CareTrust REIT(US:CTRE)2022-08-03 16:00PART I—FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for CareTrust REIT, Inc. as of June 30, 2022, including balance sheets, statements of operations, equity, and cash flows Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2022, shows total assets increased to $1.686 billion, while total liabilities rose to $847.5 million, and total equity decreased to $838.3 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $1,685,772 | $1,640,848 | | Real estate investments, net | $1,390,286 | $1,589,971 | | Assets held for sale, net | $141,767 | $4,835 | | Cash and cash equivalents | $30,267 | $19,895 | | Total Liabilities | $847,504 | $725,091 | | Unsecured revolving credit facility | $205,000 | $80,000 | | Total Equity | $838,268 | $915,757 | Condensed Consolidated Statements of Operations For the six months ended June 30, 2022, the company reported a net loss of $22.6 million, primarily due to a $61.4 million impairment charge on real estate investments Key Operating Results (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $47,553 | $48,258 | $94,029 | $94,009 | | Impairment of real estate investments | $1,701 | $— | $61,384 | $— | | Net Income (Loss) | $20,669 | $21,317 | $(22,595) | $41,803 | | Diluted EPS | $0.21 | $0.22 | $(0.24) | $0.43 | Condensed Consolidated Statements of Equity Total equity decreased to $838.3 million as of June 30, 2022, driven by a net loss of $22.6 million and $53.3 million in common dividends paid - The primary drivers for the decrease in total equity during the first six months of 2022 were the net loss of $22.6 million and common dividend payments totaling $53.3 million across both quarters18 Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash provided by operating activities was $68.3 million, while investing activities used $125.6 million, and financing activities provided $67.7 million Six-Month Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $68,302 | $70,557 | | Net cash used in investing activities | $(125,644) | $(145,043) | | Net cash provided by financing activities | $67,714 | $366,525 | | Net increase in cash | $10,372 | $292,039 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, the real estate portfolio, significant impairment charges, loan portfolio expansion, debt structure, equity programs, and major tenant and geographic concentrations - As of June 30, 2022, the company's portfolio consisted of 228 facilities with 23,876 operational beds and units across 29 states, alongside other real estate investments (loans) with a carrying value of $115.2 million25 - During the first quarter of 2022, the company decided to sell 27 properties and repurpose 3 properties, leading to an aggregate impairment charge of $59.7 million related to 20 of these properties, with an additional $1.7 million impairment recognized in the second quarter4042 - The company's two largest operators, Ensign and Priority Management Group, accounted for 35% and 16% of total revenue, respectively, for the six months ended June 30, 2022, with California and Texas representing 26% and 22% of total revenue geographically8485 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, highlighting the impacts of the COVID-19 pandemic, macroeconomic pressures, impairment charges, and portfolio adjustments Recent Developments Tenants continue to face COVID-19 and inflation challenges, with 94.4% rent collection in the first six months of 2022, alongside a strategic decision to sell or repurpose 30 properties resulting in a $59.7 million impairment charge Contractual Rent Collection Rates | Period | Collection Rate (incl. deposits) | Collection Rate (excl. deposits) | | :--- | :--- | :--- | | Q2 2022 | 93.9% | 92.1% | | 6M 2022 | 94.4% | 92.0% | | July 2022 | 102.1% | 94.1% | - In Q1 2022, the company decided to sell 27 properties and repurpose 3, representing about 9% of contractual cash rent, which led to a $59.7 million impairment charge on 20 properties held for sale105 - In June 2022, the company extended a $75.0 million senior secured term loan and a $25.0 million mezzanine loan related to an 18-facility skilled nursing portfolio in the Mid-Atlantic region112 Results of Operations For the six months ended June 30, 2022, rental income was flat year-over-year, but a significant $61.4 million impairment charge resulted in a net loss compared to net income in the prior year Comparison of Three Months Ended June 30, 2022 and March 31, 2022 (in thousands) | Account | June 30, 2022 | March 31, 2022 | Increase (Decrease) | | :--- | :--- | :--- | :--- | | Rental income | $46,806 | $46,007 | $799 | | Impairment of real estate investments | $1,701 | $59,683 | $(57,982) | | Provision for loan losses, net | $— | $3,844 | $(3,844) | Comparison of Six Months Ended June 30, 2022 and 2021 (in thousands) | Account | 2022 | 2021 | Increase (Decrease) | | :--- | :--- | :--- | :--- | | Rental income | $92,813 | $92,990 | $(177) | | Impairment of real estate investments | $61,384 | $— | $61,384 | | Provision for loan losses, net | $3,844 | $— | $3,844 | | General and administrative | $10,193 | $10,940 | $(747) | Liquidity and Capital Resources The company maintains sufficient liquidity with a $30.3 million cash balance and $395.0 million available under its revolving credit facility to meet short-term needs, while long-term needs will be met through cash flows and financing arrangements - As of June 30, 2022, the company had a cash balance of $30.3 million, $395.0 million available under its Revolving Facility, and $476.5 million available under its ATM Program143 - The company has a $150.0 million share repurchase program authorized through March 31, 2023, but has not repurchased any shares as of June 30, 2022143 - Material cash requirements include debt service on $400 million of senior notes and borrowings under the credit facility, capital expenditure commitments of $7.2 million, and quarterly dividend payments151157158 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk from its $405.0 million variable-rate debt, where a 100 basis point increase would raise interest expense by approximately $2.0 million for the first six months of 2022 - As of June 30, 2022, the company had $405.0 million in variable-rate debt outstanding ($200.0 million Term Loan and $205.0 million Revolver)163 - A 100 basis point (1%) increase in interest rates on variable-rate debt would have increased interest expense by approximately $2.0 million for the six months ended June 30, 2022165 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2022168 - No changes occurred during the quarter ended June 30, 2022, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting169 PART II—OTHER INFORMATION Legal Proceedings The company states that neither it nor its subsidiaries are party to any material legal proceedings, with tenants typically responsible for indemnifying the company against claims - The company is not subject to any material legal proceedings172 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes from the risk factors disclosed in the 2021 Annual Report on Form 10-K have occurred173 Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company acquired 100,220 shares from employees for tax withholding on vested restricted stock, while its $150.0 million share repurchase program remains fully available with no shares repurchased - In Q2 2022, 100,220 shares were acquired from employees for tax withholding purposes upon vesting of restricted stock175176 - As of June 30, 2022, no shares have been repurchased under the $150.0 million share repurchase program, which expires March 31, 2023176 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO and Inline XBRL data files