Item
1. Consolidated Financial Statements (Unaudited)
GLOBAL
HEALTHCARE REIT, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
3,378,862
|
|
|
$
|
3,567,437
|
|
Restricted Cash
|
|
|
410,866
|
|
|
|
410,866
|
|
Accounts Receivable, Net
|
|
|
2,272,978
|
|
|
|
1,931,569
|
|
Prepaid Expenses and Other
|
|
|
741,692
|
|
|
|
682,949
|
|
Investments in Debt Securities
|
|
|
24,387
|
|
|
|
24,387
|
|
Total Current Assets
|
|
|
6,828,785
|
|
|
|
6,617,208
|
|
|
|
|
|
|
|
|
|
|
Long Term Assets
|
|
|
|
|
|
|
|
|
Property and Equipment, Net
|
|
|
38,015,253
|
|
|
|
38,238,367
|
|
Goodwill
|
|
|
1,076,908
|
|
|
|
1,076,908
|
|
Total Assets
|
|
$
|
45,920,946
|
|
|
$
|
45,932,483
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Liabilities
|
|
$
|
3,282,997
|
|
|
$
|
3,196,178
|
|
Accounts Payable – Related Parties
|
|
|
72,800
|
|
|
|
9,900
|
|
Dividends Payable
|
|
|
7,500
|
|
|
|
7,500
|
|
Current Maturities of Long Term Debt, Net of Discount of $751 and $1,714, respectively
|
|
|
12,502,972
|
|
|
|
19,299,156
|
|
Debt – Related Parties, Net of discount of $3,234 and $3,234, respectively
|
|
|
1,121,766
|
|
|
|
1,121,766
|
|
Total Current Liabilities
|
|
|
16,988,035
|
|
|
|
23,634,500
|
|
|
|
|
|
|
|
|
|
|
Debt, Net of discount of $416,865 and $450,879, respectively
|
|
|
25,215,666
|
|
|
|
18,830,444
|
|
Lease Security Deposit
|
|
|
250,100
|
|
|
|
251,600
|
|
Total Liabilities
|
|
|
42,453,801
|
|
|
|
42,716,544
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Preferred Stock:
|
|
|
|
|
|
|
|
|
Series A - No Dividends, $2.00 Stated Value, Non-Voting; 2,000,000 Shares Authorized, 200,500 Shares
Issued and Outstanding
|
|
|
401,000
|
|
|
|
401,000
|
|
Series D - 8% Cumulative, Convertible, $1.00 Stated Value, Non-Voting; 1,000,000 Shares Authorized,
375,000 Shares Issued and Outstanding
|
|
|
375,000
|
|
|
|
375,000
|
|
Common Stock - $0.05 Par Value; 50,000,000 Shares Authorized, 26,866,379 and 26,866,379 Shares Issued
and Outstanding at March 31, 2021 and December 31, 2020, respectively
|
|
|
1,343,319
|
|
|
|
1,343,319
|
|
Additional Paid-In Capital
|
|
|
10,331,065
|
|
|
|
10,331,065
|
|
Accumulated Deficit
|
|
|
(8,795,844
|
)
|
|
|
(9,036,400
|
)
|
Total Global Healthcare REIT, Inc. Stockholders’ Equity
|
|
|
3,654,540
|
|
|
|
3,413,984
|
|
Noncontrolling Interests
|
|
|
(187,395
|
)
|
|
|
(198,045
|
)
|
Total Equity
|
|
|
3,467,145
|
|
|
|
3,215,939
|
|
Total Liabilities and Equity
|
|
$
|
45,920,946
|
|
|
$
|
45,932,483
|
|
See
accompanying notes to unaudited consolidated financial statements.
GLOBAL
HEALTHCARE REIT, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Rental Revenue
|
|
$
|
390,386
|
|
|
$
|
521,012
|
|
Healthcare Revenue
|
|
|
5,372,457
|
|
|
|
3,330,589
|
|
Total Revenue
|
|
|
5,762,843
|
|
|
|
3,851,601
|
|
Expenses
|
|
|
|
|
|
|
|
|
Property Taxes, Insurance and Other Operating
|
|
|
3,544,730
|
|
|
|
2,331,744
|
|
General and Administrative
|
|
|
2,098,327
|
|
|
|
343,063
|
|
Provision for Bad Debts
|
|
|
24,134
|
|
|
|
206,608
|
|
Acquisition Costs
|
|
|
-
|
|
|
|
14,891
|
|
Depreciation and Amortization
|
|
|
401,023
|
|
|
|
387,218
|
|
Total Expenses
|
|
|
6,068,214
|
|
|
|
3,283,524
|
|
Income from Operations
|
|
|
(305,371
|
)
|
|
|
568,077
|
|
Other Income
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
543,543
|
|
|
|
505,270
|
|
Gain on Forgiveness of PPP Loan
|
|
|
(675,598
|
)
|
|
|
-
|
|
Other Income
|
|
|
(432,022
|
)
|
|
|
-
|
|
Total Other (Income) Expense
|
|
|
(564,077
|
)
|
|
|
505,270
|
|
Net Income
|
|
|
258,706
|
|
|
|
62,807
|
|
Net (Income) Loss Attributable to Noncontrolling Interests
|
|
|
(10,650
|
)
|
|
|
(1,707
|
)
|
Net Income Attributable to Global Healthcare REIT, Inc.
|
|
|
248,056
|
|
|
|
61,100
|
|
Series D Preferred Dividends
|
|
|
(7,500
|
)
|
|
|
(7,500
|
)
|
Net Income Attributable to Common Stockholders
|
|
$
|
240,556
|
|
|
$
|
53,600
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
Net Income per Share Attributable to Common Stockholders:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
Diluted
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
26,866,379
|
|
|
|
27,441,040
|
|
Diluted
|
|
|
27,605,688
|
|
|
|
27,441,040
|
|
See
accompanying notes to unaudited consolidated financial statements.
GLOBAL
HEALTHCARE REIT, INC.
CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
|
|
Series A Preferred Stock
|
|
|
Series D Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Global
Healthcare
REIT,
Inc.
|
|
|
Non-
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Number of Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Accumulated Deficit
|
|
|
Stockholders’
Equity
|
|
|
controlling Interests
|
|
|
Total Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2020
|
|
|
200,500
|
|
|
|
401,000
|
|
|
|
375,000
|
|
|
|
375,000
|
|
|
|
26,866,379
|
|
|
|
1,343,319
|
|
|
|
10,331,065
|
|
|
|
(9,036,400
|
)
|
|
|
3,413,984
|
|
|
|
(198,045
|
)
|
|
|
3,215,939
|
|
Series D Preferred Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,500
|
)
|
|
|
(7,500
|
)
|
|
|
-
|
|
|
|
(7,500
|
)
|
Net Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
248,056
|
|
|
|
248,056
|
|
|
|
10,650
|
|
|
|
258,706
|
|
Balance, March 31, 2021
|
|
|
200,500
|
|
|
|
401,000
|
|
|
|
375,000
|
|
|
|
375,000
|
|
|
|
26,866,379
|
|
|
|
1,343,319
|
|
|
|
10,331,065
|
|
|
|
(8,795,844
|
)
|
|
|
3,654,540
|
|
|
|
(187,395
|
)
|
|
|
3,467,145
|
|
|
|
Series
A Preferred Stock
|
|
|
Series
D Preferred Stock
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
Global
Healthcare
REIT, Inc.
|
|
|
Non-
|
|
|
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Paid-In
Capital
|
|
|
Accumulated
Deficit
|
|
|
Stockholders’
Equity
|
|
|
controlling
Interests
|
|
|
Total
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2019
|
|
|
200,500
|
|
|
|
401,000
|
|
|
|
375,000
|
|
|
|
375,000
|
|
|
|
27,441,040
|
|
|
|
1,372,052
|
|
|
|
10,385,417
|
|
|
|
(11,962,220
|
)
|
|
|
571,249
|
|
|
|
(204,599
|
)
|
|
|
366,650
|
|
Relative
Fair Value of Warrants Issued with Senior Secured Notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,762
|
|
|
|
-
|
|
|
|
19,762
|
|
|
|
-
|
|
|
|
19,762
|
|
Series
D Preferred Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,500
|
)
|
|
|
(7,500
|
)
|
|
|
-
|
|
|
|
(7,500
|
)
|
Net
Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61,100
|
|
|
|
61,100
|
|
|
|
1,707
|
|
|
|
62,807
|
|
Balance,
March 31, 2020
|
|
|
200,500
|
|
|
|
401,000
|
|
|
|
375,000
|
|
|
|
375,000
|
|
|
|
27,441,040
|
|
|
|
1,372,052
|
|
|
|
10,405,179
|
|
|
|
(11,908,620
|
)
|
|
|
644,611
|
|
|
|
(202,892
|
)
|
|
|
441,719
|
|
See
accompanying notes to unaudited consolidated financial statements.
GLOBAL
HEALTHCARE REIT, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
258,706
|
|
|
$
|
62,807
|
|
Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities:
|
|
|
|
|
|
|
|
|
Gain on Forgiveness from PPP Loan
|
|
|
(675,598
|
)
|
|
|
-
|
|
Other Income from Partial Settlement of Debt
|
|
|
(432,022
|
)
|
|
|
-
|
|
Depreciation and Amortization
|
|
|
401,023
|
|
|
|
387,218
|
|
Amortization of Deferred Loan Costs and Debt Discount
|
|
|
34,977
|
|
|
|
44,793
|
|
Provision for Bad Debts
|
|
|
24,134
|
|
|
|
206,608
|
|
Changes in Operating Assets and Liabilities, Net of Assets and Liabilities Acquired:
|
|
|
|
|
|
|
|
|
Accounts and Rents Receivable
|
|
|
(365,543
|
)
|
|
|
(447,571
|
)
|
Prepaid Expenses and Other Assets
|
|
|
(58,743
|
)
|
|
|
126,038
|
|
Deferred Rent Receivable
|
|
|
-
|
|
|
|
(13,142
|
)
|
Accounts Payable and Accrued Liabilities
|
|
|
149,719
|
|
|
|
(115,327
|
)
|
Lease Security Deposits
|
|
|
(1,500
|
)
|
|
|
1,000
|
|
Cash Provided by (Used in) Operating Activities
|
|
|
(664,847
|
)
|
|
|
252,424
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Net Cash Paid in Higher Call Asset Acquisition
|
|
|
-
|
|
|
|
(1,045,767
|
)
|
Capital Expenditures for Property and Equipment
|
|
|
(177,909
|
)
|
|
|
(40,156
|
)
|
Cash Used in Investing Activities
|
|
|
(177,909
|
)
|
|
|
(1,085,923
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from Issuance of Debt, Related Party
|
|
|
-
|
|
|
|
100,000
|
|
Proceeds from Issuance of Debt, Non-Related Party
|
|
|
885,164
|
|
|
|
1,111,721
|
|
Payments on Debt, Non-Related Party
|
|
|
(223,483
|
)
|
|
|
(124,641
|
)
|
Dividends Paid on Preferred Stock
|
|
|
(7,500
|
)
|
|
|
(7,500
|
)
|
Cash Provided by Financing Activities
|
|
|
654,181
|
|
|
|
1,079,580
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash
|
|
|
(188,575
|
)
|
|
|
246,081
|
|
Cash and Cash Equivalents and Restricted Cash at Beginning of the Period
|
|
|
3,978,303
|
|
|
|
992,513
|
|
Cash and Cash Equivalents and Restricted Cash at End of the Period
|
|
$
|
3,789,728
|
|
|
$
|
1,238,594
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash Paid for Interest
|
|
$
|
543,543
|
|
|
$
|
460,478
|
|
Cash Paid for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
3,378,862
|
|
|
$
|
854,834
|
|
Restricted Cash
|
|
|
410,866
|
|
|
|
383,760
|
|
Total Cash and Cash Equivalents and Restricted Cash
|
|
$
|
3,789,728
|
|
|
$
|
1,238,594
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
Dividends Declared on Series D Preferred Stock
|
|
$
|
7,500
|
|
|
$
|
7,500
|
|
Non-cash owner financing for fixed assets purchase
|
|
|
-
|
|
|
|
150,000
|
|
Prepaid deposit exchanged for fixed asset acquisition
|
|
|
-
|
|
|
|
117,500
|
|
Relative Fair Value of Warrants Issued with Senior Secured Notes
|
|
|
-
|
|
|
|
19,762
|
|
See
accompanying notes to unaudited consolidated financial statements.
