REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2021
NOTE 1.
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ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
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Description of Business
Regional Health Properties, Inc., a Georgia corporation (“Regional Health” or “Regional” and, together with its subsidiaries, the “Company” or “we”), is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living. The Company’s business primarily consists of leasing and subleasing healthcare facilities to third-party tenants, which in turn operate the facilities. The operators of the Company’s facilities provide a range of healthcare services to their patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents.
As of March 31, 2021, the Company owned, leased or managed for third parties, or operated, 24 facilities, primarily in the Southeast United States. Of the 24 facilities, the Company: (i) leased 10 skilled nursing facilities (which the Company owns) to third-party tenants, subleased eight skilled nursing facilities (which the Company leases) to third-party tenants, and operated, as of January 1, 2021 as a portfolio stabilization measure, one previously subleased skilled nursing facility (which the Company leases); (ii) leased two assisted living facilities (which the Company owns) to third-party tenants; and (iii) managed, on behalf of third-party owners, two skilled nursing facilities and one independent living facility. Accordingly, as of January 1, 2021, the Company has two primary reporting segments: (i) real estate services, which consists of the leasing and subleasing of long-term care and senior living facilities to third-party tenants, including the Company’s management of three facilities on behalf of third-party owners (“Real Estate Services”); and (ii) healthcare services, which consists of the operation of a skilled nursing facility (“Healthcare Services”).
Effective January 1, 2021, the Company terminated the subleases for two skilled nursing facilities located in Georgia (the “Wellington Lease Termination”) with affiliates of Wellington Healthcare Services II, L.P. (“Wellington”), and as a portfolio stabilization measure, the Company commenced operating the previously subleased 134-bed facility located in Thunderbolt, Georgia (the “Tara Facility”) and entered into a new sublease agreement with an affiliate of Empire Care Centers, LLC (“Empire”) for the other 208-bed facility located in Powder Springs, Georgia (the “Powder Springs Facility”). The Company has entered into a Management Consulting Services Agreement (the “Vero Management Agreement”) with Vero Health Management, LLC (“Vero Health”) under which Vero Health will provide management consulting services for the Tara Facility which the Company now operates. See Note 6 – Leases, herein, and Note 6 – Leases in Part II, Item 8, “Financial Statements and Supplemental Data” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on March 29, 2021 (the “Annual Report”), for a more detailed description of the Company’s leases.
The Company leases its currently-owned healthcare properties, and subleases its currently-leased healthcare properties, on a triple-net basis, meaning that the lessee (i.e., the third-party operator of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. These leases are generally long-term in nature with renewal options and annual rent escalation clauses.
Regional Health is successor to, and a former wholly owned subsidiary of, AdCare Health Systems, Inc. (“AdCare”). On September 29, 2017, AdCare merged (the “Merger”) with and into Regional Health, which was formed as a subsidiary of AdCare for the purpose of the Merger, with Regional Health continuing as the surviving corporation in the Merger. For a description of the Merger, see Part II, Item 8, “Financial Statements and Supplemental Data”, Note 1 – Summary of Significant Accounting Policies included in the Annual Report.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations for the periods presented have been included. Operating results for the three months ended March 31, 2021 and 2020 are not necessarily indicative of the results that may be expected for the fiscal year. The consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
8
You should read the unaudited consolidated financial statements in this Quarterly Report together with the historical audited consolidated financial statements of the Company for the year ended December 31, 2020, included in the Annual Report. See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 1 – Summary of Significant Accounting Policies included in the Annual Report, for a description of all significant accounting policies. During the three months ended March 31, 2021, there were no material changes to the Company’s policies.
Risks and Uncertainties
While the Company is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living, the Company, when business conditions require, may undertake portfolio stabilization measures, such as operating a previously leased facility. On January 1, 2021, following the Wellington Lease Termination, the Company commenced operating the Tara Facility, which facility comprises approximately 5.0% of the total amount of the Company’s licensed patient beds. This portfolio stabilization measure exposes the Company directly to all the risks our tenants face as discussed in this “Risk and Uncertainties” section and “Risks Related to Our Business - Our portfolio stabilization measures expose the Company to the various risks facing our tenants” in Part I, Item 1.A, “Risk Factors.” in the Annual Report.
On March 11, 2020, the World Health Organization declared the outbreak of the respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, also known as COVID-19, a global pandemic. The COVID-19 pandemic has led governments and other authorities in the United States to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The COVID-19 pandemic and the measures to protect its spread have adversely affected our business during the three months ended March 31, 2021, and we expect it will continue to adversely affect our business in the quarter ending June 30, 2021 and beyond, for a variety of reasons, including those discussed below and elsewhere in this Quarterly Report.
As of May 10, 2021, the Company is aware that each of our facilities has previously reported one or more positive cases of COVID-19 among the residents and/or operator employee populations. Many of our operators have reported incurring significant cost increases as a result of the COVID-19 pandemic, with dramatic increases for facilities with positive cases. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of personal protective equipment, testing equipment, processes and supplies. In terms of occupancy levels, many of our operators have reported experiencing declines, in part due to the elimination or suspension of elective hospital procedures, fewer discharges from hospitals to skilled nursing facilities (“SNFs”), and higher hospital re-admittances from SNFs.
The COVID-19 pandemic may also lead to temporary closures of nursing facilities, operated by our tenants, which also may affect our tenants’ ability to make their rental payments to us pursuant to their respective lease agreements. In addition, our tenants’ operations could be further disrupted if any of their employees, or the employees of their vendors, have, or are suspected of having, COVID-19. This could cause, and in some cases has already caused, our tenants or their vendors to experience staffing shortages, and this could potentially require our tenants and their vendors to close parts of or entire facilities, distribution centers, or other buildings to disinfect any affected areas.
We could also be adversely affected if government authorities impose upon our tenants, or their vendors, certain restrictions due to the COVID-19 pandemic. These restrictions may be in the form of mandatory closures, requested voluntary closures, bans on new admissions, restricted operations, or restrictions on the importation of necessary equipment or supplies which may adversely affect our tenants’ operations and their ability to make rental payments to us moving forward. In addition, family members may elect to keep nursing facility residents at home during the COVID-19 pandemic, thus reducing our tenants’ revenue. Currently, a number of our tenants have stopped admitting new patients due to rising COVID-19 infections resulting in decreased revenues.
As a result of the COVID-19 pandemic, our tenants may face lawsuits for alleged negligence associated with their responses to the emergency. The costs associated with defending, settling, or paying damages from such claims could negatively impact our tenants’ operating budgets and affect their ability to meet their obligations under our leases. Further, we may be subject to increased lawsuits arising out of our alleged actions or the alleged actions of our tenants for which they have agreed to indemnify, defend and hold us harmless. An unfavorable resolution of any such pending or future litigation could materially adversely affect us. The Company is not aware of any such lawsuits against our tenants.
If our tenants are unable to make rental payments to us pursuant to their lease obligations, whether due to the tenants’ decrease in revenues or otherwise, then, in some cases, we may be forced to either attempt to replace tenants or restructure tenants’ long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place.
9
While the Company has received approximately 97% of its expected fixed monthly rental receipts from tenants for the three months ended March 31, 2021, there are a number of uncertainties the Company faces as it considers the potential impact of COVID-19 on its business, including the length of census disruption, elevated COVID-19 operating costs related to personal protection equipment, cleaning supplies, virus testing and increased overtime due to staff illness and the extent to which federal and state funding support will offset these incremental costs for our tenants. To the extent government support is not sufficient or timely to offset these impacts, or to the extent these trends continue or accelerate and are not offset by additional government relief that is sufficient or timely, the operating results of our operators are likely to be adversely affected, some may be unwilling or unable to pay their contractual obligations to us in full or on a timely basis, as has occurred with one of our prior operators.
We also do not know the number of facilities that will ultimately experience widespread, high-cost outbreaks of COVID-19, and while we have requested reporting case numbers from our operators and the U.S. Department of Health and Human Services Centers for Medicare and Medicaid Services (“CMS”) has required additional reporting by operators, we may not receive accurate information on the number of cases, which could result in a delay in reporting. We expect to see continued increased clinical protocols for infection control within facilities and increased monitoring of employees, guests and other individuals entering facilities; however, we do not yet know if future reimbursement rates will be sufficient to cover the increased costs of enhanced infection control and monitoring. The extent of the COVID-19 pandemic’s effect on our and our operators’ operational and financial performance will depend on future developments, including the ultimate duration, spread and intensity of the outbreak, which may depend on factors such as the development and implementation of an effective vaccine and treatments for COVID-19, government funds and other support for the senior care sector and the efficacy of other policies and measures that may mitigate the impact of the pandemic, all of which are uncertain and difficult to predict. Due to these uncertainties, we are unable at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Revenue Recognition and Allowances
Patient Care Revenue. Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers requires a company to recognize revenue when the company transfers control of promised goods and services to a customer. Revenue is recognized in an amount that reflects the consideration to which a company expects to receive in exchange for such goods and services. Revenue from our new Healthcare Services business segment is derived from services rendered to patients in the Tara Facility. The Company receives payments from the following sources for services rendered in our facilities: (i) the federal government under the Medicare program administered by CMS; (ii) state governments under their respective Medicaid and similar programs; (iii) commercial insurers; and (iv) individual patients and clients. The vast majority of the revenue the Company has recognized is from Government sources. The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients and other price concessions. Contractual adjustments and discounts are based on contractual agreements, discount policies and historical experience. The Company recognizes revenue at the amount that reflects the consideration the Company expects to receive in exchange for the services provided. These amounts are due from residents or third-party payors and include variable consideration for retroactive adjustments from estimated reimbursements, if any, under reimbursement programs. Performance obligations are determined based on the nature of the services provided. Revenue is recognized as performance obligations are satisfied. Estimated uncollectable amounts due from patients are generally considered implicit price concessions that are a direct reduction to net operating revenues.
