UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from to
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(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
Large accelerated filer |
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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
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
As of May 2, 2023 the registrant had
Regional Health Properties, Inc.
Form 10-Q
Table of Contents
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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 March 31, 2023 and December 31, 2022 |
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3 |
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Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 |
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4 |
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Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2023 and 2022 |
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Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 |
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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25 |
Item 3. |
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32 |
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Item 4. |
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32 |
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Part II. |
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Item 1. |
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32 |
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Item 1A. |
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32 |
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Item 2. |
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35 |
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Item 3. |
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35 |
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Item 4. |
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35 |
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Item 5. |
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35 |
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Item 6. |
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35 |
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40 |
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2
Part I. Financial Information
Item 1. Financial Statements
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in 000's)
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March 31, 2023 |
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December 31, 2022 |
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(Unaudited) |
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ASSETS |
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Property and equipment, net |
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$ |
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$ |
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Cash |
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Restricted cash |
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Accounts receivable, net of allowances of $ |
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Prepaid expenses and other |
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Notes receivable |
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Intangible assets - bed licenses |
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Intangible assets - lease rights, net |
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Right-of-use operating lease assets |
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Goodwill |
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Straight-line rent receivable |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Senior debt, net |
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$ |
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$ |
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Bonds, net |
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Other debt, net |
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Accounts payable |
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Accrued expenses |
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Operating lease obligation |
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Other liabilities |
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Total liabilities |
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Stockholders' equity: |
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Common stock and additional paid-in capital, |
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Preferred stock, |
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Accumulated deficit |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
3
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000's, except per share data)
(Unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Revenues: |
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Patient care revenues |
$ |
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$ |
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Rental revenues |
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Management fees |
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Other revenues |
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Total revenues |
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Expenses: |
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Patient care expense |
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Facility rent expense |
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Cost of management fees |
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Depreciation and amortization |
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General and administrative expense |
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Doubtful accounts expense (recovery) |
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Other operating expenses |
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Total expenses |
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Loss from operations |
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Other expense: |
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Interest expense, net |
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Other expense, net |
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Total other expense, net |
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Net loss |
$ |
( |
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$ |
( |
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Preferred stock dividends - undeclared |
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( |
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( |
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Net loss attributable to Regional Health Properties, Inc. common stockholders |
$ |
( |
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$ |
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Net loss per share of common stock attributable to Regional Health Properties, Inc. |
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Basic and diluted: |
$ |
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$ |
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Weighted average shares of common stock outstanding: |
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Basic and diluted |
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See accompanying notes to unaudited consolidated financial statements.
4
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in 000's)
(Unaudited)
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Shares of |
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Shares of |
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Shares of Treasury Stock |
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Common |
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Preferred |
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Accumulated |
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Total |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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Restricted stock issuance |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Balances, March 31, 2023 |
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( |
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$ |
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$ |
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$ |
( |
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$ |
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Shares of |
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Shares of |
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Shares of Treasury Stock |
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Common |
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Preferred |
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Accumulated |
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Total |
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Balances, December 31, 2021 |
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( |
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$ |
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$ |
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$ |
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$ |
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Restricted stock issuance |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Exercise of restricted share awards net settlement option |
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— |
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— |
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( |
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— |
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— |
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( |
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Net Loss |
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— |
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— |
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— |
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— |
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— |
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( |
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Balances, March 31, 2022 |
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( |
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See accompanying notes to unaudited consolidated financial statements.
5
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000's)
(Unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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Stock-based compensation expense |
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Rent expense (less than) in excess of cash paid |
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Rent revenue less than (in excess) of cash received |
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Amortization of deferred financing costs, debt discounts and premiums |
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Bad debt expense |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other assets |
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Accounts payable and accrued expenses |
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Other liabilities |
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Net cash provided by (used in) operating activities |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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Net cash used in investing activities |
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( |
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Cash flows from financing activities: |
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Payment of senior debt |
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( |
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Payment of other debt |
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( |
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Debt extinguishment and issuance costs |
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— |
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Net cash used in financing activities |
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Net change in cash and restricted cash |
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Cash and restricted cash, beginning |
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Cash and restricted cash, ending |
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$ |
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$ |
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6
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000's)
(Unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Supplemental disclosure of cash flow information: |
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Cash interest paid |
$ |
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$ |
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Supplemental disclosure of non-cash activities: |
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Vendor-financed insurance |
$ |
— |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
7
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2023
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Regional Health’s predecessor was incorporated in Ohio on August 14, 1991, under the name Passport Retirement, Inc. In 1995, Passport Retirement, Inc. acquired substantially all of the assets and liabilities of AdCare Health Systems, Inc. and changed its name to AdCare Health Systems, Inc. (“AdCare”). AdCare completed its initial public offering in November 2006, relocated its executive offices and accounting operations to Georgia in 2012, and changed its state of incorporation from Ohio to Georgia in December, 2013. Regional Health Properties, Inc. is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior housing. Our business primarily consists of leasing such facilities to third-party tenants, which operate the facilities.
