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, 2023
☐ 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
(Exact name of registrant as specified in its charter)
Georgia |
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81-5166048 |
(State or other jurisdiction of incorporation) |
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(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 |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common Stock, no par value |
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RHE |
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NYSE American |
10.875% Series A Cumulative Redeemable |
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RHE-PA |
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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 |
☐ |
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Accelerated filer |
☐ |
Non-accelerated filer |
☒ |
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Smaller reporting company |
☒ |
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Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
As of May 2, 2023 the registrant had 1,883,028 shares of common stock, no par value, outstanding.
Regional Health Properties, Inc.
Form 10-Q
Table of Contents
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Page |
Part I. |
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Item 1. |
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3 |
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Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 |
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3 |
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Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 |
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4 |
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Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2023 and 2022 |
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5 |
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Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 |
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6 |
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8 |
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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25 |
Item 3. |
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32 |
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Item 4. |
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32 |
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Part II. |
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Item 1. |
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32 |
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Item 1A. |
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32 |
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Item 2. |
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35 |
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Item 3. |
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35 |
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Item 4. |
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35 |
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Item 5. |
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35 |
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Item 6. |
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35 |
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40 |
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2
Part I. Financial Information
Item 1. Financial Statements
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in 000's)
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March 31, 2023 |
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December 31, 2022 |
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(Unaudited) |
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ASSETS |
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Property and equipment, net |
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$ |
46,109 |
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$ |
46,611 |
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Cash |
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2,803 |
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|
|
843 |
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Restricted cash |
|
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3,016 |
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|
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3,066 |
|
Accounts receivable, net of allowances of $1,204 and $1,298 |
|
|
2,915 |
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6,289 |
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Prepaid expenses and other |
|
|
495 |
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|
|
746 |
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Notes receivable |
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804 |
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|
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1,099 |
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Intangible assets - bed licenses |
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2,471 |
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2,471 |
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Intangible assets - lease rights, net |
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104 |
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110 |
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Right-of-use operating lease assets |
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2,763 |
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|
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2,848 |
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Goodwill |
|
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1,585 |
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1,585 |
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Straight-line rent receivable |
|
|
2,887 |
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|
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2,912 |
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Total assets |
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$ |
65,952 |
|
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$ |
68,580 |
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LIABILITIES AND EQUITY |
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Senior debt, net |
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$ |
44,857 |
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$ |
45,163 |
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Bonds, net |
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6,122 |
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6,120 |
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Other debt, net |
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533 |
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|
895 |
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Accounts payable |
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3,159 |
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3,293 |
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Accrued expenses |
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5,254 |
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5,036 |
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Operating lease obligation |
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3,137 |
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3,226 |
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Other liabilities |
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1,085 |
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1,131 |
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Total liabilities |
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64,147 |
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64,864 |
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Stockholders' equity: |
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Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 1,884 and 1,775 shares issued and 1,874 and 1,775 shares outstanding at March 31, 2023 and December 31, 2022, respectively |
|
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62,783 |
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62,702 |
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Preferred stock, no par value; 5,000 shares authorized; 2,812 shares issued and outstanding, redemption amount $70,288 at March 31, 2023 and December 31, 2022 |
|
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62,423 |
|
|
|
62,423 |
|
Accumulated deficit |
|
|
(123,401 |
) |
|
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(121,409 |
) |
Total stockholders' equity |
|
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1,805 |
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3,716 |
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Total liabilities and stockholders' equity |
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$ |
65,952 |
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$ |
68,580 |
|
See accompanying notes to unaudited consolidated financial statements.
3
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000's, except per share data)
(Unaudited)
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Three Months Ended March 31, |
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2023 |
|
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2022 |
|
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Revenues: |
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Patient care revenues |
$ |
1,916 |
|
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$ |
2,311 |
|
Rental revenues |
|
1,708 |
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|
4,065 |
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Management fees |
|
278 |
|
|
|
265 |
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Other revenues |
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4 |
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|
|
7 |
|
Total revenues |
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3,906 |
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|
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6,648 |
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Expenses: |
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|
|
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Patient care expense |
|
2,537 |
|
|
|
2,343 |
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Facility rent expense |
|
149 |
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|
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1,639 |
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Cost of management fees |
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141 |
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|
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179 |
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Depreciation and amortization |
|
510 |
|
|
|
613 |
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General and administrative expense |
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1,206 |
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1,123 |
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Doubtful accounts expense (recovery) |
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16 |
|
|
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1,761 |
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Other operating expenses |
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92 |
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|
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329 |
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Total expenses |
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4,651 |
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|
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7,987 |
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Loss from operations |
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(745 |
) |
|
|
(1,339 |
) |
Other expense: |
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|
|
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Interest expense, net |
|
680 |
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|
653 |
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Other expense, net |
|
567 |
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|
935 |
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Total other expense, net |
|
1,247 |
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1,588 |
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Net loss |
$ |
(1,992 |
) |
|
$ |
(2,927 |
) |
Preferred stock dividends - undeclared |
|
(2,249 |
) |
|
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(2,250 |
) |
Net loss attributable to Regional Health Properties, Inc. common stockholders |
$ |
(4,241 |
) |
|
$ |
(5,177 |
) |
Net loss per share of common stock attributable to Regional Health Properties, Inc. |
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Basic and diluted: |
$ |
(2.28 |
) |
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$ |
(2.89 |
) |
Weighted average shares of common stock outstanding: |
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|
|
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Basic and diluted |
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1,862 |
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1,790 |
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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)
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Shares of |
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Shares of |
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Shares of Treasury Stock |
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Common |
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Preferred |
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Accumulated |
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Total |
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|||||||
Balance, December 31, 2022 |
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1,784 |
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|
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2,812 |
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|
|
(9 |
) |
|
$ |
62,702 |
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|
$ |
62,423 |
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$ |
(121,409 |
) |
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$ |
3,716 |
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Restricted stock issuance |
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99 |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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|
|
— |
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— |
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|
|
81 |
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|
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— |
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|
|
— |
|
|
|
81 |
|
Net loss |
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— |
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|
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— |
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|
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— |
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— |
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— |
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|
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(1,992 |
) |
|
|
(1,992 |
) |
Balances, March 31, 2023 |
|
|
1,883 |
|
|
|
2,812 |
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|
|
(9 |
) |
|
$ |
62,783 |
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|
$ |
62,423 |
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|
$ |
(123,401 |
) |
|
$ |
1,805 |
|
|
|
Shares of |
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|
Shares of |
|
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Shares of Treasury Stock |
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|
Common |
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Preferred |
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Accumulated |
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Total |
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|||||||
Balances, December 31, 2021 |
|
|
1,775 |
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|
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2,812 |
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|
|
(1 |
) |
|
$ |
62,515 |
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|
$ |
62,423 |
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|
$ |
(114,542 |
) |
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$ |
10,396 |
|
Restricted stock issuance |
|
|
24 |
|
|
|
— |
|
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— |
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|
|
— |
|
|
|
— |
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|
|
— |
|
|
|
— |
|
Stock-based compensation |
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|
— |
|
|
|
— |
|
|
|
— |
|
|
|
111 |
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|
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— |
|
|
|
— |
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|
|
111 |
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Exercise of restricted share awards net settlement option |
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— |
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|
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— |
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|
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(8 |
) |
|
|
(46 |
) |
|
|
— |
|
|
|
— |
|
|
|
(46 |
) |
Net Loss |
|
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— |
|
|
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— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,927 |
) |
|
|
(2,927 |
) |
Balances, March 31, 2022 |
|
|
1,799 |
|
|
|
2,812 |
|
|
|
(9 |
) |
|
|
62,580 |
|
|
|
62,423 |
|
|
|
(117,469 |
) |
|
|
7,534 |
|
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)
|
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Three Months Ended March 31, |
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2023 |
|
|
2022 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
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Net loss |
|
$ |
(1,992 |
) |
|
$ |
(2,927 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
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|
|
|
|
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||
Depreciation and amortization |
|
|
510 |
|
|
|
613 |
|
Stock-based compensation expense |
|
|
81 |
|
|
|
111 |
|
Rent expense (less than) in excess of cash paid |
|
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(4 |
) |
|
|
60 |
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Rent revenue less than (in excess) of cash received |
|
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26 |
|
|
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(440 |
) |
Amortization of deferred financing costs, debt discounts and premiums |
|
|
19 |
|
|
|
22 |
|
Bad debt expense |
|
|
16 |
|
|
|
1,761 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
3,357 |
|
|
|
(1,696 |
) |
Prepaid expenses and other assets |
|
|
546 |
|
|
|
94 |
|
Accounts payable and accrued expenses |
|
|
(107 |
) |
|
|
950 |
|
Other liabilities |
|
|
145 |
|
|
|
(127 |
) |
Net cash provided by (used in) operating activities |
|
|
2,597 |
|
|
|
(1,579 |
) |
Cash flows from investing activities: |
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|
|
|
|
|
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Purchase of property and equipment |
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|
(2 |
) |
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(80 |
) |
Net cash used in investing activities |
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(2 |
) |
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(80 |
) |
Cash flows from financing activities: |
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|
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|
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Payment of senior debt |
|
|
(322 |
) |
|
|
(408 |
) |
Payment of other debt |
|
|
(363 |
) |
|
|
(219 |
) |
Debt extinguishment and issuance costs |
|
|
— |
|
|
|
(46 |
) |
Net cash used in financing activities |
|
|
(685 |
) |
|
|
(673 |
) |
Net change in cash and restricted cash |
|
|
1,910 |
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|
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(2,332 |
) |
Cash and restricted cash, beginning |
|
|
3,909 |
|
|
|
9,848 |
|
Cash and restricted cash, ending |
|
$ |
5,819 |
|
|
$ |
7,516 |
|
6
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000's)
(Unaudited)
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Three Months Ended March 31, |
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2023 |
|
|
2022 |
|
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Supplemental disclosure of cash flow information: |
|
|
|
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Cash interest paid |
$ |
650 |
|
|
$ |
633 |
|
Supplemental disclosure of non-cash activities: |
|
|
|
|
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Vendor-financed insurance |
$ |
— |
|
|
$ |
606 |
|
See accompanying notes to unaudited consolidated financial statements.
7
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2023
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Regional Health’s predecessor was incorporated in Ohio on August 14, 1991, under the name Passport Retirement, Inc. In 1995, Passport Retirement, Inc. acquired substantially all of the assets and liabilities of AdCare Health Systems, Inc. and changed its name to AdCare Health Systems, Inc. (“AdCare”). AdCare completed its initial public offering in November 2006, relocated its executive offices and accounting operations to Georgia in 2012, and changed its state of incorporation from Ohio to Georgia in December, 2013. Regional Health Properties, Inc. is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior housing. Our business primarily consists of leasing such facilities to third-party tenants, which operate the facilities.
Basis of Presentation
The accompanying consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP) in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2022 audited consolidated financial statements and notes thereto, which are included in the 2022 Form 10-K filed with the SEC on April 14, 2023.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Reclassifications
Certain reclassifications have been made to the amounts in prior periods in order to conform to the current period's presentation. A reclassification has been made to the stock balances on the consolidated statement of stockholders’ equity in prior periods in order to conform to the current period's presentation.
