UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ | ||
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2019
☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT | |
For the transition period from to
Commission file number 001-33135
Regional Health Systems,Properties, Inc.
(Exact name of registrant as specified in its charter)
Georgia | 81-5166048 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
454 Satellite Boulevard NW, Suite 100, Suwanee, GA | 30024-7191 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number including area code
(678) 869-5116Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, no par value | RHE | NYSE | ||
10.875% Series A Cumulative Redeemable | RHE-PA | NYSE |
Securities registered under Section 12(g) of the Exchange Act:
NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐o No ☒ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐o No ☒ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ý No ☐¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ý No ☐o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definition of "large“large accelerated filer"filer”, "accelerated filer"“accelerated filer”, “smaller reporting company” and "smaller reporting company"“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐o No ☒ý
The aggregate market value of AdCareRegional Health Systems,Properties, Inc.’s common stock held by non-affiliates as of June 30, 2015,28, 2019, the last business day of AdCareRegional Health Systems Inc'sProperties Inc.’s most recently completed second fiscal quarter, was $59,631,263.$2,897,883. The number of shares of AdCareRegional Health Systems,Properties, Inc., common stock, no par value, outstanding as of March 28, 2016,11, 2020, was 19,948,534.
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Certain statements in this Annual Report on Form 10-K (this “Annual Report”) contain “forward-looking” information as that term is defined by the Private Securities Litigation Reform Act of 1995. Any statements that do not relate to historical or current facts or matters are forward-looking statements. Examples of forward-looking statements include all statements regarding our expected future financial position, results of operations, cash flows, liquidity, financing and refinancing plans, strategic and business plans, projected expenses and capital expenditures, competitive position, growth and acquisition opportunities, and compliance with, and changes in, governmental regulations. You can identify some of the forward-looking statements by the use of forward-looking words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “may” and other similar expressions, although not all forward-looking statements contain these identifying words.
Our actual results may differ materially from those projected or contemplated by our forward-looking statements as a result of various factors, including, among others, the following:
The impact of the COVID-19 pandemic;
Our ability to achieveraise capital through equity and debt financings, and the benefits that we expected to achieve from our transition to a healthcare property holding and leasing company, including increased cash flow, reduced general and administrative expenses, and a lower cost of such capital;
Our ability to meet the continued listing requirements of liabilities associated with our legacy business of owningthe NYSE American LLC (the “NYSE American”) and operating healthcare properties, including pending and potential professional and general liability claims;
Our dependence on the operating success of our tenants and their ability to meet their obligations to us;
The effect of increasing healthcare regulation and enforcement on our tenants, and the dependence of our tenants on reimbursement from governmental and other third-party payors;
The impact of litigation and rising insurance costs on the business of our tenants;
The effect of our tenants declaring bankruptcy or becoming insolvent;
The ability and willingness of our tenants to renew their leases with us upon expiration, and our ability to reposition our properties on the same or better terms in the event of nonrenewal or if we otherwise need to replace an existing tenant;
The impact of liabilities associated with our legacy business of owning and operating healthcare properties, including pending and potential professional and general liability claims;
The availability of, and our ability to identify, suitable acquisition opportunities, and our ability to complete such acquisitions and lease the respective properties on favorable terms; and
Other risks inherent in the real estate business, including uninsured or underinsured losses affecting our properties, the possibility of environmental compliance costs and liabilities, and the illiquidity of real estate investments.
We urge you to carefully consider these risks and review the additional disclosures we make concerning risks and other factors that may materially affect the outcome of our forward-looking statements and our future business and operating results, including those made in Part I, Item IA, “Risk Factors” in this Annual Report, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (“SEC”), including subsequent Annual Reports on Form 10-K, and Quarterly Reports on Form 10-Q.10-Q and Current Reports on Form 8-K. We caution you that any forward-looking statements made in this Annual Report are not guarantees of future performance, events or results, and you should not place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. We do not intend, and we undertake no obligation, to update any forward-looking information to reflect events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events, unless required by law to do so.
Overview
Regional Health Systems,Properties, Inc. (“AdCare”Regional Health” or “Regional”), through its subsidiaries (together, the “Company” or “we”), is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living. Our business primarily consists of leasing and subleasing such facilities to third-party tenants, which operate the facilities. As of December 31, 2015,2019, the Company owned, leased, or managed for third parties 3824 facilities primarily in the Southeast. The Company'soperators of the Company’s facilities provide a range of healthcare and related services to their patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.
Regional Health’s predecessor was incorporated in Ohio on August 14, 1991, under the name Passport Retirement, Inc. In 1995, wePassport Retirement, Inc. acquired substantially all of the assets and liabilities of AdCare Health Systems, Inc. and changed ourits name to AdCare Health Systems, Inc. (“AdCare”). AdCare completed its initial public offering in November 2006. Initially based in Ohio, we expanded our portfolio through a series of strategic acquisitions to include properties in a number of other states, primarily in the Southeast. In 2012, we2006, relocated ourits executive offices and accounting operations to Georgia in 2012, and AdCare changed its state of incorporation from Ohio to Georgia onin December, 12, 2013.
Historically, ourAdCare’s business was focused primarily on owning leasing and operating skilled nursing facilities and assisted living facilities. The Company also managed certainmanaging such facilities on behalf offor unaffiliated owners and operators with whom we entered intoAdCare had management contracts. In July 2014, our Board of Directors (the "Board") approvedAdCare commenced a strategic plan to transition (the “Transition”) the Company to a healthcare property holdingwhereby AdCare and leasing company through a series of leasing and subleasing transactions. As of December 31, 2015, we completed the Transition through:its subsidiaries: (i) leasingleased to third-party operators all of the healthcare properties which wethey own and previously operated; (ii) subleasingsubleased to third-party operators all of the healthcare properties which wethey lease (but doesdo not own) and previously operated; and (iii) continuing one remainingretained a management agreement to manage two skilled nursing facilities and one assistedindependent living facility.
On September 29, 2017, AdCare merged (the “Merger”) with and into Regional Health, a Georgia corporation and a then wholly owned subsidiary of AdCare formed for the purposes of the Merger, with Regional Health continuing as the surviving corporation in the Merger.
As a consequence of the Merger:
the outstanding shares of AdCare’s common stock, no par value per share (the “AdCare common stock”), converted, on a one-for-one basis, into the same number of shares of Regional Health’s common stock, no par value per share (the “RHE common stock”);
the outstanding shares of AdCare’s 10.875% Series A Cumulative Redeemable Preferred Stock (the “AdCare Series A Preferred Stock”) converted, on a one-for-one basis, into the same number of shares of Regional Health’s 10.875% Series A Cumulative Redeemable Preferred Stock (the “RHE Series A Preferred Stock”);
the board of directors (the “AdCare Board”) and executive officers of AdCare immediately prior to the Merger became the board of directors (the “RHE Board”) and executive officers, respectively, of Regional Health immediately following the Merger;
Regional Health assumed all of AdCare’s equity incentive compensation plans, and all rights to acquire shares of AdCare common stock under any AdCare equity incentive compensation plan converted into rights to acquire RHE common stock pursuant to the terms of the equity incentive compensation plans and other related properties.documents, if any;
Regional Health became the successor issuer to AdCare and succeeded to the assets and continued the business and assumed the obligations of AdCare;
the RHE common stock and RHE Series A Preferred Stock commenced trading on the NYSE American immediately following the Merger;
there was no change in the assets we hold or in the business we conduct; and
there was no fundamental change to our current operational strategy.
As a result of the Merger, the RHE Charter contains ownership and transfer restrictions with respect to the common stock. These ownership and transfer restrictions will better position the Company to comply with certain U.S. federal income tax rules applicable to REITs under the Internal Revenue Code of 1986, as amended (the “Code”) to the extent such rules relate to the common stock. The RHE Board is analyzingcontinues to analyze and considering:consider: (i) whether and, if so, when, wethe Company could satisfy the requirements to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”);Code; (ii) the structural and operational complexities which would need to be addressed before wethe Company could qualify as a REIT, including the disposition of certain assets or the termination of certain operations which may not be REIT compliant; and (iii) if wethe Company were to qualify as a REIT, whether electing REIT status would be in the best interests of the Company and its shareholders in light of various factors, including our significant consolidated Federalfederal net operating loss carryforwards of approximately $58.3 million as of December 31, 2015.carryforwards. There is no assurance that the Company will qualify as a REIT in future taxable years or, if it were to so qualify, that the RHE Board would determine that electing REIT status would be in the best interests of the Company and its shareholders.
Effective December 31, 2018, the Company announced that given thatcompleted a one-for-twelve reverse stock split of the transition to a healthcare property holding and leasing company is complete, the Board of Directors has begun to explore strategic alternativescommon stock (the “Reverse Stock Split”). The Reverse Stock Split was implemented for the Company.purpose of complying with the NYSE American continued listing standards regarding low selling price.
When used in this Annual Report, unless otherwise specifically stated or the context otherwise requires, the terms:
“Board” or “Board of Directors” refers to the AdCare Board with respect to the period prior to the Merger and to the RHE Board with respect to the period after the Merger;
“Company”, “we”, “our” and “us” refer to AdCare and its subsidiaries with respect to the period prior to the Merger and to Regional Health and its subsidiaries with respect to the period after the Merger;
“common stock” refers to the AdCare common stock with respect to the period prior to the Merger and to the RHE common stock with respect to the period after the Merger;
“Series A Preferred Stock” refers to the AdCare Series A Preferred Stock with respect to the period prior to the Merger and to the RHE Series A Preferred Stock with respect to the period after the Merger;
�� | “Charter” refers to the AdCare Charter with respect to the period prior to the Merger and to the RHE Charter with respect to the period after the Merger; and |
“Bylaws” refers to the AdCare Bylaws with respect to the period prior to the Merger and to the RHE Bylaws with respect to the period after the Merger.
Our principal executive offices are located at 1145 Hembree Road, Roswell,454 Satellite Boulevard NW, Suite 100, Suwanee, GA 30076,30024, and our telephone number is (678) 869-5116. We maintain a website at www.adcarehealth.com.www.regionalhealthproperties.com. The contents of thisour website are not incorporated into this Annual Report.
The Company leases its currently-owned healthcare properties, and subleases its currently-leased healthcare properties, on a triple-net basis, meaning that the lessee (i.e., the third-party operator of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. These leases are generally long-term in nature with renewal options and annual rent escalation clauses.
As of December 31, 2015, our2019, the Company owns, leases, or manages 24 facilities, which are located primarily in the Southeast. Of the 24 facilities, the Company: (i) leased 10 owned leased, and managed portfolio consisted of 35subleased nine leased skilled nursing facilities to third-party tenants; (ii) leased two owned assisted living facilities to third-party tenants; and (iii) managed on behalf of third-party owners two skilled nursing facilities and one independent living facility. Skilled nursing facilities provide daily nursing care, therapeutic rehabilitation, social services, housekeeping, nutritionSee Note 7- Leases to our audited consolidated financial statements in Part II, Item 8, “Financial Statements and administrative services for individuals requiring certain assistance with activitiesSupplementary Data” in daily living. A typical skilled nursing facility includes mostly two bed units, each equipped with a private or shared bathroom and community dining facilities. Assisted living facilities provide personal care services, support and housing for those who need help
The following table provides summary information regarding the number of facilities and related licensed beds/units by state and property type as of December 31, 2015:2019:
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| Managed for |
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| |||||
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| Owned |
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| Leased |
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| Third-Parties |
|
| Total |
| ||||||||||||||||||||
|
| Facilities |
|
| Beds/Units |
|
| Facilities |
|
| Beds/Units |
|
| Facilities |
|
| Beds/Units |
|
| Facilities |
|
| Beds/Units |
| ||||||||
State |
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|
|
|
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|
|
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Alabama |
|
| 2 |
|
|
| 230 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 230 |
|
Georgia |
|
| 3 |
|
|
| 395 |
|
|
| 8 |
|
|
| 884 |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| 1,279 |
|
North Carolina |
|
| 1 |
|
|
| 106 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 106 |
|
Ohio |
|
| 4 |
|
|
| 291 |
|
|
| 1 |
|
|
| 99 |
|
|
| 3 |
|
|
| 332 |
|
|
| 8 |
|
|
| 722 |
|
South Carolina |
|
| 2 |
|
|
| 180 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 180 |
|
Total |
|
| 12 |
|
|
| 1,202 |
|
|
| 9 |
|
|
| 983 |
|
|
| 3 |
|
|
| 332 |
|
|
| 24 |
|
|
| 2,517 |
|
Facility Type |
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|
|
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|
|
|
|
Skilled Nursing |
|
| 10 |
|
|
| 1,016 |
|
|
| 9 |
|
|
| 983 |
|
|
| 2 |
|
|
| 249 |
|
|
| 21 |
|
|
| 2,248 |
|
Assisted Living |
|
| 2 |
|
|
| 186 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 186 |
|
Independent Living |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 83 |
|
|
| 1 |
|
|
| 83 |
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Total |
|
| 12 |
|
|
| 1,202 |
|
|
| 9 |
|
|
| 983 |
|
|
| 3 |
|
|
| 332 |
|
|
| 24 |
|
|
| 2,517 |
|
| Managed for | ||||||||||||||||||||||||
| Owned | Leased | Third-Parties | Total | |||||||||||||||||||||
| Facilities | Beds/Units | Facilities | Beds/Units | Facilities | Beds/Units | Facilities | Beds/Units | |||||||||||||||||
| State | ||||||||||||||||||||||||
| Alabama | 2 | 304 | — | — | — | — | 2 | 304 | ||||||||||||||||
| Arkansas | 9 | 958 | — | — | — | — | 9 | 958 | ||||||||||||||||
| Georgia | 4 | 463 | 10 | 1,168 | — | — | 14 | 1,631 | ||||||||||||||||
| North Carolina | 1 | 106 | — | — | — | — | 1 | 106 | ||||||||||||||||
| Ohio | 4 | 279 | 1 | 94 | 3 | 332 | 8 | 705 | ||||||||||||||||
| Oklahoma | 2 | 197 | — | — | — | — | 2 | 197 | ||||||||||||||||
| South Carolina | 2 | 180 | — | — | — | — | 2 | 180 | ||||||||||||||||
| Total | 24 | 2,487 | 11 | 1,262 | 3 | 332 | 38 | 4,081 | ||||||||||||||||
| Facility Type | ||||||||||||||||||||||||
| Skilled Nursing | 22 | 2,375 | 11 | 1,262 | 2 | 249 | 35 | 3,886 | ||||||||||||||||
| Assisted Living | 2 | 112 | — | — | — | — | 2 | 112 | ||||||||||||||||
| Independent Living | — | — | — | — | 1 | 83 | 1 | 83 | ||||||||||||||||
| Total | 24 | 2,487 | 11 | 1,262 | 3 | 332 | 38 | 4,081 | ||||||||||||||||
The following table provides summary information regarding the number of facilities and related licensed beds/units by operator affiliation as of December 31, 2015:2019:
Operator Affiliation |
| Number of Facilities (1) |
|
| Beds / Units |
| ||
C.R. Management |
|
| 6 |
|
|
| 689 |
|
Aspire |
|
| 5 |
|
|
| 390 |
|
Wellington Health Services |
|
| 2 |
|
|
| 342 |
|
Peach Health Group |
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| 3 |
|
|
| 266 |
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Symmetry Healthcare |
|
| 2 |
|
|
| 180 |
|
Beacon Health Management |
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| 2 |
|
|
| 212 |
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Vero Health |
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| 1 |
|
|
| 106 |
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Subtotal |
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| 21 |
|
|
| 2,185 |
|
Regional Health Managed |
|
| 3 |
|
|
| 332 |
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Total |
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| 24 |
|
|
| 2,517 |
|
| Operator Affiliation | Number of Facilities | Beds / Units | ||||
| Aria Health Group, LLC (1) | 9 | 958 | ||||
| Beacon Health Management | 7 | 585 | ||||
| C.R. Management | 7 | 830 | ||||
| Wellington Health Services | 4 | 641 | ||||
| New Beginnings Care (2) | 3 | 252 | ||||
| Symmetry Healthcare | 3 | 286 | ||||
| Southwest LTC | 2 | 197 | ||||
| Subtotal | 35 | 3,749 | ||||
| AdCare Managed | 3 | 332 | ||||
| Total | 38 | 4,081 | ||||
(1) | Represents the number of facilities leased or subleased |
Acquisitions Dispositions, and Leasing Transactions
The Company did not complete anymade no acquisitions during the three years ended December 31, 2015.
Dispositions
Facilities Sold. On July 1, 2015,Pursuant to the Purchase and Sale Agreement, dated April 15, 2019, as subsequently amended from time to time (the “PSA”), between certain subsidiaries of the Company and MED Healthcare Partners LLC (“MED”), the Company sold its Bentonville Manorto affiliates of MED four skilled nursing facilities (collectively, the “PSA Facilities”), together with substantially all of the fixtures, equipment, furniture, leases and other assets relating to such PSA Facilities (the “Asset Sale”). Under the PSA, the Company sold: (i) on August 28, 2019, the 100-bed skilled nursing facility commonly known as Northwest Nursing Center located in Oklahoma City, Oklahoma (the “Northwest Facility”); and (ii) on August 1, 2019, the following three facilities, (a) the 182-bed skilled nursing facility commonly known as Attalla Health & Rehab located in Attalla, Alabama (the “Attalla Facility”), (b) the 100-bed skilled nursing facility commonly known as Healthcare at College Park located in College Park, Georgia (the “College Park Facility”), and (c) the 118-bed skilled nursing facility commonly known as Quail Creek Nursing Home located in Oklahoma City, Oklahoma (the “Quail Creek Facility”).
In connection with the Asset Sale: (i) MED paid to the Company a cash purchase price for the PSA Facilities equal to $28.5 million in the aggregate; (ii) the Company incurred approximately $0.4 million in sales commission expenses and $0.1 million for a building improvement credit; and (iii) the Company transferred approximately $0.1 million in lease security deposits to MED.
On August 1, 2019, the Company used a portion of the proceeds from the Asset Sale to : (i) repay approximately $21.3 million to Pinecone Realty Partners II, LLC (“Pinecone”) to extinguish all indebtedness owed by the Company under a loan agreement, dated February 15, 2018, as amended from time to time, with an 83-bedoriginal aggregate principal amount of $16.25 million which refinanced existing mortgage debt (the “Pinecone Credit Facility”); and (ii) to repay approximately $3.8 million to Congressional Bank to extinguish all indebtedness owed by the Company under a term loan agreement, dated September 27, 2013, as amended from time to time, between the Company and Congressional Bank (the “Quail Creek Credit Facility”).
Lease Termination. Effective January 15, 2019, the Company’s lease of two skilled nursing facilities, an 115-bed skilled nursing facility located in Bentonville, Arkansas, for approximately $3.4 million. Net proceeds were used to repay certain mortgage indebtedness with respect to the facility.
The Company made no dispositions during the year ended December 31, 2015,2018.
For further information regarding the Company’s acquisitions and dispositions, see Note 1 – Summary of Significant Accounting Policies, Note 9 – Notes Payable and Other Debt and Note 10 – Acquisitions and Dispositions, to our audited consolidated financial statements in Part II, Item 8., “Financial Statements and Supplementary Data” in this Annual Report.
Leasing Transactions. As of the filing date of this Annual Report, the Company has leased or subleased, as applicable, the following facilities to tenants:
Facility Name | State | Owned / Leased | Transaction Type | Commencement Date | ||||
2014 | ||||||||
Thomasville | GA | Leased | Sublease | 7/1/2014 | ||||
Lumber City | GA | Leased | Sublease | 11/1/2014 | ||||
Southland | GA | Owned | Lease | 11/1/2014 | ||||
Coosa Valley | AL | Owned | Lease | 12/1/2014 | ||||
2015 | ||||||||
LaGrange | GA | Leased | Sublease | 4/1/ | ||||
Powder Springs | GA | Leased | Sublease | 4/1/2015 | ||||
Tara | GA | Leased | Sublease | 4/1/2015 | ||||
Sumter Valley | SC | Owned | Lease | 4/1/2015 | ||||
Georgetown | SC | Owned | Lease | 4/1/2015 | ||||
Glenvue | GA | Owned | Lease | 7/1/2015 | ||||
Autumn Breeze | GA | Owned | Lease | 9/30/2015 | ||||
2016 | ||||||||
Jeffersonville | GA | Leased | Sublease | 6/18/2016 | ||||
Oceanside | GA | Leased | Sublease | 7/13/2016 | ||||
Savannah Beach | GA | Leased | Sublease | 7/13/2016 | ||||
2017 | ||||||||
Meadowood | AL | Owned | Lease | 5/1/ | ||||
2018 | ||||||||
Hearth & Care of Greenfield | OH | Owned | Lease | 12/1/ | ||||
The Pavilion Care Center | OH | Owned | Lease | 12/1/ | ||||
Eaglewood ALF | OH | Owned | Lease | 12/1/ | ||||
Eaglewood Care Center | OH | Owned | Lease | 12/1/ | ||||
Covington Care Center | OH | Leased | Sublease | 12/1/ | ||||
2019 | ||||||||
Mountain Trace | NC | Owned | Lease | 3/1/ | ||||
For a detailed description of each of the Company’s leases, see Note 7 - Leases to our audited consolidated financial statements included in Part II, Item 8., “Financial Statements and Supplementary Data” in this Annual Report.
Industry Trends
The skilled nursing segment of the long-term care industry 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. The growth of the senior population in the United States continues to increase healthcare costs, often faster than the available funding from government-sponsored healthcare programs. In response, federal and state governments have adopted cost-containmentcost containment measures that encourage the treatment of patients in more cost-effectivecost effective settings, such as skilled nursing facilities, 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, skilled nursing facilities are generally serving a larger population of higher acuity patients than in the past.
The skilled nursing industry is large, highly fragmented, and characterized
We believe the skilled nursing industry has been and will continue to be impacted by several other trends. The use of long-term care insurance is increasing among seniors as a means of planning for the costs of skilled nursing care services. In addition, as a result of increased mobility in society, reduction of average family size, and the increased number of two-wage earner couples, more seniors are looking for alternatives outside their own family for their care.
Competitive Strengths
As of the date of filing this Annual Report we believe we possess the following competitive strengths:
Long-Term, Triple-Net Lease Structure.
All of our real estate properties are leased under triple-net operating leases with initial terms generally ranging fromTenant Diversification. Our 24 properties (including the three facilities that are managed by us) wasare operated by a total of 24 separate tenants, with each of our tenants being affiliated with one of seven operatorslocal or their affiliates.regionally-focused operators. We refer to our tenants who are affiliated with the same operator as a group of affiliated tenants. Each of our tenantsoperators operate (through a group of affiliated tenants) between twoone and ninesix of our facilities, with our most significant tenant, Aria Health Groupoperators, C. Ross Management, LLC (“C.R Management”) and Aspire Regional Partners, Inc. (“Aspire”), each operating ninesix and five facilities, or 24%28.5% and 23.8% of the total number of our facilities. Tenants are typically local or regionally-focused operators.facilities, respectively. We believe that our tenant diversification should limit the effect of any operator’s financial or operating performance decline on our overall performance.
Geographically Diverse Property Portfolio
. Our portfolio ofBusiness Strategy
Our business strategy primarily is focused on investing capital in our current portfolio and growing our portfolio through the acquisition of skilled nursing and other healthcare facilities. More specifically, we seek to:
Focus on Senior Housing Segment.
We intend to continue to focus our investment program on senior housing, primarily the skilled nursing facility segment of the long-term care continuum. We have historically been focused on senior housing, and our senior management has operating and financial experience and a significant number of relationships in the long-term care industry. In addition, we believe investing in the sectorInvest Capital in Our Current Portfolio. We intend to continue to support our operators by providing capital to them for a variety of purposes, including facility modernization and potentially replacing or renovating facilities in our portfolio that may have become less competitive. We expect to structure these investments as either lease amendments that produce additional rent or as loans that are repaid by operators during the applicable lease term. We believe such projects will provide an attractive return on capital and improve the underlying performance of facility operations.
Provide Capital to Underserved Operators.
We believe that there is a significant opportunity to be a capital source to long-term care operators through the acquisition and leasing of healthcare properties that are consistent with our investment and financing strategy, but that, due to size and other considerations, are not a focus for large healthcare REITs. We seek primarily small to mid-size acquisition transactions with a focus on individual facilities with existing operators, as well as small groups of facilities andIdentify Talented Operators. As a result of our management team’s operating experience, network of relationships and industry insight, we have been able and expect to continue to be able to identify qualified tenants. We seek tenants who possess local market knowledge, demonstrate hands-on management, have proven track records and focus on patient care.
Monitor Investments.
We monitor our real estate investments through, among other things: (i) reviewing and evaluating our tenants epidemic protocols; (ii) reviewing and evaluating tenant financial statements to assess operational and financial trends and performance;Resolve Legacy Professional and General Liability Claims. As a result of the Transition (which was completed in December 2015), the Company no longer operates skilled nursing facilities. The Company, however, continues to be subject to certain pending professional and general liability actions with respect to the time it operated skilled nursing facilities, including claims that the services the Company provided while an operator resulted in the injury or death of patients and claims related to professional and general negligence, employment, staffing requirements and commercial matters. Management is committed to resolving pending claims. See Part I, Item 3, “Legal Proceedings” in this Annual Report.
Competition
We generally compete for real property investments with publicly traded, private and non-listed healthcare REITs, real estate partnerships, healthcare providers, healthcare lenders and other investors, including developers, banks, insurance companies, pension funds, government-sponsored entities and private equity firms, some of whom may have greater financial resources and lower costs of capital than we do. Increased competition challenges our ability to identify and successfully capitalize on opportunities that meet our investment criteria, which is affected by, among other factors, the availability of suitable acquisition or investment targets, our ability to negotiate acceptable transaction terms and our access to and cost of capital.
Our ability to generate rental revenues from our properties also depends on the competition faced by our tenants. Our tenants compete on a local and regional basis with other healthcare operating companies that provide comparable services. Our tenants compete to attract and retain patients and residents based on scope and quality of care, reputation and financial condition, price, location and physical appearance of the properties, services offered qualified personnel, physician referrals and family preferences. The ability of our tenants to compete successfully could be affected by private, federal and state reimbursement programs and other laws and regulations.
Triple-Net Leased Properties. OurThe Company’s triple-net leases provide for periodic and determinable increases in rent. We recognizeThe Company recognizes rental revenues under these leases on a straight-line basis over the applicable lease term when collectibilitycollectability is reasonably assured. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in other assets on our consolidated balance sheets. In the event the Company cannot reasonably estimate the future collection of rent from one or more tenant(s) of the Company’s facilities, rental income for the affected facilities will be recognized only upon cash collection, and any accumulated straight-line rent receivable will be reversed in the period in which the Company first deems rent collection no longer reasonably assured.
Revenue from Contracts with Customers and Other Revenue. Other. We recognizeThe Company recognizes management fee revenues received currentlyas services are provided. The Company has one contract to manage three facilities (the “Management Contract”), with payment for each month of service received in full on a monthly basis. The maximum penalty for service contract nonperformance under one contractual agreement with a third party.the Management Contract is $50,000 per year, payable after the end of the year. Further, we recognizethe Company recognizes interest income from lease inducements receivablesloans and capital loans as made to tenants.investments, using the effective interest method when collectability is probable. The Company applies the effective interest method on a loan-by-loan basis.
Allowances.
As of December 31, 2015, we allowed2019 and December 31, 2018, the Company reserved for approximately $12.5$0.6 million on approximately $20.9and $1.4 million, respectively, of gross patient care relateduncollected receivables. Allowance for patient care receivables are estimated based on an aged bucket method incorporating different payor types. All patient care receivables exceeding 365 days are fully allowedAccounts receivable, net totaled $1.0 million at December 31, 2015. The increase in the reserves for patient care is primarily included in discontinued operations.
Government Regulation
Healthcare Regulation
. Our tenants are typically subject to extensive and complex federal, state and local laws and regulations relating to quality of care, licensure and certain certificate of need (“CON”)Although the properties within our portfolio may be subject to varying levels of governmental scrutiny, we expect that the healthcare industry, in general, will continue to face increased regulation and pressure in the areas of fraud, waste, and abuse, including, but not limited to, the Federal Anti-Kickback Statute, the Federal Stark Law, the Federal False Claims Act, and comparable state counterparts, as well as cost control, healthcare management, and provision of services, among others. We also expect thatincreased and continued efforts by third-party payors, such as the federal Medicare program, state Medicaid programs, and private insurance carriers (including health maintenance organizations and other health plans), to impose greater discounts and more stringent cost controls upon tenants (through changes in reimbursement rates and methodologies, discounted fee structures, the assumption by healthcare providers of all or a portion of the financial risk, or otherwise) will intensify and continue.other possible measures). A significant expansion of applicable federal, state or local laws and regulations, existing or future healthcare reform measures, new interpretations of existing laws and regulations, changes in enforcement priorities, or significant limits on the scope
of services reimbursed or reductions in reimbursement rates could have a material adverse effect on certain of our tenants’ liquidity, financial condition and results of operations and, in turn, their ability to satisfy their contractual obligations, including making rental payments under and otherwise complying with the terms of our leases.
Licensure, Certification and CONs.
In general, the operators of our skilled nursing facilities must be licensed and periodically certified through various regulatory agencies that determine compliance with federal, state, and local laws to participate in the Medicare and Medicaid programs. Legal requirements pertaining to such licensure and certification relate to the quality of medical care provided by the operator, qualifications of the tenant’s administrative personnel and clinical staff, adequacy of the physical plant and equipment, and continuing compliance with applicable laws and regulations. A loss of licensure or certification could adversely affect a skilled nursing facility’s ability to receive payments from the Medicare and Medicaid programs, which, in turn, could adversely affect its ability to satisfy its obligations to us.In addition, many of our skilled nursing facilities are subject to state CON laws that require governmental approval prior to the development or expansion of healthcare facilities and services. The approval process in these states generally requires a facility to demonstrate the need for additional or expanded healthcare facilities or services. CONs, where applicable, are also sometimes necessary for changes in ownership or control of licensed facilities, addition of beds, investment in major capital equipment, and introduction of new services or termination of services previously approved through the CON process. CON laws and regulations may restrict a tenant'stenant’s ability to expand our properties and grow its business in certain circumstances, whichcircumstances. Such restrictions could have an adverse effect on the tenant’s revenues and, in turn, its ability to make rental payments under and otherwise comply with the terms of our leases. In addition, CON laws may constrain the ability of an operator to transfer responsibility for operating a particular facility to a new operator. If we have to replace a property operator who is excluded from participating in a federal or state healthcare program (as discussed below), our ability to replace the operatordo so may be affected by a particular state’s CON laws, regulations, and applicable guidance governing changes in provider control.
Compared to skilled nursing facilities, seniors housing communities (other than those that receive Medicaid payments) do not receive significant funding from governmental healthcare programs and are subject to relatively few, if any, federal regulations. Instead, to the extent they are regulated, such regulation consists primarily of state and local laws governing licensure, provision of services, staffing requirements, and other operational matters, which vary greatly from one jurisdiction to another. Although recent growth in the U.S. seniors housing industry has attracted the attention of various federal agencies that believe more federal regulation of these properties is necessary, Congress thus far has deferred to state regulation of seniors housing communities. However, as a result of this growth and increased federal scrutiny, some states have revised and strengthened their regulation of seniors housing communities, and morecommunities. More states are expected to do the same in the future.
Fraud and Abuse Enforcement, Other Related Laws, Initiatives, and Considerations.
Long-term/post-acute care facilities (and seniors housing facilities that receive Medicaid payments) are subject to federal, state, and local laws, regulations, andLong-term/post-acute care facilities (and seniors housing facilities that receive Medicaid payments) are also subject to the Federal Anti-Kickback Statute, whichStatute. This law generally prohibits persons from offering, providing, soliciting, or receiving remuneration to induce either the referral of an individual or the furnishing of a good or service for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Long-term/post-acute care facilities are also subject to the Federal Ethics in Patient Referral Act of 1989, commonly referred to as the Stark Law. The Stark Law generally prohibits the submission ofsubmitting claims to Medicare for payment if the claim results from a physician referral for certain designated services andto a health service provider with whom the physician has a financial relationship withunless the health service provider that does not qualifyarrangement qualifies under one of the exceptions for a financial relationship, as set forth under the Stark Law. Similar prohibitions on physician self-referrals and submission of claims apply to state Medicaid programs. Further,Furthermore, long-term/post-acute care facilities (and seniors housing facilities that receive Medicaid payments), are subject to substantial financial penalties under the Civil Monetary Penalties Act and the Federal False Claims Act and, in particular, actions under the Federal False Claims Act’sAct and its “whistleblower” provisions. Private enforcement of healthcare fraud has increased due in large part to amendments to the Federal False Claims Act that encourage private individuals (commonly called “whistleblowers”) to sue on behalf of the government. These whistleblower suits brought by private individuals, known as qui tam actions, may be filed by almost anyone, including present and former patients, nurses and other employees, and competitors. Significantly, if a claim is successfully adjudicated, the Federal False Claims Act provides for treble damages and a civil penalty of up to $11,000$23,331 per claim.
Prosecutions, investigations, or whistleblower actions could have a material adverse effect on a property operator’s liquidity, financial condition, and operations, which could adversely affect the ability of the operator to meet its financial obligations to us. Finally, various state false claim act and anti-kickback laws may also apply to each property operator. Violation of any of the foregoing statutes can result in criminal and/or civil penalties that could have a material adverse effect on the ability of an operator to meet its financial obligations to us.
Other legislative developments, including the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), have greatly expanded the definition of healthcare fraud and related offenses and broadened its scope to include private healthcare plans in addition to government payors. Congress also has greatly increased funding for the Department of Justice, Federal Bureau of Investigation, and the Office of the Inspector General ("OIG") of the Department of Health and Human Services ("HHS"(“OIG”) to audit, investigate, and prosecute suspected healthcare fraud. Moreover, a significant portion of the billions in healthcare fraud recoveries over the past several years has also been returned to government agencies to further fund their fraud investigation and prosecution efforts.
Additionally, other HIPAA provisions and regulations provide for communication of health information through standard electronic transaction formats and for the privacy and security of health information. In order to comply with the applicable regulations, healthcare providers often must undertake significant operational and technical implementation efforts. Operators also may face significant financial exposure if they fail to maintain the privacy and security of medical records and other personal health information about individuals. The Health Information Technology for Economic and Clinical Health (“HITECH”) Act, passed in February 2009, strengthened the HHSDepartment of Health and Human Services (“HHS”) Secretary’s authority to impose civil money penalties for HIPAA violations occurring after February 18, 2009. HITECH directs the HHS Secretary to provide for periodic audits to ensure covered entities and their business associates (as that term is defined under HIPAA) comply with the applicable HITECH requirements, increasing the likelihood that a HIPAA violation will result in an enforcement action. The U.S. Department of Health and Human Services Centers for Medicare and Medicaid Services ("CMS"(“CMS”) issued an interim Final Rule which conformed HIPAA enforcement regulations to HITECH, increasing the maximum penalty for multiple violations of a single requirement or prohibition to $1.5 million. Higher penalties may accrue for violations of multiple requirements or prohibitions. Additionally, on January 17, 2013, CMS released an omnibus final rule, which expands the applicability of HIPAA and HITECH and strengthens the government’s ability to enforce these laws. The final rule broadens the definition of “business associate” and provides for civil money penalty liability against covered entities and business associates for the acts of their agents regardless of whether a business associate agreement is in place. This rule also modified the standard for when a breach of unsecured personally identifiable health information must be reported. Some covered entities have entered into settlement agreements with HHS for allegedly failing to adopt policies and procedures sufficient to implement the breach notification provisions in the HITECH Act. Additionally, the final rule adopts certain changes to the HIPAA enforcement regulations to incorporate the increased and tiered civil monetary penalty structure provided by HITECH, and makes business associates of covered entities directly liable under HIPAA for compliance with certain
of the HIPAA privacy standards and HIPAA security standards. HIPAA violations are also potentially subject to criminal penalties.
There has been an increased federal and state HIPAA privacy and security enforcement effortseffort and we expect this trend to continue. Under HITECH, state attorneys general have the right to prosecute HIPAA violations committed against residents of their states. Several such actions have already been brought against both covered entities and a business associate,associates, and continued enforcement actions are likely to occur in the future. In addition, HITECH mandates that the Secretary of HHS conduct periodic compliance audits of HIPAA covered entities and business associates. It also tasks HHS with establishing a methodology whereby individuals who are harmed by HIPAA violations may receive a percentage of the civil monetary penalty fine or monetary settlement paid by the violator.
In addition to HIPAA, numerous other state and federal laws govern the collection, dissemination, use, access to, and confidentiality of individually identifiable health information. In addition, some states are considering new laws and regulations that further protect the confidentiality, privacy, or security of medical records or other types of medical or personal information. These laws may be similar to or even more stringent than the federal provisions, andin which case they are not preempted by HIPAA. Not only may some of these state laws impose fines and penalties upon violators, but some afford private rights of action to individuals who believe their personal information has been misused.
Also, with respect to HIPAA, in September 2015, OIG issued two reports calling for better privacy oversight of covered entities by the CMS Office for Civil Rights ("OCR"(“OCR”). The first report, titled “OCR Should Strengthen its Oversight of Covered Entities’ Compliance with the HIPAA Privacy Standards,” found that OCR’s oversight is primarily reactive, as OCR has not fully implemented the required audit program to proactively assess possible noncompliance from covered entities. OIG recommended, among other things, that OCR fully implement a permanent audit program and develop a policy requiring OCR staff to check whether covered entities had previously been investigated for noncompliance. The second report, titled “OCR Should Strengthen its Follow-up of Breaches of Patient Information Reported by Covered Entities,” found that (1) OCR did not record corrective action information for 23% of closed “large-breach” cases in which it made determinations of noncompliance, and (2) OCR did not record “small-breach” information in its case-tracking system, which limits its ability to track and identify covered entities with multiple small breaches. OIG recommended, among other things, that OCR enter small-breach information into its case-tracking system and maintain complete documentation of corrective actions taken. OCR agreed with OIG’s recommendations in both reports. If followed, these reports and recommendations may impact our tenants.
More recently, with respect to HIPAA, OCR announced on March 21, 2016, that it had begun a new phase of audits of covered entities and their business associates. OCR stated that it would review policies and procedures adopted and employed by covered entities and their business associates to meet selected standards and implementation specifications of the HIPAA Privacy, Security, and Breach Notification Rules.
Congress has significantly increased funding to the governmental agencies charged with enforcing the healthcare fraud and abuse laws to facilitate increased audits, investigations, and prosecutions of providers suspected of healthcare fraud. As a result, government investigations and enforcement actions brought against healthcare providers have increased significantly in recent years and are expected to continue. A violation of federal or state anti-fraud and abuse laws or regulations, or other related laws or regulations discussed above, by a tenant of our properties could have a material adverse effect on the tenant’s liquidity, financial condition, or results of operations, which could adversely affect its ability to satisfy its contractual obligations, including making rental payments under and otherwise complying with the terms of our leases.
Our tenants may be adversely affected by the outbreak of a public health epidemic or pandemic, including the coronavirus.
Our tenants may be materially and adversely affected by the outbreak of a widespread health epidemic or pandemic, such as the coronavirus. Such an outbreak or other adverse public health developments could materially disrupt our tenants’ businesses and operations. Such events could cause temporary closures of nursing facilities, which could affect our tenants’ ability to make rental payments pursuant to our leases.
In addition, our tenants’ operations could be disrupted if any of their employees, or the employees of their vendors, are suspected of having a communicable disease, such as coronavirus. Such infections could cause our tenants or their vendors to have staffing shortages and could potentially require our tenants and their vendors to close parts of or entire facilities, distribution centers, or other buildings to disinfect any affected areas.
We could also be adversely affected if government authorities impose upon our tenants, or their vendors, certain restrictions. These restrictions may be in the form of mandatory closures, requested voluntary closures, bans on new admissions, restricted operations, or restrictions on the importation of necessary equipment or supplies. Even if an infectious agent does not spread significantly, the perceived risk of infection or health risk may cause governmental authorities to take actions that may adversely affect our tenants’ operations and, therefore, impact our business. Likewise, family members may elect to keep nursing facility residents at home during an epidemic or pandemic, thus reducing our tenants’ revenue.
During and after a public health emergency, our tenants may face lawsuits for alleged negligence associated with their responses to the emergency. The costs associated with defending, settling, or paying damages from such claims could impact our tenants’ operating budgets and affect their ability to meet their obligations under our leases.
Government Reimbursement
The majority of skilled nursing facilities'facilities’ (“SNF”) reimbursement is through Medicare and Medicaid. These programs are often theirSNF’s largest source of funding. Senior housing communities generally do not receive funding from Medicare or Medicaid, but their ability to retain their residents is impacted by policy decisions and initiatives established by the administrators of Medicare and Medicaid. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 , which represents significant changes to the current U.S. healthcare system (collectively, the “Healthcare Reform Law”). The passage of the Healthcare Reform Law allowed formerly uninsured Americans to acquire coverage and utilize additional healthcare services. In addition, the Healthcare Reform Law gave the CMS new authorities to implement Medicaid waiver and pilot programs that impact healthcare and long term custodial care reimbursement by Medicare and Medicaid. These activities promote “aging in place”,place,” allowing senior citizens to stay longer in seniors housing communities, and diverting or delaying their admission into skilled nursing facilities.SNFs. In December 2017, Congress eliminated the penalty associated with the individual mandate to maintain health insurance effective January 1, 2019. In December 2018, as a result of the penalty associated with the individual mandate being eliminated, a federal trial court in Texas found that the entire Healthcare Reform Law was unconstitutional. The Fifth Circuit Court of Appeals affirmed the trial court’s decision in 2019. However, the matter was sent back to the trial court for further analysis. The Healthcare Reform Law remains in place during this process. Additionally, final rules issued in 2018 expand the availability of association health plans and allow the sale of short-term, limited-duration health plans, neither of which are required to cover all of the essential health benefits mandated by the Healthcare Reform Law. These changes may impact the number of individuals that elect to obtain public or private health insurance or the scope of such coverage, if purchased. We cannot predict the ultimate impact of these developments on our tenants. The potential risks, however, that accompany these regulatory and market changes are discussed below.
Changes in certification and participation requirements of the Medicare and Medicaid programs have restricted, and are likely to continue to restrict further, eligibility for reimbursement under those programs. On July 16, 2015,October 4, 2016, CMS issuedpublished a proposed
addition, on April 1, 2014, the Protecting Access to Medicare Act of 2014 was enacted, which implements value-based purchasing for SNFs. In fiscal year 2019, 2% of SNF payments began to be withheld and 60% of the amount withheld is being redistributed to SNFs as incentive payments through value-based payments. SNFs began reporting the claims-based 30-Day All-Cause Readmission Measure on October 1, 2015, and began reporting a resource use measure on October 1, 2016. Both measures are publicly available. |
In October 2015, the U.S. Government Accountability Office (“GAO”) released a report recommending that CMS continue to improve data and oversight of nursing home quality measures. The GAO found that although CMS collects several types of data that give some insight intonursing home quality would be easier to determine if the quality of nursing homes, the underlying data could provide a clearer picture of nursing home quality if some underlying problems with the datawas improved (i.e., by changing the use ofway self-reported data and non-standardized survey methodologies) are corrected.methodologies were used). The GAO recommends,recommended, among other things, that CMS implement a clear plan for ongoing auditing of self-reported data and establish a process for monitoring oversight modifications to better assess their effects. According to the GAO, timely completion of these actions is particularly important because Medicare payments to nursing homes will be dependent on quality data, through the implementation of the value based purchasing program, starting in fiscal year 2019. HHS agreed with the GAO’s recommendations, and to the extent such recommendations are implemented, they could impact our operators and tenants.
The majority of Medicare payments continue to be made through traditional Medicare Part A and Part B fee-for-service schedules. The Medicare and CHIP ("Children's(Children’s Health Insurance Program")Program) Reauthorization Act of 2015 (“MACRA”) addressesaddressed the risk of a Sustainable Growth Rate cut in Medicare payments for physician services. However, other annual Medicare payment regulations, particularly with respect to certain hospitals, skilled nursing care, and home health services, have resulted in lower net pay increases than providers of those services have often expected. In addition, MACRA establishesestablished a multi-year transition into pay-for-quality approaches for Medicare physicians and other providers. This will includeincludes payment reductions for providers who do not meet government quality standards. The current Value-Based Payment Modifier program expired at the end of 2018, and the first Merit-based Incentive Payment System (“MIPS”) adjustments began in 2019. The continued implementation of pay-for-quality models is expected to produce funding disparities that could adversely impact some provider tenants in medical buildings and other healthcare properties.
OIG has increased focus in recent years on billing practices by SNFs. In September 2015, OIG issued a report calling for reevaluation of the Medicare payment system for skilled nursing facilities.SNFs. In particular, OIG found that Medicare payments for therapy greatly exceeded SNFs’ costs for therapy, and that, under the current payment system, SNFs increasingly billed for the highest level of therapy even though key beneficiary characteristics remained largely the same. OIG determined that its findings demonstrated the need for CMS to reevaluate the Medicare SNF payment system, concluding that payment reform could save Medicare billions of dollars and encourage SNFs to provide services that are better aligned with beneficiaries’ care needs. Most recently, OIG issued (1) its findings regarding the fiscal year 2015 Top Management and Performance Challenges Facing HHS and (2) the FY 2016 OIG Work Plan. Both cited SNF billing as an area that creates incentives for providers to bill more expensive care instead of the appropriate levels of care, requiring ongoing government monitoring and auditing for compliance. The OIG formulates a formal work plan each year for nursing centers. The OIG’s most recent work plan indicatesfor 2020 states that quality of care, assessmentOIG’s investigative and monitoring, poorly performingreview focus for nursing facilities hospitalizations, criminal background checks, Medicare Part Bwill include its analysis of (1) nursing facility billing to ensure that services accuracyare not duplicative or fraudulently, excessively, or unnecessarily billed; (2) involuntary transfers or discharges of nursing facilities Minimum Data, transparencyfacility residents; (3) services provided to Medicare and Medicaid dually-eligible nursing facility residents to ensure the level of ownership,such services is properly reported; and civil monetary penalty funds will be the investigative focus in 2016.(4) nursing facility staffing levels to ensure they meet minimum legal requirements. If followed, these reports and recommendations may impact our tenants. We cannot predict the likelihood, scope, or outcome of any such investigations on our tenants.tenants if these recommendations are implemented.
In 2019, CMS began including the new long-term-stay hospitalization measurement that the agency began tracking in 2018 in its quality measures for the consumer-based Nursing Home Compare website. CMS also began posting the number of hours worked by a facility’s non-nursing staff in July 2018. In October 2019, CMS resumed posting the average number of citations per inspection for each state and the nation as a whole, which may affect each facility’s health inspection rating on the site. We cannot predict how this data will affect our tenants’ business.
hospital, CAH, or psychiatric hospital. Hospital readmissions include readmissions to a short-stay acute-care hospital or CAH, with a diagnosis considered to be unplanned and potentially preventable. |
On September 16, 2016, CMS issued its final rule concerning emergency preparedness requirements for Medicare and Medicaid participating providers, including long-term care facilities and intermediate care facilities for individuals with intellectual disabilities. The rule is designed to ensure providers and suppliers have comprehensive and integrated emergency policies and procedures in place, in particular during natural and man-made disasters. Under the rule, facilities are required to (i) document risk assessment and emergency planning, (ii) develop and implement policies and procedures based on that risk assessment, (iii) develop and maintain an emergency preparedness communication plan in compliance with both federal and state law, and (iv) develop and maintain an emergency-preparedness training and testing program. Facilities were required to have been in compliance with these regulations by November 15, 2017. We cannot predict the impact of these regulations on our tenants.
On February 8, 2018, President Trump signed into law the Bipartisan Budget Act of 2018 (the “BBA”) extending the reduction in Medicare provider payments, commonly called the “sequestration.” This automatic payment reduction remains at 2% and applies to all Medicare physician claims and certain other claims, including physician-administered medications, submitted after April 1, 2013. Scheduled to expire in 2025, the BBA extended the sequestration through 2027.
CMS released its final rule outlining fiscal year 2020 Medicare payment rates and quality programs for SNFs. This final rule has been effective as of October 1, 2019. The policies in the final rule continue to shift Medicare payments from volume to value by implementing SNF Value-Based Purchasing program (“VBP”) and SNF Quality Reporting Program (“QRP”). CMS will be using the Patient-Driven Payment Model (“PDPM”), which focuses on the patient’s condition and resulting care needs rather than on the amount of care provided in order to determine Medicare payment. Based on changes contained within this final rule, CMS estimates that the fiscal year 2020 aggregate impact will be an increase of $851 million in Medicare payments to SNFs, resulting from the fiscal year 2020 SNF market basket update required by the BBA to be 2.8%. The effect of the 2020 PPS rate update on our tenants’ revenues will be dependent upon their census and the mix of patients at the various PPS and PDPM pay rates. In addition, we cannot predict how future changes may impact reimbursement rates under the SNF PPS and PDPM system.
We are neither an ongoing participant in, nor a direct recipient of, any reimbursement under these government reimbursement programs with respect to our facilities.
Environmental Regulation
As an owner of real property, we are subject to various federal, state and local laws and regulations regarding environmental, health and safety matters.
These laws and regulations address, among other things, asbestos, polychlorinated biphenyls, fuel oil management, wastewater discharges, air emissions, radioactive materials, medical wastes, and hazardous wastes, and, in certain cases, the costs of complying with these laws and regulations and the penalties for non-compliance can be substantial. Although we do not currently operate or manage our properties, we may be held primarily or jointly and severally liable for costs relating to the investigation and clean-up of our current and former properties from which there is or has been an actual or threatened release of a regulated material and any other affected properties, regardless of whether we knew of or caused the release. Such costs typically are not limited by law or regulation and could exceed the property’s value. In addition, we may be liable for certain other costs, such as governmental fines and injuries to persons, property or natural resources, as a result of any such actual or threatened release. For a discussion
Under the terms of our leases, we generally have a right to indemnification by the tenants of our properties for any contamination caused by them. However, we cannot be assuredthere is no assurance that our tenants will have the financial capability or willingness to satisfy their respective indemnification obligations to us, and any failure, inability or unwillingness to do so may require us to satisfy the underlying environmental claims. In general, we have also agreed to indemnify our tenants against any environmental claims (including penalties and clean-up costs) resulting from any condition arising in, on or under, or relating to, our properties at any time before the applicable lease commencement date.
We did not make any material capital expenditures in connection with environmental, health, and safety laws, ordinances and regulations in 2015 and do not expect that we will be required to make any such capital expenditures during 2016.
Employees
As of December 31, 2015,2019, we had 3117 employees of which 2414 were full-time employees (excluding facility-level employees related to the Company'sCompany’s management services agreement for three facilities in Ohio).
The following are certain risk factors that could affect our business, operations and financial condition. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report because these factors could cause the actual results and conditions to differ materially from those projected in forward-looking statements. This section does not describe all risks applicable to our business, and we intend it only as a summary of certain material factors. If any of the following risks actually occur, our business, financial condition or results of operations could be negatively affected. In that case, the trading price of ourthe common stock and ourthe Series A Preferred Stock could decline.
Risks Related to Our Business
Our leases with tenants comprise our rental revenue and any failure, inability or unwillingness by these tenants to satisfy their obligations under our agreements could have a material adverse effect on us.
Our business depends upon our tenants meeting their obligations to us, including their obligations to pay rent, maintain certain insurance coverage, pay real estate and other taxes and maintain and repair the leased properties. We cannot assure you that these tenants will have sufficient assets, income and access to financing to enable them to satisfy their respective obligations to us, and any failure, inability or unwillingness by these tenants to do so could have a material adverse effect on us. In addition, any failure by these tenants to effectively conduct their operations or to maintain and improve our properties could adversely affect their business reputation and their ability to attract and retain patients and residents in our properties, which could have a material adverse effect on us. Our tenants have agreed to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their respective businesses, and we cannot assure you that our tenants will have sufficient assets, income, access to financing and insurance coverage to enable them to satisfy their respective indemnification obligations.
We will depend on Skyline Healthcare LLC (or an affiliated entity)affiliates of C.R Management, Wellington and Aspire for a significant portion of our revenues and any inability or unwillingness by itsuch entities to satisfy itstheir obligations under its agreement withto us could have a material adverse effect on us.
As of the mortgage lenders fordate of filing this Annual Report, our 21 properties (excluding the leased facilities. The ninethree facilities subjectthat are managed by us) are operated by a total of 21 separate tenants, with each of our tenants being affiliated with one of seven local or regionally-focused operators. We refer to our tenants who are affiliated with the Master Lease Agreement constitute 24%same operator as a group of the total numberaffiliated tenants. Each of our operators operate (through a group of affiliated tenants) between one and six of our facilities, with our most significant operators, C.R Management, Wellington Health Services (“Wellington”) and we estimate that the rental revenue under the Master Lease Agreement for such nineAspire, each operating (through a group of affiliated tenants) six, two and five facilities, will constitute $6.5 million per year on an annualized basis, or 22% of our annual rental revenue.
A prolonged economic slowdown could adversely impact the results of operations of our tenants, which could impair their ability to meet their obligations to us.
We believe the risks associated with our investments will be more acute during periods of economic slowdown or recession (such as the most recent recession) due to the adverse impact caused by various factors, including
inflation, deflation, increased unemployment, volatile energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market, a distressed real estate market, market volatility and weakened business and consumer confidence. This difficult operating environment caused by an economic slowdown or recession could have an adverse impact on the ability of our tenants to maintain occupancy rates, which could harm their financial condition. Any sustained period of increased payment delinquencies, foreclosures or losses by our tenants could adversely affect our income from investments in our portfolio.
Increased competition, as well as increased operating costs, could result in lower revenues for some of our tenants and may affect their ability to meet their obligations to us.
The long-term care industry is highly competitive, and we expect that it will become more competitive in the future. Our tenants are competing 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. Our tenants compete on a number of different levels, including the quality of care provided, reputation, the physical appearance of a facility, price, the range of services offered, family preference, 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 areas. We cannot be certain that the tenants of all of our facilities will be able to achieve occupancy and rate levels that will enable them to meet all of their obligations to us. Our tenants may encounter increased competition in the future that could limit their ability to attract patient'spatients or residents or expand their businesses and, therefore, affect their ability to make their lease payments.
In addition, the market for qualified nurses, healthcare professionals and other key personnel is highly competitive, and our tenants may experience difficulties in attracting and retaining qualified personnel. Increases in labor costs due to higher wages and greater benefits required to attract and retain qualified healthcare personnel incurred by our tenants could affect their ability to meet their obligations to us. This situation could be particularly acute in certain states that have enacted legislation establishing minimum staffing requirements.
Disasters and other adverse events may seriously harm our business.
Our facilities and our business may suffer harm as a result of natural or man-made disasters such as storms, earthquakes, hurricanes, tornadoes, floods, fires, terrorist attacks and other conditions. The impact, or impending threat, of such events may require that our tenants evacuate one or more facilities, which could be costly and would involve risks, including potentially fatal risks, for their patients. The impact of disasters and similar events is inherently uncertain. Such events could harm our tenants’ patients and employees, severely damage or destroy one or more of our facilities, harm our tenants’ business, reputation and financial performance, or otherwise cause our tenants’ businesses to suffer in ways that we currently cannot predict.
A severe cold and flu season, epidemics such as COVID-19, or any other widespread illnesses, could adversely affect the occupancy of our tenants’ facilities.
Our and our tenants’ revenues are dependent upon occupancy. It is impossible to predict the severity of the cold and flu season or the occurrence of epidemics or any other widespread illnesses. The occupancy of our skilled nursing and assisted living facilities could significantly decrease in the event of a severe cold and flu season, an epidemic, or any other widespread illness. Such a decrease could affect the operating income of our tenants and the ability of our tenants to make payments to us.
The bankruptcy, insolvency or financial deterioration of our tenants could limit or delay our ability to collect unpaid rents or require us to find new tenants.
We are exposed to the risk that a distressed tenant may not be able to meet its obligations to us or other third parties. This risk is heightened during a period of economic or political instability. We are also exposed to increased risk in situations where we lease multiple properties to a single tenant (or affiliated tenants) under a master lease, as a tenant failure or default could reduce or eliminate rental revenue from multiple properties. If tenants are unable to comply with the terms of their leases, then we may be
If any lease expires or is terminated, then we could be responsible for all of the operating expenses for that property until it is leased again or sold. If a significant number of our properties are unleased, then our operating expenses could increase significantly. Any significant increase in our operating costs may have a material adverse effect on our business, financial condition and results of operations, and our ability to pay dividends to our shareholders.
