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RHE Regional Health Properties

Filed: 14 May 21, 4:10pm

 

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 March 31, 2021

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 NW, Suite 100, Suwanee, GA 30024

(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

10.875% Series A Cumulative Redeemable

Preferred 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

 

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 May 10, 2021:  1,688,219 shares of common stock, no par value, were outstanding.

 

 

 

 


 

Regional Health Properties, Inc.

Form 10-Q

Table of Contents

 

 

 

 

 

Page
Number

Part I.

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

 

3

 

 

Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

 

3

 

 

Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020

 

4

 

 

Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2021 and 2020

 

5

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020

 

6

 

 

Notes to Consolidated Financial Statements

 

8

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

36

Item 4.

 

Controls and Procedures

 

36

 

 

 

 

 

Part II.

 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

37

Item 1A.

 

Risk Factors

 

37

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

40

Item 3.

 

Defaults upon Senior Securities

 

40

Item 4.

 

Mine Safety Disclosures

 

40

Item 5.

 

Other Information

 

40

Item 6.

 

Exhibits

 

41

 

 

 

 

 

Signatures

 

44

 

2


 

Part I.  Financial Information

Item 1.

Financial Statements

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in 000’s)

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Property and equipment, net

 

$

51,961

 

 

$

52,533

 

Cash

 

 

6,196

 

 

 

4,186

 

Restricted cash

 

 

2,991

 

 

 

3,306

 

Accounts receivable, net of allowance of $72 and $1,381

 

 

1,851

 

 

 

2,100

 

Prepaid expenses and other

 

 

854

 

 

 

328

 

Notes receivable

 

 

424

 

 

 

444

 

Intangible assets - bed licenses

 

 

2,471

 

 

 

2,471

 

Intangible assets - lease rights, net

 

 

152

 

 

 

158

 

Right-of-use operating lease assets

 

 

32,811

 

 

 

33,740

 

Goodwill

 

 

1,585

 

 

 

1,585

 

Lease deposits and other deposits

 

 

514

 

 

 

514

 

Straight-line rent receivable

 

 

7,158

 

 

 

6,660

 

Total assets

 

$

108,968

 

 

$

108,025

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Senior debt, net

 

$

46,974

 

 

$

47,275

 

Bonds, net

 

 

6,354

 

 

 

6,342

 

Other debt, net

 

 

1,105

 

 

 

822

 

Accounts payable

 

 

3,815

 

 

 

3,008

 

Accrued expenses

 

 

3,178

 

 

 

2,225

 

Operating lease obligation

 

 

34,978

 

 

 

35,884

 

Other liabilities

 

 

1,439

 

 

 

1,365

 

Total liabilities

 

 

97,843

 

 

 

96,921

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 1,688 issued and outstanding at March 31, 2021 and December 31, 2020

 

 

62,041

 

 

 

62,041

 

Preferred stock, no par value; 5,000 shares authorized; 2,812 shares issued and outstanding, redemption amount $70,288 at March 31, 2021 and December 31, 2020

 

 

62,423

 

 

 

62,423

 

Accumulated deficit

 

 

(113,339

)

 

 

(113,360

)

Total stockholders’ equity

 

 

11,125

 

 

 

11,104

 

Total liabilities and stockholders’ equity

 

$

108,968

 

 

$

108,025

 

 

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 March 31,

 

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

Patient care revenues

 

$

2,690

 

 

$

 

Rental revenues

 

 

4,081

 

 

 

4,297

 

Management fees

 

 

248

 

 

 

244

 

Other revenues

 

 

62

 

 

 

7

 

Total revenues

 

 

7,081

 

 

 

4,548

 

Expenses:

 

 

 

 

 

 

 

 

Patient care expense

 

 

2,203

 

 

 

 

Facility rent expense

 

 

1,640

 

 

 

1,640

 

Cost of management fees

 

 

165

 

 

 

151

 

Depreciation and amortization

 

 

650

 

 

 

776

 

General and administrative expense

 

 

1,036

 

 

 

877

 

Doubtful accounts expense (recovery)

 

 

40

 

 

 

(2

)

Other operating expenses

 

 

232

 

 

 

224

 

Total expenses

 

 

5,966

 

 

 

3,666

 

Income from operations

 

 

1,115

 

 

 

882

 

Other expense :

 

 

 

 

 

 

 

 

Interest expense, net

 

 

687

 

 

 

715

 

Other expense, net

 

 

394

 

 

 

144

 

Total other expense, net

 

 

1,081

 

 

 

859

 

Income from continuing operations before income taxes

 

 

34

 

 

 

23

 

Income from continuing operations

 

 

34

 

 

 

23

 

Loss from discontinued operations, net of tax

 

 

(13

)

 

 

(37

)

Net Income (loss)

 

 

21

 

 

 

(14

)

Preferred stock dividends - undeclared

 

 

(2,249

)

 

 

(2,249

)

Net Loss attributable to Regional Health Properties, Inc. common stockholders

 

$

(2,228

)

 

$

(2,263

)

Net Loss per share of common stock attributable to Regional Health Properties, Inc.

 

 

 

 

 

 

 

 

Basic and diluted:

 

 

 

 

 

 

 

 

Continuing operations

 

$

(1.31

)

 

$

(1.32

)

Discontinued operations

 

 

(0.01

)

 

 

(0.02

)

 

 

$

(1.32

)

 

$

(1.34

)

Weighted average shares of common stock outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

1,688

 

 

 

1,688

 

 

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)

 

For the Three Months ended March 31, 2021

 

Shares of

Common

Stock

 

 

Shares of

Preferred

Stock

 

 

Common

Stock and

Additional

Paid-in

Capital

 

 

Preferred

Stock

 

 

Accumulated

Deficit

 

 

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

 

 

For the Three Months ended March 31, 2020

 

Shares of

Common

Stock

 

 

Shares of

Preferred

Stock

 

 

Common

Stock and

Additional

Paid-in

Capital

 

 

Preferred

Stock

 

 

Accumulated

Deficit

 

 

Total

 

Balances, December 31, 2019

 

 

1,688

 

 

 

2,812

 

 

$

61,992

 

 

$

62,423

 

 

$

(112,672

)

 

$

11,743

 

Stock-based compensation

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

12

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

(14

)

Balances, March 31, 2020

 

 

1,688

 

 

 

2,812

 

 

$

62,004

 

 

$

62,423

 

 

$

(112,686

)

 

$

11,741

 

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net Income (loss)

 

$

21

 

 

$

(14

)

Loss from discontinued operations, net of tax

 

 

13

 

 

 

37

 

Income from continuing operations

 

 

34

 

 

 

23

 

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

650

 

 

 

776

 

Stock-based compensation expense

 

 

 

 

 

12

 

Rent expense in excess of cash paid

 

 

24

 

 

 

55

 

Rent revenue in excess of cash received

 

 

(901

)

 

 

(283

)

Amortization of deferred financing costs, debt discounts and premiums

 

 

33

 

 

 

33

 

Bad debt expense (recovery)

 

 

40

 

 

 

(2

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

583

 

 

 

(443

)

Prepaid expenses and other assets

 

 

128

 

 

 

(57

)

Accounts payable and accrued expenses

 

 

1,740

 

 

 

(7

)

Other liabilities

 

 

77

 

 

 

163

 

Net cash provided by operating activities - continuing operations

 

 

2,408

 

 

 

270

 

Net cash used in operating activities - discontinued operations

 

 

(58

)

 

 

(405

)

Net cash provided by (used in) operating activities

 

 

2,350

 

 

 

(135

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(33

)

 

 

(157

)

Net cash used in investing activities - continuing operations

 

 

(33

)

 

 

(157

)

Net cash used in investing activities

 

 

(33

)

 

 

(157

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment on notes payable

 

 

(622

)

 

 

(436

)

Net cash used in financing activities - continuing operations

 

 

(622

)

 

 

(436

)

Net cash used in financing activities

 

 

(622

)

 

 

(436

)

Net change in cash and restricted cash

 

 

1,695

 

 

 

(728

)

Cash and  restricted cash, beginning

 

 

7,492

 

 

 

8,038

 

Cash and restricted cash, ending

 

$

9,187

 

 

$

7,310

 

 

6


 

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in 000’s)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash interest paid

 

$

741

 

 

$

689

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

 

 

Vendor-financed insurance

 

$

636

 

 

$

27

 

 

See accompanying notes to unaudited consolidated financial statements

 

 

 

7


 

 

REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2021

NOTE 1.

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Regional Health Properties, Inc., a Georgia corporation (“Regional Health” or “Regional” and, together with its subsidiaries, the “Company” or “we”), is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living. The Company’s business primarily consists of leasing and subleasing healthcare facilities to third-party tenants, which in turn operate the facilities. The operators of the Company’s facilities provide a range of healthcare services to their patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.

As of March 31, 2021, the Company owned, leased or managed for third parties, or operated, 24 facilities, primarily in the Southeast United States. Of the 24 facilities, the Company: (i) leased 10 skilled nursing facilities (which the Company owns) to third-party tenants, subleased eight skilled nursing facilities (which the Company leases) to third-party tenants, and operated, as of January 1, 2021 as a portfolio stabilization measure, one previously subleased skilled nursing facility (which the Company leases); (ii) leased two assisted living facilities (which the Company owns) to third-party tenants; and (iii) managed, on behalf of third-party owners, two skilled nursing facilities and one independent living facility. Accordingly, as of January 1, 2021, 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 (“Real Estate Services”); and (ii) healthcare services, which consists of the operation of a skilled nursing facility (“Healthcare Services”).

Effective January 1, 2021, the Company terminated the subleases for two skilled nursing facilities located in Georgia (the “Wellington Lease Termination”) with affiliates of Wellington Healthcare Services II, L.P. (“Wellington”), and as a portfolio stabilization measure, the Company commenced operating the previously subleased 134-bed facility located in Thunderbolt, Georgia (the “Tara Facility”) and entered into a new sublease agreement with an affiliate of Empire Care Centers, LLC (“Empire”) for the other 208-bed facility located in Powder Springs, Georgia (the “Powder Springs Facility”). The Company has entered into a Management Consulting Services Agreement (the “Vero Management Agreement”) with Vero Health Management, LLC (“Vero Health”) under which Vero Health will provide management consulting services for the Tara Facility which the Company now operates. See Note 6 – Leases, herein, and Note 6 – Leases in Part II, Item 8, “Financial Statements and Supplemental Data” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on March 29, 2021 (the “Annual Report”), for a more detailed description of the Company’s leases.

 

The Company leases its currently-owned healthcare properties, and subleases its currently-leased healthcare properties, on a triple-net basis, meaning that the lessee (i.e., the third-party operator of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. These leases are generally long-term in nature with renewal options and annual rent escalation clauses.

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 purpose of the Merger, with Regional Health continuing as the surviving corporation in the Merger. For a description of the Merger, see Part II, Item 8, “Financial Statements and Supplemental Data”, Note 1 – Summary of Significant Accounting Policies included in the Annual Report.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations for the periods presented have been included.  Operating results for the three months ended March 31, 2021 and 2020 are not necessarily indicative of the results that may be expected for the fiscal year. The consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. 

8


 

You should read the unaudited consolidated financial statements in this Quarterly Report together with the historical audited consolidated financial statements of the Company for the year ended December 31, 2020, included in the Annual Report. See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 1 – Summary of Significant Accounting Policies included in the Annual Report, for a description of all significant accounting policies. During the three months ended March 31, 2021, there were no material changes to the Company’s policies.