Variable Interest Entities
The Company has a loan receivable with Peach Health, a sublessee. Such agreement creates a variable interest in the Peach Health sublessee that may absorb some or all of the expected losses of the entity. The Company does not consolidate the operating activities of the Peach Health sublessee as the Company does not have the power to direct the activities that most significantly impact the entity's economic performance.
Revenue Recognition and Allowances
Patient Care Revenue. ASC Topic 606, Revenue from Contracts with Customers requires a company to recognize revenue when the company transfers control of promised goods and services to a customer. Revenue is recognized in an amount that reflects the consideration to which a company expects to receive in exchange for such goods and services. Revenue from our Healthcare Services business segment is derived from services rendered to patients in the Meadowood and Glenvue facilities. The Company receives payments from the following sources for services rendered in our facilities: (i) the federal government under the Medicare program administered by the CMS; (ii) state governments under their respective Medicaid and similar programs; (iii) commercial insurers; and (iv) individual patients and clients. The vast majority of the revenue the Company recognizes is from government sources. The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients and other price concessions. Contractual adjustments and discounts are based on contractual agreements, discount policies and historical experience. The Company recognizes revenue at the amount that reflects the consideration the Company expects to receive in exchange for the services provided. These amounts are due from residents or third-party payors and include variable consideration for retroactive adjustments from estimated reimbursements, if any, under reimbursement programs. Performance obligations are determined based on the nature of the services provided. Revenue is recognized as performance obligations are
8
satisfied. Estimated uncollectable amounts due from patients are generally considered implicit price concessions that are a direct reduction to net operating revenues.
Triple-Net Leased Properties. The Company recognizes rental revenue in accordance with ASC 842, leases. The Company's triple-net leases provide for periodic and determinable increases in rent. The Company recognizes rental revenues under these leases on a straight-line basis over the applicable lease term when collectability is probable. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in the straight-line rent receivable on our consolidated balance sheets. In the event the Company cannot reasonably estimate the future collection of rent from one or more tenant(s) of the Company's facilities, rental income for the affected facilities is recognized only upon cash collection, and any accumulated straight-line rent receivable is expensed in the period in which the Company deems rent collection to no longer be probable.
Management Fee Revenues and Other Revenues. The Company recognizes management fee revenues as services are provided. The Company has one contract to manage three facilities (the "Management Contract"), with payment for each month of service generally received in full on a monthly basis. The maximum penalty for service contract nonperformance under the Management Contract is $50,000 per year, payable after the end of the year. Further, the Company recognizes interest income from loans and investments, using the effective interest method when collectability is probable. The Company applies the effective interest method on a loan-by-loan basis.
Allowances. The Company assesses the collectability of its rent receivables, including straight-line rent receivables, working capital loans to tenants and patient reimbursement. The Company bases its assessment of the collectability of rent receivables and working capital loans to tenants on several factors, including payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, and current economic conditions. If the Company's evaluation of these factors indicates it is probable that the Company will be unable to receive the rent payments or payments on a working capital loan, then the Company provides a reserve against the recognized straight-line rent receivable asset or working capital loan for the portion that we estimate may not be recovered. Payments received on impaired loans are applied against the allowance. If the Company changes its assumptions or estimates regarding the collectability of future rent payments, then the Company may adjust its reserve to the rental or interest revenue recognized in the period the Company makes such change. See Note 6 – Leases. Regarding patient reimbursements, the Company assesses the patient receivable based on payor type and age of the receivable amongst several other factors. The Company has reserved for approximately 1.5% of our patient care receivables based on the historical performance and industry practices.
As of March 31, 2023 and December 31, 2022, the Company reserved for approximately $1.2 million and $1.3 million, respectively, of uncollected receivables. Accounts receivable, net of allowance, totaled $2.9 million at March 31, 2023 and $6.3 million at December 31, 2022.
The following table presents the Company's Accounts receivable, net of allowance for the periods presented:
(Amounts in 000’s) |
|
March 31, |
|
|
December 31, |
|
||
Gross receivables |
|
|
|
|
|
|
||
Real Estate Services |
|
$ |
1,056 |
|
|
$ |
1,094 |
|
Healthcare Services |
|
|
3,063 |
|
|
|
6,493 |
|
Subtotal |
|
|
4,119 |
|
|
|
7,587 |
|
Allowance |
|
|
|
|
|
|
||
Real Estate Services |
|
|
(338 |
) |
|
|
(338 |
) |
Healthcare Services |
|
|
(866 |
) |
|
|
(960 |
) |
Subtotal |
|
|
(1,204 |
) |
|
|
(1,298 |
) |
Accounts receivable, net of allowance |
|
$ |
2,915 |
|
|
$ |
6,289 |
|
Prepaid Expenses and Other
As of March 31, 2023 and December 31, 2022, the Company had approximately $0.5 million and $0.7 million , respectively, in prepaid expenses and other; the $0.2 million decrease is related to insurance for the Meadowood and Glenvue facility operations, while the other amounts are predominantly for directors' and officers' insurance, NYSE American annual fees, and mortgage insurance premiums.
9
Accounts Payable
The following table presents the Company's Accounts payable for the periods presented:
(Amounts in 000’s) |
|
March 31, |
|
|
December 31, |
|
||
Accounts payable |
|
|
|
|
|
|
||
Real Estate Services |
|
$ |
926 |
|
|
$ |
797 |
|
Healthcare Services |
|
|
2,233 |
|
|
|
2,496 |
|
Total Accounts payable |
|
$ |
3,159 |
|
|
$ |
3,293 |
|
Other Liabilities
As of March 31, 2023 and December 31, 2022, the Company had approximately $1.1 million and $1.1 million, respectively in Other liabilities, consisting of security lease deposits and sublease improvement funds.
Other Expense, net
The Company has retained a law firm to evaluate and assist with possible opportunities to improve the Company's capital structure. See Note 2 – Series A Preferred Exchange Offer.
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 finance lease. As of March 31, 2023, all of the Company's leased facilities are accounted for as operating leases. For operating leases that contain scheduled rent increases, the Company records rent expense on a straight-line basis over the term of the lease. Leasehold improvements are amortized over the shorter of the useful life of the asset or the lease term.
In accordance with Accounting Standards Update ("ASU") ASU 2016-02, Leases, as codified in ASC 842, 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 report revenues and expenses for real estate taxes and insurance where the lessee has not made those payments directly to a third-party in accordance with its respective leases with us. Additionally, we expense certain leasing costs, other than leasing commissions, as they are incurred. The present value of minimum lease payments was calculated on each lease, using a discount rate of 3.85% that approximated our incremental borrowing rate and the current lease term. See Note 6– Leases for more information on the Company's operating leases.
Insurance
We maintain general liability, professional liability, and other insurance policies in amounts and with coverage and deductibles we believe are appropriate, based on the nature and risks of our business, historical experience, availability, and industry standards, including for the operations at the Glenvue and Meadowood facilities. Our current policies provide for deductibles for each claim and contain various exclusions from coverage. The Company has self-insured against professional and general liability claims related to its healthcare operations that were discontinued during 2014 and 2015 in connection with its transition from an owner and operator of healthcare properties to a healthcare property holding and leasing company (the "Transition"). For further information, see Note 11 – Commitments and Contingencies, and Note 13 – Commitments and Contingencies, to the consolidated financial statements for the year ended December 31, 2022 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
10
or litigating the pending actions, as applicable. Because the self-insurance reserve is based on estimates, the amount of the self-insurance reserve may not be sufficient to cover the settlement amounts actually incurred in settling the pending actions, or the legal costs actually incurred in settling or litigating the pending actions. See Note 7 – Accrued Expenses. In addition, the Company maintains certain other insurance programs, including commercial general liability, property, casualty, directors' and officers' liability, crime, and employment practices liability.
Discontinued Operations
Prior to December 2015, the Company’s business focused primarily on owning and operating skilled nursing facilities ("SNF") and managing such facilities for unaffiliated owners with whom the Company had management contracts. These operations were discontinued and transitioned to the leasing model of business.
As of March 31, 2023 and December 21, 2022 the company determined remaining escheatment liabilities for discontinued operations are $ million and are included in accrued expenses.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the respective period. Diluted earnings per share is similar to basic net loss per share except that the net loss is adjusted by the impact of the weighted-average number of shares of common stock outstanding including potentially dilutive securities (such as options, warrants and non-vested common stock) when such securities are not anti-dilutive. Potentially dilutive securities from options, warrants and unvested restricted shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options and warrants with exercise prices exceeding the average market value are used to repurchase common stock at market value. The incremental shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the securities.
Securities outstanding that were excluded from the computation, because they would have been anti-dilutive were as follows:
|
|
March 31, |
|
|||||
(Share amounts in 000’s) |
|
2023 |
|
|
2022 |
|
||
Stock options |
|
|
13 |
|
|
|
13 |
|
Warrants - employee |
|
|
34 |
|
|
|
34 |
|
Warrants - non employee |
|
|
1 |
|
|
|
5 |
|
Total anti-dilutive securities |
|
|
48 |
|
|
|
52 |
|
The weighted average contractual terms in years for these securities as of March 31, 2023, with no intrinsic value, are 1.3 years for the stock options and 1.6 years for the warrants.
New Accounting Pronouncements Issued But Not Yet Effective
The Financial Accounting Standards Board (FASB) has issued amendments to Topic 842, which requires entities to determine whether related party arrangements between entities under common control are leases. The amendments also address the accounting treatment of leasehold improvements associated with common control leases. They require the lessee to amortize leasehold improvements over the useful life of the improvements to the common control group, regardless of the lease term, as long as the lessee controls the use of the underlying asset. If the lessee no longer controls the use of the asset, the leasehold improvements are accounted for as a transfer between entities under common control through an adjustment to equity. These improvements are also subject to impairment guidance in Topic 360, Property, Plant, and Equipment. The amendment is effective for public entities beginning after December 15, 2023.
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
11
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, 2023, the Company had $2.8 million in unrestricted cash.
During the three months ended March 31, 2023, the Company's cash provided by operating activities was $2.6 million primarily due to collection of the Employee Retention Tax Credit ("ERTC"). The Company is seeking collection of the past due rent. In addition, management is working to expedite the time it takes to collect and receive aged patient receivables. Cash flow from operations in the future will be based on the operational performance of the facilities under the company's management, Glenvue and Meadowood, as well as continued uncertainty of the COVID-19 pandemic and its impact on the Company's business, financial condition and results of operations.
Series A Preferred Exchange Offer
In 2020, the Company began exploring alternatives to retire or refinance our outstanding Series A Preferred Stock through privately negotiated transactions, open market repurchases, redemptions, exchange offers, tender offers, or otherwise. In February 2022, the Company commenced an offer to exchange (the "Exchange Offer") any and all of its outstanding 10.875% Series A Cumulative Redeemable Preferred Shares (the "Series A Preferred Stock") for newly issued shares of the Company's 12.5% Series B Cumulative Redeemable Preferred Shares (the "Series B Preferred Stock"). On July 25, 2022, the Company did not obtain the shareholder approval required in connection with the Exchange Offer. The Company terminated the Exchange Offer.
