10-Q 1 ctre-20220930.htm 10-Q ctre-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     

Commission File Number: 001-36181
CareTrust REIT, Inc.
(Exact name of registrant as specified in its charter)
Maryland46-3999490
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
905 Calle Amanecer, Suite 300, San Clemente, CA
92673
(Address of principal executive offices)(Zip Code)
(949) 542-3130
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareCTRENew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes      No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes      No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes      No
As of November 7, 2022, there were 97,028,742 shares of common stock outstanding.





INDEX






PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.

CARETRUST REIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
 
September 30, 2022December 31, 2021
Assets:
Real estate investments, net$1,384,166 $1,589,971 
Other real estate related investments, at fair value (including accrued interest of $1,218 as of September 30, 2022 and $155 as of December 31, 2021)
158,662 15,155 
Assets held for sale, net77,708 4,835 
Cash and cash equivalents4,861 19,895 
Accounts and other receivables808 2,418 
Prepaid expenses and other assets, net19,046 7,512 
Deferred financing costs, net327 1,062 
Total assets$1,645,578 $1,640,848 
Liabilities and Equity:
Senior unsecured notes payable, net$394,928 $394,262 
Senior unsecured term loan, net199,295 199,136 
Unsecured revolving credit facility180,000 80,000 
Accounts payable, accrued liabilities and deferred rent liabilities30,851 25,408 
Dividends payable26,827 26,285 
Total liabilities831,901 725,091 
Commitments and contingencies (Note 11)
Equity:
Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued and outstanding as of September 30, 2022 and December 31, 2021
  
Common stock, $0.01 par value; 500,000,000 shares authorized, 96,605,112 and 96,296,673 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
966 963 
Additional paid-in capital1,196,662 1,196,839 
Cumulative distributions in excess of earnings(383,951)(282,045)
Total equity813,677 915,757 
Total liabilities and equity$1,645,578 $1,640,848 










See accompanying notes to condensed consolidated financial statements.

1

CARETRUST REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
 
 For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2022202120222021
Revenues:
Rental income$47,018 $48,087 $139,831 $141,077 
Interest and other income3,275 518 4,491 1,537 
Total revenues50,293 48,605 144,322 142,614 
Expenses:
Depreciation and amortization12,256 13,968 38,390 41,284 
Interest expense8,355 5,692 20,400 17,988 
Property taxes691 1,004 3,365 2,466 
Impairment of real estate investments12,322  73,706  
Provision for loan losses, net  3,844  
Property operating expenses3,808  4,344  
General and administrative5,159 5,196 15,352 16,136 
Total expenses42,591 25,860 159,401 77,874 
Other loss:
Loss on extinguishment of debt (10,827) (10,827)
Loss on sale of real estate, net(2,287) (2,101)(192)
Unrealized loss on other real estate related investments(4,706) (4,706) 
Total other loss(6,993)(10,827)(6,807)(11,019)
Net income (loss)$709 $11,918 $(21,886)$53,721 
Earnings (loss) per common share:
Basic$0.01 $0.12 $(0.23)$0.56 
Diluted$0.01 $0.12 $(0.23)$0.56 
Weighted-average number of common shares:
Basic96,605 96,297 96,527 95,922 
Diluted96,625 96,297 96,527 95,937 










See accompanying notes to condensed consolidated financial statements.
2

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


Common StockAdditional
Paid-in
Capital
Cumulative
Distributions in Excess of Earnings
Total
Equity
SharesAmount
Balance at January 1, 202296,296,673 $963 $1,196,839 $(282,045)$915,757 
Vesting of restricted common stock, net of shares withheld for employee taxes190,393 2 (2,774)— (2,772)
Amortization of stock-based compensation— — 1,521 — 1,521 
Common dividends ($0.275 per share)
— — — (26,659)(26,659)
Net loss— — — (43,264)(43,264)
Balance at March 31, 202296,487,066 965 1,195,586 (351,968)844,583 
Vesting of restricted common stock, net of shares withheld for employee taxes118,046 1 (1,698)— (1,697)
Amortization of stock-based compensation— — 1,394 — 1,394 
Common dividends ($0.275 per share)
— — — (26,681)(26,681)
Net income— — — 20,669 20,669 
Balance at June 30, 202296,605,112 966 1,195,282 (357,980)838,268 
Amortization of stock-based compensation— — 1,380 — 1,380 
Common dividends ($0.275 per share)
— — — (26,680)(26,680)
Net income— — — 709 709 
Balance at September 30, 202296,605,112 $966 $1,196,662 $(383,951)$813,677 





























See accompanying notes to condensed consolidated financial statements.

