during the quarter ended December 31, 2018, that has materially affected, or is reasonably likely to materially affect, our internal controlover financial reporting.Attestation Report of the Independent Registered Public Accounting FirmThe effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by Ernst & Young LLP, an independentregistered public accounting firm, as stated in their report which is included herein.50Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Stockholders and Board of Directors of CareTrust REIT, Inc.Opinion on Internal Control over Financial ReportingWe have audited CareTrust REIT, Inc.’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In ouropinion, CareTrust REIT, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedbalance sheets of CareTrust REIT, Inc. as of December 31, 2018 and 2017, and the related consolidated income statements, statements of equity, andstatements of cash flows for each of the three years in the period ended December 31, 2018, and the related notes and the financial statement schedules listedin the Index at Item 15(a)(2), of the Company and our report dated February 13, 2019 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing andevaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ ERNST & YOUNG LLPIrvine, CaliforniaFebruary 13, 201951Table of ContentsITEM 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 daysafter the end of our fiscal year ended December 31, 2018 in connection with our 2019 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 memberof our Board of Directors. The code of business conduct and ethics is available at our website at www.caretrustreit.com under the Investors-CorporateGovernance section. We intend to satisfy any disclosure requirement under applicable rules of the Securities and Exchange Commission or Nasdaq StockMarket regarding an amendment to, or waiver from, a provision of this code of business conduct and ethics by posting such information on our website, at theaddress specified above.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 daysafter the end of our fiscal year ended December 31, 2018 in connection with our 2019 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 daysafter the end of our fiscal year ended December 31, 2018 in connection with our 2019 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 daysafter the end of our fiscal year ended December 31, 2018 in connection with our 2019 Annual Meeting of Stockholders.ITEM 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 daysafter the end of our fiscal year ended December 31, 2018 in connection with our 2019 Annual Meeting of Stockholders.52Table of ContentsPART IVITEM 15.Exhibits, Financial Statements and Financial Statement Schedules(a)(1)Financial Statements See Index to Consolidated Financial Statements on page F-1 of this report. (a)(2)Financial Statement Schedules Schedule III: Real Estate Assets and Accumulated Depreciation Schedule IV: Mortgage Loan on Real Estate Note: All other schedules have been omitted because the required information is presented in the financial statements and the relatednotes or because the schedules are not applicable. (a)(3)Exhibits 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). 3.2Articles of Amendment, dated May 30, 2018, to the Articles of Amendment and Restatement of CareTrust REIT, Inc. (incorporated byreference to Exhibit 3.1 to CareTrust REIT, Inc.’s Current Report on Form 8-K filed on May 31, 2018). 3.3Amended and Restated Bylaws of CareTrust REIT, Inc. (incorporated by reference to Exhibit 3.1 to CareTrust REIT, Inc.’s CurrentReport on Form 8-K filed on April 5, 2018.) 4.1Indenture, dated as of May 24, 2017, among CTR Partnership, L.P. and CareTrust Capital Corp., as Issuers, the guarantors namedtherein, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the CareTrust REIT,Inc.’s Current Report on Form 8-K, filed on May 24, 2017). 4.2First Supplemental Indenture, dated as of May 24, 2017, to the Indenture dated as of May 24, 2017, among CTR Partnership, L.P. andCareTrust Capital Corp., as Issuers, the guarantors named therein, and Wells Fargo Bank, National Association, as Trustee(incorporated by reference to Exhibit 4.2 to the CareTrust REIT, Inc.’s Current Report on Form 8-K filed on May 24, 2017). 4.3Form of 5.25% Senior Note due 2023 (included in Exhibit 4.2). 4.4Specimen 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 landlordsunder the Ensign Master Leases (incorporated by reference to Exhibit 10.2 to CareTrust REIT, Inc.’s Current Report on Form 8-K,filed on June 5, 2014). 10.3Tax 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). 10.4Amended and Restated Credit and Guaranty Agreement, dated February 8, 2019 by and among CTRE Partnership, L.P., as borrower,CareTrust REIT, Inc., as guarantor, CareTrust GP, LLC and the other guarantors named therein and KeyBank National Association, asadministrative agent, an issuing lender and swingling lender and the other parties thereto. (incorporated by reference to Exhibit 10.1to the CareTrust REIT, Inc.’s Current Report on Form 8-K filed on February 11, 2019). 10.5Amended 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). 10.6Form 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). Table of Contents+10.7Incentive Award Plan (incorporated by reference to Exhibit 10.9 to CareTrust REIT, Inc.’s Registration Statement on Form 10, filedon May 13, 2014). +10.8Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.14 to CareTrust REIT, Inc.’s Annual Report on Form 10-K, filed on February 11, 2015). +10.9Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.15 to CareTrust REIT, Inc.’s Annual Report onForm 10-K, filed on February 11, 2015). +10.10Form of Change in Control and Severance Agreement (incorporated by reference to Exhibit 10.1 to CareTrust REIT, Inc’s CurrentReport on Form 8-K filed on February 11, 2019). *21.1List of Subsidiaries of CareTrust REIT, Inc. *23.1Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. *31.1Certification of Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2Certification of Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. **32Certification 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. *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.ITEM 16.10-K SummaryNone.SIGNATURESPursuant 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 13, 201954Table of ContentsPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.Name Title Date /s/ GREGORY K. STAPLEY Director, President and Chief Executive Officer(Principal Executive Officer) February 13, 2019Gregory K. Stapley /s/ WILLIAM M. WAGNER Chief Financial Officer, Treasurer and Secretary(Principal Financial Officer and Principal AccountingOfficer) February 13, 2019William M. Wagner /s/ ALLEN C. BARBIERI Director February 13, 2019Allen C. Barbieri /s/ JON D. KLINE Director February 13, 2019Jon D. Kline /s/ DIANA LAING Director February 13, 2019Diana Laing /s/ SPENCER PLUMB Director February 13, 2019Spencer Plumb 55Table of ContentsINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm with respect to CareTrust REIT, Inc.F-2Consolidated Balance Sheets as of December 31, 2018 and 2017F-3Consolidated Income Statements for the years ended December 31, 2018, 2017 and 2016F-4Consolidated Statements of Equity for the years ended December 31, 2018, 2017 and 2016F-5Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016F-6Notes to Consolidated Financial StatementsF-7 Schedule III: Real Estate Assets and Accumulated DepreciationF-34Schedule IV: Mortgage Loan on Real EstateF-43F-1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Stockholders and Board of Directors of CareTrust REIT, Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of CareTrust REIT, Inc. (the Company), as of December 31, 2018 and 2017, the relatedconsolidated income statements, statements of equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notesand the financial statement schedules listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion,the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2018 and2017, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity withU.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 13, 2018 expressed an unqualifiedopinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ ERNST & YOUNG LLPWe have served as the Company’s auditor since 2014.Irvine, CaliforniaFebruary 13, 2019F-2Table of ContentsCARETRUST REIT, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share and per share amounts) December 31, 2018 2017Assets: Real estate investments, net$1,216,237 $1,152,261Other real estate investments, net18,045 17,949Cash and cash equivalents36,792 6,909Accounts and other receivables, net11,387 5,254Prepaid expenses and other assets8,668 895Deferred financing costs, net633 1,718Total assets$1,291,762 $1,184,986Liabilities and Equity: Senior unsecured notes payable, net$295,153 $294,395Senior unsecured term loan, net99,612 99,517Unsecured revolving credit facility95,000 165,000Accounts payable and accrued liabilities15,967 17,413Dividends payable17,783 14,044Total liabilities523,515 590,369Commitments and contingencies (Note 10) Equity: Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued and outstanding as ofDecember 31, 2018 and December 31, 2017— —Common stock, $0.01 par value; 500,000,000 shares authorized, 85,867,044 and 75,478,202 shares issuedand outstanding as of December 31, 2018 and December 31, 2017, respectively859 755Additional paid-in capital965,578 783,237Cumulative distributions in excess of earnings(198,190) (189,375)Total equity768,247 594,617Total liabilities and equity$1,291,762 $1,184,986See accompanying notes to consolidated financial statements.F-3Table of ContentsCARETRUST REIT, INC.CONSOLIDATED INCOME STATEMENTS(in thousands, except per share amounts) Year Ended December 31, 2018 2017 2016Revenues: Rental income$140,073 $117,633 $93,126Tenant reimbursements11,924 10,254 7,846Independent living facilities3,379 3,228 2,970Interest and other income1,565 1,867 737Total revenues156,941 132,982 104,679Expenses: Depreciation and amortization45,766 39,159 31,965Interest expense27,860 24,196 22,873Loss on the extinguishment of debt— 11,883 326Property taxes11,924 10,254 7,846Independent living facilities2,964 2,733 2,549Impairment of real estate investment— 890 —Acquisition costs— — 205Reserve for advances and deferred rent— 10,414 —General and administrative12,55511,117 9,297Total expenses101,069 110,646 75,061Other income: Gain (loss) on sale of real estate2,051 — (265)Gain on disposition of other real estate investment— 3,538 —Net income$57,923 $25,874 $29,353Earnings per common share: Basic$0.73 $0.35 $0.52Diluted$0.72 $0.35 $0.52Weighted-average number of common shares: Basic79,386 72,647 56,030Diluted79,392 72,647 56,030See accompanying notes to consolidated financial statements.F-4Table of ContentsCARETRUST REIT, INC.CONSOLIDATED STATEMENTS OF EQUITY(in thousands, except share and per share amounts) Common Stock AdditionalPaid-inCapital CumulativeDistributionsin Excessof Earnings TotalEquityShares Amount Balance at December 31, 201547,664,742 $477 $410,217 $(148,406) $262,288Issuance of common stock, net17,023,824 170 200,228 — 200,398Vesting of restricted common stock, net of shareswithheld for employee taxes127,784 1 (516) — (515)Amortization of stock-based compensation— — 1,546 — 1,546Common dividends ($0.68 per share)— — — (40,640) (40,640)Net income— — — 29,353 29,353Balance at December 31, 201664,816,350 648 611,475 (159,693) 452,430Issuance of common stock, net10,573,089 106 170,213 — 170,319Vesting of restricted common stock, net of shareswithheld for employee taxes88,763 1 (867) — (866)Amortization of stock-based compensation— — 2,416 — 2,416Common dividends ($0.74 per share)— — — (55,556) (55,556)Net income— — — 25,874 25,874Balance at December 31, 201775,478,202 755 783,237 (189,375) 594,617Issuance of common stock, net10,264,981 103 179,783 — 179,886Vesting of restricted common stock, net of shareswithheld for employee taxes123,861 1 (1,290) — (1,289)Amortization of stock-based compensation— — 3,848 — 3,848Common dividends ($0.82 per share)— — — (66,738) (66,738)Net income— — — 57,923 57,923Balance at December 31, 201885,867,044 $859 $965,578 $(198,190) $768,247See accompanying notes to consolidated financial statements.F-5Table of ContentsCARETRUST REIT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2018 2017 2016Cash flows from operating activities: Net income$57,923 $25,874 29,353Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including a below-market ground lease)45,783 39,176 31,980Amortization of deferred financing costs1,938 2,100 2,239Loss on the extinguishment of debt— 11,883 326Amortization of stock-based compensation3,848 2,416 1,546Straight-line rental income(2,333) (344) (150)Noncash interest income(238) (686) (737)(Gain) loss on sale of real estate(2,051) — 265Interest income distribution from other real estate investment— 1,500 —Reserve for advances and deferred rent— 10,414 —Impairment of real estate investment— 890 —Change in operating assets and liabilities: Accounts and other receivables, net(3,800) (9,428) (3,404)Prepaid expenses and other assets(270) (273) 84Accounts payable and accrued liabilities(1,443) 5,278 2,929Net cash provided by operating activities99,357 88,800 64,431Cash flows from investing activities: Acquisitions of real estate(111,640) (296,517) (281,228)Improvements to real estate(7,230) (748) (762)Purchases of equipment, furniture and fixtures(1,782) (403) (151)Preferred equity investments— — (4,656)Investment in real estate mortgage and other loans receivable(5,648) (12,416) —Principal payments received on real estate mortgage and other loans receivable3,227 25 —Sale of other real estate investment— 7,500 —Escrow deposits for acquisitions of real estate(5,000) — (700)Net proceeds from the sale of real estate13,004 — 2,855Net cash used in investing activities(115,069) (302,559) (284,642)Cash flows from financing activities: Proceeds from the issuance of common stock, net179,882 170,323 200,402Proceeds from the issuance of senior unsecured notes payable— 300,000 —Proceeds from the issuance of senior unsecured term loan— — 100,000Borrowings under unsecured revolving credit facility65,000 238,000 255,000Payments on senior unsecured notes payable— (267,639) —Payments on unsecured revolving credit facility(135,000) (168,000) (205,000)Payments on the mortgage notes payable— — (95,022)Payments of deferred financing costs— (6,063) (1,352)Net-settle adjustment on restricted stock(1,288) (866) (515)Dividends paid on common stock(62,999) (52,587) (37,269)Net cash provided by financing activities45,595 213,168 216,244Net increase (decrease) in cash and cash equivalents29,883 (591) (3,967)Cash and cash equivalents, beginning of period6,909 7,500 11,467Cash and cash equivalents, end of period36,792 6,909 7,500Supplemental disclosures of cash flow information: Interest paid$25,941 $29,619 $21,238Supplemental schedule of noncash operating, investing and financing activities: Increase in dividends payable$3,739 $2,970 $3,371Application of escrow deposit to acquisition of real estate$— $700 $1,250See accompanying notes to consolidated financial statements.F-6Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. ORGANIZATIONDescription of Business—CareTrust REIT, Inc.’s (“CareTrust REIT” or the “Company”) primary business consists of acquiring, financing,developing and owning real property to be leased to third-party tenants in the healthcare sector. As of December 31, 2018, the Company owned and leased toindependent operators, including The Ensign Group, Inc. (“Ensign”), 194 skilled nursing, multi-service campuses, assisted living and independent livingfacilities consisting of 19,086 operational beds and units located in Arizona, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Maryland,Michigan, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, Ohio, Oregon, South Dakota, Texas, Utah, Virginia,Washington, West Virginia and Wisconsin. The Company also owned and operated three independent living facilities which had a total of 264 units locatedin Texas and Utah. As of December 31, 2018, the Company also had other real estate investments consisting of two preferred equity investments totaling $5.7million and a mortgage loan receivable of $12.3 million. