Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 001-36181
CareTrust REIT, Inc.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation or organization)
46-3999490
(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) 542-3130
Title of each class
Common Stock, par value $0.01 per share
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
CTRE
Name of each exchange on which registered
The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Securities registered pursuant to Section 12(g) of the Act: None
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 the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Non-accelerated filer
☐
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
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 was last 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 15, 2022, there were 97,049,319 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
Portions of the definitive Proxy Statement for the registrant’s 2022 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120
days after the end of fiscal year 2021, are incorporated by reference into Part III of this Report.
Table of Contents
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
TABLE OF CONTENTS
PART I
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibit and Financial Statement Schedules
Form 10-K Summary
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Signatures
3
5
20
34
34
34
34
34
37
37
45
46
46
46
49
49
50
50
50
50
50
52
54
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STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Those forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including,
but not limited to, statements regarding: future financing plans, business strategies, growth prospects and operating and financial performance; expectations
regarding the making of distributions and the payment of dividends; and compliance with and changes in governmental regulations.
Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “may,” “will,” “would,” “could,” “should,” “seek(s)” and similar
expressions, or the negative of these terms, are intended to identify such forward-looking statements. These statements are based on management’s current
expectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecasted
or expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations
will be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially
from our expectations include, but are not limited to: (i) the COVID-19 pandemic, including the risk of additional surges of COVID-19 infections due to the rate
of public acceptance and efficacy of COVID-19 vaccines or to new and more contagious and/or vaccine resistant variants, and the measures taken to prevent the
spread of COVID-19 and the related impact on our business or the businesses of our tenants; (ii) the ability and willingness of our tenants to meet and/or perform
their obligations under the triple-net leases we have entered into with them, including without limitation, their respective obligations to indemnify, defend and
hold us harmless from and against various claims, litigation and liabilities; (iii) the ability of our tenants to comply with applicable laws, rules and regulations in
the operation of the properties we lease to them; (iv) the ability and willingness of our tenants to renew their leases with us upon their expiration, and the ability to
reposition our properties on the same or better terms in the event of nonrenewal or in the event we replace an existing tenant, as well as any obligations, including
indemnification obligations, we may incur in connection with the replacement of an existing tenant; (v) the availability of and the ability to identify (a) tenants
who meet our credit and operating standards, and (b) suitable acquisition opportunities and the ability to acquire and lease the respective properties to such tenants
on favorable terms; (vi) the ability to generate sufficient cash flows to service our outstanding indebtedness; (vii) access to debt and equity capital markets; (viii)
fluctuating interest rates; (ix) the ability to retain our key management personnel; (x) the ability to maintain our status as a real estate investment trust (“REIT”);
(xi) changes in the U.S. tax law and other state, federal or local laws, whether or not specific to REITs; (xii) other risks inherent in the real estate business,
including potential liability relating to environmental matters and illiquidity of real estate investments; and (xiii) any additional factors included in this report,
including in the section entitled “Risk Factors” 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 the Securities and Exchange Commission (the “SEC”), including subsequent Annual Reports on Form 10-K and Quarterly
Reports on Form 10-Q.
Forward-looking statements speak only as of the date of this report. Except in the normal course of our public disclosure obligations, we expressly disclaim
any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events,
conditions or circumstances on which any statement is based.
This 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 SEC
reporting requirements. The Ensign Group, Inc. (“Ensign”), The Pennant Group, Inc. (“Pennant”) and Assisted 4 Living, Inc., the parent company of Trillium
Healthcare Group (“Trillium”), are subject to the reporting requirements of the SEC and are required to file with the SEC annual reports containing audited
financial information and quarterly reports containing unaudited financial information. You are encouraged to review Ensign, Pennant’s and Assisted 4 Living,
Inc.’s publicly available filings, which can be found at the SEC’s website at www.sec.gov.
TENANT INFORMATION
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 SEC
filings or other publicly available information. We have not verified this information through an independent investigation or otherwise. We have no reason to
believe that this information is inaccurate in any material respect, but we cannot provide any assurance of its accuracy. We are providing this data for
informational purposes only.
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All references in this report to “CareTrust REIT,” the “Company,” “we,” “us” or “our” mean CareTrust REIT, Inc. together with its consolidated
subsidiaries. Unless the context suggests otherwise, references to “CareTrust REIT, Inc.” mean the parent company without its subsidiaries.
PART I
ITEM 1. Business
Our Company
CareTrust REIT is a self-administered, publicly-traded REIT engaged in the ownership, acquisition, development and leasing of skilled nursing, seniors
housing and other healthcare-related properties. As of December 31, 2021, CareTrust REIT’s real estate portfolio consisted of 227 skilled nursing facilities
(“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of 23,650 operational beds and units
located in 29 states with the highest concentration of properties by rental income located in California, Texas, Louisiana, Idaho and Arizona. As of December 31,
2021, we also had other real estate investments consisting of one mezzanine loan receivable with a carrying value of $15.2 million.
From January 1, 2021 through February 16, 2022, we acquired five SNFs and four multi-service campuses for approximately $192.5 million, which
includes capitalized acquisition costs. These acquisitions are expected to generate initial annual cash revenues of approximately $13.9 million and an initial
blended yield of approximately 7.4%. In addition, we acquired two ALFs for approximately $12.4 million, which includes capitalized acquisition costs. We are in
the process of identifying an operator for the two ALFs, which are currently not operational. From January 1, 2021 through February 16, 2022, we sold one SNF
and one land parcel, resulting in a net loss on sale of property of $0.1 million.
We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements, under which the tenant is
solely responsible for the costs related to the property (including property taxes, insurance, maintenance and repair costs and capital expenditures, subject to
certain exceptions in the case of properties leased to Ensign and Pennant). From time to time, we also extend secured mortgage loans to healthcare operators,
secured by healthcare-related properties, and secured mezzanine loans to healthcare operators, secured by membership interests in healthcare-related properties.
We conduct and manage our business as one operating segment for internal reporting and internal decision making purposes. We expect to grow our portfolio by
pursuing opportunities to acquire additional properties that will be leased to a diverse group of local, regional and national healthcare providers, which may
include new or existing skilled nursing operators, as well as seniors housing operators and related businesses. We also anticipate diversifying our portfolio over
time, including by acquiring properties in different geographic markets, and in different asset classes. In addition, we actively monitor the clinical, regulatory and
financial operating results of our tenants, and work to identify opportunities within their operations and markets that could improve their operating results at our
facilities. We communicate such observations to our tenants; however, we have no contractual obligation to do so. Moreover, our tenants have sole discretion with
respect to the day-to-day operation of the facilities they lease from us, and how and whether to implement any observation we may share with them. We also
actively monitor the overall occupancy, skilled mix, and other operating metrics of our tenants on at least a monthly basis including, beginning in the quarter
ended June 30, 2020, any stimulus funds received by each tenant. We have replaced tenants in the past, and may elect to replace tenants in the future, if they fail to
meet the terms and conditions of their leases with us. The replacement tenants may include tenants with whom we have had no prior landlord-tenant relationship
as well as current tenants with whom we are comfortable expanding our relationships. We have also provided select tenants with strategic capital for facility
upkeep and modernization, as well as short-term working capital loans when they are awaiting licensure and certification or conducting turnaround work in one or
more of our properties, and we may continue to do so in the future. In addition, we periodically reassess the investments we have made and the tenant
relationships we have entered into, and have selectively disposed of facilities or investments, or terminated such relationships, and we expect to continue making
such reassessments and, where appropriate, taking such actions.
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 have
been organized and have operated, and we intend to continue to operate, in a manner to qualify for taxation as a REIT. We operate through an 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
“Operating Partnership”). The Operating Partnership is managed by CareTrust REIT’s wholly owned subsidiary, CareTrust GP, LLC, which is the sole general
partner of the Operating Partnership. To maintain REIT status, we must meet a number of organizational and operational requirements, including a requirement
that we annually distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding
any net capital gains.
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Our Industry
The skilled nursing industry has evolved to meet the growing demand for post-acute and custodial healthcare services generated by an aging population,
increasing life expectancies and the trend toward shifting of patient care to lower cost settings. We believe this evolution has led to a number of favorable
improvements in the industry, as described below:
•
•
Shift of Patient Care to Lower Cost Alternatives. The growth of the senior population in the United States continues to increase healthcare costs. In
response, federal and state governments have adopted cost-containment measures that encourage the treatment of patients in more cost-effective
settings such as SNFs, for which the staffing requirements and associated costs are often significantly lower than acute care hospitals, inpatient
rehabilitation facilities and other post-acute care settings. As a result, SNFs are generally serving a larger population of higher-acuity patients than in
the 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
by numerous local and regional providers. We believe this fragmentation provides significant acquisition and consolidation opportunities for us.
• Widening Supply and Demand Imbalance. The number of SNFs has declined modestly over the past several years. According to the American
Health Care Association, the nursing home industry was comprised of approximately 15,700 facilities as of December 2016, as compared with over
16,700 facilities as of December 2000. We expect that the supply/demand imbalance in the skilled nursing industry will increasingly favor skilled
nursing and assisted living providers due to the shift of patient care to lower cost settings and an aging population.
•
Increased Demand Driven by Aging Populations. As seniors account for a higher percentage of the total U.S. population, we believe the overall
demand for skilled nursing services will increase. At present, the primary market demographic for skilled nursing services is individuals age 75 and
older. The 2020 U.S. Census reported that there were over 56 million people in the United States in 2020 over the age of 65. The U.S. Census
estimates this group to be one of the fastest growing segments of the United States population, projecting that it will almost double between 2020 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 $196.8 billion in 2020, which includes federal expenditures in response to the COVID-19 pandemic, to
approximately $266 billion in 2028. Although skilled nursing and seniors housing occupancy rates have declined during the COVID-19 pandemic, we
believe that these trends in population will support an increasing demand for skilled nursing services in the long-term, which in turn will likely support
an increasing demand for the services provided within our properties.
Portfolio Summary
We have a geographically diverse portfolio of properties, consisting of the following types as of December 31, 2021:
•
•
•
Skilled Nursing Facilities. SNFs are licensed healthcare facilities that provide restorative, rehabilitative and nursing care for people not requiring the
more extensive and sophisticated treatment available at acute care hospitals. Treatment programs include physical, occupational, speech, respiratory
and other therapies, including sub-acute clinical protocols such as wound care and intravenous drug treatment. Charges for these services are generally
paid from a combination of government reimbursement and private sources. As of December 31, 2021, our portfolio included 184 SNFs, 24 of which
are located on campuses that also have ALFs or ILFs, which we refer to as multi-service campuses (see below under “Multi-Service Campuses”).
Assisted Living Facilities. ALFs are licensed healthcare facilities that provide personal care services, support and housing for those who need help
with activities of daily living, such as bathing, eating and dressing, yet require limited medical care. The programs and services may include
transportation, social activities, exercise and fitness programs, beauty or barber shop access, hobby and craft activities, community excursions, meals
in a dining room setting and other activities sought by residents. These facilities are often apartment-like buildings with private residences ranging
from single rooms to large apartments. Certain ALFs may offer higher levels of personal assistance for residents requiring memory care as a result of
Alzheimer’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 of
December 31, 2021, our portfolio included 41 ALFs, some of which also contain independent living and memory care units. Included in the 41 ALFs
is one ALF classified as held for sale as of December 31, 2021.
Independent Living Facilities. ILFs, also known as retirement communities or senior apartments, are not healthcare facilities and are not licensed to
provide healthcare services to residents. The facilities typically consist of entirely self-contained apartments, complete with their own kitchens, baths
and individual living spaces, as well as parking
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for tenant vehicles. They are most often rented unfurnished, and generally can be personalized by the tenants, 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 emergency response programs. As of December 31, 2021, our
portfolio included 2 ILFs.
• Multi-Service Campuses. Multi-service campuses generally include some combination of co-located SNFs, ALFs, ILFs, and/or memory care units all
housed at a single location and operated as a continuum of care. We also refer to continuing care retirement communities as multi-service campuses.
These facilities are often marketed as an opportunity for residents to “age in place,” and tend to attract couples where the individuals may require or
benefit from differing levels of care. As of December 31, 2021, our portfolio included 24 facilities that we classify as multi-service campuses.
Our portfolio of SNFs, ALFs, ILFs and multi-service campuses is broadly diversified by geographic location throughout the United States, with
concentrations in California, Texas, Louisiana, Idaho and Arizona based on rental income.
Significant Master Leases
As of December 31, 2021, we leased 95 facilities to subsidiaries of Ensign, which have a total of 10,148 operational beds. We have leased a significant
number of our properties to subsidiaries of Ensign on a triple-net basis under eight long-term leases, each with its own pool of properties, that have varying
maturities and diversity in both property type and geography (each an “Ensign Master Lease” and collectively, the “Ensign Master Leases”). The Ensign Master
Leases provide for initial 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 up to 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 applicable Ensign Master Lease. During the year ended December 31, 2020, the Company acquired four additional facilities leased to subsidiaries of Ensign
on a triple-net basis under two separate master lease agreements, each of which contains a purchase option. As of December 31, 2021, annualized contractual
rental income from the Ensign Master Leases was $59.7 million, and annualized contractual rental income from all Ensign leases was $63.5 million, representing
31% and 33% of total annualized contractual rental income, respectively. Rent is escalated annually in June under the Ensign Master Leases, and in December for
the four additional facilities leased to Ensign, 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) or 2.5%, and (2) the prior year’s rent. The Ensign Master Leases are guaranteed by Ensign and contain cross-default provisions. The
obligations under the lease agreements for the four additional facilities are guaranteed by Ensign but do not contain cross-default provisions with the Ensign
Master Leases.
As of December 31, 2021, 15 of our properties were leased to subsidiaries of Priority Management Group (“PMG”) on a triple-net basis under one long-
term lease (the “PMG Master Lease”), and have a total of 2,144 operational beds. The PMG Master Lease commenced on December 1, 2016, and provides for an
initial term of fifteen years, with two five-year renewal options. As of December 31, 2021, annualized contractual rental income from the PMG Master Lease was
$28.9 million, representing 15% of total annualized contractual rental income.
See “Risk Factors - Risks Related to Our Business - We are dependent on the healthcare operators that lease our properties to successfully operate their
business and make contractual lease payments, 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 operations.”
We monitor the creditworthiness of our tenants by evaluating the ability of the tenants to meet their lease obligations to us based on the tenants’ financial
performance, including the evaluation of any guarantees of tenant lease obligations. The primary basis for our evaluation of the credit quality of our tenants (and
more specifically the tenants’ ability to pay their rent obligations to us) is the tenants’ lease coverage ratios. These coverage ratios compare (i) earnings before
interest, income taxes, depreciation, amortization and rent (“EBITDAR”) to rent coverage, and (ii) earnings before interest, income taxes, depreciation,
amortization, rent and management fees (“EBITDARM”) to rent coverage. We utilize a standardized 5% management fee when we 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-
described coverage metrics, to identify operational trends, to assess the operational and financial impact of the changes in the broader industry environment
(including the potential impact of government reimbursement and regulatory changes), and to evaluate the management and performance of the tenants’
operations. These metrics help us identify potential areas of concern relative to our tenants’ credit quality and ultimately the tenants’ ability to generate sufficient
liquidity to meet their ongoing obligations, including their obligations to continue paying contractual rents due to us and satisfying other financial obligations to
third parties, as prescribed by our triple-net leases.
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Properties by Type:
The following table displays the geographic distribution of our facilities and the related number of beds and units available for occupancy by property type,
as of December 31, 2021. The number of beds or units that are operational may be less than the official licensed capacity.
State
TX
CA
ID
IA
UT
OH
AZ
WA
LA
IL
CO
NE
VA
FL
MI
NV
MT
WI
NC
NJ
MN
IN
MD
NM
GA
ND
SD
WV
OR
Total
Properties
43
40
17
15
13
13
11
11
8
8
7
5
5
4
4
3
3
3
2
2
2
1
1
1
1
1
1
1
1
227
Total
Beds/Units
5,472
4,856
1,474
970
1,374
1,320
1,352
1,024
1,164
768
779
366
302
420
189
304
259
206
104
98
62
162
120
116
105
83
81
67
53
23,650
Facilities
37
27
16
13
9
9
8
10
7
7
5
3
—
—
—
1
3
—
—
—
—
—
—
1
1
1
1
—
1
160
SNFs
Multi-Service Campuses
ALFs and ILFs
Campuses
3
8
1
2
1
4
—
—
1
1
—
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
24
Beds/Units
536
1,359
69
169
272
584
—
—
215
128
—
146
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
67
—
3,545
Facilities
3
5
—
—
3
—
3
1
—
—
2
—
5
4
4
2
—
3
2
2
2
1
1
—
—
—
—
—
—
43
Beds/Units
242
449
—
—
189
—
366
102
—
—
268
—
302
420
189
212
—
206
104
98
62
162
120
—
—
—
—
—
—
3,491
Beds
4,694
3,048
1,405
801
913
736
986
922
949
640
511
220
—
—
—
92
259
—
—
—
—
—
—
116
105
83
81
—
53
16,614
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Occupancy by Property Type:
The following table displays occupancy by property type for each of the years ended December 31, 2021 and 2020. Percentage occupancy in the below
table is computed by dividing the average daily number of beds occupied by the total number of beds available for use during the periods indicated (beds are
included in the computation following the date of acquisition, or through the date of disposition, only). In addition, the following table excludes the two non-
operational ALFs while we identify an operator.
(1)
Property Type
Facilities Leased to Tenants:
SNFs
Multi-Service Campuses
ALFs and ILFs
Facilities Operated by CareTrust REIT:
ILFs
(2)
Year Ended December 31,
2021
2020
69
66
73
—
%
%
%
%
75
73
86
91
%
%
%
%
(1) Occupancy data derived solely from information provided by our tenants without independent verification by us. The leased facility financial performance data is presented
one quarter in arrears.
(2) As of December 31, 2021, we did not own and operate any ILFs. Occupancy data for the year ended December 31, 2020 includes the one ILF we owned and operated that
was sold in November 2020.
Property Type - Rental Income:
The following tables display the annual rental income for each property type leased to third-party tenants for the years ended December 31, 2021 and 2020
and total beds/units for each property type as of December 31, 2021 and 2020.
Property Type
SNFs
Multi-Service Campuses
ALFs and ILFs
Total
Property Type
SNFs
Multi-Service Campuses
ALFs and ILFs
Total
Rental Income
(in thousands)
For the Year Ended December 31, 2021
Percent
of Total
70
16
14
100
133,380
30,440
26,375
190,195
As of December 31, 2021
Total Beds/
Units
16,614
3,545
3,491
23,650
%
%
%
%
For the Year Ended December 31, 2020
Rental Income
(in thousands)
Percent
of Total
As of December 31, 2020
Total Beds/
Units
127,200
21,517
24,895
173,612
73 %
13 %
14 %
100 %
16,238
2,923
3,305
22,466
$
$
$
$
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Geographic Concentration - Rental Income:
The following table displays the geographic distribution of annual rental income for properties leased to third-party tenants for the years ended December
31, 2021 and 2020 (dollars in thousands).
State
CA
TX
LA
ID
AZ
OH
UT
CO
IA
WA
IL
VA
MI
WI
MT
NV
FL
NC
MN
NM
NE
GA
SD
IN
WV
MD
ND
OR
NJ
Total
$
$
For the Year Ended December 31, 2021
For the Year Ended December 31, 2020
Rental Income
Percent of Total
Rental Income
Percent of Total
47,304
38,127
16,322
13,917
12,652
9,071
7,453
5,642
5,322
4,936
4,893
3,449
3,081
3,045
2,128
2,123
1,681
1,135
1,038
1,023
970
949
917
855
727
588
448
399
—
190,195
25
20
9
7
7
5
4
3
3
3
3
2
2
2
1
1
1
1
1
100
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
*
*
*
*
*
*
*
*
*
*
%
$
$
36,853
33,276
16,022
13,482
12,466
9,225
7,289
5,561
4,672
5,201
4,824
3,248
5,729
2,937
1,079
2,092
1,572
1,107
366
1,008
956
810
905
829
714
567
442
380
—
173,612
21
19
9
8
7
5
4
3
3
3
3
2
3
2
1
1
1
1
1
1
1
1
100
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
*
%
%
*
%
%
*
*
*
*
*
%
•
Represents less than 1%
ILFs Operated by CareTrust REIT:
In November 2020, we sold our one remaining owned and operated ILF to a third party leaving us with no remaining owned and operated ILFs at December
31, 2020 or December 31, 2021.
Investment and Financing Policies
Our investment objectives are to increase cash flow, provide quarterly cash dividends, maximize the value of our properties and acquire properties with cash
flow growth potential. We intend to invest primarily in SNFs and seniors housing, including ALFs and ILFs. We are currently looking at expanding our
investments into behavioral health facilities in 2022, and we may determine in the future to expand our investments to include medical office buildings, long-term
acute care hospitals and inpatient rehabilitation facilities. Our properties are located in 29 states and we intend to continue to acquire properties in other states
throughout the United States. Although our portfolio currently consists primarily of owned real property, future investments may include first mortgages,
mezzanine debt and other securities issued by, or joint ventures with, REITs or other entities that own real estate consistent with our investment objectives.
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Our Competitive Strengths
We 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 29 different states, with concentrations in California, Texas, Louisiana, Idaho and
Arizona based on rental income. The properties in any one state do not account for more than 25% of our total rental income as of December 31, 2021. We believe
this geographic diversification will limit the effect of changes in any one market on our overall performance.
Long-Term, Triple-Net Lease Structure. All of our properties 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 properties and the business conducted on the leased
properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary or appropriate for the leased properties and the
business conducted on the leased properties.
Financially Secure Primary Tenant. Ensign is an established provider of healthcare services with strong financial performance and accounted for 32% of
our 2021 rental income, exclusive of operating expense reimbursements. Ensign is subject to the reporting requirements of the SEC and is required to file with the
SEC annual reports containing audited financial information and quarterly reports containing unaudited financial information. Ensign’s publicly available filings
can be found at the SEC’s website at www.sec.gov.
Ability to Identify Talented Operators. As a result of our management team’s operating experience and network of relationships and insight, we believe that
we are able to identify and pursue working relationships with qualified local, regional and national healthcare providers and seniors housing operators. We expect
to continue our disciplined focus on pursuing investment opportunities, primarily with respect to stabilized assets but also some strategic investment in new and/or
improving properties, while seeking dedicated and engaged operators who possess local market knowledge, have solid 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. David M. Sedgwick was appointed as our Chief Executive Officer effective January 1, 2022, succeeding Gregory K.
Stapley in that role. At the time of his appointment, Mr. Sedgwick was serving as our President, a role he had filled since February 2021, and he continues to hold
that title. He previously served as our Chief Operating Officer from August 2018 through 2021, and as our Vice President-Operations from CareTrust’s launch as
an independent public company in 2014 to 2018. Mr. Sedgwick has more than 20 years of experience in the skilled nursing and seniors housing industry. Mr.
Sedgwick’s President, Chief Operating Officer and Vice President duties regularly involved him in matters related to new investments, asset management, tenant
relations, portfolio management, portfolio optimization, investor relations and capital markets activities for the Company. Prior to joining CareTrust, Mr.
Sedgwick served as the Chief Human Capital Officer and President of Facility Services at Ensign. Mr. Sedgwick has been a licensed nursing home administrator
since 2001.
Gregory K. Stapley was named as our Executive Chairman effective January 1, 2022, a role that we expect he will fulfill during an approximately six-
month transition period, following which he and his wife Deborah will commence a three-year, full-time volunteer leadership assignment overseeing one of the
approximately 400 worldwide missions of The Church of Jesus Christ of Latter-day Saints. He served as our President and Chief Executive Officer from 2013 to
2021, and as Chairman of the Board from 2014 to the present. Mr. Stapley has more than 30 years of experience in the acquisition, development, financing and
disposition of real estate including healthcare facilities and office, retail and industrial properties, including nearly 15 years at Ensign where he was a co-founder
and was instrumental in assembling the portfolio that we now lease to Ensign and Pennant.
Our Chief Financial Officer, William M. Wagner, has more than 25 years of accounting and finance experience, primarily in real estate, including more than
15 years of experience working extensively for REITs. Most notably, he worked for both Nationwide Health Properties, Inc., a healthcare REIT, and Sunstone
Hotel Investors, 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.
Mark D. Lamb has served as our Chief Investment Officer since August 2018. Mr. Lamb previously served as our Director of Investments from July 2014
to August 2018, and has been instrumental in building the Company’s portfolio since becoming a public company. Mr. Lamb is a licensed nursing home
administrator and, prior to joining the Company in 2014, served as an administrator at one of Plum Healthcare’s flagship post-acute facilities from 2011 to 2014.
Prior to 2011, Mr. Lamb served in acquisition and portfolio management capacities for various entities for more than nine years.
Our executives have years of public company experience, including experience accessing both debt and equity capital markets to fund growth and maintain
a flexible capital structure.
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Flexible UPREIT Structure. 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 the Operating Partnership. Conducting business through the Operating Partnership allows us flexibility in the manner in
which we structure the acquisition of properties. In particular, an UPREIT structure enables us to acquire additional properties from sellers in exchange for limited
partnership units, which provides property owners the opportunity to defer the tax consequences that would otherwise arise from a sale of their real properties and
other assets to us. As a result, this structure allows us to acquire assets in a more efficient manner and may allow us to acquire assets that the owner would
otherwise be unwilling to sell because of tax considerations.
Business Strategies
Our 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
this goal, we intend to pursue a business strategy focused on opportunistic acquisitions and property diversification. We also intend to further develop our
relationships with 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 current
facilities 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. We are currently looking at expanding our investments
into behavioral health facilities in 2022, and we may determine in the future to expand our acquisitions to include medical office buildings, long-term acute care
hospitals and inpatient rehabilitation facilities. As we acquire additional properties, we expect to further diversify by geography, asset class and tenant within the
healthcare and healthcare-related sectors.
Maintain Balance Sheet Strength and Liquidity. We maintain a capital structure that provides the resources and flexibility to support the growth of our
business. We intend to maintain a mix of credit facility debt, unsecured debt and possibly secured mortgage debt, which, together with our anticipated ability to
complete future equity financings, including issuances of our common stock via registered public offerings or under an at-the-market equity program, we expect
will fund the growth of our property portfolio.
Develop New Tenant Relationships. We cultivate new relationships with tenants and healthcare providers in order to expand the mix of tenants operating
our properties. We expect that this objective will be achieved over time as part of our overall strategy to acquire new properties and further diversify our portfolio
of healthcare properties.
Provide Capital to Underserved Operators. We believe there is a significant opportunity to be a capital source to healthcare operators, through the
acquisition 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 investing
and financing strategy and that are attractively priced, including funding development of properties through preferred equity or construction loans and thereafter
entering into sale and leaseback arrangements with such developers as well as other secured term financing and mezzanine lending. We utilize our management
team’s operating experience, network of relationships and industry insight to identify both large and small quality operators in need of capital funding for future
growth. In appropriate circumstances, we may negotiate with operators to acquire individual healthcare properties from those operators and then lease those
properties back to the operators pursuant to long-term triple-net leases.
Fund Strategic Capital Improvements. We support operators by providing capital to them for a variety of purposes, including capital expenditures and
facility modernization. We expect to structure these investments as either lease amendments that produce additional rents or as loans that are repaid by operators
during the applicable lease term.
Pursue Strategic Development Opportunities. We work with operators and developers to identify strategic development opportunities. These opportunities
may 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 a
sale leaseback transaction for the property.
Competition
We 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
lower costs of capital than us. Increased competition will make it more challenging to identify and successfully capitalize on acquisition opportunities that meet
our investment objectives. Our ability to compete is also impacted by national and local economic trends, availability of investment
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alternatives, availability and cost of capital, construction and renovation costs, existing laws and regulations, new legislation and population trends.
In addition, revenues from our properties are dependent on the ability of our tenants and operators to compete with other healthcare operators. Healthcare
operators compete on a local and regional basis for residents and patients and their ability to successfully attract and retain residents and patients depends on key
factors such as the number of facilities in the local market, the types of services available, the quality of care, reputation, age and appearance of each facility and
the cost of care in each locality. Private, federal and state payment programs and the effect of other laws and regulations may also have a significant impact on the
ability of our tenants and operators to compete successfully for residents and patients at the properties.
Sustainability and Corporate Social Responsibility
As a healthcare-focused REIT, our assets are an integral part of the overall healthcare continuum in the communities that our tenants serve. We believe that
environmental sustainability is an important part of our commitment to helping people live and age well in those communities. We are working to implement
sustainable practices in our corporate offices and to provide tenant education, support and incentives to make sustainable improvements at our net-leased
properties.
In 2020, we published our inaugural annual Corporate Responsibility Report (our “ESG Report”) as part of our ongoing commitment to provide regular
reporting on our environmental, social and governance (“ESG”) priorities. Our ESG Report outlines our high priority ESG initiatives and goals for our company
and our property portfolio. Also in 2020, we published our Tenant Code of Conduct & Corporate Responsibility (our “Tenant ESG Program”). The Tenant ESG
Program provides our eligible triple-net tenants with monetary inducements to make sustainable improvements to our properties. Incentive options include a wide
variety of opportunities for tenants to upgrade everything from energy and environmental systems to water-saving landscaping and more.
During 2020, with the assistance of Goby, our ESG consultant, we designed a monitoring plan to collect key environmental data from a pilot group of 50 of
our net-leased properties. The plan’s objective was to begin benchmarking energy and water usage and the impact of our facilities on greenhouse gas emissions
and climate change. During 2021, we implemented the plan’s monitoring systems and began collecting data for this pilot group. We expect the data to help us
identify the most promising opportunities for improvement in our portfolio, set informed ESG goals and measure progress over time. In addition, as a landlord and
capital supplier to a key segment of the healthcare industry, we will seek further opportunities to encourage and incentivize fair and healthy work environments
for healthcare workers and suitable living conditions for patients and residents, and to promote diversity, inclusion and the ethical treatment of employees,
residents, patients and others wherever our activities and influence can be felt.
The foregoing principles and additional ESG initiatives are reflected in our Environmental, Social and Governance policy adopted on October 29, 2021, and
previously published Policy on Human Capital, Policy on Human Rights and Responsibilities, Policy on Environmental Sustainability and our proprietary Tenant
ESG Program. All of these policies are located on the Investor Relations section of our website at www.caretrustreit.com. The information found on, or otherwise
accessible through, our website is not incorporated by reference into, nor does it form a part of, this report or any other document that we file with the SEC.