Series A Preferred Dividend Suspension
On June 8, 2018, the board of directors of Regional (the "Board") indefinitely suspended quarterly dividend payments on the 10.875% Series A Preferred Stock. As of March 31, 2023, 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 $48.1 million of undeclared Series A Preferred Stock dividends in arrears. The Board believes that the dividend suspension will provide the Company with additional funds to meet, in part, its ongoing liquidity needs. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for more than four dividend periods, the annual dividend rate on the Series A Preferred Stock for the fifth and future missed dividend periods has increased to 12.875%, which is equivalent to $3.20 per share each year, commencing on the first day after the missed fourth quarterly payment (i.e. October 1, 2018) and continuing until the second consecutive dividend payment date following such time as the Company has fully paid all accumulated and unpaid dividends on the Series A Preferred Stock in cash.
Debt
As of March 31, 2023, the Company had $51.5 million in indebtedness, net of $1.1 million deferred financing costs and unamortized discounts. The Company anticipates net principal repayments of approximately $1.5 million during the next twelve-month period, approximately $1.4 million of routine debt service amortization and a $0.1 million payment of bond debt.
Debt Extinguishment
On December 30, 2022, the Company extended the maturity date on approximately $0.5 million other debt from August 25, 2023 to August 25, 2025 (the "Key Bank Exit Notes"). For further information, see Note 8 – Notes Payable and Other Debt.
On October 21, 2022, the Company, through wholly-owned subsidiaries, consummated a HUD refinancing of its senior mortgages on three SNFs in Ohio. Funding was provided by Newpoint Real Estate Capital LLC ("Newpoint") pursuant to three HUD guaranteed secured Healthcare Facility Notes (the "HUD Notes"). Proceeds from the HUD Notes were used to pay off existing HUD guaranteed secured mortgages and pay transaction costs. Newpoint is the servicer on other loans extended to the Company.
Consequently, the Company recorded a net loss of approximately $0.4 million on extinguishment of debt during the year ended December 31, 2022, consisting of a $0.2 million prepayment penalty and $0.2 million of expensed deferred financing fees associated with the extinguishment of the Eaglewood Care Center, The Pavilion Care Center, and Hearth & Care of Greenfield loans.
12
The aggregate principal amount of the three HUD Notes is $7.8 million, and the interest rate on the three HUD Notes is 3.97% fixed for the full term of each HUD Note. The Northwood HUD Note has a principal amount of $5.0 million and matures on November 1, 2052. The Greenfield HUD Note has a principal amount of $2.0 million and matures on November 1, 2050. The Pavilion HUD Note has a principal amount of $0.8 million and matures on December 1, 2039. Payments of principal and interest on the HUD Notes commenced on October 1, 2022. Each HUD Note is secured by a Healthcare Deed to Secure Debt, Security Agreement and Assignment of Rents covering the facilities. Newpoint may declare the loans, accrued interest and any other amounts immediately due and payable upon certain customary events of default.
Debt Covenant Compliance
At March 31, 2023, the Company was in compliance with the various financial and administrative covenants related to all of the Company's credit facilities.
Changes in Operational Liquidity
COVID-19. Many of our operators have reported incurring significant cost increases as a result of the COVID-19 pandemic. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of personal protective equipment, testing equipment, processes and supplies. In terms of occupancy levels, many of our operators have reported experiencing declines, in part due to the elimination or suspension of elective hospital procedures, fewer discharges from hospitals to SNFs, and higher hospital readmittances from SNFs. The COVID-19 pandemic may also lead to temporary closures of nursing facilities operated by our tenants, impairing our tenants’ ability to make their rental payments to us pursuant to their respective lease agreements.
Portfolio Stabilization Measures. In the past, our operators did not provide lease guarantees from affiliated entities. Given this, certain operators have terminated their leases in light of operational difficulties caused by the COVID-19 pandemic. While the Company is a self-managed real estate investment company that invests in real estate, when business conditions require, the Company undertakes portfolio stabilization measures. The table below summarizes the lease terminations since the onset of the COVID-19 pandemic and the Company’s resulting portfolio stabilization measures:
Date |
Facility Name |
Former Operator |
Current Operator |
|
|
|
|
April 2022 |
Meadowood |
C.R. Management |
Regional Health (managed by Cavalier Senior Living Operations) |
|
|
|
|
August 2022 |
Glenvue |
C.R. Management |
Regional Health |
For more information, see Note 1 – Organization and Significant Accounting Policies, Note 6 – Leases and Note 12 – Segment Results.
Capital Requirements. The operation of the facilities list above will require additional working capital, which is partially offset by cash flow received from the operation of these facilities. Since January, 2021, the Company's Accounts Receivable, net of allowance and Accounts Payable for the Healthcare Services segment have grown to $2.2 million and $2.2 million, respectfully.
On December 30, 2022, the Company and Spring Valley, LLC (“Spring Valley”) entered into a Lease Termination Agreement (the “Lease Termination Agreement”) relating to the lease of the following eight nursing facilities: the Powder Springs facility, the Thomasville facility, the Jeffersonville facility, the Lumber City facility, the LaGrange facility, the Tara facility, the Oceanside facility and the Savannah Beach facility (collectively, the “Facilities”). The Lease Termination Agreement terminated the lease effective December 7, 2022 (the “Lease Termination Date”). Since the termination, management has been focusing on collecting the Accounts Receivable and paying the Accounts Payable associated with the referenced facilities.
Evaluation of the Company's Ability to Continue as a Going Concern
Under the accounting guidance related to the presentation of financial statements, the Company is required to evaluate, on a quarterly basis, whether or not the Company's current financial condition, including its sources of liquidity at the date that the
13
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 concluded that it is probable that the Company will be able to meet its obligations arising within one year of the date of issuance of these consolidated financial statements within the parameters set forth in the accounting guidance.
NOTE 3. CASH AND RESTRICTED CASH
The following presents the Company's cash and restricted cash:
(Amounts in 000’s) |
|
March 31, |
|
|
December 31, |
|
||
Cash |
|
$ |
2,803 |
|
|
$ |
843 |
|
|
|
|
|
|
|
|
||
Restricted cash: |
|
|
|
|
|
|
||
Cash collateral |
|
$ |
173 |
|
|
$ |
135 |
|
HUD and other replacement reserves |
|
|
2,119 |
|
|
|
2,155 |
|
Escrow deposits |
|
|
407 |
|
|
|
459 |
|
Restricted investments for debt obligations |
|
|
317 |
|
|
|
317 |
|
Total restricted cash |
|
|
3,016 |
|
|
|
3,066 |
|
Total cash and restricted cash |
|
$ |
5,819 |
|
|
$ |
3,909 |
|
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 |
|
|
March 31, |
|
|
December 31, |
|
|||
Buildings and improvements |
|
5-40 |
|
|
$ |
63,746 |
|
|
$ |
63,746 |
|
|
Equipment and computer related |
|
2-10 |
|
|
|
1,463 |
|
|
|
1,807 |
|
|
Land (1) |
|
|
— |
|
|
|
2,774 |
|
|
|
2,774 |
|
Property and equipment |
|
|
|
|
|
67,983 |
|
|
|
68,327 |
|
|
Less: accumulated depreciation and amortization |
|
|
|
|
|
(21,874 |
) |
|
|
(21,716 |
) |
|
Property and equipment, net |
|
|
|
|
$ |
46,109 |
|
|
$ |
46,611 |
|
|
14
The following table summarizes total depreciation and amortization expense three months ended March 31, 2023 and 2022:
|
|
Three Months Ended March 31, |
|
|||||
(Amounts in 000’s) |
|
2023 |
|
|
2022 |
|
||
Depreciation |
|
$ |
400 |
|
|
$ |
503 |
|
Amortization |
|
|
110 |
|
|
|
110 |
|
Total depreciation and amortization expense |
|
$ |
510 |
|
|
$ |
613 |
|
NOTE 5. INTANGIBLE ASSETS AND GOODWILL
Intangible assets and Goodwill consist of the following:
(Amounts in 000’s) |
|
Bed licenses |
|
|
Bed Licenses - |
|
|
Lease |
|
|
Total |
|
|
Goodwill (2) |
|
|||||
Balances, December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross |
|
$ |
14,276 |
|
|
$ |
2,471 |
|
|
$ |
206 |
|
|
$ |
16,953 |
|
|
$ |
1,585 |
|
Accumulated amortization |
|
|
(4,583 |
) |
|
|
— |
|
|
|
(96 |
) |
|
$ |
(4,678 |
) |
|
|
— |
|
Net carrying amount |
|
$ |
9,693 |
|
|
$ |
2,471 |
|
|
$ |
110 |
|
|
$ |
12,275 |
|
|
$ |
1,585 |
|
Balances, March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross |
|
|
14,276 |
|
|
|
2,471 |
|
|
|
206 |
|
|
|
16,953 |
|
|
|
1,585 |
|
Accumulated amortization |
|
|
(4,686 |
) |
|
|
— |
|
|
|
(102 |
) |
|
|
(4,788 |
) |
|
|
— |
|
Net carrying amount |
|
$ |
9,590 |
|
|
$ |
2,471 |
|
|
$ |
104 |
|
|
$ |
12,165 |
|
|
$ |
1,585 |
|
The following table summarizes amortization expense for the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended March 31, |
|
|||||
(Amounts in 000’s) |
|
2023 |
|
|
2022 |
|
||
Bed licenses |
|
$ |
104 |
|
|
$ |
104 |
|
Lease rights |
|
|
6 |
|
|
|
6 |
|
Total amortization expense |
|
$ |
110 |
|
|
$ |
110 |
|
Expected amortization expense for the years ending December 31, for all definite-lived intangibles, for each of the next five years and thereafter is as follows:
(Amounts in 000’s) |
|
Bed |
|
|
Lease |
|
||
2023 |
|
$ |
311 |
|
|
$ |
17 |
|
2024 |
|
|
414 |
|
|
|
18 |
|
2025 |
|
|
414 |
|
|
|
18 |
|
2026 |
|
|
414 |
|
|
|
18 |
|
2027 |
|
|
414 |
|
|
|
18 |
|
Thereafter |
|
|
7,623 |
|
|
|
15 |
|
Total expected amortization expense |
|
$ |
9,590 |
|
|
$ |
104 |
|
NOTE 6. LEASES
Facility Lessee
As of March 31, 2023, the Company leased one SNF under a non-cancelable operating lease, which had rent escalation clauses and provisions for payments of real estate taxes, insurance, and maintenance costs. The Company also leases certain office space located in Suwanee, Georgia.
The remaining lease term for this one facility is approximately 6.1 years. As of March 31, 2023, the Company was in compliance with all operating lease financial covenants.
15
Future Minimum Lease Payments
Future minimum lease payments for the twelve months ending December 31, for each of the next five years and thereafter is as follows:
(Amounts in 000’s) |
|
Future |
|
|
Accretion of |
|
|
Operating |
|
|||
2023 |
|
$ |
480 |
|
|
$ |
(28 |
) |
|
$ |
452 |
|
2024 |
|
|
633 |
|
|
|
(62 |
) |
|
|
571 |
|
2025 |
|
|
645 |
|
|
|
(107 |
) |
|
|
538 |
|
2026 |
|
|
658 |
|
|
|
(152 |
) |
|
|
507 |
|
2027 |
|
|
671 |
|
|
|
(194 |
) |
|
|
477 |
|
Thereafter |
|
|
914 |
|
|
|
(322 |
) |
|
|
593 |
|
Total |
|
$ |
4,002 |
|
|
$ |
(865 |
) |
|
$ |
3,137 |
|
Facilities Lessor
As of March 31, 2023, the Company was the lessor of 9 of its 11 owned facilities, and the sublessor of one facility. These leases are triple net basis leases, meaning that the lessee (i.e., the third-party tenant of the property) is obligated for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments to the Company. The weighted average remaining lease term for our 10 owned and subleased out facilities is approximately 6.0 years.
