Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-Q
(Mark One)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20192020
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

46-3999490
Maryland
46-3999490
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
905 Calle Amanecer Suite 300San Clemente CACA92673
(Address of principal executive offices)(Zip Code)

(949) 542-3130
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareCTREThe Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
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.    x☒  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).    x☒  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☒xAccelerated filer
¨

☐
Non-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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨☐  Yes    x☒  No
As of May 6, 2019,2020, there were 95,582,45595,711,340 shares of common stock outstanding.
Securities registered pursuant to Section 12(b)



Table of the Act:Contents
INDEX
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareCTRE
The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)



INDEX
PART I—FINANCIAL INFORMATION
PART I—FINANCIAL INFORMATION
Item 1.
1
2
3
45
56
Item 2.
2418
Item 3.
3126
Item 4.
3127
PART II—OTHER INFORMATION
Item 1.
3227
Item 1A.
3227
Item 2.
3228
Item 6.
3329
3431








Table of Contents

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
CARETRUST REIT, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
 
March 31, 2020December 31, 2019
Assets:
Real estate investments, net$1,429,525  $1,414,200  
Other real estate investments, net61,753  33,300  
Assets held for sale, net—  34,590  
Cash and cash equivalents23,937  20,327  
Accounts and other receivables, net1,798  2,571  
Prepaid expenses and other assets11,427  10,850  
Deferred financing costs, net2,778  3,023  
Total assets$1,531,218  $1,518,861  
Liabilities and Equity:
Senior unsecured notes payable, net$296,100  $295,911  
Senior unsecured term loan, net198,766  198,713  
Unsecured revolving credit facility75,000  60,000  
Accounts payable and accrued liabilities15,476  14,962  
Dividends payable24,083  21,684  
Total liabilities609,425  591,270  
Commitments and contingencies (Note 10)
Equity:
Preferred stock, $0.01 par value; 100,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2020 and December 31, 2019—  —  
Common stock, $0.01 par value; 500,000,000 shares authorized, 95,196,331 and 95,103,270 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively952  951  
Additional paid-in capital1,161,797  1,162,990  
Cumulative distributions in excess of earnings(240,956) (236,350) 
Total equity921,793  927,591  
Total liabilities and equity$1,531,218  $1,518,861  
 March 31, 2019 December 31, 2018
Assets:   
Real estate investments, net$1,259,336
 $1,216,237
Other real estate investments, net29,419
 18,045
Cash and cash equivalents214,354
 36,792
Accounts and other receivables, net8,360
 11,387
Prepaid expenses and other assets8,759
 8,668
Deferred financing costs, net3,758
 633
Total assets$1,523,986
 $1,291,762
Liabilities and Equity:   
Senior unsecured notes payable, net$295,342
 $295,153
Senior unsecured term loan, net198,555
 99,612
Unsecured revolving credit facility185,000
 95,000
Accounts payable and accrued liabilities13,972
 15,967
Dividends payable20,086
 17,783
Total liabilities712,955
 523,515
Commitments and contingencies (Note 10)
 
Equity:   
Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued and outstanding as of March 31, 2019 and December 31, 2018—
 —
Common stock, $0.01 par value; 500,000,000 shares authorized, 88,398,273 and 85,867,044 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively884
 859
Additional paid-in capital1,012,295
 965,578
Cumulative distributions in excess of earnings(202,148) (198,190)
Total equity811,031
 768,247
Total liabilities and equity$1,523,986
 $1,291,762











See accompanying notes to condensed consolidated financial statements.



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CARETRUST REIT, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
(Unaudited)
 
 For the Three Months Ended March 31,
 20202019
Revenues:
Rental income$42,464  $38,347  
Independent living facilities625  860  
Interest and other income1,251  451  
Total revenues44,340  39,658  
Expenses:
Depreciation and amortization13,160  11,902  
Interest expense6,714  6,860  
Property taxes485  826  
Independent living facilities546  707  
General and administrative4,054  3,310  
Total expenses24,959  23,605  
Other loss:
Loss on sale of real estate(56) —  
Net income$19,325  $16,053  
Earnings per common share:
Basic$0.20  $0.18  
Diluted$0.20  $0.18  
Weighted-average number of common shares:
Basic95,161  88,010  
Diluted95,161  88,010  
 For the Three Months Ended March 31,
 2019 2018
Revenues:   
Rental income$38,347
 $33,816
Tenant reimbursements—
 2,968
Independent living facilities860
 799
Interest and other income451
 518
Total revenues39,658
 38,101
Expenses:   
Depreciation and amortization11,902
 11,577
Interest expense6,860
 7,092
Property taxes826
 2,968
Independent living facilities707
 716
General and administrative3,310
 3,192
Total expenses23,605
 25,545
Other income:   
Gain on sale of real estate—
 2,051
Net income$16,053
 $14,607
Earnings per common share:   
Basic$0.18
 $0.19
Diluted$0.18
 $0.19
Weighted-average number of common shares:   
Basic88,010
 75,504
Diluted88,010
 75,504













See accompanying notes to condensed consolidated financial statements.

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CARETRUST REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share and per share amounts)
(Unaudited)




Common StockAdditional
Paid-in
Capital		Cumulative
Distributions in Excess of Earnings		Total
Equity
SharesAmount
Balance at January 1, 2020Balance at January 1, 202095,103,270  $951  $1,162,990  $(236,350) $927,591  
Issuance of common stock, netIssuance of common stock, net—  —  (90) —  (90) 
Vesting of restricted common stock, net of shares withheld for employee taxesVesting of restricted common stock, net of shares withheld for employee taxes93,061  1  (1,987) —  (1,986) 
Amortization of stock-based compensationAmortization of stock-based compensation—  —  884  —  884  
Common dividends ($0.25 per share)Common dividends ($0.25 per share)—  —  —  (23,931) (23,931) 
Net incomeNet income—  —  —  19,325  19,325  
Balance at March 31, 2020Balance at March 31, 202095,196,331  $952  $1,161,797  $(240,956) $921,793  
Common Stock 
Additional
Paid-in
Capital
 
Cumulative
Distributions in Excess of Earnings
 
Total
Equity
Shares Amount 
Balance at January 1, 201875,478,202
 $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 taxes43,844
 —
 (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 at March 31, 201875,522,046
 $755
 $783,509
 $(190,376) $593,888





 Common Stock 
Additional
Paid-in
Capital
 
Cumulative
Distributions in Excess of Earnings
 
Total
Equity
Shares Amount 
Balance at January 1, 201985,867,044
 859
 965,578
 (198,190) 768,247
Issuance of common stock, net2,459,000
 24
 47,219
 —
 47,243
Vesting of restricted common stock, net of shares withheld for employee taxes72,229
 1
 (1,496) —
 (1,495)
Amortization of stock-based compensation—
 —
 994
 —
 994
Common dividends ($0.225 per share)—
 —
 —
 (20,011) (20,011)
Net income—
 —
 —
 16,053
 16,053
Balance at March 31, 201988,398,273
 $884
 $1,012,295
 $(202,148) $811,031







































See accompanying notes to condensed consolidated financial statements.

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CARETRUST REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share and per share amounts)
(Unaudited)

 Common StockAdditional
Paid-in
Capital		Cumulative
Distributions in Excess of Earnings		Total
Equity
SharesAmount
Balance at January 1, 201985,867,044  $859  $965,578  $(198,190) $768,247  
Issuance of common stock, net2,459,000  24  47,219  —  47,243  
Vesting of restricted common stock, net of shares withheld for employee taxes72,229  1  (1,496) —  (1,495) 
Amortization of stock-based compensation—  —  994  —  994  
Common dividends ($0.225 per share)—  —  —  (20,011) (20,011) 
Net income—  —  —  16,053  16,053  
Balance at March 31, 201988,398,273  $884  $1,012,295  $(202,148) $811,031  































See accompanying notes to condensed consolidated financial statements.
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CARETRUST REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

 For the Three Months Ended March 31,
 20202019
Cash flows from operating activities:
Net income$19,325  $16,053  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including below-market ground leases)13,175  11,906  
Amortization of deferred financing costs487  541  
Amortization of stock-based compensation884  994  
Straight-line rental income(26) (463) 
Noncash interest income—  (10) 
Loss on sale of real estate56  —  
Interest income distribution from other real estate investment1,346  —  
Change in operating assets and liabilities:
Accounts and other receivables, net335  (1,220) 
Prepaid expenses and other assets454  (116) 
Accounts payable and accrued liabilities482  2,389  
Net cash provided by operating activities36,518  30,074  
Cash flows from investing activities:
Acquisitions of real estate, net of deposits applied(25,905) (52,697) 
Improvements to real estate(2,345) (452) 
Purchases of equipment, furniture and fixtures(73) (1,806) 
Investment in real estate mortgage and other loans receivable(100) (11,389) 
Principal payments received on real estate mortgage and other loans receivable662  411  
Repayment of other real estate investment2,327  —  
Escrow deposits for potential acquisitions of real estate(1,000) (375) 
Net proceeds from sales of real estate2,134  131  
Net cash used in investing activities(24,300) (66,177) 
Cash flows from financing activities:
Proceeds from (costs paid for) the issuance of common stock, net(90) 47,260  
Proceeds from the issuance of senior unsecured term loan—  200,000  
Borrowings under unsecured revolving credit facility15,000  185,000  
Payments on unsecured revolving credit facility—  (95,000) 
Payments on senior unsecured term loan—  (100,000) 
Payments of deferred financing costs—  (4,390) 
Net-settle adjustment on restricted stock(1,986) (1,495) 
Dividends paid on common stock(21,532) (17,710) 
Net cash (used in) provided by financing activities(8,608) 213,665  
Net increase in cash and cash equivalents3,610  177,562  
Cash and cash equivalents, beginning of period20,327  36,792  
Cash and cash equivalents, end of period$23,937  $214,354  
Supplemental disclosures of cash flow information:
Interest paid$2,289  $2,242  
Supplemental schedule of noncash investing and financing activities:
Increase in dividends payable$2,399  $2,303  
Increased in deferred financing costs payable$—  $144  
Transfer of pre-acquisition costs to acquired assets$167  $—  
Sale of real estate settled with note receivable$32,400  $—  
 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 costs541
 484
Amortization of stock-based compensation994
 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 liabilities2,389
 (2,579)
Net cash provided by operating activities30,074
 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 receivable411
 23
Escrow deposits for acquisitions of real estate(375) (1,000)
Net proceeds from the sale of real estate131
 13,004
Net cash used in investing activities(66,177) (35,114)
Cash flows from financing activities:   
Proceeds from the issuance of common stock, net47,260
 (10)
Proceeds from the issuance of senior unsecured term loan200,000
 —
Borrowings under unsecured revolving credit facility185,000
 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 activities213,665
 20,341
Net increase in cash and cash equivalents177,562
 7,286
Cash and cash equivalents, beginning of period36,792
 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.

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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, 2019,2020, the Company owned and leased to independent operators, including The Ensign Group, Inc. (“Ensign”), 199212 skilled nursing, multi-service campuses, assisted living and independent living facilities consisting of 19,66821,652 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. TheIdaho. As of March 31, 2020, the Company also ownsowned and operates threeoperated 1 independent living facilitiesfacility which havehad a total of 264168 units located in Texas and Utah. As of March 31, 2019, the Company also had other real estate investments consisting of two preferred equity investments totaling $5.7 million and two3 mortgage loans receivable of $23.7 million.$61.8 million.

In December 2019, COVID-19 was first reported in Wuhan, China, and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. In recent months, the COVID-19 outbreak has spread globally and has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders. These measures may remain in place for a significant amount of time.
The 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 new information which may emerge concerning the severity of COVID-19, actions taken to contain COVID-19, any possible resurgence of COVID-19 that may occur after the initial outbreak subsides, and how quickly and to what extent normal economic and operating conditions can resume. The adverse impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition could be material.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation—The accompanying 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 independent living facilities that the Company owns and operates; and (iii) the preferred equity investments 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, 2018.2019. 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.