Triple-Net Leased Properties. The Company’s triple-net leases provide for periodic and determinable increases in rent. The Company recognizes rental revenues under these leases on a straight-line basis over the applicable lease term when collectability is probable. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in straight-line rent receivable on our consolidated balance sheets. In the event the Company cannot reasonably estimate the future collection of rent from one or more tenant(s) of the Company’s facilities, rental income for the affected facilities is recognized only upon cash collection, and any accumulated straight-line rent receivable is expensed in the period in which the Company deems rent collection to no longer be probable.
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Management Fees, Revenue from Contracts with Customers. The Company recognizes management fee revenues as services are provided. The Company has one contract to manage three facilities (the “Management Contract”), with payment for each month of service received in full on a monthly basis. The maximum penalty for service contract nonperformance under the Management Contract is $50,000 per year, payable after the end of the year.
Other revenues. The Company recognizes interest income from loans and investments, using the effective interest method when collectability is probable. The Company applies the effective interest method on a loan-by-loan basis.
Allowances. The Company assesses the collectability of its rent receivables, including straight-line rent receivables and working capital loans to tenants. The Company bases its assessment of the collectability of rent receivables and working capital loans to tenants on several factors, including payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, and current economic conditions. If the Company’s evaluation of these factors indicates it is probable that the Company will be unable to receive the rent payments or payments on a working capital loan, then the Company provides a reserve against the recognized straight-line rent receivable asset or working capital loan for the portion that we estimate may not be recovered. Payments received on impaired loans are applied against the allowance. If the Company changes its assumptions or estimates regarding the collectability of future rent payments required by a lease or required from a working capital loan to a tenant, then the Company may adjust its reserve to increase or reduce the rental revenue or interest revenue from working capital loans to tenants recognized in the period the Company makes such change in its assumptions or estimates. In an effort to ensure a conservative presentation of the results of the Healthcare Services segment due to lack of history, the Company has provided an additional allowance for patient care receivables of 1.5% of patient revenues.
As of March 31, 2021 and December 31, 2020, the Company reserved for approximately $0.1 million and $1.4 million, respectively, of uncollected receivables. Accounts receivable, net, totaled $1.9 million at March 31, 2021 and $2.1 million at December 31, 2020.
The following table presents the Company's Accounts receivable, net of allowance for the periods presented:
(Amounts in 000’s)
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March 31,
2021
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|
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December 31,
2020
|
|
Gross receivables
|
|
|
|
|
|
|
|
|
Real Estate Services (a)
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|
$
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1,146
|
|
|
$
|
3,481
|
|
Healthcare Services
|
|
|
777
|
|
|
|
—
|
|
Sub Total
|
|
|
1,923
|
|
|
|
3,481
|
|
Allowance
|
|
|
|
|
|
|
|
|
Real Estate Services (a)
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|
|
(32
|
)
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|
|
(1,381
|
)
|
Healthcare Services
|
|
|
(40
|
)
|
|
|
|
|
Sub Total
|
|
|
(72
|
)
|
|
|
(1,381
|
)
|
Accounts receivable, net of allowance
|
|
$
|
1,851
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|
|
$
|
2,100
|
|
|
(a)
|
See Note 6– Leases for details on the impact of the Wellington Lease Termination.
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Pre-Paid Expenses and Other
As of March 31, 2021 and December 31, 2020, the Company had $0.9 million and approximately $0.4 million, respectively, in pre-paid expenses and other, the $0.5 million increase is related to insurance for the Tara Facility operations, while the other amounts are predominantly for directors’ and officers’ insurance, NYSE American annual fees and mortgage insurance premiums.
Accounts Payable
The following table presents the Company's Accounts payable for the periods presented:
(Amounts in 000’s)
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March 31,
2021
|
|
|
December 31,
2020
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
Real Estate Services
|
|
$
|
3,399
|
|
|
$
|
3,008
|
|
Healthcare Services
|
|
|
416
|
|
|
|
—
|
|
Total Accounts payable
|
|
$
|
3,815
|
|
|
$
|
3,008
|
|
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Other liabilities
As of March 31, 2021 and December 31, 2020, the Company had $1.4 million, in Other liabilities, consisting of security lease deposits and sublease improvement funds.
Other expense, net
The Company has retained professional services to evaluate and assist with possible opportunities to improve the Company’s capital structure.
Leases and Leasehold Improvements
The Company leases certain facilities and equipment in the normal course of business. At the inception of each lease, the Company performs an evaluation to determine whether the lease should be classified as an operating lease or capital lease. As of March 31, 2021, all of the Company’s leased facilities are accounted for as operating leases. For operating leases that contain scheduled rent increases, the Company records rent expense on a straight-line basis over the term of the lease. Leasehold improvements are amortized over the shorter of the useful life of the asset or the lease term.
In accordance with Accounting Standards Update (“ASU”) ASU 2016-02, Leases, as codified in ASC 842, the Company recognizes both right of use assets and lease liabilities for leases in which we lease land, real property or other equipment, having elected the practical expedient to maintain the prior operating lease classification for leases entered into prior to January 1, 2019. We assess any new contracts or modification of contracts in accordance with ASC 842 to determine the existence of a lease and its classification. We are reporting revenues and expenses for real estate taxes and insurance, where the lessee has not made those payments directly to a third party in accordance with their respective leases with us.
The following table summarizes real estate tax recognized on our consolidated statements of operations for the three months ended March 31, 2021 and 2020:
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|
Three Months Ended March 31,
|
|
|
(Amounts in 000’s)
|
|
2021
|
|
|
2020
|
|
|
Rental revenues
|
|
$
|
133
|
|
|
$
|
126
|
|
|
Other operating expenses
|
|
$
|
133
|
|
|
$
|
126
|
|
|
Additionally, we expense certain leasing costs, other than leasing commissions, as they are incurred. Prior GAAP provided for the deferral and amortization of such costs over the applicable lease term. The present value of minimum lease payments was calculated on each lease, using a discount rate of 7.98% for the Company’s leases that approximated our incremental borrowing rate as of January 1, 2019, and the current lease term. See Note 6– Leases for more information on the Company’s operating leases.
Insurance
We maintain general liability, professional liability, and other insurance policies in amounts and with coverage and deductibles we believe are appropriate, based on the nature and risks of our business, historical experience, availability, and industry standards, including for the operations at the Tara Facility. Our current policies provide for deductibles for each claim and contain various exclusions from coverage. The Company has self-insured against professional and general liability claims related to its healthcare operations that were discontinued during 2014 and 2015 in connection with its transition from an owner and operator of healthcare properties to a healthcare property holding and leasing company (the “Transition”). See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 14 – Commitments and Contingencies in the Annual Report for more information. The Company evaluates quarterly the adequacy of its self-insurance reserve based on a number of factors, including: (i) the number of actions pending and the relief sought; (ii) analyses provided by defense counsel, medical experts or other information which comes to light during discovery; (iii) the legal fees and other expenses anticipated to be incurred in defending the actions; (iv) the status and likely success of any mediation or settlement discussions, including estimated settlement amounts and legal fees and other expenses anticipated to be incurred in such settlement, as applicable; and (v) the venues in which the actions have been filed or will be adjudicated. The Company believes that most of the professional and general liability actions are defensible and intends to defend them through final judgment unless settlement is more advantageous to the Company. Accordingly, the self-insurance reserve reflects the Company’s estimate of settlement amounts for the pending actions, if applicable, and legal costs of settling or litigating the pending actions, as applicable. Because the self-insurance reserve is based on estimates, the amount of the self-insurance reserve may not be sufficient to cover the settlement amounts actually incurred in settling the pending actions, or the legal costs actually incurred in settling or litigating the pending actions. See Note 7 – Accrued Expenses. In addition, the Company maintains certain other insurance programs,
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including commercial general liability, property, casualty, directors’ and officers’ liability, crime and employment practices liability.
Earnings Per Share
Basic earnings per share is computed by dividing net income or loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the respective period. Diluted earnings per share is similar to basic earnings per share except that the net income or loss is adjusted by the impact of the weighted-average number of shares of common stock outstanding including potentially dilutive securities (such as options, warrants and non-vested common stock) when such securities are not anti-dilutive. Potentially dilutive securities from options, warrants and unvested restricted shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options and warrants with exercise prices exceeding the average market value are used to repurchase common stock at market value. The incremental shares remaining after the proceeds are exhausted represent the potentially dilutive effect of the securities.
