RISK FACTORS SUMMARY
Investors should consider the risks and uncertainties described below that may affect our business and future financial performance. These and other risks and uncertainties are more fully described in “Risk Factors” in Item 1A of this Annual Report on Form 10-K, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (the “SEC”), including subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. Additional risks not presently known to us or that we currently deem immaterial may also affect us. If any of these risks occur, our business, financial condition or results of operations could be materially and adversely affected. As more fully set forth under “Risk Factors” in Item 1A of this Annual Report on Form 10-K, 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:
• the ability of our tenants, managers, and borrowers to successfully operate our properties and to meet and/or perform their obligations under the agreements 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;
• the impact of unstable market and economic conditions;
• the impact of healthcare reform legislation, including reimbursement rates and potential minimum staffing level requirements, on the operating results and financial conditions of our tenants, managers, and borrowers;
• the consequences of bankruptcy, insolvency or financial deterioration of our tenants, managers and borrowers;
• the ability and willingness of our tenants, managers and borrowers to renew their agreements with us, and our 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 or manager;
• the risk that we may have to incur additional impairment charges related to our assets held for sale if we are unable to sell such assets at the prices we expect;
• the impact of public health crises;
• the availability of and the ability to identify (a) tenants and managers 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;
• the intended benefits of our acquisition of Care REIT plc (“Care REIT”) may not be realized, and the additional risks we will be subject to from our investment in Care REIT and any other international investments;
• the additional operational and legal risks associated with our properties managed in a RIDEA structure;
• the impact of the unfavorable resolution of litigation or disputes and rising liability and insurance costs as a result thereof or other market factors;
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• the ability to retain our key management personnel;
• the ability to maintain our status as a real estate investment trust (“REIT”);
• changes in the U.S. and U.K. tax law and other state, federal or local laws, whether or not specific to REITs;
• the ability to generate sufficient cash flows to service our outstanding indebtedness;
• access to debt and equity capital markets; and
• fluctuating interest and currency rates.
TENANT AND BORROWER INFORMATION
This Annual Report on Form 10-K includes information regarding certain of our tenants that lease properties from us and our borrowers, most of which are not subject to SEC reporting requirements. The Ensign Group, Inc. (“Ensign”), The Pennant Group, Inc. (“Pennant”) and PACS Group, Inc. (“PACS”), who each lease properties from us on a triple-net basis, are subject to the reporting requirements of the SEC and are required to file with the SEC annual reports containing audited financial information and quarterly reports containing unaudited financial information. You are encouraged to review Ensign, Pennant and PACS’s publicly available filings, which can be found at the SEC’s website at www.sec.gov.
The information related to our tenants and borrowers contained or referred to in this Annual Report on Form 10-K was provided to us by such tenants and borrowers or derived from SEC filings or other publicly available information. We have not verified this information through an independent investigation or otherwise. We have no reason to believe that this information is inaccurate in any material respect, but we cannot provide any assurance of its accuracy. We are providing this data for informational purposes only.
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PART I
All references in this report to “CareTrust REIT,” the “Company,” “we,” “us” or “our” mean CareTrust REIT, Inc. together with its consolidated subsidiaries. Unless the context suggests otherwise, references to “CareTrust REIT, Inc.” mean the parent company without its subsidiaries.
ITEM 1. Business
Our Company
CareTrust REIT is a self-administered, publicly-traded REIT engaged in the ownership, acquisition, financing, development and leasing of skilled nursing, senior housing and other healthcare-related properties.
As of December 31, 2025, CareTrust REIT owned, directly or indirectly in consolidated joint ventures, and leased to independent operators, 407 skilled nursing facilities (each, a “SNF”), senior housing communities and other properties consisting of 37,628 operational beds and units located in 32 states and the United Kingdom (the “U.K.”), with the highest concentration of properties by rental income located in California, the U.K., Texas, and Tennessee. As of December 31, 2025, we also had other real estate related investments consisting of four preferred equity investments, 16 real estate secured loans receivable and five mezzanine loans receivable with a carrying value of $899.3 million and one financing receivable with a carrying value of $92.2 million.
During the fourth quarter of 2025, we began utilizing the structure authorized by the REIT Investment Diversification and Empowerment Act of 2007 (commonly referred to as “RIDEA”) as permitted by the Housing and Economic Recovery Act of 2008 in connection with the establishment of a senior housing operating portfolio (“SHOP”) platform, and completed our first SHOP acquisition in December 2025. As of December 31, 2025, CareTrust REIT also owned, indirectly in consolidated joint ventures, the properties and operations of three senior housing communities consisting of 270 units in Texas that are operated on our behalf by independent managers pursuant to the terms of separate management agreements.
We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property (including property taxes, insurance, maintenance and repair costs and capital expenditures, subject to certain exceptions in the case of properties leased to Ensign and Pennant, as defined below). From time to time, we also extend secured mortgage loans to healthcare operators, secured by healthcare-related properties, extend secured mezzanine loans to healthcare operators, secured by membership interests in healthcare-related properties, and invest in preferred equity investments. From time to time, we also partner with third party institutional investors to invest in healthcare real estate in consolidated joint ventures (“joint ventures” or “JVs”). Pursuant to our joint ventures, we typically contribute at least 90% of the joint venture’s total investment amount and we receive 100% of the preferred equity interest in the joint venture and a 50% common equity interest in the joint venture. Each joint venture partner contributes the remaining total investment amount in exchange for a 50% common equity interest in the joint venture.
We also generate revenues by owning, indirectly in consolidated joint ventures, properties operated by third party property managers to whom we pay a management fee. These investments utilize a RIDEA structure pursuant to a management agreement with an independent, third party manager who manages and operates the properties. For our joint ventures within the SHOP platform, we typically contribute at least 90% of the joint venture’s total investment amount and receive at least 90% of the common equity interest in the joint venture, with our joint venture partner contributing the remaining amount of the total investment in exchange for the remaining common equity interests.
Our Businesses
We expect to grow our portfolio by pursuing opportunities to acquire additional properties that will be leased to, or managed by, a diverse group of local, regional, national and international healthcare providers, which may include new or existing skilled nursing operators, as well as senior housing operators or managers, behavioral health properties and related businesses. We may diversify our portfolio over time, including by acquiring properties in different geographic markets, including internationally, and in different asset classes.
We actively monitor the clinical, regulatory and financial operating results of our tenants and borrowers, and work to identify opportunities within their operations and markets that could improve their operating results at our properties. We communicate such observations to our tenants and borrowers; however, we have no contractual obligation to do so. Moreover, our tenants and borrowers have sole discretion with respect to the day-to-day operation of the properties 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 and borrowers on at least a monthly basis. 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
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with whom we are comfortable expanding our relationships. In addition, we may from time to time in the future repurpose properties for other uses, such as behavioral health. We have also provided select tenants with strategic capital for property 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. We have also assisted our tenants with transitioning to lower emissions technologies through our tenant incentive program, where we support efficiency projects through our dedicated tenant capital expenditure budget, providing sustainability incentives rent-free. In addition, we periodically reassess the investments we have made and the tenant relationships we have entered into, and have selectively disposed of properties or investments, or terminated such relationships, and we expect to continue making such reassessments and, where appropriate, taking such actions.
Our SHOP communities consist of senior housing communities that we own and invest in and which are managed by third party managers. Through the RIDEA structure, we participate directly in the financial results of the communities’ operations. We generally rely on the third party managers’ personnel, expertise, technical resources and information systems, risk management processes, proprietary information, good faith and judgment to manage the senior housing communities’ operations efficiently and effectively. We also rely on the third party managers to set appropriate resident fees, to provide accurate property-level financial results in a timely manner and otherwise manage risk and operate the senior housing communities in compliance with the terms of our management agreements and all applicable laws and regulations. We are generally responsible for all operational costs, expenses and other risks and liabilities. While our managers typically indemnify us for liabilities arising out of certain of their actions such as gross negligence, fraud or willful misconduct, it may be difficult to enforce our rights or we may need to seek alternative solutions to ensure the liability is appropriately addressed. See “Risk Factors — Risks Related to Our Business and Operations — We are dependent on the ability of our third party managers to successfully manage and operate our SHOP communities”.
Our management agreements typically have fixed terms and are subject to renewal under certain conditions. These agreements may include provisions for termination under specific circumstances, with or without the payment of a fee. The managers generally receive annual management fees which are calculated based on various performance measures, which may include revenue, net operating income and other objective financial metrics. Additionally, incentive fees may be awarded if specified performance targets are met. As of December 31, 2025, third party managers operated all three properties in our SHOP platform on our behalf.
We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. We believe that we have been organized and have operated, and we intend to continue to operate, in a manner to qualify for taxation as a REIT. We operate through an umbrella partnership, commonly referred to as an UPREIT structure, in which substantially all of our properties and assets are held through CTR Partnership, L.P. (the “Operating Partnership”). The Operating Partnership is managed by CareTrust REIT’s wholly-owned subsidiary, CareTrust GP, LLC, which is the sole general partner of the Operating Partnership. To maintain REIT status, we must meet a number of organizational and operational requirements, including a requirement that we annually distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains.
Because we have elected to be taxed as a REIT, we are subject to restrictions impacting how we invest in, operate or manage our properties, including the senior housing communities in our SHOP platform. Some of those restrictions depend on whether a senior housing community is treated as a “qualified healthcare property” under the REIT rules. We treat all of the senior housing communities in our SHOP platform as “qualified healthcare properties.” Senior housing communities in our SHOP platform that are “qualified healthcare properties” generally must be managed and operated by a third party manager, including for purposes of procuring supplies, hiring and training employees, entering into third party contracts for the benefit of the property and providing resident care and services.
Investment Activity
The Acquisition
On May 8, 2025, we closed our acquisition (the “Care REIT Acquisition”) of Care REIT plc (“Care REIT”). In connection with this acquisition, on June 30, 2025, we also acquired substantially all of the assets of Impact Health Partners LLP, the investment manager of Care REIT (together with the Care REIT Acquisition, the “Acquisition”). We treat these acquisitions as a single transaction as they were entered into in contemplation of one another and were intended to achieve an overall economic effect.
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The Care REIT Acquisition was implemented by means of a court-sanctioned scheme of arrangement (the “Scheme”) under Part 26 of the United Kingdom Companies Act of 2006. Under the terms of the Scheme, Care REIT stockholders received 108 pence in cash per share, totaling approximately $595.4 million. At closing, we also assumed Care REIT’s liabilities of approximately $290.9 million. In addition, we paid the partners of Impact Health Partners LLP approximately $6.8 million for substantially all of Impact Health Partners LLP’s assets.
Other Investment Activity
The following table summarizes our acquisitions from January 1, 2025 through December 31, 2025 (dollars in thousands):
Type of Property (1)
Purchase Price (2)
Number of Properties
Number of Beds/Units (3)
Skilled nursing triple-net
Senior housing triple-net (4)
Senior housing SHOP
Total
(1) Includes properties held in consolidated joint ventures. See Note 4, Real Estate Investments, Net , and Note 15, Variable Interest Entities , for additional information.
(2) Purchase price includes capitalized acquisition costs.
(3) The number of beds/units includes operating beds at acquisition date.
(4) Includes U.K. Care Homes acquired in connection with the Acquisition. See Note 3, Acquisitions , for additional information. On July 31, 2025, we swapped 10 U.K. Care Homes for six U.K. Care Homes and received £2.2 million in cash before selling costs. The amounts shown above are inclusive of this asset swap.
The following table summarizes our other real estate related investments from January 1, 2025 through December 31, 2025 (dollars in thousands):
Investment Type
Investment
Number of Properties
Number of Beds/Units (1)
Mortgage secured loans receivable
Mezzanine loans receivable
Preferred equity
Total
(1) The number of beds/units includes operating beds at the investment date.
Dispositions
From January 1, 2025 through December 31, 2025, we sold five skilled nursing facilities and 19 senior housing communities for net proceeds aggregating $153.5 million, which includes non-cash consideration related to an asset exchange and $36.0 million of seller financing, resulting in a net gain on sale of real estate of $31.5 million.
Our Industry
The skilled nursing and senior housing industries has evolved to meet the growing demand for post-acute and custodial healthcare services generated by an aging population, increasing life expectancies and the trend toward shifting of patient care to lower cost settings. We believe this evolution has led to a number of favorable improvements in the industry, as described below:
• Shift of Patient Care to Lower Cost Alternatives. The growth of the senior population in the United States continues to increase healthcare costs. In response, federal and state governments have adopted cost-containment measures that encourage the treatment of patients in more cost-effective settings such as SNFs, for which the staffing requirements and associated costs are often significantly lower than acute care hospitals, inpatient rehabilitation facilities and other post-acute care settings. As a result, SNFs are generally serving a larger population of higher-acuity patients than in the past. The same trend is impacting senior housing communities, which are now generally serving some residents who previously would have received services at SNFs.
• Significant Acquisition and Consolidation Opportunities. The skilled nursing and senior housing industry is large and highly fragmented, characterized predominantly by numerous local and regional providers. We believe this fragmentation provides significant acquisition and consolidation opportunities for us.
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• Widening Supply and Demand Imbalance . The number of SNFs has declined modestly over the past several years. According to the American Health Care Association, the nursing home industry was comprised of approximately 14,742 facilities as of July 2025, as compared with over 15,600 facilities as of July 2016. We expect that the supply/demand imbalance in the skilled nursing industry will increasingly favor skilled nursing and senior living providers due to the shift of care to lower cost settings and an aging population.
• Increased Demand Driven by Aging Populations . As seniors account for a higher percentage of the total U.S. population, we believe the overall demand for skilled nursing and senior housing services will increase. At present, the primary market demographic for skilled nursing and senior housing services consists of individuals age 75 and older. The U.S. Census estimates that there were over 59 million people in the United States in 2024 over the age of 65. The U.S. Census estimates this group to be one of the fastest growing segments of the United States population, projecting that it will nearly double between 2020 and 2060. According to the Centers for Medicare & Medicaid Services, nursing home care facilities and continuing care retirement expenditures are projected to grow from approximately $228.8 billion in 2024 to approximately $385.9 billion in 2033. Although senior housing and skilled nursing occupancy rates declined during the COVID-19 pandemic, they have largely recovered nationally and we believe that these trends in population will support an increasing demand for services in the long-term, which in turn will likely support an increasing demand for the services provided within our properties.
While most factors described above indicate projected growth for our industry, recent macroeconomic conditions, particularly market uncertainty, immigration restrictions and changes to immigration enforcement policy, changes to the U.S. healthcare system, shutdown of the federal government, declining consumer sentiment, inflation (including higher supply costs and shortages), effects of global tariffs, elevated interest rates and related changes to consumer spending, including, but not limited to, an increase in individuals delaying or deferring moves to senior housing, has adversely impacted and could continue to adversely impact our tenants’ and borrowers’ ability to meet some of their financial obligations to us or our ability to generate revenue from our SHOP communities. In addition, state level Medicaid reimbursement rate reductions and minimum wage increases could lead to increased costs (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments — Regulatory Updates”). It is difficult to predict the duration of the effects of these economic, market and regulatory conditions on the industry. In addition, current macroeconomic conditions and the resulting market volatility may adversely impact our ability to sell properties on acceptable terms, if at all, which could result in additional impairment charges.
Classification of Properties in our Portfolio
We have a geographically diverse portfolio, consisting of the following types of properties as of December 31, 2025:
• Skilled Nursing Facilities. SNFs are licensed healthcare facilities that provide restorative, rehabilitative and nursing care for people not requiring the more extensive and sophisticated treatment available at acute care hospitals. Some of these facilities may also include a limited number of assisted living (AL) or independent living (IL) type beds. Treatment programs include physical, occupational, speech, respiratory and other therapies, including sub-acute clinical protocols such as wound care and intravenous drug treatment. Charges for these services are generally paid from a combination of government reimbursement and private sources. As of December 31, 2025, our portfolio included 366 SNFs, consisting of 236 owned facilities, 73 facilities related to our other real estate related investments, 35 facilities related to our financing receivable, and 22 related to our preferred equity investments. Included in the 236 owned SNFs are 45 SNFs held in consolidated joint ventures.
• Senior Housing Communities and Other Properties. As of December 31, 2025, our portfolio included 208 senior housing communities, consisting of 171 owned communities, 23 communities related to our other real estate related investments, six communities related to our financing receivable, and eight communities related to our preferred equity investments. Included in the 171 owned communities are three communities held in consolidated joint ventures that are operated by a third party manager. Senior housing communities include varying care levels, including assisted living, independent living and memory care. The senior housing communities include stand-alone properties that provide one level of service or a combination that provides multiple levels of service and communities or campuses that provide a wide range of services, including:
◦ Care Homes in the U.K. (“U.K. Care Home”) are a residential setting that provides accommodation and personal care services for individuals who need assistance with daily living activities and are unable to manage independently in their own homes. U.K. Care Homes generally fall into two main categories: residential care homes and care homes with nursing (also called nursing homes). Residential care homes provide personal care and support for daily living activities like washing, dressing, and medication management, while care homes with nursing also offer 24/7 on-site nursing care for individuals with more complex medical needs. As of December 31, 2025, our portfolio included 131 properties that we classify as U.K. Care Homes.
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◦ Assisted Living Communities are licensed healthcare properties that provide personal care services, support and housing for those who need help with activities of daily living, such as bathing, eating and dressing, yet require limited medical care. The programs and services may include transportation, social activities, exercise and fitness programs, beauty or barber shop access, hobby and craft activities, community excursions, meals in a dining room setting and other activities sought by residents. These communities are often apartment-like buildings with private residences ranging from single rooms to large apartments. These properties may include memory care services and clinical programs for individuals with Alzheimer’s disease and other forms of dementia. Assisted living communities are classified as senior housing communities. As of December 31, 2025, our portfolio included 54 properties that we classify as Assisted Living Communities.
