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What changed in CareTrust REIT, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CareTrust REIT, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+343 added−366 removedSource: 10-K (2024-02-08) vs 10-K (2023-02-09)

Top changes in CareTrust REIT, Inc.'s 2023 10-K

343 paragraphs added · 366 removed · 244 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

95 edited+39 added−12 removed105 unchanged
Biggest changeTotal SNFs Multi-Service Campuses ALFs and ILFs State Properties Beds/Units Facilities Beds Campuses Beds/Units Facilities Beds/Units TX 44 5,627 38 4,849 3 536 3 242 CA 40 4,844 27 3,048 8 1,359 5 437 ID 17 1,474 16 1,405 1 69 — — IA 15 970 13 801 2 169 — — UT 13 1,374 9 913 1 272 3 189 AZ 11 1,340 8 971 — — 3 369 WA 10 936 9 839 — — 1 97 IL 9 916 7 642 2 274 — — LA 8 1,164 7 949 1 215 — — CO 7 779 5 511 — — 2 268 OH 6 612 3 256 3 356 — — NE 5 366 3 220 2 146 — — FL 4 420 — — — — 4 420 MI 4 189 — — — — 4 189 NV 3 304 1 92 — — 2 212 MT 3 259 3 259 — — — — WI 3 206 — — — — 3 206 MN 2 62 — — — — 2 62 NC 2 104 — — — — 2 104 NJ 2 98 — — — — 2 98 IN 1 162 — — — — 1 162 MD 1 120 — — — — 1 120 NM 1 116 1 116 — — — — GA 1 105 1 105 — — — — ND 1 83 1 83 — — — — SD 1 81 1 81 — — — — WV 1 67 — — 1 67 — — OR 1 53 1 53 — — — — Total 216 22,831 154 16,193 24 3,463 38 3,175 9 Table of Contents Occupancy by Property Type: The following table displays occupancy by property type for each of the years ended December 31, 2022 and 2021.
Biggest changeTotal SNFs Multi-Service Campuses ALFs and ILFs State Properties Beds/Units Facilities Beds Campuses Beds/Units Facilities Beds/Units CA (1) 46 5,676 32 3,712 9 1,527 5 437 TX 45 5,871 40 5,123 3 536 2 212 ID 17 1,474 16 1,405 1 69 — — UT 13 1,374 9 913 1 272 3 189 AZ 11 1,340 8 971 — — 3 369 IL 11 1,053 7 642 2 275 2 136 WA 10 936 9 839 — — 1 97 LA 8 1,164 7 949 1 215 — — CO 7 785 5 517 — — 2 268 OH 6 609 2 226 3 317 1 66 IA 5 354 3 185 2 169 — — MI 5 255 — — — — 5 255 NE 5 366 3 220 2 146 — — MT 3 260 3 260 — — — — NV 3 304 1 92 — — 2 212 MN 2 62 — — — — 2 62 NC 2 105 — — — — 2 105 NJ 2 98 — — — — 2 98 WI 2 89 — — — — 2 89 FL 1 80 — — — — 1 80 GA 1 148 1 148 — — — — KS 1 102 1 102 — — — — MD 1 120 — — — — 1 120 ND 1 83 1 83 — — — — NM 1 124 1 124 — — — — OR 1 53 1 53 — — — — SD 1 81 1 81 — — — — WV 1 67 — — 1 67 — — Total 212 23,033 151 16,645 25 3,593 36 2,795 (1) Includes three SNFs with 385 beds held in consolidated joint ventures. 9 Table of Contents Occupancy by Property Type: The following table displays occupancy by property type for each of the years ended December 31, 2023 and 2022.
Changes in laws and regulations and reimbursement enforcement activity and regulatory non-compliance by our tenants could have a significant effect on their operations and financial condition, which in turn may adversely affect us, as detailed below and set forth under “Risk Factors - Risks Related to Our Business.” The following is a discussion of certain laws and regulations generally applicable to our tenants (as operators of our healthcare facilities) and, in certain cases, to us.
Changes in laws and regulations and reimbursement enforcement activity and regulatory non-compliance by our tenants could have a significant effect on their operations and financial condition, which in turn may adversely affect us, as detailed below and set forth under “Risk Factors — Risks Related to Our Business and Operations.” The following is a discussion of certain laws and regulations generally applicable to our tenants (as operators of our healthcare facilities) and, in certain cases, to us.
We expect to continue our disciplined focus on pursuing investment opportunities, primarily with respect to stabilized assets but also some strategic investment in new and/or improving properties, while seeking dedicated and engaged operators who possess local market knowledge, have solid operating records and emphasize quality services and outcomes.
We expect to continue our disciplined focus on pursuing investment opportunities, primarily with respect to stabilized assets but also some strategic investments in new and/or improving properties, while seeking dedicated and engaged operators who possess local market knowledge, have solid operating records and emphasize quality services and outcomes.
As seniors account for a higher percentage of the total U.S. population, we believe the overall demand for skilled nursing services will increase. At present, the primary market demographic for skilled nursing services is individuals age 75 and older. The 2020 U.S.
As seniors account for a higher percentage of the total U.S. population, we believe the overall demand for skilled nursing services will increase. At present, the primary market demographic for skilled nursing services is individuals age 75 and older. The U.S.
See “Risk Factors - Risks Related to Our Business - Healthcare reform legislation impacts cannot accurately be predicted and could adversely affect our results of operations” for additional risks related to changes in Medicare reimbursement.
See “Risk Factors — Risks Related to Our Business and Operations — Healthcare reform legislation impacts cannot accurately be predicted and could adversely affect our results of operations” for additional risks related to changes in Medicare reimbursement.
See “Risk Factors - Risks Related to Our Business - We are dependent on the healthcare operators that lease our properties to successfully operate their business and make contractual lease payments, and an event that materially and adversely affects their business, financial position or results of operations could materially and adversely affect our business, financial position or results of operations.” We monitor the creditworthiness of our tenants by evaluating the ability of the tenants to meet their lease obligations to us based on the tenants’ financial performance, including the evaluation of any guarantees of tenant lease obligations.
See “Risk Factors — Risks Related to Our Business and Operati ons — We are dependent on the healthcare operators that lease our properties to successfully operate their business and make contractual lease payments, and an event that materially and adversely affects their business, financial position or results of operations could materially and adversely affect our business, financial position or results of operations.” We monitor the creditworthiness of our tenants by evaluating the ability of the tenants to meet their lease obligations to us based on the tenants’ financial performance, including the evaluation of any guarantees of tenant lease obligations.
Sedgwick has more than 20 years of experience in the skilled nursing and seniors housing industry. Mr. Sedgwick’s President, Chief Operating Officer and Vice President duties regularly involved him in matters related to new investments, asset management, tenant relations, portfolio management, portfolio optimization, investor relations and capital markets activities for the Company. Prior to joining CareTrust, Mr.
Sedgwick has more than 23 years of experience in the skilled nursing and seniors housing industry. Mr. Sedgwick’s President, Chief Operating Officer and Vice President duties regularly involved him in matters related to new investments, asset management, tenant relations, portfolio management, portfolio optimization, investor relations and capital markets activities for the Company. Prior to joining CareTrust, Mr.
In addition, as a landlord and capital supplier to a key segment of the healthcare industry, we will seek further opportunities to encourage and incentivize fair and healthy work environments for healthcare workers and suitable living conditions for patients and residents, and to promote diversity, inclusion and the ethical treatment of employees, residents, patients and others wherever our activities and influence can be felt.
In addition, as a landlord and capital supplier to a key segment of the healthcare industry, we intend to seek further opportunities to encourage and incentivize fair and healthy work environments for healthcare workers and suitable living conditions for patients and residents, and to promote diversity, inclusion and the ethical treatment of employees, residents, patients and others wherever our activities and influence can be felt.
Government Regulation, Licensing and Enforcement Overview As operators of healthcare facilities, tenants of our healthcare properties are typically subject to extensive and complex federal, state and local healthcare laws and regulations relating to fraud and abuse practices, government reimbursement, licensure and certificate of need and similar laws governing the operation of healthcare facilities, and we expect that the healthcare industry, in general, will continue to face significant regulation and pressure in the areas of fraud, waste and abuse, cost control, healthcare management and provision of services, among others.
Government Regulation, Licensing and Enforcement Overview As operators of healthcare facilities, tenants of our healthcare properties are typically subject to extensive and complex federal, state and local healthcare laws and regulations relating to fraud and abuse practices, government reimbursement, licensure and certificate of need and similar laws governing the operation of healthcare facilities, and we expect that the healthcare industry, in general, will continue to face significant regulation and pressure in the areas of fraud, waste and abuse, 15 Table of Contents cost control, healthcare management and provision of services, among others.
Under the False Claims Act’s so-called “reverse false claims,” liability also could arise for “using” a false record or statement to “conceal,” “avoid” or “decrease” an “obligation” (which can include the retention of an overpayment) “to pay or transmit money or property to the government.” The False Claims Act also empowers and provides incentives to private citizens (commonly referred to as qui tam relator or whistleblower) to file suit on the government’s behalf.
Under the False Claims Act’s so-called “reverse false claims,” liability also could arise for “using” a false record or statement to “conceal,” “avoid” or “decrease” an “obligation” (which can include the retention of an overpayment) “to pay or transmit money or property to the government.” The False Claims Act also empowers and 16 Table of Contents provides incentives to private citizens (commonly referred to as qui tam relator or whistleblower) to file suit on the government’s behalf.
As of December 31, 2022, CareTrust REIT is the only limited partner of the Operating Partnership, owning 99% of its outstanding partnership interests, and we have not issued OP Units to any other party. The benefits of our UPREIT structure include the following: • Access to capital .
As of December 31, 2023, CareTrust REIT is the only limited partner of the Operating Partnership, owning 99% of its outstanding partnership interests, and we have not issued OP Units to any other party. The benefits of our UPREIT structure include the following: • Access to capital .
Under various federal, state and local environmental laws, ordinances and regulations, an owner of real property, such as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government 18 Table of Contents fines and damages for injuries to persons and adjacent property).
Under various federal, state and local environmental laws, ordinances and regulations, an owner of real property, such as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages for injuries to persons and adjacent property).
We plan to expand our investments into behavioral health facilities and we may determine in the future to expand our investments to include medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities. As we acquire, or invest in, additional properties, we expect to further diversify by geography, asset class and tenant within the healthcare and healthcare-related sectors.
We are expanding our investments into behavioral health facilities and we may determine in the future to expand our investments to include medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities. As we acquire, or invest in, additional properties, we expect to further diversify by geography, asset class and tenant within the healthcare and healthcare-related sectors.
Our qualification as a REIT will depend upon our ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code of 1986, as amended (the “Code”), relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels to our stockholders and the concentration of ownership of our capital stock.
Our qualification as a REIT will depend upon our ability to meet, on a continuing basis, various complex 19 Table of Contents requirements under the Internal Revenue Code of 1986, as amended (the “Code”), relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels to our stockholders and the concentration of ownership of our capital stock.
We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property (including property taxes, insurance, maintenance and repair costs and capital expenditures, subject to certain exceptions in the case of properties leased to Ensign and Pennant).
We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property (including property taxes, insurance, maintenance and repair costs and capital expenditures, subject to certain exceptions in the case of properties leased to Ensign and Pennant, as defined below).
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 5 Table of Contents markets that could improve their operating results at our facilities.
We also anticipate diversifying our portfolio over time, including by acquiring properties in different geographic markets, and in different asset classes. In addition, we actively monitor the clinical, regulatory and financial operating results of our tenants, and work to identify opportunities within their operations and markets that could improve their operating results at our facilities.
Our Policy on Human Capital reflects our commitment to the dignity and rights of all people, especially our employees and others whose professional lives may be impacted by our properties and business activities. It represents a critical commitment to, and investment in, the current and long-term health and well-being of 14 Table of Contents our organization and its people.
Our Policy on Human Capital reflects our commitment to the dignity and rights of all people, especially our employees and others whose professional lives may be impacted by our properties and business activities. It represents a critical commitment to, and investment in, the current and long-term health and well-being of our organization and its people.
We expect to grow our portfolio by pursuing opportunities to acquire additional properties that will be leased to a diverse group of local, regional and national healthcare providers, which may include new or existing skilled nursing operators, as well as seniors housing operators and related businesses.
We expect to grow our portfolio by pursuing opportunities to acquire additional properties that will be leased to a diverse group of local, regional and national healthcare providers, which may include new or existing skilled nursing operators, as well as seniors housing operators, behavioral health facilities and related businesses.
Fund Strategic Capital Improvements. We support operators by providing capital to them for a variety of purposes, including capital expenditures and facility modernization. We expect to structure these investments as either lease amendments that produce additional rents or as loans that are repaid by operators during the applicable lease term. Pursue Strategic Development Opportunities.
Fund Strategic Capital Improvements. We support operators by providing capital to them for a variety of purposes, including capital expenditures and facility modernization. We expect to structure these investments as either lease amendments that produce additional rents or as loans that are repaid by operators during the applicable lease term.
Healthcare operators compete on a local and regional basis for residents and patients and their ability to 13 Table of Contents successfully attract and retain residents and patients depends on key factors such as the number of facilities in the local market, the types of services available, the quality of care, reputation, age and appearance of each facility and the cost of care in each locality.
Healthcare operators compete on a local and regional basis for residents and patients and their ability to successfully attract and retain residents and patients depends on key factors such as the number of facilities in the local market, the types of services available, the quality of care, reputation, age and appearance of each facility and the cost of care in each locality.
Property Type - Rental Income: The following tables display the annual rental income for each property type leased to third-party tenants for the years ended December 31, 2022 and 2021 and total beds/units for each property type as of December 31, 2022 and 2021.
Property Type — Rental Income: The following tables display the annual rental income for each property type leased to third-party tenants for the years ended December 31, 2023 and 2022 and total beds/units for each property type as of December 31, 2023 and 2022.
In particular, an UPREIT structure enables us to acquire additional properties from sellers in exchange for limited 12 Table of Contents partnership units, which provides property owners the opportunity to defer the tax consequences that would otherwise arise from a sale of their real properties and other assets to us.
In particular, an UPREIT structure enables us to acquire additional properties from sellers in exchange for limited partnership units, which provides property owners the opportunity to defer the tax consequences that would otherwise arise from a sale of their real properties and other assets to us.
Most notably, he worked for both Nationwide Health Properties, Inc., a healthcare REIT, and Sunstone Hotel Investors, Inc., a lodging REIT, serving as Senior Vice President and Chief Accounting Officer of each company prior to joining us as our Chief Financial Officer. James B.
Most notably, he worked for both Nationwide Health Properties, Inc., a healthcare REIT, and Sunstone Hotel Investors, Inc., a lodging REIT, serving as Senior Vice President and Chief Accounting Officer of each company prior to joining us as our Chief Financial Officer. 12 Table of Contents James B.
These laws are enforced by a variety of federal, state and local agencies and can also be enforced by private litigants through, 15 Table of Contents among other things, federal and state false claims acts, which allow private litigants to bring qui tam or “whistleblower” actions.
These laws are enforced by a variety of federal, state and local agencies and can also be enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or “whistleblower” actions.
Sedgwick served as the Chief Human Capital Officer and President of Facility Services at Ensign. Mr. Sedgwick has been a licensed nursing home administrator since 2001. Our Chief Financial Officer, William M. Wagner, has more than 25 years of accounting and finance experience, primarily in real estate, including more than 15 years of experience working extensively for REITs.
Sedgwick served as the Chief Human Capital Officer and President of Facility Services at Ensign. Mr. Sedgwick has been a licensed nursing home administrator since 2001. Our Chief Financial Officer, William M. Wagner, has more than 30 years of accounting and finance experience, primarily in real estate, including more than 19 years of experience working extensively for REITs.
These metrics help us identify potential areas of concern relative to our tenants’ credit quality and ultimately the tenants’ ability to generate sufficient liquidity to meet their ongoing obligations, including their obligations to continue paying contractual rents due to us and satisfying other financial obligations to third parties, as prescribed by our triple-net leases. 8 Table of Contents Properties by Type: The following table displays the geographic distribution of our facilities and the related number of beds and units available for occupancy by property type, as of December 31, 2022.