3

CARETRUST REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share and per share amounts)
(Unaudited)
 Common StockAdditional
Paid-in
Capital
Cumulative
Distributions in Excess of Earnings
Total
Equity
SharesAmount
Balance at January 1, 202195,215,797 $952 $1,164,402 $(251,212)$914,142 
Issuance of common stock, net702,000 7 16,184 — 16,191 
Vesting of restricted common stock, net of shares withheld for employee taxes63,265 1 (1,331)— (1,330)
Amortization of stock-based compensation— — 1,585 — 1,585 
Common dividends ($0.265 per share)
— — — (25,633)(25,633)
Net income— — — 20,486 20,486 
Balance at March 31, 202195,981,062 960 1,180,840 (256,359)925,441 
Issuance of common stock, net288,000 3 6,752 — 6,755 
Vesting of restricted common stock27,611 — — — — 
Amortization of stock-based compensation— — 1,810 — 1,810 
Common dividends ($0.265 per share)
— — — (25,714)(25,714)
Net income— — — 21,317 21,317 
Balance at June 30, 202196,296,673 963 1,189,402 (260,756)929,609 
Amortization of stock-based compensation— — 1,802 — 1,802 
Common dividends ($0.265 per share)
— — — (25,714)(25,714)
Net income— — — 11,918 11,918 
Balance at September 30, 202196,296,673 $963 $1,191,204 $(274,552)$917,615 















See accompanying notes to condensed consolidated financial statements.
4

CARETRUST REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 For the Nine Months Ended September 30,
 20222021
Cash flows from operating activities:
Net (loss) income$(21,886)$53,721 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization (including below-market ground leases)38,437 41,328 
Amortization of deferred financing costs1,560 1,531 
Loss on extinguishment of debt 10,827 
Unrealized loss on other real estate related investments4,706  
Amortization of stock-based compensation4,295 5,197 
Straight-line rental income(14)(26)
Adjustment for collectibility of rental income977  
Noncash interest income(1,063) 
Loss on sale of real estate, net2,101 192 
Impairment of real estate investments73,706  
Provision for loan losses, net3,844  
Change in operating assets and liabilities:
Accounts and other receivables648 (1,775)
Prepaid expenses and other assets, net(2,082)(20)
Accounts payable, accrued liabilities and deferred rent liabilities5,443 7,388 
Net cash provided by operating activities110,672 118,363 
Cash flows from investing activities:
Acquisitions of real estate, net of deposits applied(21,915)(180,323)
Purchases of equipment, furniture and fixtures and improvements to real estate(5,475)(4,826)
Investment in real estate related investments and other loans receivable(149,650)(700)
Principal payments received on other loans receivable 1,166 172 
Escrow deposits for potential acquisitions of real estate (3,100)
Net proceeds from sales of real estate34,115 6,814 
Net cash used in investing activities(141,759)(181,963)
Cash flows from financing activities:
Proceeds from the issuance of common stock, net 22,946 
Proceeds from the issuance of senior unsecured notes payable 400,000 
Borrowings under unsecured revolving credit facility145,000 220,000 
Payments on senior unsecured notes payable (300,000)
Payments on unsecured revolving credit facility(45,000)(190,000)
Payments on debt extinguishment and deferred financing costs (14,070)
Net-settle adjustment on restricted stock(4,469)(1,331)
Dividends paid on common stock(79,478)(75,148)
Net cash provided by financing activities16,053 62,397 
Net decrease in cash and cash equivalents(15,034)(1,203)
Cash and cash equivalents as of the beginning of period19,895 18,919 
Cash and cash equivalents as of the end of period$4,861 $17,716 
Supplemental disclosures of cash flow information:
Interest paid$14,898 $13,267 
Supplemental schedule of noncash investing and financing activities:
Increase in dividends payable$542 $1,913 
Transfer of pre-acquisition costs to acquired assets$7 $358 
Sale of real estate settled with notes receivable$12,000 $ 
See accompanying notes to condensed consolidated financial statements.
5