◦ Independent Living Communities , also known as retirement communities or senior apartments, are not healthcare facilities and are not licensed to provide healthcare services to residents. The properties typically consist of entirely self-contained apartments, complete with their own kitchens, baths and individual living spaces, as well as parking for tenant vehicles. They are most often rented unfurnished, and generally can be personalized by the tenants, and are typically occupied by an individual or a couple over the age of 55. These properties offer various services and amenities such as laundry, housekeeping, dining options/meal plans, exercise and wellness programs, transportation, social, cultural and recreational activities, on site security and emergency response programs. Independent living communities are classified as senior housing communities. As of December 31, 2025, our portfolio included 12 properties that we classify as Independent Living Communities.
◦ Continuing Care Retirement Communities provide, as a continuum of care, the services described above for independent living communities, assisted living communities, memory care communities and skilled nursing facilities in an integrated campus. Continuing care retirement communities are classified as senior housing communities. As of December 31, 2025, our portfolio included eight properties that we classify as Continuing Care Retirement Communities.
◦ Other properties include properties other than those described above that are not classified as skilled nursing, U.K. Care Homes or senior housing communities, such as other healthcare properties, land parcels and projects under development. As of December 31, 2025, our portfolio included three properties that we classify Other.
Our portfolio of SNFs and senior housing communities is broadly diversified by geographic location throughout the United States and the U.K., with concentrations in California, the U.K., Texas, and Tennessee based on revenue.
Significant Master Leases
Ensign
As of December 31, 2025, we leased 113 properties to subsidiaries of Ensign, which have a total of 12,218 operational beds. We have leased a significant number of our properties to subsidiaries of Ensign on a triple-net basis under eight long-term leases, each with its own pool of properties, that have varying maturities and diversity in both property type and geography (each an “Original Ensign Lease” and collectively, the “Original Ensign Leases”). The Original Ensign Leases provide for initial terms in excess of 10 years with staggered expiration dates and no purchase options. At Ensign’s option, each Original Ensign Lease may be extended for up to three five-year renewal terms beyond the initial term and, if elected, the renewal will be effective for all of the leased properties then subject to the applicable Original Ensign Lease. The Original Ensign Leases are guaranteed by Ensign and contain cross-default provisions. As of December 31, 2025, 9 of the 113 properties, with a total of 1,024 operational beds, are leased to Ensign under three separate triple-net master lease agreements (the “New Ensign Leases” and collectively with the Original Ensign Leases, the “Ensign Master Leases”). The obligations under these separate master leases are guaranteed by Ensign. A default under the New Ensign Leases constitutes a default under the Original Ensign Leases, but a default under the Original Ensign Leases does not constitute a default under the New Ensign Leases.
As of December 31, 2025, annualized contractual rental income from the Original Ensign Leases was $79.6 million, and annualized contractual rental income from the Ensign Master Leases was $92.1 million, representing 19% and 23% of total annualized contractual rental income, respectively. Rent under the Ensign Master Leases is subject to annual escalation based on changes in the CPI, subject to applicable caps.
See “Risk Factors — Risks Related to Our Business and Operations — We are dependent on the healthcare operators that lease our properties as well as the borrowers under our mortgage secured loans to successfully operate their business and make contractual payments, and an event that materially and adversely affects their business, financial position or results of operations could materially and adversely affect our business, financial position or results of operations.”
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We monitor the creditworthiness of our tenants by evaluating the ability of the tenants to meet their lease obligations to us based on the tenants’ financial performance, including the evaluation of any guarantees of tenant lease obligations. The primary basis for our evaluation of the credit quality of our tenants (and more specifically the tenants’ ability to pay their rent obligations to us) is the tenants’ lease coverage ratios. These coverage ratios compare (i) earnings before interest, income taxes, depreciation, amortization and rent (“EBITDAR”) to rent, and (ii) earnings before interest, income taxes, depreciation, amortization, rent and management fees (“EBITDARM”) to rent. We utilize a standardized management fee of 5% of revenue when we calculate lease coverage ratios. We obtain various financial and operational information from our tenants each month. We regularly review this information to calculate the above-described coverage metrics, to identify operational trends, to assess the operational and financial impact of the changes in the broader industry environment (including the potential impact of government reimbursement and regulatory changes), and to evaluate the management and performance of the tenants’ operations. We also monitor the creditworthiness of our borrowers and the ability of the borrowers to meet their loan obligations to us based on the borrowers’ financial performance. Our monitoring process includes review of monthly financial statements and other operating data for each property, quarterly review of borrower creditworthiness based on debt service coverage ratios and review of covenant compliance. These metrics help us identify potential areas of concern relative to our tenants’ or borrowers’ credit quality and ultimately the tenants’ or borrowers’ ability to generate sufficient liquidity to meet their ongoing obligations, including their obligations to continue paying contractual rents and interest due to us and satisfying other financial obligations to third parties, as prescribed by our triple-net leases and loan agreements.
The SHOP structure gives us direct exposure to the risks and benefits of the operations of the senior housing communities within this portfolio. The third party property managers manage these communities in exchange for the receipt of a management fee, and as such, we are not directly exposed to the credit risk of the property managers in the same manner or to the same extent as we are to our triple-net tenants. However, we rely on the property managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our communities efficiently and effectively. We also rely on the property managers to set appropriate resident fees and otherwise operate our communities in compliance with the terms of our management agreements and all applicable laws and regulations. See “Risk Factors — Risks Related to Our Business and Operations — We are dependent on the ability of our third party managers to successfully manage and operate our SHOP communities”.
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Owned Properties
Properties by Type:
The following table displays the geographic distribution of our owned properties by property type and the related number of beds and units available for occupancy by property type, as of December 31, 2025. The number of beds or units that are operational may be less than the official licensed capacity.
Total
Skilled nursing triple-net
Senior housing triple-net
Senior housing operating
State (1)
Properties
Beds/Units
Facilities
Beds
Properties
Beds/Units
Properties
Beds/Units
Total
(1) Includes properties held in consolidated joint ventures. See Note 4, Real Estate Investments, Net , and Note 15, Variable Interest Entities , for additional information.
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Property Type — Revenue and Occupancy:
The following tables display the revenue and occupancy for each property type leased to third party tenants or operated by third party property managers, which excludes interest income from financing receivable and interest income from other real estate related investments and other income, for the years ended December 31, 2025 and 2024 as well as the total beds/units for each property type as of December 31, 2025 and 2024. Percentage occupancy in the below table is computed by dividing the average daily number of beds occupied by the total number of beds available for use during the periods indicated (beds are included in the computation following the date of acquisition, or through the date of disposition, only).
For the Year Ended December 31, 2025
As of December 31, 2025
Property Type (1)
Revenue
(in thousands) (2)
Percent
of Total
Occupancy
Total Beds/
Units
Skilled nursing triple-net
Senior housing triple-net
Senior housing operating
Total
(1) Includes properties held in consolidated joint ventures. See Note 4, Real Estate Investments, Net , and Note 15, Variable Interest Entities , for additional information. As of December 31, 2025, we combined assisted living properties and independent living properties into a new category, which we call senior housing triple-net. As of December 31, 2025, we assessed the properties underlying the multi-service campuses and classified each property as either skilled nursing triple-net or senior housing triple-net, based on the predominant intended use of the property. As such, for the year ended December 31, 2025, 25 multi-service campuses are now classified as skilled nursing triple-net and seven are classified as senior housing triple-net.
(2) Revenue represents rental income and resident fees and services.
(3) Occupancy data excludes three other properties, which do not report occupancy. Occupancy data derived solely from information provided by our tenants without independent verification by us. The leased property financial performance data is presented one quarter in arrears.
For the Year Ended December 31, 2024
As of December 31, 2024
Facility Type (1)
Revenue
(in thousands) (2)
Percent
of Total
Occupancy (3)
Total Beds/
Units
SNFs
Multi-Service Campuses
ALFs and ILFs
Total
(1) Includes properties held in consolidated joint ventures. See Note 4, Real Estate Investments, Net , and Note 15, Variable Interest Entities , for additional information.
(2) Revenue represents rental income.
(3) Occupancy data excludes one non-operational ALF. Occupancy data derived solely from information provided by our tenants without independent verification by us. The leased facility financial performance data is presented one quarter in arrears.
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Financing Receivable
We have invested in a portfolio of properties through a sale and leaseback transaction and leased the properties back to an affiliate of the seller and provided the seller-lessee with purchase options. We determined that the sale and leaseback transaction met the accounting criteria to be presented as financing receivable on our consolidated balance sheets and recorded the payments from these properties as interest income from financing receivable on our consolidated income statements. See Note 2, Summary of Significant Accounting Policies, for additional information. The following table provides information regarding our investment in the financing receivable during the years ended December 31, 2025 and 2024 (dollars in thousands):
As of December 31, 2025
For The Year Ended December 31, 2025
For The Year Ended December 31, 2024
Lease Maturity
State
Type of Properties
Number of Properties
Number of Beds/Units
Gross Investment (1)
Effective Interest Rate (2)
Interest Income from Financing Receivable
Interest Income from Financing Receivable
SNF / Senior Housing Communities
(1) Gross investment includes $1.4 million of transaction costs.
(2) We leased these properties back to the seller under a 15-year contract, with two five-year renewal options. The agreement provides for an initial contractual cash yield of 11.0% for the first three years, with annual CPI-based escalators beginning in year four, subject to a 3% annual cap. The agreement provides for deferred payments equal to 2.0% of the contractual cash yield in the first year and 0.5% of the contractual cash yield in the second year. At the time the seller-lessee exercises its purchase options, option proceeds will be used to repay any outstanding deferred payments as well as additional amounts such that we receive a contractual cash yield of 12.5% on our gross investment in the applicable properties through the option exercise date. If any deferred amounts remain unpaid, beginning in year eight, the deferred amounts are to be repaid in 24 equal monthly payments. The agreement provides the seller-lessee with options to purchase all properties in separate tranches, with the first purchase option window beginning December 1, 2024. During the year ended December 31, 2025, one purchase option was exercised, reducing the investment amount by $4.4 million. See Note 6, Other Real Estate Related and Other Investments , for additional information.
Other Real Estate Related Investments
The following table summarizes our investments in mortgage loans, mezzanine loans and preferred equity investments for the years ended December 31, 2025 and 2024 (dollars in thousands):
As of December 31, 2025
For The Year Ended December 31, 2025
For The Year Ended December 31, 2024
Principal Balance
Wtd Avg Contractual Interest Rate
Interest Income
Interest Income
Mortgage Loans
Mezzanine Loans
Preferred Equity Investments
Total Investments:
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Geographic Concentration — Revenue:
The following table displays the geographic distribution of revenue for properties leased to third party tenants and properties within our SHOP platform for the years ended December 31, 2025 and 2024 (dollars in thousands).
For the Year Ended December 31, 2025
For the Year Ended December 31, 2024
State
Total Revenue (1)(2)
Percent of Total
Total Revenue (1)(2)
Percent of Total
Total
* Represents less than 1%
(1) Total Revenue includes rental income and resident fees and services, exclusive of interest income.
(2) Includes properties held in consolidated joint ventures. See Note 4, Real Estate Investments, Net , and Note 15, Variable Interest Entities , for additional information.
Investment and Financing Policies
Our investment objectives are to increase cash flow, provide quarterly cash dividends, maximize the value of our properties and acquire properties with cash flow growth potential. We intend to invest primarily in SNFs and senior housing communities, both domestically and internationally. We intend to utilize the RIDEA structure as opportunities warrant for future acquisitions (see “Business Strategies — Diversify Asset Portfolio” below).We may determine in the future to expand
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our investments to include behavioral health facilities, medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities. Our owned properties are located in 32 states and in the U.K., and we intend to continue to acquire properties in other states throughout the United States and the U.K. Although our portfolio currently consists primarily of owned real property, we have also invested in joint ventures through which we own properties, as well as mortgage loans receivable, mezzanine loans and preferred equity investments. We expect that our future investments may also include first mortgages, mezzanine debt and other securities issued by, or joint ventures with, REITs or other entities that own real estate consistent with our investment objectives.
Our Competitive Strengths
We believe that our ability to acquire, integrate and improve properties is a direct result of the following key competitive strengths:
Geographically Diverse Property Portfolio. Our portfolio of real estate held for investment, inclusive of our other real estate related investments and financing receivable, is located in 34 different states and the U.K., with concentrations in California and the U.K. based on annualized revenue. The properties in any one state do not account for more than 19% of our annualized run rate revenue as of December 31, 2025. We believe this geographic diversification will limit the effect of changes in any one market on our overall performance.
Long-Term, Triple-Net Lease Structure. The vast majority of our owned properties (including properties we own in consolidated joint ventures), are leased to tenants under long-term, triple-net leases, pursuant to which the operators are responsible for all maintenance and repair, insurance required in connection with the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.
SHOP. During the fourth quarter of 2025, we established a SHOP platform with an investment in three senior housing communities, which are operated by a third party manager. The SHOP platform offers direct exposure to the risks and benefits of the operations of the senior housing communities within the portfolio, which allows us to participate directly in property-level performance and offers the ability to drive organic growth through active asset management.
Financially Secure Primary Tenant. Ensign is an established provider of healthcare services with strong financial performance and accounted for 23% of total annualized contractual rental income as of December 31, 2025. Ensign is subject to the reporting requirements of the SEC and is required to file with the SEC annual reports containing audited financial information and quarterly reports containing unaudited financial information. Ensign’s publicly available filings can be found at the SEC’s website at www.sec.gov.
Investments in Joint Ventures . From time to time, we partner with third party institutional investors to invest in healthcare real estate in consolidated joint ventures. Pursuant to joint ventures we have entered into in connection with investments in triple-net leased properties, we typically contribute at least 90% of the joint venture’s total investment amount and we receive 100% of the preferred equity interest in the joint venture and a 50% common equity interest in the joint venture. Our joint venture partner contributes the remaining total investment amount in exchange for a 50% common ownership interest in the joint venture. For joint ventures we have entered into in connection with investments in SHOP communities, we typically contribute at least 90% of the joint venture’s total investment amount and receive at least 90% of the equity interest in the joint venture, with our joint venture partner contributing the remaining percent of the total investment in exchange for the remaining equity interests. Our joint ventures are investments that we typically consolidate as they are variable interest entities and as we are considered to be the primary beneficiary and have the power to direct the activities that most significantly impact the entity’s economic performance and have the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant.
Lower Cost of Capital . Our ability to access the capital markets provides us greater flexibility to manage our cost of capital and also offers us the ability to fund future acquisitions through the issuance of additional shares, including under our ATM Program (as defined below). During the year ended December 31, 2025, we sold approximately 12.6 million shares at an average gross price of $29.34 for gross proceeds of approximately $369.9 million under our ATM Program to fund current and future acquisitions. As of December 31, 2025, we also had forward contracts outstanding under the ATM Program with a financial institution acting as a forward purchaser to sell 6.5 million shares of common stock at a weighted average initial sales price of $37.30 per share, before commissions and offering expenses. Subsequent to December 31, 2025, we entered into forward contracts under the ATM program to sell 3.5 million shares of common stock at a weighted average initial sales price of $37.00 per share, before commissions and offering expenses. In addition, on August 14, 2025, we completed an underwritten public offering of 23.0 million newly issued shares at a price per share of $32.00 resulting in gross proceeds of $736.0 million to pay down the outstanding revolving credit facility, and to fund acquisitions.
Ability to Identify Talented Operators and Managers . As a result of our management team’s operating experience and network of relationships and insight, we believe that we are able to identify and pursue working relationships with qualified
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local, regional and national healthcare providers, senior housing operators and managers. We expect to continue our disciplined focus on pursuing investment opportunities, primarily with respect to stabilized assets but also some strategic investments in new and/or improving properties, while seeking dedicated and engaged operators and managers who possess local market knowledge, have solid operating records and emphasize quality services and outcomes. We intend to support these operators and managers by providing strategic capital for property acquisition, upkeep and modernization. Our management team’s experience gives us a key competitive advantage in objectively evaluating an operator’s financial position and likely business prospects, as well as the care and service programs and operating efficiencies of an operator or manager.
Ability to Identify Strategic Borrowers . Our ability to execute a strategic approach to lending has resulted in additional real estate acquisition opportunities. As a result of our management team’s network of relationships and insight, we believe that our ability to originate loan investments to healthcare real estate owners has allowed us access to unique acquisition opportunities and contributed to our growth.
Experienced Management Team. David M. Sedgwick was appointed as our Chief Executive Officer effective January 1, 2022. At the time of his appointment, Mr. Sedgwick was serving as our President, a role he had filled since February 2021, and he continues to hold that title. He previously served as our Chief Operating Officer from August 2018 through 2021, and as our Vice President-Operations from CareTrust’s launch as an independent public company in 2014 to 2018. Mr. Sedgwick has more than 25 years of experience in the skilled nursing and senior housing industries. Mr. Sedgwick’s President, Chief Operating Officer and Vice President duties regularly involved him in matters related to new investments, asset management, tenant relations, portfolio management, portfolio optimization, investor relations and capital markets activities for the Company. Prior to joining CareTrust, Mr. Sedgwick served as the Chief Human Capital Officer and President of Facility Services at Ensign. Mr. Sedgwick has been a licensed nursing home administrator since 2001.
Effective January 1, 2026, Derek Bunker was appointed Chief Financial Officer, succeeding Bill Wagner. Mr. Bunker has served as Senior Vice President of Strategy and Investor Relations of the Company since June 2025 after serving as a consultant to the Company from January 2025 to June 2025 to assist with the Care REIT Acquisition. Prior to joining the Company, Mr. Bunker ran a post-acute healthcare consultancy and independent sponsor, served as Chief Investment Officer, Executive Vice President and Secretary of The Pennant Group and Vice President, Acquisitions and Business Legal Affairs at The Ensign Group.
