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Dynamic quotes 
OFFON

REGIONAL HEALTH PROPERTIES, INC.

(RHE)
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REGIONAL HEALTH PROPERTIES : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/14/2021 | 04:13pm EDT

Forward Looking Statements


This Quarterly Report and certain information incorporated herein by reference
contain forward-looking statements and information within the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). This information includes
assumptions made by, and information currently available to management,
including statements regarding future economic performance and financial
condition, liquidity and capital resources, and management's plans and
objectives. In addition, certain statements included in this Quarterly Report,
in the Company's future filings with the SEC, in press releases, and in oral and
written statements made by us or with our approval, which are not statements of
historical fact, are forward-looking statements. Words such as "may," "could,"
"should," "would," "believe," "expect," "anticipate," "estimate," "intend,"
"seek," "plan," "project," "continue," "predict," "will," and other words or
expressions of similar meaning are intended by us to identify forward-looking
statements, although not all forward-looking statements contain these
identifying words. Forward-looking statements are based on the Company's current
expectations about future events or results and information that is currently
available to us, involve assumptions, risks, and uncertainties, and speak only
as of the date on which such statements are made.

All forward-looking statements are subject to the risks and uncertainties
inherent in predicting the future. The Company's actual results may differ
materially from those projected, stated or implied in these forward-looking
statements as a result of many factors, including the Company's critical
accounting policies and risks and uncertainties related to, but not limited to,
the operating results of the Company's tenants, the overall industry
environment, the Company's financial condition, and the impact of the COVID-19
pandemic on the Company's business. These and other risks and uncertainties are
described in more detail in the Annual Report and in Part II, Item 1A of this
Quarterly Report, as well as other reports that the Company files with the SEC.

Forward-looking statements speak only as of the date they are made and should
not be relied upon as representing the Company's views as of any subsequent
date. The Company undertakes no obligation to update or revise such statements
to reflect new circumstances or unanticipated events as they occur, except as
required by applicable laws, and you are urged to review and consider
disclosures that the Company makes in this Quarterly Report and other reports
that the Company files with the SEC that discuss factors germane to the
Company's business.

Overview


Regional Health, through its subsidiaries, is a self-managed real estate
investment company that invests primarily in real estate purposed for long-term
care and senior living. Our business primarily consists of leasing and
subleasing healthcare facilities to third-party tenants. As of 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, Real Estate Services and Healthcare Services.

Effective January 1, 2021, pursuant to the Wellington Lease Termination for two
skilled nursing facilities located in Georgia with affiliates of Wellington, the
Company as a portfolio stabilization measure commenced operating the previously
subleased Tara Facility and entered into a new sublease agreement with an
affiliate of Empire for the Powder Springs Facility. The Company has entered
into the Vero Management Agreement with 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,
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.

Risks and Uncertainties


While the Company is a self-managed real estate investment company that invests
primarily in real estate purposed for long-term care and senior living, the
Company, when business conditions require, may undertake portfolio stabilization
measures, such as operating a previously leased facility. On January 1, 2021,
following the Wellington Transition, the Company

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commenced operating the Tara Facility, which facility comprises approximately
5.0% of the total amount of the Company's licensed patient beds. This portfolio
stabilization measure exposes the Company directly to all the risks our tenants
face as discussed in this "Risk and Uncertainties" section.

On March 11, 2020, the World Health Organization declared the outbreak of the
respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, also
known as COVID-19, a global pandemic. The COVID-19 pandemic has led governments
and other authorities in the United States to impose measures intended to
control its spread, including restrictions on freedom of movement and business
operations such as travel bans, border closings, business closures, quarantines
and shelter-in-place orders. The COVID-19 pandemic and the measures to protect
its spread have adversely affected our business during the 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
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 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 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 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 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

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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. 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.

Portfolio

The following table provides summary information regarding the number of facilities and related licensed beds/units as of March 31, 2021:



                                                                                                                                              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 March
31 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; Part II, Item 8,

"Financial Statements and Supplementary Data", Note 6 - Leases included in

the Annual Report; and "Portfolio of Healthcare Investments" included in Part

    I, Item 1, "Business" included in the Annual Report.


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(2) Effective January 1, the Company entered into the PS Sublease with an

affiliate of Empire for the Powder Springs Facility. See Note 6 - Leases to

our consolidated financial statements in Part I, Item 1, "Financial

Statements (unaudited)" in this Quarterly Report.