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



1. ORGANIZATION
Description of Business—CareTrust REIT, Inc.’s (“CareTrust REIT” or the “Company”) primary business consists of acquiring, financing, developing and owning real property to be leased to third-party tenants in the healthcare sector. As of September 30, 2022, the Company owned and leased to independent operators, 221 skilled nursing facilities (“SNFs”), multi-service campuses, assisted living facilities (“ALFs”) and independent living facilities (“ILFs”) consisting of 23,135 operational beds and units located in 29 states with the highest concentration of properties by rental income located in California, Texas, Louisiana, Idaho and Arizona. As of September 30, 2022, the Company also had other real estate related investments consisting of three real estate secured loans receivable and two mezzanine loans receivable with an aggregate carrying value of $158.7 million.
COVID-19—The COVID-19 pandemic has had and may continue to have an adverse impact on the economy generally and the Company’s business, results of operations and financial condition. The duration and extent of the COVID-19 pandemic’s effect on the Company’s operational and financial performance, and the operational and financial performance of the Company’s tenants, will depend on future developments, which are highly uncertain and cannot be predicted at this time, including 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 the Company’s business, results of operations and financial condition could be material.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation—The accompanying condensed consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all of the disclosures required by GAAP for a complete set of annual audited financial statements. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. In the opinion of management, all adjustments which are of a normal and recurring nature and considered necessary for a fair presentation of the results of the interim periods presented have been included. The results of operations for the interim periods are not necessarily indicative of results for the full year. All intercompany transactions and account balances within the Company have been eliminated.
 Recent Accounting Pronouncements—In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional relief to applying reference rate reform to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”). For U.S. Dollar LIBOR, the overnight, one-month, three-month, six-month and one-year LIBOR rates will be discontinued in June 2023, while other U.S. Dollar LIBOR rates were discontinued at the end of 2021. The amendments in this update are effective immediately and may be applied through December 31, 2022. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

6

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


3. REAL ESTATE INVESTMENTS, NET
The following table summarizes the Company’s real estate properties held for investment at September 30, 2022 and December 31, 2021 (dollars in thousands):
September 30, 2022December 31, 2021
Land$236,298 $251,787 
Buildings and improvements1,437,292 1,622,019 
Integral equipment, furniture and fixtures96,306 104,722 
Identified intangible assets2,832 1,257 
Real estate investments1,772,728 1,979,785 
Accumulated depreciation and amortization(388,562)(389,814)
Real estate investments, net$1,384,166 $1,589,971 
As of September 30, 2022, 217 of the Company’s 221 facilities were leased to various operators under triple-net leases. All of these leases contain annual escalators based on the percentage change in the Consumer Price Index (“CPI”) (but not less than zero), some of which are subject to a cap, or fixed rent escalators. During the second and third quarters of 2022, the Company entered into triple-net lease agreements for two of the Company’s 221 facilities which are being repurposed to behavioral health facilities with rent commencing 12 to 18 months following lease commencement. Two of the Company’s 221 facilities are non-operational and are leased under a short term lease with an expected term of less than one year as of September 30, 2022. As of September 30, 2022, 19 facilities were held for sale. See Note 4, Impairment of Real Estate Investments, Assets Held for Sale, Net and Asset Sales for additional information.
7