Although each of our lease agreements typically provides us with, or will provide us with, the right to terminate, evict a tenant, foreclose on our collateral, demand immediate payment and exercise other remedies upon the bankruptcy or insolvency of ana tenant, the Bankruptcylaw relating to bankruptcy as codified and enacted as Title 11 of the United States Code (the “Bankruptcy Code”) would limit or, at a minimum, delay our ability to collect unpaid pre-bankruptcy rents and to pursue other remedies against a bankrupt tenant. A bankruptcy filing by one of our tenants would typically prevent us from collecting unpaid pre-bankruptcy rents or evicting the tenant absent approval of the bankruptcy court. The Bankruptcy Code provides a tenant with the option to assume or reject an unexpired lease within certain specified periods of time. Generally, a lessee is required to pay all rent that becomes payable between the date of its bankruptcy filing and the date of the assumption or rejection of the lease (although such payments will likely be delayed as a result of the bankruptcy filing). Any tenant that chooses to assume its lease with us must cure all monetary defaults existing under the lease (including payment of unpaid pre-bankruptcy rents) and provide adequate assurance of its ability to perform its future obligations under the lease. Any tenant that opts to reject its lease with us would face a claim by us for unpaid and future rents payable under the lease, but such claim would be subject to a statutory “cap” and would generally result in a recovery substantially less than the face value of such claim. Although the tenant’s rejection of the lease would permit us to recover possession of the leased facility, we would likely face losses, costs and delays associated with re-leasing the facility to a new tenant.
Several other factors could impact our rights under leases with bankrupt tenants. First, the tenant could seek to assign its lease with us to a third party. The Bankruptcy Code generally disregards anti-assignment provisions in leases to permit the assignment of unexpired leases to third parties (provided all monetary defaults under the lease are cured and the third party can demonstrate its ability to perform its obligations under the lease). Second, in instances in which we have entered into a master lease agreement with a tenant that operates more than one facility, the bankruptcy court could determine that the master lease was comprised of separate, divisible leases (each of which could be separately assumed or rejected), rather than a single, integrated lease (which would have to be assumed or rejected in its entirety). Finally, the bankruptcy court could recharacterize our lease agreement as a disguised financing arrangement, which could require us to receive bankruptcy court approval to foreclose or pursue other remedies with respect to the facility.
If we must replace any of our tenants, we might be unable to rent the properties on as favorable terms, or at all, and we could be subject to delays, limitations and expenses, which could have a material adverse effect on us.
We cannot predict whether our tenants will renew existing leases beyond their current term. If any of our triple-net leases are not renewed, we would attempt to rent those properties to another tenant. In addition, following expiration of a lease term or if we exercise our right to replace a tenant in default, rental payments on the related properties could decline or cease altogether while we reposition the properties with a suitable replacement tenant. We also might not be successful in identifying suitable replacements or entering into leases or other arrangements with new tenants on a timely basis or on terms as favorable to us as our current leases, if at all, and we may be required to fund certain expenses and obligations (e.g., real estate and bed taxes, debt costs and maintenance expenses) to preserve the value of, and avoid the imposition of liens on, our properties while they are being repositioned. In addition, we may incur certain obligations and liabilities, including obligations to indemnify the replacement tenant, which could have a material adverse effect on us.
In the event of non-renewal or a tenant default, our ability to reposition our properties with a suitable replacement tenant could be significantly delayed or limited by state licensing, receivership, CON or other laws, as well as by the Medicare and Medicaid change-of-ownership rules, as further discussed below, and we could incur substantial additional expenses in connection with any licensing, receivership or change-of-ownership proceedings. Our ability to locate and attract suitable replacement tenants also could be impaired by the specialized healthcare uses or contractual restrictions on use of the properties, and we may be forced to spend substantial amounts to adapt the properties to other uses. Any such delays, limitations and expenses could adversely impact
Moreover, in connection with certain of our properties, we have entered into intercreditor agreements with the tenants’ lenders or tri-party agreements with our lenders. Our ability to exercise remedies under the applicable leases or to reposition the applicable properties may be significantly delayed or limited by the terms of the intercreditor agreement or tri-party agreement. Any such delay or limit on our rights and remedies could adversely affect our ability to mitigate our losses and could have a material adverse effect on us.
Our tenants may be subject to significant legal actions that could result in their increased operating costs and substantial uninsured liabilities, which may affect their ability to meet their obligations to us.
As is typical in the long-term healthcarelong term care industry, our tenants may be subject to claims for damages relating to the services that they provide. We give no assurance that the insurance coverage maintained by our tenants will cover all claims made against them or continue to be available at a reasonable cost, if at all. In some states, insurance coverage for the risk of punitive damages may not, in certain cases, be available to operators due to state law prohibitions or limitations of availability. As a result, our tenants doing business in these states may be liable for punitive damage awards that are either not covered by their insurance or are in excess of their insurance policy limits.
We also believe that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. The OIG, the enforcement arm of the Medicare and Medicaid programs, formulates a formal work plan each year for nursing centers. The OIG'sOIG’s most recent work plan indicates that, quality of care, assessmentamong other things, the OIG’s investigative and monitoring, poorly performingreview focus in 2017 for nursing facilities hospitalizations, criminalwill include complaint investigations by state agencies, unreported incidents of potential abuse and neglect, reimbursement, background checks, Medicare part B services, accuracy of nursing facilities Minimum Data, transparency of ownership,compliance with prospective payment requirements, and civil monetary penalty funds
In addition, we may, in some circumstances, be named as a defendant in litigation involving the services provided by our tenants. Although we generally have no involvement in the services provided by our tenants, and our standard
lease agreements generally require (or will require) our tenants to indemnify us and carry insurance to cover us in certain cases, a significant judgment against us in such litigation could exceed our and our tenants’ insurance coverage, which would require us to make payments to cover any such judgment.
Our tenants may be sued under a federal whistleblower statute.
Our tenants who engage in business with the federal government may be sued under a federal whistleblower statute designed to combat fraud and abuse in the healthcare industry. See “Governmental“Governmental Regulation-Healthcare Regulation” includedRegulation” in Part I, Item 1, of“Business” in this Annual Report. These lawsuits can involve significant monetary damages and award bounties to private plaintiffs who successfully bring these suits. If any of these lawsuits were brought against our tenants, such suits combined with increased operating costs and substantial uninsured liabilities could have a material adverse effect on our tenants’ liquidity, financial condition and results of operations and on their ability to satisfy their obligations under our leases, which, in turn, could have a material adverse effect on us.
The amount and scope of insurance coverage provided by our policies and policies maintained by our tenants may not adequately insure against losses.
We maintain or require in our leases that our tenants maintain all applicable lines of insurance on our properties and their operations. Although we regularly review the amount and scope of insurance provided by our policies and required to be maintained by our tenants and believe the coverage provided to be customary for similarly situated companies in our industry, we cannot assure you that we or our tenants will continue to be able to maintain adequate levels of insurance. We also cannot assure you that we or our tenants will maintain the required coverages, that we will continue to require the same levels of insurance under our leases, that such insurance will be available at a reasonable cost in the future or that the policies maintained will fully cover all losses on our properties upon the occurrence of a catastrophic event, nor can we make any guaranty as to the future financial viability of the insurers that underwrite our policies and the policies maintained by our tenants.
For various reasons, including to reduce and manage costs, many healthcare companies utilize different organizational and corporate structures coupled with captive programs that may provide less insurance coverage than a traditional insurance policy. Companies that insure any part of their general and professional liability risks through their own captive limited purpose entities generally estimate the future cost of general and professional liability through actuarial studies that rely primarily on historical data. However, due to the rise in the number and severity of professional claims against healthcare providers, these actuarial studies may underestimate the future cost of claims, and reserves for future claims may not be adequate to cover the actual cost of those claims. As a result, the tenants of our properties who self-insure could incur large funded and unfunded general and professional liability expenses, which could materially adversely affect their liquidity, financial condition and results of operations and, in turn, their ability to satisfy their obligations to us. If tenants of our properties decide to implement a captive or self-insurance program, any large funded and unfunded general and professional liability expenses incurred could have a material adverse effect on us.
Should an uninsured loss or a loss in excess of insured limits occur, we could incur substantial liability or lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenues from the property. Following the occurrence of such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. We cannot assure you that material uninsured losses, or losses in excess of insurance proceeds, will not occur in the future.
Failure by our tenants to comply with various local, state, and federal government regulations may adversely impact their ability to make lease payments to us.
Healthcare operators are subject to numerous federal, state, and local laws and regulations, including those described below, that are subject to frequent and substantial changes (sometimes applied retroactively) resulting from new legislation, adoption of rules and regulations, and administrative and judicial interpretations of existing law. Although we cannot accurately predict the ultimate timing or effect of these changes, such changes could have a material effect on our tenants’ costs of doing business and on the amount of reimbursement by both government and other third-party payors. The failure of any of our tenants to comply with these laws, requirements, and regulations could adversely affect its ability to meet its obligations to us.
Healthcare Reform. The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “HealthcareHealthcare Reform Law”),Law, which werewas signed into law in March 2010, representrepresents the most comprehensive change to healthcare benefits since the inception of the Medicare program in 1965 and affectaffects reimbursement for governmental programs, private insurance, and employee welfare benefit plans in various ways. Among other things, the Healthcare Reform Law expands Medicaid eligibility, requires most individuals to have health insurance, establishes new regulations for health plans, creates health insurance exchanges, and modifies certain payment systemssystems. The Healthcare Reform Law was intended to encourage more cost-effective care and a reduction ofreduce inefficiencies and waste, including through new tools to address fraud and abuse. We cannot accurately predict the impact of the Healthcare Reform Law on our tenants or their ability to meet their obligations to us.
Licensing and Certification. Healthcare operators are subject to various federal, state, and local licensing and certification laws and regulations, including laws and regulations under Medicare and Medicaid requiring operators to comply with extensive standards governing operations. Many of our properties may require a license, registration, and/or CON to operate. State and local laws also may regulate the expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction or renovation of health carehealthcare facilities, by requiring a CON or other similar approval from a state agency. Governmental agencies administering these laws and regulations regularly inspect facilities and investigate complaints. FailureA facility that is determined to be non-compliant with regulatory requirement by either (i) failing to obtain anya required licensure,license, certification, or CON; (ii) having a required license, certification, or CON, the lossrevoked or suspension of any required licensure, certification,suspended; or CON, or any(iii) having violations or deficiencies with respect to relevant operating standards, may require a facilitybe forced to cease operations or result in ineligibilitybe ineligible for reimbursement until the necessary licenses, certifications, or CON are obtained or reinstated or until any such violations or deficiencies arenoncompliance is cured. In such an event, our revenues from leasing these facilities could be indirectly reduced or eliminated for an extended period of time or permanently.
Medicaid, and all other federal and state healthcare programs. Such fines or penalties could jeopardize a tenant’s ability to make lease payments to us or to continue operating its facility. |
Privacy Laws. Healthcare operators are subject to federal, state, and local laws and regulations designed to protect the privacy and security of patient health information. These laws and regulations require operators to expend the requisite resources to protect and secure patient health information, including the funding of costs associated with technology upgrades. Operators found in violation of these laws may face large penalties. In addition, compliance with an operator’s notification requirements in the event of a breach of unsecured protected health information could cause reputational harm to an operator’s business. Such penalties and damaged reputation could adversely affect a tenant’s ability to meet its obligations to us.
Other Laws. Other federal, state, and local laws and regulations affect how our tenants conduct their business. We cannot accurately predict the effect that the costs of complying with these laws may have on the revenues of our tenants and, thus, their ability to meet their obligations to us.
Legislative and Regulatory Developments. Each year, legislative and regulatory proposals are introduced at the federal, state, and local levels that, if adopted, would result in major changes to the healthcare system in addition to those described herein. We cannot accurately predict whether any proposals will be adopted and, if adopted, what effect (if any) these proposals would have on our tenants or our business.
Our tenants may be adversely affected by healthcare regulation and enforcement.
Regulation of the long-term healthcare industry generally has intensified over time, both in the number and type of regulations and in the efforts to enforce thosesuch regulations. This is particularly true for large for-profit, multi-facility providers. Federal, state, and local laws and regulations affecting the healthcare industry include those relating to among other things, licensure, conduct of operations, facility ownership, of facilities, addition of facilities and equipment, allowable costs, services, prices for services, qualified beneficiaries, quality of care, patient rights, fraudulent or abusive behavior, data privacy and security, and financial and other arrangements that may be entered into by healthcare providers. In addition, changes in enforcement policies by federal and state governments have resulted in an increase inincreased the number of inspections, citations of regulatory deficiencies, and other regulatory sanctions, including terminations from the Medicare and Medicaid programs, bars on Medicare and Medicaid payments for new admissions, civil monetary penalties, and even criminal penalties. We are unable to predict the scope of future federal, state, and local regulations and legislation, including the Medicare and Medicaid statutes and regulations, or the intensity of enforcement efforts with respect to such regulations and legislation, and any changes in the regulatory framework could have a material adverse effect on our tenants, operators, andor managers, which, in turn, could have aan material adverse effect on us.
Our tenants may be penalized if they fail to comply with the extensive laws, regulations, and other requirements applicable to their businesses and the operation of our properties, theyproperties. Such penalties could becomeinclude becoming ineligible to receive reimbursement from governmental and private third-party payor programs, face bans on admissions ofbeing banned from admitting new patients or residents, suffersuffering other civil or criminal penalties, or bebeing required to make significant changes to their operations. Our tenants also could face increased costs related to healthcare regulation, such as the Affordable Care Act,Healthcare Reform Law, or be forced to expend considerable resources in responding to an investigation or other enforcement action under applicable laws or regulations. In such an event, the results of operations and financial condition of our tenants and the results of operations of our properties operated or managed by those entities could be adversely affected, which, in turn, could have a material adverse effect on us.
The impact of healthcare reform legislation on our tenants cannot be accurately predicted.
The health carehealthcare industry in the United States is subject to fundamental changes due to ongoing health carehealthcare reform efforts and related political, economic, and regulatory influences. Notably, the Healthcare Reform Law resulted in expanded health carehealthcare coverage to millions of previously uninsured people beginning in 2014 and has resulted in significant changes to the U.S. health carehealthcare system. To help fund this expansion, the Affordable Care ActHealthcare Reform Law outlines certain reductions in Medicare reimbursements for various health carehealthcare providers, including skilled nursing facilities, as well as certain other changes to Medicare payment methodologies.
Several provisions of the Healthcare Reform Law affect Medicare payments to skilled nursing facilities, including provisions changing Medicare payment methodology and implementing value-based purchasing and payment bundling. Although weWe cannot accurately predict how all of these provisions may be implemented, or the effect any such
implementation would have on our tenants or our business, thebusiness. The Healthcare Reform Law could result in decreases in payments to our tenants, increase our tenants’ costs, or otherwise adversely affect the financial condition of our tenants, thereby negatively impacting their ability to meet their obligations to us.
The Healthcare Reform Law also requires skilled nursing facilities to have a compliance and ethics program that is effective in preventing and detecting criminal, civil, and administrative violations and in promoting quality of care. If our tenants fall short in their compliance and ethics programs and quality assurance and performance improvement programs, then, in addition to facing regulatory sanctions, their reputations and ability to attract residents could be adversely affected.
This comprehensive health carehealthcare legislation has resulted and will continue to result in extensive rulemaking by regulatory authorities, and also may be altered or amended. It is difficult to predict the full impact of the Healthcare Reform Law due to the complexity of the law and implementing regulations, as well as our inability to foresee how CMS and other participants in the health carehealthcare industry will respond to the choices available to them under the law. We also cannot accurately predict whether any new or pending legislative proposals will be adopted or, if adopted, what effect, if any, these proposals would have on our tenants’ business. Similarly, while we can anticipate that some of the rulemaking that will be promulgated by regulatory authoritiesnew regulations will affect our tenants and the manner in which they are reimbursedof their reimbursement by the federal health carehealthcare programs, we cannot accurately predict today the impact of those regulations on their business and, therefore, on our business. The provisions of the legislation and other regulations implementing the provisions of the Affordable Care ActHealthcare Reform Law may increase our tenants’ costs or otherwise adversely affect the financial condition of our tenants, thereby negatively impacting their ability to meet their obligations to us.
Other legislative changes have been proposed and adopted since the Healthcare Reform Law was enacted that also may impact our business. For instance, on April 1, 2014, the President Obama signed the Protecting Access to Medicare Act of 2014, which, among other things, requireshas required CMS to measure, track, and publish readmission rates of skilled nursing facilities by 2017 and implement a value-based purchasing program for skilled nursing facilities (the “SNF VBP Program”) by October 1, 2018. The SNF VBP Program will increasehas increased Medicare reimbursement rates for skilled nursing facilities that achieve certain levels of qualitylevels-of-quality performance measures to be developed by CMS, relative to other facilities. The value-based payments authorized by the SNF VBP Program will be funded by reducing Medicare payment for all skilled nursing facilities by 2% and redistributing up to 70%60% of those funds to high-performing skilled nursing facilities. If Medicare reimbursement provided to our tenants is reduced under the SNF VBP Program, that reduction may have an adverseadversely impact on the ability of our tenantstenants’ abilities to meet their obligations to us.
Our tenants depend on reimbursement from governmental and other third-party payors, and reimbursement rates from such payors may be reduced.
Changes in the reimbursement rate or methods of payment from third-party payors, including the Medicare and Medicaid programs, or the implementation of other measures to reduce reimbursements for services provided by our tenants could result in a substantial reduction in the revenues and operating margins of our tenants. Significant limits on the scopes of services reimbursed and on reimbursement rates could have a material adverse effect on the results ofour tenants’ operations and financial condition of our tenants, whichcondition. Such effects could cause their revenues to decline and could negatively impact their ability to meet their obligations to us.
Additionally, net revenue realizable under third-party payor agreements can change after examination and retroactive adjustment by payors during the claims settlement processes or as a result of post-payment audits. Payors may disallow requests for reimbursement based on determinations that certain costs are not reimbursable or reasonable, additional documentation is necessary, or certain services were not covered or were not medically necessary. New legislative and regulatory proposals could impose further limitations on government and private payments to healthcare providers. In some cases, states have enacted or are considering enacting measures designed to reduce Medicaid expenditures and to make changes to private healthcare insurance. No assurance is given that adequate third-party payor reimbursement levels will continue to be available for the services provided by our tenants.
The Healthcare Reform Law provides those states that expand their Medicaid coverage to otherwise eligible state residents with incomes at or below 138% of the federal poverty level with an increased federal medical assistance percentage that became effective January 1, 2014, whenif certain conditions are met. On June 28, 2012, the United States Supreme Court upheld the individual mandate of the HealthHealthcare Reform Laws but partially invalidated the expansion of Medicaid. The ruling on Medicaid expansion allows states to elect not to participate in the expansion-andexpansion—
and to forego funding for the Medicaid expansion-withoutexpansion—without losing their existing Medicaid funding. Given that the federal government substantially funds the Medicaid expansion, it is unclear how many states will ultimately pursue this option, although,option. However, as of early February 2016, roughly half of theJanuary 2020, 35 states have expanded Medicaid coverage.coverage in some form. The participation by states in the Medicaid expansion could have the dual effect of increasing our tenants’ revenues through new patients, but further straining state budgets and their ability to pay our tenants. While the federal government will paypaid for approximately 100% of those additional costs from 2014 through 2016, states will be expected to payhave been responsible for part of those additional costs beginning insince 2017. In light2020, states will be responsible for 10% of this, at least one state that has passed legislation to allow the state to expand its Medicaid coverage has included sunset provisions in the legislation that require that the expanded benefits be reduced or eliminated if the federal government’s funding for the program is decreased or eliminated, permitting the state to re-visit the issue once it begins to share financial responsibility for the expansion.these additional costs. With increasingly strained budgets, it is unclear how states that do not include such sunset provisions will pay their share of these additional Medicaid costs and what other health carehealthcare expenditures could be reduced as a result. A significant reduction in other health care relatedhealthcare-related spending by states to pay for increased Medicaid costs could affect our tenants’ revenue streams.
Furthermore, on December 22, 2017, the Tax Cuts and Jobs Act was enacted and signed into law that repealed the individual mandate in the Patient Protection and Affordable Care Act. Because the Supreme Court’s 2012 decision upholdingfinding the constitutionalityHealthcare Reform Law constitutional was grounded, at least in part, on the inclusion of the individual healthcare mandate while striking downin the provisions linkinglaw, a federal fundingtrial court found the entire law unconstitutional upon the mandate’s repeal. The Fifth Circuit Court of state Medicaid programs with a federally mandated expansion of those programs has contributedAppeals affirmed the trial court’s decision in 2019, and the matter was sent back to the uncertainty regardingtrial court for additional analysis. While the impact that the law will have on healthcare delivery systems over the next decade. We can expect that federal authorities will continue to implement the law, but because of the Supreme Court’s mixed ruling, the implementation will take longer than originally expected, withHealthcare Reform Law remains in place during this process, there is a commensurate increase in the periodhigh degree of uncertainty regarding the long-term financialfuture of the law.
Executive orders with regard to the Healthcare Reform Law, may have unforeseen consequences.
In the absence of legislation repealing the Healthcare Reform Law, President Trump issued an executive order on October 12, 2017, directing federal agencies to reevaluate regulations and guidance associated with the Healthcare Reform Law. The effects of this executive order are unknown. It is possible that additional executive orders related to the Healthcare Reform Law may be issued. Because of the continued uncertainty surrounding the Healthcare Reform Law, including the potential for further legal challenges or repeal of that legislation, we cannot quantify or predict with any certainty the likely impact of the Healthcare Reform Law or its repeal on theour tenants and, thus, their ability to meet their obligations to us. We also anticipate that Congress, state legislatures, and third-party payors will continue to review and assess alternative healthcare delivery of and payment for healthcare.
Government budget deficits could lead to a reduction in Medicare and Medicaid reimbursement.
Many states are focusing on the reduction of expenditures under their Medicaid programs, which may result in a reduction inreduce our tenants’ reimbursement rates for our tenants.rates. These potential reductions could be compounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement to our tenants under both the Medicare and Medicaid programs. Reductions in Medicare and Medicaid reimbursement to our tenants could reduce the cash flow of our tenants and their ability to make rent payments to us. 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. Because the Healthcare Reform Law allows states to increase the number of people who are eligible for Medicaid and simplifies enrollment in this program, Medicaid enrollment may significantly increase in the future. Since our tenants’ profit margins with respect to Medicaid patients are generally relatively low, more than modest reductions in Medicaid reimbursement and an increase in the number of Medicaid patients could place some tenants in financial distress, which, in turn, could adversely affect us. If funding for Medicare or Medicaid is reduced, then itthis could have a material adverse effect on our tenants’ results of operations and financial condition, which could adversely affect their ability to meet their obligations to us.
Changes in the reimbursement rates or methods of payment from third-party payors, including insurance companies and the Medicare and Medicaid programs, could have a material adverse effect on our tenants.
Our tenants rely on reimbursement from third-party payors, including the Medicare (both traditional Medicare and "managed"“managed” Medicare/Medicare Advantage) and Medicaid programs, for substantially all of their revenues. Federal
and state legislators and regulators have adopted or proposed various cost-containment measures that would limit payments to healthcare providers, and budget crises and financial shortfalls have caused states to implement or consider Medicaid rate freezes or cuts. See “Governmental Regulation-Healthcare Regulation” included in Item 1 of this Annual Report. Private third-party payors also have continued their efforts to control healthcare costs. We cannot assure you that our tenants who currently depend on governmental or private payor
Unforeseen costs associated with the acquisition of new healthcare properties could reduce our profitability.
Our business strategy contemplates future acquisitions that may not prove to be successful. For example, we might encounter unanticipated difficulties and expenditures relating to our acquired healthcare properties, including contingent liabilities, or our newly acquired healthcare properties might require significant management attention that would otherwise be devoted to our ongoing business. Such costs may negatively affect our results of operations.
If we are unable to resolve our professional and general liability actions on terms acceptable to us, then it could have a material adverse effect on our business, financial condition and results of operation.
The Company is a defendant in various legal actions and administrative proceedings arising in the ordinary course of business, including claims that the services the Company provided during the time it operated skilled nursing facilities resulted in injury or death to former patients. Although the Company settles cases from time to time if settlement is advantageous to the Company, the Company vigorously defends any matter in which it believes the claims lack merit and the Company has a reasonable chance to prevail at trial or in arbitration. Litigation is inherently unpredictable and there is risk in the Company’s strategy of aggressively defending these cases. There is no assurance that the outcomes of these matters will not have a material adverse effect on the Company’s financial condition.
As of the date of filing this Annual Report, the Company is a defendant in 9 professional and general liability actions, primarily commenced on behalf of one of our former patients and eight of our current or prior tenant’s former patients. These actions generally seek unspecified compensatory and punitive damages for former patients who were allegedly injured or died while patients of our facilities due to professional negligence or understaffing. One such action, on behalf of the Company’s former patient, is covered by insurance, except that any award of punitive damages would be excluded from such coverage and nine of such actions relate to events which occurred after the Company transitioned the operations of the facilities in question to a third-party operator and which are subject to such operators’ indemnification obligations in favor of the Company.
The Company has self-insured against professional and general liability actions since it discontinued its healthcare operations in connection with the Transition. The Company established a self-insurance reserve for these professional and general liability claims, included within “Accrued expenses” in the Company’s audited consolidated balance sheets of $0.5 million and $1.4 million at December 31, 2019, and December 31, 2018, respectively. Additionally as of December 31, 2019 and December 31, 2018 approximately $0.3 million and $0.6 million was reserved for settlement amounts in “Accounts payable” in the Company’s audited consolidated balance sheets. See Note 15 - Commitments and Contingencies to our audited consolidated financial statements included in Part II, Item 8., “Financial Statements and Supplementary Data.” Also see “Critical Accounting Policies - Self Insurance Reserve” in Part II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgement, unless settlement is more advantageous to the Company. Accordingly, the
self-insurance reserve primarily reflects the Company’s estimate of settlement amounts for the pending actions, as appropriate, and legal costs of settling or litigating the pending actions, as applicable.
Because the self-insurance reserve is based on estimates, the amount of the self-insurance reserve may not be sufficient to cover the settlement amounts actually incurred in settling the pending actions, or the legal costs actually incurred in settling or litigating the pending actions. The amount of the self-insurance reserve may increase, perhaps by a material amount, in any given period, particularly if the Company determines that it has probable exposure in one or more actions. If we are unable to resolve the pending actions on terms acceptable to us, then it could have a material adverse effect on our business, financial condition and results of operations. We have a history of operating losses and may incur losses in the future.
Our real estate investments are relatively illiquid.
Real estate investments are relatively illiquid and generally cannot be sold quickly. In addition, nearly all of our owned healthcare properties serve as collateral for our secured debt obligations and cannotmay not be readily sold. Additional factors that are specific to our industry also tend to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. For example, all of our healthcare properties are “special purpose” properties that cannot be readily converted into general residential, retail or office use. In addition, transfers of operations of skilled nursing facilities, assisted living facilities and other healthcare facilities are subject to regulatory approvals not required for transfers of other types of commercial operations and other types of real estate. Thus, if the operation of any of our healthcare properties becomes unprofitable due to competition, age of improvements or other factors such that a tenant becomes unable to meet its obligations to us, then the liquidation value of the property may be substantially less, particularly relative to the amount owing on any related mortgage loan, than would be the case if the property were readily adaptable to other uses. Furthermore, the receipt of liquidation proceeds or the replacement of a tenant that has defaulted on its lease could be delayed by the approval process of any federal, state or local agency necessary for the transfer of the property or the replacement of the tenant with a new tenant licensed to manage the facility. In addition, certain significant expenditures associated with real estate investment, such as real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment. Should such events occur, our revenues would be adversely affected.
As an owner with respect to real property, we may be exposed to possible environmental liabilities.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner of real property, such as us, may be liable in certain circumstances for the costs of investigation, removal or remediation of, or related releases of, certain hazardous or toxic substances at, under or disposed of in connection with such property, as well as certain other potential costs relating to hazardous or toxic substances, including government fines and damages for injuries to persons and adjacent property. Such laws often impose liability based onregardless of the owner’s knowledge of, or responsibility for, the presence or disposal of such substances. As a result, liability may be imposed on the owner in connection with the activities of an operator of the property.
The cost of any required investigation, remediation, removal, fines or personal or property damages and the owner’s liability therefor could exceed the value of the property and 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 an operator’s ability to attract additional patients or residents and our ability to sell or rent such property or to borrow using such property as collateral which, in turn, could negatively impact our revenues.
The industry in which we operate is highly competitive. Increasing investor interest in our sector and consolidation at the operator level could increase competition and reduce our profitability.
Our business is highly competitive, and we expect that it may become more competitive in the future. We compete for healthcare facility investments with other healthcare investors, many of which have greater resources and lower costs of capital than we do. Increased competition makes it more challenging for us to identify and successfully capitalize on opportunities that meet our investment criteria. If we cannot identify and purchase a sufficient number of healthcare facilities at favorable prices, or if we are unable to finance such acquisitions on commercially favorable terms, our business, results of operations and financial condition may be materially adversely affected. In
addition, if our cost of capital should increase relative to the cost of capital of our competitors, the spread that we realize on our investments may decline if competitive pressures limit or prevent us from charging higher lease rates.
The geographic concentration of our facilities could leave us vulnerable to an economic downturn or adverse regulatory changes in those areas.
Our properties are located in differentsix states, with concentrations in Arkansas, Georgia and Ohio. As a result of this concentration, the conditions of local economies and real estate markets, changes in governmental rules, regulations and reimbursement rates or criteria, changes in demographics, state funding, acts of nature and other factors that may result in a decrease in demand and reimbursement for skilled nursing services in these states could have a disproportionately adverse effect on our tenants’ revenue, costs and results of operations, which may affect their ability to meet their obligations to us.
If we lose our key management personnel, we may not be able to successfully manage our business or achieve our objectives, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We are dependent on our management team, and our future success depends largely upon the management experience, skill, and contacts of our management and the loss of any of our key management team could harm our business. If we lose the services of any or all of our management team, we may not be able to replace them with similarly qualified personnel, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our directors and officers substantially control all major decisions.
Our directors and officers beneficially own approximately 13.7%a significant number of shares of our outstanding common stock. Therefore, our directors and officers will be able to influence major corporate actions required to be voted on by shareholders, such as the election of directors, the amendment of our charter documents and the approval of significant corporate transactions such as mergers, reorganizations, sales of substantially all of our assets and liquidation. Furthermore, our directors will be able to make decisions affecting our capital structure, including decisions to issue additional capital stock, implement stock repurchase programs and incur indebtedness. This control may have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of our other shareholders to approve transactions that they may deem to be in their best interest.
Risks Related to Potential REIT Election
As previously discussed, the Board is in our charter documents providethe process of evaluating the feasibility of the Company in the future qualifying for indemnificationand electing status as a REIT under the Code. If the Board determines for any future taxable year, after further consideration and evaluation, that the Company qualifies as a REIT under the Code and that electing status as a REIT under the Code would be in the best interests of officersthe Company and directors, which could requireits shareholders, then there would be certain risks we would face if we subsequently elected REIT status, including the risks set forth below under this “- Risks Related to REIT Election” section. The applicability of these risks assumes that: (i) we would qualify in a future taxable year as a REIT under the Code; (ii) the Board determines that electing status as a REIT under the Code is in the best interests of the Company and its shareholders; and (iii) we subsequently elect status as a REIT under the Code.
Complying with the REIT requirements may cause us to direct funds awayliquidate assets or hinder our ability to pursue otherwise attractive asset acquisition opportunities.
To qualify as a REIT for federal income tax purposes, we would need to continually satisfy tests concerning, among other things, the nature and diversification of our assets, the sources of our income and the amounts we distribute to our shareholders. For example, to qualify as a REIT, we would need to ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and “real estate assets” (as defined in the Code), including certain mortgage loans and securities. The remainder of our investments (other than government securities, qualified real estate assets and securities issued by any taxable REIT subsidiary (“TRS”)) generally could not include more than 10% of the outstanding voting securities of any one issuer or more
than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total assets (other than government securities, qualified real estate assets and securities issued by a TRS) could consist of the securities of any one issuer, and no more than 20% of the value of our total assets could be represented by securities of one or more TRSs. If we were to elect as a REIT under the Code and subsequently we fail to comply with these requirements at the end of any calendar quarter, then we would need to correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we could be required to liquidate assets.
In addition to the asset tests set forth above, to qualify and be subject to tax as a REIT, we would generally be required, after the utilization of any available federal net operating loss carryforwards, to distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding any net capital gain) each year to our shareholders. If we were to elect as a REIT under the Code, any determination as to the timing or amount of future dividends would be based on a number of factors, including investment opportunities and the availability of our existing federal net operating loss carryforwards. If we were to elect as a REIT under the Code, and to the extent that we satisfy the 90% distribution requirement, but distribute less than 100% of our REIT taxable income (after the application of available federal net operating loss carryforwards, if any), we would be subject to U.S. federal corporate income tax on our undistributed taxable income. In addition, we would be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our shareholders for a calendar year is less than a minimum amount specified under the Code. These distribution requirements could hinder our ability to pursue otherwise attractive asset acquisition opportunities. Furthermore, if we were to elect as a REIT under the Code, our ability to compete for acquisition opportunities in domestic markets may be adversely affected if we were to need, or require, the target company to comply with certain REIT requirements. These actions could have the effect of reducing our income, amounts available for distribution to our shareholders and amounts available for making payments on our indebtedness.
Qualifying as a REIT involves highly technical and complex provisions of the Code. If we were to elect as a REIT under the Code, and we fail to qualify as a REIT or fail to remain qualified as a REIT, to the extent we have REIT taxable income and have utilized our federal net operating loss carryforwards, we would be subject to U.S. federal income tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our shareholders.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our potential REIT qualification. Our qualification as a REIT would depend on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. 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 have not and will not obtain independent appraisals.
If we were to qualify and elect as a REIT under the Code for a future taxable year, and subsequently we fail to qualify as a REIT in any taxable year, to the extent we have taxable income and have utilized our federal net operating loss carryforwards, we would be subject to U.S. federal income tax on our taxable income at regular corporate rates, and dividends paid to our shareholders would not be deductible by us in computing our taxable income. Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our shareholders, which in turn could have an adverse impact on the value of our stock. Unless we were entitled to relief under certain provisions of the Code, we also would be disqualified from our business and future operations.
We may be required to advance costs incurred by an officerborrow funds, sell assets, or director andraise equity to pay judgments, fines and expenses incurred by an officer or director, including reasonable attorneys' fees,satisfy REIT distribution requirements.
If we were to elect as a REIT under the Code, from time to time thereafter we might generate REIT taxable income greater than our cash flow as a result of actionsdifferences in timing between the recognition of taxable income and the actual receipt of cash or proceedingsthe effect of nondeductible capital expenditures, the creation of reserves or required debt or amortization payments. If we were to not have other funds available in those situations, we would need to borrow
funds, sell assets or raise equity, even if the then-prevailing market conditions are not favorable for these borrowings, sales or offerings, to enable us to satisfy the REIT distribution requirement and to avoid U.S. federal corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs and our leverage or require us to distribute amounts that would otherwise be invested in future acquisitions or stock repurchases. Thus, if we were to elect as a REIT under the Code: (i) continued compliance with the REIT requirements may hinder our ability to grow, which could adversely affect the value of our stock; and (ii) continued compliance with the REIT distribution requirements may increase the financing we would need to fund capital expenditures, future growth, or expansion initiatives, which would increase our total leverage.
Covenants specified in the instruments governing our indebtedness may limit our ability to make required REIT distributions.
If we were to elect as a REIT under the Code, restrictive loan covenants in the instruments governing our indebtedness may prevent us from satisfying REIT distribution requirements and, after such election, we could fail to qualify for taxation as a REIT. If these covenant limitations were not to jeopardize our qualification for taxation as a REIT but nevertheless were to prevent us from distributing 100% of our REIT taxable income, then we would be subject to U.S. federal corporate income tax, and potentially the nondeductible 4% excise tax, on the undistributed amounts.
Our payment of cash distributions in the future is not guaranteed and the amount of any future cash distributions may fluctuate, which could adversely affect the value of our stock.
REITs are required to distribute annually at least 90% of their REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gain). We had approximately $74.0 million in federal net operating loss carryforwards as of December 31, 2019. If we were to elect as a REIT under the Code, we would be able to use, at our discretion, these federal net operating loss carryforwards to offset our REIT taxable income, and thus the required distributions to shareholders may be reduced or eliminated until such time as our federal net operating loss carryforwards have been fully utilized. However, pursuant to the recently enacted Tax Reform Act referenced below, our ability to offset any federal net operating losses arising from our taxable years beginning after December 31, 2018, against any future REIT taxable income would be limited.
If we were to elect as a REIT under the Code, the amount of future distributions would be determined, from time to time, by the Board to balance our goal of increasing shareholder value and retaining sufficient cash to implement our current capital allocation policy, which includes portfolio improvement and potentially stock repurchases (when we believe our stock price is below its intrinsic value). If we were to elect as a REIT under the Code, the actual timing and amount of distributions would be as determined and declared by the Board and would depend on, among other factors, our federal net operating loss carryforwards, our financial condition, earnings, debt covenants and other possible uses of such funds.
Furthermore, we may only pay dividends on our capital stock if we have funds legally available to pay dividends and such payment is not restricted or prohibited by Georgia law, the terms of shares of our capital stock with higher priority with respect to dividends and the terms of any other documents governing our indebtedness. See “–Risks Related to Our Stock – There are no assurances of our ability to pay dividends in the future.”
Certain of our business activities may be subject to corporate level income tax, which would reduce our cash flows, and would have potential deferred and contingent tax liabilities.
If we were to elect as a REIT under the Code: (i) we may be subject to certain federal, state, and local taxes on our income and assets, taxes on any undistributed income and state, local income, franchise, property and transfer taxes; (ii) we could, in certain circumstances, be required to pay an excise or penalty tax, which could be significant in amount, in order to utilize one or more relief provisions under the Code to maintain qualification for taxation as a REIT; and (iii) 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 our earnings and our available cash.
If we were to elect as a REIT under the Code, any TRS assets and operations we may have would continue to be subject, as applicable, to federal and state corporate income taxes in the jurisdictions in which those assets and
operations are located, which taxes would decrease our officersearnings and directorsour available cash. If we were to elect as a REIT under the Code, we would also be subject to a federal corporate level tax at the highest regular corporate rate (currently 21%) on the gain recognized from a sale of assets occurring during the initial five-year period of time for which we are involved by reasona REIT, up to the amount of being or having been an officer or directorthe built-in gain that existed on January 1 of the year for which we elect as a REIT under the Code, which would be based on the fair market value of those assets in excess of our Company. Funds paidtax basis in satisfactionthose assets as of judgments, finessuch date. Gain from a sale of an asset occurring after the specified period ends would not be subject to this corporate level tax.
Use of any TRSs we may have may cause us to fail to qualify as a REIT.
If we were to elect as a REIT under the Code, the net income of any TRSs we may have would not be required to be distributed to us, and such undistributed TRS income would generally not be subject to our REIT distribution requirements. However, if we were to elect as a REIT under the Code and if the accumulation of cash or reinvestment of significant earnings in any TRSs we may have would cause the fair market value of our securities in those entities, taken together with other non-qualifying assets, to represent more than 25% of the fair market value of our assets, or causes the fair market value of such TRS securities alone to represent more than 20% of the value of our total assets, in each case, as determined for REIT asset testing purposes, we would, absent timely responsive action, fail to qualify as a REIT.
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 Internal Revenue Service and the U.S. Treasury Department. 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, U.S. Treasury Regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT or the U.S. federal income tax consequences to our investors and us of such qualification.
In addition, On December 22, 2017, tax legislation commonly known as The Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted which has resulted in fundamental changes to the Code. Among the numerous changes included in the Tax Reform Act is a deduction of 20% of ordinary REIT dividends for individual taxpayers for taxable years beginning on or after January 1, 2018 through 2025. The impact of the Tax Reform Act on an investment in our shares, and our ability to qualify for and elect REIT status in any future year and the desirability thereof, is uncertain. We cannot assure you that the Tax Reform Act or any such other changes will not adversely affect the taxation of our shareholders. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. You are urged to consult with your tax advisor with respect to the impact of the Tax Reform Act on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares.
We do not have any experience operating as a REIT, which may adversely affect our financial condition, results of operations, cash flow, per share trading price of our stock and ability to satisfy debt service obligations.
We have not actually operated as a REIT previously, and we do not currently qualify as a REIT under the Code. If we were to qualify and elect as a REIT under the Code in a future taxable year: (i) our pre-REIT operating experience may not be sufficient to enable us to operate successfully as a REIT; and (ii) we will be required to implement substantial control systems and procedures in order to maintain REIT status. As a result, we may incur additional legal, accounting and other expenses that we have not previously incurred, which could be significant, and our management and other personnel may need to devote additional time to comply with these rules and regulations and controls required for continued compliance with the Code. Therefore, if we were to qualify and elect as a REIT under the Code in a future taxable year, our historical combined consolidated financial statements may not be indicative of our future costs and performance as a REIT. If our performance is adversely affected, then it could affect our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations.
The current market price of the common stock may not be indicative of the market price of common stock if we were to elect as a REIT under the Code.
The current market price of the common stock may not be indicative of how the market will value the common stock if we elect as a REIT under the Code in a future taxable year, because of the change in our organization from a taxable C corporation to a REIT. The stock price of REIT securities have historically been affected by changes in market interest rates as investors evaluate the annual yield from distributions on the entity’s common stock as compared to yields on other financial instruments. In addition, if we elect as a REIT under the Code in a future taxable year, the market price of common stock in the future may be funds we needpotentially affected by the economic and market perception of REIT securities.
Generally, ordinary dividends payable by REITs do not qualify for the operationreduced tax rates available for some dividends.
The maximum U.S. federal income tax rate applicable to income from “qualified dividends” payable to U.S. shareholders that are individuals, trusts and growthestates is currently 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates applicable to qualified dividends. Although these rules do not adversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends 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 business.
Risks Related to Our Capital Structure
We have substantial indebtedness, which may have a material adverse effect on our business and financial condition.
As of December 31, 2015,2019, we had approximately $125.5$55.4 million in indebtedness, including current maturities of debt and debt related to discontinued operations.debt. We may also obtain additional short-term and long-term debt to meet future capital needs, subject to certain restrictions under our existing indebtedness, which would increase our total debt. Our substantial amount of debt could have negative consequences to our business. For example, it could:
increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;
require us to dedicate a substantial portion of cash flows from operations to interest and principal payments on outstanding debt, thereby limiting the availability of cash flow for dividends 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;
expose us to increases in interest rates for our variable rate debt;
limit our ability to borrow additional funds on favorable terms, or at all, for working capital, debt service requirements, expansion of our business or other general corporate purposes;
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;
limit our flexibility in planning for, or reacting to, changes in our business and our industry;
limit our ability to make acquisitions or take advantage of business opportunities as they arise;
limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity.
In addition, our ability to borrow funds in the future will depend in part on the satisfaction of the covenants in our credit facilities and other debt agreements. If we are unable to satisfy the financial covenants contained in those agreements, or are unable to generate cash sufficient to make required debt payments, the lenders and other parties to those arrangements could accelerate the maturity of some or all of our outstanding indebtedness.
We may not have sufficient liquidity to meet our capital needs.
For the year ended and as of December 31, 2015,2019, we had net income of $5.5 million after recognizing a net lossgain of $23.5$7.1 million and negative working capitalon the sale of $38.6 million.assets. At December 31, 2015,2019, we had $2.7$4.4 million in cash, and cash equivalents, as well as restricted cash of $12.7approximately $3.6 million, and $125.5$55.4 million in indebtedness, including current maturities of $51.9 million.
Management anticipates both access to and receipt of several sources of liquidity, including proceedscash from at-the-market preferred stock offeringsoperations and cash from operations.on hand. We routinely have routine ongoing discussions with existing and potential new potential lenders to refinance current debt on a longer-term basis and, in recent periods, have refinanced short-term acquisition-related debt with traditional long-term mortgage notes, some of which have been executed under government guaranteed lending programs. We have been successful in recent years in raising new equity capital and believe, based on recent discussions that these markets will continue to be available to us for raising capital in 2016 and beyond.
In order to satisfy ourthe Company’s capital needs, we seek to:the Company is undertaking measures to grow its operations, streamline its cost infrastructure and otherwise increase liquidity by: (i) continue improving operating resultsrefinancing or repaying debt to reduce interest costs and mandatory principal repayments, with such repayment to be funded through leasing and subleasing transactions executed with favorable terms and consistent and predictable cash flow; (ii) re-lease our Arkansas facilities with a new leasing arrangement made with a new operator; (iii) expandpotentially expanding borrowing arrangements with certain lenders; (iv) refinance current debt where possible to obtain more favorable terms; and (v) raiselenders or raising capital through the issuance of debt or equity securities. securities after restructuring of the Company’s capital structure; (ii) increasing future lease revenue through acquisitions and investments in existing properties; (iii) modifying the terms of existing leases; (iv) replacing certain tenants who default on their lease payment terms; and (v) reducing other and general and administrative expenses.
The Company anticipates that these actions, if successful, will provide the opportunity to maintain its liquidity, on a short and long term basis, thereby permitting the Company to better meet its operating and financing obligations for the next twelve months.obligations. However, there is no guarantee that such actions will be successful or that the anticipated operating results of the Transition will be realized. If such actions are not successful, or if the anticipated operating results of the Transition are not realized, then the Company may be required to restructure its outstanding indebtedness, implement further cost reduction initiatives or sell assets.
We rely on external sources of capital to fund futureour capital needs, and if we encounter difficulty in obtaining such capital, we may not be able to make future investments necessary to grow our business or meet maturing debt commitments.
We rely on external sources of capital, including private or public offerings of debt andor equity, financing.the assumption of secured indebtedness, or mortgage financing on a portion of our owned portfolio. If we are unable to obtain needed capital at all or only on unfavorable terms from these sources, we might not be able to make the investments needed to grow our business or to meet our obligations and commitments as they mature. Our access to capital depends upon a number of factors over which we have little or no control, including the performance of the national and global economies generally; competition in the healthcare industry; issues facing the healthcare industry, including regulations and government reimbursement policies; our tenants’ operating costs; the market’s perception of our growth potential; the market value of our properties; our current and potential future earnings and cash dividends; on its common stock and preferred stock, if any; and the market price of the shares of our capital stock. We may not be in a position to take advantage of future investment opportunities if we are unable to access capital markets on a timely basis or are only able to obtain financing on unfavorable terms.
In particular, we are subject to risks associated with debt financing, which could negatively impact our business and limit our ability to pay dividends to our shareholders and to repay maturing indebtedness. If we are unable to refinance or extend principal payments due at maturity or pay them with proceeds from other capital transactions, our cash flow may not be sufficient to repay our maturing indebtedness. Furthermore, if we have to pay higher
interest rates in connection with a refinancing, the interest expense relating to that refinanced indebtedness would increase, which could reduce our profitability. Moreover, additional debt financing increases the amount of our leverage. The degree of leverage could have important consequences to our shareholders, including affecting our ability to obtain additional financing in the future, and making us more vulnerable to a downturn in our results of operations or the economy in general.
Our ability to raise capital through equity sales is dependent, in part, on the market price of our stock, and our failure to meet market expectations with respect to our business could negatively impact the market price of our stock and availability of equity capital.
As with other publicly-traded companies, the availability of equity capital will depend, in part, on the market price of our stock, which, in turn, will depend upon various market conditions and other factors that may change from time to time, including:
the extent of investor interest;
our financial performance and that of our tenants;
general stock and bond market conditions; and
other factors such as governmental regulatory action.
Covenants in the agreements evidencing our indebtedness limit our operational flexibility, and a covenant breach could materially adversely affect our operations.
The terms of our credit agreements and other agreements evidencing our indebtedness require us to comply with a number of financial and other covenants which may limit management’s discretion by restricting our ability to, among other things, incur additional debt, and create liens. Any additional financing we may obtain could contain similar or more restrictive covenants. Our continued ability to incur indebtedness and conduct our operations is subject to compliance with these financial and other covenants. Breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness in addition to any other indebtedness cross-defaulted against such instruments. Any such breach could materially adversely affect our business, results of operations and financial condition.
Our assets may be subject to impairment charges.
We periodically, but not less than annually, evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, operator performance and legal structure. If we determine that a significant impairment has occurred, then we are required to make an adjustment to 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.
We may change our investment strategies and policies and capital structure.
The Board, without the approval of our shareholders, may alter our investment strategies and policies if it determines that a change is in our shareholders’ best interests. The methods of implementing our investment strategies and policies may vary as new investments and financing techniques are developed.
Economic conditions and turbulence in the credit markets may create challenges in securing third-party borrowingsindebtedness or refinancing our existing indebtedness.
Depressed economic conditions, the availability and cost of credit, turmoil in the mortgage market and depressed real estate markets have in the past contributed, and will in the future contribute, to increased volatility and diminished expectations for real estate markets and the economy as a whole. Significant market disruption and volatility could impact our ability to secure third-party borrowingsindebtedness or refinance our existing indebtedness, which may prevent us from successfully implementing the Transition.
We are subject to possible conflicts of interest; we have engaged in, and may in the future engage in, transactions with parties that may be considered related parties.
From time to time, we have engaged in various transactions with related parties including Christopher Brogdon, a former director and owner of greater than 5% of our outstanding common stock. These transactions, along with other related party transactions, are described in Note 19 to our Consolidated Financial Statements included inSee Part II,III, Item 8., “Financial Statements and Supplementary Data,” and Part III., Item 13., “Certain13, “Certain Relationships and Related Transactions, and Director Independence.”
Although we do not believe the potential conflicts have adversely affected, or will adversely affect, our business, others may disagree with this position and litigation could ensue in the future. Our relationships with Mr. Brogdon and other related parties may give rise to litigation, or other issues which could result in substantial costs to us, and a diversion of our resources and management'smanagement’s attention, whether or not any allegations made are substantiated.
Risks Related to the Ownership and Transfer Restrictions
The ownership and transfer restrictions contained in the Charter may prevent or restrict you from acquiring or transferring shares of the common stock.
As a result of the Merger, the Charter contains provisions restricting the ownership and transfer of the common stock. These ownership and transfer restrictions include that, subject to the exceptions, waivers and the constructive ownership rules described in the Charter, no person (including any “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) may beneficially own, or be deemed to constructively own by virtue of the ownership attribution provisions of the Code, in excess of 9.9% (by value or number of shares, whichever is more restrictive) of the outstanding common stock. The Charter also prohibits, among other things, any person from beneficially or constructively owning shares of common stock to the extent that such ownership would cause the Company to fail to qualify as a REIT by reason of being “closely held” under the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or that would cause the Company to otherwise fail to qualify as a REIT. Furthermore, any transfer, acquisition or other event or transaction that would result in common stock being beneficially owned by less than 100 persons (determined without reference to any rules of attribution) will be void ab initio, and the intended transferee shall acquire no rights in such common stock.
These ownership and transfer restrictions could have the effect of delaying, deferring or preventing a transaction or a change in control of us that might involve a premium price for our capital stock or otherwise be in the best interests of our shareholders.
Risks Related to Our Stock
The price of our stock has fluctuated, and a number of factors may cause the price of our stock to decline.
The market price of our stock has fluctuated and may fluctuate significantly in the future, depending upon many factors, many of which are beyond our control. These factors include:
actual or anticipated fluctuations in our operating results;
changes in our financial condition, performance and prospects;
changes in general economic and market conditions and other external factors;
the market price of securities issued by other companies in our industry;
• | announcements by us or our competitors of significant acquisitions, dispositions, strategic partnerships or other transactions; |
press releases or negative publicity relating to us or our competitors or relating to trends in healthcare;
government action or regulation, including changes in federal, state and local healthcare regulations to which we or our tenants are subject;
changes in financial estimates, our ability to meet those estimates, or recommendations by securities analysts with respect to us or our competitors; and
future sales of ourthe common stock, our Series A Preferred Stock or another series of our preferred stock, or debt securities.
In addition, the market price of ourthe Series A Preferred Stock also depends upon:
prevailing interest rates, increases in which may have an adverse effect on the market price of ourthe Series A Preferred Stock;
trading prices of preferred equity securities issued by other companies in our industry; and
the annual yield from distributions on ourthe Series A Preferred Stock as compared to yields on other financial instruments.
Furthermore, the stock market in recent years has experienced sweeping price and volume fluctuations that often have been unrelated to the operating performance of affected companies. These market fluctuations may also cause the price of our stock to decline.
In the event of fluctuations in the price of our stock, shareholders may be unable to resell shares of our stock at or above the price at which they purchased such shares. Additionally, due to fluctuations in the price of our stock, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on past results as an indication of future performance.
Our common stock ranks junior to our Series A Preferred Stock with respect to dividends and amounts payable in the event of our liquidation.
Our common stock ranks junior to our Series A Preferred Stock with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up. This means that, unless accumulated accrued dividends have been paid or set aside for payment on all outstanding shares of our Series A Preferred Stock for all past dividend periods, no dividends may be declared or paid, or set aside for payment on, our common stock. Likewise, in the event of our voluntary or involuntary liquidation, dissolution or winding-up, no distribution of our assets may be made to holders of our common stock until we have paid to holders of our Series A Preferred Stock the applicable liquidation preference plus all accumulated accrued and unpaid dividends.
We suspended the quarterly dividend payment with respect to our Series A Preferred Stock commencing with the fourth quarter of 2017, and determined to continue such suspension indefinitely in June 2018. Accordingly, the Company has not paid dividends with respect to the Series A Preferred Stock since the third quarter of 2017. See Part II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” of this Annual Report. As a result, the value of your investment in our common stock may suffer if sufficient funds are not available to first satisfy our obligations to the holders of our Series A Preferred Stock in the event of our liquidation.
There are no assurances of our ability to pay dividends in the future.
We are a holding company, and we have no significant operations. We rely primarily on dividends and other distributions from our subsidiaries to us so we may, among other things, pay dividends on our capital stock, if and to the extent declared by the Board. The ability of our subsidiaries to pay dividends and make other distributions to us depends on their earnings and ismay be restricted in the future by the terms of certain agreements governing their
indebtedness. If our subsidiaries are in default under such agreements, then they may not pay dividends or make other distributions to us.
In addition, we may only pay dividends on our capital stock if we have funds legally available to pay dividends and such payment is not restricted or prohibited by law, the terms of any shares with higher priority with respect to dividends or any documents governing our indebtedness. We are restricted by Georgia law from paying dividends on our capital stock if we are not able to pay our debts as they become due in the normal course of business or if our total assets would be less than the sum of our total
As such, we could become unable, on a temporary or permanent basis, to pay dividends on our stock, including our common stock and our Series A Preferred Stock. The payment of any future dividends on our stock will be at the discretion of the Board and will depend, among other things, on the earnings and results of operations of our subsidiaries, their ability to pay dividends and make other distributions to us under agreements governing their indebtedness, our financial condition and capital requirements, any debt service requirements and any other factors the Board deems relevant.
The Board indefinitely suspended dividend payments with respect to the Series A Preferred Stock. Such dividends are currently in arrears since the fourth quarter 2017. The Board plans to revisit the dividend payment policy with respect to the Series A Preferred Stock on an ongoing basis. See Part II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” of this Annual Report. As a result of this dividend suspension, no dividends may be declared or paid on the common stock until all accumulated accrued and unpaid dividends on our Series A Preferred Stock have been, or contemporaneously are, declared and paid, or declared and a sum sufficient for the payment thereof is set apart for payment, for all past dividend periods.
The costs of being publicly owned may strain our resources and impact our business, financial condition, results of operations and prospects.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act, of 1934 (the “Exchange Act”) and the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”). The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls for financial reporting. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting.
These requirements may place a strain on our systems and resources and have required us, and may in the future require us, to hire additional accounting and financial resources with appropriate public company experience and technical accounting knowledge. In addition, failure to maintain such internal controls could result in us being unable to provide timely and reliable financial information which could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities or cause us to be late in the filing of required reports or financial results. Any of the foregoing events could have a materially adverse effect on our business, financial condition, results of operations and prospects.
Provisions in Georgia law and our charter documents may delay or prevent a change in control or management that shareholders may consider desirable.
Various provisions of the Georgia Business Corporation Code (the “GBCC”) and of our charter documentsthe Charter and Bylaws may inhibit changes in control not approved by the Board and may have the effect of depriving our investors of an opportunity to receive a premium over the prevailing market price of ourthe common stock and other securities in the event of an attempted hostile takeover. These provisions could also discourage proxy contests and make it more difficult for shareholders to elect directors and take other corporate actions. As a result, the existence of these provisions may adversely affect the market price of ourthe common stock and other securities. These provisions include:
the ownership and transfer restrictions contained in the Charter with respect to the common stock;
a requirement that special meetings of shareholders be called by the Board, the Chairman, the President, or the holders of shares with voting power of at least 25%;
advance notice requirements for shareholder proposals and nominations;
a requirement that directors may only be removed for cause and then only by an affirmative vote of at least a majority of all votes entitled to be cast in the election of such directors;
a prohibition of shareholder action without a meeting by less than unanimous written consent;
availability of “blank check” preferred stock; and
a charter “constituency” clause authorizing (but not requiring) our directors to consider, in discharging their duties as directors, the effects of the Company’s actions on other interests and persons in addition to our shareholders.
In addition, the Company has elected in its bylawsthe Bylaws to be subject to the “fair price” and “business combination” provisions of the GBCC. The business combination provisions generally restrict us from engaging in certain business combination transactions with any “interested shareholder” (as defined in the GBCC) for a period of five years after the date of the transaction in which the person became an interested shareholder unless certain designated conditions are met. The fair price provisions generally restricts us from entering into certain business combinations with an interested shareholder unless the transaction is unanimously approved by the continuing directors who must constitute at least three members of the Board at the time of such approval; or the transaction is recommended by at least two-thirds of the continuing directors and approved by a majority of the shareholders excluding the interested shareholder.
