For the quarterly period ended ~~March 31,~~September 30, 2019

For the transition period from to

Commission File Number: 001-36181



Maryland							46-3999490
(State or other jurisdiction of incorporation or organization)							(I.R.S. Employer Identification No.)

905 Calle Amanecer	,	Suite 300	,	San Clemente	,	CA	92673
(Address of principal executive offices)							(Zip Code)



Large accelerated filer	x☒	Accelerated filer		¨
			☐
Non-accelerated filer	¨ ☐	Smaller reporting company		¨☐

		Emerging growth company		¨ ☐



	Common Stock			Additional Paid-in Capital			Cumulative Distributions in Excess of Earnings			Total Equity
	Shares	Amount		Additional Paid-in Capital			Cumulative Distributions in Excess of Earnings			Total Equity
Balance at January 1, 2018	75,478,202	$	755	$	783,237		$	(189,375	)	$	594,617
Issuance of common stock, net	—	—		(27		)	—			(27		)
Vesting of restricted common stock, net of shares withheld for employee taxes	43,844	—		(605		)	—			(605		)
Amortization of stock-based compensation	—	—		904			—			904
Common dividends ($0.205 per share)	—	—		—			(15,608		)	(15,608		)
Net income	—	—		—			14,607			14,607
Balance as of March 31, 2018	75,522,046	$	755	$	783,509		$	(190,376	)	$	593,888
Issuance of common stock, net	2,988,813	30		47,537			—			47,567
Vesting of restricted common stock, net of shares withheld for employee taxes	39,828	—		(684		)	—			(684		)
Amortization of stock-based compensation	—	—		924			—			924
Common dividends ($0.205 per share)	—	—		—			(16,224		)	(16,224		)
Net income	—	—		—			13,267			13,267
Balance at June 30, 2018	78,550,687	$	785	$	831,286		$	(193,333	)	$	638,738
Issuance of common stock, net	4,771,910	48		82,962			—			83,010
Vesting of restricted common stock, net of shares withheld for employee taxes	30,629	1		(1		)	—			—
Amortization of stock-based compensation	—	—		988			—			988
Common dividends ($0.205 per share)	—	—		—			(17,196		)	(17,196		)
Net income	—	—		—			14,510			14,510
Balance at September 30, 2018	83,353,226	$	834	$	915,235		$	(196,019	)	$	720,050



	For the Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net income	$	25,697		$	42,384
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including below-market ground leases)	38,789			34,240
Amortization of deferred financing costs	1,516			1,453
Amortization of stock-based compensation	3,122			2,816
Straight-line rental income	(1,483		)	(1,631		)
Adjustment for collectibility of rental income	12,078			—
Noncash interest income	(31		)	(228		)
Gain on sale of real estate	(217		)	(2,051		)
Interest income distribution from other real estate investment	463			—
Impairment of real estate investments	16,692			—
Provision for loan losses	1,076			—
Change in operating assets and liabilities:
Accounts and other receivables, net	(6,043		)	(5,499		)
Prepaid expenses and other assets	(348		)	(159		)
Accounts payable and accrued liabilities	3,847			1,065
Net cash provided by operating activities	95,158			72,390
Cash flows from investing activities:
Acquisitions of real estate, net of deposits applied	(298,557		)	(75,621		)
Improvements to real estate	(1,230		)	(5,401		)
Purchases of equipment, furniture and fixtures	(2,926		)	(1,262		)
Investment in real estate mortgage and other loans receivable	(14,699		)	(2,598		)
Principal payments received on real estate mortgage and other loans receivable	11,959			893
Repayment of other real estate investment	2,204			—
Escrow deposits for acquisitions of real estate	(22,920		)	(1,000		)
Net proceeds from sales of real estate	218			13,004
Net cash used in investing activities	(325,951		)	(71,985		)
Cash flows from financing activities:
Proceeds from the issuance of common stock, net	195,963			130,546
Proceeds from the issuance of senior unsecured term loan	200,000			—
Borrowings under unsecured revolving credit facility	235,000			60,000
Payments on unsecured revolving credit facility	(265,000		)	(135,000		)
Payments on senior unsecured term loan	(100,000		)	—
Payments of deferred financing costs	(4,534		)	—
Net-settle adjustment on restricted stock	(2,524		)	(1,288		)
Dividends paid on common stock	(59,155		)	(45,827		)
Net cash provided by financing activities	199,750			8,431
Net (decrease) increase in cash and cash equivalents	(31,043		)	8,836
Cash and cash equivalents, beginning of period	36,792			6,909
Cash and cash equivalents, end of period	$	5,749		$	15,745
Supplemental disclosures of cash flow information:
Interest paid	$	15,648		$	15,772
Supplemental schedule of noncash investing and financing activities:
Increase in dividends payable	$	3,864		$	3,202
Right-of-use asset obtained in exchange for new operating lease obligation	$	1,010		$	—
Transfer of pre-acquisition costs to acquired assets	$	242		$	—
Increase in pre-acquisition costs payable	$	137		$	—
Sale of real estate settled with notes receivable	$	27,500		$	—

For the Three Months Ended March 31,
2019 2018
Cash flows from operating activities:
Net income $ 16,053
$ 14,607
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including a below-market ground lease) 11,906
11,582
Amortization of deferred financing costs 541
484
Amortization of stock-based compensation 994
904
Straight-line rental income (463 ) (591 )
Noncash interest income (10 ) (106 )
Gain on sale of real estate —
(2,051 )
Change in operating assets and liabilities:
Accounts and other receivables, net (1,220 ) (155 )
Prepaid expenses and other assets (116 ) (36 )
Accounts payable and accrued liabilities 2,389
(2,579 )
Net cash provided by operating activities 30,074
22,059
Cash flows from investing activities:
Acquisitions of real estate (52,697 ) (47,103 )
Improvements to real estate (452 ) (11 )
Purchases of equipment, furniture and fixtures (1,806 ) (27 )
Investment in real estate mortgage and other loans receivable (11,389 ) —
Principal payments received on real estate mortgage and other loans receivable 411
23
Escrow deposits for acquisitions of real estate (375 ) (1,000 )
Net proceeds from the sale of real estate 131
13,004
Net cash used in investing activities (66,177 ) (35,114 )
Cash flows from financing activities:
Proceeds from the issuance of common stock, net 47,260
(10 )
Proceeds from the issuance of senior unsecured term loan 200,000
—
Borrowings under unsecured revolving credit facility 185,000
60,000
Payments on unsecured revolving credit facility (95,000 ) (25,000 )
Payments on senior unsecured term loan (100,000 ) —
Payments of deferred financing costs (4,390 ) —
Net-settle adjustment on restricted stock (1,495 ) (605 )
Dividends paid on common stock (17,710 ) (14,044 )
Net cash provided by financing activities 213,665
20,341
Net increase in cash and cash equivalents 177,562
7,286
Cash and cash equivalents, beginning of period 36,792
6,909
Cash and cash equivalents, end of period $ 214,354
$ 14,195
Supplemental disclosures of cash flow information:
Interest paid $ 2,242
$ 2,675
Supplemental schedule of noncash investing and financing activities:
Increase in dividends payable $ 2,303
$ 1,564
Increase in deferred financing costs payable $ 144
$ —

See accompanying notes to condensed consolidated financial statements.