GLOBAL
HEALTHCARE REIT, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and Description of the Business
Global
Healthcare REIT, Inc. (“Global” or “we” or the “Company”) was initially organized for the purpose
of investing in real estate related to the long-term care industry. Intentionally, in 2019 the Company’s focus began to shift from
leasing long-term care facilities to third-party, independent operators towards an owner operator model, where wholly-owned subsidiaries
will operate these facilities. As a result, the Company no longer intends to elect to qualify as a REIT and is in the process
of gaining approval for a name change and other charter provision changes to better reflect its current business model. In 2020, the
Company adopted an assumed tradename “Selectis Health, Inc.” and intends to formally change its name to that moniker at the
next annual meeting of shareholders scheduled for May 25th, 2021.
Prior
to the Company changing its name to Global Healthcare REIT, Inc. on September 30, 2013, the Company was known as Global Casinos, Inc.
Global Casinos, Inc. operated two gaming casinos which were split-off and sold on September 30, 2013. Simultaneous with the split-off
and sale of the gaming operations, the Company acquired West Paces Ferry Healthcare REIT, Inc. (“WPF”). WPF was merged into
the Company in 2019.
We
acquire, develop, lease, manage and dispose of healthcare real estate, provide financing to healthcare providers, and provide healthcare
operations through our wholly-owned subsidiaries. Our portfolio is comprised of investments in the following three healthcare segments:
(i) senior housing (including independent and assisted living), (ii) post-acute/skilled nursing, and (iii) bonds securing senior housing
communities. We will make investments within our healthcare segments using the following six investment products: (i) direct ownership
of properties, (ii) debt investments, (iii) developments and redevelopments, (iv) investment management, (v) the Housing and Economic
Recovery Act of 2008 (“RIDEA”), which represents investments in senior housing operations utilizing the structure permitted
by RIDEA and (xi) owning healthcare operations.
Management’s
Liquidity Plans
On
August 27, 2014, FASB issued ASU 2014-05, Disclosure of Uncertainties about an Entity’s ability to Continue as a Going
Concern, which requires management to assess a company’s ability to continue as a going concern within one year from financial
statement issuance and to provide related footnote disclosures in certain circumstances.
For the three months ended March 31, 2021, the
Company had negative operating cash flows of $664,847 and a working capital deficit of $10.2 million as of March 31, 2021. However, management
believes that the Company’s ability to meet its obligations for the next twelve months from the date these financial statements
were issued has been alleviated due to, but not limited to:
|
1.
|
Projected
cash flows from operations resulting from continued improvement of the Company’s operating performance. During the three months
ended March 31, 2021, the Company recorded net income of $258,706. In March of 2021, the Company opened Park Place and is planning to
acquire, or open one to three additional facilities in 2021. Based on management’s projections we expect to generate positive cash
flows for the next twelve months.
|
|
|
|
|
2.
|
Future
refinancing of existing debt. As of March 31, 2021, the Company has a working capital deficit of approximately $10.2 million due to approximately
$13 million of debts maturing in the 2021 fiscal year. Management is in discussion with all lenders, and HUD to begin the refinancing
of these notes to longer-term paper which will provide more certainty for future loan payments.
|
The
focus on opportunities within our current portfolio and future properties to acquire and operate, the settlement, refinance, and continued
service of debt obligations, the potential funds generated from stock sales and other initiatives contributing to additional working
capital should alleviate any substantial doubt about the Company’s ability to continue as a going concern as defined by ASU 2014-05.
However, we cannot predict, with certainty, the outcome of our actions to generate liquidity and the failure to do so could negatively
impact our future operations.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles (U.S. GAAP) for interim financial information and in conjunction with the rules and regulations of the Securities Exchange
Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
In the opinion of management, all adjustments considered necessary to make the consolidated financial statements not misleading have
been included. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be
expected for the entire year. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020
filed with the Securities and Exchange Commission.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company presents noncontrolling
interests within the equity section of its consolidated balance sheets and the amount of consolidated net income that is attributable
to Global Healthcare REIT, Inc. and the noncontrolling interest in its consolidated statements of operations.
Recently
Issued Accounting Pronouncements
The
Financial Accounting Standards Board and other entities issued new or modifications to, or interpretations of, existing accounting guidance
during 2021. Management has carefully considered the new pronouncements that altered generally accepted accounting principles and does
not believe that any other new or modified principles will have a material impact on the Company’s reported financial position
or operations in the near term.
Reclassification
Certain
amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial
statements. These reclassifications had no effect on the previously reported net loss.
Earnings
per Share
Basic
earnings per share are based on the weighted-average number of shares of common stock outstanding. FASB ASC Topic 260, “Earnings
per Share”, requires the Company to include additional shares in the computation of earnings per share, assuming dilution.
Diluted
earnings per share are based on the assumption that all dilutive options and warrants were converted or exercised by applying the treasury
stock method and that all convertible preferred stock were converted into common shares by applying the if-converted method. Under the
treasury stock method, options and warrants are assumed to be exercised at the beginning of the period or at the time of issuance, if
later, and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted
method, the preferred dividends applicable to convertible preferred stock are added back to the numerator. The convertible preferred
stock is assumed to have been converted at the beginning of the period or at time of issuance, if later, and the resulting common shares
are included in the denominator.
We
calculate basic earnings per share by dividing net income attributable to common stockholders (the “numerator”) by the weighted
average number of common shares outstanding (the “denominator”) during the reporting period. Diluted earnings per share is
calculated similarly but reflects the potential impact of outstanding options, warrants and other commitments to issue common stock,
including shares issuable upon the conversion of convertible preferred stock outstanding, except where the impact would be anti-dilutive.
The
following table sets forth the computation of basic and diluted earnings per share:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Numerator for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Global Healthcare REIT, Inc.
|
|
$
|
248,056
|
|
|
$
|
61,100
|
|
Series D Preferred Dividends
|
|
|
(7,500
|
)
|
|
|
(7,500
|
)
|
Net Income (Loss) Attributable to Common Stockholders
|
|
$
|
240,556
|
|
|
$
|
53,600
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share:
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding
|
|
|
26,866,379
|
|
|
|
27,441,040
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding - Basic
|
|
|
26,866,379
|
|
|
|
27,441,040
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
245,417
|
|
|
|
-
|
|
Exercise of warrants
|
|
|
493,892
|
|
|
|
-
|
|
Weighted Average Common Shares Outstanding - Diluted
|
|
|
27,605,688
|
|
|
|
27,441,040
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per Share Attributable to Common Stockholders:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
Diluted
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
Fair Value Measurements
The
Company utilizes the methods of fair value measurement as described in ASC 820 to value its financial assets and liabilities. As defined
in ASC 820, fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, ASC
820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad
levels, which are described below:
Level
1 – Quoted market prices in active markets for identical assets or liabilities at the measurement date.
Level
2 – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities
in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.
Level
3 – Inputs reflecting management’s best estimates and assumptions of what market participants would use in pricing assets
or liabilities at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.
A
financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant
to the fair value measurement.
The
Company has no financial assets or financial liabilities that are required to be measured at fair value on a recurring basis as of March
31, 2021.
Our
consolidated balance sheets include the following financial instruments: cash and cash equivalents, accounts receivable, restricted cash,
accounts payable, debt and lease security deposit. We consider the carrying values of our short-term financial instruments to approximate
fair value because they generally expose the Company to limited credit risk, because of the short period of time between origination
of the financial assets and liabilities and their expected settlement, or because of their proximity to acquisition date fair values.
The carrying value of debt approximates fair value based on borrowing rates currently available for debt of similar terms and maturities.
Upon
acquisition of real estate properties, the Company determines the total purchase price of each property and allocates this price based
on the fair value of the tangible assets and intangible assets, if any, acquired and any liabilities assumed based on Level 3 inputs.
These Level 3 inputs can include comparable sales values, discount rates, and capitalization rates from a third-party appraisal or other
market sources.
3.
PROPERTY AND EQUIPMENT,
NET
The
gross carrying amount and accumulated depreciation of the Company’s property and equipment as of March 31, 2021 and December 31,
2020 are as follows:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
1,778,250
|
|
|
$
|
1,778,250
|
|
Land Improvements
|
|
|
242,000
|
|
|
|
242,000
|
|
Buildings and Improvements
|
|
|
40,790,239
|
|
|
|
40,612,330
|
|
Furniture, Fixtures and Equipment
|
|
|
2,123,418
|
|
|
|
2,123,418
|
|
Construction in Progress
|
|
|
3,728,431
|
|
|
|
3,728,431
|
|
|
|
|
48,662,338
|
|
|
|
48,484,429
|
|
|
|
|
|
|
|
|
|
|
Less Accumulated Depreciation
|
|
|
(9,087,085
|
)
|
|
|
(8,686,062
|
)
|
Less Impairment
|
|
|
(1,560,000
|
)
|
|
|
(1,560,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38,015,253
|
|
|
$
|
38,238,367
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Depreciation Expense (excluding Intangible Assets)
|
|
$
|
401,023
|
|
|
$
|
371,960
|
|
|
|
|
|
|
|
|
|
|
Cash Paid for Capital Expenditures
|
|
$
|
177,909
|
|
|
$
|
40,156
|
|
4.
INVESTMENTS IN DEBT SECURITIES
At
March 31, 2021 and December 31, 2020, the Company held investments in debt securities that were classified as held-to-maturity and carried
at amortized costs. Held-to-maturity securities consisted of the following:
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
|
|
|
|
|
|
|
|
|
States
and Municipalities
|
|
$
|
24,387
|
|
|
$
|
24,387
|
|
Contractual
maturity of held-to-maturity securities at March 31, 2021 is $24,387, all due in one year or less, and total value of securities at their
respective maturity dates is $24,387. Actual maturities may differ from contractual maturities because some borrowers have the right
to call or prepay obligations with or without call or prepayment penalties.