The Board can use these and other provisions to prevent, delay or discourage a change in control of the Company or a change in our management. Any such delay or prevention of a change in control or management could deter potential acquirers or prevent the completion of a takeover transaction pursuant to which our shareholders could receive a substantial premium over the current market price of ourthe common stock and other securities, which in turn may limit the price investors might be willing to pay for such securities.
Risks Related to the Delisting of Our Securities
If we fail to meet all applicable continued listing requirements of the NYSE American and the NYSE American determines to delist the common stock and Series A Preferred Stock, the delisting could adversely affect the market liquidity of such securities, impair the value of your investment, adversely affect our ability to raise needed funds and subject us to additional trading restrictions and regulations.
On August 28, 2018, the Company received a deficiency letter (the “Letter”) from NYSE American stating that the Company was not in compliance with the continued listing standards as set forth in Section 1003(f)(v) of the NYSE American Company Guide (the “Company Guide”). Specifically, the Letter informed the Company that the Exchange had determined that shares of the Company’s securities had been selling for a low price per share for a substantial period of time and, pursuant to Section 1003(f)(v) of the Company Guide, the Company’s continued listing was predicated on the Company effecting a reverse stock split of the common stock or otherwise demonstrating sustained price improvement within a reasonable period of time, which the Exchange determined to
be no later than February 27, 2019. As a result of such noncompliance, the Company became subject to the procedures and requirements of Section 1009 of the Company Guide.
On February 28, 2019 the Company regained compliance with the continued listing standards set forth in the Company Guide by completing a reverse stock split of the common stock at a ratio of one-for-twelve on December 31, 2018. A proposal to amend the Charter to effect the reverse stock split of the common stock at a ratio of between one-for-six and one-for-twelve, as determined by the Board in its sole discretion, was approved at the Company’s 2018 annual meeting of shareholders.
As of December 31, 2018, the Company’s equity at $6.15 million was $0.15 million above the required minimum for compliance with certain NYSE American continued listing standards relating to stockholders’ equity. Specifically, Section 1003(a)(i) (requiring stockholders’ equity of $2.0 million or more if an issuer has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years), Section 1003(a)(ii) (requiring stockholders’ equity of $4.0 million or more if an issuer has reported losses from continuing operations and/or net losses in three of its four most recent fiscal years) and Section 1003(a)(iii) (requiring stockholders’ equity of $6.0 million or more if an issuer has reported losses from continuing operations and/or net losses in its five most recent fiscal years) of the Company Guide.
If the Company falls below the required minimum equity, the Company could become subject to the procedures and requirements of Section 1009 of the Company Guide and be required to submit a compliance plan describing the actions the Company is taking or would take to regain compliance with the continued listing standards.
On May 21, 2019, the Company received a letter of noncompliance from the NYSE American stating that the Company was not in compliance with the Exchange’s continued listing standards under the timely filing criteria outlined in Section 1007 of the Company Guide because the Company failed to timely file its Quarterly Report on Form 10-Q for the period ended March 31, 2019 (the "Delayed Form 10-Q"), which was due to be filed with the SEC no later than May 20, 2019. As a result, the Company became subject to the procedures and requirements set forth in Section 1007 of the Company Guide. The Company was provided a six-month cure period during which the Exchange would monitor the Company and the status of the initial delinquent report and any subsequent delinquent reports.
On June 18, 2019, the Company received a letter from NYSE American stating that the Company had regained compliance with the Exchange’s continued listing standards set forth in Part 10 of the Company Guide. Specifically, the Company resolved the continued listing deficiency with respect to sections 134 and 1011 of the Company Guide since the Company filed the Delayed Form 10-Q with the SEC on June 18, 2019.
Going forward, the Company will be subject to NYSE Regulation’s normal continued listing monitoring. In addition, in the event that the Company is again determined to be noncompliant with any of the continued listing standards of the NYSE American within twelve (12) months of the Notice, NYSE Regulation will examine the relationship between the Company’s previous noncompliance with the continued listing standards with respect to the low selling price and such new event of noncompliance in accordance with Section 1009(h) of the Company Guide. In connection with such new event of noncompliance, NYSE Regulation may, among other things, truncate the compliance procedures described in the continued listing standards or initiate immediate delisting proceedings.
If the common stock and Series A Preferred Stock are delisted from the NYSE American, such securities may trade in the over-the-counter market. If our securities were to trade on the over-the-counter market, selling the common stock and Series A Preferred Stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and any security analysts’ coverage of us may be reduced. In addition, in the event the common stock and Series A Preferred Stock are delisted, broker-dealers have certain regulatory burdens imposed upon them, which may discourage broker-dealers from effecting transactions in such securities, further limiting the liquidity of the common stock and Series A Preferred Stock. These factors could result in lower prices and larger spreads in the bid and ask prices for our securities. Such delisting from the NYSE American and continued or further declines in our share price could also greatly impair our ability to raise additional necessary capital through equity or debt financing and could significantly increase the ownership dilution to shareholders caused by our issuing equity in financing or other transactions. Any such limitations on our ability to
raise debt and equity capital could prevent us from making future investments and satisfying maturing debt commitments.
In addition, if the Company fails for 180 or more consecutive days to maintain a listing of the Series A Preferred Stock on a national exchange, then: (i) the annual dividend rate on the Series A Preferred Stock will be increased from 10.875% per annum to 12.875% per annum on the 181st day; and (ii) the holders of the Series A Preferred Stock are entitled to vote for the election of two additional directors to serve on the Board in accordance with, and subject to the requirements of, the Charter. Such increased dividend rate and voting rights will continue for so long as the Series A Preferred Stock is not listed on a national exchange. Additionally as the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for more than four consecutive dividends periods, the annual dividend rate on the Series A Preferred Stock for the fifth and future missed dividend period to has increased to 12.875%; commencing on the first day after the missed fourth quarterly payment (October 1, 2018) and continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash. See Note 12- Common and Preferred Stock to our audited consolidated financial statements included in Part II, Item 8., “Financial Statements and Supplementary Data” in this Annual Report.
Disclosure pursuant to Item 1B of Form 10-K is not required to be provided by smaller reporting companies.
Operating Facilities
The following table provides summary information regarding our facilities leased and subleased to third parties as of December 31, 2015:
Facility Name | Beds/Units | Structure | Operator Affiliation (a) | |||||
Alabama | ||||||||
Coosa Valley Health Care | 124 | Owned | C.R. Management | |||||
Meadowood | 106 | Owned | C.R. Management | |||||
Subtotal(2) | 230 | |||||||
Georgia | ||||||||
Autumn Breeze | 109 | Owned | C.R. Management | |||||
Glenvue H&R | 160 | Owned | C.R. Management | |||||
Jeffersonville | 131 | Leased | Peach Health Group | |||||
LaGrange | 138 | Leased | C.R. Management | |||||
Lumber City | 86 | Leased | Beacon Health Management | |||||
Oceanside | 85 | Leased | Peach Health Group | |||||
Powder Springs | 208 | Leased | ||||||
Wellington Health Services | ||||||||
Savannah Beach | 50 | Leased | Peach Health Group | |||||
Southland Healthcare | 126 | Owned | ||||||
Beacon Health Management | ||||||||
Tara | 134 | Leased | ||||||
Wellington Health Services | ||||||||
Thomasville N&R | 52 | Leased | C.R. Management | |||||
Subtotal (11) | 1,279 | |||||||
North Carolina | ||||||||
Mountain Trace Rehab | 106 | Owned | Vero Health | |||||
Subtotal(1) | 106 | |||||||
Ohio | ||||||||
Covington Care | 99 | Leased | Aspire | |||||
Eaglewood ALF | 80 | Owned | Aspire | |||||
Eaglewood Care Center | 99 | Owned | Aspire | |||||
H&C of Greenfield | 62 | Owned | Aspire | |||||
Koester Pavilion | 150 | Managed | N/A | |||||
Spring Meade Health Center | 99 | Managed | N/A | |||||
Spring Meade Residence | 83 | Managed | N/A | |||||
The Pavilion Care Center | 50 | Owned | Aspire | |||||
Subtotal (8) | 722 | |||||||
South Carolina | ||||||||
Georgetown Health | 84 | Owned | Symmetry Healthcare | |||||
Sumter Valley Nursing | 96 | Owned | Symmetry Healthcare | |||||
Subtotal(2) | 180 | |||||||
Total - All Facilities | 2,517 | |||||||
(a) | Indicates the operator with which the tenant of the facility is affiliated. |
Our leases and subleases are generally on an individual facility basis with tenants that are separate legal entities affiliated with the above operators. See “Portfolio of Healthcare Investments” in Part I, Item 1, “Business”, in this Annual Report.
All facilities are skilled nursing facilities except for Stone CountyEaglewood ALF and Eaglewood ALFMeadowood, which are assisted living facilities, and Spring Meade Residence, which is an independent living facility.
For a detailed description of the Company'sCompany’s operating leases, please see Note 7 - Leases to our Consolidated Financial Statementsaudited consolidated financial statements included in Part II, Item 8., "Financial“Financial Statements and Supplementary Data".Data” in this Annual Report.
For a detailed description of the Company'sCompany’s related mortgages payable for owned facilities, please see
Portfolio Occupancy Rates
The following table provides summary information regarding our portfolio facility-level occupancy rates for the periods shown:
|
| For the Twelve Months Ended |
| |||||||||||||
Operating Metric (1) |
| March 31, 2019 |
|
| June 30, 2019 |
|
| September 30, 2019 |
|
| December 31, 2019 |
| ||||
Occupancy (%) (2) |
|
| 79.5 | % |
|
| 80.2 | % |
|
| 80.3 | % |
|
| 80.0 | % |
(1) | Excludes the four PSA Facilities, the one facility in North Carolina, five facilities in Ohio, three managed facilities, and two Omega Facilities. |
(2) | Occupancy percentages are based on licensed beds. |
Lease Expiration
The following table provides summary information regarding our lease expirations for the years shown:
|
|
|
|
|
| Licensed Beds |
|
| Annual Lease Revenue (1) |
| ||||||||||
|
| Number of Facilities |
|
| Amount |
|
| Percent (%) |
|
| Amount ($) '000's |
|
| Percent (%) |
| |||||
2023 |
|
| 1 |
|
|
| 62 |
|
|
| 2.8 | % |
|
| 263 |
|
|
| 1.6 | % |
2024 |
|
| 1 |
|
|
| 126 |
|
|
| 5.8 | % |
|
| 965 |
|
|
| 5.8 | % |
2025 |
|
| 2 |
|
|
| 269 |
|
|
| 12.3 | % |
|
| 2,221 |
|
|
| 13.3 | % |
2026 |
|
| — |
|
|
| — |
|
|
| 0.0 | % |
|
| 0 |
|
|
| 0.0 | % |
2027 |
|
| 8 |
|
|
| 884 |
|
|
| 40.5 | % |
|
| 7,748 |
|
|
| 46.4 | % |
2028 |
|
| 4 |
|
|
| 328 |
|
|
| 15.0 | % |
|
| 2,352 |
|
|
| 14.1 | % |
2029 |
|
| 1 |
|
|
| 106 |
|
|
| 4.9 | % |
|
| 538 |
|
|
| 3.2 | % |
Thereafter |
|
| 4 |
|
|
| 410 |
|
|
| 18.7 | % |
|
| 2,601 |
|
|
| 15.6 | % |
Total |
|
| 21 |
|
|
| 2,185 |
|
|
| 100.0 | % |
|
| 16,688 |
|
|
| 100.0 | % |
(1) | Straight-line rent. |
Corporate Office
Our corporate office is located in Roswell,Suwanee, Georgia. We own two office buildings in Roswell which containlease approximately 13,7003,000 square feet of office space. In addition, we leasespace in the Suwanee, Georgia area with a term through June 2021 and sublease approximately 3,100 square feet of office space in the Atlanta, Georgia area with a term through September 2020.2020, which we no longer occupy. The Atlanta office space has been subleased through the end of the lease term.
The Company is a defendant in various legal actions and administrative proceedings and are subject to various claims arising in the ordinary course of business, including claims that the services wethe Company provided during the time weit operated skilled nursing facilities resulted in injury or death to patients. Although the residents of our facilitiesCompany settles cases from time to time when settlement can be achieved on a reasonable basis, the Company vigorously defends any matter in which it believes the claims lack merit and claims relatedthe Company has a reasonable chance to employment, staffing requirements and commercial matters. Although we intend to vigorously defend ourselvesprevail at trial or in these matters, therearbitration. Litigation is inherently unpredictable. There is no assurance that the outcomes of these matters will not have a material adverse effect on our business, results of operations andthe Company’s financial condition.
The Company believes that most of the professional and general liability actions are continuously subjectdefensible and intends to statedefend them through final judgement unless settlement is more advantageous to the Company. See “Risks Related to Our Business - If we are unable to resolve our professional and federal regulatory scrutiny, supervision and control. Such regulatory scrutiny often includes inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine. In addition, we believe that there has been, and will continuegeneral liability claims on terms acceptable to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in legal proceedings or governmental investigations against or involving us, for our prior operations, or our tenants, whether currently asserted or arising in the future,then it could have a material adverse effect on our business, financial condition and results of operations and financial condition.
Not applicable.
Item 5. Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Registrant'sRegistrant’s Common Equity
The common stock is listed for trading on the NYSE MKTAmerican under the symbol "ADK." The high and low sales prices of our common stock and cash dividends declared during the quarters listed below were as follows:
| Sales Price | Cash Dividends | |||||||||||||
| High | Low | Declared | ||||||||||||
| 2015 | First Quarter | $ | 4.50 | $ | 3.79 | $ | 0.050 | |||||||
| Second Quarter | $ | 4.45 | $ | 3.32 | $ | 0.055 | ||||||||
| Third Quarter | $ | 4.00 | $ | 3.10 | $ | 0.060 | ||||||||
| Fourth Quarter | $ | 3.42 | $ | 1.90 | $ | — | ||||||||
| 2014 | First Quarter | $ | 4.67 | $ | 4.00 | $ | — | |||||||
| Second Quarter | $ | 4.70 | $ | 3.65 | $ | — | ||||||||
| Third Quarter | $ | 5.05 | $ | 4.22 | $ | — | ||||||||
| Fourth Quarter | $ | 4.77 | $ | 3.58 | $ | — | ||||||||
We are a holding company, and we have no significant operations. We rely primarily on dividends and other distributions from our subsidiaries to us so we may, among other things, pay dividends on ourthe common stock, and the Series A Preferred Stock, if and to the extent declared by the Board. The ability of our subsidiaries to pay dividends and make other distributions to us depends on their earnings and ismay be restricted by the terms of certain agreements governing their indebtedness. If our subsidiaries are in default under such agreements, then they may not pay dividends or make other distributions to us.
In addition, we may only pay dividends on ourthe common stock and the Series A Preferred Stock if we have funds legally available to pay dividends and such payment is not restricted or prohibited by law, the terms of any shares with higher priority with respect to dividends or any documents governing our indebtedness. We are restricted by Georgia law from paying dividends on ourthe common stock and the Series A Preferred Stock if we are not able to pay our debts as they become due in the normal course of business or if our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy preferential rights upon dissolution of the holders of our Series A Preferred Stock and any other shareholders whose preferential rights are superior.superior to those receiving the dividend. In addition, no cash dividends may be declared or paid on the common stock unless full cumulative dividends on ourthe Series A Preferred Stock have been, or contemporaneously are, declared and paid, or declared and a sum sufficient for the payment thereof is set apart for payments, for all past dividend periods. In addition, future debt, contractual covenants or arrangements we or our subsidiaries enter into may restrict or prevent future dividend payments.
The Board suspended dividend payments with respect to the Series A Preferred Stock commencing with the fourth quarter of 2017, and determined to continue such suspension indefinitely in June 2018. Accordingly, the Company has not paid dividends with respect to the Series A Preferred Stock since the third quarter of 2017. See “Risk Factors – Risk Related to Our StockPart II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations - There are no assurances of our ability to pay dividends in the future” included in Part I, Item 1A, Risk Factors,Liquidity and Capital Resources” of this Annual Report.
Issuer Purchases of Equity Securities
During the three months ended December 31, 2019 there were no open-market repurchases of the common stock inor the foreseeable future.
For further information, as of December 31, 2015, concerning shares of our common stock that may be issued upon the exercise of optionssee Note 12 - Common and other rights under our existing equity compensation plans and arrangements, divided between plans approved by our shareholders and plans or arrangements not submitted to the shareholders for approval. The information includes the number of shares covered by and the weighted average exercise price of, outstanding options, warrants, and the number of shares remaining available for future grants excluding the shares to be issued upon exercise of outstanding options, warrants, and other rights.
| (a) | (b) | (c) | ||||||||
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants | Weighted-Average Exercise Price of Outstanding Options, Warrants | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |||||||
Equity compensation plans approved by security holders(1) | 266,514 | $ | 3.96 | 937,558 | ||||||
Equity compensation plans not approved by security holders(2) | 2,051,475 | $ | 3.46 | — | ||||||
| Total | 2,317,989 | $ | 3.52 | 937,558 | ||||||
Disclosure pursuant to Item 6 of Form 10-K is not required to be provided by smaller reporting companies.
Overview
The Company is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living. Our business primarily consists of leasing and subleasing suchhealthcare facilities to third-party tenants. As of December 31, 2015,2019, the Company owned, leased, or managed for third parties 3824 facilities primarily in the Southeast.
The operators of the Company'sCompany’s facilities provide a range of health care and related services to patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.
The following table provides summary information regarding the number of facilities and related licensed beds/units as of December 31, 2015:2019:
|
| Owned |
|
| Leased |
|
| Managed for Third Parties |
|
| Total |
| ||||||||||||||||||||
|
| Facilities |
|
| Beds/Units |
|
| Facilities |
|
| Beds/Units |
|
| Facilities |
|
| Beds/Units |
|
| Facilities |
|
| Beds/Units |
| ||||||||
State |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama |
|
| 2 |
|
|
| 230 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 230 |
|
Georgia |
|
| 3 |
|
|
| 395 |
|
|
| 8 |
|
|
| 884 |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| 1,279 |
|
North Carolina |
|
| 1 |
|
|
| 106 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 106 |
|
Ohio |
|
| 4 |
|
|
| 291 |
|
|
| 1 |
|
|
| 99 |
|
|
| 3 |
|
|
| 332 |
|
|
| 8 |
|
|
| 722 |
|
South Carolina |
|
| 2 |
|
|
| 180 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 180 |
|
Total |
|
| 12 |
|
|
| 1,202 |
|
|
| 9 |
|
|
| 983 |
|
|
| 3 |
|
|
| 332 |
|
|
| 24 |
|
|
| 2,517 |
|
Facility Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Skilled Nursing |
|
| 10 |
|
|
| 1,016 |
|
|
| 9 |
|
|
| 983 |
|
|
| 2 |
|
|
| 249 |
|
|
| 21 |
|
|
| 2,248 |
|
Assisted Living |
|
| 2 |
|
|
| 186 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 186 |
|
Independent Living |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 83 |
|
|
| 1 |
|
|
| 83 |
|
Total |
|
| 12 |
|
|
| 1,202 |
|
|
| 9 |
|
|
| 983 |
|
|
| 3 |
|
|
| 332 |
|
|
| 24 |
|
|
| 2,517 |
|
| Owned | Leased | Managed for Third Parties | Total | |||||||||||||||||||||
| Facilities | Beds/Units | Facilities | Beds/Units | Facilities | Beds/Units | Facilities | Beds/Units | |||||||||||||||||
| State | ||||||||||||||||||||||||
| Arkansas | 9 | 958 | — | — | — | — | 9 | 958 | ||||||||||||||||
| Alabama | 2 | 304 | — | — | — | — | 2 | 304 | ||||||||||||||||
| Georgia | 4 | 463 | 10 | 1,168 | — | — | 14 | 1,631 | ||||||||||||||||
| North Carolina | 1 | 106 | — | — | — | — | 1 | 106 | ||||||||||||||||
| Ohio | 4 | 279 | 1 | 94 | 3 | 332 | 8 | 705 | ||||||||||||||||
| Oklahoma | 2 | 197 | — | — | — | — | 2 | 197 | ||||||||||||||||
| South Carolina | 2 | 180 | — | — | — | — | 2 | 180 | ||||||||||||||||
| Total | 24 | 2,487 | 11 | 1,262 | 3 | 332 | 38 | 4,081 | ||||||||||||||||
| Facility Type | ||||||||||||||||||||||||
| Skilled Nursing | 22 | 2,375 | 11 | 1,262 | 2 | 249 | 35 | 3,886 | ||||||||||||||||
| Assisted Living | 2 | 112 | — | — | — | — | 2 | 112 | ||||||||||||||||
| Independent Living | — | — | — | — | 1 | 83 | 1 | 83 | ||||||||||||||||
| Total | 24 | 2,487 | 11 | 1,262 | 3 | 332 | 38 | 4,081 | ||||||||||||||||
The following table provides summary information regarding the number of facilities and licensed beds/units by operator affiliation as of December 31, 2015, we had $2.7 million in cash2019:
Operator Affiliation |
| Number of Facilities (1) |
|
| Beds / Units |
| ||
C.R. Management |
|
| 6 |
|
|
| 689 |
|
Aspire |
|
| 5 |
|
|
| 390 |
|
Wellington Health Services |
|
| 2 |
|
|
| 342 |
|
Peach Health |
|
| 3 |
|
|
| 266 |
|
Symmetry Healthcare |
|
| 2 |
|
|
| 180 |
|
Beacon Health Management |
|
| 2 |
|
|
| 212 |
|
Vero Health |
|
| 1 |
|
|
| 106 |
|
Subtotal |
|
| 21 |
|
|
| 2,185 |
|
Regional Health Managed |
|
| 3 |
|
|
| 332 |
|
Total |
|
| 24 |
|
|
| 2,517 |
|
(1) | Represents the number of facilities leased or subleased to separate tenants, of which each tenant is an affiliate of the entity named in the table above. For a more detailed discussion, see Note 7 – Leases located in Part II, Item 8, “Financial Statements and Supplementary Data” and “Portfolio of Healthcare Investments” included in Part I, Item 1, “Business”, each included in this Annual Report. |
Current Significant Events: The Company is closely monitoring and cash equivalentsregularly communicating with all of the operators and management teams of its facilities regarding the COVID-19 pandemic. Our tenants may be materially and adversely affected by this pandemic. Such an outbreak or other adverse public health developments could
materially disrupt our tenants’ businesses and operations. Such events could cause issues such as well as restricted cashtemporary closures of $12.7 million. Over the next twelve months, we anticipate both accessnursing facilities, staff shortages and supply chain disruptions which could affect our tenants’ ability to and receipt of several sources of liquidity, including cash flows from operations, and sales of preferred stockmake rental payments pursuant to an At-The-Market shelf registration. We routinelyour leases and hence that could have ongoing discussions with existinga materially adverse effect the Company’s liquidity and potential new lenders to refinance current debt on a longer term basis and,capital resources.
As of March 23, 2020, two facilities the Company manages in recent periods,Miami County, Ohio, have refinanced shorter term acquisition debt, including seller notes, with traditional longer term mortgage notes, somereported “presumptive positive” cases of which have been executed under government guaranteed lending programs. During 2016, we anticipate net proceeds of approximately $9.1 million on the refinancing of existing debt with such government guaranteed lending programs. At December 31, 2015, we had $125.5 million in indebtedness of which the current portion is $51.0 million. We anticipate our operating cash requirements in 2016 as being less than in 2015 due to the completionCOVID-19. The Centers for Disease Control & Prevention (“CDC”) will provide final confirmation of the Transition. We expect sufficient fundscases. The Company is engaging in aggressive mitigation efforts in accordance with CDC and Ohio Department of Health guidelines to protect the health and safety of residents while respecting their rights. Employees at both locations are taking several precautions as they care for residents, including, among other things, monitoring themselves for symptoms upon leaving and returning home, and upon arriving at and leaving the skilled nursing facility. They are also wearing masks and other personal protective equipment while caring for residents. Additionally as of March 23, 2020, none of our operations, scheduled debt service, at least throughother operators have reported any occurrences of COVID-19 in any of the next twelve months. Webuildings they are managing. Our operators have been successfulalso reported to us that they currently have adequate supply levels, including appropriate quantities of Personal Protective Equipment (PPE) for staff. Additionally as of the date of filing the Company has received no additional information.
The COVID-19 pandemic is rapidly evolving. The information in recent years in raising new equity capital and believe,this Annual Report is based on recent discussions, that these markets will continue to bedata currently available to us for raising capitaland will likely change as the pandemic progresses. As COVID-19 continues to spread throughout areas in 2016which we operate, we believe the outbreak has the potential to have a material negative impact on our operating results and beyond. We believefinancial condition. The extent of the impact of COVID-19 on our long-term liquidity needsoperational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our operators, employees and vendors, and impact on the facilities we manage, all of which are uncertain and cannot be satisfied bypredicted. Given these same sources, as well as borrowings as requireduncertainties, we cannot reasonably estimate the related impact to refinance indebtedness.
Resolved Significant Events: Prior to August 1, 2019, the Company received a commitmentcontinuation of our business was dependent upon our ability: (i) to refinancecomply with the Bentonville, Heritage Parkterms and River Valley Credit Facility,conditions under the Little RockPinecone Credit Facility and the Northridge, Woodland Hillssecond new amended and Abington Credit Facility for a combined total of $25.4 million of debt, subject to definitive documentationrestated forbearance agreement, dated March 29, 2019, between the Company and certain closing conditions. On March 24, 2016, the Company also obtained a lender commitmentof its subsidiaries and Pinecone (the “Second A&R Forbearance Agreement”) as amended on June 13, 2019; and (ii) to extend therefinance or obtain further debt maturity date of the Georgetown and Sumter Credit Facility from September 2016 to June 2017 subject to definitive documentation and certain closing conditions. On March 29, 2016, the Company obtained a lender commitment to extend the maturity date ofextensions on the Quail Creek Credit Facility, neither of which was entirely within the Company’s control. These factors had created substantial doubt about the Company’s ability to continue as a going concern. The Company repaid the Pinecone Credit Facility and Quail Creek Credit Facility on August 1, 2019.
On September 30, 2019, the Company fully extinguished all obligations under the Pinecone Credit Facility when the Company and Pinecone entered into a waiver and release agreement and the Company paid approximately $0.4 million to Pinecone to fully extinguish the surviving obligations and provisions (the “Surviving Obligations”) of the Pinecone Credit Facility, which included (i) a right of first refusal to provide first mortgage financing for any acquisition of a healthcare facility from September 2016by the Company for a period of three months following the above repayment, and (ii) an exclusive option to September 2018refinance the Company’s existing first mortgage loan (the “Pinecone Financing Option”), with a balance of $5.3 million at June 30, 2019, on the Company’s 124-licensed bed skilled nursing facility located in Alabama known as Coosa Valley Health Care, in each case subject to definitive documentationthe terms and conditions of the Pinecone Credit Facility.
Acquisitions and Dispositions
Pursuant to the PSA, between certain closing conditions.subsidiaries of the Company and MED, the Company completed the Asset Sale. Under the PSA, the Company sold: (i) on August 28, 2019, the Northwest Facility; and (ii) on August 1, 2019, the Attalla Facility, the College Park Facility, and the Quail Creek Facility.
In connection with the Asset Sale: (i) MED paid to the Company a cash purchase price for the PSA Facilities equal to $28.5 million in the aggregate; (ii) the Company incurred approximately $0.4 million in sales commission expenses and $0.1 million for a building improvement credit; and (iii) the Company transferred approximately $0.1 million in lease security deposits to MED.
On August 1, 2019, the Company used a portion of the proceeds from the Asset Sale to repay approximately $21.3 million to Pinecone to extinguish all indebtedness owed under the Pinecone Credit Facility, by the Company with an original aggregate principal amount of $16.25 million which refinanced existing mortgage debt, and to repay
approximately $3.8 million to Congressional Bank to extinguish all indebtedness owed by the Company under the Quail Creek Credit Facility.
Effective January 15, 2019, the Company’s leases of the Omega Facilities, which leases were due to expire August 2025 and which Omega Facilities the Company subleased to third party subtenants, was terminated by mutual consent of the Company and the lessor(s) and sublessee(s) of the Omega Facilities. In connection with the Omega Lease Termination, the Company transferred approximately $0.4 million of its integral physical fixed assets at the Omega Facilities to the lessor and on January 28, 2019 received from the lessor gross proceeds of approximately $1.5 million, consisting of (i) a termination fee in the amount of $1.2 million and (ii) approximately $0.3 million to satisfy other net amounts due to the Company under the leases.
The Company made no acquisitions or dispositions during the year ended December 31, 2018.
For a more detailed discussion,further information, see
Divestitures
For information regarding the Company'sCompany’s divestitures, please refer to
The following table summarizes the activity of discontinued operations for the years ended December 31, 20152019 and 2014:2018:
|
| For the year ended December 31, |
| |||||
(Amounts in 000’s) |
| 2019 |
|
| 2018 |
| ||
Recoveries |
| $ | (626 | ) |
| $ | (83 | ) |
Interest expense, net |
| $ | — |
|
| $ | 9 |
|
Net income |
| $ | 626 |
|
| $ | 74 |
|
| For the year ended December 31, | ||||||||
| (Amounts in 000’s) | 2015 | 2014 | ||||||
| Total revenues | $ | 87,920 | $ | 222,104 | ||||
| Cost of services | $ | 89,783 | $ | 188,952 | ||||
| Net (loss) income | $ | (4,892 | ) | $ | 23,783 | |||
| Interest expense, net | $ | (1,510 | ) | $ | (1,152 | ) | ||
| Income tax benefit (expense) | $ | (251 | ) | $ | 253 | |||
| Gain on disposal of assets | $ | 1,251 | $ | — | ||||
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States ("GAAP"of America (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. On an ongoing basis we review our judgments and estimates, including, but not limited to, those related to doubtful accounts, income taxes, stock compensation, intangible assets and loss contingencies. We base our estimates on historical experience, business knowledge and on various other assumptions that we believe to be reasonable under the circumstances at the time. Actual results may vary from our estimates. These estimates are evaluated by management and revised as circumstances change. We believe that the following represents our critical accounting policies.
Revenue Recognition and those in which AdCare is determined to have controlling financial interest are consolidated. Guidance is provided by Financial Accounting Standards Board Accounting Standards Codification ("ASC") Topic 810-10,
Triple-Net Leased Properties.
Revenue from Contracts with Customers and Other Revenue. We recognizeThe Company recognizes management fee revenues received as services are provided. The Company has one Management Contract, with payment for each month of service received in full on a monthly basis. The maximum penalty for service contract nonperformance under various contractual agreements with third-party companies.the Management Contract is $50,000 per year, payable after the end of the year. Further, we recognizethe Company recognizes interest income from lease inducements receivablesloans and capital loans as made to tenants.investments, using the effective interest method when collectability is probable. The Company applies the effective interest method on a loan-by-loan basis.
Allowances.
As of December 31, 2015, we allowed2019 and December 31, 2018, the Company reserved for approximately $12.5$0.6 million on approximately $20.9and $1.4 million, respectively, of gross patient care relateduncollected receivables. Allowance for patient care receivables are estimated based on an aged bucket method incorporating different payor types. All patient care receivables exceeding 365 days are fully allowedAccounts receivable, net totaled $1.0 million at December 31, 2015.
accordance with their respective leases with us. Additionally, we now expense certain leasing costs, other than leasing commissions, as they are incurred. Current GAAP provides for the deferral and amortization of such costs over the applicable lease term. Adoption of ASU 2016-02 has not had a material effect on the Company’s consolidated financial statements, other than the initial balance sheet impact of recognizing the right-of-use assets and the right-of-use lease liabilities. Upon adoption, we recognized operating lease assets of $39.8 million on our consolidated balance sheet for the period ended March 31, 2019, which represents the present value of minimum lease payments associated with such leases. Also upon adoption, we recognized operating lease liabilities of $41.5 million on our consolidated balance sheet for the period ended March 31, 2019. The present value of minimum lease payments was calculated on each lease using a discount rate that approximated our incremental borrowing rate and the current lease term and upon adoption we utilized a discount rate of 7.98% for the Company’s leases. See Note 1 – Summary of Significant Accounting Policies and Note 7 - Leases to our audited consolidated financial statements in Part II, Item 8., “Financial Statements and Supplementary Data” in this Annual Report)
Asset Impairment
We review the carrying value of long-lived assets that are held and used in our operations for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is determined based upon expected undiscounted future net cash flows from the operations to which the assets relate, utilizing management’s best estimate, assumptions, and projections at the time. If the carrying value is determined to be unrecoverable from future operating cash flows, the asset is deemed impaired and an impairment loss would be recognized to the extent the carrying value exceeded the estimated fair value of the asset. We estimate the fair value of assets based on the estimated future discounted cash flows of the asset. Management has evaluated its long-lived assets and has identified no material asset impairment during the years ended December 31, 20152019 and 2014.
We test indefinite-lived intangible assets for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable.
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is subject to annual testing for impairment. In addition, goodwill is tested for impairment if events occur or circumstances change that would reduce the fair value of a facility below its carrying amount. The Company performs itsWe perform annual testtesting for impairment during the fourth quarter of each year (see
Extinguishment of Debt
The Company's asset impairment analysisCompany recognizes extinguishment of debt when the criteria for a troubled debt restructure are not met and the change in the debt terms is consistent with the fair value measurements described in ASC Topic 820,
Self-Insurance Reserve
The Company has self-insured against professional and general liability claims since it discontinued its healthcare operations in connection with the Transition. The Company evaluates quarterly the adequacy of its self-insurance reserve based on a number of factors, including: (i) the number of actions pending and the relief sought; (ii) analyses provided by defense counsel, medical experts or other information which comes to light during discovery; (iii) the legal fees and other expenses anticipated to be incurred in defending the actions; (iv) the status and likely success of any mediation or settlement discussions, including estimated settlement amounts and legal fees and other expenses anticipated to be incurred in such settlement, as applicable; and (v) the venues in which the actions have been filed or will be adjudicated. The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgment unless settlement is more advantageous to the Company. Accordingly, the self-insurance reserve reflects the Company’s estimate of settlement amounts for the pending actions, if applicable, and legal costs of settling or litigating the pending actions, as applicable. Because the self-insurance reserve is based on estimates, the amount of the self-insurance reserve may not be sufficient to cover the settlement amounts actually incurred in settling the pending actions, or the legal costs actually incurred in settling or litigating the pending actions.
The Company follows the provisions of ASC Topic 718 “Compensation - Stock Compensation ("ASC 718")”, which requires the measurement and recognitionuse of the fair-value based method to determine compensation expense for all share-based payment awards either modified or granted toarrangements under which employees, non-employees, and directors based upon estimated fair values. The Black-Scholes-Merton option-pricing model, consistent with the provisionsothers receive shares of ASC 718, was used to determine the fair value of each option and warrant granted. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. The Company uses projected volatility rates, whichor equity instruments (options, warrants or restricted shares). All awards are based upon historical volatility rates, trended into future years. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provideamortized on a reliable single measure of the fair value of our options.
Income Taxes
As required by ASC Topic 740,
“IncomeAmong other changes, the Tax Reform Act reduced the US federal corporate tax rate from 35% to 21% beginning in 2018. As a result of the Tax Reform Act, net operating loss (“NOL”) carry forwards generated in tax years 2018 and forward have an indefinite life. For this reason, the Company has taken the position that the deferred tax liability related to the indefinite lived intangibles can be used to support an equal amount of the deferred tax asset related to the 2018 NOL carry forward generated. This resulted in the Company recognizing an income tax benefit of approximately $0.04 million for the year ended December 31, 2018, related to the use of our naked credit as a source of income to release a portion of our valuation allowance.
In determining the need for a valuation allowance, the annual income tax rate, or the need for and magnitude of liabilities for uncertain tax positions, we make certain estimates and assumptions. These estimates and assumptions are based on, among other things, knowledge of operations, markets, historical trends and likely future changes and, when appropriate, the opinions of advisors with knowledge and expertise in certain fields. Due to certain risks associated with our estimates and assumptions, actual results could differ.
In October 2014,general, the Georgia Department of Revenue ("GDOR") initiated an examination of the Company's Georgia incomeCompany’s tax returns and net worth returnsfiled for the 2010, 2011, 2012, and 20132016 through 2019 tax years. To date, the GDOR has not proposed any adjustments.
Further information required by this Item is provided in
Note 1 - Summary of Significant Accounting Policies to ourYears Ended December 31, 20152019 and 2014
The following table sets forth, for the periods indicated, statement of operations items and the amount and percentage of change of these items. The results of operations for any particular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our audited consolidated financial statements and the notes thereto, which are included herein.
|
| Year Ended December 31, |
|
| Increase (Decrease) |
| ||||||||||
(Amounts in 000's) |
| 2019 |
|
| 2018 |
|
| Amount |
|
| Percent |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues |
| $ | 19,043 |
|
| $ | 20,902 |
|
| $ | (1,859 | ) |
|
| (8.9 | )% |
Management fees |
|
| 995 |
|
|
| 949 |
|
|
| 46 |
|
|
| 4.8 | % |
Other revenues |
|
| 96 |
|
|
| 195 |
|
|
| (99 | ) |
|
| (50.8 | )% |
Total revenues |
|
| 20,134 |
|
|
| 22,046 |
|
|
| (1,912 | ) |
|
| (8.7 | )% |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility rent expense |
|
| 6,645 |
|
|
| 8,683 |
|
|
| (2,038 | ) |
|
| (23.5 | )% |
Cost of management fees |
|
| 661 |
|
|
| 638 |
|
|
| 23 |
|
|
| 3.6 | % |
Depreciation and amortization |
|
| 3,438 |
|
|
| 4,634 |
|
|
| (1,196 | ) |
|
| (25.8 | )% |
General and administrative expenses |
|
| 3,192 |
|
|
| 3,692 |
|
|
| (500 | ) |
|
| (13.5 | )% |
(Recovery) provision for doubtful accounts |
|
| (281 | ) |
|
| 4,132 |
|
|
| (4,413 | ) |
|
| (106.8 | )% |
Other operating expenses |
|
| 1,017 |
|
|
| 1,059 |
|
|
| (42 | ) |
|
| (4.0 | )% |
Total expenses |
|
| 14,672 |
|
|
| 22,838 |
|
|
| (8,166 | ) |
|
| (35.8 | )% |
Income (loss) from operations |
|
| 5,462 |
|
|
| (792 | ) |
|
| 6,254 |
|
|
| (789.6 | )% |
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| 5,265 |
|
|
| 5,929 |
|
|
| (664 | ) |
|
| (11.2 | )% |
Loss on extinguishment of debt |
|
| 2,458 |
|
|
| 5,234 |
|
|
| (2,776 | ) |
|
| (53.0 | )% |
Gain on disposal of assets |
|
| (7,141 | ) |
|
| — |
|
|
| (7,141 | ) |
| NM |
| |
Other expense |
|
| 6 |
|
|
| 52 |
|
|
| (46 | ) |
|
| (88.5 | )% |
Total other expense, net |
|
| 588 |
|
|
| 11,215 |
|
|
| (10,627 | ) |
|
| (94.8 | )% |
Income (loss) from continuing operations before income taxes |
|
| 4,874 |
|
|
| (12,007 | ) |
|
| 16,881 |
|
| NM |
| |
Income tax benefit |
|
| — |
|
|
| (38 | ) |
|
| 38 |
|
|
| (100.0 | )% |
Income (loss) from continuing operations |
|
| 4,874 |
|
|
| (11,969 | ) |
|
| 16,843 |
|
| NM |
| |
Income from discontinued operations, net of tax |
|
| 626 |
|
|
| 74 |
|
|
| 552 |
|
|
| 745.9 | % |
Net Income (loss) |
| $ | 5,500 |
|
| $ | (11,895 | ) |
| $ | 17,395 |
|
| NM |
| |
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||
| (Amounts in 000's) | 2015 | 2014 | Amount | Percent | |||||||||||
| Revenues: | |||||||||||||||
| Rental revenues | $ | 17,254 | $ | 1,832 | $ | 15,422 | 841.8 | % | |||||||
| Management fee revenues | 910 | 1,493 | (583 | ) | (39.1 | )% | |||||||||
| Other revenues | 236 | — | 236 | 100.0 | % | ||||||||||
| Total revenues | 18,400 | 3,325 | 15,075 | 453.4 | % | ||||||||||
| Expenses: | |||||||||||||||
| General and administrative expenses | 10,544 | 15,696 | (5,152 | ) | (32.8 | )% | |||||||||
| Facility rent expense | 5,758 | 1,512 | 4,246 | 280.8 | % | ||||||||||
| Depreciation and amortization | 7,345 | 7,393 | (48 | ) | (0.7 | )% | |||||||||
| Other operating expenses | 2,394 | 2,922 | (528 | ) | (18.1 | )% | |||||||||
| Total expenses | 26,041 | 27,523 | (1,482 | ) | (5.4 | )% | |||||||||
| Income (loss) from operations | (7,641 | ) | (24,198 | ) | 16,557 | (68.4 | )% | ||||||||
| Other Income (Expense): | |||||||||||||||
| Interest expense, net | (8,462 | ) | (10,677 | ) | 2,215 | (20.8 | )% | ||||||||
| Loss on extinguishment of debt | (680 | ) | (1,803 | ) | 1,123 | (62.3 | )% | ||||||||
| Loss on legal settlement | — | (600 | ) | 600 | (100.0 | )% | |||||||||
| Other expense | (918 | ) | (779 | ) | (139 | ) | 17.8 | % | |||||||
| Total other expense, net | (10,060 | ) | (13,859 | ) | 3,799 | (27.4 | )% | ||||||||
| Loss from continuing operations before income taxes | (17,701 | ) | (38,057 | ) | 20,356 | (53.5 | )% | ||||||||
| Income tax expense | (110 | ) | (131 | ) | 21 | (16.0 | )% | ||||||||
| Loss from continuing operations | $ | (17,811 | ) | $ | (38,188 | ) | $ | 20,377 | (53.4 | )% | |||||
| (Loss) income from discontinued operations, net of tax | $ | (4,892 | ) | $ | 23,783 | $ | (28,675 | ) | (120.6 | )% | |||||
| Net loss | $ | (22,703 | ) | $ | (14,405 | ) | $ | (8,298 | ) | 57.6 | % | ||||
Year Ended December 31, 2015
Rental Revenues
—Total rental revenueOther revenuesRevenues—Total otherOther revenues increaseddecreased by $0.2$0.1 million, or 100%50.8%, to $0.1 million for the twelve months ended December 31, 2019, compared with $0.2 million for the year ended December 31, 2015.2018 due to recognizing $0.1 million less in interest revenue on a line of credit extended to affiliates of Peach Health Group, LLC (“Peach Health”).
Facility Rent Expense—Facility rent decreased by approximately $2.1 million, or 23.5%, to $6.6 million for the twelve months ended December 31, 2019, compared with $8.7 million for the year ended December 31, 2018. The $0.2net decrease is due to the Omega Lease Termination and an agreement with Covington Realty, LLC (“Covington”), whereby Covington among other items reduced our base rent for a period of time. See Note 7 - Leases, to our audited consolidated financial statements in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report.
Depreciation and Amortization—Depreciation and amortization decreased by approximately $1.2 million increaseor 25.8%, to $3.4 million for the year ended December 31, 2019, compared with $4.6 million for the year ended December 31, 2018. The decrease is primarily due to interest incomethe reduction in depreciation from fully depreciated equipment and computer related assets in the current year and the cessation of depreciation and amortization on lease inducement receivables.assets sold in August 2019. See Note 10
General and Administrative—General and administrative costs decreased by $5.2$0.5 million or 32.8%13.5%, to $10.5$3.2 million for the year ended December 31, 2015,2019, compared with $15.7$3.7 million for the year ended December 31, 2014.2018. The net decrease is primarily due to approximately $0.6 million lower business consulting and legal expenses incurred in relation to the following: (i)various Pinecone Credit Facility forbearance agreements, a continued decrease in salaries, wagesauditing, accounting and employee benefits expenseother expenses of approximately $4.2$0.1 million partially offsetoff-set by ana non-recurring increase in contract services expense of approximately $0.6 million; (ii) a decrease of $0.4 million in legal expenses; (iii) a decreaseemployee related expenses of approximately $0.2 million.
Provision for doubtful accounts—Provision for doubtful accounts expense decreased by approximately $4.4 million, in stock-based compensation; (iv)to a decreasebenefit of approximately $0.4 million in travel and other reimbursable expenses; (v) a decrease of approximately $0.2 million in IT-related expenses; and (vi) a decrease of approximately $0.3 million, in director fees and related expenses.
Interest Expense, net—Interest expense, net decreased by approximately $0.6 million or 11.2%, to $5.3 million for the year ended December 31, 2014. The increase is primarily due to lease extensions and
Loss on Debt Extinguishment
—Loss on extinguishment of debt decreased byOther ExpenseGain on disposal of Assets— Other expenseGain on disposal of assets of $7.1 million for the twelve months ended December 31, 2019, is comprised of $6.4 million due to the sale of four of the Company’s facilities in the current quarter and $0.7 million from the Omega Lease Termination in the first quarter of 2019.
Income from Discontinued Operations— Income from discontinued operations increased by approximately $0.5 million, or 745.9%, to a benefit of $0.6 million for the twelve months ended December 31, 2019, compared with a benefit of $0.1 million for the same period in 2018. The increase is due to net favorable adjustments to bad debt expense and lower professional and general legal expenses as the Company nears completion of its legacy professional and general liability claims and Transition vendor settlements and approximately a $0.1 million workers compensation insurance prior year’s premium and deposit refund.
Liquidity and Capital Resources
The Company is undertaking measures to grow its operations, streamline its cost infrastructure and otherwise increase liquidity by: (i) refinancing or 17.8%repaying debt to reduce interest costs and mandatory principal repayments, with such repayment to be funded through potentially expanding borrowing arrangements with certain lenders or raising capital through the issuance of securities after restructuring of the Company’s capital structure; (ii) increasing future lease revenue through acquisitions and investments in existing properties; (iii) modifying the terms of existing leases; (iv) replacing certain tenants who default on their lease payment terms; and (v) reducing other and general and administrative expenses.
Management anticipates access to several sources of liquidity, including cash on hand, cash flows from operations, and debt refinancing during the twelve months from the date of this filing. At December 31, 2019, the Company had $4.4 million in unrestricted cash. During the twelve months ended December 31, 2019, the Company generated positive cash flow from continuing operations of $3.0 million and anticipates continued positive cash flow from operations in the future.
On June 8, 2018, the Board indefinitely suspended quarterly dividend payments with respect to the Series A Preferred Stock. As of December 31, 2019, as a result of the suspension of the dividend payment on the Series A Preferred Stock commencing with the fourth quarter 2017 dividend period, the Company has $18.9 million of undeclared preferred stock dividends in arrears. The Board plans to revisit the dividend payment policy with respect to the Series A Preferred Stock on an ongoing basis. The Board believes that the dividend suspension will provide the Company with additional funds to meet its ongoing liquidity needs. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for more than four consecutive dividends periods, the annual dividend rate on the Series A Preferred Stock for the fifth and future missed dividend period has increased to 12.875%, which is equivalent to $0.9$3.22 per share each year, commencing on the first day after the missed fourth quarterly payment (October 1, 2018) and continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash. If and when the Company resumes payment of the dividend on the Series A Preferred Stock, the Company expects that it will satisfy the dividend requirements (including accrued dividends), if and when declared, from internally generated cash flows or raising capital through the issuance of securities after restructuring of the Company’s capital structure. See Note 12 – Common and Preferred Stock to our audited consolidated financial statements included in Part II, Item 8., “Financial Statements and Supplementary Data” in this Annual Report.
Debt
As of December 31, 2019, the Company had $55.4 million in indebtedness. The Company anticipates net principal repayments of approximately $1.7 million during the next twelve-month period which include $1.5 million of routine debt service amortization, approximately $0.1 million payments on other non-routine debt and a $0.1 million payment of bond debt.
On August 1, 2019, the Company used a portion of the proceeds from the Asset Sale to repay approximately $21.3 million to Pinecone to extinguish all indebtedness owed by the Company the Pinecone Credit Facility, and to repay approximately $3.8 the Quail Creek Credit Facility.
On September 30, 2019, the Company and Pinecone entered into a waiver and release agreement, and the Company paid approximately $0.4 million to Pinecone to fully extinguish the Surviving Obligations under the Pinecone Credit Facility.
The continuation of our business was dependent upon our ability: (i) to comply with the terms and conditions under the Pinecone Credit Facility and the Second A&R Forbearance Agreement as amended on June 13, 2019; and (ii) to refinance or obtain further debt maturity extensions on the Quail Creek Credit Facility, neither of which was entirely within the Company’s control. These factors had created substantial doubt about the Company’s ability to continue as a going concern. However, the going concern issue was resolved when Company repaid the Pinecone Credit Facility and Quail Creek Credit Facility on August 1, 2019. See Note – 9 Notes Payable and Other Debt and Note – 10 Acquisitions and Dispositions to our audited consolidated financial statements included in Part II, Item 8., “Financial Statements and Supplementary Data” in this Annual Report.
Changes in Operational Liquidity
During the year ended December 31, 2018, eight of the Company’s facilities were in arrears’ on their rent payments. Combined cash rental payments for all eight facilities totaled $0.4 million per month, or approximately 21% of our anticipated total monthly rental receipts. Five of these facilities were the Ohio Beacon Facilities and were leased to the Ohio Beacon Affiliates. The Ohio Beacon Affiliates who were ten months in arrears on rental payments, surrendered possession of the Ohio Beacon Facilities upon the mutual lease termination on December 1, 2018. Pursuant to the mutual lease termination, the Ohio Beacon Affiliates agreed to pay a $0.675 million termination fee, payable in 18 monthly installments of $37,500 commencing January 3, 2019 in full satisfaction of a $0.5 million lease inducement and approximately $2.5 million in rent arrears and approximately $0.6 million of other receivables. Of the remaining three facilities who were in arrears on their rental payments and which were leased to affiliates of Symmetry Healthcare, one such facility is located in North Carolina (which the Company transitioned to a new operator on March 1, 2019) and two such facilities are located in South Carolina. For additional information with respect to such facilities, see Note 7 – Leases to our audited consolidated financial statements included in Part II, Item 8., “Financial Statements and Supplementary Data” in this Annual Report).
On September 20, 2018, the Company reached an agreement with Symmetry Healthcare, pursuant to which Symmetry Healthcare agreed to a payment plan for rent arrears and the Company agreed to an aggregate reduction of approximately $0.6 million in annualized rent with respect to the three facilities leased to the Symmetry Tenants and waived approximately $0.2 million in rent that was in arrears with respect to such facilities, upon which the Symmetry Tenants recommenced monthly rent payments with respect to such facilities of $0.1 million in the aggregate, starting with the September 1, 2018 amounts due.
On November 30, 2018, the Company subleased the Ohio Beacon Facilities to affiliates (collectively, “Aspire Sublessees”) of Aspire, management formerly affiliated with MSTC Development Inc., pursuant to separate sublease agreements (under Aspire’s operation, the “Aspire Subleases”), providing that Aspire Sublessees would take possession of and operate the Ohio Beacon Facilities (under Aspire’s operation, the “Aspire Facilities”) as subtenant, effective December 1, 2018. Annual anticipated minimum cash rent for the next twelve months is approximately $1.8 million with provision for approximately $0.7 million additional cash rent based on each facility’s prior month occupancy. For additional information with respect to such facilities, see Note 7 – Leases to our audited consolidated financial statements included in Part II, Item 8., “Financial Statements and Supplementary Data” in this Annual Report.
On January 15, 2019, but effective February 1, 2019, the Company agreed to a 10% reduction in base rent, or in aggregate approximately an average $31,000 per month cash rent reduction for the year ended December 31, 2019, and $48,000 per month decrease in straight-line revenue, respectively, for two of the Company’s eight facilities located in Georgia, which are subleased to affiliates of Wellington Health Services (the “Wellington Sublessees”) under agreements dated January 31, 2015, compared with $0.8 million for the year ended December 31, 2014.as subsequently amended (the “Wellington Subleases”). The increase is primarilyWellington Sublessees are due to additional costsexpire August 31, 2027, and relate to the Company’s 134-bed skilled nursing facility located in Thunderbolt, Georgia and an 208-bed skilled nursing facility located in Powder Springs, Georgia combined. Additionally, the Company incurred duringmodified the annual rent escalator to 1% per year ended December 31, 2015 associated withfrom the Transition.
|
| Year Ended December 31, |
| |||||
Amounts in (000's) |
| 2019 |
|
| 2018 |
| ||
Net cash provided by operating activities—continuing operations |
| $ | 3,048 |
|
| $ | 3,079 |
|
Net cash used in operating activities—discontinued operations |
|
| (652 | ) |
|
| (1,731 | ) |
Net cash provided by (used in) investing activities—continuing operations |
|
| 3,821 |
|
|
| (338 | ) |
Net cash (used in) provided by financing activities—continuing operations |
|
| (4,631 | ) |
|
| 356 |
|
Net cash used in financing activities—discontinued operations |
|
| (34 | ) |
|
| (239 | ) |
Net Change in Cash and restricted cash |
|
| 1,552 |
|
|
| 1,127 |
|
Cash and restricted cash at beginning of period |
|
| 6,486 |
|
|
| 5,359 |
|
Cash and restricted cash at end of period |
| $ | 8,038 |
|
| $ | 6,486 |
|
| Year Ended December 31, | ||||||||
| Amounts in (000's) | 2015 | 2014 | ||||||
| Net cash used in operating activities—continuing operations | $ | (11,727 | ) | $ | (23,915 | ) | ||
| Net cash (used in) provided by operating activities—discontinued operations | (6,079 | ) | 17,780 | |||||
| Net cash (used in) provided by investing activities—continuing operations | (5,749 | ) | 1,605 | |||||
| Net cash provided by (used in) investing activities—discontinued operations | 15,594 | (1,489 | ) | |||||
| Net cash provided by (used in) financing activities—continuing operations | 12,703 | (2,359 | ) | |||||
| Net cash used in financing activities—discontinued operations | (12,757 | ) | (261 | ) | ||||
| Net Change in Cash | (8,015 | ) | (8,639 | ) | ||||
| Cash, Beginning | 10,735 | 19,374 | ||||||
| Cash, Ending | $ | 2,720 | $ | 10,735 | ||||
Year Ended December 31, 2015
Net cash used inprovided by operating activities
Net cash used in operating activities—discontinued operations for the year months ended December 31, 2019 was approximately $6.1$0.7 million, due primarilyexcluding non-cash proceeds and payments. This amount was to a $18.5 million decrease in accounts payablefund legal and accrued liabilities offset by noncash charges.associated settlement costs related to our legacy professional and general liability claims.
Net cash used inprovided by investing activities
Net cash provided byused in financing activities
Net cash used in financing activities - activities—discontinued operations was approximately $12.8 million due to the payoff of loans related to the entities sold, Companions, Bentonville, and Riverchase.
Year Ended December 31, 2018
Net cash provided by operating activities—continuing operations for the year ended December 31, 2018, was approximately $3.1 million consisting primarily of our lossincome from continuing operations less changes in working capital, and other noncash charges (primarily loss on debt extinguishment, depreciation and amortization, share-based compensation, and amortizationbad debt expense less lease revenue in excess of debt discounts and related deferred financing costs)cash received) all primarily the result of routine operating activity.
Net cash provided byused in operating activities—discontinued operations for the year months ended December 31, 2018 was approximately $17.8$1.7 million, consisting primarily ofexcluding non-cash proceeds and payments. This amount was to fund legal and associated settlement costs related to our income from discontinued operations of $23.8 million less changes in working capital,legacy professional and noncash charges (primarily depreciation and amortization and bad debt expense) all primarily the result of routine operating activity.general liability claims.
Net cash provided byused in investing activities—activities—continuing operations for the year ended December 31, 2014,2018, was approximately $1.6$0.3 million. This is primarily the result of a decrease in restricted cash deposits offset to a lesser extent by capital expenditures. expenditures on building improvements for three of the Company’s properties.
Net cash used in investingprovided by financing activities—discontinuedcontinuing operations was approximately $1.5 million for the year ended December 31, 2014 consisting primarily of capital expenditures.
Net cash used in financing activities—discontinued operations for the year ended December 31, 2018 was approximately $0.3$0.2 million consisting of payment of debt issuance costspayments for Medicaid and repayments of existing debt obligations.vendor notes.