These metrics help us identify potential areas of concern relative to our tenants’ credit quality and ultimately the tenants’ ability to generate sufficient liquidity to meet their ongoing obligations, including their obligations to continue paying contractual rents due to us and satisfying other financial obligations to third parties, as prescribed by our triple-net leases. 8 Table of Contents Properties by Type: The following table displays the geographic distribution of our facilities, excluding those held for sale, and the related number of beds and units available for occupancy by property type, as of December 31, 2023.
Entities subject to HIPAA include health plans, healthcare clearinghouses, and most health care providers (including many of our tenants). Business associates of these entities who create, receive, maintain or transmit Protected Health Information are also subject to HIPAA.
Entities subject to HIPAA include health plans, healthcare 18 Table of Contents clearinghouses, and most health care providers (including many of our tenants). Business associates of these entities who create, receive, maintain or transmit Protected Health Information are also subject to HIPAA.
Although our portfolio currently consists primarily of owned real property, future investments may include first mortgages, mezzanine debt and other securities issued by, or joint ventures with, REITs or other entities that own real estate consistent with our investment objectives. 11 Table of Contents Our Competitive Strengths We believe that our ability to acquire, integrate and improve facilities is a direct result of the following key competitive strengths: Geographically Diverse Property Portfolio.
We expect that our future investments may also include first mortgages, mezzanine debt and other securities issued by, or joint ventures with, REITs or other entities that own real estate consistent with our investment objectives. 11 Table of Contents Our Competitive Strengths We believe that our ability to acquire, integrate and improve facilities is a direct result of the following key competitive strengths: Geographically Diverse Property Portfolio.
The PMG Master Lease commenced on December 1, 2016, and provides for an initial term of fifteen years, with two five-year renewal options. As of December 31, 2022, annualized contractual rental income from the PMG Master Lease was $30.2 million, representing 16% of total annualized contractual rental income.
The PMG Master Lease commenced on December 1, 2016, and provides for an initial term of fifteen years, with two five-year renewal options. As of December 31, 2023, annualized contractual rental income from the PMG Master Lease was $31.2 million, representing 15% of total annualized contractual rental income.
T he Ensign Master Leases provide for initial terms in excess of ten years with staggered expiration dates and no purchase options.
The Ensign Master Leases provide for initial terms in excess of ten years with staggered expiration dates and no purchase options.
During the year ended December 31, 2020, the Company acquired four additional facilities leased to subsidiaries of Ensign on a triple-net basis under two separate master lease agreements, each of which contains a purchase option.
During the year ended December 31, 2020, the Company acquired four additional facilities, which have a total of 620 operational beds, leased to subsidiaries of Ensign on a triple-net basis under two separate master lease agreements, each of which contains a purchase option.
According to the American Health Care Association, the nursing home industry was comprised of approximately 15,200 facilities as of July 2022, as compared with over 15,600 facilities as of July 2016.
According to the American Health Care Association, the nursing home industry was comprised of approximately 15,000 facilities as of July 2023, as compared with over 15,600 facilities as of July 2016.
We expect that the supply/demand imbalance in the skilled nursing industry will increasingly favor skilled nursing and assisted living providers due to the shift of patient care to lower cost settings and an aging population. • Increased Demand Driven by Aging Populations .
We expect that the supply/demand imbalance in the skilled nursing industry will inc reasingly favor skilled nursing and assisted living providers due to the shift of patient care to lower cost settings and an aging population. 6 Table of Contents • Increased Demand Driven by Aging Populations .
These activities carry real and substantial costs, which we regard as a meaningful investment in our workforce and our company. We believe that employee turnover is costly in direct and indirect ways, and we are committed to employee retention and satisfaction . During the year ended December 31, 2022, we experienced turnover of one full-time employee, excluding our executive officers.
These activities carry real and substantial costs, which we regard as a meaningful investment in our workforce and our company. We believe that employee turnover is costly in direct and indirect ways, and we are committed to employee retention and satisfac tion. During the year ended December 31, 2023, we experienced turnover of three full-time employees, excluding our executive officers.
As of December 31, 2022, our portfolio included 36 ALFs, some of which also contain independent living and memory care units. Included in the 36 ALFs are five ALFs classified as held for sale as of December 31, 2022, two facilities which are in the process of being repurposed and two facilities which are non-operational. • Independent Living Facilities .
As of December 31, 2023, our portfolio included 34 ALFs (excluding two ALFs classified as held for sale), some of which also contain independent living and memory care units. Included in the 34 ALFs are two facilities which are in the process of being repurposed and two facilities which are non-operational. • Independent Living Facilities .
During 2020, with the assistance of Conservice ESG, our ESG consultant, we designed a monitoring plan to collect key environmental data from a pilot group of 50 of our net-leased properties. The plan’s objective was to begin benchmarking energy and water usage and the impact of our facilities on greenhouse gas emissions and climate change.
Beginning in 2020, with the assistance of an ESG consultant, we designed a monitoring plan to collect key environmental data from a pilot group of 50 of our net-leased properties. The plan’s objective was to benchmark energy and water usage and the impact of our facilities on greenhouse gas emissions and climate change.
Census reported that there were over 56 million people in the United States in 2020 over the age of 65. The U.S. Census estimates this group to be one of the faste st growing segments of the United States population, projecting that it will almost double between 2020 and 2060.
Census estimates that there were over 58 million people in the United States in 2022 over the age of 65. The U.S. Census estimates this group to be one of the fastest growing segments of the United States population, projecting that it will almost double between 2020 and 2060.
Multi-service campuses generally include some combination of co-located SNFs, ALFs, ILFs, and/or memory care units all housed at a single location and operated as a continuum of care. We also refer to continuing care retirement communities as multi-service campuses.
As of December 31, 2023, our portfolio included two ILFs. • Multi-Service Campuses. Multi-service campuses generally include some combination of co-located SNFs, ALFs, ILFs, and/or memory care units all housed at a single location and operated as a continuum of care. We also refer to continuing care retirement communities as multi-service campuses.
Callister was appointed as our Executive Vice President effective July 2022 and Chief Investment Officer effective December 31, 2022, succeeding Mark D. Lamb in that role. Mr. Callister continues to serve as Secretary, and previously served as General Counsel from February 2021 to July 2022. Prior to joining the Company, Mr.
Callister was appointed as our Executive Vice President effective July 2022 and Chief Investment Officer effective December 31, 2022. Mr. Callister continues to serve as Secretary, and previously served as General Counsel from February 2021 to July 2022. Prior to joining the Company, Mr.
This helps our employees to keep their skills current and to adapt to new responsibilities and emerging market needs. CareTrust provides financial support for professional associate dues and memberships, continuing education credits, and fees and travel expenses to attend relevant conferences and seminars.
Training and Education. CareTrust’s culture values continuous learning, improvement and professional development. This helps our employees to keep their skills current and to adapt to new responsibilities and emerging market needs. CareTrust provides financial support for professional associate dues and memberships, continuing education credits, and fees and travel expenses to attend relevant conferences and seminars.
Maintain Balance Sheet Strength and Liquidity. We maintain a capital structure that provides the resources and flexibility to support the growth of our business.
We maintain a capital structure that provides the resources and flexibility to support the growth of our business.
Ensign is subject to the reporting requirements of the SEC and is required to file with the SEC annual reports containing audited financial information and quarterly reports containing unaudited financial information. Ensign’s publicly available filings can be found at the SEC’s website at www.sec.gov. Ability to Identify Talented Operators .
Ensign is subject to the reporting requirements of the SEC and is required to file with the SEC annual reports containing audited financial information and quarterly reports containing unaudited financial information. Ensign’s publicly available filings can be found at the SEC’s website at www.sec.gov. Investments in Joint Ventures .
Our portfolio of SNFs, ALFs, ILFs and multi-service campuses is broadly diversified by geographic location throughout the United States, with concentrations in California, Texas, Louisiana, Idaho and Arizona ba sed on rental income. Significant Master Leases As of December 31, 2022, we leased 94 facilities to subsidiaries of Ensign, which have a total of 10,399 operational beds.
Our portfolio of SNFs, ALFs, ILFs and multi-service campuses is broadly diversified by geographic location throughout the United States, with concentrations in California and Texas based on rental income. Significant Master Leases As of December 31, 2023, we leased 94 facilities to subsidiaries of Ensign, which have a total of 9,776 operational beds.
We are working to implement sustainable practices in our corporate offices and to provide tenant education, support and incentives to make sustainable improvements at our net-leased properties. In 2022, we published our second annual Corporate Responsibility Report (our “ESG Report”) as part of our ongoing commitment to provide regular reporting on our environmental, social and governance (“ESG”) priorities.
We are committed to sustainable practices in our corporate offices and to providing tenant education, support and incentives to make sustainable improvements at our net-leased properties. In 2023, we published our third annual Corporate Sustainability Report (our “ESG Report”) as part of our ongoing commitment to provide regular reporting on our environmental, social and governance (“ESG”) priorities.
The SEC maintains an internet site that contains these reports, and other information about issuers, like us, which file electronically with the SEC. The address of that site is http://www.sec.gov.
Available Information We file annual, quarterly and current reports, proxy statements and other information with SEC. The SEC maintains an internet site that contains these reports, and other information about issuers, like us, which file electronically with the SEC. The address of that site is http://www.sec.gov.
For the Year Ended December 31, 2022 As of December 31, 2022 Property Type Rental Income (in thousands) Percent of Total Total Beds/ Units SNFs $ 135,701 72 % 16,193 Multi-Service Campuses 33,149 18 % 3,463 ALFs and ILFs 18,656 10 % 3,175 Total $ 187,506 100 % 22,831 For the Year Ended December 31, 2021 As of December 31, 2021 Property Type Rental Income (in thousands) Percent of Total Total Beds/ Units SNFs $ 133,380 70 % 16,614 Multi-Service Campuses 30,440 16 % 3,545 ALFs and ILFs 26,375 14 % 3,491 Total $ 190,195 100 % 23,650 10 Table of Contents Geographic Concentration - Rental Income: The following table displays the geographic distribution of annual rental income for properties leased to third-party tenants for the years ended December 31, 2022 and 2021 (dollars in thousands).
For the Year Ended December 31, 2022 As of December 31, 2022 Property Type Rental Income (in thousands) Percent of Total Total Beds/ Units SNFs $ 135,701 72 % 16,193 Multi-Service Campuses 33,149 18 % 3,463 ALFs and ILFs 18,656 10 % 3,175 Total $ 187,506 100 % 22,831 10 Table of Contents Geographic Concentration — Rental Income: The following table displays the geographic distribution of annual rental income for properties leased to third-party tenants for the years ended December 31, 2023 and 2022 (dollars in thousands).
Our ESG Report outlines our high priority ESG initiatives and goals for our company and our property portfolio. In our 2022 ESG Report, we included a Global Reporting Initiative (“GRI”) Index in reference to the GRI Standards to further align with applicable global standards for sustainability reporting.
Our ESG Report outlines our high priority ESG initiatives and goals for our company and our property portfolio. In our 2022 ESG Report, we included a Global Reporting Initiative (“GRI”) Index in reference to the GRI Standards as well as a Task Force on Climate-Related Financial Disclosures (“TCFD”) index to further align with applicable global standards for sustainability reporting.
We also cannot assure you that we will continue to require the same levels of insurance coverage under our leases, including the Ensign Master Leases, that such insurance will be available at a reasonable cost in the future or that the insurance coverage provided will fully cover all losses on our properties upon the occurrence of a catastrophic event, nor can we assure you of the future financial viability of the insurers. 19 Table of Contents Available Information We file annual, quarterly and current reports, proxy statements and other information with SEC.
We also cannot assure you that we will continue to require the same levels of insurance coverage under our leases, including the Ensign Master Leases, that such insurance will be available at a reasonable cost in the future or that the insurance coverage provided will fully cover all losses on our properties upon the occurrence of a catastrophic event, nor can we assure you of the future financial viability of the insurers.
Year Ended December 31, Property Type 2022 (1) 2021 (2) Facilities Leased to Tenants: (3) SNFs 73 % 69 % Multi-Service Campuses 71 % 66 % ALFs and ILFs 74 % 73 % (1) Occupancy data excludes two facilities which are in the process of being repurposed and two non-operational ALFs while we identify an operator.
Year Ended December 31, Property Type 2023 (1) 2022 (2) Facilities Leased to Tenants: (3) SNFs 75 % 73 % Multi-Service Campuses 75 % 71 % ALFs and ILFs 75 % 74 % (1) Occupancy data excludes two facilities which are in the process of being repurposed, one non-operational SNF and two non-operational ALFs.
According to the Centers for Medicare & Medicaid Services, nursing home care facilities and continuing care retirement expenditures are projected to grow from approximately $196.8 billion in 2020, which includes federal expenditures in response to the COVID-19 pandemic, to approximately $273 billion in 2030.
According to the Centers for Medicare & Medicaid Services, nursing home care facilities and continuing care retirement expenditures are projected to grow from approximately $193.6 billion in 2022, which includes federal expenditures in response to the COVID-19 pandemic, to approximately $283.3 billion in 2031.
Also in 2020, we published our Tenant Code of Conduct & Corporate Responsibility (our “Tenant ESG Program”). The Tenant ESG Program provides our eligible triple-net tenants with monetary inducements to make sustainable improvements to our properties. Incentive options include a wide variety of opportunities for tenants to upgrade everything from energy and environmental systems to water-saving landscaping and more.
The Tenant ESG Program provides our eligible triple-net tenants with monetary inducements to make sustainable improvements to our properties. Incentive options include a wide variety of opportunities for tenants to upgrade everything from energy and 14 Table of Contents environmental systems to water-saving landscaping and more.
These facilities are often marketed as an opportunity for residents to “age in place,” and tend to attract couples where the individuals may require or benefit from differing levels of care. As of December 31, 2022, our portfolio includ ed 24 fa cilities that we classify as multi-service campuses.
These facilities are often marketed as an opportunity for residents to “age in place,” and tend to attract couples where the individuals may require or benefit 7 Table of Contents from differing levels of car e. As of December 31, 2023, our portfolio included 25 facilities that we classify as multi-service campuses.
For floating rate loans, interest income has been calculated using the benchmark rate floor. (2) The number of beds/units includes operating beds at the investment date. From January 1, 2022 through December 31, 2022, we sold seven SNFs, five ALFs, one multi-service campus and one land parcel, resulting in a net loss on sale of property of $3.8 million.
For floating rate loans, interest income has been calculated using the benchmark rate floor. (2) The number of beds/units includes operating beds at the investment date. From January 1, 2023 through December 31, 2023, we sold one SNF and four ALFs for net proceeds of $18.3 million, resulting in a net gain on sale of property of $2.2 million.
(2) Occupancy data excludes two non-operational ALFs while we identify an operator. (3) Occupancy data derived solely from information provided by our tenants without independent verification by us. The leased facility financial performance data is presented one quarter in arrears.
(2) Occupancy data excludes two facilities which are in the process of being repurposed and two non-operational ALFs. (3) Occupancy data derived solely from information provided by our tenants without independent verification by us. The leased facility financial performance data is presented one quarter in arrears.
If any of our tenants or their employees are found to have violated any applicable reporting requirements, they may become subject to penalties or other sanctions up to and including loss of licensure. Healthcare Licensure and Certificate of Need Our healthcare facilities are subject to extensive federal, state and local licensure, certification and inspection laws and regulations.
If any of our tenants or their employees are found to have violated any applicable reporting requirements, they may become subject to penalties or other sanctions up to and including loss of licensure.
All of our properties, except two properties under a short-term lease, are leased to our tenants under long-term, triple-net leases, pursuant to which the operators are responsible for all facility maintenance and repair, insurance required in connection with the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.
All of our owned properties (including properties we own through joint ventures, excluding one SNF which is non-operational), are leased to our tenants under long-term, triple-net leases, pursuant to which the operators are responsible for all facility maintenance and repair, insurance required in connection with the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.
Although skilled nursing and seniors housing occupancy rates have declined during the COVID-19 pandemic, we believe that these trends in population will support an increasing demand for skilled nursing services in the long-term, which in turn will likely support an increasing demand for the services provided within our properties. 6 Table of Contents Portfolio Summary We have a geographically diverse portfolio of properties, consisting of the following types as of December 31, 2022: • Skilled Nursing Facilities.
Although seniors housing and skilled nursing occupancy rates have declined during the COVID-19 pandemic, we believe that these trends in population will support an increasing demand for services in the long-term, which in turn will likely support an increasing demand for the services provided within our properties.