Basis of Presentation
The accompanying consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP) in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2022 audited consolidated financial statements and notes thereto, which are included in the 2022 Form 10-K filed with the SEC on April 14, 2023.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Reclassifications
Certain reclassifications have been made to the amounts in prior periods in order to conform to the current period's presentation. A reclassification has been made to the stock balances on the consolidated statement of stockholders’ equity in prior periods in order to conform to the current period's presentation.
Variable Interest Entities
The Company has a loan receivable with Peach Health, a sublessee. Such agreement creates a variable interest in the Peach Health sublessee that may absorb some or all of the expected losses of the entity. The Company does not consolidate the operating activities of the Peach Health sublessee as the Company does not have the power to direct the activities that most significantly impact the entity's economic performance.
Revenue Recognition and Allowances
Patient Care Revenue. ASC Topic 606, Revenue from Contracts with Customers requires a company to recognize revenue when the company transfers control of promised goods and services to a customer. Revenue is recognized in an amount that reflects the consideration to which a company expects to receive in exchange for such goods and services. Revenue from our Healthcare Services business segment is derived from services rendered to patients in the Meadowood and Glenvue facilities. The Company receives payments from the following sources for services rendered in our facilities: (i) the federal government under the Medicare program administered by the CMS; (ii) state governments under their respective Medicaid and similar programs; (iii) commercial insurers; and (iv) individual patients and clients. The vast majority of the revenue the Company recognizes is from government sources. The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients and other price concessions. Contractual adjustments and discounts are based on contractual agreements, discount policies and historical experience. The Company recognizes revenue at the amount that reflects the consideration the Company expects to receive in exchange for the services provided. These amounts are due from residents or third-party payors and include variable consideration for retroactive adjustments from estimated reimbursements, if any, under reimbursement programs. Performance obligations are determined based on the nature of the services provided. Revenue is recognized as performance obligations are
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satisfied. Estimated uncollectable amounts due from patients are generally considered implicit price concessions that are a direct reduction to net operating revenues.
Triple-Net Leased Properties. The Company recognizes rental revenue in accordance with ASC 842, leases. The Company's triple-net leases provide for periodic and determinable increases in rent. The Company recognizes rental revenues under these leases on a straight-line basis over the applicable lease term when collectability is probable. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in the straight-line rent receivable on our consolidated balance sheets. In the event the Company cannot reasonably estimate the future collection of rent from one or more tenant(s) of the Company's facilities, rental income for the affected facilities is recognized only upon cash collection, and any accumulated straight-line rent receivable is expensed in the period in which the Company deems rent collection to no longer be probable.
Management Fee Revenues and Other Revenues. The Company recognizes management fee revenues as services are provided. The Company has one contract to manage three facilities (the "Management Contract"), with payment for each month of service generally received in full on a monthly basis. The maximum penalty for service contract nonperformance under the Management Contract is $
Allowances. The Company assesses the collectability of its rent receivables, including straight-line rent receivables, working capital loans to tenants and patient reimbursement. The Company bases its assessment of the collectability of rent receivables and working capital loans to tenants on several factors, including payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, and current economic conditions. If the Company's evaluation of these factors indicates it is probable that the Company will be unable to receive the rent payments or payments on a working capital loan, then the Company provides a reserve against the recognized straight-line rent receivable asset or working capital loan for the portion that we estimate may not be recovered. Payments received on impaired loans are applied against the allowance. If the Company changes its assumptions or estimates regarding the collectability of future rent payments, then the Company may adjust its reserve to the rental or interest revenue recognized in the period the Company makes such change. See Note 6 – Leases. Regarding patient reimbursements, the Company assesses the patient receivable based on payor type and age of the receivable amongst several other factors. The Company has reserved for approximately
As of March 31, 2023 and December 31, 2022, the Company reserved for approximately $
The following table presents the Company's Accounts receivable, net of allowance for the periods presented:
(Amounts in 000’s) |
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March 31, |
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December 31, |
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Gross receivables |
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Real Estate Services |
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$ |
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$ |
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Healthcare Services |
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Subtotal |
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Allowance |
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Real Estate Services |
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( |
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( |
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Healthcare Services |
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( |
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( |
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Subtotal |
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( |
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( |
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Accounts receivable, net of allowance |
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$ |
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$ |
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Prepaid Expenses and Other
As of March 31, 2023 and December 31, 2022, the Company had approximately $
9
Accounts Payable
The following table presents the Company's Accounts payable for the periods presented:
(Amounts in 000’s) |
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March 31, |
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December 31, |
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Accounts payable |
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Real Estate Services |
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$ |
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$ |
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Healthcare Services |
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Total Accounts payable |
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$ |
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$ |
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Other Liabilities
As of March 31, 2023 and December 31, 2022, the Company had approximately $
Other Expense, net
The Company has retained a law firm to evaluate and assist with possible opportunities to improve the Company's capital structure. See Note 2 – Series A Preferred Exchange Offer.
