CareTrust REIT
Annual Report 2019

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2019or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _____ to _____Commission file number 001-36181CareTrust REIT, Inc.(Exact name of registrant as specified in its charter)Maryland 46-3999490(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)905 Calle Amanecer, Suite 300, San Clemente, CA 92673(Address of principal executive offices, including zip code)Registrant’s telephone number, including area code (949) 542-3130Securities registered pursuant to Section 12(b) of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon Stock, par value $0.01 per shareCTREThe Nasdaq Stock Market LLC (Nasdaq Global Select Market)Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐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 ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging 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 filer Accelerated filerNon-accelerated filer Smaller reporting company Emerging growth companyIf 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 revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act.) Yes ☐ No ☒State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity waslast sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $2.2 billion.As of February 19, 2020, there were 95,468,760 shares of the registrant’s common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the definitive Proxy Statement for the registrant’s 2020 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commissionwithin 120 days after the end of fiscal year 2019, are incorporated by reference into Part III of this Report. Table of ContentsTABLE OF CONTENTS PART IItem 1.Business4Item 1A.Risk Factors17Item 1B.Unresolved Staff Comments36Item 2.Properties36Item 3.Legal Proceedings36Item 4.Mine Safety Disclosures37PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities37Item 6.Selected Financial Data39Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations40Item 7A.Quantitative and Qualitative Disclosures About Market Risk51Item 8.Financial Statements and Supplementary Data52Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures52Item 9A.Controls and Procedures52Item 9B.Other Information54PART IIIItem 10.Directors, Executive Officers and Corporate Governance54Item 11.Executive Compensation54Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters54Item 13.Certain Relationships and Related Transactions, and Director Independence54Item 14.Principal Accountant Fees and Services54PART IVItem 15.Exhibits, Financial Statements and Financial Statement Schedules54Item 16.10-K Summary56Signatures 572Table 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; expectationsregarding the making of distributions and the payment of dividends; and compliance with and changes in governmental regulations.Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “may,” “will,” “would,” “could,” “should,” “seek(s)” and similarexpressions, or the negative of these terms, are intended to identify such forward-looking statements. These statements are based on management’s currentexpectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecastedor expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectationswill be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materiallyfrom our expectations include, but are not limited to: (i) the ability and willingness of our tenants to meet and/or perform their obligations under the triple-netleases we have entered into with them, including without limitation, their respective obligations to indemnify, defend and hold us harmless from and againstvarious claims, litigation and liabilities; (ii) the ability of our tenants to comply with applicable laws, rules and regulations in the operation of the properties welease to them; (iii) the ability and willingness of our tenants to renew their leases with us upon their expiration, and the ability to reposition our properties on thesame or better terms in the event of nonrenewal or in the event we replace an existing tenant, as well as any obligations, including indemnification obligations, wemay incur in connection with the replacement of an existing tenant; (iv) the availability of and the ability to identify (a) tenants who meet our credit and operatingstandards, and (b) suitable acquisition opportunities and the ability to acquire and lease the respective properties to such tenants on favorable terms; (v) the ability togenerate sufficient cash flows to service our outstanding indebtedness; (vi) access to debt and equity capital markets; (vii) fluctuating interest rates; (viii) the abilityto 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 otherstate, federal or local laws, whether or not specific to REITs; (xi) other risks inherent in the real estate business, including potential liability relating toenvironmental matters and illiquidity of real estate investments; and (xii) any additional factors included in this report, including in the section entitled “RiskFactors” in Item 1A of this Annual Report, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with theSecurities 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 expressly disclaimany obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events,conditions or circumstances on which any statement is based.TENANT INFORMATIONThis Annual Report on Form 10-K includes information regarding certain of our tenants that lease properties from us, some of which are not subject to SECreporting requirements. The Ensign Group, Inc. (“Ensign”) is subject to the reporting requirements of the SEC and is required to file with the SEC annual reportscontaining audited financial information and quarterly reports containing unaudited financial information. You are encouraged to review Ensign’s publiclyavailable 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 derived from SECfilings or other publicly available information. We have not verified this information through an independent investigation or otherwise. We have no reason tobelieve that this information is inaccurate in any material respect, but we cannot provide any assurance of its accuracy. We are providing this data forinformational purposes only.3Table 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 skilled nursing, seniorshousing and other healthcare-related properties. CareTrust REIT was formed on October 29, 2013 as a wholly owned subsidiary of Ensign with the intent to holdsubstantially all of Ensign’s real estate business, and became a separate and independent publicly-traded company on June 1, 2014 following the pro ratadistribution of the outstanding shares of CareTrust REIT common stock to Ensign’s stockholders (the “Spin-Off”). As of December 31, 2019, CareTrust REIT’sreal estate portfolio consisted of 216 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent livingfacilities (“ILFs”). Of these properties, 85 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. In addition, Ensign provides a guaranty on 11properties that are leased to The Pennant Group, Inc. (“Pennant”) on a triple net basis under one long-term lease (the “Pennant Master Lease”). As of December 31,2019, the 85 facilities leased to Ensign had a total of 8,908 beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas,Utah and Washington, the 11 facilities leased to Pennant had a total of 1,151 beds and units and are located in Arizona, California, Nevada, Texas and Washingtonand the 120 remaining leased facilities had a total of 11,904 beds and units and are located in California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa,Louisiana, Maryland, Michigan, Minnesota, Montana, New Mexico, North Carolina, North Dakota, Ohio, Oregon, South Dakota, Texas, Virginia, Washington,West Virginia and Wisconsin. We also own and operate one ILF which had a total of 168 units and is located in Texas. As of December 31, 2019, we also hadother real estate investments consisting of one preferred equity investment totaling $3.8 million and two mortgage loans receivable with a carrying value of $29.5million.From January 1, 2019 through February 20, 2020, we acquired eighteen skilled nursing facilities, four multi-service campuses and two assisted livingfacilities for approximately $352.8 million, which includes capitalized acquisition costs. These acquisitions are expected to generate initial annual cash revenues ofapproximately $31.4 million and an initial blended yield of approximately 8.9%.We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements, under which the tenant issolely responsible for the costs related to the property (including property taxes, insurance, maintenance and repair costs and capital expenditures, subject to certainexceptions in the case of properties leased to Ensign). We also extend secured mortgage loans to healthcare operators, secured by healthcare-related properties. Weconduct and manage our business as one operating segment for internal reporting and internal decision making purposes. We expect to grow our portfolio bypursuing opportunities to acquire additional properties that will be leased to a diverse group of local, regional and national healthcare providers, which mayinclude Ensign and other skilled nursing operators, as well as senior housing operators and related businesses. We also anticipate diversifying our portfolio overtime, including by acquiring properties in 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 we havebeen 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 umbrella partnership,commonly referred to as an UPREIT structure, in which substantially all of our properties and assets are held through CTR Partnership, L.P. (the “OperatingPartnership”). The Operating Partnership is managed by CareTrust REIT’s wholly owned subsidiary, CareTrust GP, LLC, which is the sole general partner of theOperating Partnership. To maintain REIT status, we must meet a number of organizational and operational requirements, including a requirement that we annuallydistribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capitalgains.4Table of ContentsOur IndustryThe skilled nursing industry has evolved to meet the growing demand for post-acute and custodial healthcare services generated by an aging population,increasing life expectancies and the trend toward shifting of patient care to lower cost settings. We believe this evolution has led to a number of favorableimprovements in the industry, as described below: •Shift of Patient Care to Lower Cost Alternatives. The growth of the senior population in the United States continues to increase healthcare costs. Inresponse, federal and state governments have adopted cost-containment measures that encourage the treatment of patients in more cost-effectivesettings such as SNFs, for which the staffing requirements and associated costs are often significantly lower than acute care hospitals, inpatientrehabilitation facilities and other post-acute care settings. As a result, SNFs are generally serving a larger population of higher-acuity patients than inthe past. The same trend is impacting ALFs, which are now generally serving some patients who previously would have received services at SNFs.•Significant Acquisition and Consolidation Opportunities. The skilled nursing industry is large and highly fragmented, characterized predominantly bynumerous local and regional providers. We believe this fragmentation provides significant acquisition and consolidation opportunities for us.•Widening Supply and Demand Imbalance. The number of SNFs has declined modestly over the past several years. According to the American HealthCare Association, the nursing home industry was comprised of approximately 15,700 facilities as of December 2016, as compared with over 16,700facilities as of December 2000. As of January 29, 2020, the Centers for Medicare & Medicaid Services’ Medicare.gov website reported a total of15,454 SNFs in the United States. We expect that the supply/demand imbalance in the skilled nursing industry will increasingly favor skilled nursingand assisted living providers 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 States andseniors account for a higher percentage of the total U.S. population, we believe the overall demand for skilled nursing services will increase. Atpresent, the primary market demographic for skilled nursing services is individuals age 75 and older. The 2017 U.S. Census reported that there wereover 49.2 million people in the United States in 2016 over the age of 65. The 2017 U.S. Census estimates this group to be one of the fastest growingsegments of the United States population, projecting that it will almost double between 2016 and 2060. According to the Centers for Medicare &Medicaid Services, nursing home care facilities and continuing care retirement expenditures are projected to grow from approximately $166 billion in2017 to approximately $270 billion in 2027, representing a compounded annual growth rate of 5.0%. We believe that these trends will support anincreasing demand for skilled nursing services, which in turn will likely support an increasing demand for the services provided within our properties.Portfolio SummaryWe have a geographically diverse portfolio of properties, consisting of the following types:•Skilled Nursing Facilities. SNFs are licensed healthcare facilities that provide restorative, rehabilitative and nursing care for people not requiring themore extensive and sophisticated treatment available at acute care hospitals. Treatment programs include physical, occupational, speech, respiratoryand other therapies, including sub-acute clinical protocols such as wound care and intravenous drug treatment. Charges for these services are generallypaid from a combination of government reimbursement and private sources. As of December 31, 2019, our portfolio included 176 SNFs, 18 of whichare located on campuses that also have 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 need helpwith activities of daily living, such as bathing, eating and dressing, yet require limited medical care. The programs and services may includetransportation, social activities, exercise and fitness programs, beauty or barber shop access, hobby and craft activities, community excursions, mealsin a dining room setting and other activities sought by residents. These facilities are often apartment-like buildings with private residences rangingfrom single rooms to large apartments. Certain ALFs may offer higher levels of personal assistance for residents requiring memory care as a result ofAlzheimer’s disease or other forms of dementia. The level of personal assistance that may be provided at ALFs is based in part on state regulations.Since states often apply differing license classifications, and standards, regulatory requirements may differ significantly between states. As ofDecember 31, 2019, our portfolio included 38 ALFs, some of which also contain independent living and memory care units.5Table of Contents•Independent Living Facilities. ILFs, also known as retirement communities or senior apartments, are not healthcare facilities and are not licensed toprovide healthcare services to residents. The facilities typically consist of entirely self-contained apartments, complete with their own kitchens, bathsand individual living spaces, as well as parking for tenant vehicles. They are most often rented unfurnished, and generally can be personalized by thetenants, typically an individual or a couple over the age of 55. These facilities offer various services and amenities such as laundry, housekeeping,dining options/meal plans, exercise and wellness programs, transportation, social, cultural and recreational activities, on-site security and emergencyresponse programs. As of December 31, 2019, our portfolio of three ILFs included two that are operated by Ensign and one that is operated 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 Louisiana.Significant Master LeasesWe have leased a significant number of our properties to subsidiaries of Ensign pursuant to the Ensign Master Leases, which consist of eight triple-netleases, each with its own pool of properties, that have varying maturities and diversity in both property type and geography. The Ensign Master Leases provide forinitial terms in excess of ten years with staggered expiration dates and no purchase options. At Ensign’s option, each Ensign Master Lease may be extended for upto three five year renewal terms beyond the initial term and, if elected, the renewal will be effective for all of the leased property then subject to the applicableEnsign Master Lease. The rent is a fixed component that was initially set near the time of the Spin-Off. As of December 31, 2019, the annualized revenues from theEnsign Master Leases were $53.4 million. The Ensign Master Leases are guaranteed by Ensign.On October 1, 2019, Ensign completed its previously announced separation of its home health and hospice operations and substantially all of its seniorliving operations into a separate independent publicly traded company through the distribution of shares of Pennant common stock (the “Pennant Spin”). As aresult of the Pennant Spin, on October 1, 2019, the Company amended the Ensign Master Leases to lease 85 facilities to subsidiaries of Ensign, which have a totalof 8,908 operational beds, and entered into the Pennant Master Lease to lease 11 facilities, which have a total of 1,151 operational beds. The contractual initialannual cash rent under the Pennant Master Lease is approximately $7.8 million. The Pennant Master Lease carries an initial term of 15 years, with two five-yearrenewal options and CPI-based rent escalators. The contractual annual cash rent under the amended Ensign Master Leases was reduced by approximately $7.8million. Ensign has guaranteed the Pennant Master Lease. If Pennant achieves a specified portfolio coverage ratio and continuously maintains it for a specifiedperiod, Ensign’s obligations under the guaranty with respect to the Pennant facilities would be released. As of December 31, 2019 Ensign and Pennant represented32% and 5%, respectively, of the Company’s contractual rental income, exclusive of operating expense reimbursements, on an annualized run-rate basis.As of December 31, 2019, 15 of our properties were leased to subsidiaries of Priority Management Group (“PMG”) on a triple-net basis under one long-termlease (the “PMG Master Lease”), and have a total of 2,145 operational beds. The PMG Master Lease commenced on December 1, 2016, and provides an initialterm of fifteen years, with two five-year renewal options. As of December 31, 2019, PMG represented 16% of the Company’s contractual rental income, exclusiveof operating expense reimbursements, on an annualized run-rate basis.The Ensign Master Leases account for a substantial portion of our revenues, and Ensign’s financial condition and ability and willingness to (i) satisfy itsobligations under the Ensign Master Leases, (ii) renew the Ensign Master Leases upon expiration of the initial base terms thereof, and (iii) satisfy its guarantyobligations under the Pennant Master Lease, significantly impacts our revenues and our ability to service our indebtedness and to make distributions to ourstockholders. There can be no assurance that Ensign has sufficient assets, income and access to financing to enable it to satisfy its obligations under the EnsignMaster Leases or its guaranty of the Pennant Master Lease, and any inability or unwillingness on its part to do so would have a material adverse effect on ourbusiness, financial condition, results of operations and liquidity, on our ability to service our indebtedness and other obligations and on our ability to pay dividendsto our stockholders, as required for us to qualify, and maintain our status, as a REIT. We also cannot assure you that Ensign will elect to renew the Ensign MasterLeases with us upon expiration of the initial base terms or any renewal terms thereof or, if such leases are not renewed, that we can reposition the affectedproperties on the same or better terms. See “Risk Factors - Risks Related to Our Business - We are dependent on Ensign and other healthcare operators to makepayments to us under leases, and an event that materially and adversely affects their business, financial position or results of operations could materially andadversely affect our business, financial position or results of operations.”6Table of ContentsWe monitor the creditworthiness of our tenants by evaluating the ability of the tenants to meet their lease obligations to us based on the tenants’ financialperformance, including the evaluation of any guarantees of tenant lease obligations. The primary basis for our evaluation of the credit quality of our tenants (andmore specifically the tenants’ ability to pay their rent obligations to us) is the tenants’ lease coverage ratios. These coverage ratios compare (i) earnings beforeinterest, 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 calculate lease coverage ratios.We obtain various financial and operational information from our tenants each month. We regularly review this information to calculate the above-describedcoverage metrics, to identify operational trends, to assess the operational and financial impact of the changes in the broader industry environment (including thepotential impact of government reimbursement and regulatory changes), and to evaluate the management and performance of the tenant’s operations. Thesemetrics help us identify potential areas of concern relative to our tenants’ credit quality and ultimately the tenants’ ability to generate sufficient liquidity to meettheir ongoing obligations, including their obligations to continue paying contractual rents due to us and satisfying other financial obligations to third parties, asprescribed by our triple-net leases.In addition, we actively monitor the clinical, regulatory and financial operating results of our tenants, and work to identify opportunities within theiroperations and markets that could improve their operating results at our facilities. We communicate such observations to our tenants; however, we have nocontractual obligation to do so. Moreover, our tenants have sole discretion with respect to the day-to-day operation of the facilities they lease from us, and how andwhether to implement any observation we may share with them. We also periodically monitor the overall financial and operating strength of our operators. Wehave replaced tenants in the past, and may elect to replace tenants in the future, if they fail to meet the terms and conditions of their leases with us. The replacementoperators may include operators with whom we have had no prior landlord-tenant relationship as well as current tenants with whom we are comfortable expandingour relationships. We have also provided select operators with strategic capital for facility upkeep and modernization, as well as short-term working capital loanswhen they are awaiting licensure and certification or conducting turnaround work in one or more of our properties, and we may continue to do so in the future. Inaddition, we periodically reassess the investments we have made and the operator relationships we have entered into, and have selectively disposed of facilities orinvestments, or terminated such relationships, and we expect to continue making such reassessments and, where appropriate, taking such actions.7Table of ContentsProperties by Type:The following table displays the geographic distribution of our facilities by property type and the related number of beds and units available for occupancyby asset class, as of December 31, 2019. 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 384,725 323,960 2355 4410 CA 344,015 252,847 4759 5409 ID 161,358 151,289 169 —— IA 15986 13815 2171 —— OH 131,270 9720 4550 —— WA 121,080 11980 —— 1100 UT 121,306 101,179 —— 2127 AZ 111,328 8962 —— 3366 MI 10669 6480 —— 4189 IL 8772 7644 1128 —— LA 81,164 7949 1215 —— CO 7785 5522 —— 2263 NE 5366 3220 2146 —— VA 5279 —— —— 5279 FL 4404 —— —— 4404 NV 3304 192 —— 2212 WI 3206 —— —— 3206 NC 2100 —— —— 2100 MN 262 —— —— 262 MT 1100 1100 —— —— IN 1162 —— —— 1162 NM 1136 1136 —— —— MD 1120 —— —— 1120 GA 1105 1105 —— —— OR 153 153 —— —— SD 199 199 —— —— ND 1110 1110 —— —— WV 167 —— 167 ——Total 21722,131 15816,262 182,460 413,409 (1) ALFs and ILFs include ALFs or ILFs, or a combination of the two, operated by our tenants and one ILF operated by us.8Table of ContentsOccupancy by Property Type:The following table displays occupancy by property type for each of the years ended December 31, 2019 and 2018. Percentage occupancy in the below tableis 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 acquiredfacilities are included in the computation following the date of acquisition only). Year Ended December 31,Property Type20192018Facilities Leased to Tenants: (1) SNFs78%77% Multi-Service Campuses76%77% ALFs and ILFs83%84%Facilities Operated by CareTrust REIT:(2) ILFs89%83% (1)Occupancy data derived solely from information provided by our tenants without independent verification by us. The leased facility financial performance data ispresented one quarter in arrears.(2)As of December 31, 2019, we owned and operated one ILF. Occupancy data for the year ended December 31, 2019 includes the one ILF owned and operated. Occupancydata for the year ended December 31, 2018 includes the three ILFs owned and operated.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 ended December31, 2019 and 2018. For the Year Ended December 31, 2019Property TypeRental Income(in thousands)Percentof Total Total Beds/Units SNFs$115,36274%16,262Multi-Service Campuses18,10912%2,460ALFs and ILFs22,19614%3,241Total(1)$155,667100%21,963 (1)Due to the adoption of the new lease accounting standards updates (the “new lease ASUs”) on January 1, 2019, the assessment of collectibility of our tenant receivablesincludes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection. Tenant receivables writtenoff for leases determined to be not probable of collection are recorded as decreases through rental income on our consolidated income statements. Additionally, tenantrecoveries for real estate taxes are recognized to the extent that we pay the third party directly and classified as rental income on our consolidated income statements. SeeNote 2, Summary of Significant Accounting Policies for further details. 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%19,0869Table of ContentsGeographic Concentration - Rental Income:The following table displays the geographic distribution of annual rental income for properties leased to third-party tenants for the years ended December 31,2019 and 2018 (in thousands, except percentages). For the Year Ended December 31, 2019 For the Year Ended December 31, 2018State Rental Income(1)Percent of Total Rental IncomePercent of Total CA$35,29723% $26,89719%TX32,36421% 26,56719%LA15,88010% ——%AZ12,4618% 9,1257%ID11,7178% 10,7708%UT6,7404% 6,1254%MI6,0074% 6,0044%CO5,4854% 4,1923%WA5,1453% 6,3535%IL4,7253% 3,7923%VA3,1712% 3,1372%IA2,8152% 5,8054%WI2,5352% 2,8502%NV2,0911% 1,0381%NC1,0971% 1,0691%NM9871% 1,0461%OH9641% 17,30012%NE9561% 1,3961%SD8861% 395—%IN760—% 9371%MN577—% 1,2751%MT550—% 495—%FL550—% 1,5271%GA485—% 8801%ND433—% 80—%WV384—% 115—%OR376—% 368—%MD229—% 535—%Total$155,667100% $140,073100% (1)Due to the adoption of the new lease ASUs on January 1, 2019, the assessment of collectibility of our tenant receivables includes a binary assessment of whether or notsubstantially all of the amounts due under a tenant’s lease agreement are probable of collection. Tenant receivables written off for leases determined to be not probable ofcollection are recorded as decreases through rental income on our consolidated income statements. Additionally, tenant recoveries for real estate taxes are recognized tothe extent that we pay the third party directly and classified as rental income on our consolidated income statements. See Note 2, Summary of Significant AccountingPolicies for further details.ILFs Operated by CareTrust REIT:As of December 31, 2019, we owned and operated one ILF, Lakeland Hills Independent Living, located in Dallas, Texas, with 168 units. We also previouslyowned and operated two additional ILFs-The Cottages at Golden Acres, located in Dallas, Texas, with 39 units, and The Apartments at St. Joseph Villa, located inSalt Lake City, Utah, with 57 units. During the quarter ended December 31, 2019, we leased one ILF to Ensign concurrently with the Pennant Spin and sold oneILF to a third party, leaving us with one owned and operated ILF.Investment and Financing PoliciesOur investment objectives are to increase cash flow, provide quarterly cash dividends, maximize the value of our properties and acquire properties with cashflow growth potential. We intend to invest primarily in SNFs and seniors housing,10Table of Contentsincluding ALFs and ILFs, although we may determine in the future to expand our investments to include medical office buildings, long-term acute care hospitalsand inpatient rehabilitation facilities. Our properties are located in 28 states and we intend to continue to acquire properties in other states throughout the UnitedStates. Although our portfolio currently consists primarily of owned real property, future investments may include first mortgages, mezzanine debt and othersecurities issued by, or joint ventures with, REITs or other entities that own real estate consistent with our investment objectives.Our Competitive StrengthsWe believe that our ability to acquire, integrate and improve facilities is a direct result of the following key competitive strengths:Geographically Diverse Property Portfolio. Our properties are located in 28 different states, with concentrations in Texas, California and Louisiana. Theproperties in any one state do not account for more than 21% of our total beds and units as of December 31, 2019. We believe this geographic diversification willlimit 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 one ILF that we own and operate) are leased to our tenants under long-term,triple-net leases, pursuant to which the operators are responsible for all facility maintenance and repair, insurance required in connection with the leased propertiesand the business conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary orappropriate for the leased properties and the business conducted on the leased properties.Financially Secure Primary Tenant. Ensign is an established provider of healthcare services with strong financial performance and accounted for 38% ofour 2019 rental income, exclusive of operating expense reimbursements. Ensign is subject to the reporting requirements of the SEC and is required to file with theSEC annual 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 130 properties since the Spin-Off through December 31, 2019 and have increased total rentalrevenue from $41.2 million for the year ended December 31, 2013, the last full fiscal year prior to the Spin-Off, to $155.7 million for the year ended December 31,2019, which has resulted in a reduction in Ensign’s share of our rental revenues from 100% for the year ended December 31, 2013 to approximately 38% for theyear ended December 31, 2019, in each case exclusive of operating expense reimbursements and for the year ended December 31, 2019, excluding the propertiesleased to Pennant pursuant to the Pennant Master Lease that is guaranteed by Ensign. As a result of our management team’s operating experience and network ofrelationships and insight, we believe that we are able to identify and pursue working relationships with qualified local, regional and national healthcare providersand seniors housing operators. We expect to continue our disciplined focus on pursuing investment opportunities, primarily with respect to stabilized assets butalso some strategic investment in new and/or improving properties, while seeking dedicated and engaged operators who possess local market knowledge, havesolid operating records and emphasize quality services and outcomes. We intend to support these operators by providing strategic capital for facility acquisition,upkeep and modernization. Our management team’s experience gives us a key competitive advantage 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 and healthcareindustries. Mr. Stapley has more than 30 years of experience in the acquisition, development and disposition of real estate including healthcare facilities andoffice, retail and industrial properties, including nearly 15 years at Ensign where he was instrumental in assembling the portfolio that we now lease 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 15years of experience working extensively for REITs. Most notably, he worked for both Nationwide Health Properties, Inc., a healthcare REIT, and Sunstone HotelInvestors, Inc., a lodging REIT, serving as Senior Vice President and Chief Accounting Officer of each company prior to joining us as our Chief Financial Officer.David M. Sedgwick, our Chief Operating Officer, is a licensed nursing home administrator with more than 14 years of experience in skilled nursing operations,including turnaround operations, and trained over 100 Ensign nursing home administrators while he was Ensign’s Chief Human Capital Officer. Mark Lamb, ourChief Investment Officer, is a licensed nursing home administrator with more than six years serving as administrator of healthcare facilities for Plum Healthcareand North American Healthcare, Inc. and more than eight years serving in acquisition and portfolio management capacities for various entities. Our executiveshave years of public company experience, including experience accessing both debt and equity capital markets to fund growth and maintain a flexible capitalstructure.11Table of ContentsFlexible UPREIT Structure. We operate through an umbrella partnership, commonly referred to as an UPREIT structure, in which substantially all of ourproperties and assets are held through the Operating Partnership. Conducting business through the Operating Partnership will allow us flexibility in the manner inwhich we structure the acquisition of properties. In particular, an UPREIT structure enables us to acquire additional properties from sellers in exchange for limitedpartnership units, which provides property owners the opportunity to defer the tax consequences that would otherwise arise from a sale of their real properties andother assets to us. As a result, this structure allows us to acquire assets in a more efficient manner and may allow us to acquire assets that the owner wouldotherwise be unwilling to sell because of tax considerations.Business StrategiesOur primary goal is to create long-term stockholder value through the payment of consistent cash dividends and the growth of our asset base. To achieve thisgoal, we intend to pursue a business strategy focused on opportunistic acquisitions and property diversification. We also intend to further develop our relationshipswith tenants and healthcare providers with a goal to progressively expand the mixture of tenants managing and operating our properties.The key components of our business strategies include:Diversify Asset Portfolio. We diversify through the acquisition of new and existing facilities from third parties and the expansion and upgrade of currentfacilities and strategically investing in new developments with options to acquire the developments at stabilization. We employ what we believe to be a disciplined,opportunistic acquisition strategy with a focus on the acquisition of SNFs, ALFs and ILFs, and we may determine in the future to expand our acquisitions toinclude 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, unsecured debt and possibly secured mortgage debt, which, together with our anticipated ability tocomplete future equity financings, including issuances of our common stock via registered public offerings or under an at-the-market equity program, we expectwill fund the growth of our property portfolio.Develop New Tenant Relationships. We cultivate new relationships with tenants and healthcare providers in order to expand the mix of tenants operatingour properties and, in doing so, to reduce our dependence on Ensign. We expect that this objective will be achieved over time as part of our overall strategy toacquire new properties and further diversify our portfolio of healthcare properties.Provide Capital to Underserved Operators. We believe there is a significant opportunity to be a capital source to healthcare operators, through theacquisition and leasing of healthcare properties to them that are consistent with our investment and financing strategy at appropriate risk-adjusted rates of return,which, due to size and other considerations, are not a focus for larger healthcare REITs. We pursue acquisitions and strategic opportunities that meet our investingand financing strategy and that are attractively priced, including funding development of properties through preferred equity or construction loans and thereafterentering into sale and leaseback arrangements with such developers as well as other secured term financing and mezzanine lending. We utilize our managementteam’s operating experience, network of relationships and industry insight to identify both large and small quality operators in need of capital funding for futuregrowth. In appropriate circumstances, we may negotiate with operators to acquire individual healthcare properties from those operators and then lease thoseproperties back to the operators pursuant to long-term triple-net leases.Fund Strategic Capital Improvements. We support operators by providing capital to them for a variety of purposes, including capital expenditures andfacility modernization. We expect to structure these investments as either lease amendments that produce additional rents or as loans that are repaid by operatorsduring the applicable lease term.Pursue Strategic Development Opportunities. We work with operators and developers to identify strategic development opportunities. These opportunitiesmay involve replacing or renovating facilities that may have become less competitive. We also identify new development opportunities that present attractive risk-adjusted returns. We may provide funding to the developer of a property in conjunction with entering into a sale leaseback transaction or an option to enter into asale leaseback transaction for the property.12Table of ContentsCompetitionWe compete for real property investments with other REITs, investment companies, private equity and hedge fund investors, sovereign funds, pension funds,healthcare operators, lenders and other institutional investors. Some of these competitors are significantly larger and have greater financial resources and lowercosts of capital than us. Increased competition will make it more challenging to identify and successfully capitalize on acquisition opportunities that meet ourinvestment objectives. Our ability to compete is also impacted by national and local economic trends, availability of investment alternatives, availability and cost ofcapital, construction and renovation costs, existing laws and regulations, new legislation and population trends.In addition, revenues from our properties are dependent on the ability of our tenants and operators to compete with other healthcare operators. Healthcareoperators compete on a local and regional basis for residents and patients and their ability to successfully attract and retain residents and patients depends on keyfactors such as the number of facilities in the local market, the types of services available, the quality of care, reputation, age and appearance of each facility andthe cost of care in each locality. Private, federal and state payment programs and the effect of other laws and regulations may also have a significant impact on theability of our tenants and operators to compete successfully for residents and patients at the properties.EmployeesWe employ approximately 52 employees (including our executive officers), none of whom is subject to a collective bargaining agreement.Government Regulation, Licensing and EnforcementOverviewAs operators of healthcare facilities, tenants of our healthcare properties are typically subject to extensive and complex federal, state and local healthcarelaws and regulations relating to fraud and abuse practices, government reimbursement, licensure and certificate of need and similar laws governing the operation ofhealthcare facilities, and we expect that the healthcare industry, in general, will continue to face increased regulation and pressure in the areas of fraud, waste andabuse, cost control, healthcare management and provision of services, among others. These regulations are wide-ranging and can subject our tenants to civil,criminal and administrative sanctions. Affected tenants may find it increasingly difficult and costly to comply with this complex and evolving regulatoryenvironment because of a relative lack of guidance in many areas as certain of our healthcare properties are subject to oversight from several government agenciesand the laws may vary from one jurisdiction to another. Changes in laws and regulations and reimbursement enforcement activity and regulatory non-complianceby our tenants could have a significant effect on their operations and financial condition, which in turn may adversely affect us, as detailed below and set forthunder “Risk Factors - Risks Related to Our Business.”The following is a discussion of certain laws and regulations generally applicable to operators of our healthcare facilities and, in certain cases, to us.Fraud and Abuse EnforcementThere are various extremely complex federal and state laws and regulations governing healthcare providers’ relationships and arrangements and prohibitingfraudulent and abusive practices by such providers. These laws include, but are not limited to, (i) federal and state false claims acts, which, among other things,prohibit providers from filing false claims or making false statements to receive payment from Medicare, Medicaid or other federal or state healthcare programs,(ii) federal and state anti-kickback and fee-splitting statutes, including the Medicare and Medicaid anti-kickback statute, which prohibit the payment or receipt ofremuneration to induce referrals or recommendations of healthcare items or services, (iii) federal and state physician self-referral laws (including the federal lawcommonly referred to as the “Stark Law”), which generally prohibit referrals by physicians to entities with which the physician or an immediate family memberhas a financial relationship, and (iv) the federal Civil Monetary Penalties Law, which prohibits, among other things, the knowing presentation of a false orfraudulent claim for certain healthcare services. Violations of healthcare fraud and abuse laws carry civil, criminal and administrative sanctions, including punitivesanctions, monetary penalties, imprisonment, denial of Medicare and Medicaid reimbursement and potential exclusion from Medicare, Medicaid or other federal orstate healthcare programs. These laws are enforced by a variety of federal, state and local agencies and can also be enforced by private litigants through, amongother things, federal and state false claims acts, which allow private litigants to bring qui tam or “whistleblower” actions. Ensign and our other tenants are (andmany of our future tenants are expected to be) subject to these laws, and some of them may in the future become the subject of governmental enforcement actionsif they fail to comply with applicable laws.13Table of Contents•State and Federal “Fraud and Abuse” Laws and Regulations. The Medicare and Medicaid anti-fraud and abuse amendments to the Social SecurityAct (the “Anti-Kickback Law”) make it a felony, subject to certain exceptions, to engage in illegal remuneration arrangements with vendors,physicians and other health care providers for the referral of Medicare beneficiaries or Medicaid recipients. When a violation occurs, the governmentmay proceed criminally or civilly. 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 and mandatory exclusion from participation in all federal health care programs. If the government proceeds civilly, it mayimpose 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 from participation in all federal health care programs. Violations of the Anti-Kickback Statute also serve as a basis forfederal False Claims Act cases. Many states have enacted laws similar to, and in some cases broader than, the Anti-Kickback Law.The scope of prohibited payments in the Anti-Kickback Law is broad. The U. S. Department of Health and Human Services has promulgatedregulations which describe certain “safe harbor” arrangements that will not be deemed to constitute violations of the Anti-Kickback Law. Anarrangement that fits squarely into a safe harbor is immune from prosecution under the Anti-Kickback Statute. The safe harbors described in theregulations are narrow and do not cover a wide range of economic relationships which many SNFs, physicians and other health care providers considerto be legitimate business arrangements not prohibited by the statute. Because the regulations describe safe harbors and do not purport to describecomprehensively all lawful and unlawful economic arrangements or other relationships between health care providers and referral sources, health careproviders entering into these arrangements or relationships may be required to alter them in order to ensure compliance with the Anti-Kickback Lawand may be subject to significant liability should an arrangement that does not fully satisfy a safe harbor be determined to be illegal.