As of December 31, 2022, annualized contractual rental income from the Ensign Master Leases was $62.3 million, and annualized contractual rental income from all Ensign leases was $66.2 million, representing 33% and 35% of total annualized contractual rental income, respectively.
As of December 31, 2023, annualized contractual rental income from the Ensign Master Leases was $63.8 million, and annualized contractual rental income from all Ensign leases was $67.8 million, representing 31% and 33% of total annualized contractual rental income, respectively.
As a result of the OIG report, CMS enforcement activity against SNF operators may increase, especially with regard to the reporting of potential abuse or neglect of SNF residents.
The report was issued in connection with the OIG’s ongoing review of potential abuse and neglect of Medicare beneficiaries residing in SNFs. As a result of the OIG report, CMS enforcement activity against SNF operators may increase, especially with regard to the reporting of potential abuse or neglect of SNF residents.
As of December 31, 2022, we also had other real estate related investments consisting of three real estate secured loans receivable and two mezzanine loans receivable with a carrying value of $156.4 million.
As of December 31, 2023, we also had other real estate related investments consisting of one preferred equity investment, eight real estate secured loans receivable and one mezzanine loan receivable with a carrying value of $180.4 million.
We believe our success depends on our ability to attract, develop and retain key personnel. Our core philosophies and policies in this regard include: Compensation and Benefits. The skills, experience and industry knowledge of key employees significantly benefit our performance.
Our core philosophies and policies in this regard include: Compensation and Benefits. The skills, experience and industry knowledge of key employees significantly benefit our performance.
Our properties are located in 28 different states, with concentrations in California, Texas, Louisiana, Idaho and Arizona based on rental income. The properties in any one state do not account for more th a n 27% of our total rental income as of December 31, 2022.
Our properties are located in 28 different states, with concentrations in California and Texas base d on rental i ncome. The properties in any one state do not account for more than 30% of our total rental income as of December 31, 2023.
Due to this, healthcare reform legislation would likely require at least some support from both Republican and Democratic lawmakers to become law and it is uncertain whether any healthcare reform legislation will ultimately become law. We cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on our business.
Due 17 Table of Contents to this, healthcare reform legislation would likely require at least some support from both Republican and Democratic lawmakers to become law and it is uncertain whether any healthcare reform legislation will ultimately become law.
However, there is no assurance that payments made by CMS as a result of the SNF VBP Program will be sufficient to cover a facility’s costs. If Medicare reimbursement provided to our healthcare tenants is reduced under the SNF VBP Program, that reduction may have an adverse impact on the ability of our tenants to meet their obligations to us.
If Medicare reimbursement provided to our healthcare tenants is reduced under the SNF VBP Program, that reduction may have an adverse impact on the ability of our tenants to meet their obligations to us.
The replacement tenants may include tenants with whom we have had no prior landlord-tenant relationship as well as current tenants with whom we are comfortable expanding our relationships.
In addition, we have, and may from time to time in the future, repurpose facilities for other uses, such as behavioral health. The replacement tenants may include tenants with whom we have had no prior landlord-tenant relationship as well as current tenants with whom we are comfortable expanding our relationships.
Our board of directors has authorized annual allocations of up to $500,000 to fund the Tenant ESG Program. As disclosed in our 2022 ESG Report, we tracked $260,000 in environmental improvements at our properties from August 2021 to October 2022. In 2022, we created and implemented an ESG checklist to be used to review new potential acquisitions.
Our board of directors has authorized annual allocations of up to $500,000 to fund the Tenant ESG Program. As disclosed in our 2022 ESG Report, we tracked $567,304 in environmental improvements at our properties from September 2022 to September 2023.
The obligations under the lease agreements for the four additional facilities are guaranteed by Ensign but do not contain cross-default provisions with the Ensign Master Leases. 7 Table of Contents As of December 31, 2022 , 15 of our properties were leased to subsidiaries of Priority Management Group (“PMG”) on a triple-net basis under one long-term lease (the “PMG Master Lease”), and have a total of 2,144 operational beds.
As of December 31, 2023, 15 of our properties were leased to subsidiaries of Priority Management Group (“PMG”) on a triple-net basis under one long-term lease (the “PMG Master Lease”), and have a total of 2,144 operational beds.
Financially Secure Primary Tenant. Ensign is an established provider of healthcare services with strong financial performance and accounted for 35% of our 2022 rental income, exclusive of operating expense reimbursements.
Financially Secure Primary Tenant. Ensign is an established provider of healthcare services with strong financial performance and accounted for 33% of total annualized contractual rental income as of December 31, 2023.
The new regulations promulgated by HHS, discussed above in “State and Federal ‘Fraud and Abuse’ Laws and Regulations” , include significant changes to the Stark Law regulations, including (i) new exceptions designed to enable more value-based arrangements, (ii) a modification to the existing exception for electronic health records items and services, and (iii) new exceptions for limited remuneration to physicians and for cybersecurity technology and related services. 16 Table of Contents An entity that submits a claim for reimbursement in violation of the Stark Law must refund any amounts collected and may be: (1) subject to a civil penalty of up to $15,000 for each self-referred service; and (2) excluded from participation in federal health care programs.
The new regulations promulgated by HHS, discussed above in “State and Federal ‘Fraud and Abuse’ Laws and Regulations” , include significant changes to the Stark Law regulations, including (i) new exceptions designed to enable more value-based arrangements, (ii) a modification to the existing exception for electronic health records items and services, and (iii) new exceptions for limited remuneration to physicians and for cybersecurity technology and related services.
In its report, the OIG determined that CMS has inadequate procedures in place to ensure that incidents of potential abuse or neglect of Medicare beneficiaries residing in SNFs are identified and reported. The report was issued in connection with the OIG’s ongoing review of potential abuse and neglect of Medicare beneficiaries residing in SNFs.
In August 2017, the HHS Office of Inspector General (“OIG”) issued a preliminary report regarding quality of care concerns by operators of SNFs. In its report, the OIG determined that CMS has inadequate procedures in place to ensure that incidents of potential abuse or neglect of Medicare beneficiaries residing in SNFs are identified and reported.
Increased Government Oversight of Skilled Nursing Facilities Section 1150B of the Social Security Act requires employees of federally funded long-term care facilities to immediately report any reasonable suspicion of a crime committed against a resident of that facility.
Increased Government Oversight and Transparency Section 1150B of the Social Security Act requires employees of federally funded long-term care facilities to immediately report any reasonable suspicion of a crime committed against a resident of that facility. Those reports must be submitted to at least one law enforcement agency and the applicable Centers for Medicare & Medicaid Services (“CMS”) Survey Agency.
We intend to invest primarily in SNFs and seniors housing, including AL Fs and ILFs. We are expanding our investments into behavioral health facilities and we may determine in the future to expand our investments to include medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities.
We are expanding our investments into behavioral health facilities and we may determine in the future to expand our investments to include medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities. We may utilize the RIDEA structure for future acquisitions (see “Business Strategies - Diversify Asset Portfolio” below).
During 2021, we implemented the plan’s monitoring systems and began collecting data for this pilot group of 50 properties, increasing to almost 100 properties by the end of 2022. We expect the data to help us identify the most promising opportunities for improvement in our portfolio, set informed ESG goals and measure progress over time.
We expect the data to help us identify the most promising opportunities for improvement in our portfolio, set informed ESG goals and measure progress over time.
The following table summarizes other real estate related investments by the Company from January 1, 2022 through February 9, 2023 (dollars in thousands): Investment Type Investment Annual Initial Interest Income (1) Number of Properties Number of Beds/Units (2) Senior mortgage secured loan receivable $ 75,000 $ 6,281 18 1,796 Mezzanine loan receivable 25,000 2,750 N/A N/A Mortgage secured loan receivable 22,250 1,891 5 600 Mortgage secured loan receivable 24,900 2,241 4 690 Total $ 147,150 $ 13,163 27 3,086 (1) Represents annualized acquisition-date interest income on any mortgage secured loans receivable and mezzanine loans, less subservicing fees, if applicable.
The following table summarizes other real estate related investments by the Company from January 1, 2023 through February 8, 2024 (dollars in thousands): Investment Type Investment Annual Initial Interest Income (1) Number of Properties Number of Beds/Units (2) Mortgage secured loans receivable $ 51,584 $ 4,806 9 772 Mezzanine loans receivable 52,165 7,119 N/A N/A Preferred equity 1,782 267 N/A N/A Total $ 105,531 $ 12,192 9 772 (1) Represents annualized acquisition-date interest income on any mortgage secured loans receivable and mezzanine loans, less subservicing fees, if applicable.
See “Risk Factors - General Risk Factors - Environmental compliance costs and liabilities may materially impair the value of properties owned by us.” REIT Qualification We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014.
REIT Qualification We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014.
The ability to obtain such approval and/or the approval process may impact some of our tenants’ abilities to expand or change their businesses.
Many states require certain healthcare providers to obtain a certificate of need, which requires prior approval for the construction, modification and closure of certain healthcare facilities. The ability to obtain such approval and/or the approval process may impact some of our tenants’ abilities to expand or change their businesses.
We may provide funding to the developer of a property in conjunction with entering into a sale leaseback transaction or an option to enter into a sale leaseback transaction for the property.
These opportunities may involve replacing or renovating facilities that may have become less competitive. We also identify new development opportunities that present attractive risk-adjusted returns. We may provide funding to the developer of a property in conjunction with entering into a sale leaseback transaction or an option to enter into a sale leaseback transaction for the property.
The following table summarizes the Company’s acquisitions from January 1, 2022 through February 9, 2023 (dollars in thousands): Type of Property Purchase Price (1) Initial Annual Cash Rent Number of Properties Number of Beds/Units (2) Skilled nursing $ 8,918 $ 815 1 135 Multi-service campuses 13,003 1,235 1 130 Total $ 21,921 $ 2,050 2 265 (1) Purchase price includes capitalized acquisition costs.
The following table summarizes the Company’s acquisitions from January 1, 2023 through February 8, 2024 (dollars in thousands): Type of Property Purchase Price (1) Initial Annual Cash Rent (2) Number of Properties Number of Beds/Units (3) Skilled nursing (4) $ 169,181 $ 13,764 10 1,256 Multi-service campuses 25,276 1,916 1 168 Assisted living (5) 50,354 4,517 5 327 Total $ 244,811 $ 20,197 16 1,751 (1) Purchase price includes capitalized acquisition costs.
The SNF VBP Program increases Medicare reimbursement rates for SNFs that achieve certain levels of quality performance measures developed by CMS, relative to other facilities. The value-based payments authorized by the SNF VBP Program are funded by reducing Medicare payment for all SNFs by 2% and redistributing up to 70% of those funds to high-performing SNFs.
The value-based payments authorized by the SNF VBP Program are funded by reducing Medicare payment for all SNFs by 2% and redistributing up to 70% of those funds to high-performing SNFs. However, there is no assurance that payments made by CMS as a result of the SNF VBP Program will be sufficient to cover a facility’s costs.
If our tenants’ residents do not have insurance, it could adversely impact the tenants’ ability to satisfy their obligations to us. Expansion of health insurance coverage to more citizens could have a positive financial impact on our tenants and their ability to satisfy their obligations to us.
Expansion of health insurance coverage to more citizens could have a positive financial impact on our tenants and their ability to satisfy their obligations to us. Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted, which also may impact our business.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn addition, specific anti-takeover provisions of the Maryland General Corporation Law (“MGCL”) could make it more difficult for a third party to attempt a hostile takeover, including: • “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose special appraisal rights and special stockholder voting requirements on these combinations; and • “control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares. 32 Table of Contents We believe these provisions protect our stockholders from coercive or unfair takeover tactics by requiring potential acquirors to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal.
Biggest changeIn addition, specific anti-takeover provisions of the Maryland General Corporation Law (“MGCL”) could make it more difficult for a third party to attempt a hostile takeover, including: • “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose special appraisal rights and special stockholder voting requirements on these combinations; and • “control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
Risks to our business that have been associated with the COVID-19 pandemic, and may be associated with future COVID-19 outbreaks or other public health crises, include: • one or more of our tenants or borrowers could experience deteriorating financial conditions and be unable or unwilling to pay rent on time and in full (which has, and could continue to result from, among other reasons (i) increased operating costs and staffing requirements related to compliance with Centers for Disease Control and Prevention (“CDC”) protocols, (ii) decreased occupancy rates, (iii) increased scrutiny by regulators, (iv) potential repayments of relief funds received by tenants, (v) nursing or other staffing shortages; or (vi) decisions by elderly individuals to avoid or delay entrance into assisted living and other long-term care facilities); • the possibility we may have to restructure tenants’ obligations and may not be able to do so on terms that are favorable to us; • the potential need to recognize asset impairment charges or credit losses on our loans receivable if we determine that the full amount of our investments are not recoverable; 21 Table of Contents • increased costs or delays that we have incurred, and may continue to incur, if we need to reposition or transition any of our currently-leased properties to another tenant or operator, which have adversely impacted, and may continue to adversely impact, our revenues and results of operations ; • risks related to lawsuits and regulatory enforcement actions related to pandemic outbreaks involving us, our tenants, operators or borrowers, including increases in the costs of business, negative publicity and/or further decreases in occupancy and/or profitability at our facilities; • the expiration, or lack of enforcement, of liability immunity for health care providers in relation to a qualified pandemic under the Public Readiness and Emergency Preparedness Act (the “PREP Act”); • complete or partial closures of, or other operational issues at, one or more of our properties resulting from government actions or directives; • limitations on our access to capital and other sources of funding, which could adversely impact our ability to make new property investments; • our ability to continue to make cash distributions to our stockholders commensurate with historical levels; and • our ability to repay outstanding debt or maintain compliance with covenants under our Second Amended Credit Facility (as defined below) and the indenture governing our Notes.
Risks to our business that have been associated with the COVID-19 pandemic, and may be associated with future COVID-19 outbreaks or other public health crises, include: • one or more of our tenants or borrowers could experience deteriorating financial conditions and be unable or unwilling to pay rent on time and in full (which has, and could continue to result from, among other reasons (i) increased operating costs and staffing requirements related to compliance with Centers for Disease Control and Prevention (“CDC”) protocols, (ii) decreased occupancy rates, (iii) increased scrutiny by regulators, (iv) potential repayments of relief funds received by tenants, (v) nursing or other staffing shortages; or (vi) decisions by elderly individuals to avoid or delay entrance into assisted living and other long-term care facilities); • the possibility we may have to restructure tenants’ obligations and may not be able to do so on terms that are favorable to us; • the potential need to recognize asset impairment charges or credit losses on our loans receivable if we determine that the full amount of our investments are not recoverable; • increased costs or delays that we have incurred, and may continue to incur, if we need to reposition or transition any of our currently-leased properties to another tenant or operator, which have adversely impacted, and may in the future adversely impact, our revenues and results of operations ; • risks related to lawsuits and regulatory enforcement actions related to pandemic outbreaks involving us, our tenants, operators or borrowers, including increases in the costs of business, negative publicity and/or further decreases in occupancy and/or profitability at our facilities; • the expiration, or lack of enforcement, of certain liability immunity for health care providers in relation to a qualified pandemic under the Public Readiness and Emergency Preparedness Act (the “PREP Act”); • complete or partial closures of, or other operational issues at, one or more of our properties resulting from government actions or directives; • limitations on our access to capital and other sources of funding, which could adversely impact our ability to make new property investments; • our ability to continue to make cash distributions to our stockholders commensurate with historical levels; and • our ability to repay outstanding debt or maintain compliance with covenants under our Second Amended Credit Facility (as defined below) and the indenture governing our Notes.
As currently in effect, our charter and bylaws, among other things, (1) contain transfer and ownership restrictions on the percentage by number and value of outstanding shares of our stock that may be owned or acquired by any stockholder; (2) prohibit stockholders action by non-unanimous written consent; (3) permit the board of directors, without further action of the stockholders, to amend the charter to increase or decrease the aggregate number of authorized shares or the number of shares of any class or series that may be issued; (4) permit the board of directors to classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares; (5) establish certain advance notice procedures for stockholder proposals, and provide procedures for the nomination of candidates for our board of directors; (6) provide that special meetings of stockholders may only be called by the Company or upon written request of 25% of all the votes entitled to be cast at such meeting; (7) provide that a director may only be removed by stockholders for cause and upon the vote of two-thirds of the outstanding shares of common stock; and (8) require supermajority approval to amend or repeal certain charter provisions.