James B. Callister was appointed as our Executive Vice President effective July 2022 and Chief Investment Officer effective December 31, 2022. Mr. Callister continues to serve as Secretary, and previously served as General Counsel from February 2021 to July 2022. Prior to joining the Company, Mr. Callister worked as a real estate attorney and a partner at the law firm of Sherry Meyerhoff Hanson & Crance LLP and, before that, at the law firm of O’Melveny & Myers LLP.
Flexible UPREIT Structure. We operate through an umbrella partnership, commonly referred to as an UPREIT structure, in which substantially all of our properties and assets are held through the Operating Partnership. Conducting business through the Operating Partnership allows us flexibility in the manner in which we structure the acquisition of properties. In particular, an UPREIT structure enables us to acquire additional properties from sellers in exchange for limited partnership units, which provides property owners the opportunity to defer the tax consequences that would otherwise arise from a sale of their real properties and other assets to us. As a result, this structure allows us to acquire assets in a more efficient manner and may allow us to acquire assets that the owner would otherwise be unwilling to sell because of tax considerations.
Business Strategies
Our primary goal is to create long-term stockholder value through the payment of consistent cash dividends and the growth of our asset base. To achieve this goal, we intend to pursue a business strategy focused on opportunistic acquisitions and property diversification. We also intend to further develop our relationships with tenants, managers and healthcare providers with a goal to progressively expand the mixture of tenants managing and operating our properties.
The key components of our business strategies include:
Diversify Asset Portfolio . We diversify through the acquisition of new and existing properties from third parties and the expansion and upgrade of current properties. In addition, we diversify through investing in high-quality borrowers, property types and geography. In addition, during the fourth quarter of 2025, we diversified our business through the establishment of a SHOP platform pursuant to which we invest in senior housing communities operated by third party property managers pursuant to property management agreements utilizing the RIDEA structure. The SHOP platform gives us direct exposure to the risks and benefits of the operations of these communities. The third party property managers manage our communities in exchange for the receipt of a management fee, and as such, we are not directly exposed to the credit risk of the property managers in the same manner or to the same extent as our triple-net tenants. Under this management structure, we are required to rely on a third party manager to hire and train all property employees, enter into third party contracts for the benefit of the community, comply with laws, and provide resident care, and we are substantially limited in our ability to control or influence day-to-day operations.
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We employ what we believe to be a disciplined, opportunistic acquisition strategy with a focus on the acquisition of SNFs, U.K. Care Homes and senior housing communities. We may determine in the future to expand our investments to include behavioral health facilities, medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities. As we acquire, or invest in, additional properties, we expect to further diversify by geography, asset class and tenant within the healthcare and healthcare-related sectors.
Maintain Balance Sheet Strength and Liquidity. We maintain a capital structure that provides the resources and flexibility to support the growth of our business. We intend to maintain a mix of credit facility debt, unsecured debt and possibly secured mortgage debt, which, together with our anticipated ability to complete future equity financings, including issuances of our common stock via registered public offerings or under our at-the-market equity program, we expect will fund the growth of our property portfolio.
Develop New Tenant and Manager Relationships. We cultivate new relationships with tenants, managers and healthcare providers in order to expand the mix of tenants operating and managers managing our properties. We expect that this objective will be achieved over time as part of our overall strategy to acquire new properties and further diversify our portfolio of healthcare properties.
Provide Capital to Underserved Operators. We believe there is a significant opportunity to be a capital source to healthcare operators, through the acquisition and leasing of healthcare properties to them that are consistent with our investment and financing strategy at appropriate risk-adjusted rates of return, which, due to size and other considerations, are not a focus for larger healthcare REITs. We pursue acquisitions and strategic opportunities that meet our investing and financing strategy and that are attractively priced, including funding development of properties through preferred equity or construction loans and thereafter entering into sale and leaseback arrangements with such developers as well as other secured term financing and mezzanine lending. We utilize our management team’s operating experience, network of relationships and industry insight to identify both large and small quality operators in need of capital funding for future growth. In appropriate circumstances, we may negotiate with operators to acquire individual healthcare properties from those operators and then lease those properties back to the operators pursuant to long-term triple-net leases.
Fund Strategic Capital Improvements. We support operators by providing capital to them for a variety of purposes, including capital expenditures and property modernization. We expect to structure these investments as either lease amendments that produce additional rents or as loans that are repaid by operators during the applicable lease term. We have also assisted our tenants with transitioning to lower emissions technologies through our tenant incentive program, where we support efficiency projects through our dedicated tenant capital expenditure budget, providing sustainability incentives rent-free.
Pursue Strategic Development Opportunities. We work with managers, operators and developers to identify strategic development opportunities. These opportunities may involve replacing or renovating properties that may have become less competitive. We also identify new development opportunities that present attractive risk-adjusted returns. We may provide funding to the developer of a property in conjunction with entering into a sale leaseback transaction or an option to enter into a sale leaseback transaction for the property.
Competition
We compete for real property investments with other REITs, investment companies, private equity and hedge fund investors, sovereign funds, pension funds, healthcare operators, lenders and other institutional investors. Some of these competitors are significantly larger and have greater financial resources and lower costs of capital than us. Increased competition will make it more challenging to identify and successfully capitalize on acquisition opportunities that meet our investment objectives. Our ability to compete is also impacted by national and local economic trends, availability of investment alternatives, availability and cost of capital, construction and renovation costs, existing laws and regulations, new legislation and population trends.
In addition, revenues from our properties are dependent on the ability of our tenants, managers, and operators to compete with other healthcare operators. Healthcare operators compete on a local and regional basis for residents and patients and their ability to successfully attract and retain residents and patients depends on key factors such as the number of properties in the local market, the types of services available, the quality of care, reputation, age and appearance of each property and the cost of care in each locality. Private, federal and state payment programs and the effect of other laws and regulations may also have a significant impact on the ability of our tenants, managers, and operators to compete successfully for residents and patients at the properties.
Sustainability and Corporate Social Responsibility
As triple-net landlords, our core responsibility lies in tracking, educating, and incentivizing our tenants, who hold decision-making authority at the property level, to make sustainable and financially prudent business decisions. We believe that environmental sustainability is an important part of our commitment to helping people live and age well in those com munities.
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We are committed to sustainable practices in our corporate offices and to providing tenant education, support and incentives to make sustainable improvements at our net-leased properties.
In 2025, we published our fifth annual Corporate Sustainability Report (our “ESG Report”) as part of our ongoing commitment to provide regular reporting on our environmental, social and governance (“ESG”) priorities. Our ESG Report outlines our high priority ESG initiatives and goals for our company and our property portfolio. Beginning with our 2023 ESG Report, we included a Global Reporting Initiative (“GRI”) Index in reference to the GRI Standards as well as a Task Force on Climate-Related Financial Disclosures (“TCFD”) index to further align with applicable global standards for sustainability reporting.
Beginning in 2020, with the assistance of an ESG consultant, we designed a monitoring plan to collect key environmental data from a pilot group of 50 of our net-leased properties. The plan’s objective was to benchmark energy and water usage and the impact of our properties on greenhouse gas emissions and climate change. During 2021, we began collecting data and have increased our tracking since, adding waste tracking in 2023 and reaching a total of 105 tracked properties by the end of 2024. We expect the data to help us identify the most promising opportunities for improvement in our portfolio, set informed ESG goals and measure progress over time. In addition, as a landlord and capital supplier to a key segment of the healthcare industry, we intend to seek further opportunities to encourage and incentivize fair and healthy work environments for healthcare workers and suitable living conditions for patients and residents, and to promote diversity, inclusion and the ethical treatment of employees, residents, patients and others wherever our activities and influence can be felt.
In 2022, we prepared “green” lease language for our form master lease to add new ESG-specific requirements in lease agreements when amending or modifying existing lease relationships. Our green lease strategy compliments our efforts to track utility data across our portfolio and work with tenants to identify ESG building operation opportunities. By the fourth quarter of 2024, 34% of our leases included sustainability-related lease provisions.
During 2023, we partnered with a third party to conduct a portfolio-level physical climate risk assessment across all standing assets, evaluating exposure to heat, flood, precipitation, fire, and drought, and identifying heat-related risk driven by higher temperatures as the most significant physical risk across the portfolio.
During 2023, we distributed a Tenant Climate Risk-Opportunity Survey and received a 50% response rate. This survey helped contribute to ESG dialogue with tenants and overall improved our risk management strategy. The survey found transitional risks for our tenants due to transitioning to a low carbon economy including increased material costs, volatility in utilities’ pricing, market preference for greener buildings, and higher insurance premiums.
Additionally, in 2023, we began tracking and engaging tenants to verify compliance with state-level energy benchmarking laws. In 2024, we expanded these efforts to include properties subject to building performance standards laws, offering support to tenants as needed and continuing to monitor compliance.
During 2024, we enhanced climate risk management by preparing tenant communications to share results from physical climate risk assessments and by developing resources to address physical climate hazards, including a Resiliency Checklist and heat resilience rebate opportunities. Additionally, towards the end of 2024, we distributed our second climate-related tenant survey, incorporating enhanced resiliency-focused questions for properties identified as having "extreme" physical risks, with response collection ongoing through 2025.
We have also published a Tenant Code of Conduct & Corporate Responsibility (our “Tenant ESG Program”). The Tenant ESG Program provides our eligible triple-net tenants with monetary inducements to make sustainable improvements to our properties. Incentive options include a wide variety of opportunities for tenants to upgrade everything from energy and environmental systems to water-saving landscaping and more. Our board of directors has authorized annual allocations of up to $500,000 to fund the Tenant ESG Program. As disclosed in our 2024 ESG Report, we tracked $145,383 in environmental improvements at our properties during the year ended December 31, 2024. In 2024, we utilized our utility data management software to identify the top 20 energy, water, and waste intensive properties and shared our findings with tenants in hopes that they would prioritize the top resource intensive properties for efficiency initiatives.
We have published our Environmental, Social and Governance policy, Policy on Human Capital, Policy on Human Rights and Responsibilities, Policy on Environmental Sustainability and information about our Tenant ESG Program on the Investor Relations section of our website at www.caretrustreit.com. The information found on, or otherwise accessible through, our website is not incorporated by reference into, nor does it form a part of, this report or any other document that we file with the SEC.
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Governance
Our corporate governance structure was carefully crafted to align with the interests of our investors and other stakeholders with a core leadership team that has over 60 yea rs of collective experience as operators and investors. The members of our board of directors each bring deep expertise in healthcare, real estate, investing, accounting, and/or business development. In this oversight role, our board of directors serves as the ultimate decision-making body of our company, except for those matters reserved to or shared with our stockholders.
Human Capital Resources
Our employees are the heart of our company. Our Policy on Human Capital reflects our commitment to the dignity and rights of all people, especially our employees and others whose professional lives may be impacted by our properties and business activities. It represents a critical commitment to, and investment in, the current and long-term health and well-being of our organization and its people. We believe our success depends on our ability to attract, develop and retain key personnel.
During 2025, we conducted an employee satisfaction survey with a 100% response rate and an overall satisfaction rate of 93%. The survey found that 93% of our employees agree that our comprehensive benefits package is very competitive and a strong point of working for CareTrust, employees are highly committed to their future at CareTrust, and that CareTrust has a culture that values inclusivity.
CareTrust invests significant time and resources in supporting and developing our employees and creating a desirable workplace. Our core philosophies and policies in this regard include:
Compensation and Benefits. The skills, experience and industry knowledge of key employees significantly benefit our performance. We believe we offer competitive compensation (including salary, incentive bonus and equity) and benefits packages (including a 401(k) plan with a fixed employer contribution, Flexible Spending Accounts (FSAs), employer-funded employee assistance program (EAP), a generous vacation, holiday and personal time off policy, and an array of voluntary benefits options and other benefits for employees and their families). Our compensation program is designed to attract and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our stockholders.
As of December 31, 2025, we employed 43 full-time employees (including our executive officers), none of whom is subject to a collective bargaining agreement. Our comprehensive benefits package includes flexible work hours, the option to work remotely, and company workspaces/amenities.
Retention and Turnover. Recruiting, hiring, training and retaining excellent employees is a high priority for us. These activities carry real and substantial costs, which we regard as a meaningful investment in our workforce and our company. We believe that employee turnover is costly in direct and indirect ways, and we are committed to employee retention and satisfac tion. During the year ended December 31, 2025, we did not experience any turnover, except for the retirement of Mr. Wagner, as noted below.
In September 2025, we announced the planned retirement of Bill Wagner, our former Chief Financial Officer and Treasurer, effective December 31, 2025. The Board of Directors appointed Derek Bunker to succeed Mr. Wagner as Chief Financial Officer effective January 1, 2026.
Training and Education. CareTrust’s culture values continuous learning, improvement and professional development. This helps our employees to keep their skills current and to adapt to new responsibilities and emerging market needs. CareTrust provides financial support for professional associate dues and memberships, continuing education credits, and fees and travel expenses to attend relevant conferences and seminars.
Government Regulation, Licensing and Enforcement
Overview
As operators of healthcare properties, tenants, managers, and borrowers of our healthcare properties located in the U.S., which is where most of our properties are located, as well as our tenants operating our properties in the U.K, are generally subject to extensive and complex federal, state and local healthcare laws and regulations relating to fraud and abuse practices, government reimbursement, licensure and certificate of need and similar laws governing the operation of healthcare properties. We expect that the healthcare industry, in general, will continue to face significant regulation and pressure in the areas of fraud, waste and abuse, cost control, healthcare management and provision of services, among others. These regulations are wide-ranging and can subject our tenants, managers, and borrowers to civil, criminal and administrative sanctions. Affected tenants, managers, and borrowers may find it increasingly difficult and costly to comply with this complex and evolving regulatory environment because of a relative lack of guidance in many areas as certain of our healthcare properties are subject to oversight from several government agencies and the legal requirements often vary from one jurisdiction to another. Changes in laws and regulations and reimbursement enforcement activity and regulatory non-compliance by our tenants, managers, or borrowers
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could have a significant effect on their operations and financial condition, which in turn may adversely affect us, as detailed below and set forth under “Risk Factors — Risks Related to Our Business and Operations.”
The following is a discussion of certain U.S. laws and regulations generally applicable to our tenants, managers, and borrowers and, in certain cases, to us.
Enforcement
There are various extremely complex federal and state laws and regulations governing healthcare providers’ relationships and arrangements and prohibiting fraudulent and abusive practices by such providers. These laws include, but are not limited to, (i) federal and state false claims acts, which, among other things, prohibit providers from filing false claims or making false statements to receive payment from Medicare, Medicaid or other federal or state healthcare programs, (ii) federal and state anti-kickback and fee-splitting statutes, including the Medicare and Medicaid anti-kickback statute, which prohibit the payment or receipt of remuneration to induce referrals or recommendations of healthcare items or services, (iii) federal and state provider self-referral laws (including the federal law commonly referred to as the “Stark Law”), which generally prohibit referrals by physicians and in some cases other providers to entities with which the physician or an immediate family member has a financial relationship, and (iv) the federal Civil Monetary Penalties Law, which prohibits, among other things, the knowing presentation of a false or fraudulent claim for certain healthcare services. Violations of healthcare fraud and abuse laws carry civil, criminal and administrative sanctions, including punitive sanctions, monetary penalties, imprisonment, denial of Medicare and Medicaid reimbursement and potential exclusion from Medicare, Medicaid or other federal or state healthcare programs. These laws are enforced by a variety of federal, state and local agencies and can also be enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or “whistleblower” actions. Our tenants, managers, and borrowers are (and many of our future tenants, managers, and borrowers are expected to be) subject to these laws, and some of them may in the future become the subject of governmental enforcement actions if they fail to comply with applicable laws.
• State and Federal “Fraud and Abuse” Laws and Regulations . The Medicare and Medicaid anti-fraud and abuse amendments to the Social Security Act (the “Anti-Kickback Law”) make it a felony, subject to certain exceptions, for any person to engage in illegal remuneration arrangements with vendors, physicians and other health care providers for the referral of Medicare beneficiaries or Medicaid recipients. When a violation occurs, the government may proceed criminally or civilly. If the government proceeds criminally, a violation is a felony and may result in imprisonment for up to five years, fines of up to $25,000 and mandatory exclusion from participation in all federal health care programs. If the government proceeds civilly, it may impose a civil monetary penalty of $50,000 per violation and an assessment of not more than three times the total amount of remuneration involved, and it may exclude the parties from participation in all federal health care programs. Violations of the Anti-Kickback Statute also serve as a basis for federal False Claims Act cases. Many states have enacted laws similar to, and in some cases broader than, the Anti-Kickback Law.
The scope of prohibited payments in the Anti-Kickback Law is broad. The U.S. Department of Health and Human Services (“HHS”) has promulgated regulations which describe certain “safe harbor” arrangements that will not be deemed to constitute violations of the Anti-Kickback Law. An arrangement that fits squarely into a safe harbor is immune from prosecution under the Anti-Kickback Statute. The safe harbors described in the regulations are narrow and do not cover a wide range of economic relationships which many SNFs, physicians and other health care providers consider to be legitimate business arrangements not prohibited by the statute. Because the regulations describe safe harbors and do not purport to describe comprehensively all lawful and unlawful economic arrangements or other relationships between health care providers and referral sources, health care providers entering into these arrangements or relationships may be required to alter them in order to ensure compliance with the Anti-Kickback Law and may be subject to significant liability should an arrangement that does not fully satisfy a safe harbor be determined to be illegal. On November 20, 2020, HHS promulgated significant new Anti-Kickback Law regulations, including changes to existing safe harbors and the creation of new safe harbors, in an effort to reduce regulatory burden and incentivize coordinated care, including value-based arrangements.