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


As of September 30, 2022, the Company’s total future contractual minimum rental income for all of its tenants, excluding operating expense reimbursements, was as follows (dollars in thousands):
YearAmount
2022 (three months)$48,193 
2023192,638 
2024192,396 
2025192,555 
2026192,661 
2027189,653 
Thereafter1,001,323 
Total$2,009,419 
Tenant Purchase Options
Certain of the Company’s operators hold purchase options allowing them to acquire properties they currently lease from the Company. A summary of these purchase options is presented below (dollars in thousands):
Asset TypePropertiesLease ExpirationNext Option Open Date
Option Type(1)
Current Cash Rent(2)
ALF5
(6)
October 20341/1/2023
(3)
A$2,287 
SNF11November 20301/1/2023
(3)
C5,092 
SNF1March 20294/1/2022
(4)
B / C(5)
805 
SNF / Campus2October 20321/1/2023
(3)
B1,065 
SNF4November 203412/1/2024
(4)
B3,796 
ALF2
(6)
October 20341/1/2026
(3)
A1,598 
(1) Option type includes:
A - Fixed base price plus a specified share on any appreciation.
B - Fixed base price.
C - Fixed capitalization rate on lease revenue.
(2) Based on annualized cash revenue for contracts in place as of September 30, 2022.
(3) Option window is open for six months.
(4) Option window is open until the expiration of the lease term.
(5) Purchase option reflects two option types.
(6) Includes properties classified as held for sale as of September 30, 2022.
Rental Income
The following table summarizes components of the Company’s rental income (dollars in thousands):
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
Rental Income2022202120222021
Contractual rent due(1)
$47,015 $48,081 $140,794 $140,988 
Straight-line rent3 6 14 26 
Adjustment for collectibility(2)
  (977) 
Lease termination revenue(3)
   63 
Total$47,018 $48,087 $139,831 $141,077 
(1) Includes initial contractual cash rent and tenant operating expense reimbursements, as adjusted for applicable rental escalators and rent increases due to capital expenditures funded by the Company. For tenants on a cash basis, this represents the lesser of the amount that would be recognized on a straight-line basis or cash that has been received. Tenant operating expense reimbursements for the three months ended September 30, 2022 and 2021 were $0.7 million and $1.0 million, respectively. Tenant operating expense reimbursements for the nine months ended September 30, 2022 and 2021 were $2.0 million and $2.5 million, respectively.
8

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


(2)    During the nine months ended September 30, 2022, and in accordance with Accounting Standards Codification 842, the Company evaluated the collectibility of lease payments through maturity and determined that it was not probable that the Company would collect substantially all of the contractual obligations from four existing and former operators. As such, the Company reversed $0.7 million of operating expense reimbursements, $0.2 million of contractual rent and $0.1 million of straight-line rent during the nine months ended September 30, 2022. If lease payments are subsequently deemed probable of collection, the Company will increase rental income for such recoveries.
(3) During the nine months ended September 30, 2021, in connection with the agreement to terminate its lease agreements with Metron Integrated Health Systems (“Metron”) and to sell the facilities to a third party, the Company received approximately $0.1 million from Metron affiliates.
Recent Real Estate Acquisitions
The following table summarizes the Company’s acquisitions for the nine months ended September 30, 2022 (dollars in thousands):
Type of Property
Purchase Price(1)
Initial Annual Cash RentNumber of Properties
Number of Beds/Units(2)
Skilled nursing$8,918 $815 1 135 
Multi-service campuses13,003 1,235 1 130 
Total$21,921 $2,050 2 265 
(1) Purchase price includes capitalized acquisition costs.
(2) The number of beds/units includes operating beds at the acquisition date.
Lease Amendments
Noble Partial Lease Termination and New Landmark Leases. On August 29, 2022, one ALF in Maryland was removed from a master lease with affiliates of Noble Senior Services (“Noble”) and the Company amended the applicable Noble master lease to reflect the removal of the ALF. Annual cash rent under the applicable Noble master lease decreased by approximately $0.5 million. In connection with the partial lease termination, the Company entered into a lease with Landmark Recovery of Maryland, LLC (“Landmark Maryland”) to repurpose the facility to a behavioral health treatment center. Rent under the lease will commence 18 months following commencement of the lease term or, if earlier, upon Landmark Maryland obtaining all licensure, permits, and other required regulatory authorizations with respect to operating the facility. The lease will expire on the 20th anniversary of the rent commencement date and contains one 10-year renewal option and CPI-based rent escalators.
On June 16, 2022, one ALF in Florida was removed from a master lease with affiliates of Noble and the Company amended the applicable Noble master lease to reflect the removal of the ALF. Annual cash rent under the applicable Noble master lease decreased by approximately $0.6 million. In connection with the partial lease termination, the Company entered into a lease with Landmark Recovery of Florida, LLC (“Landmark Florida”) to repurpose the facility to a behavioral health treatment center. Rent under the lease will commence one year following commencement of the lease term or, if earlier, upon Landmark Florida obtaining all licensure, permits, and other required regulatory authorizations with respect to operating the facility. The lease will expire on the 20th anniversary of the rent commencement date and contains one 10-year renewal option and CPI-based rent escalators.
Pennant Partial Lease Termination and Amended Ensign Master Leases. On April 1, 2022, operations at two ALFs in California and Washington operated by affiliates of The Pennant Group, Inc. (“Pennant”) were transferred to affiliates of The Ensign Group, Inc. (“Ensign”). In connection with the transfers, the Company amended the Pennant master lease to reflect the removal of the two ALFs and amended two existing triple-net master leases with Ensign to include the two ALFs. The applicable Ensign master leases, as amended, had a remaining term at the date of amendment of approximately five years and 16 years, respectively, both with three five-year renewal options and CPI-based rent escalators. Annual cash rent under each of the two applicable Ensign master leases, as amended, increased by approximately $0.4 million and annual cash rent under the Pennant master lease, as amended, decreased by $0.8 million.
On March 1, 2022, operations at one ALF in Arizona operated by affiliates of Pennant were transferred to affiliates of Ensign. In connection with the transfer, the Company amended the Pennant master lease to reflect the removal of the ALF and amended an existing triple-net master lease with Ensign to include the one ALF. The applicable Ensign master lease, as amended, had a remaining term at the date of amendment of approximately 11 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the applicable Ensign master lease, as amended, increased by approximately $0.3 million and annual cash rent under the Pennant master lease, as amended, decreased by the same amount.
9