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation—The accompanying consolidated financial statements of the Company reflect, for all periods presented, the historicalfinancial position, results of operations and cash flows of (i) the net-leased skilled nursing, multi-service campuses, assisted living and independent livingfacilities; (ii) the operations of the three independent living facilities that the Company owns and operates; and (iii) the preferred equity investments and themortgage loan receivable.The accompanying consolidated 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 intercompanytransactions and account 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 statementsand the reported amounts of revenue and expenses during the reporting periods. Management believes that the assumptions and estimates used in preparationof the underlying consolidated financial statements are reasonable. Actual results, however, could differ from those estimates and assumptions.Real Estate Depreciation and Amortization—Real estate costs related to the acquisition and improvement of properties are capitalized andamortized over the expected useful life of the asset on a straight-line basis. Repair and maintenance costs are charged to expense as incurred and significantreplacements and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. TheCompany considers the period of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are capitalized andamortized over the shorter of the tenant’s lease term or expected useful life. The Company anticipates the estimated useful lives of its assets by class to begenerally as follows:Building 25-40 yearsBuilding improvements 10-25 yearsTenant improvements Shorter of lease term or expected useful lifeIntegral equipment, furniture and fixtures 5 yearsIdentified intangible assets Shorter of lease term or expected useful life Real Estate Acquisition Valuation— In accordance with Accounting Standard Codification (“ASC”) 805, Business Combinations, the Companyrecords the acquisition of income-producing real estate as a business combination. If the acquisition does not meet the definition of a business, the Companyrecords the acquisition as an asset acquisition. Under both methods, all assets acquired and liabilities assumed are measured at their acquisition date fairvalues. For transactions that are business combinations, acquisition costs are expensed as incurred and restructuring costs that do not meet the definition of aliability at the acquisition date are expensed in periods subsequent to the acquisition date. For transactions that are asset acquisitions, acquisition costs arecapitalized as incurred.The Company assesses the acquisition date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methodssimilar to those used by independent appraisers, generally utilizing a discounted cash flow analysisF-7Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSthat applies appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors,including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquiredproperty 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 significantassumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods,and the number of years the property will be held for investment. The use of inappropriate assumptions would result in an incorrect valuation of theCompany’s acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of the Company’s net income.As part of the Company’s asset acquisitions, the Company may commit to provide contingent payments to a seller or lessee (e.g., an earn-outpayable upon the applicable property achieving certain financial metrics). Typically, when the contingent payments are funded, cash rent is increased by theamount funded multiplied by a rate stipulated in the agreement. Generally, if the contingent payment is an earn-out provided to the seller, the payment iscapitalized to the property’s basis. If the contingent payment is an earn-out provided to the lessee, the payment is recorded as a lease incentive and isamortized as a yield adjustment over the life of the lease.Impairment of Long-Lived Assets—At each reporting period, management evaluates the Company’s real estate investments for impairmentindicators, including the evaluation of the useful lives of the Company’s assets. Management also assesses the carrying value of the Company’s real estateinvestments whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The judgment regarding theexistence of impairment indicators is based on factors such as, but not limited to, market conditions, operator performance and legal structure. If indicators ofimpairment are present, management evaluates the carrying value of the related real estate investments in relation to the future undiscounted cash flows of theunderlying facilities. Provisions for impairment losses related to long-lived assets are recognized when expected future undiscounted cash flows aredetermined to be less than the carrying values of the assets. An adjustment is made to the net carrying value of the real estate investments for the excess ofcarrying value over fair value. All impairments are taken as a period cost at that time, and depreciation is adjusted going forward to reflect the new valueassigned to the asset.If the Company decides to sell real estate properties, it evaluates the recoverability of the carrying amounts of the assets. If the evaluationindicates that 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 inits current use as well as other alternative uses, and involves significant judgment. Management’s estimates of cash flows and fair values of the properties arebased on current market conditions and consider matters such as rental rates and occupancies for comparable properties, recent sales data for comparableproperties, and, where applicable, contracts or the results of negotiations with purchasers or prospective purchasers. The Company’s ability to accuratelyestimate future cash flows and estimate and allocate fair values impacts the timing and recognition of impairments. While the Company believes itsassumptions are reasonable, changes in these assumptions may have a material impact on financial results.Other Real Estate Investments — Included in “Other real estate investments, net” are preferred equity investments and a mortgage loanreceivable. Preferred equity investments are accounted for at unpaid principal balance, plus accrued return, net of reserves. The Company recognizes returnincome on a quarterly basis based on the outstanding investment including any accrued and unpaid return, to the extent there is outside contributed equity orcumulative earnings from operations. As the preferred member of the joint venture, the Company is not entitled to share in the joint venture’s earnings orlosses. Rather, the Company is entitled to receive a preferred return, which is deferred if the cash flow of the joint venture is insufficient to pay all of theaccrued preferred return. The unpaid accrued preferred return is added to the balance of the preferred equity investment up to the estimated economicoutcome assuming a hypothetical liquidation of the book value of the joint venture. Any unpaid accrued preferred return, whether recorded or unrecorded bythe Company, will be repaid upon redemption or as available cash flow is distributed from the joint venture.The Company’s mortgage loan receivable is recorded at amortized cost, which consists of the outstanding unpaid principal balance, net ofunamortized costs and fees directly associated with the origination of the loan.F-8Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSInterest income on the Company’s mortgage loan receivable is recognized over the life of the investment using the interest method. Originationcosts and fees directly related to mortgage loans receivable are amortized over the term of the loan as an adjustment to interest income.The Company evaluates at each reporting period each of its other real estate investments for indicators of impairment. An investment is impairedwhen, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the existingcontractual terms. A reserve is established for 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 threemonths or less at time of purchase and therefore approximate fair value. The fair value of these investments is determined based on “Level 1” inputs, whichconsist of unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets. The Company places itscash 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 inits operating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutionsfail or are subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operatingaccounts.Prepaid expenses and other assets—Prepaid expenses and other assets consist of prepaid expenses, deposits, pre-acquisition costs and otherloans receivable. Included in other loans receivable at December 31, 2018 is a bridge loan to Priority Life Care, LLC (“Priority”) under which the Companyagreed to fund up to $1.4 million until the earlier of (i) October 31, 2019, (ii) the date that a new credit facility is established such that the borrower maysubmit draw requests to the applicable lender, or (iii) the date on which Priority’s lease is terminated with respect to any facility. Borrowings under the bridgeloan accrue interest at a base rate of 8.0%. Additionally, included in other loans receivable at December 31, 2018 is a term loan to Eduro Healthcare, LLC(“Eduro”) of $1.2 million at a fixed interest rate of 8.0% and is set to mature on November 20, 2023. As of December 31, 2018, approximately $2.6 millionwas outstanding under the loans receivable.Deferred Financing Costs—External costs incurred from placement of the Company’s debt are capitalized and amortized on a straight-line basisover the terms of the related borrowings, which approximates the effective interest method. For senior unsecured notes payable and the senior unsecured termloan, deferred financing costs are netted against the outstanding debt amounts on the balance sheet. For the unsecured revolving credit facility, deferredfinancing costs are included in assets on the Company’s balance sheet. Amortization of deferred financing costs is classified as interest expense in theconsolidated income statements. Accumulated amortization of deferred financing costs was $5.1 million and $3.2 million at December 31, 2018 andDecember 31, 2017, respectively.When financings are terminated, unamortized deferred financing costs, as well as charges incurred for the termination, are expensed at the timethe termination is made. Gains and losses from the extinguishment of debt are presented within income from continuing operations in the Company’sconsolidated income statements.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 thenon-cancellable term of the related leases when collectability is reasonably assured. The Company evaluates the collectability of rents and other receivableson a regular basis based on factors including, among others, payment history, the operations, the asset type and current economic conditions. Tenantrecoveries related to the reimbursement of real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in theperiod the expenses are incurred and presented gross if the Company is the primary obligor and, with respect to purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and bears the associated credit risk. For the years ended December 31, 2018, 2017 and 2016, suchtenant reimbursement revenues consisted of real estate taxes. Contingent revenue, if any, is not recognized until all possible contingencies have beeneliminated.If the Company’s evaluation of applicable factors indicates it may not recover the full value of the receivable, the Company provides a reserveagainst the portion of the receivable that it estimates may not be recovered. This analysis requires the Company 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. As of December 31, 2018 andDecember 31, 2017, “Accounts and otherF-9Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSreceivables, net” included $1.3 million and $0.8 million for unpaid cash rents and $11.6 million and $9.6 million for other tenant receivables, respectively,of which $10.4 million was reserved as of December 31, 2018 and December 31, 2017, related to the properties previously net leased to subsidiaries ofPristine Senior Living, LLC (“Pristine”). See Note 3, Real Estate Investments, Net for further discussion.The Company evaluates the collectability of straight-line rent receivable balances on an ongoing basis and provides reserves against receivablesit determines may not be fully recoverable. The Company recorded straight-line rental income of $2.3 million, $0.3 million and $0.2 million during the yearsended December 31, 2018, 2017 and 2016, respectively. Accounts and other receivables, net included $2.8 million and $0.5 million in straight-line rentsreceivable at December 31, 2018 and December 31, 2017, respectively.Income Taxes—Income tax expense and other income tax related information contained in these consolidated financial statements are presentedon a separate tax return basis as if the Company filed its own tax returns for all periods. Management believes that the assumptions and estimates used todetermine these tax amounts are reasonable. However, the consolidated financial statements herein may not necessarily reflect the Company’s income taxexpense or tax payments in the future, or what its tax amounts would have been if the Company had been a stand-alone company prior to the separation ofEnsign’s healthcare business and its real estate business into two separate and independently publicly traded companies (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 taxableyear ended December 31, 2014. The Company believes it has been organized and has operated, and the Company intends to continue to operate, in a mannerto qualify for taxation as a REIT under the Code. To qualify as a REIT, the Company must meet certain organizational and operational requirements,including a requirement to distribute to its stockholders at least 90% of the Company’s annual REIT taxable income (which is computed without regard tothe dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, theCompany generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its stockholders. If the Company fails toqualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally willnot be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification islost unless the Internal Revenue Service grants the Company relief under certain statutory provisions.