The False Claims Act provides that any person who “knowingly presents, or causes to be presented” a “false or fraudulent claim for payment or approval” to the U.S. government, or its agents and contractors, is liable for a civil penalty ranging from $5,500 to $11,000 per claim, plus three times the amount of damages sustained by the government. Under the False Claims Act’s so-called “reverse false claims,” liability also could arise for “using” a false record or statement to “conceal,” “avoid” or “decrease” an “obligation” (which can include the retention of an overpayment) “to pay or transmit money or property to the government.” The False Claims Act also empowers and provides incentives to private citizens (commonly referred to as qui tam relator or whistleblower) to file suit on the government’s behalf. The qui tam relator’s share of the recovery can be between 15% and 25% in cases in which the government intervenes, and 25% to 30% in cases in which the government does not intervene. Notably, the Affordable Care Act amended certain jurisdictional bars to the False Claims Act, effectively narrowing the “public
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disclosure bar” (which generally requires that a whistleblower suit not be based on publicly disclosed information) and expanding the “original source” exception (which generally permits a whistleblower suit based on publicly disclosed information if the whistleblower is the original source of that publicly disclosed information), thus potentially broadening the field of potential whistleblowers.
• Restrictions on Referrals . The federal physician self-referral law and its implementing regulations (commonly referred to as the “Stark Law”) prohibits providers of “designated health services” from billing Medicare or Medicaid if the patient is referred by a physician (or his/her immediate family member) with a financial relationship with the entity, unless an exception applies. “Designated health services” include clinical laboratory services; physical therapy services; occupational therapy services; outpatient speech-language pathology; radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services; radiation therapy services and supplies; durable medical equipment and services; parenteral and enteral nutrients, equipment and services; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. The Stark Law also prohibits the furnishing entity from submitting a claim for reimbursement or otherwise billing Medicare or any other person or entity for improperly referred designated health services. Many designated health services are commonly provided in SNFs and ALFs. The new regulations promulgated by HHS, discussed above in “State and Federal ‘Fraud and Abuse’ Laws and Regulations” , include significant changes to the Stark Law regulations, including (i) new exceptions designed to enable more value-based arrangements, (ii) a modification to the existing exception for electronic health records items and services, and (iii) new exceptions for limited remuneration to physicians and for cybersecurity technology and related services.
An entity that submits a claim for reimbursement in violation of the Stark Law must refund any amounts collected and may be: (1) subject to a civil penalty of up to $15,000 for each self-referred service; and (2) excluded from participation in federal health care programs. In addition, a physician or entity that has participated in a “scheme” to circumvent the operation of the Stark Law is subject to a civil penalty of up to $100,000 and possible exclusion from participation in federal health care programs.
Reimbursement
Sources of revenue for our tenants, managers, and borrowers include (and for our future tenants, managers, and borrowers is expected to include), among other sources, governmental healthcare programs, such as the federal Medicare program and state Medicaid programs, and non-governmental payors, such as insurance carriers and health maintenance organizations. As federal and state governments focus on healthcare reform initiatives, and as the federal government and many states face significant budget deficits, efforts to reduce costs by these payors will likely continue, which may result in reduced or slower growth in reimbursement for certain services provided by our tenants, managers, and borrowers. Federal and state authorities are likely to continue to implement new and modified reimbursement methodologies, including value-based methodologies, that could have a negative impact on our tenants, managers, and borrowers. Such changes to reimbursement methodologies could have a material impact on our them, and we cannot provide assurances that the current revenue levels will be maintained under any future reimbursement arrangements. In addition, the impact of other health care reform efforts, such as “Medicare for all” or the provision of a new Medicare-like public option for consumers to receive health insurance, are impossible to predict.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”) serves as the primary vehicle for comprehensive healthcare reform in the United States. Efforts initiated by the previous administration and certain members of Congress to repeal or make significant changes to the Affordable Care Act, its implementation and/or its interpretation including the successful repeal of the penalty associated with the individual mandate of the Affordable Care Act, continue to cast uncertainty on the future of the Affordable Care Act. For example, on December 14, 2018, a U.S. District Court in Texas ruled the Affordable Care Act unconstitutional in its entirety. This decision was appealed, and on December 18, 2019, the Fifth Circuit Court of Appeals ruled that the Affordable Care Act’s individual mandate was unconstitutional but remanded the case for further analysis. The decision was appealed, and on June 17, 2021, the Supreme Court of the United States ruled that the plaintiffs lacked standing to challenge the Affordable Care Act’s minimum essential coverage provision. These types of challenges may impact the number of individuals that elect to obtain public or private health insurance or the scope of such coverage, if purchased.
Given the divided nature of Congress, it is unclear whether Congress will successfully expand health insurance coverage and assess alternative health care delivery and payment systems. The Republican Party currently controls the United States Senate and the House of Representatives (by a slim majority). Due to this, healthcare reform legislation would likely require at least some support from both Republican and Democratic lawmakers to become law and it is uncertain whether any healthcare reform legislation will ultimately become law. We cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on our business. If our tenants’, managers’, and borrowers’ residents do not have insurance, it could adversely impact their ability to satisfy their obligations to us. Expansion of health insurance coverage
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to more citizens could have a positive financial impact on our tenants, managers, and borrowers and their ability to satisfy their obligations to us.
Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted, which also may impact our business. For instance, CMS is required to measure, track, and publish readmission rates of SNFs and to implement a value-based purchasing program for SNFs (the “SNF VBP Program”). The SNF VBP Program increases Medicare reimbursement rates for SNFs that achieve certain levels of quality performance measures developed by CMS, relative to other facilities. The value-based payments authorized by the SNF VBP Program are funded by reducing Medicare payment for all SNFs by 2% and redistributing up to 70% of those funds to high-performing SNFs. However, there is no assurance that payments made by CMS as a result of the SNF VBP Program will be sufficient to cover a facility’s costs. If Medicare reimbursement provided to our healthcare tenants and borrowers is reduced under the SNF VBP Program, that reduction may have an adverse impact on their ability to meet their obligations to us.
See “Risk Factors — Risks Related to Our Business and Operations — Healthcare reform legislation impacts cannot accurately be predicted and could adversely affect our results of operations” for additional risks related to changes in Medicare reimbursement.
Increased Government Oversight and Transparency
Section 1150B of the Social Security Act requires employees of federally funded long-term care facilities to immediately report any reasonable suspicion of a crime committed against a resident of that facility. Those reports must be submitted to at least one law enforcement agency and the applicable Centers for Medicare & Medicaid Services (“CMS”) Survey Agency. Covered individuals who fail to report under Section 1150B are subject to various penalties, including civil monetary penalties of up to $300,000 and possible exclusion from participation in any Federal health care program. Medicare regulations require SNFs to establish and implement written policies to ensure the reporting of crimes that occur in federally funded SNFs in accordance with Section 1150B.
In August 2017, the HHS Office of Inspector General (“OIG”) issued a preliminary report regarding quality of care concerns by operators of SNFs. In its report, the OIG determined that CMS has inadequate procedures in place to ensure that incidents of potential abuse or neglect of Medicare beneficiaries residing in SNFs are identified and reported. The report was issued in connection with the OIG’s ongoing review of potential abuse and neglect of Medicare beneficiaries residing in SNFs.
As a result of the OIG report, CMS enforcement activity against SNF operators may increase, especially with regard to the reporting of potential abuse or neglect of SNF residents. Further, in July 2024, CMS adopted a final rule expanding its ability to impose per instance and per day civil monetary penalties on SNFs for health and safety deficiencies and non-compliance. If any of our tenants or borrowers or their employees are found to have violated any applicable reporting or health and safety requirements, they may become subject to penalties or other sanctions up to and including loss of licensure.
A final rule adopted by CMS that implemented certain portions of the Affordable Care Act and requires the disclosure of certain ownership, managerial, and other information regarding Medicare SNFs and Medicaid nursing facilities, became effective on January 16, 2024. The rule defines the term “real estate investment trust,” which sets the stage for Medicare SNFs to disclose whether each direct or indirect owning or managing entity is a real estate investment trust. However, in December 2025, CMS indefinitely extended the deadline for SNFs to comply with the requirement to submit a new ownership disclosure attachment to their CMS 855-A filings. Once the deadline is set and expires, these disclosure requirements may enable CMS and others to scrutinize more closely how direct and indirect ownership and management correlate with care outcomes and to determine which environments are more likely to deliver better care for residents and patients.
Healthcare Licensure and Certificate of Need
Our healthcare facilities are subject to extensive federal, state and local licensure, certification and inspection laws and regulations. In addition, various licenses and permits are required to operate SNFs and senior housing communities, dispense narcotics, operate pharmacies, handle radioactive materials and operate equipment. Many states require certain healthcare providers to obtain a certificate of need, which requires prior approval for the construction, modification and closure of certain healthcare facilities. The ability to obtain such approval and/or the approval process may impact some of our tenants’, managers’, and borrowers’ abilities to expand or change their businesses. Any failure to comply with any of these laws, regulations, or standards could result in penalties which may include loss or restriction of license, loss of accreditation, denial of reimbursement, imposition of fines, suspension or decertification from federal and state healthcare programs, or closure of the property.
Privacy, Security and Data Breach Notification Laws
The Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) regulates the privacy and security of certain health information (“Protected Health Information”) and requires entities subject to HIPAA to provide
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notification of breaches of Protected Health Information. Entities subject to HIPAA include health plans, healthcare clearinghouses, and most health care providers (including many of our tenants, managers, and borrowers). Business associates of these entities who create, receive, maintain or transmit Protected Health Information are also subject to HIPAA. Violations of the HIPAA requirements may result in civil monetary penalties of up to $50,000 per violation with a maximum civil penalty of $1.5 million in a calendar year for violations of the same requirement. However, a single breach or incident can result in violations of multiple requirements, resulting in possible penalties well in excess of $1.5 million. Breaches of unsecured Protected Health Information and other violations of HIPAA may have other material adverse consequences including material loss of business, business interruption, loss of patient or other critical data, regulatory enforcement, substantial legal liability and reputational harm. Certain violations of HIPAA can result in criminal penalties and enforcement.
Various other state and federal laws relate to privacy, security and the reporting of data breaches involving personal information (together with HIPAA, “Privacy Laws”). For example, various state laws and regulations may regulate the privacy and security of personal information, and require notification of affected individuals in the event of a data breach involving such individual’s personal information (including an individual’s name plus social security number, date of birth or credit card information, for example). Failure of us, our tenants, managers, or borrowers to comply with applicable Privacy Laws could have a materially adverse effect on our Company. Failure of our tenants, managers, or borrowers to comply with applicable Privacy Laws could have a material adverse effect on their ability to meet their obligations to us. Furthermore, the adoption of new Privacy Laws at the federal and state level could require us or our tenants, managers, or borrowers to incur significant compliance costs.
Americans with Disabilities Act (the “ADA”)
Although most of our properties are not required to comply with the ADA because of certain “grandfather” provisions in the law, some of our properties must comply with the ADA and similar state or local laws to the extent that such properties are “public accommodations,” as defined in those statutes. These laws may require removal of barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. Under our triple-net lease structure, our tenants or borrowers would generally be responsible for additional costs that may be required to make our properties ADA-compliant. Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants.
Environmental Matters
A wide variety of federal, state and local environmental and occupational health and safety laws and regulations affect healthcare property operations. These complex federal and state statutes, and their enforcement, involve a myriad of regulations, many of which involve strict liability on the part of the potential offender. Some of these federal and state statutes may directly impact us. Under various federal, state and local environmental laws, ordinances and regulations, an owner of real property, such as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages for injuries to persons and adjacent property). The cost of any required remediation, removal, fines or personal or property damages and the owner’s liability therefore could exceed or impair the value of the property and/or the assets of the owner. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral which, in turn, could reduce our revenues. See “Risk Factors — General Risk Factors — Environmental compliance costs and liabilities may materially impair the value of properties owned by us.”
Labor and Employment Matters
A wide variety of federal, state and local labor and employment laws and regulations impact healthcare property operations. Our tenants, managers, or borrowers are required to comply with all applicable federal, state and local laws and regulations relating to employment, including occupational safety and health requirements, minimum staffing, wage and hour laws, overtime and other compensation requirements, employee benefits and other leave and sick pay requirements, proper classification of workers as employee or independent contractors, and immigration and equal employment opportunity laws, among others. These laws and regulations can vary significantly among jurisdictions, can change, and can be highly technical and involve strict liability for noncompliance with technical detail. Costs and expenses related to these requirements are a significant operating expense and may increase as laws and regulations change. For example, on October 13, 2023, California Senate Bill No. 525 (“SB 525”) was signed into law, requiring a substantial increase in the minimum wage for workers operating in certain health care facilities. As a result of SB 525, certain health care facilities (including licensed skilled nursing facilities) operating in California are required to increase the wages of their covered health care employees to at least $21 per hour from June 1, 2024 to May 31, 2026, $22 or $23 per hour (depending on property type) from June 1, 2026 to May 31, 2028, and $25 per hour after June 1, 2028.
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U.K. Regulations
The U.K. also imposes very high levels of regulation on our U.K.-based operators. In England, where the majority of our U.K. operators are based, the Care Quality Commission (“CQC”) has regulatory oversight authority over the health and social care sectors and is responsible for approving, registering and inspecting our operators and the properties where they provide services. There is also a detailed legislative and regulatory framework in the U.K. designed to protect the vulnerable (whether by virtue of age or physical and/or mental impairment) and to prevent abuse. Each of these regulatory regimes carries significant enforcement powers, including the ability to criminally prosecute offending operators and facilities, impose fines or revoke registrations. The terms on which our U.K.-based operators provide services to residents is also regulated, including by the Competition and Markets Authority. Compliance with these regulations means our U.K.-based operators must be able to recruit and maintain appropriate staffing levels. There is ongoing debate and uncertainty within the U.K. as to how growing care needs will be met and funded in the future, and it is not clear at this stage what impact this debate and uncertainty will have on our U.K.-based operators.
While the U.K. has transitioned to a post-pandemic position with lessened regulation across the U.K as a whole, the care sector remains subject to specific guidance and requirements issued by the CQC and the U.K. government’s Department for Health and Social Care as a result of the pandemic, including in relation to infection risk assessments and localized infection control measures. As a result, our U.K.-based operators still face significant regulatory burdens under which they must deliver services and continue to experience significant impacts on their operations and financial condition.
Additionally, our U.K. operators are subject, as data controllers, to laws governing their use of personal data, including in relation to their employees, healthcare providers, clients, residents and recipients of their services. These laws currently take the form of the U.K.’s Data Protection Act 2018 and the U.K. General Data Protection Regulation, as amended by the Data (Use and Access) Act 2025 (collectively “U.K. Data Laws”). The U.K. Data Laws impose a significant number of obligations on data controllers with the potential for fines of up to 4% of annual worldwide turnover or £17.5 million, whichever is greater.
REIT Qualification
We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. Our qualification as a REIT will depend upon our ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code of 1986, as amended (the “Code”), relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels to our stockholders and the concentration of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification and taxation as a REIT under the Code and that our manner of operation has and will enable us to continue to meet the requirements for qualification and taxation as a REIT.
The Operating Partnership
We own substantially all of our assets and properties and conduct our operations through the Operating Partnership. We believe that conducting business through the Operating Partnership provides flexibility with respect to the manner in which we structure the acquisition of properties. In particular, an UPREIT structure enables us to acquire additional properties from sellers in tax deferred transactions. In these transactions, the seller would typically contribute its assets to the Operating Partnership in exchange for units of limited partnership interest in the Operating Partnership (“OP Units”). Holders of OP Units will have the right, after a 12-month holding period, to require the Operating Partnership to redeem any or all of such OP Units for cash based upon the fair market value of an equivalent number of shares of CareTrust REIT’s common stock at the time of the redemption. Alternatively, we may elect to acquire those OP Units in exchange for shares of our common stock on a one-for-one basis. The number of shares of common stock used to determine the redemption value of OP Units, and the number of shares issuable in exchange for OP Units, is subject to adjustment in the event of stock splits, stock dividends, distributions of warrants or stock rights, specified extraordinary distributions and similar events. The Operating Partnership is managed by our operating subsidiary, CareTrust GP, LLC, which is the sole general partner of the Operating Partnership and owns one percent of its outstanding partnership interests. As of December 31, 2025, CareTrust REIT was the only limited partner of the Operating Partnership, owning 99% of its outstanding limited partnership interests, and no OP Units were issued to any other party.
The benefits of our UPREIT structure include the following:
• Access to capital . We believe the UPREIT structure provides us with access to capital for refinancing and growth. Because an UPREIT structure includes a partnership as well as a corporation, we can access the markets through the Operating Partnership issuing equity or debt as well as the corporation issuing capital stock or debt securities. Sources of capital include possible future issuances of debt or equity through public offerings or private placements.
• Growth . The UPREIT structure allows stockholders, through their ownership of common stock, and the limited partners, through their ownership of OP Units, an opportunity to participate in future investments we may make in additional properties.
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• Tax deferral . The UPREIT structure provides property owners who transfer their real properties to the Operating Partnership in exchange for OP Units the opportunity to defer the tax consequences that otherwise would arise from a sale of their real properties and other assets to us or to a third party. As a result, this structure allows us to acquire assets in a more efficient manner and may allow us to acquire assets that the owner would otherwise be unwilling to sell because of tax considerations.
Insurance
We maintain, and/or require in our leases and other agreements with our tenants, managers, and borrowers that such tenants, managers and borrowers maintain, all applicable lines of insurance on our properties and their operations. The amount and scope of insurance coverage provided by our policies and the policies maintained by us, our tenants, managers, and borrowers is customary for similarly situated companies in our industry. However, we cannot assure you that our tenants, managers, and borrowers will maintain the required insurance coverages, and the failure by any of them to do so could have a material adverse effect on us. We also cannot assure you that we will continue to require the same levels of insurance coverage under our leases and other agreements, including the Ensign Master Leases, that such insurance will be available at a reasonable cost in the future or that the insurance coverage provided will fully cover all losses on our properties upon the occurrence of a catastrophic event, nor can we assure you of the future financial viability of the insurers.