Notes Payable and Other Debt
Notes payable and other debt consists of the following:
|
| December 31, |
| |||||
Amounts in (000's) |
| 2019 |
|
| 2018 |
| ||
Senior debt—guaranteed by HUD |
| $ | 31,996 |
|
| $ | 32,857 |
|
Senior debt—guaranteed by USDA (a) |
|
| 13,298 |
|
|
| 13,727 |
|
Senior debt—guaranteed by SBA (b) |
|
| 650 |
|
|
| 668 |
|
Senior debt—bonds |
|
| 6,616 |
|
|
| 6,960 |
|
Senior debt—other mortgage indebtedness |
|
| 3,777 |
|
|
| 28,139 |
|
Other debt |
|
| 539 |
|
|
| 664 |
|
Sub Total |
|
| 56,876 |
|
|
| 83,015 |
|
Deferred financing costs |
|
| (1,364 | ) |
|
| (1,535 | ) |
Unamortized discounts on bonds |
|
| (149 | ) |
|
| (167 | ) |
Notes payable and other debt |
| $ | 55,363 |
|
| $ | 81,313 |
|
| December 31, | ||||||||
| Amounts in (000's) | 2015 | 2014 | ||||||
| Revolving credit facilities and lines of credit | $ | — | $ | 6,832 | ||||
Senior debt—guaranteed by HUD (a) | 25,469 | 26,022 | ||||||
Senior debt—guaranteed by USDA (a) | 26,463 | 27,128 | ||||||
Senior debt—guaranteed by SBA (a) | 3,548 | 3,703 | ||||||
Senior debt—bonds, net of discount (b) | 7,025 | 12,967 | ||||||
Senior debt—other mortgage indebtedness (c) (d) | 51,128 | 60,277 | ||||||
| Other debt | 2,638 | 430 | ||||||
| Convertible debt | 9,200 | 14,000 | ||||||
| Total | 125,471 | 151,359 | ||||||
| Less current portion | 50,960 | 22,012 | ||||||
Less: portion included in liabilities of variable interest entity held for sale (b) | — | 5,956 | ||||||
Less: portion included in liabilities of disposal group held for sale (c) | 958 | 5,197 | ||||||
Less: portion included in liabilities of disposal group held for use (d) | — | 4,035 | ||||||
| Notes payable and other debt, net of current portion | $ | 73,553 | $ | 114,159 | ||||
(a) | U.S. Department of Agriculture (“USDA”) |
(b) | U.S. Small Business Administration (“SBA”) |
For a detailed description of each of the Company'sCompany’s debt financings, please see
Scheduled Maturities
The schedule below summarizes the scheduled gross maturities as of December 31, 20152019 for each of the next five years and thereafter.
|
| Amounts in (000's) |
| |
2020 |
| $ | 1,701 |
|
2021 |
|
| 2,242 |
|
2022 |
|
| 5,145 |
|
2023 |
|
| 1,752 |
|
2024 |
|
| 1,839 |
|
Thereafter |
|
| 44,197 |
|
Subtotal |
|
| 56,876 |
|
Less: unamortized discounts |
|
| (149 | ) |
Less: deferred financing costs |
|
| (1,364 | ) |
Total notes payable and other debt |
| $ | 55,363 |
|
| Amounts in (000's) | ||||
| 2016 | $ | 51,918 | ||
| 2017 | 12,580 | |||
| 2018 | 1,800 | |||
| 2019 | 1,848 | |||
| 2020 | 1,945 | |||
| Thereafter | 55,585 | |||
| Subtotal | 125,676 | |||
| Less: unamortized discounts | (205 | ) | ||
| Total notes payable and other debt | $ | 125,471 | ||
As of December 31, 2015,2019, the Company hashad approximately 3817 credit related instruments outstanding that include various financial and administrative covenant requirements. Covenant requirements include, but are not limited to, fixed charge coverage ratios, debt service coverage ratios, minimum EBITDAearnings before interest, taxes, depreciation, and amortization or EBITDAR,earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs, and current ratios and tangible net worth requirements.ratios. Certain financial covenant requirements are based on consolidated financial measurements whereas others are based on other levelsmeasurements at the subsidiary level (i.e., facility, multiple facilities or a combination of subsidiaries). The subsidiary level requirements are as follows: (i) financial covenants measured against subsidiaries comprising less thanof the Company's consolidatedCompany; and (ii) financial measurements). Covenantscovenants measured against third-party operator performance. Some covenants are based on annual orfinancial metric measurements whereas others are based on monthly and quarterly financial metric measurements.measurements (the “Financial Covenants”). The Company routinely tracks and monitors its compliance with its covenant requirements. In recent periods, including as
Included in several of the Company’s loan agreements are administrative covenants requiring that a set of audited financial statements be provided to the guarantor within 90 days of the end of each fiscal year (the “Administrative Covenants”).
For the year ended December 31, 2015,2019 the Company has not beenwas in compliance with certainall such Financial Covenants and Administrative Covenants.
Evaluation of the Company’s Ability to Continue as a Going Concern
Under the accounting guidance related to the presentation of financial and administrative covenants. For each instance of such non-compliance,statements, the Company has obtained waiversis required to evaluate, on a quarterly basis, whether or amendmentsnot the entity’s current financial condition, including its sources of liquidity at the date that the consolidated financial statements are issued, will enable the entity to such requirements including as necessary modifications to future covenant requirements or the elimination of certain requirements in future periods.
In applying applicable accounting guidance, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows, the Company’s obligations due over the next twelve months as well as the Company’s recurring business operating expenses.
The Company is able to conclude that it is probable that the Company will be able to meet its obligations arising within one year of December 31, 2015:
| Credit Facility | Balance at December 31, 2015 (000's) | Entity | Financial Covenant | Measurement Period | Min/Max Financial Covenant Required | Financial Covenant Metric Achieved | Future Financial Covenant Metric Required | |||||||||||||||||
| Community Bank - Mountain Trace Nursing ADK, LLC - USDA | $ | 4,507 | Subsidiary | Minimum Debt Service Coverage Ratio | Quarterly | 1.0 | 0.5 | * | 1.0 | |||||||||||||||
| PrivateBank - Mortgage Note - Valley River Nursing, LLC; Park Heritage Nursing, LLC; Benton Nursing, LLC | $ | 7,359 | Operator | Minimum EBITDAR (000s) | Quarterly | $ | 265 | $ | 36 | * | $ | 265 | ||||||||||||
| Guarantor | Minimum Debt Service Coverage Ratio | Annual | 1.0 | 0.4 | * | 1.0 | ||||||||||||||||||
| Private Bank - Mortgage Note - Little Rock HC&R Nursing, LLC | $ | 11,399 | Operator | Minimum EBITDAR (000s) | Quarterly | $ | 450 | $ | 23 | * | $ | 450 | ||||||||||||
| Guarantor | Minimum Debt Service Coverage Ratio | Annual | 1.0 | 0.4 | * | 1.0 | ||||||||||||||||||
| Guarantor | Maximum Annual Leverage Ratio | Annual | 11 | 222 | * | 11 | ||||||||||||||||||
| PrivateBank - Mortgage Note - APH&R Property Holdings, LLC; Northridge HC&R Property Holdings, LLC; Woodland Hills HC Property Holdings, LLC | $ | 11,816 | Operator | Minimum EBITDAR (000s) | Quarterly | $ | 495 | $ | (601 | ) | * | $ | 495 | |||||||||||
| Guarantor | Minimum Debt Service Coverage Ratio | Annual | 1.0 | 0.4 | * | 1.0 | ||||||||||||||||||
| Guarantor | Maximum Annual Leverage Ratio | Annual | 11.0 | 222 | * | 11.0 | ||||||||||||||||||
| PrivateBank - Mortgage Note - Georgetown HC&R Property Holdings, LLC; Sumter Valley HC&R Property Holdings, LLC | $ | 9,149 | Operator | Minimum Debt Service Coverage Ratio | Quarterly | 1.8 | 1.1 | * | 1.8 | |||||||||||||||
| Guarantor | Minimum Debt Service Coverage Ratio | Annual | 1.0 | 0.4 | * | 1.0 | ||||||||||||||||||
| Guarantor | Maximum Annual Leverage Ratio | Annual | 11 | 222 | * | 11 | ||||||||||||||||||
| Congressional Bank - Mortgage Note - QC Property Holdings, LLC | $ | 5,000 | Subsidiary | Minimum Fixed Charge Coverage Ratio | Quarterly | 1.1 | (0.5 | ) | * | 1.1 | ||||||||||||||
| Subsidiary | Minimum Debt Service Coverage Ratio | Annual | 1.5 | (1.1 | ) | * | 1.5 | |||||||||||||||||
See Note 9 – Notes Payable and Other Debt to our audited consolidated financial statements included in Part II, Item 8., “Financial Statements and Supplementary Data” in this Annual Report.
Receivables
Our operations could be adversely affected if we experience significant delays in receipt of rental income from our operators. Our future liquidity will continue to be dependent upon the relative amounts of current assets (principally cash and accounts receivable)
Accounts receivable totaled $8.8$1.0 million at December 31, 20152019 compared to $24.3with $1.0 million at December 31, 2014, of which $8.0 million and $24.2 million, respectively, related to patient care receivables from our legacy operations.
The allowance for bad debt was $12.5$0.6 million and $6.7$1.4 million at December 31, 20152019 and 2014,2018, respectively. We continually evaluate the adequacy of our bad debt reserves based on aging of older balances, payment terms and historical collection trends after facility operations transfer to third-party operators. We continue to evaluate and implement additional processes to strengthen our collection efforts and reduce the incidence of uncollectible accounts.trends.
Guarantee
On June 18, 2016, the Company entered into a master sublease agreement, as amended on March 30, 2018, with affiliates (collectively, “Peach Health Sublessee”) of Credit
On April 6, 2017, the Company guaranteed Peach Health Sublessee’s $2.5 million revolving working capital loan from a third-party lender (the “Peach Working Capital Facility”), subsequently capped at $1.75 million which matures April 5, 2020. Borrowings under the Peach Working Capital Facility are based on a percentage of a borrowing base of eligible accounts receivable. Eligible accounts, net of an allowance for amounts outstanding after 120 days, excluding applicable credits and $3.8 millionfurther reduced for a liquidity factor specific to the payor type, comprise Medicare, Medicaid and commercial accounts only and exclude co-insurance and self-pay. The Peach Working Capital Facility is subject to certain burn-off provisions (i.e., the Company’s obligations under such guaranty cease after the later of outstanding letters18 months or achievement of credita certain financial ratio’s by Peach Health Sublessee). The Company has assessed the fair value of the guarantee as not material to the financial statements at December 31, 20152019.
On November 30, 2018, the Company subleased the Ohio Beacon Facilities to affiliates Aspire Sublessees of Aspire, pursuant to the Aspire Subleases, whereby the Aspire Sublessees took possession of, and 2014, respectively, thatcommenced operating, the Ohio Beacon Facilities (under Aspire’s operation, the Aspire Facilities) as subtenant. The Aspire Subleases became effective on December 1, 2018 and are pledgedstructured as collateraltriple net leases. The Aspire Facilities are comprised of: (i) a 94-bed skilled nursing facility located in Covington, Ohio (the “Covington Facility”); (ii) an 80-bed assisted living facility located in Springfield, Ohio (the “Eaglewood ALF Facility”); (iii) a 99-bed skilled nursing facility located in Springfield, Ohio (the “Eaglewood Care Center Facility”); (iv) a 50-bed skilled nursing facility located in Greenfield, Ohio (the “H&C of borrowing capacityGreenfield Facility”); and (v) a 50-bed skilled nursing facility located in Sidney, Ohio (the “Pavilion Care Facility”). Pursuant to the Aspire Subleases, the Company agreed to indemnify Aspire against any and all liabilities imposed on them as arising from the PrivateBank revolver.
Operating Leases
As of December 31, 2019, the Company leased a total of elevennine skilled nursing facilities under non-cancelable leases, most of which have rent escalation clauses and provisions for payments of real estate taxes, insurance and maintenance costs; each of the skilled nursing facilities that are leased by the Company are subleased to and operated by third-party operators. The Company also leases certain office space located in Atlanta and Suwanee, Georgia.
Future minimum lease payments for each of the next five years ending December 31 are as follows:
(Amounts in 000's) |
| Future rental payments |
|
| Accretion of lease liability (1) |
|
| Operating lease obligation |
| |||
2020 |
| $ | 6,390 |
|
| $ | (268 | ) |
| $ | 6,122 |
|
2021 |
|
| 6,551 |
|
|
| (755 | ) |
|
| 5,796 |
|
2022 |
|
| 6,691 |
|
|
| (1,223 | ) |
|
| 5,468 |
|
2023 |
|
| 6,823 |
|
|
| (1,674 | ) |
|
| 5,149 |
|
2024 |
|
| 6,958 |
|
|
| (2,109 | ) |
|
| 4,849 |
|
Thereafter |
|
| 19,832 |
|
|
| (7,954 | ) |
|
| 11,878 |
|
Total |
| $ | 53,245 |
|
| $ | (13,983 | ) |
| $ | 39,262 |
|
(1) | Weighted average discount rate 7.98% |
| (Amounts in 000's) | ||||
| 2016 | $ | 8,083 | ||
| 2017 | 8,181 | |||
| 2018 | 8,346 | |||
| 2019 | 8,526 | |||
| 2020 | 8,697 | |||
| Thereafter | 55,320 | |||
| Total | $ | 97,153 | ||
For a detailedfurther description of the Company'sCompany’s operating leases, please see
As of December 31, 2019, 21 facilities (twenty-four(12 owned by us and elevennine leased to us) are leased or subleased on a triple net basis, meaning that the lessee (i.e., the new third-party operator of the property) is obligated under the lease or sublease, as applicable, for all liabilities of the property in respect to insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable.
Future minimum lease receivables for each of the next five years ending December 31 are as follows:
|
| (Amounts in 000's) |
| |
2020 |
| $ | 15,716 |
|
2021 |
|
| 16,100 |
|
2022 |
|
| 17,272 |
|
2023 |
|
| 17,587 |
|
2024 |
|
| 17,447 |
|
Thereafter |
|
| 53,311 |
|
Total |
| $ | 137,433 |
|
| (Amounts in 000's) | ||||
| 2016 | $ | 26,052 | ||
| 2017 | 26,845 | |||
| 2018 | 27,474 | |||
| 2019 | 28,082 | |||
| 2020 | 27,634 | |||
| Thereafter | 204,913 | |||
| Total | $ | 341,000 | ||
The following is a summary of the Company'sCompany’s leases and subleases to third-parties and which comprise the future minimum lease receivablereceivables of the Company. Each lease contains specific rent escalation amounts ranging from 1.0% to 3.0% annually. Further, each lease has one or sublease is structured as a "triple-net" lease.more renewal options. For those facilities wheresubleased by the Company, subleases, the renewal option in the sublease agreement is dependent on the CompanyCompany’s renewal of its lease agreement. Generally, the sublease agreements are cross-defaulted where applicable for subleases of multiple facilities by the same lessor.
|
|
|
| Lease Term |
|
|
|
| ||
|
|
|
| Commencement |
| Expiration |
| 2020 Cash |
| |
Facility Name |
| Operator Affiliation (1) |
| Date |
| Date |
| Annual Rent |
| |
|
|
|
|
|
|
|
| (Thousands) |
| |
Owned |
|
|
|
|
|
|
|
|
|
|
Eaglewood ALF |
| Aspire |
| 12/1/2018 |
| 11/30/2028 |
|
| 630 |
|
Eaglewood Care Center |
| Aspire |
| 12/1/2018 |
| 11/30/2028 |
|
| 408 |
|
H&C of Greenfield |
| Aspire |
| 12/1/2018 |
| 11/30/2023 |
|
| 213 |
|
Southland Healthcare |
| Beacon Health Management |
| 11/1/2014 |
| 10/31/2024 |
|
| 970 |
|
The Pavilion Care Center |
| Aspire |
| 12/1/2018 |
| 11/30/2028 |
|
| 222 |
|
Autumn Breeze |
| C.R. Management |
| 9/30/2015 |
| 9/30/2025 |
|
| 894 |
|
Coosa Valley Health Care |
| C.R. Management |
| 12/1/2014 |
| 8/31/2030 |
|
| 995 |
|
Glenvue H&R |
| C.R. Management |
| 7/1/2015 |
| 6/30/2025 |
|
| 1,302 |
|
Meadowood |
| C.R. Management |
| 5/1/2017 |
| 8/31/2030 |
|
| 474 |
|
Georgetown Health |
| Symmetry Healthcare |
| 4/1/2015 |
| 3/31/2030 |
|
| 329 |
|
Mountain Trace Rehab |
| Vero Health Management |
| 3/1/2019 |
| 2/28/2029 |
|
| 490 |
|
Sumter Valley Nursing |
| Symmetry Healthcare |
| 4/1/2015 |
| 3/31/2030 |
|
| 632 |
|
Subtotal Owned Facilities (12) |
|
|
|
|
|
|
| $ | 7,559 |
|
Leased |
|
|
|
|
|
|
|
|
|
|
Covington Care |
| Aspire |
| 12/1/2018 |
| 11/30/2028 |
| $ | 503 |
|
Lumber City |
| Beacon Health Management |
| 11/1/2014 |
| 8/31/2027 |
|
| 936 |
|
LaGrange |
| C.R. Management |
| 4/1/2015 |
| 8/31/2027 |
|
| 1,140 |
|
Thomasville N&R |
| C.R. Management |
| 7/1/2014 |
| 8/31/2027 |
|
| 362 |
|
Jeffersonville |
| Peach Health |
| 6/18/2016 |
| 8/31/2027 |
|
| 748 |
|
Oceanside |
| Peach Health |
| 7/13/2016 |
| 8/31/2027 |
|
| 510 |
|
Savannah Beach |
| Peach Health |
| 7/13/2016 |
| 8/31/2027 |
|
| 279 |
|
Powder Springs |
| Wellington Health Services |
| 4/1/2015 |
| 8/31/2027 |
|
| 1,981 |
|
Tara |
| Wellington Health Services |
| 4/1/2015 |
| 8/31/2027 |
|
| 1,698 |
|
Subtotal Leased Facilities (9) |
|
|
|
|
|
|
| $ | 8,157 |
|
Total (21) |
|
|
|
|
|
|
| $ | 15,716 |
|
| Initial Lease Term | ||||||||||
| Commencement | Expiration | Initial | ||||||||
| Facility Name | Operator Affiliation | Date | Date | Annual Rent | ||||||
| (Thousands) | ||||||||||
| Owned | ||||||||||
| Cumberland H&R | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | $ | 540 | |||||
| Heritage Park | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | 240 | ||||||
| Homestead Manor | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | 120 | ||||||
| Little Rock H&R | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | 1,602 | ||||||
| Northridge Health | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | 420 | ||||||
| River Valley Health | Aria Health Group LLC | 11/1/2015 | 4/30/2030 | 480 | ||||||
| Stone County ALF | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | 60 | ||||||
| Stone County Nursing | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | 838 | ||||||
| Woodland Hills | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | 480 | ||||||
| Eaglewood ALF | Beacon Health Management | 8/1/2015 | 7/31/2025 | 720 | ||||||
| Eaglewood Care Center | Beacon Health Management | 8/1/2015 | 7/31/2025 | 720 | ||||||
| H&C of Greenfield | Beacon Health Management | 8/1/2015 | 7/31/2025 | 360 | ||||||
| Southland Healthcare | Beacon Health Management | 11/1/2014 | 10/31/2024 | 900 | ||||||
| The Pavilion Care Center | Beacon Health Management | 8/1/2015 | 7/31/2025 | 360 | ||||||
| Attalla Health Care | C.R. Management | 12/1/2014 | 8/31/2030 | 1,080 | ||||||
| Autumn Breeze | C.R. Management | 9/30/2015 | 9/30/2025 | 840 | ||||||
| College Park | C.R. Management | 4/1/2015 | 3/31/2020 | 600 | ||||||
| Coosa Valley Health Care | C.R. Management | 12/1/2014 | 8/31/2030 | 900 | ||||||
| Glenvue H&R | C.R. Management | 7/1/2015 | 6/30/2025 | 1,140 | ||||||
| NW Nursing Center | Southwest LTC | 12/31/2015 | 11/30/2025 | 300 | ||||||
| Quail Creek | Southwest LTC | 12/31/2015 | 11/30/2025 | 660 | ||||||
| Georgetown Health | Symmetry Healthcare | 4/1/2015 | 3/31/2030 | 288 | ||||||
| Mountain Trace Rehab | Symmetry Healthcare | 6/1/2015 | 5/31/2030 | 648 | ||||||
| Sumter Valley Nursing | Symmetry Healthcare | 4/1/2015 | 3/31/2030 | 770 | ||||||
| Subtotal Owned Facilities (24) | $ | 15,066 | ||||||||
| Leased | ||||||||||
| Covington Care | Beacon Health Management | 8/1/2015 | 4/30/2025 | $ | 780 | |||||
| Lumber City | Beacon Health Management | 11/1/2014 | 8/31/2027 | 840 | ||||||
| LaGrange | C.R. Management | 4/1/2015 | 8/31/2027 | 960 | ||||||
| Thomasville N&R | C.R. Management | 7/1/2014 | 8/31/2027 | 324 | ||||||
| Jeffersonville | New Beginnings Care | 11/1/2015 | 7/31/2020 | 648 | ||||||
| Oceanside | New Beginnings Care | 11/1/2015 | 7/31/2020 | 421 | ||||||
| Savannah Beach | New Beginnings Care | 11/1/2015 | 7/31/2020 | 247 | ||||||
| Bonterra | Wellington Health Services | 9/1/2015 | 8/31/2025 | 1,020 | ||||||
| Parkview Manor/Legacy | Wellington Health Services | 9/1/2015 | 8/31/2025 | 1,020 | ||||||
| Powder Springs | Wellington Health Services | 4/1/2015 | 8/31/2027 | 2,100 | ||||||
| Tara | Wellington Health Services | 4/1/2015 | 8/31/2027 | 1,800 | ||||||
| Subtotal Leased Facilities (11) | $ | 10,160 | ||||||||
| Total (35) | $ | 25,226 | ||||||||
All facilities are skilled nursing facilities except for Stone CountyEaglewood ALF and Eaglewoodthe Meadowood Facility which are assisted living facilities and Spring Meade Residence which is an independent living facility.facilities. All facilities have renewal provisions of one term of five years, except facilities (Mountain Trace, Quail Creek, NW Nursing, Sumter Valley, Covington Care, Pavilion Care Center, Eaglewood ALF, Eaglewood SNF and Georgetown) which have two renewal terms with each being five years and H&C of Greenfield which has three renewal terms with each being five years. The leases also contain standard rent escalations that range from 2%1.0% to 3.5%3.0% annually.
On November 30, 2018 the Company subleased through its subsidiaries nine facilities located in Arkansasthe Ohio Beacon Facilities to affiliates of Aria Health Group, LLC pursuant to separate sublease agreements. Eight of the Aria subleases commenced on May 1, 2015 and one sublease commenced on November 1, 2015. Effective February 3, 2016, each sublease was terminated due to the failure to pay rentAspire pursuant to the termsAspire Subleases, providing that Aspire Sublessees would take possession of such sublease. Subsequently,and operate the Aspire Facilities as subtenant. The Aspire Subleases became effective on February 5, 2016,December 1, 2018 and are structured as triple net leases. The Aspire Facilities are comprised of: (i) the Covington Facility; (ii) the Eaglewood ALF Facility; (iii) the Eaglewood Care Center Facility; (iv) the H&C of Greenfield Facility; and (v) the Pavilion Care Facility. Under the Aspire Subleases, a default related to an individual facility may cause a default under all the Aspire Subleases. All Aspire Subleases are for an initial term of ten years, with renewal options, except with respect to term for the H&C of Greenfield Facility, which has an initial five year term, and set annual rent increases generally commencing in the third lease year; from month seven of the Aspire Subleases monthly rent amounts may increase based on each facility’s prior month occupancy, with minimum annual rent escalations of at least 1% generally commencing in the third lease year. Minimum rent receivable for the Covington Facility, the Eaglewood ALF Facility, the Eaglewood Care Center Facility, the H&C of Greenfield Facility and the Pavilion Care Facility for the year ended December 31, 2019 is $0.4 million, $0.5 million, $0.4 million, $0.2 million and $0.2 million per annum, respectively. Additionally, the Company entered intoagreed to indemnify Aspire against any and all liabilities imposed on them as arising from the former operator, capped at $8.0 million. The Company has assessed the fair value of the indemnity agreements as not material to the financial statements at December 31, 2019.
For a Master Lease Agreement, as amended, with Skyline Healthcare LLCdetailed description of each of the Company’s leases, see Note 7 - Leases to lease the facilities commencing April 1, 2016. (Seeour audited consolidated financial statements included in Part II, Item 8,
Professional and General Liability
As of the date of filing this Annual Report, the Company is a defendant in a total of nine professional and general liability actions, primarily commenced on behalf of one former patient and eight of our current or prior tenant’s former patients. These actions generally seek unspecified compensatory and punitive damages for former patients who were allegedly injured or died while patients of our facilities due to professional negligence or understaffing. One such action, on behalf of the Company’s former patient, is covered by insurance, except that any award of punitive damages would be excluded from such coverage, and nine of such actions relate to events which occurred after the Company transitioned the operations of the facilities in question to a third-party operator and which are subject to such operators’ indemnification obligations in favor of the Company.
The Company has self-insured against professional and general liability actions since it discontinued its healthcare operations in connection with the Transition. The Company established a self-insurance reserve for these
professional and general liability claims, included within “Accrued expenses” in the Company’s audited consolidated balance sheets of $0.5 million and $1.4 million at December 31, 2019, and December 31, 2018, respectively. Additionally as of December 31, 2019 and December 31, 2018, approximately $0.3 million and $0.6 million was reserved for settlement amounts in “Accounts payable” in the Company’s audited consolidated balance sheets.
Accordingly, the self-insurance reserve accrual primarily reflects the Company’s estimate of settlement amounts for the pending actions, as appropriate and legal costs of settling or litigating the pending actions, as applicable. These amounts are expected to be paid over time as the legal proceedings progress. The duration of such legal proceedings could be greater than one year subsequent to the year ended December 31, 2019; however management cannot reliably estimate the exact timing of payments.
See Note 15 – Commitments and Contingencies and Note 19
– Subsequent EventsDisclosure pursuant to Item 7A. of Form 10-K is not required to be reported by smaller reporting companies.
PAGE | |
64 | |
CONSOLIDATED FINANCIAL STATEMENTS | |
Consolidated Balance Sheets as of December 31, | 65 |
| 2018 | 66 |
| 2018 | 67 |
| 2018 | 68 |
70 |
To the Board of Directors and Stockholders
Regional Health Systems,Properties, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of AdCareRegional Health Systems,Properties, Inc. and subsidiaries(the “Company”) as of December 31, 20152019 and 2014,2018, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended. in the two-year period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Adoption of ASU No. 2016-02
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842), and the related amendments.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit includesof its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Cherry Bekaert LLP
We have served as the Company’s auditor since 2018.
Atlanta, Georgia
March 27, 2020
(Amounts in 000's except share data)
| December 31, | ||||||||
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 2,720 | $ | 10,735 | ||||
| Restricted cash and investments | 9,169 | 3,321 | ||||||
| Accounts receivable, net of allowance of $12,487 and $6,708 | 8,805 | 24,294 | ||||||
| Prepaid expenses and other | 3,214 | 1,746 | ||||||
| Deferred tax asset | — | 569 | ||||||
| Assets of disposal group held for sale | 1,249 | 5,813 | ||||||
| Assets of disposal group held for use | — | 4,592 | ||||||
| Assets of variable interest entity held for sale | — | 5,924 | ||||||
| Total current assets | 25,157 | 56,994 | ||||||
| Restricted cash and investments | 3,558 | 5,456 | ||||||
| Property and equipment, net | 126,676 | 130,993 | ||||||
| Intangible assets—bed licenses | 2,471 | 2,471 | ||||||
| Intangible assets—lease rights, net | 3,420 | 4,087 | ||||||
| Goodwill | 4,183 | 4,224 | ||||||
| Lease deposits | 1,812 | 1,683 | ||||||
| Deferred financing costs, net | 2,913 | 3,464 | ||||||
| Other assets | 1,795 | 590 | ||||||
| Total assets | $ | 171,985 | $ | 209,962 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Current portion of notes payable and other debt | $ | 50,960 | $ | 2,436 | ||||
| Current portion of convertible debt | — | 14,000 | ||||||
| Revolving credit facilities and lines of credit | — | 5,576 | ||||||
| Accounts payable | 8,741 | 16,434 | ||||||
| Accrued expenses | 3,125 | 15,653 | ||||||
| Liabilities of disposal group held for sale | 958 | 5,197 | ||||||
| Liabilities of disposal group held for use | — | 4,035 | ||||||
| Liabilities of variable interest entity held for sale | — | 5,956 | ||||||
| Total current liabilities | 63,784 | 69,287 | ||||||
| Notes payable and other debt, net of current portion: | ||||||||
| Senior debt | 56,871 | 106,089 | ||||||
| Bonds, net | 6,940 | 7,011 | ||||||
| Convertible debt | 9,200 | — | ||||||
| Revolving credit facilities and lines of credit | — | 1,059 | ||||||
| Other debt | 542 | — | ||||||
| Other liabilities | 3,380 | 2,130 | ||||||
| Deferred tax liability | 389 | 605 | ||||||
| Total liabilities | 141,106 | 186,181 | ||||||
| Commitments and contingencies (Note 15) | ||||||||
| Preferred stock, no par value; 5,000 and 5,000 shares authorized; 2,427 and 950 shares issued and outstanding, redemption amount $60,273 and $23,750 at December 31, 2015 and 2014, respectively | 54,714 | 20,392 | ||||||
| Stockholders' equity: | ||||||||
| Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 19,861 and 19,151 shares issued and outstanding at December 31, 2015 and 2014, respectively | 60,958 | 61,896 | ||||||
| Accumulated deficit | (84,793 | ) | (56,067 | ) | ||||
| Total stockholders' equity (deficit) | (23,835 | ) | 5,829 | |||||
| Noncontrolling interest in subsidiary | — | (2,440 | ) | |||||
| Total equity (deficit) | (23,835 | ) | 3,389 | |||||
| Total liabilities and equity (deficit) | $ | 171,985 | $ | 209,962 | ||||
|
| December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Property and equipment, net |
| $ | 54,672 |
|
| $ | 77,237 |
|
Cash |
|
| 4,383 |
|
|
| 2,407 |
|
Restricted cash |
|
| 3,655 |
|
|
| 4,079 |
|
Accounts receivable, net of allowance of $615 and $1,356 |
|
| 963 |
|
|
| 971 |
|
Prepaid expenses and other |
|
| 249 |
|
|
| 546 |
|
Notes receivable |
|
| 840 |
|
|
| 941 |
|
Intangible assets—bed licenses |
|
| 2,471 |
|
|
| 2,471 |
|
Intangible assets—lease rights, net |
|
| 462 |
|
|
| 906 |
|
Right-of-use operating lease assets |
|
| 37,287 |
|
|
| — |
|
Goodwill |
|
| 1,585 |
|
|
| 2,105 |
|
Lease deposits and other deposits |
|
| 517 |
|
|
| 402 |
|
Straight-line rent receivable |
|
| 6,674 |
|
|
| 6,301 |
|
Assets of disposal group held for sale |
|
| — |
|
|
| 2,204 |
|
Total assets |
| $ | 113,758 |
|
| $ | 100,570 |
|
LIABILITIES AND EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
Senior debt, net |
| $ | 48,415 |
|
| $ | 73,945 |
|
Bonds, net |
|
| 6,409 |
|
|
| 6,704 |
|
Other debt, net |
|
| 539 |
|
|
| 664 |
|
Accounts payable |
|
| 3,699 |
|
|
| 4,361 |
|
Accrued expenses |
|
| 2,613 |
|
|
| 4,461 |
|
Operating lease obligation |
|
| 39,262 |
|
|
| — |
|
Other liabilities |
|
| 1,078 |
|
|
| 2,793 |
|
Liabilities of disposal group held for sale |
|
| — |
|
|
| 1,491 |
|
Total liabilities |
|
| 102,015 |
|
|
| 94,419 |
|
Commitments and contingencies (Note 15) |
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 1,688 shares issued and outstanding at December 31, 2019 and 2018 |
|
| 61,992 |
|
|
| 61,900 |
|
Preferred stock, no par value; 5,000 shares authorized; 2,812 shares issued and outstanding, redemption amount $70,288 at December 31, 2019 and 2018 |
|
| 62,423 |
|
|
| 62,423 |
|
Accumulated deficit |
|
| (112,672 | ) |
|
| (118,172 | ) |
Total stockholders' equity |
|
| 11,743 |
|
|
| 6,151 |
|
Total liabilities and stockholders' equity |
| $ | 113,758 |
|
| $ | 100,570 |
|
See accompanying notes to consolidated financial statements
(Amounts in 000's,000’s, except share and per share data)
|
| Year Ended December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Revenues: |
|
|
|
|
|
|
|
|
Rental revenues |
| $ | 19,043 |
|
| $ | 20,902 |
|
Management fees |
|
| 995 |
|
|
| 949 |
|
Other revenues |
|
| 96 |
|
|
| 195 |
|
Total revenues |
|
| 20,134 |
|
|
| 22,046 |
|
Expenses: |
|
|
|
|
|
|
|
|
Facility rent expense |
|
| 6,645 |
|
|
| 8,683 |
|
Cost of management fees |
|
| 661 |
|
|
| 638 |
|
Depreciation and amortization |
|
| 3,438 |
|
|
| 4,634 |
|
General and administrative expenses |
|
| 3,192 |
|
|
| 3,692 |
|
(Recovery) provision for doubtful accounts |
|
| (281 | ) |
|
| 4,132 |
|
Other operating expenses |
|
| 1,017 |
|
|
| 1,059 |
|
Total expenses |
|
| 14,672 |
|
|
| 22,838 |
|
Income (loss) from operations |
|
| 5,462 |
|
|
| (792 | ) |
Other expense (income): |
|
|
|
|
|
|
|
|
Interest expense, net |
|
| 5,265 |
|
|
| 5,929 |
|
Loss on extinguishment of debt |
|
| 2,458 |
|
|
| 5,234 |
|
Gain on disposal of assets |
|
| (7,141 | ) |
|
| — |
|
Other expense |
|
| 6 |
|
|
| 52 |
|
Total other expense, net |
|
| 588 |
|
|
| 11,215 |
|
Income (loss) from continuing operations before income taxes |
|
| 4,874 |
|
|
| (12,007 | ) |
Income tax benefit |
|
| — |
|
|
| (38 | ) |
Income (loss) from continuing operations |
|
| 4,874 |
|
|
| (11,969 | ) |
Income from discontinued operations, net of tax |
|
| 626 |
|
|
| 74 |
|
Net Income (loss) |
|
| 5,500 |
|
|
| (11,895 | ) |
Net Income (loss) attributable to Regional Health Properties, Inc. |
|
| 5,500 |
|
|
| (11,895 | ) |
Preferred stock dividends - undeclared |
|
| (8,997 | ) |
|
| (7,985 | ) |
Net loss attributable to Regional Health Properties, Inc. common stockholders |
| $ | (3,497 | ) |
| $ | (19,880 | ) |
Net loss (income) per share of common stock attributable to Regional Health Properties, Inc. |
|
|
|
|
|
|
|
|
Basic and diluted: |
|
|
|
|
|
|
|
|
Continuing Operations, after current period undeclared dividend |
| $ | (2.44 | ) |
| $ | (11.90 | ) |
Discontinued Operations |
|
| 0.37 |
|
|
| 0.04 |
|
|
| $ | (2.07 | ) |
| $ | (11.86 | ) |
Weighted average shares of common stock outstanding: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
| 1,688 |
|
|
| 1,676 |
|
| Year Ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| Revenues: | ||||||||
| Rental revenues | $ | 17,254 | $ | 1,832 | ||||
| Management fee revenues | 910 | 1,493 | ||||||
| Other revenues | 236 | — | ||||||
| Total revenues | 18,400 | 3,325 | ||||||
| Expenses: | ||||||||
| General and administrative expenses | 10,544 | 15,696 | ||||||
| Facility rent expense | 5,758 | 1,512 | ||||||
| Depreciation and amortization | 7,345 | 7,393 | ||||||
| Other operating expenses | 2,394 | 2,922 | ||||||
| Total expenses | 26,041 | 27,523 | ||||||
| Loss from operations | (7,641 | ) | (24,198 | ) | ||||
| Other Income (Expense): | ||||||||
| Interest expense, net | (8,462 | ) | (10,677 | ) | ||||
| Loss on extinguishment of debt | (680 | ) | (1,803 | ) | ||||
| Loss on legal settlement | — | (600 | ) | |||||
| Other expense | (918 | ) | (779 | ) | ||||
| Total other expense, net | (10,060 | ) | (13,859 | ) | ||||
| Loss from continuing operations before Income taxes | (17,701 | ) | (38,057 | ) | ||||
| Income tax expense | (110 | ) | (131 | ) | ||||
| Loss from continuing operations | (17,811 | ) | (38,188 | ) | ||||
| Income (loss) from discontinued operations, net of tax | (4,892 | ) | 23,783 | |||||
| Net loss | (22,703 | ) | (14,405 | ) | ||||
| Net (income) loss attributable to noncontrolling interests | (815 | ) | 806 | |||||
| Net loss attributable to AdCare Health Systems, Inc. | (23,518 | ) | (13,599 | ) | ||||
| Preferred stock dividends | (5,208 | ) | (2,584 | ) | ||||
| Net loss attributable to AdCare Health Systems, Inc. common stockholders | $ | (28,726 | ) | $ | (16,183 | ) | ||
| Net loss per share of common stock attributable to AdCare Health Systems, Inc | ||||||||
| Basic and diluted: | ||||||||
| Continuing Operations | $ | (1.17 | ) | $ | (2.27 | ) | ||
| Discontinued Operations | (0.29 | ) | 1.37 | |||||
| $ | (1.46 | ) | $ | (0.90 | ) | |||
| Weighted average shares of common stock outstanding: | ||||||||
| Basic and diluted | 19,680 | 17,930 | ||||||
See accompanying notes to consolidated financial statements
(Amounts in 000's)000’s)
|
| Shares of Common Stock (a) |
|
| Shares of Preferred Stock |
|
| Common Stock and Additional Paid-in Capital |
|
| Preferred Stock |
|
| Accumulated Deficit |
|
| Total |
| ||||||
Balance, December 31, 2017 |
|
| 1,647 |
|
|
| 2,812 |
|
| $ | 61,724 |
|
| $ | 62,423 |
|
| $ | (106,277 | ) |
| $ | 17,870 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 176 |
|
|
| — |
|
|
| — |
|
|
| 176 |
|
Issuance of restricted stock, net of forfeitures |
|
| 41 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,895 | ) |
|
| (11,895 | ) |
Balance, December 31, 2018 |
|
| 1,688 |
|
|
| 2,812 |
|
| $ | 61,900 |
|
| $ | 62,423 |
|
| $ | (118,172 | ) |
| $ | 6,151 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 92 |
|
|
| — |
|
|
| — |
|
|
| 92 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,500 |
|
|
| 5,500 |
|
Balance, December 31, 2019 |
|
| 1,688 |
|
|
| 2,812 |
|
| $ | 61,992 |
|
| $ | 62,423 |
|
| $ | (112,672 | ) |
| $ | 11,743 |
|
(a) | Reflects our one-for-twelve reverse stock split that became effective on December 31, 2018. Refer to Note 1 - Summary of Significant Accounting Policies for further information. |
| Shares | Common Stock and Additional Paid-in Capital | Accumulated Deficit | Noncontrolling Interest in Subsidiary | Total | |||||||||||||||
| Balance, December 31, 2013 | 16,016 | $ | 48,370 | $ | (39,884 | ) | $ | (1,634 | ) | $ | 6,852 | ||||||||
| Stock-based compensation expense | — | 1,155 | — | — | 1,155 | ||||||||||||||
| Exercises of options and warrants | 1,073 | 3,257 | — | — | 3,257 | ||||||||||||||
| Stock issued for converted debt and interest | 1,861 | 8,706 | — | — | 8,706 | ||||||||||||||
| Nonemployee warrants issued for services | — | 321 | — | — | 321 | ||||||||||||||
| Nonemployee warrants issued in conjunction with debt offering | — | 87 | — | — | 87 | ||||||||||||||
| Issuance of restricted stock, net of forfeitures | 201 | — | — | — | — | ||||||||||||||
| Preferred stock dividends | — | — | (2,584 | ) | — | (2,584 | ) | ||||||||||||
| Net (loss) | — | — | (13,599 | ) | (806 | ) | (14,405 | ) | |||||||||||
| Balance, December 31, 2014 | 19,151 | 61,896 | (56,067 | ) | (2,440 | ) | 3,389 | ||||||||||||
| Stock-based compensation expense | — | 942 | — | — | 942 | ||||||||||||||
| Exercises of options and warrants | 527 | 1,791 | — | — | 1,791 | ||||||||||||||
| Nonemployee warrant cancellation | — | (320 | ) | — | — | (320 | ) | ||||||||||||
| Issuance of restricted stock, net of forfeitures | 183 | — | — | — | — | ||||||||||||||
| Reclass of share-based award to liability | — | (75 | ) | — | — | (75 | ) | ||||||||||||
| Common stock dividends | — | (3,276 | ) | — | — | (3,276 | ) | ||||||||||||
| Preferred stock dividends | — | — | (5,208 | ) | — | (5,208 | ) | ||||||||||||
| Net income (loss) | — | — | (23,518 | ) | 815 | (22,703 | ) | ||||||||||||
| Deconsolidation of noncontrolling interest | — | — | — | 1,625 | 1,625 | ||||||||||||||
| Balance, December 31, 2015 | 19,861 | $ | 60,958 | $ | (84,793 | ) | $ | — | $ | (23,835 | ) | ||||||||
See accompanying notes to consolidated financial statements
(Amounts in 000's)
| Year Ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Loss | $ | (22,703 | ) | $ | (14,405 | ) | ||
| Loss from discontinued operations | 4,892 | (23,783 | ) | |||||
| Loss from continuing operations | (17,811 | ) | (38,188 | ) | ||||
| Adjustments to reconcile net loss from continuing operations to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 7,345 | 7,393 | ||||||
| Warrants (cancelled) issued for services | (320 | ) | 408 | |||||
| Stock-based compensation expense | 942 | 1,155 | ||||||
| Reclass of restricted stock | (75 | ) | — | |||||
| Rent expense in excess of cash paid | 162 | 209 | ||||||
| Rent revenue in excess of cash received | (1,211 | ) | (21 | ) | ||||
| Amortization of deferred financing costs | 1,149 | 2,122 | ||||||
| Amortization of debt discounts and premiums | 14 | (9 | ) | |||||
| Loss on debt extinguishment | 680 | 1,803 | ||||||
| Deferred tax expense | 102 | 98 | ||||||
| Loss on disposal of assets | — | 7 | ||||||
| Provision for bad debts | 2,132 | — | ||||||
| Changes in certain assets and liabilities, net of acquisitions: | ||||||||
| Accounts receivable | (2,220 | ) | 369 | |||||
| Prepaid expenses and other | (2,029 | ) | (653 | ) | ||||
| Other assets | (127 | ) | (554 | ) | ||||
| Accounts payable and other liabilities | (460 | ) | 1,946 | |||||
| Net cash used in operating activities—continuing operations | (11,727 | ) | (23,915 | ) | ||||
| Net cash (used in) provided by operating activities—discontinued operations | (6,079 | ) | 17,780 | |||||
| Net cash used in operating activities | (17,806 | ) | (6,135 | ) | ||||
| Cash flow from investing activities: | ||||||||
| Change in restricted cash and investments | (3,950 | ) | 5,744 | |||||
| Purchase of property and equipment | (1,799 | ) | (4,139 | ) | ||||
| Net cash (used in) provided by investing activities—continuing operations | (5,749 | ) | 1,605 | |||||
| Net cash provided by (used in) investing activities—discontinued operations | 15,594 | (1,489 | ) | |||||
| Net cash provided by investing activities | 9,845 | 116 | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from debt | 22,757 | 25,716 | ||||||
| Proceeds from convertible debt | 2,049 | 6,055 | ||||||
| Repayment on notes payable | (25,652 | ) | (24,905 | ) | ||||
| Repayment on bonds payable | — | (2,994 | ) | |||||
| Repayment on convertible debt | (6,849 | ) | (4,094 | ) | ||||
| Proceeds from lines of credit | 28,310 | 69,874 | ||||||
| Repayment on lines of credit | (34,944 | ) | (71,590 | ) | ||||
| Debt issuance costs | (598 | ) | (1,044 | ) | ||||
| Exercise of options and warrants | 1,791 | 3,257 | ||||||
| Proceeds from preferred stock issuances | 34,323 | — | ||||||
| Other | — | (50 | ) | |||||
| Dividends on common stock | (3,276 | ) | — | |||||
| Dividends paid on preferred stock | (5,208 | ) | (2,584 | ) | ||||
| Net cash provided by (used in) financing activities—continuing operations | 12,703 | (2,359 | ) | |||||
| Net cash used in financing activities—discontinued operations | (12,757 | ) | (261 | ) | ||||
| Net cash provided by (used in) financing activities | (54 | ) | (2,620 | ) | ||||
| Net change in cash | (8,015 | ) | (8,639 | ) | ||||
| Cash, beginning | 10,735 | 19,374 | ||||||
| Cash, ending | $ | 2,720 | $ | 10,735 | ||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | 8,367 | $ | 9,859 | ||||
| Income taxes | $ | 8 | $ | 33 | ||||
| Supplemental Disclosure of Non-Cash Activities: | ||||||||
| Payments for 2015 Notes received from 2014 Note holders | $ | 5,651 | $ | — | ||||
| 2011 Notes surrendered and cancelled in payment for 2014 Notes | $ | — | $ | 445 | ||||
| Land received in settlement of note receivable | $ | — | $ | 640 | ||||
| Conversion of debt to equity | $ | — | $ | 6,930 | ||||
| Warrants issued in conjunction with convertible debt offering | $ | — | $ | 87 | ||||
Notes issued in conjunction with financing of exit fees | $ | 680 | $ | — | ||||
| Non-cash discounts to financed insurance | $ | 721 | $ | 14 | ||||
|
| Year Ended December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net Income (loss) |
| $ | 5,500 |
|
| $ | (11,895 | ) |
Income from discontinued operations, net of tax |
|
| (626 | ) |
|
| (74 | ) |
Income (loss) from continuing operations |
|
| 4,874 |
|
|
| (11,969 | ) |
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 3,438 |
|
|
| 4,634 |
|
Stock-based compensation expense |
|
| 92 |
|
|
| 176 |
|
Rent expense in excess of cash paid |
|
| 308 |
|
|
| 368 |
|
Rent revenue in excess of cash received |
|
| (1,424 | ) |
|
| (2,003 | ) |
Amortization of deferred financing costs, debt discounts and premiums |
|
| 198 |
|
|
| 575 |
|
Loss on debt extinguishment |
|
| 2,458 |
|
|
| 5,234 |
|
Gain on disposal of assets |
|
| (7,141 | ) |
|
| — |
|
Deferred tax benefit |
|
| — |
|
|
| (38 | ) |
Bad debt (benefit) expense |
|
| (281 | ) |
|
| 4,132 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 465 |
|
|
| (497 | ) |
Prepaid expenses and other assets |
|
| 400 |
|
|
| 898 |
|
Accounts payable and accrued expenses |
|
| (339 | ) |
|
| 1,235 |
|
Other liabilities |
|
| — |
|
|
| 334 |
|
Net cash provided by operating activities—continuing operations |
|
| 3,048 |
|
|
| 3,079 |
|
Net cash used in operating activities—discontinued operations |
|
| (652 | ) |
|
| (1,731 | ) |
Net cash provided by operating activities |
|
| 2,396 |
|
|
| 1,348 |
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from disposal of lease assets, net |
|
| 1,192 |
|
|
| — |
|
Proceeds from the sale of property and equipment, net |
|
| 2,687 |
|
|
| — |
|
Purchase of property and equipment |
|
| (58 | ) |
|
| (338 | ) |
Net cash provided by (used in) investing activities—continuing operations |
|
| 3,821 |
|
|
| (338 | ) |
Net cash provided by investing activities—discontinued operations |
|
| — |
|
|
| — |
|
Net cash provided (used in) by investing activities |
|
| 3,821 |
|
|
| (338 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from debt issuance |
|
| — |
|
|
| 2,397 |
|
Repayment on notes payable |
|
| (3,036 | ) |
|
| (2,076 | ) |
Repayment on bonds payable |
|
| (344 | ) |
|
| (95 | ) |
Debt extinguishment, forbearance and issuance costs, net of refunds |
|
| (1,251 | ) |
|
| 130 |
|
Net cash (used in) provided by financing activities—continuing operations |
|
| (4,631 | ) |
|
| 356 |
|
Net cash used in financing activities—discontinued operations |
|
| (34 | ) |
|
| (239 | ) |
Net cash (used in) provided by financing activities |
|
| (4,665 | ) |
|
| 117 |
|
Net change in cash and restricted cash |
|
| 1,552 |
|
|
| 1,127 |
|
Cash and restricted cash at beginning of period |
|
| 6,486 |
|
|
| 5,359 |
|
Cash and restricted cash at end of period |
| $ | 8,038 |
|
| $ | 6,486 |
|
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
(Amounts in 000’s)
|
| Year Ended December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
| |
Cash interest paid |
| $ | 4,809 |
|
| $ | 5,220 |
|
Supplemental disclosure of non-cash Activities: |
|
|
|
|
|
|
|
|
Non-cash payments of short-term debt |
| $ | (24,637 | ) |
| $ | — |
|
Non-cash payments of long-term debt |
|
| — |
|
|
| (8,744 | ) |
Non-cash payments of convertible debt |
|
| — |
|
|
| (1,500 | ) |
Non-cash payments of professional liability settlements from financing |
|
| — |
|
|
| (2,371 | ) |
Non-cash debt extinguishment, issuance costs and prepayment penalties |
|
| (1,036 | ) |
|
| (1,238 | ) |
Non-cash surrender of security deposit |
|
| (140 | ) |
|
| — |
|
Non-cash payments of professional liability settlements from prior insurer |
|
| — |
|
|
| (2,850 | ) |
Net payments through escrow |
| $ | (25,813 | ) |
| $ | (16,703 | ) |
Non-cash proceeds from sale of property and equipment |
| $ | 25,813 |
|
| $ | — |
|
Non-cash proceeds from financing |
|
| — |
|
|
| 13,853 |
|
Non-cash proceeds from prior insurer for professional liability settlements |
|
| — |
|
|
| 2,850 |
|
Net proceeds through escrow |
| $ | 25,813 |
|
| $ | 16,703 |
|
|
|
|
|
|
|
|
|
|
Non-cash deferred financing |
| $ | — |
|
| $ | 4,202 |
|
Surrender of security deposit |
| $ | — |
|
| $ | 305 |
|
Issuance of vendor-financed insurance |
| $ | 250 |
|
| $ | 198 |
|
Non-cash proceeds from finance lease to purchase fixed assets |
| $ | 26 |
|
| $ | — |
|
See accompanying notes to consolidated financial statements
Description of Business
AdCare Health Systems, Inc. (“AdCare”), through is the former parent of, and the predecessor issuer to, Regional Health Properties, Inc. (“Regional Health” or “Regional” and, together with its subsidiaries, (together, the “Company” or “we”),. On September 29, 2017, AdCare merged (the “Merger”) with and into Regional Health, a Georgia corporation and wholly owned subsidiary of AdCare formed for the purpose of the Merger, with Regional Health continuing as the surviving corporation in the Merger. The Company has many of the characteristics of a real estate investment trust (“REIT”) and is focused on the ownership, acquisition and leasing of healthcare related properties. Regional Health is a self-managed real estate investment company that invests primarily in real estate purposed for long-term healthcare and senior living. Our business primarily consists of leasing and subleasing such facilities to third-party tenants, which operate the facilities. As of December 31, 2015, the Company owned, leased, or managed for third parties 38 facilities
Regional Health is a self-managed real estate investment company that invests primarily in real estate purposed for long-term healthcare and senior living. Our business primarily consists of leasing and subleasing such facilities to third-party tenants, which operate the Southeast.facilities. The operators of the Company'sCompany’s facilities provide a range of health care services to patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.
Regional Health’s predecessor was incorporated in Ohio on August 14, 1991, under the name Passport Retirement, Inc. In 1995, the Company acquired substantially all of the assets and liabilities of AdCare Health Systems, Inc. and changed its name to AdCare Health Systems, Inc. AdCare completed its initial public offering in November 2006. Initially based in Ohio, the CompanyAdCare expanded its portfolio through a series of strategic acquisitions to include properties in a number of other states, primarily in the Southeast. In 2012, the CompanyAdCare relocated its executive offices and accounting operations to Georgia, and AdCare changed its state of incorporation from the Ohio to Georgia on December 12, 2013.
Historically, the Company'sAdCare’s business focused on owning and operating skilled nursing and assisted living facilities. The Company also managed facilities on behalf of unaffiliated owners with whom the Company entered intopursuant to management contracts. In July 2014, the Company's BoardAdCare’s board of Directorsdirectors (the “Board”“AdCare Board”) approved a strategic plan to transition (the “Transition”) the Company to a healthcare property holding and leasing company through a series of leasing and subleasing transactions. As of December 31, 2015, the CompanyAdCare and its subsidiaries completed the Transition through: (i) leasing to third-party operators all of the healthcare properties which it ownsthey owned and previously operated; (ii) subleasing to third-party operators all of the healthcare properties which it leasesthey leased (but doesdid not own) and previously operated; and (iii) continuing the one remaining management agreement to manage two skilled nursing facilities and one independent living facility for third parties.a third-party. As a result of the Transition, the Company acquired certain characteristics of a REIT and became focused on the ownership, acquisition and leasing of healthcare related properties.
As a consequence of the Merger:
the outstanding shares of AdCare’s common stock, no par value per share (the “AdCare common stock”), converted, on a one for one basis, into the same number of shares of Regional Health’s common stock, no par value per share (the “RHE common stock”);
the outstanding shares of AdCare’s 10.875% Series A Cumulative Redeemable Preferred Stock (the “AdCare Series A Preferred Stock”) converted, on a one for one basis, into the same number of shares of Regional Health’s 10.875% Series A Cumulative Redeemable Preferred Stock (the “RHE Series A Preferred Stock”);
Regional Health assumed all of AdCare’s equity incentive compensation plans, and all rights to acquire shares of AdCare common stock under any AdCare equity incentive compensation plan converted into rights to acquire RHE common stock pursuant to the terms of the equity incentive compensation plans and other related documents, if any;
Regional Health became the successor issuer to AdCare and succeeded to the assets and continued the business and assumed the obligations of AdCare;
the RHE common stock and the RHE Series A Preferred Stock commenced trading on the NYSE American LLC (“NYSE American”) immediately following the Merger;
the rights of the holders of RHE common stock and RHE Series A Preferred Stock are governed by the amended and restated articles of incorporation of RHE (the “RHE Charter”) and the amended and restated bylaws of RHE (the “RHE Bylaws”). The RHE Charter is substantially equivalent to AdCare’s articles of incorporation, as amended (the “AdCare Charter”), except that the RHE Charter includes ownership and transfer restrictions related to the RHE common stock. The RHE Bylaws are substantially equivalent to the bylaws of AdCare, as amended;
there was no change in the assets held by or in the business conducted by the Company; and
there was no fundamental change to the Company’s current operational strategy.
When used in these notes to the consolidated financial statements, unless otherwise specifically stated or the context otherwise requires, the terms:
“Board” or “Board of Directors” refers to the AdCare Board with respect to the period prior to the Merger and to the RHE Board with respect to the period after the Merger;
“Company refers to AdCare and its subsidiaries with respect to the period prior to the Merger and to Regional Health and its subsidiaries with respect to the period after the Merger;
“common stock” refers to the AdCare common stock with respect to the period prior to the Merger and to the RHE common stock with respect to the period after the Merger;
“Series A Preferred Stock” refers to the AdCare Series A Preferred Stock with respect to the period prior to the Merger and to the RHE Series A Preferred Stock with respect to the period after the Merger; and
“Charter” refers to the AdCare Charter with respect to the period prior to the Merger and to the RHE Charter with respect to the period after the Merger.
Overview
As of December 31, 2019, the Company owns, leases, or manages 24 facilities primarily in the Southeast. Of the 24 facilities, the Company: (i) leased 10 owned and subleased nine leased skilled nursing facilities to third-party tenants; (ii) leased two owned assisted living facilities to third-party tenants; and (iii) managed on behalf of third-party owners two skilled nursing facilities and one independent living facility. See Note 7 - Leases for a full description of the Company’s leases).
Pursuant to the Purchase and Sale Agreement, dated April 15, 2019, as subsequently amended from time to time (the “PSA”), between certain subsidiaries of the Company and MED Healthcare Partners LLC (“MED”), the Company sold to affiliates of MED Healthcare Partners LLC (“MED”) four skilled nursing facilities (collectively, the “PSA Facilities”), together with substantially all of the fixtures, equipment, furniture, leases and other assets relating to such PSA Facilities (the “Asset Sale”). Under the PSA, the Company sold: (i) on August 28, 2019, the 100-bed skilled nursing facility commonly known as Northwest Nursing Center located in Oklahoma City, Oklahoma (the “Northwest Facility”); and (ii) on August 1, 2019, the following three facilities, (a) the 182-bed skilled nursing facility commonly known as Attalla Health & Rehab located in Attalla, Alabama (the “Attalla Facility”), (b) the 100-bed skilled nursing facility commonly known as Healthcare at College Park located in College Park, Georgia (the “College Park Facility”), and (c) the 118-bed skilled nursing facility commonly known as Quail Creek Nursing Home located in Oklahoma City, Oklahoma (the “Quail Creek Facility”).