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 financialstatements. ASC 718 requires all entities to apply a fair value-based measurement method in accounting for share-based payment transactions with directors,officers and employees except for equity instruments held by employee share ownership plans. Net income reflects stock-based compensation expense of$3.8 million, $2.4 million and $1.5 million for the years ended December 31, 2018, 2017 and 2016, respectively.Concentration of Credit Risk—The Company is subject to concentrations of credit risk consisting primarily of operating leases on its ownedproperties. See Note 11, Concentration of Risk, for a discussion of major operator concentration.Segment Disclosures —The Financial Accounting Standard Board (“FASB”) accounting guidance regarding disclosures about segments of anenterprise and related information establishes standards for the manner in which public business enterprises report information about operating segments. TheCompany has one reportable segment consisting of investments 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. BasicEPS is computed by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period.Diluted EPS reflects the additional dilution for all potentially-dilutive securities.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 financial statements are presented on an unaudited basis and are not subject to audit by the Company’sindependent auditors in accordance with the standards of the Public Company Accounting Oversight Board.F-10Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSRecent Accounting PronouncementsLease accountingIn February 2016, the FASB issued an Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) that sets out the principles for therecognition, measurement, presentation, and disclosure of leases for both parties to a lease agreement (i.e., lessees and lessors). Subsequently, the FASB issuedadditional ASUs that further clarified the original ASU. The ASUs became effective for the Company on January 1, 2019. Upon adoption of the lease ASUs onJanuary 1, 2019, the Company elected the following practical expedients provided by these ASUs:•Package of practical expedients – requires the Company not to reevaluate its existing or expired leases as of January 1, 2019, under the new leaseaccounting ASUs.•Optional transition method practical expedient – requires the Company to apply the new lease ASUs prospectively from the adoption date ofJanuary 1, 2019.•Single component practical expedient – requires the Company to account for lease and nonlease components associated with that lease as a singlecomponent under the new lease ASUs, if certain criteria are met.•Short-term leases practical expedient – for the Company’s operating leases with a term of less than 12 months in which it is the lessee, this expedientrequires the Company not to record on its balance sheet related lease liabilities and right-of-use assets.Overview related to both lessee and lessor accounting—The lease ASUs set new criteria for determining the classification of finance leases forlessees and sales-type leases for lessors. The criteria to determine whether a lease should be accounted for as a finance (sales-type) lease include thefollowing: (i) ownership is transferred from lessor to lessee by the end of the lease term, (ii) an option to purchase is reasonably certain to be exercised, (iii)the lease term is for the major part of the underlying asset’s remaining economic life, (iv) the present value of lease payments equals or exceeds substantiallyall of the fair value of the underlying asset, and (v) the underlying asset is specialized and is expected to have no alternative use at the end of the lease term. Ifany of these criteria is met, a lease is classified as a finance lease by the lessee and as a sales-type lease by the lessor. If none of the criteria are met, a lease isclassified as an operating lease by the lessee, but may still qualify as a direct financing lease or an operating lease for the lessor. The existence of a residualvalue guarantee from an unrelated third party other than the lessee may qualify the lease as a direct financing lease by the lessor. Otherwise, the lease isclassified as an operating lease by the lessor.The new lease ASUs require the use of the modified retrospective transition method. On January 1, 2019, the Company adopted the new leaseASUs electing the package of practical expedients and the optional transition method permitting January 1, 2019, to be its initial application date. Theelection of the package of practical expedients and the optional transition method allowed the Company not to reassess:•Whether any expired or existing contracts as of January 1, 2019, were leases or contained leases.◦This practical expedient is primarily applicable to entities that have contracts containing embedded leases. As of December 31, 2018, theCompany had no such contracts, therefore this practical expedient had no effect on the Company.•The lease classification for any leases expired or existing as of January 1, 2019.◦The election of the package of practical expedients required the Company not to revisit the classification of its leases existing as of January1, 2019. For example, all of the Company leases that were classified as operating leases in accordance with the lease accounting standardsin effect prior to January 1, 2019, continue to be classified as operating leases after adoption of the new lease ASUs.The Company applied the package of practical expedients consistently to all leases (i.e., in which the Company was the lessee or a lessor) thatcommenced before January 1, 2019. The election of this package permits the Company to “run off” its leases that commenced before January 1, 2019, for theremainder of their lease terms and to apply the new lease ASUs to leases commencing or modified after January 1, 2019.Lessor Accounting—Under the new lease ASUs, each lease agreement is evaluated to identify the lease and nonlease components at leaseinception. The total consideration in the lease agreement is allocated to the lease and nonlease components based on their relative stand-alone selling prices.The new lease ASUs govern the recognition of revenue for lease components, and revenue related to nonlease components is subject to the revenuerecognition ASU. Tenant recoveries forF-11Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSutilities, repairs and maintenance, and common area expenses are considered nonlease components. The Company generates revenues primarily by leasinghealthcare-related properties to healthcare operators in triple-net lease arrangements, under which the tenant is solely responsible for the costs related to theproperty. As such, the Company has concluded its leases do not contain material nonlease components. Tenant reimbursements related to property taxes andinsurance are neither lease nor nonlease components under the new lease ASUs. If a lessee makes payments for taxes and insurance directly to a third party onbehalf of a lessor, lessors are required to exclude them from variable payments and from recognition in the lessors’ income statements. Otherwise, tenantrecoveries for taxes and insurance are classified as additional lease revenue recognized by the lessor on a gross basis in its income statements.On January 1, 2019, the Company elected the single component practical expedient, which requires a lessor, by class of underlying asset, not toallocate the total consideration to the lease and nonlease components based on their relative stand-alone selling prices. This single component practicalexpedient requires the Company to account for the lease component and nonlease component(s) associated with that lease as a single component if (i) thetiming and pattern of transfer of the lease component and the nonlease component(s) associated with it are the same and (ii) the lease component would beclassified as an operating lease if it were accounted for separately. If the Company determines that the lease component is the predominant component, theCompany accounts for the single component as an operating lease in accordance with the new lease ASUs. Conversely, the Company is required to accountfor the combined component under the new revenue recognition ASU if the Company determines that the nonlease component is the predominantcomponent. As a result of this assessment, rental revenues and tenant recoveries from the lease of real estate assets that qualify for this expedient areaccounted for as a single component under the new lease ASUs, with tenant recoveries primarily as variable consideration. Tenant recoveries that do notqualify for the single component practical expedient and are considered nonlease components are accounted for under the revenue recognition ASUs. TheCompany’s operating leases commencing or modified after January 1, 2019, for which the Company is the lessor are expected to qualify for the singlecomponent practical expedient accounting under the new lease ASUs.For the years ended December 31, 2018, 2017 and 2016, the Company recognized tenant recoveries for real estate taxes of $11.9 million, $10.3million, $7.8 million, respectively, which were classified as tenant reimbursements on the Company’s consolidated income statements. Prior to the adoptionof ASC 842, the Company recognized tenant recoveries as tenant reimbursement revenues regardless of whether the third party was paid by the lessor orlessee. Effective January 1, 2019, such tenant recoveries will only be recognized to extent that the Company pays the third party directly and will beclassified as rental income on the Company’s consolidated income statement.The new lease ASUs require that lessors and lessees capitalize, as initial direct costs, only incremental costs of a lease that would not have beenincurred if the lease had not been obtained. Effective January 1, 2019, costs that the Company incurs to negotiate or arrange a lease regardless of its outcome,such as fixed employee compensation, tax, or legal advice to negotiate lease terms, and costs related to advertising or soliciting potential tenants will beexpensed as incurred. For the years ended December 31, 2018, 2017 and 2016, the Company did not capitalize any initial direct costs that would be requiredto be expensed effective January 1, 2019.Lessee Accounting—Under the new lease ASUs, lessees are required to apply a dual approach by classifying leases as either finance or operatingleases based on the principle of whether the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determinewhether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, which corresponds to asimilar evaluation performed by lessors. In addition to this classification, a lessee is also required to recognize a right-of-use asset and a lease liability for allleases regardless of their classification, whereas a lessor is not required to recognize a right-of-use asset and a lease liability for any operating leases.As of December 31, 2018, the remaining contractual payments under the Company’s ground and office lease arrangements for which it is thelessee aggregated approximately $0.2 million. While these leases are subject to this ASU application effective January 1, 2019, the lease liability andcorresponding right-of-use asset do not have a material effect on the Company’s consolidated financial statements.Financial InstrumentsIn June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”) that changes theimpairment model for most financial instruments by requiring companies to recognize an allowanceF-12Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSfor expected losses, rather than incurred losses as required currently by the other-than-temporary impairment model. ASU 2016-13 will apply to mostfinancial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, netinvestments in leases, and off-balance-sheet credit exposures (e.g., loan commitments). ASU 2016-13 is effective for reporting periods beginning afterDecember 15, 2019, with early adoption permitted, and will be applied as a cumulative adjustment to retained earnings as of the effective date. The Companyis currently assessing the potential effect the adoption of ASU 2016-13 will have on the Company’s consolidated financial statements.Recent Accounting Standards Adopted by the CompanyOn January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”). ASC 606requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration towhich the entity expects to be entitled in exchange for those goods and services. ASC 606 supersedes the revenue requirements in Revenue Recognition(Topic 605) and most industry-specific guidance throughout the Industry Topics of the ASC. ASC 606 does not apply to lease contracts within the scope ofLeases (Topic 840). Based on a review of the Company’s revenue streams from independent living facilities, the Company’s consolidated financialstatements include revenues generated through services provided to residents of independent living facilities that are ancillary to the residents’ contractualrights to occupy living and common-area space at the communities, such as meals, transportation and activities. While these revenue streams are subject tothe application of Topic 606, the revenues associated with these services are generally recognized on a monthly basis, the period in which the related servicesare performed. Therefore, the adoption of ASC 606 did not have a material effect on the Company’s consolidated financial statements since the revenuerecognition under ASC 606 is similar to the recognition pattern prior to the adoption of ASC 606.3. REAL ESTATE INVESTMENTS, NETThe following table summarizes the Company’s investment in owned properties at December 31, 2018 and December 31, 2017 (dollars inthousands): December 31, 2018 December 31, 2017Land$166,948 $151,879Buildings and improvements1,201,209 1,114,605Integral equipment, furniture and fixtures87,623 80,729Identified intangible assets2,382 2,382Real estate investments1,458,162 1,349,595Accumulated depreciation and amortization(241,925) (197,334)Real estate investments, net$1,216,237 $1,152,261As of December 31, 2018, 92 of the Company’s 197 facilities were leased to subsidiaries of Ensign on a triple-net basis under multiple long-termleases (each, an “Ensign Master Lease” and, collectively, the “Ensign Master Leases”) which commenced on June 1, 2014. The obligations under the EnsignMaster Leases are guaranteed by Ensign. A default by any subsidiary of Ensign with regard to any facility leased pursuant to an Ensign Master Lease willresult in a default under all of the Ensign Master Leases. As of December 31, 2018, annualized revenues from the Ensign Master Leases were $59.1 millionand are escalated annually by an amount equal to the product of (1) the lesser of the percentage change in the Consumer Price Index (“CPI”) (but not less thanzero) 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 solelyresponsible for the costs related to the leased properties (including property taxes, insurance, and maintenance and repair costs).As of December 31, 2018, 102 of the Company’s 197 facilities were leased to various other operators under triple-net leases. All of these leasescontain annual escalators based on CPI some of which are subject to a cap, or fixed rent escalators.The Company’s three remaining properties as of December 31, 2018 are the independent living facilities that the Company owns and operates.F-13Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe Company has only two identified intangible assets which relate to a below-market ground lease and three acquired operating leases. Theground lease has a remaining term of 80 years.As of December 31, 2018, total future minimum rental revenues for the Company’s tenants were (dollars in thousands): YearAmount2019$146,0102020146,5602021147,1322022147,7192023148,169Thereafter1,055,012 $1,790,602 Recent Real Estate AcquisitionsThe following table summarizes the Company’s acquisitions for the year ended December 31, 2018 (dollar amounts in thousands):Type of PropertyPurchase Price(1) Initial Annual Cash Rent Number of Properties Number of Beds/Units(2)Skilled nursing$85,814 $7,715 10 926Multi-service campuses27,520(3) 2,240 2 177Assisted living— — — —Total$113,334 $9,955 $12 1,103 (1) Purchase price includes capitalized acquisition costs.