Securities outstanding that were excluded from the computation, because they would have been anti-dilutive were as follows:
|
|
March 31,
|
|
(Share amounts in 000’s)
|
|
2021
|
|
|
2020
|
|
Stock options
|
|
|
13
|
|
|
|
15
|
|
Warrants - employee
|
|
|
49
|
|
|
|
49
|
|
Warrants - non employee
|
|
|
9
|
|
|
|
9
|
|
Total anti-dilutive securities
|
|
|
71
|
|
|
|
73
|
|
The weighted average contractual terms in years for these securities as of March 31, 2021, with no intrinsic value, are 3.3 years for the stock options and 2.7 years for the warrants.
See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 1 – Summary of Significant Accounting Policies included in the Annual Report, for a description of the other accounting pronouncements the Company is currently evaluating.
Overview
The Company intends to pursue measures to grow its operations, streamline its cost infrastructure and otherwise increase liquidity, including: (i) refinancing or repaying debt to reduce interest costs and mandatory principal repayments, with such repayment to be funded through potentially expanding borrowing arrangements with certain lenders; (ii) increasing future lease revenue through acquisitions and investments in existing properties; (iii) modifying the terms of existing leases; (iv) replacing certain tenants who default on their lease payment terms; and (v) reducing other and general and administrative expenses.
Management anticipates access to several sources of liquidity, including cash on hand, cash flows from operations, and debt refinancing during the twelve months following the date of this filing. At March 31, 2021, the Company had $6.2 million in unrestricted cash. During the three months ended March 31, 2021, the Company generated positive cash flow from continuing operations of $2.4 million, and anticipates continued positive cash flow from operations in the future, subject to the continued uncertainty of the COVID-19 pandemic and its impact on the Company’s business, financial condition and results of operations.
On December 1, 2020, the Company entered into the Wellington Lease Termination with the following affiliates of Wellington, 3223 Falligant Avenue Associates, L.P. (“Tara Tenant”) and 3460 Powder Springs Road Associates, L.P. (“Powder Springs Tenant”, together with Tara Tenant, the “Wellington Tenants”). Per the Wellington Lease Termination, possession, custody, control and operation of the Tara Facility and Powder Springs Facility (the “Wellington Facilities”) transitioned from the Wellington Tenants to the Company (the “Wellington Transition”) at 12:01 a.m. on January 1, 2021 (the “Wellington Transition Date”), pursuant to the terms and provisions of the Operations Transfer Agreements (the “OTAs”) which the Company and the Wellington Tenants entered into in connection with the Wellington Lease Termination, which included customary termination events.
The OTAs were subject to customary closing conditions and representations and warranties. The Wellington Transition was subject to the Georgia Department of Community Health’s (“DCH”) approval of the Change in Ownership Applications (the “Applications”), which were filed by Regional on December 2, 2020. On the Wellington Transition Date, the Wellington Tenants: (i) paid all cash on hand at the Wellington Facilities to Regional; (ii) transferred and assigned all accounts receivable previously due to the Wellington Tenants as of the Wellington Transition Date; and (iii) entered into commercially reasonable Deposit Account Control Agreements with respect to all of the Wellington Tenants’ bank accounts that receive accounts
13
receivable remittances. Additionally, on the Wellington Transition Date, the Company became liable for certain expenses including approximately $1.7 million of bed taxes in arrears. On January 1, 2019, security agreements (the “Security Agreements”) executed between the Company and the Wellington Tenants, provided for certain of the Wellington Tenants assets as collateral to the Company in the event of any default under prior agreements with the Company. These Security Agreements survive the Wellington Transition and will remain in full force and effect in order to assist Regional in collecting the accounts receivable.
Scheduled rent payments under the Wellington Subleases constituted approximately 23% of the Company’s anticipated annual revenue in 2020. As of December 31, 2020, Regional recorded an estimated allowance of $1.4 million against a rent receivable of $2.7 million from the Wellington Tenants. During the three months ended March 31, 2021, the Company collected $3.1 million pursuant to the Wellington Lease Termination and paid $1.0 million to partially satisfy the Wellington Lease Termination obligation of approximately $1.7 million of bed taxes in arrears. The Company provides no assurance that we will be able to collect any of the additional rent arrears in excess of the net $1.3 million already collected.
During the three months ended March 31, 2021, the Company recognized $0.4 million of variable rent for the Powder Springs Facility and, as of the date of filing this Quarterly Report, has collected all of such variable rent replacing approximately $0.5 million of cash rent previously anticipated from the Wellington Tenant. The Tara Facility operations performance during the quarter is marginally profitable and performance has been sufficient to cover the rent the Company is obligated to pay under its lease. For further information on the Tara Facility performance see Note 13 – Segment Results.
The Company is current with all of its debt and other financial obligations. The Company has benefited from various, now expired, stimulus measures made available to it through the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted by Congress in response to the COVID-19 pandemic which allowed for, among other things: (i) a deferral of debt service payments on U.S. Department of Agriculture (“USDA”) loans to maturity, (ii) an allowance for debt service payments to be made out of replacement reserve accounts for U.S. Department of Housing and Urban Development (“HUD”) loans and (iii) debt service payments to be made by the U.S. Small Business Administration (the “SBA”) on all SBA loans. For further information see Note 8 – Notes Payable and Other Debt.
Series A Preferred Dividend Suspension
On June 8, 2018, the Board indefinitely suspended quarterly dividend payments with respect to the Series A Preferred Stock. As of March 31, 2021, as a result of the suspension of the dividend payment on the Series A Preferred Stock commencing with the fourth quarter 2017 dividend period, the Company has $30.1 million of undeclared preferred stock dividends in arrears. The Board believes that the dividend suspension will provide the Company with additional funds to meet, in part, its ongoing liquidity needs. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for more than four dividend periods, the annual dividend rate on the Series A Preferred Stock for the fifth and future missed dividend periods has increased to 12.875%, which is equivalent to $3.20 per share each year, commencing on the first day after the missed fourth quarterly payment (October 1, 2018) and continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash.
Debt
As of March 31, 2021, the Company had $54.4 million in indebtedness, net of $1.2 million deferred financing, and unamortized discounts. The Company anticipates net principal repayments of approximately $2.7 million during the next twelve-month period, including approximately $1.5 million of routine debt service amortization, $1.1 million of current maturities of other debt (including $0.4 million related to insurance financing for the Tara Facility operations), and a $0.1 million payment of bond debt.
Debt Covenant Compliance
As of March 31, 2021, the Company was in compliance with the various financial and administrative covenants under the Company’s outstanding credit related instruments.
Evaluation of the Company’s Ability to Continue as a Going Concern
Under the accounting guidance related to the presentation of financial statements, the Company is required to evaluate, on a quarterly basis, whether or not the Company’s current financial condition, including its sources of liquidity at the date that the consolidated financial statements are issued, will enable the Company to meet its obligations as they come due arising within one year of the date of the issuance of the Company’s consolidated financial statements and to make a determination as to whether or not it is probable, under the application of this accounting guidance, that the Company will be able to continue as a
14
going concern. The Company’s consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
In applying applicable accounting guidance, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows, the Company’s obligations due over the next twelve months, and the Company’s recurring business operating expenses.
The Company concludes that it is probable that the Company will be able to meet its obligations arising within one year of the date of issuance of these consolidated financial statements within the parameters set forth in the accounting guidance.
NOTE 3.
|
CASH AND RESTRICTED CASH
|
The following presents the Company's cash and restricted cash:
(Amounts in 000’s)
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Cash
|
|
$
|
6,196
|
|
|
$
|
4,186
|
|
|
|
|
|
|
|
|
|
|
Restricted cash:
|
|
|
|
|
|
|
|
|
Cash collateral
|
|
|
153
|
|
|
|
124
|
|
HUD and other replacement reserves
|
|
|
1,731
|
|
|
|
1,675
|
|
Escrow deposits
|
|
|
790
|
|
|
|
1,190
|
|
Restricted investments for debt obligations
|
|
|
317
|
|
|
|
317
|
|
Total restricted cash
|
|
|
2,991
|
|
|
|
3,306
|
|
Total cash and restricted cash
|
|
$
|
9,187
|
|
|
$
|
7,492
|
|
Cash collateral—In securing mortgage financing from certain lending institutions, the Company and certain of its wholly-owned subsidiaries are required to deposit cash to be held as collateral in accordance with the terms of such loan agreements.
HUD and other replacement reserves—The regulatory agreements entered into in connection with the financing secured through HUD require monthly escrow deposits for replacement and improvement of the HUD project assets.
Escrow deposits—In connection with financing secured through the Company’s lenders, several wholly-owned subsidiaries of the Company are required to make monthly escrow deposits for taxes and insurance.
Restricted cash for debt obligations—In compliance with certain financing and insurance agreements, the Company and certain wholly-owned subsidiaries of the Company are required to deposit cash held as collateral by the lender or in escrow with certain designated financial institutions.