Future Minimum Lease Receivables
Future minimum lease receivables for the twelve months ending December 31, for each of the next five years and thereafter is as follows:
|
|
(Amounts |
|
|
2023 |
|
$ |
4,698 |
|
2024 |
|
|
6,187 |
|
2025 |
|
|
6,034 |
|
2026 |
|
|
5,362 |
|
2027 |
|
|
5,445 |
|
Thereafter |
|
|
11,605 |
|
Total |
|
$ |
39,330 |
|
For further details regarding the Company's leased and subleased facilities to third-party operators, including a full summary of the Company's leases to third-parties and which comprise the future minimum lease receivables of the Company, see Note 6 - Leases and Leasing Transactions in Part I, Item 1, Financial Statements and Supplementary Data, included in the Annual Report.
16
NOTE 7. ACCRUED EXPENSES
Accrued expenses consist of the following:
(Amounts in 000’s) |
March 31, |
|
|
December 31, |
|
||
Accrued employee benefits and payroll-related |
$ |
433 |
|
|
$ |
539 |
|
Real estate and other taxes (1) |
|
2,502 |
|
|
|
2,428 |
|
Self-insured reserve |
|
66 |
|
|
|
80 |
|
Accrued interest |
|
223 |
|
|
|
210 |
|
Unearned rental revenue |
|
— |
|
|
|
43 |
|
Medicaid overpayment - Healthcare Services |
|
52 |
|
|
|
169 |
|
Other accrued expenses |
|
1,978 |
|
|
|
1,567 |
|
Total accrued expenses |
$ |
5,254 |
|
|
$ |
5,036 |
|
NOTE 8. NOTES PAYABLE AND OTHER DEBT
See Note 8 – Notes Payable and Other Debt in Part II, Item 8, Financial Statements and Supplementary Data, included in the Annual Report for a detailed description of all the Company's debt facilities.
Notes payable and other debt consists of the following:
(Amounts in 000’s) |
|
March 31, |
|
|
December 31, |
|
||
Senior debt—guaranteed by HUD |
|
$ |
29,584 |
|
|
$ |
29,782 |
|
Senior debt—guaranteed by USDA (1) |
|
|
7,472 |
|
|
|
7,526 |
|
Senior debt—guaranteed by SBA(2) |
|
|
572 |
|
|
|
580 |
|
Senior debt—bonds |
|
|
6,253 |
|
|
|
6,253 |
|
Senior debt—other mortgage indebtedness |
|
|
8,221 |
|
|
|
8,266 |
|
Other debt |
|
|
533 |
|
|
|
895 |
|
Subtotal |
|
|
52,635 |
|
|
|
53,302 |
|
Deferred financing costs |
|
|
(1,005 |
) |
|
|
(1,005 |
) |
Unamortized discount on bonds |
|
|
(118 |
) |
|
|
(119 |
) |
Notes payable and other debt |
|
$ |
51,512 |
|
|
$ |
52,178 |
|
17
The following is a detailed listing of the debt facilities that comprise each of the above categories:
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Facility |
|
Lender |
|
Maturity |
|
Interest Rate (1) |
|
|
March 31, |
|
|
December 31, |
|
|||||
Senior debt - guaranteed by HUD (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Pavilion Care Center |
|
Newpoint Capital |
|
12/01/2039 |
|
Fixed |
|
|
3.97 |
% |
|
$ |
828 |
|
|
$ |
835 |
|
Hearth and Care of Greenfield |
|
Newpoint Capital |
|
8/01/2050 |
|
Fixed |
|
|
3.97 |
% |
|
|
1,939 |
|
|
|
1,949 |
|
Woodland Manor |
|
Newpoint Capital |
|
11/01/2052 |
|
Fixed |
|
|
3.97 |
% |
|
|
4,958 |
|
|
|
4,980 |
|
Glenvue |
|
Newpoint Capital |
|
10/01/2044 |
|
Fixed |
|
|
3.75 |
% |
|
|
7,243 |
|
|
|
7,297 |
|
Autumn Breeze |
|
KeyBank |
|
01/01/2045 |
|
Fixed |
|
|
3.65 |
% |
|
|
6,297 |
|
|
|
6,344 |
|
Georgetown |
|
Newpoint Capital |
|
10/01/2046 |
|
Fixed |
|
|
2.98 |
% |
|
|
3,191 |
|
|
|
3,214 |
|
Sumter Valley |
|
KeyBank |
|
01/01/2047 |
|
Fixed |
|
|
3.70 |
% |
|
|
5,128 |
|
|
|
5,163 |
|
Total |
|
|
|
|
|
|
|
|
|
|
$ |
29,584 |
|
|
$ |
29,782 |
|
|
Senior debt - guaranteed by USDA (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Mountain Trace (4) |
|
Community B&T |
|
12/24/2036 |
|
Prime + 1.75% |
|
|
9.25 |
% |
|
$ |
3,643 |
|
|
$ |
3,680 |
|
Southland (5) |
|
Cadence Bank, NA |
|
07/27/2036 |
|
Prime + 1.50% |
|
|
9.00 |
% |
|
|
3,829 |
|
|
|
3,846 |
|
Total |
|
|
|
|
|
|
|
|
|
|
$ |
7,472 |
|
|
$ |
7,526 |
|
|
Senior debt - guaranteed by SBA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Southland(6) |
|
Cadence Bank, NA |
|
07/27/2036 |
|
Prime + 2.25% |
|
|
9.75 |
% |
|
|
572 |
|
|
|
580 |
|
Total |
|
|
|
|
|
|
|
|
|
|
$ |
572 |
|
|
$ |
580 |
|
|
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Facility |
|
Lender |
|
Maturity |
|
Interest Rate (1) |
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|||||
Senior debt - bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Eaglewood Bonds Series A |
|
City of Springfield, Ohio |
|
05/01/2042 |
|
Fixed |
|
|
7.65 |
% |
|
$ |
6,253 |
|
|
$ |
6,253 |
|
18
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Lender |
|
Maturity |
|
Interest Rate |
|
|
March 31, |
|
|
December 31, |
|
|||||
Other debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
First Insurance Funding (1) |
|
Various 2023 |
|
Fixed |
|
|
3.19 |
% |
|
$ |
- |
|
|
$ |
357 |
|
Key Bank (2) |
|
08/25/2025 |
|
Fixed |
|
|
0.00 |
% |
|
|
495 |
|
|
|
495 |
|
Marlin Capital Solutions |
|
06/1/2027 |
|
Fixed |
|
|
5.00 |
% |
|
|
38 |
|
|
|
43 |
|
Total |
|
|
|
|
|
|
|
|
$ |
533 |
|
|
$ |
895 |
|
|
Debt Covenant Compliance
As of March 31, 2023, the Company had 16 credit related instruments outstanding that include various financial and administrative covenant requirements. Covenant requirements include, but are not limited to, fixed charge coverage ratios, debt service coverage ratios, minimum earnings before interest, taxes, depreciation, and amortization or earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs, and current ratios. Certain financial covenant requirements are based on consolidated financial measurements whereas others are based on measurements at the subsidiary level (i.e., facility, multiple facilities or a combination of subsidiaries). The subsidiary level requirements are as follows: (i) financial covenants measured against subsidiaries of the Company; and (ii) financial covenants measured against third-party operator performance. Some covenants are based on annual financial metric measurements, whereas others are based on monthly and quarterly financial metric measurements. The Company routinely tracks and monitors its compliance with its covenant requirements.
As of March 31, 2023, the Company was in compliance with the various financial and administrative covenants under the Company's outstanding credit related instruments.
Scheduled Maturities
The schedule below summarizes the scheduled gross maturities as of March 31, 2023 for each of the next five years and thereafter.
19
For the Twelve Months Ended December 31, |
(Amounts in 000’s) |
|
|
2023 |
$ |
1,477 |
|
2024 |
|
1,597 |
|
2025 |
|
2,175 |
|
2026 |
|
8,540 |
|
2027 |
|
1,435 |
|
Thereafter |
|
37,412 |
|
Subtotal |
$ |
52,635 |
|
Less: unamortized discounts |
|
(118 |
) |
Less: deferred financing costs, net |
|
(1,005 |
) |
Total notes and other debt |
$ |
51,512 |
|
NOTE 9. COMMON AND PREFERRED STOCK
Common Stock
There were no dividends declared or paid on the common stock during the three months ended March 31, 2023 and 2022.
Preferred Stock
No dividends were declared or paid on the Series A Preferred Stock for the three months ended March 31, 2023 and 2022.
As of March 31, 2023, 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 $48.1 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 per share or $2.2 million per quarter, commencing on the first day after the missed fourth quarterly payment (October 1, 2018) continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash; and (ii) the holders of the Series A Preferred Stock will be entitled to vote, as a single class, for the election of two additional directors to serve on the Board, as further described in the amended and restated articles of incorporation of the Company, otherwise referred to as the Charter.
As of March 31, 2023, 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.
On February 28, 2022, the Company commenced an offer to exchange any and all of its outstanding 10.875% Series A Cumulative Redeemable Preferred Shares for newly issued shares of the Company's 12.5% Series B Cumulative Redeemable Preferred Shares. On July 25, 2022, the Company failed to receive the required votes from the common shareholders. The company decided to terminate the preferred exchange offer. The company continues to explore solutions to improve its capital structure including relaunching the preferred exchange offer.
NOTE 10. STOCK BASED COMPENSATION
Stock Incentive Plans
On November 4, 2020, the Board adopted, the Regional Health Properties, Inc. 2020 Equity Incentive Plan (the "2020 Plan"). The Company's shareholders approved the 2020 Plan on December 16, 2020 at the 2020 Annual Meeting of Shareholders of the Company. The maximum number of shares of common stock authorized for issuance under the 2020 Plan is 250,000 shares, subject to certain adjustments. No awards may be made under the 2020 Plan after the 10th anniversary of the date of
20
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. As of March 31, 2023, the number of securities remaining available for future issuance under the 2020 Plan is 56,000.
The 2020 Plan replaced the AdCare Health Systems, Inc. 2011 Stock Incentive Plan, as amended (the "2011 Plan"), which was assumed by Regional Health pursuant to the Merger. The 2011 Plan was originally due to expire on March 28, 2021 and provided for a maximum of 168,950 shares of common stock to be issued. No additional awards may be granted under the 2011 Plan.
The shares of common stock underlying any awards granted under the 2020 Plan or the 2011 Plan that are forfeited, canceled, or otherwise terminated (other than by exercise) will be added back to the shares of common stock available for issuance under the 2020 Plan. However, shares: (i) tendered or held back upon exercise of a stock option or other award under the 2020 Plan to cover the exercise price or tax withholding; and (ii) subject to a stock appreciation right that are not issued in connection with the stock settlement of the stock appreciation right upon exercise thereof, will not be added back to the shares of common stock available for issuance under the 2020 Plan. In addition, shares of common stock repurchased by the Company on the open market will not be added back to the shares of common stock available for issuance under the 2020 Plan.
