Regional Health Properties Receives Audit Opinion with Going Concern Explanation and Reports Fourth Quarter and Full-Year 2018 Financial Results
ATLANTA, May 16, 2019 /PRNewswire/ -- Regional Health Properties, Inc. (NYSE American: RHE) (NYSE American: RHEpA), a self-managed healthcare real estate investment company that invests primarily in real estate purposed for senior living and long-term care, today filed its Annual Report on Form 10-K with the Securities and Exchange Commission for the year ended December 31, 2018. The audited financial statements for the year ended December 31, 2018 included in the Annual Report on Form 10-K contained an audit opinion from its independent registered public accounting firm, which included a going concern emphasis of matter paragraph.
This announcement is made pursuant to NYSE American Company Guide Section 610(b), which requires separate public announcement of the receipt of an audit opinion containing a going concern paragraph. This announcement does not represent any change or amendment to the Company's audited consolidated financial statements for the year ended December 31, 2018 or to its Annual Report on Form 10-K for the year ended December 31, 2018.
2018 Business Update
- Executed a Purchase and Sale Agreement to Sell One Facility Located in Georgia, One Facility Located in Alabama, and Two Facilities Located in Oklahoma for a Total of $28.5 Million
- Transferred Operations at Five Facilities Located in Ohio to New Operating Partner, Aspire Regional Partners
- Transferred Operations at One Facility Located in North Carolina to New Operating Partner, Vero Health Care
- Terminated Lease on Two Facilities Located in Georgia for a Termination Fee of $1.2 million
"The Company continues to streamline its processes and procedures along with making significant progress in improving its operator portfolio performance and asset management functions," stated Brent Morrison, Regional's Chief Executive Officer. "We recently added a new operator to our portfolio in Ohio as well as adding another new operator to our portfolio in North Carolina and have already observed quick turnarounds in those regions and expect further improvements to come. We also terminated a lease on two facilities in Georgia and collected a $1.2 million termination fee as well as executed a separate purchase and sale agreement to sell four facilities located in Georgia, Alabama, and Oklahoma. Successful completion of these transactions as well as continued efforts to improve our operator portfolio performance is expected to significantly improve the Company's overall financial position going forward."
The consummation of the sale of the four facilities located in Georgia, Alabama, and Oklahoma is subject to satisfactory due diligence by the purchaser and customary termination rights and closing conditions.
Management periodically monitors a number of facility performance metrics, including rent coverages both before and after management fees. In the fourth quarter of 2018, the Company's portfolio rent coverage before management fees was 1.45x (as compared with 1.25x in the fourth quarter of 2017) and rent coverage after management fees was 1.25x (as compared with 0.85x in the fourth quarter of 2017). Occupancy and skilled mix for the Company's portfolio were 83.0% and 29.6% for the fourth quarter of 2018, respectively, compared to 85.8% and 25.8% for the fourth quarter of 2017, respectively. These data remove the impact of five facilities located in Ohio where operations were recently transitioned to Aspire Regional Partners, one facility located in North Carolina where operations were recently transitioned to Vero Health Care, and three facilities located in Georgia where operations were recently transitioned to Peach Healthcare.
Summary of Financial Results for the Three and 12 Months Ended December 31, 2018
Total revenues in the fourth quarter of 2018 decreased 13.7% to $5.5 million, from $6.4 million in the fourth quarter of 2017. Total revenues for the 12 months ended December 31, 2018, decreased by 12.3% to $22.0 million from $25.1 million for the 12 months ended December 31, 2017. The decrease is a result of the effects of the operator changes in Ohio and North Carolina. The Company generally recognizes all rental revenues on a straight-line rent accrual basis.
General and administrative costs increased 11.2%, to $941,000 for the three months ended December 31, 2018, compared with $846,000 for the same period in 2017. General and administrative costs for the 12 months ended December 31, 2018 decreased by 4.2%, to $3.7 million, compared with $3.9 million for the same period in 2017. For the 12 months ended December 31, 2018 and 2017, general and administrative costs include $0.2 million and $0.3 million, respectively, of stock-based compensation expense.