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


Amended Eduro Master Lease. On February 1, 2022, the Company acquired one SNF. In conjunction with the acquisition, the Company amended its existing triple-net master lease with affiliates of Eduro Healthcare, LLC (“Eduro”) to include the one SNF and extended the initial lease term. The Eduro master lease, as amended, had a remaining term at the date of amendment of approximately 12 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the Eduro master lease, as amended, increased by approximately $0.8 million.
Amended WLC Master Lease. On March 1, 2022, the Company acquired one multi-service campus. In conjunction with the acquisition, the Company amended its existing triple-net master lease with affiliates of WLC Management Firm, LLC (“WLC”) to include the one multi-service campus. The WLC master lease, as amended, had a remaining term at the date of amendment of approximately 12 years, with two five-year renewal options and CPI-based rent escalators. Annual cash rent under the WLC master lease, as amended, increased by approximately $1.2 million.
4. IMPAIRMENT OF REAL ESTATE INVESTMENTS, ASSETS HELD FOR SALE, NET AND ASSET SALES
In connection with the Company’s ongoing review and monitoring of its investment portfolio and the performance of its tenants, during the first quarter of 2022, the Company determined to pursue the sale of 27 properties and the repurposing of three properties representing an aggregate of approximately 10% of contractual cash rent as of March 31, 2022. As of March 31, 2022, the Company determined that these 27 properties met the criteria to be classified as assets held for sale and, in connection with this determination, the Company recognized an aggregate impairment charge of $59.7 million related to 20 of the 27 held for sale properties, which is reported in impairment of real estate investments in the condensed consolidated statements of operations for the nine months ended September 30, 2022. The impairment charge was recognized to write down the properties’ aggregate carrying value to their aggregate fair value, less estimated costs to sell.
Following the asset sales and held for sale reclassifications discussed below, 19 properties continued to meet the criteria to be classified as held for sale as of September 30, 2022. During the third quarter of 2022, the Company recognized an additional aggregate impairment charge of $12.3 million related to 16 of the 19 held for sale properties to reduce their carrying value to estimated fair value less costs to sell. As of September 30, 2022, the real estate comprising the remaining 19 properties classified as held for sale had an aggregate carrying value of $77.7 million.
The fair value of the assets held for sale was based on estimated sales prices, which are considered to be Level 3 measurements within the fair value hierarchy. Estimated sales prices were determined using a market approach (comparable sales model), which relies on certain assumptions by management, including: (i) comparable market transactions, (ii) estimated prices per unit, and (iii) binding agreements for sales and non-binding offers to purchase from unrelated third-parties. There are inherent uncertainties in making these assumptions. For the Company’s impairment calculations, the Company’s fair value estimates primarily relied on a market approach and utilized prices per unit ranging from $35,000 to $145,000, with a weighted average price per unit of $80,000.
During the second quarter of 2022, the Company recognized an impairment charge of $1.7 million related to one SNF. The Company wrote down its carrying value of $2.8 million to its estimated fair value of $1.1 million, which is included in real estate investments, net on the Company’s condensed consolidated balance sheets. The fair value of the asset was based on comparable market transactions. For the Company’s impairment calculation, the Company’s fair value estimates primarily relied on a market approach and utilized prices per unit of $20,000.
Asset Sales and Held for Sale Reclassifications
During the first quarter of 2022, the Company determined that one ALF that was classified as held for sale at December 31, 2021 no longer met the held for sale criteria. The Company reclassified this ALF’s carrying value of $4.8 million out of assets held for sale and recorded catch-up depreciation of approximately $0.1 million during the nine months ended September 30, 2022.
On February 22, 2022, the Company closed on the sale of one SNF, operated by affiliates of Cascadia Healthcare, LLC (“Cascadia”), consisting of 83 beds located in Washington with a carrying value of $0.8 million, for net sales proceeds of $1.0 million. During the nine months ended September 30, 2022, the Company recorded a gain of $0.2 million in connection with the sale. There was no rent reduction under the Cascadia master lease in connection with the sale.
10

