UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20222023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-33135
Regional Health Properties, Inc.
(Exact name of registrant as specified in its charter)
Georgia | 81-5166048 | |
(State or other jurisdiction of incorporation) | (I.R.S. Employer Identification Number) |
454 Satellite Boulevard NW1050 Crown Pointe Parkway, Suite 100720, SuwaneeAtlanta, GA 3002430338
(Address of principal executive offices)
(678) 869-5116
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, no par value | RHE | NYSE American | ||
Stock, no par value | RHE-PA | NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
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 ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
As of November 11, 2022August 15, 2023 the registrant had 1,768,7201,883,028 shares of common stock, no par value, outstanding.
Regional Health Properties, Inc.
Form 10-Q
Table of Contents
Page | ||||
Part I. | ||||
Item 1. | 3 | |||
Consolidated Balance Sheets as of | 3 | |||
4 | ||||
5 | ||||
| ||||
| ||||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
| ||
Item 3. |
| |||
Item 4. |
| |||
Part II. | ||||
Item 1. |
| |||
Item 1A. |
| |||
Item 2. |
| |||
Item 3. |
| |||
Item 4. |
| |||
Item 5. |
| |||
Item 6. |
| |||
44 |
2
Part I. Financial Information
Item 1. Financial Statements
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in 000's)
| June 30, 2023 |
|
| December 31, 2022 |
|
| ||||||||||
| September 30, 2022 |
|
| December 31, |
|
|
|
|
|
|
|
| ||||
| (Unaudited) |
|
|
|
|
| (Unaudited) |
|
|
|
|
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property and equipment, net | $ | 48,509 |
|
| $ | 50,127 |
|
| $ | 46,266 |
|
| $ | 46,611 |
|
|
Cash |
| 2,373 |
|
|
| 6,792 |
|
|
| 1,926 |
|
|
| 843 |
|
|
Restricted cash |
| 3,024 |
|
|
| 3,056 |
|
|
| 2,939 |
|
|
| 3,066 |
|
|
Accounts receivable, net of allowances of $580 and $177 |
| 6,230 |
|
|
| 2,145 |
| |||||||||
Accounts receivable, net of allowances of $1,400 and $1,298 |
|
| 3,023 |
|
|
| 6,289 |
|
| |||||||
Prepaid expenses and other |
| 1,251 |
|
|
| 460 |
|
|
| 1,237 |
|
|
| 746 |
|
|
Notes receivable |
| 297 |
|
|
| 362 |
|
|
| 772 |
|
|
| 1,099 |
|
|
Intangible assets - bed licenses |
| 2,471 |
|
|
| 2,471 |
|
|
| 2,471 |
|
|
| 2,471 |
|
|
Intangible assets - lease rights, net |
| 116 |
|
|
| 134 |
|
|
| 98 |
|
|
| 110 |
|
|
Right-of-use operating lease assets |
| 22,981 |
|
|
| 29,909 |
|
|
| 2,677 |
|
|
| 2,848 |
|
|
Goodwill |
| 1,585 |
|
|
| 1,585 |
|
|
| 1,585 |
|
|
| 1,585 |
|
|
Lease deposits and other deposits |
| 398 |
|
|
| 398 |
| |||||||||
Straight-line rent receivable |
| 6,190 |
|
|
| 8,257 |
|
|
| 2,860 |
|
|
| 2,912 |
|
|
Total assets | $ | 95,425 |
|
| $ | 105,696 |
|
| $ | 65,854 |
|
| $ | 68,580 |
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Senior debt, net | $ | 44,887 |
|
| $ | 46,043 |
|
| $ | 44,554 |
|
| $ | 45,163 |
|
|
Bonds, net |
| 6,119 |
|
|
| 6,239 |
|
|
| 5,988 |
|
|
| 6,120 |
|
|
Other debt, net |
| 1,562 |
|
|
| 594 |
|
|
| 1,490 |
|
|
| 895 |
|
|
Accounts payable |
| 3,478 |
|
|
| 3,749 |
|
|
| 3,036 |
|
|
| 3,293 |
|
|
Accrued expenses |
| 6,854 |
|
|
| 4,987 |
|
|
| 4,832 |
|
|
| 5,036 |
|
|
Operating lease obligation |
| 25,258 |
|
|
| 32,059 |
|
|
| 3,044 |
|
|
| 3,226 |
|
|
Other liabilities |
| 1,367 |
|
|
| 1,629 |
|
|
| 1,635 |
|
|
| 1,131 |
|
|
Total liabilities |
| 89,525 |
|
|
| 95,300 |
|
|
| 64,579 |
|
|
| 64,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 1,769 and 1,775 shares issued and 1,760 and 1,775 shares outstanding at September 30, 2022 and December 31, 2021, respectively |
| 62,642 |
|
|
| 62,515 |
| |||||||||
Preferred stock, no par value; 5,000 shares authorized; 2,812 shares issued and outstanding, redemption amount $70,288 at September 30, 2022 and December 31, 2021 |
| 62,423 |
|
|
| 62,423 |
| |||||||||
Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 1,894 and 1,793 shares issued and 1,883 and 1,784 shares outstanding at June 30, 2023 and December 31, 2022, respectively |
|
| 62,938 |
|
|
| 62,702 |
|
| |||||||
Preferred stock, no par value; 5,000 shares authorized (including amounts authorized for Series A and Series B); shares issued and outstanding designated as follows: |
|
|
|
|
|
|
| |||||||||
Preferred stock, Series A, no par value; 560 shares authorized, issued and outstanding at June 30, 2023, with a redemption amount $426 at June 30, 2023; 5,000 shares authorized, 2,812 shares issued and outstanding at December 31, 2022, with a redemption amount of $70,288 |
|
| 426 |
|
|
| 62,423 |
|
| |||||||
Preferred stock, Series B, no par value; 2,812 shares authorized; 2,252 shares issued and outstanding at June 30, 2023, with a redemption amount $18,602 at June 30, 2023; no shares authorized, issued and outstanding at December 31, 2022 |
|
| 18,602 |
|
|
| — |
|
| |||||||
Accumulated deficit |
| (119,165 | ) |
|
| (114,542 | ) |
|
| (80,691 | ) |
|
| (121,409 | ) |
|
Total stockholders' equity |
| 5,900 |
|
|
| 10,396 |
|
|
| 1,275 |
|
|
| 3,716 |
|
|
Total liabilities and stockholders' equity | $ | 95,425 |
|
| $ | 105,696 |
|
| $ | 65,854 |
|
| $ | 68,580 |
|
|
See accompanying notes to unaudited consolidated financial statements.
3
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000's, except per share data)
(Unaudited)
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Patient care revenues | $ | 7,769 |
|
| $ | 2,309 |
|
| $ | 14,650 |
|
| $ | 7,444 |
| $ | 2,526 |
|
| $ | 4,570 |
|
| $ | 4,442 |
|
| $ | 6,881 |
|
Rental revenues |
| 3,000 |
|
|
| 4,136 |
|
|
| 10,326 |
|
|
| 11,980 |
|
| 1,722 |
|
|
| 3,261 |
|
|
| 3,430 |
|
|
| 7,326 |
|
Management fees |
| 255 |
|
|
| 248 |
|
|
| 774 |
|
|
| 743 |
|
| 247 |
|
|
| 255 |
|
|
| 525 |
|
|
| 519 |
|
Other revenues |
| 6 |
|
|
| 9 |
|
|
| 20 |
|
|
| 84 |
|
| 103 |
|
|
| 7 |
|
|
| 107 |
|
|
| 14 |
|
Total revenues |
| 11,030 |
|
|
| 6,702 |
|
|
| 25,770 |
|
|
| 20,251 |
|
| 4,598 |
|
|
| 8,093 |
|
|
| 8,504 |
|
|
| 14,740 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Patient care expense |
| 7,476 |
|
|
| 2,454 |
|
|
| 14,040 |
|
|
| 6,911 |
|
| 2,159 |
|
|
| 4,222 |
|
|
| 4,697 |
|
|
| 6,564 |
|
Facility rent expense |
| 1,451 |
|
|
| 1,640 |
|
|
| 4,725 |
|
|
| 4,919 |
|
| 149 |
|
|
| 1,634 |
|
|
| 297 |
|
|
| 3,274 |
|
Cost of management fees |
| 140 |
|
|
| 153 |
|
|
| 459 |
|
|
| 468 |
|
| 146 |
|
|
| 144 |
|
|
| 286 |
|
|
| 319 |
|
Depreciation and amortization |
| 600 |
|
|
| 651 |
|
|
| 1,819 |
|
|
| 1,953 |
|
| 702 |
|
|
| 606 |
|
|
| 1,212 |
|
|
| 1,219 |
|
General and administrative expense |
| 1,378 |
|
|
| 980 |
|
|
| 3,432 |
|
|
| 2,975 |
|
| 1,011 |
|
|
| 921 |
|
|
| 2,217 |
|
|
| 2,054 |
|
Doubtful accounts expense (recovery) |
| 1,515 |
|
|
| (1 | ) |
|
| 3,742 |
|
|
| 76 |
| |||||||||||||||
Doubtful accounts expense |
| 24 |
|
|
| 466 |
|
|
| 40 |
|
|
| 2,227 |
| |||||||||||||||
Other operating expenses |
| 441 |
|
|
| 219 |
|
|
| 1,409 |
|
|
| 755 |
|
| 221 |
|
|
| 629 |
|
|
| 313 |
|
|
| 968 |
|
Total expenses |
| 13,001 |
|
|
| 6,096 |
|
|
| 29,626 |
|
|
| 18,057 |
|
| 4,412 |
|
|
| 8,622 |
|
|
| 9,062 |
|
|
| 16,625 |
|
(Loss) income from operations |
| (1,971 | ) |
|
| 606 |
|
|
| (3,856 | ) |
|
| 2,194 |
| |||||||||||||||
Other (income) expense: |
|
|
|
|
|
| �� |
|
|
|
| |||||||||||||||||||
Income/(Loss) from operations |
| 186 |
|
|
| (529 | ) |
|
| (558 | ) |
|
| (1,885 | ) | |||||||||||||||
Other expense: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Interest expense, net |
| 564 |
|
|
| 669 |
|
|
| 1,855 |
|
|
| 2,022 |
|
| 679 |
|
|
| 639 |
|
|
| 1,359 |
|
|
| 1,291 |
|
Gain on extinguishment of debt |
| — |
|
|
| (146 | ) |
|
| — |
|
|
| (146 | ) | |||||||||||||||
Other (income) expense, net |
| (2,164 | ) |
|
| 122 |
|
|
| (1,088 | ) |
|
| 839 |
| |||||||||||||||
Total other (income) expense, net |
| (1,600 | ) |
|
| 645 |
|
|
| 767 |
|
|
| 2,715 |
| |||||||||||||||
Other expense, net |
| 192 |
|
|
| 157 |
|
|
| 759 |
|
|
| 1,076 |
| |||||||||||||||
Total other expense, net |
| 871 |
|
|
| 796 |
|
|
| 2,118 |
|
|
| 2,367 |
| |||||||||||||||
Net loss | $ | (371 | ) |
| $ | (39 | ) |
| $ | (4,623 | ) |
| $ | (521 | ) | $ | (685 | ) |
| $ | (1,325 | ) |
| $ | (2,676 | ) |
| $ | (4,252 | ) |
Preferred stock dividends - undeclared |
| (2,249 | ) |
|
| (2,250 | ) |
|
| (6,748 | ) |
|
| (6,748 | ) |
| — |
|
|
| (2,249 | ) |
|
| — |
|
|
| (4,498 | ) |
Net Loss attributable to Regional Health Properties, Inc. common stockholders | $ | (2,620 | ) |
| $ | (2,289 | ) |
| $ | (11,371 | ) |
| $ | (7,269 | ) | |||||||||||||||
Net loss per share of common stock attributable to Regional Health Properties, Inc. |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Basic and diluted: | $ | (1.48 | ) |
| $ | (1.27 | ) |
| $ | (6.40 | ) |
| $ | (4.21 | ) | |||||||||||||||
Preferred stock dividends - gain on extinguishment |
| 43,395 |
|
|
| — |
|
|
| 43,395 |
|
|
| — |
| |||||||||||||||
Net profit (loss) attributable to Regional Health Properties, Inc. common stockholders | $ | 42,710 |
|
| $ | (3,574 | ) |
| $ | 40,719 |
|
| $ | (8,750 | ) | |||||||||||||||
Net profit (loss) per share of common stock attributable to Regional Health Properties, Inc. |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Basic: | $ | 22.68 |
|
| $ | (2.02 | ) |
| $ | 21.74 |
|
| $ | (4.93 | ) | |||||||||||||||
Diluted: | $ | 22.68 |
|
| $ | (2.02 | ) |
| $ | 21.73 |
|
| $ | (4.93 | ) | |||||||||||||||
Weighted average shares of common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Basic and diluted |
| 1,769 |
|
|
| 1,775 |
|
|
| 1,778 |
|
|
| 1,728 |
| |||||||||||||||
Basic: |
| 1,883,028 |
|
|
| 1,768,720 |
|
|
| 1,872,636 |
|
|
| 1,775,637 |
| |||||||||||||||
Diluted: |
| 1,883,253 |
|
|
| 1,768,720 |
|
|
| 1,873,489 |
|
|
| 1,775,637 |
|
See accompanying notes to unaudited consolidated financial statements.
4
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in 000's)
(Unaudited)
|
| Shares of |
|
|
| Shares of |
|
|
| Shares of Treasury Stock |
|
| Common |
|
| Preferred |
|
| Accumulated |
|
| Total |
|
| Shares of |
|
| Shares of |
|
| Shares of |
|
| Shares of Treasury Stock |
|
| Common stock and additional paid-in capital |
|
| Preferred stock A, no par value |
|
| Preferred stock B, no par value |
|
| Accumulated |
|
| Total |
| ||||||||||||||||||
Balances, December 31, 2021 |
|
| 1,775 |
|
|
|
| 2,812 |
|
|
|
| (1 | ) |
| $ | 62,515 |
|
| $ | 62,423 |
|
| $ | (114,542 | ) |
| $ | 10,396 |
| ||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2022 |
|
| 1,784 |
|
|
| 2,812 |
|
|
| — |
|
|
| (9 | ) |
| $ | 62,702 |
|
| $ | 62,423 |
|
| $ | — |
|
| $ | (121,409 | ) |
| $ | 3,716 |
| ||||||||||||||||||||||||||||||||
Restricted stock issuance |
|
| 24 |
|
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 99 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||
Stock-based compensation |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
| 111 |
|
|
| — |
|
|
| — |
|
|
| 111 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 81 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 81 |
| ||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,992 | ) |
|
| (1,992 | ) | ||||||||||||||||||||||||||||||||
Balances, March 31, 2023 |
|
| 1,883 |
|
|
| 2,812 |
|
|
| — |
|
|
| (9 | ) |
| $ | 62,783 |
|
| $ | 62,423 |
|
| $ | — |
|
| $ | (123,401 | ) |
| $ | 1,805 |
| ||||||||||||||||||||||||||||||||
Extinguishment of Series A Preferred Stock |
|
|
|
|
| (2,252 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (61,997 | ) |
|
| — |
|
|
| — |
|
|
| (61,997 | ) | |||||||||||||||||||||||||||||||||
Exchange of Series A to Series B |
|
| — |
|
|
| — |
|
|
| 2,252 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18,602 |
|
|
| 43,395 |
|
|
| 61,997 |
| ||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 155 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 155 |
| ||||||||||||||||||||||||||||||||
Forfeitures of stock-based awards |
|
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||
Exercise of restricted share awards net settlement option |
|
| — |
|
|
|
| — |
|
|
|
| (8 | ) |
|
| (46 | ) |
|
| — |
|
|
| — |
|
|
| (46 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||
Net loss |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,927 | ) |
|
| (2,927 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (685 | ) |
|
| (685 | ) | ||
Balances, March 31, 2022 |
|
| 1,799 |
|
|
|
| 2,812 |
|
|
|
| (9 | ) |
| $ | 62,580 |
|
| $ | 62,423 |
|
| $ | (117,469 | ) |
| $ | 7,534 |
| ||||||||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
| 58 |
|
|
| — |
|
|
| — |
|
|
| 58 |
| ||||||||||||||||||||||||||||||||||||||
Forfeitures of stock based awards |
|
| (30 | ) |
|
|
| — |
|
|
|
| — |
|
|
| (54 | ) |
|
| — |
|
|
| — |
|
|
| (54 | ) | ||||||||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
|
| — |
|
|
|
| - |
|
|
| - |
|
|
| — |
|
|
| (1,325 | ) |
|
| (1,325 | ) | ||||||||||||||||||||||||||||||||||||||
Balances, June 30, 2022 |
|
| 1,769 |
|
|
|
| 2,812 |
|
|
|
| (9 | ) |
| $ | 62,584 |
|
| $ | 62,423 |
|
| $ | (118,794 | ) |
| $ | 6,213 |
| ||||||||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
| 58 |
|
|
| — |
|
|
| — |
|
|
| 58 |
| ||||||||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (371 | ) |
|
| (371 | ) | ||||||||||||||||||||||||||||||||||||||
Balances, September 30, 2022 |
|
| 1,769 |
|
| - |
|
| 2,812 |
|
| - |
|
| (9 | ) |
| $ | 62,642 |
|
| $ | 62,423 |
|
| $ | (119,165 | ) |
| $ | 5,900 |
| ||||||||||||||||||||||||||||||||||||
Balances, June 30, 2023 |
|
| 1,883 |
|
|
| 560 |
|
|
| 2,252 |
|
|
| (11 | ) |
| $ | 62,938 |
|
| $ | 426 |
|
| $ | 18,602 |
|
| $ | (80,691 | ) |
| $ | 1,275 |
|
|
| Shares of |
|
| Shares of |
|
| Shares of Treasury Stock |
|
| Common |
|
| Preferred |
|
| Accumulated |
|
| Total |
| |||||||
Balances, December 31, 2020 |
|
| 1,688 |
|
|
| 2,812 |
|
|
| — |
|
| $ | 62,041 |
|
| $ | 62,423 |
|
| $ | (113,360 | ) |
| $ | 11,104 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 21 |
|
|
| 21 |
|
Balances, March 31, 2021 |
|
| 1,688 |
|
|
| 2,812 |
|
|
| — |
|
| $ | 62,041 |
|
| $ | 62,423 |
|
| $ | (113,339 | ) |
| $ | 11,125 |
|
Stock-based compensation |
|
| 39 |
|
|
| — |
|
|
| — |
|
|
| 123 |
|
|
| — |
|
|
| — |
|
|
| 123 |
|
Exercise of restricted share awards net settlement option |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (7 | ) |
|
| — |
|
|
| — |
|
|
| (7 | ) |
Treasury shares, no par value |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (503 | ) |
|
| (503 | ) |
Balances, June 30, 2021 |
|
| 1,727 |
|
|
| 2,812 |
|
|
| — |
|
| $ | 62,157 |
|
| $ | 62,423 |
|
| $ | (113,842 | ) |
| $ | 10,738 |
|
|
| Shares of |
|
| Shares of |
|
| Shares of |
|
| Shares of Treasury Stock |
|
| Common |
|
| Preferred stock A, no par value |
|
| Preferred stock B, no par value |
|
| Accumulated |
|
| Total |
| |||||||||
Balances, December 31, 2021 |
|
| 1,775 |
|
|
| 2,812 |
|
|
| — |
|
|
| (1 | ) |
| $ | 62,515 |
|
| $ | 62,423 |
|
| $ | — |
|
| $ | (114,542 | ) |
| $ | 10,396 |
|
Restricted stock issuance |
|
| 24 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 111 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 111 |
|
Exercise of restricted share awards net settlement option |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8 | ) |
|
| (46 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (46 | ) |
Net Loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,927 | ) |
|
| (2,927 | ) |
Balances, March 31, 2022 |
|
| 1,799 |
|
|
| 2,812 |
|
|
| — |
|
|
| (9 | ) |
| $ | 62,580 |
|
| $ | 62,423 |
|
| $ | — |
|
| $ | (117,469 | ) |
| $ | 7,534 |
|
Forfeitures of stock-based awards |
|
| (30 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
Net Loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,325 | ) |
|
| (1,325 | ) |
Balances, June 30, 2022 |
|
| 1,769 |
|
|
| 2,812 |
|
|
| — |
|
|
| (9 | ) |
| $ | 62,584 |
|
| $ | 62,423 |
|
| $ | — |
|
| $ | (118,794 | ) |
| $ | 6,213 |
|
5
Stock-based compensation |
|
| 48 |
|
|
| — |
|
|
|
|
|
| 179 |
|
|
| — |
|
|
| — |
|
|
| 179 |
| |
Net loss |
|
| — |
|
|
| — |
|
|
|
|
|
| — |
|
|
| — |
|
|
| (39 | ) |
|
| (39 | ) | |
Balances, September 30, 2021 |
|
| 1,775 |
|
|
| 2,812 |
|
|
| — |
|
| $ | 62,336 |
|
| $ | 62,423 |
|
| $ | (113,881 | ) |
| $ | 10,878 |
|
See accompanying notes to unaudited consolidated financial statements.