45

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

1. ORGANIZATION

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 ~~March 31,~~September 30, 2019, the Company owned and leased to independent operators, including The Ensign Group, Inc. (“Ensign”), ~~199~~211 skilled nursing, multi-service campuses, assisted living and independent living facilities consisting of ~~19,668~~21,583 operational beds and units located in 28 states with the highest concentration of properties located in California, Texas, Louisiana, Arizona California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Maryland, Michigan, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, Ohio, Oregon, South Dakota, Texas, Utah, Virginia, Washington, West Virginia and ~~Wisconsin.~~Idaho. The Company also owns and operates ~~three~~3 independent living facilities which have a total of 264 units located in Texas and Utah. As of ~~March 31,~~September 30, 2019, the Company also had other real estate investments consisting of ~~two~~1 preferred equity ~~investments totaling $5.7~~investment of $3.1 million and ~~two~~3 mortgage loans receivable of ~~$23.7~~$41.7 million.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The accompanying condensed 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 consolidated subsidiaries consisting of (i) the net-leased skilled nursing, multi-service campuses, assisted living and independent living facilities, (ii) the operations of the ~~three~~3 independent living facilities that the Company owns and operates; and (iii) the preferred equity ~~investments~~investment and the mortgage loans receivable.

The accompanying condensed consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all of the disclosures required by GAAP for a complete set of annual audited financial statements. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. In the opinion of management, all adjustments which are of a normal and recurring nature and considered necessary for a fair presentation of the results of the interim periods presented have been included. The results of operations for the interim periods are not necessarily indicative of results for the full year. All intercompany transactions and account balances within the Company have been eliminated.

Recent Accounting Standards Adopted by the Company—On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), (“ASU 2016-02”) that sets out the principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a lease agreement (i.e., lessees and lessors). Upon adoption of ~~the lease~~ ASU 2016-02 on January 1, 2019, the Company elected the following practical expedients provided by ASU No. 2018-11, Leases - Targeted Improvements, and ASU No. 2018-20, Narrow Scope Improvements for Lessors (together with ASU 2016-02, the “new lease ASUs”):

Package of practical expedients – ~~requires~~provides that the Company is not required to reevaluate its existing or expired leases as of January 1, 2019, under the new lease ASUs.

Optional transition method practical expedient – requires the Company to apply the new lease ASUs prospectively from the adoption date of January 1, 2019.

Single component practical expedient – requires the Company to account for lease and ~~nonlease~~non-lease components associated with that lease as a single component under the new lease ASUs, if certain criteria are met.

Short-term leases practical expedient – for the Company’s operating leases with a term of less than 12 months in which it is the lessee, this expedient requires the Company not to record on its balance sheet related lease liabilities and right-of-use assets.

Overview related to both lessee and lessor accounting—The new lease ASUs set new criteria for determining the classification of finance leases for lessees and sales-type leases for lessors. The criteria to determine whether a lease should be accounted for as a finance (sales-type) lease include the following: (i) ownership is transferred from lessor to lessee by the end of the lease term, (ii) an option to purchase is reasonably certain to be exercised, (iii) the lease term is for the major part of the underlying asset’s remaining economic life, (iv) the present value of lease payments equals or exceeds substantially all of the fair value of the underlying asset, and (v) the underlying asset is specialized and is expected to have no alternative use at the end of the lease term. If any of these criteria is met, a lease is classified as a finance lease by the lessee and as a sales-type lease

5

~~Table of Contents~~

~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

by the lessor. If none of the criteria are met, a lease is classified as an operating lease by the lessee, but may still qualify as a direct financing lease or an operating lease for the lessor. The existence of a residual value guarantee from an unrelated third

6

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

party other than the lessee may qualify the lease as a direct financing lease by the lessor. Otherwise, the lease is classified as an operating lease by the lessor.

The election of the package of practical expedients discussed above and the optional transition method allowed the Company not to reassess:

Whether any expired or existing contracts as of January 1, 2019 were leases or contained leases.


◦	This practical expedient is primarily applicable to entities that have contracts containing embedded leases. As of January 1, 2019, the Company had no such ~~contracts,~~contracts; therefore, this practical expedient had no effect on the Company.

The lease classification for any leases expired or existing as of January 1, 2019.

◦

The election of the package of practical expedients ~~required~~provides that the Company is not required to reassess the classification of its leases existing as of January 1, 2019. ~~For example,~~This means that all of the Company’s leases that were classified as operating leases in accordance with the lease accounting standards in effect prior to January 1, 2019 continue to be classified as operating leases after adoption of the new lease ASUs.

The Company applied the package of practical expedients consistently to all leases (i.e., ~~in which~~regardless of whether the Company was the lessee or a lessor) that commenced before January 1, 2019. The election of this package permits the Company to “run off” its leases that commenced before January 1, 2019, for the remainder of their lease terms and to apply the new lease ASUs to leases commencing or modified after January 1, 2019.

Lessor Accounting—Under the new lease ASUs, each lease agreement is evaluated to identify the lease and ~~nonlease~~non-lease components at lease inception. The total consideration in the lease agreement is allocated to the lease and ~~nonlease~~non-lease components based on their relative stand-alone selling prices. The new lease ASUs govern the recognition of revenue for lease components, and revenue related to ~~nonlease~~non-lease components is subject to the new revenue recognition ~~ASU.~~standard. Tenant recoveries for utilities, repairs and maintenance, and common area expenses are considered ~~nonlease~~non-lease components. 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. As such, the Company has concluded its leases do not contain material ~~nonlease~~non-lease components. Tenant reimbursements related to property taxes and insurance are neither lease nor ~~nonlease~~non-lease components under the new lease ASUs. If a lessee makes payments for taxes and insurance directly to a third party on behalf of a lessor, lessors are required to exclude them from variable payments and from recognition in the lessors’ ~~income statements.~~statements of operations. Otherwise, tenant recoveries for taxes and insurance are classified as additional rental income recognized by the lessor on a gross basis in its ~~income statements.~~statements of operations.

