REGIONAL HEALTH PROPERTIES, INC. Forward Looking Statements
This Quarterly Report and certain information incorporated herein by reference contain forward-looking statements and information within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). This information includes assumptions made by, and information currently available to management, including statements regarding future economic performance and financial condition, liquidity and capital resources, and management's plans and objectives. In addition, certain statements included in this Quarterly Report, in the Company's future filings with theSEC , in press releases, and in oral and written statements made by us or with our approval, which are not statements of historical fact, are forward-looking statements. Words such as "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "seek," "plan," "project," "continue," "predict," "will," and other words or expressions of similar meaning are intended by us to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are based on the Company's current expectations about future events or results and information that is currently available to us, involve assumptions, risks, and uncertainties, and speak only as of the date on which such statements are made. All forward-looking statements are subject to the risks and uncertainties inherent in predicting the future. The Company's actual results may differ materially from those projected, stated or implied in these forward-looking statements as a result of many factors, including the Company's critical accounting policies and risks and uncertainties related to, but not limited to, the operating results of the Company's tenants, the overall industry environment, the Company's financial condition, and the impact of the COVID-19 pandemic on the Company's business. These and other risks and uncertainties are described in more detail in the Annual Report and in Part II, Item 1A of this Quarterly Report, as well as other reports that the Company files with theSEC . Forward-looking statements speak only as of the date they are made and should not be relied upon as representing the Company's views as of any subsequent date. The Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by applicable laws, and you are urged to review and consider disclosures that the Company makes in this Quarterly Report and other reports that the Company files with theSEC that discuss factors germane to the Company's business.
Overview
Regional Health , through its subsidiaries, is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living. Our business primarily consists of leasing and subleasing healthcare facilities to third-party tenants. As ofSeptember 30, 2021 , the Company owned, leased or managed for third parties, or operated, 24 facilities, primarily in theSoutheastern 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 ofJanuary 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 ofJanuary 1, 2021 , the Company has two primary reporting segments, Real Estate Services and Healthcare Services. EffectiveJanuary 1, 2021 , pursuant to the Wellington Lease Termination for two SNFs located inGeorgia with affiliates ofWellington , the Company, as a portfolio stabilization measure, commenced operating the previously subleased Tara Facility and entered into a new sublease agreement with an affiliate of Empire for the Powder Springs Facility. The Company had entered into the Vero Management Agreement withVero Health under whichVero Health provided management consulting services for the Tara Facility, which the Company now operates. OnSeptember 21, 2021 , the Company notifiedVero Health of Regional's intention to terminate the Vero Management Agreement, effectiveOctober 1, 2021 . Regional will continue to operate the Tara Facility and has entered into the Peach Management Agreement with Peach, dated as ofSeptember 22, 2021 and effectiveOctober 1, 2021 , to provide management consulting services for the Tara Facility. Affiliates of Peach also lease from Regional three facilities located inGeorgia . The fixed Management fee Regional will pay Peach is 1% less than under the Vero Management Agreement, with additional percentages for meeting specified performance targets. See Note 6 - Leases located in Part I, Item 1, "Financial Statements", of this Quarterly Report, and Note 6 - Leases in Part II, Item 8, "Financial Statements and Supplemental Data" in the Company's Annual Report, for a more detailed description of the Company's leases. The operators of the Company's facilities provide a range of health care and related services to patients and residents, including skilled nursing and assisted living services, social services, various therapy services, and other rehabilitative and healthcare services for both long-term and short-stay patients and residents. 33 --------------------------------------------------------------------------------
Risks and Uncertainties
While the Company is a self-managed real estate investment company that invests primarily in real estate purposed for long-term care and senior living, the Company, when business conditions require, may undertake portfolio stabilization measures, such as operating a previously leased facility. OnJanuary 1, 2021 , following the Wellington Transition, the Company commenced operating the Tara Facility, which facility comprises approximately 5.0% of the total amount of the Company's licensed patient beds. This portfolio stabilization measure exposes the Company directly to all the risks our tenants face as discussed in this "Risk and Uncertainties" section. OnMarch 11, 2020 , theWorld 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 inthe United States to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The COVID-19 pandemic and the measures to protect its spread have adversely affected our business during the nine months endedSeptember 30, 2021 , and we expect it will continue to adversely affect our business in the quarter endingDecember 31, 2021 and beyond, for a variety of reasons, including those discussed below and elsewhere in this Quarterly Report. As ofOctober 29, 2021 , the Company is aware that each of our facilities has reported one or more positive cases of COVID-19 among the residents and/or operator employee populations. Many of our operators have reported incurring significant cost increases as a result of the COVID-19 pandemic, with dramatic increases for facilities with positive cases. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of personal protective equipment, testing equipment, processes and supplies. In terms of occupancy levels, many of our operators have reported experiencing declines, in part due to the elimination or suspension of elective hospital procedures, fewer discharges from hospitals to SNFs, and higher hospital re-admittances from SNFs. The COVID-19 pandemic may also lead to temporary closures of nursing facilities, operated by our tenants, which also may affect our tenants' ability to make their rental payments to us pursuant to their respective lease agreements. In addition, our tenants' operations could be further disrupted if any of their employees, or the employees of their vendors, have, or are suspected of having, COVID-19. This could cause, and in some cases has already caused, our tenants or their vendors to experience staffing shortages, and this could potentially require our tenants and their vendors to close parts of or entire facilities, distribution centers, or other buildings to disinfect any affected areas. We could also be adversely affected if government authorities impose upon our tenants, or their vendors, certain restrictions due to the COVID-19 pandemic. These restrictions may be in the form of mandatory closures, requested voluntary closures, bans on new admissions, restricted operations, or restrictions on the importation of necessary equipment or supplies which may adversely affect our tenants' operations and their ability to make rental payments to us moving forward. In addition, family members may elect to keep nursing facility residents at home during the COVID-19 pandemic, thus reducing our tenants' revenue. Currently, a number of our tenants have stopped admitting new patients due to rising COVID-19 infections which has resulted in decreased revenues. As a result of the COVID-19 pandemic, our tenants may face lawsuits for alleged negligence associated with their responses to the emergency. The costs associated with defending, settling, or paying damages from such claims could negatively impact our tenants' operating budgets and affect their ability to meet their obligations under our leases. Further, we may be subject to increased lawsuits arising out of our alleged actions or the alleged actions of our tenants for which they have agreed to indemnify, defend and hold us harmless. An unfavorable resolution of any such pending or future litigation could materially adversely affect us. The Company is not aware of any such lawsuits against our tenants. If our tenants are unable to make rental payments to us pursuant to their lease obligations, whether due to the tenants' decrease in revenues or otherwise, then, in some cases, we may be forced to either attempt to replace the tenants or restructure the tenants' long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place. While the Company has received approximately 97% of its anticipated fixed monthly rental receipts from tenants for the three and nine months endedSeptember 30, 2021 , there are a number of uncertainties the Company faces as it considers the potential impact of COVID-19 on its business, including the length of census disruption, elevated COVID-19 operating costs related to personal protection equipment, cleaning supplies, virus testing and increased overtime due to staff illness. OnNovember 5, 2021 , the CMS published COVID-19 Health Care Staff Vaccination requirements that most Medicare- and Medicaid-certified providers and suppliers must meet in order to participate in the Medicare and Medicaid programs. This emergency regulation was effective immediately and requires employees at Medicare and Medicaid-participating facilities and 34 -------------------------------------------------------------------------------- employers with more than 100 employees to be vaccinated. Some states have also issued their own orders to employers and healthcare providers that may or may not align with federal directives. The legality of both federal and state vaccine mandates will likely be decided by the courts. Until pending laws and regulations related to vaccine mandates are both finalized and adjudicated, our tenants will continue to manage in different ways, from mandating vaccines for all employees to waiting to see how the issue is ultimately resolved. The mandates, as presently written, may cause disruption to tenants' operations if employees refuse vaccination and are terminated, and our tenants are not able to replace them in a timely manner or experience increased costs to do so. To help offset these costs as well as occupancy declines, various relief programs have been enacted by federal and state governments, which have provided, and we expect will continue to provide, some payments to our tenants, subject to the programs' respective terms and conditions. The CARES Act established a grant program administered by the HHS under which Provider Relief Funds have been made available. In earlyNovember 2021 , the HHS closed the application portal for its Phase 4 allocation of approximately$17 billion of Provider Relief Funds and an allocation of approximately$8.5 billion in American Rescue Plan resources for providers serving patients living in rural areas. We expect that our tenants pursued additional funding from these allocations, and will pursue any future funding that may become available, though there can be no assurance that our tenants will qualify for, or receive, any Phase 4 or American Rescue Plan, or any future, funding. We also do not know the number of facilities that will ultimately experience