RecentLessor Accounting—In accordance with Accounting Standards Adopted byCodification (“ASC”) 842, Leases, the Company—On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) that sets out the principles for the recognition, measurement, presentation, and disclosure generally recognizes lease revenue on a straight-line basis of leases for both parties to a lease agreement (i.e., lessees and lessors). Upon adoption of the lease ASU 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 the Company not 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 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 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

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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 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, therefore this practical expedient had no effect on the Company.
The lease classification for any leases expired or existing as of January 1, 2019.
◦The election of the package of practical expedients required the Company not to reassess the classification of its leases existing as of January 1, 2019. For example, 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 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 components at lease inception. The total consideration in the lease agreement is allocated to the lease and nonlease components based on their relative stand-alone selling prices. The new lease ASUs govern the recognition of revenue for lease components, and revenue related to nonlease components is subject to the revenue recognition ASU. Tenant recoveries for utilities, repairs and maintenance, and common area expenses are considered nonlease components.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. As such, the Company has concluded its leases do not contain material nonlease components. Tenant reimbursements related to property taxes and insurance are neither lease nor nonlease components underpaid by 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 thembe excluded from variable payments and from recognition in the lessors’ income statements. 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. The Company recognized, on a gross basis, property taxes of $0.8 million for each of the three months ended March 31, 2020 and 2019.
On January 1, 2019,
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 electedconsiders the single component practical expedient, which allowsoperator’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 lessor, by class of underlying asset, not to allocate the total consideration tostraight-line basis over the lease term. 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 nonlease 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 component(s) associated with that leasedeferred rent receivable balances charged as a single component if (i)direct write-off against rental income in the timing and pattern of transferperiod of the lease component andchange in the nonlease 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 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 components are accounted for under the revenue recognition standard. The components of the Company’s operating leases qualify for the single component presentation.
collectibility determination. For the three months ended March 31, 2018, the Company recognized tenant recoveries for real estate taxes of $3.0 million, which were classified as tenant reimbursements on the Company’s condensed consolidated income statements. Prior to the adoption of Accounting Standard 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 directly2020 and classified as rental income on

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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 for the three months ended March 31, 2019.
Under the new lease ASUs, the Company recognizes rental revenue, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, if any, from tenants under lease arrangements with minimum fixed and determinable increases on a straight-line basis over the non-cancellable term of the related leases when collectability is probable. For the three months ended March 31, 2019, the Company did not recognize any write-off or recovery adjustments to rental income related to recognized rental income in the prior periods.income.
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, 2019, the remaining contractual payments under the Company’s ground and office lease arrangements for which it is the lessee aggregated approximately $0.1 million. While these leases are subject to this ASU application effective January 1, 2019, the lease liability and corresponding right-of-use asset do not have a material effect on the Company’s condensed consolidated financial statements.
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
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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-producingof real estate are recorded as a business combination. If the acquisition doesinvestments generally do not meet the definition of a business, acquisitionsand are recordedtreated 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.basis when earn-out becomes probable and estimable. If the contingent payment is an earn-out provided to the lessee, the payment is recorded as a lease incentive and is amortized as a yield adjustment over the life of the lease.
Impairment of Long-Lived Assets—At each reporting period, managementthe Company evaluates the Company’sits real estate investments to be held and used for potential 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 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

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necessary, is based on factors such as, but not limited to, market conditions, operator performance and legal structure. If indicators of impairment are present, managementthe Company evaluates the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying facilities. The most significant inputs to the undiscounted cash flows include, but are not limited to, facility level financial results, a lease coverage ratio, the intended hold period by the Company, and a terminal capitalization rate. The analysis is also significantly impacted by determining the lowest level of cash flows, which generally would be at the master lease level of cash flows. Provisions for impairment losses related to long-lived assets are recognized when expected future undiscounted cash flows are determined to be less than the carrying values of the assets. An adjustmentThe impairment is made to the net carrying value of the real estate investments formeasured 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.
If
The Company classifies its real estate investments as held for sale when the applicable criteria have been met, which entails a formal plan to sell the properties that is expected to be completed within one year, among other criteria. Upon designation as held for sale, the Company decides to sell real estate properties, it evaluateswrites down the recoverabilityexcess of the carrying amounts ofvalue over 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.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 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 considerconsiders matters such as rentalthe forecasted operating cash flows, lease coverage ratios, capitalization 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.

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.

Other Real Estate Investments—Included in “Other real estate investments, net,” on the Company’s condensed consolidated balance sheet are three mortgage loans receivable. Prior to the adoption of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Subtopic 326) (“ASU 2016-13”), the mortgage loans receivable were recorded at amortized cost, which consisted of the outstanding unpaid principal balance, net of unamortized costs and fees directly associated with the origination of the loan. Interest income on the Company’s mortgage loans receivable was recognized over the life of the applicable investment using the interest method. Origination costs and fees directly related to the mortgage loans receivable were amortized over the term of the loan as an adjustment to interest income.

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The Company evaluated at each reporting period each of its other real estate investments for indicators of impairment. An investment was impaired when, based on current information and events, it was probable that the Company would be unable to collect all amounts due according to the existing contractual terms. A reserve would be established for the excess of the carrying value of the investment over its fair value.

Upon adoption of ASU 2016-13, the Company elected to account for these instruments under the fair value option, as discussed below, and the fair value of these instruments as recorded in the accompanying condensed consolidated balance sheet includes any unpaid accrued interest. Interest income is recognized as earned within interest and other income in the condensed consolidated income statement.
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 PronouncementsStandards Adopted by the Company—In June 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU No. 2016-13,Financial Instruments - Credit Losses (Topic 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 applyapplies 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.” Additionally, the FASB issued ASU No. 2019-05, Targeted Transition Relief (“ASU 2019-05”), to allow companies to irrevocably elect, upon adoption of ASU 2016-13, isthe fair value option on financial instruments. The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. ASU 2016-13 became effective for reporting periods beginning after December 15, 2019, with early adoption permitted, and will bewas applied as a cumulative adjustment to retained earnings as of the effective date. The Company is currently assessingadopted ASU 2016-13 on January 1, 2020. With the potential effectCompany’s primary business being leasing real property to third-party tenants, the adoptionmajority of receivables that arise in the ordinary course of business qualify as operating leases and are not in the scope of ASU 2016-132016-13.  However, based on the instruments held upon adoption on January 1, 2020, the standard applies to the Company’s mortgage loans receivable, for which the Company elected the fair value option as provided for by ASU 2019-05. These instruments will havebe measured at fair value on a recurring basis with changes in fair value recognized in other income on the Company’s condensed consolidated income statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) (“ASU 2018-13”), which modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. ASU 2018-13 is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted ASU 2018-13 on January 1, 2020. Adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.
















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3. REAL ESTATE INVESTMENTS, NET
The following table summarizes the Company’s investment in owned properties as of March 31, 20192020 and December 31, 20182019 (dollars in thousands):
 
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March 31, 2019 December 31, 2018March 31, 2020December 31, 2019
Land$176,798
 $166,948
Land$208,230  $204,154  
Buildings and improvements1,243,331
 1,201,209
Buildings and improvements1,423,769  1,400,927  
Integral equipment, furniture and fixtures90,656
 87,623
Integral equipment, furniture and fixtures94,576  93,005  
Identified intangible assets1,400
 2,382
Identified intangible assets1,650  1,650  
Real estate investments1,512,185
 1,458,162
Real estate investments1,728,225  1,699,736  
Accumulated depreciation and amortization(252,849) (241,925)Accumulated depreciation and amortization(298,700) (285,536) 
Real estate investments, net$1,259,336
 $1,216,237
Real estate investments, net$1,429,525  $1,414,200  
As of March 31, 2019, 93 of2020, the Company’s 202212 facilities werewere leased to subsidiaries of Ensign under eight 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, 2019, annualized revenues from the Ensign Master Leases were $59.8 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) 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, 2019, 106 of the Company’s 202 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 remaining properties asAs of March 31, 2019 are2020, the Company has 1 independent living facilitiesfacility that the Company owns and operates.
The Company has only one identified intangible asset which relates to a below-market ground lease. The ground lease has a remaining term of 79 years.
As of March 31, 2019,2020, the Company’s total future minimum rental revenues for all of its tenants, excluding operating expense reimbursements, were (dollars in thousands):
YearAmount
2020 (nine months)$125,502  
2021167,942  
2022168,039  
2023167,735  
2024167,836  
2025167,938  
Thereafter963,401  
$1,928,393  
YearAmount
2019 (nine months)$113,386
2020151,591
2021152,057
2022152,541
2023152,882
2024153,150
Thereafter988,982
 $1,864,589





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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):
YearAmount
2019$146,010
2020146,560
2021147,132
2022147,719
2023148,169
Thereafter1,055,012
 $1,790,602


Recent Real Estate Acquisitions

The following table summarizes the Company’s acquisitions for the three months ended March 31, 20192020 (dollars in thousands):


Type of Property
Purchase Price(1)
 Initial Annual Cash Rent Number of Properties 
Number of Beds/Units(2)
Type of Property
Purchase Price(1)
Initial Annual Cash RentNumber of Properties
Number of Beds/Units(2)
Skilled nursing$43,938
 $3,983
 4
 492
Skilled nursing$18,675  $1,669  1  99  
Multi-service campuses8,940
 854
 1
 128
Multi-service campuses—  —  —  —  
Assisted living—
 —
 —
 —
Assisted living7,396  590  1  62  
Total$52,878
 $4,837
 5
 620
Total$26,071  $2,259  2  161  
        
(1) Purchase price includes capitalized acquisition costs.
(2) The number of beds/units includes operating beds at acquisition date.


Sale of Real Estate
On February 14, 2020, the Company closed on the sale of 6 skilled nursing facilities formerly operated by affiliates of Metron Integrated Health Systems (“Metron”). In connection with the sale for $36.0 million, the Company received $3.5 million in cash and provided subsidiaries of Cascade Capital Group, LLC (“Cascade”), the purchaser of the properties, with a short-term mortgage loan secured by these properties for $32.4 million.  The mortgage loan bore interest at 7.5% and initiallyhad a maturity date of March 31, 2020. In connection with the sale, the Company recognized a loss of approximately $0.1 million. In April 2020, the mortgage loan was settled with $18.9 million in cash and a new mortgage loan for $13.9 million. See Note 13, 12, Subsequent Events, and Note 4, Other Real Estate Investments, Net,for information regarding the Company’s acquisitions since March 31, 2019.further detail.

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4. OTHER REAL ESTATE INVESTMENTS, NET

In July 2016, the Company completed a $2.2 million preferred equity investment with an affiliate of Cascadia Development, LLC. The preferred equity investment yields a return equal to prime plus 9.5% but in no event less than 12.0% calculated on a quarterly basis on the outstanding carrying value of the investment. The investment was used to develop a 99-bed skilled nursing facility in Nampa, Idaho. In connection with its investment, the Company holds an option to purchase the development at a fixed-formula price upon stabilization, with an initial lease yield of at least 9.0%. The project was completed in the fourth quarter 2017 and began lease-up during the first quarter of 2018.

Preferred Equity Investments—In September 2016, the Company completed a $2.3 million preferred equity investment with an affiliate of Cascadia Development, LLC. The preferred equity investment yieldsyielded a return equal to prime plus 9.5% but in no event less than 12.0% calculated on a quarterly basis on the outstanding carrying value of the investment. The investment was used to develop a 99-bed skilled nursing facility in Boise, Idaho. In connection with its investment, the Company holdsheld an option to purchase the development at a fixed-formula price upon stabilization, with an initial lease yield of at least 9.0%. The project was completed in the first quarter of 2018 and began lease-up in the second quarter of 2018.

In January 2020, the Company purchased the skilled nursing facility for approximately $18.7 million, which included capitalized acquisition costs. The Company paid $15.0 million after receiving back its initial investment of $2.3 million and cumulative contractual preferred return through January 17, 2020, the acquisition date, of $1.4 million, of which less than $0.1 million was recognized noas interest income from its preferred equity investments induring the three months ended March 31, 2019. 2020. As of March 31, 2020, the Company had 0 remaining preferred equity investments.

Mortgage Loans Receivable—In July 2019, the Company provided MCRC, LLC a real estate loan secured by a 176-bed skilled nursing facility in Manteca, California for $3.0 million, which bears a fixed interest rate of 8% and requires monthly interest payments. Concurrently, the Company entered into a purchase and sale agreement to purchase the Manteca facility from MCRC, LLC for approximately $16.4 million subject to normal diligence and other contingencies. The loan documents provide for a maturity date of the earlier to occur of the closing date of the acquisition, or five business days following the termination of the purchase and sale agreement.  MCRC, LLC breached its obligation to sell the Manteca facility to the Company on the terms outlined in the purchase and sale agreement and, as a result, the Company has commenced non-judicial foreclosure proceedings with respect to the Manteca facility.  The Company expects the Manteca facility to go to auction in 2020 at which point the Company expects to either purchase the facility or be repaid the loan and accrued interest. In January 2020, the borrower further collateralized the loan by causing one of its affiliates to grant the Company a deed of trust in the real estate and improvements that constitute the Palm Gardens Assisted Living Facility in Yolo County, California. The Company has not yet commenced nonjudicial foreclosure proceedings against the owner of the Palm Gardens facility.