Available Information
We file annual, quarterly and current reports, proxy statements and other information with SEC. The SEC maintains an internet site that contains these reports, and other information about issuers, like us, which file electronically with the SEC. The address of that site is http://www.sec.gov. We make available our reports on Form 10-K, 10-Q, and 8-K (as well as all amendments to these reports), and other information, free of charge, on the Investor Relations section of our website at www.caretrustreit.com. The information found on, or otherwise accessible through, our website is not incorporated by reference into, nor does it form a part of, this report or any other document that we file with the SEC.
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ITEM 1A. Risk Factors
Risks Related to Our Business and Operations
We are dependent on the healthcare operators that lease our properties as well as the borrowers under our mortgage secured loans and mezzanine loans to successfully operate their businesses and make contractual payments, and an event that materially and adversely affects their business, financial position or results of operations could materially and adversely affect our business, financial position or results of operations.
Because the majority of the properties we own are operated by our tenants pursuant to triple-net master leases (including properties we own in consolidated joint ventures), we are unable to directly implement strategic business decisions regarding the daily operation and marketing of these properties. While we have rights as the property owner under our triple-net leases and monitor the performance of our tenants, we may have limited recourse under our master leases and other agreements if we believe that one of them is not performing adequately, and any failure by them to effectively conduct operations or to maintain and improve our properties could adversely affect their business reputation and ability to attract and retain residents in our properties, which in turn, could adversely affect their ability to make contractual payments to us and otherwise adversely affect our results of operations, including our ability to repay our outstanding indebtedness or our ability to pay dividends to our stockholders as required to maintain our REIT status. Additionally, because each master lease is a triple-net lease, we depend on our tenants to pay all insurance, taxes, utilities and maintenance and repair expenses and to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their business. There can be no assurance that our tenants will have sufficient assets, income and financing to enable them to satisfy their contractual payment or indemnification obligations and they have in the past, and may in the future, fail to make payments when due, or they may declare bankruptcy.
Ensign leases or provides a guaranty for a significant portion of our properties. As of December 31, 2025, properties leased to Ensign and held for investment represented $92.1 million, or 23%, of total annualized contractual rental income, and properties leased to Pennant under the Pennant Master Lease for which Ensign provides a guaranty (the “Pennant Guaranty”) represented $7.6 million, or 2%, of total annualized contractual rental income. Ensign’s inability or unwillingness to meet its lease obligations or its obligations pursuant to the Pennant Guaranty could materially adversely affect our business, financial position or results of operations. In addition, Ensign’s inability to satisfy its other lease obligations including payment of insurance, taxes and utilities, could materially and adversely affect the condition of the properties leased to Ensign as well as Ensign’s business, financial position and results of operations. Accordingly, if Ensign were to experience a material and adverse effect on its business, financial position or results of operations, our business, financial position or results of operations could also be materially and adversely affected.
Further, our dependence on Ensign’s rental payments for a substantial portion of our rental income may limit our ability to enforce our rights under the Ensign leases or the Pennant Guaranty or to terminate the Ensign leases. Ensign’s failure to comply with its lease obligations or its obligations pursuant to the Pennant Guaranty, or with federal and state healthcare laws and regulations to which the leased properties are subject, could require us to find another lessee for such leased properties and result in a decrease in or cessation of rental payments. In such event, we may be unable to locate a suitable lessee at similar rental rates or at all, which would reduce our rental income.
In addition to the properties we own, from time to time, we originate loans receivable to certain borrowers in the form of mortgage secured loans or mezzanine loans, which are directly or indirectly secured by underlying properties owned by the borrowers. The ability of our borrowers to repay the loans is typically dependent primarily on the successful operation of the properties securing the loans. Because these properties are owned and operated by our borrowers, their affiliates, or unrelated third parties, we are unable to directly implement strategic business decisions regarding the daily operation of these properties. Any failure by a borrower to effectively conduct its operations in such a way to generate sufficient income, or any material adverse event that interferes with a borrower’s ability to generate sufficient income, may cause the borrower to be unable to make timely loan payments or to default on the loan.
We are dependent on the ability of our third party managers to successfully manage and operate our SHOP communities.
For our SHOP communities, we generally rely on our third party managers’ personnel, expertise, technical resources and information systems, risk management processes, proprietary information, good faith and judgment to manage the senior housing communities’ operations efficiently and effectively. We also rely on the third party managers to set appropriate resident fees, to provide accurate property-level financial results in a timely manner and otherwise manage risk and operate the senior housing communities in compliance with the terms of our management agreements and all applicable laws and regulations. We are generally responsible for all operational costs, expenses and other risks and liabilities of the SHOP communities. While our managers typically indemnify us, pursuant to the terms of management agreements, for liabilities arising out of certain of their actions such as gross negligence, fraud or willful misconduct, it may be difficult to enforce our rights or we may need to seek alternative solutions to ensure the liability is appropriately addressed. In addition, as a result of our SHOP structure, we are
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exposed to various operational risks with respect to our SHOP communities that may increase our costs or adversely affect our ability to generate revenues. These risks include fluctuations in occupancy experienced during the normal course of business, private pay rates or, if applicable, government reimbursements; economic conditions; the availability and increases in the cost of labor (as a result of unionization or otherwise); competition; federal, state, local, and industry-regulated licensure, certification and inspection laws, regulations, and standards; the availability and increases in cost of general and professional liability insurance coverage; increases in property taxes; state regulation and rights of residents related to entrance fees; and federal and state housing laws and regulations.
Unstable market and economic conditions may have serious adverse consequences on our business, results of operations and financial condition.
Global credit and financial markets have experienced extreme volatility and disruptions over the past several years, including declines in consumer confidence, concerns about declines in economic growth, increases in the rate of inflation, increases in borrowing rates and changes in liquidity and credit availability, and uncertainty about economic stability, including in connection with ongoing and proposed changes to U.S. trade and fiscal policy, actions undertaken by the U.S. Federal Reserve Board to address inflation, the military conflicts in Ukraine and supply chain disruptions. There can be no assurance that deterioration in credit and financial markets and confidence in economic conditions will not occur or persist. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment or unpredictable and unstable market conditions. In addition, increased costs due t o inflationary conditions may continue to adversely affect the operating expenses of our tenants and borrowers and their ability to meet their obligations to us and may also increase the costs to operate our SHOP communities and the costs for us to make capital improvements to our properties.
There is significant uncertainty about the future relationship between the United States and other countries with respect to trade policies, taxes, government regulations, and tariffs. The current U.S. administration is pursuing trade policy changes, including the imposition of additional tariffs on imported products to address trade imbalances. In response to some of these actions, certain countries have imposed retaliatory actions against the U.S. These policies, and any additional measures and countermeasures implemented by the U.S. and other countries, may lead to supply chain constraints and additional inflation, further increasing operational costs of our properties.
Our business could also be adversely impacted by volatility caused by geopolitical events, such as the conflict in Ukraine. A significant downturn in economic activity may cause a reduction in spending on healthcare matters and our tenants and borrowers may need to seek to lower their costs by renegotiating their agreements with us. Such reductions may disproportionately affect our revenue. In addition, if the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Furthermore, our stock price may decline due in part to the volatility of the stock market and the general economic downturn.
Most of our tenants and borrowers depend on reimbursement from government and other third party payors and if reimbursement rates from such payors are reduced by future legislative reform, it could cause our revenues or the revenues of our tenants and borrowers to decline and could affect their ability to meet their obligations to us.
Sometimes, governmental payors freeze or reduce payments to healthcare providers, or provide annual reimbursement rate increases that are smaller than expected, due to budgetary and other pressures. Healthcare reimbursement will likely continue to be of significant importance to federal and state authorities. For example, the federal government and a number of states are currently managing budget deficits and, as a result, many states are focusing on the reduction of expenditures under their Medicaid programs, which may result in a freeze on Medicaid rates or a decrease in reimbursement rates for us, our tenants and borrowers, as recently occurred in Idaho. However, for fiscal year 2026, the Medicare prospective payment system for skilled nursing facilities is projected to increase by 3.2%. The need to control Medicaid expenditures may be exacerbated by the potential for increased enrollment in Medicaid due to unemployment and declines in family incomes. These potential reductions could be compounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement to us, our tenants and borrowers under both the Medicaid and Medicare programs. Additionally, in July 2023, Medicare excluded marriage and family therapist services and mental health counselor services from SNF consolidated billing. While these services may still be billed by the clinicians providing the services, such services may not be covered under the SNFs Medicare Part A payment. While we cannot make any assessment as to the ultimate timing or the effect that any future legislative reforms may have on us, our tenants’ and borrowers’ costs of doing business or the amount of reimbursement by government and other third party payors, potential reductions in Medicaid and Medicare reimbursement or in non-governmental third party payor reimbursement, could reduce the revenues of our tenants and borrowers and their ability to meet obligations to us.
We face potential adverse consequences of bankruptcy, insolvency or financial deterioration of our tenants or borrowers.
We receive a significant portion of our income as rental payments under leases of properties we own directly or through our joint ventures. We have no control over the success or failure of our tenants’ businesses and, at any time, any of our tenants may experience a downturn in its business that may weaken its financial condition. As a result, our tenants have in the past, and
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may in the future, fail to make rent payments when due, or our tenants may declare bankruptcy. Tenant bankruptcies or failures to make rent payments when due could result in termination of the tenant’s lease and could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders (which could adversely affect our ability to raise capital or service our indebtedness). This risk is magnified where we lease multiple properties to a single tenant.
If a tenant is unable to comply with the terms of its lease, we may be forced to write off unpaid amounts due to us from the tenant, move to a cash basis method of accounting for recognizing rental income from the tenant or otherwise modify the tenant’s lease in ways that are unfavorable to us. Alternatively, failure of a tenant to perform under a lease could require us to declare a default, repossess the property, find a suitable replacement tenant, hire third party managers to operate the property or sell the property. See Note 2, Summary of Significant Accounting Policies and Note 4, Real Estate Investments, Net for further information.
If one or more of our tenants or borrowers files for bankruptcy relief, the U.S. Bankruptcy Code provides that a debtor has the option to assume or reject the unexpired lease or other executory contract within a certain period of time. Any bankruptcy filing by or relating to one of our tenants or borrowers could bar all efforts by us to collect pre-bankruptcy debts from that party or seize its property. A bankruptcy could also delay our efforts to collect past due balances under the agreements and could ultimately preclude collection of all or a portion of these sums. It is possible that we may recover substantially less than the full value of any unsecured claims we hold, if any, which may have a material adverse effect on our business, financial condition and results of operations, and our ability to make distributions to our stockholders.
In addition, the loans receivable we originate in the form of mortgage secured loans or mezzanine loans are directly or indirectly secured by underlying properties owned by the borrowers. In the event of any default under any loan receivable held by us, we will bear a risk of loss of principal and accrued interest to the extent of any deficiency between the value of the underlying property directly or indirectly securing the loan and the principal and accrued interest of the loan, which could have a material adverse effect on our business, financial position or results of operations. In addition, with respect to a default of any of our mezzanine loans, we are not entitled to any payment until all senior debt holders are paid in full. Foreclosure on a property or other interest that secures a loan receivable can be an expensive and lengthy process that could have a substantial negative effect on our anticipated return on the foreclosed investment. In the event of the bankruptcy of a loan borrower, the loan to such borrower will be deemed to be secured only to the extent of the value of the underlying property or other assets, as applicable, at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.
Replacement tenants or managers may be difficult to identify and we may be required to incur substantial renovation costs to make our healthcare properties suitable for such parties.
If our tenants or managers terminate or do not renew their agreements with us, we would attempt to reposition the properties with another party. Payments on such properties could decline or cease altogether, or costs may increase, while we reposition the properties with a suitable replacement party and we may be required to fund certain expenses and obligations (e.g., real estate taxes, debt costs and maintenance expenses) to preserve the value of, and avoid the imposition of liens on, such properties while they are being repositioned.
Healthcare properties are typically highly customized and may not be easily adapted to non-healthcare-related uses. The improvements generally required to conform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure and security, are costly and at times party-specific. A new or replacement tenant may require different features in a property, depending on that party’s particular operations. If a current tenant is unable to meet its obligations and vacates a property, we may incur substantial expenditures to modify a property before we are able to secure another tenant. Supply chain volatility and labor shortages may increase these construction costs. In addition, approvals of local authorities for any required modifications and/or renovations may be necessary, resulting in delays in transitioning a property to a new tenant. These expenditures or renovations and delays could materially and adversely affect our business, financial condition or results of operations.
In addition, we may fail to identify suitable replacements or enter into leases or other arrangements with new tenants, managers, or operators on a timely basis or on terms as favorable to us as our current agreements, if at all. If we experience a significant number of properties not under a lease due to the inability to find suitable replacement tenants, or successfully reposition the property, or we are unable to identify a replacement manager for the properties in our SHOP platform, our operating expenses could increase significantly. Even after a suitable replacement tenant or manager has taken over operation of a property, it may still take an extended period of time before such property is fully repositioned and value restored, if at all. Any of these results could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to stockholders.
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We have incurred and may in the future incur impairment charges, which could negatively impact our results of operations.
At each reporting period, we evaluate our real estate investments and other assets for impairment indicators whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The existence of impairment indicators is based on factors such as market conditions, operating performance and legal structure. If we determine that an impairment has occurred, we are required to adjust the ne t carrying value of the asset, which could have a material adverse effect on our results of operations in the period in which the write-off occurs. For example, in the twelve months ended December 31, 2025, we recorded impairment charges of approximately $2.5 million.
The geographic concentration of some of our properties could leave us vulnerable to an economic downturn, regulatory changes or acts of nature in those areas.
As a result of the concentration of our properties in California, the U.K., Texas, and Tennessee as des cribed in “Classification of properties in our Portfolio” under Item 1 of this Annual Report on Form 10-K, the conditions of local economies and real estate markets, including increases in real estate taxes, changes in governmental rules, regulations and reimbursement rates or criteria, changes in demographics, state funding, acts of nature, the impacts of climate change and other factors that may result in a decrease in demand and/or reimbursement for skilled nursing services in these states could have a disproportionately adverse effect on tenants’ and borrowers’ revenues, costs and results of operations, which may affect their ability to meet their obligations to us and may also adversely affect the revenues and results of operations related to our SHOP senior housing communities.
Our owned properties and the properties securing our loans receivable that are located in Texas and certain other states in the southeast are especially susceptible to natural disasters such as hurricanes, tornadoes and flooding and our owned properties and the properties securing our loans receivable that are located in California are particularly susceptible to natural disasters such as fires, earthquakes and mudslides. These types of natural disasters will likely increase in number, scope and intensity as a result of climate change. Further, these acts of nature may cause disruption to us, our tenants, managers, or borrowers, their employees and the underlying properties, which could have an adverse impact on their patients and businesses. In order to provide patient care, the operators and managers of our properties are dependent on consistent and reliable delivery of food, pharmaceuticals, utilities and other goods to the properties they operate, and the availability of employees to provide services at the properties. If the power supply, delivery of goods or the ability of employees to reach the properties is interrupted in any material respect due to a natural disaster or other reasons, it would have a significant impact on the properties and the businesses at those properties. Furthermore, the impact, or impending threat, of a natural disaster may require the evacuation of one or more properties, which would be costly and would involve risks, including potentially fatal risks, for the patients at such properties. The impact of disasters and similar events is inherently uncertain. Such events could harm the patients and employees within the facilities or severely damage or destroy one or more of the properties, which could harm the business, reputation, financial condition and financial performance of our tenants, managers or borrowers, or otherwise cause their businesses to suffer in ways that we currently cannot predict.
In addition, to the extent that significant changes in the climate occur in areas where our properties are located, we may experience extreme weather, including higher temperatures, increases in precipitation, fire, drought and flood, all of which may result in physical damage to or a decrease in demand for properties located in these areas or affected by these conditions. Based on our overall portfolio physical climate risk assessment, we found that the highest climate risk for our portfolio was heat caused by higher temperatures, which may result in higher operating and energy costs for us, our tenants, managers, and borrowers and higher capital costs for resiliency measures for us and our tenants, managers, and borrowers to maintain the property and its value. Should the impact of climate change be material in nature, including destruction or degradation of our owned properties or the properties securing our loans receivable, or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected. Increased costs to our tenants, managers, and borrowers to maintain the properties and take appropriate resiliency measures could harm their financial condition and financial performance. In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties and could also require us to spend more on our new development properties without a corresponding increase in revenue.
We are subject to risks associated with public health crises and government measures to prevent the spread of infectious diseases.
We are subject to risks associated with public health crises and government measures to prevent the spread of infectious diseases, including the global health concerns related to the COVID-19 pandemic and influenza. The COVID-19 pandemic adversely impacted nearly all aspects of our business. Public health crises, including significant COVID-19 outbreaks and any future epidemics or pandemics, could result in similar adverse impacts on our business, results of operations, cash flows and
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financial condition. Risks to our business that have been associated with the COVID-19 pandemic, and may be associated with future other public health crises, include:
• one or more of our tenants or borrowers could experience deteriorating financial conditions and be unable or unwilling to pay rent or other obligations on time and in full (which has, and could continue to result from, among other reasons (i) increased operating costs and staffing requirements related to compliance with Centers for Disease Control and Prevention (“CDC”) protocols, (ii) decreased occupancy rates, (iii) increased scrutiny by regulators, (iv) potential repayments of relief funds received by tenants, (v) nursing or other staffing shortages, or (vi) decisions by elderly individuals to avoid or delay entrance into assisted living and other long-term care properties);
• the possibility we may have to restructure our tenants’ or borrowers’ obligations and may not be able to do so on terms that are favorable to us;
• the potential need to recognize asset impairment charges or credit losses on our loans receivable if we determine that the full amount of our investments are not recoverable;
• increased costs or delays that we have incurred, and may continue to incur, if we need to reposition or transition any of our currently leased properties to another tenant or operator, which have adversely impacted, and may in the future adversely impact, our revenues and results of operations ;
• risks related to lawsuits and regulatory enforcement actions related to pandemic outbreaks involving us, our tenants, managers, or borrowers, including increases in the costs of business, negative publicity and/or further decreases in occupancy and/or profitability at our properties;
• the expiration, or lack of enforcement, of certain liability immunity for healthcare providers in relation to a qualified pandemic under the Public Readiness and Emergency Preparedness Act (the “PREP Act”);
• complete or partial closures of, or other operational issues at, one or more of our properties resulting from government actions or directives;
• limitations on our access to capital and other sources of funding, which could adversely impact our ability to make new property investments;
• our ability to continue to make cash distributions to our stockholders commensurate with historical levels; and
• our ability to repay outstanding debt or maintain compliance with covenants under our Third Amended Credit Facility (as defined below) and the indenture governing our Notes.