In connection with the Asset Sale: (i) MED paid to the Company a cash purchase price for the PSA Facilities equal to $28.5 million in the aggregate; (ii) the Company incurred approximately $0.4 million in sales commission expenses and $0.1 million for a building improvement credit; and (iii) the Company transferred approximately $0.1 million in lease security deposits to MED.
On August 1, 2019, the Company used a portion of the proceeds from the Asset Sale to repay approximately $21.3 million to Pinecone Realty Partners II, LLC (“Pinecone”) to extinguish all indebtedness owed by the Company under a loan agreement, dated February 15, 2018, as amended from time to time with an original aggregate principal amount of $16.25 million which refinanced existing mortgage debt (the “Pinecone Credit Facility”), and to repay approximately $3.8 million to Congressional Bank to extinguish all indebtedness owed by the Company under a term loan agreement, dated September 27, 2013, as amended from time to time, between the Company and Congressional Bank (the “Quail Creek Credit Facility”). For further information, see Note 9 – Notes Payable and Other Debt and Note 10 – Acquisitions and Dispositions.
The Company leases its currently-owned healthcare properties, and subleases its currently-leased healthcare properties, on a triple-net basis, meaning that the lessee (i.e.(i.e., the new third-party operator of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the propertiesproperty, including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. These leases are generally long-term in nature with renewal options and annual rent escalation clauses. As a result of the Transition, the Company now has many of the characteristics of a real estate investment trust ("REIT") and is now focused on the ownership, acquisition and leasing of healthcare related properties. The Board is analyzing and considering: (i) whether and, if so, when, we could satisfy the requirements to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”); (ii) the structural and operational complexities which would need to be addressed before we could qualify as a REIT, including the disposition of certain assets or the termination of certain operations which may not be REIT compliant; and (iii) if we were to qualify as a REIT, whether electing REIT status would be in the best interests of the Company and its shareholders in light of various factors, including our significant consolidated Federal net operating loss carryforwards of approximately $58.3 million as of December 31, 2015. There is no assurance that the Company will qualify as a REIT in future taxable years or, if it were to so qualify, that the Board would determine that electing REIT status would be in the best interests of the Company and its shareholders.
Basis of Presentation
The accompanying consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles ("GAAP"(“GAAP”) in accordance with the Financial Accounting Standards Board ("FASB"(“FASB”) Accounting Standards Codification ("ASC"(“ASC”).
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported results of operations during the reporting period. Examples of significantSignificant estimates include the self-insurance reserve for professional and general liability, allowance for doubtful accounts, contractual allowances for Medicaid, Medicare, and managed care reimbursements, deferred tax valuation allowance, fair value of derivative instruments, fair value of employee and nonemployee stock basedshare-based awards, fair value estimation methods used to determine the assigned fair value of assets and liabilities acquired in acquisitions, valuation of goodwill and other long-lived assets, and cash flow projections. Actual results could differ materially from those estimates.
Principles of Consolidation
The consolidated financial statements include the Company'sCompany’s majority owned and controlled subsidiaries. All intercompany transactions and balances have been eliminated through consolidation. For subsidiaries that are not wholly owned by the Company, the portions not controlled by the Company are presented as non-controlling interests in the consolidated financial statements.
Arrangements with other business enterprises are evaluated, and those in which AdCareRegional Health is determined to have controlling financial interest are consolidated. Guidance is provided by FASB ASC Topic 810-10,
The Company has evaluated and concluded that as of December 31, 2015, they have2019 and December 31, 2018, the Company has no relationship with a variable interest entity ("VIE")VIE in which they areit is the primary beneficiary required to consolidate the entity.
Certain reclassifications have been made to the 20142018 financial information to conform to the 20152019 presentation with no effect on the Company'sCompany’s consolidated financial position or results of operations. These reclassifications did not affect total assets, total liabilities, or stockholders'stockholders’ equity. Reclassifications were made to the Balance Sheet as of December 31, 2014 and the consolidated statements of operations and consolidated statements of cash flowsbalance sheet for the year ended December 31, 20142018 to conform to the declassification of short term and long term assets and liabilities for the year ended December 31, 2019 in line with industry standard reporting for real estate investment companies.
Reverse Stock Split
On December 27, 2018, the Board of Directors authorized a reverse stock split of the issued and outstanding shares of the common stock, at a ratio of one-for-twelve shares (the “Reverse Stock Split”). Shareholder approval for the Reverse Stock Split was obtained at the Company’s annual meeting of shareholders on December 27, 2018 and the Reverse Stock Split became effective on December 31, 2018. At the effective date, every 12 shares of the common stock that were issued and outstanding were automatically combined into one issued and outstanding share of the common stock. Shareholders did not receive fractional shares in connection with the Reverse Stock Split and instead, received an additional whole share of the common stock in lieu thereof. The authorized number of shares, and the par value per share, of the common stock was not affected by the Reverse Stock Split. The Reverse Stock Split also correspondingly affected all outstanding Regional Health equity awards. The Reverse Stock Split was implemented for the purpose of complying with the NYSE American continued listing standards regarding low selling price.
All authorized, issued and outstanding stock and per share amounts contained in the accompanying consolidated financial statements have been adjusted to reflect the same facilities in discontinued operationsReverse Stock Split for bothall prior periods presented.
Cash, Cash Equivalents, and Restricted Cash and Investments
The Company considers all unrestricted short-term investments with original maturities less than three months, which are readily convertible into cash, to be cash equivalents. Certain cash cash equivalents and investment amounts are restricted for specific purposes such as (i) mortgage escrow requirements,requirements; (ii) reserves for capital expenditures on United States Housing and Urban Development ("HUD"(“HUD”) insured facilitiesfacilities; and (iii) collateral for other debt obligations.
Revenue Recognition
Triple-Net Leased Properties.
TheManagement Fee Revenues and Other Revenues. On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, as codified in ASC 606, which requires a company to recognize revenue when the company transfers control of promised goods and Other. services to a customer. Revenue is recognized in an amount that reflects the consideration to which a company expects to receive in exchange for such goods and services. The new revenue standard does not apply to rental revenues, which are the Company’s primary source of revenue. The Company recognizes management fee revenues as services are provided.provided, with payment for each month of service received in full on a monthly basis. The Company has one contract to manage three facilities (the “Management Contract”), with payment for each month of service received in full on a monthly basis. The maximum penalty for service contract nonperformance under the Management Contract is $50,000 per year, payable after the end of the
year. Further, the Company recognizes interest income from lease inducements receivablesloans and loans made to tenants.
Allowances.
The Company assesses theAs of December 31, 2015,2019 and December 31, 2018, the Company allowedreserved for approximately $12.5$0.6 million on approximately $20.9and $1.4 million, respectively, of gross patient care related receivables primarily from our operations before completion of our Transition. Allowance for patient care receivables are estimated based on an aged bucket method incorporating different payor types. All patient care receivables exceeding 365 days are fully alloweduncollected receivables. Accounts receivable, net totaled $1.0 million at December 31, 2015. The increase in the reserves for patient care is primarily included in discontinued operations.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash, and cash equivalents, restricted cash, restricted investments, accounts receivable and straight-line rent receivable.receivables. Cash and cash equivalents, restricted cash and restricted investments are held with various financial institutions. From time to time, these balances exceed the federally insured limits. These balances are maintained with high quality financial institutions which management believes limits the risk.
Accounts receivable are recorded at net realizable value. The Company performs ongoing evaluations of its tenants and significant third-party payors with which they contract,it contracts, and generally does not require collateral. The Company maintains an allowance for doubtful accounts which management believes is sufficient to cover potential losses. Delinquent accounts receivable are charged against the allowance for doubtful accounts once likelihood of collection has been determined.determined to be unlikely. Accounts receivable are considered to be past due and placed on delinquent status based upon contractual terms as well as how frequently payments are received, and on an individual account basis.
Property and Equipment
Property and equipment are stated at cost. Expenditures for major improvements are capitalized. Depreciation commences when the assets are placed in service. Maintenance and repairs which do not improve or extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is recorded. Depreciation is recorded on a straight-line basis over the estimated useful lives of the respective assets. Property and equipment also includes bed license intangibles for states other than Ohio (where the building and bed license are deemed complimentary assets) and are amortized over the life of the building. The Company reviews property and equipment for potential impairment whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable.
Leases and Leasehold Improvements
The Company leases certain facilities and equipment for use in its day-to-day operations.the normal course of business. At the inception of each lease, the Company performs an evaluation to determine whether the lease should be classified as an operating lease or capital lease. As of December 31, 2015,2019, all of the Company'sCompany’s leased facilities are accounted for as operating leases. For operating leases that contain scheduled rent increases, the Company records rent expense on a straight-line basis over the term of the lease. Leasehold improvements are amortized over the shorter of the useful life of the asset or the lease term.
On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) ASU 2016-02, Leases, as codified in ASC 842, using the non-comparative transition option pursuant to ASU 2018-11. Therefore we have not restated comparative period financial information for the effects of ASC 842, and we have not made the new required lease disclosures for comparative periods beginning before January 1, 2019. The Company recognized both right of use assets and lease liabilities for leases in which we lease land, real property or other equipment, electing the practical expedient to maintain the prior operating lease classification. Effective January 1, 2019, we will assess
any new contracts or modification of contracts in accordance with ASC 842 to determine the existence of a lease and its classification. We are reporting revenues and expenses for real estate taxes and insurance, prospectively where the lessee has not made those payments directly to a third party in accordance with their respective leases with us.
The following table summarizes real estate tax recognized on our consolidated statements of operations for the twelve months ended December 31, 2019 and 2018:
|
|
| Year Ended December 31, |
| |||||
(Amounts in 000’s) |
|
| 2019 |
|
| 2018 |
| ||
Rental revenues |
|
| $ | 480 |
|
| $ | — |
|
Other operating expenses |
|
|
| 480 |
|
|
| — |
|
Additionally, we now expense certain leasing costs, other than leasing commissions, as they are incurred. Current GAAP provides for the deferral and amortization of such costs over the applicable lease term. Adoption of ASU 2016-02 has not had a material effect on the Company’s consolidated financial statements, other than the initial balance sheet impact of recognizing the right-of-use assets and the right-of-use lease liabilities. Upon adoption, we recognized operating lease assets of $39.8 million on our consolidated balance sheet for the period ended March 31, 2019, which represents the present value of minimum lease payments associated with such leases. Also upon adoption, we recognized operating lease liabilities of $41.5 million on our consolidated balance sheet for the period ended March 31, 2019. The present value of minimum lease payments was calculated on each lease using a discount rate that approximated our incremental borrowing rate and the current lease term is also used to provideand upon adoption we utilized a discount rate of 7.98% for the basisCompany’s leases. See Note 7– Leases for establishing depreciable lives for leasehold improvements.
Intangible Assets and Goodwill
Intangible assets consist of finite lived and indefinite lived intangibles. The Company'sCompany’s finite lived intangibles include lease rights and certain certificate of need ("CON"(“CON”) and bed licenses that are not separable from the associated buildings. Finite lived intangibles are amortized over their estimated useful lives. For the Company'sCompany’s lease related intangibles, the estimated useful life is based on the terms of the underlying facility leases averaging approximately ten years. For the Company'sCompany’s CON/bed licenses that are not separable from the buildings, the estimated useful life is based on the building life when acquired with an average estimated useful life of approximately 32 years. The Company evaluates the recoverability of the finite lived intangibles whenever an impairment indicator is present.
The Company'sCompany’s indefinite lived intangibles consist primarily of values assigned to CON/bed licenses that are separable from the buildings. The Company does not amortize goodwill or indefinite lived intangibles. The Company's goodwill is related to certain property acquisitions, but is evaluated for impairment on the operator level. On an annual basis, the Company evaluates the recoverability of the indefinite lived intangibles and goodwill by performing an impairment test. The Company performs its annual test for impairment during the fourth quarter of each year. For the year ended December 31, 2015,2019, the test results indicated no impairment necessary.
Pre-paid Expenses and Other
As of December 31, 2019 and December 31, 2018, the Company had $0.2 million and $0.5 million, respectively, in pre-paid expenses and other; $0.3 million relates to consultant and legal retainers as of December 31, 2018, and the remainder for both periods is primarily for directors’ and officers’ insurance and mortgage insurance premiums.
Extinguishment of Debt
The Company recognizes extinguishment of debt when the criteria for a troubled debt restructure are not met and the change in the debt terms is considered substantial. The Company calculates the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt (including deferred finance fees) and recognizes a gain or loss on the consolidated statement of operations in the period of extinguishment.
The Company records deferred financing costs associated with debt obligations as an asset.direct reduction from the carrying amount of the debt liability. Costs are amortized over the term of the related debt using the straight-line method and are reflected as interest expense. The straight-line method yields results substantially similar to those that would be produced under the effective interest rate method.
Income Taxes and Uncertain Tax Positions
Deferred tax assets or liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that included the enactment date. Deferred tax assets are also recognized for the future tax benefits from net operating loss and other carry forwards. Valuation allowances are recorded for deferred tax assets when the recoverability of such assets is not deemed more likely than not.
On December 22, 2017, tax legislation commonly known as The Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted. Among other changes the Tax Reform Act reduces the US federal corporate tax rate from 35% to 21% beginning in 2018.
As a result of the Tax Reform Act, net operating loss (“NOL”) carry forwards generated in tax years 2018 and forward have an indefinite life. For this reason, the Company has taken the position that the deferred tax liability related to the indefinite lived intangibles can be used to support an equal amount of the deferred tax asset related to the 2018 NOL carry forward generated. This resulted in the Company recognizing an income tax benefit of approximately $0.04 million in 2018 related to the use of our naked credit as a source of income to release a portion of our valuation allowance.
Judgment is required in evaluating uncertain tax positions. The Company determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is measured to determine the amount of benefit to recognize in the financial statements. The Company classifies unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as non-current liabilities in the consolidated balance sheets. The Company is subject to income taxes in the U.S. and numerous state and local jurisdictions. In general, the Company'sCompany’s tax returns filed for the 19982016 through 20152019 tax years are still subject to potential examination by taxing authorities.
To the Internal Revenue Service ("IRS") initiated an examination ofCompany’s knowledge, the Company's income tax return for the 2011 income tax year. On May 7, 2014, the IRS completed and closed the examination and no changes were required to the Company's 2011 income tax return.
Stock Based Compensation
The Company follows the provisions of ASC topicTopic 718 “
Fair Value Measurements and Financial Instruments
Accounting guidance establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The categorization of a measurement within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
Level 1— Quoted market prices in active markets for identical assets or liabilities
Level 2— Other observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3— Significant unobservable inputs
The respective carrying value of certain financial instruments of the Company approximates their fair value. These instruments include cash, and cash equivalents, restricted cash and investments, accounts receivable, notes receivable, and accounts payable. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values, they are receivable or payable on demand, or the interest rates earned and/or paid approximate current market rates.
Self-Insurance
Prior to the Transition, the Company was self-insured for employee medical claims (in all states except for Oklahoma, where the Company participatesparticipated in the Oklahoma state subsidy program) and had a large deductible workers'workers’ compensation plan (in all states except for Ohio, where workers'workers’ compensation is covered under a premium-only policy provided by the Ohio Bureau of Workers'Workers’ Compensation). Additionally, the Company maintains insurance programs, including general and professional liability, property, casualty, directors' and officers' liability, crime, automobile, employment practices liability and earthquake and flood.
In 2015, the insurance programprograms described above changed within order to address the different needs of the company andCompany as a result of the transition of operations.Transition. The Workers CompensationCompany’s workers compensation plan transitioned from a high deductible to a guaranteed cost program in February 2015. Professional liability insurance was provided
Professional liability ininsurance was provided to facilities operations up until the consolidated financial statements.
The Company has self-insured against professional and Exchange Commission ("SEC") under authoritygeneral liability claims since it discontinued its healthcare operations in connection with the Transition. The Company evaluates quarterly the adequacy of federal securities laws, FASB ASCits self-insurance reserve based on a number of factors, including: (i) the number of actions pending and the relief sought; (ii) analyses provided by defense counsel, medical experts or other information which comes to light during discovery; (iii) the legal fees and other expenses anticipated to be incurred in defending the actions; (iv) the status and likely success of any mediation or settlement discussions, including estimated settlement amounts and legal fees and other expenses anticipated to be incurred in such settlement, as applicable; and (v) the venues in which the actions have been filed or will be adjudicated. The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgment unless settlement is the sole source of authoritative GAAP literature applicablemore advantageous to the Company. The Company has reviewedAccordingly, the FASB accounting pronouncements and Accounting Standards Update ("ASU") interpretations that have effectiveness dates duringself-insurance reserve reflects the periods reported and in future periods.
In addition, the Company formaintains certain other insurance programs, including commercial general liability, property, casualty, directors’ and officers’ liability, crime and employment practices liability.
Classification of the 2015 annualSeries A Preferred Stock as Permanent Equity
As a result of the Merger the common stock is subject to the ownership and interim reporting periods. Early adoption is permitted for disposals that havetransfer restrictions set forth in the RHE Charter. These restrictions permit classification of the Series A Preferred Stock as permanent equity. Prior to the Merger, the common stock was not been reported in financial statements previously issued. The Company adopted this ASU January 1, 2015.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. The new revenue standard by one year. Asmodel uses a forward-looking expected loss method, which will generally result this new revenue standardin earlier recognition of allowances for losses. In November 2018, the FASB issued ASU 2018-19 CodificationImprovements to Topic 326, Financial Instruments—Credit Losses. The amendment clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. ASU 2019-10 Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, extended the effective date of ASU
2016-13, which is now effective for annual reportingand interim periods beginning after December 15, 2017, including2022 for smaller reporting companies and early adoption is permitted for annual and interim periods within those reporting periods. Early applicationbeginning after December 15, 2018. The Company is permitted undercurrently evaluating the originalimpact of adopting ASU 2016-13 on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. The pronouncement is effective date offor fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. The Company is currently evaluating the impact on the Company's financial position and results of operations and related disclosures.
As indicated in Note 1 - Summary of Significant Accounting Policies, the Reverse Stock Split became effective on December 31, 2018 for all issued and outstanding shares of the common stock at a ratio of a one-for-twelve, and amounts authorized under the Company’s equity incentive plans were proportionately adjusted. Accordingly, all share and per share amounts have been adjusted to reflect the Reverse Stock Split for all prior periods presented.
Basic earnings per share is computed by dividing net income or loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is similar to basic earnings per share except net income or loss is adjusted by the impact of the assumed issuance of convertible shares and the weighted-average number of shares of common stock outstanding (which includes potentially dilutive securities, such as options, warrants, non-vested shares, and additional shares issuable under convertible notes outstanding during the period when such potentially dilutive securities are not anti-dilutive). Potentially dilutive securities from options, warrants and unvested restricted shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options and warrants with exercise prices exceeding the average market value are used to repurchase common stock at market value. The incremental shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the securities. Potentially dilutive securities from convertible promissory notes are calculated based on the assumed issuance at the beginning of the period, as well as any adjustment to income that would result from their assumed issuance. For 20152019 and 2014,2018, potentially dilutive securities of 4.50.1 million and 7.00.1 million, respectively, were excluded from the diluted loss per share calculation because including them would have been anti-dilutive in both periods.
The following table provides a reconciliation of net lossincome (loss) for continuing and discontinued operations and the number of shares used in the computation of both basic and diluted earnings per share:
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| Year Ended December 31, |
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| 2019 |
|
| 2018 |
| ||||||||||||||||||
(Amounts in 000's, except per share data) |
| Income (loss) |
|
| Shares (2) |
|
| Per Share |
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| Income (loss) |
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| Shares (2) |
|
| Per Share |
| ||||||
Continuing Operations: |
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|
|
Income (loss) from continuing operations |
| $ | 4,874 |
|
|
|
|
|
|
|
|
|
| $ | (11,969 | ) |
|
|
|
|
|
|
|
|
Preferred stock dividends, undeclared (1) |
|
| (8,997 | ) |
|
|
|
|
|
|
|
|
|
| (7,985 | ) |
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|
|
|
|
|
|
|
Basic and diluted loss from continuing operations |
| $ | (4,123 | ) |
|
| 1,688 |
|
| $ | (2.44 | ) |
| $ | (19,954 | ) |
|
| 1,676 |
|
| $ | (11.90 | ) |
Discontinued Operations: |
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Income from discontinued operations |
| $ | 626 |
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|
|
|
|
|
|
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| $ | 74 |
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Basic and Diluted Income from discontinued operations, net of tax |
| $ | 626 |
|
|
| 1,688 |
|
| $ | 0.37 |
|
| $ | 74 |
|
|
| 1,676 |
|
| $ | 0.04 |
|
Net Loss Attributable to Regional Health Properties, Inc.: |
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Basic and Diluted Net loss attributable to Regional Health Properties, Inc. common stockholders |
| $ | (3,497 | ) |
|
| 1,688 |
|
| $ | (2.07 | ) |
| $ | (19,880 | ) |
|
| 1,676 |
|
| $ | (11.86 | ) |
| Year Ended December 31, | ||||||||||||||||||||||
| 2015 | 2014 | |||||||||||||||||||||
| (Amounts in 000's, except per share data) | Loss | Shares | Per Share | (Loss) Income | Shares | Per Share | ||||||||||||||||
| Continuing Operations: | ||||||||||||||||||||||
| Loss from continuing operations | $ | (17,811 | ) | $ | (38,188 | ) | ||||||||||||||||
| Preferred stock dividends | (5,208 | ) | (2,584 | ) | ||||||||||||||||||
| Basic loss from continuing operations | $ | (23,019 | ) | 19,680 | $ | (1.17 | ) | $ | (40,772 | ) | 17,930 | $ | (2.27 | ) | ||||||||
| Diluted loss from continuing operations | $ | (23,019 | ) | 19,680 | $ | (1.17 | ) | $ | (40,772 | ) | 17,930 | $ | (2.27 | ) | ||||||||
| Discontinued Operations: | ||||||||||||||||||||||
| Income (loss) from discontinued operations | $ | (4,892 | ) | $ | 23,783 | |||||||||||||||||
| Net (income) loss attributable to noncontrolling interests | (815 | ) | 806 | |||||||||||||||||||
| Basic (loss) income from discontinued operations attributable to the Company | $ | (5,707 | ) | 19,680 | $ | (0.29 | ) | $ | 24,589 | 17,930 | $ | 1.37 | ||||||||||
| Diluted (loss) income from discontinued operations attributable to the Company | $ | (5,707 | ) | 19,680 | $ | (0.29 | ) | $ | 24,589 | 17,930 | $ | 1.37 | ||||||||||
| Net Loss Attributable to AdCare: | ||||||||||||||||||||||
| Basic loss | $ | (28,726 | ) | 19,680 | $ | (1.46 | ) | $ | (16,183 | ) | 17,930 | $ | (0.90 | ) | ||||||||
| Diluted loss | $ | (28,726 | ) | 19,680 | $ | (1.46 | ) | $ | (16,183 | ) | 17,930 | $ | (0.90 | ) | ||||||||
2018. Accordingly, the Company has not paid dividends with respect to the Series A Preferred Stock since the third quarter of 2017. |
| Securities outstanding that were excluded from the computation, prior to the use of the treasury stock method, because they would have been anti-dilutive are as follows: |
|
| December 31, |
| |||||
(Amounts in 000’s) |
| 2019 |
|
| 2018 |
| ||
Stock options |
|
| 15 |
|
|
| 15 |
|
Common stock warrants - employee |
|
| 49 |
|
|
| 49 |
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Common stock warrants - nonemployee |
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| 9 |
|
|
| 36 |
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Total shares |
|
| 73 |
|
|
| 100 |
|
| December 31, | ||||||
| (Amounts in 000’s) | 2015 | 2014 | ||||
| Stock options | 267 | 934 | ||||
| Common stock warrants - employee | 1,887 | 1,689 | ||||
| Common stock warrants - nonemployee | 164 | 1,028 | ||||
| Shares issuable upon conversion of convertible debt | 2,165 | 3,334 | ||||
| Total shares | 4,483 | 6,985 | ||||
NOTE 3. LIQUIDITY AND PROFITABILITY
Overview
The Company continues to undertakeis undertaking measures to grow its operations, streamline its operations and cost infrastructure in connection with its new business model, including:and otherwise increase liquidity by: (i) eliminating patient care services and related costs; (ii) increasing future minimum lease revenue; (iii) refinancing or repaying current maturitiesdebt to reduce interest costs and reducing mandatory principal repayments, with such repayment to be funded through refinancing transactionspotentially expanding borrowing arrangements with HUDcertain lenders or raising capital through the issuance of securities after restructuring of the Company’s capital structure; (ii) increasing future lease revenue through acquisitions and investments in existing properties; (iii) modifying the terms of existing leases; (iv) replacing certain tenants who default on their lease payment terms; and (v) reducing other lending sources; and (iv) reducing general and administrative expenses.
Management anticipates access to several sources of liquidity, including cash on hand, cash flows from operations, and debt refinancing during the twelve months from the date of this filing. At December 31, 2015,2019, the Company had $2.7$4.4 million in unrestricted cash, $7.4 million current assets and cash equivalents as well as restricted cash$14.1 million in current liabilities and negative working capital of $12.7 million. Overapproximately $0.6 million which excludes $6.1 million of current operating lease obligation. During the next twelve months ended December 31, 2019, the Company anticipates both access to and receiptgenerated positive cash flow from continuing operations of several sources of liquidity.
Series A Cumulative Redeemable Preferred Stock, no par value per share and liquidation preference of $25.00 per share (the "SeriesDividend Suspension
On June 8, 2018, the Board indefinitely suspended quarterly dividend payments with respect to the Series A Preferred Stock"), through an “at-the-market” offering program ("ATM").Stock. As of December 31, 2015,2019, as a result of the Company sold 313,695 sharessuspension of the dividend payment on the Series A Preferred Stock undercommencing with the ATM, generating net proceeds tofourth quarter 2017 dividend period, the Company has $18.9 million of approximately $6.7 million. (see
Debt
As of December 31, 2015,2019, the Company had $125.5$55.4 million in indebtedness of which the current portion is $51.9 million. This current portion is comprised of the following components: (i) debt of held for sale entities of approximately $1.0 million, which includes senior debt - mortgage indebtedness; and (ii) remaining debt of approximately $51.1 million which includes senior debt - mortgage indebtedness (for a complete listing of our debt , see
On August 1, 2019, the Company used a portion of the proceeds from the Asset Sale to repay approximately $21.3 million to Pinecone to extinguish all indebtedness owed by the Company the Pinecone Credit Facility, and to repay
approximately $3.8 the Quail Creek Credit Facility. For further information regarding the Company’s repayment of such indebtedness, see Note 9 – Notes Payable and Other Debt and Note 10 – Acquisitions and Dispositions.
Debt Covenant Compliance
At December 31, 2019, the Company was in compliance with the various financial and administrative covenants related to all of the Company’s credit facilities.
Changes in Operational Liquidity
On August 1, 2019 and August 28, 2019 the Company completed the Asset Sale. The sale of the Quail Creek Facility, the Attalla Facility and the College Park Facility occurred on August 1, 2019, and the sale of the Northwest Facility occurred on August 28, 2019. In connection with the Asset Sale: (i) MED paid to the Company a cash purchase price for the PSA Facilities equal to $28.5 million in the aggregate; (ii) the Company incurred approximately $0.4 million in sales commission expenses and $0.1 million for a building improvement credit; and (iii) transferred approximately $0.1 million in lease security deposits to MED. The expected 2019 annualized rent receivable, for the PSA Facilities was approximately $3.0 million and estimated 2019 annualized interest expense for the Pinecone Credit Facility and Quail Creek Credit Facility, repaid on August 1, 2019 from the Asset Sale proceeds, was approximately $3.8 million.
During the year ended December 31, 2018, eight of the Company’s facilities were in arrears’ on their rent payments. Combined cash rental payments for all eight facilities totaled $0.4 million per month, or approximately 21% of our anticipated total monthly rental receipts. Five of these facilities located in Ohio (the “Ohio Beacon Facilities”) and leased to affiliates (the “Ohio Beacon Affiliates”) of Beacon Health Management, LLC (“Beacon”), who were ten months in arrears on rental payments, surrendered possession of the Ohio Beacon Facilities upon the mutual lease termination on November 30, 2018. Pursuant to the mutual lease terminations, the Ohio Beacon Affiliates agreed to pay a $0.675 million termination fee, payable in 18 monthly installments of $37,500 commencing on January 3, 2019, in full satisfaction of a $0.5 million lease inducement and approximately $2.5 million in rent arrears and approximately $0.6 million of other debt)receivables. Of the remaining three facilities who were in arrears on their rental payments, which reflectfacilities are leased to affiliates of Symmetry Healthcare Management, LLC (“Symmetry” or “Symmetry Healthcare”), one such facility is located in North Carolina (which the offset of anticipated proceedsCompany transitioned to a new operator on refinancingMarch 1, 2019) and two such facilities are located in South Carolina. For additional information with respect to such facilities, see Note 7 – Leases.
On September 20, 2018, the Company reached an agreement with Symmetry Healthcare, pursuant to which Symmetry Healthcare agreed to a payment plan for rent arrears and the Company agreed to an aggregate reduction of approximately $38.5 million. $0.6 million in annualized rent with respect to the three facilities leased to the affiliates of Symmetry Healthcare and waived approximately $0.2 million in rent that was in arrears with respect to such facilities, upon which the affiliates of Symmetry Healthcare recommenced monthly rent payments with respect to such facilities of $0.1 million in the aggregate, starting with the September 1, 2018 amounts due.
On March 24, 2016,November 30, 2018, the Company received a lender commitmentsubleased the Ohio Beacon Facilities to refinance approximately$25.4affiliates (collectively, “Aspire Sublessees”) of Aspire Regional Partners, Inc. (“Aspire”), management formerly affiliated with MSTC Development Inc., pursuant to separate sublease agreements (under Aspire’s operation, the “Aspire Subleases”), providing that Aspire Sublessees would take possession of and operate the Ohio Beacon Facilities (under Aspire’s operation, the “Aspire Facilities”) as subtenant, effective December 1, 2018. Annual anticipated minimum cash rent for the next 12 months is approximately $1.8 million andwith provision for approximately $0.7 million additional cash rent based on each facility’s prior month occupancy. For additional information with respect to extend $9.1 million of current maturities, subject to definitive documentation and certain closing conditions. such facilities, see Note 7 – Leases.
On March 29, 2016,January 15, 2019, but effective February 1, 2019, the Company receivedagreed to a lender commitment10% reduction in base rent, or an aggregate average of approximately $31,000 per month cash rent reduction for the year ended December 31, 2019, and $48,000 per month decrease in straight-line revenue, respectively, for two of the Company’s eight facilities located in Georgia, which are subleased to extend approximately $5.0 millionaffiliates of current maturities, subject to definitive documentation and certain closing conditions.Wellington Health Services (the “Wellington Sublessees”) under agreements dated January 31, 2015, as subsequently amended (the “Wellington Subleases”). The Company anticipates operating cash requirements in 2016 as being substantially less than in 2015Wellington Subleases, due to expire August 31, 2027, relate to the Transition. BasedCompany’s 134-bed skilled nursing facility located in Thunderbolt, Georgia (the “Tara Facility”) and a 208-bed skilled nursing facility located in Powder Springs, Georgia (the “Power Springs Facility”). Additionally the Company modified the annual rent escalator to 1% per year from
the prior scheduled increase from 1% to 2% previously due to commence on the described1st day of the sixth lease year. For additional information with respect to such facilities, see Note – 7 Leases.
Evaluation of the Company’s Ability to Continue as a Going Concern
Under the accounting guidance related to the presentation of financial statements, the Company is required to evaluate, on a quarterly basis, whether or not the entity’s current financial condition, including its sources of liquidity at the Company expects sufficientdate that the consolidated financial statements are issued, will enable the entity to meet its obligations as they come due arising within one year of the date of the issuance of the Company’s consolidated financial statements and to make a determination as to whether or not it is probable, under the application of this accounting guidance, that the entity will be able to continue as a going concern. The Company’s consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
In applying applicable accounting guidance, management considered the Company’s current financial condition and liquidity sources, including current funds for its operations and scheduled debt service, at least throughavailable, forecasted future cash flows, the next twelve months. On a longer term basis, at December 31, 2015, the Company has approximately $64.5 million of debt maturitiesCompany’s obligations due over the next two year period ending December 31, 2017. These debt maturities include $9.2 million of convertible promissory notes, which are convertible into shares of the common stock. The Company has been successful in recent years in raising new equity capital and believes based on recent discussions that these markets will continue to be available for raising capital in the future. The Company believes its long-term liquidity needs will be satisfied by these same sources,twelve months as well as borrowings as required to refinance indebtedness.
The Company has absorbed negative cash flows from operationsis able to conclude that it is probable that the Company will be able to meet its obligations arising within one year of the date of issuance of these consolidated financial statements within the parameters set forth in the past but anticipates a reversal to a positive cash flow from operations during 2016. In order to satisfy the Company's capital needs, the Company seeks to: (i) continue improving operating results through its leasing and subleasing transactions executed with favorable terms and consistent and predictable cash flow; (ii) re-lease Arkansas facilities with a new leasing arrangement made with a new operator (iii) expand borrowing arrangements with certain lenders; (iv) refinance current debt where possible to obtain more favorable terms; and (v) raise capital through the issuance of debt or equity securities. The Company anticipates that these actions, if successful, will provide the opportunity to maintain liquidity on a short and long-term basis, thereby permitting the Company to meet our operating and financing obligations for the next twelve months. However, there is no guarantee that such actions will be successful or that anticipated operating results of the Transition. If the Company is unable to expand existing borrowing agreements, refinance current debt, or raise capital through the issuance of securities, then the Company may be required to restructure its outstanding indebtedness, implement further cost reduction initiatives or sell assets.
The following presents the Company's various restricted cash, escrow deposits and investments:
| December 31, | ||||||||
| Amounts in (000's) | 2015 | 2014 | ||||||
| Collateral cash and certificates of deposit | $ | 7,687 | $ | 2,302 | ||||
| Current replacement reserves | 950 | 646 | ||||||
| Escrow deposits | 532 | 338 | ||||||
| Other restricted cash | — | 35 | ||||||
| Total current portion | 9,169 | 3,321 | ||||||
| Restricted investments for other debt obligations | 2,264 | 3,446 | ||||||
| HUD replacement reserves | 1,174 | 1,074 | ||||||
| Reserves for capital improvements | 120 | 936 | ||||||
| Total noncurrent portion | 3,558 | 5,456 | ||||||
| Total restricted cash and investments | $ | 12,727 | $ | 8,777 | ||||
|
| December 31, |
| |||||
Amounts in (000's) |
| 2019 |
|
| 2018 |
| ||
Cash |
| $ | 4,383 |
|
| $ | 2,407 |
|
Restricted cash: |
|
|
|
|
|
|
|
|
Cash collateral (1) |
| $ | 124 |
|
| $ | 313 |
|
Replacement reserves |
|
| — |
|
|
| 297 |
|
HUD and other replacement reserves |
|
| 2,251 |
|
|
| 2,303 |
|
Escrow deposits (1) |
|
| 963 |
|
|
| 801 |
|
Restricted investments for debt obligations |
|
| 317 |
|
|
| 365 |
|
Total restricted cash |
|
| 3,655 |
|
|
| 4,079 |
|
|
|
|
|
|
|
|
|
|
Total cash and restricted cash |
| $ | 8,038 |
|
| $ | 6,486 |
|
(1) | Current assets |
Cash collateral——In securing mortgage financing from certain lending institutions, the Company and certain of its wholly-owned subsidiaries of the Company are required to deposit cash and/or certificates of deposit to be held as collateral in accordance with the terms of thesuch loan agreements.
Replacement reserves—Current replacement reserves—Cash reserves set aside for non-critical building repairs to be completedfor completion within the next 12 months.months, pursuant to loan agreements.
HUD and other replacement reserves—The regulatory agreements entered into in connection with the financing secured through HUD require monthly escrow deposits for replacement and improvement of the HUD project assets.
Escrow depositsdeposits——In connection with financing secured through ourthe Company’s lenders, several wholly-owned subsidiaries of the Company are required to make monthly escrow deposits for taxes and insurance.
Restricted investmentscash for other debt obligations
The following table sets forth the Company’s property and Equipment consist of the following:equipment:
|
| Estimated Useful |
| December 31, |
| |||||
(Amounts in 000's) |
| Lives (Years) |
| 2019 |
|
| 2018 |
| ||
Buildings and improvements |
| 5 - 40 |
| $ | 65,533 |
|
| $ | 88,710 |
|
Equipment and computer related |
| 2 - 10 |
|
| 5,601 |
|
|
| 7,398 |
|
Land |
| — |
|
| 2,779 |
|
|
| 4,131 |
|
Construction in process |
| — |
|
| 58 |
|
|
| 43 |
|
|
|
|
|
| 73,971 |
|
|
| 100,282 |
|
Less: accumulated depreciation and amortization |
|
|
|
| (19,299 | ) |
|
| (23,045 | ) |
Property and equipment, net |
|
|
| $ | 54,672 |
|
| $ | 77,237 |
|
| December 31, | ||||||||||
| (Amounts in 000's) | Estimated Useful Lives (Years) | 2015 | 2014 | |||||||
| Buildings and improvements | 5 - 40 | $ | 128,912 | $ | 128,136 | |||||
| Equipment | 2 - 10 | 13,470 | 13,294 | |||||||
| Land | — | 7,128 | 7,127 | |||||||
| Computer related | 2 - 10 | 2,999 | 2,908 | |||||||
| Construction in process | — | 390 | 52 | |||||||
| 152,899 | 151,517 | |||||||||
| Less: accumulated depreciation and amortization | 26,223 | 20,524 | ||||||||
| Property and equipment, net | $ | 126,676 | $ | 130,993 | ||||||
During the twelve months ended December 31, 2014,2019, and the twelve months ended December 31, 2018, the Company recorded an impairment of $1.8 million related to an adjustment to the fair value less the cost to sell Companions 102-bed nursing facility locatedno impairments in Tulsa, Oklahoma. The assetsproperty and liabilities of Companions were included in Assets and Liabilities Held for Sale as of December 31, 2014. equipment.
On October 30, 2015,August 28, 2019, the Company completed the sale of Companions (see
The following table summarizes total depreciation and amortization for the twelve months ended December 31, 2015, the Company recognized impairment charges of approximately $0.5 million2019 and $0.1 million to write down the carrying value of its two office buildings located in Roswell, Georgia and one office building2018:
|
| December 31, |
| |||||
Amounts in (000's) |
| 2019 |
|
| 2018 |
| ||
Depreciation |
| $ | 2,458 |
|
| $ | 3,182 |
|
Amortization |
|
| 980 |
|
|
| 1,452 |
|
Total depreciation and amortization |
| $ | 3,438 |
|
| $ | 4,634 |
|
Intangible assets consist of the following:
| (Amounts in 000's) | Bed Licenses (included in property and equipment) | Bed Licenses— Separable | Lease Rights | Total |
| Bed Licenses (1) (included in property and equipment) |
|
| Bed Licenses— Separable |
|
| Lease Rights |
|
| Total |
| ||||||||||||||||
| Balances, December 31, 2013 | ||||||||||||||||||||||||||||||||
Balances, January 1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| Gross | $ | 37,220 | $ | 2,471 | $ | 8,824 | $ | 48,515 |
| $ | 22,811 |
|
| $ | 2,471 |
|
| $ | 7,181 |
|
| $ | 32,463 |
| ||||||||
| Accumulated amortization | (2,482 | ) | — | (3,935 | ) | (6,417 | ) |
|
| (4,166 | ) |
|
| — |
|
|
| (4,994 | ) |
|
| (9,160 | ) | |||||||||
| Net carrying amount | $ | 34,738 | $ | 2,471 | $ | 4,889 | $ | 42,098 |
| $ | 18,645 |
|
| $ | 2,471 |
|
| $ | 2,187 |
|
| $ | 23,303 |
| ||||||||
| Dispositions | ||||||||||||||||||||||||||||||||
Acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross |
|
| — |
|
|
| — |
|
|
| 164 |
|
|
| 164 |
| ||||||||||||||||
Assets Sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| Gross | — | — | (1,418 | ) | (1,418 | ) |
|
| — |
|
|
| — |
|
|
| (2,330 | ) |
|
| (2,330 | ) | ||||||||||
| Accumulated amortization | — | — | 1,418 | 1,418 |
|
| — |
|
|
| — |
|
|
| 1,654 |
|
|
| 1,654 |
| ||||||||||||
| Amortization expense | (1,173 | ) | — | (802 | ) | (1,975 | ) |
|
| (683 | ) |
|
| — |
|
|
| (769 | ) |
|
| (1,452 | ) | |||||||||
| Reclass to held for sale | ||||||||||||||||||||||||||||||||
| Gross | (1,530 | ) | — | — | (1,530 | ) | ||||||||||||||||||||||||||
| Accumulated amortization | 68 | — | — | 68 | ||||||||||||||||||||||||||||
| Balances, December 31, 2014 | ||||||||||||||||||||||||||||||||
Balances, December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| Gross | 35,690 | 2,471 | 7,406 | 45,567 |
|
| 22,811 |
|
|
| 2,471 |
|
|
| 5,015 |
|
|
| 30,297 |
| ||||||||||||
| Accumulated amortization | (3,587 | ) | — | (3,319 | ) | (6,906 | ) |
|
| (4,849 | ) |
|
| — |
|
|
| (4,109 | ) |
|
| (8,958 | ) | |||||||||
| Net carrying amount | 32,103 | 2,471 | 4,087 | 38,661 |
|
| 17,962 |
|
|
| 2,471 |
|
|
| 906 |
|
|
| 21,339 |
| ||||||||||||
| Dispositions | ||||||||||||||||||||||||||||||||
Acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross |
|
| — |
|
|
| — |
|
|
| 43 |
|
|
| 43 |
| ||||||||||||||||
Assets Sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross |
|
| (8,535 | ) |
|
| — |
|
|
| — |
|
|
| (8,535 | ) | ||||||||||||||||
Accumulated amortization |
|
| 2,003 |
|
|
| — |
|
|
| — |
|
|
| 2,003 |
| ||||||||||||||||
Fully amortized asset adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| Gross | — | — | (525 | ) | (525 | ) |
|
| — |
|
|
| — |
|
|
| (300 | ) |
|
| (300 | ) | ||||||||||
| Accumulated amortization | — | — | 525 | 525 |
|
| — |
|
|
| — |
|
|
| 300 |
|
|
| 300 |
| ||||||||||||
| Amortization expense | (1,173 | ) | — | (667 | ) | (1,840 | ) |
|
| (493 | ) |
|
| — |
|
|
| (487 | ) |
|
| (980 | ) | |||||||||
| Balances, December 31, 2015 | ||||||||||||||||||||||||||||||||
Balances, December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| Gross | $ | 35,690 | $ | 2,471 | $ | 6,881 | $ | 45,042 |
| $ | 14,276 |
|
| $ | 2,471 |
|
| $ | 4,758 |
|
| $ | 21,505 |
| ||||||||
| Accumulated amortization | (4,760 | ) | — | (3,461 | ) | (8,221 | ) |
|
| (3,339 | ) |
|
| — |
|
|
| (4,296 | ) |
|
| (7,635 | ) | |||||||||
| Net carrying amount | $ | 30,930 | $ | 2,471 | $ | 3,420 | $ | 36,821 |
| $ | 10,937 |
|
| $ | 2,471 |
|
| $ | 462 |
|
| $ | 13,870 |
| ||||||||
(1) | Non-separable bed licenses are included in property and equipment as is the related accumulated amortization expense (see Note 5 – Property and Equipment). |
Expected amortization expense for all finite-liveddefinite-lived intangibles for each of the futurenext five years endingended December 31 is as follows:
Amounts in (000's) |
| Bed Licenses |
|
| Lease Rights |
| ||
2020 |
| $ | 414 |
|
|
| 304 |
|
2021 |
|
| 414 |
|
|
| 24 |
|
2022 |
|
| 414 |
|
|
| 24 |
|
2023 |
|
| 414 |
|
|
| 23 |
|
2024 |
|
| 414 |
|
|
| 18 |
|
Thereafter |
|
| 8,867 |
|
|
| 69 |
|
Total |
| $ | 10,937 |
|
| $ | 462 |
|
| Amounts in (000's) | Bed Licenses | Lease Rights | ||||||
| 2016 | $ | 1,173 | $ | 667 | ||||
| 2017 | 1,173 | 667 | ||||||
| 2018 | 1,173 | 667 | ||||||
| 2019 | 1,173 | 667 | ||||||
| 2020 | 1,173 | 482 | ||||||
| Thereafter | 25,065 | 270 | ||||||
| Total | $ | 30,930 | $ | 3,420 | ||||
|
| (Amounts in 000's) |
| |
Balances, January 1, 2018 |
|
|
|
|
Goodwill |
| $ | 2,105 |
|
Total |
| $ | 2,105 |
|
Balances, December 31, 2018 |
|
|
|
|
Goodwill |
| $ | 2,105 |
|
Total |
| $ | 2,105 |
|
Assets sold |
|
| (520 | ) |
Balances, December 31, 2019 |
|
|
|
|
Goodwill |
| $ | 1,585 |
|
Total |
| $ | 1,585 |
|
| (Amounts in 000's) | ||||
| Balances, December 31, 2013 | ||||
| Goodwill | $ | 5,023 | ||
| Accumulated impairment losses | (799 | ) | ||
| Total | $ | 4,224 | ||
| Balances, December 31, 2014 | ||||
| Goodwill | $ | 5,023 | ||
| Accumulated impairment losses | (799 | ) | ||
| Total | $ | 4,224 | ||
| Impairment loss | (41 | ) | ||
| Net change during year | (41 | ) | ||
| Balances, December 31, 2015 | ||||
| Goodwill | $ | 5,023 | ||
| Accumulated impairment losses | (840 | ) | ||
| Total | $ | 4,183 | ||
NOTE 7. LEASES
Operating Leases
As of December 31, 2019, the Company completed the sale of its Bentonville Manor Nursing Home, 83-bed skilled nursing facility located in Bentonville, Arkansas ("Bentonville") for approximately $3.4 million net of closing costs. The Company wrote off the remaining goodwill of $0.04 million at the time of sale. For the year ended December 31, 2015, the Company determined that no other impairment adjustments were necessary for goodwill. The Company does not amortize goodwill or indefinite lived intangibles, which consist of separable bed licenses.
As of December 31, 2019, the Company is in compliance with all operating lease financial covenants.
Subleased facilities
The weighted average remaining lease term for our nine subleased facilities is 7.8 years.
Foster Prime Lease.
Eight of theon January 11, 2019, or the new sublease, on the final day of the third, fourth and fifth years following the execution of the new sublease. Covington will release and forever quit claim specified portions of the Rent Due as follows: one-third at the end of year three of the new sublease, one-third at the end of year four of the new sublease, and one-third at the end of year five of the new sublease. The forbearance period under the Covington Forbearance Agreement shall terminate as of the expiration of the Term. At Covington’s option in its sole and absolute business discretion, the Covington Forbearance Agreement and the forbearance period thereunder can be terminated upon the occurrence of certain specified events such as, the Company files a petition for bankruptcy or takes advantage of any other debtor relief law, or an involuntary petition for bankruptcy is filed against the Company, or any other judicial action is taken with respect to the Company by any creditor of the Company or the Company breaches or defaults in performance of any covenant or agreement contained in the Covington Forbearance Agreement. Upon termination of the forbearance period under the Covington Forbearance Agreement, for any reason, Covington may take all steps it deems necessary or desirable to enforce its lease rights as permitted by law or equity.
Bonterra/Parkview Master Lease. The Company and certain of its subsidiaries entered into a forbearance agreement with Pinecone with respect to the Pinecone Credit Facility on December 31, 2018 (the “A&R New Forbearance Agreement”). Pursuant to the A&R New Forbearance Agreement, Pinecone consented to the termination, of the Company’s lease and sublease of two skilled nursing facilities, an 115-bed skilled nursing facility located in East Point, Georgia and an 184-bed skilled nursing facility located in Atlanta, Georgia (the “Omega Facilities”), by mutual consent of the Company and the lessor (affiliate of Omega Healthcare) and the sublessees (affiliates of Wellington Health Services) of each of the Omega Facilities (the “Omega Lease Termination”). Prior to the Omega Lease Termination which was effective January 15, 2019, the Omega Facilities were leased by the Company under a single indivisible agreement (the “Bonterra/Parkview Master Lease”), which leases were due to expire August 2025 and which Omega Facilities the Company subleased to third party subtenants. Effective January 15, 2019, pursuant to the Omega Lease Termination and as contemplated by the A&R New Forbearance Agreement, the Company’s leases for the Omega Facilities were terminated by mutual consent of the Company and the lessor of the Omega Facilities.
In connection with the Omega Lease Termination, the Company transferred approximately $0.4 million of all its integral physical fixed assets in the Omega Facilities to the lessor and on January 28, 2019 received from the lessor gross proceeds of approximately $1.5 million, consisting of (i) a termination fee in the amount of $1.2 million and (ii) approximately $0.3 million to satisfy other net amounts due to the Company under the leases. The Company paid $1.2 million of such Omega Lease Termination proceeds to Pinecone on January 28, 2019, as required by the A&R New Forbearance Agreement, to reimburse Pinecone for approximately $0.3 million of certain unpaid expenses and partially prepay $0.9 million of the principal amount of Pinecone’s loan to AdCare Property Holdings, LLC (the “AdCare Holdco Loan”). The Omega Lease Termination contributed approximately $0.7 million income recorded in "Net loss attributable to Regional Health Properties, Inc. common stockholders" reported in the consolidated statement of operations for the period ended March 31, 2019. For further information, see Note 10 - Acquisitions and Dispositions.
Wellington. Two of the Company’s eight Georgia Foster Facilities, leased under the Prime Lease, Amendment isare subleased to affiliates of Wellington Health Services under agreements dated January 31, 2015, as subsequently amended. These Wellington Subleases, which are due to expire August 31, 2027, relate to the Tara Facility and the Powder Springs Facility. Effective February 1, 2019, the Company agreed to a 10% reduction in base rent, or in aggregate approximately $0.6 million. As ofan average $31,000 per month cash rent reduction for the year ended December 31, 2015,2019, and$48,000 per month decrease in straight-line revenue, respectively for the Tara Facility and the Powder Springs Facility combined. Additionally the Company was in compliance with all financial and administrative covenantsmodified the annual rent escalator to 1% per year from the prior scheduled increase from 1% to 2% previously due to commence of thisthe 1st day of the sixth lease agreement.year.
Future minimum lease payments for each of the next five years ending December 31 are as follows:
(Amounts in 000's) |
| Future rental payments |
|
| Accretion of lease liability (1) |
|
| Operating lease obligation |
| |||
2020 |
| $ | 6,390 |
|
| $ | (268 | ) |
| $ | 6,122 |
|
2021 |
|
| 6,551 |
|
|
| (755 | ) |
|
| 5,796 |
|
2022 |
|
| 6,691 |
|
|
| (1,223 | ) |
|
| 5,468 |
|
2023 |
|
| 6,823 |
|
|
| (1,674 | ) |
|
| 5,149 |
|
2024 |
|
| 6,958 |
|
|
| (2,109 | ) |
|
| 4,849 |
|
Thereafter |
|
| 19,832 |
|
|
| (7,954 | ) |
|
| 11,878 |
|
Total |
| $ | 53,245 |
|
| $ | (13,983 | ) |
| $ | 39,262 |
|
(1) | Weighted average discount rate 7.98% |
| (Amounts in 000's) | ||||
| 2016 | $ | 8,083 | ||
| 2017 | 8,181 | |||
| 2018 | 8,346 | |||
| 2019 | 8,526 | |||
| 2020 | 8,697 | |||
| Thereafter | 55,320 | |||
| Total | $ | 97,153 | ||
Leased and Subleased Facilities to Third-Party Operators
As of December 31, 2019, the Company's transition to a self-managed real estate investment company, thirty-fiveCompany leased or subleased 21 facilities (twenty-four(12 owned by usthe Company and elevennine leased to us) are leased or subleasedthe Company), to third-party tenants on a triple net basis, meaning that the lessee (i.e., the new third-party operatortenant of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. The weighted average remaining lease term for our facilities is 7.9 years.
Beacon. On August 1, 2015, the Company entered into a lease inducement fee agreement with certain affiliates (collectively, the "Beacon Affiliates") of Beacon, pursuant to which the Company paid a fee of $0.6 million as a lease inducement for certain Beacon Affiliates to enter into sublease agreements and to commence such subleases and transfer operations thereunder (the “Beacon Lease Inducement”). As of December 31, 2017, the balance of the Beacon Lease Inducement was approximately $0.5 million. On April 24, 2018, the Ohio Beacon Affiliates informed the Company in writing that they would no longer be operating five (four owned and one leased by the Company) of the Ohio Beacon Facilities, whose leases were set to expire in 2025, and that they would surrender operation of such facilities to the Company on June 30, 2018. On November 30, 2018, the Ohio Beacon Affiliates, who were ten months in arrears on rental payments, surrendered possession of the Ohio Beacon Facilities and the lease was terminated by mutual consent. Pursuant to such termination, on November 30, 2018, the Company and the Ohio Beacon Affiliates entered into a termination agreement (the “Ohio Beacon Termination Agreement”), whereby the Ohio Beacon Affiliates agreed to pay a $0.675 million termination fee, payable in 18 monthly installments of $37,500 commencing January 3, 2019 in full satisfaction of the $0.5 million Beacon Lease Inducement and approximately $2.5 million in rent in arrears and approximately $0.6 million of other receivables, such as property taxes and capital expenditures, which discharges each tenant from any and all claims upon completion of the payment plan. The Company intends to enforce its rights under the Ohio Beacon Termination Agreement. As of the date of filing this Annual Report, 15 such installment payments have been received, but there is no assurance that the Company will be able to obtain payment of the outstanding unpaid termination fee from the Ohio Beacon Affiliates. During the year ended December 31, 2018, the Company recognized revenue on a cash basis with respect to the Ohio Beacon Facilities. During the first quarter of 2018, the Company expensed approximately $0.7 million straight-line rent asset, recorded an allowance of $0.5 million against the Beacon Lease Inducement and recorded approximately $0.3 million allowance for other receivables.During the twelve months ended December 31, 2019,the Company released approximately $0.3 million of the provision of doubtful accounts as the Company has assessed the collectability of the remaining $0.3 million termination fee is more probable than not.
Aspire. On November 30, 2018, the Company subleased the Ohio Beacon Facilities to Aspire Sublessees, pursuant to the Aspire Subleases, whereby the Aspire Sublessees took possession of, and commenced operating, the Aspire Facilities as subtenant. The Aspire Subleases became effective on December 1, 2018 and are structured as triple net leases. The Aspire Facilities are comprised of: (i) a 94-bed skilled nursing facility located in Covington, Ohio (the “Covington Facility”); (ii) an 80-bed assisted living facility located in Springfield, Ohio (the “Eaglewood ALF Facility”); (iii) a 99-bed skilled nursing facility located in Springfield, Ohio (the “Eaglewood Care Center Facility”); (iv) a 50-bed skilled nursing facility located in Greenfield, Ohio (the “H&C of Greenfield Facility”); and (v) a 50-bed skilled nursing facility located in Sidney, Ohio (the “Pavilion Care Facility”). Under the Aspire Subleases, a
default related to an individual facility may cause a default under all the Aspire Subleases. All Subleases are for an initial term of 10 years, with renewal options, except with respect to term for the H&C of Greenfield Facility, which has an initial five year term, and set annual rent increases generally commencing in the third lease year; from month seven of the Aspire Subleases monthly rent amounts may increase based on each facility’s prior month occupancy, with minimum annual rent escalations of at least 1% generally commencing in the third lease year. Minimum rent receivable for the Covington Facility, the Eaglewood ALF Facility, the Eaglewood Care Center Facility, the H&C of Greenfield Facility and the Pavilion Care Facility for the year ending December 31, 2019, the first lease year, was $0.4 million, $0.5 million, $0.4 million, $0.2 million and $0.2 million per annum, respectively. Additionally, the Company agreed to indemnify Aspire against any and all liabilities imposed on them as arising from the former operator, capped at $8.0 million. The Company has assessed the fair value of the indemnity agreements as not material to the financial statements at December 31, 2019.
Symmetry. Affiliates of Symmetry Healthcare (the “Symmetry Tenants”) leased the following facilities from the Company, pursuant to separate lease agreements which expire in 2030 (the ��Symmetry Leases”): (i) the Company’s 106-bed, skilled nursing facility located in Sylvia, North Carolina (the “Mountain Trace Facility”); (ii) the Company’s 96-bed, skilled nursing facility located in Sumter, South Carolina (the “Sumter Facility”); and (iii) the Company’s 84-bed, skilled nursing facility located in Georgetown, South Carolina (the “Georgetown Facility”). On June 27, 2018, the Company notified Blue Ridge of Sumter, LLC, the tenant with respect to the Sumter Facility (the “Sumter Tenant”), and Blue Ridge on the Mountain, LLC, the tenant with respect to the Mountain Trace Facility (the “Mountain Trace Tenant”), that continued breach of the payment terms of the applicable Symmetry Lease would constitute an event of default. The Symmetry Tenants alleged that the Company was in material breach of each of the Symmetry Leases with regard to deferred maintenance and were withholding rental payments on the basis of such allegations.