On January 1, 2019, the Company elected the single component practical expedient, which allows a lessor, by class of underlying asset, not to allocate the total consideration to the lease and ~~nonlease~~non-lease components based on their relative stand-alone selling prices. This single component practical expedient requires the Company to account for the lease component and ~~nonlease~~non-lease component(s) associated with that lease as a single component if (i) the timing and pattern of transfer of the lease component and the ~~nonlease~~non-lease component(s) associated with it are the same and (ii) the lease component would be classified as an operating lease if it were accounted for separately. If the Company determines that the lease component is the predominant component, the Company accounts for the single component as an operating lease in accordance with the new lease ASUs. Conversely, the Company is required to account for the combined component under the new revenue recognition standard if the Company determines that the ~~nonlease~~non-lease component is the predominant component. As a result of this assessment, rental revenues and tenant recoveries from the lease of real estate assets that qualify for this expedient are accounted for as a single component under the new lease ASUs, with tenant recoveries primarily as variable consideration. Tenant recoveries that do not qualify for the single component practical expedient and are considered ~~nonlease~~non-lease components are accounted for under the revenue recognition standard. The components of the Company’s operating leases qualify for the single component presentation.

For the three and nine months ended ~~March 31,~~September 30, 2018, the Company recognized tenant recoveries for real estate taxes of $3.0 million and $9.0 million, respectively, which were classified as tenant reimbursements on the Company’s condensed consolidated ~~income statements.~~statements of operations. Prior to the adoption of Accounting ~~Standard~~Standards Codification (“ASC”) 842, the Company recognized tenant recoveries as tenant reimbursement revenues regardless of whether the third party was paid by the lessor or lessee. Effective January 1, 2019, such tenant recoveries are recognized to the extent that the Company pays the third party directly and classified as rental income on the Company’s condensed consolidated statements of operations. Due to the

67

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

~~the Company’s condensed consolidated income statements. Due to the~~ application of the new lease ASUs, the Company recognized, on a gross basis, real estate taxes of $0.8 million and $2.1 million, respectively, for the three and nine months ended ~~March 31,~~September 30, 2019.

Under the new lease ASUs, the ~~Company recognizes rental~~Company’s assessment of collectability of its tenant receivables includes a binary assessment of whether or not the amounts due under a tenant’s lease agreement are probable of collection. For such amounts that are deemed probable of collection, revenue ~~including rental abatements, lease incentives and contractual fixed increases attributable~~continues to ~~operating leases, if any, from tenants under lease arrangements with minimum fixed and determinable increases~~be recorded on a straight-line basis over the ~~non-cancellable term~~lease term. For such amounts 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 ~~related leases when~~change in the collectability ~~is probable.~~determination. Such write-offs are recorded as increases or decreases through rental income on the Company’s condensed consolidated statements of operations. For the three and nine months ended ~~March 31,~~September 30, 2019, the Company ~~did not recognize any~~recorded $12.1 million of adjustments to rental income related to recognized rental income in the current quarter and prior periods. See Note 3, Real Estate Investments, Net for further detail.

Lessee Accounting—Under the new lease ASUs, lessees are required to apply a dual approach by classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, which corresponds to a similar evaluation performed by lessors. In addition to this classification, a lessee is also required to recognize a right-of-use asset and a lease liability for all leases regardless of their classification, whereas a lessor is not required to recognize a right-of-use asset and a lease liability for any operating leases.

As of ~~March 31,~~September 30, 2019, the ~~remaining contractual payments under the~~ Company’s lease liability related to its ground ~~and office~~ lease arrangements for which it is the lessee ~~aggregated~~totaled approximately ~~$0.1 million.~~$1.0 million with a weighted average remaining lease term of 73 years. While these ground leases ~~are~~were subject to ~~this ASU application~~the new lease ASUs effective January 1, 2019, the lease liability and corresponding right-of-use asset and lease expense do not have a material effect on the Company’s condensed consolidated financial statements.

The Company has not recognized a right-of-use asset and/or lease liability for leases with a term of 12 months or less and without an option to purchase the underlying asset.

Estimates and Assumptions—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that the assumptions and estimates used in preparation of the underlying consolidated financial statements are reasonable. Actual results, however, could differ from those estimates and assumptions.

Real Estate Acquisition Valuation— In accordance with ASC 805, Business Combinations, the Company’s acquisitions ~~that are income-producing~~of real estate ~~are recorded as a business combination. If the acquisition does~~investments generally do not meet the definition of a business, ~~acquisitions~~and are ~~recorded~~treated as an asset ~~acquisition.~~acquisitions. The assets acquired and liabilities assumed are measured at their acquisition date ~~fair values for a business combination and at~~ relative fair values for an asset acquisition. For transactions that are business combinations, acquisition costs are expensed as incurred and restructuring costs that do not meet the definition of a liability at the acquisition date are expensed in periods subsequent to the acquisition date. For transactions that are asset acquisitions, acquisitionvalues. Acquisition costs are capitalized as incurred. ~~The Company’s real estate acquisitions generally are classified as asset acquisitions.~~

~~In addition, for such asset acquisitions, no goodwill is recognized and third party transaction costs are capitalized.~~ The Company allocates the acquisition costs to the tangible assets, identifiable intangible assets/liabilities and assumed liabilities on a relative fair value basis. The Company assesses fair value based on available market information, such as capitalization and discount rates, comparable sale transactions and relevant per square foot or unit cost information. A real estate asset’s fair value may be determined utilizing cash flow projections that incorporate such market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, as well as market and economic conditions. The fair value of tangible assets of an acquired property is based on the value of the property as if it is vacant.

As part of the Company’s real estate acquisitions, the Company may commit to provide contingent payments to a seller or lessee (e.g., an earn-out payable upon the applicable property achieving certain financial metrics). Typically, when the contingent payments are funded, cash rent is increased by the amount funded multiplied by a rate stipulated in the agreement. Generally, if the contingent payment is an earn-out provided to the seller, the payment is capitalized to the property’s basis. If the contingent payment is an earn-out provided to the lessee, the payment is recorded as a lease incentive and is amortized as a yield adjustment over the life of the lease.

Impairment of Long-Lived Assets—At each reporting period, management evaluates the Company’s real estate investments for impairment indicators, including the evaluation of the useful lives of the Company’s assets. Management also assesses the carrying value of the Company’s real estate investments whenever events or changes in circumstances indicate that

8

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

the carrying amount of the assets may not be recoverable. The judgment regarding the existence of impairment indicators is

7

~~Table of Contents~~

~~CARETRUST REIT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —~~

~~(Unaudited)~~

based on factors such as, but not limited to, market conditions, operator performance and legal structure. If indicators of impairment are present, management evaluates the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying facilities. 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. An adjustment is made to the net carrying value of the real estate investments for the excess of carrying value over fair value. All impairments are taken as a period cost at that time, and depreciation is adjusted going forward to reflect the new value assigned to the asset.

If the Company decides to sell real estate properties, it evaluates the recoverability of the carrying amounts of the assets. If the evaluation indicates that the carrying value is not recoverable from estimated net sales proceeds, the property is written down to estimated fair value less costs to sell.