 

Risks and Uncertainties

While 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. On January 1, 2021, following the Wellington Lease Termination, the Company commenced operating the Tara Facility, which facility comprises approximately 5.0% of the total amount of the Company’s licensed patient beds. This portfolio stabilization measure exposes the Company directly to all the risks our tenants face as discussed in this “Risk and Uncertainties” section and “Risks Related to Our Business - Our portfolio stabilization measures expose the Company to the various risks facing our tenants” in Part I, Item 1.A, “Risk Factors.” in the Annual Report.

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 have adversely affected our business during the three months ended March 31, 2021, and we expect it will continue to adversely affect our business in the quarter ending June 30, 2021 and beyond, for a variety of reasons, including those discussed below and elsewhere in this Quarterly Report.

As of May 10, 2021, the Company is aware that each of our facilities has previously reported one or more positive cases of COVID-19 among the residents and/or operator employee populations. Many of our operators have reported incurring significant cost increases as a result of the COVID-19 pandemic, with dramatic increases for facilities with positive cases. 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 skilled nursing facilities (“SNFs”), and higher hospital re-admittances 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’ ability to make their rental payments to us pursuant to their respective lease agreements. In addition, our 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 could cause, and in some cases has already caused, 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’ 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’ revenue. Currently, a number of our tenants have stopped admitting new patients due to rising COVID-19 infections resulting 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’ 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’ decrease in revenues or otherwise, then, in some cases, we may be forced to either attempt to replace tenants or restructure 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.

9


 

While the Company has received approximately 97% of its expected fixed monthly rental receipts from tenants for the three months ended March 31, 2021, 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 and the extent 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 is 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 full or on a timely basis, as has occurred with one of our prior operators.

We also do not know the number of facilities that will ultimately experience widespread, high-cost outbreaks of COVID-19, and while we have requested reporting case numbers from our operators and the U.S. Department of Health and Human Services Centers for Medicare and Medicaid Services (“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 will be sufficient to cover the increased costs of enhanced infection control and monitoring. The extent of the COVID-19 pandemic’s effect on our and our operators’ 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 an 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. Due to these uncertainties, we are unable at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.

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.

Revenue Recognition and Allowances

Patient Care Revenue. Accounting Standards Codification (“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 new Healthcare Services business segment is derived from services rendered to patients in the Tara Facility. The Company receives payments from the following sources for services rendered in our facilities: (i) the federal government under the Medicare program administered by 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 has recognized 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’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 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.

10


 

Management Fees, Revenue from Contracts with Customers. 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 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.

Other revenues. 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.

Allowances. The Company assesses the collectability of its rent receivables, including straight-line rent receivables and working capital loans to tenants. 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 required by a lease or required from a working capital loan to a tenant, then the Company may adjust its reserve to increase or reduce the rental revenue or interest revenue from working capital loans to tenants recognized in the period the Company makes such change in its assumptions or estimates. In an effort to ensure a conservative presentation of the results of the Healthcare Services segment due to lack of history, the Company has provided an additional allowance for patient care receivables of 1.5% of patient revenues.

As of March 31, 2021 and December 31, 2020, the Company reserved for approximately $0.1 million and $1.4 million, respectively, of uncollected receivables. Accounts receivable, net, totaled $1.9 million at March 31, 2021 and $2.1 million at December 31, 2020.

The following table presents the Company's Accounts receivable, net of allowance for the periods presented:

 

(Amounts in 000’s)

 

March 31,

2021

 

 

December 31,

2020

 

Gross receivables

 

 

 

 

 

 

 

 

Real Estate Services (a)

 

$

1,146

 

 

$

3,481

 

Healthcare Services

 

 

777

 

 

 

 

Sub Total

 

 

1,923

 

 

 

3,481

 

Allowance

 

 

 

 

 

 

 

 

Real Estate Services (a)

 

 

(32

)

 

 

(1,381

)

Healthcare Services

 

 

(40

)

 

 

 

 

Sub Total

 

 

(72

)

 

 

(1,381

)

Accounts receivable, net of allowance

 

$

1,851

 

 

$

2,100

 

 

(a)

See Note 6– Leases for details on the impact of the Wellington Lease Termination.

Pre-Paid Expenses and Other

As of March 31, 2021 and December 31, 2020, the Company had $0.9 million and approximately $0.4 million, respectively, in pre-paid expenses and other, the $0.5 million increase is related to insurance for the Tara 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)

 

March 31,

2021

 

 

December 31,

2020

 

Accounts payable

 

 

 

 

 

 

 

 

Real Estate Services

 

$

3,399

 

 

$

3,008

 

Healthcare Services

 

 

416

 

 

 

 

Total Accounts payable

 

$

3,815

 

 

$

3,008

 

 

11


 

 

Other liabilities

As of March 31, 2021 and December 31, 2020, the Company had $1.4 million, in Other liabilities, consisting of security lease deposits and sublease improvement funds.

Other expense, net

The Company has retained professional services to evaluate and assist with possible opportunities to improve the Company’s capital structure.

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 capital lease. As of March 31, 2021, 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, the 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. We assess any new contracts or modification of contracts in accordance with ASC 842 to determine the existence of a lease and its classification. We are reporting revenues and expenses for real estate taxes and insurance, where the lessee has not made those payments directly to a third party in accordance with their respective leases with us.

The following table summarizes real estate tax recognized on our consolidated statements of operations for the three months ended March 31, 2021 and 2020:

 

 

 

Three Months Ended March 31,

 

 

(Amounts in 000’s)

 

2021

 

 

2020

 

 

Rental revenues

 

$

133

 

 

$

126

 

 

Other operating expenses

 

$

133

 

 

$

126

 

 

Additionally, we expense certain leasing costs, other than leasing commissions, as they are incurred. Prior GAAP provided for the deferral and amortization of such costs over the applicable lease term. The present value of minimum lease payments was calculated on each lease, using a discount rate of 7.98% for the Company’s leases that approximated our incremental borrowing rate as of January 1, 2019, 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 standards, including for the operations at the Tara Facility. 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”). See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 14 – Commitments and Contingencies in the Annual Report 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,

12


 

including commercial general liability, property, casualty, directors’ and officers’ liability, crime and employment practices liability.

Earnings Per Share

Basic earnings per share is computed by dividing net income or loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the respective period. Diluted earnings per share is similar to basic earnings per share except that the net income or 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:

 

 

 

March 31,

 

(Share amounts in 000’s)

 

2021

 

 

2020

 

Stock options

 

 

13

 

 

 

15

 

Warrants - employee

 

 

49

 

 

 

49

 

Warrants - non employee

 

 

9

 

 

 

9

 

Total anti-dilutive securities

 

 

71

 

 

 

73

 

The weighted average contractual terms in years for these securities as of March 31, 2021, with no intrinsic value, are 3.3 years for the stock options and 2.7 years for the warrants.

See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 1 – Summary of Significant Accounting Policies included in the Annual Report, for a description of the other accounting pronouncements the Company is currently evaluating.

 

 

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 March 31, 2021, the Company had $6.2 million in unrestricted cash. During the three months ended March 31, 2021, the Company generated positive cash flow from continuing operations of $2.4 million, and anticipates continued positive cash flow from operations in the future, subject to the continued uncertainty of the COVID-19 pandemic and its impact on the Company’s business, financial condition and results of operations.

 

On December 1, 2020, the Company entered into the Wellington Lease Termination with the following affiliates of Wellington,  3223 Falligant Avenue Associates, L.P. (“Tara Tenant”) and 3460 Powder Springs Road Associates, L.P. (“Powder Springs Tenant”, together with Tara Tenant, the “Wellington Tenants”). Per the Wellington Lease Termination, possession, custody, control and operation of the Tara Facility and Powder Springs Facility (the “Wellington Facilities”) transitioned from the Wellington Tenants to the Company (the “Wellington Transition”) at 12:01 a.m. on January 1, 2021 (the “Wellington Transition Date”), pursuant to the terms and provisions of the Operations Transfer Agreements (the “OTAs”) which the Company and the Wellington Tenants entered into in connection with the Wellington Lease Termination, which included customary termination events.

 

The OTAs were subject to customary closing conditions and representations and warranties. The Wellington Transition was subject to the Georgia Department of Community Health’s (“DCH”) approval of the Change in Ownership Applications (the “Applications”), which were filed by Regional on December 2, 2020. On the Wellington Transition Date, the Wellington Tenants: (i) paid all cash on hand at the Wellington Facilities to Regional; (ii) transferred and assigned all accounts receivable previously due to the Wellington Tenants as of the Wellington Transition Date; and (iii) entered into commercially reasonable Deposit Account Control Agreements with respect to all of the Wellington Tenants’ bank accounts that receive accounts

13


 

receivable remittances. Additionally, on the Wellington Transition Date, the Company became liable for certain expenses including approximately $1.7 million of bed taxes in arrears. On January 1, 2019, security agreements (the “Security Agreements”) executed between the Company and the Wellington Tenants, provided for certain of the Wellington Tenants assets as collateral to the Company in the event of any default under prior agreements with the Company. These Security Agreements survive the Wellington Transition and will remain in full force and effect in order to assist Regional in collecting the accounts receivable.

 

Scheduled rent payments under the Wellington Subleases constituted approximately 23% of the Company’s anticipated annual revenue in 2020. As of December 31, 2020, Regional recorded an estimated allowance of $1.4 million against a rent receivable of $2.7 million from the Wellington Tenants. During the three months ended March 31, 2021, the Company collected $3.1 million pursuant to the Wellington Lease Termination and paid $1.0 million to partially satisfy the Wellington Lease Termination obligation of approximately $1.7 million of bed taxes in arrears. The Company provides no assurance that we will be able to collect any of the additional rent arrears in excess of the net $1.3 million already collected.

 

During the three months ended March 31, 2021, the Company recognized $0.4 million of variable rent for the Powder Springs Facility and, as of the date of filing this Quarterly Report, has collected all of such variable rent replacing approximately $0.5 million of cash rent previously anticipated from the Wellington Tenant. The Tara Facility operations performance during the quarter is marginally profitable and performance has been sufficient to cover the rent the Company is obligated to pay under its lease. For further information on the Tara Facility performance see Note 13 – Segment Results.

 

The Company is current with all of its debt and other financial obligations. The Company has benefited from various, now expired, stimulus measures made available to it through the Coronavirus Aid, Relief, and Economic Security Act (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 U.S. Department of Agriculture (“USDA”) loans to maturity, (ii) an allowance for debt service payments to be made out of replacement reserve accounts for U.S. Department of Housing and Urban Development (“HUD”) loans and (iii) debt service payments to be made by the U.S. Small Business Administration (the “SBA”) on all SBA loans. For further information see Note 8 – Notes Payable and Other Debt.

 

Series A Preferred Dividend Suspension

 

On June 8, 2018, the Board indefinitely suspended quarterly dividend payments with respect to the Series A Preferred Stock. As of March 31, 2021, 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 $30.1 million of undeclared 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 (October 1, 2018) and continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash.

 

Debt

 As of March 31, 2021, the Company had $54.4 million in indebtedness, net of $1.2 million deferred financing, and unamortized discounts. The Company anticipates net principal repayments of approximately $2.7 million during the next twelve-month period, including approximately $1.5 million of routine debt service amortization, $1.1 million of current maturities of other debt (including $0.4 million related to insurance financing for the Tara Facility operations), and a $0.1 million payment of bond debt.

Debt Covenant Compliance

As of March 31, 2021, 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

14


 

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.

 

NOTE 3.

CASH AND RESTRICTED CASH

The following presents the Company's cash and restricted cash:

 

(Amounts in 000’s)

 

March 31,

2021

 

 

December 31,

2020

 

Cash

 

$

6,196

 

 

$

4,186

 

 

 

 

 

 

 

 

 

 

Restricted cash:

 

 

 

 

 

 

 

 

Cash collateral

 

 

153

 

 

 

124

 

HUD and other replacement reserves

 

 

1,731

 

 

 

1,675

 

Escrow deposits

 

 

790

 

 

 

1,190

 

Restricted investments for debt obligations

 

 

317

 

 

 

317

 

Total restricted cash

 

 

2,991

 

 

 

3,306

 

Total cash and restricted cash

 

$

9,187

 

 

$

7,492

 

 

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.