(3) Effective January 1, 2021, Regional began operating the Tara Facility and

entered into the Vero Management Agreement with Vero Health under which Vero

    Health provides management consulting services for the Tara Facility.




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
                           June 30,       September 30,       December 31,       March 31,
   Operating Metric (1)      2020             2020                2020             2021
   Occupancy (%)                75.1 %              73.2 %             67.3 %          68.6 %



(1) Excludes three managed facilities in Ohio.




Lease Expiration

The following table provides summary information regarding our lease expirations for the years shown as of March 31, 2021:




                                       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 months ended March 31, 2021 or March 31, 2020.

For historical information regarding the Company's acquisitions and divestitures, see Part II, Item 8, "Financial Statements and Supplementary Data", Note 9 - Acquisitions and Dispositions and Note 10 - Discontinued Operations 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.

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Results of Operations


The following table sets forth, for the periods indicated, 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 March 31,
                                                                                   Percent
(Amounts in 000's)                                2021              2020          Change (*)
Revenues:
Patient care revenues                          $     2,690       $         -               NM
Rental revenues                                      4,081             4,297             (5.0 )%
Management fees                                        248               244              1.6 %
Other revenues                                          62                 7               NM
Total revenues                                       7,081             4,548             55.7 %
Expenses:
Patient care expense                                 2,203                 -               NM
Facility rent expense                                1,640             1,640              0.0 %
Cost of management fees                                165               151              9.3 %
Depreciation and amortization                          650               776            (16.2 )%
General and administrative expenses                  1,036               877             18.1 %
Doubtful accounts expense (recovery)                    40                (2 )             NM
Other operating expenses                               232               224              3.6 %
Total expenses                                       5,966             3,666             62.7 %
Income from operations                               1,115               882             26.4 %
Other expense :
Interest expense, net                                  687               715             (3.9 )%
Other expense, net                                     394               144            173.6 %
Total other expense, net                             1,081               859             25.8 %
Income from continuing operations before
income taxes                                            34                23             47.8 %
Income from continuing operations                       34                23             47.8 %
Loss from discontinued operations, net of
tax                                                    (13 )             (37 )          (64.9 )%
Net Income (loss)                              $        21       $       (14 )             NM




* Not meaningful ("NM").



Three Months Ended March 31, 2021 and 2020


Patient care revenues-Patient care revenues for our new Healthcare Services
segment, as a result of the Company operating the Tara Facility as a portfolio
stabilization measure, were $2.7 million for the three months ended March 31,
2021, which is consistent with prior year financials we received from the prior
Wellington affiliated operator.

Rental revenues-Rental revenue for our Real Estate Services segment, decreased
by approximately $0.2 million, or 5.0%, to $4.1 million for the three months
ended March 31, 2021, compared with $4.3 million for the same period in 2020.
The decrease reflects approximately $0.9 million decrease in straight-line rent
due to the Wellington Lease Termination, $0.5 million and $0.4 million
recognized for the three months ended March 31, 2020 for the Powder Springs
Facility and the Tara Facility respectively, partially off-set by $0.3 million
straight-line rent and $0.4 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 increased by
approximately $0.1 million, for the three months ended March 31, 2021, compared
to the same period in 2020. This increase 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 $2.2 million for the three months
ended March 31, 2021. The current year expense is due to the costs of operating
the Tara Facility in our new Healthcare Services reporting segment.

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Depreciation and amortization-Depreciation and amortization for our Real Estate
Services segment decreased by approximately $0.1 million, or 16.2%, to $0.7
million for the three months ended March 31, 2021, compared with $0.8 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.

                                                  Three Months Ended March 31,
                                                                            Percent
    (Amounts in 000's)                        2021             2020       Change (*)
    General and administrative expenses:
    Real Estate Services (a)               $       899       $    877             2.5 %
    Healthcare Services                            137              -              NM
    Total                                  $     1,036       $    877            18.1 %




* Not meaningful ("NM").


General and administrative expenses- General and administrative expenses
increased by approximately $0.1 million to $1.0 million for the three months
ended March 31, 2021, compared with $0.9 million for the same period in 2020.
The increase is driven by 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.

Other expense, net- Other expense, net increased by approximately $0.3 million,
or 173.6%, to $0.4 million, for the three months ended March 31, 2021, compared
with $0.1 million for the same period in 2020. 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 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.

