Part I Business Regional Health Properties, Inc. is a self-managed REIT focused on long-term care and senior living facilities, operating through Real Estate Services and a new Healthcare Services segment, significantly impacted by COVID-19 and government regulations - The company operates through two primary segments: Real Estate Services (leasing to third-party tenants) and Healthcare Services (direct operation of facilities, initiated January 1, 2021, for portfolio stabilization)13354 Portfolio Summary as of December 31, 2021 | Category | Facilities | Beds/Units | | :--- | :--- | :--- | | Total Portfolio | 24 | 2,587 | | By Ownership | | | | Owned | 12 | 1,272 | | Leased | 8 | 849 | | Leased Operating | 1 | 134 | | Managed for Third-Parties | 3 | 332 | | By Facility Type | | | | Skilled Nursing | 21 | 2,248 | | Assisted Living | 2 | 256 | | Independent Living | 1 | 83 | - The business strategy emphasizes current portfolio investment, new skilled nursing facility acquisitions, capital provision to underserved operators, and resolution of legacy liability claims434448 - The COVID-19 pandemic has adversely impacted the company and its tenants, causing increased operating costs, declining occupancy, and potential disruptions from staffing shortages818283 - A significant portion of tenant revenue relies on government reimbursement programs like Medicare and Medicaid, subjecting the company and tenants to extensive regulations and compliance costs585989 Risk Factors The company faces significant business, capital structure, and market risks, including tenant dependence, COVID-19 impacts, substantial debt, and preferred stock dividend arrearages - Portfolio stabilization measures, such as directly operating the Tara Facility, expose the company to tenant-like operational and financial risks, including earnings volatility103 - Revenue concentration with C.R. Management and Aspire-affiliated tenants poses a material risk if these operators fail to meet lease obligations107 - The COVID-19 pandemic presents significant risks, including reduced occupancy, increased tenant operating costs, rent deferrals, and potential negative impacts on property values105106 - The company carries substantial indebtedness of approximately $52.9 million as of December 31, 2021, increasing vulnerability and limiting operational flexibility150 - Suspension of Series A Preferred Stock dividends in 2017 resulted in $36.9 million of accumulated unpaid dividends by December 31, 2021, restricting common stock dividends and equity capital raising152159169 Unresolved Staff Comments This section is not applicable as the company qualifies as a smaller reporting company - Disclosure under Item 1B is not required for smaller reporting companies186 Properties As of December 31, 2021, the company's portfolio comprised 24 facilities, primarily SNFs, with declining occupancy rates throughout 2021 and a significant portion of lease revenue expiring in 2027 Portfolio Occupancy Rate Trend (2021) | Quarter Ended | Occupancy (%) | | :--- | :--- | | March 31, 2021 | 68.6% | | June 30, 2021 | 67.7% | | September 30, 2021 | 66.7% | | December 31, 2021 | 65.1% | Lease Expiration Schedule by Annual Lease Revenue | Year | Number of Facilities | Annual Lease Revenue ($'000s) | Percent of Total (%) | | :--- | :--- | :--- | :--- | | 2022 | 1 | — | 0.0% | | 2023 | 1 | 263 | 1.9% | | 2024 | 1 | 965 | 7.1% | | 2025 | 2 | 2,219 | 16.2% | | 2027 | 7 | 5,241 | 38.3% | | Thereafter | 8 | 5,004 | 36.5% | - The Meadowood facility lease terminates on April 1, 2022, requiring the company to secure a new tenant, operate the facility, or close it by June 1, 2022188194 Legal Proceedings The company is a defendant in various legal actions, primarily professional and general liability claims from past SNF operations, with unpredictable outcomes that could materially affect financial condition - The company is involved in various legal proceedings, including claims of patient injury or death from services provided during its SNF operations196 - The company intends to vigorously defend most claims, but acknowledges unpredictable outcomes could materially impact its financial condition197 Mine Safety Disclosures This section is not applicable to the company - Not applicable199 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE American under "RHE", with Series A Preferred Stock dividends suspended since Q4 2017, leading to a 12.875% dividend rate and no common stock dividends until arrearages are cleared - The company's common stock is listed on the NYSE American under the symbol "RHE"202 - Series A Preferred Stock dividend payments have been suspended since Q4 2017, preventing common stock dividends until all accumulated preferred dividends are settled205 - Failure to pay dividends for over four consecutive periods increased the Series A Preferred Stock annual dividend rate to 12.875%, effective October 1, 2018205 - No open-market repurchases of common or preferred stock occurred during the three months ended December 31, 2021206 [Reserved] This section is not applicable - Not applicable206 Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal year 2021 saw total revenues increase by 51.8% to $26.7 million due to the new Healthcare Services segment, but net loss widened to $1.2 million, with liquidity challenges from $52.9 million in debt and $36.9 million in preferred dividend arrearages Consolidated Statements of Operations Summary (in thousands) | Line Item | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total revenues | $26,690 | $17,579 | 51.8% | | Patient care revenues, net | $9,485 | $— | NM | | Rental revenues | $16,093 | $16,325 | (1.4)% | | Total expenses | $24,112 | $15,285 | 57.7% | | Patient care expense | $9,243 | $— | NM | | General and administrative | $3,904 | $3,373 | 15.7% | | Income from operations | $2,578 | $2,294 | 12.4% | | Net loss | ($1,182) | ($688) | 71.8% | - The significant increase in total revenue and expenses in 2021 is primarily attributable to the new Healthcare Services segment, initiated by taking over Tara Facility operations on January 1, 2021250253 - As of December 31, 2021, total indebtedness was $52.9 million, with anticipated net principal repayments of approximately $1.9 million in the next twelve months268 - Undeclared preferred stock dividends in