5
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000's)
(Unaudited)
|
| Six Months Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (2,676 | ) |
| $ | (4,252 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 1,212 |
|
|
| 1,219 |
|
Stock-based compensation expense |
|
| 236 |
|
|
| 115 |
|
Rent expense (less than) in excess of cash paid |
|
| (11 | ) |
|
| 153 |
|
Rent revenue less than (in excess) of cash received |
|
| (236 | ) |
|
| (73 | ) |
Amortization of deferred financing costs, debt discounts and premiums |
|
| 37 |
|
|
| 44 |
|
Bad debt expense |
|
| 40 |
|
|
| 2,227 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| 3,512 |
|
|
| (3,446 | ) |
Prepaid expenses and other assets |
|
| 797 |
|
|
| 358 |
|
Accounts payable and accrued expenses |
|
| (460 | ) |
|
| 1,138 |
|
Other liabilities |
|
| 504 |
|
|
| (281 | ) |
Net cash provided by (used in) operating activities |
|
| 2,955 |
|
|
| (2,798 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Purchase of property and equipment |
|
| (854 | ) |
|
| (152 | ) |
Net cash used in investing activities |
|
| (854 | ) |
|
| (152 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Payment of senior debt |
|
| (624 | ) |
|
| (806 | ) |
Payment of other debt |
|
| (504 | ) |
|
| (572 | ) |
Debt extinguishment and issuance costs |
|
| (17 | ) |
|
| — |
|
Proceeds from other debt |
|
| — |
|
|
| 50 |
|
Repurchase of common stock |
|
| — |
|
|
| (46 | ) |
Net cash used in financing activities |
|
| (1,145 | ) |
|
| (1,374 | ) |
Net change in cash and restricted cash |
|
| 956 |
|
|
| (4,324 | ) |
Cash and restricted cash, beginning |
|
| 3,909 |
|
|
| 9,848 |
|
Cash and restricted cash, ending |
| $ | 4,865 |
|
| $ | 5,524 |
|
6
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000's)
(Unaudited)
|
| Nine Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (4,623 | ) |
| $ | (521 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 1,819 |
|
|
| 1,953 |
|
Stock-based compensation expense |
|
| 173 |
|
|
| 302 |
|
Rent expense in excess of cash paid |
|
| 126 |
|
|
| 27 |
|
Rent revenue in excess of cash received |
|
| (1,410 | ) |
|
| (2,150 | ) |
Amortization of deferred financing costs, debt discounts and premiums |
|
| 67 |
|
|
| 77 |
|
Gain on debt extinguishment |
|
| — |
|
|
| (146 | ) |
Bad debt expense |
|
| 3,742 |
|
|
| 76 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| (4,349 | ) |
|
| 758 |
|
Prepaid expenses and other assets |
|
| 533 |
|
|
| 636 |
|
Accounts payable and accrued expenses |
|
| 2,013 |
|
|
| 2,859 |
|
Other liabilities |
|
| (262 | ) |
|
| 241 |
|
Net cash (used in) provided by operating activities |
|
| (2,171 | ) |
|
| 4,112 |
|
Cash flows from investing activities: |
|
|
|
|
|
| ||
Purchase of property and equipment |
|
| (183 | ) |
|
| (119 | ) |
Net cash used in investing activities |
|
| (183 | ) |
|
| (119 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Payment of senior debt |
|
| (1,219 | ) |
|
| (1,710 | ) |
Payment of other debt |
|
| (882 | ) |
|
| (121 | ) |
Debt extinguishment and issuance costs |
|
| — |
|
|
| (21 | ) |
Proceeds from other debt |
|
| 50 |
|
|
| — |
|
Repurchase of common stock |
|
| (46 | ) |
|
| (7 | ) |
Net cash used in financing activities |
|
| (2,097 | ) |
|
| (1,859 | ) |
Net change in cash and restricted cash |
|
| (4,451 | ) |
|
| 2,134 |
|
Cash and restricted cash, beginning |
|
| 9,848 |
|
|
| 7,492 |
|
Cash and restricted cash, ending |
| $ | 5,397 |
|
| $ | 9,626 |
|
| Six Months Ended June 30, |
| |||||
| 2023 |
|
| 2022 |
| ||
Supplemental disclosure of cash flow information: |
|
|
|
|
| ||
Cash interest paid | $ | 1,312 |
|
| $ | 1,256 |
|
Supplemental disclosure of non-cash activities: |
|
|
|
|
| ||
Vendor-financed insurance | $ | 962 |
|
| $ | 1,078 |
|
Exchange of preferred stock Series A to Series B | $ | 18,602 |
|
| $ | — |
|
Gain on extinguishment of preferred stock | $ | 43,395 |
|
| $ | — |
|
See accompanying notes to unaudited consolidated financial statements.
7
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000's)
(Unaudited)
| Nine Months Ended September 30, |
| |||||
| 2022 |
|
| 2021 |
| ||
Supplemental disclosure of cash flow information: |
|
|
|
|
| ||
Cash interest paid | $ | 1,797 |
|
| $ | 2,154 |
|
Cash income taxes paid |
| — |
|
|
| — |
|
Supplemental disclosure of non-cash activities: |
|
|
|
|
| ||
Non-cash payments of long-term debt |
| — |
|
|
| (5,044 | ) |
Non cash debt issuance costs and extinguishment expenses |
| — |
|
|
| (102 | ) |
Net payments through Lender | $ | — |
|
| $ | (5,146 | ) |
Non-cash proceeds from sale of property and equipment |
| — |
|
|
| — |
|
Non-cash proceeds from financing |
| — |
|
|
| 5,146 |
|
Net proceeds through Lender | $ | — |
|
| $ | — |
|
|
|
|
|
|
| ||
Non-cash gain on PPP Loan forgiveness | $ | — |
|
| $ | 229 |
|
Vendor-financed insurance | $ | 1,078 |
|
| $ | 867 |
|
See accompanying notesNotes to unaudited consolidated financial statements.
8
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
Notes toUnaudited Consolidated Financial Statements
SeptemberJune 30, 20222023
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Regional Health Properties, Inc., a's (the "Company" or "Regional Health") predecessor was incorporated in Ohio on August 14, 1991, under the name Passport Retirement, Inc. In 1995, Passport Retirement, Inc. acquired substantially all of the assets and liabilities of AdCare Health Systems, Inc. and changed its name to AdCare Health Systems, Inc. ("AdCare"). AdCare completed its initial public offering in November 2006, relocated its executive offices and accounting operations to Georgia corporation ("in 2012, and changed its state of incorporation from Ohio to Georgia in December 2013. Regional Health" or "Regional") and, together with its subsidiaries, the ("Company" or "we"),Health Properties, Inc. is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior housing. WeOur business primarily consists of leasing such facilities to third-party tenants, which operate throughthe facilities. The Company has two reportableprimary reporting segments: (i) Real Estate and Healthcare Services. As of September 30, 2022, we had investments of approximately $73.0 million in twelve health care real estate properties and nine leased properties. Our Real Estate segmentServices, which consists of owningthe leasing and leasing/subleasing healthcare facilities, predominantly skilled nursing facilitiesof long-term care and assistedsenior living facilities to third-party tenants, which in turn operateincluding the facilities. We currently have eleven properties, consistingCompany's management of 10 skilled nursingthree facilities on behalf of third-party owners; and one assisted facility, pursuant to triple-net leases and four facilities subleased pursuant to triple-net leases to seven different tenants. Our Health Care(ii) Healthcare Services, segmentwhich consists of operating five skilled nursing facilities and one assisted living facility via management contracts.
Regional Health is successor to, and a former wholly owned subsidiary of, AdCare Health Systems, Inc. (AdCare). On September 29, 2017, AdCare merged (the "Merger") with and into Regional Health, which was formed as a subsidiary of AdCare for the purposeoperation of the Merger, with Regional Health continuing asMeadowood and Glenvue facilities. Effective August 3, 2023, the surviving corporation inCompany’s 12.5% Series B Cumulative Redeemable Preferred Shares (the “Series B Preferred Stock”) is quoted on the Merger.
WhileOTC Markets Group, Inc.’s OTCQB Venture Market under the Company is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living, the Company, when business conditions require, may undertake portfolio stabilization measures, such as operating a previously leased facility as demonstrated by the transactions undertaken by the Company since December 31, 2021. These portfolio stabilization measures, and others that the Company has undertaken, expose the Company directly to certain risks our tenants face. For more information, see Note 2 - Liquidity - Changes in Operational Liquidity - Portfolio Stabilization Measures.symbol “RHEPB”.
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"). The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 20212022 audited consolidated financial statements and notes thereto, which are included in the 2021our 2022 Annual Report on Form 10-K filed with the SECSecurities and Exchange Commission ("SEC") on February 22, 2022.April 14, 2023 ("Annual Report").
In the opinion of management, the unaudited consolidated financial statements for the interim periods presented include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's financial position and the results of its operations and cash flows for such periods presented. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Reclassifications
Certain reclassifications have been made to the amounts in prior periods in order to conform to the current period's presentation. A reclassification has been made to the stock balances on the consolidated statement of stockholders’ equity in prior periods in order to conform to the current period's presentation.
Principles of Consolidations
The consolidated financial statements include the Company's majority owned and controlled subsidiaries. All intercompany transactions and balances have been eliminated through consolidation.
Variable Interest Entities
The Company has a loan receivable with Peach Health, a sublessee. Such agreement creates a variable interest in the Peach Health sublessee that may absorb some or all of the expected losses of the entity. The Company does not consolidate the operating activities of the Peach Health sublessee as the Company does not have the power to direct the activities that most significantly impact the entity's economic performance.
98
Revenue Recognition and Allowances
Patient Care Revenue. ASC Topic 606, Revenue from Contracts with Customers requires a company to recognize revenue when the company transfers control of promised goods and 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. Revenue from our Healthcare Services business segment is derived from services rendered to patients in the LaGrange, Lumber City, Meadowood Thomasville,and Glenvue and Tara facilities. The Company receives payments from the following sources for services rendered in our facilities: (i) the federal government under the Medicare program administered by the CMS;U.S. Department of Health and Human Services Centers for Medicare and Medicaid Services ("CMS"); (ii) state governments under their respective Medicaid and similar programs; (iii) commercial insurers; and (iv) individual patients and clients. The vast majority of the revenue the Company recognizes is from government sources. The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients and other price concessions. Contractual adjustments and discounts are based on contractual agreements, discount policies and historical experience. The Company recognizes revenue at the amount that reflects the consideration the Company expects to receive in exchange for the services provided. These amounts are due from residents or third-party payors and include variable consideration for retroactive adjustments from estimated reimbursements, if any, under reimbursement programs. Performance obligations are determined based on the nature of the services provided. Revenue is recognized as performance obligations are satisfied. Estimated uncollectable amounts due from patients are generally considered implicit price concessions that are a direct reduction to net operating revenues.
Triple-Net Leased Properties. The Company recognizes rental revenue in accordance with ASC 842, Leases. The Company's triple-net leases provide for periodic and determinable increases in rent. The Company recognizes rental revenues under these leases on a straight-line basis over the applicable lease term when collectability is probable. 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 the straight-line rent receivable 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 is recognized only upon cash collection, and any accumulated straight-line rent receivable is expensed in the period in which the Company deems rent collection to no longer be probable.
Management Fee Revenues and Other Revenues. The Company recognizes management fee revenues as services are provided. The Company has one contract to manage three facilities (the "Management Contract"), with payment for each month of service generally 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 loans and investments, using the effective interest method when collectability is probable. The Company applies the effective interest method on a loan-by-loan basis. On June 30, 2023, the Company received a notice of termination, pursuant to which the Management Contract will terminate on December 31, 2023.
Allowances. The Company assesses the collectability of its rent receivables, including straight-line rent receivables, working capital loans to tenants and patient reimbursement. The Company bases its assessment of the collectability of rent receivables and working capital loans to tenants on several factors, including payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, and current economic conditions. If the Company's evaluation of these factors indicates it is probable that the Company will be unable to receive the rent payments or payments on a working capital loan, then the Company provides a reserve against the recognized straight-line rent receivable asset or working capital loan for the portion that we estimate may not be recovered. Payments received on impaired loans are applied against the allowance. If the Company changes its assumptions or estimates regarding the collectability of future rent payments, then the Company may adjust its reserve to the rental or interest revenue recognized in the period the Company makes such change. See Note 6 – Leases. Regarding patient reimbursements, the Company assesses the patient receivable based on payor type and age of the receivable amongst several other factors. The Company has reserved for approximately 1.5% of our patient care receivablesrevenue based on the historical performance and industry practices.
As of SeptemberJune 30, 20222023 and December 31, 2021,2022, the Company reserved for approximately $0.61.4 million and $0.21.3 million, respectively, of uncollected receivables. Accounts receivable, net of allowance, totaled $6.23.0 million at SeptemberJune 30, 20222023 and $2.16.3 million at December 31, 2021.2022.
9
The following table presents the Company's Accounts receivable, net of allowance for the periods presented:
(Amounts in 000’s) |
| September 30, |
|
| December 31, |
| ||
Gross receivables |
|
|
|
|
|
| ||
Real Estate Services |
| $ | 2,479 |
|
| $ | 1,442 |
|
Healthcare Services |
|
| 4,331 |
|
|
| 880 |
|
10
Subtotal |
|
| 6,810 |
|
|
| 2,322 |
|
Allowance |
|
|
|
|
|
| ||
Real Estate Services |
|
| (304 | ) |
|
| (35 | ) |
Healthcare Services |
|
| (276 | ) |
|
| (142 | ) |
Subtotal |
|
| (580 | ) |
|
| (177 | ) |
Accounts receivable, net of allowance |
| $ | 6,230 |
|
| $ | 2,145 |
|
(Amounts in 000’s) |
| June 30, 2023 |
|
| December 31, 2022 |
| ||
Gross receivables |
|
|
|
|
|
| ||
Real Estate Services |
| $ | 1,143 |
|
| $ | 1,094 |
|
Healthcare Services |
|
| 3,280 |
|
|
| 6,493 |
|
Subtotal |
|
| 4,423 |
|
|
| 7,587 |
|
Allowance |
|
|
|
|
|
| ||
Real Estate Services |
|
| (338 | ) |
|
| (338 | ) |
Healthcare Services |
|
| (1,062 | ) |
|
| (960 | ) |
Subtotal |
|
| (1,400 | ) |
|
| (1,298 | ) |
Accounts receivable, net of allowance |
| $ | 3,023 |
|
| $ | 6,289 |
|
Prepaid Expenses and Other
As of SeptemberJune 30, 20222023 and December 31, 2021,2022, the Company had approximately $1.31.2 million and $0.50.7 million , respectively, in prepaid expenses and other; the $0.80.5 million increase is related to insurance for the Lumber City, LaGrange Meadowood Thomasville and Glenvue facility operations, while the other amounts are predominantly for directors' and officers' insurance, NYSE American annual fees, and mortgage insurance premiums.
Accounts Payable
The following table presents the Company's Accounts payable for the periods presented:
(Amounts in 000’s) |
| September 30, |
|
| December 31, |
| ||
Accounts payable |
|
|
|
|
|
| ||
Real Estate Services |
| $ | 1,877 |
|
| $ | 2,781 |
|
Healthcare Services |
|
| 1,601 |
|
|
| 968 |
|
Total Accounts payable |
| $ | 3,478 |
|
| $ | 3,749 |
|
(Amounts in 000’s) |
| June 30, 2023 |
|
| December 31, 2022 |
| ||
Accounts payable |
|
|
|
|
|
| ||
Real Estate Services |
| $ | 1,247 |
|
| $ | 797 |
|
Healthcare Services |
|
| 1,789 |
|
|
| 2,496 |
|
Total Accounts payable |
| $ | 3,036 |
|
| $ | 3,293 |
|
Other Liabilities
As of September 30, 2022 and December 31, 2021, the Company had approximately $1.4 million and $1.6 million, respectively in Other liabilities, consisting of security lease deposits and sublease improvement funds.
Other Expense, net
The Company has retained a law firm to evaluate and assist with possible opportunities to improve the Company's capital structure. See Note 2 – For the six months ended June 30, 2023 and June 30, 2022, these costs were $Series A Preferred0.5 million and $Exchange Offer.0.9 million, respectively.
Leases and Leasehold Improvements
The Company leases certain facilities and equipment in 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 capitalfinance lease. As of SeptemberJune 30, 2022,2023, all of the Company'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.
In accordance with Accounting Standards Update ("ASU") ASU 2016-02, Leases, as codified in ASC 842, theThe Company recognizes both right of use assets and lease liabilities for leases in which we lease land, real property, or other equipment, having elected the practical expedient to maintain the prior operating lease classification for leases entered into prior to January 1, 2019.equipment. We assess any new contracts or modification of contracts in accordance with ASC 842, ASCLeases 842 to determine the existence of a lease and its classification.
We report revenues and expenses for real estate taxes and insurance where the lessee has not made those payments directly to a third-party in accordance with its respective leases with us. Additionally, we expense certain leasing costs, other than leasing commissions, as they are incurred. The present value of minimum lease payments was calculated on each lease, using a discount rate of 3.85% that approximated our incremental borrowing rate and the current lease term. See Note 6– Leases for more information on the Company's operating leases.
Insurance
We maintain general liability, professional liability, and other insurance policies in amounts and with coverage and deductibles we believe are appropriate, based on the nature and risks of our business, historical experience, availability, and industry
1110
standards, including for the operations at the Tara, Lumber City, LaGrange, Thomasville, Glenvue and Meadowood facilities. Our current policies provide for deductibles for each claim and contain various exclusions from coverage. The Company has self-insured against professional and general liability claims related to its healthcare operations that were discontinued during 2014 and 2015 in connection with its transition from an owner and operator of healthcare properties to a healthcare property holding and leasing company (the "Transition"). For further information, see Note 11 – Commitments and Contingencies, and Note 1413 – Commitments and Contingencies, to the consolidated financial statements for the year ended December 31, 20212022 for more information. 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. See Note 7 – Accrued Expenses. In addition, the Company maintains certain other insurance programs, including commercial general liability, property, casualty, directors' and officers' liability, crime, and employment practices liability.
Discontinued Operations
Prior to December 2015, the Company’s business focused primarily on owning and operating skilled nursing facilities ("SNF") and managing such facilities for unaffiliated owners with whom the Company had management contracts. These operations were discontinued and transitioned to the leasing model of business.
As of SeptemberJune 30, 2023 and December 21, 2022 the companyCompany determined remaining escheatment liabilities for discontinued operations are $.80.8 million and are included in accrued expenses. As a result of this change in accounting estimate the Company recognized income net of expenses for discontinued operations of approximately $2.4
million for the three and nine months ended September 30, 2022 included in “Other (income) expense”. As of December 31, 2021 the Company’s major classes of discontinued operations assets and liabilities include $2.5 million in accounts payable and $.7 million in accrued expenses. Net expenses for discontinued operations are included in other (income) expenses on the consolidated statements of operations. Net expenses were approximately $22,000 for the three months ended and $97,000 for the nine months ended September 2021.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the respective period. Diluted earnings per share is similar to basic net loss per share except that the net loss is adjusted by the impact of the weighted-average number of shares of common stock outstanding including potentially dilutive securities (such as options, warrants and non-vested common stock) when such 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.
Securities outstanding that were excluded from the computation, because they would have been anti-dilutive were as follows:
|
| September 30, |
| |||||
(Share amounts in 000’s) |
| 2022 |
|
| 2021 |
| ||
Stock options |
|
| 13 |
|
|
| 13 |
|
Warrants - employee |
|
| 34 |
|
|
| 49 |
|
Warrants - non employee |
|
| 5 |
|
|
| 9 |
|
Total anti-dilutive securities |
|
| 52 |
|
|
| 71 |
|
12
| June 30, |
| |||||
(Share amounts in 000’s) | 2023 |
|
| 2022 |
| ||
Stock options |
| 13 |
|
|
| 13 |
|
Warrants - employee |
| 32 |
|
|
| 34 |
|
Warrants - non employee |
| 1 |
|
|
| 5 |
|
Total anti-dilutive securities |
| 46 |
|
|
| 52 |
|
The weighted average contractual terms in years for these securities as of SeptemberJune 30, 2022,2023, with no intrinsic value, are 1.80.4 years for the stock options and 2.21.5 years for the warrants.
Recently AdoptedNew Accounting Pronouncements IssuedBut Not Yet Effective
In June 2016,March 2023, the FASB issued ASU 2016-13,2023-01, Financial Instruments—Credit LossesLeases (Topic 842): Common Control Arrangements (Topic 326842) amendments, which requires entities to determine whether related party arrangements between entities under common control are leases. The amendments also address the accounting treatment of leasehold improvements associated with common control leases. They require the lessee to amortize leasehold improvements over the useful life of the improvements to the common control group,): Measurement
11
regardless of Credit Losses on Financial Instruments, which changes the lease term, as long as the lessee controls the use of the underlying asset. If the lessee no longer controls the use of the asset, the leasehold improvements are accounted for as a transfer between entities under common control through an adjustment to equity. These improvements are also subject to impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally resultguidance in earlier recognition of allowances for losses. In November 2018, the FASB issued ASU 2018-19 Codification Improvements to Topic 326, Financial Instruments—Credit Losses.360, Property, Plant, and Equipment. 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. The Company adopted ASU 2016-13 effective January 1, 2022 and it did not have an impact on its consolidated financial statements.
New Accounting Pronouncements Issued But Not Yet Effective
In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs(Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This update requires a buyer in a supplier finance program to disclose qualitative and quantitative information about the program, at least annually, to allow financial statement users to understand the nature of the program, the activity during the period, changes from period to period, and potential magnitude. The buyer must also disclose the amount of outstanding obligations confirmed as valid by the buyer at the end of each interim reporting period. ASU 2022-04 is effective for fiscal yearspublic entities beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment related to the disclosure of rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. During the fiscal year of adoption, information about the key terms of the programs and the balance sheet presentation of the obligations must be disclosed in each interim reporting period. The amendments in this update, except for the amendment related to the disclosure of rollforward information, must be applied retrospectively by providing the required disclosures for each period for which a balance sheet is presented. The Company is currently evaluating the impact of adopting the standardASU 2023-01 on its consolidated financial statements.
In October 2021,No other new accounting pronouncement issued or effective has had, or is expected to have, a material impact on the FASB issued ASU 2021-08Company's financial statements., Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This update is to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the following: (1) Recognition of an acquired contract liability, and (2) Payment terms and their effect on subsequent revenue recognized by the acquirer. Early adoption of the amendments is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
NOTE 2. LIQUIDITY
Overview
The Company intends to pursue measures to grow its operations, streamline its cost infrastructure and otherwise increase liquidity, including: (i) refinancing or repaying debt to reduce interest costs and mandatory principal repayments, with such repayment to be funded through potentially expanding borrowing arrangements with certain lenders; (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 following the date of this filing. At SeptemberJune 30, 2022,2023, the Company had $2.41.9 million in unrestricted cash. Unrestricted cash includes a Medicaid overpayment of $1.5 million received on September 30, 2021 that the Company expects to repay in the near future. The overpayment is recorded in Accrued Expenses in the Company's consolidated balance sheets as of September 30, 2022 and December 31, 2021.
During the ninesix months ended SeptemberJune 30, 2022,2023, the Company's cash used inprovided by operating activities was $2.23.0 million primarily due to unpaid rent payments and working capital needs to transition operationscollection of the Glenvue, Thomasville, LaGrange, Lumber City and Meadowood facilities.Employee Retention Tax Credit. The Company is seeking collection of the past due rent. In addition, management is
13
working to expedite the time it takes to collect and receive aged patient receivables. Cash flow from operations in the future will be based on the operational performance of the facilities under Peach Health'sthe company's management, Glenvue and Meadowood, as well as continued uncertainty of the COVID-19 pandemic and its impact on the Company's business, financial condition and results of operations.
Series A Preferred Stock Exchange Offer
In 2020, the Company began exploring alternatives to retire or refinance our outstanding Series A Preferred Stock through privately negotiated transactions, open market repurchases, redemptions, exchange offers, tender offers, or otherwise. In February 2022, the Company commenced an offer to exchange (the "Exchange Offer") any and all of its outstanding 10.875% Series A Cumulative Redeemable Preferred Shares (the "Series A Preferred Stock") for newly issued shares of the Company's 12.5% Series B Cumulative Redeemable Preferred Shares (the "Series B Preferred Stock"). When the Company did not obtain the shareholder approval required in connection with the completion of the Exchange Offer and the Company terminatedimplementation of the Exchange Offer.
