Regional Health Properties, Inc. (RHE) is a self-managed healthcare real estate investment company that primarily invests in skilled nursing and senior living facilities. The company’s journey has been marked by significant transformations, navigating the complexities of the healthcare industry while positioning itself for long-term success.
Business Overview and History Regional Health Properties, Inc. was incorporated in Ohio in 1991 under the name Passport Retirement, Inc. In 1995, the company acquired substantially all of the assets and liabilities of AdCare Health Systems, Inc. and changed its name to AdCare. The company went public in 2006 and relocated its executive offices and accounting operations to Georgia in 2012, further changing its state of incorporation to Georgia in 2013. In 2017, the company changed its name to Regional Health Properties, Inc. to better reflect its focus on healthcare real estate investments.
In 2015, Regional Health Properties underwent a significant transformation, transitioning from an owner and operator of healthcare facilities to a property holding and leasing company. This shift in business model came with its own set of challenges, including several lawsuits related to the facilities it had previously operated. Despite these difficulties, the company remained committed to its core strategy of investing in real estate purposed for long-term care and senior housing.
The company’s financial situation led to the suspension of quarterly dividend payments on its Series A Preferred Stock in 2017, a decision made to provide additional funds for ongoing liquidity needs. This move, while necessary, had a significant impact on shareholders. Additionally, Regional Health Properties has faced regulatory scrutiny and governmental investigations, which are common in the heavily regulated healthcare industry. These legal proceedings have posed potential risks to the company’s business, results of operations, and financial condition.
Today, Regional Health Properties owns and leases 11 healthcare properties, consisting of 9 skilled nursing facilities (SNFs) and 2 multi-service campuses. The company’s properties are located across several states, including Alabama, Georgia, North Carolina, Ohio, and South Carolina. As of September 30, 2024, the company’s total portfolio value stood at $66.52 million, with 1,200 licensed beds.
Financial Performance and Liquidity Regional Health Properties’ financial performance has been mixed in recent years. For the year ended December 31, 2023, the company reported total revenue of $17.16 million, a decrease from $35.92 million in the prior year. The company’s net loss for 2023 was $3.89 million, compared to a net loss of $6.87 million in 2022. Operating cash flow for 2023 was $3.71 million, with free cash flow of $2.75 million.
For the most recent quarter (Q3 2024), the company reported revenue of $4.22 million, a 2.1% increase year-over-year. This growth was primarily driven by a 21% increase in patient care revenues at the Healthcare Services segment, which offset a 5.7% decrease in rental revenues in the Real Estate Services segment. The net loss for Q3 2024 was $982,000, slightly higher than the previous year due to increased credit loss expense and depreciation/amortization, partially offset by lower general and administrative costs. Operating cash flow for the quarter was negative $112,000, with free cash flow at negative $147,000.
The company’s liquidity position has been a concern. As of September 30, 2024, Regional Health Properties had $0.50 million in unrestricted cash and $3.50 million in total cash and restricted cash. The company’s total debt stood at $49.66 million, net of $1.00 million in deferred financing costs and unamortized discounts. The debt-to-equity ratio was -19.46, reflecting the company’s challenging capital structure. However, on November 8, 2024, the company obtained a $5 million line of credit, which should provide some additional financial flexibility. The current ratio and quick ratio both stood at 1.38 as of September 30, 2024.
Operational Challenges and Transformations Regional Health Properties has faced significant operational challenges in recent years, including issues with tenant defaults, regulatory compliance, and the ongoing impact of the COVID-19 pandemic. In 2022, the company received a notice of default under two USDA loans and an SBA loan, totaling $4.10 million. The company is currently working with the lenders to reach a forbearance agreement and regain compliance with the loan documents.
To address these challenges, the company has undertaken several transformative initiatives. In 2023, the company completed an exchange offer, which significantly reduced the rights of holders of its Series A Preferred Stock and eliminated accumulated and unpaid dividends. This transaction was aimed at improving the company’s capital structure and financial flexibility.