widespread, high-cost outbreaks of COVID-19. While we have requested reporting case numbers from our operators and CMS has required additional reporting by operators, we may not receive accurate information on the number of cases, which could result in a delay in reporting. We expect to see continued increased clinical protocols for infection control within facilities and increased monitoring of employees, guests and other individuals entering facilities; however, we do not yet know if future reimbursement rates in combination with the various relief programs that have been made available will be sufficient to cover the increased costs of enhanced infection control and monitoring. The extent of the COVID-19 pandemic's effect on our and our operators' operational and financial performance will depend on future developments, including the ultimate duration, spread and intensity of the outbreak, which may depend on factors such as the development and implementation of an effective vaccine and treatments for COVID-19, government funds and other support for the senior care sector and the efficacy of other policies and measures that may mitigate the impact of the pandemic, all of which are uncertain and difficult to predict. Due to these uncertainties, we are unable at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material. 35 --------------------------------------------------------------------------------
Portfolio
The following table provides summary information regarding the number of
facilities and related licensed beds/units as of
Managed for Third
Owned Leased Leased Operating Parties Total
Facilities Beds/Units Facilities Beds/Units Facilities Beds/Units Facilities Beds/Units Facilities Beds/Units
State
Alabama 2 230 - - - - - - 2 230
Georgia 3 395 7 750 1 134 - - 11 1,279
North Carolina 1 106 - - - - - - 1 106
Ohio 4 291 1 99 - - 3 332 8 722
South Carolina 2 180 - - - - - - 2 180
Total 12 1,202 8 849 1 134 3 332 24 2,517
Facility Type
Skilled Nursing 10 1,016 8 849 1 134 2 249 21 2,248
Assisted Living 2 186 - - - - - - 2 186
Independent Living - - - - - - 1 83 1 83
Total 12 1,202 8 849 1 134 3 332 24 2,517
The following table provides summary information regarding the number of
facilities and related licensed beds/units by operator affiliation as of
September 30 2021:
Number of
Operator Affiliation Facilities (1) Beds / Units
C.R. Management 6 689
Aspire 5 390
Peach Health Group 3 266
Symmetry Healthcare 2 180
Beacon Health Management 2 212
Vero Health Management 1 106
Empire (2) 1 208
Subtotal 20 2,051
Regional Health Managed 3 332
Regional Health Operated (3) 1 134
Total 24 2,517
(1) Represents the number of facilities leased or subleased to separate tenants,
of which each tenant is an affiliate of the entity named in the table above.
For a more detailed discussion, see Note 6 - Leases located in Part I, Item
1, "Financial Statements", of this Quarterly Report; Note 6 - Leases in Part
II, Item 8, "Financial Statements and Supplementary Data", included in the
Annual Report; and "Portfolio of Healthcare Investments" included in Part I,
Item 1, "Business" included in the Annual Report.
(2) Effective
affiliate of Empire for the Powder Springs Facility. See Note 6 - Leases in
Part I, Item 1, "Financial Statements (unaudited)" in this Quarterly Report.
(3) Effective
entered into the Vero Management Agreement with
Health provided management consulting services for the Tara Facility. On
to terminate the Vero Management Agreement, effective
Regional will continue to operate the Tara Facility and has entered into the
Peach Management Agreement with Peach, dated as of
effective
Tara Facility.
36
--------------------------------------------------------------------------------
Portfolio Occupancy Rates
The following table provides summary information regarding our portfolio facility-level occupancy rates for the periods shown:
For the Twelve Months Ended
December 31, March 31, June 30, September 30,
Operating Metric (1) 2020 2021 2021 2021
Occupancy (%) 67.3 % 68.6 % 67.7 % 66.7 %
(1) Excludes three managed facilities in
Lease Expiration
The following table provides summary information regarding our lease expirations
for the years shown as of
Licensed Beds Annual Lease Revenue (1)
Number of Amount
Facilities Amount Percent (%) '000's Percent (%)
2023 1 62 3.0 % $ 263 1.9 %
2024 1 126 6.1 % 965 6.8 %
2025 2 269 13.1 % 2,219 15.6 %
2026 - - 0.0 % - 0.0 %
2027 7 750 36.6 % 5,241 36.9 %
2028 4 328 16.0 % 2,352 16.6 %
2029 1 106 5.2 % 538 3.8 %
Thereafter 4 410 20.0 % 2,603 18.4 %
Total 20 2,051 100.0 % $ 14,181 100.0 %
(1) Straight-line rent.
Acquisitions and Divestitures
There were no acquisitions or divestitures during the three and nine months
ended
For historical information regarding the Company's acquisitions and divestitures, see Note 9 - Acquisitions and Dispositions and Note 10 - Discontinued Operations Part II, Item 8, "Financial Statements and Supplementary Data", included in the Annual Report.
Critical Accounting Policies
We prepare our financial statements in accordance with GAAP for interim
financial information and with the instructions to Form 10-Q and Rule 8-03 of
Article 8 of Regulation S-X. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amount of
assets, liabilities, revenues and expenses. On an ongoing basis, we review our
judgments and estimates, including, but not limited to, those related to
doubtful accounts, income taxes, stock compensation, intangible assets and loss
contingencies. We base our estimates on historical experience, business
knowledge and on various other assumptions that we believe to be reasonable
under the circumstances at the time. Actual results may vary from our estimates.
These estimates are evaluated by management and revised as circumstances change.
For a discussion of our critical accounting policies, see Note 1 - Organization
and Significant Accounting Policies to the Company's Notes to our consolidated
financial statements located in Part I, Item 1, "Financial Statements
(unaudited)", of this Quarterly Report.