5.
DEBT AND DEBT - RELATED PARTIES
The
following is a summary of the Company’s debt outstanding as of March 31, 2021 and December 31, 2020:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Senior Secured Promissory Notes
|
|
$
|
1,670,000
|
|
|
$
|
1,695,000
|
|
Senior Secured Promissory Notes - Related Parties
|
|
|
975,000
|
|
|
|
975,000
|
|
Fixed-Rate Mortgage Loans
|
|
|
30,396,334
|
|
|
|
30,370,220
|
|
Variable-Rate Mortgage Loans
|
|
|
5,212,061
|
|
|
|
5,650,579
|
|
Other Debt, Subordinated Secured
|
|
|
741,000
|
|
|
|
741,000
|
|
Other Debt, Subordinated Secured - Related Parties
|
|
|
150,000
|
|
|
|
150,000
|
|
Other Debt, Subordinated Secured - Seller Financing
|
|
|
116,859
|
|
|
|
125,394
|
|
|
|
|
39,261,254
|
|
|
|
39,707,193
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
(420,850
|
)
|
|
|
(455,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38,840,404
|
|
|
$
|
39,251,366
|
|
As presented in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Maturities of Long Term Debt, Net
|
|
$
|
12,502,972
|
|
|
$
|
19,299,156
|
|
Debt, Net
|
|
|
25,215,666
|
|
|
|
18,830,444
|
|
Debt - Related Parties, Net
|
|
|
1,121,766
|
|
|
|
1,121,766
|
|
The weighted average interest rate and term of
our fixed rate debt are 4.78% and 7.16 years, respectively, as of March 31, 2021. The weighted average interest rate and term of our
variable rate debt are 5.90% and 16.87 years, respectively, as of March 31, 2021.
Corporate
Senior and Senior Secured Promissory Notes
As of March 31, 2021 and December 31, 2020, the senior secured notes
are subject to annual interest ranging from 10% to 11% and mature on October 31, 2021.
Mortgage
Loans and Lines of Credit Secured by Real Estate
Mortgage
loans and other debts such as line of credit here are collateralized by all assets of each nursing home property and an assignment of
its rents. Collateral for certain mortgage loans includes the personal guarantee of Christopher Brogdon, formerly but no longer a related
party, or corporate guarantees. Mortgage loans for the periods presented consisted of the following:
|
|
|
|
|
|
|
|
Total
Principal Outstanding as of
|
|
State
|
|
Number
of Properties
|
|
|
Total
Face Amount
|
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
Arkansas(1)
|
|
|
1
|
|
|
$
|
5,000,000
|
|
|
$
|
4,186,462
|
|
|
$
|
4,618,006
|
|
Georgia(2)
|
|
|
5
|
|
|
$
|
17,765,992
|
|
|
$
|
16,903,958
|
|
|
$
|
17,029,094
|
|
Ohio
|
|
|
1
|
|
|
$
|
3,000,000
|
|
|
$
|
2,779,399
|
|
|
$
|
2,798,000
|
|
Oklahoma(3)
|
|
|
6
|
|
|
$
|
12,378,599
|
|
|
$
|
11,738,576
|
|
|
$
|
11,575,699
|
|
|
|
|
13
|
|
|
$
|
38,144,591
|
|
|
$
|
35,608,395
|
|
|
$
|
36,020,799
|
|
(1)
|
The
mortgage loan collateralized by this property is 80% guaranteed by the USDA and requires an annual renewal fee payable in
the amount of 0.25% of the USDA guaranteed portion of the outstanding principal balance as of December 31 of each year. Guarantors
under the mortgage loan include Christopher Brogdon. With our consent, Mr. Brogdon has assumed operations of the facility
and is making payments of principal and interest on the loan on our behalf in lieu of paying rent on the facility to us.
During the three months ended March 31, 2021, the Company recognized other income of $432,022 for repayments on the loan. of interest on the loan.
|
(2)
|
The Company has two mortgages maturing in May and October 2021 amounting
to $2,964,152 and 3,306,011, respectively.
|
(3)
|
The
Company has three mortgages maturing in June and July of 2021amounting to $2,065,969 and $750,000, $2,928, respectively.
|
Other
mortgage loans contain non-financial covenants, including reporting obligations, with which the Company has not complied in some instances
or in an untimely manner. These mortgage loans are technically in default; however, our relationship with these lenders is considered
good.
Subordinated,
Corporate and Other Debt
Other
debt due at March 31, 2021 and December 31, 2020 includes unsecured notes payable issued to entities controlled by the Company
used to facilitate the acquisition of the nursing home properties.
|
|
|
|
|
Principal
Outstanding at
|
|
|
|
|
|
Property
|
|
Face
Amount
|
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
|
Stated
Interest Rate
|
|
Maturity
Date
|
Goodwill
Nursing Home
|
|
$
|
2,030,000
|
|
|
$
|
741,000
|
|
|
$
|
741,000
|
|
|
13%
Fixed
|
|
December
31, 2019
|
Goodwill
Nursing Home – Related Party
|
|
$
|
150,000
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
13%
Fixed
|
|
December
31, 2019
|
Higher
Call Nursing Center
|
|
|
150,000
|
|
|
|
116,859
|
|
|
|
125,394
|
|
|
8%
Fixed
|
|
April
1, 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,007,859
|
|
|
$
|
1,016,394
|
|
|
|
|
|
Our
corporate debt at March 31, 2021 and December 31, 2020 includes unsecured notes and notes secured by all assets of the Company not serving
as collateral for other notes.
|
|
Face
|
|
|
Principal
Outstanding at
|
|
|
Stated
Interest
|
|
|
Series
|
|
Amount
|
|
|
March
31, 2021
|
|
|
December 31, 2020
|
|
|
Rate
|
|
Maturity
Date
|
10%
Senior Secured Promissory Note
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
10.0%
Fixed
|
|
December
31, 2018
|
11%
Senior Secured Promissory Notes
|
|
|
1,670,000
|
|
|
|
1,645,000
|
|
|
|
1,670,000
|
|
|
11.0%
Fixed
|
|
October
31, 2021
|
11%
Senior Secured Promissory Notes – Related Party
|
|
|
975,000
|
|
|
|
975,000
|
|
|
|
975,000
|
|
|
11.0%
Fixed
|
|
October
31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,645,000
|
|
|
$
|
2,670,000
|
|
|
|
|
|
On January 28, 2021, the Company through
its subsidiaries received a loan of $675,598 pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on January 28, 2023 (the “Maturity
Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are
due within the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable,
together with the principal, on the Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain
payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are
eligible for forgiveness, subject to the provisions of the CARES Act. The Company believes it is probable that the loan will be
forgiven by the SBA and has recognized the proceeds as gain on forgiveness of PPP loan in the consolidated statements of operations
Future
maturities and principal reduction payments of all notes payable listed above for the next five years and thereafter are as follows:
Years
|
|
|
|
Remaining 9 months of 2021
|
|
$
|
12,625,060
|
|
2022
|
|
|
2,779,399
|
|
2023
|
|
|
7,110,081
|
|
2024
|
|
|
116,859
|
|
2025
|
|
|
4,920,993
|
|
2026 and after
|
|
|
11,708,862
|
|
|
|
|
|
|
|
|
$
|
39,261,254
|
|
6.
STOCKHOLDERS’ EQUITY
Preferred
Stock
Dividends
declared of $7,500 were accrued as of March 31, 2021 and will be paid on or about June 30, 2021.
Common
Stock
For
the three months ended March 31, 2021, the Company did not issue nor did it pay dividends on common stock.
Common
Stock Warrants
As
of March 31, 2021 and December 31, 2020, the Company had 2,756,000 and 2,756,000, respectively, of outstanding warrants
to purchase common stock at a weighted average exercise price of $0.50 and $0.50, respectively, and weighted average remaining
term of 0.75 years and 0.93 years, respectively. The aggregate intrinsic value of common stock warrants outstanding as
of March 31, 2021 and December 31, 2020 was
$227,370 and $82,680, respectively. Activity for the three months ended March 31, 2021 related to common stock warrants
is as follows:
|
|
March
31, 2021
|
|
|
|
Number
of Warrants
|
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
|
2,756,000
|
|
|
$
|
0.50
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
|
2,756,000
|
|
|
$
|
0.50
|
|
Common
Stock Options
As
of March 31, 2021, the Company had 600,000 outstanding options to purchase common stock with a weighted average exercise price of $0.36,
a weighted average remaining term of 2 years and an intrinsic value of $133,500.
7.
RELATED PARTIES
Clifford
Neuman, a member of the Company’s Board of Directors, provided legal services to the Company. As of March 31, 2021, and December
31, 2020 the Company owed Mr. Neuman for legal services rendered $72,800 and $9,900, respectively.
8.
FACILITY LEASES
The
following table summarizes our leasing arrangements related to the Company’s healthcare facilities at March 31, 2021:
Facility
|
|
Monthly
Lease Income (1)
|
|
|
Lease
Expiration
|
|
Renewal
Option if any
|
Warrenton(2)
|
|
$
|
54,101
|
|
|
-
|
|
None
|
Goodwill
(3)
|
|
$
|
48,125
|
|
|
February
1, 2027
|
|
Term
may be extended for one additional five-year term.
|
Providence(4)
|
|
$
|
41,616
|
|
|
-
|
|
None
|
(1)
|
Monthly
lease income reflects rent income on a straight-line basis over, where applicable, the term of each lease.
|
(2)
|
The
Company served Notice of Termination to operator in January 2021. As per the Order issued by the Federal Bankruptcy Court, the
current operator is to continue to make rental payments. See footnote 10.
|
(3)
|
The
lease became effective on February 1, 2017, and the facility began generating rental revenue thereafter.
|
(4)
|
The
Company served Notice of Termination to operator in January 2021. As per the Order issued by the Federal Bankruptcy
Court, the current operator is to continue to make rental payments. See footnote 10.
|
Future
cash payments for rent to be received during the initial terms of the leases for the next five years and thereafter are as follows:
Years
|
|
|
|
|
|
|
|
Remaining 9 months of 2021
|
|
$
|
464,562
|
|
2022
|
|
|
626,808
|
|
2023
|
|
|
635,026
|
|
2024
|
|
|
643,401
|
|
2025
|
|
|
651,954
|
|
2026
and Thereafter
|
|
|
715,781
|
|
|
|
|
|
|
|
|
$
|
3,737,532
|
|
9.