NOTE 4.
|
PROPERTY AND EQUIPMENT
|
The following table sets forth the Company’s property and equipment:
(Amounts in 000’s)
|
|
Estimated
Useful
Lives (Years)
|
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Buildings and improvements
|
|
5-40
|
|
|
$
|
65,672
|
|
|
$
|
65,629
|
|
Equipment and computer related
|
|
2-10
|
|
|
|
5,056
|
|
|
|
5,139
|
|
Land (1)
|
|
|
—
|
|
|
|
2,776
|
|
|
|
2,776
|
|
Construction in process
|
|
|
—
|
|
|
|
—
|
|
|
|
69
|
|
|
|
|
|
|
|
|
73,504
|
|
|
|
73,613
|
|
Less: accumulated depreciation and amortization
|
|
|
|
|
|
|
(21,543
|
)
|
|
|
(21,080
|
)
|
Property and equipment, net
|
|
|
|
|
|
$
|
51,961
|
|
|
$
|
52,533
|
|
|
(1)
|
Includes $0.1 million of land improvements with an average estimated useful remaining life of approximately 8 years.
|
15
The following table summarizes total depreciation and amortization expense for the three months ended March 31, 2021 and 2020:
|
|
Three Months Ended March 31,
|
|
|
(Amounts in 000’s)
|
|
2021
|
|
|
2020
|
|
|
Depreciation
|
|
$
|
540
|
|
|
$
|
550
|
|
|
Amortization
|
|
|
110
|
|
|
|
226
|
|
|
Total depreciation and amortization expense
|
|
$
|
650
|
|
|
$
|
776
|
|
|
NOTE 5.
|
INTANGIBLE ASSETS AND GOODWILL
|
Intangible assets and Goodwill consist of the following:
(Amounts in 000’s)
|
|
Bed licenses
(included
in property
and
equipment)(a)
|
|
|
Bed Licenses -
Separable (b)
|
|
|
Lease
Rights
|
|
|
Total
|
|
|
Goodwill (b)
|
|
Balances, December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
$
|
14,276
|
|
|
$
|
2,471
|
|
|
$
|
206
|
|
|
$
|
16,953
|
|
|
$
|
1,585
|
|
Accumulated amortization
|
|
|
(3,754
|
)
|
|
|
—
|
|
|
|
(48
|
)
|
|
|
(3,802
|
)
|
|
|
—
|
|
Net carrying amount
|
|
$
|
10,522
|
|
|
$
|
2,471
|
|
|
$
|
158
|
|
|
$
|
13,151
|
|
|
$
|
1,585
|
|
Amortization expense
|
|
|
(104
|
)
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
(110
|
)
|
|
|
—
|
|
Balances, March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
14,276
|
|
|
|
2,471
|
|
|
|
206
|
|
|
|
16,953
|
|
|
|
1,585
|
|
Accumulated amortization
|
|
|
(3,858
|
)
|
|
|
—
|
|
|
|
(54
|
)
|
|
|
(3,912
|
)
|
|
|
—
|
|
Net carrying amount
|
|
$
|
10,418
|
|
|
$
|
2,471
|
|
|
$
|
152
|
|
|
$
|
13,041
|
|
|
$
|
1,585
|
|
|
(a)
|
Non-separable bed licenses are included in property and equipment as is the related accumulated amortization expense (see Note 4 – Property and Equipment).
|
|
(b)
|
The Company does not amortize indefinite-lived intangibles, which consist of separable bed licenses and goodwill.
|
The following table summarizes amortization expense for the three months ended March 31, 2021 and 2020:
|
|
Three Months Ended March 31,
|
|
(Amounts in 000’s)
|
|
2021
|
|
|
2020
|
|
Bed licenses
|
|
$
|
104
|
|
|
$
|
104
|
|
Lease rights
|
|
|
6
|
|
|
|
122
|
|
Total amortization expense
|
|
$
|
110
|
|
|
$
|
226
|
|
Expected amortization expense for the year ended December 31, for all definite-lived intangibles, for each of the next five years and thereafter is as follows:
(Amounts in 000’s)
|
|
Bed
Licenses
|
|
|
Lease
Rights
|
|
2021 (a)
|
|
$
|
310
|
|
|
$
|
18
|
|
2022
|
|
|
414
|
|
|
|
24
|
|
2023
|
|
|
414
|
|
|
|
23
|
|
2024
|
|
|
414
|
|
|
|
18
|
|
2025
|
|
|
414
|
|
|
|
18
|
|
Thereafter
|
|
|
8,452
|
|
|
|
51
|
|
Total expected amortization expense
|
|
$
|
10,418
|
|
|
$
|
152
|
|
(a)
|
Estimated amortization expense for the year ending December 31, 2021, includes only amortization to be recorded after March 31, 2021.
|
16
Operating Leases
Facilities Leased to the Company - The Company leases nine skilled nursing facilities from unaffiliated owners under non-cancelable leases, all of which have rent escalation clauses and provisions requiring payment of real estate taxes, insurance and maintenance costs by the lessee. Except for the Tara Facility, which the Company is operating, each of the skilled nursing facilities that are leased by the Company are subleased to and operated by third-party tenants. The Company also leases certain office space located in Suwanee, Georgia. The weighted average remaining lease term for our nine leased facilities is approximately 6.6 years. As of March 31, 2021, the Company is in compliance with all operating lease financial covenants.
Future Minimum Lease Payments
Future minimum lease payments for the year ended December 31, for each of the next five years and thereafter is as follows:
(Amounts in 000’s)
|
|
Future
rental
payments
|
|
|
Accretion of
lease liability (1)
|
|
|
Operating
lease
obligation
|
|
2021 (2)
|
|
$
|
4,981
|
|
|
$
|
(205
|
)
|
|
$
|
4,776
|
|
2022
|
|
|
6,752
|
|
|
|
(713
|
)
|
|
|
6,039
|
|
2023
|
|
|
6,851
|
|
|
|
(1,164
|
)
|
|
|
5,687
|
|
2024
|
|
|
6,958
|
|
|
|
(1,602
|
)
|
|
|
5,356
|
|
2025
|
|
|
7,095
|
|
|
|
(2,051
|
)
|
|
|
5,044
|
|
Thereafter
|
|
|
12,736
|
|
|
|
(4,660
|
)
|
|
|
8,076
|
|
Total
|
|
$
|
45,373
|
|
|
$
|
(10,395
|
)
|
|
$
|
34,978
|
|
(1)
|
Weighted average discount rate 7.98%.
|
(2)
|
Estimated minimum lease payments for the year ending December 31, 2021 include only payments to be paid after March 31, 2021.
|
For further details regarding the Company’s leases from unaffiliated owners under non-cancelable leases and which comprise the future minimum lease payments of the Company, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 6 - Leases included in the Annual Report.
Facilities Leased or Subleased by the Company - As of March 31, 2021, the Company leased or subleased 20 facilities (12 owned by the Company and eight leased to the Company), to third-party tenants on a triple net basis, meaning that the lessee (i.e., the third-party tenant of the property) is obligated under the lease or sublease, as applicable, for all costs of operating the property, including insurance, taxes and facility maintenance, as well as the lease or sublease payments, as applicable. The weighted average remaining lease term for our facilities is approximately 6.3 years.
Empire. Following the Wellington Lease Termination, effective January 1, 2021, Regional leased the Powder Springs Facility to PS Operator LLC (“PS Operator”), an affiliate of Empire, pursuant to a sublease (the “PS Sublease”).
The PS Sublease will expire on August 1, 2027, subject to two five-year optional extensions. For the first six months, the base rent under the PS Sublease will equal the adjusted earnings before interest, tax, depreciation, amortization, and rent (“EBITDAR”) as defined in the PS Sublease, of PS Operator, to the extent derived from the Powder Springs Facility. For months seven through twenty-four, the base rent will equal 80% of the Adjusted EBITDAR; however, beginning with month thirteen, the base rent may not exceed $150,000 per month. Beginning with month twenty-five, the base rent will be $140,000 per month.
For the first three months, if Adjusted EBITDAR (as defined in the PS Sublease) is less than $0, PS Operator will not pay any base rent and the Company would reimburse PS Operator an amount equal to the amount by which each period’s Adjusted EBITDAR is less than $0. Beginning with the fourth month and thereafter, the PS Sublease will be a “triple net” lease with PS Operator responsible for payment of all expenses in addition to rent.
During the three months ended March 31, 2021, the Company recognized $0.4 million of variable rent for the Powder Springs Facility and $0.3 million straight-line rent.
If the monthly average adjusted cash flows of PS Operator (as described in the PS Sublease) is less than $100,000 for any consecutive three-month period after the sixth month of the PS Sublease, then Regional may terminate the PS Sublease subject
17
to the conditions set forth in the PS Sublease. The PS Sublease also includes customary covenants, events of default and indemnification obligations.
Sublease Termination
Wellington. Two of the Company’s eight Georgia facilities, leased under a prime lease, were subleased to affiliates of Wellington under agreements dated January 31, 2015, as subsequently amended (the “Wellington Subleases”). The Wellington Subleases, which were due to expire August 31, 2027, related to the Tara Facility and the Powder Springs Facility.
On December 1, 2020, the Company entered into the Wellington Lease Termination with the Wellington Tenants, Wellington, as guarantor and Mansell Court Associates LLC (“Pledgor”). Tenants, Wellington and Pledgor, together with each of their respective affiliates, shareholders, partners, members, managers, officers, directors and employees thereof, are the “Wellington Parties”.