•Restrictions on Referrals. The federal physician self-referral law and its implementing regulations (commonly referred to as the “Stark Law”)prohibits providers of “designated health services” from billing Medicare or Medicaid if the patient is referred by a physician (or his/her immediatefamily member) with a financial relationship with the entity, unless an exception applies. “Designated health services” include clinical laboratoryservices; physical therapy services; occupational therapy services; outpatient speech-language pathology; radiology services, including magneticresonance imaging, computerized axial tomography scans, and ultrasound services; radiation therapy services and supplies; durable medical equipmentand services; parenteral and enteral nutrients, equipment and services; prosthetics, orthotics, and prosthetic devices and supplies; home health services;outpatient prescription drugs; and inpatient and outpatient hospital services. The Stark Law also prohibits the furnishing entity from submitting a claimfor reimbursement or otherwise billing Medicare or any other person or entity for improperly referred designated health services. Many designatedhealth services are commonly provided in SNFs and ALFs.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 orentity that 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 possibleexclusion from participation in federal health care programs.CMS established a new voluntary self-disclosure program in 2017 under which health care facilities and other entities may report Stark violations andseek a reduction in potential refund obligations. However, the program is relatively new and therefore it is difficult to determine at this time whether itwill provide significant monetary relief to health care facilities that discover inadvertent Stark Law violations. Many states have adopted laws similarto the Stark Law. The scope of those laws vary.ReimbursementSources of revenue for our tenants include (and for our future tenants is expected to include), among other sources, governmental healthcare programs, suchas the federal Medicare program and state Medicaid programs, and non-governmental payors, such as insurance carriers and health maintenance organizations. Asfederal and state governments focus on healthcare reform initiatives, and as the federal government and many states face significant budget deficits, efforts toreduce costs by these payors will likely continue, which may result in reduced or slower growth in reimbursement for certain services provided by Ensign and ourother tenants. Federal and state authorities are likely to continue to implement new and modified reimbursement methodologies, including value-basedmethodologies, that could have a negative impact on our tenants. Such changes to reimbursement methodologies could have a material impact on our tenants andwe cannot provide assurances that the current revenue levels will be maintained under any future reimbursement arrangements. In addition, the impact of other14Table of Contentshealth care reform efforts, such as “Medicare for all”, are impossible to predict. See “Risk Factors - Risks Related to Our Business - The impact of healthcarereform legislation on us and our tenants cannot accurately be predicted.”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 reasonable suspicion of acrime committed against a resident of that facility. Those reports must be submitted to at least one law enforcement agency and the applicable Centers forMedicare & Medicaid Services (“CMS”) Survey Agency. Covered individuals who fail to report under Section 1150B are subject to various penalties, includingcivil monetary penalties of up to $300,000 and possible exclusion from participation in any Federal health care program. Medicare regulations require SNFs toestablish and implement written policies to ensure the reporting of crimes that occur in federally funded SNFs in accordance with Section 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 of potentialabuse or neglect of Medicare beneficiaries residing in SNFs are identified and reported. The report was issued in connection with the OIG’s ongoing review ofpotential 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 subject topenalties or other sanctions up to and including loss of licensure.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 operate SNFs, ALFs, and ILFs, dispense narcotics, operate pharmacies, handle radioactive materials and operate equipment.Many states require certain healthcare providers to obtain a certificate of need, which requires prior approval for the construction, modification and closure ofcertain healthcare facilities. The ability to obtain such approval and/or the approval process may impact some of our tenants’ abilities to expand or change theirbusinesses. Any failure to comply with any of these laws, regulations, or standards could result in penalties which may include loss or restriction of license, loss ofaccreditation, denial of reimbursement, imposition of fines, suspension or decertification from federal and state healthcare programs, or closure of the facility.Privacy, Security and Data Breach Notification LawsThe Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) regulates the privacy and security of certain health information(“Protected Health Information”) and requires entities subject to HIPAA to provide notification of breaches of Protected Health Information. Entities subject toHIPAA include health plans, healthcare clearinghouses, and most health care providers (including some of our tenants). Business associates of these entities whocreate, receive, maintain or transmit Protected Health Information are also subject to HIPAA. Violations of the HIPAA requirements may result in civil monetarypenalties of up to $50,000 per violation with a maximum civil penalty of $1.5 million in a calendar year for violations of the same requirement. However, a singlebreach or incident can result in violations of multiple requirements, resulting in possible penalties well in excess of $1.5 million. Breaches of unsecured ProtectedHealth Information and other violations of HIPAA may have other material adverse consequences including material loss of business, regulatory enforcement,substantial legal liability and reputational harm. Certain violations of HIPAA can result in criminal penalties and enforcement.Our Company and our tenants are subject to various other state and federal laws that relate to privacy, security and the reporting of data breaches involvingpersonal information. For example, various state laws and regulations may require notification of affected individuals in the event of a data breach involving socialsecurity numbers, dates of birth and credit card information. Failure to comply with such requirements could have a materially adverse effect on our Company andthe ability of our tenants to meet their obligations to us. Failure of our tenants to comply with HIPAA could have a material adverse effect on their ability to meettheir obligations to us. Furthermore, the adoption of new privacy, security and data breach notification laws at the federal and state level could require us or ourtenants to incur significant compliance costs.15Table of ContentsAmericans with Disabilities Act (the “ADA”)Although most of our properties are not required to comply with the ADA because of certain “grandfather” provisions in the law, some of our propertiesmust comply with the ADA and similar state or local laws to the extent that such properties are “public accommodations,” as defined in those statutes. These lawsmay require removal of barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. Under ourtriple-net lease structure, our tenants would generally be responsible for additional costs that may be required to make our facilities ADA-compliant.Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants.Environmental MattersA wide variety of federal, state and local environmental and occupational health and safety laws and regulations affect healthcare facility operations. Thesecomplex federal and state statutes, and their enforcement, involve a myriad of regulations, many of which involve strict liability on the part of the potentialoffender. Some of these federal and state statutes may directly impact us. Under various federal, state and local environmental laws, ordinances and regulations, anowner of real property, such as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connectionwith such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages for injuries to persons andadjacent property). The cost of any required remediation, removal, fines or personal or property damages and the owner’s liability therefore could exceed or impairthe value of the property and/or the assets of the owner. In addition, the presence of such substances, or the failure to properly dispose of or remediate suchsubstances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral which, in turn, could reduce ourrevenues. See “Risk Factors - Risks Related to Our Business - Environmental compliance costs and liabilities associated with real estate properties owned by usmay materially impair the value of those investments.”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 stockholders andthe concentration of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification and taxation as a REITunder the Code and that our manner of operation has and will enable us to continue to meet the requirements for qualification and taxation as a REIT.The Operating PartnershipWe own substantially all of our assets and properties and conduct our operations through the Operating Partnership. We believe that conducting businessthrough the Operating Partnership provides flexibility with respect to the manner in which we structure the acquisition of properties. In particular, an UPREITstructure enables us to acquire additional properties from sellers in tax deferred transactions. In these transactions, the seller would typically contribute its assets tothe Operating Partnership in exchange for units of limited partnership interest in the Operating Partnership (“OP Units”). Holders of OP Units will have the right,after a 12-month holding period, to require the Operating Partnership to redeem any or all of such OP Units for cash based upon the fair market value of anequivalent number of shares of CareTrust REIT’s common stock at the time of the redemption. Alternatively, we may elect to acquire those OP Units in exchangefor shares of our common stock on a one-for-one basis. The number of shares of common stock used to determine the redemption value of OP Units, and thenumber 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 owned subsidiary, CareTrust GP, LLC, which is thesole general partner of the Operating Partnership and owns one percent of its outstanding partnership interests. As of December 31, 2019, CareTrust REIT is theonly limited partner of the Operating Partnership, owning 99% of its outstanding partnership interests, and we have not issued OP Units to any other party.The benefits of our UPREIT structure include the following:•Access to capital. We believe the UPREIT structure provides us with access to capital for refinancing and growth. Because an UPREIT structureincludes a partnership as well as a corporation, we can access the markets through the Operating Partnership issuing equity or debt as well as thecorporation issuing capital stock or debt securities. Sources of capital include possible future issuances of debt or equity through public offerings orprivate placements.16Table of Contents•Growth. The UPREIT structure allows stockholders, through their ownership of common stock, and the limited partners, through their ownership ofOP Units, an opportunity to participate in future investments we may make in additional properties.•Tax deferral. The UPREIT structure provides property owners who transfer their real properties to the Operating Partnership in exchange for OP Unitsthe opportunity to defer the tax consequences that otherwise would arise from a sale of their real properties and other assets to us or to a third party. Asa result, this structure allows us to acquire assets in a more efficient manner and may allow us to acquire assets that the owner would otherwise beunwilling to sell because of tax considerations.InsuranceWe maintain, or require in our leases that our tenants maintain, all applicable lines of insurance on our properties and their operations. The amount and scopeof insurance coverage provided by our policies and the policies maintained by our tenants is customary for similarly situated companies in our industry. However,we cannot assure you that our tenants will maintain the required insurance coverages, and the failure by any of them to do so could have a material adverse effecton us. We also cannot assure you that we will continue to require the same levels of insurance coverage under our leases, including the Ensign Master Leases, thatsuch insurance will be available at a reasonable cost in the future or that the insurance coverage provided will fully cover all losses on our properties upon theoccurrence of a catastrophic event, nor can we assure you of the future financial viability of the insurers.Available 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 available ourreports on Form 10-K, 10-Q, and 8-K (as well as all amendments to these reports), and other information, free of charge, on the Investor Relations section of ourwebsite at www.caretrustreit.com. The information found on, or otherwise accessible through, our website is not incorporated by reference into, nor does it form apart of, this report or any other document that we file with the SEC.ITEM 1A.Risk FactorsRisks Related to Our BusinessWe are dependent on the healthcare operators that lease our properties to successfully operate their businesses and make payments to us under their leases,and an event that materially and adversely affects their business, financial position or results of operations could materially and adversely affect our business,financial position or results of operationsAll but one of our properties are operated by our tenants pursuant to triple-net master leases. As a result, we are unable to directly implement strategicbusiness decisions with respect to the daily operation and marketing of these properties. While we have various rights as the property owner under our triple-netleases and monitor our tenants’ and operators’ performance, we may have limited recourse under our master leases if we believe that a tenant or operator is notperforming adequately and any failure by a tenant to effectively conduct its operations or to maintain and improve our properties could adversely affect its businessreputation and its ability to attract and retain residents in our properties, which in turn, could adversely affect their ability to make rental payments to us andotherwise adversely affect our results of operations, including our ability to repay our outstanding indebtedness or our ability to pay dividends to our stockholdersas required to maintain our status as a REIT. Additionally, because each master 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 these leased properties and to indemnify, defend and hold us harmless from and against variousclaims, litigation and liabilities arising in connection with their business. There can be no assurance that our tenants will have sufficient assets, income and accessto financing to enable them to satisfy their payment or indemnification obligations under their leases with us.Ensign leases or provides a guaranty for a significant portion of our properties. As of December 31, 2019, properties leased to Ensign under the EnsignMaster Leases represented $53.4 million, or 32%, of our rental revenues, exclusive of operating expense reimbursements, on an annualized run-rate basis, andproperties leased to Pennant under the Pennant Master Lease for which Ensign provides a guaranty (the “Pennant Guaranty”) represented $7.8 million, or 5%, ofour rental revenues, exclusive of operating expense reimbursements, on an annualized run-rate basis. The inability or unwillingness of Ensign to meet its rentobligations under the Ensign Master Leases or the Pennant Guaranty could materially adversely affect our17Table of Contentsbusiness, financial position or results of operations. In addition, the inability of Ensign to satisfy its other obligations under its leases, such as the payment ofinsurance, taxes and utilities, could materially and adversely affect the condition of the properties leased to Ensign as well as Ensign’s business, financial positionand 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.Further, 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 ourrights under, or to terminate, the Ensign Master Leases or the Pennant Guaranty. Failure by Ensign to comply with the terms of the Ensign Master Leases or thePennant Guaranty, or to comply with federal and state healthcare laws and regulations to which the leased properties are subject could require us to find anotherlessee for such leased property and there could be a decrease in or cessation of rental payments. In such event, we may be unable to locate a suitable lessee atsimilar rental rates or at all, which would have the effect of reducing our rental revenues.The impact of healthcare reform legislation on us and our tenants cannot accurately be predicted and could adversely affect our results of operations.The healthcare operators to whom we lease our properties are dependent on the healthcare industry and may be susceptible to the risks associated withhealthcare reform. Because our properties are used as healthcare properties, we are impacted by the risks associated with healthcare reform. Legislative proposalsare introduced or proposed each year that would introduce major changes in the healthcare system, either nationally or at the state level. We cannot accuratelypredict whether any future legislative proposals will be adopted or, if adopted, what effect, if any, these proposals would have on our tenants and, thus, ourbusiness.The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “AffordableCare Act”) serves as the primary vehicle for comprehensive healthcare reform in the United States. Efforts by the presidential administration and certain membersof Congress to repeal or make significant changes to the Affordable Care Act, its implementation and/or its interpretation in 2017, including the successful repealof the penalty associated with the individual mandate of the Affordable Care Act, effective for 2019, have cast considerable uncertainty on the future of theAffordable Care Act. For example, on December 14, 2018, a U.S. District Court in Texas ruled the Affordable Care Act unconstitutional in its entirety. Thisdecision was appealed, and on December 18, 2019, the Fifth Circuit Court of Appeals ruled that the Affordable Care Act’s individual mandate wasunconstitutional but remanded the case for further analysis and it remains on appeal. This and other changes may impact the number of individuals that elect toobtain public or private health insurance or the scope of such coverage, if purchased. We anticipate Congress will continue to review and assess alternative healthcare delivery and payment systems and may in the future propose and adopt legislation effecting additional fundamental changes in the health care system. Forexample, some members of Congress have suggested expanding the coverage of government-funded programs, including single-payor models. At this time, it isuncertain whether 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’ residents do not have insurance, it could adversely impact thetenants’ ability to satisfy their obligation to us.Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted, which also may impact our business. For instance, onApril 1, 2014, President Obama signed the Protecting Access to Medicare Act of 2014, which, among other things, requires the CMS to measure, track, andpublish readmission rates of SNFs by 2017 and implement a value-based purchasing program for SNFs (the “SNF VBP Program”), which commenced October 1,2018. The SNF VBP Program increases Medicare reimbursement rates for SNFs that achieve certain levels of quality performance measures developed by CMS,relative to other facilities. The value-based payments authorized by the SNF VBP Program are funded by reducing Medicare payment for all SNFs by 2% andredistributing up to 70% of those funds to high-performing SNFs. However, there is no assurance that payments made by CMS as a result of the SNF VBPProgram will be sufficient to cover a facility’s costs. If Medicare reimbursement provided to our healthcare tenants is reduced under the SNF VBP Program, thatreduction 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”) model focusingon coordinated, patient-centered care. Under this model, the hospital in which the hip or knee replacement takes place is accountable for the costs and quality ofcare from the time of the surgery through 90 days after, or an “episode” of care. This model initially covered 67 geographic areas throughout the country and mosthospitals in those regions are required to participate. Following the implementation of the CJR program, the Medicare revenues of our SNF-operating tenantsrelated to lower extremity joint replacement hospital discharges could be increased or decreased in those geographic areas identified by CMS for mandatoryparticipation in the bundled payment program. If Medicare reimbursement provided to our healthcare tenants is reduced under the CJR model, or under any similarmodel implemented in the future for18Table of Contentsdifferent types of procedures, 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.The healthcare operators to whom we lease our properties are subject to complex federal, state and local laws and regulations relating to governmentalhealthcare reimbursement programs. See “Business - Government Regulation, Licensing and Enforcement - Overview.” As a result, our tenants are subject to thefollowing risks, among others:•statutory and regulatorychanges;•retroactive rateadjustments;•recovery of program overpayments or set-offs;•administrative rulings;•policy interpretations;•payment or other delays by fiscal intermediaries orcarriers;•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 andaudits.Healthcare reimbursement will likely continue to be a significant focus for federal and state authorities in their efforts to control costs. We cannot make anyassessment 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 amount ofreimbursement by government and other third-party payors. More generally, and because of the dynamic nature of the legislative and regulatory environment forhealth care products and services, and in light of existing federal budgetary concerns, we cannot predict the impact that broad-based, far-reaching legislative orregulatory changes could have on the U.S. economy, our business or that of our operators and tenants. The failure of any of our tenants to comply with these laws,requirements and regulations could materially and adversely affect their ability to meet their financial and contractual obligations to us.Government investigations and enforcement actions brought against the health care industry have increased dramatically over the past several years and areexpected to continue, particularly in the area of Medicare/Medicaid false claims, as well as an increase in the intensity of enforcement actions resulting from theseinvestigations. Some of these enforcement actions represent novel legal theories and expansions in the application of the False Claims Act.The False Claims Act provides that any person who “knowingly presents, or causes to be presented” a “false or fraudulent claim for payment or approval” tothe 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 the amount of damagessustained by the government. Under the False 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 also empowers and provides incentives to private citizens (commonly referred to as qui tam relator or whistleblower) to file suit on thegovernment’s behalf. The qui tam relator’s share of the recovery can be between 15% and 25% in cases in which the government intervenes, and 25% to 30% incases in which the government does not intervene. Notably, the Affordable Care Act amended certain jurisdictional bars to the False Claims Act, effectivelynarrowing the “public disclosure bar” (which generally requires that a whistleblower suit not be based on publicly disclosed information) and expanding the“original source” exception (which generally permits a whistleblower suit based on publicly disclosed information if the whistleblower is the original source ofthat publicly disclosed information), thus potentially broadening the field of potential whistleblowers.Medicare, Medicaid and other governmental health care payors require that extensive financial information be reported on a periodic basis and in a specificformat or content. These requirements are numerous, technical and complex and may not be fully understood or implemented by billing or reporting personnel.With respect to certain types of required information, the False Claims Act may be violated by mere negligence or recklessness in the submission of information tothe government even without any intent to defraud. New billing systems, new medical procedures and procedures for which there is not clear guidance may allresult in liability. In addition, violations of the Anti-Kickback Law or Stark Law may form the basis for a federal False Claims Act violation. See “Business -Government Regulation, Licensing and Enforcement.”Many states have adopted laws similar to the False Claims Act. Some of the laws apply to claims submitted to private and commercial payors, not justgovernmental payors. Any violations of such laws by an operator of a health care property could result in loss of accreditation, denial of reimbursement, impositionof fines, suspension or decertification from19Table of Contentsgovernment healthcare programs, civil liability, and in certain limited instances, criminal penalties, loss of license or closure of the property and/or the incurrenceof considerable costs arising from an investigation or regulatory action.If we or our tenants fail to adhere to applicable privacy and security laws, or experience a security incident or breach, this could have a material adverse effecton us or on our tenants’ ability to meet their obligations to us.HIPAA regulates the privacy and security of Protected Health Information, and requires entities subject to HIPAA to promptly notify affected individuals,regulators and in some cases the media, of breaches of Protected Health Information. Some of our tenants are subject to HIPAA.Violations of the HIPAA requirements may result in civil monetary penalties of up to $50,000 per violation with a maximum civil penalty of $1.5 million ina calendar year for violations of the same requirement. However, a single breach or incident can result in violations of multiple requirements, resulting in possiblepenalties well in excess of $1.5 million. Data breaches and other violations of HIPAA may have other material adverse consequences including material loss ofbusiness, regulatory enforcement, substantial legal liability and reputational harm. Certain violations of HIPAA can result in criminal penalties and enforcement.Failure of our tenants to comply with HIPAA could have a material adverse effect on their ability to meet their obligations to us.We and our tenants are subject to various other state and federal laws that relate to privacy, security and the reporting of data breaches involving personalinformation. For example, various state laws and regulations may require notification of affected individuals in the event of a data breach involving social securitynumbers, dates of birth and credit card information. Failure to comply with these and other requirements could have a materially adverse effect on our companyand the ability of our tenants to meet their obligations to us. Furthermore, the adoption of new privacy, security and data breach notification laws at the federal andstate level could require us or our tenants to incur significant compliance costs.While we and our tenants maintain various security controls, there remains a risk of security incidents or breaches resulting from unintentional or deliberateacts by third parties or insiders who attempt to obtain unauthorized access to information, destroy or manipulate data, or disrupt or sabotage information systems.A security incident or breach could result in a material loss of business, regulatory enforcement, substantial legal liability and reputational harm. Where theincident or breach affects a tenant, this could jeopardize the tenant’s ability to fulfill its obligations to us.Tenants that fail to comply with federal, state and local licensure, certification and inspection laws and regulations may cease to operate our healthcarefacilities or be unable to meet their financial and other contractual obligations to us.The healthcare operators to whom we lease properties are subject to extensive federal, state, local and industry-related licensure, certification and inspectionlaws, regulations and standards. Our tenants’ failure to comply with any of these laws, regulations or standards could result in penalties which may include loss orrestriction of license, loss of accreditation, denial of reimbursement, imposition of fines, suspension or decertification from federal and state healthcare programs,or closure of the facility. Though the regulatory environment in which SNFs operate is more restrictive than for ALFs, ALFs face similar penalties fornoncompliance with applicable legal requirements. For example, operations at our properties may require a license, registration, certificate of need, provideragreement or certification. Failure of any tenant to obtain, or the loss or imposition of restrictions on any required license, registration, certificate of need, provideragreement or certification would prevent a facility from operating in the manner intended by such tenant. Additionally, failure of our tenants to generally complywith applicable laws and regulations could adversely affect facilities owned by us, result in adverse publicity and reputational harm, and therefore could materiallyand adversely affect us. See “Business - Government Regulation, Licensing and Enforcement - Healthcare Licensure and Certificate of Need.”Our tenants depend on reimbursement from government and other third-party payors and if reimbursement rates from such payors are reduced by futurelegislative reform, it could cause our tenants’ revenues to decline and could affect their ability to meet their obligations to us.Sometimes, governmental payors freeze or reduce payments to healthcare providers, or provide annual reimbursement rate increases that are smaller thanexpected, due to budgetary and other pressures. Healthcare reimbursement will likely continue to be of significant importance to federal and state authorities. Forexample, the federal government and a number of states are currently managing budget deficits and, as a result, many states are focusing on the reduction ofexpenditures under their Medicaid programs, which may result in a freeze on Medicaid rates or a decrease in reimbursement rates for our tenants. The need tocontrol Medicaid expenditures may be exacerbated by the potential for increased enrollment in Medicaid due to unemployment and declines in family incomes.These potential reductions could be compounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement to our tenants underboth the Medicaid and Medicare20Table of Contentsprograms. While we cannot make any assessment as to the ultimate timing or the effect that any future legislative reforms may have on our tenants’ costs of doingbusiness and on the amount of reimbursement by government and other third-party payors, potential reductions in Medicaid and Medicare reimbursement, or innon-governmental third-party payor reimbursement, to our tenants could reduce the revenues of our tenants and their ability to meet their obligations to us.On November 12, 2019, CMS issued CMS-2393-P, its proposed Medicaid Fiscal Accountability Rule (“MFAR”). As proposed, MFAR would furtherregulate and in some cases materially reform, eliminate or prompt the replacement of certain state Medicaid supplemental payment systems and financingarrangements that currently benefit healthcare providers. These supplemental payment systems take various forms in the states where they are in effect, includingfor example provider or so-called “bed” tax arrangements, intergovernmental transfers (“IGT”) and upper payment limit (“UPL”) payments. Several of thehealthcare operators to whom we lease our properties benefit from these supplemental payment systems. The proposed MFAR is currently in a comment periodand may be changed before a final rule is adopted, or may not be adopted at all. If MFAR is adopted in a format that materially reduces available Medicaidreimbursement to our tenants, it could reduce our tenants’ revenues and their ability to meet 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 new tenants.We receive substantially all of our income as rental payments under leases of our properties. We have no control over the success or failure of our tenants’businesses and, at any time, any of our tenants may experience a downturn in its business that may weaken its financial condition. As a result, our tenants have inthe 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 a materialadverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders (which could adversely affectour ability to raise capital or service our indebtedness). This risk is magnified in situations where we lease multiple properties to a single tenant, such as Ensign, asa 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 write off unpaid amounts due to us from the tenant, move to a cash basismethod of accounting for recognizing rental revenues from the tenant or otherwise modify the lease with such tenant in ways that are unfavorable to 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 replacement tenant, hirethird-party managers to operate the property or sell the property. See Note 2, Summary of Significant Accounting Policies and Note 3, Real Estate Investments, Netfor further information.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 or betterterms 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 are favorableto us.If any lease expires or is terminated, we could be responsible for all of the operating expenses for that property until it is re-leased or sold. If we experience asignificant number of un-leased properties, our operating expenses could increase significantly. Any significant increase in our operating costs may have a materialadverse effect on our business, financial condition and results of operations, and our ability to make distributions to our stockholders.If one or more of our tenants files for bankruptcy relief, the U.S. Bankruptcy Code provides that a debtor has the option to assume or reject the unexpiredlease within a certain period of time. Any bankruptcy filing by or relating to one of our tenants could bar all efforts by us to collect pre-bankruptcy debts from thattenant or seize its property. A tenant bankruptcy could also delay our efforts to collect past due balances under the leases and could ultimately preclude collectionof all or a portion of these sums. It is possible that we may recover substantially less than the full value of any unsecured claims we hold, if any, which may have amaterial adverse effect on our business, financial condition and results of operations, and our ability to make distributions to our stockholders. Furthermore,dealing with a tenant’s bankruptcy or other default may divert management’s attention and cause us to incur substantial legal and other costs. Additionally, becausewe lease many of our properties to healthcare providers who provide long-term custodial care to the elderly, evicting operators for failure to pay rent while theproperty is occupied typically involves specific procedural or regulatory requirements and may not be successful. Even if eviction is possible, we may determinenot to do so due to reputational or other risks.21Table of ContentsIf 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 or operator.Rental payments on such properties could decline or cease altogether while we reposition the properties with a suitable replacement tenant or operator and we maybe required to fund certain expenses and obligations (e.g., real estate taxes, debt costs and maintenance expenses) to preserve the value of, and avoid the impositionof liens on, such properties while they are being repositioned.Healthcare facilities are typically highly customized and may not be easily adapted to non-healthcare-related uses. The improvements generally required toconform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure and security, are costly and at times tenant-specific. A new orreplacement tenant to operate one or more of our healthcare facilities may require different features in a property, depending on that tenant’s particular operations.If a current tenant is unable to pay rent and vacates a property, we may incur substantial expenditures to modify a property before we are able to secure anothertenant. Also, if the property needs to be renovated to accommodate multiple tenants, we may incur substantial expenditures 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 our business, financial condition or results of operations. In addition, we mayfail to identify suitable replacements or enter into leases or other arrangements with new tenants or operators on a timely basis or on terms as favorable to us as ourcurrent leases, if at all. Once a suitable replacement tenant or operator has taken over operation of a property, it may still take an extended period of time beforesuch property is fully repositioned and value restored, if at all. Any of these results could have a material adverse effect on our business, financial condition andresults of operations and our ability to make distributions to stockholders.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 28 different states, with our highest concentrations by rental income in California, Texas and Louisiana. The properties in thesethree states accounted for approximately 18%, 21% and 5%, respectively, of the total beds and units in our portfolio, as of December 31, 2019 and approximately23%, 21% and 10%, respectively, of our rental income for the year ended December 31, 2019. As a result of this concentration, the conditions of local economiesand real estate markets, including increases in real estate taxes, changes in governmental rules, regulations and reimbursement rates or criteria, changes indemographics, state funding, acts of nature and other factors that may result in a decrease in demand and/or reimbursement for skilled nursing services in thesestates could have a disproportionately adverse effect on our tenants’ revenue, costs and results of operations, which may affect their ability to meet theirobligations to us.Our facilities located in Texas and Louisiana are especially susceptible to natural disasters such as hurricanes, tornadoes and flooding, and our facilitieslocated in California are particularly susceptible to natural disasters such as fires, earthquakes and mudslides. These acts of nature may cause disruption to ourtenants, 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,our tenants are dependent on consistent and reliable delivery of food, pharmaceuticals, utilities and other goods to our facilities, and the availability of employeesto provide services at the facilities. If the delivery of goods or the ability of employees to reach our facilities is interrupted in any material respect due to a naturaldisaster or other reasons, it would have a significant impact on our facilities and our tenants’ businesses at those facilities. Furthermore, the impact, or impendingthreat, of a natural disaster may require that our tenants evacuate one or more facilities, which would be costly and would involve risks, including potentially fatalrisks, for the patients at such facilities. The impact of disasters and similar events is inherently uncertain. Such events could harm our tenants’ patients andemployees, severely damage or destroy one or more of our facilities, harm our tenants’ business, reputation and financial performance, or otherwise cause ourtenants’ businesses to suffer in ways that we currently cannot predict.In addition, to the extent that significant changes in the climate occur in areas where our properties are located, we may experience extreme weather andchanges in precipitation and temperature, all of which may result in physical damage to or a decrease in demand for properties located in these areas or affected bythese conditions. Should the impact of climate change be material in nature, including destruction of our properties, or occur for lengthy periods of time, ourfinancial condition or results of operations may be adversely affected. In addition, changes in federal and state legislation and regulation on climate change couldresult in increased capital expenditures to improve the energy efficiency of our existing properties and could also require us to spend more on our newdevelopment properties without a corresponding increase in revenue.22Table of ContentsWe pursue acquisitions of additional properties and seek other strategic opportunities in the ordinary course of our business, which may result in the use of asignificant amount of management resources or significant costs, and we may not fully realize the potential benefits of such transactions.We regularly review potential transactions in order to maximize stockholder value. We pursue acquisitions of additional properties and seek acquisitions andother strategic opportunities in the ordinary course of our business. Accordingly, we are often engaged in evaluating potential transactions and other strategicalternatives. In addition, from time to time, we engage in discussions that may result in one or more transactions. Although there is uncertainty that any of thesediscussions will result in definitive agreements or the completion of any transaction, we may devote a significant amount of our management resources to such atransaction, which could negatively impact our operations. We may incur significant costs in connection with seeking acquisitions or other strategic opportunitiesregardless of whether the transaction is completed and in combining our operations if such a transaction is completed. In addition, there is no assurance that we willfully realize the potential benefits of any past or future acquisition or strategic transaction.Additionally, from time to time, we may invest in preferred equity interests in joint ventures. Our use of joint ventures may be subject to risks that may notbe present with other ownership methods. Our joint ventures may involve property development, which presents additional risks that could render a developmentproject less profitable or not profitable at all and, under certain circumstances, may prevent completion of development activities once undertaken.We operate in a highly competitive industry and face competition from other REITs, investment companies, private equity and hedge fund investors,sovereign funds, healthcare operators, lenders and other investors, some of whom are significantly larger and have greater resources and lower costs of capital.Increased competition will make it more challenging to identify and successfully capitalize on acquisition opportunities that meet our investment objectives. If wecannot identify and purchase a sufficient quantity of suitable properties at favorable prices or if we are unable to finance acquisitions on commercially favorableterms, or at all, our business, financial position or results of operations could be materially and adversely affected. Furthermore, any future acquisitions mayrequire the issuance of securities, the incurrence of debt, assumption of contingent liabilities or incurrence of significant expenditures, each of which couldmaterially adversely impact our business, financial condition or results of operations. Additionally, the fact that we must distribute 90% of our REIT taxableincome in order to maintain our qualification as a REIT may limit our ability to rely upon rental payments from our leased properties or subsequently acquiredproperties in order to finance acquisitions. As a result, if debt or equity financing is not available on acceptable terms, further acquisitions might be limited orcurtailed. 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 ability and theability of our tenants to compete with other tenants and operators on a number of different levels, including the quality of care provided, reputation, the physicalappearance of a facility, price, the range of services offered, family preference, amenities, alternatives for healthcare delivery, the supply of competing properties,physicians, staff, referral sources, location, and the size and demographics of the population in the surrounding area. In addition, our tenants face an increasinglycompetitive labor market for skilled management personnel and nurses together with Medicaid reimbursement in some states that does not cover the full cost ofcaring for residents. Significant turnover, or a shortage of nurses or other trained personnel or general inflationary pressures on wages, may force tenants toenhance pay and benefits packages to compete effectively for skilled personnel, or to use more expensive contract personnel, but they be unable to offset theseadded costs by increasing the rates charged to residents. Any increase in labor costs and other property operating expenses or any failure by our tenants to attractand retain qualified personnel could reduce the revenues of our tenants and their ability to meet their obligations to us.Our tenants also compete with numerous other companies providing similar healthcare services or alternatives such as home health agencies, life care athome, community-based service programs, retirement communities and convalescent centers. We cannot be certain that our tenants will be able to achieveoccupancy and rate levels, or manage their expenses, in a way that will enable them to meet all of their obligations to us. Further, many competing companies mayhave resources and attributes that are superior to those of our tenants. They may encounter increased competition that could limit their ability to maintain or attractresidents or expand their businesses or to manage their expenses, either of which could adversely affect their ability to meet their obligations to us, potentiallydecreasing our revenues, impairing our assets, and/or increasing our collection and dispute costs.23Table of ContentsIn addition, if development of senior housing facilities outpaces demand for those assets in markets in which we are located, those markets may becomesaturated and our senior housing tenants and operators could experience decreased occupancy, which may affect their ability to meet their financial and othercontractual obligations to us.