Series A Preferred Dividend Suspension
On June 8, 2018,Charter Amendments and the boardSeries B Charter Amendments, the liquidation preference of directors of Regional (the "Board") indefinitely suspended quarterly dividend payments on the 10.875% Series A Preferred Stock. As of September 30, 2022, 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 $43.5 million of undeclared Series A Preferred Stock dividends in arrears. The Board believes that the dividend suspension will provide the Company with additional funds to meet, in part, 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 dividend periods, the annual dividend rate on the Series A Preferred Stock for the fifth and future missed dividend periods has increased to 12.875%, which is equivalent to $3.20 per share each year, commencing on the first day after the missed fourth quarterly payment (i.e. October 1, 2018) and continuing until the second consecutive dividend payment date following such time as the Company has fully paid allwas reduced, accumulated and unpaid dividends on the Series A Preferred Stock were eliminated and future dividends on the Series A Preferred Stock were eliminated. As a result, $50.4 million in cash.accumulated and unpaid dividends on the Series A Preferred Stock were eliminated and, as of June 30, 2023, there are no accumulated and unpaid dividends on the Series A Preferred Stock. For further information regarding the Exchange Offer, Series A Charter Amendments and Series B Charter Amendments, see Note 9 – Common and Preferred Stock.
Debt
As of SeptemberJune 30, 2022,2023, the Company had $52.652.0 million in indebtedness, net of $1.21.1 million deferred financing costs and unamortized discounts. The Company anticipates net principal repayments of approximately $2.92.5 million during the next twelve-month period, approximately $1.71.4 million of routine debt service amortization, $1.11.0 million of current maturities of other debt (including $0.6 million related to insurance financing),financing amortization, and a $0.1 million payment of bond debt.
Debt Extinguishment
On August 13, 2021, the Company received official notification from Fountainhead Commercial Capital, providers of our $0.2 million Paycheck Protection Program Loan ("PPP Loan"), that the full $0.2 million was forgiven by the SBA on July 9, 2021. Consequently the Company recorded a net gain of approximately $0.2 million on forgiveness of debt during the year ended December 31, 2021.
On September 30, 2021 the Company and the Exchange Bank of Alabama executed a $5.1 million Promissory Note with a 3.95% annual fixed interest rate and maturity date of October 10, 2026 (the "Coosa Credit Facility"). The Coosa Credit Facility, refinanced $5.1 million prime + 1.5% variable interest rate debt owed to Metro City Bank with a maturity date of January 31, 2036, (the "Coosa MCB Loan"). In conjunction with this Coosa Credit Facility refinance, the Company and the Exchange Bank of Alabama signed an agreement (the "Meadowood Credit Facility"), on October 1, 2021 that extended the maturity date on the $3.5 million Meadowood Credit Facility, as amended, in senior debt other mortgage indebtedness secured by the assets of Coosa and the assets of Meadowood, from May 1, 2022, to October 1, 2026.
The Coosa Credit Facility is secured by the assets of the Company's subsidiary Coosa Nursing ADK, LLC ("Coosa") which owns the 124-bed skilled nursing facility located in Glencoe, Alabama (the "Coosa Facility") and the assets of the Company's subsidiary Meadowood Property Holdings, LLC ("Meadowood") which owns the 106-bed assisted living facility located in Glencoe, Alabama (the "Meadowood Facility"). The Company incurred approximately $0.1 million in new deferred financing fees and expensed approximately $0.1 million deferred financing fees associated with the Coosa MCB Loan.
Additionally on August 17, 2021, the Company extended the maturity date on approximately $0.5 million other debt from August 25, 20212023 to August 25, 20232025 (the "KeyBank"Key Bank Exit Notes"). For further information, see Note 8 – Notes Payable and Other Debt.
On October 21, 2022, the Company, through wholly-owned subsidiaries, consummated a U.S. Department of Housing and Urban Development ("HUD") refinancing of its senior mortgages on three SNFs in Ohio. Funding was provided by Newpoint Real Estate Capital LLC ("Newpoint") pursuant to three HUD guaranteed secured Healthcare Facility Notes (the "HUD Notes"). Proceeds from the HUD Notes were used to pay off existing HUD guaranteed secured mortgages and pay transaction costs. Newpoint is the servicer on other loans extended to the Company.
1412
Consequently, the Company recorded a net loss of approximately $0.4 million on extinguishment of debt during the year ended December 31, 2022, consisting of a $0.2 million prepayment penalty and $0.2 million of expensed deferred financing fees associated with the extinguishment of the Eaglewood Care Center, The Pavilion Care Center, and Hearth & Care of Greenfield loans.
The aggregate principal amount of the three HUD Notes is $7.6 million, and the interest rate on the three HUD Notes is 3.97% fixed for the full term of each HUD Note. The Northwood HUD Note has a principal amount of $4.9 million and matures on November 1, 2052. The Greenfield HUD Note has a principal amount of $1.9 million and matures on November 1, 2050. The Pavilion HUD Note has a principal amount of $0.8 million and matures on December 1, 2039. Payments of principal and interest on the HUD Notes commenced on October 1, 2022. Each HUD Note is secured by a Healthcare Deed to Secure Debt, Security Agreement and Assignment of Rents covering the facilities. Newpoint may declare the loans, accrued interest and any other amounts immediately due and payable upon certain customary events of default.
Debt Covenant Compliance
At SeptemberJune 30, 2022,2023, 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
COVID-19. Many of our operators have reported incurring significant cost increases as a result of the COVID-19 pandemic. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of personal protective equipment, testing equipment, processes and supplies. In terms of occupancy levels, many of our operators have reported experiencing declines, in part due to the elimination or suspension of elective hospital procedures, fewer discharges from hospitals to SNFs, and higher hospital readmittances from SNFs. The COVID-19 pandemic may also lead to temporary closures of nursing facilities operated by our tenants, impairing our tenants’ ability to make their rental payments to us pursuant to their respective lease agreements.
Portfolio Stabilization Measures. In the past.past, our operators did not provide lease guarantees from affiliated entities. Given this, certain operators have terminated their leases in light of operational difficulties caused by the COVID-19 pandemic. While the Company is a self-managed real estate investment company that invests in real estate, when business conditions require, the Company undertakes portfolio stabilization measures. The table below summarizes the lease terminations related to existing properties as of June 30, 2023 since the onset of the COVID-19 pandemic and the Company’s resulting portfolio stabilization measures:
Date | Facility Name | Former Operator | Current Operator |
|
|
|
|
|
|
|
|
April 2022 | Meadowood | C.R. Management | Regional Health (managed by Cavalier Senior Living Operations) |
|
| C.R. Management | Regional Health |
|
|
|
|
|
|
|
|
For more information, see Note 1 – Organization and Significant Accounting Policies, Note 6 – Leases and Note 12 – Segment Results.
Capital Requirements. Until the Company releasesThe operation of the facilities referencedlist above the operation of these facilities will require additional working capital, which is partially offset by cash flow received from the operation of these facilities. Since January, 2021, the companyCompany's Accounts Receivable, net of allowance and Accounts Payable for the Healthcare Services segment have grown to $4.32.2 million and $1.61.8 million, respectfully.
On December 30, 2022, the Company and Spring Valley, LLC (“Spring Valley”) entered into a Lease Termination Agreement (the “Lease Termination Agreement”) relating to the lease of the following eight nursing facilities: the Powder Springs facility, the Thomasville facility, the Jeffersonville facility, the Lumber City facility, the LaGrange facility, the Tara facility, the Oceanside facility and the Savannah Beach facility (collectively, the “Facilities”). The Lease Termination Agreement terminated the lease
13
effective December 7, 2022 (the “Lease Termination Date”). Since the termination, management has been focusing on collecting the Accounts Receivable and paying the Accounts Payable associated with the referenced facilities.
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 Company's current financial condition, including its sources of liquidity at the date that the consolidated financial statements are issued, will enable the Company 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 Company 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.
15
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, and the Company's recurring business operating expenses.
The Company concluded 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 accounting guidance.
NOTE 3. CASH AND RESTRICTED CASH
The following presents the Company's cash and restricted cash:
(Amounts in 000’s) |
| September 30, |
|
| December 31, |
| ||
Cash (1) |
| $ | 2,373 |
|
| $ | 6,792 |
|
|
|
|
|
|
|
| ||
Restricted cash: |
|
|
|
|
|
| ||
Cash collateral |
| $ | 98 |
|
| $ | 125 |
|
HUD and other replacement reserves |
|
| 2,079 |
|
|
| 1,914 |
|
Escrow deposits |
|
| 530 |
|
|
| 700 |
|
Restricted investments for debt obligations |
|
| 317 |
|
|
| 317 |
|
Total restricted cash |
|
| 3,024 |
|
|
| 3,056 |
|
Total cash and restricted cash |
| $ | 5,397 |
|
| $ | 9,848 |
|
(Amounts in 000’s) |
| June 30, 2023 |
|
| December 31, 2022 |
| ||
Cash |
| $ | 1,926 |
|
| $ | 843 |
|
|
|
|
|
|
|
| ||
Restricted cash: |
|
|
|
|
|
| ||
Cash collateral |
| $ | 76 |
|
| $ | 135 |
|
HUD and other replacement reserves |
|
| 2,094 |
|
|
| 2,155 |
|
Escrow deposits |
|
| 452 |
|
|
| 459 |
|
Restricted investments for debt obligations |
|
| 317 |
|
|
| 317 |
|
Total restricted cash |
|
| 2,939 |
|
|
| 3,066 |
|
|
|
|
|
|
|
| ||
Total cash and restricted cash |
| $ | 4,865 |
|
| $ | 3,909 |
|
million received on September 30, 2021, which the Company expects to repay in the near future and is recorded in Accrued Expenses in the Company's consolidated balance sheets as of September 30, 2022 and December 31, 2021.
Cash collateral—In securing mortgage financing from certain lending institutions, the Company and certain of its wholly-owned subsidiaries are required to deposit cash to be held as collateral in accordance with the terms of such 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 deposits—In connection with financing secured through the Company's lenders, several wholly-owned subsidiaries of the Company are required to make monthly escrow deposits for taxes and insurance.
Restricted cash for debt obligations—In compliance with certain financing and insurance agreements, the Company and certain wholly-owned subsidiaries of the Company are required to deposit cash held as collateral by the lender or in escrow with certain designated financial institutions.
14
NOTE 4. PROPERTY AND EQUIPMENT
The following table sets forth the Company's property and equipment:
(Amounts in 000’s) |
| Estimated |
|
| September 30, |
|
| December 31, |
|
| Estimated |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||||
Buildings and improvements |
| 5-40 |
|
| $ | 65,772 |
|
| $ | 65,695 |
|
| 5-40 |
|
| $ | 64,376 |
|
| $ | 63,746 |
| ||
Equipment and computer related |
| 2-10 |
|
|
| 2,852 |
|
|
| 4,494 |
|
| 2-10 |
|
|
| 1,677 |
|
|
| 1,807 |
| ||
Land (1) |
|
| — |
|
|
| 2,774 |
|
|
| 2,776 |
|
|
| — |
|
|
| 2,774 |
|
|
| 2,774 |
|
Property and equipment |
|
|
|
|
| 71,398 |
|
|
| 72,965 |
|
|
|
|
|
| 68,827 |
|
|
| 68,327 |
| ||
Less: accumulated depreciation and amortization |
|
|
|
|
| (22,889 | ) |
|
| (22,838 | ) |
|
|
|
|
| (22,561 | ) |
|
| (21,716 | ) | ||
Property and equipment, net |
|
|
|
| $ | 48,509 |
|
| $ | 50,127 |
|
|
|
|
| $ | 46,266 |
|
| $ | 46,611 |
|
The following table summarizes total depreciation and amortization expense three and ninesix and months ended SeptemberJune 30, 20222023 and 2021:2022:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||
(Amounts in 000’s) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
16
Depreciation |
| $ | 490 |
|
| $ | 542 |
|
| $ | 1,490 |
|
| $ | 1,625 |
|
Amortization |
|
| 110 |
|
|
| 109 |
|
|
| 329 |
|
|
| 328 |
|
Total depreciation and amortization expense |
| $ | 600 |
|
| $ | 651 |
|
| $ | 1,819 |
|
| $ | 1,953 |
|
|
| Three Months Ended June 30, | Six Months Ended June 30, |
| |||||||||||
(Amounts in 000’s) |
| 2023 |
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Depreciation |
| $ | 593 |
| $ | 496 |
|
| $ | 993 |
|
| $ | 1,000 |
|
Amortization |
|
| 109 |
|
| 110 |
|
|
| 219 |
|
|
| 219 |
|
Total depreciation and amortization expense |
| $ | 702 |
| $ | 606 |
|
| $ | 1,212 |
|
| $ | 1,219 |
|
NOTE 5. INTANGIBLE ASSETS AND GOODWILL
Intangible assets and Goodwill consist of the following:
(Amounts in 000’s) |
| Bed licenses |
|
| Bed Licenses - |
|
| Lease |
|
| Total |
|
| Goodwill (2) |
|
| Bed licenses |
|
| Bed Licenses - |
|
| Lease |
|
| Total |
|
| Goodwill (2) |
| ||||||||||
Balances, December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Balances, December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Gross |
| $ | 14,276 |
|
| $ | 2,471 |
|
| $ | 206 |
|
| $ | 16,953 |
|
| $ | 1,585 |
|
| $ | 14,276 |
|
| $ | 2,471 |
|
| $ | 206 |
|
| $ | 16,953 |
|
| $ | 1,585 |
|
Accumulated amortization |
|
| (4,168 | ) |
|
| — |
|
|
| (72 | ) |
|
| (4,240 | ) |
|
| — |
|
|
| (4,583 | ) |
|
| — |
|
|
| (96 | ) |
|
| (4,678 | ) |
|
| — |
|
Net carrying amount |
| $ | 10,108 |
|
| $ | 2,471 |
|
| $ | 134 |
|
| $ | 12,713 |
|
| $ | 1,585 |
|
| $ | 9,693 |
|
| $ | 2,471 |
|
| $ | 110 |
|
| $ | 12,275 |
|
| $ | 1,585 |
|
Balances, September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Balances, June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Gross |
|
| 14,276 |
|
|
| 2,471 |
|
|
| 206 |
|
|
| 16,953 |
|
|
| 1,585 |
|
|
| 14,276 |
|
|
| 2,471 |
|
|
| 206 |
|
|
| 16,953 |
|
|
| 1,585 |
|
Accumulated amortization |
|
| (4,479 | ) |
|
| — |
|
|
| (90 | ) |
|
| (4,569 | ) |
|
| — |
|
|
| (4,790 | ) |
|
| — |
|
|
| (108 | ) |
|
| (4,898 | ) |
|
| — |
|
Net carrying amount |
| $ | 9,797 |
|
| $ | 2,471 |
|
| $ | 116 |
|
| $ | 12,384 |
|
| $ | 1,585 |
|
| $ | 9,486 |
|
| $ | 2,471 |
|
| $ | 98 |
|
| $ | 12,055 |
|
| $ | 1,585 |
|
The following table summarizes amortization expense for the three and ninesix and months ended SeptemberJune 30, 20222023 and 2021:2022:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, | Six Months Ended June 30, |
| |||||||||||||||||||||
(Amounts in 000’s) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Bed licenses |
| $ | 104 |
|
| $ | 103 |
|
| $ | 311 |
|
| $ | 310 |
|
| $ | 103 |
| $ | 104 |
|
| $ | 207 |
|
| $ | 207 |
|
Lease rights |
|
| 6 |
|
|
| 6 |
|
|
| 18 |
|
|
| 18 |
|
|
| 6 |
|
| 6 |
|
|
| 12 |
|
|
| 12 |
|
Total amortization expense |
| $ | 110 |
|
| $ | 109 |
|
| $ | 329 |
|
| $ | 328 |
|
| $ | 109 |
| $ | 110 |
|
| $ | 219 |
|
| $ | 219 |
|
15
Expected amortization expense for the years ending December 31, for all definite-lived intangibles, for each of the next five years and thereafter is as follows:
(Amounts in 000’s) |
| Bed |
|
| Lease |
|
| Bed |
|
| Lease |
| ||||
2022 |
| $ | 103 |
|
| $ | 6 |
| ||||||||
2023 |
|
| 414 |
|
|
| 23 |
| ||||||||
2023 (6 months remaining) |
| $ | 207 |
|
| $ | 12 |
| ||||||||
2024 |
|
| 414 |
|
|
| 18 |
|
|
| 414 |
|
|
| 24 |
|
2025 |
|
| 414 |
|
|
| 18 |
|
|
| 414 |
|
|
| 24 |
|
2026 |
|
| 414 |
|
|
| 18 |
|
|
| 414 |
|
|
| 24 |
|
2027 |
|
| 414 |
|
|
| 14 |
| ||||||||
Thereafter |
|
| 8,038 |
|
|
| 33 |
|
|
| 7,623 |
|
|
| - |
|
Total expected amortization expense |
| $ | 9,797 |
|
| $ | 116 |
|
| $ | 9,486 |
|
| $ | 98 |
|
NOTE 6. LEASES
FacilitiesFacility Lessee
As of SeptemberJune 30, 2022,2023, the Company leased a total of nineone SNFsSNF under a non-cancelable operating leases, most oflease, which havehad rent escalation clauses and provisions for payments of real estate taxes, insurance, and maintenance costs. Five of the SNF's that are leased by the Company are subleased to and operated by third-party tenants. Effective January 1, 2021, the Company commenced operating the Tara Facility. In May 2022, the Company commenced operating both the LaGrange and Lumber City facilities and in July and August 2022, the Company commenced operating the Thomasville and Glenvue facilities,
17
respectively. All five were previously subleased/lease skilled nursing facilities. The Company also leasesleased certain office space located in Suwanee, Georgia.Georgia through the termination date of June 30, 2023. Effective July 1, 2023, the Company signed a sublease for 2,000 sq ft of office space in Dunwoody, GA. The sublease expires on July 31, 2025.
The weighted average remaining lease term for these nine facilitiesthis one facility is approximately 5.15.8 years. As of SeptemberJune 30, 2022,2023, the Company was in compliance with all operating lease financial covenants.
Future Minimum Lease Payments
Future minimum lease payments for the twelve months ending September 30,December 31, for each of the next five years and thereafter is as follows:
(Amounts in 000’s) |
| Future |
| Accretion of |
|
| Operating |
|
| Future |
|
| Accretion of |
|
| Operating |
| |||||||
2023 |
| $ | 5,465 |
|
| $ | (169 | ) |
| $ | 5,296 |
| ||||||||||||
2023 (6 months remaining) |
| $ | 312 |
|
| $ | (7 | ) |
| $ | 305 |
| ||||||||||||
2024 |
|
| 5,529 |
|
|
| (354 | ) |
|
| 5,175 |
|
|
| 633 |
|
|
| (50 | ) |
|
| 582 |
|
2025 |
|
| 5,640 |
|
|
| (583 | ) |
|
| 5,057 |
|
|
| 645 |
|
|
| (97 | ) |
|
| 549 |
|
2026 |
|
| 5,753 |
|
|
| (810 | ) |
|
| 4,943 |
|
|
| 658 |
|
|
| (141 | ) |
|
| 517 |
|
2027 |
|
| 4,987 |
|
|
| (883 | ) |
|
| 4,104 |
|
|
| 671 |
|
|
| (184 | ) |
|
| 487 |
|
Thereafter |
|
| 1,082 |
|
|
| (399 | ) |
|
| 683 |
|
|
| 914 |
|
|
| (310 | ) |
|
| 604 |
|
Total |
| $ | 28,456 |
|
| $ | (3,198 | ) |
| $ | 25,258 |
|
| $ | 3,833 |
|
| $ | (789 | ) |
| $ | 3,044 |
|
Effective August 2022, the Company amended the master lease (" Foster Lease") involving the eight facilities in Georgia. The parties agreed to amend the monthly rent by changing the individual amounts allocated to the facilities, resulting in a 19% aggregate reduction.
Sublease Termination
Beacon. One of the Company's eight Georgia facilities, leased under a prime lease, was subleased to affiliates of Beacon Health Management ("Beacon") under the Beacon sublease. The Beacon sublease related to the Lumber City facility, which was due to expire August 31, 2027, was terminated by the Company as of May 1, 2022.
C.R. Management. Two of the Company's eight Georgia facilities, leased under a prime lease, was subleased to affiliates of C.R. Management ("C-Ross") under the C-Ross sublease. The C-Ross sublease related to the LaGrange and Thomasville facilities, which was due to expire August 31, 2027, was terminated by the Company as of May 1, 2022 and July 1, 2022, respectively.
Facilities Lessor
As of SeptemberJune 30, 2022,2023, the Company was the lessor of 109 of its 1211 owned facilities, and the sublessor of fourone facilities.facility. These leases are triple net basis leases, meaning that the lessee (i.e., the third-party tenant of the property) is obligated for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments to the Company. The weighted average remaining lease term for our 10 owned and leasedsubleased out facilities is approximately 5.45.8 years.
16
Future Minimum Lease Receivables
Future minimum lease receivables for the twelve months ending September 30,December 31, for each of the next five years and thereafter is as follows:
|
| (Amounts |
|
| (Amounts |
| ||
2023 |
| $ | 8,402 |
| ||||
2023 (6 months remaining) |
| $ | 3,139 |
| ||||
2024 |
|
| 8,673 |
|
|
| 6,187 |
|
2025 |
|
| 8,753 |
|
|
| 6,034 |
|
2026 |
|
| 7,863 |
|
|
| 5,362 |
|
2027 |
|
| 5,445 |
| ||||
Thereafter |
|
| 11,605 |
| ||||
Total |
| $ | 37,772 |
|
18
2027 |
|
| 7,541 |
|
Thereafter |
|
| 7,583 |
|
Total |
| $ | 48,815 |
|
* Lease Receivables does not include the new lease with Oak Hallow Healthcare
For further details regarding the Company's leased and subleased facilities to third-party operators, including a full summary of the Company's leases to third-parties and which comprise the future minimum lease receivables of the Company, see Note 6 - Leases and Note 9 – Acquisitions and DispositionsLeasing Transactions in Part II, Item 8, Financial Statements and Supplementary Data, included in the Annual Report.
Lease Termination
C.R. Management. Three of the Company's twelve owned facilities were leased to affiliates of C.R. Management ("C-Ross"). The C-Ross lease related to the Glenvue facility, which was due to expire August 31, 2027, was terminated by the Company as of August 1, 2022.