NOTE 4.

PROPERTY AND EQUIPMENT

The following table sets forth the Company’s property and equipment:

 

(Amounts in 000’s)

 

Estimated

Useful

Lives (Years)

 

 

March 31,

2021

 

 

December 31,

2020

 

Buildings and improvements

 

5-40

 

 

$

65,672

 

 

$

65,629

 

Equipment and computer related

 

2-10

 

 

 

5,056

 

 

 

5,139

 

Land (1)

 

 

 

 

 

2,776

 

 

 

2,776

 

Construction in process

 

 

 

 

 

 

 

 

69

 

 

 

 

 

 

 

 

73,504

 

 

 

73,613

 

Less: accumulated depreciation and amortization

 

 

 

 

 

 

(21,543

)

 

 

(21,080

)

Property and equipment, net

 

 

 

 

 

$

51,961

 

 

$

52,533

 

 

 

(1)

Includes $0.1 million of land improvements with an average estimated useful remaining life of approximately 8 years.

15


 

 

 

The following table summarizes total depreciation and amortization expense for the three months ended March 31, 2021 and 2020:

 

 

 

Three Months Ended March 31,

 

 

(Amounts in 000’s)

 

2021

 

 

2020

 

 

Depreciation

 

$

540

 

 

$

550

 

 

Amortization

 

 

110

 

 

 

226

 

 

Total depreciation and amortization expense

 

$

650

 

 

$

776

 

 

 

NOTE 5.

INTANGIBLE ASSETS AND GOODWILL

Intangible assets and Goodwill consist of the following:

 

(Amounts in 000’s)

 

Bed licenses

(included

in property

and

equipment)(a)

 

 

Bed Licenses -

Separable (b)

 

 

Lease

Rights

 

 

Total

 

 

Goodwill (b)

 

Balances, December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

$

14,276

 

 

$

2,471

 

 

$

206

 

 

$

16,953

 

 

$

1,585

 

Accumulated amortization

 

 

(3,754

)

 

 

 

 

 

(48

)

 

 

(3,802

)

 

 

 

Net carrying amount

 

$

10,522

 

 

$

2,471

 

 

$

158

 

 

$

13,151

 

 

$

1,585

 

Amortization expense

 

 

(104

)

 

 

 

 

 

(6

)

 

 

(110

)

 

 

 

Balances, March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

14,276

 

 

 

2,471

 

 

 

206

 

 

 

16,953

 

 

 

1,585

 

Accumulated amortization

 

 

(3,858

)

 

 

 

 

 

(54

)

 

 

(3,912

)

 

 

 

Net carrying amount

 

$

10,418

 

 

$

2,471

 

 

$

152

 

 

$

13,041

 

 

$

1,585

 

 

 

(a)

Non-separable bed licenses are included in property and equipment as is the related accumulated amortization expense (see Note 4 – Property and Equipment).

 

 

(b)

The Company does not amortize indefinite-lived intangibles, which consist of separable bed licenses and goodwill.

 

The following table summarizes amortization expense for the three months ended March 31, 2021 and 2020:

 

 

 

Three Months Ended March 31,

 

(Amounts in 000’s)

 

2021

 

 

2020

 

Bed licenses

 

$

104

 

 

$

104

 

Lease rights

 

 

6

 

 

 

122

 

Total amortization expense

 

$

110

 

 

$

226

 

 

Expected amortization expense for the year ended December 31, for all definite-lived intangibles, for each of the next five years and thereafter is as follows: 

(Amounts in 000’s)

 

Bed

Licenses

 

 

Lease

Rights

 

2021 (a)

 

$

310

 

 

$

18

 

2022

 

 

414

 

 

 

24

 

2023

 

 

414

 

 

 

23

 

2024

 

 

414

 

 

 

18

 

2025

 

 

414

 

 

 

18

 

Thereafter

 

 

8,452

 

 

 

51

 

Total expected amortization expense

 

$

10,418

 

 

$

152

 

 

(a)

Estimated amortization expense for the year ending December 31, 2021, includes only amortization to be recorded after March 31, 2021.

 

 


16


 

 

NOTE 6.

LEASES

Operating Leases

Facilities Leased to the Company - The Company leases nine skilled nursing facilities from unaffiliated owners under non-cancelable leases, all of which have rent escalation clauses and provisions requiring payment of real estate taxes, insurance and maintenance costs by the lessee. Except for the Tara Facility, which the Company is operating, each of the skilled nursing facilities that are leased by the Company are subleased to and operated by third-party tenants. The Company also leases certain office space located in Suwanee, Georgia. The weighted average remaining lease term for our nine leased facilities is approximately 6.6 years. As of March 31, 2021, the Company is in compliance with all operating lease financial covenants.

Future Minimum Lease Payments

Future minimum lease payments for the year ended December 31, for each of the next five years and thereafter is as follows:

 

(Amounts in 000’s)

 

Future

rental

payments

 

 

Accretion of

lease liability (1)

 

 

Operating

lease

obligation

 

2021 (2)

 

$

4,981

 

 

$

(205

)

 

$

4,776

 

2022

 

 

6,752

 

 

 

(713

)

 

 

6,039

 

2023

 

 

6,851

 

 

 

(1,164

)

 

 

5,687

 

2024

 

 

6,958

 

 

 

(1,602

)

 

 

5,356

 

2025

 

 

7,095

 

 

 

(2,051

)

 

 

5,044

 

Thereafter

 

 

12,736

 

 

 

(4,660

)

 

 

8,076

 

Total

 

$

45,373

 

 

$

(10,395

)

 

$

34,978

 

 

(1)

Weighted average discount rate 7.98%.

(2)

Estimated minimum lease payments for the year ending December 31, 2021 include only payments to be paid after March 31, 2021.

 

For further details regarding the Company’s leases from unaffiliated owners under non-cancelable leases and which comprise the future minimum lease payments of the Company, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 6 - Leases included in the Annual Report.

 

Facilities Leased or Subleased by the Company -  As of March 31, 2021, the Company leased or subleased 20 facilities (12 owned by the Company and eight leased to the Company), to third-party tenants on a triple net basis, meaning that the lessee (i.e., the third-party tenant of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. The weighted average remaining lease term for our facilities is approximately 6.3 years.

Empire. Following the Wellington Lease Termination, effective January 1, 2021, Regional leased the Powder Springs Facility to PS Operator LLC (“PS Operator”), an affiliate of Empire, pursuant to a sublease (the “PS Sublease”).

 

The PS Sublease will expire on August 1, 2027, subject to two five-year optional extensions. For the first six months, the base rent under the PS Sublease will equal the adjusted earnings before interest, tax, depreciation, amortization, and rent (“EBITDAR”) as defined in the PS Sublease, of PS Operator, to the extent derived from the Powder Springs Facility. For months seven through twenty-four, the base rent will equal 80% of the Adjusted EBITDAR; however, beginning with month thirteen, the base rent may not exceed $150,000 per month. Beginning with month twenty-five, the base rent will be $140,000 per month.

 

For the first three months, if Adjusted EBITDAR (as defined in the PS Sublease) is less than $0, PS Operator will not pay any base rent and the Company would reimburse PS Operator an amount equal to the amount by which each period’s Adjusted EBITDAR is less than $0. Beginning with the fourth month and thereafter, the PS Sublease will be a “triple net” lease with PS Operator responsible for payment of all expenses in addition to rent.

 

During the three months ended March 31, 2021, the Company recognized $0.4 million of variable rent for the Powder Springs Facility and $0.3 million straight-line rent.

 

If the monthly average adjusted cash flows of PS Operator (as described in the PS Sublease) is less than $100,000 for any consecutive three-month period after the sixth month of the PS Sublease, then Regional may terminate the PS Sublease subject

17


 

to the conditions set forth in the PS Sublease. The PS Sublease also includes customary covenants, events of default and indemnification obligations.

Sublease Termination

Wellington. Two of the Company’s eight Georgia facilities, leased under a prime lease, were subleased to affiliates of Wellington under agreements dated January 31, 2015, as subsequently amended (the “Wellington Subleases”). The Wellington Subleases, which were due to expire August 31, 2027, related to the Tara Facility and the Powder Springs Facility.

 

On December 1, 2020, the Company entered into the Wellington Lease Termination with the Wellington Tenants, Wellington, as guarantor and Mansell Court Associates LLC (“Pledgor”). Tenants, Wellington and Pledgor, together with each of their respective affiliates, shareholders, partners, members, managers, officers, directors and employees thereof, are the “Wellington Parties”.

 

The Wellington Transition occurred at 12:01 a.m. on January 1, 2021, pursuant to the terms and provisions of the OTAs which the Company and the Wellington Tenants entered into in connection with the Wellington Lease Termination, which included customary termination events.

 

The OTAs were subject to customary closing conditions and representations and warranties. The Wellington Transition was subject to DCH approval of the Applications, which were filed by Regional on December 2, 2020. On the Wellington Transition Date, the Wellington Tenants: (i) paid all cash on hand at the Wellington Facilities to Regional; (ii) transferred and assigned all accounts receivable previously due to the Wellington Tenants as of the Wellington Transition Date; and (iii) entered into commercially reasonable Deposit Account Control Agreements with respect to all of the Wellington Tenants’ bank accounts that receive accounts receivable remittances. Additionally, on the Wellington Transition Date, the Company became liable for certain expenses including approximately $1.7 million of bed taxes in arrears. The Security Agreements survive the Wellington Transition and will remain in full force and effect in order to assist Regional in collecting the accounts receivable.

As of December 31, 2020, Regional recorded an estimated allowance of $1.4 million against a rent receivable of $2.7 million from the Wellington Tenants. During the three months ended March 31, 2021, the Company collected $3.1 million pursuant to the Wellington Lease Termination and paid $1.0 million to partially satisfy the Wellington Lease Termination obligation of approximately $1.7 million of bed taxes in arrears. The Company provides no assurance that we will be able to collect any of the additional rent arrears in excess of the net $1.3 million already collected. Scheduled rent payments under the Wellington Subleases constituted approximately 23% of the Company’s anticipated annual revenue in 2020.

 

During the three months ended March 31, 2021, the Company recognized $0.4 million of variable rent for the Powder Springs Facility and, as of the date of filing this Quarterly Report, has collected all of such variable rent replacing approximately $0.5 million of cash rent previously anticipated for the Wellington Tenant. The Tara Facility operations performance during the quarter is marginally profitable and performance has been sufficient to cover the rent the Company is obligated to pay under its lease. For further information on the Tara Facility performance see Note 13 – Segment Results.

 

When the Wellington Transition occurred, all agreements executed prior to the Wellington Lease Termination with the Wellington Parties, other than the Security Agreements, terminated automatically. Additionally, the Wellington Parties and Regional agreed to a mutual release whereby each party releases, acquits, and forever discharges one another from any and all charges, complaints, claims, liabilities, demands, costs, losses, debts, and expenses of any nature whatsoever (including attorneys’ fees and costs actually incurred), known or unknown, suspected or unsuspected, accrued or not accrued, whether in law in equity, that existed from the beginning of time to the Wellington Transition Date.

 

Subject to provisions in the OTAs and the Wellington Lease Termination, Regional is not liable for any contractual obligations or liabilities of the Wellington Parties owed to third parties arising prior to the Wellington Transition Date. Regional will pay and/or assume all vacation days, sick days and paid time off accruing on or before the Wellington Transition Date.

 

Regional has indemnified the Wellington Parties from liabilities arising from or relating to any unpaid nursing home provider fees relating in any way to the Tara Facility and Powder Springs Facility for the period prior to and/or after December 1, 2020.

