With 25 lawsuits settled, Regional Health Properties looks to focus on growing

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With 25 lawsuits settled, Regional Health Properties looks to focus on growing
With 25 lawsuits settled, Regional Health Properties looks to focus on growing

Now that Regional Health Properties has settled 25 professional and general liability lawsuits, the company can focus more on growing, Interim CEO Brent Morrison said Monday during a fourth-quarter and full-year 2017 earnings call.

The call had been postponed from its originally planned date of March 29 after leaders of the self-managed healthcare real estate investment company said they needed “additional time to re-evaluate the company's non-cash reserve balances.”

“Resolution of open professional and general liability action against the company has taken an inordinate and disproportionate amount of management time away from the core business,” Morrison said. Twelve lawsuits remain outstanding, however, he added, although that number is down from a total of 42 that the company had announced in November during its previous earnings call.

The legacy lawsuits involving residents stem from the company's time as an owner-operator, according to executives. Regional Health Properties, formerly known as AdCare Health Systems, now considers itself a property holding and leasing company.

The company refinanced mortgages on three facilities in February to free funds to settle the lawsuits and pay off maturing convertible debt, Morrison said. It also suspended quarterly dividends on the company's Series A preferred stock as of the fourth quarter, which the CEO said will free up approximately $1.9 million per quarter.

“Systematically addressing our cash position, debt maturities and legal liabilities clears the way for management and our operations team to focus on facility improvements that we have identified with our operators,” he said.

That work has been made easier with the creation of an asset management group within the company that reports directly to Morrison, the CEO said.

“This group, which serves in a single point of contact for the operators, is working directly with the operating partners to identify and implement operational improvements for the mutual benefit of the company, the operators themselves and the patients and residents of the facilities,” Morrison said. Many of the facilities in Regional's portfolio are 30 to 40 years old and need to be updated to compete with new facilities that are nearby, he added.

“Together, we have visited roughly 70% of our facilities that we operate,” Morrison said. “The initial visits with our operating partners has been encouraging, and the follow-on conversations regarding various projects has been promising.”

Ultimately, he said, “the vision for the company is to get scale” through mergers and acquisitions. Regional Health Properties “lost a lot of scale” when it sold nine skilled nursing facilities in Arkansas in 2016, Morrison said.

If the company isn't able to grow through mergers or acquisitions, he said, “Maybe we need to sell a facility to raise cash, but that's not optimal because that's going the wrong way. ...But you can't merge or you can't sell or you can't do anything strategic when you've got these PL/GL lawsuits with a question mark as far as value over your head. No one wants to touch you.”

Financial results

Total revenues in the fourth quarter of 2017 were $6.4 million, up 6.2% from $6 million in the fourth quarter of 2016, Interim Chief Financial Officer Clinton Cain reported. Total revenues for 2017 decreased by 8.9% to $25.1 million from $27.6 million for 2016, he said.

The company currently owns, leases or manages for third parties 30 independent living, assisted living and skilled nursing facilities. Occupancy and skilled mix for the company's portfolio were 80% and 26.3%, respectively, for the fourth quarter, company executives said, compared with 82.6% and 23.1%, respectively, for the fourth quarter of 2016.

New director

Regional Health Properties also announced that Kenneth Taylor joined the company as a director effective Feb. 1.

“Since 2013, Kenneth served as the chief operations officer and CFO for Cellairis, a leading supplier of mobile device accessories and repair services through 500 domestic and international franchisee-operated, company-leased stores,” Morrison said. “Kenneth's experience working with franchisees is similar to Regional's working with our operating partners.”

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