In the event of impairment, the fair value of the real estate investment is determined by market research, which includes valuing the property in its current use as well as other alternative uses, and involves significant judgment. Management’s estimates of cash flows and fair values of the properties are based on current market conditions and consider matters such as rental rates and occupancies for comparable properties, recent sales data for comparable properties, and, where applicable, contracts or the results of negotiations with purchasers or prospective purchasers. If the Company meets the criteria to classify the real estate properties as held for sale, which entails a formal plan to sell the properties that is expected to be complete within one year, among other criteria, the Company writes down the excess of the carrying value over the estimated fair value less costs to sell. 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.

Prepaid expenses and other assets—Prepaid expenses and other assets consist of prepaid expenses, deposits, pre-acquisition costs and other loans receivable. Included in other loans receivable is a bridge loan to Priority Life Care, LLC (“Priority”) under which the Company agreed to fund up to $1.4 million until the earlier of (i) October 31, 2019, (ii) the date that a new credit facility is established such that the borrower may submit draw requests to the applicable lender, or (iii) the date on which Priority’s lease is terminated with respect to any facility. Borrowings under the bridge loan accrue interest at an annual base rate of 8.0%. During the quarter ended September 30, 2019, the Company determined that the remaining contractual obligations under the bridge loan agreement to Priority were not collectible and recorded a $1.1 million provision for loan losses in the Company’s condensed consolidated statements of operations. Also included in prepaid expenses and other assets at September 30, 2019 were $22.7 million in escrow deposits for acquisitions completed on October 1, 2019. See Note 13, Subsequent Events for additional information.

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.

Recent Accounting Pronouncements—In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses ~~(Topic~~ (Subtopic 326) (“ASU 2016-13”) that changes the impairment model for most financial instruments by requiring companies to recognize an allowance for expected credit losses, rather than incurred losses as required currently by the other-than-temporary impairment model. ASU 2016-13 will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans receivable, held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures (e.g., loan commitments). In November 2018, the FASB released ASU No. 2018-19, Codification Improvements to Topic 326 Financial Instruments - Credit Losses (“ASU 2018-19”). ASU2018-19 clarifies that receivables arising from operating leases are not within the scope of ASU 2016-13. Instead, impairment of receivables arising from operating leases should be accounted for under Subtopic 842-30 “Leases - Lessor.” ASU 2016-13 is effective for reporting periods beginning after December 15, 2019, with early adoption permitted, and will be applied as a cumulative adjustment to retained earnings as of the effective date. The Company plans to adopt ASU 2016-13 on January 1, 2020. The Company is currently assessing the potential effect the adoption of ASU 2016-13 will have on the Company’s condensed consolidated financial statements.

89

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

3. REAL ESTATE INVESTMENTS, NET

The following table summarizes the Company’s investment in owned properties as of ~~March 31,~~September 30, 2019 and December 31, 2018 (dollars in thousands):



	September 30, 2019			December 31, 2018
Land	$	198,028		$	166,948
Buildings and improvements	1,385,223			1,201,209
Integral equipment, furniture and fixtures	92,588			87,623
Identified intangible assets	1,400			2,382
Real estate investments	1,677,239			1,458,162
Accumulated depreciation and amortization	(273,215		)	(241,925		)
Real estate investments, net	$	1,404,024		$	1,216,237

March 31, 2019 December 31, 2018
Land $ 176,798
$ 166,948
Buildings and improvements 1,243,331
1,201,209
Integral equipment, furniture and fixtures 90,656
87,623
Identified intangible assets 1,400
2,382
Real estate investments 1,512,185
1,458,162
Accumulated depreciation and amortization (252,849 ) (241,925 )
Real estate investments, net $ 1,259,336
$ 1,216,237

As of ~~March 31,~~September 30, 2019, 93 of the Company’s ~~202~~214 facilities were leased to subsidiaries of Ensign under ~~eight~~8 master leases (the “Ensign Master Leases”) which commenced on June 1, 2014. 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 ~~March 31,~~September 30, 2019, annualized rental revenues from the Ensign Master Leases were ~~$59.8~~$61.0 million and are escalated annually by an amount equal to the product of (1) the lesser of the percentage change in the Consumer Price Index (“CPI”) (but not less than ~~zero)~~0) or 2.5%, and (2) the prior year’s rent. In addition to rent, the subsidiaries of Ensign that are tenants under the Ensign Master Leases are solely responsible for the costs related to the leased properties (including property taxes, insurance, and maintenance and repair costs).

As of ~~March 31,~~September 30, 2019, ~~106~~118 of the Company’s ~~202~~214 facilities were leased to various other operators under triple-net leases. All of these leases contain annual escalators based on CPI, some of which are subject to a cap, or fixed rent escalators.

The Company’s ~~three~~3 remaining properties as of ~~March 31,~~September 30, 2019 are the independent living facilities that the Company owns and operates.

On October 1, 2019, Ensign completed its previously announced separation of its home health and hospice operations and substantially all of its senior living operations into a separate independent publicly traded company through the distribution of shares of common stock of The ~~Company has only one identified intangible asset which relates~~Pennant Group, Inc. (“Pennant” and, such separation, the “Pennant Spin”). See Note 13, Subsequent Events for additional information regarding the Company’s facilities leased to ~~a below-market ground lease. The ground lease has a remaining term~~subsidiaries of ~~79 years.~~Ensign subsequent to the Pennant Spin.

As of ~~March 31,~~September 30, 2019, the Company’s total future minimum rental revenues for all of its tenants, excluding operating expense reimbursements, were (dollars in thousands):



Year	Amount
2019 (three months)	$	42,132
2020	169,209
2021	170,221
2022	170,587
2023	170,807
2024	170,952
Thereafter	1,111,769
	$	2,005,677

Year Amount
2019 (nine months) $ 113,386
2020 151,591
2021 152,057
2022 152,541
2023 152,882
2024 153,150
Thereafter 988,982
$ 1,864,589

910

Table of Contents

CARETRUST REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —

(Unaudited)

As of December 31, 2018, the Company’s total future minimum rental revenues for all of its tenants, excluding operating expense reimbursements, were (dollars in thousands):



Year	Amount
2019	$	146,010
2020	146,560
2021	147,132
2022	147,719
2023	148,169
Thereafter	1,055,012
	$	1,790,602

The following table summarizes components of the Company’s rental income (dollars in thousands):

Year Amount
2019 $ 146,010
2020 146,560
2021 147,132
2022 147,719
2023 148,169
Thereafter 1,055,012
$ 1,790,602



	For the Three Months Ended September 30,			For the Nine Months Ended September 30,
	2019
Rental Income
Contractual rent due⁽¹⁾	$	43,109		$	124,642
Straight-line rent	546			1,483
Adjustment for collectibility of rental income⁽²⁾	(12,078		)	(12,078		)
Total	$	31,577		$	114,047


(1)	Initial cash rent including operating expense reimbursements adjusted for rental escalators and increases due to landlord funded capital improvements.