In September 2019, the Company provided affiliates of CommuniCare Family of Companies (“CommuniCare”) a $26.5 million loan secured by mortgages on the 3 skilled nursing facilities sold to CommuniCare, which bears a fixed interest rate of 10%. The mortgage loan, which requires CommuniCare to make monthly interest payments, was set to mature on February 29, 2020 and included an option to be prepaid before the maturity date. In January 2020, the Company amended the mortgage loan’s maturity date to April 30, 2020. See Note 12, Subsequent Events, for a discussion of the extension of the loan’s maturity date in April 2020.

In February 2020, the Company provided subsidiaries of Cascade a $32.4 million loan secured by mortgages on the 6 skilled nursing facilities formerly operated by affiliates of Metron sold to Cascade in February 2020, as discussed in Note 3, Real Estate Investments, Net. The mortgage loan bore an interest at 7.5% and had a maturity date of March 31, 2020. In April 2020, the mortgage loan was settled with $18.9 million in cash and a new mortgage loan for $13.9 million. See Note 12, Subsequent Events, for further detail.

During the three months ended March 31, 2018,2020 and 2019, the Company recognized $0.1$1.1 million inand $0.3 million, respectively, of interest income from its preferred equity investments.related to the mortgage loans.




5. FAIR VALUE MEASUREMENTS


The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. GAAP guidance defines three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

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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.
In October 2017, the Company provided an affiliate of Providence Group, Inc. (“Providence”) a mortgage loan secured by a skilled nursing facility for approximately $12.5 million inclusive of transaction costs, which bears a fixed interest rate of 9%. The mortgage loan requires Providence Group to make monthly principal and interest payments and is set to mature on October 26, 2020 and has an option to be prepaid before the maturity date.

In February 2019, the Company provided affiliates of Covenant Care a mortgage loan secured by first mortgages on five skilled nursing facilities for approximately $11.4 million, at an annual interest rate of 9%. The loan requires monthly interest payments and is set to mature on February 11, 2020, and includes two, six-month extension options.


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 recognized $0.3 millionevaluates 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 interest income related toinputs may result in a reclassification for certain assets. The Company does not expect that changes in classifications between levels will be frequent.

Items Measured at Fair Value on a Recurring Basis
The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2020, aggregated by the level in the fair value hierarchy within which those instruments fall (dollars in thousands):


Level 1Level 2Level 3Balance as of March 31, 2020
Assets:
Mortgage loans receivable$—  $—  $61,753  $61,753  

Mortgage loans receivable: The fair values of the mortgage loans during eachreceivable were estimated using an internal valuation model that considered the expected future cash flows of the investments, the underlying collateral value, market interest rates and other credit enhancements. As such, the Company classifies these instruments as Level 3 due to the significant unobservable inputs used in determining the fair value of the underlying collateral which includes capitalization rates in the range of 12% - 13%. A change in these rates could materially impact the estimated fair value of such estimates. The fair value is not sensitive to changes in market interest rates due to the short term nature of the loans and the recent issuance of the notes at market interest rates. As of March 31, 2020, the aggregate fair value of loans that are 90 days or more past due is $2.4 million, and the aggregate unpaid principal balance of such loans is $2.4 million.

For the three months ended March 31, 2020 and 2019, there were no changes in assets and 2018.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 three months ended March 31, 2020 and 2019, there were no real estate assets deemed to be impaired.


5. FAIR VALUE MEASUREMENTSItems Disclosed at Fair Value
Financial Instruments:
Considerable judgment is necessary to estimate the fair value disclosure of financial instruments. The estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. A summary of the face values, carrying amounts and fair values of the Company’s financial instruments as of March 31, 20192020 and December 31, 20182019 using Level 2 inputs for the Notes (as defined in Note 6, Debt, below), and Level 3 inputs, for all other financial instruments, is as follows (dollars in thousands):

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March 31, 2019 December 31, 2018 March 31, 2020December 31, 2019
Face
Value		 Carrying
Amount		 Fair
Value		 Face
Value		 Carrying
Amount		 Fair
Value		 LevelFace
Value		Carrying
Amount		Fair
Value		Face
Value		Carrying
Amount		Fair
Value
Financial assets:           Financial assets:
Preferred equity investments$4,531
 $5,746
 $6,477
 $4,531
 $5,746
 $6,246
Preferred equity investments3$—  $—  $—  $2,327  $3,800  $3,674  
Mortgage loans receivable23,739
 23,673
 23,739
 12,375
 12,299
 12,375
Mortgage loans receivable(1)
Mortgage loans receivable(1)
3$—  $—  $—  $29,500  $29,500  $29,500  
Financial liabilities:           Financial liabilities:
Senior unsecured notes payable$300,000
 $295,342
 $300,783
 $300,000
 $295,153
 $289,500
Senior unsecured notes payable2$300,000  $296,100  $295,500  $300,000  $295,911  $312,750  

(1)On January 1, 2020, the Company elected the fair value option as provided for by ASU 2019-05 for its mortgage loans receivable. These instruments will be measured at fair value on a recurring basis with changes in fair value recognized in other income on the Company’s condensed consolidated income statements.

Cash and cash equivalents, accounts receivable,and other receivables, other loans receivable, and accounts payable and accrued liabilities: These balances approximate their fair values due to the short-term nature of these instruments.
Preferred equity investments: The fair values of the preferred equity investments were estimated using an internal valuation model that considered the expected future cash flows of the investment, the underlying collateral value and other credit enhancements.
Mortgage loans receivable: The fair values of the mortgage loans receivable were estimated using an internal valuation model that considered the expected future cash flows of the investments, the underlying collateral value and other credit enhancements.
Senior unsecured notes payable: The fair value of the Notes (as defined below) 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.











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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
(Unaudited)



6. DEBT
The following table summarizes the balance of the Company’s indebtedness as of March 31, 20192020 and December 31, 20182019 (dollars in thousands):
March 31, 2019 December 31, 2018March 31, 2020December 31, 2019
Principal AmountDeferred Loan FeesCarrying Value Principal AmountDeferred Loan FeesCarrying ValuePrincipal AmountDeferred Loan FeesCarrying ValuePrincipal AmountDeferred Loan FeesCarrying Value
Senior unsecured notes payable$300,000
$(4,658)$295,342
 $300,000
$(4,847)$295,153
Senior unsecured notes payable$300,000  $(3,900) $296,100  $300,000  $(4,089) $295,911  
Senior unsecured term loan200,000
(1,445)198,555
 100,000
(388)99,612
Senior unsecured term loan200,000  (1,234) 198,766  200,000  (1,287) 198,713  
Unsecured revolving credit facility185,000
—
185,000
 95,000
—
95,000
Unsecured revolving credit facility75,000  —  75,000  60,000  —  60,000  
$685,000
$(6,103)$678,897
 $495,000
$(5,235)$489,765
$575,000  $(5,134) $569,866  $560,000  $(5,376) $554,624  
Senior Unsecured Notes Payable
On May 10, 2017, the Company’s wholly owned subsidiary, CTR Partnership, L.P. (the “Operating Partnership”), and its wholly owned subsidiary, CareTrust Capital Corp. (together with the Operating Partnership, the “Issuers”), completed an underwritten public offering of $300.0 million aggregate principal amount of 5.25% Senior Notes due 2025 (the “Notes”). The Notes were issued at par, resulting in gross proceeds of $300.0 million and net proceeds of approximately $294.0 million after deducting underwriting fees and other offering expenses. The Notes mature on June 1, 2025 and bear interest at a rate of 5.25% per year. Interest on the Notes is payable on June 1 and December 1 of each year.
The Issuers may redeem the Notes any time before June 1, 2020 at a redemption price of 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest on the Notes, if any, to, but not including, the redemption date, plus a “make-whole” premium described in the indenture governing the Notes and, at any time on or after June 1, 2020, at the redemption prices set forth in the indenture. At any time on or before June 1, 2020, up to 40% of the aggregate principal amount of the Notes may be redeemed with the net proceeds of certain equity offerings if at least 60% of the originally issued aggregate principal amount of the Notes remains outstanding. In such case, the redemption price will be equal to 105.25% of the aggregate principal amount of the Notes to be redeemed plus accrued and unpaid interest, if any, to, but not including, the redemption date. If certain changes of control of the Company occur, holders of the Notes will have the right to require the Issuers to repurchase their Notes at 101% of the principal amount plus accrued and unpaid interest, if any, to, but 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 certain of the Company’s wholly owned existing and, subject to certain exceptions, future material
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(Unaudited)


subsidiaries (other than the Issuers); provided, however, that such guarantees are subject to automatic release under certain customary circumstances, as described in Note 12, Summarized Condensed Consolidating Information.circumstances.
The indenture 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 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 also contains customary events of default.
As of March 31, 2019,2020, the Company was in compliance with all applicable financial covenants under the indenture.


Unsecured Revolving Credit Facility and Term Loan
On August 5, 2015, the Company, CareTrust GP, LLC, the Operating Partnership, as the borrower, and certain of its wholly owned subsidiaries entered into a credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender, and the lenders party thereto (the “Prior Credit Agreement”). As later amended on February 1, 2016, the Prior Credit Agreement provided the following: (i) a $400.0 million unsecured asset based revolving

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(Unaudited)


credit facility (the “Prior Revolving Facility”), (ii) a $100.0 million non-amortizing unsecured term loan (the “Prior Term Loan” and, together with the Prior Revolving Facility, the “Prior Credit Facility”), and (iii) a $250.0 million uncommitted incremental facility. The Prior Revolving Facility was scheduled to mature on August 5, 2019, subject to two, six-month2, six-month extension options. The Prior Term Loan was scheduled to mature on February 1, 2023 and could be prepaid at any time subject to a 2% premium in the first year after issuance and a 1% premium in the second year after issuance.
On February 8, 2019, the Operating Partnership, as the borrower, the Company, as guarantor, CareTrust GP, LLC, and certain of the Operating Partnership’s wholly owned subsidiaries entered into an amended and restated credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender, and the lenders party thereto (the “Amended Credit Agreement”). The Amended Credit Agreement, which amended and restated the Prior Credit Agreement, provides for: (i) an unsecured revolving credit facility (the “Revolving Facility”) with revolving commitments in an aggregate principal amount of $600.0 million, including a letter of credit subfacility for 10% of the then available revolving commitments and a swingline loan subfacility for 10% of the then available revolving commitments and (ii) an unsecured term loan credit facility (the “Term Loan” and, together with the Revolving Facility, the “Amended Credit Facility”) in an aggregate principal amount of $200.0 million. Borrowing availability under the Revolving Facility is subject to the Company’s compliance with certain financial covenants set forth inno default or event of default under the Amended Credit Agreement governinghaving occurred at the Revolving Facility, including a consolidated leverage ratio that requires the Company’s ratiotime of Adjusted Consolidated Debt to Consolidated Total Asset Value (each as defined in the Amended Credit Agreement) be less than 60%.borrowing. The proceeds of the Term Loan were used, in part, to repay in full all outstanding borrowings under the Prior Term Loan and Prior Revolving Facility under the Prior Credit Agreement. Future borrowings under the Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes.
The interest rates applicable to loans under the Revolving Facility are, at the Company’sOperating Partnership’s option, equal to either a base rate plus a margin ranging from 0.10% to 0.55% per annum or LIBOR plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). The interest rates applicable to loans under the Term Loan are, at the Company’sOperating Partnership’s option, equal to either a base rate plus a margin ranging from 0.50% to 1.20% per annum or LIBOR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). In addition, the CompanyOperating 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 CompanyOperating 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 March 31, 2019,2020, the CompanyOperating Partnership had $200.0$200.0 million outstanding under the Term Loan and $185.0$75.0 million outstanding under the Revolving Facility. See Note 13, Subsequent Events, for additional information.
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(Unaudited)


The Revolving Facility has a maturity date of February 8, 2023, and includes, at the sole discretion of the Company, two, six-monthOperating Partnership, 2, six-month extension options. The Term Loan has a maturity date of February 8, 2026.
The Amended Credit Facility is guaranteed, jointly and severally, by the Company and its wholly owned subsidiaries that are party to the Amended Credit Agreement (other than the Operating Partnership). The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend certain material agreementsorganizational documents and pay certain dividends and other restricted payments. The Amended Credit Agreement requires the Company to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum debt to asset value ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating income ratio, a maximum secured debt to asset value ratio, and a maximum secured recourse debt to asset value ratio, a maximum unsecured debt to unencumbered properties asset value ratio, a minimum unsecured interest coverage ratio and a minimum rent coverage ratio. The Amended Credit Agreement also contains certain customary events of default, including that the Company is requiredfailure to operate in conformity withmake timely payments under the requirements for qualificationAmended Credit Facility or other material indebtedness, the failure to satisfy certain covenants (including the financial maintenance covenants), the occurrence of change of control and taxation as a REIT.specified events of bankruptcy and insolvency.
As of March 31, 2019,2020, the Company was in compliance with all applicable financial covenants under the Amended Credit Agreement.