 

Aspire. On November 30, 2018, the Company leased or subleased five facilities located in Ohio to affiliates (collectively, “Aspire Sublessees”) of Aspire Regional Partners, Inc. (“Aspire”) management, formerly affiliated with MSTC Development Inc., pursuant to separate sublease agreements (the “Aspire Subleases”), whereby the Aspire Sublessees took possession of, and commenced operating, the facilities (the “Aspire Facilities”) as tenant or subtenant. The Aspire Subleases became effective on December 1, 2018 and are structured as triple net leases. 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 March 31, 2021.

18


 

Symmetry. Affiliates (the “Symmetry Tenants”) of Healthcare Management, LLC (“Symmetry” or “Symmetry Healthcare”) leased the following facilities from the Company, pursuant to separate lease agreements which expire in 2030 (the “Symmetry Leases”): (i) the Company’s 106-bed, skilled nursing facility located in Sylvia, North Carolina (the “Mountain Trace Facility”); (ii) the Company’s 96-bed, skilled nursing facility located in Sumter, South Carolina (the “Sumter Facility”); and (iii) the Company’s 84-bed, skilled nursing facility located in Georgetown, South Carolina (the “Georgetown Facility”). On June 27, 2018, the Company notified Blue Ridge of Sumter, LLC, the tenant with respect to the Sumter Facility (the “Sumter Tenant”), and Blue Ridge on the Mountain, LLC, the tenant with respect to the Mountain Trace Facility (the “Mountain Trace Tenant”), that continued breach of the payment terms of the applicable Symmetry Lease would constitute an event of default. The Symmetry Tenants had alleged that the Company was in material breach of each of the Symmetry Leases with regard to deferred maintenance and were withholding rental payments on the basis of such allegations.  

 

On January 28, 2019, the Company reached an agreement, with the Symmetry Tenants with respect to the Symmetry Leases, pursuant to which the Symmetry Tenants agreed to a $0.8 million (including approximately $0.06 million finance fees) payment plan for the rent arrears (the “Symmetry Payment Plan”). On February 28, 2019, the Company and the Mountain Trace Tenant mutually terminated the lease with respect to the Mountain Trace Facility and operations at the facility were transferred to Vero Health X, LLC, an affiliate of Vero Health, and hereafter also referred to as Vero Health. The Symmetry Tenants paid $0.1 million of the Symmetry Payment Plan during the three months ended March 31, 2021 and March 31, 2020, respectively. In February 2021, the Symmetry Tenants completed the Symmetry Payment Plan, upon completion of which the Company recognized $0.05 million in “Other revenues” having previously recognized $0.01 million prior to the year ended December, 31, 2019.

Vero Health. On February 28, 2019, the Company entered into a lease agreement (the “Vero Health Lease”) with Vero Health, providing that Vero Health would take possession of and operate the Mountain Trace Facility located in North Carolina. The Vero Health Lease became effective, upon the termination of the prior Mountain Trace Tenant mutual lease termination on March 1, 2019.  

Peach Health. In connection with a master sublease agreement which the Company entered into with affiliates of Peach Health Group, LLC (“Peach Health”), as of June 18, 2016 and amended on March 30, 2018, the Company extended a line of credit to Peach Health (the “Peach Line”), which was subordinated to a line of credit extended to Peach Health by a third-party lender (the “Peach Working Capital Facility”). On August 27, 2020, subsequent to Peach Health repaying its Peach Working Capital Facility, the Company and Peach Health modified the Peach Line to: (i) reduce the then $1.3 million outstanding balance under the Peach Line to approximately $0.5 million, in connection with which Peach Health paid to the Company $0.45 million in cash and the Company accepted $0.35 million non-cash payment in exchange for Peach Health assuming from the Company certain bed tax liabilities related to facilities their affiliates operate; (ii) extend the maturity date of the Peach Line to August 1, 2025; (iii) decrease the interest rate from 16.5% to 8% per annum; and (iv) Peach Health agreed not to pledge, hypothecate or grant any security interest in their collateral to any other party, other than their current arrangement with the SBA, without the Company’s prior written consent. The remaining balance under the Peach Line shall be paid by Peach Health to the Company in 60 equal monthly installments. During the year ended December 31, 2019, the Company suspended revenue recognition on the Peach Line interest income due pursuant to the subordination of the Peach Line to the Peach Working Capital Facility. Upon the Peach Line modification on August 27, 2020, the Company recommenced interest income recognition.

Notes Receivable: At March 31, 2021 and December 31, 2020, approximately $0.4 million was outstanding on the Peach Line.


19


 

 

Future Minimum Lease Receivables

Future minimum lease receivables for the year ended of December 31, for each of the next five years and thereafter is as follows: 

 

 

(Amounts

in 000's)

 

2021 (a)

 

$

9,337

 

2022

 

 

13,519

 

2023

 

 

15,477

 

2024

 

 

15,299

 

2025

 

 

13,702

 

Thereafter

 

 

33,555

 

Total

 

$

100,889

 

 

(a)

Estimated minimum lease receivables for the year ending December 31, 2021 include only payments scheduled to be received after March 31, 2021.

 

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 Part II, Item 8, “Financial Statements and Supplementary Data”, Note 6 - Leases and Note 9 – Acquisitions and Dispositions included in the Annual Report.

NOTE 7.

ACCRUED EXPENSES

 

Accrued expenses consist of the following:

 

(Amounts in 000’s)

 

March 31,

2021

 

 

December 31,

2020

 

Accrued employee benefits and payroll-related

 

$

449

 

 

$

218

 

Real estate and other taxes (1)

 

 

1,022

 

 

 

491

 

Self-insured reserve (2)

 

 

183

 

 

 

183

 

Accrued interest

 

 

334

 

 

 

424

 

Unearned rental revenue

 

 

42

 

 

 

41

 

Other accrued expenses

 

 

1,148

 

 

 

868

 

Total accrued expenses

 

$

3,178

 

 

$

2,225

 

 

 

(1)

Includes approximately $0.7 million of bed taxes in arrears related to the Wellington Transition.

 

 

(2)

The Company self-insures against professional and general liability cases incurred prior to the Transition and uses a third party administrator and outside counsel to manage and defend the claims (see Note 12 - Commitments and Contingencies).

 


20


 

 

NOTE 8.

NOTES PAYABLE AND OTHER DEBT

See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 8 – Notes Payable and Other Debt 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)

 

March 31,

2021

 

 

December 31,

2020

 

Senior debt—guaranteed by HUD

 

$

30,875

 

 

$

31,104

 

Senior debt—guaranteed by USDA

 

 

13,096

 

 

 

13,139

 

Senior debt—guaranteed by SBA

 

 

616

 

 

 

628

 

Senior debt—bonds

 

 

6,500

 

 

 

6,500

 

Senior debt—other mortgage indebtedness

 

 

3,593

 

 

 

3,631

 

Other debt

 

 

1,105

 

 

 

822

 

Subtotal

 

 

55,785

 

 

 

55,824

 

Deferred financing costs

 

 

(1,221

)

 

 

(1,250

)

Unamortized discount on bonds

 

 

(131

)

 

 

(135

)

Notes payable and other debt

 

$

54,433

 

 

$

54,439

 

 

The following is a detailed listing of the debt facilities that comprise each of the above categories:

 

(Amounts in 000’s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Facility

 

Lender

 

Maturity

 

Interest Rate (a)

 

 

March 31,

2021

 

 

December 31,

2020

 

Senior debt - guaranteed by HUD (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Pavilion Care Center

 

Orix Real Estate Capital

 

12/01/2027

 

Fixed

 

 

4.16

%

 

$

956

 

 

$

986

 

Hearth and Care of Greenfield

 

Orix Real Estate Capital

 

08/01/2038

 

Fixed

 

 

4.20

%

 

 

1,902

 

 

 

1,920

 

Woodland Manor

 

Midland State Bank

 

10/01/2044

 

Fixed

 

 

3.75

%

 

 

4,935

 

 

 

4,968

 

Glenvue

 

Midland State Bank

 

10/01/2044

 

Fixed

 

 

3.75

%

 

 

7,662

 

 

 

7,712

 

Autumn Breeze

 

KeyBank

 

01/01/2045

 

Fixed

 

 

3.65

%

 

 

6,660

 

 

 

6,705

 

Georgetown

 

Midland State Bank

 

10/01/2046

 

Fixed

 

 

2.98

%

 

 

3,372

 

 

 

3,394

 

Sumter Valley

 

KeyBank

 

01/01/2047

 

Fixed

 

 

3.70

%

 

 

5,388

 

 

 

5,419

 

Total

 

 

 

 

 

 

 

 

 

 

 

$

30,875

 

 

$

31,104

 

Senior debt - guaranteed by USDA (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coosa (d)

 

Metro City

 

09/30/2035

 

Prime + 1.50%

 

 

5.50

%

 

 

5,149

 

 

 

5,149

 

Mountain Trace (e)

 

Community B&T

 

02/24/2037

 

Prime + 1.75%

 

 

5.75

%

 

 

3,954

 

 

 

3,972

 

Southland (f)

 

Cadence Bank, NA

 

07/27/2036

 

Prime + 1.50%

 

 

6.00

%

 

 

3,993

 

 

 

4,018

 

Total

 

 

 

 

 

 

 

 

 

 

 

$

13,096

 

 

$

13,139

 

Senior debt - guaranteed by SBA (g)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southland

 

Cadence Bank, NA

 

07/27/2036

 

Prime + 2.25%

 

 

5.50

%

 

 

616

 

 

 

628

 

Total

 

 

 

 

 

 

 

 

 

 

 

$

616

 

 

$

628

 

 

(a)

Represents cash interest rates as of March 31, 2021 as adjusted for interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs, which range from 0.08% to 0.53% per annum.

(b)

For the seven skilled nursing facilities, the Company has term loans insured 100% by HUD with financial institutions. The loans are secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the underlying facility. The loans contain customary events of default, including fraud or material misrepresentations or material omission, the commencement of a forfeiture action or proceeding, failure to make required payments, and failure to perform or comply with certain agreements. Upon the occurrence of certain events of default, the lenders may, after receiving the prior written approval of HUD, terminate the loans and all amounts under the loans will become immediately due and payable. In connection with entering into each loan, the Company entered into a healthcare regulatory agreement and a promissory note, each containing customary terms and conditions. Pursuant to the CARES Act, up to three months of debt service payments for six of the credit facilities can be made from our restricted cash reserves.

21


 

(c)

For the three skilled nursing facilities, the Company has term loans insured 70% to 80% by the USDA with financial institutions. The loans have an annual renewal fee for the USDA guarantee of 0.25% of the guaranteed portion. The loans have prepayment penalties of 1% through 2021, capped at 1% for the remainder of the first 10 years of the term and 0% thereafter except Coosa (as defined below) which is 1% thereafter.

(d)

Pursuant to the CARES Act, the monthly principal and interest payments due May 1, 2020 through September 1, 2020 for the loan for that certain 122-bed skilled nursing facility commonly known as Coosa, located in Glencoe, Alabama, were deferred (a part of the “USDA Payment Program”). Monthly payments which commenced on October 1, 2020 are being applied to current interest, then deferred interest until the deferred interest is paid in full. Upon expiration of the deferral period, the payments will be re-amortized over the remaining term of the loan.

(e)

Pursuant to the CARES Act, the monthly principal and interest payments due May 1, 2020 through August 1, 2020 for the Mountain Trace Facility loan were deferred. Monthly payments which commenced on September 1, 2020 are being applied to current interest, then deferred interest until the deferred interest is paid in full, payments will be re-amortized over the extended term of the loan.