(2)

In accordance with the new lease ASUs, the Company evaluated the collectibility of lease payments through maturity and determined that it was not probable that the Company would collect substantially all of the contractual obligations from five operators through maturity. As such, the Company reversed $7.8 million of contractual rent, $3.5 million of straight-line rent and $0.8 million of property taxes during the three months ended September 30, 2019. If lease payments are subsequently deemed probable of collection, the Company increases rental income for such recoveries.

Recent Real Estate Acquisitions

The following table summarizes the Company’s acquisitions for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 (dollars in thousands):


Type of Property	Purchase Price⁽¹⁾		Initial Annual Cash Rent		Number of Properties	Number of Beds/Units⁽²⁾	Purchase Price⁽¹⁾		Initial Annual Cash Rent⁽²⁾		Number of Properties	Number of Beds/Units⁽³⁾
Skilled nursing	$	43,938	$	3,983	4	492	$	246,099	$	22,129	16	2,029
Multi-service campuses	8,940		854		1	128	45,176		4,088		3	542
Assisted living	—		—		—	—	12,596		1,031		1	96
Total	$	52,878	$	4,837	5	620	$	303,871	$	27,248	20	2,667



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019			2018			2019			2018
Numerator:
Net (loss) income	$	(10,054	)	$	14,510		$	25,697		$	42,384
Less: Net income allocated to participating securities	(66		)	(84		)	(231		)	(282		)
Numerator for basic and diluted earnings available to common stockholders	$	(10,120	)	$	14,426		$	25,466		$	42,102
Denominator:
Weighted-average basic common shares outstanding	95,103			81,490			92,409			77,811
Weighted-average diluted common shares outstanding	95,103			81,490			92,409			77,811

Earnings per common share, basic	$	(0.11	)	$	0.18		$	0.28		$	0.54
Earnings per common share, diluted	$	(0.11	)	$	0.18		$	0.28		$	0.54

~~MARCH 31,~~SEPTEMBER 30, 2019

(in thousands, except share and per share amounts)

DECEMBER 31, 2018

(in thousands, except share and per share amounts)



	Parent Guarantor			Issuers		Combined Subsidiary Guarantors		Elimination			Consolidated
Assets:
Real estate investments, net	$	—		$	887,921	$	328,316	$	—		$	1,216,237
Other real estate investments, net	—			12,299		5,746		—			18,045
Cash and cash equivalents	—			36,792		—		—			36,792
Accounts and other receivables, net	—			9,359		2,028		—			11,387
Prepaid expenses and other assets	—			8,666		2		—			8,668
Deferred financing costs, net	—			633		—		—			633
Investment in subsidiaries	786,030			484,955		—		(1,270,985		)	—
Intercompany	—			—		151,242		(151,242		)	—
Total assets	$	786,030		$	1,440,625	$	487,334	$	(1,422,227	)	$	1,291,762
Liabilities and Equity:
Senior unsecured notes payable, net	$	—		$	295,153	$	—	$	—		$	295,153
Senior unsecured term loan, net	—			99,612		—		—			99,612
Unsecured revolving credit facility	—			95,000		—		—			95,000
Accounts payable and accrued liabilities	—			13,588		2,379		—			15,967
Dividends payable	17,783			—		—		—			17,783
Intercompany	—			151,242		—		(151,242		)	—
Total liabilities	17,783			654,595		2,379		(151,242		)	523,515
Equity:
Common stock, $0.01 par value; 500,000,000 shares authorized, 85,867,044 shares issued and outstanding as of December 31, 2018	859			—		—		—			859
Additional paid-in capital	965,578			661,686		321,761		(983,447		)	965,578
Cumulative distributions in excess of earnings	(198,190		)	124,344		163,194		(287,538		)	(198,190		)
Total equity	768,247			786,030		484,955		(1,270,985		)	768,247
Total liabilities and equity	$	786,030		$	1,440,625	$	487,334	$	(1,422,227	)	$	1,291,762

Parent
Guarantor
Issuers
Combined
Subsidiary
Guarantors
Elimination Consolidated
Assets:
Real estate investments, net $ —
$ 887,921
$ 328,316
$ —
$ 1,216,237
Other real estate investments, net —
12,299
5,746
—
18,045
Cash and cash equivalents —
36,792
—
—
36,792
Accounts and other receivables, net —
9,359
2,028
—
11,387
Prepaid expenses and other assets —
8,666
2
—
8,668
Deferred financing costs, net —
633
—
—
633
Investment in subsidiaries 786,030
484,955
—
(1,270,985 ) —
Intercompany —
—
151,242
(151,242 ) —
Total assets $ 786,030
$ 1,440,625
$ 487,334
$ (1,422,227 ) $ 1,291,762
Liabilities and Equity:
Senior unsecured notes payable, net $ —
$ 295,153
$ —
$ —
$ 295,153
Senior unsecured term loan, net —
99,612
—
—
99,612
Unsecured revolving credit facility —
95,000
—
—
95,000
Accounts payable and accrued liabilities —
13,588
2,379
—
15,967
Dividends payable 17,783
—
—
—
17,783
Intercompany —
151,242
—
(151,242 ) —
Total liabilities 17,783
654,595
2,379
(151,242 ) 523,515
Equity:
Common stock, $0.01 par value; 500,000,000 shares authorized, 85,867,044 shares issued and outstanding as of December 31, 2018 859
—
—
—
859
Additional paid-in capital 965,578
661,686
321,761
(983,447 ) 965,578
Cumulative distributions in excess of earnings (198,190 ) 124,344
163,194
(287,538 ) (198,190 )
Total equity 768,247
786,030
484,955
(1,270,985 ) 768,247
Total liabilities and equity $ 786,030
$ 1,440,625
$ 487,334
$ (1,422,227 ) $ 1,291,762

FOR THE THREE MONTHS ENDED ~~MARCH 31,~~SEPTEMBER 30, 2019

(in thousands)

FOR THE THREE MONTHS ENDED ~~MARCH 31,~~SEPTEMBER 30, 2018

(in thousands)



	Parent Guarantor		Issuers		Combined Subsidiary Guarantors		Elimination			Consolidated
Revenues:
Rental income	$	—	$	20,554	$	14,778	$	—		$	35,332
Tenant reimbursements	—		1,804		1,186		—			2,990
Independent living facilities	—		—		871		—			871
Interest and other income	—		317		—		—			317
Total revenues	—		22,675		16,835		—			39,510
Expenses:
Depreciation and amortization	—		6,833		4,518		—			11,351
Interest expense	—		6,805		—		—			6,805
Property taxes	—		1,804		1,186		—			2,990
Independent living facilities	—		—		766		—			766
General and administrative	987		2,101		—		—			3,088
Total expenses	987		17,543		6,470		—			25,000
Income in Subsidiary	15,497		10,365		—		(25,862		)	—
Net income	$	14,510	$	15,497	$	10,365	$	(25,862	)	$	14,510