(2) The number of beds/units consists of operating beds at acquisition date.(3) The Company has committed to fund approximately $1.4 million in revenue-producing capital expenditures over the next 24 months based onthe in-place lease yield, which is included in the purchase price.Pristine Lease TerminationOn February 27, 2018, the Company announced that it entered into a Lease Termination Agreement (the “LTA”) with Pristine for its nineremaining properties, with a target completion date of April 30, 2018. Under the LTA, Pristine agreed to continue to operate the facilities until possessioncould be surrendered, and the operations therein transitioned, to operator(s) designated by the Company. Among other things, Pristine also agreed to amendcertain pending agreements to sell the rights to certain Ohio Medicaid beds (the “Bed Sales Agreements”) and cooperate with the Company to turn over anyclaim or control it might have had with respect to the sale process and the proceeds thereof, if any, to the Company. The transactions were timely completed,and on May 1, 2018, Trio Healthcare, Inc (“Trio”) took over operations in the seven facilities based primarily in the Dayton, Ohio area under a new 15-yearmaster lease, while Hillstone Healthcare, Inc. (“Hillstone”) assumed the operation of the two facilities in Willard and Toledo, Ohio under a new 12-yearmaster lease. In addition, amendments to the Bed Sales Agreements were subsequently executed, confirming the Company as the sole seller of the bed rightsand the sole recipient of any proceeds therefrom. The aggregate annual base rent due under the new master leases with Trio and Hillstone is approximately$10.0 million, subject to CPI-based or fixed escalators.Under the LTA, the Company agreed, upon Pristine’s full performance of the terms thereof, to terminate Pristine’s master lease and all futureobligations of the tenant thereunder; however, under the terms of the master lease the Company’s security interest in Pristine’s accounts receivable hassurvived any such termination. Such security interest was subject to the prior lien and security interest of Pristine’s working capital lender, Capital One,National Association (“CONA”), with whom the Company has an existing intercreditor agreement that defines the relative rights and responsibilities ofCONA and with itsF-14Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSrespect to the loan and lease collateral represented by Pristine’s accounts receivable and the Company’s respective security interests therein.Sale of Real Estate InvestmentsDuring the year ended December 31, 2018, the Company sold three assisted living facilities consisting of 102 units located in Idaho with anaggregate carrying value of $10.9 million for an aggregate price of $13.0 million. In connection with the sale, the Company recognized a gain of $2.1million.Impairment of Real Estate InvestmentDuring the year ended December 31, 2017, the Company recorded an impairment loss of $0.9 million related to its investment in La Villa Rehab& Healthcare Center (“La Villa”). In April 2017, the Company and Ensign mutually determined that La Villa had reached the natural end of its useful life as askilled nursing facility and that the facility was no longer economically viable, the improvements thereon could not be economically repurposed to any otheruse, and the cost to remove the obsolete improvements and reclaim the underlying land for redevelopment was expected to exceed the market value of theland. Ensign agreed to wind up and terminate the operations of the facility and the Company transferred title to the property to Ensign. There was noadjustment to the contractual rent under the applicable master lease.4. OTHER REAL ESTATE INVESTMENTSIn December 2014, the Company completed a $7.5 million preferred equity investment with Signature Senior Living, LLC and MilestoneRetirement Communities. The preferred equity investment yielded 12.0% calculated on a quarterly basis on the outstanding carrying value of the investment.The investment was used to develop Signature Senior Living at Arvada, a planned 134-unit upscale assisted living and memory care community in Arvada,Colorado constructed on a five-acre site. In connection with its investment, CareTrust REIT obtained an option to purchase the Arvada development at afixed-formula price upon stabilization, with an initial lease yield of at least 8.0%. The project was completed in the second quarter of 2016 and began lease-up in the third quarter of 2016. In May 2017, the property was sold to a third party. In connection with the sale, the Company received back in cash its initialinvestment of $7.5 million, a cumulative contractual preferred return of $2.5 million, and an additional cash payment of $3.5 million, which the Companyrecognized as a gain on the sale of other real estate investment during the year ended December 31, 2017. The Company also recognized interest income of$1.0 million during the year ended December 31, 2017, which included a previously unrecognized preferred return of $0.5 million related to prior periods.In July 2016, the Company completed a $2.2 million preferred equity investment with an affiliate of Cascadia Development, LLC. The preferredequity investment yields a return equal to prime plus 9.5% but in no event less than 12.0% calculated on a quarterly basis on the outstanding carrying valueof the investment. The investment is being used to develop a 99-bed skilled nursing facility in Nampa, Idaho. In connection with its investment, CareTrustREIT obtained an option to purchase the development at a fixed-formula price upon stabilization, with an initial lease yield of at least 9.0%. The project wascompleted in the fourth quarter of 2017 and began lease-up during the first quarter of 2018.In September 2016, the Company completed a $2.3 million preferred equity investment with an affiliate of Cascadia Development, LLC. Thepreferred equity investment yields a return equal to prime plus 9.5% but in no event less than 12.0% calculated on a quarterly basis on the outstandingcarrying value of the investment. The investment is being used to develop a 99-bed skilled nursing facility in Boise, Idaho. In connection with itsinvestment, CareTrust REIT obtained an option to purchase the development at a fixed-formula price upon stabilization, with an initial lease yield of at least9.0%. The project was completed in the first quarter of 2018 and began lease-up during the second quarter of 2018.During the years ended December 31, 2018, 2017 and 2016, the Company recognized $0.2 million, $1.7 million and $0.7 million, respectively,of interest income related to these preferred equity investments.In October 2017, the Company provided an affiliate of Providence Group, Inc. (“Providence”) a mortgage loan secured by a skilled nursingfacility for approximately $12.5 million inclusive of transaction costs, which bears a fixed interest rate of 9%. The mortgage loan requires Providence Groupto make monthly principal and interest payments and is set to mature on October 26, 2020. During the years ended December 31, 2018 and 2017, theCompany recognized $1.2 million and $0.2 million, respectively, of interest income related to the mortgage loan.F-15Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS5. FAIR VALUE MEASUREMENTSUnder GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company isrequired to measure other financial instruments and balances at fair value on a non-recurring basis (e.g., impairment of 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 theasset or liability in an orderly transaction between market participants on the measurement date. The GAAP fair value framework uses a three-tiered approach.Fair value measurements are classified and disclosed in one of the following three categories: •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,and model-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 valuepresented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. A summary of the facevalues, carrying amounts and fair values of the Company’s financial instruments as of December 31, 2018 and December 31, 2017 using Level 2 inputs, forthe senior unsecured notes payable, and Level 3 inputs, for all other financial instruments, is as follows (dollars in thousands): December 31, 2018 December 31, 2017 FaceValue CarryingAmount FairValue FaceValue CarryingAmount FairValueFinancial assets: Preferred equity investments$4,531 $5,746 $6,246 $4,531 $5,550 $5,423Mortgage loan receivable12,375 12,299 12,375 12,517 12,399 12,517Financial liabilities: Senior unsecured notes payable$300,000 $295,153 $289,500 $300,000 $294,395 $307,500Cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities: These balances approximate their fair values dueto the short-term nature of these instruments.Other loans receivable: The carrying amounts were accounted for at the unpaid loan balance. These balances approximate their fair values due tothe short-term nature of these instruments.Preferred equity investments: The carrying amounts were accounted for at the unpaid principal balance, plus accrued return, net of reserves,assuming a hypothetical liquidation of the book values of the joint ventures. The fair values of the preferred equity investments were estimated using aninternal valuation model that considered the expected future cash flows of the investment, the underlying collateral value and other credit enhancements.Mortgage loan receivable: The mortgage loan receivable is recorded at amortized cost, which consists of the outstanding unpaid principalbalance, net of unamortized costs and fees directly associated with the origination of the loan. The fair values of the mortgage loan receivable were estimatedusing an internal valuation model that considered the expected future cash flows of the investment, the underlying collateral value and other creditenhancements.Senior unsecured notes payable: The fair value of the Notes (as defined below) was determined using third-party quotes derived from orderlytrades.Unsecured revolving credit facility and senior unsecured term loan: The fair values approximate their carrying values as the interest rates arevariable and approximate prevailing market interest rates for similar debt arrangements.6. DEBTF-16Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table summarizes the balance of the Company’s indebtedness as of December 31, 2018 and 2017 (in thousands): December 31, 2018 December 31, 2017 PrincipalDeferredCarrying PrincipalDeferredCarrying AmountLoan FeesValue AmountLoan FeesValueSenior unsecured notes payable$300,000$(4,847)$295,153 $300,000$(5,605)$294,395Senior unsecured term loan100,000(388)99,612 100,000(483)99,517Unsecured revolving credit facility95,000—95,000 165,000—165,000 $495,000$(5,235)$489,765 $565,000$(6,088)$558,912Senior Unsecured Notes PayableOn May 10, 2017, the Company’s wholly owned subsidiary, CTR Partnership, L.P. (the “Operating Partnership”), and its wholly ownedsubsidiary, CareTrust Capital Corp. (together with the Operating Partnership, the “Issuers”), completed an underwritten public offering of $300.0 millionaggregate principal amount of 5.25% Senior Notes due 2025 (the “Notes”). The Notes were issued at par, resulting in gross proceeds of $300.0 million andnet proceeds of approximately $294.0 million after deducting underwriting fees and other offering expenses. The Company used the net proceeds from theoffering of the Notes to redeem all $260.0 million aggregate principal amount outstanding of its 5.875% Senior Notes due 2021, including payment of theredemption price at 102.938% and all accrued and unpaid interest thereon. The Company used the remaining portion of the net proceeds of the Notesoffering to pay borrowings outstanding under its senior unsecured revolving credit facility. The Notes mature on June 1, 2025 and bear interest at a rate of5.25% per year. Interest on the Notes is payable on June 1 and December 1 of each year, beginning on December 1, 2017.The Issuers may redeem the Notes any time before June 1, 2020 at a redemption price of 100% of the principal amount of the Notes redeemedplus accrued and unpaid interest on the Notes, if any, to, but not including, the redemption date, plus a “make-whole” premium described in the indenturegoverning the Notes and, at any time on or after June 1, 2020, at the redemption prices set forth in the indenture. At any time on or before June 1, 2020, up to40% of the aggregate principal amount of the Notes may be redeemed with the net proceeds of certain equity offerings if at least 60% of the originally issuedaggregate principal amount of the Notes remains outstanding. In such case, the redemption price will be equal to 105.25% of the aggregate principal amountof the Notes to be redeemed plus accrued and unpaid interest, if any, to, but not including, the redemption date. If certain changes of control of the Companyoccur, holders of the Notes will have the right to require the Issuers to repurchase their Notes at 101% of the principal amount plus accrued and unpaidinterest, 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 andcertain of the Company’s wholly owned existing and, subject to certain exceptions, future material subsidiaries (other than the Issuers); provided, however,that such guarantees are subject to automatic release under certain customary circumstances, including if the subsidiary guarantor is sold or sells all orsubstantially all of its assets, the subsidiary guarantor is designated “unrestricted” for covenant purposes under the indenture, the subsidiary guarantor’sguarantee of other indebtedness which resulted in the creation of the guarantee of the Notes is terminated or released, or the requirements for legal defeasanceor covenant defeasance or to discharge the indenture have been satisfied. See Note 12, Summarized Condensed Consolidating Information.The indenture contains customary covenants such as limiting the ability of the Company and its restricted subsidiaries to: incur or guaranteeadditional indebtedness; incur or guarantee secured indebtedness; pay dividends or distributions on, or redeem or repurchase, capital stock; make certaininvestments or other restricted payments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their assets;and create restrictions on the ability of the Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers. The indenture alsorequires the Company and its restricted subsidiaries to maintain a specified ratio of unencumbered assets to unsecured indebtedness. These covenants aresubject to a number of important and significant limitations, qualifications and exceptions. The indenture also contains customary events of default.F-17Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of December 31, 2018, the Company was in compliance with all applicable financial covenants under the indenture.Unsecured Revolving Credit Facility and Term LoanOn 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 thelenders party thereto (the “Prior Credit Agreement”). The Prior Credit Agreement initially provided for an unsecured asset-based revolving credit facility (the“Prior Revolving Facility”) with commitments in an aggregate principal amount of $300.0 million from a syndicate of banks and other financial institutions.A portion of the proceeds of the Prior Revolving Facility were used to pay off and terminate the Company’s existing secured asset-based revolving creditfacility under a credit agreement dated May 30, 2014, with SunTrust Bank, as