For the three months ended March 31, 2023 and 2022, the Company recognized stock-based compensation expense as follows:
|
|
Three Months Ended March 31, |
|
|||||
(Amounts in 000’s) |
|
2023 |
|
|
2022 |
|
||
Employee compensation: |
|
|
|
|
|
|
||
Stock compensation expense |
|
$ |
81 |
|
|
$ |
111 |
|
Forfeitures of stock based awards |
|
|
|
|
|
(46 |
) |
|
Total employee stock-based compensation expense |
|
$ |
81 |
|
|
$ |
65 |
|
For the three months ended March 31, 2023 and 2022, there were no issuances of warrants.
Restricted Stock
The following table summarizes the Company's restricted stock activity for the three months ended March 31, 2023:
|
|
Number of |
|
|
Weighted Avg. |
|
||
Unvested, December 31, 2022 |
|
|
51 |
|
|
$ |
8.99 |
|
Granted |
|
|
99 |
|
|
$ |
3.61 |
|
Vested |
|
|
(26 |
) |
|
$ |
9.06 |
|
Forfeited |
|
|
(1 |
) |
|
$ |
13.26 |
|
Unvested, March 31, 2023 |
|
|
123 |
|
|
$ |
4.75 |
|
The remaining unvested shares at March 31, 2023 will vest over the next 1.9 years with $0.6 million in compensation expense recognized over this period.
Common Stock Options
The following summarizes the Company's employee and non-employee stock option activity for the three months ended March 31, 2023:
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding, December 31, 2022 |
|
|
13 |
|
|
$ |
47.53 |
|
|
|
0.5 |
|
|
$ |
— |
|
Granted |
|
|
24 |
|
|
$ |
3.09 |
|
|
|
9.9 |
|
|
$ |
— |
|
Outstanding and Vested, March 31, 2023 |
|
|
37 |
|
|
$ |
18.70 |
|
|
|
6.8 |
|
|
$ |
— |
|
21
The following summary information reflects stock options outstanding, vested, and related details as of March 31, 2023:
|
|
Stock Options Outstanding |
|
|
Stock Options Exercisable |
|
||||||||||||||
Exercise Price |
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|
Vested, |
|
|
Weighted |
|
|||||
$3.09-$4.00 |
|
|
24 |
|
|
|
9.9 |
|
|
$ |
3.09 |
|
|
|
24 |
|
|
$ |
3.09 |
|
$15.72 - $51.60 |
|
|
13 |
|
|
|
0.5 |
|
|
$ |
47.53 |
|
|
|
13 |
|
|
$ |
47.53 |
|
Total |
|
|
37 |
|
|
|
6.8 |
|
|
$ |
18.70 |
|
|
|
37 |
|
|
$ |
18.70 |
|
Common Stock Warrants
The Company grants stock warrants to officers, directors, employees and certain consultants to the Company from time to time as determined by the Board and, when appropriate, the Compensation Committee of the Board. The Board administers the granting of warrants, determines the persons to whom awards will be made, the amount of the awards, and the other terms and conditions of the awards. No warrants were granted during the three months ended March 31, 2023 and 2022. The Company has no unrecognized compensation expense related to common stock warrants as of March 31, 2023.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Regulatory Matters
Laws and regulations governing federal Medicare and state Medicaid programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future governmental review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from certain governmental programs. As of March 31, 2023, all of the Company's facilities operated by Regional or leased and subleased to third-party operators and managed for third-parties are certified by CMS and are operational. See Note 6 - Leases.
Legal Matters
The Company is a party to various legal actions and administrative proceedings and is subject to various claims arising in the ordinary course of business, including claims that the services the Company provided during the time it operated SNFs resulted in injury or death to the patients of the Company's facilities and claims related to professional and general negligence, employment, staffing requirements and commercial matters. Although the Company intends to vigorously defend itself in these matters, there is no assurance that the outcomes of these matters will not have a material adverse effect on the Company's business, results of operations and financial condition.
The Company previously operated, and the Company and its tenants now operate, in an industry that is highly regulated. As such, in the ordinary course of business, the Company and its tenants are continuously subject to state and federal regulatory scrutiny, supervision and control. Such regulatory scrutiny often includes inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine. In addition, the Company believes that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare and Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in legal proceedings or governmental investigations against or involving the Company or its tenants, whether currently asserted or arising in the future, could have a material adverse effect on the Company's business, results of operations and financial condition.
Professional and General Liability Claims
Claims on behalf of the Company's Former Patients Prior to the Transition
As of March 31, 2023, the Company is a defendant in one professional and general liability action commenced on behalf of one of our former patients who received care at one of our facilities prior to the Transition. The plaintiff in this action alleges negligence due to failure to provide adequate and competent staff resulting in injuries, pain and suffering, mental anguish and
22
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.
Claims on behalf of the Company's Prior or Current Tenant's Former Patients after the Transition
As of March 31, 2023, the Company is a defendant in an aggregate of 10 additional professional and general liability actions. These 10 additional professional and general liability actions were commenced on behalf of former patients of our current or prior tenants. These actions generally seek unspecified compensatory and punitive damages for former patients who were allegedly injured or died due to professional negligence or understaffing at the applicable facility operated by our tenants. These actions all relate to events which occurred after the Company transitioned the operations of the facilities in question to a third-party operator (and of which four such actions relate to events which occurred after the Company sold such facilities) and are subject to such operators' indemnification obligations in favor of the Company. There is no assurance that our tenants will have sufficient assets, income, access to financing and insurance coverage to enable them to satisfy their respective indemnification obligations.
During the three months ended March 31, 2023, the following professional and general liability action (included in the 10 actions mentioned above) related to our current or former tenant's former patients were filed against the Company.
The resident’s daughter filed suit on behalf of Mr. Shellman on February 14, 2023 asserting claims of professional and ordinary negligence as well the alleged breach of various state and federal regulations. The lawsuit relates to Mr. Shellman’s residence at Glenvue nursing facility which was operated by C.R. of Glenvue, LLC which is also named as a defendant. Plaintiff’s counsel has agreed to extend the deadline for Glenvue H&R Property Holdings, LLC to respond to the lawsuit up to and including May 15, 2023 to enable him to review the response filed by C.R. of Glenvue, LLC and determine whether or not Plaintiff will agree to the dismissal of Glenvue H&R Property Holdings, LLC. If plaintiff does not agree, we intend to serve Plaintiff with a notice that Glenvue H&R Property Holdings, LLC constitutes an excluded party pursuant to O.C.G.A. 31-7-3.3. Should Plaintiff still not agree to the dismissal of Glenvue H&R Property Holdings, LLC, we will file a motion for summary judgment seeking judgment in its favor. The Court may require Glenvue H&R Property Holdings, LLC to participate in discovery prior to ruling on this motion. In the event that occurs, Glenvue H&R Property Holdings, LLC can seek the recovery of its attorneys fees and expenses pursuant to the above-referenced excluded party statute.
The family of Mable Polite filed suit on March 15, 2023 asserting claims of professional and ordinary negligence as well the alleged breach of various state and federal regulations. The lawsuit relates to Ms. Polite’s residence at the Thunderbolt nursing facility from March 19, 2020 to March 20, 2021. Plaintiff has also asserted claims against 3223 Falligant Avenue Associates, LP and other Wellington related entities. 3223 Falligant Avenue was the operator and licensee of the facility for the first part of Ms. Polite’s residence prior to Tara Operator becoming the operator. Based upon the date the suit was filed, there is an argument that certain claimed acts of negligence are barred by the limitations period. Ms. Polite’s daughter signed an arbitration agreement on her admission to Thunderbolt but we are not in possession of a power of attorney or other documentation authorizing her to execute this agreement. Nonetheless, Tara Operator will file its answer to the Complaint (due April 14) via special appearance to reserve the right to seek arbitration should a power of attorney be located.
Dismissed Claims on behalf of the Company's Prior or Current Tenant's Former Patients after the Transition
In February 2023, the Company was dismissed from the case involving Ronald and Sarah Ross against our prior operator Symmetry Healthcare Management.
The Company established a self-insurance reserve for its professional and general liability claims, included within Accrued expenses on the Company's consolidated balance sheets of $0.1 million and $0.2 million as of March 31, 2023 and December 31, 2022, respectively. Additionally, as of March 31, 2023 and December 31, 2022, $0.1 million and $0.1 million, was reserved for settlement amounts in Accounts payable on the Company's consolidated balance sheets. For additional information regarding the Company's self-insurance reserve, see Note 13 – Commitments and Contingencies in Part II, Item 8, Financial Statements and Supplementary Data, included in the Annual Report.
NOTE 12. SEGMENT RESULTS
The Company has two primary reporting segments: (i) Real Estate Services, which consists of the leasing and subleasing of long-term care and senior living facilities to third-party tenants, including the Company's management of three facilities on
23
behalf of third-party owners; and (ii) Healthcare Services, which consists of the operation of the Meadowood and Glenvue facilities.
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, |
|
Three Months Ended March 31, |
|
||||||||||||||
|
2023 |
|
2023 |
|
2023 |
|
2022 |
|
2022 |
|
2022 |
|
||||||
(Amounts in 000’s) |
Real Estate Services |
|
Healthcare Services |
|
Total |
|
Real Estate Services |
|
Healthcare Services |
|
Total |
|
||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Patient care revenues |
$ |
— |
|
$ |
1,916 |
|
$ |
1,916 |
|
$ |
— |
|
$ |
2,311 |
|
$ |
2,311 |
|
Rental revenues |
|
1,708 |
|
|
— |
|
|
1,708 |
|
|
4,065 |
|
|
— |
|
|
4,065 |
|
Management fees |
|
278 |
|
|
— |
|
|
278 |
|
|
265 |
|
|
— |
|
|
265 |
|
Other revenues |
|
4 |
|
|
— |
|
|
4 |
|
|
7 |
|
|
— |
|
|
7 |
|
Total revenues |
|
1,990 |
|
|
1,916 |
|
|
3,906 |
|
|
4,337 |
|
|
2,311 |
|
|
6,648 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Patient care expense |
|
— |
|
|
2,537 |
|
|
2,537 |
|
|
— |
|
|
2,343 |
|
|
2,343 |
|
Facility rent expense |
|
149 |
|
|
— |
|
|
149 |
|
|
1,341 |
|
|
298 |
|
|
1,639 |
|
Cost of management fees |
|
141 |
|
|
— |
|
|
141 |
|
|
179 |
|
|
— |
|
|
179 |
|
Depreciation and amortization |
|
507 |
|
|
3 |
|
|
510 |
|
|
607 |
|
|
6 |
|
|
613 |
|
General and administrative expense |
|
1,042 |
|
|
164 |
|
|
1,206 |
|
|
1,020 |
|
|
103 |
|
|
1,123 |
|
Doubtful accounts expense (recovery) |
|
— |
|
|
16 |
|
|
16 |
|
|
1,711 |
|
|
50 |
|
|
1,761 |
|
Other operating expenses |
|
79 |
|
|
13 |
|
|
92 |
|
|
289 |
|
|
40 |
|
|
329 |
|
Total expenses |
|
1,918 |
|
|
2,733 |
|
|
4,651 |
|
|
5,147 |
|
|
2,840 |
|
|
7,987 |
|
Income (loss) from operations |
|
72 |
|
|
(817 |
) |
|
(745 |
) |
|
(810 |
) |
|
(529 |
) |
|
(1,339 |
) |
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest expense, net |
|
678 |
|
|
2 |
|
|
680 |
|
|
631 |
|
|
22 |
|
|
653 |
|
Other expense, net |
|
350 |
|
|
217 |
|
|
567 |
|
|
935 |
|
|
— |
|
|
935 |
|
Total other expense, net |
|
1,028 |
|
|
219 |
|
|
1,247 |
|
|
1,566 |
|
|
22 |
|
|
1,588 |
|
Net loss |
$ |
(956 |
) |
$ |
(1,036 |
) |
$ |
(1,992 |
) |
$ |
(2,376 |
) |
$ |
(551 |
) |
$ |
(2,927 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|||||
Total assets for the Real Estate Services segment and Healthcare Services segment were $62.0 million and $3.9 million, respectively, as of March 31, 2023. Total assets for the Real Estate Services segment and Healthcare Services segment were $63.4 million and $5.1 million, respectively, as of December 31, 2022.
