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 September 30, 2021
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-33135
Regional Health Properties, Inc.
(Exact name of registrant as specified in its charter)
Georgia |
|
81-5166048 |
(State or other jurisdiction of incorporation) |
|
(I.R.S. Employer Identification Number) |
454 Satellite Boulevard NW, Suite 100, Suwanee, GA 30024
(Address of principal executive offices)
(678) 869-5116
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Common Stock, no par value |
|
RHE |
|
NYSE American |
10.875% Series A Cumulative Redeemable
|
|
RHE-PA |
|
NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer |
☐ |
|
|
Accelerated filer |
☐ |
Non-accelerated filer |
☒ |
|
|
Smaller reporting company |
☒ |
|
|
|
|
Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of October 31, 2021: 1,774,605 shares of common stock, no par value, were outstanding.
Regional Health Properties, Inc.
Form 10-Q
Table of Contents
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Page
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Part I. |
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Item 1. |
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3 |
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Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 |
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3 |
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4 |
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5 |
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Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 |
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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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33 |
Item 3. |
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45 |
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Item 4. |
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45 |
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Part II. |
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Item 1. |
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46 |
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Item 1A. |
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47 |
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Item 2. |
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50 |
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Item 3. |
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50 |
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Item 4. |
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50 |
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Item 5. |
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50 |
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Item 6. |
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51 |
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54 |
2
Part I. Financial Information
Item 1. |
Financial Statements |
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in 000’s)
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
|
|
(Unaudited) |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
50,755 |
|
|
$ |
52,533 |
|
Cash |
|
|
6,233 |
|
|
|
4,186 |
|
Restricted cash |
|
|
3,393 |
|
|
|
3,306 |
|
Accounts receivable, net of allowance of $142 and $1,381 |
|
|
1,936 |
|
|
|
2,100 |
|
Prepaid expenses and other |
|
|
617 |
|
|
|
328 |
|
Notes receivable |
|
|
383 |
|
|
|
444 |
|
Intangible assets - bed licenses |
|
|
2,471 |
|
|
|
2,471 |
|
Intangible assets - lease rights, net |
|
|
140 |
|
|
|
158 |
|
Right-of-use operating lease assets |
|
|
30,896 |
|
|
|
33,740 |
|
Goodwill |
|
|
1,585 |
|
|
|
1,585 |
|
Lease deposits and other deposits |
|
|
514 |
|
|
|
514 |
|
Straight-line rent receivable |
|
|
8,101 |
|
|
|
6,660 |
|
Total assets |
|
$ |
107,024 |
|
|
$ |
108,025 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Senior debt, net |
|
$ |
46,357 |
|
|
$ |
47,275 |
|
Bonds, net |
|
|
6,238 |
|
|
|
6,342 |
|
Other debt, net |
|
|
802 |
|
|
|
822 |
|
Accounts payable |
|
|
3,918 |
|
|
|
3,008 |
|
Accrued expenses |
|
|
4,163 |
|
|
|
2,225 |
|
Operating lease obligation |
|
|
33,066 |
|
|
|
35,884 |
|
Other liabilities |
|
|
1,602 |
|
|
|
1,365 |
|
Total liabilities |
|
|
96,146 |
|
|
|
96,921 |
|
Commitments and contingencies (Note 12) |
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 1,775 and 1,688 issued and outstanding at September 30, 2021 and December 31, 2020, respectively |
|
|
62,336 |
|
|
|
62,041 |
|
Preferred stock, no par value; 5,000 shares authorized; 2,812 shares issued and outstanding, redemption amount $70,288 at September 30, 2021 and December 31, 2020 |
|
|
62,423 |
|
|
|
62,423 |
|
Accumulated deficit |
|
|
(113,881 |
) |
|
|
(113,360 |
) |
Total stockholders’ equity |
|
|
10,878 |
|
|
|
11,104 |
|
Total liabilities and stockholders’ equity |
|
$ |
107,024 |
|
|
$ |
108,025 |
|
See accompanying notes to unaudited consolidated financial statements
3
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000’s, except per share data)
(Unaudited)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
||||||||||
|
|
2021 |
|
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2020 |
|
|
2021 |
|
|
2020 |
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|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient care revenues |
|
$ |
2,309 |
|
|
$ |
— |
|
|
$ |
7,444 |
|
|
$ |
— |
|
|
Rental revenues |
|
|
4,136 |
|
|
|
4,308 |
|
|
|
11,980 |
|
|
|
12,898 |
|
|
Management fees |
|
|
248 |
|
|
|
244 |
|
|
|
743 |
|
|
|
732 |
|
|
Other revenues |
|
|
9 |
|
|
|
215 |
|
|
|
84 |
|
|
|
224 |
|
|
Total revenues |
|
|
6,702 |
|
|
|
4,767 |
|
|
|
20,251 |
|
|
|
13,854 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient care expense |
|
|
2,454 |
|
|
|
— |
|
|
|
6,911 |
|
|
|
— |
|
|
Facility rent expense |
|
|
1,640 |
|
|
|
1,640 |
|
|
|
4,919 |
|
|
|
4,919 |
|
|
Cost of management fees |
|
|
153 |
|
|
|
161 |
|
|
|
468 |
|
|
|
486 |
|
|
Depreciation and amortization |
|
|
651 |
|
|
|
694 |
|
|
|
1,953 |
|
|
|
2,239 |
|
|
General and administrative expense |
|
|
972 |
|
|
|
743 |
|
|
|
2,953 |
|
|
|
2,334 |
|
|
Doubtful accounts expense |
|
|
— |
|
|
|
790 |
|
|
|
77 |
|
|
|
653 |
|
|
Other operating expenses |
|
|
204 |
|
|
|
109 |
|
|
|
679 |
|
|
|
630 |
|
|
Total expenses |
|
|
6,074 |
|
|
|
4,137 |
|
|
|
17,960 |
|
|
|
11,261 |
|
|
Income from operations |
|
|
628 |
|
|
|
630 |
|
|
|
2,291 |
|
|
|
2,593 |
|
|
Other expense (income) : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest expense, net |
|
|
669 |
|
|
|
692 |
|
|
|
2,022 |
|
|
|
2,091 |
|
|
Gain on extinguishment of debt |
|
|
(146 |
) |
|
|
— |
|
|
|
(146 |
) |
|
|
— |
|
|
Other expense, net |
|
|
122 |
|
|
|
9 |
|
|
|
839 |
|
|
|
144 |
|
|
Total other expense, net |
|
|
645 |
|
|
|
701 |
|
|
|
2,715 |
|
|
|
2,235 |
|
|
(Loss) income from continuing operations before income taxes |
|
|
(17 |
) |
|
|
(71 |
) |
|
|
(424 |
) |
|
|
358 |
|
|
(Loss) income from continuing operations |
|
$ |
(17 |
) |
|
$ |
(71 |
) |
|
$ |
(424 |
) |
|
$ |
358 |
|
|
Loss from discontinued operations, net of tax |
|
|
(22 |
) |
|
|
(2 |
) |
|
|
(97 |
) |
|
|
(33 |
) |
|
Net (loss) income |
|
|
(39 |
) |
|
|
(73 |
) |
|
|
(521 |
) |
|
|
325 |
|
|
Preferred stock dividends - undeclared |
|
|
(2,250 |
) |
|
|
(2,250 |
) |
|
|
(6,748 |
) |
|
|
(6,748 |
) |
|
Net Loss attributable to Regional Health Properties, Inc. common stockholders |
|
$ |
(2,289 |
) |
|
$ |
(2,323 |
) |
|
$ |
(7,269 |
) |
|
$ |
(6,423 |
) |
|
Net loss per share of common stock attributable to Regional Health Properties, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(1.25 |
) |
|
$ |
(1.38 |
) |
|
$ |
(4.15 |
) |
|
$ |
(3.79 |
) |
|
Discontinued operations |
|
|
(0.02 |
) |
|
|
— |
|
|
|
(0.06 |
) |
|
|
(0.02 |
) |
|
|
|
$ |
(1.27 |
) |
|
$ |
(1.38 |
) |
|
$ |
(4.21 |
) |
|
$ |
(3.81 |
) |
|
Weighted average shares of common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
1,775 |
|
|
|
1,688 |
|
|
|
1,728 |
|
|
|
1,688 |
|
|
See accompanying notes to unaudited consolidated financial statements
4
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in 000’s)
(Unaudited)
For the Three and Nine Months ended September 30, 2021 |
|
Shares of Common Stock |
|
|
Shares of Preferred Stock |
|
|
Common Stock and Additional Paid-in Capital |
|
|
Preferred Stock |
|
|
Accumulated Deficit |
|
|
Total |
|
||||||
Balances, December 31, 2020 |
|
|
1,688 |
|
|
|
2,812 |
|
|
$ |
62,041 |
|
|
$ |
62,423 |
|
|
$ |
(113,360 |
) |
|
$ |
11,104 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
|
21 |
|
Balances, March 31, 2021 |
|
|
1,688 |
|
|
|
2,812 |
|
|
$ |
62,041 |
|
|
$ |
62,423 |
|
|
$ |
(113,339 |
) |
|
$ |
11,125 |
|
Stock-based compensation |
|
|
39 |
|
|
|
— |
|
|
|
123 |
|
|
|
— |
|
|
|
— |
|
|
|
123 |
|
Exercise of restricted share awards net settlement option |
|
|
(1 |
) |
|
|
— |
|
|
|
(7 |
) |
|
|
— |
|
|
|
— |
|
|
|
(7 |
) |
Treasury shares, no par value |
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(503 |
) |
|
|
(503 |
) |
Balances, June 30, 2021 |
|
|
1,727 |
|
|
|
2,812 |
|
|
$ |
62,157 |
|
|
$ |
62,423 |
|
|
$ |
(113,842 |
) |
|
$ |
10,738 |
|
Stock-based compensation |
|
|
48 |
|
|
|
— |
|
|
|
179 |
|
|
|
— |
|
|
|
— |
|
|
|
179 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(39 |
) |
|
|
(39 |
) |
Balances, September 30, 2021 |
|
|
1,775 |
|
|
|
2,812 |
|
|
$ |
62,336 |
|
|
$ |
62,423 |
|
|
$ |
(113,881 |
) |
|
$ |
10,878 |
|
For the Three and Nine Months ended September 30, 2020 |
|
Shares of Common Stock |
|
|
Shares of Preferred Stock |
|
|
Common Stock and Additional Paid-in Capital |
|
|
Preferred Stock |
|
|
Accumulated Deficit |
|
|
Total |
|
||||||
Balances, December 31, 2019 |
|
|
1,688 |
|
|
|
2,812 |
|
|
$ |
61,992 |
|
|
$ |
62,423 |
|
|
$ |
(112,672 |
) |
|
$ |
11,743 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14 |
) |
|
|
(14 |
) |
Balances, March 31, 2020 |
|
|
1,688 |
|
|
|
2,812 |
|
|
$ |
62,004 |
|
|
$ |
62,423 |
|
|
$ |
(112,686 |
) |
|
$ |
11,741 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
412 |
|
|
|
412 |
|
Balances, June 30, 2020 |
|
|
1,688 |
|
|
|
2,812 |
|
|
$ |
62,016 |
|
|
$ |
62,423 |
|
|
$ |
(112,274 |
) |
|
$ |
12,165 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
13 |
|
|
|
— |
|
|
|
— |
|
|
|
13 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(73 |
) |
|
|
(73 |
) |
Balances, September 30, 2020 |
|
|
1,688 |
|
|
|
2,812 |
|
|
$ |
62,029 |
|
|
$ |
62,423 |
|
|
$ |
(112,347 |
) |
|
$ |
12,105 |
|
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)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(521 |
) |
|
$ |
325 |
|
Loss from discontinued operations, net of tax |
|
|
97 |
|
|
|
33 |
|
(Loss) income from continuing operations |
|
|
(424 |
) |
|
|
358 |
|
Adjustments to reconcile net loss (income) from continuing operations to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,953 |
|
|
|
2,239 |
|
Stock-based compensation expense |
|
|
302 |
|
|
|
37 |
|
Rent expense in excess of cash paid |
|
|
27 |
|
|
|
144 |
|
Rent revenue in excess of cash received |
|
|
(2,150 |
) |
|
|
(765 |
) |
Amortization of deferred financing costs, debt discounts and premiums |
|
|
77 |
|
|
|
96 |
|
Gain on debt extinguishment |
|
|
(146 |
) |
|
|
— |
|
Bad debt expense |
|
|
77 |
|
|
|
653 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
737 |
|
|
|
(1,482 |
) |
Prepaid expenses and other assets |
|
|
636 |
|
|
|
564 |
|
Accounts payable and accrued expenses |
|
|
2,977 |
|
|
|
(256 |
) |
Other liabilities |
|
|
241 |
|
|
|
345 |
|
Net cash provided by operating activities - continuing operations |
|
|
4,307 |
|
|
|
1,933 |
|
Net cash used in operating activities - discontinued operations |
|
|
(195 |
) |
|
|
(1,017 |
) |
Net cash provided by operating activities |
|
|
4,112 |
|
|
|
916 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(119 |
) |
|
|
(209 |
) |
Net cash used in investing activities - continuing operations |
|
|
(119 |
) |
|
|
(209 |
) |
Net cash used in investing activities |
|
|
(119 |
) |
|
|
(209 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from debt issuance |
|
|
— |
|
|
|
229 |
|
Repayment on notes payable |
|
|
(1,710 |
) |
|
|
(1,112 |
) |
Repayment on bonds payable |
|
|
(121 |
) |
|
|
(116 |
) |
Debt extinguishment and issuance costs |
|
|
(21 |
) |
|
|
— |
|
Repurchase of common stock |
|
|
(7 |
) |
|
|
— |
|
Net cash used in financing activities - continuing operations |
|
|
(1,859 |
) |
|
|
(999 |
) |
Net cash used in financing activities |
|
|
(1,859 |
) |
|
|
(999 |
) |
Net change in cash and restricted cash |
|
|
2,134 |
|
|
|
(292 |
) |
Cash and restricted cash, beginning |
|
|
7,492 |
|
|
|
8,038 |
|
Cash and restricted cash, ending |
|
$ |
9,626 |
|
|
$ |
7,746 |
|
6
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000’s)
(Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash interest paid |
|
$ |
2,154 |
|
|
$ |
1,718 |
|
Supplemental disclosure of non-cash activities: |
|
|
|
|
|
|
|
|
Non-cash payments of long-term debt |
|
$ |
(5,044 |
) |
|
$ |
— |
|
Non-cash debt issuance costs and extinguishment expenses |
|
|
(102 |
) |
|
|
— |
|
Net payments through Lender |
|
$ |
(5,146 |
) |
|
$ |
— |
|
Non-cash proceeds from financing |
|
|
5,146 |
|
|
|
— |
|
Net proceeds through Lender |
|
$ |
5,146 |
|
|
$ |
— |
|
Net proceeds through Lender |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
Non-cash gain on PPP Loan forgiveness |
|
$ |
229 |
|
|
$ |
— |
|
Vendor-financed insurance |
|
$ |
867 |
|
|
$ |
339 |
|
Non-cash accruals for capex |
|
$ |
— |
|
|
$ |
(157 |
) |
Non-cash settlement of Peach Line (notes receivable) |
|
$ |
— |
|
|
$ |
350 |
|
See accompanying notes to unaudited consolidated financial statements
7
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2021
NOTE 1. |
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
Description of Business
Regional Health Properties, Inc., a Georgia corporation (“Regional Health” or “Regional” and, together with its subsidiaries, the “Company” or “we”), is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living. The Company’s business primarily consists of leasing and subleasing healthcare facilities to third-party tenants, which in turn operate the facilities. The operators of the Company’s facilities provide a range of healthcare services to their patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.
As of September 30, 2021, the Company owned, leased or managed for third parties, or operated, 24 facilities, primarily in the Southeastern United States. Of the 24 facilities, the Company: (i) leased 10 skilled nursing facilities (which the Company owns) to third-party tenants, subleased eight skilled nursing facilities (which the Company leases) to third-party tenants, and operated, as of January 1, 2021 as a portfolio stabilization measure, one previously subleased skilled nursing facility (which the Company leases); (ii) leased two assisted living facilities (which the Company owns) to third-party tenants; and (iii) managed, on behalf of third-party owners, two skilled nursing facilities (“SNFs”) and one independent living facility. Accordingly, as of January 1, 2021, the Company has two primary reporting segments: (i) real estate services, which consists of the leasing and subleasing of long-term care and senior living facilities to third-party tenants, including the Company’s management of three facilities on behalf of third-party owners (“Real Estate Services”); and (ii) healthcare services, which consists of the operation of a skilled nursing facility (“Healthcare Services”).
Effective January 1, 2021, the Company terminated the subleases for two skilled nursing facilities located in Georgia (the “Wellington Lease Termination”) with affiliates of Wellington Healthcare Services II, L.P. (“Wellington”), and as a portfolio stabilization measure, the Company commenced operating one of the facilities, a previously subleased 134-bed skilled nursing facility located in Thunderbolt, Georgia (the “Tara Facility”) and entered into a new sublease agreement with an affiliate of Empire Care Centers, LLC (“Empire”) for the other facility, a 208-bed skilled nursing facility located in Powder Springs, Georgia (the “Powder Springs Facility”). On January 1, 2021, the Company entered into a Management Consulting Services Agreement (the “Vero Management Agreement”) with Vero Health Management, LLC (“Vero Health”) under which Vero Health provided management consulting services for the Tara Facility, which the Company now operates. On September 21, 2021, the Company notified Vero Health, of Regional’s intention to terminate the Vero Management Agreement, effective October 1, 2021. Regional will continue to operate the Tara Facility and has entered into a Management Agreement (the “Peach Management Agreement”) with Peach Health Group, LLC (“Peach”), dated as of September 22, 2021 and effective October 1, 2021 to provide management consulting services for the Tara Facility. Affiliates of Peach also lease from Regional three facilities located in Georgia. See Note 6 – Leases, herein, and Note 6 – Leases in Part II, Item 8, “Financial Statements and Supplemental Data” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on March 29, 2021 (the “Annual Report”), for a more detailed description of the Company’s leases.
The Company leases its currently-owned healthcare properties, and subleases its currently-leased healthcare properties, on a triple-net basis, meaning that the lessee (i.e., the third-party operator of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. These leases are generally long-term in nature with renewal options and annual rent escalation clauses.
Regional Health is successor to, and a former wholly owned subsidiary of, AdCare Health Systems, Inc. (“AdCare”). On September 29, 2017, AdCare merged (the “Merger”) with and into Regional Health, which was formed as a subsidiary of AdCare for the purpose of the Merger, with Regional Health continuing as the surviving corporation in the Merger. For a description of the Merger, see Note 1 – Summary of Significant Accounting Policies in Part II, Item 8, “Financial Statements and Supplemental Data” included in the Annual Report.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of
8
the results of operations for the periods presented have been included. Operating results for the three and nine months ended September 30, 2021 and 2020 are not necessarily indicative of the results that may be expected for the fiscal year. The consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
You should read the unaudited consolidated financial statements in this Quarterly Report on Form 10-Q (this “Quarterly Report”) together with the historical audited consolidated financial statements of the Company for the year ended December 31, 2020, included in the Annual Report. See Note 1 – Summary of Significant Accounting Policies in Part II, Item 8, “Financial Statements and Supplementary Data” included in the Annual Report, for a description of all significant accounting policies. During the three and nine months ended September 30, 2021, there were no material changes to the Company’s policies.
Risks and Uncertainties
While the Company is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living, the Company, when business conditions require, may undertake portfolio stabilization measures, such as operating a previously leased facility. On January 1, 2021, following the Wellington Lease Termination, the Company commenced operating the Tara Facility, which facility comprises approximately 5.0% of the total amount of the Company’s licensed patient beds. This portfolio stabilization measure exposes the Company directly to all the risks our tenants face as discussed in this “Risk and Uncertainties” section and “Risks Related to Our Business and Industry - Our portfolio stabilization measures expose the Company to the various risks facing our tenants” in Part I, Item 1.A, “Risk Factors.” in the Annual Report.
On March 11, 2020, the World Health Organization declared the outbreak of the respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, also known as COVID-19, a global pandemic. The COVID-19 pandemic has led governments and other authorities in the United States to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines, and shelter-in-place orders. The COVID-19 pandemic and the measures to protect its spread have adversely affected our business during the nine months ended September 30, 2021, and we expect it will continue to adversely affect our business in the quarter ending December 31, 2021 and beyond, for a variety of reasons, including those discussed below and elsewhere in this Quarterly Report.
As of October 29, 2021, the Company is aware that each of our facilities has previously reported one or more positive cases of COVID-19 among the residents and/or operator employee populations. Many of our operators have reported incurring significant cost increases as a result of the COVID-19 pandemic, with dramatic increases for facilities with positive cases. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of personal protective equipment, testing equipment, processes and supplies. In terms of occupancy levels, many of our operators have reported experiencing declines, in part due to the elimination or suspension of elective hospital procedures, fewer discharges from hospitals to SNFs, and higher hospital re-admittances from SNFs.
The COVID-19 pandemic may also lead to temporary closures of nursing facilities, operated by our tenants, which also may affect our tenants’ ability to make their rental payments to us pursuant to their respective lease agreements. In addition, our tenants’ operations could be further disrupted if any of their employees, or the employees of their vendors, have, or are suspected of having, COVID-19. This could cause, and in some cases has already caused, our tenants or their vendors to experience staffing shortages, and this could potentially require our tenants and their vendors to close parts of or entire facilities, distribution centers, or other buildings to disinfect any affected areas.
We could also be adversely affected if government authorities impose upon our tenants, or their vendors, certain restrictions due to the COVID-19 pandemic. These restrictions may be in the form of mandatory closures, requested voluntary closures, bans on new admissions, restricted operations, or restrictions on the importation of necessary equipment or supplies which may adversely affect our tenants’ operations and their ability to make rental payments to us moving forward. In addition, family members may elect to keep nursing facility residents at home during the COVID-19 pandemic, thus reducing our tenants’ revenue. Currently, a number of our tenants have stopped admitting new patients due to rising COVID-19 infections which has resulted 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
9
indemnify, defend and hold us harmless. An unfavorable resolution of any such pending or future litigation could materially adversely affect us. The Company is not aware of any such lawsuits against our tenants.
If our tenants are unable to make rental payments to us pursuant to their lease obligations, whether due to the tenants’ decrease in revenues or otherwise, then, in some cases, we may be forced to either attempt to replace the tenants or restructure the tenants’ long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place.
While the Company has received approximately 97% of its anticipated fixed monthly rental receipts from tenants for the three and nine months ended September 30, 2021, there are a number of uncertainties the Company faces as it considers the potential impact of COVID-19 on its business, including the length of census disruption, elevated COVID-19 operating costs related to personal protection equipment, cleaning supplies, virus testing and increased overtime due to staff illness.