As currently in effect, our charter and bylaws, among other things, (1) contain transfer and ownership restrictions on the percentage by number and value of outstanding shares of our stock that may be owned or acquired by any stockholder; (2) prohibit stockholders action by non-unanimous written consent; (3) permit the board of directors, without further action of the stockholders, to amend the charter to increase or decrease the aggregate number of authorized shares or the number of shares of any class or series that may be issued; (4) permit the board of directors to classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares; (5) establish certain 33 Table of Contents advance notice procedures for stockholder proposals, and provide procedures for the nomination of candidates for our board of directors; (6) provide that special meetings of stockholders may only be called by the Company or upon written request of 25% of all the votes entitled to be cast at such meeting; (7) provide that a director may only be removed by stockholders for cause and upon the vote of two-thirds of the outstanding shares of common stock; and (8) require supermajority approval to amend or repeal certain charter provisions.
High levels of indebtedness could have one or more of the following adverse consequences, among others: require us to dedicate a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, thereby reducing our cash flow available to fund working capital, dividends, capital expenditures and acquisitions and other general corporate purposes; require us to maintain certain debt coverage and other financial ratios at specified levels, thereby reducing our financial flexibility; make it more difficult for us to satisfy our financial obligations, including the Notes and borrowings under the Second Amended Credit Facility (as defined below); increase our vulnerability to general adverse economic and industry conditions or a downturn in our business; limit, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds on favorable terms or at all to expand our business or ease liquidity constraints; limit our ability to refinance all or a portion of our indebtedness on or before maturity on the same or more favorable terms or at all; and require us to dispose of one or more of our properties at disadvantageous prices in order to service our indebtedness or to raise funds to pay such indebtedness at maturity.
High levels of indebtedness could have one or more of the following adverse consequences, among others: require us to dedicate a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, thereby reducing our cash flow available to fund working capital, dividends, capital expenditures and acquisitions and other general corporate purposes; require us to maintain certain debt coverage and other financial ratios at specified levels, thereby reducing our financial flexibility; make it more difficult for us to satisfy our financial obligations, including the Notes and borrowings under the Second Amended Credit Facility (as defined below); increase our vulnerability to general adverse economic and 31 Table of Contents industry conditions or a downturn in our business; limit, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds on favorable terms or at all to expand our business or ease liquidity constraints; limit our ability to refinance all or a portion of our indebtedness on or before maturity on the same or more favorable terms or at all; and require us to dispose of one or more of our properties at disadvantageous prices in order to service our indebtedness or to raise funds to pay such indebtedness at maturity.
While we have taken steps to protect the security of our information systems, we have, from time to time, experienced cyber incidents of varying degrees, although none of these cyber incidents have had a material adverse impact on our business, financial condition or results of operations.
While we have taken steps to protect the security of our information systems, we have, from time to time, experienced cybersecurity incidents of varying degrees, although none of these cyber incidents have had a material adverse impact on our business, financial condition or results of operations.
Such events could harm our tenants’ patients and employees, severely damage or destroy one or more of our facilities, harm our tenants’ business, reputation and financial performance, or otherwise cause our tenants’ businesses to suffer in ways that we currently cannot predict.
Such events could harm our tenants’ patients and employees, severely damage or destroy one or more of our facilities, harm our tenants’ business, reputation, financial condition and financial performance, or otherwise cause our tenants’ businesses to suffer in ways that we currently cannot predict.
Global credit and financial markets have experienced extreme volatility and disruptions over the past several months, including declines in consumer confidence, concerns about declines in economic growth, increases in the rate of inflation, increases in borrowing rates and changes in liquidity and credit availability, and uncertainty about economic stability, including most recently in connection with actions undertaken by the U.S.
Global credit and financial markets have experienced extreme volatility and disruptions over the past several years, including declines in consumer confidence, concerns about declines in economic growth, increases in the rate of inflation, increases in borrowing rates and changes in liquidity and credit availability, and uncertainty about economic stability, including most recently in connection with actions undertaken by the U.S.
ITEM 1A. Risk Factors Risks Related to Our Business We are dependent on the healthcare operators that lease our properties to successfully operate their businesses and make contractual lease payments, and an event that materially and adversely affects their business, financial position or results of operations could materially and adversely affect our business, financial position or results of operations.
Risk Factors Risks Related to Our Business and Operations We are dependent on the healthcare operators that lease our properties to successfully operate their businesses and make contractual lease payments, and an event that materially and adversely affects their business, financial position or results of operations could materially and adversely affect our business, financial position or results of operations.
We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, in order for us to qualify to be taxed as a REIT (assuming that certain other requirements are also satisfied) so that U.S. federal corporate income tax does not apply to earnings that we distribute.
We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, in order for us to qualify to be taxed as a REIT (assuming that certain other requirements are also satisfied) so that U.S. federal corporate income tax does not apply to earnings that we 30 Table of Contents distribute.
Prior to the transfer of the operations of such healthcare properties to successor operators, the new operator generally must become licensed under state law and, in certain states, receive change of ownership approvals under certificate of need laws (which provide for a certification that the state has made a determination that a need exists for the beds located on the property) and, if applicable, file for a Medicare and Medicaid change of ownership.
Prior to the transfer of the operations of such healthcare properties to successor operators, the new operator generally must become licensed under state law and, in certain states, receive change of ownership approvals under certificate of need laws (which provide for a 25 Table of Contents certification that the state has made a determination that a need exists for the beds located on the property) and, if applicable, file for a Medicare and Medicaid change of ownership.
Income from certain hedging transactions that we may enter into to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets does not constitute “gross income” for purposes of the 75% or 95% gross income 29 Table of Contents tests that apply to REITs, provided that certain identification requirements are met.
Income from certain hedging transactions that we may enter into to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets does not constitute “gross income” for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met.
We also believe that additional resources may be dedicated to regulatory enforcement, which could increase our tenants’ costs of doing business and negatively impact their ability to pay their rent obligations to us.
We believe that additional resources may be dedicated to regulatory enforcement, which could further increase our tenants’ costs of doing business and negatively impact their ability to pay their rent obligations to us.
Further, our Second Amended Credit Agreement and the indenture governing the Notes permit us to incur substantial additional debt, including secured debt, subject to our compliance with certain financial covenants set forth in the Second Amended Credit Agreement and the indenture governing the Notes.
Further, our Second Amended Credit Agreement and the indenture governing the Notes permit us to incur substantial additional debt, including secured debt, subject to our compliance with certain financial covenants set forth in the Second Amended Credit Agreement and our ability to satisfy certain covenants in the indenture governing the Notes.
See “Government Regulation, Licensing and Enforcement,” in Item 1 of this Annual Report on Form 10-K for more information. 26 Table of Contents Many states have adopted laws similar to the False Claims Act, some of which apply to claims submitted to private and commercial payors, not just governmental payors.
See “Government Regulation, Licensing and Enforcement,” in Item 1 of this Annual Report on Form 10-K for more information. Many states have adopted laws similar to the False Claims Act, some of which apply to claims submitted to private and commercial payors, not just governmental payors.
Failure to comply with these requirements could have a materially adverse effect on us and the ability of our tenants to meet their obligations to us. Furthermore, the adoption of new privacy, security and data breach notification laws at the federal and state level could require us or our tenants to incur significant compliance costs.
Failure by us or our tenants to comply with these requirements could have a material adverse effect on us and the ability of our tenants to meet their obligations to us. Furthermore, the adoption of new privacy, security and data breach notification laws at the federal and state level could require us or our tenants to incur significant compliance costs.
We cannot be certain that our tenants will be able to achieve occupancy and rate levels, or manage their expenses, in a way that 24 Table of Contents will enable them to meet all of their obligations to us. Further, many competing companies may have resources and attributes that are superior to those of our tenants.
We cannot be certain that our tenants will be able to achieve occupancy and rate levels, or manage their expenses, in a way that will enable them to meet all of their obligations to us. Further, many competing companies may have resources and attributes that are superior to those of our tenants.
CareTrust REIT’s charter provides for restrictions on ownership and transfer of CareTrust REIT’s shares of stock, including restrictions on such ownership or transfer that would cause the rents received or accrued by us from our tenants to be treated as non-qualifying rent for purposes of the REIT gross income 28 Table of Contents requirements.
CareTrust REIT’s charter provides for restrictions on ownership and transfer of CareTrust REIT’s shares of stock, including restrictions on such ownership or transfer that would cause the rents received or accrued by us from our tenants to be treated as non-qualifying rent for purposes of the REIT gross income requirements.
As a result of the concentration of our properties in California, Texas, Louisiana, Idaho and Arizona as described in “Portfolio Summary” under Item 1 of this Annual Report on Form 10-K, the conditions of local economies and real estate markets, including increases in real estate taxes, changes in governmental rules, regulations and reimbursement rates or criteria, changes in demographics, state funding, acts of nature and other factors that may result in a decrease in demand and/or reimbursement for skilled nursing services in these states could have a disproportionately adverse effect on our tenants’ revenue, costs and results of operations, which may affect their ability to meet their obligations to us.
As a result of the concentration of our properties in California and Texas as described in “Portfolio Summary” under Item 1 of this Annual Report on Form 10-K, the conditions of local economies and real estate markets, including increases in real estate taxes, changes in governmental rules, regulations and reimbursement rates or criteria, changes in demographics, state funding, acts of nature, the impacts of climate change and other factors that may result in a decrease in demand and/or reimbursement for skilled nursing services in these states could have a disproportionately adverse effect on our tenants’ revenue, costs and results of operations, which may affect their ability to meet their obligations to us.
Although we generally require our tenants, as operators of our healthcare properties, to indemnify us 27 Table of Contents for environmental liabilities they cause, such liabilities could exceed the financial ability of the tenant to indemnify us or the value of the contaminated property. We may also experience environmental liabilities arising from conditions not known to us.
Although we generally require our tenants, as operators of our healthcare properties, to indemnify us for environmental liabilities they cause, such liabilities could exceed the financial ability of the tenant to indemnify us or the value of the contaminated property. We may also experience environmental liabilities arising from conditions not known to us.
In addition, approvals of local authorities for any required modifications and/or renovations may be necessary, resulting in delays in transitioning a facility to a new tenant. These expenditures or renovations and delays could materially and adversely affect our business, financial condition or results of operations.
In addition, approvals of local authorities for any required modifications 22 Table of Contents and/or renovations may be necessary, resulting in delays in transitioning a facility to a new tenant. These expenditures or renovations and delays could materially and adversely affect our business, financial condition or results of operations.
Factors affecting our credit rating include, among others, our financial performance, success in raising sufficient equity capital, adverse changes in our debt and 31 Table of Contents fixed charge coverage ratios, our capital structure, level of indebtedness and future changes in the regulatory framework applicable to our operators and industry.
Factors affecting our credit rating include, among others, our financial performance, success in raising sufficient equity capital, adverse changes in our debt and fixed charge coverage ratios, our capital structure, level of indebtedness and future changes in the regulatory framework applicable to our operators and industry.
Increased interest rates have increased and may continue to increase our interest costs for any new debt and our obligations under our Revolving Facility and Term Loan, which could make acquisition financings more costly or lower our current period earnings.
Interest rates in recent years have increased, and may continue to increase, our interest costs for any new debt and our obligations under our Revolving Facility and Term Loan, which could make acquisition financings more costly or lower our current period earnings.
Our ability to meet these requirements may be affected by events beyond our control and, if we fail to do so, we may be unable to obtain waivers from the lenders or amend the covenants. Increases in interest rates could increase our existing and future debt borrowing costs and adversely affect our stock price.
Our ability to meet these requirements may be affected by events beyond our control and, if we fail to do so, we may be unable to obtain waivers from the lenders or amend the covenants. 32 Table of Contents Increases in interest rates could increase our existing and future debt borrowing costs and adversely affect our stock price.
However, under certain circumstances, one or more of our subsidiaries 30 Table of Contents may be released from, or may not be required to provide, a guarantee of the Notes, and in such circumstances, will not be responsible for any obligations with respect to the Notes.
However, under certain circumstances, one or more of our subsidiaries may be released from, or may not be required to provide, a guarantee of the Notes, and in such circumstances, will not be responsible for any obligations with respect to the Notes.
If we fail to qualify to be taxed as a REIT in any year, we would be subject to U.S. federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates, and dividends paid to our stockholders would not be deductible by us in computing our taxable income.
If we fail to qualify to be taxed as a REIT in any year, we would be subject to U.S. federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates, and dividends paid to our stockholders 29 Table of Contents would not be deductible by us in computing our taxable income.
However, for taxable years beginning after December 31, 2017 and before January 1, 2026, under the recently enacted Tax Cuts and Jobs Act, noncorporate taxpayers may deduct up to 20% of certain qualified business income, including "qualified REIT dividends" (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on such income.
However, for taxable years beginning before January 1, 2026, under the Tax Cuts and Jobs Act, noncorporate taxpayers may deduct up to 20% of certain qualified business income, including "qualified REIT dividends" (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on such income.
Our joint ventures may involve property development, which presents additional risks that could render a development project less profitable or not profitable at all and, under certain circumstances, may prevent completion of development activities once undertaken.
In the future, our joint ventures may also involve property development, which presents additional risks that could render a development project less profitable or not profitable at all and, under certain circumstances, may prevent completion of development activities once undertaken.
Operating expenses such as food, utilities, taxes, insurance and rent or debt service continue to increase. In addition, our tenants face an increasingly competitive labor market for skilled management personnel and nurses together with Medicaid reimbursement in some states that does not cover the full cost of caring for residents.
Operating expenses such as food, utilities, taxes, insurance, labor costs (including due to minimum wage laws) and rent or debt service continue to increase. In addition, our tenants face an increasingly competitive labor market for skilled management personnel and nurses together with Medicaid reimbursement in some states that does not cover the full cost of caring for residents.
These factors include, but are not limited to, the duration and spread of any outbreak, the timing, distribution and efficacy of vaccines and other treatments, Unites States and foreign government actions to respond to the outbreak, and how quickly and to what extent normal operation conditions can resume.
These factors include, but are not limited to, the duration and spread of any outbreak, the timing, distribution and efficacy of vaccines and other treatments, Unites States and foreign government actions to respond to the outbreak, the extent of disruption to our business and the business of our tenants and borrowers, and how quickly and to what extent normal operation conditions can resume.
Certain of our existing debt obligations require interest and related payments to vary with the movement of certain indices, and we may incur additional indebtedness in connection with new credit facilities or financing of acquisitions or development activities.
Certain of our existing debt obligations require interest and related payments to vary with the movement of certain indices, such as the Secured Overnight Financing Rate, and we may incur additional indebtedness in connection with new credit facilities or financing of acquisitions or development activities.
As of December 31, 2022, we had approximately $725.0 million of indebtedness, consisting of $400.0 million representing our 3.875% Senior Notes due 2028 (the “Notes”), $200.0 million under our unsecured term loan credit facility (the “Term Loan”) and $125.0 million in borrowings outstanding under our unsecured revolving credit facility (the “Revolving Facility”).
As of December 31, 2023, we had approximately $600.0 million of indebtedness, consisting of $400.0 million representing our 3.875% Senior Notes due 2028 (the “Notes”), $200.0 million under our unsecured term loan credit facility (the “Term Loan”) and no borrowings outstanding under our unsecured revolving credit facility (the “Revolving Facility”).
In addition, to the extent that significant changes in the climate occur in areas where our properties are located, we may experience extreme weather and changes in precipitation and temperature, all of which may result in physical damage to or a decrease in demand for properties located in these areas or affected by these conditions.
In addition, to the extent that significant changes in the climate occur in areas where our properties are located, we may experience extreme weather, including higher temperatures, increases in precipitation, fire, drought and flood, all of which may result in physical damage to or a decrease in demand for properties located in these areas or affected by these conditions.
If a court were to find the exclusive forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we might incur additional costs associated with resolving such action in other jurisdictions.
If a court were to find the exclusive forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we might incur additional costs associated with resolving such action in other jurisdictions. We cannot assure you of our ability to pay dividends in the future.
Failure to maintain proper function, security and availability of our information systems and the data maintained in those systems could interrupt 33 Table of Contents our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.
Failure to maintain proper function, security and availability of our information systems or the loss or misuse of the data maintained in those systems could interrupt our operations, damage our reputation, subject us to significant costs to respond and implement remediation measures and liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.