37
--------------------------------------------------------------------------------Results of Operations
The following table sets forth, for the periods indicated, an unaudited
statement of operations items and the amounts and percentages of change of these
items. The results of operations for any particular period are not necessarily
indicative of results for any future period. The following data should be read
in conjunction with our consolidated financial statements and the notes thereto,
which are included herein.
Three Months Ended September 30, Nine Months Ended September 30,
Percent Percent
(Amounts in 000's) 2021 2020 Change (*) 2021 2020 Change (*)
Revenues:
Patient care revenues $ 2,309 $ - NM $ 7,444 $ - NM
Rental revenues 4,136 4,308 (4.0 )% 11,980 12,898 (7.1 )%
Management fees 248 244 1.6 % 743 732 1.5 %
Other revenues 9 215 (95.8 )% 84 224 (62.5 )%
Total revenues 6,702 4,767 40.6 % 20,251 13,854 46.2 %
Expenses:
Patient care expense 2,454 - NM 6,911 - NM
Facility rent expense 1,640 1,640 0.0 % 4,919 4,919 0.0 %
Cost of management fees 153 161 (5.0 )% 468 486 (3.7 )%
Depreciation and amortization 651 694 (6.2 )% 1,953 2,239 (12.8 )%
General and administrative
expenses 972 743 30.8 % 2,953 2,334 26.5 %
Doubtful accounts expense - 790 (100.0 )% 77 653 (88.2 )%
Other operating expenses 204 109 87.2 % 679 630 7.8 %
Total expenses 6,074 4,137 46.8 % 17,960 11,261 59.5 %
Income from operations 628 630 (0.3 )% 2,291 2,593 (11.6 )%
Other expense (income) :
Interest expense, net 669 692 (3.3 )% 2,022 2,091 (3.3 )%
Gain on extinguishment of debt (146 ) - NM (146 ) - NM
Other expense, net 122 9 NM 839 144 NM
Total other expense, net 645 701 (8.0 )% 2,715 2,235 21.5 %
(Loss) income from continuing
operations before income taxes (17 ) (71 ) (76.1 )% (424 ) 358 (218.4 )%
(Loss) income from continuing
operations (17 ) (71 ) (76.1 )% (424 ) 358 (218.4 )%
Loss from discontinued
operations, net of tax (22 ) (2 ) NM (97 ) (33 ) 193.9 %
Net loss $ (39 ) $ (73 ) (46.6 )% $ (521 ) $ 325 (260.3 )%
* Not meaningful ("NM").
Three Months Ended
Patient care revenues-Patient care revenues for our new Healthcare Services
segment, as a result of the Company operating the Tara Facility, were
38
--------------------------------------------------------------------------------
Rental revenues-Rental revenue for our Real Estate Services segment decreased by
approximately $0.2 million , or 4.0%, to $4.1 million for the three months ended
September 30, 2021 , compared with $4.3 million for the same period in 2020. The
decrease reflects an approximately $0.9 million decrease in straight-line rent
due to the Wellington Lease Termination, approximately $0.5 million and $0.4
million recognized for the three months ended September 30, 2020 for the Powder
Springs Facility and the Tara Facility, respectively, partially offset by
approximately $0.2 million straight-line rent and approximately $0.5 million
variable rent recognized from the Powder Springs Facility under a new sublease
with an affiliate of Empire in the current period. For further information see
Note 6 - Leases to our consolidated financial statements in Part I, Item 1,
"Financial Statements (unaudited)" in this Quarterly Report.
Other revenues-Other revenues for our Real Estate Services segment decreased by
approximately $0.2 million for the three months ended September 30, 2021 ,
compared to the same period in 2020. This decrease is due to the previously
deferred interest earned on the Peach Line pursuant to the Peach Line
modification in the prior year quarter and the Peach Health Sublessees repaying
its third-party Peach Working Capital Facility, to which the Peach Line was
subordinated
Patient care expense-Patient care expense was $2.5 million for the three months
ended September 30, 2021 . The current period expense, which required an
increased utilization of agency staffing, is due to the costs of operating the
Tara Facility in our new Healthcare Services reporting segment.
Three Months Ended September 30,
Percent
(Amounts in 000's) 2021 2020 Change (*)
General and administrative expenses:
Real Estate Services $ 861 $ 743 15.9 %
Healthcare Services 111 - NM
Total $ 972 $ 743 30.8 %
* Not meaningful ("NM").
General and administrative expenses- General and administrative expenses
increased by approximately $0.3 million , or 30.8%, to $1.0 million for the three
months ended September 30, 2021 , compared with $0.7 million for the same period
in 2020. The increase is driven by $0.2 million of non-cash stock compensation
for the issuance of restricted share awards for employees and executive officers
and $0.1 million incurred per the Vero Management Agreement, in our Healthcare
Services segment, which provides remuneration to Vero of 5.0% of our Patient
care revenues (net of contractual allowances) to provide management consulting
services for the Tara Facility.