The extent to which public health crises may impact our business, results of operations, cash flows and financial condition depends on many factors which are highly uncertain and are difficult to predict. These factors include, but are not limited to, the duration and spread of any outbreak, the timing, distribution and efficacy of vaccines and other treatments, United States and foreign government actions to respond to the outbreak, the extent of disruption to our business and the business of our tenants, managers, and borrowers, and how quickly and to what extent normal operation conditions can resume.
We pursue property acquisitions and other real estate investments and seek strategic opportunities in the ordinary course of our business, which may result in significant usage of management resources or costs, and we may not fully realize the potential benefits of such transactions.
We regularly review, evaluate, engage in discussions regarding, and pursue acquisitions of properties and other real estate investments and seek other strategic opportunities in the ordinary course of business in order to maximize stockholder value. We may devote a significant amount of our management resources to, and incur significant costs in connection with, such transactions, which may not result in definitive agreements or the completion of any transaction and could negatively impact our operations. In addition, there is no assurance that we will fully realize the potential benefits of any past or future investment or strategic transaction.
If we cannot identify and purchase a sufficient quantity of suitable properties at favorable prices or if we are unable to finance investments on commercially favorable terms, or at all, our business, financial position or results of operations could be materially and adversely affected. Furthermore, any future acquisitions or investments may require the issuance of securities, the incurrence of debt, assumption of contingent liabilities or incurrence of significant expenditures, each of which could materially adversely impact our business, financial condition or results of operations. Additionally, the fact that we must distribute 90% of our REIT taxable income in order to maintain our qualification as a REIT may limit our ability to rely upon rental payments from our leased properties or subsequently acquired properties in order to finance our investments. As a result, if debt or equity financing is not available on acceptable terms, further acquisitions might be limited.
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Investments in consolidated joint ventures involve risks not present in investments in which we are the sole investor.
We have invested, and may continue to invest, as a joint venture partner in joint ventures. Such investments may involve risks not otherwise present when acquiring real estate directly, including for example:
• the joint venture partner(s) may at any time have economic or business interests or goals which are or which may become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in the joint venture or the timing of termination or liquidation of the joint venture;
• the possibility that the joint venture partner(s) might become insolvent or bankrupt;
• the possibility that we may incur liabilities as a result of an action taken by the joint venture partner(s);
• joint ventures may share certain approval rights over major decisions;
• a joint venture partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT;
• our ability to sell or transfer our interest in the joint ventures on advantageous terms when we so desire may be limited or restricted under the terms of our agreements with the counterparties in the joint ventures;
• we may be required to contribute additional capital if the counterparties in the joint ventures fail to fund their share of required capital contributions;
• disputes between us and a joint venture partner may result in litigation or arbitration that would increase our expenses and distract our officers and directors from focusing their time and effort on our business and result in subjecting the properties owned by the applicable joint venture to additional risk; or
• under certain joint venture arrangements, neither joint venture partner may have the power to control the venture, and an impasse could be reached which might have a negative influence on the joint venture.
In addition, we have entered into joint ventures with respect to certain of our properties under the SHOP platform that were structured under a RIDEA structure. This permits REITs to participate directly in the cash flow of “qualified healthcare properties” (as opposed to receiving only contractual rent payments) but requires them to rely on a manager to manage and operate the property, including complying with laws and providing resident care. Although the RIDEA structure gives us certain oversight approval rights and the right to review operational and financial reporting information, our managers are in control of the day-to-day business of the property. As a result, as the owner of the property under a RIDEA structure, we are responsible for, and our financial performance is impacted by, operational and legal risks and liabilities of the property, including those described above, even though we have limited ability to control or influence our operators’ management of these risks.
In the future, our joint ventures may also involve property development, which presents additional risks that could render a development project less profitable or not profitable at all and, under certain circumstances, may prevent completion of development activities once undertaken.
The intended benefits of the Care REIT acquisition may not be realized.
On May 8, 2025, we closed our acquisition of Care REIT by means of a court-sanctioned scheme of arrangement under Part 26 of the United Kingdom Companies Act of 2026, which at the time of acquisition owned 134 care homes across England, Scotland and Northern Ireland. On June 30, 2025, we separately acquired substantially all of the assets of Impact Health Partners LLP, the investment manager of Care REIT.
The intended benefits of the Care REIT acquisition may not be realized. The acquisition poses risks for our ongoing operations, including, among others, that senior management's attention may be diverted from the management of daily operations in our U.S. operations to the integration of the Care REIT properties; costs and expenses associated with any undisclosed or potential liabilities; that the Care REIT properties may not perform as well as anticipated; and unforeseen difficulties may arise in integrating operations in the U.K. into our company. As a result of the foregoing, we cannot assure you that the Care REIT acquisition will be accretive to us in the near term or at all.
We will be subject to additional risks from our investment in Care REIT and any other international investments.
Care REIT is our first major investment in the United Kingdom. We may also pursue other significant acquisition opportunities outside the United States, including in the United Kingdom, elsewhere in Europe or in Canada. International investment may expose us to a variety of risks that are different from and in addition to those commonly found in our current
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markets. Our acquisition of Care REIT and any other investments we may make internationally will subject us to additional risks, including:
• complying with a wide variety of foreign laws;
• fluctuations in exchange rates between foreign currencies and the U.S. dollar and exchange controls;
• limited experience with local business and cultural factors that differ from our usual standards and practices;
• challenges in establishing effective controls and procedures to regulate operations in different regions;
• the impact of regional or country-specific business cycles and economic instability;
• the impact of extreme weather or weather-related conditions and other natural disasters that may affect specific locations in which our properties are located, including hurricanes, flash floods, sea-level rise and coastal erosion, that may affect Care REIT properties or other properties we may acquire outside the United States; and
• political instability or civil unrest.
If we are unable to adequately address these risks, they could adversely affect our business, financial position or results of operations.
We assume operational and legal risks with respect to our properties managed in RIDEA structures that could have a material adverse effect on our business, results of operations and financial condition.
We have entered into various joint ventures that were structured under the provisions of RIDEA. Under a RIDEA structure, we rely on independent, third party managers to manage and operate the properties. Although we have some general oversight approval rights and the right to review operational and financial reporting information, our third party managers are ultimately in control of the day-to-day business of the property, including clinical decision-making, and we rely on them to operate and manage the properties including complying with laws and providing resident care. However, as the owner of the property under a RIDEA structure, we are responsible for operational and legal risks and liabilities of the property, other than those arising out of certain actions by our managers, such as gross negligence, fraud or willful misconduct, including, those relating to employment matters of our third party managers, compliance with health care fraud and abuse and other laws, governmental reimbursement matters, compliance with federal, state, local and industry-related licensure, certification and inspection laws, regulations, and standards, and litigation involving our properties or residents/patients, even though we have limited ability to control or influence our third party managers’ management of these risks. As such, these operational risks include our dependence on the availability and cost of general and professional liability insurance coverage. If these or other operational or legal risks occur with respect to our properties, our business could suffer and our financial position, results of operations or cash flows may be materially affected.
Our operating assets may expose us to various operational risks, liabilities and claims that could adversely affect our ability to generate revenues or increase our costs and could adversely affect our business, financial condition and results of operations.
Under the REIT tax rules, the senior housing communities in our SHOP platform that are “qualified healthcare properties” generally must be operated and managed for us by third party managers and we have limited rights to direct or influence the business or operations of those communities. However, in each case, we nonetheless participate directly in the financial performance of the communities’ operations and are ultimately responsible for all operational risks and other liabilities of such properties, other than those arising out of certain actions by our managers, such as gross negligence, fraud or willful misconduct. These risks include, and our financial performance is impacted by, among other things, fluctuations in occupancy levels, the inability to charge desirable resident fees (including anticipated increases in those fees), increases in the cost of food, supplies, energy, labor (as a result of labor shortages, unionization, inflation or otherwise) or other services, rent control regulations, national and regional economic conditions, the imposition of new or increased taxes, capital expenditure requirements, changes in management or equity, accounting misstatements, professional and general liability claims, litigation and regulatory actions and the availability and cost of insurance. Any one or a combination of these factors could impact the performance of our SHOP platform, which could adversely affect our business, financial condition and results of operations.
We generally hold the applicable healthcare license and enroll in applicable government healthcare programs on behalf of the properties in our SHOP platform, which subjects us to potential liability under various healthcare laws and regulations. See “—Risks Related to Laws and Regulations.”
Increased competition has resulted and may further result in lower net revenues for some of our tenants and borrowers and may affect their ability to meet their financial and other contractual obligations to us.
The healthcare industry is highly competitive. The occupancy levels at, and results of operations from, our owned properties and the properties securing loans receivable are dependent on our ability and the ability of our tenants and borrowers to compete with other tenants on a number of different levels, including the quality of care provided, reputation, the physical
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appearance of a property, price, the range of services offered, family preference, amenities, alternatives for healthcare delivery, the supply of competing properties, physicians, staff, referral sources, location, and the size and demographics of the population in the surrounding area. Operating expenses such as food, utilities, taxes, insurance, labor costs (including due to minimum wage laws and minimum staffing requirements) and rent or debt service continue to increase. In addition, our tenants and borrowers face an increasingly competitive labor market for skilled management personnel and nurses together with Medicaid reimbursement in some states that does not cover the full cost of caring for residents. Significant turnover, or a shortage of nurses or other trained personnel or general inflationary pressures on wages, may force tenants or borrowers to enhance pay and benefits packages to compete effectively for skilled personnel, or to use more expensive contract personnel, but they may be unable to offset these added costs by increasing the rates charged to residents. Further, the current Trump administration is pursuing policies that include the mass deportation of undocumented immigrants and sharp limits on legal immigration, which is expected to further increase competition and wages for labor. Any increase in labor costs and other property operating expenses or any failure by our tenants or borrowers to attract and retain qualified personnel could reduce the revenues of our tenants and borrowers and their ability to meet their obligations to us.
Our tenants and borrowers also compete with numerous other companies providing similar healthcare services or alternatives such as home health agencies, life care at home, community-based service programs, retirement communities and convalescent centers. We cannot be certain that our tenants and borrowers will be able to achieve occupancy and rate levels, or manage their expenses, in a way that will enable them to meet all of their obligations to us. Further, many competing companies may have resources and attributes that are superior to those of our tenants and borrowers. They may encounter increased competition that could limit their ability to maintain or attract residents or expand their businesses or to manage their expenses, either of which could adversely affect their ability to meet their obligations to us, potentially decreasing our revenues, impairing our assets, and/or increasing our collection and dispute costs.
In addition, if development of senior housing properties outpaces demand for those assets in markets in which we are located, those markets may become saturated and our senior housing tenants and borrowers could experience decreased occupancy, which may affect their ability to meet their financial and other contractual obligations to us.
Required regulatory approvals can delay or prohibit transfers of our healthcare properties, which could result in periods in which we are unable to receive rent for such properties.
Our tenants and borrowers must be licensed under applicable state law and, depending upon the type of property, certified or approved as providers under the Medicare and/or Medicaid programs. Prior to the transfer of the operations of such healthcare properties to successor operators, the new operator generally must become licensed under state law and, in certain states, receive change of ownership approvals under certificate of need laws (which provide for a certification that the state has made a determination that a need exists for the beds located on the property) and, if applicable, file for a Medicare and Medicaid change of ownership. Upon termination or expiration of existing leases, delays or the failure of the new tenant in receiving regulatory approvals from the applicable federal, state or local government agencies, has in the past prolonged, and may in the future prolong, the period during which we are unable to collect rent and the property may experience performance declines. We could also incur substantial additional expenses in connection with any licensing, receivership or change of ownership proceedings.
We may not be able to sell properties when we desire because real estate investments are relatively illiquid, which could materially and adversely affect our business, financial position or results of operations.
Real estate investments are generally illiquid. As a result, we may be unable to vary our portfolio promptly in response to changes in the real estate market. A downturn in the real estate market could materially and adversely affect the value of our properties and our ability to sell such properties for acceptable prices or terms. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property or portfolio of properties. These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could materially and adversely affect our business, financial position or results of operations and our ability to pay dividends and make distributions.
We, our tenants, or our borrowers may experience uninsured or underinsured losses, which could result in a significant loss of the capital we have invested in a property, decrease anticipated future revenues or cause us to incur unanticipated expenses.
Our lease and lending agreements require that the tenant or borrower, as applicable, maintain general and professional liability insurance and comprehensive liability and hazard insurance. However, there are certain types of losses (including, but not limited to, losses arising from environmental conditions or of a catastrophic nature, such as earthquakes, wildfires, hurricanes and floods) that may be uninsurable or not economically insurable. In addition, insurance coverage may be insufficient to pay the full current market value or replacement cost of any loss. Inflation, changes in tort liability laws, changes in building codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to protect a tenant in a liability claim or replace a property after such property has been damaged or destroyed. Under
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such circumstances, the insurance proceeds received might not be adequate to restore the economic position with respect to such tenant, borrower, or property.
If one of our tenants or borrowers experiences a material general or professional liability loss that is uninsured or exceeds policy coverage limits, it may be unable to satisfy its payment obligations to us. If one of our properties experiences a loss that is uninsured or that exceeds policy coverage limits, we could lose the capital invested in the damaged property as well as the anticipated future cash flows from the property.
With respect to our SHOP platform, we are responsible for the operational and legal risks and liabilities of the property. As such, we are responsible for maintaining general and professional liability insurance for these properties, which may not fully cover an insured loss, depending on the magnitude and nature of the claim. The need to maintain insurance for our SHOP platform properties will increase our costs, and changes in the cost of insurance or the availability of insurance in the future could further increase our costs to ensure we maintain an appropriate level of coverage or could cause us to reduce our insurance coverage.
In addition, even if damage to our owned properties or the properties securing our loans receivable is covered by insurance, business disruptions caused by a casualty event may result in lost revenue for us, our tenants or borrowers for which insurance may not fully compensate them or us for such loss of revenue. If one of our tenants or borrowers experiences such a loss, it may be unable to satisfy its payment obligations to us.
We may be affected by unfavorable resolution of litigation or disputes and rising liability and insurance costs as a result thereof or other market factors.
Our tenants, managers, and borrowers are from time to time parties to litigation, including, for example, disputes regarding the quality of care at healthcare properties or the operations of the properties. The effect of litigation may materially increase the costs incurred by our tenants, managers, and borrowers, including costs to monitor and report quality of care compliance. In addition, the cost of professional liability, medical malpractice, property, business interruption, and general liability, insurance policies can be significant and may increase or not be available at a reasonable cost or at all. Cost increases could cause our tenants and borrowers to be unable to make their lease or other obligations to us or fail to purchase the appropriate liability and malpractice insurance, or cause our borrowers to be unable to meet their obligations to us, potentially decreasing our revenues and increasing our collection and litigation costs.
Furthermore, with respect to our SHOP communities, we generally directly bear the costs of any such increases in litigation, monitoring, reporting, and insurance due to our direct exposure to the cash flows of such properties. We are responsible for these claims, litigation, and liabilities, with limited indemnification rights against the managers, which are typically based on the gross negligence or willful misconduct by the operator. Although our leases provide us with certain information rights with respect to our tenants, one or more of our tenants may be or become party to pending litigation or investigation of which we are unaware or in which we do not have a right to participate or evaluate. In such cases, we would be unable to determine the potential impact of such litigation or investigation on our tenants or our business or results. Moreover, negative publicity of any of our tenants’, or managers’, litigation or other legal proceedings or investigations may also negatively impact their and our reputation, resulting in lower customer demand and revenues, which could have a material adverse effect on our financial condition, results of operations, and cash flows.
We may also be named as defendants in lawsuits arising out of our alleged actions or the alleged actions of our tenants or managers for which such tenants or managers may have agreed to indemnify us. Unfavorable resolution of any such litigation, including an outsized jury verdict, or negative publicity as a result of such litigation could have a material adverse effect on our business, results of operations, and financial condition. Regardless of the outcome, litigation or other legal proceedings may result in substantial costs, disruption of our normal business operations, and the diversion of management attention. We may be unable to prevail in, or achieve a favorable settlement of, any pending or future legal action against us.
Even when a tenant is obligated to indemnify us for liability incurred as a result of a lawsuit pursuant to the terms of its agreement with us, the tenant may fail to satisfy those obligations and, in such event, we would have to incur the costs that should have been covered by the tenant and determine whether to expend additional resources to seek the contractually owed indemnity from that tenant, including potentially through litigation or arbitration. In some instances, we may decide not to enforce our indemnification rights if we believe that enforcement of such rights would be more detrimental to our business than alternative approaches. Regardless, such an event would divert management attention and may result in a disruption to our normal business operations, any or all of which could have an adverse effect on our business, results of operations, and financial condition.
We are, and may continue to be, exposed to contingent rent escalators, which could hinder our profitability and growth.
We derive revenue primarily by leasing our assets under long-term triple-net leases with rental rates that, subject to certain limitations, are generally fixed with annual rent escalations contingent on changes in the Consumer Price Index or Retail Price Index, subject to maximum fixed percentages. If the Consumer Price Index or Retail Price Index does not increase, our
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revenues may not increase. In addition, if economic conditions resul t in significant increases in the Consumer Price Index or Retail Price Index, but the escalations under our leases are capped, our growth and profitability also may be limited.