administrative agent, and the lenders party thereto.On February 1, 2016, the Company entered into the First Amendment (the “Amendment”) to the Prior Credit Agreement. Pursuant to theAmendment, (i) commitments in respect of the Prior Revolving Facility were increased by $100.0 million to $400.0 million, (ii) a new $100.0 million non-amortizing unsecured term loan (the “Prior Term Loan” and, together with the Prior Revolving Facility, the “Prior Credit Facility”) was funded, and (iii) theuncommitted incremental facility was increased by $50.0 million to $250.0 million. The Prior Revolving Facility continued to mature on August 5, 2019,subject to two, six-month extension options. The Prior Term Loan, was scheduled to mature on February 1, 2023, could be prepaid at any time subject to a2% premium in the first year after issuance and a 1% premium in the second year after issuance. Approximately $95.0 million of the proceeds of the PriorTerm Loan were used to pay off and terminate the Company’s existing secured mortgage indebtedness with General Electric Capital Corporation (the “GECCLoan”), as agent and lender, and the other lenders party thereto.As of December 31, 2018, the Company had a $100.0 million Prior Term Loan outstanding and there was $95.0 million outstanding under thePrior Revolving Facility.The interest rates applicable to loans under the Prior Revolving Facility were, at the Company’s option, equal to either a base rate plus a marginranging 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 ratioof the Company and its subsidiaries (subject to decrease at the Company’s election if the Company obtained certain specified investment grade ratings on itssenior long term unsecured debt). In addition, the Company paid a commitment fee on the unused portion of the commitments under the Revolving Facilityof 0.15% or 0.25% per annum, based upon usage of the Revolving Facility (unless the Company obtained certain specified investment grade ratings on itssenior long term unsecured debt and elects to decrease the applicable margin as described above, in which case the Company would pay a facility fee on therevolving commitments ranging from 0.125% to 0.30% per annum based upon the credit ratings of its senior long term unsecured debt).Pursuant to the Amendment, the interest rates applicable to the Prior Term Loan were, at the Company’s option, equal to either a base rate plus amargin ranging from 0.95% 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 valueratio of the Company and its subsidiaries (subject to decrease at the Company’s election if the Company obtained certain specified investment grade ratingson its senior long term unsecured debt).The Prior Credit Facility was guaranteed, jointly and severally, by the Company and its wholly owned subsidiaries that were party to the PriorCredit Agreement (other than the Operating Partnership). The Prior Credit Agreement contained customary covenants that, among other things, restricted,subject to certain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments,engage in acquisitions, mergers or consolidations, amend certain material agreements and pay certain dividends and other restricted payments. The PriorCredit Agreement required the Company to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum debt to asset valueratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating income ratio, a maximum secureddebt to asset value ratio and a maximum secured recourse debt to asset value ratio. The Prior Credit Agreement also contained certain customary events ofdefault, including that the Company was required to operate in conformity with the requirements for qualification and taxation as a REIT.As of December 31, 2018, the Company was in compliance with all applicable financial covenants under the Credit Agreement.F-18Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSOn February 8, 2019, the Company amended and restated the Prior Credit Agreement. See Note 14, Subsequent Events for additional information.Interest ExpenseDuring the years ended December 31, 2018, 2017 and 2016, the Company incurred $27.9 million, $24.2 million and $22.9 million of interestexpense, respectively. Included in interest expense for the years ended December 31, 2018, 2017 and 2016, was $1.9 million, $2.1 million and $2.2 millionof amortization of deferred financing fees, respectively. As of December 31, 2018 and December 31, 2017, the Company’s interest payable was $1.3 millionand $1.4 million, respectively.Loss on the Extinguishment of DebtDuring the year ended December 31, 2017, the loss on the extinguishment of debt included $7.6 million related to the redemption of theCompany’s 5.875% Senior Notes due 2021 at a redemption price of 102.938% and a $4.2 million write-off of deferred financing costs associated with theredemption. During the year ended December 31, 2016, the loss on the extinguishment of debt included a $0.3 million write-off of deferred financing costsassociated with the payoff of the GECC Loan.Schedule of Debt MaturitiesAs of December 31, 2018, the Company’s debt maturities were (dollars in thousands): YearAmount2019$95,0002020—2021—2022—2023100,000Thereafter300,000 $495,0007. EQUITYCommon StockOfferings of Common Stock - On March 28, 2016, the Company completed an underwritten public offering of 9.78 million newly issued shares ofits common stock pursuant to an effective registration statement. The Company received net proceeds of $105.8 million from the offering, after giving effectto the issuance and sale of all 9.78 million shares of common stock (which included 1.28 million shares sold to the underwriters upon exercise of their optionto purchase additional shares), at a price to the public of $11.35 per share.On November 18, 2016, the Company completed an underwritten public offering of 6.33 million newly issued shares of its common stockpursuant to an effective registration statement. The Company received net proceeds of $80.9 million from the offering, after giving effect to the issuance andsale of all 6.33 million shares of common stock (which included 0.83 million shares sold to the underwriters upon exercise of their option to purchaseadditional shares), at a price to the public of $13.35 per share.At-The-Market Offering of Common Stock - During the second quarter of 2017, the Company entered into an equity distribution agreement toissue and sell, from time to time, up to $300.0 million in aggregate offering price of its common stock through an “at-the-market” equity offering program(the “ATM Program”). The following table summarizes the quarterly ATM Program activity for 2018 (in thousands, except per share amounts):F-19Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Three Months Ended March 31, 2018 June 30, 2018 September 30, 2018 December 31, 2018 TotalNumber of shares— 2,989 4,772 2,504 10,265Average sales price per share$— $16.13 $17.62 $19.98 $17.76Gross proceeds*$— $48,198 $84,077 $50,046 $182,321*Total gross proceeds is before $0.6 million, $1.1 million and $0.6 million of commissions paid to the sales agents during the three monthsended June 30, 2018, September 30, 2018 and December 31, 2018, respectively.As of December 31, 2018, the Company had approximately $53.7 million available for future issuances under the ATM Program.Dividends on Common Stock — The following table summarizes the cash dividends per share of common stock declared by the Company’sBoard of Directors for 2018, 2017 and 2016: For the Three Months Ended2018March 31 June 30 September 30 December 31Dividends declared$0.205 $0.205 $0.205 $0.205Dividends payment dateApril 13, 2018 July 13, 2018 October 15, 2018 January 15, 2019 2017 Dividends declared$0.185 $0.185 $0.185 $0.185Dividends payment dateApril 14, 2017 July 14, 2017 October 13, 2017 January 16, 2018 2016 Dividends declared$0.17 $0.17 $0.17 $0.17Dividends payment dateApril 15, 2016 July 15, 2016 October 14, 2016 January 13, 20178. 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 otherincentive awards to officers, employees and directors in connection with their employment with or services provided to the Company.The following table summarizes restricted stock award activity for the years ended December 31, 2018 and 2017: Shares Weighted AverageShare PriceUnvested balance at December 31, 2016286,068 $12.63Granted254,534 15.46Vested(111,024) 12.82Forfeited(6,667) 15.21Unvested balance at December 31, 2017422,911 14.19Granted287,982 15.25Vested(191,287) 14.39Forfeited(334) 15.21Unvested balance at December 31, 2018519,272 $14.69F-20Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table summarizes the stock-based compensation expense recognized (dollars in thousands): For Year Ended December 31, 2018 2017 2016Stock-based compensation expense$3,848 $2,416 $1,546As of December 31, 2018, there was $4.3 million of unamortized stock-based compensation expense related to these unvested awards and theweighted-average remaining vesting period of such awards was 2.0 years. In connection with the Spin-Off, employees of Ensign who had unvested shares of restricted stock were given one share of CareTrust REITunvested restricted stock totaling 207,580 shares at the Spin-Off. These restricted shares are subject to a time vesting provision only and the Company doesnot recognize any stock compensation expense associated with these awards. During the year ended December 31, 2018, 13,220 shares vested or wereforfeited. At December 31, 2018, there were 1,760 unvested restricted stock awards outstanding.In February 2018, the Compensation Committee of the Company’s Board of Directors granted 141,060 shares of restricted stock to officers andemployees. Each share had a fair market value on the date of grant of $15.13 per share, based on the market price of the Company’s common stock on thatdate, and the shares vest in four equal annual installments beginning on the first anniversary of the grant date. Additionally, the Compensation Committeegranted 120,460 performance stock awards to officers and employees. Each share had a fair market value on the date of grant of $15.13 per share, based on themarket price of the Company’s common stock on that date. Performance stock awards are subject to both time and performance based conditions and vestover a one- to four-year period. The amount of performance awards that will ultimately vest is dependent on the Company meeting or exceeding fiscal yearover year Normalized Funds from Operations (“NFFO”) per share growth of 6.0% or greater.In May 2018, the Compensation Committee of the Company's Board of Directors granted 26,462 shares of restricted stock to members of theBoard of Directors. Each share had a fair market value on the date of grant of $16.44 per share, based on the market price of the Company's common stock onthat date, and the shares vest in full on the earlier to occur of May 30, 2019 or when the Company holds its 2019 Annual Meeting.9. 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, 2018,2017 and 2016, and reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average commonshares outstanding used in the calculation of diluted EPS for the years ended December 31, 2018, 2017 and 2016 (amounts in thousands, except per shareamounts): Year Ended December 31, 2018 2017 2016Numerator: Net income$57,923 $25,874 $29,353Less: Net income allocated to participating securities(364) (354) (260)Numerator for basic and diluted earnings available to common stockholders$57,559 $25,520 $29,093Denominator: Weighted-average basic common shares outstanding79,386 72,647 56,030Weighted-average diluted common shares outstanding79,392 72,647 56,030 Earnings per common share, basic$0.73 $0.35 $0.52Earnings per common share, diluted$0.72 $0.35 $0.52F-21Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe Company’s unvested restricted shares associated with its incentive award plan and unvested restricted shares issued to employees of Ensignat the Spin-Off have been excluded from the above calculation of earnings per share for the years ended December 31, 2018, 2017 and 2016 when theirinclusion would have been anti-dilutive.10. COMMITMENTS AND CONTINGENCIESThe Company and its subsidiaries are and may become from time to time a party to various claims and lawsuits arising in the ordinary course ofbusiness, which are not individually or in the aggregate anticipated to have a material adverse effect on the Company’s results of operations, financialcondition or cash flows. Claims and lawsuits may include matters involving general or professional liability asserted against the Company’s tenants, whichare the responsibility of the Company’s tenants and for which the Company is entitled to be indemnified by its tenants under the insurance andindemnification provisions in the applicable leases.11. CONCENTRATION OF RISKMajor operator concentration – As of December 31, 2018, Ensign leased 92 skilled nursing, assisted living and independent living facilitieswhich had a total of 9,801 beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington. Thefour states in which Ensign leases the highest concentration of properties are California, Texas, Utah and Arizona. As of December 31, 2018, Ensignrepresents $59.1 million, or 41%, of the Company’s revenues, exclusive of tenant reimbursements, on an annualized run-rate basis.Ensign is subject to the registration and reporting requirements of the SEC and is required to file with the SEC annual reports containing auditedfinancial information and quarterly reports containing unaudited financial information. Ensign’s financial statements, as filed with the SEC, can be found atEnsign’s website http://www.ensigngroup.net.12. SUMMARIZED CONDENSED CONSOLIDATING INFORMATIONThe Notes issued by the Operating Partnership and CareTrust Capital Corp. on May 10, 2017 are jointly and severally, fully and unconditionally,guaranteed by CareTrust REIT, Inc., as the parent guarantor (the “Parent Guarantor”), and the wholly owned subsidiaries of the Parent Guarantor other thanthe Issuers (collectively, the “Subsidiary Guarantors” and, together with the Parent Guarantor, the “Guarantors”), subject to automatic release under certaincustomary circumstances, including if the Subsidiary Guarantor is sold or sells all or substantially all of its assets, the Subsidiary Guarantor is designated“unrestricted” for covenant purposes under the indenture governing the Notes, the Subsidiary Guarantor’s guarantee of other indebtedness which resulted inthe creation of the guarantee of the Notes is terminated or released, or the requirements for legal defeasance or covenant defeasance or to discharge theindenture 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 wasa wholly 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 haveany business prior to the date of the consummation of the Spin-Off related transactions.CTR Partnership, L.P. and CareTrust Capital Corp. – The Issuers, each of which is a wholly owned subsidiary of the Parent Guarantor, wereformed on May 8, 2014 and May 9, 2014, respectively, in anticipation of the Spin-Off and the related transactions. The Issuers did not conduct anyoperations or have any business prior to the date of the consummation of the Spin-Off related transactions.Subsidiary Guarantors – The Subsidiary Guarantors consist of all of the subsidiaries of the Parent Guarantor other than the Issuers.Pursuant to Rule 3-10 of Regulation S-X, the following summarized consolidating information is provided for theParent Guarantor, the Issuers, and the Subsidiary Guarantors. There are no subsidiaries of the Company other than the Issuers and the Subsidiary Guarantors.This summarized financial information has been prepared from the financial statements