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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, 2022
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Trading Symbol(s)
CTRE
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during 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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act.) Yes ☐ No ☒
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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: $1.8 billion.
As of February 8, 2023, there were 99,511,924 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant’s 2023 Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission within 120 days after the end of fiscal year 2022, 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
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
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
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35
35
35
35
39
39
52
52
52
52
55
55
56
56
56
56
56
58
60
61
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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 impact of
possible additional surges of COVID-19 infections or the risk of other pandemics, epidemics or infectious disease outbreaks,
measures taken to prevent the spread of such outbreaks and the related impact on our business or the businesses of our tenants;
(ii) the ability and willingness of our tenants to meet and/or perform their obligations under the triple-net leases we have entered
into with them, including without limitation, their respective obligations to indemnify, defend and hold us harmless from and
against various claims, litigation and liabilities; (iii) the risk that we may have to incur additional impairment charges related to
our assets held for sale if we are unable to sell such assets at the prices we expect; (iv) the ability of our tenants to comply with
applicable laws, rules and regulations in the operation of the properties we lease to them; (v) the ability and willingness of our
tenants to renew their leases with us upon their expiration, and the ability to reposition our properties on the same or better
terms in the event of nonrenewal or in the event we replace an existing tenant, as well as any obligations, including
indemnification obligations, we may incur in connection with the replacement of an existing tenant; (vi) the availability of and
the ability to identify (a) tenants who meet our credit and operating standards, and (b) suitable acquisition opportunities and the
ability to acquire and lease the respective properties to such tenants on favorable terms; (vii) the ability to generate sufficient
cash flows to service our outstanding indebtedness; (viii) access to debt and equity capital markets; (ix) fluctuating interest rates
and inflation; (x) the ability to retain our key management personnel; (xi) the ability to maintain our status as a real estate
investment trust (“REIT”); (xii) changes in the U.S. tax law and other state, federal or local laws, whether or not specific to
REITs; (xiii) other risks inherent in the real estate business, including potential liability relating to environmental matters and
illiquidity of real estate investments; and (xiv) any additional factors included 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.
TENANT INFORMATION
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”) and The Pennant Group, Inc.
(“Pennant”) 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 and Pennant’s publicly available filings, which can be found at the SEC’s website at www.sec.gov.
The information related to our tenants contained or referred to in this Annual Report on Form 10-K was provided to us by
such tenants or 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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PART I
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.
ITEM 1. Business
Our Company
CareTrust REIT is a self-administered, publicly-traded REIT engaged in the ownership, acquisition, financing,
development and leasing of skilled nursing, seniors housing and other healthcare-related properties. As of December 31, 2022,
CareTrust REIT’s real estate portfolio consisted of 216 skilled nursing facilities (“SNFs”), multi-service campuses, assisted
living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of 22,831 operational beds and units located in
28 states with the highest concentration of properties by rental income located in California, Texas, Louisiana, Idaho and
Arizona. As of December 31, 2022, we also had other real estate related investments consisting of three real estate secured
loans receivable and two mezzanine loans receivable with a carrying value of $156.4 million.
The following table summarizes the Company’s acquisitions from January 1, 2022 through February 9,
2023 (dollars in thousands):
Type of Property
Skilled nursing
Purchase Price(1)
$
8,918 $
Initial Annual Cash Rent Number of Properties Number of Beds/Units(2)
135
815
1
Multi-service campuses
13,003
Total
$
21,921 $
1,235
2,050
1
2
130
265
(1) Purchase price includes capitalized acquisition costs.
(2) The number of beds/units includes operating beds at the acquisition date.
The following table summarizes other real estate related investments by the Company from January 1, 2022
through February 9, 2023 (dollars in thousands):
Investment
Annual Initial Interest
Income(1)
Number of Properties
Number of Beds/
Units(2)
Investment Type
Senior mortgage secured loan
receivable
Mezzanine loan receivable
Mortgage secured loan
receivable
Mortgage secured loan
receivable
$
75,000 $
25,000
22,250
24,900
Total
$
147,150 $
6,281
2,750
1,891
2,241
13,163
18
N/A
5
4
27
1,796
N/A
600
690
3,086
(1) Represents annualized acquisition-date interest income on any mortgage secured loans receivable and mezzanine loans, less subservicing fees, if applicable.
For floating rate loans, interest income has been calculated using the benchmark rate floor.
(2) The number of beds/units includes operating beds at the investment date.
From January 1, 2022 through December 31, 2022, we sold seven SNFs, five ALFs, one multi-service campus and one
land parcel, resulting in a net loss on sale of property of $3.8 million. Subsequent to December 31, 2022, we sold one ALF.
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
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markets that could improve their operating results at our facilities. We communicate such observations to our tenants; however,
we have no contractual obligation to do so. Moreover, our tenants have sole discretion with respect to the day-to-day operation
of the facilities they lease from us, and how and whether to implement any observation we may share with them. We also
actively monitor the overall occupancy, skilled mix, and other operating metrics of our tenants on at least a monthly basis
including, beginning in the quarter ended June 30, 2020, any stimulus funds received by each tenant. We have replaced tenants
in the past, and may elect to replace tenants in the future, if they fail to meet the terms and conditions of their leases with us. In
addition, we have, and may from time to time in the future, repurpose facilities for other uses, such as behavioral health. The
replacement tenants may include tenants with whom we have had no prior landlord-tenant relationship as well as current tenants
with whom we are comfortable expanding our relationships. We have also provided select tenants with strategic capital for
facility upkeep and modernization, as well as short-term working capital loans when they are awaiting licensure and
certification or conducting turnaround work in one or more of our properties, and we may continue to do so in the future. In
addition, we periodically reassess the investments we have made and the tenant relationships we have entered into, and have
selectively disposed of facilities or investments, or terminated such relationships, and we expect to continue making such
reassessments and, where appropriate, taking such actions.
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.
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
15,200 facilities as of July 2022, as compared with over 15,600 facilities as of July 2016. 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 $273 billion in 2030.
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.
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Portfolio Summary
We have a geographically diverse portfolio of properties, consisting of the following types as of December 31, 2022:
•
•
•
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, 2022, our portfolio
included 178 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, 2022, our portfolio included 36 ALFs, some of which also contain independent living
and memory care units. Included in the 36 ALFs are five ALFs classified as held for sale as of December 31, 2022,
two facilities which are in the process of being repurposed and two facilities which are non-operational.
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
for tenant vehicles. They are most often rented unfurnished, and generally can be personalized by the tenants, and
are typically occupied by 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, 2022, 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, 2022, 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, 2022, we leased 94 facilities to subsidiaries of Ensign, which have a total of 10,399 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, 2022, annualized contractual rental
income from the Ensign Master Leases was $62.3 million, and annualized contractual rental income from all Ensign leases was
$66.2 million, representing 33% and 35% 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.
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As of December 31, 2022, 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, 2022, annualized contractual rental income from the PMG Master Lease was $30.2 million,
representing 16% 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, 2022. The number of beds or units that are operational may be
less than the official licensed capacity.
State
TX
CA
ID
IA
UT
AZ
WA
IL
LA
CO
OH
NE
FL
MI
NV
MT
WI
MN
NC
NJ
IN
MD
NM
GA
ND
SD
WV
OR
Total
Total
SNFs
Multi-Service Campuses
ALFs and ILFs
Properties
Beds/
Units
Facilities
Beds
Campuses
Beds/
Units
Facilities
Beds/
Units
3
8
1
2
1
—
—
2
1
—
3
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
24
536
1,359
69
169
272
—
—
274
215
—
356
146
—
—
—
—
—
—
—
—
—
—
—
—
—
—
67
—
3,463
3
5
—
—
3
3
1
—
—
2
—
—
4
4
2
—
3
2
2
2
1
1
—
—
—
—
—
—
38
242
437
—
—
189
369
97
—
—
268
—
—
420
189
212
—
206
62
104
98
162
120
—
—
—
—
—
—
3,175
44
40
17
15
13
11
10
9
8
7
6
5
4
4
3
3
3
2
2
2
1
1
1
1
1
1
1
1
216
5,627
4,844
1,474
970
1,374
1,340
936
916
1,164
779
612
366
420
189
304
259
206
62
104
98
162
120
116
105
83
81
67
53
22,831
38
27
16
13
9
8
9
7
7
5
3
3
—
—
1
3
—
—
—
—
—
—
1
1
1
1
—
1
154
4,849
3,048
1,405
801
913
971
839
642
949
511
256
220
—
—
92
259
—
—
—
—
—
—
116
105
83
81
—
53
16,193
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Occupancy by Property Type:
The following table displays occupancy by property type for each of the years ended December 31, 2022 and 2021.
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).
Property Type
Facilities Leased to Tenants: (3)
SNFs
Multi-Service Campuses
ALFs and ILFs
Year Ended December 31,
2022(1)
2021(2)
73 %
71 %
74 %
69 %
66 %
73 %
(1) Occupancy data excludes two facilities which are in the process of being repurposed and two non-operational ALFs while we identify
an operator.
(2) Occupancy data excludes two non-operational ALFs while we identify an operator.
(3) 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.
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, 2022 and 2021 and total beds/units for each property type as of December 31, 2022 and 2021.
Property Type
SNFs
Multi-Service Campuses
ALFs and ILFs
Total
Property Type
SNFs
Multi-Service Campuses
ALFs and ILFs
Total
For the Year Ended December 31, 2022
As of December 31, 2022
Rental Income
(in thousands)
Percent
of Total
Total Beds/
Units
$
$
135,701
33,149
18,656
187,506
72 %
18 %
10 %
100 %
16,193
3,463
3,175
22,831
For the Year Ended December 31, 2021
As of December 31, 2021
Rental Income
(in thousands)
Percent
of Total
Total Beds/
Units
$
$
133,380
30,440
26,375
190,195
70 %
16 %
14 %
100 %
16,614
3,545
3,491
23,650
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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, 2022 and 2021 (dollars in thousands).
State
CA
TX
LA
ID
AZ
UT
IL
CO
IA
WA
OH
MI
MT
NV
NC
MN
NE
GA
SD
NM
WV
VA
WI
ND
OR
MD
FL
IN
Total
$
$
For the Year Ended December 31, 2022
For the Year Ended December 31, 2021
Rental Income
Percent of Total
Rental Income
Percent of Total
51,553
41,021
17,092
14,446
12,968
7,612
6,074
5,796
5,318
4,793
4,128
3,003
2,188
2,177
1,172
1,064
995
944
944
937
751
539
520
461
411
247
222
130
187,506
27 % $
22 %
9 %
8 %
7 %
4 %
3 %
3 %
3 %
3 %
2 %
2 %
1 %
1 %
1 %
1 %
1 %
1 %
1 %
*
*
*
*
*
*
*
*
*
100 % $
47,304
38,127
16,322
13,917
12,652
7,453
4,893
5,642
5,322
4,936
9,071
3,081
2,128
2,123
1,135
1,038
970
949
917
1,023
727
3,449
3,045
448
399
588
1,681
855
190,195
25 %
20 %
9 %
7 %
7 %
4 %
3 %
3 %
3 %
3 %
5 %
2 %
1 %
1 %
1 %
1 %
*
*
*
*
*
2 %
2 %
*
*
*
1 %
*
100 %
•
Represents less than 1%
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 expanding our investments into behavioral health facilities 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 28 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 28 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 27% of our total rental income as of December 31, 2022. 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, except two properties under a short-term lease, 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 35% of our 2022 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. 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.
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.
James B. Callister was appointed as our Executive Vice President effective July 2022 and Chief Investment Officer
effective December 31, 2022, succeeding Mark D. Lamb in that role. Mr. Callister continues to serve as Secretary, and
previously served as General Counsel from February 2021 to July 2022. Prior to joining the Company, Mr. Callister worked as
a real estate attorney and a partner at the law firm of Sherry Meyerhoff Hanson & Crance LLP and, before that, at the law firm
of O’Melveny & Myers LLP. Since 2008, he has worked almost exclusively on healthcare REIT transactions, closing on
acquisitions or financings of over 300 skilled nursing, seniors housing, and independent living facilities. Mr. Callister has
assisted in the structure, negotiating and closing of all of our acquisitions since our formation as a REIT. As an attorney, Mr.
Callister worked for nearly 20 years in private practice representing and advising clients in a diverse array of real estate
transactions. Mr. Callister’s transactions-based legal experience has focused on the representation of publicly-traded REITs in
the acquisition, disposition, leasing, and financing of healthcare-related properties. Mr. Callister holds a B.A. in History from
Brigham Young University and a J.D. from the J. Reuben Clark Law School at Brigham Young University, where he graduated
magna cum laude.
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
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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 plan to expand our investments into behavioral health facilities 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. As we acquire, or invest in, 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
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
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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 2022, we published our second 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. In our 2022 ESG Report, we
included a Global Reporting Initiative (“GRI”) Index in reference to the GRI Standards to further align with applicable global
standards for sustainability reporting.
During 2020, with the assistance of Conservice ESG, 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 of 50 properties, increasing to almost
100 properties by the end of 2022. 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.
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. Our board of directors has authorized annual allocations of up to
$500,000 to fund the Tenant ESG Program. As disclosed in our 2022 ESG Report, we tracked $260,000 in environmental
improvements at our properties from August 2021 to October 2022.
In 2022, we created and implemented an ESG checklist to be used to review new potential acquisitions. The checklist will
help our team better identify and address ESG-related risk and opportunities in each potential acquisition including how tenant-
operators can track utility energy and water usage, whether properties are in parts of the country where the U.S. Department of
Energy has helped enable energy data for benchmarking purposes and how tenants can grow, develop and enhance their own
ESG policies. In addition, we created and implemented an ESG training program to train all employees on our ESG
commitments to increase awareness.
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
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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
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, 2022, we employed 15 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, 2022, we experienced turnover of one full-time employee, excluding our
executive officers. In addition, during the year ended December 31, 2022, we transitioned the role of our Chief Executive
Officer from Mr. Stapley to Mr. Sedgwick, effective January 1, 2022, and our Chief Investment Officer from Mr. Lamb to Mr.
Callister, effective December 31, 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,
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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
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.
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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.
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. The Republican Party currently controls the United States
House of Representatives (by a slim majority) and the Democratic Party currently controls the Senate (by a slim majority). Due
to this, healthcare reform legislation would likely require at least some support from both Republican and Democratic
lawmakers to become law and it is uncertain whether any healthcare reform legislation will ultimately become law. 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
of up to $300,000 and possible exclusion from participation in any Federal health care program. Medicare regulations require
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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
connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government
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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, 2022, 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, 2022, properties
leased to Ensign represented $66.2 million, or 35%, 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 $7.1
million, or 4%, of total annualized contractual rental income. 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.
We are subject to risks associated with public health crises, including the COVID-19 pandemic and other pandemics or
epidemics.
We are subject to risks associated with public health crises and government measures to prevent the spread of infectious
diseases, including the global health concerns related to the COVID-19 pandemic. The COVID-19 pandemic has adversely
impacted and is likely to further adversely impact nearly all aspects of our business. Other public health crises, including any
future epidemics or pandemic, could result in similar adverse impacts on our business, results of operations, cash flows and
financial condition. Risks to our business that have been associated with the COVID-19 pandemic, and may be associated with
future COVID-19 outbreaks or other public health crises, include:
•
•
•
one or more of our tenants or borrowers could experience deteriorating financial conditions and be unable or unwilling
to pay rent on time and in full (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) decreased occupancy rates, (iii) increased scrutiny by regulators, (iv) potential repayments of
relief funds received by tenants, (v) nursing or other staffing shortages; or (vi) decisions by elderly individuals to avoid
or delay entrance into assisted living and other long-term care facilities);
the possibility we may have to restructure tenants’ obligations and may not be able to do so on terms that are favorable
to us;
the potential need to recognize asset impairment charges or credit losses on our loans receivable if we determine that
the full amount of our investments are not recoverable;
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•
•
•
•
•
•
•
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 pandemic 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;
the expiration, or lack of enforcement, of liability immunity for health care providers in relation to a qualified
pandemic under the Public Readiness and Emergency Preparedness Act (the “PREP Act”);
complete or partial closures of, or other operational issues at, one or more of our properties resulting from government
actions or directives;
limitations on our access to capital and other sources of funding, 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 Second Amended Credit
Facility (as defined below) and the indenture governing our Notes.
The extent to which the COVID-19 pandemic, or other future health crises, may impact our business, results of
operations, cash flows and financial condition depends on many factors which are highly uncertain and are difficult to predict.
These factors include, but are not limited to, the duration and spread of any outbreak, the timing, distribution and efficacy of
vaccines and other treatments, Unites States and foreign government actions to respond to the outbreak, and how quickly and to
what extent normal operation conditions can resume.
Unstable market and economic conditions may have serious adverse consequences on our business, results of operations
and financial condition.
Global credit and financial markets have experienced extreme volatility and disruptions over the past several months,
including declines in consumer confidence, concerns about declines in economic growth, increases in the rate of inflation,
increases in borrowing rates and changes in liquidity and credit availability, and uncertainty about economic stability, including
most recently in connection with actions undertaken by the U.S. Federal Reserve Board to address inflation, the military
conflict in Ukraine, the continuing effects of the COVID-19 pandemic and supply chain disruptions. There can be no assurance
that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general
business strategy may be adversely affected by any such economic downturn, volatile business environment or continued
unpredictable and unstable market conditions. Our business could also be impacted by volatility caused by geopolitical events,
such as the conflict in Ukraine. A significant downturn in the economic activity may cause a reduction in spending on
healthcare matters and our tenants may need to seek to lower their costs by renegotiating leases. Such reductions may
disproportionately affect our revenue. In addition, if the current equity and credit markets deteriorate, or do not improve, it may
make any necessary debt or equity financing more difficult, more costly, and more dilutive. Furthermore, our stock price may
decline due in part to the volatility of the stock market and the general economic downturn.
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.
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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
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. Supply chain volatility and
labor shortages may increase these construction costs. 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
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and mudslides. These types of natural disasters will likely increase in number, scope and intensity as a result of climate change.