SEGMENT REPORTING
The
Company had two primary reporting segments during the three months ended March 31, 2021, which include real estate services and healthcare
services. 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.
|
|
Statements of Operations Items
for the Three Months Ended
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
Real Estate Services
|
|
|
Healthcare Services
|
|
|
Consolidated
|
|
|
Real Estate Services
|
|
|
Healthcare Services
|
|
|
Consolidated
|
|
Rental Revenue
|
|
$
|
390,386
|
|
|
$
|
-
|
|
|
|
390,386
|
|
|
$
|
521,012
|
|
|
$
|
-
|
|
|
$
|
521,012
|
|
Healthcare Revenue
|
|
|
-
|
|
|
|
5,372,457
|
|
|
|
5,372,457
|
|
|
|
-
|
|
|
|
3,330,589
|
|
|
|
3,330,589
|
|
Total Revenue
|
|
|
390,386
|
|
|
|
5,372,457
|
|
|
|
5,762,843
|
|
|
|
521,012
|
|
|
|
3,330,589
|
|
|
|
3,851,601
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Taxes, Insurance and Other Operating
|
|
|
361,606
|
|
|
|
3,183,124
|
|
|
|
3,544,730
|
|
|
|
145,840
|
|
|
|
2,185,904
|
|
|
|
2,331,744
|
|
General and Administrative
|
|
|
1,503,531
|
|
|
|
594,796
|
|
|
|
2,098,327
|
|
|
|
148,570
|
|
|
|
194,493
|
|
|
|
343,063
|
|
Provision for Bad Debts
|
|
|
24,134
|
|
|
|
-
|
|
|
|
24,134
|
|
|
|
-
|
|
|
|
206,608
|
|
|
|
206,608
|
|
Acquisition Costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,891
|
|
|
|
-
|
|
|
|
14,891
|
|
Depreciation and Amortization
|
|
|
47,713
|
|
|
|
353,310
|
|
|
|
401,023
|
|
|
|
335,359
|
|
|
|
51,859
|
|
|
|
387,218
|
|
Total Expenses
|
|
|
1,936,984
|
|
|
|
4,131,230
|
|
|
|
6,068,214
|
|
|
|
644,660
|
|
|
|
2,638,864
|
|
|
|
3,283,524
|
|
Income (Loss) from Operations
|
|
|
(1,546,598
|
)
|
|
|
1,241,227
|
|
|
|
(305,371
|
)
|
|
|
(123,648
|
)
|
|
|
691,725
|
|
|
|
568,077
|
|
Other (Income) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
543,543
|
|
|
|
-
|
|
|
|
543,543
|
|
|
|
477,763
|
|
|
|
27,507
|
|
|
|
505,270
|
|
Gain on Forgiveness of PPP Loan
|
|
|
-
|
|
|
|
(675,598
|
)
|
|
|
(675,598
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other (Income) Expense
|
|
|
(432,022
|
)
|
|
|
-
|
|
|
|
(432,022
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Other (Income) Expense
|
|
|
111,521
|
|
|
|
(675,598
|
)
|
|
|
(564,077
|
)
|
|
|
477,763
|
|
|
|
27,507
|
|
|
|
505,270
|
|
Net Income (Loss)
|
|
|
(1,658,119
|
)
|
|
|
1,916,825
|
|
|
|
258,706
|
|
|
|
(601,411
|
)
|
|
|
664,218
|
|
|
|
62,807
|
|
Net (Income) Loss Attributable to Noncontrolling Interests
|
|
|
(10,650
|
)
|
|
|
-
|
|
|
|
(10,650
|
)
|
|
|
(1,707
|
)
|
|
|
-
|
|
|
|
(1,707
|
)
|
Net Income (Loss) Attributable to Global Healthcare REIT,
Inc.
|
|
$
|
(1,668,769
|
)
|
|
$
|
1,916,825
|
|
|
$
|
248,056
|
|
|
$
|
(603,118
|
)
|
|
$
|
664,218
|
|
|
$
|
61,100
|
|
10.
LEGAL PROCEEDINGS
The
Company and/or its affiliated subsidiaries are or were involved in the following litigation:
Bailey
v. GL Nursing, LLC, et. al in the Circuit Court of Lonoke County, Arkansas, 23rd Circuit, 43CV-19-151.
In
April 2019, the Company’s wholly-owned subsidiary was named as a co-defendant in the action arising out of a claimed personal injury
suffered by the plaintiff while a resident of the skilled nursing home owned, but not operated, by GL Nursing. As of this date, we have
engaged legal counsel, but no further information is known regarding the merits of the claim. After initial inquiry, it does not appear
that the lease operator of the facility had in effect general liability insurance covering the GL Nursing, as landlord, as required by
the operating lease.
As
we simply were the owners of the property and not the operators, we believe that primary responsibility, if any, falls with the operator
at the time. Under the terms of the lease, the operator has a duty to indemnify the Company, a claim which we intend to assert.
While
it is too early to assess the Company’s exposure, we believe at this time that the likelihood of an adverse outcome is remote.
Thomas
v. Edwards Redeemer Property Holdings, LLC, et.al., District Court for Oklahoma County, Oklahoma, Case No. CJ 2016-2160.
This
action arises from a personal injury claim brought by heirs of a former resident of our Edwards Redeemer facility, filed in April 2016.
We are entitled to indemnification from the lease operator and should be covered under the lease operator’s general liability policy.
As we are not the operators of the facility and believe we have indemnity coverage, we believe we have no exposure. The lease operator’s
insurance carrier is providing a defense and indemnity and, as a result, we believe the likelihood of a material adverse result is remote.
Edwards
Redeemer Property Holdings LLC v. Edwards Redeemer Healthcare & Rehab, LLC, District Court of Oklahoma County, State of Oklahoma,
Case No. CJ-19-5883.
This
action was brought by us against the former lease operator for breaching the lease agreement, removing all the patients, and closing
the facility. On October 17, 2019, the Court entered an Order Appointing a Receiver. We have entered into a Settlement Agreement and
Release with the Receiver and an Operations Transfer Agreement pursuant to which out newly formed subsidiary will acquire the assets
and operations of the facility. While awaiting Court approval of those two agreements, we have been completing extensive remodeling of
the facility.
Dodge
NH, LLC v. Eastman Healthcare & Rehab, LLC, Superior Court of Dodge County, State of Georgia, File No. 19V-8716.
This
action was brought by us against the former lease operator for numerous violations of the operating lease, including violation of the
cross-default provisions with Edwards Redeemer, which had been operated by an affiliate of the Eastman operator. We also served a Notice
of Termination with respect to the operating lease. On October 18, 2019, the Court entered an Order granting to us a Temporary Restraining
Order requiring the lease operator to maintain the status quo of the facility. On November 21, 2019, the prior Temporary Restraining
Order was superseded by an Order Appointing Receiver requested by the Company’s subsidiary Dodge NH, LLC. Under the Order, a Receiver
designated by us and approved by the Court will oversee the operations at the facility. This Order will mitigate any potential disruption
to the facility’s ongoing operations in light of the various disputes between the Company and the former operator, Eastman Healthcare
& Rehab LLC, an affiliate of Cadence Healthcare Solutions, LLC. On January 15, 2020, the Receiver filed a Motion for the Court to
authorize the Receiver to negotiate an Operations Transfer Agreement with the Company, which Motion was granted. On July 2, 2020, the
court approved the Operations Transfer Agreement (“OTA”) from the receiver to Global Eastman, LLC, newly formed subsidiary
of the Company. Nearly simultaneously Global Eastman, LLC secured an operating license from the state with an effective date of July
1, 2020. Pursuant to the terms of the OTA, Global Eastman has assumed all operations associated with the prior operator, and the matter
is essentially resolved in all material respects.
Village
of Seville v. High Street Nursing, LLC, Wadsworth Municipal Court, State of Ohio, Case No 20-CRB-58.
This
is an action filed March 2020 for sanctions against our subsidiary arising from a claimed nuisance activity (assaults on patients) at
the skilled nursing facility. As we lease the facility to an operator, we have retained an attorney and entered a plea of Not Guilty.
We are the landlord and do not believe we have any liability in this matter. The action was subsequently dismissed without prejudice.
Cadence
Healthcare Solutions, LLC.
We
received a demand letter in February 2020 from an attorney representing Cadence Healthcare Solutions, LLC (“Cadence”) claiming
unpaid management fees incurred at our Glen Eagle Healthcare facility in Abbeville, Georgia. Cadence is the same manager that is involved
in the matters related to Edwards Redeemer in Oklahoma City and Eastman in Eastman, Georgia, as Cadence was the manager in all three
facilities until it was terminated in Q4 2019. We believe we have significant defenses and offsets to this claim and intend to defend
vigorously. We believe the likelihood of a material adverse outcome is remote.
Oliphant
v. Global Eastman, LLC, et.al., State Court of Cobb County, State of Georgia, Civil Action No. 20-A-3983
This
is a personal injury lawsuit against various defendants arising out of the death of a patient of the Eastman Healthcare & Rehab Center
(the “Facility”). At all relevant times, the Facility was owned by the Company’s wholly owned subsidiary Dodge NH,
LLC and leased to Eastman Health & Rehab LLC, an affiliate of Cadence Healthcare, as lease operator. Neither the Company nor any
affiliate of the Company had any involvement in patient care at the time of the incident for which complaint was made. The Company relies
upon well-settled Georgia law that a landlord has no liability for patient care. The landlord is Dodge NH, LLC. Global Eastman, LLC was
not formed as a legal entity during the period of the incident and did not assume the past liabilities as part of the OTA with the receivership
of Eastman Healthcare & Rehab LLC which was effective July 1, 2020. Global Eastman LLC was formed on November 21, 2019. We strongly
deny any liability and intend to vigorously defend. We believe that the likelihood of a material adverse outcome is remote.
In
the matter of Austin.
On
December 23, 2020, we received written notice from an attorney of the intent to assert an action for damages against Dodge NH, LLC, which
is our subsidiary that owns the nursing facility in Eastman Georgia. The action arises from the shooting death outside of the facility
of a woman that worked for our cleaning contractor that cleaned the nursing home. The woman was shot by her former boyfriend who then
committed suicide. The incident occurred in December 2019 when the facility was operated by a third-party operator who was in receivership.
We do not believe there is any basis in law or fact to hold the owner of the real estate liable, and as a result management has concluded
that the likelihood of a material adverse result is remote.
In
re: Providence HR, LLC v. CRM of Warrenton, LLC, United States Bankruptcy Court, Middle District of Georgia, Macon Division, Case No.
21-50201
In
re: ALT/WARR, LLC v. CRM of Sparta, LLC, United States Bankruptcy Court, Middle District of Georgia, Macon Division, Case No. 21-50200
These are companion cases arising out of the Company’s
election to terminate the operating leases on the Company’s two facilities in Warrenton and Sparta, Georgia. The Company served
a Notice of Termination on each facility and in response the lease operators filed voluntary petitions under Chapter 11 of the US Bankruptcy
Code. The Company filed Motions for Relief from Stay which was heard by the Court on March 22, 2021. By Order of the Court, the hearing
was continued to May 25, 2021. The Court entered an interim Order requiring the lease operators to comply with their leases, including
payment of rent, pending the next hearing. A status conference was held on May 17, 2021. Court date on May 25, 2021 is
still scheduled.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be
read in conjunction with our interim financial statements and notes thereto contained elsewhere in this report. This section contains
forward-looking statements, including estimates, projections, statements relating to our business plans, objectives and expected
operating results, and the assumptions upon which those statements are based. These forward-looking statements generally are identified
by the words “believes,” “project,” “expects,” “anticipates,” “estimates,”
“intends,” “strategy,” “plan,” “may,” “will,” “would,”
“will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking
statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual
results to differ materially from the forward-looking statements. Forward-looking statements that were true at the time made may
ultimately prove to be incorrect or false. We undertake no obligation to update or revise publicly any forward-looking statements,
whether because of new information, future events or otherwise. All forward-looking statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2020 as filed with the SEC.