Doubtful accounts expense- The current period expense is due to approximately
$0.1 million provision for doubtful accounts in our Healthcare Services segment
partially offset by approximately $0.1 million of Wellington rent receivable
cash collections in excess of our prior year provision for non-payment of rent
in our Real Estate Services segment. The prior period expense is related to the
provision for non-payment of rent by Wellington .
Other operating expenses - Other operating expenses increased by approximately
$0.1 million or 87.2%, to $0.2 million for the three months ended September 30,
2021 , compared with $0.1 million for the same period in 2020. The increase is
due to the reversal of a provision for bed taxes related to the Peach Line
modification in the prior year quarter.
Gain on extinguishment of debt- Gain on extinguishment of debt is due to the PPP
Loan debt forgiveness of
Other expense (income), net- Other expense (income), net increased by
approximately
Nine Months Ended
Patient care revenues-Patient care revenues for our new Healthcare Services
segment, as a result of the Company operating the Tara Facility, were
Rental revenues-Rental revenue for our Real Estate Services segment, decreased by approximately$0.9 million , or 7.1%, to$12.0 million for the nine months endedSeptember 30, 2021 , compared with$12.9 million for the same period in 2020. The decrease reflects approximately$2.8 million decrease in straight-line rent due to the Wellington Lease Termination,$1.5 39 -------------------------------------------------------------------------------- million and$1.3 million recognized for the nine months endedSeptember 30, 2020 for the Powder Springs Facility and the Tara Facility respectively, partially offset by$0.9 million straight-line rent and approximately$1.0 million variable rent recognized from the Powder Springs Facility under a new sublease with an affiliate of Empire in the current period. For further information see Note 6 - Leases to our consolidated financial statements in Part I, Item 1, "Financial Statements (unaudited)" in this Quarterly Report. Other revenues-Other revenue for our Real Estate Services segment decreased by approximately$0.1 million , for the nine months endedSeptember 30, 2021 , compared to the same period in 2020. This decrease is due to recognition of the Symmetry Payment Plan fees and interest earned on the Peach Line, which had previously been deferred due to the Peach Line's subordination to the Peach Health Sublessees third-party Peach Working Capital Facility until its repayment in the prior year.
Patient care expense-Patient care expense was
Depreciation and amortization-Depreciation and amortization for our Real Estate Services segment decreased by approximately$0.2 million , or 12.8%, to$2.0 million for the nine months endedSeptember 30, 2021 , compared with$2.2 million for the same period in 2020. This decrease is mainly due to the full depreciation of certain building improvements and equipment and computer related assets. Nine Months Ended September 30, Percent (Amounts in 000's) 2021 2020 Change (*) General and administrative expenses: Real Estate Services$ 2,583 $ 2,334 10.7 % Healthcare Services 370 - NM Total$ 2,953 $ 2,334 26.5 % * Not meaningful ("NM"). General and administrative expenses- General and administrative expenses increased by approximately$0.7 million , or 26.5%, to$3.0 million for the nine months endedSeptember 30, 2021 , compared with$2.3 million for the same period in 2020. The increase is driven by$0.3 million of non-cash stock compensation for the issuance of restricted share awards for employees and approximately$0.4 million incurred per the Vero Management Agreement, in our Healthcare Services segment, which provides remuneration to Vero of 5.0% of our Patient care revenues (net of contractual allowances) to provide management consulting services for the Tara Facility. Doubtful accounts expense- The current period expense is due to a$0.2 million provision for doubtful accounts in our Healthcare Services segment partially offset by approximately$0.1 million ofWellington rent receivable cash collections in excess of our prior year provision for non-payment of rent in our Real Estate Services segment. The prior period expense is related to a$0.9 million provision of outstanding rent arrears fromWellington , offset by$0.2 million related to the collection of amounts owed to the Company under tenant payment plans previously not considered collectible. Other operating expenses - Other operating expenses increased by approximately$0.1 million or 7.8%, to$0.7 million for the nine months endedSeptember 30, 2021 , compared with$0.6 million for the same period in 2020. The increase is due to the reversal of a provision for bed taxes related to the Peach Line modification in the prior year quarter.
Gain on extinguishment of debt- Gain on extinguishment of debt is due to the PPP
Loan debt forgiveness of
Other expense, net- Other expense, net increased by approximately$0.7 million , to$0.8 million , for the nine months endedSeptember 30, 2021 , compared with$0.1 million for the same period in 2020. These expenses in both years are related to professional and legal services to evaluate and assist with possible opportunities to improve the Company's capital structure. For further information on the Tara Facility performance, see Note 13 - Segment Results to the Company's consolidated financial statements located in Part I, Item 1, Notes to Consolidated Financial Statements", of this Quarterly Report.