Further, 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 power supply, 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
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. Operating expenses such as
food, utilities, taxes, insurance and rent or debt service continue to increase. 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
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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.
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.
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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. For example, we believe that efforts may be made to, among other
things, 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 may 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.
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.
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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 COVID-19 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.
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 adverse publicity and reputational harm as well as 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
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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
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
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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
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
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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.
Risks Related to Our Capital Resources and Indebtedness
From time to time, we may have substantial indebtedness and we are able to incur significant additional indebtedness.
As of December 31, 2022, we had approximately $725.0 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 $125.0 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 Second 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 Second 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 Second Amended Credit Agreement and
the indenture governing the Notes permit us to incur substantial additional debt, including secured debt, subject to our
compliance with certain financial covenants set forth in the Second 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 Second 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 Second 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 Second Amended Credit Facility. However, under certain circumstances, one or more of our subsidiaries
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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; 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
organizational documents.
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 Second 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 Second Amended Credit Facility or other material indebtedness, failure to satisfy certain
covenants (including financial maintenance covenants), the occurrence of a change of control and specified events of
bankruptcy and insolvency. 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 have increased and may continue to 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.
Our Second Amended Credit Agreement uses Secured Overnight Financing Rate (“SOFR”), 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
SOFR. The publication of SOFR began in April 2018, and, therefore, it has a very limited history. In addition, the future
performance of SOFR cannot be predicted based on its limited historical performance. Future levels of SOFR may bear little or
no relation to the historical actual or historical indicative data. Prior observed patterns, if any, in the behavior of market
variables and their relation to SOFR, such as correlations, may change in the future. Because only limited historical data has
been released by the Federal Reserve Bank of New York, such analysis inherently involves assumptions, estimates and
approximations. The future performance of SOFR is impossible to predict and therefore no future performance of SOFR may
be inferred from any of the historical actual or historical indicative data. Hypothetical or historical performance data are not
indicative of, and have no bearing on, the potential performance of SOFR or any SOFR-linked notes.
SOFR is a relatively new rate, and the Federal Reserve Bank of New York (or a successor) or CME Group Benchmark
Administration Ltd., as administrator of SOFR, may make methodological or other changes that could change the value of
SOFR, including changes related to the methods by which SOFR is calculated, eligibility criteria applicable to the transactions
used to calculate SOFR, or the averages or periods used to report SOFR. The administrator of SOFR may withdraw, modify,
amend, suspend or discontinue the calculation or dissemination of SOFR in its sole discretion and without notice and has no
obligation to consider the interests of holders of SOFR debt in calculating, withdrawing, modifying, amending, suspending or
discontinuing SOFR.
As a result, we may experience volatility or 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
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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
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.
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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.
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
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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 twelve months ended
December 31, 2022, we recorded impairment charges of approximately $79.1 million, contributing to the net loss of
$7.5 million for the year.
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.
ITEM 1B. Unresolved Staff Comments
None.
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ITEM 2. Properties
As of December 31, 2022, 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 and two ALFs which are being repurposed. The following table displays
the expiration of the annualized contractual cash rental income under our lease agreements as of December 31, 2022 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
2029
2030
2031
2032
2033
2034
2036
2038
Total
Investment(1)
Percent of Total
Investment
Rent(1)
Percent of
Total Rent
$
15,800
46,801
114,116
119,868
527,678
179,936
125,216
438,011
146,487
103,001
0.9 % $
2.6 %
6.3 %
6.6 %
29.0 %
9.9 %
6.9 %
24.1 %
8.1 %
5.6 %
1,537
5,342
9,051
11,353
54,672
18,027
19,847
43,925
13,862
10,401
0.8 %
2.8 %
4.8 %
6.0 %
29.1 %
9.6 %
10.6 %
23.4 %
7.4 %
5.5 %
$
1,816,914
100.0 % $
188,017
100.0 %
(1) Amounts exclude properties classified as held for sale as of December 31, 2022.
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 New York Stock Exchange under the symbol “CTRE.”
At February 8, 2023, we had approximately 43 stockholders of record.
To maintain REIT status, we are required each year to distribute to stockholders at least 90% of our annual REIT taxable
income after certain adjustments. All distributions will be made by us at the discretion of our board of directors and will depend
on our financial position, results of operations, cash flows, 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 Second 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.
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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(1)
Distributions allocated to subsequent tax year(2)
Total distributions declared
Year Ended December 31,
2022
2021
$
$
0.4291
0.6609
1.0900
(0.2650)
0.2750
1.1000
$
$
0.9411
0.1039
1.0450
(0.2500)
0.2650
1.0600
(1) 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, was treated as a 2022 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
2022 and paid in January 2023, of $0.275 per share, will be treated as a 2023 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 years ended December 31, 2022, 2021 and 2020. 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 Russell 2000 Index (“Russell 2000”). We plan to replace the
S&P 500 Index with the Russell 2000 as we have determined that the Russell 2000 is a more comparable index for us in terms
of market capitalization. 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 29, 2017 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.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG S&P 500, S&P 500 REIT INDEX, RMS, RUSSELL 2000 AND CARETRUST REIT, INC.
RATE OF RETURN TREND COMPARISON
DECEMBER 29, 2017 - DECEMBER 30, 2022
(DECEMBER 29, 2017 = $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.
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CareTrust REIT, Inc.
S&P 500
RMS
Russell 2000
S&P 500 Real Estate Index
December 31,
2017
2018
2019
2020
2021
2022
$
$
$
$
$
100.00 $
115.79 $
134.62 $
153.01 $
165.07 $
142.46
100.00 $
95.62 $
125.72 $
148.85 $
191.58 $
156.89
100.00 $
95.43 $
120.09 $
110.99 $
158.79 $
100.00 $
88.99 $
111.70 $
134.00 $
153.85 $
119.87
122.41
100.00 $
97.78 $
126.15 $
123.41 $
180.42 $
133.28
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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, financing,
development and leasing of skilled nursing, seniors housing and other healthcare-related properties. As of December 31, 2022,
CareTrust REIT’s real estate portfolio comprised of 216 skilled nursing facilities (“SNFs”), multi-service campuses, assisted
living facilities (“ALFs”) and independent living facilities (“ILFs”), consisting of 22,831 operational beds and units located in
28 states with the highest concentration of properties by rental income located in California, Texas, Louisiana, Idaho and
Arizona. As of December 31, 2022, we also had other real estate investments consisting of three real estate secured loans
receivable and two mezzanine loans receivable with a carrying value of $156.4 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. Our
tenants are also experiencing labor shortages resulting in limited admissions, reduced occupancy and higher agency expense.
While our tenants have experienced some recent increases in occupancy, occupancy rates are still below pre-pandemic levels.
The current limited availability or unavailability of grants and other funds being made available to our seniors housing facilities
for healthcare related expenses or lost revenues attributable to COVID-19, as well as the tapering of grants and other funds for
our SNFs, 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. In some cases, we may have to restructure tenants’
long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place.
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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 fourth quarter of 2021; however, seniors housing facilities occupancy has begun to increase in
the beginning of the first quarter of 2022 and continued throughout 2022. 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 2022. 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, 2022 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, 2022
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 and temporary suspensions are retired.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) included a temporary suspension of a 2%
Medicare sequestration cut through the end of March 2022. Beginning April 1, 2022, a 1% sequestration cut went into effect
through June 30, 2022 with the full 2% cut resuming thereafter. On January 30, 2023, the U.S. Department of Health and
Human Services (“HHS”) announced that the COVID-19 Public Health Emergency (“PHE”) will end on May 11, 2023. The
PHE has allowed HHS to provide temporary regulatory waivers, including the waiver of the three-day hospital stay requirement
for a patient’s Medicare benefits to refresh. The temporary 6.2% increase in Federal Medical Assistance Percentages (“FMAP”)
was approved retroactive to January 1, 2020, but is expected to be phased down by December 31, 2023 under the Consolidated
Appropriations Act of 2023 and the ending of the PHE. With the expiration of the PHE and the potential lifting of the three-day
hospital stay requirement, SNFs may experience decreases in occupancy levels or revenues, which may adversely impact the
business and financial condition of the operators of our SNFs.
As a result of the foregoing impacts of the COVID-19 pandemic and actions taken in response, our tenants’ ability to
continue to meet some of their financial obligations to us has been negatively impacted. See “Impairment of Real Estate
Assets, Assets Held for Sale and Asset Sales” below. During the three and twelve months ended December 31, 2022, we
collected 95.5% and 95.2% of contractual rents due from our operators including cash deposits used to offset rent shortfalls,
respectively. During both the three and twelve months ended December 31, 2022, we collected 94.0% of contractual rents due
from our operators excluding cash deposits. In January 2023, we collected 94.5% of contractual rents due from our operators.
During the year ended December 31, 2022, we determined that it was not probable that we would collect substantially all
of the contractual obligations from five existing and former operators and, accordingly, we reversed $0.7 million of operating
expense reimbursements, $0.2 million of contractual rent and $0.5 million of straight-line rent. In addition, we determined that
the collectibility of contractual rents from four operators was not probable and we moved these four operators to a cash basis
method of accounting during the year ended December 31, 2022.
Impact of Macroeconomic Conditions
The substantial inflationary pressures that our economy continues to face has resulted in many headwinds for us and our
tenants, most notably in the form of rising interest rates, volatility in the capital markets, a softening of consumer sentiment and
signs of a potential broader economic slowdown. These current macroeconomic conditions, particularly inflation (including
rising wages and supply costs), rising interest rates and related changes to consumer spending, including, but not limited to,
causing individuals to delay or defer moves to seniors housing, has adversely impacted and could continue to adversely impact
our tenants’ ability to meet some of their financial obligations to us. Rising interest rates also increase our costs of capital to
finance acquisitions and increase our borrowing costs, and future changes in market interest rates could materially impact the
estimated discounted cash flows that are used to determine the fair value of our other real estate related investments. In
addition, current macroeconomic conditions and the resulting market volatility may adversely impact our ability to sell
properties on acceptable terms, if at all, which could result in additional impairment charges.
For more information regarding the potential impact of COVID-19 and macroeconomic conditions on our business, see
“Risk Factors” in Item 1A of this report.
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SNF Reimbursement Rates
On July 29, 2022, the Centers for Medicare and Medicaid Services (“CMS”) issued a final rule that will increase the
aggregate net payment by 2.7% for fiscal year 2023. CMS estimates that the aggregate impact of the payment policies in the
final rule will result in an increase of approximately $904 million in Medicare Part A payments to SNFs in fiscal year 2023
compared to fiscal year 2022. The payment rates became effective on October 1, 2022.
Impairment of Real Estate Assets, Assets Held for Sale, and Asset Sales
In connection with our ongoing review and monitoring of our investment portfolio and the performance of our tenants,
during the first quarter of 2022, we determined to pursue the sale of 27 properties and the repurposing of three properties,
representing an aggregate of approximately 10% of contractual cash rent as of March 31, 2022. As of March 31, 2022, we
determined that these 27 properties met the criteria to be classified as assets held for sale. During the year ended December 31,
2022, we recognized an aggregate impairment charge of $79.1 million, of which $45.0 million related to 12 facilities that have
been sold, $18.0 million related to 10 facilities that were classified as held for sale in the first quarter of 2022 and reclassified to
held for use in the third and fourth quarters of 2022, $14.4 million related to five facilities that were held for sale as of
December 31, 2022, and $1.7 million related to one facility that was held for use during the year. For properties classified as
held for sale, the impairment charges were recognized to write down the properties to the lower of their carrying value or their
aggregate fair value, less estimated costs to sell. For properties classified as held for use, the impairment charges were
recognized to write down the properties to their fair value.
Following the asset sales and held for sale reclassifications discussed below, five properties continued to meet the criteria
to be classified as held for sale as of December 31, 2022. As of December 31, 2022, the real estate assets comprising the
remaining five properties classified as held for sale had an aggregate carrying value of $12.3 million.
Asset Sales and Held for Sale Reclassifications
During the first quarter of 2022, we determined that one ALF that was classified as held for sale at December 31, 2021 no
longer met the held for sale criteria. We reclassified this ALF’s carrying value of $4.8 million out of assets held for sale and
recorded catch-up depreciation of approximately $0.1 million during the year ended December 31, 2022.
During the first quarter of 2022, we closed on the sale of one SNF consisting of 83 beds located in Washington with a
carrying value of $0.8 million, for net sales proceeds of $1.0 million. During the year ended December 31, 2022, we recorded a
gain of $0.2 million in connection with the sale.
During the third quarter of 2022, we determined that one ALF, with a carrying value of $4.9 million, that was classified as
held for sale at June 30, 2022 no longer met the held for sale criteria. We reclassified this ALF out of assets held for sale at its
fair value at the date of the decision not to sell of approximately $4.9 million.
During the third quarter of 2022, we closed on the sale of six SNFs and one multi-service campus, operated by
affiliates of Trio Healthcare Holdings, LLC (“Trio”), consisting of 708 beds located in Ohio for net proceeds of $32.8 million.
In connection with the sale, we provided affiliates of the purchaser of the properties with a $7.0 million term loan that bears
interest at 8.5% and has a maturity date of September 30, 2025. We also provided a $5.0 million bridge loan to four individuals
that bore interest at 8.5% and was subsequently paid off during the fourth quarter of 2022. Prior to their sale, the seven
properties had been classified as held for sale, with a carrying value of $46.9 million. During the year ended December 31,
2022, we recorded a loss of $2.1 million in connection with the sale.
During the fourth quarter of 2022, we closed on the sale of five ALFs, operated by affiliates of Noble VA Holdings, LLC
(“Noble”), consisting of 301 beds located in Virginia for net proceeds of $11.0 million. Prior to their sale, the five properties
had been classified as held for sale, with a carrying value of $12.7 million. During the year ended December 31, 2022, we
recorded a loss of $1.7 million in connection with the sale.
During the fourth quarter of 2022, we determined that nine ALFs, with a carrying value of $50.8 million, that were
classified as held for sale at September 30, 2022, no longer met the held for sale criteria. We reclassified the nine ALFs out of
assets held for sale at their fair value at the date of the decision not to sell of approximately $47.8 million.
During the first quarter of 2023, we closed on the sale of one ALF, with a carrying value of $3.3 million, which
approximated the net sales proceeds received. The facility was classified as held for sale at December 31, 2022.
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Impairment of Assets Held For Use
During the second quarter of 2022, we recognized an impairment charge of $1.7 million related to one SNF. We wrote
down its carrying value of $2.8 million to its estimated fair value of $1.1 million.
Portfolio Activity
During the year ended 2022, two leases we entered into with Landmark Recovery of Maryland, LLC (“Landmark
Maryland”) and Landmark Recovery of Florida, LLC (“Landmark Florida”) commenced. In connection with the leases, we are
repurposing two existing ALFs (previously leased to affiliates of Noble Senior Services) as behavioral health treatment centers
that will be operated by Landmark Maryland and Landmark Florida, respectively. Rent under the leases will commence 12 to
18 months following commencement of the lease term or, if earlier, upon Landmark Maryland and Landmark Florida obtaining
all licensure, permits, and other required regulatory authorizations with respect to operating the facility. The leases will expire
on the 20th anniversary of the rent commencement date and both contain one 10-year renewal option and CPI-based rent
escalators. See Note 3, Real Estate Investments, Net in the Notes to consolidated financial statements for additional information.
Recent Investments
From January 1, 2022 through February 9, 2023, we acquired one SNF and one multi-service campus for approximately
$21.9 million, which includes capitalized acquisition costs. These acquisitions are expected to generate initial annual cash
revenues of approximately $2.1 million and an initial blended yield of approximately 9.4%. See Note 3, Real Estate
Investments, Net in the Notes to consolidated financial statements for additional information.
In September 2022, we extended a $24.9 million term loan as part of a larger, multi-tranche real estate secured term loan
facility to a skilled nursing real estate owner. The secured term loan was structured with an “A” and a “B” tranche (with the
payments on the “B” tranche being subordinate to the “A” tranche pursuant to the terms of a written agreement between the
lenders). Our $24.9 million secured term loan constituted the entirety of the “B” tranche with its payments subordinated
accordingly. The secured term loan is primarily secured by four skilled nursing facilities operated by an operator in the
Southeast. The “B” tranche secured term loan is set to mature on September 8, 2025, with two one-year extension options and
may (subject to certain restrictions) be prepaid in whole or in part before the maturity date for an exit fee ranging from 1% to
3% of the loan plus unpaid interest payments; provided, however, that no exit fee is payable in connection with portions of the
loan being refinanced pursuant to a loan (or loans) provided by or insured by the United States Department of Housing and
Urban Development, Federal Housing Administration, or a similar governmental authority. The “B” tranche secured term loan
provides for an earnout advance of $4.7 million if certain conditions are met. The “B” tranche secured term loan bears interest
at a rate based on term secured overnight financing rate (“SOFR”), calculated as a fraction, with the numerator being the
difference between (i) the monthly payment of interest of term SOFR plus a 4.50% spread and (ii) the amount of such monthly
payment of interest of term SOFR plus a 2.85% spread, and with the denominator being the average daily balance of the
outstanding principal amount during the applicable month, with such fraction expressed as a percentage and annualized, with a
term SOFR floor of 1.00% and less a subservicing fee of 100% over 9.00%. The “B” tranche secured term loan requires
monthly interest payments.
In August 2022, we extended a $22.3 million term loan as part of a larger, multi-tranche real estate secured term loan
facility to a skilled nursing real estate owner. The secured term loan was structured with an “A” and a “B” tranche (with the
payments on the “B” tranche being subordinate to the “A” tranche pursuant to the terms of a written agreement between the
lenders). Our $22.3 million secured term loan constituted the entirety of the “B” tranche with its payments subordinated
accordingly. The secured term loan is primarily secured by five skilled nursing facilities, four of which will be operated by an
existing operator and one of which will be operated by a large, regional skilled nursing operator. The “B” tranche secured term
loan is set to mature on August 1, 2025, with two one-year extension options and may (subject to certain restrictions) be prepaid
in whole or in part before the maturity date for an exit fee ranging from 2% to 3% of the loan plus unpaid interest payments;
provided, however, that no exit fee is payable in connection with portions of the loan being refinanced pursuant to a loan (or
loans) provided by or insured by the United States Department of Housing and Urban Development, Federal Housing
Administration, or a similar governmental authority. The “B” tranche secured term loan bears interest at a rate based on term
SOFR, calculated as a fraction, with the numerator being the difference between (i) the monthly payment of interest of term
SOFR plus a 4.25% spread and (ii) the amount of such monthly payment of interest of term SOFR plus a 2.75% spread, and
with the denominator being the average daily balance of the outstanding principal amount during the applicable month, with
such fraction expressed as a percentage and annualized, with a term SOFR floor of 1.00% and less a subservicing fee of 50%
over 8.25%. The “B” tranche secured term loan requires monthly interest payments.