NOTE 13. SUBSEQUENT EVENTS
The Company has evaluated all subsequent events through the date the consolidated financial statements were issued and filed with the SEC.
Subsequent to quarterend, the Company and its former tenant, SL SNF, LLC are currently negotiating a short-term lease for the Southland facility. The lease is expected to end on November 30, 2024.
24
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 "Risk Factors" of this Quarterly Report, as well as other reports that the Company files with the SEC.
Forward-looking statements speak only as of the date they are made and should not be relied upon as representing the Company's views as of any subsequent date. The Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by applicable laws, and you are urged to review and consider disclosures that the Company makes in this Quarterly Report and other reports that the Company files with the SEC that discuss factors germane to the Company's business.
Overview
Regional Health Properties, Inc., a Georgia corporation is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior housing. We operate through two reportable segments: Real Estate and Healthcare Services. Our Real Estate segment consists of real estate investments in skilled nursing and senior housing facilities. We fund our real estate investments primarily through: (1) operational cash flow, (2) mortgages, and (3) sale of equity securities. Our Healthcare Services segment is comprised of an entity set up to operate our facilities as needed under our Portfolio Stabilization measures.
While the Company is a self-managed real estate investment company, the Company, when business conditions require, may undertake portfolio stabilization measures, such as operating a previously leased facility. For more information see " Recent Developments" below and Note 2 - Liquidity - Changes in Operational Liquidity - Portfolio Stabilization Measures and Note 6 - Leases to the Company's consolidated financial statements, which are included in Part I. Item 1 hereto.
Real Estate Portfolio
As of March 31, 2023, we had investments of approximately $66.5 million in eleven health care real estate properties and one leased property. We currently own eleven properties, consisting of nine skilled nursing facilities and two multi-service facilities. Nine facilities are pursuant to triple-net leases, one is managed by an external manager, and one is managed internally by the Company. The Company has one leased facility that is subleased pursuant to a triple-net lease.
Skilled nursing facilities. SNFs provide services that include daily nursing, therapeutic rehabilitation, social services, activities, housekeeping, nutrition, medication management and administrative services for individuals requiring certain assistance for activities in daily living. A typical skilled nursing facility includes mostly one and two bed units, each equipped with a private or shared bathroom and community dining facilities.
25
Multi-Service Campuses. Multi-service campuses generally include some combination of co-located skilled nursing, independent living, assisted living and/or memory care units all housed at a single location and operated as a continuum of care.
Portfolio
The following table provides summary information regarding the number of facilities and related licensed beds/units as of March 31, 2023:
Location |
|
Skilled Nursing Facilities |
|
|
Multi Service Properties |
|
|
Total Properties |
|
|||
Alabama(a) |
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
Georgia |
|
|
3 |
|
|
- |
|
|
|
3 |
|
|
North Carolina |
|
|
1 |
|
|
- |
|
|
|
1 |
|
|
Ohio(b) |
|
|
2 |
|
|
|
1 |
|
|
|
3 |
|
South Carolina |
|
|
2 |
|
|
- |
|
|
|
2 |
|
|
|
|
|
9 |
|
|
|
2 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|||
Location |
|
Skilled Nursing Beds/Units |
|
|
Multi Service Beds/Units |
|
|
Total Beds/Units |
|
|||
Alabama(a) |
|
|
124 |
|
|
|
90 |
|
|
|
214 |
|
Georgia |
|
|
395 |
|
|
- |
|
|
|
395 |
|
|
North Carolina |
|
|
106 |
|
|
- |
|
|
|
106 |
|
|
Ohio(b) |
|
|
112 |
|
|
|
194 |
|
|
|
306 |
|
South Carolina |
|
|
180 |
|
|
- |
|
|
|
180 |
|
|
|
|
|
917 |
|
|
|
284 |
|
|
|
1,201 |
|
|
|
|
|
|
|
|
|
|
|
|||
Location |
|
Skilled Nursing Investment |
|
|
Multi Service Investment |
|
|
Total Investment |
|
|||
Alabama(a) |
|
|
9,613,199 |
|
|
|
4,884,514 |
|
|
|
14,497,713 |
|
Georgia |
|
|
24,475,283 |
|
|
- |
|
|
|
24,475,283 |
|
|
North Carolina |
|
|
7,224,953 |
|
|
- |
|
|
|
7,224,953 |
|
|
Ohio(b) |
|
|
3,872,791 |
|
|
|
6,716,420 |
|
|
|
10,589,211 |
|
South Carolina |
|
|
9,733,024 |
|
|
- |
|
|
|
9,733,024 |
|
|
|
|
$ |
54,919,250 |
|
|
$ |
11,600,934 |
|
|
$ |
66,520,184 |
|
The following table provides summary information regarding the number of facilities and related licensed beds/units by operator affiliation as of March 31, 2023:
Operator Affiliation |
|
Number of Facilities (1) |
|
|
Beds / Units |
|
||
C.R. Management 2 3 5 6 |
|
|
2 |
|
|
|
233 |
|
Aspire Regional Partners |
|
|
3 |
|
|
|
306 |
|
Oak Hollow Health Care Management 7 |
|
|
2 |
|
|
|
180 |
|
Beacon Health Management 4 |
|
|
1 |
|
|
|
126 |
|
Vero Health Management |
|
|
1 |
|
|
|
106 |
|
Cavalier Senior Living |
|
|
1 |
|
|
|
90 |
|
RHP Operations |
|
|
1 |
|
|
|
160 |
|
Subtotal |
|
|
11 |
|
|
|
1,201 |
|
26
For a more detailed discussion of the above information, see Note 6 - Leases to the consolidated financial statements included in Part I, Item 1 herein. Additionally, see "Portfolio of Healthcare Investments" included in Part I, Item 1 "Business" in the Annual Report.
Portfolio Occupancy Rates
The following table provides summary information regarding our portfolio facility-level occupancy rates for the periods shown:
|
For the Twelve Months Ended (1) (2) (3) |
||||||
Operating Metric |
June 30, 2022 |
|
September 30, 2022 |
|
December 31, 2022 |
|
March 31, 2023 |
Occupancy (%) |
62.8% |
|
64.4% |
|
65.7% |
|
66.4% |
Lease Expiration
The following table provides summary information regarding our lease expirations for the years shown as of December 31,:
|
|
Licensed Beds |
|
Annual Lease Revenue (2) |
|
||||||||
|
Number of Facilities |
Count |
|
Percent |
|
Amount ($) |
|
Percent (%) |
|
||||
2023 |
1 |
50 |
|
|
4.8 |
% |
|
175 |
|
|
2.9 |
% |
|
2024 |
1 |
126 |
|
|
12.0 |
% |
|
- |
|
|
0.0 |
% |
|
2025 |
1 |
109 |
|
|
10.4 |
% |
|
910 |
|
|
15.1 |
% |
|
2026 |
0 |
0 |
|
|
0.0 |
% |
|
- |
|
|
0.0 |
% |
|
2027 |
0 |
0 |
|
|
0.0 |
% |
|
- |
|
|
0.0 |
% |
|
2028 |
4 |
355 |
|
|
33.8 |
% |
|
2,352 |
|
|
38.9 |
% |
|
2029 |
1 |
106 |
|
|
10.1 |
% |
|
538 |
|
|
8.9 |
% |
|
Thereafter |
3 |
304 |
|
|
29.0 |
% |
|
2,066 |
|
|
34.2 |
% |
|
Total |
11 |
|
1,050 |
|
|
100.0 |
% |
|
6,042 |
|
|
100.0 |
% |
Results of Operations
The following table sets forth, for the periods indicated, an unaudited statement of operations items and the amounts and percentages of change of these items. The results of operations for any particular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our consolidated financial statements and the notes thereto, which are included herein.
27
|
|
Three Months Ended March 31, |
|
|
|||||||||
(Amounts in 000’s) |
|
2023 |
|
|
2022 |
|
|
Percent |
|
|
|||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|||
Patient care revenues |
|
$ |
1,916 |
|
|
$ |
2,311 |
|
|
|
(17.1 |
)% |
|
Rental revenues |
|
|
1,708 |
|
|
|
4,065 |
|
|
|
(58.0 |
)% |
|
Management fees |
|
|
278 |
|
|
|
265 |
|
|
|
4.9 |
% |
|
Other revenues |
|
|
4 |
|
|
|
7 |
|
|
|
(42.9 |
)% |
|
Total revenues |
|
|
3,906 |
|
|
|
6,648 |
|
|
|
(41.2 |
)% |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|||
Patient care expense |
|
|
2,537 |
|
|
|
2,343 |
|
|
|
8.3 |
% |
|
Facility rent expense |
|
|
149 |
|
|
|
1,639 |
|
|
|
(90.9 |
)% |
|
Cost of management fees |
|
|
141 |
|
|
|
179 |
|
|
|
(21.2 |
)% |
|
Depreciation and amortization |
|
|
510 |
|
|
|
613 |
|
|
|
(16.8 |
)% |
|
General and administrative expenses |
|
|
1,206 |
|
|
|
1,123 |
|
|
|
7.4 |
% |
|
Doubtful accounts expense (recovery) |
|
|
16 |
|
|
|
1,761 |
|
|
NM |
|
|
|
Other operating expenses |
|
|
92 |
|
|
|
329 |
|
|
|
(72.0 |
)% |
|
Total expenses |
|
|
4,651 |
|
|
|
7,987 |
|
|
|
(41.8 |
)% |
|
Loss from operations |
|
|
(745 |
) |
|
|
(1,339 |
) |
|
NM |
|
|
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|||
Interest expense, net |
|
|
680 |
|
|
|
653 |
|
|
|
4.1 |
% |
|
Other expense, net |
|
|
567 |
|
|
|
935 |
|
|
NM |
|
|
|
Total other expense, net |
|
|
1,247 |
|
|
|
1,588 |
|
|
|
(21.5 |
)% |
|
Net loss |
|
$ |
(1,992 |
) |
|
$ |
(2,927 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
* Not meaningful ("NM").