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


During the third quarter of 2022, the Company determined that one ALF, with a carrying value of $4.9 million, that was classified as held for sale at June 30, 2022 no longer met the held for sale criteria. The Company reclassified this ALF out of assets held for sale at its fair value at the date of the decision not to sell of approximately $4.9 million, or a weighted average price per unit of $125,000.
On September 29, 2022, the Company closed on the sale of six SNFs and one multi-service campus, operated by affiliates of Trio Healthcare Holdings, LLC (“Trio”), consisting of 708 beds located in Ohio for net proceeds of $32.8 million. In connection with the sale, the Company provided affiliates of the purchaser of the properties with a $7.0 million term loan that bears interest at 8.5% and has a maturity date of September 30, 2025. The Company also provided a $5.0 million bridge loan to four individuals that bears interest at 8.5% and has a maturity date of November 29, 2022. The seven properties were classified as held for sale at June 30, 2022 with a carrying value of $46.9 million. During the three months ended September 30, 2022, the Company recorded a loss of $2.1 million in connection with the sale.


5. OTHER REAL ESTATE RELATED INVESTMENTS, AT FAIR VALUE, AND OTHER LOANS RECEIVABLE
As of September 30, 2022 and December 31, 2021, the Company’s other real estate related investments, at fair value, consisted of the following (dollars in thousands):
As of September 30, 2022
InvestmentFacility Count and Type
Principal Balance as of September 30, 2022
Book Value as of September 30, 2022
Book Value as of December 31, 2021
Weighted Average Contractual Interest RateMaturity Date
Senior secured loan receivable
18 SNF/Campus
$75,000 $72,525 $ 8.4 %
[1]
6/30/2027
Secured loan receivable
5 SNF
22,250 22,423  9.6 %
[2]
8/1/2025
Secured loan receivable
4 SNF
24,900 25,043  9.0 %
[2]
9/8/2025
Mezzanine loan receivable
9 SNF
15,000 14,667 15,155 12.0 %11/30/2025
Mezzanine loan receivable
18 SNF/Campus
25,000 24,004  11.0 %6/30/2032
$162,150 $158,662 $15,155 
[1] Rate is net of subservicing fee.
[2] Term secured overnight financing rate (“SOFR”) used as of September 30, 2022 was 3.02%. Rates are net of subservicing fees.
The following table summarizes the Company’s other real estate related investments activity for the nine months ended September 30, 2022 and 2021 (dollars in thousands):
Nine Months Ended September 30,
2022
2021
Origination of other real estate related investments$147,150 $ 
Accrued interest, net1,063 150 
Unrealized loss on other real estate related investments(4,706) 
Net increase in other real estate related investments, at fair value$143,507 $150 
11