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In June 2022, we extended a $75.0 million term loan to a skilled nursing real estate owner as part of a larger, multi-
tranche, senior secured term loan facility. The senior secured term loan was structured with an “A” tranche, a “B” tranche, and a
“C” tranche (with the “C” tranche being the most subordinate). Our $75.0 million term loan constituted the entirety of the “C”
tranche with its payments subordinated accordingly. The senior secured term loan facility is secured by an 18-facility skilled
nursing portfolio in the Mid-Atlantic region, to be operated by a large, regional skilled nursing operator. In connection with the
senior secured term loan facility and the borrower’s acquisition of the skilled nursing portfolio, we also extended to the
borrower group a $25.0 million mezzanine loan. The “C” tranche term loan bears interest at 8.5%, less a servicing fee equal to
the positive difference, if any, between the lesser of the contractual interest payment and actual payment of interest made by the
borrower and a hypothetical interest payment at a rate of 8.25%, resulting in an effective interest rate of 8.375%. The ”C”
tranche term loan is set to mature on June 30, 2027 and may (subject to certain restrictions) be prepaid in whole or in part
before the maturity date for an exit fee ranging from 1% to 3% of the loan plus unpaid interest payments through the end of the
month of prepayment; provided, however, that no exit fee is payable in connection with portions of the loan being refinanced
pursuant to a loan (or loans) provided by or insured by the United States Department of Housing and Urban Development,
Federal Housing Administration, or a similar governmental authority. The mezzanine loan bears interest at 11% and is secured
by a pledge of membership interests in an up-tier affiliate of the borrower group. The mezzanine loan is set to mature on June
30, 2032, and may (subject to certain restrictions) be prepaid in whole or in part before the maturity date, commencing on June
30, 2029, for an exit fee ranging from 1% to 3% of the loan plus unpaid interest payments through the date of prepayment. The
“C” tranche term loan and mezzanine loan both require monthly interest payments.
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”).
The following table summarizes the ATM Program activity for the year ended December 31, 2022 (in thousands, except
per share amounts).
Number of shares
Average sales price per share
Gross proceeds(1)
For the Year Ended
December 31, 2022
$
$
2,405
20.00
48,100
(1) Total gross proceeds is before $0.6 million of commissions paid to the sales agents during the year ended December 31,
2022 under the ATM Program.
As of December 31, 2022, we had $428.4 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, 2022 Compared to Year Ended December 31, 2021
Revenues:
Rental income
Interest and other income
Expenses:
Depreciation and amortization
Interest expense
Property taxes
Impairment of real estate investments
Provision for loan losses, net
Property operating expenses
General and administrative
Other loss:
Loss on extinguishment of debt
Loss on sale of real estate, net
Unrealized loss on other real estate related
investments
•
Not meaningful
Year Ended December 31,
2022
Increase
(Decrease)
2021
(dollars in thousands)
$
187,506 $
8,626
190,195 $
2,156
50,316
30,008
4,333
79,062
3,844
5,039
20,165
55,340
23,677
3,574
—
—
—
26,874
—
(3,769)
(10,827)
(77)
(2,689)
6,470
(5,024)
6,331
759
79,062
3,844
5,039
(6,709)
10,827
(3,692)
Percentage
Difference
(1) %
300 %
(9) %
27 %
21 %
*
*
*
(25) %
(100) %
*
(7,102)
—
(7,102)
*
Rental income. Rental income decreased by $2.7 million as detailed below:
(in thousands)
Contractual cash rent
Tenant reimbursements
Total contractual rent[1]
Straight-line rent
Adjustment for collectibility[2]
Lease termination revenue
Year Ended
December 31,
2022
December 31,
2021
Increase/
(Decrease)
$
186,131 $
186,501 $
2,775
188,906
17
(1,417)
—
3,599
190,100
32
—
63
(370)
(824)
(1,194)
(15)
(1,417)
(63)
Total change in rental income
(2,689)
[1] Includes initial contractual cash rent and tenant reimbursements, as adjusted for applicable rental escalators and rent increases due to capital
expenditures funded by the Company. For tenants on a cash basis, this represents the lesser of the amount that would be recognized on a
straight-line basis or cash that has been received. Total contractual cash rent decreased by $1.2 million due to a $10.6 million decrease in
rental income related to certain tenants on a cash basis method of accounting and a $0.8 million decrease in tenant reimbursements, partially
offset by an increase of $5.9 million in contractual cash rent from real estate investments made after January 1, 2021 and $4.3 million from
increases in rental rates for our existing tenants.
[2] During the year ended December 31, 2022, the Company wrote off $1.4 million of uncollectible rent.
190,195 $
187,506 $
$
Interest and other income. The $6.5 million, or 300%, increase in interest and other income is primarily due to an
increase of $6.7 million related to the origination of loans receivable in June, August and September 2022 partially offset by a
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decrease of $0.2 million related to repayments of other loans. See above under “Recent Developments” for additional
information on the origination of loans receivable.
Depreciation and amortization. Depreciation and amortization expense decreased $5.0 million, or 9%, for the year ended
December 31, 2022 to $50.3 million compared to $55.3 million for the year ended December 31, 2021. The $5.0 million
decrease in depreciation and amortization was primarily due to a $5.0 million decrease from assets sold and classified as held
for sale and a decrease in depreciation of $2.8 million due to assets becoming fully depreciated after January 1, 2021, partially
offset by an increase in depreciation and amortization of $2.8 million related to new real estate investments and capital
improvements made after January 1, 2021.
Interest expense. Interest expense increased by $6.3 million as detailed below:
Change in interest expense for the
year ended December 31, 2022
compared to the year ended
December 31, 2021
(in thousands)
Increases to interest expense due to:
Issuance of the 2028 senior unsecured notes - June 17, 2021
Increase in interest rates for the senior unsecured term loan
Increase in outstanding borrowing amount for the unsecured revolving facility, net
Increase in interest rates for the unsecured revolving credit facility
Other changes in interest expense
Total increases to interest expense
Decreases to interest expense due to:
Redemption of the prior senior notes - July 1, 2021
Total decreases to interest expense
Total change in interest expense
$
$
7,110
3,370
2,095
1,591
43
14,209
(7,878)
(7,878)
6,331
Property taxes. Property taxes increased $0.8 million, or 21%, for the year ended December 31, 2022 compared to
December 31, 2021. The increase was primarily due to a $0.6 million increase in property taxes due to new real estate
investments made after January 1, 2021, a $0.2 million increase in property taxes related to two non-operational properties at
December 31, 2022 and a $0.1 million increase in property taxes due to the transfer of certain properties to new operators in
January 2021 that do not make direct tax payments, partially offset by a decrease of $0.1 million of property taxes due to
reassessments and decreased effective tax rates.
Impairment of real estate investments. During the year ended December 31, 2022, we recognized an aggregate
impairment charge of $79.1 million, of which $45.0 million related to 12 facilities that have been sold, $18.0 million related to
10 facilities that were classified as held for sale in the first quarter of 2022 and reclassified to held for use in the third and fourth
quarters of 2022, $14.4 million related to five facilities that were held for sale as of December 31, 2022, and $1.7 million
related to one facility that was held for use during the year. See above under “Recent Developments” for additional information.
No impairment charges were recognized during the year ended December 31, 2021.
Provision for loan losses, net. During the year ended December 31, 2022, we recorded a $4.6 million expected credit loss
related to two other loans receivable that were placed on non-accrual status, partially offset by a $0.8 million recovery related to
one other loan receivable that was previously written off. No provision for loan losses was recognized during the year ended
December 31, 2021.
Property operating expenses. During the year ended December 31, 2022, we recognized $5.0 million of property
operating expenses related to assets we plan to sell or repurpose, or have sold. No similar expenses were incurred during the
year ended December 31, 2021.
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General and administrative expense. General and administrative expense decreased by $6.7 million as detailed below:
(in thousands)
Cash compensation
Share-based compensation[1]
Incentive compensation
Professional services
Other administrative expense
Taxes and insurance
Non-routine transaction costs
Other expenses
Year Ended
December 31,
2022
December 31,
2021
Increase/
(Decrease)
$
6,107 $
5,364 $
5,758
3,550
1,897
923
897
6
1,027
10,832
4,900
1,601
915
843
1,424
995
743
(5,074)
(1,350)
296
8
54
(1,418)
32
(6,709)
Total change in general and administrative expense
[1] Share-based compensation decreased $5.1 million for the year ended December 31, 2022 compared to December 31, 2021. The decrease is
primarily due to accelerated vesting of awards for one executive in the fourth quarter of 2021 in connection with his retirement.
20,165 $
26,874 $
$
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 prior senior notes. No loss on extinguishment of debt was recognized during the year
ended December 31, 2022.
Loss on sale of real estate, net. During the year ended December 31, 2022, we recorded a $3.8 million loss on sale of real
estate related to the sale of six SNFs, five ALFs and one multi-service campus and a $0.2 million loss on sale of real estate
related to the sale of a land parcel, partially offset by a $0.2 million gain on sale of real estate related to the sale of one SNF.
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.
Unrealized loss on other real estate related investments. During the year ended December 31, 2022, we recorded a $7.1
million unrealized loss on three mortgage secured loans receivable and two mezzanine loans receivable. The unrealized loss is
due to rising interest rates. No unrealized losses were recognized during the year ended December 31, 2021.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
For discussion related to the results of operations and changes in financial condition for fiscal 2021 compared to fiscal
2020, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in
our fiscal 2021 Annual Report on Form 10-K, which was filed with the SEC on February 16, 2022.
Liquidity and Capital Resources
To qualify as a REIT for federal income tax purposes, we are required to distribute at least 90% of our REIT taxable
income, determined without regard to the dividends paid deduction and excluding any net capital gains, to our stockholders on
an annual basis. Accordingly, we intend to make, but are not contractually bound to make, regular quarterly dividends to
common stockholders from cash flow from operating activities. All such dividends are at the discretion of our board of
directors.
Our short-term liquidity requirements consist primarily of operating and interest expenses directly associated with our
properties, including:
•
•
•
•
•
interest expense and scheduled debt maturities on outstanding indebtedness;
general and administrative expenses;
dividend plans;
operating lease obligations; and
capital expenditures for improvements to our properties.
Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions and other investments
(including mortgage and mezzanine loan originations) capital expenditures, and scheduled debt maturities. We intend to invest
in and/or develop additional healthcare and seniors housing properties as suitable opportunities arise and so long as adequate
sources of financing are available. We expect that future investments in and/or development of properties, including any
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improvements or renovations of current or newly-acquired properties, will depend on and will be financed by, in whole or in
part, our existing cash, borrowings available to us under the Second Amended Credit Facility (as defined below), future
borrowings or the proceeds from sales of shares of our common stock pursuant to our ATM Program or additional issuances of
common stock or other securities. In addition, we may seek financing from U.S. government agencies, including through
Fannie Mae and the U.S. Department of Housing and Urban Development, in appropriate circumstances in connection with
acquisitions and refinancing of existing mortgage loans.
We believe that our expected operating cash flow from rent collections, interest payments on our other real estate related
investments, and borrowings under our Second Amended Credit Facility, together with our cash balance of $13.2 million,
available borrowing capacity of $475.0 million under the Revolving Facility and availability under the ATM Program, each at
December 31, 2022, will be sufficient to meet ongoing debt service requirements, dividend plans, operating lease obligations,
capital expenditures, working capital requirements and other needs for at least the next 12 months. We expect to meet our long-
term liquidity needs with cash flows from operations and financing arrangements. While we are currently pursuing the sale, re-
tenanting or repurposing of certain of our assets in connection with our ongoing review and monitoring of our investment
portfolio as described under “Recent Developments” above, we currently do not expect to sell any of our properties to meet
liquidity needs, although we may do so in the future. Our quarterly cash dividend, any share repurchases under our Repurchase
Program (as defined below) and any failure of our operators to pay rent or of our borrowers to make interest or principal
payments may impact our available capital resources.
On March 20, 2020, our board of directors authorized a share repurchase program to repurchase up to $150.0 million of
outstanding shares of our common stock (the “Repurchase Program”). Repurchases under the Repurchase Program, which
expires on March 31, 2023, may be made through open market purchases, privately negotiated transactions, structured or
derivative transactions, including accelerated share repurchase transactions, or other methods of acquiring shares, in each case
subject to market conditions and at such times as shall be permitted by applicable securities laws and determined by
management. Repurchases under the Repurchase Program may also be made pursuant to a plan adopted under Rule 10b5-1
promulgated under the 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, 2022. 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.
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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 (used in) provided by financing activities
Net (decrease) increase 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,
2022
2021
(dollars in thousands)
144,415 $
(127,400)
(23,732)
(6,717)
19,895
13,178 $
156,871
(192,633)
36,738
976
18,919
19,895
$
$
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Net cash provided by operating activities for the year ended December 31, 2022 was $144.4 million compared to $156.9
million for the year ended December 31, 2021, a decrease of $12.5 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 related investments. Operating cash outflows consist primarily of interest expense on our borrowings and
general and administrative expenses. The net decrease of $12.5 million in cash provided by operating activities for the year
ended December 31, 2022 is primarily due to a decrease in rental income received, an increase in cash paid for interest expense
and an increase in cash paid for operating expenses related to assets we plan to sell, have sold, or repurpose, partially offset by
interest income received on our other real estate related investments.
Cash used in investing activities for the year ended December 31, 2022 was primarily comprised of $171.6 million in
acquisitions of real estate and investments in real estate related investments and other loans receivable, and $7.3 million of
purchases of, and improvements to, equipment, furniture and fixtures and real estate, partially offset by $6.3 million of
payments received from our other loans receivable and $45.1 million in net proceeds from real estate sales. 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 related investments 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 other loans receivable and $7.0 million in net proceeds from real estate sales.
Our cash flows used in financing activities for the year ended December 31, 2022 were primarily comprised of $106.1
million in dividends paid, $5.4 million in payments of deferred financing costs and a $4.5 million net settlement adjustment on
restricted stock, partially offset by $47.2 million of net proceeds from the issuance of common stock under the ATM Program
and $45.0 million in net borrowings under our Second Amended Credit Facility (as defined below). 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 Prior Credit Agreement (as defined below) 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 our prior senior notes, $100.8 million in dividends paid, and a $1.3 million net settlement adjustment on restricted
stock.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
For discussion related to the cash flows for fiscal 2021 compared to fiscal 2020, refer to Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2021 Annual Report on Form 10-K,
which was filed with the SEC on February 16, 2022.
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, 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
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offering of $400.0 million aggregate principal amount of 3.875% Senior Notes due 2028 (the “Notes”). The Notes mature on
June 30, 2028. The Notes accrue interest at a rate of 3.875% per annum payable semiannually in arrears on June 30 and
December 30 of each year, commencing on December 30, 2021. The obligations under the Notes are guaranteed, jointly and
severally, on an unsecured basis, by us and all of our subsidiaries (other than the Issuers). As of December 31, 2022, we were in
compliance with all applicable financial covenants under the indenture governing the Notes. See Note 7, Debt, to our
consolidated financial statements included in this report for further information about the Notes.
Unsecured Revolving Credit Facility and Term Loan
On December 16, 2022, we, together with certain of our subsidiaries, entered into a second amended and restated credit
and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender (the
“Second Amended Credit Agreement”). The Operating Partnership is the borrower under the Second Amended Credit
Agreement, and the obligations thereunder are guaranteed, jointly and severally, on an unsecured basis, by us and certain of our
subsidiaries. The Second Amended Credit Agreement, which amends and restates our amended and restated credit and guaranty
agreement, dated as of February 8, 2019 (as amended, the “Prior Credit Agreement”) provides for: (i) an unsecured revolving
credit facility (the “Revolving Facility”) with revolving commitments in an aggregate principal amount of $600.0 million,
including a letter of credit subfacility for 10% of the then available revolving commitments and a swingline loan subfacility for
10% of the then available revolving commitments and (ii) the continuation of the unsecured term loan credit facility which was
previously extended under the Prior Credit Agreement (the “Term Loan” and together with the Revolving Facility, the “Second
Amended Credit Facility”) in an aggregate principal amount of $200.0 million. Future borrowings under the Second Amended
Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate
purposes.
As of December 31, 2022, we had $200.0 million outstanding under the Term Loan and $125.0 million outstanding under
the Revolving Facility. The Revolving Facility has a maturity date of February 9, 2027, and includes, at our sole discretion,
two, six-month extension options. The Term Loan has a maturity date of February 8, 2026.
The interest rates applicable to loans under the Revolving Facility are, at the Operating Partnership’s option, equal to
either a base rate plus a margin ranging from 0.10% to 0.55% per annum or Adjusted Term SOFR or Adjusted Daily Simple
SOFR (each as defined in the Second Amended Credit Agreement) plus a margin ranging from 1.10% to 1.55% per annum
based on the debt to asset value ratio of the Company and our consolidated subsidiaries (subject to decrease at the Operating
Partnership’s election if we obtain certain specified investment grade ratings on our senior long-term unsecured debt). The
interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base rate plus
a margin ranging from 0.50% to 1.20% per annum or Adjusted Term SOFR or Adjusted Daily Simple SOFR plus a margin
ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and our consolidated
subsidiaries (subject to decrease at the Operating Partnership’s election if we obtain certain specified investment grade ratings
on our senior long-term unsecured debt). In addition, the Operating Partnership will pay a facility fee on the revolving
commitments under the Revolving Facility ranging from 0.15% to 0.35% per annum, based on the debt to asset value ratio of
the Company and our consolidated subsidiaries (unless we obtain certain specified investment grade ratings on our senior long-
term unsecured debt and the Operating Partnership elects to decrease the applicable margin as described above, in which case
the Operating Partnership will pay a facility fee on the revolving commitments ranging from 0.125% to 0.30% per annum based
off the credit ratings of our senior long-term unsecured debt).