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 orapproved as providers under the Medicare and/or Medicaid programs. Prior to the transfer of the operations of such healthcare properties to successor operators, thenew operator generally must become licensed under state law and, in certain states, receive change of ownership approvals under certificate of need laws (whichprovide for a certification that the state has made a determination that a need exists for the beds located on the property) and, if applicable, file for a Medicare andMedicaid change of ownership (commonly referred to as a CHOW). If an existing lease is terminated or expires and a new tenant is found, then any delays in thenew tenant receiving regulatory approvals from the applicable federal, state or local government agencies, or the inability to receive such approvals, may prolongthe period during which we are unable to collect the applicable rent and the property may experience performance declines. We could also incur substantialadditional expenses in connection with any licensing, receivership or change of ownership proceedings.We may not be able to sell properties when we desire because real estate investments are relatively illiquid, which could materially and adversely affect ourbusiness, financial position or results of operations.Real estate investments generally cannot be sold quickly. As a result, we may not be able to vary our portfolio promptly in response to changes in the realestate market. 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 property orportfolio of properties. These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties couldmaterially and adversely affect our business, financial position or results of operations and our ability to pay dividends and make distributions.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, skill, reputation, business contacts and performance of our executive management team, particularlyGregory K. Stapley and other key employees. If we lose the services of Mr. Stapley or any of our other key employees, we may not be able to successfully manageour business or achieve our 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 expenses.Our lease agreements with operators require that the tenant maintain general and professional liability insurance and comprehensive liability and hazardinsurance. We maintain customary insurance for the one ILF that we own and operate. However, there are certain types of losses (including, but not limited to,losses arising from environmental conditions or of a catastrophic nature, such as earthquakes, wildfires, hurricanes and floods) that may be uninsurable or noteconomically insurable. In addition, from time to time insurance markets change, with carriers entering or exiting the general and professional liability, propertyand casualty, business interruption, employment practices and other lines of insurance for the healthcare industry upon which our tenants rely for protection fromthe effects of accidents or unanticipated claims, sometimes resulting in premium increases that make procuring customary coverages uneconomical. Insurancecoverage may not be sufficient to pay the full current market value or current replacement cost of a loss. Inflation, changes in tort liability laws, changes in buildingcodes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to protect a tenant in a liability claimor replace a property after such property has been damaged or destroyed. Under such circumstances, the insurance proceeds received might not be adequate torestore the economic position with respect to such tenant or property.If one of our tenants experiences a material general or professional liability loss that is uninsured or that exceeds policy coverage limits, it may be unable tosatisfy its payment obligations to us under its lease with us. If one of our properties experiences a loss that is uninsured or that exceeds policy coverage limits, wecould lose the capital invested in the damaged property as well as the anticipated future cash flows from the property. If the damaged property is subject to recourseindebtedness, we could continue to be liable for the indebtedness even if the property is irreparably damaged.24Table 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 revenue for ourtenants or us. Any business interruption insurance may not fully compensate them or us for such loss of revenue. If one of our tenants experiences such a loss, itmay be unable to satisfy its payment obligations to us under its lease with us.Environmental compliance costs and liabilities associated with real estate properties owned by us may materially impair the value of those investments.Under various federal, state and local laws, ordinances and regulations, as a current or previous owner of real estate, we may be required to investigate andclean up certain hazardous or toxic substances or petroleum released at a property, and may be held liable to a governmental entity or to third parties for propertydamage and for investigation and cleanup costs incurred by the third parties in connection with the contamination. In addition, some environmental laws create alien on the contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination. Neither we nor our tenants carryenvironmental insurance on our properties. Although we generally require our tenants, as operators of our healthcare properties, to indemnify us for environmentalliabilities they cause, such liabilities could exceed the financial ability of the tenant to indemnify us or the value of the contaminated property. The presence ofcontamination or the failure to remediate contamination may materially adversely affect our ability to sell or lease the real estate or to borrow using the real estateas collateral. As the owner of a site, we may also be held liable to third parties for damages and injuries resulting from environmental contamination emanatingfrom the site. Although we will be generally indemnified by our tenants for contamination caused by them, these indemnities may not adequately cover allenvironmental costs. We may also experience environmental liabilities arising from conditions not known to us.The ownership by our chief executive officer, Gregory K. Stapley, of shares of Ensign and Pennant common stock may create, or may create the appearanceof, conflicts of interest.Because of his former position with Ensign, our chief executive officer, Gregory K. Stapley, owns shares of Ensign common stock. Mr. Stapley also ownsshares of our common stock. In 2019, in connection with the Pennant Spin, each holder of Ensign common stock received one half share of Pennant common stockper share of Ensign common stock. As a result, Mr. Stapley now also owns shares of Pennant common stock. His individual holdings of shares of our commonstock, Ensign common stock and Pennant common stock may be significant compared to his respective total assets. These equity interests may create, or appear tocreate, conflicts of interest when he is faced with decisions that may not benefit or affect CareTrust REIT, Ensign or Pennant 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 harm ourbusiness.We rely on information technology networks and systems, including the internet, to process, transmit and store electronic information, and to manage orsupport a variety of business processes, including financial transactions and records, and maintaining personal identifying information and tenant and lease data.We purchase some of our information technology from vendors, on whom our systems depend. We rely on commercially available systems, software, tools andmonitoring to provide security for the processing, transmission and storage of confidential tenant and customer data, including individually identifiable informationrelating to financial accounts. Although we have taken steps to protect the security of our information systems, we have, from time to time, experienced threats toour data and systems, including malware and computer virus attacks and it is possible that in the future our safety and security measures will not prevent thesystems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Inaddition, due to the fast pace and unpredictability of cyber threats, long-term implementation plans designed to address cybersecurity risks become obsoletequickly.Security breaches, including physical or electronic break-ins, computer viruses, malware, works, attacks by hackers or foreign governments, disruptions fromunauthorized access and tampering (including through social engineering such as phishing attacks), coordinated denial-of-service attacks, impersonation ofauthorized users 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 world haveincreased. 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. Any failure tomaintain proper function, security and availability of our information systems and the data maintained in those systems could interrupt our operations, damage ourreputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results ofoperations.25Table of ContentsOur assets have been subject to impairment charges in the past and may be subject to future impairment charges, which could negatively impact our results ofoperations.At each reporting period, we evaluate our real estate investments and other assets for impairment indicators whenever events or changes in circumstancesindicate that the carrying amount of the assets may not be recoverable. The judgment regarding the existence of impairment indicators is based on factors such asmarket conditions, operator performance and legal structure. If we determine that an impairment has occurred, we are required to make an adjustment to the netcarrying 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. For example, in thethree months ended September 30, 2019, we recorded impairment charges of approximately $16.7 million, resulting in a net loss of $10.1 million for the quarter.Such impairment charges may make it more difficult for us to meet the financial ratios in our Amended Credit Agreement and may reduce the borrowing baseavailable to us under our Revolving Facility, which may reduce the amounts of cash we would otherwise have available to pay expenses, service otherindebtedness and operate our business.We have now, and may have in the future, exposure to contingent rent escalators, which could hinder our profitability and growth. 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 with annualrent escalations, subject to certain limitations. Almost all of our leases contain escalators contingent on changes in the Consumer Price Index, subject to maximumfixed percentages. If the Consumer Price Index does not increase, our revenues may not increase. In addition, if economic conditions result in significant increasesin 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. federal incometax 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. We received anopinion of our counsel with respect to our qualification as a REIT in connection with the Spin-Off. Investors should be aware, however, that opinions of advisorsare not binding on the IRS or any court. The opinion of our counsel represents only the view of our counsel based on its review and analysis of existing law and oncertain representations as to factual matters and covenants made by us, including representations relating to the values of our assets 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 our securities of any subsequent change in thematters stated, represented or assumed or of any subsequent change in applicable law. Furthermore, both the validity of the opinion of our counsel and ourqualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on acontinuing basis, the results of which will not be monitored by our counsel. Our ability to satisfy the asset tests depends upon our analysis of the characterizationand fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals.If we were to fail to qualify to be taxed as a REIT in any taxable year, we would be subject to U.S. federal income tax, including any applicable alternativeminimum tax, on our taxable income at regular corporate rates, and dividends paid to our stockholders would not be deductible by us in computing our taxableincome. Any resulting corporate liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which in turncould have an adverse impact on the value of our common stock. Unless we were entitled to relief under certain Code provisions, we also would be disqualifiedfrom re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT, which could adverselyaffect our financial condition and results of operations.Qualifying as a REIT involves highly technical and complex provisions of the Code.Qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrativeauthorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Our qualification as a REIT will depend on our satisfaction ofcertain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. In addition, our ability to satisfy therequirements to qualify to be taxed as a REIT may depend in part on the actions of third parties over which we have no control or only limited influence.26Table of ContentsLegislative or other actions affecting REITs could have a negative effect on us.The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S.Department of the Treasury (the “Treasury”). Changes to the tax laws or interpretations thereof, with or without retroactive application, could materially andadversely affect our investors or us. We cannot predict how changes in the tax laws, including any tax reform called for by the new presidential administration,might affect our investors or us. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affectour 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.On 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 tax rulesfor taxation of individuals and corporations, generally effective for taxable years beginning after December 31, 2017. Most of the changes applicable to individualsare temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026. The Tax Cuts and Jobs Act makes numerous largeand 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 provisions in theCode are complex and lack developed administrative guidance. As a result, the impact of certain aspects of these new rules on us and our stockholders is currentlyunclear. Technical corrections or other amendments to these rules, and administrative guidance interpreting the new rules, may be forthcoming at any time or maybe significantly delayed. No prediction can be made regarding whether new legislation or regulation (including new tax measures) will be enacted by legislativebodies or governmental agencies, nor can we predict what consequences would result from this legislation or regulation. Accordingly, no assurance can be giventhat the currently anticipated tax treatment of an investment will not be modified by legislative, judicial or administrative changes, 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 the leasesare not respected as true leases for U.S. federal income tax purposes and are instead treated as service contracts, joint ventures or some other type of arrangement.If the leases are not respected as true leases for U.S. federal income tax purposes, we will likely fail to qualify to be taxed as a REIT.In addition, subject to certain exceptions, rents received or accrued by us from our tenants will not be treated as qualifying rent for purposes of theserequirements if we or a beneficial or constructive owner of 10% or more of our stock beneficially or constructively owns 10% or more of the total combined votingpower of all classes of stock entitled to vote or 10% or more of the total value of all classes of stock. CareTrust REIT’s charter provides for restrictions onownership and transfer of CareTrust REIT’s shares of stock, including restrictions on such ownership or transfer that would cause the rents received or accrued byus from our tenants to be treated as non-qualifying rent for purposes of the REIT gross income requirements. Nevertheless, there can be no assurance that suchrestrictions will be effective in ensuring that rents received or accrued by us from our tenants will not be treated as qualifying rent for purposes of REITqualification 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 taxable yearsbeginning after December 31, 2017 and before January 1, 2026, under the recently enacted Tax Cuts and Jobs Act, noncorporate taxpayers may deduct up to 20%of certain qualified business income, including "qualified REIT dividends" (generally, dividends received by a REIT shareholder that are not designated as capitalgain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on suchincome. Although these rules do not adversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends, togetherwith the recently reduced corporate tax rate (currently, 21%), 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 of REITs,including our stock. Although these rules do not27Table of Contentsadversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trustsand estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, whichcould adversely affect the value of the stock of REITs, including our stock.REIT distribution requirements could adversely affect our ability to execute our business plan.We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excludingany net capital gains, in order for us to qualify to be taxed as a REIT (assuming that certain other requirements are also satisfied) so that U.S. federal corporateincome tax does not apply to earnings that we distribute. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT but distributeless than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, we will be subject toU.S. federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amountthat we distribute to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal income tax laws. We intend to makedistributions to our stockholders to comply with the REIT requirements of the Code.Our funds from operations are generated primarily by rents paid under leases with our tenants. From time to time, we may generate taxable income greaterthan our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible capitalexpenditures, the creation of reserves or required debt or amortization payments. If we do not have other funds available in these situations, we could be requiredto borrow funds on unfavorable terms, sell assets at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions in order tomake distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid being subject tocorporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity.Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.Even if we remain qualified for taxation as a REIT, we may be subject to certain U.S. federal, state, and local taxes on our income and assets, including taxeson any undistributed income and state or local income, property and transfer taxes. For example, we may hold some of our assets or conduct certain of ouractivities through one or more taxable REIT subsidiaries (each, a “TRS”) or other subsidiary corporations that will be subject to U.S. federal, state, and localcorporate-level income taxes as regular C corporations. In addition, we may incur a 100% excise tax on transactions with a TRS if they are not conducted on anarm’s-length basis. Any of these taxes would decrease cash available for distribution to our stockholders.Complying with REIT requirements may cause us to forgo otherwise attractive acquisition opportunities or liquidate otherwise attractive investments.To qualify to be taxed as a REIT for U.S. federal income tax purposes, we must ensure that, at the end of each calendar quarter, at least 75% of the value ofour assets consists of cash, cash items, government securities and “real estate assets” (as defined in the Code). The remainder of our investments (other thangovernment securities, qualified real estate assets and securities issued by a TRS) generally cannot include more than 10% of the outstanding voting securities ofany one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our totalassets (other than government securities, qualified real estate assets and securities issued by a TRS) can consist of the securities of any one issuer, and no more than25% (20% for taxable years beginning after December 31, 2017) of the value of our total assets can be represented by securities of one or more TRSs. Further, fortaxable years beginning after December 31, 2015, no more than 25% of the value of our total assets may be represented by “nonqualified publicly offered REITdebt instruments” (as defined in the Code). If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse taxconsequences. As a result, we may be required to liquidate or forgo otherwise attractive investments. These actions could have the effect of reducing our incomeand amounts available for distribution to our stockholders.In addition to the asset tests set forth above, to qualify to be taxed as a REIT we must continually satisfy tests concerning, among other things, the sources ofour income, the amounts we distribute to our stockholders and the ownership of our stock. We may be unable to pursue investments that would be otherwiseadvantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying as a REIT. Thus, compliance with the REITrequirements may hinder our ability to make certain attractive investments.28Table of ContentsComplying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Income from certain hedging transactions that we mayenter into to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets does not constitute “grossincome” for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met. For taxable yearsbeginning after December 31, 2015, income from new transactions entered into to hedge the income or loss from prior hedging transactions, where theindebtedness or property which was the subject of the prior hedging transaction was extinguished or disposed of, will not constitute gross income for purposes ofthe 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions or fail to properly identify such transaction as a hedge, theincome is likely to be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may be required to limit ouruse of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because the TRS may besubject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in the TRSwill generally not provide any tax benefit, 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 of theexcess 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 to asbuilt-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 its characteras ordinary income or capital gain and will be taken into account in determining REIT taxable income and our distribution requirement. Any tax on the recognizedbuilt-in gain will reduce REIT taxable income. We may choose not to sell in a taxable transaction appreciated assets we might otherwise sell during the period inwhich the built-in gain tax applies in order to avoid the built-in gain tax. However, there can be no assurances that such a taxable transaction will not occur. If wesell such assets in a taxable transaction, the amount of corporate tax that we will pay will vary depending on the actual amount of net built-in gain or loss present inthose 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 effect on ourdistributable cash flow.In order to qualify as a REIT, a REIT cannot have at the end of any REIT taxable year any undistributed earnings and profits (“E&P”) that are attributable toa C-corporation taxable year. A REIT that has non-REIT accumulated earnings and profits has until the close of its first full tax year as a REIT to distribute suchearnings and profits. Failure to meet this requirement would result in CareTrust REIT’s disqualification as a REIT. In connection with the Company’s intention toqualify as a real estate investment trust, on October 17, 2014, the Company’s board of directors declared the Special Dividend to distribute the amount ofaccumulated E&P allocated to the Company as a result of the Spin-Off. The amount of the Special Dividend was $132.0 million, or approximately $5.88 percommon share. It was paid on December 10, 2014, to stockholders of record as of October 31, 2014, in a combination of both cash and stock. The cash portiontotaled $33.0 million and the stock portion totaled $99.0 million. The Company issued 8,974,249 shares of common stock in connection with the stock portion ofthe 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 less thancomplete information or the application of the law governing earnings and profits, which is subject to differing interpretations, or both. Consequently, there aresubstantial uncertainties relating to the estimate of CareTrust REIT’s non-REIT earnings and profits, and we cannot be assured that the earnings and profitsdistribution requirement has been met. These uncertainties include the possibility that the IRS could upon audit, as discussed above, increase the taxable income ofCareTrust REIT, which would increase the non-REIT earnings and profits of CareTrust REIT. There can be no assurances that we have satisfied the requirement.29Table of ContentsRisks Related to Our Capital StructureWe have substantial indebtedness and we have the ability to incur significant additional indebtedness.On February 8, 2019, the Operating Partnership, as the borrower, the Company, as guarantor, CareTrust GP, LLC, and certain of the Operating Partnership’swholly owned subsidiaries entered into an amended and restated credit and guaranty agreement with KeyBank National Association, as administrative agent, anissuing bank and swingline lender, and the lenders party thereto (the “Amended Credit Agreement”). The Amended Credit Agreement provides for: (i) anunsecured revolving credit facility (the “New Revolving Facility”) with revolving commitments in an aggregate principal amount of $600.0 million, including aletter of credit subfacility for 10% of the then available revolving commitments and a swingline loan subfacility for 10% of the then available revolvingcommitments and (ii) a $200.0 million unsecured term loan credit facility (the “Term Loan” and together with the New Revolving Facility, the “Amended CreditFacility”). As of December 31, 2019, we had approximately $560.0 million of indebtedness, consisting of $300.0 million representing our 5.25% Senior Notes due2025 (the “Notes”), $200.0 million under our Term Loan and $60.0 million in 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 acquisitions and other general corporate purposes;•require us to maintain certain debt coverage and other financial ratios at specified levels, thereby reducing our financialflexibility;•make it more difficult for us to satisfy our financial obligations, including the Notes and borrowings under the Amended CreditFacility;•increase our vulnerability to general adverse economic and industry conditions or a downturn in ourbusiness;•expose us to increases in interest rates for our variable ratedebt;•limit, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds on favorable terms or at all toexpand our business or ease liquidity constraints;•limit our ability to refinance all or a portion of our indebtedness on or before maturity on the same or more favorable terms or atall;•limit our flexibility in planning for, or reacting to, changes in our business and ourindustry;•place us at a competitive disadvantage relative to competitors that have lessindebtedness;•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 other restrictivecovenants contained in the indenture governing the Notes or the Amended Credit Agreement, which event of default could result in all of our debtbecoming immediately due and payable and could permit certain of our lenders to foreclose on our assets securing such debt.In addition, the Amended Credit Agreement 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 and the indenture governing the Notes. See “Risk Factors -Risks Related to Our Capital Structure - Covenants in our debt agreements restrict our activities and could adversely affect our business” for a summary of thesecovenants.We may be unable to service our indebtedness.Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our future financial and operating performance,which in turn is affected by general and regional economic, financial, competitive, business and other factors beyond our control, including the availability offinancing in the international banking and capital30Table of Contentsmarkets. Our business may fail to generate sufficient cash flow from operations or future borrowings may be unavailable to us under the Amended Credit Facilityor from other sources in an amount sufficient to enable us to service our debt, to refinance our debt or to fund our other liquidity needs. If we are unable to meetour debt obligations or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt. We may be unable to refinance any ofour debt on commercially reasonable terms or at all. If we were unable to make payments or refinance our debt or obtain new financing under these circumstances,we would have to consider other options, such as asset sales, equity issuances and/or negotiations with our lenders to restructure the applicable debt. The AmendedCredit Agreement and the indenture governing the Notes restrict, and market or business conditions may limit, our ability to take some or all of these actions. Anyrestructuring or refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could furtherrestrict our business operations. In addition, the Amended Credit Agreement and the indenture governing the Notes permit us to incur additional debt, includingsecured debt, subject to the satisfaction of certain conditions.We rely on our subsidiaries for our operating funds.We conduct our operations through subsidiaries and depend on our subsidiaries for the funds necessary to operate and repay our debt obligations. Each ofour 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 to transferfunds to us could be restricted by the terms of subsequent financings and the indenture governing the Notes.Covenants in our debt agreements restrict our activities and could adversely affect our business.Our debt agreements contain various covenants that limit our ability and the ability of our subsidiaries to engage in various transactions including, asapplicable:•incurring or guaranteeing additional secured and unsecured debt;•creating liens on our and our subsidiaries’ 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 our business orcompeting effectively. The Amended Credit Agreement requires us to comply with financial maintenance covenants to be tested quarterly, consisting of amaximum debt to asset value ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating incomeratio, a maximum secured debt to asset value ratio, a maximum secured recourse debt to asset value ratio, a maximum unsecured debt to unencumbered propertiesasset value ratio, a minimum unsecured interest coverage ratio and a minimum rent coverage ratio. The Amended Credit Agreement also contains certaincustomary events of default, including the failure to make timely payments under the Amended Credit Facility or other material indebtedness, the failure to satisfycertain covenants (including the financial maintenance covenants), the occurrence of change of control and specified events of bankruptcy and insolvency. We arealso required to maintain total unencumbered assets of at least 150% of our unsecured indebtedness under the indenture governing the Notes. Our ability to meetthese requirements may be affected by events beyond our control, and we may not meet these31Table of Contentsrequirements. 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 oramend the covenants.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 inthe future we may incur additional indebtedness in connection with the entry into new credit facilities or the financing of any acquisition or development activity. Ifinterest rates increase, so could our interest costs for any new debt and our variable rate debt obligations under our New Revolving Facility and Term Loan. Thisincreased cost could make the financing of any acquisition more costly, as well as lower our current period earnings. Rising interest rates could limit our ability torefinance existing debt when it matures or cause us to pay higher interest rates upon refinancing. In addition, an increase in interest rates could decrease the accessthird parties have to credit, thereby decreasing the amount they are willing to pay for our assets and consequently limiting our ability to reposition our portfoliopromptly 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 commonstock, will influence the price of such common stock. Thus, an increase in market interest rates may lead prospective purchasers of our common stock to expect ahigher dividend yield, which could adversely affect the market price of our common stock.Our Amended Credit Agreement uses LIBOR as a reference rate for our Term Loan and Revolving Facility, such that the interest rate applicable to suchloans 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 intendsto phase out LIBOR by the end of 2021. The U.S. Federal Reserve has begun publishing a Secured Overnight Funding Rate (“SOFR”), which is intended toreplace U.S. dollar LIBOR, and has proposed a paced market transition plan to SOFR from LIBOR. Organizations are currently working on industry wide andcompany specific transition plans as it relates to financial and other derivative contracts exposed to LIBOR. Additionally, plans for alternative reference rates forother currencies have also been announced. We have material borrowings under our Amended Credit Agreement that are indexed to LIBOR. At this time, wecannot predict how markets will respond to these proposed alternative rates or the effect of any changes to LIBOR or the discontinuation of LIBOR. However, ifLIBOR is no longer available, if future rates based upon a successor reference rate such as SOFR (or a new method of calculating LIBOR) are higher than LIBORrates as currently determined or if our lenders have increased costs due to changes in LIBOR, we may experience potential increases in interest rates on ourvariable rate debt, which could adversely impact our interest expense, results of operations and cash flows.A downgrade of our credit rating could impair our ability to obtain additional debt financing on favorable terms, if at all, and significantly reduce the tradingprice of our common stock.Our credit rating can affect the amount and type of capital we can access, as well as the terms of any financing we may obtain. Factors that may affect ourcredit rating include, among other things, our financial performance, our success in raising sufficient equity capital, adverse changes in our debt and fixed chargecoverage ratios, our capital structure and level of indebtedness and pending or future changes in the regulatory framework applicable to our operators and ourindustry. We may be unable to maintain our current credit ratings, and in the event that our current credit ratings deteriorate, a ratings agency downgrades ourcredit rating or places our rating under watch or review for possible downgrade, we would likely incur higher borrowing costs, which would make it more difficultor expensive to obtain additional financing or refinance existing obligations and commitments and the trading price of our common stock may decline.Risks Related To Our Common StockOur charter restricts the ownership and transfer of our outstanding stock, which may have the effect of delaying, deferring or preventing a transaction orchange of control of our company.In order for us to qualify to be taxed as a REIT, not more than 50% in value of our outstanding shares of stock may be owned, beneficially or constructively,by five or fewer individuals at any time during the last half of each taxable year after our first taxable year as a REIT. Additionally, at least 100 persons mustbeneficially own our stock during at least 335 days of a taxable year (other than our first taxable year as a REIT). Our charter, with certain exceptions, authorizesour board of directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Our charter also provides that, unless exemptedby the board of directors, no person may own more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of ourcommon stock, or more than 9.8% in value of the outstanding shares of all classes or series of our stock. The constructive ownership rules are complex and maycause shares of stock owned directly or32Table of Contentsconstructively by a group of related individuals or entities to be constructively owned by one individual or entity. These ownership limits could delay or prevent atransaction 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 our stockholders. Theacquisition of less than 9.8% of our outstanding stock by an individual or entity could cause that individual or entity to own constructively in excess of 9.8% invalue of our outstanding stock, and thus violate our charter’s ownership limit. Our charter also prohibits any person from owning shares of our stock that wouldresult in our being “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify to be taxed as a REIT. In addition, our charter providesthat (i) no person shall beneficially or constructively own shares of stock to the extent such beneficial or constructive ownership of stock would result in us failingto qualify as a “domestically controlled qualified investment entity” within the meaning of Section 897(h) of the Code, and (ii) no person shall beneficially orconstructively own shares of stock to the extent such beneficial or constructive ownership would cause us to own, beneficially or constructively, more than a 9.9%interest (as set forth in Section 856(d)(2)(B) of the Code) in a tenant of our real property. Any attempt to own or transfer shares of our stock in violation of theserestrictions may result in the transfer being automatically void.Maryland law and provisions in our charter and bylaws may delay or prevent takeover attempts by third parties and therefore inhibit our stockholders fromrealizing a premium on their stock.Our charter and bylaws and Maryland law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids and toencourage prospective acquirors to negotiate with our board of directors rather than to attempt a hostile takeover. As currently in effect, our charter and bylaws,among other things, (1) contain transfer and ownership restrictions on the percentage by number and value of outstanding shares of our stock that may be owned oracquired by any stockholder; (2) provide that stockholders are not allowed to act by non-unanimous written consent; (3) permit the board of directors, withoutfurther action of the stockholders, to amend the charter to increase or decrease the aggregate number of authorized shares or the number of shares of any class orseries that we have the authority to issue; (4) permit the board of directors to classify or reclassify any unissued shares of common or preferred stock and set thepreferences, rights and other terms of the classified or reclassified shares; (5) establish certain advance notice procedures for stockholder proposals, and provideprocedures for the nomination of candidates for our board of directors; (6) provide that special meetings of stockholders may only be called by the Company orupon written request of 25% of all the votes entitled to be cast at such meeting; (7) provide that a director may only be removed by stockholders for cause andupon the vote of two-thirds of the outstanding shares of common stock; and (8) provide for supermajority approval requirements for amending or repealing certainprovisions in our charter. In addition, specific anti-takeover provisions of the Maryland General Corporation Law (“MGCL”) could make it more difficult for athird 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” (definedgenerally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recentdate on which the stockholder becomes an interested stockholder, and thereafter impose special appraisal rights and special stockholder votingrequirements on these combinations; and•“control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled bythe stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control shareacquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approvedby our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with ourboard of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make us immunefrom takeovers. However, these provisions may delay, defer or prevent a change of control or other transaction even if such transaction involves a premium pricefor our common stock or our stockholders believe that such transaction is otherwise in their best interests. These provisions may also prevent or discourageattempts to remove and replace incumbent directors.Our bylaws provide that the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for substantially all disputes between us and ourstockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland is the sole andexclusive forum for (i) any derivative action or proceeding brought on behalf of us,33Table of Contents(ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee, (iii) any action asserting a claim arising pursuant toany provision of the MGCL, or (iv) any action asserting a claim governed by the internal affairs doctrine, and any of our record or beneficial stockholders whocommences such an action shall cooperate in a request that the action be assigned to the Court’s Business & Technology Case Management Program. Thisexclusive forum provision is intended to apply to claims arising under the MGCL and would not apply to claims brought pursuant to the Exchange Act of 1934 orSecurities Act of 1933, each as amended, or any other claim for which the federal courts have exclusive jurisdiction. The exclusive forum provision in our bylawswill not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed tohave waived our compliance with these laws, rules and regulations.This exclusive forum provision may limit a stockholder's ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors,officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. In addition, stockholders who do bring aclaim in the Circuit Court for Baltimore City, Maryland could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or nearMaryland. The Circuit Court for Baltimore City, Maryland may also reach different judgments or results than would other courts, including courts where astockholder would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. However, theenforceability of similar exclusive forum provisions in other companies' certificates of incorporation has been challenged in legal proceedings, and it is possiblethat a court could find this type of provision and/or the jurisdictional limitation contained therein to be inapplicable to, or unenforceable in respect of, one or moreof the specified types of actions or proceedings. If a court were to find the exclusive forum provision contained in our bylaws to be inapplicable or unenforceable inan action, we might incur additional costs associated with resolving such action in other jurisdictions.The market price and trading volume of our common stock may fluctuate.The market price of our common stock may fluctuate, depending upon many factors, some of which may be beyond our control, including, but not limitedto:•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;•changes in our dividend policy;•impairment charges affecting the carrying value of one or more of our investments;•sales of common stock under our New ATM Program (as defined below) or by our management team;•overall market fluctuations; and•general economic or political conditions and other external factors.Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad marketfluctuations may adversely affect the trading price of our common stock.34Table of ContentsFailure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could materially andadversely affect our business and the market price of our common stock.Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting, which requiresignificant resources and management oversight. Internal control over financial reporting is complex and may be revised over time to adapt to changes in ourbusiness, or changes in applicable accounting rules. We cannot assure you that our internal control over financial reporting will be effective in the future or that amaterial weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective. Mattersimpacting our internal controls may cause us to be unable to report our financial data on a timely basis, or may cause us to restate previously issued financial data,and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listingrules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered public accounting firm reports a materialweakness in our internal control over financial reporting. This could materially adversely affect us by, for example, leading to a decline in the market price for ourcommon stock and impairing our ability to raise capital.