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(Unaudited)


Interest Expense
During the three months ended March 31, 2019, the Company incurred $6.9 million of interest expense, which included $0.5 million of amortization of deferred financing costs. During the three months ended March 31, 2018, the Company incurred $7.1 million of interest expense, which included $0.5 million of amortization of deferred financing costs. As of March 31, 2019 and December 31, 2018, the Company’s interest payable was $5.3 million and $1.3 million, respectively.


7. EQUITY
Common Stock
At-The-Market Offering—On March 4, 2019,10, 2020, the Company entered into a new equity distribution agreement to issue and sell, from time to time, up to $300.0$500.0 million in aggregate offering price of its common stock through an “at-the-market” equity offering program (the “New ATM Program”). In connection with the entry into the equity distribution agreement and the commencement of the New ATM Program, the Company’s “at-the-market” equity offering program pursuant to the Company’s prior equity distribution agreement, dated as of May 17, 2017,March 4, 2019, was terminated (the “Prior ATM Program”).

There was no0 Prior ATM Program or New ATM Program activity for the three months ended March 31, 2019. The following table summarizes the Prior ATM Program activity for the three months ended March 31, 2019 (in thousands, except per share amounts):
 For the Three Months Ended
 March 31, 2019
Number of shares2,459
Average sales price per share$19.48
Gross proceeds*$47,893
*Total gross proceeds is before $0.6 million of commissions paid to the sales agents during the three months ended March 31, 2019 under the Prior ATM Program.
2020. As of March 31, 2019,2020, the Company had $300.0$500.0 million available for future issuances under the New ATM Program.

Share Repurchase Program—On March 20, 2020, the Company’s Board of Directors authorized a share repurchase program to repurchase 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 three months ended March 31, 2020. The Repurchase Program may be modified, discontinued or suspended at any time.
Dividends on Common Stock—The following table summarizes the cash dividends on the Company’s common stock declared by the Company’s Board of Directors for 2019the first three months of 2020 (dollars in thousands, except per share amounts):
For the Three Months Ended
March 31, 2020
Dividends declared per share$0.25 
Dividends payment dateApril 15, 2020
Dividends payable as of record date$23,931 
Dividends record dateMarch 31, 2020

14
 For the Three Months Ended
 March 31, 2019
Dividends declared per share$0.225
Dividends payment dateApril 15, 2019
Dividends payable as of record date$20,012
Dividends record dateMarch 29, 2019
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
(Unaudited)


8. STOCK-BASED COMPENSATION
All stock-based awards are subject to the terms of the CareTrust REIT, Inc. and CTR Partnership, L.P. Incentive Award Plan (the “Plan”). The Plan provides for the granting of stock-based compensation, including stock options, restricted stock, performance awards, restricted stock units and other incentive awards to officers, employees and directors in connection with their employment with or services provided to the Company.
Restricted Stock Awards— In connection with the separation of Ensign’s healthcare business and its real estate business into two2 separate and independently publicly traded companies (the “Spin-Off”), employees of Ensign who had unvested shares of restricted stock were given one1 share of CareTrust REIT unvested restricted stock totaling 207,580 shares at the Spin-Off. These restricted shares are subject to a time vesting provision only and the Company does not recognize any stock compensation expense associated with these awards. As of March 31, 2019,2020, there werewere 1,760 unvestedunvested restricted stock awards outstanding that were issued in connection with the Spin-Off.
In February 2019,January 2020 and March 2020, the Compensation Committee of the Company’s Board of Directors granted 91,44027,000 and 107,790 shares of restricted stock, respectively, to officers and employees. Each share had a fair market value on the date of grant of $22.00$22.18 and $19.06 per share, respectively, based on the closing market price of the Company’s common stock on that date, and the shares vest in four4 equal annual installments beginning on the first anniversary of the grant date. Additionally, in February 2019,March 2020, the Compensation Committee granted 71,440107,790 performance stock awards to officers and employees.officers. Each share had a fair market value on the date of grant of $22.00$19.06 per

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(Unaudited)


share, based on the closing market price of the Company’s common stockstock on that date. Performance stock awards are subject to both time and performance based conditions and vest over a one-one- to four-yearfour-year period. The amount of performance awards that will ultimately vest is dependent on the CompanyCompany’s Normalized Funds from Operations (“NFFO”) per share, as defined by the Compensation Committee, meeting or exceeding fiscal year over year Normalized Funds from Operations (“NFFO”), as defined by the Compensation Committee, per share growth of 5.0% or greater.
The following table summarizes the stock-based compensation expense recognized (dollars in thousands):
 For the Three Months Ended March 31,
 20202019
Stock-based compensation expense$884  $994  
 For the Three Months Ended March 31,
 2019 2018
Stock-based compensation expense$994
 $904
As of March 31, 2019, there2020, there was $6.9$8.3 million of unamortized stock-based compensation expense related to unvested awards and the weighted-average remaining vesting period of such awards was 2.43.0 years.


9. EARNINGS PER COMMON SHARE
The following table presents the calculation of basic and diluted EPSearnings per common share (“EPS”) for the Company’s common stock for the three months ended March 31, 20192020 and 2018,2019, and reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS (amounts in thousands, except per share amounts):
 
 For the Three Months Ended March 31,
 20202019
Numerator:
Net income$19,325  $16,053  
Less: Net income allocated to participating securities(75) (86) 
Numerator for basic and diluted earnings available to common stockholders$19,250  $15,967  
Denominator:
Weighted-average basic common shares outstanding95,161  88,010  
Weighted-average diluted common shares outstanding95,161  88,010  
Earnings per common share, basic$0.20  $0.18  
Earnings per common share, diluted$0.20  $0.18  
15
 For the Three Months Ended March 31,
 2019 2018
Numerator:   
Net income$16,053
 $14,607
Less: Net income allocated to participating securities(86) (126)
Numerator for basic and diluted earnings available to common stockholders$15,967
 $14,481
Denominator:   
Weighted-average basic common shares outstanding88,010
 75,504
Weighted-average diluted common shares outstanding88,010
 75,504
    
Earnings per common share, basic$0.18
 $0.19
Earnings per common share, diluted$0.18
 $0.19
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CARETRUST REIT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
(Unaudited)


The Company’s unvested restricted shares associated with its incentive award plan and unvested restricted shares issued to employees of Ensign at the Spin-Off have been excluded from the above calculation of earnings per diluted share for the three months ended March 31, 20192020 and 2018,2019, when their inclusion would have been anti-dilutive.


10. 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 8 master leases, the tenant will have an option to require the Company to finance certain capital expenditures up to an aggregate of 20% of the Company’s 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 March 31, 2020, the Company had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities totaling $16.4 million, of which $15.1 million is subject to rent increase at the time of funding.






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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
(Unaudited)


11. CONCENTRATION OF RISK
Major operator concentrations – As of March 31, 2019,2020, Ensign leased 9385 skilled nursing, multi-service campuses, assisted living and independent living facilities which had a totaltotal of 9,860 operational8,874 operational beds and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington. The four4 states in which Ensign leases the highest concentration of properties as of March 31, 2020 are California, Texas, Utah and Arizona. As ofDuring the three months ended March 31, 2020 and 2019 Ensign represents $59.8 million, orrepresented 32% and 40%, respectively, of the Company’s rental income, exclusive of operating expense reimbursements, on an annualized run-rate basis.reimbursements.
Ensign is subject to the registration and reporting requirements of the SEC and is required to file with the SEC annual reports containing audited financial information and quarterly reports containing unaudited financial information. Ensign’s financial statements, as filed with the SEC, can be found at http://www.sec.gov. The Company has not verified this information through an independent investigation or otherwise.
As of March 31, 2020, Priority Management Group (“PMG”) leased 15 skilled nursing facilities which had a total of 2,145 beds and units and are located in Louisiana and Texas. During the three months ended March 31, 2020 and 2019, PMG represented 16% and 8%, respectively, of the Company’s rental income, exclusive of operating expense reimbursements.

12. SUMMARIZED CONDENSED CONSOLIDATING INFORMATIONSUBSEQUENT EVENTS
The Notes issuedCompany evaluates subsequent events in accordance with ASC 855, Subsequent Events. The Company evaluates subsequent events up until the date the condensed consolidated financial statements are issued.

Amended Agreements
In April 2020, the Company amended its loan agreement secured by mortgages on the Operating Partnership and CareTrust Capital Corp. onthree skilled nursing facilities sold to CommuniCare, as discussed in Note 4, Other Real Estate Investments, Net. The amended agreement has a new maturity date of May 10, 2017 are jointly and severally, fully and unconditionally, guaranteed by CareTrust REIT, Inc., as29, 2020.
In April 2020, the parent guarantor (the “Parent Guarantor”), and the wholly ownedmortgage loan provided to subsidiaries of the Parent Guarantor other than the Issuers (collectively, the “Subsidiary Guarantors” and, together with the Parent Guarantor, the “Guarantors”), subject to automatic release under certain customary circumstances, including if the Subsidiary Guarantor is sold or sells all or substantially all of its assets, the Subsidiary Guarantor is designated “unrestricted” for covenant purposes under the indenture governing the Notes, the Subsidiary Guarantor’s guarantee of other indebtedness which resultedCascade in the creationamount of the guarantee of the Notes is terminated or released, or the requirements for legal defeasance or covenant defeasance or to discharge the indenture have been satisfied.
The following provides information regarding the entity structure of the Parent Guarantor, the Issuers and the Subsidiary Guarantors:
CareTrust REIT, Inc. – The Parent Guarantor$32.4 million was formed on October 29, 2013settled in anticipation of the separation of Ensign’s healthcare business and its real estate business into two separate and independently publicly traded companies (the “Spin-Off”) and wasconnection with a wholly owned subsidiary of Ensign prior to the effective date of the Spin-Off on June 1, 2014. The Parent Guarantor did not conduct any operations or have any business prior to the date of the consummation of the Spin-Off related transactions.
CTR Partnership, L.P. and CareTrust Capital Corp. – The Issuers, each of which is a wholly owned subsidiary of the Parent Guarantor, were formed on May 8, 2014 and May 9, 2014, respectively,new mortgage loan transaction engaged in anticipation of the Spin-Off and the related transactions. The Issuers did not conduct any operations or have any business prior to the date of the consummation of the Spin-Off related transactions.
Subsidiary Guarantors – The Subsidiary Guarantors consist of all of the subsidiaries of the Parent Guarantor other than the Issuers.

Pursuant to Rule 3-10 of Regulation S-X, the following summarized consolidating information is provided for the Parent Guarantor, the Issuers, and the Subsidiary Guarantors. There are no subsidiaries of the Company other than the Issuers and the Subsidiary Guarantors. This summarized financial information has been prepared from the financial statements ofby the Company and the books and records maintained by the Company.a third-party institutional lender as co-

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
(Unaudited)




lenders, pursuant to which the Company received $18.9 million in cash and a new promissory note in the amount of $13.9 million. The new mortgage loan with Cascade is secured by the 6 skilled nursing facilities purchased by Cascade (as discussed in Note 3, Real Estate Investments, Net) and is for a combined principal amount of $33.9 million, with the Company’s $13.9 million portion of the indebtedness initially bearing interest at an interest rate equal to LIBOR plus 4.00%, subject to a LIBOR floor of 1.75%. The new mortgage loan has a maturity date of April 29, 2022 and includes 2 six-month extension options.