NOTE 7. ACCRUED EXPENSES
Accrued expenses consist of the following:
(Amounts in 000’s) | September 30, |
|
| December 31, |
| June 30, 2023 |
|
| December 31, |
| ||||
Accrued employee benefits and payroll-related | $ | 845 |
|
| $ | 343 |
| $ | 356 |
|
| $ | 539 |
|
Real estate and other taxes (1) |
| 2,194 |
|
|
| 1,391 |
|
| 2,667 |
|
|
| 2,428 |
|
Self-insured reserve |
| 109 |
|
|
| 162 |
|
| 65 |
|
|
| 80 |
|
Accrued interest |
| 202 |
|
|
| 206 |
|
| 223 |
|
|
| 210 |
|
Unearned rental revenue |
| — |
|
|
| 192 |
|
| - |
|
|
| 43 |
|
Medicaid overpayment - Healthcare Services |
| 1,543 |
|
|
| 1,529 |
|
| 52 |
|
|
| 169 |
|
Insurance escrow |
| 55 |
|
|
| — |
| |||||||
Other accrued expenses |
| 1,961 |
|
|
| 1,164 |
|
| 1,414 |
|
|
| 1,567 |
|
Total accrued expenses | $ | 6,854 |
|
| $ | 4,987 |
| $ | 4,832 |
|
| $ | 5,036 |
|
17
NOTE 8. NOTES PAYABLE AND OTHER DEBT
See Note 8 – Notes Payable and Other Debt in Part II, Item 8, Financial Statements and Supplementary Data, included in the Annual Report for a detailed description of all the Company's debt facilities.
Notes payable and other debt consists of the following:
(Amounts in 000’s) |
| September 30, |
|
| December 31, |
|
| June 30, 2023 |
|
| December 31, |
| ||||
Senior debt—guaranteed by HUD |
| $ | 29,462 |
|
| $ | 30,178 |
|
| $ | 29,384 |
|
| $ | 29,782 |
|
Senior debt—guaranteed by USDA (1) |
|
| 7,592 |
|
|
| 7,824 |
|
|
| 7,403 |
|
|
| 7,526 |
|
Senior debt—guaranteed by SBA(2) |
|
| 582 |
|
|
| 602 |
| ||||||||
Senior debt—guaranteed by SBA(2) |
|
| 567 |
|
|
| 580 |
| ||||||||
Senior debt—bonds |
|
| 6,253 |
|
|
| 6,379 |
|
|
| 6,117 |
|
|
| 6,253 |
|
Senior debt—other mortgage indebtedness |
|
| 8,352 |
|
|
| 8,601 |
|
|
| 8,175 |
|
|
| 8,266 |
|
Other debt |
|
| 1,563 |
|
|
| 594 |
|
|
| 1,490 |
|
|
| 895 |
|
Subtotal |
|
| 53,804 |
|
|
| 54,178 |
|
|
| 53,136 |
|
|
| 53,302 |
|
Deferred financing costs |
|
| (1,115 | ) |
|
| (1,177 | ) |
|
| (988 | ) |
|
| (1,005 | ) |
Unamortized discount on bonds |
|
| (121 | ) |
|
| (125 | ) |
|
| (116 | ) |
|
| (119 | ) |
Notes payable and other debt |
| $ | 52,568 |
|
| $ | 52,876 |
|
| $ | 52,032 |
|
| $ | 52,178 |
|
19
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 (1) |
|
| September 30, |
|
| December 31, |
|
| Lender |
| Maturity |
| Interest Rate (1) |
|
| June 30, 2023 |
|
| December 31, |
| ||||||||||
Senior debt - guaranteed by HUD (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
The Pavilion Care Center |
| Lument Capital |
| 12/01/2027 |
| Fixed |
|
| 4.16 | % |
| $ | 766 |
|
| $ | 862 |
|
| Newpoint Capital |
| 12/01/2039 |
| Fixed |
|
| 3.97 | % |
| $ | 819 |
|
| $ | 835 |
|
Hearth and Care of Greenfield |
| Lument Capital |
| 08/01/2038 |
| Fixed |
|
| 4.20 | % |
|
| 1,787 |
|
|
| 1,845 |
|
| Newpoint Capital |
| 8/01/2050 |
| Fixed |
|
| 3.97 | % |
|
| 1,929 |
|
|
| 1,949 |
|
Woodland Manor |
| Midland State Bank |
| 10/01/2044 |
| Fixed |
|
| 3.75 | % |
|
| 4,734 |
|
|
| 4,836 |
|
| Newpoint Capital |
| 11/01/2052 |
| Fixed |
|
| 3.97 | % |
|
| 4,936 |
|
|
| 4,980 |
|
Glenvue |
| Midland State Bank |
| 10/01/2044 |
| Fixed |
|
| 3.75 | % |
|
| 7,351 |
|
|
| 7,509 |
|
| Newpoint Capital |
| 10/01/2044 |
| Fixed |
|
| 3.75 | % |
|
| 7,189 |
|
|
| 7,297 |
|
Autumn Breeze |
| KeyBank |
| 01/01/2045 |
| Fixed |
|
| 3.65 | % |
|
| 6,391 |
|
|
| 6,528 |
|
| KeyBank |
| 01/01/2045 |
| Fixed |
|
| 3.65 | % |
|
| 6,250 |
|
|
| 6,344 |
|
Georgetown |
| Midland State Bank |
| 10/01/2046 |
| Fixed |
|
| 2.98 | % |
|
| 3,237 |
|
|
| 3,305 |
|
| Newpoint Capital |
| 10/01/2046 |
| Fixed |
|
| 2.98 | % |
|
| 3,167 |
|
|
| 3,214 |
|
Sumter Valley |
| KeyBank |
| 01/01/2047 |
| Fixed |
|
| 3.70 | % |
|
| 5,196 |
|
|
| 5,293 |
|
| KeyBank |
| 01/01/2047 |
| Fixed |
|
| 3.70 | % |
|
| 5,095 |
|
|
| 5,163 |
|
Total |
|
|
|
|
|
| $ | 29,462 |
|
| $ | 30,178 |
|
|
|
|
|
|
| $ | 29,385 |
|
| $ | 29,782 |
| ||||||||||
Senior debt - guaranteed by USDA (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Mountain Trace (4) |
| Community B&T |
| 12/24/2036 |
| Prime + 1.75% |
|
| 5.75 | % |
| $ | 3,718 |
|
| $ | 3,835 |
|
| Community B&T |
| 12/24/2036 |
| Prime + 1.75% |
|
| 9.25 | % |
| $ | 3,610 |
|
| $ | 3,680 |
|
Southland (5) |
| Cadence Bank, NA |
| 07/27/2036 |
| Prime + 1.50% |
|
| 6.00 | % |
|
| 3,874 |
|
|
| 3,989 |
|
| Cadence Bank, NA |
| 07/27/2036 |
| Prime + 1.50% |
|
| 9.00 | % |
|
| 3,793 |
|
|
| 3,846 |
|
Total |
|
|
|
|
|
| $ | 7,592 |
|
| $ | 7,824 |
|
|
|
|
|
|
| $ | 7,403 |
|
| $ | 7,526 |
| ||||||||||
Senior debt - guaranteed by SBA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Southland(6) |
| Cadence Bank, NA |
| 07/27/2036 |
| Prime + 2.25% |
|
| 5.50 | % |
|
| 582 |
|
|
| 602 |
| ||||||||||||||||||
Southland(6) |
| Cadence Bank, NA |
| 07/27/2036 |
| Prime + 2.25% |
|
| 9.75 | % |
| $ | 567 |
|
| $ | 580 |
| ||||||||||||||||||
Total |
|
|
|
|
|
|
|
|
|
| $ | 582 |
|
| $ | 602 |
|
|
|
|
|
|
|
|
|
|
| $ | 567 |
|
| $ | 580 |
|
18
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Facility |
| Lender |
| Maturity |
| Interest Rate (1) |
|
| September 30, 2022 |
|
| December 31, 2021 |
| |||||
Senior debt - bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Eaglewood Bonds Series A |
| City of Springfield, Ohio |
| 05/01/2042 |
| Fixed |
|
| 7.65 | % |
| $ | 6,253 |
|
| $ | 6,379 |
|
20
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Facility |
| Lender |
| Maturity |
| Interest Rate (1) |
|
| June 30, 2023 |
|
| December 31, 2022 |
| |||||
Senior debt - bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Eaglewood Bonds Series A |
| City of Springfield, Ohio |
| 05/01/2042 |
| Fixed |
|
| 7.65 | % |
| $ | 6,117 |
|
| $ | 6,253 |
|
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Facility |
| Lender |
| Maturity |
| Interest Rate (1) |
|
| September 30, |
|
| December 31, |
|
| Lender |
| Maturity |
| Interest Rate (1) |
|
| June 30, 2023 |
|
| December 31, |
| ||||||||||
Senior debt - other mortgage indebtedness | Senior debt - other mortgage indebtedness |
|
|
|
|
|
|
|
|
| Senior debt - other mortgage indebtedness |
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Meadowood (2) |
| Exchange Bank of Alabama |
| 10/01/2026 |
| Fixed |
|
| 4.50 | % |
| $ | 3,360 |
|
| $ | 3,478 |
|
| Exchange Bank of Alabama |
| 10/01/2026 |
| Fixed |
|
| 4.50 | % |
| $ | 3,319 |
|
| $ | 3,319 |
|
Coosa (3) |
| Exchange Bank of Alabama |
| 10/10/2026 |
| Fixed |
|
| 3.95 | % |
|
| 4,992 |
|
|
| 5,123 |
|
| Exchange Bank of Alabama |
| 10/10/2026 |
| Fixed |
|
| 3.95 | % |
|
| 4,856 |
|
|
| 4,946 |
|
Total |
|
|
|
| $ | 8,352 |
|
| $ | 8,601 |
|
|
|
| $ | 8,175 |
|
| $ | 8,266 |
|
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Lender |
| Maturity |
| Interest Rate |
|
| September 30, |
|
| December 31, |
| |||||
Other debt |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
First Insurance Funding (1) |
| Various 2023 |
| Fixed |
|
| 3.19 | % |
| $ | 605 |
|
| $ | 99 |
|
Key Bank (2) |
| 08/25/2023 |
| Fixed |
|
| 0.00 | % |
|
| 495 |
|
|
| 495 |
|
Marlin Capital Solutions |
| 06/1/2027 |
| Fixed |
|
| 5.00 | % |
|
| 47 |
|
|
| — |
|
Spring Valley LLC |
| 04/16/2022 |
| Fixed |
|
| 3.85 | % |
|
| 416 |
|
|
| — |
|
Total |
|
|
|
|
|
|
|
| $ | 1,563 |
|
| $ | 594 |
|
19
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Lender |
| Maturity |
| Interest Rate |
|
| June 30, 2023 |
|
| December 31, |
| |||||
Other debt |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
First Insurance Funding (1) |
| Various 2023 |
| Fixed |
|
| 3.19 | % |
| $ | 962 |
|
| $ | 357 |
|
Key Bank (2) |
| 08/25/2025 |
| Fixed |
|
| 0.00 | % |
|
| 495 |
|
|
| 495 |
|
Marlin Capital Solutions |
| 06/1/2027 |
| Fixed |
|
| 5.00 | % |
|
| 33 |
|
|
| 43 |
|
Total |
|
|
|
|
|
|
|
| $ | 1,490 |
|
| $ | 895 |
|
Debt Covenant Compliance
As of SeptemberJune 30, 2022,2023, the Company had 16 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 earnings before interest, taxes, depreciation, and amortization or earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs, and current 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 of the Company; and (ii) financial 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.
As of SeptemberJune 30, 2022,2023, the Company was in compliance with the various financial and administrative covenants under the Company's outstanding credit related instruments.
Scheduled Maturities
The schedule below summarizes the scheduled gross maturities as of SeptemberJune 30, 20222023 for each of the next five years and thereafter.
For the Twelve Months Ended September 30, | (Amounts in 000’s) |
| |
2023 | $ | 2,945 |
|
2024 |
| 1,929 |
|
2025 |
| 2,022 |
|
21
2026 |
| 2,118 |
|
2027 |
| 9,101 |
|
Thereafter |
| 35,689 |
|
Subtotal | $ | 53,804 |
|
Less: unamortized discounts |
| (121 | ) |
Less: deferred financing costs, net |
| (1,115 | ) |
Total notes and other debt | $ | 52,568 |
|
For the Twelve Months Ended December 31, | (Amounts in 000’s) |
| |
2023 (6 months remaining) | $ | 1,263 |
|
2024 |
| 1,966 |
|
2025 |
| 2,157 |
|
2026 |
| 8,622 |
|
2027 |
| 1,421 |
|
Thereafter |
| 37,707 |
|
Subtotal | $ | 53,136 |
|
Less: unamortized discounts |
| (116 | ) |
Less: deferred financing costs, net |
| (988 | ) |
Total notes and other debt | $ | 52,032 |
|
NOTE 9. COMMON AND PREFERRED STOCK
On June 27, 2023, the Company convened a special meeting (the “Special Meeting”) of the holders of its 10.875% Series A Cumulative Redeemable Preferred Shares (the “Series A Preferred Stock”) and the holders of its common stock (the “Common Stock”) and Series E Redeemable Preferred Shares (the “Series E Preferred Stock”). The Special Meeting was called to consider the proposals set forth in the Company’s definitive proxy statement/prospectus filed with the SEC on May 25, 2023 (as supplemented or amended, the “Proxy Statement/Prospectus”) in connection with the Company’s offer to exchange (the “Exchange Offer”) any and all outstanding shares of the Series A Preferred Stock for newly issued shares of the Company’s Series B Preferred Stock. The expiration date (the “Expiration Date”) for the Exchange Offer was 11:59 p.m., New York City time, on June 27, 2023.
All of the proposals presented at the Special Meeting were approved by the requisite votes of the applicable shareholders of the Company, including:
20
On June 30, 2023, the Company closed the Exchange Offer. Continental Stock Transfer & Trust Company, the exchange agent in connection with the Exchange Offer, notified the Company that 2,252,272 shares of Series A Preferred Stock had been properly tendered (and not validly withdrawn) in the Exchange Offer, representing approximately 80.1% of the then outstanding shares of Series A Preferred Stock. All of the shares of Series A Preferred Stock properly tendered (and not validly withdrawn) prior to the Expiration Date pursuant to the Exchange Offer were accepted by the Company and were retired. On June 30, 2023, in exchange for each such share of Series A Preferred Stock, participating holders of Series A Preferred Stock received one share of Series B Preferred Stock, resulting in the issuance of 2,252,272 shares of Series B Preferred Stock. 559,263 shares of Series A Preferred Stock did not participate in the Exchange Offer and remain outstanding.
On July 3, 2023, in connection with the closing of the Exchange Offer, the Company filed Amended and Restated Articles of Incorporation (the “Charter”) with the Secretary of State of the State of Georgia.
Common Stock
As of June 30, 2023, the Company had 55,000,000 shares of Common Stock authorized and 1,893,908 shares issued and 1,883,028 shares outstanding. There were no dividends declared or paid on the common stock during the three and ninesix and months ended SeptemberJune 30, 20222023 and 2021.2022.
Preferred Stock
As of June 30, 2023, the Company had 5,000,000 shares of Preferred Stock authorized and 2,811,535 shares issued and outstanding.
Series A Preferred Stock
On June 27, 2023, certain Preferred Series A Charter Amendments were approved at the Special Meeting to (i) reduce the liquidation preference of the Series A Preferred Stock to $5.00 per share, (ii) eliminate accumulated and unpaid dividends on the Series A Preferred Stock, (iii) eliminate future dividends on the Series A Preferred Stock, (iv) eliminate penalty events and the right of holders of Series A Preferred Stock to elect directors upon the occurrence of a penalty event, (v) reduce the redemption price of the Series A Preferred Stock in the event of an optional redemption to $5.00 per share, (vi) reduce the redemption price of the Series A Preferred Stock in the event of a “change of control” to $5.00 per share and (vii) change the voting rights of holders of Series A Preferred Stock when voting as a single class with any other class or series of stock to one vote per $5.00 liquidation preference.
The Company has accounted for the Series A Charter Amendments to the rights, preferences, and privileges of the Series A Preferred Stock as an extinguishment of the Series A Preferred Stock and issuance of new Series B Preferred Stock due to the significance of the modifications to the substantive contractual terms and the associated fundamental changes to the nature of the Series A Preferred Stock. Accordingly, the Company recorded an aggregate gain of $43.4 million within stockholders’ equity equal to the difference between the fair value of the new shares of Series B Preferred Stock issued and the carrying amount of the shares of Series A Preferred Stock extinguished. The gain on extinguishment is reflected in the calculation of net
21
income (loss) available to common stockholders in accordance with FASB ASC Topic 260, Earnings per Share. The fair value of the Series A Preferred Stock was $0.76 per share based on a probability-weighted average of the expected return method.
On June 30, 2023, in connection with the closing of the Exchange Offer, 2,252,272 shares of Series A Preferred Stock were retired and exchanged for 2,252,272 shares of Series B Preferred Stock.
As of June 30, 2023, the Company had 559,263 shares of Series A Preferred Stock issued and outstanding, and the accumulated and unpaid dividends on the Series A Preferred Stock in the amount of $50.4 million were forfeited as part of the extinguishment. No dividends were declared or paid on the Series A Preferred Stock for the three and ninesix and months ended SeptemberJune 30, 20222023 and 2021.2022.
Series B Preferred Stock
As of September 30, 2022, as a resultThe terms and provisions of the suspensionSeries B Preferred Stock include, among other things: (i) no stated maturity and not being subject to any sinking fund or mandatory redemption, except following a change of control and the dividend payment on thecumulative redemption provisions, (ii) ranks senior to our common stock, our Series A Preferred Stock commencingand any other shares of our stock that we may issue in the future, the terms of which specifically provide that such stock ranks junior to the Series B Preferred Stock, in each case with respect to payment of dividends and amounts upon the fourth quarter 2017occurrence of a liquidation event, (iii) dividend period,rate is 12.5% per annum of the Company has $43.5 million of undeclared preferred stock dividends in arrears. Holdersliquidation preference of the Series AB Preferred Stock are entitled to receive, when and as declared byin effect on the Board out of fundsfirst calendar day of the Company legally available forapplicable dividend period, (iv) initial dividend period will commence July 1, 2027, (v) liquidation preference is initially be $10.00 per share and will increase over time, pursuant to the payment of distributions, cumulative preferential cash dividends at an annual rate equalterms set forth in the Charter, to10.875% of the $25.00 per share stated liquidation preferenceupon the fourth anniversary date of the original issuance date, provided that once there are 200,000 or fewer shares of the Series AB Preferred Stock which is equivalentoutstanding, the liquidation preference will be reduced to an annual rate$5.00 per share; and (vi) the Company must redeem, repurchase or otherwise acquire certain amount of shares of Series B Preferred Stock through the fourth anniversary of the original date of issuance as provided in the Charter. The fair value of the Series B Preferred Stock was $2.728.26 per share or $1.9 million per quarter. Dividendsbased on the Series A Preferred Stock, when and as declared by the Board, are payable quarterly in arrears, on March 31, June 30, September 30, and December 31 of each year. On June 8, 2018, the Board determined to continue suspensiona probability-weighted average 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 $3.20 per share or $2.2 million per quarter, 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 full in cash; and (ii) the holders of the Series A Preferred Stock will be entitled to vote, as a single class, for the election of two additional directors to serve on the Board, as further described in the amended and restated articles of incorporation of the Company, otherwise referred to as the Charter.expected return method.
As of SeptemberJune 30, 2022,2023, the Company had 2,811,5352,252,272 shares of Series B Preferred Stock issued and outstanding. No dividends were declared or paid on the Series AB Preferred Stock for the three and six and months ended June 30, 2023 and 2022.
Series E Preferred Stock
On February 13, 2023, the Board declared a dividend of one one-thousandth of a share of Series E Preferred Stock for each outstanding share of common stock, payable on February 28, 2023 to shareholders of record at 5:00 p.m. Eastern Time on February 27, 2023 (the “Dividend Record Date”). The Articles of Amendment Establishing Series E Redeemable Preferred Shares were filed with the Secretary of State of the State of Georgia and became effective on February 14, 2023. The Series E Preferred Stock was distributed on February 28, 2023 to shareholders of record on the Dividend Record Date.
All shares of Series E Preferred Stock were redeemed in connection with the Special Meeting. The Series E Preferred Stock designation has been eliminated from the Charter and, as of June 30, 2023, there are no shares of Series E Preferred Stock issued and outstanding.
The Company may, at its option, redeem the Series A Preferred Stock, in whole or in part, by paying $25.00 per share, plus any accrued and unpaid dividends to the redemption date.
On February 28, 2022, the Company commenced an offer to exchange any and all of its outstanding 10.875% Series A Cumulative Redeemable Preferred Shares for newly issued shares of the Company's 12.5% Series B Cumulative Redeemable Preferred Shares. On July 25, 2022, the company failed to receive the required votes from the common shareholders. The company decided to terminate the preferred exchange offer. The company continues to explore solutions to improve its capital structure including relaunching the preferred exchange offer.
NOTE 10. STOCK BASED COMPENSATION
Stock Incentive Plans
On November 4, 2020, the Board adopted, the Regional Health Properties, Inc. 2020 Equity Incentive Plan (the "2020 Plan"). The Company's shareholders approved the 2020 Plan on December 16, 2020 at the 2020 Annual Meeting of Shareholders of the Company. The maximum number of shares of common stock authorized for issuance under the 2020 Plan is 250,000 shares, subject to certain adjustments. No awards may be made under the 2020 Plan after the 10th anniversary of the date of shareholder approval of the 2020 Plan, and no incentive stock options may be granted after the 10th anniversary of the date of
22
Board approval of the 2020 Plan. As of SeptemberJune 30, 2022,2023, the number of securities remaining available for future issuance under the 2020 Plan is 149,33252,805.
The 2020 Plan replaced the AdCare Health Systems, Inc. 2011 Stock Incentive Plan, as amended (the "2011 Plan"), which was assumed by Regional Health pursuant to the Merger. The 2011 Plan was originally due to expire on March 28, 2021 and
22
provided for a maximum of 168,950 shares of common stock to be issued. No additional awards may be granted under the 2011 Plan.
The shares of common stock underlying any awards granted under the 2020 Plan or the 2011 Plan that are forfeited, canceled, or otherwise terminated (other than by exercise) will be added back to the shares of common stock available for issuance under the 2020 Plan. However, shares: (i) tendered or held back upon exercise of a stock option or other award under the 2020 Plan to cover the exercise price or tax withholding; and (ii) subject to a stock appreciation right that are not issued in connection with the stock settlement of the stock appreciation right upon exercise thereof, will not be added back to the shares of common stock available for issuance under the 2020 Plan. In addition, shares of common stock repurchased by the Company on the open market will not be added back to the shares of common stock available for issuance under the 2020 Plan.