On November 5, 2021, the CMS published COVID-19 Health Care Staff Vaccination requirements that most Medicare- and Medicaid-certified providers and suppliers must meet in order to participate in the Medicare and Medicaid programs. This emergency regulation was effective immediately and requires employees at Medicare and Medicaid-participating facilities and employers with more than 100 employees to be vaccinated. Some states have also issued their own orders to employers and healthcare providers that may or may not align with federal directives. The legality of both federal and state vaccine mandates will likely be decided by the courts. Until pending laws and regulations related to vaccine mandates are both finalized and adjudicated, our tenants will continue to manage in different ways, from mandating vaccines for all employees to waiting to see how the issue is ultimately resolved. The mandates, as presently written, may cause disruption to tenants’ operations if employees refuse vaccination and are terminated, and our tenants are not able to replace them in a timely manner or experience increased costs to do so.
To help offset these costs as well as occupancy declines, various relief programs have been enacted by federal and state governments, which have provided, and we expect will continue to provide, some payments to our tenants, subject to the programs’ respective terms and conditions. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) established a grant program administered by the U.S. Department of Health and Human Services (“HHS”) under which grants have been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19 (the “Provider Relief Funds”). In early November 2021, the HHS closed the application portal for its Phase 4 allocation of approximately $17 billion of Provider Relief Funds and an allocation of approximately $8.5 billion in American Rescue Plan resources for providers serving patients living in rural areas. We expect that our tenants pursued additional funding from these allocations, and will pursue any future funding that may become available, though there can be no assurance that our tenants will qualify for, or receive, any Phase 4 or American Rescue Plan, or any future, funding.
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, and some may be unwilling or unable to pay their contractual obligations to us in full or on a timely basis, as has occurred with one of our prior operators.
We also do not know the number of facilities that will ultimately experience widespread, high-cost outbreaks of COVID-19. While we have requested reporting case numbers from our operators and the U.S. Department of Health and Human Services Centers for Medicare and Medicaid Services (“CMS”) has required additional reporting by operators, we may not receive accurate information on the number of cases, which could result in a delay in reporting. We expect to see continued increased clinical protocols for infection control within facilities and increased monitoring of employees, guests and other individuals entering facilities; however, we do not yet know if future reimbursement rates in combination with the various relief programs that have been made available will be sufficient to cover the increased costs of enhanced infection control and monitoring. The extent of the COVID-19 pandemic’s effect on our and our operators’ operational and financial performance will depend on future developments, including the ultimate duration, spread and intensity of the outbreak, which may depend on factors such as the development and implementation of an effective vaccine and treatments for COVID-19, government funds and other support for the senior care sector and the efficacy of other policies and measures that may mitigate the impact of the pandemic, all of which are uncertain and difficult to predict. Due to these uncertainties, we are unable at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
10
Revenue Recognition and Allowances
Patient Care Revenue. Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers requires a company to recognize revenue when the company transfers control of promised goods and services to a customer. Revenue is recognized in an amount that reflects the consideration to which a company expects to receive in exchange for such goods and services. Revenue from our new Healthcare Services business segment is derived from services rendered to patients in the Tara Facility. The Company receives payments from the following sources for services rendered in our facilities: (i) the federal government under the Medicare program administered by CMS; (ii) state governments under their respective Medicaid and similar programs; (iii) commercial insurers; and (iv) individual patients and clients. The vast majority of the revenue the Company has recognized is from government sources. The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients and other price concessions. Contractual adjustments and discounts are based on contractual agreements, discount policies and historical experience. The Company recognizes revenue at the amount that reflects the consideration the Company expects to receive in exchange for the services provided. These amounts are due from residents or third-party payors and include variable consideration for retroactive adjustments from estimated reimbursements, if any, under reimbursement programs. Performance obligations are determined based on the nature of the services provided. Revenue is recognized as performance obligations are satisfied. Estimated uncollectable amounts due from patients are generally considered implicit price concessions that are a direct reduction to net operating revenues.
Triple-Net Leased Properties. The Company’s triple-net leases provide for periodic and determinable increases in rent. The Company recognizes rental revenues under these leases on a straight-line basis over the applicable lease term when collectability is probable. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in straight-line rent receivable on our consolidated balance sheets. In the event the Company cannot reasonably estimate the future collection of rent from one or more tenant(s) of the Company’s facilities, rental income for the affected facilities is recognized only upon cash collection, and any accumulated straight-line rent receivable is expensed in the period in which the Company deems rent collection to no longer be probable.
Management Fees, Revenue from Contracts with Customers. The Company recognizes management fee revenues as services are provided. The Company has one contract to manage three facilities (the “Management Contract”), with payment for each month of service received in full on a monthly basis. The maximum penalty for service contract nonperformance under the Management Contract is $50,000 per year, payable after the end of the year.
Other Revenues. The Company recognizes interest income from loans and investments, using the effective interest method when collectability is probable. The Company applies the effective interest method on a loan-by-loan basis.
Allowances. The Company assesses the collectability of its rent receivables, including straight-line rent receivables and working capital loans to tenants. The Company bases its assessment of the collectability of rent receivables and working capital loans to tenants on several factors, including payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, and current economic conditions. If the Company’s evaluation of these factors indicates it is probable that the Company will be unable to receive the rent payments or payments on a working capital loan, then the Company provides a reserve against the recognized straight-line rent receivable asset or working capital loan for the portion that we estimate may not be recovered. Payments received on impaired loans are applied against the allowance. If the Company changes its assumptions or estimates regarding the collectability of future rent payments required by a lease or required from a working capital loan to a tenant, then the Company may adjust its reserve to increase or reduce the rental revenue or interest revenue from working capital loans to tenants recognized in the period the Company makes such change in its assumptions or estimates. In an effort to ensure a conservative presentation of the results of the Healthcare Services segment due to lack of history, the Company has provided an additional allowance for patient care receivables of 1.5% of patient revenues.
11
As of September 30, 2021 and December 31, 2020, the Company reserved for approximately $0.1 million and $1.4 million, respectively, of uncollected receivables. Accounts receivable, net of allowance, totaled $1.9 million at September 30, 2021 and $2.1 million at December 31, 2020.
The following table presents the Company's Accounts receivable, net of allowance for the periods presented:
(Amounts in 000’s) |
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
Gross receivables |
|
|
|
|
|
|
|
|
Real Estate Services (a) |
|
$ |
1,118 |
|
|
$ |
3,481 |
|
Healthcare Services |
|
|
960 |
|
|
|
— |
|
Sub Total |
|
|
2,078 |
|
|
|
3,481 |
|
Allowance |
|
|
|
|
|
|
|
|
Real Estate Services (a) |
|
|
(32 |
) |
|
|
(1,381 |
) |
Healthcare Services |
|
|
(110 |
) |
|
|
— |
|
Sub Total |
|
|
(142 |
) |
|
|
(1,381 |
) |
Accounts receivable, net of allowance |
|
$ |
1,936 |
|
|
$ |
2,100 |
|
|
(a) |
See Note 6– Leases for details on the impact of the Wellington Lease Termination. |
Pre-Paid Expenses and Other
As of September 30, 2021 and December 31, 2020, the Company had approximately $0.6 million and $0.3 million, respectively, in pre-paid expenses and other; the $0.3 million increase is related to insurance for the Tara Facility operations, while the other amounts are predominantly for directors’ and officers’ insurance, NYSE American annual fees, and mortgage insurance premiums.
Accounts Payable
The following table presents the Company's Accounts payable for the periods presented:
(Amounts in 000’s) |
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
Accounts payable |
|
|
|
|
|
|
|
|
Real Estate Services |
|
$ |
3,027 |
|
|
$ |
3,008 |
|
Healthcare Services |
|
|
891 |
|
|
|
— |
|
Total Accounts payable |
|
$ |
3,918 |
|
|
$ |
3,008 |
|
Other liabilities
As of September 30, 2021 and December 31, 2020, the Company had approximately $1.6 million and $1.4 million, in Other liabilities, consisting of security lease deposits and sublease improvement funds.
Other expense, net
The Company has retained professional services to evaluate and assist with possible opportunities to improve the Company’s capital structure.
12
Leases and Leasehold Improvements
The Company leases certain facilities and equipment in the normal course of business. At the inception of each lease, the Company performs an evaluation to determine whether the lease should be classified as an operating lease or capital lease. As of September 30, 2021, all of the Company’s leased facilities are accounted for as operating leases. For operating leases that contain scheduled rent increases, the Company records rent expense on a straight-line basis over the term of the lease. Leasehold improvements are amortized over the shorter of the useful life of the asset or the lease term.
In accordance with Accounting Standards Update (“ASU”) ASU 2016-02, Leases, as codified in ASC 842, the Company recognizes both right of use assets and lease liabilities for leases in which we lease land, real property, or other equipment, having elected the practical expedient to maintain the prior operating lease classification for leases entered into prior to January 1, 2019. We assess any new contracts or modification of contracts in accordance with ASC 842 to determine the existence of a lease and its classification. We 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 their respective leases with us.
The following table summarizes real estate tax recognized on our consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020:
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
(Amounts in 000’s) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Rental revenues |
|
$ |
111 |
|
|
$ |
134 |
|
|
$ |
342 |
|
|
$ |
379 |
|
Other operating expenses |
|
$ |
111 |
|
|
$ |
134 |
|
|
$ |
342 |
|
|
$ |
379 |
|
Additionally, we expense certain leasing costs, other than leasing commissions, as they are incurred. Prior GAAP provided for the deferral and amortization of such costs over the applicable lease term. The present value of minimum lease payments was calculated on each lease, using a discount rate of 7.98% for the Company’s leases that approximated our incremental borrowing rate as of January 1, 2019, and the current lease term. See Note 6– Leases for more information on the Company’s operating leases.
Insurance
We maintain general liability, professional liability, and other insurance policies in amounts and with coverage and deductibles we believe are appropriate, based on the nature and risks of our business, historical experience, availability, and industry standards, including for the operations at the Tara Facility. Our current policies provide for deductibles for each claim and contain various exclusions from coverage. The Company has self-insured against professional and general liability claims related to its healthcare operations that were discontinued during 2014 and 2015 in connection with its transition from an owner and operator of healthcare properties to a healthcare property holding and leasing company (the “Transition”). See Note 14 – Commitments and Contingencies in Part II, Item 8, “Financial Statements and Supplementary Data”, in the Annual Report for more information. The Company evaluates quarterly the adequacy of its self-insurance reserve based on a number of factors, including: (i) the number of actions pending and the relief sought; (ii) analyses provided by defense counsel, medical experts or other information which comes to light during discovery; (iii) the legal fees and other expenses anticipated to be incurred in defending the actions; (iv) the status and likely success of any mediation or settlement discussions, including estimated settlement amounts and legal fees and other expenses anticipated to be incurred in such settlement, as applicable; and (v) the venues in which the actions have been filed or will be adjudicated. The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgment unless settlement is more advantageous to the Company. Accordingly, the self-insurance reserve reflects the Company’s estimate of settlement amounts for the pending actions, if applicable, and legal costs of settling or litigating the pending actions, as applicable. Because the self-insurance reserve is based on estimates, the amount of the self-insurance reserve may not be sufficient to cover the settlement amounts actually incurred in settling the pending actions, or the legal costs actually incurred in settling or litigating the pending actions. See Note 7 – Accrued Expenses. In addition, the Company maintains certain other insurance programs, including commercial general liability, property, casualty, directors’ and officers’ liability, crime, and employment practices liability.
Earnings Per Share
Basic earnings per share is computed by dividing net income or loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the respective period. Diluted earnings per share is similar to basic earnings per share except that the net income or loss is adjusted by the impact of the weighted-average number of shares of common stock outstanding including potentially dilutive securities (such as options, warrants and non-vested common stock) when such securities are not anti-dilutive. Potentially dilutive securities from options, warrants and unvested restricted shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options and
13
warrants with exercise prices exceeding the average market value are used to repurchase common stock at market value. The incremental shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the securities.
Securities outstanding that were excluded from the computation, because they would have been anti-dilutive were as follows:
|
|
September 30, |
|
|||||
(Share amounts in 000’s) |
|
2021 |
|
|
2020 |
|
||
Stock options |
|
|
13 |
|
|
|
13 |
|
Warrants - employee |
|
|
49 |
|
|
|
49 |
|
Warrants - non employee |
|
|
9 |
|
|
|
9 |
|
Total anti-dilutive securities |
|
|
71 |
|
|
|
71 |
|
The weighted average contractual terms in years for these securities as of September 30, 2021, with no intrinsic value, are 2.8 years for the stock options and 2.2 years for the warrants.
Recently Issued Accounting Pronouncements
In July 2021, the FASB issued ASU 2021-05—Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments, which amends the lease classification requirements for lessors. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if the lease would have been classified as a sales-type lease or a direct financing lease and the lessor would have otherwise recognized a day-one loss. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2021-05 on its consolidated financial statements.
See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 1 – Summary of Significant Accounting Policies included in the Annual Report, for a description of the other accounting pronouncements the Company is currently evaluating.
NOTE 2. |
LIQUIDITY |
Overview
The Company intends to pursue measures to grow its operations, streamline its cost infrastructure and otherwise increase liquidity, including: (i) refinancing or repaying debt to reduce interest costs and mandatory principal repayments, with such repayment to be funded through potentially expanding borrowing arrangements with certain lenders; (ii) increasing future lease revenue through acquisitions and investments in existing properties; (iii) modifying the terms of existing leases; (iv) replacing certain tenants who default on their lease payment terms; and (v) reducing other and general and administrative expenses.
Management anticipates access to several sources of liquidity, including cash on hand, cash flows from operations, and debt refinancing during the twelve months following the date of this filing. At September 30, 2021, the Company had $6.2 million in unrestricted cash, including a Medicaid overpayment of $1.0 million received on September 30, 2021, which the Company expects to repay in the near future and is recorded in “Accrued Expenses” in the Company’s consolidated balance sheets as of September 30, 2021. During the nine months ended September 30, 2021, the Company generated positive cash flow from continuing operations of $4.3 million (including the $1.0 million Medicaid overpayment) and anticipates continued positive cash flow from operations in the future, subject to the continued uncertainty of the COVID-19 pandemic and its impact on the Company’s business, financial condition and results of operations.
Operations
On December 1, 2020, the Company entered into the Wellington Lease Termination with the following affiliates of Wellington, 3223 Falligant Avenue Associates, L.P. (“Tara Tenant”) and 3460 Powder Springs Road Associates, L.P. (“Powder Springs Tenant”, and together with Tara Tenant, the “Wellington Tenants”). The Wellington Tenants subleased two of the Company’s eight Georgia facilities, leased under a prime lease, under agreements dated January 31, 2015, as subsequently amended (the “Wellington Subleases”). Per the Wellington Lease Termination, possession, custody, control and operation of the Tara Facility and Powder Springs Facility (the “Wellington Facilities”) transitioned from the Wellington Tenants to the Company (the “Wellington Transition”) at 12:01 a.m. on January 1, 2021 (the “Wellington Transition Date”), pursuant to the terms and provisions of the Operations Transfer Agreements (the “OTAs”), which the Company and the Wellington Tenants entered into in connection with the Wellington Lease Termination and which included customary termination events.
14
The OTAs were subject to customary closing conditions and representations and warranties. The Wellington Transition was subject to the Georgia Department of Community Health’s (“DCH”) approval of the Change in Ownership Applications (the “Applications”), which were filed by Regional on December 2, 2020. On the Wellington Transition Date, the Wellington Tenants: (i) paid all cash on hand at the Wellington Facilities to Regional; (ii) transferred and assigned, to the Company, all accounts receivable previously due to the Wellington Tenants as of the Wellington Transition Date; and (iii) entered into commercially reasonable Deposit Account Control Agreements with Regional with respect to all of the Wellington Tenants’ bank accounts that receive accounts receivable remittances. Additionally, on the Wellington Transition Date, the Company became liable for certain expenses, including approximately $1.7 million of bed taxes in arrears. On January 1, 2019, security agreements executed between the Company and the Wellington Tenants provided for certain of the Wellington Tenants assets as collateral to the Company in the event of any default under prior agreements with the Company (the “Security Agreements”). These Security Agreements survive the Wellington Transition and will remain in full force and effect in order to assist Regional in collecting the accounts receivable.
Scheduled rent payments under the Wellington Subleases constituted approximately 23% of the Company’s anticipated annual revenue in 2020. As of December 31, 2020, Regional recorded an estimated allowance of $1.4 million against a rent receivable of $2.7 million from the Wellington Tenants. During the three months ended September 2021, the Company recorded $0.1 million in debt recovery due to collections exceeding our December 31, 2020 estimated allowance. During the nine months ended September 30, 2021, the Company collected $3.3 million pursuant to the Wellington Lease Termination (excluding $0.2 million insurance refund) and paid $1.0 million to partially satisfy the Wellington Lease Termination obligation of approximately $1.7 million of bed taxes in arrears and $0.1 million in collection expenses. The Company provides no assurance that we will be able to collect any of the additional $1.2 million in rent arrears in excess of the net $1.5 million already collected.
During the three and nine months ended September 30, 2021, the Company recognized $0.5 million and $1.0 million, respectively, of variable rent for the Powder Springs Facility and, as of the date of filing this Quarterly Report, has collected all of such variable rent replacing approximately $1.5 million of cash rent previously anticipated from the Wellington Tenant. The Tara Facility operations performance during the three and nine months ended September 30, 2021 has been insufficient to cover any of the rent the Company is obligated to pay under its lease. On January 1, 2021, the Company entered into the Vero Management Agreement with Vero Health under which Vero Health provided management consulting services for the Tara Facility, which the Company now operates. On September 21, 2021, the Company notified Vero Health of Regional’s intention to terminate the Vero Management Agreement, effective October 1, 2021. Regional will continue to operate the Tara Facility and has entered into the Peach Management Agreement with Peach dated as of September 22, 2021 and effective October 1, 2021 to provide management consulting services for the Tara Facility. Affiliates of Peach also lease from Regional three facilities located in Georgia. The fixed Management fee Regional will pay Peach is 1% less than under the Vero Management Agreement with additional percentages for meeting specified performance targets. For further information on the Peach Management Agreement see Note 6 – Leases and Note 13 – Segment Results for information on the Tara Facility performance.
The Company is current with all of its Notes payable and other debt as described in Note 8 – Notes Payable and Other Debt. The Company has benefited from certain, now expired, stimulus measures made available to it through the CARES Act enacted by Congress in response to the COVID-19 pandemic which allowed for, among other things: (i) a deferral of debt service payments on U.S. Department of Agriculture (“USDA”) loans to maturity; (ii) an allowance for debt service payments to be made out of replacement reserve accounts for U.S. Department of Housing and Urban Development (“HUD”) loans; and (iii) debt service payments to be made by the U.S. Small Business Administration (the “SBA”) on all SBA loans. For further information, see Note 8 – Notes Payable and Other Debt.
Series A Preferred Dividend Suspension
On June 8, 2018, the board of directors of Regional (the “Board”) indefinitely suspended quarterly dividend payments with respect to the 10.875% Series A Cumulative Redeemable Preferred Shares (the “Series A Preferred Stock”). As of September 30, 2021, as a result of the suspension of the dividend payment on the Series A Preferred Stock commencing with the fourth quarter 2017 dividend period, the Company has $34.6 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 (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.
15
Debt
As of September 30, 2021, the Company had $53.4 million in indebtedness, net of $1.3 million deferred financing, and unamortized discounts. The Company anticipates net principal repayments of approximately $2.0 million during the next twelve-month period, approximately $1.3 million of routine debt service amortization, $0.6 million of current maturities of other debt (including $0.1 million related to insurance financing for the Tara Facility operations), and a $0.1 million payment of bond debt.
Debt Extinguishment. On August 13, 2021, the Company received official notification from FountainHead Commercial Capital, providers of our $0.2 million Paycheck Protection Program Loan (“PPP Loan), that the full $0.2 million was forgiven by the SBA on July 9, 2021.
On September 30, 2021 the Company and the Exchange Bank of Alabama executed a $5.1 million Promissory Note with a 3.95% annual fixed interest rate and maturity date of October 10, 2026 (the “Coosa Credit Facility”). The Coosa Credit Facility, refinanced $5.1 million prime + 1.5% variable interest rate debt owed to Metro City Bank with a maturity date of January 31, 2036, (the “Coosa MCB Loan”). The Coosa Credit Facility is secured by the assets of the Company’s subsidiary Coosa Nursing ADK, LLC (“Coosa”) which owns the 124-bed skilled nursing facility located in Glencoe, Alabama (the “Coosa Facility”) and the assets of the Company’s subsidiary Meadowood Property Holdings, LLC (“Meadowood”) which owns the 106-bed assisted living facility located in Glencoe, Alabama (the “Meadowood Facility”). The Company incurred approximately $0.1 million in new deferred financing fees and expensed approximately $0.1 million deferred financing fees associated with the Coosa MCB Loan.
Consequently the Company recorded a net gain of approximately $0.1 million on extinguishment of debt during the three months ended September 30, 2021, being $0.2 million gain on forgiveness of the PPP Loan partially offset by $0.1 million of expensed deferred financing fees associated with the extinguishment of the Coosa MCB Loan.
Debt Modification. In conjunction with the September 30, 2021, Coosa Facility refinance, the Company and the Exchange Bank of Alabama signed an agreement on October 1, 2021, (the “Meadowood Credit Facility”), that extended the maturity date on the $3.5 million Meadowood Credit Facility, as amended, in senior debt other mortgage indebtedness secured by the assets of Coosa and the assets of Meadowood, from May 1, 2022 to October 1, 2026. Additionally on August 17, 2021, the Company extended the maturity date on approximately $0.5 million other debt from August 25, 2021 to August 25, 2023 (known as the “KeyBank Exit Notes”). For further information, see Note 8 – Notes Payable and Other Debt.
Debt Covenant Compliance
As of September 30, 2021, the Company was in compliance with the various financial and administrative covenants under the Company’s outstanding credit-related instruments.
Evaluation of the Company’s Ability to Continue as a Going Concern
Under the accounting guidance related to the presentation of financial statements, the Company is required to evaluate, on a quarterly basis, whether or not the Company’s current financial condition, including its sources of liquidity at the date that the consolidated financial statements are issued, will enable the Company to meet its obligations as they come due arising within one year of the date of the issuance of the Company’s consolidated financial statements and to make a determination as to whether or not it is probable, under the application of this accounting guidance, that the Company will be able to continue as a 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.
16
NOTE 3. |
CASH AND RESTRICTED CASH |
The following presents the Company's cash and restricted cash:
(Amounts in 000’s) |
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
Cash (a) |
|
$ |
6,233 |
|
|
$ |
4,186 |
|
|
|
|
|
|
|
|
|
|
Restricted cash: |
|
|
|
|
|
|
|
|
Cash collateral |
|
|
93 |
|
|
|
124 |
|
HUD and other replacement reserves |
|
|
1,918 |
|
|
|
1,675 |
|
Escrow deposits |
|
|
1,065 |
|
|
|
1,190 |
|
Restricted investments for debt obligations |
|
|
317 |
|
|
|
317 |
|
Total restricted cash |
|
|
3,393 |
|
|
|
3,306 |
|
Total cash and restricted cash |
|
$ |
9,626 |
|
|
$ |
7,492 |
|
|
(a) |
Includes a Medicaid overpayment of $1.0 million received on September 30, 2021, which the Company expects to repay in the near future and is recorded in “Accrued Expenses” in the Company’s consolidated balance sheets as of September 30, 2021. |
Cash collateral—In securing mortgage financing from certain lending institutions, the Company and certain of its wholly-owned subsidiaries are required to deposit cash to be held as collateral in accordance with the terms of such loan agreements.
