Executive Summary / Key Takeaways

• Strategic Pivot to Owner-Operator Model: Selectis Health, Inc. (GBCS) has fundamentally transformed from a healthcare REIT to an owner-operator of senior housing and skilled nursing facilities, aiming for greater control and value creation in its South and Southeastern U.S. portfolio.
• Persistent Financial Strain and Going Concern Doubt: Despite recent healthcare revenue growth driven by Medicaid rate increases, the company reported a net loss of approximately $1.0 million and a negative net working capital of $17.2 million for the first half of 2025, raising substantial doubt about its ability to continue as a going concern.
• Operational Strengths vs. Financial Weaknesses: GBCS's direct operational model offers a competitive edge in responsiveness and customized service, but its smaller scale and higher operational costs contribute to significantly weaker profitability and a highly leveraged balance sheet compared to larger, more diversified healthcare REITs.
• Critical Liquidity and Debt Management: The company faces immediate challenges with debt covenant non-compliance and the recent termination of a $27 million asset sale, necessitating successful refinancing, expense control, and new capital injections to stabilize its financial position.
• Industry Headwinds and Internal Control Gaps: GBCS operates within an industry facing inflationary pressures, increased litigation, and regulatory scrutiny, compounded by identified material weaknesses in its internal financial controls that require urgent remediation.

Setting the Stage: Selectis Health's Evolving Mandate in Healthcare Real Estate

Selectis Health, Inc. (GBCS) is a company undergoing a profound transformation, shifting its core identity from a traditional healthcare real estate investment trust (REIT) to an owner-operator of vital healthcare facilities. This strategic pivot, initiated in 2019 and solidified by its 2021 rebranding, positions GBCS as a direct provider of senior housing, independent living, and skilled nursing services across the South and Southeastern United States. The company's journey began far afield, as Global Casinos, Inc., before its 2013 divestiture of gaming operations and subsequent entry into healthcare real estate as Global Healthcare REIT. This history underscores a willingness to adapt, a trait now critical as GBCS seeks to carve out a sustainable niche in a competitive and capital-intensive sector.

The broader healthcare real estate market is characterized by an aging demographic, driving demand for the services GBCS provides. However, this demand is met with significant operational complexities, including fluctuating Medicaid reimbursement rates, rising labor costs, and increasing regulatory oversight. GBCS's strategy of direct ownership and operation aims to capture more of the value chain, offering greater control over facility management and patient care quality. This approach contrasts sharply with the traditional REIT model of leasing properties to third-party operators, which often provides more stable, albeit lower, returns.

The Operational Edge: Selectis's Differentiated Approach

Selectis Health's primary differentiator lies not in a proprietary technology, as might be found in a biotech or software firm, but in its hands-on, owner-operator business model. The company does not detail specific technological differentiators or R&D initiatives for GBCS, its strategic intent is to leverage direct operational control as its competitive moat. This model allows GBCS to directly manage and optimize the performance of its Assisted Living, Independent Living, and Skilled Nursing Facilities.

The tangible benefits of this direct operational model include enhanced responsiveness to market demands and patient needs, potentially leading to improved occupancy rates and service quality. By directly managing facilities, GBCS aims for greater efficiency in asset utilization and the ability to implement customized services that foster stronger customer loyalty. This approach could provide a notable advantage in markets where rapid adaptation to changing healthcare regulations or local demographics is crucial. For instance, direct management can allow for quicker adjustments to staffing levels or service offerings, potentially leading to improved patient outcomes and, consequently, higher Medicaid reimbursement rates, as recently observed. This operational agility is a strategic counterpoint to the more hands-off, lease-dependent models of many larger healthcare REITs, which can be slower to react to operational challenges or opportunities within their tenant base.

Financial Performance: A Period of Transition and Challenge

Selectis Health's recent financial performance reflects the complexities of its strategic transition and the challenging macroeconomic environment. For the three months ended June 30, 2025, the company reported total revenue of $10.44 million, an increase from $9.58 million in the prior-year quarter. This growth was entirely driven by healthcare revenue, which rose 11% to $10.44 million, primarily due to "increase in Medicaid rates at our Georgia and Oklahoma facilities." Conversely, rental revenue, once a component of its business, ceased entirely after June 2024 due to the sale of its Archway Property.

Looking at the first six months of 2025, total revenue increased to $20.93 million from $19.08 million in the same period of 2024, representing a 10% increase. Healthcare revenue grew 12% to $20.93 million, again attributed to higher Medicaid rates. Operating expenses, however, presented a mixed picture. Property taxes, insurance, and other operating costs increased by 10% for the quarter and 9% for the six-month period, reaching $8.16 million and $16.24 million, respectively, as a result of inflation. General and administrative expenses saw a modest decrease of 8% for the quarter due to lower professional service fees but a slight increase of 0.3% for the six months due to higher payroll costs. Depreciation expense decreased by 11% and 13% for the respective periods, reflecting fully depreciated assets and the impact of the Goodwill Hunting property sale in June 2024.

The company's bottom line remains under pressure. Selectis Health reported a net loss of $308,027 for the three months ended June 30, 2025, and a net loss of $963,996 for the six months ended June 30, 2025. This compares to a net income of $794,344 and a net loss of $240,376 for the respective prior-year periods, which included a significant $2.11 million gain on the sale of the Goodwill Hunting property in 2024. A positive note was the recognition of $326,500 in income from employee retention credits in both periods of 2025. Interest expense, net, decreased significantly by 61% and 37% for the three and six months, respectively, primarily due to the repayment of the Archway Property mortgage.