For the three and ninesix and months ended SeptemberJune 30, 20222023 and 2021,2022, the Company recognized stock-based compensation expense as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
(Amounts in 000’s) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Employee compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Restricted stock issuance (shares repurchased) |
| $ | — |
|
| $ | — |
|
| $ | (46 | ) |
| $ | (7 | ) | ||||||||||||||||
Stock compensation expense |
|
| 58 |
|
|
| 179 |
|
|
| 227 |
|
|
| 302 |
|
| $ | 155 |
|
| $ | 58 |
|
| $ | 236 |
|
| $ | 169 |
|
Forfeitures of stock based awards |
|
| — |
|
|
| — |
|
|
| (54 | ) |
|
| — |
|
|
| — |
|
|
| (54 | ) |
|
| — |
|
|
| (54 | ) |
Total employee stock-based compensation expense |
| $ | 58 |
|
| $ | 179 |
|
| $ | 127 |
|
| $ | 295 |
|
| $ | 155 |
|
| $ | 4 |
|
| $ | 236 |
|
| $ | 115 |
|
ForAs of June 30, 2023, the three and nine months ended September 30, 2022 and 2021, there were remaining stock-based compensation expense that is expected to be recognized in future periods is $no0.4 issuances of warrants.million.
Restricted Stock
The following table summarizes the Company's restricted stock activity for the ninesix months ended SeptemberJune 30, 2022:2023:
|
| Number of |
|
| Weighted Avg. |
| ||
Unvested, December 31, 2021 |
|
| 79 |
|
| $ | 12.99 |
|
Granted |
|
| 24 |
|
| $ | 4.51 |
|
Vested |
|
| (21 | ) |
| $ | 13.09 |
|
Forfeited |
|
| (30 | ) |
| $ | 12.91 |
|
Unvested, September 30, 2022 |
|
| 52 |
|
| $ | 9.04 |
|
|
| Number of |
|
| Weighted Avg. |
| ||
Unvested, December 31, 2022 |
|
| 51 |
|
| $ | 8.99 |
|
Granted |
|
| 99 |
|
| $ | 3.61 |
|
Vested |
|
| (26 | ) |
| $ | 9.06 |
|
Unvested, June 30, 2023 |
|
| 124 |
|
| $ | 4.68 |
|
The remaining unvested shares at SeptemberJune 30, 20222023 will vest over the next 1.92.6 years with $0.60.4 million in compensation expense recognized over this period.
Common Stock Options
The following summarizes the Company's employee and non-employee stock option activity for the ninesix months ended SeptemberJune 30, 2022:2023:
|
| Number of |
|
| Weighted |
|
| Weighted |
|
| Aggregate |
| ||||
Outstanding, December 31, 2021 |
|
| 13 |
|
| $ | 47.53 |
|
|
| 2.5 |
|
| $ | — |
|
Granted |
|
| 24 |
|
| $ | 4.51 |
|
|
| 9.9 |
|
| $ | — |
|
Forfeited |
|
| (24 | ) |
| $ | 4.51 |
|
|
| 9.9 |
|
| $ | — |
|
|
| Number of |
|
| Weighted |
|
| Weighted |
|
| Aggregate |
| ||||
Outstanding, December 31, 2022 |
|
| 13 |
|
| $ | 47.53 |
|
|
| 0.5 |
|
| $ | — |
|
Granted |
|
| 24 |
|
| $ | 3.32 |
|
|
| 9.5 |
|
| $ | — |
|
Outstanding and Vested, June 30, 2023 |
|
| 37 |
|
| $ | 18.63 |
|
|
| 6.6 |
|
| $ | 6.7 |
|
The aggregate intrinsic value of options outstanding and vested was calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock as of June 30, 2023. The fair value of the common stock is the closing stock price of the Company's Common Stock.
23
Outstanding and Vested, September 30, 2022 |
|
| 13 |
|
| $ | 47.53 |
|
|
| 1.8 |
|
| $ | — |
|
No stock options were granted during the three months ended September 30, 2022.
The following summary information reflects stock options outstanding, vested, and related details as of SeptemberJune 30, 2022:2023:
|
| Stock Options Outstanding |
|
| Stock Options Exercisable |
|
| Stock Options Outstanding |
|
| Stock Options Exercisable |
| ||||||||||||||||||||||||||||
Exercise Price |
| Number of |
|
| Weighted |
|
| Weighted |
|
| Vested, |
|
| Weighted |
|
| Number of |
|
| Weighted |
|
| Weighted |
|
| Vested, June 30, 2023 |
|
| Weighted |
| ||||||||||
$15.72 - $47.99 |
|
| 13 |
|
|
| 1.8 |
|
| $ | 47.53 |
|
|
| 13 |
|
| $ | 47.53 |
| ||||||||||||||||||||
$3.32 |
|
| 24 |
|
|
| 9.5 |
|
| $ | 3.32 |
|
|
| 24 |
|
| $ | 3.32 |
| ||||||||||||||||||||
$46.80 - $48.72 |
|
| 13 |
|
|
| 0.4 |
|
| $ | 47.42 |
|
|
| 13 |
|
| $ | 47.42 |
| ||||||||||||||||||||
Total |
|
| 13 |
|
|
| 1.8 |
|
| $ | 47.53 |
|
|
| 13 |
|
| $ | 47.53 |
|
|
| 37 |
|
|
| 6.6 |
|
| $ | 18.63 |
|
|
| 37 |
|
| $ | 18.63 |
|
Common Stock Warrants
The Company grantsfollowing summarizes the Company's employee and non-employee common stock warrants to officers, directors, employees and certain consultants towarrant activity for the Company from time to time as determined by the Board and, when appropriate, the Compensation Committee of the Board. 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. No warrants were granted during the three and ninesix months ended SeptemberJune 30, 2022 and 2021. 2023:
|
| Outstanding and Exercisable |
| |||||||||
|
| Number of |
|
| Weighted |
|
| Weighted |
| |||
Outstanding and Vested, December 31, 2022 |
| 35 |
|
| $ | 53.31 |
|
|
| 1.9 |
| |
Expired |
|
| (2 | ) |
| $ | 70.80 |
|
|
| — |
|
Outstanding and Vested, June 30, 2023 |
| 33 |
|
| $ | 52.38 |
|
|
| 1.5 |
|
The Company has no unrecognized compensation expense related to common stock warrants as of SeptemberJune 30, 2022.2023.
NOTE 11. 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 SeptemberJune 30, 2022,2023, all of the Company's facilities operated by Regional or leased and subleased to third-party operators and managed for third-parties are certified by CMS and are operational. See Note 6 - Leases.
Legal Matters
The Company is a party to various legal actions and administrative proceedings and is subject to various claims arising in the ordinary course of business, including claims that the services the Company provided during the time it operated SNFs resulted in injury or death to the patients of the Company's facilities and claims related to professional and general negligence, 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's business, results of operations and financial condition.
The Company previously operated, and the Company and its tenants now operate, in an industry that is highly regulated. As such, in the ordinary course of business, the Company and its 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, the 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 and 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 or its tenants, whether currently asserted or arising in the future, could have a material adverse effect on the Company's business, results of operations and financial condition.
24
Professional and General Liability Claims
Claims on behalf of the Company's Former Patients Priorprior to the Transition
As of SeptemberJune 30, 2022,2023, the Company is a defendant in one professional and general liability action commenced on behalf of one of our former patients who received care at one of our facilities prior to the Transition. The plaintiff in this action alleges
24
negligence due to failure to provide adequate and competent staff resulting in injuries, pain and suffering, mental anguish and malnutrition and seeks unspecified actual and compensatory damages, and unspecified punitive damages. This action is covered by insurance, except that any punitive damages awarded would be excluded from coverage. The case is set to go to trial on October 23, 2023.
Claims on behalf of the Company's Former Patients After the Transition
On May 2, 2023, Plaintiff Danielle Taylor, as Guardian and Conservator of Lynette Taylor filed suit against Tara Operator, LLC alleging negligent care and treatment of Ms. Taylor during her residence at Thunderbolt from June 12, 2021 through September 13, 2021. Specifically, Plaintiff’s claims relate to wound care management Ms. Taylor received while a resident at Thunderbolt. Plaintiff further alleges the Thunderbolt staff failed to develop reasonable interventions for Ms. Taylor’s care after wound development, failed to properly document her wounds, failed to maintain a consistent turning schedule or offloading of pressure, and failed to modify her care plan accordingly. According to Plaintiff, these failures resulted in Ms. Taylor needing bilateral, above the knee amputations of both legs. Plaintiff’s Complaint asserts the following causes of action: failure to exercise a reasonable degree of care and skill and breach of contract. Defendant responded with its Answer on June 28, 2023 and discovery is ongoing.
Claims on behalf of the Company's Prior or Current Tenant's Former Patients after the Transition
As of SeptemberJune 30, 2022,2023, the Company is a defendant in an aggregate of 108 additional professional and general liability actions. These 109 additional professional and general liability actions were commenced on behalf of former patients of our current or prior tenants. These actions generally seek unspecified compensatory and punitive damages for former patients who were allegedly injured or died due to professional negligence or understaffing at the applicable facility operated by our tenants. These actions all relate to events which occurred after the Company transitioned the operations of the facilities in question to a third-party operator (and of which four such actions relate to events which occurred after the Company sold such facilities) and are subject to such operators' indemnification obligations in favor of the Company. There is no assurance that our tenants will have sufficient assets, income, access to financing and insurance coverage to enable them to satisfy their respective indemnification obligations.
As of September 30, 2022, the Company is a defendant in an aggregate of 13 professional and general liability actions which set forth claims relating to time periods after the Transition, on behalf of former patients of our current or prior tenants.
During the ninesix months ended SeptemberJune 30, 2022,2023, the following professional and general liability action (included in the 10 actions mentioned above) related to our current or former tenant's former patients were filed against the Company.
On February 8, 2022, a negligence action wasThe resident’s daughter filed in the State of South Carolina, County of Sumter, in the Court of Common Pleas for the Third Judicial Circuit, by Ronald and Sarah Ross against affiliates of Symmetry Health Management ("Symmetry" or "Symmetry Healthcare") and the Company,suit on behalf of Mr. Shellman on February 14, 2023 asserting claims of professional and allegingordinary negligence as well the wrongful sexual assaultalleged breach of various state and federal regulations. The lawsuit relates to Mr. Shellman’s residence at Glenvue nursing facility which was operated by C.R. of Glenvue, LLC which is also named as a defendant. Plaintiff’s counsel has agreed to extend the deadline for Glenvue H&R Property Holdings, LLC to respond to the lawsuit up to and including May 15, 2023 to enable him to review the response filed by C.R. of Glenvue, LLC and determine whether or not Plaintiff will agree to the dismissal of Glenvue H&R Property Holdings, LLC. If plaintiff does not agree, we intend to serve Plaintiff with a notice that Glenvue H&R Property Holdings, LLC constitutes an excluded party pursuant to O.C.G.A. 31-7-3.3. Should Plaintiff still not agree to the dismissal of Glenvue H&R Property Holdings, LLC, we will file a motion for summary judgment seeking judgment in its favor. The Court may require Glenvue H&R Property Holdings, LLC to participate in discovery prior to ruling on this motion. In the event that occurs, Glenvue H&R Property Holdings, LLC can seek the recovery of its attorneys fees and expenses pursuant to the above-referenced excluded party statute.
The family of Mable Polite filed suit on March 15, 2023 asserting claims of professional and ordinary negligence as well the alleged breach of various state and federal regulations. The lawsuit relates to Ms. Polite’s residence at the Thunderbolt nursing facility from March 19, 2020 to March 20, 2021. Plaintiff has also asserted claims against 3223 Falligant Avenue Associates, LP and other Wellington related entities. 3223 Falligant Avenue was the operator and licensee of the facility for the first part of Ms. Polite’s residence prior to Tara Operator becoming the operator. Based upon the date the suit was filed, there is an argument that certain claimed acts of negligence are barred by the limitations period. Ms. Polite’s daughter signed an arbitration agreement on her admission to Thunderbolt but we are not in possession of a patient at the facility known as Blue Ridgepower of Sumter, which is operated by an affiliate of Symmetry. The plaintiff is seeking an unspecified amount actual damages, consequential damages, and punitive damagesattorney or other
25
documentation authorizing her to be decided by Jury trial. The Company is indemnified by affiliates of Symmetry inexecute this action. The Company believes that this action lacks merit against the Company and the Company intends to take action most favorableagreement. Nonetheless, Tara Operator will file its answer to the Company. There is no guarantee thatComplaint (due April 14) via special appearance to reserve the Company will prevail in this action.right to seek arbitration should a power of attorney be located.
Dismissed Claims on behalf of the Company's Prior or Current Tenant's Former Patients after the Transition
On January 10, 2022, the State Court of Gwinnett County granted our motion to dismissIn February 2023, the Company was dismissed from the case involving Ronald and the Company's Chief Executive Officer from a medical negligence and wrongful death action filed in the State Court of Gwinnett County, Georgia,Sarah Ross against Wellington, other legal entities unaffiliated with the Company, the Company, and the Company's Chief Executive Officer.our prior operator Symmetry Healthcare Management.
On January 13, 2022, the State Court of Chatham County, Georgia dismissed with prejudice a wrongful death action was filed on July 27, 2020, by Jerold Kaplan against affiliates of Peach Health and the Company, on behalf of, and alleging the wrongful death of a patient at the facility known as Oceanside Health and Rehab, which is operated by an affiliate of Peach Health. The plaintiff is seeking an amount in excess of $10,000 for pain and suffering and damages and an unspecified amount of punitive damages. The Company was indemnified by affiliates of Peach Health in this action.
On February 24, 2022, the Superior Court of Laurens County State of Georgia dismissed with prejudice the civil action against Southland Healthcare and Rehabilitation Center et al, and all parties were released.
The Company established a self-insurance reserve for its professional and general liability claims, included within Accrued expenses on the Company's consolidated balance sheets of $0.1 million and $0.2 million as of SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. Additionally, as of SeptemberJune 30, 20222023 and December 31, 2021,2022, $0.1 million and $0.1 million, was reserved for settlement amounts in Accounts payable on the Company's consolidated balance sheets. For additional information regarding the Company's self-insurance reserve, see Note 1413 – Commitments and Contingencies in Part II, Item 8, Financial Statements and Supplementary Data, included in the Annual Report.
NOTE 12. SEGMENT RESULTS
The Company has two primary reporting segments: (i) Real Estate Services, which consists of the leasing and subleasing of long-term care and senior living facilities to third-party tenants, including the Company's management of three facilities on behalf of third-party owners; and (ii) Healthcare Services, which consists of the operation of the LaGrange, Lumber City, Meadowood Thomasville,and Glenvue and Tara Facilities.facilities.
25
The Company reports segment information based on the "management approach" defined in ASC 280, Segment Reporting.Reporting. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reportable segments.
The table below presents the results of operations for our reporting segments for the periods presented.
| Three Months Ended September 30, |
| Three Months Ended September 30, |
| ||||||||||||||
| 2022 |
| 2022 |
| 2022 |
| 2021 |
| 2021 |
| 2021 |
| ||||||
(Amounts in 000’s) | Real Estate Services |
| Healthcare Services |
| Total |
| Real Estate Services |
| Healthcare Services |
| Total |
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Patient care revenues | $ | — |
| $ | 7,769 |
| $ | 7,769 |
| $ | — |
| $ | 2,309 |
| $ | 2,309 |
|
Rental revenues |
| 3,000 |
|
| — |
|
| 3,000 |
|
| 4,136 |
|
| — |
|
| 4,136 |
|
Management fees |
| 255 |
|
| — |
|
| 255 |
|
| 248 |
|
| — |
|
| 248 |
|
Other revenues |
| 6 |
|
| — |
|
| 6 |
|
| 9 |
|
| — |
|
| 9 |
|
Total revenues |
| 3,261 |
|
| 7,769 |
|
| 11,030 |
|
| 4,393 |
|
| 2,309 |
|
| 6,702 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Patient care expense |
| — |
|
| 7,476 |
|
| 7,476 |
|
| — |
|
| 2,454 |
|
| 2,454 |
|
Facility rent expense |
| 923 |
|
| 528 |
|
| 1,451 |
|
| 1,342 |
|
| 298 |
|
| 1,640 |
|
Cost of management fees |
| 140 |
|
| — |
|
| 140 |
|
| 153 |
|
| — |
|
| 153 |
|
Depreciation and amortization |
| 590 |
|
| 10 |
|
| 600 |
|
| 645 |
|
| 6 |
|
| 651 |
|
General and administrative expense |
| 975 |
|
| 403 |
|
| 1,378 |
|
| 869 |
|
| 111 |
|
| 980 |
|
Doubtful accounts expense (recovery) |
| 1,515 |
|
| — |
|
| 1,515 |
|
| (112 | ) |
| 111 |
|
| (1 | ) |
Other operating expenses |
| (80 | ) |
| 521 |
|
| 441 |
|
| 214 |
|
| 5 |
|
| 219 |
|
Total expenses |
| 4,063 |
|
| 8,938 |
|
| 13,001 |
|
| 3,111 |
|
| 2,985 |
|
| 6,096 |
|
Income (loss) from operations |
| (802 | ) |
| (1,169 | ) |
| (1,971 | ) |
| 1,282 |
|
| (676 | ) |
| 606 |
|
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense, net |
| 633 |
|
| (69 | ) |
| 564 |
|
| 666 |
|
| 3 |
|
| 669 |
|
Loss on extinguishment of debt |
| — |
|
| — |
|
| — |
|
| (146 | ) |
| — |
|
| (146 | ) |
Other (income) expense, net |
| (2,164 | ) |
| — |
|
| (2,164 | ) |
| 122 |
|
| — |
|
| 122 |
|
Total other (income) expense, net |
| (1,531 | ) |
| (69 | ) |
| (1,600 | ) |
| 642 |
|
| 3 |
|
| 645 |
|
Net loss | $ | 729 |
| $ | (1,100 | ) | $ | (371 | ) | $ | 640 |
| $ | (679 | ) | $ | (39 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Nine Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||||||||
| 2022 |
| 2022 |
| 2022 |
| 2021 |
| 2021 |
| 2021 |
| ||||||
(Amounts in 000’s) | Real Estate Services |
| Healthcare Services |
| Total |
| Real Estate Services |
| Healthcare Services |
| Total |
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Patient care revenues | $ | — |
| $ | 14,650 |
| $ | 14,650 |
| $ | — |
| $ | 7,444 |
| $ | 7,444 |
|
Rental revenues |
| 10,326 |
|
| — |
|
| 10,326 |
|
| 11,980 |
|
| — |
|
| 11,980 |
|
Management fees |
| 774 |
|
| — |
|
| 774 |
|
| 743 |
|
| — |
|
| 743 |
|
Other revenues |
| 20 |
|
| — |
|
| 20 |
|
| 84 |
|
| — |
|
| 84 |
|
Total revenues |
| 11,120 |
|
| 14,650 |
|
| 25,770 |
|
| 12,807 |
|
| 7,444 |
|
| 20,251 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Patient care expense |
| — |
|
| 14,040 |
|
| 14,040 |
|
| — |
|
| 6,911 |
|
| 6,911 |
|
Facility rent expense |
| 3,899 |
|
| 826 |
|
| 4,725 |
|
| 4,026 |
|
| 893 |
|
| 4,919 |
|
Cost of management fees |
| 459 |
|
| — |
|
| 459 |
|
| 468 |
|
| — |
|
| 468 |
|
Depreciation and amortization |
| 1,796 |
|
| 23 |
|
| 1,819 |
|
| 1,942 |
|
| 11 |
|
| 1,953 |
|
General and administrative expense |
| 2,660 |
|
| 772 |
|
| 3,432 |
|
| 2,605 |
|
| 370 |
|
| 2,975 |
|
Doubtful accounts expense (recovery) |
| 3,742 |
|
| — |
|
| 3,742 |
|
| (112 | ) |
| 188 |
|
| 76 |
|
Other operating expenses |
| 555 |
|
| 854 |
|
| 1,409 |
|
| 746 |
|
| 9 |
|
| 755 |
|
Total expenses |
| 13,111 |
|
| 16,515 |
|
| 29,626 |
|
| 9,675 |
|
| 8,382 |
|
| 18,057 |
|
Income (loss) from operations |
| (1,991 | ) |
| (1,865 | ) |
| (3,856 | ) |
| 3,132 |
|
| (938 | ) |
| 2,194 |
|
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense, net |
| 1,898 |
|
| (43 | ) |
| 1,855 |
|
| 2,010 |
|
| 12 |
|
| 2,022 |
|
Loss on extinguishment of debt |
| — |
|
| — |
|
| — |
|
| (146 | ) |
| — |
|
| (146 | ) |
Other (income) expense, net |
| (1,088 | ) |
| — |
|
| (1,088 | ) |
| 839 |
|
| — |
|
| 839 |
|
Total other (income) expense, net |
| 810 |
|
| (43 | ) |
| 767 |
|
| 2,703 |
|
| 12 |
|
| 2,715 |
|
Net loss | $ | (2,801 | ) | $ | (1,822 | ) | $ | (4,623 | ) | $ | 429 |
| $ | (950 | ) | $ | (521 | ) |
26
| Three Months Ended June 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||||||||
| 2023 |
| 2023 |
| 2023 |
|
| 2022 |
| 2022 |
| 2022 |
|
| 2023 |
| 2023 |
| 2023 |
|
| 2022 |
| 2022 |
| 2022 |
| ||||||||||||
(Amounts in 000’s) | Real Estate Services |
| Healthcare Services |
| Total |
|
| Real Estate Services |
| Healthcare Services |
| Total |
|
| Real Estate Services |
| Healthcare Services |
| Total |
|
| Real Estate Services |
| Healthcare Services |
| Total |
| ||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Patient care revenues | $ | — |
| $ | 2,526 |
| $ | 2,526 |
|
| $ | — |
| $ | 4,570 |
| $ | 4,570 |
|
| $ | — |
| $ | 4,442 |
| $ | 4,442 |
|
| $ | — |
| $ | 6,881 |
| $ | 6,881 |
|
Rental revenues |
| 1,722 |
|
| — |
|
| 1,722 |
|
|
| 3,261 |
|
| — |
|
| 3,261 |
|
|
| 3,430 |
|
| — |
|
| 3,430 |
|
|
| 7,326 |
|
| — |
|
| 7,326 |
|
Management fees |
| 247 |
|
| — |
|
| 247 |
|
|
| 255 |
|
| — |
|
| 255 |
|
|
| 525 |
|
| — |
|
| 525 |
|
|
| 519 |
|
| — |
|
| 519 |
|
Other revenues |
| 103 |
|
| — |
|
| 103 |
|
|
| 7 |
|
| — |
|
| 7 |
|
|
| 107 |
|
| — |
|
| 107 |
|
|
| 14 |
|
| — |
|
| 14 |
|
Total revenues |
| 2,072 |
|
| 2,526 |
|
| 4,598 |
|
|
| 3,523 |
|
| 4,570 |
|
| 8,093 |
|
|
| 4,062 |
|
| 4,442 |
|
| 8,504 |
|
|
| 7,859 |
|
| 6,881 |
|
| 14,740 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Patient care expense |
| — |
|
| 2,159 |
|
| 2,159 |
|
|
| — |
|
| 4,222 |
|
| 4,222 |
|
|
| — |
|
| 4,697 |
|
| 4,697 |
|
|
| — |
|
| 6,564 |
|
| 6,564 |
|
Facility rent expense |
| 149 |
|
| — |
|
| 149 |
|
|
| 1,106 |
|
| 528 |
|
| 1,634 |
|
|
| 297 |
|
| — |
|
| 297 |
|
|
| 2,448 |
|
| 826 |
|
| 3,274 |
|
Cost of management fees |
| 146 |
|
| — |
|
| 146 |
|
|
| 144 |
|
| — |
|
| 144 |
|
|
| 286 |
|
| — |
|
| 286 |
|
|
| 319 |
|
| — |
|
| 319 |
|
Depreciation and amortization |
| 599 |
|
| 103 |
|
| 702 |
|
|
| 599 |
|
| 7 |
|
| 606 |
|
|
| 1,106 |
|
| 106 |
|
| 1,212 |
|
|
| 1,206 |
|
| 13 |
|
| 1,219 |
|
General and administrative expense |
| 978 |
|
| 33 |
|
| 1,011 |
|
|
| 679 |
|
| 242 |
|
| 921 |
|
|
| 2,020 |
|
| 197 |
|
| 2,217 |
|
|
| 1,685 |
|
| 369 |
|
| 2,054 |
|
Doubtful accounts expense |
| — |
|
| 24 |
|
| 24 |
|
|
| 466 |
|
| — |
|
| 466 |
|
|
| — |
|
| 40 |
|
| 40 |
|
|
| 2,227 |
|
| — |
|
| 2,227 |
|
Other operating expenses |
| 91 |
|
| 130 |
|
| 221 |
|
|
| 337 |
|
| 292 |
|
| 629 |
|
|
| 170 |
|
| 143 |
|
| 313 |
|
|
| 636 |
|
| 332 |
|
| 968 |
|
Total expenses |
| 1,963 |
|
| 2,449 |
|
| 4,412 |
|
|
| 3,331 |
|
| 5,291 |
|
| 8,622 |
|
|
| 3,879 |
|
| 5,183 |
|
| 9,062 |
|
|
| 8,521 |
|
| 8,104 |
|
| 16,625 |
|
Income (loss) from operations |
| 109 |
|
| 77 |
|
| 186 |
|
|
| 192 |
|
| (721 | ) |
| (529 | ) |
|
| 183 |
|
| (741 | ) |
| (558 | ) |
|
| (662 | ) |
| (1,223 | ) |
| (1,885 | ) |
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Interest expense, net |
| 601 |
|
| 78 |
|
| 679 |
|
|
| 636 |
|
| 3 |
|
| 639 |
|
|
| 1,279 |
|
| 80 |
|
| 1,359 |
|
|
| 1,266 |
|
| 25 |
|
| 1,291 |
|
Other expense, net |
| 191 |
|
| 1 |
|
| 192 |
|
|
| 157 |
|
| — |
|
| 157 |
|
|
| 541 |
|
| 218 |
|
| 759 |
|
|
| 1,076 |
|
| — |
|
| 1,076 |
|
Total other expense, net |
| 792 |
|
| 79 |
|
| 871 |
|
|
| 793 |
|
| 3 |
|
| 796 |
|
|
| 1,820 |
|
| 298 |
|
| 2,118 |
|
|
| 2,342 |
|
| 25 |
|
| 2,367 |
|
Net loss | $ | (683 | ) | $ | (2 | ) | $ | (685 | ) |
| $ | (601 | ) | $ | (724 | ) | $ | (1,325 | ) |
| $ | (1,637 | ) | $ | (1,039 | ) | $ | (2,676 | ) |
| $ | (3,004 | ) | $ | (1,248 | ) | $ | (4,252 | ) |
Total assets for the Real Estate Services segment and Healthcare Services segment were $90.557.5 million and $4.98.4 million, respectively, as of SeptemberJune 30, 2022.2023. Total assets for the Real Estate Services segment and Healthcare Services segment were $103.263.5 million and $2.55.6 million, respectively, as of December 31, 2021. The Healthcare Services segment includes the $2022.1.5 million Medicaid overpayment and is recorded in Cash on the Company's consolidated balance sheet in both periods.