While we cannot make any assessment as to the ultimate timing or the effect that any future legislative reforms may have on our tenants’ costs of doing business and on the amount of reimbursement by government and other third-party payors, potential reductions in Medicaid and Medicare reimbursement, or in non-governmental third-party payor reimbursement, to our tenants could reduce the revenues of our tenants and their ability to meet their obligations to us. 22 Table of Contents Bankruptcy, insolvency or financial deterioration of our tenants could delay or prevent collection of unpaid rents or require us to find new tenants.
While we cannot make any assessment as to the ultimate timing or the effect that any future legislative reforms may have on our tenants’ costs of doing business and on the amount of reimbursement by government and other third-party payors, potential reductions in Medicaid and Medicare reimbursement, or in non-governmental third-party payor reimbursement, to our tenants could reduce the revenues of our tenants and their ability to meet their obligations to us.
Either of these actions could negatively affect our business and financial condition as well as the market price of our common stock.
Either of these actions could negatively affect our business and financial condition as well as the market price of our common stock. ITEM 1B. Unresolved Staff Comments None.
We receive substantially all of our income as rental payments under leases of our properties. We have no control over the success or failure of our tenants’ businesses and, at any time, any of our tenants may experience a downturn in its business that may weaken its financial condition.
We have no control over the success or failure of our tenants’ businesses and, at any time, any of our tenants may experience a downturn in its business that may weaken its financial condition.
Our tenants are subject to extensive federal, state and local laws and regulations affecting the healthcare industry that include those relating to, among other things, licensure, conduct of operations, ownership of facilities, addition of facilities and equipment, allowable costs, services, prices for services, qualified beneficiaries, quality of care, patient rights and insurance, fraudulent or abusive behavior, and financial and other arrangements that may be entered into by healthcare providers.
We cannot predict whether any future legislative proposals will be adopted or, if adopted, the impact these proposals would have on our tenants or our business. 27 Table of Contents Our tenants are subject to extensive federal, state and local laws and regulations affecting the healthcare industry that include those relating to, among other things, licensure, conduct of operations, ownership of facilities, addition of facilities and equipment, allowable costs, services, prices for services, qualified beneficiaries, quality of care, patient rights and insurance, fraudulent or abusive behavior, labor and employment issues and financial and other arrangements that may be entered into by healthcare providers.
Because all of our properties are operated by our tenants pursuant to triple-net master leases, we are unable to directly implement strategic business decisions regarding the daily operation and marketing of these properties.
Because all of the properties we own, except for one SNF which is non-operational, are operated by our tenants pursuant to triple-net master leases (including properties we own through joint ventures), we are unable to directly implement strategic business decisions regarding the daily operation and marketing of these properties.
As of December 31, 2022, properties leased to Ensign represente d $66.2 million, or 35%, of total annualized contractual rental income, and properties leased to Pennant under th e Pennant Master Lease for which Ensign provides a guaranty (the “Pennant Guaranty”) represented $7.1 million, or 4%, of total annualized contractual rental income .
As of December 31, 2023, properties leased to Ensign represented $67.8 million, or 33%, of total annualized contractual rental income, and properties leased to Pennant under the Pennant Master Lease for which Ensign provides a guaranty (the “Pennant Guaranty”) represented $7.3 million, or 4%, of total annualized contractual rental income.
A significant downturn in the economic activity may cause a reduction in spending on healthcare matters and our tenants may need to seek to lower their costs by renegotiating leases. Such reductions may disproportionately affect our revenue.
Our business could also be adversely impacted by volatility caused by geopolitical events, such as the conflicts in Ukraine and Gaza. A significant downturn in economic activity may cause a reduction in spending on healthcare matters and our tenants may need to seek to lower their costs by renegotiating leases. Such reductions may disproportionately affect our revenue.
Tenants that fail to comply with federal, state and local licensure, certification and inspection laws and regulations may cease to operate our healthcare facilities or be unable to meet their financial and other contractual obligations to us.
In addition, the cost and operational consequences of responding to data breaches and implementing remediation measures could be significant. Tenants that fail to comply with federal, state and local licensure, certification and inspection laws and regulations may cease to operate our healthcare facilities or be unable to meet their financial and other contractual obligations to us.
As a result, if debt or equity financing is not available on acceptable terms, further acquisitions might be limited. Increased competition has resulted and may further result in lower net revenues for some of our tenants and may affect their ability to meet their financial and other contractual obligations to us. The healthcare industry is highly competitive.
Increased competition has resulted and may further result in lower net revenues for some of our tenants and may affect their ability to meet their financial and other contractual obligations to us. The healthcare industry is highly competitive.
Our tenants depend on reimbursement from government and other third-party payors and if reimbursement rates from such payors are reduced by future legislative reform, it could cause our tenants’ revenues to decline and could affect their ability to meet their obligations to us.
Furthermore, our stock price may decline due in part to the volatility of the stock market and the general economic downturn. 21 Table of Contents Our tenants depend on reimbursement from government and other third-party payors and if reimbursement rates from such payors are reduced by future legislative reform, it could cause our tenants’ revenues to decline and could affect their ability to meet their obligations to us.
Should the impact of climate change be material in nature, including destruction of our properties, or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected.
Should the impact of climate change be material in nature, including destruction or degradation of our properties, or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected. Increased costs to our tenants to maintain the properties and take appropriate resiliency measures could harm the financial condition and financial performance of our tenants.
Other public health crises, including any future epidemics or pandemic, could result in similar adverse impacts on our business, results of operations, cash flows and financial condition.
The COVID-19 pandemic adversely 23 Table of Contents impacted nearly all aspects of our business. Public health crises, including significant COVID-19 outbreaks and any future epidemics or pandemic, could result in similar adverse impacts on our business, results of operations, cash flows and financial condition.
Violations of such laws by an operator of a health care property could result in loss of accreditation, denial of reimbursement, imposition of fines, suspension or decertification from government healthcare programs, civil liability, and in certain limited instances, criminal penalties, loss of license or closure of the property and/or the incurrence of considerable costs arising from an investigation or regulatory action.
Violations of such laws by an operator of a health care property could result in loss of accreditation, denial of reimbursement, imposition of fines, suspension or decertification from government healthcare programs, civil liability, and in certain limited instances, criminal penalties, loss of license or closure of the property and/or the incurrence of considerable costs arising from an investigation or regulatory action. 28 Table of Contents If we or our tenants fail to adhere to applicable privacy and data security laws, this could have a material adverse effect on us or on our tenants’ ability to meet their obligations to us .
Further, these acts of nature may cause disruption to our tenants, their employees and our facilities, which could have an adverse impact on our tenants’ patients and businesses.
These types of natural disasters will likely increase in number, scope and intensity as a result of climate change. Further, these acts of nature may cause disruption to our tenants, their employees and our facilities, which could have an adverse impact on our tenants’ patients and businesses.
Our general business strategy may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. Our business could also be impacted by volatility caused by geopolitical events, such as the conflict in Ukraine.
Our general business strategy may be adversely affected by any such economic downturn, volatile business environment or unpredictable and unstable market conditions.
Furthermore, while we are required to pay dividends in order to maintain our REIT status (as described under “Risks Related to Our Status as a REIT - REIT distribution requirements could adversely affect our ability to execute our business plan”), we may elect not to maintain our REIT status and discontinue paying dividends.
There is no assurance that our operating results will allow for specified levels of cash dividends or year-to-year increases in the future. 34 Table of Contents Furthermore, while we are required to pay dividends in order to maintain our REIT status (as described under “Risks Related to Our Status as a REIT - REIT distribution requirements could adversely affect our ability to execute our business plan”), we may elect not to maintain our REIT status and discontinue paying dividends.
We cannot predict whether any future legislative proposals will be adopted or, if adopted, the impact these proposals would have on our tenants or our business. Tenants that fail to comply with applicable requirements of governmental reimbursement programs, such as Medicare or Medicaid, may cease to operate or be unable to meet their financial and other contractual obligations to us.
Tenants that fail to comply with applicable requirements of governmental reimbursement programs, such as Medicare or Medicaid, may cease to operate or be unable to meet their financial and other contractual obligations to us.
We rely on information technology networks and systems, including the internet, to process, transmit and store electronic information, and to manage or support our business processes, including financial transactions and records, and maintaining personal information and tenant and lease data. We purchase some of our information technology from vendors, on whom our systems depend.
We rely on information technology networks, enterprise and other cloud-based applications and other information systems to process, transmit and store electronic information, and to manage and support our business processes, including financial transactions and records, and to maintain personal information and tenant and lease data.
We and the healthcare operators leasing our properties depend on the healthcare industry and are susceptible to risks associated with healthcare reform. Legislative proposals are introduced each year that would introduce major changes in the healthcare system, both nationally and at the state level.
Legislative proposals are introduced each year that would introduce major changes in the healthcare system, both nationally and at the state level.
We have and may in the future incur impairment charges, which could negatively impact our results of operations. At each reporting period, we evaluate our real estate investments and other assets for impairment indicators whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
At each reporting period, we evaluate our real estate investments and other assets for impairment indicators whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The existence of impairment indicators is based on factors such as market conditions, operating performance and legal structure.
We are subject to risks associated with public health crises and government measures to prevent the spread of infectious diseases, including the global health concerns related to the COVID-19 pandemic. The COVID-19 pandemic has adversely impacted and is likely to further adversely impact nearly all aspects of our business.
We are subject to risks associated with public health crises, including significant COVID-19 outbreaks as well as other pandemics or epidemics. We are subject to risks associated with public health crises and government measures to prevent the spread of infectious diseases, including the global health concerns related to the COVID-19 pandemic.
In addition, if the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Furthermore, our stock price may decline due in part to the volatility of the stock market and the general economic downturn.
In addition, if the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive.
Any of these results could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to stockholders. The geographic concentration of some of our facilities could leave us vulnerable to an economic downturn, regulatory changes or acts of nature in those areas.
The geographic concentration of some of our facilities could leave us vulnerable to an economic downturn, regulatory changes or acts of nature in those areas.
The existence of impairment indicators is based on factors such as market conditions, operator performance and legal structure. If we determine that an impairment has occurred, we are required to adjust the net carrying value of the asset, which could have a material adverse effect on our results of operations in the period in which the write-off occurs.
If we determine that an impairment has occurred, we are required to adjust the net carrying value of the asset, which could have a material adverse effect on our results of operations in the period in which the write-off occurs. For example, in the twelve months ended December 31, 2023, we recorded impairment charges of approxim ately $36.3 million.
In addition, our technology infrastructure and information systems are vulnerable to damage or interruption from natural disasters, power loss and telecommunications failures.
In addition, any failure on the part of our outsourced cybersecurity team to effectively monitor and protect our information systems could make us more vulnerable to cybersecurity incidents. Our technology infrastructure and information systems are also vulnerable to damage or interruption from natural disasters, power loss and telecommunications failures.
There can be no assurance that our tenants will have sufficient assets, income and financing to enable them to satisfy their contractual lease payment or indemnification obligations. Ensign leases or provides a guaranty f or a significant portion of our properties.
There can be no assurance that our tenants will have sufficient assets, income and financing to enable them to satisfy their contractual lease payment or indemnification obligations and our tenants have in the past, and may in the future, fail to make rent payments when due, or our tenants may declare bankruptcy.
Federal Reserve Board to address inflation, the military conflict in Ukraine, the continuing effects of the COVID-19 pandemic and supply chain disruptions. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur.
Federal Reserve Board to address inflation, the military conflicts in Ukraine and Gaza, the continuing effects of the COVID-19 pandemic and supply chain disruptions.
Our facilities located in Texas and Louisiana are especially susceptible to natural disasters such as hurricanes, tornadoes and flooding, and our facilities located in California are particularly susceptible to natural disasters such as fires, earthquakes 23 Table of Contents and mudslides. These types of natural disasters will likely increase in number, scope and intensity as a result of climate change.
Our facilities located in Texas and certain other states in the southeast are especially susceptible to natural disasters such as hurricanes, tornadoes and flooding and our facilities located in California are particularly susceptible to natural disasters such as fires, earthquakes and mudslides.
In addition, there is no assurance that we will fully realize the potential benefits of any past or future acquisition or strategic transaction. Additionally, from time to time, we may invest in preferred equity interests in joint ventures. Our use of joint ventures may be subject to risks that may not be present with other ownership methods.
In addition, there is no assurance that we will fully realize the potential benefits of any past or future acquisition or strategic transaction.
Unstable market and economic conditions may have serious adverse consequences on our business, results of operations and financial condition.
In such event, we may be unable to locate a suitable lessee at similar rental rates or at all, which would reduce our rental income. Unstable market and economic conditions may have serious adverse consequences on our business, results of operations and financial condition.
The risk of security incidents has generally increased as the number, intensity and sophistication of attacks and intrusions from around the world have increased. In some cases, it may be difficult to anticipate or immediately detect such incidents and the damage they cause.
The risk 26 Table of Contents of cybersecurity incidents has generally increased as the number, intensity and sophistication of attacks and intrusions from around the world have increased.
In addition, if economic conditions result in significant increases in the Consumer Price Index, but the escalations under our leases are capped, our growth and profitability also may be limited. 25 Table of Contents Risks Related to Laws and Regulations Healthcare reform legislation impacts cannot accurately be predicted and could adversely affect our results of operations.
In addition, if economic conditions resul t in significant increases in the Consumer Price Index, but the escalations under our leases are capped, our growth and profitability also may be limited. Cybersecurity incidents or other damage to the information systems and technology of us or our tenants could harm our business.
Removed
In such event, we may be unable to locate a suitable lessee at similar rental rates or at all, which would reduce our rental income. We are subject to risks associated with public health crises, including the COVID-19 pandemic and other pandemics or epidemics.
Added
Ensign leases or provides a guaranty for a significant portion of our properties.
Removed
Additional stimulus funding for state and local governments may have a positive impact on our tenants because it may alleviate some pressures on state and local governments to reduce overall Medicaid expenditures.
Added
While consumer sentiment is on the rise, concerns about declines in economic growth have faded and inflation has cooled there can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur.
Removed
If we or our tenants fail to adhere to applicable privacy and data security laws, or experience a data security incident or breach, this could have a material adverse effect on us or on our tenants’ ability to meet their obligations to us .
Added
In addition, increased costs due to inflationary conditions may have material adverse effects on the operating expenses of our tenants and their ability to meet their obligations to us and may also increase the costs for us to make capital improvements to our facilities.
Removed
In addition, the cost and operational consequences of responding to cybersecurity incidents and breaches and implementing remediation measures could be significant.
Added
Additionally, in July 2023, Medicare excluded marriage and family therapist services and mental health counselor services from SNF consolidated billing. While these services may still be billed by the clinicians providing the services, such services may not be covered under the SNFs Medicare Part A payment.
Removed
While we and our tenants maintain various security controls, there is a risk of data security incidents or breaches resulting from unintentional or deliberate acts by third parties or insiders attempting to obtain unauthorized access to information, destroy or manipulate data, or disrupt or sabotage information systems.
Added
Bankruptcy, insolvency or financial deterioration of our tenants could delay or prevent collection of unpaid rents or require us to find new tenants. We receive substantially all of our income as rental payments under leases of properties we own directly or through our joint ventures.
Removed
The trend toward increased remote work and rapid implementation of telehealth within the health care industry in response to the COVID-19 pandemic may have created new or increased cyber risks. Cyber incidents range from individual attempts to gain unauthorized access to our IT systems to sophisticated attacks by hacking groups and nation-state actors.
Added
Any of these results could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to stockholders. We have and may in the future incur impairment charges, which could negatively impact our results of operations.
Removed
Information technology systems are a vital part of the business of our Company and our tenants, and a security incident or breach could result in a material loss of business, business interruption, loss of patient or other critical data, regulatory enforcement, substantial legal liability and reputational harm.
Added
Based on our overall portfolio physical climate risk assessment, we found that the highest climate risk for our portfolio was heat caused by higher temperatures, which may result in higher operating and energy costs for our tenants and higher capital costs for resiliency measures for us and our tenants to maintain the property and its value.

