CARETRUST REIT, INC.
Forward-Looking Statements
Certain statements in this report may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Those forward-looking statements include all statements that are not historical
statements of fact and those regarding our intent, belief or expectations,
including, but not limited to, statements regarding: future financing plans,
business strategies, growth prospects and operating and financial performance;
expectations regarding the making of distributions and the payment of dividends;
and compliance with and changes in governmental regulations.
Words such as "anticipate(s)," "expect(s)," "intend(s)," "plan(s),"
"believe(s)," "may," "will," "would," "could," "should," "seek(s)" and similar
expressions, or the negative of these terms, are intended to identify such
forward-looking statements. These statements are based on management's current
expectations and beliefs and are subject to a number of risks and uncertainties
that could lead to actual results differing materially from those projected,
forecasted or expected. Although we believe that the assumptions underlying the
forward-looking statements are reasonable, we can give no assurance that our
expectations will be attained. Factors which could have a material adverse
effect on our operations and future prospects or which could cause actual
results to differ materially from our expectations include, but are not limited
to: (i) the COVID-19 pandemic, including the risk of additional surges of
COVID-19 infections due to the rate of public acceptance and efficacy of
COVID-19 vaccines or to new and more contagious and/or vaccine resistant
variants, and the measures taken to prevent the spread of COVID-19 and the
related impact on our business or the businesses of our tenants; (ii) the
ability and willingness of our tenants to meet and/or perform their obligations
under the triple-net leases we have entered into with them, including, without
limitation, their respective obligations to indemnify, defend and hold us
harmless from and against various claims, litigation and liabilities; (iii) the
ability of our tenants to comply with applicable laws, rules and regulations in
the operation of the properties we lease to them; (iv) the ability and
willingness of our tenants to renew their leases with us upon their expiration,
and the ability to reposition our properties on the same or better terms in the
event of nonrenewal or in the event we replace an existing tenant, as well as
any obligations, including indemnification obligations, we may incur in
connection with the replacement of an existing tenant; (v) the availability of
and the ability to identify (a) tenants who meet our credit and operating
standards, and (b) suitable acquisition opportunities, and the ability to
acquire and lease the respective properties to such tenants on favorable terms;
(vi) the ability to generate sufficient cash flows to service our outstanding
indebtedness; (vii) access to debt and equity capital markets; (viii)
fluctuating interest rates; (ix) the ability to retain our key management
personnel; (x) the ability to maintain our status as a real estate investment
trust ("REIT"); (xi) changes in the U.S. tax law and other state, federal or
local laws, whether or not specific to REITs; (xii) other risks inherent in the
real estate business, including potential liability relating to environmental
matters and illiquidity of real estate investments; and (xiii) any additional
factors included under "Risk Factors" in our Annual Report on Form 10-K for the
year ended December 31, 2020 , including in the section entitled "Risk Factors"
in Item 1A of Part I of such report, as such risk factors may be amended,
supplemented or superseded from time to time by other reports we file with the
Securities and Exchange Commission (the "SEC").
Forward-looking statements speak only as of the date of this report. Except in
the normal course of our public disclosure obligations, we expressly disclaim
any obligation to release publicly any updates or revisions to any
forward-looking statements to reflect any change in our expectations or any
change in events, conditions or circumstances on which any statement is based.
Overview
CareTrust REIT is a self-administered, publicly-traded REIT engaged in the
ownership, acquisition, development and leasing of seniors housing and
healthcare-related properties. As of June 30, 2021 , we owned and leased to
independent operators, 223 skilled nursing, multi-service campuses, assisted
living and independent living facilities consisting of 23,301 operational beds
and units located in 28 states with the highest concentration of properties by
rental revenues located in California , Texas , Louisiana , Idaho and Arizona . As
of June 30, 2021 , we also had other real estate investments consisting of one
mezzanine loan receivable with a carrying value of $15.2 million .
We generate revenues primarily by leasing healthcare-related properties to
healthcare operators in triple-net lease arrangements, under which the tenant is
solely responsible for the costs related to the property (including property
taxes, insurance, maintenance and repair costs and capital expenditures, subject
to certain exceptions in the case of properties leased to Ensign and Pennant).