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 of ourinternal 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 annual basis,determined without regard to the dividends paid deduction and excluding any net capital gains. Our ability to pay dividends may be adversely affected by a numberof factors, including the risk factors described in this annual report. Dividends are authorized by our board of directors and declared by us based upon a number offactors, including actual results of operations, restrictions under Maryland law or applicable debt covenants, our financial condition, our taxable income, theannual distribution requirements under the REIT provisions of the Code, our operating expenses and other factors our directors deem relevant. We cannot assureyou that we will achieve investment results that will allow us to make a specified level of cash dividends or year-to-year increases in cash dividends in 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 a REIT -REIT distribution requirements could adversely affect our ability to execute our business plan”), we may elect not to maintain our REIT status, in which case wewould no longer be required to pay such dividends. Moreover, even if we do elect to maintain our REIT status, after completing various procedural steps, we mayelect to comply with the applicable distribution requirements by distributing, under certain circumstances, a portion of the required amount in the form of shares ofour common stock in lieu of cash. If we elect not to maintain our REIT status or to satisfy any required distributions in shares of common stock in lieu of cash,such action could negatively affect our business and financial condition as well as the market price of our common stock. No assurance can be given that we willpay any dividends on shares of our common stock in the future.Your ownership percentage in our common stock 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 New ATM Program, other capitalmarkets transactions or in connection with other transactions or acquisitions. Such issuances and transactions will generally not require stockholder approval,subject to the applicable rules of Nasdaq. In addition, pursuant to our CareTrust REIT, Inc. and CTR Partnership, L.P. Incentive Award Plan (the “Incentive AwardPlan”), we expect to grant equity incentive awards to our officers, employees and directors in connection with their employment with or services provided to us.These issuances and awards may cause your percentage ownership in our common stock to be diluted in the future and could have a dilutive effect on our earningsper 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, one or moreclasses or series of preferred stock having such designations, powers, privileges, preferences, including preferences over our common stock respecting dividendsand distributions, terms of redemption and relative participation, optional or other rights, if any, of the shares of each such series of preferred stock and anyqualifications, limitations or restrictions thereof, as our board of directors may determine. The terms of one or more classes or series of preferred stock could dilutethe voting power or reduce the value of our common stock. For example, the repurchase or35Table of Contentsredemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of our common stock.ITEM 1B.Unresolved Staff CommentsNone.ITEM 2. PropertiesExcept for the one ILF that we own and operate, all of our properties are leased under long-term, triple-net leases. The following table displays the expirationof the annualized contractual cash rental revenues under our lease agreements as of December 31, 2019 by year and total investment (dollars in thousands) and, ineach case, without giving effect to any renewal options:Lease Maturity Percent of Total Percent ofYearInvestment(1)InvestmentRent(1)Total Rent2026$48,9882.9%$5,2373.2%202741,8962.5%4,8943.0%202868,1934.0%7,5584.6%2029148,7108.8%12,1997.5%2030190,54011.3%16,0009.8%2031536,67131.7%50,80031.1%2032208,44312.3%19,58112.0%2033210,60112.5%22,76714.0%2034237,07814.0%24,11714.8%Total$1,691,120100.0%$163,153100.0% (1)Amounts exclude properties classified as held for sale as of December 31, 2019.The information set forth under “Portfolio Summary” in Item 1 of this Annual Report on Form 10-K is incorporated by reference herein.ITEM 3.Legal 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 of business,but none of the Company or any of its subsidiaries is, and none of their respective properties are, the subject of any material legal proceedings. Claims andlawsuits may include matters involving general or professional liability asserted against our tenants, which are the responsibility of our tenants and for which weare 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”), weassumed any liability arising from or relating to legal proceedings involving the assets owned by us and agreed to indemnify Ensign (and its subsidiaries, directors,officers, employees and agents and certain other related parties) against any losses arising from or relating to such legal proceedings. In addition, pursuant to theSeparation and Distribution Agreement, Ensign has agreed to indemnify us (including our subsidiaries, directors, officers, employees and agents and certain otherrelated parties) for any liability arising from or relating to legal proceedings involving Ensign’s healthcare business prior to the Spin-Off, and, pursuant to theEnsign Master Leases and the guaranty of the Pennant Master Lease, Ensign or its subsidiaries have agreed to indemnify us for any liability arising fromoperations at the real property leased from us. Ensign is currently a party to various legal actions and administrative proceedings, including various claims arisingin the ordinary course of its healthcare business, which are subject to the indemnities provided by Ensign to us. While these actions and proceedings are notbelieved by Ensign 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, inturn, could have a material adverse effect on our business, financial position or results of operations if Ensign or its subsidiaries are unable to meet theirindemnification obligations.36Table of ContentsITEM 4.Mine Safety DisclosuresNone.PART IIITEM 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer PurchasesofCommon EquityOur common stock is listed on the Nasdaq Global Select Market under the symbol “CTRE.”At February 19, 2020, we had approximately 79 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 certain adjustments.All distributions will be made by us at the discretion of our board of directors and will depend on our financial position, results of operations, cash flows, capitalrequirements, debt covenants (which include limits on distributions by us), applicable law, and other factors as our board of directors deems relevant. For example,while the Notes and our Amended Credit Agreement permit us to declare and pay any dividend or make any distribution that is necessary to maintain our REITstatus, those distributions are subject to certain financial tests under the indenture governing the Notes, and therefore, the amount of cash distributions we can maketo our stockholders may be limited.Distributions with respect to our common stock can be characterized for federal income tax purposes as taxable ordinary dividends, nondividend distributionsor a combination thereof. Following is the characterization of our annual cash dividends on common stock: Year Ended December 31,Common Stock2019 2018Ordinary dividend$0.8120 $0.8025Non-dividend distributions0.0880 0.0175 $0.9000 $0.8200Issuer Purchases of Equity SecuritiesWe did not repurchase any shares of our common stock during the three months ended December 31, 2019.37Table 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 January 1, 2015 to December 31, 2019. Total cumulative return is based on a$100 investment in CareTrust REIT common stock and in each of the indices at the market close on December 31, 2014 and assumes quarterly reinvestment ofdividends before consideration of income taxes. Stockholder returns over the indicated periods should not be considered indicative of future stock prices orstockholder returns. 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 COMPARISONJANUARY 1, 2015 - DECEMBER 31, 2019(DECEMBER 31, 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 the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, nor shall it be incorporated by reference into anypast or future filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically request that it be treated as soliciting material orspecifically incorporate it by reference into a filing under the Securities Act of 1933 or the Exchange Act38Table 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 in conjunctionwith our audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operationsincluded elsewhere in this Annual Report on Form 10-K. Our historical operating results may not be comparable to our future operating results. The comparabilityof the 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, 20192018201720162015 (dollars in thousands, except per share amounts)Income statement data: Total revenues$163,401$156,941$132,982$104,679$74,951Income before provision for income taxes46,35957,92325,87429,35310,034Net income46,35957,92325,87429,35310,034Net income per share, basic0.490.730.350.520.26Net income per share, diluted0.490.720.350.520.26Balance sheet data: Total assets$1,518,861$1,291,762$1,184,986$925,358$673,166Senior unsecured notes payable, net295,911295,153294,395255,294254,229Senior unsecured term loan, net198,71399,61299,51799,422—Unsecured revolving credit facility60,00095,000165,00095,00045,000Secured mortgage indebtedness, net————94,676Total equity927,591768,247594,617452,430262,288Other financial data: Dividends declared per common share$0.90$0.82$0.74$0.68$0.64FFO(1)113,029101,53662,27561,48334,109FAD(1)117,751104,98966,40665,11837,831(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 Funds Availablefor Distribution (“FAD”) are important non-GAAP supplemental measures of operating performance for a REIT. Because the historical cost accountingconvention used for real estate assets requires straight-line depreciation except on land, such accounting presentation implies that the value of real estateassets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations ofoperating results for a REIT that uses historical cost accounting for depreciation provide another view of performance. Thus, NAREIT created FFO as asupplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income,as defined by GAAP. FFO is defined as net income (loss) computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plusreal estate related depreciation and amortization and impairment charges. We define FAD as FFO excluding noncash income and expenses such asamortization of stock-based compensation, amortization of deferred financing costs and the effect of straight-line rent. We believe that the use of FFO andFAD, combined with the required GAAP presentations, improves the understanding of operating results of REITs among investors and makes comparisonsof operating results among such companies more meaningful. We consider FFO and FAD to be useful measures for reviewing comparative operating andfinancial 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 of stock-based compensation, amortization of deferred financing costs, andthe effect of straight-line rent, FFO and FAD can help investors compare our operating performance between periods and to other REITs. However, ourcomputation of FFO and FAD may not be comparable to FFO and FAD reported by other REITs that do not define FFO in accordance with the currentNAREIT definition or that interpret the current NAREIT definition or define FAD differently than we do. Further, FFO and FAD39Table of Contentsdo not represent cash flows from operations or net income as defined by GAAP and should not be considered an alternative to those measures in evaluatingour liquidity or operating performance.The following table reconciles our calculations of FFO and FAD for the five years ended December 31, 2019, 2018, 2017, 2016 and 2015 to net income, themost directly comparable financial measure according to GAAP, for the same periods: For the Year Ended December 31, 20192018201720162015 (dollars in thousands)Net income$46,359$57,923$25,874$29,353$10,034Real estate related depreciation and amortization51,75545,66439,04931,86524,075(Gain) loss on sale of real estate(1,777)(2,051)—265—Impairment of real estate investments16,692—890——Gain on disposition of other real estate investment——(3,538)——FFO113,029101,53662,27561,48334,109Amortization of deferred financing costs2,0031,9382,0592,2392,200Amortization of stock-based compensation4,1043,8482,4161,5461,522Straight-line rental income(1,385)(2,333)(344)(150)—FAD$117,751$104,989$66,406$65,118$37,831ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperationsThe discussion below contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from thoseanticipated in these forward-looking statements as a result of various factors, including those which are discussed in the section titled “Risk Factors.” Also see“Statement Regarding Forward-Looking Statements” preceding Part I.The following discussion and analysis should be read in conjunction with the “Selected Financial Data” above and our accompanying consolidatedfinancial statements and the notes thereto.Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is organized as follows:•Overview•RecentTransactions•Results of Operations•Liquidity and CapitalResources•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 skilled nursing, seniorshousing and other healthcare-related properties. As of December 31, 2019, the 85 facilities leased to Ensign had a total of 8,908 beds and units and are located inArizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington and the 131 remaining leased properties had a total of 13,055 bedsand units and are located in California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Louisiana, Maryland, Michigan, Minnesota, Montana, NewMexico, North Carolina, North Dakota, Ohio, Oregon, South Dakota, Texas, Virginia, Washington, West Virginia and Wisconsin. We also own and operate oneILF which had a total of 168 units and is located in Texas. As of December 31, 2019, we also had other real estate investments consisting of one preferred equityinvestment totaling $3.8 million and two mortgage loans receivable with a carrying value of $29.5 million.40Table of ContentsRecent TransactionsPennant SpinOn October 1, 2019, Ensign completed its previously announced separation of its home health and hospice operations and substantially all of its seniorliving operations into a separate independent publicly traded company through the distribution of shares of common stock of The Pennant Group, Inc. (“Pennant”and, such separation, the “Pennant Spin”). As a result of the Pennant Spin, on October 1, 2019, we amended the master leases entered into with subsidiaries ofEnsign (the “Ensign Master Leases”) to lease 85 facilities to subsidiaries of Ensign, which have a total of 8,908 operational beds, and entered into a new triple-netmaster lease with subsidiaries of Pennant (the “Pennant Master Lease”) to lease 11 facilities, which have a total of 1,151 operational beds. The 85 facilities leasedto subsidiaries of Ensign also include one independent living facility, formerly operated by us, that we leased to Ensign concurrently with the Pennant Spin. Thecontractual initial annual cash rent under the Pennant Master Lease is approximately $7.8 million. The Pennant Master Lease carries an initial term of 15 years,with two five-year renewal options and CPI-based rent escalators. The contractual annual cash rent under the amended Ensign Master Leases was reduced byapproximately $7.8 million. Ensign continues to guarantee obligations under the Ensign Master Leases and the Pennant Master Lease. If Pennant achieves aspecified portfolio coverage and continuously maintains it for a specified period, Ensign’s obligations under the guaranty with respect to the Pennant Master Leasewould be released. As of December 31, 2019, Ensign and Pennant represented 32% and 5%, respectively, of our contractual rental income, exclusive of operatingexpense reimbursements, on an annualized run-rate basis.Trillium Lease Termination and New Master LeaseOn July 15, 2019, we terminated our existing master lease (the “Original Trillium Lease”) with affiliates of Trillium Healthcare Group, LLC (“Trillium”),which covered ten properties in Iowa, seven properties in Ohio and one property in Georgia. On August 16, 2019, we entered into a new master lease (the “NewTrillium Lease”) with Trillium’s Iowa and Georgia affiliates covering the ten properties in Iowa and the one property in Georgia. We recorded an adjustment toreduce rental income for accounts and other receivables by approximately $3.8 million in the three months ended September 30, 2019.On September 1, 2019, four of the seven skilled nursing Ohio properties operated by Trillium under the Original Trillium Lease were transferred to affiliatesof Providence Group, Inc. (“Providence”). In connection with the transfer, we amended our triple-net master lease with Providence. The amended lease has aremaining initial term of approximately 13 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended leaseincreased by approximately $2.1 million.Trio Lease AmendmentOn November 4, 2019, we amended our existing master lease with affiliates of Trio Healthcare, Inc. (“Trio”), which covered seven facilities based inDayton, Ohio. The amended lease has a remaining initial term of approximately 13 years, with two five-year renewal options and CPI-based rent escalators. Theannual base rent due under the amended lease with Trio is approximately $4.7 million and provides for payment of percentage rent if Trio achieves certainincreases in portfolio revenue.Impairment of Real Estate Investments, Asset Sales and Assets Held for SaleOn September 1, 2019, we sold three of the seven Ohio skilled nursing properties operated by Trillium under the Original Trillium Lease for a purchaseprice of $28.0 million. During the three months ended September 30, 2019 and prior to the disposition, we recorded an impairment expense of approximately $7.8million. In connection with the sale, we provided affiliates of CommuniCare Family of Companies (“CommuniCare”), the purchaser of the three Ohio properties,with a mortgage loan secured by the three Ohio properties for approximately $26.5 million. See Note 4, Other Real Estate Investments, Net for additionalinformation.In addition, during the third quarter of 2019, we met the criteria to classify six skilled nursing facilities operated by affiliates of Metron Integrated HealthSystems (“Metron”) as held for sale, which resulted in an impairment expense of approximately $8.8 million to reduce the carrying value to fair value less costs tosell the properties during the third quarter ended September 30, 2019. As of December 31, 2019, the properties continued to be held for sale and the carrying valueof $34.6 million is primarily comprised of real estate assets. In February 2020, the six skilled nursing facilities were sold. See Note 14, Subsequent Events, forfurther detail.41Table of ContentsDuring the year ended December 31, 2019, we sold one of our owned and operated independent living facilities consisting of 38 units located in Texas withan aggregate carrying value of $1.7 million for net proceeds of $3.3 million. In connection with the sale, we recognized a gain of $1.6 million.At-The-Market Offering of Common StockOn March 4, 2019, we entered into a new 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 “New ATM Program”). In connection with the entry into the equity distributionagreement and the commencement of the New ATM Program, our “at-the-market” equity offering program pursuant to our prior equity distribution agreement,dated as of May 17, 2017, was terminated (the “Prior ATM Program”).There was no New ATM Program activity during 2019. The following table summarizes the Prior ATM Program activity for 2019 (shares and dollars inthousands, except per share amounts): For the Three Months Ended March 31, 2019 June 30, 2019 September 30, 2019 December 31, 2019 TotalNumber of shares2,459 — — — 2,459Average sales price per share$19.48 $— $— $— $19.48Gross proceeds(1)$47,893 $— $— $— $47,893(1)Total gross proceeds is before $0.6 million in commissions paid to the sales agents under the Prior ATM Program during the year ended December 31, 2019.As of December 31, 2019, we had $300.0 million available for future issuances under the New ATM Program. See Liquidity and Capital Resources foradditional information.Recent InvestmentsFrom January 1, 2019 through February 20, 2020, we acquired eighteen skilled nursing facilities, four multi-service campuses and two assisted livingfacilities for approximately $352.8 million, which includes capitalized acquisition costs. These acquisitions are expected to generate initial annual cash revenues ofapproximately $31.4 million and an initial blended yield of approximately 8.9%. See Note 3, Real Estate Investments, Net, and Note 14, Subsequent Events, in theNotes to consolidated financial statements for additional information.Public Offering of Common StockOn April 15, 2019, we completed an underwritten public offering of 6,641,250 shares of our common stock, par value $0.01 per share, at an initial price tothe public of $23.35, including 866,250 shares of common stock sold pursuant to the full exercise of an option to purchase additional shares of common stockgranted to the underwriters, resulting in approximately $149.0 million in net proceeds, after deducting the underwriting discount and offering expenses. We usedthe proceeds from the offering to repay a portion of the outstanding borrowings on our Revolving Facility (defined below) which had been used to fund a portionof the purchase price of acquisitions in the second quarter of 2019.42Table of ContentsResults 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. Year Ended December 31, 2019 Compared to Year Ended December 31, 2018 Year Ended December 31, Increase(Decrease) PercentageDifference 2019 2018 (dollars in thousands)Revenues: Rental income$155,667 $140,073 $15,594 11 %Tenant reimbursements— 11,924 (11,924) (100)%Independent living facilities3,389 3,379 10 — %Interest and other income4,345 1,565 2,780 178 %Expenses: Depreciation and amortization51,822 45,766 6,056 13 %Interest expense28,125 27,860 265 1 %Property taxes3,048 11,924 (8,876) (74)%Independent living facilities2,898 2,964 (66) (2)%Impairment of real estate investments16,692 — 16,692 100 %Provision for loan losses1,076 — 1,076 100 %General and administrative15,158 12,555 2,603 21 %Rental income. Rental income was $155.7 million for the year ended December 31, 2019 compared to $140.1 million for the year ended December 31, 2018.The $15.6 million, or 11%, increase in rental income is primarily due to $25.7 million from real estate investments made after January 1, 2018, $2.8 million fromincreases in rental rates for our existing tenants and $2.9 million of tenant reimbursement revenue recognized and classified as rental income due to the adoption ofthe new lease accounting standards updates (the “new lease ASUs”) on January 1, 2019, partially offset by an $11.8 million adjustment for collectibility of rentalincome, a $1.6 million decrease in rental income due to the sale of three ALFs in March 2018 and three SNFs in September 2019, a $1.5 million decrease instraight-line rent and a $1.0 million decrease in cash rents.Tenant reimbursements and property taxes. Tenant reimbursements decreased $11.9 million for the year ended December 31, 2019 compared to the yearended December 31, 2018. Property taxes decreased $8.9 million, or 74%, for the year ended December 31, 2019 compared to the year ended December 31, 2018.On January 1, 2019, we adopted the new lease ASUs. Tenant reimbursements related to property taxes and insurance are neither lease nor non-lease componentsunder the new lease ASUs. If a lessee makes payments for taxes and insurance directly to a third party on behalf of a lessor, lessors are required to exclude themfrom variable payments and from recognition in the lessors’ income statements. Otherwise, tenant recoveries for taxes and insurance are classified as additionallease revenue recognized by the lessor on a gross basis in its income statements. Prior to the adoption of the new lease ASUs, we recognized tenant recoveries astenant reimbursement revenues regardless of whether the third party was paid by the lessor or lessee. See Note 2, Summary of Significant Accounting Policies.During the year ended December 31, 2019, we recognized tenant reimbursements of $2.9 million for real estate taxes which were paid by us directly to third partiesand classified as rental income on our consolidated income statement.Independent living facilities. Revenues for the ILFs that we owned and operated were flat for the year ended December 31, 2019 compared to the year endedDecember 31, 2018, primarily due to increased occupancy at Lakeland Hills Independent Living, partially offset by a decrease in revenue due to the sale of oneILF to a third party and the lease of one ILF to Ensign concurrently with the Pennant Spin during the fourth quarter ended December 31, 2019. Expenses for theILFs were $2.9 million for the year ended December 31, 2019 compared to $3.0 million for the year ended December 31, 2018. The $0.1 million, or 2%, decreasein expenses was primarily due to the sale of one ILF to a third party and the lease of one ILF to Ensign concurrently with the Pennant Spin during the fourth quarterended December 31, 2019.43Table of ContentsInterest and other income. Interest and other income increased $2.8 million for the year ended December 31, 2019 to $4.3 million compared to $1.6 millionfor the year ended December 31, 2018. The increase was primarily due to $1.3 million of interest income, including $0.6 million for unrecognized preferred returnrelated to prior periods, due to the repayment of preferred equity investments and $1.5 million of interest income related to the mortgage loans receivable that weprovided to Covenant Care in February 2019 and to CommuniCare in September 2019. See Note 4, Other Real Estate Investments, Net.Depreciation and amortization. Depreciation and amortization expense increased $6.1 million, or 13%, for the year ended December 31, 2019 to $51.8million compared to $45.8 million for the year ended December 31, 2018. The $6.1 million increase was primarily due to new real estate investments made afterJanuary 1, 2018, partially offset by assets sold or designated as assets held for sale.Interest expense. Interest expense increased $0.2 million, or 1%, for the year ended December 31, 2019 to $28.1 million compared to $27.9 million for theyear ended December 31, 2018 primarily due to a higher weighted average debt balance, partially offset by lower weighted average interest rates.Impairment of real estate investments. On September 1, 2019, we sold three of the seven Ohio skilled nursing properties operated by Trillium under theOriginal Trillium Lease for a purchase price of $28.0 million. Prior to the disposition, we recorded an impairment of approximately $7.8 million in the threemonths ended September 30, 2019. Additionally, in the three months ended September 30, 2019, we met the criteria to classify six skilled nursing facilitiesoperated by Metron as held for sale, which resulted in an impairment expense of approximately $8.8 million to reduce the carrying value to fair value less costs tosell the facilities.Provision for loan losses. During the year ended December 31, 2019, we determined the remaining contractual obligations under the bridge loan agreementto Priority Life Care, LLC (“Priority”) were not collectible and recorded a $1.1 million provision for loan losses.General and administrative expense. General and administrative expense increased $2.6 million or 21% for the year ended December 31, 2019 to $15.2million compared to $12.6 million for the year ended December 31, 2018. The increase is primarily related to higher cash wages of $1.3 million, increasedamortization of stock-based compensation of $0.3 million, increased professional services of $0.5 million and $0.4 million of other corporate expenses.Year Ended December 31, 2018 Compared to Year Ended December 31, 2017For discussion related to the results of operations and changes in financial condition for fiscal 2018 compared to fiscal 2017, refer to Part II, Item 7,“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2018 Annual Report on Form 10-K, which was filed withthe SEC on February 13, 2019.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 regard tothe dividends paid deduction and excluding any net capital gains, to our stockholders on an annual basis. Accordingly, we intend to make, but are not contractuallybound to make, regular quarterly dividends to common stockholders from cash flow from operating activities. All such dividends are at the discretion of our boardof directors. As of December 31, 2019, we had cash and cash equivalents of $20.3 million.During the year ended December 31, 2019, we sold 2.5 million shares of common stock under our Prior ATM Program for gross proceeds of $47.9 million.No shares of common stock were sold under the New ATM Program during the year ended December 31, 2019 and, as of December 31, 2019, we had $300.0million available for future issuances under the New ATM Program.As of December 31, 2019, there was $60.0 million outstanding under the Revolving Facility (as defined below). We believe that our available cash,expected operating cash flows, and the availability under the New ATM Program and Amended Credit Facility (as defined below) will provide sufficient funds forour operations, anticipated scheduled debt service payments and dividend plans for at least the next twelve months.We intend to invest in and/or develop additional healthcare and seniors housing properties as suitable opportunities arise and adequate sources of financingare available. We expect that future investments in and/or development of properties, including any improvements or renovations of current or newly-acquiredproperties, 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, futureborrowings or the44Table of Contentsproceeds from sales of shares of our common stock pursuant to our New 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, inappropriate circumstances in connection with acquisitions and refinancing of existing mortgage loans.We have filed an automatic shelf registration statement with the U.S. Securities and Exchange Commission that expires in May 2020, which allows us orcertain of our subsidiaries, as applicable, to offer and sell shares of common stock, preferred stock, warrants, rights, units and debt securities through underwriters,dealers or agents or directly to purchasers, in one or more offerings on a continuous or delayed basis, in amounts, at prices and on terms we determine at the time ofthe offering. We expect to renew the automatic shelf registration statement on or prior to its expiration.Although we are subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incuradditional indebtedness for acquisitions or other purposes, if needed. However, there can be no assurance that we will be able to refinance our indebtedness, incuradditional indebtedness or access additional sources of capital, such as by issuing common stock or other debt or equity securities, on terms that are acceptable tous or at all.Cash FlowsThe following table presents selected data from our consolidated statements of cash flows for the years presented: Year Ended December 31, 2019 2018 (dollars in thousands)Net cash provided by operating activities$126,295 $99,357Net cash used in investing activities(316,007) (115,069)Net cash provided by financing activities173,247 45,595Net (decrease) increase in cash and cash equivalents(16,465) 29,883Cash and cash equivalents at beginning of period36,792 6,909Cash and cash equivalents at end of period$20,327 $36,792Year Ended December 31, 2019 Compared to Year Ended December 31, 2018Net cash provided by operating activities for the year ended December 31, 2019 was $126.3 million compared to $99.4 million for the year ended December31, 2018, an increase of $26.9 million. The increase was primarily due to an increase in rental income due to acquisitions, increases in rental rates for existingtenants subsequent to December 31, 2018 and timing of payments to our vendors in settling accounts payable, partially offset by a decrease in collectibility of basecash rental income.Cash used in investing activities for the year ended December 31, 2019 was primarily comprised of $339.7 million in acquisitions of real estate andinvestments in real estate mortgage loans and $6.3 million of improvement in real estate and purchases of furniture, fixtures and equipment partially offset by$26.5 million of payments received from our preferred equity investment and mortgage and other loans receivable and $3.5 million in net proceeds from real estatesales. Cash used in investing activities for the year ended December 31, 2018 was primarily comprised of $122.3 million related to acquisitions of real estate andinvestments in other loans receivable and $9.0 million of improvement in real estate and purchases of furniture, fixtures and equipment, partially offset by $13.0million of net proceeds from real estate sales and $3.2 million of payments received from our mortgage and other loans receivable.Our cash flows provided by financing activities for the year ended December 31, 2019 were primarily comprised of $196.0 million in net proceeds fromcommon stock sales under our Prior ATM Program and April 2019 equity offering and $65.0 million in net borrowings under our Amended Credit Facility andPrior Credit Facility, partially offset by $80.6 million in dividends paid, $4.5 million in payments of deferred financing costs and $2.5 million net settlementadjustment on restricted stock. Our cash flows provided by financing activities for the year ended December 31, 2018 were primarily comprised of $179.9 millionin net proceeds from common stock sales under our Prior ATM Program, partially offset by $63.0 million in dividends paid, $70.0 million in net pay downs underour Prior Credit Facility and $1.3 million net settlement adjustment on restricted stock.Year Ended December 31, 2018 Compared to Year Ended December 31, 201745Table of ContentsFor discussion related to the cash flows for fiscal 2018 compared to fiscal 2017, refer to Part II, Item 7, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in our fiscal 2018 Annual Report on Form 10-K, which was filed with the SEC on February 13, 2019.IndebtednessSenior Unsecured NotesOn May 10, 2017, our wholly owned subsidiary, CTR Partnership, L.P. (the “Operating Partnership”), and its wholly owned subsidiary, CareTrust CapitalCorp. (together with the Operating Partnership, the “Issuers”), completed a public offering of $300.0 million aggregate principal amount of 5.25% Senior Notesdue 2025 (the “Notes”). The Notes were issued at par, resulting in gross proceeds of $300.0 million and net proceeds of approximately $294.0 million afterdeducting underwriting fees and other offering expenses. The Notes mature on June 1, 2025 and bear interest at a rate of 5.25% per year. Interest on the Notes ispayable 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 plus accruedand unpaid interest on the Notes, if any, to, but not including, the redemption date, plus a “make-whole” premium described in the indenture governing the Notesand, 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 to 40% of the aggregateprincipal amount of the Notes may be redeemed with the net proceeds of certain equity offerings if at least 60% of the originally issued aggregate principal amountof the Notes remains outstanding. In such case, the redemption price will be equal to 105.25% of the aggregate principal amount of the Notes to be redeemed plusaccrued and unpaid interest, if any, to, but not including the redemption date. If certain changes of control of CareTrust REIT occur, holders of the Notes will havethe right to require the Issuers to repurchase their Notes at 101% of the principal amount plus accrued and unpaid interest, if any, to, but not including, therepurchase date.The obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by CareTrust REIT and certain ofCareTrust REIT’s wholly owned existing and, subject to certain exceptions, future material subsidiaries (other than the Issuers); provided, however, that suchguarantees are subject to automatic release under certain customary circumstances, including if the subsidiary guarantor is sold or sells all or substantially all of itsassets, the subsidiary guarantor is designated “unrestricted” for covenant purposes under the indenture, the subsidiary guarantor’s guarantee of other indebtednesswhich resulted in the creation of the guarantee of the Notes is terminated or released, or the requirements for legal defeasance or covenant defeasance or todischarge the indenture have been satisfied. See Note 12, Summarized Condensed Consolidating Information.The indenture contains customary covenants such as limiting the ability of CareTrust REIT and its restricted subsidiaries to: incur or guarantee additionalindebtedness; incur or guarantee secured indebtedness; pay dividends or distributions on, or redeem or repurchase, capital stock; make certain investments or otherrestricted payments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their assets; and create restrictions on theability of the Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers. The indenture also requires CareTrust REIT and its restrictedsubsidiaries to maintain a specified ratio of unencumbered assets to unsecured indebtedness. These covenants are subject to a number of important and significantlimitations, qualifications and exceptions. The indenture also contains customary events of default.As of December 31, 2019, 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 entered intoa credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender, and the lenders party thereto(the “Prior Credit Agreement”). As later amended on February 1, 2016, the Prior Credit Agreement provided the following: (i) a $400.0 million unsecured assetbased revolving credit facility (the “Prior Revolving Facility”), (ii) a $100.0 million non-amortizing unsecured term loan (the “Prior Term Loan” and, together withthe Prior Revolving Facility, the “Prior Credit Facility”), and (iii) a $250.0 million uncommitted incremental facility. The Prior Revolving Facility was scheduledto mature on August 5, 2019, subject to two, six-month extension options. The Prior Term Loan was scheduled to mature on February 1, 2023, and could beprepaid at any time subject to a 2% premium in the first year after issuance and a 1% premium in the second year after issuance.On February 8, 2019, the Operating Partnership, as the borrower, the Company, as guarantor, CareTrust GP, LLC, and certain of the Operating Partnership’swholly owned subsidiaries entered into an amended and restated credit and guaranty agreement with KeyBank National Association, as administrative agent, anissuing bank and swingline lender, and the lenders party thereto (the “Amended Credit Agreement”). The Amended Credit Agreement, which amended andrestated the Prior46Table of ContentsCredit Agreement, provides for: (i) an unsecured revolving credit facility (the “Revolving Facility”) with revolving commitments in an aggregate principal amountof $600.0 million, including a letter of credit subfacility for 10% of the then available revolving commitments and a swingline loan subfacility for 10% of the thenavailable revolving commitments and (ii) an unsecured term loan credit facility (the “Term Loan” and together with the Revolving Facility, the “Amended CreditFacility”) in an aggregate principal amount of $200.0 million. Borrowing availability under the Revolving Facility is subject to no default or event of default underthe Amended Credit Agreement having occurred at the time of borrowing. The proceeds of the Term Loan were used, in part, to repay in full all outstandingborrowings under the Prior Term Loan and Prior Revolving Facility under the Prior Credit Agreement. Future borrowings under the Amended Credit Facility willbe used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes.The interest rates applicable to loans under the Revolving Facility are, at the Operating Partnership’s option, equal to either a base rate plus a margin 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 and itsconsolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on itssenior long-term unsecured debt). The interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base 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 value ratio ofthe Company 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). In addition, the Operating Partnership will pay a facility fee on the revolving commitments under theRevolving 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 theCompany obtains certain specified investment grade ratings on its senior long-term unsecured debt and the Operating Partnership elects to decrease the applicablemargin as described above, in which case the Operating Partnership will pay a facility fee on the revolving commitments ranging from 0.125% to 0.30% perannum based off the credit ratings of the Company’s senior long-term unsecured debt). As of December 31, 2019, we had $200.0 million outstanding under theTerm Loan and $60.0 million outstanding under the Revolving Facility.The Revolving Facility has a maturity date of February 8, 2023, and includes, at our sole discretion, two, six-month extension options. The Term Loan has amaturity date of February 8, 2026.The Amended Credit Facility is guaranteed, jointly and severally, by the Company and its wholly-owned subsidiaries that are party to the Amended CreditAgreement (other than the Operating Partnership). The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject tocertain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage inacquisitions, mergers or consolidations, amend organizational documents and pay certain dividends and other restricted payments. The Amended CreditAgreement requires the Company to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum debt to asset value ratio, aminimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating income ratio, a maximum secured debt to assetvalue ratio, a maximum secured recourse debt to asset value ratio, a maximum unsecured debt to unencumbered properties asset value ratio, a minimum unsecuredinterest coverage ratio and a minimum rent coverage ratio. The Amended Credit Agreement also contains certain customary events of default, including the failureto make timely payments under the Amended Credit Facility or other material indebtedness, the failure to satisfy certain covenants (including the financialmaintenance covenants), the occurrence of change of control and specified events of bankruptcy and insolvency.As of December 31, 2019, the Company was in compliance with all applicable financial covenants under the Amended Credit Agreement.47Table of ContentsObligations and CommitmentsThe following table summarizes our contractual obligations and commitments at December 31, 2019 (in thousands): Payments Due by Period Total Lessthan1 Year 1 Yearto Lessthan3 Years 3 Yearsto Lessthan5 Years Morethan5 yearsSenior unsecured notes payable (1)$386,625 $15,750 $31,500 $31,500 $307,875Senior unsecured term loan (2)240,524 6,648 13,260 13,278 207,338Unsecured revolving credit facility (3)68,322 2,684 5,352 60,286 —Operating lease3,421 71 104 104 3,142Total$698,892 $25,153 $50,216 $105,168 $518,355(1)Amounts include interest payments of $86.6million.(2)Amounts include interest payments of $40.5million.