Parent
Guarantor
Issuers
Combined
Subsidiary
Guarantors
Elimination Consolidated
Revenues:
Rental income $ —
$ 19,398
$ 14,418
$ —
$ 33,816
Tenant reimbursements —
1,764
1,204
—
2,968
Independent living facilities —
—
799
—
799
Interest and other income —
423
95
—
518
Total revenues —
21,585
16,516
—
38,101
Expenses:
Depreciation and amortization —
6,937
4,640
—
11,577
Interest expense —
7,092
—
—
7,092
Property taxes —
1,764
1,204
—
2,968
Independent living facilities —
—
716
—
716
General and administrative 904
2,288
—
—
3,192
Total expenses 904
18,081
6,560
—
25,545
Gain on sale of real estate —
2,051
—
—
2,051
Income in Subsidiary 15,511
9,956
—
(25,467 ) —
Net income $ 14,607
$ 15,511
$ 9,956
$ (25,467 ) $ 14,607

FOR THE ~~THREE~~NINE MONTHS ENDED ~~MARCH 31,~~SEPTEMBER 30, 2019

(in thousands)

Parent
Guarantor
Issuers
Combined
Subsidiary
Guarantors
Elimination Consolidated
Cash flows from operating activities:
Net cash provided by operating activities $ —
$ 15,308
$ 14,766
$ —
$ 30,074
Cash flows from investing activities:
Acquisitions of real estate —
(52,697 ) —
—
(52,697 )
Improvements to real estate —
(452 ) —
—
(452 )
Purchases of equipment, furniture and fixtures —
(1,806 ) —
—
(1,806 )
Investment in real estate mortgage and other loans receivable —
(11,389 ) —
—
(11,389 )
Principal payments received on real estate mortgage and other loans receivable —
411
—
—
411
Escrow deposits for acquisitions of real estate —
(375 ) —
—
(375 )
Net proceeds from the sale of real estate —
131
—
—
131
Distribution from subsidiary 17,710
—
—
(17,710 ) —
Intercompany financing (45,765 ) 14,766
—
30,999
—
Net cash used in investing activities (28,055 ) (51,411 ) —
13,289
(66,177 )
Cash flows from financing activities:
Proceeds from the issuance of common stock, net 47,260
—
—
—
47,260
Proceeds from the issuance of senior unsecured term loan —
200,000
—
—
200,000
Borrowings under unsecured revolving credit facility —
185,000
—
—
185,000
Payments on senior unsecured term loan —
(100,000 ) —
—
(100,000 )
Payments on unsecured revolving credit facility —
(95,000 ) —
—
(95,000 )
Payments of deferred financing costs —
(4,390 ) —
—
(4,390 )
Net-settle adjustment on restricted stock (1,495 ) —
—
—
(1,495 )
Dividends paid on common stock (17,710 ) —
—
—
(17,710 )
Distribution to Parent —
(17,710 ) —
17,710
—
Intercompany financing —
45,765
(14,766 ) (30,999 ) —
Net cash provided by (used in) financing activities 28,055
213,665
(14,766 ) (13,289 ) 213,665
Net increase in cash and cash equivalents —
177,562
—
—
177,562
Cash and cash equivalents, beginning of period —
36,792
—
—
36,792
Cash and cash equivalents, end of period $ —
$ 214,354
$ —
$ —
$ 214,354



	Parent Guarantor		Issuers		Combined Subsidiary Guarantors		Elimination			Consolidated
Revenues:
Rental income	$	—	$	59,709	$	54,338	$	—		$	114,047
Independent living facilities	—		—		2,676		—			2,676
Interest and other income	—		1,828		622		—			2,450
Total revenues	—		61,537		57,636		—			119,173
Expenses:
Depreciation and amortization	—		22,989		15,770		—			38,759
Interest expense	—		21,209		—		—			21,209
Property taxes	—		2,200		107		—			2,307
Independent living facilities	—		—		2,232		—			2,232
Impairment of real estate investments	—		16,692		—		—			16,692
Provision for loan losses	—		1,076		—		—			1,076
General and administrative	3,236		8,110		72		—			11,418
Total expenses	3,236		72,276		18,181		—			93,693
Gain on sale of real estate	—		217		—		—			217
Income in Subsidiary	28,933		39,455		—		(68,388		)	—
Net income	$	25,697	$	28,933	$	39,455	$	(68,388	)	$	25,697

FOR THE ~~THREE~~NINE MONTHS ENDED ~~MARCH 31,~~SEPTEMBER 30, 2018

(in thousands)



	Parent Guarantor		Issuers		Combined Subsidiary Guarantors		Elimination			Consolidated
Revenues:					��
Rental income	$	—	$	60,122	$	43,734	$	—		$	103,856
Tenant reimbursements	—		5,360		3,614		—			8,974
Independent living facilities	—		—		2,515		—			2,515
Interest and other income	—		1,039		196		—			1,235
Total revenues	—		66,521		50,059		—			116,580
Expenses:
Depreciation and amortization	—		20,488		13,739		—			34,227
Interest expense	—		21,182		—		—			21,182
Property taxes	—		5,360		3,614		—			8,974
Independent living facilities	—		—		2,226		—			2,226
General and administrative	2,822		6,740		76		—			9,638
Total expenses	2,822		53,770		19,655		—			76,247
Gain on sale of real estate	—		2,051		—		—			2,051
Income in Subsidiary	45,206		30,404		—		(75,610		)	—
Net income	$	42,384	$	45,206	$	30,404	$	(75,610	)	$	42,384

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

(in thousands)