Prior to September 20, 2018, the Mountain Trace Tenant had not paid approximately $0.2 million in rent owed for April through August 2018, the Sumter Tenant had not paid approximately $0.3 million in rent owed for May through August 2018, and Blue Ridge in Georgetown, LLC, the tenant with respect to the Georgetown Facility (the “Georgetown Tenant”), had not paid $0.05 million in rent owed for July and August 2018.
On September 20, 2018, the Company reached an agreement with the Symmetry Tenants with respect to the Symmetry Leases, pursuant to which the Symmetry Tenants agreed to a payment plan for the rent arrears and the Company agreed to a reduction in annualized rent of approximately $0.6 million, or 5.3% of the total expected 2018 annual cash rent, and waived approximately $0.2 million in rent arrears, upon which the Symmetry Tenants recommenced monthly rent payments of $0.1 million starting with the September 1, 2018 amounts due under the Symmetry Leases. There is no assurance that the Company will be able to obtain payment of all unpaid rents and the collection of approximately $1.3 million (comprised of approximately $0.9 million straight-line rent asset and approximately $0.4 million of payment plan receivables) of asset balances could be at risk. During the year ended December 31, 2019, the Company expensed approximately $0.4 million allowance against the outstanding balance of payment plan receivables. On February 28, 2019 the Company completed a mutual lease termination with the Mountain Trace Tenant and operations at the facility were transferred to Vero Health X, LLC (“Vero Health”).
Vero Health. On February 28, 2019, the Company entered into a lease agreement (the “Vero Health Lease”) with Vero Health, providing that Vero Health would take possession of and operate the Mountain Trace Facility located in North Carolina. The Vero Health Lease became effective, upon the termination of the prior Mountain Trace Tenant mutual lease termination on March 1, 2019. The Vero Health Lease is for an initial term of 10 years, with renewal options, is structured as a triple net lease and rent for the Mountain Trace Facility is approximately $0.5 million per year, with an annual 2.5 % rent escalation clause.
Peach Health. On June 18, 2016, the Company entered into a master sublease agreement, as amended on March 30, 2018, (the “Peach Health Sublease”) with affiliates (collectively, “Peach Health Sublessee”) of Peach Health Group, LLC (“Peach Health”), providing that Peach Health Sublessee would take possession of and operate three facilities located in Georgia (the “Peach Facilities”) as subtenant. The Peach Facilities are comprised of: (i) an 85-bed skilled nursing facility located in Tybee Island, Georgia (the “Oceanside Facility”); (ii) a 50-bed skilled nursing facility located in Tybee Island, Georgia (the “Savannah Beach Facility”); and (iii) a 131-bed skilled nursing facility located in Jeffersonville, Georgia (the “Jeffersonville Facility”).
In connection with the Peach Health Sublease, the Company extended a line of credit to Peach Health Sublessee for up to $1.0 million for operations at the Peach Facilities (the “Peach Line”), with an initial interest rate of 13.5% per annum, which increases by 1% per annum. The Peach Line had a maturity date one year from the date of the first disbursement and is secured by a first priority security interest in Peach Health Sublessee’s assets and accounts receivable. On April 6, 2017, the Company modified certain terms of the Peach Line in connection with Peach Health Sublessee securing a $2.5 million revolving working capital loan from a third party lender (the “Peach Working Capital Facility”), subsequently capped at $1.75 million, which matures April 5, 2020. The Peach Working Capital Facility is secured by Peach Health Sublessee’s eligible accounts receivable, and all collections on the eligible accounts receivable are remitted to a lockbox controlled by the third-party lender. The modifications of the Peach Line include: (i) reducing the loan balance to $0.8 million and restricting further borrowings; (ii) extending the maturity date to October 1, 2020 and adding a six month extension option by Peach Health Sublessee, subject to certain conditions; (iii) increasing the interest rate from 13.5% per annum by 1% per annum; and (iv) establishing a four-year amortization schedule (the “Peach Note”). Payment of principal and interest under the Peach Note is governed by certain financial covenants limiting distributions under the Peach Working Capital Facility. Furthermore, the Company guaranteed Peach Health Sublessee’s borrowings under the Peach Working Capital Facility subject to certain burn-off provisions (i.e., the Company’s obligations under such guaranty cease after the later of 18 months or achievement of a certain financial ratio by Peach Health Sublessee). The Company is obligated to pay the outstanding balance on the Peach Working Capital Facility (after application of all eligible accounts receivable collections by the lender) if Peach Health Sublessee fails to comply with the Peach Working Capital Facility obligations and covenants. Fair value of the liability using the expected present value approach is immaterial.
As of December 31, 2019 and December 31, 2018, there was approximately $1.2 million and $1.1 million outstanding balance on the Peach Note, of which $0.1 million and $0.3 million was due greater than twelve months, respectively.
C.R. Management. On March 21, 2018, C. R. of Attalla, LLC (the “Attalla Tenant”), affiliated with C-Ross Management, filed a voluntary chapter 11 bankruptcy petition in the state of Alabama, due to unpaid back taxes owed to the Internal Revenue Services (the “IRS”) and a large professional and general liability judgement (the “Attalla PLGL Claim”) imposed against it, in order to be granted an automatic stay from any IRS recoupments and any collection attempts from the Attalla PLGL Claim. The Attalla Tenant continued to pay its monthly rent obligations under its lease agreement to the Company pursuant to the April 16, 2018, court approved motion for the Attalla Tenant to formally assume the Attalla lease. As of December 31, 2018, the Company had recorded a straight-line rent receivable of approximately $0.6 million. On January 8, 2019, the Attalla Tenant bankruptcy filing was dismissed per filing with the bankruptcy court. On August 1, 2019, the Company sold the facility leased to the Attalla Tenant and the College Park Facility as part of the Asset Sale and leased to another tenant affiliated with C-Ross Management and assigned the associated leases, which were set to expire in 2030, pursuant to the Asset Sale. See Note – 10 Acquisitions and Dispositions for further information.
Southwest LTC. As part of the Asset Sale, on August 1, 2019 the Company sold the Quail Creek Facility and on August 28, 2019 the Company sold the Northwest Facility, assigning both associated leases which were set to expire in 2025. The tenants of such facilities were affiliated with Southwest LTC and were our only tenants associated with Southwest LTC. See Note – 10 Acquisitions and Dispositions for further information.
Future minimum lease receivables for each of the next five years ending December 31 are as follows:
|
| (Amounts in 000's) |
| |
2020 |
| $ | 15,716 |
|
2021 |
|
| 16,100 |
|
2022 |
|
| 17,272 |
|
2023 |
|
| 17,587 |
|
2024 |
|
| 17,447 |
|
Thereafter |
|
| 53,311 |
|
Total |
| $ | 137,433 |
|
| (Amounts in 000's) | ||||
| 2016 | $ | 26,052 | ||
| 2017 | 26,845 | |||
| 2018 | 27,474 | |||
| 2019 | 28,082 | |||
| 2020 | 27,634 | |||
| Thereafter | 204,913 | |||
| Total | $ | 341,000 | ||
The following is a summary of the Company's specificCompany’s leases to third-parties and which comprise the future minimum lease receivablereceivables of the Company. The terms of each lease are structured in a similar manner as "triple-net"“triple-net” leases. Each lease contains specific rent escalation amounts ranging from 2.0%1.0% to 3.5%3.0% annually. Further, each lease has one or more renewal options. For those facilities wheresubleased by the Company, subleases, the renewal option in the sublease agreement is dependent on the CompanyCompany’s renewal of its lease agreement. Generally, the the sublease agreements
|
|
|
| Initial Lease Term |
|
|
|
| ||
|
|
|
| Commencement |
| Expiration |
| 2020 Cash |
| |
Facility Name |
| Operator Affiliation (1) |
| Date |
| Date |
| Annual Rent |
| |
|
|
|
|
|
|
|
| (Thousands) |
| |
Owned |
|
|
|
|
|
|
|
|
|
|
Eaglewood ALF |
| Aspire |
| 12/1/2018 |
| 11/30/2028 |
| $ | 630 |
|
Eaglewood Care Center |
| Aspire |
| 12/1/2018 |
| 11/30/2028 |
|
| 408 |
|
H&C of Greenfield |
| Aspire |
| 12/1/2018 |
| 11/30/2023 |
|
| 213 |
|
Southland Healthcare |
| Beacon Health Management |
| 11/1/2014 |
| 10/31/2024 |
|
| 970 |
|
The Pavilion Care Center |
| Aspire |
| 12/1/2018 |
| 11/30/2028 |
|
| 222 |
|
Autumn Breeze |
| C.R. Management |
| 9/30/2015 |
| 9/30/2025 |
|
| 894 |
|
Coosa Valley Health Care |
| C.R. Management |
| 12/1/2014 |
| 8/31/2030 |
|
| 995 |
|
Glenvue H&R |
| C.R. Management |
| 7/1/2015 |
| 6/30/2025 |
|
| 1,302 |
|
Meadowood |
| C.R. Management |
| 5/1/2017 |
| 8/31/2030 |
|
| 474 |
|
Georgetown Health |
| Symmetry Healthcare |
| 4/1/2015 |
| 3/31/2030 |
|
| 329 |
|
Mountain Trace Rehab (2) |
| Vero Health Management |
| 3/1/2019 |
| 2/28/2029 |
|
| 490 |
|
Sumter Valley Nursing |
| Symmetry Healthcare |
| 4/1/2015 |
| 3/31/2030 |
|
| 632 |
|
Subtotal Owned Facilities (12) |
|
|
|
|
|
|
| $ | 7,559 |
|
Leased |
|
|
|
|
|
|
|
|
|
|
Covington Care |
| Aspire |
| 12/1/2018 |
| 11/30/2028 |
| $ | 503 |
|
Lumber City |
| Beacon Health Management |
| 11/1/2014 |
| 8/31/2027 |
|
| 936 |
|
LaGrange |
| C.R. Management |
| 4/1/2015 |
| 8/31/2027 |
|
| 1,140 |
|
Thomasville N&R |
| C.R. Management |
| 7/1/2014 |
| 8/31/2027 |
|
| 362 |
|
Jeffersonville |
| Peach Health |
| 6/18/2016 |
| 8/31/2027 |
|
| 748 |
|
Oceanside |
| Peach Health |
| 7/13/2016 |
| 8/31/2027 |
|
| 510 |
|
Savannah Beach |
| Peach Health |
| 7/13/2016 |
| 8/31/2027 |
|
| 279 |
|
Powder Springs (3) |
| Wellington Health Services |
| 4/1/2015 |
| 8/31/2027 |
|
| 1,981 |
|
Tara (3) |
| Wellington Health Services |
| 4/1/2015 |
| 8/31/2027 |
|
| 1,698 |
|
Subtotal Leased Facilities (9) |
|
|
|
|
|
|
| $ | 8,157 |
|
Total (21) |
|
|
|
|
|
|
| $ | 15,716 |
|
(1) | Represents the number of facilities which are leased or subleased to separate tenants, which tenants are affiliates of the entity named in the table above. |
(3) | Effective February 1, 2019, base rent for these facilities was reduced 10% and is reflected in the above table. |
Our leases and subleases are cross-defaulted where applicable for subleases of multiple facilitiesleased by the same lessee.
| Initial Lease Term | ||||||||||
| Commencement | Expiration | Initial | ||||||||
| Facility Name | Operator Affiliation | Date | Date | Annual Rent | ||||||
| (Thousands) | ||||||||||
| Owned | ||||||||||
| Cumberland H&R | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | $ | 540 | |||||
| Heritage Park | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | 240 | ||||||
| Homestead Manor | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | 120 | ||||||
| Little Rock H&R | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | 1,602 | ||||||
| Northridge Health | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | 420 | ||||||
| River Valley Health | Aria Health Group LLC | 11/1/2015 | 4/30/2030 | 480 | ||||||
| Stone County ALF | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | 60 | ||||||
| Stone County Nursing | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | 838 | ||||||
| Woodland Hills | Aria Health Group LLC | 5/1/2015 | 4/30/2030 | 480 | ||||||
| Eaglewood ALF | Beacon Health Management | 8/1/2015 | 7/31/2025 | 720 | ||||||
| Eaglewood Care Center | Beacon Health Management | 8/1/2015 | 7/31/2025 | 720 | ||||||
| H&C of Greenfield | Beacon Health Management | 8/1/2015 | 7/31/2025 | 360 | ||||||
| Southland Healthcare | Beacon Health Management | 11/1/2014 | 10/31/2024 | 900 | ||||||
| The Pavilion Care Center | Beacon Health Management | 8/1/2015 | 7/31/2025 | 360 | ||||||
| Attalla Health Care | C.R. Management | 12/1/2014 | 8/31/2030 | 1,080 | ||||||
| Autumn Breeze | C.R. Management | 9/30/2015 | 9/30/2025 | 840 | ||||||
| College Park | C.R. Management | 4/1/2015 | 3/31/2020 | 600 | ||||||
| Coosa Valley Health Care | C.R. Management | 12/1/2014 | 8/31/2030 | 900 | ||||||
| Glenvue H&R | C.R. Management | 7/1/2015 | 6/30/2025 | 1,140 | ||||||
| NW Nursing Center | Southwest LTC | 12/31/2015 | 11/30/2025 | 300 | ||||||
| Quail Creek | Southwest LTC | 12/31/2015 | 11/30/2025 | 660 | ||||||
| Georgetown Health | Symmetry Healthcare | 4/1/2015 | 3/31/2030 | 288 | ||||||
| Mountain Trace Rehab | Symmetry Healthcare | 6/1/2015 | 5/31/2030 | 648 | ||||||
| Sumter Valley Nursing | Symmetry Healthcare | 4/1/2015 | 3/31/2030 | 770 | ||||||
| Subtotal Owned Facilities (24) | $ | 15,066 | ||||||||
| Leased | ||||||||||
| Covington Care | Beacon Health Management | 8/1/2015 | 4/30/2025 | $ | 780 | |||||
| Lumber City | Beacon Health Management | 11/1/2014 | 8/31/2027 | 840 | ||||||
| LaGrange | C.R. Management | 4/1/2015 | 8/31/2027 | 960 | ||||||
| Thomasville N&R | C.R. Management | 7/1/2014 | 8/31/2027 | 324 | ||||||
Jeffersonville (a) | New Beginnings Care | 11/1/2015 | 7/31/2020 | 648 | ||||||
Oceanside (a) | New Beginnings Care | 11/1/2015 | 7/31/2020 | 421 | ||||||
Savannah Beach (a) | New Beginnings Care | 11/1/2015 | 7/31/2020 | 247 | ||||||
| Bonterra | Wellington Health Services | 9/1/2015 | 8/31/2025 | 1,020 | ||||||
| Parkview Manor/Legacy | Wellington Health Services | 9/1/2015 | 8/31/2025 | 1,020 | ||||||
| Powder Springs | Wellington Health Services | 4/1/2015 | 8/31/2027 | 2,100 | ||||||
| Tara | Wellington Health Services | 4/1/2015 | 8/31/2027 | 1,800 | ||||||
| Subtotal Leased Facilities (11) | $ | 10,160 | ||||||||
| Total (35) | $ | 25,226 | ||||||||
Accrued expenses consist of the following:
|
| December 31, |
| |||||
Amounts in (000's) |
| 2019 |
|
| 2018 |
| ||
Accrued employee benefits and payroll related |
| $ | 239 |
|
| $ | 326 |
|
Real estate and other taxes |
|
| 883 |
|
|
| 851 |
|
Self-insured reserve (1) |
|
| 453 |
|
|
| 1,435 |
|
Accrued interest |
|
| 208 |
|
|
| 419 |
|
Unearned rental revenue |
|
| 46 |
|
|
| 138 |
|
Other accrued expenses |
|
| 784 |
|
|
| 1,292 |
|
Total |
| $ | 2,613 |
|
| $ | 4,461 |
|
(1) | The Company self-insures against professional and general liability cases incurred prior to the Transition and uses a third party administrator and outside counsel to manage and defend the claims (see Note 15 - Commitments and Contingencies). |
| December 31, | ||||||||
| Amounts in (000's) | 2015 | 2014 | ||||||
| Accrued payroll related | $ | 684 | $ | 6,915 | ||||
| Accrued employee benefits | 648 | 3,405 | ||||||
| Real estate and other taxes | 411 | 1,335 | ||||||
| Self-insured reserve | 221 | — | ||||||
| Other accrued expenses | 1,161 | 3,998 | ||||||
| Total | $ | 3,125 | $ | 15,653 | ||||
Notes payable and other debt consists of the following:
|
| December 31, |
| |||||
Amounts in (000's) |
| 2019 |
|
| 2018 |
| ||
Senior debt—guaranteed by HUD |
| $ | 31,996 |
|
| $ | 32,857 |
|
Senior debt—guaranteed by USDA (a) |
|
| 13,298 |
|
|
| 13,727 |
|
Senior debt—guaranteed by SBA (b) |
|
| 650 |
|
|
| 668 |
|
Senior debt—bonds |
|
| 6,616 |
|
|
| 6,960 |
|
Senior debt—other mortgage indebtedness |
|
| 3,777 |
|
|
| 28,139 |
|
Other debt |
|
| 539 |
|
|
| 664 |
|
Sub Total |
|
| 56,876 |
|
|
| 83,015 |
|
Deferred financing costs |
|
| (1,364 | ) |
|
| (1,535 | ) |
Unamortized discounts on bonds |
|
| (149 | ) |
|
| (167 | ) |
Notes payable and other debt |
| $ | 55,363 |
|
| $ | 81,313 |
|
(a) | U.S. Department of Agriculture (“USDA”) |
(b) | U.S. Small Business Administration (“SBA”) |
| December 31, | ||||||||
| Amounts in (000's) | 2015 | 2014 | ||||||
| Revolving credit facilities and lines of credit | $ | — | $ | 6,832 | ||||
Senior debt—guaranteed by HUD (a) | 25,469 | 26,022 | ||||||
Senior debt—guaranteed by USDA (a) | 26,463 | 27,128 | ||||||
Senior debt—guaranteed by SBA (a) | 3,548 | 3,703 | ||||||
Senior debt—bonds, net of discount (b) | 7,025 | 12,967 | ||||||
Senior debt—other mortgage indebtedness (c) (d) | 51,128 | 60,277 | ||||||
| Other debt | 2,638 | 430 | ||||||
| Convertible debt | 9,200 | 14,000 | ||||||
| Total | 125,471 | 151,359 | ||||||
| Less current portion | 50,960 | 22,012 | ||||||
Less: portion included in liabilities of variable interest entity held for sale (b) | — | 5,956 | ||||||
Less: portion included in liabilities of disposal group held for sale (c) | 958 | 5,197 | ||||||
Less: portion included in liabilities of disposal group held for use (d) | — | 4,035 | ||||||
| Notes payable and other debt, net of current portion | $ | 73,553 | $ | 114,159 | ||||
The following is a detailed listing of the debt facilities that comprise each of the above categories:
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility |
| Lender |
| Maturity |
| Interest Rate (a) |
|
| December 31, 2019 |
|
| December 31, 2018 |
| |||||
Senior debt - guaranteed by HUD (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
The Pavilion Care Center |
| Orix Real Estate Capital |
| 12/01/2027 |
| Fixed |
|
| 4.16 | % |
| $ | 1,105 |
|
| $ | 1,219 |
|
Hearth and Care of Greenfield |
| Orix Real Estate Capital |
| 08/01/2038 |
| Fixed |
|
| 4.20 | % |
|
| 1,992 |
|
|
| 2,061 |
|
Woodland Manor |
| Midland State Bank |
| 10/01/2044 |
| Fixed |
|
| 3.75 | % |
|
| 5,094 |
|
|
| 5,216 |
|
Glenvue |
| Midland State Bank |
| 10/01/2044 |
| Fixed |
|
| 3.75 | % |
|
| 7,909 |
|
|
| 8,099 |
|
Autumn Breeze |
| KeyBank |
| 01/01/2045 |
| Fixed |
|
| 3.65 | % |
|
| 6,876 |
|
|
| 7,041 |
|
Georgetown |
| Midland State Bank |
| 10/01/2046 |
| Fixed |
|
| 2.98 | % |
|
| 3,480 |
|
|
| 3,564 |
|
Sumter Valley |
| Key Bank |
| 01/01/2047 |
| Fixed |
|
| 3.70 | % |
|
| 5,540 |
|
|
| 5,657 |
|
Total |
|
|
|
|
|
|
|
|
|
|
| $ | 31,996 |
|
| $ | 32,857 |
|
Senior debt - guaranteed by USDA (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Coosa |
| Metro City |
| 09/30/2035 |
| Prime + 1.50% |
|
| 6.50 | % |
|
| 5,212 |
|
|
| 5,388 |
|
Mountain Trace |
| Community B&T |
| 01/24/2036 |
| Prime + 1.75% |
|
| 6.75 | % |
|
| 4,009 |
|
|
| 4,135 |
|
Southland |
| Bank of Atlanta |
| 07/27/2036 |
| Prime + 1.50% |
|
| 6.50 | % |
|
| 4,077 |
|
|
| 4,204 |
|
Total |
|
|
|
|
|
|
|
|
|
|
| $ | 13,298 |
|
| $ | 13,727 |
|
Senior debt - guaranteed by SBA (d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Southland |
| Bank of Atlanta |
| 07/27/2036 |
| Prime + 2.25% |
|
| 7.25 | % |
|
| 650 |
|
|
| 668 |
|
Total |
|
|
|
|
|
|
|
|
|
|
| $ | 650 |
|
| $ | 668 |
|
(a) | Represents interest rates as of December 31, 2019 as adjusted for interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs which range from 0.08% to 0.53% per annum. |
(b) | For the seven skilled nursing facilities, the Company has term loans insured 100% by HUD with financial institutions. The loans are secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the underlying facility. The loans contain customary events of default, including fraud or material misrepresentations or material omission, the commencement of a forfeiture action or proceeding, failure to make required payments, and failure to perform or comply with certain agreements. Upon the occurrence of certain events of default, the lenders may, after receiving the prior written approval of HUD, terminate the loans and all amounts under the loans will become immediately due and payable. In connection with entering into loans, the facilities entered into a healthcare regulatory agreement and a promissory note, each containing customary terms and conditions. |
(c) | For the three skilled nursing facilities, the Company has term loans with financial institutions, which are insured 70% to 80% by the USDA. The loans have an annual renewal fee for the USDA guarantee of 0.25% of the guaranteed portion. The loans have prepayment penalties of 1% to 2% through 2019, which declines 1% each year capped at 1% for the remainder of the first 10 years of the term and 0% thereafter. |
(d) | For one facility, the Company has a term loan with a financial institution, which is insured 75% by the SBA. The note matures in 2036. |
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility |
| Lender |
| Maturity |
| Interest Rate (a) |
|
| December 31, 2019 |
|
| December 31, 2018 |
| |||||
Senior debt - bonds (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Eaglewood Bonds Series A (c) |
| City of Springfield, Ohio |
| 05/01/2042 |
| Fixed |
|
| 7.65 | % |
| $ | 6,379 |
|
| $ | 6,610 |
|
Eaglewood Bonds Series B (c) |
| City of Springfield, Ohio |
| 05/01/2021 |
| Fixed |
|
| 8.50 | % |
|
| 237 |
|
|
| 350 |
|
Total |
|
|
|
|
|
|
|
|
|
|
| $ | 6,616 |
|
| $ | 6,960 |
|
(a) | Represents interest rates as of December 31, 2019 as adjusted for interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs of approximately 0.15% per annum. |
(c) | On January 18, 2019, the principal on the bonds was reduced in aggregate by $0.2 million. On December 21, 2018, the Company received $243,467 in cash representing a refund of the original issuance fees of these bonds, into its restricted cash account managed by BOKF, NA, who on January 18, 2019, completed a principal distribution of such funds to notified bondholders on January 15, 2019. This pro-rata distribution was made pursuant to the Order Authorizing Distribution of Settlement Funds Collected in Related Actions Brought by the Securities and Exchange Commission Section 5 filed August 21, 2017 in the United States District Court District of New Jersey styled Securities and Exchange Commission, Plaintiff, v. Christopher Freeman Brogdon, Defendant, and Connie Brogdon, et al., Relief Defendants. Case 2:15-cv-08173-KM-JBC. |
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility |
| Lender |
| Maturity |
| Interest Rate (a) |
|
| December 31, 2019 |
|
| December 31, 2018 |
| |||||
Senior debt - other mortgage indebtedness |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Quail Creek (c) |
| Congressional Bank |
| 06/30/2019 |
| LIBOR + 4.75% |
|
| 7.15 | % |
| $ | — |
|
| $ | 4,059 |
|
Meadowood |
| Exchange Bank of Alabama |
| 05/01/2022 |
| Fixed |
|
| 4.50 | % |
|
| 3,777 |
|
|
| 3,918 |
|
College Park (c) |
| Pinecone (b) |
| 8/15/2020 |
| Fixed |
|
| 13.50 | % |
|
| — |
|
|
| 2,846 |
|
Northwest (c) |
| Pinecone (b) |
| 8/15/2020 |
| Fixed |
|
| 13.50 | % |
|
| — |
|
|
| 2,803 |
|
Attalla (c) |
| Pinecone (b) |
| 8/15/2020 |
| Fixed |
|
| 13.50 | % |
|
| — |
|
|
| 9,089 |
|
Adcare Property Holdings (c) |
| Pinecone (b) |
| 8/15/2020 |
| Fixed |
|
| 13.50 | % |
|
| — |
|
|
| 5,424 |
|
Total |
|
|
|
|
|
|
|
|
|
|
| $ | 3,777 |
|
| $ | 28,139 |
|
(a) | Represents interest rates as of December 31, 2019 as adjusted for interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs of 0.30% per annum. |
(b) | On February 15, 2018, the Company entered into the Pinecone Credit Facility with Pinecone. The Company entered into a number of forbearance agreements, which provided for certain amendments to the Pinecone Credit Facility (for further information see, “Pinecone Credit Facility” below in this Note). |
(c) | Debt credit facilities held for sale at June 30, 2019 and subsequently repaid in full on August 1, 2019. For further information see Note 10 – Acquisitions and Dispositions. |
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender |
| Maturity |
| Interest Rate |
|
| December 31, 2019 |
|
| December 31, 2018 |
| |||||
Other debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Insurance Funding |
| 03/01/2020 |
| Fixed |
|
| 6.19 | % |
| $ | 27 |
|
| $ | 20 |
|
KeyBank |
| 08/25/2021 |
| Fixed |
|
| 0.00 | % |
|
| 495 |
|
|
| 495 |
|
McBride Note (a) |
| 09/30/2019 |
| Fixed |
|
| 4.00 | % |
|
| — |
|
|
| 115 |
|
Marlin Covington Finance |
| 3/11/2021 |
| Fixed |
|
| 20.17 | % |
|
| 17 |
|
|
| — |
|
South Carolina Department of Health & Human Services (b) |
| 02/24/2019 |
| Fixed |
|
| 5.75 | % |
|
| — |
|
|
| 34 |
|
Total |
|
|
|
|
|
|
|
|
| $ | 539 |
|
| $ | 664 |
|
(a) | The Company executed an unsecured promissory note in favor of William McBride III, the Company’s former Chairman and Chief Executive Officer, pursuant to a settlement agreement dated September 26, 2017, between Mr. McBride and the Company, see Note 18 Related Party Transactions “McBride Matters”. |
Pinecone Credit Facility
On February 15, 2018 (the “Closing Date”), United States Departmentthe Company entered into the Pinecone Credit Facility with Pinecone, with an original aggregate principal amount of Agriculture ("USDA"$16.25 million, which refinanced existing mortgage debt in an aggregate amount of $8.7 million on three skilled nursing properties, the Attalla Facility, the College Park Facility and the Northwest Facility (the “Pinecone Facilities”), Small Business Administration ("SBA"and provided additional surplus cash flow of $6.3 million for general corporate needs after deducting approximately $1.25 million in debt issuance costs and prepayment penalties.
Regional Health was a guarantor of the Pinecone Credit Facility. Certain of the notes under the Pinecone Credit Facility were also guaranteed by certain wholly-owned subsidiaries of Regional Health. The surplus cash flow from the Pinecone Credit Facility was used to fund $2.4 million of self-insurance reserves for professional and general liability claims with respect to 25 professional and general liability actions, and to fund repayment of $1.5 million in convertible debt. The remaining $2.4 million in surplus cash proceeds from the Pinecone Credit Facility was used for general corporate purposes.
The maturity date of the Pinecone Credit Facility was August 15, 2020 and it originally bore interest at a fixed rate equal to 10% per annum for the first three months after the Closing Date and at a fixed rate equal to 12.5% per annum thereafter, subject to adjustment upon an event of default and specified regulatory events. The Pinecone Credit Facility was secured by, among other things, first priority liens on the Pinecone Facilities and all tangible and intangible assets of the borrowers owning the Pinecone Facilities, including all rent payments received from the operators thereof. Accrued and unpaid interest on the outstanding principal amount of the Pinecone Credit Facility was payable in consecutive monthly installments. Unless accelerated by Pinecone, the entire unpaid principal amount of the Pinecone Credit Facility was due on the maturity date, together with all accrued and unpaid interest and a finance fee equal to 3% of the original principal amount.
The Pinecone Credit Facility was subject to customary operating and financial covenants and regulatory conditions for each of the Pinecone Facilities, which resulted in additional monthly interest charges during any non-compliance and cure period. The Pinecone Credit Facility was prepayable with a prepayment premium equal to 1% of the principal amount being repaid.
The Pinecone Credit Facility and the related documentation provided for customary events of default. Upon the occurrence of certain events of default, Pinecone increased the interest rate to 18.5% during periods not covered by compliance with the relevant forbearance agreement.
Pinecone Forbearance Agreements
On May 10, 2018, management was notified by Pinecone that certain events of default under the Pinecone Credit Facility had occurred and were continuing. On May 18, 2018, the Company and Pinecone entered into a forbearance agreement (the “Original Forbearance Agreement”), pursuant to which Pinecone agreed, subject to terms and conditions set forth in the Original Forbearance Agreement, to forbear from exercising its default-related rights and remedies with respect to specified events of default under the Pinecone Credit Facility (the “Specified Defaults”) during the forbearance period provided for therein. The Original Forbearance Agreement outlined a plan of correction whereby the Company could regain compliance under the Pinecone Credit Facility. Requirements set forth in the Original Forbearance Agreement included, among other things, the hiring of a special consultant to advise management on operational improvements and to assist in coordinating overall company strategy. Pursuant to the Original Forbearance Agreement, the Company and Pinecone agreed to amend certain provisions of the Pinecone Credit Facility. Such amendments, among other things: (i) eliminated the Company’s obligation to complete certain lease assignments to suitably qualified replacement operators; (ii) required the payment of a specified “break-up fee” upon certain events, including prepayment of the Pinecone Credit Facility or a change of control; (iii) increased the ongoing interest rate from 12.5% per annum to 13.5% effective May 18, 2018; and (iv) increased the outstanding principal balance of the Pinecone Credit Facility by 2.5%.
The seniorCompany and certain of its subsidiaries subsequently entered into additional forbearance agreements with Pinecone with respect to the Pinecone Credit Facility on September 6, 2018 (the “New Forbearance Agreement”) and the A&R New Forbearance Agreement on December 31, 2018. The forbearance period under the Original Forbearance Agreement terminated on July 6, 2018 and the forbearance period under the A&R New Forbearance Agreement terminated on December 31, 2018 because the Company did not satisfy certain conditions set forth therein.
Pursuant to the New Forbearance Agreement, the Company and Pinecone agreed to amend certain provisions of the Pinecone Credit Facility. Such amendments, among other things: (i) increased the finance fee payable on repayment or acceleration of the loans, depending on the time at which the loans were repaid ($0.25 million prior to December 31, 2018 and $0.5 million thereafter); and (ii) increased the outstanding principal balance owed by (a) approximately $0.7 million to reimburse Pinecone for its accrued and unpaid expenses and to pay outstanding interest payments for prior interest periods and (b) $1.5 million as a non-refundable payment of additional interest. During the forbearance period under the New Forbearance Agreement, the interest rate reverted from the default rate of 18.5% per annum to the ongoing rate of 13.5% per annum.
Pursuant to the New Forbearance Agreement which amended the Pinecone Credit Facility, the Company hired a financial advisor (a “Financial Advisor”) acceptable to Pinecone to advise management and the Board of Directors on operational improvements and to assist in coordinating overall company strategy, whose engagement included assisting the Company to obtain one or more sources of refinancing to repay the obligations under the Pinecone Credit Facility.
On December 31, 2018, the Company and certain of its subsidiaries entered into the A&R New Forbearance Agreement with Pinecone pursuant to which Pinecone agreed, subject to the terms and conditions set forth in the A&R New Forbearance Agreement, to forbear for a specified period of time from exercising its default-related rights and remedies (including the acceleration of the outstanding loans and charging interest at the specified default rate) with respect to the Specified Defaults under the Pinecone Credit Facility. The forbearance period under the A&R New Forbearance Agreement was from December 31, 2018 to March 14, 2019, and expired according to its terms.
Pursuant to the A&R New Forbearance Agreement, the Company and Pinecone amended certain provisions of the Pinecone Credit Facility, whereby Pinecone consented to the Omega Lease Termination and required the Company to pay to Pinecone approximately $1.4 million, of which $0.2 million was paid on January 4, 2019 for Pinecone’s expenses, which included a 1% prepayment penalty. On January 28, 2019, in connection with the Omega Lease Termination, the Company received gross proceeds of approximately $1.5 million, consisting of (i) a termination fee in the amount of $1.2 million and (ii) approximately $0.3 million to satisfy other net amounts due to the Company under the leases.
The Company paid $1.2 million of such Omega Lease Termination proceeds to Pinecone on January 28, 2019, as required by the A&R New Forbearance Agreement, to reimburse Pinecone for approximately $0.3 million of certain unpaid expenses and partially prepay $0.9 million of the AdCare Holdco Loan.
The A&R New Forbearance Agreement amended the Pinecone Credit Facility to, among other things: (i) add a $0.35 million fee (paid in kind) to the loans on a pro rata basis; (ii) provide for additional payment in kind interest at a rate of 3.5% (the “PIK Rate”), with such interest to be paid in kind in arrears by increasing the outstanding principal amount of loans held by Pinecone on the first (1st) day of each month; provided that interest accruing at the PIK Rate on each loan and any overdue interest on each loan be paid in cash (a) on the maturity of the loans, whether by acceleration or otherwise, or (b) in connection with any repayment or prepayment of the loans; and (iii) modify the default rate of interest to add an additional 2.5% to the PIK Rate, in addition to the ongoing rate of 13.5%. During the forbearance period under the A&R New Forbearance Agreement, the interest rate to be paid in cash on the first (1st) day of each month was the ongoing rate of 13.5% per annum.
In addition, the A&R New Forbearance Agreement amended the Pinecone Credit Facility to require the Company to continue to retain the financial advisor as the Company’s chief restructuring officer (“CRO”) and hire a nationally recognized investment banker reasonably acceptable to Pinecone no later than January 7, 2019 to advise management and the Board on potential asset sale and related transactions and perform valuation debt - bonds, netcapacity analyses. By February 28, 2019, the Company and the CRO (whose responsibilities were expanded to include all aspects of discount included $6.0transaction planning, including a process of soliciting bids for one or more asset sale or related transactions (the “Bid Solicitation”) had to: (i) complete the Bid Solicitation; and (ii) negotiate in good faith and enter into with Pinecone an agreement that is acceptable to Pinecone, which required, among other things, that the Company engage in a process that culminated in (a) the consummation of one or more asset sales or related transactions and (b) the payment in full in cash of all obligations under the Pinecone Credit Facility with the proceeds thereof. As a condition of the A&R New Forbearance Agreement, the Company appointed a Pinecone non-voting observer to attend all meetings of the Board and each committee thereof, subject to certain exceptions described in the A&R New Forbearance Agreement.
On March 29, 2019, the Company and certain of its subsidiaries entered into a new forbearance agreement (the “Second A&R Forbearance Agreement”) with Pinecone pursuant to which Pinecone agreed, subject to the terms and conditions set forth in the Second A&R Forbearance Agreement, to forbear for a specified period of time from exercising its default-related rights and remedies (including the acceleration of the outstanding loans and charging interest at the specified default rate) with respect to the Specified Defaults under the Pinecone Credit Facility. The forbearance period under the Second A&R Forbearance Agreement commenced on March 29, 2019 and could have extended as late as October 1, 2019, unless the forbearance period was earlier terminated as a result of specified termination events, including a default or event of default under the Pinecone Credit Facility (other than any Specified Defaults) or any failure by the Company or its subsidiaries to comply with the terms of the Second A&R Forbearance Agreement, including, without limitation, the Company’s obligation to progress with an Asset Sale in accordance with the timeline specified therein.
Pursuant to the Second A&R Forbearance Agreement, the Company and Pinecone agreed to amend certain provisions of the Pinecone Credit Facility. The Second A&R Forbearance Agreement required, among other things (i) that the Company pursue and complete the Asset Sale which resulted in the repayment in full of all of the Company’s indebtedness to Pinecone and, in connection therewith, the Company paid not less than $0.3 million and not more than $0.55 million in forbearance fees, as well as certain other expenses of Pinecone, or (ii) Pinecone’s other disposition of the Pinecone Credit Facility as contemplated by the Second A&R Forbearance Agreement. Additionally the Second A&R Forbearance Agreement accelerated the previously disclosed 3% finance “tail fee”, 1% prepayment penalty, and 1% breakup fee so that such fees and penalties became part of the principal as of April 15, 2019.
On June 13, 2019, the Company and certain of its subsidiaries entered into an amendment with respect to the Second A&R Forbearance Agreement (the “Pinecone Amendment”), pursuant to which Pinecone agreed, subject to the terms and conditions set forth in the Pinecone Amendment, to extend the timeline to complete the Asset Sale to August 15, 2019.
Pursuant to the Pinecone Amendment, the Company paid an additional non-refundable payment, payable in kind, on June 13, 2019, by increasing the outstanding principal amount owed to Pinecone up to approximately $0.5 million, which replaced approximately $0.2 million of payable in kind fees, under the Second A&R Forbearance Agreement.
The forbearance period under the Second A&R Forbearance Agreement remained unchanged by the Pinecone Amendment and may have continued until October 1, 2019, unless earlier terminated in accordance with the Second A&R Forbearance Agreement.
Pinecone Credit Facility Repayment
On August 1, 2019, the Company used a portion of the proceeds from the Asset Sale to repay approximately $21.3 million to Pinecone to extinguish all obligations and amounts owed under the Pinecone Credit Facility. However for a period of three months following such repayment, Pinecone continued to hold a right of first refusal to provide first mortgage financing for any acquisition of a healthcare facility by the Company and to hold an exclusive option to refinance the Company’s existing first mortgage loan, with a balance of $5.3 million at December 31, 2014 related to revenue bonds issued byJune 30, 2019, on the Medical Clinical Board of the City of Hoover in the State of Alabama to the Company's consolidated VIE,Riverchase Village ADK, LLC ("Riverchase"). On November 20, 2015, the Riverchase facility financed with such bonds was sold to a third-party unrelated to the Company.
$0.1 million loan forgiveness); (ii) $0.5 million in interest; and (iii) $0.1 million in legal expenses. See Note – 10 Acquisitions and Dispositions for further information regarding the Company’s repayment to Pinecone.
On September 30, 2019, the Company and Pinecone entered into a waiver and release agreement, and the Company paid approximately $0.4 million to Pinecone to fully extinguish the Surviving Obligations under the Pinecone Credit Facility.
The continuation of our business was dependent upon our ability: (i) to comply with the terms and conditions under the Pinecone Credit Facility and the Second A&R Forbearance Agreement as amended on June 13, 2019; and (ii) to refinance or obtain further debt maturity extensions on the Quail Creek Credit Facility, neither of which was entirely within the Company’s control. These factors had created substantial doubt about the Company’s ability to continue as a related $0.2 million outstanding line of credit balance. going concern. However, the going concern issue was resolved when Company repaid the Pinecone Credit Facility and Quail Creek Credit Facility on August 1, 2019.
Quail Creek Credit Facility
On OctoberApril 30, 2015,2019, the Company, completeda wholly owned subsidiary of the Company and Congressional Bank amended the terms of the Quail Creek Credit Facility, with an original aggregate principal amount of $5.0 million, to extend the maturity date of the Quail Creek Credit Facility, with a principal balance of approximately $4.0 million as of March 31, 2019, and bearing interest at LIBOR + 4.75%, to June 30, 2019 (the “Maturity Date”), with an option to further extend the Maturity Date to July 31, 2019, as discussed below. The Quail Creek Credit Facility was secured by a mortgage on the Quail Creek Facility.
As discussed above, on April 15, 2019, the Company entered into the PSA with MED, which provided for, among other things, the sale of Companions. At Decemberthe Quail Creek Facility to MED.
The option to further extend the Maturity Date of the Quail Creek Credit Facility to July 31, 2015, the senior debt - other mortgage indebtedness includes $1.0 million related2019 (the “Extension Option”), was subject to the outstanding loan on oneCompany’s satisfaction of the two office buildings located in Roswell, Georgia.
On August 1, 2019, the Company paid approximately $3.8 million to the Congressional Bank to extinguish all obligations and amounts owed under the Quail Creek Credit Facility. The repayment amount was comprised of $3.9 million in principal after application of approximately $0.1 million in restricted cash. For more information regarding the two office buildings located in Roswell, Georgia classified as liabilities of disposal group held Company’s repayment to Congressional Bank, see Note – 10 Acquisitions and Dispositions for sale.
| Amounts in (000's) | ||||
| 2016 | $ | 51,918 | ||
| 2017 | 12,580 | |||
| 2018 | 1,800 | |||
| 2019 | 1,848 | |||
| 2020 | 1,945 | |||
| Thereafter | 55,585 | |||
| Subtotal | 125,676 | |||
| Less: unamortized discounts | (205 | ) | ||
| Total notes and other debt | $ | 125,471 | ||
Debt Covenant Compliance
As of December 31, 2015,2019, the Company hashad approximately thirty-eight17 credit related instruments (credit facilities, mortgage notes, bonds and other credit obligations) outstanding that include various financial and administrative covenant requirements. Covenant requirements include, but are not limited to, fixed charge coverage ratios, debt service coverage ratios, minimum EBITDAearnings before interest, taxes, depreciation, and amortization or EBITDAR,earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs, and current ratios and tangible net worth requirements.ratios. Certain financial covenant requirements are based on consolidated financial measurements whereas others are based on measurements at the subsidiary level (i.e., facility, multiple facilities or a combination of subsidiaries). The subsidiary level requirements are as follows: (i) financial covenants measured against subsidiaries comprising less thanof the Company's consolidatedCompany; and (ii) financial measurements).covenants measured against third-party operator performance. Some covenants are based on annual financial metric measurements whereas others are based on monthly and quarterly financial metric measurements. The Company routinely tracks and monitors its compliance with its covenant requirements. In recent periods, including as of
At December 31, 2015, the Company has not been in compliance with certain financial and administrative covenants. For each instance of such non-compliance, the Company has obtained waivers or amendments to such requirements including as necessary modifications to future covenant requirements or the elimination of certain requirements in future periods.
| Credit Facility | Balance at December 31, 2015 (000's) | Consolidated or Subsidiary Level Covenant Requirement | Financial Covenant | Measurement Period | Min/Max Financial Covenant Required | Financial Covenant Metric Achieved | Future Financial Covenant Metric Required | |||||||||||||||||
| Community Bank - Mountain Trace Nursing ADK, LLC - USDA | $ | 4,507 | Subsidiary | Minimum Debt Service Coverage Ratio | Quarterly | 1.0 | 0.50 | * | 1.00 | |||||||||||||||
| PrivateBank - Mortgage Note - Valley River Nursing, LLC; Park Heritage Nursing, LLC; Benton Nursing, LLC | $ | 7,359 | Operator | Minimum EBITDAR (000s) | Quarterly | $ | 265 | $ | 36 | * | $ | 265 | ||||||||||||
| Guarantor | Minimum Debt Service Coverage Ratio | Annual | 1.0 | 0.4 | * | 1.0 | ||||||||||||||||||
| Private Bank - Mortgage Note - Little Rock HC&R Nursing, LLC | $ | 11,399 | Operator | Minimum EBITDAR (000s) | Quarterly | $ | 450 | $ | 23 | * | $ | 450 | ||||||||||||
| Guarantor | Minimum Debt Service Coverage Ratio | Annual | 1.0 | 0.4 | * | 1.0 | ||||||||||||||||||
| Guarantor | Maximum Annual Leverage Ratio | Annual | 11 | 222 | * | 11 | ||||||||||||||||||
| PrivateBank - Mortgage Note - Georgetown HC&R Property Holdings, LLC; Sumter Valley HC&R Property Holdings, LLC | $ | 9,149 | Operator | Minimum Debt Service Coverage Ratio | Quarterly | 1.8 | 1.1 | * | 1.8 | |||||||||||||||
| Guarantor | Minimum Debt Service Coverage Ratio | Annual | 1.0 | 0.4 | * | 1.0 | ||||||||||||||||||
| Guarantor | Maximum Annual Leverage Ratio | Annual | 11 | 222 | * | 11 | ||||||||||||||||||
| PrivateBank - Mortgage Note - APH&R Property Holdings, LLC; Northridge HC&R Property Holdings, LLC; Woodland Hills HC Property Holdings, LLC | $ | 11,816 | Operator | Minimum EBITDAR | Quarterly | $ | 495 | $ | (601 | ) | * | $ | 495 | |||||||||||
| Guarantor | Minimum Debt Service Coverage Ratio | Annual | 1.0 | 0.4 | * | 1.0 | ||||||||||||||||||
| Guarantor | Maximum Annual Leverage Ratio | Annual | 11.0 | 222 | * | 11.0 | ||||||||||||||||||
| Congressional Bank - Mortgage Note - QC Property Holdings, LLC | $ | 5,000 | Subsidiary | Minimum Fixed Charge Coverage Ratio | Quarterly | 1.1 | (0.5 | ) | * | 1.1 | ||||||||||||||
| Subsidiary | Minimum Debt Service Coverage Ratio | Annual | 1.5 | (1.1 | ) | * | 1.5 | |||||||||||||||||
The schedule below summarizes the scheduled gross maturities as of December 31, 2019 for each of the next five years and Glenvue Nursing Credit Facilitythereafter.
|
| Amounts in (000's) |
| |
2020 |
| $ | 1,701 |
|
2021 |
|
| 2,242 |
|
2022 |
|
| 5,145 |
|
2023 |
|
| 1,752 |
|
2024 |
|
| 1,839 |
|
Thereafter |
|
| 44,197 |
|
Subtotal |
|
| 56,876 |
|
Less: unamortized discounts |
|
| (149 | ) |
Less: deferred financing costs |
|
| (1,364 | ) |
Total notes and other debt |
| $ | 55,363 |
|
NOTE 10. ACQUISITIONS AND DISPOSITIONS
Acquisitions
The Company made no acquisitions during the years ended December 31, 2019 and December 31, 2018, respectively.
Facilities Sold to MED
On September 24, 2014,April 15, 2019, certain wholly-owned subsidiaries of the Company entered into a Loan and Security Agreement (the “Woodland Nursing and Glenvue Nursing Credit Facility”)the PSA with PrivateBank. The Woodland Nursing and Glenvue Nursing Credit Facility provided for a $1.5 million principal amount senior secured revolving credit facility. In the fourth quarter of 2015, the Woodland Nursing and Glenvue Nursing Credit Facility was paid in full. Subsequently, the Company terminated and closed the facility.
Subject to the terms of the United States of America, was repaid in conjunction with this financing.
On October 1, 2014, a certain wholly-owned subsidiary of the Company entered into a Modification Agreement with Red Mortgage Capital, Inc. ("Red Capital") and HUD which modified the loan agreement, dated July 29, 2008, by and between a wholly-owned subsidiary ofJune 11, 2019, the Company and Red Capital (the "Hearth and Care of Greenfield Loan Agreement"), which matures in 2038. The modification, among other things: (i) reduced the rate of interest therein provided from 6.50% per annum to 4.20% per annum, effective as of November 1, 2014; (ii) revised the amount of monthly installments of interest and principal payable on and after December 1, 2014, so as to re-amortize in full the loan over the remaining term thereof; and (iii) modified the prepayment provision of the loan.
On August 1, 2019, the Company and MED completed the sale of three of the PSA Facilities, together with substantially all of the fixtures, equipment, furniture, leases and other assets relating to such facilities, pursuant to the PSA as amended, and entered into an additional amendment to the PSA on July 31, 2019 (the “PSA NW Amendment”). The aggregate purchase price paid to the Company for the three facilities was $26.1 million, net of $0.175 million from the first and second deposits held in escrow. The remaining earned $0.125 million was applied to the remaining facility sale on August 28, 2019, and the Company paid a $0.4 million sale commission. The proceeds from the sale were used to repay the Pinecone Credit Facility and Quail Creek Credit Facility in full.
The PSA NW Amendment provided for: (i) the requirementextension of the scheduled closing date of the fourth facility, the Northwest Facility, to adjustAugust 30, 2019, subject to satisfaction or waiver of customary terms and conditions, which could have been extended to September 30, 2019, for an additional non-refundable fee of $0.075 million if MED notified the conversionCompany in writing by August 28, 2019 at 5:00 p.m. EST; and (ii) a reduction in the purchase price of approximately $0.1 million for building improvements.
On August 28, 2019, the 2010 NotesCompany sold to MED the Northwest Facility, together with substantially all of the fixtures, equipment, furniture, leases and other assets relating to the Northwest Facility, pursuant to the PSA as amended, between the Company and MED. In connection with the sale, MED paid to the Company a cash purchase price for dilutive equity issuances (i.e., the "full ratchetNorthwest Facility equal to $2.4 million, and anti-dilution" provision); (ii) extended the maturity dateCompany incurred approximately $0.1 million for a building improvement credit and sales commission expenses.
The sale of the PSA Facilities contributed approximately $4.8 million income to August 29, 2014; and (iii) adjusted the interest rateCompany’s “Net loss attributable to 12.0% per annum.
The following table provides summary information regarding the leases associated with the PSA Facilities and related tolicensed beds/units by operator affiliation as of the difference betweendisposition date:
|
|
|
|
|
|
|
|
|
|
| 2019 Cash |
|
| 2019 Cash |
| |||
|
|
|
|
|
|
|
|
|
| Lease Term |
| Annual Rent |
|
| Annual Rent |
| ||
Facility Name |
| Licensed Beds/Units |
|
| Location |
| Operator Affiliation |
| Expiration Date |
| (Amounts in 000’s) |
|
| % of Total Expected |
| |||
Attalla (a) |
|
| 182 |
|
| AL |
| C.R. Management |
| 8/31/2030 |
| $ | 1,175 |
|
|
| 6.4 | % |
College Park (a) |
|
| 100 |
|
| GA |
| C.R. Management |
| 3/31/2025 |
|
| 645 |
|
|
| 3.5 | % |
Quail Creek (a) |
|
| 118 |
|
| OK |
| Southwest LTC |
| 12/31/2025 |
|
| 783 |
|
|
| 4.3 | % |
Northwest (b) |
|
| 100 |
|
| OK |
| Southwest LTC |
| 12/31/2025 |
|
| 379 |
|
|
| 2.1 | % |
Total |
|
| 500 |
|
|
|
|
|
|
|
| $ | 2,982 |
|
|
| 16.3 | % |
(a) | Disposition was completed on August 1, 2019. The Company received net proceeds of $0.4 million after repayment of the Pinecone Credit Facility, the Quail Creek Credit Facility and associated expenses related to the transactions. |
(b) | Disposition was completed on August 28, 2019. The Company received net proceeds of $2.3 million. |
The following table provides summary information regarding the conversioncredit facilities associated with the PSA Facilities and related purchase price, debt repaid and the market pricenet gain on the datesale for the 2010 Notes were converted into shares of common stock.
|
|
|
|
|
|
|
|
|
| Principal indebtedness repaid |
|
| Purchase Price |
|
| Gain/(loss) on Sale |
| |||
Facility Name |
| Lender |
| Interest Rate |
|
| (Amounts in 000’s) |
|
| (Amounts in 000’s) |
|
| (Amounts in 000’s) |
| ||||||
Attalla |
| Pinecone |
| Fixed |
|
| 13.50 | % |
| $ | 9,696 |
|
| $ | 13,000 |
|
| $ | 3,739 |
|
College Park |
| Pinecone |
| Fixed |
|
| 13.50 | % |
|
| 3,043 |
|
|
| 7,000 |
|
|
| 3,050 |
|
Quail Creek |
| Congressional Bank |
| LIBOR + 4.75% |
|
| 7.15 | % |
|
| 3,878 |
|
|
| 6,100 |
|
|
| 524 |
|
Northwest |
| Pinecone |
| Fixed |
| 13.50 | % |
|
| 3,011 |
|
|
| 2,400 |
|
|
| (862 | ) | |
AdCare Property Holdings |
| Pinecone |
| Fixed |
|
| 13.50 | % |
|
| 5,009 |
|
|
| — |
|
|
| — |
|
Total |
|
|
|
|
|
|
|
|
| $ | 24,637 |
|
| $ | 28,500 |
|
| $ | 6,451 |
|
On August 1, 2019, the Company paid $21.3 million to Pinecone to repay all amounts owed under the 2010 Notes.
Quail Creek Credit Facility
On August 1, 2019, the Company paid approximately $3.8 million to Congressional Bank to extinguish all obligations and amounts owed under the Quail Creek Credit Facility. The repayment amount was comprised of $3.9 million in principal after application of approximately $0.1 million in restricted cash.
Omega Lease Termination
Effective January 15, 2019, and as contemplated by the 2011 Notes.
In 2012, the Company entered into a Securities Purchase Agreement, with certain accredited investors pursuant to which the Company sold to them an aggregate of $7.5 million in principal amount of the 2012 Notes. The 2012 Notes bear interest at 8% per annum and such interest is payable quarterly in cash in arrears beginning on September 30, 2012. The 2012 Notes matured on July 31, 2015. The 2012 Notes are unsecured and subordinated in right of payment to existing and future senior indebtedness of the Company.
The Omega Lease Termination contributed approximately $0.7 million income recorded in "Net loss attributable to Regional Health Properties, Inc. common stockholders" reported in the consolidated statement of operations for the such note to Octoberperiod ended December 31, 2017; (ii) increase the interest rate from 8.0% to 10.0% per annum; and (iii) increase the conversion price from $3.97 to $4.25 per share.
The following table provides summary information for the amendment modifies the Company’s right to prepay the note so that the Company may prepayOmega Lease Termination assets and liabilities held for sale at any time, without penalty, upon 60 days prior notice, any portion of the outstanding principal amount and accrued and unpaid interest thereon with respect to the note; provided, however, that: (i) the shares of the common stock issuable upon conversion of the note have been registered for resale under the Securities Act of 1933, as amended (the "Securities Act"); (ii) at any time after the issue date of the note, the volume-weighted average price of the common stock for 10 consecutive trading days has equaled or exceeded 150% of the then-current conversion price; and (iii) such prepayment may not be effected prior to JulyDecember 31, 2016. The amendment also affords each of CAM2018 and the Companyassets and liabilities associated with the right to causePSA Facilities sold during the redemption of all or any portion of the principal amount of the note upon a change of control (as defined in the note) at a redemption price equal to 115% of the sum of (i) outstanding principal amount to be redeemed, plus (ii) the amount of accrued and unpaid interest thereon.
|
| Disposed |
|
| Comparative (b) |
|
| Actual (a) |
| |||||||
|
| August 1, |
|
| August 28, |
|
| December 31, |
|
| December 31, |
| ||||
(Amounts in 000's) |
| 2019 |
|
| 2019 |
|
| 2018 |
|
| 2018 |
| ||||
Restricted cash, current |
| $ | 126 |
|
| $ | — |
|
| $ | 145 |
|
| $ | — |
|
Accounts receivable |
|
| 51 |
|
|
| — |
|
|
| 55 |
|
|
| — |
|
Lease deposits |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 375 |
|
Straight-line rent receivable |
|
| 932 |
|
|
| 125 |
|
|
| 1,013 |
|
|
| 704 |
|
Buildings and improvements, net |
|
| 15,551 |
|
|
| 2,320 |
|
|
| 18,081 |
|
|
| 352 |
|
Equipment and computer related, net |
|
| 272 |
|
|
| 187 |
|
|
| 495 |
|
|
| 97 |
|
Land, net |
|
| 1,160 |
|
|
| 181 |
|
|
| 1,341 |
|
|
| — |
|
Intangible assets—lease rights, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 676 |
|
Goodwill |
|
| 230 |
|
|
| 290 |
|
|
| 520 |
|
|
| — |
|
Assets of disposal group |
| $ | 18,322 |
|
| $ | 3,103 |
|
| $ | 21,650 |
|
| $ | 2,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 100 |
|
Other liabilities -lease deposits |
|
| 140 |
|
|
| — |
|
|
| 140 |
|
|
| 170 |
|
Notes payable and other debt |
|
| 24,535 |
|
|
| — |
|
|
| 24,221 |
|
|
| — |
|
Deferred financing costs |
|
| (33 | ) |
|
| — |
|
|
| (58 | ) |
|
| — |
|
Other liabilities -accrued straight-line rent |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,221 |
|
Liabilities of disposal group |
| $ | 24,642 |
|
| $ | — |
|
| $ | 24,303 |
|
| $ | 1,491 |
|
(a) | Actual Omega Lease Termination assets and liabilities held for sale at December 31, 2018 sold during January 2019. On December 27, 2018, the Board unanimously approved to terminate the Bonterra/Parkview Master Lease for gross proceeds of approximately $1.5 million, consisting of (i) a termination fee in the amount of $1.2 million and (ii) approximately $0.3 million to satisfy other net amounts due to the Company under the leases. |
(b) | Comparative balance of assets and liabilities sold pursuant to the PSA at December 31, 2018. |
The Company entered into Subscription Agreements with certain accredited investors pursuant to whichmade no dispositions during the Company sold, on March 28, 2014, an aggregate of $6.5 million in principal amount of the 2014 Notes. The 2014 Notes bear interest at 10.0% per annum and such interest is payable quarterly in cash in arrears beginning on June 30, 2014. The 2014 Notes mature on April 30, 2015. The 2014 Notes are unsecured and subordinated in right of payment to existing and future senior indebtedness of the Company.