(3)Amounts include payments related to the credit facilityfee.Capital ExpendituresWe anticipate incurring average annual capital expenditures of $400 to $500 per unit in connection with the operations of our one ILF. Capital expendituresfor each property leased under our triple-net leases are generally the responsibility of the tenant, except that, for the facilities under the Ensign Master Leases, thetenant will have an option to require us to finance certain capital expenditures up to an aggregate of 20% of our initial investment in such property, subject to acorresponding rent increase at the time of funding. For our other triple-net master leases, the tenants also have the option to request capital expenditure fundingthat would generally be subject to a corresponding rent increase at the time of funding, which are subject to tenant compliance with the conditions to our approvaland funding of their requests. As of December 31, 2019, we had committed to fund expansions, construction and capital improvements at certain triple-net leasedfacilities totaling $13.5 million, of which $11.8 million is subject to rent increase at the time of funding.Critical Accounting PoliciesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expensesduring the reporting periods. Management believes that the assumptions and estimates used in preparation of the underlying consolidated financial statements arereasonable. Actual results, however, could differ from those estimates and assumptions. Certain accounting policies are considered to be critical accounting policies. Critical accounting policies are those policies that require management to makesignificant estimates and/or assumptions about matters that areuncertain at the time the estimates and/or assumptions are made or where we are required to make significant judgments and assumptions with respect to thepractical application of accounting principles in our business operations. Critical accounting policies are by definition those policies that are material to ourfinancial statements and for which the impact of changes in estimates, assumptions, and judgments could have a material impact to our financial statements.The following critical accounting policies discussion reflects what we believe are the most significant estimates,assumptions, and judgments used in the preparation of our consolidated financial statements. This discussion of ourcritical accounting policies is intended to supplement the description of our accounting policies in the footnotes to our consolidated financial statements and toprovide additional insight into the information used by management when evaluating significant estimates, assumptions, and judgments. For further discussion ofour significant accounting policies, see Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included in this report.Real Estate Depreciation and Amortization. Real estate costs related to the acquisition and improvement of properties are capitalized and amortized overthe expected useful life of the asset on a straight-line basis. Repair and maintenance costs are charged to expense as incurred and significant replacements andbetterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. We consider the period offuture benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are capitalized and amortized over the shorter of48Table of Contentsthe tenant’s lease term or expected useful life. Determining whether expenditures meet the criteria for capitalization and the assignment of depreciable livesrequires management to exercise significant judgment. 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, our acquisitions of realestate investments generally do not meet the definition of a business, and are treated as asset acquisitions. The assets acquired and liabilities assumed are measuredat their acquisition date relative fair values. Acquisition costs are capitalized as incurred. We allocate the acquisition costs to the tangible assets, identifiableintangible assets/liabilities and assumed liabilities on a relative fair value basis. We assess fair value based on available market information, such as capitalizationand discount rates, comparable sale transactions and relevant per square foot or unit cost information. A real estate asset’s fair value may be determined utilizingcash flow projections that incorporate such market information. Estimates of future cash flows are based on a number of factors including historical operatingresults, known and anticipated trends, as well as market and economic conditions. The fair value of land is derived from comparable sales of land within the samesubmarket and/or region. The fair value of buildings and improvements and integral equipment, furniture and fixtures considers the value of the property as if itwas vacant as well as replacement costs, depreciation factors, and other relevant market information. The use of different assumptions in these fair value inputscould significantly affect the reported amounts of the allocation of the acquisition on a relative fair value basis and the related depreciation expense recorded forsuch assets.As part of the real estate 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 by a ratestipulated in the agreement. Generally, if the contingent payment is an earn-out provided to the seller, the payment is capitalized to the property’s basis when theearn-out becomes probable and estimable. 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, we evaluate our real estate investments to be held and used for potential impairment wheneverevents or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The judgment regarding the existence of impairmentindicators, used to determine if an impairment assessment is necessary, is based on factors such as, but not limited to, market conditions, operator performance andlegal structure. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to the future undiscountedcash flows of the underlying facilities. The most significant inputs to the undiscounted cash flows include, but are not limited to, facility level financial results, alease coverage ratio, the intended hold period by the Company, and a terminal capitalization rate. The analysis is also significantly impacted by determining thelowest level of cash flows, which generally would be at the master lease level of cash flows. Provisions for impairment losses related to long-lived assets arerecognized when expected future undiscounted cash flows are determined to be less than the carrying values of the assets. The impairment is measured as theexcess of carrying 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.We classify our real estate investments as held for sale when the applicable criteria have been met, which entails a formal plan to sell the properties that isexpected to be completed within one year, among other criteria. Upon designation as held for sale, we write down the excess of the carrying value over theestimated fair value less costs to sell, resulting in an impairment of the real estate investments, if necessary, and cease depreciation.In the event of impairment, the fair value of the real estate investment is based on current market conditions and considers matters such as forecastedoperating cash flows, lease coverage ratios, capitalization rates, comparable sales data, and, where applicable, contracts or the results of negotiations withpurchasers or prospective purchasers.Our ability to accurately estimate future cash flows and estimate and allocate fair values impacts the timing and recognition of impairments. While webelieve our assumptions are reasonable, changes in these assumptions may have a material impact on financial results.49Table of ContentsOther Real Estate Investments. Included in Other Real Estate Investments, Net on our consolidated balance sheet, is one preferred equity investment andtwo mortgage loans receivable. The preferred equity investment is accounted for at unpaid principal balance, plus accrued return, net of reserves. We recognizereturn income 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, we are not entitled to share in the joint venture’s earnings or losses. Rather, weare entitled to receive a preferred return, which is deferred if the cash flow of the joint venture is insufficient to pay all of the accrued preferred return. The unpaidaccrued preferred return is added to the balance of the preferred equity investment up to the estimated economic outcome assuming a hypothetical liquidation of thebook value 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 two mortgage loans receivable are 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 loans receivable is recognized over the life of the investment using the interest method. Origination costs and fees directlyrelated 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 is establishedfor the excess of the carrying value of the investment over its fair value.Revenue Recognition. We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements, underwhich the tenant is solely responsible for the costs related to the property and recognize revenue on a straight-line basis over the lease term if deemed probable ofcollection. On January 1, 2019, we elected the single component practical expedient, which allows a lessor, by class of underlying asset, not to allocate the totalconsideration to the lease and non-lease components based on their relative stand-alone selling prices where certain criteria are met. This single componentpractical expedient requires us to account for the lease component and non-lease component(s) associated with that lease as a single component if (i) the timingand pattern of transfer of the lease component and the non-lease component(s) associated with it are the same and (ii) the lease component would be classified asan operating lease if it were accounted for separately. If we determine that the lease component is the predominant component, we account for the single componentas an operating lease in accordance with the new lease ASUs. Conversely, we are required to account for the combined component under the revenue recognitionstandard if we determine that the non-lease component is the predominant component. As a result of this assessment, rental revenues and tenant recoveries fromthe lease of real estate assets that qualify for this expedient are accounted for as a single component under the new lease ASUs, with tenant recoveries primarily asvariable consideration. Tenant recoveries that do not qualify for the single component practical expedient and are considered non-lease components are accountedfor under the revenue recognition standard. The components of our operating leases qualify for the single component presentation.Tenant reimbursements related to property taxes and insurance are neither lease nor non-lease components under the new lease ASUs. If a lessee makespayments for taxes and insurance directly to a third party on behalf of a lessor, lessors are required to exclude them from variable payments and from recognitionin the lessors’ income statements. Otherwise, tenant recoveries for taxes and insurance are classified as additional rental income recognized by the lessor on a grossbasis in its income statements.For the year ended December 31, 2018, we recognized tenant recoveries for real estate taxes of $11.9 million, which were classified as tenantreimbursements on our consolidated income statements. Prior to the adoption of Accounting Standards Codification (“ASC”) 842, we recognized tenant recoveriesas tenant reimbursement revenues regardless of whether the third party was paid by the lessor or lessee. Effective January 1, 2019, such tenant recoveries arerecognized to the extent that we pay the third party directly and classified as rental income on our consolidated income statements. Due to the application of thenew lease ASUs, we recognized, on a gross basis, tenant recoveries related to real estate taxes of $2.9 million for the year ended December 31, 2019.Under the new lease ASUs, our assessment of collectibility of tenant receivables includes a binary assessment of whether or not substantially all of theamounts due under a tenant’s lease agreement are probable of collection. This assessment involves significant judgment by management and considers theoperator’s performance and anticipated trends, payment history, and the existence and creditworthiness of guarantees, among other factors. For such leases that aredeemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For such leases that are deemed not probable of50Table of Contentscollection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant,with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectibilitydetermination. For the year ended December 31, 2019, we recorded $11.8 million of adjustments to rental income related to recognized rental income in the currentquarter and prior periods. See Note 3, Real Estate Investments, Net, in the Notes to the Consolidated Financial Statements for further detail.Income Taxes. We elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). Webelieve we have been organized and have operated, and we intend to continue to operate, in a manner to qualify for taxation as a REIT under the Code. To qualifyas a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute to our stockholders at least 90% of our annualREIT taxable income (computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculatedin accordance with GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we distribute as qualifying dividends all of our REITtaxable income 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. 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 Master Leases,provide for an annual rent escalator based on the percentage change in the Consumer Price Index (but not less than zero), subject to maximum fixed percentages.Off-Balance Sheet ArrangementsNone.ITEM 7A.Quantitative and Qualitative Disclosures About MarketRiskOur primary market risk exposure is interest rate risk with respect to our variable rate indebtedness.Our Amended Credit Agreement provides for: (i) an unsecured revolving credit facility (the “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 swingline loansubfacility for 10% of the then available revolving commitments and (ii) an unsecured term loan credit facility (the “Term Loan”) in an aggregate principal amountof $200.0 million from a syndicate of banks and other financial institutions.The interest rates applicable to loans under the Revolving Facility are, at our option, equal to either a base rate plus a margin ranging from 0.10% to0.55% per annum or LIBOR plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of the Company and its consolidatedsubsidiaries (subject to decrease at the Operating Partnership’s election if we obtain certain specified investment grade ratings on our senior long-term unsecureddebt). The interest rates applicable to loans under the Term Loan are, at our option, equal to either a base rate plus a margin ranging from 0.50% to 1.20% perannum or LIBOR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries(subject to decrease at the Operating Partnership’s election if we obtain certain specified investment grade ratings on our senior long-term unsecured debt). As ofDecember 31, 2019, we had a $200.0 million Term Loan outstanding and there was $60.0 million outstanding under the Revolving Facility.An increase in interest rates could make the financing of any acquisition by us more costly as well as increase the costs of our variable rate debt obligations.Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interestexpense on refinanced indebtedness. In addition, there is currently uncertainty around whether LIBOR will continue to exist after 2021. If LIBOR ceases to exist,we will need to enter into an amendment to the Amended Credit Agreement and we cannot predict what alternative index would be negotiated with our lenders. Ifour lenders have increased costs due to changes in LIBOR, we may experience potential increases in interest rates on our variable rate debt, which could adverselyimpact our interest expense, results of operations and cash flows. Based on our outstanding debt balance as of December 31, 2019 described above and the interestrates applicable to our outstanding debt at December 31, 2019, assuming a 100 basis point increase in the interest rates related to our variable rate debt, interestexpense would have increased approximately $2.6 million for the year ended December 31, 2019.51Table of ContentsWe may, in the future, manage, or hedge, interest rate risks related to our borrowings by means of interest rate swap agreements. However, the REITprovisions of the Code substantially limit our ability to hedge our assets and liabilities. See “Risk Factors - Risks Related to Our Status as a REIT - Complyingwith REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.” As of December 31, 2019, we had no swap agreementsto hedge our interest rate risks. We also expect to manage our exposure to interest rate risk by maintaining a mix of fixed and variable rates for our indebtedness.ITEM 8. Financial Statements and Supplementary DataSee the Index to Consolidated 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 time periodsspecified in the SEC’s rules and regulations and that such information is accumulated and communicated to management, including our Chief Executive Officerand Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls andprocedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance ofachieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls andprocedures.As of December 31, 2019, 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, 2019.Management’s Annual Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonableassurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and (iii) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financialstatements.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 concluded thatour internal control over financial reporting was effective as of December 31, 2019.Changes in Internal Control over Financial ReportingThere has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)that occurred during the quarter ended December 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control overfinancial reporting.Attestation Report of the Independent Registered Public Accounting FirmThe effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by Deloitte & Touche LLP, an independentregistered public accounting firm, as stated in their report which is included herein.52Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the shareholders and the Board of Directors of CareTrust REIT Inc.Opinion on Internal Control over Financial ReportingWe have audited the internal control over financial reporting of CareTrust REIT, Inc. and subsidiaries (the “Company”) as of December 31, 2019, based on criteriaestablished in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Inour opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteriaestablished in Internal Control - Integrated Framework (2013) issued by COSO.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financialstatements as of and for the year ended December 31, 2019, of the Company and our report dated February 20, 2020, expressed an unqualified opinion on thosefinancial statements.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is toexpress an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB andare required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of theSecurities 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 understandingof internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our auditprovides 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 reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized 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 compliance withthe policies or procedures may deteriorate./s/ DELOITTE & TOUCHE LLPCosta Mesa, CaliforniaFebruary 20, 202053Table 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 days afterthe end of our fiscal year ended December 31, 2019 in connection with our 2020 Annual Meeting of Stockholders.Code of Conduct and EthicsWe have adopted a code of business conduct and ethics that applies to all employees, including employees of our subsidiaries, as well as each member of ourBoard of Directors. The code of business conduct and ethics is available at our website at www.caretrustreit.com under the Investors-Corporate Governancesection. We intend to satisfy any disclosure requirement under applicable rules of the Securities and Exchange Commission or Nasdaq Stock Market regarding anamendment to, or waiver from, a provision of this code of business conduct and ethics by posting such information on our website, at the address 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 days afterthe end of our fiscal year ended December 31, 2019 in connection with our 2020 Annual Meeting of Stockholders.ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related StockholderMattersThe information required under Item 12 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days afterthe end of our fiscal year ended December 31, 2019 in connection with our 2020 Annual Meeting of Stockholders.ITEM 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required under Item 13 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days afterthe end of our fiscal year ended December 31, 2019 in connection with our 2020 Annual Meeting of Stockholders.ITEM 14.Principal Accountant Fees andServicesThe information required under Item 14 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days afterthe end of our fiscal year ended December 31, 2019 in connection with our 2020 Annual Meeting of Stockholders.PART IVITEM 15.Exhibits, Financial Statements and Financial StatementSchedules(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 Loans on Real Estate Note: All other schedules have been omitted because the required information is presented in the financial statements and the related notes orbecause the schedules are not applicable. (a)(3)Exhibits54Table of Contents 2.1Membership Interest Purchase Agreement, dated as of January 27, 2019, by and between BME Texas Holdings LLC and CTR Partnership,L.P. (incorporated by reference to Exhibit 2.1 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on April 2, 2019). 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 Current Reporton Form 8-K filed on March 7, 2019). 4.1Indenture, dated as of May 24, 2017, among CTR Partnership, L.P. and CareTrust Capital Corp., as Issuers, the guarantors named therein,and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the CareTrust REIT, Inc.’s CurrentReport 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 byreference 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 2025 (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). *4.5Description of CareTrust REIT, Inc.’s Capital Stock 10.1Form of Master Lease by and among certain subsidiaries of The Ensign Group, Inc. and certain subsidiaries of CareTrust REIT, Inc.(incorporated by reference to Exhibit 10.1 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on June 5, 2014). 10.2Form of Guaranty of Master Lease by The Ensign Group, Inc. in favor of certain subsidiaries of CareTrust REIT, Inc., as landlords under theEnsign 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 CTR 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 swingline lender and the other parties thereto. (incorporated by reference to Exhibit 10.1 to theCareTrust REIT, Inc.’s Current Report on Form 8-K filed on February 11, 2019). 10.5First Amendment to Amended and Restated Credit and Guaranty Agreement, dated July 23, 2019, by and among CTR Partnership, L.P., asborrower, CareTrust REIT, Inc., as guarantor, CareTrust GP, LLC, and other guarantors named therein, the Lenders (as defined therein) fromtime to time party thereto and KeyBank National Association, as administrative agent, an issuing lender and swingline lender (incorporatedby reference to Exhibit 10.1 to the CareTrust REIT, Inc.’s Quarterly Report on Form 10-Q filed on August 6, 2019). 10.6Amended and Restated Partnership Agreement of CTR Partnership, L.P. (incorporated by reference to Exhibit 3.4 to CareTrust REIT, Inc.’sRegistration Statement on Form S-4, filed on August 28, 2014). 10.7Form of Indemnification Agreement between CareTrust REIT, Inc. and its directors and officers (incorporated by reference to Exhibit 10.11to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on June 5, 2014). +10.8Incentive Award Plan (incorporated by reference to Exhibit 10.9 to CareTrust REIT, Inc.’s Registration Statement on Form 10, filed on May13, 2014). +10.9Form 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). +10.10Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.15 to CareTrust REIT, Inc.’s Annual Report on Form 10-K, filed on February 11, 2015).55Table of Contents +10.11Form of Change in Control and Severance Agreement (incorporated by reference to Exhibit 10.1 to CareTrust REIT, Inc’s Current Report onForm 8-K filed on February 11, 2019). *21.1List of Subsidiaries of CareTrust REIT, Inc. *23.1Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm. *23.2Consent 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 to Section 906of the Sarbanes-Oxley Act of 2002. *101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embeddedwithin the Inline XBRL 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 *104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) *Filed herewith.**Furnished herewith.+Management contract or compensatory plan orarrangement.ITEM 16.10-K SummaryNone.56Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. CARETRUST REIT, INC. By:/S/ GREGORY K. STAPLEY Gregory K. Stapley President and Chief Executive Officer Dated: February 20, 2020Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated.Name Title Date /s/ GREGORY K. STAPLEY Director, President and Chief Executive Officer (PrincipalExecutive Officer) February 20, 2020Gregory K. Stapley /s/ WILLIAM M. WAGNER Chief Financial Officer, Treasurer and Secretary(Principal Financial Officer and Principal AccountingOfficer) February 20, 2020William M. Wagner /s/ ALLEN C. BARBIERI Director February 20, 2020Allen C. Barbieri /s/ JON D. KLINE Director February 20, 2020Jon D. Kline /s/ DIANA LAING Director February 20, 2020Diana Laing /s/ SPENCER PLUMB Director February 20, 2020Spencer Plumb 57Table of ContentsINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reports of Independent Registered Public Accounting Firms with respect to CareTrust REIT, Inc.F-4Consolidated Balance Sheets as of December 31, 2019 and 2018F-5Consolidated Income Statements for the years ended December 31, 2019, 2018 and 2017F-6Consolidated Statements of Equity for the years ended December 31, 2019, 2018 and 2017F-7Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017F-8Notes to Consolidated Financial StatementsF-9 Schedule III: Real Estate Assets and Accumulated DepreciationF-37Schedule IV: Mortgage Loans on Real EstateF-45F-1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the shareholders and the Board of Directors of CareTrust REIT, Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheet of CareTrust REIT, Inc. and subsidiaries (the "Company") as of December 31, 2019, the relatedconsolidated income statement and statements of equity and cash flows, for the year then ended, and the related notes and the schedules listed in the Index at Item15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of theCompany as of December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generallyaccepted in the United States of America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internalcontrol over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committeeof Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2020, expressed an unqualified opinion on the Company's internalcontrol over financial reporting.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statementsbased on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordancewith the U.S. federal securities laws and the applicable 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 the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures toassess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Suchprocedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating theaccounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believethat our audit provides a reasonable basis for our opinion.Critical Audit MatterThe critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to becommunicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especiallychallenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, takenas a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts ordisclosures to which it relates.Impairment of Real Estate Investments - Refer to Notes 2 and 3 to the financial statementsCritical Audit Matter DescriptionThe Company classifies its real estate investments as held for sale when the applicable criteria have been met, which entails a formal plan to sell the properties thatis expected to be completed within one year, among other criteria. Upon designation as held for sale, the Company writes down the excess of the carrying valueover the estimated fair value less costs to sell, resulting in an impairment of the real estate investments, if necessary. Management’s estimates of fair value of thereal estate investments are based on current market conditions and consider matters such as the forecasted operating cash flows, lease coverage ratios, capitalizationrates, comparable sales data, and, where applicable, contracts or the results of negotiations with purchasers or prospective purchasers. Impairment of real estateinvestments recorded during the year ended December 31, 2019 was $16.7 million.We identified the impairment of real estate investments that relate to assets held for sale as a critical audit matter because of the significant estimates andassumptions management makes to evaluate the fair value of the assets held for sale. This required a high degree of auditor judgment and an increased extent ofeffort when performing audit procedures to evaluate the reasonableness of management’s estimated fair value less costs to sell, specifically related to the inputs forforecasted operatingF-2Table of Contentscash flows, capitalization rates, and comparable sales data, due to the sensitivity of the inputs.How the Critical Audit Matter Was Addressed in the AuditOur audit procedures related to the inputs for forecasted operating cash flows, capitalization rates, and comparable sales data used by management to estimate fairvalue less costs to sell included the following, among others:•We tested the effectiveness of controls over management’s evaluation of impairment of real estate investments for assets held for sale, including thosecontrols relating to the determination of the fair value of assets held for sale, such as controls related to management’s review of forecasted operating cashflows, selection of capitalization rates, and use of comparable sales data.•We evaluated the reasonableness of management’s inputs for forecasted operating cash flows, capitalization rates, and comparable sales data used in theCompany’s fair value evaluation by:◦Evaluating the source information used by management to develop and support the respectiveinput◦Independently obtaining market data to compare to that used bymanagement◦Comparing inputs used to historical transactions executed by theCompany◦Evaluating evidence related to prospective sales of the real estate investments for overall consistency with inputs selected bymanagement◦Inspecting minutes of the meetings of board of directors and other available information to identify any evidence that may contradictmanagement’s assertions regarding its selected inputs./s/ DELOITTE & TOUCHE LLPCosta Mesa, CaliforniaFebruary 20, 2020We have served as the Company's auditor since 2019.F-3Table 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 sheet of CareTrust REIT, Inc. (the Company), as of December 31, 2018, the related consolidated incomestatements, statements of equity, and cash flows for each of the two years in the period ended December 31, 2018, and the related notes and the financial statementschedules listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financialstatements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2018, and the consolidated results of itsoperations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statementsbased on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordancewith 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 procedures toassess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Suchprocedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating theaccounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believethat our audits provide a reasonable basis for our opinion./s/ ERNST & YOUNG LLPWe served as the Company’s auditor from 2014 to 2019.Irvine, CaliforniaFebruary 13, 2019F-4Table of ContentsCARETRUST REIT, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share and per share amounts) December 31, 2019 2018Assets: Real estate investments, net$1,414,200 $1,216,237Other real estate investments, net33,300 18,045Assets held for sale, net34,590 —Cash and cash equivalents20,327 36,792Accounts and other receivables, net2,571 11,387Prepaid expenses and other assets10,850 8,668Deferred financing costs, net3,023 633Total assets$1,518,861 $1,291,762Liabilities and Equity: Senior unsecured notes payable, net$295,911 $295,153Senior unsecured term loan, net198,713 99,612Unsecured revolving credit facility60,000 95,000Accounts payable and accrued liabilities14,962 15,967Dividends payable21,684 17,783Total liabilities591,270 523,515Commitments and contingencies (Note 10) Equity: Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued and outstanding as ofDecember 31, 2019 and December 31, 2018— —Common stock, $0.01 par value; 500,000,000 shares authorized, 95,103,270 and 85,867,044 shares issued andoutstanding as of December 31, 2019 and December 31, 2018, respectively951 859Additional paid-in capital1,162,990 965,578Cumulative distributions in excess of earnings(236,350) (198,190)Total equity927,591 768,247Total liabilities and equity$1,518,861 $1,291,762See accompanying notes to consolidated financial statements.F-5Table of ContentsCARETRUST REIT, INC.CONSOLIDATED INCOME STATEMENTS(in thousands, except per share amounts) Year Ended December 31, 2019 2018 2017Revenues: Rental income$155,667 $140,073 $117,633Tenant reimbursements— 11,924 10,254Independent living facilities3,389 3,379 3,228Interest and other income4,345 1,565 1,867Total revenues163,401 156,941 132,982Expenses: Depreciation and amortization51,822 45,766 39,159Interest expense28,125 27,860 24,196Loss on the extinguishment of debt— — 11,883Property taxes3,048 11,924 10,254Independent living facilities2,898 2,964 2,733Impairment of real estate investments16,692 — 890Provision for loan losses1,076 — —Reserve for advances and deferred rent— — 10,414General and administrative15,15812,555 11,117Total expenses118,819 101,069 110,646Other income: Gain on sale of real estate1,777 2,051 —Gain on disposition of other real estate investment— — 3,538Net income$46,359 $57,923 $25,874Earnings per common share: Basic$0.49 $0.73 $0.35Diluted$0.49 $0.72 $0.35Weighted-average number of common shares: Basic93,088 79,386 72,647Diluted93,098 79,392 72,647See accompanying notes to consolidated financial statements.F-6Table 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 as of 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 as of 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 as of December 31, 201885,867,044 859 965,578 (198,190) 768,247Issuance of common stock, net9,100,250 91 195,833 — 195,924Vesting of restricted common stock, net of shareswithheld for employee taxes135,976 1 (2,525) — (2,524)Amortization of stock-based compensation— — 4,104 — 4,104Common dividends ($0.90 per share)— — — (84,519) (84,519)Net income— — — 46,359 46,359Balance as of December 31, 201995,103,270 $951 $1,162,990 $(236,350) $927,591See accompanying notes to consolidated financial statements.F-7Table of ContentsCARETRUST REIT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2019 2018 2017Cash flows from operating activities: Net income$46,359 $57,923 $25,874Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (including below-market ground leases)51,866 45,783 39,176Amortization of deferred financing costs2,003 1,938 2,100Loss on the extinguishment of debt— — 11,883Amortization of stock-based compensation4,104 3,848 2,416Straight-line rental income(1,385) (2,333) (344)Adjustment for collectibility of rental income11,774 — —Noncash interest income(797) (238) (686)Gain on sale of real estate(1,777) (2,051) —Interest income distribution from other real estate investment463 — 1,500Reserve for advances and deferred rent— — 10,414Impairment of real estate investments16,692 — 890Provision for loan losses1,076 — —Change in operating assets and liabilities: Accounts and other receivables, net(6,283) (3,800) (9,428)Prepaid expenses and other assets(495) (270) (273)Accounts payable and accrued liabilities2,695 (1,443) 5,278Net cash provided by operating activities126,295 99,357 88,800Cash flows from investing activities: Acquisitions of real estate, net of deposits applied(321,458) (111,640) (296,517)Improvements to real estate(3,352) (7,230) (748)Purchases of equipment, furniture and fixtures(2,937) (1,782) (403)Investment in real estate mortgage and other loans receivable(18,246) (5,648) (12,416)Principal payments received on real estate mortgage and other loans receivable24,283 3,227 25Repayment of other real estate investment2,204 — 7,500Escrow deposits for acquisitions of real estate— (5,000) —Net proceeds from sales of real estate3,499 13,004 —Net cash used in investing activities(316,007) (115,069) (302,559)Cash flows from financing activities: Proceeds from the issuance of common stock, net195,924 179,882 170,323Proceeds from the issuance of senior unsecured notes payable— — 300,000Proceeds from the issuance of senior unsecured term loan200,000 — —Borrowings under unsecured revolving credit facility243,000 65,000 238,000Payments on senior unsecured notes payable— — (267,639)Payments on senior unsecured term loan(100,000) — —Payments on unsecured revolving credit facility(278,000) (135,000) (168,000)Payments of deferred financing costs(4,534) — (6,063)Net-settle adjustment on restricted stock(2,524) (1,288) (866)Dividends paid on common stock(80,619) (62,999) (52,587)Net cash provided by financing activities173,247 45,595 213,168Net (decrease) increase in cash and cash equivalents(16,465) 29,883 (591)Cash and cash equivalents, beginning of period36,792 6,909 7,500Cash and cash equivalents, end of period$20,327 $36,792 $6,909Supplemental disclosures of cash flow information: Interest paid$26,005 $25,941 $29,619Supplemental schedule of noncash investing and financing activities: Increase in dividends payable$3,900 $3,739 $2,970Right-of-use asset obtained in exchange for new operating lease obligation$1,010 $— $—Application of escrow deposit to acquisition real estate$— $— $700Transfer of pre-acquisition costs to acquired assets$242 $— $—Sale of real estate settled with notes receivable$27,500 $— $—See accompanying notes to consolidated financial statements.F-8Table 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, developingand owning real property to be leased to third-party tenants in the healthcare sector. As of December 31, 2019, the Company owned and leased to independentoperators, including The Ensign Group, Inc. (“Ensign”), 216 skilled nursing, multi-service campuses, assisted living and independent living facilities consisting of21,963 operational beds and units located in 28 states with the highest concentration of properties located in California, Texas, Louisiana, Arizona and Idaho. TheCompany also owned and operated one independent living facility which had a total of 168 units and is located in Texas. As of December 31, 2019, the Companyalso had other real estate investments consisting of one preferred equity investment of $3.8 million and two mortgage loans receivable with a carrying value of$29.5 million.2. SUMMARY OF SIGNIFICANT 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 the Company and its wholly-owned subsidiaries prepared in accordance with accounting principles generallyaccepted in the United States (“GAAP”). All intercompany transactions and account balances within the Company have been eliminated. Recent Accounting Standards Adopted by the Company—On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No.2016-02, Leases (Topic 842), (“ASU 2016-02”) that sets out the principles for the recognition, measurement, presentation, and disclosure of leases for both partiesto a lease agreement (i.e., lessees and lessors). Upon adoption of ASU 2016-02 on January 1, 2019, the Company elected the following practical expedientsprovided by ASU No. 2018-11, Leases - Targeted Improvements, and ASU No. 2018-20, Narrow Scope Improvements for Lessors (together with ASU 2016-02,the “new lease ASUs”):•Package of practical expedients – provides that the Company is not required to reevaluate its existing or expired leases as of January 1, 2019, under thenew lease ASUs.•Optional transition method practical expedient – allows the Company to apply the new lease ASUs prospectively from the adoption date of January 1,2019.•Single component practical expedient – allows the Company to account for lease and non-lease 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 expedientallows 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 new 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 the following: (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 forthe major part of the underlying asset’s remaining economic life, (iv) the present value of lease payments equals or exceeds substantially all of the fair value of theunderlying asset, and (v) the underlying asset is specialized and is expected to have no alternative use at the end of the lease term. If any of these criteria is met, alease 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 is classified as an operating lease bythe lessee, but may still qualify as a direct financing lease or an operating lease for the lessor. The existence of a residual value guarantee from an unrelated thirdparty other than the lessee may qualify the lease as a direct financing lease by the lessor. Otherwise, the lease is classified as an operating lease by the lessor.The election of the package of practical expedients discussed above 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 containedleases.◦This practical expedient is primarily applicable to entities that have contracts containing embedded leases. As of January 1, 2019, the Companyhad 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.F-9Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS◦The election of the package of practical expedients provides that the Company is not required to reassess the classification of its leases existingas of January 1, 2019. This means that all of the Company’s leases that were classified as operating leases in accordance with the leaseaccounting standards in 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., regardless of whether the Company was the lessee or a lessor)that commenced 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—On January 1, 2019, the Company elected the single component practical expedient, which allows a lessor, by class of underlyingasset, not to allocate the total consideration to the lease and non-lease components based on their relative stand-alone selling prices. This single componentpractical expedient requires the Company to account for the lease component and non-lease component(s) associated with that lease as a single component if (i) thetiming and pattern of transfer of the lease component and the non-lease 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 account for thecombined component under the revenue recognition standard if the Company determines that the non-lease component is the predominant component. As a resultof this assessment, rental revenues and tenant recoveries from the lease of real estate assets that qualify for this expedient are accounted for as a single componentunder the new lease ASUs, with tenant recoveries primarily as variable consideration. Tenant recoveries that do not qualify for the single component practicalexpedient and are considered non-lease components are accounted for under the revenue recognition standard. The components of the Company’s operating leasesqualify for the single component presentation.For the years ended December 31, 2018 and 2017, the Company recognized tenant recoveries for real estate taxes of $11.9 million and $10.3 million,respectively, which were classified as tenant reimbursements on the Company’s consolidated income statements. Prior to the adoption of the new lease ASU, theCompany recognized tenant recoveries as tenant reimbursement revenues regardless of whether the third party was paid by the lessor or lessee. Effective January1, 2019, such tenant recoveries are recognized to the extent that the Company pays the third party directly and classified as rental income on the Company’sconsolidated income statements. Due to the application of the new lease ASUs, the Company recognized, on a gross basis, tenant recoveries related to real estatetaxes of $2.9 million, for the year ended December 31, 2019.Under the new lease ASUs, the Company’s assessment of collectibility of its tenant receivables includes a binary assessment of whether or notsubstantially all of the amounts due under a tenant’s lease agreement are probable of collection. The Company considers the operator’s performance andanticipated trends, payment history, and the existence and creditworthiness of guarantees, among other factors, in making this determination. For such leases thatare deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term if deemed probable of collection. For such leasesthat are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash thathas been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of thechange in the collectibility determination. For the year ended December 31, 2019, the Company recorded $11.8 million of adjustments to rental income related topreviously recognized rental income. See Note 3, Real Estate Investments, Net for further detail.