Cybersecurity incidents or other damage to the information systems and technology of us, our tenants, managers, or borrowers could harm our business.
We rely on information technology networks, enterprise and other cloud-based applications and other information systems to process, transmit and store electronic information, and to manage and support our business processes, including financial transactions and records, and to maintain personal information and tenant and lease data. We purchase some of our information technology, including software and cloud-based technology, from third party service providers, on whom we and our systems depend. While we have taken steps to protect the security of our information systems, we have, from time to time, experienced cybersecurity incidents of varying degrees, although none of these cyber incidents has had a material adverse impact on our business, financial condition or results of operations. The technology infrastructure and systems of some of our cloud solution and other third party service providers have also in the past experienced, and may in the future experience, cybersecurity incidents of varying degrees. Cybersecurity incidents can be caused by ransomware, computer denial-of-service attacks, worms, and other malicious software programs or other attacks, including the covert introduction of malware to computers and networks, and the use of techniques or processes that change frequently, may be disguised or difficult to detect, or are designed to remain dormant until a triggering event, and may continue undetected for an extended period of time. Cybersecurity incidents also result from social engineering or impersonation of authorized users as well as efforts to discover and exploit any design flaws, bugs, security vulnerabilities or security weaknesses, intentional or unintentional acts by employees or other insiders with access privileges, intentional acts of vandalism or fraud by third parties and sabotage. The risk of cybersecurity incidents has generally increased as the number, intensity and sophistication of attacks and intrusions from around the world have increased, including through the use of evolving technologies such as artificial intelligence.
We have engaged a third party cybersecurity firm who serves as our dedicated information technology and cybersecurity team and helps us oversee, implement and manage our processes and controls to assess, identify and manage risks from cybersecurity threats. It is possible that our processes and controls will not detect or protect against all cybersecurity threats or incidents. In addition, any failure on the part of our outsourced cybersecurity team to effectively monitor and protect our information systems could make us more vulnerable to cybersecurity incidents. Our technology infrastructure and information systems are also vulnerable to damage or interruption from natural disasters, power loss and telecommunications failures. Failure to maintain proper function, security and availability of our information systems or the loss or misuse of the data maintained in those systems could interrupt our operations, damage our reputation, subject us to significant costs to respond and implement remediation measures and liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.
Our tenants, managers, or borrowers may also from time to time experience cybersecurity incidents or other damage or interruption to their information systems that disrupt their operations or result in the loss or misuse of confidential information or other sensitive or personal information, including from their adoption or use of artificial intelligence, if applicable. Any resulting financial impact to our tenants, managers, or borrowers, including liability claims or regulatory penalties, costs to respond and implement remediation measures as well as operational consequences or business impacts resulting from any damage to their reputation or harm to their business relationships, could negatively impact the ability of our tenants, managers, or borrowers to meet their financial and other contractual obligations to us, which could have a material adverse effect on our business, financial condition and results of operations.
Bank failures or other events affecting financial institutions could have a material adverse effect on our, our tenants’ or our borrowers’ liquidity, results of operations, and financial condition.
The failure of a bank, or events involving limited liquidity, defaults, non-performance, or other adverse conditions in the financial or credit markets impacting financial institutions, or concerns or rumors about such events, may adversely impact us, either directly or through an adverse impact on our tenants and borrowers. A bank failure or other event affecting financial institutions could lead to disruptions in our or our tenants’ and borrowers’ access to bank deposits or borrowing capacity, including access to letters of credit from certain of our tenants relating to lease obligations. In addition, in the event of a bank failure or liquidity crisis, our or our tenants’ and borrowers’ deposits in excess of the Federal Deposit Insurance Corporation (“FDIC”) limits may not be backstopped by the U.S. government, and banks or financial institutions with which we or our tenants and borrowers do business may be unable to obtain needed liquidity from other banks, government institutions, or by acquisition. Any adverse effects to our tenants’ or borrowers’ liquidity or financial performance could affect their ability to meet their financial and other contractual obligations to us, which could have a material adverse effect our business, results of operations, and financial condition.
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Risks Related to Laws and Regulations
Healthcare reform legislation impacts cannot accurately be predicted and could adversely affect our results of operations.
We, our borrowers and the healthcare operators leasing our properties depend on the healthcare industry and are susceptible to risks associated with healthcare reform. Legislative proposals are introduced each year that would introduce major changes in the healthcare system, both nationally and at the state level. For example, the prior Biden administration pursued initiatives such as minimum staffing requirements for nursing homes. A final rule from CMS was issued in April 2024, but it was subsequently vacated by a federal court in April 2025 and is now subject to a legislative moratorium until September 30, 2034, under the One Big Beautiful Bill Act of July 2025 (the "OBBBA"). Subsequently, in December 2025 HHS announced that it has formally repealed the minimum staffing requirements. Any future implementation of similar mandates could have a material and adverse impact on the financial condition of our tenants and borrowers. We cannot predict whether any future legislation related to staffing or other reforms will be adopted or what effect they would have on our business or the businesses of our tenants, managers, and borrowers if enacted.
Our tenants, managers, and borrowers are subject to extensive federal, state and local laws and regulations affecting the healthcare industry that include those relating to, among other things, licensure, conduct of operations, ownership of properties, addition of properties and equipment, allowable costs, services, prices for services, qualified beneficiaries, quality of care, patient rights and insurance, fraudulent or abusive behavior, labor and employment issues and financial and other arrangements that may be entered into by healthcare providers. See “Government Regulation, Licensing and Enforcement” in Item 1 of this Annual Report on Form 10-K for more information. If our tenants, managers, or borrowers fail to comply with the laws, regulations and other requirements applicable to their businesses and the operation of our properties, they could become ineligible to receive reimbursement from governmental and private third party payor programs, face bans on admissions of new patients or residents, suffer civil or criminal penalties or be required to make significant operational changes. The cost to comply with these laws, regulations and other requirements results in increased costs of doing business for us, our tenants, managers, and borrowers. For example, on October 13, 2023, California Senate Bill No. 525 (“SB 525”) was signed into law, requiring a substantial increase in the minimum wage for workers operating in certain health care facilities. As a result of SB 525, certain health care facilities (including licensed skilled nursing facilities) operating in California are required to increase the wages of their covered health care employees to at least $21 per hour from June 1, 2024 to May 31, 2026, $22 or $23 per hour (depending on property type) from June 1, 2026 to May 31, 2028, and $25 per hour after June 1, 2028. After the initial implementation was delayed by the Governor of California in June 2024, SB 525 went into effect on October 16, 2024. If our tenants and borrowers are unable to offset these increased costs, their operating results and financial condition will be adversely impacted and our tenants and borrowers may be unable to satisfy their obligations to us.
We believe that additional resources may be dedicated to regulatory enforcement, which could further increase our tenants’, managers’, and borrowers’ costs of doing business and negatively impact their ability to pay their obligations to us. Changes in enforcement policies by federal and state governments have also resulted in a significant increase in inspection rates, citations of regulatory deficiencies and sanctions, including terminations from Medicare and Medicaid programs, bars on Medicare and Medicaid payments for new admissions, civil monetary penalties and criminal penalties. Our tenants, managers, and borrowers could be forced to expend considerable resources responding to an investigation, lawsuit or other enforcement action under applicable laws or regulations. Additionally, if our tenants’ or borrowers’ residents do not have insurance, it could adversely impact the tenants’ or borrowers’ ability to satisfy their obligation to us.
Tenants, managers, and borrowers that fail to comply with applicable requirements of governmental reimbursement programs, such as Medicare or Medicaid, may cease to operate or be unable to meet their financial and other contractual obligations to us.
Our tenants, managers, and borrowers are subject to the following risks, among others, relating to governmental healthcare reimbursement programs: statutory and regulatory changes; retroactive rate adjustments; recovery of program overpayments or set-offs; administrative rulings; policy interpretations; payment or other delays by fiscal intermediaries or carriers; government funding restrictions (at a program level or with respect to specific properties); and interruption or delays in payments due to any ongoing governmental investigations and audits.
We expect healthcare reimbursement will continue to be a significant focus for federal and state authorities in their cost control efforts. We cannot predict the timing or effects of any future legislative reforms on our business or our tenants’, managers’, and borrowers’ business costs or government and other third party payor reimbursement. More generally, because of the dynamic nature of the legislative and regulatory environment for health care products and services, and in light of existing federal budgetary concerns, we cannot predict the impact that broad-based, far-reaching legislative or regulatory changes could have on the U.S. economy, our business or that of our tenants, managers, and borrowers. The failure of any of our tenants, managers, and borrowers to comply with these laws, requirements and regulations could materially and adversely affect their ability to meet their financial and contractual obligations to us.
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Government investigations and enforcement actions brought against the health care industry have increased dramatically over the past several years and are expected to continue, particularly in the area of Medicare/Medicaid false claims, as well as an increase in the intensity of enforcement actions resulting from these investigations. Some of these enforcement actions represent novel legal theories and expansions in the application of the False Claims Act.
Medicare, Medicaid and other governmental health care payors require reporting of extensive financial information in a specific format or content. These requirements are technical and complex and may not be properly implemented by billing or reporting personnel. For certain required information, False Claims Act violations may occur without any intent to defraud by mere negligence or recklessness in information submission to the government. New billing systems, medical procedures and procedures for which there is not clear guidance may all result in liability. In addition, violations of the Anti-Kickback Law or Stark Law and, for provider tenants who received pandemic relief funds, the failure to comply with terms and conditions related to receipt or repayment of those funds, may form the basis for a federal False Claims Act violation. See “Government Regulation, Licensing and Enforcement,” in Item 1 of this Annual Report on Form 10-K for more information.
Many states have adopted laws similar to the False Claims Act, some of which apply to claims submitted to private and commercial payors, not just governmental payors. Violations of such laws by an operator of a health care property could result in loss of accreditation, denial of reimbursement, imposition of fines, suspension or decertification from government healthcare programs, civil liability, and in certain limited instances, criminal penalties, loss of license or closure of the property and/or the incurrence of considerable costs arising from an investigation or regulatory action.
If we, our tenants, managers, and borrowers fail to adhere to applicable privacy and data security laws, this could have a material adverse effect on us or on our tenants’ or borrowers’ ability to meet their obligations to us .
We, our tenants, managers, and borrowers are subject to HIPAA and various other state and federal laws, as well as contractual obligations, that relate to privacy and data security, including the reporting of data breaches involving personal information as discussed in “Government Regulation, Licensing and Enforcement — Privacy, Security and Data Breach Notification Laws” in Item 1 of this Annual Report on Form 10-K. Failure by us, our tenants, managers, and borrowers to comply with these requirements could have a material adverse effect on us and could result in enforcement actions, investigations, imposition of fines, or civil or criminal penalties . The imposition of significant fines or penalties on our tenants or borrowers could have a material adverse effect on their ability to meet their obligations to us. Furthermore, the adoption of new privacy, security and data breach notification laws at the federal and state level could require us or our tenants, managers, and borrowers to incur significant compliance costs. In addition, the cost and operational consequences of responding to data breaches and implementing remediation measures could be significant.
If we or our tenants, managers, and borrowers fail to comply with federal, state and local licensure, certification and inspection laws and regulations, they may cease to operate or be unable to meet their financial and other contractual obligations to us.
The healthcare operators that lease or manage the properties we own or that operate properties securing our loans receivable are subject to extensive federal, state, local and industry-related licensure, certification and inspection laws, regulations and standards. Our tenants’, managers’, and borrowers’ failure to comply with any of these laws, regulations or standards could result in adverse publicity and reputational harm as well as penalties which may include loss or restriction of license, loss of accreditation, denial of reimbursement, imposition of fines, suspension or decertification from federal and state healthcare programs, or closure of the property. Though the regulatory environment in which SNFs operate is more restrictive than for senior housing communities, senior housing communities face similar penalties for noncompliance with applicable legal requirements. For example, operations at our properties may require a license, registration, certificate of need, provider agreement or certification. Failure of any tenants, managers, or borrower to obtain, or the loss or imposition of restrictions on any required license, registration, certificate of need, provider agreement or certification would prevent a property from operating in the manner intended by such tenant, manager, or borrower. Additionally, failure of our tenants, managers, and borrowers to generally comply with applicable laws and regulations could adversely affect properties owned by us, result in adverse publicity and reputational harm, and therefore could materially and adversely affect us. See “Government Regulation, Licensing and Enforcement — Healthcare Licensure and Certificate of Need” in Item 1 of this Annual Report on Form 10-K for additional information.
Environmental compliance costs and liabilities may materially impair the value of properties owned by us.
Under various federal, state and local laws, ordinances and regulations, as a current or previous owner of real estate, we may be required to investigate and clean up certain hazardous or toxic substances or petroleum released at a property, and may be held liable to a governmental entity or to third parties for property damage and for investigation and cleanup costs incurred by the third parties in connection with the contamination. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination. Neither we nor our tenants carry environmental insurance on our properties. Contamination or the failure to remediate contamination
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may materially adversely affect our ability to sell or lease the real estate or to borrow using the real estate as collateral. As the owner of a site, we may also be held liable to third parties for damages and injuries resulting from environmental contamination emanating from the site. Although we generally require our tenants, as operators of our healthcare properties, to indemnify us for environmental liabilities they cause, such liabilities could exceed the financial ability of the tenant to indemnify us or the value of the contaminated property. We may also experience environmental liabilities arising from conditions not known to us.
Risks Related to Our Status as a REIT
If we fail to qualify or remain qualified as a REIT, we will be subject to U.S. federal income tax as a regular corporation and could face substantial tax liability, which could adversely affect our ability to raise capital or service our indebtedness.
We currently operate, and intend to continue to operate, in a manner that will allow us to continue to qualify to be taxed as a REIT for U.S. federal income tax purposes. We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. We received an opinion of our counsel with respect to our qualification as a REIT in connection with becoming a public company. Investors should be aware, however, that opinions of advisors are not binding on the IRS or any court. The opinion of our counsel represents only the view of our counsel based on its review and analysis of existing law and on certain representations as to factual matters and covenants made by us, including representations relating to the values of our assets and the sources of our income. The opinion is expressed as of the date issued. Our counsel has no obligation to advise us or the holders of any of our securities of any subsequent change in the matters stated, represented or assumed or of any subsequent change in applicable law. Furthermore, both the validity of the opinion of our counsel and our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis, the results of which will not be monitored by our counsel. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals.
If we fail to qualify to be taxed as a REIT in any year, we would be subject to U.S. federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates, and dividends paid to our stockholders would not be deductible by us in computing our taxable income. Any resulting corporate liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which could have an adverse impact on the value of our common stock. Unless we were entitled to relief under cer tain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT, which could adversely affect our financial condition and results of operations.
Legislative or other actions affecting REITs could have a negative effect on us.
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury (the “Treasury”). Changes to the tax laws or interpretations thereof, with or without retroactive application, could materially and adversely affect our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify to be taxed as a REIT or the U.S. federal income tax consequences to our investors and us of such qual ification. For instance, the “Tax Cuts and Jobs Act of 2017” (the “TCJA”) significantly changed the U.S. federal income tax laws applicable to businesses and their owners, including REITs and their shareholders. More recently, the OBBBA introduced further significant changes. Technical corrections or othe r amendments to these laws or administrative guidance interpreting them may be forthcoming at any time. We cannot predict the long-term effect of the TCJA, OBBBA, or any future law changes on REITs or their shareholders. Changes to the U.S. federal tax laws and interpretations thereof could adversely affect an investment in our stock
No prediction can be made regarding whether new legislation or regulation (including new tax measures) will be enacted by legislative bodies or governmental agencies, nor can we predict what consequences would result from this legislation or regulation. Accordingly, no assurance can be given that the currently anticipated tax treatment of an investment will not be modified by legislative, judicial or administrative changes, possibly with retroactive effect.
We could fail to qualify to be taxed as a REIT if income we receive from our tenants is not treated as qualifying income.
Under applicable provisions of the Code, we will not be treated as a REIT unless we satisfy various requirements, including requirements relating to the sources of our gross income. Rents received or accrued by us from our tenants will not be treated as qualifying rent for purposes of these requirements if the leases are not respected as true leases for U.S. federal income tax purposes and are instead treated as service contracts, joint ventures or other arrangements. If the leases are not respected as true leases for U.S. federal income tax purposes, we will likely fail to qualify to be taxed as a REIT.
In addition, subject to certain exceptions (including with respect to leases of “qualified healthcare properties”
to a taxable REIT subsidiaries (“TRS”) as described below), rents received or accrued by us from our tenants will not be treated as qualifying rent for purposes of these requirements if we or a beneficial or constructive owner of 10% or more of our stock
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beneficially or constructively owns 10% or more of the total combined voting power of all classes of stock entitled to vote or 10% or more of the total value of all classes of stock. CareTrust REIT’s charter provides for restrictions on ownership and transfer of CareTrust REIT’s shares of stock, including restrictions on such ownership or transfer that would cause the rents received or accrued by us from our tenants to be treated as non-qualifying rent for purposes of the REIT gross income requirements. Nevertheless, there can be no assurance that such restrictions will be effective in ensuring that rents received or accrued by us from our tenants will not be treated as qualifying rent for purposes of REIT qualification requirements.
The lease of qualified healthcare properties to a TRS is subject to special requirements.