Governance
Our corporate governance structure was carefully crafted to align with the interests of our investors and other stakeholders with a core leadership team that
has over 65 years of collective experience as operators and investors. The members of our board of directors each bring deep expertise in healthcare, real estate,
investing, accounting, and/or business development. In this oversight role, our board of directors serves as the ultimate decision-making body of our company,
except for those matters reserved to or shared with our stockholders.
Human Capital Resources
Our employees are the heart of our company. Our Policy on Human Capital reflects our commitment to the dignity and rights of all people, especially our
employees and others whose professional lives may be impacted by our properties and business activities. It represents a critical commitment to, and investment
in, the current and long-term health and well-being of our organization and its people. We believe our success depends on our ability to attract, develop and retain
key personnel. Our core philosophies and policies in this regard include:
Compensation and Benefits. The skills, experience and industry knowledge of key employees significantly benefit our performance. We believe we offer
competitive compensation (including salary, incentive bonus and equity) and benefits packages (including a 401(k) plan with a fixed employer contribution,
Flexible Spending Accounts (FSAs), employer-funded employee assistance program (EAP), a generous vacation, holiday and personal time off policy, and an
array of voluntary benefits options and other benefits for employees and their families). Our compensation program is designed to attract and
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reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-
term value for our stockholders.
As of December 31, 2021, we employed 16 full-time employees (including our executive officers), none of whom is subject to a collective bargaining
agreement. At the onset of the COVID-19 pandemic, we temporarily closed our corporate office and most of our employees were working remotely; however, we
have since reopened our corporate office with continued workforce flexibility to promote employee safety.
Retention and Turnover. Recruiting, hiring, training and retaining excellent employees is a high priority for us. These activities carry real and substantial
costs, which we regard as a meaningful investment in our workforce and our company. We believe that employee turnover is costly in direct and indirect ways,
and we are committed to employee retention and satisfaction. During the year ended December 31, 2021, we experienced turnover of two full-time employees,
excluding our executive officers. In addition, during the year ended December 31, 2021, we announced plans to transition the role of our Chief Executive Officer
from Mr. Stapley to Mr. Sedgwick, effective January 1, 2022.
Training and Education. CareTrust’s culture values continuous learning, improvement and professional development. This helps our employees to keep
their skills current and to adapt to new responsibilities and emerging market needs. CareTrust provides financial support for professional associate dues and
memberships, continuing education credits, and fees and travel expenses to attend relevant conferences and seminars.
Government Regulation, Licensing and Enforcement
Overview
As operators of healthcare facilities, tenants of our healthcare properties are typically subject to extensive and complex federal, state and local healthcare
laws and regulations relating to fraud and abuse practices, government reimbursement, licensure and certificate of need and similar laws governing the operation
of healthcare facilities, and we expect that the healthcare industry, in general, will continue to face significant regulation and pressure in the areas of fraud, waste
and abuse, 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 regulatory
environment because of a relative lack of guidance in many areas as certain of our healthcare properties are subject to oversight from several government agencies
and the legal requirements often vary from one jurisdiction to another. Changes in laws and regulations and reimbursement enforcement activity and regulatory
non-compliance by 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 forth under “Risk Factors - Risks Related to Our Business.”
The following is a discussion of certain laws and regulations generally applicable to our tenants (as operators of our healthcare facilities) and, in certain
cases, to us.
Enforcement
There are various extremely complex federal and state laws and regulations governing healthcare providers’ relationships and arrangements and prohibiting
fraudulent 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 of
remuneration to induce referrals or recommendations of healthcare items or services, (iii) federal and state provider self-referral laws (including the federal law
commonly referred to as the “Stark Law”), which generally prohibit referrals by physicians and in some cases other providers to entities with which the physician
or an immediate family member has a financial relationship, and (iv) the federal Civil Monetary Penalties Law, which prohibits, among other things, the knowing
presentation of a false or fraudulent claim for certain healthcare services. Violations of healthcare fraud and abuse laws carry civil, criminal and administrative
sanctions, including punitive sanctions, monetary penalties, imprisonment, denial of Medicare and Medicaid reimbursement and potential exclusion from
Medicare, Medicaid or other federal or state healthcare programs. These laws are enforced by a variety of federal, state and local agencies and can also be
enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or “whistleblower”
actions. Ensign and our other tenants are (and many of our future tenants are expected to be) subject to these laws, and some of them may in the future become the
subject of governmental enforcement actions if they fail to comply with applicable laws.
•
State and Federal “Fraud and Abuse” Laws and Regulations. The Medicare and Medicaid anti-fraud and abuse amendments to the Social Security
Act (the “Anti-Kickback Law”) make it a felony, subject to certain exceptions, for any person 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
government may proceed criminally or civilly. If the government proceeds criminally, a violation is a felony and
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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 may impose a civil monetary penalty of $50,000 per violation and an assessment of not more than three times the
total amount of remuneration involved, and it may exclude the parties from participation in all federal health care programs. Violations of the Anti-
Kickback Statute also serve as a basis for federal 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 (“HHS”) has promulgated
regulations which describe certain “safe harbor” arrangements that will not be deemed to constitute violations of the Anti-Kickback Law. An
arrangement that fits squarely into a safe harbor is immune from prosecution under the Anti-Kickback Statute. The safe harbors described in the
regulations are narrow and do not cover a wide range of economic relationships which many SNFs, physicians and other health care providers
consider to be legitimate business arrangements not prohibited by the statute. Because the regulations describe safe harbors and do not purport to
describe comprehensively all lawful and unlawful economic arrangements or other relationships between health care providers and referral sources,
health care providers entering into these arrangements or relationships may be required to alter them in order to ensure compliance with the Anti-
Kickback Law and may be subject to significant liability should an arrangement that does not fully satisfy a safe harbor be determined to be illegal.
On November 20, 2020, HHS promulgated significant new Anti-Kickback Law regulations, including changes to existing safe harbors and the
creation of new safe harbors, in an effort to reduce regulatory burden and incentivize coordinated care, including value-based arrangements.
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” to the U.S. government, or its agents and contractors, is liable for a civil penalty ranging from $5,500 to $11,000 per claim, plus three times
the amount of damages sustained 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 the government’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% in cases in which the government does not intervene. Notably, the Affordable Care
Act amended certain jurisdictional bars to the False Claims Act, effectively narrowing the “public disclosure bar” (which generally requires that a
whistleblower suit not be based on publicly disclosed information) and expanding the “original source” exception (which generally permits a
whistleblower suit based on publicly disclosed information if the whistleblower is the original source of that publicly disclosed information), thus
potentially broadening the field of potential whistleblowers.
• 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 immediate
family member) with a financial relationship with the entity, unless an exception applies. “Designated health services” include clinical laboratory
services; physical therapy services; occupational therapy services; outpatient speech-language pathology; radiology services, including magnetic
resonance imaging, computerized axial tomography scans, and ultrasound services; radiation therapy services and supplies; durable medical
equipment and 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 claim for reimbursement or otherwise billing Medicare or any other person or entity for improperly referred designated health services.
Many designated health services are commonly provided in SNFs and ALFs. The new regulations promulgated by HHS, discussed above in “State
and Federal ‘Fraud and Abuse’ Laws and Regulations”, include significant changes to the Stark Law regulations, including (i) new exceptions
designed to enable more value-based arrangements, (ii) a modification to the existing exception for electronic health records items and services, and
(iii) new exceptions for limited remuneration to physicians and for cybersecurity technology and related services.
An entity that submits a claim for reimbursement in violation of the Stark Law must refund any amounts collected and may be: (1) subject to a civil
penalty of up to $15,000 for each self-referred service; and (2) excluded from participation in federal health care programs. In addition, a physician or
entity 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 possible
exclusion from participation in federal health care programs.
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Reimbursement
Sources of revenue for our tenants include (and for our future tenants is expected to include), among other sources, governmental healthcare programs, such
as the federal Medicare program and state Medicaid programs, and non-governmental payors, such as insurance carriers and health maintenance organizations. As
federal and state governments focus on healthcare reform initiatives, and as the federal government and many states face significant budget deficits, efforts to
reduce costs by these payors will likely continue, which may result in reduced or slower growth in reimbursement for certain services provided by Ensign and our
other tenants. Federal and state authorities are likely to continue to implement new and modified reimbursement methodologies, including value-based
methodologies, that could have a negative impact on our tenants. Such changes to reimbursement methodologies could have a material impact on our tenants and
we cannot provide assurances that the current revenue levels will be maintained under any future reimbursement arrangements. In addition, the impact of other
health care reform efforts, such as “Medicare for all” or the provision of a new Medicare-like public option for consumers to receive health insurance, are
impossible to predict.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable
Care Act”) serves as the primary vehicle for comprehensive healthcare reform in the United States. Efforts initiated by the previous administration and certain
members of Congress to repeal or make significant changes to the Affordable Care Act, its implementation and/or its interpretation including the successful repeal
of the penalty associated with the individual mandate of the Affordable Care Act, continue to cast uncertainty on the future of the Affordable Care Act. For
example, on December 14, 2018, a U.S. District Court in Texas ruled the Affordable Care Act unconstitutional in its entirety. This decision was appealed, and on
December 18, 2019, the Fifth Circuit Court of Appeals ruled that the Affordable Care Act’s individual mandate was unconstitutional but remanded the case for
further analysis. The decision was appealed, and on June 17, 2021, the Supreme Court of the United States ruled that the plaintiffs lacked standing to challenge
the Affordable Care Act’s minimum essential coverage provision. These types of challenges may impact the number of individuals that elect to obtain public or
private health insurance or the scope of such coverage, if purchased.
Given the divided nature of Congress, it is unclear whether Congress will successfully expand health insurance coverage and assess alternative health care
delivery and payment systems. For example, on November 19, 2021, the United States House of Representatives passed the Build Back Better Act, H.R. 5376,
117th Cong. (2021) (“BBB”), which, among other things, would extend the subsidies available to certain individuals who purchase marketplace coverage pursuant
to the Affordable Care Act, expand access to the Affordable Care Act marketplace healthcare plans for individuals living in certain states, and increase the federal
Medicaid matching funds for certain home and community-based services. Though the Democratic Party currently controls the United States House of
Representatives (by a slim majority) and Senate (by virtue of the Vice President casting the tie-breaking vote), it is unclear whether BBB will ultimately become
law because BBB, which the Democrats have attempted to pass via Congress’s budget reconciliation process, may not have the support of enough Democratic
senators.
Other healthcare reform legislation would likely require at least some support from both Republican and Democratic lawmakers to become law. At this
time, it is uncertain whether any additional healthcare reform legislation will ultimately become law and we cannot predict the ultimate content, timing or effect of
any healthcare reform legislation or the impact of potential legislation on our business. If our tenants’ residents do not have insurance, it could adversely impact
the tenants’ ability to satisfy their obligations to us. Expansion of health insurance coverage to more citizens could have a positive financial impact on our tenants
and their ability to satisfy their obligations 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,
CMS is required to measure, track, and publish readmission rates of SNFs and to implement a value-based purchasing program for SNFs (the “SNF VBP
Program”). 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%
and redistributing 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 VBP
Program will be sufficient to cover a facility’s costs. If Medicare reimbursement provided to our healthcare tenants is reduced under the SNF VBP Program, that
reduction may have an adverse impact on the ability of our tenants to meet their obligations to us.
See “Risk Factors - Risks Related to Our Business - Healthcare reform legislation impacts cannot accurately be predicted and could adversely affect our
results of operations” for additional risks related to changes in Medicare reimbursement.
Increased Government Oversight of Skilled Nursing Facilities
Section 1150B of the Social Security Act requires employees of federally funded long-term care facilities to immediately report any reasonable suspicion of
a crime committed against a resident of that facility. Those reports must be submitted to at least one law enforcement agency and the applicable Centers for
Medicare & Medicaid Services (“CMS”) Survey Agency. Covered individuals who fail to report under Section 1150B are subject to various penalties, including
civil monetary penalties
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of up to $300,000 and possible exclusion from participation in any Federal health care program. Medicare regulations require SNFs to establish 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 HHS Office of Inspector General (“OIG”) issued a preliminary report regarding quality 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 potential abuse or neglect of Medicare beneficiaries residing
in SNFs are identified and reported. The report was issued in connection with the OIG’s ongoing review of potential abuse and neglect of Medicare beneficiaries
residing in SNFs.
As a result of the OIG report, CMS enforcement activity against SNF operators may increase, especially with regard to the reporting of potential abuse or
neglect of SNF residents. If any of our tenants or their employees are found to have violated any applicable reporting requirements, they may become subject to
penalties or other sanctions up to and including loss of licensure.
Healthcare Licensure and Certificate of Need
Our healthcare facilities are subject to extensive federal, state and local licensure, certification and inspection laws and regulations. In addition, various
licenses and permits are required to operate SNFs and ALFs, 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 of certain
healthcare facilities. The ability to obtain such approval and/or the approval process may impact some of our tenants’ abilities to expand or change their
businesses. 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
of accreditation, 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 Laws
The 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 to
HIPAA include health plans, healthcare clearinghouses, and most health care providers (including many of our tenants). Business associates of these entities who
create, receive, maintain or transmit Protected Health Information are also 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 in a calendar year for violations of the same requirement. However, a single
breach or incident can result in violations of multiple requirements, resulting in possible penalties well in excess of $1.5 million. Breaches of unsecured Protected
Health Information and other violations of HIPAA may have other material adverse consequences including material loss of business, business interruption, loss
of patient or other critical data, regulatory enforcement, substantial legal liability and reputational harm. Certain violations of HIPAA can result in criminal
penalties and enforcement.
Various other state and federal laws relate to privacy, security and the reporting of data breaches involving personal information (together with HIPAA,
“Privacy Laws”). For example, various state laws and regulations may regulate the privacy and security of personal information, and require notification of
affected individuals in the event of a data breach involving such individual’s personal information (including an individual’s name plus social security number,
date of birth or credit card information, for example). Failure of the Company or its tenants to comply with applicable Privacy Laws could have a materially
adverse effect on our Company. Failure of our tenants to comply with applicable Privacy Laws could have a material adverse effect on their ability to meet their
obligations to us. Furthermore, the adoption of new Privacy Laws at the federal and state level could require us or our tenants to incur significant compliance
costs.
Americans with Disabilities Act (the “ADA”)
Although most of our properties are not required to comply with the ADA because of certain “grandfather” provisions in the law, some of our properties
must 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 laws
may require removal of barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. Under our
triple-net lease structure, our tenants would generally be responsible for additional costs that may be required to make our facilities ADA-compliant.
Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants.
Environmental Matters
A wide variety of federal, state and local environmental and occupational health and safety laws and regulations affect healthcare facility operations. These
complex federal and state statutes, and their enforcement, involve a myriad of regulations, many of which involve strict liability on the part of the potential
offender. Some of these federal and state statutes may directly impact us. Under various federal, state and local environmental laws, ordinances and regulations, an
owner of real property, such as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in
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connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages for injuries to
persons and adjacent property). The cost of any required remediation, removal, fines or personal or property damages and the owner’s liability therefore could
exceed or impair the value of the property and/or the assets of the owner. In addition, the presence of such substances, or the failure to properly dispose of or
remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral which, in turn,
could reduce our revenues. See “Risk Factors - General Risk Factors - Environmental compliance costs and liabilities may materially impair the value of
properties owned by us.”
REIT Qualification
We 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 a
REIT 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 and
the concentration of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification and taxation as a REIT
under the Code and that our manner of operation has and will enable us to continue to meet the requirements for qualification and taxation as a REIT.
The Operating Partnership
We own substantially all of our assets and properties and conduct our operations through the Operating Partnership. We believe that conducting business
through the Operating Partnership provides flexibility with respect to the manner in which we structure the acquisition of properties. In particular, an UPREIT
structure enables us to acquire additional properties from sellers in tax deferred transactions. In these transactions, the seller would typically contribute its assets to
the 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 an
equivalent 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 exchange
for 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 the
number of shares issuable in exchange for OP Units, is subject to adjustment in the event of stock splits, stock dividends, distributions of warrants or stock rights,
specified extraordinary distributions and similar events. The Operating Partnership is managed by our wholly owned subsidiary, CareTrust GP, LLC, which is the
sole general partner of the Operating Partnership and owns one percent of its outstanding partnership interests. As of December 31, 2021, CareTrust REIT is the
only 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 structure
includes a partnership as well as a corporation, we can access the markets through the Operating Partnership issuing equity or debt as well as the
corporation issuing capital stock or debt securities. Sources of capital include possible future issuances of debt or equity through public offerings or
private placements.
• Growth. The UPREIT structure allows stockholders, through their ownership of common stock, and the limited partners, through their ownership of
OP Units, an opportunity to participate in future investments we may make in additional properties.
• Tax deferral. The UPREIT structure provides property owners who transfer their real properties to the Operating Partnership in exchange for OP Units
the opportunity to defer the tax consequences that otherwise would arise from a sale of their real properties and other assets to us or to a third party. As
a result, this structure allows us to acquire assets in a more efficient manner and may allow us to acquire assets that the owner would otherwise be
unwilling to sell because of tax considerations.
Insurance
We maintain, or require in our leases that our tenants maintain, all applicable lines of insurance on our properties and their operations. The amount and scope
of 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 effect
on 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, that
such 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 the
occurrence of a catastrophic event, nor can we assure you of the future financial viability of the insurers.
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Available Information
We file annual, quarterly and current reports, proxy statements and other information with SEC. The SEC maintains an internet site that contains these
reports, 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 our
reports 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 our
website at www.caretrustreit.com. The information found on, or otherwise accessible through, our website is not incorporated by reference into, nor does it form a
part of, this report or any other document that we file with the SEC.
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ITEM 1A. Risk Factors
Risks Related to Our Business
We are dependent on the healthcare operators that lease our properties to successfully operate their businesses and make contractual lease payments, 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 operations.
Because all of our properties are operated by our tenants pursuant to triple-net master leases, we are unable to directly implement strategic business
decisions regarding the daily operation and marketing of these properties. While we have rights as the property owner under our triple-net leases 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 not performing adequately,
and any failure by a tenant to effectively conduct its operations or to maintain and improve our properties could adversely affect its business reputation 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 and otherwise adversely
affect our results of operations, including our ability to repay our outstanding indebtedness or our ability to pay dividends to our stockholders as required to
maintain our REIT status. 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 and to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection
with their business. There can be no assurance that our tenants will have sufficient assets, income and financing to enable them to satisfy their contractual lease
payment or indemnification obligations.
Ensign leases or provides a guaranty for a significant portion of our properties. As of December 31, 2021, properties leased to Ensign represented $63.5
million, or 33%, of total annualized contractual rental income, and properties leased to Pennant under the Pennant Master Lease for which Ensign provides a
guaranty (the “Pennant Guaranty”) represented $8.0 million, or 4%, of our rental income, exclusive of operating expense reimbursements, on an annualized run-
rate basis. Ensign’s inability or unwillingness to meet its lease obligations or its obligations pursuant to the Pennant Guaranty could materially adversely affect our
business, financial position or results of operations. In addition, Ensign’s inability to satisfy its other lease obligations including payment of insurance, taxes and
utilities, could materially and adversely affect the condition of the properties leased to Ensign as well as Ensign’s business, financial position and results of
operations. Accordingly, 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, our dependence on Ensign’s rental payments for a substantial portion of our rental income may limit our ability to enforce our rights under the
Ensign leases or the Pennant Guaranty or to terminate the Ensign leases. Ensign’s failure to comply with its lease obligations or its obligations pursuant to the
Pennant Guaranty, or with federal and state healthcare laws and regulations to which the leased properties are subject, could require us to find another lessee for
such leased properties and result in a decrease in or cessation of rental payments. In such event, we may be unable to locate a suitable lessee at similar rental rates
or at all, which would reduce our rental income.
The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations,
cash flows and financial condition.
Long-term care residents are at high risk for infection and severe illness or possible death from COVID-19 due to their advanced age, likelihood of
underlying medical conditions, and the group living setting of long-term care facilities. To date, there have been significant COVID-19 outbreaks in long-term
care facilities all over the world. These outbreaks have affected not only the residents, but also the health care providers and visitors to these facilities. The
COVID-19 pandemic led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose
measures intended to reduce its spread. These measures imposed restrictions on movement and business operations such as travel bans, border closings, business
limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders. Although most of these restrictions
have been lifted or scaled back, resurgences of COVID-19 and the emergence of new variants thereof have resulted in the re-imposition of certain restrictions and
requirements, including restrictions imposed on unvaccinated individuals and employee vaccine mandates, and may lead to other restrictions being implemented
in response to efforts to reduce the spread of COVID-19.
Given the adverse impact the pandemic and pandemic-related restrictions have had, and may continue to have, on the economy generally and the
prevalence of outbreaks within long-term care facilities, our business, results of operations and financial condition have been adversely impacted, and may in the
future be materially adversely impacted, by the COVID-19 pandemic.
The COVID-19 pandemic and measures to prevent its spread subject us to various risks and uncertainties, some of which have adversely affected our
business, and all of which could materially adversely affect our business, results of operations and financial condition, including the following:
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•
•
•
•
•
•
the inability of our tenants to pay contractual rent in full, on a timely basis or at all due to increases in operating costs incurred by our tenants or declines
in occupancy rates at their facilities, which has adversely impacted and may continue to adversely impact our rental income, and the adverse impact on
our rental income when we grant rent deferrals, reductions or other restructurings or accommodations to any of our tenants;
the possibility that we may be required to write-off unpaid rental payments, incur lease accounting charges due to the uncollectibility of rental payments
and/or accede to unfavorable modifications of lease terms if a tenant is unable to pay contractual rent; and/or the possibility that adverse market
conditions or declines in the operating performance of our tenants or borrowers may result in asset impairment charges or credit losses on our loans
receivable if we determine that the full amount of our investments are not recoverable;
the financial deterioration of one or more of our tenants or borrowers (which has, and could continue to result from, among other reasons (i) increased
operating costs and staffing requirements related to compliance with Centers for Disease Control and Prevention (“CDC”) protocols, (ii) increased
scrutiny by regulators of infection control and prevention measures, (iii) potential repayments of relief funds received by tenants as changes in federal
guidelines are published and potential false claims act and whistleblower liability for violations of relief fund terms and conditions, (iv) nursing or other
staffing shortages exacerbated by the pandemic, including due to vaccine mandates imposed on such nursing or other staff; or (v) decisions by elderly
individuals to avoid or delay entrance into assisted living and other long-term care facilities in order to minimize their potential for exposure to COVID-
19 in group living situations), which may result in such tenant(s) experiencing insolvency or initiating bankruptcy or similar proceedings which adversely
affect our ability to collect rent or interest payments from such tenants and result in increased costs to us;
increased costs or delays that we have incurred, and may continue to incur, if we need to reposition or transition any of our currently-leased properties to
another tenant or operator, which have adversely impacted, and may continue to adversely impact, our revenues and results of operations;
risks related to lawsuits and regulatory enforcement actions related to COVID-19 outbreaks involving us, our tenants, operators or borrowers, including
increases in the costs of business, negative publicity and/or further decreases in occupancy and/or profitability at our facilities (we note, however, that
liability protections provided to health care providers under the PREP Act, as summarized below, may reduce the risk of legal liability for certain actions
taken by our operators in connection with the COVID-19 pandemic);
complete or partial closures of, or other operational issues at, one or more of our properties resulting from government actions or directives, which may
intensify the risk of rent deferrals or non-payment of contractual obligations by our tenants or operators;
• material increases in COVID-19 related claims and litigation against nursing home and seniors housing operators (whether by residents, employees,
contractors, suppliers, etc.) causing their insurance coverage to increase to levels which could negatively impact their financial performance and ability to
meet their contractual lease obligations to us;
•
•
•
limitations on our access to capital and other sources of funding, which could adversely affect the availability and terms of future borrowings or
refinancings or other forms of capital raising, including issuances under our ATM Program (as defined below), and which could adversely impact our
ability to make new property investments;
our ability to continue to make cash distributions to our stockholders commensurate with historical levels; and
our ability to repay outstanding debt or maintain compliance with covenants under our Amended Credit Facility (as defined below) and the indenture
governing our Notes.
The Public Readiness and Emergency Preparedness Act (the “PREP Act”), enacted in 2005, authorizes the HHS Secretary to issue a declaration to
provide liability immunity to certain individuals and entities, including health care providers, against any claim of loss caused by, arising out of, relating to, or
resulting from the manufacture, distribution, administration or use of medical countermeasures, including a qualified pandemic, except for cases involving willful
misconduct. The HHS Secretary first declared on January 31, 2020 that a public health emergency exists under the PREP Act in connection with the COVID-19
pandemic, which triggered the PREP Act provisions. A declaration lasts until the HHS Secretary declares that the public health emergency no longer exists or
upon the expiration of the 90-day period beginning on the date that the HHS Secretary declared a public health emergency exists, whichever occurs first. The
HHS Secretary has renewed this declaration multiple times, and it is currently set to be in force through April 16, 2022. The PREP Act is intended to protect
health care providers, including many of our tenants, operators or borrowers, from liability for using or administering medical devices or medications that have
been sanctioned on some level, even if not formally approved by the United States Food and Drug Administration or CDC. The PREP Act is especially important
for our tenants that want to offer treatment options to their residents who test positive for COVID-19. If courts do not enforce the provisions of the PREP Act to
provide liability immunity for certain health care providers, such as nursing home and seniors housing operators, or if the Biden administration scales back
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or rescinds any previous declarations to invoke the PREP Act, our tenants, operators or borrowers, the financial performance of our tenants, operators or
borrowers and ability to meet their contractual obligations to us could be adversely affected.
The duration and extent of the COVID-19 pandemic’s effect on our operational and financial performance, and the operational and financial
performance of our tenants, will depend on future developments, which are highly uncertain and cannot be predicted at this time, including the rate of public
acceptance and usage of vaccines and the effectiveness of vaccines in limiting the spread of COVID-19 and its variants, resurgences of COVID-19 and, in
particular, new and more contagious and/or vaccine resistant variants, actions taken to contain the spread of COVID-19 and how quickly and to what extent
normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may experience adverse impacts to our business,
financial condition, results of operations, and prospects as a result of its global economic impact, including any economic downturn or recession that has occurred
or may occur in the future. The adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition could be material.
Our tenants depend on reimbursement from government and other third-party payors and if reimbursement rates from such payors are reduced by future
legislative 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 than
expected, due to budgetary and other pressures. Healthcare reimbursement will likely continue to be of significant importance to federal and state authorities. For
example, the federal government and a number of states are currently managing budget deficits and, as a result, many states are focusing on the reduction of
expenditures under their Medicaid programs, which may result in a freeze on Medicaid rates or a decrease in reimbursement rates for our tenants. The need to
control 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
under both the Medicaid and Medicare programs. 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 doing business and on the amount of reimbursement by government and other third-party payors, potential reductions in
Medicaid and Medicare reimbursement, or in non-governmental third-party payor reimbursement, to our tenants could reduce the revenues of our tenants and their
ability to meet their obligations to us.
Bankruptcy, insolvency or financial deterioration of our tenants could delay or prevent collection of 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 in
the past, and may in the future, fail to make rent payments when due, or our tenants may declare bankruptcy. Tenant bankruptcies or failures to make rent
payments when due could result in termination of the tenant’s lease and could have a material adverse effect on our business, financial condition and results of
operations and our ability to make distributions to our stockholders (which could adversely affect our ability to raise capital or service our indebtedness). This risk
is magnified where we lease multiple properties to a single tenant, such as Ensign.
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 basis
method of accounting for recognizing rental income from the tenant or otherwise modify the tenant’s lease in ways that are unfavorable to us. Alternatively,
failure of a tenant to perform under a lease could require us to declare a default, repossess the property, find a suitable replacement tenant, hire third-party
managers to operate the property or sell the property. See Note 2, Summary of Significant Accounting Policies and Note 3, Real Estate Investments, Net for further
information.
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 unexpired
lease within a certain period of time. Any bankruptcy filing by or relating to one of our tenants could bar all efforts by us to collect pre-bankruptcy debts from that
tenant or seize its property. A tenant bankruptcy could also delay our efforts to collect past due balances under the leases and could ultimately preclude collection
of all or a portion of these sums. It is possible that we may recover substantially less than the full value of any unsecured claims we hold, if any, which may have a
material adverse effect on our business, financial condition and results of operations, and our ability to make distributions to our stockholders.
Replacement tenants or operators may be difficult to identify and we may be required to incur substantial renovation costs to make our healthcare properties
suitable for such tenants or operators.
If our tenants terminate or do not renew their leases with us, we would attempt to reposition the 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 may be required to
fund certain expenses and obligations (e.g., real estate
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taxes, debt costs and maintenance expenses) to preserve the value of, and avoid the imposition of 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 to
conform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure and security, are costly and at times tenant-specific. A new or
replacement tenant 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 another tenant. In addition, approvals of local
authorities for any required 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 may fail 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 our current leases, if at all. If we experience a significant number of properties not under a lease due to the inability to find suitable
replacement tenants or successfully reposition the property, our operating expenses could increase significantly. Even after a suitable replacement tenant or
operator has taken over operation of a property, it may still take an extended period of time before such 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 and results 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 those
areas.
As a result of the concentration of our properties in California, Texas, Louisiana, Idaho and Arizona as described in “Portfolio Summary” under Item 1 of
this Annual Report on Form 10-K, the conditions of local economies and real estate markets, including increases in real estate taxes, changes in governmental
rules, regulations and reimbursement rates or criteria, changes in demographics, state funding, acts of nature and other factors that may result in a decrease in
demand and/or reimbursement for skilled nursing services in these states could have a disproportionately adverse effect on our tenants’ revenue, costs and results
of operations, which may affect their ability to meet their obligations to us.
Our facilities located in Texas and Louisiana are especially susceptible to natural disasters such as hurricanes, tornadoes and flooding, and our facilities
located in California are particularly susceptible to natural disasters such as fires, earthquakes and mudslides. These acts of nature may cause disruption to our
tenants, their employees and our facilities, which could have an adverse impact on our tenants’ patients and businesses. In order to provide patient care, our
tenants are dependent on consistent and reliable delivery of food, pharmaceuticals, utilities and other goods to our facilities, and the availability of employees to
provide services at the facilities. If the delivery of goods or the ability of employees to reach our facilities is interrupted in any material respect due to a natural
disaster or other reasons, it would have a significant impact on our facilities and our tenants’ businesses at those facilities. Furthermore, the impact, or impending
threat, of a natural disaster may require that our tenants evacuate one or more facilities, which would be costly and would involve risks, including potentially fatal
risks, for the patients at such facilities. The impact of disasters and similar events is inherently uncertain. Such events could harm our tenants’ patients and
employees, severely damage or destroy one or more of our facilities, harm our tenants’ business, reputation and financial performance, or otherwise cause our
tenants’ 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 and
changes 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 by
these conditions. Should the impact of climate change be material in nature, including destruction of our properties, or occur for lengthy periods of time, our
financial condition or results of operations may be adversely affected. In addition, changes in federal and state legislation and regulation on climate change could
result in increased capital expenditures to improve the energy efficiency of our existing properties and could also require us to spend more on our new
development properties without a corresponding increase in revenue.