Our
actual future results and trends may differ materially from expectations depending on a variety of factors discussed in our filings with
the SEC. These factors include without limitation:
●
|
macroeconomic
conditions, such as a prolonged period of weak economic growth, and volatility in capital markets;
|
|
|
●
|
changes
in national and local economic conditions in the real estate and healthcare markets specifically;
|
|
|
●
|
legislative
and regulatory changes impacting the healthcare industry, including the implementation of the healthcare reform legislation enacted
in 2010;
|
|
|
●
|
the
availability of debt and equity capital;
|
|
|
●
|
changes
in interest rates;
|
|
|
●
|
competition
in the real estate industry; and,
|
|
|
●
|
the
supply and demand for operating properties in our market areas.
|
Overview
Global
Healthcare REIT, Inc. (“Global” or “we” or the “Company”) was initially organized for the purpose
of investing in real estate related to the long-term care industry. Intentionally, in 2019 the Company’s focus began to shift from
leasing long-term care facilities to third-party, independent operators towards an owner operator model, where wholly-owned subsidiaries
will operate these facilities. As a result, the Company no longer intended to elect to qualify as a REIT and is in the process of gaining
approval for a name change and other charter provision changes to better reflect its current business model. In 2020, the Company adopted
an assumed tradename “Selectis Health, Inc.” and intends to formally change its name to that moniker at the next annual meeting
of shareholders.
Prior
to the Company changing its name to Global Healthcare REIT, Inc. on September 30, 2013, the Company was known as Global Casinos, Inc.
Global Casinos, Inc. operated two gaming casinos which were split-off and sold on September 30, 2013. Simultaneous with the split-off
and sale of the gaming operations, the Company acquired West Paces Ferry Healthcare REIT, Inc. (“WPF”). WPF was merged into
the Company in 2019.
We
acquire, develop, lease, manage and dispose of healthcare real estate, provide financing to healthcare providers, and provide healthcare
operations through our wholly-owned subsidiaries. Our portfolio is comprised of investments in the following three healthcare segments:
(i) senior housing (including independent and assisted living), (ii) post-acute/skilled nursing, and (iii) bonds securing senior housing
communities. We will make investments within our healthcare segments using the following six investment products: (i) direct ownership
of properties, (ii) debt investments, (iii) developments and redevelopments, (iv) investment management, (v) the Housing and Economic
Recovery Act of 2008 (“RIDEA”), which represents investments in senior housing operations utilizing the structure permitted
by RIDEA and (xi) owning healthcare operations.
The
delivery of healthcare services requires real estate and, as a result, tenants and operators depend on real estate, in part, to maintain
and grow their businesses. We believe that the healthcare real estate market provides investment opportunities due to the following:
|
●
|
Compelling demographics driving the demand for healthcare
services;
|
|
●
|
Specialized nature of healthcare real estate investing;
and
|
|
●
|
Ongoing consolidation of a fragmented healthcare real
estate sector.
|
COVID-19
Pandemic
In
December 2019, a novel strain of coronavirus (“COVID-19”) emerged in China. On March 11, 2020, the World Health Organization
declared the outbreak of COVID-19 a pandemic. The outbreak has now spread to the United States and infections have been reported globally.
Starting
in March 2020, the COVID-19 pandemic, and measures to prevent its spread began to affect us in a number of ways. In our operating portfolio,
occupancy trended lower in the second half of the month as government policies and implementation of infection control best practices
began to materially limit or close communities to new resident move-ins. In addition, starting in mid-March, operating costs began to
rise materially, including for services, labor and personal protective equipment and other supplies, as our operators took appropriate
actions to protect residents and caregivers. These trends accelerated in April and May, and are expected to continue through at least
June 2021, impacting revenues and net operating income.
The
Centers for Disease Control & Prevention (“CDC”) will provide final confirmation of the cases. The Company is engaging
in aggressive mitigation efforts in accordance with CDC and state Department of Health guidelines to protect the health and safety of
residents while respecting their rights. Employees at all of our facilities are taking several precautions as they care for residents,
including, among other things, monitoring themselves for symptoms upon leaving and returning home, and upon arriving at and leaving the
skilled nursing facility. They are also wearing masks and other personal protective equipment while caring for residents. Additionally,
as of the date of this Report, none of our third-party operators have reported any occurrences of COVID-19 in any of the buildings they
are managing. Our operators have also reported to us that they currently have adequate supply levels, including appropriate quantities
of Personal Protective Equipment (PPE) for staff. Additionally, as of the date of filing, the Company has received no additional information.
The
federal government, as well as state and local governments, have implemented or announced programs to provide financial and other support
to businesses affected by the COVID-19 pandemic, some of which benefit or could benefit our company, tenants, operators, borrowers, and
managers. While these government assistance programs are not expected to fully offset the negative financial impact of the pandemic,
and there can be no assurance that these programs will continue or the extent to which they will be expanded, we are monitoring them
closely and have been in active dialogue with our tenants, operators, borrowers, and managers regarding ways in which these programs
could benefit them or us.
The
COVID-19 pandemic is rapidly evolving. The information in this Report is based on data currently available to us and will likely change
as the pandemic progresses. As COVID-19 continues to spread throughout areas in which we operate, we believe the outbreak has the potential
to have a material negative impact on our operating results and financial condition. The extent of the impact of COVID-19 on our operational
and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our operators,
employees and vendors, and impact on the facilities we manage, all of which are uncertain and cannot be predicted. Given these uncertainties,
we cannot reasonably estimate the related impact to our business, operating results, and financial condition.
We
expect the trends highlighted above with respect to the impact of the COVID-19 pandemic to continue and, in some cases, accelerate. The
extent of the COVID-19 pandemic’s continued effect on our operational and financial performance will depend on future developments,
including the duration, spread and intensity of the outbreak, the pace at which jurisdictions across the country re-open and restrictions
begin to lift, the availability of government financial support to our business, tenants, and operators and whether a resurgence of the
outbreak occurs. Due to these uncertainties, we are not able at this time to estimate the ultimate impact of the COVID-19 pandemic on
our business, results of operations, financial condition, and cash flows but it could be material.
Health
Care Regulatory Climate
The
Centers for Medicare & Medicaid Services (“CMS”) annually updates Medicare skilled nursing facility prospective payment
system rates and other policies. On July 30, 2019, CMS issued its final fiscal year 2020 Medicare skilled nursing facility update. Under
the final rule, CMS projects aggregate payments to skilled nursing facilities will increase by $851 million, or 2.4%, for fiscal year
2020 compared with fiscal year 2019. The final rule also addresses implementation of the new Patient-Driven Payment Model case mix classification
system that became effective on October 1, 2019, changes to the group therapy definition in the skilled nursing facility setting, and
various skilled nursing facility Value-Based Purchasing and quality reporting program policies. On April 10, 2020, CMS issued a proposed
rule to update skilled nursing facility rates and policies for fiscal year 2021, which starts October 1, 2020. CMS estimates that payments
to skilled nursing facilities would increase by $784 million, or 2.3%, for fiscal year 2021 compared to fiscal year 2020. CMS also proposes
to revise the geographic wage index and apply a cap on wage index decreases used in setting skilled nursing facility rates. The proposal
would also make changes to the patient classifications under the Patient Driven Payment Model and certain minor policy changes to the
Value-Based Purchasing program. Those rules were finalized in October 2020.
On
July 18, 2019, CMS published a final rule that eliminates the prohibition on pre-dispute binding arbitration agreements between long-term
care facilities and their residents. The rule also strengthens the transparency of arbitration agreements and makes other changes to
arbitration requirements for long-term care facilities. There can be no assurance that these rules or future regulations modifying Medicare
skilled nursing facility payment rates or other requirements for Medicare and/or Medicaid participation will not have an adverse effect
on the financial condition of our borrowers and lessees which could, in turn, adversely impact the timing or level of their payments
to us.
Since
the announcement of the COVID-19 pandemic and beginning as of March 13, 2020, CMS has issued numerous temporary regulatory waivers and
new rules to assist health care providers, including skilled nursing facilities, respond to the COVID-19 pandemic. These include, waiving
the skilled nursing facility’s 3-day qualifying inpatient hospital stay requirement, flexibility in calculating a new Medicare
benefit period, waiving timing for completing functional assessments, waiving requirements for health care professional licensure, survey
and certification, provider enrollment, and reimbursement for services performed by telehealth, among many others. CMS also announced
a temporary expansion of its Accelerated and Advance Payment Program to allow skilled nursing facilities and certain other Medicare providers
to request accelerated or advance payments in an amount up to 100% of the Medicare Part A payments they received from October–December
2019; this expansion was suspended April 26, 2020 in light of other CARES Act funding relief. In addition, CMS has also enhanced requirements
for nursing facilities to report COVID-19 infections to local, state, and federal authorities.
On
March 26, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”),
sweeping legislation intended to bolster the nation’s response to the COVID-19 pandemic. In addition to offering economic relief
to individuals and impacted businesses, the law expands coverage of COVID-19 testing and preventative services, addresses health care
workforce needs, eases restrictions on telehealth services during the crisis, and increases Medicare regulatory flexibility, among many
other provisions. Notably, the CARES Act temporarily suspends the 2% across-the-board “sequestration” reduction during the
period May 1, 2020 through December 31, 2020, and extends the current Medicare sequester requirement through fiscal year 2030. In addition,
the law provides $100 billion in grants to eligible health care providers for health care related expenses or lost revenues that are
attributable to COVID-19. On April 10, 2020, CMS announced the distribution of $30 billion in funds to Medicare providers based upon
their 2019 Medicare fee for service revenues. Eligible providers must agree to certain terms and conditions in receiving these grants.
In addition, the Department of Health and Human Services (“HHS”) has authorized $20 billion of additional funding for providers
that have already received funds from the initial distribution of $30 billion. Unlike the first round of funds, which came automatically,
providers have to apply for these additional funds and submit the required supporting documentation, using the online portal provided
by HHS. Providers must attest to and agree to specific terms and conditions for the use of such funds. HHS will make the additional distributions
with the goal of allocating the whole $50 billion proportionally across all providers based on those providers’ proportional share
of 2018 net Medicare fee-for-service revenue. CMS is expected to distribute additional funding to Medicaid and potentially other providers,
but the details are not yet known.
Congress
periodically considers legislation revising Medicare and Medicaid policies, including legislation that could have the impact of reducing
Medicare reimbursement for skilled nursing facilities and other Medicare providers, limiting state Medicaid funding allotments, encouraging
home and community-based long-term care services as an alternative to institutional settings, or otherwise reforming payment policy for
post-acute care services. Congress continues to consider further legislative action in response to the COVID-19 pandemic. There can be
no assurances that enacted or future legislation will not have an adverse impact on the financial condition of our lessees and borrowers,
which subsequently could materially adversely impact our company.