HUD and other replacement reserves—The regulatory agreements entered into in connection with the financing secured through HUD require monthly escrow deposits for replacement and improvement of the HUD project assets.
Escrow deposits—In connection with financing secured through the Company’s lenders, several wholly-owned subsidiaries of the Company are required to make monthly escrow deposits for taxes and insurance.
Restricted cash for debt obligations—In compliance with certain financing and insurance agreements, the Company and certain wholly-owned subsidiaries of the Company are required to deposit cash held as collateral by the lender or in escrow with certain designated financial institutions.
17
NOTE 4. |
PROPERTY AND EQUIPMENT |
The following table sets forth the Company’s property and equipment:
(Amounts in 000’s) |
|
Estimated Useful Lives (Years) |
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
|||
Buildings and improvements |
|
5-40 |
|
|
$ |
65,695 |
|
|
$ |
65,629 |
|
|
Equipment and computer related |
|
2-10 |
|
|
|
5,067 |
|
|
|
5,139 |
|
|
Land (1) |
|
|
— |
|
|
|
2,776 |
|
|
|
2,776 |
|
Construction in process |
|
|
— |
|
|
|
— |
|
|
|
69 |
|
|
|
|
|
|
|
|
73,538 |
|
|
|
73,613 |
|
Less: accumulated depreciation and amortization |
|
|
|
|
|
|
(22,783 |
) |
|
|
(21,080 |
) |
Property and equipment, net |
|
|
|
|
|
$ |
50,755 |
|
|
$ |
52,533 |
|
|
(1) |
Includes $0.1 million of land improvements with an average estimated useful remaining life of approximately 7.1 years. |
The following table summarizes total depreciation and amortization expense for the three and nine months ended September 30, 2021 and 2020:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Amounts in 000’s) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Depreciation |
|
$ |
542 |
|
|
$ |
537 |
|
|
$ |
1,625 |
|
|
$ |
1,631 |
|
Amortization |
|
|
109 |
|
|
|
157 |
|
|
|
328 |
|
|
|
608 |
|
Total depreciation and amortization expense |
|
$ |
651 |
|
|
$ |
694 |
|
|
$ |
1,953 |
|
|
$ |
2,239 |
|
NOTE 5. |
INTANGIBLE ASSETS AND GOODWILL |
Intangible assets and Goodwill consist of the following:
(Amounts in 000’s) |
|
Bed licenses (included in property and equipment)(a) |
|
|
Bed Licenses - Separable (b) |
|
|
Lease Rights |
|
|
Total |
|
|
Goodwill (b) |
|
|||||
Balances, December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
$ |
14,276 |
|
|
$ |
2,471 |
|
|
$ |
206 |
|
|
$ |
16,953 |
|
|
$ |
1,585 |
|
Accumulated amortization |
|
|
(3,754 |
) |
|
|
— |
|
|
|
(48 |
) |
|
|
(3,802 |
) |
|
|
— |
|
Net carrying amount |
|
$ |
10,522 |
|
|
$ |
2,471 |
|
|
$ |
158 |
|
|
$ |
13,151 |
|
|
$ |
1,585 |
|
Amortization expense |
|
|
(310 |
) |
|
|
— |
|
|
|
(18 |
) |
|
|
(328 |
) |
|
|
— |
|
Balances, September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
14,276 |
|
|
|
2,471 |
|
|
|
206 |
|
|
|
16,953 |
|
|
|
1,585 |
|
Accumulated amortization |
|
|
(4,064 |
) |
|
|
— |
|
|
|
(66 |
) |
|
|
(4,130 |
) |
|
|
— |
|
Net carrying amount |
|
$ |
10,212 |
|
|
$ |
2,471 |
|
|
$ |
140 |
|
|
$ |
12,823 |
|
|
$ |
1,585 |
|
|
(a) |
Non-separable bed licenses are included in property and equipment as is the related accumulated amortization expense (see Note 4 – Property and Equipment). |
|
(b) |
The Company does not amortize indefinite-lived intangibles, which consist of separable bed licenses and goodwill. |
The following table summarizes amortization expense for the three and nine months ended September 30, 2021 and 2020:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Amounts in 000’s) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Bed licenses |
|
$ |
103 |
|
|
$ |
103 |
|
|
$ |
310 |
|
|
$ |
310 |
|
Lease rights |
|
|
6 |
|
|
|
54 |
|
|
|
18 |
|
|
|
298 |
|
Total amortization expense |
|
$ |
109 |
|
|
$ |
157 |
|
|
$ |
328 |
|
|
$ |
608 |
|
18
Expected amortization expense for the year ended December 31, for all definite-lived intangibles, for each of the next five years and thereafter is as follows:
(Amounts in 000’s) |
|
Bed Licenses |
|
|
Lease Rights |
|
||
2021 (a) |
|
$ |
104 |
|
|
$ |
6 |
|
2022 |
|
|
414 |
|
|
|
24 |
|
2023 |
|
|
414 |
|
|
|
23 |
|
2024 |
|
|
414 |
|
|
|
18 |
|
2025 |
|
|
414 |
|
|
|
18 |
|
Thereafter |
|
|
8,452 |
|
|
|
51 |
|
Total expected amortization expense |
|
$ |
10,212 |
|
|
$ |
140 |
|
(a) |
Estimated amortization expense for the year ending December 31, 2021, includes only amortization to be recorded after September 30, 2021. |
19
NOTE 6.LEASES
Operating Leases
Facilities Leased to the Company - The Company leases nine SNFs from unaffiliated owners under non-cancelable leases, all of which have rent escalation clauses and provisions requiring payment of real estate taxes, insurance and maintenance costs by the lessee. Except for the Tara Facility, which the Company is operating, each of the SNFs that are leased by the Company are subleased to and operated by third-party tenants. The Company also leases certain office space located in Suwanee, Georgia. The weighted average remaining lease term for our nine leased facilities is approximately 6.1 years. As of September 30, 2021, the Company is in compliance with all operating lease financial covenants.
Future Minimum Lease Payments
Future minimum lease payments for the year ended December 31, for each of the next five years and thereafter is as follows:
(Amounts in 000’s) |
|
Future rental payments |
|
|
Accretion of lease liability (1) |
|
|
Operating lease obligation |
|
|||
2021 (2) |
|
$ |
1,675 |
|
|
$ |
(37 |
) |
|
$ |
1,638 |
|
2022 |
|
|
6,752 |
|
|
|
(468 |
) |
|
|
6,284 |
|
2023 |
|
|
6,851 |
|
|
|
(933 |
) |
|
|
5,918 |
|
2024 |
|
|
6,958 |
|
|
|
(1,385 |
) |
|
|
5,573 |
|
2025 |
|
|
7,095 |
|
|
|
(1,847 |
) |
|
|
5,248 |
|
Thereafter |
|
|
12,736 |
|
|
|
(4,331 |
) |
|
|
8,405 |
|
Total |
|
$ |
42,067 |
|
|
$ |
(9,001 |
) |
|
$ |
33,066 |
|
(1) |
Weighted average discount rate 7.98%. |
(2) |
Estimated minimum lease payments for the year ending December 31, 2021 include only payments to be paid after September 30, 2021. |
For further details regarding the Company’s leases from unaffiliated owners under non-cancelable leases and which comprise the future minimum lease payments of the Company, see Note 6 - Leases in Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report.
Facilities Leased or Subleased by the Company - As of September 30, 2021, the Company leased or subleased 20 facilities (12 owned by the Company and eight leased to the Company), to third-party tenants on a triple net basis, meaning that the lessee (i.e., the third-party tenant of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. The weighted average remaining lease term for our facilities is approximately 5.8 years.
Empire. Following the Wellington Lease Termination, effective January 1, 2021, Regional leased the Powder Springs Facility to PS Operator LLC (“PS Operator”), an affiliate of Empire, pursuant to a sublease (the “PS Sublease”).
The PS Sublease will expire on August 1, 2027, subject to two five-year optional extensions. For the first six months, the base rent under the PS Sublease equated to the adjusted earnings before interest, tax, depreciation, amortization, and rent (“EBITDAR”) as defined in the PS Sublease, of PS Operator, to the extent derived from the Powder Springs Facility. For months seven through twenty-four, the base rent will equal 80% of the Adjusted EBITDAR (as defined in the PS Sublease); however, beginning with month thirteen, the base rent may not exceed $150,000 per month. Beginning with month twenty-five, the base rent will be $140,000 per month.
For the first three months, if Adjusted EBITDAR was less than $0, PS Operator would not have paid any base rent and the Company would have reimbursed PS Operator an amount equal to the amount by which each period’s Adjusted EBITDAR was less than $0. Beginning with the fourth month and thereafter, the PS Sublease became a “triple net” lease with PS Operator responsible for payment of all expenses in addition to rent.
During the three and nine months ended September 30, 2021, the Company recognized $0.5 million and $1.0 million of variable rent, respectively, for the Powder Springs Facility, and $0.1 million each month during the nine month period ended September 30, 2021, in straight-line rent.
20
If the monthly average adjusted cash flows of PS Operator (as described in the PS Sublease) is less than $100,000 for any consecutive three-month period after the sixth month of the PS Sublease, then Regional may terminate the PS Sublease subject to the conditions set forth in the PS Sublease. The PS Sublease also includes customary covenants, events of default and indemnification obligations.
Sublease Termination
Wellington. Two of the Company’s eight Georgia facilities, leased under a prime lease, were subleased to affiliates of Wellington under the Wellington Subleases. The Wellington Subleases, which were due to expire August 31, 2027, related to the Tara Facility and the Powder Springs Facility.
On December 1, 2020, the Company entered into the Wellington Lease Termination with the Wellington Tenants, Wellington, as guarantor, and Mansell Court Associates LLC (“Pledgor”). Tenants, Wellington and Pledgor, together with each of their respective affiliates, shareholders, partners, members, managers, officers, directors and employees thereof, are the “Wellington Parties”.
The Wellington Transition occurred at 12:01 a.m. on January 1, 2021, pursuant to the terms and provisions of the OTAs which the Company and the Wellington Tenants entered into in connection with the Wellington Lease Termination, which included customary termination events.
The OTAs were subject to customary closing conditions and representations and warranties. The Wellington Transition was subject to DCH approval of the Applications, which were filed by Regional on December 2, 2020. On the Wellington Transition Date, the Wellington Tenants: (i) paid all cash on hand at the Wellington Facilities to Regional; (ii) transferred and assigned to the Company all accounts receivable previously due to the Wellington Tenants as of the Wellington Transition Date; and (iii) entered into commercially reasonable Deposit Account Control Agreements with Regional with respect to all of the Wellington Tenants’ bank accounts that receive accounts receivable remittances. Additionally, on the Wellington Transition Date, the Company became liable for certain expenses including approximately $1.7 million of bed taxes in arrears. The Security Agreements survive the Wellington Transition and will remain in full force and effect in order to assist Regional in collecting the accounts receivable.
As of December 31, 2020, Regional recorded an estimated allowance of $1.4 million against a rent receivable of $2.7 million from the Wellington Tenants. During the three months ended September 2021, the Company recorded $0.1 million in debt recovery due to collections exceeding our December 31, 2020 estimated allowance. During the nine months ended September 30, 2021, the Company collected $3.3 million pursuant to the Wellington Lease Termination (excluding a $0.2 million insurance refund) and paid $1.0 million to partially satisfy the Wellington Lease Termination obligation of approximately $1.7 million of bed taxes in arrears and approximately $0.1 million in collection expenses. The Company provides no assurance that we will be able to collect any of the additional $1.2 million in rent arrears in excess of the net $1.5 million already collected. Scheduled rent payments under the Wellington Subleases constituted approximately 23% of the Company’s anticipated annual revenue in 2020.
During the three and nine months ended September 30, 2021, the Company recognized $0.5 million and $1.0 million of variable rent for the Powder Springs Facility and, as of the date of filing this Quarterly Report, has collected all of such variable rent replacing approximately $1.5 million of cash rent previously anticipated for the Wellington Tenant.
The Tara Facility operations performance during the three and nine months ended September 30, 2021 has been insufficient to cover any of the rent the Company is obligated to pay under its lease. On January 1, 2021, the Company entered into the Vero Management Agreement with Vero Health under which Vero Health provided management consulting services for the Tara Facility, which the Company now operates. On September 21, 2021, the Company notified Vero Health, of Regional’s intention to terminate the Vero Management Agreement, effective October 1, 2021. Regional will continue to operate the Tara Facility and has entered into the Peach Management Agreement with Peach dated as of September 22, 2021 and effective October 1, 2021, to provide management consulting services for the Tara Facility. Affiliates of Peach also lease from Regional three facilities located in Georgia. Under the Peach Management Agreement, for the first six months Regional will pay Peach: (i) a monthly management fee equal to 4% of the Adjusted Net Revenues (as defined in the Peach Management Agreement) of the Tara Facility with a monthly minimum of $35,000; (ii) an incentive fee of 1% of the Adjusted Net Revenues in the event that monthly EBITDAR (as defined in the Peach Management Agreement) is above $105,000; and (iii) an incentive fee of 13% of EBITDAR in the event that monthly EBITDAR is above $125,000. For months seven through the end of the Peach Management Agreement, Regional will pay Peach: (a) a monthly management fee equal to 3% of the Adjusted Net Revenues of the Tara Facility with a monthly minimum of $30,000; (b) an incentive fee of 1% of the Adjusted Net Revenues in the event that monthly EBITDAR is above $105,000; and (c) an incentive fee of 15% of EBITDAR in the event that monthly EBITDAR is above $125,000. All incentive fees will be paid on a quarterly basis. The term of the Peach Management Agreement commences on October 1, 2021 and continues for 12 months thereafter, subject to earlier termination as provided in the Peach
21
Management Agreement. The Peach Management Agreement also includes customary covenants, termination provisions and indemnification obligations. For further information on the Tara Facility performance see Note 13 – Segment Results.
When the Wellington Transition occurred, all agreements executed prior to the Wellington Lease Termination with the Wellington Parties, other than the Security Agreements, terminated automatically. Additionally, the Wellington Parties and Regional agreed to a mutual release whereby each party releases, acquits, and forever discharges the other party from any and all charges, complaints, claims, liabilities, demands, costs, losses, debts, and expenses of any nature whatsoever (including attorneys’ fees and costs actually incurred), known or unknown, suspected or unsuspected, accrued or not accrued, whether in law or in equity, that existed from the beginning of time to the Wellington Transition Date.
Subject to provisions in the OTAs and the Wellington Lease Termination, Regional is not liable for any contractual obligations or liabilities of the Wellington Parties owed to third-parties arising prior to the Wellington Transition Date. Regional will pay and/or assume all vacation days, sick days and paid time off accruing on or before the Wellington Transition Date.
Regional has indemnified the Wellington Parties from liabilities arising from or relating to any unpaid nursing home provider fees relating in any way to the Tara Facility and Powder Springs Facility for the period prior to and/or after December 1, 2020.
Aspire. On November 30, 2018, the Company leased or subleased to affiliates of Aspire Regional Partners, Inc. (“Aspire”) management, formerly affiliated with MSTC Development Inc., five facilities located in Ohio (collectively, “Aspire Sublessees”) pursuant to separate sublease agreements (the “Aspire Subleases”), whereby the Aspire Sublessees took possession of, and commenced operating, the facilities (the “Aspire Facilities”) as tenant or subtenant. The Aspire Subleases became effective on December 1, 2018 and are structured as triple net leases. The Company agreed to indemnify Aspire against any and all liabilities imposed on them as arising from the former operator, capped at $8.0 million. The Company has assessed the fair value of the indemnity agreements as not material to the consolidated financial statements at September 30, 2021.
Symmetry. Affiliates (the “Symmetry Tenants”) of Healthcare Management, LLC (“Symmetry” or “Symmetry Healthcare”) leased the following facilities from the Company, pursuant to separate lease agreements which expire in 2030 (the “Symmetry Leases”): (i) the Company’s 106-bed SNF located in Sylvia, North Carolina (the “Mountain Trace Facility”); (ii) the Company’s 96-bed SNF located in Sumter, South Carolina (the “Sumter Facility”); and (iii) the Company’s 84-bed SNF located in Georgetown, South Carolina (the “Georgetown Facility”). On June 27, 2018, the Company notified Blue Ridge of Sumter, LLC, the tenant with respect to the Sumter Facility (the “Sumter Tenant”), and Blue Ridge on the Mountain, LLC, the tenant with respect to the Mountain Trace Facility (the “Mountain Trace Tenant”), that continued breach of the payment terms of the applicable Symmetry Lease would constitute an event of default. The Symmetry Tenants had alleged that the Company was in material breach of each of the Symmetry Leases with regard to deferred maintenance and were withholding rental payments on the basis of such allegations.
On January 28, 2019, the Company reached an agreement with the Symmetry Tenants with respect to the Symmetry Leases, pursuant to which the Symmetry Tenants agreed to a $0.8 million (including approximately $0.06 million finance fees) payment plan for the rent arrears (the “Symmetry Payment Plan”). On February 28, 2019, the Company and the Mountain Trace Tenant mutually terminated the lease with respect to the Mountain Trace Facility and operations at the facility were transferred to Vero Health X, LLC, an affiliate of Vero Health, and hereafter also referred to as “Vero Health”. The Symmetry Tenants paid $0.1 million of the Symmetry Payment Plan during the nine months ended September 30, 2021 and $0.3 million during the nine months ended September 30, 2020. In February 2021, the Symmetry Tenants completed the Symmetry Payment Plan, upon completion of which the Company recognized $0.05 million in “Other revenues”, having previously recognized $0.01 million prior to the year ended December 31, 2019.
Vero Health. On February 28, 2019, the Company entered into a lease agreement (the “Vero Health Lease”) with Vero Health, providing that Vero Health would take possession of and operate the Mountain Trace Facility. The Vero Health Lease became effective upon the termination of the prior Mountain Trace Tenant mutual lease on March 1, 2019.
Peach Health. In connection with a master sublease agreement that the Company entered into with affiliates of Peach as of June 18, 2016 and amended on March 30, 2018, the Company extended a line of credit to Peach (the “Peach Line”), which was subordinated to a line of credit extended to Peach by a third-party lender (the “Peach Working Capital Facility”). On August 27, 2020, subsequent to Peach repaying its Peach Working Capital Facility, the Company and Peach modified the Peach Line to: (i) reduce the then $1.3 million outstanding balance under the Peach Line to approximately $0.5 million, in connection with which Peach paid to the Company $0.45 million in cash and the Company accepted $0.35 million non-cash payment in exchange for Peach Health assuming from the Company certain bed tax liabilities related to facilities their affiliates operate; (ii) extend the maturity date of the Peach Line to August 1, 2025; (iii) decrease the interest rate from 16.5% to 8% per annum; and (iv) provide that Peach will not pledge, hypothecate or grant any security interest in their collateral to any other party, other than their current arrangement with the SBA, without the Company’s prior written consent. The remaining balance under the
22
Peach Line shall be paid by Peach to the Company in 60 equal monthly installments. During the year ended December 31, 2019, the Company suspended revenue recognition on the Peach Line interest income due pursuant to the subordination of the Peach Line to the Peach Working Capital Facility. Upon modification to the Peach Line on August 27, 2020, the Company recommenced interest income recognition.
Notes Receivable: at September 30, 2021 and December 31, 2020, approximately $0.4 million was outstanding on the Peach Line.
Future Minimum Lease Receivables
Future minimum lease receivables for the year ended of December 31, for each of the next five years and thereafter is as follows:
|
|
(Amounts in 000's) |
|
|
2021 (a) |
|
$ |
3,189 |
|
2022 |
|
|
13,519 |
|
2023 |
|
|
15,477 |
|
2024 |
|
|
15,299 |
|
2025 |
|
|
13,702 |
|
Thereafter |
|
|
33,555 |
|
Total |
|
$ |
94,741 |
|
(a) |
Estimated minimum lease receivables for the year ending December 31, 2021 include only payments scheduled to be received after September 30, 2021. |
For further details regarding the Company’s leased and subleased facilities to third-party operators, including a full summary of the Company’s leases to third-parties and which comprise the future minimum lease receivables of the Company, see Note 6 - Leases and Note 9 – Acquisitions and Dispositions in Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report.
NOTE 7. |
ACCRUED EXPENSES |
Accrued expenses consist of the following:
(Amounts in 000’s) |
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
Accrued employee benefits and payroll-related |
|
$ |
438 |
|
|
$ |
218 |
|
Real estate and other taxes (1) |
|
|
1,175 |
|
|
|
491 |
|
Self-insured reserve (2) |
|
|
140 |
|
|
|
183 |
|
Accrued interest |
|
|
222 |
|
|
|
424 |
|
Unearned rental revenue |
|
|
42 |
|
|
|
41 |
|
Medicaid overpayment - Healthcare Services |
|
|
1,032 |
|
|
|
— |
|
Other accrued expenses |
|
|
1,114 |
|
|
|
868 |
|
Total accrued expenses |
|
$ |
4,163 |
|
|
$ |
2,225 |
|
|
(1) |
Includes approximately $0.7 million of bed taxes in arrears related to the Wellington Transition and approximately $0.1 million bed tax accrual for the three months ended September 30, 2021 for the Healthcare Services segment. Additionally, approximately $0.1 million bed tax for the Healthcare Services segment is included in “Accounts payable” in the Company’s consolidated balance sheets. |
|
(2) |
The Company self-insures against professional and general liability cases incurred prior to the Transition and uses a third-party administrator and outside counsel to manage and defend the claims (see Note 12 - Commitments and Contingencies). |
23
NOTE 8. |
NOTES PAYABLE AND OTHER DEBT |
See Note 8 – Notes Payable and Other Debt in Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report for a detailed description of all the Company’s debt facilities.