Interest expense increased by $288,000, or 27.5%, to $1.3 million for the fourth quarter of 2018 compared with $1.0 million for the same period in 2017. Interest expense for the 12 months ended December 31, 2018, increased by $1.8 million, or 44.8%, to $5.9 million compared to $4.1 million for the same period in 2017. The increase is mainly due to one-time charges to deferred financing costs associated with loan refinancing during the year as well as additional ongoing interest expense incurred, offset by a one-time deferred financing cost gain for refunds received in the fourth quarter 2018.
Income from discontinued operations, net of tax, for the fourth quarter of 2018 was $316,000 compared to income from discontinued operations, net of tax, of $370,000 for the prior year period. For the full year 2018, income from discontinued operations, net of tax, was $74,000 compared to a loss from discontinued operations of $1.7 million for the prior year period. The reduction of loss from discontinued operations from 2017 to 2018 was primarily due to a reduction to the Company's accrual on professional and general liability claims as well as various other bad debt items pertaining to legacy patient care operations.
Net loss attributable to Regional Health Properties, Inc.'s common stockholders in the fourth quarter of 2018 was $3.9 million, or $2.31 per basic and diluted share, compared with a net loss of $1.2 million, or $0.73 per basic and diluted share, for the fourth quarter of 2017. For the 12 months ended December 31, 2018, the net loss attributable to Regional Health Properties, Inc.'s common stockholders was $19.9 million, or $11.86 per basic and diluted share, compared with a net loss of $8.6 million, or $5.20 per basic and diluted share, in the prior year period.
Cash at December 31, 2018, totaled $2.4 million compared with $1.8 million at December 31, 2017. Restricted cash at December 31, 2018, totaled $4.1 million compared to $3.5 million at December 31, 2017. Total debt outstanding at December 31, 2018 totaled $81.3 million compared with $73.1 million at December 31, 2017 (net of $1.5 million and $2.0 million of deferred financing costs at December 31, 2018 and December 31, 2017, respectively). The increase in debt during the year was due to additional financing.
About Regional Health Properties
Regional Health Properties, Inc. (NYSE American: RHE) (NYSE American: RHEpA) is the successor to AdCare Health Systems, Inc., and is a self-managed healthcare real estate investment company that invests primarily in real estate purposed for senior living and long-term healthcare through facility lease and sub-lease transactions.
Regional currently owns, leases or manages for third parties 28 facilities (16 of which are owned by Regional, nine of which are leased by Regional and three of which are managed by Regional for third parties). Of the 16 facilities owned by Regional, four are held for sale subject to the purchase and sale agreement discussed above and previously disclosed by Regional in its Current Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2019. Assuming the consummation of the sale of the four facilities contemplated by such purchase and sale agreement, 24 facilities would be owned, leased or managed for third parties by Regional.
For more information, visit www.regionalhealthproperties.com.
Important Cautions Regarding Forward-Looking Statements
This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Words such as "expects," "intends," "believes," "anticipates," "plans," "likely," "will," "seeks," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. Statements in this press release regarding future events and developments and our future performance, as well as management's expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements. Forward-looking statements in this press release include, among others, statements regarding our ability to consummate the sale of the four facilities pursuant to the terms contemplated by the purchase and sale agreement, to improve our operator portfolio performance and asset management functions, and to otherwise improve our liquidity and overall financial position going forward.
Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those projected or contemplated by our forward-looking statements due to various factors, including, among others: our dependence on the operating success of our operators; the significant amount of, and our ability to service, our indebtedness; covenants in our debt agreements that may restrict our ability to make investments, incur additional indebtedness and refinance indebtedness on favorable terms; the availability and cost of capital; our ability to raise capital through equity and debt financings or through the sale of assets; the effect of increasing healthcare regulation and enforcement on our operators and the dependence of our operators on reimbursement from governmental and other third-party payors; the relatively illiquid nature of real estate investments; the impact of litigation and rising insurance costs on the business of our operators; the impact on us of litigation relating to our prior operation of our healthcare properties; the effect of our operators declaring bankruptcy, becoming insolvent or failing to pay rent as due; the ability of any of our operators in bankruptcy to reject unexpired lease obligations and to impede our ability to collect unpaid rent or interest during the pendency of a bankruptcy proceeding and retain security deposits for the debtor's obligations; our ability to find replacement operators and the impact of unforeseen costs in acquiring new properties; and other factors discussed from time to time in our news releases, public statements and documents filed by us with the Securities and Exchange Commission from time to time, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this press release, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by applicable law.
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES | ||
CONSOLIDATED BALANCE SHEETS | ||
(Amounts in 000's) | ||
December 31, | ||
ASSETS | 2018 | 2017 |
(Amounts in 000's) | ||
Current assets: | ||
Cash | $ 2,407 | $ 1,818 |
Restricted cash | 1,411 | 960 |
Accounts receivable, net of allowance of $1,356 and $2,570 | 971 | 945 |
Prepaid expenses and other | 472 | 304 |
Notes receivable | 610 | 677 |
Assets of disposal group held for sale | 2,204 | - |
Total current assets | 8,075 | 4,704 |
Restricted cash | 2,668 | 2,581 |
Property and equipment, net | 77,237 | 81,213 |
Intangible assets - bed licenses | 2,471 | 2,471 |
Intangible assets - lease rights, net | 906 | 2,187 |
Goodwill | 2,105 | 2,105 |
Lease deposits and other deposits | 402 | 808 |
Straight-line rent receivable | 6,301 | 6,400 |
Notes receivable | 331 | 3,540 |
Other assets | 74 | 542 |
Total assets | $100,570 | $106,551 |
LIABILITIES AND EQUITY (DEFICIT) | ||
Current liabilities: | ||
Current portion of notes payable and other debt | $ 26,397 | $ 6,621 |
Current portion of convertible debt, net | - | 1,469 |
Accounts payable | 4,361 | 4,386 |
Accrued expenses and other | 4,461 | 7,022 |
Liabilities of disposal group held for sale | 1,491 | - |
Total current liabilities | 36,710 | 19,498 |
Notes payable and other debt, net of current portion: | ||
Senior debt, net | 48,317 | 57,801 |
Bonds, net | 6,599 | 6,567 |
Other debt, net | - | 644 |
Other liabilities | 2,793 | 4,133 |
Deferred tax liability | - | 38 |
Total liabilities | 94,419 | 88,681 |
Stockholders' equity: | ||
Common stock and additional paid-in capital, no par value; 55,000 shares authorized; 1,688 and 1,647 shares issued and outstanding at December 31, 2018 and 2017, respectively | 61,900 | 61,724 |
Preferred stock, no par value; 5,000 shares authorized; 2,812 and 2,812 shares issued and outstanding, redemption amount $70,288 and $70,288 at December 31, 2018 and 2017, respectively |
62,423 |
62,423 |
Accumulated deficit | (118,172) | (106,277) |
Total stockholders' equity | 6,151 | 17,870 |