On
December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 which provides approximately $900 billion in COVID-19
relief aid. The Act includes an expansion of the PPP program, as well as many other provisions that may have a direct or indirect impact
on health care providers like our company.
Additional
reforms affecting the payment for and availability of health care services have been proposed at the federal and state level and adopted
by certain states. Increasingly, state Medicaid programs are providing coverage through managed care programs under contracts with private
health plans, which is intended to decrease state Medicaid costs. State Medicaid budgets may experience shortfalls due to increased costs
in addressing the COVID-19 pandemic. Congress and state legislatures can be expected to continue to review and assess alternative health
care delivery systems and payment methodologies. Changes in the law, new interpretations of existing laws, or changes in payment methodologies
may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business
and the amount of reimbursement by the government and other third-party payors.
Recent
Developments Related to COVID-19
In
addition to experiencing outbreaks of positive cases and deaths of residents and employees during the pandemic, we and our operators
have been required to, and continue to, adapt their operations rapidly throughout the pandemic to manage the spread of the COVID-19 virus
as well as the implementation of new treatments and vaccines, and to implement new requirements relating to infection control, personal
protective equipment (“PPE”), quality of care, visitation protocols, staffing levels, and reporting, among other regulations,
throughout the pandemic. Many of our controlled and third party 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 PPE, testing equipment and processes and supplies, as well as implementation of new infection control protocols and vaccination programs.
In addition, we are experiencing declines, in some cases that are material, in occupancy levels as a result of the pandemic, which declines
on average appear to be stabilizing. We believe these declines may be in part due to COVID-19 related fatalities at the facilities, the
delay of SNF placement and/or utilization of alternative care settings for those with lower level of care needs, the suspension and/or
postponement of elective hospital procedures, fewer discharges from hospitals to SNFs and higher hospital readmittances from SNFs.
While
substantial government support, primarily through the federal CARES Act in the U.S. and distribution of PPE, vaccines and testing equipment
by federal and state governments, has been allocated to SNFs and to a lesser extent to ALFs, further government support will likely be
needed to continue to offset these impacts. It is unclear whether and to what extent such government support will continue to be sufficient
and timely to offset these impacts. In particular, it remains unclear as to whether unallocated funds under the Provider Relief Fund
will be distributed to our operators in any meaningful way, whether additional funds will be added to the Provider Relief Fund or otherwise
allocated to health care operators or our operators, or whether additional Medicaid funds under the recently enacted American Rescue
Plan Act of 2021 (the “American Rescue Plan Act”) in the U.S. will ultimately support reimbursement to our operators. Further,
to the extent the cost and occupancy impacts on our operators continue or accelerate and are not offset by continued government relief
that is sufficient and timely, we anticipate that the operating results of certain of our operators would be materially and adversely
affected, some may be unwilling or unable to pay their contractual obligations to us in full or on a timely basis and we may be unable
to restructure such obligations on terms as favorable to us as those currently in place.
There
are a number of uncertainties we face as we consider the potential impact of COVID-19 on our business, including how long census disruption
and elevated COVID-19 costs will last, the impact of vaccination programs and participation levels in those programs in reducing the
spread of COVID-19 in our facilities, and the extent to which funding support from the federal government and the states will continue
to offset these incremental costs as well as lost revenues. Notwithstanding vaccination programs, we expect that heightened clinical
protocols for infection control within facilities will continue for some period; however, we do not know if future reimbursement rates
or equipment provided by governmental agencies will be sufficient to cover the increased costs of enhanced infection control and monitoring.
While
we continue to believe that longer term demographics will drive increasing demand for needs-based skilled nursing care, we expect the
uncertainties to our business described above to persist at least for the near term until we can gain more information as to the level
of costs our operators will continue to experience and for how long, and the level of additional governmental support that will be available
to them, the potential support our operators may request from us and the future demand for needs-based skilled nursing care and senior
living facilities. We continue to monitor the impact of occupancy declines at many of our operators, and it remains uncertain whether
and when demand and occupancy levels will return to pre-COVID-19 levels.
Government
Regulation and Reimbursement
The
healthcare industry is heavily regulated. Our operators, which are primarily based in the U.S., are subject to extensive and complex
federal, state and local healthcare laws and regulations. These laws and regulations are subject to frequent and substantial changes
resulting from the adoption of new legislation, rules and regulations, and administrative and judicial interpretations of existing law.
The ultimate timing or effect of these changes, which may be applied retroactively, cannot be predicted. Changes in laws and regulations
impacting our operators, in addition to regulatory non-compliance by our operators, can have a significant effect on the operations and
financial condition of our operators, which in turn may adversely impact us. There is the potential that we may be subject directly to
healthcare laws and regulations because of the broad nature of some of these regulations, such as the Anti-kickback Statute and False
Claims Act, among others.
The
U.S. Department of Health and Human Services (“HHS”) declared a public health emergency on January 31, 2020 following the
World Health Organization’s decision to declare COVID-19 a public health emergency of international concern. This declaration,
which has been extended through July 20, 2021, allows HHS to provide temporary regulatory waivers and new reimbursement rules designed
to equip providers with flexibility to respond to the COVID-19 pandemic by suspending various Medicare patient coverage criteria and
documentation and care requirements, including, for example, suspension of the three-day prior hospital stay coverage requirement and
expanding the list of approved services which may be provided via telehealth. These regulatory actions could contribute to a change in
census volumes and skilled nursing mix that may not otherwise have occurred. It remains uncertain when federal and state regulators will
resume enforcement of those regulations which are waived or otherwise not being enforced during the public health emergency due to the
exercise of enforcement discretion.
These
temporary changes to regulations and reimbursement, as well as emergency legislation, including the CARES Act enacted on March 27, 2020
and discussed below, continue to have a significant impact on the operations and financial condition of our operators. The extent of
the COVID-19 pandemic’s effect on the Company’s and our operators’ operational and financial performance will depend
on future developments, including the sufficiency and timeliness of additional governmental relief, the duration, spread and intensity
of the outbreak, the impact of new vaccine distributions on our operators and their populations, as well as the difference in how the
pandemic may impact SNFs in contrast to ALFs, all of which developments and impacts are uncertain and difficult to predict. Due to these
uncertainties, we are not able at this time to estimate the effect of these factors on our business; however, the adverse impact on our
business, results of operations, financial condition and cash flows could be material.
A
significant portion of our operators’ revenue is derived from government-funded reimbursement programs, consisting primarily of
Medicare and Medicaid. As federal and state governments continue to focus on healthcare reform initiatives, efforts to reduce costs by
government payors will likely continue. Significant limits on the scope of services reimbursed and/or reductions of reimbursement rates
could therefore have a material adverse effect on our results of operations and financial condition. Additionally, new and evolving payor
and provider programs that are tied to quality and efficiency could adversely impact our tenants’ and operators’ liquidity,
financial condition or results of operations, and there can be no assurance that payments under any of these government health care programs
are currently, or will be in the future, sufficient to fully reimburse the property operators for their operating and capital expenses.
The
following is a discussion of recent developments regarding certain U.S. laws and regulations generally applicable to our operators, and
in certain cases, to us, and their impact.
Reimbursement
Changes Related to COVID-19:
U.S.
Federal Stimulus Funds, through the CARES Act and Provider Relief Fund, appropriating $178 Billion to Health Care Providers. In response
to the pandemic, Congress enacted a series of economic stimulus and relief measures throughout 2020. On March 18, 2020, the Families
First Coronavirus Response Act was enacted in the U.S., providing a temporary 6.2% increase to each qualifying state and territory’s
Medicaid Federal Medical Assistance Percentage (“FMAP”) effective January 1, 2020. The temporary FMAP increase will extend
through the last day of the calendar quarter in which the public health emergency terminates. States will make individual determinations
about how this additional Medicaid reimbursement will be applied to SNFs, if at all.
In
a further response to the pandemic, the CARES Act authorized approximately $178 Billion to be distributed through the Public Health and
Social Services Emergency Fund (“Provider Relief Fund”) to reimburse eligible healthcare providers for health care related
expenses or lost revenues that are attributable to coronavirus. The Provider Relief Fund is administered under the broad authority and
discretion of HHS and recipients are not required to repay distributions received to the extent they are used in compliance with applicable
requirements.
HHS
began distributing Provider Relief Fund grants in April 2020 and has made grants available to various provider groups in three general
phases. In May 2020, HHS announced that approximately $9.5 Billion in targeted distributions would be made available to eligible skilled
nursing facilities, approximately $2.5 Billion of which were composed of performance-based incentive payments tied to a facility’s
infection rate. Approximately $8.5 billion in additional funds were added to the Provider Relief Fund through the American Rescue Plan
Act enacted on March 11, 2021; however, these funds are limited to rural providers and suppliers.
As
of March 15, 2021, based on data published by HHS, it appears that less than $29 billion of the Provider Relief Fund remains unallocated.
HHS continues to evaluate and provide allocations of, and issue regulations and guidance regarding, grants made under the CARES Act and
related legislation. There are substantial uncertainties regarding the extent to which our operators will receive funds which have not
been allocated, whether additional funds will be allocated to the Provider Relief Fund, health care providers or senior care providers
and whether additional payments will be distributed to providers, the financial impact of receiving any of these funds on their operations
or financial condition, and whether operators will be able to meet the compliance requirements associated with the funds. HHS continues
to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act.
The
CARES Act and related legislation also made other forms of financial assistance available to healthcare providers, which have the potential
to impact our operators to varying degrees. This assistance includes Medicare and Medicaid payment adjustments and an expansion of the
Medicare Accelerated and Advance Payment Program, which made available accelerated payments of Medicare funds in order to increase cash
flow to providers. These payments are loans that providers must repay. Additionally, CMS suspended Medicare sequestration payment adjustments,
which would have otherwise reduced payments to Medicare providers by 2%, from May 1, 2020 through December 31, 2021, but also extended
sequestration through 2030. While not limited to healthcare providers, the CARES Act additionally provided payroll tax relief for employers,
allowing them to defer payment of employer Social Security taxes that are otherwise owed for wage payments made after March 27, 2020
through December 31, 2020 to December 31, 2021 with respect to 50% of the payroll taxes owed, with the remaining 50% deferred until December
31, 2022.
Quality
of Care Initiatives and Additional Requirements Related to COVID-19:
In
addition to COVID-19 reimbursement changes, several regulatory initiatives announced in 2020 and the first quarter of 2021 focused on
addressing quality of care in long-term care facilities, including those related to COVID-19 testing and infection control protocols,
vaccine protocols, staffing levels, reporting requirements, and visitation policies, as well as increased inspection of nursing homes.
For example, recent updates to the Nursing Home Care website and the Five Star Quality Rating System include revisions to the inspection
process, adjustment of staffing rating thresholds and the implementation of new quality measures. Although the American Rescue Plan Act
did not allocate specific funds to SNF or assisted living facility providers, approximately $200 million was allocated to quality improvement
organizations to provide infection control and vaccination uptake support to SNFs.