Notes payable and other debt consists of the following:
(Amounts in 000’s) |
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
Senior debt—guaranteed by HUD |
|
$ |
30,413 |
|
|
$ |
31,104 |
|
Senior debt—guaranteed by USDA |
|
|
7,868 |
|
|
|
13,139 |
|
Senior debt—guaranteed by SBA |
|
|
608 |
|
|
|
628 |
|
Senior debt—bonds |
|
|
6,379 |
|
|
|
6,500 |
|
Senior debt—other mortgage indebtedness |
|
|
8,650 |
|
|
|
3,631 |
|
Other debt |
|
|
802 |
|
|
|
822 |
|
Subtotal |
|
|
54,720 |
|
|
|
55,824 |
|
Deferred financing costs |
|
|
(1,197 |
) |
|
|
(1,250 |
) |
Unamortized discount on bonds |
|
|
(126 |
) |
|
|
(135 |
) |
Notes payable and other debt |
|
$ |
53,397 |
|
|
$ |
54,439 |
|
The following is a detailed listing of the debt facilities that comprise each of the above categories:
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility |
|
Lender |
|
Maturity |
|
Interest Rate (a) |
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
|||||
Senior debt - guaranteed by HUD (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Pavilion Care Center |
|
Lument Capital |
|
12/01/2027 |
|
Fixed |
|
|
4.16 |
% |
|
$ |
894 |
|
|
$ |
986 |
|
Hearth and Care of Greenfield |
|
Lument Capital |
|
08/01/2038 |
|
Fixed |
|
|
4.20 |
% |
|
|
1,864 |
|
|
|
1,920 |
|
Woodland Manor |
|
Midland State Bank |
|
10/01/2044 |
|
Fixed |
|
|
3.75 |
% |
|
|
4,869 |
|
|
|
4,968 |
|
Glenvue |
|
Midland State Bank |
|
10/01/2044 |
|
Fixed |
|
|
3.75 |
% |
|
|
7,560 |
|
|
|
7,712 |
|
Autumn Breeze |
|
KeyBank |
|
01/01/2045 |
|
Fixed |
|
|
3.65 |
% |
|
|
6,573 |
|
|
|
6,705 |
|
Georgetown |
|
Midland State Bank |
|
10/01/2046 |
|
Fixed |
|
|
2.98 |
% |
|
|
3,328 |
|
|
|
3,394 |
|
Sumter Valley |
|
KeyBank |
|
01/01/2047 |
|
Fixed |
|
|
3.70 |
% |
|
|
5,325 |
|
|
|
5,419 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
$ |
30,413 |
|
|
$ |
31,104 |
|
Senior debt - guaranteed by USDA (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coosa (d)(h) |
|
Metro City |
|
01/31/2036 |
|
Prime + 1.50% |
|
|
5.50 |
% |
|
|
— |
|
|
|
5,149 |
|
Mountain Trace (e) |
|
Community B&T |
|
12/24/2036 |
|
Prime + 1.75% |
|
|
5.75 |
% |
|
|
3,875 |
|
|
|
3,972 |
|
Southland (f) |
|
Cadence Bank, NA |
|
07/27/2036 |
|
Prime + 1.50% |
|
|
6.00 |
% |
|
|
3,993 |
|
|
|
4,018 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
$ |
7,868 |
|
|
$ |
13,139 |
|
Senior debt - guaranteed by SBA (g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southland |
|
Cadence Bank, NA |
|
07/27/2036 |
|
Prime + 2.25% |
|
|
5.50 |
% |
|
|
608 |
|
|
|
628 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
$ |
608 |
|
|
$ |
628 |
|
(a) |
Represents cash interest rates as of September 30, 2021 as adjusted for interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs, which range from 0.09% to 0.53% per annum. |
(b) |
For the seven SNFs, the Company has term loans with financial institutions that are insured 100% by HUD. The loans are secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the underlying facility. The loans contain customary events of default, including fraud or material misrepresentations or material omission, the commencement of a forfeiture action or proceeding, failure to make required payments, and failure to perform or comply with certain agreements. Upon the occurrence of certain events of default, the lenders may, after receiving the prior written approval of HUD, terminate the loans and all amounts under the loans will become immediately due and payable. In connection with entering into each loan, the Company entered into a healthcare regulatory agreement and a promissory note, each containing customary terms and conditions. Pursuant to the CARES Act, up to three months of debt service payments for six of the credit facilities can be made from our restricted cash reserves. |
24
(c) |
For the two SNFs, the Company has term loans with financial institutions that are insured 70% to 80% by the USDA. The loans have an annual renewal fee for the USDA guarantee of 0.25% of the guaranteed portion. The loans had prepayment penalties of 1%, capped at 1% for the remainder of the first 10 years of the term and 0% thereafter. |
(d) |
Pursuant to the CARES Act, the monthly principal and interest payments due May 1, 2020 through September 1, 2020 for the loan for the Coosa Facility, were deferred (a part of the “USDA Payment Program”). Monthly payments that commenced on October 1, 2020 were being applied to current interest, then deferred interest until the deferred interest was paid in full on April 1, 2021. Payments were re-amortized over the remaining term of the loan. On September 30, 2021, the Company fully refinanced the MCB Coosa Loan with the Exchange Bank of Alabama, see “Senior debt - other mortgage indebtedness” below. |
(e) |
Pursuant to the CARES Act, the monthly principal and interest payments due May 1, 2020 through August 1, 2020 for the Mountain Trace Facility loan were deferred. Monthly payments that commenced on September 1, 2020 were being applied to current interest, then deferred interest until the deferred interest was paid in full on April 1, 2021. Payments have been re-amortized over the extended term of the loan. |
(f) |
Pursuant to the CARES Act, the monthly principal and interest payments due May 1, 2020 through October 1, 2020 for the loan for that certain 126-bed SNF commonly known as Southland, located in Dublin, Georgia, were deferred as a part of the USDA Payment Program. Monthly payments recommenced on November 1, 2020 with payments through February 2021 being applied to principal and interest. Monthly payments that commenced on March 1, 2021 are being applied to current interest, then deferred interest until the deferred interest is paid in full, payments will be re-amortized over the extended term of the loan. |
(g) |
For the one SNF, commonly known as Southland, the Company has a term loan with a financial institution, which is 75% insured by the SBA. The SBA funded two monthly debt payments during the three months ended March 31, 2021 and six payments commencing on March 1, 2020 and ending on August 1, 2020. |
(h) |
On September 30, 2021, the Company refinanced the MCB Coosa Loan secured by the Coosa Facility, see “Senior debt – other mortgage indebtdness” below. |
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility |
|
Lender |
|
Maturity |
|
Interest Rate (a) |
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
|||||
Senior debt - bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eaglewood Bonds Series A |
|
City of Springfield, Ohio |
|
05/01/2042 |
|
Fixed |
|
|
7.65 |
% |
|
$ |
6,379 |
|
|
$ |
6,379 |
|
Eaglewood Bonds Series B (b) |
|
City of Springfield, Ohio |
|
05/01/2021 |
|
Fixed |
|
|
8.50 |
% |
|
|
— |
|
|
|
121 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
$ |
6,379 |
|
|
$ |
6,500 |
|
(a) |
Represents cash interest rates as of September 30, 2021. The rates exclude amortization of deferred financing of approximately 0.01% per annum. |
(b) |
On May 3, 2021, in accordance with the terms of The City of Springfield, Ohio First Mortgage Revenue Series 2012 B Bonds, the Company fully repaid approximately $0.1 million in outstanding principal and interest. |
(a) |
Represents cash interest rates as of September 30, 2021 as adjusted for interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs of 0.34% per annum. |
(b) |
On October 1, 2021, the Exchange Bank of Alabama and the Company extended the maturity date of the Meadowood Credit Facility which is secured by the Meadowood Facility and the assets of Coosa, and which is guaranteed by Regional Health Properties, Inc., from May 1, 2022 to October 1, 2026. |
(c) |
On September 30, 2021, the Company refinanced the MCB Coosa Loan secured by the Coosa Facility, incurring approximately $0.1 million in new fees. The Coosa Credit Facility, guaranteed by Regional Health Properties, Inc. includes customary terms, including events of default with an associated annual 5% default interest rate, and is secured by the Coosa Facility and the assets of Meadowood. Upon the occurrence of certain events of default, the lenders may terminate the Coosa Credit Facility and the Meadowood Credit Facility and all amounts due under both credit facilities will become immediately due and payable. The Coosa Credit Facility has prepayment penalties of 5% in the 1st year, 4% in the 2nd year and 1% thereafter. |
25
(Amounts in 000’s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender |
|
Maturity |
|
Interest Rate |
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
|||||
Other debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Insurance Funding (a) |
|
03/01/2022 |
|
Fixed |
|
|
3.63 |
% |
|
$ |
197 |
|
|
$ |
94 |
|
Servarus Financial Inc. (b) |
|
11/01/2021 |
|
Fixed |
|
|
5.18 |
% |
|
|
110 |
|
|
|
— |
|
Key Bank (c) |
|
08/25/2023 |
|
Fixed |
|
|
0.00 |
% |
|
|
495 |
|
|
|
495 |
|
FountainHead Commercial Capital - PPP Loan (d) |
|
04/16/2022 |
|
Fixed |
|
|
1.00 |
% |
|
|
— |
|
|
|
229 |
|
Marlin Covington Finance |
|
03/11/2021 |
|
Fixed |
|
|
20.17 |
% |
|
|
— |
|
|
|
4 |
|
Total |
|
|
|
|
|
|
|
|
|
$ |
802 |
|
|
$ |
822 |
|
(a) |
Annual Insurance financing primarily for the Company’s directors and officers insurance. |
(b) |
Insurance financing for professional and general liability and property insurance for the Tara Facility in our Healthcare Services segment. |
(c) |
On August 17, 2021, Key Bank and the Company extended the maturity date from August 25, 2021 to August 25, 2023. |
(d) |
On August 13, 2021, we received notification that the PPP Loan was forgiven by the SBA on July 9, 2021. |
Debt Covenant Compliance
As of September 30, 2021, 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 September 30, 2021, the Company was in compliance with the various financial and administrative covenants under the Company’s outstanding credit related instruments.
Scheduled Maturities
The schedule below summarizes the scheduled gross maturities as of September 30, 2021 for each of the next five years and thereafter.
For the twelve months ended September 30, |
|
(Amounts in 000’s) |
|
|
2022 |
|
$ |
1,976 |
|
2023 |
|
|
2,333 |
|
2024 |
|
|
1,922 |
|
2025 |
|
|
2,014 |
|
2026 |
|
|
2,110 |
|
Thereafter |
|
|
44,365 |
|
Subtotal |
|
$ |
54,720 |
|
Less: unamortized discounts |
|
|
(126 |
) |
Less: deferred financing costs, net |
|
|
(1,197 |
) |
Total notes and other debt |
|
$ |
53,397 |
|
26
NOTE 9. |
DISCONTINUED OPERATIONS |
Discontinued Operations
For discontinued operations, cost of services, as shown below, is primarily accruals or releases of over accruals for professional and general liability claims and bad debt expense. For a historical listing and description of the Company’s discontinued entities, see Note 10 – Discontinued Operations in Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report.
The following table summarizes the activity of discontinued operations for the three and nine months ended September 30, 2021 and 2020:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Amounts in 000’s) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Cost of services |
|
$ |
22 |
|
|
$ |
2 |
|
|
$ |
97 |
|
|
$ |
33 |
|
Net loss |
|
$ |
(22 |
) |
|
$ |
(2 |
) |
|
$ |
(97 |
) |
|
$ |
(33 |
) |
The Company’s major classes of discontinued operation’s assets and liabilities included within the Company’s consolidated balance sheets as of September 30, 2021 and December 31, 2020 are: (i) “Accounts payable” of $2.5 million and $2.6 million; and (ii) “Accrued Expenses” of $0.7 million and $0.7 million, respectively.
NOTE 10. |
COMMON AND PREFERRED STOCK |
Common Stock
There were no dividends declared or paid on the common stock during the three and nine months ended September 30, 2021 and 2020.
Preferred Stock
No dividends were declared or paid on the Series A Preferred Stock for the three and nine months ended September 30, 2021 and 2020.
As of September 30, 2021, as a result of the suspension of the dividend payment on the Series A Preferred Stock commencing with the fourth quarter 2017 dividend period, the Company has $34.6 million of undeclared preferred stock dividends in arrears. Holders of the Series A Preferred Stock are entitled to receive, when and as declared by the Board out of funds of the Company legally available for the payment of distributions, cumulative preferential cash dividends at an annual rate equal to 10.875% of the $25.00 per share stated liquidation preference of the Series A Preferred Stock, which is equivalent to an annual rate of $2.72 per share or $1.9 million per quarter. Dividends on the Series A Preferred Stock, when and as declared by the Board, are payable quarterly in arrears, on March 31, June 30, September 30, and December 31 of each year. On June 8, 2018, the Board determined to continue suspension of the payment of the quarterly dividend on the Series A Preferred Stock indefinitely. Under the terms of the Series A Preferred Stock, dividends on the Series A Preferred Stock shall continue to accrue and accumulate regardless of whether such dividends are declared by the Board. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for four dividends periods: (i) the annual dividend rate on the Series A Preferred Stock has increased to 12.875%, which is equivalent to an annual rate of $3.20 or $2.2 million per quarter, commencing on the first day after the missed fourth quarterly payment (October 1, 2018) continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash; and (ii) the holders of the Series A Preferred Stock will be entitled to vote, as a single class, for the election of two additional directors to serve on the Board, as further described in the amended and restated articles of incorporation of the Company, otherwise referred to as the Charter.
As of September 30, 2021, the Company had 2,811,535 shares of the Series A Preferred Stock issued and outstanding.
The Company may, at its option, redeem the Series A Preferred Stock, in whole or in part, by paying $25.00 per share, plus any accrued and unpaid dividends to the redemption date.
For historical information regarding the Series A Preferred Stock, the Company’s former “at-the-market” offering program and prior share repurchase programs, see Note 11 – Common and Preferred Stock in Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report.
27
NOTE 11. |
STOCK BASED COMPENSATION |
Stock Incentive Plans
On November 4, 2020, the Board adopted, the Regional Health Properties, Inc. 2020 Equity Incentive Plan (the “2020 Plan”). The Company’s shareholders approved the 2020 Plan on December 16, 2020 at the 2020 Annual Meeting of Shareholders of the Company. The maximum number of shares of common stock authorized for issuance under the 2020 Plan is 250,000 shares, subject to certain adjustments. No awards may be made under the 2020 Plan after the 10th anniversary of the date of shareholder approval of the 2020 Plan, and no incentive stock options may be granted after the 10th anniversary of the date of Board approval of the 2020 Plan.
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, effective upon shareholder approval of the 2020 Plan. As of September 30, 2021, the number of securities remaining available for future issuance under the 2020 Plan is 163,000.
The shares of common stock underlying any awards granted under the 2020 Plan or the 2011 Plan that are forfeited, canceled, or otherwise terminated (other than by exercise) will be added back to the shares of common stock available for issuance under the 2020 Plan. However, shares: (i) tendered or held back upon exercise of a stock option or other award under the 2020 Plan to cover the exercise price or tax withholding; and (ii) subject to a stock appreciation right that are not issued in connection with the stock settlement of the stock appreciation right upon exercise thereof, will not be added back to the shares of common stock available for issuance under the 2020 Plan. In addition, shares of common stock repurchased by the Company on the open market will not be added back to the shares of common stock available for issuance under the 2020 Plan.
For the three and nine months ended September 30, 2021 and 2020, the Company recognized stock-based compensation expense as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Amounts in 000’s) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Employee compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
|
$ |
179 |
|
|
$ |
— |
|
|
$ |
302 |
|
|
$ |
— |
|
Total employee stock-based compensation expense |
|
$ |
179 |
|
|
$ |
— |
|
|
$ |
302 |
|
|
$ |
— |
|
Non-employee compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board restricted stock |
|
$ |
— |
|
|
$ |
13 |
|
|
$ |
— |
|
|
$ |
37 |
|
Total non-employee stock-based compensation expense |
|
$ |
— |
|
|
$ |
13 |
|
|
$ |
— |
|
|
$ |
37 |
|
Total stock-based compensation expense |
|
$ |
179 |
|
|
$ |
13 |
|
|
$ |
302 |
|
|
$ |
37 |
|
For the three and nine months ended September 30, 2021 and 2020, there were no issuances of common stock options or warrants.
Restricted Stock
The following table summarizes the Company’s restricted stock activity for the nine months ended September 30, 2021:
|
|
Number of Shares (000's) |
|
|
Weighted Avg. Grant Date (per Share) Fair Value |
|
||
Unvested, December 31, 2020 |
|
|
14 |
|
|
$ |
3.60 |
|
Granted |
|
|
87 |
|
|
$ |
13.01 |
|
Vested |
|
|
(22 |
) |
|
$ |
7.18 |
|
Unvested, September 30, 2021 |
|
|
79 |
|
|
$ |
12.99 |
|
The remaining unvested shares at December 31, 2020 vested on January 1, 2021, resulting in minimal compensation expense related to the final vesting of the restricted stock awards during the three months ended March 31, 2021. For restricted stock unvested at September 30, 2021, $0.8 million in compensation expense will be recognized over the next 2.1 years.
28
NOTE 12. |
COMMITMENTS AND CONTINGENCIES |
Regulatory Matters
Laws and regulations governing federal Medicare and state Medicaid programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future governmental review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from certain governmental programs. As of September 30, 2021, all of the Company’s facilities operated by Regional or leased and subleased to third-party operators and managed for third-parties are certified by CMS and are operational. See Note 6 - Leases.
Legal Matters
The Company is a party to various legal actions and administrative proceedings and is subject to various claims arising in the ordinary course of business, including claims that the services the Company provided during the time it operated 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 September 30, 2021, the Company is a defendant in one professional and general liability action commenced on behalf of one of our former patients who received care at one of our facilities prior to the Transition. The plaintiff in this action alleges negligence due to failure to provide adequate and competent staff resulting in injuries, pain and suffering, mental anguish and malnutrition and seeks unspecified actual and compensatory damages, and unspecified punitive damages. This action is covered by insurance, except that any punitive damages awarded would be excluded from coverage.
During the three and nine months ended September 30, 2021, no professional and general liability actions related to the Company’s former patients prior to the Transition were filed against the Company.
During the three months ended March 31, 2020, the Company settled one professional and general liability action, as outlined below.
|
• |
On January 29, 2020, the Company executed a settlement, in compromise of a complaint filed in the Circuit Court of Pulaski County, in the State of Arkansas, by a former patient at one of our facilities, against the Company on May 16, 2017. The plaintiff alleged medical negligence and injury. The settlement was paid in 2020, in exchange for dismissal of the case with prejudice, in the total amount of $40,000. |
Claims on behalf of the Company’s Prior or Current Tenant’s Former Patients after the Transition
As of September 30, 2021, the Company is a defendant in an aggregate of 12 additional professional and general liability actions. These 12 additional professional and general liability actions, which set forth claims relating to time periods after the Transition, 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 on behalf of former patients of our current or prior tenants all relate to events which occurred after the Company transitioned the operations of the facilities in question to a third-party operator (and of which four such actions relate to events which occurred after the Company sold such facilities) and are subject to such operators’ indemnification obligations in favor of the Company. 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.
29
During the three months ended June 30, 2021, one professional and general liability action, related to the Company’s current or former tenant’s former patients was filed against the Company. The Company was subsequently dismissed with prejudice from this action on July 6, 2021.
During the three months ended March 31, 2021, no professional and general liability actions related to the Company’s current or former tenant’s former patients were filed against the Company.
Prior Year Summary
During the three months ended September 30, 2020, one professional and general liability actions related to the Company’s current or former tenant’s former patients were filed against the Company.
During the three months ended June 30, 2020, two professional and general liability actions related to the Company’s current or former tenant’s former patients were filed against the Company.
During the three months ended March 31, 2020, one professional and general liability action related to the Company’s current or former tenant’s former patients was filed against the Company.
During the three months ended June 30, 2020, one professional and general liability action was dismissed without prejudice.
As of September 30, 2020, the Company was a defendant in an aggregate of 12 professional and general liability actions, primarily commenced on behalf of one of our former patients and 11 of our current or prior tenant’s former patients.
The Company established a self-insurance reserve for its professional and general liability claims, included within “Accrued expenses” on the Company’s consolidated balance sheets of $0.1 million and $0.2 million as of September 30, 2021 and December 31, 2020, respectively. Additionally, as of September 30, 2021 and December 31, 2020, $0.1 million and $0.1 million, respectively, 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 14 – Commitments and Contingencies in Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report.
Ohio Attorney General Action. On January 15, 2020, the Ohio Attorney General (the “OAG”) voluntarily dismissed with prejudice all claims pending against the Company, certain subsidiaries of the Company, and certain other parties, in an action they filed on October 27, 2016, in the Court of Common Pleas, Franklin County, Ohio. The dismissed lawsuit alleged that defendants, including the Company, submitted improper Medicaid claims for independent laboratory services for glucose blood tests and capillary blood draws and further alleged that defendants (i) engaged in deception, (ii) willfully received Medicaid payments to which they were not entitled or in a greater amount than that to which they were entitled, and (iii) obtained payments under the Medicaid program to which they were not entitled pursuant to their provider agreements and applicable Medicaid rules and regulations. The OAG sought, among other things, triple the amount of damages proven at trial (plus interest) and not less than $5,000 and not more than $10,000 for each deceptive claim or falsification. As previously disclosed, the Company had received a letter from the OAG in February 2014 offering to settle its claims against the defendants for improper Medicaid claims related to glucose blood tests and capillary blood draws for a payment of approximately $1.0 million, which offer the Company declined. The January 15, 2020 dismissal of the case with prejudice renders all claims against the Company moot.
30
NOTE 13. |
SEGMENT RESULTS |
Effective January 1, 2021, pursuant to the Wellington Lease Termination, as a portfolio stabilization measure the Company commenced operating the previously subleased Tara Facility. Accordingly, the Company now has two primary reporting segments: (i) Real Estate Services, which consists of the leasing and subleasing of long-term care and senior living facilities to third-party tenants, including the Company’s management of three facilities on behalf of third-party owners; and (ii) Healthcare Services, which consists of the operation of the Tara Facility.