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Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeThe following table displays the expiration of the annualized contractual cash rental income under our lease agreements as of December 31, 2022 by year and total investment (dollars in thousands) and, in each case, without giving effect to any renewal or purchase options: Lease Maturity Percent of Total Percent of Year Investment (1) Investment Rent (1) Total Rent 2024 $ 15,800 0.9 % $ 1,537 0.8 % 2027 46,801 2.6 % 5,342 2.8 % 2029 114,116 6.3 % 9,051 4.8 % 2030 119,868 6.6 % 11,353 6.0 % 2031 527,678 29.0 % 54,672 29.1 % 2032 179,936 9.9 % 18,027 9.6 % 2033 125,216 6.9 % 19,847 10.6 % 2034 438,011 24.1 % 43,925 23.4 % 2036 146,487 8.1 % 13,862 7.4 % 2038 103,001 5.6 % 10,401 5.5 % Total $ 1,816,914 100.0 % $ 188,017 100.0 % (1) Amounts exclude properties classified as held for sale as of December 31, 2022.
Biggest changeThe following table displays the expiration of the annualized contractual cash rental income under our lease agreements as of December 31, 2023, excluding properties classified as held for sale, one SNF which is non-operational and two ALFs which are being repurposed, by year and total investment (dollars in thousands) and, in each case, without giving effect to any renewal or purchase options: Lease Maturity Percent of Total Percent of Year Investment Investment Rent (1) Total Rent 2024 $ 15,800 0.8 % $ 1,583 0.8 % 2027 46,801 2.4 % 5,476 2.7 % 2029 149,476 7.6 % 11,339 5.6 % 2030 51,487 2.6 % 5,107 2.5 % 2031 490,317 24.9 % 51,160 25.4 % 2032 178,836 9.1 % 18,502 9.2 % 2033 136,782 6.9 % 20,804 10.3 % 2034 352,416 17.9 % 33,984 16.8 % 2036 146,486 7.4 % 14,209 7.0 % 2038 401,514 20.4 % 39,575 19.7 % Total $ 1,969,915 100.0 % $ 201,739 100.0 % (1) Includes three SNFs held in consolidated joint ventures.
ITEM 2. Properties As of December 31, 2022, all of our properties are leased under long-term, triple-net leases, except for two ALFs for which we are in the process of identifying an operator and two ALFs which are being repurposed.
ITEM 2. Properties As of December 31, 2023, all of the properties we own are leased under long-term, triple-net leases (including properties we own through joint ventures), except for one SNF which is non-operational.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+1 added−6 removed2 unchanged
Biggest changeRATE OF RETURN TREND COMPARISON DECEMBER 29, 2017 - DECEMBER 30, 2022 (DECEMBER 29, 2017 = $100) Stock Price Performance Graph Total Return The stock performance graph shall not be deemed soliciting material or to be filed with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, nor shall it be incorporated by reference into any past or future filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically request that it be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act of 1933 or the Exchange Act. 37 Table of Contents December 31, 2017 2018 2019 2020 2021 2022 CareTrust REIT, Inc. $ 100.00 $ 115.79 $ 134.62 $ 153.01 $ 165.07 $ 142.46 S&P 500 $ 100.00 $ 95.62 $ 125.72 $ 148.85 $ 191.58 $ 156.89 RMS $ 100.00 $ 95.43 $ 120.09 $ 110.99 $ 158.79 $ 119.87 Russell 2000 $ 100.00 $ 88.99 $ 111.70 $ 134.00 $ 153.85 $ 122.41 S&P 500 Real Estate Index $ 100.00 $ 97.78 $ 126.15 $ 123.41 $ 180.42 $ 133.28 38 Table of Contents ITEM 6. [Reserved]
Biggest changeRATE OF RETURN TREND COMPARISON DECEMBER 31, 2018 - DECEMBER 29, 2023 (DECEMBER 31, 2018 = $100) Stock Price Performance Graph Total Return The stock performance graph shall not be deemed soliciting material or to be filed with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, nor shall it be incorporated by reference into any past or future filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically request that it be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act of 1933 or the Exchange Act. 39 Table of Contents December 31, 2018 2019 2020 2021 2022 2023 CareTrust REIT, Inc. $ 100.00 $ 116.26 $ 132.15 $ 142.56 $ 123.03 $ 156.49 RMS $ 100.00 $ 125.84 $ 116.31 $ 166.39 $ 125.61 $ 142.87 Russell 2000 $ 100.00 $ 125.53 $ 150.58 $ 172.90 $ 137.56 $ 160.85 S&P 500 Real Estate Index $ 100.00 $ 129.01 $ 126.21 $ 184.52 $ 136.31 $ 153.15 40 Table of Contents ITEM 6. [Reserved]
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Common Equity Our common stock is listed on the New York Stock Exchange under the symbol “CTRE.” At February 8, 2023, we had approximately 43 stockholders of record.
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Common Equity Our common stock is listed on the New York Stock Exchange under the symbol “CTRE.” At February 7, 2024, we had approximately 43 stockholders of record.
Following is the characterization of our annual cash dividends on common stock: Year Ended December 31, Common Stock 2022 2021 Ordinary dividend $ 0.4291 $ 0.9411 Non-dividend distributions 0.6609 0.1039 Total taxable distribution 1.0900 1.0450 Distributions allocated from prior tax year (1) (0.2650) (0.2500) Distributions allocated to subsequent tax year (2) 0.2750 0.2650 Total distributions declared $ 1.1000 $ 1.0600 (1) Because our aggregate cash distributions exceeded our annual earnings and profits, the cash distribution declared in the fourth quarter of 2021 and paid in January 2022, of $0.265 per share, was treated as a 2022 distribution for federal income tax purposes.
Following is the characterization of our annual cash dividends on common stock: Year Ended December 31, Common Stock 2023 2022 Ordinary dividend $ 0.8218 $ 0.4291 Non-dividend distributions 0.2932 0.6609 Total taxable distribution 1.1150 1.0900 Distributions allocated from prior tax year (1) (0.2750) (0.2650) Distributions allocated to subsequent tax year (2) 0.2800 0.2750 Total distributions declared $ 1.1200 $ 1.1000 (1) Because our aggregate cash distributions exceeded our annual earnings and profits, the cash distribution declared in the fourth quarter of 2022 and paid in January 2023, of $0.275 per share, will be treated as a 2023 distribution for federal income tax purposes.
For example, while the Notes and our Second Amended Credit Agreement permit us to declare and pay any dividend or make any distribution that is necessary to maintain our REIT status, those distributions are subject to certain financial tests under the indenture governing the Notes, and therefore, the amount of cash distributions we can make to our stockholders may be limited. 35 Table of Contents Distributions with respect to our common stock can be characterized for federal income tax purposes as taxable ordinary dividends, nondividend distributions or a combination thereof.
For example, while the Notes and our Second Amended Credit Agreement permit us to declare and pay any dividend or make any distribution that is 37 Table of Contents necessary to maintain our REIT status, those distributions are subject to certain financial tests under the indenture governing the Notes, and therefore, the amount of cash distributions we can make to our stockholders may be limited.
Total cumulative return is based on a $100 investment in CareTrust REIT common stock and in each of the indices at the market close on December 29, 2017 and assumes quarterly reinvestment of dividends before consideration of income taxes. Stockholder returns over the indicated periods should not be considered indicative of future stock prices or stockholder returns.
REIT Total Return Index) and the Russell 2000 Index (“Russell 2000”). Total cumulative return is based on a $100 investment in CareTrust REIT common stock and in each of the indices at the market close on December 31, 2018 and assumes quarterly reinvestment of dividends before consideration of income taxes.
(2) Because our aggregate cash distributions exceeded our annual earnings and profits, the cash distribution declared in the fourth quarter of 2022 and paid in January 2023, of $0.275 per share, will be treated as a 2023 distribution for federal income tax purposes.
(2) Because our aggregate cash distributions exceeded our annual earnings and profits, the cash distribution declared in the fourth quarter of 2023 and paid in January 2024, of $0.280 per share, will be treated as a 2024 distribution for federal income tax purposes. 38 Table of Contents Stock Price Performance Graph The graph below compares the cumulative total return of our common stock, the S&P 500 REIT Index, the RMS (MSCI U.S.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG S&P 500, S&P 500 REIT INDEX, RMS, RUSSELL 2000 AND CARETRUST REIT, INC.
Stockholder returns over the indicated periods should not be considered indicative of future stock prices or stockholder returns. COMPARISON OF CUMULATIVE TOTAL RETURN AMONG S&P 500 REIT INDEX, RMS, RUSSELL 2000 AND CARETRUST REIT, INC.
Removed
Unregistered Sales of Equity Securities On March 20, 2020, our board of directors authorized a share repurchase program to repurchase up to $150.0 million of outstanding shares of our common stock (the “Repurchase Program”).
Added
Distributions with respect to our common stock can be characterized for federal income tax purposes as taxable ordinary dividends, non-dividend distributions or a combination thereof.
Removed
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.
Removed
Repurchases under the Repurchase Program may also be made pursuant to a plan adopted under Rule 10b5-1 promulgated under the Exchange Act. We expect to finance any share repurchases under the Repurchase Program using available cash and may also use short-term borrowings under the Revolving Facility.
Removed
We did not repurchase any shares of common stock under the Repurchase Program during the years ended December 31, 2022, 2021 and 2020.
Removed
The Repurchase Program may be modified, discontinued or suspended at any time. 36 Table of Contents Stock Price Performance Graph The graph below compares the cumulative total return of our common stock, the S&P 500 Index, the S&P 500 REIT Index, the RMS (MSCI U.S. REIT Total Return Index) and the Russell 2000 Index (“Russell 2000”).
Removed
We plan to replace the S&P 500 Index with the Russell 2000 as we have determined that the Russell 2000 is a more comparable index for us in terms of market capitalization.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

69 edited+28 added−80 removed31 unchanged
Biggest changeThe net decrease of $12.5 million in cash provided by operating activities for the year ended December 31, 2022 is primarily due to a decrease in rental income received, an increase in cash paid for interest expense and an increase in cash paid for operating expenses related to assets we plan to sell, have sold, or repurpose, partially offset by interest income received on our other real estate related investments.
Biggest changeThe net increase of $10.4 million in cash provided by operating activities for the year ended December 31, 2022 is primarily due to an increase in rental income received, interest income received on our other real estate related investments, and a decrease in cash paid for operating expenses related to assets we plan to sell, have sold, or repurpose, partially offset by an increase in cash paid for interest expense. 48 Table of Contents Cash used in investing activities for the year ended December 31, 2023 was primarily comprised of $297.9 million in acquisitions of real estate and investments in real estate related investments and other loans receivable, $11.0 million of purchases of equipment, furniture and fixtures and improvements to real estate, and $1.8 million in preferred equity investments, partially offset by $26.5 million of payments received on real estate related investments and other loans receivable and $16.3 million in net proceeds from real estate sales.
Operating cash inflows are derived primarily from the rental payments received under our lease agreements, including as a result of new investments, and interest payments on our other real estate related investments. Operating cash outflows consist primarily of interest expense on our borrowings and general and administrative expenses.
Operating cash inflows are derived primarily from the rental payments received under our lease agreements, including as a result of new investments, and interest payments received on our other real estate related investments. Operating cash outflows consist primarily of interest expense on our borrowings and general and administrative expenses.
Cash used in investing activities for the year ended December 31, 2022 was primarily comprised of $171.6 million in acquisitions of real estate and investments in real estate related investments and other loans receivable, and $7.3 million of purchases of, and improvements to, equipment, furniture and fixtures and real estate, partially offset by $6.3 million of payments received from our other loans receivable and $45.1 million in net proceeds from real estate sales.
Cash used in investing activities for the year ended December 31, 2022 was primarily comprised of $171.6 million in acquisitions of real estate and investments in real estate related investments and other loans receivable and $7.3 million of purchases of equipment, furniture and fixtures and improvements to real estate, partially offset by $6.3 million of payments received from our other loans receivable and $45.1 million in net proceeds from real estate sales.
We expect that future investments in and/or development of properties, including any 46 Table of Contents improvements or renovations of current or newly-acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, borrowings available to us under the Second Amended Credit Facility (as defined below), future borrowings or the proceeds from sales of shares of our common stock pursuant to our ATM Program or additional issuances of common stock or other securities.
We expect that future investments in and/or development of properties, including any improvements or renovations of current or newly-acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, borrowings available to us under the Second Amended Credit Facility (as defined below), future borrowings or the proceeds from sales of shares of our common stock pursuant to our ATM Program or additional issuances of 47 Table of Contents common stock or other securities.
During the year ended December 31, 2022, we recorded a $4.6 million expected credit loss related to two other loans receivable that were placed on non-accrual status, partially offset by a $0.8 million recovery related to one other loan receivable that was previously written off. No provision for loan losses was recognized during the year ended December 31, 2021.
During the year ended December 31, 2022, we recorded a $4.6 million expected credit loss related to two other loans receivable that were placed on non-accrual status, partially offset by a $0.8 million recovery related to one other loan receivable that was previously written off. No provision for loan losses was recognized during the year ended December 31, 2023.
As of December 31, 2022, we were in compliance with all applicable financial covenants under the Second Amended Credit Agreement. See Note 7, Debt, to our consolidated financial statements included in this report for further information about the Second Amended Credit Agreement.
As of December 31, 2023, we were in compliance with all applicable financial covenants under the Second Amended Credit Agreement. See Note 7, Debt, to our consolidated financial statements included in this report for further information about the Second Amended Credit Agreement.
Management’s judgement can impact the timing of write-offs and recovery adjustments. We did not materially change the assumptions used in the analysis during the year ended December 31, 2022. Fair Value of Other Real Estate Related Investments.
Management’s judgement can impact the timing of write-offs and recovery adjustments. We did not materially change the assumptions used in the analysis during the year ended December 31, 2023. Fair Value of Other Real Estate Related Investments.
See Note 11, Commitments and Contingencies, to our consolidated financial statements included in this report for further information regarding our obligation to finance certain capital expenditures under our triple-net leases.
See Note 12, Commitments and Contingencies, to our consolidated financial statements included in this report for further information regarding our obligation to finance certain capital expenditures under our triple-net leases.
Unsecured Revolving Credit Facility and Term Loan On December 16, 2022, we, together with certain of our subsidiaries, entered into a second amended and restated credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender (the “Second Amended Credit Agreement”).
Unsecured Revolving Credit Facility and Term Loan On December 16, 2022, we, together with certain of our subsidiaries, entered into a second amended and restated credit and guaranty agreement with KeyBank National Association, as administrative agent, an issuing bank and swingline lender (as amended from time to time, the “Second Amended Credit Agreement”).
At each reporting period, we evaluate our real estate investments held for use for potential impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
At each reporting period, we evaluate our real estate investments held for use for potential impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be 50 Table of Contents recoverable.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 For discussion related to the results of operations and changes in financial condition for fiscal 2021 compared to fiscal 2020, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2021 Annual Report on Form 10-K, which was filed with the SEC on February 16, 2022.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 For discussion related to the results of operations and changes in financial condition for fiscal 2022 compared to fiscal 2021, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2022 Annual Report on Form 10-K, which was filed with the SEC on February 9, 2023.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 For discussion related to the cash flows for fiscal 2021 compared to fiscal 2020, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2021 Annual Report on Form 10-K, which was filed with the SEC on February 16, 2022.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 For discussion related to the cash flows for fiscal 2022 compared to fiscal 2021, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2022 Annual Report on Form 10-K, which was filed with the SEC on February 9, 2023.
(together with the Operating Partnership, the “Issuers”), completed a private 48 Table of Contents offering of $400.0 million aggregate principal amount of 3.875% Senior Notes due 2028 (the “Notes”). The Notes mature on June 30, 2028.
(together with the Operating Partnership, the “Issuers”), completed a private offering of $400.0 million aggregate principal amount of 3.875% Senior Notes due 2028 (the “Notes”). The Notes mature on June 30, 2028.
The Operating Partnership is the borrower under the Second Amended Credit Agreement, and the obligations thereunder are guaranteed, jointly and severally, on an unsecured basis, by us and certain of our subsidiaries.
The Operating Partnership is the borrower under the Second Amended Credit Agreement, and the obligations thereunder are guaranteed, jointly and severally, on an unsecured basis, by us and substantially all of our subsidiaries.
The fair value of the real estate investment is based on current market conditions and considers matters such as the forecasted operating cash flows, lease coverage ratios, capitalization rates, and, where applicable, terms of recent lease agreements or the results of negotiations with prospective tenants.
The impairment is measured as the excess of carrying value over fair value. The fair value of the real estate investment is based on current market conditions and considers matters such as the forecasted operating cash flows, lease coverage ratios, capitalization rates, and, where applicable, terms of recent lease agreements or the results of negotiations with prospective tenants.