26
NOTE 13. SUBSEQUENT EVENTS
The Company has evaluated allWe evaluate subsequent events through thethat occur after our consolidated balance sheet date thebut before our consolidated financial statements were issuedare issued. We have evaluated subsequent events occurring after June 30, 2023, and filed withbased on our evaluation have identified the SEC.subsequent events described below.
Effective July 1, 2023, the Company signed a sublease for 2,000 sq ft of office space in Dunwoody, GA. The sublease expires on June 30, 2025.
On NovemberJuly 3, 2023, in connection with the closing of the Exchange Offer, the Company filed the Charter with the Secretary of State of the State of Georgia. For further information regarding the rights and privileges of the Series A Preferred Stock and the Series B Preferred Stock, see Note 9 – Common and Preferred Stock.
27
On July 10, 2023, Plaintiff Sharon Hendricks filed suit against Tara Operator, LLC; ADK Georgia, LLC; Spring Valley, LLC; 3223 Falligant Avenue Associates, LP; Mansell Court Associates, LLC; and Wellington Healthcare Services II, LP alleging negligent care and treatment of Ms. Jones during her residence at Thunderbolt from July 12, 2021 through July 29, 2021. Specifically, Plaintiff’s claims relate to a fall Ms. Jones had on July 17, 2021 while at Thunderbolt. Plaintiff further alleges the Thunderbolt staff failed to administer medications as ordered, failed to initiate appropriate seizure protocols, and failed to properly update Ms. Jones’ care plan after the aforementioned fall. Plaintiff’s Complaint asserts the following causes of action: violation of 42 CFR 483.1; violation of OCGA 31-8-100; violation of federal and state statutes and regulations in the operation of a nursing home; professional negligence, ordinary negligence, negligent management and operation; breach of contract; failure to provide sufficient and properly trained staff; imputed liability; estate tort claims; joint enterprise; wrongful death; and punitive damages. Defendants are due to respond to this Complaint on or before September 11, 2023.
On August 1, 2022, the company entered into two separate subleases for the two skilled nursing facilities in South Carolina with Oak Hollow Health Management, LLC. Each lease has a ten year term with two five year renewal options. Sumter Valley Health & Rehab will have a rent in year one of $35,000 which then escalates to $50,000 per month in year two and then increases 2% each following year. Georgetown Health & Rehab has a rent of $28,000 per month for the first year and escalates 2% each following year. Regional2023, we received a personal guarantyletter (the “Acceptance Letter”) from James Cunningham, the principalNYSE American LLC (“NYSE American”) notifying the Company that its plan of Oak Hallow Health Management, LLC.compliance (the “Plan)” to regain compliance with Sections 1003(a)(i) and 1003(a)(ii) of the NYSE American Company Guide had been accepted. The NYSE American has granted the Company a plan period through November 10, 2024 to regain compliance with the continued listing standards.
Effective October, 21, 2022,
On August 11, 2023, the Company terminated the leases for two skilled nursing facilities located in South Carolina with affiliates of Dawn Healthcare (aka Blue Ridge Healthcare Management and/or Symmetry Management). As part of the termination, Dawn Healthcareand its former tenant, SL SNF, LLC, entered into a lease amendment (the “Amendment”) regarding the Southland facility. The amendment reduces the monthly rent to $43,000 effective April 1, 2023 and includes a $312,000promissory note to pay(the “Promissory Note”). The lease termination date under the company $407,199 in 14 installments of $29,085 each beginning in January 2023.
On October 21, 2022, the Company, through wholly-owned subsidiaries, consummated a HUD refinancing of its senior mortgages on three SNFs in Ohio. Funding was provided by Newpoint Real Estate Capital LLC ("Newpoint") pursuant to three HUD guaranteed secured Healthcare Facility Notes (the "HUD Notes"). Proceeds from the HUD Notes were used to pay off existing HUD guaranteed secured mortgages and pay transaction costs. Newpoint is the servicer on other loans extended to the Company.
The aggregate principal amount of the three HUD Notes is $7.8 million, and the interest rate on the three HUD Notesamendment is 3.97% fixed for the full term of each HUD Note. The Northwood HUD Note has a principal amount of $5.0 million and matures on November 1, 2052October 31, 2024. The Greenfield HUDUnder the terms of the Promissory Note, hasthe principal sum plus all accrued interest, accruing on the unpaid principal balance at a principal amountrate of $2.08 million% per annum, is due and maturespayable on November 1, 2052. The Pavilion HUD Note has a principal amount of $0.8 million and matures on December 1, 2039. Payments2024, with minimum monthly payments of principal and interest of $18,353.00 per month beginning on the HUD Notes commenced on OctoberJuly 1, 2022. Each HUD Note is secured by a Healthcare Deed to Secure Debt, Security Agreement and Assignment of Rents covering the facilities. Newpoint may declare the loans, accrued interest and any other amounts immediately due and payable upon certain customary events of default.2023.
2728
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and the related notes included therein and our Annual Report on Form 10-K for the year ended December 31, 2022, where certain terms have been defined.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements. We base these forward-looking statements on our current plans, expectations and beliefs about future events. There are risks, including the factors discussed in “Risk Factors” in Part II, Item 1A and elsewhere in this Quarterly Report, that our actual experience will differ materially from these expectations. For more information, see “Forward-Looking Statements” below.
In this Quarterly Report, except as the context suggests otherwise, “Company,” “Regional Health Properties, Inc.,” “Regional Health,” “we,” “our,” “ours,” and “us” refer to Regional Health Properties, Inc. and its subsidiaries and predecessors.
Forward Looking Statements
This Quarterly Report and certain information incorporated herein by reference contain forward-looking statements and information within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). This information includes assumptions made by, and information currently available to management, including statements regarding future economic performance and financial condition, liquidity and capital resources, and management's plans and objectives. In addition, certain statements included in this Quarterly Report, in the Company's future filings with the SEC, in press releases, and in oral and written statements made by us or with our approval, which are not statements of historical fact, are forward-looking statements. Words such as "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "seek," "plan," "project," "continue," "predict," "will," and other words or expressions of similar meaning are intended by us to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are based on the Company's current expectations about future events or results and information that is currently available to us, involve assumptions, risks, and uncertainties, and speak only as of the date on which such statements are made.
All forward-looking statements are subject to the risks and uncertainties inherent in predicting the future. The Company's actual results may differ materially from those projected, stated or implied in these forward-looking statements as a result of many factors, including the Company's critical accounting policies and risks and uncertainties related to, but not limited to, the operating results of the Company's tenants, the overall industry environment, the Company's financial condition, and the impact of the COVID-19 pandemic on the Company's business. These and other risks and uncertainties are described in more detail in the Annual Report and in Part II, Item 1A "Risk Factors" of this Quarterly Report, as well as other reports that the Company files with the SEC.
Forward-looking statements speak only as of the date they are made and should not be relied upon as representing the Company's views as of any subsequent date. The Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by applicable laws, and you are urged to review and consider disclosures that the Company makes in this Quarterly Report and other reports that the Company files with the SEC that discuss factors germane to the Company's business.
Overview
Regional Health Properties, Inc., a Georgia corporation, is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior housing. We operate through two reportable segments: Real Estate and Healthcare Services. Our Real Estate segment consists of real estate investments in skilled nursing and senior housing facilities. We fund our real estate investments primarily through: (1) operational cash flow, (2) mortgages, and (3) sale of equity securities. Our Healthcare Services segment is comprised of an entity set up to operate our facilities facilities as needed under our Portfolio Stabilization measures.
While the Company is a self-managed real estate investment company, the Company, when business conditions require, may undertake portfolio stabilization measures, such as operating a previously leased facility. For more information see " Recent"Recent Developments" below and Note 2 - Liquidity - Changes in Operational Liquidity - Portfolio Stabilization Measures and Note 6 - Leases to the Company's consolidated financial statements, which are included in Part I. Item 1 hereto.
29
Effective August 3, 2023, the Company’s 12.5% Series B Cumulative Redeemable Preferred Shares (the “Series B Preferred Stock”) is quoted on the OTC Markets Group, Inc.’s OTCQB Venture Market under the symbol “RHEPB”.
Real Estate Portfolio
As of SeptemberJune 30, 2022,2023, we had investments of approximately $73.0$66.5 million in twelveeleven health care real estate properties and nineone leased nine properties.property. We currently haveown eleven properties, consisting of 10nine skilled nursing facilities (“SNFs”) and one assisted facility,two multi-service facilities. Nine facilities are pursuant to triple-net leases, one is managed by an external manager, and four facilitiesone is managed internally by the Company. The Company has one leased facility that is subleased pursuant to a triple-net leases to seven different tenants. In addition, we operate fivelease.
Skilled nursing facilities. SNFs provide services that include daily nursing, therapeutic rehabilitation, social services, activities, housekeeping, nutrition, medication management and administrative services for individuals requiring certain assistance for activities in daily living. A typical skilled nursing facilitiesfacility includes mostly one and onetwo bed units, each equipped with a private or shared bathroom and community dining facilities.
Multi-Service Campuses. Multi-service campuses generally include some combination of co-located skilled nursing, independent living, assisted living facility via management contracts.
Skilled Nursing Facilities receive payments primarily from Medicare, Medicaid and health insurance. Medical properties are subject to state and federal regulatory oversight.
Senior Housing includes assisted living (“ALF”) andand/or memory care communities (“MC’) which primarily attract private payment for servicesunits all housed at a single location and operated as well as Medicaid Waiver payments from the state for residents who require assistance with activitiesa continuum of daily living. Need-driven properties are subject to regulatory oversight.
28
Recent Developments
Portfolio Stabilization Measurescare.. Generally, our operators do not provide lease guarantees from affiliated entities. Given this, certain operators have terminated their leases in light of operational difficulties caused by the COVID-19 pandemic. While the Company is a self-managed real estate investment company that invests in real estate, when business conditions require, the Company undertakes portfolio stabilization measures. The table below summarizes the lease terminations since the onset of the COVID-19 pandemic and the Company’s resulting portfolio stabilization measures:
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These properties are operated by two third-party property managers in coordination with our internal management team in exchange for the receipt of a management fee, and as such, we are not directly exposed to the credit risk of the property managers in the same manner or to the same extent as we are to our triple-net tenants. However, we rely on the property managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our facilities efficiently and effectively. We also rely on the property managers to operate our facilities in compliance with the terms of our management agreements and all applicable laws and regulations. As industry conditions improve, the company may look to replace management agreements with triple-net leases.
Portfolio
The following table provides summary information regarding the number of facilities and related licensed beds/units as of SeptemberJune 30, 2022:2023:
| Owned |
| Leased |
| Owned |
| Leased |
| Managed For |
|
|
|
|
| ||||||||||||||||||||||
| Leased to Third Parties |
| Subleased to Third Parties |
| Managed by Third Parties |
| Managed by Third Parties |
| Third Parties |
| Total |
| ||||||||||||||||||||||||
| Facilities |
| Beds/Units |
| Facilities |
| Beds/Units |
| Facilities |
| Beds/Units |
| Facilities |
| Beds/Units |
| Facilities |
| Beds/Units |
| Facilities |
| Beds/Units |
| ||||||||||||
State |
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|
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|
|
|
|
| ||||||||||||
Alabama |
| 1 |
|
| 124 |
|
| - |
|
| - |
|
| 1 |
|
| 161 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 2 |
|
| 285 |
|
Georgia |
| 2 |
|
| 235 |
|
| 4 |
|
| 474 |
|
| 1 |
|
| 160 |
|
| 3 |
|
| 358 |
|
| - |
|
| - |
|
| 10 |
|
| 1,227 |
|
North Carolina |
| 1 |
|
| 106 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1 |
|
| 106 |
|
Ohio |
| 4 |
|
| 306 |
|
| 1 |
|
| 99 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3 |
|
| 332 |
|
| 8 |
|
| 737 |
|
South Carolina |
| 2 |
|
| 180 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 2 |
|
| 180 |
|
Total |
| 11 |
|
| 1,111 |
|
| 6 |
|
| 573 |
|
| 1 |
|
| 161 |
|
| 3 |
|
| 358 |
|
| 3 |
|
| 332 |
|
| 23 |
|
| 2,587 |
|
Facility Type |
|
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|
|
|
|
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|
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|
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Skilled Nursing |
| 10 |
|
| 1,016 |
|
| 5 |
|
| 573 |
|
| - |
|
| - |
|
| 3 |
|
| 358 |
|
| 2 |
|
| 249 |
|
| 20 |
|
| 2,248 |
|
Assisted Living |
| 1 |
|
| 95 |
|
| - |
|
| - |
|
| 1 |
|
| 161 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 2 |
|
| 256 |
|
Independent Living |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1 |
|
| 83 |
|
| 1 |
|
| 83 |
|
Total |
| 11 |
|
| 1,111 |
|
| 5 |
|
| 573 |
|
| 1 |
|
| 161 |
|
| 3 |
|
| 358 |
|
| 3 |
|
| 332 |
|
| 23 |
|
| 2,587 |
|
Location |
| Skilled Nursing Facilities |
|
| Multi Service Properties |
|
| Total Properties |
| |||
Alabama |
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
Georgia |
|
| 3 |
|
| - |
|
|
| 3 |
| |
North Carolina |
|
| 1 |
|
| - |
|
|
| 1 |
| |
Ohio |
|
| 2 |
|
|
| 1 |
|
|
| 3 |
|
South Carolina |
|
| 2 |
|
| - |
|
|
| 2 |
| |
|
|
| 9 |
|
|
| 2 |
|
|
| 11 |
|
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| |||
Location |
| Skilled Nursing Beds/Units |
|
| Multi Service Beds/Units |
|
| Total Beds/Units |
| |||
Alabama |
|
| 124 |
|
|
| 90 |
|
|
| 214 |
|
Georgia |
|
| 395 |
|
| - |
|
|
| 395 |
| |
North Carolina |
|
| 106 |
|
| - |
|
|
| 106 |
| |
Ohio |
|
| 112 |
|
|
| 194 |
|
|
| 306 |
|
South Carolina |
|
| 180 |
|
| - |
|
|
| 180 |
| |
|
|
| 917 |
|
|
| 284 |
|
|
| 1,201 |
|
|
|
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| |||
Location |
| Skilled Nursing Investment |
|
| Multi Service Investment |
|
| Total Investment |
| |||
Alabama |
| $ | 9,613,199 |
|
| $ | 4,884,514 |
|
| $ | 14,497,713 |
|
Georgia |
|
| 24,475,283 |
|
| - |
|
|
| 24,475,283 |
| |
North Carolina |
|
| 7,224,953 |
|
| - |
|
|
| 7,224,953 |
| |
Ohio |
|
| 3,872,791 |
|
|
| 6,716,420 |
|
|
| 10,589,211 |
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South Carolina |
|
| 9,733,024 |
|
| - |
|
|
| 9,733,024 |
| |
|
| $ | 54,919,250 |
|
| $ | 11,600,934 |
|
| $ | 66,520,184 |
|
(1) Thomasville facility is self managed thus not included in the table
2930
The following table provides summary information regarding the number of facilities and related licensed beds/units by operator affiliation as of SeptemberJune 30, 2022:2023:
Operator Affiliation |
| Number of Facilities (1) |
|
| Beds / Units |
| ||
C.R. Management ⁴ ⁵ |
|
| 2 |
|
|
| 233 |
|
Aspire |
|
| 5 |
|
|
| 405 |
|
Peach Health Group³ |
|
| 3 |
|
|
| 266 |
|
Symmetry Healthcare⁹ |
|
| 2 |
|
|
| 180 |
|
Beacon Health Management⁶ |
|
| 1 |
|
|
| 126 |
|
Vero Health Management |
|
| 1 |
|
|
| 106 |
|
Cavalier Senior Living |
|
| 1 |
|
|
| 161 |
|
Empire² |
|
| 1 |
|
|
| 208 |
|
Subtotal |
|
| 17 |
|
|
| 1,845 |
|
Regional Health Managed |
|
| 3 |
|
|
| 332 |
|
Regional Health Operated ³ ⁴ ⁵ ⁶ ⁷ ⁸ |
|
| 5 |
|
|
| 518 |
|
Total |
|
| 24 |
|
|
| 2,587 |
|
Operator Affiliation |
| Number of Facilities (1) |
|
| Beds / Units |
| ||
C.R. Management 2 3 5 6 |
|
| 2 |
|
|
| 233 |
|
Aspire Regional Partners |
|
| 3 |
|
|
| 306 |
|
Oak Hollow Health Care Management 7 |
|
| 2 |
|
|
| 180 |
|
Beacon Health Management 4 |
|
| 1 |
|
|
| 126 |
|
Vero Health Management |
|
| 1 |
|
|
| 106 |
|
Cavalier Senior Living |
|
| 1 |
|
|
| 90 |
|
RHP Operations |
|
| 1 |
|
|
| 160 |
|
Subtotal |
|
| 11 |
|
|
| 1,201 |
|
For a more detailed discussion of the above information, see Note 6 - Leases to the consolidated financial statements included in Part I, Item 1 herein. Additionally, see "Portfolio of Healthcare Investments" included in Part I, Item 1 "Business" in the Annual Report.