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 September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
2021 |
|
|
2021 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2021 |
|
|
2021 |
|
|
2020 |
|
||||||||
(Amounts in 000’s) |
|
Real Estate Services |
|
|
Healthcare Services |
|
|
Total |
|
|
Real Estate Services |
|
|
Real Estate Services |
|
|
Healthcare Services |
|
|
Total |
|
|
Real Estate Services |
|
||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient care revenues |
|
$ |
— |
|
|
$ |
2,309 |
|
|
$ |
2,309 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
7,444 |
|
|
$ |
7,444 |
|
|
$ |
— |
|
Rental revenues |
|
|
4,136 |
|
|
|
— |
|
|
|
4,136 |
|
|
|
4,308 |
|
|
|
11,980 |
|
|
|
— |
|
|
|
11,980 |
|
|
|
12,898 |
|
Management fees |
|
|
248 |
|
|
|
— |
|
|
|
248 |
|
|
|
244 |
|
|
|
743 |
|
|
|
— |
|
|
|
743 |
|
|
|
732 |
|
Other revenues |
|
|
9 |
|
|
|
— |
|
|
|
9 |
|
|
|
215 |
|
|
|
84 |
|
|
|
— |
|
|
|
84 |
|
|
|
224 |
|
Total revenues |
|
|
4,393 |
|
|
|
2,309 |
|
|
|
6,702 |
|
|
|
4,767 |
|
|
|
12,807 |
|
|
|
7,444 |
|
|
|
20,251 |
|
|
|
13,854 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient care expense |
|
|
— |
|
|
|
2,454 |
|
|
|
2,454 |
|
|
|
— |
|
|
|
— |
|
|
|
6,911 |
|
|
|
6,911 |
|
|
|
— |
|
Facility rent expense |
|
|
1,342 |
|
|
|
298 |
|
|
|
1,640 |
|
|
|
1,640 |
|
|
|
4,026 |
|
|
|
893 |
|
|
|
4,919 |
|
|
|
4,919 |
|
Cost of management fees |
|
|
153 |
|
|
|
— |
|
|
|
153 |
|
|
|
161 |
|
|
|
468 |
|
|
|
— |
|
|
|
468 |
|
|
|
486 |
|
Depreciation and amortization |
|
|
645 |
|
|
|
6 |
|
|
|
651 |
|
|
|
694 |
|
|
|
1,942 |
|
|
|
11 |
|
|
|
1,953 |
|
|
|
2,239 |
|
General and administrative expense |
|
|
861 |
|
|
|
111 |
|
|
|
972 |
|
|
|
743 |
|
|
|
2,583 |
|
|
|
370 |
|
|
|
2,953 |
|
|
|
2,334 |
|
Doubtful accounts (recovery) expense |
|
|
(111 |
) |
|
|
111 |
|
|
|
— |
|
|
|
790 |
|
|
|
(111 |
) |
|
|
188 |
|
|
|
77 |
|
|
|
653 |
|
Other operating expenses |
|
|
199 |
|
|
|
5 |
|
|
|
204 |
|
|
|
109 |
|
|
|
670 |
|
|
|
9 |
|
|
|
679 |
|
|
|
630 |
|
Total expenses |
|
|
3,089 |
|
|
|
2,985 |
|
|
|
6,074 |
|
|
|
4,137 |
|
|
|
9,578 |
|
|
|
8,382 |
|
|
|
17,960 |
|
|
|
11,261 |
|
Income (loss) from operations |
|
|
1,304 |
|
|
|
(676 |
) |
|
|
628 |
|
|
|
630 |
|
|
|
3,229 |
|
|
|
(938 |
) |
|
|
2,291 |
|
|
|
2,593 |
|
Other expense (income) : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
666 |
|
|
|
3 |
|
|
|
669 |
|
|
|
692 |
|
|
|
2,010 |
|
|
|
12 |
|
|
|
2,022 |
|
|
|
2,091 |
|
Loss on extinguishment of debt |
|
|
(146 |
) |
|
|
— |
|
|
|
(146 |
) |
|
|
— |
|
|
|
(146 |
) |
|
|
— |
|
|
|
(146 |
) |
|
|
— |
|
Other expense, net |
|
|
122 |
|
|
|
— |
|
|
|
122 |
|
|
|
9 |
|
|
|
839 |
|
|
|
— |
|
|
|
839 |
|
|
|
144 |
|
Total other expense, net |
|
|
642 |
|
|
|
3 |
|
|
|
645 |
|
|
|
701 |
|
|
|
2,703 |
|
|
|
12 |
|
|
|
2,715 |
|
|
|
2,235 |
|
(Loss) income from continuing operations before income taxes |
|
|
662 |
|
|
|
(679 |
) |
|
|
(17 |
) |
|
|
(71 |
) |
|
|
526 |
|
|
|
(950 |
) |
|
|
(424 |
) |
|
|
358 |
|
(Loss) income from continuing operations |
|
|
662 |
|
|
$ |
(679 |
) |
|
$ |
(17 |
) |
|
$ |
(71 |
) |
|
|
526 |
|
|
$ |
(950 |
) |
|
$ |
(424 |
) |
|
$ |
358 |
|
Loss from discontinued operations, net of tax |
|
|
(22 |
) |
|
|
— |
|
|
|
(22 |
) |
|
|
(2 |
) |
|
|
(97 |
) |
|
|
— |
|
|
|
(97 |
) |
|
|
(33 |
) |
Net loss |
|
$ |
640 |
|
|
$ |
(679 |
) |
|
$ |
(39 |
) |
|
$ |
(73 |
) |
|
$ |
429 |
|
|
$ |
(950 |
) |
|
$ |
(521 |
) |
|
$ |
325 |
|
Total assets for the Real Estate Services segment and Healthcare Services segment were $104.6 million and $2.4 million (including $1.0 million Medicaid overpayment and is recorded in “Cash” in the Company’s consolidated balance sheets as of September 30, 2021), respectively, as of September 30, 2021.
31
NOTE 14. |
SUBSEQUENT EVENTS |
The Company has evaluated all subsequent events through the date the consolidated financial statements were issued and filed with the SEC.
Extension and Modification Agreement by and between Meadowood and the Exchange Bank of Alabama
On October 1, 2021, the Exchange Bank of Alabama and the Company extended the maturity date of the Meadowood Credit Facility (with a principal balance of $3.5 million) which is secured by the Meadowood Facility and the assets of Coosa, and which is guaranteed by Regional Health Properties, Inc., from May 1, 2022 to October 1, 2026. See Note – 2 Liquidity and Note 8 – Notes Payable and Other Debt for further information.
Claim on behalf of the Company’s Prior Tenant’s Former Patient after the Transition
On October 4, 2021, a medical negligence and wrongful death action was filed in the State Court of Gwinnett County, Georgia, by Bonnie L. Aquilino, Traci R. Randall, and Judy W. Sturgess against Wellington, other legal entities unaffiliated with the Company, the Company, and the Company’s Chief Executive Officer, on behalf of, and alleging the wrongful death and medical negligence of, a patient at the facility known as Thunderbolt Transitional Care and Rehabilitation. During the patient’s dates of service, the facility was subleased to Wellington (a third-party operator) by the Company and such facility was operated by Wellington. The plaintiff is seeking an amount in excess of $10,000 for professional malpractice and an unspecified amount for the full value of the life of the patient and other compensatory damages to be determined by jury trial. The Company is indemnified by Wellington in this action. The Company believes that this action lacks merit and the Company intends to take action most favorable to the Company. There is no guarantee that the Company will prevail in this action.
Fair Labor Standards Legal Complaint
On October 7, 2021, a violation of Fair Labor Standards action was filed in the District Court for the Southern District of Ohio, Western Division at Dayton, by Colleen Long against the Company and UVMC Nursing Care Inc. dba Koester Pavilion (the “Defendants”) on behalf of herself and all current and former non-exempt employees employed from approximately September 30, 2018 onwards (hereinafter the “Putative Class Members”) at a facility managed by the Company alleging Defendants have failed to pay all overtime wages due. The plaintiff is seeking an order certifying the Putative Class Members as an Ohio Class and designation of the plaintiff as representative for the Ohio Class. Additionally, the plaintiff is seeking, for Putative Class Members, back pay equal to the amount of all unpaid overtime pay for three years preceding October 7, 2021 plus an additional equal amount in liquidation damages, punitive damages of not less than $150.00 for each day the violation continued, an award of 6% of the total unpaid wages or $200.00 for each instance of failure to pay wages owed within thirty days, whichever is greater, attorney’s fees and costs, and any other relief the plaintiff is entitled to. The Company intends to take action most favorable to the Company. There is no guarantee that the Company will prevail in this action.
32
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward Looking Statements
This Quarterly Report and certain information incorporated herein by reference contain forward-looking statements and information within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This information includes assumptions made by, and information currently available to management, including statements regarding future economic performance and financial condition, liquidity and capital resources, and management’s plans and objectives. In addition, certain statements included in this Quarterly Report, in the Company’s future filings with the SEC, in press releases, and in oral and written statements made by us or with our approval, which are not statements of historical fact, are forward-looking statements. Words such as “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “seek,” “plan,” “project,” “continue,” “predict,” “will,” and other words or expressions of similar meaning are intended by us to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are based on the Company’s current expectations about future events or results and information that is currently available to us, involve assumptions, risks, and uncertainties, and speak only as of the date on which such statements are made.
All forward-looking statements are subject to the risks and uncertainties inherent in predicting the future. The Company’s actual results may differ materially from those projected, stated or implied in these forward-looking statements as a result of many factors, including the Company’s critical accounting policies and risks and uncertainties related to, but not limited to, the operating results of the Company’s tenants, the overall industry environment, the Company’s financial condition, and the impact of the COVID-19 pandemic on the Company’s business. These and other risks and uncertainties are described in more detail in the Annual Report and in Part II, Item 1A of this Quarterly Report, as well as other reports that the Company files with the SEC.
Forward-looking statements speak only as of the date they are made and should not be relied upon as representing the Company’s views as of any subsequent date. The Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by applicable laws, and you are urged to review and consider disclosures that the Company makes in this Quarterly Report and other reports that the Company files with the SEC that discuss factors germane to the Company’s business.
Overview
Regional Health, through its subsidiaries, is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living. Our business primarily consists of leasing and subleasing healthcare facilities to third-party tenants. As of September 30, 2021, the Company owned, leased or managed for third parties, or operated, 24 facilities, primarily in the Southeastern United States. Of the 24 facilities, the Company: (i) leased 10 skilled nursing facilities (which the Company owns) to third-party tenants, subleased eight skilled nursing facilities (which the Company leases) to third-party tenants, and operated, as of January 1, 2021 as a portfolio stabilization measure, one previously subleased skilled nursing facility (which the Company leases); (ii) leased two assisted living facilities (which the Company owns) to third-party tenants; and (iii) managed, on behalf of third-party owners, two skilled nursing facilities and one independent living facility. Accordingly, as of January 1, 2021, the Company has two primary reporting segments, Real Estate Services and Healthcare Services.
Effective January 1, 2021, pursuant to the Wellington Lease Termination for two SNFs located in Georgia with affiliates of Wellington, the Company, as a portfolio stabilization measure, commenced operating the previously subleased Tara Facility and entered into a new sublease agreement with an affiliate of Empire for the Powder Springs Facility. The Company had entered into the Vero Management Agreement with Vero Health under which Vero Health provided management consulting services for the Tara Facility, which the Company now operates. On September 21, 2021, the Company notified Vero Health of Regional’s intention to terminate the Vero Management Agreement, effective October 1, 2021. Regional will continue to operate the Tara Facility and has entered into the Peach Management Agreement with Peach, dated as of September 22, 2021 and effective October 1, 2021, to provide management consulting services for the Tara Facility. Affiliates of Peach also lease from Regional three facilities located in Georgia. The fixed Management fee Regional will pay Peach is 1% less than under the Vero Management Agreement, with additional percentages for meeting specified performance targets. See Note 6 – Leases located in Part I, Item 1, “Financial Statements”, of this Quarterly Report, and Note 6 – Leases in Part II, Item 8, “Financial Statements and Supplemental Data” in the Company’s Annual Report, for a more detailed description of the Company’s leases.
The operators of the Company’s facilities provide a range of health care and related services to patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.
33
Risks and Uncertainties
While the Company is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living, the Company, when business conditions require, may undertake portfolio stabilization measures, such as operating a previously leased facility. On January 1, 2021, following the Wellington Transition, the Company commenced operating the Tara Facility, which facility comprises approximately 5.0% of the total amount of the Company’s licensed patient beds. This portfolio stabilization measure exposes the Company directly to all the risks our tenants face as discussed in this “Risk and Uncertainties” section.
On March 11, 2020, the World Health Organization declared the outbreak of the respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, also known as COVID-19, a global pandemic. The COVID-19 pandemic has led governments and other authorities in the United States to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The COVID-19 pandemic and the measures to protect its spread have adversely affected our business during the nine months ended September 30, 2021, and we expect it will continue to adversely affect our business in the quarter ending December 31, 2021 and beyond, for a variety of reasons, including those discussed below and elsewhere in this Quarterly Report.
As of October 29, 2021, the Company is aware that each of our facilities has reported one or more positive cases of COVID-19 among the residents and/or operator employee populations. Many of our operators have reported incurring significant cost increases as a result of the COVID-19 pandemic, with dramatic increases for facilities with positive cases. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of personal protective equipment, testing equipment, processes and supplies. In terms of occupancy levels, many of our operators have reported experiencing declines, in part due to the elimination or suspension of elective hospital procedures, fewer discharges from hospitals to SNFs, and higher hospital re-admittances from SNFs.
The COVID-19 pandemic may also lead to temporary closures of nursing facilities, operated by our tenants, which also may affect our tenants’ ability to make their rental payments to us pursuant to their respective lease agreements. In addition, our tenants’ operations could be further disrupted if any of their employees, or the employees of their vendors, have, or are suspected of having, COVID-19. This could cause, and in some cases has already caused, our tenants or their vendors to experience staffing shortages, and this could potentially require our tenants and their vendors to close parts of or entire facilities, distribution centers, or other buildings to disinfect any affected areas.
We could also be adversely affected if government authorities impose upon our tenants, or their vendors, certain restrictions due to the COVID-19 pandemic. These restrictions may be in the form of mandatory closures, requested voluntary closures, bans on new admissions, restricted operations, or restrictions on the importation of necessary equipment or supplies which may adversely affect our tenants’ operations and their ability to make rental payments to us moving forward. In addition, family members may elect to keep nursing facility residents at home during the COVID-19 pandemic, thus reducing our tenants’ revenue. Currently, a number of our tenants have stopped admitting new patients due to rising COVID-19 infections which has resulted in decreased revenues.
As a result of the COVID-19 pandemic, our tenants may face lawsuits for alleged negligence associated with their responses to the emergency. The costs associated with defending, settling, or paying damages from such claims could negatively impact our tenants’ operating budgets and affect their ability to meet their obligations under our leases. Further, we may be subject to increased lawsuits arising out of our alleged actions or the alleged actions of our tenants for which they have agreed to indemnify, defend and hold us harmless. An unfavorable resolution of any such pending or future litigation could materially adversely affect us. The Company is not aware of any such lawsuits against our tenants.
If our tenants are unable to make rental payments to us pursuant to their lease obligations, whether due to the tenants’ decrease in revenues or otherwise, then, in some cases, we may be forced to either attempt to replace the tenants or restructure the tenants’ long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place.
While the Company has received approximately 97% of its anticipated fixed monthly rental receipts from tenants for the three and nine months ended September 30, 2021, there are a number of uncertainties the Company faces as it considers the potential impact of COVID-19 on its business, including the length of census disruption, elevated COVID-19 operating costs related to personal protection equipment, cleaning supplies, virus testing and increased overtime due to staff illness.
On November 5, 2021, the CMS published COVID-19 Health Care Staff Vaccination requirements that most Medicare- and Medicaid-certified providers and suppliers must meet in order to participate in the Medicare and Medicaid programs. This emergency regulation was effective immediately and requires employees at Medicare and Medicaid-participating facilities and
34
employers with more than 100 employees to be vaccinated. Some states have also issued their own orders to employers and healthcare providers that may or may not align with federal directives. The legality of both federal and state vaccine mandates will likely be decided by the courts. Until pending laws and regulations related to vaccine mandates are both finalized and adjudicated, our tenants will continue to manage in different ways, from mandating vaccines for all employees to waiting to see how the issue is ultimately resolved. The mandates, as presently written, may cause disruption to tenants’ operations if employees refuse vaccination and are terminated, and our tenants are not able to replace them in a timely manner or experience increased costs to do so.
To help offset these costs as well as occupancy declines, various relief programs have been enacted by federal and state governments, which have provided, and we expect will continue to provide, some payments to our tenants, subject to the programs’ respective terms and conditions. The CARES Act established a grant program administered by the HHS under which Provider Relief Funds have been made available. In early November 2021, the HHS closed the application portal for its Phase 4 allocation of approximately $17 billion of Provider Relief Funds and an allocation of approximately $8.5 billion in American Rescue Plan resources for providers serving patients living in rural areas. We expect that our tenants pursued additional funding from these allocations, and will pursue any future funding that may become available, though there can be no assurance that our tenants will qualify for, or receive, any Phase 4 or American Rescue Plan, or any future, funding.
We also do not know the number of facilities that will ultimately experience widespread, high-cost outbreaks of COVID-19. While we have requested reporting case numbers from our operators and CMS has required additional reporting by operators, we may not receive accurate information on the number of cases, which could result in a delay in reporting. We expect to see continued increased clinical protocols for infection control within facilities and increased monitoring of employees, guests and other individuals entering facilities; however, we do not yet know if future reimbursement rates in combination with the various relief programs that have been made available will be sufficient to cover the increased costs of enhanced infection control and monitoring. The extent of the COVID-19 pandemic’s effect on our and our operators’ operational and financial performance will depend on future developments, including the ultimate duration, spread and intensity of the outbreak, which may depend on factors such as the development and implementation of an effective vaccine and treatments for COVID-19, government funds and other support for the senior care sector and the efficacy of other policies and measures that may mitigate the impact of the pandemic, all of which are uncertain and difficult to predict. Due to these uncertainties, we are unable at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.
35
Portfolio
The following table provides summary information regarding the number of facilities and related licensed beds/units as of September 30, 2021:
|
|
Owned |
|
|
Leased |
|
|
Leased Operating |
|
|
Managed for Third Parties |
|
|
Total |
|
|||||||||||||||||||||||||
|
|
Facilities |
|
|
Beds/Units |
|
|
Facilities |
|
|
Beds/Units |
|
|
Facilities |
|
|
Beds/Units |
|
|
Facilities |
|
|
Beds/Units |
|
|
Facilities |
|
|
Beds/Units |
|
||||||||||
State |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama |
|
|
2 |
|
|
|
230 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
230 |
|
Georgia |
|
|
3 |
|
|
|
395 |
|
|
|
7 |
|
|
|
750 |
|
|
|
1 |
|
|
|
134 |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
|
|
1,279 |
|
North Carolina |
|
|
1 |
|
|
|
106 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
106 |
|
Ohio |
|
|
4 |
|
|
|
291 |
|
|
|
1 |
|
|
|
99 |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
332 |
|
|
|
8 |
|
|
|
722 |
|
South Carolina |
|
|
2 |
|
|
|
180 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
180 |
|
Total |
|
|
12 |
|
|
|
1,202 |
|
|
|
8 |
|
|
|
849 |
|
|
|
1 |
|
|
|
134 |
|
|
|
3 |
|
|
|
332 |
|
|
|
24 |
|
|
|
2,517 |
|
Facility Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Skilled Nursing |
|
|
10 |
|
|
|
1,016 |
|
|
|
8 |
|
|
|
849 |
|
|
|
1 |
|
|
|
134 |
|
|
|
2 |
|
|
|
249 |
|
|
|
21 |
|
|
|
2,248 |
|
Assisted Living |
|
|
2 |
|
|
|
186 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
186 |
|
Independent Living |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
83 |
|
|
|
1 |
|
|
|
83 |
|
Total |
|
|
12 |
|
|
|
1,202 |
|
|
|
8 |
|
|
|
849 |
|
|
|
1 |
|
|
|
134 |
|
|
|
3 |
|
|
|
332 |
|
|
|
24 |
|
|
|
2,517 |
|
The following table provides summary information regarding the number of facilities and related licensed beds/units by operator affiliation as of September 30 2021:
Operator Affiliation |
|
Number of Facilities (1) |
|
|
Beds / Units |
|
||
C.R. Management |
|
|
6 |
|
|
|
689 |
|
Aspire |
|
|
5 |
|
|
|
390 |
|
Peach Health Group |
|
|
3 |
|
|
|
266 |
|
Symmetry Healthcare |
|
|
2 |
|
|
|
180 |
|
Beacon Health Management |
|
|
2 |
|
|
|
212 |
|
Vero Health Management |
|
|
1 |
|
|
|
106 |
|
Empire (2) |
|
|
1 |
|
|
|
208 |
|
Subtotal |
|
|
20 |
|
|
|
2,051 |
|
Regional Health Managed |
|
|
3 |
|
|
|
332 |
|
Regional Health Operated (3) |
|
|
1 |
|
|
|
134 |
|
Total |
|
|
24 |
|
|
|
2,517 |
|
(1) |
Represents the number of facilities leased or subleased to separate tenants, of which each tenant is an affiliate of the entity named in the table above. For a more detailed discussion, see Note 6 – Leases located in Part I, Item 1, “Financial Statements”, of this Quarterly Report; Note 6 – Leases in Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report; and “Portfolio of Healthcare Investments” included in Part I, Item 1, “Business” included in the Annual Report. |
(2) |
Effective January 1, 2021, the Company entered into the PS Sublease with an affiliate of Empire for the Powder Springs Facility. See Note 6 – Leases in Part I, Item 1, “Financial Statements (unaudited)” in this Quarterly Report. |
(3) |
Effective January 1, 2021, Regional began operating the Tara Facility and entered into the Vero Management Agreement with Vero Health under which Vero Health provided management consulting services for the Tara Facility. On September 21, 2021, the Company notified Vero Health of Regional’s intention to terminate the Vero Management Agreement, effective October 1, 2021. Regional will continue to operate the Tara Facility and has entered into the Peach Management Agreement with Peach, dated as of September 22, 2021 and effective October 1, 2021, to provide management consulting services for the Tara Facility. |
36
Portfolio Occupancy Rates
The following table provides summary information regarding our portfolio facility-level occupancy rates for the periods shown:
|
|
For the Twelve Months Ended |
|
|||||||||||||
Operating Metric (1) |
|
December 31, 2020 |
|
|
March 31, 2021 |
|
|
June 30, 2021 |
|
|
September 30, 2021 |
|
||||
Occupancy (%) |
|
|
67.3 |
% |
|
|
68.6 |
% |
|
|
67.7 |
% |
|
|
66.7 |
% |
(1) |
Excludes three managed facilities in Ohio. |
Lease Expiration
The following table provides summary information regarding our lease expirations for the years shown as of September 30, 2021:
|
|
|
|
|
|
Licensed Beds |
|
|
Annual Lease Revenue (1) |
|
||||||||||
|
|
Number of Facilities |
|
|
Amount |
|
|
Percent (%) |
|
|
Amount '000's |
|
|
Percent (%) |
|
|||||
2023 |
|
|
1 |
|
|
|
62 |
|
|
|
3.0 |
% |
|
$ |
263 |
|
|
|
1.9 |
% |
2024 |
|
|
1 |
|
|
|
126 |
|
|
|
6.1 |
% |
|
|
965 |
|
|
|
6.8 |
% |
2025 |
|
|
2 |
|
|
|
269 |
|
|
|
13.1 |
% |
|
|
2,219 |
|
|
|
15.6 |
% |
2026 |
|
|
— |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
— |
|
|
|
0.0 |
% |
2027 |
|
|
7 |
|
|
|
750 |
|
|
|
36.6 |
% |
|
|
5,241 |
|
|
|
36.9 |
% |
2028 |
|
|
4 |
|
|
|
328 |
|
|
|
16.0 |
% |
|
|
2,352 |
|
|
|
16.6 |
% |
2029 |
|
|
1 |
|
|
|
106 |
|
|
|
5.2 |
% |
|
|
538 |
|
|
|
3.8 |
% |
Thereafter |
|
|
4 |
|
|
|
410 |
|
|
|
20.0 |
% |
|
|
2,603 |
|
|
|
18.4 |
% |
Total |
|
|
20 |
|
|
|
2,051 |
|
|
|
100.0 |
% |
|
$ |
14,181 |
|
|
|
100.0 |
% |
(1) |
Straight-line rent. |
Acquisitions and Divestitures
There were no acquisitions or divestitures during the three and nine months ended September 30, 2021 or September 30, 2020.
For historical information regarding the Company’s acquisitions and divestitures, see Note 9 – Acquisitions and Dispositions and Note 10 – Discontinued Operations Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report.