Leases and Leasehold Improvements
The Company leases certain facilities and equipment in the normal course of business. At the inception of each lease, the Company performs an evaluation to determine whether the lease should be classified as an operating lease or finance lease. As of March 31, 2023, all of the Company's leased facilities are accounted for as operating leases. For operating leases that contain scheduled rent increases, the Company records rent expense on a straight-line basis over the term of the lease. Leasehold improvements are amortized over the shorter of the useful life of the asset or the lease term.
In accordance with Accounting Standards Update ("ASU") ASU 2016-02, Leases, as codified in ASC 842, the Company recognizes both right of use assets and lease liabilities for leases in which we lease land, real property, or other equipment, having elected the practical expedient to maintain the prior operating lease classification for leases entered into prior to January 1, 2019. We assess any new contracts or modification of contracts in accordance with ASC 842 to determine the existence of a lease and its classification.
We report revenues and expenses for real estate taxes and insurance where the lessee has not made those payments directly to a third-party in accordance with its respective leases with us. Additionally, we expense certain leasing costs, other than leasing commissions, as they are incurred. The present value of minimum lease payments was calculated on each lease, using a discount rate of
Insurance
We maintain general liability, professional liability, and other insurance policies in amounts and with coverage and deductibles we believe are appropriate, based on the nature and risks of our business, historical experience, availability, and industry standards, including for the operations at the Glenvue and Meadowood facilities. Our current policies provide for deductibles for each claim and contain various exclusions from coverage. The Company has self-insured against professional and general liability claims related to its healthcare operations that were discontinued during 2014 and 2015 in connection with its transition from an owner and operator of healthcare properties to a healthcare property holding and leasing company (the "Transition"). For further information, see Note 11 – Commitments and Contingencies, and Note 13 – Commitments and Contingencies, to the consolidated financial statements for the year ended December 31, 2022 for more information. The Company evaluates quarterly the adequacy of its self-insurance reserve based on a number of factors, including: (i) the number of actions pending and the relief sought; (ii) analyses provided by defense counsel, medical experts or other information which comes to light during discovery; (iii) the legal fees and other expenses anticipated to be incurred in defending the actions; (iv) the status and likely success of any mediation or settlement discussions, including estimated settlement amounts and legal fees and other expenses anticipated to be incurred in such settlement, as applicable; and (v) the venues in which the actions have been filed or will be adjudicated. The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgment unless settlement is more advantageous to the Company. Accordingly, the self-insurance reserve reflects the Company's estimate of settlement amounts for the pending actions, if applicable, and legal costs of settling
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or litigating the pending actions, as applicable. Because the self-insurance reserve is based on estimates, the amount of the self-insurance reserve may not be sufficient to cover the settlement amounts actually incurred in settling the pending actions, or the legal costs actually incurred in settling or litigating the pending actions. See Note 7 – Accrued Expenses. In addition, the Company maintains certain other insurance programs, including commercial general liability, property, casualty, directors' and officers' liability, crime, and employment practices liability.
Discontinued Operations
Prior to December 2015, the Company’s business focused primarily on owning and operating skilled nursing facilities ("SNF") and managing such facilities for unaffiliated owners with whom the Company had management contracts. These operations were discontinued and transitioned to the leasing model of business.