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 determine whether thelease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, which corresponds to a similar evaluationperformed by lessors. In addition to this classification, a lessee is also required to recognize a right-of-use asset and a lease liability for all leases regardless of theirclassification, 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, 2019, the Company’s lease liability related to its ground lease arrangements for which it is the lessee totaled approximately $1.0million with a weighted average remaining lease term of 73 years. While these ground leasesF-10Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSwere subject to the new lease ASUs effective January 1, 2019, the lease liabilities and corresponding right-of-use assets and lease expense do not have a materialeffect on the Company’s consolidated financial statements.The Company has not recognized a right-of-use asset and/or lease liability for leases with a term of 12 months or less and without an option topurchase the underlying asset.Estimates and Assumptions—The preparation of financial statements in conformity with GAAP requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements andthe reported amounts of revenue and expenses during the reporting periods. Management believes that the assumptions and estimates used in preparation of theunderlying consolidated financial statements are reasonable. Actual results, however, could differ from those estimates and assumptions. Real Estate Acquisition Valuation— In accordance with ASC 805, Business Combinations, the Company’s acquisitions of real estate investmentsgenerally do not meet the definition of a business, and are treated as asset acquisitions. The assets acquired and liabilities assumed are measured at their acquisitiondate relative fair values. Acquisition costs are capitalized as incurred. The Company allocates the acquisition costs to the tangible assets, identifiable intangibleassets/liabilities and assumed liabilities on a relative fair value basis. The Company assesses fair value based on available market information, such as capitalizationand discount rates, comparable sale transactions and relevant per square foot or unit cost information. A real estate asset’s fair value may be determined utilizingcash flow projections that incorporate such market information. Estimates of future cash flows are based on a number of factors including historical operatingresults, known and anticipated trends, as well as market and economic conditions. The fair value of tangible assets of an acquired property is based on the value ofthe property as if it is vacant.As part of the Company’s real estate 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 when earn-out becomes probable and estimable. If the contingent payment is an earn-out provided to the lessee, the payment isrecorded as a lease incentive and is amortized as a yield adjustment over the life of the lease.Impairment of Long-Lived Assets—At each reporting period, the Company evaluates its real estate investments to be held and used for potentialimpairment 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, used to determine if an impairment assessment is necessary, is based on factors such as, but not limited to, market conditions,operator performance and legal structure. If indicators of impairment are present, the Company evaluates the carrying value of the related real estate investments inrelation to the future undiscounted cash flows of the underlying facilities. The most significant inputs to the undiscounted cash flows include, but are not limited to,facility level financial results, a lease coverage ratio, the intended hold period by the Company, and a terminal capitalization rate. The analysis is also significantlyimpacted by determining the lowest level of cash flows, which generally would be at the master lease level of cash flows. Provisions for impairment losses relatedto long-lived assets are recognized when expected future undiscounted cash flows are determined to be less than the carrying values of the assets. The impairmentis measured as the excess of carrying value over fair value. All impairments are taken as a period cost at that time, and depreciation is adjusted going forward toreflect the new value assigned to the asset.The Company classifies its real estate investments as held for sale when the applicable criteria have been met, which entails a formal plan to sell theproperties that is expected to be completed within one year, among other criteria. Upon designation as held for sale, the Company writes down the excess of thecarrying value over the estimated fair value less costs to sell, resulting in an impairment of the real estate investments, if necessary, and ceases depreciation.In the event of impairment, the fair value of the real estate investment is based on current market conditions and considers matters such as theforecasted operating cash flows, lease coverage ratios, capitalization rates, comparable sales data, and, where applicable, contracts or the results of negotiationswith purchasers or prospective purchasers.The Company’s ability to accurately estimate future cash flows and estimate and allocate fair values impacts the timing and recognition ofimpairments. While the Company believes its assumptions are reasonable, changes in these assumptions may have a material impact on financial results.F-11Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSOther Real Estate Investments—Included in “Other real estate investments, net,” on the Company’s consolidated balance sheet, is one preferred equityinvestment and two mortgage loans receivable. The preferred equity investment is accounted for at unpaid principal balance, plus accrued return, net of reserves.The Company recognizes return income on a quarterly basis based on the outstanding investment including any accrued and unpaid return, to the extent there isoutside contributed equity or cumulative earnings from operations. As the preferred member of the joint venture, the Company is not entitled to share in the jointventure’s earnings or losses. Rather, the Company is entitled to receive a preferred return, which is deferred if the cash flow of the joint venture is insufficient topay all of the accrued 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 by theCompany, will be repaid upon redemption or as available cash flow is distributed from the joint venture.The Company’s two mortgage loans receivable are 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.Interest income on the Company’s mortgage loans receivable is recognized over the life of the investment using the interest method. Origination costsand fees directly related to 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 existing contractualterms. A reserve is established for the excess of the carrying value of the investment over its fair value.Prepaid expenses and other assets—Prepaid expenses and other assets consist of prepaid expenses, deposits, pre-acquisition costs and other loansreceivable. Included in other loans receivable is a bridge loan to Priority Life Care, LLC (“Priority”) under which the Company agreed to fund up to $1.4million until the earlier of (i) October 31, 2019, (ii) the date that a new credit facility is established such that the borrower may submit draw requests to theapplicable lender, or (iii) the date on which Priority’s lease is terminated with respect to any facility. Borrowings under the bridge loan accrue interest at an annualbase rate of 8.0%. During the year ended December 31, 2019, the Company determined that the remaining contractual obligations under the bridge loan agreementto Priority were not collectible and recorded a $1.1 million provision for loan losses in the Company’s consolidated income statements.Income Taxes—The Company has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended(the “Code”). The Company believes it has been organized and has operated, and the Company intends to continue to operate, in a manner to qualify for taxation asa REIT under the Code. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute toits stockholders at least 90% of the Company’s annual REIT taxable income (computed without regard to the dividends paid deduction or net capital gain andwhich does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income taxto the extent it distributes as qualifying dividends all of its REIT taxable income to its stockholders. If the Company fails to qualify 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 will not be permitted to qualify for treatment as aREIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants theCompany relief under certain statutory provisions. Real Estate Depreciation and Amortization—Real estate costs related to the acquisition and improvement of properties are capitalized and amortizedover the expected useful life of the asset on a straight-line basis. Repair and maintenance costs are charged to expense as incurred and significant replacements andbetterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers theperiod of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are capitalized and amortized over the shorter ofthe tenant’s lease term or expected useful life. The Company anticipates the estimated useful lives of its assets by class to be generally as follows:F-12Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSBuilding 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 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, which consistof unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets. The Company places its cash and short-term investments with high credit quality financial institutions.The Company’s cash and cash equivalents balance periodically exceeds federally insurable limits. The Company monitors the cash balances in itsoperating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or aresubject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts.Deferred Financing Costs—External costs incurred from placement of the Company’s debt are capitalized and amortized on a straight-line basis overthe terms of the related borrowings, which approximates the effective interest method. For senior unsecured notes payable and the senior unsecured term loan,deferred financing costs are netted against the outstanding debt amounts on the balance sheet. For the unsecured revolving credit facility, deferred financing costsare included in assets on the Company’s balance sheet. Amortization of deferred financing costs is classified as interest expense in the consolidated incomestatements. Accumulated amortization of deferred financing costs was $7.1 million and $5.1 million at December 31, 2019 and December 31, 2018, respectively.When financings are terminated, unamortized deferred financing costs, as well as charges incurred for the termination, are expensed at the time thetermination is made. Gains and losses from the extinguishment of debt are presented within income from continuing operations in the Company’s consolidatedincome statements.Stock-Based Compensation—The Company accounts for share-based payment awards in accordance with ASC Topic 718, Compensation – StockCompensation (“ASC 718”). ASC 718 requires all entities to apply a fair value-based measurement method in accounting for share-based payment transactionswith directors, officers and employees. The Company measures and recognizes compensation expense for all share-based payment awards made to directors,officers and employees based on the grant date fair value, amortized over the requisite service period of the award. Net income reflects stock-based compensationexpense of $4.1 million, $3.8 million and $2.4 million for the years ended December 31, 2019, 2018 and 2017, 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 Company is subject to disclosures about segments of an enterprise and related information in accordance with ASC Topic280, Segment Reporting. The Company 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. Basic EPSis computed by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period. Diluted EPSreflects the additional dilution for all potentially-dilutive securities.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 independent registeredpublic accounting firm in accordance with the standards of the Public Company Accounting Oversight Board.F-13Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSRecent Accounting Pronouncements—In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Subtopic 326) (“ASU2016-13”), that changes the impairment model for most financial instruments by requiring companies to recognize an allowance for expected credit losses, ratherthan incurred losses as required currently by the other-than-temporary impairment model. ASU 2016-13 will apply to most financial assets measured at amortizedcost and certain other instruments, including trade and other receivables, loans receivable, held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures (e.g., loan commitments). In November 2018, the FASB released ASU No. 2018-19, Codification Improvements to Topic 326Financial Instruments - Credit Losses (“ASU 2018-19”). ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of ASU2016-13. Instead, impairment of receivables arising from operating leases should be accounted for under Subtopic 842-30 “Leases - Lessor.” ASU 2016-13 iseffective for reporting periods beginning after December 15, 2019, and will be applied as a cumulative adjustment to retained earnings as of the effective date. TheCompany is currently assessing the potential effect the adoption of ASU 2016-13 will have on the Company’s consolidated financial statements. With theCompany’s primary business being leasing real property to third party tenants, the majority of receivables that arise in the ordinary course of business qualify asoperating leases and are not in scope of ASU 2016-13. However, based on the instruments held upon adoption on January 1, 2020, the standard applies to theCompany’s mortgage loans receivable, for which the allowance for expected credit losses is in the process of being quantified.3. REAL ESTATE INVESTMENTS, NETThe following table summarizes the Company’s investment in owned properties at December 31, 2019 and December 31, 2018 (dollars in thousands): December 31, 2019 December 31, 2018Land$204,154 $166,948Buildings and improvements1,400,927 1,201,209Integral equipment, furniture and fixtures93,005 87,623Identified intangible assets1,650 2,382Real estate investments1,699,736 1,458,162Accumulated depreciation and amortization(285,536) (241,925)Real estate investments, net$1,414,200 $1,216,237As of December 31, 2019, 85 of the Company’s 217 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 will result ina default under all of the Ensign Master Leases. As of December 31, 2019, annualized revenues from the Ensign Master Leases were $53.4 million and areescalated 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 than zero) or2.5%, and (2) the prior year’s rent. In addition to rent, the subsidiaries of Ensign that are tenants under the Ensign Master Leases are solely responsible for the costsrelated to the leased properties (including property taxes, insurance, and maintenance and repair costs). On October 1, 2019, Ensign completed its previouslyannounced separation of its home health and hospice operations and substantially all of its senior living operations into a separate independent publicly tradedcompany through the distribution of shares of common stock of The Pennant Group, Inc. (“Pennant” and, such separation, the “Pennant Spin”). See LeaseAmendments for additional information.As of December 31, 2019, 15 of the Company facilities were leased to subsidiaries of Priority Management Group (“PMG”) on a triple-net basis underone long-term lease (the “PMG Master Lease”). The PMG Master Lease commenced on December 1, 2016, and provides an initial term of fifteen years, with twofive-year renewal options. As of December 31, 2019, annualized revenues from the PMG Master Lease were $27.4 million and are escalated annually by anamount equal to the product of (1) the lesser of the percentage change in the CPI (but not less than zero) or 3.0%, and (2) the prior year’s rent. In addition to rent,the subsidiaries of PMG that are tenants under the PMG Master Lease are solely responsible for the costs related to the leased properties (including property taxes,insurance, and maintenance and repair costs).F-14Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs of December 31, 2019, 116 of the Company’s 217 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.As of December 31, 2019, the Company has one independent living facility that the Company owns and operates.As of December 31, 2019, the Company’s total future minimum rental revenues for all of its tenants, excluding operating expense reimbursements,were (dollars in thousands):YearAmount2020$168,3942021169,1752022169,2722023168,9682024169,069Thereafter1,144,102 $1,988,980 As of December 31, 2018, the Company’s total future minimum rental revenues for all of its tenants, excluding operating expense reimbursements,were (dollars in thousands):YearAmount2019$146,0102020146,5602021147,1322022147,7192023148,169Thereafter1,055,012 $1,790,602The following table summarizes components of the Company’s rental income (dollars in thousands): For the Year Ended December 31, 2019Rental Income Contractual rent due(1)$166,056Straight-line rent1,385Adjustment for collectibility of rental income(2)(11,774)Total$155,667(1)Initial cash rent including operating expense reimbursements adjusted for rental escalators and increases due to landlord funded capitalimprovements.(2)In accordance with the new lease ASUs, the Company evaluated the collectibility of lease payments through maturity and determined that it was notprobable that the Company would collect substantially all of the contractual obligations from five operators through maturity. As such, the Companyreversed rental income comprised of $7.8 million of unpaid contractual rent, $3.5 million of straight-line rent and $0.5 million of property taxreimbursements during the year ended December 31, 2019. If lease payments are subsequently deemed probable of collection, the Company increasesrental income accordingly.F-15Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSRecent Real Estate AcquisitionsThe following table summarizes the Company’s acquisitions for the year ended December 31, 2019 (dollar amounts in thousands):Type of PropertyPurchase Price(1) Initial Annual Cash Rent(2) Number of Properties Number of Beds/Units(3)Skilled nursing$254,760 $22,909 17 2,099Multi-service campuses59,344 5,203 4 762Assisted living12,596 1,031 1 96Total$326,700 $29,143 22 2,957 (1)Purchase price includes capitalized acquisition costs.(2)Initial annual cash rent excludes ground lease income.(3)The number of beds/units includes operating beds at acquisition date.The 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 includes 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 on the in-place lease yield,which is included in the purchase price.Lease AmendmentsPennant Spin. On October 1, 2019, Ensign completed its previously announced separation of its home health and hospice operations and substantiallyall of its senior living operations into a separate independent publicly traded company through the distribution of shares of common stock of Pennant. As a resultof the Pennant Spin, as of October 1, 2019, the Company amended the Ensign Master Leases to lease 85 facilities to subsidiaries of Ensign, which have a total of8,908 operational beds, and entered into a new triple-net master lease with subsidiaries of Pennant (the “Pennant Master Lease”) to lease 11 facilities, which have atotal of 1,151 operational beds. The contractual initial annual cash rent under the Pennant Master Lease is approximately $7.8 million. The Pennant Master Leasecarries an initial term of 15 years, with two five-year renewal options and CPI-based rent escalators. The contractual annual cash rent under the amended EnsignMaster Leases was reduced by approximately $7.8 million. Ensign continues to guarantee obligations under the Ensign Master Leases and the Pennant MasterLease. If Pennant achieves a specified portfolio coverage and continuously maintains it for a specified period, Ensign’s obligations under the guaranty with respectto the Pennant Master Lease would be released.Trillium Lease Termination and New Master Lease. On July 15, 2019, the Company terminated its existing master lease (the “Original TrilliumLease”) with affiliates of Trillium Healthcare Group, LLC (“Trillium”), which covered ten properties in Iowa, seven properties in Ohio and one property inGeorgia. On August 16, 2019, the Company entered into a new master lease (the “New Trillium Lease”) with Trillium’s Iowa and Georgia affiliates covering theten properties in Iowa and the one property in Georgia. The Company recorded an adjustment to reduce rental income recognized under the Original TrilliumLease for unpaid contractual rent, straight-line rent and property tax reimbursements by approximately $3.8 million in the three months ended September 30, 2019.On September 1, 2019, four of the seven skilled nursing Ohio properties operated by Trillium under the Original Trillium Lease were transferred toaffiliates of Providence Group, Inc. (“Providence”). In connection with the transfer, theF-16Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCompany amended its triple-net master lease with Providence. The amended lease has a remaining initial term of approximately 13 years, with two five-yearrenewal options and CPI-based rent escalators. Annual cash rent under the amended lease increased by approximately $2.1 million.Trio Lease Amendment. On November 4, 2019, the Company amended its existing master lease with affiliates of Trio Healthcare, Inc. (“Trio”),which covered seven facilities based in Dayton, Ohio. The amended lease has a remaining initial term of approximately 13 years, with two five-year renewaloptions and CPI-based rent escalators. The annual base rent due under the amended lease with Trio is approximately $4.7 million and provides for payment ofpercentage rent if Trio achieves certain increases in portfolio revenue.Pristine Lease Termination. On February 27, 2018, the Company announced that it entered into a Lease Termination Agreement (the “LTA”) withPristine for its nine remaining properties, with a target completion date of April 30, 2018. Under the LTA, Pristine agreed to continue to operate the facilities untilpossession could be surrendered, and the operations therein transitioned, to operator(s) designated by the Company. Among other things, Pristine also agreed toamend certain 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, andon May 1, 2018, Trio took over operations in the seven facilities based primarily in the Dayton, Ohio area under a new 15-year master lease, while HillstoneHealthcare, Inc. (“Hillstone”) assumed the operation of the two facilities in Willard and Toledo, Ohio under a new 12-year master lease. In addition, amendmentsto the Bed Sales Agreements were subsequently executed, confirming the Company as the sole seller of the bed rights and the sole recipient of any proceedstherefrom. 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 fixedescalators.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 has survivedany such termination. Such security interest was subject to the prior lien and security interest of Pristine’s working capital lender, Capital One, NationalAssociation (“CONA”), with whom the Company has an existing intercreditor agreement that defines the relative rights and responsibilities of CONA and with itsrespect to the loan and lease collateral represented by Pristine’s accounts receivable and the Company’s respective security interests therein. Impairment of Real Estate Investments, Asset Sales and Assets Held for SaleOn September 1, 2019, the Company sold three of the seven skilled nursing Ohio properties operated by Trillium under the Original Trillium Leasefor a purchase price of $28.0 million. During the three months ended September 30, 2019 and prior to the disposition, the Company recorded an impairmentexpense of approximately $7.8 million. In connection with the sale, the Company provided affiliates of CommuniCare Family of Companies (“CommuniCare”),the purchaser of the three Ohio properties, with a mortgage loan secured by the three Ohio properties for approximately $26.5 million. See Note 4, Other RealEstate Investments, Net for additional information.As of September 30, 2019, the Company met the criteria to classify six skilled nursing facilities operated by affiliates of Metron Integrated HealthSystems (“Metron”) as held for sale, which resulted in an impairment expense of approximately $8.8 million to reduce the carrying value to fair value less costs tosell the properties. As of December 31, 2019, the properties continued to be held for sale and the carrying value of $34.6 million is primarily comprised of realestate assets. In February 2020, the six skilled nursing facilities were sold. See Note 14, Subsequent Events, for further detail.The fair values of the assets impaired during the three months ended September 30, 2019 were based on contractual sales prices, which are consideredto be Level 2 measurements within the fair value hierarchy.During the year ended December 31, 2019, the Company sold one of its owned and operated independent living facilities consisting of 38 unitslocated in Texas with an aggregate carrying value of $1.7 million for net proceeds of $3.3 million. In connection with the sale, the Company recognized a gain of$1.6 million.During the year ended December 31, 2018, the Company sold three assisted living facilities consisting of 102 units located in Idaho with an aggregatecarrying value of $10.9 million for an aggregate price of $13.0 million. In connection with the sale, the Company recognized a gain of $2.1 million.F-17Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS4. OTHER REAL ESTATE INVESTMENTS, NETPreferred Equity Investments—In July 2016, the Company completed a $2.2 million preferred equity investment with an affiliate of CascadiaDevelopment, LLC. The preferred equity investment yielded a return equal to prime plus 9.5% but in no event less than 12.0% calculated on a quarterly basis onthe outstanding carrying value of the investment. The investment was used to develop a 99-bed skilled nursing facility in Nampa, 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 least 9.0%.The project was completed in the fourth quarter of 2017 and began lease-up during the first quarter of 2018. In June 2019, the Company purchased the skillednursing facility for approximately $16.2 million, inclusive of transaction costs. The Company paid $12.9 million after receiving back its initial investment of $2.2million and cumulative contractual preferred return through June 18, 2019, the acquisition date, of $1.1 million, of which $0.6 million was recognized as interestincome during the year ended December 31, 2019.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 outstanding carryingvalue of the investment. The investment is being used to develop a 99-bed skilled nursing facility in Boise, 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 first quarter of 2018 and began lease-up during the second quarter of 2018. In January 2020, the Company purchased the skilled nursing facilityfor approximately $18.7 million, inclusive of estimated transaction costs. The Company paid $15.0 million after receiving back its initial investment of $2.3million and cumulative contractual preferred return through January 17, 2020, the acquisition date, of $1.4 million, of which $0.7 million was recognized asinterest income during the year ended December 31, 2019. See Note 14, Subsequent Events, for further detail.During the years ended December 31, 2019, 2018 and 2017, the Company recognized $1.3 million (including $0.6 million for unrecognized preferredreturn related to prior periods), $0.2 million and $1.7 million, respectively, of interest income related to these preferred equity investments.Performing Mortgage Loans Receivable—In October 2017, the Company provided an affiliate of Providence a mortgage loan secured by a skillednursing facility for approximately $12.5 million inclusive of transaction costs, which bore a fixed interest rate of 9%. The mortgage loan, which requiredProvidence to make monthly principal and interest payments, was set to mature on October 26, 2020 and had an option to be prepaid before the maturity date.During the three months ended December 31, 2019, Providence exercised its option to prepay the loan in full, and prepayment was received by the Company.In February 2019, the Company provided affiliates of Covenant Care a mortgage loan secured by first mortgages on five skilled nursing facilities forapproximately $11.4 million, at an annual interest rate of 9%. The loan required monthly interest payments, was set to mature on February 11, 2020, andincluded two, six-month extension options. During the three months ended September 30, 2019, Covenant Care exercised its option to prepay the loan in full, andprepayment was received by the Company.In July 2019, the Company provided MCRC, LLC a real estate loan secured by a 176 bed skilled nursing facility in Manteca, California for $3.0million, which bears a fixed interest rate of 8% and requires monthly interest payments. Concurrently, the Company entered into a purchase and sale agreement topurchase the Manteca facility from MCRC, LLC for approximately $16.4 million subject to normal diligence and other contingencies. The loan documents providefor a maturity date of the earlier to occur of the closing date of the acquisition, or five business days following the termination of the purchase and sale agreement. MCRC, LLC breached its obligation to sell the Manteca facility to the Company on the terms outlined in the purchase and sale agreement and, as a result, theCompany has commenced non-judicial foreclosure proceedings with respect to the Manteca facility. The Company expects the Manteca facility to go to auction inearly 2020 at which point the Company expects to either purchase the facility or be repaid the loan and accrued interest.In September 2019, the Company provided affiliates of CommuniCare a $26.5 million loan secured by mortgages on the three skilled nursingfacilities sold to CommuniCare, as discussed in Note 3, Real Estate Investments, which bears a fixed interest rate of 10%. The mortgage loan, which requiresCommuniCare to make monthly interest payments, was originally set to mature on February 29, 2020, with an option to be prepaid before the maturity date. InJanuary 2020, the CompanyF-18Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSamended the maturity date to April 30, 2020. See Note 14, Subsequent Events, for further detail. Given the structure of the arrangement, the Company hasconcluded that the acquiring entities whom are joint and severally liable for the loan constitute variable interest entities. The loan includes standard lenderprotective rights and does not allow the Company to control the entities.During the years ended December 31, 2019, 2018 and 2017, the Company recognized $3.0 million, $1.2 million and $0.2 million, respectively, ofinterest income related to the mortgage loans.5. FAIR VALUE MEASUREMENTSFinancial Instruments: Considerable judgment is necessary to estimate the fair value of financial instruments. The estimates of fair value presentedherein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. A summary of the face values, carryingamounts and fair values of the Company’s financial instruments as of December 31, 2019 and 2018 using Level 2 inputs, for the senior unsecured notes payable,and Level 3 inputs, for all other financial instruments, is as follows (dollars in thousands): December 31, 2019 December 31, 2018 FaceValue CarryingAmount FairValue FaceValue CarryingAmount FairValueFinancial assets: Preferred equity investments$2,327 $3,800 $3,674 $4,531 $5,746 $6,246Mortgage loans receivable29,500 29,500 29,500 12,375 12,299 12,375Financial liabilities: Senior unsecured notes payable$300,000 $295,911 $312,750 $300,000 $295,153 $289,500Cash and cash equivalents, accounts and other receivables, other loans receivable, and accounts payable and accrued liabilities: These balancesapproximate their fair values due to the short-term nature of these instruments.Preferred equity investments: The fair values of the preferred equity investments were estimated using an internal valuation model that considered theexpected future cash flows of the investment, the underlying collateral value, market interest rates and other credit enhancements.Mortgage loans receivable: The fair values of the mortgage loans receivable were estimated using an internal valuation model that considered theexpected future cash flows of the investments, the underlying collateral value, market interest rates and other credit enhancements.Senior unsecured notes payable: The fair value of the Notes was determined using third-party quotes derived from orderly trades.Unsecured revolving credit facility and senior unsecured term loan: The fair values approximate their carrying values as the interest rates are variableand approximate prevailing market interest rates for similar debt arrangements.6. DEBTThe following table summarizes the balance of the Company’s indebtedness as of December 31, 2019 and 2018 (in thousands): December 31, 2019 December 31, 2018 PrincipalDeferredCarrying PrincipalDeferredCarrying AmountLoan FeesValue AmountLoan FeesValueSenior unsecured notes payable$300,000$(4,089)$295,911 $300,000$(4,847)$295,153Senior unsecured term loan200,000(1,287)198,713 100,000(388)99,612Unsecured revolving credit facility60,000—60,000 95,000—95,000 $560,000$(5,376)$554,624 $495,000$(5,235)$489,765F-19Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSenior Unsecured Notes PayableOn May 10, 2017, the Company’s wholly owned subsidiary, CTR Partnership, L.P. (the “Operating Partnership”), and its wholly owned subsidiary,CareTrust Capital Corp. (together with the Operating Partnership, the “Issuers”), completed an underwritten public offering of $300.0 million aggregate principalamount of 5.25% Senior Notes due 2025 (the “Notes”). The Notes were issued at par, resulting in gross proceeds of $300.0 million and net proceeds ofapproximately $294.0 million after deducting underwriting fees and other offering expenses. The Company used the net proceeds from the offering of the Notes toredeem all $260.0 million aggregate principal amount outstanding of its 5.875% Senior Notes due 2021, including payment of the redemption price at 102.938%and all accrued and unpaid interest thereon. The Company used the remaining portion of the net proceeds of the Notes offering to pay borrowings outstandingunder its senior unsecured revolving credit facility. The Notes mature on June 1, 2025 and bear interest at a rate of 5.25% per year. Interest on the Notes is payableon 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 indenture governing theNotes 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 to 40% of theaggregate principal amount of the Notes may be redeemed with the net proceeds of certain equity offerings if at least 60% of the originally issued aggregateprincipal amount of the Notes remains outstanding. In such case, the redemption price will be equal to 105.25% of the aggregate principal amount of the Notes tobe redeemed plus accrued and unpaid interest, if any, to, but not including, the redemption date. If certain changes of control of the Company occur, holders of theNotes will have the right to require the Issuers to repurchase their Notes at 101% of the principal amount plus accrued and unpaid interest, if any, to, but notincluding, the repurchase date.The obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by the Company and certain ofthe Company’s wholly owned existing and, subject to certain exceptions, future material subsidiaries (other than the Issuers); provided, however, that suchguarantees are subject to automatic release under certain customary circumstances, including if the subsidiary guarantor is sold or sells all or substantially all of itsassets, the subsidiary guarantor is designated “unrestricted” for covenant purposes under the indenture, the subsidiary guarantor’s guarantee of other indebtednesswhich resulted in the creation of the guarantee of the Notes is terminated or released, or the requirements for legal defeasance or covenant defeasance or todischarge the indenture have been satisfied. See Note 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 guarantee additionalindebtedness; incur or guarantee secured indebtedness; pay dividends or distributions on, or redeem or repurchase, capital stock; make certain investments or otherrestricted payments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their assets; and create restrictions on theability of the Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers. The indenture also requires the Company and its restrictedsubsidiaries to maintain a specified ratio of unencumbered assets to unsecured indebtedness. These covenants are subject to a number of important and significantlimitations, qualifications and exceptions. The indenture also contains customary events of default.As of December 31, 2019, 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 the lendersparty thereto (the “Prior Credit Agreement”). As later amended on February 1, 2016, the Prior Credit Agreement provided the following: (i) a $400.0 millionunsecured asset based revolving credit facility (the “Prior Revolving Facility”), (ii) a $100.0 million non-amortizing unsecured term loan (the “Prior Term Loan”and, together with the Prior Revolving Facility, the “Prior Credit Facility”), and (iii) a $250.0 million uncommitted incremental facility. The Prior RevolvingFacility was scheduled 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 and could be prepaid at any time subject to a 2% premium in the first year after issuance and a 1% premium in the second year after issuance.F-20Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSOn 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 Credit Agreement,which amended and restated the Prior Credit Agreement, provides for: (i) an unsecured revolving credit facility (the “Revolving Facility”) with revolvingcommitments in an aggregate principal amount of $600.0 million, including a letter of credit subfacility for 10% of the then available revolving commitments and aswingline loan subfacility for 10% of the then available revolving commitments and (ii) an unsecured term loan credit facility (the “Term Loan” and, together withthe Revolving Facility, the “Amended Credit Facility”) in an aggregate principal amount of $200.0 million. Borrowing availability under the Revolving Facility issubject to no default or event of default under the Amended Credit Agreement having occurred at the time of borrowing. The proceeds of the Term Loan wereused, in part, to repay in full all outstanding borrowings under the Prior Term Loan and Prior Revolving Facility under the Prior Credit Agreement. Futureborrowings under the Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporatepurposes.The interest rates applicable to loans under the Revolving Facility are, at the Operating Partnership’s option, equal to either a base rate plus a 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 the Companyand its 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 Term Loan are, at the Operating Partnership’s option, equal to either a baserate plus a margin ranging from 0.50% to 1.20% per annum or LIBOR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset 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 Operating Partnership will pay a facility fee on the revolving commitments underthe 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 theCompany obtains certain specified investment grade ratings on its senior long-term unsecured debt and the Operating Partnership elects to decrease the applicablemargin as described above, in which case the Operating Partnership will pay a facility fee on the revolving commitments ranging from 0.125% to 0.30% perannum based on the credit ratings of the Company’s senior long-term unsecured debt). As of December 31, 2019, the Operating Partnership had $200.0 millionoutstanding under the Term Loan and $60.0 million outstanding under the Revolving Facility.The Revolving Facility has a maturity date of February 8, 2023, and includes, at the sole discretion of the Operating Partnership, two, six-monthextension options. The Term Loan has a maturity date of February 8, 2026.The Amended Credit Facility is guaranteed, jointly and severally, by the Company and its wholly owned subsidiaries that are party to the AmendedCredit Agreement (other than the Operating Partnership). The Amended Credit Agreement contains customary covenants that, among other things, restrict, subjectto certain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage inacquisitions, mergers or consolidations, amend organizational documents and pay certain dividends and other restricted payments. The Amended CreditAgreement requires the Company to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum debt to asset value ratio, aminimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating income ratio, a maximum secured debt to assetvalue ratio, a maximum secured recourse debt to asset value ratio, a maximum unsecured debt to unencumbered properties asset value ratio, a minimum unsecuredinterest coverage ratio and a minimum rent coverage ratio. The Amended Credit Agreement also contains certain customary events of default, including the failureto make timely payments under the Amended Credit Facility or other material indebtedness, the failure to satisfy certain covenants (including the financialmaintenance covenants), the occurrence of change of control and specified events of bankruptcy and insolvency.As of December 31, 2019, the Company was in compliance with all applicable financial covenants under the Credit Agreement.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 the Company’s5.875% Senior Notes due 2021 at a redemption price of 102.938% and a $4.2 million write-off of deferred financing costs associated with the redemption.F-21Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSchedule of Debt MaturitiesAs of December 31, 2019, the Company’s debt maturities were (dollars in thousands): YearAmount2020$—2021—2022—202360,0002024—Thereafter500,000 $560,0007. EQUITYCommon StockPublic Offering of Common Stock—On April 15, 2019, the Company completed an underwritten public offering of 6,641,250 shares of its commonstock, par value $0.01 per share, at an initial price to the public of $23.35, including 866,250 shares of common stock sold pursuant to the full exercise of an optionto purchase additional shares of common stock granted to the underwriters, resulting in approximately $149.0 million in net proceeds, after deducting theunderwriting discount and offering expenses. The Company used the proceeds from the offering to repay a portion of the outstanding borrowings on its RevolvingFacility, which had been used to fund a portion of the purchase price of acquisitions in the second quarter of 2019.At-The-Market Offering—On March 4, 2019, the Company entered into a new equity distribution agreement to issue 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 “New ATM Program”). In connectionwith the entry into the equity distribution agreement and the commencement of the New ATM Program, the Company’s “at-the-market” equity offering programpursuant to the Company’s prior equity distribution agreement, dated as of May 17, 2017, was terminated (the “Prior ATM Program”).There was no New ATM Program activity for 2019. The following table summarizes the quarterly Prior ATM Program activity for 2019 and 2018 (inthousands, except per share amounts): For the Years Ended December 31, 2019 2018Number of shares2,459 10,265Average sales price per share$19.48 $17.76Gross proceeds(1)$47,893 $182,321(1)Total gross proceeds is before $0.6 million and $2.3 million, respectively, of commissions paid to the sales agents during the years ended December 31, 2019 and 2018under the Prior ATM Program.As of December 31, 2019, the Company had $300.0 million available for future issuances under the New ATM Program.F-22Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDividends on Common Stock — The following table summarizes the cash dividends per share of common stock declared by the Company’s Board ofDirectors for 2019, 2018 and 2017 (dollars in thousands, except per share amounts): For the Three Months Ended2019 March 31, June 30, September 30, December 31,Dividends declared $0.225 $0.225 $0.225 $0.225Dividends payment date April 15, 2019 July 15, 2019 October 15, 2019 January 15, 2020Dividends payable as of record date $20,011 $21,508 $21,500 $21,500Dividends record date March 29, 2019 June 28, 2019 September 30, 2019 December 31, 2019 2018 Dividends declared $0.205 $0.205 $0.205 $0.205Dividends payment date April 13, 2018 July 13, 2018 October 15, 2018 January 15, 2019Dividends payable as of record date $15,608 $16,224 $17,196 $17,710Dividends record date March 30, 2018 June 29, 2018 September 28, 2018 December 31, 2018 2017 Dividends declared $0.185 $0.185 $0.185 $0.185Dividends payment date April 14, 2017 July 14, 2017 October 13, 2017 January 16, 2018Dividends payable as of record date $13,421 $14,047 $14,045 $14,043Dividends record date March 31, 2017 June 30, 2017 September 29, 2017 December 29, 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 other incentiveawards to officers, employees and directors in connection with their employment with or services provided to the Company.The following table summarizes restricted stock award and performance award activity for the years ended December 31, 2019 and 2018: Shares Weighted AverageShare PriceUnvested balance at December 31, 2017422,911 $14.19Granted287,982 15.25Vested(191,287) 14.39Forfeited(334) 15.21Unvested balance at December 31, 2018519,272 14.69Granted180,629 22.22Vested(247,534) 14.50Forfeited(134) 15.21Unvested balance at December 31, 2019452,233 $17.90F-23Table 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, 2019 2018 2017Stock-based compensation expense$4,104 $3,848 $2,416As of December 31, 2019, 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 2.1 years. In connection with the separation of Ensign’s healthcare business and its real estate business into two separate and independently publicly tradedcompanies (the “Spin-Off”) on June 1, 2014, employees of Ensign who had unvested shares of restricted stock were given one share of CareTrust REIT unvestedrestricted stock totaling 207,580 shares at the Spin-Off. These restricted shares are subject to a time vesting provision only and the Company does not recognizeany stock compensation expense associated with these awards. During the year ended December 31, 2019, no shares vested or were forfeited. At December 31,2019, there were 1,760 unvested restricted stock awards outstanding.In February 2019, the Compensation Committee of the Company’s Board of Directors granted 91,440 shares of restricted stock to officers andemployees. Each share had a fair market value on the date of grant of $22.00 per share, based on the closing 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, in February 2019, the CompensationCommittee granted 71,440 performance stock awards to officers. Each share had a fair market value on the date of grant of $22.00 per share, based on the closingmarket price of the Company’s common stock on that date. Performance stock awards are subject to both time and performance based conditions and vest overa one- to four-year period. The amount of performance awards that will ultimately vest is dependent on the Company’s Normalized Funds from Operations(“NFFO”) per share, as defined by the Compensation Committee, meeting or exceeding fiscal year over year growth of 5.0% or greater.In May 2019, the Compensation Committee of the Company's Board of Directors granted 17,749 shares of restricted stock to members of the Board ofDirectors. Each share had a fair market value on the date of grant of $24.23 per share, based on the closing market price of the Company's common stock on thatdate, and the shares vest in full on the earlier to occur of April 30, 2020 or the Company’s 2020 Annual Meeting of Stockholders.