Critical Accounting Policies
We prepare our financial statements in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Article 8 of Regulation S-X. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. On an ongoing basis, we review our judgments and estimates, including, but not limited to, those related to doubtful accounts, income taxes, stock compensation, intangible assets and loss contingencies. We base our estimates on historical experience, business knowledge and on various other assumptions that we believe to be reasonable under the circumstances at the time. Actual results may vary from our estimates. These estimates are evaluated by management and revised as circumstances change.
For a discussion of our critical accounting policies, see Note 1 – Organization and Significant Accounting Policies to the Company's Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report.
37
Results of Operations
The following table sets forth, for the periods indicated, an unaudited statement of operations items and the amounts and percentages of change of these items. The results of operations for any particular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our consolidated financial statements and the notes thereto, which are included herein.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
||||||||||||||||||
(Amounts in 000’s) |
|
2021 |
|
|
2020 |
|
|
Percent Change (*) |
|
|
2021 |
|
|
2020 |
|
|
Percent Change (*) |
|
|
||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient care revenues |
|
$ |
2,309 |
|
|
$ |
— |
|
|
NM |
|
|
$ |
7,444 |
|
|
$ |
— |
|
|
NM |
|
|
||
Rental revenues |
|
|
4,136 |
|
|
|
4,308 |
|
|
|
(4.0 |
)% |
|
|
11,980 |
|
|
|
12,898 |
|
|
|
(7.1 |
)% |
|
Management fees |
|
|
248 |
|
|
|
244 |
|
|
|
1.6 |
% |
|
|
743 |
|
|
|
732 |
|
|
|
1.5 |
% |
|
Other revenues |
|
|
9 |
|
|
|
215 |
|
|
|
(95.8 |
)% |
|
|
84 |
|
|
|
224 |
|
|
|
(62.5 |
)% |
|
Total revenues |
|
|
6,702 |
|
|
|
4,767 |
|
|
|
40.6 |
% |
|
|
20,251 |
|
|
|
13,854 |
|
|
|
46.2 |
% |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient care expense |
|
|
2,454 |
|
|
|
— |
|
|
NM |
|
|
|
6,911 |
|
|
|
— |
|
|
NM |
|
|
||
Facility rent expense |
|
|
1,640 |
|
|
|
1,640 |
|
|
|
0.0 |
% |
|
|
4,919 |
|
|
|
4,919 |
|
|
|
0.0 |
% |
|
Cost of management fees |
|
|
153 |
|
|
|
161 |
|
|
|
(5.0 |
)% |
|
|
468 |
|
|
|
486 |
|
|
|
(3.7 |
)% |
|
Depreciation and amortization |
|
|
651 |
|
|
|
694 |
|
|
|
(6.2 |
)% |
|
|
1,953 |
|
|
|
2,239 |
|
|
|
(12.8 |
)% |
|
General and administrative expenses |
|
|
972 |
|
|
|
743 |
|
|
|
30.8 |
% |
|
|
2,953 |
|
|
|
2,334 |
|
|
|
26.5 |
% |
|
Doubtful accounts expense |
|
|
— |
|
|
|
790 |
|
|
|
(100.0 |
)% |
|
|
77 |
|
|
|
653 |
|
|
|
(88.2 |
)% |
|
Other operating expenses |
|
|
204 |
|
|
|
109 |
|
|
|
87.2 |
% |
|
|
679 |
|
|
|
630 |
|
|
|
7.8 |
% |
|
Total expenses |
|
|
6,074 |
|
|
|
4,137 |
|
|
|
46.8 |
% |
|
|
17,960 |
|
|
|
11,261 |
|
|
|
59.5 |
% |
|
Income from operations |
|
|
628 |
|
|
|
630 |
|
|
|
(0.3 |
)% |
|
|
2,291 |
|
|
|
2,593 |
|
|
|
(11.6 |
)% |
|
Other expense (income) : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
669 |
|
|
|
692 |
|
|
|
(3.3 |
)% |
|
|
2,022 |
|
|
|
2,091 |
|
|
|
(3.3 |
)% |
|
Gain on extinguishment of debt |
|
|
(146 |
) |
|
|
— |
|
|
NM |
|
|
|
(146 |
) |
|
|
- |
|
|
NM |
|
|
||
Other expense, net |
|
|
122 |
|
|
|
9 |
|
|
NM |
|
|
|
839 |
|
|
|
144 |
|
|
NM |
|
|
||
Total other expense, net |
|
|
645 |
|
|
|
701 |
|
|
|
(8.0 |
)% |
|
|
2,715 |
|
|
|
2,235 |
|
|
|
21.5 |
% |
|
(Loss) income from continuing operations before income taxes |
|
|
(17 |
) |
|
|
(71 |
) |
|
|
(76.1 |
)% |
|
|
(424 |
) |
|
|
358 |
|
|
|
(218.4 |
)% |
|
(Loss) income from continuing operations |
|
|
(17 |
) |
|
|
(71 |
) |
|
|
(76.1 |
)% |
|
|
(424 |
) |
|
|
358 |
|
|
|
(218.4 |
)% |
|
Loss from discontinued operations, net of tax |
|
|
(22 |
) |
|
|
(2 |
) |
|
NM |
|
|
|
(97 |
) |
|
|
(33 |
) |
|
|
193.9 |
% |
|
|
Net loss |
|
$ |
(39 |
) |
|
$ |
(73 |
) |
|
|
(46.6 |
)% |
|
$ |
(521 |
) |
|
$ |
325 |
|
|
|
(260.3 |
)% |
|
* |
Not meaningful (“NM”). |
Three Months Ended September 30, 2021 and 2020
Patient care revenues—Patient care revenues for our new Healthcare Services segment, as a result of the Company operating the Tara Facility, were $2.3 million for the three months ended September 30, 2021, which due to lower occupancy in the current year, is approximately 21.5% less than the prior year financials we received from the prior Wellington affiliated operator.
38
Rental revenues—Rental revenue for our Real Estate Services segment decreased by approximately $0.2 million, or 4.0%, to $4.1 million for the three months ended September 30, 2021, compared with $4.3 million for the same period in 2020. The decrease reflects an approximately $0.9 million decrease in straight-line rent due to the Wellington Lease Termination, approximately $0.5 million and $0.4 million recognized for the three months ended September 30, 2020 for the Powder Springs Facility and the Tara Facility, respectively, partially offset by approximately $0.2 million straight-line rent and approximately $0.5 million variable rent recognized from the Powder Springs Facility under a new sublease with an affiliate of Empire in the current period. For further information see Note 6 – Leases to our consolidated financial statements in Part I, Item 1, “Financial Statements (unaudited)” in this Quarterly Report.
Other revenues—Other revenues for our Real Estate Services segment decreased by approximately $0.2 million for the three months ended September 30, 2021, compared to the same period in 2020. This decrease is due to the previously deferred interest earned on the Peach Line pursuant to the Peach Line modification in the prior year quarter and the Peach Health Sublessees repaying its third-party Peach Working Capital Facility, to which the Peach Line was subordinated
Patient care expense—Patient care expense was $2.5 million for the three months ended September 30, 2021. The current period expense, which required an increased utilization of agency staffing, is due to the costs of operating the Tara Facility in our new Healthcare Services reporting segment.
* |
Not meaningful (“NM”). |
General and administrative expenses— General and administrative expenses increased by approximately $0.3 million, or 30.8%, to $1.0 million for the three months ended September 30, 2021, compared with $0.7 million for the same period in 2020. The increase is driven by $0.2 million of non-cash stock compensation for the issuance of restricted share awards for employees and executive officers and $0.1 million incurred per the Vero Management Agreement, in our Healthcare Services segment, which provides remuneration to Vero of 5.0% of our Patient care revenues (net of contractual allowances) to provide management consulting services for the Tara Facility.
Doubtful accounts expense— The current period expense is due to approximately $0.1 million provision for doubtful accounts in our Healthcare Services segment partially offset by approximately $0.1 million of Wellington rent receivable cash collections in excess of our prior year provision for non-payment of rent in our Real Estate Services segment. The prior period expense is related to the provision for non-payment of rent by Wellington.
Other operating expenses — Other operating expenses increased by approximately $0.1 million or 87.2%, to $0.2 million for the three months ended September 30, 2021, compared with $0.1 million for the same period in 2020. The increase is due to the reversal of a provision for bed taxes related to the Peach Line modification in the prior year quarter.
Gain on extinguishment of debt— Gain on extinguishment of debt is due to the PPP Loan debt forgiveness of $0.2 million partially offset by $0.1 million of deferred financing fees from the extinguishment of the Coosa MCB Loan.
Other expense (income), net— Other expense (income), net increased by approximately $0.1 million, to $0.1 million, for the three months ended September 30, 2021. These expenses are related to professional and legal services to evaluate and assist with possible opportunities to improve the Company’s capital structure.
Nine Months Ended September 30, 2021 and 2020
Patient care revenues—Patient care revenues for our new Healthcare Services segment, as a result of the Company operating the Tara Facility, were $7.4 million for the nine months ended September 30, 2021, which due to lower occupancy in the current year, is approximately 15.1% less than the prior year financials we received from the prior Wellington affiliated operator.
Rental revenues—Rental revenue for our Real Estate Services segment, decreased by approximately $0.9 million, or 7.1%, to $12.0 million for the nine months ended September 30, 2021, compared with $12.9 million for the same period in 2020. The decrease reflects approximately $2.8 million decrease in straight-line rent due to the Wellington Lease Termination, $1.5
39
million and $1.3 million recognized for the nine months ended September 30, 2020 for the Powder Springs Facility and the Tara Facility respectively, partially offset by $0.9 million straight-line rent and approximately $1.0 million variable rent recognized from the Powder Springs Facility under a new sublease with an affiliate of Empire in the current period. For further information see Note 6 – Leases to our consolidated financial statements in Part I, Item 1, “Financial Statements (unaudited)” in this Quarterly Report.
Other revenues—Other revenue for our Real Estate Services segment decreased by approximately $0.1 million, for the nine months ended September 30, 2021, compared to the same period in 2020. This decrease is due to recognition of the Symmetry Payment Plan fees and interest earned on the Peach Line, which had previously been deferred due to the Peach Line’s subordination to the Peach Health Sublessees third-party Peach Working Capital Facility until its repayment in the prior year.
Patient care expense—Patient care expense was $6.9 million for the nine months ended September 30, 2021. The current year expense is due to the costs of operating the Tara Facility in our new Healthcare Services reporting segment.
Depreciation and amortization—Depreciation and amortization for our Real Estate Services segment decreased by approximately $0.2 million, or 12.8%, to $2.0 million for the nine months ended September 30, 2021, compared with $2.2 million for the same period in 2020. This decrease is mainly due to the full depreciation of certain building improvements and equipment and computer related assets.
* |
Not meaningful (“NM”). |
General and administrative expenses— General and administrative expenses increased by approximately $0.7 million, or 26.5%, to $3.0 million for the nine months ended September 30, 2021, compared with $2.3 million for the same period in 2020. The increase is driven by $0.3 million of non-cash stock compensation for the issuance of restricted share awards for employees and approximately $0.4 million incurred per the Vero Management Agreement, in our Healthcare Services segment, which provides remuneration to Vero of 5.0% of our Patient care revenues (net of contractual allowances) to provide management consulting services for the Tara Facility.
Doubtful accounts expense— The current period expense is due to a $0.2 million provision for doubtful accounts in our Healthcare Services segment partially offset by approximately $0.1 million of Wellington rent receivable cash collections in excess of our prior year provision for non-payment of rent in our Real Estate Services segment. The prior period expense is related to a $0.9 million provision of outstanding rent arrears from Wellington, offset by $0.2 million related to the collection of amounts owed to the Company under tenant payment plans previously not considered collectible.
Other operating expenses — Other operating expenses increased by approximately $0.1 million or 7.8%, to $0.7 million for the nine months ended September 30, 2021, compared with $0.6 million for the same period in 2020. The increase is due to the reversal of a provision for bed taxes related to the Peach Line modification in the prior year quarter.
Gain on extinguishment of debt— Gain on extinguishment of debt is due to the PPP Loan debt forgiveness of $0.2 million partially offset by $0.1 million of deferred financing fees from the extinguishment of the Coosa MCB Loan.
Other expense, net— Other expense, net increased by approximately $0.7 million, to $0.8 million, for the nine months ended September 30, 2021, compared with $0.1 million for the same period in 2020. These expenses in both years are related to professional and legal services to evaluate and assist with possible opportunities to improve the Company’s capital structure.
For further information on the Tara Facility performance, see Note 13 – Segment Results to the Company’s consolidated financial statements located in Part I, Item 1, Notes to Consolidated Financial Statements”, of this Quarterly Report.
Liquidity and Capital Resources
Overview
The Company intends to pursue measures to grow its operations, streamline its cost infrastructure and otherwise increase liquidity, including: (i) refinancing or repaying debt to reduce interest costs and mandatory principal repayments, with such
40
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 September 30, 2021, the Company had $6.2 million in unrestricted cash, including a Medicaid overpayment of $1.0 million received on September 30, 2021, which the Company expects to repay in the near future and is recorded in “Accrued Expenses” in the Company’s consolidated balance sheets as of September 30, 2021. During the nine months ended September 30, 2021, the Company generated positive cash flow from continuing operations of $4.3 million and anticipates continued positive cash flow from operations in the future, subject to the continued uncertainty of the COVID-19 pandemic and its impact on the Company’s business, financial condition and results of operations.
As of December 31, 2020, Regional recorded an estimated allowance of $1.4 million against a rent receivable of $2.7 million from the Wellington Tenants. During the three months ended September 2021, the Company recorded $0.1 million in debt recovery due to collections exceeding our December 31, 2020 estimated allowance. During the nine months ended September 30, 2021, the Company collected $3.3 million pursuant to the Wellington Lease Termination (excluding $0.2 million insurance refund) and paid $1.0 million to partially satisfy the Wellington Lease Termination obligation of approximately of $1.7 million of bed taxes in arrears and $0.1 million in collection expenses. The Company provides no assurance that we will be able to collect any of the additional $1.2 million in rent arrears in excess of the net $1.5 million already collected.
During the three and nine months ended September 30, 2021, the Company recognized approximately $0.5 million and $1.0 million respectively, of variable rent for the Powder Springs Facility and, as of the date of filing this Quarterly Report, has collected all of such variable rent replacing approximately $1.5 million of cash rent previously anticipated from the Wellington Tenant. The Tara Facility operations performance during the three and nine months ended September 30, 2021 has been insufficient to cover any of the rent the Company is obligated to pay under its lease. On January 1, 2021, the Company had entered into the Vero Management Agreement with Vero Health under which Vero Health provided management consulting services for the Tara Facility, which the Company now operates. On September 21, 2021, the Company notified Vero Health, of Regional’s intention to terminate the Vero Management Agreement, effective October 1, 2021. Regional will continue to operate the Tara Facility and has entered into the Peach Management Agreement with Peach dated as of September 22, 2021 and effective October 1, 2021 to provide management consulting services for the Tara Facility. Affiliates of Peach also lease from Regional three facilities located in Georgia. The fixed Management fee Regional will pay Peach is 1% less than under the Vero Management Agreement with additional percentages for meeting specified performance targets. For further information on the Peach Management Agreement see Note 8 – Leases and Note 13 – Segment Results to the Company’s consolidated financial statements located in Part I, Item 1, Notes to Consolidated Financial Statements”, of this Quarterly Report.
Debt Extinguishment. On August 13, 2021, the Company received official notification from FountainHead Commercial Capital, providers of our $0.2 million Paycheck Protection Program Loan (“PPP Loan), that the full $0.2 million was forgiven by the SBA on July 9, 2021.
As of September 30, 2021, the Company had $53.4 million in indebtedness, net of $1.3 million deferred financing, and unamortized discounts. The Company anticipates net principal repayments of approximately $2.0 million during the next twelve-month period, approximately $1.3 million of routine debt service amortization, $0.6 million of current maturities of other debt (including $0.1 million related to insurance financing for the Tara Facility operations), and a $0.1 million payment of bond debt.
On September 30, 2021, the Company and the Exchange Bank of Alabama executed a $5.1 million Promissory Note with a 3.95% annual fixed interest rate and maturity date of October 10, 2026. The Coosa Credit Facility refinanced $5.1 million prime + 1.5% variable interest rate debt owed to Metro City Bank with a maturity date of January 31, 2036. The Coosa Credit Facility is secured by the assets of Coosa, which includes the Coosa Facility and the assets of Meadowood which includes the Meadowood Facility. The Company incurred approximately $0.1 million in new deferred financing fees and expensed approximately $0.1 million deferred financing fees associated with the Coosa MCB Loan.
Consequently the Company recorded a net gain of approximately $0.1 million on extinguishment of debt during the three months ended September 30, 2021, being $0.2 million gain on forgiveness of the PPP Loan partially offset by $0.1 million of expensed deferred financing fees associated with the extinguishment of the Coosa MCB Loan.
Debt Modification. In conjunction with the September 30, 2021 Coosa Facility refinance, the Company and the Exchange Bank of Alabama executed the Meadowood Credit Facility that extended the maturity date on $3.5 million Meadowood Credit
41
Facility, as amended, in current senior debt secured by the assets of Coosa and the assets of Meadowood, other mortgage indebtedness from May 1, 2022 to October 1, 2026. Additionally on August 17, 2021, the Company extended the maturity date on approximately $0.5 million other debt from August 25, 2021 to August 25, 2023 (known as the “KeyBank Exit Notes”).
Company recorded a net gain of approximately $0.1 million on extinguishment of debt during the three months ended September 30, 2021, being $0.2 million gain on forgiveness of the PPP Loan partially offset by $0.1 million of expensed deferred financing fees associated with the extinguishment of the Coosa MCB Loan.
For further information, see Note 8 – Notes Payable and Other Debt to the Company’s consolidated financial statements located in Part I, Item 1, Notes to Consolidated Financial Statements”, of this Quarterly Report.
The Company is current with all of its Notes payable and other debt as described in Note 8 – Notes Payable and Other Debt, to the Company’s Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report. The Company has benefited from various, now expired, stimulus measures made available to it through the CARES Act enacted by Congress in response to the COVID-19 pandemic, which allowed for, among other things: (i) a deferral of debt service payments on USDA loans to maturity, (ii) an allowance for debt service payments to be made out of replacement reserve accounts for HUD loans, and (iii) debt service payments to be made by the SBA on all SBA loans.
In early 2020, the Company began on-going efforts to investigate alternatives to retire or refinance our outstanding debt of Series A Preferred Stock through privately negotiated transactions, open market repurchases, redemptions, exchange offers, tender offers, or otherwise. Costs associated with these efforts have been expensed as incurred in “Other expense, net” and were $0.9 million and $0.2 million for the nine months ended September 30, 2021 and September 30, 2020, respectively.
Debt Covenant Compliance
As of September 30, 2021, the Company was in compliance with the various financial and administrative covenants under the Company’s outstanding credit related instruments.
Series A Preferred Dividend Suspension
On June 8, 2018, the Board indefinitely suspended quarterly dividend payments with respect to the Series A Preferred Stock. As of September 30, 2021, as a result of the suspension of the dividend payment on the Series A Preferred Stock commencing with the fourth quarter 2017 dividend period, the Company has $34.6 million of undeclared preferred stock dividends in arrears. The Board believes that the dividend suspension will provide the Company with additional funds to meet, in part, its ongoing liquidity needs. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for more than four dividend periods, the annual dividend rate on the Series A Preferred Stock for the fifth and future missed dividend periods has increased to 12.875%, which is equivalent to $3.20 per share each year, commencing on the first day after the missed fourth quarterly payment (October 1, 2018) and continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash.
Evaluation of the Company’s Ability to Continue as a Going Concern
Under the accounting guidance related to the presentation of financial statements, the Company is required to evaluate, on a quarterly basis, whether or not the Company’s current financial condition, including its sources of liquidity at the date that the consolidated financial statements are issued, will enable the Company to meet its obligations as they come due arising within one year of the date of the issuance of the Company’s consolidated financial statements and to make a determination as to whether or not it is probable, under the application of this accounting guidance, that the Company will be able to continue as a going concern. The Company’s consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In applying applicable accounting guidance, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows, the Company’s obligations due over the next twelve months, and the Company’s recurring business operating expenses.
The Company concludes that it is probable that the Company will be able to meet its obligations arising within one year of the date of issuance of these consolidated financial statements within the parameters set forth in the accounting guidance.
42
For additional information regarding the Company’s liquidity, see Note 2 – Liquidity and Note 8 – Notes Payable and other debt, to the Company’s consolidated financial statements located in Part I, Item 1, Notes to Consolidated Financial Statements”, of this Quarterly Report.
Cash Flows
The following table presents selected data from our consolidated statements of cash flows for the periods presented:
|
|
Nine Months Ended September 30, |
|
|||||
(Amounts in 000’s) |
|
2021 |
|
|
2020 |
|
||
Net cash provided by operating activities - continuing operations |
|
$ |
4,307 |
|
|
$ |
1,933 |
|
Net cash used in operating activities - discontinued operations |
|
|
(195 |
) |
|
|
(1,017 |
) |
Net cash used in investing activities - continuing operations |
|
|
(119 |
) |
|
|
(209 |
) |
Net cash used in financing activities - continuing operations |
|
|
(1,859 |
) |
|
|
(999 |
) |
Net change in cash and restricted cash |
|
|
2,134 |
|
|
|
(292 |
) |
Cash and restricted cash at beginning of period |
|
|
7,492 |
|
|
|
8,038 |
|
Cash and restricted cash, ending |
|
$ |
9,626 |
|
|
$ |
7,746 |
|
Nine Months Ended September 30, 2021
Net cash provided by operating activities—continuing operations for the nine months ended September 30, 2021 was approximately $4.3 million, primarily due to changes in working capital, consisting of our collection of rent arrears from the Wellington Lease Termination and income from operations less noncash charges (primarily, depreciation and amortization and lease revenue in excess of cash rent received). The $2.4 million increase compared to the same period in the prior year includes $1.0 million Medicaid overpayment that the Company expects to repay shortly and reflects the collection of $3.3 million from the Wellington Lease Termination (excluding $0.2 million insurance refund), offset by payment of $1.0 million of bed tax in arrears for the Powder Springs Facility, $0.1 million of other collection expenses, approximately $0.4 million additional interest payments as result of the CARES ACT interest deferrals and additional net operating outflows of $0.6 million.
Net cash used in operating activities—discontinued operations for the nine months ended September 30, 2021 was approximately $0.2 million, excluding non-cash proceeds and payments. This amount was to fund legal and associated settlement costs related to our legacy professional and general liability claims and expenses related to and payment of legacy accounts payable.
Net cash used in investing activities—continuing operations for the nine months ended September 30, 2021 was approximately $0.1 million. This capital expenditure was for computer hardware, software and furniture and fixtures for the Tara Facility.
Net cash used in financing activities—continuing operations was approximately $1.9 million for the nine months ended September 30, 2021. This is the result of routine repayments totaling $1.0 million towards our senior debt obligations, $0.1 million repayment of the City of Springfield, Ohio First Mortgage Revenue Series 2012 B Bonds, and approximately $0.8 million toward our current insurance funding of other debt for the Tara Facility and our directors and officers insurance.