(f)

Pursuant to the CARES Act, the monthly principal and interest payments due May 1, 2020 through October 1, 2020 for the loan for that certain 126-bed skilled nursing facility commonly known as Southland, located in Dublin, Georgia, were deferred as a part of the USDA Payment Program. Monthly payments recommenced on November 1, 2020 with payments through February 2021 being applied to principal and interest. Monthly payments which commenced on March 1, 2021 are being applied to current interest, then deferred interest until the deferred interest is paid in full, payments will be re-amortized over the extended term of the loan.

(g)

For the one skilled nursing facility, commonly known as Southland, the Company has a term loan with a financial institution, which is 75% insured by the SBA. The SBA funded two monthly debt payments during the three months ended March 31, 2021 and six payments commencing on March 1, 2020 and ending on August 1, 2020.

 

(Amounts in 000’s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Facility

 

Lender

 

Maturity

 

Interest Rate (a)

 

 

March 31,

2021

 

 

December 31,

2020

 

Senior debt - bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eaglewood Bonds Series A

 

City of Springfield, Ohio

 

05/01/2042

 

Fixed

 

 

7.65

%

 

$

6,379

 

 

$

6,379

 

Eaglewood Bonds Series B

 

City of Springfield, Ohio

 

05/01/2021

 

Fixed

 

 

8.50

%

 

 

121

 

 

 

121

 

Total

 

 

 

 

 

 

 

 

 

 

 

$

6,500

 

 

$

6,500

 

 

(a)

Represents cash interest rates as of March 31, 2021. The rates exclude amortization of deferred financing of approximately 0.15% per annum.

 

(Amounts in 000’s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Facility

 

Lender

 

Maturity

 

Interest Rate (a)

 

 

March 31,

2021

 

 

December 31,

2020

 

Senior debt - other mortgage indebtedness

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Meadowood

 

Exchange Bank of Alabama

 

05/01/2022

 

Fixed

 

 

4.50

%

 

 

3,593

 

 

 

3,631

 

Total

 

 

 

 

 

 

 

 

 

 

 

$

3,593

 

 

$

3,631

 

 

(a)

Represents cash interest rates as of March 31, 2021 as adjusted for interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs of 0.30% per annum.

 

(Amounts in 000’s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lender

 

Maturity

 

Interest Rate

 

 

March 31,

2021

 

 

December 31,

2020

 

Other debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Insurance Funding

 

03/01/2021

 

Fixed

 

 

2.38

%

 

$

 

 

$

94

 

Servarus Financial Inc. (a)

 

11/1/2021

 

Fixed

 

 

5.18

%

 

 

381

 

 

 

 

Key Bank

 

08/25/2021

 

Fixed

 

 

0.00

%

 

 

495

 

 

 

495

 

FountainHead Commercial Capital - PPP Loan

 

04/16/2022

 

Fixed

 

 

1.00

%

 

 

229

 

 

 

229

 

Marlin Covington Finance

 

03/11/2021

 

Fixed

 

 

20.17

%

 

 

 

 

 

4

 

Total

 

 

 

 

 

 

 

 

 

$

1,105

 

 

$

822

 

 

 

(a)

Insurance financing for professional and general liability and property insurance for the Tara Facility in our Healthcare Services segment.

 

22


 

 

Debt Covenant Compliance

As of March 31, 2021, the Company had 17 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 March 31, 2021, 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 March 31, 2021 for each of the next five years and thereafter.

For the twelve months ended March 31,

 

(Amounts in 000’s)

 

2022

 

$

2,667

 

2023

 

 

5,211

 

2024

 

 

1,778

 

2025

 

 

1,867

 

2026

 

 

1,959

 

Thereafter

 

 

42,303

 

Subtotal

 

$

55,785

 

Less: unamortized discounts

 

 

(131

)

Less: deferred financing costs, net

 

 

(1,221

)

Total notes and other debt

 

$

54,433

 

  

 

NOTE 9.

DISCONTINUED OPERATIONS

Discontinued Operations

For discontinued operations, cost of services, primarily accruals or releases of over accruals for professional and general liability claims and bad debt expense are classified in the activities below. For a historical listing and description of the Company’s discontinued entities, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 10 – Discontinued Operations included in the Annual Report.

The following table summarizes the activity of discontinued operations for the three months ended March 31, 2021 and 2020:

 

 

 

Three Months Ended March 31,

 

 

(Amounts in 000’s)

 

2021

 

 

2020

 

 

Cost of services

 

$

13

 

 

$

37

 

 

Net loss

 

$

(13

)

 

$

(37

)

 

The Company’s major classes of discontinued operation’s assets and liabilities included within the Company’s consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively are: (i) “Accounts receivable, net of allowance” of $0.1 million and $0.1 million; (ii) “Accounts payable” of $2.5 million and $2.6 million; and (iii) “Accrued Expenses” of $0.7 million and $0.7 million.

23


 

 

NOTE 10.

COMMON AND PREFERRED STOCK

Common Stock

There were no dividends declared or paid on the common stock during the three months ended March 31, 2021 and 2020.

Preferred Stock

No dividends were declared or paid on the Series A Preferred Stock for the three months March 31, 2021 and 2020.

As of March 31, 2021, 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 $30.1 million of undeclared preferred stock dividends in arrears.  Holders of the Series A Preferred Stock are entitled to receive, when and as declared by the Board out of funds of the Company legally available for the payment of distributions, cumulative preferential cash dividends at an annual rate equal to 10.875% of the $25.00 per share stated liquidation preference of the Series A Preferred Stock, which is equivalent to an annual rate of $2.72 per share or $1.9 million per quarter. Dividends 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 suspension of the payment of the quarterly dividend on the Series A Preferred Stock indefinitely. Under the terms of the Series A Preferred Stock, dividends on the Series A Preferred Stock shall continue to accrue and accumulate regardless of whether such dividends are declared by the Board. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for four dividends periods: (i) the annual dividend rate on the Series A Preferred Stock has increased to 12.875% ,which is equivalent to an annual rate of $3.20 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 Charter.

As of March 31, 2021, the Company had 2,811,535 shares of the Series A 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.

For historical information regarding the Series A Preferred Stock, the Company’s former “at-the-market” offering program and prior share repurchase programs, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 11 – Common and Preferred Stock included in the Annual Report.

NOTE 11.

STOCK BASED COMPENSATION

Stock Incentive Plans

On November 4, 2020, the Board adopted, subject to shareholder approval, 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 Board approval of the 2020 Plan. 

The 2020 Plan replaces 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 provided for a maximum of 168,950 shares of common stock to be issued. No additional awards may be granted under the 2011 Plan, effective upon shareholder approval of the 2020 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. 

24


 

For the three months ended March 31, 2021 and 2020, the Company recognized stock-based compensation expense as follows:

 

 

 

Three Months Ended March 31,

 

 

(Amounts in 000’s)

 

2021

 

 

2020

 

 

Non-employee compensation:

 

 

 

 

 

 

 

 

 

Board restricted stock

 

$

 

 

$

12

 

 

Total stock-based compensation expense

 

$

 

 

$

12

 

 

 

In addition to the 2020 Stock Incentive Plan, the Company grants stock warrants to officers, directors, employees and certain consultants to the Company from time to time as determined by the Board and, when appropriate, the Compensation Committee of the Board.

For the three months ended March 31, 2021 and March 31, 2020, there were no issuances of common stock options or warrants.

Restricted Stock

The following table summarizes the Company’s restricted stock activity for the three months ended March 31, 2021:

 

 

 

Number of

Shares (000's)

 

 

Weighted Avg.

Grant Date

Fair Value

 

Unvested, December 31, 2020

 

 

14

 

 

$

3.60

 

Vested

 

 

(14

)

 

$

3.60

 

Unvested, March 31, 2021

 

 

-

 

 

$

-

 

 

The remaining unvested shares at December 31, 2020 vested on January 1, 2021, resulting in minimal compensation expense related to the final vesting of the restricted stock awards during the three months ended March 31, 2021.

 

 

NOTE 12.

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 March 31, 2021, 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 skilled nursing facilities 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/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. During the three months ended March 31, 2021, the Company has not been named in any new legal actions.

 

25


 

 

Professional and General Liability Claims

Claims on behalf of the Company’s Former Patients Prior to the Transition

As of March 31, 2021, 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 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.

During the three months ended March 31, 2021, no professional and general liability actions related to the Company’s former patients prior to the Transition were filed against the Company.

During the three months ended March 31, 2020, the Company settled one professional and general liability action, as outlined below.

 

On January 29, 2020, the Company executed a settlement, in compromise of a complaint filed in the Circuit Court of Pulaski County, in the State of Arkansas, by a former patient at one of our facilities, against the Company on May 16, 2017. The plaintiff alleged medical negligence and injury. The settlement was paid in 2020, in exchange for dismissal of the case with prejudice, in the total amount of $40,000.

 

Claims on behalf of the Company’s Prior or Current Tenant’s Former Patients after the Transition

As of March 31, 2021, the Company is a defendant in an aggregate of 12 additional professional and general liability actions. These 12 additional 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. 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 on behalf of former patients of our current or prior tenants 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.

During the three months ended March 31, 2021, no professional and general liability actions related to the Company’s current or former tenant’s former patients were filed against the Company.

During the three months ended March 31, 2020, one professional and general liability action related to the Company’s current or former tenant’s former patients was filed against the Company.

As of March 31, 2020, the Company was a defendant in an aggregate of 11 professional and general liability actions, primarily commenced on behalf of one of our former patients and ten of our current or prior tenant’s former patients.

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 $0.2 million and $0.2 million as of March 31, 2021 and December 31, 2020, respectively. Additionally as of March 31, 2021 and December 31, 2020, $0.1 million and $0.2 million, respectively, was reserved for settlement amounts in “Accounts payable” in the Company’s consolidated balance sheets. For additional information regarding the Company’s self-insurance reserve, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 14 – Commitments and Contingencies included in the Annual Report.

 

Ohio Attorney General Action. On January 15, 2020, Ohio Attorney General (the “OAG”) voluntarily dismissed with prejudice all claims pending against the Company, certain subsidiaries of the Company and certain other parties, in the action they filed on October 27, 2016, in the Court of Common Pleas, Franklin County, Ohio. The dismissed lawsuit alleged that defendants, including the Company submitted improper Medicaid claims for independent laboratory services for glucose blood tests and capillary blood draws and further alleged that defendants (i) engaged in deception, (ii) willfully received Medicaid payments to which they were not entitled or in a greater amount than that to which they were entitled, and (iii) obtained payments under the Medicaid program to which they were not entitled pursuant to their provider agreements and applicable Medicaid rules and regulations. The OAG sought, among other things, triple the amount of damages proven at trial (plus interest) and not less than $5,000 and not more than $10,000 for each deceptive claim or falsification. As previously disclosed, the Company had received a letter from the OAG in February 2014 offering to settle its claims against the defendants for improper Medicaid claims related to glucose blood tests and capillary blood draws for a payment of approximately $1.0 million, which offer the Company declined. The January 15, 2020, dismissal of the case with prejudice renders all claims against the Company moot.  

26


 

NOTE 13.

SEGMENT RESULTS

Effective January 1, 2021, pursuant to the Wellington Lease Termination, as a portfolio stabilization measure the Company commenced operating the previously subleased Tara Facility. Accordingly, the Company now 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 Tara Facility, a skilled nursing facility.

