Regional Health Properties(RHE) - 2022 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION This section provides the company's financial statements, management's analysis of financial condition and operations, market risk disclosures, and internal controls for the first quarter of 2022 Financial Statements The company experienced a net loss of $2.9 million in Q1 2022, a decline in total assets, and negative operating cash flow, primarily due to increased doubtful accounts expense Consolidated Balance Sheets Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $102,556 | $105,696 | | Total Liabilities | $95,022 | $95,300 | | Total Stockholders' Equity | $7,534 | $10,396 | Consolidated Statements of Operations Consolidated Statements of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Total Revenues | $6,648 | $7,081 | | Total Expenses | $7,987 | $5,966 | | Net (Loss) Income | $(2,927) | $21 | | Net Loss per Share (Basic and Diluted) | $(2.89) | $(1.32) | - The significant increase in total expenses was primarily driven by a $1.76 million doubtful accounts expense in Q1 2022, compared to only $40,000 in Q1 2021[13] Consolidated Statements of Stockholders' Equity - Total stockholders' equity decreased from $10.4 million at the end of 2021 to $7.5 million at the end of Q1 2022, primarily due to the net loss of $2.9 million for the quarter[15] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net Cash (Used) Provided by Operating Activities | $(1,579) | $2,350 | | Net Cash Used in Investing Activities | $(80) | $(33) | | Net Cash Used in Financing Activities | $(673) | $(622) | | Net Change in Cash and Restricted Cash | $(2,332) | $1,695 | Notes to Consolidated Financial Statements - The company is a self-managed real estate investment company focused on long-term care and senior living facilities. It undertakes portfolio stabilization measures, such as directly operating facilities when business conditions require[20][22] - The COVID-19 pandemic has adversely affected the business, with tenants experiencing increased costs, declining occupancy, and reduced ability to make rental payments. For Q1 2022, the company received only 64% of its anticipated fixed monthly rental receipts[29][30][35] - As of March 31, 2022, the company has $39.1 million of undeclared Series A Preferred Stock dividends in arrears due to an indefinite suspension of payments since Q4 2017. The dividend rate on this stock has increased to 12.875% as a result[68][136] - The company has two reporting segments: Real Estate Services, which generated a loss from operations of $0.8 million, and Healthcare Services (operation of the Tara Facility), which generated a loss of $0.5 million in Q1 2022[160][163] - Subsequent to the quarter end, in April and May 2022, the company became the licensed operator for three additional facilities (Meadowood, Lumber City, and LaGrange) and entered into management agreements with third parties to operate them[166][167][168] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the adverse impact of COVID-19 on tenant rent payments, leading to a 14.1% decrease in patient care revenues and a significant increase in doubtful accounts expense, challenging the company's liquidity Results of Operations Results of Operations Comparison (in thousands) | Line Item | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $6,648 | $7,081 | (6.1)% | | Patient Care Revenues | $2,311 | $2,690 | (14.1)% | | Doubtful Accounts Expense | $1,761 | $40 | NM | | Total Expenses | $7,987 | $5,966 | 15.4% | | Net (Loss) Income | $(2,927) | $21 | NM | - The 14.1% decrease in patient care revenues was primarily due to lower occupancy at the company-operated Tara Facility[209] - Doubtful accounts expense surged to $1.8 million due to provisions for non-payment of rent from tenant operators and impairment of straight-line rent associated with lease terminations[217] Liquidity and Capital Resources - As of March 31, 2022, the company had $4.5 million in unrestricted cash, which includes a $1.5 million Medicaid overpayment expected to be repaid[221] - Cash flow from operations was negative $1.6 million for Q1 2022, primarily due to unpaid rent payments from tenants[222] - Total indebtedness was $52.9 million as of March 31, 2022, with anticipated principal repayments of approximately $2.3 million over the next twelve months[225] - The company has $39.1 million in undeclared preferred stock dividends in arrears as of March 31, 2022, due to the ongoing suspension of Series A Preferred Stock dividends[231] Quantitative and Qualitative Disclosures About Market Risk The company, as a smaller reporting company, is not required to provide disclosure for this item - Disclosure under this item is not required as the company qualifies as a smaller reporting company[244] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of March 31, 2022, due to a material weakness in internal controls stemming from insufficient corporate accounting resources - Management concluded that the company's disclosure controls and procedures are not effective as of the end of the reporting period[246] - A material weakness exists in internal controls over financial reporting due to a lack of necessary corporate accounting resources resulting from recent departures of accounting and financial reporting personnel[247] Part II. OTHER INFORMATION This section details legal proceedings, key risk factors, defaults on senior securities, and other significant corporate information Legal Proceedings The company is involved in various legal proceedings, including liability claims and a fair labor standards action, with a $0.1 million self-insurance reserve recorded - The company is involved in various legal proceedings, including professional/general liability claims and a fair labor standards action[250][253] - A new negligence action was filed on February 8, 2022, related to an alleged assault at a facility operated by a tenant, Symmetry Healthcare. The company is indemnified by the tenant[252] - As of March 31, 2022, the company maintained a self-insurance reserve of $0.1 million for professional and general liability claims, included in Accrued expenses[255] Risk Factors Key risks include the adverse impact of the COVID-19 pandemic on tenant rent payments, substantial indebtedness of $52.8 million, and significant revenue concentration from key tenant affiliates - The COVID-19 pandemic continues to pose a significant risk, adversely affecting tenants' operations through decreased occupancy and increased costs, which may impact their ability to pay rent[258][259] - The company has substantial indebtedness of approximately $52.8 million, which could increase vulnerability to adverse economic conditions and limit financial flexibility[268] - A significant portion of revenues is dependent on tenants affiliated with C.R. Management (6 facilities) and Aspire (5 facilities), creating a tenant concentration risk[270] 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 $39.1 million in arrears and an increased dividend rate - The company has suspended dividend payments on its Series A Preferred Stock since Q4 2017, resulting in $39.1 million of undeclared dividends in arrears[272] - As a result of the missed payments, the annual dividend rate on the Series A Preferred Stock has increased to 12.875%[272] Other Information Paul O'Sullivan was appointed as the company's principal financial officer and principal accounting officer, effective May 26, 2022 - Effective May 26, 2022, Paul O'Sullivan was appointed as the company's principal financial officer and principal accounting officer[274]