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 that date,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 vest overa one- to four-year period. The amount of performance awards that will ultimately vest is dependent on the Company meeting or exceeding fiscal year over yearNFFO 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 the Board ofDirectors. 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 on that date, andthe shares vest in full on the earlier to occur of May 30, 2019 or when the Company holds its 2019 Annual Meeting.F-24Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS9. 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, 2019, 2018and 2017, and reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common sharesoutstanding used in the calculation of diluted EPS for the years ended December 31, 2019, 2018 and 2017 (amounts in thousands, except per share amounts): Year Ended December 31, 2019 2018 2017Numerator: Net income$46,359 $57,923 $25,874Less: Net income allocated to participating securities(296) (364) (354)Numerator for basic and diluted earnings available to common stockholders$46,063 $57,559 $25,520Denominator: Weighted-average basic common shares outstanding93,088 79,386 72,647Weighted-average diluted common shares outstanding93,098 79,392 72,647 Earnings per common share, basic$0.49 $0.73 $0.35Earnings per common share, diluted$0.49 $0.72 $0.35The Company’s unvested restricted shares associated with its incentive award plan and unvested restricted shares issued to employees of Ensign at theSpin-Off have been excluded from the above calculation of earnings per share for the years ended December 31, 2019, 2018 and 2017, when their inclusion wouldhave 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, financial condition orcash flows. Claims and lawsuits may include matters involving general or professional liability asserted against the Company’s tenants, which are theresponsibility of the Company’s tenants and for which the Company is entitled to be indemnified by its tenants under the insurance and indemnification provisionsin the applicable leases.Capital expenditures for each property leased under the Company’s triple-net leases are generally the responsibility of the tenant, except that, for thefacilities under the Ensign Master Leases, the tenant will have an option to require the Company to finance certain capital expenditures up to an aggregate of 20%of its initial investment in such property, subject to a corresponding rent increase at the time of funding. For the Company’s other triple-net master leases, thetenants also have the option to request capital expenditure funding that would generally be subject to a corresponding rent increase at the time of funding, whichare subject to tenant compliance with the conditions to the Company’s approval and funding of their requests. As of December 31, 2019, the Company hadcommitted to fund expansions, construction and capital improvements at certain triple-net leased facilities totaling $13.5 million, of which $11.8 million is subjectto rent increase at the time of funding.11. CONCENTRATION OF RISKMajor operator concentration – As of December 31, 2019, Ensign leased 85 skilled nursing, assisted living and independent living facilities whichhad a total of 8,908 beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington. The four statesin which Ensign leases the highest concentration of properties are California, Texas, Utah and Arizona. During the years ended December 31, 2019, 2018 and2017, Ensign represented 38%, 42% and 49%, respectively, of the Company’s rental income, exclusive of operating expense reimbursements. On October 1, 2019,Ensign completed the Pennant Spin. See Note 3, Real Estate Investments, Net, for additional information regarding the Company’s facilities leased to Ensignsubsequent to the Pennant Spin.F-25Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSEnsign 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 athttp://www.sec.gov. The Company has not verified this information through an independent investigation or otherwise.As of December 31, 2019, PMG leased 15 skilled nursing facilities which had a total of 2,145 beds and units and are located in Louisiana and Texas.During the years ended December 31, 2019, 2018 and 2017, PMG represented 15%, 8% and 8%, respectively, of the Company’s rental income, exclusive ofoperating expense reimbursements.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 than theIssuers (collectively, the “Subsidiary Guarantors” and, together with the Parent Guarantor, the “Guarantors”), subject to automatic release under certain customarycircumstances, including if the Subsidiary Guarantor is sold or sells all or substantially all of its assets, the Subsidiary Guarantor is designated “unrestricted” forcovenant purposes under the indenture governing the Notes, the Subsidiary Guarantor’s guarantee of other indebtedness which resulted in the creation of theguarantee of the Notes is terminated or released, or the requirements for legal defeasance or covenant defeasance or to discharge the indenture have been satisfied.The following provides information regarding the entity structure of the Parent Guarantor, the Issuers and the Subsidiary Guarantors:CareTrust REIT, Inc. – The Parent Guarantor was formed on October 29, 2013 in anticipation of the Spin-Off on June 1, 2014. The Parent Guarantordid not conduct any operations or have any 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, were formedon May 8, 2014 and May 9, 2014, respectively, in anticipation of the Spin-Off and the related transactions. The Issuers did not conduct any operations or have anybusiness 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 the Parent Guarantor, the Issuers, andthe Subsidiary Guarantors. There are no subsidiaries of the Company other than the Issuers and the Subsidiary Guarantors. This summarized financial informationhas been prepared from the financial statements of the Company and the books and records maintained by the Company.F-26Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING BALANCE SHEETSDECEMBER 31, 2019(in thousands, except share and per share amounts) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedAssets: Real estate investments, net$— $894,830 $519,370 $— $1,414,200Other real estate investments, net— 29,500 3,800 — 33,300Assets held for sale, net— 34,590 — — 34,590Cash and cash equivalents— 20,327 — — 20,327Accounts and other receivables, net— 2,549 22 — 2,571Prepaid expenses and other assets— 10,847 3 — 10,850Deferred financing costs, net— 3,023 — — 3,023Investment in subsidiaries949,275 541,019 — (1,490,294) —Intercompany— — 19,295 (19,295) —Total assets$949,275 $1,536,685 $542,490 $(1,509,589) $1,518,861Liabilities and Equity: Senior unsecured notes payable, net$— $295,911 $— $— $295,911Senior unsecured term loan, net— 198,713 — — 198,713Unsecured revolving credit facility— 60,000 — — 60,000Accounts payable and accrued liabilities— 13,491 1,471 — 14,962Dividends payable21,684 — — — 21,684Intercompany— 19,295 — (19,295) —Total liabilities21,684 587,410 1,471 (19,295) 591,270Total equity927,591 949,275 541,019 (1,490,294) 927,591Total liabilities and equity$949,275 $1,536,685 $542,490 $(1,509,589) $1,518,861F-27Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING BALANCE SHEETSDECEMBER 31, 2018(in thousands, except share and per share amounts) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedAssets: Real estate investments, net$— $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) $1,291,762 F-28Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING INCOME STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2019(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedRevenues: Rental income$— $81,380 $74,287 $— $155,667Independent living facilities— — 3,389 — 3,389Interest and other income— 3,001 1,344 — 4,345Total revenues— 84,381 79,020 — 163,401Expenses: Depreciation and amortization— 30,436 21,386 — 51,822Interest expense— 28,125 — — 28,125Property taxes— 2,887 161 — 3,048Independent living facilities— — 2,898 — 2,898Impairment of real estate investments— 16,692 — — 16,692Provision for loan losses— 1,076 — — 1,076General and administrative4,218 10,868 72 — 15,158Total expenses4,218 90,084 24,517 — 118,819Gain on sale of real estate— 217 1,560 — 1,777Income in Subsidiary50,577 56,063 — (106,640) —Net income$46,359 $50,577 $56,063 $(106,640) $46,359F-29Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING INCOME STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2018(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedRevenues: Rental income$— $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) $57,923F-30Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING INCOME STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2017(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedRevenues: Rental income$— $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) $25,874 F-31Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWSFOR THE YEAR ENDED DECEMBER 31, 2019(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedCash flows from operating activities: Net cash (used in) provided by operating activities$(114) $49,681 $76,728 $— $126,295Cash flows from investing activities: Acquisitions of real estate, net of deposits applied— (109,294) (212,164) — (321,458)Improvements to real estate— (1,360) (1,992) — (3,352)Purchases of equipment, furniture and fixtures— (2,933) (4) — (2,937)Investment in real estate mortgage and other loans receivable— (18,246) — — (18,246)Principal payments received on real estate mortgage and otherloans receivable— 24,283 — — 24,283Repayment of other real estate investment— — 2,204 — 2,204Net proceeds from sales of real estate— 218 3,281 — 3,499Distribution from Subsidiary80,619 — — (80,619) —Intercompany financing(193,286) (131,947) — 325,233 —Net cash used in investing activities(112,667) (239,279) (208,675) 244,614 (316,007)Cash flows from financing activities: Proceeds from the issuance of common stock, net195,924 — — — 195,924Proceeds from the issuance of senior unsecured term loan— 200,000 — — 200,000Borrowings under unsecured revolving credit facility— 243,000 — — 243,000Payments on unsecured revolving credit facility— (278,000) — — (278,000)Payments on senior unsecured term loan— (100,000) — — (100,000)Payments of deferred financing costs— (4,534) — — (4,534)Net-settle adjustment on restricted stock(2,524) — — — (2,524)Dividends paid on common stock(80,619) — — — (80,619)Distribution to Parent— (80,619) — 80,619 —Intercompany financing— 193,286 131,947 (325,233) —Net cash provided by financing activities112,781 173,133 131,947 (244,614) 173,247Net decrease in cash and cash equivalents— (16,465) — — (16,465)Cash and cash equivalents, beginning of period— 36,792 — — 36,792Cash and cash equivalents, end of period$— $20,327 $— $— $20,327F-32Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWSFOR THE YEAR ENDED DECEMBER 31, 2018(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedCash flows from operating activities: Net cash (used in) provided by operating activities$(10) $40,092 $59,275 $— $99,357Cash flows from investing activities: Acquisitions of real estate— (111,640) — — (111,640)Improvements to real estate— (7,204) (26) — (7,230)Purchases of equipment, furniture and fixtures— (1,713) (69) — (1,782)Investment in real estate mortgage and other loans receivable— (5,648) — — (5,648)Principal payments received on real estate mortgage and otherloans receivable— 3,227 — — 3,227Escrow deposit for acquisition of real estate— (5,000) — — (5,000)Net proceeds from the sale of real estate— 13,004 — — 13,004Distribution from Subsidiary62,999 — — (62,999) —Intercompany financing(178,584) 59,180 — 119,404 —Net cash used in investing activities(115,585) (55,794) (95) 56,405 (115,069)Cash flows from financing activities: Proceeds from the issuance of common stock, net179,882 — — — 179,882Borrowings under unsecured revolving credit facility— 65,000 — — 65,000Payments on unsecured revolving credit facility— (135,000) — — (135,000)Net-settle adjustment on restricted stock(1,288) — — — (1,288)Dividends paid on common stock(62,999) — — — (62,999)Distribution to Parent— (62,999) — 62,999 —Intercompany financing— 178,584 (59,180) (119,404) —Net cash provided by (used in) financing activities115,595 45,585 (59,180) (56,405) 45,595Net increase in cash and cash equivalents— 29,883 — — 29,883Cash and cash equivalents, beginning of period— 6,909 — — 6,909Cash and cash equivalents, end of period$— $36,792 $— $— $36,792 F-33Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWSFOR THE YEAR ENDED DECEMBER 31, 2017(in thousands) ParentGuarantor Issuers CombinedSubsidiaryGuarantors Elimination ConsolidatedCash flows from operating activities: Net cash (used in) provided by operating activities$(222) $25,745 $63,277 $— $88,800Cash flows from investing activities: Acquisition of real estate— (296,517) — — (296,517)Improvements to real estate— (681) (67) — (748)Purchases of equipment, furniture and fixtures— (309) (94) — (403)Investment in real estate mortgage loan receivable— (12,416) — — (12,416)Sale of other real estate investment— — 7,500 — 7,500Principal payments received on mortgage loan receivable— 25 — — 25Distribution from Subsidiary52,587 — — (52,587) —Intercompany financing(169,235) 70,616 — 98,619 —Net cash (used in) provided by investing activities(116,648) (239,282) 7,339 46,032 (302,559)Cash flows from financing activities: Proceeds from the issuance of common stock, net170,323 — — — 170,323Proceeds from the issuance of senior unsecured notes payable— 300,000 — — 300,000Borrowings under unsecured revolving credit facility— 238,000 — — 238,000Payments on senior unsecured notes payable— (267,639) — — (267,639)Payments on unsecured revolving credit facility— (168,000) — — (168,000)Net-settle adjustment on restricted stock(866) — — — (866)Payments of deferred financing costs— (6,063) — — (6,063)Dividends paid on common stock(52,587) — — — (52,587)Distribution to Parent— (52,587) — 52,587 —Intercompany financing— 169,235 (70,616) (98,619) —Net cash provided by (used in) financing activities116,870 212,946 (70,616) (46,032) 213,168Net decrease in cash and cash equivalents— (591) — — (591)Cash and cash equivalents, beginning of period— 7,500 — — 7,500Cash and cash equivalents, end of period$— $6,909 $— $— $6,909 F-34Table 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 with that ofthe Company’s audited consolidated financial statements. The Company’s quarterly results of operations for the periods presented are not necessarily indicative offuture results of operations. This unaudited quarterly data should be read together with the accompanying consolidated financial statements and related notesthereto (in thousands, except per share amounts): For the Year Ended December 31, 2019 FirstQuarter SecondQuarter ThirdQuarter FourthQuarterOperating data: Total revenues $39,658 $46,201 $33,314 $44,228Net income (loss) 16,053 19,698 (10,054) 20,662Earnings per common share, basic 0.18 0.21 (0.11) 0.22Earnings per common share, diluted 0.18 0.21 (0.11) 0.22Other data: Weighted-average number of common shares outstanding, basic 88,010 94,036 95,103 95,103Weighted-average number of common shares outstanding, diluted 88,010 94,036 95,103 95,144 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 84,08414. SUBSEQUENT EVENTSThe Company evaluates subsequent events in accordance with ASC 855, Subsequent Events. The Company evaluates subsequent events up until thedate the consolidated financial statements are issued.Recent AcquisitionsIn January 2020, the Company acquired one skilled nursing facility for approximately $18.7 million, which includes estimated capitalized acquisitioncosts. The facility was leased to an affiliate of the operator which developed the property, Cascadia Healthcare, LLC. The contractual initial annual cash rent fromthe acquisition is approximately $1.7 million. The acquisition was funded using borrowings under the Company’s Revolving Facility, cash on hand and a credit forthe Company’s original equity investment in the facility and preferred returns thereon. See Note 4, Other Real Estate Investments, Net for further detail.In February 2020, the Company acquired one assisted living facility for approximately $7.4 million, which includes estimated capitalized acquisitioncosts. The facility was leased to an affiliate of Bayshire, LLC. The contractual initial annual cash rent from the acquisition is approximately $0.6 million. Theacquisition was funded using borrowings under the Company’s Revolving Facility and cash on hand.F-35Table of ContentsCARETRUST REIT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAmended Agreements In January 2020, the Company amended its loan agreement secured by mortgages on the three skilled nursing facilities sold to CommuniCare, asdiscussed in Note 3, Real Estate Investments, Net. The amended agreement has a new maturity date of April 30, 2020. See Note 4, Other Real Estate Investments,Net for further detail.Asset SalesOn February 14, 2020, the Company closed on the sale of the six Metron skilled nursing facilities which were held for sale as of December 31, 2019. Inconnection with the sale for $36.0 million, the Company received $3.5 million in cash and provided subsidiaries of Cascade Capital Group, LLC, the purchaser ofthe properties, with a short-term mortgage loan secured by these properties for $32.4 million. The mortgage loan bears interest at 7.5% and has a maturity date ofMarch 31, 2020. The Company does not expect to record a material gain or loss in connection with the sale.F-36SCHEDULE IIIREAL ESTATE ASSETS AND ACCUMULATED DEPRECIATIONDECEMBER 31, 2019(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 $(1,223) 2013 2000Meadowbrook HealthAssociates LLC Sabino Canyon Tucson, AZ — 425 3,716 1,940 425 5,656 6,081 (2,891) 2012 2000Terrace Holdings AZ LLC Desert Terrace Phoenix, AZ — 113 504 971 113 1,475 1,588 (783) 2004 2002Rillito Holdings LLC Catalina Tucson, AZ — 471 2,041 3,055 471 5,096 5,567 (2,759) 2013 2003Valley Health HoldingsLLC North Mountain Phoenix, AZ — 629 5,154 1,519 629 6,673 7,302 (3,523) 2009 2004Cedar Avenue HoldingsLLC Upland Upland, CA — 2,812 3,919 1,994 2,812 5,913 8,725 (3,276) 2011 2005Granada Investments LLC Camarillo Camarillo, CA — 3,526 2,827 1,522 3,526 4,349 7,875 (2,409) 2010 2005Plaza Health HoldingsLLC Park Manor Walla Walla, WA — 450 5,566 1,055 450 6,621 7,071 (3,610) 2009 2006MountainviewCommunitycare LLC Park View Gardens Santa Rosa, CA — 931 2,612 653 931 3,265 4,196 (1,964) 1963 2006CM Health Holdings LLC Carmel Mountain San Diego, CA — 3,028 3,119 2,071 3,028 5,190 8,218 (2,755) 2012 2006Polk Health HoldingsLLC Timberwood Livingston, TX — 60 4,391 1,167 60 5,558 5,618 (2,911) 2009 2006Snohomish HealthHoldings LLC Emerald Hills Lynnwood, WA — 741 1,663 1,998 741 3,661 4,402 (2,413) 2009 2006Cherry Health HoldingsLLC Pacific Care Hoquiam, WA — 171 1,828 2,038 171 3,866 4,037 (2,313) 2010 2006Golfview Holdings LLC Cambridge SNF Richmond, TX — 1,105 3,110 1,067 1,105 4,177 5,282 (2,088) 2007 2006Tenth East Holdings LLC Arlington Hills Salt Lake City,UT — 332 2,426 2,507 332 4,933 5,265 (2,771) 2013 2006Trinity Mill HoldingsLLC Carrollton Carrollton, TX — 664 2,294 902 664 3,196 3,860 (2,106) 2007 2006Cottonwood HealthHoldings LLC Holladay Salt Lake City,UT — 965 2,070 958 965 3,028 3,993 (2,120) 2008 2007Verde Villa HoldingsLLC Lake Village Lewisville, TX — 600 1,890 470 600 2,360 2,960 (1,330) 2011 2007Mesquite Health HoldingsLLC Willow Bend Mesquite, TX — 470 1,715 8,661 470 10,376 10,846 (6,512) 2012 2007Arrow Tree HealthHoldings LLC Arbor Glen Glendora, CA — 2,165 1,105 324 2,165 1,429 3,594 (938) 1965 2007Fort Street HealthHoldings LLC Draper Draper, UT — 443 2,394 759 443 3,153 3,596 (1,484) 2008 2007Trousdale HealthHoldings LLC Brookfield Downey, CA — 1,415 1,841 1,861 1,415 3,702 5,117 (1,878) 2013 2007Ensign Bellflower LLC Rose Villa Bellflower, CA — 937 1,168 357 937 1,525 2,462 (866) 2009 2007RB Heights HealthHoldings LLC Osborn Scottsdale, AZ — 2,007 2,793 1,762 2,007 4,555 6,562 (2,340) 2009 2008San Corrine HealthHoldings LLC Salado Creek San Antonio, TX — 310 2,090 719 310 2,809 3,119 (1,384) 2005 2008Temple Health HoldingsLLC Wellington Temple, TX — 529 2,207 1,163 529 3,370 3,899 (1,680) 2008 2008Anson Health HoldingsLLC Northern Oaks Abilene, TX — 369 3,220 1,725 369 4,945 5,314 (2,351) 2012 2008F-37Willits Health HoldingsLLC Northbrook Willits, CA — 490 1,231 500 490 1,731 2,221 (810) 2011 2008Lufkin Health HoldingsLLC Southland Lufkin, TX — 467 4,644 782 467 5,426 5,893 (1,476) 1988 2009Lowell Health HoldingsLLC Littleton Littleton, CO — 217 856 1,735 217 2,591 2,808 (1,276) 2012 2009Jefferson RalstonHoldings LLC Arvada Arvada, CO — 280 1,230 834 280 2,064 2,344 (835) 2012 2009Lafayette HealthHoldings LLC Julia Temple Englewood, CO — 1,607 4,222 6,195 1,607 10,417 12,024 (4,507) 2012 2009Hillendahl HealthHoldings LLC Golden Acres Dallas, TX — 2,133 11,977 1,421 2,133 13,398 15,531 (5,005) 1984 2009Price Health HoldingsLLC Pinnacle Price, UT — 193 2,209 849 193 3,058 3,251 (994) 2012 2009Silver Lake HealthHoldings LLC Provo Provo, UT — 2,051 8,362 2,011 2,051 10,373 12,424 (2,903) 2011 2009Jordan Health PropertiesLLC Copper Ridge West Jordan, UT — 2,671 4,244 1,507 2,671 5,751 8,422 (1,627) 2013 2009Regal Road HealthHoldings LLC Sunview Youngstown, AZ — 767 4,648 729 767 5,377 6,144 (1,875) 2012 2009Paredes Health HoldingsLLC Alta Vista Brownsville, TX — 373 1,354 190 373 1,544 1,917 (422) 1969 2009Expressway HealthHoldings LLC Veranda Harlingen, TX — 90 675 430 90 1,105 1,195 (407) 2011 2009Rio Grande HealthHoldings LLC Grand Terrace McAllen, TX — 642 1,085 870 642 1,955 2,597 (828) 2012 2009Fifth East Holdings LLC Paramount Salt Lake City,UT — 345 2,464 1,065 345 3,529 3,874 (1,227) 2011 2009Emmett HealthcareHoldings LLC River's Edge Emmet, ID — 591 2,383 69 591 2,452 3,043 (726) 1972 2010Burley HealthcareHoldings LLC Parke View Burley, ID — 250 4,004 424 250 4,428 4,678 (1,451) 2011 2010Josey Ranch HealthcareHoldings LLC Heritage Gardens Carrollton, TX — 1,382 2,293 478 1,382 2,771 4,153 (842) 1996 2010Everglades HealthHoldings LLC Victoria Ventura Ventura, CA — 1,847 5,377 682 1,847 6,059 7,906 (1,541) 1990 2011Irving Health HoldingsLLC Beatrice Manor Beatrice, NE — 60 2,931 245 60 3,176 3,236 (950) 2011 2011Falls City HealthHoldings LLC Careage Estates of FallsCity Falls City, NE — 170 2,141 82 170 2,223 2,393 (604) 1972 2011Gillette Park HealthHoldings LLC Careage of Cherokee Cherokee, IA — 163 1,491 12 163 1,503 1,666 (515) 1967 2011Gazebo Park HealthHoldings LLC Careage of Clarion Clarion, IA — 80 2,541 97 80 2,638 2,718 (941) 1978 2011Oleson Park HealthHoldings LLC Careage of Ft. Dodge Ft. Dodge, IA — 90 2,341 759 90 3,100 3,190 (1,358) 2012 2011Arapahoe HealthHoldings LLC Oceanview Texas City, TX — 158 4,810 759 128 5,599 5,727 (1,811) 2012 2011Dixie Health HoldingsLLC Hurricane Hurricane, UT — 487 1,978 98 487 2,076 2,563 (468) 1978 2011Memorial HealthHoldings LLC Pocatello Pocatello, ID — 537 2,138 698 537 2,836 3,373 (968) 2007 2011Bogardus HealthHoldings LLC Whittier East Whittier, CA — 1,425 5,307 1,079 1,425 6,386 7,811 (2,042) 2011 2011South Dora HealthHoldings LLC Ukiah Ukiah, CA — 297 2,087 1,621 297 3,708 4,005 (2,011) 2013 2011Silverada HealthHoldings LLC Rosewood Reno, NV — 1,012 3,282 103 1,012 3,385 4,397 (714) 1970 2011Orem Health HoldingsLLC Orem Orem, UT — 1,689 3,896 3,235 1,689 7,131 8,820 (2,655) 2011 2011Renee Avenue HealthHoldings LLC Monte Vista Pocatello, ID — 180 2,481 966 180 3,447 3,627 (1,069) 2013 2012Stillhouse HealthHoldings LLC Stillhouse Paris, TX — 129 7,139 6 129 7,145 7,274 (954) 2009 2012Fig Street HealthHoldings LLC Palomar Vista Escondido, CA — 329 2,653 1,094 329 3,747 4,076 (1,530) 2007 2012Lowell Lake HealthHoldings LLC Owyhee Owyhee, ID — 49 1,554 29 49 1,583 1,632 (275) 1990 2012Queensway HealthHoldings LLC Atlantic Memorial Long Beach, CA — 999 4,237 2,331 999 6,568 7,567 (2,771) 2008 2012Long Beach HealthAssociates LLC Shoreline Long Beach, CA — 1,285 2,343 2,172 1,285 4,515 5,800 (1,786) 2013 2012F-38Kings Court HealthHoldings LLC Richland Hills Ft. Worth, TX — 193 2,311 318 193 2,629 2,822 (558) 1965 201251st Avenue HealthHoldings LLC Legacy Amarillo, TX — 340 3,925 32 340 3,957 4,297 (781) 1970 2013Ives Health HoldingsLLC San Marcos San Marcos, TX — 371 2,951 274 371 3,225 3,596 (605) 1972 2013Guadalupe HealthHoldings LLC The Courtyard (VictoriaEast) Victoria, TX — 80 2,391 15 80 2,406 2,486 (368) 2013 201349th Street HealthHoldings LLC Omaha Omaha, NE — 129 2,418 24 129 2,442 2,571 (547) 1960 2013Willows Health HoldingsLLC Cascade Vista Redmond, WA — 1,388 2,982 202 1,388 3,184 4,572 (796) 1970 2013Tulalip Bay HealthHoldings LLC Mountain View Marysville, WA — 1,722 2,642 (980) 742 2,642 3,384 (572) 1966 2013Sky Holdings AZ LLC Bella Vita Health andRehabilitation Center Glendale, AZ — 228 1,124 1,380 228 2,504 2,731 (1,613) 2004 2002Lemon River HoldingsLLC Plymouth Tower Riverside, CA — 152 357 1,493 152 1,850 2,002 (1,040) 2012 2009CTR Partnership, L.P. Bethany RehabilitationCenter Lakewood, CO — 1,668 15,375 56 1,668 15,431 17,099 (1,898) 1989 2015CTR Partnership, L.P. Mira Vista Care Center Mount Vernon,WA — 1,601 7,425 — 1,601 7,425 9,026 (882) 1989 2015CTR Partnership, L.P. Shoreline Health andRehabilitation Center Shoreline, WA — 1,462 5,034 — 1,462 5,034 6,496 (577) 1987 2015CTR Partnership, L.P. Shamrock Nursing andRehabilitation Center Dublin, GA — 251 7,855 — 251 7,855 8,106 (884) 2010 2015CTR Partnership, L.P. BeaverCreek Health andRehab Beavercreek, OH — 892 17,159 13 892 17,172 18,064 (1,824) 2014 2015CTR Partnership, L.P. Premier Estates ofCincinnati-Riverview Cincinnati, OH — 833 18,086 192 833 18,278 19,111 (1,947) 1992 2015CTR Partnership, L.P. Englewood Health andRehab Englewood, OH — 1,014 18,541 88 1,014 18,629 19,643 (1,991) 1962 2015CTR Partnership, L.P. Portsmouth Health andRehab Portsmouth, OH — 282 9,726 192 282 9,918 10,200 (1,067) 2008 2015CTR Partnership, L.P. West Cove Care &Rehabilitation Center Toledo, OH — 93 10,365 — 93 10,365 10,458 (1,101) 2007 2015CTR Partnership, L.P. BellBrook Health andRehab Bellbrook, OH — 214 2,573 25 214 2,598 2,812 (275) 2003 2015CTR Partnership, L.P. Xenia Health and Rehab Xenia, OH — 205 3,564 23 205 3,587 3,792 (380) 1981 2015CTR Partnership, L.P. Jamestown Place Healthand Rehab Jamestown, OH — 266 4,725 127 266 4,852 5,118 (522) 1967 2015CTR Partnership, L.P. Casa de Paz Sioux City, IA — 119 7,727 — 119 7,727 7,846 (757) 1974 2016CTR Partnership, L.P. Denison Care Center Denison, IA — 96 2,784 — 96 2,784 2,880 (273) 2015 2016CTR Partnership, L.P. Garden View Care Center Shenandoah, IA — 105 3,179 — 105 3,179 3,284 (311) 2013 2016CTR Partnership, L.P. Grandview Health CareCenter Dayton, IA — 39 1,167 — 39 1,167 1,206 (114) 2014 2016CTR Partnership, L.P. Grundy Care Center Grundy Center,IA — 65 1,935 — 65 1,935 2,000 (189) 2011 2016CTR Partnership, L.P. Iowa City Rehab andHealth Care Center Iowa City, IA — 522 5,690 — 522 5,690 6,212 (557) 2014 2016CTR Partnership, L.P. Lenox Care Center Lenox, IA — 31 1,915 — 31 1,915 1,946 (188) 2012 2016CTR Partnership, L.P. Osage Osage, IA — 126 2,255 — 126 2,255 2,381 (221) 2014 2016CTR Partnership, L.P. Pleasant Acres CareCenter Hull, IA — 189 2,544 — 189 2,544 2,733 (249) 2014 2016CTR Partnership, L.P. Cedar Falls Health CareCenter Cedar Falls, IA — 324 4,366 — 324 4,366 4,690 (409) 2015 2016CTR Partnership, L.P. Premier Estates ofHighlands Norwood, OH — 364 2,199 282 364 2,481 2,845 (217) 2012 2016F-39CTR Partnership, L.P. Shaw Mountain atCascadia Boise, ID — 1,801 6,572 395 1,801 6,967 8,768 (705) 1989 2016CTR Partnership, L.P. The Oaks Petaluma, CA — 3,646 2,873 110 3,646 2,983 6,629 (270) 2015 2016CTR Partnership, L.P. Arbor Nursing Center Lodi, CA — 768 10,712 — 768 10,712 11,480 (915) 1982 2016CTR Partnership, L.P. Broadmoor MedicalLodge Rockwall, TX — 1,232 22,152 — 1,232 22,152 23,384 (1,706) 1984 2016CTR Partnership, L.P. Decatur Medical Lodge Decatur, TX — 990 24,909 — 990 24,909 25,899 (1,920) 2013 2016CTR Partnership, L.P. Royse City MedicalLodge Royse City, TX — 606 14,660 — 606 14,660 15,266 (1,130) 2009 2016CTR Partnership, L.P. Saline Care Nursing &Rehabilitation Center Harrisburg, IL — 1,022 5,713 — 1,022 5,713 6,735 (405) 2009 2017CTR Partnership, L.P. Carrier Mills Nursing &Rehabilitation Center Carrier Mills, IL — 775 8,377 — 775 8,377 9,152 (593) 1968 2017CTR Partnership, L.P. StoneBridge Nursing &Rehabilitation Center Benton, IL — 439 3,475 — 439 3,475 3,914 (246) 2014 2017CTR Partnership, L.P. DuQuoin Nursing &Rehabilitation Center DuQuoin, IL — 511 3,662 — 511 3,662 4,173 (259) 2014 2017CTR Partnership, L.P. Pinckneyville Nursing &Rehabilitation Center Pinckneyville, IL — 406 3,411 — 406 3,411 3,817 (242) 2014 2017CTR Partnership, L.P. Wellspring Health andRehabilitation ofCascadia Nampa, ID — 774 5,044 — 774 5,044 5,818 (336) 2011 2017CTR Partnership, L.P. The Rio at Fox Hollow Brownsville, TX — 1,178 12,059 — 1,178 12,059 13,237 (779) 2016 2017CTR Partnership, L.P. The Rio at Cabezon Albuquerque,NM — 2,055 9,749 — 2,055 9,749 11,804 (630) 2016 2017CTR Partnership, L.P. Eldorado Rehab &Healthcare Eldorado, IL — 940 2,093 — 940 2,093 3,033 (131) 1993 2017CTR Partnership, L.P. Secora Health andRehabilitation ofCascadia Portland, OR — 1,481 2,216 — 1,481 2,216 3,697 (139) 2012 2017CTR Partnership, L.P. Mountain Valley Kellogg, ID — 916 7,874 — 916 7,874 8,790 (459) 1971 2017CTR Partnership, L.P. Caldwell Care Caldwell, ID — 906 7,020 — 906 7,020 7,926 (410) 1947 2017CTR Partnership, L.P. Canyon West Caldwell, ID — 312 10,410 — 312 10,410 10,722 (607) 1969 2017CTR Partnership, L.P. Lewiston Health andRehabilitation Lewiston, ID — 625 12,087 — 625 12,087 12,712 (680) 1964 2017CTR Partnership, L.P. The Orchards Nampa, ID — 785 8,923 — 785 8,923 9,708 (502) 1958 2017CTR Partnership, L.P. Weiser Care Weiser, ID — 80 4,419 — 80 4,419 4,499 (249) 1964 2017CTR Partnership, L.P. Aspen Park Moscow, ID — 698 5,092 274 698 5,366 6,064 (292) 1965 2017CTR Partnership, L.P. Ridgmar Medical Lodge Fort Worth, TX — 681 6,587 1,256 681 7,843 8,524 (453) 2006 2017CTR Partnership, L.P. Mansfield Medical Lodge Mansfield, TX — 607 4,801 1,171 607 5,972 6,579 (325) 2006 2017CTR Partnership, L.P. Grapevine MedicalLodge Grapevine, TX — 1,602 4,536 891 1,602 5,427 7,029 (313) 2006 2017CTR Partnership, L.P. Brookfield Health andRehab Battle Ground,WA — 320 500 — 320 500 820 (29) 2012 2017CTR Partnership, L.P. The Oaks at Forest Bay Seattle, WA — 6,347 815 — 6,347 815 7,162 (46) 1997 2017CTR Partnership, L.P. The Oaks at Lakewood Tacoma, WA — 1,000 1,779 — 1,000 1,779 2,779 (100) 1989 2017CTR Partnership, L.P. The Oaks at Timberline Vancouver, WA — 445 869 — 445 869 1,314 (49) 1972 2017CTR Partnership, L.P. Providence WatermanNursing Center San Bernardino,CA — 3,831 19,791 — 3,831 19,791 23,622 (1,113) 1967 2017CTR Partnership, L.P. Providence Orange Tree Riverside, CA — 2,897 14,700 — 2,897 14,700 17,597 (827) 1969 2017F-40CTR Partnership, L.P. Providence Ontario Ontario, CA — 4,204 21,880 — 4,204 21,880 26,084 (1,231) 1980 2017CTR Partnership, L.P. Greenville Nursing &Rehabilitation Center Greenville, IL — 188 3,972 — 188 3,972 4,160 (247) 1973 2017CTR Partnership, L.P. Copper Ridge Healthand RehabilitationCenter Butte, MT — 220 4,974 — 220 4,974 5,194 (262) 2010 2018CTR Partnership, L.P. Prairie HeightsHealthcare Center Aberdeen, SD — 1,372 7,491 — 1,372 7,491 8,863 (303) 1965 2018CTR Partnership, L.P. The Meadows onUniversity Fargo, ND — 989 3,275 — 989 3,275 4,264 (106) 1966 2018CTR Partnership, L.P. The Suites - Parker Parker, CO — 1,178 17,857 — 1,178 17,857 19,035 (495) 2012 2018CTR Partnership, L.P. Huntington ParkNursing Center Huntington Park,CA — 3,131 8,876 76 3,131 8,952 12,083 (207) 1955 2019CTR Partnership, L.P. Shoreline Care Center Oxnard, CA — 1,699 9,004 — 1,699 9,004 10,703 (212) 1962 2019CTR Partnership, L.P. Downey Care Center Downey, CA — 2,502 6,141 — 2,502 6,141 8,643 (145) 1967 2019CTR Partnership, L.P. Courtyard HealthcareCenter Davis, CA — 2,351 9,256 — 2,351 9,256 11,607 (222) 1969 2019Gulf Coast Buyer 1LLC Alpine Skilled Nursingand Rehabilitation Ruston, LA — 2,688 23,825 — 2,688 23,825 26,513 (475) 2014 2019Gulf Coast Buyer 1LLC The Bradford SkilledNursing andRehabilitation Shreveport, LA — 3,758 21,325 17 3,758 21,342 25,100 (425) 1980 2019Gulf Coast Buyer 1LLC Colonial Oaks SkilledNursing andRehabilitation Bossier City, LA — 1,635 21,180 — 1,635 21,180 22,815 (412) 2013 2019Gulf Coast Buyer 1LLC The Guest HouseSkilled Nursing andRehabilitation Shreveport, LA — 3,437 20,889 184 3,437 21,073 24,510 (422) 2006 2019Gulf Coast Buyer 1LLC Pilgrim Manor SkilledNursing andRehabilitation Bossier City, LA — 2,979 24,617 — 2,979 24,617 27,596 (486) 2008 2019Gulf Coast Buyer 1LLC Shreveport ManorSkilled Nursing andRehabilitation Shreveport, LA — 676 10,238 193 676 10,431 11,107 (198) 2008 2019Gulf Coast Buyer 1LLC Booker T. WashingtonSkilled Nursing andRehabilitation Shreveport, LA — 2,452 9,148 113 2,452 9,261 11,713 (191) 2013 2019Gulf Coast Buyer 1LLC Legacy WestRehabilitation andHealthcare Corsicana, TX — 120 6,682 276 120 6,958 7,078 (141) 2002 2019Gulf Coast Buyer 1LLC Legacy at Jacksonville Jacksonville, TX — 173 7,481 52 173 7,533 7,706 (156) 2006 2019Gulf Coast Buyer 1LLC Pecan TreeRehabilitation andHealthcare Gainesville, TX — 219 10,097 124 219 10,221 10,440 (202) 1990 2019Lakewest SNF Realty,LLC Lakewest Rehabilitationand Skilled Care Dallas, TX — — 6,905 — — 6,905 6,905 (129) 2011 2019CTR Partnership, L.P. Cascadia of Nampa Nampa, ID — 880 14,117 — 880 14,117 14,997 (219) 2017 2019CTR Partnership, L.P. Valley Skilled Nursing Modesto, CA — 798 7,671 — 798 7,671 8,469 (50) 2016 2019 — 145,149 889,318 89,189 144,139 979,517 1,123,655 (162,361) Multi-ServiceCampus Properties: Ensign Southland LLC Southland Care Norwalk, CA — 966 5,082 2,213 966 7,295 8,261 (4,986) 2011 1999Wisteria HealthHoldings LLC Wisteria Abilene, TX — 746 9,903 290 746 10,193 10,939 (2,077) 2008 2011Mission CCRC LLC St. Joseph's Villa Salt Lake City,UT — 1,962 11,035 464 1,962 11,499 13,461 (3,016) 1994 2011F-41Wayne Health HoldingsLLC Careage of Wayne Wayne, NE — 130 3,061 122 130 3,183 3,313 (889) 1978 20114th Street Holdings LLC West Bend Care Center West Bend, IA — 180 3,352 — 180 3,352 3,532 (886) 2006 2011Big Sioux River HealthHoldings LLC Hillcrest Health Hawarden, IA — 110 3,522 75 110 3,597 3,707 (892) 1974 2011Prairie Health HoldingsLLC Colonial Manor ofRandolph Randolph, NE — 130 1,571 22 130 1,593 1,723 (678) 2011 2011Salmon River HealthHoldings LLC Discovery Care Center Salmon, ID — 168 2,496 — 168 2,496 2,664 (463) 2012 2012CTR Partnership, L.P. Centerville Campus Dayton, OH — 3,912 22,458 117 3,781 22,706 26,487 (2,432) 2007 2015CTR Partnership, L.P. Liberty Nursing Center Willard, OH — 143 11,097 50 143 11,147 11,290 (1,195) 1985 2015CTR Partnership, L.P. Premier Estates ofMiddletown Middletown, OH — 990 7,484 172 990 7,656 8,646 (822) 1985 2015CTR Partnership, L.P. Premier Estates ofNorwood Towers Norwood, OH — 1,316 10,071 499 1,316 10,570 11,886 (960) 1991 2016CTR Partnership, L.P. Turlock Nursing andRehabilitation Center Turlock, CA — 1,258 16,526 — 1,258 16,526 17,784 (1,412) 1986 2016CTR Partnership, L.P. Bridgeport MedicalLodge Bridgeport, TX — 980 27,917 — 980 27,917 28,897 (2,152) 2014 2016CTR Partnership, L.P. The Villas at Saratoga Saratoga, CA — 8,709 9,736 1,635 8,709 11,371 20,080 (346) 2004 2018CTR Partnership, L.P. Madison Park Healthcare Huntington, WV — 601 6,385 — 601 6,385 6,986 (193) 1924 2018CTR Partnership, L.P. Oakview HeightsNursing & RehabilitationCenter Mt. Carmel, IL — 298 8,393 — 298 8,393 8,691 (218) 2004 2019Gulf Coast Buyer 1 LLC Spring Lake SkilledNursing andRehabilitation Shreveport, LA — 3,217 21,195 710 3,217 21,905 25,122 (431) 2008 2019Gulf Coast Buyer 1 LLC The Village at HeritageOaks Corsicana, TX — 143 11,429 196 143 11,625 11,768 (234) 2007 2019CTR Partnership, L.P. City Creek Post-Acuteand Assisted Living Sacramento, CA — 3,980 10,106 — 3,980 10,106 14,086 (69) 1990 2019 — 29,939 202,819 6,565 29,808 209,515 239,323 (24,351) Assisted andIndependent LivingProperties: Avenue N Holdings LLC Cambridge ALF Rosenburg, TX — 124 2,301 392 124 2,693 2,817 (1,276) 2007 2006Moenium Holdings LLC Grand Court Mesa, AZ — 1,893 5,268 1,210 1,893 6,478 8,371 (3,232) 1986 2007Lafayette HealthHoldings LLC Chateau Des Mons Englewood, CO — 420 1,160 189 420 1,349 1,769 (395) 2011 2009Expo Park HealthHoldings LLC Canterbury Gardens Aurora, CO — 570 1,692 248 570 1,940 2,510 (772) 1986 2010Wisteria Health HoldingsLLC Wisteria IND Abilene, TX — 244 3,241 81 244 3,322 3,566 (1,297) 2008 2011Everglades HealthHoldings LLC Lexington Ventura, CA — 1,542 4,012 113 1,542 4,125 5,667 (811) 1990 2011Flamingo HealthHoldings LLC Desert Springs ALF Las Vegas, NV — 908 4,767 281 908 5,048 5,956 (2,248) 1986 201118th Place HealthHoldings LLC Rose Court Phoenix, AZ — 1,011 2,053 490 1,011 2,543 3,554 (831) 1974 2011Boardwalk HealthHoldings LLC Park Place Reno, NV — 367 1,633 51 367 1,684 2,051 (452) 1993 2012Willows Health HoldingsLLC Cascade Plaza Redmond, WA — 2,835 3,784 395 2,835 4,179 7,014 (1,048) 2013 2013Lockwood HealthHoldings LLC Santa Maria Santa Maria, CA — 1,792 2,253 585 1,792 2,838 4,630 (1,086) 1967 2013Saratoga HealthHoldings LLC Lake Ridge Orem, UT — 444 2,265 176 444 2,441 2,885 (408) 1995 2013Sky Holdings AZ LLC Desert Sky AssistedLiving Glendale, AZ — 61 304 372 61 676 737 (435) 2004 2002Lemon River HoldingsLLC The Grove AssistedLiving Riverside, CA — 342 802 3,360 342 4,162 4,504 (2,340) 2012 2009F-42Mission CCRC LLC St. Joseph's Villa IND Salt Lake City,UT — 411 2,312 258 411 2,570 2,981 (1,250) 1994 2011CTR Partnership, L.P. Prelude Cottages ofWoodbury Woodbury, MN — 430 6,714 — 430 6,714 7,144 (839) 2011 2014CTR Partnership, L.P. English MeadowsSenior LivingCommunity Christiansburg,VA — 250 6,114 3 250 6,117 6,367 (765) 2011 2014CTR Partnership, L.P. Bristol Court AssistedLiving Saint Petersburg,FL — 645 7,322 13 645 7,335 7,980 (827) 2010 2015CTR Partnership, L.P. Asbury Place AssistedLiving Pensacola, FL — 212 4,992 72 212 5,064 5,276 (543) 1997 2015CTR Partnership, L.P. New Haven AssistedLiving of San Angelo San Angelo, TX — 284 4,478 — 284 4,478 4,762 (438) 2012 2016CTR Partnership, L.P. Lamplight Inn of FortWayne Fort Wayne, IN — 452 8,703 — 452 8,703 9,155 (834) 2015 2016CTR Partnership, L.P. Lamplight Inn of WestAllis West Allis, WI — 97 6,102 — 97 6,102 6,199 (585) 2013 2016CTR Partnership, L.P. Lamplight Inn ofBaltimore Baltimore, MD — — 3,697 — — 3,697 3,697 (354) 2014 2016CTR Partnership, L.P. Fort Myers AssistedLiving Fort Myers, FL — 1,489 3,531 405 1,489 3,936 5,425 (353) 1980 2016CTR Partnership, L.P. English Meadows ElksHome Campus Bedford, VA — 451 9,023 142 451 9,165 9,616 (865) 2014 2016CTR Partnership, L.P. Croatan Village New Bern, NC — 312 6,919 — 312 6,919 7,231 (634) 2010 2016CTR Partnership, L.P. Countryside Village Pikeville, NC — 131 4,157 — 131 4,157 4,288 (381) 2011 2016CTR Partnership, L.P. The Pines of Clarkston Village ofClarkston, MI — 603 9,326 — 603 9,326 9,929 (835) 2010 2016CTR Partnership, L.P. The Pines of Goodrich Goodrich, MI — 241 4,112 — 241 4,112 4,353 (368) 2014 2016CTR Partnership, L.P. The Pines of Burton Burton, MI — 492 9,199 — 492 9,199 9,691 (824) 2014 2016CTR Partnership, L.P. The Pines of Lapeer Lapeer, MI — 302 5,773 — 302 5,773 6,075 (517) 2008 2016CTR Partnership, L.P. Arbor Place Lodi, CA — 392 3,605 — 392 3,605 3,997 (308) 1984 2016CTR Partnership, L.P. Applewood ofBrookfield Brookfield, WI — 493 14,002 — 493 14,002 14,495 (1,021) 2013 2017CTR Partnership, L.P. Applewood of NewBerlin New Berlin, WI — 356 10,812 — 356 10,812 11,168 (788) 2016 2017CTR Partnership, L.P. Tangerine Cove ofBrooksville Brooksville, FL — 995 927 161 995 1,088 2,083 (77) 1984 2017CTR Partnership, L.P. Memory Care Cottagesin White Bear Lake White Bear Lake,MN — 1,611 5,633 — 1,611 5,633 7,244 (352) 2016 2017CTR Partnership, L.P. Culpeper Culpepper, VA — 318 3,897 69 318 3,966 4,284 (257) 1997 2017CTR Partnership, L.P. Louisa Louisa, VA — 407 4,660 72 407 4,732 5,139 (313) 2002 2017CTR Partnership, L.P. Warrenton Warrenton, VA — 1,238 7,247 85 1,238 7,332 8,570 (462) 1999 2017CTR Partnership, L.P. Vista Del Lago Escondido, CA — 4,362 7,997 — 4,362 7,997 12,359 (70) 2015 2019 — 29,527 196,789 9,223 29,527 206,012 235,539 (31,491) Independent LivingProperties: Hillview HealthHoldings LLC Lakeland Hills Dallas, TX — 680 4,872 1,011 680 5,883 6,563 (2,156) 1996 2011 — 680 4,872 1,011 680 5,883 6,563 (2,156) — $205,295 $1,293,798 $105,988 $204,154 $1,400,927 $1,605,081 $(220,359) (1) The aggregate cost of real estate for federal income tax purposes was $1.6 billion.F-43SCHEDULE IIIREAL ESTATE ASSETS AND ACCUMULATED DEPRECIATIONDECEMBER 31, 2019(dollars in thousands) Year Ended December 31,Real estate: 2019 2018 2017Balance at the beginning of the period $1,368,157 $1,266,484 $986,215Acquisitions 318,070 106,208 280,477Improvements 3,103 7,230 744Impairment (21,465) — —Sales of real estate (62,784) (11,765) (952)Balance at the end of the period $1,605,081 $1,368,157 $1,266,484Accumulated depreciation: Balance at the beginning of the period $(185,926) $(152,185) $(121,797)Depreciation expense (40,373) (34,676) (30,493)Impairment 5,220 — —Sales of real estate 720 935 105Balance at the end of the period $(220,359) $(185,926) $(152,185)F-44SCHEDULE IVMORTGAGE LOANS ON REAL ESTATEDECEMBER 31, 2019(dollars in thousands)Description ContractualInterest Rate MaturityDate PeriodicPaymentTerms PriorLiens PrincipalBalance BookValue (3) Carrying Amountof Loans Subject toDelinquentPrincipal orInterest First Mortgage: Ohio (3 SNF facilities) 10.0% 2020 (1) $— $26,500 $26,500 $— Third Mortgage: California (1 SNF facility) 8.0% 2019 (2) 5,500(4) 3,000 3,000 3,000 Loan Loss Allowance — — — — $5,500 $29,500 $29,500 $3,000(1)Interest is due monthly, and principal is due at the maturity date.(2)Past due.(3)The aggregate cost of investments in real estate mortgage loans for federal income tax purposes was $29.5 million.