The Wellington Transition occurred at 12:01 a.m. on January 1, 2021, pursuant to the terms and provisions of the OTAs which the Company and the Wellington Tenants entered into in connection with the Wellington Lease Termination, which included customary termination events.
The OTAs were subject to customary closing conditions and representations and warranties. The Wellington Transition was subject to DCH approval of the Applications, which were filed by Regional on December 2, 2020. On the Wellington Transition Date, the Wellington Tenants: (i) paid all cash on hand at the Wellington Facilities to Regional; (ii) transferred and assigned all accounts receivable previously due to the Wellington Tenants as of the Wellington Transition Date; and (iii) entered into commercially reasonable Deposit Account Control Agreements with respect to all of the Wellington Tenants’ bank accounts that receive accounts receivable remittances. Additionally, on the Wellington Transition Date, the Company became liable for certain expenses including approximately $1.7 million of bed taxes in arrears. The Security Agreements survive the Wellington Transition and will remain in full force and effect in order to assist Regional in collecting the accounts receivable.
As of December 31, 2020, Regional recorded an estimated allowance of $1.4 million against a rent receivable of $2.7 million from the Wellington Tenants. During the three months ended March 31, 2021, the Company collected $3.1 million pursuant to the Wellington Lease Termination and paid $1.0 million to partially satisfy the Wellington Lease Termination obligation of approximately $1.7 million of bed taxes in arrears. The Company provides no assurance that we will be able to collect any of the additional rent arrears in excess of the net $1.3 million already collected. Scheduled rent payments under the Wellington Subleases constituted approximately 23% of the Company’s anticipated annual revenue in 2020.
During the three months ended March 31, 2021, the Company recognized $0.4 million of variable rent for the Powder Springs Facility and, as of the date of filing this Quarterly Report, has collected all of such variable rent replacing approximately $0.5 million of cash rent previously anticipated for the Wellington Tenant. The Tara Facility operations performance during the quarter is marginally profitable and performance has been sufficient to cover the rent the Company is obligated to pay under its lease. For further information on the Tara Facility performance see Note 13 – Segment Results.
When the Wellington Transition occurred, all agreements executed prior to the Wellington Lease Termination with the Wellington Parties, other than the Security Agreements, terminated automatically. Additionally, the Wellington Parties and Regional agreed to a mutual release whereby each party releases, acquits, and forever discharges one another from any and all charges, complaints, claims, liabilities, demands, costs, losses, debts, and expenses of any nature whatsoever (including attorneys’ fees and costs actually incurred), known or unknown, suspected or unsuspected, accrued or not accrued, whether in law in equity, that existed from the beginning of time to the Wellington Transition Date.
Subject to provisions in the OTAs and the Wellington Lease Termination, Regional is not liable for any contractual obligations or liabilities of the Wellington Parties owed to third parties arising prior to the Wellington Transition Date. Regional will pay and/or assume all vacation days, sick days and paid time off accruing on or before the Wellington Transition Date.
Regional has indemnified the Wellington Parties from liabilities arising from or relating to any unpaid nursing home provider fees relating in any way to the Tara Facility and Powder Springs Facility for the period prior to and/or after December 1, 2020.
Aspire. On November 30, 2018, the Company leased or subleased five facilities located in Ohio to affiliates (collectively, “Aspire Sublessees”) of Aspire Regional Partners, Inc. (“Aspire”) management, formerly affiliated with MSTC Development Inc., pursuant to separate sublease agreements (the “Aspire Subleases”), whereby the Aspire Sublessees took possession of, and commenced operating, the facilities (the “Aspire Facilities”) as tenant or subtenant. The Aspire Subleases became effective on December 1, 2018 and are structured as triple net leases. The Company agreed to indemnify Aspire against any and all liabilities imposed on them as arising from the former operator, capped at $8.0 million. The Company has assessed the fair value of the indemnity agreements as not material to the financial statements at March 31, 2021.
18
Symmetry. Affiliates (the “Symmetry Tenants”) of Healthcare Management, LLC (“Symmetry” or “Symmetry Healthcare”) leased the following facilities from the Company, pursuant to separate lease agreements which expire in 2030 (the “Symmetry Leases”): (i) the Company’s 106-bed, skilled nursing facility located in Sylvia, North Carolina (the “Mountain Trace Facility”); (ii) the Company’s 96-bed, skilled nursing facility located in Sumter, South Carolina (the “Sumter Facility”); and (iii) the Company’s 84-bed, skilled nursing facility located in Georgetown, South Carolina (the “Georgetown Facility”). On June 27, 2018, the Company notified Blue Ridge of Sumter, LLC, the tenant with respect to the Sumter Facility (the “Sumter Tenant”), and Blue Ridge on the Mountain, LLC, the tenant with respect to the Mountain Trace Facility (the “Mountain Trace Tenant”), that continued breach of the payment terms of the applicable Symmetry Lease would constitute an event of default. The Symmetry Tenants had alleged that the Company was in material breach of each of the Symmetry Leases with regard to deferred maintenance and were withholding rental payments on the basis of such allegations.
On January 28, 2019, the Company reached an agreement, with the Symmetry Tenants with respect to the Symmetry Leases, pursuant to which the Symmetry Tenants agreed to a $0.8 million (including approximately $0.06 million finance fees) payment plan for the rent arrears (the “Symmetry Payment Plan”). On February 28, 2019, the Company and the Mountain Trace Tenant mutually terminated the lease with respect to the Mountain Trace Facility and operations at the facility were transferred to Vero Health X, LLC, an affiliate of Vero Health, and hereafter also referred to as Vero Health. The Symmetry Tenants paid $0.1 million of the Symmetry Payment Plan during the three months ended March 31, 2021 and March 31, 2020, respectively. In February 2021, the Symmetry Tenants completed the Symmetry Payment Plan, upon completion of which the Company recognized $0.05 million in “Other revenues” having previously recognized $0.01 million prior to the year ended December, 31, 2019.
Vero Health. On February 28, 2019, the Company entered into a lease agreement (the “Vero Health Lease”) with Vero Health, providing that Vero Health would take possession of and operate the Mountain Trace Facility located in North Carolina. The Vero Health Lease became effective, upon the termination of the prior Mountain Trace Tenant mutual lease termination on March 1, 2019.
Peach Health. In connection with a master sublease agreement which the Company entered into with affiliates of Peach Health Group, LLC (“Peach Health”), as of June 18, 2016 and amended on March 30, 2018, the Company extended a line of credit to Peach Health (the “Peach Line”), which was subordinated to a line of credit extended to Peach Health by a third-party lender (the “Peach Working Capital Facility”). On August 27, 2020, subsequent to Peach Health repaying its Peach Working Capital Facility, the Company and Peach Health modified the Peach Line to: (i) reduce the then $1.3 million outstanding balance under the Peach Line to approximately $0.5 million, in connection with which Peach Health paid to the Company $0.45 million in cash and the Company accepted $0.35 million non-cash payment in exchange for Peach Health assuming from the Company certain bed tax liabilities related to facilities their affiliates operate; (ii) extend the maturity date of the Peach Line to August 1, 2025; (iii) decrease the interest rate from 16.5% to 8% per annum; and (iv) Peach Health agreed not to pledge, hypothecate or grant any security interest in their collateral to any other party, other than their current arrangement with the SBA, without the Company’s prior written consent. The remaining balance under the Peach Line shall be paid by Peach Health to the Company in 60 equal monthly installments. During the year ended December 31, 2019, the Company suspended revenue recognition on the Peach Line interest income due pursuant to the subordination of the Peach Line to the Peach Working Capital Facility. Upon the Peach Line modification on August 27, 2020, the Company recommenced interest income recognition.
Notes Receivable: At March 31, 2021 and December 31, 2020, approximately $0.4 million was outstanding on the Peach Line.
19
Future Minimum Lease Receivables
Future minimum lease receivables for the year ended of December 31, for each of the next five years and thereafter is as follows:
|
|
(Amounts
in 000's)
|
|
2021 (a)
|
|
$
|
9,337
|
|
2022
|
|
|
13,519
|
|
2023
|
|
|
15,477
|
|
2024
|
|
|
15,299
|
|
2025
|
|
|
13,702
|
|
Thereafter
|
|
|
33,555
|
|
Total
|
|
$
|
100,889
|
|
(a)
|
Estimated minimum lease receivables for the year ending December 31, 2021 include only payments scheduled to be received after March 31, 2021.
|
For further details regarding the Company’s leased and subleased facilities to third-party operators, including a full summary of the Company’s leases to third-parties and which comprise the future minimum lease receivables of the Company, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 6 - Leases and Note 9 – Acquisitions and Dispositions included in the Annual Report.