We conduct and manage our business as one operating segment for internal
reporting and internal decision-making purposes. We expect to grow our portfolio
by pursuing opportunities to acquire additional properties that will be leased
to a diverse group of local, regional and national healthcare providers, which
may include new or existing skilled nursing operators, as well as seniors
housing operators and related businesses. We also anticipate diversifying our
portfolio over time, including by acquiring properties in different geographic
markets, and in different asset classes. In addition, we actively
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monitor the clinical, regulatory and financial operating results of our tenants,
and work to identify opportunities within their operations and markets that
could improve their operating results at our facilities. We communicate such
observations to our tenants; however, we have no contractual obligation to do
so. Moreover, our tenants have sole discretion with respect to the day-to-day
operation of the facilities they lease from us, and how and whether to implement
any observation we may share with them. We also actively monitor the overall
occupancy, skilled mix, and other operating metrics of our tenants on at least a
monthly basis including, beginning in the quarter ended June 30, 2020 , any
stimulus funds received by each tenant. We have replaced tenants in the past,
and may elect to replace tenants in the future, if they fail to meet the terms
and conditions of their leases with us. The replacement tenants may include
tenants with whom we have had no prior landlord-tenant relationship as well as
current tenants with whom we are comfortable expanding our relationships. We
have also provided select tenants with strategic capital for facility upkeep and
modernization, as well as short-term working capital loans when they are
awaiting licensure and certification or conducting turnaround work in one or
more of our properties, and we may continue to do so in the future. In addition,
we periodically reassess the investments we have made and the tenant
relationships we have entered into, and have selectively disposed of facilities
or investments, or terminated such relationships, and we expect to continue
making such reassessments and, where appropriate, taking such actions.
Recent Developments
COVID-19 Update Tenants of our properties operating pursuant to triple-net master leases have been adversely impacted, and we expect that they will continue to be adversely impacted, by the COVID-19 pandemic. Our tenants are experiencing increased operating costs as a result of actions they are taking to prevent or mitigate the outbreak or spread of COVID-19 at their facilities, including in connection with their implementation of safety protocols and procedures and other regulatory requirements. To help offset these costs as well as occupancy declines, various relief programs have been enacted by federal and state governments, including the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which have provided, and we expect will continue to provide some benefits to our tenants subject to the programs' respective terms and conditions (the "Provider Relief Funds"). The estimated federal and state relief approved, received and retained to date by our operators, as reported by our operators, is approximately$132.2 million . AtJune 30, 2021 , two of our operators who received Provider Relief Funds have disclosed that they have returned all or a portion of the Provider Relief Funds issued to them. 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, during which we began to see a decline, and occupancy levels declined further in the second quarter of 2021. Occupancy levels at our skilled nursing facilities ("SNFs"), which declined at the onset of the COVID-19 pandemic and continued to decline throughJanuary 2021 , have been on a steady incline sinceFebruary 2021 and continued to increase through the second quarter of 2021. Beginning in early 2020, the federal government temporarily suspended the three-day hospital stay requirement for a patient's Medicare benefits to refresh. Providers can now "skill in place," eliminating the risk of transferring the patient to the hospital. Because of this temporary rule change, overall skilled mix remained slightly elevated in the three months endedJune 30, 2021 compared to the pre-pandemic skilled mix during the three months endedMarch 31, 2020 . An increase in skilled mix can, but may not necessarily, offset some or all of the adverse financial impact to the operator of the SNF from a decline in occupancy. However, the skilled mix in our SNFs during the three months endedJune 30, 2021 was lower than the peak level seen inDecember 2020 , and we anticipate that skilled mix in our SNFs will continue to decline as cases of COVID-19 decline. The higher operating costs affecting our tenants, and the impact of lower occupancy levels, have adversely impacted and may continue to adversely impact the ability of our tenants to satisfy their rental obligations to us in full or on a timely basis. Provider Relief Funds not being made available to our seniors housing facilities has also impacted some of our tenants' ability to continue to meet some of their financial obligations, as they continue to experience lower occupancy levels and higher operating costs. Subsequent to the quarter endedJune 30, 2021 , one seniors housing operator failed to pay rent for July and proposed a rent deferral for the months of July, August and a portion of September under a plan that would bring all rent deferrals current by the end of 2021. We are currently considering their request. Approximately 100.0% of our contractual rent obligations due for the second quarter of 2021, and approximately 96.2% due forJuly 2021 , have been collected from our tenants before considering any cash deposits on-hand from which we may offset any shortfalls in rent received. A number of COVID-19 