Liquidity and Capital Resources
Overview
The Company intends to pursue measures to grow its operations, streamline its
cost infrastructure and otherwise increase liquidity, including: (i) refinancing
or repaying debt to reduce interest costs and mandatory principal repayments,
with such
40
-------------------------------------------------------------------------------- repayment to be funded through potentially expanding borrowing arrangements with certain lenders; (ii) increasing future lease revenue through acquisitions and investments in existing properties; (iii) modifying the terms of existing leases; (iv) replacing certain tenantswho 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. AtSeptember 30, 2021 , the Company had$6.2 million in unrestricted cash, including a Medicaid overpayment of$1.0 million received onSeptember 30, 2021 , which the Company expects to repay in the near future and is recorded in "Accrued Expenses" in the Company's consolidated balance sheets as ofSeptember 30, 2021 . During the nine months endedSeptember 30, 2021 , the Company generated positive cash flow from continuing operations of$4.3 million and anticipates continued positive cash flow from operations in the future, subject to the continued uncertainty of the COVID-19 pandemic and its impact on the Company's business, financial condition and results of operations. As ofDecember 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 endedSeptember 2021 , the Company recorded$0.1 million in debt recovery due to collections exceeding ourDecember 31, 2020 estimated allowance. During the nine months endedSeptember 30, 2021 , the Company collected$3.3 million pursuant to the Wellington Lease Termination (excluding$0.2 million insurance refund) and paid$1.0 million to partially satisfy the Wellington Lease Termination obligation of approximately of$1.7 million of bed taxes in arrears and$0.1 million in collection expenses. The Company provides no assurance that we will be able to collect any of the additional$1.2 million in rent arrears in excess of the net$1.5 million already collected. During the three and nine months endedSeptember 30, 2021 , the Company recognized approximately$0.5 million and$1.0 million respectively, of variable rent for the Powder Springs Facility and, as of the date of filing this Quarterly Report, has collected all of such variable rent replacing approximately$1.5 million of cash rent previously anticipated from the Wellington Tenant. The Tara Facility operations performance during the three and nine months endedSeptember 30, 2021 has been insufficient to cover any of the rent the Company is obligated to pay under its lease. OnJanuary 1, 2021 , the Company had entered into the Vero Management Agreement withVero Health under whichVero Health provided management consulting services for the Tara Facility, which the Company now operates. OnSeptember 21, 2021 , the Company notifiedVero Health , of Regional's intention to terminate the Vero Management Agreement, effectiveOctober 1, 2021 . Regional will continue to operate the Tara Facility and has entered into the Peach Management Agreement with Peach dated as ofSeptember 22, 2021 and effectiveOctober 1, 2021 to provide management consulting services for the Tara Facility. Affiliates of Peach also lease from Regional three facilities located inGeorgia . The fixed Management fee Regional will pay Peach is 1% less than under the Vero Management Agreement with additional percentages for meeting specified performance targets. For further information on the Peach Management Agreement see Note 8 - Leases and Note 13 - Segment Results to the Company's consolidated financial statements located in Part I, Item 1, Notes to Consolidated Financial Statements", of this Quarterly Report. Debt Extinguishment. OnAugust 13, 2021 , the Company received official notification fromFountainHead Commercial Capital , providers of our$0.2 million Paycheck Protection Program Loan ("PPP Loan), that the full$0.2 million was forgiven by the SBA onJuly 9, 2021 . As ofSeptember 30, 2021 , the Company had$53.4 million in indebtedness, net of$1.3 million deferred financing, and unamortized discounts. The Company anticipates net principal repayments of approximately$2.0 million during the next twelve-month period, approximately$1.3 million of routine debt service amortization,$0.6 million of current maturities of other debt (including$0.1 million related to insurance financing for the Tara Facility operations), and a$0.1 million payment of bond debt. OnSeptember 30, 2021 , the Company and theExchange Bank of Alabama executed a$5.1 million Promissory Note with a 3.95% annual fixed interest rate and maturity date ofOctober 10, 2026 . The Coosa Credit Facility refinanced$5.1 million prime + 1.5% variable interest rate debt owed toMetro City Bank with a maturity date ofJanuary 31, 2036 . The Coosa Credit Facility is secured by the assets ofCoosa , which includes the Coosa Facility and the assets of Meadowood which includes the Meadowood Facility. The Company incurred approximately$0.1 million in new deferred financing fees and expensed approximately$0.1 million deferred financing fees associated with the Coosa MCB Loan. Consequently the Company recorded a net gain of approximately$0.1 million on extinguishment of debt during the three months endedSeptember 30, 2021 , being$0.2 million gain on forgiveness of the PPP Loan partially offset by$0.1 million of expensed deferred financing fees associated with the extinguishment of the Coosa MCB Loan. Debt Modification. In conjunction with theSeptember 30, 2021 Coosa Facility refinance, the Company and theExchange Bank of Alabama executed the Meadowood Credit Facility that extended the maturity date on$3.5 million Meadowood Credit 41 -------------------------------------------------------------------------------- Facility, as amended, in current senior debt secured by the assets ofCoosa and the assets of Meadowood, other mortgage indebtedness fromMay 1, 2022 toOctober 1, 2026 . Additionally onAugust 17, 2021 , the Company extended the maturity date on approximately$0.5 million other debt fromAugust 25, 2021 toAugust 25, 2023 (known as the "KeyBank Exit Notes"). Company recorded a net gain of approximately$0.1 million on extinguishment of debt during the three months endedSeptember 30, 2021 , being$0.2 million gain on forgiveness of the PPP Loan partially offset by$0.1 million of expensed deferred financing fees associated with the extinguishment of the Coosa MCB Loan.