Our cash flows used in financing activities for the year ended December 31, 2022 were primarily comprised of $106.1 million in dividends paid, $5.4 million in payments of deferred financing costs and a $4.5 million net settlement adjustment on restricted stock, partially offset by $47.2 million of net proceeds from the issuance of common stock under the ATM Program and $45.0 million in net borrowings under our Second Amended Credit Facility (as defined below).
Our cash flows used in financing activities for the year ended December 31, 2022 were primarily comprised of $106.1 million in dividends paid, $5.4 million in payments of deferred financing costs and a $4.5 million net settlement adjustment on restricted stock, partially offset by $47.2 million of net proceeds from the issuance of common stock under the Prior ATM Program and $45.0 million in net borrowings under our Revolving Facility.
While we are currently pursuing the sale, re-tenanting or repurposing of certain of our assets in connection with our ongoing review and monitoring of our investment portfolio as described under “Recent Developments” above, we currently do not expect to sell any of our properties to meet liquidity needs, although we may do so in the future.
While we are currently pursuing the sale, re-tenanting or repurposing of certain of our assets in connection with our ongoing review and monitoring of our investment portfolio, we currently do not expect to sell any of our properties to meet liquidity needs, although we may do so in the future.
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.
However, there can be no assurance that we will be able to refinance our indebtedness, incur additional indebtedness or access additional sources of capital, such as by issuing common stock or other debt or equity securities, on terms that are acceptable to us or at all. We currently are in compliance with all debt covenants on our outstanding indebtedness.
See Note 8, Equity, to our consolidated financial 49 Table of Contents statements included in this report for a summary of the cash dividends per share of our common stock declared by our board of directors for 2022, 2021 and 2020.
See Note 8, Equity, to our consolidated financial statements included in this report for a summary of the cash dividends per share of our common stock declared by our board of directors for 2023, 2022 and 2021.
These current macroeconomic conditions, particularly inflation (including rising wages and supply costs), rising interest rates and related changes to consumer spending, including, but not limited to, causing individuals to delay or defer moves to seniors housing, has adversely impacted and could continue to adversely impact our tenants’ ability to meet some of their financial obligations to us.
Recent Developments Market Trends and Uncertainties Current macroeconomic conditions, particularly inflation (including higher wages and supply costs), elevated interest rates and related changes to consumer spending, including, but not limited to, causing individuals to delay or defer moves to seniors housing, has adversely impacted and could continue to adversely impact our tenants’ ability to meet some of their financial obligations to us.
Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.
Critical Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.
See above under “Recent Developments” for additional information on the origination of loans receivable. Depreciation and amortization. Depreciation and amortization expense decreased $5.0 million, or 9%, for the year ended December 31, 2022 to $50.3 million compared to $55.3 million for the year ended December 31, 2021.
See above under “Recent Developments” for additional information on the origination of loans receivable. Depreciation and amortization. Depreciation and amortization expense increased $0.9 million, or 2%, for the year ended December 31, 2023 to $51.2 million compared to $50.3 million for the year ended December 31, 2022.
We believe that our expected operating cash flow from rent collections, interest payments on our other real estate related investments, and borrowings under our Second Amended Credit Facility, together with o ur cash balance of $13.2 million, available borrowing capacity of $475.0 million under the Revolving Facility and availability under the ATM Program, each at December 31, 2022, will be sufficient to meet ongoing debt service requirements, dividend plans, operating lease obligations, capital expenditures, working capital requirements and other needs for at least the next 12 months.
We believe that our expected operating cash flow from rent collections and interest payments on our other real estate related investments, together with o ur cash balance of $294.4 million, available borrowing capacity of $600.0 million under the Revolving Facility (as defined below), and availability of $274.1 million under the ATM Program, each at December 31, 2023, will be sufficient to meet ongoing debt service requirements, dividend plans, operating lease obligations, capital expenditures, working capital requirements and other needs for at least the next 12 months.
Securities and Exchange Commission that expires in March 2023, which will allow us or certain of our subsidiaries, as applicable, to offer and sell shares of common stock, preferred stock, warrants, rights, units and debt securities through underwriters, dealers or agents or directly to purchasers, in one or more offerings on a continuous or delayed basis, in amounts, at prices and on terms we determine at the time of the offering.
The shelf registration statement allows 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.
Management believes that the assumptions and estimates used in preparation of the underlying consolidated financial statements are reasonable. Actual results, however, could differ from those estimates and assumptions. Certain accounting policies are considered to be critical accounting policies.
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.
The determination of estimated fair value of our other real estate related investments requires the use of both macroeconomic and microeconomic assumptions and/or inputs, which are generally based on current market and economic conditions, such as changes in the risk-free or benchmark rate and changes attributable to instrument-specific credit risk (e.g., changes in credit spread associated with the instrument).
We have concluded to use a present value technique, a discounted cash flow model, to determine fair value. 51 Table of Contents The determination of estimated fair value of our other real estate related investments requires the use of both macroeconomic and microeconomic assumptions and/or inputs, which are generally based on current market and economic conditions, such as changes in the risk-free or benchmark rate and changes attributable to instrument-specific credit risk (e.g., changes in credit spread associated with the instrument).
The $5.0 million decrease in depreciation and amortization was primarily due to a $5.0 million decrease from assets sold and classified as held for sale and a decrease in depreciation of $2.8 million due to assets becoming fully depreciated after January 1, 2021, partially offset by an increase in depreciation and amortization of $2.8 million related to new real estate investments and capital improvements made after January 1, 2021.
The $0.9 million increase in depreciation and amortization was primarily due to an increase of $4.0 million related to new real estate investments and capital improvements made after January 1, 2022 and an increase of $1.1 million related to properties reclassified to held for investment during the year ended December 31, 2022, partially offset by a decrease in depreciation of $2.8 million due to assets becoming fully depreciated after January 1, 2022 and a $1.4 million decrease from assets sold and classified as held for sale.
Almost all of our triple-net lease agreements, including the Ensign leases, provide for an annual rent escalator based on the percentage change in the Consumer Price Index (but not less than zero), subject to maximum fixed percentages.
Impact of Inflation Our rental income in future years will be impacted by changes in inflation. Almost all of our triple-net lease agreements, including the Ensign leases, provide for an annual rent escalator based on the percentage change in the Consumer Price Index (but not less than zero), subject to maximum fixed percentages.
The impairment is measured as the excess of carrying value over fair value. 50 Table of Contents We classify our real estate investments as held for sale when the applicable criteria have been met, which includes a formal plan to sell the properties that is expected to be completed within one year, among other criteria.
We classify our real estate investments as held for sale when the applicable criteria have been met, which includes a formal plan to sell the properties that is expected to be completed within one year, among other criteria.
As a result of the foregoing impacts of the COVID-19 pandemic and actions taken in response, our tenants’ ability to continue to meet some of their financial obligations to us has been negatively impacted. See “Impairment of Real Estate Assets, Assets Held for Sale and Asset Sales” below.
As a result of impacts experienced by our tenants since the onset of the COVID-19 pandemic, the ability of some of our tenants to meet their financial obligations to us in full has been negatively impacted. See “Impairment of Real Estate Assets, Assets Held for Sale and Asset Sales” below.
Total contractual cash rent decreased by $1.2 million due to a $10.6 million decrease in rental income related to certain tenants on a cash basis method of accounting and a $0.8 million decrease in tenant reimbursements, partially offset by an increase of $5.9 million in contractual cash rent from real estate investments made after January 1, 2021 and $4.3 million from increases in rental rates for our existing tenants. [2] During the year ended December 31, 2022, the Company wrote off $1.4 million of uncollectible rent.
Total contractual cash rent increased by $9.3 million due to an increase of $9.1 million in contractual cash rent from real estate investments made after January 1, 2022, an increase of $5.7 million from increases in rental rates for our existing tenants and a $2.7 million increase in tenant reimbursements, partially offset by a $7.8 million decrease in rental income related to certain tenants on a cash basis method of accounting and a $0.4 million decrease due to dispositions.
In addition, current macroeconomic conditions and the resulting market volatility may adversely impact our ability to sell properties on acceptable terms, if at all, which could result in additional impairment charges.
Higher interest rates also increase our costs of capital to finance acquisitions and increase our borrowing costs. In addition, current macroeconomic conditions and the resulting market volatility may adversely impact our ability to sell properties on acceptable terms, if at all, which could result in additional impairment charges.
Because of the inherent uncertainty of valuation, the estimated fair value of our financial instruments may differ significantly from the values that would have been used had a ready market for the financial instruments existed, and the differences could be material to our consolidated financial statements. 51 Table of Contents Impact of Inflation Our rental income in future years will be impacted by changes in inflation.
Because of the inherent uncertainty of valuation, the estimated fair value of our financial instruments may differ significantly from the values that would have been used had a ready market for the financial instruments existed, and the differences could be material to our consolidated financial statements.
Property taxes increased $0.8 million, or 21%, for the year ended December 31, 2022 compared to December 31, 2021.
Property taxes increased $1.8 million, or 42%, for the year ended December 31, 2023 compared to December 31, 2022.
For a discussion of our significant accounting policies, see Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included in this report. Real Estate Acquisition Valuation .
For a discussion of our significant accounting policies, see Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included in this report. Impairment of Long-Lived Assets.
Capital Expenditures As of December 31, 2022, we had committed to fund expansions, construction and capital improvements at certain triple-net leased facilities totali ng $15.7 million, of which $2.7 million is subject to rent increase at the time of funding. We expect to fund the capital expenditures in the next one to two years.
Capital Expenditures As of December 31, 2023, we had committed to fund expansions, construction, capital improvements and ESG incentives at certain triple-net leased facilities tot aling $9.2 million, of which $2.4 million is s ubject to rent increase at the time of funding. We expect to fund the capital expenditures in the next one to two years.
During the year ended December 31, 2022, we recorded a $7.1 million unrealized loss on three mortgage secured loans receivable and two mezzanine loans receivable. The unrealized loss is due to rising interest rates. No unrealized losses were recognized during the year ended December 31, 2021.
During the year ended December 31, 2022, we recorded a $7.1 million unrealized loss on our secured and mezzanine loans receivable. The unrealized loss was due to rising interest rates.
Property operating expenses. During the year ended December 31, 2022, we recognized $5.0 million of property operating expenses related to assets we plan to sell or repurpose, or have sold. No similar expenses were incurred during the year ended December 31, 2021. 45 Table of Contents General and administrative expense.
Property operating expenses. During the years ended December 31, 2023 and 2022, we recognized $3.4 million and $5.0 million, respectively, of property operating expenses related to assets we plan to sell or repurpose, re-tenant, or have sold. 46 Table of Contents General and administrative expense.
The Revolving Facility has a maturity date of February 9, 2027, and includes, at our sole discretion, two, six-month extension options. The Term Loan has a maturity date of February 8, 2026.
As of December 31, 2023, we had $200.0 million outstanding under the Term Loan and no borrowings outstanding under the Revolving Facility. The Revolving Facility has a maturity date of February 9, 2027, and includes, at our sole discretion, two, six-month extension options. The Term Loan has a maturity date of February 8, 2026.
During the year ended December 31, 2021, we recorded a $0.2 million loss on sale of real estate related to the sale of one SNF, partially offset by a $0.1 million gain on sale of real estate related to the sale of a land parcel adjacent to one of our SNFs. Unrealized loss on other real estate related investments .
During the year ended December 31, 2023, we recorded a $2.3 million gain on sale of real estate related to the sale of 2 ALFs and one SNF, partially offset by a $0.1 million loss on sale of real estate related to the sale of two ALFs.
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.
See “At-The-Market Offering of Common Stock” for information regarding activity under the ATM Program. 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.
As of December 31, 2022, we also had other real estate investments consisting of three real estate secured loans receivable and two mezzanine loans receivable with a carrying value of $156.4 million.
As of December 31, 2023, we also had other real estate related investments consisting of one preferred equity investment, eight real estate secured loans receivable and one mezzanine loan receivable with a carrying value of $180.4 million.
Our cash flows provided by financing activities for the year ended December 31, 2021 were primarily comprised of $393.8 million of net proceeds from the issuance of the Notes, $30.0 million in net borrowings under our Prior Credit Agreement (as defined below) and $22.9 million of net proceeds from the issuance of common stock under the ATM Program, partially offset by $307.9 million of payments to redeem our prior senior notes, $100.8 million in dividends paid, and a $1.3 million net settlement adjustment on restricted stock.
Our cash flows provided by financing activities for the year ended December 31, 2023 were primarily comprised of $634.4 million of net proceeds from the issuance of common stock under the ATM Program and $1.9 million in net contributions from noncontrolling interests, partially offset by $125.0 million in net payments under our Revolving Credit Facility (as defined below), $115.5 million in dividends paid and $1.5 million in net settlement adjustment on restricted stock.
The “C” tranche term loan and mezzanine loan both require monthly interest payments. At-The-Market Offering of Common Stock On March 10, 2020, we entered into a new equity distribution agreement to issue and sell, from time to time, up to $500.0 million in aggregate offering price of our common stock through an “at-the-market” equity offering program (the “ATM Program”).
At-The-Market Offering of Common Stock On February 24, 2023, we entered into an 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 “Previous ATM Program”).
For the Year Ended December 31, 2022 Number of shares 2,405 Average sales price per share $ 20.00 Gross proceeds (1) $ 48,100 (1) Total gross proceeds is before $0.6 million of commissions paid to the sales agents during the year ended December 31, 2022 under the ATM Program.
For the Year Ended December 31, 2023 Number of shares 30,869 Average sales price per share $ 20.86 Gross proceeds (1) $ 643,802 (1) Total gross proceeds is before $8.3 million of commissions paid to the sales agents and forward adjustments during the year ended December 31, 2023, under the ATM Program.
Our assessment of collectibility of tenant receivables includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection.
See Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements for further detail. Our assessment of collectibility of tenant receivables includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection.
As of December 31, 2022, we had $428.4 million available for future issuances under the ATM Program. 43 Table of Contents Results of Operations Operating Results Our primary business consists of acquiring, developing, financing and owning real property to be leased to third party tenants in the healthcare sector.
These facilities were classified as held for sale as of December 31, 2023. 44 Table of Contents Results of Operations Operating Results Our primary business consists of acquiring, developing, financing and owning real property to be leased to third party tenants in the healthcare sector.
The Notes accrue interest at a rate of 3.875% per annum payable semiannually in arrears on June 30 and December 30 of each year, commencing on December 30, 2021. The obligations under the Notes are guaranteed, jointly and severally, on an unsecured basis, by us and all of our subsidiaries (other than the Issuers).
The Notes accrue interest at a rate of 3.875% per annum payable semiannually in arrears on June 30 and December 30 of each year, commencing on December 30, 2021.
During the three and twelve months ended December 31, 2022, we collected 95.5% and 95.2% of contractual rents due from our operators including cash deposits used to offset rent shortfalls, respectively. During both the three and twelve months ended December 31, 2022, we collected 94.0% of contractual rents due from our operators excluding cash deposits.
During the three and twelve months ended December 31, 2023, we collected 100.0% and 97.7% of contractual rents due from our operators excluding cash deposits, respectively.
We currently are in compliance with all debt covenants on our outstanding indebtedness. 47 Table of Contents Cash Flows The following table presents selected data from our consolidated statements of cash flows for the years presented: Year Ended December 31, 2022 2021 (dollars in thousands) Net cash provided by operating activities $ 144,415 $ 156,871 Net cash used in investing activities (127,400) (192,633) Net cash (used in) provided by financing activities (23,732) 36,738 Net (decrease) increase in cash and cash equivalents (6,717) 976 Cash and cash equivalents at beginning of period 19,895 18,919 Cash and cash equivalents at end of period $ 13,178 $ 19,895 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net cash provided by operating activities for the year ended December 31, 2022 was $144.4 million compared to $156.9 million for the year ended December 31, 2021, a decrease of $12.5 million.
Cash Flows The following table presents selected data from our consolidated statements of cash flows for the years presented: Year Ended December 31, 2023 2022 (dollars in thousands) Net cash provided by operating activities $ 154,767 $ 144,415 Net cash used in investing activities (267,815) (127,400) Net cash provided by (used in) financing activities 394,318 (23,732) Net increase (decrease) in cash and cash equivalents 281,270 (6,717) Cash and cash equivalents as of the beginning of period 13,178 19,895 Cash and cash equivalents as of the end of period $ 294,448 $ 13,178 Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Net cash provided by operating activities for the year ended December 31, 2023 was $154.8 million compared to $144.4 million for the year ended December 31, 2022, an increase of $10.4 million.