	Parent Guarantor			Issuers			Combined Subsidiary Guarantors			Elimination			Consolidated
Cash flows from operating activities:
Net cash (used in) provided by operating activities	$	(114	)	$	39,195		$	56,077		$	—		$	95,158
Cash flows from investing activities:
Acquisitions of real estate	—			(86,393		)	(212,164		)	—			(298,557		)
Improvements to real estate	—			(767		)	(463		)	—			(1,230		)
Purchases of equipment, furniture and fixtures	—			(2,922		)	(4		)	—			(2,926		)
Investment in real estate mortgage and other loans receivable	—			(14,699		)	—			—			(14,699		)
Principal payments received on real estate mortgage and other loans receivable	—			11,959			—			—			11,959
Repayment of other real estate investment	—			—			2,204			—			2,204
Escrow deposits for acquisitions of real estate	—			(22,920		)	—			—			(22,920		)
Net proceeds from sales of real estate	—			218			—			—			218
Distribution from subsidiary	59,155			—			—			(59,155		)	—
Intercompany financing	(193,325		)	(154,350		)	—			347,675			—
Net cash used in investing activities	(134,170		)	(269,874		)	(210,427		)	288,520			(325,951		)
Cash flows from financing activities:
Proceeds from the issuance of common stock, net	195,963			—			—			—			195,963
Proceeds from the issuance of senior unsecured term loan	—			200,000			—			—			200,000
Borrowings under unsecured revolving credit facility	—			235,000			—			—			235,000
Payments on unsecured revolving credit facility	—			(265,000		)	—			—			(265,000		)
Payments on senior unsecured term loan	—			(100,000		)	—			—			(100,000		)
Payments of deferred financing costs	—			(4,534		)	—			—			(4,534		)
Net-settle adjustment on restricted stock	(2,524		)	—			—			—			(2,524		)
Dividends paid on common stock	(59,155		)	—			—			—			(59,155		)
Distribution to Parent	—			(59,155		)	—			59,155			—
Intercompany financing	—			193,325			154,350			(347,675		)	—
Net cash provided by (used in) financing activities	134,284			199,636			154,350			(288,520		)	199,750
Net decrease in cash and cash equivalents	—			(31,043		)	—			—			(31,043		)
Cash and cash equivalents, beginning of period	—			36,792			—			—			36,792
Cash and cash equivalents, end of period	$	—		$	5,749		$	—		$	—		$	5,749

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

(in thousands)



	Parent Guarantor			Issuers			Combined Subsidiary Guarantors			Elimination			Consolidated
Cash flows from operating activities:
Net cash (used in) provided by operating activities:	$	(7	)	$	28,087		$	44,310		$	—		$	72,390
Cash flows from investing activities:
Acquisitions of real estate	—			(75,621		)	—			—			(75,621		)
Improvements to real estate	—			(5,376		)	(25		)	—			(5,401		)
Purchases of equipment, furniture and fixtures	—			(1,193		)	(69		)	—			(1,262		)
Investment in real estate mortgage and other loans receivable	—			(2,598		)	—			—			(2,598		)
Principal payments received on real estate mortgage and other loans receivable	—			893			—			—			893
Escrow deposit for acquisition of real estate	—			(1,000		)	—			—			(1,000		)
Net proceeds from the sale of real estate	—			13,004			—			—			13,004
Distribution from subsidiary	45,827			—			—			(45,827		)	—
Intercompany financing	(129,251		)	44,216			—			85,035			—
Net cash used in investing activities	(83,424		)	(27,675		)	(94		)	39,208			(71,985		)
Cash flows from financing activities:
Proceeds from the issuance of common stock, net	130,546			—			—			—			130,546
Borrowings under unsecured revolving credit facility	—			60,000			—			—			60,000
Payments on unsecured revolving credit facility	—			(135,000		)	—			—			(135,000		)
Net-settle adjustment on restricted stock	(1,288		)	—			—			—			(1,288		)
Dividends paid on common stock	(45,827		)	—			—			—			(45,827		)
Distribution to Parent	—			(45,827		)	—			45,827			—
Intercompany financing	—			129,251			(44,216		)	(85,035		)	—
Net cash provided by (used in) financing activities	83,431			8,424			(44,216		)	(39,208		)	8,431
Net increase in cash and cash equivalents	—			8,836			—			—			8,836
Cash and cash equivalents, beginning of period	—			6,909			—			—			6,909
Cash and cash equivalents, end of period	$	—		$	15,745		$	—		$	—		$	15,745



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CTRE	The Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)



~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~Common Stock, par value $0.01 per share~~	~~CTRE~~	~~The Nasdaq Stock Market LLC~~ ~~(Nasdaq Global Select Market)~~



PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated ~~Income~~ Statements of Operations	2
	Condensed Consolidated Statements of Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	~~Notes to Condensed Consolidated Financial Statements~~	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2429
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3138
Item 4.	Controls and Procedures	3139

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	3239
Item 1A.	Risk Factors	32
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	3239
Item 6.	Exhibits	3340
	Signatures	3441



	September 30, 2019						December 31, 2018
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial assets:
Preferred equity investments	$	2,327	$	3,079	$	3,540	$	4,531	$	5,746	$	6,246
Mortgage loans receivable	41,773		41,728		41,773		12,375		12,299		12,375
Financial liabilities:
Senior unsecured notes payable	$	300,000	$	295,721	$	309,750	$	300,000	$	295,153	$	289,500



	March 31, 2019						December 31, 2018
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial assets:
Preferred equity investments	$	4,531	$	5,746	$	6,477	$	4,531	$	5,746	$	6,246
Mortgage loans receivable	23,739		23,673		23,739		12,375		12,299		12,375
Financial liabilities:
Senior unsecured notes payable	$	300,000	$	295,342	$	300,783	$	300,000	$	295,153	$	289,500



x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	For the Three Months Ended March 31,				For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2019		2018		2019			2018		2019		2018
Revenues:
Rental income	$	38,347	$	33,816	$	31,577		$	35,332	$	114,047	$	103,856
Tenant reimbursements	—		2,968		—			2,990		—		8,974
Independent living facilities	860		799		929			871		2,676		2,515
Interest and other income	451		518		808			317		2,450		1,235
Total revenues	39,658		38,101		33,314			39,510		119,173		116,580
Expenses:
Depreciation and amortization	11,902		11,577		13,420			11,351		38,759		34,227
Interest expense	6,860		7,092		7,064			6,805		21,209		21,182
Property taxes	826		2,968		1,025			2,990		2,307		8,974
Independent living facilities	707		716		806			766		2,232		2,226
Impairment of real estate investments					16,692			—		16,692		—
Provision for loan losses					1,076			—		1,076		—
General and administrative	3,310		3,192		3,502			3,088		11,418		9,638
Total expenses	23,605		25,545		43,585			25,000		93,693		76,247
Other income:
Gain on sale of real estate	—		2,051		217			—		217		2,051
Net income	$	16,053	$	14,607
Net (loss) income					$	(10,054	)	$	14,510	$	25,697	$	42,384
Earnings per common share:
Basic	$	0.18	$	0.19	$	(0.11	)	$	0.18	$	0.28	$	0.54
Diluted	$	0.18	$	0.19	$	(0.11	)	$	0.18	$	0.28	$	0.54
Weighted-average number of common shares:
Basic	88,010		75,504		95,103			81,490		92,409		77,811
Diluted	88,010		75,504		95,103			81,490		92,409		77,811



Year	Amount
2019 (nine months)	$	113,386
2020	151,591
2021	152,057
2022	152,541
2023	152,882
2024	153,150
Thereafter	988,982
	$	1,864,589