For further information, see Note 8 - Notes Payable and Other Debt to the Company's consolidated financial statements located in Part I, Item 1, Notes to Consolidated Financial Statements", of this Quarterly Report.
The Company is current with all of its Notes payable and other debt as described in Note 8 - Notes Payable and Other Debt, to the Company's Notes to our consolidated financial statements located in Part I, Item 1, "Financial Statements (unaudited)", of this Quarterly Report. The Company has benefited from various, now expired, stimulus measures made available to it through the CARES Act enacted byCongress in response to the COVID-19 pandemic, which allowed for, among other things: (i) a deferral of debt service payments onUSDA loans to maturity, (ii) an allowance for debt service payments to be made out of replacement reserve accounts for HUD loans, and (iii) debt service payments to be made by the SBA on all SBA loans. In early 2020, the Company began on-going efforts to investigate alternatives to retire or refinance our outstanding debt of Series A Preferred Stock through privately negotiated transactions, open market repurchases, redemptions, exchange offers, tender offers, or otherwise. Costs associated with these efforts have been expensed as incurred in "Other expense, net" and were$0.9 million and$0.2 million for the nine months endedSeptember 30, 2021 andSeptember 30, 2020 , respectively.
Debt Covenant Compliance
As of
Series A Preferred Dividend Suspension
OnJune 8, 2018 , the Board indefinitely suspended quarterly dividend payments with respect to the Series A Preferred Stock. As ofSeptember 30, 2021 , as a result of the suspension of the dividend payment on the Series A Preferred Stock commencing with the fourth quarter 2017 dividend period, the Company has$34.6 million of undeclared preferred stock dividends in arrears. The Board believes that the dividend suspension will provide the Company with additional funds to meet, in part, its ongoing liquidity needs. As the Company has failed to pay cash dividends on the outstanding Series A Preferred Stock in full for more than four dividend periods, the annual dividend rate on the Series A Preferred Stock for the fifth and future missed dividend periods has increased to 12.875%, which is equivalent to$3.20 per share each year, commencing on the first day after the missed fourth quarterly payment (October 1, 2018 ) and continuing until the second consecutive dividend payment date following such time as the Company has paid all accumulated and unpaid dividends on the Series A Preferred Stock in full in cash.
Evaluation of the Company's Ability to Continue as a Going Concern
Under the accounting guidance related to the presentation of financial statements, the Company is required to evaluate, on a quarterly basis, whether or not the Company's current financial condition, including its sources of liquidity at the date that the consolidated financial statements are issued, will enable the Company to meet its obligations as they come due arising within one year of the date of the issuance of the Company's consolidated financial statements and to make a determination as to whether or not it is probable, under the application of this accounting guidance, that the Company will be able to continue as a going concern. The Company's consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In applying applicable accounting guidance, management considered the Company's current financial condition and liquidity sources, including current funds available, forecasted future cash flows, the Company's obligations due over the next twelve months, and the Company's recurring business operating expenses.
The Company concludes that it is probable that the Company will be able to meet its obligations arising within one year of the date of issuance of these consolidated financial statements within the parameters set forth in the accounting guidance.
42
--------------------------------------------------------------------------------For additional information regarding the Company's liquidity, see Note 2 - Liquidity and Note 8 - Notes Payable and other debt, to the Company's consolidated financial statements located in Part I, Item 1, Notes to Consolidated Financial Statements", of this Quarterly Report.