of the Company and the books and records maintained by theCompany. The Company has conformed prior period presentation in the Combined Subsidiary Guarantor designation, due to the issuance of the Notes.F-22Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING BALANCE SHEETSDECEMBER 31, 2018(in thousands, except share and per share amounts) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedAssets: Real estate investments, net$— $887,921 $328,316 $— $1,216,237Other real estate investments, net— 12,299 5,746 — 18,045Cash and cash equivalents— 36,792 — — 36,792Accounts and other receivables, net— 9,359 2,028 — 11,387Prepaid expenses and other assets— 8,666 2 — 8,668Deferred financing costs, net— 633 — — 633Investment in subsidiaries786,030 484,955 — (1,270,985) —Intercompany— — 151,242 (151,242) —Total assets$786,030 $1,440,625 $487,334 $(1,422,227) $1,291,762Liabilities and Equity: Senior unsecured notes payable, net$— $295,153 $— $— $295,153Senior unsecured term loan, net— 99,612 — — 99,612Unsecured revolving credit facility— 95,000 — — 95,000Accounts payable and accrued liabilities— 13,588 2,379 — 15,967Dividends payable17,783 — — — 17,783Intercompany— 151,242 — (151,242) —Total liabilities17,783 654,595 2,379 (151,242) 523,515Equity: Common stock, $0.01 par value; 500,000,000 sharesauthorized, 85,867,044 shares issued and outstanding as ofDecember 31, 2018859 — — — 859Additional paid-in capital965,578 661,686 321,761 (983,447) 965,578Cumulative distributions in excess of earnings(198,190) 124,344 163,194 (287,538) (198,190)Total equity768,247 786,030 484,955 (1,270,985) 768,247Total liabilities and equity$786,030 $1,440,625 $487,334 $(1,422,227) $1,291,762F-23Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING BALANCE SHEETSDECEMBER 31, 2017(in thousands, except share and per share amounts) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedAssets: Real estate investments, net$— $805,826 $346,435 $— $1,152,261Other real estate investments, net— 12,399 5,550 — 17,949Cash and cash equivalents— 6,909 — — 6,909Accounts and other receivables, net— 2,945 2,309 — 5,254Prepaid expenses and other assets— 893 2 — 895Deferred financing costs, net— 1,718 — — 1,718Investment in subsidiaries619,075 444,120 — (1,063,195) —Intercompany— — 92,061 (92,061) —Total assets$619,075 $1,274,810 $446,357 $(1,155,256) $1,184,986Liabilities and Equity: Senior unsecured notes payable, net$— $294,395 $— $— $294,395Senior unsecured term loan, net— 99,517 — — 99,517Unsecured revolving credit facility— 165,000 — — 165,000Accounts payable and accrued liabilities— 15,176 2,237 — 17,413Dividends payable14,044 — — — 14,044Intercompany— 92,061 — (92,061) —Total liabilities14,044 666,149 2,237 (92,061) 590,369Equity: Common stock, $0.01 par value; 500,000,000 sharesauthorized, 75,478,202 shares issued and outstanding as ofDecember 31, 2017755 — — — 755Additional paid-in capital783,237 546,097 321,761 (867,858) 783,237Cumulative distributions in excess of earnings(178,961) 62,564 122,359 (195,337) (189,375)Total equity605,031 608,661 444,120 (1,063,195) 594,617Total liabilities and equity$619,075 $1,274,810 $446,357 $(1,155,256) $1,184,986 F-24Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING INCOME STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2018(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedRevenues: Rental income$— $81,560 $58,513 $— $140,073Tenant reimbursements— 7,173 4,751 — 11,924Independent living facilities— — 3,379 — 3,379Interest and other income— 1,369 196 — 1,565Total revenues— 90,102 66,839 — 156,941Expenses: Depreciation and amortization— 27,553 18,213 — 45,766Interest expense— 27,860 — — 27,860Property taxes— 7,173 4,751 — 11,924Independent living facilities— — 2,964 — 2,964General and administrative3,856 8,623 76 — 12,555Total expenses3,856 71,209 26,004 — 101,069Gain on sale of real estate— 2,051 — — 2,051Income in Subsidiary61,779 40,835 — (102,614) —Net income$57,923 $61,779 $40,835 $(102,614) $57,923F-25Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING INCOME STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2017(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedRevenues: Rental income$— $60,464 $57,169 $— $117,633Tenant reimbursements— 5,493 4,761 — 10,254Independent living facilities— — 3,228 — 3,228Interest and other income— 215 1,652 — 1,867Total revenues— 66,172 66,810 — 132,982Expenses: Depreciation and amortization— 20,048 19,111 — 39,159Interest expense— 24,196 — — 24,196Loss on the extinguishment of debt— 11,883 — — 11,883Property taxes— 5,493 4,761 — 10,254Independent living facilities— — 2,733 — 2,733Impairment of real estate investment— — 890 — 890Reserve for advances and deferred rent— 10,414 — — 10,414General and administrative2,638 8,417 62 — 11,117Total expenses2,638 80,451 27,557 — 110,646Gain on disposition of other real estate investment— — 3,538 — 3,538Income in Subsidiary28,512 42,791 — (71,303) —Net income$25,874 $28,512 $42,791 $(71,303) $25,874F-26Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING INCOME STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedRevenues: Rental income$— $36,855 $56,271 $— $93,126Tenant reimbursements— 2,978 4,868 — 7,846Independent living facilities— — 2,970 — 2,970Interest and other income— — 737 — 737Total revenues— 39,833 64,846 — 104,679Expenses: Depreciation and amortization— 11,651 20,314 — 31,965Interest expense— 22,375 498 — 22,873Loss on the extinguishment of debt— — 326 — 326Property taxes— 2,978 4,868 — 7,846Acquisition costs— 205 — — 205Independent living facilities— — 2,549 — 2,549General and administrative1,637 7,594 66 — 9,297Total expenses1,637 44,803 28,621 — 75,061Loss on sale of real estate— — (265) — (265)Income in Subsidiary30,990 35,960 — (66,950) —Net income$29,353 $30,990 $35,960 $(66,950) $29,353 F-27Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWSFOR THE YEAR ENDED DECEMBER 31, 2018(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedCash flows from operating activities: Net cash (used in) provided by operating activities$(10) $40,092 $59,275 $— $99,357Cash flows from investing activities: Acquisitions of real estate— (111,640) — — (111,640)Improvements to real estate— (7,204) (26) — (7,230)Purchases of equipment, furniture and fixtures— (1,713) (69) — (1,782)Investment in real estate mortgage and other loans receivable— (5,648) — — (5,648)Principal payments received on real estate mortgage and otherloans receivable— 3,227 — — 3,227Escrow deposits for acquisitions of real estate— (5,000) — — (5,000)Net proceeds from the sale of real estate— 13,004 — — 13,004Distribution from subsidiary62,999 — — (62,999) —Intercompany financing(178,584) 59,180 — 119,404 —Net cash used in investing activities(115,585) (55,794) (95) 56,405 (115,069)Cash flows from financing activities: Proceeds from the issuance of common stock, net179,882 — — — 179,882Borrowings under unsecured revolving credit facility— 65,000 — — 65,000Payments on unsecured revolving credit facility— (135,000) — — (135,000)Net-settle adjustment on restricted stock(1,288) — — — (1,288)Dividends paid on common stock(62,999) — — — (62,999)Distribution to Parent— (62,999) — 62,999 —Intercompany financing— 178,584 (59,180) (119,404) —Net cash provided by (used in) financing activities115,595 45,585 (59,180) (56,405) 45,595Net increase in cash and cash equivalents— 29,883 — — 29,883Cash and cash equivalents, beginning of period— 6,909 — — 6,909Cash and cash equivalents, end of period$— $36,792 $— $— $36,792F-28Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWSFOR THE YEAR ENDED DECEMBER 31, 2017(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedCash flows from operating activities: Net cash (used in) provided by operating activities:$(222) $25,745 $63,277 $— $88,800Cash flows from investing activities: Acquisitions of real estate— (296,517) — — (296,517)Improvements to real estate— (681) (67) — (748)Purchases of equipment, furniture and fixtures— (309) (94) — (403)Investment in real estate mortgage loan receivable— (12,416) — — (12,416)Sale of other real estate investment— — 7,500 — 7,500Principal payments received on mortgage loan receivable— 25 — — 25Distribution from subsidiary52,587 — — (52,587) —Intercompany financing(169,235) 70,616 — 98,619 —Net cash (used in) provided by investing activities(116,648) (239,282) 7,339 46,032 (302,559)Cash flows from financing activities: Proceeds from the issuance of common stock, net170,323 — — — 170,323Proceeds from the issuance of senior unsecured notes payable— 300,000 — — 300,000Borrowings under unsecured revolving credit facility— 238,000 — — 238,000Payments on senior unsecured notes payable— (267,639) — — (267,639)Payments on unsecured revolving credit facility— (168,000) — — (168,000)Payments of deferred financing costs— (6,063) — — (6,063)Net-settle adjustment on restricted stock(866) — — — (866)Distribution to Parent— (52,587) — 52,587 —Dividends paid on common stock(52,587) — — — (52,587)Intercompany financing— 169,235 (70,616) (98,619) —Net cash provided by (used in) financing activities116,870 212,946 (70,616) (46,032) 213,168Net decrease in cash and cash equivalents— (591) — — (591)Cash and cash equivalents, beginning of period— 7,500 — — 7,500Cash and cash equivalents, end of period$— $6,909 $— $— $6,909 F-29Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWSFOR THE YEAR ENDED DECEMBER 31, 2016(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedCash flows from operating activities: Net cash (used in) provided by operating activities$(91) $9,253 $55,269 $— $64,431Cash flows from investing activities: Acquisition of real estate— (281,228) — — (281,228)Improvements to real estate— (485) (277) — (762)Purchases of equipment, furniture and fixtures— (81) (70) — (151)Preferred equity investments— — (4,656) — (4,656)Escrow deposits for acquisition of real estate— (700) — — (700)Net proceeds from the sale of real estate— — 2,855 — 2,855Distribution from subsidiary37,269 — — (37,269) —Intercompany financing(199,796) (41,901) — 241,697 —Net cash used in investing activities(162,527) (324,395) (2,148) 204,428 (284,642)Cash flows from financing activities: Proceeds from the issuance of common stock, net200,402 — — — 200,402Proceeds from the issuance of senior unsecured term loan— 100,000 — — 100,000Borrowings under unsecured revolving credit facility— 255,000 — — 255,000Payments on unsecured revolving credit facility— (205,000) — — (205,000)Payments on the mortgage notes payable— — (95,022) — (95,022)Net-settle adjustment on restricted stock(515) — — — (515)Payments of deferred financing costs— (1,352) — — (1,352)Dividends paid on common stock(37,269) — — — (37,269)Distribution to Parent— (37,269) — 37,269 —Intercompany financing— 199,796 41,901 (241,697) —Net cash provided by (used in) financing activities162,618 311,175 (53,121) (204,428) 216,244Net decrease in cash and cash equivalents— (3,967) — — (3,967)Cash and cash equivalents, beginning of period— 11,467 — — 11,467Cash and cash equivalents, end of period$— $7,500 $— $— $7,500 F-30Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)The following table presents selected quarterly financial data for the Company. This information has been prepared on a basis consistent withthat of the Company’s audited consolidated financial statements. The Company’s quarterly results of operations for the periods presented are not necessarilyindicative of future results of operations. This unaudited quarterly data should be read together with the accompanying consolidated financial statements andrelated notes thereto (in thousands, except per share amounts): For the Year Ended December 31, 2018 FirstQuarter SecondQuarter ThirdQuarter FourthQuarterOperating data: Total revenues $38,101 $38,969 $39,510 $40,361Net income 14,607 13,267 14,510 15,539Earnings per common share, basic 0.19 0.17 0.18 0.18Earnings per common share, diluted 0.19 0.17 0.18 0.18Other data: Weighted-average number of common shares outstanding, basic 75,504 76,374 81,490 84,059Weighted-average number of common shares outstanding, diluted 75,504 76,374 81,490 84,084 For the Year Ended December 31, 2017 FirstQuarter SecondQuarter ThirdQuarter FourthQuarterOperating data: Total revenues $30,608 $32,829 $32,948 $36,597Net income 10,281 2,030 11,311 2,252Earnings per common share, basic 0.15 0.03 0.15 0.03Earnings per common share, diluted 0.15 0.03 0.15 0.03Other data: Weighted-average number of common shares outstanding, basic 66,951 72,564 75,471 75,476Weighted-average number of common shares outstanding, diluted 66,951 72,564 75,471 75,47614. SUBSEQUENT EVENTSThe Company evaluates subsequent events in accordance with ASC 855, Subsequent Events. The Company evaluates subsequent events up untilthe date the consolidated financial statements are issued.At-The-Market Offering of Common StockDuring January 2019, the Company sold 2.5 million shares of common stock pursuant to the ATM program at an average price of $19.48 pershare for $47.9 million in gross proceeds. At February 13, 2019, we had approximately $5.8 million available for future issuances under the ATM Program.Recent and Pending InvestmentsOn January 27, 2019, the Company, through its operating partnership, CTR Partnership, L.P., a Delaware limited partnership, entered into aMembership Interest Purchase Agreement (“MIPA”) to acquire from BME Texas Holdings, LLC, in a single transaction, 100% of the membership interests intwelve separate, newly-formed special-purpose limited liability companies (the “SPEs”), each of which will own at closing a single real estate asset. The realestate assets include ten operating skilled nursing facilities and two operating skilled nursing/seniors housing campuses, primarily located in thesoutheasternF-31Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSUnited States. The aggregate purchase price for the acquisition is approximately $211.0 million, exclusive of transaction costs. Should the transactioncontemplated by the MIPA ultimately close, the Company expects that the twelve real estate assets will be leased at closing to replacement operators, at leastone of which is expected to be an existing Company tenant, under long-term master leases at an anticipated initial lease yield of approximately 8.9%, beforetaking into account transaction costs. The transaction contemplated by the MIPA is subject to multiple closing conditions, including without limitation theacquisition of the assets by the SPEs, the full performance of other agreements to which the Company and its subsidiaries are not a party, the execution andtimely completion of separate transition agreements between the incoming and outgoing operators, and multiple third-party approvals.Subsequent to December 31, 2018, the Company acquired a multi-service campus and four skilled nursing facilities. The aggregate purchaseprice was approximately $52.9 million, which includes estimated capitalized acquisition costs, and was funded using cash on hand. The acquisitions willgenerate initial annual cash revenues of approximately $4.9 million. Additionally, the Company provided a term loan secured by first mortgages on fiveskilled nursing facilities for approximately $11.4 million inclusive of transaction costs, at an annual interest rate of 9.0%. The loan requires monthlyprincipal and interest payments and is set to mature on February 11, 2020, and includes two, six-month extension options.Unsecured Credit FacilityOn February 8, 2019, the Operating Partnership, as the borrower, the Company, as guarantor, CareTrust GP, LLC, and certain of the OperatingPartnership’s wholly owned subsidiaries entered into an amended and restated credit and guaranty agreement with KeyBank National Association, asadministrative