Accrued expenses consist of the following:
(Amounts in 000’s)
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Accrued employee benefits and payroll-related
|
|
$
|
449
|
|
|
$
|
218
|
|
Real estate and other taxes (1)
|
|
|
1,022
|
|
|
|
491
|
|
Self-insured reserve (2)
|
|
|
183
|
|
|
|
183
|
|
Accrued interest
|
|
|
334
|
|
|
|
424
|
|
Unearned rental revenue
|
|
|
42
|
|
|
|
41
|
|
Other accrued expenses
|
|
|
1,148
|
|
|
|
868
|
|
Total accrued expenses
|
|
$
|
3,178
|
|
|
$
|
2,225
|
|
|
(1)
|
Includes approximately $0.7 million of bed taxes in arrears related to the Wellington Transition.
|
|
(2)
|
The Company self-insures against professional and general liability cases incurred prior to the Transition and uses a third party administrator and outside counsel to manage and defend the claims (see Note 12 - Commitments and Contingencies).
|
20
NOTE 8.
|
NOTES PAYABLE AND OTHER DEBT
|
See Part II, Item 8, “Financial Statements and Supplementary Data”, Note 8 – Notes Payable and Other Debt included in the Annual Report for a detailed description of all the Company’s debt facilities.
Notes payable and other debt consists of the following:
(Amounts in 000’s)
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Senior debt—guaranteed by HUD
|
|
$
|
30,875
|
|
|
$
|
31,104
|
|
Senior debt—guaranteed by USDA
|
|
|
13,096
|
|
|
|
13,139
|
|
Senior debt—guaranteed by SBA
|
|
|
616
|
|
|
|
628
|
|
Senior debt—bonds
|
|
|
6,500
|
|
|
|
6,500
|
|
Senior debt—other mortgage indebtedness
|
|
|
3,593
|
|
|
|
3,631
|
|
Other debt
|
|
|
1,105
|
|
|
|
822
|
|
Subtotal
|
|
|
55,785
|
|
|
|
55,824
|
|
Deferred financing costs
|
|
|
(1,221
|
)
|
|
|
(1,250
|
)
|
Unamortized discount on bonds
|
|
|
(131
|
)
|
|
|
(135
|
)
|
Notes payable and other debt
|
|
$
|
54,433
|
|
|
$
|
54,439
|
|
The following is a detailed listing of the debt facilities that comprise each of the above categories:
(Amounts in 000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility
|
|
Lender
|
|
Maturity
|
|
Interest Rate (a)
|
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Senior debt - guaranteed by HUD (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Pavilion Care Center
|
|
Orix Real Estate Capital
|
|
12/01/2027
|
|
Fixed
|
|
|
4.16
|
%
|
|
$
|
956
|
|
|
$
|
986
|
|
Hearth and Care of Greenfield
|
|
Orix Real Estate Capital
|
|
08/01/2038
|
|
Fixed
|
|
|
4.20
|
%
|
|
|
1,902
|
|
|
|
1,920
|
|
Woodland Manor
|
|
Midland State Bank
|
|
10/01/2044
|
|
Fixed
|
|
|
3.75
|
%
|
|
|
4,935
|
|
|
|
4,968
|
|
Glenvue
|
|
Midland State Bank
|
|
10/01/2044
|
|
Fixed
|
|
|
3.75
|
%
|
|
|
7,662
|
|
|
|
7,712
|
|
Autumn Breeze
|
|
KeyBank
|
|
01/01/2045
|
|
Fixed
|
|
|
3.65
|
%
|
|
|
6,660
|
|
|
|
6,705
|
|
Georgetown
|
|
Midland State Bank
|
|
10/01/2046
|
|
Fixed
|
|
|
2.98
|
%
|
|
|
3,372
|
|
|
|
3,394
|
|
Sumter Valley
|
|
KeyBank
|
|
01/01/2047
|
|
Fixed
|
|
|
3.70
|
%
|
|
|
5,388
|
|
|
|
5,419
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,875
|
|
|
$
|
31,104
|
|
Senior debt - guaranteed by USDA (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coosa (d)
|
|
Metro City
|
|
09/30/2035
|
|
Prime + 1.50%
|
|
|
5.50
|
%
|
|
|
5,149
|
|
|
|
5,149
|
|
Mountain Trace (e)
|
|
Community B&T
|
|
02/24/2037
|
|
Prime + 1.75%
|
|
|
5.75
|
%
|
|
|
3,954
|
|
|
|
3,972
|
|
Southland (f)
|
|
Cadence Bank, NA
|
|
07/27/2036
|
|
Prime + 1.50%
|
|
|
6.00
|
%
|
|
|
3,993
|
|
|
|
4,018
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,096
|
|
|
$
|
13,139
|
|
Senior debt - guaranteed by SBA (g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southland
|
|
Cadence Bank, NA
|
|
07/27/2036
|
|
Prime + 2.25%
|
|
|
5.50
|
%
|
|
|
616
|
|
|
|
628
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$
|
616
|
|
|
$
|
628
|
|
(a)
|
Represents cash interest rates as of March 31, 2021 as adjusted for interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs, which range from 0.08% to 0.53% per annum.
|
(b)
|
For the seven skilled nursing facilities, the Company has term loans insured 100% by HUD with financial institutions. The loans are secured by, among other things, an assignment of all rents paid under any existing or future leases and rental agreements with respect to the underlying facility. The loans contain customary events of default, including fraud or material misrepresentations or material omission, the commencement of a forfeiture action or proceeding, failure to make required payments, and failure to perform or comply with certain agreements. Upon the occurrence of certain events of default, the lenders may, after receiving the prior written approval of HUD, terminate the loans and all amounts under the loans will become immediately due and payable. In connection with entering into each loan, the Company entered into a healthcare regulatory agreement and a promissory note, each containing customary terms and conditions. Pursuant to the CARES Act, up to three months of debt service payments for six of the credit facilities can be made from our restricted cash reserves.
|
21
(c)
|
For the three skilled nursing facilities, the Company has term loans insured 70% to 80% by the USDA with financial institutions. The loans have an annual renewal fee for the USDA guarantee of 0.25% of the guaranteed portion. The loans have prepayment penalties of 1% through 2021, capped at 1% for the remainder of the first 10 years of the term and 0% thereafter except Coosa (as defined below) which is 1% thereafter.
|
(d)
|
Pursuant to the CARES Act, the monthly principal and interest payments due May 1, 2020 through September 1, 2020 for the loan for that certain 122-bed skilled nursing facility commonly known as Coosa, located in Glencoe, Alabama, were deferred (a part of the “USDA Payment Program”). Monthly payments which commenced on October 1, 2020 are being applied to current interest, then deferred interest until the deferred interest is paid in full. Upon expiration of the deferral period, the payments will be re-amortized over the remaining term of the loan.
|
(e)
|
Pursuant to the CARES Act, the monthly principal and interest payments due May 1, 2020 through August 1, 2020 for the Mountain Trace Facility loan were deferred. Monthly payments which commenced on September 1, 2020 are being applied to current interest, then deferred interest until the deferred interest is paid in full, payments will be re-amortized over the extended term of the loan.
|
(f)
|
Pursuant to the CARES Act, the monthly principal and interest payments due May 1, 2020 through October 1, 2020 for the loan for that certain 126-bed skilled nursing facility commonly known as Southland, located in Dublin, Georgia, were deferred as a part of the USDA Payment Program. Monthly payments recommenced on November 1, 2020 with payments through February 2021 being applied to principal and interest. Monthly payments which commenced on March 1, 2021 are being applied to current interest, then deferred interest until the deferred interest is paid in full, payments will be re-amortized over the extended term of the loan.
|
(g)
|
For the one skilled nursing facility, commonly known as Southland, the Company has a term loan with a financial institution, which is 75% insured by the SBA. The SBA funded two monthly debt payments during the three months ended March 31, 2021 and six payments commencing on March 1, 2020 and ending on August 1, 2020.
|
(Amounts in 000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility
|
|
Lender
|
|
Maturity
|
|
Interest Rate (a)
|
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Senior debt - bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eaglewood Bonds Series A
|
|
City of Springfield, Ohio
|
|
05/01/2042
|
|
Fixed
|
|
|
7.65
|
%
|
|
$
|
6,379
|
|
|
$
|
6,379
|
|
Eaglewood Bonds Series B
|
|
City of Springfield, Ohio
|
|
05/01/2021
|
|
Fixed
|
|
|
8.50
|
%
|
|
|
121
|
|
|
|
121
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,500
|
|
|
$
|
6,500
|
|
(a)
|
Represents cash interest rates as of March 31, 2021. The rates exclude amortization of deferred financing of approximately 0.15% per annum.
|
(Amounts in 000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility
|
|
Lender
|
|
Maturity
|
|
Interest Rate (a)
|
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Senior debt - other mortgage indebtedness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meadowood
|
|
Exchange Bank of Alabama
|
|
05/01/2022
|
|
Fixed
|
|
|
4.50
|
%
|
|
|
3,593
|
|
|
|
3,631
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,593
|
|
|
$
|
3,631
|
|
(a)
|
Represents cash interest rates as of March 31, 2021 as adjusted for interest rate floor limitations, if applicable. The rates exclude amortization of deferred financing costs of 0.30% per annum.