On
June 16, 2020, the U.S. House of Representatives Select Subcommittee on the Coronavirus Crisis announced the launch of an investigation
into the COVID-19 response of nursing homes and the use of federal
funds by nursing homes during the pandemic. The Select Subcommittee continued to be active throughout the remainder of 2020 and the first
quarter of 2021. In March 2021, the Oversight Subcommittee of the House Ways and Means Committee held a hearing on examining the impact
of private equity in the U.S. health care system, including the impact on quality of care provided within the skilled nursing industry.
These hearings could result in legislation imposing additional requirements on our operators.
Reimbursement
Generally:
Medicaid.
The American Rescue Plan Act contains several provisions designed to increase coverage, expand benefits, and adjust federal financing
for state Medicaid programs. For example, the American Rescue Plan Act increases the FMAP by 10 percentage points for state home and
community-based services expenditures beginning April 1, 2021 through March 30, 2022 in an effort to assist seniors and people with disabilities
to receive services safely in the community rather than in nursing homes and other congregate care settings. As a condition for receiving
the FMAP increase, states must enhance, expand, or strengthen their Medicaid home and community-based services program during this period.
These potential enhancements to Medicaid reimbursement funding may be offset in certain states by state budgetary concerns, the ability
of the state to allocate matching funds and to comply with the new requirements, the potential for increased enrollment in Medicaid due
to unemployment and declines in family incomes resulting from the COVID-19 pandemic, and the potential allocation of state Medicaid funds
available for reimbursement away from SNFs in favor of home and community-based programs. These challenges may particularly impact us
in states where we have a larger presence, including Florida and Texas. In Texas in particular, several of our operators have historically
experienced lower operating margins on their SNFs, as compared to other states, as a result of lower Medicaid reimbursement rates and
higher labor costs. Since our operators’ profit margins on Medicaid patients are generally relatively low, more than modest reductions
in Medicaid reimbursement or an increase in the percentage of Medicaid patients has in the past and may in the future adversely affect
our operators’ results of operations and financial condition, which in turn could adversely impact us.
Medicare.
Payments to providers continue to be increasingly tied to quality and efficiency. The Patient Driven Payment Model (“PDPM”),
which was designed by CMS to improve the incentives to treat the needs of the whole patient, became effective October 1, 2019. Prior
to COVID-19, we believed that certain of our operators could realize efficiencies and cost savings from increased concurrent and group
therapy under PDPM and some had reported early positive results. Given the ongoing impacts of COVID-19, many operators are and may continue
to be restricted from pursuing concurrent and group therapy and unable to realize these benefits. Additionally, our operators continue
to adapt to the reimbursement changes and other payment reforms resulting from the value based purchasing programs applicable to SNFs
under the 2014 Protecting Access to Medicare Act, which became effective on October 1, 2018. These reimbursement changes have had and
may, together with any further reimbursement changes to PDPM, in the future have an adverse effect on the operations and financial condition
of some operators and could adversely impact the ability of operators to meet their obligations to us.
Department
of Justice and Other Enforcement Actions:
SNFs
are under intense scrutiny for ensuring the quality of care being rendered to residents and appropriate billing practices conducted by
the facility. The Department of Justice (“DOJ”) has historically used the False Claims Act to civilly pursue nursing homes
that bill the federal government for services not rendered or care that is grossly substandard. For example, California prosecutors announced
in March 2021 an investigation into a skilled nursing provider that is affiliated with one of our operators, alleging the chain manipulated
the submission of staffing level data in order to improve its Five Star rating. In 2020, the DOJ launched a National Nursing Home Initiative
to coordinate and enhance civil and criminal enforcement actions against nursing homes with grossly substandard deficiencies. Such enforcement
activities are unpredictable and may develop over lengthy periods of time. An adverse resolution of any of these enforcement activities
or investigations incurred by our operators may involve injunctive relief and/or substantial monetary penalties, either or both of which
could have a material adverse effect on their reputation, business, results of operations and cash flows.
Properties
As
of March 31, 2021, we owned thirteen (13) long-term care facilities including a campus of three buildings in Tulsa, OK. The following
table provides summary information regarding these facilities at March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
Total
Square Feet
|
|
|
#
of Beds
|
|
|
|
|
State
|
|
Properties
|
|
|
Operations
|
|
|
Leased
Operations
|
|
|
Operating
Square Feet
|
|
|
Leased
Square Feet
|
|
|
Operating
Beds
|
|
|
Leased
Beds
|
|
|
Average
Occupancy
|
|
Arkansas
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
40,737
|
|
|
|
-
|
|
|
|
141
|
|
|
|
74
|
%
|
Georgia
|
|
|
5
|
|
|
|
2
|
|
|
|
3
|
|
|
|
31,747
|
|
|
|
92,649
|
|
|
|
211
|
|
|
|
181
|
|
|
|
80
|
%
|
Ohio
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
27,500
|
|
|
|
-
|
|
|
|
100
|
|
|
|
-
|
|
Oklahoma
|
|
|
6
|
|
|
|
5
|
|
|
|
1
|
|
|
|
131,037
|
|
|
|
31,939
|
|
|
|
417
|
|
|
|
-
|
|
|
|
52
|
%
|
Total
|
|
|
13
|
|
|
|
7
|
|
|
|
6
|
|
|
|
162,784
|
|
|
|
192,825
|
|
|
|
628
|
|
|
|
422
|
|
|
|
60
|
%
|
Results
of Operations
The
following discussion of the financial condition, results of operations, cash flows, and changes in our financial position should be read
in conjunction with our interim consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form
10-Q.
Results
of Operations – Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020
Rental
revenues for the three months ended March 31, 2021 and 2020 totaled $390,386 and $521,012, respectively, a decrease of
$130,626. The Company also had healthcare revenue of $5,372,457 for the three months ended March 31, 2021, compared to
$3,330,589 for the three months ended March 31, 2020.
General
and administrative expenses were $2,098,327 and $343,063 for the three months ended March 31, 2021 and 2020, respectively,
an increase of $1,755,264.
Property
taxes, insurance, and other operating expenses totaled $3,544,730 and $2,331,744 for the three months ended March 31, 2021 and 2020,
respectively. Lessees are responsible for the payment of insurance, taxes, and other charges while under the lease. Should the lessee
not pay all such charges, as required under the leases, we may be liable for such operating expenses. We are also responsible for all
working capital related to our operating entities.
Expenses
related to the provision for bad debt was $24,134 for the three months ended March 31, 2021 and $206,608 for the three months ended March
31, 2020, a decrease of $182,474. This decrease is related to a bad-debt policy change, specific to healthcare.
Depreciation
and amortization expense increased $13,805 from $387,218 for the three months ended March 31, 2020 to $401,023
for the three months ended March 31, 2021.
The
Company had $543,543 of interest expense for the three months ended March 31, 2021 and $505,270 interest expense
for the three months ended March 31, 2020.
The Company had $1,107,620 of other
income for the three months ended March 31, 2021 and $0 for
the three months ended March 31, 2020.
Liquidity
and Capital Resources
Throughout
its history, the Company has experienced shortages in working capital and has relied, from time to time, upon sales of debt and equity
securities to meet cash demands generated by our acquisition activities.
At
March 31, 2021, the Company had cash and cash equivalents of $3,378,862 and restricted cash of $410,866. Our restricted cash is to be
spent on insurance, taxes, repairs, and capital expenditures associated with Providence of Sparta Nursing Home or Warrenton Health and
Rehab. Our liquidity is expected to increase from potential equity and debt offerings and decrease as net offering proceeds are expended
in connection with our various property improvement projects. Our continuing short-term liquidity requirements consisting primarily of
operating expenses and debt service requirements, excluding balloon payments at maturity, are expected to be achieved from healthcare
operations, rental revenues received, and existing cash on hand. We plan to renew secured obligations that will mature
in 2021, as our projected cash flow from operations will be insufficient to retire the debt. The Company is actively working
with current lenders to refinance and or extend current terms of current debts.
Cash used
in operating activities was $664,847 for the three months ended March 31, 2021 compared to cash provided by operating
activities of $252,424 for the three months ended March 31, 2020. Healthcare revenue was adversely affected by COVID-19 increased
costs and decrease in our census.
Cash
used in investing activities was $177,909 for the three months ended March 31, 2021 compared to cash used in investing activities
of $1,085,923 for the three months ended March 31, 2020. The Company purchased assets in acquisition during the three months ended
March 21, 2020, no such purchase was made during the three months ended March 31, 2021 resulted in a decrease of cash used in investing
activities.
Cash provided by financing activities was $654,181
for the three months ended March 31, 2021 compared to cash provided by financing activities of $1,079,580 for the three months ended
March 31, 2020. This resulted from proceeds from a PPP loan during the three months ended March 31, 2021.
In
accordance with ASU 2014-15 management believes the Company has sufficient liquidity and capital resources to maintain ongoing operations.
This is, in part due to all of these positive changes to cash flows, positive year-end earnings, refinancing debt to more favorable terms,
the forgiveness of our CARES Act loans, and the optimization of our operations in many of our current facilities.
As
of March 31, 2021, and December 31, 2020, our debt balances consisted of the following:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Senior Secured Promissory Notes
|
|
$
|
1,670,000
|
|
|
$
|
1,695,000
|
|
Senior Secured Promissory Notes - Related Parties
|
|
|
975,000
|
|
|
|
975,000
|
|
Fixed-Rate Mortgage Loans
|
|
|
30,396,334
|
|
|
|
30,370,220
|
|
Variable-Rate Mortgage Loans
|
|
|
5,212,061
|
|
|
|
5,650,579
|
|
Other Debt, Subordinated Secured
|
|
|
741,000
|
|
|
|
741,000
|
|
Other Debt, Subordinated Secured - Related Parties
|
|
|
150,000
|
|
|
|
150,000
|
|
Other Debt, Subordinated Secured - Seller Financing
|
|
|
116,859
|
|
|
|
125,394
|
|
|
|
|
39,261,254
|
|
|
|
39,707,193
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
(420,850
|
)
|
|
|
(455,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38,840,404
|
|
|
$
|
39,251,366
|
|
As presented in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Maturities of Long Term Debt, Net
|
|
$
|
12,502,972
|
|
|
$
|
19,299,156
|
|
Debt, Net
|
|
|
25,215,666
|
|
|
|
18,830,444
|
|
Debt - Related Parties, Net
|
|
|
1,121,766
|
|
|
|
1,121,766
|
|
The
weighted average interest rate and term of our fixed rate debt are 4.78% and 7.20 years, respectively, as of March 31,
2021. The weighted average interest rate and term of our variable rate debt are 5.90% and 16.80 years, respectively, as
of March 31, 2021.
