Regional Health Properties(RHE) - 2020 Q3 - Quarterly Report

Part I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Presents Regional Health Properties, Inc.'s unaudited consolidated financial statements for Q3 and nine months ended September 30, 2020, with comparative 2019 data Consolidated Balance Sheets Total assets were $110.3 million as of September 30, 2020, a slight decrease from year-end 2019, with liabilities decreasing and equity increasing Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $110,332 | $113,758 | | Cash | $4,646 | $4,383 | | Property and equipment, net | $53,097 | $54,672 | | Total Liabilities | $98,227 | $102,015 | | Senior debt, net | $47,550 | $48,415 | | Operating lease obligation | $36,771 | $39,262 | | Total Stockholders' Equity | $12,105 | $11,743 | Consolidated Statements of Operations The company reported a net loss of $73 thousand in Q3 2020, a significant shift from prior-year net income, primarily due to asset disposal gains Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $4,767 | $4,830 | $13,854 | $15,555 | | Income from Operations | $630 | $1,292 | $2,593 | $4,263 | | Net (Loss) Income | $(73) | $5,811 | $325 | $4,752 | | Net (Loss) Income per Share (Basic & Diluted) | $(1.38) | $2.11 | $(3.81) | $(1.18) | Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $12.1 million as of September 30, 2020, primarily due to net income and stock-based compensation - Total stockholders' equity rose to $12.1 million at September 30, 2020, from $11.7 million at December 31, 2019. The increase was mainly due to net income recorded during the period[12] Consolidated Statements of Cash Flows Net cash provided by operating activities was $0.9 million for the nine months ended September 30, 2020, leading to a $0.3 million net decrease in cash Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $916 | $1,185 | | Net cash (used in) provided by investing activities | $(209) | $3,636 | | Net cash used in financing activities | $(999) | $(4,217) | | Net change in cash and restricted cash | $(292) | $604 | Notes to Consolidated Financial Statements The notes detail the company's real estate investment business, COVID-19 impact on tenant operations and rent, $54.8 million debt, and $25.6 million in preferred stock dividend arrears - The company is a self-managed real estate investment company investing in long-term care and senior living properties. As of September 30, 2020, it owned, leased, or managed 24 facilities, primarily in the Southeast U.S., which are leased to third-party operators on a triple-net basis[17][18][19] - The COVID-19 pandemic has adversely affected tenant operations, leading to increased costs and declining occupancy. The company received approximately 83% of its expected monthly rental receipts for the nine months ended September 30, 2020[23][24][29] - As of September 30, 2020, the company had $54.8 million in net indebtedness and was in compliance with all debt covenants. The company also received a $228.7 thousand PPP loan[52][94][101] - Quarterly dividends on Series A Preferred Stock have been suspended since Q4 2017, resulting in $25.6 million of undeclared dividends in arrears as of September 30, 2020. The dividend rate has increased to 12.875% due to the non-payment[51][114][115] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting COVID-19's adverse impact on tenant operations and occupancy, declining rental revenue, and sufficient liquidity despite rent arrears - The COVID-19 pandemic has materially impacted the business, with most facilities reporting positive cases, leading to increased operator costs and declining occupancy. The company received about 83% of expected rent for the nine months ended Sep 30, 2020[143][144][149] Portfolio Occupancy Rate Trend | Period Ending | Occupancy (%) | | :--- | :--- | | Dec 31, 2019 | 76.5% | | Mar 31, 2020 | 76.3% | | Jun 30, 2020 | 75.1% | | Sep 30, 2020 | 73.2% | Comparison of Results (in thousands) | Metric | Q3 2020 | Q3 2019 | Change | | :--- | :--- | :--- | :--- | | Rental Revenues | $4,308 | $4,590 | -6.1% | | Interest Expense, net | $692 | $1,157 | -40.2% | | Gain on disposal of assets | $0 | $(6,451) | -100.0% | - The company believes its liquidity, including $4.6 million in unrestricted cash and positive operating cash flow, is sufficient to meet obligations for the next year and continue as a going concern[184][188][189] - As of September 30, 2020, one operator accounted for $1.1 million in rent arrears. The company has recorded an allowance of $0.9 million against a total receivable of $2.0 million from this operator[202] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Regional Health Properties, Inc. is not required to provide the information requested under this item - Disclosure under this item is not required as the company qualifies as a smaller reporting company[206] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of September 30, 2020 - Based on an evaluation as of September 30, 2020, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[208] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[209] Part II. OTHER INFORMATION Item 1. Legal Proceedings The company is a defendant in 12 professional and general liability actions, including a new wrongful death lawsuit, with indemnification for most and a $0.2 million self-insurance reserve - As of the filing date, the company is a defendant in one professional liability action from its time as an operator and 11 additional actions related to its current or prior tenants, for which it is indemnified[213][214] - A new wrongful death lawsuit was filed on July 27, 2020, against the company and affiliates of its tenant, Peach Health. The company is indemnified in this action[215] - The self-insurance reserve for professional and general liability claims was $0.2 million as of September 30, 2020[215] Item 1A. Risk Factors This section highlights key risks, including COVID-19's adverse effects on tenant operations and rent, $54.8 million substantial indebtedness, and significant revenue concentration from key operators - The COVID-19 pandemic poses a significant risk, potentially causing decreased occupancy, increased tenant operating costs, and an inability for tenants to meet rental obligations[218][219] - The company's substantial indebtedness of approximately $54.8 million as of September 30, 2020, may increase its vulnerability to adverse economic conditions and limit financial flexibility[226] - A significant portion of revenue is derived from tenants affiliated with three main operators: C.R Management (6 facilities), Wellington (2 facilities), and Aspire (5 facilities), creating a concentration risk[228] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None[229] Item 3. Defaults upon Senior Securities The company is in default on its Series A Preferred Stock due to suspended dividend payments since Q4 2017, resulting in $25.6 million in arrears and a 12.875% penalty rate - The company has suspended dividend payments on its Series A Preferred Stock since Q4 2017, resulting in $25.6 million of undeclared dividends in arrears[230] - Due to the missed payments, the annual dividend rate on the Series A Preferred Stock has increased to 12.875%[230] Item 4. Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[231] Item 5. Other Information There is no other information to report for this period - None[232] Item 6. Exhibits This section lists all exhibits filed with the quarterly report, including new agreements with Peach Health and required CEO/CFO certifications - The exhibit index lists corporate governance documents, stock plans, and various agreements[238] - New exhibits filed with this report include agreements with Peach Health entities (10.5, 10.6), a consulting agreement (10.7), and CEO/CFO certifications (31.1, 31.2, 32.1, 32.2)[239]