vaccines were issued emergency use authorization by theUnited States Food and Drug Administration . As ofAugust 5, 2021 , based on information provided by operators who have reported such information to us, almost three-quarters of our operators' residents have been fully vaccinated, while almost half of such operators' staff have received at least one dose. 20 -------------------------------------------------------------------------------- Table of Contents The duration and extent of the COVID-19 pandemic's effect on our operational and financial performance, and the operational and financial performance of our tenants, will depend on future developments, which are highly uncertain and cannot be predicted at this time, including the rate of public acceptance and usage of vaccines and the effectiveness of vaccines in limiting the spread of COVID-19 and its variants, resurgences of COVID-19 and, in particular, new and more contagious and/or vaccine resistant variants, actions taken to contain the spread of COVID-19 and how quickly and to what extent normal economic and operating conditions can resume. The adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition could be material. Senior Notes Issuance and Redemption OnJune 17, 2021 , our wholly owned subsidiary,CTR Partnership, L.P. (the "Operating Partnership"), and its wholly owned subsidiary,CareTrust Capital Corp. (together with theOperating Partnership , the "Issuers") completed a private offering of$400.0 million aggregate principal amount of 3.875% Senior Notes due 2028 (the "Notes") to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A and to non-U.S. persons outsidethe United States in reliance on Regulation S under the Securities Act of 1933, as amended (the "Securities Act"). See Note 12, Subsequent Events, for additional information. The aggregate net proceeds from the sale of the Notes were approximately$393.8 million after deducting underwriting fees and other offering expenses. We used a portion of the net proceeds from the sale of the Notes to redeem all of the Issuers' outstanding 5.25% Senior Notes due 2025 (the "2025 Notes") and the remaining proceeds to repay a portion of the borrowings outstanding under our Revolving Facility (as defined below). OnJuly 1, 2021 (the "Redemption Date"), the Issuers redeemed all$300.0 million aggregate principal amount of their outstanding 2025 Notes. The 2025 Notes were redeemed at a redemption price equal to 102.625% of the principal amount of the 2025 Notes, plus accrued and unpaid interest thereon up to, but not including, the Redemption Date. Sale of Real Estate and Asset Held for Sale OnFebruary 1, 2021 , we closed on the sale of one skilled nursing facility consisting of 90 beds located inWashington with a carrying value of$7.2 million , for net sales proceeds of$7.0 million . We recorded a loss of$0.2 million in connection with the sale. The facility was classified as held for sale as ofDecember 31, 2020 . InAugust 2021 , we met the held for sale criteria on one assisted living facility operated by affiliates of Noble Senior Services, and are in the process of estimating its fair value, which is expected to be below the net carrying value of$4.9 million . The associated impairment loss is expected to be recorded in the quarter endingSeptember 30, 2021 . Recent Investments FromJanuary 1, 2021 throughAugust 5, 2021 , we acquired 4 skilled nursing facilities and 4 multi-service campuses for approximately$183.6 million , which includes capitalized acquisition costs. These acquisitions are expected to generate initial annual cash revenues of approximately$13.1 million and an initial blended yield of approximately 7.3%. See Note 3, Real Estate Investments, Net and Note 12, Subsequent Events in the Notes to condensed consolidated financial statements for additional information. At-The-Market Offering of Common Stock OnMarch 10, 2020 , we entered into a new equity distribution agreement to issue and sell, from time to time, up to$500.0 million in aggregate offering price of our common stock through an "at-the-market" equity offering program (the "ATM Program"). In connection with the entry into the equity distribution agreement and the commencement of the ATM Program, our "at-the-market" equity offering program pursuant to our prior equity distribution agreement, dated as ofMarch 4, 2019 , was terminated (the "Prior ATM Program"). There was no Prior ATM Program or ATM Program activity for the three and six months endedJune 30, 2020 . The following table summarizes the ATM Program activity for the three and six months endedJune 30, 2021 (in thousands, except 21 -------------------------------------------------------------------------------- Table of Contents per share amounts). For the Three Months For the Six Months Ended Ended June 30, 2021 June 30, 2021 Number of shares 288 990 Average sales price per share $ 24.05 $ 23.74 Gross proceeds(1) $ 6,926 $ 23,505 (1) Total gross proceeds is before$0.1 million and$0.3 million of commissions paid to the sales agents during the three and six months endedJune 30, 2021 , respectively, under the ATM Program. As ofJune 30, 2021 , we had$476.5 million available for future issuances under the ATM Program. Results of Operations Operating Results Three Months EndedJune 30, 2021 Compared to Three Months EndedJune 30, 2020 : Three Months Ended June 30, Increase Percentage 2021 2020 (Decrease) Difference (dollars in thousands) Revenues: Rental income$ 47,744 $ 42,507 $ 5,237 12 % Independent living facilities - 615 (615) (100) % Interest and other income 514 1,046 (532) (51) % Expenses: Depreciation and amortization 13,843 13,239 604 5 % Interest expense 6,534 5,849 685 12 % Property taxes 766 837 (71) (8) % Independent living facilities - 546 (546) (100) % General and administrative 5,798 4,762 1,036 22 % Rental income. The$5.2 million , or 12%, increase in rental income is primarily due to a$4.4 million increase in rental income from real estate investments made