As of December 31, 2022, we were in compliance with all applicable financial covenants under the Second Amended
Credit Agreement. See Note 7, Debt, to our consolidated financial statements included in this report for further information
about the Second Amended Credit Agreement.
Capital Expenditures
As of December 31, 2022, we had committed to fund expansions, construction and capital improvements at certain triple-
net leased facilities totaling $15.7 million, of which $2.7 million is subject to rent increase at the time of funding. We expect to
fund the capital expenditures in the next one to two years. See Note 11, 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 8, Equity, to our consolidated financial
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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 2022, 2021 and 2020.
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
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, 2022.
Impairment of Long-Lived Assets. At each reporting period, we evaluate our real estate investments held for use 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, historical and projected 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.
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We classify our real estate investments as held for sale when the applicable criteria have been met, which includes 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. The fair value of the assets held for sale is based
on estimated sales prices, which are considered to be Level 3 measurements within the fair value hierarchy. Estimated sales
prices are determined using a market approach (comparable sales model), which relies on certain assumptions by management,
including: (i) comparable market transactions, (ii) estimated prices per unit, and (iii) binding agreements for sales and non-
binding offers to purchase from unrelated third-parties. There are inherent uncertainties in making these assumptions.
If circumstances arise that previously were considered unlikely and, as a result, we decide not to sell a real estate
investment previously classified as held for sale or otherwise no longer meets the held for sale criteria, the respective assets are
reclassified as real estate investments held for use. A real estate investment that is reclassified is measured and recorded
individually at the lower of (a) its carrying amount before the real estate investment was classified as held for sale, adjusted for
any depreciation expense that would have been recognized had the real estate investment been continuously classified as held
for use, or (b) the fair value at the date of the decision not to sell or change in circumstances that led to the real estate
investment no longer meeting the criteria of held for sale. 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, and,
where applicable, terms of recent lease agreements or the results of negotiations with prospective tenants.
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, 2022.
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, 2022.
Fair Value of Other Real Estate Related Investments. We have elected the fair value option for our other real estate
related investments for which such election is permitted, as provided for under ASC 825, Financial Instruments (“ASC 825”).
For financial instruments that are traded in an "active market," the best measure of fair value is the quoted market price. In
cases where market-observable data is not available, the data used for the measurement must reflect assumptions that market
participants would use in pricing the asset or liability (including adjustments that market participants demand for the risk
associated with the unobservable data or the model used to determine fair value). We have concluded to use a present value
technique, a discounted cash flow model, to determine fair value.
The determination of estimated fair value of our other real estate related investments requires the use of both
macroeconomic and microeconomic assumptions and/or inputs, which are generally based on current market and economic
conditions, such as changes in the risk-free or benchmark rate and changes attributable to instrument-specific credit risk (e.g.,
changes in credit spread associated with the instrument). Changes in market and/or economic conditions could have a
significant adverse effect on the estimated fair value of our financial instruments. Changes to assumptions, including assumed
benchmark rates and credit spreads, may significantly impact the estimated fair value of our investments.
Because of the inherent uncertainty of valuation, the estimated fair value of our financial instruments may differ
significantly from the values that would have been used had a ready market for the financial instruments existed, and the
differences could be material to our consolidated financial statements.
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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.
Our Second 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 the Operating Partnership’s option, equal to
either a base rate plus a margin ranging from 0.10% to 0.55% per annum or Adjusted Term SOFR or Adjusted Daily Simple
SOFR (each as defined in the Second Amended Credit Agreement) plus a margin ranging from 1.10% to 1.55% per annum
based on the debt to asset value ratio of the Company and our consolidated subsidiaries (subject to decrease at the Operating
Partnership’s election if we obtain certain specified investment grade ratings on our senior long-term unsecured debt). The
interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base rate plus
a margin ranging from 0.50% to 1.20% per annum or Adjusted Term SOFR or Adjusted Daily Simple SOFR plus a margin
ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and our consolidated
subsidiaries (subject to decrease at the Operating Partnership’s election if we obtain certain specified investment grade ratings
on our senior long-term unsecured debt). As of December 31, 2022, we had a $200.0 million Term Loan outstanding and there
was $125.0 million outstanding under the Revolving Facility.
Based on our outstanding debt balance as of December 31, 2022 described above and the interest rates applicable to our
outstanding debt at December 31, 2022, assuming a 100 basis point increase in the interest rates related to our variable rate
debt, interest expense would have increased approximately $3.3 million for the year ended December 31, 2022.
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.
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, 2022, 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
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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, 2022, 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, 2022.
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, 2022.
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, 2022, 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, 2022 has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.
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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, 2022, 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, 2022, 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, 2022, of the Company and our
report dated February 9, 2023, 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 9, 2023
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ITEM 9B. Other Information
Not applicable.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable.
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PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
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, 2022 in connection with our 2023 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 the New York Stock Exchange 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, 2022 in connection with our 2023 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, 2022 in connection with our 2023 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, 2022 in connection with our 2023 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, 2022 in connection with our 2023 Annual
Meeting of Stockholders.
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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
3.1
3.2
3.3
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
+10.6
+10.7
+10.8
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).
Second Amended and Restated Credit and Guaranty Agreement, dated as of December 16, 2022 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 CareTrust
REIT, Inc.’s Current Report on Form 8-K filed on December 19, 2022).
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).
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+10.9
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).
*+10.10 Form of TSR Award Agreement
*+10.11 Form of Performance-Based Restricted Stock Award Grant Notice
+10.12
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).
*21.1
List of Subsidiaries of CareTrust REIT, Inc.
*23.1
*31.1
*31.2
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.
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ITEM 16. Form 10-K Summary
None.
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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 behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CARETRUST REIT, INC.
By:
/S/ DAVID M. SEDGWICK
David M. Sedgwick
President and Chief Executive Officer
Dated: February 9, 2023
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/ DIANA LAING
Diana Laing
/s/ ANNE OLSON
Anne Olson
/s/ SPENCER PLUMB
Spencer Plumb
/s/ CAREINA WILLIAMS
Careina Williams
President and Chief Executive Officer
(Principal Executive Officer)
February 9, 2023
Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)
February 9, 2023
Director
February 9, 2023
Director
February 9, 2023
Director
February 9, 2023
Director
February 9, 2023
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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, 2022 and 2021
Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
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-30
F-38
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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, 2022 and 2021, the related consolidated statements of operations, equity, and cash flows, for each of the three
years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2022, 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, 2022, 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 9, 2023, 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 Real Estate Investments, Assets Held for Sale, Net and Asset Sales — Refer to Notes 2 and 4 to the financial
statements
Critical Audit Matter Description
The Company classifies its real estate investments as held for sale when the applicable criteria have been met, which includes 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.
If circumstances arise that previously were considered unlikely and, as a result, the Company decides not to sell a real estate
investment previously classified as held for sale or otherwise no longer meets the held for sale criteria, the respective assets are
reclassified as real estate investments held for use. A real estate investment that is reclassified is measured and recorded
individually at the lower of (a) its carrying amount before the real estate investment was classified as held for sale, adjusted for
any depreciation expense that would have been recognized had the real estate investment been continuously classified as held
for use, or (b) the fair value at the date of the decision not to sell or change in circumstances that led to the real estate
investment no longer meeting the criteria of held for sale.
F-2
Table of Contents
The fair value of the assets held for sale is based on a market approach using estimated sales prices (comparable sales model),
which relies on certain assumptions by management, including: (i) comparable market transactions, (ii) estimated prices per
unit, and (iii) binding agreements for sales and non-binding offers to purchase from unrelated third-parties. The fair value of
assets reclassified as real estate investments held for use is based on an income approach using current market conditions and
considers matters such as the forecasted operating cash flows, lease coverage ratios, capitalization rates, and, where applicable,
terms of recent lease agreements or the results of negotiations with prospective tenants. There are inherent uncertainties in
making these assumptions.
We identified the impairment of real estate investments as a critical audit matter because of the significant estimates and
assumptions management makes to determine the fair value of real estate investments held for sale and real estate investments
reclassified from held for sale to held for use. This required a high degree of auditor judgment and an increased extent of effort,
including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of
management’s determination of fair value.
As of December 31, 2022, the Company had real estate investments held for sale of $12.3 million, after taking an impairment
loss of $14.4 million. During the year ended December 31, 2022, the Company reclassified real estate investments from held
for sale to held for use of $57.4 million, after taking an impairment loss of $18.0 million.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the significant inputs to the fair value of real estate investments held for sale and real estate
investments reclassified from held for sale to held for use included the following, among others:
• We tested the effectiveness of controls over management’s evaluation of balance sheet classification and determination
of fair value for real estate investments held for sale and real estate investments reclassified to real estate investments
held for use.
• We evaluated the reasonableness of the (1) valuation methodology; and (2) the concluded real estate investment fair
value by independently obtaining sales comparison data, capitalization rates, and market rents and developing a range
of independent fair value estimates and comparing our estimates to those used by management.
• We used the assistance of our fair value specialists in obtaining relevant market data, where necessary.
•
Read and considered terms of executed arrangements and evidence regarding terms for arrangements in the process of
negotiation at or near the valuation date.
• We held discussions with management to understand individual real estate investment specific factors that impacted
the Company’s fair value determination.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
February 9, 2023
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 related investments, at fair value (including accrued interest of $1,320 as
of December 31, 2022 and $155 as of December 31, 2021)
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 11)
Equity:
Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued and
outstanding as of December 31, 2022 and 2021
Common stock, $0.01 par value; 500,000,000 shares authorized, 99,010,112 and
96,296,673 shares issued and outstanding as of December 31, 2022 and 2021,
respectively
Additional paid-in capital
Cumulative distributions in excess of earnings
Total equity
Total liabilities and equity
December 31,
2022
2021
$
1,421,410 $
1,589,971
156,368
12,291
13,178
416
11,690
5,428
15,155
4,835
19,895
2,418
7,512
1,062
$
1,620,781 $
1,640,848
$
395,150 $
199,348
125,000
24,360
27,550
771,408
—
990
394,262
199,136
80,000
25,408
26,285
725,091
—
963
1,245,337
1,196,839
(396,954)
(282,045)
849,373
915,757
$
1,620,781 $
1,640,848
See accompanying notes to consolidated financial statements.
F-4
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CARETRUST REIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
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, net
Property operating expenses
General and administrative
Total expenses
Other loss:
Loss on extinguishment of debt
Loss on sale of real estate, net
Unrealized loss on other real estate related investments
Total other loss
Net (loss) income
(Loss) earnings per common share:
Basic
Diluted
Weighted-average number of common shares:
Basic
Diluted
Year Ended December 31,
2021
2022
2020
$
187,506 $
190,195 $
173,612
—
8,626
196,132
50,316
30,008
4,333
—
79,062
3,844
5,039
20,165
192,767
—
2,156
192,351
55,340
23,677
3,574
—
—
—
—
26,874
109,465
—
(10,827)
(3,769)
(7,102)
(77)
—
(10,871)
(10,904)
2,077
2,643
178,332
52,760
23,661
2,836
1,869
—
—
—
16,302
97,428
—
(37)
—
(37)
$
$
$
(7,506) $
71,982 $
80,867
(0.08) $
(0.08) $
0.74 $
0.74 $
96,703
96,703
96,017
96,092
0.85
0.85
95,200
95,207
See accompanying notes to consolidated financial statements.
F-5
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CARETRUST REIT, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share and per share amounts)
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
Issuance of common stock, net
Shares
95,103,270 $
—
112,527
—
—
—
95,215,797
990,000
90,876
—
—
—
96,296,673
2,405,000
Vesting of restricted common stock, net of
shares withheld for employee taxes
308,439
Amortization of stock-based compensation
Common dividends ($1.10 per share)
Net loss
—
—
—
Balance as of December 31, 2022
99,010,112 $
Common Stock
Amount
Additional
Paid-in
Capital
951 $ 1,162,990 $
(404)
—
1
—
—
—
952
10
1
—
—
—
963
24
3
—
(1,996)
3,812
—
—
1,164,402
22,936
(1,331)
10,832
—
—
1,196,839
47,212
(4,472)
5,758
Cumulative
Distributions
in Excess
of Earnings
(236,350) $
—
—
—
(95,729)
80,867
(251,212)
—
—
—
(102,815)
71,982
(282,045)
—
—
—
Total
Equity
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
47,236
(4,469)
5,758
(107,403)
(7,506)
849,373
—
—
990 $ 1,245,337 $
—
—
(107,403)
(7,506)
(396,954) $
See accompanying notes to consolidated financial statements.
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CARETRUST REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
$
(7,506) $
71,982 $
80,867
Year Ended December 31,
2022
2021
2020
Depreciation and amortization (including below-market ground leases)
Amortization of deferred financing costs
Loss on extinguishment of debt
Unrealized loss on other real estate related investments
Amortization of stock-based compensation
Straight-line rental income
Adjustment for collectibility of rental income
Noncash interest income
Loss on sale of real estate, net
Interest income distribution from other real estate investment
Impairment of real estate investments
Provision for loan losses, net
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 related investments and other loans receivable
Principal payments received on 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
Borrowings under unsecured revolving credit facility
Payments on senior unsecured notes payable
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 (used in) provided by financing activities
Net (decrease) increase 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
50,378
2,095
—
7,102
5,758
(17)
1,417
(1,165)
3,769
—
79,062
3,844
604
123
(1,049)
144,415
(21,915)
(7,292)
(149,650)
6,308
—
—
45,149
(127,400)
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)
47,236
—
160,000
—
(115,000)
(5,361)
(4,469)
(106,138)
(23,732)
(6,717)
19,895
13,178 $
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
25,912 $
22,838 $
21,691
1,265 $
— $
7 $
12,000 $
2,033 $
— $
358 $
— $
2,568
599
168
32,400
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.
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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, 2022, the Company owned and leased to independent operators, 216 skilled nursing facilities (“SNFs”), multi-
service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of 22,831 operational
beds and units located in 28 states with the highest concentration of properties by rental income located in California, Texas,
Louisiana, Idaho and Arizona. As of December 31, 2022, the Company also had other real estate related investments consisting
of three real estate secured loans receivable and two mezzanine loans receivable with a carrying value of $156.4 million.
COVID-19—The COVID-19 pandemic has had and may continue to have an adverse impact on the economy
generally and the Company’s business, results of operations and financial condition. The duration and extent of the COVID-19
pandemic’s effect on the Company’s operational and financial performance, and the operational and financial performance of
the Company’s tenants, will depend on future developments, which are highly uncertain and cannot be predicted at this time,
including resurgences of COVID-19 or outbreaks of other highly infectious diseases. 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 statements of operations.
Otherwise, tenant recoveries for taxes and insurance are classified as additional rental revenues recognized by the lessor on a
gross basis in its statements of operations.
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
or increases through rental income on the Company’s consolidated statements of operations. For the year ended December 31,
2022, the Company did not record any recovery adjustments and wrote-off $1.4 million of rental income. 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. 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.
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Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Impairment of Long-Lived Assets—At each reporting period, the Company evaluates its real estate investments
held for use 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, historical and projected 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.
The Company classifies its real estate investments as held for sale when the applicable criteria have been met,
which includes 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.
If circumstances arise that previously were considered unlikely and, as a result, the Company decides not to sell a
real estate investment previously classified as held for sale or otherwise no longer meets the held for sale criteria, the respective
assets are reclassified as real estate investments held for use. A real estate investment that is reclassified is measured and
recorded individually at the lower of (a) its carrying amount before the real estate investment was classified as held for sale,
adjusted for any depreciation expense that would have been recognized had the real estate investment been continuously
classified as held for use, or (b) the fair value at the date of the decision not to sell or change in circumstances that led to the
real estate investment no longer meeting the criteria of held for sale.
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.
For the year ended December 31, 2022, the Company recorded an impairment charge of $79.1 million. See Note 4,
Impairment of Real Estate Investments, Asset Held For Sale, Net and Asset Sales, for additional information.
Other Real Estate Related Investments—Included in other real estate related investments on the Company’s
consolidated balance sheets at December 31, 2022, are three real estate secured loans receivable and two mezzanine loans
receivable. Included in other real estate related investments on the Company’s consolidated balance sheets at December 31,
2021, is one mezzanine loan receivable. The Company elected the fair value option for all other real estate related investments.
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 statements of operations. Fair value was estimated using an internal
valuation model that considered the expected future cash flows of the investment, the underlying collateral value, market
F-9
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
interest rates and other credit enhancements. Interest income is recognized as earned within interest and other income in the
consolidated statements of operations.
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, 2022, the Company determined that the
remaining contractual obligations under two other loans receivable were not collectible and recorded a $4.6 million expected
credit loss, net of a loan loss recovery of $0.8 million related to a loan previously written-off. Expected credit losses and
recoveries are recorded in provision for loan losses, net in the consolidated statements of operations.
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 cash equivalents 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.
For senior unsecured notes payable and the senior unsecured term loan, deferred financing costs are netted against the
outstanding debt amounts on the consolidated balance sheets. For the unsecured revolving credit facility, deferred financing
costs are included in assets on the Company’s consolidated balance sheets. Amortization of deferred financing costs is
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
classified as interest expense in the consolidated statements of operations. Accumulated amortization of deferred financing
costs was $2.5 million and $8.0 million at December 31, 2022 and 2021, 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 statements of operations. During the year ended December 31, 2021,
the Company recorded a loss on extinguishment of debt of $10.8 million. See Note 7, Debt, for further detail.