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 of $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 of 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 to
the Company's consolidated financial statements located in Part I, Item 1, Notes
to Consolidated Financial Statements", of this Quarterly Report.

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

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debt (including $0.4 million related to insurance financing for the Tara Facility operations), and a $0.1 million payment of bond debt.


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 CARES Act enacted by Congress in response to the
COVID-19 pandemic which allowed for, among other things: (i) a deferral of debt
service payments on USDA loans to maturity, (ii) an allowance for debt service
payments to be made out of replacement reserve accounts for HUD loans and (iii)
debt service payments to be made by the SBA on all SBA loans.

In early 2020, the Company began on-going efforts to investigate alternatives to
retire or refinance our outstanding debt of Series A Preferred Stock through
privately negotiated transactions, open market repurchases, redemptions,
exchange offers, tender offers, or otherwise.  Costs associated with these
efforts have been expensed as incurred in "Other expense, net" and were $0.4
million and $0.1 million for the three month ended March 31, 2021 and March 31,
2020, respectively.

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.

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.


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.

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.

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Cash Flows

The following table presents selected data from our consolidated statements of cash flows for the periods presented:



                                                            Three Months Ended March 31,
(Amounts in 000's)                                            2021                2020

Net cash provided by operating activities - continuing operations

                                                $       2,408     

$ 270 Net cash used in operating activities - discontinued operations

                                                          (58 )              (405 )

Net cash used in investing activities - continuing operations

                                                          (33 )              (157 )

Net cash used in financing activities - continuing operations

                                                         (622 )              (436 )
Net change in cash and restricted cash                            1,695                (728 )
Cash and restricted cash at beginning of period                   7,492     

8,038

Cash and restricted cash, ending                          $       9,187       $       7,310



Three Months Ended March 31, 2021


Net cash provided by operating activities-continuing operations for the three
months ended March 31, 2021 was approximately $2.4 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 $2.1 million increase compared to the same period in the
prior year primarily reflects the collection of $3.1 from the Wellington Lease
Termination, off-set by payment of $1.0 bed tax arrears for the Powder Springs
Facility.

Net cash used in operating activities-discontinued operations for the three
months ended March 31, 2021 was approximately $0.1 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 three months
ended March 31, 2021 was approximately $0.03 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
$0.6 million for the three months ended March 31, 2021. This is the result of
routine repayments of approximately $0.3 million towards our senior debt
obligations and $0.3 million toward our current insurance funding of other debt
for the Tara Facility.

Three Months Ended March 31, 2020




Net cash provided by operating activities-continuing operations for the three
months ended March 31, 2020 was approximately $0.3 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 received).



Net cash used in operating activities-discontinued operations for the three
months ended March 31, 2020 was approximately $0.4 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.



Net cash used in investing activities-continuing operations for the three months
ended March 31, 2020 was approximately $0.2 million. This capital expenditure
was for a new sprinkler system at the Powder Springs Facility.



Net cash used in financing activities-continuing operations was approximately
$0.4 million for the three months ended March 31, 2020. This is the result of
routine repayments of approximately $0.4 million of our debt obligations.

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.

                                       35

--------------------------------------------------------------------------------

Receivables


Our operations could be adversely affected if we experience further significant delays in receipt of rental income from our tenants.


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. For information regarding the Company's
Receivables, see Note 1 - Organization and Significant Accounting Policies, to
the Company's Notes to our consolidated financial statements located in Part I,
Item 1, "Financial Statements (unaudited)", of this Quarterly Report



Operating Leases



For information regarding the Company's operating leases, see Note 6 - Leases,
to the Company's Notes to consolidated financial statements located in Part I,
Item 1, "Financial Statements (unaudited)", of this Quarterly Report, and Note 6
- Leases located in Part II, Item 8, "Financial Statements and Supplementary
Data", included in the Annual Report.



Off-Balance Sheet Arrangements



Guarantee



On November 30, 2018, the Company subleased five facilities located in Ohio to
the Aspire Sublessees, formerly affiliated with MSTC Development Inc., pursuant
to the Aspire Subleases, whereby the Aspire Sublessees took possession of, and
commenced operating, the Aspire Facilities as subtenant. The Aspire Subleases
became effective on December 1, 2018 and are structured as triple net leases.
The Company agreed to indemnify Aspire against any and all liabilities imposed
on them as arising from the former operator, capped at $8.0 million. The Company
has assessed the fair value of the indemnity agreements as not material to the
financial statements at March 31, 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.

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