afterApril 1, 2020 ,$0.9 million from contractual increases in rental rates for our existing tenants and$0.1 million in cash rents due to lease amendments, partially offset by a$0.1 million decrease in rental income due to the disposal of assets inFebruary 2021 and a$0.1 million decrease in tenant reimbursements. Independent living facilities. The$0.6 million , or 100%, decrease in revenues from our ILFs was due to the sale of our one remaining ILF to a third party inNovember 2020 . The$0.5 million , or 100%, decrease in expenses was for the same reason indicated for the decrease in revenues. Interest and other income. The$0.5 million , or 51%, decrease in interest and other income was primarily due to a decrease in interest income of$0.9 million due to the repayment of mortgage loans and other loans receivable primarily byCommuniCare inMay 2020 and Cascade inJuly 2020 , partially offset by approximately$0.4 million of interest income related to our mezzanine loan toNext VA Star Realty Holdings, LLC originated inNovember 2020 . See Note 4, Other Real Estate Investments, Net. Depreciation and amortization. The$0.6 million , or 5%, increase in depreciation and amortization was primarily due to an increase in depreciation and amortization of$1.4 million related to new real estate investments and capital improvements made afterApril 1, 2020 , partially offset by$0.7 million due to assets becoming fully depreciated afterApril 1, 2020 and$0.1 million of depreciation related to the disposal of assets. Interest expense. The$0.7 million , or 12%, increase in interest expense was primarily due to a higher weighted average debt balance of approximately$157.5 million for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 due to the issuance of the Notes onJune 17, 2021 and the redemption of the 2025 Notes onJuly 1, 2021 , partially offset by lower weighted average interest rates. 22 -------------------------------------------------------------------------------- Table of Contents Property taxes. The$0.1 million , or 8%, decrease in property taxes was primarily due to a$0.2 million decrease due to reassessments and decreased effective tax rates, partially offset by an increase of$0.1 million in property taxes due to the transfer of certain properties to new operators inJanuary 2021 that do not make direct tax payments. General and administrative expense. The$1.0 million , or 22%, increase in general and administrative expense was primarily related to higher stock compensation expense of$0.8 million , higher cash wages of$0.3 million and$0.1 million of other general and administrative expense, partially offset by a decrease of$0.2 million in state and business taxes compared to the prior period. Six Months EndedJune 30, 2021 Compared to Six Months EndedJune 30, 2020 : Six Months Ended June 30, Increase Percentage 2021 2020 (Decrease) Difference (dollars in thousands) Revenues: Rental income$ 92,990 $ 84,971 $ 8,019 9 % Independent living facilities - 1,240 (1,240) (100) % Interest and other income 1,019 2,297 (1,278) (56) %
Expenses:
Depreciation and amortization 27,316 26,399 917 3 % Interest expense 12,296 12,563 (267) (2) % Property taxes 1,462 1,322 140 11 % Independent living facilities - 1,092 (1,092) (100) % General and administrative 10,940 8,816 2,124 24 % Other loss: Loss on sale of real estate (192) (56) (136) 243 % Rental income. The$8.0 million , or 9%, increase in rental income is primarily due to a$6.7 million increase in rental income from real estate investments made afterJanuary 1, 2020 ,$1.6 million from contractual increases in rental rates for our existing tenants and$0.4 million in cash rents due to lease amendments, partially offset by a$0.6 million decrease in rental income due to the disposal of assets inFebruary 2020 andFebruary 2021 and a$0.1 million decrease in tenant reimbursements. Independent living facilities. The$1.2 million , or 100%, decrease in revenues from our ILFs was due to the sale of our one remaining ILF to a third party inNovember 2020 . The$1.1 million , or 100%, decrease in expenses was for the same reason indicated for the decrease in revenues. Interest and other income. The$1.3 million , or 56%, decrease in interest and other income was primarily due to a decrease in interest income of$2.2 million due to the repayment of mortgage loans and other loans receivable primarily byManteca inMay 2020 ,CommuniCare inMay 2020 and Cascade inJuly 2020 , partially offset by approximately$0.9 million of interest income related to our mezzanine loan toNext VA Star Realty Holdings, LLC originated inNovember 2020 . See Note 4, Other Real Estate Investments, Net. Depreciation and amortization. The$0.9 million , or 3%, increase in depreciation and amortization was primarily due to an increase in depreciation and amortization of$2.3 million related to new real estate investments and capital improvements made afterJanuary 1, 2020 , partially offset by$1.2 million due to assets becoming fully depreciated afterJanuary 1, 2020 and$0.2 million of depreciation related to the disposal of assets. Interest expense. The$0.3 million , or 2%, decrease in interest expense was primarily due to lower weighted average interest rates, partially offset by a higher weighted average debt balance of approximately$90.9 million for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . Property taxes. The$0.1 million , or 11%, increase in property taxes was primarily due to a$0.4 million increase in property taxes realized upon the disposition of assets inFebruary 2020 and the transfer of certain properties to new operators inJanuary 2021 that make direct tax payments, partially offset by a decrease of$0.3 million of property taxes due to reassessments and decreased effective tax rates. 