We pursue property acquisitions and seek strategic opportunities in the ordinary course of our business, which may result in significant usage of management
resources or costs, and we may not fully realize the potential benefits of such transactions.
We regularly review, evaluate, engage in discussions regarding, and pursue acquisitions of properties and seek other strategic opportunities in the ordinary
course of business in order to maximize stockholder value. We may devote a significant amount of our management resources to, and incur significant costs in
connection with, such transactions, which may not result in definitive agreements or the completion of any transaction and could negatively impact our operations.
In addition, there is no assurance that we will fully 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 not
be present with other ownership methods. Our joint ventures may involve property
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development, which presents additional risks that could render a development project less profitable or not profitable at all and, under certain circumstances, may
prevent completion of development activities once undertaken.
If we cannot identify and purchase a sufficient quantity of suitable properties at favorable prices or if we are unable to finance acquisitions on commercially
favorable terms, or at all, our business, financial position or results of operations could be materially and adversely affected. Furthermore, any future acquisitions
may require the issuance of securities, the incurrence of debt, assumption of contingent liabilities or incurrence of significant expenditures, each of which could
materially adversely impact our business, financial condition or results of operations. Additionally, the fact that we must distribute 90% of our REIT taxable
income in order to maintain our qualification as a REIT may limit our ability to rely upon rental payments from our leased properties or subsequently acquired
properties in order to finance acquisitions. As a result, if debt or equity financing is not available on acceptable terms, further acquisitions might be limited.
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 financial
and 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 the
ability of our tenants to compete with other tenants and operators on a number of different levels, including the quality of care provided, reputation, the physical
appearance of a facility, price, the range of services offered, family preference, 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 increasingly
competitive labor market for skilled management personnel and nurses together with Medicaid reimbursement in some states that does not cover the full cost of
caring for residents. Significant turnover, or a shortage of nurses or other trained personnel or general inflationary pressures on wages, may force tenants to
enhance pay and benefits packages to compete effectively for skilled personnel, or to use more expensive contract personnel, but they may be unable to offset
these added 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
attract and 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 at
home, community-based service programs, retirement communities and convalescent centers. We cannot be certain that our tenants will be able to achieve
occupancy and rate levels, or manage their expenses, in a way that will enable them to meet all of their obligations to us. Further, many competing companies may
have resources and attributes that are superior to those of our tenants. They may encounter increased competition that could limit their ability to maintain or attract
residents or expand their businesses or to manage their expenses, either of which could adversely affect their ability to meet their obligations to us, potentially
decreasing our revenues, impairing our assets, and/or increasing our collection and dispute costs.
In addition, if development of seniors housing facilities outpaces demand for those assets in markets in which we are located, those markets may become
saturated and our seniors housing tenants and operators could experience decreased occupancy, which may affect their ability to meet their financial and other
contractual 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 receive
rent for such properties.
Our tenants that operate SNFs and other healthcare facilities must be licensed under applicable state law and, depending upon the type of facility, certified
or approved as providers under the Medicare and/or Medicaid programs. Prior to the transfer of the operations of such healthcare properties to successor
operators, the new operator generally must become licensed under state law and, in certain states, receive change of ownership approvals under certificate of need
laws (which provide for a certification that the state has made a determination that a need exists for the beds located on the property) and, if applicable, file for a
Medicare and Medicaid change of ownership. Upon termination or expiration of existing leases, delays or the failure of the new tenant in receiving regulatory
approvals from the applicable federal, state or local government agencies, may prolong the period during which we are unable to collect rent and the property may
experience performance declines. We could also incur substantial additional 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 our
business, financial position or results of operations.
Real estate investments are generally illiquid. As a result, we may be unable to vary our portfolio promptly in response to changes in the real estate market.
A downturn in the real estate market could materially and adversely affect the value of our properties and our ability to sell such properties for acceptable prices
or terms. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property or portfolio of properties. These factors
and any others that would impede our ability to respond to adverse changes in the performance of our properties could materially and adversely affect our
business, financial position or results of operations and our ability to pay dividends and make distributions.
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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 require that the tenant maintain general and professional liability insurance and comprehensive liability and hazard insurance.
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 not economically insurable. In addition, insurance coverage may be insufficient to pay
the full current market value or replacement cost of any loss. Inflation, changes in tort liability laws, changes in building codes and ordinances, environmental
considerations, and other factors also might make it infeasible to use insurance proceeds to protect a tenant in a liability claim or replace a property after such
property has been damaged or destroyed. Under such circumstances, the insurance proceeds received might not be adequate to restore 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 exceeds policy coverage limits, it may be unable to
satisfy its lease payment obligations to us. If one of our properties experiences a loss that is uninsured or that exceeds policy coverage limits, we could lose the
capital invested in the damaged property as well as the anticipated future cash flows from the property.
In addition, even if damage to our properties is covered by insurance, business disruptions caused by a casualty event may result in lost revenue for our
tenants or us for which insurance may not fully compensate them or us for such loss of revenue. If one of our tenants experiences such a loss, it may be unable to
satisfy its lease payment obligations to us.
We are, and may continue to be, exposed to contingent rent escalators, which could hinder our profitability and growth.
We derive revenue primarily by leasing our assets under long-term triple-net leases with rental rates that, subject to certain limitations, are generally fixed
with annual rent escalations contingent on changes in the Consumer Price Index, subject to maximum fixed percentages. If the Consumer Price Index does not
increase, our revenues may not increase. In addition, if economic conditions result in significant increases in the Consumer Price Index, but the escalations under
our leases are capped, our growth and profitability also may be limited.
Risks Related to Laws and Regulations
Healthcare reform legislation impacts cannot accurately be predicted and could adversely affect our results of operations.
We and the healthcare operators leasing our properties depend on the healthcare industry and are susceptible to risks associated with healthcare reform.
Legislative proposals are introduced each year that would introduce major changes in the healthcare system, both nationally and at the state level. As
demonstrated by the Democratic majority’s attempt to pass BBB, we believe that efforts may be made to, among other things: (i) repeal much of the deregulation
and regulatory changes made to the Affordable Care Act during the Trump administration; (ii) expand health insurance coverage to more individuals, potentially
by enacting legislation creating a single-payor health insurance model; and (iii) transition Federal payment programs further in the direction of value based care,
but we cannot predict whether or in what form any of these measures will be enacted, or what effect they would have on our business or the businesses of our
tenants if enacted. Efforts may also be made to reduce the age at which individuals become eligible for Medicare, which could have an adverse impact on our
tenants because Medicare sometimes reimburses long term care providers at rates lower than those paid by commercial payors. We also believe that additional
resources may be dedicated to regulatory enforcement, which could increase our tenants’ costs of doing business and negatively impact their ability to pay their
rent obligations to us. Additional stimulus funding for state and local governments may have a positive impact on our tenants because it may alleviate some
pressures on state and local governments to reduce overall Medicaid expenditures.
Our tenants are subject to extensive federal, state and local laws and regulations affecting the healthcare industry that include those relating to, among other
things, licensure, conduct of operations, ownership of facilities, addition of facilities and equipment, allowable costs, services, prices for services, qualified
beneficiaries, quality of care, patient rights and insurance, fraudulent or abusive behavior, and financial and other arrangements that may be entered into by
healthcare providers. See “Government Regulation, Licensing and Enforcement” in Item 1 of this Annual Report on Form 10-K for more information. If our
tenants or operators fail to comply with the laws, regulations and other requirements applicable to their businesses and the operation of our properties, they could
become ineligible to receive reimbursement from governmental and private third-party payor programs, face bans on admissions of new patients or residents,
suffer civil or criminal penalties or be required to make significant operational changes. Changes in enforcement policies by federal and state governments have
also resulted in a significant increase in inspection rates, citations of regulatory deficiencies and sanctions, including terminations from Medicare and Medicaid
programs, bars on Medicare and Medicaid payments for new admissions, civil monetary penalties and criminal penalties. Our tenants and operators could be
forced to expend considerable resources responding to an investigation, lawsuit or other enforcement action under applicable laws or regulations. Additionally, if
our tenants’ residents do not have insurance, it could adversely impact the tenants’ ability to satisfy their obligation to us. We cannot predict whether any future
legislative proposals will be adopted or, if adopted, the impact these proposals would have on our tenants or our business.
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Tenants that fail to comply with applicable requirements of governmental reimbursement programs, such as Medicare or Medicaid, may cease to operate or
be unable to meet their financial and other contractual obligations to us.
Our tenants are subject to the following risks, among others, relating to governmental healthcare reimbursement programs: statutory and regulatory
changes; retroactive rate adjustments; recovery of program overpayments or set-offs; administrative rulings; policy interpretations; payment or other delays by
fiscal intermediaries or carriers; government funding restrictions (at a program level or with respect to specific facilities); and interruption or delays in payments
due to any ongoing governmental investigations and audits.
We expect healthcare reimbursement will continue to be a significant focus for federal and state authorities in their cost control efforts. We cannot predict
the timing or effects of any future legislative reforms on our tenants’ business costs or government and other third-party payor reimbursement. More generally,
because of the dynamic nature of the legislative and regulatory environment for health care products and services, and in light of existing federal budgetary
concerns, we cannot predict the impact that broad-based, far-reaching legislative or regulatory changes could have on the U.S. economy, our business or that of
our operators and tenants. The failure of 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 are
expected to continue, particularly in the area of Medicare/Medicaid false claims, as well as an increase in the intensity of enforcement actions resulting from these
investigations. Some of these enforcement actions represent novel legal theories and expansions in the application of the False Claims Act.
Medicare, Medicaid and other governmental health care payors require reporting of extensive financial information in a specific format or content. These
requirements are technical and complex and may not be properly implemented by billing or reporting personnel. For certain required information, False Claims
Act violations may occur without any intent to defraud by mere negligence or recklessness in information submission to the government. New billing systems,
medical procedures and procedures for which there is not clear guidance may all result in liability. In addition, violations of the Anti-Kickback Law or Stark Law
and, for provider tenants who received pandemic relief funds, the failure to comply with terms and conditions related to receipt or repayment of those funds, may
form the basis for a federal False Claims Act violation. See “Government Regulation, Licensing and Enforcement,” in Item 1 of this Annual Report on Form 10-K
for more information.
Many states have adopted laws similar to the False Claims Act, some of which apply to claims submitted to private and commercial payors, not just
governmental payors. Violations of such laws by an operator of a health care property could result in loss of accreditation, denial of reimbursement, imposition of
fines, suspension or decertification from government healthcare programs, civil liability, and in certain limited instances, criminal penalties, loss of license or
closure of the property and/or the incurrence of considerable costs arising from an investigation or regulatory action.
If we or our tenants fail to adhere to applicable privacy and data security laws, or experience a data security incident or breach, this could have a material
adverse effect on us or on our tenants’ ability to meet their obligations to us.
We and our tenants are subject to HIPAA and various other state and federal laws that relate to privacy and data security, including the reporting of data
breaches involving personal information as discussed in “Government Regulation, Licensing and Enforcement - Privacy, Security and Data Breach Notification
Laws” in Item 1 of this Annual Report on Form 10-K. Failure to comply with these requirements could have a materially adverse effect on us and 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 and state level could
require us or our tenants to incur significant compliance costs. In addition, the cost and operational consequences of responding to cybersecurity incidents and
breaches and implementing remediation measures could be significant.
While we and our tenants maintain various security controls, there is a risk of data security incidents or breaches resulting from unintentional or deliberate
acts by third parties or insiders attempting to obtain unauthorized access to information, destroy or manipulate data, or disrupt or sabotage information systems.
The trend toward increased remote work and rapid implementation of telehealth within the health care industry in response to the pandemic may have created new
or increased cyber risks. Cyber incidents range from individual attempts to gain unauthorized access to our IT systems to sophisticated attacks by hacking groups
and nation-state actors. Information technology systems are a vital part of the business of our Company and our tenants, and a security incident or breach could
result in a material loss of business, business interruption, loss of patient or other critical data, regulatory enforcement, substantial legal liability and reputational
harm. Despite the deployment of commercially reasonable efforts and sophisticated techniques to prevent cyber incidents, information systems remain potentially
vulnerable because the techniques used by hackers continue to evolve and are designed not to be detected. In fact, some unauthorized access may not be detected
for an extended period of time. As a result, we or our tenants may suffer cybersecurity incidents where we or our tenants have implemented cybersecurity
protections. A data security incident or breach occurring at or involving the Company could have a material adverse impact on our Company. Where the data
security incident or breach occurs at or involves a tenant, this could jeopardize the tenant’s ability to fulfill its obligations to us.
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Tenants that fail to comply with federal, state and local licensure, certification and inspection laws and regulations may cease to operate our healthcare
facilities 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 inspection
laws, regulations and standards. Our tenants’ failure to comply with any of these laws, regulations or standards could result in penalties which may include loss or
restriction 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 for
noncompliance with applicable legal requirements. For example, operations at our properties may require a license, registration, certificate of need, provider
agreement or certification. Failure of any tenant to obtain, or the loss or imposition of restrictions on any required license, registration, certificate of need, provider
agreement or certification would prevent a facility from operating in the manner intended by such tenant. Additionally, failure of our tenants to generally comply
with applicable laws and regulations could adversely affect facilities owned by us, result in adverse publicity and reputational harm, and therefore could materially
and adversely affect us. See “Government Regulation, Licensing and Enforcement - Healthcare Licensure and Certificate of Need” in Item 1 of this Annual
Report on Form 10-K for additional information.
Environmental compliance costs and liabilities may materially impair the value of properties owned by us.
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 and
clean up certain hazardous or toxic substances or petroleum released at a property, and may be held liable to a governmental entity or to third parties for property
damage and for investigation and cleanup costs incurred by the third parties in connection with the contamination. In addition, some environmental laws create a
lien on the contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination. Neither we nor our tenants
carry environmental insurance on our properties. Contamination 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 estate as collateral. As the owner of a site, we may also be held liable to third parties for damages and injuries
resulting from environmental contamination emanating from the site. Although we generally require our tenants, as operators of our healthcare properties, to
indemnify us for environmental liabilities they cause, such liabilities could exceed the financial ability of the tenant to indemnify us or the value of the
contaminated property. We may also experience environmental liabilities arising from conditions not known to us.
Risks Related to Our Status as a REIT
If we fail to qualify or remain qualified as a REIT, we will be subject to U.S. federal income tax as a regular corporation and could face 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 income
tax purposes. We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. We received an
opinion of our counsel with respect to our qualification as a REIT in connection with becoming a public company. Investors should be aware, however, that
opinions of advisors are not binding on the IRS or any court. The opinion of our counsel represents only the view of our counsel based on its review and analysis
of existing law and on certain representations as to factual matters and covenants made by us, including representations relating to the values of our assets and the
sources 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 the matters stated, represented or assumed or of any subsequent change in applicable law. Furthermore, both the validity of the opinion of
our counsel and our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other
requirements on a continuing basis, the results of which will not be monitored by our counsel. Our ability to satisfy the asset tests depends upon our analysis of
the characterization and 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 fail to qualify to be taxed as a REIT in any year, we would be subject to U.S. federal income tax, including any applicable alternative minimum tax,
on our taxable income at regular corporate rates, and dividends paid to our stockholders would not be deductible by us in computing our taxable income. Any
resulting corporate liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which could have an adverse
impact on the value of our common stock. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be
taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT, which could adversely affect our financial
condition and results of operations.
Legislative or other actions affecting REITs could have a negative effect on us.
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S.
Department of the Treasury (the “Treasury”). Changes to the tax laws or interpretations thereof, with or without retroactive application, could materially and
adversely affect our investors or us. We cannot predict how changes in the tax laws, including any tax reform called for by the current presidential administration,
might affect our
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investors or us. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to
qualify to be taxed as a REIT or the U.S. federal income tax consequences to our investors and us of such qualification. For instance, the “Tax Cuts and Jobs Act”
(the “Act”) significantly changed the U.S. federal income tax laws applicable to businesses and their owners, including REITs and their shareholders. Technical
corrections or other amendments to the Act or administrative guidance interpreting the Act may be forthcoming at any time. We cannot predict the long-term
effect of the Act or any future law changes on REITs or their shareholders. Changes to the U.S. federal tax laws and interpretations thereof, whether under the Act
or otherwise, could adversely affect an investment in our stock
No prediction can be made regarding whether new legislation or regulation (including new tax measures) will be enacted by legislative bodies or
governmental agencies, nor can we predict what consequences would result from this legislation or regulation. Accordingly, no assurance can be given that the
currently anticipated tax treatment of an investment will not be modified by legislative, judicial or administrative changes, possibly with retroactive effect.
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 the
sources 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 leases
are not respected as true leases for U.S. federal income tax purposes and are instead treated as service contracts, joint ventures or other arrangements. 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 these
requirements 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
voting power of all classes of stock entitled to vote or 10% or more of the total value of all classes of stock. CareTrust REIT’s charter provides for restrictions on
ownership and transfer of CareTrust REIT’s shares of stock, including restrictions on such ownership or transfer that would cause the rents received or accrued by
us 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 such
restrictions 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 REIT
qualification requirements.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum U.S. federal income tax rate applicable to income from “qualified dividends” payable by U.S. corporations to U.S. stockholders that are
individuals, trusts and estates is currently 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates. However, for taxable years
beginning 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 capital
gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on such
income. Although these rules do not adversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends, together
with the recently reduced corporate tax rate (currently, 21%), could cause investors who are individuals, trusts and estates to perceive investments in REITs to be
relatively 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 not adversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified
dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively 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.
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 excluding
any net capital gains, in order for us to qualify to be taxed as a REIT (assuming that certain other requirements are also satisfied) so that U.S. federal corporate
income tax does not apply to earnings that we distribute. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT but
distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, we will be
subject to U.S. federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual
amount that we distribute to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal income tax laws. We intend to make
distributions to our stockholders to comply with 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 greater
than our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible
capital expenditures, the creation of reserves or required debt or amortization payments. If we do not have other funds available in these situations, we could be
required to borrow funds
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on unfavorable terms, sell assets at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions in order to make
distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid being subject to corporate
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
taxes on any undistributed income and state or local income, property and transfer taxes. For example, we may hold some of our assets or conduct certain of our
activities through one or more taxable REIT subsidiaries (each, a “TRS”) or other subsidiary corporations that will be subject to U.S. federal, state, and local
corporate-level income taxes as regular C corporations. In addition, we may incur a 100% excise tax on transactions with a TRS if they are not conducted on an
arm’s-length basis. Any of these taxes would decrease cash available for distribution to our stockholders.
Complying with REIT requirements may cause us to forgo otherwise attractive acquisition opportunities or liquidate otherwise attractive investments.
To qualify as a REIT for U.S. federal income tax purposes, we must on an ongoing basis satisfy tests concerning, among other things, the sources of our
income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our shares of beneficial interest. We may
be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance
with the REIT requirements may hinder our ability to make certain attractive investments.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Income from certain hedging transactions that we may
enter into to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets does not constitute “gross
income” for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met. For taxable years
beginning after December 31, 2015, income from new transactions entered into to hedge the income or loss from prior hedging transactions, where the
indebtedness or property which was the subject of the prior hedging transaction was extinguished or disposed of, will not constitute gross income for purposes of
the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions or fail to properly identify such transaction as a hedge, the
income 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 our
use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because the TRS may be
subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in the TRS
will generally not provide any tax benefit, except that such losses could theoretically be carried back or forward against past or future taxable income in the TRS.
From time to time, we may have substantial indebtedness and we are able to incur significant additional indebtedness.
Risks Related to Our Capital Resources and Indebtedness
As of December 31, 2021, we had approximately $680.0 million of indebtedness, consisting of $400.0 million representing our 3.875% Senior Notes due
2028 (the “Notes”), $200.0 million under our unsecured term loan credit facility (the “Term Loan”) and $80.0 million in borrowings outstanding under our
unsecured revolving credit facility (the “Revolving Facility”). High levels of indebtedness could have one or more of the following adverse consequences, among
others: require us to dedicate a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, thereby reducing
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 financial flexibility; make it more difficult for us to satisfy our financial
obligations, including the Notes and borrowings under the Amended Credit Facility (as defined below); increase our vulnerability to general adverse economic
and industry conditions or a downturn in our business; limit, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow
additional funds on favorable terms or at all to expand our business or ease liquidity constraints; limit our ability to refinance all or a portion of our indebtedness
on or before maturity on the same or more favorable terms or at all; and 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 such indebtedness at maturity.
In addition, failure to satisfy our obligations under the Notes or our other debt or to comply with the financial and other restrictive covenants contained in
the indenture governing the Notes or the Amended Credit Agreement (as defined below), could result in an event of default, which could result in all of our debt
becoming immediately due and payable and permit certain of our lenders to foreclose on our assets securing such debt. Further, our Amended Credit Agreement
and the indenture governing the Notes permit us to incur substantial additional debt, including secured debt, subject to our compliance with
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certain financial covenants set forth in the Amended Credit Agreement and the indenture governing the Notes. See “Risk Factors - Risks Related to Our Capital
Resources and Indebtedness - Covenants in our debt agreements restrict our activities and could adversely affect our business” for a summary of these covenants.
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 of
financing in the international banking and capital markets. Our business may fail to generate sufficient cash flow from operations or future borrowings may be
unavailable to us under the Amended Credit Facility or from other sources in an amount sufficient to enable us to service our debt, to refinance our debt or to fund
our other liquidity needs. If we are unable to meet our debt obligations or to fund our other liquidity needs, we will need to restructure or refinance all or a portion
of our debt. We may be unable to refinance such 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 such debt. The Amended Credit Agreement and the indenture governing the Notes restrict, and market or business conditions may limit our
ability to take, these actions. Any debt restructuring or refinancing could be at higher interest rates and may require us to comply with more onerous covenants
that could further restrict our business operations.
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, including
funds transfers to us which are necessary to make the payments due under the Notes. The obligations under the Notes are fully and unconditionally guaranteed,
jointly and severally, on an unsecured basis, by us and all of our existing and future subsidiaries (other than CTR Partnership, L.P. and CareTrust Capital Corp.)
that guarantee obligations under the Amended Credit Facility. However, under certain circumstances, one or more of our subsidiaries may be released from, or
may not be required to provide, a guarantee of the Notes, and in such circumstances, will not be responsible for any obligations with respect to the Notes. Each of
our subsidiaries is a distinct legal entity and has no obligation, contingent or otherwise, to transfer funds to us. In addition, the ability of our subsidiaries to
transfer funds to us could be restricted by the terms of subsequent financings.
Covenants in our debt agreements restrict our activities and could adversely affect our business.
Our debt agreements contain covenants that limit our and our subsidiaries’ ability to engage in various transactions including, as applicable: 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
or competing effectively. The Amended Credit Agreement requires us to comply with financial maintenance covenants to be tested quarterly and also contains
customary events of default, including the failure to make timely payments under the Amended Credit Facility or other material indebtedness, failure to satisfy
certain covenants (including financial maintenance covenants), the occurrence of change of control and specified events of bankruptcy and insolvency. We also
must maintain total unencumbered assets of at least 150% of our unsecured indebtedness under the indenture governing the Notes. Our ability to meet these
requirements may be affected by events beyond our control and, if we fail to do so, we may be unable to obtain waivers from the lenders or amend the covenants.
Increases in interest rates could increase our existing and future debt borrowing costs and adversely affect our stock price.
Certain of our existing debt obligations require interest and related payments to vary with the movement of certain indices, and we may incur additional
indebtedness in connection with new credit facilities or financing of acquisitions or development activities. Increased interest rates would increase our interest
costs for any new debt and our obligations under our Revolving Facility and Term Loan, which could make acquisition financings more costly or lower our
current period earnings. Rising interest rates could limit our ability to refinance existing debt when it matures or cause us to pay higher interest rates upon
refinancing. In addition, interest rate increases could decrease credit access globally, thereby decreasing the amount others are willing to pay for our assets and
limiting our ability to reposition our portfolio promptly in response to changes in economic or other conditions. Further, the dividend yield on our common stock,
as a percentage of the price of such common stock, will influence the price of such common stock. Thus, an increase in market interest rates may lead prospective
purchasers of our common stock to expect a higher dividend yield, which could adversely affect the market price of our common stock.
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Our Amended Credit Agreement uses LIBOR as a reference rate for our Term Loan and Revolving Facility, such that the interest rate applicable to such
loans may, at our option, be calculated based on LIBOR. In July 2017, the U. K.’s Financial Conduct Authority, which regulates LIBOR, announced that it
intended to phase out LIBOR by the end of 2021. In the U.S., publication of 1-week and 2-month U.S. dollar LIBOR ended on December 31, 2021, and all other
U.S. dollar LIBOR tenors will cease on June 30, 2023. The U.S. Federal Reserve has begun publishing a Secured Overnight Funding Rate (“SOFR”), which is
intended to replace U.S. dollar LIBOR, and has proposed a paced market transition plan to SOFR from LIBOR. Since the initial publication of SOFR, daily
changes in the rate have, on occasion, been more volatile than daily changes in comparable benchmark or market rates, and SOFR over time may bear little or no
relation to the historical actual or historical indicative data. Organizations are currently working on industry wide and company specific transition plans as it
relates to financial and other derivative contracts exposed to LIBOR. Additionally, plans for alternative reference rates for other currencies have also been
announced. From time to time, we have material borrowings under our Amended Credit Agreement that are indexed to LIBOR. We cannot predict how markets
will respond to these proposed alternative rates or the effect of any changes to LIBOR or the discontinuation of LIBOR. However, if future rates based upon a
successor reference rate such as SOFR (or a new method of calculating LIBOR) are higher or more volatile than LIBOR rates as currently determined or if our
lenders have increased costs due to changes in LIBOR, we may experience increases in interest rates on our variable rate debt, which could adversely impact our
interest expense, results of operations and cash flows.
A credit rating downgrade could impair our ability to obtain additional debt financing on favorable terms, if at all, and significantly reduce the trading price
of our common stock.
Our credit rating can affect the amount, type and terms of capital financings we obtain. Factors affecting our credit rating include, among others, our
financial performance, success in raising sufficient equity capital, adverse changes in our debt and fixed charge coverage ratios, our capital structure, level of
indebtedness and future changes in the regulatory framework applicable to our operators and industry. We may be unable to maintain our current credit ratings,
and in the event that our current credit ratings deteriorate, a ratings agency downgrades our credit rating or places our rating under watch or review for possible
downgrade, we would likely incur higher borrowing costs, which would make it more difficult or 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 Stock and Organizational Documents
Our charter restricts the ownership and transfer of our outstanding stock, which may have the effect of delaying, deferring or preventing a transaction or
change 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 must
beneficially 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, authorizes
our 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 exempted
by 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 our
common 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 may
cause shares of stock owned directly or constructively by a group of related individuals or entities to be constructively owned by one individual or entity. These
ownership limits could delay or prevent a transaction or a change in control of us that might involve a premium price for shares of our stock or otherwise be in our
stockholders’ best interests. The acquisition 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% in value 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 would result in our being “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify to be taxed as a
REIT. In addition, our charter provides that (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 failing to qualify as a “domestically controlled qualified investment entity” within the meaning of Section 897(h) of the
Code, and (ii) no person shall beneficially or constructively own shares of stock to the extent such beneficial or constructive ownership would cause us to own,
beneficially or constructively, more than a 9.9% interest (as set forth in Section 856(d)(2)(B) of the Code) in a tenant of our real property. Any attempt to own or
transfer shares of our stock in violation of these restrictions may result in the transfer being automatically void.
Maryland law and provisions in our charter and bylaws may inhibit our stockholders from realizing a premium on their stock by delaying or preventing
takeover attempts by third parties.
Our charter, bylaws and Maryland law contain provisions intended to deter coercive takeovers and inadequate takeover bids and to encourage 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 or acquired by any
stockholder; (2) prohibit stockholders action by non-unanimous written consent; (3) permit the board of directors, without further action of the
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stockholders, to amend the charter to increase or decrease the aggregate number of authorized shares or the number of shares of any class or series that may be
issued; (4) permit the board of directors to classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms
of the classified or reclassified shares; (5) establish certain advance notice procedures for stockholder proposals, and provide procedures for the nomination of
candidates for our board of directors; (6) provide that special meetings of stockholders may only be called by the Company or upon 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 and upon the vote of two-thirds of the
outstanding shares of common stock; and (8) require supermajority approval to amend or repeal certain charter provisions. In addition, specific anti-takeover
provisions of the Maryland General Corporation Law (“MGCL”) could make it more difficult for a third party to attempt a hostile takeover, including:
•
•
“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder”
(defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the
most recent date on which the stockholder becomes an interested stockholder, and thereafter impose special appraisal rights and special stockholder
voting requirements on these combinations; and
“control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by
the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share
acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved
by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
We believe these provisions protect our stockholders from coercive or unfair takeover tactics by requiring potential acquirors to negotiate with our board of
directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to prevent all takeovers, but
they may delay, defer or prevent a change of control transaction even if such transaction involves a premium price for our common stock or it is in our
stockholders’ best interests. These provisions may also prevent or discourage attempts 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 our
stockholders, 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 and
exclusive forum for (i) any derivative action or proceeding brought on behalf of us, (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 to any 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 who commences such an action shall cooperate in a request that the action be
assigned to the Court’s Business & Technology Case Management Program. This exclusive 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 or Securities Act of 1933, each as amended, or any other claim for which the
federal courts have exclusive jurisdiction. The exclusive forum provision in our bylaws will 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 to have 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 a
claim 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
near Maryland. The Circuit Court for Baltimore City, Maryland may also reach different judgments or results than would other courts, including courts where a
stockholder would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. However, the
enforceability of similar exclusive forum provisions in other companies' certificates of incorporation has been challenged in legal proceedings, and it is possible
that 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 more
of 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
in an action, we might incur additional costs associated with resolving such action in other jurisdictions.
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General Risk Factors
We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our
business.