Nine Months Ended September 30, 2020
Net cash provided by operating activities—continuing operations for the nine months ended September 30, 2020 was approximately $1.9 million, consisting primarily of our income from operations less changes in working capital, and noncash charges (primarily, depreciation and amortization, and lease revenue in excess of cash rent). The Company received approximately a $0.4 million principal payment from Peach upon modification of the Peach Line, $0.5 million from rent arrears payment plans, and $0.2 million PPP loan proceeds, in addition to net operating inflows of approximately $0.8 million.
Net cash used in operating activities—discontinued operations for the nine months ended September 30, 2020 was approximately $1.0 million, excluding non-cash proceeds and payments. This amount was to fund legal and associated settlement costs related to our legacy professional and general liability claims and payment of legacy accounts payable.
Net cash used in investing activities—continuing operations for the nine months ended September 30, 2020 was approximately $0.2 million. This capital expenditure was for a new sprinkler system at one of our leased properties.
Net cash used in financing activities—continuing operations was approximately $1.0 million for the nine months ended September 30, 2020. This is the result of routine repayments totaling approximately $1.2 million towards our debt obligations, partially offset by receipt of $0.2 million proceeds from the PPP Loan.
43
Notes Payable and Other Debt
For information regarding the Company’s debt financings, see Note 8 – Notes Payable and Other Debt, to the Company’s Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report and Note 8 – Notes Payable and Other Debt to our audited consolidated financial statements included in Part II, Item 8., “Financial Statements and Supplementary Data” in the Annual Report.
Receivables
Our operations could be adversely affected if we experience further significant delays in receipt of rental income from our tenants.
As of September 30, 2021 and December 31, 2020, the Company reserved for approximately $0.1 million and $1.4 million, respectively, of uncollected receivables. Accounts receivable, net, totaled $1.9 million at September 30, 2021 and $2.1 million at December 31, 2020. For information regarding the Company’s Receivables, see Note 1 – Organization and Significant Accounting Policies, to the Company’s Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report.
Operating Leases
For information regarding the Company’s operating leases, see Note 6 – Leases, to the Company’s Notes to consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report, and Note 6 – Leases located in Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report.
Off-Balance Sheet Arrangements
Guarantee
On November 30, 2018, the Company subleased five facilities located in Ohio to the Aspire Sublessees, formerly affiliated with MSTC Development Inc., pursuant to the Aspire Subleases, whereby the Aspire Sublessees took possession of, and commenced operating, the Aspire Facilities as subtenant. The Aspire Subleases became effective on December 1, 2018 and are structured as triple net leases. The Company agreed to indemnify Aspire against any and all liabilities imposed on them as arising from the former operator, capped at $8.0 million. The Company has assessed the fair value of the indemnity agreements as not material to the financial statements at September 30, 2021.
For further information see Note 6 – Leases, to the Company’s Notes to consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report, and Note 6 – Leases located in Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report.
44
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk. |
Disclosure in response to Item 3. of Form 10-Q is not required to be provided by smaller reporting companies.
Item 4. |
Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report (the “Evaluation Date”). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
45
Part II. Other Information
Item 1. |
Legal Proceedings. |
The Company is a defendant in various legal actions and administrative proceedings arising in the ordinary course of business, including claims that the services the Company provided during the time it operated skilled nursing facilities resulted in injury or death to patients. Although the Company settles cases from time to time when settlement can be achieved on a reasonable basis, the Company vigorously defends any matter in which it believes the claims lack merit and the Company has a reasonable chance to prevail at trial or in arbitration. Litigation is inherently unpredictable. There is no assurance that the outcomes of these matters will not have a material adverse effect on the Company’s financial condition. Although arising in the ordinary course of the Company's business, certain of these matters are described in “Note 12 - Commitments and Contingencies – Professional and General Liability Claims” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report, which Note – 12 is incorporated herein by this reference.
The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgment unless settlement is more advantageous to the Company. See “Risks Related to Our Business - If we are unable to resolve our professional and general liability claims on terms acceptable to us, then it could have a material adverse effect on our business, financial condition and results of operation” in Part I, Item 1A, “Risk Factors.” in the Annual Report.
As of the date of filing of this Quarterly Report, the Company is a defendant in one professional and general liability action commenced on behalf of one of our former patients who received care at one of our facilities prior to the Transition. The plaintiff in this action alleges negligence due to failure to provide adequate and competent staff resulting in injuries, pain and suffering, mental anguish and malnutrition and seeks unspecified actual and compensatory damages, and unspecified punitive damages. This action is covered by insurance, except that any punitive damages awarded would be excluded from coverage.
Additionally, the Company is a defendant in one fair labor standards action. On October 7, 2021, a violation of Fair Labor Standards action was filed in the District Court for the Southern District of Ohio Western Division at Dayton, by Colleen Long against the Company and UVMC Nursing Care Inc. dba Koester Pavilion (the “Defendants”), on behalf of herself and all current and former non-exempt employees employed from approximately September 30, 2018 onwards (hereinafter the “Putative Class Members”), at a facility managed by the Company, alleging Defendants have failed to pay all overtime wages due. The plaintiff is seeking an order certifying the Putative Class Members as an Ohio Class and designation of the plaintiff as representative for the Ohio Class. Additionally, the plaintiff is seeking, for Putative Class Members, back pay equal to the amount of all unpaid overtime pay for three years preceding October 7, 2021 plus an additional equal amount in liquidation damages, punitive damages of not less than $150.00 for each day the violation continued, an award of 6% of the total unpaid wages or $200.00 for each instance of failure to pay wages owed within thirty days, whichever is greater, attorney’s fees and costs, and any other relief the plaintiff is entitled to. The Company intends to take action most favorable to the Company. There is no guarantee that the Company will prevail in this action.
As of the date of filing of this Quarterly Report, the Company is a defendant in an aggregate of 13 additional professional and general liability actions, including the action detailed below. These 13 additional professional and general liability actions set forth claims relating to time periods after the Transition, 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 on behalf of former patients of our current or prior tenants all relate to events which occurred after the Company transitioned the operations of the facilities in question to a third-party operator (and of which four such actions relate to events which occurred after the Company sold such facilities) and are subject to such operators’ indemnification obligations in favor of the Company. There is no assurance that our tenants will have sufficient assets, income, and access to financing and insurance coverage to enable them to satisfy their respective indemnification obligations.
On October 4, 2021, a medical negligence and wrongful death action was filed in the State Court of Gwinnett County, Georgia, by Bonnie L. Aquilino, Traci R. Randall, and Judy W. Sturgess against Wellington, other legal entities unaffiliated with the Company, the Company, and the Company’s Chief Executive Officer, on behalf of, and alleging the wrongful death and medical negligence of, a patient at the facility known as Thunderbolt Transitional Care and Rehabilitation. During the patient’s dates of service, the facility was subleased to Wellington (a third-party operator) by the Company, and such facility was operated by Wellington. The plaintiff is seeking an amount in excess of $10,000 for professional malpractice and an unspecified amount for the full value of the life of the patient and other compensatory damages to be determined by jury trial. The Company is indemnified by Wellington in this action. The Company believes that this action lacks merit and the Company intends to take action most favorable to the Company. There is no guarantee that the Company will prevail in this action.
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 at September 30, 2021 and
46
December 31, 2020, respectively. Additionally as of September 30, 2021 and December 31, 2020, $0.1 million and $0.1 million, respectively, 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 14 – Commitments and Contingencies in Part II, Item 8, “Financial Statements and Supplementary Data”, included in the Annual Report.
Item 1A. |
Risk Factors. |
For a detailed description of certain risk factors that could affect our business, operations and financial condition, see Part I, Item 1A., Risk Factors, included in the Annual Report, as supplemented and modified by the risk factors set forth below in this Item 1A. The risk factors described in the Annual Report and this Quarterly Report (collectively, the “Risk Factors”) do not describe all risks applicable to our business, and we intend it only as a summary of certain material factors. The Risk Factors should be considered in connection with evaluating the forward-looking statements contained in this Quarterly Report because the Risk Factors could cause the actual results and conditions to differ materially from those projected in forward-looking statements. If any of the risks actually occur, our business, financial condition, or results of operations could be negatively affected. In that case, the trading price of the common stock and Series A Preferred Stock could decline.
While the Company is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living, the Company, when business conditions require, may undertake portfolio stabilization measures, such as operating a previously leased facility. On January 1, 2021, following the Wellington Transition, the Company commenced operating the Tara Facility, which facility comprises approximately 5.0% of the total amount of the Company’s licensed patient beds. This portfolio stabilization measure exposes the Company directly to all the risks our tenants face as discussed in this “Risk Factors” section.
COVID-19 Global Pandemic
The COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows, and financial condition.
On March 11, 2020, the World Health Organization declared the outbreak of the respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, also known as COVID-19, a global pandemic. The COVID-19 pandemic has led governments and other authorities in the United States to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The COVID-19 pandemic and the measures to protect its spread have adversely affected our business during the nine months ended September 30, 2021, and we expect it will continue to adversely affect our business in the quarter ending December 31, 2021 and beyond, for a variety of reasons, including those discussed below and elsewhere in this Quarterly Report.
Our tenants’ operations have been, and we expect will continue to be, materially and adversely affected by the COVID-19 pandemic due to, among other things, decreased occupancy and increased operating costs (including costs due to the implementation of additional safety protocols and procedures, purchases of personal protective equipment, increased staffing to allow facilities to adhere to social distancing and infection control protocols, and premium pay and incentive pay for the staff), which may affect our tenants’ ability to make rental payments to us pursuant to their lease agreements.
The COVID-19 pandemic may also lead to temporary closures of nursing facilities, operated by our tenants, which also may affect our tenants’ ability to make their rental payments to us pursuant to their respective lease agreements. In addition, our tenants’ operations could be further disrupted if any of their employees, or the employees of their vendors, have, or are suspected of having, COVID-19. This could cause, and in some cases has already caused, our tenants or their vendors to experience staffing shortages, and this could potentially require our tenants and their vendors to close parts of or entire facilities, distribution centers, or other buildings to disinfect any affected areas.
We could also be adversely affected if government authorities impose upon our tenants, or their vendors, certain restrictions due to the COVID-19 pandemic. These restrictions may be in the form of mandatory closures, requested voluntary closures, bans on new admissions, restricted operations, or restrictions on the importation of necessary equipment or supplies which may adversely affect our tenants’ operations and their ability to make rental payments to us moving forward. In addition, family members may elect to keep nursing facility residents at home during the COVID-19 pandemic, thus reducing our tenants’ revenue. Currently, a number of our tenants have stopped admitting new patients due to rising COVID-19 infections which has resulted 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
47
indemnify, defend and hold us harmless. An unfavorable resolution of any such pending or future litigation could materially adversely affect us. The Company is not aware of any such lawsuits against our tenants.
If our tenants are unable to make rental payments to us pursuant to their lease obligations, whether due to the tenants’ decrease in revenues or otherwise, then, in some cases, we may be forced to either attempt to replace tenants or restructure tenants’ long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place.
While the Company has received approximately 97% of its anticipated monthly rental receipts from tenants for the nine months ended September 30, 2021, there are a number of uncertainties the Company faces as it considers the potential impact of COVID-19 on its business, including the length of census disruption, elevated COVID-19 operating costs related to personal protection equipment, cleaning supplies, virus testing and increased overtime due to staff illness.
On November 5, 2021, the CMS published COVID-19 Health Care Staff Vaccination requirements that most Medicare- and Medicaid-certified providers and suppliers must meet in order to participate in the Medicare and Medicaid programs. This emergency regulation was effective immediately and requires employees at Medicare and Medicaid-participating facilities and employers with more than 100 employees to be vaccinated. Some states have also issued their own orders to employers and healthcare providers that may or may not align with federal directives. The legality of both federal and state vaccine mandates will likely be decided by the courts. Until pending laws and regulations related to vaccine mandates are both finalized and adjudicated, our tenants will continue to manage in different ways — from mandating vaccines for all employees to waiting to see how the issue is ultimately resolved. The mandates, as presently written, may cause disruption to tenants’ operations if employees refuse vaccination and are terminated, and our tenants are not able to replace them in a timely manner or experience increased costs to do so.
To help offset these costs as well as occupancy declines, various relief programs have been enacted by federal and state governments, which have provided, and we expect will continue to provide, some payments to our tenants, subject to the programs’ respective terms and conditions. The CARES Act established a grant program administered by the HHS under which Provider Relief Funds have been made available. In early November 2021, the HHS closed the application portal for its Phase 4 allocation of approximately $17 billion of Provider Relief Funds and an allocation of approximately $8.5 billion in American Rescue Plan resources for providers serving patients living in rural areas. We expect that our tenants pursued additional funding from these allocations, and will pursue any future funding that may become available, though there can be no assurance that our tenants will qualify for, or receive, any Phase 4 or American Rescue Plan, or any future, funding.
We also do not know the number of facilities that will ultimately experience widespread, high-cost outbreaks of COVID-19. While we have requested reporting from operators of their numbers of cases and HHS and CMS has required additional reporting by operators, we may not receive accurate information on the number of cases, which could result in a delay in reporting. We expect to see continued increased clinical protocols for infection control within facilities and increased monitoring of employees, guests and other individuals entering facilities; however, we do not yet know if future reimbursement rates in combination with the various relief programs that have been made available will be sufficient to cover the increased costs of enhanced infection control and monitoring. The extent of the COVID-19 pandemic’s effect on our and our operators’ operational and financial performance will depend on future developments, including the ultimate duration, spread and intensity of the outbreak, which may depend on factors such as the development and implementation of an effective vaccine and treatments for COVID-19, government funds and other support for the senior care sector, and the efficacy of other policies and measures that may mitigate the impact of the pandemic, all of which are uncertain and difficult to predict. Due to these uncertainties, we are unable at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition, and cash flows could be material.
Risks Related to Our Capital Structure
We have substantial indebtedness, which may have a material adverse effect on our business and financial condition.
As of September 30, 2021, we had approximately $53.4 million, net of $1.3 million deferred financing and unamortized discounts, in indebtedness. We may also obtain additional short-term and long-term debt to meet future capital needs, subject to certain restrictions under our existing indebtedness, which would increase our total debt. Our substantial amount of debt could have negative consequences to our business. For example, it could:
|
• |
increase our vulnerability to general adverse economic and industry conditions or a downturn in our business; |
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• |
require us to dedicate a substantial portion of cash flows from operations to interest and principal payments on outstanding debt, thereby limiting the availability of cash flow for dividends and other general corporate purposes; |
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• |
require us to maintain certain debt coverage and other financial ratios at specified levels, thereby reducing our financial flexibility; |
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• |
make it more difficult for us to satisfy our financial obligations; |
48
|
• |
expose us to increases in interest rates for our variable rate debt; |
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• |
limit our ability to borrow additional funds on favorable terms, or at all, for working capital, debt service requirements, expansion of our business or other general corporate purposes; |
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• |
limit our ability to refinance all or a portion of our indebtedness on or before maturity on the same or more favorable terms, or at all; |
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• |
limit our flexibility in planning for, or reacting to, changes in our business and our industry; |
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• |
limit our ability to make acquisitions or take advantage of business opportunities as they arise; |
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• |
place us at a competitive disadvantage compared with our competitors that have less debt; and |
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limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity. |
In addition, our ability to borrow funds in the future will depend in part on the satisfaction of the covenants in our debt agreements. If we are unable to satisfy the financial covenants contained in those agreements, or are unable to generate cash sufficient to make required debt payments, the lenders and other parties to those arrangements could accelerate the maturity of some or all of our outstanding indebtedness.
49
We depend on affiliates of C.R Management and Aspire for a significant portion of our revenues and any inability or unwillingness by such entities to satisfy their obligations to us could have a material adverse effect on us.
As of the date of filing this Quarterly Report, our 20 properties (excluding the one facility operated by us and three facilities that are managed by us) are operated by a total of 20 separate tenants, with each of our tenants being affiliated with one of seven local or regionally-focused operators. We refer to our tenants who are affiliated with the same operator as a group of affiliated tenants. Each of our operators operate (through a group of affiliated tenants) between one and six of our facilities, with our most material operators, C.R Management and Aspire, each operating (through a group of affiliated tenants) six and five facilities, respectively. We therefore depend on tenants who are affiliated with C.R Management and Aspire for a significant portion of our revenues. We give no assurance that the tenants affiliated with C.R Management and Aspire will have sufficient assets, income and access to financing to enable them to make rental payments to us or to otherwise satisfy their obligations under the applicable leases and subleases, and any inability or unwillingness by such tenants to do so could have a material adverse effect on us.
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
Item 3. |
Defaults upon Senior Securities. |
The Board suspended dividend payments with respect to the Series A Preferred Stock, commencing with the fourth quarter of 2017, and determined to continue such suspension indefinitely in June 2018. No dividends were declared or paid with respect to the Series A Preferred Stock for such dividend periods. As a result of such suspension, the Company has $34.6 million of undeclared preferred stock dividends in arrears, whose annual dividend rate has increased to 12.875% commencing with the fourth quarter of 2018, with respect to the Series A Preferred Stock as of the date of filing of this Quarterly Report. See Note 10 – Common and Preferred Stock, “Preferred Stock Offerings and Dividends”, to the Company’s Notes to our consolidated financial statements located in Part I, Item 1, “Financial Statements (unaudited)”, of this Quarterly Report.
Item 4. |
Mine Safety Disclosures. |
Not applicable.
Item 5. |
Other Information. |
On September 30, 2021 the Company and the Exchange Bank of Alabama executed a $5.1 million Promissory Note with a 3.95% annual fixed interest rate and maturity date of October 10, 2026 (the “Coosa Credit Facility”). The Coosa Credit Facility, refinanced $5.1 million prime + 1.5% variable interest rate debt owed to Metro City Bank with a maturity date of January 31, 2036, (the “Coosa MCB Loan”). The Coosa Credit Facility, guaranteed by Regional Health Properties, Inc., is secured by the assets of Coosa, including the Coosa Facility and the assets of Meadowood, including the Meadowood Facility. The Company incurred approximately $0.1 million in new deferred financing fees and expensed approximately $0.1 million deferred financing fees associated with the Coosa MCB Loan. The Coosa Credit Facility includes customary terms, including events of default with an associated annual 5% default interest rate. Upon the occurrence of certain events of default, the lenders may terminate the Coosa Credit Facility and the Meadowood Credit Facility and all amounts due under both credit facilities will become immediately due and payable. The Coosa Credit Facility has prepayment penalties of 5% in the 1st year, 4% in the 2nd year and 1% thereafter.
In conjunction with the September 30, 2021, Coosa Facility refinance, the Company and the Exchange Bank of Alabama signed an agreement dated October 1, 2021, that extended the maturity date on the $3.5 million Meadowood Credit Facility as amended, recorded in “senior debt other mortgage indebtedness” and which is secured by the Meadowood Facility, from May 1, 2022 to October 1, 2026. Additionally, the Meadowood Credit Facility as amended, is guaranteed by Regional Health Properties, Inc. and the assets of Coosa.
The above summary of the is qualified in its entirety by reference to the full text of the Coosa Credit Facility and the Meadowood Credit Facility, which is filed as Exhibit 4.17 and 4.18 respectively, to this Quarterly Report. For further information, see Note 8 – Notes Payable and Other Debt to the Company’s consolidated financial statements located in Part I, Item 1, Notes to Consolidated Financial Statements”, of this Quarterly Report.
50
Item 6. |
Exhibits. |
The agreements included as exhibits to this Quarterly Report are included to provide information regarding the terms of these agreements and are not intended to provide any other factual or disclosure information about the Company, its business or the other parties to these agreements. These agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
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• |
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; |
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• |
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; |
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• |
may apply standards of materiality in a way that is different from what may be viewed as material to investors; and |
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• |
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. |
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and should not be relied upon by investors.
51
EXHIBIT INDEX
Exhibit No. |
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Description |
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Method of Filing |
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3.1 |
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Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017 |
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3.2 |
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Incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017 |
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3.3 |
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Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K12 filed on December 28, 2018 |
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3.4 |
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Amended and Restated Bylaws of Regional Health Properties, Inc., effective September 21, 2017 |
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Incorporated by reference to Exhibit 3.3 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017 |
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4.1 |
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Form of Common Stock Certificate of Regional Health Properties, Inc. |
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Incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K12B filed on October 10, 2017 |
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4.2 |
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Description of Regional Health Properties, Inc. Capital Stock |
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Incorporated by reference to Exhibit 4.2 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 |
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4.3* |
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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 |
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4.4* |
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Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed December 17, 2020 |
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4.5* |
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Form of Non-Statutory Stock Option Agreement (2011 Equity Plan) |
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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 |
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4.6* |
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Form of Incentive Stock Option Agreement (2011 Equity Plan) |
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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
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4.7* |
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Form of Restricted Common Stock Agreement –Non Employee Director (2020 Equity Plan) |
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Incorporated by reference to Exhibit 4.7 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021
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4.8* |
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Form of Restricted Common Stock Agreement –Employee (2020 Equity Plan) |
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Incorporated by reference to Exhibit 4.8 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 |
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4.9 |
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Form of Warrant to Purchase Common Stock of the Company (2011 Equity Plan) |
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Incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3 (File No. 333-175541) |
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4.10 |
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Incorporated by reference to Exhibit 4.21 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 |
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4.11 |
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Incorporated by reference to Exhibit 10.23.2 of the Registrant’s Annual Report on Form 10-KSB as amended March 31, 2008
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52
Exhibit No. |
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Description |
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Method of Filing |
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4.12 |
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Lease, dated as of January 1, 2021, by and between ADK Georgia, LLC and PS Operator, LLC. |
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Incorporated by reference to Exhibit 10.245 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2020
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4.13 |
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Incorporated by reference to Exhibit 10.246 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2020
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4.14 |
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Incorporated by reference to Exhibit 10.247 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2020
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4.15* |
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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). |
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4.16 |
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Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed on September 27, 2021
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4.17 |
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Filed herewith
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4.18 |
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Filed herewith
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4.19 |
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Filed herewith
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31.1 |
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Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act |
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Filed herewith |
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31.2 |
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Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act |
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Filed herewith |
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32.1 |
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Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act |
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Filed herewith |
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32.2 |
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Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act |
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Filed herewith |
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101.INS |
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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. |
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Filed herewith |
101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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Filed herewith |
101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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Filed herewith |
101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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Filed herewith |
101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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Filed herewith |
101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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Filed herewith |
104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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Filed herewith |
* |
Identifies a management contract or compensatory plan or arrangement |
53
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: |
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November 12, 2021 |
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/s/ Brent Morrison |
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Brent Morrison |
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Chief Executive Officer and Director (Principal Executive Officer) |
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Date: |
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November 12, 2021 |
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/s/ Benjamin A. Waites |
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Benjamin A. Waites |
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Chief Financial Officer and Vice President (Principal Financial and Accounting Officer) |
54
Exhibit 4.17
COLLATERAL:
ALL ASSETS
513 Pineview Ave Glencoe, AL 35905
See exhibit "A" for legal description made a part hereof the same as if fully set out herein.