|
(Amounts in 000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender
|
|
Maturity
|
|
Interest Rate
|
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Other debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Insurance Funding
|
|
03/01/2021
|
|
Fixed
|
|
|
2.38
|
%
|
|
$
|
—
|
|
|
$
|
94
|
|
Servarus Financial Inc. (a)
|
|
11/1/2021
|
|
Fixed
|
|
|
5.18
|
%
|
|
|
381
|
|
|
|
—
|
|
Key Bank
|
|
08/25/2021
|
|
Fixed
|
|
|
0.00
|
%
|
|
|
495
|
|
|
|
495
|
|
FountainHead Commercial Capital - PPP Loan
|
|
04/16/2022
|
|
Fixed
|
|
|
1.00
|
%
|
|
|
229
|
|
|
|
229
|
|
Marlin Covington Finance
|
|
03/11/2021
|
|
Fixed
|
|
|
20.17
|
%
|
|
|
—
|
|
|
|
4
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
1,105
|
|
|
$
|
822
|
|
|
(a)
|
Insurance financing for professional and general liability and property insurance for the Tara Facility in our Healthcare Services segment.
|
22
Debt Covenant Compliance
As of March 31, 2021, the Company had 17 credit related instruments outstanding that include various financial and administrative covenant requirements. Covenant requirements include, but are not limited to, fixed charge coverage ratios, debt service coverage ratios, minimum earnings before interest, taxes, depreciation, and amortization or earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs, and current ratios. Certain financial covenant requirements are based on consolidated financial measurements whereas others are based on measurements at the subsidiary level (i.e., facility, multiple facilities or a combination of subsidiaries). The subsidiary level requirements are as follows: (i) financial covenants measured against subsidiaries of the Company; and (ii) financial covenants measured against third-party operator performance. Some covenants are based on annual financial metric measurements whereas others are based on monthly and quarterly financial metric measurements. The Company routinely tracks and monitors its compliance with its covenant requirements.
As of March 31, 2021, the Company was in compliance with the various financial and administrative covenants under the Company’s outstanding credit related instruments.
Scheduled Maturities
The schedule below summarizes the scheduled gross maturities as of March 31, 2021 for each of the next five years and thereafter.
For the twelve months ended March 31,
|
|
(Amounts in 000’s)
|
|
2022
|
|
$
|
2,667
|
|
2023
|
|
|
5,211
|
|
2024
|
|
|
1,778
|
|
2025
|
|
|
1,867
|
|
2026
|
|
|
1,959
|
|
Thereafter
|
|
|
42,303
|
|
Subtotal
|
|
$
|
55,785
|
|
Less: unamortized discounts
|
|
|
(131
|
)
|
Less: deferred financing costs, net
|
|
|
(1,221
|
)
|
Total notes and other debt
|
|
$
|
54,433
|
|
NOTE 9.
|
DISCONTINUED OPERATIONS
|
Discontinued Operations
For discontinued operations, cost of services, primarily accruals or releases of over accruals for professional and general liability claims and bad debt expense are classified in the activities below. For a historical listing and description of the Company’s discontinued entities, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 10 – Discontinued Operations included in the Annual Report.
The following table summarizes the activity of discontinued operations for the three months ended March 31, 2021 and 2020:
|
|
Three Months Ended March 31,
|
|
|
(Amounts in 000’s)
|
|
2021
|
|
|
2020
|
|
|
Cost of services
|
|
$
|
13
|
|
|
$
|
37
|
|
|
Net loss
|
|
$
|
(13
|
)
|
|
$
|
(37
|
)
|
|
The Company’s major classes of discontinued operation’s assets and liabilities included within the Company’s consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively are: (i) “Accounts receivable, net of allowance” of $0.1 million and $0.1 million; (ii) “Accounts payable” of $2.5 million and $2.6 million; and (iii) “Accrued Expenses” of $0.7 million and $0.7 million.
23
NOTE 10.
|
COMMON AND PREFERRED STOCK
|
Common Stock
There were no dividends declared or paid on the common stock during the three months ended March 31, 2021 and 2020.
Preferred Stock
No dividends were declared or paid on the Series A Preferred Stock for the three months March 31, 2021 and 2020.
As of March 31, 2021, as a result of the suspension of the dividend payment on the Series A Preferred Stock commencing with the fourth quarter 2017 dividend period, the Company has $30.1 million of undeclared preferred stock dividends in arrears. Holders of the Series A Preferred Stock are entitled to receive, when and as declared by the Board out of funds of the Company legally available for the payment of distributions, cumulative preferential cash dividends at an annual rate equal to 10.875% of the $25.00 per share stated liquidation preference of the Series A Preferred Stock, which is equivalent to an annual rate of $2.72 per share or $1.9 million per quarter. Dividends on the Series A Preferred Stock, when and as declared by the Board, are payable quarterly in arrears, on March 31, June 30, September 30, and December 31 of each year. On June 8, 2018, the Board determined to continue suspension of the payment of the quarterly dividend on the Series A Preferred Stock indefinitely. Under the terms of the Series A Preferred Stock, dividends on the Series A Preferred Stock shall continue to accrue and accumulate regardless of whether such dividends are declared by the Board. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for four dividends periods: (i) the annual dividend rate on the Series A Preferred Stock has increased to 12.875% ,which is equivalent to an annual rate of $3.20 or $2.2 million per quarter, commencing on the first day after the missed fourth quarterly payment (October 1, 2018) continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash; and (ii) the holders of the Series A Preferred Stock will be entitled to vote, as a single class, for the election of two additional directors to serve on the Board, as further described in the Charter.
As of March 31, 2021, the Company had 2,811,535 shares of the Series A Preferred Stock issued and outstanding.
The Company may, at its option, redeem the Series A Preferred Stock, in whole or in part, by paying $25.00 per share, plus any accrued and unpaid dividends to the redemption date.
For historical information regarding the Series A Preferred Stock, the Company’s former “at-the-market” offering program and prior share repurchase programs, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 11 – Common and Preferred Stock included in the Annual Report.
NOTE 11.
|
STOCK BASED COMPENSATION
|
Stock Incentive Plans
On November 4, 2020, the Board adopted, subject to shareholder approval, the Regional Health Properties, Inc. 2020 Equity Incentive Plan (the “2020 Plan”). The Company’s shareholders approved the 2020 Plan on December 16, 2020 at the 2020 Annual Meeting of Shareholders of the Company. The maximum number of shares of common stock authorized for issuance under the 2020 Plan is 250,000 shares, subject to certain adjustments. No awards may be made under the 2020 Plan after the 10th anniversary of the date of shareholder approval of the 2020 Plan, and no incentive stock options may be granted after the 10th anniversary of the date of Board approval of the 2020 Plan.
The 2020 Plan replaces the AdCare Health Systems, Inc. 2011 Stock Incentive Plan, as amended (the “2011 Plan”), which was assumed by Regional Health pursuant to the Merger. The 2011 Plan was originally due to expire on March 28, 2021 and provided for a maximum of 168,950 shares of common stock to be issued. No additional awards may be granted under the 2011 Plan, effective upon shareholder approval of the 2020 Plan.
The shares of common stock underlying any awards granted under the 2020 Plan or the 2011 Plan that are forfeited, canceled, or otherwise terminated (other than by exercise) will be added back to the shares of common stock available for issuance under the 2020 Plan. However, shares: (i) tendered or held back upon exercise of a stock option or other award under the 2020 Plan to cover the exercise price or tax withholding; and (ii) subject to a stock appreciation right that are not issued in connection with the stock settlement of the stock appreciation right upon exercise thereof, will not be added back to the shares of common stock available for issuance under the 2020 Plan. In addition, shares of common stock repurchased by the Company on the open market will not be added back to the shares of common stock available for issuance under the 2020 Plan.
24
For the three months ended March 31, 2021 and 2020, the Company recognized stock-based compensation expense as follows:
|
|
Three Months Ended March 31,
|
|
|
(Amounts in 000’s)
|
|
2021
|
|
|
2020
|
|
|
Non-employee compensation:
|
|
|
|
|
|
|
|
|
|
Board restricted stock
|
|
$
|
—
|
|
|
$
|
12
|
|
|
Total stock-based compensation expense
|
|
$
|
—
|
|
|
$
|
12
|
|
|
In addition to the 2020 Stock Incentive Plan, the Company grants stock warrants to officers, directors, employees and certain consultants to the Company from time to time as determined by the Board and, when appropriate, the Compensation Committee of the Board.
For the three months ended March 31, 2021 and March 31, 2020, there were no issuances of common stock options or warrants.
Restricted Stock
The following table summarizes the Company’s restricted stock activity for the three months ended March 31, 2021:
|
|
Number of
Shares (000's)
|
|
|
Weighted Avg.
Grant Date
Fair Value
|
|
Unvested, December 31, 2020
|
|
|
14
|
|
|
$
|
3.60
|
|
Vested
|
|
|
(14
|
)
|
|
$
|
3.60
|
|
Unvested, March 31, 2021
|
|
|
-
|
|
|
$
|
-
|
|
The remaining unvested shares at December 31, 2020 vested on January 1, 2021, resulting in minimal compensation expense related to the final vesting of the restricted stock awards during the three months ended March 31, 2021.