We rely on information technology networks and systems, including the internet, to process, transmit and store electronic information, and to manage or
support our business processes, including financial transactions and records, and maintaining personal 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 and monitoring to provide
security for the processing, transmission and storage of confidential tenant and customer data, including financial account information. While we have taken steps
to protect the security of our information systems, we have, from time to time, experienced cyber incidents of varying degrees, although none of these cyber
incidents have had a material adverse impact on our business, financial condition or results of operations. It is possible that in the future our safety and security
measures will not prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable or proprietary information
and any such event could materially and adversely impact our business, financial condition or results of operations. In addition, data security incidents could occur
due to unintentional misconfiguration of data management tools and network security systems. Due to the fast pace and unpredictability of cyber threats, measures
for addressing cybersecurity risks may become obsolete quickly.
Security breaches, including physical or electronic break-ins, computer viruses, malware, phishing attacks, worms, attacks by hackers or foreign
governments, disruptions from unauthorized access and tampering (including through social engineering such as phishing attacks), coordinated denial-of-service
attacks, impersonation of authorized users and similar incidents, can create system disruptions, shutdowns or result in a loss of company assets or unauthorized
disclosure of confidential information. The risk of security incidents has generally increased as the number, intensity and sophistication of attacks and intrusions
from around the world have increased. In some cases, it may be difficult to anticipate or immediately detect such incidents and the damage they cause. In addition,
our technology infrastructure and information systems are vulnerable to damage or interruption from natural disasters, power loss and telecommunications
failures. Failure to maintain proper function, security and availability of our information systems and the data maintained in those systems could interrupt our
operations, damage our reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial
condition and results of operations.
We have and may in the future incur impairment charges, which could negatively impact our results of operations.
At each reporting period, we evaluate our real estate investments and other assets for impairment indicators whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. The existence of impairment indicators is based on factors such as market conditions,
operator performance and legal structure. If we determine that an impairment has occurred, we are required to adjust the net carrying value of the asset, which
could have a material adverse effect on our results of operations in the period in which the write-off occurs. For example, in the three 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
reduce the borrowing base available to us under our Revolving Facility, which may reduce the amounts of cash we would otherwise have available to pay
expenses, service other indebtedness and operate our business.
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 annual REIT taxable income, 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 number of factors,
including the risk factors described in this annual report. Dividends are authorized by our board of directors and declared by us based upon a number of factors,
including but not limited to actual results of operations, restrictions under Maryland law or applicable debt covenants, our financial condition, our taxable income,
the annual distribution requirements under the REIT provisions of the Code and our operating expenses. There is no assurance that our operating results will allow
for specified levels of cash dividends or year-to-year increases in the future.
Furthermore, while we are required to pay dividends in order to maintain our REIT status (as described 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 and discontinue
paying dividends. Even if we do elect to maintain our REIT status, after completing various procedural steps, we may elect to comply with the applicable
distribution requirements by distributing, under certain circumstances, a portion of the required amount in the form of shares of our common stock in lieu of cash.
Either of these actions could negatively affect our business and financial condition as well as the market price of our common stock.
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ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
As of December 31, 2021, all of our properties are leased under long-term, triple-net leases, except for two ALFs for which we are in the process of
identifying an operator. The following table displays the expiration of the annualized contractual cash rental income under our lease agreements as of December
31, 2021 by year and total investment (dollars in thousands) and, in each case, without giving effect to any renewal or purchase options:
Lease
Maturity
Year
2024
2027
2028
2029
2030
2031
2032
2033
2034
2036
2038
Total
$
$
Investment
(1)
Percent of Total
Investment
Rent
(1)
Percent of
Total Rent
15,800
41,896
4,909
114,116
207,182
534,876
181,442
214,319
414,053
146,487
95,800
1,970,880
0.8 % $
2.1 %
0.2 %
5.8 %
10.5 %
27.1 %
9.2 %
10.9 %
21.0 %
7.4 %
5.0 %
100.0 % $
1,492
4,792
445
8,797
19,311
52,700
17,482
23,887
39,391
13,524
9,811
191,632
0.8 %
2.5 %
0.2 %
4.6 %
10.1 %
27.5 %
9.1 %
12.5 %
20.6 %
7.1 %
5.0 %
100.0 %
(1) Amounts exclude properties classified as held for sale as of December 31, 2021.
See the “Tenant Purchase Options” section of Note 3, Real Estate Investments, Net in the Notes to consolidated financial statements for additional
information on leases subject to purchase options.
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 Proceedings
The Company and its subsidiaries are and may become from time to time a party to various claims and lawsuits arising in the ordinary course of business,
but none of the Company or any of its subsidiaries is, and none of their respective properties are, the subject of any material legal proceedings. Claims and
lawsuits may include matters involving general or professional liability asserted against our tenants, which are the responsibility of our tenants and for which we
are entitled to be indemnified by our tenants under the insurance and indemnification provisions in the applicable leases.
ITEM 4. Mine Safety Disclosures
None.
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Common Equity
Our common stock is listed on the Nasdaq Global Select Market under the symbol “CTRE.”
At February 15, 2022, we had approximately 41 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
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on our financial position, results of operations, cash flows, capital requirements, debt covenants (which include limits on distributions by us), applicable law, and
other factors as our board of 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 REIT status, those distributions are subject to certain financial tests under the indenture
governing the Notes, and therefore, the amount of cash distributions we can make to our stockholders may be limited.
Distributions with respect to our common stock can be characterized for federal income tax purposes as taxable ordinary dividends, nondividend
distributions or a combination thereof. Following is the characterization of our annual cash dividends on common stock:
Common Stock
Ordinary dividend
Non-dividend distributions
Total taxable distribution
Distributions allocated from prior tax year
Distributions allocated to subsequent tax year
(1)
(2)
Total distributions declared
Year Ended December 31,
2021
2020
$
$
0.9411
0.1039
1.0450
(0.2500)
0.2650
1.0600
$
$
0.6435
0.1065
0.7500
—
0.2500
1.0000
(1) Because our aggregate cash distributions exceeded our annual earnings and profits, the cash distribution declared in the fourth quarter of 2020 and paid in
January 2021, of $0.25 per share, was treated as a 2021 distribution for federal income tax purposes.
(2) Because our aggregate cash distributions exceeded our annual earnings and profits, the cash distribution declared in the fourth quarter of 2021 and paid in
January 2022, of $0.265 per share, will be treated as a 2022 distribution for federal income tax purposes.
Unregistered Sales of Equity Securities
On March 20, 2020, our board of directors authorized a share repurchase program to repurchase up to $150.0 million of outstanding shares of our common
stock (the “Repurchase Program”). Repurchases under the Repurchase Program, which expires on March 31, 2023, may be made through open market purchases,
privately negotiated transactions, structured or derivative transactions, including accelerated share repurchase transactions, or other methods of acquiring shares,
in each case subject to market conditions and at such times as shall be permitted by applicable securities laws and determined by management. Repurchases under
the Repurchase Program may also be made pursuant to a plan adopted under Rule 10b5-1 promulgated under the Exchange Act. We expect to finance any share
repurchases under the Repurchase Program using available cash and may also use short-term borrowings under the Revolving Facility. We did not repurchase any
shares of common stock under the Repurchase Program during the year ended December 31, 2021. The Repurchase Program may be modified, discontinued or
suspended at any time.
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Stock Price Performance Graph
The 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. REIT
Total Return Index) and the SNL U.S. REIT Healthcare Index for the period from December 30, 2016 to December 31, 2021, except for the SNL U.S. REIT
Healthcare Index, which was discontinued as of August 2021. 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 30, 2016 and assumes quarterly reinvestment of dividends before consideration of income taxes. Stockholder
returns over the indicated periods should not be considered indicative of future stock prices or stockholder returns.
AMONG S&P 500, S&P 500 REIT INDEX, RMS, SNL US REIT HEALTHCARE AND CARETRUST REIT, INC.
COMPARISON OF CUMULATIVE TOTAL RETURN
RATE OF RETURN TREND COMPARISON
DECEMBER 30, 2016 - DECEMBER 31, 2021
(DECEMBER 31, 2016 = $100)
Stock Price Performance Graph Total Return
The 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 Securities
Exchange Act of 1934, as amended (the “Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, nor shall it be incorporated by reference into any
past or future filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically request that it be treated as soliciting material or
specifically incorporate it by reference into a filing under the Securities Act of 1933 or the Exchange Act.
2016
2017
2018
2019
2020
2021
December 31,
CareTrust REIT, Inc.
S&P 500
RMS
SNL US REIT Healthcare (discontinued as of
August 2021)
S&P 500 Real Estate Index
$
$
$
$
$
100.00 $
100.00 $
100.00 $
100.00 $
100.00 $
132.05 $
116.49 $
100.27 $
106.24 $
108.39 $
153.52 $
153.17 $
126.18 $
129.10 $
139.83 $
174.50 $
181.35 $
116.62 $
120.74 $
136.80 $
188.25
233.41
166.84
140.45
199.99
114.04 $
121.83 $
105.07 $
99.85 $
110.85 $
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ITEM 6. [Reserved]
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The discussion below contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those
anticipated 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 our accompanying consolidated financial statements and the notes thereto.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is organized as follows:
• Overview
• Recent Developments
• Results of Operations
• Liquidity and Capital Resources
• Critical Accounting Estimates
•
Impact of Inflation
Overview
CareTrust REIT is a self-administered, publicly-traded REIT engaged in the ownership, acquisition, development and leasing of skilled nursing, seniors
housing and other healthcare-related properties. As of December 31, 2021, CareTrust REIT’s real estate portfolio consisted of 227 skilled nursing facilities
(“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of 23,650 operational beds and units
located in 29 states with the highest concentration of properties by rental income located in California, Texas, Louisiana, Idaho and Arizona. As of December 31,
2021, we also had other real estate investments consisting of one mezzanine loan receivable with a carrying value of $15.2 million.
Recent Developments
COVID-19 Update
Tenants of our properties operating pursuant to triple-net master leases have been adversely impacted, and we expect that they will continue to be
adversely impacted, by the COVID-19 pandemic. Our tenants are experiencing increased operating costs as a result of actions they are taking to prevent or
mitigate the outbreak or spread of COVID-19 at their facilities, including in connection with their implementation of safety protocols and procedures and other
regulatory requirements, as well as labor shortages resulting in limited admissions, reduced occupancy and higher agency expense. To help offset these costs and
occupancy declines, various relief programs have been enacted by federal and state governments, which have provided, and we expect will continue to provide,
some payments to our tenants, subject to the programs’ respective terms and conditions. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”) established a grant program administered by the U.S. Department of Health and Human Services (“HHS”) under which grants have been made available to
eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19 (the “Provider Relief Funds”). During the fourth quarter of
2021, HHS closed the application portal for its Phase 4 allocation of approximately $17 billion of Provider Relief Funds and an allocation of approximately $8.5
billion in American Rescue Plan resources for providers serving patients living in rural areas. Our tenants pursued additional funding from these allocations, and
we expect that they will pursue any future funding that may become available, although there can be no assurance that our tenants will qualify for, or receive, any
Phase 4 or American Rescue Plan, or any future, funding. The estimated federal and state relief approved, received and retained to date by our operators, as
reported by our operators, is approximately $171.4 million. At December 31, 2021, two of our operators who received Provider Relief Funds have disclosed that
they have returned all or a portion of the Provider Relief Funds issued to them.
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HHS recently renewed the COVID-19 Public Health Emergency, and it is currently set to be in force through April 16, 2022, which allows HHS to
continue providing temporary regulatory waivers, including the waiver of the three-day hospital stay requirement. The CARES Act also includes a temporary
suspension of a 2% Medicare sequestration cut until April 1, 2022, and reduces the cuts from 2% to 1% from April 1 through June 30, 2022. In addition, a
temporary increase in Federal Medical Assistance Percentages, which was approved retroactive to January 1, 2020, is effective through March 31, 2022.
At a portfolio wide level, occupancy levels at our seniors housing facilities remained relatively stable from the onset of the COVID-19 pandemic until
the beginning of the fourth quarter of 2020, at which time we began to see a decline. This decline in occupancy continued through the first quarter of 2021 and
remained flat through the fourth quarter of 2021. Occupancy levels at our SNFs, which declined at the onset of the COVID-19 pandemic and continued to decline
through January 2021, have been on a steady incline through the fourth quarter of 2021. Beginning in early 2020, the federal government temporarily suspended
the three-day hospital stay requirement for a patient’s Medicare benefits to refresh. Providers can now “skill in place,” eliminating the risk of transferring the
patient to the hospital. Because of this temporary rule change, overall skilled mix remained slightly elevated in the three months ended December 31, 2021
compared to the pre-pandemic skilled mix during the three months ended March 31, 2020. An increase in skilled mix can, but may not necessarily, offset some or
all of the adverse financial impact to the operator of the SNF from a decline in occupancy. However, the skilled mix in our SNFs during the three months ended
December 31, 2021 was lower than the peak level seen in December 2020, and we anticipate that skilled mix in our SNFs will continue to decline as cases of
COVID-19 decline.
The higher operating costs affecting our tenants, and the impact of lower occupancy levels and labor shortages, have adversely impacted and may
continue to adversely impact the ability of our tenants to satisfy their rental obligations to us in full or on a timely basis. Provider Relief Funds not previously
being made available to our seniors housing facilities has also impacted some of our tenants’ ability to continue to meet some of their financial obligations, as they
continue to experience lower occupancy levels and higher operating costs. During the three months ended September 30, 2021, we agreed to provide affiliates of
Noble Senior Services and Noble VA Holdings, LLC (collectively, “Noble”), a deferral of the unpaid portion of contractual rent for the months of July, August
and September, totaling $1.8 million and representing approximately 4% of our total contractual base rent for the three months ended September 30, 2021. In
connection with our agreement to the rent deferral, we also entered into a purchase agreement to acquire two ALFs owned by Noble, which are currently leased
back to Noble under a short-term lease agreement upon closing of the acquisition in December 2021 while we pursue other tenants for the long-term. The deferred
rent, as well as all contractual rent for the fourth quarter of 2021, was paid in full upon closing of the acquisition of the two facilities in December 2021. One other
facility leased to Noble is designated as held for sale at December 31, 2021, and we expect to remove the facility from the applicable master lease following the
sale. See Note 3, Real Estate Investments, Net, for additional information. Approximately 100.0% of our contractual rent obligations due for the fourth quarter of
2021, and approximately 93.2% due for January 2022, have been collected from our tenants before considering any cash deposits on-hand from which we may
offset any shortfalls in rent received. In connection with our ongoing review and monitoring of our investment portfolio and the performance of our tenants, we
plan to pursue the sale, re-tenanting, or repurposing of up to 32 assets in fiscal 2022, representing approximately 10% of contractual cash rent.
Federal laws and regulations related to COVID-19 vaccine mandates may increase operating costs of our tenants if those mandates make recruiting
and retaining qualified nursing and other personnel more difficult. The Biden-Harris administration issued an Interim Final Rule requiring Medicare and
Medicaid-participating facilities and employers with more than 100 employees to mandate their employees to be vaccinated. Some states have also issued their
own orders to employers and healthcare providers that may or may not align with federal directives. The legality of both federal and state vaccine mandates will
likely be decided by the courts. Until pending laws and regulations related to vaccine mandates are both finalized and adjudicated, our tenants will continue to
manage in different ways — from mandating vaccines for all employees to waiting to see how the issue is ultimately resolved. The mandates, as presently written,
may cause disruption to tenants’ operations if employees refuse vaccination and are terminated, and our tenants are not able to replace them in a timely manner or
experience increased costs to do so.
The duration and extent of the COVID-19 pandemic’s effect on our operational and financial performance, and the operational and financial
performance of our tenants, will depend on future developments, which are highly uncertain and cannot be predicted at this time, including the rate of public
acceptance and usage of vaccines and the effectiveness of vaccines in limiting the spread of COVID-19 and its variants, resurgences of COVID-19 and, in
particular, new and more contagious and/or vaccine resistant variants, actions taken to contain the spread of COVID-19, restrictions imposed on unvaccinated
individuals and employee vaccine mandates, labor shortages resulting from the foregoing restrictions and mandates and how quickly and to what extent normal
economic and operating conditions can resume. The adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition
could be material.
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Senior Notes Issuance and Redemption
On June 17, 2021, our wholly owned subsidiary, CTR Partnership, L.P. (the “Operating Partnership”), and its wholly owned subsidiary, CareTrust
Capital Corp. (together with the Operating Partnership, the “Issuers”) completed a private offering of $400.0 million aggregate principal amount of 3.875% Senior
Notes due 2028 (the “Notes”) to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A and to non-U.S. persons outside the
United States in reliance on Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). The aggregate net proceeds from the sale of the
Notes were approximately $393.8 million after deducting underwriting fees and other offering expenses. We used a portion of the net proceeds from the sale of
the Notes to redeem all of the Issuers’ outstanding 5.25% Senior Notes due 2025 (the “2025 Notes”) and the remaining proceeds to repay a portion of the
borrowings outstanding under our Revolving Facility (as defined below).
On July 1, 2021 (the “Redemption Date”), the Issuers redeemed all $300.0 million aggregate principal amount of their outstanding 2025 Notes. The
2025 Notes were redeemed at a redemption price equal to 102.625% of the principal amount of the 2025 Notes, plus accrued and unpaid interest thereon up to, but
not including, the Redemption Date. During the third quarter of 2021, we recorded a loss on extinguishment of debt of $10.8 million in our consolidated income
statements, including a prepayment penalty of $7.9 million and a $2.9 million write-off of deferred financing costs, associated with the redemption of the 2025
Notes.
Recent Dispositions and Assets Held for Sale
From January 1, 2021 through February 16, 2022, we sold one SNF and one land parcel, resulting in a net loss on sale of property of $0.1 million.
During the third quarter of 2021, we met the held for sale criteria on one ALF. As of December 31, 2021, the property continued to be held for sale and the
carrying value of $4.8 million is primarily comprised of real estate assets.
Recent Investments
From January 1, 2021 through February 16, 2022, we acquired five SNFs and four multi-service campuses for approximately $192.5 million, which
includes capitalized acquisition costs. These acquisitions are expected to generate initial annual cash revenues of approximately $13.9 million and an initial
blended yield of approximately 7.4%. In addition, we acquired two ALFs for approximately $12.4 million, which includes capitalized acquisition costs. We are in
the process of identifying an operator for the two ALFs, which are currently not operational. See Note 3, Real Estate Investments, Net in the Notes to consolidated
financial statements for additional information.
At-The-Market Offering of Common Stock
On March 10, 2020, we entered into a new equity distribution agreement to issue and sell, from time to time, up to $500.0 million in aggregate offering
price of our common stock through an “at-the-market” equity offering program (the “ATM Program”). In connection with the entry into the equity distribution
agreement and the commencement of the ATM Program, our “at-the-market” equity offering program pursuant to our prior equity distribution agreement, dated as
of March 4, 2019, was terminated.
The following table summarizes the ATM Program activity for the year ended December 31, 2021 (in thousands, except per share amounts).
Number of shares
Average sales price per share
Gross proceeds
(1)
For the Year Ended
December 31, 2021
$
$
990
23.74
23,505
(1) Total gross proceeds is before $0.3 million of commissions paid to the sales agents during the year ended December 31, 2021 under the ATM Program.
As of December 31, 2021, we had $476.5 million available for future issuances under the ATM Program.
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Results of Operations
Operating Results
Our 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, 2021 Compared to Year Ended December 31, 2020
Revenues:
Rental income
Independent living facilities
Interest and other income
Expenses:
Depreciation and amortization
Interest expense
Property taxes
Independent living facilities
General and administrative
Other loss:
Loss on extinguishment of debt
Loss on sale of real estate
• Not meaningful
Year Ended December 31,
2021
2020
Increase
(Decrease)
Percentage
Difference
(dollars in thousands)
$
190,195 $
—
2,156
173,612 $
2,077
2,643
55,340
23,677
3,574
—
26,874
(10,827)
(77)
52,760
23,661
2,836
1,869
16,302
—
(37)
16,583
(2,077)
(487)
2,580
16
738
(1,869)
10,572
(10,827)
(40)
10 %
(100)%
(18)%
5 %
— %
26 %
(100)%
65 %
*
108 %
Rental income. Rental income was $190.2 million for the year ended December 31, 2021 compared to $173.6 million for the year ended December 31,
2020. The $16.6 million, or 10%, increase in rental income is primarily due to a $14.8 million increase in rental income from real estate investments made after
January 1, 2020, a $3.6 million increase from contractual increases in rental rates for our existing tenants, a $0.6 million net increase in cash rents due to lease
amendments and a $0.5 million net increase in tenant reimbursements, partially offset by a $1.1 million decrease in lease termination revenue, a $1.0 million
decrease from the recovery of previously reversed rent and a $0.8 million decrease in rental income due to the disposal of assets in February 2020 and February
2021.
Independent living facilities. The $2.1 million, or 100%, decrease in revenues from our ILFs was due to the sale of our one remaining ILF to a third party in
November 2020. The $1.9 million, or 100%, decrease in expenses from our ILFs was for the same reason indicated for the decrease in revenues.
Interest and other income. Interest and other income decreased $0.5 million, or 18%, for the year ended December 31, 2021 to $2.2 million compared to
$2.6 million for the year ended December 31, 2020. The decrease was primarily due to a decrease in interest income of $2.0 million due to the repayment of
mortgage loans receivable, partially offset by approximately $1.5 million of interest income related to our mezzanine loan originated in November 2020. See Note
4, Other Real Estate Investments, Net.
Depreciation and amortization. Depreciation and amortization expense increased $2.6 million, or 5%, for the year ended December 31, 2021 to $55.3
million compared to $52.8 million for the year ended December 31, 2020. The $2.6 million increase in depreciation and amortization was primarily due to an
increase in depreciation and amortization of $5.7 million related to new real estate investments and capital improvements made after January 1, 2020, partially
offset by a decrease in depreciation of $2.7 million due to assets becoming fully depreciated after January 1, 2020 and a decrease in depreciation of $0.4 million
related to the disposal of assets in February 2020 and February 2021.
Interest expense. Interest expense was $23.7 million for both the years ended December 31, 2021 and 2020. Interest expense decreased for the year ended
December 31, 2021 compared to December 31, 2020 by $1.0 million due to a lower weighted-average interest rate on the term loan and by $7.9 million due to the
redemption of the 2025 Notes on July 1, 2021. These decreases were offset by an $8.3 million increase in interest expense related to the issuance of the Notes on
June 17,
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2021, and a $0.5 million increase in interest expense related to a higher weighted-average debt balance under the Revolving Facility (as defined below), and an
increase of $0.1 million in interest expense related to the amortization of deferred financing fees.
Property taxes. Property taxes increased $0.7 million, or 26%, for the year ended December 31, 2021 compared to December 31, 2020. The increase was
primarily due to a $0.7 million increase in property taxes due to new real estate investments made after January 1, 2020 and a $0.4 million increase in property
taxes due to closing credits realized upon the disposition of assets in February 2020 and the transfer of certain properties to new operators in January 2021 that do
not make direct tax payments, partially offset by a decrease of $0.4 million of property taxes due to reassessments and decreased effective tax rates.
General and administrative expense. General and administrative expense increased $10.6 million, or 65%, for the year ended December 31, 2021 to $26.9
million compared to $16.3 million for the year ended December 31, 2020. The increase is primarily related to a $7.1 million increase in stock-based
compensation, which includes a $0.9 million out of period adjustment in the fourth quarter of 2021 (see Note 8, Stock-based Compensation, for further
information), higher cash wages of $2.3 million, $1.2 million of non-routine transaction costs and an increase of $0.3 million in other administrative costs,
partially offset by a decrease of $0.3 million in state and local taxes.
Loss on extinguishment of debt. During the year ended December 31, 2021, we recorded a $10.8 million loss on extinguishment of debt, including a
prepayment penalty of $7.9 million and a $2.9 million write-off of deferred financing costs associated with the redemption of the 2025 Notes.
Loss on sale of real estate. During the year ended December 31, 2021, we recorded a $0.2 million loss on sale of real estate related to the sale of one SNF,
partially offset by a $0.1 million gain on sale of real estate related to the sale of a land parcel adjacent to one of our SNFs. During the year ended December 31,
2020, we recorded a $0.1 million loss on sale of real estate related to the sale of six SNFs, partially offset by a $20,000 gain on sale of real estate related to the
sale of our last remaining owned and operated ILF.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
For discussion related to the results of operations and changes in financial condition for fiscal 2020 compared to fiscal 2019, refer to Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2020 Annual Report on Form 10-K, which was filed with
the SEC on February 10, 2021.
Liquidity and Capital Resources
To qualify as a REIT for federal income tax purposes, we are required to distribute at least 90% of our REIT taxable income, determined without regard to
the dividends paid deduction and excluding any net capital gains, to our stockholders on an annual basis. Accordingly, we intend to make, but are not
contractually bound to make, regular quarterly dividends to common stockholders from cash flow from operating activities. All such dividends are at the
discretion of our board of directors.
Our short-term liquidity requirements consist primarily of operating and interest expenses directly associated with our properties, including:
•
•
•
•
•
interest expense and scheduled principal payments on outstanding indebtedness;
general and administrative expenses;
dividend plans;
operating lease obligations; and
capital expenditures for improvements to our properties.
Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, capital expenditures, and scheduled debt maturities. We intend to
invest in and/or develop additional healthcare and seniors housing properties as suitable opportunities arise and so long as adequate sources of financing are
available. We expect that future investments in and/or development of properties, including any improvements or renovations of current or newly-acquired
properties, will depend on and will be financed by, in whole or in part, our existing cash, borrowings available to us under the Amended Credit Facility, future
borrowings or the proceeds from sales of shares of our common stock pursuant to our ATM Program or additional issuances of common stock or other securities.
In addition, we may seek financing from U.S. government agencies, including through Fannie Mae and the U.S. Department of Housing and Urban Development,
in appropriate circumstances in connection with acquisitions and refinancing of existing mortgage loans.
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We believe that our expected operating cash flow from rent collections, interest payments on our other real estate investments, and borrowings under our
Amended Credit Facility, together with our cash balance of $19.9 million, available borrowing capacity of $520.0 million under the Revolving Facility and
availability under the ATM Program, each at December 31, 2021, will be sufficient to meet ongoing debt service requirements, dividend plans, operating lease
obligations, capital expenditures, working capital requirements and other needs for at least the next 12 months. We expect to meet our long-term liquidity needs
with cash flows from operations and financing arrangements. We currently do not expect to sell any of our properties to meet liquidity needs, although we may do
so in the future. Our quarterly cash dividend, any share repurchases under our Repurchase Program (as defined below) and any failure of our operators to pay rent
may impact our available capital resources.
On March 20, 2020, our board of directors authorized a share repurchase program to repurchase up to $150.0 million of outstanding shares of our
common stock (the “Repurchase Program”). Repurchases under the Repurchase Program, which expires on March 31, 2023, may be made through open market
purchases, privately negotiated transactions, structured or derivative transactions, including accelerated share repurchase transactions, or other methods of
acquiring shares, in each case subject to market conditions and at such times as shall be permitted by applicable securities laws and determined by management.
Repurchases under the Repurchase Program may also be made pursuant to a plan adopted under Rule 10b5-1 promulgated under the Exchange Act. We expect to
finance any share repurchases under the Repurchase Program using available cash and may also use short-term borrowings under the Revolving Facility. We did
not repurchase any shares of common stock under the Repurchase Program during the year ended December 31, 2021. The Repurchase Program may be modified,
discontinued or suspended at any time.
We have filed an automatic shelf registration statement with the U.S. Securities and Exchange Commission that expires in March 2023, which will allow us
or certain of our subsidiaries, as applicable, to offer and sell shares of common stock, preferred stock, warrants, rights, units and debt securities through
underwriters, dealers or agents or directly to purchasers, in one or more offerings on a continuous or delayed basis, in amounts, at prices and on terms we
determine at the time of the offering.
Although we are subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incur
additional indebtedness for acquisitions or other purposes, if needed. However, there can be no assurance that we will be able to refinance our indebtedness, incur
additional indebtedness or access additional sources of capital, such as by issuing common stock or other debt or equity securities, on terms that are acceptable to
us or at all.
We currently are in compliance with all debt covenants on our outstanding indebtedness.
Cash Flows
The following table presents selected data from our consolidated statements of cash flows for the years presented:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Year Ended December 31,
2021
2020
(dollars in thousands)
156,871 $
(192,633)
36,738
976
18,919
19,895 $
145,735
(41,582)
(105,561)
(1,408)
20,327
18,919
$
$
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Net cash provided by operating activities for the year ended December 31, 2021 was $156.9 million compared to $145.7 million for the year ended
December 31, 2020, an increase of $11.1 million. Operating cash inflows are derived primarily from the rental payments received under our lease agreements,
including as a result of new investments, and interest payments on our other real estate investments. Operating cash outflows consist primarily of interest expense
on our borrowings and general and administrative expenses. The net increase of $11.1 million in cash provided by operating activities for the year ended
December 31, 2021 is primarily due to increased rental payments as a result of new investments, partially offset by an increase in cash paid for interest on
outstanding indebtedness due to the timing of interest payments, a decrease in interest and other income due to the repayments of our other real estate investments
and an increase in cash paid for general and administrative expenses.
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Cash used in investing activities for the year ended December 31, 2021 was primarily comprised of $194.0 million in acquisitions of real estate and
investments in real estate mortgage and other loans receivable, and $6.0 million of purchases of, and improvements to, equipment, furniture and fixtures and real
estate, partially offset by $0.4 million of payments received from our mortgage and other loans receivable and $7.0 million in net proceeds from real estate sales.
Cash used in investing activities for the year ended December 31, 2020 was primarily comprised of $123.1 million in acquisitions of real estate, investments in
real estate mortgage and other loans receivable and escrow deposits for potential acquisitions, and $8.3 million of purchases of, and improvements to, equipment,
furniture and fixtures and real estate, partially offset by $83.3 million of payments received from our preferred equity investment and mortgage and other loans
receivable and $6.6 million in net proceeds from real estate sales.
Our cash flows provided by financing activities for the year ended December 31, 2021 were primarily comprised of $393.8 million of net proceeds from the
issuance of the Notes, $30.0 million in net borrowings under our Amended Credit Facility and $22.9 million of net proceeds from the issuance of common stock
under the ATM Program, partially offset by $307.9 million of payments to redeem the 2025 Notes, $100.8 million in dividends paid, and a $1.3 million net
settlement adjustment on restricted stock. Our cash flows provided by financing activities for the year ended December 31, 2020 were primarily comprised of
$93.2 million in dividends paid, a $2.0 million net settlement adjustment on restricted stock, $0.4 million in costs paid for the issuance of common stock and
$10.0 million in net repayments under our Amended Credit Facility (as defined below).