agent, an issuing bank and swingline lender, and the lenders party thereto (the “Amended Credit Agreement”). The Amended CreditAgreement, which amends and restates the Prior Credit Agreement, now provides for (i) an unsecured revolving credit facility (the “New Revolving Facility”)with revolving commitments in an aggregate principal amount of $600.0 million, including a letter of credit subfacility for 10% of the then availablerevolving commitments and a swingline loan subfacility for 10% of the then available revolving commitments and (ii) an unsecured term loan credit facility(the “New Term Loan” and together with the New Revolving Facility, the “Amended Credit Facility”) in an aggregate principal amount of $200.0 million.Borrowing availability under the New Revolving Facility is subject to our compliance with certain financial covenants set forth in the Amended CreditAgreement governing the New Revolving Facility, including a consolidated leverage ratio that requires our ratio of Adjusted Consolidated Debt toConsolidated Total Asset Value (each as defined in the Amended Credit Agreement) be less than 60%. The proceeds of the New Term Loan have been used,in part, to repay in full all outstanding borrowings under the Prior Term Loan and Prior Revolving Facility under the Prior Credit Agreement, and theCompany currently expects to use borrowings under the Amended Credit Facility for working capital purposes, for capital expenditures, to fund acquisitionsand for general corporate purposes.The interest rates applicable to loans under the New Revolving Facility are, at the Company’s option, equal to either a base rate plus a marginranging from 0.10% to 0.55% per annum or LIBOR plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of theCompany and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investmentgrade ratings on its senior long-term unsecured debt). The interest rates applicable to loans under the New Term Loan are, at the Company’s option, equal toeither a base rate plus a margin ranging from 0.50% to 1.20% per annum or LIBOR plus a margin ranging from 1.50% to 2.20% per annum based on the debtto asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtainscertain specified investment grade ratings on its senior long-term unsecured debt). In addition, the Company will pay a facility fee on the revolvingcommitments under the New Revolving Facility ranging from 0.15% to 0.35% per annum, based on the debt to asset value ratio of the Company and itsconsolidated subsidiaries (unless the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt and the Companyelects to decrease the applicable margin as described above, in which case the Operating Partnership will pay a facility fee on the revolving commitmentsranging from 0.125% to 0.30% per annum based off the credit ratings of the Company’s senior long-term unsecured debt). As of February 13, 2019, we had$200.0 million outstanding under the New Term Loan and there were no outstanding borrowings under the New Revolving Facility.The New Revolving Facility has a maturity date of February 8, 2023, and includes two, six-month extension options. The New Term Loan has amaturity date of February 8, 2026.F-32Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-33SCHEDULE IIIREAL ESTATE ASSETS AND ACCUMULATED DEPRECIATIONDECEMBER 31, 2018(dollars in thousands) Initial Cost to Company Gross Carrying Value Description Facility Location Encum. Land BuildingImprovs. CostsCap.SinceAcq. Land BuildingImprovs. Total (1) Accum.Depr. Const./Ren.Date Acq.DateSkilled NursingProperties: Ensign Highland LLC Highland Manor Phoenix, AZ $— $257 $976 $926 $257 $1,902 $2,159 $1,134 2013 2000Meadowbrook HealthAssociates LLC Sabino Canyon Tucson, AZ — 425 3,716 1,940 425 5,656 6,081 2,672 2012 2000Terrace Holdings AZLLC Desert Terrace Phoenix, AZ — 113 504 971 113 1,475 1,588 701 2004 2002Rillito Holdings LLC Catalina Tucson, AZ — 471 2,041 3,055 471 5,096 5,567 2,488 2013 2003Valley Health HoldingsLLC North Mountain Phoenix, AZ — 629 5,154 1,519 629 6,673 7,302 3,241 2009 2004Cedar Avenue HoldingsLLC Upland Upland, CA — 2,812 3,919 1,994 2,812 5,913 8,725 3,074 2011 2005Granada InvestmentsLLC Camarillo Camarillo, CA — 3,526 2,827 1,522 3,526 4,349 7,875 2,223 2010 2005Plaza Health HoldingsLLC Park Manor Walla Walla,WA — 450 5,566 1,055 450 6,621 7,071 3,343 2009 2006MountainviewCommunitycare LLC Park View Gardens Santa Rosa, CA — 931 2,612 653 931 3,265 4,196 1,845 1963 2006CM Health HoldingsLLC Carmel Mountain San Diego, CA — 3,028 3,119 2,071 3,028 5,190 8,218 2,522 2012 2006Polk Health HoldingsLLC Timberwood Livingston, TX — 60 4,391 1,167 60 5,558 5,618 2,699 2009 2006Snohomish HealthHoldings LLC Emerald Hills Lynnwood, WA — 741 1,663 1,998 741 3,661 4,402 2,256 2009 2006Cherry Health HoldingsLLC Pacific Care Hoquiam, WA — 171 1,828 2,038 171 3,866 4,037 2,100 2010 2006Golfview Holdings LLC Cambridge SNF Richmond, TX — 1,105 3,110 1,067 1,105 4,177 5,282 1,929 2007 2006Tenth East HoldingsLLC Arlington Hills Salt Lake City,UT — 332 2,426 2,507 332 4,933 5,265 2,488 2013 2006Trinity Mill HoldingsLLC Carrollton Carrollton, TX — 664 2,294 902 664 3,196 3,860 1,947 2007 2006Cottonwood HealthHoldings LLC Holladay Salt Lake City,UT — 965 2,070 958 965 3,028 3,993 1,962 2008 2007Verde Villa HoldingsLLC Lake Village Lewisville, TX — 600 1,890 470 600 2,360 2,960 1,222 2011 2007Mesquite HealthHoldings LLC Willow Bend Mesquite, TX — 470 1,715 8,661 470 10,376 10,846 5,906 2012 2007Arrow Tree HealthHoldings LLC Arbor Glen Glendora, CA — 2,165 1,105 324 2,165 1,429 3,594 865 1965 2007Fort Street HealthHoldings LLC Draper Draper, UT — 443 2,394 759 443 3,153 3,596 1,364 2008 2007Trousdale HealthHoldings LLC Brookfield Downey, CA — 1,415 1,841 1,861 1,415 3,702 5,117 1,704 2013 2007Ensign Bellflower LLC Rose Villa Bellflower, CA — 937 1,168 357 937 1,525 2,462 805 2009 2007RB Heights HealthHoldings LLC Osborn Scottsdale, AZ — 2,007 2,793 1,762 2,007 4,555 6,562 2,147 2009 2008F-34San Corrine HealthHoldings LLC Salado Creek San Antonio,TX — 310 2,090 719 310 2,809 3,119 1,291 2005 2008Temple HealthHoldings LLC Wellington Temple, TX — 529 2,207 1,163 529 3,370 3,899 1,542 2008 2008Anson Health HoldingsLLC Northern Oaks Abilene, TX — 369 3,220 1,725 369 4,945 5,314 2,139 2012 2008Willits Health HoldingsLLC Northbrook Willits, CA — 490 1,231 500 490 1,731 2,221 731 2011 2008Lufkin Health HoldingsLLC Southland Lufkin, TX — 467 4,644 782 467 5,426 5,893 1,321 1988 2009Lowell Health HoldingsLLC Littleton Littleton, CO — 217 856 1,735 217 2,591 2,808 1,128 2012 2009Jefferson RalstonHoldings LLC Arvada Arvada, CO — 280 1,230 834 280 2,064 2,344 744 2012 2009Lafayette HealthHoldings LLC Julia Temple Englewood, CO — 1,607 4,222 6,195 1,607 10,417 12,024 3,994 2012 2009Hillendahl HealthHoldings LLC Golden Acres Dallas, TX — 2,133 11,977 1,421 2,133 13,398 15,531 3,947 1984 2009Price Health HoldingsLLC Pinnacle Price, UT — 193 2,209 849 193 3,058 3,251 886 2012 2009Silver Lake HealthHoldings LLC Provo Provo, UT — 2,051 8,362 2,011 2,051 10,373 12,424 2,589 2011 2009Jordan HealthProperties LLC Copper Ridge West Jordan, UT — 2,671 4,244 1,507 2,671 5,751 8,422 1,437 2013 2009Regal Road HealthHoldings LLC Sunview Youngstown,AZ — 767 4,648 729 767 5,377 6,144 1,678 2012 2009Paredes HealthHoldings LLC Alta Vista Brownsville, TX — 373 1,354 190 373 1,544 1,917 379 1969 2009Expressway HealthHoldings LLC Veranda Harlingen, TX — 90 675 430 90 1,105 1,195 358 2011 2009Rio Grande HealthHoldings LLC Grand Terrace McAllen, TX — 642 1,085 870 642 1,955 2,597 722 2012 2009Fifth East HoldingsLLC Paramount Salt Lake City,UT — 345 2,464 1,065 345 3,529 3,874 1,099 2011 2009Emmett HealthcareHoldings LLC River's Edge Emmet, ID — 591 2,383 69 591 2,452 3,043 651 1972 2010Burley HealthcareHoldings LLC Parke View Burley, ID — 250 4,004 424 250 4,428 4,678 1,308 2011 2010Josey Ranch HealthcareHoldings LLC Heritage Gardens Carrollton, TX — 1,382 2,293 478 1,382 2,771 4,153 749 1996 2010Everglades HealthHoldings LLC Victoria Ventura Ventura, CA — 1,847 5,377 682 1,847 6,059 7,906 1,414 1990 2011Irving Health HoldingsLLC Beatrice Manor Beatrice, NE — 60 2,931 245 60 3,176 3,236 836 2011 2011Falls City HealthHoldings LLC Careage Estates of FallsCity Falls City, NE — 170 2,141 82 170 2,223 2,393 531 1972 2011Gillette Park HealthHoldings LLC Careage of Cherokee Cherokee, IA — 163 1,491 12 163 1,503 1,666 454 1967 2011Gazebo Park HealthHoldings LLC Careage of Clarion Clarion, IA — 80 2,541 97 80 2,638 2,718 831 1978 2011Oleson Park HealthHoldings LLC Careage of Ft. Dodge Ft. Dodge, IA — 90 2,341 759 90 3,100 3,190 1,189 2012 2011Arapahoe HealthHoldings LLC Oceanview Texas City, TX — 158 4,810 759 128 5,599 5,727 1,590 2012 2011Dixie Health HoldingsLLC Hurricane Hurricane, UT — 487 1,978 98 487 2,076 2,563 411 1978 2011Memorial HealthHoldings LLC Pocatello Pocatello, ID — 537 2,138 698 537 2,836 3,373 859 2007 2011Bogardus HealthHoldings LLC Whittier East Whittier, CA — 1,425 5,307 1,079 1,425 6,386 7,811 1,827 2011 2011South Dora HealthHoldings LLC Ukiah Ukiah, CA — 297 2,087 1,621 297 3,708 4,005 1,925 2013 2011Silverada HealthHoldings LLC Rosewood Reno, NV — 1,012 3,282 103 1,012 3,385 4,397 626 1970 2011Orem Health HoldingsLLC Orem Orem, UT — 1,689 3,896 3,235 1,689 7,131 8,820 2,367 2011 2011Renee Avenue HealthHoldings LLC Monte Vista Pocatello, ID — 180 2,481 966 180 3,447 3,627 920 2013 2012F-35Stillhouse HealthHoldings LLC Stillhouse Paris, TX — 129 7,139 6 129 7,145 7,274 828 2009 2012Fig Street HealthHoldings LLC Palomar Vista Escondido, CA — 329 2,653 1,094 329 3,747 4,076 1,433 2007 2012Lowell Lake HealthHoldings LLC Owyhee Owyhee, ID — 49 1,554 29 49 1,583 1,632 237 1990 2012Queensway HealthHoldings LLC Atlantic Memorial Long Beach, CA — 999 4,237 2,331 999 6,568 7,567 2,657 2008 2012Long Beach HealthAssociates LLC Shoreline Long Beach, CA — 1,285 2,343 2,172 1,285 4,515 5,800 1,619 2013 2012Kings Court HealthHoldings LLC Richland Hills Ft. Worth, TX — 193 2,311 318 193 2,629 2,822 480 1965 201251st Avenue HealthHoldings LLC Legacy Amarillo, TX — 340 3,925 32 340 3,957 4,297 666 1970 2013Ives Health HoldingsLLC San Marcos San Marcos, TX — 371 2,951 274 371 3,225 3,596 513 1972 2013Guadalupe HealthHoldings LLC The Courtyard (VictoriaEast) Victoria, TX — 80 2,391 15 80 2,406 2,486 313 2013 201349th Street HealthHoldings LLC Omaha Omaha, NE — 129 2,418 24 129 2,442 2,571 464 1960 2013Willows HealthHoldings LLC Cascade Vista Redmond, WA — 1,388 2,982 202 1,388 3,184 4,572 684 1970 2013Tulalip Bay HealthHoldings LLC Mountain View Marysville, WA — 1,722 2,642 (980) 742 2,642 3,384 484 1966 2013CTR Partnership, L.P. Bethany RehabilitationCenter Lakewood, CO — 1,668 15,375 56 1,668 15,431 17,099 1,511 1989 2015CTR Partnership, L.P. Mira Vista Care Center Mount Vernon,WA — 1,601 7,425 — 1,601 7,425 9,026 696 1989 2015CTR Partnership, L.P. Shoreline Health andRehabilitation Center Shoreline, WA — 1,462 5,034 — 1,462 5,034 6,496 451 1987 2015CTR Partnership, L.P. Shamrock Nursing andRehabilitation Center Dublin, GA — 251 7,855 — 251 7,855 8,106 687 2010 2015CTR Partnership, L.P. BeaverCreek Health andRehab Beavercreek,OH — 892 17,159 10 892 17,169 18,061 1,394 2014 2015CTR Partnership, L.P. Premier Estates ofCincinnati-Riverside Cincinnati, OH — 284 11,104 148 284 11,252 11,536 902 2012 2015CTR Partnership, L.P. Premier Estates ofCincinnati-Riverview Cincinnati, OH — 833 18,086 188 833 18,274 19,107 1,484 1992 2015CTR Partnership, L.P. Premier Estates ofThree Rivers Cincinnati, OH — 1,091 16,151 128 1,091 16,279 17,370 1,312 1967 2015CTR Partnership, L.P. Englewood Health andRehab Englewood, OH — 1,014 18,541 58 1,014 18,599 19,613 1,520 1962 2015CTR Partnership, L.P. Portsmouth Health andRehab Portsmouth, OH — 282 9,726 181 282 9,907 10,189 806 2008 2015CTR Partnership, L.P. West Cove Care &Rehabilitation Center Toledo, OH — 93 10,365 — 93 10,365 10,458 842 2007 2015CTR Partnership, L.P. Premier Estates ofOxford Oxford, OH — 211 8,772 52 211 8,824 9,035 719 1970 2015CTR Partnership, L.P. BellBrook Health andRehab Bellbrook, OH — 214 2,573 4 214 2,577 2,791 209 2003 2015CTR Partnership, L.P. Xenia Health and Rehab Xenia, OH — 205 3,564 — 205 3,564 3,769 290 1981 2015CTR Partnership, L.P. Jamestown Place Healthand Rehab Jamestown, OH — 266 4,725 118 266 4,843 5,109 392 1967 2015CTR Partnership, L.P. Casa de Paz Health CareCenter Sioux City, IA — 119 7,727 — 119 7,727 7,846 563 1974 2016F-36CTR Partnership, L.P. Denison Care Center Denison, IA — 96 2,784 — 96 2,784 2,880 203 2015 2016CTR Partnership, L.P. Garden View CareCenter Shenandoah, IA — 105 3,179 — 105 3,179 3,284 232 2013 2016CTR Partnership, L.P. Grandview Health CareCenter Dayton, IA — 39 1,167 — 39 1,167 1,206 85 2014 2016CTR Partnership, L.P. Grundy Care Center Grundy Center,IA — 65 1,935 — 65 1,935 2,000 141 2011 2016CTR Partnership, L.P. Iowa City Rehab andHealth Care Center Iowa City, IA — 522 5,690 — 522 5,690 6,212 415 2014 2016CTR Partnership, L.P. Lenox Care Center Lenox, IA — 31 1,915 — 31 1,915 1,946 140 2012 2016CTR Partnership, L.P. Osage Rehabilitationand Health Care Center Osage, IA — 126 2,255 — 126 2,255 2,381 164 2014 2016CTR Partnership, L.P. Pleasant Acres CareCenter Hull, IA — 189 2,544 — 189 2,544 2,733 186 2014 2016CTR Partnership, L.P. Cedar Falls Health CareCenter Cedar Falls, IA — 324 4,366 — 324 4,366 4,690 300 2015 2016CTR Partnership, L.P. Premier Estates ofHighlands Norwood, OH — 364 2,199 235 364 2,434 2,798 153 2012 2016CTR Partnership, L.P. Shaw Mountain atCascadia Boise, ID — 1,801 6,572 395 1,801 6,967 8,768 501 1989 2016CTR Partnership, L.P. The Oaks Petaluma, CA — 3,646 2,873 110 3,646 2,983 6,629 187 2015 2016CTR Partnership, L.P. Arbor Nursing Center Lodi, CA — 768 10,712 — 768 10,712 11,480 647 1982 2016CTR Partnership, L.P. Broadmoor MedicalLodge - Rockwall Rockwall, TX — 1,232 22,152 — 1,232 22,152 23,384 1,154 1984 2016CTR Partnership, L.P. Senior Care Health andRehabilitation – Decatur Decatur, TX — 990 24,909 — 990 24,909 25,899 1,297 2013 2016CTR Partnership, L.P. Royse City Health andRehabilitation Center Royse City, TX — 606 14,660 — 606 14,660 15,266 764 2009 2016CTR Partnership, L.P. Saline Care Nursing &Rehabilitation Center Harrisburg, IL — 1,022 5,713 — 1,022 5,713 6,735 262 1968 2017CTR Partnership, L.P. Carrier Mills Nursing &Rehabilitation Center Carrier Mills, IL — 775 8,377 — 775 8,377 9,152 384 1968 2017CTR Partnership, L.P. StoneBridge Nursing &Rehabilitation Center Benton, IL — 439 3,475 — 439 3,475 3,914 159 2014 2017CTR Partnership, L.P. DuQuoin Nursing &Rehabilitation Center DuQuoin, IL — 511 3,662 — 511 3,662 4,173 168 2014 2017CTR Partnership, L.P. Pinckneyville Nursing& Rehabilitation Center Pinckneyville,IL — 406 3,411 — 406 3,411 3,817 156 2014 2017CTR Partnership, L.P. Wellspring Health andRehabilitation ofCascadia Nampa, ID — 774 5,044 — 774 5,044 5,818 210 2011 2017CTR Partnership, L.P. The Rio at Fox Hollow Brownsville, TX — 1,178 12,059 — 1,178 12,059 13,237 477 2016 2017F-37CTR Partnership, L.P. The Rio at Cabezon Albuquerque,NM — 2,055 9,749 — 2,055 9,749 11,804 386 2016 2017CTR Partnership, L.P. Eldorado Rehab &Healthcare Eldorado, IL — 940 2,093 — 940 2,093 3,033 78 1993 2017CTR Partnership, L.P. Mountain ViewRehabiliation andHealthcare Center Portland, OR — 1,481 2,216 — 1,481 2,216 3,697 83 2012 2017CTR Partnership, L.P. Mountain Valley ofCascadia Kellogg, ID — 916 7,874 — 916 7,874 8,790 262 1971 2017CTR Partnership, L.P. Caldwell Care ofCascadia Caldwell, ID — 906 7,020 — 906 7,020 7,926 234 1947 2017CTR Partnership, L.P. Canyon West ofCascadia Caldwell, ID — 312 10,410 — 312 10,410 10,722 347 1969 2017CTR Partnership, L.P. Lewiston TransitionalCare of Cascadia Lewiston, ID — 625 12,087 — 625 12,087 12,712 378 1964 2017CTR Partnership, L.P. Orchards of Cascadia Nampa, ID — 785 8,923 — 785 8,923 9,708 279 1958 2017CTR Partnership, L.P. Weiser Care of Cascadia Weiser, ID — 80 4,419 — 80 4,419 4,499 138 1964 2017CTR Partnership, L.P. Aspen Park of Cascadia Moscow, ID — 698 5,092 — 698 5,092 5,790 159 1965 2017CTR Partnership, L.P. Ridgmar Medical Lodge Fort Worth, TX — 681 6,587 1,604 681 8,191 8,872 220 2006 2017CTR Partnership, L.P. Mansfield MedicalLodge Mansfield, TX — 607 4,801 1,001 607 5,802 6,409 160 2006 2017CTR Partnership, L.P. Grapevine MedicalLodge Grapevine, TX — 1,602 4,536 1,265 1,602 5,801 7,403 151 2006 2017CTR Partnership, L.P. Victory Rehabilitationand Healthcare Center Battle Ground,WA — 320 500 — 320 500 820 17 2012 2017CTR Partnership, L.P. The Oaks at Forest Bay Seattle, WA — 6,347 815 — 6,347 815 7,162 25 1997 2017CTR Partnership, L.P. The Oaks at Lakewood Tacoma, WA — 1,000 1,779 — 1,000 1,779 2,779 56 1989 2017CTR Partnership, L.P. The Oaks at Timberline Vancouver, WA — 445 869 — 445 869 1,314 27 1972 2017CTR Partnership, L.P. Providence WatermanNursing Center San Bernardino,CA — 3,831 19,791 — 3,831 19,791 23,622 618 1967 2017CTR Partnership, L.P. Providence Orange Tree Riverside, CA — 2,897 14,700 — 2,897 14,700 17,597 459 1969 2017CTR Partnership, L.P. Providence Ontario Ontario, CA — 4,204 21,880 — 4,204 21,880 26,084 684 1980 2017CTR Partnership, L.P. Greenville Nursing &Rehabilitation Center Greenville, IL — 188 3,972 — 188 3,972 4,160 129 1973 2017CTR Partnership, L.P. Copper Ridge Healthand RehabilitationCenter Butte, MT — 220 4,974 — 220 4,974 5,194 125 2010 2018F-38CTR Partnership,L.P. Metron of Belding Belding, MI — 253 7,769 — 253 7,769 8,022 175 1968 2018CTR Partnership,L.P. Metron of Big Rapids Big Rapids, MI — 266 8,701 — 266 8,701 8,967 199 1970 2018CTR Partnership,L.P. Metron of CedarSprings Cedar Springs,MI — 733 8,398 — 733 8,398 9,131 209 1976 2018CTR Partnership,L.P. Metron of Greenville Greenville, MI — 428 9,598 — 428 9,598 10,026 219 1972 2018CTR Partnership,L.P. Metron of Lamont Lamont, MI — 65 3,023 — 65 3,023 3,088 75 1972 2018CTR Partnership,L.P. Prairie HeightsHealthcare Center Aberdeen, SD — 1,372 7,491 — 1,372 7,491 8,863 95 1965 2018CTR Partnership,L.P. The Meadows onUniversity Fargo, ND — 989 3,275 — 989 3,275 4,264 15 1966 2018CTR Partnership,L.P. Metron of Forest Hills Grand Rapids,MI — 515 3,672 — 515 3,672 4,187 18 1976 2018CTR Partnership,L.P. Avantara Crown Point Parker, CO — 1,178 17,857 — 1,178 17,857 19,035 38 2012 2018 — 119,117 747,573 85,739 118,107 834,322 952,429 135,709 Multi-ServiceCampus Properties: Ensign SouthlandLLC Southland Care Norwalk, CA — 966 5,082 2,213 966 7,295 8,261 4,678 2011 1999Sky Holdings AZLLC Bella Vita (Desert Sky) Glendale, AZ — 289 1,428 1,752 289 3,180 3,469 1,868 2004 2002Lemon RiverHoldings LLC Plymouth Tower Riverside, CA — 494 1,159 4,853 494 6,012 6,506 2,980 2012 2009Wisteria HealthHoldings LLC Wisteria Abilene, TX — 746 9,903 290 746 10,193 10,939 1,887 2008 2011Mission CCRC LLC St. Joseph's Villa Salt Lake City,UT — 1,962 11,035 464 1,962 11,499 13,461 2,705 1994 2011Wayne HealthHoldings LLC Careage of Wayne Wayne, NE — 130 3,061 122 130 3,183 3,313 783 1978 20114th Street HoldingsLLC West Bend Care Center West Bend, IA — 180 3,352 — 180 3,352 3,532 782 2006 2011Big Sioux RiverHealth HoldingsLLC Hillcrest Health Hawarden, IA — 110 3,522 75 110 3,597 3,707 785 1974 2011Prairie HealthHoldings LLC Colonial Manor ofRandolph Randolph, NE — 130 1,571 22 130 1,593 1,723 598 2011 2011Salmon River HealthHoldings LLC Discovery Care Center Salmon, ID — 168 2,496 — 168 2,496 2,664 400 2012 2012CTR Partnership,L.P. Centerville SeniorIndependentLiving/CentervilleHealth andRehab/Centerville PlaceAssisted Living Dayton, OH — 3,912 22,458 156 3,912 22,614 26,526 1,848 2007 2015CTR Partnership,L.P. Liberty Nursing Centerof Willard Willard, OH — 143 11,097 50 143 11,147 11,290 912 1985 2015CTR Partnership,L.P. Premier Estates ofMiddletown/PremierRetirement Estates ofMiddletown Middletown,OH — 990 7,484 84 990 7,568 8,558 624 1985 2015CTR Partnership,L.P. Premier Estates ofNorwoodTowers/PremierRetirement Estates ofNorwood Towers Norwood, OH — 1,316 10,071 343 1,316 10,414 11,730 693 1991 2016CTR Partnership,L.P. Turlock Nursing andRehabilitation Center Turlock, CA — 1,258 16,526 — 1,258 16,526 17,784 998 1986 2016CTR Partnership,L.P. Senior Care Health &The Residences Bridgeport, TX — 980 27,917 — 980 27,917 28,897 1,454 2014 2016CTR Partnership,L.P. The Villas at Saratoga Saratoga, CA — 8,709 9,736 1,635 8,709 11,371 20,080 87 2004 2018F-39CTR Partnership, L.P. Madison ParkHealthcare Huntington, WV — 601 6,385 — 601 6,385 6,986 28 1924 2018 — 23,084 154,283 12,059 23,084 166,342 189,426 24,110 Assisted andIndependent LivingProperties: Avenue N HoldingsLLC Cambridge ALF Rosenburg, TX — 124 2,301 392 124 2,693 2,817 1,184 2007 2006Moenium HoldingsLLC Grand Court Mesa, AZ — 1,893 5,268 1,210 1,893 6,478 8,371 3,005 1986 2007Lafayette HealthHoldings LLC Chateau Des Mons Englewood, CO — 420 1,160 189 420 1,349 1,769 357 2011 2009Expo Park HealthHoldings LLC Canterbury Gardens Aurora, CO — 570 1,692 248 570 1,940 2,510 687 1986 2010Wisteria HealthHoldings LLC Wisteria IND Abilene, TX — 244 3,241 81 244 3,322 3,566 1,107 2008 2011Everglades HealthHoldings LLC Lexington Ventura, CA — 1,542 4,012 113 1,542 4,125 5,667 727 1990 2011Flamingo HealthHoldings LLC Desert Springs ALF Las Vegas, NV — 908 4,767 281 908 5,048 5,956 1,986 1986 201118th Place HealthHoldings LLC Rose Court Phoenix, AZ — 1,011 2,053 490 1,011 2,543 3,554 726 1974 2011Boardwalk HealthHoldings LLC Park Place Reno, NV — 367 1,633 51 367 1,684 2,051 395 1993 2012Willows HealthHoldings LLC Cascade Plaza Redmond, WA — 2,835 3,784 395 2,835 4,179 7,014 896 2013 2013Lockwood HealthHoldings LLC Santa Maria Santa Maria, CA — 1,792 2,253 585 1,792 2,838 4,630 923 1967 2013Saratoga HealthHoldings LLC Lake Ridge Orem, UT — 444 2,265 176 444 2,441 2,885 352 1995 2013CTR Partnership, L.P. Prelude Cottages ofWoodbury Woodbury, MN — 430 6,714 — 430 6,714 7,144 672 2011 2014CTR Partnership, L.P. English MeadowsSenior LivingCommunity Christiansburg,VA — 250 6,114 3 250 6,117 6,367 612 2011 2014CTR Partnership, L.P. Bristol Court AssistedLiving Saint Petersburg,FL — 645 7,322 13 645 7,335 7,980 641 2010 2015CTR Partnership, L.P. Asbury Place AssistedLiving Pensacola, FL — 212 4,992 — 212 4,992 5,204 416 1997 2015CTR Partnership, L.P. New Haven AssistedLiving of San Angelo San Angelo, TX — 284 4,478 — 284 4,478 4,762 327 2012 2016CTR Partnership, L.P. Priority Life Care ofFort Wayne Fort Wayne, IN — 452 8,703 — 452 8,703 9,155 616 2015 2016CTR Partnership, L.P. Priority Life Care ofWest Allis West Allis, WI — 97 6,102 — 97 6,102 6,199 432 2013 2016CTR Partnership, L.P. Priority Life Care ofBaltimore Baltimore, MD — — 3,697 — — 3,697 3,697 262 2014 2016CTR Partnership, L.P. Fort Myers AssistedLiving Fort Myers, FL — 1,489 3,531 82 1,489 3,613 5,102 255 1980 2016CTR Partnership, L.P. English MeadowsElks Home Campus Bedford, VA — 451 9,023 142 451 9,165 9,616 626 2014 2016CTR Partnership, L.P. Croatan Village New Bern, NC — 312 6,919 — 312 6,919 7,231 461 2010 2016CTR Partnership, L.P. Countryside Village Pikeville, NC — 131 4,157 — 131 4,157 4,288 277 2011 2016CTR Partnership, L.P. The Pines ofClarkston Village ofClarkston, MI — 603 9,326 — 603 9,326 9,929 602 2010 2016CTR Partnership, L.P. The Pines ofGoodrich Goodrich, MI — 241 4,112 — 241 4,112 4,353 266 2014 2016CTR Partnership, L.P. The Pines of Burton Burton, MI — 492 9,199 — 492 9,199 9,691 594 2014 2016CTR Partnership, L.P. The Pines of Lapeer Lapeer, MI — 302 5,773 — 302 5,773 6,075 373 2008 2016CTR Partnership, L.P. Arbor Place Lodi, CA — 392 3,605 — 392 3,605 3,997 218 1984 2016F-40CTR Partnership,L.P. Applewood ofBrookfield Brookfield,WI — 493 14,002 — 493 14,002 14,495 671 2013 2017CTR Partnership,L.P. Applewood of NewBerlin New Berlin,WI — 356 10,812 — 356 10,812 11,168 518 2016 2017CTR Partnership,L.P. Tangerine Cove ofBrooksville Brooksville,FL — 995 927 84 995 1,011 2,006 44 1984 2017CTR Partnership,L.P. Memory CareCottages in WhiteBear Lake White BearLake, MN — 1,611 5,633 — 1,611 5,633 7,244 211 2016 2017CTR Partnership,L.P. Amerisist ofCulpeper Culpepper,VA — 318 3,897 69 318 3,966 4,284 140 1997 2017CTR Partnership,L.P. Amerisist of Louisa Louisa, VA — 407 4,660 72 407 4,732 5,139 171 2002 2017CTR Partnership,L.P. Amerisist ofWarrenton Warrenton,VA — 1,238 7,247 85 1,238 7,332 8,570 254 1999 2017 — 24,351 185,374 4,761 24,351 190,135 214,486 22,004 IndependentLiving Properties: Hillendahl HealthHoldings LLC Cottages at GoldenAcres Dallas, TX — 315 1,769 319 315 2,088 2,403 1,174 1984 2009Mission CCRC LLC St. Joseph's VillaIND Salt Lake City,UT — 411 2,312 158 411 2,470 2,881 1,071 1994 2011Hillview HealthHoldings LLC Lakeland Hills ALF Dallas, TX — 680 4,872 980 680 5,852 6,532 1,858 1996 2011 — 1,406 8,953 1,457 1,406 10,410 11,816 4,103 — $167,958 $1,096,183 $104,016 $166,948 $1,201,209 $1,368,157 $185,926 (1) The aggregate cost of real estate for federal income tax purposes was $1.4 billion.F-41SCHEDULE IIIREAL ESTATE ASSETS AND ACCUMULATED DEPRECIATIONDECEMBER 31, 2018(dollars in thousands) Year Ended December 31,Real estate: 2018 2017 2016Balance at the beginning of the period $1,266,484 $986,215 $718,764Acquisitions 106,208 280,477 270,601Improvements 7,230 744 726Sales of real estate (11,765) (952) (3,876)Balance at the end of the period $1,368,157 $1,266,484 $986,215Accumulated depreciation: Balance at the beginning of the period $(152,185) $(121,797) $(97,667)Depreciation expense (34,676) (30,493) (25,001)Sales of real estate 935 105 871Balance at the end of the period $(185,926) $(152,185) $(121,797)F-42SCHEDULE IVMORTGAGE LOAN ON REAL ESTATEDECEMBER 31, 2018(dollars in thousands)Description Contractual InterestRate Maturity Date Periodic PaymentTerms Prior Liens Principal Balance Book Value Mortgage: Providence Group 9.0% 2020 (1) $— $12,375 $12,299 Loan Loss Allowance — — — $— $12,375 $12,299(1) Commencing on November 1, 2017 and on the first day of each calendar month thereafter.Changes in mortgage loans are summarized as follows: Year Ended December 31, 2018 2017 2016 Balance at beginning of period $12,517 $— $—Additions during period: New mortgage loan — 12,542 —Interest income added to principal — — —Deductions during period: Paydowns/Repayments (142) (25) —Balance at end of the period $12,375 $12,517 $—F-43EXHIBIT 21.1LIST OF SUBSIDIARIES OF CARETRUST REIT, INC.*1.CareTrust GP, LLC** 51.Long Beach Health Associates LLC2.CTR Partnership, L.P.** 52.Lowell Health Holdings LLC3.CareTrust Capital Corp.** 53.Lowell Lake Health Holdings LLC4.18th Place Health Holdings LLC 54.Lufkin Health Holdings LLC5.49th Street Health Holdings LLC 55.Meadowbrook Health Associates LLC6.4th Street Holdings LLC 56.Memorial Health Holdings LLC7.51st Avenue Health Holdings LLC 57.Mesquite Health Holdings LLC8.Anson Health Holdings LLC 58.Mission CCRC LLC9.Arapahoe Health Holdings LLC 59.Moenium Holdings LLC10.Arrow Tree Health Holdings LLC 60.Mountainview Communitycare LLC11.Avenue N Holdings LLC 61.Northshore Healthcare Holdings LLC12.Big Sioux River Health Holdings LLC 62.Oleson Park Health Holdings LLC13.Boardwalk Health Holdings LLC 63.Orem Health Holdings LLC14.Bogardus Health Holdings LLC 64.Paredes Health Holdings LLC15.Burley Healthcare Holdings LLC 65.Plaza Health Holdings LLC16.Casa Linda Retirement LLC 66.Polk Health Holdings LLC17.Cedar Avenue Holdings LLC 67.Prairie Health Holdings LLC18.Cherry Health Holdings LLC 68.Price Health Holdings LLC19.CM Health Holdings LLC 69.Queen City Health Holdings LLC20.Cottonwood Health Holdings LLC 70.Queensway Health Holdings LLC21.Dallas Independence LLC 71.RB Heights Health Holdings LLC22.Dixie Health Holdings LLC 72.Regal Road Health Holdings LLC23.Emmett Healthcare Holdings LLC 73.Renee Avenue Health Holdings LLC24.Ensign Bellflower LLC 74.Rillito Holdings LLC25.Ensign Highland LLC 75.Rio Grande Health Holdings LLC26.Ensign Southland LLC 76.Salmon River Health Holdings LLC27.Everglades Health Holdings LLC 77.Salt Lake Independence LLC28.Expo Park Health Holdings LLC 78.San Corrine Health Holdings LLC29.Expressway Health Holdings LLC 79.Saratoga Health Holdings LLC30.Falls City Health Holdings LLC 80.Silver Lake Health Holdings LLC31.Fifth East Holdings LLC 81.Silverada Health Holdings LLC32.Fig Street Health Holdings LLC 82.Sky Holdings AZ LLC33.Flamingo Health Holdings LLC 83.Snohomish Health Holdings LLC34.Fort Street Health Holdings LLC 84.South Dora Health Holdings LLC35.Gazebo Park Health Holdings LLC 85.Stillhouse Health Holdings LLC36.Gillette Park Health Holdings LLC 86.Temple Health Holdings LLC37.Golfview Holdings LLC 87.Tenth East Holdings LLC38.Granada Investments LLC 88.Terrace Holdings AZ LLC39.Guadalupe Health Holdings LLC 89.Trinity Mill Holdings LLC40.Hillendahl Health Holdings LLC 90.Trousdale Health Holdings LLC41.Hillview Health Holdings LLC 91.Tulalip Bay Health Holdings LLC42.Irving Health Holdings LLC 92.Valley Health Holdings LLC43.Ives Health Holdings LLC 93.Verde Villa Holdings LLC44.Jefferson Ralston Holdings LLC 94.Wayne Health Holdings LLC45.Jordan Health Properties LLC 95.Willits Health Holdings LLC46.Josey Ranch Healthcare Holdings LLC 96.Willows Health Holdings LLC47.Kings Court Health Holdings LLC 97.Wisteria Health Holdings LLC48.Lafayette Health Holdings LLC 98.CTR Arvada Preferred, LLC**49.Lemon River Holdings LLC 99.CTR Cascadia Preferred, LLC**50.Lockwood Health Holdings 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 ofCareTrust REIT, Inc. and Form S-3 (No. 333-217670) of CareTrust REIT, Inc., of our reports dated February 13, 2019, with respect to the consolidatedfinancial statements and schedules of CareTrust REIT, Inc. and the effectiveness of internal control over financial reporting of CareTrust REIT Inc., includedin this Annual Report (Form 10-K) for the year ended December 31, 2018./s/ ERNST & YOUNG LLPIrvine, CaliforniaFebruary 13, 2019Exhibit 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 thestatements made, 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 inExchange Act Rules 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 theregistrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the 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, theregistrant’s internal 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 reasonablylikely to adversely 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 13, 2019Exhibit 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 thestatements made, 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 inExchange Act Rules 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 theregistrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the 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, theregistrant’s internal 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 reasonablylikely to adversely 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 13, 2019Exhibit 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, 2018, 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, Treasurer and Secretary 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 13, 2019 /s/ William M. WagnerName: William M. WagnerTitle: Chief Financial Officer, Treasurer and SecretaryDate: February 13, 2019The 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 ExchangeAct of 1934, as amended, or otherwise subject to the liability of that section, and it is not to be incorporated by reference into any filing of the Company,regardless of any general incorporation language in such filing.

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