23 -------------------------------------------------------------------------------- Table of Contents General and administrative expense. The$2.1 million , or 24%, increase in general and administrative expense was primarily related to higher stock compensation expense of$1.5 million , higher cash wages of$0.5 million , increased professional service fees of$0.2 million and$0.1 million of other general and administrative expense, partially offset by a decrease of$0.2 million in state and business taxes compared to the prior period. Loss on sale of real estate. During the six months endedJune 30, 2021 , we recorded a$0.2 million loss on sale of real estate related to the sale of one skilled nursing facility. During the six months endedJune 30, 2020 , we recorded a$0.1 million loss on sale of real estate related to the sale of six skilled nursing facilities. Liquidity and Capital Resources To qualify as a REIT for federal income tax purposes, we are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, to our stockholders on an annual basis. Accordingly, we intend to make, but are not contractually bound to make, regular quarterly dividends to common stockholders from cash flow from operating activities. All such dividends are at the discretion of our board of directors. As ofJune 30, 2021 , we had cash, cash equivalents and restricted cash of$311.0 million . The$309.2 million in restricted cash as ofJune 30, 2021 related to the cash deposited with the trustee to pay the redemption price of the 2025 Notes. The 2025 Notes were redeemed onJuly 1, 2021 . See above under "Recent Developments" and Note 12, Subsequent Events, for additional information. During the three and six months endedJune 30, 2021 , we sold 288,000 and 990,000 shares of common stock under our ATM Program for gross proceeds of$6.9 million and$23.5 million , respectively. As ofJune 30, 2021 , we had$476.5 million available for future issuances under the ATM Program. As ofJune 30, 2021 , we also had$50.0 million in borrowings outstanding and$550.0 million of availability remaining under the Revolving Facility (as defined below). We believe that our available cash, expected operating cash flows, and the availability under the ATM Program and Amended Credit Facility (as defined below) will provide sufficient funds for our operations, anticipated scheduled debt service payments and projected dividend payments for at least the next twelve months. We intend to invest in and/or develop additional healthcare properties as suitable opportunities arise and adequate sources of financing are available. We expect that future investments in and/or development of properties, including any improvements or renovations of current or newly-acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, borrowings available to us under the Amended Credit Facility, future borrowings or the proceeds from sales of shares of our common stock pursuant to our ATM Program or additional issuances of common stock or other securities. In addition, we may seek financing fromU.S. government agencies, including through Fannie Mae and theU.S. Department of Housing and Urban Development , in appropriate circumstances in connection with acquisitions and refinancing of existing mortgage loans. We have filed an automatic shelf registration statement with theU.S. Securities and Exchange Commission that expires inMarch 2023 , which will allow us or certain of our subsidiaries, as applicable, to offer and sell shares of common stock, preferred stock, warrants, rights, units and debt securities through underwriters, dealers or agents or directly to purchasers, in one or more offerings on a continuous or delayed basis, in amounts, at prices and on terms we determine at the time of the offering. Although we are subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incur additional indebtedness for acquisitions or other purposes, if needed. However, there can be no assurance that we will be able to refinance our indebtedness, incur additional indebtedness or access additional sources of capital, such as by issuing common stock or other debt or equity securities, on terms that are acceptable to us or at all. 24 -------------------------------------------------------------------------------- Table of Contents Cash Flows The following table presents selected data from our condensed consolidated statements of cash flows for the periods presented (dollars in thousands): For
the Six Months Ended
2021 2020
Net cash provided by operating activities $ 70,557 $ 67,942
Net cash (used in) provided by investing activities (145,043) 25,325
Net cash provided by (used in) financing activities 366,525 (107,796)
Net increase (decrease) in cash, cash equivalents, and restricted cash
292,039 (14,529)
Cash, cash equivalents, and restricted cash as of the beginning of period
18,919 20,327
Cash, cash equivalents, and restricted cash as of the end of period
$
310,958
Net cash provided by operating activities increased$2.6 million for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . Operating cash inflows are derived primarily from the rental payments received under our lease agreements, including as a result of new investments, and interest payments on our other real estate investments. Operating cash outflows consist primarily of interest expense on our borrowings and general and administrative expenses. The net increase of$2.6 million in cash provided by operating activities for the six months endedJune 30, 2021 is primarily due to increased rental payments as a result of new investments and a decrease in cash paid for interest on outstanding indebtedness due to lower weighted average interest rates, partially offset by a decrease in interest and other income due to the repayments of our other real estate investments and an increase in cash paid for general and administrative expenses. Cash used in investing activities for the six months endedJune 30, 2021 was primarily comprised of$148.5 million in acquisitions of real estate and investments in other loans and$3.5 million of purchases of equipment, furniture and fixtures and improvements to real estate, partially offset by$6.8 million in net proceeds from real estate sales and$0.1 million of payments