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
For discussion related to the cash flows for fiscal 2020 compared to fiscal 2019, refer to Part II, Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in our fiscal 2020 Annual Report on Form 10-K, which was filed with the SEC on February 10, 2021.
Material Cash Requirements
Our material cash requirements from known contractual and other obligations include:
3.875% Senior Unsecured Notes due 2028
On June 17, 2021, the Issuers completed a private offering of $400.0 million aggregate principal amount of 3.875% Senior Notes due 2028. The Notes
mature on June 30, 2028. The Notes accrue interest at a rate of 3.875% per annum payable semiannually in arrears on June 30 and December 30 of each year,
commencing on December 30, 2021. As of December 31, 2021, we were in compliance with all applicable financial covenants under the indenture governing the
Notes. See Note 6, Debt, to our consolidated financial statements included in this report for further information about the Notes.
Unsecured Revolving Credit Facility and Term Loan
Our amended and restated credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline
lender, and the lenders party thereto (the “Amended Credit Agreement”) provides for: (i) an unsecured revolving credit facility (the “Revolving Facility”) with
revolving commitments in an aggregate principal amount of $600.0 million, including a letter of credit subfacility for 10% of the then available revolving
commitments and a swingline loan subfacility for 10% of the then available revolving commitments and (ii) an unsecured term loan credit facility (the “Term
Loan” and together with the Revolving Facility, the “Amended Credit Facility”) in an aggregate principal amount of $200.0 million. Future borrowings under the
Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes.
As of December 31, 2021, we had $200.0 million outstanding under the Term Loan and $80.0 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 a maturity
date of February 8, 2026.
The interest rates applicable to loans under the Revolving Facility are, at the Operating Partnership’s option, equal to either a base rate plus a margin
ranging from 0.10% to 0.55% per annum or LIBOR plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of our
consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if we obtain certain specified investment grade ratings on our senior long-
term unsecured debt). The interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base rate plus a
margin ranging from 0.50% to 1.20% per annum or LIBOR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of our
consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if we obtain certain specified investment grade ratings on our senior long-
term unsecured debt). In addition, the Operating Partnership will pay a facility fee on the revolving commitments under the Revolving Facility ranging from
0.15% to 0.35% per
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annum, based on the debt to asset value ratio of our consolidated subsidiaries (unless we obtain certain specified investment grade ratings on our senior long-term
unsecured debt and the Operating Partnership elects to decrease the applicable margin as described above, in which case the Operating Partnership will pay a
facility fee on the revolving commitments ranging from 0.125% to 0.30% per annum based off the credit ratings of our senior long-term unsecured debt). Interest
payments are due quarterly.
As of December 31, 2021, we were in compliance with all applicable financial covenants under the Amended Credit Agreement. See Note 6, Debt, to our
consolidated financial statements included in this report for further information about the Amended Credit Agreement.
Capital Expenditures
As of December 31, 2021, we had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities totaling $7.3
million, of which $6.3 million is subject to rent increase at the time of funding. We expect to fund the capital expenditures in the next one to two years. See Note
10, Commitments and Contingencies, to our consolidated financial statements included in this report for further information regarding our obligation to finance
certain capital expenditures under our triple-net leases.
Dividend Plans
We are required to pay dividends in order to maintain our REIT status and we expect to make quarterly dividend payments in cash with the annual dividend
amount no less than 90% of our annual REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. See
Note 7, Equity, to our consolidated financial statements included in this report for a summary of the cash dividends per share of our common stock declared by our
Board of Directors for 2021, 2020 and 2019.
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Management believes that the assumptions and estimates used in preparation of the underlying consolidated financial
statements are reasonable. 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
make significant estimates and/or assumptions about matters that are uncertain at the time the estimates and/or assumptions are made or where we are required to
make significant judgments and assumptions with respect to the practical application of accounting principles in our business operations. Critical accounting
policies are by definition those policies that are material to our financial 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 our critical accounting policies is intended to supplement the description of our accounting
policies in the footnotes to our consolidated financial statements and to provide additional insight into the information used by management when evaluating
significant estimates, assumptions, and judgments. For a discussion of our significant accounting policies, see Note 2, Summary of Significant Accounting
Policies, to our consolidated financial statements included in this report.
Real Estate Acquisition Valuation. In accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, our acquisitions of real
estate investments generally do not meet the definition of a business, and are treated as asset acquisitions. The assets acquired and liabilities assumed are
measured at their acquisition date relative fair values. Acquisition costs are capitalized as incurred. We allocate the acquisition costs to the tangible assets,
identifiable intangible assets/liabilities and assumed liabilities on a relative fair value basis. Purchase price allocations contain uncertainties because they require
management to make significant estimates and assumptions and to apply judgment to allocate the purchase price of real estate acquired among its components. We
assess fair value based on available market information, such as capitalization and discount rates, comparable sale transactions and relevant per square foot or unit
cost information. A real estate asset’s fair value may be determined utilizing cash flow projections that incorporate such market information. Estimates of future
cash flows are based on a number of factors including historical operating results, 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 same submarket and/or region. The fair value of buildings and improvements and integral
equipment, furniture and fixtures considers the value of the
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property as if it was vacant as well as replacement costs, depreciation factors, and other relevant market information. The use of different assumptions in these fair
value inputs could significantly affect the reported amounts of the allocation of the acquisition on a relative fair value basis and the related depreciation expense
recorded for such assets. If actual results are materially different than the assumptions used to determine fair value of the assets acquired and liabilities assumed, it
is possible that adjustments to the carrying values of such assets and liabilities will have a material impact on our financial position and results of operations.
Furthermore, if actual results are not consistent with estimates or assumptions, we may be exposed to an impairment charge that could materially adversely impact
our financial position and results of operations. We have not materially changed the assumptions used in the analysis during the year ended December 31, 2021.
Impairment of Long-Lived Assets. At each reporting period, we evaluate our real estate investments to be held and used for potential impairment whenever
events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The judgment regarding the existence 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, we evaluate the carrying value of the related real estate investments in relation 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 us, and a terminal capitalization rate. The analysis is also significantly impacted by
determining the lowest 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 are recognized when expected future undiscounted cash flows are determined to be less than the carrying values of the assets. The impairment is
measured as the excess of carrying value over fair value.
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 is
expected 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 the
estimated 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 the forecasted
operating cash flows, lease coverage ratios, capitalization rates, comparable sales data, and, where applicable, contracts or the results of negotiations with
purchasers or prospective purchasers.
Our ability to accurately estimate future cash flows and estimate and allocate fair values impacts the timing and recognition of impairments. While we
believe our assumptions are reasonable, changes in these assumptions may have a material impact on financial results. Given the ongoing impacts of COVID-19,
the projected cash flows that we use to assess fair value for purposes of impairment testing are subject to greater uncertainty than normal. If in the future we
reduce our estimate of cash flow projections, we may need to impair some of these assets. We have not materially changed the assumptions used in the analysis
during the year ended December 31, 2021.
Revenue Recognition. We recognize lease revenue in accordance with ASC 842, Leases. See Note 2, Summary of Significant Accounting Policies, in the
Notes to Consolidated Financial Statements for further detail. Our assessment of collectibility of tenant receivables includes a binary assessment of whether or not
substantially all of the amounts due under a tenant’s lease agreement are probable of collection. This assessment involves significant judgment by management
and considers the operator’s performance and anticipated trends, payment history, and the existence and creditworthiness of guarantees, among other factors, in
making this determination. For such leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term, if
applicable. For such leases that 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 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 collectibility determination. Management’s judgement can impact the timing of write-offs and recovery adjustments. We
did not materially change the assumptions used in the analysis during the year ended December 31, 2021.
Impact of Inflation
Our rental income in future years will be impacted by changes in inflation. Almost all of our triple-net lease agreements, including the Ensign 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.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk exposure is interest rate risk with respect to our variable rate indebtedness.
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Our Amended Credit Agreement provides for: (i) an unsecured revolving credit facility (the “Revolving Facility”) with revolving commitments in an
aggregate principal amount of $600.0 million, including a letter of credit subfacility for 10% of the then available revolving commitments and a swingline loan
subfacility for 10% of the then available revolving commitments and (ii) an unsecured term loan credit facility (the “Term Loan”) in an aggregate principal
amount of $200.0 million from a syndicate of banks and other financial institutions.
The interest rates applicable to loans under the Revolving Facility are, at our option, equal to either a base rate plus a margin ranging from 0.10% to
0.55% per annum or LIBOR plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio 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). 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% per
annum 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 of
December 31, 2021, we had a $200.0 million Term Loan outstanding and there was $80.0 million outstanding under the Revolving Facility.
An increase in interest rates could make the financing of any acquisition by us more costly as well as increase the costs of our variable rate debt obligations.
Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest
expense on refinanced indebtedness. Increased inflation may also have a pronounced negative impact on the interest expense we pay in connection with our
outstanding indebtedness, as these costs could increase at a rate higher than our rents.
In addition, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, has announced that the FCA will no longer
persuade or compel banks to submit rates for the calculation of LIBOR after 2021. However, for U.S. dollar LIBOR, the relevant date was deferred to June 30,
2023 for certain tenors (including overnight and one, three, six and 12 months), at which time the LIBOR administrator will cease publication of U.S. dollar
LIBOR. Despite this deferral, the LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into after December 31,
2021. These actions indicate that the continuation of U.S. LIBOR on the current basis cannot and will not be guaranteed after June 30, 2023. Moreover, it is
possible that U.S. LIBOR will be discontinued or modified prior to June 30, 2023. When 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. If our lenders have increased costs due to changes
in LIBOR, we may experience potential increases in interest rates on our variable rate debt, which could adversely impact our interest expense, results of
operations and cash flows. Based on our outstanding debt balance as of December 31, 2021 described above and the interest rates applicable to our outstanding
debt at December 31, 2021, assuming a 100 basis point increase in the interest rates related to our variable rate debt, interest expense would have increased
approximately $2.8 million for the year ended December 31, 2021.
We may, in the future, manage, or hedge, interest rate risks related to our borrowings by means of interest rate swap agreements. However, the REIT
provisions of the Code substantially limit our ability to hedge our assets and liabilities. See “Risk Factors - Risks Related to Our Status as a REIT - Complying
with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.” As of December 31, 2021, we had no swap
agreements to hedge our interest rate risks. We also expect to manage our exposure to interest rate risk by maintaining a mix of fixed and variable rates for our
indebtedness.
ITEM 8. Financial Statements and Supplementary Data
See 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 Disclosures
None.
ITEM 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to
ensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized and reported within the time periods
specified in the SEC’s rules and regulations and that such information is accumulated and communicated to management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure
46
Table of Contents
controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
As of December 31, 2021, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive
Officer and Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2021.
Management’s Annual Report on Internal Control over Financial Reporting
Our 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 for
external 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
reasonable assurance 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 reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material
effect on the financial statements.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, regarding the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on this evaluation, our management concluded
that our internal control over financial reporting was effective as of December 31, 2021.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the quarter ended December 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Attestation Report of the Independent Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report which is included herein.
47
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of CareTrust REIT Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of CareTrust REIT, Inc., and subsidiaries (the “Company”) as of December 31, 2021, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on
criteria established 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 financial
statements as of and for the year ended December 31, 2021, of the Company and our report dated February 16, 2022, expressed an unqualified opinion on those
financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is
to express 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
and are 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 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 reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
February 16, 2022
48
Table of Contents
ITEM 9B. Other Information
Not applicable.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable.
49
Table of Contents
ITEM 10. Directors, Executive Officers and Corporate Governance
PART III
The information required under Item 10 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days after
the end of our fiscal year ended December 31, 2021 in connection with our 2022 Annual Meeting of Stockholders.
Code of Conduct and Ethics
We 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
our Board of Directors. The code of business conduct and ethics is available at our website at www.caretrustreit.com under the Investors-Corporate Governance
section. We intend to satisfy any disclosure requirement under applicable rules of the Securities and Exchange Commission or Nasdaq Stock Market regarding an
amendment to, or waiver from, a provision of this code of business conduct and ethics by posting such information on our website, at the address specified above.
ITEM 11. Executive Compensation
The information required under Item 11 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days after
the end of our fiscal year ended December 31, 2021 in connection with our 2022 Annual Meeting of Stockholders.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required under Item 12 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days after
the end of our fiscal year ended December 31, 2021 in connection with our 2022 Annual Meeting of Stockholders.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required under Item 13 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days after
the end of our fiscal year ended December 31, 2021 in connection with our 2022 Annual Meeting of Stockholders.
ITEM 14. Principal Accountant Fees and Services
The information required under Item 14 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days after
the end of our fiscal year ended December 31, 2021 in connection with our 2022 Annual Meeting of Stockholders.
50
Table of Contents
PART IV
Table of Contents
ITEM 15. Exhibit and Financial Statement Schedules
(a)(1)
Financial Statements
See Index to Consolidated Financial Statements on page F-1 of this report.
(a)(2)
Financial Statement Schedules
Schedule III: Real Estate Assets and Accumulated Depreciation
Schedule IV: Mortgage 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 or because the schedules are not applicable.
(a)(3)
Exhibits
2.1
3.1
3.2
3.3
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
Membership 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).
Articles of Amendment and Restatement of CareTrust REIT, Inc. (incorporated by reference to Exhibit 3.1 to
CareTrust REIT, Inc.’s Registration Statement on Form 10, filed on May 13, 2014).
Articles of Amendment, dated May 30, 2018, to the Articles of Amendment and Restatement of CareTrust REIT, Inc.
(incorporated by reference to Exhibit 3.1 to CareTrust REIT, Inc.’s Current Report on Form 8-K filed on May 31,
2018).
Amended and Restated Bylaws of CareTrust REIT, Inc. (incorporated by reference to Exhibit 3.1 to CareTrust REIT,
Inc.’s Current Report on Form 8-K filed on March 7, 2019).
Indenture, dated as of June 17, 2021, among CTR Partnership, L.P. and CareTrust Capital Corp., as Issuers, CareTrust
REIT, Inc., the other guarantors named therein, and Wells Fargo Bank, National Association, as Trustee (incorporated
by reference to Exhibit 4.1 to the CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on June 17, 2021).
Form of 3.875% Senior Note due 2028 (included in Exhibit 4.1).
Specimen Stock Certificate of CareTrust REIT, Inc. (incorporated by reference to Exhibit 4.1 to CareTrust REIT,
Inc.’s Registration Statement on Form 10, filed on April 15, 2014).
Description of CareTrust REIT, Inc.’s Capital Stock (incorporated by reference to Exhibit 4.5 to CareTrust REIT,
Inc.’s Annual Report on Form 10-K, filed on February 20, 2020).
Form 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).
Form of Guaranty of Master Lease by The Ensign Group, Inc. in favor of certain subsidiaries of CareTrust REIT, Inc.,
as landlords under the Ensign Master Leases (incorporated by reference to Exhibit 10.2 to CareTrust REIT, Inc.’s
Current Report on Form 8-K, filed on June 5, 2014).
Tax Matters Agreement, dated as of May 30, 2014, by and between The Ensign Group, Inc. and CareTrust REIT, Inc.
(incorporated by reference to Exhibit 10.5 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on June 5,
2014).
Amended 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, as administrative agent, an issuing lender and swingline lender and the other parties
thereto. (incorporated by reference to Exhibit 10.1 to the CareTrust REIT, Inc.’s Current Report on Form 8-K filed on
February 11, 2019).
First Amendment to Amended and Restated Credit and Guaranty Agreement, dated July 23, 2019, by and among
CTR Partnership, L.P., as borrower, CareTrust REIT, Inc., as guarantor, CareTrust GP, LLC, and other guarantors
named therein, the Lenders (as defined therein) from time to time party thereto and KeyBank National Association, as
administrative agent, an issuing lender and swingline lender (incorporated by reference to Exhibit 10.1 to the
CareTrust REIT, Inc.’s Quarterly Report on Form 10-Q filed on August 6, 2019).
52
Table of Contents
10.6
+10.7
+10.8
+10.9
+10.10
+10.11
*21.1
*23.1
*31.1
*31.2
Amended and Restated Partnership Agreement of CTR Partnership, L.P. (incorporated by reference to Exhibit 3.4 to
CareTrust REIT, Inc.’s Registration Statement on Form S-4, filed on August 28, 2014).
Form of Indemnification Agreement between CareTrust REIT, Inc. and its directors and officers (incorporated by
reference to Exhibit 10.11 to CareTrust REIT, Inc.’s Current Report on Form 8-K, filed on June 5, 2014).
Incentive Award Plan (incorporated by reference to Exhibit 10.9 to CareTrust REIT, Inc.’s Registration Statement on
Form 10, filed on May 13, 2014).
Form 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).
Form 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).
Form of Change in Control and Severance Agreement (incorporated by reference to Exhibit 10.1 to CareTrust REIT,
Inc’s Current Report on Form 8-K filed on February 11, 2019).
List of Subsidiaries of CareTrust REIT, Inc.
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
**32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document
*101.SCH XBRL Taxonomy Extension Schema Document
*101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF XBRL Taxonomy Extension Definition Linkbase Document
*101.LAB XBRL Taxonomy Extension Label Linkbase Document
*101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
*104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Filed herewith.
** Furnished herewith.
+ Management contract or compensatory plan or arrangement.
53
Table of Contents
ITEM 16. Form 10-K Summary
None.
54
Table of Contents
Pursuant 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 its
SIGNATURES
behalf by the undersigned, thereunto duly authorized.
CARETRUST REIT, INC.
By:
/S/ DAVID M. SEDGWICK
David M. Sedgwick
President and Chief Executive Officer
Dated: February 16, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Name
Title
Date
/s/ DAVID M. SEDGWICK
David M. Sedgwick
/s/ WILLIAM M. WAGNER
William M. Wagner
/s/ GREGORY K. STAPLEY
Gregory K. Stapley
/s/ ALLEN C. BARBIERI
Allen C. Barbieri
/s/ JON D. KLINE
Jon D. Kline
/s/ DIANA LAING
Diana Laing
/s/ SPENCER PLUMB
Spencer Plumb
February 16, 2022
February 16, 2022
February 16, 2022
February 16, 2022
February 16, 2022
February 16, 2022
February 16, 2022
President and Chief Executive Officer (Principal
Executive Officer)
Chief Financial Officer and Treasurer (Principal
Financial Officer and Principal Accounting Officer)
Director
Director
Director
Director
Director
55
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) with respect to CareTrust REIT, Inc.
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Income Statements for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Equity for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
Schedule III: Real Estate Assets and Accumulated Depreciation
Schedule IV: Mortgage Loans on Real Estate
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-27
F-36
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of CareTrust REIT, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CareTrust REIT, Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the
related consolidated income statements and statements of equity and cash flows, for each of the three years in the period ended December 31, 2021, and the
related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted 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 internal
control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 16, 2022, expressed an unqualified opinion on the
Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements
based 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 accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be
communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as 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 or
disclosures to which it relates.
Impairment of Long-Lived Assets — Refer to Note 2 to the financial statements
Critical Audit Matter Description
At each reporting period, the Company evaluates its real estate investments to be held and used for potential impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be recoverable. The judgment regarding the existence 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 in relation 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 significantly impacted by determining the lowest
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 are recognized
when expected future undiscounted cash flows are determined to be less than the carrying values of the assets. The impairment is measured as the excess of
carrying value over fair value.
We identified the impairment of long-lived assets as a critical audit matter because of the significant estimates and assumptions
F-2
Table of Contents
management makes to evaluate the recoverability of the long-lived assets, specifically the estimates of lease coverage ratio, the intended hold period by the
Company, and a terminal capitalization rate for the applicable long lived assets or group of assets.
Auditing the assumptions used by the Company in estimating future undiscounted cash flows required a high degree of auditor judgment and an increased extent
of effort, when performing audit procedures to evaluate the reasonableness of the Company’s recoverability analysis.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the significant inputs to the recoverability assessment of undiscounted cash flows included the following, among others:
• We tested the effectiveness of controls over management’s evaluation of the recoverability of long-lived assets based on undiscounted cash flows,
including those over the lease coverage ratio, the intended hold period by the Company, and a terminal capitalization rate used in the assessment.
• We evaluated the reasonableness of significant assumptions in the undiscounted cash flow analyses, including estimates of the lease coverage ratio, the
intended hold period by the Company, and a terminal capitalization rate, for properties with impairment indicators.
• We evaluated the reasonableness of management’s assertions regarding the intended hold period of its real estate assets, more specifically by performing
the following:
◦
◦
◦
◦
Engaged in discussions with management, including the Chief Executive Officer and Chief Financial Officer,
Inspected Board of Directors meeting minutes regarding the assumptions utilized in the determination of intended hold periods,
Performed a retrospective review around the Company’s estimates of hold periods used in previous periods in relation to real estate assets with
impairment indicators, including those that were subsequently disposed of, and
Evaluated audit evidence to determine whether it supported or contradicted the conclusions reached by management.
• We developed independent estimates of the lease coverage ratio and a terminal capitalization rate, focusing on property type, historical transactions of the
Company and external market sources and compared our independent estimates to the estimates and assumptions used by the Company.
•
In addition, we tested the mathematical accuracy of the Company’s undiscounted cash flow analyses.
• We evaluated whether the Company’s assumptions were consistent with evidence obtained in other areas of the audit.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
February 16, 2022
We have served as the Company's auditor since 2019.
F-3
Table of Contents
CARETRUST REIT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
Assets:
Real estate investments, net
Other real estate investments
Assets held for sale, net
Cash and cash equivalents
Accounts and other receivables
Prepaid expenses and other assets, net
Deferred financing costs, net
Total assets
Liabilities and Equity:
Senior unsecured notes payable, net
Senior unsecured term loan, net
Unsecured revolving credit facility
Accounts payable, accrued liabilities and deferred rent liabilities
Dividends payable
Total liabilities
Commitments and contingencies (Note 10)
Equity:
Preferred stock, $0.01 par value; 100,000,000 shares authorized, 0 shares issued and outstanding as of
December 31, 2021 and December 31, 2020
Common stock, $0.01 par value; 500,000,000 shares authorized, 96,296,673 and 95,215,797 shares issued and
outstanding as of December 31, 2021 and December 31, 2020, respectively
Additional paid-in capital
Cumulative distributions in excess of earnings
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
F-4
December 31,
2021
2020
1,589,971 $
15,155
4,835
19,895
2,418
7,512
1,062
1,640,848 $
394,262 $
199,136
80,000
25,408
26,285
725,091
1,448,099
15,000
7,226
18,919
1,823
10,450
2,042
1,503,559
296,669
198,925
50,000
19,572
24,251
589,417
—
—
963
1,196,839
(282,045)
915,757
1,640,848 $
952
1,164,402
(251,212)
914,142
1,503,559
$
$
$
$
Table of Contents
Revenues:
Rental income
Independent living facilities
Interest and other income
Total revenues
Expenses:
Depreciation and amortization
Interest expense
Property taxes
Independent living facilities
Impairment of real estate investments
Provision for loan losses
General and administrative
Total expenses
Other (loss) income:
Loss on extinguishment of debt
(Loss) gain on sale of real estate
Total other (loss) income
Net income
Earnings per common share:
Basic
Diluted
Weighted-average number of common shares:
Basic
Diluted
CARETRUST REIT, INC.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
$
$
$
$
2021
Year Ended December 31,
2020
2019
190,195 $
—
2,156
192,351
55,340
23,677
3,574
—
—
—
26,874
109,465
(10,827)
(77)
(10,904)
71,982 $
0.74 $
0.74 $
96,017
96,092
173,612 $
2,077
2,643
178,332
52,760
23,661
2,836
1,869
—
—
16,302
97,428
—
(37)
(37)
80,867 $
0.85 $
0.85 $
95,200
95,207
155,667
3,389
4,345
163,401
51,822
28,125
3,048
2,898
16,692
1,076
15,158
118,819
—
1,777
1,777
46,359
0.49
0.49
93,088
93,098
See accompanying notes to consolidated financial statements.
F-5
Table of Contents
Balance as of December 31, 2018
Issuance of common stock, net
Vesting of restricted common stock, net of shares
withheld for employee taxes
Amortization of stock-based compensation
Common dividends ($0.90 per share)
Net income
Balance as of December 31, 2019
Issuance of common stock, net
Vesting of restricted common stock, net of shares
withheld for employee taxes
Amortization of stock-based compensation
Common dividends ($1.00 per share)
Net income
Balance as of December 31, 2020
Issuance of common stock, net
Vesting of restricted common stock, net of shares
withheld for employee taxes
Amortization of stock-based compensation
Common dividends ($1.06 per share)
Net income
Balance as of December 31, 2021
CARETRUST REIT, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share and per share amounts)
Common Stock
Amount
Shares
85,867,044 $
9,100,250
Additional
Paid-in
Capital
Cumulative
Distributions
in Excess
of Earnings
Total
Equity
859 $
91
965,578 $
195,833
(198,190) $
—
135,976
—
—
—
95,103,270
—
112,527
—
—
—
95,215,797
990,000
90,876
—
—
—
96,296,673 $
1
—
—
—
951
—
1
—
—
—
952
10
1
—
—
—
963 $
(2,525)
4,104
—
—
1,162,990
(404)
(1,996)
3,812
—
—
1,164,402
22,936
(1,331)
10,832
—
—
1,196,839 $
—
—
(84,519)
46,359
(236,350)
—
—
—
(95,729)
80,867
(251,212)
—
—
—
(102,815)
71,982
(282,045) $
See accompanying notes to consolidated financial statements.
F-6
768,247
195,924
(2,524)
4,104
(84,519)
46,359
927,591
(404)
(1,995)
3,812
(95,729)
80,867
914,142
22,946
(1,330)
10,832
(102,815)
71,982
915,757
Table of Contents
CARETRUST REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including below-market ground leases)
Amortization of deferred financing costs
Loss on extinguishment of debt
Amortization of stock-based compensation
Straight-line rental income
Adjustment for collectibility of rental income
Noncash interest income
Loss (gain) on sale of real estate
Interest income distribution from other real estate investment
Impairment of real estate investments
Provision for loan losses
Change in operating assets and liabilities:
Accounts and other receivables
Prepaid expenses and other assets, net
Accounts payable, accrued liabilities and deferred rent liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Acquisitions of real estate, net of deposits applied
Purchases of equipment, furniture and fixtures and improvements to real estate
Investment in real estate mortgage and other loans receivable
Principal payments received on real estate mortgage and other loans receivable
Repayment of other real estate investment
Escrow deposits for potential acquisitions of real estate
Net proceeds from sales of real estate
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from (costs paid for) the issuance of common stock, net
Proceeds from the issuance of senior unsecured notes payable
Proceeds from the issuance of senior unsecured term loan
Borrowings under unsecured revolving credit facility
Payments on senior unsecured notes payable
Payments on senior unsecured term loan
Payments on unsecured revolving credit facility
Payments on debt extinguishment and deferred financing costs
Net-settle adjustment on restricted stock
Dividends paid on common stock
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents as of the beginning of period
Cash and cash equivalents as of the end of period
Supplemental disclosures of cash flow information:
Interest paid
Supplemental schedule of noncash investing and financing activities:
Increase in dividends payable
Right-of-use asset obtained in exchange for new operating lease obligation
Transfer of pre-acquisition costs to acquired assets
Sale of real estate settled with notes receivable
2021
Year Ended December 31,
2020
2019
$
71,982 $
80,867 $
46,359
55,394
2,052
10,827
10,832
(32)
—
(155)
77
—
—
—
(562)
399
6,057
156,871
(192,718)
(6,013)
(1,253)
393
—
—
6,958
(192,633)
22,946
400,000
—
220,000
(300,000)
—
(190,000)
(14,095)
(1,331)
(100,782)
36,738
976
18,919
19,895 $
52,819
1,950
—
3,790
(77)
—
—
37
1,346
—
—
825
387
3,791
145,735
(89,650)
(8,297)
(30,498)
80,928
2,327
(3,000)
6,608
(41,582)
(404)
—
—
65,000
—
—
(75,000)
—
(1,996)
(93,161)
(105,561)
(1,408)
20,327
18,919 $
51,866
2,003
—
4,104
(1,385)
11,774
(797)
(1,777)
463
16,692
1,076
(6,283)
(495)
2,695
126,295
(321,458)
(6,289)
(18,246)
24,283
2,204
—
3,499
(316,007)
195,924
—
200,000
243,000
—
(100,000)
(278,000)
(4,534)
(2,524)
(80,619)
173,247
(16,465)
36,792
20,327
22,838 $
21,691 $
26,005
2,033 $
— $
358 $
— $
2,568 $
599 $
168 $
32,400 $
3,900
1,010
242
27,500
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.
F-7
Table of Contents
1. ORGANIZATION
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Description of Business—CareTrust REIT, Inc.’s (“CareTrust REIT” or the “Company”) primary business consists of acquiring, financing, developing
and owning real property to be leased to third-party tenants in the healthcare sector. As of December 31, 2021, the Company owned and leased to independent
operators, 227 skilled nursing, multi-service campuses, assisted living and independent living facilities consisting of 23,650 operational beds and units located in
29 states with the highest concentration of properties by rental income located in California, Texas, Louisiana, Idaho and Arizona. As of December 31, 2021, the
Company also had other real estate investments consisting of one mezzanine loan receivable with a carrying value of $15.2 million.
COVID-19—The COVID-19 pandemic led governments and other authorities around the world, including federal, state and local authorities in the
United States, to impose measures intended to reduce its spread, including restrictions on freedom of movement and business operations such as travel bans,
border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders. Although
most of these governmental restrictions have since been lifted or scaled back, resurgences of COVID-19 and the emergence of new variants thereof have resulted
in the reimposition of certain restrictions and requirements, including restrictions imposed on unvaccinated individuals and employee vaccine mandates, and may
lead to other restrictions and requirements being reimplemented in response to efforts to reduce the spread of COVID-19. Given the dynamic nature of these
circumstances and the related adverse impact these restrictions have had, and may continue to have, on the economy generally, the Company’s business, results of
operations and financial condition may be adversely impacted by the COVID-19 pandemic.
The duration and extent of the COVID-19 pandemic’s effect on the Company’s operational and financial performance, and the operational and
financial performance of the Company’s tenants, will depend on future developments, which are highly uncertain and cannot be predicted at this time, including
the rate of public acceptance and usage of vaccines and the effectiveness of vaccines in limiting the spread of COVID-19 and its variants, resurgences of COVID-
19 and, in particular, new and more contagious and/or vaccine resistant variants, actions taken to contain the spread of COVID-19 and how quickly and to what
extent normal economic and operating conditions can resume. The adverse impact of the COVID-19 pandemic on the Company’s business, results of operations
and financial condition could be material.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation—The accompanying consolidated financial statements of the Company reflect, for all periods presented, the historical financial
position, results of operations and cash flows of the Company and its wholly-owned subsidiaries prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”). All intercompany transactions and account balances within the Company have been eliminated.