Stock-Based Compensation—The Company accounts for share-based payment awards in accordance with ASC
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 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 (loss) income reflects stock-based
compensation expense of $5.8 million, $10.8 million and $3.8 million for the years ended December 31, 2022, 2021 and 2020,
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 12, 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 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”), which 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 were
effective immediately and could have been applied through December 31, 2022. On December 21, 2022, the FASB issued ASU
2022-06 to defer the sunset date of ASC 848 to December 31, 2024. During the year ended December 31, 2022, the Company
adopted ASU 2020-04. Adoption of this ASU did not have a material impact on the Company’s consolidated financial
statements.
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. REAL ESTATE INVESTMENTS, NET
The following table summarizes the Company’s investment in owned properties held for use at December 31, 2022
and 2021 (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, 2022
December 31, 2021
$
$
238,738 $
1,483,133
97,199
2,832
1,821,902
(400,492)
1,421,410 $
251,787
1,622,019
104,722
1,257
1,979,785
(389,814)
1,589,971
As of December 31, 2022, 94 of the Company’s 216 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 on October 1, 2019, June 1, 2021, August
1, 2021, March 1, 2022 and April 1, 2022. 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, 2022, annualized contractual rental income from the Ensign Master Leases
was $62.3 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, 2022, annualized contractual rental
income from the four additional Ensign facilities was $3.9 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, 2022, 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, 2022, annualized contractual rental income from the PMG Master Lease was $30.2 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, 2022, 103 of the Company’s 216 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. During the second and third quarters of 2022, the Company entered
into triple-net lease agreements for two of the Company’s 216 facilities which are being repurposed to behavioral health
facilities with rent commencing 12 to 18 months following lease commencement. Two of the Company’s 216 facilities are non-
operational and are leased under a short term lease with an expected remaining term of less than one year as of December 31,
2022. As of December 31, 2022, five facilities were held for sale. See Note 4, Impairment of Real Estate Investments, Assets
Held for Sale, Net and Asset Sales for additional information.
F-12
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022, the Company’s total future contractual minimum rental income for all of its tenants,
excluding operating expense reimbursements, was as follows (dollars in thousands):
Year
2023
2024
2025
2026
2027
Thereafter
Amount
190,704
190,463
190,621
190,727
187,719
984,665
1,934,899
$
$
Tenant Purchase Options
Certain of the Company’s operators hold purchase options allowing them to acquire properties they currently lease
from the Company. A summary of these purchase options is presented below (dollars in thousands):
Asset Type
SNF
SNF
SNF / Campus
SNF
Properties
11
1
2
4
Lease Expiration
November 2030
March 2029
October 2032
November 2034
Next Option Open
Date(1)
1/1/2023
4/1/2022
1/1/2023
12/1/2024
(4)
(5)
(4)
(5)
Option Type(2)
B
A / B(6)
A
A
Current Cash Rent(3)
5,092
805
1,097
3,891
(1) The Company has not received notice of exercise for the option periods that are currently open.
(2) Option type includes:
A - Fixed base price.
B - Fixed capitalization rate on lease revenue.
(3) Based on annualized cash revenue for contracts in place at December 31, 2022.
(4) Option window is open for six months.
(5) Option window is open until the expiration of the lease term.
(6) Purchase option reflects two option types.
Rental Income
The following table summarizes components of the Company’s rental income (dollars in thousands):
For the Year Ended December 31,
2022
2021
2020
Rental Income
Contractual rent due(1)
Straight-line rent
Adjustment for collectibility(2)
Recoveries(3)
Lease termination revenue(4)
Total
$
$
188,906 $
190,100 $
171,309
17
(1,417)
—
—
32
—
—
63
77
—
1,047
1,179
187,506 $
190,195 $
173,612
(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, 2022, 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 existing and former operators. As such, the Company reversed $0.7 million of operating expense
reimbursements, $0.2 million of contractual rent and $0.5 million of straight-line rent during the year ended December 31, 2022. If
lease payments are subsequently deemed probable of collection, the Company will reestablish the receivable which will result in an
increase in rental income for such recoveries.
(3) During the 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.
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4)
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, 2022, 2021 and
2020 (dollar amounts in thousands):
Type of Property
December 31, 2022
Skilled nursing
Multi-service campuses
Total
December 31, 2021
Skilled nursing
Multi-service campuses
Assisted living
Total
December 31, 2020
Skilled nursing
Multi-service campuses
Assisted living
Total
Purchase Price(1)
Initial Annual Cash Rent
Number of Properties Number of Beds/Units(2)
$
$
$
$
$
$
8,918 $
13,003
21,921 $
57,973 $
125,708
12,395
196,076 $
75,545 $
6,876
7,396
89,817 $
815
1,235
2,050
4,499 (3)
8,604 (4)
— (5)
13,103
6,453
555
590
7,598
1
1
2
4
4
2
10
6
1
1
8
135
130
265
509
640
98
1,247
715
184
62
961
(1) Purchase price includes capitalized acquisition costs.
(2) The number of beds/units includes operating beds at acquisition date.
(3)
(4)
Initial annual cash rent represents initial cash rent for the first twelve months excluding any impact of straight-line rent.
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.
Initial annual cash rent is zero until transfer of operations upon receipt of licensing approval.
(5)
Lease Amendments
Noble Partial Lease Termination and New Landmark Leases. In June and August of 2022, one ALF in Florida
and one ALF in Maryland were removed from a master lease with affiliates of Noble Senior Services (“Noble”) and the
Company amended the applicable Noble master lease to reflect the removal of the two ALFs. Annual cash rent under the
applicable Noble master lease decreased by approximately $1.1 million. In connection with the partial lease termination, the
Company entered into a lease with Landmark Recovery of Maryland, LLC and Landmark Recovery of Florida, LLC
( collectively “Landmark”) to repurpose the facilities to behavioral health treatment centers. Rent under the leases will
commence 12 - 18 months following commencement of the lease term or, if earlier, upon Landmark obtaining all licensure,
permits, and other required regulatory authorizations with respect to operating the facility. The leases will expire on the 20th
anniversary of the rent commencement date and both contain one 10-year renewal option and CPI-based rent escalators.
Pennant Partial Lease Termination and Amended Ensign Master Leases. On April 1, 2022, operations at two
ALFs in California and Washington operated by affiliates of The Pennant Group, Inc. (“Pennant”) were transferred to affiliates
of The Ensign Group, Inc. (“Ensign”). In connection with the transfers, the Company amended the Pennant master lease to
reflect the removal of the two ALFs and amended two existing Ensign Master Leases to include the two ALFs. The applicable
Ensign Master Leases, as amended, had a remaining term at the date of amendment of approximately five years and 16 years,
respectively, both with three five-year renewal options and CPI-based rent escalators. Annual cash rent under each of the two
applicable Ensign Master Leases, as amended, increased by approximately $0.4 million and annual cash rent under the Pennant
master lease, as amended, decreased by $0.8 million.
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 1, 2022, operations at one ALF in Arizona operated by affiliates of Pennant were transferred to affiliates
of Ensign. In connection with the transfer, the Company amended the Pennant master lease to reflect the removal of the ALF
and amended an existing Ensign Master Lease to include the one ALF. The applicable Ensign Master Lease, as amended, had a
remaining term at the date of amendment of approximately 11 years, with two five-year renewal options and CPI-based rent
escalators. Annual cash rent under the applicable Ensign Master Lease, as amended, increased by approximately $0.3 million
and annual cash rent under the Pennant master lease, as amended, decreased by the same amount.
Amended Eduro Master Lease. On February 1, 2022, the Company acquired one SNF. In conjunction with the
acquisition, the Company amended its existing triple-net master lease with affiliates of Eduro Healthcare, LLC (“Eduro”) to
include the one SNF and extended the initial lease term. The Eduro master lease, as amended, had a remaining term at the date
of amendment of approximately 12 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent
under the Eduro master lease, as amended, increased by approximately $0.8 million.
Amended WLC Master Lease. On March 1, 2022, the Company acquired one multi-service campus. In conjunction
with the acquisition, the Company amended its existing triple-net master lease with affiliates of WLC Management Firm, LLC
(“WLC”) to include the one multi-service campus. The WLC master lease, as amended, had a remaining term at the date of
amendment of approximately 12 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent
under the WLC master lease, as amended, increased by approximately $1.2 million.
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 Ensign Master Lease to include the two skilled nursing facilities. The Ensign Master
Lease, as amended, had a remaining term at the date of amendment 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, had a remaining term at the date of amendment 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.
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, had a remaining term at the date of amendment 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.
4. IMPAIRMENT OF REAL ESTATE INVESTMENTS, ASSETS HELD FOR SALE, NET AND ASSET SALES
In connection with the Company’s ongoing review and monitoring of its investment portfolio and the performance
of its tenants, during the first quarter of 2022, the Company determined to pursue the sale of 27 properties and the repurposing
of three properties representing an aggregate of approximately 10% of contractual cash rent as of March 31, 2022. As of March
31, 2022, the Company determined that these 27 properties met the criteria to be classified as assets held for sale. During the
year ended December 31, 2022, the Company recognized an aggregate impairment charge of $79.1 million, of which
$45.0 million related to 12 facilities that have been sold, $18.0 million related to 10 facilities that were classified as held for sale
in the first quarter of 2022 and reclassified to held for use in the third and fourth quarters of 2022, $14.4 million related to five
facilities that were held for sale as of December 31, 2022, and $1.7 million related to one facility that was held for use during
the year. For properties classified as held for sale, the impairment charges were recognized to write down the properties to the
lower of their carrying value or their aggregate fair value, less estimated costs to sell. For properties classified as held for use,
the impairment charges were recognized to write down the properties to their fair value.
Following the asset sales and held for sale reclassifications discussed below, five properties continued to meet the
criteria to be classified as held for sale as of December 31, 2022. As of December 31, 2022, the real estate comprising the
remaining five properties classified as held for sale had an aggregate carrying value of $12.3 million.
The fair value of the assets held for sale was based on estimated sales prices, which are considered to be Level 3
measurements within the fair value hierarchy. Estimated sales prices were determined using a market approach (comparable
sales model), which relies on certain assumptions by management, including: (i) comparable market transactions, (ii) estimated
prices per unit, and (iii) binding agreements for sales and non-binding offers to purchase from unrelated third-parties. There are
inherent uncertainties in making these assumptions. For the Company’s impairment calculations, the Company’s fair value
estimates primarily relied on a market approach and utilized prices per unit ranging from $20,000 to $85,000, with a weighted
average price per unit of $55,000.
Asset Sales and Held for Sale Reclassifications
During the first quarter of 2022, the Company determined that one ALF that was classified as held for sale at
December 31, 2021 no longer met the held for sale criteria. The Company reclassified this ALF’s carrying value of $4.8 million
out of assets held for sale and recorded catch-up depreciation of approximately $0.1 million during the year ended December
31, 2022.
During the first quarter of 2022, the Company closed on the sale of one SNF, operated by affiliates of Cascadia
Healthcare, LLC (“Cascadia”), consisting of 83 beds located in Washington with a carrying value of $0.8 million, for net sales
proceeds of $1.0 million. During the year ended December 31, 2022, the Company recorded a gain of $0.2 million in
connection with the sale. There was no rent reduction under the Cascadia master lease in connection with the sale.
F-16
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the third quarter of 2022, the Company determined that one ALF, with a carrying value of $4.9 million, that
was classified as held for sale at June 30, 2022 no longer met the held for sale criteria. The Company reclassified this ALF out
of assets held for sale at its fair value at the date of the decision not to sell of approximately $4.9 million, or a weighted average
price per unit of $125,000.
During the third quarter of 2022, the Company closed on the sale of six SNFs and one multi-service campus,
operated by affiliates of Trio Healthcare Holdings, LLC (“Trio”), consisting of 708 beds located in Ohio for net proceeds of
$32.8 million. In connection with the sale, the Company provided affiliates of the purchaser of the properties with a
$7.0 million term loan that bears interest at 8.5% and has a maturity date of September 30, 2025. The Company also provided a
$5.0 million bridge loan to four individuals that bore interest at 8.5% and was subsequently repaid during the fourth quarter of
2022. Prior to their sale, the seven properties were classified as held for sale, with a carrying value of $46.9 million. During the
year ended December 31, 2022, the Company recorded a loss of $2.1 million in connection with the sale.
During the fourth quarter of 2022, the Company closed on the sale of five ALFs, operated by affiliates of Noble
VA Holdings, LLC (“Noble”), consisting of 301 beds located in Virginia for net proceeds of $11.0 million. Prior to their sale,
the five properties had been classified as held for sale at September 30, 2022, with a carrying value of $12.7 million. During the
year ended December 31, 2022, the Company recorded a loss of $1.7 million in connection with the sale.
During the fourth quarter of 2022, the Company determined that nine ALFs, with a carrying value of $50.8 million,
that were classified as held for sale at September 30, 2022, no longer met the held for sale criteria. The Company reclassified
the nine ALFs out of assets held for sale at their fair value at the date of the decision not to sell of approximately $47.8 million.
The fair value of assets reclassified as real estate investments held for use was based on an income approach using
current market conditions and considers matters such as the forecasted operating cash flows, lease coverage ratios,
capitalization rates, and, where applicable, terms of recent lease agreements or the results of negotiations with prospective
tenants, which are considered to be Level 3 measurements within the fair value hierarchy. There are inherent uncertainties in
making these assumptions. For the Company’s impairment calculations, the Company’s fair value estimates primarily relied on
an income approach. When utilizing an income approach, assumptions include, but are not limited to, terminal capitalization
rates ranging from 7.5% to 8.75% and discount rates ranging from 8.5% to 9.75%.
Impairment of Assets Held For Use
During the second quarter of 2022, the Company recognized an impairment charge of $1.7 million related to one
SNF. The Company wrote down its carrying value of $2.8 million to its estimated fair value of $1.1 million, which is included
in real estate investments, net on the Company’s consolidated balance sheets. The fair value of the asset was based on
comparable market transactions. For the Company’s impairment calculation, the Company’s fair value estimates primarily
relied on a market approach and utilized prices per unit of $20,000.
F-17
Investment
Senior mortgage
secured loan
receivable
Mortgage secured
loan receivable
Mortgage secured
loan receivable
Mezzanine loan
receivable
Mezzanine loan
receivable
Total
5 SNF
4 SNF
9 SNF
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. OTHER REAL ESTATE RELATED AND OTHER INVESTMENTS
As of December 31, 2022 and 2021, the Company’s other real estate related investments, at fair value, consisted of
the following (dollar amounts in thousands):
As of December 31, 2022
Facility Count and
Type
Principal
Balance as of
December 31,
2022
Book Value as
of December
31, 2022
Book Value as
of December
31, 2021
Weighted
Average
Contractual
Interest Rate
18 SNF/Campus
$
75,000 $
72,543 $
22,250
21,345
24,900
23,796
Maturity Date
6/30/2027
8/1/2025
8.4 %
10.2 %
(1)
(2)
(2)
9.0 %
9/8/2025
—
—
—
15,000
14,672
15,155
12.0 %
11/30/2025
18 SNF/Campus
25,000
24,012
—
11.0 %
6/30/2032
$
162,150 $
156,368 $
15,155
(1)
(2)
Rate is net of subservicing fee.
Term secured overnight financing rate (“SOFR”) used as of December 31, 2022 was 4.33%. Rates are net of subservicing fees.
The following table summarizes the Company’s other real estate related investments activity for the year ended
December 31, 2022 and 2021 (dollars in thousands):
Origination of other real estate related investments
Accrued interest, net
Unrealized loss on other real estate related investments
Net increase in other real estate related investments, at fair value
For the Year Ended December 31,
2022
2021
$
$
147,150 $
1,165
(7,102)
141,213 $
—
155
—
155
In September 2022, the Company extended a $24.9 million term loan as part of a larger, multi-tranche real estate
secured term loan facility to a skilled nursing real estate owner. The secured term loan was structured with an “A” and a “B”
tranche (with the payments on the “B” tranche being subordinate to the “A” tranche pursuant to the terms of a written
agreement between the lenders). The Company’s $24.9 million secured term loan constituted the entirety of the “B” tranche
with its payments subordinated accordingly. The secured term loan is primarily secured by four skilled nursing facilities
operated by an operator in the Southeast. The “B” tranche secured term loan is set to mature on September 8, 2025, with two
one-year extension options and may (subject to certain restrictions) be prepaid in whole or in part before the maturity date for
an exit fee ranging from 1% to 3% of the loan plus unpaid interest payments; provided, however, that no exit fee is payable in
connection with portions of the loan being refinanced pursuant to a loan (or loans) provided by or insured by the United States
Department of Housing and Urban Development, Federal Housing Administration, or a similar governmental authority. The
“B” tranche secured term loan provides for an earnout advance of $4.7 million if certain conditions are met. The "B" tranche
secured term loan bears interest at a rate based on term SOFR, calculated as a fraction, with the numerator being the difference
between (i) the monthly payment of interest of term SOFR plus a 4.50% spread and (ii) the amount of such monthly payment of
interest of term SOFR plus a 2.85% spread, and with the denominator being the average daily balance of the outstanding
principal amount during the applicable month, with such fraction expressed as a percentage and annualized, with a term SOFR
floor of 1.0% and less a subservicing fee of 100% over 9.00%. The “B” tranche secured term loan requires monthly interest
payments. The Company elected the fair value option for the “B” tranche secured term loan.
F-18
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2022, the Company extended a $22.3 million term loan as part of a larger, multi-tranche real estate
secured term loan facility to a skilled nursing real estate owner. The secured term loan was structured with an “A” and a “B”
tranche (with the payments on the “B” tranche being subordinate to the “A” tranche pursuant to the terms of a written
agreement between the lenders). The Company’s $22.3 million secured term loan constituted the entirety of the “B” tranche
with its payments subordinated accordingly. The secured term loan is primarily secured by five skilled nursing facilities, four of
which are operated by an existing operator and one of which is operated by a large, regional skilled nursing operator. The “B”
tranche secured term loan is set to mature on August 1, 2025, with two one-year extension options and may (subject to certain
restrictions) be prepaid in whole or in part before the maturity date for an exit fee ranging from 2% to 3% of the loan plus
unpaid interest payments; provided, however, that no exit fee is payable in connection with portions of the loan being
refinanced pursuant to a loan (or loans) provided by or insured by the United States Department of Housing and Urban
Development, Federal Housing Administration, or a similar governmental authority. The "B" tranche secured term loan bears
interest at a rate based on term secured overnight financing rate, calculated as a fraction, with the numerator being the
difference between (i) the monthly payment of interest of term SOFR plus a 4.25% spread and (ii) the amount of such monthly
payment of interest of term SOFR plus a 2.75% spread, and with the denominator being the average daily balance of the
outstanding principal amount during the applicable month, with such fraction expressed as a percentage and annualized, with a
term SOFR floor of 1.0% and less a subservicing fee of 50% over 8.25%. The “B” tranche secured term loan requires monthly
interest payments. The Company elected the fair value option for the “B” tranche secured term loan.