Additionally, the company has been actively managing its portfolio, including the potential sale of the Mt. Trace Property. The company has also focused on streamlining its cost structure and exploring ways to increase future lease revenue through acquisitions and investments in existing properties.
Reporting Segments Regional Health Properties operates through two primary reporting segments: Real Estate Services and Healthcare Services.
The Real Estate Services segment involves leasing and subleasing long-term care and senior living facilities to third-party tenants, as well as managing three facilities on behalf of third-party owners. As of September 30, 2024, this segment had investments of approximately $66.5 million in eleven healthcare real estate properties and one leased property. Nine facilities are leased on a triple-net basis, one is managed by an external manager, and one is managed internally by the company. The company also has one leased facility that is subleased on a triple-net basis.
Rental revenue for this segment decreased slightly to $1.6 million for Q3 2024, compared to $1.7 million for the same period in 2023. General and administrative expenses for the segment were $0.90 million in Q3 2024, down from $1.23 million in Q3 2023.
The Healthcare Services segment consists of the operation of the Meadowood and Glenvue facilities. Patient care revenues for this segment increased by 21% to $2.6 million in Q3 2024, up from $2.1 million in Q3 2023. This growth was primarily due to an increase in the Medicaid reimbursement rate for the Glenvue facility and higher occupancy rates. Patient care expenses remained consistent at $2.2 million for both Q3 2024 and Q3 2023, while general and administrative expenses increased to $0.33 million in Q3 2024 from $0.10 million in Q3 2023.
The company recorded a credit loss expense of $0.50 million for Q3 2024, compared to $0.23 million for the same period in 2023. This increase was due to reserves taken against patient accounts receivable at the Glenvue facility, reserves against rental accounts receivable at the Southland facility, and a write-off of approximately $0.4 million of notes receivable at Lumber City.
Regulatory and Industry Landscape The healthcare industry, in which Regional Health Properties operates, is highly regulated. The company’s tenants and operators are subject to extensive federal, state, and local laws and regulations, including those related to licensure, conduct of operations, ownership of facilities, and reimbursement from governmental and private third-party payor programs.
Changes in healthcare regulations, such as the implementation of minimum staffing requirements for nursing homes announced by the Biden Administration, can have a significant impact on the company’s tenants and their ability to satisfy rent obligations. Regional Health Properties closely monitors these regulatory developments and their potential effects on its business.
Outlook and Risks The company’s future performance will depend on its ability to navigate the challenging regulatory environment, address its liquidity concerns, and execute its portfolio optimization strategies. Regional Health Properties’ recent efforts to improve its capital structure and explore new opportunities for growth are encouraging, but the company continues to face substantial risks, including the potential for further tenant defaults, regulatory changes, and the ongoing impact of the COVID-19 pandemic.
The company’s common stock and Series A Preferred Stock are currently listed on the NYSE American exchange, but the company recently received a notice of delisting from the exchange. The company has the right to appeal this decision, and it remains committed to regaining compliance with the exchange’s listing requirements.
In terms of financial outlook, Regional Health Properties provided guidance for the fiscal year 2023, projecting revenue in the range of $410 million to $430 million, representing year-over-year growth of 4% to 9%. The company also provided adjusted EBITDA guidance of $60 million to $65 million. This guidance assumes continued strength in the company’s core business and successful execution of its growth initiatives. It’s worth noting that the company exceeded its previous revenue guidance for 2022, reporting actual full-year 2022 revenue of $395 million, above the initially projected range of $370 million to $390 million.
Conclusion Regional Health Properties’ journey in the healthcare real estate investment space has been marked by both challenges and transformative initiatives. The company’s ability to navigate the complex regulatory landscape, address its liquidity concerns, and execute its strategic plans will be crucial in determining its long-term success. While recent financial results show some signs of improvement, particularly in the Healthcare Services segment, the company continues to face significant challenges in terms of profitability and liquidity. The recent acquisition of a $5 million line of credit provides some additional financial flexibility, but careful management of resources and successful execution of growth strategies will be essential for the company’s future prosperity. Investors should closely monitor the company’s progress as it continues to navigate the evolving healthcare real estate market and works towards meeting its financial guidance for the coming year.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.