arrears totaled approximately $36.9 million as of December 31, 2021, providing liquidity but increasing the dividend rate to 12.875% due to suspension since Q4 2017267 - Net cash provided by continuing operations increased to $5.2 million in 2021 from $2.5 million in 2020, partly due to a $1.5 million Medicaid overpayment expected to be repaid284285 Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company qualifies as a smaller reporting company - Disclosure under Item 7A is not required for smaller reporting companies324 Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2021 and 2020, with Cherry Bekaert LLP issuing an unqualified opinion, highlighting COVID-19 impacts and patient care revenue recognition as critical matters - The independent auditor, Cherry Bekaert LLP, issued an unqualified (clean) opinion on the consolidated financial statements330 - The auditor's report includes an "Emphasis of Matter" paragraph detailing the ongoing adverse effects of the COVID-19 pandemic on company operations334 - A "Critical Audit Matter" was identified regarding patient care revenue recognition due to significant management judgment in estimating variable consideration, including implicit price concessions from payors335336 Consolidated Balance Sheet Summary (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $105,696 | $108,025 | | Property and equipment, net | $50,127 | $52,533 | | Right-of-use operating lease assets | $29,909 | $33,740 | | Cash and restricted cash | $9,848 | $7,492 | | Total Liabilities | $95,300 | $96,921 | | Senior debt, net | $46,043 | $47,275 | | Operating lease obligation | $32,059 | $35,884 | | Total Stockholders' Equity | $10,396 | $11,104 | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure were reported - None reported575 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes in Q4 2021 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021577 - Based on the COSO framework, management concluded that the company maintained effective internal control over financial reporting as of December 31, 2021579 - No material changes were made to the company's internal control over financial reporting during the fourth quarter of 2021582 Other Information No other information is reported - None583 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section is not applicable to the company - Not applicable584 Part III Directors, Executive Officers and Corporate Governance The company's executive team includes CEO Brent Morrison and CFO Benjamin A. Waites, with a five-member Board of Directors, three of whom are independent and form the Audit Committee, including the designated financial expert - The executive officers are Brent Morrison (CEO & President) and Benjamin A. Waites (CFO & Vice President)590 - The Board has determined that directors Michael J. Fox, Kenneth W. Taylor, and David A. Tenwick are independent644 - The Audit Committee comprises three independent directors, with Kenneth W. Taylor designated as the "audit committee financial expert"602 - The company has adopted a Code of Business Conduct and Ethics applicable to all directors, officers, and employees605 Executive Compensation In fiscal year 2021, CEO Brent Morrison received $507,440 and CFO Benjamin A. Waites received $531,440 in total compensation, with a significant portion from restricted stock awards and non-employee directors receiving $24,000 in cash 2021 Summary Compensation Table | Name and Principal Position | Salary ($) | Bonus ($) | Stock Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Brent Morrison (CEO) | 200,000 | — | 307,440 | 507,440 | | Benjamin A. Waites (CFO) | 175,000 | 49,000 | 307,440 | 531,440 | - On July 1, 2021, CEO Brent Morrison entered a three-year employment agreement with an annual base salary of $220,000 and eligibility for an annual bonus up to 125% of his base salary614 - Both the CEO and CFO received restricted stock grants of 24,000 shares each on July 1, 2021, vesting in one-third increments on January 1 of 2022, 2023, and 2024615621 - Non-employee director compensation for the year ended December 31, 2021, was $24,000 in cash, plus $1,000 for each in-person meeting attended627628 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of February 18, 2022, directors and executive officers collectively owned 12.8% of outstanding common stock, with 163,000 securities remaining for future issuance under the 2020 Equity Incentive Plan - As of February 18, 2022, all directors and executive officers as a group beneficially owned 233,522 shares, representing 12.8% of the outstanding common stock635 Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 13,406 | $47.53 | 163,000 | | Not approved by security holders | 42,969 | $52.71 | N/A | Certain Relationships and Related Transactions, and Director Independence The Board has determined that three of its five directors are independent under NYSE American standards, and the company requires independent director approval for all related party transactions - The Board has affirmatively determined that directors Michael Fox, David Tenwick, and Kenneth Taylor are independent644 - The company consistently requires independent directors to approve any related party transactions643 Principal Accountant Fees and Services Cherry Bekaert, LLP served as the independent registered public accounting firm, billing $212,000 in total fees for fiscal year 2021, a decrease from 2020, with all services pre-approved by the Audit Committee Accountant Fees (in thousands) | Fee Type | 2021 | 2020 | | :--- | :--- | :--- | | Audit fees | $207 | $236 | | Audit-related fees | $5 | $— | | Tax fees | $— | $— | | All other fees | $— | $— | | Total fees | $212 | $236 | - All audit and non-audit services provided by the independent registered public accounting firm were pre-approved by the Audit Committee650 Part IV Exhibits and Financial Statement Schedules This section provides a list of financial statements from Item 8 and an index of all exhibits, including governance documents, material contracts, and certifications, with financial statement schedules omitted - This section contains a list of the financial statements filed with the report and an index of all exhibits, such as material contracts and governance documents652653
Regional Health Properties(RHE) - 2021 Q4 - Annual Report