In June 2022, the Company extended a $75.0 million term loan to a skilled nursing real estate owner as part of a
larger, multi-tranche, senior secured term loan facility. The senior secured term loan was structured with an “A” tranche, a “B”
tranche, and a “C” tranche (with the “C” tranche being the most subordinate). The Company’s $75.0 million term loan
constituted the entirety of the “C” tranche with its payments subordinated accordingly. The senior secured term loan facility is
secured by an 18-facility skilled nursing portfolio in the Mid-Atlantic region, operated by a large, regional skilled nursing
operator. In connection with the senior secured term loan facility and the borrower’s acquisition of the skilled nursing portfolio,
the Company also extended to the borrower group a $25.0 million mezzanine loan. The “C” tranche of the senior secured term
loan bears interest at 8.5%, less a servicing fee equal to the positive difference, if any, between the lesser of the contractual
interest payment and actual payment of interest made by the borrower and a hypothetical interest payment at a rate of 8.25%,
resulting in an effective interest rate of 8.375%. The “C” tranche senior secured term loan is set to mature on June 30, 2027 and
may (subject to certain restrictions) be prepaid in whole or in part before the maturity date for an exit fee ranging from 1% to
3% of the loan plus unpaid interest payments through the end of the month of prepayment; provided, however, that no exit fee
is payable in connection with portions of the loan being refinanced pursuant to a loan (or loans) provided by or insured by the
United States Department of Housing and Urban Development, Federal Housing Administration, or a similar governmental
authority. The mezzanine loan bears interest at 11% and is secured by a pledge of membership interests in an up-tier affiliate of
the borrower group. The mezzanine loan is set to mature on June 30, 2032, and may (subject to certain restrictions) be prepaid
in whole or in part before the maturity date, commencing on June 30, 2029, for an exit fee ranging from 1% to 3% of the loan
plus unpaid interest payments through the date of prepayment. The “C” tranche senior secured term loan and mezzanine loan
both require monthly interest payments. The Company elected the fair value option for both the “C” tranche term loan and the
mezzanine loan.
The fair value option is elected on an instrument by instrument basis and must be applied to an entire instrument
and is irrevocable once elected. The Company’s primary purpose in electing the fair value option for these instruments was to
align with management’s view of the underlying economics of the loans and the manner in which they are managed.
As of December 31, 2022 and 2021, the Company’s other loans receivable, included in prepaid expenses and other
assets, net on the Company’s consolidated balance sheets, consisted of the following (dollars in thousands):
Investment
Principal Balance as
of December 31,
2022
Book Value as of
December 31, 2022
Book Value as of
December 31, 2021
Other loans receivable
Expected credit loss
Total
$
$
9,596 $
—
9,596 $
9,600 $
(2,094)
7,506 $
3,161
—
3,161
As of December 31, 2022
Weighted
Average
Contractual
Interest Rate
8.5 %
Maturity
Date
9/1/2023 -
9/30/2025
F-19
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the Company’s other loans receivable activity for the year ended December 31,
2022 and 2021 (dollars in thousands):
Origination of loans receivable
Principal payments
Accrued interest, net
Provision for loan losses, net
Net increase in other loans receivable
For the Year Ended December 31,
2022
2021
$
$
14,500 $
(6,307)
(4)
(3,844)
4,345 $
1,253
(393)
(6)
—
854
Expected credit losses and recoveries are recorded in provision for loan losses, net in the consolidated statements of
operations. During the year ended December 31, 2022, the Company recorded a $4.6 million expected credit loss related to two
other loans receivable that were placed on non-accrual status, net of a loan loss recovery of $0.8 million related to a loan
previously written-off. During the year ended December 31, 2022, the Company fully reserved and wrote-off $2.5 million,
related to one other loan receivable, in connection with the sale of six SNFs and one multi-service campus. As of December 31,
2021, the Company had no expected credit loss and did not consider any loan receivable investments to be impaired.
The following table summarizes the interest and other income recognized from the Company’s loans receivable and
other investments during the years ended December 31, 2022, 2021 and 2020 (dollar amounts in thousands):
Investment
Mortgage secured loans receivable
Mezzanine loans receivable
Preferred equity investments(1)
Other
Total
For Year Ended December 31,
2022
2021
2020
4,853 $
— $
2,044
3,489
—
284
1,825
—
331
305
24
270
8,626 $
2,156 $
2,643
$
$
(1)
As of December 31, 2022 and 2021, the Company had no preferred equity investments.
6. FAIR VALUE MEASUREMENTS
The Company determines fair value based on quoted prices when available or through the use of alternative
approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and
duration of the investment. GAAP guidance defines three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to
access at the measurement date.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability or can be
corroborated with observable market data for substantially the entire contractual term of the asset or liability.
Level 3 – Unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants
would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through
particular valuation techniques.
The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers
factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs
from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value
measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The
Company evaluates its hierarchy disclosures each quarter and, depending on various factors, it is possible that an asset or
liability may be classified differently from quarter to quarter. Changes in the type of inputs may result in a reclassification for
certain assets. The Company does not expect that changes in classifications between levels will be frequent.
F-20
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2022 and 2021, aggregated by the level in the fair value hierarchy within which those
instruments fall (dollars in thousands):
Assets:
Mortgage secured loans receivable
Mezzanine loans receivable
Total
Assets:
Mezzanine loan receivable
Level 1
Level 2
Level 3
Balance as of December 31, 2022
$
$
— $
—
— $
— $ 117,684 $
—
— $ 156,368 $
38,684
117,684
38,684
156,368
Level 1
Level 2
Level 3
Balance as of December 31, 2021
$
— $
— $
15,155 $
15,155
The following table details the Company’s assets measured at fair value on a recurring basis using Level 3 inputs
(dollars in thousands):
Balance at December 31, 2021
Loan originations
Accrued interest, net
Unrealized loss on other real estate related investments
Balance as of December 31, 2022
Investments in Real
Estate Secured Loans
Investments in
Mezzanine Loans
$
$
— $
122,150
928
(5,394)
117,684 $
15,155
25,000
237
(1,708)
38,684
Real estate secured and mezzanine loans receivable: The fair value of the secured and mezzanine loans receivables
were estimated using an internal valuation model that considered the expected future cash flows of the investment, the
underlying collateral value, market interest rates and other credit enhancements. As such, the Company classifies each
instrument as Level 3 due to the significant unobservable inputs used in determining market interest rates for investments with
similar terms. During the year ended December 31, 2022, the Company recorded an unrealized loss of $7.1 million on the
Company’s secured and mezzanine loans receivable due to rising interest rates. Future changes in market interest rates or
collateral value could materially impact the estimated discounted cash flows that are used to determine the fair value of the
secured and mezzanine loans receivable. As of December 31, 2022 and 2021, the Company did not have any loans that were 90
days or more past due.
The following table shows the quantitative information about unobservable inputs related to the Level 3 fair value
measurements comprising the investments in secured and mezzanine loans receivables as of December 31, 2022:
Book Value as of
December 31, 2022
Valuation
Technique
Unobservable
Inputs
Range
Type
Mortgage secured loans
receivable
Mezzanine loans receivable
38,684 Discounted cash flow
Discount Rate
$
117,684 Discounted cash flow
Discount Rate
9% - 13%
12% - 14%
For the year ended December 31, 2022, 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, 2022, the
F-21
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company recorded an impairment charge of $79.1 million. For the years ended December 31, 2021 and 2020, there were no
real estate assets deemed to be impaired. See Note 4, Impairments of Real Estate Investments, Assets Held for Sale, Net and
Asset Sales, for additional information.
Items Disclosed at Fair Value
Considerable judgment is necessary to estimate the fair value disclosure of financial instruments. The estimates of
fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial
instruments. A summary of the face values, carrying amount and fair value of the Notes (as defined in Note 7, Debt, below) as
of December 31, 2022 and 2021 using Level 2 inputs (dollars in thousands):
December 31, 2022
Carrying
Amount
Face
Value
Fair
Value
December 31, 2021
Carrying
Amount
Fair
Value
Face
Value
Financial liabilities:
Senior unsecured notes payable
$ 400,000 $ 395,150 $ 345,036 $ 400,000 $ 394,262 $ 410,500
Cash and cash equivalents, accounts and other receivables, accounts payable, and accrued liabilities: The carrying
values for these instruments approximate their fair values due to the short-term nature of these instruments.
Senior unsecured notes payable: The fair value of the Notes was determined using third-party quotes derived from
orderly trades.
Unsecured revolving credit facility and senior unsecured term loan: The fair values approximate their carrying
values as the interest rates are variable and approximate prevailing market interest rates for similar debt arrangements.
7. DEBT
The following table summarizes the balance of the Company’s indebtedness as of December 31, 2022 and 2021 (in thousands):
December 31, 2022
Deferred
Loan Fees
Principal
Amount
Carrying
Amount
December 31, 2021
Deferred
Loan Fees
Principal
Amount
Carrying
Amount
Senior unsecured notes payable
Senior unsecured term loan
Unsecured revolving credit facility
$
$
400,000 $
200,000
125,000
725,000 $
(4,850) $
(652)
—
(5,502) $
395,150
199,348
125,000
719,498
$
$
400,000 $
200,000
80,000
680,000 $
(5,738) $
(864)
—
(6,602) $
394,262
199,136
80,000
673,398
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
F-22
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, 2022, 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 statements of operations, 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 December 16, 2022, the Operating Partnership, as the borrower, the Company, as guarantor, CareTrust GP,
LLC, and certain of the Operating Partnership’s wholly owned subsidiaries, entered into a second amended and restated credit
and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender (the
“Second Amended Credit Agreement”). The Second Amended Credit Agreement, which amends and restates the Company’s
amended and restated credit and guaranty agreement, dated as of February 8, 2019 (as amended, the “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) the continuation of the unsecured
term loan credit facility which was previously extended under the Prior Credit Agreement (the “Term Loan” and together with
the Revolving Facility, the “Second Amended Credit Facility”) in an aggregate principal amount of $200.0 million. Future
borrowings under the Second Amended Credit Facility will be used for working capital purposes, for capital expenditures, to
fund acquisitions and for general corporate purposes.
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 Adjusted Term SOFR or Adjusted Daily Simple
SOFR (each as defined in the Second Amended Credit Agreement) plus a margin ranging from 1.10% to 1.55% per annum
based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating
Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured
debt). The interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a
base rate plus a margin ranging from 0.50% to 1.20% per annum or Adjusted Term SOFR or Adjusted Daily Simple SOFR plus
a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and its consolidated
F-23
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CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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). 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, 2022, the
Operating Partnership had $200.0 million of borrowings outstanding under the Term Loan and $125.0 million outstanding
under the Revolving Facility.
The Revolving Facility has a maturity date of February 9, 2027, and includes, at the sole discretion of the Operating
Partnership, two, six-month extension options. The Term Loan has a maturity date of February 8, 2026.
The Second Amended Credit Facility is guaranteed, jointly and severally, by the Company and its wholly owned
subsidiaries that are party to the Second Amended Credit Agreement (other than the Operating Partnership). The Second
Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the
ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments,
engage in acquisitions, mergers or consolidations, amend organizational documents and pay certain dividends and other
restricted payments. The Second Amended Credit Agreement requires the Company to comply with financial maintenance
covenants to be tested quarterly, consisting of a maximum debt to asset value ratio, a minimum fixed charge coverage ratio, a
minimum tangible net worth, a maximum cash distributions to operating income ratio, a maximum secured debt to asset value
ratio, a maximum secured recourse debt to asset value ratio, a maximum unsecured debt to unencumbered properties asset value
ratio, a minimum unsecured interest coverage ratio and a minimum rent coverage ratio. The Second Amended Credit
Agreement also contains certain customary events of default, including the failure to make timely payments under the Second
Amended Credit Facility or other material indebtedness, the failure to satisfy certain covenants (including the financial
maintenance covenants), the occurrence of change of control and specified events of bankruptcy and insolvency.
As of December 31, 2022, the Company was in compliance with all applicable financial covenants under the
Second Amended Credit Agreement.
Schedule of Debt Maturities
As of December 31, 2022, the Company’s debt maturities were (dollars in thousands):
Year
2023
2024
2025
2026
2027
Thereafter
8. EQUITY
Common Stock
Amount
—
—
—
200,000
125,000
400,000
725,000
$
$
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”), which expires in March 2023.
F-24
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 for the years ended December 31,
2022 and 2021 (in thousands, except per share amounts):
Number of shares
For the Year Ended December 31,
2022
2021
2,405
990
Average sales price per share
Gross proceeds(1)
(1) Total gross proceeds is before $0.6 million and $0.3 million of commissions paid to the sales agents during the year ended December
48,100 $
20.00 $
23,505
23.74
$
$
31, 2022 and 2021, respectively, under the ATM Program.
As of December 31, 2022, the Company had $428.4 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, 2022, 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 2022, 2021 and 2020 (dollars in thousands, except per share amounts):
2022
Dividends declared per share
Dividends payment date
Dividends payable as of record date[1]
Dividends record date
2021
Dividends declared per share
Dividends payment date
Dividends payable as of record date[1]
Dividends record date
2020
Dividends declared per share
Dividends payment date
Dividends payable as of record date[1]
Dividends record date
$
$
$
$
$
$
For the Three Months Ended
March 31,
June 30,
September 30,
December 31,
0.275 $
0.275 $
0.275 $
0.275
April 15, 2022
July 15, 2022
October 14, 2022
January 13, 2023
26,691 $
26,683 $
26,683 $
27,386
March 31, 2022
June 30, 2022
September 30, 2022 December 30, 2022
0.265 $
0.265 $
0.265 $
0.265
April 15, 2021
July 15, 2021
October 15, 2021
25,633 $
25,714 $
25,714 $
January 14, 2022
25,755
March 31, 2021
June 30, 2021
September 30, 2021 December 31, 2021
0.25 $
0.25 $
April 15, 2020
July 15, 2020
23,931 $
23,931 $
March 31, 2020
June 30, 2020
0.25 $
October 15, 2020
0.25
January 15, 2021
23,933
September 30, 2020 December 31, 2020
23,934 $
(1) Dividends payable includes dividends on performance stock awards that will be paid if and when the shares subject to such awards vest.
F-25
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK-BASED COMPENSATION
All stock-based awards are subject to the terms of the CareTrust REIT, Inc. and CTR Partnership, L.P. Incentive
Award Plan (the “Plan”). The Plan provides for the granting of stock-based compensation, including stock options, restricted
stock, performance awards, restricted stock units, relative total stockholder return-based stock awards 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 2022 and 2021 and a four year period for the
RSAs granted in 2020. 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. The amount of such PSAs that will ultimately vest is
dependent on the Company’s Normalized Funds from Operations (“NFFO”) per share, as defined by the Compensation
Committee, meeting or exceeding a specified per share amount for the applicable vesting period. Relative total shareholder
return units (“TSR Units”) granted in 2022 and 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 Units initially granted. The RSAs, PSAs, and Board Awards are valued on the date of grant
based on the closing price of the Company’s common stock, while the TSR Units are valued on the date of grant using a Monte
Carlo valuation model. The vesting of certain awards may accelerate, as defined in the grant agreement, upon retirement, a
change in control or other events.
The following table summarizes the status of the restricted stock award and performance award activity for the year
ended December 31, 2022:
Unvested balance at December 31, 2021
Granted:
RSAs
Board Awards
Vested
Forfeited
Unvested balance at December 31, 2022
Shares
Weighted Average
Share Price
891,333 $
159,663
25,992
(501,479)
(1,900)
573,609 $
20.91
19.56
16.93
20.60
21.50
20.63
As of December 31, 2022, the weighted-average remaining vesting period of such awards was 1.9 years.
The following table summarizes the Company’s RSA, PSA and Board Award grants during the year ended
December 31, 2022 (dollars in thousands, except per share amounts):
During year ended December 31, 2022(1)
RSAs
PSAs
Board Awards
Grants
Weighted
Average Share
Price
Shares
Vested
Grant Date
Fair Value
Shares
Vest Date
Fair Value
159,663 $
19.56 $
3,123
263,568 $
—
25,992
—
16.93
—
440
217,645
20,266
5,020
4,134
346
(1) The Compensation Committee granted annual awards for 2023 in December 2022.
F-26
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the Company’s RSA, PSA and Board Award grants during the years ended
December 31, 2021 and 2020 (dollars in thousands, except per share amounts):
During year ended December 31, 2021(1)
RSAs
PSAs
Board Awards
During year ended December 31, 2020
RSAs
PSAs
Board Awards
Grants
Weighted
Average Share
Price
Grant Date
Fair Value
Shares
394,863 $
21.92 $
108,414
20,266
22.48
24.18
134,790 $
19.68 $
107,790
27,611
19.06
16.48
8,654
2,437
490
2,653
2,054
455
(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 fair value of the TSR Units 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 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, 2022 and 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
For the Year Ended
December 31, 2022
For the Year Ended
December 31, 2021
3.91 %
52.90 %
3.04 years
— %
$
26.53
$
0.60 %
52.42 %
2.93 years
— %
29.10
The total fair value of the TSR Units granted during the year ended December 31, 2022 and 2021 was $2.5 million
and $5.3 million, respectively.