Cash Flows
The following table presents selected data from our consolidated statements of cash flows for the periods presented:
Nine Months Ended September 30,
(Amounts in 000's) 2021 2020Net cash provided by operating activities - continuing operations
$ 4,307 $ 1,933 Net cash used in operating activities - discontinued operations
(195 ) (1,017 )
Net cash used in investing activities - continuing operations
(119 ) (209 )
Net cash used in financing activities - continuing operations
(1,859 ) (999 )
Net change in cash and restricted cash 2,134 (292 )
Cash and restricted cash at beginning of period 7,492 8,038
Cash and restricted cash, ending $ 9,626 $ 7,746
Nine Months Ended
Net cash provided by operating activities-continuing operations for the nine months endedSeptember 30, 2021 was approximately$4.3 million , primarily due to changes in working capital, consisting of our collection of rent arrears from the Wellington Lease Termination and income from operations less noncash charges (primarily, depreciation and amortization and lease revenue in excess of cash rent received). The$2.4 million increase compared to the same period in the prior year includes$1.0 million Medicaid overpayment that the Company expects to repay shortly and reflects the collection of$3.3 million from theWellington Lease Termination (excluding$0.2 million insurance refund), offset by payment of$1.0 million of bed tax in arrears for the Powder Springs Facility,$0.1 million of other collection expenses, approximately$0.4 million additional interest payments as result of the CARES ACT interest deferrals and additional net operating outflows of$0.6 million . Net cash used in operating activities-discontinued operations for the nine months endedSeptember 30, 2021 was approximately$0.2 million , excluding non-cash proceeds and payments. This amount was to fund legal and associated settlement costs related to our legacy professional and general liability claims and expenses related to and payment of legacy accounts payable. Net cash used in investing activities-continuing operations for the nine months endedSeptember 30, 2021 was approximately$0.1 million . This capital expenditure was for computer hardware, software and furniture and fixtures for the Tara Facility. Net cash used in financing activities-continuing operations was approximately$1.9 million for the nine months endedSeptember 30, 2021 . This is the result of routine repayments totaling$1.0 million towards our senior debt obligations,$0.1 million repayment of theCity of Springfield, Ohio First Mortgage Revenue Series 2012 B Bonds, and approximately$0.8 million toward our current insurance funding of other debt for the Tara Facility and our directors and officers insurance.
Nine Months Ended
Net cash provided by operating activities-continuing operations for the nine months endedSeptember 30, 2020 was approximately$1.9 million , consisting primarily of our income from operations less changes in working capital, and noncash charges (primarily, depreciation and amortization, and lease revenue in excess of cash rent). The Company received approximately a$0.4 million principal payment from Peach upon modification of the Peach Line,$0.5 million from rent arrears payment plans, and$0.2 million PPP loan proceeds, in addition to net operating inflows of approximately$0.8 million . Net cash used in operating activities-discontinued operations for the nine months endedSeptember 30, 2020 was approximately$1.0 million , excluding non-cash proceeds and payments. This amount was to fund legal and associated settlement costs related to our legacy professional and general liability claims and payment of legacy accounts payable.
Net cash used in investing activities-continuing operations for the nine months
ended
Net cash used in financing activities-continuing operations was approximately$1.0 million for the nine months endedSeptember 30, 2020 . This is the result of routine repayments totaling approximately$1.2 million towards our debt obligations, partially offset by receipt of$0.2 million proceeds from the PPP Loan. 43
--------------------------------------------------------------------------------
Notes Payable and Other Debt
For information regarding the Company's debt financings, see Note 8 - Notes Payable and Other Debt, to the Company's Notes to our consolidated financial statements located in Part I, Item 1, "Financial Statements (unaudited)", of this Quarterly Report and Note 8 - Notes Payable and Other Debt to our audited consolidated financial statements included in Part II, Item 8., "Financial Statements and Supplementary Data" in the Annual Report.
Receivables
Our operations could be adversely affected if we experience further significant delays in receipt of rental income from our tenants.
As ofSeptember 30, 2021 andDecember 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 atSeptember 30, 2021 and$2.1 million atDecember 31, 2020 . For information regarding the Company's Receivables, see Note 1 - Organization and Significant Accounting Policies, to the Company's Notes to our consolidated financial statements located in Part I, Item 1, "Financial Statements (unaudited)", of this Quarterly Report. Operating Leases For information regarding the Company's operating leases, see Note 6 - Leases, to the Company's Notes to consolidated financial statements located in Part I, Item 1, "Financial Statements (unaudited)", of this Quarterly Report, and Note 6 - Leases located in Part II, Item 8, "Financial Statements and Supplementary Data", included in the Annual Report.
Off-Balance Sheet Arrangements
Guarantee OnNovember 30, 2018 , the Company subleased five facilities located inOhio to the Aspire Sublessees, formerly affiliated withMSTC Development Inc. , pursuant to the Aspire Subleases, whereby the Aspire Sublessees took possession of, and commenced operating, the Aspire Facilities as subtenant. The Aspire Subleases became effective onDecember 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 atSeptember 30, 2021 . For further information see Note 6 - Leases, to the Company's Notes to consolidated financial statements located in Part I, Item 1, "Financial Statements (unaudited)", of this Quarterly Report, and Note 6 - Leases located in Part II, Item 8, "Financial Statements and Supplementary Data", included in the Annual Report. 44
--------------------------------------------------------------------------------
© Edgar Online, source