CONDENSED CONSOLIDATING BALANCE SHEETS
MARCH 31, 2019
(in thousands, except share and per share amounts)
 
Parent
Guarantor
 Issuers 
Combined
Subsidiary
Guarantors
 Elimination Consolidated
Assets:         
Real estate investments, net$—
 $935,419
 $323,917
 $—
 $1,259,336
Other real estate investments, net—
 23,673
 5,746
 —
 29,419
Cash and cash equivalents—
 214,354
 —
 —
 214,354
Accounts and other receivables, net—
 8,350
 10
 —
 8,360
Prepaid expenses and other assets—
 8,756
 3
 —
 8,759
Deferred financing costs, net—
 3,758
 —
 —
 3,758
Investment in subsidiaries831,117
 495,487
 —
 (1,326,604) —
Intercompany—
 —
 166,008
 (166,008) —
Total assets$831,117
 $1,689,797
 $495,684
 $(1,492,612) $1,523,986
Liabilities and Equity:         
Senior unsecured notes payable, net$—
 $295,342
 $—
 $—
 $295,342
Senior unsecured term loan, net—
 198,555
 —
 —
 198,555
Unsecured revolving credit facility—
 185,000
 —
 —
 185,000
Accounts payable and accrued liabilities—
 13,775
 197
 —
 13,972
Dividends payable20,086
 —
��—
 —
 20,086
Intercompany—
 166,008
 —
 (166,008) —
Total liabilities20,086
 858,680
 197
 (166,008) 712,955
Equity:         
Common stock, $0.01 par value; 500,000,000 shares authorized, 88,398,273 shares issued and outstanding as of March 31, 2019884
 —
 —
 —
 884
Additional paid-in capital1,012,295
 689,725
 321,761
 (1,011,486) 1,012,295
Cumulative distributions in excess of earnings(202,148) 141,392
 173,726
 (315,118) (202,148)
Total equity811,031
 831,117
 495,487
 (1,326,604) 811,031
Total liabilities and equity$831,117
 $1,689,797
 $495,684
 $(1,492,612) $1,523,986

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(Unaudited)



CONDENSED CONSOLIDATING BALANCE SHEETS
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 subsidiaries786,030
 484,955
 —
 (1,270,985) —
Intercompany—
 —
 151,242
 (151,242) —
Total assets$786,030
 $1,440,625
 $487,334
 $(1,422,227) $1,291,762
Liabilities and Equity:         
Senior unsecured notes payable, net$—
 $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 payable17,783
 —
 —
 —
 17,783
Intercompany—
 151,242
 —
 (151,242) —
Total liabilities17,783
 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, 2018859
 —
 —
 —
 859
Additional paid-in capital965,578
 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 equity768,247
 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


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CARETRUST REIT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
(Unaudited)


CONDENSED CONSOLIDATING INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2019
(in thousands)
 
Parent
Guarantor
 Issuers 
Combined
Subsidiary
Guarantors
 Elimination Consolidated
Revenues:         
Rental income$—
 $23,569
 $14,778
 $—
 $38,347
Independent living facilities—
 —
 860
 —
 860
Interest and other income—
 451
 —
 —
 451
Total revenues—
 24,020
 15,638
 —
 39,658
Expenses:         
Depreciation and amortization—
 7,503
 4,399
 —
 11,902
Interest expense—
 6,860
 —
 —
 6,860
Property taxes—
 826
 —
 —
 826
Independent living facilities—
 —
 707
 —
 707
General and administrative994
 2,316
 —
 —
 3,310
Total expenses994
 17,505
 5,106
 —
 23,605
Income in Subsidiary17,047
 10,532
 —
 (27,579) —
Net income$16,053
 $17,047
 $10,532
 $(27,579) $16,053

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CARETRUST REIT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
(Unaudited)


CONDENSED CONSOLIDATING INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(in thousands)
 
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 administrative904
 2,288
 —
 —
 3,192
Total expenses904
 18,081
 6,560
 —
 25,545
Gain on sale of real estate—
 2,051
 —
 —
 2,051
Income in Subsidiary15,511
 9,956
 —
 (25,467) —
Net income$14,607
 $15,511
 $9,956
 $(25,467) $14,607








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CARETRUST REIT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
(Unaudited)


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 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
 $—
 $30,074
Cash flows from investing activities:         
Acquisitions of real estate—
 (52,697) —
 —
 (52,697)
Improvements to real estate—
 (452) —
 —
 (452)
Purchases of equipment, furniture and fixtures—
 (1,806) —
 —
 (1,806)
Investment in real estate mortgage and other loans receivable—
 (11,389) —
 —
 (11,389)
Principal payments received on real estate mortgage and other loans receivable—
 411
 —
 —
 411
Escrow deposits for acquisitions of real estate—
 (375) —
 —
 (375)
Net proceeds from the sale of real estate—
 131
 —
 —
 131
Distribution from subsidiary17,710
 —
 —
 (17,710) —
Intercompany financing(45,765) 14,766
 —
 30,999
 —
Net cash used in investing activities(28,055) (51,411) —
 13,289
 (66,177)
Cash flows from financing activities:         
Proceeds from the issuance of common stock, net47,260
 —
 —
 —
 47,260
Proceeds from the issuance of senior unsecured term loan—
 200,000
 —
 —
 200,000
Borrowings under unsecured revolving credit facility—
 185,000
 —
 —
 185,000
Payments on senior unsecured term loan—
 (100,000) —
 —
 (100,000)
Payments on unsecured revolving credit facility—
 (95,000) —
 —
 (95,000)
Payments of deferred financing costs—
 (4,390) —
 —
 (4,390)
Net-settle adjustment on restricted stock(1,495) —
 —
 —
 (1,495)
Dividends paid on common stock(17,710) —
 —
 —
 (17,710)
Distribution to Parent—
 (17,710) —
 17,710
 —
Intercompany financing—
 45,765
 (14,766) (30,999) —
Net cash provided by (used in) financing activities28,055
 213,665
 (14,766) (13,289) 213,665
Net increase in cash and cash equivalents—
 177,562
 —
 —
 177,562
Cash and cash equivalents, beginning of period—
 36,792
 —
 —
 36,792
Cash and cash equivalents, end of period$—
 $214,354
 $—
 $—
 $214,354



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CARETRUST REIT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
(Unaudited)


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(in thousands)

 
Parent
Guarantor
 Issuers 
Combined
Subsidiary
Guarantors
 Elimination Consolidated
Cash flows from operating activities:         
Net cash provided by operating activities:$—
 $7,295
 $14,764
 $—
 $22,059
Cash flows from investing activities:         
Acquisitions of real estate—
 (47,103) —
 —
 (47,103)
Improvements to real estate—
 —
 (11) —
 (11)
Purchases of equipment, furniture and fixtures—
 (23) (4) —
 (27)
Principal payments received on mortgage loan receivable—
 23
 —
 —
 23
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 subsidiary14,044
 —
 —
 (14,044) —
Intercompany financing615
 14,749
 —
 (15,364) —
Net cash provided by (used in) investing activities14,659
 (20,350) (15) (29,408) (35,114)
Cash flows from financing activities:        

Proceeds from the issuance of common stock, net(10) —
 —
 —
 (10)
Borrowings under unsecured revolving credit facility—
 60,000
 —
 —
 60,000
Payments on unsecured revolving credit facility—
 (25,000) —
 —
 (25,000)
Net-settle adjustment on restricted stock(605) —
 —
 —
 (605)
Dividends paid on common stock(14,044) —
 —
 —
 (14,044)
Distribution to Parent—
 (14,044) —
 14,044
 —
Intercompany financing—
 (615) (14,749) 15,364
 —
Net cash (used in) provided by financing activities(14,659) 20,341
 (14,749) 29,408
 20,341
Net increase in cash and cash equivalents—
 7,286
 —
 —
 7,286
Cash and cash equivalents, beginning of period—
 6,909
 —
 —
 6,909
Cash and cash equivalents, end of period$—
 $14,195
 $—
 $—
 $14,195

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CARETRUST REIT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
(Unaudited)


13. SUBSEQUENT EVENTS

Recent Acquisitions
In April 2019, the Company, completed a previously-disclosed $211.0 million multi-asset acquisition. The contractual initial annual cash rents from the acquisition are approximately $19.0 million. The two-state transaction included seven skilled nursing facilities and one multi-service campus in Louisiana, which were re-tenanted at closing with the Company’s existing tenant Priority Management Group, LLC. The acquisition also included three skilled nursing facilities and one multi-service campus in Texas, which were re-tenanted with Texas-based Southwest LTC, Ltd. under a new triple-net master lease with the Company. The amended lease with Priority Management Group, LLC has a remaining term of approximately 12.5 years. The lease with Southwest LTC, Ltd. carries an initial term of 15 years, with two five-year renewal options and CPI-based rent escalators.
The aggregate purchase price for the acquisition was approximately $215.0 million, inclusive of capital expenditure commitments and estimated acquisition costs, and was funded using approximately $185.0 million in borrowings under the Company’s Revolving Credit Facility, with the remainder funded with cash on hand.
In May 2019, the Company acquired one skilled nursing facility for approximately $10.0 million, which includes estimated capitalized acquisition costs. The contractual initial annual cash rent from the acquisition is approximately $0.9 million and was funded using cash on hand.

Public Offering of Common Stock
On April 15, 2019, the Company completed an underwritten public offering of 6,641,250 shares of its common stock, par value $0.01 per share, at an initial price to the public of $23.35, including 866,250 shares of common stock sold pursuant to the full exercise of an option to purchase additional shares of common stock granted to the underwriters, resulting in approximately $148.4 million in net proceeds, after deducting the underwriting discount and estimated gross offering expenses. The Company used the proceeds from the offering to repay a portion of the outstanding borrowings on its Revolving Credit Facility, which had been used to fund a portion of the purchase price of the April 2019 acquisition disclosed above under “Recent Acquisitions.”



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Certain statements in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements regarding: future financing plans, business strategies, growth prospects and operating and financial performance; expectations regarding the making of distributions and the payment of dividends; and compliance with and changes in governmental regulations.

Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “may,” “will,” “would,” “could,” “should,” “seek(s)” and similar expressions, or the negative of these terms, are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecasted or expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to: (i) the COVID-19 pandemic and the measures taken to prevent its spread 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; (ii)(iii) the ability of our tenants to comply with applicable laws, rules and regulations in the operation of the properties we lease to them; (iii)(iv) the ability and willingness of our tenants to renew their leases with us upon their expiration, and the ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event we replace an existing tenant, as well as any obligations, including indemnification obligations, we may incur in connection with the replacement of an existing tenant; (iv)(v) the availability of and the ability to identify (a) tenants who meet our credit and operating standards, and (b) suitable acquisition opportunities, and the ability to acquire and lease the respective properties to such tenants on favorable terms; (v)(vi) the ability to generate sufficient cash flows to service our outstanding indebtedness; (vi)(vii) access to debt and equity capital markets; (vii)(viii) fluctuating interest rates; (viii)(ix) the ability to retain our key management personnel; (ix)(x) the ability to maintain our status as a real estate investment trust (“REIT”); (x)(xi) changes in the U.S. tax law and other state, federal or local laws, whether or not specific to REITs; (xi)(xii) other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments; and (xii)(xiii) any additional factors included under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, including in the section entitled “Risk Factors” in Item 1A of Part I of such 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”).
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.
Overview
CareTrust REIT is a self-administered, publicly-traded REIT engaged in the ownership, acquisition, development and leasing of seniors housing and healthcare-related properties. As of March 31, 2019,2020, we owned and leased to independent operators, including The Ensign 199Group, Inc. (“Ensign”), 212 skilled nursing, multi-service campuses, assisted living and independent living facilities consisting of 19,66821,652 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. As of March 31, 2019,2020, the 9385 facilities leased to Ensign had a total of 9,8608,874 operational beds and units which are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington and the 106127 remaining leased properties had a total of 9,80812,778 operational beds and units and are located in California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Maryland,Louisiana, Maryland, Michigan, Minnesota, Montana, New Mexico, North Carolina, North Dakota, Ohio, Oregon, South Dakota, Texas, Utah, Virginia, Washington, West Virginia and Wisconsin. We also own and operate threeone independent living facilitiesfacility (“ILFs”ILF”), which had a total of 264168 units located in Texas and Utah.Texas. As of March 31, 2019,2020, we also had other real estate investments consisting of two preferred equity investments totaling $5.7 million and twothree mortgage loans receivable of $23.7 million.



$61.8 million.
We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property (including property taxes, insurance, and maintenance and repair costs). 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
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additional properties that will be leased to a diverse group of local, regional and national healthcare providers, which may include Ensign, as well as senior housing operators and related businesses. We also anticipate diversifying our portfolio over time, including by acquiring properties in different geographic markets, and in different asset classes. In addition, we actively monitor the clinical, regulatory and financial operating results of our tenants, and work to identify opportunities within their operations and markets tothat could improve their operating results at our facilities. We may periodically communicate such observations to our tenants; however, thewe 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 change or otherwise respond to any observation or issue we may share with them. We also periodically monitor the overall financial and operating strength of our operators. 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 newus. The replacement operators includingmay include operators with whom we have had no prior landlord-tenant relationship as well as current tenants with whom we are comfortable expanding our relationship.relationships. We have also provided select operators 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 selectivelycontinue to do so in the future. In addition, we periodically reassess the investments we have made and the operator 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.