This loan is payable in full on the maturity date specified above. You must repay the entire principal balance of the loan and unpaid interest then due. The bank is under no obligation to refinance the loan at that time. You will, therefore, be required to make payment out of other assets that you may own, or you will have to find a lender, which may be the bank you have this loan with, willing to lend you the money. If you refinance this loan at maturity, you may have to pay some or all of the closing costs normally associated with a new loan even if you obtain refinancing from the same bank.
IN WITNESS HEREOF, the parties have affixed their signatures and seals this day.
DEBTOR'S SIGNATURE(S)
Brent Morrison,Manager of COOSA NURSING ADK, LLCBenjamin A Waites, Manager of COOSA NURSING ADK, LLC
Exhibit 4.18
The Exchange Bank of Alabama
Member F.D.I.0
EXTENSION AND MODIFICATION AGREEMENT
EXTENSION ❑ MODIFICATION X
LOAN NUMBER: 574354CURRENT PRINCIPAL BALANCE:$ 3,516,763.76
PURPOSE:modify to extend maturity date to 10/01/2026
This extension and modification agreement ("Agreement") betweenMeadowood Property Holdings, LLC(Borrower), the undersigned
guarantors, if any (collectively "Borrower Parties") and The Exchange Bank of Alabama (Lender), WITNESSETH, that,
WHEREAS, Lender has heretofore made a loan ("Loan") to Borrower in the principal amount of $ 4,125,000.00 evidenced by a promissory note or other instrument dated 05/01/2017 .
WHEREAS, Borrower Parties have requested Lender to modify certain provisions and conditions pertaining to the Loan; and WHEREAS, Lender has agreed, subject to the terms of this Agreement, to consent to the Borrower's request.
NOW, THEREFORE, in consideration of the premises and in consideration of the Lender's agreement to extend and modify the terms of the Loan in accordance with this Agreement the Loan is modified as follows:
1,Loan Changes:
A.GENERAL:
_X__ FEES: Borrower Parties shall pay a $_100.00modification fee, a $evaluation fee, and $ in
late charges immediately, any remaining currently unpaid charges shall be due at maturity.
_X_RENEWALS: Borrower Parties shall pay $__ 13,007.21in accrued interest immediately.
Borrower Parties shall pay $ , 13,098,59in principal immediately
INTEREST RATE: The fixed interest rate will be immediately changed to%.
VARIABLE RATE:% Lender's Prime, rate adjusted daily with a% Floor and a% Cap.
_XMATURITY DATE: The new maturity date will be _10/01/2026_.
_X_PAYMENT DATE: The next payment will be due on 11/01/202 l_.
B.SINGLE PAY NOTE:
Repayment Plan by Borrower Parties:
INTEREST: All accrued interest shall be paid on or before
PRINCIPAL: All of the principal shall be paid on or before
C.INSTALLMENT NOTE:
Repayment Plan by Borrower Parties:
PRINCIPAL AND INTEREST: regular payments of principal and interest in the combined payment amount
of $beginningand on the same day of each consecutive month hereafter.
PRINCIPAL: $of principal shall be paid on or before
principal payments of $beginning on
INTEREST: All accrued interest shall be paid on or before
payments of accrued interest varying from $ and principal due at maturity. |
|
to $ beginning |
|
payments of accrued interest based on the amount of credit outstanding beginningand principal due at
maturity.
D.BALLOON NOTE:
Repayment Plan by Borrower Parties:
_X_ Borrower Parties shall pay _59payments of $26,010.09 beginning11/01/2021
and a final payment of the unpaid principal plus any accrued interest and late charges will be due at maturity.
E.EXTENSION:
INTEREST: I agree to pay $in interest.
PRINCIPAL: I agree to pay $in principal.
DUE DATE: The next payment in the amount of $_________will be due on
MATURITY DATE: The maturity date is being extended fromto
F.CUSTOM PAYMENT INFORMATION:
THIS LOAN IS CROSS COLLATERALZIED WITH LOAN # 577832 IN THE NAME OF COOSA NURSING ADK, LLC.
All Loans and advances by Lender to Borrower or an Affiliate under this Agreement, including, but not limited to, Meadowood Property Holdings, LLC, Coosa Nursing ADK, LLC, Regional Health Properties, Inc. and/or any other parties in interest or successors in interest of the aforementioned, the Loan Documents or any other loan agreement or loan documents between such parties constitute one transaction, and all Indebtedness and the Obligations of Borrower or an Affiliate to Lender under this Agreement, the Loan Documents or any other loan agreement or loan documents, present and future, constitute one obligation secured by the Collateral of the Loan or the Collateral of an Affiliate loan and security held and to be held by Lender hereunder and by virtue of all other assignments and security agreements between Borrower and Lender now and hereafter existing, as may be amended, restated, supplemented, extended and/or renewed.
2. |
Borrower Parties hereby authorize Lender to take any action necessary to conform the original Loan, security instruments and other loan documents with the terms of this Agreement. Borrower Parties further agree that .this Agreement shall not affect or otherwise release any collateral held by Lender as security for said Loan, and acknowledge and agree that all collateral held by Lender as security shall continue to secure the Loan to the same extent and in the same manner notwithstanding the terms of this Agreement. Borrower Parties agree that the current Principal Balance stated in this Agreement is correct. |
3. |
Borrower Parties warrant that no subordinate liens exist upon the collateral securing the Loan and that Lender shall maintain the same lien priority on the collateral, both real and personal, as existed prior to this Agreement |
4. |
Borrower Parties further waive all claims, demands, setoffs, counterclaims and defenses against Lender, if any, that may exist as of the date of this Agreement that arise from or relate to the Loan. BORROWER PARTIES AND LENDER MUTUALLY WAIVE ALL RIGHTS TO TRIAL BY JURY ARISING FROM OR RELATED TO THIS AGREEMENT. |
5. |
Except as expressly modified by the terms of this Agreement all other terms and conditions of the Loan and related loan documents shall remain in full force and effect. |
6.A returned payment fee of $35.00 will be charged to the loan account for any returned item processed against the loan account.
7.Post Maturity Rate: 5% over the rate at maturity.
8.If this loan has lifetime flood monitoring, no changes have been noted as of the date of this agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on10/01/2021
CAUTION-IT IS IMPORTANT THAT YOU THOROUGHLY RE HIS CONTRACT BEFORE YOU SIGN IT.
The Exchange Bank of AlabamaBorrowerMeadowood Property Holdings, LLC
By: X
Kevin Phillips, Vice President
Brent Morrison, CEO & President of Regional Health Properties, Inc. and
X
Benjamin A Waites,CFO of Regional Health Properties, Inc. and Manager for Meadowood Property Holdings, LLC
Exhibit 4.19
SECOND RENEWAL AMENDED AND RESTATED PROMISSORY NOTE
$494,909.00August 17 2021
FOR VALUE RECEIVED, REGIONAL HEALTH PROPERTIES, INC. a Georgia corporation and successor by merger to Adcare Health Systems, Inc. ("Borrower"), hereby promises to pay to the order of KEYBANK NATIONAL ASSOCIATION, a national banking association (together with any and all of its successors and assigns and/or any other holder of this Note, "Lender"), without offset, in immediately available funds in lawful money of the United States of America, at 1200 Abernathy Road, NE, Suite 1550, Atlanta, Georgia 30328 (or such other address as Lender may designate in written notice to Borrower from time to time), the principal sum of FOUR HUNDRED NINETY FOUR THOUSAND NINE HUNDRED NINE DOLLARS AND NO/100 DOLLARS ($494,909.00) (the "Indebtedness") as hereinafter provided.
Section 1.Indebtedness. Borrower is the maker of that certain Amended and Restated Promissory Note dated August 11, 2017, as amended, restated and renewed by that certain Renewal Amended and Restated Note dated as of August 13, 2019 (as renewed, amended and restated, the "Prior Note"). The Prior Note amended and restated four Promissory Notes by the Borrower to the order of the Lender, each dated February 25, 2015 and more, particularly described as: (i) Amended and Restated Promissory Note (Cumberland) in the original principal amount of $93,133.00; (ii) Amended and Restated Promissory Note (Northridge) in the original principal amount of $154,038; (iii) Amended and Restated Promissory Note (River Valley) in the original principal amount of $138,877.00; and (iv) Promissory Note (Stone County) in the original principal amount of $108,861.00. This Note renews, extends, restates, replaces and supersedes the Prior Note. It is the intention of Borrower and Lender that while this Note renews, extends, amends, restates, replaces and supersedes the Prior Note, it is not in payment or satisfaction of the Prior Note, but rather is the substitution of one evidence of the debt for another without any intent to extinguish the debt.
Section 2.Repayment of the Indebtedness: The entire principal balance of this Note then unpaid shall be finally due and payable upon the Maturity Date (as hereinafter defined). The term "Maturity Date", as used in this Note shall mean the earliest to occur of the following: (i) August 25, 2023 (the "Scheduled Maturity Date"), and (ii) the date on which the maturity of this Note is accelerated as provided in Section 7 hereof. The term, "Person", as used in this Note, means any natural person, firm, corporation, limited liability company, trust, joint venture, association, company, unlimited liability company, partnership, Governmental Authority or other entity (whether or not having separate legal personality).
Section 3.Interest. The Indebtedness evidenced by this Note shall not bear interest, except for Default Interest (as hereinafter defined). If Borrower fails to pay the Indebtedness on the Maturity Date, the delinquent Indebtedness shall bear interest at the rate of fifteen percent (15%) per annum ("Default Interest"), calculated on the basis of a three hundred sixty (360) day year for the actual number of days elapsed, which interest shall be due and payable on demand.
Section 4.Prepayment. Borrower may prepay the principal balance of this Note, in full at any time or in part from time to time, without fee, premium or penalty.
Section 5.Certain Provisions Regarding Payments. All payments made under this Note shall be applied, to the extent thereof, to Lender's Expenses (as hereinafter defined), to Default Interest (if any), and to unpaid principal, in such manner and order as Lender may elect in its sole discretion, any instructions from Borrower or anyone else to the contrary notwithstanding. Remittances shall be made without offset, demand, counterclaim, deduction, or recoupment (each of which is hereby waived) and shall be accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks. Acceptance by Lender of any payment in an amount less than the amount then due on any indebtedness shall be deemed an acceptance on account only, notwithstanding any notation on or accompanying such partial payment to the contrary, and shall not in any way (a) waive or excuse the existence of an Event of Default (as hereinafter defined), (b) waive, impair or extinguish any right or remedy available to Lender hereunder, or (c) waive the requirement of punctual payment and performance or constitute a novation in any respect. Whenever any payment under this Note falls due on a day which is not a Business Day, such payment may be made on the next succeeding Business Day.
Section 6.Events of Default. The occurrence of any one or more of the following shall constitute an "Event of Default" under this, Note:
(a)Borrower fails to pay when and as due and payable any amounts payable by Borrower to Lender under the terms of this Note;
(b)Borrower fails to perform, observe or keep any covenant or agreement not referred to in Section 6(a), and such failure is not cured within ten (10) days after written notice of such failure is given by Lender to Borrower;
(c)the occurrence of any Transfer without the prior written consent of Lender;
(d)Borrower shall commence a voluntary case concerning any Borrower under Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect, or any successor thereto or any other present or future bankruptcy or insolvency statute (the "Bankruptcy Code"); or an involuntary proceeding is commenced against Borrower under the Bankruptcy Code and relief is ordered against Borrower, or the petition is controverted but not dismissed or stayed within sixty (60) days after the commencement of the ease, or a custodian (as defined in the Bankruptcy Code) is appointed for or takes , charge of all or substantially all of the property of Borrower; or Borrower commences any other proceedings under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Borrower; or there is commenced against Borrower any such proceeding which remains undismissed or unstayed for a period of sixty (60) days; or Borrower fails to controvert in a timely manner any such case under the Bankruptcy Code or any such proceeding, or any order of relief or other order approving any such case or proceeding is entered; or Borrower by any act or failure to act indicates its consent to, approval of, or acquiescence in any such case or proceeding or the appointment of any custodian or the like of or
for it for any substantial part of its property or suffers any such appointment to continue undischarged or unstayed for a period of sixty (60) days;
(e)Borrower shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall consent to the appointment of a receiver or trustee or liquidator of all of its property or the major part thereof or if all or a substantial part of the assets of Borrower are attached, seized, subjected to a writ or distress warrant, or are levied upon, or come into the possession of any receiver, trustee, custodian or assignee for the benefit of creditors.
For purposes of this Note, the term "Transfer" shall mean any Person or group of Persons acting in concert as a partnership or other group shall, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases, merger, consolidation, sale of all or substantially all assets, or otherwise, have become, after the date hereof, the "beneficial owner" (within the meaning of such term under Rule 13d-3 under the federal Securities and Exchange Act of 1934, as amended) of equity interests of Borrower representing voting power having the right to elect at least 49% of the members of Borrower' s board of directors.
Section 7.Remedies. Upon the occurrence of an Event of Default, Lender may at any time thereafter exercise any one or more of the following rights, powers and remedies:
(a)Lender may accelerate the Maturity Date and declare the unpaid principal balance and accrued but unpaid interest (if any) on this Note, and all other amounts payable hereunder, at once due and payable, and upon such declaration the same shall at once be due and payable; and in equity.
(b)Lender may exercise any of its other rights, powers and remedies available at law or notwithstanding the foregoing, upon the occurrence of any Event of Default under Section 6(d) hereof, all amounts evidenced by this Note shall automatically become due and payable, without any presentment, demand, protest or notice of any kind to Borrower.
Section 8.Remedies Cumulative. All of the rights and remedies of Lender under this Note are cumulative of each other and of any and all other rights at law or in equity, and the exercise by Lender of any one or more of such rights and remedies shall not preclude the simultaneous or later exercise by Lender of any or all such other rights and remedies. No single or partial exercise of any right or remedy shall exhaust it or preclude any other or further exercise thereof, and every right and remedy may be exercised at any time and from time to time. No failure by Lender to exercise, nor delay in exercising, any right or remedy shall operate as a waiver of such right or remedy or as a waiver of any Event of Default.
Section 9.Costs and Expenses of Enforcement and Preparation. Borrower agrees to pay to Lender on demand all costs and expenses incurred by Lender in seeking to collect this Note, including court costs and reasonable attorneys' fees and expenses actually incurred, whether or not suit is filed hereon, or whether in connection with bankruptcy, insolvency or appeal. Borrower agrees to pay Lender on demand for all costs incurred (including, but not limited to, Lender's
counsel's attorney's fees) in preparing and administering this Note and all other documents ("Lender's Expenses").
Section 10.Service of Process. Borrower hereby consents to process being served in any suit, action, or proceeding instituted in connection with this Note by serving of a copy thereof by certified mail, postage prepaid, return receipt requested, to Borrower. Borrower irrevocably agrees that such service shall be deemed to be service of process upon Borrower in any such suit, action, or proceeding. Nothing in this Note shall affect the right of Lender to serve process in any manner otherwise permitted by law and nothing in this Note will limit the right of Lender otherwise to bring proceedings against Borrower in the courts of any jurisdiction or jurisdictions.
Section 11.Successors and Assigns. The terms of this Note shall bind and inure to the benefit of the permitted successors and assigns of the parties; provided, however, that in no event shall Borrower delegate or assign its rights or obligations under this Note to any other Person (whether by operation of law or otherwise), without Lender's prior written consent, and any such delegation or assignment by Borrower (or attempted by Borrower) in violation of the terms of this Note shall be void.
Section 12.General Provisions. Time is of the essence with respect to Borrower's obligations under this Note. If more than one Person executes this Note as Borrower, all of said patties shall be jointly and severally liable, for payment of the indebtedness evidenced hereby. Borrower and each party executing this Note as Borrower hereby severally (a) waive demand, presentment for payment, notice of dishonor and of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notices (except any notices which are specifically required by this Note), filing of suit and diligence in collecting this Note or enforcing any of the security herefor; (b) agree to any substitution, subordination, exchange or release of any such security or the release of any party primarily or secondarily liable hereon; (c) agree that Lender shall not be required first to institute suit or exhaust its remedies hereon against Borrower or others liable or to become liable hereon or to perfect or enforce its rights against them or any security herefor; (d) consent to any extensions or postponements of time of payment of this Note for any period or periods of time and to any partial payments, before or after maturity, and to any other indulgences with respect hereto, without notice thereof to any of them; and (e) submit (and waive all rights to object) to non-exclusive personal jurisdiction of any state or federal court sitting in the State of Georgia for the enforcement of any and all obligations under this Note; (f) waive the benefit of all homestead and similar exemptions as to this Note; (g) agree that their liability under this Note shall not be affected or impaired by any determination that any title, security interest or lien taken by Lender to secure this Note is invalid or unperfected; and (h) hereby subordinate to the Indebtedness any and all rights against Borrower and any security for the payment of this Note, whether by subrogation, agreement or otherwise, until this Note is paid in full. A determination that any provision of this Note is unenforceable or invalid shall not affect the enforceability or validity of any other provision and the determination that the application of any provision of this Note to any Person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to other Persons or circumstances. This Note may not be amended except in a writing specifically intended for such purpose and executed by the party against whom enforcement of the amendment is sought. Captions and headings in this Note are for convenience only and shall be disregarded in construing it. This Note and its validity,
enforcement and interpretation shall be governed by the laws of the State of Georgia (without regard to any principles of conflicts of laws) and applicable United States federal law. Whenever a time of day is referred to herein, unless otherwise specified such time shall be the local time of the place where payment of this Note is to be made. The term "Business Day" shall mean a day of the year on which banks are not required or authorized to close in Atlanta, Georgia. The words "include" and "including" shall be interpreted as if followed by the words "without limitation."
Section 13. Notices. Any notice, demand, request or other communication which any party hereto may be required or may desire to give hereunder shall be in writing and shall.be deemed to have been properly given (a) if hand delivered, when delivered; (b) if mailed by United States Certified Mail (postage prepaid, return receipt requested), three (3) Business Days after mailing (c) if by Federal Express or other reliable overnight courier service, on the next Business Day after delivered to such courier service or (d) if by telecopier or other electronic transmission, on the day of transmission so long as copy is sent on the same day by overnight courier as set forth below:
If to Borrower:
Regional Health Properties, Inc.
454 Satellite Boulevard, NW, Suite 100
Suwanee, GA 30024
Attention:Ben Waites
Chief Financial Officer
Telephone: 678-977-4308
With a courtesy copy to:
Holt, Ney, Zatcoff & Wasserman, LLP
100 Galleria Parkway, Suite 1800
Atlanta, Georgia 30339
Attention:Gregory P. Youra, Esq.
Telephone:(770) 956-9600
Facsimile:(770) 956-1490
If to Lender:
KeyBank National Association
1200 Abernathy Road, NE, Suite 1550
Atlanta, Georgia 30328
Attention: Paul F. Di Vito
Telephone: (770) 510-2085
Facsimile: (770) 510-2195
With a courtesy copy to:
Carlton Fields PA
One Atlantic Center, 30th Floor
1201 W. Peachtree Street, N.W.
Atlanta, Georgia 30309
Attention: Lee Lyman, Esq.
Telephone: (404) 815-2677
Facsimile: (404) 815 3415
Section 14. No Usury. It is expressly stipulated and agreed to be the intent of Borrower and Lender at all times to comply with applicable state law or applicable United States federal law (to the extent that it permits Lender to contract for, charge, take, reserve, or receive a greater amount of interest than under state law) and that this Section shall control every other covenant and agreement in this Note. If applicable state or federal law should at any time be judicially interpreted so as to render usurious any amount called for under this Note, or contracted for, charged, taken, reserved, or received with respect to the Indebtedness, or if Lender's exercise of the option to accelerate the Maturity Date, or if any prepayment by Borrower results in Borrower having paid any interest in excess of that permitted by applicable law, then it is Lender's express intent that all excess amounts theretofore collected by Lender shall be credited on the principal balance, of this Note, and the provisions of this Note shall immediately be deemed reformed, and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new documents, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder or thereunder. All sums paid or agreed to be paid to Lender for the use or forbearance of the Indebtedness shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Indebtedness.
Section 15. Reinstatement. To the extent that any payment or payments made to Lender, or any payment or proceeds of any property received by Lender, in the reduction of the principal indebtedness or as payment of accrued interest are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, to a surety, or any other Person liable for any of the repayment of principal or accrued interest, whether directly or indirectly, as a debtor in possession or to a receiver or any other Person under title 11 of the United States Code, J I U.S.C. §§ 101-1532, as amended (the "Bankruptcy Code", or any other state or federal law, common law or equitable cause (collectively, the "Invalidated Payments") whether pursuant to a settlement or a judgment by a court of competent jurisdiction, then the portion of such principal repayment or accrued interest payment equal to the Invalidated Payments and the lien or security title, if any, given to secure this Note will be revived and will continue in full force and effect as if such payment or proceeds had never been received by Lender.
Section 16. Waiver and Claims. Borrower hereby covenants and agrees with Lender that Borrower has no causes of action, liabilities, defenses or other claims whatsoever against the Lender. Borrower hereby waives any such causes of action, liabilities, defenses, or other claims that it may have had or claimed that it had and hereby releases the Lender from any of the foregoing that it has or may claim.
Section 17. THIS NOTE IS MADE AND GIVEN AS A REPLACEMENT, EXTENSION AND RENEWAL OF THE PRIOR NOTE IN THE AMOUNT OF $494,909.00 DATED AS OF AUGUST 13, 2019; THIS NOTE IS NOT INTENDED TO -- AND SHALL NOT -CONSTITUTE A NOVATION.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Borrower has duly executed this Note under seal as of the date first above written.
REGIONAL HEALTH PROPERTIES, INC., a Georgia corporation
Name: Ben Waites
Title: Chief Financial Officer
Exhibit 4.19
STATE OF Georgia
COUNTY OF Gwinnett) SS:
The foregoing instrument was acknowledged before me this 7 day of August, 2021, by Ben Waites, as Chief Financial Officer of REGIONAL HEALTH PROPERTIES, INC., a Georgia corporation, who is personally known to me, or [ ] has produced valid Driver's License as identification.
[NOTARY SEAL] |
NOTARY PUBLIC, STATE OF GEORGIA
Print Name: Catherine W. Hollis My Commission Expires: nosk,c94.: |
Exhibit 31.1
CERTIFICATIONS
I, Brent Morrison, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Regional Health Properties, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
November 12, 2021 |
|
By |
/s/ Brent Morrison |
|
|
|
Chief Executive Officer and President |
Exhibit 31.2
CERTIFICATIONS
I, Benjamin A. Waites, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Regional Health Properties, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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 September 30, 2021, 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.
November 12, 2021 |
By: |
/s/ Brent Morrison |
|
|
Brent Morrison Chief Executive Officer and President |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
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 September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Benjamin A. Waites, Chief Financial Officer and Vice 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.
November 12, 2021 |
By: |
/s/ Benjamin A. Waites |
|
|
Benjamin A. Waites Chief Financial Officer and Vice President |