Total liabilities and stockholders' equity | $100,570 | $106,551 |
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES | ||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
(Amounts in 000's, except per share data) | ||||
(Three Months Ended Unaudited) | ||||
Three Months Ended December 31, | Twelve Months Ended December 31, | |||
(Amounts in 000's) | 2018 | 2017 | 2018 | 2017 |
Revenues: | ||||
Rental revenues | $ 5,196 | $ 5,987 | $ 20,902 | $ 23,690 |
Management fees | 246 | 242 | 949 | 930 |
Other revenues | 47 | 135 | 195 | 528 |
Total revenues | 5,489 | 6,364 | 22,046 | 25,148 |
Expenses: | ||||
Facility rent expense | 2,171 | 2,171 | 8,683 | 8,683 |
Cost of management fees | 190 | 135 | 638 | 634 |
Depreciation and amortization | 1,127 | 1,369 | 4,634 | 4,868 |
General and administrative expenses | 941 | 846 | 3,692 | 3,854 |
Provision for doubtful accounts | 198 | 431 | 4,132 | 886 |
Other operating expenses | 236 | 145 | 1,059 | 1,085 |
Total expenses | 4,863 | 5,097 | 22,838 | 20,010 |
Income (loss) from operations | 626 | 1,267 | (792) | 5,138 |
Other expense: | ||||
Interest expense, net | 1,334 | 1,046 | 5,929 | 4,095 |
Loss on extinguishment of debt | 1,279 | - | 5,234 | 63 |
Other expense | 42 | 86 | 52 | 474 |
Total other expense, net | 2,655 | 1,132 | 11,215 | 4,632 |
(Loss) income from continuing operations before income taxes | (2,029) | 135 | (12,007) | 506 |
Income tax benefit | (71) | (208) | (38) | (188) |
(Loss) income from continuing operations | (1,958) | 343 | (11,969) | 694 |
Income (loss) from discontinued operations, net of tax | 316 | 370 | 74 | (1,679) |
Net (loss) income | (1,642) | 713 | (11,895) | (985) |
Net (loss) income attributable to Regional Health Properties, Inc. | (1,642) | 713 | (11,895) | (985) |
Preferred stock dividends - declared | - | - | - | (5,702) |
Preferred stock dividends - undeclared | (2,249) | (1,912) | (7,985) | (1,912) |
Net loss attributable to Regional Health Properties, Inc. Common | ||||
Stockholders | $ (3,891) | $(1,199) | $ (19,880) | $ (8,599) |
Net loss per share of common stock attributable to | ||||
Regional Health Properties, Inc. | ||||
Basic and diluted: | ||||
Continuing operations, after current period undeclared dividend | $ (2.49) | $ (0.95) | $ (11.90) | $ (4.19) |
Discontinued operations | 0.19 | 0.22 | 0.04 | (1.01) |
$ (2.31) | $ (0.73) | $ (11.86) | $ (5.20) | |
Weighted average shares of common stock outstanding: | ||||
Basic and diluted | 1,688 | 1,650 | 1,676 | 1,653 |
Reclassifications were made to the consolidated statements of operations for the twelve months ended December 31, 2017 to conform the presentation of: (i) management fee revenues and its related expense, previously reported as general and administrative expense; and (ii) provision for doubtful accounts previously reported as other operating expenses. |
REGIONAL HEALTH PROPERTIES, INC. AND SUBSIDIARIES | ||||
SUPPLEMENTAL OPERATING METRICS (1) | ||||
Three Months Ended | Three Months Ended | Three Months Ended | Three Months Ended | |
Portfolio Operating Metrics (1) | March 31, 2018 | June 30, 2018 | September 30, 2018 | December 31, 2018 |
Occupancy (%) | 81.3% | 80.6% | 83.3% | 83.0% |
Quality Mix (2) | 27.4% | 24.2% | 23.9% | 29.6% |
Rent Coverage Before Management Fees | 1.47 | 1.24 | 1.30 | 1.45 |
Rent Coverage After Management Fees | 1.07 | 0.86 | 0.91 | 1.25 |
(1) | Excludes three Georgia facilities previously operated by affiliates of New Beginnings Care and currently operated by Peach Health Group, three managed facilities in Ohio, five buildings located in Ohio and transitioned on December 1, 2018, and the one facility located in North Carolina and transitioned on March 1, 2019. | |||
(2) | Quality Mix refers to all payor types less Medicaid. | |||
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