Lessor Accounting—The Company recognizes lease revenue in accordance with Accounting Standards Codification (“ASC”) 842, Leases. The
Company’s lease agreements typically contain annual escalators based on the percentage change in the Consumer Price Index which are accounted for as variable
lease payments in the period in which the change occurs. For lease agreements that contain fixed rent escalators, the Company generally recognizes lease revenue
on a straight-line basis of accounting. The Company generates revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net
lease arrangements, under which the tenant is solely responsible for the costs related to the property. Tenant reimbursements related to property taxes and
insurance paid by the lessee directly to a third party on behalf of a lessor are required to be excluded from variable payments and from recognition in the lessor’s
income statements. Otherwise, tenant recoveries for taxes and insurance are classified as additional rental revenues recognized by the lessor on a gross basis in its
income statements.
The Company’s assessment of collectibility of its tenant receivables includes a binary assessment of whether or not substantially all of the amounts
due under a tenant’s lease agreement are probable of collection. The Company considers the operator’s performance and anticipated trends, payment history, and
the existence and creditworthiness of guarantees, among other factors, in making this determination. For such leases that are deemed probable of collection,
revenue continues to be recorded on a straight-line basis over the lease term, if applicable. For such leases that 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 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 collectibility determination. Such write-offs
and recoveries are recorded as decreases
F-8
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
or increases through rental income on the Company’s consolidated income statements. For the year ended December 31, 2021, the Company did not record any
recovery adjustments or write-off adjustments to rental income. For the year ended December 31, 2020, the Company recorded recovery adjustments of
$1.0 million and did not recognize any write-off adjustments to rental income. For the year ended December 31, 2019, the Company recorded $11.8 million of
write-off adjustments to rental income related to rental income recognized in prior periods. See Note 3, Real Estate Investments, Net for further detail.
Estimates and Assumptions—The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting periods. Management believes that the assumptions and estimates used in preparation of the
underlying 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 investments
generally do not meet the definition of a business, and are treated as asset acquisitions. The assets acquired and liabilities assumed are measured at their
acquisition date relative fair values. Acquisition costs are capitalized as incurred. The Company allocates the acquisition costs to the tangible assets, identifiable
intangible assets/liabilities and assumed liabilities on a relative fair value basis. The Company assesses fair value based on available market information, such as
capitalization and discount rates, comparable sale transactions and relevant per square foot or unit cost information. A real estate asset’s fair value may be
determined utilizing cash flow projections that incorporate such market information. Estimates of future cash flows are based on a number of factors including
historical operating results, 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 of the 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-out
payable upon the applicable property achieving certain financial metrics). Typically, when the contingent payments are funded, cash rent is increased by the
amount funded multiplied by a rate stipulated in the agreement. Generally, if the contingent payment is an earn-out provided to the seller, the payment is
capitalized to the property’s basis when earn-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 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 potential
impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The judgment regarding the
existence 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
in relation 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
significantly impacted by determining the lowest 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 are recognized when expected future undiscounted cash flows are determined to be less than the carrying values of the assets.
The impairment is 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 to reflect the new value assigned to the asset. For the year ended December 31, 2019, the Company recorded an impairment expense of
$16.7 million. See Note 3, Real Estate Investments, Net, for additional information.
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 the
properties 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 the
carrying 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 the
forecasted operating cash flows, lease coverage ratios, capitalization rates, comparable sales data, and, where applicable, contracts or the results of negotiations
with 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 of
impairments. While the Company believes its assumptions are reasonable, changes in these assumptions may have a material impact on financial results.
F-9
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Real Estate Investments—Included in other real estate investments on the Company’s consolidated balance sheets at December 31, 2021 and
2020, is one mezzanine loan receivable for which the Company elected the fair value option. Instruments for which the fair value option has been elected are
measured at fair value on a recurring basis with changes in fair value recognized in other income (loss) on the consolidated income statements. Fair value was
estimated using an internal valuation model that considered the expected future cash flows of the investment, the underlying collateral value, market interest rates
and other credit enhancements. Interest income is recognized as earned within interest and other income in the consolidated income statements.
Prepaid expenses and other assets—Prepaid expenses and other assets consist of prepaid expenses, deposits, pre-acquisition costs and other loans
receivable. During the year ended December 31, 2019, the Company determined that the remaining contractual obligations under one other loan receivable were
not collectible and recorded a $1.1 million provision for loan losses in the Company’s consolidated income statements.
The Company’s other loans receivable are reflected at amortized cost, net of an allowance for credit loss, on the accompanying consolidated balance
sheets. The amortized cost of a loan receivable is the outstanding unpaid principal balance, net of unamortized discounts, costs and fees directly associated with
the origination of the loan.
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
as a REIT under the Code. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to
distribute to its stockholders at least 90% of the Company’s annual REIT taxable income (computed without regard to the dividends paid deduction or net capital
gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal
income tax to 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 a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue
Service grants the Company relief under certain statutory provisions.
Real Estate Depreciation and Amortization—Real estate costs related to the acquisition and improvement of properties are capitalized and amortized
over 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
and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers
the period of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are capitalized and amortized over the
shorter of the tenant’s lease term or expected useful life. The Company anticipates the estimated useful lives of its assets by class to be generally as follows:
Building
Building improvements
Tenant improvements
Integral equipment, furniture and fixtures
Identified intangible assets
25-40 years
10-25 years
Shorter of lease term or expected useful life
5 years
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 three
months 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
consist of 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 its
operating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are
subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts.
Deferred Financing Costs—External costs incurred from placement of the Company’s debt are capitalized and amortized on a straight-line basis over
the terms of the related borrowings, which approximates the effective interest method.
F-10
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 costs are included in assets on the Company’s balance sheet. Amortization of deferred
financing costs is classified as interest expense in the consolidated income statements. Accumulated amortization of deferred financing costs was $8.0 million and
$9.0 million at December 31, 2021 and 2020, respectively.
When financings are terminated, unamortized deferred financing costs, as well as charges incurred for the termination, are expensed at the time the
termination is made. Gains and losses from the extinguishment of debt are presented within other income (loss) in the Company’s consolidated income statements.
During the year ended December 31, 2021, the Company recorded a loss on extinguishment of debt of $10.8 million. See Note 6, Debt, for further detail.
Stock-Based Compensation—The Company accounts for share-based payment awards in accordance with ASC Topic 718, Compensation – Stock
Compensation (“ASC 718”). ASC 718 requires all entities to apply a fair value-based measurement method in accounting for share-based payment transactions
with directors, officers and employees. 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. Compensation expense for awards with
performance-based vesting conditions is recognized based upon the probability that the performance target will be met. Compensation expense for awards with
market-based vesting conditions is recognized based upon the estimated number of awards to be earned after considering the Company’s expectation of future
performance and is recognized provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied. Forfeitures of stock-
based awards are recognized as they occur. Net income reflects stock-based compensation expense of $10.8 million, $3.8 million and $4.1 million for the years
ended December 31, 2021, 2020 and 2019, respectively.
Concentration of Credit Risk—The Company is subject to concentrations of credit risk consisting primarily of operating leases on its owned
properties. 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 Topic
280, Segment Reporting. The Company has one reportable segment consisting of investments in healthcare-related real estate assets.
Earnings Per Share—The Company calculates earnings per share (“EPS”) in accordance with ASC 260, Earnings Per Share. Basic EPS is computed
by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the
additional dilution for all potentially-dilutive securities.
Beds, Units, Occupancy and Other Measures—Beds, units, occupancy and other non-financial measures used to describe real estate investments
included in these Notes to the consolidated financial statements are presented on an unaudited basis and are not subject to audit by the independent registered
public accounting firm in accordance with the standards of the Public Company Accounting Oversight Board.
Recent Accounting Pronouncements— In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), that
provides optional relief to applying reference rate reform to contracts, hedging relationships, and other transactions that reference the London Interbank Offered
Rate (“LIBOR”). For U.S. Dollar LIBOR, the overnight, one-month, three-month, six-month and one-year LIBOR rates will be discontinued in June 2023, while
other U.S. Dollar LIBOR rates were discontinued at the end of 2021. The amendments in this update are effective immediately and may be applied through
December 31, 2022. The Company does not expect the adoption of the standard to have a material impact on the Company’s consolidated financial statements.
F-11
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. REAL ESTATE INVESTMENTS, NET
The following table summarizes the Company’s investment in owned properties at December 31, 2021 and 2020 (dollars in thousands):
Land
Buildings and improvements
Integral equipment, furniture and fixtures
Identified intangible assets
Real estate investments
Accumulated depreciation and amortization
Real estate investments, net
December 31, 2021
December 31, 2020
251,787 $
1,622,019
104,722
1,257
1,979,785
(389,814)
1,589,971 $
205,356
1,477,849
97,836
2,352
1,783,393
(335,294)
1,448,099
$
$
As of December 31, 2021, 91 of the Company’s 227 facilities were leased to subsidiaries of The Ensign Group, Inc. (“Ensign”) on a triple-net basis
under multiple long-term leases (each, an “Ensign Master Lease” and, collectively, the “Ensign Master Leases”) which commenced on June 1, 2014 and were
subsequently modified (see “Pennant Spin” below for further information). The obligations under the Ensign Master 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 in a default under all of the Ensign Master Leases. As
of December 31, 2021, annualized contractual rental income from the Ensign Master leases was $59.7 million and is escalated annually, in June, 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) or 2.5%, and (2) the prior year’s rent.
In addition to rent, the subsidiaries of Ensign that are tenants under the Ensign Master Leases are solely responsible for the costs related to the leased properties
(including property taxes, insurance, and maintenance and repair costs). During the year ended December 31, 2020, the Company acquired four additional
facilities leased to subsidiaries of Ensign on a triple-net basis under two separate master lease agreements, each of which contains a purchase option. As of
December 31, 2021, annualized contractual rental income from the four additional Ensign facilities was $3.8 million and is escalated annually, in December, by an
amount equal to the product of (1) the lesser of the percentage change in the CPI (but not less than zero) or 2.5%, and (2) the prior year’s rent. In addition to rent,
the subsidiaries of Ensign that are tenants under the four additional facilities are solely responsible for the costs related to the leased properties (including property
taxes, insurance, and maintenance and repair costs). The obligations under the lease agreements for the four additional facilities are guaranteed by Ensign but do
not contain cross-default provisions with the Ensign Master Leases. See below under “Lease Amendments” for further detail on Ensign lease amendments.
As of December 31, 2021, 15 of the Company’s facilities were leased to subsidiaries of Priority Management Group (“PMG”) on a triple-net basis
under one 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 two five-year renewal options. As of December 31, 2021, annualized contractual rental income from the PMG Master Lease was $28.9 million and is
escalated annually by an amount 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).
As of December 31, 2021, 115 of the Company’s 227 facilities were leased to various other operators under triple-net leases. All of these leases
contain annual escalators based on the percentage change in the CPI (but not less than zero), some of which are subject to a cap, or fixed rent escalators. Two of
the Company’s 227 facilities are leased under a short-term lease with an expected term of less than one year as of December 31, 2021, as the Company is
currently identifying a long-term operator for these properties.
F-12
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021, the Company’s total future contractual minimum rental income for all of its tenants, excluding operating expense
reimbursements, was (dollars in thousands):
Year
2022
2023
2024
2025
2026
Thereafter
Tenant Purchase Options
$
$
Amount
192,897
192,693
191,347
191,319
191,424
1,138,179
2,097,859
Certain of the Company’s operators hold purchase options allowing them to acquire properties they currently lease from the Company. A summary of
these purchase options is presented below (dollars in thousands):
Lease
Asset
Type
Properties
Expiration
ALF
SNF
SNF
SNF /
Campus
SNF
ALF
7
11
1
2
4
2
October
2034
November
2030
March
2029
October
2032
November
2034
October
2034
Next Option
Open Date
Option
Type
(1)
Current Cash Rent
(2)
1/1/2022
1/1/2022
4/1/2022
1/1/2023
12/1/2024
1/1/2026
(3)
(3)
$
A
C
B / C
(4)
B
B
A
3,383
4,944
779
1,028
3,796
1,598
(1) Option type includes:
A - Fixed base price plus a specified share on any appreciation.
B - Fixed base price.
C - Fixed capitalization rate on lease revenue.
(2) Based on annualized cash revenue for contracts in place at December 31, 2021.
(3) Option window is open for six months.
(4) Purchase option reflects two option types.
Rental Income
The following table summarizes components of the Company’s rental income (dollars in thousands):
Rental Income
Contractual rent due
Straight-line rent
Adjustment for
(2)
(1)
collectibility
reversed rent
Recovery of previously
(3)
Lease termination revenue
(3)
Total
2021
For the Year Ended December 31,
2020
2019
$
$
190,100
32
—
—
63
190,195
$
$
171,309
77
—
1,047
1,179
173,612
$
$
166,056
1,385
(11,774)
—
—
155,667
(1) Includes initial cash rent and tenant operating expense reimbursements, as adjusted for applicable rental escalators and rent increases due to capital
expenditures funded by the Company. For tenants on a cash basis, this represents the lesser of the amount that would be recognized on a straight-line
basis or cash that has been received.
(2) During the year ended December 31, 2019, and in accordance with ASC 842, the Company evaluated the collectibility of lease payments through
maturity and determined that it was not probable that the Company would collect substantially all of the contractual obligations from five operators
through maturity. As such, the Company reversed
F-13
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$7.8 million of contractual rent, $3.5 million of straight-line rent and $0.5 million of property tax reimbursements during the year ended December 31,
2019.
(3) During the year ended December 31, 2020, the Company recovered $1.0 million in rental income related to affiliates of Metron Integrated Health
Systems (“Metron”) that was previously written off. In addition, in connection with the agreement to terminate its lease agreements with Metron and to
sell the facilities to a third-party, the Company received certain lease termination payments from Metron. During the years ended December 31, 2021 and
2020, the Company recognized approximately $0.1 million and $1.2 million in lease termination revenue, respectively.
Recent Real Estate Acquisitions
The following table summarizes the Company’s acquisitions for the years ended December 31, 2021, 2020 and 2019 (dollar amounts in thousands):
Type of
Number
Initial Annual Cash
Rent
(2)
of Properties
Number of
(3)
Beds/Units
Purchase Price
(1)
Property
31, 2021
nursing
December
Skilled
Multi-
service campuses
Assisted
Total
December
Skilled
living
31, 2020
nursing
Multi-
service campuses
Assisted
Total
December
Skilled
living
31, 2019
nursing
Multi-
service campuses
living
Assisted
Total
(4)
(5)
(6)
$
$
$
$
$
$
57,973
125,708
12,395
196,076
75,545
6,876
7,396
89,817
254,760
59,344
12,596
326,700
$
$
$
$
$
$
4,499
8,604
—
13,103
6,453
555
590
7,598
22,909
5,203
1,031
29,143
4
4
2
10
6
1
1
8
17
4
1
22
509
640
98
1,247
715
184
62
961
2,099
762
96
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.
(4) Initial annual cash rent represents initial cash rent for the first twelve months excluding any impact of straight-line rent.
(5) Initial annual cash rent represents the first twelve months of rent upon commencement of the Company’s long-term net leases, which occurred during the three months ended
June 30, 2021, upon the tenant’s receipt of licensing approval and increases to $9.4 million in the second year with CPI-based annual escalators thereafter.
(6) Initial annual cash rent is zero until transfer of operations upon receipt of licensing approval.
F-14
Table of Contents
Lease Amendments
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amended Noble Master Leases and New Noble NJ Master Lease. During the three months ended September 30, 2021, the Company did not collect
a portion of rent from affiliates of Noble Senior Services and Noble VA Holdings, LLC (collectively, “Noble”). On September 23, 2021, the Company amended
its two existing triple-net master leases with Noble. The lease amendment granted a deferral for a total of $1.8 million of unpaid base rent, which represented
approximately 4% of the Company’s total contractual base rent for the three months ended September 30, 2021. In connection with its agreement to the rent
deferral, the Company also entered into a purchase agreement with Noble to acquire two assisted living facilities owned by Noble. The lease amendment required
the deferred rent, as well as all contractual rent for the fourth quarter of 2021, to be paid in full upon the closing of the purchase of the two facilities. The
Company closed on the acquisition of the two facilities in December 2021 and the deferred rent, as well as all contractual rent for the fourth quarter of 2021, was
paid in full. The two facilities are currently leased back to Noble under a short-term lease agreement while the Company pursues other tenants for the long-term.
Amended Ensign Master Lease. On August 1, 2021, the Company acquired two skilled nursing facilities. The facilities were leased to affiliates of
Ensign. In conjunction with the acquisition of the two facilities, the Company amended and extended the initial term of an existing triple-net master lease with
Ensign to include the two skilled nursing facilities. The Ensign lease, as amended, has a remaining initial term of approximately 17 years, with three five-year
renewal options and CPI-based rent escalators. Annual cash rent under the amended lease increased by approximately $2.2 million, with GAAP rent increasing by
$2.5 million due to a $5.0 million prepayment of rent made at closing, which is being amortized on a straight-line basis over the remaining lease term.
Five Oaks Lease Termination and Amended Ensign Master Lease. On June 1, 2021, operating affiliates of Ensign acquired certain operations and
assets of Five Oaks Healthcare, LLC (“Five Oaks”) under an agreement with Five Oaks. The agreement granted Ensign the right to occupy and operate four of the
Company’s skilled nursing facilities in Washington that were previously being operated by Five Oaks. In conjunction with consenting to the transfer, the
Company terminated the existing Five Oaks master lease, and amended and extended the term of an existing triple-net master lease with Ensign to include the
four skilled nursing facilities. The Ensign lease, as amended, has a remaining term of approximately 15 years, with three five-year renewal options and CPI-based
rent escalators. Annual cash rent under the terminated Five Oaks master lease was approximately $2.6 million, and annual cash rent under the amended Ensign
lease increased by the same amount.
Premier Partial Lease Termination and Amended Noble VA Master Lease. On March 10, 2021 and July 1, 2021, two assisted living facilities in
Wisconsin operated by affiliates of Premier Senior Living, LLC (“Premier”) were transferred to affiliates of Noble VA Holdings, LLC (“Noble VA”). In
connection with the transfer, the Company partially terminated the Premier master lease and amended the existing triple-net master lease with Noble VA to
include the two assisted living facilities. The Noble VA master lease, as amended, has a remaining term of approximately 13 years, with two five-year renewal
options and CPI-based rent escalators. Initial annual cash rent under the amended Noble VA master lease increased by approximately $1.3 million on March 10,
2021 and approximately $1.0 million on July 1, 2021 and annual cash rent under the partially terminated Premier master lease decreased by approximately the
same amount. See above under “Amended Noble Master Leases and New Noble NJ Master Lease” for additional information regarding the Company’s leases
with Noble.
Twenty/20 Lease Termination and New Noble VA Master Lease. On December 1, 2020, five assisted living facilities in Virginia operated by
Twenty/20 Management, Inc. (“Twenty/20”) were transferred to affiliates of Noble VA. In connection with the transfer, the Company entered into a new triple-net
master lease with Noble VA. The lease had an initial term of approximately 14 years as of December 1, 2020, with two five-year renewal options and CPI-based
rent escalators. Initial annual cash rent under the new lease is approximately $3.2 million. See above under “Amended Noble Master Leases and New Noble NJ
Master Lease” for additional information regarding the Company’s leases with Noble.
Pennant Spin. On October 1, 2019, Ensign completed its previously announced separation of its home health and hospice operations and
substantially all of its senior living operations into a separate independent publicly traded company through the distribution of shares of common stock of The
Pennant Group, Inc. (“Pennant”). As a result of the Pennant Spin, as of October 1, 2019, the Company amended the Ensign Master Leases to lease 85 facilities to
subsidiaries of Ensign, which had a total of 8,908 operational beds, and entered into a new triple-net master lease with subsidiaries of Pennant (the “Pennant
Master Lease”) to lease 11 facilities, which had a total of 1,151 operational beds. The contractual initial annual cash rent under the Pennant Master Lease was
approximately $7.8 million. The Pennant Master Lease carried 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
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Master Leases was reduced by approximately $7.8 million. Ensign continues to guarantee obligations under the Ensign Master Leases and the Pennant Master
Lease. If Pennant achieves a specified portfolio coverage and continuously maintains it for a specified period, Ensign’s obligations under the guaranty with
respect to 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 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, the Company entered into a new master lease (the “New Trillium Lease”) with Trillium’s Iowa and Georgia affiliates covering the
ten properties in Iowa and the one property in Georgia. The Company recorded an adjustment to reduce rental income recognized under the Original Trillium
Lease 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 properties in Ohio operated by Trillium under the Original Trillium Lease were transferred to
affiliates of Providence Group, Inc. (“Providence”). In connection with the transfer, the Company amended its triple-net master lease with Providence. The
amended lease had a remaining initial term of approximately 13 years as of September 1, 2019, and includes two five-year renewal 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 had a remaining initial term of approximately 13 years as of November 4, 2019,
with two five-year renewal options and CPI-based rent escalators. The annual base rent due under the amended lease with Trio was approximately $4.7 million
and provides for payment of percentage rent if Trio achieves certain increases in portfolio revenue.
Impairment of Real Estate Investments, Asset Sales and Assets Held for Sale
On September 1, 2019, the Company sold three of the seven skilled nursing properties in Ohio operated by Trillium under the Original Trillium Lease
for a purchase price of $28.0 million. During the three months ended September 30, 2019 and prior to the disposition, the Company recorded an impairment
expense 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 Real
Estate Investments, for additional information.
On February 14, 2020, the Company sold six skilled nursing properties in Michigan operated by affiliates of Metron for a purchase price of
$36.0 million. During the three months ended September 30, 2019 and prior to the disposition, the Company recorded an impairment expense of approximately
$8.8 million related to these properties. In connection with the sale for $36.0 million, the Company received $3.5 million in cash and provided subsidiaries of
Cascade Capital Group, LLC (“Cascade”), the purchaser of the properties, with a short-term mortgage loan secured by these properties for $32.4 million. The
mortgage loan bore interest at 7.5% and initially had a maturity date of March 31, 2020. In connection with the sale, the Company recognized a loss of
approximately $0.1 million during the three months ended March 31, 2020. In April 2020, the mortgage loan was settled in connection with a new mortgage loan
transaction between the Company and a third-party institutional lender as co-lenders, pursuant to which the Company received $18.9 million in cash and a new
mortgage loan for $13.9 million. In July 2020, the Company received prepayment in full, including accrued interest, for the new $13.9 million mortgage loan. See
Note 4, Other Real Estate Investments, for further detail on the mortgage loan.
On February 1, 2021, the Company closed on the sale of one skilled nursing facility consisting of 90 beds located in Washington with a carrying value
of $7.2 million, for net sales proceeds of $7.0 million. The Company recorded a loss of $0.2 million in connection with the sale. The facility was classified as held
for sale as of December 31, 2020.
On November 1, 2020, the Company sold its one remaining owned and operated independent living facility consisting of 168 units located in Texas
with an aggregate carrying value of $4.2 million for net sales proceeds of $4.2 million. In connection with the sale, the Company recognized a gain of $20,000.
On December 23, 2019, the Company sold one of its owned and operated independent living facilities consisting of 38 units located 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.
F-16
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021, one assisted living facility was classified as held for sale, with a carrying value of $4.8 million, primarily comprised of real
estate assets.
4. OTHER REAL ESTATE INVESTMENTS
As of December 31, 2021 and 2020, the Company’s loans receivable and other investments consisted of the following (dollar amounts in thousands):
Investment
Mezzanine loan receivable
Other loans receivable
Total
Financial Statement Line
Item
Other real estate
investments
Prepaid expenses and
other assets, net
Principal Balance
as of December 31,
2021
Book Value as of
December 31, 2021
Book Value as of
December 31, 2020
$
$
15,000 $
15,155 $
3,154
18,154 $
3,161
18,316 $
15,000
2,308
17,308
As of December 31, 2021
Weighted Average
Contractual Interest
Rate
Maturity Date
12.0 %
8.0 %
11/30/2025
9/1/2023 -
12/31/2023
2020 Loans Receivable Transactions—In November 2020, the Company provided Next VA Star Realty Holdings, LLC a mezzanine loan for nine
skilled nursing facilities secured by membership interests in affiliates of Next VA Star Realty Holdings, LLC for approximately $15.0 million, at an annual
interest rate of 12%. The loan requires monthly interest payments, is set to mature on November 30, 2025, and may (subject to certain restrictions) be prepaid
before the maturity date if paid in full and for an exit fee ranging from 1% to 3% of the loan plus unpaid interest payments equal to 24 months (less the amount of
monthly interest payments made by the borrower through the date of prepayment).
The following table summarizes the interest and other income recognized during the years ended December 31, 2021, 2020 and 2019 (dollar amounts
in thousands):
Investment
Mezzanine loan receivable
Mortgage loans receivable
Preferred equity investments
Other
(1)
(1)
Total
2021
For Year Ended December 31,
2020
2019
$
$
1,825 $
—
—
331
2,156 $
305 $
2,044
24
270
2,643 $
—
2,838
1,343
164
4,345
(1) As of December 31, 2021 and 2020, the Company had no mortgage loans receivable or preferred equity investments.
As of December 31, 2021 and 2020, the Company had no loan loss reserve and did not consider any loans receivable investments to be impaired.
5. FAIR VALUE MEASUREMENTS
The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the
expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. GAAP guidance defines three levels of
inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability or can be corroborated with observable
market data for substantially the entire contractual term of the asset or liability.
F-17
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Level 3 – Unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or
liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or
liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair
value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its
entirety. The Company evaluates its hierarchy disclosures each quarter and, depending on various factors, it is possible that an asset or liability may be classified
differently from quarter to quarter. Changes in the type of inputs may result in a reclassification for certain assets. The Company does not expect that changes in
classifications between levels will be frequent.
Items Measured at Fair Value on a Recurring Basis
The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2021
and 2020, aggregated by the level in the fair value hierarchy within which those instruments fall (dollars in thousands):
Assets:
Mezzanine loan receivable
Assets:
Mezzanine loan receivable
Level 1
Level 2
Level 3
$
$
—
—
Level 1
$
$
—
—
Level 2
$
$
15,155
Level 3
15,000
Balance as of December 31,
2021
15,155
Balance as of December 31,
2020
15,000
$
$
Mezzanine loan receivable: The fair value of the mezzanine loan receivable was estimated using an internal valuation model that considered the expected
future cash flows of the investment, the underlying collateral value, market interest rates and other credit enhancements. As such, the Company classifies the
instrument as Level 3 due to the significant unobservable inputs used in determining market interest rates for investments with similar terms. Future changes in
market interest rates could materially impact the estimated discounted cash flows. As of December 31, 2021 and 2020, the Company did not have any loans that
were 90 days or more past due.
For the year ended December 31, 2021, there were no classification changes in assets and liabilities with Level 3 inputs in the fair value hierarchy.
Items Measured at Fair Value on a Non-Recurring Basis
Real Estate Investments: The Company performs quarterly impairment review procedures, primarily through continuous monitoring of events and
changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable. The Company estimates fair values using Level 3
inputs and uses a combined income and market approach. Specifically, the fair value of the real estate investment is based on current market conditions and
considers matters such as the forecasted operating cash flows, lease coverage ratios, capitalization rates, comparable sales data, and, where applicable, contracts or
the results of negotiations with purchasers or prospective purchasers. For the year ended December 31, 2021 and 2020, there were no real estate assets deemed to
be impaired. For the year ended December 31, 2019, the Company recorded an impairment expense of $16.7 million. See Note 3, Real Estate Investments, Net,
for additional information.
F-18
Table of Contents
Items Disclosed at Fair Value
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Considerable judgment is necessary to estimate the fair value disclosure of financial instruments. The estimates of fair value presented herein are not
necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. A summary of the face values, carrying amounts and fair
values of the Company’s financial instruments as of December 31, 2021 and 2020 using Level 2 inputs for the Notes and the 2025 Notes (each as defined in Note
6, Debt, below) is as follows (dollars in thousands):
Financial liabilities:
2028 Senior unsecured notes payable
2025 Senior unsecured notes payable
$
400,000 $
—
394,262 $
—
410,500 $
—
— $
— $
300,000
296,669
—
311,430
Face
Value
December 31, 2021
Carrying
Amount
Fair
Value
Face
Value
December 31, 2020
Carrying
Amount
Fair
Value
Cash and cash equivalents, accounts and other receivables, other loans receivable, accounts payable, and accrued liabilities: These balances
approximate their fair values due to the short-term nature of these instruments.
Senior unsecured notes payable: The fair value of the Notes and the 2025 Notes (as defined in Note 6, Debt, below) were determined using third-
party quotes derived from orderly trades.
Unsecured revolving credit facility and senior unsecured term loan: The fair values approximate their carrying values as the interest rates are variable
and approximate prevailing market interest rates for similar debt arrangements.
6. DEBT
The following table summarizes the balance of the Company’s indebtedness as of December 31, 2021 and 2020 (in thousands):
Principal
Amount
December 31, 2021
Deferred
Loan Fees
Carrying
Amount
Principal
Amount
December 31, 2020
Deferred
Loan Fees
Carrying
Amount
$
$
400,000 $
—
200,000
80,000
680,000 $
(5,738) $
—
(864)
—
(6,602) $
394,262
—
199,136
80,000
673,398
$
$
— $
300,000
200,000
50,000
550,000 $
— $
(3,331)
(1,075)
—
(4,406) $
—
296,669
198,925
50,000
545,594
2028 Senior unsecured notes payable
2025 Senior unsecured notes payable
Senior unsecured term loan
Unsecured revolving credit facility
Senior Unsecured Notes Payable
2028 Senior Notes. On June 17, 2021, the Company’s wholly owned subsidiary, CTR Partnership, L.P. (the “Operating Partnership”), and its wholly
owned subsidiary, CareTrust Capital Corp. (together with the Operating Partnership, the “Issuers”) completed a private offering of $400.0 million aggregate
principal amount of 3.875% Senior Notes due 2028 (the “Notes”) to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A and to
non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended. The Notes were issued at par, resulting in
gross proceeds of $400.0 million and net proceeds of approximately $393.8 million after deducting underwriting fees and other offering expenses. The Notes
mature on June 30, 2028. The Notes accrue interest at a rate of 3.875% per annum payable semiannually in arrears on June 30 and December 30 of each year,
commencing on December 30, 2021.