(4)An estimate.Changes in mortgage loans are summarized as follows: Year Ended December 31, 2019 2018 2017 Balance at beginning of period $12,375 $12,517 $—Additions during period: New mortgage loans 40,889 — 12,542Deductions during period: Paydowns/Repayments (23,764) (142) (25)Balance at end of period $29,500 $12,375 $12,517F-45EXHIBIT 4.5DESCRIPTION OF CAPITAL STOCK OF CARETRUST REIT, INC.References to “we,” “us” and “our” in this section refer to CareTrust REIT, Inc.The following description summarizes the material provisions of the common stock and preferred stock we may offer, as well as certain provisions ofMaryland law and of our charter and bylaws. These descriptions are subject to, and qualified in their entirety by, our charter and our bylaws and applicableprovisions of the Maryland General Corporation Law the (“MGCL”). You are encouraged to read the full text of our charter and bylaws, copies of which are filedas exhibits to our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”). Any series ofpreferred stock we issue will be governed by our charter and by the articles supplementary related to that series.GeneralOur authorized stock consists of 500,000,000 shares of common stock, par value $0.01 per share, and 100,000,000 shares of preferred stock, par value $0.01per share. As of February 19, 2020, 95,468,760 shares of our common stock were issued and outstanding and no shares of our preferred stock were outstanding.All the outstanding shares of our common stock are fully paid and nonassessable. Common StockAll shares of our common stock are duly authorized, fully paid and nonassessable. Subject to the preferential rights of any other class or series of our stockand the provisions of our charter that will restrict transfer and ownership of stock, the holders of shares of our common stock generally are entitled to receivedividends on such stock out of assets legally available for distribution to the stockholders when, as and if authorized by our board of directors and declared by us.The holders of shares of our common stock are also entitled to share ratably in our net assets legally available for distribution to stockholders in the event of ourliquidation, dissolution or winding up, after payment of or adequate provision for all known debts and liabilities, including any preferential rights upon liquidation,dissolution, or winding up of any class or series of our stock then outstanding.Subject to the rights of any other class or series of our stock and the provisions of our charter that restrict transfer and ownership of stock, each outstandingshare of our common stock entitles the holder to one vote on all matters submitted to a vote of the stockholders, including the election of directors. Under ourcharter, there is no cumulative voting in the election of directors.Holders of shares of our common stock generally have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have nopreemptive rights to subscribe for any of our securities. Subject to the provisions of our charter that restrict transfer and ownership of stock, all shares of ourcommon stock have equal dividend, liquidation and other rights.Preferred StockUnder our charter, our board of directors may from time to time establish and cause us to issue one or more classes or series of preferred stock and set theterms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications, or terms or conditions ofredemption of such classes or series. Accordingly, our board of directors, without stockholder approval, may issue preferred stock with voting, conversion or otherrights that could adversely affect the voting power and other rights of the holders of common stock. Preferred stock could be issued quickly with terms calculatedto delay or prevent a change of control or make removal of management more difficult. Additionally, the issuance of preferred stock may have the effect ofdecreasing the market price of our common stock, may adversely affect the voting and other rights of the holders of our common stock, and could have the effectof delaying, deferring or preventing a change of control of our company or other corporate action. Preferred stock, upon issuance against full payment of thepurchase price therefor, will be fully paid and nonassessable.Power to Reclassify Our Unissued SharesOur board of directors has the power, without stockholder approval, to amend our charter to increase or decrease the aggregate number of authorized sharesof stock or the number of authorized shares of stock of any class or series, to authorize us to issue additional authorized but unissued shares of common stock orpreferred stock and to classify and reclassify anyunissued shares of our common stock or preferred stock into other classes or series of stock, including one or more classes or series of common stock or preferredstock that have priority with respect to voting rights, dividends or upon liquidation over shares of our common stock. Prior to the issuance of shares of each newclass or series, our board of directors is required by the MGCL and our charter to set, subject to the provisions of our charter regarding restrictions on transfer andownership of stock, the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications orterms or conditions of redemption for each class or series of stock.Restrictions on Transfer and Ownership of CareTrust REIT StockIn order for us to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), our stock must bebeneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than our first taxable year as a REIT) or during aproportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of our stock may be owned, beneficially orconstructively, by five or fewer individuals (as defined in the Code to include certain entities such as qualified pension plans and private foundations) during thelast half of a taxable year (other than our first taxable year as a REIT). In addition, rent from related party tenants (generally, a tenant of a REIT owned,beneficially or constructively, 10% or more by the REIT, or a 10% owner of the REIT) is not qualifying income for purposes of the gross income tests under theCode.Our charter contains restrictions on the transfer and ownership of our stock. The relevant sections of our charter provide that, subject to the exceptionsdescribed below, no person or entity may beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, morethan 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 of theoutstanding shares of all classes or series of our stock. These limits are collectively referred to herein as the “ownership limits.” The constructive ownership rulesunder the Code are complex and may cause stock owned beneficially or constructively by a group of related individuals or entities to be owned constructively byone individual or entity. As a result, the acquisition of less than 9.8% of our outstanding common stock or less than 9.8% of our outstanding capital stock, or theacquisition of an interest in an entity that beneficially or constructively owns our stock, could, nevertheless, cause the acquiror, or another individual or entity, toown constructively shares of our outstanding stock in excess of the ownership limits.Upon receipt of certain representations and agreements and in its sole and absolute discretion, our board of directors will be able to, prospectively orretroactively, exempt a person from the ownership limits or establish a different limit on ownership, or an excepted holder limit, for a particular stockholder if thestockholder’s ownership in excess of the ownership limits would not result in us being “closely held” under Section 856(h) of the Code or otherwise failing toqualify as a REIT. As a condition of granting a waiver of the ownership limits or creating an excepted holder limit, our board of directors will be able to, but is notrequired to, require an Internal Revenue Service (“IRS”) ruling or opinion of counsel satisfactory to our board of directors (in its sole discretion) as it may deemnecessary or advisable to determine or ensure our status as a REIT.Our board of directors will also be able to, from time to time, increase or decrease the ownership limits unless, after giving effect to the increased ordecreased ownership limits, five or fewer persons could beneficially own or constructively own, in the aggregate, more than 49.9% in value of our outstandingstock or we would otherwise fail to qualify as a REIT. Decreased ownership limits will not apply to any person or entity whose ownership of our stock is in excessof the decreased ownership limits until the person or entity’s ownership of our stock equals or falls below the decreased ownership limits, but any furtheracquisition of our stock will be in violation of the decreased ownership limits.Our charter also prohibits:•any person from beneficially or constructively owning shares of our stock to the extent such beneficial or constructive ownership would result in usbeing “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT;•any person from transferring shares of our stock if the transfer would result in shares of our stock being beneficially owned by fewer than 100persons;•any person from beneficially owning or constructively owning shares of our stock to the extent such ownership would result in us failing to qualify asa “domestically controlled qualified investment entity,” within the meaning of Section 897(h) of the Code;•any person from beneficially or constructively owning shares of our stock to the extent such beneficial or constructive ownership would cause us toown, beneficially or constructively, 9.9% or more of the ownershipinterests in a tenant (other than a “taxable REIT subsidiary” of ours (as such term is defined in Section 856(l) of the Code)) of our real property withinthe meaning of Section 856(d)(2)(B) of the Code; and•any person from beneficially or constructively owning shares of our stock to the extent such beneficial or constructive ownership would cause any“eligible independent contractor” that operates a “qualified health care property” on behalf of a “taxable REIT subsidiary” of ours (as such terms aredefined in Sections 856(d)(9)(A), 856(e)(6)(D)(i) and 856(l) of the Code, respectively) to fail to qualify as such.Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of our stock that will or may violate the ownershiplimits, or any of the other restrictions on transfer and ownership of our stock, and any person who is the intended transferee of shares of our stock that aretransferred to the charitable trust described below, will be required to give immediate written notice and, in the case of a proposed or attempted transaction, at least15 days’ prior written notice, to us and provide us with such other information as we may request in order to determine the effect of the transfer on our status as aREIT. The provisions of our charter regarding restrictions on transfer and ownership of our stock will not apply if our board of directors determines that it is nolonger in our best interests to attempt to qualify, or to continue to qualify, as a REIT.Any attempted transfer of our stock which, if effective, would result in our stock being beneficially owned by fewer than 100 persons will be null and voidand the proposed transferee will acquire no rights in such shares of our stock. Any attempted transfer of our stock which, if effective, would violate any of theother restrictions described above will cause the number of shares causing the violation (rounded up to the nearest whole share) to be automatically transferred to atrust for the exclusive benefit of one or more charitable beneficiaries, and the proposed transferee will not acquire any rights in the shares. The trustee of the trustwill be appointed by us and will be unaffiliated with us and any proposed transferee of the shares. The automatic transfer will be effective as of the close ofbusiness on the business day prior to the date of the violative transfer or other event that results in a transfer to the trust. If the transfer to the trust as describedabove is not automatically effective, for any reason, to prevent violation of the applicable restrictions on transfer and ownership of our stock, then the transfer ofthe shares will be null and void and the proposed transferee will acquire no rights in such shares.Shares of our stock held in trust will continue to be issued and outstanding shares. The proposed transferee will not benefit economically from ownership ofany shares of our stock held in the trust, and will have no rights to dividends and no rights to vote or other rights attributable to the shares of stock held in the trust.The trustee of the trust will exercise all voting rights and receive all dividends and other distributions with respect to shares held in the trust for the exclusivebenefit of the charitable beneficiary of the trust. Any dividend or other distribution paid prior to our discovery that shares have been transferred to a trust asdescribed above must be repaid by the recipient to the trustee upon demand. Subject to Maryland law, effective as of the date that the shares have been transferredto the trust, the trustee will have the authority, at the trustee’s sole discretion, to rescind as void any vote cast by a proposed transferee prior to our discovery thatthe shares have been transferred to the trust and to recast the vote in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary ofthe trust. However, if we have already taken irreversible corporate action, then the trustee may not rescind and recast the vote.If our board of directors or a committee thereof determines in good faith that a proposed transfer or other event has taken place that violates the restrictionson transfer and ownership of our stock set forth in our charter, our board of directors or such committee may take such action as it deems advisable to refuse togive effect to or to prevent such transfer, including, but not limited to, causing us to redeem shares of stock, refusing to give effect to the transfer on our books orinstituting proceedings to enjoin the transfer, provided that any transfer or other event in violation of the above restrictions shall automatically result in the transferto the trust described above, and, where applicable, such transfer or other event shall be null and void as provided above irrespective of any action or non-action byour board of directors or any committee or designee thereof.Shares of our stock transferred to the trustee will be deemed offered for sale to us, or our designee, at a price per share equal to the lesser of (1) the pricepaid per share in the transaction that resulted in such transfer to the charitable trust (or, in the case of a devise or gift, the market price of such stock at the time ofsuch devise or gift) and (2) the market price of such stock on the date we accept, or our designee accepts, such offer. We may reduce the amount so payable to theproposed transferee by the amount of any dividend or other distribution that we made to the proposed transferee before we discovered that the shares had beenautomatically transferred to the trust and that are then owed by the proposed transferee to the trustee as described above, and we may pay the amount of any suchreduction to the trustee for distribution to the charitable beneficiary. We will have the right to accept such offer until the trustee has sold the shares held in thecharitable trust, as discussed below. Upon a sale to us, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will be required todistribute the net proceeds of the sale to the proposed transferee, and any distributions held by the trustee with respect to such shares shall be paid to the charitablebeneficiary.If we do not buy the shares, the trustee will be required, within 20 days of receiving notice from us of a transfer of shares to the trust, to sell the shares to aperson or entity designated by the trustee who could own the shares without violating the ownership limits, or the other restrictions on transfer and ownership ofour stock. After selling the shares, the interest of the charitable beneficiary in the shares transferred to the trust will terminate and the trustee will be required todistribute to the proposed transferee an amount equal to the lesser of (1) the price paid by the proposed transferee for the shares or, if the proposed transferee didnot give value for the shares in connection with the event causing the shares to be held by the trust (e.g., in the case of a gift, devise or other such transaction), themarket price of such stock on the day of the event causing the shares to be held by the trust and (2) the sales proceeds (net of any commissions and other expensesof sale) received by the trustee from the sale or other disposition of the shares. The trustee may reduce the amount payable to the proposed transferee by the amountof any dividends or other distributions that we paid to the proposed transferee before we discovered that the shares had been automatically transferred to the trustand that are then owed by the proposed transferee to the trustee as described above. Any net sales proceeds in excess of the amount payable to the proposedtransferee will be paid immediately to the charitable beneficiary, together with any distributions thereon. If the proposed transferee sells such shares prior to thediscovery that such shares have been transferred to the trustee, then (a) such shares shall be deemed to have been sold on behalf of the trust and (b) to the extentthat the proposed transferee received an amount for such shares that exceeds the amount that such proposed transferee was entitled to receive pursuant to thisparagraph, such excess shall be paid to the trustee upon demand. The proposed transferee will have no rights in the shares held by the trustee. Any certificates representing shares of our stock will bear a legend referring to the restrictions on transfer and ownership described above.Every owner of 5% or more (or such lower percentage as required by the Code or the regulations promulgated thereunder) of our stock, within 30 days afterthe end of each taxable year, will be required to give us written notice stating the person’s name and address, the number of shares of each class and series of ourstock that the person beneficially owns, a description of the manner in which the shares are held and any additional information that we request in order todetermine the effect, if any, of the person’s beneficial ownership on our status as a REIT and to ensure compliance with the ownership limits. In addition, anybeneficial owner or constructive owner of shares of our stock and any person or entity (including the stockholder of record) who holds shares of our stock for abeneficial owner or constructive owner will be required to, on request, disclose to us in writing such information as we may request in order to determine theeffect, if any, of the stockholder’s beneficial and constructive ownership of our stock on our status as a REIT and to comply, or determine our compliance with, therequirements of any governmental or taxing authority.The restrictions on transfer and ownership described above could have the effect of delaying, deferring or preventing a change of control in which holders ofshares of our stock might receive a premium for their shares over the then prevailing price.Certain Provisions of Maryland Law and of Our Charter and BylawsAmendments to Our Charter and Bylaws and Approval of Extraordinary ActionsUnder Maryland law, a Maryland corporation generally cannot amend its charter, merge, consolidate, sell all or substantially all of its assets, engage in astatutory share exchange or dissolve unless the action is advised by the board of directors and approved by the affirmative vote of stockholders entitled to cast atleast two-thirds of the votes entitled to be cast on the matter. However, a Maryland corporation may provide in its charter for approval of these actions by a lesserpercentage, but not less than a majority of all of the votes entitled to be cast on the matter. Our charter provides that the affirmative vote of at least a majority of thevotes entitled to be cast on the matter is required to approve all charter amendments or extraordinary actions. However, Maryland law permits a Marylandcorporation to transfer all or substantially all of its assets without the approval of the stockholders of the corporation to one or more persons if all of the equityinterests of the person or persons are owned, directly or indirectly, by the corporation.Our bylaws may be adopted, altered or repealed, in whole or in part, or new bylaws may be adopted by (i) our board of directors or (ii) our stockholders withthe affirmative vote of a majority of the votes entitled to be cast on the matter by stockholders entitled to vote generally in the election of directors.Election and Removal of Directors; Vacancies on Our Board of DirectorsOur bylaws require, in uncontested elections, that each director be elected by the majority of votes cast with respect to such director. This means that thenumber of shares voted “for” a director nominee must exceed the number of sharesaffirmatively voted “against” the nominee in order for that nominee to be elected. If an incumbent director fails to receive a majority of the votes cast in anuncontested election, such incumbent director shall promptly tender his or her resignation for consideration by the nominating and corporate governancecommittee. The nominating and corporate governance committee will then promptly consider any such tendered resignation and will make a recommendation tothe board of directors as to whether such tendered resignation should be accepted, rejected, or whether other action should be taken. The board of directors, within90 days after the date on which certification of the stockholder vote on the election of directors is made, will publicly disclose its decision and rationale regardingwhether to accept, reject or take other action with respect to the tendered resignation in a press release, a periodic or current report filed with the SEC or by otherpublic announcement. The nominating and corporate governance committee and the board of directors may consider any factors they deem relevant in decidingwhether to accept, reject or take other action with respect to any such tendered resignation. A plurality voting standard will continue to apply in the event of acontested election.In addition, our charter provides that, subject to the rights of holders of any class or series of preferred stock separately entitled to elect one or moredirectors, a director (or the entire board of directors) may be removed only with “cause” (as defined in our charter), by the affirmative vote of two-thirds of thecombined voting power of all classes of stock entitled to vote in the election of directors, voting as a single class. We have elected to be subject to certainprovisions of the MGCL, as a result of which our board of directors has the exclusive power to fill vacancies on the board of directors.Business CombinationsUnder the MGCL, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder areprohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include amerger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. Aninterested stockholder is defined as:•any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock;or•an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% ormore of the voting power of the then outstanding voting stock of the corporation.A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which such person otherwisewould have become an interested stockholder. However, in approving a transaction, a board of directors may provide that its approval is subject to compliance, ator after the time of approval, with any terms and conditions determined by the board of directors.After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommendedby the board of directors of the corporation and approved by the affirmative vote of at least:•80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation;and•two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whomor with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder, voting together as asingle class.These supermajority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under the MGCL, fortheir shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. The statute permits variousexemptions from its provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholderbecomes an interested stockholder. Our board of directors has not opted out of the business combination provisions of the MGCL and, consequently, the five-yearprohibition and the supermajority vote requirements apply to business combinations between us and any interested stockholder of ours.We are subject to the business combination provisions described above. However, our board of directors may elect to opt out of the business combinationprovisions by resolution at any time in the future.Control Share AcquisitionsMaryland law provides that issued and outstanding shares of a Maryland corporation acquired in a control share acquisition have no voting rights except tothe extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, by officers, or by employees who aredirectors of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock that, if aggregated with all othershares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of arevocable proxy), would entitle the acquiror to, directly or indirectly, exercise voting power in electing directors within one of the following ranges of votingpower:•one-tenth or more but less than one-third;•one-third or more but less than a majority;or•more than50%.A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting ofstockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to thesatisfaction or waiver of certain conditions, including an undertaking to pay the expenses of the special meeting. If no request for a special meeting is made, thecorporation may itself present the question at any stockholder meeting.If voting rights are not approved at the special meeting or if the acquiror does not deliver an acquiring person statement as required by the statute, then thecorporation may, subject to certain conditions and limitations, redeem for fair value any or all of the control shares, except those for which voting rights havepreviously been approved. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control shareacquisition by the acquiror or of any meeting of stockholders at which the voting rights of the shares are considered and not approved. If voting rights for controlshares are approved at a stockholder meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exerciseappraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquiror inthe control share acquisition.The control share acquisition statute does not apply to (1) shares acquired in a merger, consolidation or share exchange if the corporation is a party to thetransaction, or (2) acquisitions approved or exempted by the charter or bylaws of the corporation.Our bylaws contain a provision that exempts from the MGCL’s control share acquisition statute any and all acquisitions by any person of shares of ourstock. However, there can be no assurance that this provision will not be amended or eliminated, in whole or in part, at any time in the future.Subtitle 8Subtitle 8 of Title 3 of the MGCL permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at least threeindependent directors to elect to be subject, by provision in its charter or bylaws or by a resolution of its board of directors and notwithstanding any contraryprovision in the charter or bylaws, to any or all of five provisions:•a classified board;•a two-thirds vote requirement for removing adirector;•a requirement that the number of directors be fixed only by vote of thedirectors;•a requirement that a vacancy on the board be filled only by the affirmative vote of a majority of the remaining directors in office and such directorshall hold office for the remainder of the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualified;and•a majority requirement for the calling of a special meeting ofstockholders.We amended our charter to reflect that we have elected to be subject to the provisions of Subtitle 8 that vests in our board of directors the exclusive power tofix the number of directors and requires that vacancies on the board may be filled only by the remaining directors and for the remainder of the full term of thedirectors in which the vacancy occurred. Through provisions in our bylaws unrelated to Subtitle 8, we require, unless called by our chairman, chief executiveofficer, president or the board of directors, the request of stockholders entitled to cast not less than twenty-five percent (25%) of the votes entitled to be cast at suchmeeting to call a special meeting of stockholders.In addition, our board of directors and stockholders approved amendments to our charter to declassify the board of directors and phase in the annual electionof directors beginning at the 2018 annual meeting of stockholders. Accordingly, beginning with our 2020 annual meeting of stockholders, all directors are electedannually for a one-year term and will hold office until their respective successors are duly elected and qualified or until their earlier resignation or removal.Special Meetings of the StockholdersOur bylaws provide that our chairman, chief executive officer, president or board of directors has the power to call a special meeting of stockholders. Aspecial meeting of our stockholders to act on any matter that may properly be brought before a meeting of stockholders will also be called by the secretary upon thewritten request of stockholders entitled to cast not less than twenty-five percent (25%) of all the votes entitled to be cast on such matter at the meeting andcontaining the information required by our bylaws. The secretary is required to inform the requesting stockholders of the reasonably estimated cost of preparingand mailing the notice of meeting (including its proxy materials), and the requesting stockholder is required to pay such estimated cost to the secretary prior to thepreparation and mailing of any notice for such special meeting.Transactions Outside the Ordinary Course of BusinessUnder the MGCL, a Maryland corporation generally may not dissolve, merge or consolidate with another entity, sell all or substantially all of its assets orengage in a statutory share exchange unless the action is declared advisable by the board of directors and approved by the affirmative vote of stockholders entitledto cast at least two-thirds of the votes entitled to be cast on the matter, unless a lesser percentage (but not less than a majority of all of the votes entitled to be caston the matter) is specified in the corporation’s charter. Our charter provides that these actions must be approved by a majority of all of the votes entitled to be caston the matter.Dissolution of Our CompanyThe dissolution of our company must be declared advisable by a majority of our entire board of directors and approved by the affirmative vote of the holdersof a majority of all of the votes entitled to be cast on the matter.Advance Notice of Director Nomination and New BusinessOur bylaws provide that, at any annual meeting of stockholders, nominations of individuals for election to the board of directors and proposals of business tobe considered by stockholders may generally be made only (1) pursuant to our notice of the meeting (or any supplement thereto), (2) by or at the direction of theboard of directors or (3) by a stockholder who (i) was a stockholder of record both at the time of giving of notice by the stockholder and at the time of the annualmeeting, (ii) is entitled to vote at the meeting in the election of directors or on any such other proposed business and (iii) has complied with the advance noticeprocedures of our bylaws. The stockholder must provide notice to our secretary not earlier than the 150th day and not later than 5:00 p.m., Eastern Time on the120th day prior to the first anniversary of the date of our proxy statement for the solicitation of proxies for the election of directors at the preceding year’s annualmeeting.Only the business specified in our notice of meeting may be brought before any special meeting of stockholders. Our bylaws provide that nominations ofindividuals for election to our board of directors at a special meeting of stockholders may be made only (1) by or at the direction of our board of directors or (2) ifthe special meeting has been called for the purpose of electing directors, by any stockholder who (i) was a stockholder of record both at the time of giving of noticeby the stockholders and at the time of the meeting, (ii) is entitled to vote at the meeting in the election of each individual so nominated, and (iii) has complied withthe advance notice provisions set forth in our bylaws. Such stockholder will be entitled to nominate one or more individuals, as the case may be, for election as adirector if the stockholder’s notice, containing the information required by our bylaws, is delivered to our secretary not earlier than the 120th day prior to suchspecial meeting and not later than 5:00 p.m., Eastern Time, on the later of (i) the 90th day prior to such special meeting or (ii) the tenth day following the day onwhich public announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting.The purpose of requiring stockholders to give advance notice of nominations and other proposals is to afford our board of directors the opportunity toconsider the qualifications of the proposed nominees or the advisability of the other proposals and, to the extent considered necessary by our board of directors, toinform stockholders and make recommendations regarding such nominations or other proposals. The advance notice procedures also permit a more orderlyprocedure for conducting stockholder meetings.Choice of ForumOur bylaws provide that, unless we consent in writing to the selection of an alternate forum, the Circuit Court for Baltimore City, Maryland (the “Court”)shall be the sole and exclusive forum for (i) any derivative action brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by anyof our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the MGCL, or (iv) anyaction asserting a claim governed by the internal affairs doctrine, and any record or beneficial stockholder of CareTrust REIT who commences such an action shallcooperate in a request that the action be assigned to the Court’s Business & Technology Case Management Program. This exclusive forum provision is intended toapply to claims arising under the MGCL and would not apply to claims brought pursuant to the Exchange Act or Securities Act, or any other claim for which thefederal courts have exclusive jurisdiction. The exclusive forum provision in our bylaws will not relieve us of our duties to comply with the federal securities lawsand the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.Effect of Certain Provisions of Our Charter and Bylaws and of Maryland LawThe restrictions on transfer and ownership of our stock contained in our charter prohibit any person from acquiring more than 9.8% in value or in number ofshares, whichever is more restrictive, of the outstanding shares of our common stock, or more than 9.8% in value of the outstanding shares of all classes or seriesof our stock, without the prior consent of our board of directors. In addition, the MGCL’s business combination statute may discourage others from trying toacquire more than 10% of our stock without the advance approval of our board of directors, and may substantially delay or increase the difficulty ofconsummating any transaction with or change in control of us. Because our board of directors is able to approve exceptions to the ownership limits and exempttransactions from the MGCL’s business combination statute, the ownership limits and the business combination statute will not interfere with a merger or otherbusiness combination approved by our board of directors. The power of our board of directors to classify and reclassify unissued common stock or preferred stock,and authorize the issuance of classified or reclassified shares, could also have the effect of delaying, deferring or preventing a change in control or othertransaction.In addition, our charter and bylaws do not provide for cumulative voting. Our bylaws require, in uncontested elections, that each director be elected by themajority of votes cast with respect to such director. This means that the number of shares voted “for” a director nominee must exceed the number of sharesaffirmatively voted “against” the nominee in order for that nominee to be elected. A plurality voting standard will continue to apply in the event of a contestedelection. If an incumbent director fails to receive a majority of the votes cast in an uncontested election, such incumbent director shall promptly tender his or herresignation for consideration by the nominating and corporate governance committee. See above under “Election and Removal of Directors; Vacancies on OurBoard of Directors” for additional information on the consideration of such resignation by the nominating and corporate governance committee and the board ofdirectors.The provisions described above, along with other provisions of the MGCL and our charter and bylaws discussed above, including provisions relating to theelection and removal of directors and the filling of vacancies, the supermajority vote that is required to amend certain provisions of our charter, the advance noticeprovisions and the procedures that stockholders are required to follow to request a special meeting, alone or in combination, could have the effect of delaying,deferring or preventing a proxy contest, tender offer, merger or other change in control of us that might involve a premium price for shares of our commonstockholders or otherwise be in the best interest of our stockholders, and could increase the difficulty of consummating any offer.Indemnification of Directors and Executive OfficersMaryland law permits a Maryland corporation to include in its charter a provision that limits the liability of its directors and officers to the corporation andits stockholders for money damages, except for liability resulting from (i) actual receipt of an improper benefit or profit in money, property or services or (ii) activeor deliberate dishonesty that is established by a final judgment and that is material to the cause of action. Our charter contains a provision that limits, to themaximum extentpermitted by Maryland statutory or decisional law, the liability of our directors and officers to us and our stockholders for money damages.Maryland law requires a Maryland corporation (unless otherwise provided in its charter, which our charter does not) to indemnify a director or officer whohas been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made or threatened to be made a party by reason of his or herservice in that capacity. Maryland law permits a Maryland corporation to indemnify its present and former directors and officers, among others, against judgments,penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to bemade a party by reason of their service in that capacity unless it is established that:•the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was theresult of active and deliberate dishonesty;•the director or officer actually received an improper personal benefit in money, property or services;or•in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission wasunlawful.Under the MGCL, we may not indemnify a director or officer in a suit by us or in our right in which the director or officer was adjudged liable to us or in asuit in which the director or officer was adjudged liable on the basis that personal benefit was improperly received. A court may order indemnification if itdetermines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standardof conduct or was adjudged liable on the basis that personal benefit was improperly received. However, indemnification for an adverse judgment in a suit by thecorporation or in its right, or for a judgment of liability on the basis that personal benefit was improperly received, will be limited to expenses.In addition, Maryland law permits a Maryland corporation to advance reasonable expenses to a director or officer upon receipt of (i) a written affirmation bythe director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification and (ii) a written undertaking byhim or her, or on his or her behalf, to repay the amount paid or reimbursed if it is ultimately determined that the standard of conduct was not met.Our bylaws require, to the maximum extent permitted by Maryland law, that we indemnify and pay or reimburse the reasonable costs, fees and expenses(including attorney’s costs, fees and expenses) in advance of the final disposition of a proceeding of (i) any present or former director or officer and (ii) anyindividual who, while a director or officer and, at our request, serves or has served another corporation, REIT, limited liability company, partnership, joint venture,trust, employee benefit plan or other enterprise as a director, officer, partner, trustee, member or manager, in each case, who was or is made or threatened to bemade a party to any pending or contemplated action, suit or proceeding, whether civil, criminal, administrative or investigative proceeding may incur by reason ofhis or her service in any of the foregoing capacities.In addition, our bylaws permit us, with the approval of our board of directors, to provide such indemnification and payment or reimbursement of expenses inadvance to any individual who served a predecessor of ours in any of the capacities described in the paragraph above and to any employee or agent of ours or apredecessor of ours.We have entered into indemnification agreements with each of our executive officers and directors providing for the indemnification of, and advancement ofexpenses to, each such person in connection with claims, suits or proceedings arising as a result of such person’s service as an officer or director of ours. We alsomaintain insurance on behalf of our directors and officers, insuring them against liabilities that they may incur in such capacities or arising from this status.Transfer Agent and RegistrarThe transfer agent and registrar for our common stock is Broadridge Corporate Issuer Solutions, Inc.ListingOur common stock is listed on the Nasdaq Global Select Market under the symbol “CTRE.”EXHIBIT 21.1LIST OF SUBSIDIARIES OF CARETRUST REIT, INC.*1.CareTrust GP, LLC** 51.Lockwood Health Holdings LLC2.CTR Partnership, L.P.** 52.Long Beach Health Associates LLC3.CareTrust Capital Corp.** 53.Lowell Health Holdings LLC4.18th Place Health Holdings LLC 54.Lowell Lake Health Holdings LLC5.49th Street Health Holdings LLC 55.Lufkin Health Holdings LLC6.4th Street Holdings LLC 56.Meadowbrook Health Associates LLC7.51st Avenue Health Holdings LLC 57.Memorial Health Holdings LLC8.Anson Health Holdings LLC 58.Mesquite Health Holdings LLC9.Arapahoe Health Holdings LLC 59.Mission CCRC LLC10.Arrow Tree Health Holdings LLC 60.Moenium Holdings LLC11.Avenue N Holdings LLC 61.Mountainview Communitycare LLC12.Big Sioux River Health Holdings LLC 62.Northshore Healthcare Holdings LLC13.Boardwalk Health Holdings LLC 63.Oleson Park Health Holdings LLC14.Bogardus Health Holdings LLC 64.Orem Health Holdings LLC15.Burley Healthcare Holdings LLC 65.Paredes Health Holdings LLC16.Casa Linda Retirement LLC 66.Plaza Health Holdings LLC17.Cedar Avenue Holdings LLC 67.Polk Health Holdings LLC18.Cherry Health Holdings LLC 68.Prairie Health Holdings LLC19.CM Health Holdings LLC 69.Price Health Holdings LLC20.Cottonwood Health Holdings LLC 70.Queen City Health Holdings LLC21.Dallas Independence LLC 71.Queensway Health Holdings LLC22.Dixie Health Holdings LLC 72.RB Heights Health Holdings LLC23.Emmett Healthcare Holdings LLC 73.Regal Road Health Holdings LLC24.Ensign Bellflower LLC 74.Renee Avenue Health Holdings LLC25.Ensign Highland LLC 75.Rillito Holdings LLC26.Ensign Southland LLC 76.Rio Grande Health Holdings LLC27.Everglades Health Holdings LLC 77.Salmon River Health Holdings LLC28.Expo Park Health Holdings LLC 78.Salt Lake Independence LLC29.Expressway Health Holdings LLC 79.San Corrine Health Holdings LLC30.Falls City Health Holdings LLC 80.Saratoga Health Holdings LLC31.Fifth East Holdings LLC 81.Silver Lake Health Holdings LLC32.Fig Street Health Holdings LLC 82.Silverada Health Holdings LLC33.Flamingo Health Holdings LLC 83.Sky Holdings AZ LLC34.Fort Street Health Holdings LLC 84.Snohomish Health Holdings LLC35.Gazebo Park Health Holdings LLC 85.South Dora Health Holdings LLC36.Gillette Park Health Holdings LLC 86.Stillhouse Health Holdings LLC37.Golfview Holdings LLC 87.Temple Health Holdings LLC38.Granada Investments LLC 88.Tenth East Holdings LLC39.Guadalupe Health Holdings LLC 89.Terrace Holdings AZ LLC40.Gulf Coast Buyer 1 LLC 90.Trinity Mill Holdings LLC41.Hillendahl Health Holdings LLC 91.Trousdale Health Holdings LLC42.Hillview Health Holdings LLC 92.Tulalip Bay Health Holdings LLC43.Irving Health Holdings LLC 93.Valley Health Holdings LLC44.Ives Health Holdings LLC 94.Verde Villa Holdings LLC45.Jefferson Ralston Holdings LLC 95.Wayne Health Holdings LLC46.Jordan Health Properties LLC 96.Willits Health Holdings LLC47.Josey Ranch Healthcare Holdings LLC 97.Willows Health Holdings LLC48.Kings Court Health Holdings LLC 98.Wisteria Health Holdings LLC49.Lafayette Health Holdings LLC 99.CTR Arvada Preferred, LLC**50.Lemon River Holdings LLC 100.CTR Cascadia Preferred, LLC***Unless otherwise indicated, the jurisdiction of formation or incorporation, as applicable, of each of the subsidiaries listed herein isNevada.**Formed or incorporated in Delaware.Exhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in Registration Statement No. 333-217670 on Form S-3 and Registration Statement No. 333-196634 on Form S-8 ofour reports dated February 20, 2020, relating to the financial statements of CareTrust REIT, Inc., and the effectiveness of CareTrust REIT Inc.'s internal controlover financial reporting appearing in this Annual Report on Form 10-K for the year ended December 31, 2019./s/ DELOITTE & TOUCHE LLPCosta Mesa, CaliforniaFebruary 20, 2020Exhibit 23.2Consent of Ernst & Young LLP, Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-196634) pertaining to the Incentive Award Plan of CareTrustREIT, Inc. and Form S-3 (No. 333-217670) of CareTrust REIT, Inc., of our report dated February 13, 2019, with respect to the consolidated financial statementsand schedules for the years ended December 31, 2018 and 2017 of CareTrust REIT, Inc., included in this Annual Report (Form 10-K) for the year endedDecember 31, 2019./s/ ERNST & YOUNG LLPIrvine, CaliforniaFebruary 20, 2020Exhibit 31.1CERTIFICATIONI, Gregory K. Stapley, certify that:1. I have reviewed this Annual Report on Form 10-K of CareTrust REIT, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. By: /s/ Gregory K. Stapley Gregory K. Stapley President and Chief Executive OfficerDate: February 20, 2020Exhibit 31.2CERTIFICATIONI, William M. Wagner, certify that:1. I have reviewed this Annual Report on Form 10-K of CareTrust REIT, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. By: /s/ William M. Wagner William M. Wagner Chief Financial Officer, Treasurer and SecretaryDate: February 20, 2020Exhibit 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, 2019, 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 20, 2020 /s/ William M. WagnerName: William M. WagnerTitle: Chief Financial Officer, Treasurer and SecretaryDate: February 20, 2020The 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 Exchange Act of1934, 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 anygeneral incorporation language in such filing.

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