Recent TransactionsDevelopments


COVID-19
In December 2019, COVID-19 was first reported in Wuhan, China, and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. In recent months, the COVID-19 outbreak has spread globally and has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders. These measures may remain in place for a significant amount of time.
Tenants of our properties operating pursuant to triple-net master leases, as well as our one ILF that we own and operate, have been adversely impacted, and we expect will continue to be adversely impacted, by the COVID-19 pandemic. Our tenants are experiencing increased operating costs as a result of actions they are taking to prevent or mitigate the outbreak or spread of COVID-19 at their facilities, including in connection with their implementation of safety protocols and procedures, the cost of increased purchases of personal protective equipment and increased staffing costs. To assist our tenants, we ordered approximately $1.2 million in personal protective equipment from March 27, 2020 to May 7, 2020, that we are providing to our tenants at our volume-discounted cost to enable them to benefit from the cost efficiencies of our bulk order. Occupancy levels at our facilities could decline primarily due to, among other among other things, (i) temporary suspensions on new admissions enacted by certain facilities, (ii) with respect to our skilled nursing facilities (“SNFs”), governmental restrictions requiring the temporary deferral of elective surgeries, and (iii) declines in inquiries and tours at our senior housing properties, deferred move-ins and increased move-outs due to concerns about possible COVID-19 outbreaks.
The higher operating costs affecting our tenants may adversely impact the ability of our tenants to satisfy their rental obligations to us in full or on a timely basis. However, approximately 99.3% of our contractual rent obligations due for April have been collected from our tenants. Additionally, we also expect two of our three mortgage loans receivable to be repaid by the end of our second quarter 2020.
The following relief programs enacted by the government are expected to provide some benefits to our tenants:
•The Families First Coronavirus Response Act (“Families First Act”) - Under the Families First Act, a temporary 6.2% increase in Federal Medical Assistance Percentages (“FMAP”) was approved retroactive to January 1, 2020, and several states have directed FMAP funds to SNFs, which has included some of our tenants.
•The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) - Under the CARES Act, a substantial amount of our tenants have received, or are expected to receive, assistance from a $100 billion fund provided for eligible health care providers, which includes operators of SNFs. Additionally, a Payroll Protection Program was established under the CARES Act to provide Small Business Administration loans to businesses with fewer than 500 employees that may be partially forgivable. The CARES Act also includes a
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temporary suspension from May 1, 2020 through December 31, 2020 of a 2% Medicare sequestration cut, and a deferral of the employer’s Social Security remittances through December 31, 2020.
The extent of the COVID-19 pandemic’s effect on our operational and financial performance, and the operational and financial performance of our tenants, will depend on future developments, which are highly uncertain and cannot be predicted at this time, including new information which may emerge concerning the severity of COVID-19, actions taken to contain COVID-19, any possible resurgence of COVID-19 that may occur after the initial outbreak subsides, and how quickly and to what extent normal economic and operating conditions can resume. The adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition could be material. See Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q for more information regarding the risks we face as result of the COVID-19 pandemic.

Sale of Real Estate
On February 14, 2020, we closed on the sale of six skilled nursing facilities formerly operated by affiliates of Metron Integrated Health Systems (“Metron”). In connection with the sale for $36.0 million, we received $3.5 million in cash and provided subsidiaries of Cascade Capital Group, LLC (“Cascade”), the purchaser of the properties, with a short-term mortgage loan secured by these properties for $32.4 million.  The mortgage loan bore interest at 7.5% and had a maturity date of March 31, 2020. In connection with the sale, we recognized a loss of approximately $0.1 million. In April 2020, the mortgage loan was settled with $18.9 million in cash and a new mortgage loan for $13.9 million. See Note 12, Subsequent Events, for further detail.

Recent Investments
From January 1, 20192020 through May 7, 2019,2020, we acquired fifteenone skilled nursing facilitiesfacility and three multi-service campusesone assisted living facility for approximately $277.9$26.1 million, which includes capitalized acquisition costs. These acquisitions are expected to generate initial annual cash revenues of approximately $24.8$2.3 million and an initial blended yield of approximately 8.9%8.7%. These acquisitions include our $215.0 million multi-asset, two-state transaction completed in April 2019 pursuant to which we acquired seven skilled nursing facilities and one skilled nursing and assisted living campus in Louisiana and three skilled nursing facilities and one continuing care retirement community in Texas. See Note 3, Real Estate Investments, Net and Note 13, Subsequent Events in the Notes to condensed consolidated financial statements for additional information.


At-The-Market Offering5.25% Senior Notes due 2025 and Effect of Common StockRecent Regulation S-X Amendments

On March 4, 2019, In connection with our outstanding 5.25% Senior Notes due 2025 (the “Notes”) and our previous issuance of registered debt securities and in accordance with Rule 3-10 of Regulation S-X, we entered intopresented certain condensed consolidating financial information with respect to us, as a new equity distribution agreement to issueguarantor of the Notes, our wholly owned subsidiaries that issued the Notes and sell, from time to time, up to $300.0 millionour wholly owned subsidiaries that guaranteed the Notes in aggregate offering pricethe financial statement footnotes of our common stock through an “at-the-market” equity offering programprior Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q.
In March 2020, the SEC adopted amendments to reduce and simplify the financial disclosure requirements for guarantors and issuers of guaranteed registered securities. The amendments are effective January 4, 2021, but voluntary compliance with the amendments in advance of January 4, 2021 is permitted. We have elected to comply with these amendments effective with this Quarterly Report on Form 10-Q. As a result, we will no longer include in the financial statement footnotes of our Quarterly and Annual Reports on Form 10-Q and Form 10-K separate condensed consolidating financial information for our wholly owned subsidiaries who issued or guaranteed the Notes. In addition, in accordance with the amendments adopted by the SEC, because the assets, liabilities and results of operations of the combined issuers and guarantors of the Notes are not materially different than the corresponding amounts presented in our condensed consolidated financial statements, we are also not required to present combined summary financial information regarding such subsidiary issuers and guarantors.
Below is a description of certain information regarding the Issuers and the Guarantors (each as defined below) of the Notes.
The Notes, issued by CTR Partnership, L.P. (the “New ATM Program”“Operating Partnership”). In, and its wholly owned subsidiary, CareTrust Capital Corp. (together with the Operating Partnership, the “Issuers”), on May 10, 2017 are jointly and severally, fully and unconditionally, guaranteed by CareTrust REIT, Inc., as the parent guarantor (the “Parent Guarantor”), and the wholly owned subsidiaries of the Parent Guarantor other than the Issuers (collectively, the “Subsidiary Guarantors” and, together with the Parent Guarantor, the “Guarantors”), subject to automatic release under certain customary circumstances, including if the Subsidiary Guarantor is sold or sells all or substantially all of its assets, the Subsidiary Guarantor is designated “unrestricted” for covenant purposes under the indenture governing the Notes, the Subsidiary Guarantor’s guarantee of other indebtedness which resulted in the creation of the guarantee of the Notes is terminated or released, or the requirements for legal defeasance or covenant defeasance or to discharge the indenture have been satisfied.
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The following provides information regarding the entity structure of the Parent Guarantor, the Issuers and the Subsidiary Guarantors:
CareTrust REIT, Inc. – The Parent Guarantor was formed on October 29, 2013 in connection with the entryseparation of Ensign’s healthcare business and its real estate business into two separate and independently publicly traded companies (the “Spin-Off”). The Parent Guarantor was a wholly owned subsidiary of Ensign prior to the equity distribution agreementeffective date of the Spin-Off on June 1, 2014. The Parent Guarantor has not conducted any operations or had any business since the Spin-Off.
CTR Partnership, L.P. and CareTrust Capital Corp. – The Issuers, each of which is a wholly owned subsidiary of the Parent Guarantor, were formed on May 8, 2014 and May 9, 2014, respectively, in anticipation of the Spin-Off and the commencementrelated transactions. The Issuers did not conduct any operations or have any business prior to the date of the New ATM Program, our “at-the-market” equity offering program pursuantconsummation of the Spin-Off related transactions. The Operating Partnership directly invests in real estate and real estate related assets and therefore does not rely solely on the cash flow generated by the Subsidiary Guarantors and their ability to our prior equity distribution agreement, dated as of May 17, 2017, was terminated (the “Prior ATM Program”).

There was no New ATM Program activity for the three months ended March 31, 2019. The following table summarizes the Prior ATM Program activity for 2019 (shares and dollars in thousands, except per share amounts):
 For the Three Months Ended
 March 31, 2019
Number of shares2,459
Average sales price per share$19.48
Gross proceeds*$47,893
*Total gross proceeds is before $0.6 million of commissions paidmake cash available to the sales agents duringIssuers, by dividend or otherwise. However, in the three months ended March 31, 2019event that the earnings or available assets of the Issuers are insufficient, the Issuers’ ability to pay principal and interest on the Notes could be dependent on the cash flow generated by the Subsidiary Guarantors and their ability to make such cash available to the Issuers. CareTrust Capital Corp., a co-issuer of the Notes, has no material assets and conducts no operations. Therefore, it has no independent ability to service the interest and principal obligations under the Prior ATM Program.Notes.

Subsidiary Guarantors – The Subsidiary Guarantors consist of all of the subsidiaries of the Parent Guarantor other than the Issuers. The Parent Guarantor conducts a substantial portion of its business operations through the Subsidiary Guarantors, which include all of the entities that were wholly owned subsidiaries of Ensign prior to the consummation of the Spin-Off, among others.
AsThe indenture contains customary covenants summarized below under “—Liquidity and Capital Resources—Indebtedness—Senior Unsecured Notes.” These covenants include a restriction on the ability of March 31, 2019, we had $300.0 million available for future issuancesthe Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers, subject to certain other exceptions, unless: (i) there is no default or event of default under the New ATM Program.




Public Offeringindenture; (ii) the Issuers are in compliance with specified limitations on indebtedness under the indentures; and (iii) the payments do not exceed a specified restricted payment basket. Dividends or distributions are also permitted if the Parent Guarantor’s board of Common Stock

On April 15, 2019, we completed an underwritten public offeringdirectors believes in good faith they are necessary to maintain Parent Guarantor’s REIT status or to avoid any excise tax or income tax imposed on Parent Guarantor, provided there is no default or event of 6,641,250 sharesdefault under the indenture. Further, the Issuers and their restricted subsidiaries are not permitted to create or cause to become effective any encumbrance or restriction on the ability of our common stock, par value $0.01 per share, at an initial pricethe Issuers to, among other things, pay dividends or make distributions, pay indebtedness, make loans or advances to the public of $23.35, including 866,250 shares of common stock sold pursuantIssuers or their restricted subsidiaries or transfer property or assets to the full exercise of an option to purchase additional shares of common stock granted to the underwriters, resultingIssuers or their restricted subsidiaries, other than in approximately $148.4 millionconnection with certain customary exceptions such as in net proceeds, after deducting the underwriting discount and estimated gross offering expenses. We used the proceeds from the offering to repay a portionrespect of the outstanding borrowings on our Revolving Facility (as defined below), which had been used to fund a portion ofindenture or the purchase priceAmended Credit Facility.
See also “—Liquidity and Capital Resources—Indebtedness—Senior Unsecured Notes” for further information about the April 2019 acquisition disclosed above under “Recent Investments.”Notes.