The Issuers may redeem some or all of the Notes at any time prior to March 30, 2028 at a price equal to 100% of the principal amount of the Notes
redeemed plus accrued and unpaid interest on the Notes, if any, to, but not including, the redemption date, plus a “make-whole” premium. At any time on or after
March 30, 2028, the Issuers may redeem some or all of the Notes at a redemption price equal to 100% of the principal amount of the Notes redeemed plus accrued
interest on the Notes, if any, to, but not including, the redemption date. In addition, at any time on or prior to June 30, 2024, up to 40% of the
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Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
aggregate principal amount of the Notes may be redeemed with the net proceeds of certain equity offerings at a redemption price of 103.875% of the aggregate
principal amount of Notes to be redeemed plus accrued and unpaid interest on the Notes, if any, to, but not including, the redemption date. If certain changes of
control of the Company occur, the Issuers will be required to make an offer to holders of the Notes to repurchase their Notes at a price of 101% of their principal
amount plus accrued and unpaid interest, if any, to, but not including, the repurchase date.
The obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by the Company and all of
CareTrust’s existing and future subsidiaries (other than the Issuers) that guarantee obligations under the Amended Credit Facility (as defined below); provided,
however, that such guarantees are subject to automatic release under certain customary circumstances.
The indenture governing the Notes contains customary covenants such as limiting the ability of the Company and its restricted subsidiaries to: incur
or guarantee additional indebtedness; incur or guarantee secured indebtedness; pay dividends or distributions on, or redeem or repurchase, capital stock; make
certain investments or other restricted payments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their
assets; and create restrictions on the ability of the Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers. The indenture
governing the Notes also requires the Company and its restricted subsidiaries to maintain a specified ratio of unencumbered assets to unsecured indebtedness.
These covenants are subject to a number of important and significant limitations, qualifications and exceptions. The indenture governing the Notes also contains
customary events of default.
As of December 31, 2021, the Company was in compliance with all applicable financial covenants under the indenture governing the Notes.
2025 Senior Notes. On May 10, 2017, the Issuers completed an underwritten public offering of $300.0 million aggregate principal amount of 5.25%
Senior Notes due 2025 (the “2025 Notes”). The 2025 Notes were issued at par, resulting in gross proceeds of $300.0 million and net proceeds of approximately
$294.0 million after deducting underwriting fees and other offering expenses. The 2025 Notes were scheduled to mature on June 1, 2025 and bore interest at a rate
of 5.25% per year. Interest on the 2025 Notes was payable on June 1 and December 1 of each year. On July 1, 2021 (the “Redemption Date”), the Issuers
redeemed all $300.0 million aggregate principal amount of the 2025 Notes at a redemption price equal to 102.625% of the principal amount of the 2025 Notes,
plus accrued and unpaid interest thereon up to, but not including, the Redemption Date. During the year ended December 31 2021, the Company recorded a loss
on extinguishment of debt of $10.8 million in the consolidated income statements, including a prepayment penalty of $7.9 million and a $2.9 million write-off of
deferred financing costs associated with the redemption of the 2025 Notes.
Unsecured Revolving Credit Facility and Term Loan
On February 8, 2019, the Operating Partnership, as the borrower, the Company, as guarantor, CareTrust GP, LLC, and certain of the Operating
Partnership’s wholly owned subsidiaries entered into an amended and restated credit and guaranty agreement with KeyBank National Association, as
administrative agent, an issuing bank and swingline lender, and the lenders party thereto (the “Amended Credit Agreement”). The Amended Credit Agreement,
which amended and restated the Company’s prior credit agreement, provides for: (i) an unsecured revolving credit facility (the “Revolving Facility”) with
revolving commitments in an aggregate principal amount of $600.0 million, including a letter of credit subfacility for 10% of the then available revolving
commitments and a swingline loan subfacility for 10% of the then available revolving commitments and (ii) an unsecured term loan credit facility (the “Term
Loan” and, together with the Revolving Facility, the “Amended Credit Facility”) in an aggregate principal amount of $200.0 million. Borrowing availability under
the Revolving Facility is subject to no default or event of default under the Amended Credit Agreement having occurred at the time of borrowing. The proceeds of
the Term Loan were used, in part, to repay in full all outstanding borrowings under the Company’s prior credit agreement. Future borrowings under the Amended
Credit Facility will be 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
ranging from 0.10% to 0.55% per annum or LIBOR plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of the Company
and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on
its senior long-term unsecured debt). The interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base
rate plus a margin ranging from 0.50% to 1.20% per annum or LIBOR 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
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). In addition, the
Operating Partnership will pay a facility fee on the revolving commitments under the Revolving Facility ranging from 0.15% to 0.35% per annum, based on the
debt to asset value ratio of the Company and its consolidated subsidiaries (unless the Company obtains certain specified investment grade ratings on its senior
long-term unsecured debt and the Operating Partnership elects to decrease the applicable margin as described above, in which case the Operating Partnership will
pay a facility fee on the revolving commitments ranging from 0.125% to 0.30% per annum based on the credit ratings of the Company’s senior long-term
unsecured debt). As of December 31, 2021, the Operating Partnership had $200.0 million of borrowings outstanding under the Term Loan and $80.0 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-month
extension 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 Amended
Credit Agreement (other than the Operating Partnership). The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject
to certain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in
acquisitions, mergers or consolidations, amend organizational documents and pay certain dividends and other restricted payments. The Amended Credit
Agreement requires the Company to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum debt to asset value ratio, a
minimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating income ratio, a maximum secured debt to asset
value ratio, a maximum secured recourse debt to asset value ratio, a maximum unsecured debt to unencumbered properties asset value ratio, a minimum
unsecured interest coverage ratio and a minimum rent coverage ratio. The Amended Credit Agreement also contains certain customary events of default, including
the failure to make timely payments under the Amended Credit Facility or other material indebtedness, the failure to satisfy certain covenants (including the
financial maintenance covenants), the occurrence of change of control and specified events of bankruptcy and insolvency.
As of December 31, 2021, the Company was in compliance with all applicable financial covenants under the Amended Credit Agreement.
Schedule of Debt Maturities
As of December 31, 2021, the Company’s debt maturities were (dollars in thousands):
Year
2022
2023
2024
2025
2026
Thereafter
Amount
—
80,000
—
—
200,000
400,000
680,000
$
$
7. EQUITY
Common Stock
Public Offering of Common Stock—On April 15, 2019, the Company completed an underwritten public offering of 6,641,250 shares of its common
stock, 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
option to purchase additional shares of common stock granted to the underwriters, resulting in approximately $149.0 million in net proceeds, after deducting the
underwriting discount and offering expenses. The Company used the proceeds from the offering to repay a portion of the outstanding borrowings on its Revolving
Facility, 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 10, 2020, the Company entered into a new equity distribution agreement to issue and sell, from time to time, up
to $500.0 million in aggregate offering price of its common stock through an “at-the-market” equity offering program (the “ATM Program”). In connection with
the entry into the equity distribution agreement and
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the commencement of the ATM Program, the Company’s “at-the-market” equity offering program pursuant to the Company’s prior equity distribution agreement,
dated as of March 4, 2019, was terminated.
There was no ATM Program activity (or activity under any predecessor at-the-market equity offering programs) for the year ended December 31,
2020. The following table summarizes ATM Program activity and predecessor at-the-market equity offering program activity for the years ended December 31,
2021 and 2019 (in thousands, except per share amounts):
Number of shares
Average sales price per share
Gross proceeds
(1)
For the Year Ended December 31,
2021
2019
$
$
990
23.74
23,505
$
$
2,459
19.48
47,893
(1) Total gross proceeds is before $0.3 million and $0.6 million of commissions paid to the sales agents during the year ended December 31, 2021 and December 31, 2019 under
the ATM Program and a predecessor at-the-market equity offering program.
As of December 31, 2021, the Company had $476.5 million available for future issuances under the ATM Program.
Share Repurchase Program — On March 20, 2020, the Company’s Board of Directors authorized a share repurchase program up to $150.0 million of
outstanding shares of the Company’s common stock (the “Repurchase Program”). Repurchases under the Repurchase Program, which expires on March 31, 2023,
may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated share repurchase
transactions, or other methods of acquiring shares, in each case subject to market conditions and at such times as shall be permitted by applicable securities laws
and determined by management. Repurchases under the Repurchase Program may also be made pursuant to a plan adopted under Rule 10b5-1 promulgated under
the Exchange Act. The Company expects to finance any share repurchases under the Repurchase Program using available cash and may also use short-term
borrowings under the Revolving Facility. The Company did not repurchase any shares of common stock under the Repurchase Program during the years ended
December 31, 2021, and 2020. The Repurchase Program may be modified, discontinued or suspended at any time.
Dividends on Common Stock — The following table summarizes the cash dividends per share of common stock declared by the Company’s Board of
Directors for 2021, 2020 and 2019 (dollars in thousands, except per share amounts):
2021
Dividends
declared
Dividends
payment date
Dividends
payable as of record
date
Dividends
record date
2020
Dividends
declared
Dividends
payment date
Dividends
payable as of record
date
Dividends
record date
2019
Dividends
declared
Dividends
payment date
Dividends
payable as of record
date
Dividends
record date
March 31,
June 30,
September 30,
December 31,
For the Three Months Ended
$
$
$
$
$
$
0.265
April 15, 2021
25,633
March 31, 2021
0.25
April 15, 2020
23,931
March 31, 2020
0.225
April 15, 2019
20,011
$
$
$
$
$
$
0.265
July 15, 2021
25,714
$
$
0.265
October 15, 2021
25,714
June 30, 2021
September 30, 2021
0.25
July 15, 2020
23,931
$
$
0.25
October 15, 2020
23,934
June 30, 2020
September 30, 2020
0.225
July 15, 2019
21,508
$
$
0.225
October 15, 2019
21,500
$
$
$
$
$
$
0.265
January 14, 2022
25,755
December 31, 2021
0.25
January 15, 2021
23,933
December 31, 2020
0.225
January 15, 2020
21,500
March 29, 2019
June 28, 2019
September 30, 2019
December 31, 2019
F-22
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. STOCK-BASED COMPENSATION
All stock-based awards are subject to the terms of the CareTrust REIT, Inc. and CTR Partnership, L.P. Incentive Award Plan (the “Plan”). The Plan
provides for the granting of stock-based compensation, including stock options, restricted stock, performance awards, restricted stock units, relative total
stockholder return-based stock awards and other incentive awards to officers, employees and directors in connection with their employment with or services
provided to the Company. Under the Plan, 5,000,000 shares have been authorized for awards.
Under the Plan, restricted stock awards (“RSAs”) vest in equal annual installments beginning on the first anniversary of the grant date over a three
year period for the RSAs granted in 2021 and a four year period for the RSAs granted in 2020 and 2019. RSAs granted to non-employee members of the Board of
Directors (“Board Awards”) vest in full on the earlier to occur of the Company’s next Annual Meeting of Stockholders or one year. Performance stock awards
(“PSA”) granted are subject to both time and performance based conditions and vest over a one-to three year period for PSAs granted in 2021 and over a one-to-
four year period for PSAs granted in 2020 and 2019. The amount of such PSAs that will ultimately vest is dependent on the Company’s Normalized Funds from
Operations (“NFFO”) per share, as defined by the Compensation Committee, meeting or exceeding a specified per share amount for the applicable vesting period.
Relative total shareholder return awards (“TSR Awards”) granted in 2021 are subject to both time and market based conditions and cliff vest after a three-year
period. The amount of such market awards that will ultimately vest is dependent on the Company’s total shareholder return (“TSR”) performance relative to a
custom TSR peer group consisting of other publicly traded healthcare REITs and will range from 0% to 200% of the TSR Awards initially granted. The RSAs,
PSAs, and Board Awards are valued on the date of grant based on the closing price of the Company’s common stock, while the TSR Awards are valued on the
date of grant using a Monte Carlo valuation model. The vesting of certain awards may accelerate, as defined in the grant agreement, upon retirement, a change in
control or other events.
The following table summarizes the status of the restricted stock award and performance award activity for the year ended December 31, 2021:
Unvested balance at December 31, 2020
Granted:
RSAs
PSAs
Board Awards
Vested
Forfeited
Unvested balance at December 31, 2021
Shares
517,686
394,863
108,414
20,266
(147,646)
(2,250)
891,333
Weighted Average Share
Price
$
$
18.71
21.92
22.48
24.18
17.43
22.38
20.91
As of December 31, 2021, the weighted-average remaining vesting period of such awards was 2.0 years.
The following table summarizes the Company’s RSA, PSA and Board Award grants during the year ended December 31, 2021 (dollars in thousands,
except per share amounts):
During year ended December 31, 2021
RSAs
PSAs
Board Awards
(1)
Grants
Vested
Shares
Weighted Average
Share Price
Grant Date Fair
Value
Shares
Vest Date Fair
Value
394,863 $
108,414
20,266
21.92 $
22.48
24.18
8,654
2,437
490
89,921 $
30,114
27,611
2,105
707
668
F-23
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) In 2021, the Compensation Committee changed the structure of the grants that resulted in two long-term equity incentive awards being granted to the
Company’s named executive officers in 2021. The Compensation Committee also granted annual awards for 2022 in December 2021.
The following table summarizes the Company’s RSA, PSA and Board Award grants during the years ended December 31, 2020 and 2019 (dollars in
thousands, except per share amounts):
During year ended December 31, 2020
RSAs
PSAs
Board Awards
During year ended December 31, 2019
RSAs
PSAs
Board Awards
Grants
Shares
Weighted Average
Share Price
Grant Date Fair
Value
134,790
107,790
27,611
91,440
71,440
17,749
19.68
19.06
16.48
22.00
22.00
24.23
2,653
2,054
455
2,012
1,572
430
The fair value of the TSR Awards is estimated on the date of the grant using a Monte Carlo valuation model. The risk-free rate is based on the U.S.
Treasury yield curve in effect at the grant date for the expected performance period. Expected volatility is based on historical volatility for the most recent 2.93
year weighted average period ending on the grant date for the Company and the selected TSR peer group, and is calculated on a daily basis. The following table
reflects the weighted-average key assumptions used in this valuation for awards granted during the year ended December 31, 2021:
Risk-free interest rate
Expected stock price volatility
Expected service period
Expected dividend yield (assuming full reinvestment)
Fair value per share at date of grant
0.60 %
52.42 %
2.93 years
— %
29.10
$
The total fair value of the TSR Awards granted during the year ended December 31, 2021 was $5.3 million.
The following table summarizes the stock-based compensation expense recognized (dollars in thousands):
Stock-based compensation expense
$
10,832
$
3,790
$
4,104
2021
For Year Ended December 31,
2020
2019
The Company recorded a cumulative out of period adjustment in the fourth quarter of 2021 related to stock compensation of $3.5 million, of which
$2.6 million related to the quarters of 2021 and $0.9 million related to earlier periods. The adjustment was not material to the previously issued financial
statements.
As of December 31, 2021, there was $11.5 million of unamortized stock-based compensation expense related to the unvested RSAs, PSAs, Board
Awards, and TSR Awards.
F-24
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EARNINGS PER COMMON SHARE
The following table presents the calculation of basic and diluted EPS for the Company’s common stock for the years ended December 31, 2021, 2020
and 2019, and reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares
outstanding used in the calculation of diluted EPS for the years ended December 31, 2021, 2020 and 2019 (amounts in thousands, except per share amounts):
Numerator:
Net income
Less: Net income allocated to participating securities
Numerator for basic and diluted earnings available to common stockholders
Denominator:
Weighted-average basic common shares outstanding
Dilutive performance stock awards
Weighted-average diluted common shares outstanding
Earnings per common share, basic
Earnings per common share, diluted
Antidilutive unvested restricted stock awards and performance awards excluded from the
computation
10. COMMITMENTS AND CONTINGENCIES
2021
Year Ended December 31,
2020
2019
$
$
$
$
71,982 $
(507)
71,475 $
96,017
75
96,092
0.74 $
0.74 $
591
80,867 $
(298)
80,569 $
95,200
7
95,207
0.85 $
0.85 $
296
46,359
(296)
46,063
93,088
10
93,098
0.49
0.49
292
The Company and its subsidiaries are and may become from time to time a party to various claims and lawsuits arising in the ordinary course of
business, which are not individually or in the aggregate anticipated to have a material adverse effect on the Company’s results of operations, financial condition or
cash flows. Claims and lawsuits may include matters involving general or professional liability asserted against the Company’s tenants, which are the
responsibility of the Company’s tenants and for which the Company is entitled to be indemnified by its tenants under the insurance and indemnification provisions
in the applicable leases.
Capital expenditures for each property leased under the Company’s triple-net leases are generally the responsibility of the tenant, except that, for the
facilities leased to subsidiaries of Ensign, under the Ensign Master Leases, and Pennant, the tenant will have an option to require the Company to finance certain
capital expenditures up to an aggregate of 20% of 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, the tenants also have the option to request capital expenditure funding that would generally be subject to a
corresponding rent increase at the time of funding, which are subject to tenant compliance with the conditions to the Company’s approval and funding of their
requests. As of December 31, 2021, the Company had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities
totaling $7.3 million, of which $6.3 million is subject to rent increase at the time of funding.
11. CONCENTRATION OF RISK
Concentrations of credit risk arise when one or more tenants, operators, or obligors related to the Company’s investments are engaged in similar
business activities or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations,
including those to the Company, to be similarly affected by changes in economic conditions.
F-25
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Major operator concentration – The Company has operators from which it derived 10% or more of its rental revenue for the years ended December
31, 2021, 2020 and 2019. The following table sets forth information regarding the Company’s major operators as of December 31, 2021, 2020 and 2019:
(2)
Operator
December 31, 2021
Ensign
PMG
December 31, 2020
Ensign
PMG
December 31, 2019
Ensign
PMG
Number of Facilities
Number of Beds/Units
SNF
Campus
ALF/ILF
SNF
Campus
ALF/ILF
Percentage of Total
Revenue
(1)
83
13
77
13
75
13
8
2
8
2
6
2
4
—
4
—
4
—
8,756
1,742
8,129
1,742
7,945
1,742
997
402
1,027
403
573
403
395
—
390
—
390
—
32 %
15 %
32 %
16 %
38 %
15 %
(1) The Company’s rental income, exclusive of operating expense reimbursements.
(2) See Note 3, Real Estate Investments, Net, for further information regarding Ensign and PMG. Ensign is subject to the registration and reporting requirements
of the SEC and is required to file with the SEC annual reports containing audited financial information and quarterly reports containing unaudited financial
information. Ensign’s financial statements, as filed with the SEC, can be found at http://www.sec.gov. The Company has not verified this information through an
independent investigation or otherwise.
Major geographic concentration – The following table provides information regarding the Company’s concentrations with respect to certain states,
from which the Company derived 10% or more of its rental revenue for the year ended December 31, 2021:
State
CA
TX
Number of Facilities
Number of Beds/Units
SNF
Campus
ALF/ILF
SNF
Campus
ALF/ILF
Percentage of Total
Revenue
(1)
27
37
8
3
5
3
3,048
4,694
1,359
536
449
242
25 %
20 %
(1) The Company’s rental income, exclusive of operating expense reimbursements.
12. SUBSEQUENT EVENTS
The Company evaluates subsequent events in accordance with ASC 855, Subsequent Events. The Company evaluates subsequent events up until the
date the consolidated financial statements are issued.
Recent Acquisition and Amended Lease Agreement
In February 2022, the Company acquired one skilled nursing facility for approximately $8.9 million, which includes estimated capitalized acquisition
costs. The facilities were leased to affiliates of Eduro Healthcare, LLC (“Eduro”). In conjunction with the acquisition of the facility, the Company amended its
existing triple-net master lease with Eduro to include the skilled nursing facility and extended the initial term of the lease. The Eduro lease, as amended, has a
remaining initial term of approximately 12 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the amended lease
increased by approximately $0.8 million. The acquisition was funded using cash on hand.
F-26
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2021
(dollars in thousands)
Description
Facility
Location
Encum.
Land
Building
Improvs.
Costs
Cap.
Since
Acq.
Land
Building
Improvs.
Total (1)
Accum.
Depr.
Const./Ren.
Date
Acq.
Date
Initial Cost to Company
Gross Carrying Value
Park View Gardens
Carmel Mountain
Timberwood
Highland Manor
Emerald Hills
Pacific Care
Cambridge SNF
Arlington Hills
Carrollton
Sabino Canyon
Desert Terrace
Catalina
North Mountain
Upland
Camarillo
Park Manor
Skilled Nursing Properties:
Ensign Highland LLC
Meadowbrook Health
Associates LLC
Terrace Holdings AZ LLC
Rillito Holdings LLC
Valley Health Holdings LLC
Cedar Avenue Holdings LLC
Granada Investments LLC
Plaza Health Holdings LLC
Mountainview Communitycare
LLC
CM Health Holdings LLC
Polk Health Holdings LLC
Snohomish Health Holdings
LLC
Cherry Health Holdings LLC
Golfview Holdings LLC
Tenth East Holdings LLC
Trinity Mill Holdings LLC
Cottonwood Health Holdings
Holladay
LLC
Verde Villa Holdings LLC
Lake Village
Mesquite Health Holdings LLC Willow Bend
Arrow Tree Health Holdings
LLC
Fort Street Health Holdings
LLC
Trousdale Health Holdings LLC Brookfield
Ensign Bellflower LLC
Rose Villa
RB Heights Health Holdings
LLC
San Corrine Health Holdings
LLC
Temple Health Holdings LLC
Anson Health Holdings LLC
Willits Health Holdings LLC
Lufkin Health Holdings LLC
Lowell Health Holdings LLC
Jefferson Ralston Holdings LLC Arvada
Lafayette Health Holdings LLC Julia Temple
Golden Acres
Hillendahl Health Holdings
LLC
Salado Creek
Wellington
Northern Oaks
Northbrook
Southland
Littleton
Arbor Glen
Osborn
Draper
Phoenix, AZ
$ — $
257 $
976 $
926 $
257 $
1,902 $
2,159 $ (1,397)
2013
2000
Tucson, AZ
Phoenix, AZ
Tucson, AZ
Phoenix, AZ
Upland, CA
Camarillo, CA
Walla Walla, WA
Santa Rosa, CA
San Diego, CA
Livingston, TX
Lynnwood, WA
Hoquiam, WA
Richmond, TX
Salt Lake City, UT
Carrollton, TX
Salt Lake City, UT
Lewisville, TX
Mesquite, TX
Glendora, CA
Draper, UT
Downey, CA
Bellflower, CA
Scottsdale, AZ
San Antonio, TX
Temple, TX
Abilene, TX
Willits, CA
Lufkin, TX
Littleton, CO
Arvada, CO
Englewood, CO
Dallas, TX
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
425
113
471
629
2,812
3,526
450
931
3,028
60
741
171
1,105
332
664
965
600
470
3,716
504
2,041
5,154
3,919
2,827
5,566
2,612
3,119
4,391
1,663
1,828
3,110
2,426
2,294
2,070
1,890
1,715
1,940
971
3,055
1,519
1,994
1,522
1,055
653
2,071
1,167
1,998
2,038
1,067
2,507
902
958
470
8,632
425
113
471
629
2,812
3,526
450
931
3,028
60
741
171
1,105
332
664
965
600
441
5,656
1,475
5,096
6,673
5,913
4,349
6,621
3,265
5,190
5,558
3,661
3,866
4,177
4,933
3,196
6,081
1,588
5,567
7,302
8,725
7,875
7,071
4,196
8,218
5,618
4,402
4,037
5,282
5,265
3,860
3,028
2,360
10,376
3,993
2,960
10,817
(3,308)
(945)
(3,296)
(4,079)
(3,672)
(2,780)
(4,143)
(2,199)
(3,184)
(3,320)
(2,714)
(2,738)
(2,402)
(3,337)
(2,416)
(2,428)
(1,544)
(7,709)
2012
2004
2013
2009
2011
2010
2009
1963
2012
2009
2009
2010
2007
2013
2007
2008
2011
2012
2000
2002
2003
2004
2005
2005
2006
2006
2006
2006
2006
2006
2006
2006
2006
2007
2007
2007
2,165
1,105
324
2,165
1,429
3,594
(1,080)
1965
2007
443
1,415
937
2,394
1,841
1,168
759
1,861
357
443
1,415
937
3,153
3,702
1,525
3,596
5,117
2,462
(1,722)
(2,225)
(982)
2008
2013
2009
2007
2007
2007
2,007
2,793
1,762
2,007
4,555
6,562
(2,714)
2009
2008
310
529
369
490
467
217
280
1,607
2,090
2,207
3,220
1,231
4,644
856
1,230
4,222
719
1,163
1,725
500
782
1,735
834
6,195
310
529
369
490
467
217
280
1,607
2,809
3,370
4,945
1,731
5,426
2,591
2,064
10,417
3,119
3,899
5,314
2,221
5,893
2,808
2,344
12,024
(1,523)
(1,932)
(2,736)
(957)
(1,782)
(1,564)
(1,003)
(5,530)
2005
2008
2012
2011
1988
2012
2012
2012
2008
2008
2008
2008
2009
2009
2009
2009
2,133
11,977
1,421
2,133
13,398
15,531
(6,037)
1984
2009
F-27
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2021
(dollars in thousands)
Pinnacle
Provo
Alta Vista
Veranda
Copper Ridge
Sunview
Price Health Holdings LLC
Silver Lake Health Holdings
LLC
Jordan Health Properties LLC
Regal Road Health Holdings
LLC
Paredes Health Holdings LLC
Expressway Health Holdings
LLC
Rio Grande Health Holdings
LLC
Fifth East Holdings LLC
Emmett Healthcare Holdings
LLC
Burley Healthcare Holdings LLC Parke View
Josey Ranch Healthcare
Holdings LLC
Everglades Health Holdings
LLC
Irving Health Holdings LLC
Falls City Health Holdings LLC Careage Estates of Falls
Paramount
River's Edge
Heritage Gardens