Disposition of Facility Operations
Historically, the dispositionCompany’s business has focused primarily on owning and operating skilled nursing facilities and managing such facilities for unaffiliated owners with whom the Company has management contracts. In July 2014, the Board approved and commenced the Transition, pursuant to which the Company: (i) leased to third-party operators all of operations bythe healthcare properties which the Company owns and previously operated; (ii) subleased to third-party operators all of the healthcare properties which the Company leases (but does not own) and previously operated; and (iii) retained a management agreement to manage two skilled nursing facilities and one independent living facility for the years endedthird parties. The Transition was completed in December 31, 2015 and 2014:
For the discontinued operations, the patient care revenue, related costrecoveries, is primarily releases of services,accruals for professional and facility rentalgeneral liability claims and bad debt expense recoveries prior to the commencement of leasing are classified in the activities below.
The following table summarizes the activity of discontinued operations for the years ended December 31, 20152019 and 2014:2018:
|
| Year Ending December 31, |
| |||||
(Amounts in 000’s) |
| 2019 |
|
| 2018 |
| ||
Recoveries |
|
| (626 | ) |
|
| (83 | ) |
Interest expense, net |
|
| — |
|
|
| 9 |
|
Net income |
| $ | 626 |
|
| $ | 74 |
|
| Year Ending December 31, | ||||||||
| (Amounts in 000’s) | 2015 | 2014 | ||||||
| Total revenues | $ | 87,920 | $ | 222,104 | ||||
| Cost of services | $ | 89,783 | $ | 188,952 | ||||
| Net (loss) income | $ | (4,892 | ) | $ | 23,783 | |||
| Interest expense, net | $ | (1,510 | ) | $ | (1,152 | ) | ||
| Income tax benefit (expense) | $ | (251 | ) | $ | 253 | |||
| Gain on disposal of assets | $ | 1,251 | $ | — | ||||
The Company’s major classes of Assets
NOTE 12. COMMON AND PREFERRED STOCK
Common Stock
As discussed in Note 1 - Summary of Significant Accounting Policies, the Reverse Stock Split became effective on December 31, 2018 for all issued and outstanding shares of the common stock. The number of shares authorized under the Company’s equity incentive plans, was proportionately adjusted in connection with the Reverse Stock Split. Accordingly, all share and per share amounts have been adjusted to reflect the Reverse Stock Split for all prior periods presented.
There were remitted to Bentonville Property Holdings, LLC. The Company recorded a gain of $0.3 millionno dividends paid on the sale.
| December 31, | ||||||||
| Amounts in (000's) | 2015 | 2014 | ||||||
| Property and equipment, net | $ | 1,249 | $ | 3,777 | ||||
| Other assets | — | 2,036 | ||||||
| Assets of disposal group held for sale | $ | 1,249 | $ | 5,813 | ||||
| Notes payable | $ | 987 | $ | 5,197 | ||||
| Liabilities of disposal group held for sale | $ | 987 | $ | 5,197 | ||||
Preferred Stock
As of December 31, 2019, the Company'sCompany had 2,811,535 shares of the Series A Preferred Stock is $25 per share. Cumulative dividends accrueissued and are paidoutstanding. The Company may, at its option, redeem the Series A Preferred Stock, in the amount of $2.72whole or in part, by paying $25.00 per share, each year, which is equivalentplus any accrued and unpaid dividends to 10.875% of the $25 liquidation preference per share. The dividend rate may increase under certain circumstances.
No dividends were declared or paid on the Series A Preferred Stock for the twelve months ended December 31, 2019 and for the twelve months ended December 31, 2018.
Holders of the Series A Preferred Stock generally have no voting rights but have limited voting rights under certain circumstances.circumstances, as described in the Charter. The Company may not redeem the Series A Preferred Stock before December 1, 2017, except the Company is required to redeem the Series A Preferred Stock following a "Change“Change of Control,"” as defined in the Company's ArticlesCharter.
The following table summarizes the preferred stock dividends in arrears at December 31, 2019:
|
| Date paid / Arrears date |
| Dividends Per Share |
|
| Dividend Arrears (in 000's) |
| ||
Preferred Stock Dividends: |
|
|
|
|
|
|
|
|
|
|
|
| 12/31/2017 |
|
| 0.68 |
|
|
| 1,912 |
|
For the year ended December 31, 2017 |
|
|
|
|
|
|
| $ | 1,912 |
|
|
| 3/31/2018 |
| $ | 0.68 |
|
| $ | 1,912 |
|
|
| 6/30/2018 |
|
| 0.68 |
|
|
| 1,912 |
|
|
| 9/30/2018 |
|
| 0.68 |
|
|
| 1,912 |
|
|
| 12/31/2018 |
|
| 0.80 |
|
|
| 2,249 |
|
For the year ended December 31, 2018 |
|
|
| $ | 2.84 |
|
| $ | 7,985 |
|
|
| 3/31/2019 |
| $ | 0.80 |
|
| $ | 2,250 |
|
|
| 6/30/2019 |
|
| 0.80 |
|
|
| 2,249 |
|
|
| 9/30/2019 |
|
| 0.80 |
|
|
| 2,249 |
|
|
| 12/31/2019 |
|
| 0.80 |
|
|
| 2,249 |
|
For the year ended December 31, 2019 |
|
|
| $ | 3.20 |
|
| $ | 8,997 |
|
Cumulative Total Outstanding |
|
|
|
|
|
|
| $ | 18,894 |
|
* | The Board has suspended payment of the quarterly dividend on the Series A Preferred Stock indefinitely. Such dividend suspension does not trigger a default under the Company’s outstanding indebtedness. |
As of Incorporation. On and after December 1,31, 2019, as a result of the suspension of the dividend payment on the Series A Preferred Stock commencing with the fourth quarter 2017 dividend period, the Company may,has $18.9 million of undeclared preferred stock dividends in arrears. Holders of the Series A Preferred Stock are entitled to receive, when and as declared by the Board out of funds of the Company legally available for the payment of distributions, cumulative preferential cash dividends at its option, redeeman annual rate equal to 10.875% of the $25.00 per share stated liquidation preference of the Series A Preferred Stock, which is equivalent to an annual rate of $2.72 per share. Dividends on the Series A Preferred Stock are payable quarterly in arrears, on March 31, June 30, September 30, and December 31, of each year, unless suspended by the Board. On June 8, 2018, the Board determined to continue suspension of the payment of the quarterly dividend on the Series A Preferred Stock indefinitely. Under the terms of the Series A Preferred Stock, dividends on the Series A Preferred Stock shall continue to accrue and accumulate regardless of whether such dividends are declared by the Board. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for four dividends periods: (i) the annual dividend rate on the Series A Preferred Stock has increased to 12.875% ,which is equivalent to an annual rate of $3.22, commencing on the first day after the missed fourth quarterly payment (October 1, 2018) continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in whole orfull in part, by paying $25 per share, plus any accruedcash; and unpaid dividends to(ii) the redemption date.
| Shares Issued & Outstanding | Net Proceeds from Issuance (in 000's) | |||||
| Balances, December 31, 2013 | 950,000 | $ | 20,392 | |||
| Balances, December 31, 2014 | 950,000 | $ | 20,392 | |||
| Issuance of Preferred Stock: | ||||||
April 13, 2015 offering (1) | 575,000 | $ | 13,481 | |||
June 2, 2015 offering (2) | 588,235 | 14,105 | ||||
At-The-Market offering (3) | 313,695 | 6,736 | ||||
| Balances, December 31, 2015 | 2,426,930 | $ | 54,714 | |||
| Date of Payment | Dividends Paid (in 000's) | Dividends Per Share | |||||
| Common Stock Dividends: | |||||||
| 4/30/2015 | $ | 990 | $ | 0.050 | |||
| 7/31/2015 | 1,093 | 0.055 | |||||
| 10/31/2015 | 1,193 | 0.060 | |||||
| For the year ended December 31, 2015 | $ | 3,276 | $ | 0.165 | |||
| Preferred Stock Dividends: | |||||||
| 3/31/2014 | $ | 646 | $ | 0.68 | |||
| 6/30/2014 | 646 | 0.68 | |||||
| 9/30/2014 | 646 | 0.68 | |||||
| 12/31/2014 | 646 | 0.68 | |||||
| For the year ended December 31, 2014 | $ | 2,584 | $ | 2.72 | |||
| 3/31/2015 | $ | 646 | $ | 0.68 | |||
| 6/30/2015 | 1,437 | 0.68 | |||||
| 9/30/2015 | 1,498 | 0.68 | |||||
| 12/31/2015 | 1,627 | 0.68 | |||||
| For the year ended December 31, 2015 | $ | 5,208 | $ | 2.72 | |||
NOTE 13. STOCK BASED COMPENSATION
As discussed in Note 1 - Summary of Significant Accounting Policies, the years endedReverse Stock Split became effective on December 31, 20152018 for all issued and 2014:
| Year Ending December 31, | ||||||||
| Amounts in (000's) | 2015 | 2014 | ||||||
| Employee compensation: | ||||||||
| Stock options | $ | 42 | $ | 305 | ||||
| Warrants | 196 | 149 | ||||||
| Restricted stock | 431 | 139 | ||||||
| Total employee stock-based compensation expense | $ | 669 | $ | 593 | ||||
| Non-employee compensation: | ||||||||
| Stock options | $ | 49 | $ | 236 | ||||
| Warrants | — | 11 | ||||||
| Restricted stock | 224 | 315 | ||||||
| Total non-employee stock-based compensation expense | $ | 273 | $ | 562 | ||||
| Total stock-based compensation expense | $ | 942 | $ | 1,155 | ||||
| Year Ending December 31, | ||||||
| 2015 | 2014 | |||||
| Dividend Yield | 4.8 | % | — | % | ||
| Expected Volatility | 38.6 | % | 40.9% - 51.0% | |||
| Risk-Free Interest Rate | 1.1 | % | 0.9% - 1.7% | |||
| Expected Term (in years) | 3.9 | 5.2 years | ||||
In addition to the 2011 Stock Incentive Plan, the Company grants stock warrants to officers, directors, employees and certain consultants to the Company from time to time as ofdetermined by the Board and, when appropriate, the Compensation Committee.
The following table summarizes employee and nonemployee stock based compensation for the years ended December 31, 2015 is 937,558.2019 and 2018:
|
| Year Ending December 31, |
| |||||
Amounts in (000's) |
| 2019 |
|
| 2018 |
| ||
Employee compensation: |
|
|
|
|
|
|
|
|
Restricted stock |
| $ | — |
|
| $ | 15 |
|
Total employee stock-based compensation expense |
| $ | — |
|
| $ | 15 |
|
Non-employee compensation: |
|
|
|
|
|
|
|
|
Restricted stock |
| $ | 92 |
|
| $ | 161 |
|
Total non-employee stock-based compensation expense |
| $ | 92 |
|
| $ | 161 |
|
Total stock-based compensation expense |
| $ | 92 |
|
| $ | 176 |
|
Common Stock Options
The following summarizes the Company'sCompany’s employee and non-employee stock option activity for the years ended December 31, 20152019 and 2014:2018:
|
| Number of Options (000's) |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contract Life (in years) |
|
| Aggregate Intrinsic Value (000's) (a) |
| ||||
Outstanding and vested at December 31, 2017 |
|
| 15 |
|
| $ | 47.77 |
|
| 6.4 |
|
| $ | — |
| |
Outstanding and vested at December 31, 2018 |
|
| 15 |
|
| $ | 47.77 |
|
|
| 5.4 |
|
| $ | — |
|
Outstanding and vested at December 31, 2019 |
|
| 15 |
|
| $ | 47.77 |
|
|
| 4.4 |
|
| $ | — |
|
(a) | Represents the aggregate gain on exercise for vested in-the-money options. |
| Number of Options (000's) | Weighted Average Exercise Price | Weighted Average Remaining Contract Life (in years) | Aggregate Intrinsic Value (000's) (a) | ||||||||||
| Outstanding at December 31, 2013 | 1,804 | $ | 4.54 | ||||||||||
| Granted | 159 | $ | 4.01 | ||||||||||
| Exercised | (251 | ) | $ | 3.83 | |||||||||
| Forfeited | (581 | ) | $ | 4.17 | |||||||||
| Expired | (196 | ) | $ | 4.35 | |||||||||
| Outstanding at December 31, 2014 | 935 | $ | 4.91 | 7.3 | $ | 61 | |||||||
| Vested at December 31, 2014 | 647 | $ | 5.28 | 6.7 | $ | 48 | |||||||
Vested or Expected to Vest at December 31, 2014 (b) | 893 | $ | 4.94 | 7.3 | $ | 61 | |||||||
| Outstanding at December 31, 2014 | 935 | $ | 4.91 | ||||||||||
| Granted | — | $ | — | ||||||||||
| Exercised | (13 | ) | $ | 2.35 | |||||||||
| Forfeited | (535 | ) | $ | 5.63 | |||||||||
| Expired | (120 | ) | $ | 4.10 | |||||||||
| Outstanding at December 31, 2015 | 267 | $ | 3.96 | 6.9 | $ | 2 | |||||||
| Vested at December 31, 2015 | 184 | $ | 3.96 | 6.1 | $ | 2 | |||||||
Vested or Expected to Vest at December 31, 2015 (b) | 264 | $ | 3.96 | 6.9 | $ | 2 | |||||||
No stock options were granted during the year ended December 31, 2015.2019 or for the year ended December 31, 2018. At December 31, 2015,2019, the Company has approximately $0.1 million ofno unrecognized compensation expense related to unvested options. Assuming no pre-vesting forfeitures, this expense will be recognized as a charge to earnings over a weighted-average remaining service period of 1.1 years. The total intrinsic value of options exercised during the years ended December 31, 2015 and 2014, was $0.02 million and $0.1 million, respectively.
The following summary information reflects stock options outstanding, vested and related details as of December 31, 2015:2019:
|
| Stock Options Outstanding |
|
| Stock Options Exercisable |
| ||||||||||||||
Exercise Price |
| Number Outstanding (000's) |
|
| Weighted Average Remaining Contractual Term (in years) |
|
| Weighted Average Exercise Price |
|
| Vested and Exercisable (000's) |
|
| Weighted Average Exercise Price |
| |||||
$15.72 - $47.99 |
|
| 10 |
|
|
| 4.7 |
|
| $ | 46.84 |
|
|
| 10 |
|
| $ | 46.84 |
|
$48.00 - $51.60 |
|
| 5 |
|
|
| 3.7 |
|
| $ | 49.42 |
|
|
| 5 |
|
| $ | 49.42 |
|
Total |
|
| 15 |
|
|
| 4.4 |
|
| $ | 47.77 |
|
|
| 15 |
|
| $ | 47.77 |
|
| Stock Options Outstanding | Stock Options Exercisable | |||||||||||||||
| Exercise Price | Number Outstanding (000's) | Weighted Average Remaining Contractual Term (in years) | Weighted Average Exercise Price | Vested and Exercisable (000's) | Weighted Average Exercise Price | |||||||||||
| $1.30 | 2 | 0.4 | $ | 1.30 | 2 | $ | 1.30 | |||||||||
| $1.31 - $3.99 | 174 | 6.5 | $ | 3.91 | 105 | $ | 3.92 | |||||||||
| $4.00 - $4.30 | 91 | 7.8 | $ | 4.10 | 77 | $ | 4.09 | |||||||||
| Total | 267 | 6.9 | $ | 3.96 | 184 | $ | 3.96 | |||||||||
Common Stock Warrants
The Company grants stock warrants to officers, directors, employees and certain consultants to the Company from time to time as determined by the Board and, when appropriate, the Compensation Committee of the Board.Committee. The Board administers the granting of warrants, determines the persons to whom awards will be made, the amount of the awards, and the other terms and conditions of the awards.
The following summarizes the Company'sCompany’s employee and non-employee common stock warrant activity for the years ended December 31, 20152019 and 2014:2018:
|
| Number of Warrants (000's) |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contract Life (in years) |
|
| Aggregate Intrinsic Value (000's) (a) |
| ||||
Outstanding and vested at December 31, 2017 |
|
| 85 |
|
| $ | 45.53 |
|
|
| 4.7 |
|
|
|
|
|
Outstanding and vested at December 31, 2018 |
|
| 85 |
|
| $ | 45.53 |
|
|
| 3.7 |
|
| $ | — |
|
Expired |
|
| (27 | ) |
| $ | 31.72 |
|
|
|
|
|
|
|
|
|
Outstanding and vested at December 31, 2019 |
|
| 58 |
|
| $ | 52.09 |
|
|
| 4.0 |
|
| $ | — |
|
Number of Warrants (000's) | Weighted Average Exercise Price | Weighted Average Remaining Contract Life (in years) | Aggregate Intrinsic Value (000's) (a) | ||||||||||
| Outstanding at December 31, 2013 | 3,865 | $ | 3.48 | ||||||||||
| Granted | 573 | $ | 4.31 | ||||||||||
| Exercised | (1,275 | ) | $ | 3.55 | |||||||||
| Forfeited | (82 | ) | $ | 5.33 | |||||||||
| Expired | (365 | ) | $ | 4.29 | |||||||||
| Outstanding at December 31, 2014 | 2,716 | $ | 3.45 | 3.9 | $ | 1,820 | |||||||
| Vested at December 31, 2014 | 2,192 | $ | 3.25 | 3.0 | $ | 1,820 | |||||||
Vested or Expected to Vest at December 31, 2014 (b) | 2,670 | $ | 3.25 | 3.8 | $ | 1,820 | |||||||
| Outstanding at December 31, 2014 | 2,716 | $ | 3.45 | ||||||||||
| Granted | 275 | $ | 4.25 | ||||||||||
| Exercised | (519 | ) | $ | 3.43 | |||||||||
| Forfeited | (225 | ) | $ | 4.04 | |||||||||
| Expired | (196 | ) | $ | 3.91 | |||||||||
| Outstanding at December 31, 2015 | 2,051 | $ | 3.46 | 4.7 | $ | 305 | |||||||
| Vested at December 31, 2015 | 1,576 | $ | 3.19 | 3.5 | $ | 305 | |||||||
Vested or Expected to Vest at December 31, 2015 (b) | 1,998 | $ | 3.43 | 4.7 | $ | 305 | |||||||
(a) | Represents the aggregate gain on exercise for vested in-the-money warrants. |
No warrants were granted during the years ended December 31, 2019 and December 31, 2018. The Company has no unrecognized compensation expense related to common stock warrants as of December 31, 2015.
The weighted average grant date fair value of commonfollowing summarizes the Company’s restricted stock warrants granted duringactivity for the yearyears ended December 31, 20152019 and 2014, was $0.85 and $1.58, respectively. 2018:
|
| Number of Shares (000's) |
|
| Weighted Average Grant Date Fair Value |
| ||
Unvested at December 31, 2017 |
|
| 13 |
|
| $ | 21.91 |
|
Granted |
|
| 41 |
|
| $ | 3.60 |
|
Vested |
|
| (6 | ) |
| $ | 22.92 |
|
Forfeited |
|
| — |
|
| $ | — |
|
Unvested at December 31, 2018 |
|
| 48 |
|
| $ | 6.20 |
|
Granted |
|
| — |
|
| $ | — |
|
Vested |
|
| (19 | ) |
| $ | 8.65 |
|
Forfeited |
|
| — |
|
| $ | — |
|
Unvested at December 31, 2019 |
|
| 29 |
|
| $ | 4.63 |
|
The Company has approximately $0.8$0.05 million of unrecognized compensation expense related to unvested commonrestricted stock warrantsawards as of December 31, 2015.2019. Assuming no pre-vesting forfeitures, this expense will be recognized as a charge to earnings over a weighted-average remaining service period of 2.5 years. The total intrinsic value of common stock warrants exercised during the years ended December 31, 2015 and 2014 was $0.4 million and $1.3 million, respectively.
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||
| Exercise Price | Number Outstanding (000's) | Weighted Average Remaining Contractual Term (in years) | Weighted Average Exercise Price | Vested and Exercisable (000's) | Weighted Average Exercise Price | |||||||||||
| $1.04 - $1.99 | 328 | 1.9 | $ | 1.56 | 328 | $ | 1.56 | |||||||||
| $2.00 - $2.99 | 335 | 2.5 | $ | 2.58 | 335 | $ | 2.58 | |||||||||
| $3.00 - $3.99 | 500 | 3.8 | $ | 3.59 | 500 | $ | 3.59 | |||||||||
| $4.00 - $4.99 | 865 | 7.2 | $ | 4.37 | 390 | $ | 4.40 | |||||||||
| $5.00 - $5.90 | 23 | 7.4 | $ | 5.90 | 23 | $ | 5.90 | |||||||||
| Total | 2,051 | 4.8 | $ | 3.46 | 1,576 | $ | 3.19 | |||||||||
| Number of Shares (000's) | Weighted Average Grant Date Fair Value | ||||||
| Unvested at December 31, 2013 | 314 | $ | 3.31 | ||||
| Granted | 221 | $ | 4.30 | ||||
| Vested | (11 | ) | $ | 4.34 | |||
| Forfeited | (20 | ) | $ | 4.34 | |||
| Unvested at December 31, 2014 | 504 | $ | 3.68 | ||||
| Granted | 204 | $ | 4.05 | ||||
| Vested | (393 | ) | $ | 3.51 | |||
| Forfeited | (21 | ) | $ | 3.20 | |||
| Unvested at December 31, 2015 | 294 | $ | 4.19 | ||||
NOTE 14. VARIABLE INTEREST ENTITIES
The Company has onea loan receivable with Peach Health Sublessee. Such agreement creates a variable interest entity that was required to be consolidated because AdCare had control as primary beneficiary. A "primary beneficiary" is the party in a VIE that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. For a further description of the VIE, see
NOTE 15. COMMITMENTS AND CONTINGENCIES
Regulatory Matters
Laws and regulations governing federal Medicare and state Medicaid programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future governmental review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from certain governmental programs.
As of December 31, 2019, all of the Company’s facilities leased and subleased to third-party operators and managed for third-parties are certified by CMS and are operational (see Note 7 - Leases).
The Company believes that it is in compliance in all material respects with all applicable laws and regulations.
Legal Matters
The Company is party to various legal actions and administrative proceedings and areis subject to various claims arising in the ordinary course of business, including claims that the services the Company providesprovided during the time it operated skilled nursing facilities resulted in injury or death to the residents of the Company'sCompany’s facilities and claims related to employment, staffing requirements and commercial matters. Although the Company intends to vigorously defend itself in these matters, there is no assurance that the outcomes of these matters will not have a material adverse effect on the Company'sCompany’s business, results of operations and financial condition.
The Company previously operated, and the Company'sCompany’s tenants now operate, in an industry that is extremely regulated. As such, in the ordinary course of business, the Company'sCompany’s tenants are continuously subject to state and federal regulatory scrutiny, supervision and control. Such regulatory scrutiny often includes inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine. In addition, we believethe Company believes that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in legal proceedings or governmental investigations against or involving the Company, for the Company'sCompany’s prior operations, or the Company'sCompany’s tenants, whether currently asserted or arising in the future, could have a material adverse effect on the Company'sCompany’s business, results of operations and financial condition.
Professional and General Liability Claims
As of December 31, 2019, the Company iswas a defendant in 10 professional and general liability actions, primarily commenced on behalf of two of our former patients and eight of our current or prior tenant’s former patients. These actions generally seek unspecified compensatory and punitive damages for former patients who were allegedly injured or died while patients of our facilities due to professional negligence or understaffing. One such action, on behalf of the Company’s former patient, is covered by insurance, except that any award of punitive damages would be excluded from such coverage and eight of such actions relate to events which occurred after the Company transitioned the operations of the facilities in question to a purported classthird-party operator and which are subject to such operators’ indemnification obligations in favor of the Company. Subsequent to December 31, 2019 the Company settled one action lawsuit captioned Amy Cleveland et. al. v. APHR&R Nursing, LLC et alwith a former patient of the Company. See Note 19 - Subsequent Events for further information.
Developments During the Year Ended December 31, 2019.
During the three months ended March 31, 2019: (i) one action was dismissed, and because the plaintiffs did not re-file on or before September 12, 2019, may not re-file; and (ii) one action was filed on March 4, 2015 withJanuary 25, 2019 for a medical injury and improper care and treatment in the Circuit Court of Pulaski County, Arkansas, 16th Division, 6th Circuit. On December 16, 2015, the Company's insurance carrier reached a settlement with eachState of the individual plaintiffsArkansas on behalf of a deceased patient, who received care after the Transition, against the then operator affiliated with Skyline Healthcare, LLC (“Skyline”), the Company and all other defendantsCIBC Bancorp USA, Inc. The plaintiff is seeking unspecified compensatory damages for the actual losses and unspecified punitive damages. The Company believes that this action lacks merit and the Company intends to take action most favorable to the Company. There is no guarantee that the Company will prevail in the action that has been filed against it.
During the three months ended June 30, 2019, three professional and general liability claims as detailed below were filed against the Company.
On May 9, 2019, a complaint was filed in the State Court of Bibb County, State of Georgia by a patient, who received care outside Regional’s date of service (post Transition), against three different unrelated facilities and companies associated with those facilities. One of our tenants, its operator affiliated management company (Beacon) and the Company are among the named defendants. The plaintiff alleges personal injury, pain and suffering, medical bills and expenses, and loss of consortium and is seeking unspecified compensatory damages to be determined by jury trial. The complaint claims that medical expenses to date amount to $3.0 million. The Company is indemnified in this action by Beacon and believes that this action lacks merit. The Company intends to take action most favorable to the Company. There is no guarantee that the Company will prevail in the action that has been filed against it.
On May 15 2019, a complaint was filed in the Circuit Court of Pulaski County, the State of Arkansas on behalf of a patient, who received care outside Regional’s date of service (post-Transition), against the then operator Skyline, the Company and CIBC Bancorp USA, Inc. The plaintiff alleges medical injury, improper care and treatment and is seeking unspecified compensatory damages for the actual losses and unspecified punitive damages. The Company believes that this action lacks merit, the Company intends to take action most favorable to the Company. There is no guarantee that the Company will prevail in the action that has been filed against it.
On June 17, 2019, a complaint was filed in Jackson County, General Court of Justice Superior Court Division, in the State of North Carolina by the estate of a patient who died in August 2016, against one of our prior tenants, its operator affiliated management company (Symmetry), the Company and our new tenant who began operations on March 1, 2019. The plaintiff alleged wrongful death and gross medical malpractice and was seeking unspecified amounts to recover medical and funeral expenses, compensatory damages for pain and suffering, legal expenses and compensation in excess of $25,000 for wrongful death, to be determined by jury trial. The action against the Company was dismissed on August 19, 2019.
During the three months ended September 30, 2019, three professional and general liability actions were dismissed, one of which was indemnified by our former tenant and one of which was insured. Additionally, on September 3, 2019, the Company settled one professional and general liability action (our former patient), for a total of $200,000, payable in 12 monthly installments of $14,500 with an initial payment of $26,000 commencing November 2019.
During the three months ended December 31, 2019, one professional and general liability action was dismissed, which was indemnified by our former tenant. Additionally, on November 25, 2019, the Company settled one professional and general liability action (our former patient), for a total of $100,000, payable in four monthly installments of $20,000 and two monthly installments of $10,000 commencing March 2020.
Developments During the Year Ended December 31, 2018
On March 12, 2018, the Company entered into a separate mediation settlement agreement with respect to 25 then pending actions filed in the State of Arkansas which were pending on such date, pursuant to which separate payments are to be made by the Company's carrier to the plaintiffs.Company paid a specified settlement amount. The individual settlements are contingent on approvalaggregate settlement amount for all such 25 actions before related insurance proceeds was $5.2 million. The settlement of each such action was individually approved by the probate courts having jurisdiction overcourt. Under the deceased plaintiffs' respective estates, if applicable. As of March 28, 2016,settlement and release agreement with respect to a particular action, the Company was released from any and all but threeclaims arising out of the individual settlement agreements had been approvedapplicable plaintiff’s care while the plaintiff was a resident of one of the Company’s facilities.
In connection with a dispute between the Company and the settlement consideration paidCompany’s former commercial liability insurance provider regarding, among other things, the Company’s insurance coverage with respect to the plaintiffs.
The Company paid, $0.6 million to the Plaintiffs with the balance paid by twonet of the Company's insurance carriers. The Company and the other defendants in the matter deny all of the Plaintiff's claims and any wrongdoing but agreed to settle the matter to avoid the continued expense and unpredictability of litigation.
In the first quarter of 2018, the Company settled four professional and general liability actions (other than those subject to separationmediation settlement agreements as discussed above) for the total of $670,000.
In the second quarter of 2018, the Company settled one professional and general liability action (other than those subject to mediation settlement agreements as discussed above) for a total of $50,000, paid in 10 monthly installments commencing July 2018.
In the fourth quarter of 2018, the Company settled two professional and general liability actions (other than those subject to a mediation settlement agreement as discussed above), one for a total of $95,000, payable in three monthly installments commencing December 2018 and the other for a total of $52,500, payable in six monthly installments commencing December 2018.
The Company has self-insured against professional and general liability actions since it discontinued its healthcare operations in connection with certainthe Transition. The Company established a self-insurance reserve for these professional and general liability claims, included within “Accrued expenses” in the Company’s audited consolidated balance sheets of $0.5 million and $1.4 million at December 31, 2019, and December 31, 2018, respectively. Additionally at December 31, 2019 and December 31, 2018, approximately $0.3 million and $0.6 million was reserved for settlement amounts in “Accounts payable” in the Company’s audited consolidated balance sheets.
The Company evaluates quarterly the adequacy of its self-insurance reserve based on a number of factors, including: (i) the number of actions pending and the relief sought; (ii) analyses provided by defense counsel, medical experts or other information which comes to light during discovery; (iii) the legal fees and other expenses anticipated to be incurred in defending the actions; (iv) the status and likely success of any mediation or settlement discussions, including estimated settlement amounts and legal fees and other expenses anticipated to be incurred in such settlement, as applicable; and (v) the venues in which the actions have been filed or will be adjudicated.
In evaluating the adequacy of the Company's former officers, an amendment toself-insurance reserve in connection with the consulting agreement with Mr. Brogdon (a former Director), and future severance due to certain employees resulting frompreparation of the Company's transition from an owner and operator of healthcare properties to lessor and sublessor of healthcare properties. The benefits include wage continuation and fringe benefits which are to be paid out to these former officers and employees over various future periods.
The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgement unless settlement is more advantageous to the Company. The self-insurance reserve primarily reflects the Company’s estimate of settlement amounts for the pending actions, as appropriate, and legal costs of settling or litigating the pending actions, as applicable.
Other Legal Matters
Aria Bankruptcy Proceeding. On May 31, 2016, Highlands Arkansas Holdings, LLC (“HAH”), an affiliate of Aria Health Group, LLC (“Aria”) and nine affiliates of HAH (collectively with HAH, the “Debtors”), filed petitions in the United States Bankruptcy Court for the District of Delawarefor relief under Chapter 7. Following venue transfer from the Delaware court, these cases have been settled in the United States Bankruptcy Court for the Eastern District of Arkansas (the “Bankruptcy Court”).
On July 17, 2015, the Company incurred periodic consulting expensesmade a short-term loan to HAH, for working capital purposes, and, in connection therewith, HAH executed a promissory note (the “HAH Note”) in favor of the Company. Since July 17, 2015, the HAH Note has been amended from time to time and had an outstanding principal balance of approximately $1.0 million that matured on December 31, 2015. On October 6, 2015, HAH and the Company entered into a security agreement, whereby HAH granted the Company a security interest in all accounts arising from the business of the Debtors, and all rights to payment from patients, residents, private insurers and others arising from the business of the Debtors (including any proceeds thereof), as security for payment of the HAH Note, as amended, and certain rent and security deposit obligations of the Debtors under their respective subleases of nine facilities located in Arkansas, subsequently sold during October 2016, with the Company (the “Aria Subleases”).
On April 21, 2017, the Company moved for relief from the automatic stay seeking release of its collateral, the Debtors’ accounts and their proceeds, which the trustee has represented as a total of approximately $0.8 million. The Company’s motion was opposed by the Chapter 7 trustee and another creditor, in May 2017. In its objection, the Chapter 7 trustee asserted that the Company was not entitled to any of the $0.8 million with respect to the HAH Note. In addition to opposing the Company’s claim to the $0.8 million, the Chapter 7 trustee also indicated he was investigating avoidance claims against the Company with respect to funds the Company received from the Debtors prior to the bankruptcy filings. On March 28, 2018, such avoidance case was filed, requesting relief in an amount of $4.7 million. The Company charged approximately $0.3 million and $0.6 million to “Provision for doubtful accounts” in the Company’s consolidated statement of operations on the HAH Note as of December 31, 2018, and December 31, 2017, respectively. On March 13, 2019, the Company and the Chapter 7 bankruptcy trustee entered
into a settlement agreement to settle all existing and potential claims, including such avoidance claim. The Company has received $0.1 million with respect to the $1.0 million HAH Note.
Ohio Attorney General Action. On October 27, 2016, the Ohio Attorney General (the “OAG”) filed in the Court of Common Pleas, Franklin County, Ohio a complaint against The Pavilion Care Center, LLC, Hearth & Home of Greenfield, LLC (each a subsidiary of the Company), and certain other parties (including parties for which the Company provides or provided management services). The lawsuit alleged that defendants submitted improper Medicaid claims for independent laboratory services for glucose blood tests and capillary blood draws and further alleges that defendants (i) engaged in deception, (ii) willfully received Medicaid payments to which they were not entitled or in a greater amount than that to which they were entitled, and (iii) obtained payments under the Medicaid program to which they were not entitled pursuant to their provider agreements and applicable Medicaid rules and regulations. The OAG sought, among other things, triple the amount of damages proven at trial (plus interest) and not less than $5,000 and not more than $10,000 for each deceptive claim or falsification. As previously disclosed, the Company received a letter from the OAG in February 2014 offering to settle its claims against the defendants for improper Medicaid claims related to glucose blood tests and capillary blood draws for a payment of approximately $1.0 million. The Company responded to such letter in July 2014 denying the allegations and did not receive further communication from the OAG until the above referenced lawsuit was filed. The Company filed an answer to the complaint on January 27, 2017 in which it denied the allegations. An order granting a motion to stay this proceeding was granted in the Court of Common Pleas, Franklin County, Ohio on July 12, 2017. On January 15, 2020, the OAG voluntarily dismissed with prejudice all claims pending against all the Company in this action.
Employer Shared Responsibility Payment. On April 2, 2018, the Company received notification from the IRS, on Letter 226-J, that the Company may be liable for an Employer Shared Responsibility Payment (“ESRP”) in the amount of $2.9 million for the year ended December 31, 2015. On April 10, 2018, the Company responded to the IRS with appropriate documentation to prove the Company has no ESRP liability, and on May 8, 2018, the Company received written confirmation from the IRS that is in agreement with the Company’s findings.
Employment Related Action In the second quarter of 2018, the Company was notified of one employment related action filed against the Company related to one of the Company’s discontinued operations. On August 1, 2018 the Company responded requesting dismissal without prejudice on multiple grounds, including being barred by the applicable statute of limitation. On October 4, 2018, the case against the Company was dismissed with prejudice.
Hardin & Jesson Action. On August 5, 2019, the Company received notification from Hardin & Jesson that they had executed a settlement agreement with the Company pursuant to an action filed in Sebastian County Circuit Court - Fort Smith Division, Arkansas by Hardin & Jesson against the Company on February 25, 2019, requesting financial documents and seeking relief of outstanding amounts for legal services provided to the Company (and certain of its subsidiaries) in the State of Arkansas in relation to professional and general liability claims of approximately $0.5 million. On April 18, 2019, Hardin & Jesson amended its filing to correct the initial filing to clarify the claim is against the Company. On May 8, 2019, the Company provided a response denying the allegations. The settlement agreement provides for an agreed net outstanding liability of $0.3 million and provides for monthly payments by the Company of $13,888 beginning July 1, 2019 and continuing on the first day of each month thereafter until the $0.3 million liability is paid to formerin full. As of the date of filing this Annual Report, the Company employees. Such expenses were incurred on an hourly contracted basis and were largely non-substantial duringhas made nine of the year. Such consulting expenses are not expected to be substantial on a going forward basis.
NOTE 16. INCOME TAXES
The provision for income taxes attributable to continuing operations for the years ended December 31, 20152019 and 20142018 are presented below:
|
| Year Ended December 31, |
| |||||
(Amounts in 000's) |
| 2019 |
|
| 2018 |
| ||
Deferred Tax benefit: |
|
|
|
|
|
|
|
|
Federal |
| $ | — |
|
| $ | (38 | ) |
|
| $ | — |
|
| $ | (38 | ) |
Total income tax benefit |
| $ | — |
|
| $ | (38 | ) |
| Year Ended December 31, | ||||||||
| (Amounts in 000's) | 2015 | 2014 | ||||||
| Current Tax Expense: | ||||||||
| Federal | $ | 8 | $ | 33 | ||||
| State | — | — | ||||||
| $ | 8 | $ | 33 | |||||
| Deferred Tax Expense: | ||||||||
| Federal | $ | 102 | $ | 98 | ||||
| State | — | — | ||||||
| $ | 102 | $ | 98 | |||||
| Total income tax expense | $ | 110 | $ | 131 | ||||
The income tax expense applicable to continuing and discontinued operations is presented below:
|
| Year Ended December 31, |
| |||||
(Amounts in 000's) |
| 2019 |
|
| 2018 |
| ||
Income tax benefit on continuing operations |
| $ | — |
|
| $ | (38 | ) |
Total income tax benefit |
| $ | — |
|
| $ | (38 | ) |
| Year Ended December 31, | ||||||||
| (Amounts in 000's) | 2015 | 2014 | ||||||
| Income tax expense on continuing operations | $ | 110 | $ | 131 | ||||
| Income tax (benefit) expense on discontinued operations | 251 | (253 | ) | |||||
| Total income tax (benefit) expense | $ | 361 | $ | (122 | ) | |||
At December 31, 20152019 and 2014,2018, the tax effect of significant temporary differences representing deferred tax assets and liabilities are as follows:
|
| Year Ended December 31, |
| |||||
(Amounts in 000's) |
| 2019 |
|
| 2018 |
| ||
Net deferred tax asset (liability): |
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
| $ | 52 |
|
| $ | 1,844 |
|
Accrued expenses |
|
| 661 |
|
|
| 878 |
|
Net operating loss carry forwards |
|
| 17,464 |
|
|
| 18,119 |
|
Property, equipment & intangibles |
|
| (2,403 | ) |
|
| (3,209 | ) |
Stock based compensation |
|
| 211 |
|
|
| 212 |
|
Self-Insurance Reserve |
|
| 113 |
|
|
| 360 |
|
Interest Expense - Limited under 163(j) |
|
| 2,391 |
|
|
| 1,616 |
|
Total deferred tax assets |
|
| 18,489 |
|
|
| 19,820 |
|
Valuation allowance |
|
| (18,489 | ) |
|
| (19,820 | ) |
Net deferred tax liability |
| $ | — |
|
| $ | — |
|
| Year Ended December 31, | ||||||||
| (Amounts in 000's) | 2015 | 2014 | ||||||
| Net deferred tax asset (liability): | ||||||||
| Allowance for doubtful accounts | $ | 5,839 | $ | 2,513 | ||||
| Accrued expenses | 1,047 | 807 | ||||||
| Net operating loss carry forwards | 21,521 | 14,172 | ||||||
| Property, equipment & intangibles | (4,526 | ) | (2,363 | ) | ||||
| Stock based compensation | 125 | 725 | ||||||
| Convertible debt adjustments | 206 | 785 | ||||||
| Total deferred tax assets | 24,212 | 16,639 | ||||||
| Valuation allowance | (24,601 | ) | (16,675 | ) | ||||
| Net deferred tax liability | $ | (389 | ) | $ | (36 | ) | ||
The items accounting for the differences between income taxes computed at the federal statutory rate and the provision for income taxes are as follows:
|
| Year Ended December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Federal income tax at statutory rate |
|
| 21.0 | % |
|
| 21.0 | % |
State and local taxes |
|
| 1.9 | % |
|
| (0.7 | )% |
Nondeductible expenses |
|
| 0.2 | % |
|
| (0.2 | )% |
Change in valuation allowance |
|
| (24.2 | )% |
|
| (18.2 | )% |
Other |
|
| 1.1 | % |
|
| (1.6 | )% |
Effective tax rate |
|
| 0.0 | % |
|
| 0.3 | % |
| Year Ended December 31, | ||||||
| 2015 | 2014 | |||||
| Federal income tax at statutory rate | 34.0 | % | 34.0 | % | ||
| State and local taxes | 2.4 | % | 6.9 | % | ||
| Consolidated VIE LLC | 1.0 | % | (1.5 | )% | ||
| Nondeductible expenses | (7.3 | )% | (9.7 | )% | ||
| Other | (2.6 | )% | (0.2 | )% | ||
| Change in valuation allowance | (28.8 | )% | (28.8 | )% | ||
| Effective tax rate | (1.3 | )% | 0.7 | % | ||
As of December 31, 2015,2019, the Company had consolidated federal net operating loss ("NOL")NOL carry forwards of $58.3$74.0 million. TheseAs a result of the Tax Reform Act, $10.5 million of NOL’s generated in 2018 do not expire and are currently offset by a full valuation allowance. The NOLs generated before December 31, 2018, which amount to $63.5 million begin to expire in 20182026 through 20352037 and currently are offset by a full valuation allowance. As of December 31, 2015,2019, the Company had consolidated state NOL carry forwards of $43.7$45.1 million. These NOLs begin to expire in 20162020 through 20352037 and currently are offset by a full valuation allowance.
Given the Company'sCompany’s historical net operating losses, a full valuation allowance has been established on the Company'sCompany’s net deferred tax assets. The Company has generated additional deferred tax liabilities related to its tax amortization of certain acquired indefinite lived intangible assets because these assets are not amortized for book purposes. The tax amortization in current and future years gives rise to a deferred tax liability which will only reverse at the time of ultimate sale or book impairment. Due toAs a result of the uncertain timing ofTax Reform Act, NOL carry forwards generated in tax years 2018 and forward have an indefinite life. For this reversal,reason, the temporary differences associated with indefinite lived intangibles cannot be considered a source of future taxable income for purposes of determining a valuation allowance. As such,Company has taken the position that the deferred tax liability cannotrelated to the indefinite lived intangibles can be used to support an equal amount of the deferred tax asset related to the 2018 NOL carry forward.forward generated. This resulted in the Company recognizing deferred federal and statean income tax expensebenefit of $0.1 million and $0.1 million for the years ended December 31, 2015 and 2014, respectively, and a deferred tax liability of $0.4 million andapproximately $0.04 million for the yearstwelve months ended December 31, 2015 and 2014, respectively.
The Company files federal, state and local income tax returns and net worth returns forin the 2010, 2011, 2012, and 2013 income tax years. To date, the GDOR has not proposed any adjustments.U.S. The Company is not currently under examination by any other majorno longer subject to U.S. federal or State of Georgia tax examinations for years prior to fiscal 2016 and fiscal 2015, respectively. The Company is generally no longer subject to income tax jurisdiction.
NOTE 17. BENEFIT PLANS
Until March 29, 2019, the Company sponsorssponsored a 401(k) plan, which providesprovided retirement benefits to eligible employees. All employees arewere eligible once they reachreached age 21 years and completecompleted one year of eligible service. The Company'sCompany’s plan allowed eligible employees to contribute up to 20% of their eligible compensation, subject to applicable annual Internal Revenue Code of 1986, as amended, limits. The Company provides 50%provided 20% matching on employee contributions, up to 2%5% of the employee's salary.employee’s contribution. Total matching contributions during the years ended December 31, 20152019 and 20142018 were approximately $0.04 million$1 thousand and $0.1 million,$5 thousand, respectively.
NOTE 18. RELATED PARTY TRANSACTIONS
McBride Matters
On April 9, 2010, Riverchase, then a wholly owned subsidiary ofSeptember 26, 2017, the Company entered into a PurchaseSettlement Agreement with an Oklahoma limited liability company controlled by a bank ("Riverchase Seller") to acquire the assets of Riverchase Village, a 105-bed assisted living facility located in Hoover, Alabama, for a purchase price of approximately $5.0 million. On June 22, 2010, the Company assigned to Christopher Brogdon 100% of the membership interests in Riverchase. On June 25, 2010, Riverchase, then owned by Mr. Brogdon, purchased Riverchase Village pursuant to the terms of the Purchase Agreement.
The McBride Note accrued interest at an annual rate of 4.0% and principal and interest was payable in 24 equal monthly installments of $13,027, which entities ownpayments commenced on October 31, 2017 and ended on September 30, 2019. During the skilled-nursing facilities located in Oklahoma known as Harrah Nursing Center, McLoud Nursing Center and Meeker Nursing Center. Pursuant to the management agreements, the AdCare subsidiary agreed to manage the operations of these facilities. The management agreements had initial terms of five years and would renew automatically for one-year terms thereafter. Pursuant to the management agreements, the entities owned and controlled by Mr. Brogdon paid to the AdCare subsidiary a fee equal to 5% of the monthly gross revenues of the facilities.
Rimland Matters
On March 3, 2014, the Company, Mr. Brogdon and entities controlled by Mr. Brogdon entered into an agreement to provide for the orderly transition of the management of the Oklahoma Facilities from the Company to a third-party.
Other than the items discussed above, there are no other material undisclosed related party transactions. For purposes of the disclosure in this
The Company has evaluated all subsequent events through the date the consolidated financial statements were issued and filed with the SEC. The following is a summary of the material subsequent events.
Pandemic
As of Arkansas Leases
As COVID-19 continues to spread throughout areas in which we operate, we believe the outbreak has the potential to have a material negative impact on our operating results and financial condition. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our operators, employees and vendors, and impact on the facilities we manage, all of which are uncertain and cannot be predicted. Given these uncertainties, we cannot reasonably estimate the related impact to our business, operating results and financial condition.
Legal Proceedings
Dismissed Other Legal Matters
Ohio Attorney General Action. On February 5, 2016, nine wholly-ownedJanuary 15, 2020, the OAG voluntarily dismissed with prejudice all claims pending against the Company, certain subsidiaries of the Company (each,and certain other parties, in the action they filed on October 27, 2016, in the Court of Common Pleas, Franklin County, Ohio. The lawsuit alleged that defendants submitted improper Medicaid claims for independent laboratory services for glucose blood tests and capillary blood draws and further alleged that defendants (i) engaged in deception, (ii) willfully received Medicaid payments to which they were not entitled or in a “Skyline Lessor”) entered into a Master Lease Agreement (the “Skyline Lease”)greater amount than that to which they were entitled, and (iii) obtained payments under the Medicaid program to which they were not entitled pursuant to which each Skyline Lessor will lease to Skyline Healthcare LLC (“Skyline”), or other entity to be formed by Skyline (the “Skyline Lessee”), one of the Arkansas Facilities.their provider agreements and applicable Medicaid rules and regulations. The term of the Skyline Lease commences on April 1, 2016, as amended, subject to,OAG sought, among other things: (i)things, triple the Skyline Lessee’s receiptamount of all licenses from the Arkansas Department of Health to operate the Arkansas Facilities;damages proven at trial (plus interest) and (ii) approval of the mortgage lendersnot less than $5,000 and not more than $10,000 for the Arkansas Facilities with respect to the Skyline Lease. The Skyline Lease is structured as triple net lease wherein the Skyline Lessee is responsible for the
Settled Professional and General Liability Claim
On January 29, 2020, the Company executed a settlement in compromise of a disputed complaint filed in the Circuit Court of Pulaski County, in the State of Arkansas, by a former patient at one of our facilities, against the Company on May 16, 2017. The plaintiff alleged medical negligence and injury. The settlement, in exchange for dismissal of the case with prejudice, is for a total of $25.4 million of debt subject$40,000, to definitive documentation and certain closing conditions.
None.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and interim Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and interim Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period (the “Evaluation Date”) covered by this Annual Report on Form 10-K (the "Evaluation Date"“Annual Report”). Based on such evaluation, our Chief Executive Officer and interim Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2015.2019. In making this evaluation, management used the framework and criteria set forth in the report entitled
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system'ssystem’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management'sManagement’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management'smanagement’s report in this Annual Report.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth fiscal quarter of 20152019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
Our website address is www.regionalhealthproperties.com.www.adcarehealth.com. You may obtain free electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports from the investor relations pagesection of our website. These reports are available on our website as soon as reasonably practicable after we electronically file them with the SEC. These reports shouldare also be available through the SEC'sSEC’s website at www.sec.gov.
The charters for the Board’s Compensation Committee (the “Compensation Committee”), the Audit Committee and the Nominating and Corporate Governance Committee are available in the corporate governance subsection of the investor relations section of our website, www.regionalhealthproperties.com,www.adcarehealth.com, and are also available in print upon written request to the Corporate Secretary, AdCareRegional Health Systems,Properties, Inc., 1145 Hembree Road, Roswell, Georgia 30076.
Information about our Executive Officers and Directors
The following table sets forth certain information with respect to our executive officers and directors.
Name | Age | Position | ||||
Brent Morrison | 44 | |||||
Chief Executive Officer, President and Director | ||||||
E. Clinton Cain | 39 | Interim Chief Financial Officer, | ||||
| Senior Vice President and Chief Accounting Officer | ||||||
Michael J. Fox | 42 | Director | ||||
Kenneth W. | 59 | Director | ||||
David A. Tenwick | 82 | Director | ||||
Directors are elected for one-year terms beginning with the Company’s 2016 Annual Meeting of Shareholders (the “2016 Meeting”). Allat each of the Company’s directors (including those elected atannual meeting of shareholders to serve until the 2015 Meeting) agreed to voluntarily relinquish the portionCompany’s next annual meeting of theirshareholders. The terms as directors extending beyond the 2016 Meeting. As a result, all of the Company’s current directors will stand for re-electionexpire at the 2016 Meeting for a one-year term.
Biographical information with respect to each of our executive officers and directors is set forth below.
Brent Morrison. Mr. McBrideMorrison has served as a director and the Company's Chief Executive Officer since October 2014 and as Chairman of the Board since March 25, 2015. Mr. McBride also served as the Company’s President from October 2014 through March 2015. From 2002 until October 2014, Mr. McBride served as the principal and owner of Santa Barbara Aircraft Management and Coastal Aircraft Maintenance, which provided management and maintenance services for turbine aircraft. From 1994 to 2000, Mr. McBride was employed by Assisted Living Concepts, a publicly-traded assisted living company, ultimately serving as its Chairman and Chief Executive Officer. From 1992 to 1997, Mr. McBride servedOfficer and President since March 25, 2019, as theInterim Chief Executive Officer and Interim President and Chief Operating Officersince October 18, 2017, and as a director since October 2014. Mr. Morrison is currently the Managing Director of LTC Properties,Zuma Capital Management LLC, a publicly traded REIT specializingposition he has held since 2012. Prior thereto, Mr. Morrison was a Research Analyst for Wells Fargo Advisors from 2012 to 2013, the Senior Research Analyst at the Strome Group, a private investment firm, from 2009 to 2012, a Research Analyst at Clocktower Capital, LLC, a global long/short equity hedge fund based in senior housingBeverly Hills, California, from 2007 to 2009 and healthcare properties.a Vice President of Wilshire Associates, a financial consulting firm, from 1999 to 2007. Mr. McBride has previouslyMorrison also served on the Boardboard of Directorsdirectors of Malan Realty Properties, a publicly-traded commercial property REIT.iPass Inc., which provides global enterprises and telecommunications carriers with cloud-based mobility management and Wi-Fi connectivity services, from May 2015 to June 2016. Mr. McBride'sMorrison’s expertise and leadership of publicly-traded healthcare companiesbackground in the financial and REITsequity markets provide experience that the Board considers valuable.
E. Clinton Cain.
Mr. Cain has served as theMichael J. Fox. Mr. Fox has served as a director since October 2013.2013 and Lead Independent Director since April 2015. Mr. Fox is the Chief Executive Officer of Park City Capital, LLC ("(“Park City"City”), an equity hedge funda value-oriented investment management firm he founded in June 2008. From 2000 to 2008, Mr. Fox worked at J.P. Morgan Securities, where he servedin New York, most recently as aVice President and Senior Business Services Analyst. As J.P. Morgan’s Senior Business Services Analyst, and Vice President. In this position, Mr. Fox served asheaded the head of JPMorgan'sfirm’s Business Services Equityequity research group from 2005 to 2008. From 2000 to 2005, Mr. Fox was a member of J.P. Morgan’s Leisure equity research group which was consistently recognized by Institutional Investor’s All America Research Group that covered 16 companies, including commercial real estate services, construction services, uniform rental services and staffing services.Team. Mr. Fox also serves on the Boardboard of directors of Resonant Inc. Mr. Fox received his Bachelor of Business Administration (BBA) from Texas Christian University. Mr. Fox'sFox’s expertise and background in the financial and equity markets and his involvement in researching the commercial real estate industry provide experience that the Board considers valuable.
Kenneth W. Knaup
David A. Tenwick.
Mr. Tenwick is our founder and has served as a director since our organization was founded in August 1991. Mr. Tenwick also served as Chairman of the Board from our founding until MarchArrangements with Directors Regarding Election/Appointment
On October 1, 2013, we entered into a letter agreement (the “Fox Agreement”) with Park City and Mr. Fox. PursuantFox pursuant to the Fox Agreement, effective October 1, 2013,which the Board increased the size of the Board from nine to ten members and appointed Mr. Fox as a director of the Company to fill the vacancy created thereby for a term that expired at the 2013 Annual Meeting of Shareholders. We also agreed: (i) to include Mr. Fox in our slate of nominees for election as a Class I director at the 2013 Annual Meeting of Shareholders held on December 12, 2013 to hold office until the 2014 Annual Meeting of Shareholders; and (ii) to use our reasonable best efforts to cause the re-election of Mr. Fox to the Board of Directors as a Class I director at the 2013 Annual Meeting of Shareholders.
Pursuant to the Fox Agreement, for so long as Mr. Fox serves as a director ofon the CompanyBoard as a nominee of the Board, Park City shall take such action as may be required so that all of the capital stock of the Company which is entitled to vote generally in the election of directors (the “Voting Securities”) and is beneficially owned by Park City, or any person who, within the meaning of Rule 12b-2 under the Exchange Act, is “controlling,” “controlled by” or “under common control with” Park City (the “Park City Group”), is voted in favor of each of the Boards'Board’s nominees to the Board at any and all meetings of our shareholders or at any adjournment or postponement thereof or in any other circumstance in connection with which a vote, consent or other approval of holders of Voting Securities is sought with respect to the election of any nominee to the Board.