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 | December 31, |
| March 31, |
| June 30, |
| September 30, 2022 | September 30, 2022 |
|
| December 31, 2022 |
|
| March 31, 2023 |
|
| June 30, 2023 |
| ||||
Occupancy (%) | 65.1% |
| 65.1% |
| 66.7% |
| 67.0% |
| 64.4 | % |
|
| 65.7 | % |
|
| 66.4 | % |
|
| 66.8 | % |
31
Lease Expiration
The following table provides summary information regarding our lease expirations for the years shown as of September 30, 2022:December 31,:
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30
| Number of Facilities ² |
| Count |
|
| Percent |
|
| Amount ($) |
|
| Percent (%) |
| ||||
2023 | 1 |
|
| 50 |
|
|
| 2.8 | % |
|
| 313 |
|
|
| 2.4 | % |
2024 | 1 |
|
| 126 |
|
|
| 6.9 | % |
|
| 1,006 |
|
|
| 7.8 | % |
2025 | 2 |
|
| 269 |
|
|
| 14.8 | % |
|
| 2,294 |
|
|
| 17.7 | % |
2026 | 0 |
|
| - |
|
|
| 0.0 | % |
|
| - |
|
|
| 0.0 | % |
2027 | 5 |
|
| 608 |
|
|
| 33.4 | % |
|
| 3,408 |
|
|
| 26.4 | % |
2028 | 4 |
|
| 355 |
|
|
| 19.5 | % |
|
| 2,933 |
|
|
| 22.7 | % |
2029 | 1 |
|
| 106 |
|
|
| 5.8 | % |
|
| 557 |
|
|
| 4.3 | % |
Thereafter | 3 |
|
| 304 |
|
|
| 16.7 | % |
|
| 2,416 |
|
|
| 18.7 | % |
Total | 17 |
|
| 1,818 |
|
|
| 100.0 | % |
|
| 12,926 |
|
|
| 100.0 | % |
|
| Licensed Beds |
| Annual Lease Revenue (2) |
| ||||||||
| Number of Facilities | Count |
| Percent (%) |
| Amount ($) |
| Percent (%) |
| ||||
2023 | 1 | 50 |
|
| 4.8 | % | $ | 110 |
|
| 1.8 | % | |
2024 | 1 | 126 |
|
| 11.9 | % |
| - |
|
| 0.0 | % | |
2025 | 1 | 109 |
|
| 10.4 | % |
| 910 |
|
| 15.2 | % | |
2026 | 0 | 0 |
|
| 0.0 | % |
| - |
|
| 0.0 | % | |
2027 | 0 | 0 |
|
| 0.0 | % |
| - |
|
| 0.0 | % | |
2028 | 4 | 355 |
|
| 33.8 | % |
| 2,352 |
|
| 39.4 | % | |
2029 | 1 | 106 |
|
| 10.1 | % |
| 538 |
|
| 9.0 | % | |
Thereafter | 3 | 304 |
|
| 29.0 | % |
| 2,066 |
|
| 34.6 | % | |
Total | 11 |
| 1,050 |
|
| 100.0 | % | $ | 5,976 |
|
| 100.0 | % |
Results of Operations
The following table sets forth, for the periods indicated, an unaudited statement of operations items and the amounts and percentages 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 consolidated financial statements and the notes thereto, which are included herein.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
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(Amounts in 000’s) |
| 2022 |
|
| 2021 |
|
| Percent |
|
| 2022 |
|
| 2021 |
|
| Percent |
| |||||||||||||||||||||||||||||
| 2023 |
|
| 2022 |
|
| Percent |
|
| 2023 |
|
| 2022 |
|
| Percent |
| ||||||||||||||||||||||||||||||
Revenues: |
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|
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|
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|
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|
| |||||||||||||||||
Patient care revenues |
| $ | 7,769 |
|
| $ | 2,309 |
|
|
| 236.5 | % |
| $ | 14,650 |
|
| $ | 7,444 |
|
|
| 96.8 | % | $ | 2,526 |
|
| $ | 4,570 |
|
|
| (44.7 | )% |
| $ | 4,442 |
|
| $ | 6,881 |
|
|
| (35.4 | )% |
Rental revenues |
|
| 3,000 |
|
|
| 4,136 |
|
|
| (27.5 | )% |
|
| 10,326 |
|
|
| 11,980 |
|
|
| (13.8 | )% |
| 1,722 |
|
|
| 3,261 |
|
|
| (47.2 | )% |
|
| 3,430 |
|
|
| 7,326 |
|
|
| (53.2 | )% |
Management fees |
|
| 255 |
|
|
| 248 |
|
|
| 2.8 | % |
|
| 774 |
|
|
| 743 |
|
|
| 4.2 | % |
| 247 |
|
|
| 255 |
|
|
| (3.1 | )% |
|
| 525 |
|
|
| 519 |
|
|
| 1.2 | % |
Other revenues |
|
| 6 |
|
|
| 9 |
|
|
| (33.3 | )% |
|
| 20 |
|
|
| 84 |
|
|
| (76.2 | )% |
| 103 |
|
|
| 7 |
|
|
| 1371.4 | % |
|
| 107 |
|
|
| 14 |
|
|
| 664.3 | % |
Total revenues |
|
| 11,030 |
|
|
| 6,702 |
|
|
| 64.6 | % |
|
| 25,770 |
|
|
| 20,251 |
|
|
| 27.3 | % |
| 4,598 |
|
|
| 8,093 |
|
|
| (43.2 | )% |
|
| 8,504 |
|
|
| 14,740 |
|
|
| (42.3 | )% |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Patient care expense |
|
| 7,476 |
|
|
| 2,454 |
|
|
| 204.6 | % |
|
| 14,040 |
|
|
| 6,911 |
|
|
| 103.2 | % |
| 2,159 |
|
|
| 4,222 |
|
|
| (48.9 | )% |
|
| 4,697 |
|
|
| 6,564 |
|
|
| (28.4 | )% |
Facility rent expense |
|
| 1,451 |
|
|
| 1,640 |
|
|
| (11.5 | )% |
|
| 4,725 |
|
|
| 4,919 |
|
|
| -3.9 | % |
| 149 |
|
|
| 1,634 |
|
|
| (90.9 | )% |
|
| 297 |
|
|
| 3,274 |
|
|
| (90.9 | )% |
Cost of management fees |
|
| 140 |
|
|
| 153 |
|
|
| (8.5 | )% |
|
| 459 |
|
|
| 468 |
|
|
| (1.9 | )% |
| 146 |
|
|
| 144 |
|
|
| 1.4 | % |
|
| 286 |
|
|
| 319 |
|
|
| (10.3 | )% |
Depreciation and amortization |
|
| 600 |
|
|
| 651 |
|
|
| (7.8 | )% |
|
| 1,819 |
|
|
| 1,953 |
|
|
| (6.9 | )% |
| 702 |
|
|
| 606 |
|
|
| 15.8 | % |
|
| 1,212 |
|
|
| 1,219 |
|
|
| (0.6 | )% |
General and administrative expenses |
|
| 1,378 |
|
|
| 980 |
|
|
| 40.6 | % |
|
| 3,432 |
|
|
| 2,975 |
|
|
| 15.4 | % | |||||||||||||||||||||||
General and administrative expense |
| 1,011 |
|
|
| 921 |
|
|
| 9.8 | % |
|
| 2,217 |
|
|
| 2,054 |
|
|
| 7.9 | % | ||||||||||||||||||||||||
Doubtful accounts expense (recovery) |
|
| 1,515 |
|
|
| (1 | ) |
| NM |
|
|
| 3,742 |
|
|
| 76 |
|
| NM |
|
| 24 |
|
|
| 466 |
|
|
| (94.8 | )% |
|
| 40 |
|
|
| 2,227 |
|
|
| (98.2 | )% | ||
Other operating expenses |
|
| 441 |
|
|
| 219 |
|
|
| 101.4 | % |
|
| 1,409 |
|
|
| 755 |
|
|
| 86.6 | % |
| 221 |
|
|
| 629 |
|
|
| (64.9 | )% |
|
| 313 |
|
|
| 968 |
|
|
| (67.7 | )% |
Total expenses |
|
| 13,001 |
|
|
| 6,096 |
|
|
| 113.3 | % |
|
| 29,626 |
|
|
| 18,057 |
|
|
| 64.1 | % |
| 4,412 |
|
|
| 8,622 |
|
|
| (48.8 | )% |
|
| 9,062 |
|
|
| 16,625 |
|
|
| (45.5 | )% |
(Loss) income from operations |
|
| (1,971 | ) |
|
| 606 |
|
| NM |
|
|
| (3,856 | ) |
|
| 2,194 |
|
| NM |
| |||||||||||||||||||||||||
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Income (Loss) from operations |
| 186 |
|
|
| (529 | ) |
|
| (135.2 | )% |
|
| (558 | ) |
|
| (1,885 | ) |
|
| (70.4 | )% | ||||||||||||||||||||||||
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Interest expense, net |
|
| 564 |
|
|
| 669 |
|
|
| (15.7 | )% |
|
| 1,855 |
|
|
| 2,022 |
|
|
| (8.3 | )% |
| 679 |
|
|
| 639 |
|
|
| 6.3 | % |
|
| 1,359 |
|
|
| 1,291 |
|
|
| 5.3 | % |
Other (income) expense, net |
|
| (2,164 | ) |
|
| 122 |
|
| NM |
|
|
| (1,088 | ) |
|
| 839 |
|
| NM |
| |||||||||||||||||||||||||
Total other (income) expense, net |
|
| (1,600 | ) |
|
| 645 |
|
|
| (348.1 | )% |
|
| 767 |
|
|
| 2,715 |
|
|
| (71.7 | )% | |||||||||||||||||||||||
Other expense, net |
| 192 |
|
|
| 157 |
|
|
| 22.3 | % |
|
| 759 |
|
|
| 1,076 |
|
|
| (29.5 | )% | ||||||||||||||||||||||||
Total other expense, net |
| 871 |
|
|
| 796 |
|
|
| 9.4 | % |
|
| 2,118 |
|
|
| 2,367 |
|
|
| (10.5 | )% | ||||||||||||||||||||||||
Net loss |
| $ | (371 | ) |
| $ | (39 | ) |
| NM |
|
| $ | (4,623 | ) |
| $ | (521 | ) |
|
| 787.3 | % | $ | (685 | ) |
| $ | (1,325 | ) |
|
| (48.3 | )% |
| $ | (2,676 | ) |
| $ | (4,252 | ) |
|
| (37.1 | )% | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Not meaningful ("NM").
Three Months Ended SeptemberJune 30, 20222023 and 20212022
Patient care revenues—Patient care revenues for the Healthcare Services segment, as a result of the Company operating the Tara, Meadowood LaGrange, Lumber City, Thomasvillethe and GlenviewGlenvue Facilities, were $7.8$2.5 million for the three months ended SeptemberJune 30, 2022,2023, compared to $2.3$4.6 million
32
for the same period in 2021.2022. The 236.5% increase44.7% decrease is primarily due to the addition of five new facilities.change in the facilities that were operated in the period compared to the prior period.
31
Rental revenues—Rental revenue for our Real Estate Services segment decreased by approximately $1.1$1.5 million to $3.0$1.7 million for the three months ended SeptemberJune 30, 2022,2023, compared with $4.1$3.3 million for the same period in 2021.2022. The 27.5%47.2% decrease is due to less rent collected asfrom a reduction in the company is now operating five additional facilities.number of facilities subleased.
Patient care expense—Patient care expense was $7.5$2.2 million for the three months ended SeptemberJune 30, 20222023 compared with $2.5$4.2 million for the same period in 2021.2022. The current period expense increasedecrease of $5.0$2.1 million was primarily due to the additionalchange in the facilities we are operating.
Facility rent expense—Facility rent of $1.5$0.1 million for the three months ended SeptemberJune 30, 20222023 decreased 11%90.9% from 2021$1.6 million for the same period in 2022 due to the amendment totermination of the Foster Lease.
Depreciation and amortization—Depreciation and amortization was $0.6$0.7 million for the three months ended SeptemberJune 30, 2022,2023, compared to $0.7$0.6 million for the same period in 2021. A greater amount of fully depreciated2022. The activity was mainly from reclassified capital expenditures, new equipment, and computer related assets in the current year was the primary driver of the decrease.finished capital expense projects.
General and administrative expenses—General and administrative expenses were at $1.4$1.0 million for the three months ended SeptemberJune 30, 20222023 compared with $1.0$0.9 million for the same period in 2021.2022. The increase was primarilydue to a slight increase in audit expenses and director's fees offset by a decrease in management fees due to the additional facilities we are operating.termination of the Foster Lease.
|
| Three Months Ended September 30, |
| Three Months Ended June 30, |
| ||||||||||||||||||
(Amounts in 000’s) |
| 2022 |
|
| 2021 |
|
| Percent |
| 2023 |
|
| 2022 |
|
| Percent |
| ||||||
General and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Real Estate Services |
| $ | 975 |
|
| $ | 869 |
|
|
| 12.2 | % | $ | 978 |
|
| $ | 679 |
|
|
| 44.0 | % |
Healthcare Services |
|
| 403 |
|
|
| 111 |
|
|
| 263.1 | % |
| 33 |
|
|
| 242 |
|
|
| (86.2 | )% |
Total |
| $ | 1,378 |
|
| $ | 980 |
|
|
| 40.6 | % | $ | 1,011 |
|
| $ | 921 |
|
|
| 9.8 | % |
Doubtful accounts expense—The current period expense of $1.5$0.0 million for the three months ended June 30, 2023 compared with $0.5 million for the same period in 2022 is primaryprimarily due to the impairmentreduction in the number of straight-line rent associated withfacilities caused by the lease terminationstermination of Glenvue, Sumter and Georgetown.the Foster Lease.
Other operating expenses—Other operating expenses increaseddecreased by approximately $0.2$0.4 million to $0.4$0.2 million for the three months ended SeptemberJune 30, 2022,2023, compared with $0.2$0.6 million for the same period in 2021.2022. The increasedecrease was due to professional and legal services related to operator transition transactions.transactions along with decreased expenses related to the termination of the Foster Lease.
|
| Three Months Ended September 30, |
| Three Months Ended June 30, |
| ||||||||||||||||||
(Amounts in 000’s) |
| 2022 |
|
| 2021 |
|
| Percent |
| 2023 |
|
| 2022 |
|
| Percent |
| ||||||
Other operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Real Estate Services |
| $ | (80 | ) |
| $ | 214 |
|
|
| (137.4 | )% | $ | 91 |
|
| $ | 337 |
|
|
| (73.1 | )% |
Healthcare Services |
|
| 521 |
|
|
| 5 |
|
| NM |
|
| 130 |
|
|
| 292 |
|
|
| (55.4 | )% | |
Total |
| $ | 441 |
|
| $ | 219 |
|
|
| 101.4 | % | $ | 221 |
|
| $ | 629 |
|
|
| (64.9 | )% |
* Not meaningful ("NM")
Other expense, net—Other expense net decreased by approximately $2.3 million, to ($2.2)remained the same and were $0.2 million for the three months ended SeptemberJune 30, 2023 and 2022. These expenses are related to professional and legal services incurred for evaluation and assistance with possible opportunities that improve the company's capital structure. The expenses were offset by the $2.4 million gain recognized related to the write-down of certain accounts payable balances for unclaimed property.
NineSix Months Ended SeptemberJune 30, 20222023 and 20212022
Patient care revenues—Patient care revenues for the Healthcare Services segment, as a result of the Company operating the Tara, Meadowood LaGrange, Lumber City, Thomasvillethe and Glenvue Facilities, were $14.7$4.4 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared to $7.4$6.9 million in for the same period in 2021.2022. The 96.8% increase35.4% decrease is primarily due to the addition of five new facilities.change in the facilities that were operated in the period compared to the prior period.
33
Rental revenues—Rental revenue for our Real Estate Services segment was $10.3decreased by approximately $3.9 million to $3.4 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared with $12.0$7.3 million for the same period in 2021.2022. The 53.2% decrease is due to less rent collected asfrom a reduction in the company is now operating five additional facilities.number of facilities subleased.
32
Patient care expense—Patient care expense was $14.0$4.7 million for the ninesix months ended SeptemberJune 30, 20222023, compared with $6.9$6.6 million for the same period in 2021.2022. The current period expense increasedecrease of $1.9 million was primarily due to the additionalchange in the number of facilities we are operating.
Facility rent expense—Facility rent expense of $4.7$0.3 million decreased by 4% for the ninesix months ended SeptemberJune 30, 2022 compared to2023 decreased 90.9% from $3.3 million for the same period in 2021. The decrease is2022 due to the amendedtermination of the Foster Lease.
Depreciation and amortization—Depreciation and amortization was $1.8$1.2 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared to $2.0$1.2 million for the same period in 2021. A greater amount of fully depreciated equipment and computer related assets in the current year was the primary driver of the decrease.2022.
General and administrative expenses—General and administrative expenses were increased 15.4% to $3.4$2.2 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared with $3.0$2.0 million for the same period in 2021.2022. The increase primarilywas due to a slight increase in audit expenses and director's fees offset by a decrease in management fees due to the additional facilities we are operating.termination of the Foster Lease.
|
| Nine Months Ended September 30, |
| Six Months Ended June 30, |
| |||||||||||||||||||
(Amounts in 000’s) |
|
| 2022 |
|
| 2021 |
|
| Percent |
| 2023 |
|
| 2022 |
|
| Percent |
| ||||||
General and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Real Estate Services |
|
| $ | 2,660 |
|
| $ | 2,605 |
|
|
| 2.1 | % | $ | 2,020 |
|
| $ | 1,685 |
|
|
| 19.9 | % |
Healthcare Services |
|
|
| 772 |
|
|
| 370 |
|
|
| 108.6 | % |
| 197 |
|
|
| 369 |
|
|
| (46.5 | )% |
Total |
|
| $ | 3,432 |
|
| $ | 2,975 |
|
|
| 15.4 | % | $ | 2,217 |
|
| $ | 2,054 |
|
|
| 7.9 | % |
Doubtful accounts expense— The current periodDoubtful accounts expense is due to a $3.7 million provision for doubtful accounts recorded for non-payment of rent or from reductions taken to gain cooperation in transitioning the facilities to a new operator and the impairment of straight-line rent associated with the lease terminations.
Other operating expenses —Other operating expenses increased by approximately $0.6 million, to $1.4was $0.0 million for the ninesix months ended SeptemberJune 30, 2022,2023, compared with $0.8to $2.2 million for the same period in 2021.2022. The increasedecrease is primarily due to the change in the number of facilities we are operating.
Other operating expenses—Other operating expenses decreased by approximately $0.7 million to $0.3 million for the six months ended June 30, 2023, compared with $1.0 million for the same period in 2022. The decrease was due to professional and legal services related to operator transition transactions.transactions along with decreased expenses related to the termination of the Foster Lease.
|
| Nine Months Ended September 30, |
| Six Months Ended June 30, |
| |||||||||||||||||||
(Amounts in 000’s) |
|
| 2022 |
|
| 2021 |
|
| Percent |
| 2023 |
|
| 2022 |
|
| Percent |
| ||||||
Other operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Real Estate Services |
|
| $ | 555 |
|
| $ | 746 |
|
|
| (25.6 | )% | $ | 170 |
|
| $ | 636 |
|
|
| (73.3 | )% |
Healthcare Services |
|
|
| 854 |
|
|
| 9 |
|
| NM |
|
| 143 |
|
|
| 332 |
|
|
| (56.8 | )% | |
Total |
| $ | 1,409 |
|
| $ | 755 |
|
|
| 86.6 | % | $ | 313 |
|
| $ | 968 |
|
|
| (67.7 | )% |
* Not meaningful ("NM")
Other expense, net—Other expense, net decreased by approximately $1.9$0.3 million, to $0.8 million for the six months ended June 30, 2023, compared to $1.1 million income, for the nine months ended September 30, 2022.same period in 2022 . These expenses relateare related to professional and legal services incurred for evaluation and assistance with possible opportunities that improve the Company'scompany's capital structure. The expenses were offset byIn addition, we incurred $0.2 million for professional services used to obtain the $2.4 million gain recognized related to the write-down of certain Accounts payable balances for unclaimed property.Employee Retention Tax Credit ("ERTC").
Liquidity and Capital Resources
Overview
The Company intends to pursue measures to grow its operations, streamline its cost infrastructure and otherwise increase liquidity, including: (i) refinancing or repaying debt to reduce interest costs and mandatory principal repayments, with such repayment to be funded through potentially expanding borrowing arrangements with certain lenders; (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.
34
Management anticipates access to several sources of liquidity, including cash on hand, cash flows from operations, and debt refinancing during the twelve months following the date of this filing. At SeptemberJune 30, 2022,2023, the Company had $2.4$1.9 million in unrestricted cash, including a Medicaid overpayment of $1.5 million received on September 30, 2021, which the Company expects to repay in the near future.cash.
33
During the ninesix months ended SeptemberJune 30, 2022,2023, the Company's net cash used inprovided by operating activities was $2.2$3.0 million primarily due to unpaidcollection of patient care receivables, the ERTC, and rent payments and working capital needs for the facilities we now operate.receivables. Management anticipates collecting a portion of the past due rent after the filing date and is currently negotiating various methods to collect the remaining unpaid rent. Cash flow from operations in the future will be subject to the operating performance of Peach Health under the new management agreements as well as continued uncertainty of the COVID-19 pandemic and its impact on the Company's business, financial condition and results of operations.
As of SeptemberJune 30, 2022, Regional2023, the Company recorded an estimated allowance of $0.6$1.4 million against a gross accounts receivable of $6.8$4.4 million.
During the three months ended September 30, 2022, the Company recognized approximately $0.4 million of variable rent for the Powder Springs Facility. The Tara Facility operations performance during the three months ended September 30, 2022 has been insufficient to cover any of the rent the Company is obligated to pay under its lease.
As of SeptemberJune 30, 2022,2023, the Company had $52.6$52.0 million in indebtedness, net of $1.2$1.1 million deferred financing, and unamortized discounts. The Company anticipates net principal repayments of approximately $2.9$2.5 million during the next twelve-month period, approximately $1.7$1.4 million of routine debt service amortization, $1.1$1.0 million of current maturities of other debt ( $0.6 million related to insurance financing for the Tara, Meadowood, Lumber City, Thomasville, Glenvue and LaGrange Facility operations),amortization, and a $0.1 million payment of bond debt.
In September 2021, the Company and the Exchange Bank of Alabama executed a $5.1 million Promissory Note with a 3.95% annual fixed interest rate and maturity date of October 10, 2026. The Coosa Credit Facility refinanced $5.1 million prime + 1.5% variable interest rate debt owed to Metro City Bank with a maturity date of January 31, 2036. The Coosa Credit Facility is secured by the assets of Coosa, which includes the Coosa Facility and the assets of Meadowood which includes the Meadowood Facility. The Company incurred approximately $0.1 million in new deferred financing fees and expensed approximately $0.1 million deferred financing fees associated with the Coosa MCB Loan.
Debt Modification
In conjunction with the SeptemberOn December 30, 2021 Coosa Facility refinance, the Company and the Exchange Bank of Alabama executed the Meadowood Credit Facility that extended the maturity date on $3.5 million Meadowood Credit Facility, as amended, in current senior debt secured by the assets of Coosa and the assets of Meadowood, other mortgage indebtedness from May 1, 2022, to October 1, 2026. Additionally on August 17, 2021, the Company extended the maturity date on approximately $0.5 million other debt from August 25, 20212023 to August 25, 20232025 (known as the "KeyBank Exit Notes"). For further information, see Note 8 – Notes Payable and Other Debt to the consolidated financial statements included in Part I, Item 1 herein.
The Company is current with all of its Notes payable and other debt as described in Note 8 – Notes Payable and Other Debt. The Company has benefited from various, now expired, stimulus measures made available to it through the CARES Act enacted by Congress in response to the COVID-19 pandemic, which allowed for, among other things: (i) a deferral of debt service payments on USDA loans to maturity, (ii) an allowance for debt service payments to be made out of replacement reserve accounts for HUD loans, and (iii) debt service payments to be made by the SBA on all SBA loans.consolidated financial statements included in Part I, Item 1 herein.
In 2020, the Company began exploring alternatives to retire or refinance our outstandingthe Series A Preferred Stock through privately negotiated transactions, open market repurchases, redemptions, exchange offers, tender offers, or otherwise. Costs associated with these efforts have been expensed as incurred in Other expense, net and were $0.09$0.5 million and $0.2$0.9 million for the threesix months ended SeptemberJune 30, 20222023 and SeptemberJune 30, 2021,2022, respectively.