As of March 31, 2023 and December 21, 2022 the company determined remaining escheatment liabilities for discontinued operations are $ million and are included in accrued expenses.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the respective period. Diluted earnings per share is similar to basic net loss per share except that the net loss is adjusted by the impact of the weighted-average number of shares of common stock outstanding including potentially dilutive securities (such as options, warrants and non-vested common stock) when such securities are not anti-dilutive. Potentially dilutive securities from options, warrants and unvested restricted shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options and warrants with exercise prices exceeding the average market value are used to repurchase common stock at market value. The incremental shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the securities.
Securities outstanding that were excluded from the computation, because they would have been anti-dilutive were as follows:
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2022 |
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Warrants - non employee |
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Total anti-dilutive securities |
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The weighted average contractual terms in years for these securities as of March 31, 2023, with
New Accounting Pronouncements Issued But Not Yet Effective
The Financial Accounting Standards Board (FASB) has issued amendments to Topic 842, which requires entities to determine whether related party arrangements between entities under common control are leases. The amendments also address the accounting treatment of leasehold improvements associated with common control leases. They require the lessee to amortize leasehold improvements over the useful life of the improvements to the common control group, regardless of the lease term, as long as the lessee controls the use of the underlying asset. If the lessee no longer controls the use of the asset, the leasehold improvements are accounted for as a transfer between entities under common control through an adjustment to equity. These improvements are also subject to impairment guidance in Topic 360, Property, Plant, and Equipment. The amendment is effective for public entities beginning after December 15, 2023.
NOTE 2. LIQUIDITY
Overview
The Company intends to pursue measures to grow its operations, streamline its cost infrastructure and otherwise increase liquidity, including: (i) refinancing or repaying debt to reduce interest costs and mandatory principal repayments, with such repayment to be funded through potentially expanding borrowing arrangements with certain lenders; (ii) increasing future lease
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revenue through acquisitions and investments in existing properties; (iii) modifying the terms of existing leases; (iv) replacing certain tenants who default on their lease payment terms; and (v) reducing other and general and administrative expenses.
Management anticipates access to several sources of liquidity, including cash on hand, cash flows from operations, and debt refinancing during the twelve months following the date of this filing. At March 31, 2023, the Company had $
During the three months ended March 31, 2023, the Company's cash provided by operating activities was $
Series A Preferred Exchange Offer
In 2020, the Company began exploring alternatives to retire or refinance our outstanding Series A Preferred Stock through privately negotiated transactions, open market repurchases, redemptions, exchange offers, tender offers, or otherwise. In February 2022, the Company commenced an offer to exchange (the "Exchange Offer") any and all of its outstanding
Series A Preferred Dividend Suspension
On June 8, 2018, the board of directors of Regional (the "Board") indefinitely suspended quarterly dividend payments on the
Debt
As of March 31, 2023, the Company had $
Debt Extinguishment
On December 30, 2022, the Company extended the maturity date on approximately $
On October 21, 2022, the Company, through wholly-owned subsidiaries, consummated a HUD refinancing of its senior mortgages on three SNFs in Ohio. Funding was provided by Newpoint Real Estate Capital LLC ("Newpoint") pursuant to three HUD guaranteed secured Healthcare Facility Notes (the "HUD Notes"). Proceeds from the HUD Notes were used to pay off existing HUD guaranteed secured mortgages and pay transaction costs. Newpoint is the servicer on other loans extended to the Company.
Consequently, the Company recorded a net loss of approximately $
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The aggregate principal amount of the three HUD Notes is $
Debt Covenant Compliance
At March 31, 2023, the Company was in compliance with the various financial and administrative covenants related to all of the Company's credit facilities.
Changes in Operational Liquidity
COVID-19. Many of our operators have reported incurring significant cost increases as a result of the COVID-19 pandemic. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of personal protective equipment, testing equipment, processes and supplies. In terms of occupancy levels, many of our operators have reported experiencing declines, in part due to the elimination or suspension of elective hospital procedures, fewer discharges from hospitals to SNFs, and higher hospital readmittances from SNFs. The COVID-19 pandemic may also lead to temporary closures of nursing facilities operated by our tenants, impairing our tenants’ ability to make their rental payments to us pursuant to their respective lease agreements.
Portfolio Stabilization Measures. In the past, our operators did not provide lease guarantees from affiliated entities. Given this, certain operators have terminated their leases in light of operational difficulties caused by the COVID-19 pandemic. While the Company is a self-managed real estate investment company that invests in real estate, when business conditions require, the Company undertakes portfolio stabilization measures.
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Current Operator |
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Meadowood |
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