Despite these efforts, the company's liquidity position is precarious. As of June 30, 2025, GBCS had cash of $559,983 and restricted cash of $771,940, earmarked for capital expenditures. Critically, the company reported a negative net working capital of approximately $17.2 million for the six months ended June 30, 2025. This, coupled with its history of losses, led management to acknowledge "substantial doubt... about the Company's ability to continue as a going concern." Furthermore, GBCS was not in compliance with two loan covenants as of June 30, 2025, and December 31, 2024, leading to the reclassification of these amounts to current maturities of long-term debt.

Competitive Landscape: A Niche Player Among Giants

Selectis Health operates in a highly competitive healthcare real estate and operations market, dominated by much larger, more diversified players. Its direct ownership and operational model, while offering unique advantages, also positions it against formidable healthcare REITs like Welltower Inc. (WELL), Ventas Inc. (VTR), Healthpeak Properties Inc. (PEAK), and Sabra Health Care REIT Inc. (SBRA).

Comparing GBCS's financial health to these industry giants reveals a significant disparity. Selectis Health's latest TTM Gross Profit Margin stands at 23.38%, Operating Profit Margin at -5.18%, and Net Profit Margin at -7.61%. In stark contrast, Welltower boasts a TTM Gross Profit Margin of 38% and an Operating Profit Margin of 15%, while Ventas shows 43% and 14% respectively. Healthpeak and Sabra exhibit even stronger profitability, with Gross Profit Margins of 60% and 68%, and Operating Profit Margins of 17% and 37%, respectively. This highlights GBCS's challenge in achieving scale-driven cost efficiencies and robust profitability inherent in its current operational structure.

GBCS's Debt/Equity Ratio of -4.94 (due to negative equity) underscores a highly leveraged balance sheet, a stark contrast to Welltower's 0.52, Ventas's 1.28, Healthpeak's 1.07, and Sabra's 0.89. This financial leverage limits GBCS's flexibility for future investments and capital raises, a critical disadvantage against competitors with stronger balance sheets and lower costs of capital.

While GBCS's direct operational control offers a competitive advantage in responsiveness and customized service, it lags in overall financial health and scale. Larger competitors benefit from diversified portfolios, established operator relationships, and greater access to capital markets, enabling more robust expansion and resilience against market fluctuations. GBCS's niche focus on direct operations in specific regions allows for deeper market penetration and regulatory expertise in those areas, potentially leading to stronger customer loyalty and better asset utilization. However, this comes with higher operational costs and greater exposure to localized risks compared to the diversified, leasing-centric models of its larger rivals. Indirect competitors, such as general commercial REITs or even infrastructure providers like MYR Group Inc. (MYRG) investor.myrgroup.com (whose services could enable more efficient, technologically advanced facilities for rivals), also pose a threat by potentially driving down operational costs for competitors and making their properties more attractive.

Outlook, Risks, and the Path Forward

The path forward for Selectis Health is fraught with both opportunity and significant challenges. Management's plan to address the going concern doubt hinges on increasing revenue through higher occupancy and improved Medicaid reimbursement rates, controlling operating expenses, and securing additional capital via debt, equity, or asset sales. The recent 11-12% healthcare revenue growth, driven by Medicaid rate increases, offers a glimpse of potential, but it is insufficient to offset the current losses and working capital deficit.

A major setback was the termination of the Purchase and Sale Agreements (PSAs) for four Georgia skilled nursing facilities, which would have brought in an aggregate of $27 million. This failed divestiture underscores the difficulty in executing asset sales to bolster liquidity. The company is also actively negotiating refinancing for two Georgia mortgages and extending a commercial line of credit, crucial steps given its debt covenant non-compliance and the 13% interest rate on its senior secured notes extended to December 31, 2025.

Key risks include the inherent uncertainty of management's liquidity actions, the potential for increased litigation in the senior care industry, and the adequacy of its insurance coverage. Regulatory compliance in Medicare and Medicaid programs also presents an ongoing risk of fines or exclusions. Furthermore, management has identified material weaknesses in its internal controls, including inadequate IT controls, lack of segregation of duties, and insufficient review processes. While plans are in place to implement multi-level reviews in 2025, these control deficiencies pose a significant operational and financial risk. The recently enacted One Big Beautiful Bill Act (OBBBA) is expected to have an immaterial impact, but the broader industry trends of inflation and increased governmental scrutiny will continue to pressure operating costs and compliance efforts.

Conclusion

Selectis Health, Inc. stands at a critical juncture, having strategically pivoted to an owner-operator model in the dynamic healthcare real estate sector. This operational gambit, while offering the promise of greater control and value capture through direct management, has yet to translate into sustainable profitability or financial stability. The company's recent healthcare revenue growth is a positive signal, but it is overshadowed by persistent net losses, a significant working capital deficiency, and substantial doubt about its ability to continue as a going concern.

The investment thesis for GBCS hinges on management's ability to execute its turnaround plan, particularly in securing necessary capital, successfully refinancing its debt, and remediating its internal control weaknesses. In a competitive landscape dominated by larger, financially stronger REITs, Selectis Health's operational agility and niche focus are its primary strengths. However, these must be leveraged effectively to overcome its current financial headwinds and establish a clear path to profitability, making it a high-stakes proposition for discerning investors.