The Company reports segment information based on the “management approach” defined in ASC 280, Segment 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 March 31,

 

 

 

2021

 

 

2021

 

 

2021

 

 

2020

 

(Amounts in 000’s)

 

Real Estate Services

 

 

Healthcare Services

 

 

Total

 

 

Real Estate Services

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patient care revenues

 

$

 

 

$

2,690

 

 

$

2,690

 

 

$

 

Rental revenues

 

 

4,081

 

 

 

 

 

 

4,081

 

 

 

4,297

 

Management fees

 

 

248

 

 

 

 

 

 

248

 

 

 

244

 

Other revenues

 

 

62

 

 

 

 

 

 

62

 

 

 

7

 

Total revenues

 

 

4,391

 

 

 

2,690

 

 

 

7,081

 

 

 

4,548

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patient care expense

��

 

 

 

 

2,203

 

 

 

2,203

 

 

 

 

Facility rent expense

 

 

1,342

 

 

 

298

 

 

 

1,640

 

 

 

1,640

 

Cost of management fees

 

 

165

 

 

 

 

 

 

165

 

 

 

151

 

Depreciation and amortization

 

 

648

 

 

 

2

 

 

 

650

 

 

 

776

 

General and administrative expense

 

 

899

 

 

 

137

 

 

 

1,036

 

 

 

877

 

Doubtful accounts expense (recovery)

 

 

 

 

 

40

 

 

 

40

 

 

 

(2

)

Other operating expenses

 

 

232

 

 

 

 

 

 

232

 

 

 

224

 

Total expenses

 

 

3,286

 

 

 

2,680

 

 

 

5,966

 

 

 

3,666

 

Income from operations

 

 

1,105

 

 

 

10

 

 

 

1,115

 

 

 

882

 

Other expense :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

681

 

 

 

6

 

 

 

687

 

 

 

715

 

Other expense, net

 

 

394

 

 

 

 

 

 

394

 

 

 

144

 

Total other expense, net

 

 

1,075

 

 

 

6

 

 

 

1,081

 

 

 

859

 

Income from continuing operations before income taxes

 

 

30

 

 

 

4

 

 

 

34

 

 

 

23

 

Income from continuing operations

 

 

30

 

 

 

4

 

 

 

34

 

 

 

23

 

Loss from discontinued operations, net of tax

 

 

(13

)

 

 

 

 

 

(13

)

 

 

(37

)

Net Income (loss)

 

$

17

 

 

$

4

 

 

$

21

 

 

$

(14

)

 

Total assets for the Real Estate Services segment and Healthcare Services segment were $107.5 million and $1.5 million, respectively, as of March 31, 2021.

 

NOTE 14.

SUBSEQUENT EVENTS

The Company has evaluated all subsequent events through the date the consolidated financial statements were issued and filed with the SEC.

27


 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 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, through its subsidiaries, is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living.  Our business primarily consists of leasing and subleasing healthcare facilities to third-party tenants. As of March 31, 2021, the Company owned, leased or managed for third parties, or operated, 24 facilities, primarily in the Southeast United States. Of the 24 facilities, the Company: (i) leased 10 skilled nursing facilities (which the Company owns) to third-party tenants, subleased eight skilled nursing facilities (which the Company leases) to third-party tenants, and operated, as of January 1, 2021 as a portfolio stabilization measure, one previously subleased skilled nursing facility (which the Company leases); (ii) leased two assisted living facilities (which the Company owns) to third-party tenants; and (iii) managed, on behalf of third-party owners, two skilled nursing facilities and one independent living facility. Accordingly, as of January 1, 2021, the Company has two primary reporting segments, Real Estate Services and Healthcare Services.

Effective January 1, 2021, pursuant to the Wellington Lease Termination for two skilled nursing facilities located in Georgia with affiliates of Wellington, the Company as a portfolio stabilization measure commenced operating the previously subleased Tara Facility and entered into a new sublease agreement with an affiliate of Empire for the Powder Springs Facility. The Company has entered into the Vero Management Agreement with Vero Health under which Vero Health will provide management consulting services for the Tara Facility which the Company now operates. See Note 6 – Leases, herein, and Note 6 – Leases in Part II, Item 8, “Financial Statements and Supplemental Data” in the Company’s Annual Report, for a more detailed description of the Company’s leases.

The operators of the Company’s facilities provide a range of health care and related services to patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.

Risks and Uncertainties

While 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. On January 1, 2021, following the Wellington Transition, the Company

28


 

commenced operating the Tara Facility, which facility comprises approximately 5.0% of the total amount of the Company’s licensed patient beds. This portfolio stabilization measure exposes the Company directly to all the risks our tenants face as discussed in this “Risk and Uncertainties” section.

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 have adversely affected our business during the three months ended March 31, 2021, and we expect it will continue to adversely affect our business in the quarter ending June 30, 2021 and beyond, for a variety of reasons, including those discussed below and elsewhere in this Quarterly Report.

As of May 10, 2021, 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 reported incurring significant cost increases as a result of the COVID-19 pandemic, with dramatic increases for facilities with positive cases. 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 re-admittances 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’ ability to make their rental payments to us pursuant to their respective lease agreements. In addition, our 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 could cause, and in some cases has already caused, 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’ 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’ revenue. Currently, a number of our tenants have stopped admitting new patients due to rising COVID-19 infections resulting 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’ 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’ decrease in revenues or otherwise, then, in some cases, we may be forced to either attempt to replace the tenants or restructure the 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 97% of its expected fixed monthly rental receipts from tenants for the three months ended March 31, 2021, 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 and the extent 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 is 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 full or on a timely basis, as has occurred with one of our prior operators.

We also do not know the number of facilities that will ultimately experience widespread, high-cost outbreaks of COVID-19, and while we have requested reporting case numbers from our operators and 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

29


 

employees, guests and other individuals entering facilities; however, we do not yet know if future reimbursement rates will be sufficient to cover the increased costs of enhanced infection control and monitoring. The extent of the COVID-19 pandemic’s effect on our and our operators’ 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 an 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. Due to these uncertainties, we are unable at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material. The COVID-19 pandemic may also lead to temporary closures of nursing facilities, operated by our tenants, which also may affect our tenants’ ability to make their rental payments to us pursuant to their respective lease agreements. In addition, our 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 could cause, and in some cases has already caused, 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.

Portfolio

The following table provides summary information regarding the number of facilities and related licensed beds/units as of March 31, 2021:

 

 

 

Owned

 

 

Leased

 

 

Leased Operating

 

 

Managed for Third

Parties

 

 

Total

 

 

 

Facilities

 

 

Beds/Units

 

 

Facilities

 

 

Beds/Units

 

 

Facilities

 

 

Beds/Units

 

 

Facilities

 

 

Beds/Units

 

 

Facilities

 

 

Beds/Units

 

State

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alabama

 

 

2

 

 

 

230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

230

 

Georgia

 

 

3

 

 

 

395

 

 

 

7

 

 

 

750

 

 

 

1

 

 

 

134

 

 

 

 

 

 

 

 

 

11

 

 

 

1,279

 

North Carolina

 

 

1

 

 

 

106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

106

 

Ohio

 

 

4

 

 

 

291

 

 

 

1

 

 

 

99

 

 

 

 

 

 

 

 

 

3

 

 

 

332

 

 

 

8

 

 

 

722

 

South Carolina

 

 

2

 

 

 

180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

180

 

Total

 

 

12

 

 

 

1,202

 

 

 

8

 

 

 

849

 

 

 

1

 

 

 

134

 

 

 

3

 

 

 

332

 

 

 

24

 

 

 

2,517

 

Facility Type

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Skilled Nursing

 

 

10

 

 

 

1,016

 

 

 

8

 

 

 

849

 

 

 

1

 

 

 

134

 

 

 

2

 

 

 

249

 

 

 

21

 

 

 

2,248

 

Assisted Living

 

 

2

 

 

 

186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

186

 

Independent Living

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

83

 

 

 

1

 

 

 

83

 

Total

 

 

12

 

 

 

1,202

 

 

 

8

 

 

 

849

 

 

 

1

 

 

 

134

 

 

 

3

 

 

 

332

 

 

 

24

 

 

 

2,517

 

 

The following table provides summary information regarding the number of facilities and related licensed beds/units by operator affiliation as of March 31 2021:

 

Operator Affiliation

 

Number of

Facilities (1)

 

 

Beds / Units

 

C.R. Management

 

 

6

 

 

 

689

 

Aspire

 

 

5

 

 

 

390

 

Peach Health Group

 

 

3

 

 

 

266

 

Symmetry Healthcare

 

 

2

 

 

 

180

 

Beacon Health Management

 

 

2

 

 

 

212

 

Vero Health Management

 

 

1

 

 

 

106

 

Empire (2)

 

 

1

 

 

 

208

 

Subtotal

 

 

20

 

 

 

2,051

 

Regional Health Managed

 

 

3

 

 

 

332

 

Regional Health Operated (3)

 

 

1

 

 

 

134

 

Total

 

 

24

 

 

 

2,517

 

 

(1)

Represents the number of facilities leased or subleased to separate tenants, of which each tenant is an affiliate of the entity named in the table above. For a more detailed discussion, see Note 6 – Leases located in Part I, Item 1, “Financial Statements”, of this Quarterly Report; Part II, Item 8, “Financial Statements and Supplementary Data”, Note 6 – Leases included in the Annual Report; and “Portfolio of Healthcare Investments” included in Part I, Item 1, “Business” included in the Annual Report.

30


 

(2)

Effective January 1, the Company entered into the PS Sublease with an affiliate of Empire for the Powder Springs Facility. See Note 6 – Leases to our consolidated financial statements in Part I, Item 1, “Financial Statements (unaudited)” in this Quarterly Report.

(3)

Effective January 1, 2021, Regional began operating the Tara Facility and entered into the Vero Management Agreement with Vero Health under which Vero Health provides management consulting services for the Tara Facility.

 

Portfolio Occupancy Rates

The following table provides summary information regarding our portfolio facility-level occupancy rates for the periods shown:

 

 

 

For the Twelve Months Ended

 

Operating Metric (1)

 

June 30,

2020

 

 

September 30,

2020

 

 

December 31,

2020

 

 

March 31,

2021

 

Occupancy (%)

 

 

75.1

%

 

 

73.2

%

 

 

67.3

%

 

 

68.6

%

 

(1)

Excludes three managed facilities in Ohio.

 

Lease Expiration

The following table provides summary information regarding our lease expirations for the years shown as of March 31, 2021:

 

 

 

 

 

 

 

Licensed Beds

 

 

Annual Lease Revenue (1)

 

 

 

Number of

Facilities

 

 

Amount

 

 

Percent (%)

 

 

Amount

'000's

 

 

Percent (%)

 

2023

 

 

1

 

 

 

62

 

 

 

3.0

%

 

$

263

 

 

 

1.9

%

2024

 

��

1

 

 

 

126

 

 

 

6.1

%

 

 

965

 

 

 

6.8

%

2025

 

 

2

 

 

 

269

 

 

 

13.1

%

 

 

2,219

 

 

 

15.6

%

2026

 

 

 

 

 

 

 

 

0.0

%

 

 

 

 

 

0.0

%

2027

 

 

7

 

 

 

750

 

 

 

36.6

%

 

 

5,241

 

 

 

36.9

%

2028

 

 

4

 

 

 

328

 

 

 

16.0

%

 

 

2,352

 

 

 

16.6

%

2029

 

 

1

 

 

 

106

 

 

 

5.2

%

 

 

538

 

 

 

3.8

%

Thereafter

 

 

4

 

 

 

410

 

 

 

20.0

%

 

 

2,603

 

 

 

18.4

%

Total

 

 

20

 

 

 

2,051

 

 

 

100.0

%

 

$

14,181

 

 

 

100.0

%

 

(1)

Straight-line rent.

Acquisitions and Divestitures

There were no acquisitions or divestitures during the three months ended March 31, 2021 or March 31, 2020.

For historical information regarding the Company’s acquisitions and divestitures, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 9 – Acquisitions and Dispositions and Note 10 – Discontinued Operations included in 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 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 Company's Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report.