The following table summarizes the stock-based compensation expense recognized (dollars in thousands):
Stock-based compensation expense
$
5,758 $
10,832 $
3,790
As of December 31, 2022, there was $11.6 million of unamortized stock-based compensation expense related to the
unvested RSAs, PSAs, Board Awards, and TSR Units.
2022
For Year Ended December 31,
2021
2020
F-27
Table of Contents
CARETRUST REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. (LOSS) EARNINGS PER COMMON SHARE
The following table presents the calculation of basic and diluted (loss) earnings per common share (“EPS”) for the
Company’s common stock for the years ended December 31, 2022, 2021 and 2020, 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, 2022, 2021 and 2020 (amounts in thousands, except per share
amounts):
Year Ended December 31,
2021
2020
2022
Numerator:
Net (loss) 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
$
(7,506) $
(440)
(7,946) $
71,982 $
(507)
71,475 $
96,703
—
96,703
96,017
75
96,092
(Loss) earnings per common share, basic
(Loss) earnings per common share, diluted
Antidilutive unvested restricted stock awards, total shareholder units and
performance awards excluded from the computation
$
$
(0.08) $
(0.08) $
0.74 $
0.74 $
744
591
80,867
(298)
80,569
95,200
7
95,207
0.85
0.85
296
11. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are and may become from time to time a party to various claims and lawsuits
arising in the ordinary course of business, which are not individually or in the aggregate anticipated to have a material adverse
effect on the Company’s results of operations, financial condition or cash flows. Claims and lawsuits may include matters
involving general or professional liability asserted against the Company’s tenants, which are the responsibility of the
Company’s tenants and for which the Company is entitled to be indemnified by its tenants under the insurance and
indemnification provisions in the applicable leases.
Capital expenditures for each property leased under the Company’s triple-net leases are generally the responsibility
of the tenant, except that, for the facilities leased 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, 2022, the Company had committed to fund expansions,
construction and capital improvements at certain triple-net leased facilities totaling $15.7 million, of which $2.7 million is
subject to rent increase at the time of funding.
12. 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-28
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, 2022, 2021 and 2020. The following table sets forth information regarding the
Company’s major operators as of December 31, 2022, 2021 and 2020:
Operator(2)
December 31, 2022
Ensign
PMG
December 31, 2021
Ensign
PMG
December 31, 2020
Ensign
PMG
Number of Facilities
Number of Beds/Units
SNF
Campus
ALF/ILF
SNF
Campus
ALF/ILF
Percentage of
Total
Revenue(1)
83
13
83
13
77
13
8
2
8
2
8
2
7
—
4
—
4
—
8,741
1,742
8,756
1,742
997
402
997
402
8,129
1,742
1,027
403
661
—
395
—
390
—
35 %
16 %
32 %
15 %
32 %
16 %
The Company’s rental income, exclusive of operating expense reimbursements.
See Note 3, Real Estate Investments, Net, for further information regarding Ensign and PMG. Ensign is subject to the registration
(1)
(2)
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, 2022 and 2021:
State
December 31, 2022
CA
TX
December 31, 2021
CA
TX
Number of Facilities
Number of Beds/Units
SNF
Campus
ALF/ILF
SNF
Campus
ALF/ILF
Percentage of
Total
Revenue(1)
27
38
27
37
8
3
8
3
5
3
5
3
3,048
4,849
1,359
536
3,048
4,694
1,359
536
437
242
449
242
26 %
22 %
25 %
20 %
(1)
The Company’s rental income, exclusive of operating expense reimbursements and adjustments for collectibility.
13. 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 Asset Sale
On January 13, 2023, the Company closed on the sale of one ALF consisting of 105 beds located in Florida with a
carrying value of $3.3 million, which approximated the net sales proceeds received. The facility was classified as held for sale
as of December 31, 2022.
F-29
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2022
(dollars in thousands)
Costs
Capitalize
d Since
Acquisitio
n
Initial Cost to Company
Gross Carrying Value
Description
Facility
Location
Enc
um.
Land
Building
Improvs.
Improvs.
Land
Building
Improvs.
Total (1)
Accum.
Depr.
Cons
t./
Ren.
Date
Acq.
Date
Skilled Nursing Properties:
Ensign Highland LLC
Highland Manor
Phoenix, AZ
$ —
$
257
$
976
$
926
$
257
$
1,902
$
2,159
$
(1,479)
2013
2000
Meadowbrook Health Associates LLC
Sabino Canyon
Terrace Holdings AZ LLC
Desert Terrace
Rillito Holdings LLC
Catalina
Valley Health Holdings LLC
North Mountain
Cedar Avenue Holdings LLC
Granada Investments LLC
Plaza Health Holdings LLC
Upland
Camarillo
Park Manor
Mountainview Communitycare LLC
Park View Gardens
CM Health Holdings LLC
Carmel Mountain
Polk Health Holdings LLC
Timberwood
Snohomish Health Holdings LLC
Emerald Hills
Cherry Health Holdings LLC
Pacific Care
Golfview Holdings LLC
Tenth East Holdings LLC
Trinity Mill Holdings LLC
Cottonwood Health Holdings LLC
Verde Villa Holdings LLC
Mesquite Health Holdings LLC
Cambridge SNF
Arlington Hills
Carrollton
Holladay
Lake Village
Willow Bend
Arrow Tree Health Holdings LLC
Arbor Glen
Fort Street Health Holdings LLC
Draper
Trousdale Health Holdings LLC
Ensign Bellflower LLC
Brookfield
Rose Villa
RB Heights Health Holdings LLC
Osborn
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 Corrine Health Holdings LLC
Salado Creek
San Antonio, TX
Temple Health Holdings LLC
Wellington
Anson Health Holdings LLC
Northern Oaks
Willits Health Holdings LLC
Lufkin Health Holdings LLC
Lowell Health Holdings LLC
Jefferson Ralston Holdings LLC
Northbrook
Southland
Littleton
Arvada
Temple, TX
Abilene, TX
Willits, CA
Lufkin, TX
Littleton, CO
Arvada, CO
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
1,105
2,394
1,841
1,168
2,793
2,090
2,207
3,220
1,231
4,644
856
1,230
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
324
759
1,861
357
1,762
719
1,163
1,725
500
782
1,735
834
425
113
471
629
2,812
3,526
450
931
3,028
60
741
171
1,105
332
664
965
600
441
2,165
443
1,415
937
2,007
310
529
369
490
467
217
280
425
113
471
629
2,812
3,526
450
931
3,028
60
741
171
1,105
332
664
965
600
470
2,165
443
1,415
937
2,007
310
529
369
490
467
217
280
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
F-30
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
3,028
2,360
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
3,993
2,960
(3,505)
2012
2000
(1,026)
2004
2002
(3,562)
2013
2003
(4,357)
2009
2004
(3,865)
2011
2005
(2,965)
2010
2005
(4,407)
2009
2006
(2,317)
1963
2006
(3,381)
2012
(3,522)
2009
2006
2006
(2,854)
2009
2006
(2,951)
2010
(2,554)
2007
2006
2006
(3,618)
2013
2006
(2,551)
2007
2006
(2,578)
2008
(1,645)
2011
10,376
10,817
(8,270)
2012
2007
2007
2007
2007
2007
2007
2007
2008
3,594
3,596
5,117
2,462
6,562
(1,149)
1965
(1,839)
2008
(2,393)
2013
(1,039)
2009
(2,885)
2009
3,119
(1,587)
2005
2008
3,899
(2,058)
2008
2008
5,314
2,221
5,893
2,808
2,344
(2,925)
2012
2008
(1,018)
2011
2008
(1,926)
1988
2009
(1,694)
2012
2009
(1,082)
2012
2009
1,429
3,153
3,702
1,525
4,555
2,809
3,370
4,945
1,731
5,426
2,591
2,064
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2022
(dollars in thousands)
Lafayette Health Holdings LLC
Hillendahl Health Holdings LLC
Price Health Holdings LLC
Silver Lake Health Holdings LLC
Julia Temple
Golden Acres
Pinnacle
Provo
Jordan Health Properties LLC
Copper Ridge
Regal Road Health Holdings LLC
Paredes Health Holdings LLC
Expressway Health Holdings LLC
Sunview
Alta Vista
Veranda
Rio Grande Health Holdings LLC
Grand Terrace
Englewood, CO
Dallas, TX
Price, UT
Provo, UT
West Jordan, UT
Youngstown, AZ
Brownsville, TX
Harlingen, TX
McAllen, TX
Fifth East Holdings LLC
Paramount
Salt Lake City, UT
Emmett Healthcare Holdings LLC
River's Edge
Burley Healthcare Holdings LLC
Parke View
Emmet, ID
Burley, ID
Josey Ranch Healthcare Holdings LLC
Heritage Gardens
Carrollton, TX
Everglades Health Holdings LLC
Victoria Ventura
Irving Health Holdings LLC
Beatrice Manor
Ventura, CA
Beatrice, NE
Falls City Health Holdings LLC
Careage Estates of Falls City
Falls City, NE
Gillette Park Health Holdings LLC
Careage of Cherokee
Gazebo Park Health Holdings LLC
Careage of Clarion
Oleson Park Health Holdings LLC
Careage of Ft. Dodge
Arapahoe Health Holdings LLC
Dixie Health Holdings LLC
Memorial Health Holdings LLC
Oceanview
Hurricane
Pocatello
Bogardus Health Holdings LLC
Whittier East
South Dora Health Holdings LLC
Ukiah
Silverada Health Holdings LLC
Rosewood
Orem Health Holdings LLC
Wisteria Health Holdings
Orem
Wisteria
Renee Avenue Health Holdings LLC
Monte Vista
Stillhouse Health Holdings LLC
Stillhouse
Fig Street Health Holdings LLC
Palomar Vista
Lowell Lake Health Holdings LLC
Owyhee
Queensway Health Holdings LLC
Atlantic Memorial
Long Beach Health Associates LLC
Shoreline
Kings Court Health Holdings LLC
Richland Hills
51st Avenue Health Holdings LLC
Legacy
Ives Health Holdings LLC
San Marcos
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
Guadalupe Health Holdings LLC
The Courtyard (Victoria East)
Victoria, TX
4,222
11,977
2,209
8,362
4,244
4,648
1,354
675
1,085
2,464
2,383
4,004
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
4,237
2,343
2,311
3,925
2,951
2,391
6,195
1,421
849
2,011
1,507
155
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
2,331
2,172
318
32
274
15
1,607
2,133
193
2,051
2,671
193
373
90
642
345
591
250
1,382
1,847
60
170
163
80
90
128
487
537
1,425
297
1,012
1,689
746
180
129
329
49
999
1,285
193
340
371
80
1,607
2,133
193
2,051
2,671
767
373
90
642
345
591
250
1,382
1,847
60
170
163
80
90
158
487
537
1,425
297
1,012
1,689
746
180
129
329
49
999
1,285
193
340
371
80
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
F-31
10,417
13,398
3,058
10,373
5,751
5,377
1,544
1,105
1,955
3,529
2,452
4,428
2,771
6,059
3,176
2,223
1,503
2,638
3,100
5,599
2,076
2,836
6,386
3,708
3,385
7,131
12,024
15,531
(6,030)
2012
2009
(6,543)
1984
3,251
(1,316)
2012
2009
2009
12,424
(3,766)
2011
2009
8,422
5,570
1,917
1,195
2,597
3,874
3,043
4,678
4,153
7,906
3,236
2,393
1,666
2,718
3,190
5,727
2,563
3,373
7,811
4,005
4,397
8,820
(2,186)
2013
2009
(2,423)
2012
2009
(548)
1969
2009
(548)
2011
2009
(1,139)
2012
2009
(1,600)
2011
2009
(948)
1972
2010
(1,855)
2011
2010
(1,117)
1996
2010
(1,916)
1990
2011
(1,277)
2011
2011
(822)
1972
2011
(697)
1967
2011
(1,264)
1978
2011
(1,862)
2012
2011
(2,459)
2012
2011
(639)
1978
2011
(1,292)
2007
2011
(2,674)
2011
2011
(2,261)
2013
2011
(981)
1970
2011
(3,509)
2011
2011
10,193
10,939
(2,641)
3,447
7,145
3,747
1,583
6,568
4,515
2,629
3,957
3,225
2,406
3,627
7,274
4,076
1,632
7,567
5,800
2,822
4,297
3,596
2,486
(1,516)
2013
2012
(1,331)
2009
2012
(1,820)
2007
2012
(387)
1990
2012
(3,106)
2008
2012
(2,258)
2013
2012
(789)
1965
2012
(1,124)
1970
2013
(882)
1972
2013
(532)
2013
2013
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2022
(dollars in thousands)
49th Street Health Holdings LLC
Omaha
Willows Health Holdings LLC
Cascade Vista
Tulalip Bay Health Holdings LLC
Mountain View
Sky Holdings AZ LLC
Bella Vita Health and
Rehabilitation Center
Omaha, NE
Redmond, WA
Marysville, WA
Glendale, AZ
Lemon River Holdings LLC
Plymouth Tower
Riverside, CA
—
—
—
—
—
—
—
129
1,388
1,722
228
152
1,668
1,601
2,418
2,982
2,642
1,124
357
15,375
7,425
—
1,462
5,034
251
7,855
24
202
(980)
1,380
1,493
56
—
—
—
129
1,388
742
228
152
1,668
1,601
2,442
3,184
2,642
2,504
1,850
15,431
7,425
2,571
4,572
3,384
2,731
2,002
(793)
1960
2013
(1,134)
1970
(837)
1966
2013
2013
(1,927)
2004
2002
(1,403)
2012
2009
17,099
(3,058)
1989
2015
9,026
(1,439)
1989
2015
1,462
5,034
6,496
(954)
1987
2015
251
7,855
8,106
(1,473)
2010
2015
833
18,086
792
833
18,878
19,711
(3,408)
1992
2015
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.
Bethany Rehabilitation Center
Lakewood, CO
Mira Vista Care Center
Mount Vernon, WA
Shoreline Health and
Rehabilitation Center
Shamrock Nursing and
Rehabilitation Center
Shoreline, WA
Dublin, GA
Premier Estates of Cincinnati-
Riverview
Cincinnati, OH
West Cove Care & Rehabilitation
Center
Toledo, OH
Casa de Paz
Denison Care Center
Sioux City, IA
Denison, IA
Garden View Care Center
Shenandoah, IA
Grandview Health Care Center
Dayton, IA
Grundy Care Center
Grundy Center, IA
Iowa City Rehab and Health Care
Center
Iowa City, IA
Lenox Care Center
Osage
Pleasant Acres Care Center
Lenox, IA
Osage, IA
Hull, IA
Cedar Falls Health Care Center
Cedar Falls, IA
Premier Estates of Highlands
Norwood, OH
Shaw Mountain at Cascadia
Boise, ID
The Oaks
Arbor Nursing Center
Petaluma, CA
Lodi, CA
Broadmoor Medical Lodge
Rockwall, TX
Decatur Medical Lodge
Decatur, TX
Royse City Medical Lodge
Royse City, TX
Saline Care Nursing &
Rehabilitation Center
Carrier Mills Nursing &
Rehabilitation Center
StoneBridge Nursing &
Rehabilitation Center
Carrier Mills, IL
Benton, IL
DuQuoin Nursing & Rehabilitation
Center
DuQuoin, IL
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
93
119
96
105
39
65
522
31
126
189
324
364
1,801
3,646
768
1,232
990
606
10,365
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
Harrisburg, IL
—
1,022
5,713
—
—
—
775
8,377
439
3,475
511
3,662
F-32
88
—
—
—
—
—
—
—
—
—
—
623
395
110
—
—
—
—
—
—
—
—
93
119
96
105
39
65
522
31
126
189
324
143
1,801
3,646
768
1,232
990
606
10,453
10,546
(1,879)
2007
2015
7,727
2,784
3,179
1,167
1,935
5,690
1,915
2,255
2,544
4,366
943
6,967
2,983
10,712
22,152
24,909
14,660
7,846
2,880
3,284
1,206
2,000
6,212
1,946
2,381
2,733
4,690
1,086
8,768
6,629
11,480
23,384
25,899
15,266
(1,336)
1974
2016
(481)
2015
2016
(550)
2013
2016
(202)
2014
2016
(335)
2011
2016
(984)
2014
2016
(331)
2012
2016
(390)
2014
2016
(440)
2014
2016
(737)
2015
2016
(22)
2012
2016
(1,316)
1989
2016
(519)
2015
(1,718)
1982
2016
2016
(3,370)
1984
2016
(3,788)
2013
(2,230)
2009
2016
2016
1,022
5,713
6,735
(833)
2009
2017
775
8,377
9,152
(1,222)
1968
2017
439
3,475
3,914
(507)
2014
2017
511
3,662
4,173
(534)
2014
2017
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.