Mortgage
Loans and Lines of Credit Secured by Real Estate
Mortgage
loans and other debts such as lines of credit are collateralized by all assets of each nursing home property and an assignment of its
rents. Collateral for certain mortgage loans includes the personal guarantee of Christopher Brogdon, a formerly but no longer related
party, or corporate guarantees. Mortgage loans for the periods presented consisted of the following:
|
|
|
|
|
|
|
|
Total
Principal Outstanding as of
|
|
State
|
|
Number
of Properties
|
|
|
Total
Face Amount
|
|
|
March
31,
2021
|
|
|
December
31, 2020
|
|
Arkansas(1)
|
|
|
1
|
|
|
$
|
5,000,000
|
|
|
$
|
4,186,462
|
|
|
$
|
4,618,006
|
|
Georgia(2)
|
|
|
5
|
|
|
$
|
17,765,992
|
|
|
$
|
16,903,958
|
|
|
$
|
17,029,094
|
|
Ohio
|
|
|
1
|
|
|
$
|
3,000,000
|
|
|
$
|
2,779,399
|
|
|
$
|
2,798,000
|
|
Oklahoma(3)
|
|
|
6
|
|
|
$
|
12,378,599
|
|
|
$
|
11,738,576
|
|
|
$
|
11,575,699
|
|
|
|
|
13
|
|
|
$
|
38,144,591
|
|
|
$
|
35,608,395
|
|
|
$
|
36,020,799
|
|
(1)
|
The
mortgage loan collateralized by this property is 80% guaranteed by the USDA and requires an annual renewal fee payable in the amount
of 0.25% of the USDA guaranteed portion of the outstanding principal balance as of December 31 of each year. Guarantors under the
mortgage loan include Christopher Brogdon. With our consent, Mr. Brogdon has assumed operations of the facility and is making payment
of interest on the loan. The Company is not obligated to repay the interest.
|
(2)
|
In
2021, the Company has two mortgages maturing totaling $6,270,163. Management is actively working with our lenders to either,
refinance for better terms or extend these notes.
|
(3)
|
In
2021, the Company has three mortgages maturing totaling $2,818,897. As with our Georgia facilities, management is actively
working with our lenders to either refinance for better terms or extend the current note.
|
Other
Debt
Our
subordinated debt at March 31, 2021 and December 31, 2020 includes unsecured notes payable issued to entities controlled by the Company
used to facilitate the acquisition of the nursing home properties.
|
|
|
|
|
Principal
Outstanding at
|
|
|
|
|
|
Property
|
|
Face
Amount
|
|
|
March
31,
2021
|
|
|
December
31, 2020
|
|
|
Stated
Interest Rate
|
|
Maturity
Date
|
Goodwill
Nursing Home (1)
|
|
$
|
2,030,000
|
|
|
$
|
741,000
|
|
|
$
|
741,000
|
|
|
13%
(1) Fixed
|
|
December
31, 2019
|
Goodwill
Nursing Home – Related Party (1)
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
|
150,000
|
|
|
13%
(1) Fixed
|
|
December
31, 2019
|
Higher
Call Nursing Center (2)
|
|
|
150,000
|
|
|
|
116,859
|
|
|
|
125,394
|
|
|
8%
Fixed
|
|
April
1, 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,007,859
|
|
|
$
|
1,016,394
|
|
|
|
|
|
|
(1)
|
Effective
May 3, 2017, we entered an Allonge and Modification Agreement with the Goodwill investors pursuant to which they agreed to (i) waive
all accrued interest through December 31, 2017, (ii) reduce interest rate to 13% beginning January 1, 2018 and (iii) extend the maturity
date of the notes to December 31, 2019. In exchange, the Company agreed that upon repayment of the notes, the investors would be
entitled to a one-time premium payment in the amount of 15% of the principal balance of the notes. The Corporate entity, Global Healthcare
REIT Inc. owns $800,000 of its own subsidiary’s notes, Goodwill Hunting, LLC, but this amount is excluded from the above table
and eliminated in consolidation on the balance sheet. On June 30, 2020, the Company purchased from four former investors in GWH Investors,
LLC their notes in favor of Goodwill Hunting, LLC in the aggregate amount of $482,400 for $402,000 cash and recognized a gain of
$80,400. On October 30, 2020, the Company purchased from two more investors an aggregate amount of $108,000 for $90,000 cash and
recognized a gain of $18,000. On November 20, 2020, the Company purchased from two additional investors an aggregate amount of $54,600
for $45,500 cash and recognized a gain of $9,100.
|
|
(2)
|
In
connection with the acquisition of Higher Call, the Company executed a promissory note in favor of the Seller, Higher Call Nursing
Center, Inc., in the principal amount of $150,000 which accrues interest at the rate of 8% per annum and is payable in equal monthly
installments, principal and interest. This note is secured by a corporate guaranty of Global.
|
Our
corporate debt at March 31, 2021 and December 31, 2020 includes unsecured notes and notes secured by all assets of the Company not serving
as collateral for other notes.
|
|
|
|
|
Principal
Outstanding at
|
|
|
|
|
|
Series
|
|
Face
Amount
|
|
|
March
31,
2021
|
|
|
December
31,
2020
|
|
|
Stated
Interest Rate
|
|
Maturity
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
Senior Secured Promissory Note
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
10.0%
Fixed
|
|
December
31, 2018
|
11%
Senior Secured Promissory Notes
|
|
|
1,670,000
|
|
|
|
1,645,000
|
|
|
|
1,670,000
|
|
|
11.0%
Fixed
|
|
October
31, 2021
|
11%
Senior Secured Promissory Notes – Related Party
|
|
|
975,000
|
|
|
|
975,000
|
|
|
|
975,000
|
|
|
11.0%
Fixed
|
|
October
31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,645,000
|
|
|
$
|
2,670,000
|
|
|
|
|
|
Paycheck
Protection Program Loans
On January 28, 2021, the Company through its
subsidiaries received a loan of $675,598 pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on January 28, 2023 (the “Maturity
Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No interest payments are due within
the initial six months of the PPP Loan. The interest accrued during the initial six-month period is due and payable, together with the
principal, on the Maturity Date. The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease
and utility payments to support business continuity throughout the COVID-19 pandemic, which amounts are eligible for forgiveness, subject
to the provisions of the CARES Act. The Company believe it has met all requirements for forgiveness and is waiting to apply with the
SBA.
Contractual
Obligations
As
of March 31, 2021, we had the following contractual obligations:
|
|
Total
Contractual Terms
|
|
|
Less
Than
1
Year
|
|
|
2
– 3 Years
|
|
|
4
– 5 Years
|
|
|
More
Than
5
Years
|
|
Notes
Payable – Principal
|
|
$
|
39,261,254
|
|
|
$
|
12,625,060
|
|
|
$
|
9,889,480
|
|
|
$
|
5,037,852
|
|
|
$
|
11,708,862
|
|
Notes
Payable – Interest
|
|
|
5,845,489
|
|
|
|
1,050,517
|
|
|
|
1,389,751
|
|
|
|
773,118
|
|
|
|
2,632,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Contractual Obligations
|
|
$
|
45,106,743
|
|
|
$
|
13,675,577
|
|
|
$
|
11,279,231
|
|
|
$
|
5,810,970
|
|
|
$
|
14,340,965
|
|
Revenues
from operations are sufficient to meet the working capital needs of the Company for the foreseeable future. Cash on hand and revenues
generated from operations are in excess of operating expenses and debt service requirements. Debt maturities are expected to be refinanced
at reasonable terms upon maturity. The Company anticipates a combination of conventional mortgage loans, at market rates, issuance of
revenue bonds and possibly additional equity injections to fund the acquisition cost of any additional properties. Except for renovations
at Grand Prairie and Southern Hills Retirement Center, there are no material capital improvement or recurring capital expenditure commitments
at the properties.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that
we consider material.
Critical
Accounting Policies
Set
forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial
statements. Certain of these accounting policies are particularly important for an understanding of the financial position and results
of operations presented in the consolidated financial statements set forth elsewhere in this report. These policies require the application
of judgment and assumptions by management and, as a result, are subject to a degree of uncertainty. Actual results could differ as a
result of such judgment and assumptions.
Impairment
of Long-Lived Assets
When
circumstances indicate the carrying value of property may not be recoverable, the Company reviews the asset for impairment. This review
is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s
use and eventual disposition. This estimate considers factors such as expected future operating income, market and other applicable trends
and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists, due to the inability
to recover the carrying amount of the property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated
fair value of the property. Estimated fair value is determined with the assistance from independent valuation specialists using recent
sales of similar assets, market conditions and projected cash flows of properties using standard industry valuation techniques.
Goodwill
Goodwill
represents the excess of the cost of an acquired business over the amounts assigned to its net assets. Goodwill is not amortized but
is tested for impairment at a reporting unit level on an annual basis or when an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying amount. Events or changes in circumstances that may trigger
interim impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit,
or an expectation that the carrying amount may not be recoverable, among other factors.
The
Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit
is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company determines it is more likely
than not that the fair value of the reporting unit is greater than its carrying amount, an impairment test is unnecessary. If an impairment
test is necessary, the Company will estimate the fair value of its related reporting units. If the carrying value of a reporting unit
exceeds its fair value, the goodwill of that reporting unit is determined to be impaired and the Company will proceed with recording
an impairment charge equal to the excess of the carrying value over the related fair value.
Revenue Recognition
The Company’s leases may be subject to annual
escalations of the minimum monthly rent required under each lease. The accompanying consolidated financial statements reflect rental
income on a straight-line basis over the term of each lease. Cumulative adjustments associated with the straight-line rent requirement
are reflected in Prepaid Expenses and Other in the consolidated balance sheets and totaled $589,379 and $0 as of March 31, 2021 and 2020,
respectively.
Rent receivables and unbilled deferred rent receivables
are carried net of an allowance for uncollectible amounts. An allowance is maintained for estimated losses resulting from the inability
of certain tenants to meet the contractual obligations under their lease agreements. The Company also maintains an allowance for deferred
rent lease receivables arising from the straight-line recognition of rents. Such allowances are charged to net against rental incomes.
When the lessee is the owner of any improvements,
any lessee improvement allowance that is funded by the Company is treated as a lease incentive and amortized as a reduction of revenue
over the lease term. As of March 31, 2021, and 2020, there were no deferred lease incentives recorded.
For our healthcare operations, we recognize revenue
in accordance with ASC 606 whereby we apply the following steps:
|
a.
|
Step
1: Identify the contract(s) with a customer
|
|
b.
|
Step
2: Identify the performance obligations in the contract
|
|
c.
|
Step
3: Determine the transaction price
|
|
d.
|
Step
4: Allocate the transaction price to the performance obligations in the contract
|
|
e.
|
Step
5: Recognize revenue when (or as) the entity satisfies a performance obligation
|
In accordance with ASC 606, estimated uncollectable
amounts due from patients are generally considered implicit price concessions that are a direct reduction to net operating revenues.
Recently
Adopted Accounting Pronouncements
None.
Recently
Issued Accounting Pronouncements
The
Financial Accounting Standards Board and other entities issued new or modifications to, or interpretations of, existing accounting guidance
during 2021. Management has carefully considered the new pronouncements that altered generally accepted accounting principles
and does not believe that any other new or modified principles will have a material impact on the Company’s reported financial
position or operations in the near term.