In addition, for so long as Mr. Fox serves on the Board as a director of the Company as a nominee of the Board, Park City will not do or agree or commit to do (or encourage any other person to do or agree or commit to do) and will not permit any member of the Park City Group or any affiliate or associate thereof to do or agree or commit to do (or encourage any other person to do or agree or commit to do) any of the following:
(i) | solicit proxies or written consents of shareholders with respect to any Voting Securities, or make, or in any way participate in, any solicitation of any proxy to vote any Voting Securities (other than as conducted by us), or become a participant in any election contest with respect to us; |
(ii) | seek to call, or request the call of, a special meeting of shareholders or seek to make, or make, any shareholder proposal at any meeting of shareholders that has not first been approved in writing by the Board; |
(iii) | make any request or seek to obtain, in any fashion that would require public disclosure by us, Park City or their respective affiliates, any waiver or amendment of any provision of the Fox Agreement or take any action restricted thereby; and |
(iv) | except as permitted by the Fox Agreement, make or cause to be made any statement or announcement that constitutes an ad hominem attack on us or our officers or directors in any document or report filed with or furnished to the SEC or any other governmental agency or in any press release or other publicly available format. |
Furthermore, pursuant to the Fox Agreement, for so long as Mr. Fox serves as a director ofon the CompanyBoard as a nominee of the Board, Mr. Fox agrees to comply with all applicable policies and guidelines of the Company and, consistent with his fiduciary duties and his obligations of confidentiality as a member of the Board, to refrain from communicating to anyone any nonpublic information about us that he learns in his capacity as a member of the Board (which agreement shall remain in effect after Mr. Fox leaves the Board). Notwithstanding the foregoing, Mr. Fox may communicate such information to any member of the Park City Group who agrees to be bound by the same confidentiality restrictions applicable to Mr. Fox, provided that Mr. Fox shall be liable for any breach of such confidentiality by any such member. In addition, Mr. Fox has confirmed that each of the other members of the Park City Group has agreed not to trade in any of our securities while in possession of any nonpublic material information about us if and to the extent doing so would be in violation of applicable law or, without the prior written approval of the Board, to trade in any of our securities during any blackout period imposed by us.
Audit Committee of the Board of Directors
The Company has a separately designated Audit Committee which was established in accordance with Section 3(e)(58)(A) of the Exchange Act. The Audit Committee has the responsibility of reviewing our financial statements, evaluating internal accounting controls, reviewing reports of regulatory authorities and determining that all audits and examinations required by law are performed. The Audit Committee also approves the appointment of the independent registered public accounting firm for the next fiscal year, approves the services to be provided by such firm and the fees for such services, reviews and approves the audit plans, reviews and reports upon various matters affecting the independence of the independent registered public accounting firm and reviews with it the results of the audit and management'smanagement’s responses.
The Audit Committee was established in 1995, and its charter was adopted in December 2005. The current members of the Audit Committee are Messrs. Fox, KnaupTaylor and Morrison. As of January 1, 2015, the Audit Committee was comprised of Mr. Morrison,
Section 16(a) of the Exchange Act requires executive officers and directors and persons who beneficially own more than 10% of our common stock (the "Reporting Persons"“Reporting Persons”) to file initial reports of ownership and reports of changes in ownership with the SEC. Reporting Persons are required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to the Company and written representations from the executive officers and directors, the Company believes that the Reporting Persons complied with all Section 16(a) filing requirements during fiscal year 2015, except that Mr. Fox filed a late report on Form 4 to report an award of stock options.
Code of Ethics
We have adopted a written code of conduct, our Code of Business Conduct and Ethics, which is applicable to all directors, officers and employees of AdCarethe Company (including our principal executive officer, principal financial officer, principal accounting officer or controller, and any person performing similar functions). Our Code of Business Conduct and Ethics is available in the corporate governance subsection of the investor relations page of our website, www.adcarehealth.com,www.regionalhealthproperties.com, and is also available in print upon written request to our Corporate Secretary, AdCareRegional Health Systems,Properties, Inc., 1145 Hembree Road, Roswell,454 Satellite Boulevard NW, Suite 100, Suwanee, Georgia 30076.
Summary Compensation Table
The following table sets forth the compensation awarded to, paid to or earned by or accrued for our principal executive officer and certainour other current and formermost highly compensated executive officers whose total compensation exceeded $100,000 for the years ended December 31, 20152019 and December 31, 2014:2018 (collectively, our “named executive officers”):
Name and Principal Position |
| Year |
| Salary ($) |
|
| Bonus ($) |
|
| Stock Awards ($)(1) |
|
| All Other Compensation ($) |
|
| Total ($) |
| |||||
Brent Morrison* |
| 2019 |
|
| 270,000 |
|
|
| 45,000 |
|
|
| — |
|
|
| 61,136 |
| (3) |
| 376,136 |
|
Chief Executive Officer, President and Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(principal executive officer) |
| 2018 |
|
| — |
|
|
| — |
|
|
| 37,500 |
| (2) |
| 255,126 |
| (4) |
| 292,626 |
|
E. Clinton Cain** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim Chief Financial Officer, Senior Vice President and |
| 2019 |
|
| 150,000 |
|
|
| 37,500 |
|
|
| — |
|
|
| — |
|
|
| 187,500 |
|
Chief Accounting Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(principal accounting officer) |
| 2018 |
|
| 120,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 120,000 |
|
*Mr. Morrison, a director of the Company since October 2014, commenced serving as the Company’s Chief Executive Officer and President (and principal executive officer) on March 25, 2019 (when he became an employee) and was previously the Company’s Interim Chief Executive Officer and Interim President (and principal executive officer) from October 18, 2017.
**Mr. Cain commenced serving as the Company’s Interim Chief Financial Officer (and principal financial officer) on October 18, 2017.
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(1) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||
| (A) | (B) | (C) | (D) | (E) | (F) | (G) | (H) | (I) | (J) | |||||||||||||||
| William McBride III, Chairman and Chief Executive Officer (principal executive officer) | 2015 | 300,000 | 50,000 | 225,497 | (2) | — | — | — | 553,342 | (3) | 1,128,839 | |||||||||||||
| 2014 | 75,000 | 673,500 | (4) | 503,774 | (5) | — | — | — | 1,252,274 | |||||||||||||||
| Allan J. Rimland, Director, President, Chief Financial Officer and Corporate Secretary (principal financial and accounting officer) | 2015 | 187,500 | — | 525,000 | (6) | 234,273 | (7) | — | — | 99,603 | (8) | 1,046,376 | ||||||||||||
| Sheryl A. Wolf, Former Senior Vice President, Controller and Chief Accounting Officer | 2015 | 86,680 | 72,427 | — | — | — | — | — | — | 8,855 | (9) | 167,962 | ||||||||||||
| 2014 | 209,060 | 27,522 | — | — | — | — | — | — | — | 236,582 | ||||||||||||||
(1) | |
The amounts set forth |
(2) | |
Represents compensation paid to Mr. Morrison as a non-employee director for the year ended December 31, 2018, in the form of a restricted stock |
(4) | |
Represents: (i) |
Executive Compensation Arrangements
Mr. Morrison. We have entered into an employment agreement with William McBride, III, effectiveMr. Morrison, a director of the Company since October 10, 2014, which was amendedcommenced serving as the Company’s Chief Executive Officer and President (and principal executive officer) on March 25, 2015. Pursuant to the employment agreement, as amended, the Company will employ Mr. McBride as its2019 and Interim Chief Executive Officer onand Interim President (and principal executive officer) since October 18, 2017.
On November 17, 2017, the following terms: (i) the Company will pay to Mr. McBride an annual base salary
On March 25, 2015,2019, upon the Board appointed Allan J. Rimland to serveBoard’s appointment of Mr. Morrison as the Company’s Chief Executive Officer and President, and Chief Financial Officer, effective April 1, 2015, Corporate Secretary, effective May 1, 2015, and Director, effective October 14, 2015. The Company and Mr. Rimland executed an employment agreement, effective as of April 1, 2015, pursuant to which the Company will employ Mr. Rimland as its PresidentBoard and Chief Financial Officer on the following terms: (i) the Company will pay to Mr. Rimland an annual base salary of $250,000, subject to increase by the Compensation Committee; (ii) Mr. Rimland will be eligible to earn an annual bonus based on achievement of performance goals established by the Compensation Committee of updetermined that that Mr. Morrison’s current compensation plan will remain place, with withholdings as an employee, until the Company negotiates and executes an Employment Agreement with Mr. Morrison.
On June 3, 2019, the Board approved a one-time bonus equal to 100%three months of his base salary; and (iii)current salary in the Company will provide Mr. Rimland with such other benefits as other senior executivesamount of $45,000 paid upon the closing of the Company receive. Pursuantfour building sale to MED Healthcare Partners, LLC and upon repayment of the employment agreement, the Company will employamounts owed to Pinecone Reality Partners II, LLC.
E. Clinton Cain. Mr. Rimland for an initial term of three years, subject to automatic consecutive renewal terms of one year unless notice of non−renewal is provided pursuant to the employment agreement.
On February 8, 2016,June 3, 2019, the CompanyBoard approved a one-time bonus equal to three months of his current salary in the amount of $37,500 paid upon the closing of the four building sale to MED Healthcare Partners, LLC and upon repayment of the amounts owed to Pinecone Reality Partners II, LLC.
The Compensation Committee has not yet made any determination regarding compensation for Mr. Cain agreed that, in respect of this service as Interim Chief Financial Officer, however the event thatCompensation Committee reviews salaries from time to time and provided for a discretionary annual salary increase of $30,000 effective January 1, 2019.
In connection with Mr. Cain’s employment is terminated without cause,and in respect of performance during the year ended December 31, 2015 prior to becoming an executive officer, the Company granted to Mr. Cain will be entitled to twelve (12) months of severance pay comprised of salary continuation. For this purpose, “cause” is defined as as due to negligence or misconduct in the performance of Mr. Cain’s material duties that directly results in an economic loss to AdCare.
Retirement Programs
Our retirement programs arewere designed to facilitate the retirement of employees, including our named executive officers, who have performed for us over the long term. We currently maintainUntil March 29, 2019 we maintained a 401(k) plan with a match of 50%20% of the first 2%5% of an employee’s contribution as well as non-qualified employee stock purchase program. The terms of these plans are essentially the same for all employees. Our named executive officers participate
participated in the plans on the same basis as all other employees. We do not provide our named executive officers any special retirement benefits.
Outstanding Equity Awards at Fiscal Year-End Table
The Outstanding Equity Awards at Fiscal Year-End table below sets forth information regarding the outstanding equity awards held by our named executive officers as of December 31, 2015:2019:
|
| OPTION AWARDS* |
| STOCK AWARDS* |
| |||||||||||||||||
Name and Principal Position |
| Number of Securities Underlying Unexercised Options (#) Exercisable |
|
| Number of Securities Underlying Unexercised Options (#)— Unexercisable |
|
| Option Exercise Price |
|
| Option Expiration Date |
| Equity Incentive Plan Award: Total Number of Unearned Shares, Units or Other Rights that have Not Vested |
|
| Equity Incentive Plan Award: Market or Payout Value of Unearned Shares, Units or Other Rights that have Not Vested |
| |||||
Brent Morrison, Chief Executive Officer, President and Director** |
|
| 4,323 |
|
|
| — |
|
| $ | 46.80 |
|
| 12/17/2024 |
|
| 7,635 |
| (1) | $ | 10,689 |
|
(principal executive officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. Clinton Cain, Interim Chief Financial Officer, Senior Vice President and Chief Accounting Officer*** |
|
| 375 |
|
|
| — |
|
| $ | 51.60 |
|
| 4/17/2023 |
|
| — |
|
| $ | — |
|
(principal financial officer and principal accounting officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OPTION AWARDS | STOCK AWARDS | |||||||||||||||||||||||||||
| Name and Principal Position | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#)— Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Earned Options (#) | Option Exercise Price | Option Expiration Date | Number of Shares or Units of Stock that have Not Vested | Market Value of Stock that is Not Vested | Equity Incentive Plan Award: Total Number of Unearned Shares, Units or Other Rights that have Not Vested | Equity Incentive Plan Award: Market or Payout Value of Unearned Shares, Units or Other Rights that have Not Vested | |||||||||||||||||||
| William McBride III, Chairman and Chief Executive Officer | 100,000 | 200,000 | (1 | ) | — | $ | 4.49 | 10/10/2024 | ||||||||||||||||||||
| 100,000 | (2 | ) | $ | 249,000 | ||||||||||||||||||||||||
| 33,334 | (3 | ) | $ | 83,002 | ||||||||||||||||||||||||
| Allan J. Rimland, Director, President, Chief Financial Officer and Corporate Secretary | — | 275,000 | (4 | ) | — | $ | 4.25 | 4/1/2025 | ||||||||||||||||||||
| 125,000 | (5 | ) | $ | 311,250 | ||||||||||||||||||||||||
* | Reflects our one-for-twelve Reverse Stock Split that became effective on December 31, 2018. See Part II, Item 8, Financial Statements and Supplemental Data, Note 1 – Summary of Significant Accounting Policies for further information. |
** | Mr. Morrison, a director of the |
*** | Mr. Cain commenced serving as the Company’s Interim Chief Executive Officer on October |
(1) | Restricted shares vest on the following schedule: |
Director Compensation
Director Compensation and Reimbursement Arrangements
On March 13, 2020, the year ended December 31, 2015, our independent directors were paid pursuant to a newBoard and the Compensation Committee approved the Company’s director compensation plan (the "Director Compensation Plan"), discussed below. In addition, each director an additional $1,000 per in-person Board meeting attended.
On October 21, 2015,February 27, 2019, the Board granted a restricted stock award of 22,866 shares of common stock with a grant price of $3.28 per share to Tom Knaup in connection with his services as Director during 2015 and 2016. The award vests ratably on the first, second and third anniversaries of the grant date.
In accordance with this plan, on January 27, 2016, the Company granted toaddition, each of Mr. Fox,director (including Mr. Morrison until March 24, 2019) also received, or will receive, a payment of $1,000 in cash for each in-person Board meeting attended during the year ended December 31, 2019 and Mr. Tenwick a restricted stock award for 36,232 shares of common stock, which vests as to one-third of the shares on January 1, 2017, January 1, 2018 and January 1, 2019.
The following table sets forth information regarding compensation paid to our non-employee directors for the year ended December 31, 2015.2019. Directors who are employed by us do not receive any compensation for their activities related to serving on the BoardBoard:
Name |
| Fees earned or paid in cash $ |
|
| Stock awards $ |
|
| All other compensation (1) $ |
|
| Total $ |
| ||||
Michael J. Fox |
|
| 24,000 |
|
|
| — |
|
|
| 1,000 |
|
|
| 25,000 |
|
Kenneth W. Taylor |
|
| 24,000 |
|
|
| — |
|
|
| 4,000 |
|
|
| 28,000 |
|
David A. Tenwick |
|
| 24,000 |
|
|
| — |
|
|
| 1,000 |
|
|
| 25,000 |
|
See Part III, Item 11., “Executive Compensation – Summary Compensation Table” for a description of Directors:
| Name (a) | Fees earned or paid in cash (b) | Stock awards (c)(1) | Option awards (d)(2) | Non-equity incentive plan compensation (e) | Change in pension value and non- qualified deferred compensation earnings (f) | All other compensation (g) | Total | |||||||||||||||||||
| Christopher F. Brogdon* | $ | 3,000 | $ | 75,001 | (3) | — | — | — | — | $ | 78,001 | |||||||||||||||
| Michael J. Fox | 3,000 | — | $ | 75,001 | (4) | — | — | — | 78,001 | |||||||||||||||||
| Peter J. Hackett** | 1,000 | 25,003 | (5) | — | — | — | — | 26,003 | ||||||||||||||||||
| Tom Knaup*** | — | 75,000 | (6) | — | — | — | $ | 115,000 | (7) | 75,000 | ||||||||||||||||
| Brent Morrison | 3,000 | — | 75,001 | (4) | — | — | — | 78,001 | ||||||||||||||||||
| Philip S. Radcliffe**** | 3,000 | 75,001 | (3) | — | — | — | — | 78,001 | ||||||||||||||||||
| Laurence E. Sturtz***** | — | 25,003 | (5) | — | — | — | — | 25,003 | ||||||||||||||||||
| David A. Tenwick | 3,000 | 75,001 | (3) | — | — | — | — | 78,001 | ||||||||||||||||||
(1) | The amounts set forth reflect amounts reimbursed for in |
The number of outstanding exercisable and unexercisable options and warrants, and the number of unvested shares of restricted stock held by each of our non-employee directors as of December 31, 2018 are shown below:
|
| As of December 31, 2019 |
| |||||||||
|
| Number of Shares Subject to Outstanding Options or Warrants (1) |
|
| Number of Shares of Unvested (1) |
| ||||||
Director |
| Exercisable |
|
| Unexercisable |
|
| Restricted Stock |
| |||
Michael J. Fox (2) |
|
| 6,129 |
|
|
| — |
|
|
| 7,635 |
|
Kenneth W. Taylor (3) |
|
| — |
|
|
| — |
|
|
| 6,347 |
|
David A. Tenwick (4) |
|
| 2,315 |
|
|
| — |
|
|
| 7,635 |
|
(1) | Reflects our one-for-twelve Reverse Stock Split that became effective on December 31, 2018. See Part II, Item 8, Financial Statements and Supplemental Data, Note 1 – Summary of Significant Accounting Policies for further information. |
(2) | Includes: (i) options to purchase 1,806 shares of common stock, with an expiration date |
(3) | Represents a restricted stock grant of |
(4) | Includes: (i) options to purchase |
| As of December 31, 2015 | ||||||||||
| Number of Shares Subject to Outstanding Options or Warrants | Number of Shares of Unvested Restricted Stock | |||||||||
| Director | Exercisable | Unexercisable | ||||||||
| Christopher F. Brogdon | 347,288 | — | 19,231 | (a) | ||||||
| Michael J. Fox | 367,373 | 34,577 | — | |||||||
| Peter J. Hackett | — | — | — | |||||||
| Tom Knaup | — | — | 22,866 | |||||||
| Brent Morrison | 17,288 | 34,577 | — | |||||||
| Philip S. Radcliffe | 10,304 | — | — | (b) | ||||||
| Laurence E. Sturtz | 40,600 | — | — | |||||||
| David A. Tenwick | 137,250 | — | 12,821 | |||||||
Purpose of the Compensation Committee of the Board of Directors
The Compensation Committee advises the Board of Directors with respect to the compensation of each senior executive and each member of the Board of Directors.Board. The Compensation Committee is also charged with the oversight of compensation plans and practices for all employees of the Company. The Compensation Committee relies upon data made available for the purpose of providing information on organizations of similar or larger scale engaged in similar activities. The purpose of the Compensation Committee'sCommittee’s activity is to assure that the Company'sCompany’s resources are used appropriately to recruit and maintain competent and talented executives and employees able to operate and grow the Company successfully.
Beneficial Ownership of Common Stock
The following table furnishes information, as of March 28, 2016,11, 2020, as to shares of the common stock beneficially owned by: (i) each person or entity known to us to be the beneficial owner of more than 5% of the common stock, (ii) each of our directors and our named executive officers identified in Part III, Item 11., "Executive“Executive Compensation Table";- Summary Compensation Table” of this Annual Report; and (iii) our directors and executive officers as a group. As of March 28, 2016,11, 2020, there were 19,948,5341,688,219 shares of common stock outstanding.
Name of Beneficial Owner (1) |
| Number of Shares of Common Stock Beneficially Owned (a) (2) |
|
|
| Percent of Outstanding Common Stock (3) |
| ||
5% Beneficial Owners (Excluding Directors and Named Executive Officers): |
|
|
|
|
|
|
|
|
|
Christopher Brogdon (4) |
|
| 85,390 |
| (6) |
|
| 5.1 | % |
Connie B. Brogdon (5) |
|
| 85,390 |
| (7) |
|
| 5.1 | % |
Directors and Named Executive Officers: |
|
|
|
|
|
|
|
|
|
Michael J. Fox |
|
| 84,122 |
| (8) |
|
| 5.0 | % |
David A. Tenwick |
|
| 54,301 |
| (9) |
|
| 3.2 | % |
Brent Morrison |
|
| 19,817 |
| (10) |
|
| 1.2 | % |
Kenneth W. Taylor |
|
| 9,562 |
| (11) |
| * |
| |
E. Clinton Cain** |
|
| 1,025 |
| (12) |
| * |
| |
All Directors and Executive Officers as a Group: |
|
| 168,827 |
|
|
|
| 9.9 | % |
Name of Beneficial Owner (1) | Number of Shares of Common Stock Beneficially Owned (2) | Percent of Outstanding Common Stock (3) | ||||||
| 5% Beneficial Owners (Excluding Directors and Executive Officers): | ||||||||
Doucet Asset Management, LLC (4) | 1,611,925 | (5) | 8.1 | % | ||||
Formidable Asset Management, LLC (6) | 1,382,774 | (7) | 6.9 | % | ||||
Christopher Brogdon (8) | 1,371,958 | (9) | 6.8 | % | ||||
Connie B. Brogdon (10) | 1,371,958 | (11) | 6.8 | % | ||||
Park City Capital, LLC (12) | 1,313,712 | (13) | 6.4 | % | ||||
| Directors and Executive Officers: | ||||||||
| Michael J. Fox | 1,388,899 | (14) | 6.8 | % | ||||
| David A. Tenwick | 552,132 | (15) | 2.7 | % | ||||
| William McBride III | 432,329 | (16) | 2.1 | % | ||||
| Allan J. Rimland | 325,143 | (17) | 1.6 | % | ||||
| Brent Morrison | 53,520 | (18) | * | |||||
| Tom Knaup | 22,866 | (19) | * | |||||
| E. Clinton Cain | 15,442 | (20) | * | |||||
| All Directors and Executive Officers as a Group: | 2,790,331 | 13.7 | % | |||||
| Former Executive Officer: | ||||||||
| Sheryl A. Wolf | — | * | ||||||
(a) | Reflects our one-for-twelve Reverse Stock Split that became effective on December 31, 2018. See Part II, Item 8, Financial Statements and Supplemental Data, Note 1 – Summary of Significant Accounting Policies for further information. |
* | Less than one percent. |
** | Mr. Cain commenced serving as the Company’s Interim Chief Financial Officer (and principal financial officer) on October 18, 2017. |
(1) | The address for each of our directors and executive officers is c/o |
(2) | Except as otherwise specified, each individual has sole and direct beneficial voting and dispositive power with respect to shares of the common stock indicated. |
(3) | Percentage is calculated based on |
(4) | |
| The address for |
(5) | The address for Ms. Brogdon is 88 West Paces Ferry Road N.W., Atlanta, Georgia 30305. |
| Includes: (i) |
(7) | |
|
| Includes: (i) |
(8) | |
The information set forth in this table regarding |
| Includes: (i) |
(9) | |
| Includes: (i) |
(10) | |
| Includes: (i) |
(11) | |
| Includes |
(12) | |
| Includes: (i) |
Equity Compensation Plan Information
The following table sets forth additional information as of December 31, 2019, with respect to shares of the common stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements, divided between plans approved by our shareholders and plans or arrangements not submitted to the shareholders for approval. The information includes the number of shares covered by and the weighted average exercise price of outstanding options and warrants and the number of shares remaining available for future grants, excluding the shares to be issued upon exercise of outstanding options, warrants, and other rights. A one-for-twelve Reverse Stock Split became effective on December 31, 2018 for all issued and outstanding shares, including amounts authorized for issuance under the equity incentive plans. Accordingly, all share and per share amounts have been adjusted to reflect this Reverse Stock Split for all periods presented.
Plan Category |
| Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants |
|
| Weighted -Average Exercise Price of Outstanding Options, Warrants |
|
| Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
| |||
Equity compensation plans approved by security holders (1) |
|
| 15,066 |
|
| $ | 47.77 |
|
|
| 19,421 |
|
Equity compensation plans not approved by security holders (2) |
|
| 57,552 |
|
| $ | 52.09 |
|
|
|
|
|
Total |
|
| 72,618 |
|
| $ | 51.19 |
|
|
| 19,421 |
|
(1) | Represents options issued pursuant to the Company’s 2011 Stock Incentive Plan, which was approved by our shareholders. |
(2) | Represents warrants issued outside of our shareholder approved plan as described below. The warrants listed below contain certain anti-dilution adjustments and, |
On December 19, 2011, we issued to David Rubenstein, as inducement to become our Chief Operating Officer, ten-year warrants, which as of December 31, 2019 represent the right to purchase an aggregate 14,583 shares of common stock at exercises prices per share ranging from $47.16 to $54.96, and may be exercised for cash or on a cashless exercise basis. All such warrants are fully vested.
On May 15, 2013, we issued to Ronald W. Fleming, as an inducement to become our then Chief Financial Officer, a ten-year warrant, which as of December 31, 2019, represents the right to purchase 1,945 shares of common stock at an exercise price of $70.80, and may be exercised for cash or on a cashless exercise basis. Such warrant is fully vested.
On November 26, 2013, we issued to an investor relations firm, as partial consideration for providing certain investor relations services to the Company, a ten-year warrant to purchase 834 shares of common stock at an exercise price per share of $47.52. Such warrant is fully vested.
On March 28, 2014, we issued to the placement agents in the Company’s offering of subordinated convertible promissory notes issued in 2014, as partial compensation for serving as placement agents in such offering, five-year warrants to purchase an aggregate of 4,078 shares of common stock at an exercise price per share of $54.00. Such warrants are fully vested.
On October 10, 2014, we issued to William McBride III, as an inducement to become our Chief Executive Officer, a ten-year warrant to purchase 25,000 shares of common stock, of which 8,333 shares were forfeited on April 17, 2017 upon his separation from the Company, at an exercise price per share of $53.88. The balance of such warrant is fully vested and may be exercised for cash or on a cashless basis.
On April 1, 2015, we issued to Allan J. Rimland, as an incentive to become our then President and Chief Financial Officer, a ten-year warrant to purchase 22,917 shares of common stock, of which 7,639 shares were forfeited on October 17, 2017 upon his resignation from the Company, at an exercise price per share equal to $51.00. The balance of such warrant is fully vested and may be exercised for cash or on a cashless exercise basis.
Related Party Transactions
Letter Agreement with Brogdon. On April 9, 2010, Riverchase then a wholly owned subsidiaryMarch 3, 2014, the Company and certain of the Company,its subsidiaries entered into a Purchase Agreementletter agreement (the "Purchase Agreement"“Letter Agreement”), as amended from time to time, with an Oklahoma limited liability companyMr. Brogdon and entities controlled by a bank to acquire the assets of Riverchase Village, a 105-bed assisted living facility located in Hoover, Alabama, for a purchase price of approximately $5.0 million. On June 22, 2010, the Company assigned to Mr. Brogdon (a then director of the Company, beneficial owner of more than 5% of the common stock and the Company’s former Chief Acquisition Officer) 100% of the membership interests in Riverchase (the "Assignment"). On June 25, 2010, Riverchase, then owned by Mr. Brogdon, purchased the Riverchase Village facility pursuant to the terms of the Purchase Agreement.
On May 15, 2014,November 10, 2016, the Company and certain of its subsidiaries entered into an Amendment to the Letter Agreement (the “Letter Agreement First Amendment”), pursuant to which the Company paid $92,323 (the “Tax Payment”) to the appropriate governmental authorities of Jefferson County, Alabama, such amount representing outstanding real property taxes due on the Riverchase Village facility. The Company determined that it was in its best interest to make the Tax Payment in order to preserve the Company’s interest in the sale of the Riverchase Village facility. In connection with the Tax Payment, the parties also agreed to amend and restate the promissory note issued by Mr. Brogdon in favor of the Company to reflect a new principal amount of $615,986, which amount represents the original principal amount of the note plus the Tax Payment. Furthermore, the Letter Agreement First Amendment amended the Letter Agreement to provide that, if the closing of the sale of the Riverchase Village facility did not occur on or before December 31, 2014, then a payment of principal under the amended and restated promissory note equal to the Tax Payment would be due and payable to the Company on or before January 31, 2015.
Personal Guarantor on Loan Agreements.
For a wholly owned subsidiarydescription of the Company entered into management agreementsarrangements with entities controlled by Mr. Brogdon, which entities own the skilled-nursing facilities located in Oklahoma known as Harrah Nursing Center, McLoud Nursing Center and Meeker Nursing Center. Pursuant to the management agreements, the Company subsidiary managed the operations of these facilities. The management agreements had initial terms of five years with automatic renewal for one-year terms thereafter. Pursuant to the management agreements, the Brogdon entities which own the facilities agreed to pay the Company subsidiary a fee equal to 5% of the monthly gross revenues of the facilities. Effective March 1, 2014, the Company terminated the management agreements with respect to Harrah Nursing Center, McLoud Nursing Center and Meeker Nursing Center.
Allan J. Rimland. During March 2015, prior to Mr. Rimland’s appointment as Chief Financial Officer of the Company, Mr. Rimland provided certain consulting services to the Company as an independent contractor. The Company paid Mr. Rimland $20,000 for such services.
Each of the foregoing transactions was approved by the independent members of the Board without the related party having input with respect to the discussion of such approval. In addition, the Board believes that each of the foregoing transactions was necessary for the Company'sCompany’s business and is on terms no less favorable to the Company than could be obtained from independent third parties. The Company’s policy requiring that independent directors approve any related party transaction is not evidenced by writing but has been the Company’s consistent practice.
Director Independence
The NYSE MKTAmerican listing standards for smaller reporting companies require that at least 50% of the members of a listed company’s board of directorsBoard qualify as “independent,” as defined under NYSE MKTAmerican rules and as affirmatively determined by the company’s board of directors.Board. After review of all the relevant transactions and relationships between each director (and his family members) and the Company, senior management and our independent registered public accounting firm, the Board affirmatively determined that at all times during the year ended December 31, 2015,2019, and through the date of filing this Annual Report, the following directors (while serving as such) were independent within the meaning of applicable NYSE MKTAmerican rules: Messrs. Fox, Hackett (resigned effective April 1, 2015), Knaup (appointed effective October 14, 2015), Morrison, Radcliffe (retired upon expiration of his term at the 2015 Meeting)Tenwick and Sturtz (resigned effective January 3, 2015). In addition, the Board affirmatively determined that at all times during the year ended December 31, 2015 all of the members of the Audit Committee were considered independent within the meaning of applicable NYSE MKT rules.
For purposes of determining the independence of Mr. Fox, the Board considered participation by an affiliate the Fox Agreement. See “Arrangements with Directors Regarding Election/Appointment” in Part III, Item 10. - Directors, Executive Officers and Corporate Governance of Mr. Fox in two private placement transactions of subordinated convertible promissory notes issued by us in March 2014 and April 2015, with conversion prices at least equal to the greater of the book or market value of the common stock at the time we entered into a definitive agreement to issue such notes. See “- Park City Capital” above. For purposes of determining the independence of Mr. Knaup, the Board considered the consulting arrangement between Mr. Knaup and the Company, which commenced in November 2014 and terminated in September 2015. See “- Thomas W. Knaup” above.
Pursuant to appointment by the Audit Committee, KPMGCherry Bekaert, LLP ("KPMG"(“Cherry Bekaert”) has audited the financial statements of the Company and its subsidiaries for the years ended December 31, 20152019 and 2014.
The following table sets forth the aggregate fees that Cherry Bekaert and KPMG LLP (“KPMG”) billed to the Company for the years ended December 31, 20152019 and 2014,2018, respectively. All of the fees were approved by the Audit Committee in accordance with its policies and procedures.
|
| Year Ended December 31, |
| |||||
(Amounts in 000's) |
| 2019 |
|
| 2018 |
| ||
Audit fees (total)(1) |
| $ | 231 |
|
| $ | 120 |
|
Audit-related fees (total)(2) |
|
| — |
|
|
| — |
|
Tax fees |
|
| — |
|
|
| — |
|
All other fees |
|
| — |
|
|
| — |
|
Cherry Bekaert Total fees |
|
| 231 |
|
|
| 120 |
|
|
|
|
|
|
|
|
|
|
Audit fees (total)(1) |
| $ | — |
|
| $ | 85 |
|
Audit-related fees (total)(2) |
|
| — |
|
|
| 13 |
|
Tax fees |
|
| — |
|
|
| — |
|
All other fees |
|
| — |
|
|
| — |
|
KPMG Total fees |
| $ | — |
|
| $ | 98 |
|
| Year Ending December 31, | ||||||||
| (Amounts in 000's) | 2015 | 2014 | ||||||
Audit fees (total)(1) | $ | 470 | $ | 519 | ||||
Audit-related fees (total)(2) | 139 | 43 | ||||||
| Tax fees | — | — | ||||||
| All other fees | — | — | ||||||
| Total fees | $ | 609 | $ | 562 | ||||
(1) | Billed Audit fees include fees associated with professional services rendered |
(2) | Billed Audit related fees include fees for |
Pre-Approval Policy
The Audit Committee is required to pre-approve all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed by our independent registered public accounting firm, subject to the
de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act that are approved by the Audit Committee prior to completion of the audit. The Audit Committee pre-approved all of the non-audit services provided by our independent registered public accounting firm in(a)(1)
Financial Statements. The following financial statements of(i) | Consolidated Balance Sheets—December 31, |
(ii) | Consolidated Statements of Operations—Years ended December 31, |
(iii) | Consolidated Statements of |
(iv) | Consolidated Statements of Cash Flows—Years ended December 31, |
(v) | Notes to Consolidated Financial Statements. |
(a)(2) Financial Statement Schedules. Financial statement schedules are omitted because they are not required, are not material, are not applicable, or the required information is shown in the financial statements or notes thereto.
(a)(3)
Exhibits. A list of the Exhibits required by Item 601 of Regulation S-K to be filed as a part of this Annual Report is shown on theIn reviewing the agreements included as exhibits to this Annual Report, investors are reminded that they are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about AdCareRegional or the other parties to the agreements. Some of the agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
Should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
Have been qualified by the disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
May apply standards of materiality in a way that is different from what may be viewed as material to you or other investors, and
Were made only as of the date of the applicable agreement or such other date or dates may be specified in the agreement and are subject to more recent developments.
Accordingly, the representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about us may be found elsewhere in this Annual Report and our other public filings with the SEC, which are available without charge on our website at www.adcarehealth.com.www.regionalhealthproperties.com.
Exhibit No. | Description | Method of Filing | |||
2.1 | |||||
Incorporated by reference to Exhibit 2.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended | |||||
2.2 | Incorporated by reference to Exhibit 2.1 | ||||
3.1 | Incorporated by reference to Exhibit | |||
3.2 | Incorporated by reference to Exhibit | |||
3.3 | Incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017 | |||
4.1 | Form of Common Stock Certificate of Regional Health Properties, Inc. | Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017 | ||
4.2 | Description of Regional Health Properties, Inc. Capital Stock | Incorporated by reference to Exhibit 4.2 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, | ||
4.3* | ||||
| 2005 Stock Option Plan of AdCare Health Systems, Inc. | Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011 | |||
4.4* | Incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011 | |||
4.5* | Incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011 | |||
4.6* | Incorporated by reference to Exhibit 4.5 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011 | |||
4.9* | ||||
Incorporated by reference to Exhibit 4.3 to the Registrant’s Form S-3 (File No. 333-175541) | ||||
4.10 | Incorporated by reference to Exhibit 4.5 to the Registrant’s Form S-3 (File No. 333-175541) | |||
Incorporated by reference to Exhibit 10.2 to the Registrant’s Form S-3 (File No. 333-175541) | ||||
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed July 5, 2012 | ||||
4.14 | ||||
Incorporated by reference to Exhibit 4.3 to the Registrant’s Form S-3 (File No. 333-175541) | ||||
4.16 | ||||
Incorporated by reference to Exhibit 4.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 | ||||
4.17 | Incorporated by reference to Exhibit 4.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 | |||
4.18 | Incorporated by reference to Exhibit 4.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 | |||
4.19 | Incorporated by reference to Exhibit 4.21 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | |||
4.20 | Incorporated by reference to Exhibit 4.22 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | |||
4.21* | Incorporated by reference to Exhibit 4.23 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | |||
4.22 | Incorporated by reference to Exhibit 4.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 | |||
4.23 | Incorporated by reference to Exhibit 4.23 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 | |||
4.24 | Incorporated by reference to Exhibit 4.3 of the | |||
4.25 | Incorporated by reference to Exhibit | |||
4.26 | Incorporated by reference to Exhibit 4.1 of the | |||
4.29* | Incorporated by reference to Exhibit |
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 99.1 of the Registrant’s Form 8-K filed September 8, 2008 |
Incorporated by reference to Exhibit | ||||
10.3 | Incorporated by reference to Exhibit 10.31 of the Registrant’s annual report on form 10-K filed March 31, 2009 | |||
10.4 | Incorporated by reference to Exhibits 10.1 and 10.2 of the Registrant’s Form 8-K filed October 6, 2010 | |||
10.5 | Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed May 5, 2011 | |||
10.6 | Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed June 6, 2011 | |||
10.7 | Form of Promissory Note, issued by Mount Trace Nursing ADK, LLC | Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed June 16, 2011 | ||
10.8 | Amendment, dated June 22, 2011, between Hearth & Home of Ohio, Inc. and Christopher F. Brogdon | Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed June | ||
10.9 | Guaranty, dated May 26, 2011, made by Christopher F. Brogdon | Incorporated by reference to Exhibit 10.34 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 | ||
10.10 | Incorporated by reference to Exhibit 10.35 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 | |||
10.11 | Commercial Guaranty, dated May 25, 2011,made by Christopher F. Brogdon | Incorporated by reference to Exhibit 10.39 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 | ||
10.12 | Commercial Guaranty, dated May 25, 2011, made by Connie B. Brogdon | Incorporated by reference to Exhibit | ||
10.13 | ||||
Incorporated by reference to Exhibit 10.42 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 | ||||
10.14 | Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 | |||
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | ||||
10.16 | Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | |||
10.17 | Incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | |||
10.18 | Incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 |
Incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | ||||
10.20 | Incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | |||
10.21 | Incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | |||
10.22 | Incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | |||
10.23 | Incorporated by reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | |||
10.24 | Incorporated by reference to Exhibit 10.11 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | |||
10.25 | Incorporated by reference to Exhibit 10.12 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | |||
10.26 | Guaranty, dated July 27, 2011, made by Erin Nursing, LLC, with respect to the USDA Loan | Incorporated by reference to Exhibit 10.13 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | ||
Exhibit No. | Description | Method of Filing | ||
Guaranty, dated July 27, 2011, made by AdCare Health Systems, Inc., with respect to the USDA Loan | Incorporated by reference to Exhibit 10.14 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | |||
10.28 | Incorporated by reference to Exhibit 10.15 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | |||
10.29 | Incorporated by reference to Exhibit 10.16 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | |||
10.30 | Incorporated by reference to Exhibit 10.17 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | |||
10.31 | Incorporated by reference to Exhibit 10.18 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | |||
10.32 | Incorporated by reference to Exhibit 10.19 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011 | |||
10.33 | Incorporated by reference to Exhibit | |||
10.34 | ||||
| Loan Agreement, dated September 6, 2011, by and between CP Property Holdings, LLC; CP Nursing, LLC; and Economic Development Corporation of Fulton County | Incorporated by reference to Exhibit 10.43 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 | |||
10.35 | Incorporated by reference to Exhibit 10.44 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 | |||
10.36 | Incorporated by reference to Exhibit 10.45 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 | |||
10.37 | Incorporated by reference to Exhibit 10.46 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 | |||
10.38 | Incorporated by reference to Exhibit 10.47 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 | |||
Incorporated by reference to Exhibit 10.48 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 | ||||
10.40 | Incorporated by reference to Exhibit 10.49 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 | |||
10.41 | ||||
| Cognovit Promissory Note, dated as of January 1, 2012, issued by Eaglewood Property Holdings, LLC and Eaglewood Village, LLC in favor of Eaglewood Villa, Ltd. in the amount of $500,000 | Incorporated by reference to Exhibit 10.141 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | |||
10.42 | Incorporated by reference to Exhibit 10.142 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | |||
10.43 | Incorporated by reference to Exhibit 10.143 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | |||
10.44 | Incorporated by reference to Exhibit 10.144 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | |||
10.45 | Incorporated by reference to Exhibit 10.145 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | |||
10.46 | Incorporated by reference to Exhibit 10.146 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | |||
10.47 | Incorporated by reference to Exhibit 10.147 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | |||
10.48 | Incorporated by reference to Exhibit 10.148 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | |||
Incorporated by reference to Exhibit 10.149 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | ||||
10.50 | Incorporated by reference to Exhibit 10.150 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | |||
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 10.151 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | ||||
10.52 | Incorporated by reference to Exhibit 10.152 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | |||
10.53 | Incorporated by reference to Exhibit 10.153 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | |||
10.54 | Incorporated by reference to Exhibit 10.154 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | |||
10.55 | Lease Agreement, dated August 1, 2010, between William M. Foster and ADK Georgia, LLC | Incorporated by reference to Exhibit 10.155 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | ||
10.56 | First Amendment to Lease, dated August 31, 2010, between William M. Foster and ADK Georgia, LLC | Incorporated by reference to Exhibit 10.156 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | ||
10.57 | Incorporated by reference to Exhibit 10.159 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 | |||
10.60 | ||||
| Loan Agreement, dated as of April 12, 2012, between the City of Springfield, Ohio and Eaglewood Property Holdings, LLC | Incorporated by reference to Exhibit 10.18 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 | |||
10.61 | Incorporated by reference to Exhibit 10.19 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 | |||
10.62 | Incorporated by reference to Exhibit 10.20 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 | |||
10.63 | Incorporated by reference to Exhibit 10.21 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 | |||
10.64 | ||||
Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed July 5, 2012 | ||||
| Bond Purchase Agreement, dated April 10, 2012, among Lawson Financial Corporation, The City of Springfield, Ohio and Eaglewood Property Holdings, LLC | Incorporated by reference to Exhibit 10.40 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 | |||
Incorporated by reference to Exhibit 10.41 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 | ||||
10.67 | ||||
Incorporated by reference to Exhibit 10.47 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 | ||||
10.68 | ||||
Sublease Agreement, dated December 1, 2012, between ADK Georgia, LLC and Jeff Co. Nursing, LLC | Incorporated by reference to Exhibit 10.245 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | |||
10.69 | ||||
| Secured Loan Agreement, dated December 28, 2012, by and among Keybank National Association and the subsidiaries of AdCare Health Systems, Inc. named therein | Incorporated by reference to Exhibit 10.263 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | |||
10.70* | ||||
| Consulting Agreement, dated December 31, 2012, between Christopher Brogdon and AdCare Health Systems, Inc. | Incorporated by reference to Exhibit 10.279 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | |||
10.71 | Incorporated by reference to Exhibit 10.280 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | |||
10.72 | Incorporated by reference to Exhibit 10.281 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | |||
10.73 | Incorporated by reference to Exhibit 10.282 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | |||
10.74 | Incorporated by reference to Exhibit 10.283 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | |||
10.75 | Incorporated by reference to Exhibit 10.284 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | |||
10.76 | Incorporated by reference to Exhibit 10.285 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | |||
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 10.286 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | ||||
10.78 | Incorporated by reference to Exhibit 10.287 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | |||
10.79 | Incorporated by reference to Exhibit 10.288 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 | |||
10.80 | ||||
| Sublease Agreement, effective June 30, 2013, by and between ADK Georgia, LLC and Tybee NH, LLC | Incorporated by reference to Exhibit 10.24 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 | |||
10.81 | Sublease Agreement, effective June 30, 2013, by and between ADK Georgia, LLC and Tybee NH, LLC | Incorporated by reference to Exhibit 10.25 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 | ||
10.82 | ||||
Incorporated by reference to Exhibit 10.30 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013 | ||||
10.83 | Incorporated by reference to Exhibit 10.31 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013 | |||
10.84 | Incorporated by reference to Exhibit 10.32 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013 | |||
10.85 | Incorporated by reference to Exhibit 10.33 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013 | |||
10.86 | Incorporated by reference to Exhibit 10.34 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013 | |||
10.87 | ||||
Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed on October | ||||
10.88 | ||||
| Note, dated February 28, 2014, by and among AdCare Health Systems, Inc. and Christopher F. Brogdon | Incorporated by reference to Exhibit 10.334 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 | |||
Incorporated by reference to Exhibit 10.336 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 | ||||
10.90 | Incorporated by reference to Exhibit 10.10 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2014 | |||
10.91 | Incorporated by reference to Exhibit 10.11 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2014 | |||
10.92 | ||||
Incorporated by reference to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K filed on May 21, 2014 | ||||
10.93 | ||||
| Security Instrument, Mortgage & Deed of Trust, dated September 24, 2014, by and between Woodland Manor Property Holdings, LLC and Housing & Healthcare Finance, LLC. | Incorporated by reference to Exhibit 10.23 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 | |||
10.94 | ||||
Incorporated by reference to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K filed on October 17, 2014 | ||||
10.95* | ||||
Incorporated by reference to Exhibit 99.4 of the Registrant’s Current Report on Form 8-K filed on October 17, 2014 | ||||
10.96 | ||||
| Healthcare Facility Note, dated December 1, 2014, by and among Mt. Kenn Property Holdings, LLC and KeyBank National Association | Incorporated by reference to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K filed on December 22, 2014 | |||
10.97 | Incorporated by reference to Exhibit 99.3 of the Registrant’s Current Report on Form 8-K filed on | |||
10.98 | Incorporated by reference to Exhibit 99.4 of the Registrant’s Current Report on Form 8-K filed on December 22, 2014 | |||
10.99 | Incorporated by reference to Exhibit 10.359 of the | |||
10.100 | Incorporated by reference to Exhibit 10.360 of the | |||
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 10.361 of the | ||||
10.102 | Incorporated by reference to Exhibit 10.362 of the | |||
10.103 | ||||
| Sublease Agreement, dated as of January 31, 2015, by and between ADK Georgia, LLC. and 3460 Powder Springs Road Associates, L.P. | Incorporated by reference to Exhibit 10.380 of the | |||
10.104 | Incorporated by reference to Exhibit 10.381 of the | |||
10.105 | Incorporated by reference to Exhibit 10.382 of the | |||
10.106 | Incorporated by reference to Exhibit 10.383 of the | |||
10.107 | Incorporated by reference to Exhibit 10.384 of the | |||
10.108 | Incorporated by reference to Exhibit 10.385 of the | |||
10.109 | ||||
| Amendment to Second Amended and Restated Note, dated March 25, 2015, by and between Christopher F. Brogdon and Adcare Health Systems, Inc. | Incorporated by reference to Exhibit 10.394 of the | |||
10.110* | ||||
Incorporated by reference to Exhibit 10.396 of the | ||||
10.111* | Employment Agreement between AdCare Health Systems, Inc. and Allan J. Rimland, dated March 25, 2015 | Incorporated by reference to Exhibit 10.397 of the | ||
10.112 | ||||
| Security Instrument, Mortgage & Deed of Trust, dated September 24, 2014, by and between Glenvue H&R Property Holdings, LLC and Housing & Healthcare Finance, LLC | Incorporated by reference to Exhibit 10.24 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 | |||
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 10.25 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 | ||||
10.114 | Incorporated by reference to Exhibit 10.26 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 | |||
10.115 | Incorporated by reference to Exhibit 10.27 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 | |||
10.116 | Incorporated by reference to Exhibit 10.28 of the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2014 | |||
10.117 | ||||
Incorporated by reference to Exhibit 10.408 of the | ||||
10.118 | Incorporated by reference to Exhibit 10.409 of the | |||
10.119 | Incorporated by reference to Exhibit 10.410 of the | |||
10.120 | Incorporated by reference to Exhibit 10.411 of the | |||
10.121 | Incorporated by reference to Exhibit 10.412 of the | |||
10.122 | Incorporated by reference to Exhibit 10.413 of the | |||
10.123 | Sublease Agreement, dated July 1, 2014 by and between ADK Georgia, LLC, and C.R. of Thomasville, LLC | Incorporated by reference to Exhibit 10.414 of the | ||
10.124 | Incorporated by reference to Exhibit 10.415 of the |
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 10.416 of the | ||||
10.126 | Incorporated by reference to Exhibit 10.417 of the |
| Amended and Restated Promissory Note for exit fees (Cumberland), dated April 3, 2015, by and among AdCare Health Systems, Inc. and KeyBank National Association | Incorporated by reference to Exhibit 10.25 of the | |||
10.128 | Incorporated by reference to Exhibit 10.26 of the | |||
10.129 | Incorporated by reference to Exhibit 10.27 of the | |||
10.130 | Incorporated by reference to Exhibit 10.28 of the | |||
10.131 | Incorporated by reference to Exhibit 10.29 of the | |||
10.132 | ||||
| Sublease Agreement, dated April 1, 2015, by and between ADK Georgia, LLC and C.R. of Lagrange, LLC | Incorporated by reference to Exhibit 99.10 of the | |||
10.133 | ||||
Incorporated by reference to Exhibit 10.83 of the | ||||
10.134 | Incorporated by reference to Exhibit 10.84 of the | |||
10.136 | ||||
| Second Amendment to Lease Agreement, dated May 31, 2015 by and between Mountain Trace Nursing ADK,LLC and Blue Ridge on the Mountain, LLC | Incorporated by reference to Exhibit 10.7 of the | |||
10.137 | Incorporated by reference to Exhibit 99.2 of the | |||
10.141 | ||||
Incorporated by reference to Exhibit 99.2 of the | ||||
10.142 | Sublease Agreement, dated August 1, 2015, by and between Eaglewood Village, LLC and EW ALF, LLC. | Incorporated by reference to Exhibit 99.3 of the | ||
Exhibit No. | Description | Method of Filing | ||
Sublease Agreement, dated August 1, 2015, by and between RMC HUD Master Tenant, LLC and HC SNF, LLC. | Incorporated by reference to Exhibit 99.4 of the | |||
10.144 | Sublease Agreement, dated August 1, 2015, by and between RMC HUD Master Tenant, LLC and PV SNF, LLC. | Incorporated by reference to Exhibit 99.5 of the | ||
10.145 | Incorporated by reference to Exhibit 99.6 of the | |||
10.146 | Incorporated by reference to Exhibit 99.7 of the | |||
10.147 | ||||
Incorporated by reference to Exhibit 10.101 of the | ||||
10.148 | Incorporated by reference to Exhibit 10.102 of the | |||
10.149 | Incorporated by reference to Exhibit 10.103 of the | |||
10.150 | Incorporated by reference to Exhibit 10.104 of the |
Incorporated by reference to Exhibit 10.105 of the | ||||
10.152 | ||||
Incorporated by reference to Exhibit 99.1 of the | ||||
10.153 | Incorporated by reference to Exhibit 99.2 of the | |||
10.154 | Incorporated by reference to Exhibit 99.2 of the | |||
10.155 | ||||
| Second Amendment to Lease Agreement, dated September 14, 2015, by and between Coosa Nursing ADK, LLC and C.R. of Coosa Valley, LLC | Incorporated by reference to Exhibit 10.124 of the | |||
10.156 | Incorporated by reference to Exhibit 10.125 of the | |||
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 10.126 of the | ||||
10.158 | Incorporated by reference to Exhibit 10.127 of the | |||
10.159 | Incorporated by reference to Exhibit 10.128 of the | |||
10.160 | Incorporated by reference to Exhibit 10.129 of the | |||
10.161 | Incorporated by reference to Exhibit 10.130 of the | |||
10.162 | Incorporated by reference to Exhibit 10.131 of the | |||
10.163 | Incorporated by reference to Exhibit 10.132 of the | |||
10.164 | Incorporated by reference to Exhibit 10.133 of the | |||
10.165 | ||||
| Second Amendment to Third Amended and Restated Multiple Facilities Lease, dated September 1, 2015, by and between Georgia Lessor - Bonterra/Parkview, LLC and ADK Bonterra/Parkview, LLC. | Incorporated by reference to Exhibit 10.139 of the | |||
10.166 | Incorporated by reference to Exhibit 10.140 of the | |||
10.167 | Incorporated by reference to Exhibit 10.141 of the | |||
10.168 | Incorporated by reference to Exhibit 10.142 of the | |||
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 10.4 of the AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the three and six months ended June 30, 2016 | ||||
10.170 | Incorporated by reference to Exhibit 10.5 of the AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the three and six months ended June 30, 2016 | |||
10.171 | Incorporated by reference to Exhibit 10.6 of the AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the three and six months ended June 30, 2016 | |||
10.172 | Incorporated by reference to Exhibit 99.1 of the AdCare Health Systems, Inc. Current Report on Form 8-K filed on October 11, 2016 | |||
10.173 | Incorporated by reference to Exhibit 99.2 of the AdCare Health Systems, Inc. Current Report on Form 8-K filed on October 11, 2016 | |||
10.174 | Incorporated by reference to Exhibit | |||
10.175 | Incorporated by reference to Exhibit 10.8 of the AdCare Health Systems, Inc. Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2016 | |||
10.176 | Incorporated by reference to item 1.01 of the AdCare Health Systems, Inc. Current Report on Form 8-K filed December 19, 2016. | |||
10.177 | Incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 | |||
10.178 | Incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 | |||
10.179 | Incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 | |||
10.180 | Incorporated by reference to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 |
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K filed on May 26, 2017 | ||||
10.182 | Incorporated by reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 | |||
10.183 | Incorporated by reference to Exhibit 10.7 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 | |||
10.184 | Incorporated by reference to Exhibit 10.8 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, | |||
10.185 | Incorporated by reference to Exhibit 10.9 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 | |||
10.186 | Incorporated by reference to Exhibit 10.10 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 | |||
10.187 | Incorporated by reference to Exhibit 10.11 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 | |||
10.188 | Incorporated by reference to Exhibit 10.12 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 | |||
10.189 | Incorporated by reference to Exhibit 10.424 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017 | |||
10.190 | Incorporated by reference to Exhibit 10.425 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017 | |||
10.191 | Incorporated by reference to Exhibit 10.426 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017 |
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 10.427 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017 | ||||
10.193 | Incorporated by reference to Exhibit 10.428 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017 | |||
10.194 | Incorporated by reference to Exhibit 10.429 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017 | |||
10.195 | Incorporated by reference to Exhibit 10.430 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017 | |||
10.196 | Incorporated by reference to Exhibit 10.8 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 | |||
10.197 | Incorporated by reference to Exhibit 10.9 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 | |||
10.198 | ||||
Incorporated by reference to Exhibit 10.10 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 | ||||
10.199 | Incorporated by reference to Exhibit 10.11 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 | |||
10.200 | Incorporated by reference to Exhibit 10.5 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 |
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 10.202 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | ||||
10.203 | Incorporated by reference to Exhibit 10.203 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | |||
10.205 | Incorporated by reference to Exhibit 10.205 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | |||
10.206 | Incorporated by reference to Exhibit 10.206 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | |||
10.207 | Incorporated by reference to Exhibit 10.207 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | |||
10.208 | Incorporated by reference to Exhibit 10.208 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | |||
10.209 | Incorporated by reference to Exhibit 10.209 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | |||
10.210 | Incorporated by reference to Exhibit 10.210 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | |||
10.211 | Incorporated by reference to Exhibit 10.211 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | |||
10.212 | Incorporated by reference to Exhibit 10.212 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 |
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 10.213 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | ||||
10.214 | Incorporated by reference to Exhibit 10.214 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | |||
10.215 | Incorporated by reference to Exhibit 10.215 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | |||
10.216 | Incorporated by reference to Exhibit 10.216 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | |||
10.217 | Incorporated by reference to Exhibit 10.217 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | |||
10.218 | Incorporated by reference to Exhibit 10.218 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | |||
10.219 | Incorporated by reference to Exhibit 10.219 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 | |||
10.220 | Incorporated by reference to Exhibit 2.0 of the Registrant’s Current Report on Form 8-K filed August 7, 2019 | |||
10.221 | Incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed August 7, 2019 | |||
10.222 | Incorporated by reference to Exhibit 2.2 of the Registrant’s Current Report on Form 8-K filed August 7, 2019 |
Exhibit No. | Description | Method of Filing | ||
Incorporated by reference to Exhibit 2.3 of the Registrant’s Current Report on Form 8-K filed August 7, 2019 | ||||
10.224 | Incorporated by reference to Exhibit 2.4 of the Registrant’s Current Report on Form 8-K filed August 7, 2019 | |||
10.225 | Incorporated by reference to Exhibit 2.5 of the Registrant’s Current Report on Form 8-K filed August 7, 2019 | |||
10.226 | Incorporated by reference to Exhibit 2.6 of the Registrant’s Current Report on Form 8-K filed August 7, 2019 | |||
10.227 | Incorporated by reference to Exhibit 10.17 of the Registrant’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2019 | |||
21.1 | Filed herewith | |||
23.1 | Filed herewith | |||
31.1 | Certification of | Filed herewith | ||
31.2 | Certification of | Filed herewith |
Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act | Filed herewith | |||
32.2 | Certification of | Filed herewith | ||
101.INS | XBRL Instance Document | Filed herewith | ||
101.SCH | XBRL Taxonomy Extension Schema | Filed herewith | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | Filed herewith | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | Filed herewith | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase | Filed herewith | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | Filed herewith | ||
* | Identifies a management contract or compensatory plan or arrangement. |
Pursuant to the requirements of Section 13 or compensatory plan or arrangement.15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Regional Health Properties, Inc. | ||
by: | /s/ BRENT MORRISON | |
Brent Morrison | ||
Chief Executive Officer and President | ||
March 27, 2020 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE | TITLE | DATE | ||
/s/ BRENT MORRISON | ||||
Brent Morrison | Director, Chief Executive Officer, and President (Principal Executive Officer) | March 27, 2020 | ||
/s/ E. CLINTON CAIN | ||||
E. Clinton Cain | Interim Financial Officer, Senior Vice President and Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer) | March 27, 2020 | ||
/s/ MICHAEL J. FOX | ||||
Michael J. Fox | Director | March 27, 2020 | ||
/s/ DAVID A. TENWICK | ||||
David A. Tenwick | Director | March 27, 2020 | ||
/s/ KENNETH W. TAYLOR | ||||
Kenneth W. Taylor | Director | March 27, 2020 |
147