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2022
(dollars in thousands)
Pinckneyville, IL
—
406
3,411
406
3,411
3,817
(497)
2014
2017
Pinckneyville Nursing &
Rehabilitation Center
Wellspring Health and
Rehabilitation of Cascadia
Nampa, ID
The Rio at Fox Hollow
Brownsville, TX
The Rio at Cabezon
Albuquerque, NM
Eldorado Rehab & Healthcare
Eldorado, IL
Secora Health and Rehabilitation
of Cascadia
Mountain Valley
Caldwell Care
Canyon West
Portland, OR
Kellogg, ID
Caldwell, ID
Caldwell, ID
Lewiston Health and Rehabilitation
Lewiston, ID
The Orchards
Weiser Care
Aspen Park
Nampa, ID
Weiser, ID
Moscow, ID
Ridgmar Medical Lodge
Fort Worth, TX
Mansfield Medical Lodge
Grapevine Medical Lodge
The Oaks at Lakewood
Mansfield, TX
Grapevine, TX
Tacoma, WA
The Oaks at Timberline
Vancouver, WA
Providence Waterman Nursing
Center
San Bernardino, CA
Providence Orange Tree
Providence Ontario
Greenville Nursing &
Rehabilitation Center
Copper Ridge Health and
Rehabilitation Center
Riverside, CA
Ontario, CA
Greenville, IL
Butte, MT
Prairie Heights Healthcare Center
Aberdeen, SD
The Meadows on University
The Suites - Parker
Fargo, ND
Parker, CO
Huntington Park Nursing Center
Huntington Park, CA
Shoreline Care Center
Downey Care Center
Oxnard, CA
Downey, CA
Courtyard Healthcare Center
Davis, CA
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
775
1,178
2,055
940
1,481
916
906
312
625
785
80
698
681
607
1,602
1,001
446
3,831
2,897
4,204
5,044
12,059
9,749
2,093
2,216
7,874
7,020
10,410
12,087
8,923
4,419
5,092
6,587
4,801
4,536
1,779
869
19,791
14,700
21,880
188
3,972
220
4,974
1,372
989
1,178
3,131
1,699
2,502
2,351
7,491
3,275
17,857
8,876
9,004
6,141
9,256
—
121
—
—
—
110
—
516
461
200
116
30
274
1,256
1,073
891
—
—
—
345
—
—
39
—
—
—
299
—
—
—
—
17
775
1,178
2,055
940
1,481
916
906
312
625
785
80
698
681
607
1,602
1,001
446
3,831
2,897
4,204
10,871
11,183
(1,388)
1969
12,287
12,912
(1,586)
1964
5,165
12,059
9,749
2,093
2,326
7,874
7,536
5,940
13,237
11,804
3,033
3,807
8,790
8,442
9,039
4,449
5,366
7,843
5,874
5,427
1,779
869
19,791
15,045
21,880
9,824
4,529
6,064
8,524
6,481
7,029
2,780
1,315
23,622
17,942
26,084
(715)
2011
2017
(1,683)
2016
2017
(1,361)
2016
2017
(288)
1993
2017
(305)
2012
(1,050)
1971
(936)
1947
(1,171)
1958
(580)
1964
(729)
1965
(1,198)
2006
(889)
2006
(832)
2006
(233)
1989
(114)
1972
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
(2,598)
1967
2017
(1,975)
1969
2017
(2,872)
1980
2017
188
3,972
4,160
(603)
1973
2017
220
5,013
5,233
(675)
2010
2018
1,372
989
1,178
3,131
1,699
2,502
2,351
7,491
3,275
8,863
4,264
(925)
1965
(378)
1966
17,857
19,035
(1,865)
2012
9,175
9,004
6,141
9,256
12,306
10,703
8,643
11,607
(976)
1955
(905)
1962
(619)
1967
(949)
1969
2018
2018
2018
2019
2019
2019
2019
2,688
23,825
26,513
(2,357)
2014
2019
3,758
21,342
25,100
(2,127)
1980
2019
Gulf Coast Buyer 1 LLC
Gulf Coast Buyer 1 LLC
Alpine Skilled Nursing and
Rehabilitation
The Bradford Skilled Nursing and
Rehabilitation
Ruston, LA
—
2,688
23,825
Shreveport, LA
—
3,758
21,325
F-33
Lakewest SNF Realty, LLC
Lakewest Rehabilitation and
Skilled Care
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
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.
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2022
(dollars in thousands)
Bossier City, LA
—
1,635
21,180
—
1,635
21,180
22,815
(2,045)
2013
2019
Shreveport, LA
—
3,437
20,889
2,845
3,437
23,734
27,171
(2,160)
2006
2019
Bossier City, LA
—
2,979
24,617
2,100
2,979
26,717
29,696
(2,407)
2008
2019
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
Shreveport, LA
—
676
10,238
Shreveport, LA
—
2,452
9,148
Legacy West Rehabilitation and
Healthcare
Corsicana, TX
Legacy at Jacksonville
Jacksonville, TX
Pecan Tree Rehabilitation and
Healthcare
Gainesville, TX
Cascadia of Nampa
Valley Skilled Nursing
Cascadia of Boise
Cooney Healthcare and
Rehabilitation
Elkhorn Healthcare and
Rehabilitation
Dallas, TX
Nampa, ID
Modesto, CA
Boise, ID
Helena, MT
Clancy, MT
—
—
—
—
—
—
—
—
—
120
173
6,682
7,481
219
10,097
—
880
798
1,597
6,905
14,117
7,671
15,692
867
7,431
361
113
436
127
255
—
—
—
—
20
676
10,599
11,275
(1,058)
2008
2019
2,452
9,261
11,713
(963)
2013
2019
120
173
7,118
7,608
7,238
7,781
(782)
2002
2019
(806)
2006
2019
219
10,352
10,571
(1,064)
1990
2019
—
880
798
1,597
6,905
14,117
7,671
15,692
6,905
(708)
2011
14,997
(1,344)
2017
8,469
(647)
2016
17,289
(1,235)
2018
2019
2019
2019
2020
867
7,451
8,318
(458)
1984
2020
183
7,380
430
183
7,810
7,993
(465)
1960
2020
Beacon Harbor Healthcare and
Rehabilitation
Rockwall, TX
—
1,295
17,069
Pleasant Manor Healthcare and
Rehabilitation
Waxahachie, TX
Rowlett Health and Rehabilitation
Center
Rowlett, TX
Goleta, CA
160 North Patterson Avenue, LLC
Buena Vista Care Center
CTR Partnership, L.P.
El Centro Post-Acute Care
El Centro, CA
—
—
—
—
629
7,433
1,036
7,987
1,283
10,516
7,237
8,133
CTR Partnership, L.P.
Sedona Trace Health and Wellness
Austin, TX
—
3,282
12,763
CTR Partnership, L.P.
Cedar Pointe Health and Wellness
Suites
Cedar Park, TX
—
3,325
11,738
CTR Partnership, L.P.
Ennis Care Center
Ennis,TX
—
568
8,055
—
—
—
—
135
—
—
—
1,295
17,069
18,364
(989)
1996
2020
629
7,433
8,062
(434)
1972
2020
1,036
7,987
1,283
10,516
7,237
8,268
11,552
15,224
9,551
(606)
1990
2020
(351)
1967
2021
(367)
1962
2021
3,282
12,763
16,045
(507)
2017
2021
3,325
11,738
15,063
(461)
2017
2021
568
8,055
8,623
(201)
1982
2022
Multi-Service Campus Properties:
—
157,842
947,010
97,380
156,008
1,044,124
1,200,131
(246,446)
Ensign Southland LLC
Mission CCRC LLC
Southland Care
St. Joseph's Villa
Norwalk, CA
Salt Lake City, UT
Wayne Health Holdings LLC
Careage of Wayne
Wayne, NE
4th Street Holdings LLC
West Bend Care Center
West Bend, IA
—
—
—
—
966
1,962
130
180
5,082
11,035
3,061
3,352
2,213
464
122
—
966
1,962
130
180
7,295
11,499
3,183
3,352
F-34
8,261
(5,864)
2011
13,461
(3,932)
1994
3,313
3,532
(1,202)
1978
(1,199)
2006
2011
1999
2011
2011
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2022
(dollars in thousands)
Big Sioux River Health Holdings LLC
Hillcrest Health
Hawarden, IA
Prairie Health Holdings LLC
Colonial Manor of Randolph
Randolph, NE
Salmon River Health Holdings LLC
Discovery Care Center
Salmon, ID
CTR Partnership, L.P.
Liberty Nursing Center of Willard Willard, OH
—
—
—
—
110
130
168
3,522
1,571
2,496
144
11,097
75
22
—
50
110
130
168
3,597
1,593
2,496
3,707
1,723
2,664
(1,211)
1974
2011
(918)
2011
(650)
2012
2011
2012
144
11,147
11,291
(2,042)
1985
2015
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.
Premier Estates of Middletown/
Premier Retirement Estates of
Middletown
Middletown, OH
Premier Estates of Norwood
Towers/Premier Retirement Estates
of Norwood Towers
Norwood, OH
Turlock Nursing and Rehabilitation
Center
Turlock, CA
Bridgeport Medical Lodge
Bridgeport, TX
The Villas at Saratoga
Saratoga, CA
Madison Park Healthcare
Huntington, WV
Oakview Heights Nursing &
Rehabilitation Center
Mt. Carmel, IL
Spring Lake Skilled Nursing and
Rehabilitation
Shreveport, LA
The Village at Heritage Oaks
Corsicana, TX
City Creek Post-Acute and
Assisted Living
Crestwood Health and
Rehabilitation Center
Sacramento, CA
Wills Point, TX
San Juan Capistrano,
CA
Camarillo, CA
Carlsbad, CA
Northshore Healthcare Holdings LLC
San Juan Capistrano Senior Living
Northshore Healthcare Holdings LLC
Camarillo Senior Living
Northshore Healthcare Holdings LLC
Bayshire Carlsbad
Northshore Healthcare Holdings LLC
Bayshire Rancho Mirage
Rancho Mirage, CA
CTR Partnership, L.P.
Imboden Creek Living Center
Decatur, IL
Assisted and Independent Living
Properties:
Avenue N Holdings LLC
Moenium Holdings LLC
Cambridge ALF
Grand Court
Lafayette Health Holdings LLC
Chateau Des Mons
Expo Park Health Holdings LLC
Canterbury Gardens
Wisteria Health Holdings LLC
Wisteria IND
Everglades Health Holdings LLC
Lexington
Rosenburg, TX
Mesa, AZ
Englewood, CO
Aurora, CO
Abilene, TX
Ventura, CA
Flamingo Health Holdings LLC
Desert Springs ALF
Las Vegas, NV
18th Place Health Holdings LLC
Boardwalk Health Holdings LLC
Rose Court
Park Place
Phoenix, AZ
Reno, NV
—
990
7,484
380
990
7,864
8,854
(1,451)
1985
2015
—
1,316
10,071
1,021
1,316
11,092
12,408
(1,875)
1991
2016
—
—
—
—
—
—
—
1,258
980
8,709
601
16,526
27,917
9,736
6,385
298
8,393
3,217
143
21,195
11,429
—
—
1,397
—
—
2,729
482
1,258
980
8,709
601
16,526
27,917
11,133
6,385
17,784
28,897
19,842
6,986
(2,651)
1986
2016
(4,246)
2014
2016
(1,399)
2004
2018
(691)
1924
2018
298
8,393
8,691
(930)
2004
2019
3,217
143
23,924
11,911
27,141
12,054
(2,490)
2008
(1,266)
2007
2019
2019
—
3,980
10,106
1,488
3,980
11,594
15,574
(1,075)
1990
2019
143
6,075
11,176
7,516
7,398
4,024
131
25,298
30,552
19,714
16,790
12,499
—
—
—
—
—
81
143
6,075
6,218
(368)
1980
2020
11,176
7,516
7,398
4,024
131
25,298
30,552
19,714
16,790
12,580
36,474
38,068
27,112
20,814
12,711
(1,205)
1999
(1,441)
2000
(944)
1999
(820)
2000
(289)
2003
2021
2021
2021
2021
2022
55,670
281,386
10,524
55,670
291,910
347,580
(40,159)
124
1,893
420
570
244
1,542
908
1,011
367
2,301
5,268
1,160
1,692
3,241
4,012
4,767
2,053
1,633
392
1,210
189
248
81
113
281
490
52
124
1,893
420
570
244
1,542
908
1,011
367
2,693
6,478
1,349
1,940
3,322
4,125
5,048
2,543
1,685
2,817
8,371
1,769
2,510
3,566
5,667
5,956
3,554
2,052
(1,533)
2007
2006
(3,888)
1986
2007
(508)
2011
2009
(1,022)
1986
2010
(1,860)
2008
2011
(1,059)
1990
2011
(3,022)
1986
2011
(1,142)
1974
2011
(625)
1993
2012
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
F-35
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2022
(dollars in thousands)
Willows Health Holdings LLC
Cascade Plaza
Lockwood Health Holdings LLC
Saratoga Health Holdings LLC
Santa Maria
Lake Ridge
Redmond, WA
Santa Maria, CA
Orem, UT
Sky Holdings AZ LLC
Desert Sky Assisted Living
Glendale, AZ
Lemon River Holdings LLC
The Grove Assisted Living
Riverside, CA
Mission CCRC 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.
St. Joseph's Villa IND
Salt Lake City, UT
Prelude Cottages of Woodbury
Woodbury, MN
Lamplight Inn of West Allis
West Allis, WI
Fort Myers Assisted Living
Fort Myers, FL
Croatan Village
Countryside Village
The Pines of Clarkston
New Bern, NC
Pikeville, NC
Village of Clarkston,
MI
The Pines of Goodrich
Goodrich, MI
The Pines of Burton
The Pines of Lapeer
Arbor Place
Burton, MI
Lapeer, MI
Lodi, CA
Applewood of Brookfield
Brookfield, WI
Applewood of New Berlin
New Berlin, WI
Memory Care Cottages in White
Bear Lake
White Bear Lake, MN
Vista Del Lago
Inn at Barton Creek
Escondido, CA
Bountiful, UT
Bridgeton Essentia Neighborhood
Bridgeton, NJ
CTR Partnership, L.P.
Rio Grande Essentia Neighborhood Rio Grande, NJ
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,835
1,792
444
61
342
411
430
97
1,489
312
131
603
241
492
302
392
493
356
1,611
4,362
2,480
3,784
2,253
2,265
304
802
2,312
6,714
6,102
3,531
6,919
4,157
9,326
4,112
9,199
5,773
3,605
14,002
10,812
5,633
7,997
4,804
245
5,795
224
5,652
395
585
176
372
3,360
258
76
106
2,835
1,792
444
61
342
411
430
77
1,006
1,489
301
125
522
207
426
261
392
241
190
1,611
4,362
2,480
—
—
—
459
—
—
—
39
—
—
—
15
—
—
4,179
2,838
2,441
676
4,162
2,570
6,790
4,181
4,537
5,663
3,402
5,329
3,862
7,751
4,066
3,605
6,026
5,033
5,633
7,997
4,819
7,014
4,630
2,885
738
4,504
2,981
7,220
4,258
6,026
5,964
3,527
5,851
4,069
8,177
4,327
3,997
6,267
5,223
(1,500)
2013
2013
(1,560)
1967
(576)
1995
(520)
2004
(3,156)
2012
(1,778)
1994
(1,352)
2011
—
2013
(712)
1980
2013
2013
2002
2009
2011
2014
2016
2016
—
—
—
—
—
—
—
—
2010
2016
2011
2016
2010
2014
2014
2008
2013
2016
2016
2016
2016
2016
2017
2016
2017
(578)
1984
7,244
12,359
7,299
(775)
2016
2017
(698)
2015
(380)
1999
2019
2020
190
4,510
4,700
(33)
2021
2021
224
5,652
5,876
(169)
2021
2021
27,224
155,677
10,345
26,492
139,044
165,537
(29,108)
(1) The aggregate cost of real estate for federal income tax purposes was $1.7 billion.
—
$ 241,304
$ 1,392,128
$ 118,249
$ 238,738
$ 1,483,133
$ 1,721,871
$ (315,914)
F-36
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2022
(dollars in thousands)
Real estate:
Balance at the beginning of the period
Acquisitions
Improvements
Impairment
Sales and/or transfers to assets held for sale, net
Balance at the end of the period
Accumulated depreciation:
Balance at the beginning of the period
Depreciation expense
Impairment
Sales and/or transfers to assets held for sale, net
Balance at the end of the period
Year Ended December 31,
2022
2021
2020
$
1,873,806
$
1,683,205
$
1,605,081
21,252
5,896
(29,803)
(149,280)
190,133
4,521
—
(4,053)
1,721,871
$
1,873,806
$
(304,785) $
(42,131)
10,232
20,770
(259,803) $
(45,498)
—
516
84,630
7,223
—
(13,729)
1,683,205
(220,359)
(41,914)
—
2,470
(315,914) $
(304,785) $
(259,803)
$
$
$
F-37
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2022
(dollars in thousands)
Description
Contractual
Interest Rate
Maturity
Date
Periodic
Payment
Terms
Prior
Liens
Principal
Balance
Book
Value (1)
Carrying
Amount of
Loans Subject
to Delinquent
Principal or
Interest
Mortgage Secured
Loans:
West Virginia (18 SNF
facilities)
California (5 SNF
facilities)
Georgia (4 SNF
facilities)
Mezzanine Loans:
West Virginia (18 SNF
facilities)
Virginia (9 SNF
facilities)
8.4 %
2027
10.2 % (2)
2025
9.0 % (2)
2025
11.0 %
2032
12.0 %
2025
(3)
(3)
(3)
(3)
(3)
$ 482,000 (4) $ 75,000 $ 72,543
53,400 (5)
22,250
21,345
72,700 (5)
24,900
23,796
557,000 (4)
25,000
24,012
114,309 (6)
15,000
14,672
$ 1,279,409
$ 162,150 $ 156,368
N/A
N/A
N/A
N/A
N/A
Interest rates are variable and represent the rate in effect as of December 31, 2022.
Interest is due monthly, and principal is due at the maturity date.
(1) The aggregate cost for federal income tax purposes was $162.2 million as of December 31, 2022.
(2)
(3)
(4) The secured term loan was structured with an “A” tranche, a “B” tranche, and a “C” tranche, with the “C” tranche being the most
subordinate. The Company’s loan constituted the entirety of the “C” tranche. The Company also extended a mezzanine loan to the
borrower group. Accordingly, the amounts of the prior liens at December 31, 2022 are estimated.
(5) The secured term loan was structured with an “A” and a “B” tranche, with the “B” tranche being subordinate to the “A” tranche
pursuant to the terms of a written agreement between the lenders. The Company’s loan constituted the entirety of the “B” tranche.
Accordingly, the amounts of the prior liens at December 31, 2022 are estimated.
(6) The first mortgage loans on these properties are not held by the Company. Accordingly, the amounts of the prior liens at December 31,
2022 are estimated.
Changes in mortgage secured and mezzanine loans are summarized as follows (in thousands):
Balance at beginning of period
Additions during period:
New mortgage and mezzanine loans
Interest income added to principal
Deductions during period:
Paydowns/Repayments
Unrealized loss
Balance at end of period
Year Ended December 31,
2022
2021
2020
$
15,155 $
15,000 $
29,500
147,150
1,165
—
(7,102)
—
155
—
61,258
—
(75,758)
$
156,368 $
15,155 $
15,000
F-38