received from other loans receivable. Cash provided by investing activities for the six months endedJune 30, 2020 was primarily comprised of$69.3 million of payments received from our preferred equity investment and mortgage and other loans receivable and$2.1 million in net proceeds from real estate sales, partially offset by$39.9 million in acquisitions of real estate and investments in real estate mortgage loans and$6.2 million of purchases of furniture, fixtures and equipment and improvements to real estate. Our cash flows provided by financing activities for the six months endedJune 30, 2021 were primarily comprised of$400.0 million of proceeds from the issuance of the Notes,$22.9 million of net proceeds from the issuance of common stock under the ATM Program, partially offset by$49.5 million in dividends paid,$5.6 million in payments of deferred financing costs and a$1.3 million net settlement adjustment on restricted stock. Our cash flows used in financing activities for the six months endedJune 30, 2020 were primarily comprised of$45.4 million in dividends paid, a$2.0 million net settlement adjustment on restricted stock,$0.4 million paid for common stock offering related costs and$60.0 million in net repayments under our Amended Credit Facility. Indebtedness 3.875% Senior Unsecured Notes due 2028 OnJune 17, 2021 , the Issuers completed a private offering of$400.0 million aggregate principal amount of 3.875% Senior Notes due 2028 to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A and to non-U.S. persons outsidethe United States in reliance on Regulation S under the Securities Act. The Notes were issued at par, resulting in gross proceeds of$400.0 million and net proceeds of approximately$393.8 million after deducting underwriting fees and other offering expenses. The Notes mature onJune 30, 2028 . The Notes accrue interest at a rate of 3.875% per annum payable semiannually in arrears onJune 30 andDecember 30 of each year, commencing onDecember 30, 2021 . The obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by the Company and all of CareTrust's existing and future subsidiaries (other than the Issuers) that guarantee obligations under the Amended Credit Facility (as defined below); provided, however, that such guarantees are subject to automatic release under certain customary circumstances. See above under "Recent Developments" and Note 6, Debt, for additional information. 25 -------------------------------------------------------------------------------- Table of Contents The indenture governing the Notes requiresCareTrust REIT and its restricted subsidiaries to maintain a specified ratio of unencumbered assets to unsecured indebtedness. These covenants are subject to a number of important and significant limitations, qualifications and exceptions. The indenture also contains customary events of default. As ofJune 30, 2021 , we were in compliance with all applicable financial covenants under the indenture governing the Notes. 5.25% Senior Unsecured Notes due 2025 and Issuer and Guarantor Financial Information OnMay 10, 2017 , the Issuers completed a public offering of$300.0 million aggregate principal amount of the 2025 Notes. The 2025 Notes were issued at par, resulting in gross proceeds of$300.0 million and net proceeds of approximately$294.0 million after deducting underwriting fees and other offering expenses. The 2025 Notes were scheduled to mature onJune 1, 2025 and bore interest at a rate of 5.25% per year. Interest on the 2025 Notes was payable onJune 1 andDecember 1 of each year, beginning onDecember 1, 2017 . OnJuly 1, 2021 , the Issuers redeemed all$300.0 million aggregate principal amount of the 2025 Notes. See above under "Recent Developments" and Note 12, Subsequent Events, for additional information. The obligations under the 2025 Notes were fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, byCareTrust REIT (the "Parent Guarantor") and all ofCareTrust REIT's existing and future subsidiaries (other than the Issuers) that guaranteed obligations under the Amended Credit Facility; provided, however, that such guarantees were subject to automatic release under certain customary circumstances, including if the Subsidiary Guarantor was sold or sold all or substantially all of its assets, the Subsidiary Guarantor was designated "unrestricted" for covenant purposes under the indenture governing the 2025 Notes, the Subsidiary Guarantor's guarantee of other indebtedness which resulted in the creation of the guarantee of the 2025 Notes was terminated or released, or the requirements for legal defeasance or covenant defeasance or to discharge the indenture had been satisfied. The following provides information regarding the entity structure of the Parent Guarantor, the Issuers and the Subsidiary Guarantors of the 2025 Notes:CareTrust REIT, Inc. - The Parent Guarantor was formed onOctober 29, 2013 in connection with the separation of Ensign's healthcare business and its real estate business into two separate and independent publicly traded companies (the "Spin-Off"). The Parent Guarantor was a wholly owned subsidiary of Ensign prior to the effective date of the Spin-Off onJune 1, 2014 . The Parent Guarantor has not conducted any operations or had any business since the Spin-Off.CTR Partnership, L.P. andCareTrust Capital Corp. - The Issuers, each of which is a wholly owned subsidiary of the Parent Guarantor, were formed onMay 8, 2014 andMay 9, 2014 , respectively, in anticipation of the Spin-Off and the related transactions. The Issuers did not conduct any operations or have any business prior to the date of the consummation of the Spin-Off related transactions.The Operating Partnership directly invests in real estate and real estate related assets and therefore does not rely solely on the cash flow generated by the Subsidiary Guarantors and their ability to make cash available to the Issuers, by dividend or otherwise. However, in the event that the earnings or available assets of the Issuers