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Results of Operations

The following table sets forth, for the periods indicated, 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 March 31,

 

 

 

(Amounts in 000’s)

 

2021

 

 

2020

 

 

Percent

Change (*)

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patient care revenues

 

$

2,690

 

 

$

 

 

NM

 

 

 

Rental revenues

 

 

4,081

 

 

 

4,297

 

 

 

(5.0

)%

 

 

Management fees

 

 

248

 

 

 

244

 

 

 

1.6

%

 

 

Other revenues

 

 

62

 

 

 

7

 

 

NM

 

 

 

Total revenues

 

 

7,081

 

 

 

4,548

 

 

 

55.7

%

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patient care expense

 

 

2,203

 

 

 

 

 

NM

 

 

 

Facility rent expense

 

 

1,640

 

 

 

1,640

 

 

 

0.0

%

 

 

Cost of management fees

 

 

165

 

 

 

151

 

 

 

9.3

%

 

 

Depreciation and amortization

 

 

650

 

 

 

776

 

 

 

(16.2

)%

 

 

General and administrative expenses

 

 

1,036

 

 

 

877

 

 

 

18.1

%

 

 

Doubtful accounts expense (recovery)

 

 

40

 

 

 

(2

)

 

NM

 

 

 

Other operating expenses

 

 

232

 

 

 

224

 

 

 

3.6

%

 

 

Total expenses

 

 

5,966

 

 

 

3,666

 

 

 

62.7

%

 

 

Income from operations

 

 

1,115

 

 

 

882

 

 

 

26.4

%

 

 

Other expense :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

687

 

 

 

715

 

 

 

(3.9

)%

 

 

Other expense, net

 

 

394

 

 

 

144

 

 

 

173.6

%

 

 

Total other expense, net

 

 

1,081

 

 

 

859

 

 

 

25.8

%

 

 

Income from continuing operations before income taxes

 

 

34

 

 

 

23

 

 

 

47.8

%

 

 

Income from continuing operations

 

 

34

 

 

 

23

 

 

 

47.8

%

 

 

Loss from discontinued operations, net of tax

 

 

(13

)

 

 

(37

)

 

 

(64.9

)%

 

 

Net Income (loss)

 

$

21

 

 

$

(14

)

 

NM

 

 

 

 

*

Not meaningful (“NM”).

 

Three Months Ended March 31, 2021 and 2020

Patient care revenues—Patient care revenues for our new Healthcare Services segment, as a result of the Company operating the Tara Facility as a portfolio stabilization measure, were $2.7 million for the three months ended March 31, 2021, which is consistent with prior year financials we received from the prior Wellington affiliated operator.

Rental revenues—Rental revenue for our Real Estate Services segment, decreased by approximately $0.2 million, or 5.0%, to $4.1 million for the three months ended March 31, 2021, compared with $4.3 million for the same period in 2020. The decrease reflects approximately $0.9 million decrease in straight-line rent due to the Wellington Lease Termination, $0.5 million and $0.4 million recognized for the three months ended March 31, 2020 for the Powder Springs Facility and the Tara Facility respectively, partially off-set by $0.3 million straight-line rent and $0.4 million variable rent recognized from the Powder Springs Facility under a new sublease with an affiliate of Empire in the current period. For further information see Note 6 – Leases to our consolidated financial statements in Part I, Item 1, “Financial Statements (unaudited)” in this Quarterly Report.

Other revenues—Other revenue for our Real Estate Services segment increased by approximately $0.1 million, for the three months ended March 31, 2021, compared to the same period in 2020. This increase is due to recognition of the Symmetry Payment Plan fees and interest earned on the Peach Line, which had previously been deferred due to the Peach Line’s subordination to the Peach Health Sublessees third-party Peach Working Capital Facility until its repayment in the prior year.

Patient care expense—Patient care expense was $2.2 million for the three months ended March 31, 2021. The current year expense is due to the costs of operating the Tara Facility in our new Healthcare Services reporting segment.

32


 

Depreciation and amortization—Depreciation and amortization for our Real Estate Services segment decreased by approximately $0.1 million, or 16.2%, to $0.7 million for the three months ended March 31, 2021, compared with $0.8 million for the same period in 2020. This decrease is mainly due to the full depreciation of certain building improvements and equipment and computer related assets.

 

 

Three Months Ended March 31,

 

(Amounts in 000’s)

 

2021

 

 

2020

 

 

Percent

Change (*)

 

General and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Services (a)

 

$

899

 

 

$

877

 

 

 

2.5

%

Healthcare Services

 

 

137

 

 

 

 

 

NM

 

Total

 

$

1,036

 

 

$

877

 

 

 

18.1

%

 

*

Not meaningful (“NM”).

General and administrative expenses— General and administrative expenses increased by approximately $0.1 million to $1.0 million for the three months ended March 31, 2021, compared with $0.9 million for the same period in 2020. The increase is driven by the Vero Management Agreement, in our Healthcare Services segment, which provides remuneration to Vero of 5.0% of our Patient care revenues (net of contractual allowances) to provide management consulting services for the Tara Facility.

Other expense, net— Other expense, net increased by approximately $0.3 million, or 173.6%, to $0.4 million, for the three months ended March 31, 2021, compared with $0.1 million for the same period in 2020. Expenses in both years are related to professional and legal services to evaluate and assist with possible opportunities to improve the Company’s capital structure.

For further information on the Tara Facility performance, see Note 13 – Segment Results to the Company’s consolidated financial statements located in Part I, Item 1, Notes to Consolidated Financial Statements”, of this Quarterly Report.

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.

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 March 31, 2021, the Company had $6.2 million in unrestricted cash. During the three months ended March 31, 2021, the Company generated positive cash flow from continuing operations of $2.4 million, and anticipates continued positive cash flow from operations in the future, subject to the continued uncertainty of the COVID-19 pandemic and its impact on the Company’s business, financial condition and results of operations.

As of December 31, 2020, Regional recorded an estimated allowance of $1.4 million against a rent receivable of $2.7 million from the Wellington Tenants. During the three months ended March 31, 2021, the Company collected $3.1 million pursuant to the Wellington Lease Termination and paid $1.0 million to partially satisfy the Wellington Lease Termination obligation of approximately of $1.7 million of bed taxes in arrears. The Company provides no assurance that we will be able to collect any of the additional rent arrears in excess of the net $1.3 million already collected.

During the three months ended March 31, 2021, the Company recognized $0.4 million of variable rent for the Powder Springs Facility and, as of the date of filing of this Quarterly Report, has collected all of such variable rent replacing approximately $0.5 million of cash rent previously anticipated from the Wellington Tenant. The Tara Facility operations performance during the quarter is marginally profitable and performance has been sufficient to cover the rent the Company is obligated to pay under its lease. For further information on the Tara Facility performance see Note 13 – Segment Results to the Company’s consolidated financial statements located in Part I, Item 1, Notes to Consolidated Financial Statements”, of this Quarterly Report.

As of March 31, 2021, the Company had $54.4 million in indebtedness, net of $1.2 million deferred financing, and unamortized discounts. The Company anticipates net principal repayments of approximately $2.7 million during the next twelve-month period, including approximately $1.5 million of routine debt service amortization, $1.1 million of current maturities of other

33


 

debt (including $0.4 million related to insurance financing for the Tara Facility operations), and a $0.1 million payment of bond debt.

The Company is current with all of its debt and other financial obligations. 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.

In early 2020, the Company began on-going efforts to investigate alternatives to retire or refinance our outstanding debt of 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 $0.4 million and $0.1 million for the three month ended March 31, 2021 and March 31, 2020, respectively. 

Debt Covenant Compliance

As of March 31, 2021, the Company was in compliance with the various financial and administrative covenants under the Company’s outstanding credit related instruments.  

 

Series A Preferred Dividend Suspension

 

On June 8, 2018, the Board indefinitely suspended quarterly dividend payments with respect to the Series A Preferred Stock. As of March 31, 2021, 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 $30.1 million of undeclared 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 (October 1, 2018) and continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash.

 

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.

 

For additional information regarding the Company’s liquidity, see Note 2 – Liquidity and Note 8 – Notes Payable and other debt, to the Company’s consolidated financial statements located in Part I, Item 1, Notes to Consolidated Financial Statements”, of this Quarterly Report.

 

34


 

 

Cash Flows

The following table presents selected data from our consolidated statements of cash flows for the periods presented:

 

 

 

Three Months Ended March 31,

 

(Amounts in 000’s)

 

2021

 

 

2020

 

Net cash provided by operating activities - continuing operations

 

$

2,408

 

 

$

270

 

Net cash used in operating activities - discontinued operations

 

 

(58

)

 

 

(405

)

Net cash used in investing activities - continuing operations

 

 

(33

)

 

 

(157

)

Net cash used in financing activities - continuing operations

 

 

(622

)

 

 

(436

)

Net change in cash and restricted cash

 

 

1,695

 

 

 

(728

)

Cash and restricted cash at beginning of period

 

 

7,492

 

 

 

8,038

 

Cash and restricted cash, ending

 

$

9,187

 

 

$

7,310

 

 

Three Months Ended March 31, 2021

Net cash provided by operating activities—continuing operations for the three months ended March 31, 2021 was approximately $2.4 million, primarily due to changes in working capital, consisting of our collection of rent arrears from the Wellington Lease Termination and income from operations less noncash charges (primarily, depreciation and amortization and lease revenue in excess of cash rent received). The $2.1 million increase compared to the same period in the prior year primarily reflects the collection of $3.1 from the Wellington Lease Termination, off-set by payment of $1.0 bed tax arrears for the Powder Springs Facility.

Net cash used in operating activities—discontinued operations for the three months ended March 31, 2021 was approximately $0.1 million, excluding non-cash proceeds and payments. This amount was to fund legal and associated settlement costs related to our legacy professional and general liability claims and payment of legacy accounts payable.

Net cash used in investing activities—continuing operations for the three months ended March 31, 2021 was approximately $0.03 million. This capital expenditure was for computer hardware, software and furniture and fixtures for the Tara Facility.

Net cash used in financing activities—continuing operations was approximately $0.6 million for the three months ended March 31, 2021. This is the result of routine repayments of approximately $0.3 million towards our senior debt obligations and $0.3 million toward our current insurance funding of other debt for the Tara Facility.

Three Months Ended March 31, 2020

 

Net cash provided by operating activities—continuing operations for the three months ended March 31, 2020 was approximately $0.3 million, consisting primarily of our income from operations less changes in working capital, and noncash charges (primarily, depreciation and amortization, and lease revenue in excess of cash received).

 

Net cash used in operating activities—discontinued operations for the three months ended March 31, 2020 was approximately $0.4 million, excluding non-cash proceeds and payments. This amount was to fund legal and associated settlement costs related to our legacy professional and general liability claims.

 

Net cash used in investing activities—continuing operations for the three months ended March 31, 2020 was approximately $0.2 million. This capital expenditure was for a new sprinkler system at the Powder Springs Facility.

 

Net cash used in financing activities—continuing operations was approximately $0.4 million for the three months ended March 31, 2020. This is the result of routine repayments of approximately $0.4 million of our debt obligations.

Notes Payable and Other Debt

For information regarding the Company’s debt financings, see Note 8 – Notes Payable and Other Debt, to the Company’s Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report and Note 8 – Notes Payable and Other Debt to our audited consolidated financial statements included in Part II, Item 8., “Financial Statements and Supplementary Data” in the Annual Report.

35


 

Receivables

 

Our operations could be adversely affected if we experience further significant delays in receipt of rental income from our tenants.