Three Months Ended March 31, 2023 and 2022
Patient care revenues—Patient care revenues for the Healthcare Services segment, as a result of the Company operating the Meadowood the and Glenvue Facilities, were $1.9 million for the three months ended March 31, 2023, compared to $2.3 million for the same period in 2022. The (17.1)% decrease is primarily due to the change in the facilities that were operated in the period compared to the prior period.
Rental revenues—Rental revenue for our Real Estate Services segment decreased by approximately $2.4 million to $1.7 million for the three months ended March 31, 2023, compared with $4.1 million for the same period in 2022. The 58.0% decrease is due to less rent collected from a reduction in the number of facilities subleased.
Patient care expense—Patient care expense was $2.5 million for the three months ended March 31, 2023 compared with $2.3 million for the same period in 2022. The current period expense increase of $0.2 million was primarily due to the change in the facilities we are operating.
Facility rent expense—Facility rent of $0.1 million for the three months ended March 31, 2023 decreased 91% from 2022 due to the termination of the Foster Lease.
Depreciation and amortization—Depreciation and amortization was $0.5 million for the three months ended March 31, 2023, compared to $0.6 million for the same period in 2022. A greater amount of fully depreciated equipment and computer related assets in the current period was the primary driver of the decrease.
General and administrative expenses—General and administrative expenses were $1.2 million for the three months ended March 31, 2023 compared with $1.1 million for the same period in 2022. The increase was due to an additional facility being operated by the Company.
28
Doubtful accounts expense—The current period expense of $0.02 million is primarily due to the reserve taken against patient Accounts Receivable at the Glenvue facility.
Other operating expenses—Other operating expenses decreased by approximately $0.2 million, to $0.1 million for the three months ended March 31, 2023, compared with $0.3 million for the same period in 2022. The decrease was due to professional and legal services related to operator transition transactions.
|
|
Three Months Ended March 31, |
|
|||||||||
(Amounts in 000’s) |
|
2023 |
|
|
2022 |
|
|
Percent |
|
|||
Other operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Real Estate Services |
|
$ |
79 |
|
|
$ |
289 |
|
|
|
(72.7 |
)% |
Healthcare Services |
|
|
13 |
|
|
|
40 |
|
|
NM |
|
|
Total |
|
$ |
92 |
|
|
$ |
329 |
|
|
|
(72.0 |
)% |
* Not meaningful ("NM")
Other expense, net—Other expense, net decreased by approximately $0.3 million, to $0.6 million, for the three months ended March 31, 2023. These expenses are related to professional and legal services incurred for evaluation and assistance with possible opportunities that improve the company's capital structure. In addition, we incurred $0.2 million for professional services used to obtain the ERTC.
Liquidity and Capital Resources
Overview
The Company intends to pursue measures to grow its operations, streamline its cost infrastructure and otherwise increase liquidity, including: (i) refinancing or repaying debt to reduce interest costs and mandatory principal repayments, with such repayment to be funded through potentially expanding borrowing arrangements with certain lenders; (ii) increasing future lease revenue through acquisitions and investments in existing properties; (iii) modifying the terms of existing leases; (iv) replacing certain tenants who default on their lease payment terms; and (v) reducing other and general and administrative expenses.
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, 2023, the Company had $2.8 million in unrestricted cash.
During the three months ended March 31, 2023, the Company's net cash provided by operating activities was $2.6 million primarily due to unpaid rent payments and working capital needs for the facilities we now operate. Management anticipates collecting a portion of the past due rent after the filing date and is currently negotiating various methods to collect the remaining unpaid rent.
As of March 31, 2023, Regional recorded an estimated allowance of $1.2 million against a gross accounts receivable of $4.1 million.
As of March 31, 2023, the Company had $51.5 million in indebtedness, net of $1.1 million deferred financing, and unamortized discounts. The Company anticipates net principal repayments of approximately $1.5 million during the next twelve-month period, approximately $1.4 million of routine debt service amortization and a $0.1 million payment of bond debt.
29
Debt Modification
On December 30, 2022, the Company extended the maturity date on approximately $0.5 million other debt from August 25, 2023 to August 25, 2025 (known as the "KeyBank Exit Notes"). For further information, see Note 8 – Notes Payable and Other Debt to the consolidated financial statements included in Part I, Item 1 herein.
The Company is current with all of its Notes payable and other debt as described in Note 8 – Notes Payable and Other Debt.
In 2020, the Company began exploring alternatives to retire or refinance our outstanding Series A Preferred Stock through privately negotiated transactions, open market repurchases, redemptions, exchange offers, tender offers, or otherwise. Costs associated with these efforts have been expensed as incurred in Other expense, net and were $0.3 million and $0.9 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
In February 2022, the Company commenced an offer to exchange (the "Exchange Offer") any and all of its outstanding 10.875% Series A Cumulative Redeemable Preferred Shares (the "Series A Preferred Stock") for newly issued shares of the Company's 12.5% Series B Cumulative Redeemable Preferred Shares (the "Series B Preferred Stock"). On July 25, 2022, the company failed to receive the required votes from the common shareholders. The company decided to terminate the preferred exchange offer.
Series A Preferred Stock Dividend Suspension
On June 8, 2018, the Board indefinitely suspended quarterly dividend payments on the Series A Preferred Stock. As of March 31, 2023, 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 $48.1 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 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 Covenant Compliance
As of March 31, 2023, the Company was in compliance with the various financial and administrative covenants under the Company's outstanding credit related instruments.
Evaluation of the Company's Ability to Continue as a Going Concern
Under the accounting guidance related to the presentation of financial statements, the Company is required to evaluate, on a quarterly basis, whether or not the Company's current financial condition, including its sources of liquidity at the date that the consolidated financial statements are issued, will enable the Company to meet its obligations as they come due arising within one year of the date of the issuance of the Company's consolidated financial statements and to make a determination as to whether or not it is probable, under the application of this accounting guidance, that the Company will be able to continue as a going concern. The Company's consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In applying applicable accounting guidance, management considered the Company's current financial condition and liquidity sources, including current funds available, forecasted future cash flows, the Company's obligations due over the next twelve months, and the Company's recurring business operating expenses.
The Company concludes that it is probable that the Company will be able to meet its obligations arising within one year of the date of issuance of these consolidated financial statements within the parameters set forth in the accounting guidance.
For additional information regarding the Company's liquidity, see Note 2 – Liquidity and Note 8 – Notes Payable and other debt, to the consolidated financial statements included in Part I, Item 1 herein.
Cash Flows
The following table presents selected data from our consolidated statements of cash flows for the periods presented:
30
|
|
Three Months Ended March 31, |
|
|||||
(Amounts in 000’s) |
|
2023 |
|
|
2022 |
|
||
Net cash provided by (used in) operating activities |
|
$ |
2,597 |
|
|
$ |
(1,579 |
) |
Net cash used in investing activities |
|
|
(2 |
) |
|
|
(80 |
) |
Net cash used in financing activities |
|
|
(685 |
) |
|
|
(673 |
) |
Net change in cash and restricted cash |
|
|
1,910 |
|
|
|
(2,332 |
) |
Cash and restricted cash at beginning of period |
|
|
3,909 |
|
|
|
9,848 |
|
Cash and restricted cash, ending |
|
$ |
5,819 |
|
|
$ |
7,516 |
|
Three Months Ended March 31, 2023
Net cash provided by operating activities—was approximately $2.6 million. The positive cash flow from operating activities were largely due to collection of the ERTC.
Net cash used in investing activities—was approximately $2.0 thousand. This capital expenditure was for computer hardware, software.
Net cash used in financing activities—was approximately $0.7 million. The cash was used to make routine payments totaling $0.3 million for our Senior debt obligations, $0.4 million for other debt.
Off-Balance Sheet Arrangements
Guarantee
The Company subleased five facilities located in Ohio to the Aspire Sublessees, formerly affiliated with MSTC Development Inc., pursuant to the Aspire Subleases, whereby the Aspire Sublessees took possession of, and commenced operating, the Aspire Facilities as subtenant. The Company agreed to indemnify Aspire against any and all liabilities imposed on them as arising from the former operator, capped at $8.0 million. The Company has assessed the fair value of the indemnity agreements as not material to the financial statements at March 31, 2023. For further information see Note 6 – Leases, to the consolidated financial statements included in Part I, Item 1 herein and also and Note 6 – Leases included in Part II, Item 8 of the Annual Report.
Critical Accounting Policies
We prepare our financial statements in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Article 8 of Regulation S-X. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. On an ongoing basis, we review our judgments and estimates, including, but not limited to, those related to doubtful accounts, income taxes, stock compensation, intangible assets and loss contingencies. We base our estimates on historical experience, business knowledge and on various other assumptions that we believe to be reasonable under the circumstances at the time. Actual results may vary from our estimates. These estimates are evaluated by management and revised as circumstances change.
For a discussion of our critical accounting policies, see Note 1 – Organization and Significant Accounting Policies to the consolidated financial statements included in Part I, Item 1 herein.
31
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Disclosure in response to Item 3 of Form 10-Q is not required to be provided by smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Principal Executive Officer (CEO) and Principal Financial Officer (CFO), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report (the "Evaluation Date"). Based on such evaluation, our management has concluded that, as of the Evaluation Date, our disclosure controls and procedures are not effective.
Our management believes a material weakness exists in our internal controls over financial reporting as of March 31, 2023 because we lack the necessary corporate accounting resources in our financial reporting processing and accounting functions as a result of recent departures of certain accounting and financial reporting personnel. A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Our management will seek to remediate the material weakness described above through hiring qualified accounting and financial reporting personnel to replace the personnel who departed.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company's internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings.
The Company is a defendant in various legal actions and administrative proceedings arising in the ordinary course of business, including claims that the services the Company provided during the time it operated skilled nursing facilities resulted in injury or death to patients. Although the Company settles cases from time to time when settlement can be achieved on a reasonable basis, the Company vigorously defends any matter in which it believes the claims lack merit and the Company has a reasonable chance to prevail at trial or in arbitration. Litigation is inherently unpredictable. There is no assurance that the outcomes of these matters will not have a material adverse effect on the Company's financial condition. Although arising in the ordinary course of the Company's business, certain of these matters are described in "Note 11 - Commitments and Contingencies".
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
32
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.
The COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows, and financial condition.
On March 11, 2020, the World Health Organization declared the outbreak of the respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, also known as COVID-19, a global pandemic. The COVID-19 pandemic has led governments and other authorities in the United States to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The COVID-19 pandemic and the measures to protect its spread adversely affected our business in 2022, and we expect it will continue to adversely affect our business in 2023 and beyond, for a variety of reasons, including those discussed below and elsewhere hereunder.
As of December 31, 2022, the Company is aware that each of our facilities has reported one or more positive cases of COVID-19 among the residents and/or operator employee populations. Many of our operators have 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 readmittances from SNFs.
The COVID-19 pandemic may also lead to temporary closures of nursing facilities, operated by our tenants, which also may affect our tenants’ 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 has caused, and may cause in the future, our tenants or their vendors to experience staffing shortages, and this could potentially require our tenants and their vendors to close parts of or entire facilities, distribution centers, or other buildings to disinfect any affected areas.