were insufficient, the Issuers' ability to pay principal and interest on the 2025 Notes could have been dependent on the cash flow generated by the Subsidiary Guarantors and their ability to make such cash available to the Issuers.CareTrust Capital Corp. , a co-issuer of the 2025 Notes, has no material assets and conducts no operations. Therefore, it had no independent ability to service the interest and principal obligations under the 2025 Notes. Subsidiary Guarantors - The Subsidiary Guarantors consisted of all of the subsidiaries of the Parent Guarantor other than the Issuers. The Parent Guarantor conducts a substantial portion of its business operations through the Subsidiary Guarantors. The assets and liabilities and results of operations of the combined guarantors (the Parent Guarantor and the Subsidiary Guarantors) and the Issuers of the 2025 Notes are not materially different than the corresponding amounts presented in our condensed consolidated financial statements. The indenture governing the 2025 Notes contained customary covenants such as limiting the ability ofCareTrust REIT and its restricted subsidiaries to: incur or guarantee additional indebtedness; incur or guarantee secured indebtedness; make certain investments or other restricted payments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their assets, and pay dividends or distributions on, or redeem or repurchase, capital stock, including a restriction on the ability of the Issuers and their restricted subsidiaries to pay dividends or other amounts to the Issuers, subject to certain other exceptions, unless: (i) there was no default or event of default under the indenture; (ii) the 26 -------------------------------------------------------------------------------- Table of Contents Issuers were in compliance with specified limitations on indebtedness under the indenture; and (iii) the payments did not exceed a specified restricted payment basket. Dividends or distributions were also permitted if the Parent Guarantor's board of directors believed in good faith they were necessary to maintain Parent Guarantor's REIT status or to avoid any excise tax or income tax imposed on Parent Guarantor, provided there was no default or event of default under the indenture. Further, the Issuers and their restricted subsidiaries were not permitted to create or cause to become effective any encumbrance or restriction on the ability of the Issuers to, among other things, pay dividends or make distributions, pay indebtedness, make loans or advances to the Issuers or their restricted subsidiaries or transfer property or assets to the Issuers or their restricted subsidiaries, other than in connection with certain customary exceptions such as in respect of the indenture or the Amended Credit Facility. As ofJune 30, 2021 , we were in compliance with all applicable financial covenants under the indenture governing the 2025 Notes. Unsecured Revolving Credit Facility and Term Loan OnFebruary 8, 2019 , theOperating Partnership , as the borrower, the Company, as guarantor,CareTrust GP, LLC , and certain of theOperating Partnership's wholly owned subsidiaries entered into an amended and restated credit and guaranty agreement withKeyBank National Association , as administrative agent, an issuing bank and swingline lender, and the lenders party thereto (the "Amended Credit Agreement"). The Amended Credit Agreement provides for: (i) an unsecured revolving credit facility (the "Revolving Facility") with revolving commitments in an aggregate principal amount of$600.0 million , including a letter of credit subfacility for 10% of the then available revolving commitments and a swingline loan subfacility for 10% of the then available revolving commitments and (ii) an unsecured term loan credit facility (the "Term Loan" and, together with the Revolving Facility, the "Amended Credit Facility") in an aggregate principal amount of$200.0 million . Borrowing availability under the Revolving Facility is subject to no default or event of default under the Amended Credit Agreement having occurred at the time of borrowing. The proceeds of the Term Loan were used, in part, to repay in full all outstanding borrowings under our prior term loan and revolving facility under our prior credit agreement. Future borrowings under the Amended Credit Facility will be used for working capital purposes, for capital expenditures, to fund acquisitions and for general corporate purposes. The interest rates applicable to loans under the Revolving Facility are, at theOperating Partnership's option, equal to either a base rate plus a margin ranging from 0.10% to 0.55% per annum or LIBOR plus a margin ranging from 1.10% to 1.55% per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at theOperating Partnership's election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). The interest rates applicable to loans under the Term Loan are, at theOperating Partnership's option, equal to either a base rate plus a margin ranging from 0.50% to 1.20% per annum or LIBOR plus a margin ranging from 1.50% to 2.20% per annum based on the debt to asset value ratio of the Company and its consolidated subsidiaries (subject to decrease at theOperating Partnership's election if the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt). In addition, theOperating Partnership will pay a facility fee on the revolving commitments under the Revolving Facility ranging from 0.15% to 0.35% per annum, based on the debt to asset value ratio of the Company and its consolidated subsidiaries (unless the Company obtains certain specified investment grade ratings on its senior long-term unsecured debt and theOperating Partnership elects to decrease the applicable margin as described above, in which case theOperating Partnership will pay a facility fee on the revolving commitments ranging from 0.125% to 0.30% per annum based off the credit ratings of the Company's senior long-term unsecured debt). As ofJune 30, 2021 , we had$200.0 million