Victoria Ventura
Beatrice Manor
Grand Terrace
City
Careage of Cherokee
Ukiah
Careage of Clarion
Careage of Ft. Dodge
Rosewood
Orem
Gillette Park Health Holdings
LLC
Gazebo Park Health Holdings
LLC
Oleson Park Health Holdings
LLC
Arapahoe Health Holdings LLC Oceanview
Dixie Health Holdings LLC
Hurricane
Memorial Health Holdings LLC Pocatello
Bogardus Health Holdings LLC Whittier East
South Dora Health Holdings
LLC
Silverada Health Holdings LLC
Orem Health Holdings LLC
Wisteria Health Holdings LLC Wisteria
Renee Avenue Health Holdings
LLC
Stillhouse Health Holdings LLC Stillhouse
Fig Street Health Holdings LLC Palomar Vista
Lowell Lake Health Holdings
LLC
Queensway Health Holdings
LLC
Long Beach Health Associates
LLC
Kings Court Health Holdings
LLC
51st Avenue Health Holdings
LLC
Ives Health Holdings LLC
Guadalupe Health Holdings LLC The Courtyard (Victoria
Atlantic Memorial
Richland Hills
Monte Vista
San Marcos
Shoreline
Owyhee
Legacy
East)
49th Street Health Holdings LLC Omaha
Willows Health Holdings LLC
Cascade Vista
Price, UT
Provo, UT
West Jordan, UT
Youngstown, AZ
Brownsville, TX
Harlingen, TX
McAllen, TX
Salt Lake City, UT
Emmet, ID
Burley, ID
Carrollton, TX
Ventura, CA
Beatrice, NE
Falls City, NE
Cherokee, IA
Clarion, IA
Ft. Dodge, IA
Texas City, TX
Hurricane, UT
Pocatello, ID
Whittier, CA
Ukiah, CA
Reno, NV
Orem, UT
Abilene, TX
Pocatello, ID
Paris, TX
Escondido, CA
Owyhee, ID
Long Beach, CA
Long Beach, CA
Ft. Worth, TX
Amarillo, TX
San Marcos, TX
Victoria, TX
Omaha, NE
Redmond, WA
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
193
2,209
849
193
3,058
3,251
(1,209)
2012
2009
2,011
1,507
2,051
2,671
2,051
2,671
767
373
90
642
345
591
250
8,362
4,244
4,648
1,354
675
1,085
2,464
2,383
4,004
1,382
2,293
5,377
2,931
2,141
1,491
2,541
2,341
4,810
1,978
2,138
5,307
2,087
3,282
3,896
9,903
2,481
7,139
2,653
1,554
1,847
60
170
163
80
90
158
487
537
1,425
297
1,012
1,689
746
180
129
329
49
999
729
190
430
870
1,065
69
424
478
682
245
82
12
97
759
759
98
698
1,079
1,621
103
3,235
290
966
6
1,094
29
10,373
5,751
5,377
1,544
12,424
8,422
6,144
1,917
(3,492)
(2,003)
(2,250)
(507)
2011
2013
2012
1969
2009
2009
2009
2009
1,105
1,195
(503)
2011
2009
1,955
3,529
2,452
4,428
2,597
3,874
3,043
4,678
(1,040)
(1,480)
(875)
(1,723)
2012
2011
1972
2011
2009
2009
2010
2010
767
373
90
642
345
591
250
1,382
2,771
4,153
(1,026)
1996
2010
1,847
60
6,059
3,176
7,906
3,236
(1,793)
(1,174)
1990
2011
2011
2011
170
163
80
90
128
487
537
1,425
297
1,012
1,689
746
180
129
329
49
999
2,223
2,393
(749)
1972
2011
1,503
1,666
(636)
1967
2011
2,638
2,718
(1,162)
1978
2011
3,100
5,599
2,076
2,836
6,386
3,708
3,385
7,131
10,193
3,447
7,145
3,747
3,190
5,727
2,563
3,373
7,811
4,005
4,397
8,820
10,939
3,627
7,274
4,076
(1,696)
(2,248)
(582)
(1,185)
(2,468)
(2,181)
(892)
(3,225)
(2,456)
(1,368)
(1,205)
(1,723)
2012
2012
1978
2007
2011
2013
1970
2011
2008
2013
2009
2007
2011
2011
2011
2011
2011
2011
2011
2011
2011
2012
2012
2012
1,583
1,632
(350)
1990
2012
6,568
7,567
(2,999)
2008
2012
4,237
2,331
1,285
2,343
2,172
1,285
4,515
5,800
(2,101)
2013
2012
193
340
371
80
129
1,388
2,311
3,925
2,951
2,391
2,418
2,982
318
32
274
15
24
202
193
340
371
80
129
1,388
2,629
2,822
(712)
1965
2012
3,957
3,225
2,406
2,442
3,184
4,297
3,596
2,486
2,571
4,572
(1,009)
(789)
(477)
(711)
(1,021)
1970
1972
2013
1960
1970
2013
2013
2013
2013
2013
F-28
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2021
(dollars in thousands)
Tulalip Bay Health Holdings
LLC
Sky Holdings AZ LLC
Lemon River Holdings LLC
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
Mountain View
Marysville, WA
Glendale, AZ
Riverside, CA
Lakewood, CO
Mount Vernon, WA
Shoreline, WA
Dublin, GA
Beavercreek, OH
Bella Vita Health and
Rehabilitation Center
Plymouth Tower
Bethany Rehabilitation
Center
Mira Vista Care Center
Shoreline Health and
Rehabilitation Center
Shamrock Nursing and
Rehabilitation Center
BeaverCreek Health and
Rehab
Premier Estates of
Cincinnati-Riverview
Englewood Health and
Rehab
Portsmouth Health and
Rehab
West Cove Care &
Rehabilitation Center
BellBrook Health and
Rehab
Xenia Health and Rehab
Jamestown Place Health and
Rehab
Casa de Paz
Denison Care Center
Garden View Care Center
Grandview Health Care
Center
Grundy Care Center
Iowa City Rehab and Health
Care Center
Lenox Care Center
Osage
Pleasant Acres Care Center Hull, IA
Cedar Falls Health Care
Center
Premier Estates of
Highlands
Shaw Mountain at Cascadia Boise, ID
The Oaks
Arbor Nursing Center
Broadmoor Medical Lodge
Decatur Medical Lodge
Royse City Medical Lodge
Cincinnati, OH
Englewood, OH
Portsmouth, OH
Toledo, OH
Bellbrook, OH
Xenia, OH
Jamestown, OH
Sioux City, IA
Denison, IA
Shenandoah, IA
Dayton, IA
Grundy Center, IA
Iowa City, IA
Lenox, IA
Osage, IA
Cedar Falls, IA
Norwood, OH
Petaluma, CA
Lodi, CA
Rockwall, TX
Decatur, TX
Royse City, TX
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,722
2,642
(980)
228
152
1,668
1,601
1,124
357
15,375
7,425
1,462
5,034
7,855
17,159
251
892
833
1,380
1,493
56
—
—
—
13
18,086
474
742
228
152
1,668
1,601
2,642
3,384
(748)
1966
2013
2,504
1,850
15,431
7,425
2,731
2,002
17,099
9,026
(1,830)
(1,285)
(2,671)
(1,253)
2004
2012
1989
1989
2002
2009
2015
2015
1,462
5,034
6,496
(829)
1987
2015
251
892
833
7,855
8,106
(1,276)
2010
2015
17,172
18,064
(2,684)
2014
2015
18,560
19,393
(2,884)
1992
2015
1,014
18,541
88
1,014
18,629
19,643
(2,937)
1962
2015
428
—
231
23
268
—
—
—
—
—
—
—
—
—
—
439
395
110
—
—
—
—
282
10,154
10,436
(1,679)
2008
2015
93
10,365
10,458
(1,619)
2007
2015
214
205
266
119
96
105
39
65
522
31
126
189
324
364
1,801
3,646
768
1,232
990
606
2,804
3,587
4,993
7,727
2,784
3,179
1,167
1,935
5,690
1,915
2,255
2,544
3,018
3,792
5,259
7,846
2,880
3,284
1,206
2,000
6,212
1,946
2,381
2,733
(466)
(562)
(834)
(1,143)
(412)
(470)
(173)
(286)
(842)
(283)
(334)
(376)
2003
1981
1967
1974
2015
2013
2014
2011
2014
2012
2014
2014
2015
2015
2015
2016
2016
2016
2016
2016
2016
2016
2016
2016
4,366
4,690
(628)
2015
2016
2,638
6,967
2,983
10,712
22,152
24,909
14,660
3,002
8,768
6,629
11,480
23,384
25,899
15,266
(369)
(1,112)
(436)
(1,451)
(2,816)
(3,166)
(1,863)
2012
1989
2015
1982
1984
2013
2009
2016
2016
2016
2016
2016
2016
2016
282
9,726
93
10,365
2,573
3,564
4,725
7,727
2,784
3,179
1,167
1,935
5,690
1,915
2,255
2,544
4,366
2,199
6,572
2,873
10,712
22,152
24,909
14,660
214
205
266
119
96
105
39
65
522
31
126
189
324
364
1,801
3,646
768
1,232
990
606
F-29
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2021
(dollars in thousands)
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
Pinckneyville, IL
Nampa, ID
Brownsville, TX
Albuquerque, NM
Carrier Mills, IL
Harrisburg, IL
DuQuoin, IL
Eldorado, IL
Portland, OR
Kellogg, ID
Caldwell, ID
Caldwell, ID
Benton, IL
Saline Care Nursing &
Rehabilitation Center
Carrier Mills Nursing &
Rehabilitation Center
StoneBridge Nursing &
Rehabilitation Center
DuQuoin Nursing &
Rehabilitation Center
Pinckneyville Nursing &
Rehabilitation Center
Wellspring Health and
Rehabilitation of Cascadia
The Rio at Fox Hollow
The Rio at Cabezon
Eldorado Rehab &
Healthcare
Secora Health and
Rehabilitation of Cascadia
Mountain Valley
Caldwell Care
Canyon West
Lewiston Health and
Rehabilitation
The Orchards
Weiser Care
Aspen Park
Ridgmar Medical Lodge
Mansfield Medical Lodge
Grapevine Medical Lodge
Brookfield Health and
Rehab
The Oaks at Lakewood
The Oaks at Timberline
Providence Waterman
Nursing Center
Providence Orange Tree
Providence Ontario
Greenville Nursing &
Rehabilitation Center
Copper Ridge Health and
Rehabilitation Center
Prairie Heights Healthcare
Center
The Meadows on University Fargo, ND
Parker, CO
The Suites - Parker
Butte, MT
Lewiston, ID
Nampa, ID
Weiser, ID
Moscow, ID
Fort Worth, TX
Mansfield, TX
Grapevine, TX
Aberdeen, SD
Greenville, IL
Battle Ground, WA
Tacoma, WA
Vancouver, WA
San Bernardino,
CA
Riverside, CA
Ontario, CA
—
—
—
—
—
111
—
—
—
110
—
516
431
152
47
30
274
1,256
1,073
891
—
—
—
—
345
—
—
22
—
—
—
1,022
5,713
6,735
(690)
2009
2017
775
439
511
406
774
1,178
2,055
8,377
9,152
(1,012)
1968
2017
3,475
3,914
(420)
2014
2017
3,662
4,173
(442)
2014
2017
3,411
3,817
(412)
2014
2017
5,155
12,059
9,749
5,929
13,237
11,804
(588)
(1,382)
(1,117)
2011
2016
2016
2017
2017
2017
940
2,093
3,033
(235)
1993
2017
1,481
916
906
312
625
785
80
698
681
607
1,602
320
1,000
445
3,831
2,897
4,204
188
220
1,372
989
1,178
2,326
7,874
7,536
10,841
12,239
8,970
4,449
5,366
7,843
5,874
5,427
500
1,779
869
19,791
15,045
21,880
3,807
8,790
8,442
11,153
12,864
9,755
4,529
6,064
8,524
6,481
7,029
820
2,779
1,314
23,622
17,942
26,084
(249)
(853)
(761)
(1,128)
(1,284)
(948)
(470)
(584)
(950)
(701)
(659)
(54)
(189)
(92)
(2,103)
(1,585)
(2,325)
2012
1971
1947
1969
1964
1958
1964
1965
2006
2006
2006
2012
1989
1972
1967
1969
1980
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
3,972
4,160
(484)
1973
2017
4,996
5,216
(536)
2010
2018
7,491
3,275
17,857
8,863
4,264
19,035
(718)
(287)
(1,408)
1965
1966
2012
2018
2018
2018
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,022
5,713
775
439
511
406
774
1,178
2,055
8,377
3,475
3,662
3,411
5,044
12,059
9,749
940
2,093
2,216
7,874
7,020
10,410
12,087
8,923
4,419
5,092
6,587
4,801
4,536
500
1,779
869
19,791
14,700
21,880
3,972
4,974
7,491
3,275
17,857
1,481
916
906
312
625
785
80
698
681
607
1,602
320
1,000
445
3,831
2,897
4,204
188
220
1,372
989
1,178
F-30
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2021
(dollars in thousands)
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
Gulf Coast Buyer 1 LLC
Gulf Coast Buyer 1 LLC
Gulf Coast Buyer 1 LLC
Gulf Coast Buyer 1 LLC
Gulf Coast Buyer 1 LLC
Gulf Coast Buyer 1 LLC
Gulf Coast Buyer 1 LLC
Gulf Coast Buyer 1 LLC
Gulf Coast Buyer 1 LLC
Gulf Coast Buyer 1 LLC
Lakewest SNF Realty, LLC
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
160 North Patterson Avenue,
LLC
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
Shreveport, LA
Huntington Park,
CA
Oxnard, CA
Downey, CA
Shreveport, LA
Bossier City, LA
Shreveport, LA
Bossier City, LA
Ruston, LA
Huntington Park Nursing
Center
Shoreline Care Center
Downey Care Center
Courtyard Healthcare Center Davis, CA
Alpine Skilled Nursing and
Rehabilitation
The Bradford Skilled
Nursing and Rehabilitation
Colonial Oaks Skilled
Nursing and Rehabilitation
The Guest House Skilled
Nursing and Rehabilitation
Pilgrim Manor Skilled
Nursing and Rehabilitation
Shreveport Manor Skilled
Nursing and Rehabilitation
Booker T. Washington
Skilled Nursing and
Rehabilitation
Legacy West Rehabilitation
and Healthcare
Legacy at Jacksonville
Pecan Tree Rehabilitation
and Healthcare
Lakewest Rehabilitation and
Skilled Care
Cascadia of Nampa
Valley Skilled Nursing
Cascadia of Boise
Cooney Healthcare and
Rehabilitation
Elkhorn Healthcare and
Rehabilitation
Beacon Harbor Healthcare
and Rehabilitation
Pleasant Manor Healthcare
and Rehabilitation
Rowlett Health and
Rehabilitation Center
Dallas, TX
Nampa, ID
Modesto, CA
Boise, ID
Helena, MT
Clancy, MT
Rowlett, TX
Rockwall, TX
Corsicana, TX
Jacksonville, TX
Gainesville, TX
Waxahachie, TX
Shreveport, LA
Buena Vista Care Center
El Centro Post-Acute Care
Sedona Trace Health and
Wellness
Cedar Pointe Health and
Wellness Suites
Goleta, CA
El Centro, CA
Austin, TX
Cedar Park, TX
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,131
1,699
2,502
2,351
8,876
9,004
6,141
9,256
2,688
23,825
3,758
21,325
1,635
21,180
299
—
—
—
—
17
—
3,131
1,699
2,502
2,351
9,175
9,004
6,141
9,256
12,306
10,703
8,643
11,607
(720)
(674)
(461)
(706)
1955
1962
1967
1969
2019
2019
2019
2019
2,688
23,825
26,513
(1,728)
2014
2019
3,758
21,342
25,100
(1,559)
1980
2019
1,635
21,180
22,815
(1,500)
2013
2019
3,437
20,889
1,226
3,437
22,115
25,552
(1,550)
2006
2019
2,979
24,617
—
2,979
24,617
27,596
(1,765)
2008
2019
676
10,238
361
676
10,599
11,275
(769)
2008
2019
113
436
127
255
—
—
—
—
—
174
—
—
—
—
76
—
—
2,452
9,261
11,713
(705)
2013
2019
120
173
219
—
880
798
1,597
867
183
7,118
7,608
7,238
7,781
(560)
(588)
2002
2006
2019
2019
10,352
10,571
(772)
1990
2019
6,905
14,117
7,671
15,692
6,905
14,997
8,469
17,289
(515)
(969)
(448)
(824)
2011
2017
2016
2018
2019
2019
2019
2020
7,431
8,298
(262)
1984
2020
7,554
7,737
(264)
1960
2020
1,295
17,069
18,364
(533)
1996
2020
629
7,433
8,062
(234)
1972
2020
1,036
10,516
11,552
(326)
1990
2020
7,987
1,283
7,237
8,209
15,224
9,492
(160)
(143)
1967
1962
2021
2021
3,282
12,763
16,045
(149)
2017
2021
3,325
11,738
15,063
(135)
2017
2021
2,452
9,148
120
173
219
—
880
798
1,597
867
183
6,682
7,481
10,097
6,905
14,117
7,671
15,692
7,431
7,380
1,295
17,069
629
7,433
1,036
10,516
7,987
1,283
7,237
8,133
3,282
12,763
3,325
11,738
F-31
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2021
(dollars in thousands)
Multi-Service Campus
Properties:
Ensign Southland LLC
Mission CCRC LLC
Wayne Health Holdings LLC
4th Street Holdings LLC
Big Sioux River Health
Holdings LLC
Prairie Health Holdings LLC
Salmon River Health Holdings
LLC
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
Gulf Coast Buyer 1 LLC
Gulf Coast Buyer 1 LLC
CTR Partnership, L.P.
CTR Partnership, L.P.
Northshore Healthcare Holdings
LLC
Northshore Healthcare Holdings
LLC
Northshore Healthcare Holdings
LLC
Northshore Healthcare Holdings
LLC
Southland Care
St. Joseph's Villa
Careage of Wayne
West Bend Care Center
Hillcrest Health
Norwalk, CA
Salt Lake City, UT
Wayne, NE
West Bend, IA
Hawarden, IA
Colonial Manor of Randolph Randolph, NE
Discovery Care Center
Salmon, ID
Middletown, OH
Dayton, OH
Willard, OH
Turlock, CA
Norwood, OH
Centerville Senior
Independent Living
Liberty Nursing Center of
Willard
Premier Estates of
Middletown/Premier
Retirement Estates of
Middletown
Premier Estates of Norwood
Towers/Premier Retirement
Estates of Norwood Towers
Turlock Nursing and
Rehabilitation Center
Bridgeport Medical Lodge
The Villas at Saratoga
Madison Park Healthcare
Oakview Heights Nursing &
Rehabilitation Center
Spring Lake Skilled Nursing
and Rehabilitation
The Village at Heritage Oaks Corsicana, TX
City Creek Post-Acute and
Assisted Living
Crestwood Health and
Rehabilitation Center
San Juan Capistrano Senior
Living
Camarillo Senior Living
San Juan
Capistrano, CA
Camarillo, CA
Bridgeport, TX
Saratoga, CA
Huntington, WV
Mt. Carmel, IL
Sacramento, CA
Wills Point, TX
Shreveport, LA
Bayshire Carlsbad
Carlsbad, CA
Bayshire Rancho Mirage
Rancho Mirage,
CA
—
161,032
1,003,798
94,187
159,993
1,099,024
1,259,016
(225,820)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
966
1,962
130
180
110
130
168
5,082
11,035
3,061
3,352
3,522
1,571
2,496
2,213
464
122
—
75
22
—
966
1,962
130
180
110
130
168
7,295
11,499
3,183
3,352
3,597
1,593
8,261
13,461
3,313
3,532
3,707
1,723
(5,588)
(3,634)
(1,100)
(1,095)
(1,104)
(838)
2011
1994
1978
2006
1974
2011
1999
2011
2011
2011
2011
2011
2,496
2,664
(588)
2012
2012
3,912
22,458
117
3,781
22,706
26,487
(3,605)
2007
2015
143
11,097
50
143
11,147
11,290
(1,760)
1985
2015
990
7,484
371
990
7,855
8,845
(1,229)
1985
2015
1,316
10,071
799
1,316
10,870
12,186
(1,538)
1991
2016
1,258
980
8,709
601
16,526
27,917
9,736
6,385
—
—
1,396
—
1,258
980
8,709
601
16,526
27,917
11,132
6,385
17,784
28,897
19,841
6,986
(2,238)
(3,548)
(1,008)
(525)
1986
2014
2004
1924
2016
2016
2018
2018
298
8,393
—
298
8,393
8,691
(692)
2004
2019
3,217
143
21,195
11,429
2,730
482
3,217
143
23,925
11,911
27,142
12,054
(1,666)
(913)
2008
2007
2019
2019
3,980
10,106
1,488
3,980
11,594
15,574
(655)
1990
2019
143
6,075
11,176
25,298
7,516
30,552
7,398
19,714
—
—
—
—
143
6,075
6,218
(198)
1980
2020
11,176
25,298
36,474
(548)
1999
2021
7,516
30,552
38,068
(655)
2000
2021
7,398
19,714
27,112
(429)
1999
2021
4,024
59,450
16,790
291,345
—
10,329
4,024
59,319
16,790
301,805
20,814
361,124
(373)
(35,527)
2000
2021
F-32
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2021
(dollars in thousands)
Lexington
Cascade Plaza
Rosenburg, TX
Mesa, AZ
Englewood, CO
Aurora, CO
Abilene, TX
Ventura, CA
Las Vegas, NV
Phoenix, AZ
Reno, NV
Redmond, WA
Santa Maria, CA
Orem, UT
Assisted and Independent
Living Properties:
Cambridge ALF
Avenue N Holdings LLC
Grand Court
Moenium Holdings LLC
Lafayette Health Holdings LLC
Chateau Des Mons
Expo Park Health Holdings LLC Canterbury Gardens
Wisteria Health Holdings LLC Wisteria IND
Everglades Health Holdings
LLC
Flamingo Health Holdings LLC Desert Springs ALF
18th Place Health Holdings LLC Rose Court
Boardwalk Health Holdings LLC Park Place
Willows Health Holdings LLC
Lockwood Health Holdings LLC Santa Maria
Lake Ridge
Saratoga Health Holdings LLC
Desert Sky Assisted Living Glendale, AZ
Sky Holdings AZ LLC
Riverside, CA
The Grove Assisted Living
Lemon River Holdings LLC
Salt Lake City, UT
St. Joseph's Villa IND
Mission CCRC LLC
Woodbury, MN
Prelude Cottages of
CTR Partnership, L.P.
Woodbury
English Meadows Senior
Living Community
Bristol Court Assisted
Living
Asbury Place Assisted
Living
New Haven Assisted Living
of San Angelo
Lamplight Inn of Fort
Wayne
Lamplight Inn of West Allis West Allis, WI
Fort Myers, FL
Fort Myers Assisted Living
Bedford, VA
English Meadows Elks
Home Campus
Croatan Village
Countryside Village
The Pines of Clarkston
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
Saint Petersburg,
FL
Pensacola, FL
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
San Angelo, TX
Fort Wayne, IN
Christiansburg, VA
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
The Pines of Goodrich
The Pines of Burton
The Pines of Lapeer
Arbor Place
Applewood of Brookfield
Applewood of New Berlin
Tangerine Cove of
Brooksville
New Bern, NC
Pikeville, NC
Village of
Clarkston, MI
Goodrich, MI
Burton, MI
Lapeer, MI
Lodi, CA
Brookfield, WI
New Berlin, WI
Brooksville, FL
2,301
5,268
1,160
1,692
3,241
4,012
4,767
2,053
1,633
3,784
2,253
2,265
304
802
2,312
6,714
6,114
7,322
4,992
4,478
8,703
6,102
3,531
9,023
6,919
4,157
9,326
4,112
9,199
5,773
3,605
14,002
10,812
927
392
1,210
189
248
81
113
281
490
51
395
585
176
372
3,360
258
76
175
408
222
—
304
106
786
287
—
—
—
130
—
—
—
—
13
493
124
1,893
420
570
244
1,542
908
1,011
367
2,835
1,792
444
61
342
411
430
250
645
212
284
452
97
1,489
451
312
131
603
241
492
302
392
493
356
995
2,693
6,478
1,349
1,940
3,322
4,125
5,048
2,543
1,684
4,179
2,838
2,441
676
4,162
2,570
2,817
8,371
1,769
2,510
3,566
5,667
5,956
3,554
2,051
7,014
4,630
2,885
738
4,504
2,981
(1,453)
(3,672)
(471)
(942)
(1,675)
(977)
(2,770)
(1,042)
(568)
(1,350)
(1,410)
(520)
(494)
(2,892)
(1,616)
2007
1986
2011
1986
2008
1990
1986
1974
1993
2013
1967
1995
2004
2012
1994
2006
2007
2009
2010
2011
2011
2011
2011
2012
2013
2013
2013
2002
2009
2011
6,790
7,220
(1,179)
2011
2014
6,289
6,539
(1,076)
2011
2014
7,730
8,375
(1,198)
2010
2015
5,214
5,426
(802)
1997
2015
4,478
4,762
(662)
2012
2016
9,007
6,208
4,317
9,310
6,919
4,157
9,326
4,242
9,199
5,773
3,605
14,002
10,825
9,459
6,305
5,806
9,761
7,231
4,288
9,929
4,483
9,691
6,075
3,997
14,495
11,181
(1,269)
(890)
(556)
(1,360)
(980)
(589)
(1,302)
(574)
(1,284)
(806)
(488)
(1,721)
(1,329)
2015
2013
1980
2014
2010
2011
2010
2014
2014
2008
1984
2013
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2017
2017
1,420
2,415
(151)
1984
2017
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
124
1,893
420
570
244
1,542
908
1,011
367
2,835
1,792
444
61
342
411
430
250
645
212
284
452
97
1,489
451
312
131
603
241
492
302
392
493
356
995
F-33
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2021
(dollars in thousands)
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
CTR Partnership, L.P.
Memory Care Cottages in
White Bear Lake
Culpeper
Louisa
Warrenton
Vista Del Lago
Inn at Barton Creek
Bridgeton Essentia
Neighborhood
Rio Grande Essentia
Neighborhood
White Bear Lake,
MN
Culpepper, VA
Louisa, VA
Warrenton, VA
Escondido, CA
Bountiful, UT
Bridgeton, NJ
Rio Grande, NJ
—
—
—
—
—
—
—
1,611
318
407
1,238
4,362
2,479
245
5,633
3,897
4,660
7,247
7,997
4,804
5,795
—
197
240
194
—
15
—
1,611
318
407
1,238
4,362
2,479
245
5,633
4,094
4,900
7,441
7,997
4,819
5,795
7,244
4,412
5,307
8,679
12,359
7,298
(634)
(492)
(599)
(880)
(489)
(249)
2016
1997
2002
1999
2015
1999
2017
2017
2017
2017
2019
2020
6,040
(14)
2021
2021
224
32,475
(13)
—
—
(43,438)
— $ 252,957 $ 1,504,486 $ 116,363 $ 251,787 $ 1,622,019 $ 1,873,806 $ (304,785)
5,876
253,666
5,652
221,190
5,652
209,343
224
32,475
—
11,847
2021
2021
(1) The aggregate cost of real estate for federal income tax purposes was $1.9 billion.
F-34
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2021
(dollars in thousands)
Real estate:
Balance at the beginning of the period
Acquisitions
Improvements
Impairment
Sales of real estate
Balance at the end of the period
Accumulated depreciation:
Balance at the beginning of the period
Depreciation expense
Impairment
Sales of real estate
Balance at the end of the period
2021
Year Ended December 31,
2020
2019
$
$
$
$
1,683,205 $
190,133
4,521
—
(4,053)
1,873,806 $
(259,803) $
(45,498)
—
516
(304,785) $
1,605,081 $
84,630
7,223
—
(13,729)
1,683,205 $
(220,359) $
(41,914)
—
2,470
(259,803) $
1,368,157
318,070
3,103
(21,465)
(62,784)
1,605,081
(185,926)
(40,373)
5,220
720
(220,359)
F-35
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2021
(dollars in thousands)
Description
Contractual
Interest Rate
Maturity
Date
Periodic
Payment
Terms
Prior Liens
Principal
Balance
Book Value
(2)
Carrying Amount
of Loans Subject to
Delinquent
Principal or
Interest
Mezzanine Loan:
Virginia (9 SNF facilities)
12.0 %
2025
(1)
$
$
112,278 (3) $
$
112,278
15,000 $
15,000 $
15,155
15,155
N/A
(1) Interest is due monthly, and principal is due at the maturity date.
(2) The aggregate cost of investments in real estate mortgage loans for federal income tax purposes was $15.0 million.
(3) The first mortgage loans on these properties are not held by the Company. Accordingly, the amounts of the prior liens at December 31, 2021 are estimated.
Changes in mortgage loans are summarized as follows (in thousands):
Balance at beginning of period
Additions during period:
New mortgage loans
Interest income added to principal
Deductions during period:
Paydowns/Repayments
Balance at end of period
2021
Year Ended December 31,
2020
2019
$
$
15,000 $
29,500 $
—
155
—
15,155 $
61,258
—
(75,758)
15,000 $
12,375
40,889
—
(23,764)
29,500
F-36
LIST OF SUBSIDIARIES OF CARETRUST REIT, INC.*
EXHIBIT 21.1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50.
51.
CareTrust GP, LLC**
CTR Partnership, L.P.**
CareTrust Capital Corp.**
18th Place Health Holdings LLC
49th Street Health Holdings LLC
4th Street Holdings LLC
51st Avenue Health Holdings LLC
Anson Health Holdings LLC
Arapahoe Health Holdings LLC
Arrow Tree Health Holdings LLC
Avenue N Holdings LLC
Big Sioux River Health Holdings LLC
Boardwalk Health Holdings LLC
Bogardus Health Holdings LLC
Burley Healthcare Holdings LLC
Casa Linda Retirement LLC
Cedar Avenue Holdings LLC
Cherry Health Holdings LLC
CM Health Holdings LLC
Cottonwood Health Holdings LLC
Dallas Independence LLC
Dixie Health Holdings LLC
Emmett Healthcare Holdings LLC
Ensign Bellflower LLC
Ensign Highland LLC
Ensign Southland LLC
Everglades Health Holdings LLC
Expo Park Health Holdings LLC
Expressway Health Holdings LLC
Falls City Health Holdings LLC
Fifth East Holdings LLC
Fig Street Health Holdings LLC
Flamingo Health Holdings LLC
Fort Street Health Holdings LLC
Gazebo Park Health Holdings LLC
Gillette Park Health Holdings LLC
Golfview Holdings LLC
Granada Investments LLC
Guadalupe Health Holdings LLC
Gulf Coast Buyer 1 LLC**
Hillendahl Health Holdings LLC
Hillview Health Holdings LLC
Irving Health Holdings LLC
Ives Health Holdings LLC
Jefferson Ralston Holdings LLC
Jordan Health Properties LLC
Josey Ranch Healthcare Holdings LLC
Kings Court Health Holdings LLC
Lafayette Health Holdings LLC
Lemon River Holdings LLC
Lockwood Health Holdings LLC
Long Beach Health Associates LLC
Lowell Health Holdings LLC
Lowell Lake Health Holdings LLC
Lufkin Health Holdings LLC
Meadowbrook Health Associates LLC
Memorial Health Holdings LLC
Mesquite Health Holdings LLC
Mission CCRC LLC
Moenium Holdings LLC
Mountainview Communitycare LLC
Northshore Healthcare Holdings LLC
Oleson Park Health Holdings LLC
Orem Health Holdings LLC
Paredes Health Holdings LLC
Plaza Health Holdings LLC
Polk Health Holdings LLC
Prairie Health Holdings LLC
Price Health Holdings LLC
Queen City Health Holdings LLC
Queensway Health Holdings LLC
RB Heights Health Holdings LLC
Regal Road Health Holdings LLC
Renee Avenue Health Holdings LLC
Rillito Holdings LLC
Rio Grande Health Holdings LLC
Salmon River Health Holdings LLC
Salt Lake Independence LLC
San Corrine Health Holdings LLC
Saratoga Health Holdings LLC
Silver Lake Health Holdings LLC
Silverada Health Holdings LLC
Sky Holdings AZ LLC
Snohomish Health Holdings LLC
South Dora Health Holdings LLC
Stillhouse Health Holdings LLC
Temple Health Holdings LLC
Tenth East Holdings LLC
Terrace Holdings AZ LLC
Trinity Mill Holdings LLC
Trousdale Health Holdings LLC
Tulalip Bay Health Holdings LLC
Valley Health Holdings LLC
Verde Villa Holdings LLC
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
95. Wayne Health Holdings LLC
96. Willits Health Holdings LLC
97. Willows Health Holdings LLC
98. Wisteria Health Holdings LLC
CTR Arvada Preferred, LLC**
99.
100. CTR Cascadia Preferred, LLC**
101.
160 North Patterson, LLC***
* Unless otherwise indicated, the jurisdiction of formation or incorporation, as applicable, of each of the subsidiaries listed herein is Nevada.
** Formed or incorporated in Delaware.
*** Formed in California
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statement No. 333-237056 on Form S-3 and Registration Statement No. 333-196634 on Form S-8 of
our reports dated February 16, 2022, relating to the financial statements of CareTrust REIT, Inc., and the effectiveness of CareTrust REIT Inc.'s internal control
over financial reporting appearing in this Annual Report on Form 10-K for the year ended December 31, 2021.
Exhibit 23.1
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
February 16, 2022
Exhibit 31.1
I, David M. Sedgwick, certify that:
1. I have reviewed this Annual Report on Form 10-K of CareTrust REIT, Inc.;
CERTIFICATION
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 statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, 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 Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for 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
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (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’s
internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’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 to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: February 16, 2022
By:
/s/ David M. Sedgwick
David M. Sedgwick
President and Chief Executive Officer
Exhibit 31.2
I, William M. Wagner, certify that:
1. I have reviewed this Annual Report on Form 10-K of CareTrust REIT, Inc.;
CERTIFICATION
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 statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, 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 Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for 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
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (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’s
internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’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 to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: February 16, 2022
By:
/s/ William M. Wagner
William M. Wagner
Chief Financial Officer and Treasurer
Certification of Chief Executive Officer and
Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of CareTrust REIT, Inc. (the “Company”) for the fiscal year ended December 31, 2021, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), David M. Sedgwick, President and Chief Executive Officer of the Company, and William
M. Wagner, as Chief Financial Officer and Treasurer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant 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/ David M. Sedgwick
Name: David M. Sedgwick
Title: President and Chief Executive Officer
Date: February 16, 2022
/s/ William M. Wagner
Name: William M. Wagner
Title: Chief Financial Officer and Treasurer
Date: February 16, 2022
The 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
of 1934, as amended, or otherwise subject to the liability of that section, and it is not to be incorporated by reference into any filing of the Company, regardless of
any general incorporation language in such filing.