The increase was primarily due to a $0.6 million increase in property taxes due to new real estate investments made after January 1, 2021, a $0.2 million increase in property taxes related to two non-operational properties at December 31, 2022 and a $0.1 million increase in property taxes due to the transfer of certain properties to new operators in January 2021 that do not make direct tax payments, partially offset by a decrease of $0.1 million of property taxes due to reassessments and decreased effective tax rates.
The increase was primarily due to a $1.4 million increase in property taxes due to new real estate investments made after January 1, 2022, a $0.9 million increase due to property taxes expected to be paid directly by us as a result of certain assets being designated as held for sale, a $0.4 million increase in property taxes due to existing operators that no longer make direct tax payments and an increase of $0.2 million of property taxes due to reassessments and increased effective tax rates, partially offset by a decrease of $1.0 million related to properties sold after January 1, 2022 and a decrease of $0.1 million due to the transfer of certain properties to new operators that make direct tax payments.
Rental income decreased by $2.7 million as detailed below: Year Ended (in thousands) December 31, 2022 December 31, 2021 Increase/(Decrease) Contractual cash rent $ 186,131 $ 186,501 $ (370) Tenant reimbursements 2,775 3,599 (824) Total contractual rent [1] 188,906 190,100 (1,194) Straight-line rent 17 32 (15) Adjustment for collectibility [2] (1,417) — (1,417) Lease termination revenue — 63 (63) Total change in rental income $ 187,506 $ 190,195 $ (2,689) [1] Includes initial contractual cash rent and tenant reimbursements, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by the Company.
Rental income increased by $11.1 million as detailed below: Year Ended (in thousands) December 31, 2023 December 31, 2022 Increase/(Decrease) Contractual cash rent $ 192,746 $ 186,131 $ 6,615 Tenant reimbursements 5,498 2,775 2,723 Total contractual rent 198,244 188,906 9,338 Straight-line rent (29) 17 (46) Below market lease 384 — 384 Adjustment for collectibility — (1,417) 1,417 Total amount in rental income $ 198,599 $ 187,506 $ 11,093 Total contractual rent includes initial contractual cash rent and tenant reimbursements, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by us.
As of December 31, 2022, we were in compliance with all applicable financial covenants under the indenture governing the Notes. See Note 7, Debt, to our consolidated financial statements included in this report for further information about the Notes.
See Note 7, Debt, to our consolidated financial statements included in this report for further information about the Notes.
As of December 31, 2022, CareTrust REIT’s real estate portfolio comprised of 216 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”), consisting of 22,831 operational beds and units located in 28 states with the highest concentration of properties by rental income located in California, Texas, Louisiana, Idaho and Arizona.
As of December 31, 2023, we owned, directly or indirectly through joint ventures, and leased to independent operators 226 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”), consisting of 23,928 operational beds and units located in 28 states with the highest concentration of properties by rental income located in California and Texas.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Year Ended December 31, Increase (Decrease) Percentage Difference 2022 2021 (dollars in thousands) Revenues: Rental income $ 187,506 $ 190,195 $ (2,689) (1) % Interest and other income 8,626 2,156 6,470 300 % Expenses: Depreciation and amortization 50,316 55,340 (5,024) (9) % Interest expense 30,008 23,677 6,331 27 % Property taxes 4,333 3,574 759 21 % Impairment of real estate investments 79,062 — 79,062 * Provision for loan losses, net 3,844 — 3,844 * Property operating expenses 5,039 — 5,039 * General and administrative 20,165 26,874 (6,709) (25) % Other loss: Loss on extinguishment of debt — (10,827) 10,827 (100) % Loss on sale of real estate, net (3,769) (77) (3,692) * Unrealized loss on other real estate related investments (7,102) — (7,102) * • Not meaningful Rental income.
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Year Ended December 31, Increase (Decrease) Percentage Difference 2023 2022 (dollars in thousands) Revenues: Rental income $ 198,599 $ 187,506 $ 11,093 6 % Interest and other income 19,171 8,626 10,545 122 % Expenses: Depreciation and amortization 51,199 50,316 883 2 % Interest expense 40,883 30,008 10,875 36 % Property taxes 6,170 4,333 1,837 42 % Impairment of real estate investments 36,301 79,062 (42,761) (54) % Provision for loan losses, net — 3,844 (3,844) (100) % Property operating expenses 3,423 5,039 (1,616) (32) % General and administrative 21,805 20,165 1,640 8 % Other (loss) income: Gain (loss) on sale of real estate, net 2,218 (3,769) 5,987 (159) % Unrealized loss on other real estate related investments, net (6,485) (7,102) 617 (9) % Net loss attributable to noncontrolling interests Net loss attributable to noncontrolling interests (13) — (13) * • Not meaningful Rental income.
Our quarterly cash dividend, any share repurchases under our Repurchase Program (as defined below) and any failure of our operators to pay rent or of our borrowers to make interest or principal payments may impact our available capital resources.
Our quarterly cash dividend and any failure of our operators to pay rent or of our borrowers to make interest or principal payments may impact our available capital resources. We have filed an automatic shelf registration statement with the U.S.
Interest expense increased by $6.3 million as detailed below: Change in interest expense for the year ended December 31, 2022 compared to the year ended December 31, 2021 (in thousands) Increases to interest expense due to: Issuance of the 2028 senior unsecured notes - June 17, 2021 $ 7,110 Increase in interest rates for the senior unsecured term loan 3,370 Increase in outstanding borrowing amount for the unsecured revolving facility, net 2,095 Increase in interest rates for the unsecured revolving credit facility 1,591 Other changes in interest expense 43 Total increases to interest expense 14,209 Decreases to interest expense due to: Redemption of the prior senior notes - July 1, 2021 (7,878) Total decreases to interest expense (7,878) Total change in interest expense $ 6,331 Property taxes .
Interest expense increased by $10.9 million as detailed below: Change in interest expense for the year ended December 31, 2023 compared to the year ended December 31, 2022 (in thousands) Increase in interest rates for the senior unsecured term loan $ 6,826 Increase in interest rates for the unsecured revolving credit facility 5,275 Decrease in outstanding borrowing amount for the unsecured revolving facility, net (1,607) Other changes in interest expense 381 Total change to interest expense $ 10,875 Property taxes .
Our tenants are experiencing increased operating costs as a result of actions they are taking to prevent or mitigate the outbreak or spread of COVID-19 at their facilities. Our tenants are also experiencing labor shortages resulting in limited admissions, reduced occupancy and higher agency expense.
As a result of the above factors, together with the additional protective measures taken by our tenants in response to and following the COVID-19 pandemic, our tenants are continuing to experience increased operating costs at their facilities. Our tenants are also experiencing labor shortages resulting in reduced admissions and higher operating costs.
Interest and other income. The $6.5 million, or 300%, increase in interest and other income is primarily due to an increase of $6.7 million related to the origination of loans receivable in June, August and September 2022 partially offset by a 44 Table of Contents decrease of $0.2 million related to repayments of other loans.
The $10.5 million, or 122%, increase in interest and other income is primarily due to an increase of $10.3 million related to the origination of loans receivable subsequent to January 1, 2022, an increase of $1.3 million in interest income on money market funds and an increase of $0.6 million related to prepayment penalties, partially offset by a decrease of $1.4 million related to repayments of loans receivable and a decrease of $0.3 million related to a loan origination fee during the year ended December 31, 2022.
Given the ongoing impacts of COVID-19, the projected cash flows that we use to assess fair value for purposes of impairment testing are subject to greater uncertainty than normal. If in the future we reduce our estimate of cash flow projections, we may need to impair some of these assets.
While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on financial results. Given the impacts of current macroeconomic events, the projected cash flows that we use to assess fair value for purposes of impairment testing are subject to greater uncertainty than normal.
See above under “Recent Developments” for additional information. No impairment charges were recognized during the year ended December 31, 2021. Provision for loan losses, net.
During the year ended December 31, 2022, we recognized aggregate impairment charges of $79.1 million, of which $14.4 million related to properties held for sale, $19.7 million related to properties held for investment, and $45.0 million related to properties that were sold. See above under “Recent Developments” for additional information. Provision for loan losses, net.
We have not materially changed the assumptions used in the analysis during the year ended December 31, 2022. Revenue Recognition. We recognize lease revenue in accordance with ASC 842, Leases . See Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements for further detail.
If in the future we reduce our estimate of cash flow projections, we may need to impair our real estate assets. We have not materially changed the assumptions used in the analysis during the year ended December 31, 2023. Revenue Recognition. We recognize lease revenue in accordance with ASC 842, Leases .
Loss on sale of real estate, net .
Unrealized loss on other real estate related investments, net .
Future borrowings under the Second Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes. As of December 31, 2022, we had $200.0 million outstanding under the Term Loan and $125.0 million outstanding under the Revolving Facility.
Future borrowings under the Second Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes. On October 10, 2023, we entered into the First Amendment to the Second Amended Credit Agreement with KeyBank National Association (the “First Amendment”).
General and administrative expense decreased by $6.7 million as detailed below: Year Ended (in thousands) December 31, 2022 December 31, 2021 Increase/(Decrease) Cash compensation $ 6,107 $ 5,364 $ 743 Share-based compensation [1] 5,758 10,832 (5,074) Incentive compensation 3,550 4,900 (1,350) Professional services 1,897 1,601 296 Other administrative expense 923 915 8 Taxes and insurance 897 843 54 Non-routine transaction costs 6 1,424 (1,418) Other expenses 1,027 995 32 Total change in general and administrative expense $ 20,165 $ 26,874 $ (6,709) [1] Share-based compensation decreased $5.1 million for the year ended December 31, 2022 compared to December 31, 2021.
General and administrative expense increased by $1.6 million as detailed below: Year Ended (in thousands) December 31, 2023 December 31, 2022 Increase/(Decrease) Cash compensation $ 5,636 $ 6,107 $ (471) Incentive compensation 5,350 3,550 1,800 Share-based compensation 5,153 5,758 (605) Professional services 2,399 1,897 502 Other administrative expense 1,041 923 118 Taxes and insurance 908 897 11 Other expenses 1,318 1,033 285 Total change in general and administrative expense $ 21,805 $ 20,165 $ 1,640 Gain (loss) on sale of real estate, net .
For more information regarding the potential impact of COVID-19 and macroeconomic conditions on our business, see “Risk Factors” in Item 1A of this report. 40 Table of Contents SNF Reimbursement Rates On July 29, 2022, the Centers for Medicare and Medicaid Services (“CMS”) issued a final rule that will increase the aggregate net payment by 2.7% for fiscal year 2023.
For more information regarding the potential impact of public health crises, including COVID-19, and macroeconomic conditions on our business, see “Risk Factors” in Item 1A of this report.
Our ability to accurately estimate future cash flows and estimate and allocate fair values impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on financial results.
The fair value of the real estate investment is determined in a similar manner to the fair value determination for real estate investments held for use described above. Our ability to accurately estimate future cash flows and estimate and allocate fair values impacts the timing and recognition of impairments.
During the first quarter of 2022, we closed on the sale of one SNF consisting of 83 beds located in Washington with a carrying value of $0.8 million, for net sales proceeds of $1.0 million. During the year ended December 31, 2022, we recorded a gain of $0.2 million in connection with the sale.
Subsequent to December 31, 2023, we closed on the sale of one SNF and one ALF with an aggregate carrying value of $1.0 million, which approximated the net sales proceeds received.
The following table summarizes the ATM Program activity for the year ended December 31, 2022 (in thousands, except per share amounts).
There were no outstanding ATM forward contracts that had not settled as of December 31, 2023. The following tables summarize the ATM Program activity (or activity under any predecessor at-the-market equity offering programs) for the year ended December 31, 2023 (in thousands, except per share amounts).
Removed
Recent Developments COVID-19 Update Tenants of our properties operating pursuant to triple-net master leases have been adversely impacted, and we expect that they will continue to be adversely impacted, by the COVID-19 pandemic.
Added
At a portfolio wide level, occupancy levels at our seniors housing facilities, comprising our ALFs and ILFs, are continuing to show signs of recovery following the onset of the COVID-19 pandemic, although they have not yet fully normalized to pre-pandemic levels.
Removed
While our tenants have experienced some recent increases in occupancy, occupancy rates are still below pre-pandemic levels.
Added
Within our SNFs, occupancy levels have continued to improve since their trough in January 2021 and are reaching pre-COVID occupancy levels for most of our tenants.
Removed
The current limited availability or unavailability of grants and other funds being made available to our seniors housing facilities for healthcare related expenses or lost revenues attributable to COVID-19, as well as the tapering of grants and other funds for our SNFs, has also impacted some of our tenants’ ability to continue to meet some of their financial obligations, as they continue to experience lower occupancy levels and higher operating costs.
Added
From time to time in the past, we have taken actions to reposition one or more properties with a replacement tenant or sell the property and, in certain cases, we have also restructured tenants’ long-term obligations.
Removed
In some cases, we may have to restructure tenants’ long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place. 39 Table of Contents At a portfolio wide level, occupancy levels at our seniors housing facilities remained relatively stable from the onset of the COVID-19 pandemic until the beginning of the fourth quarter of 2020, at which time we began to see a decline.
Added
In the event our tenants are unable to satisfy their obligations to 41 Table of Contents us and we are unable to effect these actions on terms that are as favorable to us as those currently in place, our rental income would be adversely impacted and we may incur additional expenses or obligations and be required to recognize additional impairment charges.
Removed
This decline in occupancy continued through the fourth quarter of 2021; however, seniors housing facilities occupancy has begun to increase in the beginning of the first quarter of 2022 and continued throughout 2022.
Added
Regulatory Updates In July 2023, The Centers for Medicare and Medicaid Services (“CMS”) approved its payment rate update to SNF reimbursements for fiscal 2024, which commenced October 1, 2023, and includes a net increase of 4.0%, or approximately $1.4 billion, in Medicare Part A payments to SNFs.
Removed
Occupancy levels at our SNFs, which declined at the onset of the COVID-19 pandemic and continued to decline through January 2021, have been on a steady incline through the fourth quarter of 2022. Beginning in early 2020, the federal government temporarily suspended the three-day hospital stay requirement for a patient’s Medicare benefits to refresh.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−0 removed6 unchanged
Biggest changeWe also expect to manage our exposure to interest rate risk by maintaining a mix of fixed and variable rates for our indebtedness. ITEM 8. Financial Statements and Supplementary Data See the Index to Consolidated Financial Statements on page F-1 of this report. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None.
Biggest changeWe also expect to manage our exposure to interest rate risk by maintaining a mix of fixed and variable rates for our indebtedness.
The interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.50% to 1.20% per annum or Adjusted Term SOFR or Adjusted Daily Simple SOFR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and our consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if we obtain certain specified investment grade ratings on our senior long-term unsecured debt).
The interest rates applicable to loans under the Term Loan are, at the Operating Partnership’s option, equal to either a base rate plus a margin ranging from 0.50% to 1.20% per annum or Adjusted Term SOFR or Adjusted Daily Simple SOFR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and our consolidated subsidiaries (subject to decrease at the Operating Partnership’s election if we obtain certain specified investment grade ratings on our senior long-term unsecur ed debt).
See “Risk Factors - Risks Related to Our Status as a REIT - Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.” As of December 31, 2022, we had no swap agreements to hedge our interest rate risks.
See “Risk Factors - Risks Related to Our Status as a REIT - Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.” As of December 31, 2023, we had no swap agreements to hedge our interest rate risks.
Based on our outstanding debt balance as of December 31, 2022 described above and the interest rates applicable to our outstanding debt at December 31, 2022, assuming a 100 basis point increase in the interest rates related to our variable rate debt, interest expense would have increased approximately $3.3 million for the year ended December 31, 2022.
Based on our outstanding debt balance as of December 31, 2023 described above and the interest rates applicable to our outstanding debt at December 31, 2023, assuming a 100 basis point increase in the interest rates related to our variable rate debt, interest expense would have increased approximately $2.0 million for the year ended December 31, 2023.
As of December 31, 2022, we had a $200.0 million Term Loan outstanding and there was $125.0 million out standing under the Revolving Facility.
As of December 31, 2023, we had a $200.0 million Term Loan outstanding and no borrowings outstanding under the Revolving Facility.

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