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


In September 2022, the Company extended a $24.9 million term loan as part of a larger, multi-tranche real estate secured term loan facility to a skilled nursing real estate owner. The secured term loan was structured with an “A” and a “B” tranche (with the payments on the “B” tranche being subordinate to the “A” tranche pursuant to the terms of a written agreement between the lenders). The Company’s $24.9 million secured term loan constituted the entirety of the “B” tranche with its payments subordinated accordingly. The secured term loan is primarily secured by four skilled nursing facilities operated by an operator in the Southeast. The “B” tranche secured term loan is set to mature on September 8, 2025, with two one-year extension options and may (subject to certain restrictions) be prepaid in whole or in part before the maturity date for an exit fee ranging from 1% to 3% of the loan plus unpaid interest payments; provided, however, that no exit fee is payable in connection with portions of the loan being refinanced pursuant to a loan (or loans) provided by or insured by the United States Department of Housing and Urban Development, Federal Housing Administration, or a similar governmental authority. The “B” tranche secured term loan provides for an earnout advance of $4.7 million if certain conditions are met. The "B" tranche secured term loan bears interest at a rate based on term SOFR, calculated as a fraction, with the numerator being the difference between (i) the monthly payment of interest of term SOFR plus a 4.50% spread and (ii) the amount of such monthly payment of interest of term SOFR plus a 2.85% spread, and with the denominator being the average daily balance of the outstanding principal amount during the applicable month, with such fraction expressed as a percentage and annualized, with a term SOFR floor of 1.0% and less a subservicing fee of 100% over 9.00%. The “B” tranche secured term loan requires monthly interest payments. The Company elected the fair value option for the “B” tranche secured term loan.
In August 2022, the Company extended a $22.3 million term loan as part of a larger, multi-tranche real estate secured term loan facility to a skilled nursing real estate owner. The secured term loan was structured with an “A” and a “B” tranche (with the payments on the “B” tranche being subordinate to the “A” tranche pursuant to the terms of a written agreement between the lenders). The Company’s $22.3 million secured term loan constituted the entirety of the “B” tranche with its payments subordinated accordingly. The secured term loan is primarily secured by five skilled nursing facilities, four of which will be operated by an existing operator and one of which will be operated by a large, regional skilled nursing operator. The “B” tranche secured term loan is set to mature on August 1, 2025, with two one-year extension options and may (subject to certain restrictions) be prepaid in whole or in part before the maturity date for an exit fee ranging from 2% to 3% of the loan plus unpaid interest payments; provided, however, that no exit fee is payable in connection with portions of the loan being refinanced pursuant to a loan (or loans) provided by or insured by the United States Department of Housing and Urban Development, Federal Housing Administration, or a similar governmental authority. The "B" tranche secured term loan bears interest at a rate based on term secured overnight financing rate, calculated as a fraction, with the numerator being the difference between (i) the monthly payment of interest of term SOFR plus a 4.25% spread and (ii) the amount of such monthly payment of interest of term SOFR plus a 2.75% spread, and with the denominator being the average daily balance of the outstanding principal amount during the applicable month, with such fraction expressed as a percentage and annualized, with a term SOFR floor of 1.0% and less a subservicing fee of 50% over 8.25%. The “B” tranche secured term loan requires monthly interest payments. The Company elected the fair value option for the “B” tranche secured term loan.
In June 2022, the Company extended a $75.0 million term loan to a skilled nursing real estate owner as part of a larger, multi-tranche, senior secured term loan facility. The senior secured term loan was structured with an “A” tranche, a “B” tranche, and a “C” tranche (with the “C” tranche being the most subordinate). The Company’s $75.0 million term loan constituted the entirety of the “C” tranche with its payments subordinated accordingly. The senior secured term loan facility is secured by an 18-facility skilled nursing portfolio in the Mid-Atlantic region, operated by a large, regional skilled nursing operator. In connection with the senior secured term loan facility and the borrower’s acquisition of the skilled nursing portfolio, the Company also extended to the borrower group a $25.0 million mezzanine loan. The “C” tranche of the senior secured term loan bears interest at 8.5%, less a servicing fee equal to the positive difference, if any, between the lesser of the contractual interest payment and actual payment of interest made by the borrower and a hypothetical interest payment at a rate of 8.25%, resulting in an effective interest rate of 8.375%. The “C” tranche senior secured term loan is set to mature on June 30, 2027 and may (subject to certain restrictions) be prepaid in whole or in part before the maturity date for an exit fee ranging from 1% to 3% of the loan plus unpaid interest payments through the end of the month of prepayment; provided, however, that no exit fee is payable in connection with portions of the loan being refinanced pursuant to a loan (or loans) provided by or insured by the United States Department of Housing and Urban Development, Federal Housing Administration, or a similar governmental authority. The mezzanine loan bears interest at 11% and is secured by a pledge of membership interests in an up-tier affiliate of the borrower group. The mezzanine loan is set to mature on June 30, 2032, and may (subject to certain restrictions) be prepaid in whole or in part before the maturity date, commencing on June 30, 2029, for an exit fee ranging from 1% to 3% of the loan plus unpaid interest payments through the date of prepayment. The “C” tranche senior secured term loan and mezzanine loan both require monthly interest payments. The Company elected the fair value option for both the “C” tranche term loan and the mezzanine loan.
12