In February 2022,connection with the Company commenced an offer to exchange (the "Exchange Offer") any and all of its outstanding 10.875% Series A Cumulative Redeemable Preferred Shares (the "Series A Preferred Stock") for newly issued sharescompletion of the Company's 12.5% Series B Cumulative Redeemable Preferred Shares (the "Series B Preferred Stock"). On July 25, 2022,Exchange Offer and the company failed to receive the required votes from the common shareholders. The company decided to terminate the preferred exchange offer.
Series A Preferred Stock Dividend Suspension
On June 8, 2018, the Board indefinitely suspended quarterly dividend payments onimplementation of the Series A Preferred Stock. AsCharter Amendments and the Series B Charter Amendments, the liquidation preference of September 30, 2022, 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 $43.5 million of undeclared preferred stock dividends in arrears. The
34
Board believes that the dividend suspension will provide the Company with additional funds to meet, in part, 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 dividend periods, the annual dividend rate on the Series A Preferred Stock for the fifth and future missed dividend periods increased to 12.875%, which is equivalent to $3.20 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 allwas reduced, accumulated and unpaid dividends on the Series A Preferred Stock were eliminated and future dividends on the Series A Preferred Stock were eliminated. As a result, $50.4 million in fullaccumulated and unpaid dividends on the Series A Preferred Stock were eliminated and, as of June 30, 2023, there are no accumulated and unpaid dividends on the Series A Preferred Stock. For further information regarding the Exchange Offer, Series A Charter Amendments and Series B Charter Amendments, see Note 2 – Liquidity and Note 9 – Common and Preferred Stock to the consolidated financial statements included in cash.Part I, Item 1 herein.
Debt Covenant Compliance
As of SeptemberJune 30, 2022,2023, the Company was in compliance with the various financial and administrative covenants under the Company's outstanding credit related instruments.
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 Company's current financial condition, including its sources of liquidity at the date that the consolidated financial statements are issued, will enable the Company 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 Company 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 available, forecasted future cash flows, the Company's obligations due over the next twelve months, and the Company's recurring business operating expenses.
The Company concludes 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 accounting guidance.
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For additional information regarding the Company's liquidity, see Note 2 – Liquidity and Note 8 – Notes Payable and other debt, to the consolidated financial statements included in Part I, Item 1 herein.
Cash Flows
The following table presents selected data from our consolidated statements of cash flows for the periods presented:
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
(Amounts in 000’s) |
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Net cash (used in) provided by operating activities |
| $ | (2,171 | ) |
| $ | 4,112 |
| ||||||||
Net cash provided by (used in) operating activities |
| $ | 2,955 |
|
| $ | (2,798 | ) | ||||||||
Net cash used in investing activities |
|
| (183 | ) |
|
| (119 | ) |
|
| (854 | ) |
|
| (152 | ) |
Net cash used in financing activities |
|
| (2,097 | ) |
|
| (1,859 | ) |
|
| (1,145 | ) |
|
| (1,374 | ) |
Net change in cash and restricted cash |
|
| (4,451 | ) |
|
| 2,134 |
|
|
| 956 |
|
|
| (4,324 | ) |
Cash and restricted cash at beginning of period |
|
| 9,848 |
|
|
| 7,492 |
|
|
| 3,909 |
|
|
| 9,848 |
|
Cash and restricted cash, ending |
| $ | 5,397 |
|
| $ | 9,626 |
|
| $ | 4,865 |
|
| $ | 5,524 |
|
NineSix Months Ended SeptemberJune 30, 20222023
Net cash provided by operating activities—was approximately $3.0 million. The positive cash flow from operating activities were largely due to collection of the ERTC, collection of patient care receivables, and rent receivables.
Net cash used in operatinginvesting activities—was approximately $2.2$0.9 million. The negative cash flow was mainly from reclassified capital expenditures, new equipment, and finished capital expense projects.
Net cash used in financing activities—was approximately $1.1 million. The cash was used to make routine payments totaling $1.1 million for our Senior debt obligations.
Six Months Ended June 30, 2022
Net cash used by operating activities — was approximately $2.8 million. The negative cash flow from operating activities was primarily caused bynonpayment of rent from BeaconC-Ross and Symmetry, impairment of straight-line associated with the lease terminations and changes in working capital requirements mostly due to accounts receivable increase of $3.3 million, for the facilities we operate.
Net cash used in investing activities—activities — was approximately $0.2 million. This capital expenditure was for computer hardware, software and furniture andfixtures for the Tara Facility.
Net cash used in financing activities—was approximately $2.1$1.4 million. The cash was used to make routine payments totaling $1.2$0.8 million for our Seniordebt obligations, $0.9$0.5 million for other debt.
Nine Months Ended September 30, 2021
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Net cash provided by operating activities— for the nine months ended September 30, 2021 wasOther debt, and approximately $4.1 million, primarily due to changes in working capital, consisting of our collection of rent arrears from the Wellington Lease Termination and losses from operations less noncash charges (primarily, depreciation and amortization and lease revenue in excess of cash rent received).
Net cash used in investing activities— for the nine months ended September 30, 2021 was approximately $0.1 million. This capital expenditure was for computer hardware, software and furniture and fixtures for the Tara Facility.
Net cash used in financing activities— was approximately $1.9 million for the nine months ended September 30, 2021. This ispayment of taxes due on the resultexercise of routine repayments of approximately $1.7 million towards our senior debt obligations, $0.2 million repayment of other debt as well as debt extinguishment and issuance costs.employee restricted share awards (net settlement option).
Off-Balance Sheet Arrangements
Guarantee
The Company subleased five facilities located in Ohio to the Aspire Sublessees, formerly affiliated with MSTC Development Inc., pursuant to the Aspire Subleases, whereby the Aspire Sublessees took possession of, and commenced operating, the Aspire Facilities as subtenant. 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 SeptemberJune 30, 2022.2023. For further information see Note 6 – Leases, to the consolidated financial statements included in Part I, Item 1 herein and also and Note 6 – Leases included in Part II, Item 8 of the Annual Report.
Critical Accounting Policies
We prepare our financial statements in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Article 8 of Regulation S-X. The preparation of these 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
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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.
For a discussion of our critical accounting policies, see Note 1 – Organization and Significant Accounting Policies to the consolidated financial statements included in Part I, Item 1 herein.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Disclosure in response to Item 3 of Form 10-Q is not required to be provided by smaller reporting companies.
Item 4. Controls and Procedures.
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 Principal Executive Officer (CEO)principal executive officer and Principal Financial Officer (CFO),principal 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 Principal Executive Officerprincipal executive officer and Principal Financial Officer,principal 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 covered by this Quarterly Report (the "Evaluation Date"). Based on such evaluation, our management hasprincipal executive officer and principal financial officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are not effective.
Our management believes a material weakness exists in our internal controls over financial reporting as of SeptemberJune 30, 20222023 because we lack the necessary corporate accounting resources in our financial reporting processing and accounting functions as a result of recent departures of certain accounting and financial reporting personnel. A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Our management will seek to remediate the material weakness described above through hiring qualified accounting and financial reporting personnel to replace the personnel who departed.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company's internal controls over financial reporting that occurred during the period covered by this reportQuarterly Report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings.
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 patients. Although the Company 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 the Company has a reasonable chance to prevail at trial or in arbitration. Litigation is inherently unpredictable. There is no assurance that the outcomes of these matters will not have a material adverse effect on the Company's financial condition. Although arising in the ordinary course of the Company's business, certain of these matters are described in "NoteNote 11 - Commitments and Contingencies"Contingencies .to the consolidated financial statements included in Part I, Item 1 herein.
Item 1A. Risk Factors.
In addition to information set forthFor a detailed description of certain risk factors that could affect our business, operations and financial condition, see Part I, Item 1A., Risk Factors, included in this report, you should carefully reviewthe Annual Report, as supplemented and considermodified by the risk factors discussedset forth below in the "Risk Factors" sections of Part 1,this Item 1A1A. The risk factors described in ourthe Annual Report and of Part II, Item 1A in ourthis Quarterly Reports forReport (collectively, the quarters ended March 31, 2022 and June 30, 2022, which set forth information relating“Risk Factors”) do not describe all risks applicable to important risks and uncertainties that could materially adversely affect our business, reputation, revenue,and we intend it only as a summary of certain material factors. The Risk Factors should be considered in connection with evaluating the forward-looking statements contained in this Quarterly Report because
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the Risk Factors could cause the actual results and conditions to differ materially from those projected in forward-looking statements. If any of the risks actually occur, our business, financial condition, or results of operations and future prospects, in which eventcould be negatively affected. In that case, the markettrading price of our securitiesthe common stock, the Series A Preferred Stock and the Series B Preferred Stock could decline, and you could lose part or all of your investment. In addition, our business, reputation, revenue, financial condition, results of operations and future prospects also could be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. You should review and
37
consider such Risk Factors in making any investment decision with respect to our securities. There have been no material changes to the risk factors previously disclosed, except as follows.decline.
The COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows, and financial condition.
On March 11, 2020, the World Health Organization declared the outbreak of the respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, also known as COVID-19, a global pandemic. The COVID-19 pandemic has led governments and other authorities in the United States to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The COVID-19 pandemic and the measures to protect its spread adversely affected our business during the three months ended June 30,in 2022, and we expect it will continue to adversely affect our business in the near future2023 and beyond, for a variety of reasons, including those discussed below and elsewhere in this Quarterly Report.hereunder.
Our tenants' operations
As of December 31, 2022, the Company is aware that each of our facilities has reported one or more positive cases of COVID-19 among the residents and/or operator employee populations. Many of our operators have been, and we expect will continue to be, materially and adversely affected byreported incurring significant cost increases as a result of the COVID-19 pandemic, due to, among other things, decreased occupancywith dramatic increases for facilities with positive cases. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and increased operating costs (including costs due tobonus pay, as well as a significant increase in both the implementation of additional safety protocolscost and procedures, purchasesusage of personal protective equipment, increased staffingtesting equipment, processes and supplies. In terms of occupancy levels, many of our operators have reported experiencing declines, in part due to allow facilitiesthe elimination or suspension of elective hospital procedures, fewer discharges from hospitals to adhere to social distancingSNFs, and infection control protocols, and premium pay and incentive pay for the staff), which may affect our tenants' ability to make rental payments to us pursuant to their lease agreements.higher hospital readmittances from SNFs.
The COVID-19 pandemic may also lead to temporary closures of nursing facilities, operated by our tenants, which also may affect our tenants'tenants’ ability to make their rental payments to us pursuant to their respective lease agreements. In addition, our tenants'tenants’ operations could be further disrupted if any of their employees, or the employees of their vendors, have, or are suspected of having, COVID-19. This couldhas caused, and may cause and in some cases has already caused,the future, our tenants or their vendors to experience staffing shortages, and this 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 due to the COVID-19 pandemic. 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 which may adversely affect our tenants'tenants’ operations and their ability to make rental payments to us moving forward. In addition, family members may elect to keep nursing facility residents at home during the COVID-19 pandemic, thus reducing our tenants'tenants’ revenue. From time to time,Currently, a number of our tenants have stopped admitting new patients due to rising COVID-19 infections which has resultedresulting in decreased revenues.
As a result of the COVID-19 pandemic, 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 negatively impact our tenants'tenants’ operating budgets and affect their ability to meet their obligations under our leases. Further, we may be subject to increased lawsuits arising out of our alleged actions or the alleged actions of our tenants for which they have agreed to indemnify, defend and hold us harmless. An unfavorable resolution of any such pending or future litigation could materially adversely affect us. The Company is not aware of any such lawsuits against our tenants.
If our tenants are unable to make rental payments to us pursuant to their lease obligations, whether due to the tenants'tenants’ decrease in revenues or otherwise, then, in some cases, we may be forced to either attempt to replace tenants or restructure tenants'tenants’ long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place.
While the Company has received approximately 78%88% of its anticipatedexpected monthly rental receipts from tenants for the three monthsquarter ended SeptemberJune 30, 2022,2023, there are a number of uncertainties the Company faces as it considers the potential impact of COVID-19 on its business, including the length of census disruption, elevated COVID-19 operating costs related to personal protection equipment, cleaning supplies, virus testing and increased overtime due to staff illness.
On November 5, 2021,illness and the CMS published COVID-19 Health Care Staff Vaccination requirementsextent to which federal and state funding support will offset these incremental costs for our tenants. To the extent government support is not sufficient or timely to offset these impacts, or to the extent these trends continue or accelerate and are not offset by additional government relief that most Medicare- and Medicaid-certified providers and suppliers must meetis sufficient or timely, the operating results of our operators are likely to be adversely affected, some may be unwilling or unable to pay their contractual obligations to us in order to participate in the Medicare and Medicaid programs. This emergency regulation was effective immediately and requires employees at Medicare and Medicaid-participating facilities and employersfull or on a timely basis, as has occurred with more than 100 employees to be vaccinated. Some states have also issued their own orders to employers and healthcare providers that may or may not align with federal directives. The legalityone of both federal and state vaccine mandates will likely be decided by the courts. Until pending laws and regulations related to vaccine mandates are both finalized and adjudicated, our tenants will continue to manage in different ways — from mandating vaccines for all employees to waiting to see how the issue is ultimately resolved. The mandates, as presently written, may cause disruption to tenants' operations ifoperators.
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39
employees refuse vaccination and are terminated, and our tenants are not able to replace them in a timely manner or experience increased costs to do so.
To help offset these costs as well as occupancy declines, various relief programs have been enacted by federal and state governments, which have provided, and we expect will continue to provide, some payments to our tenants, subject to the programs' respective terms and conditions. The CARES Act established a grant program administered by the HHS under which Provider Relief Funds have been made available. In early November 2021, the HHS closed the application portal for its Phase 4 allocation of approximately $17 billion of Provider Relief Funds and an allocation of approximately $8.5 billion in American Rescue Plan resources for providers serving patients living in rural areas. We expect that our tenants pursued additional funding from these allocations, and will pursue any future funding that may become available, though that our tenants may not qualify for, or receive, any Phase 4 or American Rescue Plan, or any future, funding.
We also do not know the number of facilities that will ultimately experience widespread, high-cost outbreaks of COVID-19. WhileCOVID-19, and while we have requested reporting of case numbers from our operators of their numbers of cases and the HHS and the CMS has required additional reporting by operators, we may not receive accurate information on the number of cases, which could result in a delay in reporting. We expect to see continued increased clinical protocols for infection control within facilities and increased monitoring of employees, guests and other individuals entering facilities; however, we do not yet know if future reimbursement rates in combination with the various relief programs that have been made available will be sufficient to cover the increased costs of enhanced infection control and monitoring. The extent of the COVID-19 pandemic'spandemic’s effect on our and our operators'tenants’ operational and financial performance will depend on future developments, including the ultimate duration, spread and intensity of the outbreak, which may depend on factors such as the development and implementation of vaccinesan effective vaccine and treatments for COVID-19, government funds and other support for the senior care sector and the efficacy of other policies and measures that may mitigate the impact of the pandemic, all of which are uncertain and difficult to predict. TheDue to these uncertainties, we are unable at this time to estimate the effect of these factors on our business, but the adverse impact of COVID-19 on our business, results of operations, financial condition and cash flows could be material.
In addition, the COVID-19 pandemic led to CMS, the OIG and other regulatory agencies implementing various waivers and flexibilities intended to minimize burdens for healthcare providers and other industry participants that faced the challenges of the COVID-19 pandemic. These included, for example, coverage requirement waivers (e.g., three-day prior hospitalization requirement for SNF stay coverage), exercising administrative discretion in fraud and abuse enforcement, and waivers relating to telehealth and licensure requirements. The national emergency and public health emergency declarations related to the COVID-19 pandemic ended on May 11, 2023. Consequently, many of the waivers and flexibilities that were implemented by CMS, the OIG and other regulatory agencies in response to the COVID-19 pandemic expired on May 11, 2023. We are unable to estimate at this time the impact these developments may have on the Company’s business.
We are currently out of compliance with the continued listing standards of the NYSE American LLC ("NYSE American"). Our failure to resume compliance with the continued listing standards or make continued progress toward compliance consistent with a plan of compliance we intend to submit to NYSE Regulation may result in the delisting of our common stock and Series A Preferred Stock.
Our common stock and Series A Preferred Stock are each listed on the NYSE American. In order to maintain these listings, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of shareholders’ equity and a minimum number of public shareholders. In addition to these objective standards, NYSE Regulation may delist the securities of any issuer (i) if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; (ii) if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; (iii) if the issuer sells or disposes of principal operating assets or ceases to be an operating company; (iv) if an issuer fails to comply with the NYSE American’s listing requirements; (v) if an issuer’s common stock sells at what NYSE Regulation considers a “low selling price” and the issuer fails to correct this via a reverse split of shares after notification by NYSE Regulation; or (vi) if any other event occurs or any condition exists which makes continued listing on the NYSE American in its opinion, inadvisable.
As part of these continued listing requirements, under Sections 1003(a)(i) and 1003(a)(ii) of the NYSE American Company Guide, which require an issuer to have (i) shareholders’ equity of $2.0 million or more if it has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years and (ii) shareholders’ equity of $4.0 million or more since if it has reported losses from continuing operations and/or net losses in three of its four most recent fiscal years, respectively. Our audited consolidated financial statements for the year ended December 31, 2022 reflect shareholders’ equity of approximately $3.7 million and losses from continuing operations and/or net losses in three of its four most recent fiscal years. On May 10, 2023, we received a letter from the NYSE American (the "Initial Deficiency Letter") notifying us that we are not in compliance with Section 1003(a)(ii) of the NYSE American Company Guide. As a result, we became subject to the procedures and requirements of Section 1009 of the NYSE American Company Guide. On June 9, 2023, we submitted a plan to the NYSE American advising of actions we have taken or will take to regain compliance with the continued listing standards by November 10, 2024. On June 29, 2023, we received a letter from the NYSE American (the "Second Deficiency Letter") notifying us that we are not in compliance with Section 1003(a)(i) of the NYSE Company Guide. On August 1, 2023, we received a letter (the “Acceptance Letter”) from the NYSE American notifying us that the plan was accepted. The NYSE American has granted the Company a plan period through November 10, 2024 to regain compliance with the continued listing standards. We have been advised that if we do not make progress consistent with the plan or we fail to regain compliance by the deadline, then the NYSE American may commence delisting procedures.
Although we intend to regain compliance with the continued listing requirements prior to November 10, 2024, we may be unable to do so. If delisting proceedings are commenced, the NYSE American rules permit us to appeal a staff delisting determination. Our common stock and Series A Preferred Stock will continue to be listed and traded on the NYSE American during the plan period, subject to our compliance with the NYSE American’s other applicable continued listing standards. If
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NYSE American delists our common stock or Series A Preferred Stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for these securities, reduced liquidity, decreased analyst coverage of these securities, and an inability for us to obtain additional financing to fund our operations.
We may conduct a transaction or transactions prior to November 10, 2024 that could result in significant dilution to our existing shareholders. The transaction(s) could include the private investment in public equity, a public rights offering, a debt restructuring or any combination of these or similar transactions with the intent of maintaining our NYSE American listings. Such transaction(s), if completed, would be dilutive to certain shareholders, could adversely affect the market price of our common stock, Series A Preferred Stock and Series B Preferred Stock, would involve some expense and management distraction from our business and ultimately may not be successful in maintaining our NYSE American listings.
To maintain our NYSE American listings, we may conduct a private investment in public equity, a public rights offering, a debt restructuring or any combination of these or similar transactions prior to November 10, 2024. Although we may not complete any of these transactions, if a transaction occurs, it would be dilutive to certain shareholders and could adversely or favorably affect the market price of our common stock, Series A Preferred Stock and Series B Preferred Stock. Furthermore, any transaction would involve some expense and management distraction from our business, and it is possible that despite the transaction, we may still be unsuccessful in maintaining our NYSE American listings. If NYSE American delists our common stock or Series A Preferred Stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for these securities, reduced liquidity, decreased analyst coverage of these securities, and an inability for us to obtain additional financing to fund our operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
The Board suspended dividend paymentsIn connection with respect tothe completion of the Exchange Offer and the implementation of the Series A Charter Amendments and the Series B Charter Amendments, the liquidation preference of the Series A Preferred Stock commencing with the fourth quarter of 2017,was reduced, accumulated and determined to continue such suspension indefinitely in June 2018. Nounpaid dividends have been declared or paid with respect toon the Series A Preferred Stock since the third quarter of 2017. As a result of such suspension, as of the date of filing of this Quarterly Report the Company has $43.5 million of undeclared preferred stockwere eliminated and future dividends in arrears, with respect toon the Series A Preferred Stock whose annual dividend rate has increased to 12.875% commencing withwere eliminated. As a result, $50.4 million in accumulated and unpaid dividends on the fourth quarterSeries A Preferred Stock were eliminated and, as of 2018.June 30, 2023, there are no accumulated and unpaid dividends on the Series A Preferred Stock. For further information regarding the Exchange Offer, Series A Charter Amendments and Series B Charter Amendments, see Note 2 – Liquidity and Note 9 – Common and Preferred Stock.to the consolidated financial statements included in Part I, Item 1 herein.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The agreements included as exhibits to this Quarterly Report are included to provide information regarding the terms of these agreements and are not intended to provide any other factual or disclosure information about the Company, its business or the other parties to these agreements. These agreements may 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:
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41
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and should not be relied upon by investors.
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EXHIBIT INDEX
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Exhibit No. | Description | Method of Filing | ||
3.1 | Amended and Restated Articles of Incorporation of Regional Health Properties, Inc., effective | Incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form | ||
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| Amended and Restated Bylaws of Regional Health Properties, Inc., effective September 21, 2017 | Incorporated by reference to Exhibit 3.3 of the Registrant's Current Report on Form 8-K12B filed on October 10, 2017 | ||
3.2(a) | Incorporated by reference to Exhibit 3.6 of the Registrant’s Post-Effective Amendment No. 1 to Registration Statement on Form S-4 (Reg. No. 333-269750) filed on June 28, 2023 | |||
4.1 |
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| Description of Regional Health Properties, Inc. Capital Stock | Incorporated by reference to Exhibit | ||
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31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act | Filed herewith | ||
31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act |
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32.1 | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act | Filed herewith | ||
32.2 | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act |
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101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. | Filed herewith | ||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed herewith | ||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed herewith | ||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed herewith | ||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed herewith | ||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed herewith | ||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | Filed herewith |
* Identifies a management contract or compensatory plan or arrangement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.
REGIONAL HEALTH PROPERTIES, INC. | |||||
(Registrant) | |||||
Date: |
| August 18, 2023 | /s/ Brent Morrison | ||
Brent Morrison | |||||
Chairman, Chief Executive Officer and Director (Principal Executive Officer) | |||||
Date: |
| August 18, 2023 | /s/ Paul O'Sullivan | ||
Paul O'Sullivan | |||||
Senior Vice President (Principal Financial Officer) |
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