Results of Operations


Operating Results
Three Months Ended March 31, 20192020 Compared to Three Months Ended March 31, 2018:2019:
 Three Months Ended March 31,Increase
(Decrease)		Percentage
Difference
 20202019
 (dollars in thousands)
Revenues:
Rental income$42,464  $38,347  $4,117  11 %
Independent living facilities625  860  (235) (27)%
Interest and other income1,251  451  800  177 %
Expenses:
Depreciation and amortization13,160  11,902  1,258  11 %
Interest expense6,714  6,860  (146) (2)%
Property taxes485  826  (341) (41)%
Independent living facilities546  707  (161) (23)%
General and administrative4,054  3,310  744  22 %
 Three Months Ended March 31, 
Increase
(Decrease)
 
Percentage
Difference
 2019 2018 
 (dollars in thousands)
Revenues:       
Rental income$38,347
 $33,816
 $4,531
 13 %
Tenant reimbursements—
 2,968
 (2,968) (100)%
Independent living facilities860
 799
 61
 8 %
Interest and other income451
 518
 (67) (13)%
Expenses:       
Depreciation and amortization11,902
 11,577
 325
 3 %
Interest expense6,860
 7,092
 (232) (3)%
Property taxes826
 2,968
 (2,142) (72)%
Independent living facilities707
 716
 (9) (1)%
General and administrative3,310
 3,192
 118
 4 %
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Rental income. Rental income was $38.3 million for the three months ended March 31, 2019 compared to $33.8 million for the three months ended March 31, 2018. The $4.5$4.1 million, or 13%11%, increase in rental income is primarily due to $2.8$6.7 million in rental income from real estate investments made after April 1, 2018, $0.92019 and $1.1 million from increases in rental rates for our existing tenants, $0.8 million of tenant reimbursement revenue recognized and classified as rental income due to the adoption of Topic 842 (discussed below) and a $0.4 million increase in cash rents, partially offset by a $0.3$1.7 million decrease in cash rents, a $1.5 million decrease in rental income due to the saledisposal of three assisted living facilitiesassets in March 2018September 2019 and February 2020, a $0.4 million decrease in straight-line rent and a $0.1 million decrease in straight-line rent.tenant reimbursements.
Tenant reimbursements and property taxes. Tenant reimbursements decreased $3.0Independent living facilities. The $0.2 million, or100%for the three months ended March 31, 2019 compared 27%, decrease in revenues from our ILFs was primarily due to the three months ended March 31, 2018. Property taxes decreased $2.1 million or72%for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. On January 1, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). Tenant reimbursements related to property taxes and insurance are neither lease nor nonlease components under the new lease ASUs. If a lessee makes payments for taxes and insurance directlysale of one ILF to a third party on behalfand the lease of one ILF to Ensign concurrently with the previously announced separation of Ensign’s home health and hospice operations and substantially all of its senior living operations into a lessor, lessors are required to exclude them from variable payments and from recognition inseparate independent publicly traded company through the lessors’ income statements. Otherwise, tenant recoveries for taxes and insurance are classified as additional lease revenue recognized bydistribution of shares of common stock of The Pennant Group, Inc. during the lessor on a gross basis in its income statements. Prior to the adoption of the new ASU, we recognized tenant recoveries as tenant reimbursement revenues regardless of whether the third party was paid by the lessor or lessee. In the three monthsfourth quarter ended MarchDecember 31, 2019, we recognized real estate taxes of $0.8partially offset by an increase in occupancy at Lakeland Hills Independent Living. The $0.2 million, which were paid by us directly to third parties and classified as rental income on our condensed consolidated income statement.
Independent living facilities. Revenues andor 23%, decrease in expenses from our three ILFs that we own and operate were flat was primarily for the three months ended March 31, 2019 compared tosame reasons indicated for the three months ended March 31, 2018.decrease in revenues.
Interest and other income. InterestThe $0.8 million, or 177%, increase in interest and other income was flat at $0.5 million for the three months ended March 31,primarily due to interest income related to our mortgage loans receivable that we provided to Manteca in July 2019, compared to the three months ended March 31, 2018.CommuniCare Family of Companies in September 2019 and Cascade in February 2020, partially offset by repayments of mortgage loans receivable by Covenant Care in August 2019 and Providence Group in December 2019. See Note 4, Other Real Estate Investments, Net.

Depreciation and amortization. DepreciationThe $1.3 million, or 11%, increase in depreciation and amortization expense increased $0.3 million or 3% for the three months ended March 31, 2019 to $11.9 million compared to $11.6 million for the three months ended March 31, 2018,was primarily due to new real estate investments made after April 1, 2018.2019, partially offset by the disposal of assets.
Interest expense. Interest expense decreased $0.2 The $0.1 million, or 3% for the three months ended March 31, 2019 to $6.9 million compared to $7.1 million for the three months ended March 31, 2018. The2%, decrease in interest expense was primarily due to a lower weighted average debt balance partially offset by higherand lower weighted average interest rates for the three months ended March 31, 20192020 compared to the three months ended March 31, 2018.2019.
Property taxes. The $0.3 million, or41%,decrease was primarily due to the disposal of assets, partially offset by new real estate investments made after April 1, 2019.
General and administrative expense. General and administrative expense increased The $0.7 million, or 22%, increase was primarily related to higher cash wages of $0.8 million, partially offset by a decrease of $0.1 million or 4% for the three months ended March 31, 2019 to $3.3 million compared to $3.2 million for the three months ended March 31, 2018, primarily due to an increase related to amortization of stock-based compensation.


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.
As of March 31, 2019,2020, we had cash and cash equivalents of $214.4$23.9 million.
DuringOn 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 “New ATM Program”). In connection with the entry into the equity distribution agreement and the commencement of the New ATM Program, our “at-the-market” equity offering program pursuant to our prior equity distribution agreement, dated as of March 4, 2019, was terminated (the “Prior ATM Program”). There was no Prior ATM Program or New ATM Program activity for the three months ended March 31, 2019, we sold 2.5 million shares of common stock under our Prior ATM Program for gross proceeds of $47.9 million. The Prior ATM Program was terminated during the three months ended March 31, 2019 and, as2020. As of March 31, 2019,2020, we had $300.0$500.0 million available for future issuances under the New ATM Program. See “Recent Transactions—At-The-Market Offering of Common Stock.” In addition, as
As of March 31, 2019, there was $185.02020, we also had $75.0 million outstandingoutstanding under the Revolving Facility (as defined below). Subsequent to March 31, 2019, we repaid approximately $150.0 million in borrowings under the Revolving Facility primarily using the net proceeds from our public offering of common stock in April 2019. See above under Recent Transactions—“Public Offering of Common Stock” for additional information. We believe that our available cash, expected operating cash flows, and the availability under ourthe New ATM Program and Amended Credit Facility (as defined below) will provide sufficient funds for our operations, anticipated scheduled debt service payments and dividend plans for at least the next twelve months.
We intend to invest in and/or develop additional healthcare properties as suitable opportunities arise and adequate sources of financing are available. We expect that future investments in and/or development of properties, including any improvements or renovations of current or newly-acquired properties, will depend on and will be financed by, in whole or in
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part, our existing cash, borrowings available to us under the Amended Credit Facility, future borrowings or the proceeds from sales of shares of our common stock pursuant to our New ATM Program or additional issuances of common stock or other securities. In addition, we may seek financing from U.S. government agencies, including through Fannie Mae and the U.S. Department of Housing and Urban Development, in appropriate circumstances in connection with acquisitions and refinancing of existing mortgage loans.
We have filed an automatic shelf registration statement with the U.S. Securities and Exchange Commission that expires in May 2020,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.



Cash Flows
The following table presents selected data from our condensed consolidated statements of cash flows for the periods presented:presented (dollars in thousands):
 For the Three Months Ended March 31,
 20202019
 
Net cash provided by operating activities$36,518  $30,074  
Net cash used in investing activities(24,300) (66,177) 
Net cash (used in) provided by financing activities(8,608) 213,665  
Net increase in cash and cash equivalents3,610  177,562  
Cash and cash equivalents, beginning of period20,327  36,792  
Cash and cash equivalents, end of period$23,937  $214,354  
 For the Three Months Ended March 31,
 2019 2018
 (dollars in thousands)
Net cash provided by operating activities$30,074
 $22,059
Net cash used in investing activities(66,177) (35,114)
Net cash provided by financing activities213,665
 20,341
Net increase in cash and cash equivalents177,562
 7,286
Cash and cash equivalents, beginning of period36,792
 6,909
Cash and cash equivalents, end of period$214,354
 $14,195
Three Months Ended March 31, 20192020 Compared to Three Months Ended March 31, 20182019
Net cash provided by operating activities for the three months ended March 31, 2019 was $30.1 million compared to $22.1increased $6.4 million for the three months ended March 31, 2018, an increase of $8.0 million. The increase was2020 compared to the three months ended March 31, 2019, primarily due to an increase of collections of rental income due to acquisitions, increases in rental rates for existing tenants subsequent to March 31, 2018,2019, increases in interest income related to our mortgage loans receivable and timingan increase in interest income distributed from our preferred equity investment.
Cash used in investing activities for the three months ended March 31, 2020 was primarily comprised of $27.0 million in acquisitions of real estate and investments in real estate mortgage loans and $2.4 million of improvement in real estate and purchases of furniture, fixtures and equipment, partially offset by $3.0 million of payments toreceived from our vendorspreferred equity investment and mortgage and other loans receivable and $2.1 million in settling accounts payable, and a decrease in interest paid on outstanding indebtedness.
net proceeds from real estate sales. Cash used in investing activities for the three months ended March 31, 2019 was primarily comprised of $64.5 million in acquisitions of real estate and investments in real estate mortgage loans. Cash
Our cash flows used in investingfinancing activities for the three months ended March 31, 2018 consisted2020 was primarily comprised of $48.1$21.5 million related to acquisitions of real estate,in dividends paid and a $2.0 million net settlement adjustment on restricted stock, partially offset by $13.0$15.0 million ofin net proceeds from real estate sales.
borrowings under our Amended Credit Facility. Our cash flows provided by financing activities for the three months ended March 31, 2019 was primarily comprised of $190.0 million in net borrowings under our Amended Credit Facility and Prior Credit Facility and $47.3 million in net proceeds from common stock sales under our Prior ATM Program, partially offset by $17.7 million in dividends paid and $4.4 million in payments of deferred financing costs. Our cash flows provided by financing activities for the three months ended March 31, 2018 was primarily comprised of $35.0 million in net borrowings under our Prior Credit Facility, partially offset by $14.0 million in dividends paid.

Indebtedness
Senior Unsecured Notes
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On May 10, 2017, 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”),Issuers completed a public offering of $300.0 million aggregate principal amount of 5.25% Senior Notes due 2025 (the “Notes”).the Notes. The 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 Notes mature on June 1, 2025 and bear interest at a rate of 5.25% per year. Interest on the Notes is payable on June 1 and December 1 of each year, beginning on December 1, 2017.
The Issuers may redeem the Notes any time before June 1, 2020 at a redemption price of 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest on the Notes, if any, to, but not including, the redemption date, plus a “make-whole” premium described in the indenture governing the Notes and, at any time on or after June 1, 2020, at the redemption prices set forth in the indenture. At any time on or before June 1, 2020, up to 40% of the aggregate principal amount of the Notes may be redeemed with the net proceeds of certain equity offerings if at least 60% of the originally issued aggregate principal amount of the Notes remains outstanding. In such case, the redemption price will be equal to 105.25% of the aggregate principal amount of the Notes to be redeemed plus accrued and unpaid interest, if any, to, but not including the redemption date. If certain changes of control of CareTrust REIT occur, holders of the Notes will have the right to require the Issuers to repurchase their Notes at 101% of the principal amount plus accrued and unpaid interest, if any, to, but not including, the repurchase date.
TheAs described above under “—5.25% Senior Notes due 2025 and Effect of Recent Regulation S-X Amendments,” the obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by CareTrust REIT and certain of CareTrust REIT’sREIT’s wholly owned existing and, subject to certain exceptions, future

material subsidiaries (other than the Issuers); provided, however, that such guarantees are subject to automatic release under certain customary circumstances, including if the subsidiary guarantor is sold or sells all or substantially all of its assets, the subsidiary guarantor is designated “unrestricted” for covenant purposes under the indenture, the subsidiary guarantor’s guarantee of other indebtedness which resulted in the creation of the guarantee of the Notes is terminated or released, or the requirements for legal defeasance or covenant defeasance or to discharge the indenture have been satisfied. See Note 12, Summarized Condensed Consolidating Information.
The indenture contains customary covenants such as limiting the ability of CareTrust REIT 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 also requires CareTrust REIT 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 also contains customary events of default.
As of March 31, 2019,2020, we were in compliance with all applicable financial covenants under the indenture.
Unsecured Revolving Credit Facility and Term Loan
On August 5, 2015, the Company, CareTrust GP, LLC, the Operating Partnership, as the borrower, and certain of its wholly owned subsidiaries entered into a credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender, and the lenders party thereto (the “Prior Credit Agreement”). As later amended on February 1, 2016, the Prior Credit Agreement provided the following: (i) a $400.0 million unsecured asset based revolving credit facility (the “Prior Revolving Facility”), (ii) a $100.0 million non-amortizing unsecured term loan (the “Prior Term Loan” and, together with the Prior Revolving Facility, the “Prior Credit Facility”), and (iii) a $250.0 million uncommitted incremental facility. The Prior Revolving Facility was scheduled to mature on August 5, 2019, subject to two, six-month extension options. The Prior Term Loan was scheduled to mature on February 1, 2023, and could be prepaid at any time subject to a 2% premium in the first year after issuance and a 1% premium in the second year after issuance.
On February 8, 2019, the Operating Partnership, as the borrower, the Company, as guarantor, CareTrust GP, LLC, and certain of the Operating Partnership’s wholly owned subsidiaries entered into an amended and restated credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender, and the lenders party thereto (the “Amended Credit Agreement”). The Amended Credit Agreement, which amended and restated the Prior Credit Agreement, provides for: (i) an unsecured revolving credit facility (the “Revolving Facility”) with revolving commitments in an aggregate principal amount of $600.0 million, including a letter of credit subfacility for 10% of the then available revolving commitments and a swingline loan subfacility for 10% of the then available revolving commitments and (ii) an unsecured term loan credit facility (the “Term Loan” and, together with the Revolving Facility, the “Amended Credit Facility”) in an aggregate principal amount of $200.0 million. Borrowing availability under the Revolving Facility is subject to our compliance with certain financial covenants set forth inno default or event of default under the Amended Credit Agreement governinghaving occurred at the Revolving Facility, including a consolidated leverage ratio that requires our ratiotime of Adjusted Consolidated Debt to Consolidated Total Asset Value (each as defined in the Amended Credit Agreement) be less than 60%.borrowing. The proceeds of the Term Loan were used, in part, to repay in full all outstanding borrowings under the Prior Term Loan and Prior Revolving Facility under the Prior Credit Agreement. Future borrowings under the Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes.
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The interest rates applicable to loans under the Revolving Facility are, at the Company’sOperating Partnership’s option, equal to either a base rate plus a margin ranging from 0.10% to 0.55% per annum or LIBOR plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). The interest rates applicable to loans under the Term Loan are, at the Company’sOperating Partnership’s option, equal to either a base rate plus a margin ranging from 0.50% to 1.20% per annum or LIBOR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). In addition, the CompanyOperating 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 CompanyOperating 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 the