	September 30, 2019							December 31, 2018
	Principal Amount		Deferred Loan Fees⁽¹⁾			Carrying Value		Principal Amount		Deferred Loan Fees⁽¹⁾			Carrying Value
Senior unsecured notes payable	$	300,000	$	(4,279	)	$	295,721	$	300,000	$	(4,847	)	$	295,153
Senior unsecured term loan	200,000		(1,339		)	198,661		100,000		(388		)	99,612
Unsecured revolving credit facility	65,000		—			65,000		95,000		—			95,000
	$	565,000	$	(5,618	)	$	559,382	$	495,000	$	(5,235	)	$	489,765


	For the Three Months Ended		For the Three Months Ended
	March 31, 2019		March 31, 2019
Number of shares	2,459		2,459
Average sales price per share	$	19.48	$	19.48
Gross proceeds*	$	47,893	$	47,893



	For the Three Months Ended
	March 31, 2019		June 30, 2019		September 30, 2019
Dividends declared per share	$	0.225	$	0.225	$	0.225
Dividends payment date	April 15, 2019		July 15, 2019		October 15, 2019
Dividends payable as of record date	$	20,011	$	21,508	$	21,500
Dividends record date	March 29, 2019		June 28, 2019		September 30, 2019


	Three Months Ended March 31,				Increase (Decrease)			Percentage Difference		Three Months Ended September 30,				Increase (Decrease)			Percentage Difference
	2019		2018		Increase (Decrease)			Percentage Difference		2019		2018		Increase (Decrease)			Percentage Difference
	(dollars in thousands)									(dollars in thousands)
Revenues:
Rental income	$	38,347	$	33,816	$	4,531		13	%	$	31,577	$	35,332	$	(3,755	)	(11	)%
Tenant reimbursements	—		2,968		(2,968		)	(100	)%	—		2,990		(2,990		)	(100	)%
Independent living facilities	860		799		61			8	%	929		871		58			7	%
Interest and other income	451		518		(67		)	(13	)%	808		317		491			155	%
Expenses:
Depreciation and amortization	11,902		11,577		325			3	%	13,420		11,351		2,069			18	%
Interest expense	6,860		7,092		(232		)	(3	)%	7,064		6,805		259			4	%
Property taxes	826		2,968		(2,142		)	(72	)%	1,025		2,990		(1,965		)	(66	)%
Independent living facilities	707		716		(9		)	(1	)%	806		766		40			5	%
Impairment of real estate investments										16,692		—		16,692			100	%
Provision for loan losses										1,076		—		1,076			100	%
General and administrative	3,310		3,192		118			4	%	3,502		3,088		414			13	%



	Nine Months Ended September 30,				Increase (Decrease)			Percentage Difference
	2019		2018		Increase (Decrease)			Percentage Difference
	(dollars in thousands)
Revenues:
Rental income	$	114,047	$	103,856	$	10,191		10	%
Tenant reimbursements	—		8,974		(8,974		)	(100	)%
Independent living facilities	2,676		2,515		161			6	%
Interest and other income	2,450		1,235		1,215			98	%
Expenses:
Depreciation and amortization	38,759		34,227		4,532			13	%
Interest expense	21,209		21,182		27			—	%
Property taxes	2,307		8,974		(6,667		)	(74	)%
Independent living facilities	2,232		2,226		6			—	%
Impairment of real estate investments	16,692		—		16,692			100	%
Provision for loan losses	1,076		—		1,076			100	%
General and administrative	11,418		9,638		1,780			18	%


	Payments Due by Period										Payments Due by Period
	Total		Less than 1 Year		1 Year to Less than 3 Years		3 Years to Less than 5 Years		More than 5 years		Total		Less than 1 Year		1 Year to Less than 3 Years		3 Years to Less than 5 Years		More than 5 years
Senior unsecured notes payable (1)	$	402,375	$	15,750	$	31,500	$	31,500	$	323,625	$	394,500	$	15,750	$	31,500	$	31,500	$	315,750
Senior unsecured term loan (2)	255,561		8,134		16,178		16,200		215,049		245,699		7,200		14,361		14,381		209,757
Unsecured revolving credit facility (3)	214,991		7,704		15,325		191,962		—		75,145		2,992		5,968		66,185		—
Operating lease	125		125		—		—		—
Operating leases											3,469		106		104		104		3,155
Total	$	873,052	$	31,713	$	63,003	$	239,662	$	538,674	$	718,813	$	26,048	$	51,933	$	112,170	$	528,662


(1)	Amounts include interest payments of ~~$102.4~~$94.5 million.


(3)	Amounts include payments related to the ~~unused~~ credit facility fee.



	Total Number of	Average Price Paid
Period	Shares Purchased	per Share
January 1 - January 31, 2019	—	$	—
February 1 - February 28, 2019	68,617	$	21.78
March 1 - March 31, 2019	—	$	—
Total	68,617	$	21.78



Exhibit Number		Description of the Document


2.1		Separation and Distribution Agreement, dated as of May 23, 2014, by and between The Ensign Group, Inc. and CareTrust REIT, Inc. (Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on June 5, 2014, is incorporated herein by reference).

~~2.2~~		Membership Interest Purchase Agreement, dated as of January 27, 2019, by and between BME Texas Holdings LLC and CTR Partnership, L.P. (Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on April 2, 2019 is incorporated herein by reference).

3.1		Articles of Amendment and Restatement of CareTrust REIT, Inc. (Exhibit 3.1 to the Company’s Registration Statement on Form 10, filed on May 13, 2014, is incorporated herein by reference).

3.2		Articles of Amendment, dated May 30, 2018, to the Articles of Amendment and Restatement of CareTrust REIT, Inc. (Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on May 31, 2018, is incorporated herein by reference).

3.3		Amended and Restated Bylaws of CareTrust REIT, Inc. (Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on March 7, 2019, is incorporated herein by reference).

10.1		First Amendment to Amended and Restated Credit and Guaranty Agreement, dated ~~as of February 8,~~July 23, 2019, by and among CTR Partnership, L.P., as borrower, CareTrust REIT, Inc., as guarantor, CareTrust GP, LLC, and other guarantors named therein, the Lenders (as defined therein) from time to time party thereto and KeyBank National Association, as administrative agent, an issuing lender and swingline ~~lender and other parties thereto~~lender. (Exhibit 10.1 to the Company’s ~~Current~~Quarterly Report on Form ~~8-K,~~10-Q filed on ~~February 11,~~August 6, 2019 is incorporated herein by reference).

*31.1		Certification of Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2		Certification of Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

**32		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



	CareTrust REIT, Inc.
~~May~~November 7, 2019	By:	/s/ Gregory K. Stapley
		Gregory K. Stapley
		President and Chief Executive Officer (duly authorized officer)

~~May~~November 7, 2019	By:	/s/ William M. Wagner
		William M. Wagner
		Chief Financial Officer, Treasurer and Secretary (principal financial officer and principal accounting officer)