CTRE

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How CTRE rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

Text kept

42%

of sentences unchanged

Added

203

new sentences

Dropped

127

sentences removed

Length

+2,891

words, now 17,301

New in FY2025

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.
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.
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.
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 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.
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.
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.
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.
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.
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%.
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.
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.
This risk is magnified where we lease multiple properties to a single tenant.
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.
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.
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.
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.

and 163 more.

Gone since FY2024

Because all 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 our tenants’ and operators’ performance, we may have limited recourse under our master leases if we believe that a tenant or operator is not performing adequately, and any failure by a tenant to effectively conduct its operations or to maintain and improve our properties could adversely affect its business reputation and its ability to attract and retain residents in our properties, which in turn, could adversely affect their ability to make rental 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.
There can be no assurance that our tenants will have sufficient assets, income and financing to enable them to satisfy their contractual lease payment or indemnification obligations and our tenants have in the past, and may in the future, fail to make rent payments when due, or our tenants may declare bankruptcy.
As of December 31, 2024, properties leased to Ensign and held for investment represented $68.2 million, or 26%, 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 $7.5 million, or 3%, of total annualized contractual rental income.
Global credit and financial markets have experienced extreme volatility and disruptions over the past several years, including declines in consumer confidence, concerns about declines in economic growth, increases in the rate of inflation, increases in borrowing rates and changes in liquidity and credit availability, and uncertainty about economic stability, including most recently in connection with proposed policies of the Trump administration, actions undertaken by the U.S.
Federal Reserve Board to address inflation, the military conflicts in Ukraine and Gaza and supply chain disruptions.
While consumer sentiment is on the rise, concerns about declines in economic growth have faded and inflation has cooled there can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur.
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 for us to make capital improvements to our facilities.
The Trump administration has indicated it will institute trade policy changes including the imposition of additional tariffs on imported products in an effort to address trade imbalances, specifically with China.
In response to some of these actions, certain countries may impose retaliatory actions against the U.S.
These policies may lead to supply chain constraints and additional inflation, further increasing operational costs of our facilities.
Our business could also be adversely impacted by volatility caused by geopolitical events, such as the conflicts in Ukraine and Gaza.
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 tenants’ and borrowers’ revenues to decline and could affect their ability to meet their obligations to us.
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 our tenants and borrowers.
These potential reductions could be compounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement to our tenants and borrowers under both the Medicaid and Medicare programs.
While we cannot make any assessment as to the ultimate timing or the effect that any future legislative reforms may have on our tenants’ or borrowers’ costs of doing business and on the amount of reimbursement by government and other third-party payors, potential reductions in Medicaid and Medicare reimbursement, or in non-governmental third-party payor reimbursement, to our tenants and borrowers could reduce the revenues of our tenants and borrowers and their ability to meet their obligations to us.
This risk is magnified where we lease multiple properties to a single tenant, such as Ensign.
See Note 2, Summary of Significant Accounting Policies and Note 3, Real Estate Investments, Net for further information.
If one or more of our tenants files for bankruptcy relief, the U.S.
Bankruptcy Code provides that a debtor has the option to assume or reject the unexpired lease within a certain period of time.
Any bankruptcy filing by or relating to one of our tenants could bar all efforts by us to collect pre-bankruptcy debts from that tenant or seize its property.
A tenant bankruptcy could also delay our efforts to collect past due balances under the leases and could ultimately preclude collection of all or a portion of these sums.
Replacement tenants or operators may be difficult to identify and we may be required to incur substantial renovation costs to make our healthcare properties suitable for such tenants or operators.
If our tenants terminate or do not renew their leases with us, we would attempt to reposition the properties with another tenant or operator.
Rental payments on such properties could decline or cease altogether while we reposition the properties with a suitable replacement tenant or operator 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 facilities 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 tenant-specific.
A new or replacement tenant may require different features in a property, depending on that tenant’s particular operations.
If a current tenant is unable to pay rent and vacates a property, we may incur substantial expenditures to modify a property before we are able to secure another tenant.
In addition, approvals of local authorities for any required modifications and/or renovations may be necessary, resulting in delays in transitioning a facility to a new tenant.
In addition, we may fail to identify suitable replacements or enter into leases or other arrangements with new tenants or operators on a timely basis or on terms as favorable to us as our current leases, 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, our operating expenses could increase significantly.
Even after a suitable replacement tenant or operator 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.
If we determine that an impairment has occurred, we are required to adjust the net carrying value of the asset, which could have a material adverse effect on our results of operations in the period in which the write-off occurs.
For example, in the twelve months ended December 31, 2024, we recorded impairment charges of approximately $42.2 million.
The geographic concentration of some of our facilities could leave us vulnerable to an economic downturn, regulatory changes or acts of nature in those areas.
As a result of the concentration of our properties in California and Texas as described in “Portfolio Summary” under Item 1 of this Annual Report on Form 10-K, the conditions of local economies and real estate markets, including increases in real estate taxes, changes in governmental rules, regulations and reimbursement rates or criteria, changes in demographics, state funding, acts of nature, the impacts of climate change and other factors that may result in a decrease in demand and/or reimbursement for skilled nursing services in these states could have a disproportionately adverse effect on our tenants’ and borrowers’ revenue, costs and results of operations, which may affect their ability to meet their obligations to us.
Our owned facilities and the facilities 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 facilities and the facilities securing our loans receivable that are located in California are particularly susceptible to natural disasters such as fires, earthquakes and mudslides.
Further, these acts of nature may cause disruption to our tenants or borrowers, their employees and the underlying facilities, which could have an adverse impact on our tenants’ or borrowers’ patients and businesses.
In order to provide patient care, our tenants and borrowers are dependent on consistent and reliable delivery of food, pharmaceuticals, utilities and other goods to the facilities they operate, and the availability of employees to provide services at the facilities.

and 87 more.

Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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