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


The fair value option is elected on an instrument by instrument basis and must be applied to an entire instrument and is irrevocable once elected. The Company’s primary purpose in electing the fair value option for these instruments was to align with management’s view of the underlying economics of the loans and the manner in which they are managed.
As of September 30, 2022 and December 31, 2021, the Company’s other loans receivable, included in prepaid expenses and other assets, net on the Company’s condensed consolidated balance sheets, consisted of the following (dollars in thousands):
As of September 30, 2022
Investment
Principal Balance as of September 30, 2022
Book Value as of September 30, 2022
Book Value as of December 31, 2021
Weighted Average Contractual Interest RateMaturity Date
Other loans receivable$14,738 $14,742 $3,161 8.5 %11/29/2022 - 9/30/2025
Expected credit loss(2,094)(2,094) 
Total$12,644 $12,648 $3,161 
The following table summarizes the Company’s other loans receivable activity for the nine months ended September 30, 2022 and 2021 (dollars in thousands):
Nine Months Ended September 30,
2022
2021
Origination of loans receivable$14,500 $700 
Principal payments(416)(172)
Accrued interest, net(3)39 
Expected credit loss(5,344) 
Loan loss recovery750  
Net increase in other loans receivable$9,487 $567 
Expected credit losses and recoveries are recorded in provision for loan losses, net in the condensed consolidated statements of operations. During the nine months ended September 30, 2022, the Company recorded a $4.6 million expected credit loss related to two other loans receivable that were placed on non-accrual status, net of a loan loss recovery of $0.8 million related to a loan previously written-off. During the three months ended September 30, 2022, the Company wrote-off $2.5 million, related to one other loan receivable that was previously fully reserved, in connection with the sale of six SNFs and one multi-service campus. As of December 31, 2021, the Company had no expected credit loss and did not consider any loan receivable investments to be impaired.
The following table summarizes the interest and other income recognized from the Company’s loans receivable and other investments during the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
Investment2022202120222021
Secured loans receivable$2,098 $ $2,115 $ 
Mezzanine loans receivable1,163 460 2,326 1,365 
Other14 58 50 172 
Total$3,275 $518 $4,491 $1,537 
13

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


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

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

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

Level 3 – Unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and, depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. Changes in the type of inputs may result in a reclassification for certain assets. The Company does not expect that changes in classifications between levels will be frequent.
Items Measured at Fair Value on a Recurring Basis
The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, aggregated by the level in the fair value hierarchy within which those instruments fall (dollars in thousands):
Level 1Level 2Level 3
Balance as of September 30, 2022
Assets:
Secured loans receivable$ $ $119,991 $119,991 
Mezzanine loans receivable  38,671 38,671 
Total$ $ $158,662 $158,662 
Level 1Level 2Level 3
Balance as of December 31, 2021
Assets:
Mezzanine loan receivable$ $ $15,155 $15,155 

The following table details the Company’s assets measured at fair value on a recurring basis using Level 3 inputs (dollars in thousands):
Investments in Real Estate Secured LoansInvestments in Mezzanine Loans
Balance at December 31, 2021
$ $15,155 
Loan originations122,150 25,000 
Accrued interest, net839 224 
Unrealized loss on other real estate related investments(2,998)(1,708)
Balance as of September 30, 2022
$