outstanding under the Term Loan and$50.0 million outstanding under the Revolving Facility. Subsequent toJune 30, 2021 , we borrowed an additional$50.0 million under our Revolving Facility to fund the acquisition of two SNFs inAugust 2021 . See Note 12, Subsequent Events for additional information. The Revolving Facility has a maturity date ofFebruary 8, 2023 , and includes, at our sole discretion, two, six-month extension options. The Term Loan has a maturity date ofFebruary 8, 2026 . The Amended Credit Facility is guaranteed, jointly and severally, by the Company and its wholly-owned subsidiaries that are party to the Amended Credit Agreement (other than theOperating Partnership ). The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, amend organizational documents and pay certain dividends and other restricted payments. The Amended Credit Agreement requires the Company to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum debt to asset value ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, a maximum cash distributions to operating income ratio, a maximum secured debt to asset value ratio, a maximum secured recourse debt to asset value ratio, a maximum unsecured debt to unencumbered properties asset value ratio, a minimum unsecured interest coverage ratio and a minimum rent coverage ratio. The Amended Credit Agreement also contains certain 27 -------------------------------------------------------------------------------- Table of Contents customary events of default, including the failure to make timely payments under the Amended Credit Facility or other material indebtedness, the failure to satisfy certain covenants (including the financial maintenance covenants), the occurrence of change of control and specified events of bankruptcy and insolvency. As ofJune 30, 2021 , we were in compliance with all applicable financial covenants under the Amended Credit Agreement. Obligations and Commitments The following table summarizes our contractual obligations and commitments as ofJune 30, 2021 (in thousands):
Payments Due by Period
1 Year 3 Years
Less to Less to Less More
than than than than
Total 1 Year 3 Years 5 Years 5 years
2028 Senior unsecured notes payable
(1) $ 509,103 $ 16,103 $ 31,000 $ 31,000 $ 431,000
2025 Senior unsecured notes payable
(2) 309,187 309,187 - - -
Senior unsecured term loan (3) 214,930 3,243 6,477 205,210 -
Unsecured revolving credit facility
(4) 52,453 1,525 50,928 - -
Operating leases 3,662 265 230 104 3,063
Total $ 1,089,335 $ 330,323 $ 88,635 $ 236,314 $ 434,063
(1)Amounts include interest payments of $109.1 million .
(2)Amount includes the redemption price of the 2025 Notes. The 2025 Notes were
redeemed on July 1, 2021 . See above under "Recent Developments" and Note 12,
Subsequent Events for additional information.
(3)Amounts include interest payments of $14.9 million .
(4)Amounts include payments related to the credit facility fee of $1.5 million
and interest payments of $1.0 million . Amounts do not include $50.0 million in
additional borrowings under the Revolving Facility made in August 2021 . See Note
12, Subsequent Events for additional information.
Capital Expenditures
Capital expenditures for each property leased under our triple-net leases are
generally the responsibility of the tenant, except that, for the facilities
leased to subsidiaries of Ensign and Pennant, the tenant will have an option to
require us to finance certain capital expenditures up to an aggregate of 20% of
our initial investment in such property, subject to a corresponding rent
increase at the time of funding. For our other triple-net master leases, subject
to approval by us, the tenants may request capital expenditure funding that
would generally be subject to a corresponding rent increase at the time of
funding and which are subject to tenant compliance with the conditions to our
approval and funding of their requests. As of June 30, 2021 , we had committed to
fund certain capital improvements at certain triple-net leased facilities
totaling $13.1 million , of which $11.6 million is subject to rent increase at
the time of funding. We expect the majority of the funding of these commitments
to be completed over the next one to two years.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements included in Item 1 of this
Quarterly Report on Form 10-Q have been prepared in accordance with GAAP for
interim financial information set forth in the Accounting Standards
Codification, as published by the Financial Accounting Standards Board . GAAP
requires us to make estimates and assumptions regarding future events that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. We
base these estimates on our experience and assumptions we believe to be
reasonable under the circumstances. However, if our judgment or interpretation
of the facts and circumstances relating to various transactions or other matters
had been different, we may have applied a different accounting treatment,
resulting in a different presentation of our financial statements. We
periodically reevaluate our estimates and assumptions, and in the event they
prove to be different from actual results, we make adjustments in subsequent
periods to reflect more current estimates and assumptions about matters that are
inherently uncertain. Please refer to "Critical Accounting Policies and
Estimates" in the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section of our Annual Report on Form 10-K for the
year ended December 31, 2020 , filed with the SEC
28--------------------------------------------------------------------------------
Table of Contents onFebruary 10, 2021 , for further information regarding the critical accounting policies that affect our more significant estimates and judgments used in the preparation of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. There have been no material changes in such critical accounting policies during the six months endedJune 30, 2021 .
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