As of March 31, 2021 and December 31, 2020, the Company reserved for approximately $0.1 million and $1.4 million, respectively, of uncollected receivables. Accounts receivable, net, totaled $1.9 million at March 31, 2021 and $2.1 million at December 31, 2020.  For information regarding the Company’s Receivables, see Note 1 – Organization and Significant Accounting Policies, to the Company’s Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report

 

Operating Leases

 

For information regarding the Company’s operating leases, see Note 6 – Leases, to the Company’s Notes to consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report, and Note 6 – Leases located in Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report.

 

Off-Balance Sheet Arrangements

 

Guarantee

 

On November 30, 2018, 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 Aspire Subleases became effective on December 1, 2018 and are structured as triple net leases. 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 March 31, 2021.

 

For further information see Note 6 – Leases, to the Company’s Notes to consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report, and Note 6 – Leases located in Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report.

 

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 Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report (the “Evaluation Date”). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.

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 report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

36


 

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 “Note 12 - Commitments and Contingencies – Professional and General Liability Claims” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.

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. See “Risks Related to Our Business - If we are unable to resolve our professional and general liability claims on terms acceptable to us, then it could have a material adverse effect on our business, financial condition and results of operation” in Part I, Item 1A, “Risk Factors.” in the Annual Report.

As of the date of filing of this Quarterly Report, 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 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.

 

As of the date of filing of this Quarterly Report, the Company is a defendant in an aggregate of 12 additional professional and general liability actions. These 12 additional professional and general liability actions set forth claims relating to time periods after the Transition, 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 on behalf of former patients of our current or prior tenants 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.

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 $0.2 million and $0.2 million at March 31, 2021 and December 31, 2020, respectively. Additionally as of March 31, 2021 and December 31, 2020, $0.1 million and $0.2 million, respectively, was reserved for settlement amounts in “Accounts payable” in the Company’s consolidated balance sheets. For additional information regarding the Company’s self-insurance reserve, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 14 – Commitments and Contingencies included in the Annual Report.

Item 1A.

Risk Factors.

For 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 the Annual Report, as supplemented and modified by the risk factors set forth below in this Item 1A. The risk factors described in the Annual Report and this Quarterly Report (collectively, the “Risk Factors”) do not describe all risks applicable to our business, 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 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 could be negatively affected. In that case, the trading price of the common stock and Series A Preferred Stock could decline.

While 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. On January 1, 2021, following the Wellington Transition, the Company commenced operating the Tara Facility, which facility comprises approximately 5.0% of the total amount of the Company’s licensed patient beds. This portfolio stabilization measure exposes the Company directly to all the risks our tenants face as discussed in this “Risk Factors” section.

 

 

37


 

 

COVID-19 Global Pandemic

 

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 have adversely affected our business in the quarter ended March 31, 2021, and we expect it will continue to adversely affect our business in the quarter ending June 30, 2021 and beyond, for a variety of reasons, including those discussed below and elsewhere in this Quarterly Report.

Our tenants’ operations have been, and we expect will continue to be, materially and adversely affected by the COVID-19 pandemic due to, among other things, decreased occupancy and increased operating costs (including costs due to the implementation of additional safety protocols and procedures, purchases of personal protective equipment, increased staffing to allow facilities to adhere to social distancing 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.

The COVID-19 pandemic may also lead to temporary closures of nursing facilities, operated by our tenants, which also may affect our tenants’ ability to make their rental payments to us pursuant to their respective lease agreements. In addition, our 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 could cause, and in some cases has already caused, 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’ 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’ revenue. Currently, a number of our tenants have stopped admitting new patients due to rising COVID-19 infections resulting 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’ 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’ decrease in revenues or otherwise, then, in some cases, we may be forced to either attempt to replace tenants or restructure 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 97% of its anticipated monthly rental receipts from tenants for the three months ended March 31, 2021, 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 and the extent 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 is 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 full or on a timely basis, as has occurred with one of our prior operators.

We also do not know the number of facilities that will ultimately experience widespread, high-cost outbreaks of COVID-19, and while we have requested reporting from operators of their numbers of cases and the U.S. Department of Health and 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 will be sufficient to cover the increased costs of enhanced infection control and monitoring. The extent of the COVID-19 pandemic’s effect on our and our operators’ 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 an effective vaccine and treatments for COVID-19, government funds and other support

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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. Due to these uncertainties, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.

Risks Related to Our Capital Structure

We have substantial indebtedness, which may have a material adverse effect on our business and financial condition.

As of March 31, 2021, we had approximately $54.4 million, net of $1.2 million deferred financing and unamortized discounts, in indebtedness. We may also obtain additional short-term and long-term debt to meet future capital needs, subject to certain restrictions under our existing indebtedness, which would increase our total debt. Our substantial amount of debt could have negative consequences to our business. For example, it could:

 

increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;

 

require us to dedicate a substantial portion of cash flows from operations to interest and principal payments on outstanding debt, thereby limiting the availability of cash flow for dividends and other general corporate purposes;

 

require us to maintain certain debt coverage and other financial ratios at specified levels, thereby reducing our financial flexibility;

 

make it more difficult for us to satisfy our financial obligations;

 

expose us to increases in interest rates for our variable rate debt;

 

limit our ability to borrow additional funds on favorable terms, or at all, for working capital, debt service requirements, expansion of our business or other general corporate purposes;

 

limit our ability to refinance all or a portion of our indebtedness on or before maturity on the same or more favorable terms, or at all;

 

limit our flexibility in planning for, or reacting to, changes in our business and our industry;

 

limit our ability to make acquisitions or take advantage of business opportunities as they arise;

 

place us at a competitive disadvantage compared with our competitors that have less debt; and

 

limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity.

In addition, our ability to borrow funds in the future will depend in part on the satisfaction of the covenants in our debt agreements. If we are unable to satisfy the financial covenants contained in those agreements, or are unable to generate cash sufficient to make required debt payments, the lenders and other parties to those arrangements could accelerate the maturity of some or all of our outstanding indebtedness.

We depend on affiliates of C.R Management and Aspire for a significant portion of our revenues and any inability or unwillingness by such entities to satisfy their obligations to us could have a material adverse effect on us.

As of the date of filing this Quarterly Report, our 20 properties (excluding the one facility operated by us and three facilities that are managed by us) are operated by a total of 20 separate tenants, with each of our tenants being affiliated with one of seven local or regionally-focused operators. We refer to our tenants who are affiliated with the same operator as a group of affiliated tenants. Each of our operators operate (through a group of affiliated tenants) between one and six of our facilities, with our most material operators, C.R Management and Aspire, each operating (through a group of affiliated tenants) six and five facilities, respectively. We, therefore depend, on tenants who are affiliated with C.R Management and Aspire for a significant portion of our revenues. We give no assurance that the tenants affiliated with C.R Management and Aspire will have sufficient assets, income and access to financing to enable them to make rental payments to us or to otherwise satisfy their obligations under the applicable leases and subleases, and any inability or unwillingness by such tenants to do so could have a material adverse effect on us.


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Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

Defaults upon Senior Securities.

The Board suspended dividend payments with respect to the Series A Preferred Stock, commencing with the fourth quarter of 2017, and determined to continue such suspension indefinitely in June 2018. No dividends were declared or paid with respect to the Series A Preferred Stock for such dividend periods. As a result of such suspension, the Company has $30.1 million of undeclared preferred stock dividends in arrears, whose annual dividend rate has increased to 12.875% commencing with the fourth quarter of 2018, with respect to the Series A Preferred Stock as of the date of filing of this Quarterly Report. See Note 10 – Common and Preferred Stock, “Preferred Stock Offerings and Dividends”, to the Company’s Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

None.

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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:

 

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 

may apply standards of materiality in a way that is different from what may be viewed as material to investors; and

 

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

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

 

Exhibit No.

 

Description

 

Method of Filing

 

 

 

 

 

  3.1

 

Amended and Restated Articles of Incorporation of Regional Health Properties, Inc., effective September 21, 2017

 

Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017

 

 

 

 

 

  3.2

 

Certificate of Merger, effective September 29, 2017

 

Incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017

  3.3

 

Articles of Amendment to Amended and Restated Articles of Incorporation of Regional Health Properties, Inc., effective December 31, 2018

 

Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K12 filed on December 28, 2018

 

 

 

 

 

  3.4

 

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

 

 

 

 

 

  4.1

 

Form of Common Stock Certificate of Regional Health Properties, Inc.

 

Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017

 

 

 

 

 

  4.2

 

Description of Regional Health Properties, Inc. Capital Stock

 

Incorporated by reference to Exhibit 4.2 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

  4.3*

 

AdCare Health Systems, Inc. 2011 Stock Incentive Plan

 

Incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011

  4.4*

 

AdCare Health Systems, Inc. 2020 Stock Incentive Plan

 

Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed December 17, 2020

 

 

 

 

 

  4.5*

 

Form of Non-Statutory Stock Option Agreement (2011 Equity Plan)

 

Incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011

 

 

 

 

 

  4.6*

 

Form of Incentive Stock Option Agreement (2011 Equity Plan)

 

Incorporated by reference to Exhibit 4.5 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-131542) filed October 27, 2011

 

  4.7*

 

Form of Restricted Common Stock Agreement –Non Employee Director (2020 Equity Plan)

 

Filed herewith

  4.8*

 

Form of Restricted Common Stock Agreement –Employee (2020 Equity Plan)

 

Filed herewith

 

 

 

 

 

  4.9

 

Form of Warrant to Purchase Common Stock of the Company (2011 Equity Plan)

 

Incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3 (File No. 333-175541)

 

 

 

 

 

  4.10

 

Warrant to Purchase 50,000 Shares of Common Stock, dated December 28, 2012, issued by AdCare Health Systems, Inc. to Strome Alpha Offshore Ltd.

 

Incorporated by reference to Exhibit 4.21 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012

 

 

 

 

 

  4.11

 

Form of Warrant granted to management to Purchase Shares of AdCare Health Systems, Inc. dated November 20, 2007

 

Incorporated by reference to Exhibit 10.23.2 of the Registrant’s Annual Report on Form 10-KSB as amended March 31, 2008

 

 4.12

 

Lease, dated as of January 1, 2021, by and between ADK Georgia, LLC and PS Operator, LLC.

 

Incorporated by reference to Exhibit 10.245 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2020

 

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Exhibit No.

 

Description

 

Method of Filing

 

 

 

 

 

 4.13

 

Management Consulting Services Agreement, dated as of January 1, 2021 by and between Vero Health Management, LLC, and Tara Operator, LLC.

 

Incorporated by reference to Exhibit 10.246 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2020

 

 4.14

 

Agreement Regarding Leases, dated as of On December 1, 2020, by and between Regional Health Properties, Inc., and 3223 Falligant Avenue Associates, L.P., 3460 Powder Springs Road Associates, L.P., Wellington Healthcare Services II, L.P. and Mansell Court Associates LLC.

 

Incorporated by reference to Exhibit 10.247 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2020

 

 

 

 

 

 

31.1

 

Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act

 

Filed herewith

 

 

 

 

 

31.2

 

Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act

 

Filed herewith

 

 

 

 

 

32.1

 

Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act

 

Filed herewith

 

 

 

 

 

32.2

 

Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act

 

Filed herewith

 

 

 

 

 

101

 

The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i)  Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020; (ii) Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 (unaudited); (iii) Consolidated Statements of Stockholders’ Equity (Deficit) for the three months ended March 31, 2021 and 2020 (unaudited); (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited); and (v) the Notes to Consolidated Financial Statements (unaudited).

 

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:

 

May 14, 2021

 

/s/ Brent  Morrison

 

 

 

 

Brent Morrison

 

 

 

 

Chief Executive Officer and Director (Principal Executive Officer)

 

 

 

 

 

Date:

 

May 14, 2021

 

/s/ Benjamin A. Waites

 

 

 

 

Benjamin A. Waites

 

 

 

 

Chief Financial Officer and Vice President (Principal Financial and Accounting Officer)

 

44