We lease certain healthcare properties to TRSs (including subsidiaries or joint ventures in which our TRSs hold an interest), which in turn contract with third party managers to manage the healthcare operations at these properties. The rents we receive from a TRS (or a subsidiary or joint venture in which the TRS invests) pursuant to this arrangement are treated as qualifying rents from real property if (i) the healthcare property is a “qualified health care property” (as defined in the Code), (ii) the rents are paid pursuant to a lease with a TRS and (iii) the manager of the property qualifies as an “eligible independent contractor” (as defined in the Code). The determination of what is a “qualified healthcare property” is complex and, particularly with respect to unlicensed properties, dependent on the day-to-day operations and other arrangements in place at those properties. We believe that we have appropriately determined which of our properties are properly characterized as “qualified healthcare properties” and that we have structured the applicable leases and related arrangements in a manner intended to meet these requirements, but there can be no assurance that these conditions will be satisfied. If any of these conditions is not satisfied with respect to a particular lease, then the rents we receive with respect to such lease will not be qualifying rents, which could have an adverse effect on our ability to comply with REIT income tests and thus on our ability to qualify as a REIT unless we are able to avail ourselves of certain relief provisions.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum U.S. federal income tax rate applicable to income from “qualified dividends” payable by U.S. corporations to U.S. stockholders that are individuals, trusts and estates is currently 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates. However, under the TCJA, as made permanent by the OBBBA, noncorporate taxpayers may deduct up to 20% of certain qualified business income, including "qualified REIT dividends" (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations. This deduction results in an effective maximum U.S. federal income tax rate of 29.6% on such income. Although these rules do not adversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends, together with the reduced corporate tax rate (currently, 21%), could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our stock.
REIT distribution requirements could adversely affect our ability to execute our business plan.
We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, in order for us to qualify to be taxed as a REIT (assuming that certain other requirements are also satisfied) so that U.S. federal corporate income tax does not apply to earnings that we distribute. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT but distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, we will be subject to U.S. federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal income tax laws. We intend to make distributions to our stockholders to comply with the REIT requirements of the Code.
Our funds from operations are generated primarily by rents paid under leases with our tenants. From time to time, we may generate taxable income greater than our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible capital expenditures, the creation of reserves or required debt or amortization payments. If we do not have other funds available in these situations, we could be required to borrow funds on unfavorable terms, sell assets at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions in order to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid being subject to corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity.
Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
Even if we remain qualified for taxation as a REIT, we may be subject to certain U.S. federal, state, and local taxes on our income and assets, including taxes on any undistributed income and state or local income, property and transfer taxes. For example, we may hold some of our assets or conduct certain of our activities through one or more taxable REIT subsidiaries (each, a “TRS”) or other subsidiary corporations that will be subject to U.S. federal, state, and local corporate-level income
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taxes as regular C corporations. The OBBBA modified the REIT asset test to provide that not more than 25% (previously 20%) of the gross value of a REIT's assets may be represented by securities of one or more TRSs. In addition, we may incur a 100% excise tax on transactions with a TRS if they are not conducted on an arm’s-length basis. Any of these taxes would decrease cash available for distribution to our stockholders.
Complying with REIT requirements may cause us to forgo otherwise attractive acquisition opportunities or liquidate otherwise attractive investments.
To qualify as a REIT for U.S. federal income tax purposes, we must on an ongoing basis satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our shares of beneficial interest. We may be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with the REIT requirements may hinder our ability to make certain attractive investments.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Income from certain hedging transactions that we may enter into to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets does not constitute “gross income” for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met. For taxable years beginning after December 31, 2015, income from new transactions entered into to hedge the income or loss from prior hedging transactions, where the indebtedness or property which was the subject of the prior hedging transaction was extinguished or disposed of, will not constitute gross income for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions or fail to properly identify such transaction as a hedge, the income is likely to be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may be required to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because the TRS may be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in the TRS will generally not provide any tax benefit, except that such losses could theoretically be carried back or forward against past or future taxable income in the TRS.
Certain subsidiaries might fail to qualify or remain qualified as a REIT
We have formed an entity which has elected to be taxed as a REIT. Each subsidiary REIT is also subject to the same various REIT qualification requirements and other limitations described herein that are applicable to us. We believe that our subsidiary REIT has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Code. However, if our subsidiary REIT were to fail to qualify as a REIT, then it would become subject to regular U.S. federal corporate income tax and our ownership of stock in such subsidiary REIT would cease to be a qualifying real estate asset for purposes of the 75% asset test and would become subject to the 5% asset test, the 10% vote test and the 10% value test generally applicable to ownership in corporations other than REITs, qualified REIT subsidiaries and TRSs. If any subsidiary REIT were to fail to qualify as a REIT, it is possible that we would not meet the 10% vote test and the 10% value test with respect to our indirect interest in such entity, in which event we would fail to qualify as a REIT unless we could avail ourselves of certain relief provisions.
Changes in international U.S. or non-U.S. tax laws, including changes to tax rates, may adversely affect our results of operations.
We are headquartered in the United States but we have investments in the United Kingdom, may have investments in other jurisdictions and are subject to the income and other tax laws of such jurisdictions. Similar to the requirements applicable to U.S. REITs, the tax laws of other jurisdictions in which we have operations, such as the requirements applicable to U.K. REITs, are complex. Significant judgment is required in determining our provision for income taxes. Although we believe that we have adequately assessed and accounted for our potential tax liabilities, and that our tax estimates are reasonable, there can be no assurance that additional taxes will not be due upon audit of our tax returns or as a result of changes to applicable U.S. or non-U.S. tax laws. The U.S. and non-U.S. governments are actively discussing changes to corporate taxation. Our future tax expense could be adversely affected by these changes in tax laws or their interpretation, both domestically and internationally. Potential tax reforms being considered by many countries include changes that could impact, among other things, global tax reporting, intercompany transfer pricing arrangements, the definition of taxable permanent establishments, and other legal or financial arrangements. The nature and timing of any changes to each jurisdiction’s tax laws and the impact on our future tax exposure both in the U.S. and abroad cannot be predicted with any accuracy but could materially and adversely impact our results of operations and cash flows.
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Risks Related to Our Capital Resources and Indebtedness
From time to time, we may have substantial indebtedness and we are able to incur significant additional indebtedness.
As of December 31, 2025, we had approximately $900.0 million of indebtedness representing $400.0 million of our 3.875% Senior Notes due 2028 (the “Notes”) and a $500.0 million term loan under our unsecured term loan credit facility, and no borrowings outstanding under our unsecured revolving credit facility. High levels of indebtedness could have one or more of the following adverse consequences, among others: require us to dedicate a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, thereby reducing our cash flow available to fund working capital, dividends, capital expenditures and acquisitions and other general corporate purposes; require us to maintain certain debt coverage and other financial ratios at specified levels, thereby reducing our financial flexibility; make it more difficult for us to satisfy our financial obligations, including the Notes and borrowings under the Third Amended Credit Facility (as defined below); increase our vulnerability to general adverse economic and industry conditions or a downturn in our business; limit, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds on favorable terms or at all to expand our business or ease liquidity constraints; limit our ability to refinance all or a portion of our indebtedness on or before maturity on the same or more favorable terms or at all; and require us to dispose of one or more of our properties at disadvantageous prices in order to service our indebtedness or to raise funds to pay such indebtedness at maturity.
In addition, failure to satisfy our obligations under the Notes or our other debt or to comply with the financial and other restrictive covenants contained in the indenture governing the Notes or the Third Amended Credit Agreement (as defined below), could result in an event of default, which could result in all of our debt becoming immediately due and payable and permit certain of our lenders to foreclose on our assets securing such debt. Further, our Third Amended Credit Agreement and the indenture governing the Notes permit us to incur substantial additional debt, including secured debt, subject to our compliance with certain financial covenants set forth in the Third Amended Credit Agreement and our ability to satisfy certain covenants in the indenture governing the Notes. See “Risk Factors - Risks Related to Our Capital Resources and Indebtedness — Covenants in our debt agreements restrict our activities and could adversely affect our business” for a summary of these covenants.
We may be unable to service our indebtedness.
Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our future financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors beyond our control, including the availability of financing in the international banking and capital markets. Our business may fail to generate sufficient cash flow from operations or future borrowings may be unavailable to us under the Third Amended Credit Facility or from other sources in an amount sufficient to enable us to service our debt, to refinance our debt or to fund our other liquidity needs. If we are unable to meet our debt obligations or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt. We may be unable to refinance such debt on commercially reasonable terms or at all. If we were unable to make payments or refinance our debt or obtain new financing under these circumstances, we would have to consider other options, such as asset sales, equity issuances and/or negotiations with our lenders to restructure such debt. The Third Amended Credit Agreement and the indenture governing the Notes restrict, and market or business conditions may limit our ability to take, these actions. Any debt restructuring or refinancing could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.
We rely on our subsidiaries for our operating funds.
We conduct our operations through subsidiaries and depend on our subsidiaries for the funds necessary to operate and repay our debt obligations, including funds transfers to us which are necessary to make the payments due under the Notes. The obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by us and all of our existing and future subsidiaries (other than CTR Partnership, L.P. and CareTrust Capital Corp.) that guarantee obligations under the Third Amended Credit Facility. However, under certain circumstances, one or more of our subsidiaries may be released from, or may not be required to provide, a guarantee of the Notes, and in such circumstances, will not be responsible for any obligations with respect to the Notes. Each of our subsidiaries is a distinct legal entity and has no obligation, contingent or otherwise, to transfer funds to us. In addition, the ability of our subsidiaries to transfer funds to us could be restricted by the terms of subsequent financings.
Covenants in our debt agreements restrict our activities and could adversely affect our business.
Our debt agreements contain covenants that limit our and our subsidiaries’ ability to engage in various transactions including, as applicable: incurring or guaranteeing additional secured and unsecured debt; creating liens on our and our subsidiaries’ assets; paying dividends or making other distributions on, redeeming or repurchasing capital stock; making investments or other restricted payments; entering into transactions with affiliates; engaging in non-healthcare related business
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activities; creating restrictions on the ability of our subsidiaries to pay distributions or other amounts to us; selling assets; effecting a consolidation or merger or selling all or substantially all of our assets; making acquisitions; and amending organizational documents.
These covenants limit our operational flexibility and could prevent us from taking advantage of business opportunities as they arise, growing our business or competing effectively. The Third Amended Credit Agreement requires us to comply with financial maintenance covenants to be tested quarterly and also contains customary events of default, including the failure to make timely payments under the Third Amended Credit Facility or other material indebtedness, failure to satisfy certain covenants (including financial maintenance covenants), the occurrence of a change of control and specified events of bankruptcy and insolvency. Our ability to meet these requirements may be affected by events beyond our control and, if we fail to do so, we may be unable to obtain waivers from the lenders or amend the covenants.
Increases in interest rates could increase our existing and future debt borrowing costs and adversely affect our stock price.
Certain of our existing debt obligations require interest and related payments to vary with the movement of certain indices, such as the Secured Overnight Financing Rate, and we may incur additional indebtedness in connection with new credit facilities or financing of acquisitions or development activities. Interest rates in recent years have increased, and may continue to increase, our interest costs for any new debt and our obligations under our Third Amended Credit Facility, which could make acquisition financings more costly or lower our current period earnings. Rising interest rates could limit our ability to refinance existing debt when it matures or cause us to pay higher interest rates upon refinancing. In addition, interest rate increases could decrease credit access globally, thereby decreasing the amount others are willing to pay for our assets and limiting our ability to reposition our portfolio promptly in response to changes in economic or other conditions. Further, the dividend yield on our common stock, as a percentage of the price of such common stock, will influence the price of such common stock. Thus, an increase in market interest rates may lead prospective purchasers of our common stock to expect a higher dividend yield, which could adversely affect the market price of our common stock.
A credit rating downgrade could impair our ability to obtain additional deb t financing on favorable terms, if at all, and significantly reduce the trading price of our common stock.
Our credit rating can affect the amount, type and terms of capital financings we obtain. Factors affecting our credit rating include, among others, our financial performance, success in raising sufficient equity capital, adverse changes in our debt and fixed charge coverage ratios, our capital structure, level of indebtedness and future changes in the regulatory framework applicable to our operators and industry. We may be unable to maintain our current credit ratings, and in the event that our current credit ratings deteriorate, a ratings agency downgrades our credit rating or places our rating under watch or review for possible downgrade, we would likely incur higher borrowing costs, which would make it more difficult or expensive to obtain additional financing or refinance existing obligations and commitments and the trading price of our common stock may decline.
Risks Related To Our Common Stock and Organizational Documents
Our charter restricts the ownership and transfer of our outstanding stock, which may have the effect of delaying, deferring or preventing a transaction or change of control of our company.
In order for us to qualify to be taxed as a REIT, not more than 50% in value of our outstanding shares of stock may be owned, beneficially or constructively, by five or fewer individuals at any time during the last half of each taxable year after our first taxable year as a REIT. Additionally, at least 100 persons must beneficially own our stock during at least 335 days of a taxable year (other than our first taxable year as a REIT). Our charter, with certain exceptions, authorizes our board of directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Our charter also provides that, unless exempted by the board of directors, no person may own more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock, or more than 9.8% in value of the outstanding shares of all classes or series of our stock. The constructive ownership rules are complex and may cause shares of stock owned directly or constructively by a group of related individuals or entities to be constructively owned by one individual or entity. These ownership limits could delay or prevent a transaction or a change in control of us that might involve a premium price for shares of our stock or otherwise be in our stockholders’ best interests. The acquisition of less than 9.8% of our outstanding stock by an individual or entity could cause that individual or entity to own constructively in excess of 9.8% in value of our outstanding stock, and thus violate our charter’s ownership limit. Our charter also prohibits any person from owning shares of our stock that would result in our being “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify to be taxed as a REIT. In addition, our charter provides that (i) no person shall beneficially or constructively own shares of stock to the extent such beneficial or constructive ownership of stock would result in us failing to qualify as a “domestically controlled qualified investment entity” within the meaning of Section 897(h) of the Code, and (ii) no person shall beneficially or constructively own shares of stock to the extent such beneficial or constructive ownership would cause us to own, beneficially or constructively, more than a 9.9% interest (as set forth in Section 856(d)(2)(B) of the Code) in a tenant of our real property. Any attempt to own or transfer shares of our stock in violation of these restrictions may result in the transfer being automatically void.
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Maryland law and provisions in our charter and bylaws may delay or prevent takeover attempts by third parties and therefore inhibit our stockholders from realizing a premium on their stock.
Our charter, bylaws and Maryland law contain provisions intended to deter coercive takeover practices and inadequate takeover bids and to encourage prospective acquirors to negotiate with our board of directors rather than to attempt a hostile takeover. As currently in effect, our charter and bylaws, among other things, (1) contain transfer and ownership restrictions on the percentage by number and value of outstanding shares of our stock that may be owned or acquired by any stockholder; (2) prohibit stockholders action by non-unanimous written consent; (3) permit the board of directors, without further action of the stockholders, to amend the charter to increase or decrease the aggregate number of authorized shares or the number of shares of any class or series that may be issued; (4) permit the board of directors to classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares; (5) establish certain advance notice procedures for stockholder proposals, and provide procedures for the nomination of candidates for our board of directors; (6) provide that special meetings of stockholders may only be called by the Company or upon written request of 25% of all the votes entitled to be cast at such meeting; (7) provide that a director may only be removed by stockholders for cause and upon the vote of two-thirds of the outstanding shares of common stock; and (8) require supermajority approval to amend or repeal certain provisions in our charter. In addition, specific anti-takeover provisions of the Maryland General Corporation Law (“MGCL”) could make it more difficult for a third party to attempt a hostile takeover, including:
• “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose special appraisal rights and special stockholder voting requirements on these combinations; and
• “control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
Our bylaws contain a provision that exempts from the MGCL’s control share acquisition statute any and all acquisitions by any person of shares of our stock. However, there can be no assurance that this provision will not be amended or eliminated, in whole or in part, at any time in the future.
We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers. However, these provisions may delay, defer or prevent a change of control transaction even if such transaction involves a premium price for our common stock or our stockholders believe that such transaction is otherwise in their best interests. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.
Our bylaws provide that the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland is the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee, (iii) any action asserting a claim arising pursuant to any provision of the MGCL, or (iv) any action asserting a claim governed by the internal affairs doctrine, and any of our record or beneficial stockholders who commences such an action shall cooperate in a request that the action be assigned to the Court’s Business & Technology Case Management Program. This exclusive forum provision is intended to apply to claims arising under the MGCL and would not apply to claims brought pursuant to the Exchange Act of 1934 or Securities Act of 1933, each as amended, or any other claim for which the federal courts have exclusive jurisdiction. The exclusive forum provision in our bylaws will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.
This exclusive forum provision may limit a stockholder's ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. In addition, stockholders who do bring a claim in the Circuit Court for Baltimore City, Maryland could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Maryland. The
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Circuit Court for Baltimore City, Maryland may also reach different judgments or results than would other courts, including courts where a stockholder would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. However, the enforceability of similar exclusive forum provisions in other companies' certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find this type of provision and/or the jurisdictional limitation contained therein to be inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings. If a court were to find the exclusive forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we might incur additional costs associated with resolving such action in other jurisdictions.
We cannot assure you of our ability to pay dividends in the future.
We expect to make quarterly dividend payments in cash with the annual dividend amount no less than 90% of our annual REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. Our ability to pay dividends may be adversely affected by a number of factors, including the risk factors described in this annual report. Dividends are authorized by our board of directors and declared by us based upon a number of factors, including but not limited to actual results of operations, restrictions and solvency considerations under Maryland law or applicable debt covenants, our financial condition, our taxable income, the annual distribution requirements under the REIT provisions of the Code and our operating expenses. There is no assurance that our operating results will allow for specified levels of cash dividends or year-to-year increases in the future.
Furthermore, while we are required to pay dividends in order to maintain our REIT status (as described under “Risks Related to Our Status as a REIT — REIT distribution requirements could adversely affect our ability to execute our business plan”), we may elect not to maintain our REIT status and discontinue paying dividends. Even if we do elect to maintain our REIT status, after completing various procedural steps, we may elect to comply with the applicable distribution requirements by distributing, under certain circumstances, a portion of the required amount in the form of shares of our common stock in lieu of cash. Either of these actions could negatively affect our business and financial condition as well as the market price of our common stock.