Company’s senior long-term unsecured debt). As of March 31, 2019,2020, we had $200.0 million outstanding under the Term Loan and there were $185.0$75.0 million outstanding borrowings under the Revolving Facility. See Note 13, Subsequent Events, for additional information.
The Revolving Facility has a maturity date of February 8, 2023, and includes, at our solesole discretion, two, six-month extension options. The Term Loan has a maturity date of February 8, 2026.
The Amended Credit Facility is guaranteed, jointly and severally, by the Company and its wholly-owned subsidiaries that are party to the Amended Credit Agreement (other than the Operating Partnership). The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend certain material agreementsorganizational documents and pay certain dividends and other restricted payments. The Amended Credit Agreement requires the Company to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum debt to asset value ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating income ratio, a maximum secured debt to asset value ratio, and a maximum secured recourse debt to asset value ratio, a maximum unsecured debt to unencumbered properties asset value ratio, a minimum unsecured interest coverage ratio and a minimum rent coverage ratio. The Amended Credit Agreement also contains certain customary events of default, including that the Company is requiredfailure to operate in conformity withmake timely payments under the requirements for qualificationAmended Credit Facility or other material indebtedness, the failure to satisfy certain covenants (including the financial maintenance covenants), the occurrence of change of control and taxation as a REIT.specified events of bankruptcy and insolvency.
As of March 31, 2019,2020, the Company was in compliance with all applicable financial covenants under the Amended Credit Agreement.
Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of March 31, 20192020 (in thousands):
 
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
 TotalLess
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
Senior unsecured notes payable (1)$386,625  $15,750  $31,500  $31,500  $307,875  
Senior unsecured term loan (2)255,561
 8,134
 16,178
 16,200
 215,049
Senior unsecured term loan (2)227,075  4,628  9,232  9,244  203,971  
Unsecured revolving credit facility (3)214,991
 7,704
 15,325
 191,962
 —
Unsecured revolving credit facility (3)81,929  2,427  79,502  —  —  
Operating lease125
 125
 —
 —
 —
Operating leasesOperating leases3,981  253  495  104  3,129  
Total$873,052
 $31,713
 $63,003
 $239,662
 $538,674
Total$699,610  $23,058  $120,729  $40,848  $514,975  
 
(1)Amounts include interest payments of $102.4 million.
(2)Amounts include interest payments of $55.6 million.
(3)Amounts include payments related to the unused credit facility fee.

(1)Amounts include interest payments of $86.6 million.
(2)Amounts include interest payments of $27.1 million.
(3)Amounts include payments related to the credit facility fee.

Capital Expenditures
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We anticipate incurring average annual capital expenditures of $400 to $500 per unit in connection with the operations of our three ILFs.one ILF. Capital expenditures for each property leased under our triple-net leases are generally the responsibility of the tenant, except that, for the facilities leased to subsidiaries of Ensign under eight master leases, the tenant will have an option to require us to finance certain capital expenditures up to an aggregate of 20% of our initial investment in such property, subject to a corresponding rent increase at the time of funding. For our other triple-net master leases, the tenants also have the option to request capital expenditure funding that would alsogenerally be subject to a corresponding rent increase at the time of funding, which are subject to tenant compliance with the conditions to our approval and funding of their requests. As of March 31, 2020, we had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities totaling $16.4 million, of which $15.1 million is subject to rent increase at the time of funding.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q have been prepared in accordance with GAAP for interim financial information set forth in the Accounting Standards Codification, as published by the Financial Accounting Standards Board. GAAP requires us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base these estimates on our experience and assumptions we believe to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have

applied a different accounting treatment, resulting in a different presentation of our financial statements. We periodically reevaluate our estimates and assumptions, and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Please refer to “Critical Accounting Policies and Estimates” in the “Management“Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2018,2019, filed with the SEC on February 13, 2019,20, 2020, for further information regarding the critical accounting policies that affect our more significant estimates and judgments used in the preparation of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. There have been no material changes in such critical accounting policies during the three months ended March 31, 2019.2020.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our primary market risk exposure is interest rate risk with respect to our variable rate indebtedness.
Our Amended Credit Agreement provides for revolving commitments in an aggregate principal amount of $600.0 million from a syndicate of banks and other financial institutions. The interest rates applicable to loans under the Revolving Facility are, at the Company’s option, equal to either a base rate plus a margin ranging from 0.10% to 0.55% per annum or LIBOR plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). The interest rates applicable to loans under the Term Loan are, at the Company’s option, equal to either a base rate plus a margin ranging from 0.50% to 1.20% per annum or LIBOR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). As of March 31, 2019,2020, we had a $200.0 million Term Loan outstanding and there was $185.0$75.0 million outstanding under the Revolving Facility. Subsequent to March 31, 2019, we repaid approximately $150.0 million in borrowings under the Revolving Facility primarily using the net proceeds from our public offering of common stock in April 2019. See Note 13, Subsequent Events, for additional information.
An increase in interest rates could make the financing of any acquisitionacquisition 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. AssumingIn addition, there is currently uncertainty around whether LIBOR will continue to exist after 2021. If LIBOR ceases to exist, we will need to enter into an amendment to the Amended Credit Agreement and we cannot predict what alternative index would be negotiated with our lenders. If our lenders have increased costs due to changes in LIBOR, we may experience potential increases in interest rates on our variable rate debt, which could adversely impact our interest expense, results of operations and cash flows. Based on our outstanding debt balance as of March 31, 2020 described above and the interest rates applicable to our outstanding debt at March 31, 2020, assuming a 100 basis point increase in the interest rates related to our variable rate debt, and assuming the outstanding debt balance as of March 31, 2019 described above, interest expense would have increased approximately $1.0approximately $0.7 million for the three months ended March 31, 2019.2020.
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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 Internal Revenue Code of 1986, as amended, 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,” which is included in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. As of March 31, 2019,2020, 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 4. 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 Securities Exchange Act of 1934, as amended (“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 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 March 31, 2019,2020, 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, at the reasonable assurance level, as of March 31, 2019.2020.
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 March 31, 2019,2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


 
PART II—OTHER INFORMATION



Item 1. 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 ourits tenants, which are the responsibility of ourits tenants and for which the Company is entitled to be indemnified by its tenants under the insurance and indemnification provisions in the applicable leases.


Item 1A. Risk Factors.
We have disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20182019 risk factors which materially affect our business, financial condition, or results of operations. There have been no material changes from the risk factors previously disclosed.disclosed other than as set forth below.
The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition.
In December 2019, COVID-19 was first reported in Wuhan, China, and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. In recent months, the outbreak has spread globally and has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders. These measures may remain in place for a significant amount of time. Given the dynamic nature of
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these circumstances, the duration of business disruption and the related financial effects cannot be reasonably estimated at this time.
The impact of the COVID-19 pandemic and measures to prevent its spread subject us to various risks and uncertainties that could materially adversely affect our business, results of operations and financial condition, including the following:

•theinability of our tenants to pay contractual rent in full, on a timely basis or at all due to increases in operating costs incurred by our tenants or declines in occupancy rates at their facilities, which would adversely impact our rental revenue, and the adverse impact on our rental revenue if we grant rent deferrals to any of our tenants;
•the possibility that we may be required to write-off unpaid rental payments, incur lease accounting charges due to the uncollectibility of rental payments and/or modify lease terms that may be unfavorable to us if a tenant is unable to pay contractual rent and/or the possibility that adverse market conditions or declines in the operating performance of our tenants or borrowers may result in asset impairment charges or credit losses on our loans receivable if we determine that the full amount of our investments are not recoverable;
•the financial deterioration of one or more of our tenants or borrowers, which may result in such tenant(s) experiencing insolvency or initiating bankruptcy or similar proceedings and adversely affect our ability to collect rent or interest payments from such tenants and result in increased costs to us;
•increased costs or delays that may result if we need to reposition or transition any of our currently-leased properties to another tenant or operator, which could adversely impact our revenues and results of operations;
•the possibility of potential lawsuits related to COVID-19 outbreaks involving us, our tenants, operators or borrowers, which could increase our respective costs of business, result in negative publicity and/or result in further decreases in occupancy at our facilities;
•deterioration of state and local economic conditions and job losses, which may decrease demand for and occupancy levels of our properties and cause our rental rates and property values to be negatively impacted;
•possible complete or partial closures of, or other operational issues at, one or more of our properties resulting from government actions or directives, which may intensify the risk of rent deferrals or non-payment of contractual obligations by our tenants or operators;
•material increases in our insurance costs, including possible increases in insurance premiums and deductibles;
•limitations on our access to capital and other sources of funding, which could adversely affect the availability and terms of future borrowings or refinancings or other forms of capital raising, including issuances under our New ATM Program, and which could adversely impact our ability to make new property investments;
•our ability to continue to make cash distributions to our stockholders commensurate with historical levels; and
•our ability to repay our outstanding debt or maintain compliance with the covenants under our Amended Credit Facility and the indenture governing our Notes.

The extent of the COVID-19 pandemic’s effect on our operational and financial performance will depend on future developments, which are highly uncertain and cannot be predicted at this time, including new information which may emerge concerning the severity of COVID-19, actions taken to contain COVID-19, any possible resurgence of COVID-19 that may occur after the initial outbreak subsidies, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may experience adverse impacts to our business, financial condition, results of operations, and prospects as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future. The adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition could be material.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

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During the three months ended March 31, 2019,2020, we acquired shares of our common stock held by employees who tendered shares to satisfy tax withholding obligations upon the vesting of previously issued restricted stock awards. Specifically, the number of shares of common stock acquired from employees and the average prices paid per share for each month in the first quarter ended March 31, 20192020 are as follows:shown in the table below.

In addition, on March 20, 2020, our Board of Directors authorized us 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 did not repurchase any shares of our common stock under the Repurchase Program during the three months ended March 31, 2020.The Repurchase Program may be modified, discontinued or suspended at any time.

PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Repurchase ProgramMaximum Dollar Value of Shares that that May Yet be Purchased Under the Repurchase Program
January 1 - January 31, 2020—$—  —$—  
February 1 - February 29, 202088,511  $22.44  —$150,000,000  
March 1, - March 31, 2020—  $—  —$—  
Total88,511  $22.44  —  $150,000,000  

  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



Item 6. Exhibits.
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Exhibit
Number
Description of the Document
2.1
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
3.2




3.3
10.1*4.1
*22.1
*31.1
*31.2
**32
*101.INSInline 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.SCHXBRL Taxonomy Extension Schema Document
*101.CALXBRL Taxonomy Extension Calculation Linkbase Document
*101.DEFXBRL Taxonomy Extension Definition Linkbase Document
*101.LABXBRL Taxonomy Extension Label Linkbase Document
*101.PREXBRL Taxonomy Extension Presentation Linkbase Document
*104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Filed herewith
** Furnished herewith


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SIGNATURES
Pursuant to the requirements 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.
 
CareTrust REIT, Inc.
May 7, 20192020By:/s/ Gregory K. Stapley
Gregory K. Stapley
President and Chief Executive Officer
(duly authorized officer)
May 7, 20192020By:/s/ William M. Wagner
William M. Wagner
Chief Financial Officer, Treasurer and Secretary
(principal financial officer and
principal accounting officer)



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