NOTE 12.
|
COMMITMENTS AND CONTINGENCIES
|
Regulatory Matters
Laws and regulations governing federal Medicare and state Medicaid programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future governmental review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from certain governmental programs. As of March 31, 2021, all of the Company’s facilities operated by Regional or leased and subleased to third-party operators and managed for third-parties are certified by CMS and are operational. See Note 6 - Leases.
Legal Matters
The Company is a party to various legal actions and administrative proceedings and is subject to various claims arising in the ordinary course of business, including claims that the services the Company provided during the time it operated skilled nursing facilities resulted in injury or death to the patients of the Company’s facilities and claims related to professional and general negligence, employment, staffing requirements and commercial matters. Although the Company intends to vigorously defend itself in these matters, there is no assurance that the outcomes of these matters will not have a material adverse effect on the Company’s business, results of operations and financial condition.
The Company previously operated, and the Company and its tenants now operate, in an industry that is highly regulated. As such, in the ordinary course of business, the Company and its tenants are continuously subject to state and federal regulatory scrutiny, supervision and control. Such regulatory scrutiny often includes inquiries, investigations, examinations, audits, site visits and surveys, some of which are non-routine. In addition, the Company believes that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in legal proceedings or governmental investigations against or involving the Company, or its tenants, whether currently asserted or arising in the future, could have a material adverse effect on the Company’s business, results of operations and financial condition. During the three months ended March 31, 2021, the Company has not been named in any new legal actions.
25
Professional and General Liability Claims
Claims on behalf of the Company’s Former Patients Prior to the Transition
As of March 31, 2021, the Company is a defendant in one professional and general liability action commenced on behalf of one of our former patients who received care at one of our facilities prior to the Transition. The plaintiff in this action alleges negligence due to failure to provide adequate and competent staff resulting in injuries, pain and suffering, mental anguish and malnutrition and seeks unspecified actual and compensatory damages, and unspecified punitive damages. This action is covered by insurance, except that any punitive damages awarded would be excluded from coverage.
During the three months ended March 31, 2021, no professional and general liability actions related to the Company’s former patients prior to the Transition were filed against the Company.
During the three months ended March 31, 2020, the Company settled one professional and general liability action, as outlined below.
|
•
|
On January 29, 2020, the Company executed a settlement, in compromise of a complaint filed in the Circuit Court of Pulaski County, in the State of Arkansas, by a former patient at one of our facilities, against the Company on May 16, 2017. The plaintiff alleged medical negligence and injury. The settlement was paid in 2020, in exchange for dismissal of the case with prejudice, in the total amount of $40,000.
|
Claims on behalf of the Company’s Prior or Current Tenant’s Former Patients after the Transition
As of March 31, 2021, the Company is a defendant in an aggregate of 12 additional professional and general liability actions. These 12 additional professional and general liability actions which set forth claims relating to time periods after the Transition, on behalf of former patients of our current or prior tenants. These actions generally seek unspecified compensatory and punitive damages for former patients who were allegedly injured or died due to professional negligence or understaffing at the applicable facility operated by our tenants. These actions on behalf of former patients of our current or prior tenants all relate to events which occurred after the Company transitioned the operations of the facilities in question to a third-party operator (and of which four such actions relate to events which occurred after the Company sold such facilities) and are subject to such operators’ indemnification obligations in favor of the Company.
During the three months ended March 31, 2021, no professional and general liability actions related to the Company’s current or former tenant’s former patients were filed against the Company.
During the three months ended March 31, 2020, one professional and general liability action related to the Company’s current or former tenant’s former patients was filed against the Company.
As of March 31, 2020, the Company was a defendant in an aggregate of 11 professional and general liability actions, primarily commenced on behalf of one of our former patients and ten of our current or prior tenant’s former patients.
The Company established a self-insurance reserve for its professional and general liability claims, included within “Accrued expenses” on the Company’s consolidated balance sheets of $0.2 million and $0.2 million as of March 31, 2021 and December 31, 2020, respectively. Additionally as of March 31, 2021 and December 31, 2020, $0.1 million and $0.2 million, respectively, was reserved for settlement amounts in “Accounts payable” in the Company’s consolidated balance sheets. For additional information regarding the Company’s self-insurance reserve, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 14 – Commitments and Contingencies included in the Annual Report.
Ohio Attorney General Action. On January 15, 2020, Ohio Attorney General (the “OAG”) voluntarily dismissed with prejudice all claims pending against the Company, certain subsidiaries of the Company and certain other parties, in the action they filed on October 27, 2016, in the Court of Common Pleas, Franklin County, Ohio. The dismissed lawsuit alleged that defendants, including the Company submitted improper Medicaid claims for independent laboratory services for glucose blood tests and capillary blood draws and further alleged that defendants (i) engaged in deception, (ii) willfully received Medicaid payments to which they were not entitled or in a greater amount than that to which they were entitled, and (iii) obtained payments under the Medicaid program to which they were not entitled pursuant to their provider agreements and applicable Medicaid rules and regulations. The OAG sought, among other things, triple the amount of damages proven at trial (plus interest) and not less than $5,000 and not more than $10,000 for each deceptive claim or falsification. As previously disclosed, the Company had received a letter from the OAG in February 2014 offering to settle its claims against the defendants for improper Medicaid claims related to glucose blood tests and capillary blood draws for a payment of approximately $1.0 million, which offer the Company declined. The January 15, 2020, dismissal of the case with prejudice renders all claims against the Company moot.
26
Effective January 1, 2021, pursuant to the Wellington Lease Termination, as a portfolio stabilization measure the Company commenced operating the previously subleased Tara Facility. Accordingly, the Company now has two primary reporting segments; (i) Real Estate Services, which consists of the leasing and subleasing of long-term care and senior living facilities to third-party tenants, including the Company’s management of three facilities on behalf of third-party owners; and (ii) Healthcare Services, which consists of the operation of the Tara Facility, a skilled nursing facility.
The Company reports segment information based on the “management approach” defined in ASC 280, Segment Reporting. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reportable segments.
The table below presents the results of operations for our reporting segments for the periods presented.
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2021
|
|
|
2021
|
|
|
2020
|
|
(Amounts in 000’s)
|
|
Real Estate Services
|
|
|
Healthcare Services
|
|
|
Total
|
|
|
Real Estate Services
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient care revenues
|
|
$
|
—
|
|
|
$
|
2,690
|
|
|
$
|
2,690
|
|
|
$
|
—
|
|
Rental revenues
|
|
|
4,081
|
|
|
|
—
|
|
|
|
4,081
|
|
|
|
4,297
|
|
Management fees
|
|
|
248
|
|
|
|
—
|
|
|
|
248
|
|
|
|
244
|
|
Other revenues
|
|
|
62
|
|
|
|
—
|
|
|
|
62
|
|
|
|
7
|
|
Total revenues
|
|
|
4,391
|
|
|
|
2,690
|
|
|
|
7,081
|
|
|
|
4,548
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient care expense
|
|
|
—
|
|
|
|
2,203
|
|
|
|
2,203
|
|
|
|
—
|
|
Facility rent expense
|
|
|
1,342
|
|
|
|
298
|
|
|
|
1,640
|
|
|
|
1,640
|
|
Cost of management fees
|
|
|
165
|
|
|
|
—
|
|
|
|
165
|
|
|
|
151
|
|
Depreciation and amortization
|
|
|
648
|
|
|
|
2
|
|
|
|
650
|
|
|
|
776
|
|
General and administrative expense
|
|
|
899
|
|
|
|
137
|
|
|
|
1,036
|
|
|
|
877
|
|
Doubtful accounts expense (recovery)
|
|
|
—
|
|
|
|
40
|
|
|
|
40
|
|
|
|
(2
|
)
|
Other operating expenses
|
|
|
232
|
|
|
|
—
|
|
|
|
232
|
|
|
|
224
|
|
Total expenses
|
|
|
3,286
|
|
|
|
2,680
|
|
|
|
5,966
|
|
|
|
3,666
|
|
Income from operations
|
|
|
1,105
|
|
|
|
10
|
|
|
|
1,115
|
|
|
|
882
|
|
Other expense :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
681
|
|
|
|
6
|
|
|
|
687
|
|
|
|
715
|
|
Other expense, net
|
|
|
394
|
|
|
|
—
|
|
|
|
394
|
|
|
|
144
|
|
Total other expense, net
|
|
|
1,075
|
|
|
|
6
|
|
|
|
1,081
|
|
|
|
859
|
|
Income from continuing operations before income taxes
|
|
|
30
|
|
|
|
4
|
|
|
|
34
|
|
|
|
23
|
|
Income from continuing operations
|
|
|
30
|
|
|
|
4
|
|
|
|
34
|
|
|
|
23
|
|
Loss from discontinued operations, net of tax
|
|
|
(13
|
)
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
(37
|
)
|
Net Income (loss)
|
|
$
|
17
|
|
|
$
|
4
|
|
|
$
|
21
|
|
|
$
|
(14
|
)
|
Total assets for the Real Estate Services segment and Healthcare Services segment were $107.5 million and $1.5 million, respectively, as of March 31, 2021.
NOTE 14.
|
SUBSEQUENT EVENTS
|
The Company has evaluated all subsequent events through the date the consolidated financial statements were issued and filed with the SEC.
27