We could also be adversely affected if government authorities impose upon our tenants, or their vendors, certain restrictions due to the COVID-19 pandemic. These restrictions may be in the form of mandatory closures, requested voluntary closures, bans on new admissions, restricted operations, or restrictions on the importation of necessary equipment or supplies which may adversely affect our tenants’ 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 92% of its expected monthly rental receipts from tenants for the quarter ended March 31, 2023, there are a number of uncertainties the Company faces as it considers the potential impact of COVID-19 on its business, including the length of census disruption, elevated COVID-19 operating costs related to personal protection equipment, cleaning supplies, virus testing and increased overtime due to staff illness 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 more than one of our 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 of 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 employees, guests and
33
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 tenants’ operational and financial performance will depend on future developments, including the ultimate duration, spread and intensity of the outbreak, which may depend on factors such as the development and implementation of 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.
In addition, the COVID-19 pandemic led to CMS, the OIG and other regulatory agencies implementing various waivers and flexibilities intended to minimize burdens for healthcare providers and other industry participants that faced the challenges of the COVID-19 pandemic. These included, for example, coverage requirement waivers (e.g., three-day prior hospitalization requirement for SNF stay coverage), exercising administrative discretion in fraud and abuse enforcement, and waivers relating to telehealth and licensure requirements. On January 30, 2023, the Biden Administration announced its intent to end the national emergency and public health emergency declarations on May 11, 2023, related to the COVID-19 pandemic. Consequently, many of the waivers and flexibilities that were implemented by CMS, the OIG and other regulatory agencies in response to the COVID-19 pandemic are now scheduled to expire on May 11, 2023. We are unable to estimate at this time the impact these developments may have on the Company’s business.
We are currently out of compliance with the continued listing standards of the NYSE American. Our failure to resume compliance with the continued listing standards or make continued progress toward compliance consistent with a plan of compliance we intend to submit to NYSE Regulation may result in the delisting of our common stock and Series A Preferred Stock.
Our common stock and Series A Preferred Stock are each listed on the NYSE American. In order to maintain these listings, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of shareholders’ equity and a minimum number of public shareholders. In addition to these objective standards, NYSE Regulation may delist the securities of any issuer (i) if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; (ii) if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; (iii) if the issuer sells or disposes of principal operating assets or ceases to be an operating company; (iv) if an issuer fails to comply with the NYSE American’s listing requirements; (v) if an issuer’s common stock sells at what NYSE Regulation considers a “low selling price” and the issuer fails to correct this via a reverse split of shares after notification by NYSE Regulation; or (vi) if any other event occurs or any condition exists which makes continued listing on the NYSE American in its opinion, inadvisable.
As part of these continued listing requirements, under Section 1003(a)(ii) of the NYSE American Company Guide, we must maintain shareholders’ equity of $4.0 million or more since we have reported losses from continuing operations and/or net losses in three of our four most recent fiscal years ended December 31, 2022. Our audited consolidated financial statements for the year ended December 31, 2022 reflect shareholders’ equity of approximately $3.7 million, reflecting a deficit of $0.3 million. On May 10, 2023, we received a letter from NYSE Regulation notifying us that we are not in compliance with the NYSE American’s continued listing standards relating to shareholders’ equity. As a result, we became subject to the procedures and requirements of Section 1009 of the NYSE American Company Guide. We may submit a plan to the NYSE American by June 9, 2023 advising of actions we have taken or will take to regain compliance with the continued listing standards by November 10, 2024. We intend to submit a plan by the deadline. We have been advised that if we fail to submit a plan, our plan is not accepted, we do not make progress consistent with the plan, or we fail to regain compliance by the deadline, then the NYSE American may commence delisting procedures.
Although we intend to regain compliance with the continued listing requirements prior to November 10, 2024, we may be unable to do so. If delisting proceedings are commenced, the NYSE American rules permit us to appeal a staff delisting determination. Our common stock and Series A Preferred Stock will continue to be listed and traded on the NYSE American during the plan period, subject to our compliance with the NYSE American’s other applicable continued listing standards. If NYSE Regulation delists our common stock or Series A Preferred Stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for our securities, reduced liquidity, decreased analyst coverage of our securities, and an inability for us to obtain additional financing to fund our operations.
We may conduct a transaction or transactions prior to November 10, 2024 that could result in significant dilution to our existing shareholders. The transaction(s) could include the private investment in public equity, a public rights offering, a debt restructuring or any combination of these or similar transactions with the intent of maintaining our NYSE American listings. Such transaction(s), if completed, would be dilutive to certain shareholders, could adversely affect the market price
34
of our common stock and Series A Preferred Stock, would involve some expense and management distraction from our business and ultimately may not be successful in maintaining our NYSE American listings.
To maintain our NYSE American listings, we may conduct a private investment in public equity, a public rights offering, a debt restructuring or any combination of these or similar transactions prior to November 10, 2024. Although we may not complete any of these transactions, if a transaction occurs, it would be dilutive to certain shareholders and could adversely or favorably affect the market price of our common stock and Series A Preferred Stock. Furthermore, any transaction would involve some expense and management distraction from our business, and it is possible that despite the transaction, we may still be unsuccessful in maintaining our NYSE American listings. If NYSE Regulation delists our common stock or Series A Preferred Stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for our securities, reduced liquidity, decreased analyst coverage of our securities, and an inability for us to obtain additional financing to fund our operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
The Board suspended dividend 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 have been declared or paid with respect to the Series A Preferred Stock since the third quarter of 2017. As a result of such suspension, as of the date of filing of this Quarterly Report the Company has $48.1 million of undeclared preferred stock dividends in arrears, with respect to the Series A Preferred Stock, whose annual dividend rate has increased to 12.875% commencing with the fourth quarter of 2018. For further information see Note 9 – Common and Preferred Stock.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
On May 10, 2023, Regional Health received a letter (the “Deficiency Letter”) from the NYSE American stating that Regional Health was not in compliance with a certain NYSE American continued listing standard relating to shareholders’ equity. Specifically, the Deficiency Letter stated that Regional Health is not in compliance with Section 1003(a)(ii) of the NYSE American Company Guide, which requires an issuer to have shareholders’ equity of $4.0 million or more if it has reported losses from continuing operations and/or net losses in three of its four most recent fiscal years. The Deficiency Letter noted that Regional Health had shareholders’ equity of $3.7 million as of December 31, 2022, and has reported net losses from continuing operations in three of its four most recent fiscal years ended December 31, 2022.
Regional Health is now subject to the procedures and requirements set forth in Section 1009 of the NYSE American Company Guide. Regional Health is required to submit a plan to the NYSE American by June 9, 2023 advising of actions it has taken or will take to regain compliance with the continued listing standards by November 10, 2024. Regional Health intends to submit a plan by the deadline. If Regional Health fails to submit a plan or if Regional Health’s plan is not accepted, or if Regional Health does not make progress consistent with the plan, or if Regional Health fails to regain compliance by the deadline, the NYSE American may commence delisting procedures.
Regional Health’s common stock and Series A Preferred Stock will continue to be listed on the NYSE American while it attempts to regain compliance with the continued listing standard noted, subject to Regional Health’s compliance with other continued listing requirements. The common stock and Series A Preferred Stock will continue to trade under the symbols “RHE” and “RHE-PA,” respectively, but will each have an added designation of “.BC” to indicate that Regional Health is not in compliance with the NYSE American’s continued listing standards.
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
35
applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
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.
36
EXHIBIT INDEX
37
Exhibit No. |
|
Description |
|
Method of Filing |
|
|
|
|
|
3.1 |
|
|
Incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K12B filed on October 10, 2017 |
|
|
|
|
|
|
3.2 |
|
|
Incorporated by reference to Exhibit 3.2 of the Registrant's Current Report on Form 8-K12B filed on October 10, 2017 |
|
|
|
|
|
|
3.3 |
|
|
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* |
|
|
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* |
|
|
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* |
|
|
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) |
|
Incorporated by reference to Exhibit 4.7 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 |
|
|
|
|
|
4.8* |
|
Form of Restricted Common Stock Agreement –Employee (2020 Equity Plan) |
|
Incorporated by reference to Exhibit 4.8 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 |
|
|
|
|
|
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 |
|
|
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 |
|
|
Incorporated by reference to Exhibit 10.23.2 of the Registrant's Annual Report on Form 10-KSB as amended March 31, 2008 |
|
|
|
|
|
|
38
10.1 |
|
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 |
|
|
|
|
|
10.2 |
|
|
Incorporated by reference to Exhibit 10.246 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2020 |
|
|
|
|
|
|
10.3 |
|
|
Incorporated by reference to Exhibit 10.247 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2020 |
|
|
|
|
|
|
10.4* |
|
|
Incorporated by reference to Exhibit 10.229 of the Registrant's Amendment No. 1 to the Registration Statement on Form S-4 filed by Regional Health Properties, Inc. on July 2, 2021 (File No. 333-256667). |
|
|
|
|
|
|
10.5 |
|
|
Incorporated by reference to Exhibit 99.1 of the Registrant's Current Report on Form 8-K filed on September 27, 2021 |
|
|
|
|
|
|
10.6 |
|
|
Incorporated by reference to Exhibit 4.17 of the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 2021 |
|
|
|
|
|
|
10.7 |
|
|
Incorporated by reference to Exhibit 4.18 of the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 2021 |
|
|
|
|
|
|
10.8 |
|
|
Incorporated by reference to Exhibit 4.19 of the Registrant's Quarterly Report on Form 10-Q for the nine months ended September 30, 2021 |
|
|
|
|
|
|
31.1 |
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act |
|
Filed herewith |
|
|
|
|
|
31.2 |
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act |
|
Furnished herewith |
|
|
|
|
|
32.1 |
|
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act |
|
Filed herewith |
|
|
|
|
|
32.2 |
|
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act |
|
Furnished herewith |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
|
Filed herewith |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
Filed herewith |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
Filed herewith |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
Filed herewith |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
Filed herewith |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
Filed herewith |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
Filed herewith |
* Identifies a management contract or compensatory plan or arrangement
39
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.
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REGIONAL HEALTH PROPERTIES, INC. |
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(Registrant) |
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Date: |
|
May 15, 2023 |
|
/s/ Brent Morrison |
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|
|
Brent Morrison |
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Chairman, Chief Executive Officer and Director (Principal Executive Officer) |
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Date: |
|
May 15, 2023 |
|
/s/ Paul O'Sullivan |
|
|
|
|
Paul O'Sullivan |
|
|
|
|
Senior Vice President (Principal Financial Officer) |
40
Exhibit 31.1
CERTIFICATIONS
I, Brent Morrison, certify that:
May 15, 2023 |
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By |
/s/ Brent Morrison |
|
|
|
Chairman Chief Executive Officer and President |
Exhibit 31.2
CERTIFICATIONS
I, Paul O’Sullivan, certify that:
May 15, 2023 |
|
By |
/s/ Paul O’ Sullivan |
|
|
|
Senior Vice President |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Regional Health Properties, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brent Morrison, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
May 15, 2023 |
By: |
/s/ Brent Morrison |
|
|
Brent Morrison Chairman, Chief Executive Officer and President |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Regional Health Properties, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul O’Sullivan, Asset Manager of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
May 15, 2023 |
By: |
/s/ Paul O’Sullivan |
|
|
Paul O’Sullivan Senior Vice President |